UNITED STATES
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, 1995
------------------
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: 0-13121
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HMG Worldwide Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3402432
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
475 Tenth Avenue, New York, NY 10018
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)736-2300
-------------
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 10, 1995
- ---------------------------- --------------------------------
Common Stock, $.01 par value 7,567,517
<PAGE>
Part I. Financial Information
Item 1.
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 1995 December 31,1994
------------------ ----------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,242 $ 6,469
Marketable securities 6,828
Accounts receivable - less
allowance for doubtful
accounts of $643 and $773 12,981 7,913
Inventory 4,787 4,307
Prepaid expenses 322 840
Other current assets 470 337
------- -------
Total current assets 27,802 26,694
Property and equipment - net 2,516 2,915
Excess of cost over fair
market value of assets acquired,
less accumulated amortization
of $697 and $436 6,278 6,539
Other assets 476 570
------- -------
$37,072 $36,718
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations $ 9,683 $ 2,054
Accounts payable 6,036 4,084
Accrued employee compensation
and benefits 1,625 1,371
Deferred revenue 1,154 1,380
Accrued expenses 581 761
Other current liabilities 1,498 2,925
------- -------
Total current liabilities 20,577 12,575
Long-term obligations 3,182
Other long-term liabilities 1,208 738
------- -------
21,785 16,495
======= =======
Stockholders' equity:
Common stock, par value $.01;
50,000,000 shares authorized;
7,567,517 and 7,557,351 issued
and outstanding 76 76
Additional paid-in capital 33,258 33,248
Accumulated deficit (18,131) (13,140)
Foreign currency translation
adjustments 84 39
------- -------
15,287 20,223
------- -------
$37,072 $36,718
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $13,662 $14,849 $35,697 $47,516
Cost of revenues 10,483 11,006 28,149 34,136
------- ------- ------- -------
Gross profit 3,179 3,843 7,548 13,380
Selling, general and
administrative expenses 3,632 3,223 12,421 10,684
------- ------- ------- -------
Income (loss) from
operations (453) 620 (4,873) 2,696
Interest income 132 87 449 117
Interest expense (232) (161) (588) (518)
Other income 30 161 30 158
------- ------ ------- -------
Income (loss) before
provision for income
taxes (523) 707 (4,982) 2,453
Provision for income taxes 8 (49) (9) (163)
------ ------- ------- -------
Net income (loss) ($ 515) $ 658 ($ 4,991) $ 2,290
====== ======= ======= =======
Net income (loss)
per common and
common equivalent
share ($ 0.07) $ 0.09 ($ 0.66) $ 0.35
====== ======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding 7,567,517 7,418,520 7,567,517 6,535,241
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $30,494 $45,100
Interest received 449 117
Cash paid to suppliers (29,702) (36,021)
Cash paid to employees (8,871) (9,903)
Income taxes paid (9) (46)
Interest paid (588) (678)
Net cash used in ------- -------
operating activities (8,227) (1,431)
======= =======
Cash flows from investing activities:
Proceeds from redemption (purchases)
of marketable securities 6,828 (13,143)
Capital expenditures (361) (455)
Net cash provided by ------- -------
(used in) investing
activities 6,467 (13,598)
------- -------
Cash flows from financing activities:
Principal payment of a note
payable issued in connection
with an acquisition (9,630)
Net proceeds from exercise
of stock options 10 132
Proceeds derived from a credit
agreement 4,936
Proceeds from issuance of
common stock 17,841
Proceeds from issuance of
a note 7,000
Principal payments of
outstanding debt obligations (488) (2,701)
Net cash provided by ------- -------
financing activities 4,458 12,642
------- -------
Effect of exchange rate changes 75 107
------- -------
Net increase (decrease) in
cash and cash equivalents 2,773 (2,280)
Cash and cash equivalents
at beginning of year 6,469 5,205
------- -------
Cash and cash equivalents
at September 30 $ 9,242 $ 2,925
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)
(unaudited)
Nine Months Ended September 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) ($ 4,991) ($ 2,290)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Other income (94)
Depreciation and amortization 1,021 1,027
Decrease (increase) in assets:
Accounts receivable (5,058) (2,325)
Inventory (479) 3,547
Prepaid expenses 518 (121)
Other assets (38) (185)
Increase (decrease) in liabilities:
Accounts payable 1,946 (910)
Deferred revenue (226) (70)
Accrued expenses (920) (4,430)
Accrued interest (160)
------- -------
Net cash used in operating
activities ($ 8,227) ($ 1,431)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Consolidated Financial Statements
HMG Worldwide Corporation (the "Company") is comprised of five
wholly-owned subsidiaries, HMG Worldwide In-Store Marketing, Inc.
