Income from Continuing Operations. As a result of the items discussed above, income from continuing operations for the years ended March 31, 2008 and 2007 was $1,487,000 and $1,173,000, respectively. Diluted earnings per share from continuing operations amounted to $.21 and $.16 for the years ended March 31, 2008 and 2007, respectively.
Discontinued Operations. Loss from discontinued operations relating to the sale of MarketVision in May 2006 as well as the loss incurred on its disposal amounted to $177,000, on a net of tax basis for the year ended March 31, 2007. The loss on the disposal of MarketVision includes a tax provision of approximately $302,000 as a result of this sale with a corresponding reduction of the deferred tax asset on our balance sheet. Diluted loss per share from discontinued operations amounted to ($.02) for the year ended March 31, 2007.
Net Income. As a result of the items discussed above, net income for Fiscal 2008 rose 49% to $1,486,000, compared to net income of $996,000 for Fiscal 2007. Fully diluted earnings per share amounted to $.21 and $.14 for Fiscal 2008 and 2007, respectively.
Liquidity and Capital Resources
Beginning with our fiscal year ended March 31, 2000, we have continuously experienced negative working capital. This deficit has generally resulted from our inability to generate sufficient cash and receivables from our programs to offset our current liabilities, which consist primarily of obligations to vendors and other accounts payable and deferred revenues. We are continuing our efforts to increase revenues from our programs and reduce our expenses, but to date these efforts have not been sufficiently successful. We have been able to operate during this extended period with negative working capital due primarily to advance payments made to us on a regular basis by our largest customers, and to a lesser degree, equity infusions from private placements of our securities ($1 million in January 2000, and $1.63 million in January and February 2003), and stock option and warrant exercises. For the fiscal year ended March 31, 2008, we have generated sufficient net income to reduce the working capital deficit by $2,533,000 to $783,000.
On June 20, 2007, subsequent to the end of Fiscal 2007, we repaid the remaining obligations owed to our senior lender in the amount of $1,762,000. We believe cash currently on hand together with cash expected to be generated from operations will be sufficient to fund our operations through the end of Fiscal 2009. In addition, on June 12, 2008 we signed a commitment letter with a commercial lender providing for a $5,000,000 senior secured credit facility consisting of a three-year revolving credit facility in the principal amount of $2,500,000 and a three-year term loan in the amount of $2,500,000. There can be no assurance that we will be able to close the credit facility. If we are unable to secure financing when needed, our businesses may be materially and adversely affected.
At March 31, 2008, we had cash and cash equivalents of $5,324,000, a working capital deficit of $783,000, and stockholders’ equity of $11,988,000. In comparison, at March 31, 2007, we had cash and cash equivalents of $9,514,000, a working capital deficit of $3,316,000, an outstanding bank term loan of $2,000,000, an outstanding bank letter of credit of $450,000, and stockholders’ equity of $10,056,000. The decrease of $4,190,000 in cash and cash equivalents was primarily due to the repayment of our outstanding debt obligations, purchases of fixed assets and cash used in operating activities.
Operating Activities.Net cash used in operating activities for the twelve months ended March 31, 2008 was $1,523,000 compared to $5,191,000 of cash provided by operating activities in fiscal 2007. This $6,714,000 reduction in cash generated by operating activities was primarily attributable to a $10,709,000 change in certain balance sheet accounts during Fiscal 2008 as a result of timing differences between operating revenue recognized versus the amount of sales billed and program cost incurred as of March 31, 2008 and March 31, 2007, respectively. These accounts include unbilled contracts in progress, deferred contract costs, accrued job costs and deferred revenue. This was partially offset by $4,010,000 of cash provided from the net change in the accounts receivable and accounts payable balances from March 31, 2007 to March 31, 2008.
13
Investing Activities.For Fiscal 2008, net cash used by investing activities was $679,000 due primarily to the purchase of computer equipment and a new accounting system. For the twelve months ended March 31, 2007, net cash provided by investing activities was $925,000, primarily as a result of proceeds from sale of discontinued operations offset by the purchase of certain fixed assets.
Financing Activities.For the twelve months ended March 31, 2008, net cash used in financing activities was $1,988,000 resulting primarily from payments made to repay bank borrowings. For the twelve months ended March 31, 2007, net cash used in financing activities amounted to $531,000 resulting primarily from payments made to repay bank borrowings of $1,000,000, offset by $454,000 in proceeds from the exercise of stock options
Off-Balance Sheet Transactions
We are not a party to any “off-balance sheet transactions” as defined in Item 301 of Regulation S-K.
