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UNITED STATES
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 June 30, 2003
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 0-20394
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
As of August 5, 2003, 5,134,731 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. (Unaudited)
Consolidated Balance Sheets - June 30, 2003 and March 31, 2003 3
Consolidated Statements of Operations - Three month periods
ended June 30, 2003 and June 30, 2002 4
Consolidated Statement of Stockholders' Equity - Three month
period ended June 30, 2003 5
Consolidated Statements of Cash Flows - Three month periods
ended June 30, 2003 and June 30, 2002 6
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Not Applicable
Item 2. Changes in Securities and Use of Proceeds. 13
Items 3-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
- ----------
CERTIFICATIONS 16
2
PART I - FINANCIAL INFORMATION
COACTIVE MARKETING GROUP, INC.
Consolidated Balance Sheets
June 30, 2003 and March 31, 2003
June 30, 2003 March 31, 2003*
-------------- --------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 609,287 $ 1,336,886
Accounts receivable, net of allowance for doubtful accounts of
$89,412 at June 30, 2003 and $80,412 at March 31, 2003 8,419,744 9,061,305
Unbilled contracts in progress 5,528,038 5,127,526
Due from affiliate 920,730 722,989
Prepaid expenses and other current assets 922,906 730,965
-------------- --------------
Total current assets 16,400,705 16,979,671
Property and equipment, net 1,925,490 1,781,226
Investment in MarketVision 288,630 296,130
Note and interest receivable from officer 740,300 733,000
Goodwill, net 18,784,946 18,784,946
Intangible asset 200,000 200,000
Deferred financing costs, net 156,622 190,353
Other assets 133,372 133,372
-------------- --------------
Total assets $ 38,630,065 $ 39,098,698
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,598,625 $ 6,103,068
Deferred revenue 1,972,777 2,941,547
Accrued job costs 6,092,631 5,071,187
Accrued compensation 93,381 65,467
Other accrued liabilities 464,662 1,560,579
Accrued taxes payable 125,034 32,873
Deferred taxes payable 548,097 548,097
Notes payable bank - current 750,000 750,000
Subordinated notes payable - current 425,000 625,000
-------------- --------------
Total current liabilities 17,070,207 17,697,818
Notes payable bank - long term 4,097,000 4,500,000
Deferred taxes payable 1,095,046 1,080,046
-------------- --------------
Total liabilities 22,262,253 23,277,864
-------------- --------------
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 5,134,731 shares at June 30, 2003 and
5,034,731 at March 31, 2003 5,134 5,034
Additional paid-in capital 6,969,692 6,751,792
Retained earnings 9,392,986 9,064,008
-------------- --------------
Total stockholders' equity 16,367,812 15,820,834
-------------- --------------
Total liabilities and stockholders' equity $ 38,630,065 $ 39,098,698
============== ==============
* The consolidated balance sheet as of March 31, 2003 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 Months Ended June 30, 2003 and 2002
(Unaudited)
2003 2002*
----------- -----------
Sales $16,072,640 $14,143,991
Direct expenses 12,481,210 11,228,670
----------- -----------
Gross profit 3,591,430 2,915,321
----------- -----------
Salaries 1,282,392 1,175,675
Selling, general and administrative expense 1,659,879 1,363,942
----------- -----------
Total operating expenses 2,942,271 2,539,617
----------- -----------
Operating income 649,159 375,704
Interest expense, net 63,309 66,892
Income before provision for income taxes 585,850 308,812
Provision for income taxes 249,372 123,557
Equity in loss of affiliate 7,500 21,000
----------- -----------
Net income $ 328,978 $ 164,255
=========== ===========
Net income per common and common
equivalent share:
Basic $ .06 $ .03
=========== ===========
Diluted $ .06 $ .03
=========== ===========
Weighted average number of common and
common equivalent shares outstanding:
Basic 5,119,347 5,028,481
=========== ===========
Diluted 5,765,948 5,531,533
=========== ===========
Reconciliation of weighted average shares used for basic and diluted
computation is as follows:
Weighted average shares - Basic 5,119,347 5,028,481
Dilutive effect of options and warrants 646,601 503,052
----------- -----------
Weighted average shares - Diluted 5,765,948 5,531,533
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
COACTIVE MARKETING GROUP, INC.
