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

                                    FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 2000

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

   For the transition period from ____________________ to_____________________
                         Commission file number 0-16730

                         MARKETING SERVICES GROUP, INC.
                         ------------------------------
                 (Name of small business issuer in its charter)

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

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

Issuer's telephone number, including area code: (917) 339-7100

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

Securities registered pursuant to Section 12(g) of the Act: ____

                     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.
                                    X Yes   __ No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-K 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-K
or any amendment to this Form 10-K. [ ]

As of September 15, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $133,000,000.

As of  September  15, 2000,  there were  30,018,832  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
-------------------------------------------------

Some of the statements  contained in this Annual Report on Form 10-K discuss our
plans and strategies for our business or state other forward-looking statements,
as this term is defined in the Private Securities Litigation Reform Act of 1995.
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;  retention of clients
not under  long-term  contract;  quality of management;  business  abilities and
judgment of personnel;  availability of qualified personnel;  changes in, or the
failure   to   comply   with,    government    regulations;    and   technology,
telecommunication and postal costs.

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

General
-------
Marketing   Services   Group,   Inc.  (the  "Company"  or  "MSGi")  through  its
subsidiaries,   is  a  leading  provider  of  vertically   integrated  marketing
solutions.   The  Company  provides   seamless  and  cohesive   traditional  and
interactive marketing programs to leading companies around the world,  including
American Express,  Chase Manhattan,  Columbia House,  General Electric,  Lincoln
Center for the Performing Arts,  Madison Square Garden,  Salvation Army,  Sierra
Club, Verizon and Walt Disney.

The Company is a dominant player in the entertainment,  publishing,  fundraising
and financial service sectors as well as other key vertical markets.

MSGi provides marketing  solutions to approximately 5,000 clients worldwide with
pro forma revenues for the fiscal year 2000 of approximately  $195 million.  The
Company has over 1,000  employees  with  material  offices in New York,  Boston,
Philadelphia, Atlanta, Houston, Los Angeles and San Francisco.

MSGi provides a wide range of services including strategic  planning,  creative,
direct  marketing,  database  marketing,  database  management,   telemarketing,
telefundraising,  print  production  and  mailing,  media  planning  and buying,
e-commerce  applications,  Web development and hosting,  and online ad sales and
consulting.


The Company's Strategy
----------------------
MSGi's  strategy to enhance its position as a  value-added  premium  provider of
integrated marketing services is to:

o    Focus  on  our  integrated   marketing   services  business  which  include
     comprehensive   direct  marketing  services,   including  Internet  related
     services;

o    Deepen market  penetration in new industries and market segments as well as
     those currently served by the Company;

o    Develop existing and create new proprietary databases, proprietary database
     software and database management applications; and

o    Pursue strategic  acquisitions,  joint ventures and marketing  alliances to
     expand the services offered and industries served.


Background
----------
The Company was originally  incorporated in Nevada in 1919. The current business
of MSGi,  previously  known as All-Comm Media  Corporation  and prior to that as
Sports-Tech, Inc., began operations in 1995.

Through  the  years,  the  Company  has  acquired  and formed  direct  marketing
companies . The Company's acquisitions are summarized as follows:

Date            Name of Company Acquired          Service Performed
----            ------------------------          -----------------
May 1995        Stephen Dunn & Associates, Inc.   Telemarketing and
                                                  telefundraising,
                                                  specializing in the arts,
                                                  educational and other
                                                  institutional tax exempt
                                                  organizations.

October 1996     Metro Direct, Inc.               Develops and markets a
                                                  variety of database
                                                  marketing and direct
                                                  marketing products.

July 1997       Pegasus Internet, Inc.            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.

December 1997   Media Marketplace, Inc.           Specializes in providing list
                Media Marketplace                 management, list brokerage
                Media Division, Inc.              and media planning and buying
                                                  services.

May 1998        Formed Metro Fulfillment, Inc.    Performed services such as
                                                  on-line commerce, real-time
                                                  database management inbound/
                                                  outbound customer service,
                                                  custom packaging, assembling,
                                                  product warehousing, shipping,
                                                  payment processing and retail
                                                  distribution.

January 1999    Stevens-Knox & Associates, Inc.   Specializes in providing list
                Stevens-Knox List Brokerage, Inc. management, list brokerage and
                Stevens-Knox International, Inc.  database management services

March 1999      Sold 85% of Metro Fulfillment, Inc.

May 1999        CMG Direct Corporation            Specializes in database
                                                  services

September 1999  Sold remaining 15% of
                Metro Fulfillment, Inc.

March 2000      Grizzard Advertising, Inc.        Specializes in strategic
                                                  planning, creative services,
                                                  database management,
                                                  print-production, mailing and
                                                  Internet marketing

March 2000      The Coolidge Company              Specializes in list management
                                                  and list brokerage services


Developments During Fiscal 2000
-------------------------------

On October 1, 1999, the Company completed an acquisition of approximately 87% of
the  outstanding  common  stock of  Cambridge  Intelligence  Agency  for a total
purchase  price of $2.4 million which  consisted of $1.6 million in common stock
of the Company an interest in the Company's Permission Plus software and related
operations valued at $.8 million,  subject to certain adjustments.  Concurrently
with this  acquisition,  the  Company  formed  WiredEmpire,  a licensor of email
marketing tools.  Effective with the acquisition,  Cambridge Intelligence Agency
and the Permission Plus asset was merged into WiredEmpire.  In January 2000, the
Company  contributed its Pegasus subsidiary to WiredEmpire for additional shares
of common stock.

In March 2000, the Company  completed a private placement of 3,120,001 shares of
Convertible  Preferred  Stock of its  WiredEmpire  subsidiary  for  proceeds  of
approximately $18.7 million, net of placement fees and expenses of $1.3 million.
In connection with the  discontinued  operation of WiredEmpire,  the Company has
offered to redeem the preferred  shares in exchange for MSGi common shares.  The
redemption is expected to occur in the second quarter of fiscal year 2001.

On  September  21, 2000,  the  Company's  Board of Directors  approved a plan to
discontinue the operation of its WiredEmpire  subsidiary.  The Company will shut
down the operations  anticipated to be completed by the end of January 2001. The
estimated  losses  associated with  WiredEmpire are  approximately  $35 million.
These losses include approximately $20 million in losses from operations through
the  measurement  date and  approximately  $15 million of loss on disposal which
includes approximately $2 million in losses from operations from the measurement
date through the estimated date of disposal.  The liability of $18.7 million for
the  preferred  shareholders  is  currently  included  in the net  liability  of
discontinued  operations and it is anticipated that this will be settled in MSGi
stock.  The Company has offered to redeem the  preferred  shares in exchange for
MSGi common shares. The redemption is expected to occur in the second quarter of
fiscal year 2001.

On March 22, 2000, the Company acquired  Grizzard  Advertising,  Inc. for $104.0
million  consisting  of $47.8  million  cash,  $5 million for certain  hold back
provisions,  and aggregate of 2,545,799 shares of common stock of MSGi valued at
$19.04 per share and acquisition  costs in the amount of $2.7 million.  Grizzard
Advertising,  Inc.  was  founded  in 1919 and is ranked the 6th  largest  Direct
Response  Agency in the  country  (with  internal  production  capabilities)  in
reported  capitalized  billings  by the Direct  Marketing  Association  ("DMA").
Grizzard's  services include strategic  planning,  creative  services,  database
management, print-production,  mailing and Internet marketing. Grizzard's client
base includes  retail,  consumer and  business-to-business  companies as well as
many premier not-for-profit clients.

On March 31, 2000,  the Company  acquired The Coolidge  Company for $1.6 million
consisting  of $.2 million  cash, a $.5 million note  payable,  22,251 shares of
common  stock  valued at $16.42 a share  and  other  costs of a nominal  amount.
Coolidge provides list management and brokerage services.

In December 1999, the Company acquired a 10% interest in Fusion  Networks,  Inc.
for $27.5 million in common  stock.  Fusion  Networks  became a public entity in
April 2000. At the time,  such  investment  for Fusion  Networks stock had a pro
forma value in excess of $50 million. Fusion Networks, Inc. operates the website
www.latinfusion.com. The website is an interactive, multimedia and entertainment
Latin  American  based  portal  featuring   television,   music  and  e-commerce
capabilities. In June 2000, the Company wrote its investment in Fusion Networks'
down by  approximately  $20.3  million  to the fair value as  determined  by the
quoted market price. The charge was recorded through the statement of operations
due to the fact that the Company  believes  the  impairment  in market  value is
other than temporary.

In July 1999,  the Company  invested  $1.6  million to acquire a 10% interest in
Screenzone Media Network,  LLC  ("Screenzone").  Screenzone is a new interactive
broadcast  gateway that was  developed to advertise and promote  movies,  music,
live events and other entertainment at shopping malls and over the Internet.  In
June 2000,  the Company  believed that the carrying  value of its investment was
impaired and wrote off its investment in Screenzone.

In October 1999, the Company  acquired a 10% interest in  Mazescape.com  for $.2
million.  Mazescape.com  is  an  innovative  Internet  technology  company  that
delivers customized, automated recruiting software and services that improve the
performance of corporate recruiters. In June 2000, the Company believed that the
carrying value of its investment was impaired and wrote off its investment.

In September 1999, the Company  completed an investment of $5 million to acquire
convertible  preferred stock of GreaterGood.com.  The Company owns approximately
11%  of the  outstanding  shares  of  GreaterGood.com.  GreaterGood.com  builds,
co-markets and manages online shopping villages for not-for-profit  organization
web sites.  In June 2000,  the Company  believed that the carrying  value of its
investment was impaired and wrote off its investment in Greatergood.com.

As  detailed   above,   the  Company  has  taken  a  fourth  quarter  charge  of
approximately  $27 million for unrealized  losses on Internet  investments  made
during the fiscal year based on all available information.  The Company believes
such losses are a result of  significant  changes in Wall Street  valuations  of
Internet  companies.  The Company has suspended its Internet investment strategy
and will focus all efforts on its core direct marketing operations.

The Company's  shares are traded on the NASDAQ  National Market 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 (917) 339-7100.
Additional information is available on the Company's website: www.msginet.com.


Capital Stock and Financing Transactions
----------------------------------------

Private Placement of Common Stock:

In September 1999, the Company completed a private placement of 3,130,586 shares
of  common  stock  for  proceeds  of   approximately   $30.5  million,   net  of
approximately  $2.3  million  of  placement  fees and  expenses.  The shares had
certain registration rights which were fulfilled by the Company. The proceeds of
the private placement were used in connection with certain Internet investments,
to repay certain short-term debt and for working capital purposes.

Preferred Stock:

In February 2000, the Company  completed a private placement of 30,000 shares of
Series E Convertible  Preferred Stock and Warrants for proceeds of approximately
$29.5 million, net of placement fees and expenses. The shares are convertible at
any time at $24.473,  per share,  subject to reset on August 18, 2000. On August
18, 2000, the conversion  price was reset to $12.24 per share.  The warrants are
exercisable  for a period  of two years at an  exercise  price of  $28.551.  The
proceeds were used to repay certain debt and for working capital purposes.

Debt:

In March  2000,  the  Company  entered  into a  credit  agreement  (the  "Credit
Agreement")  for $58 million  senior  secured  facility in  connection  with the
acquisition  of  Grizzard.  The Credit  Agreement  is comprised of a $13 million
revolving line of credit, $40 million term loan and $5 million standby letter of
credit.  The Credit  Agreement  expires on March 31, 2005 and bears  interest at
either prime rate or LIBOR plus an applicable  margin ranging from 1.5% to 2.5%,
for prime and 2.5% to 3.5% for LIBOR based on a financial  ratio.  The loans are
collaterialized  by  substantially  all of the  assets  of the  Company  and are
guaranteed by all of the Company's non-internet subsidiaries.


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  the  most  recently  available  information  from  the  DMA,  the
industries' largest trade association,  total U.S. direct marketing  advertising
expenditures  was projected to reach $176.5 billion during 1999, a 7.2% increase
over 1998. The 1999 direct marketing advertising expenditure figure is inclusive
of all direct marketing through various mediums including direct mail, telephone
marketing,  newspaper,  magazine,  TV,  radio  and  internet  marketing.  Direct
marketing  advertising  expenditures were projected to represent 57.1% of all US
advertising  expenditures,  estimated to be $308.9 billion, in 1999. Direct mail
accounts  for   approximately   25%  of  total  direct  marketing   expenditures
nationwide.

Additionally,  consumer direct marketing advertising  expenditures via telephone
marketing were  projected to be $24.4 billion in 1999,  growing to $31.2 billion
in 2004. The  compounded  annual growth in this segment was estimated to be 6.4%
from 1994 through 1999 and is projected to be 5.0% from 1999 through 2004.

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 services
and database services firms 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.

Services
--------
The Company's operating  businesses provide  comprehensive  database management,
Internet  marketing,  custom  telemarketing/telefundraising,  print  production,
mailing  capabilities,  marketing  communications  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,
Internet, 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 centers, all or a portion of a client's marketing information
processing  needs.  After  migrating a client's raw data to one of the Company's
data centers,  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.

Strategic  Planning  and  Creative  Services.  The  Company  offers its  clients
end-to-end  business  solutions.  The process begins with strategic planning and
development. Through consultative approach, each client is taken step by step in
campaign  management,   including   positioning   development,   integration  of
communication strategies and creative services. Some of the capabilities include
copy development, design and art production.

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  centers  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,  in  addition to services  provided  by third  parties,  including;
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, many of whom are recruited 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 several hundred 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.

Response Analysis, Predictive Muclelling and Testing Services. Response analysis
of direct mail respondents, including age, demographic and lifestyle attributes,
to determine  which  particular  attributes of the responding  universe played a
part in increasing  the  recipients'  propensity  to respond to the offer.  This
service is provided to improve direct marketing response rates.

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.

Production and Mailing Services. Full range of complex / lasering, insertion and
mailing  services.  The  Company  provides  many  of  its  commercial  customers
production  and  mailing  services  that  are  customized  for  each  recipient,
requiring highly sophisticated systems and capabilities. The Company is one of a
limited  number of companies  capable of  performing  these  services on a fully
automated  basis,  resulting in high volume,  accuracy,  efficiency and customer
service. Due to its highly automated facilities,  the Company is also capable of
producing  and  mailing  up to 1 million  pieces  of mail over a single  24-hour
period.

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.

Media Planning and Buying. The Company's Media Division is a multifaceted direct
response media broker  specializing in direct  advertising such as:  traditional
print advertising;  cooperative direct mail programs;  Sunday supplements;  card
decks and more.

Internet  Services.  The Company provides a full suite of Internet services such
as content planning to market  strategy,  from technical site hosting to graphic
design and multimedia  production.  The Company has developed Web sites from the
perspective  of both  client and  presence  provider,  resulting  in an intimate
knowledge  of the  issues  encountered  by both  entities  in a Web  development
project.   From  the  initial  planning   sessions  and   identification  of  an
organization's  promotional objectives to the live cutover of the finished site,
the Company takes a proactive  role in ensuring the most  efficient  development
process  for the  client  and the most  rewarding  experience  for their  online
clientele.  Once the site is up and  running,  the  Company  provides  technical
maintenance and ongoing consulting to keep Web resource current, technologically
up-to-date  and  graphically  ahead of the curve.  The Company  generates  usage
reports, complete with optional analysis and feedback features.

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.

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.

Marketing and Sales
-------------------
The Company's  marketing  strategy is to offer customized  solutions to clients'
database management,  Internet,  telemarketing/telefundraising,  fulfillment 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    and     fulfillment     services    and     customized
telemarketing/telefundraising services.

The Company markets its 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,  Internet,
custom telemarketing/telefundraising,  fulfillment 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 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,  complexity  of  assembly,  and the level of
customization  required.  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.

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  5,000 clients who utilize its various  marketing
services.  These  clients are  comprised of leading  commercial  businesses  and
nonprofit  institutions  in  the  publishing,  entertainment  marketing,  public
broadcasting, education, retail, 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 total  revenue in
fiscal 2000.

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 include: Acxiom Corporation,  Harte-Hanks  Communications,  Experian
North America, Fair-Isaac,  Epsilon and Abacus Direct, a DoubleClick subsidiary.
The current market is highly  competitive and the Company  anticipates  that new
competitors will continue to enter the market.

Facilities
----------
The Company  leases all of its real property,  except for certain  properties in
Atlanta and Houston which are owned.  Facilities for its headquarters are in New
York City; it's sales and service offices are located in New York City; Newtown,
Pennsylvania,  Berkeley and Los Angeles, California;  Wilmington and Burlington,
Massachusetts;  Atlanta,  Georgia;  Houston, Texas; and London; its data centers
are  located in New York City,  Houston and Boston;  its  telemarketing  calling
center  in  Berkeley  and   production   facility  in  Houston.   The  Company's
administrative  office for its  telemarketing/telefundraising  operations in Los
Angeles  is  located  in  office  space  leased  from  the  former  owner of the
telemarketing  business,  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 2001.  The Company  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 centers in New York City,  Houston and Boston,  as well as
its related operating,  processing and database  software,  are all adequate for
its needs through fiscal 2001.  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.  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 Federal  Trade  Commission's  new rules have not
required or 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.

