Overview

All references to "we," "us," or "our" refer to the consolidated businesses. For further information related to the Spin-off and Merger, refer to Note 1 to the condensed and consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.

Following the consummation of the Merger on December 30, 2005, we were comprised of the Newspaper Publishing and Wireless segments formerly owned and operated by Gray, as well as the Collegiate Marketing and Production Services segment and Association Management Services segment acquired in the Merger, both of which were operated by a wholly owned subsidiary, Host Communications, Inc., or Host.

We derive revenue from our Newspaper Publishing operations primarily from three sources: retail advertising, circulation and classified advertising.

Our Newspaper Publishing operations' advertising contracts are generally entered into annually and provide for a commitment as to the volume of advertising to be purchased by an advertiser during the year. Our Newspaper Publishing operations' advertising revenues are primarily generated from local advertising and are generally highest in the second and fourth calendar quarters of each year primarily due to the Easter, Thanksgiving and Christmas holidays.

We sold our Wireless business, operated as GrayLink, LLC, or GrayLink, on June 22, 2007. In addition, we sold Host and Pinnacle Sports Productions, LLC, or Pinnacle, on November 15, 2007 comprising our Collegiate Marketing and Production Services and Association Management Services businesses. Accordingly, we have reclassified the results of operations and financial position of these segments to discontinued operations in this Form 10-Q.

Industry-wide, newspaper subscriber circulation levels have been slowly declining. From March 31, 2007 to March 31, 2008, our aggregate daily circulation has declined approximately 3.5%.

Our Newspaper Publishing operations' primary operating expenses are employee compensation, related benefits and newsprint costs. Our Newspaper Publishing operations have experienced significant variability in its newsprint costs in recent years. Historically, for the newspaper publishing industry, the price of newsprint has been cyclical and volatile. The industry average price for the three and nine months ended March 31, 2008 was $620 and $588 per metric ton, respectively. Prices fluctuate based on factors that include both foreign and domestic production capacity and consumption. Price fluctuations can have a

significant effect on our results of operations. We seek to manage the effects of increases in prices of newsprint through a combination of technology improvements, page width and page count reductions, inventory management and advertising and circulation price increases. In addition, newspaper production costs are variable based on circulation and advertising volumes.

Revenues

Set forth below are the principal types of revenues derived by our operations
for the three and nine months ended March 31, 2007 and 2008 and the percentage
contribution of each to our total revenues (dollars in thousands):



                        Three Months Ended March 31,               Nine Months Ended March 31,
                          2007                 2008                 2007                 2008
                     Amount      %        Amount      %        Amount      %        Amount      %
   Publishing:
   Retail           $  5,771    51.4 %   $  5,670    52.1 %   $ 19,713    54.4 %   $ 19,081    54.0 %
   Classifieds         3,880    34.5 %      3,655    33.6 %     11,988    33.1 %     11,497    32.5 %
   Circulation         1,195    10.6 %      1,193    11.0 %      3,380     9.3 %      3,608    10.2 %
   Other                 390     3.5 %        374     3.3 %      1,155     3.2 %      1,147     3.3 %

   Total Revenues   $ 11,236   100.0 %   $ 10,892   100.0 %   $ 36,236   100.0 %   $ 35,333   100.0 %

Results of Operations

Three and Nine Months Ended March 31, 2008 compared to Three and Nine Months Ended March 31, 2007

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements for the three and nine months ended March 31, 2007 and 2008, which are contained herein.

Revenues. Total revenues for the three months ended March 31, 2008 decreased from approximately $11.2 million for the three months ended March 31, 2007 to approximately $10.9 million. For the nine months ended March 31, 2008, total revenues decreased to $35.3 million from $36.2 million for the nine months ended March 31, 2007. Decreases for both the three-and-nine month periods can be attributed to the following four areas of advertising. Retail spending has decreased and in certain cases eliminated by several major advertisers resulting in a decrease of 3% for the nine-month period ended March 31, 2008. The real estate and automotive sectors have significantly reduced their advertising spending (31% and 22%, respectively). Help wanted advertising has also decreased 18%. The decreases were partially offset by an increase in legal advertising (35%) due to the continued increase in home foreclosures. Such differences have been primarily attributable to the current nationwide economic conditions.

Operating expenses. Operating expenses for the three months ended March 31, 2008 increased from approximately $8.3 million for the three months ended March 31, 2007 to approximately $8.4 million. For the nine months ended March 31, 2008, operating expense decreased to approximately $25.4 million from $25.7 million for the nine months ended March 31, 2007.

