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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 December 31, 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.
------------------------------------------------------
(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
--------------

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 January 31, 2004, 5,289,856 shares of the Registrant's Common Stock, par
value $.001 per share, were outstanding.

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INDEX

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 - December 31, 2003 and
March 31, 2003 3

Consolidated Statements of Operations - Three month and
nine month periods ended December 31, 2003 and
December 31, 2002 4

Consolidated Statement of Stockholders' Equity - Nine
month period ended December 31, 2003 5

Consolidated Statements of Cash Flows - Nine month
periods ended December 31, 2003 and December 31, 2002 6

Notes to 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 13

Item 4. Controls and Procedures 14


PART II - OTHER INFORMATION 14
- ---------------------------

Items 1, 2, 3, 4 and 5. Not Applicable 14

Item 6. Exhibits and Reports on Form 8-K. 14

SIGNATURES 15
- ----------

2


PART I - FINANCIAL INFORMATION
COACTIVE MARKETING GROUP, INC.
Consolidated Balance Sheets
December 31, 2003 and March 31, 2003



December 31, 2003 March 31, 2003*
---------------- ----------------
(Unaudited)

Assets
Current assets:
Cash and cash equivalents $ 799,434 $ 1,336,886
Accounts receivable, net of allowance for doubtful accounts of
$222,404 at December 31, 2003 and $80,412 at March 31, 2003 9,006,745 9,061,305
Unbilled contracts in progress 5,955,078 5,127,526
Due from affiliate 681,791 722,989
Prepaid expenses and other current assets 987,685 730,965
---------------- ----------------
Total current assets 17,430,733 16,979,671

Property and equipment, net 2,604,931 1,781,226

Investment in MarketVision 343,930 296,130
Note and interest receivable from officer 755,059 733,000
Goodwill, net 19,651,317 18,784,946
Intangible asset 200,000 200,000
Deferred financing costs, net 112,594 190,353
Other assets 20,750 133,372
---------------- ----------------
Total assets $ 41,119,314 $ 39,098,698
================ ================

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,548,500 $ 6,103,068
Deferred revenue 3,848,501 2,941,547
Accrued job costs 5,482,723 5,071,187
Accrued compensation 69,410 65,467
Other accrued liabilities 1,521,861 1,560,579
Accrued taxes payable -- 32,873
Deferred taxes payable 355,917 548,097
Notes payable bank - current 1,250,000 750,000
Subordinated notes payable - current 425,000 625,000
---------------- ----------------
Total current liabilities 19,501,912 17,697,818

Notes payable bank - long term 4,422,000 4,500,000
Deferred taxes payable 1,080,046 1,080,046
---------------- ----------------
Total liabilities 25,003,958 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 5,137,356 shares at December 31, 2003
and 5,034,731 shares at March 31, 2003 5,137 5,034
Additional paid-in capital 6,976,252 6,751,792
Retained earnings 9,133,967 9,064,008
---------------- ----------------
Total stockholders' equity 16,115,356 15,820,834
================ ================
Total liabilities and stockholders' equity $ 41,119,314 $ 39,098,698
================ ================


o The consolidated balance sheet as of March 31, 2003 has been summarized
from the Company's audited balance sheet as of that date.
o See accompanying notes to unaudited consolidated financial statements

3


COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Operations
Three Month and Nine Month Periods Ended December 31, 2003 and December 31, 2002
(Unaudited)



Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------

Sales $ 16,631,648 17,311,177 49,585,403 44,787,806
Direct expenses 14,042,778 13,304,561 39,989,232 34,502,714
------------ ------------ ------------ ------------

Gross Profit 2,588,870 4,006,616 9,596,171 10,285,092
------------ ------------ ------------ ------------

Salaries and payroll taxes 1,442,268 1,241,188 3,990,799 3,590,770
Selling, general and administrative expense 2,007,894 1,571,503 5,351,692 4,269,301
------------ ------------ ------------ ------------

Total operating expenses 3,450,162 2,812,691 9,342,491 7,860,071
------------ ------------ ------------ ------------

