SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 13, 1998
MARKETING SERVICES GROUP, INC.
-----------------------------
(Exact name of Registrant as specified in charter)
Nevada 0-16730 88-0085608
------ ------- ----------
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
333 Seventh Avenue
New York, New York 10001
------------------------
(Address of Principal Executive Offices)
212/594-7688
------------
(Registrant's telephone number, including area code)
<PAGE>
This Current Report on Form 8-K contains certain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those anticipated, including, but not limited to, integration of
operations of the Registrant and MMI (as defined below) and the risks and
uncertainties described in reports and other documents previously filed by the
Registrant with the Securities and Exchange Commission.
Item 2. Acquisition or Disposition of Assets
- ---------------------------------------------
On December 8, 1997, Marketing Services Group, Inc. ("MSGI") entered into a
stock purchase agreement (the "Agreement") effective December 1, 1997 to acquire
all of the issued and outstanding capital stock (the "Shares") of Media
Marketplace, Inc. and Media Marketplace Media Division, Inc. (collectively
"MMI") from Stephen M. Reustle and Thomas R. Kellogg (the "Sellers"). The
closing date of the Agreement was December 29, 1997. In consideration of the
purchase of the Shares and other transactions contemplated in the Agreement, the
Sellers received the aggregate sum of $6,000,000 and an aggregate of 222,222
restricted shares of common stock of MSGI, par value $.01 per share, at an
agreed upon price of $4.50 per share.
MMI was founded in 1973 and specializes in providing list management, list
brokerage and media planning services to national publishing and fundraising
clients in the direct marketing industry, including magazines, continuity clubs,
membership groups and catalog buyers.
On December 31, 1997 the Company filed a Current Report on Form 8-K to report
the Agreement. At that time, the financial statements of MMI and the pro forma
financial information were not available. The purpose of this amendment is to
file such information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired (included herein):
(i) Independent Auditor's Report, dated December 10, 1997
(ii) Combined Balance Sheet as of December 31, 1996
(iii) Combined Statements of Operations for the Years ended December 31,
1996 and 1995
(iv) Combined Statements of Changes in Shareholders' Equity for the Years
ended December 31, 1996 and 1995
(v) Combined Statements of Cash Flows for the Years ended December 31,
1997 and 1996
(vi) Notes to Combined Financial Statements
(vii) Condensed Combined Statements of Operations for the Nine Months ended
September 30, 1997 and 1996 (unaudited)
(viii) Condensed Combined Statements of Cash Flows for the Nine Months ended
September 30, 1997 and 1996 (unaudited)
(ix) Notes to the Unaudited Condensed Combined Financial Statements for
the Nine Months ended September 30, 1997 and 1996
(b) Unaudited Pro Forma Condensed Combined Financial Information
(included herein)
(i) Pro Forma Condensed Combined Statements of Operations for the Six
Months ended December 31, 1997
(ii) Pro Forma Condensed Combined Statements of Operations for the Year
ended June 30, 1997
(iii) Notes to Pro Forma Condensed Combined Statements of Operations
(c) Exhibits previously filed December 31, 1997:
2.1 Stock Purchase Agreement among Marketing Services Group, Inc.,
Stephen M. Reustle and Thomas R. Kellogg
10.1 Form of Employment Agreement by and among Marketing Services
Group, Inc. and Stephen M. Reustle
20.1 Press Release dated December 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MARKETING SERVICES GROUP, INC.
Date: March 13, 1998 By: /s/ Scott Anderson
-------------- ------------------
Title: Chief Financial Officer
<PAGE>
MEDIA MARKETPLACE, INC.
AND
AFFILIATE
Combined
Financial Statements
December 31, 1996 and 1995
CONTENTS
INDEPENDENT AUDITOR'S REPORT 5
COMBINED FINANCIAL STATEMENTS
Combined Balance Sheet 6
Combined Statements of Operations 7
Combined Statements of Changes in Shareholders' Equity 8
Combined Statements of Cash Flows 9
Notes to Combined Financial Statements 10-12
<PAGE>
Independent Auditor's Report
To the Shareholders
Media Marketplace, Inc. and Affiliate
Newtown, Pennsylvania
We have audited the accompanying combined balance sheet of Media Marketplace,
Inc. and Affiliate as of December 31, 1996, and the related combined statements
of operations, changes in shareholders' equity, and cash flows for the years
ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Media Marketplace,
Inc. and Affiliate as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ Kreischer, Miller & Co.
