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: September 30, 1997
------------------
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
-------
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 12, 1997
--------- --------------------------------
Common Stock, $.01 par value 8,924,150
<PAGE>
Part I. Financial Information
Item 1.
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,642 $ 6,950
Accounts receivable - less
allowance for doubtful
accounts of $241 and $577 8,395 6,454
Inventory 4,369 4,214
Prepaid expenses 339 95
Other current assets 198 240
------- -------
Total current assets 21,943 17,953
------- -------
Property and equipment - net 3,367 3,349
Excess of cost over fair
market value of assets acquired,
less accumulated amortization
of $1,513 and $1,207 6,646 6,952
Other assets 612 501
------- -------
$32,568 $28,755
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations $11,960 $ 9,439
Note payable 35 338
Accounts payable 6,347 5,803
Accrued employee compensation
and benefits 1,125 1,033
Deferred revenue 1,435 1,835
Accrued expenses 926 1,566
Other current liabilities 418 1,175
------- -------
Total current liabilities 22,246 21,189
------- -------
Pension obligation 1,420 1,684
Convertible debentures 2,200
Other long-term liabilities 625 691
------- -------
26,491 23,564
------- -------
Stockholders' equity:
Common stock, par value $.01;
50,000,000 shares authorized;
8,924,150 and 8,129,589 issued
and outstanding 89 81
Additional paid-in capital 34,631 33,903
Accumulated deficit (28,643) (28,793)
------- -------
6,077 5,191
------- -------
$32,568 $28,755
======= =======
See accompanying notes to consolidated financial statements.
2
<PAGE>
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,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Net revenues $10,998 $13,927 $33,848 $38,473
Cost of revenues 8,221 11,218 25,129 30,631
------- ------- ------- -------
Gross profit 2,777 2,709 8,719 7,842
Selling, general and
administrative
expenses 2,558 3,075 8,288 9,470
------- ------- ------- -------
Income (loss)
from operations 219 (366) 431 (1,628)
Interest income 84 88 231 267
Interest expense (281) (206) (769) (584)
Other income 267
------- ------- ------- -------
Income (loss) before
provision for
income taxes 22 (484) 160 (1,945)
Provision for
income taxes (1) (10) (12)
------- ------- ------- -------
Net income (loss) $ 22 ($ 485) $ 150 ($ 1,957)
======= ======= ======= =======
Net income (loss) per
common and common
equivalent share $ - ($ 0.06) $ 0.01 ($ 0.26)
======= ======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding 8,707,483 7,567,517 8,540,807 7,567,517
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
3
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
------------------------------
1997 1996
---- ----
Cash flows from operating activities:
Cash received from customers $31,507 $37,716
Interest received 231 267
Cash paid to suppliers (27,573) (31,182)
Cash paid to employees (6,633) (7,126)
Income taxes paid (19) (12)
Interest paid (769) (590)
------- -------
Net cash used in operating
activities (3,256) (927)
------- -------
Cash flows from investing activities:
Proceeds from the sale of
an investment 356
Capital expenditures (402) (1,084)
------- -------
Net cash used in investing
activities (46) (1,084)
------- -------
Cash flows from financing activities:
Net proceeds from the sale of common
stock as part of a private placement 576
Proceeds derived from the sale of
convertible debentures 2,200
Proceeds derived from a credit
agreement, net 2,521 571
Principal payments of
outstanding debt obligations (303) (253)
------- -------
Net cash provided by
financing activities 4,994 318
------- -------
Effect of exchange rate changes (2)
------- -------
Net increase (decrease) in cash and
cash equivalents 1,692 (1,695)
Cash and cash equivalents
at beginning of year 6,950 8,139
------- -------
Cash and cash equivalents
at September 30 $ 8,642 $ 6,444
======= =======
See accompanying notes to consolidated financial statements.
4
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)
(unaudited)
Nine Months Ended September 30,
------------------------------
1997 1996
---- ----
Reconciliation of net income (loss)
to net cash used in
operating activities:
Net income (loss) $ 150 ($1,957)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Depreciation and amortization 690 646
Other income (267)
Decrease (increase) in assets:
Accounts receivable (1,941) (1,290)
Inventory (155) 1,259
Prepaid expenses (244) 306
Other assets 42 (270)
Increase (decrease) in liabilities:
Accounts payable 544 2,311
Deferred revenue (400) 506
Accrued expenses (1,411) (2,203)
Pension obligation (264) (235)
------ ------
Net cash used in operating
activities ($3,256) ($ 927)
====== ======
Supplemental schedule of non-cash investing
and financing activities:
Common Stock issued in connection with an
employee benefit plan $160
====
See accompanying notes to consolidated financial statements.
