<PAGE> 1
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, 1999
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.
Yes x No
--- ---
On February 14, 2000, 5,015,981 shares of the Registrant's Common Stock, par
value $.001 a share, were outstanding.
<PAGE> 2
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 - December 31, 1999 and March 31, 1999 4
Consolidated Statements of Operations - Three month and nine month periods
ended December 31, 1999 and December 31, 1998 5
Consolidated Statement of Stockholders' Equity - Nine month period ended
December 31, 1999 6
Consolidated Statements of Cash Flows - Nine month periods ended
December 31, 1999 and December 31, 1998 7
Notes to Unaudited Consolidated Financial Statements 8
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
PART II - OTHER INFORMATION 14
</TABLE>
ITEM 1. Legal Proceedings
ITEMS 2, 3, 4 AND 5. Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Fourth Amendment to Loan Documents, dated as of
November 19, 1999 among PNC Bank, National
Association, CoActive Marketing Group, Inc., U.S.
Concepts, Inc., Inmark Services, Inc., and Optimum
Group, Inc.(incorporated by reference to Exhibit 1 of
2
<PAGE> 3
Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on November
29, 1999)
27 Financial Data Schedule
(b) Reports on Form 8-K.
On November 29, 1999, the Company filed a report on Form 8-K
announcing that on November 19, 1999, the Company, its
subsidiaries and PNC Bank National Association ("Lender")
executed an amendment to the Company's loan documents,
pursuant to which Lender waived compliance with certain
financial covenants and the terms of certain other financial
covenants were amended.
SIGNATURES 15
- ----------
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
COACTIVE MARKETING GROUP, INC.
Consolidated Balance Sheets
December 31, 1999 and March 31, 1999
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999*
----------------- ---------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,186,094 $ 2,687,575
Accounts receivable 7,899,854 7,042,640
Unbilled contracts in progress 3,384,395 9,537,540
Prepaid taxes 1,204,108 1,502,431
Prepaid expenses and other current assets 797,981 376,593
----------- -----------
Total current assets 16,472,432 21,146,779
----------- -----------
Furniture, fixtures and equipment, net 2,355,203 1,820,479
Less accumulated depreciation 774,638 453,341
----------- -----------
1,580,565 1,367,138
----------- -----------
Notes receivable from officer 225,000 225,000
Goodwill, net 18,783,085 19,548,929
Deferred financing costs 80,925 99,600
Other assets 130,043 64,997
----------- -----------
Total assets $37,272,050 $42,452,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,572,612 $ 3,499,388
Deferred revenue 3,916,835 3,096,698
Accrued job costs 6,295,476 8,841,958
Accrued compensation 104,607 320,273
Other accrued liabilities 554,743 991,137
Deferred taxes payable 625,884 625,884
Notes payable bank - current 937,500 --
Subordinated notes payable - current 625,000 625,000
----------- -----------
Total current liabilities 15,632,657 18,000,338
----------- -----------
Notes payable bank - long term 7,722,500 10,000,000
Subordinated notes payable - long term 1,875,000 1,875,000
----------- -----------
Total liabilities 25,230,157 29,875,338
----------- -----------
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 4,515,356 shares at
December 31, 1999 and 4,513,481 shares at March 31, 1999 4,515 4,513
Additional paid-in capital 5,699,631 5,697,458
Retained earnings 6,337,747 6,875,134
----------- -----------
Total stockholders' equity 12,041,893 12,577,105
----------- -----------
Total liabilities and stockholders' equity $37,272,050 $42,452,443
=========== ===========
</TABLE>
* The consolidated balance sheet as of March 31, 1999 has been summarized from
the Company's audited balance sheet as of that date. See accompanying notes to
unaudited consolidated financial statements.