---------------------------
Horsham, Pennsylvania
December 10, 1997
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
Combined Balance Sheet
December 31, 1996
- ----------------------
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 1,126,556
Accounts receivable, less allowance for doubtful
accounts of $125,335 ............................... 9,821,704
Prepaid expenses ....................................... 34,190
------------
Total current assets ............................... 10,982,450
Property and equipment, net of accumulated depreciation ....... 219,819
------------
TOTAL ASSETS ....................................... $ 11,202,269
============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Notes payable - officers ............................... $ 300,000
Current obligation under capital lease ................. 13,309
Accounts payable - trade ............................... 10,380,845
Accrued expenses ....................................... 246,012
------------
Total current liabilities .......................... 10,940,166
Obligation under capital lease ................................ 4,698
------------
Total liabilities .................................. 10,944,864
------------
Shareholders' equity:
Common stock ........................................... 70
Additional paid-in capital ............................. 476,753
Accumulated deficit .................................... (219,418)
------------
Total shareholders' equity ......................... 257,405
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $ 11,202,269
============
See accompanying notes to financial statements.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
Combined Statements of Operations
Years Ended December 31, 1996 and 1995
- --------------------------------------
1996 1995
------------ ------------
Sales:
Brokerage ............................... $ 14,713,790 $ 17,220,203
Management .............................. 17,677,992 17,500,686
Media planning .......................... 1,246,905 893,378
Advertiser representation ............... 461,479 8,014
------------ ------------
34,100,166 35,622,281
------------ ------------
Cost of goods sold:
Brokerage ............................... 12,713,937 14,835,317
Management .............................. 15,428,424 15,160,142
Media planning .......................... 1,125,469 785,703
Advertiser representation ............... 369,817 6,578
------------ ------------
29,637,647 30,787,740
------------ ------------
Gross profit ......................... 4,462,519 4,834,541
------------ ------------
Operating expenses:
Personnel ............................... 3,239,462 3,564,608
Facilities .............................. 438,076 433,790
Selling, general and administrative ..... 744,614 836,250
------------ ------------
Total operating expenses ............. 4,422,152 4,834,648
------------ ------------
Income (loss) from operations ............... 40,367 (107)
Interest income, net ........................ 46,484 57,942
Other income ................................ 11,029
------------ ------------
Net income .................................. $ 86,851 $ 68,864
============ ============
See accompanying notes to financial statements.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
Combined Statements of Changes in Shareholders' Equity
Years Ended December 31, 1996 and 1995
- ------------------------------------------------------
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
--------- --------- --------- ---------
Balance at December 31, 1994 $ 103 $ 486,997 $(300,133) $ 186,967
Issuance of common stock ... 2 74,998 75,000
Net income ................. 68,864 68,864
Distribution to shareholders (75,000) (75,000)
--------- --------- --------- ---------
Balance at December 31, 1995 105 561,995 (306,269) 255,831
Retirement of common stock . (35) (85,242) (85,277)
Net income ................. 86,851 86,851
--------- --------- --------- ---------
Balance at December 31, 1996 $ 70 $ 476,753 $(219,418) $ 257,405
========= ========= ========= =========
See accompanying notes to financial statements.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
Combined Statements of Cash Flows
Years Ended December 31, 1996 and 1995
- --------------------------------------
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 86,851 $ 68,864
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................. 108,324 98,681
Decrease (increase) in:
Accounts receivable ................................... 1,934,593 803,984
Prepaid expenses ...................................... 12,283 (2,033)
Increase (decrease) in:
Accounts payable - trade .............................. (1,050,635) (714,915)
Accrued expenses ...................................... (422,043) 388,283
----------- -----------
Net cash provided by operating activities ......... 669,373 642,864
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ......................... (50,502) (169,733)
----------- -----------
Cash flows from financing activities:
Proceeds of note payable - bank ............................ 550,000 200,000
Repayment of note payable - bank ........................... (750,000)
Proceeds from notes payable - officers ..................... 300,000
Repayment of notes payable - officers ...................... (357,160)
Repayment of obligation under capital lease ................ (12,475) (11,691)
Issuance of common stock ................................... 75,000
Retirement of common stock ................................. (85,277)
Distribution to shareholders ............................... (75,000)
----------- -----------
Net cash provided by (used in) financing activities 2,248 (168,851)
----------- -----------
Net increase in cash and cash equivalents ..................... 621,119 304,280
Cash and cash equivalents, beginning of year .................. 505,437 201,157
----------- -----------
Cash and cash equivalents, end of year ........................ $ 1,126,556 $ 505,437
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the year ............................ $ 27,279 $ 23,679
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
Notes to Combined Financial Statements
December 31, 1996 and 1995
- --------------------------------------
1. Principles of Combination and Nature of Business
- ----------------------------------------------------
The accompanying combined financial statements of Media Marketplace, Inc. and
Affiliate (the Company) include the accounts of Media Marketplace, Inc., and
Media Marketplace Media Division, Inc., which have common stockholders. All
significant intercompany accounts and transactions have been eliminated. The
Company provides brokerage, management and consulting services related to
mailing lists.