Operating (loss) income (861,292) 1,193,925 253,680 2,425,021

Interest expense, net 20,364 65,760 140,473 224,135
Other income 2,539 256,877 9,569 258,496
------------ ------------ ------------ ------------

Income (loss) before provision for income taxes (879,117) 1,385,042 122,776 2,459,382
Provision for (benefit of) income taxes (340,961) 554,006 100,617 983,763
Equity in income of affiliate 48,000 43,000 47,800 12,500
------------ ------------ ------------ ------------

Net (loss) income (490,156) 874,036 69,959 1,488,119
------------ ------------ ------------ ------------

Net (loss) income per common and common
Equivalent share:

Basic $ (.10) $ .17 $ .01 $ .30
============ ============ ============ ============

Diluted $ (.10) $ .16 $ .01 $ .27
============ ============ ============ ============

Weighted average number of common and
common equivalent shares outstanding:

Basic 5,137,179 5,028,481 5,130,925 5,028,481
============ ============ ============ ============

Diluted 6,331,473 5,566,291 6,209,464 5,498,709
============ ============ ============ ============

Reconciliation of weighted average shares used for basic and diluted computation is as follows:

Weighted average shares - Basic 5,137,179 5,028,481 5,130,925 5,028,481

Dilutive effect of options and warrants 1,194,294 537,810 1,078,539 470,228
============ ============ ============ ============

Weighted average shares - Diluted 6,331,473 5,566,291 6,209,464 5,498,709
============ ============ ============ ============


See accompanying notes to unaudited consolidated financial statements.

4


COACTIVE MARKETING GROUP, INC.
Consolidated Statement of Stockholders' Equity
Nine Months Ended December 31, 2003
(Unaudited)



Common Stock
par value $.001 Additional Total
------------------------- Paid Retained Stockholders'
Shares Amount in 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

Exercise of options 2,625 3 6,560 -- 6,563

Net income -- -- -- 69,959 69,959
----------- ----------- ----------- ----------- -----------

Balance, December 31, 2003 5,137,356 $ 5,137 $ 6,976,252 $ 9,133,967 $16,115,356
=========== =========== =========== =========== ===========


See accompanying notes to unaudited consolidated financial statements.

5


COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 2003 and 2002
(Unaudited)



2003 2002
----------- -----------

Cash flows from operating activities:
Net income $ 69,959 $ 1,488,119
Adjustments to reconcile net income to net cash provided by operating
Activities:
Provision for bad debt expense 141,992 24,000
Equity in income of affiliate (47,800) (12,500)
Depreciation and amortization 582,259 464,974
Deferred income taxes (192,180) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (87,432) 1,678,383
(Increase) in unbilled contracts in progress (827,552) (2,659,720)
(Increase) decrease in prepaid expenses and other assets (144,098) 164,721
Increase (decrease) in accounts payable 445,432 (828,108)
Increase (decrease) in deferred revenue 740,583 (1,940,299)
Increase in accrued job costs 411,536 652,841
(Decrease) increase in accrued taxes payable (32,873) 760,351
Decrease in other accrued liabilities (38,718) (55,991)
Increase (decrease) in accrued compensation 3,943 (52,657)
----------- -----------

Net cash provided by (used in) operating activities 1,025,051 (315,886)
----------- -----------

Cash flows from investing activities:
Purchases of fixed assets (1,304,198) (374,838)
Acquisition (700,000) --
(Increase) decrease in note receivable from officer (22,059) 63,000
Decrease (increase) in advances to affiliate 41,198 (317,310)
----------- -----------

Net cash used in investing activities (1,985,059) (629,148)
----------- -----------

Cash flows from financing activities:
Borrowings 500,000 4,200,000
Repayment of debt (278,000) (4,729,166)
Financing costs (24,007) (96,310)
Proceeds from stock issuance and exercise of stock options 224,563 --
----------- -----------

Net cash provided by (used in) financing activities 422,556 (625,476)
----------- -----------

Net decrease in cash and cash equivalents (537,452) (1,570,510)