4
<PAGE> 5
COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Operations
Three Month and Nine Month Periods Ended December 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 12,044,635 $ 11,334,802 $ 29,987,375 $ 33,737,804
Direct expenses 8,981,577 7,686,441 21,476,853 22,682,144
------------ ------------ ------------ ------------
Gross Profit 3,063,058 3,648,361 8,510,522 11,055,660
------------ ------------ ------------ ------------
Salaries 1,282,021 1,002,072 4,294,884 3,173,394
Selling, general and administrative expense 1,449,113 1,082,854 4,483,073 3,301,448
------------ ------------ ------------ ------------
Total operating expenses 2,731,134 2,084,926 8,777,957 6,474,842
------------ ------------ ------------ ------------
Operating income (loss) 331,924 1,563,435 (267,435) 4,580,818
Interest expense, net 234,767 165,979 628,209 464,523
------------ ------------ ------------ ------------
Income (loss) before income taxes 97,157 1,397,456 (895,644) 4,116,295
Provision (benefit) for income taxes 38,864 558,514 (358,257) 1,646,514
------------ ------------ ------------ ------------
Net income (loss) $ 58,293 $ 838,942 $ (537,387) $ 2,469,781
============ ============ ============ ============
Net income (loss) per common and common
Equivalent share:**
Basic $ .01 $ .19 $ (.12) $ .55
============ ============ ============ ============
Diluted $ .01 $ .15 $ (.12) $ .44
============ ============ ============ ============
Weighted average number of common and common equivalent
shares outstanding:**
Basic 4,515,356 4,481,835 4,514,633 4,479,067
============ ============ ============ ============
Diluted 5,056,732 5,597,219 4,514,633 5,652,781
============ ============ ============ ============
Reconciliation of weighted average shares used for
basic and diluted computation
is as follows:
Weighted average shares - Basic 4,515,356 4,481,835 4,514,633 4,479,067
============ ============ ============ ============
Dilutive effect of options and warrants 541,376 1,115,384 -- 1,173,714
============ ============ ============ ============
Weighted average shares - Diluted 5,056,732 5,597,219 4,514,633 5,652,781
============ ============ ============ ============
</TABLE>
** Adjusted for the five-for-four stock split paid in the form of a stock
dividend to shareholders of record May 14, 1998. See accompanying notes to
unaudited consolidated financial statements.
5
<PAGE> 6
COACTIVE MARKETING GROUP, INC.
Consolidated Statement of Stockholders' Equity
Nine Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholders'
par value $.001 Capital Earnings Equity
--------------- ------- -------- ------
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 4,513,481 $ 4,513 $ 5,697,458 $ 6,875,134 $ 12,577,105
Exercise of stock options 1,875 2 2,173 -- 2,175
Net loss -- -- -- (537,387) (537,387)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 4,515,356 $ 4,515 $ 5,699,631 $ 6,337,747 $ 12,041,893
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
COACTIVE MARKETING GROUP, INC.
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (537,387) $ 2,469,781
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Operating activities:
Depreciation and amortization 1,105,816 815,271
Changes in operating assets and liabilities, net of effects of
acquisitions:
(Increase) in accounts receivable (857,214) (1,252,431)
Decrease (increase) in unbilled contracts in progress 6,153,145 (8,998,630)
(Increase) in prepaid expenses and other assets (486,434) (314,141)
Decrease in prepaid taxes 298,323 --
Decrease in accounts payable (926,776) (143,581)
Increase in deferred revenue 820,137 --
(Decrease) increase in accrued job costs (2,546,482) 5,978,163
(Decrease) increase in other accrued liabilities (488,686) 536,692
Increase in accrued taxes payable 706,425
Decrease in accrued compensation (163,374) (183,062)
----------- -----------
Net cash provided by (used in) operating activities 2,371,068 (385,513)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (534,724) (462,505)
Costs related to purchase of Optimum Group, Inc. and U.S.