5
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Consolidated Financial Statements
HMG Worldwide Corporation ("the Company") conducts its operations
principally through four wholly-owned subsidiaries being, respectively, HMG
Worldwide In- Store Marketing, Inc. ("HMG"), Intermark Corp. ("Intermark"), HMG
Intermark Worldwide Manufacturing, Inc. ("HMG Intermark") and Display Depot,
Inc. ("DDI"), with facilities in New York, Pennsylvania and Illinois.
The Consolidated Balance Sheet as of September 30, 1997, and the
Consolidated Statements of Operations and Cash Flows for the nine months ended
September 30, 1997 and 1996, 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, 1997 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 consolidated financial statements and notes
thereto included in the Company's December 31, 1996 annual report to
shareholders. The results of operations for the period ended September 30, 1997
are not necessarily indicative of the operating results for the full year.
Note 2 - Inventory
Inventories at September 30, 1997 and December 31, 1996 consisted of the
following:
September 30, December 31,
1997 1996
---- ----
(in thousands)
Finished goods $2,797 $1,312
Work in process 443 653
Raw materials 1,129 2,249
------ ------
$4,369 $4,214
====== ======
Note 3 - Income Taxes
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $27.5 million which expire during the years 2001 through 2011. As
of September 30, 1997, a valuation allowance of approximately $11.7 million,
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, 1997
and 1996 are as follows:
Nine Months Ended September 30,
------------------------------
1997 1996
---- ----
(in thousands)
State and local
income taxes $10 $12
=== ===
6
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 4 - Convertible Debentures
Effective September 30, 1997, the Company issued $2.2 million 10%
Convertible Debentures Due September 30, 2000 ("Debentures") through a private
placement ("Private Placement"). Each Debenture bears interest at the rate of
10% per annum and is convertible, at the option of the holder at any time, into
shares of the Company's Common Stock ("Conversion Shares"), $0.01 par value,
based upon the conversion price of $1.25 per share. The Company may prepay the
Debentures, on 30 Days prior notice, at such time as the average closing price
of the Common Stock exceeds $1.75 per share for a 30 day period prior to notice
of such prepayment provided that the Conversion Shares have been registered
under the Securities Act at the time of such prepayment. The Debentures and
Conversion Shares which may be acquired upon the conversion have been issued
without registration by reason of the private offering exemption under Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Accordingly, the Debentures and the Conversion Shares may not be resold by the
respective purchasers thereof absent registration under the Securities Act or
the availability of an applicable exemption from such registration.
Note 5 - Stockholders' Equity
In December 1996, the Company initiated a private placement ("HMG Private
Placement") whereby the Company offered for sale up to 2 million shares of
common stock at $1.00 per share. Pursuant to the terms of the HMG Private
Placement, as of December 31, 1996 the Company sold 377,500 shares of its common
stock at $1.00 per share from which it derived net proceeds of approximately
$377,000. For the nine months ended September 30, 1997, the company sold an
additional 635,000 shares of common stock and derived net proceeds of
approximately $576,000. All stock issued pursuant to the terms of the HMG
Private Placement is restricted stock which has not been registered under the
Securities Act of 1933, as amended ("the Securities Act"), and may not be resold
by the respective purchasers thereof absent registration under the Securities
Act or the availability of an applicable exemption from such registration.
In June 1997, the Company contributed an aggregate of 159,561 shares of
common stock to the HMG Worldwide Corporation Capital Accumulation Plan
maintained for the benefit of the Company's employees. The fair market value of
the common stock was $1.00 per share. The shares were contributed without
registration in reliance upon the exemption provided by Section 4(2) of the
Securities Act.
On September 30, 1997, the Company entered into a two year Consulting
Agreement with Lazam Properties Ltd. ("Consultant") for which the Consultant
will provide financial consulting and other services. Pursuant to the terms of
the Consulting Agreement, the Consultant will receive (i) payments aggregating
$260,000 and (ii) warrants to purchase an aggregate of 200,000 shares of Common
Stock exercisable at $1.25 per share. The warrants are exercisable over a term
of five years.
7
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 as Compared to the
Three Months Ended September 30, 1996
Net revenues were $11.0 million for the three months ended September 30,
1997 as compared to $13.9 million for the three months ended September 30, 1996.
The decrease in net revenues from period to period was due principally to a 1996
national rollout of a merchandising system of approximately $1.9 million with
one significant client and other period to period fluctuations due to the timing
of marketing expenditures of other significant clients.