Newsprint expenses decreased 13% to approximately $1.2 million for the three months ended March 31, 2008 and 20% to approximately $3.7 million for the nine months ended March 31, 2007. Total usage was approximately 2,282 and 2,099 metric tons for the three months ended March 31, 2007 and 2008, respectively, and 7,582 and 6,899 metric tons for the nine months ended March 31, 2007 and 2008, respectively. Our average cost of newsprint has declined from $607 per metric ton used during the three months ended March 31, 2007 to $577 per metric ton used during the three months ended March 31, 2008. The decrease in tonnage is primarily attributable to the decrease in advertising revenue.

Newspaper Publishing payroll expenses decreased 1% to approximately $11.4 million for the nine months ended March 31, 2008 compared to the comparable period in the prior year, primarily due to reduced compensation due to reduced personnel. Payroll expenses for the three months ended March 31, 2008 remained relatively stable.

Newspaper Publishing transportation service costs, which are primarily outsourced, increased 8% and 12% to approximately $1.3 million and $4.1 million in the three and nine months ended March 31, 2008, respectively, compared to approximately $1.2 million and $3.6 million for the three and nine months ended March 31, 2007, respectively. The increase is primarily due to a change in the circulation pay process at the Albany Herald. Prior to January 2007, Albany carriers purchased papers for delivery at a wholesale rate from the Herald, resulting in lower revenue and expense recognition. Subsequently, the paper now recognizes a retail rate in revenue and expense based on a rate per number of papers delivered. It also reflects general increases in fuel costs, which resulted in higher rates paid to independent contractors

Corporate and administrative expenses for the three months ended March 31, 2008 were approximately $0.6 million compared to $1.8 million for the comparable period last year. The reduction was primarily due to reduction in staffing and general corporate expenses in connection with the sale of Host. For the nine months ended March 31, 2008, corporate and administrative expenses were $3.1 million compared to expenses for the nine months ended March 31, 2007 of approximately $4.2 million. This decrease was due primarily to reduction in staffing and general corporate expenses in connection with the sale of Host.

Depreciation of property and equipment totaled approximately $0.3 million and $0.9 million for the three and nine months ended March 31, 2008, respectively, compared to approximately $0.1 million and $0.7 million for the three and nine months ended March 31, 2007, respectively.

Amortization expense in connection with definite-lived intangible assets was approximately $0.1 million and $0.5 million during the three and nine months ended March 31, 2008, respectively, and approximately $0.1 million and $0.5 million during the three and nine months ended March 31, 2007, respectively.

Interest expense. Interest expense for the three and nine months ended March 31, 2008 was approximately $2.5 million and $9.2 million, respectively. Interest expense incurred in connection with our Credit Facilities was approximately $3.4 million and $9.9 million for the three and nine months ended March 31, 2007, respectively. Interest expense related to our Series B preferred stock, a noncash expense, was approximately $0.1 million and $0.3 million for same periods, respectively.

Debt issue cost amortization. Amortization of costs incurred in connection with our Credit Facilities were approximately $0.4 million and $1.0 million for the three and nine months ended March 31, 2008, respectively, compared to $0.3 million and $0.9 million for the three and nine months ended March 31, 2007, respectively. Such costs are being amortized up to four years.

Income tax expense. For the three months ended March 31, 2008, income tax expense was $0.8 million and for the nine months ended March 31, 2008 income tax expense was $3.4 million. The effective tax rate was approximately (54%) and (72%) for the three and nine months ended March 31, 2008, respectively. Income tax expense was approximately $2.1 million and income tax benefit $1.0 million for the three and nine months ended March 31, 2007, respectively. The effective tax rate for the three and nine months ended March 31, 2007 was approximately 66% and 16%, respectively. We currently anticipate our effective income tax rate for the year ending June 30, 2008, or fiscal 2008, will be approximately (72)%, excluding potential effects of changes in judgments as to the potential realization of deferred tax assets and state income tax adjustments. Income before income taxes is estimated based on expected operating performance which may vary from actual operating performance. As a result, our effective tax rate for fiscal 2008 may vary significantly from the effective tax rate for the three and nine months ended March 31, 2008.

