UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 [FEE REQUIRED]
                   For the fiscal year ended June 30, 1997
                                      OR
   [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
       For the transition period from ______________ to___________________

                         Commission file number 0-16730

                         MARKETING SERVICES GROUP, INC.
      (Exact name of small business issuer as specified in its charter)

               Nevada                                       88-0085608
    ------------------------------                      ------------------
   (State or other jurisdiction of                       (I.R.S. Employer
    incorporation or organization)                      Identification No.)

    333 Seventh Avenue, 20th Floor
          New York, New York                                   10001
----------------------------------------                     ----------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:         (212) 594-7688

Securities registered pursuant to Section 12(b) of the Act:      None
                                                           
Securities registered pursuant to Section 12(g) of the Act:      None

                    Common Stock, par value $.01 per share
                    --------------------------------------
                               (Title of class)

Check  whether  the Issuer  (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 ____

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [ ] 

The issuer's revenues for its fiscal year ended June 30, 1997 are $24,144,874.

As of September 25, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $44,305,000.

As of  September  25, 1997,  there were  12,690,357  shares of the  Registrant's
common stock outstanding.

Documents incorporated by reference:  Portions of the Company's definitive proxy
statement  expected to be filed  pursuant to  Regulation  14A of the  Securities
Exchange Act of 1934 have been  incorporated  by reference into Part III of this
report.


<PAGE>


                                    PART I


Special Note Regarding Forward-Looking Statements
-------------------------------------------------
   Certain  statements  in this Annual  Report on Form 10-KSB under the captions
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," "Business" and elsewhere in this Report constitute "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995 (the "Reform Act"). Such  forward-looking  statements  involve known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance or achievements of the Company,  or industry results to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking  statements.  Such factors include,
among others, the following: general economic and business conditions;  industry
capacity;  direct  marketing and other  industry  trends;  demographic  changes;
competition; the loss of any significant customers; changes in business strategy
or development  plans;  availability  and successful  integration of acquisition
candidates;   availability,   terms  and  deployment  of  capital;  advances  in
technology; quality of management; business abilities and judgment of personnel;
availability of qualified personnel;  changes in, or the failure to comply with,
government regulations; and computer, telephone and postal costs.

Item 1 - Business
-----------------

General
-------
   Marketing  Services Group,  Inc. (the "Company" or "MSGI") provides  database
management,  custom  telemarketing/telefundraising  and other  direct  marketing
services to a diverse group of over 600 clients  located  throughout  the United
States and Canada.  These  services  include  customer and market data analysis,
database  creation  and  analysis,  data  warehousing,  merge/purge,  predictive
behavioral   modeling,   list   processing,   brokerage  and  management,   data
enhancement,  other direct  marketing  information  services and custom outbound
telemarketing/telefundraising  services.  The Company  believes its expertise in
applying these direct marketing tools increases the productivity of its clients'
marketing expenditures.

   The Company's services have enabled it to become a leading provider of direct
marketing  services to performing  arts and cultural  institutions in the United
States.  The Company's  clients include Lincoln Center for the Performing  Arts,
Kennedy  center for the  Performing  Arts,  Art  Institute of Chicago,  New York
Philharmonic,  Los Angeles  Philharmonic,  Boston  Symphony,  UCLA and  numerous
public  broadcasting   stations.  In  addition,  the  Company  renders  database
management and direct  marketing  services to such  commercial  clients as Crain
Communications,  the CIT Group, 3Com Corporation,  Citicorp, UNOCAL, Walt Disney
Company, Avery Dennison and Gymboree.

   The Company utilizes  industry  specific  knowledge and proprietary  database
software applications to produce customized data management and direct marketing
solutions. The Company's  telemarketing/  telefundraising services are conducted
both on-site at  client-provided  facilities  and also at the Company's  calling
center in Berkeley,  California. The Company seeks to become an integral part of
its  clients'  marketing  programs  and foster  long-term  client  relationships
thereby providing recurring revenue opportunities.

   The business of MSGI,  previously  known as All-Comm  Media  Corporation  and
prior to that as  Sports-Tech,  Inc.,  arises  out of an April 25,  1995  merger
between  Alliance  Media  Corporation  ("Alliance")  and  the  Company,  and the
concurrent  acquisition of Stephen Dunn & Associates,  Inc. ("SD&A"),  a leading
telemarketing  and  telefundraising  company  specializing  in direct  marketing
services  for  the  arts,   educational  and  other   institutional   tax-exempt
organizations.  Simultaneously,  the  former  management  and  directors  of the
Company  resigned in favor of the merger with  Alliance  and its plan to build a
specialized  marketing  services  company  with  a  focus  on  providing  direct
marketing,  information and media services. The change in the Company's name was
approved at a special  stockholders meeting held on August 22, 1995 to reflect a
new direction  originating  from the change in management and board of directors
associated  with the merger  with  Alliance.  Subsequent  to another  management
change,  on June 30,  1997,  the  stockholders  approved the current name of the
Company.  Effective as of October 1, 1996,  the Company  acquired Metro Services
Group,  Inc. (to be renamed Metro Direct,  Inc.) ("Metro")  pursuant to a merger
agreement. Metro develops and markets information-based services, used primarily
in direct marketing by a variety of commercial and not-for-profit organizations,
principally in the United States.  The Company's shares are traded on the NASDAQ
Small Cap MarketSM under the symbol "MSGI".  The Company's  principal  executive
offices are located at 333 Seventh Avenue,  20th Floor,  New York, NY 10001. Its
telephone number is (212) 594-7688.

The Company's Strategy
----------------------
   MSGI's strategy to enhance its position as a value-added  premium provider of
database  management,  custom  telemarketing/telefundraising  services and other
direct marketing services is to:

     Increase  revenues  by  expanding  the range of direct  marketing  services
offered and by  cross-selling;  Deepen market  penetration in new industries and
market  segments  as well as those  currently  served  by the  Company;  Develop
existing and create new proprietary  database  software and database  management
applications;  Increase capacity for telemarketing/telefundraising  services and
enhance on-site data and calling  systems;  and Pursue  strategic  acquisitions,
joint  ventures and  marketing  alliances to expand  direct  marketing  services
offered and industries served.

   Other than as  described  in this Annual  Report on Form  10-KSB  (this "Form
10-KSB") the Company has no agreements to acquire any companies and there can be
no assurance that the Company will be able to acquire such companies.

History and Prior Activities
----------------------------
   The Company was originally incorporated in Nevada in 1919. During 1991, under
prior   management,   the  Company  acquired  a  100%  interest  in  Sports-Tech
International,  Inc. ("STI") and changed its name to Sports-Tech,  Inc. In 1993,
the Company acquired the business of High School Gridiron Report  ("HSGR").  STI
and HSGR  supplied  information  services  and  technology  as well as academic,
athletic and video data to high  school,  college and  professional  coaches and
student athletes. In November, 1994, after a failed business strategy, the prior
management of the Company  discontinued these operations through the sale of STI
and the  cessation  of the HSGR  operation.  Prior to, and as a condition of the
merger with Alliance, the Company was required to divest its investments, except
for an undeveloped parcel of land in Laughlin,  Nevada. In August, 1996 the land
was  sold.  (See  All-Comm  Holdings,  Inc.  herein  for a  description  of this
investment and the terms of its sale.)

Merger with Alliance Media Corporation:

   On April 25, 1995,  STI Merger  Corporation  ("Merger  Sub"),  a wholly owned
subsidiary of the Company, was merged (the "Merger") with and into Alliance.

   The assets of Alliance  acquired by the Company  consisted  primarily of: (i)
all of the issued and  outstanding  stock of SD&A,  which  Alliance had acquired
effective  April 25, 1995 pursuant to a Stock  Purchase  Agreement,  dated as of
January 31, 1995,  between Alliance and Mr. Stephen Dunn (the "Dunn Agreement");
(ii) a five-year  covenant  not to compete  with the former  owner of SD&A;  and
(iii) the cash proceeds (net of certain payments,  including the payment of $1.5
million  required  pursuant  to the  terms of the Dunn  Agreement)  of a private
placement of equity securities by Alliance, which securities,  upon consummation
of the Merger,  were converted into shares of the Company's common stock. 

Stephen Dunn & Associates, Inc. ("SD&A"):

   SD&A was formed in 1983 and was  acquired  by the  Company in the merger with
Alliance.  For the twelve month period ended June 30, 1997 ("Fiscal 1997"), SD&A
had  revenues of more than $15.9  million.  Clients of SD&A  include many of the
larger  performing  arts and cultural  institutions,  such as major  symphonies,
theatres and musical arts companies,  along with public  broadcasting  stations,
advocacy groups and educational institutions. SD&A's clients include over 150 of
the nation's leading institutions and universities. SD&A has its headquarters in
Los Angeles, California and operates a telemarketing calling center in Berkeley,
California.

Stock Split - Change in Authorized Common Shares:

   Effective  August 22,  1995,  the  Company's  Board of  Directors  approved a
one-for-four  reverse stock split of the Company's  authorized and issued common
stock.  Fractional  shares were  rounded up to whole  shares.  After the reverse
stock split, approximately 3,016,000 shares were outstanding.  All share and per
share data in this Annual Report  reflect the effect of the reverse stock split.
Effective  August 14, 1996, the Company's  shareholders  approved an increase in
the number of authorized shares of common stock from 6,250,000 to 36,250,000, to
facilitate its corporate strategy and growth plans.

Current Activities
------------------
Acquisition of Metro Direct:

   Metro was formed in 1987 and was acquired by the Company effective October 1,
1996,  pursuant to a merger agreement.  For the nine month period ended June 30,
1997, Metro had revenues of more than $8.1 million.  Clients include many of the
same performing arts and cultural  institutions,  public broadcasting,  advocacy
groups and educational  institutions as SD&A, as well as a variety of commercial
organizations.  Metro has its  headquarters  in New York  City,  with  satellite
offices in Michigan, Illinois, California and Georgia.

   Metro develops and markets a variety of database  direct  marketing  products
and services to a wide range of commercial clients and tax-exempt organizations.
Metro provides  information-based  products and services to the direct marketing
industry through its four divisions: Metro Direct Marketing, which provides full
service  direct  marketing  programs  for  consumers  and  business  to business
clients,  particularly  in the financial  services and  publishing  areas;  MSGI
Computer  Services which  utilizes a combination of mainframe,  PC platforms and
Internet servers for database development,  data enhancement,  response analysis
and predictive modeling  capabilities;  MetroArts develops and executes customer
acquisition  campaigns  for the  performing  arts,  entertainment  and  cultural
institutions and Metro Non-Profit  provides strategic  planning,  membership and
direct mail fundraising campaigns for non-profit  institutions.  The majority of
Metro's revenues are derived from a commercially driven client base.

   In  exchange  for all of the then  outstanding  shares of Metro,  the Company
issued  1,814,000 shares of its common stock valued at $7,256,000 and promissory
notes (the "Notes") totaling $1,000,000. The Notes, which have a stated interest
rate of 6%,  were  discounted  to  $920,000  to reflect an  estimated  effective
interest  rate of 10%. The Notes are due and  payable,  together  with  interest
thereon,  on June 30, 1998, subject to earlier  repayment,  at the option of the
holder,  upon  completion  by the  Company  of a public  offering  of its equity
securities.  The Notes are convertible on or before  maturity,  at the option of
the holder, into shares of common stock at a conversion rate of $5.38 per share.
$100,000 of the principal amount of the Notes was paid by the Company as of June
30, 1997 and $400,000 was paid in July, 1997.

   The  acquisition  was accounted for using the purchase  method of accounting.
The purchase  price was allocated to assets  acquired  based on their  estimated
fair value.  This treatment  resulted in approximately  $7.3 million of costs in
excess of net  assets  acquired,  after  recording  covenants  not to compete of
$650,000 and  proprietary  software of $250,000.  Such excess is being amortized
over the expected  period of benefit of forty years.  The covenants and software
are  amortized  over  their  expected  benefit  periods  of three and five years
respectively.

   The operating  results of this  acquisition are included in the  consolidated
results of operations from the date of acquisition.

Acquisition of Pegasus Internet, Inc. ("Pegasus"):

   Effective July 1, 1997,  MSGI announced the  acquisition of Pegasus.  Pegasus
was formed in 1994 and is  incorporated in New York. For the year ended June 30,
1997, Pegasus had unaudited revenues of approximately  $445,000. In exchange for
all of the then outstanding shares of Pegasus, the Company issued 600,000 shares
of its  common  stock,  valued at  $1,800,000,  and  $200,000  in cash.  Pegasus
provides a full suite of Internet  services,  including content  development and
planning,  marketing strategy,  on-line ticketing system development,  technical
site hosting,  graphic design,  multimedia  production and electronic  commerce.
Pegasus' clients include Lincoln Center,  Boston Symphony,  Chicago Symphony and
Metropolitan Opera Guild.

   The  acquisition   will  be  accounted  for  using  the  purchase  method  of
accounting.  Accordingly,  the operating  results of Pegasus will be included in
the consolidated results of operations of the Company starting on July 1, 1997.

Recapitalization:

   On December 23, 1996, the Company and certain of its securityholders effected
a recapitalization  of the Company's capital stock,  whereby:  (i) the Company's
Series B Convertible  Preferred  Stock,  par value $.01 per share (the "Series B
Preferred  Stock"),  was  converted,  in  accordance  with its terms without the
payment of additional consideration, into 2,480,000 shares of Common Stock; (ii)
the Company's  Series C Convertible  Preferred  Stock,  par value $.01 per share
(the "Series C Preferred  Stock"),  was repurchased  for promissory  notes in an
aggregate principal amount of $1.0 million, which promissory notes bore interest
at a rate of 8% per  annum  and were  repayable  on  demand at any time from and
after the date of the consummation of a proposed underwritten public offering by
the Company of Common Stock, but in any event such notes originally matured June
7, 1998 but were paid in full in April,  1997; (iii) all accrued interest on the
Series B Preferred  Stock and the Series C Preferred  Stock was  converted  into
88,857 shares of Common Stock;  (iv) warrants  related to the Series C Preferred
Stock,  currently  exercisable  for  3,000,000  shares  of  Common  Stock,  were
exchanged for 600,000 shares of Common Stock; and (v) options held by two of the
Company's  principal  executive  officers to purchase  300,000  shares of common
stock were to be  canceled  at no cost to the  Company,  subject  to  successful
completion of an underwritten  offering. The public offering was not consummated
and, accordingly, the options were not canceled. Upon conversion of the Series B
Preferred Stock and accumulated  interest  thereon into Common Stock on December
23,  1996,  the Company  incurred a  non-cash,  non-recurring  dividend  for the
difference  between  the  conversion  price and the  market  price of the Common
Stock,  totaling $8.5 million.  Upon repurchase of the Series C Preferred Stock,
the Company  incurred a  non-recurring  dividend of $573,000 for the  difference
between  the  repurchase  price  and the  accreted  book  value of the  stock at
December  23, 1996.  These  dividends  do not impact net income  (loss),  but do
impact net income (loss)  attributable to common stockholders in the calculation
of earnings per share.

Withdrawal of Registration Statement:

   On October 17, 1996,  the Company  filed a Form SB-2  registration  statement
(the "Registration Statement") with the Securities and Exchange Commission.  The
Registration  Statement related to a proposed  underwritten public offering (the
"Proposed  Offering") of 2,100,000  shares of Common Stock,  of which  1,750,000
shares  were being  offered by the Company  and  350,000  were being  offered by
certain  stockholders  of the Company.  It also related to the sale of 1,381,056
shares of Common Stock by certain selling  stockholders on a delayed basis.  Due
to  market   conditions,   on  February  11,  1997,  the  Company  withdrew  the
Registration  Statement and pursued other sources of financing.  As such, in the
year ended June 30, 1997, the Company expensed $1.2 million in Proposed Offering
costs.

Restructuring Costs:

   During the year ended June 30, 1997, the Company effected  certain  corporate
restructuring  steps,  including the decision to reduce  corporate  staffing and
other  administrative  overhead,  as well as  making  two  executive  management
changes. In this connection,  restructuring  expenses of $986,000 were recorded.
Executive  management  settlement  agreements  include two non-interest  bearing
promissory  notes  with face  values of  $290,000  and  $250,000,  respectively,
payable in equal  installments over eighteen months starting in May, 1997. These
notes have been  discounted to $268,000 and $231,000,  respectively,  to reflect
effective interest rates of 10%.

Financing:

   In March  1997,  to obtain  $2.1  million in working  capital  and reduce the
overhang  associated  with the existence of  outstanding  warrants,  the Company
accepted  offers from certain  warrant-holders  to exercise  their  warrants for
3,152,500  shares of common stock at  discounted  exercise  prices. 

   In the fourth quarter of 1997, the Company obtained $2,046,000,  net of fees,
from  the  private  placement  of 6%  convertible  notes,  with a face  value of
$2,200,000.  The notes are  payable  with  interest  on April 15,  1999,  if not
previously  converted.  The notes are  convertible  into shares of the Company's
Common Stock at the lesser of $2.50 per share or 83% of the average  closing bid
price of the Common Stock during the last five trading days prior to conversion.
Subsequent to June 30, 1997,  through September 23, 1997,  $1,675,000 face value
of the notes, plus interest, was converted into 684,122 shares.

The Direct Marketing Industry
-----------------------------
   Overview.  Direct  marketing  is used for a  variety  of  purposes  including
lead-generation  and prospecting for new customers,  enhancing existing customer
relationships,  exploring  the  potential  for new  products  and  services  and
establishing new products.  Unlike traditional mass marketing,  aimed at a broad
audience and focused on creating  image and general brand or product  awareness,
successful  direct  marketing   requires  the  identification  and  analysis  of
customers  and  purchasing  patterns.  Such patterns  enable  businesses to more
easily  identify  and  create a  customized  message  aimed at a highly  defined
audience.  Previous direct marketing  activity  consisted  principally of direct
mail,  but  now  has  expanded  into  the  use  of  multiple  mediums  including
telemarketing,  print,  television,  radio, video, CD-ROM, on-line services, the
Internet and a variety of other interactive marketing formats.

   The success of a direct  marketing  program is the result of the  analysis of
customer   information   and  related   marketing  data.   Database   management
capabilities   allow  for  the  creation  of  customer   lists  with   specific,
identifiable attributes.  Direct marketers use these lists to customize messages
and marketing  programs to generate new customers whose purchasing  patterns can
be  statistically  analyzed to isolate key  determinants.  In turn, this enables
direct marketers to continually evaluate and adjust their marketing programs, to
measure  customer  response  rates in  order  to  assess  returns  on  marketing
expenditures, and to increase the effectiveness of such marketing programs.

   Database  management covers a range of services,  including general marketing
consultation,  execution of marketing  programs and the creation and development
of customer  databases  and sales  tracking  and data  analysis  software.  Data
analysis software consolidates and analyzes customer profile information to find
common  characteristics  among buyers of certain  products.  The results of such
tracking  and  analysis  are used to  define  and  match  customer  and  product
attributes from millions of available database files for future direct marketing
applications.  The  process  is one of  continual  refinement,  as the number of
points of contact with customers  increases,  together with the proliferation of
mediums available to reach customers.

   Telemarketing/telefundraising  projects generally require significant amounts
of customer  information  supplied by the client or third party sources.  Custom
telemarketing/telefundraising  programs  seek  to  maximize  a  client's  direct
marketing  results by  utilizing  appropriate  databases to  communicate  with a
specific audience.  This  customization is often achieved through  sophisticated
and  comprehensive  data analysis which identifies  psychographic,  cultural and
behavioral patterns in specific geographic markets.