2. Summary of Significant Accounting Policies
- ----------------------------------------------
Revenue Recognition:
List brokerage revenue is recognized upon receipt of verification of the
quantity mailed. List management revenue is recognized when the mailing list is
shipped to the customer. Media planning revenue is recognized on the "on sale"
date of the magazine. Advertiser's representation revenue is recognized upon
completion of services and collection of proceeds.
Cash and Cash Equivalents:
The Company includes all cash accounts and highly liquid investments purchased
with a maturity of three months or less in cash and cash equivalents.
The Company places its temporary cash investments with financial institutions.
At times, such investments may be in excess of the FDIC insurance limits.
Property and Equipment:
Property and equipment are stated at cost and are depreciated using accelerated
methods over the assets' useful lives.
Maintenance and repairs are expensed as incurred and costs of improvements are
capitalized. Gains and losses on the disposition of assets are included in
operations.
Income Taxes:
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code and similar provisions of Pennsylvania tax law. Therefore,
there is no provision for federal or state income taxes in the accompanying
financial statements, because the tax effect of earnings from operations will be
reflected on the personal tax returns of the shareholders.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk:
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards (SFAS)
No. 105, consist primarily of trade accounts receivable.
The Company's accounts receivable are dispersed nationally among commercial
entities.
3. Property and Equipment
- --------------------------
Property and equipment consists of the following:
Estimated
1996 Useful Life
---- -----------
Office equipment $ 605,363 5 years
Furniture and fixtures 275,277 7 years
Leasehold improvements 7,667 31.5 years
---------
888,307
Less: accumulated depreciation (668,488)
---------
$ 219,819
=========
Depreciation expense for the years ended December 31, 1996 and 1995 was $108,324
and $98,681, respectively.
4. Note Payable - Bank
- -----------------------
The Company had available a $750,000 line of credit with interest payable
monthly at the bank's prime rate (8.25% at December 31, 1996) plus 1/4%. The
line of credit was due on demand and was collateralized by certain assets of the
Company. There were no borrowings outstanding at December 31, 1996.
Subsequent to year-end and as a result of the sale of the Company's stock (see
Note 10), the bank's line of credit was terminated.
5. Related Party Transactions
- ------------------------------
At December 31, 1996, the Company had notes payable to the officers of the
Company of $300,000. These notes were subordinated to the line of credit and
were payable upon termination of the line of credit. Interest was paid on the
notes annually at the rate of prime plus 1%.
Subsequent to year-end and as a result of the sale of the Company's stock (see
Note 10), one $150,000 note was contributed to the capital of the Company, and
the other $150,000 note is due in 36 monthly payments with interest at prime
plus 1%.