Gross profit for the three months ended September 30, 1997 was $2.8 million
as compared to $2.7 million for the three months ended September 30, 1996. The
increase in gross profit of $68,000 was principally a result of an increase in
gross margin for the three months ended September 30, 1997 to 25.2% as compared
to 19.4% for the three months ended September 30, 1996, offset in part by the
decrease in net sales. The gross margin increase was due principally to a
favorable production revenue mix resulting in a 9.8% increase, offset by the
underabsorption of fixed overhead expenses as a percentage of net revenues of
4.0%. The favorable production revenue mix was principally the result of an
increase in the number of programs manufactured and assembled at the Company's
Pennsylvania facilities and the increased operational efficiencies on the
specific programs shipped.
Selling, general and administrative expense for the three months ended
September 30, 1997 was $2.6 million as compared to $3.1 million for the
comparable period in 1996. The decrease of $517,000 from period to period was
principally due to (i) a reduction in personnel costs of $136,000 and (ii)
decreased spending in other general expenses.
For the three months ended September 30, 1997, the Company generated
interest income of $84,000 as compared to $88,000 for the three months ended
September 30, 1996. This decrease was principally attributable to a reduction in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period to period.
Interest expense was $281,000 for the three months ended September 30, 1997
as compared to $206,000 for the three months ended September 30, 1996. The
increase in interest expense was principally due to the increased average
borrowings from period to period.
As a result of the foregoing factors, the Company generated net income of
$22,000, for the three months ended September 30, 1997 as compared to a net loss
of $485,000, or $0.06 per share, for the three months ended September 30, 1996.
8
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 as Compared to the
Nine Months Ended September 30, 1996
Net revenues were $33.8 million for the nine months ended September 30,
1997 as compared to $38.5 million for the nine months ended September 30, 1996.
The decrease in net revenues from period to period was due principally to a
reduction in capital and marketing expenditures of three significant clients of
$6.6 million, offset by the increase in marketing expenditures of other
significant clients of $1.9 million. The decrease in net revenues realized by
the Company from three significant clients was principally the result of period
to period fluctuations in marketing programs and timing of national rollouts of
merchandising systems developed by the Company.
Gross profit for the nine months ended September 30, 1997 was $8.7 million
as compared to $7.8 million for the nine months ended September 30, 1996. The
increase in gross profit of $877,000 was principally a result of an increase in
gross margin for the nine months ended September 30, 1997 to 25.8% as compared
to 20.4% for the nine months ended September 30, 1996, offset in part by the
decrease in net sales. The gross margin increase was due principally to a
favorable production revenue mix resulting in a 8.1% increase, offset by the
underabsorption of fixed overhead expenses as a percentage of net revenues of
2.7%. The favorable production revenue mix was principally the result of an
increase in the number of programs manufactured and assembled at the Company's
Pennsylvania facilities and the increased operational efficiencies on the
specific programs shipped.
Selling, general and administrative expense for the nine months ended
September 30, 1997 was $8.3 million as compared to $9.5 million for the
comparable period in 1996. The decrease of $1.2 million from period to period
was principally due to (i) a reduction in personnel costs of $418,000,
(ii)expenses of $175,000 related to the discontinued European operations and
(iii) decreased spending in other general expenses.
For the nine months ended September 30, 1997, the Company generated
interest income of $231,000 as compared to $267,000 for the nine months ended
September 30, 1996. This decrease was principally attributable to a reduction in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period to period.
Interest expense was $769,000 for the nine months ended September 30, 1997
as compared to $584,000 for the nine months ended September 30, 1996. The
increase in interest expense was principally due to the increased average
borrowings from period to period.
In 1994, the Company received shares of common stock of a client in lieu of
payment for services rendered to such client. In March 1997, the Company sold
the shares of common stock and derived net proceeds from the sale of $356,000
and generated a net gain of $267,000 which was recorded as other income.
As a result of the foregoing factors, the Company generated net income of
$150,000, or $0.01 per share, for the nine months ended September 30, 1997 as
compared to a net loss of $2.0 million, or $0.26 per share, for the nine months
ended September 30, 1996.
Stockholders' Equity
Stockholders' equity increased $886,000 to $6.1 million at September 30,
1997 from $5.2 million at December 31, 1996. The increase in stockholder's
equity was principally due to (i)net proceeds derived from the HMG Private
Placement of $576,000, (ii) the contribution of 159,561 shares of common stock,
valued at $1.00 per share, to the HMG Worldwide Corporation Capital Accumulation
Plan and (iii) net income of $150,000.
9
<PAGE>
WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Income Taxes
At December 31, 1996, the Company had available approximately $27.5 million
in net operating loss carryforwards which expire during the years 2001 through
2011.