Cash and cash equivalents at beginning of period 1,336,886 1,959,617
----------- -----------
Cash and cash equivalents at end of period $ 799,434 $ 389,107
=========== ===========
Supplemental disclosure:
Interest paid during the period $ 204,919 $ 211,204
=========== ===========
Income tax paid during the period $ 244,265 $ 199,745
=========== ===========
Noncash activities relating to investing activities:
Contingent earnout accrued relating to a prior acquisition $ -- $ 1,500,000
=========== ===========
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

December 31, 2003 and 2002


(1) Basis of Presentation
---------------------

The interim financial statements of CoActive Marketing Group, Inc. (the
"Company") for the three and nine month periods ended December 31, 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 and nine month periods ended
December 31, 2003 are not necessarily indicative of the results for a
full year.

On October 29, 2003, a newly formed wholly-owned subsidiary of the
Company acquired certain assets and assumed certain liabilities of
TrikMedia, Inc., for a purchase price of $885,000, consisting of a cash
payment in the amount of $700,000 and the assumption of $185,000 of
deferred revenue. The Company has accounted for the acquisition as a
purchase whereby the excess of the purchase price over the fair value
of net assets acquired, including costs of the acquisition, of
approximately $866,000 has been classified as goodwill. Payment of the
purchase price was funded from the Company's then available working
capital.

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
recent acquisition of TrikMedia and the 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 and nine month
periods ended December 31, 2003, the Company has not identified any
indication of goodwill impairment. Goodwill and the intangible asset
will be tested annually at the end of each fiscal year to determine
whether they have been impaired. 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, which expire through April 30, 2011, to purchase
477,500 shares of common stock at prices ranging from $4.00 to $10.00
and 496,250 shares of common stock at prices ranging from $3.25 to
$10.00 per share were outstanding during the three and nine month
periods ended December 31, 2003 and 2002, respectively. These options

7


and 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) Notes Payable Bank
------------------

On November 24, 2003, the Company's credit agreement with its bank was
amended to pursuant to which the Company's revolving loan credit
facility was temporarily increased by $500,000 to $4,000,000 until
January 31, 2004.

At December 31, 2003, the Company was not in compliance with three of
the financial covenants provided for in the credit agreement; namely,
(i) the maximum permitted ratio of consolidated senior funded debt to
earnings before interest, taxes, depreciation and amortization, (ii)
the minimum permitted debt service coverage ratio and (iii) the
requirement of no net loss for a fiscal quarter. On February 10, 2004,
the bank granted a waiver of the Company's non-compliance with respect
to such financial covenants as at December 31, 2003.

Management believes that its operating results for the fourth quarter
and its full fiscal year ending March 31, 2004 will be sufficient to be
in compliance with its annual financial covenants in connection with
the credit agreement.

(7) Income Taxes
------------

The provision for income taxes for the three and nine month periods
ended December 31, 2003 and 2002 is based upon the Company's estimated
effective tax rate for the respective fiscal year.

(8) 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 the issuance of 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:

8




Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002
------------- ------------- ------------- -------------

Net (loss) income applicable to common stock $ (490,156) $ 874,036 $ 69,959 $ 1,488,119
Less compensation expense determined under the fair value
method 60,976 16,810 182,928 50,430
------------- ------------- ------------- -------------

Adjusted net (loss) income $ (551,132) $ 857,226 $ (112,969) $ 1,437,689
============= ============= ============= =============

Net (loss) income per share applicable to common stock:
Basic $ (.10) $ .17 $ .01 $ .30
Less compensation expense determined under the fair
value method .01 .00 .03 .01
------------- ------------- ------------- -------------
Adjusted basic net (loss) income per share $ (.11) $ .17 $ (.02) $ .29
============= ============= ============= =============


Net (loss) income per share applicable to common stock:
Diluted $ (.10) $ .15 $ .01 $ .27
Less compensation expense determined under the fair
value method .01 .00 .03 01
------------- ------------- ------------- -------------
Fair value method
Adjusted diluted net (loss) income per share $ (.11) $ .15 $ (.02) $ .26
============= ============= ============= =============