With the exception of regulations applicable to business generally, with respect
to the Company's  Internet  products and services,  the Company is not currently
subject  to  direct  regulation  by any  government  agency.  Due to  increasing
popularity  and use of the  Internet,  however,  it is possible that a number of
laws may be adopted with respect to the  Internet in the future,  covering  such
issues as: user  privacy;  pricing of goods and services  offered;  and types of
products and service offered..

If the government adopts any additional laws or regulations  covering use of the
Internet,  such  actions  could  decrease the growth of the  Internet.  Any such
reduction  in the growth of the  Internet  may reduce  demand for the  Company's
goods and services and raise the cost to the Company of producing such goods and
services. Finally, the sales of services may be reduced and the costs to produce
such  services  may be  increased  if existing  U.S state and  federal  laws and
foreign laws governing issues such as commerce,  taxation,  property  ownership,
defamation and personal privacy are increasingly applied to the Internet.

Employees
---------
At June 30, 2000, the Company  employed  approximately  2,780  persons,  of whom
1,100 were employed on a full-time  basis.  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>


Item 2 - Properties
-------------------

The Company  and  certain  subsidiaries  own land and  buildings  in Houston and
Atlanta. In addition,  the Company and certain subsidiaries lease facilities for
office  space  summarized  as  follows  and in Note 13 of Notes to  Consolidated
Financial Statements.

         Location                       Square Feet
         --------                       -----------
         New York, New York                40,900
         Atlanta, Georgia                  30,500
         Burlington, Massachusetts         21,000
         Wilmington, Massachusetts         20,000
         Los Angeles, California           17,100
         Newtown, Pennsylvania             10,270
         Houston, Texas                     6,130
         Berkeley, California               6,600
         Venice, California                 5,500
         Altamonte Springs, Florida         2,400
         Stamford, Connecticut              1,000
         Lincoln, Nebraska                    910
         Patterson, New York                  250
         Toronto, Canada                      860
         London, England                      460


Item 3 - Legal Proceedings
--------------------------
In June 1999, certain employees of MSGi Direct, Inc.'s telemarketing  subsidiary
voted against representation by the International  Longshore and Warehouse Union
("ILWU").  The ILWU has filed unfair practices with the National Labor Relations
Board  ("NLRB")  alleging  that MSGi  Direct,  Inc.'s  telemarketing  subsidiary
engaged in unlawful  conduct prior to the vote.  The NLRB has issued a complaint
seeking a bargaining  order and  injunctive  relief  against these  charges.  An
unfavorable finding will not have any direct financial impact on the Company.

In September  1999, an action was  commenced  against the Company in the Supreme
Court of New York,  Kings County alleging  damages of $4.3 million in connection
with the Company's alleged failure to deliver warrants due the plaintiff in June
1996. Although the Company denied all liability, the suit was settled in January
2000 in  consideration  for the issuance of warrants to acquire 18,000 shares of
common  stock  of  the  Company  at  an  exercise  price  of  $1.00  per  share.
Accordingly, the Company recognized $315,000 of expense based on the fair market
value of the warrants  granted as determined  by the  Black-Scholes  model.  The
expense is included in selling general and administrative  expenses for the year
ended June 30, 2000.

An employee of Metro Fulfillment,  Inc. ("MFI"),  which, until March 1999, was a
subsidiary of the Company,  filed a complaint in the Superior Court of the State
of California for the County of Los Angeles, Central District,  against MSGI and
current and former  officers  of MSGI.  The  complaint  seeks  compensatory  and
punitive  damages in  connection  with the  individual's  employment at MFI. The
Company  believes that the  allegations  in the complaint are without merit and,
the Company has asserted numerous  defenses,  including that the complaint fails
to state a claim  upon which  relief  can be  granted.  The  Company  intends to
vigorously  defend against the lawsuit.  An estimate of the possible loss cannot
be determined at this time.

In addition to the above,  certain  other legal  actions in the normal course of
business  are  pending to which the  Company is a party.  The  Company  does not
expect that the ultimate  resolution of pending legal matters in future  periods
will have a material effect on the financial condition, results of operations or
cash flows.


<PAGE>
                                     PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------
The common stock of the Company trades on the NASDAQ  National  Market under the
symbol  "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:
                                          Common Stock
                                          ------------
                              Low Sales Price       High Sales Price
                              ---------------       ----------------
           Fiscal 2000
             Fourth Quarter       $4.06                 $15.00
             Third Quarter        15.06                  28.75
             Second Quarter       11.00                  21.13
             First Quarter        11.19                  29.50


           Fiscal 1999
             Fourth Quarter      $15.93                 $51.25
             Third Quarter         3.25                  14.50
             Second Quarter        2.18                   3.87
             First Quarter         2.03                   3.87



As of June 30, 2000, there were  approximately 800 registered  holders of record
of the  Company's  common  stock.  (This  number does not include  approximately
16,000  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 five 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 - Selected Financial Data
--------------------------------
The selected  historical  consolidated  financial data for the Company presented
below as of and for the five fiscal  years ended June 30, 2000 have been derived
from the Company's audited  consolidated  financial  statements.  Amounts are in
thousands, except per share data.

<TABLE>
<CAPTION>

                                                         Historical
                           ----------------------------------------------------------------
                                                    Years ended June 30,
                           ----------------------------------------------------------------
                                                        In thousands
                             1996        1997(1)       1998(2)       1999(3)       2000(4)
                           --------     --------      ---------     ---------     ---------
OPERATING DATA:
<S>                       <C>         <C>            <C>           <C>           <C>
Revenue                    $15,889       $24,145       $51,174       $82,242       $128,607
Amortization and
depreciation                  $501          $970        $1,486        $2,282         $6,028

Loss from operations         $(460)      $(3,574)(5)     $(580)      $(7,072)      $(11,292)

Loss from
 continuing operations     $(1,094)      $(5,377)        $(780)      $(7,646)      $(41,130)(11)

Loss from
 discontinued operations         -             -             -             -        (34,543)(12)

Net loss                   $(1,094)      $(5,377)(6)     $(780)      $(7,646)(8)   $(75,673)

Net loss attributable
 to common
 shareholders              $(1,094)     $(20,199)      $(4,724)(7)  $(20,181)(9)   $(75,673)

Loss per common share:
   From continuing
      operations            $(0.36)       $(2.85)       $(0.37)       $(1.39)        $(1.55)
   From discontinued
      operations                 -             -             -             -         $(1.30)
                           -------       -------      --------      --------        --------
                            $(0.36)       $(2.85)       $(0.37)       $(1.39)        $(2.85)
Weighted average
  common shares
  oustanding                 3,068         7,089        12,892        14,552         26,582

OTHER DATA:
EBITDA (10)                    $41            $4          $906       $(4,346)       $(5,159)
Net cash used in
  operating activities       $(884)      $(2,664)      $(1,886)         $(45)      $(11,357)
Net cash provided by
(used in) investing
  activities:                $(572)         $578       $(7,281)     $(18,939)      $(60,116)
Net cash provided by
  financing activities      $1,631        $3,622       $12,474       $16,035       $ 78,904
Net cash used in
  discontinued operations        -             -             -             -          $(812)


                                                        Historical
                           ----------------------------------------------------------------
                                                    Years ended June 30,
                           ----------------------------------------------------------------
                             1996        1997(1)       1998(2)       1999(3)       2000(4)
                           --------     --------      ---------     ---------     ---------
BALANCE SHEET DATA:

Cash                        $1,393        $2,929        $6,235        $3,285         $9,904
Working capital (deficit)   $1,651          $189        $5,013       $(9,647)          $430
Total intangible assets     $7,851       $16,127       $24,771       $56,978       $154,016
Net assets of
 discontinued operatons          -             -             -        $5,516              -
Total assets               $13,301       $25,391       $49,781       $97,627        245,184
Total long term debt,
 net of current portion     $1,517        $3,205          $204        $5,937        $36,157
Net liabilities of
discontinued operations          -             -             -             -        $18,347
Convertible preferred
 stock                      $1,306             -       $14,367             -         29,417
Total stockholders'
 equity                     $6,945       $13,686       $17,325       $48,928         98,021

</TABLE>
<PAGE>

(1)Effective October 1, 1996, the Company acquired all of the outstanding common
   shares of Metro Services Group, Inc., renamed Metro Direct,  Inc. The results
   of operations for Metro Direct are included in the consolidated statements of
   operations beginning October 1, 1996.

(2)Effective July 1, 1997, the Company  acquired all of the  outstanding  common
   shares of Pegasus  Internet,  Inc. The results of operations  for Pegasus are
   included in the consolidated statements of operations beginning July 1, 1997.
   Effective  December 1, 1997,  the  Company  acquired  all of the  outstanding
   common  shares  of  Media  Marketplace,  Inc.  and  Media  Marketplace  Media
   Division,  Inc. The results of operations for Media  Marketplace are included
   in the consolidated  statements of operations  beginning December 1, 1997. In
   May 1998, MSGi formed Metro Fulfillment, Inc., a new operating subsidiary..

(3)Effective January 1, 1999, the Company acquired all of the outstanding common
   shares of Stevens-Knox  List Brokerage,  Inc.,  Stevens-Knox List Management,
   Inc. and Stevens-Knox International, Inc. (collectively,  "SKA"). The results
   of  operations  for SK&A  are  included  in the  consolidated  statements  of
   operations  beginning  January 1, 1999.  Effective  March 1, 1999 the Company
   sold 85% of its subsidiary Metro Fulfillment. Accordingly, effective March 1,
   1999 the  results  of  operations  of MFI are no longer  consolidated  in the
   Company's statement of operations.  On May 13, 1999, the Company acquired all
   of the  outstanding  common  shares  of  CMG  Direct,  Inc.  The  results  of
   operations for CMGD Direct, Inc. are included in the consolidated  statements
   of operations beginning May 14, 1999.

(4)On March 31, 2000, the Company acquired all of the outstanding  common shares
   of The Coolidge  Company.  On March 22, 2000 the Company  acquired all of the
   outstanding common shares of Grizzard Advertising,  Inc. Effective October 1,
   1999,  the  Company  acquired  87% of the  outstanding  common  shares of The
   Cambridge  Intelligence Agency. The results of operations are included in the
   consolidated  statements  of  operations  from  the  date  of the  respective
   acquisition.

(5)Loss from operations includes compensation expense on option grants of $1,650
   which were granted at exercise  prices  below market value and  approximately
   $958 for restructuring costs.

(6)Net loss  includes a charge for  approximately  $113 for discounts on warrant
   exercises and approximately  $1,180 for the costs associated with a withdrawn
   public offering.

(7)Net loss attributable to common shareholders includes the impact of dividends
   on preferred stock for a non-cash beneficial conversion feature of $3,214.

(8)Loss from  continuing  operations  and net loss include a one-time  severance
   charge of $1,125 and a  compensation  expense on option  grants of $444 which
   were granted at exercise prices below market value.

(9)Net loss attributable to common shareholders includes the impact of dividends
   on preferred stock for (a) adjustment of the conversion  ratio of $11,366 for
   exercises of stock  options and warrants;  (b) $949 in cumulative  undeclared
   preferred stock dividends;  and (c) $220 of periodic  non-cash  accretions of
   preferred stock.

(10)EBITDA is defined as earnings from continuing  operations  before  interest,
    income tax,  depreciation,  amortization  and other non-cash  items.  EBITDA
    should not be construed as an alternative to operating  income or net income
    (as determined in accordance with generally accepted accounting principles),
    as an indicator of MSGi's operating  performance,  as an alternative to cash
    flows provided by operating  activities  (as  determined in accordance  with
    generally  accepted  accounting  principles),  or as a measure of liquidity.
    EBITDA is presented solely as a supplemental  disclosure  because management
    believes that it enhances the understanding of the financial  performance of
    a company with substantial  amortization and  depreciation  expense.  MSGi's
    definition  of  EBITDA  may not be the same as that of  similarly  captioned
    measures used by other companies.

(11)Loss from continuing  operations includes a charge for approximately $27,216
    for write-downs of certain Internet Investments.

(12)On September 21, 2000, the Company's  Board of Directors  approved a plan to
    discontinue  the operation of its WiredEmpire  subsidiary.  The Company will
    shut down the  operations  anticipated to be completed by the end of January
    2001. The estimated losses associated with WiredEmpire are approximately $35
    million and are reported as discontinued operations.

<PAGE>

Item 7 - Management's Discussion and Analysis
---------------------------------------------

Overview
--------
This discussion  summarizes the significant  factors  affecting the consolidated
operating results,  financial condition and liquidity/cash  flows of the Company
for the  twelve  month  period  ended  June 30,  2000.  This  should  be read in
conjunction with the financial statements,  and notes thereto,  included in this
Form 10-K.

To facilitate an analysis of MSGi operating results,  certain significant events
should be considered.

On October 1, 1999, the Company completed an acquisition of approximately 87% of
the  outstanding  common  stock of  Cambridge  Intelligence  Agency  for a total
purchase  price of $2.4 million which  consisted of $1.6 million in common stock
of the Company and an interest in the  Company's  Permission  Plus  software and
related  operations  valued at $.8  million,  subject  to  certain  adjustments.
Concurrently with this acquisition,  the Company formed WiredEmpire,  a licensor
of email marketing tools. Effective with the acquisition, Cambridge Intelligence
Agency and the Permission Plus asset was merged into WiredEmpire.

In March 2000, the Company  completed a private placement of 3,120,001 shares of
Convertible  Preferred  Stock of its  WiredEmpire  subsidiary  for  proceeds  of
approximately $18.7 million, net of placement fees and expenses of $1.3 million.
In connection with the  discontinued  operation of WiredEmpire,  the Company has
offered to redeem the preferred  shares in exchange for MSGi common shares.  The
redemption is expected to occur in the second quarter of fiscal year 2001.

On  September  21, 2000,  the  Company's  Board of Directors  approved a plan to
discontinue the operation of its WiredEmpire  subsidiary.  The Company will shut
down the operations  anticipated to be completed by the end of January 2001. The
estimated  losses  associated with  WiredEmpire are  approximately  $35 million.
These losses for WiredEmpire  include  approximately  $20 million in losses from
operations through the measurement date and approximately $15 million of loss on
disposal which includes  approximately $2 million in losses from operations from
the measurement date through the estimated date of disposal.

Pursuant to Accounting  Principles Board Opinion ("APB") No. 30,  "Reporting the
Results of  Operations  - Reporting  the Effects of a Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual  and  Infrequently  Occuring  Events and
Transactions,"  the  consolidated   financial   statements  of  MSGi  have  been
reclassified to reflect the discontinued operations of WiredEmpire. Accordingly,
revenues,  costs and expenses,  and cash flows of WiredEmpire have been excluded
from the  respective  captions in the  Consolidated  Statement of Operations and
Consolidated  Cash Flows of MSGi. The net operating  results of WiredEmpire have
been reported as "Loss from Discontinued Operations",  and the net cash flows of
WiredEmpire  have been reported as "Net Cash (Used In) Provided By  Discontinued
Operations".  The assets and liabilities of WiredEmpire  have been excluded from
the respective captions in the Consolidated Balance Sheets of MSGi and have been
reported as "Net Assets/Liabilities of Discontinued Operations".

In May 1998, the Company formed Metro  Fulfillment,  Inc. ("MFI"),  a subsidiary
providing  online  commerce,  real-time  database  management,  inbound/outbound
customer service, custom packaging,  assembling, product warehousing,  shipping,
payment processing and retail distribution  Effective March 1, 1999, the Company
sold 85% of the common stock of MFI.  Accordingly,  effective  March 1, 1999 the
results  of  operations  of MFI  are no  longer  consolidated  in the  Company's
statement of operations.  In September  1999, the Company sold the remaining 15%
interest. The sale resulted in an immaterial gain.

Effective  January 1, 1999, the Company  acquired all of the outstanding  common
shares of Stevens-Knox & Associates,  Inc.,  Stevens-Knox List Brokerage,  Inc.,
and Stevens-Knox International,  Inc. The results of operations are reflected in
the  consolidated  financial  statements using the purchase method of accounting
from the date of acquisition.

Effective  May 13,  1999,  the Company  acquired all of the  outstanding  common
shares of CMG Direct Corporation.  The results of operations of are reflected in
the  consolidated  financial  statements using the purchase method of accounting
from the date of acquisition.

On March 22, 2000, the Company acquired all of the outstanding  common shares of
Grizzard Advertising,  Inc. ("Grizzard").  The results of operations of Grizzard
are reflected in the consolidated financial statements using the purchase method
of accounting from the date of acquisition.