   Industry Growth:  The use of direct marketing has increased over the last few
years due in part to the relative cost efficiency of direct  marketing  compared
to mass  marketing,  as well as the rapid  development of more powerful and more
cost-effective  information technology and data capture capabilities.  According
to industry  sources,  over the next decade,  demographic  shifts and changes in
lifestyle,  combined with new marketing  mediums,  are expected to create higher
demand  by  businesses  for  marketing   information  and  services  to  provide
businesses  with direct access to their  customers and a more efficient means of
targeting  specific audiences and developing  long-term customer  relationships.
According to a study commissioned by the Direct Marketing  Association  ("DMA"),
expenditures for direct marketing services in 1996 were estimated to approximate
$144.5 billion,  the largest component of which, $57.8 billion, was attributable
to telemarketing.  The study estimated that annual direct marketing  advertising
expenditures may grow to $205 billion by the year 2001,  including $84.4 billion
on telemarketing.

   Corporate marketing departments often lack the technical expertise to create,
manage and control highly technical aspects of the direct marketing process.  As
a result,  the  Company  believes  that there is a growing  trend  among  direct
marketers to outsource direct marketing programs.

   Industry   Consolidation:   The  direct   marketing   industry  is  extremely
fragmented.  According  to  industry  sources,  there are almost  11,000  direct
marketing  service and database  service  businesses in the United  States.  The
Company believes that most of such businesses are small,  specialized  companies
which offer limited services.  However,  industry consolidation has increased in
the last few years  resulting in a greater number of large  companies  providing
services  similar to those  provided  by the  Company.  See  "Competition."  The
Company  believes  that much of this  consolidation  is due to: (i) economies of
scale in hardware, software and other marketing resources; (ii) cross-selling of
services;  and (iii)  coordinating  various  components of direct  marketing and
media programs within a single, reliable environment. The Company believes these
trends  are  likely  to  continue  due  in  part  to  client   demand  for  more
cost-effective service to perform increasingly complex functions.

Growth Strategy
---------------
   As clients for the  Company's  services  demand more  sophisticated  database
management  services,  custom  telemarketing/telefundraising  services and other
direct  marketing  services,  the Company  believes  that there are  significant
growth  opportunities to expand its business.  Accordingly,  the key elements of
the Company's growth strategy are as follows:

   Expand the Range of Services Offered and  Cross-Selling:  The Company intends
to offer a wider  range of  direct  marketing  services  while  maintaining  its
current level of quality and performance.  To effect this strategy,  the Company
will focus on  assembling  a spectrum of direct  marketing  services,  including
expanding  outbound  custom   telemarketing/telefundraising   services,   market
research, training,  marketing,  consulting, and database management services as
well as an array of ancillary  services.  These services include  electronic and
other  multimedia  mediums,  including  the  Internet,  for  inclusion  within a
client's  marketing  programs.  The Company intends to utilize its technological
and industry expertise to provide flexible integrated solutions to meet clients'
specialized   requirements   and  to  improve   coordination   between  database
capabilities and value-added premium telemarketing services.

   Expand  Market  Penetration:  The  Company  intends  to  capitalize  on  core
competencies  and industry  specific  expertise,  particularly in the performing
arts and  cultural  markets,  which it  believes  will  enable it to  maintain a
competitive advantage.  For example, the live entertainment and events marketing
industry spends substantial amounts on advertising and direct marketing programs
which  utilize  many  of the  Company's  services,  such as  audience  analysis,
customer profiling,  database creation and management, list processing services,
telemarketing and direct marketing  support.  The Company believes its expertise
in database  management and custom  telemarketing  will permit it, over time, to
gain a larger market share.

   In  addition,   the  Company  believes  that  its  developed   expertise  and
experience, as well as its broad and well-known client base and quality service,
will enable it to gain further acceptance in such industries as publishing, live
entertainment  and events marketing,  public  broadcasting,  financial  services
(including  credit card,  home  mortgage and home equity  services),  education,
travel and leisure and healthcare.

   Develop Existing and Create New Proprietary  Software and Database Management
Applications:  The  Company  intends to  continue  to develop  existing  and new
proprietary customized data processing software products and services that allow
enhancement of a client's direct marketing  databases.  These software  products
and services also improve the  effectiveness of  telemarketing  programs and the
management of client information.  The Company intends to continue to expand its
direct  marketing  service  offerings,  particularly  with software  designed to
create and manage large relational and/or  multidimensional  databases,  and its
ability to integrate such data with different  marketing  programs  developed in
collaboration with its clients.

   Increase Capacity for Telemarketing/Telefundraising Services: Enhance On-Site
Data and Calling Systems.  The Company has recently  expanded its calling center
in  Berkeley,  California  to  accommodate  more  calling  stations and upgraded
technology  in  order  to  increase  revenues,   improve  margins  and  increase
efficiency in client direct marketing programs. The Company intends to implement
similar  technological  improvements at on-site locations through new technology
configurations  and software systems that link information with client databases
and direct  marketing  programs and to further upgrade both the Berkeley calling
center and other on-site locations as needed.

   Pursue Strategic  Acquisitions,  Joint Ventures and Marketing Alliances:  The
Company believes that as the direct marketing industry consolidates,  breadth of
skills,  industry  knowledge  and size will  become.  As a result,  the  Company
intends to expand its  capabilities  to  increase  industry  knowledge  and help
clients to improve returns on marketing  expenditures.  Although the Company has
not  specifically  identified  any  particular  geographic  market,  the Company
believes  it can  enter new  geographic  markets  and  increase  penetration  of
targeted  industries by acquiring  companies with clients in such new geographic
markets whose business focus will complement and/or expand the Company's current
range  of  services.   As  a  result,  the  Company  seeks  and  is  considering
acquisitions in order to enlarge its core  competencies  in database  management
and custom telemarketing/telefundraising  services and to increase its potential
for cross-selling and providing other direct marketing  services.  No agreement,
definitive  or  otherwise,  has been  reached  with  respect to any  acquisition
currently  being  considered and no assurance can be given that the Company will
complete either the acquisitions  under  consideration or any other acquisition,
or that any acquisition, if completed, will be successful.

   The Company  also  intends to continue to grow  internally  by  investing  in
systems,  technology  and personnel  development  to enable  clients to utilize,
within a single  environment,  various services such as database creation,  data
warehousing,   database  management  and  decision  support  capabilities,  list
processing,  modeling,  and response  measurement  and  analysis.  Because these
services provide the fundamental  support systems for direct marketing and media
selection processes, the Company seeks to expand its base of technology.

Services
--------
   The Company's operating businesses provide comprehensive database management,
custom  telemarketing/telefundraising  and other direct marketing services.  The
principal  advantages of customized services include:  (i) the ability to expand
and adapt a database to the client's  changing  business needs; (ii) the ability
to have services operate on a flexible basis consistent with the client's goals;
and (iii) the integration with other direct marketing,  database  management and
list processing functions, which are necessary to keep a given database current.
Some services offered by the Company are described below.

   Database  Management  Services:  The Company's database  management  services
begin with database creation and development,  which include the planning stages
and analytical  processes to review all of the client's customer and operational
files.   Utilizing  both  proprietary  and  commercial  software,   the  Company
consolidates all of the separate  information and relationships  across multiple
files and converts the client's raw information into a consolidated format. Once
the client's customer data is consolidated and the database created, the data is
enhanced using a wide selection of demographic, geographic, census and lifestyle
information  for over 95  million  households  and 153  million  individuals  to
identify  patterns and  probabilities  of behavior.  The Company  licenses  this
information from a variety of leading data compilers.

   The  combination  of each  client's  proprietary  customer  information  with
external data files provides a customized  profile of a client's  customer base,
enabling  the client,  through the use of the  Company's  behavior  modeling and
analysis  services,  to design a direct  marketing  program  for its  customers.
Through the development of a scoring model,  the client can segment its database
and determine its best customers and prospects in each  marketplace.  The entire
process results in a customized direct marketing program that can be targeted to
distinct  audiences  with a high  propensity  to buy the  client's  products  or
services.  Because of the  dynamic  nature and  complexity  of these  databases,
clients  frequently  request  that the Company  update such  databases  with the
results of recent marketing  programs and  periodically  perform list processing
services as part of the client's ongoing direct marketing efforts.

   Data Processing:  The Company's primary data processing  service is to manage
from the  Company's  data  center,  all or a  portion  of a  client's  marketing
information  processing  needs.  After  migrating  a  client's  raw  data to the
Company's data center, the Company's technology allows the client to continue to
request and access all available information from remote sites. The database can
also be verified  for  accuracy  and overlaid  with  external  data  elements to
further identify specific consumer behavior.

   Other data  processing  services  provided  include  migration  (takeover and
turnover)  support for  database  maintenance  or  creation,  merge/purge,  data
overlay  and postal  qualification.  The Company  also offers  on-line and batch
processing capacity, technical support, and data back-up and recovery.

   List Services:  List  processing  includes the  preparation and generation of
comprehensive  name  and  address  lists  which  are  used in  direct  marketing
promotions.  The  Company's  state-of-the-art  data  center in New York City and
large  volume  processing  capabilities  allow  the  Company  to meet  the  list
processing  needs of its clients through its advanced list  processing  software
applications,  list  brokerage  and  list  management  operations.  The  Company
customizes list processing solutions by utilizing a variety of licensed software
products  and  services,  such  as  Address  Conversion  and  Reformat,  Address
Standardization and Enhanced Merge/Purge,  as well as National Change of Address
(NCOA),  Delivery Sequence File and Locatable Address Conversion  System.  Other
licensed  products include  databases used for suppressions such as the DMA Mail
Preference File and the American Correctional Association Prison Suppress File.

   The   Company   also  offers  an  array  of  list   acquisition   techniques.
Approximately  12,000 lists are available for rental in the list  industry.  The
Company's  account  managers,  most of whom  are  hired  from  existing  Company
accounts,  use  their  industry  experience  as well as  sophisticated  computer
profiles to recommend particular lists for customer acquisition  campaigns.  The
Company  acquires   hundreds  of  millions  of  records  annually  for  customer
acquisition  campaigns.  The  Company  also  manages  over 75 lists  for  rental
purposes on behalf of list owners.

   Database Product Development: To further leverage its database management and
list processing  services,  the Company has participated in the development of a
new  product  using  client/server  technology.  The  product  is  a  scaleable,
three-tiered   client/server   data  warehouse  system  that  provides  desktop,
real-time decision support and marketing analysis to a non-technical  user. This
application  is an intuitive,  graphical  user  interface  tool that offers both
flexibility and the ability to access and analyze large customer files exceeding
100 million records. The incorporation of third-party  software,  relational and
multidimensional  database  technology in an open system environment is intended
to allow the Company's  clients to take advantage of the latest  developments in
high-speed computing, utilizing both single and multi-processor hardware.

     Custom   Telemarketing/Telefundraising   Services:   Custom  telemarketing/
telefundraising  services  are  designed  according  to  the  client's  existing
database and any other  databases  which may be purchased or rented on behalf of
the client to create a direct  marketing  program  or  fundraising  campaign  to
achieve  specific  objectives.  After  designing  the program  according  to the
marketing  information derived from the database analysis,  it is conceptualized
in terms of the message content of the offer or solicitation,  and an assessment
is made of other  supporting  elements,  such as the use of a direct mail letter
campaign.

   Typically,  a campaign is designed in collaboration with a client, tested for
accuracy  and  responsiveness  and  adjusted  accordingly,  after which the full
campaign is  commenced.  The full campaign  runs for a mutually  agreed  period,
which can be shortened or extended depending on the results achieved.

   An important feature of the custom telemarketing/telefundraising  campaign is
that it can be implemented  either on-site at a  client-provided  facility or at
the Company's  calling  center in Berkeley,  California.  On-site  campaigns are
generally  based  on  what  is  called  a  "relationship"  or  "affinity"  sale.
Telemarketing  campaigns  often require  multiple calls whereby a caller must be
knowledgeable  about the  organization  and the subject  matter and will seek to
engage  a  prospect   selected  from  the  client's   database  in  an  extended
conversation  which  serves to: (i) gather  information;  (ii) convey the offer,
describe its merits and cost, and solicit gifts or donations; and (iii) conclude
with a purchase, donation or pledge.  Telefundraising from the Company's calling
center usually involves  campaigns that do not use the multiple call format, but
instead use computer  driven  predictive  dialing  systems which are designed to
maximize  the usage rate for all  telephones  as the system  works  through  the
calling database.

   Market  Analysis:  The Company's  market  research  services  include problem
conceptualization,  program design,  data gathering and results analysis.  These
services are conducted through telephone, mail and focus groups. Through the use
of data  capture  technology,  the  Company  is also able to obtain  data from a
statistically  predictable  sample of market survey  contacts.  The Company then
tabulates and analyzes fielded data using multi-variate  statistical techniques,
and produces detailed reports to answer clients' marketing questions and suggest
further marketing opportunities.

   Direct Mail Support  Services:  The  Company's  direct mail support  services
include    preparing   and   coordinating    database    services   and   custom
telemarketing/telefundraising   services  for  use  in  addressing  and  mailing
materials  to current and  potential  customers.  The Company  obtains  name and
address  data from clients and other  external  sources,  processes  the data to
eliminate   duplicates,   corrects  errors,   sorts  for  postal  discounts  and
electronically  prepares the data for other vendors who will address pre-printed
materials.

Marketing and Sales
-------------------
   The Company's marketing strategy is to offer customized solutions to clients'
database  management,  telemarketing/telefundraising  and other direct marketing
requirements. Historically, the Company's operating businesses have acquired new
clients and marketed  their  services by attending  trade shows,  advertising in
industry  publications,  responding to requests for proposals,  pursuing  client
referrals  and  cross-selling  to existing  clients.  The Company  targets those
companies that have a high probability of generating  recurring revenues because
of their ongoing direct  marketing  needs, as well as companies which have large
customer bases that can benefit from targeted direct marketing database services
and customized telemarketing/telefundraising services.

   The   Company   markets   its   database    management    services,    custom
telemarketing/telefundraising  services  and  other  direct  marketing  services
through  a sales  force  consisting  of both  salaried  and  commissioned  sales
persons. In some instances, account representatives,  will coordinate a client's
database management,  custom  telemarketing/telefundraising  and/or other direct
marketing needs to identify cross-selling opportunities.

   Account  representatives  are responsible for keeping  existing and potential
clients informed of the results of recent marketing  campaigns,  industry trends
and new developments in the Company's technical database  resources.  Often, the
Company  develops  an initial  pilot  program  for new or  potential  clients to
demonstrate the  effectiveness  of its services.  Access to data captured during
such pilot  programs  allows the Company and its clients to identify  previously
unrecognized  target market  opportunities and to modify or enhance the client's
marketing effort on the basis of such information.  Additionally, the Company is
able to provide  its clients  with  current  updates on the  progress of ongoing
direct marketing programs.

     Pricing   for   database   management   services,   custom   telemarketing/
telefundraising  services and other direct marketing  services is dependent upon
the complexity of the services  required.  In general,  the Company  establishes
pricing for clients by detailing a broad range of service  options and quotation
proposals for specific  components of a direct marketing  program.  These quotes
are based in part on the  volume of  records  to be  processed  and the level of
customization required.  Additionally, if the level of up-front customization is
high,  the  Company  charges  a  one-time  development  fee.  Pricing  for  data
processing services is dependent upon the anticipated range of computer resource
consumption.  Typically,  clients are charged a flat or stepped-up rate for data
processing services provided under multi-year contracts. If the processing time,
data  storage,  retrieval  requirements  and output  volume  exceed the budgeted
amounts, the client may be subject to an additional charge.  Minimum charges and
early  termination   charges  are  typically  included  in  contracts  or  other
arrangements between the Company and the client.

   On-site  telemarketing  and  telefundraising  fees are  generally  based on a
mutually agreed  percentage of amounts received by the Company's  clients from a
campaign.  Off-site  fees are  typically  based on a mutually  agreed amount per
contact with a potential donor.

Personnel and Training
----------------------
   The Company  believes that the quality and training of its employees is a key
element of client  satisfaction.  The Company further believes that its strategy
of recruiting personnel with industry specific  experience,  technical knowledge
or affinities related to the client's purpose,  particularly with respect to its
custom  telemarketing/telefundraising  on-site calling services, attracts a more
effective  work force.  The Company  offers  in-house  and  on-the-job  training
programs for personnel,  including  instruction on the nature and purpose of the
specific projects,  as well as regular briefings  concerning  regulatory matters
and proper  telemarketing and data capture techniques.  Calls are typically made
from a lead  provided by the client or other third  party  sources.  Callers are
always required to identify  themselves and the institution  they represent,  in
advance of any dialogue. Since calls are meant to be non-intrusive and friendly,
it often takes two or more calls to a customer to confirm a transaction.

   Approximately  80% of the  Company's  service  representatives  are part-time
employees  who are  compensated  on an hourly  basis  with a  commission  and/or
performance  bonus,  which  is  typical  for  the  telemarketing  industry.  The
Company's use of calling  facilities  provided by a client  relates in part to a
high level of  dedication to customer  service and to the localized  talent pool
found by the Company to be most  effective for employee  retention.  None of the
Company's  employees is represented by a labor union and the Company believes it
has satisfactory relations with its employees.

Client Base
-----------
   The Company believes that its large and diversified  client base is a primary
asset which contributes to stability and the opportunity for growth in revenues.
The  Company  has   approximately  600  clients  who  utilize  various  database
management  services,  custom  telemarketing/telefundraising  services and other
direct  marketing  services.  These  clients are  comprised  of leading arts and
cultural  institutions,   advocacy  groups,  and  commercial  companies  in  the
publishing,  live  entertainment  and  events  marketing,  public  broadcasting,
financial  services  (including  credit  card,  home  mortgage  and home  equity
services),  education,  travel and leisure and healthcare industries.  No single
client accounted for more than 5% of such total revenue in fiscal 1997.

Quality Assurance
-----------------
   Each  of the  Company's  operating  businesses  has  consistently  emphasized
service and employee  training.  In particular,  the Company's quality assurance
program with respect to its telemarketing/ telefundraising services includes the
selection and training of qualified  calling  representatives,  the training and
professional  development  of call center  management  personnel,  monitoring of
calls and sales  verification and editing.  Both the Company and its clients are
able to perform real time on-site and remote call monitoring to maintain quality
and efficiency. Sales confirmations may be recorded (with customer consent), and
calls may also be monitored by  management  personnel to verify the accuracy and
authenticity of transactions.

   The Company  diligently  pursues its  policies of good  practice  and has had
satisfactory experience with regulators concerning its activities.  Although the
telemarketing  industry  has had,  in  certain  instances,  a history of abusive
practices,  many of which  have  been  targeted  at the  elderly  or  uneducated
segments of the population,  the individuals  targeted by the Company  generally
consist  of  affinity  group  members  who are  receptive  to the  calls,  often
volunteering  valuable  marketing  information to the  institution for which the
representative is calling.

Competition
-----------
   The direct marketing  services industry is highly competitive and fragmented,
with no single  dominant  competitor.  The Company  competes with companies that
have more extensive  financial,  marketing and other resources and substantially
greater assets than those of the Company,  thereby  enabling such competitors to
have an advantage in obtaining client contracts where sizable asset purchases or
investments  are required.  The Company also  competes  with  in-house  database
management,  telemarketing/telefundraising and direct mail operations of certain
of its clients or potential clients.

   Competition  is based on quality and  reliability  of products and  services,
technological  expertise,  historical experience,  ability to develop customized
solutions  for  clients,  technological  capabilities  and  price.  The  Company
believes that it competes  favorably,  especially in the arts and entertainment,
publishing,  financial services and fundraising sectors. The Company's principal
competitors in the database management services field are Abacus Direct,  Acxiom
Corporation, Dimac Corporation,  Direct Marketing Technology,  Fair-Isaac, Inc.,
Harte-Hanks  Communications,  Inc. and May & Speh, Inc. The Company's  principal
competitors   in  the  custom   telemarketing/telefundraising   field  are  Arts
Marketing,  Inc.  and  Ruffalo,  Cody &  Associates,  and,  with  respect to the
operation of calling centers, The Share Group and Great Lakes Communications.