6. Capital Lease Obligation
- ----------------------------
In May 1993, the Company leased computer equipment under a 60 month lease which
is classified as a capital lease. Terms of the lease include monthly lease
payments of $1,174 plus the option to purchase the equipment at the end of the
lease. The aggregate minimum lease payments consist of the following at December
31, 1996:
1997 $ 14,084
1998 4,759
--------
Total minimum lease payments 18,843
Less: amount representing interest (836)
--------
Present value of minimum lease payments 18,007
Less: current portion (13,309)
--------
Long term portion $ 4,698
========
7. Operating Lease Commitments
- -------------------------------
The Company rents office space under a 60 month operating lease which expires
May 1, 1998. The lease may be renewed at the end of the lease term for an
additional period of five years. Rental expense was $151,801 and $135,668 for
the years ended December 31, 1996 and 1995, respectively. Future minimum lease
payments as of December 31, 1996 are as follows:
1997 $ 140,672
1998 46,890
---------
Total minimum lease payments $ 187,562
=========
8. Retirement Plan
- -------------------
The Company sponsors a 401(k) plan for the benefit of all employees who meet
requirements for participation, namely one year of service and having obtained
the age of 21. The Company provides a contribution equaling 3% of annualized
compensation up to the FICA tax earnings limit and 6% of compensation earned in
excess of the FICA tax limit up to the ERISA limitation. Retirement plan expense
was $55,049 and $59,600 for the years ended December 31, 1996 and 1995,
respectively.
9. Common Stock
- ----------------
Media Marketplace, Inc. has authorized 1,000 shares of $1 par value common
stock. At December 31, 1996 and 1995, there were 68 and 103 shares issued and
outstanding, respectively. Media Marketplace Media Division, Inc. has authorized
1,000 shares of $.01 par value common stock. At December 31, 1996 and 1995,
there were 200 shares issued and outstanding. During 1996, the Company purchased
and retired 35 shares of stock of Media Marketplace, Inc. from a former
shareholder for $85,242.
10. Subsequent Event
- ---------------------
On December 29, 1997, the shareholders of the Company sold all of the Company's
outstanding stock to an unrelated company.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
1997 1996
------------ ------------
Revenues ................................. $ 22,641,089 $ 25,315,489
------------ ------------
Operating expenses:
Direct costs ......................... 19,945,290 21,945,238
Salaries and benefits ................ 2,065,100 2,445,704
Selling, general and administrative .. 670,650 721,695
Professional fees .................... 8,311 27,502
------------ ------------
Total operating costs and expenses 22,689,351 25,140,139
------------ ------------
Income (loss) from operations .... (48,262) 175,350
Other income, net ........................ 59,322 35,512
------------ ------------
Net income ....................... $ 11,060 $ 210,862
============ ============
See Notes to Interim Condensed Combined Financial Statements.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net income ..................................... $ 11,060 $ 210,862
Adjustments to net income to net cash
provided by (used in) operating activities:
Depreciation ............................... 66,934 70,042
Bad debt expense ........................... 2,246 5,794
Changes in assets and liabilities:
Decrease in accounts receivable ............ 337,317 2,057,101
Increase in other current assets ........... (20,031) (553)
Decrease in trade accounts payable ......... (746,794) (1,916,425)
Decrease in accrued expenses ............... (30,679) (486,823)
----------- -----------
Net cash used in operating activities .......... (379,947) (60,002)
----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment ............ (41,180) (49,576)
----------- -----------
Cash flows from financing activities:
Repayment of capital lease obligation .......... (1,698) (9,455)
Repayment of bank loan ......................... (200,000)
Proceeds from note payable ..................... 300,000
Repurchase of stock ............................ (85,274)
----------- -----------
Net cash (used in) provided by financing
activities ................................... (1,698) 5,271
----------- -----------
Net decrease in cash and cash equivalents ......... (422,825) (104,307)
Cash and cash equivalents at beginning of period 1,126,556 505,435
----------- -----------
Cash and cash equivalents at end of period ..... $ 703,731 $ 401,128
=========== ===========
See Notes to Interim Condensed Combined Financial Statements.
<PAGE>
MEDIA MARKETPLACE, INC. AND AFFILIATE
NOTES TO INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
1. GENERAL
- -----------
The accompanying interim statements of operations and cash flows include the
accounts of Media Marketplace, Inc. and Media Marketplace Media Division, Inc.
and were prepared by the Company in accordance with generally accepted
accounting principles for interim financial statements. The Company believes
that the disclosures are adequate to make the information presented not
misleading. The interim financial statements reflect all adjustments that are,
in the opinion of management, necessary for the fair presentation of the results
for the interim periods presented. All adjustments are of a recurring nature.
Revenues and net income for any interim period are not necessarily indicative of
the results for a full year. These interim financial statements should be read
in conjunction with the financial statements as of December 31, 1996 and for the
two years in the period ended December 31, 1996 and notes thereto also included
in this Report on Form 8-K/A.