Impact of Recently Issued Accounting Standards
On April 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). There was no impact on the Company’s consolidated financial position, results of operations or cash flows at March 31, 2008 and for the year then ended as a result of implementing FIN 48. At the adoption date of April 1, 2007 and at March 31, 2008, the Company did not have any unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of April 1, 2007 and March 31, 2008, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 – Effective Date of FASB Statement No. 157) which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. Management believes that the adoption of this statement will not have a material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value that are currently required to be measured at historical costs. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions for which are required to be applied prospectively. Management believes that the adoption of this statement will not have a material impact on our financial statements.
14
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management believes that the adoption of this statement will not have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for annual periods beginning after December 15, 2008. Management believes that the adoption of this statement will not have a material impact on our financial statements.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management believes that the adoption of this statement will not have a material impact on our financial statements.
In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. Prior to the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.
15
| |
Item 8. | FinancialStatements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
16
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CoActive Marketing Group, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of CoActive Marketing Group, Inc. and subsidiaries (the Company) as of March 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended March 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CoActive Marketing Group, Inc. and subsidiaries as of March 31, 2008 and 2007, and the results of their operations and cash flows for each of the two years in the period ended March 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.
| |
| /s/ Lazar Levine & Felix LLP |
|
|
| Lazar Levine & Felix LLP |
New York, New York
June 17, 2008
17
COACTIVE MARKETING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 AND 2007
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 5,323,527 | | $ | 9,514,081 | |
Accounts receivable, net of allowance for doubtful accounts of $388,000 in 2008 and $365,000 in 2007 | | | 6,586,673 | | | 12,131,037 | |
Unbilled contracts in progress | | | 6,338,361 | | | 2,114,564 | |
Deferred contract costs | | | 3,912,437 | | | 1,552,910 | |
Prepaid expenses and other current assets | | | 327,782 | | | 913,538 | |
| |
|
| |
|
| |
Total current assets | | | 22,488,780 | | | 26,226,130 | |
| | | | | | | |
Property and equipment, net | | | 3,429,752 | | | 3,382,968 | |
| | | | | | | |
Deferred tax asset | | | 3,704,829 | | | 4,936,414 | |
Goodwill and other intangible assets | | | 7,557,203 | | | 7,557,203 | |
Other assets | | | 489,511 | | | 38,667 | |
| |
|
| |
|
| |
Total assets | | $ | 37,670,075 | | $ | 42,141,382 | |
| |
|
| |
|
| |
| | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 2,056,913 | | $ | 3,568,910 | |
Accrued compensation | | | 2,774,033 | | | 2,166,244 | |
Accrued job costs | | | 3,254,729 | | | 999,588 | |
Other accrued liabilities | | | 2,801,352 | | | 2,200,483 | |
Deferred revenue and other client credits | | | 11,983,638 | | | 18,364,020 | |
Deferred tax liability | | | 401,035 | | | 243,249 | |
Notes payable bank | | | — | | | 2,000,000 | |
| |
|
| |
|
| |
Total current liabilities | | | 23,271,700 | | | 29,542,494 | |
| | | | | | | |
Deferred rent | | | 2,409,942 | | | 2,542,452 | |
| |
|
| |
|
| |
Total liabilities | | | 25,681,642 | | | 32,084,946 | |
| |
|
| |
|
| |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
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 7,624,103 shares and 7,626,001 shares at March 31, 2008 and 2007, respectively | | | 7,624 | | | 7,626 | |
Additional paid-in capital | | | 11,178,594 | | | 10,733,431 | |
