SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-16730
MARKETING SERVICES GROUP, INC.
------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0085608
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 Seventh Avenue, 20th Floor
New York, New York 10001
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 594-7688
-----------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State number of shares outstanding of each of the issuer's classes of common
equity as of the latest practical date:
As of November 9, 1998, there were 12,894,805 shares of the Issuer's Common
Stock, par value $.01 per share outstanding.
<PAGE>
MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
SEPTEMBER 30, 1998
PART I - FINANCIAL INFORMATION Page
----
Item 1 Interim Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 1998 and 1997 5-6
Notes to Interim Condensed Consolidated Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Signatures
Exhibit 27 Financial Data Schedule
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Interim Condensed Consolidated Financial Statements(unaudited)
-----------------------------------------------------------------------
MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, 1998 June 30, 1998
------------------ -------------
ASSETS
- - ------
Current assets:
Cash and cash equivalents $5,422,809 $ 6,234,981
---------- ------------
Accounts receivable billed, net of
allowance for doubtful accounts of
$291,825 and $421,861 as of
September 30, 1998 and June 30, 1998,
respectively 11,587,826 12,606,468
Accounts receivable unbilled 4,123,904 3,259,437
Other current assets 824,720 724,032
---------- ------------
Total current assets 21,959,259 22,824,918
Property and equipment at cost, net 1,660,233 1,645,957
Intangible assets at cost, net 24,479,739 24,771,045
Other assets 842,111 539,507
---------- ------------
Total assets $48,941,342 $49,781,427
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------
Current liabilities:
Short-term borrowings $1,660,867 $2,522,306
Trade accounts payable 12,576,591 11,420,386
Accrued expenses and other current liabilities 1,367,338 1,653,871
Current portion of long-term obligations 1,289,116 1,435,451
Related party payable 780,000 780,000
------- -------
Total current liabilities 17,673,912 17,812,014
Long-term obligations 79,008 203,917
Preferred dividends payable 849,395 617,328
Other liabilities 28,334 72,937
---------- ----------
Total liabilities 18,630,649 18,706,196
---------- ----------
Redeemable convertible preferred stock,
$.01 par value; 150,000 shares authorized;
50,000 shares of Series D convertible
preferred stock issued and outstanding 13,804,632 13,749,973
---------- ----------
Stockholders' equity:
Common Stock - $.01 par value; 75,000,000
authorized; 13,103,305 and 13,098,510
shares issued as of September 30, 1998
and June 30, 1998, respectively 131,033 130,985
Additional paid-in capital 29,338,732 29,612,816
Accumulated deficit (12,780,085) (12,283,074)
Less: 30,700 and 11,800 shares of common
stock in treasury, at cost as of
September 30, 1998 and June 30, 1998,
respectively (183,619) (135,469)
-------- --------
Total stockholders' equity 16,506,061 17,325,258
---------- ----------
Total liabilities and stockholders' equity $48,941,342 $49,781,427
=========== ===========
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
1998 1997
---- ----
Revenues $17,152,928 $7,254,619
Operating costs and expenses:
Direct costs 9,514,162 1,607,006
Salaries and benefits 6,286,822 4,438,314
General and administrative 1,335,625 925,107
Depreciation and amortization 455,298 320,349
------- -------
Total operating costs and expenses 17,591,907 7,290,776
---------- ---------
Loss from operations (438,979) (36,157)
Interest expense, net (30,727) (107,525)
------- --------
Loss before income taxes (469,706) (143,682)
Benefit (provision) for income taxes (27,305) 47,003
------- ------
Net loss $(497,011) $(96,679)
========= ========
Net loss attributable to common stockholders $(783,737)* $(96,679)
========= ========
Net loss per common share, basic and fully diluted $(.06) $(.01)
===== =====
Weighted average common and common
equivalent shares outstanding 13,090,141 12,323,055
========== ==========
* The three months ended September 30, 1998 include the impact of dividends on
stock for (a) $232,067 in cumulative undeclared dividends; and (b) $54,659 of
periodic non-cash accretions on preferred stock.