Competitive Strengths
---------------------
   Customized  Premium  Services:   The  Company  believes  that  a  competitive
advantage  of its  services is the custom  nature and  value-added  component it
provides within a client's overall marketing process.  This customization arises
from  enhancing  and  integrating  data  provided by clients to achieve the most
productive  and  cost-effective   marketing   program.   The  Company  not  only
collaborates on message content but also assists its client in identifying which
medium or mix of mediums is best  suited to  implement  the  client's  marketing
program.

   Long-Term Client  Relationships  and Recurring  Revenue Streams:  The Company
believes that the reason the majority of its client-base  stays with the Company
for many  years is  because of the  Company's  ability  to  provide  customized,
quality services. The Company is able to gain knowledge of and experience with a
client's customer base and market dynamics. The Company seeks recurring revenues
by becoming an integral part of clients'  marketing programs along with offering
a wide breadth of ongoing interrelated services.  Although many of the Company's
arrangements with clients are entered into on a project by project basis, it has
been the Company's experience that its database management clients cannot easily
change service  providers due to the breadth and nature of the ongoing  services
provided.  These services  often become a key element of the clients'  marketing
operations and there are significant costs associated with making such a change.

   Continuity of  Management,  Industry  Specific  Expertise  and  Investment in
Technical  Personnel:  The Company  believes that its industry  focused approach
creates a competitive  advantage  over other  providers of database  management,
custom   telemarketing/telefundraising   services  and  other  direct  marketing
services who have a more generalized  approach.  The Company has hired and seeks
to hire many  individuals with industry  specific  experience who understand the
nature of the  clients'  customers  and the  dynamics  of the  marketplace.  The
Company considers such personnel better able to apply the Company's  proprietary
software  programs to meet the client's  direct  marketing  and data  processing
needs.

   State-of-the-Art  Technology:  The Company's  investment in  state-of-the-art
technology has enabled it to provide quality service to clients for whom the use
of timely,  accurate data is critical for the success of their direct  marketing
programs.  This is  particularly  true with  respect to the  Company's  database
management  services  designed to drive higher  response rates within a specific
time period allotted for a marketing program. In addition,  much outsourced data
processing requires prompt turnaround time for marketing decisions.

Technological Resources and Facilities
--------------------------------------
   The Company maintains a  state-of-the-art outbound  telemarketing/
telefundraising   calling  center  in  Berkeley,  California.  The Berkeley
calling  center  increases the  efficiency of its outbound  calling by using
a computerized  predictive  dialing system  supported by a UNIX-based call
processing server system and networked computers. The predictive dialing system,
using  relational  database  software,  supports 72 outbound  telemarketers  and
maximizes calling efficiency by reducing the time between calls for each calling
station and reducing the number of calls  connected to wrong numbers,  answering
machines and electronic devices. The system provides on-line real time reporting
of caller  efficiency  and client  program  efficiency  as well as flexible  and
sophisticated  reports analyzing caller sales results and client program results
against Company and client selected parameters.  The Berkeley calling center has
the capacity to serve up to 15 separate clients or projects  simultaneously  and
can produce 27,000 valid contacts per week (1,400,000 per year) or 3,400 calling
hours per week  (176,800  per year) on a single  shift  basis.  A valid  contact
occurs when the caller  speaks with the  intended  person and  receives a "yes,"
"no" or "will  consider"  response.  The  existing  platform  can be expanded to
accommodate  100  predictive  dialing  stations with a single shift  capacity of
approximately 1,900,000 valid contacts per year.

   The Company  leases all of its real property.  The Company leases  facilities
for its  headquarters and its sales and service offices in New York City and Los
Angeles,  California,  its data  center in New York  City and its  telemarketing
calling center in Berkeley,  California.  To accommodate  its rapid growth,  the
Company plans to expand its data center and  administrative  offices in New York
during   fiscal   1998.   The   Company's    administrative   office   for   its
telemarketing/telefundraising  operations  in Los  Angeles  is located in office
space leased from the former owner of SD&A,  which lease the Company believes is
on terms no less favorable  than those that would be available from  independent
third  parties.  The Company  believes  that all of its  facilities  are in good
condition and are adequate for its current needs through fiscal 1998, except for
its  planned  expansion  in New York.  The Company  has begun  negotiations  for
additional  space in the building it currently  occupies and believes such space
is readily  available at commercially  reasonable  rates and terms.  The Company
also believes that its technological resources, including the mainframe computer
and other data processing and data storage computers and electronic machinery at
its data center in New York City, as well as its related  operating,  processing
and  database  software,  are all adequate  for its needs  through  fiscal 1998.
Nevertheless,  the  Company  intends  to  expand  its  technological  resources,
including  computer  systems,  software,  telemarketing  equipment and technical
support.  Any such  expansion  may require the leasing of  additional  operating
office space.

Intellectual Property Rights
----------------------------
   The  Company   relies   upon  its  trade   secret   protection   program  and
non-disclosure  safeguards  to protect its  proprietary  computer  technologies,
software  applications and systems know-how. In the ordinary course of business,
the Company enters into license agreements and contracts which specify terms and
conditions  prohibiting  unauthorized  reproduction  or usage  of the  Company's
proprietary  technologies and software  applications.  In addition,  the Company
generally enters into  confidentiality  agreements with its employees,  clients,
potential clients and suppliers with access to sensitive  information and limits
the  access  to  and  distribution  of  its  software  documentation  and  other
proprietary  information.  No  assurance  can be given that  steps  taken by the
Company will be adequate to deter misuse or  misappropriation of its proprietary
rights or trade  secret  know-how.  The  Company  believes  that  there is rapid
technological  change  in its  business  and,  as a  result,  legal  protections
generally   afforded  through  patent  protection  for  its  products  are  less
significant  than the knowledge,  experience and know-how of its employees,  the
frequency of product  enhancements  and the  timeliness  and quality of customer
support in the usage of such products.

Government Regulation and Privacy Issues
----------------------------------------
   The  telemarketing  industry has become  subject to an  increasing  amount of
federal and state regulation  during the past five years. The federal  Telephone
Consumer  Protection  Act of 1991 (the  "TCPA")  limits the hours  during  which
telemarketers  may call  consumers and prohibits the use of automated  telephone
dialing equipment to call certain telephone numbers.  The federal  Telemarketing
and  Consumer  Fraud and Abuse  Prevention  Act of 1994 (the  "TCFAPA")  broadly
authorizes  the  Federal  Trade  Commission  (the  "FTC")  to issue  regulations
prohibiting   misrepresentations   in   telemarketing   sales.   The  FTC's  new
telemarketing  sales  rules  prohibit  misrepresentations  of the  cost,  terms,
restrictions,  performance  or  duration  of  products  or  services  offered by
telephone  solicitation,  prohibit a  telemarketer  from calling a consumer when
that  consumer  has  instructed  the  telemarketer  not to  contact  him or her,
prohibit a  telemarketer  from calling prior to 8:00 a.m. or after 9:00 p.m. and
specifically  address other  perceived  telemarketing  abuses in the offering of
prizes and the sale of business opportunities or investments. Violation of these
rules may result in injunctive  relief,  monetary  penalties or  disgorgement of
profits and can give rise to private actions for damages.

   While the FTC's new rules have not caused the Company to alter its  operating
procedures,  additional  federal or state  consumer-oriented  legislation  could
limit  the   telemarketing   activities   of  the  Company  or  its  clients  or
significantly increase the Company's costs of regulatory compliance.

   Several of the industries  which the Company intends to serve,  including the
financial services, and healthcare industries, are subject to varying degrees of
government  regulation.  Although compliance with these regulations is generally
the responsibility of the Company's  clients,  the Company could be subject to a
variety of enforcement or private  actions for its failure or the failure of its
clients to comply with such regulations.

   In addition,  the growth of  information  and  communications  technology has
produced a proliferation of information of various types and has raised many new
issues  concerning the privacy of such  information.  Congress and various state
legislatures have considered legislation which would restrict access to, and the
use of, credit and other personal information for direct marketing purposes. The
direct marketing services industry,  including the Company,  could be negatively
impacted in the event any of these or similar types of legislation are enacted.

   Currently the Company trains its service  representatives and other personnel
to comply  with the  regulations  of the TCPA,  the  TCFAPA  and the FTC and the
Company believes that it is in substantial compliance with all such regulations.

All-Comm Holdings, Inc.
-----------------------
   In 1979,  under prior  management,  the  Company,  through  its  wholly-owned
subsidiary,  acquired 6.72 acres of  undeveloped  land on the Colorado  River in
Laughlin,  Nevada, for approximately  $560,000.  On August 16, 1996 the land was
sold to an independent third party, via a public auction,  for $952,000 in cash,
resulting in a net gain of  approximately  $90,000 over book value,  as adjusted
for capitalized costs and assessments  during the holding period. In June, 1997,
All-Comm Holdings, Inc. was dissolved.

Employees
---------
   At September 24, 1997, the Company, SD&A, Metro and Pegasus collectively have
approximately 1,150 employees,  of whom approximately 1,000 are part-time.  None
of the Company's employees are covered by collective  bargaining  agreements and
the Company believes that its relations with its employees are good.


<PAGE>



Executive Officers and Directors of the Registrant and Significant Employees
----------------------------------------------------------------------------
 
The Company's executive officers, directors and significant employees and
their positions with MSGI are as follows:

Name                  Age     Position 
----                  ---     -------------------------------------------

J. Jeremy Barbera     41      Chairman  of  the  Board  of   Directors,   Chief
                                Executive   Officer,   President   and   Chief
                                Operating Officer
Scott Anderson        40      Chief Financial Officer and Treasurer
Alan I. Annex         35      Director and Secretary
S. James Coppersmith  64      Director
Seymour Jones         66      Director
C. Anthony Wainwright 64      Director
Robert M. Budlow      36      Vice  President  of MSGI and  President  of Metro
                                Direct
Janet Sautkulis       41      Chief Operating Officer, Metro Direct
Michael T. Reynolds   47      Executive Vice  President and General  Manager of
                                  Metro Direct
Stephen Dunn          47      Vice  President of MSGI and  President  and Chief
                                Executive    Officer   of   Stephen   Dunn   &
                                Associates, Inc.
Thomas Scheir         44      Chief   Operating   Officer,   Stephen   Dunn   &
                                Associates, Inc.

Mr.  Barbera  has been  Chairman,  Chief  Executive  and  Operating  Officer and
President of the Company since April 1997 and was a Director and Vice  President
of the Company  from  October  1996 to April 1997.  He has been Chief  Executive
Officer of Metro since its formation in 1987.  Mr.  Barbera has sixteen years of
experience in data management  services,  and over twenty years of experience in
the entertainment marketing area.

Mr.  Anderson has been Chief  Financial  Officer of the Company  since May 1996,
Treasurer  since May, 1997,  and was Controller  from May 1995 to May 1996 and a
Director  of the  Company  from May 1996 to August  1996.  Prior  thereto,  from
December  1994 to April 1995,  he was  associated  with the  accounting  firm of
Coopers &  Lybrand  L.L.P.,  and,  from  1988 to 1994,  he was a manager  in the
assurance  department  of an  affiliate  of the  accounting  firm of  Deloitte &
Touche, LLP. Mr. Anderson is a Certified Public Accountant.

Mr. Annex has been a Director and  Secretary of the Company  since May 1997.  He
has been a partner  in the law firm of Camhy  Karlinsky  & Stein LLP since  July
1995,  where he practices  corporate and securities law. Camhy Karlinsky & Stein
LLP is the Company's  legal counsel.  From July 1994 to June 1995, Mr. Annex was
Of Counsel to said firm.  Prior thereto he was associated  with Proskauer  Rose,
LLP. Mr. Annex is also a director of Pacific Coast Apparel, Inc.

Mr.  Coppersmith has been a Director of the Company since June 1996. Since 1994,
Mr.  Coppersmith has been Chairman of the Board of Trustees of Boston's  Emerson
College.  Until  his  retirement  in  1994,  he held  various  senior  executive
positions  with  Metromedia   Broadcasting   where  he  managed  its  television
operations  in Los Angeles,  New York,  and Boston and served as  President  and
General  Manager  of  Boston's  WCVB-TV,  an ABC  affiliate  owned by The Hearst
Corporation.  Mr.  Coppersmith  also serves as a director for WABAN,  Inc.,  Sun
America Asset Management Corporation,  Chyron Corporation, Uno Restaurant Corp.,
Kushner-Locke, Inc., and The Boston Stock Exchange.

Mr. Jones has been a Director of the Company  since June 1996.  Since  September
1995, Mr. Jones has been a professor of accounting at New York University. Prior
thereto,  from April 1974 to September  1995,  Mr. Jones was a senior partner of
the accounting firm of Coopers & Lybrand,  L.L.P. Mr. Jones has over 35 years of
accounting  experience  and over ten years of experience as an arbitrator and as
an expert witness, particularly in the area of mergers and acquisitions.

Mr. Wainwright has been a Director of the Company since August 1996 and was also
a Director of the Company from the acquisition of Alliance until May 1996. Prior
thereto,  he was a director  of  Alliance.  Mr.  Wainwright  is  currently  Vice
Chairman of the advertising  agency McKinney & Silver and was Chairman and Chief
Executive Officer of the advertising firm Harris Drury Cohen, Inc., from 1995 to
1996.  From 1994 to 1995, he served as a senior  executive  with Cordient  PLC's
Compton  Partners,  a unit of the  advertising  firm  Saatchi  &  Saatchi  World
Advertising,  and, from 1989 to 1994, as Chairman and Chief Executive Officer of
Campbell  Mithun Esty, a unit of Saatchi & Saatchi in New York.  Mr.  Wainwright
also serves as a director of Caribiner  International,  Gibson Greetings,  Inc.,
Del Webb Corporation and American Woodmark Corporation.

Mr.  Budlow  has been Vice  President  of the  Company  since  October  1996 and
President  of Metro since April  1997.  Prior  thereto,  he was  Executive  Vice
President and Chief  Operating  Officer of Metro since 1990. He has eleven years
of experience in database management  services and subscription,  membership and
donor renewal programs.

Ms.  Sautkulis  serves  as  Chief  Operating  Officer  of Metro  Direct,  having
previously  served as Executive Vice  President.  Prior to joining Metro Direct,
she held  various  positions  at Jetson  Direct Mail and Belth  Associates.  Ms.
Sautkulis  has more than twenty years  experience in database  management,  list
brokerage  and  lettershop  services  specializing  in the  business-to-business
sector.

Mr.  Reynolds joined Metro in June 1997, as Executive Vice President and General
Manager. He served the Metromail Corporation from 1990 to 1997, most recently as
Senior Vice President and General Manager, List Enhancement Services.  From 1986
to 1990, he was Director of Sales and Marketing at Acxiom Corporation.  Prior to
his eleven years in the Direct Marketing  industry,  he spent eight years at IBM
in various sales and marketing management positions.

Mr. Dunn has been Vice  President of the Company  since  September  1996 and has
also been President and Chief  Executive  Officer of SD&A,  which he co-founded,
since its formation in 1983. Previously, Mr. Dunn served as a consultant for the
Los Angeles  Olympic  Organizing  Committee  for the Olympic Arts  Festival,  as
Director of Marketing for the New World Festival of the Arts, and as Director of
Marketing for the Berkeley Repertory Theater.

Mr.  Scheir has been Vice  President and Chief  Operating  Officer of SD&A since
September  1996.  Prior  thereto,  from  1990 to  September  1996,  he was Chief
Financial  Officer of SD&A, and from 1983 to 1990, he served as Business Manager
of SD&A.  Prior to  joining  SD&A,  Mr.  Scheir  was List  Manager  with the San
Francisco Symphony's marketing department.

Item 2 - Properties
-------------------
   The Company,  through All-Comm Holdings,  Inc., owned the property identified
in Item 1. The Company leases approximately 2,000 square feet of office space in
Los  Angeles,  California.  The lease runs  through  May 31,  1998.  SD&A leases
approximately  5,500 square feet of office space in Venice,  California from its
founder and president, 6,600 square feet in Berkeley, California, and 250 square
feet in Patterson,  New York. These leases range from month-to-month,  to August
2001, and include options to renew. Metro currently leases  approximately 14,000
square feet of office and data processing  space in New York, New York, which it
plans to expand in fiscal 1998, to  accommodate  its rapid  growth.  The Company
believes  its  facilities  are  suitable and adequate for the purposes for which
they are used and are adequately maintained.


Item 3 - Legal Proceedings
--------------------------
   The Company has been party to minor legal  proceedings.  The outcome of these
legal  proceedings  are not  expected to have a material  adverse  effect on the
consolidated  financial  condition,  liquidity or  expectations  of the Company,
based on the Company's current understanding of the relevant facts and law.


Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
   On June 30, 1997, the Company held a Special  Meeting of Shareholders to vote
on management's proposal to amend the Company's Amended and Restated Articles of
Incorporation to change the name of the Company from All-Comm Media  Corporation
to Marketing Services Group, Inc. The shares voted were as follows:

                        For               8,484,960
                        Against              11,805
                        Abstentions           1,302
                        Broker non-votes       None



<PAGE>


                                     PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------
   The common  stock of the Company  previously  traded on the NASDAQ  Small-Cap
MarketSM  under the symbol SPTK. As approved by the  shareholders  on August 22,
1995, the Company changed its name to All-Comm Media  Corporation and the symbol
was changed to ALCM.  As  approved by the  stockholders  on June 30,  1997,  the
Company changed its name to Marketing  Services  Group,  Inc. and the symbol was
changed to MSGI. The following  table reflects the high and low sales prices for
the Company's  common stock for the fiscal quarters  indicated,  as furnished by
the NASD,  adjusted to reflect a  one-for-four  reverse  stock  split,  effected
August 22, 1995:
                                      Common Stock
                            Low Sales Price    High Sales Price
           Fiscal 1997
             Fourth Quarter       $1.69             $3.56
             Third Quarter         2.00              5.25
             Second Quarter        3.19              5.63
             First Quarter         4.63              6.13
           Fiscal 1996
             Fourth Quarter       $2.13             $6.38
             Third Quarter         3.00              4.44
             Second Quarter        1.88              5.00
             First Quarter         3.63              8.25

   As of June 30,  1997,  there were  approximately  900  registered  holders of
record of the Company's  common stock.  (This number does not include  investors
whose accounts are maintained by securities firms in "street name".)

   The Company has not paid any cash dividends on any of its capital stock in at
least the last six years. The Company intends to retain future earnings, if any,
to finance the growth and development of its business and,  therefore,  does not
anticipate paying any cash dividends in the foreseeable future.


Item 6 - Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

Introduction

      This  discussion   summarizes  the  significant   factors   affecting  the
consolidated  operating results,  financial condition and liquidity/cash flow of
the Company for the three year period ended June 30,  1997.  This should be read
in conjunction  with the financial  statements,  and notes thereto,  included in
this Annual Report.  As more fully  described in Footnote 4 to the  consolidated
financial statements, on April 25, 1995, the Company purchased 100% of the stock
of Alliance which had simultaneously acquired SD&A. These acquisitions have been
reflected in the consolidated  financial statements using the purchase method of
accounting.   Accordingly,   the   Consolidated   Statement  of  Operations  and
Consolidated Statement of Cash Flows include the operations of Alliance and SD&A
starting on April 25, 1995.

      From April 25, 1995 through  September 30, 1996, the Company operated as a
direct  marketing  services  provider  with  its  initial   concentration  as  a
telemarketing and  telefundraising  company that specialized in direct marketing
services for the arts,  educational  and other cultural  organizations.  As more
fully  described in Note 3 to the  consolidated  financial  statements  included
herein,  effective  October 1, 1996 the Company  purchased  100% of the stock of
Metro Services Group,  Inc., to be renamed Metro Direct,  Inc.  ("Metro").  This
acquisition  is reflected in the  consolidated  financial  statements  using the
purchase  method of  accounting  starting  October 1, 1996.  Metro  develops and
markets  information-based  services  used  primarily  in direct  marketing by a
variety of commercial and tax-exempt organizations.