On March 31, 2000, the Company acquired all of the outstanding  common shares of
The Coolidge  Company  ("Coolidge").  The results of  operations of Coolidge are
reflected in the consolidated  financial statements using the purchase method of
accounting from the date of acquisition.

The Company's  business tends to be seasonal.  Certain  marketing  services have
higher revenues and profits occurring in the second fiscal quarter,  followed by
the first fiscal quarter based on the  seasonality of its clients' mail dates to
coordinate with the Thanksgiving and Holiday season. Telemarketing services have
higher revenues and profits occurring in the fourth fiscal quarter,  followed by
the first fiscal quarter.  This is due to subscription renewal campaigns for its
performing  arts clients,  which generally begin in the spring time and continue
during the summer months.

Results of Operations Fiscal 2000 Compared to Fiscal 1999.
----------------------------------------------------------
Revenues  of  approximately  $128.6  million  for the year ended  June 30,  2000
("Current  Period")  increased  by $46.5  million or 56% over  revenues of $82.2
million  during  the year  ended  June 30,  1999 (the  "Prior  Period").  Of the
increase,  approximately $49.7 million is attributable to acquisitions completed
in the current  period and including a full year of  operations of  acquisitions
completed in the Prior Period. This increase in revenues was partially offset by
the  divestiture  of MFI  representing a $1.5 million  revenue  reduction in the
Current  Period.   Revenue,  not  including  the  effects  of  acquisitions  and
divestitures,  decreased  $1.7 million  mainly due to the reduction in brokerage
revenue due to lower campaign activity.

Direct costs of approximately  $77.9 million for the Current Period increased by
$25.4 million or 48% over direct costs of $52.5 million during the Prior Period.
Of the increase,  approximately $28.8 million is attributable to acquisitions in
the Current  Period and a full year of  operations  for  acquisitions  completed
during  the  Prior  Period.  The  increase  cost  was  partially  offset  by the
divestiture  of MFI  representing  a $.5 million  direct cost  reduction  in the
Current  Period.  Direct costs,  not including  the effects of  acquisitions  or
divestitures,  decreased $2.9 million due to the reduction in revenue as well as
a change  in the mix of  services  sold to more  profitable  lines of  business.
Direct costs as a percentage of revenue  decreased  from 64% in the Prior Period
to 61% in the Current Period, reflecting the change in the mix of services sold.

Salaries  and  benefits of  approximately  $42.7  million in the Current  Period
increased by $14.9  million or 54% over  salaries and benefits of  approximately
$27.8 million in the Prior Period. Of the increase,  approximately $16.7 million
is  attributable  to  acquisitions  in the  Current  Period  and a full  year of
operations  for  acquisitions  completed  during the Prior Period.  Salaries and
benefits  associated with the divestiture of MFI resulted in a reduction of $1.8
million in the Current  Period.  Salaries  and benefits  excluding  acquisitions
increased by  approximately  $1.1 million due to normal wage increases of 7%, as
well as an increase  in head count to manage  current  and  anticipated  growth,
offset by $1.1 million reduction of severance and compensation expense on option
grants the Current Period. There are no further amounts to be paid in connection
with the termination of these employment contracts.

Selling,  general and administrative  expenses of approximately $13.3 million in
the  Current  Period  increased  by  approximately  $6.5  million  or  96%  over
comparable  expenses  of $6.8  million  in the Prior  Period.  Of the  increase,
approximately $4.1 million is attributable to acquisitions in the Current Period
and a full  year of  operations  for  acquisitions  completed  during  the Prior
Period.  Selling,  general  and  administrative  expenses  associated  with  the
divestiture of MFI resulted in a reduction of $.4 million in the Current Period.
Selling, general and administrative expenses excluding acquisitions increased by
approximately  $2.8  million  principally  due to  increased  professional  fees
associated with an unsuccessful attempt by third parties to unionize the calling
center, increases in rent, professional fees (principally legal and accounting),
travel and  entertainment  and reporting  fees  associated  with the increase in
merger and acquisition activity and becoming a larger company.

Depreciation  and  amortization  expense of  approximately  $6.0  million in the
Current  Period  increased  by  approximately  $3.7 million over expense of $2.3
million in the Prior  Period.  Of the  increase,  approximately  $2.5 million is
attributable  to acquisitions in the Current Period and including a full year of
operations for acquisitions completed during the Prior Period.  Depreciation and
amortization  expenses  associated  with the  divestiture  of MFI  resulted in a
reduction of $.1 million in the Current Period.

The Company has taken a fourth quarter charge of  approximately  $27 million for
unrealized  losses on Internet  investments made during the fiscal year based on
all  available  information.  The Company  believes  such losses are a result of
significant  changes in Wall Street  valuations of Internet stocks.  The Company
has suspended its Internet investment strategy and will focus all efforts on the
profitability of its core direct marketing operations.

Net  interest  expense  of  approximately  $2.5  million in the  Current  Period
increased  by   approximately   $1.9  million  over  net  interest   expense  of
approximately  $.6  million  in  the  Prior  Period.   Such  expenses  increased
principally due to interest  expense on outstanding  borrowings  relating to the
Grizzard acquisition.

The net  provision  for income  taxes of  approximately  $265,000 in the Current
Period increased by  approximately  $208,000 over the provision of approximately
$57,000 in the Prior Period.  The Company records provisions for state and local
taxes incurred on taxable income at the operating subsidiary level, which cannot
be offset by losses  incurred  at the parent  company  level or other  operating
subsidiaries.

As a result of the above,  loss from  continuing  operations of $41.1 million in
the Current Period  increased  $33.5 million over comparable net loss of $7.6 in
the Prior Period.

Net loss  attributable  to common  shareholders in the Prior Period includes the
impact of dividends  on preferred  stock for (a)  adjustment  of the  conversion
ratio of $11,366,022  for exercises of stock options and warrants;  (b) $949,365
in cumulative undeclared preferred stock dividends; and (c) $219,943 of periodic
non-cash accretions on preferred stock.

Results of Operations Fiscal 1999 Compared to Fiscal 1998.
----------------------------------------------------------
Revenues of  approximately  $82.2  million for the year ended June 30, 1999 (the
"Fiscal 1999")  increased by $31.0 million or 61% over revenues of $51.2 million
during  the year ended  June 30,  1998 (the  "Fiscal  1998").  Of the  increase,
approximately $27.8 million is attributable acquisitions completed during Fiscal
1999 and including a full year of operations for  acquisitions  completed Fiscal
1998. Revenues,  not including the effects of acquisitions and telemarketing and
telefundraising revenue,  increased by $3.4 million or 10% over the Fiscal 1998.
These  increases  were  partially  offset by a  decrease  in  telemarketing  and
telefundraising  revenues  of  approximately  $1.3  million or 8%. In  addition,
fulfillment  revenue for Fiscal 1999 increased by approximately $1.1 million due
to inclusion of eight months of  operations  in the Fiscal 1999 as compared to a
month  and a half  in  the  Fiscal  1998.  The  decrease  in  telemarketing  and
telefundraising primarily resulted from a loss of revenue due to an unsuccessful
attempt by third parties to unionize the calling center. New management has been
put in  place  at the  start of the 1999  fiscal  year  and have  refocused  its
priorities.

Direct costs of  approximately  $52.5 million in Fiscal 1999  increased by $25.7
million  or 96% over  direct  costs of $26.8  million  in  Fiscal  1998.  Of the
increase, approximately $24.4 million is attributable to acquisitions for a full
year of operations for acquisitions  completed during Fiscal 1998.  Direct costs
for direct and internet  marketing  not  including  the effects of  acquisitions
increased  by $.9 million or 4% which is due to the  increase  in  revenue.  The
remaining increase is primarily due to fulfillment direct costs of approximately
$.4 million which is consistent with the growth in revenue. The Company's direct
costs consist  principally of commissions  paid to use marketing  lists.  Direct
costs as a  percentage  of revenue  increased  from 52% in Fiscal 1998 to 64% in
Fiscal 1999. The increase in the direct costs as a percentage of revenue results
from the mix in services  sold.  Most of the  acquisitions  made in the past two
years  resulted  in a  substantial  increase  to the  list  management  and list
brokerage services.  These services have a high direct cost percentage.  As MSGi
acquires new  companies  and internet  revenues  become a higher  percentage  of
overall  revenue,  management  expects the direct cost  percentage of revenue to
begin to decrease.

Salaries and benefits of approximately $27.8 million in Fiscal 1999 increased by
$8.5 million or 44% over salaries and benefits of approximately $19.3 million in
Fiscal 1998.  Of the increase,  approximately  $3.5 million is  attributable  to
acquisitions completed during Fiscal 1999 and including a full year of operation
for acquisitions  completed during Fiscal 1998.  Salaries and benefits excluding
acquisitions  increased  by  approximately  $1.8 million due to increase in head
count to manage current and anticipated future growth of 10% and $1.6 million in
severance costs in connection  with the termination of two employment  contracts
and  compensation  expense on option grants.  Salaries and benefits  relating to
fulfillment  increased by  approximately  $1.4 million due to inclusion of eight
months of  operations in Fiscal 1999 as compared to a month and a half in Fiscal
1998.  Salaries  and  benefits  associated  with  corporate  overhead  increased
approximately  $.2 million in the Fiscal 1999  principally due to an increase in
head count to manage current and anticipated future growth.

Selling,  general and  administrative  expenses of approximately $6.8 million in
Fiscal 1999  increased  by  approximately  $2.5  million or 62% over  comparable
expenses of $4.2 million in Fiscal 1998.  Of the  increase,  approximately  $1.4
million  is  attributable  to  acquisitions  completed  during  Fiscal  1999 and
including a full year of operations  for  acquisitions  completed  during Fiscal
1998.  Selling,  general  and  administrative  expenses  excluding  acquisitions
increased by approximately $.3 million principally due to increased professional
fees associated  with an  unsuccessful  attempt by third parties to unionize the
calling  center and  increased  rent expense due to expansion of certain  office
space.  Selling  general and  administrative  expenses  relating to  fulfillment
increased  by  approximately  $.4 million due to  inclusion  of eight  months of
operations in Fiscal 1999 as compared to a month and a half in Fiscal 1998.  The
remaining  increase is  primarily  due to an increase in  corporate  expenses of
approximately $.4 million due to merger and acquisition activity.

Depreciation  and amortization  expense of approximately  $2.2 million in Fiscal
1999  increased  by  approximately  $.7 million  over expense of $1.5 million in
Fiscal 1998.  Of the  increase,  approximately  $.6 million is  attributable  to
acquisitions  completed  during  Fiscal  1999  and  including  a  full  year  of
operations for acquisitions completed during Fiscal 1998.

Net  interest  expense of  approximately  $516,000 in Fiscal 1999  increased  by
approximately  $330,000 over net interest expense of  approximately  $186,000 in
Fiscal 1998.  Such expenses  increased  principally  due to accrued  interest on
outstanding  borrowings  relating  to the  acquisitions  of SK&A  and  CMGD.  In
addition,  interest  income from cash  invested  decreased  due to cash used for
stock buyback and to fund the fulfillment operations.

The net  provision  for income  taxes of  approximately  $57,000 in Fiscal  1999
increased by approximately  $42,000 over the provision of approximately  $15,000
in Fiscal  1998.  The  Company  records  provisions  for  state and local  taxes
incurred on taxable  income at the  operating  subsidiary  level which cannot be
offset  by  losses  incurred  at the  parent  company  level or other  operating
subsidiaries.

As a result of the above,  loss from  continuing  operations  of $7.6 million in
Fiscal 1999  increased  $6.8 million over  comparable  net loss of $.8 in Fiscal
1998.

Net loss attributable to common  shareholders in Fiscal 1999 includes the impact
of dividends on preferred  stock for (a) adjustment of the  conversion  ratio of
$11,366,022  for  exercises  of stock  options  and  warrants;  (b)  $949,365 in
cumulative  undeclared  preferred stock dividends;  and (c) $219,943 of periodic
non-cash accretions of preferred stock.

Net loss attributable to common  shareholders in Fiscal 1998 includes the impact
of  dividends  on  preferred  stock for (a) a  non-cash,  beneficial  conversion
feature of $3,214,400  (b)  adjustment of the  conversion  ratio of $152,512 for
exercises  of stock  options and warrants and  issuances  of common  stock;  (c)
$464,816 in cumulative undeclared preferred stock dividends; and (c) $112,274 of
periodic non-cash accretions on preferred stock.


Capital Resources and Liquidity
-------------------------------
Historically,  the Company has funded its operations,  capital  expenditures and
acquisitions primarily through cash flows from operations, private placements of
equity  transactions,  and its credit facilities.  At June 30, 2000, the Company
had cash and cash  equivalents  of $9.9 million and accounts  receivable  net of
allowances of $42.2 million.

The Company  incurred losses from continuing  operations of $41.1 million in the
Current Period. Cash used in operating activities from continuing operations was
approximately $11.4 million. Net cash used in operating  activities  principally
resulted  from the loss from  continuing  operations,  an increase in  inventory
balances  and a decrease in accrued  expenses  and other  liabilities  offset by
unrealized loss on investments  and loss from  discontinued  operations.  In the
Prior Period,  the Company  incurred losses from  continuing  operations of $7.6
million.  Cash used in operating activities was approximately  $45,000. Net cash
used in operating  activities  principally  resulted from the net loss offset by
the decreases in accounts  receivable  and the increase in accrued  expenses and
other liabilities.

In the  Current  Period,  net  cash of  $60.1  million  was  used  in  investing
activities  consisting of: $50.2 million for the  acquisitions of CIA,  Grizzard
and  Coolidge,  $1.9 million for the purchases of property and  equipment,  $1.6
million for  purchases of  intangible  assets and $6.9 million for  purchases of
Internet investments. In the Prior Period, net cash used in investing activities
of $18.9 million consisted of $17.7 million for the acquisitions of SK&A and CMG
Direct,  $.9 million for a contingent  payment for the  acquisition of SD&A, $.5
million for the purchases of property and equipment .

In the  Current  Period,  net cash of $78.9  million was  provided by  financing
activities.  Net cash provided by financing  activities  consisted  primarily of
$30.5 million in proceeds  from the issuance of common  stock,  $29.4 million in
proceeds from the issuance of convertible  preferred stock, and $23.0 million in
net proceeds from bank financing.

In the  Prior  Period,  net cash of $16.0  million  was  provided  by  financing
activities. Net cash provided by financing activities consisted of $10.0 million
proceeds  from a  promissory  note  issued  in  connection  with the CMG  Direct
acquisition,  $5.5 million in proceeds  from the  exercise of stock  options and
warrants,  $2.8  million in net  proceeds  from  lines of credit  offset by $1.3
million used for the purchase of treasury  stock and $.8 million for  repayments
on debt, other notes payable and capital leases.

At June 30,  2000,  the Company had amounts  outstanding  of $9.7 million on its
lines of credit.  As of June 30, 2000 the Company  was in  violation  of certain
covenants at certain of its  subsidiaries.  The Company has obtained a waiver of
such  violations.  The  Company had  approximately  $4.2  million of  additional
availability on its lines of credit as of June 30, 2000.

On April 21, 1999, the Company  exercised its right to convert all 50,000 shares
of General Electric Capital  Corporation's Series D Convertible  Preferred Stock
to  approximately  4.8 million shares of common stock.  In conjunction  with the
conversion,  all preferred  shareholder rights,  including quarterly  dividends,
financial  covenants,  acquisition  approvals and board seats,  were immediately
cancelled.

On February  24,  2000 the Company  entered  into a private  placement  with RGC
International Investors LDC and Marshall Capital Management,  Inc., an affiliate
of Credit Suisse First Boston,  in which the Company sold an aggregate of 30,000
shares of Series E  Convertible  Preferred  Stock,  par value  $.01  ("Series  E
Preferred Stock"),  and warrants to acquire 1,471,074 shares of common stock for
proceeds  of  approximately  $29.5  million,  net of  approximately  $520,000 of
placement  fees and  expenses.  The  preferred  stock  provides for  liquidation
preference  under certain  circumstances  and accordingly has been classified in
the mezzanine  section of the balance sheet. The preferred stock has no dividend
requirements.

The Series E Preferred  Stock is  convertible  at any time at $24.473 per share,
subject to reset on August 18, 2000 if the market  price of our Common  Stock is
lower and subject to certain anti-dilution adjustments.  On August 18, 2000, the
conversion  price was reset to $12.24 per share,  the market price on that date.
The warrants are  exercisable  for a period of two years at an exercise price of
$28.551, subject to certain anti-dilution adjustments.

