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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20394
COACTIVE MARKETING GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1340408
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
415 Northern Boulevard
Great Neck, New York 11021
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 622-2800
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 30, 2002, 5,028,481 shares of the Registrant's Common Stock, par
value $.001 a share, were outstanding.
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INDEX
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COACTIVE MARKETING GROUP, INC. AND SUBSIDIARIES
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements of CoActive Marketing
Group, Inc. and Subsidiaries (Unaudited)
Consolidated Balance Sheets - September 30, 2002 and
March 31, 2002 3
Consolidated Statements of Operations - Three month and
six month periods ended September 30, 2002 and September 30, 2001 4
Consolidated Statement of Stockholders' Equity - Six month
period ended September 30, 2002 5
Consolidated Statements of Cash Flows - Six month periods ended
September 30, 2002 and September 30, 2001 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II - OTHER INFORMATION 13
- ---------------------------
Item 1, 2, 3 and 5. Not Applicable 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
- ----------
CERTIFICATIONS 15
- --------------
2
PART I - FINANCIAL INFORMATION
------------------------------
COACTIVE MARKETING GROUP, INC.
Consolidated Balance Sheets
September 30, 2002 and March 31, 2002
September 30, March 31,
2002 2002*
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,051,820 $ 1,959,617
Accounts receivable, net of allowance for doubtful accounts of
$90,000 at September 30, 2002 and $75,000 at March 31, 2002 10,954,290 10,077,770
Unbilled contracts in progress 2,402,357 3,160,372
Prepaid taxes 141,831 141,831
Prepaid expenses and other current assets 917,808 878,603
----------- -----------
Total current assets 15,468,106 16,218,193
Property and equipment, net 1,629,365 1,721,176
Investment in MarketVision 277,130 307,630
Note receivable from officer 550,000 613,000
Goodwill, net 18,491,196 17,491,196
Intangible asset 200,000 200,000
Deferred financing costs, net 137,239 189,029
Other assets 169,289 131,914
----------- -----------
Total assets $36,922,325 $36,872,138
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,032,740 $ 6,934,320
Deferred revenue 4,523,244 3,807,017
Accrued job costs 4,004,883 4,876,089
Accrued compensation 72,802 54,923
Other accrued liabilities 1,364,650 725,086
Deferred taxes payable 433,479 211,595
Notes payable bank - current 1,333,333 1,333,333
Subordinated notes payable - current 625,000 1,025,000
----------- -----------
Total current liabilities 19,390,131 18,967,363
Notes payable bank - long term 2,346,666 3,333,333
Deferred taxes payable 530,890 530,890
----------- -----------
Total liabilities 22,267,687 22,831,586
----------- -----------
Stockholders' equity:
Class A convertible preferred stock, par value -- --
$.001; authorized 650,000 shares; none issued and outstanding
Class B convertible preferred stock, par value -- --
$.001; authorized 700,000 shares; none issued and outstanding
Preferred stock, undesignated; authorized 3,650,000 shares; none -- --
issued and outstanding
Common stock, par value $.001; authorized 25,000,000 shares;
issued and outstanding 5,028,481 shares 5,028 5,028
Additional paid-in capital 6,744,598 6,744,598
Retained earnings 7,905,012 7,290,926
----------- -----------
Total stockholders' equity 14,654,638 14,040,552
----------- -----------
Total liabilities and stockholders' equity $36,922,325 $36,872,138
=========== ===========
* The consolidated balance sheet as of March 31, 2002 has been summarized from
the Company's audited balance sheet as of that date.
See accompanying notes to unaudited consolidated financial statements.