Retained earnings (accumulated deficit) | | | 802,215 | | | (684,621 | ) |
| |
|
| |
|
| |
Total stockholders’ equity | | | 11,988,433 | | | 10,056,436 | |
| |
|
| |
|
| |
Total liabilities and stockholders’ equity | | $ | 37,670,075 | | $ | 42,141,382 | |
| |
|
| |
|
| |
See accompanying notes
18
COACTIVE MARKETING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2008 AND 2007
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
| | | | | | | |
Sales | | $ | 85,522,692 | | $ | 95,879,958 | |
| |
| |
| |
| | | | | | | |
Operating expenses: | | | | | | | |
Reimbursable program costs and expenses | | | 25,762,596 | | | 39,887,502 | |
Outside production and other program expenses | | | 24,820,397 | | | 20,983,235 | |
Compensation expense | | | 25,633,447 | | | 23,121,391 | |
General and administrative expenses | | | 6,459,131 | | | 9,901,159 | |
| |
|
| |
|
| |
Total operating expenses | | | 82,675,571 | | | 93,893,287 | |
| |
|
| |
|
| |
| | | | | | | |
Operating income | | | 2,847,121 | | | 1,986,671 | |
| | | | | | | |
Interest income | | | 157,835 | | | 260,085 | |
Interest expense | | | (70,595 | ) | | (295,155 | ) |
Other expense, net | | | — | | | (206,714 | ) |
| |
|
| |
|
| |
| | | | | | | |
Income from continuing operations before provision for income taxes | | | 2,934,361 | | | 1,744,887 | |
Provision for income taxes | | | 1,447,525 | | | 572,012 | |
| |
|
| |
|
| |
Income from continuing operations | | | 1,486,836 | | | 1,172,875 | |
| |
|
| |
|
| |
| | | | | | | |
Discontinued operations: | | | | | | | |
Loss from discontinued operations, net of tax benefit of $32,591 | | | — | | | (49,650 | ) |
Loss on disposal of discontinued operations, net of tax provision of $302,004 | | | — | | | (127,174 | ) |
| |
|
| |
|
| |
| | | | | | | |
Loss from discontinued operations | | | — | | | (176,824 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net income | | $ | 1,486,836 | | $ | 996,051 | |
| |
|
| |
|
| |
| | | | | | | |
Basic earnings (loss) per share: | | | | | | | |
Income from continuing operations | | $ | .21 | | $ | .17 | |
Loss from discontinued operations | | | — | | | (.02 | ) |
| |
|
| |
|
| |
Net income per share | | $ | .21 | | $ | .15 | |
| |
|
| |
|
| |
| | | | | | | |
Diluted earnings (loss) per share: | | | | | | | |
Income from continuing operations | | $ | .21 | | $ | .16 | |
Loss from discontinued operations | | | — | | | (.02 | ) |
| |
|
| |
|
| |
Net income per share | | $ | .21 | | $ | .14 | |
| |
|
| |
|
| |
| | | | | | | |
Weighted average number of shares outstanding: | | | | | | | |
Basic | | | 6,935,806 | | | 6,837,533 | |
Diluted | | | 7,140,666 | | | 7,283,742 | |
| | | | | | | |
See accompanying notes
19
COACTIVE MARKETING GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2008 AND 2007
| | | | | | | | | | | | | | | | |
| | Common Stock
par value $.001 | | Additional
Paid-in
Capital | | Retained
Earnings
(Accumulated Deficit) | | Total Stockholders’ Equity | |
| |
| | | | |
| | Shares | | Amount | | | | |
| |
| |
| |
| |
| |
| |
| | | | | | | | |
Balance, March 31, 2006 | | | 6,831,423 | | $ | 6,831 | | $ | 10,250,003 | | $ | (1,680,672 | ) | $ | 8,576,162 | |
| | | | | | | | | | | | | | | | |
Exercise of options and warrants | | | 371,380 | | | 372 | | | 453,284 | | | — | | | 453,656 | |
| | | | | | | | | | | | | | | | |
Tax benefit from share-based payment arrangements | | | — | | | — | | | 20,718 | | | — | | | 20,718 | |
| | | | | | | | | | | | | | | | |
Issuance of restricted stock | | | 576,250 | | | 576 | | | (576 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | |
Retirement of common stock in connection with payment of interest on note receivable | | | (153,052 | ) | | (153 | ) | | (282,994 | ) | | — | | | (283,147 | ) |
| | | | | | | | | | | | | | | | |
Compensation cost recognized in connection with vested stock | | | — | | | — | | | 171,884 | | | — | | | 171,884 | |
| | | | | | | | | | | | | | | | |
Compensation cost recognized in connection with stock options | | | — | | | — | | | 121,112 | | | — | | | 121,112 | |
| | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | 996,051 | | | 996,051 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | |
Balance, March 31, 2007 | | | 7,626,001 | | | 7,626 | | | 10,733,431 | | | (684,621 | ) | | 10,056,436 | |
| | | | | | | | | | | | | | | | |