      In the year ended June 30, 1995, ("Fiscal 1995"), the Company discontinued
the  operations  of  Sports-Tech  International,  Inc. and High School  Gridiron
Report.  In Fiscal 1995, the Company sold Sports-Tech  International  and closed
the HSGR operation. The ultimate sale of STI resulted in a gain of $322,000. The
Consolidated  Financial  Statements  have been  reclassified  to report  the net
assets,  operating  results,  gain  on  disposition  and  cash  flows  of  these
operations  as  discontinued  operations.   With  the  disposition  of  the  STI
operations,  closure of the HSGR  operations and the acquisition of Alliance and
Metro, the Company is now operating in the direct marketing industry.


Results of Operations 1997 compared to 1996

      Revenues of $24.1 million for the year ended June 30, 1997 ("Fiscal 1997")
increased by $8.2 million over revenues of $15.9  million  during the year ended
June  30,  1996  ("Fiscal  1996"),  principally  due  to  the  inclusion  of the
operations of Metro effective  October 1, 1996. Fiscal 1997 revenues from SD&A's
off-site campaigns totaled $3.1 million (19.4% of SD&A revenues), an increase of
$0.4 million over Fiscal 1996.  Fiscal 1997 revenues from on-site  telemarketing
and telefundraising  campaigns totaled $12.9 million (80.6% of SD&A revenues), a
decrease of $0.4 million over Fiscal 1996. On average,  SD&A's margins  relating
to off-site  campaigns  are  generally  higher than margins  relating to on-site
campaigns.

      Salaries  and benefits of $15.0  million in Fiscal 1997  increased by $2.3
million over salaries and benefits of $12.7 million in fiscal 1996,  principally
due to the inclusion of $1.8 million from Metro.  SD&A increased by $0.6 million
principally   due  to  the  minimum  wage   increase  and  changes  in  campaign
efficiencies. Corporate administrative salaries decreased by $0.1 million due to
corporate restructuring and resulting  administrative  headcount reductions.  In
addition,  in Fiscal 1997 the Company incurred a non-recurring,  non-cash charge
of $1,650,000 to compensation  expense relating to options granted to two former
principal  executive  officers.  Such charge was  incurred  because the exercise
price of each option,  which was based upon the market price of the common stock
on May 30, 1996 (the date which the Company  intended as the  effective  date of
the grant)  rather  than the market  price on  September  26,  1996 (the  actual
effective  date of the  grant),  was lower than the  market  price of the common
stock on September 26, 1996.

      Direct costs of $5.6 million in Fiscal 1997 increased by $4.8 million over
direct costs of $0.8 million in Fiscal 1996, principally due to the inclusion of
Metro.

      Selling,  general and  administrative  expenses of $2.7  million in Fiscal
1997  increased by $1.0  million or 59.5% over $1.7 million of such  expenses in
Fiscal 1996,  principally  due to the inclusion of $0.8 million from Metro.  The
remaining  increase of $0.2 million which came from SD&A resulted from increased
travel and training principally as a result of bringing campaign managers to Los
Angeles for training on SD&A's new on-site  software,  combined  with  increased
rent,  business  taxes and  insurance  associated  with moving and expanding the
Berkeley Calling Center in August 1996.

      Restructuring  costs of $1.0 million were  incurred in the current year as
the Company effected certain corporate  restructuring steps,  including reducing
corporate staff and related  corporate  office  expenses,  as well as making two
executive management changes.

      Professional  fees  of $0.9  million  in  Fiscal  1997  increased  by $0.3
million, or 39%, over $0.6 million in Fiscal 1996,  principally to the inclusion
of $0.2 million from Metro, as well as a non-recurring charge of $0.1 million in
consulting  fees  attributable  to the  value of  warrants  acquired  by  former
consultants during the period.

      Depreciation expense of $250,000 in Fiscal 1997 increased by $110,000 over
$140,000 in Fiscal 1996  including  $86,000 from Metro.  The remaining  increase
resulted principally from leasehold  improvements made in the move and expansion
of SD&A's Berkeley Calling Center.

      Amortization of intangible  assets of $719,000 in Fiscal 1997 increased by
$357,000 over $362,000 in Fiscal 1996. Of the increase, $338,000 is attributable
to the  amortization  of costs in excess of net tangible  assets acquired in the
Metro  acquisition  starting on October 1, 1997,  including the  amortization of
$250,000 in  proprietary  software  over its expected  period of benefit of five
years. A value of $650,000 was assigned to the covenants-not-to-compete with the
former  principals of Metro and is being  amortized over their three year lives.
The unassigned  excess costs are being  amortized over their expected  period of
benefit   of   forty    years.    Amortization    of   the    goodwill   and   a
covenant-not-to-compete  associated  with the Alliance and SD&A  acquisition  on
April 25,  1995  increased  by  $22,000  in Fiscal  1997 due to an  increase  in
goodwill of $850,000 as of June 30, 1996 for  payments  made to the former owner
of SD&A resulting from  achievement of defined results of operations of SD&A for
the year then ended.  Amortization  expense is  expected to increase  during the
year  ended June 30,  1998 due to the  inclusion  of a full year of Metro,  plus
amortization  of  amounts  payable  to the  former  owner of SD&A for  achieving
defined results of operations for the two years ended June 30, 1997.

      Discounts on warrant  exercises of $113,000  were incurred in Fiscal 1997.
To reduce the overhang  associated  with the  existence of such  warrants and to
obtain working capital subsequent to the withdrawal of its proposed underwritten
public  offering,  the Company accepted offers from certain  warrant-holders  to
exercise  their  warrants  for  shares of Common  Stock at  discounted  exercise
prices. For the warrants which arose from a previous financing transaction,  the
Company  recognized  the dates of  acceptances  as new  measurement  dates  and,
accordingly,  recorded the  non-cash  charges to reflect the market value of the
discounts.

      Withdrawn  public  offering  costs of $1.2 million were recorded in Fiscal
1997. In October 1996, the Company filed a  registration  statement on Form SB-2
with the Securities and Exchange  Commission  relating to an underwritten public
offering of 2.1 million  shares.  In  February,  1996 the Company  withdrew  the
registration statement and costs incurred in the process were expensed.

      Interest  expense of  $530,000 in Fiscal 1997  increased  by $25,000  over
$505,000 in Fiscal 1996.  The current year  included  $128,000 on the  Company's
redeemable  convertible  preferred stock, prior to its conversion and repurchase
in the December 1996  recapitalization,  $78,000  payable on notes to the former
owners of Metro,  $55,000 on the  Company's  $2.2 million in  convertible  notes
(including  amortization  of issuance  costs) and $42,000 from the  inclusion of
Metro.  These  amounts  were offset by  reductions  of $226,000 due to principal
repayments on the SD&A seller debt and  reductions in the interest rate combined
with $46,000 incurred in Fiscal 1996 for expenses  incurred from warrants issued
in financing  transactions  and $6,000 of other minor net  reductions.  Interest
expense is expected to increase  slightly at the operating  subsidiary level due
to new financing arrangements, offset by significant reductions at the corporate
level upon further pay down and conversions of existing corporate debt.

      The  Company  recorded  a net  gain  of  $90,000  from  the  sale  of  its
undeveloped  parcel of land in Laughlin,  Nevada in August 1996,  which gain was
recorded net of commissions and related selling expenses.

      The  provision  for income  taxes in Fiscal 1997 of $109,000  decreased by
$32,000 over the  provision of $141,000 in Fiscal 1996.  The  provision  results
from  state  and  local  taxes  incurred  on  taxable  income  at the  operating
subsidiary  level which can not be offset by losses  incurred  at the  corporate
level.  Taxes of $64,000  resulted  from  inclusion  of Metro and were offset by
reductions  of $96,000  due  primarily  to lower  taxable  income and changes in
filing status at SD&A.


Results of Operations 1996 compared to 1995

      Revenues of $15.9  million in Fiscal 1996  increased by $12.3 million over
Fiscal  1995  revenues,  principally  due to the  inclusion  of a full  year  of
operations  of SD&A in Fiscal 1996 as compared  with the period from the date of
acquisition  (April  25,  1995) to June 30,  1995 in Fiscal  1995.  Fiscal  1996
revenues from off-site  campaigns  totaled $2.7 million  (16.7% of revenues) and
revenues from on-site telemarketing and telefundraising  campaigns totaled $13.2
million (83.3% of revenues).  During Fiscal 1995 and 1996, the Company's margins
relating to off-site  campaigns were generally  higher than margins  relating to
on-site campaigns.

      Salaries  and benefits of $12.7  million in Fiscal 1996  increased by $9.6
million over  salaries and benefits of $3.1 million in Fiscal 1995,  principally
due to the  inclusion of a full year of  operations of SD&A in Fiscal 1996. As a
percentage of revenues,  however,  salaries and benefits  declined from 86.5% to
80.0%  because,  in Fiscal 1995 and Fiscal 1996,  the Company had a full year of
administrative   salaries  and  benefits  at  the  corporate  level   (including
administrative  salaries  and  benefits  associated  with the  Company's  former
management  prior to the  acquisition  of Alliance) but only  approximately  two
months of revenues from the operations of SD&A in Fiscal 1995.

      Direct costs of $0.8 million in Fiscal 1996 increased by $0.7 million over
direct costs of $0.1 million in Fiscal 1995, principally due to the inclusion of
costs associated with the Berkeley  calling center  operations for all of Fiscal
1996 as well as $0.2 million in costs  associated with advertising for staff for
on-site campaigns in Fiscal 1996.

      Selling,  general and  administrative  expenses of $1.7  million in Fiscal
1996  increased by $0.6  million,  or 59%, over $1.1 million of such expenses in
Fiscal 1995,  principally  due to the  inclusion of a full year of operations of
SD&A in Fiscal  1996.  Professional  fees of $0.6  million in 1996  increased by
$166,323,  or 36.2%,  over  professional  fees of $0.5  million in Fiscal  1995,
principally  due to legal and  accounting  fees incurred in connection  with the
evaluation of potential acquisitions and financing sources.

      Depreciation  expense of $140,000 in fiscal 1996 increased by $88,000 over
$52,000 in 1995 due to a full year of depreciation at SD&A.

      Amortization of intangible assets of $0.4 million in Fiscal 1996 increased
by $0.3 million over  amortization of approximately  $65,000 in Fiscal 1995, due
to the  amortization  of the goodwill and a  covenant-not-to-compete  associated
with the Alliance and SD&A acquisitions on April 25, 1995.

      The Company had other  expense of $0.5 million in Fiscal 1996  compared to
other  income of $1.2  million  in Fiscal  1995,  a  decrease  of $1.7  million,
principally due to increases in Fiscal 1996 interest expense related to the SD&A
Seller Debt. In Fiscal 1995, the Company had  nonrecurring  net gains from sales
of securities of $1.6 million,  which were partially offset by a loan commitment
fee of $0.3 million in connection with the original purchase of such securities.

      The  provision  for income  taxes in Fiscal 1996 of $141,000  increased by
approximately  $66,000, or 88.1%, over the provision for income taxes of $75,000
in  1995.  The  provision  for  income  taxes  increased,  despite  losses  from
continuing operations,  as a result of state and local taxes incurred on taxable
income at the operating  subsidiary level.  Under applicable tax law, such taxes
at the operating  subsidiary level could not be offset by losses incurred at the
corporate level.

      The gain on sale of, and loss from, discontinued operations in Fiscal 1995
relates  to the STI and HSGR  operations  which  were  either  sold or closed in
Fiscal 1995 as a condition precedent to the acquisition of Alliance.  No amounts
related to discontinued operations were incurred in Fiscal 1996.

      As a result of the foregoing  factors,  the Company had a net loss of $1.1
million in Fiscal 1996 as compared to net income of $0.1 million in 1995.


Capital Resources and Liquidity

      Historically,  the Company has funded its operations, capital expenditures
and acquisitions primarily through cash flow from operations, private placements
of common and preferred stock, and its SD&A credit facility.

      Cash used for operating  activities  totaled  $2,664,000  for fiscal 1997.
Fiscal  1997  operating  activities  included  cash  for  non-recurring  charges
incurred on the Company's  withdrawn public  offering,  as well as the corporate
restructuring and related prior management settlement agreements.

      Cash provided by investing  activities  totaled  $578,000 for fiscal 1997.
These  activities  included  $860,000  provided from the August 1996 sale of the
Company's  land in Laughlin,  Nevada,  and $207,000 net cash  received  from the
inclusion  of Metro.  These were offset by $490,000 in purchases of property and
equipment,  principally  computer  hardware  and  software  at  Metro,  and  for
expansion of capacity at SD&A's Berkeley Calling Center. The Company anticipates
continued capital expenditures in fiscal 1998 for computer hardware and software
at Metro and Pegasus.

      Net cash  provided by  financing  activities  during  fiscal 1997  totaled
$3,622,000. The Company had intended to raise funds for capital expenditures and
debt  repayment in fiscal 1997 via an  underwritten  public  offering.  Upon its
withdrawal in February 1997, the Company  pursued  private  financing  including
obtaining  $2,065,000  through induced warrant exercises and $2,200,000 from the
sale of  convertible  notes.  $1,675,000  of the notes were  converted to common
stock  subsequent to year end, through  September 23, 1997.  During fiscal 1997,
Metro obtained a credit facility with a lender for up to $1.5 million,  of which
$812,000 was used as of June 30, 1997.  Also during fiscal 1997,  SD&A increased
its $500,000 credit facility to $875,000, consisting of a $125,000 term loan and
$750,000  line of credit,  of which  $104,000 and $746,000,  respectively,  were
outstanding  as of June 30,  1997.  In August,  1997,  SD&A  replaced its credit
facility with a line of credit for up to $2.0 million.

      Effective  October 1, 1996, the Company  purchased all of the  outstanding
stock of Metro for 1,814,000  shares of its common  stock,  valued at $7,256,000
and $1,000,000 in convertible  notes. In April,  1997, the Company paid $100,000
of the  Metro  seller  debt.  An  additional  $400,000  of  Metro  seller  debt,
originally due in June 1998, was paid in July, 1997.

      As part if its December 23, 1996 recapitalization, the Company repurchased
its Series C redeemable convertible preferred stock for a $1,000,000 note, which
was paid in April,  1997.  Also during fiscal 1997, the Company paid $467,000 of
its SD&A seller debt.

      The Company  believes that funds  available from operations and its unused
credit  facilities  will be  adequate  to finance  its  current  operations  and
anticipated  growth and meet planned capital  expenditures and interest and debt
obligations  in its fiscal year ending June 30, 1998.  In  conjunction  with the
Company's  acquisition  strategy,  additional  financing may be required to meet
potential acquisition payment requirements. The Company believes that it has the
ability to raise funds through  private  placements or public  offerings of debt
and/or equity securities to meet these requirements.  There can be no assurance,
however,  that such capital will be required or available at terms acceptable to
the  Company,  or at all. The Company is engaged in ongoing  evaluation  of, and
discussions with, third parties regarding possible  acquisitions;  however,  the
Company  currently has no definitive  agreements with respect to any significant
acquisitions.

Seasonality  and  Cyclicality:  The  businesses  of SD&A  and  Metro  tend to be
seasonal.  SD&A has higher  revenues and profits  occurring in the fourth fiscal
quarter,  followed  by the first  fiscal  quarter.  This is due to  subscription
renewal  campaigns for SD&A's tax exempt  clients,  which generally begin in the
spring time and continue  during the summer  months.  Metro tends to have higher
revenues  and  profits  occurring  in the second  fiscal  quarter,  based on the
seasonality of its clients' mail dates.


New Accounting Pronouncements

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per
Share" ("SFAS 128") which is effective for financial statements for both interim
and annual periods ending after  December 15, 1997.  Earlier  application is not
permitted;  however,  restatement  of all  prior-period  earnings per share data
presented is required.  The Company has not yet  determined  the effect SFAS 128
will have on its financial statements;  however, the adoption is not expected to
have a material impact on the financial position or results of operations of the
Company.

      In March 1997,  the FASB issued SFAS No. 129,  "Disclosure  of Information
about Capital  Structure"  ("SFAS 129"),  which is required to be adopted by the
Company in fiscal 1998.  This  Statement  specifies  certain  disclosures  about
capital  structure.  Management  does not  expect  that  implementation  of this
Statement  will have a  significant  impact on the  financial  statements of the
Company.

      In June 1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income" ("SFAS 130").  SFAS 130 establishes  standards for reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial  statements.  An enterprise  that has no items of other  comprehensive
income in any period presented is not required to report  comprehensive  income.
SFAS 130 is  effective  for fiscal  years  beginning  after  Decemebr  15, 1997.
Management  does not believe  that the adoption of SFAS 130 will have a material
impact on the Company's financial statements.

      In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an  Enterprise  and Related  Information"  ("SFAS  131").  SFAS 131  establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  SFAS 131 is effective for fiscal years  beginning after December 15,
1997.  Management  has not yet assessed the impact that the adoption of SFAS 131
will have on the Company's financial statements.


Item 7 - Financial Statements
-----------------------------
      The  Consolidated  Financial  Statements  required  by this Item 7 are set
forth as indicated in the index following Item 13(a)(1).


Item 8 - Changes in and  Disagreements  with  Accountants  on Accounting  and
Financial Disclosure
-----------------------------------------------------------------------------
      None



                                   PART III


      The  information  required  by this  Part III  (items 9, 10, 11 and 12) is
hereby  incorporated by reference from the Company's  definitive proxy statement
which is  expected  to be filed  pursuant to  Regulation  14A of the  Securities
Exchange  Act of 1934 not later than 120 days  after the end of the fiscal  year
covered by this  report.  Certain  information,  with  respect to the  Company's
executive  officers,  is set  forth  in Part I,  under  the  caption  "Executive
Officers and Directors of the Registrant and Significant Employees."


<PAGE>
                                   PART IV

Item 13 - Exhibits and Reports on Form 8-K
------------------------------------------
(A)(1) Financial  statements - see "Index to Financial  Statements" on page 30.