3
COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Operations
Three Month and Six Month Periods Ended September 30, 2002 and September 30, 2001
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001* 2002 2001*
----------- ----------- ----------- -----------
Sales $13,332,639 15,241,153 27,476,631 31,001,191
Direct expenses 9,969,486 11,271,917 21,198,153 23,399,049
----------- ----------- ----------- -----------
Gross Profit 3,363,153 3,969,236 6,278,478 7,602,142
----------- ----------- ----------- -----------
Salaries and payroll taxes 1,173,907 1,713,435 2,349,582 3,300,405
Selling, general and administrative expense 1,332,236 1,722,517 2,696,177 3,461,733
----------- ----------- ----------- -----------
Total operating expenses 2,506,143 3,435,952 5,045,759 6,762,138
----------- ----------- ----------- -----------
Operating income 857,010 533,284 1,232,719 840,004
Interest expense, net 91,484 120,410 158,375 275,461
Other income -- -- -- 88,966
----------- ----------- ----------- -----------
Income before provision for income taxes 765,526 412,874 1,074,344 653,509
Provision for income taxes 306,201 165,155 429,758 262,411
Equity in loss of affiliate 9,500 -- 30,500 --
----------- ----------- ----------- -----------
Net income 449,825 247,719 614,086 391,098
=========== =========== =========== ===========
Net income per common and common Equivalent share:
Basic $ .09 $ .05 $ .12 $ .08
=========== =========== =========== ===========
Diluted $ .08 $ .04 $ .11 $ .07
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding:
Basic 5,028,481 5,023,658 5,028,481 5,022,948
=========== =========== =========== ===========
Diluted 5,372,657 5,555,616 5,452,098 5,516,565
=========== =========== =========== ===========
Reconciliation of weighted average shares used for
basic and diluted computation is as follows:
Weighted average shares - Basic 5,028,481 5,023,658 5,028,481 5,022,948
Dilutive effect of options and warrants 344,176 531,958 423,617 493,617
----------- ----------- ----------- -----------
Weighted average shares - Diluted 5,372,657 5,555,616 5,452,098 5,516,565
=========== =========== =========== ===========
* Restated to reflect the adoption of EITF 01-14, Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses.
See accompanying notes to unaudited consolidated financial statements.
4
COACTIVE MARKETING GROUP, INC.
Consolidated Statement of Stockholders' Equity
Six Months Ended September 30, 2002
(Unaudited)
Common Stock
par value $.001 Additional Total
------------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2002 5,028,481 $ 5,028 $ 6,744,598 $ 7,290,926 $14,040,552
Net income -- -- -- 614,086 614,086
----------- ----------- ----------- ----------- -----------
Balance, September 30, 2002 5,028,481 $ 5,028 $ 6,744,598 $ 7,905,012 $14,654,638
=========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
5
COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Cash Flows
Six Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 614,086 $ 391,098
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for bad debt expense 15,000 54,000
Equity in loss of affiliate 30,500 --
Other -- (88,966)
Depreciation and amortization 335,980 934,399
Deferred tax benefit -- 35,586
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (891,520) 344,889
(Increase) decrease in unbilled contracts in progress 758,015 (1,512,344)
(Increase) decrease in notes receivable officers 63,000 (886,990)
(Increase) decrease in prepaid expenses and other assets (76,580) 120,362
Increase in accounts payable 98,420 965,621
Increase (decrease) in deferred revenue 716,227 (656,846)
Increase (decrease) in accrued job costs (871,206) 712,382
Increase in accrued taxes payable 221,884 179,705
Increase (decrease) in other accrued liabilities (360,436) 151,626
Increase in accrued compensation 17,879 162,392
----------- -----------
Net cash provided by operating activities 671,249 906,914
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (192,379) (190,507)
----------- -----------
Net cash used in investing activities (192,379) (190,507)
----------- -----------
Cash flows from financing activities:
Repayments of borrowings (1,386,667) (318,333)
Financing costs -- (226,381)
Decrease in advances to affiliates -- 266,897
Proceeds from exercise of stock options -- 7,200
----------- -----------
Net cash used in financing activities (1,386,667) (270,617)
----------- -----------
Net (decrease) increase in cash and cash equivalents (907,797) 445,790
Cash and cash equivalents at beginning of period 1,959,617 855,219
----------- -----------
Cash and cash equivalents at end of period $ 1,051,820 $ 1,301,009
=========== ===========
Supplemental disclosure:
Interest paid during the period $ 161,868 $ 207,942
=========== ===========
Income tax paid during the period $ 188,325 $ 47,000
=========== ===========
Supplemental disclosure of noncash activities:
Contingent earnout accrued relating to a prior acquisition $ 1,000,000 $ --
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
CoActive Marketing Group, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
September 30, 2002 and 2001
(1) Basis of Presentation
---------------------
The interim financial statements of CoActive Marketing Group, Inc. (the
"Company") for the three and six month periods ended September 30, 2002
and 2001 have been prepared without audit. In the opinion of
management, such consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary to
present fairly the Company's results for the interim periods presented.
