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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 June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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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
--------------
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
--- ---
On August 8, 2000, 5,015,981 shares of the Registrant's Common Stock, par value
$.001 a share, were outstanding.
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INDEX
COACTIVE MARKETING GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Consolidated Financial Statements of CoActive Marketing Group, Inc. (Unaudited)
Consolidated Balance Sheets - June 30, 2000 and March 31, 2000 3
Consolidated Statements of Operations - Three month periods ended
June 30, 2000 and June 30, 1999 4
Consolidated Statement of Stockholders' Equity - Three month period ended
June 30, 2000 5
Consolidated Statements of Cash Flows - Three month periods ended
June 30, 2000 and June 30, 1999 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 11
PART II - OTHER INFORMATION
---------------------------
ITEMS 1-5. Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
SIGNATURES 12
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</TABLE>
2
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PART I - FINANCIAL INFORMATION
COACTIVE MARKETING GROUP, INC.
Consolidated Balance Sheets
June 30, 2000 and March 31, 2000
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000*
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,823,740 1,106,823
Accounts receivable 11,567,665 9,420,042
Unbilled contracts in progress 400,341 4,164,550
Prepaid taxes 207,786 256,088
Prepaid expenses and other current assets 944,309 711,111
---------------- -------------
Total current assets 15,943,841 15,658,614
---------------- -------------
Furniture, fixtures and equipment, at cost 2,733,140 2,479,868
Less accumulated depreciation 1,071,732 928,998
---------------- -------------
1,661,408 1,550,870
---------------- -------------
Notes receivable from officer 225,000 225,000
Goodwill, net 18,272,904 18,527,928
Deferred financing costs, net 206,122 122,767
Other assets 116,093 111,431
---------------- -------------
Total assets $ 36,425,368 36,196,610
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,944,900 2,451,104
Deferred revenue 3,863,339 2,901,919
Accrued job costs 6,541,040 7,766,087
Accrued compensation 34,293 112,538
Other accrued liabilities 682,205 771,355
Deferred taxes payable - 2,279
Notes payable bank - current 2,400,000 2,400,000
Subordinated notes payable - current 625,000 925,000
---------------- -------------
Total current liabilities 18,090,777 17,330,282
Notes payable bank - long term 4,310,000 4,910,000
Subordinated notes payable - long term 1,250,000 1,250,000
---------------- -------------
Total liabilities 23,650,777 23,490,282
---------------- -------------
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 5,015,981 shares 5,016 5,016
Additional paid-in capital 6,699,880 6,699,880
Retained earnings 6,069,695 6,001,432
---------------- -------------
Total stockholders' equity 12,774,591 12,706,328
---------------- -------------
Total liabilities and stockholders' equity $ 36,425,368 36,196,610
================ =============
</TABLE>
- The consolidated balance sheet as of March 31, 2000 has been summarized from
the Company's audited balance sheet as of that date.
See accompanying notes to Unaudited consolidated financial statements.
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COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 10,075,564 8,783,430
Direct expenses 6,678,649 6,195,776
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Gross profit 3,396,915 2,587,654
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Salaries 1,528,473 1,486,312
Selling, general and administrative expense 1,544,079 1,429,631
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Total operating expenses 3,072,552 2,915,943
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Operating income (loss) 324,363 (328,289)
Interest expense, net 210,590 209,902
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Income (loss) before income taxes 113,773 (538,191)
Provision (benefit) for income taxes 45,510 (215,277)
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Net income (loss) $ 68,263 (322,914)
=========== ===========
Net income (loss) per common and common
equivalent share:
Basic $ .01 $ (.07)
=========== ===========
Diluted $ .01 $ (.07)
=========== ===========
Weighted average number of common and
common equivalent shares outstanding:
Basic 5,015,981 4,513,481
=========== ===========
Diluted 5,562,836 4,513,481
=========== ===========
Reconciliation of weighted average shares used for basic and diluted computation is as follows:
Weighted average shares - Basic 5,015,981 4,513,481
Dilutive effect of options and warrants 546,855 -
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Weighted average shares - Diluted 5,562,836 4,513,481
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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COACTIVE MARKETING GROUP, INC.