This negative effective tax rate was caused predominantly by the sale of Host and Pinnacle, which was accounted for as a loss for GAAP accounting purposes but a gain for tax purposes. The main component of this difference was related to goodwill at Host and Pinnacle, which had a book basis for GAAP but no tax basis. Another significant factor contributing to the negative tax rate this year was the increase in the valuation allowance of $5.8 million to fully reserve our net deferred tax assets.

SFAS No. 109, "Accounting for Income Taxes,"("SFAS No 109") requires that a valuation allowance be established when it is "more likely than not" that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence was considered in judging the likelihood of realizing

tax benefits. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Cumulative losses are one of the most difficult pieces of negative evidence to overcome in the absence of sufficient existing orders and backlog. During the second quarter of fiscal 2008, it became evident that our forecasts without Host and Pinnacle would not meet previously calculated projections. That, combined with recent cumulative net losses, represented sufficient negative evidence that was difficult for positive evidence to overcome under the evaluation guidance of SFAS No. 109. As a result, we concluded that it was appropriate in the second quarter of fiscal 2008 to establish a full valuation allowance for our net deferred tax assets. The effect was to reverse the benefit of net deferred tax assets that were generated in prior years. These tax benefits will be available, prior to the expiration of carryforwards, to reduce future income tax expense resulting from earnings or increases in deferred tax liabilities. During the second quarter of fiscal 2008, we recorded a non-cash charge of $5.8 million to provide a full valuation allowance on our net deferred tax assets.

Net loss available to common shareholders. Our net loss available to common shareholders of approximately $53.5 million for the nine months ended March 31, 2008 reflects the loss incurred in the sale of Host and Pinnacle, and the valuation allowance associated with deferred tax assets.

Liquidity and Capital Resources

General

The following tables present data that we believe is helpful in evaluating our
liquidity and capital resources (amounts in thousands):



                                                              Nine Months Ended
                                                                  March 31,
                                                             2007           2008
  Net cash provided by continuing operations               $  (4,622 )   $   10,213
  Net cash provided by (used) in discontinued operations      11,573        (20,447 )
  Net cash provided by (used in) operating activities          6,951        (10,234 )
  Net cash used in continuing operations                        (358 )         (326 )
  Net cash (used in) provided by discontinued operations      (9,458 )       67,152
  Net cash (used in) provided by investing activities         (9,816 )       66,826
  Net cash provided by (used in) continuing operations         2,714        (55,152 )
  Net cash used in discontinued operations                         0              0
  Net cash provided by (used in) financing activities          2,714        (55,152 )

  Net (decrease) increase in cash and cash equivalents     $    (151 )   $    1,440


                                                           June 30,      March 31,
                                                             2007           2008
  Cash and cash equivalents                                $     166     $    1,606
  Long-term debt, including current portion                $ 124,770     $   70,114

Nine Months Ended March 31, 2008 compared to Nine Months Ended March 31, 2007

Net cash used in operating activities decreased approximately $17.1 million, primarily due to the loss from discontinued operations and increase in other current assets, offset by the valuation allowance associated with the deferred tax assets. Other receivables increased $5.1 million due to the escrow amount associated with the sale of Host and Pinnacle, and we incurred income taxes payable and accrued interest of $2.3 million and $1.2 million for the nine months ended March 31, 2008.

Net cash provided by investing activities increased approximately $76.8 million, compared to $9.8 million primarily due to the sale proceeds from Host and Pinnacle.

Net cash used in financing activities decreased approximately $57.8 million due to $66.0 million paid on the First Senior Term Facility, partially offset by net borrowings on the revolving line of credit of $11.3 million. See Note 3 to the condensed and consolidated financial statements of this quarterly report on Form 10-Q for further discussions.

Off-Balance Sheet Arrangements

We have various operating lease commitments for equipment and real estate used for office space and production facilities.

We may use interest rate swap agreements to convert some of our variable rate debt to a fixed rate basis, thus hedging against interest rate fluctuations. These hedging activities may be transacted with one or more highly rated institutions, reducing the exposure to credit risk in the event of nonperformance by the counterparty to the swap agreement. In February 2006, we entered into an interest rate swap agreement effective in June 2006 and terminating in March 2009. Under the agreement, we have converted a notional amount of $60 million of floating rate debt (currently bearing interest at LIBOR plus the currently applicable margin of 3.50%) to fixed rate debt, bearing interest at 5.05% plus the applicable margin.