(9) New Accounting Standards
------------------------

In December 2002, SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure (an Amendment of SFAS 123) ("SFAS 148") was issued.
SFAS 148 provides alternative methods of transition for making a voluntary
change to fair value-based accounting for stock-based compensation. The Company
continues to account for its stock option plans under the intrinsic value
recognition and measurement principles of APB 25, "Accounting for Stock Issued
to Employees" and related interpretations. Effective for interim periods
beginning after December 15, 2002, SFAS 148 also requires disclosure of pro
forma results on a quarterly basis as if the Company had applied the fair value
recognition provisions of SFAS No. 123. The Company has adopted the disclosure
requirements of this pronouncement. This disclosure requirement did not have an
impact on the Company's consolidated results of operations or financial
position.

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 ending after December 15, 2003
to variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2002. The effect of this pronouncement did
not have an impact on the financial statements of the Company.

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 December 15, 2004. 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. The effect of this
pronouncement did not have an impact on the Company's financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------

On October 29, 2003, TrikMedia LLC, a newly formed
wholly-owned subsidiary of the Company, acquired certain of the assets and
assumed certain of the liabilities of TrikMedia, Inc. for a purchase price in
the amount of $885,000, in a transaction accounted for as a purchase by the
Company. TrikMedia, Inc., founded in 2000, was a full service media agency
engaged in providing digital marketing and advertising services, interactive
software development and content creation. Management believes that these
services complement and add value to the Company's interactive offerings and
provide the Company with the opportunity to increase sales to former clients of
TrikMedia as well as to both the Company's existing and prospective clients.

9


Accordingly, the following discussion compares the Company's
consolidated results of operations for the three and nine month periods ended
December 31, 2003, including the operations of TrikMedia LLC for the three
months ended December 31, 2003, to the Company's consolidated results of
operations for the three and nine month periods ended December 31, 2002
excluding the operations of TrikMedia LLC. 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 each of the three and nine month periods ended
December 31, 2003 and 2002:



Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2003 2002 2003 2002
-------- -------- -------- --------

Statement of Operations Data:
Sales 100.0% 100.0% 100.0% 100.0%
Direct expenses 84.4% 76.9% 80.7% 77.0%
Gross profit 15.6% 23.1% 19.3% 22.9%
Salaries 8.7% 7.2% 8.1% 8.0%
Selling, general and administrative expense 12.0% 9.0% 10.8% 9.5%
Total operating expenses 20.7% 16.2% 18.9% 17.5%
Operating (loss) income (5.2)% 6.9% 0.5% 5.4%
Interest expense, net 0.1% 0.4% 0.3% 0.5%
(Loss) income before (benefit of) provision for income taxes (5.3%) 8.0% 0.3% 5.4%
(Benefit of ) provision for income taxes (2.1%) 3.2% 0.2% 2.2%
Net (loss) income (3.0%) 5.0% 0.1% 3.3%


The following table presents operating data of the Company, expressed
as a comparative percentage of change for the three and nine month periods ended
December 31, 2003 compared to the three and nine month periods ended December
31, 2002 and the three and nine month periods ended December 31, 2002 compared
to the three and nine month periods ended December 31, 2001:



Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2003 2002 2003 2002
-------- -------- -------- --------

Statement of Operations Data:
Sales (3.9%) 18.1% 10.7% (1.9%)
Direct expenses 5.5% 20.9% 15.9% 0.3%
Gross profit (35.4%) 9.7% (6.7%) (8.6%)
Salaries 16.2% (18.2%) 11.1% (25.2%)
Selling, general and administrative expense 27.8% 0.4% 25.4% (15.4%)
Total operating expenses 22.7% (8.8%) 18.9% (20.2%)
Operating (loss) income (172.1%) 109.1% (89.5%) 71.9%
Interest expense, net (69.0%) (34.2%) (37.3%) (40.3%)
(Loss) income (benefit of) before provision for income taxes 163.5% 194.1% (95.0%) 118.7%
(Benefit of) Provision for income taxes (161.5%) 193.7% (89.8%) 118.1%
Net (loss) income (156.1%) 230.7% (95.3%) 127.1%