Consolidated Statement of Stockholders' Equity
Three Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
par value $.001 Total
------------------------------- Additional Retained Stockholders'
Shares Amount Paid-in Capital Earnings Equity
------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 2000 5,015,981 $5,016 $6,699,880 $6,001,432 $12,706,328
Net income - - - 68,263 68,263
------------- ------------- --------------- ------------- -------------
Balance, June 30, 2000 5,015,981 $5,016 $6,699,880 $6,069,695 $12,774,591
============= ============= =============== ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Cash Flows
Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 68,263 (322,914)
Adjustments to reconcile net income (loss) to net cash Provided by
operating activities:
Depreciation and amortization 418,403 352,250
Changes in operating assets and liabilities:
Increase in accounts receivable (2,147,623) (2,424,809)
Decrease in unbilled contracts in progress 3,764,209 4,351,113
Increase in prepaid expenses and other assets (237,860) (309,292)
Decrease in prepaid taxes 48,302 790,000
Increase (decrease) in accounts payable 1,493,796 (203,261)
Increase in deferred revenue 961,420 2,570,393
Decrease in accrued job costs (1,225,047) (1,934,284)
Decrease in other accrued liabilities (89,150) (400,089)
Decrease in deferred taxes payable (2,279) (215,272)
Decrease in accrued compensation (78,245) (11,140)
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Net cash provided by operating activities 2,974,189 2,242,695
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (253,272) (171,561)
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Net cash used in investing activities (253,272) (171,561)
----------- -----------
Cash flows from financing activities:
Repayments of borrowings (900,000) (1,840,000)
Financing costs (104,000) -
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Net cash used in financing activities (1,004,000) (1,840,000)
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Net increase in cash and cash equivalents 1,716,917 231,134
Cash and cash equivalents at beginning of period 1,106,823 2,687,575
----------- -----------
Cash and cash equivalents at end of period $ 2,823,740 2,918,709
=========== ===========
Supplemental disclosure:
Interest paid during the period $ 320,126 245,030
=========== ===========
Income tax paid during the period $ 7,012 20,750
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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COACTIVE MARKETING GROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2000 and 1999
(1) Basis of Presentation
The interim financial statements of CoActive Marketing Group, Inc.
(the "Company") for the three month periods ended June 30, 2000 and
1999 have been prepared without audit. In the opinion of management,
such 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, 2000 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,
2000.
(2) Earnings Per Share
Earnings per share of common stock for the three month periods ended
June 30, 2000 and 1999 have been calculated according to the
guidelines of Statement No. 128 "Earnings per Share".
Basic earnings per share for the three month periods have been
computed by dividing net income for the respective period by the
weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share for the three month periods have
been computed by dividing net income for the respective period by the
weighted average number of shares of common stock and common stock
equivalents outstanding for the period, plus the assumed exercise of
stock options and warrants, less the number of treasury shares
assumed to be purchased from the proceeds of such exercises using the
average market price of the Company's common stock during the period.
Stock options and warrants have been excluded from the calculation of
diluted earnings per share in any period in which they would be
antidilutive.
(3) 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.
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(4) Deferred Revenue
Represents contract amounts billed and client advances in excess of
costs incurred and estimated profit earned.
(5) Income Taxes
The provision for income taxes for the three month period ended June
30, 2000 and 1999 is based upon the Company's estimated effective tax
rate for that year.
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,
2000 to the Company's consolidated results of operations for the three month
period ended June 30, 1999. 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, 2000.
RESULTS OF OPERATIONS
The following table presents operating data of the Company, expressed
as a percentage of sales for each of the three month periods ended June 30,
2000, and 1999:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------------------------------
2000 1999
-------------------- ---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales 100.0% 100.0%
Direct expenses 66.3% 70.5%
Gross profit 33.7% 29.5%
Salaries 15.2% 16.9%
Selling, general and administrative expense 15.3% 16.3%
Total operating expense 30.5% 33.2%
Operating income (loss) 3.2% (3.7%)
Interest expense, net 2.1% 2.4%
Income (loss) before provision for taxes 1.1% (6.1%)
Provision (benefit) for income taxes 0.5% (2.5%)
Net income (loss) 0.7% (3.7%)
OTHER DATA:
EBITDA 7.4% 0.3%
</TABLE>
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The following table presents operating data of the Company, expressed
as a comparative percentage of change for the three month period ended June 30,
2000 compared to the three month period ended June 30, 1999 and the three month
period ended June 30, 1999 compared to the three month period ended June 30,
1998:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------------------------------
2000 1999
-------------------- ---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales 14.7% (28.3%)
Direct expenses 7.8% (25.3%)
Gross profit 31.3% (34.6%)
Salaries 2.8% 38.5%
Selling, general and administrative expense 8.0% 29.3%
Total operating expense 5.4% 33.8%
Operating income (loss) n/a (118.5%)
Interest expense, net 0.3% 23.0%
Income (loss) before provision for income taxes n/a (133.5%)
Provision (benefit) for income taxes n/a (133.5%)
Net income (loss) n/a (133.4%)
OTHER DATA:
EBITDA 300.0% (98.8%)
</TABLE>
SALES. Sales for the quarter ended June 30, 2000 were
$10,076,000, compared to sales of $8,783,000 for the quarter ended June 30,
1999, an increase of $1,293,000. The increase was primarily attributable to a
greater amount of contracted sales materializing during the quarter. At June 30,
2000, the Company's sales backlog amounted to approximately $14,623,000 compared
to a sales backlog of approximately $11,584,000 at June 30, 1999.