In March  2000,  the  Company  entered  into a  credit  agreement  (the  "Credit
Agreement") with a $58,000,000 senior secured facility.  The Credit Agreement is
comprised of a $13 million  revolving line of credit,  $40 million term loan and
$5 million standby letter of credit.  The Credit Agreement  expires on March 31,
2005 and bears interest at prime rate or LIBOR plus an applicable margin ranging
from 1.5% to 2.5%,  for prime  and 2.5% to 3.5% for LIBOR  based on a  financial
ratio.  The term loan is payable in quarterly  installments  through March 2005.
The loans are  collaterialized by substantially all of the assets of the Company
and  are  guaranteed  by all of the  Company's  non-internet  subsidiaries.  The
revolving line of credit is classified under short term borrowings (See Note 9).
As of June 30, 2000,  the  interest  rates were 11.5% for  borrowings  under the
prime rate and 10.4% for borrowings under LIBOR.

In  connection  with the  Credit  Agreement,  the  Company  issued a warrant  to
purchase  298,541  shares of the Company's  common stock at an exercise price of
$.01 per  share.  The $40  million  term  loan was  recorded  at a  discount  of
approximately  $5  million  to  reflect an  allocation  of the  proceeds  to the
estimated value of the warrant and is being  amortized as interest  expense over
the life of the loan  using the  interest  method of  accounting.  Approximately
$453,000  was  recorded  as interest  expense for the year ended June 30,  2000.
Under the terms of the Credit  Agreement,  the  Company is  required to maintain
certain financial covenants related to consolidated EBITDA and consolidated debt
to capital, among others.

The Company believes that funds on hand, funds available from its operations and
its unused  lines of credit,  should be adequate to finance its  operations  and
capital  expenditure  requirements,  and enable the Company to meet interest and
debt  obligations for the next twelve months.  In conjunction with the Company's
acquisition  and  growth  strategy,  additional  financing  may be  required  to
complete any such  acquisitions  and to meet  potential  contingent  acquisition
payments.

In connection with the discontinued  operations of WiredEmpire,  the Company has
offered to redeem the preferred  shares in exchange for MSGi common shares.  The
redemption is expected to occur in the second  quarter of fiscal year 2001.  The
liability of $18.8 million for the preferred  shareholders is currently included
in the net liability of discontinued  operations and it is anticipated that this
will be settled in MSGi  stock.  The Company  believes  that the cash on hand at
WiredEmpire  will be  sufficient  to satisfy  the  remaining  obligations  to be
incurred as a result of the decision to discontinue operations.

Summary of Recent Accounting Pronouncements
-------------------------------------------
In March 2000, the Financial  Accounting  Standards Board issued  Interpretation
No. 44, "Accounting for Certain  Transactions  Involving Stock Compensation,  an
interpretation  of APB Opinion  No. 25" (FIN 44).  The  interpretation  provides
guidance for certain issues relating to stock compensation  involving  employees
that arose in applying Opinion 25. Among other issues,  FIN No. 44 clarifies (a)
the  definition  of an employee  for  purposes  of applying  Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock  option or award,  and (d) the  accounting  for an exchange of stock
compensation awards in a business combination.  The provisions of FIN No. 44 are
effective July 1, 2000,  except for the provisions  regarding  modifications  to
fixed stock option  awards which  reduce the exercise  price of an award,  which
apply to  modifications  made after  December  15,  1998.  Provisions  regarding
modifications  to fixed  stock  option  awards to add reload  features  apply to
modifications  made after January  12,2000.  The Company  believes that it is in
compliance with this guidance.

In December 1999, the staff of the  Securities and Exchange  Commission  ("SEC")
issued  Staff  Accounting  Bulletin No. 101  "Revenue  Recognition  in Financial
Statements" (SAB 101). SAB 101 summarizes some of the staff's interpretations of
the  application  of  generally  accepted   accounting   principles  to  revenue
recognition,  including  presentation  in the  financial  statements.  The staff
provided  guidance  due,  in part,  to the large  number of  revenue-recognition
issues that it has  encountered in registrant  filings.  In June 2000,  SAB101B,
"Second Amendment:  Revenue  Recognition in Financial  Statements",  was issued,
which  defers  the  effective  date of SAB 101  until no later  than the  fourth
quarter of fiscal  years  beginning  after  December  15,  1999.  The Company is
currently  evaluating  the  impact  that  SAB 101  will  have on it's  financial
statements and will adopt SAB 101 in fiscal 2001.

In June,  1998, the Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative  Instruments and Hedging  Activities"("SFAS No. 133").
This statement  established  accounting  and reporting  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,   and  for  hedging  activities.   It  requires  recognition  of  all
derivatives as either assets or liabilities on the balance sheet and measurement
of those  instruments  at fair value.  In June 1999,  the  Financial  Accounting
Standards Board issued SFAS No. 137 delaying the effective date of SFAS No. 133.
The  provisions  of SFAS No. 133 are  effective  for all fiscal  quarters of all
fiscal years  beginning after June 15, 2000. The effect of adopting SFAS No. 133
is not  expected to have any impact on the Company as it current does not engage
in derivative or hedging activities.



Item 8 - Financial Statements and Supplementary Data
----------------------------------------------------
The Consolidated  Financial  Statements required by this Item 8 are set forth as
indicated in the index following Item 13(a)(1).


Item 9 -  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
Financial Disclosure
--------------------
None.


<PAGE>


                                    PART III

The  information  required by this Part III (items 10, 11, 12, and 13) 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.

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Financial  statements - see "Index to Financial  Statements"  on page 29.
   (2) Financial  statement  schedules - see "Index to Financial  Statements" on
       page 29.
   (3)  Exhibits:
        2.1    Stock Purchase Agreement between Marketing Services Group, Inc.
               and Ralph Stevens (n)
        2.2    Stock Purchase Agreement between Marketing Services Group, Inc.
               and CMGI, Inc. (o)
        2.3    Agreement and Plan of Merger By and Among  Marketing  Services
               Group,  Inc., GCG Merger Corp., and Grizzard Advertising, Inc.(p)
        3.1    Amended and Restated Articles of Incorporation (b)3.2 Certificate
               of Amendment to the Amended and Restated Articles of
               Incorporation of the Company (b)
        3.3    Certificate  of Amendment to the  Articles of  Incorporation  for
               change of name to All-Comm Media Corporation (e)
        3.4    By-Laws (b)
        3.5    Certificate  of  Amendment  of  Articles  of  Incorporation   for
               increase in number of authorized shares to 36,300,000 total (h)
        3.6    Certificate of Amendment of Articles of  Incorporation  for
               change of name to Marketing Services Group, Inc. (k)
        3.7    Certificate  of  Amendment  of  Articles  of  Incorporation   for
               increase in number of authorized shares to 75,150,000 total (q)
        3.8    The Amended Certificate of Designation, Preferences and Relative,
               Participating  and Optional and Other Special Rights of Preferred
               Stock and  Qualifications,  Limitations and Restrictions  Thereof
               for the Series D Convertible Preferred Stock (l)
        3.9    Certificate of Designation,  Preferences,  and Rights of Series E
               Convertible Preferred Stock of Marketing Services Group, Inc. (t)
        3.10   Certificate  of Amendment to  Certificate of  Designation,
               Preferences,  and Rights of Series E Convertible  Preferred Stock
               of Marketing  Services Group, Inc. (u)
        10.1   1991 Stock Option Plan (c)
        10.2   Agreement and Plan of Merger  between  All-Comm Media Corporation
               and Metro Services Group, Inc. (i)
        10.3   Security  Agreement  between Milberg Factors,  Inc. and Metro
               Services Group, Inc. (j)
        10.4   Security  Agreement  between  Milberg  Factors, Inc. and Stephen
               Dunn  & Associates, Inc. (k)
        10.5   Agreement  and Plan of Merger  between  Marketing Services Group,
               Inc. and Pegasus Internet, Inc. (k)
        10.6   J. Jeremy Barbera Employment Agreement (a)
        10.7   Rudy Howard Employment Agreement (a)
        10.8   Stephen Killeen Employment Agreement (a)
        10.9   Mike Dzvonik Employment Agreement (a)
        10.10  Robert M. Budlow Employment Agreement (i)
        10.11  Form of Private Placement Agreement (j)
        10.12  Fourth Memorandum of Understanding (q)
        10.13  Stock Purchase  Agreement among Marketing  Services Group,  Inc.,
               Stephen M. Reustle and Thomas R. Kellogg (m)
        10.14  Purchase  agreement dated as of December 24, 1997, by and between
               the Company and GE Capital (l)
        10.15  Stockholders  Agreement by and among the Company,  GE Capital and
               certain  existing  stockholders  of  the  Company,  dated  as  of
               December 24, 1997 (l)
        10.16  Registration  Rights  Agreement  by and among the  Company and GE
               Capital, dated as of December 24, 1997 (l)
        10.17  Warrant,  dated as of December  24, 1997,  to purchase  shares of
               Common Stock of the Company (l)
        10.18  Form of Employment Agreement by and among Marketing Services
               Group, Inc. and Ralph Stevens (n)
        10.19  Form of Employment  Agreement by and among Marketing  Services
               Group,  Inc. and Edward Mullen (a)
        10.20  First  Amendment  to Preferred  Stock  Purchase  Agreement
               Between  General  Electric Capital Corporation and Marketing
               Services Group, Inc. (r)
        10.21  Promissory note (r)
        10.22  Warrant Agreement (r)
        10.23  Second Amendment (s)
        10.24  Warrant  Agreement  between  Marketing  Services  Group, Inc. and
               Marshall  Capital Management, Inc. (t)
        10.25  Warrant  Agreement  between  Marketing  Services  Group,  Inc.
               and RCG  International Investors, LDC. (t)
        10.26  Registration Rights Agreement by and Among The Company,  RCG
               International  Investors, LDC and Marshall Capital Management,
               Inc. (t)
        10.27  Securities Purchase Agreement by and Among The Company,  RCG
               International  Investors, LDC and Marshall Capital Management,
               Inc. (t)
        10.28  Credit Agreement Among Grizzard Communications, Inc. and
               Paribas (v)
        21     List of Company's subsidiaries (a)
        23     Consent of PricewaterhouseCoopers, 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'sReport  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 Report on Form 10-KSB for the
        fiscal year ended June 30, 1997
   (l)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        January 13, 1998
   (m)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        March 16,1998
   (n)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        February 1, 1999
   (o)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        March 24, 1999
   (p)  Incorporated by reference from the Company's  Registration  Statement on
        Form S-4, Registration Statement No. 33-85233.
   (q)  Incorporated  by reference to the Company's  Report on Form 10-KSB dated
        June 30, 1998.
   (r)  Incorporated by reference to the Company's  Report on Form 8-K dated May
        13, 1999.
   (s)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        August 30, 1999.
   (t)  Incorporated  by  reference  to the  Company's  Report on Form 8-K dated
        February 29, 2000.
   (u)  Incorporated  by reference to the  Company's  Report on Form 8-K/A dated
        March 23, 2000.
   (v)  Incorporated by reference to the Company's Report on Form 10-Q dated May
        16, 2000.


(b)  Reports on Form 8-K.  During the fourth quarter 2000,  Form 8-K dated April
     6, 2000 was filed pursuant to Item 2 (Acquisition or Disposition of Assets)
     and Item 7 (Financial Statements and Exhibits).  On June 5, 2000 Form 8-K/A
     was filed  pursuant to Item 2  (Acquisition  or  Disposition of Assets) and
     Item 7 (Financial Statements and Exhibits).

<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:  October 13, 2000

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         October 13, 2000
---------------------         Chief Executive Officer
J. Jeremy Barbera             (Principal Executive Officer)


/s/ Stephen Killeen          President and Director            October 13, 2000
-------------------
Stephen Killeen


/s/ Michael Dzvonik          Chief Operating Officer           October 13, 2000
-------------------
Michael Dzvonik


/s/ Rudy Howard              Chief Financial Officer           October 13, 2000
---------------              (Principal Financial Officer)
Rudy Howard


/s/ Cindy H. Hill            Chief Accounting Officer          October 13, 2000
-----------------            (Principal Accounting Officer)
Cindy H. Hill


/s/ Alan I. Annex            Director and Secretary            October 13, 2000
-----------------
Alan I. Annex


/s/ S. James Coppersmith     Director                          October 13, 2000
------------------------
S. James Coppersmith


/s/ John T. Gerlach          Director                          October 13, 2000
---------------------
John T. Gerlach


/s/ Seymour Jones            Director                          October 13, 2000
Seymour Jones


/s/ C. Anthony Wainwright    Director                          October 13, 2000
-------------------------
C. Anthony Wainwright
<PAGE>



                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS
                                   [Items 14]



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

           Consolidated Balance Sheets as of June 30, 2000 and
              June 30, 1999                                           31

           Consolidated Statements of Operations
              Years Ended June 30, 2000, 1999, and 1998               32

           Consolidated Statement of Stockholders' Equity
              Years Ended June 30, 2000, 1999, and 1998              33-35

           Consolidated Statements of Cash Flows
              Years Ended June 30, 2000, 1999, and 1998               36

           Notes to Consolidated Financial Statements                37-55


       (2) FINANCIAL STATEMENT SCHEDULES:

           Schedule II - Valuation and Qualifying Accounts            56


          Schedules  other than those listed above are omitted  because they are
          not required or are not applicable or the  information is shown in the
          audited financial statements or related notes.


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Stockholders of Marketing Services Group, Inc.:



In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Marketing  Services Group,  Inc. and Subsidiaries at June 30, 2000 and 1999, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period ended June 30, 2000, in conformity with accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement schedule listed in the accompanying index
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction  with the related  consolidated  financial  statements.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

                                                /s/ PRICEWATERHOUSECOOPERS LLP


October 12, 2000
<PAGE>

<TABLE>
<CAPTION>



                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND 1999



ASSETS                                                        2000                1999
------                                                        ----                ----
<S>                                                    <C>                 <C>
Current assets:
   Cash and cash equivalents                            $  9,903,799         $  3,285,217
   Accounts receivable, billed, net of
    allowance for doubtful accounts of
    $2,287,857 and $551,043, respectively                 38,324,777           23,527,798
   Accounts receivable, unbilled                           3,834,057            3,862,907
   Inventories                                             4,574,046                    -
   Note receivable- current portion                          173,359              685,873
   Other current assets                                    4,428,673            1,168,653
                                                           ---------          -----------
     Total current assets                                 61,238,711           32,530,448

Investments                                                7,445,500                    -
Property and equipment, net                               18,690,478            1,504,826
Intangible assets, net                                   154,016,073           56,977,949
Note receivable                                              652,010              474,127
Other assets                                               3,141,343              623,599
Net assets of discontinued operations                              -            5,516,000
                                                            --------            ---------

     Total assets                                       $245,184,115          $97,626,949
                                                         ===========          ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Short - term borrowing                                  9,745,053           $5,316,775
   Accounts payable-trade                                 30,098,401           23,214,278
   Related party payable                                   5,000,000                    -
   Accrued expenses and other current liabilities          9,531,728            8,151,764
   Current portion of note payable-related party                   -            4,871,750
   Current portion of capital lease obligations              234,032               52,099
   Current portion of long term obligations                6,199,820              570,653
                                                           ---------          -----------
   Total current liabilities                              60,809,034           42,177,319

Capital lease obligations, net of current portion            543,517               67,407
Long-term obligations, net of current portion             35,613,194              997,890
Note payable- related party, net of current portion                -            4,871,750
Other liabilities                                          2,433,450              584,954
Net liabilities of discontinued operations                18,346,721                    -
                                                          ----------           ----------
     Total liabilities                                   117,745,916           48,699,320
                                                         -----------           ----------
Convertible preferred stock - $.01 par value;
 150,000 shares authorized; 30,000 shares of
 Series E issued and outstanding                          29,417,279                    -

Commitments and contingencies (Note 13)

Stockholders' equity:
   Common  stock  -  $.01  par  value;
    75,000,000  authorized;  30,442,488  and
    22,513,772  shares  issued  as of
    June  30,  2000  and  1999,  respectively               304,425               225,138
   Additional paid-in capital                           194,712,085            70,812,973
   Accumulated deficit                                  (95,601,880)          (19,928,677)
   Deferred compensation                                          -              (788,095)
   Less:  423,894 shares of common stock in
    treasury, at cost                                    (1,393,710)           (1,393,710)

     Total stockholders' equity                           98,020,920           48,927,629
                                                          ----------         ------------
     Total liabilities and stockholders' equity         $245,184,115          $97,626,949
                                                         ===========          ===========
</TABLE>

The  accompanying  notes  are an  integral  part of the  Consolidated  Financial
Statements.