The results of operations for the three and six month periods ended
September 30, 2002 are not necessarily indicative of the results for a
full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 2002.
(2) Goodwill and Intangible Asset
-----------------------------
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations ("FAS 141"), and No. 142, Goodwill and Other Intangible
Assets ("FAS 142"), effective for fiscal years beginning after December
15, 2001. Under the new standards, goodwill and intangible assets
deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests in accordance with FAS 142. Other intangible
assets continue to be amortized over their estimated useful lives.
The Company adopted the new standards beginning in the first quarter of
fiscal 2003. Effective with the adoption of FAS 142, both goodwill,
which is primarily related to the Company's prior acquisitions of its
subsidiaries, and the Company's other intangible asset, an Internet
domain name (together with all related intellectual property rights)
which was acquired in fiscal 2002, are no longer amortized but are
instead subject to an annual impairment test. The Company has completed
its initial impairment review as of April 1, 2002 and no impairment in
the recorded goodwill and intangible asset was identified. Goodwill and
intangible assets will be tested annually to identify if an impairment
has occurred. Upon completion of such annual review, if an impairment
is found to have occurred, a corresponding charge will be recorded.
During the quarter ended September 30, 2002, the Company accrued
$1,000,000 of a contingent earnout relating to a prior acquisition.
With the adoption of FAS 142, the Company ceased amortization of
goodwill as of March 31, 2002. The following table presents the results
of the Company for all periods presented on a comparable basis:
7
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $ 449,825 $ 247,719 $ 614,086 $ 391,098
Add back goodwill amortization,
net of tax provision -- 156,310 -- 312,619
----------- ----------- ----------- -----------
Adjusted net income $ 449,825 $ 404,029 $ 614,086 $ 703,717
=========== =========== =========== ===========
Diluted net income per share:
Net income $ .08 $ .04 $ .11 $ .07
Goodwill amortization, net of
tax provision -- .03 -- .06
----------- ----------- ----------- -----------
Adjusted diluted net income
per share $ .08 $ .07 $ .11 $ .13
=========== =========== =========== ===========
(3) Earnings Per Share
------------------
Options and warrants to purchase 1,785,251 and 1,235,589 shares of
common stock at prices ranging from $2.00 to $10.00 and $2.31 to $10.00
per share were excluded from the computation of diluted earnings per
share for the three month and six month periods both ended September
30, 2002 and 2001, respectively. These options and warrants expire
through April 30, 2011 and were excluded from the computation of
diluted earnings per share for each period because the exercise prices
exceed the fair market value of the Company's common stock.
(4) Unbilled Contracts in Progress
------------------------------
Unbilled contracts in progress represents revenue recognized in advance
of billings rendered based on work performed to date on certain
contracts. Accrued job costs are also recorded for such contracts to
properly match costs and revenue.
(5) Deferred Revenue
----------------
Deferred revenue represents contract amounts billed and client advances
in excess of costs incurred and estimated profit earned.
(6) Income Taxes
------------
The provision for income taxes for the three and six month periods
ended September 30, 2002 and 2001 is based upon the Company's estimated
effective tax rate for the respective years.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------
The following discussion compares the Company's consolidated
results of operations for the three and six month periods ended September 30,
2002 to the Company's consolidated results of operations for the three and six
month periods ended September 30, 2001. The information herein should be read
together with the consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended March 31, 2002.