The Company's income tax provision for the nine months ended September 30,
1997 was $10,000 as compared to $12,000 for the nine months ended September 30,
1996. The income tax provision for the nine months ended September 30, 1997 and
1996 was comprised principally of state and local taxes.
Inflation
The effect of inflation on the Company's operations has not been
significant to date.
Backlog
At September 30, 1997, the Company's aggregate backlog was approximately
$24.9 million as compared to $15.6 million and $14.8 million at December 31,
1996 and September 30, 1996, respectively. Of such aggregate backlog at
September 30, 1997, approximately 52% was attributable to four clients. The
Company anticipates that substantially all such backlog at September 30, 1997
will be filled during the next twelve months. In addition to the $24.9 million
backlog at September 30, 1997, the Company's supply contract with the Foster
Grant Group L.P. ("Foster Grant") requires Foster Grant, subject to certain
limitations, to purchase at least 70% of its in-store merchandising displays
from the Company with average annual purchases to aggregate no less than $2.5
million. The aggregate value of the Foster Grant supply contract at September
30, 1997 was $27.3 million, of which the Company anticipates that $2.5 million
will be shipped within the next twelve months. Due to quarter to quarter
fluctuations in the Company's backlog levels, attributable 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.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 1997 and December 31, 1996
aggregated $8.6 million and $6.9 million, respectively. The Company's increase
in cash and cash equivalents of $1.7 million for the nine months ended September
30, 1997 was due principally to the net effect of (i) net cash used in
operations of $3.3 million, (ii) capital expenditures of $402,000 and (iii)
reduction of debt obligations of $303,000, offset by, (iv) proceeds from
borrowings under the Company's revolving line of credit with its bank lender of
$2.5 million, (v) proceeds from the sale of an investment of $356,000, (vi) net
proceeds derived from the HMG Private Placement of $576,000 and (vii) proceeds
from the sale of Debentures of $2.2 million. The Company's negative cash flows
from operations for the nine months ended September 30, 1997 resulted
principally from (i) an increase in assets of $2.3 million and (ii)a decrease in
general liabilities of $1.2 million.
The Company has secured a $13.0 million Credit Agreement with a financial
institution in the form of a revolving credit and term loan facility. The Credit
Agreement provides for a secured revolving credit facility which advances up to
the sum of (i) 85% of eligible accounts receivable, (ii) the lesser of 60% of
eligible finished goods inventory or $750,000 and (iii) the Company's cash, cash
equivalents and marketable securities. The Credit Agreement is secured by a lien
on and a security interest in the Company's cash, cash equivalents, marketable
securities, accounts receivable, inventory, and equipment and all other tangible
and intangible assets and a pledge of the common stock of each of the Company's
wholly-owned subsidiaries.
10
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Borrowings under the Credit Agreement bear interest at the institution's
prime rate plus 1% per annum. The Company is required to pay a quarterly
commitment fee at the rate of one 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) the
declaration or payment of dividends,(ii) the incurrence of additional
indebtedness and (iii) the sale of certain assets. As of September 30, 1997, the
Company was in compliance with all financial covenants of the Credit Agreement,
as amended.
Pursuant to the terms of the Credit Agreement, the lender can advance up to
$1.6 million in the form of a term loan collateralized by the Company's current
and future real estate and equipment. The term loan portion of the Credit
Agreement is amortized on a sixty month basis with a final payment due upon the
termination of the Credit Agreement and bears interest at the institution's
prime rate plus 1% per annum. At September 30, 1997, the balance outstanding on
the term loan component of the Credit Agreement was approximately $283,000.
Effective September 30, 1997, the Company issued $2.2 million 10%
Convertible Debentures Due September 30, 2000 ("Debentures") through a private
placement ("Private Placement"). Each Debenture bears interest at the rate of
10% per annum and is convertible, at the option of the holder at any time, into
shares of the Company's Common Stock ("Conversion Shares"), $0.01 par value,
based upon the conversion price of $1.25 per share. The Company may prepay the
Debentures, on 30 days prior notice, at such time as the average closing price
of the Common Stock exceeds $1.75 per share for a 30 day period prior to notice
of such prepayment provided that the Conversion Shares have been registered
under the Securities Act at the time of such prepayment. The Debentures and the
Conversion Shares which may be acquired upon the conversion have been issued
without registration by reason of the private offering exemption under Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Accordingly, the Debentures and the Conversion Shares may not be resold by the
respective purchasers thereof absent registration under the Securities Act or
the availability of an applicable exemption from such registration.
