UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1995
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-13121
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HMG Worldwide Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3402432
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Tenth Avenue, New York, NY 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)736-2300
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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
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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
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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 May 12, 1995
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Common Stock, $.01 par value 7,567,517
<PAGE>
Part I. Financial Information
Item 1.
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 1995 December 31, 1994
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$11,562 $6,469
Marketable securities 6,828
Accounts receivable - less
allowance for doubtful
accounts of $773 9,334 7,913
Inventory 4,095 4,307
Prepaid expenses 633 840
Other current assets 272 337
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Total current assets 25,896 26,694
Property and equipment - net 2,797 2,915
Excess of cost over fair
market value of assets acquired,
less accumulated amortization
of $523 and $436 6,452 6,539
Other assets 470 570
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$35,615 $36,718
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations $ 3,873 $ 2,054
Accounts payable 5,009 4,084
Accrued employee compensation
and benefits 1,211 1,371
Deferred revenue 746 1,380
Accrued expenses 582 761
Other current liabilities 2,548 2,925
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Total current liabilities 13,969 12,575
Long-term obligations 2,937 3,182
Other long-term liabilities 738 738
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17,644 16,495
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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 (15,459) (13,140)
Foreign currency translation
adjustments 96 39
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17,971 20,223
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$35,615 $36,718
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See accompanying notes to consolidated financial statements.
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<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended March 31,
----------------------------
1995 1994
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Net revenues $10,950 $17,626
Cost of revenues 8,616 12,760
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Gross profit 2,334 4,866
Selling, general and
administrative expenses 4,640 3,771
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Income (loss) from operations (2,306) 1,095
Interest income 159 19
Interest expense (161) (186)
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Income (loss) before provision
for income taxes (2,308) 928
Provision for income taxes (11) (73)
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Net income (loss) ($ 2,319) $ 855
======= =======
Net income per common and
common equivalent share ($ 0.31) $ 0.14
======= =======
Weighted average number of
common and common equivalent
shares outstanding 7,567,517 6,124,796
========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
1995 1994
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Cash flows from operating activities:
Cash received from customers $ 8,985 $14,844
Interest received 159 19
Cash paid to suppliers (9,180) (13,212)
Cash paid to employees (3,076) (3,477)
Income taxes paid (11) (10)
Interest paid (161) (341)
Net cash used in operating
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activities (3,284) (2,177)
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Cash flows from investing activities:
Proceeds from marketable
securities 6,828
Capital expenditures (129) (177)
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Net cash provided by
(used in) investing
activities 6,699 (177)
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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 10 127
Proceeds derived from a credit
agreement 1,819 875
Proceeds from issuance of
a note 7,000
Principal payments of
outstanding debt obligations (245)
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Net cash provided by
(used in) financing
activities 1,584 (1,628)
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Effect of exchange rate changes 94 22
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Net increase (decrease) in
cash and cash equivalents 5,093 (3,960)
Cash and cash equivalents
at beginning of year 6,469 5,205
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Cash and cash equivalents
at March 31 $11,562 $ 1,245
======= =======
See accompanying notes to consolidated financial statements.
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<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
1995 1994
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Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) ($2,319) $ 855
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 335 338
Decrease (increase) in assets:
Accounts receivable (1,413) (1,719)
Inventory 215 2,156
Prepaid expenses 215 112
Other assets 165 55
Increase (decrease) in liabilities:
Accounts payable 914 (1,220)
Deferred revenue (634) (1,061)
Accrued expenses (762) (1,533)
Accrued interest (160)
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Net cash used in operating
activities ($3,284) ($2,177)
====== ======
See accompanying notes to consolidated financial statements.
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<PAGE>
HMG WORLDWIDE CORPORATION
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, Chicago and The Netherlands.
The Consolidated Balance Sheet as of March 31, 1995, and the
Consolidated Statements of Operations and Cash Flows for the three months ended
March 31, 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 March 31, 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 shareholders. The results of operations for the period
ended March 31, 1995 are not necessarily indicative of the operating
results for the full year.