8
Results of Operations
The following table presents operating data of the Company, expressed
as a percentage of sales for each of the three and six month periods ended
September 30, 2002 and 2001:
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Statement of Operations Data:
Sales 100.0% 100.0% 100.0% 100.0%
Direct expenses 74.8% 74.0% 77.1% 75.5%
Gross profit 25.2% 26.0% 22.9% 24.5%
Salaries 8.8% 11.2% 8.6% 10.6%
Selling, general and administrative expense 10.0% 11.3% 9.8% 11.2%
Total operating expenses 18.8% 22.5% 18.4% 21.8%
Operating income 6.4% 3.5% 4.5% 2.7%
Interest expense, net 0.7% 0.8% 0.6% 0.9%
Income before provision for income taxes 5.7% 2.7% 3.9% 2.1%
Provision for income taxes 2.3% 1.1% 1.6% 0.8%
Net income 3.4% 1.6% 2.2% 1.3%
The following table presents operating data of the Company, expressed
as a comparative percentage of change for the three and six month periods ended
September 30, 2002 compared to the three and six month periods ended September
30, 2001 and the three and six month periods ended September 30, 2001 compared
to the three and six month periods ended September 30, 2000:
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Statement of Operations Data:
Sales (12.5%) 11.1% (11.4%) 7.5%
Direct expenses (11.6%) 8.6% (9.4%) 9.4%
Gross profit (15.3%) 18.9% (17.4%) 2.2%
Salaries (31.5%) 3.3% (28.8%) 3.6%
Selling, general and administrative expense (22.7%) 18.8% (22.1%) 15.6%
Total operating expenses (27.1%) 10.5% (25.4%) 9.4%
Operating income 61.0% 132.0% 46.8% (33.3%)
Interest expense, net (24.0%) 8.1% (42.5%) 32.6%
Income before provision for income taxes 83.2% 39.3% 64.4% 23.1%
Provision for income taxes 85.4% 1212.4% 63.8% 22.8%
Net income 81.6% 1212.2% 57.0% 5227.6%
Sales. Sales for the quarter ended September 30, 2002 were
$13,333,000, compared to sales of $15,241,000 for the quarter ended September
30, 2001, a decrease of $1,908,000, after including $1,893,000 and $1,969,000,
respectively, of reimbursable costs and expenses. Sales for the six months ended
September 30, 2002 were $27,477,000, compared to sales of $31,001,000 for the
six months ended September 31, 2001, a decrease of $3,524,000, after including
$4,674,000 and $4,602,000, respectively, of reimbursable costs and expenses. The
decrease in sales for both the quarter and six month period was primarily
attributable to a lesser amount of sales contracted during the respective
periods. At September 30, 2002, the Company's sales backlog amounted to
approximately $9,889,000 compared to a sales backlog of approximately
$10,735,000 at September 30, 2001. At any given time, comparative differences in
the Company's sales and sales backlog may vary due to timing differences in the
receipt of executed contracts from clients with respect to project assignments
being finalized.
9
Direct Expenses. Direct expenses for the quarter ended
September 30, 2002 were $9,969,000, compared to $11,272,000 for the comparable
prior year quarter, a decrease of $1,303,000, after including $1,893,000 and
$1,969,000, respectively, of reimbursable cost and expenses. Direct expenses for
the six months ended September 30, 2002 were $21,198,000, compared to
$23,399,000 for the comparable prior year six month period, a decrease of
$2,201,000, after including $4,674,000 and 4,602,000, respectively, of
reimbursable costs and expenses. The decrease in direct expenses for both the
quarter and six month period was primarily attributable to a decrease in
variable direct expenses applicable to the decrease in sales for the respective
periods. The respective increase in direct expenses as a percentage of sales for
both the quarter and for the six month period ended September 30, 2002 was
primarily the result of the aggregate mix of client projects having a lower
gross profit margin than the mix of the Company's projects in the respective
comparable prior year quarter and six month periods.
As a result of these changes in sales and direct expenses, the
Company's gross profit for the quarter and six month periods ended September 30,
2002 decreased to $3,363,000 and $6,278,000, respectively, from $3,969,000 and
$7,602,000 for the prior year respective periods.
Operating Expenses. Operating expenses for the quarter and six
month period ended September 30, 2002 decreased respectively by $930,000 and
$1,716,000, to respectively, $2,506,000 and $5,046,000, compared to $3,436,000
and $6,762,000, respectively, for the quarter and six month periods ended
September 30, 2001. The decrease in operating expenses for both the quarter and
six month period was primarily the result of (i) the respective decrease in
salaries and related payroll expenses of $540,000 and $951,000, and (ii) the
respective decrease in selling, general and administrative expenses of $390,000
and $766,000. The respective decreases in salaries and related payroll expenses
for the quarter and six month periods ended September 30, 2002 were primarily
attributable to a reduction in personnel and to a lesser extent the
reimbursement, by our affiliate, Garcia Baldwin, Inc. doing business as Market
Vision ("Market Vision"), of the cost of personnel deployed in support of Market
Vision's operations. The respective decreases in selling, general and
administrative expenses for the quarter and six month periods ended September
30, 2002 were primarily related to (i) the respective elimination of
approximately $261,000 and $521,000 of goodwill amortization expense in
accordance with Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted in the quarter ended June 30, 2002, and
(ii) the overall reduction in variable expenses related to supporting and
maintaining the Company's level of operations.