   (2)  Exhibits:
        3 (i)  Amended  and  Restated  Articles  of  Incorporation  (b) 
        3 (ii) Certificate of Amendment to the Amended and Restated Articles
               of Incorporation of the Company (b)
        3 (iii)Certificate of Amendment to the Articles of  Incorporation  for
               change of name to All-Comm Media Corporation (e)
        3 (iv) By-Laws (b)
        3 (v)  Certificate  of Amendment of Articles of  Incorporation  for
               increase in number of authorized shares to 36,300,000 total (h)
        3 (vi) Certificate  of  Amendment  of  Articles of  Incorporation  for
               change of name to Marketing Services Group, Inc. (a)
        10.1   1991 Stock Option Plan (c)
        10.2   Operating  Covenants  Agreement,  dated April 25, 1995, between
               Alliance Media Corporation and Mr. Stephen Dunn (d)
        10.3   Pledge  Agreement,  dated as of April 25, 1995,  between Alliance
               Media Corporation and Mr. Stephen Dunn (d)
        10.4   Option  Agreement (e) 10.5  Amendment to Option  Agreement (f)
        10.6   Memorandums of Understanding (f)
        10.7   Sample  Series  B  Convertible   Preferred  Stock  Subscription
               Agreement (g)
        10.8   Sample Private  Placement  Purchase  Agreement for  Convertible
               Notes (g)
        10.9   Letter  from  Seller of SD&A  agreeing  to  long-term  obligation
               payment and restructuring (g)
        10.10  Sample Convertible Notes Rescission Letter (h)
        10.11  Sample  Series  C  Convertible   Preferred  Stock  Subscription
               Agreement (h)
        10.12  Agreement   and  Plan  of   Merger   between   All-Comm   Media
               Corporation and Metro Services Group, Inc. (i)
        10.13  Security  Agreement  between  Milberg  Factors,  Inc. and Metro
               Services Group, Inc. (j)
        10.14  Security  Agreement  between Milberg Factors,  Inc. and Stephen
               Dunn & Associates, Inc. (a)
        10.15  Agreement and Plan of Merger between Marketing  Services Group,
               Inc. and Pegasus Internet, Inc. (a)
        10.16  J. Jeremy Barbera Employment Agreement (c)
        10.17  Robert M. Budlow Employment Agreement (i)
        10.18  Janet Sautkulis Employment Agreement (i)
        10.19  Scott Anderson Employment Agreement (a)
        10.20  Robert Bourne Employment Agreement (a)
        10.21  Thomas Scheir Employment Agreement (a)
        10.22  Krista Mooradian Employment Agreement (a)
        10.23  Stephen Dunn Employment Agreement (d)
        10.24  Severance Agreement with Barry Peters (j)
        10.25  Severance Agreement with E. William Savage (j)
        10.26  Form of Private Placement Agreement (j)
        10.27  Form of Series B Conversion Agreement (k)
        10.28  Form of Warrant Cancellation Agreement (k)
        10.29  Form of Series C Repurchase and Exchange Agreement (k)
        10.30  Form of Option Cancellation Agreement (k)
        10.31  Form of Amended and Restated Series B Conversion Agreement (k)
        10.32  Form of Amended and Restated  Series C Repurchase  and Exchange
               Agreement (k)
        10.33  Form of Amended and Restated Option Cancellation Agreement (k)
        11     Statement re: computation of per share earnings (a)
        21     List of Company's subsidiaries (a)
        23     Consent of Coopers and Lybrand LLP (a)
        27     Financial Data Schedule (a)
   (a)  Incorporated herein
   (b)  Incorporated by reference from the Company's  Registration  Statement on
        Form S-4, Registration Statement No. 33-45192
   (c)  Incorporated  by reference to the  Company's  Registration  Statement on
        Form S-8, Registration Statement 333-30839
   (d)  Incorporated  herein by  reference to the  Company's  Report on Form 8-K
        dated April 25, 1995
   (e)  Incorporated  by reference to the Company's  Report on Form 10-K for the
        fiscal year ended June 30, 1995
   (f)  Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended March 31, 1996
   (g)  Incorporated  by reference to the Company's  Report on Form 8-K dated
        June 7, 1996 (h) Incorporated by reference to the Company's Report on 
        Form 10-K dated June 30, 1996
   (i)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        October 11, 1996
   (j)  Incorporated  by reference to the Company's  Report on Form 10-Q for the
        quarter ended March 31, 1997
   (k)  Incorporated  by reference to the  Company's  Registration  Statement on
        Form SB-2, as amended, originally filed on October 17, 1996

(B) Reports on Form 8-K.

   The Company  filed a Report on Form 8-K  reporting  the change of the name of
   the Company from All-Comm  Media  Corporation  to Marketing  Services  Group,
   Inc.,  pursuant to approval by the  shareholders at a special meeting on June
   30, 1997.



<PAGE>


                                  SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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.

                                   MARKETING SERVICES GROUP, INC.
                                   (Registrant)


                                   By:     /s/ J. Jeremy Barbera
                                           J. Jeremy Barbera
                                           Chairman of the Board and Chief
                                           Executive Officer

                                   Date:   September 26, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

Signature                  Title                             Date
---------                  -----                             -------

/s/ J. Jeremy Barbera    Chairman of the Board and           September 26, 1997
J. Jeremy Barbera        Chief Executive Officer   
                         (Principal Executive Officer)


/s/ Scott Anderson       Chief Financial Officer(Principal   September 26, 1997
Scott Anderson           Financial and Accounting Officer)


/s/ Alan I. Annex        Director and Secretary              September 26, 1997
Alan I. Annex


/s/ S. James Coppersmith     Director                        September 26, 1997
S. James Coppersmith


/s/ Seymour Jones            Director                        September 26, 1997
Seymour Jones


/s/ C. Anthony Wainwright    Director                        September 26, 1997
C. Anthony Wainwright

The foregoing constitute all of the Board of Directors.


<PAGE>




               MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES

                        INDEX TO FINANCIAL STATEMENTS
                             [Items 7 and 13(a)]





       (1) FINANCIAL STATEMENTS:                             Page
           Report of Independent Public Accountants           30

           Consolidated Balance Sheets
              June 30, 1997 and 1996                          31

           Consolidated Statements of Operations
              Years Ended June 30, 1997, 1996 and 1995        32

           Consolidated Statements of Stockholders' Equity
              Years Ended June 30, 1997, 1996 and 1995        33

           Consolidated Statements of Cash Flows
              Years Ended June 30, 1997, 1996 and 1995       34-36

           Notes to Consolidated Financial Statements        37-55





<PAGE>




                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





The Stockholders of
  Marketing Services Group, Inc.



      We have audited the  accompanying  consolidated  financial  statements  of
Marketing Services Group, Inc. and Subsidiaries,  listed in Items 7 and 13(a) of
this Form 10-KSB. These financial statements are the responsibility of Marketing
Services Group,  Inc.'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 presentation. We believe
that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of Marketing
Services  Group,  Inc. and  Subsidiaries  as of June 30, 1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period  ended June 30, 1997,  in  conformity  with  generally
accepted accounting principles.




                                          /s/ COOPERS & LYBRAND L.L.P.


Los Angeles, CA
September 25, 1997




<PAGE>


               MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
             CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996

                                                   1997            1996
                                                   ----            ----
ASSETS                                                         (as restated)
Current assets:
   Cash and cash equivalents                   $  2,929,012    $  1,393,044
   Accounts receivable billed,
    net of allowance for doubtful accounts
    of $32,329 and $34,906 in 1997 and 1996,
    respectively                                  4,178,634       2,681,748
   Accounts receivable unbilled                     826,204
   Land held for sale at cost                                       921,465
   Other current assets                             281,458         107,658
                                                -----------     -----------
     Total current assets                         8,215,308       5,103,915
Property and equipment at cost, net                 745,783         299,045
Intangible assets at cost, net                   16,126,598       7,851,060
Other assets                                        303,583          47,046
                                                -----------     -----------
     Total assets                               $25,391,272     $13,301,066
                                                ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:  
   Short-term borrowings                        $ 1,661,708     $   500,000
   Trade accounts payable                         2,317,482         470,706
   Accrued salaries and wages                       807,017         706,039
   Other accrued expenses                           734,958         758,112
   Income taxes payable                              41,757          10,000
   Current portion of long term obligations       2,083,772         583,333
   Related party payable                            379,444
                                                -----------     -----------
     Total current liabilities                    8,026,138       3,028,190
Long-term obligations                             3,205,238       1,516,667
Related party payable                               379,444         425,000
Other liabilities                                    94,638          80,315
                                                -----------     -----------
   Total liabilities                             11,705,458       5,050,172
                                                -----------     -----------

Commitments and contingencies:
Redeemable convertible preferred stock - 
  $.01 par value; consisting of 6,200
  shares of Series B convertible preferred
  stock issued and outstanding at June
  30, 1996, none at June 30,1997, 2,000
  shares of Series C convertible preferred
  stock  issued  and  outstanding  at 
  June  30, 1996, none at June  30, 1997
                                                                  1,306,358
                                                                -----------
Stockholders' equity:
   Convertible preferred stock - $.01 par
     value; 50,000 shares authorized,
     none outstanding
   Common stock - authorized  36,250,000 and
     6,250,000  shares of $.01 par value
     at June 30, 1997 and 1996, respectively;
     11,438,564 and 3,198,534 shares issued,
     respectively                                   114,386          31,985
   Additional paid-in capital                    25,209,493      13,173,520
   Accumulated deficit                          (11,502,596)     (6,125,500)
   Less 11,800 shares of common stock in
     treasury, at cost                             (135,469)       (135,469)
                                                -----------     -----------
     Total stockholders' equity                  13,685,814       6,944,536
                                                -----------     -----------
     Total liabilities and stockholders' equity $25,391,272     $13,301,066
                                                ===========     ===========


See Notes to Consolidated Financial Statements.



<PAGE>


               MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED JUNE 30, 1997, 1996, AND 1995

                                            1997           1996         1995
                                                      (as restated)

Revenues                               $ 24,144,874    $15,889,210   $3,630,828
                                        -----------    -----------   ----------
Operating costs and expenses:
   Salaries and benefits                 14,967,420     12,712,150    3,139,232
   Direct costs                           5,587,343        807,057      102,052
   Selling, general and administrative    2,717,583      1,703,355    1,068,675
   Non-recurring compensation expense
      on option grants                    1,650,000
   Non-recurring restructuring costs        958,376
   Professional fees                        868,389        625,667      459,344
   Depreciation                             250,194        139,881       52,348
   Amortization of intangible assets        719,400        361,537       65,101
                                        -----------    -----------  -----------
     Total operating costs and expenses  27,718,705     16,349,647    4,886,752
                                        -----------    -----------  -----------
     Loss from operations                (3,573,831)      (460,437)  (1,255,924)
                                        -----------    -----------  -----------
Other income (expense):
   Non-recurring discounts on warrant
      exercises                            (113,137)
   Non-recurring withdrawn public
      offering costs                     (1,179,571)
   Gain from sales of securities                                      1,579,539
   Loan commitment fee                                                 (300,000)
   Interest and other income                 38,316         12,276       14,726
   Interest expense                        (529,521)      (505,128)     (94,200)
   Gain from sale of land                    90,021
                                        -----------    -----------  -----------
   Total                                 (1,693,892)      (492,852)   1,200,065
                                        -----------    -----------  -----------
   Loss from continuing operations 
     before income taxes                 (5,267,723)      (953,289)     (55,859)
   Provision for income taxes              (109,373)      (141,084)     (75,000)
                                        -----------    -----------  -----------
Loss from continuing operations before 
  discontinued operations                (5,377,096)    (1,094,373)    (130,859)
Gain on sale of discontinued operations                                 322,387
Loss from discontinued operations                                       (81,131)
                                        -----------    -----------  -----------
   Net income (loss)                   $ (5,377,096)   $(1,094,373) $   110,397
                                        ===========    ===========  ===========

Net income (loss) attributable to
  common stockholders*                 $(20,199,038)   $(1,189,341) $   110,397
                                        ===========    ===========  ===========
Income (loss) per common share:
   From continuing operations               $(2.85)       $ (.39)       $(.07)
   From discontinued operations                                           .13
                                            ------        ------        -----
Income (loss) per common share              $(2.85)       $ (.39)       $ .06
                                            ======        ======        =====

Weighted average common and common
 equivalent shares outstanding            7,089,321      3,068,278    1,807,540
                                          =========      =========    =========

Primary and fully  diluted  income  (loss) per common share are the same in each
year. 
 
* The twelve  months  ended June 30, 1997  include  the impact of  non-recurring
dividends  on  preferred  stock  for  (a)  $8.5  million  non-cash  dividend  on
conversion of Series B Preferred  Stock;  (b) $573,000 on repurchase of Series C
Preferred  Stock; (c) periodic  non-cash  accretions on preferred stock; and (d)
$5.0 million in discounts on warrant exercises (see Notes 14 and 22).

See Notes to Consolidated Financial Statements.


<PAGE>



                  MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                                   (as restated)
<TABLE>
<CAPTION>
                                       Convertible                       Additional      Accu-
                                     Preferred Stock     Common Stock      Paid-in       mulated     Treasury Stock
                                     Shares  Amount    Shares    Amount    Capital       Deficit    Shares     Amount     Totals
                                     ------  ------  ---------  -------  ----------   -----------   ------  ---------   ---------
<S>                                 <C>      <C>    <C>        <C>      <C>          <C>           <C>      <C>        <C>

Balance June 30, 1994                                1,436,833  $14,368  $5,928,542   $(5,141,524) (11,800) $(135,469)  $ 665,917
Issuance of restricted shares for
  litigation settlement                                 37,500      375     149,625                                       150,000
Issuance of restricted shares for 
  merger with Alliance Media Corp.                   1,025,000   10,250   2,734,750                                     2,745,000
Issuance of restricted shares as 
  finders fees                                          42,500      425     138,325                                       138,750
Private placement of shares-cash                       413,759    4,138   1,014,537                                     1,018,675
Shares issued upon exercise of 
  stock options and warrants                            72,500      725     207,193                                       207,918
Discounts granted on exercise of
  options                                                                   127,875                                       127,875
Net income                                                                                110,397                         110,397
                                     ------  ------  ---------  -------  ----------   -----------   ------  ---------  ---------- 
Balance June 30, 1995                                3,028,092   30,281  10,300,847    (5,031,127) (11,800)  (135,469)  5,164,532
Issuance of common shares as 
  compensation to employees, 
  directors and consultants                             95,442      954     218,974                                       219,928
Sale of shares (including 12,500
  to related parties)                                   75,000      750     119,250                                       120,000
Sale of Series A Preferred Stock     10,000   $100                          686,669                                       686,769
Repurchase of Series A Preferred
  Stock                             (10,000)  (100)                        (812,400)                                     (812,500)
Warrants issued with Preferred
  Stock                                                                   2,672,522                                     2,672,522
Warrants issued to consultants and
  creditors                                                                  82,626                                        82,626
Accretion of redeemable 
  convertible preferred stock                                               (94,968)                                      (94,968)
Net loss                                                                              (1,094,373)                      (1,094,373)
                                     ------  ------  ---------  -------  ----------   -----------   ------  ---------  ---------- 
Balance June 30, 1996                                3,198,534   31,985  13,173,520   (6,125,500)  (11,800)  (135,469)  6,944,536

Shares issued upon exercise of
  options                                                7,925       79         (79)
Purchase of warrants by consultants                                          81,000                                        81,000
Accretion of redeemable convertible
  preferred stock                                                          (806,425)                                     (806,425)
Issuance of restricted shares for
  SD&A earnout                                          96,748      967     424,033                                       425,000
Non-recurring issuance of options for
compensation of executive officers                                        1,650,000                                     1,650,000
Issuance of common stock for acqui-
  sition of Metro Services Group                     1,814,000   18,140   7,237,860                                     7,256,000
Recapitalization:
  Conversion of 6,200 shares of 
  Series B redeemable convertible
  preferred stock into common                        2,480,000   24,800   1,661,288                                     1,686,088
  Accretion on repurchase of 2,000
  shares of Series C redeemable
  preferred stock                                                          (573,305)                                     (573,305)
Issuances of restricted stock in 
  exchange for warrants                                600,000    6,000      (6,000)
Issuances of restricted stock for
  accrued interest on Series B&C
  redeemable convertible preferred
  stock                                                 88,857      889     144,864                                       145,753
Issuances of restricted shares upon 
  exercise of discounted warrants                    3,152,500   31,526   2,033,600                                     2,065,126
Discounts granted on exercise of
  warrants                                                                  113,137                                       113,137
Issuances of warrants to
  consultants                                                                76,000                                        76,000
Net loss                                                                              (5,377,096)                      (5,377,096)
                                     ------  ------ ---------- -------- ----------- ------------   ------  ---------  -----------
Balance June 30, 1997                               11,438,564 $114,386 $25,209,493 $(11,502,596) (11,800) $(135,469) $13,685,814
                                     ======  ====== ========== ======== =========== ============   ======  =========  ===========
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>


                  MARKETING SERVICES GROUP AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                   YEARS ENDED JUNE 30, 1997, 1996 AND 1995

                                             1997         1996        1995
                                         -----------  -----------  -----------
Operating activities:                                (as restated)
   Net income (loss)                     $(5,377,096) $(1,094,373) $   110,397
   Adjustments to reconcile loss to net
   cash used in operating activities:
     Gains from sales of securities                                 (1,579,539)
     Gain on sale of STI                                              (322,387)
     Gain on sale of land                    (90,021)
     Depreciation                            250,194      139,881       52,348
     Amortization                            719,400      361,537       65,101
     Loss on disposal of assets               35,640                    30,319
     Discount on exercise of warrants
       and options                                                     127,875
     Discounts on exercise of warrants       113,137
     Compensation expense on option
       grants                              1,650,000
     Stock issuances to employees,
       directors and consultants                          193,677
     Accretion on  note  payable
       and redeemable stock                  161,597
     Warrant   issuances  to
       consultants and creditors             152,000       82,626
    Promissory   notes  issued  for
      settlement  agreements                 499,524
    Accrued interest on redeemable
      convertible preferred stock                          17,490
   Changes in assets and liabilities
   net of effects from acquisition:
     Accounts receivable                    (483,959)    (613,771)    (377,631)
     Other current assets                   (119,263)      38,710      (16,844)
     Other assets                           (144,237)      (8,346)      20,519
     Trade accounts payable                 (312,493)     105,068     (147,360)
     Accrued expenses and other liabilities  259,314      (21,674)       6,757
     Income taxes payable                     22,225      (84,565)      55,000
     Discontinued operations, net                                     (152,662)
                                          ----------   ----------  -----------
   Net cash used in operating activities  (2,664,038)    (883,740)  (2,128,107)
                                          ----------   ----------  ----------- 
Investing activities:
   Proceeds from sales of investments
     in securities                                                   2,682,811
   Purchase of investment in securities                             (1,063,272) 
   Proceeds  from  sale of STI                                         800,000
   Proceeds from sales of fixed assets                                  11,000 
   Proceeds from sale of land                860,443
   Acquisition of Alliance Media
     Corporation, net of cash
     acquired of $567,269                                              259,088
   Acquisition of Metro Services Group,
     Inc., net of cash acquired
     of $349,446                             207,327
   Payments relating to acquisition of
     Alliance & SD&A                                     (477,704)
   Purchase of property and equipment       (489,846)     (94,772)     (43,905)
   Land development costs                                              (10,526)
                                          ----------   ----------   ---------- 
     Net cash provided by (used in)
       investing activities                  577,924     (572,476)   2,635,196
                                          ----------   ----------   ---------- 
Financing activities:
  Proceeds from exercise of warrants       2,065,125  
  Repurchase of preferred  stock                         (812,500)  
  Proceeds from convertible notes
    payable                                2,200,000  
  Proceeds from issuances of 
    common stock                                          120,000    1,226,593 
  Proceeds from issuances of
    preferred stock and warrants               5,000    4,570,682  
  Proceeds from (repayment of)
   land option                              (150,000)     150,000   
  Proceeds from bank loans and
  credit facilities                        1,686,546      500,000    
  Repayments of bank loans and credit
   facilities                               (524,838)     (49,694)    (513,059)
  Payments on promissory notes               (51,889)
  Proceeds from note payable other                                   1,000,000  
  Repayments of note payable other        (1,000,000)     (72,000)  (1,072,000)
  Principal payments under capital
     lease obligation                        (41,195)  
  Related party repayments                  (566,667)  (2,775,000)    (350,000)
                                          ----------   ----------   ---------- 
    Net cash provided by financing
      activities                           3,622,082    1,631,488      291,534
                                          ----------   ----------   ---------- 
Net increase in cash and cash
  equivalents                              1,535,968      175,272      798,623
Cash and cash equivalents at 
  beginning of year                        1,393,044    1,217,772      419,149
                                          ----------   ----------   ---------- 
Cash and cash equivalents at
  end of year                             $2,929,012   $1,393,044   $1,217,772
                                          ==========   ==========   ==========
Supplemental disclosures of
  cash flow data:
    Cash paid during the year for:
     Interest                            $ 243,482     $ 455,276    $ 60,422
     Financing charge                    $ 154,000                  $300,000
     Income tax paid                     $  45,154     $ 155,025    $ 15,000


Supplemental scheduleof non cash investing and financing activities
-------------------------------------------------------------------
For the year ended June 30, 1997:

In August,  1996,  7,925 net additional  shares of common stock were issued upon
exercise of stock options for 15,000 shares,  using 7,075 outstanding  shares as
payment of the exercise price.

In September,  1996, the Company issued 96,748 shares of common stock, valued at
$425,000,  as an earn out  payment  to the  former  owner of SD&A for  achieving
certain targeted earnings for the fiscal year ended June 30, 1996.