Contractual Obligations as of March 31, 2008 (amounts in thousands):



                                                      Payment Due by Period
                                                   Year      Years     Years     More Than
    Contractual Obligations            Total        1         2-3       4-5       5 Years
    Long-term debt obligations        $ 70,114   $ 19,714   $ 50,400   $   -    $        -
    Interest obligations (1)            25,417      7,831     17,586       -             -
    Operating lease obligations (2)      1,844        129        723      614           379

                                      $ 97,375   $ 27,674   $ 68,709   $  614   $       379

(1) Interest obligations assume the LIBOR rate in effect as of March 31, 2008, as adjusted for the fixed interest rate under the interest rate swap agreement for the period during which the interest rate swap agreement will be effective. Interest obligations are presented through the maturity dates of each component of the credit facilities.

(2) Operating lease obligations represent payment obligations under non-cancelable lease agreements classified as operating leases and disclosed pursuant to SFAS No. 13, "Accounting for Leases", as may be modified or supplemented. These amounts are not recorded as liabilities as of the current balance sheet date. Operating lease obligations are presented net of future receipts on contracted sublease arrangements totaling approximately $1.8 million as of March 31, 2008.

Dividends on Series A Preferred Stock and Series B Preferred Stock are payable annually at an annual rate of $40 and $60 per share, respectively, in cash or issuance of the respective preferred stock, at our option. If we were to fund dividends accruing during the twelve months ending March 31, 2008 in cash, the total obligation would be approximately $1.2 million based on the number of shares of Series A and Series B Preferred Stock outstanding as of March 31, 2008.

We currently anticipate that the cash requirements for capital expenditures, operating lease commitments and working capital with respect to the Newspaper Publishing business over the next few years will be generally consistent, in the aggregate, with historical levels and would likely be funded from cash provided by operating activities. In the aggregate, total capital expenditures are not expected to exceed $0.5 million for the twelve months ending March 31, 2009.

On December 30, 2005, we entered into a senior secured credit facility, with Wachovia Bank, National Association ("Wachovia"), among others, for debt financing in an aggregate principal amount of up to $140 million, consisting of a 4-year $20 million revolving credit facility (the "First Lien Revolving Credit Facility"), a 4.5-year $90 million first lien term loan (the "First Lien Term Loan Facility" and, together with the First Lien Revolving Credit Facility, the "First Lien Credit Facility") and a 5-year $30 million second lien term loan (the "Second Lien Credit Facility" and, together with the First Lien Credit Facility, the "Credit Facilities"). The interest rate is based on the bank lender's base rate (generally reflecting the lender's prime rate) or LIBOR plus in each case a specified margin, and for revolving and First Lien Term Loan Facility advances, the margin is based upon our debt leverage ratio as defined in the agreement. On September 18, 2006, we amended the Credit Facilities in conjunction with our acquisition of Pinnacle. Pursuant to the amendment, amounts under the First Lien Revolving Credit Facility may be borrowed, repaid and reborrowed by us from time to time until maturity. Interest for borrowings under the First Lien Revolving Credit Facility was based, at our option, on either
(a) 2.25% per annum plus the higher of (1) the prime rate of interest announced or established by Wachovia from time to time and (2) the federal funds rate plus 0.50% per annum (the "Base Rate") or prior to the amendment of the Credit Facilities on February 15, 2008 (b) 3.25% per annum plus the applicable London Interbank Offered Rate ("LIBOR") rate for Eurocurrency borrowings. Interest for borrowings under the First Lien Term Credit Facility was based, at our option, on either (a) 2.50% per annum plus the higher of (1) the prime rate of interest announced or established by Wachovia from time to time, and (2) the federal funds rate plus 0.50% per annum (the "Base Rate") or (b) 3.25% per annum plus the applicable LIBOR rate for Eurocurrency borrowings. Interest for borrowings under the Second Lien Credit Facility was based upon (a) 8.50% per annum above the Base Rate or (b) 9.50% per annum above the applicable LIBOR rate for Eurocurrency borrowings, subject to adjustment based on our credit ratings assigned by Standards & Poors and Moody's. As of December 31, 2007, the interest rates on the First Lien Term Loan Facility and the Second Lien Term Loan Facility, were approximately 8.4% and 14.4%, respectively.

The credit facility is collateralized by substantially all of our assets. The agreement contains certain restrictive provisions which include, but are not limited to (a) requiring us to maintain certain financial ratios and (b) limit our ability to (i) incur additional indebtedness; (ii) make certain acquisitions or investments; (iii) sell assets; or (iv) make other restricted payments, including dividends, as defined in the agreement.