Sales. Sales for the quarter ended December 31, 2003 were $16,632,000, compared
to sales of $17,311,000 for the quarter ended December 31, 2002, a decrease of
$679,000 after including $4,850,000 and $1,893,000, respectively, of
reimbursable costs and expenses. Sales for the nine months ended December 31,
2003 were $49,585,000, compared to sales of $44,788,000 for the nine months
ended December 31, 2002, an increase of $4,797,000, after including $13,444,000
and $4,674,000, respectively, of reimbursable costs and expenses. The decrease
in sales for the quarter was primarily attributable to the delay in the
execution of sizable client contracts which the Company had anticipated being

10


signed in the third quarter. The Company currently expects to realize revenues
related to these contracts in the Company's fourth quarter. The increase in
sales for the nine months ended December 31, 2003 was primarily attributable to
the increase in reimbursable costs and expenses included in sales, whereas, the
Company's decrease in sales excluding these reimbursable costs and expenses for
the quarter and nine months ended December 31, 2003 was primarily attributable
to the delay in the execution of contracts referred to above, together with the
continued delay in the launch of a marketing program due to the ongoing grocer's
strike in southern California. 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
December 31, 2003 were $14,043,000, compared to $13,305,000 for the comparable
prior year quarter, an increase of $738,000, after including $4,850,000 and
$1,893,000, respectively, of reimbursable cost and expenses. Direct expenses for
the nine months ended December 31, 2003 were $39,989,000, compared to
$34,503,000 for the comparable prior year nine month period, an increase of
$5,486,000, after including $13,444,000 and $4,674,000, respectively, of
reimbursable costs and expenses. The increase in direct expenses for the quarter
and nine month period was primarily attributable to an increased included amount
of reimbursable costs and expenses and to a lesser extent, increased variable
direct expenses.

The increase in direct expenses as a percentage of sales for
both the quarter and for the nine month period ended December 31, 2003 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 quarter and
nine month period ended December 31, 2002.

Gross Profit. As a result of the changes in sales and direct
expenses, the Company's gross profit for the quarter and nine month period ended
December 31, 2003 decreased to $2,589,000 and $9,596,000, respectively, from
$4,007,000 and $10,285,000 for the quarter and nine month period ended December
31, 2002.

Operating Expenses. Operating expenses for the quarter and
nine month period ended December 31, 2003 increased by $637,000 and $1,482,000,
respectively, and amounted to $3,450,000 and $9,342,000, respectively, compared
to $2,813,000 and $7,860,000, respectively, for the quarter and nine month
period ended December 31, 2002. The increase in operating expenses for the
quarter and nine month period was primarily the result of (i) the increase in
salaries and related payroll taxes of $201,000 for the quarter, and $400,000 for
the nine month period, and (ii) the increase in selling, general and
administrative expenses of $436,000 and $1,082,000 in the respective periods,
inclusive of an increase in a provision for bad debts of $120,000 provided for
in the quarter. The increase in salaries and related payroll taxes for the
quarter ended December 31, 2003 was primarily attributable to an overall
increase in level of salaries and the cost of added personnel engaged to support
an anticipated increase in the level of operations. The increase in selling,
general and administrative expenses for the quarter and nine month periods ended
December 31, 2003 were primarily related to the increased level of operations
which included increased marketing and selling expenditures.

Interest Expense, Net. Net interest expense, consisting of
interest expense of $70,000 offset by interest income of $50,000, for the
quarter ended December 31, 2003 amounted to $20,000, a decrease of $45,000,
compared to net interest expense of $66,000, consisting of interest expense of
$67,000 offset by interest income of $1,000 for the quarter ended December 31,
2002. Net interest expense, consisting of interest expense of $205,000 offset by
interest income of $65,000, for the nine months ended December 31, 2003 amounted
to $140,000, a decrease of $84,000, compared to net interest expense of
$224,000, consisting of interest expense of $229,000 offset by interest income
of $5,000, for the nine months ended December 31, 2002. The decrease in interest
expense for the quarter and nine month period ended December 31, 2003 was
primarily related to the interest charged by the Company on advances to its
affiliate .