Note 2 - Inventory
Inventories at March 31, 1995 and December 31, 1994 consisted of
the following:
March 31, December 31,
1995 1994
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(in thousands)
Finished goods $1,302 $ 698
Work in process 650 604
Raw materials 2,143 3,005
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$4,095 $4,307
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Note 3 - Income Taxes
At December 31, 1994, the Company had net operating loss carryforwards
of approximately $10.9 million to expire during the years 2001 through 2010.
As of March 31, 1995 and 1994, a valuation allowance of approximately
$5.9 million and $4.2 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 three months ended March 31, 1995
and 1994 are as follows:
Three Months Ended March 31,
----------------------------
1995 1994
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(in thousands)
Income tax provision $ 11 $ 385
Income tax benefit of net
operating loss carryforwards (312)
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$ 11 $ 73
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<PAGE>
Item 2.
HMG WORLDWIDE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 as Compared to the
Three Months Ended March 31, 1994
Net revenues were $11 million for the three months ended March 31, 1995 as
compared to $17.6 million for the three months ended March 31, 1994. The
decrease in net revenues from period to period was due principally to the
effects of (i) reductions in capital and marketing expenditures of two
significant clients of an aggregate of $4.2 million, (ii) revenues of $629,000
attributable to a roll out of a merchandising display system during the first
quarter of 1994 which was not repeated in 1995, and (iii) a decline in net
revenues from international operations of $909,000. The decrease in net
revenues realized by the Company from two significant clients were principally
the result of these clients' deferrals or reductions in their capital and
marketing expenditures for budgetary and other reasons. Reduced shipments to
such clients may continue if they continue such budgetary reductions and
deferrals. There can be no assurance that net revenues and shipments to these
clients will resume at historical levels. The decline in net revenues from
international operations was due to a decline in production orders from period
to period from its local client base.
Gross profit for the three months ended March 31, 1995 was $2.3 million as
compared to $4.9 million for the three months ended March 31, 1994. The
decrease in gross profit of $2.6 million was principally a result of the decline
in net revenues. For the three months ended March 31, 1995 and 1994, the
Company's gross margin was 21.3% and 27.6%, respectively. The gross margin
decrease was due principally to (i) an unfavorable production revenue mix
resulting in a 3.1% decrease and (ii) the underabsorption of fixed overhead
expenses as a percentage of net revenues of 3.2%.
Selling, general and administrative expense for the three months ended
March 31, 1995 was $4.6 million as compared to $3.8 million for the comparable
period in 1994. The $869,000 increase from period to period was principally a
result of (i) the addition of new senior marketing personnel from period to
period and (ii) the opening of a new marketing office in Detroit.
For the three months ended March 31, 1995, the Company generated interest
income of $159,000 as compared to $19,000 for the three months ended March 31,
1994. This 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.
As a result of the foregoing factors, the Company generated a net loss of
$2.3 million, or $0.31 per share, for the three months ended March 31, 1995 as
compared to net income of $855,000, or $0.14 per share, for the three months
ended March 31, 1994.
Stockholders' Equity
Stockholders' equity decreased $2.2 million to $18 million at March 31,
1995 from $20.2 million at December 31, 1994. The decrease in stockholders
equity as of March 31, 1995 was due principally to the net loss from operations
of $2.3 million.
Income Taxes
At December 31, 1994, the Company has available approximately $10.9
million in net operating loss carryforwards which expire during the years 2001
through 2010.