DIRECT EXPENSES. Direct expenses for the quarter ended
June 30, 2000 were $6,679,000, compared to $6,196,000 for the comparable prior
year quarter, an increase of $483,000. The increase was primarily attributable
to the increase in sales. The decrease in direct expenses as a percentage of
sales for the quarter ended June 30, 2000 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 quarter.
As a result of these changes in sales and direct expenses,
the Company's gross profit for the quarter ended June 30, 2000 increased to
$3,397,000 from $2,588,000 for the quarter ended June 30, 1999.
OPERATING EXPENSES. Operating expenses for the quarter
ended June 30, 2000 increased by $157,000 and amounted to $3,073,000, compared
to operating expenses of $2,916,000 for the quarter ended June 30, 1999. The
increase in operating expenses for the quarter ended June 30, 2000 was primarily
the result of the overall increase in salaries, bonuses and related payroll
expenses, and selling, general and administrative expenses related to supporting
and maintaining an anticipated increase in the level of operations.
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INTEREST EXPENSE. Interest expense for the quarter ended
June 30, 2000 increased to $211,000, compared to interest expense of $210,000
for the quarter ended June 30, 1999. The slight increase in interest expense for
the quarter ended June 30, 2000 was primarily related to the Company's increased
interest rates on its bank borrowings.
BENEFIT/PROVISION FOR INCOME TAXES. Both the respective
provision and benefit for federal, state and local income taxes for the quarters
ended June 30, 2000 and 1999 were based upon the Company's estimated effective
tax rate for the respective fiscal year.
NET INCOME (LOSS). As a result of the items discussed
above, net income for the quarter ended June 30, 2000 was $68,000 compared to a
net loss of $(323,000) for the comparable prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES.
The Company has an outstanding bank credit facility (the
"Loan Agreement") consisting of a term loan (the "Term Loan") and a revolving
credit facility (the "Revolving Credit Facility"). On June 15, 2000, the
Company's Loan Agreement with its bank was amended to modify certain financial
covenants and increase the per annum rate of interest on all loans to 3% above
the lender's prime rate; and on June 26, 2000, the Loan Agreement was further
amended to extend the final maturity date of the loans outstanding under the
Loan Agreement to July 8, 2001. At June 30, 2000, the Company's outstanding
loans under the Loan Agreement amounted to $6,710,000 and pursuant to an earlier
amendment of the Loan Agreement, the Company is prohibited from further
borrowings on a revolving credit basis. While the Company has met the modified
financial covenant requirements at June 30, 2000, there can be no assurance that
the Company will be able to satisfy, on an ongoing basis, the modified financial
covenants of the Loan Agreement.
For the quarter ended June 30, 2000, the Company's
activities and the combined repayment of $900,000 of Term Loan and subordinated
debt borrowings were funded from existing working capital. At June 30, 2000, the
Company had cash and cash equivalents totaling $2,824,000 and a working capital
deficit of $2,147,000 compared to cash and cash equivalents of $1,107,000 and a
working capital deficit of $1,672,000 at March 31, 2000. The decrease in working
capital at June 30, 2000 compared with March 31, 2000 was primarily the result
of the net effect during the quarter of the Company's $961,000 increase in
deferred revenue after being offset by a payment of $300,000 that reduced
current subordinated notes payable. Stockholders' equity increased to
$12,775,000 as a result of the Company's net income for the quarter ended June
30, 2000. While management believes cash generated from operations will be
sufficient to meet its cash requirements, to the extent that the Company is
required to seek additional external financing in the form of a revised or
replacement credit facility, equity or debt, there can be no assurance that the
Company will be able to obtain such additional funding to satisfy its cash
requirements for fiscal 2001 or as subsequently required under the Loan
Agreement.
For the quarter ended June 30, 2000, (A) cash provided by
operating activities amounted to $2,974,000, primarily as a result of the net
aggregate of (i) net income and non-cash adjustments for depreciation and
amortization, (ii) a decrease in unbilled contracts in progress, and (iii)
increases in accounts payable and deferred revenue, as offset by (i) an increase
in accounts receivable, (ii) an increase in prepaid expenses and other assets,
and (iii) decreases in accrued job costs and other accrued expenses; (B) cash
used in investing activities to purchase fixed assets amounted to $253,000; and
(C) cash used in financing activities to repay borrowings and pay financing
costs related to bank borrowings amounted to
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$1,004,000. As a result of the net effect of the aforementioned, the Company's
cash and cash equivalents at June 30, 2000 increased by $1,717,000.
FORWARD LOOKING STATEMENTS.
This report contains or incorporates by reference 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, 1999 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,""Outstanding Indebtedness; Security
Interest," and "Shares Eligible for Future Sale." 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.
PART II - OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibits
----------- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None
11
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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 8, 2000 By: /s/ John P. Benfield
-------------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: August 8, 2000 By: /s/ Donald A. Bernard
-------------------------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
12