<TABLE>
<CAPTION>

                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998

                                                2000             1999            1998
                                                ----             ----            ----
<S>                                       <C>               <C>             <C>
Revenues                                    $128,606,882      $82,241,894     $51,174,063
                                            ------------      -----------     -----------
Operating costs and expenses:
   Direct costs                              77,906,758       52,510,154       26,771,611
   Salaries and benefits                     42,657,063       27,757,246       19,255,348
   Selling, general and administrative       13,307,682        6,764,488        4,240,805
   Depreciation and amortization              6,027,871        2,282,251        1,486,106
                                              ---------        ---------       ----------
     Total operating costs and expenses     139,899,374       89,314,139       51,753,870
                                            -----------       ----------       ----------
     Loss from operations                   (11,292,492)      (7,072,245)        (579,807)
                                            -----------       ----------       ----------

   Unrealized loss on investments           (27,216,200)               -                -
   Interest expense and other, net           (2,355,848)        (516,099)        (185,967)
                                             -----------        --------         ---------
Loss from continuing operations
     before income taxes                    (40,864,540)      (7,588,344)        (765,774)

   Provision for income taxes                   265,683           57,259           14,704
                                                -------           ------           ------
   Loss from continuing operations          (41,130,223)      (7,645,603)        (780,478)

   Discontinued operations (Note 18):
    Loss from discontinued operations       (19,488,943)               -                -
    Loss from disposal of discontinued
     operations                             (15,054,037)               -                -
                                             ----------         --------          -------
                                            (34,542,980)               -                -
                                             ----------         --------          -------

   Net loss                                $(75,673,203)     $(7,645,603)       $(780,478)
                                           =============     ============       ==========
Net loss attributable to
 common stockholders (Note 15)             $(75,673,203)    $(20,180,933)     $(4,724,480)
                                           =============    =============     ============
Net loss per common share:
   Continuing operations                      $(1.55)          $(1.39)           $(0.37)
   Discontinued operations                    $(1.30)               -                 -
                                              -------           -----              ----
Net loss per common share,
   basic and diluted                          $(2.85)          $(1.39)           $(0.37)
                                              =======          =======           =======
Weighted average common shares
  outstanding                                26,582,218      14,552,444        12,892,323
                                             ==========      ==========        ==========

</TABLE>


The  accompanying  notes  are an  integral  part of the  Consolidated  Financial
Statements.
<TABLE>
<CAPTION>


                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998




                                         Common Stock           Additional                        Treasury Stock
                                         ------------            Paid-in        Accumulated       --------------
                                      Shares       Amount        Capital          Deficit       Shares      Amount        Totals
                                    ------------------------------------------------------------------------------------------------
<S>                                <C>           <C>          <C>             <C>             <C>        <C>          <C>
Balance July 1, 1997                11,438,564    $114,386     $25,209,493     $(11,502,596)   (11,800)   $(135,469)    $13,685,814


Shares issued upon exercise
  of options                             4,135          41           8,229                                                    8,270
Issuance of warrants to
  consultants                                                       19,500                                                   19,500
Issuance of restricted shares for
  SD&A earn-out                        139,178       1,392         423,608                                                  425,000
Issuance of common stock for
  acquisition of Pegasus Internet      600,000       6,000       1,794,000                                                1,800,000
Conversion of $1.7 million of
  convertible debt to common stock,
  net of discount and stock
  issuance costs                       694,411       6,944       1,629,228                                                1,636,172
Sale of Series D Preferred Stock,
  net of stock issuance costs                                    3,474,982                                                3,474,982
Dividend for non-cash, non-recurring
  beneficial conversion feature                                 (3,214,400)                                              (3,214,400)
Issuance of common stock
  for acquisition of
  Media Marketplace, Inc.              222,222       2,222         997,778                                                1,000,000
Adjustment to conversion ratio
  for redeemable convertible
  preferred stock                                                 (152,512)                                                (152,512)
Cumulative undeclared dividends for
  redeemable convertible
  preferred stock                                                 (464,816)                                                (464,816)
Accretion of redeemable convertible
  preferred stock                                                 (112,274)                                                (112,274)
Net  and comprehensive loss                                                        (780,478)                               (780,478)
                                    ------------------------------------------------------------------------------------------------
Balance June 30,1998                13,098,510     130,985      29,612,816      (12,283,074)   (11,800)    (135,469)     17,325,258
</TABLE>
<TABLE>
<CAPTION>


                                         Common Stock       Additional                                 Treasury Stock
                                         ------------        Paid-in      Deferred    Accumulated      --------------
                                      Shares     Amount      Capital    Compensation    Deficit       Shares    Amount      Totals
                                    ------------------------------------------------------------------------------------------------
<S>                               <C>          <C>        <C>           <C>         <C>          <C>        <C>         <C>
Balance July 1,1998                 13,098,510   130,985    29,612,816           -   (12,283,074)  (11,800)    (135,469)  17,325,258

Purchase of common stock held
  in treasury                                                                                     (412,094)  (1,258,241) (1,258,241)
Shares issued upon exercise of
  stock options                      1,590,101    15,901     4,352,241                                                    4,368,142
Shares issued upon exercise
  of warrants                          439,455     4,395     1,087,085                                                    1,091,480
Conversion of $558,765 of
  convertible debt and interest
  to common stock                      224,000     2,240       556,525                                                      558,765
Issuance of common stock for
  acquisition of CMG Direct
  Corporation                        2,321,084    23,211    19,311,411                                                   19,334,622
Warrants issued in connection
  with debt                                                    342,000                                                      342,000
Adjustment to conversion ratio
  for redeemable
  convertible preferred stock                              (11,366,022)                                                 (11,366,022)
Cumulative undeclared dividends
  for redeemable convertible
  preferred stock                                             (949,365)                                                    (949,365)
Accretion of redeemable convertible
  preferred stock                                             (219,943)                                                    (219,943)
Conversion of Series D
  Preferred Stock                    4,840,622    48,406     26,854,225                                                  26,902,631
Issuance of below market
  stock options                                               1,232,000  (1,232,000)                                              -
Recognition of stock based
  compensation expense                                                      443,905                                         443,905
Net and comprehensive loss                                                            (7,645,603)                        (7,645,603)
                                    ------------------------------------------------------------------------------------------------
Balance June 30,1999                22,513,772  $225,138    $70,812,973  $(788,095) $(19,928,677) (423,894) $(1,393,710) $48,927,629
</TABLE>



The  accompanying  notes  are an  integral  part of the  Consolidated  Financial
Statements.

<PAGE>

<TABLE>
<CAPTION>

                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998



                                         Common Stock       Additional                                 Treasury Stock
                                         ------------        Paid-in      Deferred    Accumulated      --------------
                                      Shares     Amount      Capital    Compensation    Deficit       Shares    Amount      Totals
                                    ------------------------------------------------------------------------------------------------
<S>                              <C>          <C>         <C>          <C>        <C>            <C>      <C>          <C>
Balance July 1, 1999               22,513,772   $225,138   $70,812,973  $(788,095)  $(19,928,677) (423,894)$(1,393,710) $48,927,629

Shares issued upon exercise of
  stock options                       475,282      4,753     1,948,467                                                    1,953,220
Shares issued upon exercise
  of warrants                         129,218      1,292       385,695                                                      386,987
Issuance of common stock for
  Acquisition of Grizzard
  Communications, Inc.              2,545,799     25,458    48,446,555                                                   48,472,013
Issuance of common stock for
  acquisition of
  The Coolidge Company                 22,251        222       365,139                                                      365,361
Issuance of common stock for
  acquisition of Cambridge
  Intelligence Agency, Inc.           121,469      1,215     1,556,477                                                    1,557,692
Issuance of common stock for
  Investment in Latin Fusion, Inc.  1,500,000     15,000    27,491,400                                                   27,506,400
Shares issued in connection with
  Private placement of common
  stock, net of stock
  issuance costs                    3,130,586     31,306    30,500,523                                                   30,531,829
Issuance of shares for
  executive bonus                       4,111         41        64,959                                                       65,000
Purchase of warrants by Directors                                2,500                                                        2,500
Warrants issued in connection with
  the settlement of a lawsuit                                  315,000                                                      315,000
Discount on debt incurred in
  connection with bank financing                             5,023,500                                                    5,023,500
Recognition of stock based
  Compensation expense                                       7,798,897    788,095                                         8,586,992

Net and comprehensive loss                                                           (75,673,203)                       (75,673,203)
                                   -------------------------------------------------------------------------------------------------
Balance June 30, 2000              30,442,488   $304,425  $194,712,085    $     -   $(95,601,880) (423,894)$(1,393,710) $98,020,920
                                   =================================================================================================
</TABLE>

The  accompanying  notes  are an  integral  part of the  Consolidated  Financial
Statements.

<PAGE>
<TABLE>
<CAPTION>


                    MARKETING SERVICES GROUP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 2000, 1999, AND 1998

                                                            2000            1999             1998
                                                            ----            ----             ----
<S>                                                  <C>              <C>              <C>>
OPERATING ACTIVITIES:
   Net loss                                            $(75,673,203)    $(7,645,603)      $(780,478)
   Add: Loss from discontinued operations                34,542,980               -               -
                                                         ----------       ---------         -------
   Loss from continuing operations                      (41,130,223)     (7,645,603)       (780,478)
   Adjustments to reconcile net loss to net cash
    used in  operating activities:
     Gain on sale of minority interest                      (45,163)        (16,604)              -
     Depreciation                                         1,826,792         673,154         412,212
     Amortization                                         4,210,487       1,609,097       1,073,894
     Unrealized loss on investments                      27,216,200               -               -
     Compensation expense on option and stock grants        105,800         443,905               -
     Accretion on note payable and redeemable stock               -          85,500          37,555
     Warrant Issuances to consultants and creditors               -               -          19,500
     Amortization of debt issuance costs                    830,185               -               -
     Loss on disposal of assets                              87,813               -               -
     Settlement of litigation                               315,000               -               -
     Bad debt expense                                       427,578         162,715          70,170
   Changes in assets and liabilities net of
    effects from acquisitions:
     Accounts receivable                                    990,092       1,211,918        (487,516)
     Inventory                                           (2,701,359)              -               -
     Other current assets                                 1,231,867          29,716        (398,413)
     Other assets                                          (614,971)       (341,006)       (362,671)
     Trade accounts payable                                 299,605        (482,908)     (1,240,126)
     Accrued expenses and other liabilities              (4,406,582)      4,224,861        (230,616)
                                                         ----------       ---------       ---------
     Net cash used in operating activities              (11,356,879)        (45,255)     (1,886,489)

INVESTING ACTIVITIES:
   Acquisitions in fiscal year 2000, net
    of cash acquired of $580,468                        (50,187,882)              -               -
   Acquisitions in fiscal year 1999, net
    of cash acquired of $290,946                                  -     (17,665,884)              -
   Acquisitions in fiscal year 1998, net
    of cash acquired of $384,361                                  -               -      (5,968,864)
   Earn-out relating to acquisition of SD&A                       -        (850,000)       (425,000)
   Purchases of capitalized software                     (1,612,776)              -               -
   Purchases of property and equipment                   (1,942,312)       (523,437)       (287,529)
   Proceeds from sale of MFI                                556,984         100,000               -
   Purchase of note receivable                                    -               -        (600,000)
   Investment in internet companies                      (6,930,300)              -               -
                                                         ----------      ----------       ---------
   Net cash used in investing activities:               (60,116,286)    (18,939,321)     (7,281,393)

FINANCING ACTIVITIES:
   Proceeds  from  issuance of common stock              30,531,829               -               -
   Proceeds  from sale of Series E convertible
     preferred stock                                     29,417,279               -               -
   Proceeds from sale of Series D convertible
     preferred  stock                                             -               -      13,898,280
   Net proceeds from  (repayments on)
     credit  facilities                                    (571,722)      2,794,467         860,598
   Net proceeds  from bank financing                     22,965,716               -               -
   Proceeds from  exercise  of  stock
    options  and warrants                                 2,342,706       5,459,624           8,271
   Proceeds from related party note payable                       -      10,000,000               -
   Payments on promissory notes                                   -        (134,385)              -
   Repayment of note payable                                      -        (117,540)       (330,095)
   Principal payments under capital lease obligation        (58,176)       (125,779)        (96,537)
   Repayment of related party notes payable              (5,000,000)              -               -
   Purchase of treasury stock                                     -      (1,258,241)              -
   Repayments of long term debt                            (723,578)       (583,334)     (1,866,666)
                                                         ----------      ----------      ----------
   Net cash provided by financing activities:            78,904,054      16,034,812      12,473,851

Net cash used in discontinued operations                   (812,307)              -               -
                                                            -------       ---------       ---------

Net increase (decrease) in cash and cash equivalents      6,618,582      (2,949,764)      3,305,969
   Cash and cash equivalents at beginning of year         3,285,217       6,234,981       2,929,012

Cash and cash equivalents at end of year                 $9,903,799      $3,285,217      $6,234,981
                                                         ==========      ==========      ==========

</TABLE>

The  accompanying  notes  are an  integral  part of the  Consolidated  Financial
Statements


<PAGE>

                 MARKETING SERVICES GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. COMPANY OVERVIEW AND PRINCIPLES OF CONSOLIDATION:

Marketing  Services Group,  Inc.  ("MSGi" or the "Company")  provides direct and
database marketing, telemarketing and telefundraising, marketing communications,
media  planning  and buying,  online  consulting  and  commerce,  and Web design
services. Substantially all of the Company's business activity is conducted with
customers located within the United States and Canada.

The  consolidated  financial  statements  include  the  accounts of MSGi and its
wholly-owned and majority owned subsidiaries. All material intercompany accounts
and transactions  have been eliminated in consolidation.  Subsidiaries  acquired
during the year are recorded  from the date of the  respective  acquisition.  As
more fully  discussed in Note 18,  WiredEmpire  is  presented as a  discontinued
operation.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents:

The Company  considers  investments with an original maturity of three months or
less to be cash equivalents.

Inventory:

Inventory  is stated at the lower of cost  (specific  identification  method) or
market.  Work in process  includes  job  related  costs  which have not yet been
billed to the customer.

Property, Plant and Equipment:

Property,  plant and equipment are stated at cost. Depreciation and amortization
are computed using the  straight-line  method over the estimated useful lives of
the respective assets. Estimated useful lives are as follows:

      Buildings .............................20 years
      Furniture and fixtures.................2 to 7 years
      Computer equipment and software........3 to 5 years

Leasehold  improvements are amortized,  using the straight-line method, over the
shorter of the estimated useful life of the asset or the term of the lease.

The  costs of  additions  and  betterments  are  capitalized,  and  repairs  and
maintenance  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  recognized  in
current operations.

Intangible Assets:

Intangible  assets  consist of covenants not to compete,  capitalized  software,
customer base, list databases,  assembled work force, present value of favorable
leases and the remaining  excess purchase price paid over identified  intangible
and tangible net assets of acquired  companies.  Intangible assets are amortized
under the  straight-line  method over the period of expected  benefit of 3 to 40
years.

The development  costs of new software  applications,  which will be utilized in
customer service,  are capitalized,  and once completed are amortized over three
to five years.

Long-Lived Assets:

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  Of", the Company  reviews for
impairment of long-lived assets and certain  identifiable  intangibles  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  In general,  the Company will  recognize an impairment
when the sum of  undiscounted  future cash flows (without  interest  charges) is
less  than  the  carrying  amount  of such  assets.  The  measurement  for  such
impairment loss is based on the fair value of the asset.

At each balance sheet date, the Company reviews the  recoverability of goodwill,
not identified with long-lived assets,  based on estimated  undiscounted  future
cash  flows  from  operating  activities  compared  with the  carrying  value of
goodwill, and recognizes any impairment on the basis of such comparison.

Investments:

The Company  makes  investments  for the  promotion  of business  and  strategic
purposes.   Management   determines  the  appropriate   classification   of  its
investments in marketable  securities at the time of purchase and evaluates such
investments at each balance sheet date.

The   Company's    marketable    security    investments   are   classified   as
available-for-sale  as of the balance  sheet date and are carried at fair value,
with the  unrealized  gains  and  losses,  net of tax,  reported  as a  separate
component of stockholders' equity until realized,  unless the unrealized loss is
deemed  to be  other  than  temporary  whereby  the  loss is  recognized  in the
statement of operations.

Non-marketable security investments are recorded at the lower of cost or market.
Unrealized  losses that are other than temporary are recognized in the statement
of operations.

Revenue Recognition:

Revenues derived from direct and database marketing are recognized when 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 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.

Revenues  derived from  telemarketing  and  telefundraising  are recognized when
pledged cash is received for on-site  campaigns  and when  services are provided
for off-site campaigns.  Revenues and costs derived from Website development are
deferred  until  services are  completed  and  recognized  using a straight line
method over the remaining life of the contract.

Revenues derived from marketing  communications are recognized when the campaign
is mailed.

Income Taxes:

The Company  recognizes  deferred  taxes for  differences  between the financial
statement and tax bases of assets and liabilities at currently enacted statutory
tax  rates  and laws for the  years in which the  differences  are  expected  to
reverse.  The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

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
amount and amortization of intangible assets,  deferred tax valuation  allowance
and the allowance for doubtful accounts.  Actual results could differ from those
estimates.