Concepts, Inc., net of cash acquired -- (2,624,448)
----------- -----------
Net cash used in investing activities (534,724) (3,086,953)
----------- -----------
Cash flows from financing activities:
(Repayments) proceeds of bank borrowings, net (1,340,000) 3,000,000
Proceeds from exercise of stock options 2,175 5,600
----------- -----------
Net cash (used in) provided by financing activities (1,337,825) 3,005,600
----------- -----------
Net increase (decrease) in cash 498,519 (466,866)
Cash and cash equivalents at beginning of period 2,687,575 1,459,909
----------- -----------
Cash and cash equivalents at end of period $ 3,186,094 $ 993,043
=========== ===========
Supplemental disclosure:
Interest paid during the period $ 716,240 $ 443,970
=========== ===========
Income tax paid during the period $ 130,256 $ 964,933
=========== ===========
Noncash investing and financing activity:
Value of 30,000 shares of common stock issued related to
purchase of U.S. Concepts, Inc $ -- $ 250,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
COACTIVE MARKETING GROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
December 31, 1999 and 1998
(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, 1999
and 1998 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 and nine month periods ended December 31, 1999
are not necessarily indicative of the results for a full year.
On December 29, 1998, U.S. Concepts, Inc, a wholly-owned subsidiary of
the Company, acquired the business of Murphy Liquidating Corporation,
formerly known as U.S. Concepts, Inc. The acquisition has been
accounted for as a purchase by the Company as at December 29, 1998.
Accordingly, the results of operations of the Company for the three and
nine month periods ended December 31, 1999 reflect the consolidated
operations of the Company including U.S. Concepts, Inc. whereas the
operations for the three and nine month periods ended December 31, 1998
are that of the Company excluding U.S. Concepts, Inc.
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, 1999.
(2) Earnings Per Share
Earnings per share of common stock for the three and nine month periods
ended December 31, 1999 and 1998 have been calculated according to the
guidelines of Statement No. 128 "Earnings per Share". All earnings per
share calculations have been adjusted for the five-for-four stock split
paid in the form of a stock dividend June 15, 1998 to shareholders of
record on May 14, 1998.
Basic earnings per share for the three and nine month periods have been
computed by dividing net income or loss for each of the respective
periods by the weighted average number of shares of common stock
outstanding for each such period. Diluted earnings per share for the
three and nine month periods have been computed by dividing net income
for each of the periods by the weighted average number of shares of
common stock and common stock equivalents outstanding for each such
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 respective 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
8
<PAGE> 9
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.
(4) Deferred Revenue
Deferred revenue represents contract amounts billed and client advances
in excess of costs incurred and estimated profit earned.
(5) Notes Payable, Bank
At December 31, 1999, the Company was not in compliance with the
minimum EBITDA financial covenant. On February 11, 2000, the Company
and the bank executed an amendment to the loan agreement pursuant to
which the bank waived the Company's non-compliance with respect to such
financial covenant as of December 31, 1999 and the financial covenant
was modified to be consistent with the Company's business plan.
(6) Income Taxes
The provision for income taxes for the three and nine month periods
ended December 31, 1999 and 1998 is based upon the Company's estimated
effective tax rate for the respective year.
(7) Subsequent Events
On January 31, 2000, the Company, in a private placement for $1 million
sold 500,000 newly issued shares of its common stock together with five
year warrants to purchase an additional 250,000 shares of its common
stock at a purchase price of $2.50. On February 1, 2000, the Company
used $500,000 of the proceeds of the placement to reduce its Term Loan
and intends to use the remaining proceeds to increase its working
capital and for an investment in a strategic alliance with a
minority-owned, multi cultural, predominately Hispanic, promotion and
marketing services company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On December 29, 1998, U.S. Concepts, Inc. ("U.S. Concepts", a
wholly-owned subsidiary of the Company), acquired the business of Murphy
Liquidating Corporation, formerly known as U.S. Concepts, Inc. (the "U.S.
Concepts Acquisition"). The U.S. Concepts Acquisition has been accounted for as
a purchase by the Company as at December 29, 1998. Accordingly, the results of
operations discussed below for the three and nine month periods ended December
31, 1999 reflect the consolidated operations of the Company including U.S.
Concepts, whereas the operations for the three and nine month periods ended
December 31, 1998 are that of the Company excluding U.S. Concepts. 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, 1999.