2. SUBSEQUENT EVENT
- --------------------
Effective December 1, 1997, all of the outstanding common stock of the Company
was acquired by Marketing Services Group, Inc. Consequently, the Company has
changed its fiscal year end from December 31 to June 30 and, as a result of the
acquisition, the Company will be taxed as a C corporation.
<PAGE>
MARKETING SERVICES GROUP, INC.,
MEDIA MARKETPLACE, INC.
AND MEDIA MARKETPLACE MEDIA DIVISION, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Unaudited)
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
fiscal year ended June 30, 1997 have been prepared based on the audited
historical consolidated statement of operations of Marketing Services Group,
Inc. ("MSGI") for the fiscal year ended June 30, 1997 and the unaudited
historical statements of operations of Media Marketplace, Inc. and Media
Marketplace Media Division, Inc. ("MMI") for the last six months of the year
ended December 31, 1996 and the six months ended June 30, 1997 and give effect
to the acquisition of MMI as if it had occurred as of July 1, 1996. They also
include the unaudited historical statement of operations of Metro Services
Group, Inc. ("Metro") for the three months ended September 30, 1996. Metro was
acquired by the Company effective October 1, 1997. The acquisition of Metro was
accounted for using the purchase method of accounting and, accordingly, the
operating results of Metro were included in the consolidated results of
operations of MSGI from the date of acquisition. The Unaudited Pro Forma
Condensed Combined Statements of Operations for the six months ended December
31, 1997 are prepared to reflect the operations of MSGI and MMI as if they had
been one entity for the six months then ended. Pro forma adjustments for each
such pro forma financial statement are described in the accompanying notes.
The following unaudited pro forma condensed combined financial information is
not necessarily indicative of the actual results of operations that would have
been reported if the events described above had occurred as of the beginning of
the periods described above, nor does such information purport to indicate the
results of the Company's future operations. In the opinion of management, all
adjustments necessary to present fairly such pro forma financial information
have been made.
The unaudited pro forma combined financial statements should be read in
conjunction with the respective historical consolidated financial statements and
related notes of MSGI which have been previously filed with the Commission and
the historical financial statements and related notes of MMI included elsewhere
in this Current Report on Form 8-K.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
Historical
--------------------------------
Marketing Media Market- Pro Forma
Services place, Inc and ------------------------------
Group, Inc. Media Division Adjustments Combined
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $17,928,389 $17,331,028 $35,259,417
----------- ----------- -----------
Salaries and benefits 8,656,116 1,061,423 $ (130,350)(A) 9,587,189
Direct costs 7,461,557 15,304,853 22,766,410
Selling, general and administrative 2,033,857 792,783 2,826,640
Depreciation and amortization 667,017 46,213 87,500 (B) 800,730
----------- ----------- ---------- -----------
Total operating costs and expenses 18,818,547 17,205,272 (42,850) 35,980,969
----------- ----------- ---------- -----------
Income (loss) from operations (890,158) 125,756 42,850 (721,552)
Other income (expense) (201,250) 43,382 (157,868)
----------- ----------- ---------- -----------
Income (loss) before income taxes (1,091,408) 169,138 42,850 (879,420)
Income tax (provision) benefit 110,246 (29,650)(D) 80,596
----------- ----------- ---------- -----------
Net income (loss) $ (981,162) $ 169,138 $ 13,200 $ (798,824)
=========== =========== ========== ===========
Net income (loss) attributable to
common stockholders $(4,366,343) $2,690,298 (E) $(1,676,045)
=========== ========== ===========
Net loss per common share -
basic and diluted $ (0.34) $ (0.13)
======== ========
Weighted average common shares
outstanding 12,698,613 222,222 (F) 12,920,835
========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
operations.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
Historical
-----------------------------------------------
Marketing Metro Media Market- Pro Forma
Services Services place, Inc and -----------------------------
Group, Inc. Group, Inc. Media Division Adjustments Combined
------------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 24,144,874 $2,215,956 $32,024,539 $ 58,385,369
------------ ---------- ----------- ------------
Salaries and benefits 14,967,420 526,719 2,861,808 $ (430,800)(A) 17,925,147
Direct costs 5,587,343 1,256,210 28,025,824 34,869,377
Selling, general and
administrative 3,585,972 285,488 1,055,849 4,927,309