Liquidity:

The Company has  continued to  experience  operating  losses and  negative  cash
flows.  To date, the Company has funded its  operations  with public and private
equity  offerings,  and  external  financing  through  debt  issuance.  However,
management  believes  that the  Company's  current  cash  resources  and  credit
facility  together with expected revenue growth and planned cost reductions will
be  sufficient  to fund the  Company's  operations  for the next twelve  months.
Failure to generate  sufficient revenue or achieve planned cost reductions could
have a material  adverse effect on the Company's  ability to continue as a going
concern and to achieve its intended business objectives.

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 to financial
institutions with high credit standings.  A significant portion of cash balances
are maintained with one financial institution and may, at time, exceed federally
insurable  amounts.  Collateral  is  generally  not  required on trade  accounts
receivable.  Credit risk on trade  receivables  is  minimized as a result of the
large and diverse nature of the Company's customer base.

Earnings (Loss) Per Share:

In accordance with SFAS No. 128,  "Earnings Per Share," basic earnings per share
is  calculated  based on the weighted  average  number of shares of common stock
outstanding during the reporting period. Diluted earnings per share gives effect
to all  potentially  dilutive  common  shares that were  outstanding  during the
reporting period.  Stock options and warrants with exercise prices below average
market price in the amount of 7,166,563, 3,354,238, and 1,138,264 shares for the
years ended June 30, 2000, 1999 and 1998, respectively, were not included in the
computation of diluted  earnings per share as they are  antidilutive as a result
of net losses during the periods presented.

The year ended June 30, 1999 includes the impact of dividends on preferred stock
for (a)  adjustment of the  conversion  ratio for  $11,366,022  for exercises of
stock options and  warrants;  (b) $949,365 in  cumulative  undeclared  preferred
stock dividends;  and (c) $219,943 of periodic non-cash  accretions of preferred
stock.

The year ended June 30, 1998 includes the impact of dividends on preferred stock
for (a) a non-cash,  non-recurring  beneficial conversion feature of $3,214,400;
(b) $152,512 from  adjustment of the conversion  ratio for certain  issuances of
common  stock  and  exercises  of stock  options;  (c)  $464,816  in  cumulative
undeclared  dividends;  and (d)  $112,274 of  periodic  non-cash  accretions  on
preferred stock.

Employee Stock-Based Compensation:

The  accompanying  financial  position and results of operations for the Company
have been prepared in accordance with APB Opinion No. 25,  "Accounting for Stock
Issued  to  Employees"  ("APB  No.  25").  Under  APB  No.  25,  generally,   no
compensation  expense is recognized  in the  financial  statements in connection
with the awarding of stock option grants to employees  provided  that, as of the
grant date,  the number of shares and the exercise  price of the award are fixed
and the fair value of the Company's  stock, as of the grant date, is equal to or
less than the amount an employee must pay to acquire the stock as defined.

The Company has elected the disclosure only provisions of Statement of Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
123").  Pro forma  operating  results had the  Company  prepared  its  financial
statements in accordance with the  fair-value-based  method of accounting  under
SFAS 123 have been included in Note 15.

Comprehensive Income:

The Company adopted SFAS No. 130, "Reporting  Comprehensive Income" ("SFAS 130")
during the current fiscal year. SFAS 130 establishes standards for the reporting
and display of comprehensive income and its components. The Company has no items
of other comprehensive income in any period presented.

Summary of Recent Accounting Pronouncements:

In March 2000, the Financial  Accounting  Standards Board issued  Interpretation
No. 44, "Accounting for Certain  Transactions  Involving Stock Compensation,  an
interpretation  of APB Opinion  No. 25" (FIN 44).  The  interpretation  provides
guidance for certain issues relating to stock compensation  involving  employees
that arose in applying Opinion 25. Among other issues,  FIN No. 44 clarifies (a)
the  definition  of an employee  for  purposes  of applying  Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock  option or award,  and (d) the  accounting  for an exchange of stock
compensation awards in a business combination.  The provisions of FIN No. 44 are
effective July 1, 2000,  except for the provisions  regarding  modifications  to
fixed stock option  awards which  reduce the exercise  price of an award,  which
apply to  modifications  made after  December  15,  1998.  Provisions  regarding
modifications  to fixed  stock  option  awards to add reload  features  apply to
modifications  made after January 12, 2000.  The Company  believes that it is in
compliance with this guidance.

In December 1999, the staff of the  Securities and Exchange  Commission  ("SEC")
issued  Staff  Accounting  Bulletin No. 101  "Revenue  Recognition  in Financial
Statements" (SAB 101). SAB 101 summarizes some of the staff's interpretations of
the  application  of  generally  accepted   accounting   principles  to  revenue
recognition,  including  presentation  in the  financial  statements.  The staff
provided  guidance  due,  in part,  to the large  number of  revenue-recognition
issues that it has  encountered in registrant  filings.  In June 2000,  SAB101B,
"Second Amendment:  Revenue  Recognition in Financial  Statements",  was issued,
which  defers  the  effective  date of SAB 101  until no later  than the  fourth
quarter of fiscal  years  beginning  after  December  15,  1999.  The Company is
currently  evaluating  the  impact  that  SAB 101  will  have on it's  financial
statements and will adopt SAB 101 in fiscal 2001.

In June,  1998, the Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative  Instruments and Hedging  Activities"("SFAS No. 133").
This statement  established  accounting  and reporting  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,   and  for  hedging  activities.   It  requires  recognition  of  all
derivatives as either assets or liabilities on the balance sheet and measurement
of those  instruments  at fair value.  In June 1999,  the  Financial  Accounting
Standards Board issued SFAS No. 137 delaying the effective date of SFAS No. 133.
The  provisions  of SFAS No. 133 are  effective  for all fiscal  quarters of all
fiscal years  beginning after June 15, 2000. The effect of adopting SFAS No. 133
is not  expected to have any impact on the Company as it current does not engage
in derivative or hedging activities.

Fair Value of Financial Instruments:

The carrying  amounts of the Company's  financial  instruments,  including cash,
accounts receivable, accounts payable and accrued liabilities,  approximate fair
value because of their short  maturities.  The carrying  amount of the Company's
lines  of  credit  and  long  term  debt  approximates  the  fair  value of such
instruments  based upon  management's best estimate of interest rates that would
be available to the Company for similar debt  obligations at June 30, 2000, 1999
and 1998.


Reclassifications:

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform with the current year's presentation.


3.   ACQUISITIONS

Grizzard Communications Group, Inc:

On March 22, 2000, the Company acquired all of the outstanding  capital stock of
Grizzard Advertising, Inc. and its subsidiaries, ("Grizzard"). Grizzard operates
a vertically  integrated network of marketing  communications  companies.  Total
cost of the acquisition  was $104.0 million  consisting of $47.8 million cash, a
$5 million  Letter of Credit for certain hold back  provisions,  an aggregate of
2,545,799  shares  of  common  stock of MSGi,  valued  at  $19.04  per share and
acquisition costs in the amount of $2.7 million.  A portion of the cash purchase
price was financed  through a $58 million senior secured  credit  facility.  See
Note 12.  The  purchase  price has been  allocated  to the assets  acquired  and
liabilities assumed based on their estimated fair value as follows:

     Working deficit               $(9,902,262)
     Property and equipment         16,631,724
     Intangible assets              97,302,953
                                    ----------
                                  $104,032,415
                                  ============

Coolidge:

On March 31, 2000, the Company acquired all of the outstanding  common shares of
The  Coolidge  Company  ("Coolidge").  The  total  cost of the  acquisition  was
$1,632,379,  consisting of $207,946 of cash and a $538,715 note payable,  22,251
shares of common  stock  valued at $16.42  per share and  transaction  and other
costs of $51,356.

     Working capital               $295,843
     Property and equipment          19,095
     Intangible assets            1,317,441
                                  ---------
                                 $1,632,379
                                 ==========

CMG Direct Corporation:

On May 13, 1999,  MSGi  acquired  all of the  outstanding  capital  stock of CMG
Direct  Corporation,  a wholly-owned  subsidiary of CMGI, Inc. Total cost of the
acquisition  was  $33,029,237  which  included  $13,464,857  in  cash,  net of a
purchase price  adjustment of $371,992  received in fiscal 2000, an aggregate of
2,321,084  shares of common stock of MSGi valued at $19,334,621  and acquisition
costs of $229,759.  The cost of the acquisition has been allocated to the assets
acquired  and  liabilities  assumed,  based on their  estimated  fair value,  as
follows:

              Working capital                       $39,274
              Property and equipment                433,063
              Intangible assets                  32,556,900
                                                 ----------
                                                $33,029,237
                                                ===========

CMG Direct  provides  database  services to the direct  marketing  and  internet
industries.  PermissionPlus,  a Web  application  developed  by CMGD Direct that
enables  companies  to  automate  Web site  customer  acquisition  and  increase
customer lifetime value, was included in discontinued operations (see Note 18).

Stevens-Knox & Associates:

Effective  January  1, 1999,  MSGi  acquired  all of the issued and  outstanding
capital stock (the "Shares") of Stevens-Knox and Associates,  Inc., Stevens-Knox
List Brokerage, Inc. and Stevens-Knox International, Inc. (collectively "SK&A").
The total cost of the acquisition was $3,890,222,  consisting of $3,254,417 cash
purchase  price , assumption  and payment of notes and loans payable of $385,445
and  transaction  and other costs of $250,360.  The cost of the  acquisition has
been allocated to the assets acquired and  liabilities  assumed based upon their
estimated fair values, as follows:

                  Working deficit          $(1,647,833)
                  Property and equipment        78,115
                  Other assets                  63,725
                  Other liabilities         (1,302,194)
                  Intangible assets          6,698,409
                                            ----------
                                            $3,890,222
                                            ==========

The agreement  includes a contingent payment of up to $1,000,000 a year for each
of the next three fiscal years,  adjustable  forward to apply to the next fiscal
year if no  contingent  payment  is due for one  such  year.  The  payments  are
contingent upon (a) SK&A meeting targeted earnings before interest and taxes and
(b) certain targeted billings of MSGi  subsidiaries and affiliates,  as defined.
No amounts have been earned under the agreement.  SK&A provides list management,
brokerage and database management services.

These  acquisitions  have  been  accounted  for  using  the  purchase  method of
accounting.  Accordingly,  the  operating  results  of  these  acquisitions  are
included  in the  results  of  operations  from  the  date of  acquisition.  The
following  summary pro forma  information  presents the consolidated  results of
operations  of MSGi as if,  Grizzard,  Coolidge,  CMG  Direct,  and  SKA,  after
including  the  impact  of  certain   adjustments,   such  as   amortization  of
intangibles, adjustments in salaries and increased interest on acquisition debt,
had been  acquired as of the  beginning  of fiscal year 1999.  The summary  also
includes the  conversion of the redeemable  preferred  stock (see Note 14) as if
the conversion occurred prior to July 1, 1998.

                                                  Supplemental
                                              Pro forma information
                                           For the year ended June 30,
                                                    Unaudited

                                               2000             1999
                                               ----             ----
            Revenues                       $195,181,000     $195,128,000
            Loss from continuing
              operations                   $(39,602,000)    $(11,051,000)
            Net Loss per common share
              Continuing operations,
              Basic and diluted               $(1.39)          $(.54)
                                              =======          ======

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 operations of the consolidated entities.


4.     DISPOSITION OF SUBSIDIARY

In May 1998, the Company formed Metro  Fulfillment,  Inc, ("MFI"),  an operating
subsidiary   providing  on-line   commerce,   real-time   database   management,
inbound/outbound  customer  service,  custom  packaging,   assembling,   product
warehousing, shipping, payment processing and retail distribution.

Effective  March 1, 1999,  the  Company  sold 85% of the issued and  outstanding
common stock of MFI for $1,260,000  consisting of a cash payment of $100,000 and
a promissory  note of $1,160,000.  The promissory note is payable in nine annual
installments  and  bears  interest  at prime  plus 1%.  The note  receivable  is
collateralized  by certain  stock  options  held by the  purchaser  of MFI.  The
transaction  resulted in an immaterial  gain.  The purchaser of MFI has retained
the right to acquire the remaining shares under the same terms and conditions as
the original agreement.

In  September  1999,  the  purchaser  elected to acquire the  remaining  15% for
$222,353 which  consisted of a promissory  note. The note is payable  $22,235 on
October 1, 1999 and the  remainder in nine equal annual  installments  and bears
interest  at prime plus 1%. The note  receivable  is  collateralized  by certain
stock options held by the purchaser.


5.     INTERNET INVESTMENTS

In July 1999,  the Company  invested  $1.6  million to acquire a 10% interest in
Screenzone Media Network,  LLC  ("Screenzone").  Screenzone is a new interactive
broadcast  gateway that was  developed to advertise and promote  movies,  music,
live events and other entertainment at shopping malls and over the Internet.  In
June 2000,  the Company  believed that the carrying  value of its investment was
impaired and wrote off its investment in Screenzone.

In  October  1999,  the  Company  acquired   approximately  a  10%  interest  in
Mazescape.com  for  $.2  million.   Mazescape.com  is  an  innovative   Internet
technology company that delivers  customized,  automated recruiting software and
services that improve the performance of corporate recruiters. In June 2000, the
Company  believed  that the carrying  value of its  investment  was impaired and
wrote off its investment.

In September 1999, the Company  completed an investment of $5 million to acquire
convertible  preferred stock of GreaterGood.com.  The Company owns approximately
11%  of the  outstanding  shares  of  GreaterGood.com.  GreaterGood.com  builds,
co-markets and manages online shopping villages for not-for-profit  organization
web sites.  In June 2000,  the Company  believed that the carrying  value of its
investment was impaired and wrote off its investment in Greatergood.com.

In December 1999, the Company acquired a 10% interest in Fusion  Networks,  Inc.
for $27.5 million in common  stock.  Fusion  Networks  became a public entity in
April 2000. Fusion Networks, Inc. operates the website www.latinfusion.com.  The
website is an  interactive,  multimedia and  entertainment  Latin American based
portal featuring television,  music and e-commerce  capabilities.  In June 2000,
the Company wrote its investment in Fusion Networks down by approximately  $20.3
million to the fair value as determined  by the quoted market price.  The charge
was  recorded  through  the  statement  of  operations  due to the fact that the
Company believes the impairment in market value is other than temporary.

As  detailed   above,   the  Company  has  taken  a  fourth  quarter  charge  of
approximately  $27 million for unrealized  losses on Internet  investments  made
during the fiscal year based on all available information.  The Company believes
such losses are a result of  significant  changes in Wall Street  valuations  of
Internet stocks. The Company has suspended its Internet  investment strategy and
will  focus  all  efforts  on the  profitability  of its core  direct  marketing
operations.


6. PROPERTY, PLANT AND EQUIPMENT:

Property,  plant  and  equipment  at June  30,  2000  and  1999  consist  of the
following:
                                                  2000              1999
                                                  ----              ----
     Land, building and improvements           $7,355,082        $       -
     Office furniture and equipment            11,466,068        2,048,252
     Assets under capital leases                1,066,194          342,590
     Leasehold improvements                     1,797,587          355,502
     Construction in progress                           -           84,492
                                                ---------       ----------
                                               21,684,931        2,830,836
     Less accumulated depreciation and
       Amortization                            (2,994,453)      (1,326,010)
                                                ---------        ---------
                                              $18,690,478      $ 1,504,826
                                              ===========      ===========

Assets under capital leases as of June 30, 2000 and 1999,  consist  primarily of
computer  and  related  equipment.  Accumulated  amortization  for  such  assets
amounted to $602,900 and $260,399 as of June 30, 2000 and 1999, respectively.


7.    INTANGIBLE ASSETS:

Intangible assets at June 30, 2000 and 1999, consist of the following:

                                    Lives                2000           1999
                                    -----                ----           ----
Covenants not to compete            5 years          1,650,000      $ 1,650,000
Capitalized software                3-7 years        9,197,974          350,000
Customer base                       15-20 years     25,578,125        3,361,573
List databases                      3-10 years         966,748          966,748
Assembled workforce                 5 years          3,337,953          472,184
Present value of favorable lease    53 months        1,187,982          347,920
Goodwill                            10-40 years    120,124,615       53,655,970
                                                    ----------       ----------
                                                   162,043,397       60,804,395
Less accumulated amortization                       (8,027,324)      (3,826,446)
                                                    -----------      -----------
                                                  $154,016,073      $56,977,949

The  increase  in  intangible  assets  during  2000  was  due to the  identified
intangible  assets and costs in excess of net assets  acquired in  Grizzard  and
Coolidge. The increase in intangible assets during 1999 was due primarily to the
identified  intangible  assets and costs in excess of net assets acquired in the
SK&A and CMG Direct acquisitions.