Tax benefit from share-based payment arrangements | | | — | | | — | | | 11,629 | | | — | | | 11,629 | |
| | | | | | | | | | | | | | | | |
Issuance of restricted stock | | | 359,352 | | | 359 | | | (359 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | |
Forfeiture of restricted stock | | | (361,250 | ) | | (361 | ) | | 361 | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Compensation cost recognized in connection with vested stock | | | — | | | — | | | 329,292 | | | — | | | 329,292 | |
| | | | | | | | | | | | | | | | |
Compensation cost recognized in connection with stock options | | | — | | | — | | | 104,240 | | | — | | | 104,240 | |
| | | | | | | | | | | | | | | | |
Net income | | | — | | | — | | | — | | | 1,486,836 | | | 1,486,836 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | |
Balance, March 31, 2008 | | | 7,624,103 | | $ | 7,624 | | $ | 11,178,594 | | $ | 802,215 | | $ | 11,988,433 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
See accompanying notes
20
COACTIVE MARKETING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2008 AND 2007
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 1,486,836 | | $ | 996,051 | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 632,461 | | | 852,948 | |
Deferred rent amortization | | | (132,510 | ) | | (71,089 | ) |
Provision for bad debt expense | | | 22,853 | | | 122,790 | |
Provision for uncollectible note receivable from officer | | | — | | | 305,942 | |
Interest income on note receivable from officer | | | — | | | (50,833 | ) |
Share based compensation expense | | | 433,532 | | | 292,996 | |
Deferred income taxes | | | 1,389,371 | | | 439,304 | |
Excess tax benefits from share-based payment arrangements | | | — | | | (20,718 | ) |
Loss from discontinued operations, net of tax | | | — | | | 49,650 | |
Loss on disposal of discontinued operations, net of tax | | | — | | | 127,174 | |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | | | 5,521,511 | | | (1,527,065 | ) |
Unbilled contracts in progress | | | (4,223,797 | ) | | 535,889 | |
Deferred contract costs | | | (2,359,527 | ) | | 970,155 | |
Prepaid expenses and other assets | | | 134,912 | | | (8,851 | ) |
Accounts payable | | | (1,511,997 | ) | | (936,434 | ) |
Accrued compensation | | | 607,789 | | | 671,812 | |
Accrued job costs | | | 2,255,141 | | | (368,647 | ) |
Other accrued liabilities | | | 600,869 | | | 225,770 | |
Deferred revenue | | | (6,380,382 | ) | | 2,618,751 | |
| |
|
| |
|
| |
Net cash (used in) provided by operating activities of continuing operations | | | (1,522,938 | ) | | 5,225,595 | |
Operating activities of discontinued operations | | | — | | | (35,004 | ) |
| |
|
| |
|
| |
Net cash (used in) provided by operating activities | | | (1,522,938 | ) | | 5,190,591 | |
| |
|
| |
|
| |
Cash flows from investing activities: | | | | | | | |
Proceeds from sale of discontinued operations | | | — | | | 1,100,000 | |
Proceeds from collection on note receivable | | | — | | | 135,035 | |
Purchases of fixed assets | | | (679,245 | ) | | (310,357 | ) |
| |
|
| |
|
| |
Net cash (used in) provided by investing activities of continuing operations | | | (679,245 | ) | | 924,678 | |
| |
|
| |
|
| |
Cash flows from financing activities: | | | | | | | |
Proceeds from exercise of stock options and warrants | | | — | | | 453,656 | |
Excess tax benefits from share-based payment arrangements | | | 11,629 | | | 20,718 | |
Payments of debt | | | (2,000,000 | ) | | (1,000,000 | ) |
Financing costs | | | — | | | (5,000 | ) |
| |
|
| |
|
| |
Net cash used in financing activities | | | (1,988,371 | ) | | (530,626 | ) |
| |
|
| |
|
| |
Net (decrease) increase in cash and cash equivalents | | | (4,190,554 | ) | | 5,584,643 | |
Cash and cash equivalents at beginning of year | | | 9,514,081 | | | 3,929,438 | |
| |
|
| |
|
| |
Cash and cash equivalents at end of year | | $ | 5,323,527 | | $ | 9,514,081 | |
| |
|
| |
|
| |
Supplemental disclosures of cash flow information: | | | | | | | |
Interest paid during the year | | $ | 93,414 | | $ | 227,559 | |
| |
|
| |
|
| |
Income taxes paid during the year | | $ | 100,917 | | $ | 79,037 | |
| |
|
| |
|
| |
Non-cash transactions relating to investing and financing activities consist of: | | | | | | | |
Retirement of common stock in connection with payment of interest on note receivable | | $ | — | | $ | 283,147 | |
| |
|
| |
|
| |
See accompanying notes.