During September,  1996, two former members of executive management were granted
stock  options for 600,000  shares of common  stock as part of their  employment
agreements. Compensation expense of $1,650,000 was recognized for the difference
between the exercise price and the fair market value at date of grant.

On October 1, 1996, the Company issued  1,814,000 shares of its common stock and
$1,000,000 face value in 6% convertible notes to acquire 100% of the outstanding
stock of Metro  Services  Group,  Inc.  The debt was  originally  discounted  to
$920,000 to reflect an effective  interest rate of 10%, increased to $943,806 in
April,  1997,  as a result of a  $100,000  prepayment.  At  acquisition,  assets
acquired and liabilities assumed, less payments made for acquisition, were:

              Working capital, other than cash  $ 389,310
              Property and equipment             (242,726)
              Other assets                        (50,000)
              Costs in excess of net assets
                of acquired company            (8,236,046)
              Long-term debt, discounted          943,806
              Other liabilities                   146,983
              Common stock issued               7,256,000
                                                ---------
                                                $ 207,327
                                                =========

On December 23, 1996,  the Company issued  3,168,857  shares of its common stock
and $1,000,000 face value in debt as part of a recapitalization. 6,200 shares of
Redeemable Series B Preferred Stock were converted into 2,480,000 common shares;
2,000  shares of  Redeemable  Series C  Preferred  Stock  were  repurchased  for
$1,000,000 in notes;  warrants for 3,000,000  shares were  exchanged for 600,000
common shares and $145,753 in accrued  interest was converted into 88,857 common
shares. Interest expense for fiscal 1997 was $128,264 (see Note 15).

In March,  1997, the Company entered into promissory notes payable for executive
management  settlement  agreements at a discounted  value of $499,524,  of which
$447,635 was unpaid at June 30, 1997.

During March 1997, to raise $2.1 million in cash,  the Company  accepted  offers
from warrant  holders to discount  their  exercise  prices as an  inducement  to
exercise.  The non-cash  value of the  discounts  totaled  $5,088,637,  of which
$113,137 was expensed in fiscal 1997 and $4,975,500 was charged directly to paid
in capital.

In April,  1997,  the  Company  made  prepayments  on a portion of  discounted
long-term debt to a former owner of Metro Services Group,  Inc.,  resulting in
non-cash  accretion of $23,810 on the discounted debt and goodwill.  Accretion
of the discount on the unpaid notes was $33,333.

On June 30, 1997, intangible assets were increased by $758,888,  payable half in
common  stock  and  half in  cash  to the  former  owner  of SD&A as  additional
consideration   resulting  from  SD&A's   achievement  of  defined   results  of
operations, during fiscal 1997 (see Note 4).

During  fiscal 1997,  the Company  issued  warrants to acquire  common stock for
consulting services valued at $152,000.

On July 1, 1997,  the Company  consummated  an  agreement  to  purchase  Pegasus
Internet,  Inc. At June 30,  1997,  the  Company  has accrued  $80,000 in unpaid
acquisition costs.

<PAGE>

For the year ended June 30, 1996:

In October,  1995, in accordance with the acquisition agreement between Alliance
Media Corporation and the former owner of SD&A, the purchase price was increased
by $85,699.

In October,  1995, the Company issued 6,250 shares of common stock in settlement
of a liability of $26,250.

In November,  1995,  a special  county bond  measure,  with  principal  totaling
$154,814,  was  assessed  on the  Company's  land  and  was  recorded  as a land
improvement, offset by a liability in accrued other expenses.

In April,  1996,  the Company issued 89,192 shares of common stock in settlement
of liabilities to employees, directors and consultants of $193,678.

During the year ended June 30, 1996, the Company issued  warrants to consultants
and creditors valued at $82,626.

Accrued and unpaid interest on shares of redeemable  convertible preferred stock
during fiscal 1996 totaled $17,490.

On June 30,  1996,  intangible  assets were  increased  by $425,000  for accrued
restricted  common stock  payable to the former  owner of SD&A as an  additional
payment resulting from SD&A achievement of defined results of operations.
See Note 4.

For the year ended June 30, 1995:

In Fiscal 1995, the Company purchased all of the capital stock of Alliance Media
Corporation  for  1,025,000   shares  of  common  stock  valued  at  $2,745,000.
Additionally,  37,500  shares of common stock valued at $100,000  were issued as
finders  fee.  Other  direct  costs  of the  acquisition  totaled  approximately
$500,000.  In  conjunction  with  the  acquisition,   net  assets  acquired  and
liabilities assumed, less payments prior to year end, were:

               Working capital, other than cash   $ 601,729
               Property and equipment              (326,320)
               Costs in excess of net assets
                 of companies acquired           (7,337,870)
               Other assets                         (23,451)
               Long term debt                     4,500,000
               Common stock issued                2,845,000
                                                  ---------
                                                  $ 259,088
                                                  =========

Five  thousand  shares  of  common  stock  valued at  $38,750  were  issued as a
commission on the sale of STI during 1995.

The Company  issued  37,500  shares of common stock valued at $150,000 in Fiscal
1995 in settlement of a 1994  liability  for early  termination  of a consulting
agreement.


See Notes to Consolidated Financial Statements.


<PAGE>


               MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  GENERAL:

      Marketing  Services  Group,  Inc.  ("MSGI" or the  "Company") was formerly
known as All-Comm Media Corporation and, prior to that, as Sports-Tech,  Inc. On
April 25, 1995, the Company, through a wholly-owned subsidiary,  was merged with
Alliance Media Corporation ("Alliance") and its wholly-owned subsidiary, Stephen
Dunn & Associates,  Inc. ("SD&A").  Upon consummation of the merger, the members
of the board of directors of the Company resigned and a new board was appointed.
SD&A provides telemarketing and telefundraising  services to not-for-profit arts
and other organizations  principally in the United States.  Effective October 1,
1996,  the Company  purchased  100% of the  outstanding  stock of Metro Services
Group,  Inc. (to be renamed Metro Direct,  Inc.)  ("Metro").  Metro develops and
markets  information-based  services  used  primarily  in direct  marketing by a
variety of commercial and tax-exempt organizations.  The Company's mission is to
create a  growth-oriented  direct  marketing  company through  acquisitions  and
internal growth.

      Prior to the merger  with  Alliance,  the  Company's  owned two  operating
subsidiaries,  Sports-Tech International ("STI") and High School Gridiron Report
("HSGR").  STI was engaged in the sale of computer software,  computer equipment
and computer  aided video systems used by sports  programs at the  professional,
collegiate and high school levels.  HSGR provided academic and video data to aid
in pre-qualifying  high school athletes to colleges and universities.  In fiscal
1995,  the  Company  discontinued  the  operations  of STI and  HSGR.  With  the
disposition  of the STI  operations,  closure  of the  HSGR  operations  and the
acquisitions  of Alliance and Metro,  the Company is now operating in the direct
marketing industry segment.

      The Company  believes that funds  available from operations and its unused
credit  facilities  will be  adequate  to finance  its  current  operations  and
anticipated  growth and meet  planned  capital  expenditures,  interest and debt
obligations  in its  fiscal  year  ending  June  30,  1998.  Thereafter,  and in
conjunction  with the  Company's  acquisition  and growth  strategy,  additional
financing may be required to meet potential  acquisition  payment  requirements.
The Company  believes  that it has the ability to raise  funds  through  private
placements or public  offerings of debt and/or  equity  securities to meet these
requirements.  There can be no  assurance,  however,  that such  capital will be
required or available at terms acceptable to the Company, or at all. The Company
is  engaged in  ongoing  evaluation  of, and  discussions  with,  third  parties
regarding  possible   acquisitions;   however,  the  Company  currently  has  no
definitive agreements with respect to any significant acquisitions.

2.  SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:
      The consolidated  financial  statements  include the accounts of Marketing
Services Group, Inc. and its wholly-owned  subsidiaries:  Alliance; SD&A; Metro;
All-Comm  Holdings,  Inc.  (formerly,  Bullhead Casino  Corporation),  dissolved
during fiscal 1997; All-Comm Acquisition Corporation (formerly, BH Acquisitions,
Inc.),  dissolved  during fiscal 1997;  Sports-Tech  International,  Inc.,  sold
during fiscal year 1995; High School Gridiron  Report,  Inc.,  dissolved  during
fiscal year 1996; and BRST Mining  Company,  dissolved  during fiscal year 1996.
STI and  HSGR are  presented  as  discontinued  operations  in the  consolidated
financial  statements.  All material  intercompany accounts and transactions are
eliminated in consolidation.

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 at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during  the  reporting  period.  The most  significant  estimates  and
assumptions  made in the preparation of the  consolidated  financial  statements
relate to the  carrying  value of  intangible  assets,  deferred  tax  valuation
allowance and the allowance for doubtful  accounts.  Actual results could differ
from those estimates.

Cash and Cash Equivalents/Statement of Cash Flows:
      Highly  liquid  investments  with an original  maturity of three months or
less are considered to be cash equivalents.

Land held for Sale:
      The cost of acquiring,  improving and planning the development of land was
capitalized.  Costs related to development  were written off when such plans are
abandoned.  Interest  cost  was  capitalized  in  periods  in  which  activities
specifically  related to the  development  of the land took place.  The land was
valued at lower of cost or  market.  The land was sold on August 16,  1996.  See
Note 7.

Property and Equipment:
      Property and equipment is recorded at cost less accumulated  depreciation.
Maintenance  and  repairs  are  expensed  as  incurred.  The  cost  and  related
accumulated  depreciation  and  amortization  of property and equipment  sold or
retired are removed from the accounts and resulting gains or losses are included
in current operations.  Depreciation and amortization are provided on a straight
line basis over the useful lives of the assets involved, limited as to leasehold
improvements by the term of the lease, as follows:

      Equipment...........................5 years
      Furniture and fixtures..............2 to 7 years
      Computer equipment and software.....3 to 5 years
      Leasehold improvements..............over the useful life of the assets or
                                            term of the lease, whichever is
                                            shorter
                                                

Intangible Assets:
      Excess of cost over net assets  acquired in  connection  with the Alliance
and SD&A acquisitions are being amortized over the period of expected benefit of
40 years. Covenants not to compete are stated at cost and are amortized over the
period of expected benefit. Proprietary software is amortized over its period of
expected  benefit  of five  years.  For  each of its  investments,  the  Company
assesses  the  recoverability  of  its  goodwill,  by  determining  whether  the
amortization  of the goodwill  balance over its remaining  life can be recovered
through projected undiscounted future cash flows over the remaining amortization
period.  If projected future cash flows indicate that unamortized  goodwill will
not be recovered,  an  adjustment  will be made to reduce the net goodwill to an
amount  consistent with projected  future cash flows discounted at the Company's
incremental  borrowing  rate.  Cash  flow  projections  are  based on  trends of
historical  performance and management's estimate of future performance,  giving
consideration to existing and anticipated  competitive and economic  conditions.
No impairment has been recognized in the accompanying financial statements.

Revenue recognition:
      Revenues  represent  fees earned by SD&A which are  recorded  when pledged
cash is received  for on-site  campaigns  and when  services  are  provided  for
off-site  campaigns.  Metro recognizes revenue when its services have been fully
performed  and  completed  (the  "Service  Date")  but  does  not  bill for such
services, in accordance with industry practices,  until all services relating to
a client's  campaign,  including  services to be performed  by  unrelated  third
parties,  have been  completed.  The  client's  obligation  to pay Metro for its
completed  services is not  contingent  upon  completion  of the  services to be
performed by these unrelated third parties. In any event,  clients are billed no
later than a predetermined  mailing date for their respective  campaigns,  which
date is  generally  not more than thirty days after the Service  Date.  Unbilled
receivables  represent the portion of revenues  recognized in excess of revenues
billed in accordance with this practice.

Income taxes:
      Deferred tax assets and liabilities are determined based on the difference
between the financial  statement and tax basis of assets and  liabilities  using
enacted tax rates and laws  applicable to the years in which the differences are
expected  to  reverse.  Valuation  allowances,  if  any,  are  established  when
necessary  to reduce  deferred tax assets to the amount that is more likely than
not to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

Concentration of Credit Risk:
      Financial   instruments   that   potentially   subject   the   Company  to
concentration of credit risk consist primarily of temporary cash investments and
trade   receivables.   The  Company  restricts   investment  of  temporary  cash
investments to financial institutions with high credit standing.  Credit risk on
trade  receivables  is minimized as a result of the large and diverse  nature of
the Company's customer base.

Stock Option Plan:
      Prior to fiscal 1997,  the Company  accounted for its stock option plan in
accordance  with the provisions of Accounting  Principles  Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying  stock  exceeded the exercise  price.  In
1997, the Company adopted Statement of Financial  Accounting  Standards ("SFAS")
No. 123, "Accounting for Stock Based  Compensation",  which requires entities to
either  recognize  as  expense  the fair value of all  stock-based  awards or to
provide pro forma net earnings and pro forma earnings per share  disclosures for
employee  stock  option  grants  made  in  1996  and  future  years  as  if  the
fair-value-based  method  defined in SFAS No. 123 had been applied.  The Company
has elected to apply the pro forma disclosure provisions of SFAS No. 123.

Earnings (loss) per share:
      Primary  earnings  (loss)  per  common  and  common  equivalent  share and
earnings  per common and common  equivalent  share  assuming  full  dilution are
computed based on the weighted  average number of common shares  outstanding and
common  share  equivalents  attributable  to the effects,  if  dilutive,  of the
assumed exercise of outstanding  stock options and warrants,  and the conversion
of convertible notes and preferred shares.

Reclassifications:
      Certain  prior year items have been  reclassified  to conform with current
year presentation.

3.  ACQUISITION OF METRO SERVICES GROUP, INC.

      Effective  as of October 1, 1996,  the  Company  acquired  Metro  Services
Group,  Inc.  pursuant to a merger  agreement.  In exchange  for all of the then
outstanding  shares of Metro,  the Company issued 1,814,000 shares of its common
stock  valued  at  $7,256,000  and  promissory  notes  (the  "Notes")   totaling
$1,000,000.  The Notes, which have a stated interest rate of 6%, were discounted
to $920,000,  (adjusted to $944,000 as of June 30, 1997,  subsequent to an April
payment) to reflect an estimated  effective  interest rate of 10%. The Notes are
due and payable,  together  with  interest  thereon,  on June 30, 1998,  and are
convertible on or before maturity,  at the option of the holder,  into shares of
common stock at a conversion rate of $5.38 per share. In April 1997, $100,000 of
the Notes were repaid and, in July 1997, $400,000 were repaid.

      The acquisition was accounted for using the purchase method of accounting.
The purchase  price was allocated to assets  acquired  based on their  estimated
fair value.  This treatment  resulted in approximately  $7.3 million of costs in
excess of net  assets  acquired,  after  recording  covenants  not to compete of
$650,000 and  proprietary  software of $250,000.  Such excess is being amortized
over the expected period of benefit of forty years, except for the covenants and
software which are amortized over their  expected  benefit  periods of three and
five years respectively.

      The operating results of this acquisition are included in the consolidated
results of  operations  from the date of  acquisition.  The  following  summary,
prepared on a pro forma basis,  combines the consolidated  results of operations
as if Metro had been  acquired as of the  beginning  of the  periods  presented,
after  including  the impact of certain  adjustments,  such as  amortization  of
intangibles  and increased  interest on  acquisition  debt. The net loss for the
year ended June 30, 1997  includes  the  non-cash  compensation  expense of $1.7
million recorded on the grant of options in September, 1996, as well as the $5.1
million in warrant discounts,  $1.2 million in withdrawn offering costs and $1.0
million in restructuring costs, as discussed in notes 16, 20 and 21. Net loss to
common stockholders includes $9.8 million of non-cash dividends and accretion on
preferred stock.
                                           Unaudited
                                      1997           1996
                                      ----           ----
           Revenues               $26,360,830    $23,983,070
           Net loss                (5,400,262)    (1,255,713)
           Net loss to common     (20,222,204)    (1,350,681)
           Loss per common share    $(2.68)         $(0.28)

      The unaudited pro forma information is provided for informational purposes
only. It is based on historical information and is not necessarily indicative of
future results of operation of the combined entities.

4. ACQUISITION OF ALLIANCE MEDIA CORPORATION AND STEPHEN DUNN & ASSOCIATES, INC:

     On April 25, 1995, the Company, through a statutory merger, acquired all of
the outstanding common shares of Alliance.  The purchase price was approximately
$2,745,000,  consisting of issuance of 1,025,000 restricted common shares of the
Company to former  shareholders  of Alliance  valued at $2.68 per common  share.
Direct costs of the acquisition approximated $500,000.  Pursuant to the terms of
the merger  agreement,  upon consummation of the merger the then current members
of the Company's board of directors resigned,  and a new board consisting of six
persons designated by Alliance was appointed.

      The assets of Alliance acquired by the Company consisted  primarily of (i)
all the  issued and  outstanding  stock of SD&A,  which  Alliance  had  acquired
simultaneously  with the merger,  (ii) a five year  covenant not to compete with
the former  owner of SD&A,  and (iii) the cash  proceeds of  $1,509,750  (net of
certain  payments,  including  the payment of $1.5 million made  pursuant to the
acquisition  of SD&A) of a private  placement of equity  securities of Alliance,
which  securities,  upon  consummation  of the merger,  were  converted into the
Company's  common  stock.  The purchase  price of SD&A paid by Alliance was $1.5
million in cash, plus $4.5 million in long-term obligations yielding prime rate,
payable over four years.  Additional  contingent  payments of up to $850,000 per
year  over  the  period  ending  June  30,  1998  may be  required  based on the
achievement of defined results of operations of SD&A after its  acquisition.  At
the Company's option, up to one half of the additional  contingent  payments may
be made with  restricted  common  shares of the  Company.  Alliance and SD&A had
entered into an operating  covenant agreement relating to the operations of SD&A
and  Alliance  had  pledged  all  of the  common  shares  of  SD&A  acquired  to
collateralize its obligations under that agreement.

     These  acquisition  terms were  revised  pursuant  to the  Company  private
placement  financing  which  occurred  on June 7, 1996 (see Note 14) whereby the
long term  obligations were revised and  approximately  $2.0 million was paid in
June,  1996. The balance of $2.1 million was revised to be payable in 36 monthly
principal payments of $58,333, plus interest at 8%, starting September 19, 1996.
As of June 30, 1997, due to a pending change in financing relationship,  the May
and June,  1997 payments had not been made.  These payments were paid in full in
August, 1997.

      The assets of SD&A acquired by Alliance (and therefore by the Company upon
consummation of the merger)  consisted  primarily of cash and cash  equivalents,
accounts receivable and furniture, fixtures and equipment.

      These  acquisitions  were  accounted  for using the purchase  method.  The
purchase price was allocated to assets  acquired  based on their  estimated fair
value. This treatment  initially resulted in approximately $6.3 million of costs
in excess of net assets  required,  after recording a covenant not to compete of
approximately $1.0 million. The excess was increased by $759,000 and $850,000 on
June 30, 1997 and 1996,  respectively,  due to achievement of defined results of
operations of SD&A for the years then ended. Such excess, which may increase for
one further  contingent  payment,  is being  amortized over the remainder of the
expected period of benefit of 40 years.

      The  operating   results  of  these   acquisitions  are  included  in  the
consolidated  results of operations from the date of acquisition.  The following
summary,  prepared on a pro forma basis,  combines the  consolidated  results of
operations  as if Alliance and SD&A had been acquired as of the beginning of the
period presented,  after including the impact of certain  adjustments,  such as:
amortization of  intangibles,  increased  interest on the acquisition  debt, and
adjustment of officer salary for new contract.
                                                        1995 (unaudited)
                                                        ----------------
      Net sales                                          $15,013,000
      Loss from continuing operations                       (113,911)
      Loss from continuing operations per common share     $(.04)

     The unaudited pro forma information is provided for informational  purposes
only. It is based on historical information and is not necessarily indicative of
the actual results that would have occurred nor is it necessarily  indicative of
future results of operations of the combined entities.