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
1998 1997
---- ----
Operating activities:
Net loss $(497,011) $(96,679)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
Depreciation 150,345 78,920
Amortization 304,953 241,429
Warrant issuances to consultants - 7,500
Accrued interest on convertible securities 11,974 18,752
Provision for bad debts 57,486 -
Changes in assets and liabilities:
Accounts receivable 96,689 (99,609)
Other current assets (100,688) (56,959)
Other assets (320,662) (79,877)
Trade accounts payable 1,156,205 (299,034)
Accrued expenses and other current liabilities (294,892) (721,077)
-------- --------
Net cash provided by (used in)
operating activities 564,399 (1,006,634)
------- ----------
Investing activities:
Purchase of property and equipment (155,214) (85,144)
Acquisition of Pegasus, net of cash
acquired of $43,811 - (256,875)
------- --------
Net cash used in investing activities (155,214) (342,019)
-------- --------
Financing activities:
Proceeds from exercises of stock options 12,690 -
Net proceeds from (repayments of) credit
facilities (861,439) 1,289,354
Repayments of bank loans and credit line - (850,162)
Repayment of capital lease obligation (31,918) (11,165)
Repayments of notes payable, other (117,540) (79,468)
Repayment of acquisition debt (175,000) (691,666)
Purchase of treasury stock (48,150) -
------- -------
Net cash used in financing activities (1,221,357) (343,107)
---------- --------
Net decrease in cash and cash equivalents (812,172) (1,691,760)
Cash and cash equivalents at beginning of period 6,234,981 2,929,012
--------- ---------
Cash and cash equivalents at end of period $5,422,809 $1,237,252
========== ==========
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
Supplemental schedule of non cash investing and financing activities:
- - ---------------------------------------------------------------------
During the quarter ended September 30, 1998, the Company entered into capital
lease obligations for approximately $9,400 for certain computer equipment.
During the quarter ended September 30, 1998, the Company recorded non-cash
preferred dividends in the amount of $286,726 of which $232,067 was in
connection with cumulative undeclared dividends and $54,659 was for periodic,
non-cash accretions on preferred stock.
On July 1, 1997, the Company issued 600,000 shares of its common stock and paid
$200,000 in cash to acquire 100% of the outstanding stock of Pegasus Internet,
Inc. At acquisition, assets acquired and liabilities assumed, less payments made
for the acquisition, were:
Working capital, other than cash $102,214
Property and equipment (53,834)
Costs in excess of net assets
of acquired company (2,105,255)
Common stock issued 1,800,000
---------
$ (256,875)
==========
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited Interim Condensed Consolidated Financial Statements
include the accounts of Marketing Services Group, Inc. and Subsidiaries (the
"Company"). These condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-KSB for the year ended June 30, 1998 and
the historical consolidated financial statements and related notes included
therein. In the opinion of management, the accompanying unaudited condensed
financial statements include all adjustments, consisting of only normal
recurring accruals, necessary to present fairly the condensed consolidated
financial position, results of operations and cash flows of the Company. Certain
information and footnote disclosure normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission's rules
and regulations. Operating results for the three-month period ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1999. Certain reclassifications have been made
in the fiscal 1998 interim financial statements to conform with the fiscal 1999
presentation.
2. TREASURY STOCK
--------------
On September 23, 1998, the Company announced its intention to acquire, in open
market transactions, up to 1,000,000 shares of its common stock, par value, $.01
per share (the "Common Stock"), subject to and in compliance with the provisions
and limitations of Rule 10b-18 of the Securities Exchange Act of 1934.
Purchases, if any, may be made from time to time at prevailing market prices
during the one-year period commencing on September 28, 1998. Purchases may
commence at any time after such date and may be discontinued at any time during
the one-year period without purchasing all of the 1,000,000 shares. The Company
will not solicit the purchase of any of its Common Stock or otherwise tender for
the purchase of any of its Common Stock. The source of funds for the purchase of
any shares will be from the Company's general corporate funds, and any shares
purchased will be held in treasury. As of September 30, 1998, the Company bought
back 18,900 shares valued at $48,150.
3. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997, and accordingly has been adopted by
the Company as presented on the balance sheets and statements of operations.
Also in June 1997, the FASB issued Statement No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations and
major customers. SFAS 131 is effective for annual financial statements issued
for periods beginning after December 15, 1997 and for the interim periods
beginning in the second year of application, and requires restatement of earlier
periods presented. The Company is reviewing the effects of the disclosure
requirements of this new standard.
<PAGE>
In addition, Accounting Standards Executive Committee ("AcSEC") issued SOP 98-1,
Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use, to address diversity in practice regarding whether and under what
conditions the costs of internal-use software should be capitalized. SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
Management believes that the implementation of SOP 98-1 will not have a
significant impact on the Company's financial statements.
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities, to provide guidance on the financial reporting of start-up costs and
organization costs. It requires costs to be expensed as incurred. Management
believes that the implementation of SOP 98-5 in fiscal year ended June 30, 2000
will result in a one-time charge of approximately $120,000 on the date of
adoption, which will be reported as a cumulative effect of a change in
accounting principle.
4. INCOME TAXES
------------
In the three months ended September 30, 1998 and 1997, the net income tax
(provision) benefit totaled approximately ($27,000) and $47,000 on pre-tax
losses from operations of $470,000 and $144,000, respectively. The Company
recognizes provisions resulting from state and local taxes incurred on taxable
income at the operating subsidiary level that cannot be offset by losses
incurred at the corporate level. In the prior year, the Company determined that
it qualified to file as a combined entity in a certain state for the fiscal year
beginning July 1, 1996. The Company had estimated its state income tax for such
state on a standalone basis for each subsidiary for the year ended June 30,
1997. The impact on the quarter ended September 30, 1997, due to the change in
tax reporting status created a benefit of approximately $70,000.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
- - ------------------------------------------------------------------------
Results of Operations
- - ---------------------
Introduction
- - ------------
This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity/cash flows of the Company
for the three month period ended September 30, 1998. This should be read in
conjunction with the financial statements, and notes thereto, included in this
Report on Form 10-Q and the Company's financial statements and notes thereto,
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 1998.
On December 29, 1997, the Company acquired all of the outstanding capital stock
of Media Marketplace, Inc. and Media Marketplace Media Division, Inc.
(collectively "MMI" or the "Acquisition"). The results of operations of MMI are
reflected in the consolidated financial statements using the purchase method of
accounting from the date of acquisition. MMI provides list management, list
brokerage and media planning services.
In May 1998, the Company formed Metro Fulfillment, Inc. ("MFI" or "Start-up
Operation"), a new operating subsidiary providing online commerce, real-time
database management, inbound/outbound customer service, custom packaging,
assembling, product warehousing, shipping, payment processing and retail
distribution.
Results of Operations for the Three Months Ended September 30, 1998, Compared to
- - --------------------------------------------------------------------------------
the Three Months Ended September 30, 1997.
- - ------------------------------------------
Revenues of $17,152,928 in the three months ended September 30, 1998 (the
"current period") increased by $9,898,309 over revenues of $7,254,619 in the
three months ended September 30, 1997 (the "prior period"). Of the increase,
$8,586,308 was due to the Acquisition and Start-Up Operation. The remaining
increase of $1,312,001 was due to an increase of $609,083 in calling center
revenues, an increase of $935,869 in marketing services and an increase of
$98,950 in internet services revenues offset by a decrease in on-site
telemarketing and telefundraising revenues of $331,901.
Salaries and benefits of $6,286,822 in the current period increased by
$1,848,508 over the prior period total of $4,438,314, principally due to the
inclusion of $1,466,362 from the Acquisition and the Start-Up Operation. The
remaining increase in salaries and benefits of $382,146 is principally due to an
increase in head count to manage current and anticipated future growth and an
increase in commissions associated with the growth in revenue.