("HMG"), Intermark Corp. ("Intermark"), Creative Displays, Inc. ("CDI"),
HMG Europe B.V. ("HMGBV") and Electronic Voting Systems, Inc. ("EVS").
HMG conducts its operations worldwide with full service offices located
in New York, New Jersey and Chicago.
The Consolidated Balance Sheet as of September 30, 1995, and the
Consolidated Statements of Operations and Cash Flows for the three months
and nine months ended September 30, 1995 and 1994, have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at
September 30, 1995 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1994 annual report to stockholders. The results of operations for
the period ended September 30, 1995 are not necessarily indicative of the
operating results for the full year.
Note 2 - Inventory
Inventories at September 30, 1995 and December 31, 1994 consisted
of the following:
September 30, December 31,
1995 1994
---- ----
(in thousands)
Finished goods $ 593 $ 698
Work in process 528 604
Raw materials 3,666 3,005
------ ------
$4,787 $4,307
====== ======
Note 3 - Income Taxes
At December 31, 1994, the Company had net operating loss
carryforwards of approximately $10.9 million which expire during the
years 2001 through 2010. As of September 30, 1995 and 1994, a valuation
allowance of approximately $6.7 million and $3.6 million, respectively,
which is equal to the entire amount of the deferred tax asset arising
from the net operating loss carryforwards and other temporary
differences, has been established until realizability is certain.
Components of income tax expense for the nine months ended
September 30, 1995 and 1994 are as follows:
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
(in thousands)
Income tax provision $ 9 $1,032
Income tax benefit of net
operating loss carryforwards (869)
------ ------
$ 9 $ 163
====== ======
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 4 - Revolving Credit Agreement
On July 28, 1995, the Company amended and restated its revolving
credit agreement ("Credit Agreement") and prepaid and retired its
secured, five-year term loan ("Term Loan") with a bank. The Credit
Agreement provides for a secured revolving credit facility which advances
up to the lesser of 80% of eligible accounts receivable and the Company's
cash and marketable securities, or $10.0 million. The Company used funds
available under the Credit Agreement to prepay the Term Loan. The Credit
Agreement expires December 31, 1996 and is secured by a pledge of all the
capital stock of the Company's wholly-owned subsidiaries, a guarantee by
the Company and a lien on and a security interest in the Company's cash,
cash equivalents, and marketable securities and accounts receivable.
Borrowings under the Credit Agreement bear interest at either the
lending institution's prime rate plus 1% per annum or the Eurodollar rate
plus 2% per annum. The Company is required to pay a quarterly commitment
fee at a rate of half of 1% per annum of the average daily unused amount
of funds available. Additionally, the Credit Agreement contains certain
customary affirmative and negative covenants which require the Company
to maintain certain financial ratios, and, among other things, restrict
(i) declaration or payment of dividends, (ii) the incurrence of any
additional indebtedness, (iii) capital expenditures and (iv) aggregated
lease payments.
Note 5 - Subsequent Events
Acquisition and Supply Contract
The Company has entered into an agreement with Benson Eyecare
Corporation ("Benson") which contemplates that Benson's Foster Grant Group
("Foster Grant") subsidiary will enter into a long-term supply contract
with HMG and the Company will acquire Benson's display assembly
operations. In particular, at closing, Foster Grant will enter into a
seven year agreement with HMG which, subject to certain conditions,
contemplates Foster Grant purchasing a minimum of $4.5 million per year
on average from HMG and further contemplates Foster Grant placing at least
70% of its merchandising display orders with HMG.
The Company will also acquire Benson's display assembly business
which is located in Reading, PA where the unit owns and operates a 125,000
square foot, multi-story production facility. In addition to acquiring
the facility, the Company will acquire additional assets including
production equipment and display inventory and will also assume certain
pre-existing obligations, which the Company estimates will approximate
$3.2 million at closing. The closing, which is scheduled to occur prior
to December 31, 1995, is subject to several conditions including consent
from the Company's lending institution, a phase I environmental study of
the Reading facility and certain financial due diligence to be performed
by the Company.
European Marketing Agreement
Effective October 1, 1995, the Company entered into a three year
marketing support and equipment sale agreement ("European Agreement") with
Turbo Screen, B.V., a wholly-owned subsidiary of Tchai Holdings, B.V.