As of June 30, 2000 and 1999 the unamortized balance of capitalized software was
$8,601,808  and $205,833,  respectively.  Amortization  expense for software was
$380,740 and $56,667 and $50,000 for the years end June 30, 2000,  1999 and 1998
respectively.


8.      INVENTORIES:

Inventory consists of the following at June 30, 2000:

                                       2000
                                       ----
      Work in process              $4,076,417
      Raw materials and supplies      497,629
                                    ---------
                Total              $4,574,046
                                   ==========

9.     SHORT TERM BORROWINGS:

Certain of the Company's  subsidiaries have renewable two-year credit facilities
with a lender  for lines of credit  aggregating  $4,500,000,  collateralized  by
certain tangible assets of the Company.  Borrowings are limited to the lesser of
the maximum  availability or a percentage of eligible  receivables.  Interest is
payable monthly at the Chase Manhattan  reference rate (9.5 % and 8 1/2% at June
30,  2000 and June 30,  1999,  respectively)  plus 1 1/2% with a minimum  annual
interest  requirement of $155,000.  The facility requires an annual fee of 1% of
the  maximum  available  line and has  tangible  net worth and  working  capital
covenants.  As of June 30,  2000,  the Company was in  violation  of certain net
worth  covenants and had received the  applicable  waivers of violation from the
lendor.

A certain subsidiary has a revolving credit facility with a bank for $13,000,000
which expires in March 2005. Borrowings are limited to the lesser of the maximum
availability  or a  percentage  of  eligible  receivables.  Interest  is payable
quarterly at either prime rate or LIBOR plus an applicable  margin  ranging from
1.5% to 2.5%, for prime and 2.5% to 3.5% for LIBOR based on a financial ratio.
See Note 12.

As of June 30,  2000,  there was an  aggregate  of  approximately  $4.2  million
available under all lines of credit.


10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses as of June 30, 2000 and 1999 consisted of the following:

                                                       2000             1999
                                                       ----             ----

              Salaries and benefits                 $2,512,158       $1,134,987
              Severance cost                           157,814        1,000,000
              Stock option withholding taxes                 -        2,977,088
              Other                                  6,861,756        3,039,689
                                                     ---------        ---------
              Total                                 $9,531,728       $8,151,764
                                                    ==========       ==========


11.     RELATED PARTY TRANSACTIONS:

During  July and  August  1999,  the  Company  entered  into a  promissory  note
agreement with a venture fund in the amount of $4,500,000. The principal and all
accrued  interest was payable in full on December 10, 1999 and bore  interest at
the  greater of 10% or prime plus 2%. An officer of the  Company is a partner in
the venture fund. The principal  amount and all accrued  interest was prepaid in
September 1999 with proceeds of a private placement. (See Note 15).

In  connection  with  the  acquisition  of  CMGD,  the  Company  entered  into a
promissory note agreement with GE Capital in the amount of $10,000,000. The note
was payable in full on November 17, 1999 and accrues  interest at 12% per annum.
Interest  was  payable in arrears on August 17, 1999 and on the  maturity  date.
Concurrent  with  issuance of the  promissory  note,  the  original  outstanding
warrant which was issued in connection with GE Capital's  purchase of redeemable
convertible preferred stock was amended (See Note 14).

The Company recorded the GE Capital promissory note at a discount of $342,000 to
reflect an  allocation  of the  proceeds to the  estimated  value of the amended
warrant.  The  discount  is being  amortized  into  interest  expense  using the
interest method over the term of the debt. Approximately $256,500 and $85,500 of
such discount was included as interest  expense for the year ended June 30, 2000
and 1999, respectively.

In August 1999,  the GE Capital note was amended to extend the maturity  date to
October 15, 2000 with  interest to be paid  quarterly  and  provided for certain
increases  in  the  interest  rate  based  on the  time  the  principal  remains
outstanding. In addition, in the event the Company completed a private placement
as defined on or before  December  20,  1999 the  maturity  date was  subject to
acceleration.  During September 1999, the Company  completed a private placement
of common stock for net proceeds of  approximately  $30.8 million (See Note 15).
In accordance  with the  amendment,  $5,000,000,  was  immediately  paid and the
remaining balance, included in current liabilities,  was due and paid on July 1,
2000.  As of  June  30,  2000  GE  Capital  owned  approximately  14.5%  of  the
outstanding common stock of the Company.

In December 1998, MSGi loaned an officer of the Company  $100,000  pursuant to a
promissory  note.  The note bore  interest at the rate  earned on the  Company's
money market fund. Principal and interest were payable in full in a lump sum. In
April 1999, the promissory note, including accrued interest was repaid.

A member of the Board of  Directors,  is a partner in a law firm which  provides
legal services for which the Company incurred expenses aggregating approximately
$1,272,000,   $94,000  and  $176,000   during   fiscal  2000,   1999  and  1998,
respectively.


12.     LONG TERM OBLIGATIONS:

Long term obligations as of June 30, 2000 and 1999 consist of the following:

                                                      2000               1999
                                                      ----               ----
         Promissory notes payable - maturity
            October 1999 (a)                              -            $233,333

         Promissory notes payable - maturity
            January 2004 (b)                        997,876           1,242,585

         Promissory notes payable - maturity
            March 2000 (c)                           23,305              92,625

         Promissory note payable - maturity
            July 25, 2000 (d)                       362,500                   -

         Term loan payable - maturity
             March 2005 (e)                      40,000,000                   -

         Contingent purchase price for
            Grizzard acquisition                  5,000,000                   -
                                                  ---------             -------

         Total debt                              46,383,681           1,568,543
         Less:  Current portion of
                long-term debt                   (6,199,820)           (570,653)
         Discount on notes payable to bank       (4,570,667)                  -
                                                  ----------            -------

         Long-term debt                         $35,613,194            $997,890
                                                ===========            ========

(a)  In connection with the acquisition of SD&A, the Company incurred promissory
     notes  payable  to former  shareholders,  payable  monthly  at 8%  interest
     through October 1999.

(b)  In connection with the acquisition of SK&A, the Company incurred promissory
     notes payable to former  shareholders,  payable  monthly at 5.59%  interest
     through January 2004.

(c)  In connection with the acquisition of SK&A, the Company incurred promissory
     notes  payable to former  shareholders,  payable  monthly  at 12%  interest
     through March 2000.

(d)  In  connection  with the  acquisition  of  Coolidge,  the Company  incurred
     promissory  note payable to a former  shareholder,  payable  monthly at 10%
     interest through July 25, 2000.

(e)  In March 2000,  the Company  entered into a credit  agreement  (the "Credit
     Agreement") with a $58,000,000 senior secured facility.

     The Credit  Agreement  is  comprised  of a $13  million  revolving  line of
     credit,  $40 million term loan and $5 million standby letter of credit. The
     Credit Agreement expires on March 31, 2005 and bears interest at prime rate
     or LIBOR plus an applicable margin ranging from 1.5% to 2.5%, for prime and
     2.5% to 3.5% for LIBOR based on a financial ratio. The term loan is payable
     in quarterly installments through March 2005. The loans are collaterialized
     by substantially all of the assets of the Company and are guaranteed by all
     of the Company's non-internet subsidiaries. The revolving line of credit is
     classified  under short term  borrowings (See Note 9). As of June 30, 2000,
     the interest rates were 11.5% for borrowings under the prime rate and 10.4%
     for borrowings under LIBOR.

     In connection  with the Credit  Agreement,  the Company issued a warrant to
     purchase  298,541 shares of the Company's common stock at an exercise price
     of $.01 per share.  The $40 million term loan was recorded at a discount of
     approximately  $5 million to reflect an  allocation  of the proceeds to the
     estimated value of the warrant and is being  amortized as interest  expense
     over  the  life of the  loan  using  the  interest  method  of  accounting.
     Approximately  $453,000 was recorded as interest expense for the year ended
     June 30, 2000.

     Under the  terms of the  Credit  Agreement,  the  Company  is  required  to
     maintain certain  financial  covenants  related to consolidated  EBITDA and
     consolidated debt to capital, among others.


13.     COMMITMENTS AND CONTINGENCIES:

Leases:   The  Company  leases   various   office  space  and  equipment   under
non-cancelable  long-term  leases.  The Company  incurs all costs of  insurance,
maintenance and utilities.

Future minimum rental  commitments under all  non-cancelable  leases, as of June
30, 2000 are as follows:
                                Operating Leases         Capital Leases
                                ----------------         --------------
                  2001              $5,802,392              $256,499
                  2002               5,244,574               202,013
                  2003               4,352,684               170,107
                  2004               3,667,107               122,015
                  2005               3,273,090                 7,548
                  Thereafter         8,896,016                71,931
                                     ---------                ------
                                   $31,235,863               830,113
                                   ===========
Less interest                                                (52,564)
Present value of capital lease                               -------
   obligation                                               $777,549
                                                            ========

Rent  expense was  approximately  $2,921,739,  $840,000,  and $646,00 for fiscal
years ended 2000, 1999, and1998 respectively.

Contingencies:   In  June  1999,   certain   employees  of  SD&A  voted  against
representation by the International  Longshore and Warehouse Union ("ILWU"). The
ILWU has filed unfair labor  practices with the National Labor  Relations  Board
("NLRB")  alleging  that the Company  engaged in unlawful  conduct  prior to the
vote. The NLRB has issued a complaint  seeking a bargaining order and injunctive
relief  compelling  the  Company to  recognize  and bargain  with the ILWU.  The
Company  intends to vigorously  defend  against these  charges.  An  unfavorable
finding will not have any direct financial impact on the Company.

Litigation:  In September,  1999, an action was commenced against the Company in
the Supreme Court of New York,  Kings County alleging damages of $4.3 million in
connection  with the  Company's  alleged  failure  to deliver  warrants  due the
plaintiff, in June 1996. Although the Company denied all liability, the suit was
settled in January 2000 in consideration for the issuance of warrants to acquire
18,000  shares of common stock of the Company at an exercise  price of $1.00 per
share. Accordingly, the Company recognized $315,000 of expense based on the fair
market value of the warrants  granted as determined by the Black Scholes  model.
The expense is included in selling general and  administrative  expenses for the
year ended June 30, 2000.

An employee of Metro Fulfillment,  Inc. ("MFI"),  which, until March 1999, was a
subsidiary of the Company,  filed a complaint in the Superior Court of the State
of California for the County of Los Angeles, Central District,  against MSGi and
current and former  officers  of MSGi.  The  complaint  seeks  compensatory  and
punitive  damages in  connection  with the  individual's  employment at MFI. The
Company  believes that the  allegations  in the complaint are without merit and,
the Company has asserted numerous  defenses,  including that the complaint fails
to state a claim  upon which  relief  can be  granted.  The  Company  intends to
vigorously  defend against the lawsuit.  An estimate of the possible loss cannot
be determined.

In addition to the above,  certain  other legal  actions in the normal course of
business  are  pending to which the  Company is a party.  The  Company  does not
expect  that the  ultimate  resolution  of  pending  legal  matters  will have a
material effect on the financial condition, results of operations or cash flows.


14.     PREFERRED STOCK:

On February  24,  2000 the Company  entered  into a private  placement  with RGC
International Investors LDC and Marshall Capital Management,  Inc., an affiliate
of Credit Suisse First Boston,  in which the Company sold an aggregate of 30,000
shares of Series E  Convertible  Preferred  Stock,  par value  $.01  ("Series  E
Preferred Stock"),  and warrants to acquire 1,471,074 shares of common stock for
proceeds  of  approximately  $29.5  million,  net of  approximately  $520,000 of
placement  fees and  expenses.  The  preferred  stock  provides for  liquidation
preference  under certain  circumstances  and accordingly has been classified in
the mezzanine  section of the balance sheet. The preferred stock has no dividend
requirements.

The Series E Preferred  Stock is  convertible  at any time at $24.473 per share,
subject to reset on August 18, 2000 if the market  price of our Common  Stock is
lower and subject to certain anti-dilution adjustments.  On August 18, 2000, the
conversion  price was reset to $12.24 per share,  the market price on that date.
The warrants are  exercisable  for a period of two years at an exercise price of
$28.551, subject to certain anti-dilution adjustments.

On December 24, 1997, the Company and General Electric Capital  Corporation ("GE
Capital")  entered into a stock purchase  agreement  (the "Purchase  Agreement")
providing  for the  purchase  by GE  Capital  of (i)  50,000  shares of Series D
redeemable  convertible  preferred  stock,  par  value  $0.01  per  share,  (the
"Convertible  Preferred Stock"), and (ii) a warrant to purchase up to 10,670,000
shares of Common Stock (the "Original  Warrant"),  all for an aggregate purchase
price of  $15,000,000.  The Convertible  Preferred  Stock was  convertible  into
shares  of  Common  Stock  at  a  conversion  rate,   subject  to  anti-dilution
adjustments. The Original Warrant is exercisable in November 2001 and is subject
to reduction or cancellation  based on the Company's  meeting certain  financial
goals set forth in the Original  Warrant or upon the  occurrence  of a qualified
secondary offering within a certain time period, as defined.

The  Company  recorded  the  Convertible   Preferred  Stock  at  a  discount  of
approximately  $1,362,000,  to  reflect an  allocation  of the  proceeds  to the
estimated  value of the Original  Warrant and was being  amortized as a dividend
using the interest method over the redemption period. Approximately $219,000 and
$112,000 of such  discount  has been  included as a dividend for the years ended
June 30,  1999 and 1998,  respectively.  In  addition,  the  Company  recorded a
non-cash,  non-recurring  deemed  dividend of $3,214,400 for the year ended June
30,  1998  representing  the  difference  between  the  conversion  price of the
Convertible  Preferred Stock and the fair market value of the common stock as of
the date of the agreement.

Dividends  were  cumulative  and  accrued  at  the  rate  of 6% per  annum.  The
convertible  preferred stock was  mandatorily  redeemable for $300 per share, if
not previously  converted,  on the sixth  anniversary of the original issue date
and was redeemable at the option of the holder upon the occurrence of an organic
change in the Company, as defined in the purchase agreement.

On April 21, 1999, the Company  exercised its right to convert all 50,000 shares
of  GE  Capital's   Series  D  redeemable   convertible   preferred  stock  into
approximately  4.8  million  shares of common  stock.  In  conjunction  with the
conversion,  all preferred  shareholder rights,  including quarterly  dividends,
financial  covenants,  acquisition  approvals  and board seats,  were  cancelled
effective immediately.

In May 1999, the Original Warrant was amended in connection with the issuance of
a promissory  note (See Note 11). Upon an  occurrence  of a Qualified  Secondary
Offering, as defined in the agreement, the Original Warrant was fixed at 200,000
shares  with an  exercise  price of $.01 per share.  The  amendment  changed the
amount and exercise  price per share to 300,000 shares with an exercise price of
one-third of the offering  price in a Qualified  Secondary  Offering.  In August
1999,  the  warrant  was  amended  a second  time to amend the  definition  of a
Qualified  Secondary  Offering  to include a  Qualified  Private  Placement,  as
defined,  and to  change  the  time  frame  for the  completion  of a  Qualified
Secondary  Offering or Private  Placement  from December 31, 1999 to on or after
December  20, 1999  through  April 30,  2000.  The  Company has not  completed a
Qualified  Secondary  Offering or Private Placement during the specified period,
accordingly the Original Warrant remains exercisable for up to 10,670,000 shares
subject to reduction or  cancellation  based on the  Company's  meeting  certain
financial goals for fiscal year 2001.


15.     COMMON STOCK, STOCK OPTIONS, AND WARRANTS:

Common Stock:  In September 1999, the Company  completed a private  placement of
3,130,586  shares of common stock for proceeds of  approximately  $30.5 million,
net of  approximately  $2.3 million of placement  fees and expenses.  The shares
have certain  registration  rights.  The proceeds of the private  placement were
used in connection  with the Company's  Internet  investments,  to repay certain
short-term debt and for working capital purposes.  The shares were registered on
October 29, 1999.

On September 23, 1998, the Company  announced its intention to acquire,  in open
market transactions, up to 1,000,000 shares of its Common Stock, par value, $.01
per share (the "Common Stock"), subject to and in compliance with the provisions
and limitations of Rule 10b-18 of the Securities Exchange Act of 1934. Purchases
were made from time to time at  prevailing  market  prices  during the  one-year
period  which  commenced  on  September  28,  1998.  The source of funds for the
purchase of the shares was the Company's general corporate funds, and all shares
purchased  are held in treasury.  During 1999,  the Company  bought back 412,094
shares at a cost of $1,258,241.

During fiscal years ended 1998 and 1997,  the Company  issued 139,178 and 96,748
shares of common stock,  respectively,  as additional  contingent purchase price
resulting from SD&A's  achievement  of defined  results of operations for fiscal
1997 and 1996.