The Company's income tax provision for the three months ended March 31,
1995 was $11,000 as compared to $385,000 for the three months ended March 31,
1994. The income tax provision for the three months ended March 31, 1995 was
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<PAGE>
HMG WORLDWIDE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
comprised principally of state and local tax alternative minimum taxes. The
income tax provision for the three months ended March 31, 1994 represents an
effective rate of 41.5% comprised of 30.1% relating to Federal taxes and 11.4%
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 three months ended March 31, 1994 income tax
provision is offset to the extent of $312,000, resulting from the income tax
benefit of utilizing the net operating loss carryforward available to the
Company. The net income tax provision of $73,000 for the three months ended
March 31, 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 March 31, 1995, the Company's aggregate backlog was approximately $19.1
million as compared to $19.5 million and $18.7 million at December 31, 1994 and
March 31, 1994, respectively. Approximately 54% of such backlog at March 31,
1995 was attributable to three customers. The Company anticipates that
substantially all such backlog at March 31, 1995 will be filled during the next
nine 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,
the Company's backlog levels are not necessarily an indicator of future net
revenue levels.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1995 and December 31, 1994
aggregated $11.5 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
$5 million for the three months ended March 31, 1995 was due principally to the
net effects of (i) net cash used in operations of $3.3 million, (ii) capital
expenditures of $129,000, (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 revolving line of credit with its bank lender of
$1.8 million and (v) principal debt payments of $245,000. The Company's
negative cash flows from operations for the three months ended March 31, 1995
resulted principally from the aggregate reduction of $493,000 of the Company's
general liabilities, increases in current and other assets of $818,000, and a
net loss from operations before non-cash charges of $2.0 million.
The Company has outstanding a $3.9 million secured, five-year term loan
from its bank lender (the "Term Loan") at March 31, 1995. The Term Loan is
payable in equal quarterly installments through 1999 and bears interest at a
rate per annum equal to either the banks prime rate plus 1 1/2% or the
London Interbank Offered Rate plus 3 1/4%, at the Company's election. The Term
Loan is secured by a pledge of all of the capital stock of certain of the
Company's wholly owned subsidiaries and a lien on all of the assets of the
Company and certain of its subsidiaries. The obligor of the Term Loan is HMG
and the Term Loan is guaranteed by the Company and certain of its subsidiaries.
The Company also has a $6.0 million secured, three-year revolving credit
facility from the same bank lender. At March 31, 1995, there was $2.9 million
outstanding thereunder. The revolving credit facility bears interest at a rate
per annum equal to the bank's prime rate plus 1%. The revolving credit facility
is secured by a pledge of all domestic accounts receivable of the Company. The
obligor of the revolving credit facility is HMG and such facility is guaranteed
by the Company and certain of its subsidiaries.
-8-
<PAGE>
HMG WORLDWIDE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Pursuant to the terms of the Term Loan and the revolving credit facility,
the Company is required to maintain certain financial ratios and, among other
things, is restricted from (i) declaring or paying any dividends, (ii) issuing
any additional indebtedness and (iii) making capital expenditures and aggregate
lease payments or incurring total employee compensation expense in excess of
certain limitations. As of March 31, 1995, the Company was in compliance with
all financial covenants under the Term Loan and revolving credit facility, as
amended.
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 nine months, the Company added to its staff 8 senior
marketing personnel, each with extensive experience in in-store marketing. No
assurances can be given that these efforts will result in any new clients or new
commercially viable products.
Due to the development lead time of between 6 to 18 months from initial
concept to a national roll out of a merchandising display system, revenues that
may be generated by the new personnel will not begin to be realized until the
second half of 1995 or early 1996. The Company is currently assessing certain
components of its cost structure to reduce certain fixed expenses in order to
reduce the impact of the current reduction in net revenues experienced by the
Company.
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
the first nine months of 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 flows from operations,
continued management of working capital requirements and availability under its
revolving credit facility will be sufficient to support its debt service
requirements 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.
-9-
<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: May 12, 1995 /s/ Robert V. Cuddihy, Jr.
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Robert V. Cuddihy, Jr.
Chief Operating Officer and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 11,562
<SECURITIES> 0
<RECEIVABLES> 10,107
<ALLOWANCES> 773
<INVENTORY> 4,095
<CURRENT-ASSETS> 25,896
<PP&E> 4,492
<DEPRECIATION> 1,695
<TOTAL-ASSETS> 35,615
<CURRENT-LIABILITIES> 13,969
<BONDS> 3,916
<COMMON> 76
0
0
<OTHER-SE> 17,895
<TOTAL-LIABILITY-AND-EQUITY> 35,615
<SALES> 10,950
<TOTAL-REVENUES> 10,950
<CGS> 8,616
<TOTAL-COSTS> 8,616
<OTHER-EXPENSES> 4640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> (2,308)
<INCOME-TAX> 11
<INCOME-CONTINUING> (2,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,319)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