("Tchai") of the Netherlands. Pursuant to the terms of the European
Agreement, Tchai will provide HMG with production and product development
support and employ four of HMGBV's five employees. In addition, Tchai
paid HMG $30,000 for certain equipment. HMG and Tchai have also agreed
to supply one another with marketing leads. Commissions ranging from 2%-
10% of resulting sales will be paid to the party which supplied the
successful introduction.
<PAGE>
Item 2.
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments
Acquisition and Supply Contract
The Company has entered into an agreement with Benson Eyecare
Corporation ("Benson") which contemplates that Benson's Foster Grant Group
("Foster Grant") subsidiary will enter into a long-term supply contract
with HMG and the Company will acquire Benson's display assembly
operations. In particular, at closing, Foster Grant will enter into a
seven year agreement with HMG which, subject to certain conditions,
contemplates Foster Grant purchasing a minimum of $4.5 million per year
on average from HMG and further contemplates Foster Grant placing at least
70% of its merchandising display orders with HMG.
The Company will also acquire Benson's display assembly business
which is located in Reading, PA where the unit owns and operates a 125,000
square foot, multi-story production facility. In addition to acquiring
the facility, the Company will acquire additional assets including
production equipment and display inventory and will also assume certain
pre-existing obligations, which the Company estimates will approximate
$3.2 million at closing. The closing, which is scheduled to occur prior
to December 31, 1995, is subject to several conditions including consent
from the Company's lending institution, a phase I environmental study of
the Reading facility and certain financial due diligence to be performed
by the Company.
European Marketing Agreement
Effective October 1, 1995, the Company entered into a three year
marketing support and equipment sale agreement ("European Agreement") with
Turbo Screen, B.V., a wholly-owned subsidiary of Tchai Holdings, B.V.
("Tchai") of the Netherlands. Pursuant to the terms of the European
Agreement, Tchai will provide HMG with production and product development
support and employ four of HMGBV's five employees. In addition, Tchai
paid HMG $30,000 for certain equipment. HMG and Tchai have also agreed
to supply one another with marketing leads. Commissions ranging from 2%-
10% of resulting sales will be paid to the party which supplied the
successful introduction. As a consequence of the European Agreement, the
Company will retain one employee, close its Holland office, coordinate
its marketing efforts through Tchai and substantially reduce its
operating expenses in Europe.
Three Months Ended September 30, 1995 as Compared to the
Three Months Ended September 30, 1994
Net revenues were $13.7 million for the three months ended September
30, 1995 as compared to $14.8 million for the three months ended September
30, 1994. The decrease in net revenues from period to period was due
principally to the effects of (i) a decline in net revenues from
international operations of $252,000 and (ii) a decrease in shipments from
period to period of the Company's merchandising systems due principally
to reductions in capital and marketing expenditures of two significant
clients.
Gross profit for the three months ended September 30, 1995 was $3.2
million as compared to $3.8 million for the three months ended September
30, 1994. The decrease in gross profit of $664,000 was a result of the
decline in net revenues and a decrease in gross margin. For the three
months ended September 30, 1995 and 1994, the Company's gross margin was
23.3% and 25.9%, respectively. The gross margin decrease was due
principally to (i) an unfavorable production revenue mix which resulted
in a 1.7% decrease and (ii) the underabsorption of fixed overhead expenses
as a percent of net revenues of 0.9%.
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Selling, general and administrative ("SG&A") expense for the three
months ended September 30, 1995 was $3.6 million as compared to $3.2
million for the comparable period in 1994. The increase in SG&A was due
principally to (i) the addition of new senior marketing personnel from
period to period and (ii) the opening of a new marketing office in
Detroit, MI.
For the three months ended September 30, 1995, the Company generated
interest income of $132,000 as compared to $87,000 for the three months
ended September 30, 1994. The increase was attributable to that portion
of the net proceeds of the Company's 1994 public offering, not immediately
required for the Company's operations, that were invested in interest
bearing marketable securities and commercial paper.
For the three months ended September 30, 1995, the Company incurred
interest expense of $232,000 as compared to $161,000 for the three months
ended September 30, 1994. The increase in interest expense was due
principally to additional borrowings offset by a reduction in the net
interest rate of 1.25%.
As a result of the foregoing factors, the Company generated a net
loss of $515,000, or $0.07 per share, for the three months ended September
30, 1995 as compared to net income of $658,000, or $0.09 per share, for
the three months ended September 30, 1994.