9
<PAGE> 10
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, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Direct expenses 74.6% 67.8% 71.6% 67.2%
Gross profit 25.4% 32.2% 28.4% 32.8%
Salaries 10.7% 8.8% 14.4% 9.4%
Selling, general and administrative expense 12.0% 9.6% 14.9% 9.8%
Total operating expense 22.7% 18.4% 29.3% 19.2%
Operating income (loss) 2.7% 13.8% (0.9%) 13.6%
Interest expense, net 1.9% 1.5% 2.1% 1.4%
Income (loss) before provision for taxes 0.8% 12.3% (3.0%) 12.2%
Provision (benefit) for income taxes 0.3% 4.9% (1.2%) 4.9%
Net income (loss) 0.5% 7.4% (1.8%) 7.3%
OTHER DATA:
EBITDA 5.9% 16.3% 2.8% 16.0%
</TABLE>
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, 1999 compared to the three and nine month periods ended December
31, 1998 and the three and nine month periods ended December 31, 1998 compared
to the three and nine month periods ended December 31, 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Sales 6.3% 57.2% (11.1%) 86.9%
Direct expenses 16.8% 54.7% (5.3%) 85.0%
Gross profit (16.0%) 62.7% (23.0%) 90.8%
Salaries 27.9% 25.2% 35.3% 45.4%
Selling, general and administrative expense 33.8% 122.2% 35.8% 135.1%
Total operating expense 31.0% 61.9% 35.6% 80.5%
Operating income (loss) (78.8%) 63.7% (105.8%) 107.5%
Interest expense, net 41.4% (473.2%) 35.2% (526.1%)
Income (loss) before provision for taxes (93.0%) 39.8% (121.8%) 77.7%
Provision (benefit) for income taxes (93.0%) 19.2% (121.8%) 105.8%
Net income (loss) (93.1%) 58.0% (121.8%) 62.9%
OTHER DATA:
EBITDA (61.4%) 76.8% (84.5%) 117.8%
</TABLE>
10
<PAGE> 11
SALES. Sales for the quarter ended December 31, 1999 were
$12,045,000, inclusive of $3,880,000 of sales of U.S. Concepts, compared to
sales of $11,335,000 for the prior year quarter ended December 31, 1998, an
increase of $710,000. Sales for the nine months ended December 31, 1999 were
$29,987,000, inclusive of $10,938,000 of sales of U.S. Concepts, compared to
sales of $33,738,000 for the nine months ended December 31, 1998, a decrease of
$3,751,000. The increase in sales for the quarter was primarily attributable to
the inclusion of the sales of U.S. Concepts whereas the decrease in sales for
the nine month period was primarily attributable to a lesser than anticipated
amount of contracted sales materializing during the period. At December 31,
1999, the Company's sales backlog, inclusive of approximately $12,071,000
attributable to U.S. Concepts, amounted to approximately $18,355,000 compared to
a sales backlog of approximately $8,292,000 at December 31, 1998.
DIRECT EXPENSES. Direct expenses for the quarter ended
December 31, 1999 were $8,982,000, inclusive of $3,064,000 of direct expenses of
U.S. Concepts, compared to $7,687,000 for the comparable prior year quarter, an
increase of $1,295,000. Direct expenses for the nine months ended December 31,
1999 were $21,477,000, inclusive of $8,529,000 direct expenses of U.S. Concepts,
compared to $22,682,000 for the comparable prior year nine month period, a
decrease of $1,205,000. The increase in direct expenses for the quarter was
primarily attributable to the inclusion of the direct expenses of U.S. Concepts
whereas the decrease in direct expenses for the nine month period ended December
31, 1999 was primarily attributable to the decrease in sales for the period. The
increase in direct expenses as a percentage of sales for both the quarter and
nine month period ended December 31, 1999 was primarily the result of the
aggregate added mix of client programs of U.S. Concepts having a lower gross
profit margin than the mix of the Company's projects in both the respective
comparable prior year quarter and nine month period.