(Benefit of) Provision for Income Taxes. The provision for
federal, state and local income taxes for the quarters and nine month periods
ended December 31, 2003 and 2002, were based upon the Company's estimated
effective tax rate for the respective fiscal years.

Equity in Income of Affiliate. For the quarter ended December
31, 2003, the Company recorded $48,000 as it share of income from its 49% equity
investment in MarketVision, compared with $43,000 recorded as its share of
income for the quarter ended December 31, 2002. For the nine months ended
December 31, 2003, the Company recorded $47,800 as its share of income from its
49% equity investment in MarketVision, compared with $12,500 recorded as its
share of such income for the nine month ended December 31, 2002.

Net (Loss) Income. As a result of the items discussed above,
net (loss) income for the quarter and nine month period ended December 31, 2003
was $(490,000) and $70,000 respectively, compared to net income $874,000 and
$1,488,000 respectively, for the prior year quarter and nine month period ended
December 31, 2002.

11


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 (4.25% and 4.5% respectively, at December
31, 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. To
provide for anticipated near term additional working capital needs, on November
24, 2003, the Credit Agreement was further amended pursuant to which the
revolving loan credit facility was temporarily increased by $500,000 to
$4,000,000 until January 31, 2004. Such additional $500,000 was borrowed on
November 24, 2003 and pursuant to the amendment, the Company repaid such amount
on January 29, 2004.

At December 31, 2003, the Company was not in compliance with
three of the financial covenants of the Credit Agreement, namely: (i) the
maximum permitted ratio of consolidated senior funded debt to earnings before
interest, taxes, depreciation and amortization, (ii) the minimum permitted debt
service coverage ratio and (iii) the requirement of no net loss for a fiscal
quarter. The Company expects to be in compliance with its financial covenants
with respect to its year ending March 31, 2004, although there can be no
assurance in this regard. On February 10, 2004, the bank granted a waiver of the
Company's non-compliance with respect to such financial covenants as at December
31, 2003.

At December 31, 2003, the Company had cash and cash
equivalents totaling $799,000, a working capital deficit of $2,071,000,
outstanding bank loans of $5,672,000 with no additional availability under the
Revolving Loan, outstanding subordinated debt of $425,000 and stockholders'
equity of $16,115,000. 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 no additional availability under the
Revolving Loan, outstanding subordinated debt of $625,000 and stockholders'
equity of $15,821,000. The $1,353,000 increase in working capital deficit at
December 31, 2003 compared with March 31, 2003 resulted in part from increased
Revolving Loan borrowings and increases in deferred revenues, accounts payable
and the current portion of bank debt and accrued job costs, offset by an
increase in unbilled contracts in progress at December 31, 2003.

For the nine months ended December 31, 2003, the Company's
activities were funded from working capital and Revolving Loan borrowings under
the Credit Agreement. These funded activities included a final earnout payment
of $376,000 in connection with the Company's acquisition of U.S. Concepts, a
payment of $700,000 for the acquisition of TrikMedia LLC, and expenditures of
$1,304,000 for fixed assets consisting of equipment, leasehold improvements and
furniture and fixtures, a significant amount of which relates to the Company's
relocation of its New York City office. As a result of these expenditures and
delay in the execution of anticipated client contracts, the Company's working
capital availability is currently constrained. The Company intends to replenish
its working capital availability by securing additional longer term financing,
although there can be no assurance that such financing can be obtained or upon
what terms and costs such financing would be available. The failure of the
Company to secure required additional financing could have a material adverse
effect on its operations.