Direct costs of $9,514,162 in the current period increased by $7,907,156 over
direct costs of $1,607,006 in the prior period. $7,187,093 of the increase is
principally due to the Acquisition and Start-Up Operation. Direct costs for
marketing services increased by $557,354 principally due to an increase in
marketing services revenue. Direct costs for telemarketing and telefundraising
increased by $162,709 due to an increase in revenues. The Company's direct costs
consist principally of commissions paid to use marketing lists.
General and administrative expenses of $1,335,625 in the current period
increased by $410,518 over comparable expenses of $925,107 in the prior period.
The Acquisition and Start-Up Operation accounted for $442,885 of such expenses.
General and administrative expenses for the remainder of the company decreased
by $32,367 principally due to the consolidation of offices and a decrease in
travel and entertainment expenses.
<PAGE>
Depreciation and amortization expense of $455,298 in the current period
increased by $134,949 over expense of $320,349 in the prior period. The increase
consists principally of an increase in goodwill amortization due to the
Acquisition.
Loss from operations of $438,979 in the current period increased by $402,822
over the prior period. $592,314 of the loss from operations was incurred by MFI.
The quarter ended September 30, 1998 was the first full quarter of operations
for this subsidiary. Losses from operations from MFI are expected to decrease in
the future as revenue increases and gains from the impact of operational
leverage is achieved. Without the impact of MFI, the Company would have had
income from operations of $153,335, an increase of $189,492 over the prior
period.
Interest expense, net, of $30,727 in the current period decreased by $76,798
over expenses of $107,525 in the prior period. Such expenses decreased
principally due to conversions of convertible securities and debt repayments,
interest income earned on invested surplus cash and lower borrowings on lines of
credit.
The provision for income taxes of $27,305 in the current period increased by
$74,308 over the benefit of $47,003 in the prior period. During the prior year,
the Company determined that it qualified to file as a combined entity in a
certain state for the fiscal year beginning July 1, 1996. The company had
estimated its state income tax rate for such state on a stand alone basis for
each subsidiary for the year ended June 30, 1997. The impact on the quarter
ended September 30, 1997 for this change resulted in a benefit of approximately
$70,000. The Company records provisions for state and local taxes incurred on
taxable income at the operating subsidiary level which can not be offset by
losses incurred at the parent company level.
Capital Resources and Liquidity
- - -------------------------------
Historically, the Company has funded its operations, capital expenditures and
acquisitions primarily through cash flows from operations, private placements of
common and preferred stock, and its credit facilities. At September 30, 1998,
the Company had cash and cash equivalents of $5,422,809 and accounts receivable
net of allowances of $15,419,905.
The Company generated losses from operations of $438,979 in the current period.
Cash provided by operating activities was $564,399. Cash provided by operating
activities principally consists of an increase in trade accounts payable offset
by an increase in current and other assets.
In the current period, net cash of $155,214 was used in investing activities
consisting of purchases of property and equipment principally comprised of
computer equipment. In the prior period, net cash used in investing activities
of $342,019 consisted of $85,144 for the purchases of property and equipment and
$256,875 as part of the purchase price for the acquisition of Pegasus, net of
cash acquired. The Company intends to continue to invest in technology and
telecommunications hardware and software.
In the current period, net cash of $1,221,357 was used in financing activities.
Net cash used in financing activities consists principally of $861,439 of net
repayments of lines of credit and $292,540 of repayments on acquisition debt and
other notes payable.
At September 30, 1998, the Company had amounts outstanding of $1,660,867 on its
lines of credit. The Company had approximately $709,000 available on its lines
of credit as of September 30, 1998.
The Company believes that funds on hand, funds available from its operations and
from its unused lines of credit, should be adequate to finance its operations
and capital expenditure requirements, and enable the Company to meet its
interest and debt obligations for the next twelve months.
The Company has currently engaged two investment banking firms to assist in
discussions with certain potential acquisitions. The Company is also in
discussions with lending institutions with respect to such acquisitions. There
can be no assurance that the Company will be able to acquire such companies or
that financing will be available on terms acceptable to the Company.