As a result of these changes in sales and direct expenses,
gross profit for the quarter and nine month periods ended December 31, 1999
decreased to $3,063,000 and $8,511,000, respectively, from $3,648,000 and
$11,056,000 for the prior year respective periods.
OPERATING EXPENSES. Operating expenses for the quarter ended
December 31, 1999 increased by $646,000 to $2,731,000 compared to $2,085,000 for
the quarter ended December 31, 1998. Operating expenses for the nine months
ended December 31, 1999 increased by $2,303,000 to $8,778,000 compared to
$6,475,000 for the comparable prior year nine month period. The increase in
operating expenses for the quarter ended December 31, 1999 was primarily the
result of (i) the inclusion of $531,000 of operating expenses of U.S. Concepts
and (ii) increases in salaries and related employee payroll expenses, selling,
general administrative expenses primarily related to supporting and maintaining
an anticipated increase in the level of operations. The increase in operating
expenses for the nine months ended December 31, 1999 was primarily the result of
(i) the inclusion of $1,553,000 of operating expenses of U.S. Concepts and (ii)
increases, primarily related to supporting and maintaining an anticipated
increase in the level of operations, of $227,000 in salaries, accrued bonuses
and related employee payroll expenses and $523,000 in selling, general and
administrative expenses.
INTEREST EXPENSE. Interest expense for the quarter and nine
month period ended December 31, 1999 increased by $69,000 and $163,000 to
$235,000 and $628,000 respectively, compared to interest expense of $166,000 and
$465,000 respectively for the quarter and nine month period ended December 31,
1998. The increase in interest expense for the quarter and nine month period
ended December 31, 1999 was primarily related to the Company's increased bank
borrowings in conjunction with the U.S. Concepts Acquisition.
BENEFIT/PROVISION FOR INCOME TAXES. The respective provision
or benefit for federal, state and local income taxes as reflected in the
quarters and nine month periods ended December 31, 1999 and 1998 were based upon
the Company's estimated effective tax rate for the respective fiscal year.
11
<PAGE> 12
NET INCOME (LOSS). As a result of the items discussed above,
net income for the quarter ended December 31, 1999 was $58,000 compared to net
income of $839,000 for the comparable prior year quarter and net loss for the
nine months ended December 31, 1999 was $(537,000) compared to net income of
$2,470,000 for the comparable prior year nine month period.
LIQUIDITY AND CAPITAL RESOURCES.
The Company has an outstanding bank credit facility (the "Loan
Agreement") consisting of a $3,660,000 term loan (the "Term Loan") and a
$5,000,000 revolving credit facility (the "Revolving Credit Facility"). At
December 31, 1999, the aggregate of the Company's Term Loan and Revolving Credit
Facility notes payable amounted to $8,660,000 and, at that date, the Company was
not in compliance with the EBITDA financial covenant of the Loan Agreement. On
February 11, 2000, the Loan Agreement was amended pursuant to which the bank
waived the Company's non-compliance with such financial covenant as of December
31, 1999 and the financial covenant was modified to be consistent with the
Company's business plan. 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 nine months ended December 31, 1999, the Company's
activities were funded with existing working capital and amounts available under
its Revolving Credit Facility. At December 31, 1999, the Company had cash and
cash equivalents totaling $3,186,000 and working capital of $ 840,000 compared
to cash and cash equivalents of $2,688,000 and working capital of $3,146,000 at
March 31, 1999. The decrease in working capital at December 31, 1999 compared to
March 31, 1999 was primarily the result of the Company's repayment of $1,340,000
of long term bank notes payable and the re-classification of $937,500 of the
remaining bank notes payable as a current payable. Stockholders' equity
decreased to $12,042,000 as a result of the Company's net loss for the nine
months ended December 31, 1999.