Interest Expense. Interest expense for the quarter and six
month period ended September 30, 2002 decreased by $29,000 and $117,000 to
$91,000 and $158,000 respectively, compared to interest expense of $120,000 and
$275,000 respectively for the quarter and six month period ended September 30,
2001. The decrease in interest expense for the quarter and six month period
ended September 30, 2002 was primarily related to the decrease in the Company's
bank and subordinated debt borrowings, compared to such borrowings for the
comparable periods of the prior year.
Other. For the six month period ended September 30, 2001, the
Company recognized income in the amount of $89,000 resulting from a recovery of
a previously recorded share of losses of a then affiliate.
Provision For Income Taxes. The provision for federal, state
and local income taxes as respectively reflected for the quarter and six month
periods ended September 30, 2002 and 2001 were based upon the Company's
estimated effective tax rate for the respective fiscal years.
Equity in Loss of Affiliate. For the quarter and six month
periods ended September 30, 2002, the Company recorded $9,500 and $30,500,
respectively, as its share of losses from its 49% equity investment in Market
Vision.
Net Income. As a result of the items discussed above, net
income for the quarter and six month period ended September 30, 2002 was
$450,000 and $614,000 respectively, compared to net income $248,000 and $391,000
respectively, for the prior year quarter and six month period ended September
30, 2001.
10
Liquidity and Capital Resources.
On May 17, 2001, the Company replaced its then existing bank
loan agreement with a new credit agreement with another bank (the "Credit
Agreement") pursuant to which the Company obtained a $4,000,000 three-year term
loan (the "Term Loan") and a $2,000,000 revolving loan credit facility (the
"Revolving Loan", and together with the Term Loan, the "New Loans").
Contemporaneously with the closing of the Credit Agreement, the Company borrowed
$4,000,000 under the Term Loan and $1,000,000 under the Revolving Loan.
$4,510,000 of the proceeds of the New Loans was used to refinance the loan
balance of its prior loan agreement and the balance of the proceeds to increase
its working capital. Borrowings under the Credit Agreement are evidenced by
promissory notes and are secured by all of the Company's assets. Principal
payments on the Term Loan to be made in twelve consecutive quarterly
installments of $333,333 commenced on June 30, 2001.
For the six months ended September 30, 2002, the Company's
activities and the combined repayment of $1,387,000 of bank and subordinated
debt borrowings were funded from working capital. At September 30, 2002, the
Company had cash and cash equivalents totaling $1,052,000, a working capital
deficit of $3,922,000, outstanding bank loans of $3,680,000 with no additional
availability under the Revolving Loan, outstanding subordinated debt of $625,000
and stockholders' equity of $14,655,000. In comparison, at March 31, 2002, the
Company had cash and cash equivalents of $1,960,000 and a working capital
deficit of $2,749,000, outstanding bank loans of $4,667,000 with no additional
availability under the Revolving Loan, outstanding subordinated debt of
$1,025,000 and stockholders' equity of $14,041,000. The increase in working
capital deficit at September 30, 2002 compared with March 31, 2002 was primarily
the result of (i) an increase in other accrued liabilities of $1,000,000, the
amount of an anticipated earnout payment the Company is obligated to make in
connection with its acquisition of U.S. Concepts, Inc., and (ii) the decrease in
cash balances attributable to a required payment to reduce the Company's Term
Loan pursuant to an excess cash flow payment provision of its Credit Agreement.
Although the Company is currently negotiating an increase in the amount
available for borrowing under the Revolving Loan with its bank, management
believes that cash generated from operations together with existing borrowings
under the Credit Agreement should be sufficient to meet the Company's cash
requirements for fiscal 2003 even if the Company does not obtain such increase,
although there can be no assurance in that regard. To the extent the Company is
required to seek additional external financing, there can be no assurance that
the Company will be able to obtain such additional funding.