Consolidated Statement of Stockholders' Equity
Three Months Ended June 30, 2003
(Unaudited)
Common Stock
Par value $.001 Additional Total
------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2003 5,034,731 $ 5,034 $ 6,751,792 $ 9,064,008 $15,820,834
Stock issued in payment of earnout 100,000 100 217,900 -- 218,000
Net income -- -- -- 328,978 328,978
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2003 5,134,731 $ 5,134 $ 6,969,692 $ 9,392,986 $16,367,812
=========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
5
COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Cash Flows
Three Months Ended June 30, 2003 and 2002
(Unaudited)
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 328,978 $ 164,255
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for bad debt expense 9,000 6,000
Equity in loss of affiliate 7,500 21,000
Depreciation and amortization 197,769 175,282
Deferred income taxes 15,000 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 632,561 1,983,652
(Increase) decrease in unbilled contracts in progress (400,512) 222,216
(Increase) decrease in prepaid expenses and other assets (191,941) 30,417
Increase (decrease) in accounts payable 495,557 (3,150,524)
(Decrease) increase in deferred revenue (968,770) 398,055
Increase (decrease) in accrued job costs 1,021,444 (416,295)
(Decrease) increase in other accrued liabilities (877,917) 158,683
Increase in accrued compensation 27,914 24,072
Increase in accrued taxes payable 92,161 --
----------- -----------
Net cash provided by (used in) operating activities 388,744 (383,187)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (308,302) (64,822)
Increase in notes receivable from officer (7,300) --
Increase in advances to affiliate (197,741) --
----------- -----------
Net cash used in investing activities (513,343) (64,822)
----------- -----------
Cash flows from financing activities:
Repayments of debt (603,000) (733,333)
----------- -----------
Net cash used in financing activities (603,000) (733,333)
----------- -----------
Net decrease in cash and cash equivalents (727,599) (1,181,342)
Cash and cash equivalents at beginning of period 1,336,886 1,959,617
----------- -----------
Cash and cash equivalents at end of period $ 609,287 $ 778,275
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 70,039 $ 33,555
=========== ===========
Income tax paid during the period $ 63,612 $ 86,075
=========== ===========
Noncash transaction relating to investing activities:
Earnout applied to purchase of common stock $ 218,000 $ --
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
CoActive Marketing Group, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
June 30, 2003 and 2002
(1) Basis of Presentation
---------------------
The interim consolidated financial statements of CoActive Marketing
Group, Inc. (the "Company") for the three month periods ended June 30,
2003 and 2002 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 month period ended June 30,
2003 is 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, 2003.
(2) Goodwill and Intangible Asset
-----------------------------
On April 1, 2002, the Company adopted Statements of Financial
Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141
requires the use of the purchase method of accounting and prohibits the
use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that
the Company recognize acquired intangible assets apart from goodwill if
the acquired intangible assets meet certain criteria. It also requires,
upon adoption of SFAS 142, that the Company reclassify, if necessary,
the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141. The Company has determined that the
classification and useful lives utilized for its intangible assets are
appropriate. SFAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at
least annually. In addition, SFAS 142 requires that the Company
identify reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing
recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life.
The Company's goodwill, which is primarily related to the Company's
prior acquisitions of its subsidiaries, and the Company's other
intangible asset, which was acquired in fiscal 2002 and consists of an
Internet domain name and related intellectual property rights being
used in the Company's operations, are no longer amortized but are
instead subject to an annual impairment test. The Company has completed
its annual impairment review as of March 31, 2003 and no impairment in
the recorded goodwill and intangible asset was identified. During the
quarter ended June 30, 2003, the Company has not identified any
indication of goodwill impairment. Goodwill and the intangible asset
will be tested annually at the end of the fiscal year to identify if an
impairment has occurred. Upon completion of each annual review, there
can be no assurance that a material charge will not be recorded.