With the consummation of the Merger and the refinancing on February 9, 2007, the cash required to service the anticipated debt described above increased substantially. The First Lien Term Loan Facility required amortization of $0.3 million per quarter. We expect future amortization to increase as a result of the $0.5 incurred refinancing the credit facility on February 15, 2008. We are currently analyzing the affects this amendment will have on our capitalized debt costs. Aggregate interest expense on the First Lien Term Loan Facility and the Second Lien Term Loan Facility is currently anticipated to initially be approximately $7.0 million to $8.0 million per year. The cash required to service the debt is currently expected to be funded from cash generated by operating activities. We have access to the $20 million First Lien Revolving Credit Facility to support cash liquidity needs, subject to debt leverage ratio requirements tested as of the end of each quarter. At March 31, 2008, our term loans were fully funded and $18.8 million was borrowed under the revolving credit facility, of which there was $1.2 available under the revolving credit facilities. At the present time, we do not anticipate that operating cash flows will be sufficient to pay the remaining term facilities, as they become due in 2009 and 2010. See further discussion in Working Capital and Liquidity below.

On November 9, 2007, we entered into the third amendment to our Credit Facilities due, in part, to our failure to meet our financial covenants. Pursuant to the amendments, our lenders agreed to temporarily suspend, on a retroactive basis, the requirement for us to comply with all financial covenants contained therein for the period September 30, 2007 through November 15, 2007. Subsequent to the consummation of the Host and Pinnacle transactions, we were required to remain in compliance with our leverage covenants. We were in compliance with our covenants as of December 31, 2007; however, our forecasts indicated that we would not be in compliance with future covenants and accordingly, we sought to further amend our covenants.

On February 15, 2008, we executed our fourth amendment to the First Lien Term Loan Facility, Pursuant to the amendment, borrowings associated with Base Rate and Eurodollar advances will be charged interest at rates of 4.50% and 5.50% per annum, respectively, provided that the Base Rate and Eurodollar Rate (as defined therein) cannot fall below 4.00% and 3.00%, respectively. The amendment also provided for a reduction in the First Lien Leverage Coverage, Fixed Charge Coverage and Interest Coverage Ratios for each quarter ending through September 30, 2009. Capital expenditures cannot exceed $500,000 for any four consecutive quarters. We were in compliance with our covenants as of March 31, 2008. We currently anticipate meeting our remaining fiscal year 2008 covenants based on our current forecasts; however, we are currently preparing our fiscal year 2009 budgets and are uncertain as to our ability to comply with our fiscal year 2009 covenants. Failure to comply with future covenants could result in the acceleration of the due dates of our debt obligations and raise substantial doubt about the company's ability to continue as a going concern.

On February 15, 2008, we executed our fourth amendment to the Second Lien Credit Facility, Pursuant to the amendment, borrowings associated with Base Rate and Eurodollar advances will be charged interest at rates of 11.00% and 12.00% per annum, respectively, provided that the Base Rate and Eurodollar Rate cannot fall below 4.00% and 3.00%, respectively. The amendment also provided for a reduction in the Leverage Ratio for each quarter ending through September 30, 2009. Capital expenditures cannot exceed $0.5 for any four consecutive quarters. We were in compliance with our covenants as of March 31, 2008. We currently anticipate meeting our remaining fiscal year 2008 covenants based on our current forecasts; however, we are currently preparing our fiscal year 2009 budgets and are uncertain as to our ability to comply with our fiscal year 2009 covenants. Failure to comply with future covenants could result in the acceleration of the due dates of our debt obligations and raise substantial doubt about the company's ability to continue as a going concern.

The Company incurred $0.6 million of bank fees to execute the fourth amendment to the First Lien Term Facility and the Second Lien Term Facility. These costs were capitalized and will be amortized over the remaining life of the credit facilities with the previously capitalized debt costs.

Working Capital and Liquidity

As of March 31, 2008, our deficit in working capital of approximately $18.6 million was approximately $100.5 million lower than the working capital of approximately $81.9 million as of June 30, 2007. The decrease was primarily due to the reduction of net current assets as a result of the sale of GrayLink and Host and Pinnacle along with the remaining payment terms of our debt instruments. While our balance sheet indicates we have negative working capital of $18.6 million, approximately $19.7 million of the deficit relates to our line of credit. This is classified as current due to its subjective acceleration . . .