5.  DISCONTINUED OPERATIONS:

      During the year ended June 30, 1995,  the Company sold its STI  subsidiary
for  $800,000,  out of which  $80,000 was paid as a  commission  to STI's former
president.  The former  president  of STI also  received  5,000 shares of common
stock, valued at $38,750, and warrants to purchase 2,500 shares of the Company's
common stock at $8.00 per share in connection with this transaction. The Company
realized a gain on the sale of $322,387.  No tax was  allocable to this gain due
to net operating loss carryforwards.

      Concurrent  with the closing of sale of STI, all operations of HSGR ceased
and all  unrecoverable  assets were written off, which amounted to approximately
$22,000.  Accordingly,  STI and HSGR are reported as discontinued operations for
the year ending June 30, 1995, and the  consolidated  financial  statements were
reclassified to report separately the operating results, gain on disposition and
cash flows of these operations.  Revenues of these  discontinued  operations for
fiscal 1995 were $1,147,829.

6.  PROPERTY AND EQUIPMENT:

      Property and  equipment of  continuing  operations  at June 30, 1997 and
1996 consisted of the following:
                                                    1997         1996
                                                    ----         ----
           Office furnishings and equipmen       $ 934,148    $ 302,607
           Leasehold improvements                  201,212      169,771
                                                 ---------    ---------
                                                 1,135,360      472,378
           Less accumulated depreciation and
               amortization                       (389,577)    (173,333)
                                                 ---------    ---------
                                                 $ 745,783    $ 299,045
                                                 =========    =========

7.  LAND HELD FOR SALE:

      The Company, through its wholly owned subsidiary, All-Comm Holdings, Inc.,
owned approximately seven acres of undeveloped land in Laughlin,  Nevada,  which
had a carrying value of $921,465 as of June 30, 1996. During fiscal 1996, a bond
measure was passed by Clark County,  Nevada authorities,  resulting in a special
assessment  to fund  improvements  which would  benefit the land.  The principal
balance  assessed to the Company totaled  $154,814 plus interest at 6.4% and was
payable in  semi-annual  installments  over  twenty  years.  The  principal  was
capitalized by the Company in fiscal 1996. On August 16, 1996, the land was sold
to, and  liability  assumed by, an  independent  third party,  via auction,  for
$952,000 in cash, resulting in a net gain of approximately $90,000.

8.  INTANGIBLE ASSETS:

   Intangible assets at June 30, 1997 and 1996, consist of the following:

                                                     1997           1996
                                                     ----           ----
            Covenants not to compete             $ 1,650,000     $1,000,000
            Proprietary software                     250,000
            Goodwill                              15,372,636      7,277,698
                                                 -----------    -----------
                                                  17,272,636      8,277,698
            Less accumulated amortization         (1,146,038)      (426,638)
                                                 -----------    -----------
                                                 $16,126,598     $7,851,060
                                                 ===========     ==========

      The  increase  in  intangible  assets  during 1997 was due to the costs in
excess of net assets acquired in the Metro acquisition,  as well as recording of
an  estimated  contingent  payment of $759,000  due to the former  owner of SD&A
subsequent to the  achievement  of defined  results of operations of SD&A during
the year ended June 30, 1997.

9.  SHORT-TERM BORROWINGS:

      At June 30, 1996, SD&A had a $500,000 line of credit from a bank which was
fully used.  The line bore interest at prime plus 1/2% (8.75% at June 30, 1996),
was  collateralized  by  substantially  all of SD&A's assets and was  personally
guaranteed  by SD&A's  President.  The line of  credit  also  contained  certain
financial  covenants,  including  current ratio,  working capital,  debt and net
worth, capital expenditure, and cash flow requirements.  During fiscal 1997, the
personal  guarantee of SD&A's  President was removed,  the line was increased to
$750,000 and SD&A  obtained a note  payable of $125,000 to finance  expansion of
the  Berkeley  Calling  Center.  The note  payable  required  monthly  principal
repayments of $3,473, plus interest.

      At June 30, 1997, the outstanding  balances on the note and line of credit
were  $104,162 and  $746,000,  respectively,  which bore  interest at the bank's
prime rate plus 3/4% and 1/2%, respectively.

      In August,  1997, SD&A entered into a two-year  renewable  credit facility
with a lender for a line of credit  commitment of up to a maximum of $2,000,000,
collateralized  by its accounts  receivable.  Interest is payable monthly at the
Chase  Manhattan  reference  rate (8 1/2% at June 30,  1997)  plus 1 1/2% with a
minimum annual interest  requirement of $80,000.  The facility has an annual fee
of 1% of the  available  line.  The  facility has tangible net worth and working
capital covenants. In August, the outstandings on the bank line and note payable
were fully paid from borrowings on the new facility.

      In April, 1997, Metro entered into a two-year  renewable  revolving credit
facility  with a lender  for a line of credit  commitment  of up to a maximum of
$1,500,000,  collateralized  by its  accounts  receivable.  Interest  is payable
monthly at the Chase  Manhattan  reference rate (8 1/2% at June 30, 1997) plus 1
1/2%, with a minimum annual interest requirement of $60,000. The facility has an
annual fee of 1 1/2% of the available  line.  At June 30, 1997,  Metro had drawn
$811,546 on the line.  The facility  has tangible net worth and working  capital
covenants.

10.  OTHER ACCRUED EXPENSES:

      Accrued expenses at June 30, 1997 and 1996 consisted of the following:
                                                  1997           1996
                                                  ----           ----
               Accrued professional fees        $362,500       $290,897
               Other                             372,458        467,215
                                                --------       --------
               Total                            $734,958       $758,112
                                                ========       ========

11.  LONG TERM OBLIGATIONS:

      Long term obligations at June 30, 1997 and 1996 consist of the following:

                                                    1997           1996
                                                    ----           ----
      6% Convertible notes (a)                   $2,200,000
      Promissory notes to seller of SD&A (b)      1,633,333     $2,100,000
      Promissory notes to sellers of Metro (c)      877,142
      Promissory notes to former executives (d)     447,635
      Capital lease obligation (e)                  130,900
                                                 ----------     ---------- 
      Total                                       5,289,010      2,100,000
      Less:  Current portion                     (2,083,772)      (583,333)
                                                 ----------     ---------- 

      Total long term obligations                $3,205,238     $1,516,667
                                                 ==========     ==========

(a) In  April,  1997,  the  Company  obtained  $2,046,000,  net of fees from the
private placement of 6% convertible notes, with a face value of $2,200,000.  The
notes are payable with interest on April 15, 1999, if not previously  converted.
The notes are  convertible  into  shares of the  Company's  Common  Stock at the
lesser of $2.50 per share or 83% of the average  closing bid price of the Common
Stock  during the last five  trading  days prior to  conversion.  Subsequent  to
fiscal 1997 through September 23, 1997, $1,675,000 face value of the notes, plus
interest, was converted into 684,122 shares.

(b) In  connection  with the  acquisition  of SD&A on April 25,  1995,  Alliance
issued  promissory  notes totaling  $4,500,000 to SD&A's  current  President and
former sole  shareholder.  The notes bore interest at prime rate,  not to exceed
10% or drop below 8%, and were  payable  monthly.  Principal  payments  were due
quarterly,  and originally  $1,500,000 was due in quarterly  installments during
fiscal 1996. During 1996 the July 1, 1996 principal payment of $375,000 was made
and the long term obligations were restructured to defer principal  payments due
October 1, 1995,  January 1, 1996 and April 1, 1996,  until June 1996.  In June,
1996,  principal payments of $2,025,000 were made and the remaining  obligations
of  $2,100,000  are now  payable at  $58,333  per month,  plus  interest  at 8%,
starting  September  19, 1996. As of June 30, 1997,  due to a pending  change in
financing  relationship,  the May and June  payments  had not been  made.  These
payments were made in full in August, 1997.

(c) As discussed in Note 3, in  connection  with the  acquisition  of Metro,  6%
convertible  promissory notes with a face value of $1,000,000 were issued to the
sellers,  who remain  related  parties.  The notes,  which  were  discounted  to
$920,000 to reflect an effective  interest rate of 10%, are due and payable,  if
not previously  converted,  on June 30, 1998. In April, 1997, the Company repaid
$100,000 face value of the notes, payable to its Chief Executive Officer, and in
July, 1997, an additional $400,000 was repaid.

(d) As discussed in Note 12,  effective March 31, 1997, the Company entered into
settlement  agreements with former senior executives,  which included promissory
notes payable with face amounts totaling $540,000 at 0% interest.  The notes are
payable in equal  monthly  installments,  starting May 14, 1997.  The notes were
discounted to $499,000,  to reflect an effective  interest rate of 10%.  Amounts
payable on these notes at June 30, 1997 totaled $448,000.

(e) Metro leases  certain  computer  hardware  and  software  under a three year
capital lease obligation. Future minimum lease payments at June 30, 1997 are:

                  1998                               $ 68,965
                  1999                                 68,965
                  2000                                  5,746
                                                     --------
                  Total minimum lease payments        143,676
                  Less interest                        12,776
                                                     --------
                  Present value of minimum payments   130,900
                  Current portion                      59,869
                                                     --------
                  Non-current portion                $ 71,031
                                                     ========

12.  EMPLOYMENT CONTRACTS:

      Subject to execution  of  definitive  agreements,  the Company has entered
into three-year  employment  arrangements  with current officers of the Company.
The  arrangements  provide for annual base salaries,  base  increases,  cash and
option bonuses which are payable if specified management goals are achieved, and
certain  termination  benefits.  In the event of termination  without cause, the
aggregate liability for these employees is approximately $1,425,000.

      The Company also had  employment  contracts  with  certain  members of the
prior  management of the Company.  Effective March 31, 1997, the Company entered
into settlement agreements with two former members of executive management which
included cash payments totaling  $200,000,  promissory notes payable with a face
value of $540,000 and other  expenses.  Amounts paid to these  executives  under
these  agreements  in fiscal 1997 totaled  $266,000.  In fiscal 1995,  severance
payments to prior management of Sports-Tech totaling  approximately $60,000 were
made.

13. COMMITMENTS AND CONTINGENCIES:

      Leases: SD&A leases its corporate business premises from its former owner.
The lease requires  monthly rental  payments of $11,805 through January 1, 1999,
with an option to renew.  SD&A incurs all costs of  insurance,  maintenance  and
utilities.  Metro  leases its office and data  processing  space under long term
leases. The Company also leases its corporate office space,  copier,  phones and
automobiles.

      Future minimum rental commitments under all  non-cancelable  leases, as of
fiscal years ending June 30, are as follows:

                      1998      $ 474,968
                      1999        363,609
                      2000        294,858
                      2001        301,358
                      2002        186,560
                               ----------
                               $1,621,353
                               ==========

      Rent  expense  for  continuing  operations  was  approximately   $445,000,
$297,000, and $89,000, for fiscal years ended 1997, 1996 and 1995, respectively.
Total rent paid by SD&A to its former owner during 1997,  1996 and from the date
of  acquisition  to June  30,  1995 was  approximately  $142,000,  $138,000  and
$26,000, respectively.

      The Company is party to various  minor legal  proceedings.  The outcome of
these legal  proceedings  are not expected to have a material  adverse effect on
the  financial  condition  or operation  of the Company  based on the  Company's
current understanding of the relevant facts and law.

14.  REDEEMABLE CONVERTIBLE PREFERRED STOCK:

      On June 7,  1996,  the  Company  completed  the  private  placements  with
accredited  investors  of  6,200  shares  of  Series  B  redeemable  convertible
preferred  stock for  $3,100,000.  The  preferred  stock was preferred as to the
Company's assets over the common stock in the event of liquidation,  dissolution
or  winding-up  of the  Company,  prior to  distribution  of  assets  to  common
stockholders.  The  preferred  stockholders  were  entitled  to  their  original
investment,  plus  accrued,  unpaid  dividends  or,  if  unavailable,  a ratable
distribution  of  existing  assets.  The  holders of the stock were  entitled to
receive a dividend  payable only on redemption or credited  against  conversion,
which accrued at the rate of 6% per annum.  The convertible  preferred stock was
convertible,  in whole or in part,  at any time and from time to time  until the
second anniversary of the date of issuance, into common shares of the company at
the lesser of the price paid  divided by $1.25,  or 80% of the  average  closing
sales  price of the  Company's  common  stock for the last  five  days  prior to
conversion,  and  is  subject  to  certain  restrictions,   including  automatic
conversion  on the  second  anniversary  of  issuance.  Under  certain  unlikely
conditions  prior  to  conversion,  the  preferred  stock  may be  redeemed.  In
addition,  the Company issued warrants to preferred  shareholders  for 3,100,000
shares of common stock exercisable at $2.50 for three years. The preferred stock
and accrued interest was converted in the recapitalization discussed in Note 15.

      On June 7,  1996,  the  Company  completed  the  private  placements  with
accredited  investors  of  $1,000,000  of  convertible  notes and  warrants  for
3,000,000  shares of common stock.  In September,  1996,  the notes and warrants
were  rescinded  retroactive  to June 7, 1996 and replaced  with 2,000 shares of
Series C redeemable  convertible  preferred stock for  $1,000,000.  The Series C
redeemable  convertible preferred stock was preferred as to the Company's assets
over the common stock in the event of liquidation,  dissolution or winding-up of
the  Company,  prior to  distribution  of  assets to  common  stockholders.  The
preferred shareholders were entitled to their original investment,  plus accrued
unpaid  dividends or, if available,  a ratable  distribution of existing assets.
The  holders of the stock were  entitled to receive a dividend  payable  only on
redemption or credited against conversion,  which accrued at the same rate of 8%
per annum. The Series C redeemable  convertible preferred stock was convertible,
in whole  or in  part,  at any time  and  from  time to time  until  the  second
anniversary  of the date of issuance,  into common  shares of the Company at the
price paid divided by $6.00, and was subject to certain restrictions,  including
automatic  conversion  on the second  anniversary  of  issuance.  Under  certain
unlikely conditions prior to conversion, the preferred stock may be redeemed. In
addition,  the Company issued warrants to preferred  shareholders  for 3,000,000
shares of common stock exercisable at $3.00 for three years. The preferred stock
was repurchased and the related accrued interest and the warrants were converted
to common stock as discussed in Note 15.

The Company  allocated the net proceeds  received on the sales of each series of
preferred  shares  and  warrants  based  on  the  relative  fair  values  of the
securities at the time of issuance.

15.  RECAPITALIZATION:

      On December  23,  1996,  the Company and certain of its  security  holders
effected a  recapitalization  of the Company's capital stock,  whereby:  (i) the
Company's  Series B Convertible  Preferred  Stock, par value $.01 per share (the
"Series B Preferred Stock"), was converted, in accordance with its terms without
the payment of additional consideration,  into 2,480,000 shares of Common Stock;
(ii) the Company's  Series C  Convertible  Preferred  Stock,  par value $.01 per
share (the "Series C Preferred Stock"),  was repurchased for promissory notes in
an aggregate  principal  amount of $1.0  million,  which  promissory  notes bore
interest at a rate of 8% per annum and were repayable on demand at any time from
and after the date of the consummation of an underwritten public offering by the
Company of Common Stock, but in any event such notes originally  matured June 7,
1998 but were paid in full in April,  1997;  (iii) all  accrued  interest on the
Series B Preferred  Stock and the Series C Preferred  Stock was  converted  into
88,857 shares of Common Stock;  (iv) warrants  related to the Series C Preferred
Stock,  currently  exercisable  for  3,000,000  shares  of  Common  Stock,  were
exchanged for 600,000 shares of Common Stock; and (v) options held by two of the
Company's  principal  executive  officers to purchase  300,000  shares of common
stock were to be  canceled  at no cost to the  Company,  subject  to  successful
completion of an underwritten  offering.  The Offering was not consummated  and,
accordingly,  the options were not  canceled.  Upon  conversion  of the Series B
Preferred Stock and accumulated  interest  thereon into Common Stock on December
23,  1996,  the Company  incurred a  non-cash,  non-recurring  dividend  for the
difference  between  the  conversion  price and the  market  price of the Common
Stock,  totaling $8.5 million.  Upon repurchase of the Series C Preferred Stock,
the Company  incurred a  non-recurring  dividend of $573,000 for the  difference
between  the  repurchase  price  and the  accreted  book  value of the  stock at
December  23, 1996.  These  dividends  do not impact net income  (loss),  but do
impact net income (loss)  attributable to common stockholders in the calculation
of earnings per share.

16.  STOCKHOLDERS' EQUITY:

      Preferred  Stock:  On May 9,  1996,  the  Company  completed  the  private
placement  with  an  institutional   investor  of  10,000  shares  of  Series  A
convertible preferred stock for $750,000, $687,000 net after offering costs. The
convertible preferred stock was convertible into common shares of the Company at
the lesser of the price paid  divided by $2.50,  or 80% of the closing bid price
of the Company's common stock for the five trading days immediately prior to the
conversion date, and was subject to certain restrictions.

      In connection with the June 7, 1996 transactions,  as described above, the
Company reacquired the 10,000 shares of Series A convertible preferred stock for
$800,000 plus fees of $12,500.

      Common Stock: The Board of Directors approved a one-for-four reverse stock
split of the Company's authorized and issued common stock,  effective August 22,
1995. The Board also approved reducing the number of authorized shares of common
stock to  6,250,000  with a par  value of $.01 per  share,  from the  25,000,000
common shares previously authorized.  Accordingly, all share and per share data,
as appropriate, reflect the effect of the reverse split.

      Effective  August  14,  1996,  the  shareholders  and  Board of  Directors
approved an increase in the number of authorized  shares of common  stock,  from
6,250,000 to 36,250,000.

      In August 1997, consultants paid $5,000 for warrants valued at $81,000, as
per consulting agreements.

      In September  1997,  the Company  issued  96,748 shares of common stock in
settlement of a $425,000 liability to the former owner of SD&A, as an additional
payment  resulting from SD&A  achievement  of defined  results of operations for
fiscal 1996.

      Prior to the December 23, 1996, recapitalization discussed in Note 15, the
Company  recorded  dividends  in  fiscal  1997  of  $806,425  to  its  preferred
stockholders to accrete the value assigned to the stock at June 6, 1996 (date of
sale) up to its convertible value at June 6, 1998 (date of automatic  conversion
prior to the recapitalization).

      In March 1997,  to obtain $2.1  million in working  capital and reduce the
overhang  associated with the existence of such warrants,  the Company  accepted
offers from certain  warrant-holders  to exercise  their  warrants for 3,152,500
shares of common stock at discounted exercise prices. The Company recognized the
dates of acceptance as new measurement dates and, accordingly, recorded non-cash
charges  totaling $5.1 million in March 1997, to reflect the market value of the
discounts.  Of the  total,  $113,000  was  charged  directly  to  expense as the
underlying  source  transaction  was debt related,  and  $4,976,000  was charged
directly to stockholders  equity as the underlying source transaction was equity
related.

      In May and June 1997,  the Company  issued  warrants for 240,000 shares of
common  stock  valued at $76,000 to three  consultants  for  financial  advisory
services.

      During 1996, the Company  issued 95,442 shares of restricted  common stock
as compensation to various employees, directors and consultants.

      In March 1996,  the Company  sold 75,000  restricted  shares of its common
stock for  $120,000  to four  individuals,  including  12,500  shares to related
parties.

      In May 1995, the Company  completed a private  placement of 413,759 shares
of restricted  common stock, at $2.68 per share.  These shares have registration
rights  as of  December  1,  1995.  Net  proceeds  from  this  offering  totaled
$1,018,675.

      As discussed in Note 4, in connection with the acquisition of Alliance and
SD&A,  the  Company  issued  1,025,000  restricted  common  shares to the former
shareholders of Alliance.  Also in connection with the acquisition,  the Company
issued 37,500  common shares valued at $100,000 and warrants to purchase  43,077
common  shares  at  $6.00-to-$8.00  per share to  investment  banking  firms,  a
shareholder,  a director and a law firm which  represented  the  Company.  These
warrants expire between April 25, 1998 and April 25, 2000.