21
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(1) | Organization and Nature of Business |
| | |
| CoActive Marketing Group, Inc. (the “Company”), through its wholly-owned subsidiaries Inmark Services LLC, Optimum Group LLC, U. S. Concepts LLC and Digital Intelligence Group LLC, is an integrated sales promotional and marketing services agency. The Company develops, manages and executes promotional programs at both national and local levels. These programs help the Company’s clients effectively promote their goods and services directly to retailers and consumers and are intended to assist them in achieving a maximum impact and return on their marketing investment. The Company’s activities reinforce brand awareness, provide incentives to retailers to order and display its clients’ products, and motivate consumers to purchase those products. |
| | |
| The Company’s services include experiential marketing, event marketing, interactive marketing, multicultural and urban marketing, and all elements of consumer and trade promotion, and are marketed directly to clients through sales forces operating out of offices located in New York, New York; Cincinnati, Ohio; Chicago, Illinois and San Francisco, California. |
| | |
(2) | Summary of Significant Accounting Policies |
| | |
| (a) | Principles of Consolidation |
| | |
| | The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. In addition, through May 22, 2006, the consolidated financial statements included the accounts of a variable interest entity, Garcia Baldwin, Inc. d/b/a MarketVision (“MarketVision”), an affiliate that provided ethnically oriented marketing and promotional services. The Company owned 49% of the common stock of MarketVision. A third party owned the remaining 51%. The third party owned portion of MarketVision was accounted for as a minority interest in the Company’s consolidated financial statements. As disclosed in Note 9, the Company sold its 49% interest in MarketVision in May 2006, and all amounts relating to MarketVision have been reclassified as discontinued operations in the Company’s financial statements for the 2007 year. All significant intercompany balances and transactions have been eliminated in consolidation. |
| | |
| (b) | Use of Estimates |
| | |
| | The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on certain assumptions, which it believes are reasonable in the circumstances, and does not believe that any change in those assumptions would have a significant effect on the financial position or results of operations of the Company. Actual results could differ from those estimates |
| | |
| (c) | Fair Value of Financial Instruments |
| | |
| | The carrying value of all financial instruments classified as a current asset or liability is deemed to approximate fair value due to the short maturity of these instruments and interest rates that approximate current market rates. |
22
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (d) | Cash and Cash Equivalents |
| | |
| | Investments with original maturities of three months or less at the time of purchase are considered cash equivalents. Due to the short-term nature of the cash equivalents, the carrying value approximates fair value. |
| | |
| (e) | Accounts Receivable and Credit Policies |
| | |
| | The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, management considers many factors in estimating its general allowance, including historical data, experience, customer types, credit worthiness, and economic trends. From time to time, management may adjust its assumptions for anticipated changes in any of those or other factors expected to affect collectability. |
| | |
| (f) | Unbilled Contracts in Progress/Accrued Job Costs |
| | |
| | Unbilled contracts in progress represent 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. |
| | |
| (g) | Deferred Contract Costs |
| | |
| | Deferred contract costs represent direct contract costs and expenses incurred prior to the Company’s related revenue recognition on such contracts. Notwithstanding the Company’s accounting policy with regard to deferred contract costs, labor costs for permanent employees are expensed as incurred. |
| | |
| (h) | Property and Equipment |
| | |
| | Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Funds received from a landlord to reimburse the Company for the cost, or a portion of the cost, of leasehold improvements are recorded as deferred rent and amortized as reductions to rent expense over the lease term. |
| | |
| (i) | Goodwill and Other Intangible Assets |
| | |
| | Goodwill consists of the cost in excess of the fair value of the acquired net assets of the Company’s subsidiaries. The Company’s other intangible assets consist of an Internet domain name and related intellectual property rights. At each of March 31, 2008 and 2007 the Company had approximately $7,357,000 of goodwill and a $200,000 carrying value related to the internet domain name. |
23
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (i) | Goodwill and Other Intangible Assets (Continued) |
| | |
| | Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Impairment tests require the comparison of the fair value and carrying value of reporting units. Measuring fair value of a reporting unit is generally based on valuation techniques using multiples of earnings. The Company assesses the potential impairment of goodwill and other intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon completion of such annual review, if impairment is found to have occurred, a corresponding charge will be recorded. The Company has determined that it has three reporting units representing its subsidiaries and as a result of the Company’s annual test to determine whether goodwill and other intangible assets have been impaired as of March 31, 2008, the Company did not identify any indication of goodwill impairment of its reporting units or intangible assets. |
| | |
| (j) | Deferred Rent |
| | |
| | Deferred rent consists of (i) the excess of the allocable straight line rent expense to date as compared to the total amount of rent due and payable through such period, and (ii) funds received from landlords to reimburse the Company for the cost, or a portion of the cost, of leasehold improvements. Deferred rent is amortized as a reduction to rent expense over the term of the lease. |
| | |
| (k) | Revenue Recognition |
| | |
| | The Company’s revenues are generated from projects subject to contracts requiring the Company to provide its services within specified time periods generally ranging up to twelve months. As a result, on any given date, the Company has projects in process at various stages of completion. Depending on the nature of the contract, revenue is recognized as follows: (i) on time and material service contracts, revenue is recognized as services are rendered and the costs are incurred; (ii) on fixed price retainer contracts, revenue is recognized on a straight-line basis over the term of the contract; (iii) on fixed price multiple services contracts, revenue is recognized over the term of the contract for the fair value of segments of the services rendered which qualify as separate activities or delivered units of service; to the extent multi-service arrangements are deemed inseparable, revenue on these contracts is recognized as the contracts are completed; (iv) on certain fixed price contracts, revenue is recognized on a percentage of completion basis, whereby the percentage of completion is determined by relating the actual cost of labor performed to date to the estimated total cost of labor for each contract; (v) on certain fixed price contracts, revenue is recognized on the basis of proportional performance as certain key milestones are delivered. Costs associated with the fulfillment of projects are accrued or deferred and recognized proportionately to the related revenue in order to ensure a matching of revenue and expenses in the proper period. Provisions for anticipated losses on uncompleted projects are made in the period in which such losses are determined. |
24
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (l) | Reimbursable Program Costs and Expenses |
| | |
| | Pursuant to contractual arrangements with some of its clients, the Company is reimbursed for certain program costs and expenses. These reimbursed costs are recorded both as revenues and as operating expenses. Such costs may include variable employee program compensation costs. Not included in reimbursable program costs and expenses are certain compensation and general and administrative expenses which are recurring in nature and for which a certain client fee arrangement provides for payment of such costs. These costs are included in compensation and general and administrative expenses on the statements of operations. |
| | |
| | In July 2000, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) released Issue 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19”). Additionally, in January 2002, the EITF released Issue 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred” (“EITF 01-14”). EITF 99-19 and EITF 01-14 provide guidance on when client reimbursements, including out of pocket expenses, should be characterized as revenue. Pursuant to such literature, the Company records such client reimbursements as revenue on a gross basis. |
| | |
| (m) | Accounting for Stock-Based Compensation |
| | |
| | On April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004) – “Share-Based Payment” (“SFAS No. 123R”), which requires the Company to measure all employee stock-based compensation awards using a fair value method and record the related expense in the financial statements over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123R also amends FASB Statement No. 95, “Statement of Cash Flows,” to require that excess tax benefits, as defined, realized from the exercise of stock options be reported as a financing cash inflow rather than as a reduction of taxes paid in cash flow from operations. The Company elected to use the modified prospective transition method, which requires that compensation cost be recognized in the financial statements for all awards granted after the date of adoption as well as for existing awards for which the requisite service has not been rendered as of the date of adoption. For each award that has a graded vesting schedule, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. Stock based employee compensation expense for the years ended March 31, 2008 and 2007 was $433,532 and $292,996 respectively. |
| | |
| (n) | Income Taxes |
| | |
| | The provision for income taxes includes federal, state and local income taxes that are currently payable. Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. |
25
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (n) | Income Taxes (Continued) |
| | |