Nine Months Ended September 30, 1995 as Compared to the
Nine Months Ended September 30, 1994
Net revenues were $35.7 million for the nine months ended September
30, 1995 as compared to $47.5 million for the nine months ended September
30, 1994. The decrease in revenues from period to period of $11.8 million
was due principally to the effects of (i) reductions in capital and
marketing expenditures of two significant clients of $7.6 million and (ii)
a decline in net revenues from international operations of $1.8 million.
Gross profit for the nine months ended September 30, 1995 was $7.5
million as compared to $13.4 million for the comparable 1994 period. The
decrease in gross profit of $5.9 million was due principally to the
decline in net revenues and a decrease in gross margin. For the nine
months ended September 30, 1995 and 1994, the Company's gross margin was
21.1% and 28.2%, respectively. The decrease of 7.1% was due principally
to (i) an unfavorable production revenue mix which resulted in a 4.6%
decrease, (ii) the Company's acceptance and shipment of a new program
valued at $807,000 with a new client at a negligible margin in order for
the Company to demonstrate its capabilities which resulted in a 0.6%
decrease and (iii) the underabsorption of fixed overhead expenses as a
percent of net revenues of 1.9%.
SG&A expense for the nine months ended September 30, 1995, was
$12.4 million as compared to $10.7 million for the comparable period in
1994. The $1.7 million increase was principally due to (i) the addition
of new senior marketing personnel from period to period and (ii) the
opening of a new marketing office in Detroit, MI.
Interest income was $449,000 for the nine months ended September
30, 1995 as compared to $117,000 for the nine months ended September 30,
1994. The increase was attributable to that portion of the net proceeds
of the Company's public offering, not immediately required for the
Company's operations, that were invested in interest bearing marketable
securities and commercial paper.
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
For the nine months ended September 30, 1995, the Company incurred
interest expense of $558,000 as compared to $518,000 for the nine months
ended September 30, 1994. The increase in interest expense was due
principally to an increase in net borrowings.
As a result of the foregoing factors, the Company generated a net
loss of $5.0 million, or $0.66 per share, for the nine months ended
September 30, 1995 as compared to net income of $2.3 million, or $0.35
per share, for the nine months ended September 30, 1994.
Stockholders' Equity
Stockholders' equity decreased $4.9 million to $15.3 million at
September 30, 1995 from $20.2 million at December 31, 1994. The decrease
in stockholders' equity is due principally to the net loss of $5 million.
Income Taxes
At December 31, 1994, the Company had net operating loss
carryforwards of approximately $10.9 million which expire during the years
2001 through 2010.
The Company's income tax provision for the nine months ended
September 30, 1995 was $9,000 as compared to $163,000 for the nine months
ended September 30, 1994. The income tax provision for the nine months
ended September 30, 1995 was comprised principally of state and local
alternative minimum taxes. The income tax provision for the nine months
ended September 30, 1994 represents an effective rate of 46.1% comprised
of 29.9% relating to Federal taxes and 16.2% for state and local taxes. The
Federal statutory rate of 34% is greater than the above Federal effective
rate due to the effect of the deduction for state and local income taxes.
The income tax provision for the nine months ended September 30, 1994 is
offset to the extent of $869,000 resulting from the income tax benefit of
utilizing the net operating loss carryforward available to the Company.
The net income tax provision of $163,000 for the nine months ended
September 30, 1994 results principally from Federal, state and local
alternative minimum taxes.
Inflation
The effect of inflation on the Company's operations has not been
significant to date.
Backlog
At September 30, 1995, the Company's aggregate backlog was
approximately $21.4 million as compared to $19.5 million and $21.5 million
at December 31, 1994 and September 30, 1994, respectively. Approximately
48% of such backlog was attributable to two customers. The Company
anticipates that substantially all such backlog at September 30, 1995 will
be filled during the next twelve months. Due to quarter to quarter
fluctuations in the Company's backlog levels due to the timing, nature,
and size of its merchandising system programs for its clients, such
backlog levels are not necessarily an indicator of future net revenue
levels.