Stock  Options:  The Company  maintains a  non-qualified  stock option plan (the
"1991 Plan") for key employees,  officers, directors and consultants to purchase
3,150,000  shares of common stock.  The Company also maintains a qualified stock
option plan (the "1999 Plan") for the issuance of up to an additional  3,000,000
shares of common stock under  qualified and  non-qualified  stock options.  Both
plans are administered by the  compensation  committee of 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 vesting of the options. In
no event shall an option expire more than ten years after the date of grant.

On November  16,  1998,  the  compensation  committee  of the Board of Directors
agreed to  reprice  certain  stock  options of  employees  of the  Company.  All
employee  stock options with an exercise  price greater than $3.11 were repriced
to $3.11. As a result, stock options in the amount of 950,458 were repriced.  On
November 16, 1998, the closing price of the Company's stock was $2.189.

The following  summarizes the stock option  transactions under the 1991 Plan for
the three years ended June 30, 2000:
                                           Number          Option Price
                                          of Shares          Per Share
                                          ---------          ---------

         Outstanding at June 30, 1997     1,586,747
         Granted                          1,302,100        $2.825 to $6.00
         Exercised                           (4,135)            $2.00
         Canceled                           (93,132)       $2.00 to $16.00
                                           --------
         Outstanding at June 30, 1998     2,791,580

         Granted                            379,200        $3.00 to $8.50
         Exercised                       (1,590,101)      $2.00 to $4.1875
         Canceled                           (20,626)       $2.00 to $3.00
                                           --------
         Outstanding at June 30, 1999     1,560,053

         Granted                                  -
         Excercised                        (235,282)       $2.00 to $5.00
         Canceled                           (17,479)       $2.00 to $3.11
                                           --------
         Outstanding at June 30, 2000     1,307,292

The following  summarizes the stock option  transactions under the 1999 Plan for
the years ended June, 30 1999 and June 30, 2000:

         Granted                            190,000        $5.17 to $8.50
                                            -------
         Outstanding at June 30, 1999       190,000
                                            =======

         Granted                          2,332,906       $1.54 to $15.125
         Excercised                               -
         Canceled                                 -
                                          ---------
         Outstanding at June 30, 2000     2,522,906
                                          =========

During  Fiscal  1999,  400,000  stock  options  were granted with a below market
exercise  price on the date of  employment  to a then  executive of the Company.
133,000  options vested  immediately  and the balance  ratably over the next two
years. The aggregate difference of $1,232,000 between the exercise price and the
market price on the date of grant has been recorded as deferred compensation and
included in stockholders'  equity. The deferred compensation was being amortized
into compensation expense over the vesting period of the options. In March 2000,
in connection  with a severance  agreement,  all options became fully vested and
the balance of  deferred  compensation  was  expensed.  The  Company  recognized
compensation expense of approximately  $444,000 in 1999.  Approximately $788,000
was recognized as  compensation  expense and included in loss from  discontinued
operations for the year ended June 30, 2000.

In addition to the 1991 and 1999 Plans,  the Company has option  agreements with
current  and  former  officers  and  employees  of the  Company.  The  following
summarizes transactions for the three years ended June 30, 2000:

                                                Number       Option Price
                                               of Shares       Per Share
                                               ---------       ---------

         Outstanding at June 30, 1997          1,002,250
         Canceled                                 (2,250)        $16.00
                                                 -------
         Outstanding at June 30, 1998          1,000,000
         Granted                                 400,000          $5.17
                                               ---------
         Outstanding at June 30, 1999          1,400,000
                                               =========

         Granted                                 375,000          $4.4375
         Exercised                              (240,000)          $5.17
                                                --------
         Outstanding at June 30, 2000          1,535,000
                                               =========


As of June 30, 2000,  2,349,191  options are  exercisable.  The weighted average
exercise  price of all  outstanding  options is $4.84 and the  weighted  average
remaining  contractual  life is 6.04 years.  Except as noted above,  all options
granted in fiscal years 2000, 1999 and 1998 were issued at fair market value. At
June 30, 2000, 477,094 options were available for grant.

Had the Company determined compensation cost based on the fair value methodology
of SFAS 123 at the grant  date for its stock  options,  the  Company's  loss and
earnings per share from  continuing  operations  would have been adjusted to the
pro forma amounts indicated below:

                                                   Years ended June 30,
                                           ---------------------------------
                                           2000           1999          1998
                                           ----           ----          ----
Loss from continuing
  operations            as reported   $(41,130,223)  $(7,645,603)    $(780,478)
                        pro forma     $(46,731,147)  $(9,913,855)  $(2,798,152)

Net loss
 attributable to
 common stockholders    as reported   $(41,130,223)  $(20,180,933)  $(4,724,480)
                        pro forma     $(46,731,147)  $(22,449,185)  $(6,742,154)

Earnings per share      as reported       $(1.55)       $(1.39)        $(.37)
                        pro forma         $(1.76)       $(1.54)        $(.52)

Pro forma net loss  reflects  only options  granted in fiscal 1996 through 2000.
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, has not been 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 vesting plus two
years,  expected  volatility of 90%, no dividend yield and a risk-free  interest
rate ranging from 4.5% to 6%.

As of June 30, 2000, the Company has 1,801,365 warrants  outstanding to purchase
shares of common stock at prices  ranging from $0.01 to $8.00.  All  outstanding
warrants are currently exercisable.


16.    INCOME TAXES:
                                                            As of June 30,
                                                            --------------
                                                          2000          1999
                                                          ----          ----
        Deferred tax assets:
           Net operating loss carryforwards:
             Continuing operations                   $36,082,076    $21,909,217
             Discontinued operations                   7,948,549              -
           Compensation on option grants               3,486,775        150,928
           Unrealized loss on investments             11,659,420              -
           Other                                               -        352,415
                                                      ----------     ----------
              Total assets                            59,176,820     22,412,560

        Deferred tax liabilities:
           Amortization of intangible assets         (15,114,470)             -
           Other                                        (982,478)             -
                                                      ----------     ----------
              Total liabilities                      (16,096,948)             -
                                                      ----------     ----------

        Net deferred tax assets                       43,079,872     22,412,560
        Valuation allowance                          (43,079,872)   (22,412,560)
                                                     -----------    -----------
        Net deferred tax assets                      $         -    $         -
                                                     ===========    ===========


The Company has a net operating loss  carryforward of approximately  $84,700,000
available  which expires from 2010 through  2020.  Of these net  operating  loss
carryforwards  approximately  $50 million is the result of  windfall  deductions
related to the exercise of non-qualified stock options. The realization of these
net operating loss carryforwards would result in a credit to equity.  These loss
carryforwards are subject to annual limitations.


17.     EMPLOYEE RETIREMENT SAVINGS PLAN (401K):

Certain  subsidiaries  sponsor tax deferred  retirement  savings plans  ("401(k)
plans") which permit  eligible  employees to contribute  varying  percentages of
their  compensation  up to the  annual  limit  allowed by the  Internal  Revenue
Service.

Certain  subsidiaries  match employees'  contributions to a maximum of 2% of the
employee's salary.  Matching  contributions  charged to expense were $274,951, $
63,523 and $48,822  for the fiscal  years  ended June 30,  2000,  1999 and 1998,
respectively.

Certain  subsidiaries  also  provide for  discretionary  company  contributions.
Discretionary contributions charged to expense for the fiscal years end June 30,
2000, 1999 and 1998 were $64,024, $63,391 and $24,959, respectively.


18.     DISCONTINUED OPERATIONS:

On October 1, 1999, the Company completed an acquisition of approximately 87% of
the  outstanding  common  stock of  Cambridge  Intelligence  Agency  for a total
purchase  price of $2.4 million which  consisted of $1.6 million in common stock
of the Company and an interest in the  Company's  Permission  Plus  software and
related  operations  valued at $.8  million,  subject  to  certain  adjustments.
Concurrently with this acquisition,  the Company formed WiredEmpire,  a licensor
of email marketing tools. Effective with the acquisition, Cambridge Intelligence
Agency and the  Permission  Plus asset was merged into  WiredEmpire.  In January
2000,  the  Company  contributed  its  Pegasus  subsidiary  to  WiredEmpire  for
additional shares of common stock.

In March 2000, the Company  completed a private placement of 3,120,001 shares of
Convertible  Preferred  Stock of its  WiredEmpire  subsidiary  for  proceeds  of
approximately $18.7 million, net of placement fees and expenses of $1.3 million.
In connection with the  discontinued  operation of WiredEmpire,  the Company has
offered to redeem the preferred  shares in exchange for MSGi common shares.  The
redemption is expected to occur in the second quarter of fiscal year 2001.

On  September  21, 2000,  the  Company's  Board of Directors  approved a plan to
discontinue the operation of its WiredEmpire  subsidiary.  The Company will shut
down the operations  anticipated to be completed by the end of January 2001. The
estimated  losses  associated with  WiredEmpire are  approximately  $35 million.
These losses for WiredEmpire  include  approximately  $20 million in losses from
operations through the measurement date and approximately $15 million of loss on
disposal which includes  approximately $2 million in losses from operations from
the  measurement  date through the estimated date of disposal.  It also includes
provisions  for  vested  compensation  expense,  write  down  of  assets  to net
realizable value, lease termination  costs,  employee severance and benefits and
other contractual commitments.

The assets and liabilities of WiredEmpire have been separately classified on the
consolidated  balance  sheets  as  "Net   assets(liabilities)   of  discontinued
operations." A summary of these assets and liabilities at June 30, 2000 and 1999
were as follows:

                                                    2000               1999
                                                    ----               ----

     Current assets                              $9,970,510                 -
     Non current assets                             606,086         5,516,000
     Current liabilities                        (10,193,618)                -
     Preferred stock                            (18,729,699)                -
     Net assets (liabilities) of                 ----------         ---------
       discontinued operations                 $(18,346,721)       $5,516,000
                                                 ==========         =========

In connection with the discontinued  operations of WiredEmpire,  the Company has
offered to redeem the preferred  shares in exchange for MSGi common shares.  The
redemption is expected to occur in the second  quarter of fiscal year 2001.  The
liability of $18.7 million for the preferred  shareholders is currently included
in the net liability of discontinued  operations and it is anticipated that this
will be settled in MSGi stock.




19. SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:

For the year ended June 30, 2000:

o    Capital  lease  obligations  of $708,510  were  incurred for the leasing of
     certain equipment.

o    The Company sold its 15% minority interest in Metro Fulfillment, Inc. for a
     Note Receivable in the amount of $222,353.

o    In  addition,  there  were  certain  non-cash  transactions  related to the
     acquisitions of Grizzard,  Coolidge and the investment in Fusion  Networks,
     Inc. (See footnotes 3 and 5).

For the year ended June 30, 1999:

o    The Company recorded the following non-cash preferred  dividends as of June
     30, 1999: (a) $11,366,022  adjustment of the conversion ratio for exercises
     of stock options and warrants; (b)$949,365 cumulative undeclared dividends;
     and (d) $219,943 of periodic,  non-cash  accretions on preferred  stock. On
     April 21,  1999,  the  Company  exercised  its right to convert  all 50,000
     shares of  General  Electric  Capital  Corporation's  Series D  Convertible
     Preferred Stock into  approximately  4.8 million shares of common stock. In
     conjunction  with  the  conversion,   all  preferred   shareholder  rights,
     including quarterly dividends,  financial covenants,  acquisition approvals
     and board seats were cancelled.

o    Convertible  debt and accrued interest with an aggregate amount of $558,765
     was converted into 224,000 shares of common stock.

o    Capital  lease  obligations  of $47,934  were  incurred  for the leasing of
     certain  equipment.  o The Company  sold 85% of the issued and  outstanding
     common stock of MFI for $1,260,000 consisting of a cash payment of $100,000
     and a promissory note of $1,160,000.

o    145,000  outstanding  warrants were converted into 116,406 shares of common
     stock in a cashless exercise.

For the year ended June 30, 1998:

o  As a result of the sale of  $15,000,000 of redeemable  convertible  preferred
   stock and  warrants  to  General  Electric  Capital  Corporation,  more fully
   described  in Note 12,  the  Company  has  recorded  the  following  non-cash
   preferred   dividends  as  of  June  30,  1998:  (a)   $3,214,400   non-cash,
   non-recurring  beneficial  conversion feature; (b) $152,512 adjustment of the
   conversion ratio for certain issuances of common stock and exercises of stock
   options; (c) $464,816 cumulative  undeclared  dividends;  and (d) $112,274 of
   period, non-cash accretions on preferred stock.

o  Convertible debt and accrued  interest with an aggregate  principal amount of
   $1,700,000  was converted  into 694,411  shares of common stock.  Unamortized
   deferred  financing costs relating to the  convertible  debt in the amount of
   $99,857 were written off to paid in capital upon conversion.
o  Capital  lease  obligations  of  $142,231  were  incurred  for the leasing of
   certain equipment and automobiles.

o  Property and equipment in the amount of $626,356  were  acquired  through the
   foreclosure on a note receivable.

o  The Company issued 139,178 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,  1997.  The  Company  increased
   intangible  assets by $780,000 and $91,112 due to an earn-out payment paid to
   the former owner of SD&A for the achievement of defined results of operations
   for the fiscal year ended June 30, 1998 and 1997, respectively.

Supplemental disclosures of cash flow data:

                                                2000      1999        1998
                                                ----      ----        ----
   Cash paid during the year for:
     Interest                                1,510,937   $547,209   $ 439,264
     Financing charge                           90,741    $75,000  $1,101,719
     Income tax paid                            48,429   $162,107    $ 45,019


Supplemental  schedule of non cash investing and financing  activities o Details
of businesses acquired in purchase transactions:

                                            2000          1999         1998
                                            ----          ----         ----
Working capital deficit, other than
  cash acquired                          $11,627,717   $(1,527,513)   $(203,142)
Fair value of other assets acquired     $117,702,990   $39,830,212   $9,091,306
Liabilities assumed or incurred          $30,303,214    $1,302,194     $119,300
Fair value of stock issued for
  acquisitions                           $48,837,375   $19,334,621   $2,800,000

Cash paid for acquisitions
  (including related expenses)           $50,770,586   $17,956,830   $6,353,225
Cash acquired                               $580,468      $290,946     $384,361
Net cash paid for (provided by)           ----------    ----------    ---------
  acquisitions                           $50,190,118   $17,665,884   $5,968,864


20.   SEGMENT INFORMATION:

In accordance  with SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related  Information"  segment information is being reported consistent with
the  Company's  method  of  internal  reporting,   which  excludes  discontinued
operations  from the  segments.  In  accordance  with  SFAS No.  131,  operating
segments are defined as components of an enterprise for which separate financial
information  is  available  that is evaluated  regularly by the chief  operating
decision  maker  in  deciding  how  to  allocate   resources  and  in  assessing
performance.  MSGi is organized  primarily on the basis of products  broken down
into  separate  subsidiaries.  Based on the nature of the services  provided and
class of  customers,  as well as the similar  economic  characteristics,  MSGi's
subsidiaries have been aggregated.  The accounting  policies of the segments are
the  same as  those  described  in Note 2,  Summary  of  Significant  Accounting
Policies.  No single customer accounted for 10% or more of total revenues.  MSGi
earns 100% of its revenue in the United States.


   Supplemental product line information:
                                             2000         1999         1998
                                             ----         ----         ----
   List services                         $74,699,861   $56,201,456  $28,998,882
   Database/computer processing           16,371,657     8,389,500    4,643,024
   Telemarketing/telefundraising          15,204,985    15,210,562   16,505,516
   Marketing communications               20,458,691             -            -
   Internet                                1,720,076       946,973      618,084
   Other                                     151,612     1,493,403      408,557
                                             -------     ---------      -------
   Consolidated total                   $128,606,882   $82,241,894  $51,174,063
                                        ============   ===========  ===========
<PAGE>


                                                                   Schedule II


                         Marketing Services Group, Inc.
                        Valuation and Qualifying Accounts
                For the Years Ended June 30, 2000, 1999 and 1998


--------------------------------------------------------------------------------
Column A        Column B           Column C            Column D        Column E
--------------------------------------------------------------------------------
                                   Additions
                             -----------------------
               Balance at    Charged To   Charged To
Description    Beginning     Costs And      Other     Deductions-    Balance At
               Of Period     Expenses     Accounts-    Describe(1) End Of Period
                                           Describe
--------------------------------------------------------------------------------

Allowance for doubtful  accounts

Fiscal 2000    $551,043      $427,578   $1,642,442(2)   $333,206     2,287,857


Fiscal 1999    $421,861      $162,715    $361,3772(2)   $394,910      $551,043


Fiscal 1998     $32,329       $70,170    $319,3622(2)          -      $421,861


------------------

(1) Represents accounts written off during the period.

(2) Represents  allowance for doubtful  account  balance on the opening  balance
sheets for acquisitions made during the year.