(3) Earnings Per Share
------------------
Options and warrants to purchase 821,847 and 1,252,751 shares of common
stock at prices ranging from $2.80 to $10.00 and $2.31 to $10.00 per
share were outstanding during the three months ended June 30, 2003 and
2002, respectively and expire through April 30, 2011. These options and
7
warrants were excluded from the computation of diluted earnings per
share for each period because the exercise prices exceeded the then
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 month period ended June
30, 2003 and 2002 is based upon the Company's estimated effective tax
rate for the respective fiscal year.
(7) Accounting for Stock-Based Compensation
---------------------------------------
The Company applies the intrinsic-value based method of accounting
prescribed by Accounting Principles Board (APB) No. 25, "Accounting for
Stock Issued to Employees", and related interpretations, in accounting
for its stock-based compensation plans and accordingly, no compensation
cost has been recognized for its stock options in the consolidated
financial statements. The Company has elected not to implement the fair
value based accounting method for employee stock options under SFAS No.
123, "Accounting for Stock-Based Compensation", but has elected to
disclose the pro forma net income per share for employee stock option
grants made beginning in fiscal 1997 as if such method had been used to
account for stock-based compensation costs described in SFAS No. 148
"Accounting for Stock Based Compensation-Transition and Disclosure", an
amendment of SFAS No. 123.
The following table illustrates the effects on net income and per share
data as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to its stock based incentive plans:
Three Months Three Months
Ended Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income applicable to common stock $ 328,978 $ 164,255
Less compensation expense determined under the fair value method 60,976 16,810
------------- -------------
Adjusted net income $ 268,002 $ 147,445
============= =============
Net income per share applicable to common stock:
Basic $ .06 $ .03
Less compensation expense determined under the fair value method .01 --
------------- -------------
Adjusted basic net income per share $ .05 $ .03
============= =============
Net income per share applicable to common stock:
Diluted $ .06 $ .03
Less compensation expense determined under the fair value method .01 --
------------- -------------
Adjusted diluted net income per share $ .05 $ .03
============= =============
8
(8) New Accounting Standards
------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),"Consolidation
of Variable Interest Entities" with the objective of improving financial
reporting by companies involved with variable interest entities. A variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Historically, entities generally were not consolidated unless the entity was
controlled through voting interests. FIN 46 changes that by requiring a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. A
company that consolidates a variable interest entity is called the "primary
beneficiary" of that entity. FIN 46 also requires disclosures about variable
interest entities that a company is not required to consolidate but in which it
has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and applies in the first year or interim period beginning after June 15, 2003 to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2002. The Company has not determined the effect,
if any, that this pronouncement would have on its financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The statement is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of the statement and
still existing at the beginning of the period of adoption. Management does not
believe this statement will have a material impact on the Company's financial
statements.
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 month period ended June 30, 2003 to the
Company's consolidated results of operations for the three month period ended
June 30, 2002. 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, 2003.
Results of Operations
The following table presents operating data of the Company, expressed
as a percentage of sales for the three month period ended June 30, 2003, and
2002:
Quarter Ended June 30,
---------------------
2003 2002
------ ------
Statement of Operations Data:
Sales 100.0% 100.0%
Direct expenses 77.7% 79.4%
Gross profit 22.3% 20.6%
Salaries 8.0% 8.3%
Selling, general and administrative expense 10.3% 9.6%
Total operating expense 18.3% 17.9%
Operating income 4.0% 2.7%
Interest expense, net 0.4% 0.5%
Income before provision for income taxes 3.7% 2.2%
Provision for income taxes 1.6% 0.9%
Equity in loss of affiliate 0.1% 0.1%
Net income 2.1% 1.2%
9
The following table presents operating data of the Company, expressed
as a comparative percentage of change for the three month period ended June 30,
2003 compared to the three month period ended June 30, 2002 and the three month
period ended June 30, 2002 compared to the three month period ended June 30,
2001:
Quarter Ended June 30,
---------------------
2003 2002
------ ------
Statement of Operations Data:
Sales 13.6% (10.3%)
Direct expenses 11.2% (7.4%)
Gross profit 23.2% (19.8%)
Salaries 9.1% (25.9%)
Selling, general and administrative expense 21.7% (21.6%)
Total operating expense 15.9% (23.7%)
Operating income 72.8% 22.5%
Interest expense, net (0.6)% (56.9%)
Income before provision for income taxes 103.6% 28.3%
Provision for income taxes 101.8% 27.0%
Net income 100.3% 14.6%
Sales. Sales for the quarter ended June 30, 2003 were
$16,073,000, compared to sales of $14,144,000 for the quarter ended June 30,
2002, an increase of $1,929,000, after including $4,363,000 and $2,781,000,
respectively, of reimbursable costs and expenses. The increase was primarily
attributable to an increase in the amount of sales contracted during the
quarter. 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.