<PAGE>
The Year 2000
- - -------------
The Company has taken actions to make its systems, products and infrastructure
Year 2000 compliant. With respect to the database marketing subsidiary,
databases maintained for clients include a four digit year code and are
subsequently not exposed to Year 2000 issues. The Company has begun to inquire
as to the status of its key suppliers and vendors with respect to the Year 2000.
The Company believes it is taking the necessary steps to resolve Year 2000
issues; however, there can be no assurance that a failure to resolve any such
issue would not have a material adverse effect on the Company. Management
believes, based on available information, that it will be able to manage its
total Year 2000 transition without any material adverse effect on its business
operations, products or financial prospects. Management estimates that the total
cost will not have a material adverse effect on the Company's business or
results of operations. This estimate is being monitored and will be revised as
additional information becomes available.
Seasonality and Cyclicality: The businesses of telemarketing and marketing
services tend to be seasonal. Telemarketing has higher revenues and profits
occurring in the fourth fiscal quarter, followed by the first fiscal quarter.
This is due to subscription renewal campaigns for its performing arts clients,
which generally begin in the spring time and continue during the summer months.
Marketing services tend to have higher revenues and profits occurring in the
second fiscal quarter, based on the seasonality of its clients' mail dates.
New Accounting Pronouncements
- - -----------------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997, and accordingly has been adopted by
the Company as presented on the balance sheets and statements of operations.
Also in June 1997, the FASB issued Statement No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations and
major customers. SFAS 131 is effective for financial statements issued for
periods beginning after December 15, 1997 and for the interim periods beginning
in the second year of application, and requires restatement of earlier periods
presented. The Company is reviewing the effects of the disclosure requirements
of this new standard.
In addition, accounting Standards Executive Committee ("AcSEC") issued SOP 98-1,
Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use, to address diversity in practice regarding whether and under what
conditions the costs of internal-use software should be capitalized. SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
Management believes that the implementation of SOP 98-1 will not have a
significant impact on the Company's financial statements.
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities, to provide guidance on the financial reporting of start-up costs and
organization costs. It requires costs to be expensed as incurred. Management
believes that the implementation of SOP 98-5 in fiscal year ended June 30, 2000
will result in a one-time charge of approximately $120,000 on the date of
adoption, which will be reported as a cumulative effect of a change in
accounting principle.
Item 6 - Exhibits and Reports on Form 8-K
- - -----------------------------------------
a) Exhibits
Exhibit # Item Notes
--------- ---- -----
27 Financial Data Schedule A
Notes relating to Exhibits:
A Filed herewith.
b) Reports on Form 8-K
On or about October 2, 1998, the Company filed a current report on Form
8-K regarding the Company's intention to acquire up to 1,000,000 shares of
its Common Stock, par value, $.01 per share.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MARKETING SERVICES GROUP, INC.
(Registrant)
Date: November 16, 1998 By: /s/ J. Jeremy Barbera
----------------------
J. Jeremy Barbera
Chairman of the Board and Chief
Executive Officer
Date: November 16, 1998 By: /s/ Cindy H. Hill
-----------------
Cindy H. Hill
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF MARKETING SERVICES GROUP, INC. AS
OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 INCLUDED IN THIS REPORT ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,422,809
<SECURITIES> 0
<RECEIVABLES> 16,003,555
<ALLOWANCES> (291,825)
<INVENTORY> 0
<CURRENT-ASSETS> 21,959,259
<PP&E> 2,614,368
<DEPRECIATION> (954,135)
<TOTAL-ASSETS> 48,941,342
<CURRENT-LIABILITIES> 17,673,912
<BONDS> 956,737
13,804,632
0
<COMMON> 131,033
<OTHER-SE> 16,375,028
<TOTAL-LIABILITY-AND-EQUITY> 48,941,342
<SALES> 17,152,928
<TOTAL-REVENUES> 17,152,928
<CGS> 9,514,162
<TOTAL-COSTS> 9,514,162
<OTHER-EXPENSES> 8,077,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,727
<INCOME-PRETAX> (469,706)
<INCOME-TAX> 27,305
<INCOME-CONTINUING> (497,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (497,011)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