      In  connection  with  the sale of  Sports-Tech  International,  Inc.,  the
Company approved  issuance of 5,000 common shares valued at $38,750 and warrants
to  purchase  2,500  shares  at  $8.00  through  April  25,  1995 to its  former
president.

      In May, 1995, the Board of Directors  approved the temporary  reduction of
the exercise price of certain warrants from $6.00 to $2.68 and, on May 31, 1995,
these 37,500 warrants were exercised for $100,500 in cash payments.

      As of June 30, 1997, the Company has the following outstanding warrants to
purchase 570,577 shares of common stock:

          Date Issued            Shares of Common       Exercise Price Per
        and Exercisable         Stock upon Exercise    Share of Common Stock
        ---------------         -------------------    ---------------------
         April 1995                   33,750                 $6.00 -$8.00
         May 1995                     11,827                   $ 6.00
         January 1996                 32,500                 $3.375-$8.00
         February 1996                15,000                 $3.00 -$4.00
         May 1996                    100,000                    $4.50
         July 1996                    37,500                    $3.50
         August 1996                  50,000                 $2.50 -$3.50
         September 1996               50,000                 $2.50 -$3.50
         May 1997                    140,000                   $ 3.00
         June 1997                   100,000                   $3.375
                                     -------
         Total as of June 30, 1997   570,577
                                     =======

      Stock Options:  In 1991, the Company adopted a non-qualified  stock option
plan (the "1991 Plan") for key employees, officers, directors and consultants to
purchase up to 250,000 shares of common stock.  In November,  1995, the Board of
Directors  increased  the number of available  shares by 600,000.  An additional
600,000 shares were approved by the Board of Directors on September 26, 1996 and
1,700,000  shares on May 27,  1997,  increasing  the number of shares  available
under the 1991 Plan to 3,150,000.  The 1991 Plan is administered by the Board of
Directors  which has the authority to determine which officers and key employees
of the Company will be granted options,  the option price and  exercisability of
the  options.  In no event shall an option  expire more than ten years after the
grant.

      The following summarizes the stock option transactions under the 1991 Plan
for the three fiscal years ended June 30, 1997:

                                         Number         Option Price
                                        of Shares         Per Share
                                        ---------       ------------
         Outstanding at June 30, 1994   107,892        $6.00 to $22.00
         Granted                          8,750        $5.24 to $ 7.00
         Exercised                      (22,500)       $2.68 to $ 5.24
         Canceled                        (3,334)           $6.00
                                      ---------
         Outstanding at June 30, 1995    90,808
         Granted                        525,003        $2.00 to $ 3.00
         Canceled                       (91,004)       $6.00 to $22.00
                                      ---------
         Outstanding at June 30, 1996   524,807
         Granted                      1,117,000        $2.50 to $3.00
         Exercised                      (15,000)           $2.625
         Canceled                       (40,060)       $2.00 to $2.50
                                      ---------
         Outstanding at June 30, 1997 1,586,747
                                      =========

      All the outstanding options under the 1991 Plan are currently exercisable,
except for 200,000 options which are exercisable 100,000 in May 1998 and 100,000
in May 1999. They expire as follows:  fiscal 1998 - 2,084,  fiscal 2000 - 5,000,
fiscal 2003 - 462,663 and fiscal 2004 - 1,117,000. The weighted average exercise
price of all  outstanding  options  under  the Plan is  $2.55  and the  weighted
average  remaining  contractual  life is 6.2 years.  Except as noted below,  all
options  granted in fiscal years 1997,  1996 and 1995 were issued at fair market
value. At June 30, 1997, 1,402,564 options were available for grant.

      In May,  1995, a $128,000  discount was given to a former  director of the
Company to exercise 18,750 options and was recognized as  compensation  expense.
On September 26, 1996, the Board of Directors  granted  options  exercisable for
300,000 shares of common stock, par value $.01 per share (the "Common Stock") to
each of the Company's then Chief Executive Officer and Chief Operating  Officer.
Options  exercisable  for the first  150,000  shares  were  granted to each such
officer at an exercise  price of $2.50 per share and the remaining  150,000 each
were granted at an exercise price of $3.00 per share.  On December 23, 1996, the
$3.00  options  were to be  canceled  subject  to  successful  completion  of an
underwritten public offering, as part of the recapitalization  described in Note
15. As described in Note 20, the Offering was not consummated and,  accordingly,
the options were not canceled. The options vest and are exercisable  immediately
and expire on July 1, 2001.  Although the Company  intended to grant the options
in May,  1996,  when the market price of the stock was $2.50,  at September  26,
1996, the date of Board ratification,  the market price was $5.50.  Accordingly,
the  Company  recorded  a  non-recurring,   non-cash  charge  of  $1,650,000  to
compensation  expense for the difference between market price and exercise price
of the options for 600,000 shares.

      In addition to the 1991 Plan, the Company has other option agreements with
current  and former  officers,  directors,  employees  and owners of an acquired
Company.

      The following summarizes  transactions outside the 1991 Plan for the three
fiscal years ended June 30, 1997:
                                           Number        Option Price
                                          of Shares        Per Share
                                          ---------      ------------
         Outstanding at June 30, 1994       73,791      $3.00 to $16.00
         Exercised                         (12,500)          $3.00
         Canceled                          (28,875)     $6.00 to $16.00
                                         ---------
         Outstanding at June 30, 1995       32,416
         Canceled                          (30,166)     $4.50  to $6.00
                                         ---------
         Outstanding at June 30, 1996        2,250
         Granted                         1,000,000      $2.625 to $3.50
                                         ---------
         Outstanding at June 30, 1997    1,002,250
                                         =========

      During May, 1997,  1,000,000 options were issued pursuant to an employment
agreement with the Company's current Chief Executive Officer.  These options are
exercisable 1/3 currently,  1/3 in May 1998 and 1/3 in May 1999, have a weighted
average  exercise  price of $3.04 per share and  expire in 2004.  The  remaining
2,250  options are  currently  exercisable,  expire in fiscal  1999,  and have a
weighted average price of $16.00 per share.

      Under SFAS No. 123, had the Company determined  compensation cost based on
the fair value at the grant date for its stock  options,  the Company's net loss
and  earnings  per share  would  have  been  adjusted  to the pro forma  amounts
indicated below:
                                                       Years ended June 30,
                                                       1997           1996
                                                  -------------   ------------
        Net loss                  as reported     $ (5,377,096)   $(1,094,373)
                                  pro forma       $ (7,822,901)   $(1,847,535)
        Net loss attributable to
          common stockholders     as reported     $(20,199,038)   $(1,189,341)
                                  pro forma       $(22,644,843)   $(1,942,503)
        Earnings per share        as reported        $(2.85)        $(0.39)
                                  pro forma           (3.19)         (0.63)

     Pro forma net loss reflects  only options  granted in fiscal 1997 and 1996.
Therefore,  the full impact of calculating  compensation  cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts  presented
above because  compensation  cost is reflected over the options' maximum vesting
period of seven years and compensation cost for options granted prior to July 1,
1995, is not considered. The fair value of each stock option is estimated on the
date of grant using the  Black-Scholes  option  pricing model with the following
weighted  average  assumptions:   an  expected  life  of  four  years,  expected
volatility of 50%, no dividend yield and a risk-free  interest rate ranging from
5.23% to 6.61%.

      Common Stock in Treasury:  The Company has purchased  26,800 shares of its
common stock for a total cost of $214,579 (or an average of $8.00 per share). In
connection  with the  acquisition  of the High School  Gridiron  Report  assets,
15,000 shares were issued from the treasury stock. The remaining treasury shares
have a total cost of $135,469 (or an average of $11.48 per share).

17.  INCOME TAXES:

      Income tax expense from continuing operations is as follows:

                                         Years Ended June 30,
                                     1997        1996        1995
                                     ----        ----        ----
         Current state and local   $109,373    $141,084    $75,000
                                   ========    ========    =======

      A reconciliation of the Federal statutory income tax rate to the effective
income tax rate based on pre-tax loss from continuing operations follows:

                                                 1997     1996     1995
                                                 ----     ----     ----
         Statutory rate                          (34)%    (34)%    (34)% 
         Increase in tax rate resulting from:
           Loss limitations and valuation
             allowance                            34       34       34
           State income taxes                      2       15      134
                                                 ---      ---      ---
            Effective rate                         2%      15%     134%
                                                 ===      ===      ===

                                                       1997          1996
                                                       ----          ----
           Deferred tax assets:
              Net operating loss carryforwards     $1,687,100      $691,100
              Compensation on option grants           561,000
              Amortization of intangibles             149,500       142,300
              Other                                   245,750        95,900
                                                  -----------      --------
           Total deferred tax assets                2,643,350       929,300
              Valuation allowance                  (2,573,600)     (789,800)
                                                  -----------      --------
           Net deferred tax assets                     69,750       139,500
                                                  -----------      --------
           Deferred tax liabilities:
              Cash to accrual adjustment              (69,750)     (139,500)
                                                  -----------     ---------
           Total deferred tax liabilities             (69,750)     (139,500)
                                                  -----------     ---------
           Total deferred taxes, net              $    -          $    -
                                                  ===========     =========

      The Company has a net operating loss of approximately $4,949,000 available
which  expires  from 2008  through  2012.  These  losses can only be offset with
future income and are subject to annual limitations.

      No  income  taxes  are  allocable  to the  gain on  sale  of  discontinued
operations during 1995 due to utilization of net operating loss carryforwards.

18.  GAINS FROM SALES OF SECURITIES:

      In July, 1994, the Company borrowed $1,000,000 to fund the exercise by the
Company of a common stock purchase  warrant.  The loan was  collateralized  by a
pledge of such common  stock  pursuant to the terms of a pledge  agreement.  The
parties to the $1,000,000  loan  included,  among others,  the Company's  former
chairman,  former  president,  a former  director  and a  stockholder,  who each
provided $200,000.  The other lenders were non-affiliates.  The lenders received
the repayment of the $1,000,000  loan,  interest at 7.75% totaling  $9,493 and a
$300,000 commitment fee from the proceeds of the subsequent sales of such common
stock.  Effective July 1, 1994, the Company adopted SFAS No. 115 "Accounting for
Certain  Investments in Debt and Equity Securities." In accordance with SFAS No.
115,   the   Company's    marketable    equity    securities   were   considered
"available-for-sale"  investments  and were  carried  at market  value  with the
difference   between  cost  and  market   value   recorded  as  a  component  of
stockholders'  equity.  The Company  subsequently  sold all these securities and
recognized a gain of $1,580,000 in fiscal 1995.

19.  RELATED PARTY TRANSACTIONS:

      In May, 1997, the Company's  outside  directors each received  options for
100,000 common shares  (400,000 in the  aggregate),  exercisable  at $2.625,  of
which one half  vested  immediately  and one fourth vest in each of May 1998 and
May 1999.

      A director and the secretary of the Company, appointed during fiscal 1997,
is a partner in a law firm which  provides  legal services for which the Company
recognized expenses aggregating approximately $110,000 during fiscal 1997.

      During  fiscal 1997,  two directors  purchased  warrants for 50,000 common
shares each,  for $2,500 each  pursuant to  consulting  agreements  entered into
prior to their appointments.

      A former  director  of the  Company is the senior  managing  director of a
private merchant banking firm which was paid approximately $5,700 for investment
advisory  services in 1995. In connection  with the  acquisition of Alliance,  a
finders fee totaling  $100,000  was paid to the merchant  banking firm in fiscal
1995,  along  with the  former  director  and the other  principal  owner of the
merchant  banking firm each  receiving  9,375  restricted  common  shares of the
Company  valued at $2.67 per share and warrants to purchase  6,250 common shares
at $8.00 per share.

      On June 9, 1994, the Company  borrowed  $350,000 from the Company's former
chief executive officer and its former president and pledged its equity interest
in the  Laughlin  land as security for  repayment of the loan.  The note was due
July 31,  1995 with  interest  at the rate of 7.25% (the Bank of America  Nevada
prime rate at the time of execution). The promissory note and interest of $8,695
were repaid in advance on October 4, 1994.

      A former director of the Company,  and another person serving as secretary
in 1993,  were each partners in different law firms that provided legal services
for which the Company recognized expenses aggregating  approximately  $31,000 in
1995.

      In April 1995, the former chairman of the Company  purchased  property and
equipment  owned by the Company  with a cost of  $160,109  and net book value of
$5,870 for a discounted appraised value of $11,000 in cash.

20.  WITHDRAWAL OF REGISTRATION STATEMENT:

      On October 17, 1996, the Company filed a Form SB-2 registration  statement
(the "Registration Statement") with the Securities and Exchange Commission.  The
Registration  Statement  related to a proposed  underwritten  public offering of
2,100,000  shares of Common Stock, of which 1,750,000  shares were being offered
by the Company and 350,000  were being  offered by certain  stockholders  of the
Company.  It also  related to the sale of  1,381,056  shares of Common  Stock by
certain selling  stockholders on a delayed basis. Due to market  conditions,  on
February 11, 1997, the Company withdrew the Registration  Statement and expensed
$1.2 million in proposed offering costs in fiscal 1997.

21.  RESTRUCTURING COSTS:

      During the quarter  ended March 31,  1997,  the Company  effected  certain
corporate  restructuring  steps,  including  the  decision  to reduce  corporate
staffing  and  related  administrative  costs,  as well as making two  executive
management changes. In this connection,  restructuring expenses of $986,000 were
recorded, including $44,000 in estimated office restructuring costs and $942,000
in executive  management and other settlement  costs.  The executive  management
settlement  agreements  include two non-interest  bearing  promissory notes with
face  values  of  $290,000  and   $250,000,   respectively,   payable  in  equal
installments  over eighteen months starting in May, 1997.  These notes have been
discounted to $268,000 and $231,000, respectively, to reflect effective interest
rates of 10%.

22.  RESTATEMENTS FOR CORRECTIONS OF ERRORS:

      The  financial  statements  for the three and nine months  ended March 31,
1997,  the three  months ended  September  30, 1996 and year ended June 30, 1996
were restated for corrections of errors.

      As  originally  filed,  the  financial  statements  for the three and nine
months  ended March 31, 1997  recognized  an expense  charge of $5.1 million for
non-recurring  discounts on warrant exercises. To reduce the overhang associated
with such warrants,  and to obtain working capital  subsequent to the withdrawal
of the Company's  proposed  underwritten  public offering,  the Company accepted
offers  from  certain  warrant-holders  to  exercise  their  warrants  to obtain
3,152,500 shares of Common Stock at discounted  exercise  prices.  Of the total,
warrants for 52,500 shares arose from a previous financing transaction. Warrants
for 3,100,000  shares arose from a June 6, 1996 sale of  redeemable  convertible
preferred  stock with  attached  warrants.  The discount of  $4,975,500 on these
warrants  was  originally  classified  as a charge  to  expense  as the  Company
considered the underlying redeemable  convertible preferred stock (classified as
mezzanine  financing  for  financial  reporting)  to  be  debt  financing.  Upon
subsequent  analysis,  the mezzanine  financing  was  determined to more closely
approximate  equity financing and this charge was  reclassified  from an expense
transaction to an equity transaction. There is no change to the net worth of the
Company or to its earnings per share as the charge affects net loss attributable
to common  stockholders in the earnings per share calculation in the same manner
as an expense transaction.

     As originally  filed,  the financial  statements for the three months ended
September  30, 1996 did not include  compensation  expense for the stock options
granted to officers  (as  discussed  in Note 16), as the  Company  intended  the
options to be granted in May 1996 when the market  price of the stock was $2.50.
The net loss  attributable  to common  stockholders  for the three  months ended
September 30, 1996 was originally  reported at $344,481 and related net loss per
share was $(0.11).

      Subsequently,  in  accordance  with  Securities  and  Exchange  Commission
requirements it was determined that the grant of these options was not effective
until ratification by the Board on September 26, 1996, when the market price was
$5.50.  Accordingly,  the Company amended the financial statements for the three
months ended  September 30, 1996 to record a  non-recurring,  non-cash charge of
$1,650,000  for  compensation  expense  in  connection  with the  grant of these
options, which increased the net loss for the quarter to $1,994,481 and net loss
per share to $(0.62).

      Additionally,  as originally  filed,  the Company reported its Convertible
Preferred  Stock as equity.  The Preferred  Stock  contained two  provisions for
mandatory redemption, which the Company had considered remote and not within the
control of the holders.  Subsequently,  in accordance  with the  Securities  and
Exchange  Commission   requirements,   these  securities  were  reclassified  as
mezzanine  financing  and the  September  30, 1996 and June 30,  1996  financial
statements  were restated  accordingly.  In  conjunction  with this,  previously
recorded dividends of $66,500 for the three months ended September 30, 1996 were
reclassified  as interest  and the net loss of $277,981  increased  to $344,481.
Previously  recorded  dividends of $17,490 for the year ended June 30, 1996 were
reclassified as interest and the net loss of $1,076,833 increased to $1,094,373.
There was no impact on earnings per share from this adjustment, as the dividends
had previously increased the net loss attributable to common stockholders.

      Also, as  originally  filed,  accretion of the discount on the  redeemable
convertible  preferred  stock was not  included as a  preferred  dividend in the
earnings per share  calculation  for the year ended June 30, 1996. As such,  the
calculation  has been  restated to consider  the fiscal  1996  accretion  of the
preferred   dividend  which  has  resulted  in  an  increase  in  the  net  loss
attributable to common stockholders by $94,968 and increased net loss per common
share from $(0.36) to $(0.39).

23.  NEW ACCOUNTING PRONOUNCEMENTS:

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per
Share" ("SFAS 128") which is effective for financial statements for both interim
and annual periods ending after  December 15, 1997.  Earlier  application is not
permitted;  however,  restatement  of all  prior-period  earnings per share data
presented is required.  The Company has not yet  determined  the effect SFAS 128
will have on its financial statements;  however, the adoption is not expected to
have a material impact on the financial position or results of operations of the
Company.

      In March 1997,  the FASB issued SFAS No. 129,  "Disclosure  of Information
about Capital  Structure"  ("SFAS 129"),  which is required to be adopted by the
Company in fiscal 1998.  This  Statement  specifies  certain  disclosures  about
capital  structure.  Management  does not  expect  that  implementation  of this
Statement  will have a  significant  impact on the  financial  statements of the
Company.

      In June 1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income" ("SFAS 130").  SFAS 130 establishes  standards for reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial  statements.  An enterprise  that has no items of other  comprehensive
income in any period presented is not required to report  comprehensive  income.
SFAS 130 is  effective  for fiscal  years  beginning  after  Decemebr  15, 1997.
Management  does not believe  that the adoption of SFAS 130 will have a material
impact on the Company's financial statements.

      In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an  Enterprise  and Related  Information"  ("SFAS  131").  SFAS 131  establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  SFAS 131 is effective for fiscal years  beginning after December 15,
1997.  Management  has not yet assessed the impact that the adoption of SFAS 131
will have on the Company's financial statements.

24.  SUBSEQUENT EVENTS:

      Effective July 1, 1997, the Company  acquired 100% of the stock of Pegasus
Internet,  Inc.  ("Pegasus").  Terms of the  agreement  called for  issuance  of
600,000  shares of common  stock of the  Company  valued  at $1.8  million  plus
$200,000 in cash. The Company's  Chief  Executive  Officer owned 25% of Pegasus.
Pegasus provides Internet services  including web site planning and development,
site  hosting,   on-line  ticketing  system  development,   graphic  design  and
electronic commerce.

      The  acquisition  will be  accounted  for  using  the  purchase  method of
accounting.  Accordingly,  the operating  results of Pegasus will be included in
the consolidated results of operations of the Company starting on July 1, 1997.