Direct Expenses. Direct expenses for the quarter ended June
30, 2003 were $12,481,000, compared to $11,229,000 for the comparable prior year
quarter, an increase of $1,252,000, after including $4,363,000 and $2,781,000,
respectively, of reimbursable costs and expenses. The increase was primarily
attributable to an increase in variable direct expenses which are applicable to
and relate to the increase in sales. The decrease in direct expenses as a
percentage of sales for the quarter ended June 30, 2003 was primarily the result
of the aggregate mix of client projects having a higher gross profit margin than
the mix of the Company's projects during the comparable prior year's quarter.
Gross Profit. As a result of the changes in sales and direct
expenses, the Company's gross profit for the quarter ended June 30, 2003
increased to $3,591,000 from $2,915,000 for the quarter ended June 30, 2002.
Operating Expenses. Operating expenses for the quarter ended
June 30, 2003 increased by $402,000 and amounted to $2,942,000, compared to
operating expenses of $2,540,000 for the quarter ended June 30, 2002. The
increase in operating expenses for the quarter ended June 30, 2003 was primarily
the result of an increase of $106,000 in salaries and related payroll expenses
and an increase of $296,000 in selling, general and administrative expenses. The
increase in salaries and related payroll expenses was primarily attributable to
an overall increase in salaries and the cost of added personnel to support
further anticipated increases in the level of operations. The increase in
selling general and administrative expenses was primarily related to the
increased level of operations during the period.
10
Interest Expense, Net. Net interest expense, consisting of
interest expense of $71,000 offset by interest income of $8,000, for the quarter
ended June 30, 2003 amounted to $63,000, a decrease of $4,000, compared to net
interest expense of $67,000, consisting of interest expense of $70,000 offset by
interest income of $3,000 for the quarter ended June 30, 2002. The decrease in
net interest expense for the quarter ended June 30, 2003 was primarily related
to the decrease in the interest rate on the Company's bank borrowings as offset
by an increase in such borrowings at June 30, 2003 compared with June 30, 2002.
Provision For Income Taxes. The provision for federal, state
and local income taxes for the quarters ended June 30, 2003 and 2002 were based
upon the Company's estimated effective tax rate for the respective fiscal year.
Equity in Loss of Affiliate. For the quarter ended June 30,
2003, the Company recorded $7,500 as its share of losses from its 49% equity
investment in MarketVision compared with $21,000 recorded as its share of such
losses for the quarter ended June 30, 2002.
Net Income. As a result of the items discussed above, net
income for the quarter ended June 30, 2003 was $329,000 compared with net income
of $164,000 for the comparable prior year quarter.
Liquidity and Capital Resources.
On October 31, 2002, the Company entered into a Credit
Agreement (the "Credit Agreement") with Signature Bank (the "Lender") pursuant
to which the Company obtained a $3,000,000 term loan (the "Term Loan") and a
$3,000,000 three year revolving loan credit facility (the "Revolving Loan", and
together with the Term Loan, the "Loans"). The principal amount of the Term Loan
is repayable in equal installments over 48 months, with the final payment due
October 30, 2006. Interest on the Loans is due on a monthly basis at an annual
rate equal to the Lender's prime rate plus .25% with respect to Revolving Loans
and .50% with respect to the Term Loan (4.5% and 4.25% respectively, at June 30,
2003). Following the conclusion of the quarter ended June 30, 2003, on July 18,
2003, the Credit Agreement was amended pursuant to which the revolving loan
credit facility was increased by $500,000 to $3,500,000.