For the six months ended September 30, 2002: (A) cash provided
by operating activities amounted to $671,000, primarily as a result of the net
aggregate of (i) net income and non-cash charges for depreciation and
amortization, (ii) decreases in unbilled contracts in progress, notes receivable
from officers and other accrued liabilities, and (iii) increases in accounts
payable, deferred revenue and accrued taxes payable, offset by increases in
accounts receivable, prepaid expenses and other assets, and a decrease in
accrued job costs. (B) cash used in investing activities to purchase fixed
assets amounted to $192,000; and (C) cash used in financing activities to repay
borrowings amounted to $1,387,000. As a result of the net effect of the
aforementioned, the Company's cash and cash equivalents at September 30, 2002
decreased by $908,000.
Forward-Looking Statements.
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are based on
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect," "plan," "predict," "may," "should," "will," the negative thereof or
other variations thereon or comparable terminology are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events based on currently available information
and are subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated in those forward-looking statements.
11
Factors that could cause actual results to differ materially from the Company's
expectations are set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2002 under "Risk Factors", including but not limited
to "Dependence on Key Personnel," "Customers," "Unpredictable Revenue Patterns,"
"Competition," "Risk Associated with Acquisitions," "Expansion Risk," "Control
by Executive Officers and Directors," and "Outstanding Indebtedness; Security
Interest." Other factors may be described from time to time in the Company's
public filings with the Securities and Exchange Commission, news releases and
other communications. The forward-looking statements contained in this report
speak only as of the date hereof. The Company does not undertake any obligation
to release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's earnings and cash flows are subject to
fluctuations due to changes in interest rates primarily from its investment of
available cash balances in money market funds with portfolios of investment
grade corporate and U.S. government securities and, secondarily, from its
long-term debt arrangements. Under its current policies, the Company does not
use interest rate derivative instruments to manage exposure to interest rate
changes.
Item 4. Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
The Company's chief executive officer and chief financial
officer, after evaluating the effectiveness of the Company's "disclosure
controls and procedures" (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") within 90
days before the filing date of this quarterly report, have concluded that the
Company's disclosure controls and procedures are effective in ensuring that
material information required to be disclosed is included in the reports that it
files with the Securities and Exchange Commission.
Changes in Internal Controls
There were no significant changes in the Company's internal
controls or, to the knowledge of the management of the Company, in other factors
that could significantly affect these controls subsequent to the Evaluation
Date.
12
PART II - OTHER INFORMATION
---------------------------
Items 1, 2, 3 and 5. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
September 26, 2002 at 10:00 a.m. at the Company's offices at 415 Northern
Boulevard, Great Neck, New York 11021. A majority of the Company's voting shares
were present at the meeting, either in person or by proxy.
At such meeting, the stockholders as per the following votes:
1. Elected Paul A. Amershadian, John P. Benfield, Donald A.
Bernard, Herbert M. Gardner, Joseph S. Hellman, Thomas E. Lachenman, Brian
Murphy and John A. Ward, III to the Board of Directors. All of these individuals
will serve on the Board of Directors until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
Directors Votes For Votes Withheld
--------- --------- --------------
Paul A. Amershadian 3,964,816 221,137
John P. Benfield 3,964,816 221,137
Donald A. Bernard 3,964,816 221,137
Herbert M. Gardner 3,964,816 221,137
Joseph S. Hellman 3,964,816 221,137
Thomas E. Lachenman 3,964,816 221,137
Brian Murphy 3,964,816 221,137
John A. Ward III 3,964,816 221,137
2. Approved the Company's 2002 Long-Term Incentive Plan.
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
1,991,148 380,980 3,605 1,810,220
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits. See Exhibit Index
(b) Reports on Form 8-K. None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COACTIVE MARKETING GROUP, INC.
Dated: October 30, 2002 By: /s/ JOHN P. BENFIELD
-------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: October 30, 2002 By: /s/ DONALD A. BERNARD
-------------------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
14
Certifications
--------------
I, John P. Benfield, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoActive
Marketing Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others with those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: October 30, 2002 /s/ JOHN P. BENFIELD
-------------------------------------
John P. Benfield
President and Chief Executive Officer
15
I, Donald A. Bernard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoActive
Marketing Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others with those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: October 30, 2002 /s/ DONALD A BERNARD
--------------------------------------
Donald A. Bernard
Executive Vice President and
Chief Financial Officer
16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.1 Amendment to Employment Agreement, dated as of July 1, 2002,
between U.S. Concepts, Inc. and Brian Murphy
99.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
17