For the nine months ended December 31, 2003: (A) cash provided
by operating activities was $1,025,000, due principally to the net effect of the
aggregate of net income of $70,000, the non-cash charges for depreciation and
amortization of $582,000, deferred income taxes of $(192,180) and the provision
for bad debt expense of $142,000, increases of $741,000, $445,000 and $412,000,
respectively, in deferred revenue, accounts payable and accrued job costs,
offset by increases in accounts receivable of $88,000, $828,000 in unbilled
contracts in progress and $144,000 in prepaid expenses and other assets; (B)
cash used in investing activities amounted to $1,985,000, as a result of
$1,304,000 used to purchase fixed assets and $700,000 for the TrikMedia
acquisition; and (C) cash provided by financing activities of $423,000,
primarily $225,000 from the issuance of stock plus additional net borrowings of
$222,000. As a result of the net effect of the aforementioned, the Company's
cash and cash equivalents at December 31, 2003 decreased by $537,000.

Other Matters.

On January 26, 2004, Brian Murphy, a director of the Company,
and the chief executive officer of the Company's U.S. Concepts subsidiary,
purchased from the Company 150,000 share of a newly designated class of the
Company's Preferred Stock for an aggregate purchase price of $600,000.
Thereafter, on February 9, 2004, the Company sold an aggregate of 412,000 shares
of the Company's Common Stock, at a price of $2.50 per share, to five
individuals, consisting of the Company's President and Chief Executive Officer,
three of the Company's other directors and an officer of one of the Company's
subsidiaries, resulting in an additional $1,030,000 of cash proceeds to the
Company. In connection with such sale of Common Stock, and pursuant to the terms
upon which Mr. Murphy purchased the shares of Preferred Stock described above,

12


Mr. Murphy was issued an additional 240,000 shares of Common Stock in exchange
for the cancellation of such shares of Preferred Stock. Notwithstanding the
foregoing financings, the Company anticipates that it will have to secure
additional financing to meet its working capital requirements. The sale of these
securities was made in a private offering under Section 4(2) of the Securities
Act of 1933, as amended, has not been registered under such Act and such
securities may not be offered or sold in the United States in the absence of an
effective registration statement or an exemption from applicable registration
requirements.

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).

On October 29, 2003, a newly formed wholly-owned subsidiary of
the Company purchased certain assets and assumed certain liabilities of
TrikMedia, Inc. for a purchase price in the amount of $885,000. TrikMedia,
founded in 2000, was a full service multimedia agency engaged in providing
digital marketing and advertising services, interactive software development and
content creation. These services will now be provided by the Company to former
clients of TrikMedia. The Company believes that this acquisition will provide it
with capabilities that complement and add value to the Company's existing
interactive service offerings, and will provide the Company with the opportunity
to increase sales to both existing and prospective clients.

Outlook.

The Company expects net income for its fourth quarter ending
March 31, 2004 will be substantially improved over the net income as compared to
its fourth fiscal quarter ended March 31, 2003. However, the Company does not
expect to meet the guidance previously provided for the fiscal year.

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 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.

13


Item 4. Controls and Procedures
-----------------------

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in the Company's reports filed or submitted under the Securities and Exchange
Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the Company's reports filed under the Exchange Act is accumulated
and communicated to management, including the Company's Chief Executive Officer
and Chief Financial Officer as appropriate, to allow timely decisions regarding
required disclosure.

As of the end of the period covered by this quarterly report,
the Company conducted an evaluation of the effectiveness of the design and
operation of the Company's "disclosure controls and procedures", required by
Rule 13a-15 under the Exchange Act of 1934. This evaluation was carried out
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective.

There have been no significant changes in the Company's
internal control over financial reporting which could materially affect,
internal control over financial reporting.


PART II - OTHER INFORMATION
---------------------------


Items 1, 2, 3, 4 and 5. Not Applicable

Item 6. Exhibits and Reports on Form 8-K
--------------------------------

(a) Exhibits. See Exhibit Index

(b) Reports on Form 8-K. None.

14


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: February 10, 2004 By: /s/ JOHN P. BENFIELD
-------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director



Dated: February 10, 2004 By: /s/ DONALD A. BERNARD
-------------------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director

15


EXHIBIT INDEX


EXHIBIT NO. DESCRIPTION OF EXHIBIT

31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) of the Exchange Act.

31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) of the Exchange Act.

32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

16