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 1995 and December 31,
1994 aggregated $9.2 million and $6.5 million, respectively. In addition,
at December 31, 1994 the Company had investments of $6.8 million in highly
liquid marketable securities. The Company's increase in cash and cash
equivalents of $2.8 million for the nine months ended September 30, 1995
was due principally to the net effects of (i) net cash used in operations
of $8.2 million, (ii) capital expenditures of $361,000, (iii) the addition
of marketable securities as a component of cash and cash equivalents of
$6.8 million, (iv) proceeds from borrowings under the Company's line of
credit with its bank lender of $4.9 million and (v) principal debt
payments of $488,000. The Company's negative cash flows from operations
for the nine months ended September 30, 1995 resulted principally from the
aggregate of (i) an increase in current and other assets of $5 million,
(ii) an increase of $809,000 of the Company's general liabilities and
(iii) the net loss from operations before non-cash charges of $4 million.
On July 28, 1995, the Company amended and restated the Credit
Agreement and prepaid and retired its Term Loan with a bank. The Credit
Agreement provides for a secured revolving credit facility which advances
up to the lesser of 80% of eligible accounts receivable and the Company's
cash and marketable securities, or $10.0 million. The Company used funds
available under the Credit Agreement to prepay the Term Loan. The Credit
Agreement expires December 31, 1996 and is secured by a pledge of all the
capital stock of the Company's wholly-owned subsidiaries, a guarantee by
the Company and a lien on and a security interest in the Company's cash,
cash equivalents, marketable securities and accounts receivable.
Borrowings under the Credit Agreement bear interest at either the
lending institution's prime rate plus 1% per annum or the Eurodollar rate
plus 2% per annum. The Company is required to pay a quarterly commitment
fee at a rate of half of 1% per annum on the average daily unused amount
of funds available. Additionally, the Credit Agreement contains certain
customary affirmative and negative covenants which require the Company to
maintain certain financial ratios, and, among other things, restrict (i)
declaration or payment of dividends, (ii) the incurrence of any additional
indebtedness, (iii) capital expenditures and (iv) aggregated lease
payments. At September 30, 1995, the Company had an aggregate of $9.7
million in borrowings with its bank. Additionally, the Company was in
compliance with all financial covenants under the Credit Agreement, as
amended and restated.
Consistent with the Company's growth strategy, the Company is
actively seeking new clients and developing new products to augment its
current revenue shortfalls. Over the past twelve months, the Company (i)
added to its staff senior marketing personnel, each with extensive
experience in in-store marketing, (ii) consummated a three year marketing
support and equipment sale agreement in Europe which substantially reduces
the Company's European overhead expenses and (iii) will be entering into
a seven year merchandising display agreement with Benson's Foster Grant
Group and will acquire Benson's display operations whereby the closing is
expected to occur in December, 1995. No assurances can be given that
these efforts will result in any new clients or new commercially viable
products.
Due to developmental lead time of between 6 and 18 months from
initial concept to national roll-out of a merchandising display system,
revenues that may be generated by the new personnel will not begin to be
realized until 1996. The Company is reassessing certain components of its
cost structure. To date, the
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Company has identified and begun implementing a cost reduction program,
with the anticipation that such actions will generate estimated annual
cost savings of $3.0 million, in order to mitigate the impact of the
current reduction in net revenues experienced by the Company. There can
be no assurance that such actions will be successful in these regards.
As a result of the budgetary restraints of certain of the Company's
clients and consequent reduced shipments to such clients discussed above,
the Company believes that it may continue to experience revenue shortfalls
during 1995 while it seeks to diversify its client base and improve its
cost and expense structures. Due to the size of the merchandising display
system programs and the underlining timing of the shipment of the orders
thereof, the potential ranges of revenue shortfalls cannot be estimated
with adequate certainty at this time. However, the Company
believes its current cash and short-term investments, backlog, future cash
flowsfrom operations, continued management of working capital requirements
and availability under its revolving credit facility will be sufficient
to support its debt service requirements, the acquisition of Benson's
display operations and its other capital and operating needs. However,
there can be no assurance that such belief will prove to be correct, that
additional financing will not be required, or that any such financing will
be available on commercially reasonable terms or otherwise.
<PAGE>
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 thereunto duly authorized.
HMG Worldwide Corporation
(Registrant)
Date: November 10, 1995 /s/ Robert V. Cuddihy, Jr.
Robert V. Cuddihy, Jr.
Chief Operating Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9242
<SECURITIES> 0
<RECEIVABLES> 13624
<ALLOWANCES> 643
<INVENTORY> 4787
<CURRENT-ASSETS> 27802
<PP&E> 4723
<DEPRECIATION> 2207
<TOTAL-ASSETS> 37072
<CURRENT-LIABILITIES> 20577
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> 15211
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</TABLE>