For the quarter ended June 30, 2003, the Company's activities
and the combined repayment of $603,000 of bank and subordinated debt borrowings
together with a final earnout payment of $376,000 (in connection with the
Company's acquisition of U.S. Concepts) were funded from working capital. At
June 30, 2003, the Company had cash and cash equivalents totaling $609,000, a
working capital deficit of $670,000, outstanding bank loans of $4,847,000 with
$215,500 of additional availability under the Revolving Loan, outstanding
subordinated debt of $425,000 and stockholders' equity of $16,368,000. In
comparison, at March 31, 2003, the Company had cash and cash equivalents of
$1,337,000 and a working capital deficit of $718,000, outstanding bank loans of
$5,250,000 with $153,000 with no additional availability under the Revolving
Loan, outstanding subordinated debt of $625,000 and stockholders' equity of
$15,821,000. The $48,000 decrease in working capital deficit at June 30, 2003
compared with March 31, 2003 primarily resulted from the aggregate reduction of
the Company's current liabilities exceeding the aggregate reduction of its
current assets at June 30, 2003. Management believes cash generated from
operations together with borrowings under the Credit Agreement should be
sufficient to meet the Company's cash requirements for fiscal 2004. 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
to satisfy its cash requirements for fiscal 2004 or as subsequently required
under the Credit Agreement.
For the quarter ended June 30, 2003, (A) cash provided by
operating activities was $389,000, due principally to the net effect of the
aggregate of net income of $329,000, the non-cash charges for depreciation and
amortization of $198,000, deferred income taxes of $15,000, equity in loss of
affiliate of $7,000 and the provision for bad debt expense of $9,000, a decrease
in accounts receivable of $633,000, and increases of $496,000, $1,021,000 and
$121,000, respectively, in accounts payable, accrued job costs and accrued
compensation and taxes payable, offset by increases in unbilled contracts in
progress of $400,000, prepaid expenses and other assets of $192,000, decreases
in deferred revenue of $969,000, and other accrued liabilities of $878,000; (B)
cash used in investing activities amounted to $513,000 as a result of the
aggregate of $308,000 used for the purchase of fixed assets and an increase in
notes receivable from an officer of $7,000 applicable to accrued interest and an
increase in advances to an affiliate (MarketVision) in the amount of $198,000;
11
and (C) cash used in financing activities to repay borrowings amounted to
$603,000. As a result of the net effect of the aforementioned, the Company's
cash and cash equivalents at June 30, 2003 decreased by $728,000.
Other Matters.
On April 14, 2003, the Company issued 100,000 shares of its
common stock, with an aggregate contract value, based on the U.S. Concepts
acquisition agreement, of $218,000 at such date, in partial satisfaction of the
Company's earnout obligations in connection with its acquisition of its U.S.
Concepts subsidiary. The amount of such obligation was previously reflected on
the Company's financial statements for the periods ended March 31, 2003 as
additional purchase price payable pursuant to the terms of the U.S. Concepts
acquisition agreement.
On March 31, 2003, the Company converted its subsidiary
corporations (then Inmark Services, Inc., Optimum Group, Inc., and U.S.
Concepts, Inc.), into Delaware limited liability companies (now Inmark Services
LLC, Optimum Group LLC, and U.S. Concepts LLC).
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. 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, 2003 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 "Outstanding Indebtedness; Security Interest". Other factors may
be described from time to time in the Company's public filings with the
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.
12
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.
PART II - OTHER INFORMATION
---------------------------
Item 1. Not Applicable
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
On April 14, 2003, in partial satisfaction of the Company's
earnout obligations to Brian Murphy (a director and executive officer of the
Company), in connection with its acquisition of U.S. Concepts, Inc., at Mr.
Murphy's direction and pursuant to an understanding between Mr. Murphy and
Bradford Bryen that existed at the time of the acquisition, the Company issued
100,000 shares of its common stock with an aggregate contract value, based on
the U.S. Concepts acquisition agreement, at such date of $218,000 to Bradford
Bryen, the President of U.S. Concepts. Such shares were issued in reliance upon
the exemption from registration contained in Section 4(2) of the Securities Act
of 1933, as a transaction not involving a public offering within the meaning of
the Securities Act.
Items 3-5. Not Applicable
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: August 5, 2003 By: /s/ JOHN P. BENFIELD
-------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: August 5, 2003 By: /s/ DONALD A. BERNARD
-------------------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
15