| | On April 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). There was no impact on the Company’s consolidated financial position, results of operations or cash flows at March 31, 2008 and for the year then ended as a result of implementing FIN 48. At the adoption date of April 1, 2007 and at March 31, 2008, the Company did not have any unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of April 1, 2007 and March 31, 2008, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress |
| | |
| (o) | Net Income Per Share |
| | |
| | Basic earnings per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed on the same basis, including if dilutive, common share equivalents, which include outstanding options and restricted stock. For purpose of computing diluted earnings per share, 204,860 and 446,209 common share equivalents were assumed to be outstanding for the years ended March 31, 2008 and 2007 respectively. For the years ended March 31, 2008 and 2007, stock options and warrants to purchase approximately 235,766 and 1,848,000 shares of common stock were excluded from the calculation of diluted earnings per share as their inclusion would be anti-dilutive. The weighted average number of shares outstanding consist of: |
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Basic | | | 6,935,806 | | | 6,837,533 | |
Dilutive effect of options and restricted stock | | | 204,860 | | | 446,209 | |
| |
|
| |
|
| |
Diluted | | | 7,140,666 | | | 7,283,742 | |
| |
|
| |
|
| |
| | |
| (p) | Recent Accounting Standards Affecting the Company |
| | |
| | In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 – Effective Date of FASB Statement No. 157) which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. Management currently believes that the adoption of this statement will not have a material impact on the Company’s financial statements. |
26
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (p) | Recent Accounting Standards Affecting the Company (continued) |
| | |
| | In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value that are currently required to be measured at historical costs. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions for which are required to be applied prospectively. |
| | |
| | In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management currently believes that the adoption of this statement will not have a material impact on the Company’s financial statements. |
| | |
| | In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for annual periods beginning after December 15, 2008. Management currently believes that the adoption of this statement will not have a material impact on the Company’s financial statements. |
| | |
| | In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management currently believes that the adoption of this statement will not have a material impact on the Company’s financial statements. |
27
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | |
(2) | Summary of Significant Accounting Policies (Continued) |
| | |
| (p) | Recent Accounting Standards Affecting the Company (continued) |
| | |
| | In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. Prior to the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. |
| | |
| | SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. Management currently believes that the adoption of this statement will not have a material impact on the Company’s financial statements. |
| | |
| (q) | Reclassifications |
| | |
| | Certain amounts as previously reported have been reclassified to conform to current year presentation. |
| | |
(3) | Property and Equipment |
| | |
| Property and equipment consist of the following: |
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Furniture, fixtures and computer equipment | | $ | 5,138,711 | | $ | 4,461,692 | |
Leasehold improvements | | | 4,215,467 | | | 4,213,241 | |
| |
|
| |
|
| |
| | | 9,354,178 | | | 8,674,933 | |
Less: accumulated depreciation and amortization | | | 5,924,426 | | | 5,291,965 | |
| |
|
| |
|
| |
| | $ | 3,429,752 | | $ | 3,382,968 | |
| |
|
| |
|
| |
| | |
| Depreciation and amortization expense on property and equipment for the years ended March 31, 2008 and 2007 amounted to $632,461 and $852,948 respectively. |
| | |
(4) | Notes Payable - Bank |
| | |
| At March 31, 2007 the Company’s term bank borrowings amounted to $2,000,000 and there were no borrowings outstanding under the revolving line of credit. On June 20, 2007, the Company repaid all bank borrowings, which totaled $1,762,000. Additionally, the Company substituted a $450,000 standby letter of credit issued by its prior lender with a cash security deposit to its landlord. The $450,000 security deposit is included in other assets in the March 31, 2008 balance sheet. |
28
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(5) | Stockholders’ Equity |
| |
| (i)Stock Options |
| |
| Under the Company’s 1992 Stock Option Plan (the “1992 Plan”), employees of the Company and its subsidiaries and members of the Board of Directors were granted options to purchase shares of common stock of the Company. The 1992 Plan was amended on May 11, 1999 to increase the maximum number of shares of common stock for which options may be granted to 1,500,000 shares. The 1992 Plan terminated in 2002, although options issued thereunder remain exercisable until the termination dates provided in such options. Options granted under the 1992 Plan were either intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or non-qualified options. Grants under the 1992 Plan were awarded by a committee of the Board of Directors, and are exercisable over periods not exceeding ten years from date of grant. The option price for incentive stock options granted under the 1992 Plan must be at least 100% of the fair market value of the shares on the date of grant, while the price for non-qualified options granted to employees and employee directors is determined by the committee of the Board of Directors. At March 31, 2008, there were 27,500 options issued and outstanding, expiring from April 2008 through April 2011, under the 1992 Plan. |