For the nine months ended December 31, 1999, (i) cash provided
by operating activities amounted to $2,371,000, primarily as a result of a
decrease in unbilled contracts in progress, a decrease in prepaid taxes and an
increase in deferred revenue which were offset by increases in accounts
receivable, prepaid expenses and other assets and decreases in accounts payable,
accrued job costs, accrued compensation and other accrued liabilities; (ii) cash
used in investing activities to purchase fixed assets amounted to $535,000; and
(iii) net cash used in financing activities primarily to repay bank borrowings
amounted to $1,338,000. As a result of the net effect of the aforementioned, the
Company's cash and cash equivalents at December 31, 1999 increased by $499,000.
The Company believes that its current working capital position
and equity obtained in a private placement discussed under "Other Matters" below
are sufficient to support its existing and anticipated levels of operation. To
the extent that the Company should be required to seek external equity or
additional debt financing, there can be no assurance that the Company will be
able to obtain any such additional funding.
OTHER MATTERS.
On January 31, 2000, the Company, in a private placement for
$1 million sold 500,000 newly issued shares of its common stock together with
five year warrants to purchase an additional 250,000 shares of its common stock
at a purchase price of $2.50. On February 1, 2000, the Company used $500,000 of
the proceeds of the placement to reduce its Term Loan and intends to use the
remaining proceeds to increase its working capital and for an investment in a
strategic alliance with a minority-owned, multi cultural, predominately
Hispanic, promotion and marketing services company.
12
<PAGE> 13
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 and
Directors," "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 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
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 30, 1999, the Registrant's wholly-owned subsidiary
U.S. Concepts, Inc. ("U.S. Concepts"), was sued in the Superior Court of the
State of California, County of San Francisco, by Ms. Star Norman for damages in
excess of $25,000 plus unspecified punitive and other damages. The complaint
arises out of Plaintiff's claim of sex discrimination in violation of the
California Fair Employment and Housing Act and the California constitution and
wrongful discharge in violation of public policy. On September 24, 1999, the
suit was amended to include the Company as an additional Defendant and Ms. Erica
Smith as an additional Plaintiff alleging race discrimination in addition to the
aforementioned claims of Ms. Norman.
With the exception of certain acts complained of by Ms. Smith,
all of the acts complained of took place prior to the date of incorporation of
U.S. Concepts in Delaware and at a time when the subject business was being
conducted by a New York corporation, then named U.S. Concepts, Inc. and now
named Murphy Liquidating Corporation ("Murphy Liquidating"). The subject
business was acquired by U.S. Concepts from Murphy Liquidating on December 28,
1998. The Registrant intends to defend this case vigorously on the grounds that
(i) U.S. Concepts has no liability for the acts complained of since all of such
acts with respect to Ms. Norman and to a significant extent those of Ms. Smith
are alleged to have taken place prior to the existence of U.S. Concepts as an
entity and (ii) the claims are without merit. Further, the Registrant has
notified Murphy Liquidating and its shareholder that it claims indemnification
from them for any loss arising from this matter pursuant to indemnification
agreements entered into in connection with the acquisition.
ITEMS 2, 3, 4 AND 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibits
----------- -----------------------
10.1 Fourth Amendment to Loan Documents,
dated as of November 19, 1999 among
PNC Bank, National Association,
CoActive Marketing Group, Inc.,
U.S. Concepts, Inc., Inmark
Services, Inc., and Optimum Group,
Inc. (incorporated by reference to
Exhibit 1 of Registrant's Current
Report on Form 8-K filed with the
Securities and Exchange Commission
on November 29, 1999
27 Financial Data Schedule
(b) Reports on Form 8-K.
On November 29, 1999, the Company filed a report on
Form 8-K announcing that on November 19, 1999, the
Company, its subsidiaries and PNC Bank, National
Association ("Lender") executed an amendment to the
Company's loan documents, pursuant to which Lender
waived compliance with certain financial covenants
and the terms of certain other financial covenants
were amended.
14
<PAGE> 15
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 14, 2000 By: /s/ John P. Benfield
-----------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: February 14, 2000 By: /s/ Donald A. Bernard
------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
15
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