The Company's working capital at September 30,1997 was a deficit of
$303,000, inclusive of borrowings of $12.0 million pursuant to the three year
Credit Agreement. The working capital deficit was due principally to (i)
negative cash flows from operations during 1996 and the nine months ended
September 30, 1997 and (ii) increased borrowing under the Company's credit
facilities whereby such proceeds were used in part to finance capital
expenditures of $1.8 million, inclusive of $1.1 million in one-time facility
renovations and equipment upgrades at the Company's Pennsylvania production
facilities during 1996 and 1997. From time to time, the Company experiences
temporary liquidity problems due to the timing of cash flows while the Company
is in production and building inventory. However management believes that
significant cost savings will be realized through the implementation of its 1996
strategic plan whereby the Company moved and consolidated its manufacturing
facilities in Reading, Pennsylvania, restructured the Company's New York and
Chicago offices, upgraded the Company's injection molding division, expanded its
internal wire fabrication capabilities and closed its European office.
Furthermore, management believes that its current cash and cash equivalents, its
backlog, anticipated future cash flows from operations, availability under its
Credit Agreement and the proceeds derived from the HMG Private Placement and
issuance of Debentures will be sufficient to support its debt service
requirements and its other capital and operating needs for the next fiscal year.
11
<PAGE>
HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The above statements and certain other statements contained in this
quarterly report on Form 10-Q are based on current expectations. Such statements
are forward looking statements that involve a number of risks and uncertainties.
Factors that could cause actual results to differ materially include the
following (i) general economic conditions at retail, (ii) competitive market
influences, (iii) client budgetary restrictions (iv) delays in shipment of
scheduled programs to clients (v) delay in or inability to expand the Company's
client base and/or (vi) the loss of or reduction in spending of existing
clients.
12
<PAGE>
Part II. Other Information
Item 2. Changes in Securities
During the three months ended September 30, 1997, the Company sold an
aggregate of 260,000 shares of common stock to David Lloyd, Parker Duryee Rosoff
& Haft, Harry Steck and Andrew Wahl in the HMG Private Placement. The purchase
price per share was $1.00. The shares were sold without registration in reliance
upon the exemption provided by Section 4(2) of the Securities Act.
Effective September 30, 1997, the Company issued $2.2 million 10%
Convertible Debentures Due September 30, 2000 ("Debentures") through a private
placement ("Private Placement"). Each Debenture bears interest at the rate of
10% per annum and is convertible, at the option of the holder at any time, into
shares of the Company's Common Stock ("Conversion Shares"), $0.01 par value,
based upon the conversion price of $1.25 per share. The Company may prepay the
Debentures, on 30 Days prior notice, at such time as the average closing price
of the Common Stock exceeds $1.75 per share for a 30 day period prior to notice
of such prepayment provided that the Conversion Shares have been registered
under the Securities Act at the time of such prepayment. The Debentures were
issued to Eran Benzour, Jack Eisikowitz, David Eisner, Martin Elbaum, Martin
Franklin, Bruce Johnson, MH Capital Partners L.P., Mid-Ohio Securities, William
Nagel, Jack & Gitta Nagel, Louis Perlman, Norman Pessin, Kenneth A. Rubinson,
Leonard Shaykin, Daniel Straus, Moshel Straus, Tsippi Tajchner, Andrew Wahl,
Wynnefield Partners Small Cap Value L.P. and Wynnefield Partners Small Cap Value
Offshore Fund Ltd. The Debentures and Conversion Shares which may be acquired
upon the conversion have been issued without registration by reason of the
private offering exemption under Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. Accordingly, the Debentures and the
Conversion Shares may not be resold by the respective purchasers thereof absent
registration under the Securities Act or the availability of an applicable
exemption from such registration.
13
<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 12, 1997 /S/ Robert V. Cuddihy, Jr.
Robert V. Cuddihy, Jr.
Chief Operating Officer and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000756680
<NAME> HMG Worldwide
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8642
<SECURITIES> 0
<RECEIVABLES> 8636
<ALLOWANCES> 241
<INVENTORY> 4369
<CURRENT-ASSETS> 21943
<PP&E> 5141
<DEPRECIATION> 1774
<TOTAL-ASSETS> 32568
<CURRENT-LIABILITIES> 22246
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 5988
<TOTAL-LIABILITY-AND-EQUITY> 32568
<SALES> 33848
<TOTAL-REVENUES> 33848
<CGS> 25129
<TOTAL-COSTS> 25129
<OTHER-EXPENSES> 8288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 769
<INCOME-PRETAX> 160
<INCOME-TAX> 10
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>