Compensation expense 1,650,000 1,650,000
Restructuring costs 958,376 958,376
Depreciation and amortization 969,594 26,425 105,389 287,500 (B) 1,388,908
------------ ---------- ----------- ----------- ------------
Total operating costs and
expenses 27,718,705 2,094,842 32,048,870 (143,300) 61,719,117
------------ ---------- ----------- ----------- ------------
Income (loss) from operations (3,573,831) 121,114 (24,331) 143,300 (3,333,748)
Withdrawn public offering costs (1,179,571) (1,179,571)
Other income (expense) (514,321) 78,910 (26,500)(C) (461,911)
------------ ---------- ----------- ----------- ------------
Income (loss) before income
taxes (5,267,723) 121,114 54,579 116,800 (4,975,230)
Income tax provision (109,373) (5,280) (48,050)(D) (162,703)
------------ ---------- ----------- ----------- ------------
Net income (loss) $ (5,377,096) $ 115,834 $ 54,579 $ 68,750 $ (5,137,933)
============ ========== =========== =========== ============
Net loss attributable to
common stockholders $(20,199,038) $(1,049,389)(E) $(21,248,427)
============ =========== ============
Basic and diluted loss
per share $ (2.85) $ (2.74)
======= =======
Weighted average common
shares outstanding 7,089,321 675,722 (F) 7,765,043
========= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
operations.
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
The unaudited Pro Forma Condensed Combined Statements of Operations combine the
results of operations of the Company with the results of operations of MMI in a
transaction accounted for as a purchase. These statements are based on the
individual statements of operations of MSGI and MMI and combine their results of
operations for the fiscal year ended June 30, 1997 and the six months ended
December 31, 1997 as if the acquisition had occurred as of the beginning of the
periods presented. The June 30, 1997 combining statements of operations also
include the results of operations of Metro for the three months ended September
30, 1996 as such results were prior to the Company's acquisition of Metro, which
was also accounted for as a purchase, and were not included in the Company's
results of operations for the fiscal year ended June 30, 1997.
The pro forma adjustments are summarized as follows:
(A) Reflects reductions in MMI officers' salaries to consider post acquisition
contractual amounts payable.
(B) Amortization of intangible assets acquired in the MMI acquisition including
$6,666,964 of goodwill amortized over forty years and a covenant not to
compete valued at $25,000 amortized over three years. The year ended June
30, 1997 also includes $112,500 of amortization of intangibles acquired in
the Metro transaction for the three months ended September 30, 1996.
(C) Reflects interest expense on the Metro seller debt for the three months
ended September 30, 1996.
(D) Prior to its acquisition by MSGI, MMI had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code") and , as a result, MMI's federal and state taxable income or
loss and tax credits were passed through to MMI's former shareholders. No
pro forma tax provision has been made for federal taxes in the pro forma
condensed combined statements of operations due to the availability of
MSGI's net operating loss carryforwards. Pro forma state tax expense has
been included on pro forma pretax income, adjusted for reductions in
officers' salaries, at an effective state tax rate of 9.9%.
(E) Net loss attributable to common stockholders has been adjusted to reflect
recurring preferred dividends which are being incurred on MSGI's
$15,000,000 financing transaction with General Electric Capital Corporation
as described more fully in the Company's Report on Form 10-QSB for the
quarterly period ended December 31, 1997. The preferred dividends are
included for the periods presented as this transaction was necessary to
finance the acquisition of MMI. The preferred dividends are cumulative and
accrue at the rate of 6% per annum. Preferred dividends are also being
recognized for periodic accretions of a discount to reflect an allocation
of $1,362,000 of the proceeds to the estimated value of potentially
issuable warrants. A preferred dividend of $3,214,400 to reflect a non-cash
beneficial conversion feature in the financing transaction was included in
the historical MSGI financial statements for the six months ended December
31, 1997. It has been excluded in the accompanying pro forma condensed
combined statements of operations as it is non-recurring.
(F) Weighted average shares have been adjusted in both periods presented to
reflect 222,222 shares of MSGI's common stock issued in conjunction with
the acquisition of MMI. The statements of operations for the year ended
June 30, 1997 have been adjusted for the impact of 1,814,000 common shares
of MSGI issued in the Metro acquisition for the quarter ended September 30,
1996.