| |
| On July 1, 2002, the Company established the 2002 Long-Term Incentive Plan (the “2002 Plan”) providing for the grant of options or other awards, including stock grants, to employees, officers or directors of, consultants to, the Company or its subsidiaries to acquire up to an aggregate of 750,000 shares of Common Stock. In September 2005, the 2002 Plan was amended so as to increase the number of shares of common stock available under the plan to 1,250,000. Options granted under the 2002 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options. Grants under the 2002 Plan are awarded by a committee of the Board of Directors, and are exercisable over periods not exceeding ten years from date of grant. The option price for incentive stock options granted under the 2002 Plan must be at least 100% of the fair market value of the shares on the date of grant, while the price for non-qualified options granted is determined by the Committee of the Board of Directors. At March 31, 2008, there were 438,750 options, expiring from June 2008 through September 2017, issued under the 2002 Plan that remained outstanding. Any option under the 2002 Plan that is not exercised by an option holder prior to its expiration may be available for re-issuance by the Company. As of March 31, 2008, the Company had 326,898 options or other awards available for grant under the 2002 Plan. |
| |
| The maximum contractual option period for any of the Company’s options is ten years. The Company uses the Black-Scholes model to estimate the value of stock options granted under SFAS No. 123R. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of options. The assumptions presented in the table below represent the weighted-average of the applicable assumptions used to value stock options at their grant date. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on the historical exercise experience of the Company’s employees. In determining the volatility assumption, the Company considers the historical volatility of its common stock. |
29
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(5) | Stockholders’ Equity (Continued) |
| |
| (i)Stock Options (continued) |
|
| The per share weighted-average fair value of stock options granted on their respective date of grant using the modified Black-Scholes option-pricing model and their related weighted-average assumptions are as follows: |
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| | | | | | | |
Risk-free interest rate | | 4.36 | % | | 5.06 | % | |
Expected life – years | | 5.19 | | | 2.85 | | |
Expected volatility | | 62.1 | % | | 55.2 | % | |
Expected dividend yield | | 0 | % | | 0 | % | |
| | |
| | A summary of option activity under all plans as of March 31, 2008, and changes during the two-year period then ended is presented below: |
| | | | | | | | | | | | | |
| | Weighted
average
exercise price | | Number
of
options | | Weighted
average
remaining
contractual
term | | Aggregate
intrinsic
value | |
| |
| |
| |
| |
| |
|
Balance at March 31, 2006 | | $ | 2.65 | | | 1,766,305 | | | | | | | |
Granted (A) | | $ | 1.62 | | | 115,000 | | | | | | | |
Exercised | | $ | 1.22 | | | (371,380 | ) | | | | | | |
Canceled | | $ | 2.78 | | | (758,050 | ) | | | | | | |
| |
|
| |
|
| | | | | | | |
| | | | | | | | | | | | | |
Balance at March 31, 2007 | | $ | 3.07 | | | 751,875 | | | | | | | |
Granted (B) | | $ | 2.31 | | | 80,000 | | | | | | | |
Exercised | | | — | | | — | | | | | | | |
Canceled | | $ | 3.56 | | | (365,625 | ) | | | | | | |
| |
|
| |
|
| | | | | | | |
Balance at March 31, 2008 (vested and expected to vest) | | $ | 2.55 | | | 466,250 | | | 4.12 | | $ | 153,863 | |
| |
|
| |
|
| |
|
| |
|
| |
Exercisable at March 31, 2008 | | $ | 2.56 | | | 446,250 | | | 3.73 | | $ | 142,800 | |
| |
|
| |
|
| |
|
| |
|
| |
| | |
| (A) | Represents options granted to purchase 5,000 shares at an exercise price of $1.90. These options vest evenly over five years, beginning February 9, 2008. Also represents currently exercisable options granted to purchase 30,000 shares at an exercise price of $1.70 and 80,000 shares at an exercise price of $1.57. |
| | |
| (B) | Represents options granted to our non-employee directors - 40,000 shares at an exercise price of $2.26 per share and 40,000 shares at an exercise price of $2.35 per share. Fifty percent of the shares became exercisable on the date of grant and the remaining shares vest within one year from the date of grant. |
30
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(5) | Stockholders’ Equity (Continued) |
| |
| (i)Stock Options (continued) |
| |
| The weighted-average grant-date fair value of options granted during the years ended March 2008 and 2007 was $1.32 and $.71, respectively. No options were exercised during Fiscal 2008. In Fiscal 2007, 371,380 options were exercised with an intrinsic value of approximately $209,500 generating approximately $453,700 of cash proceeds. |
| |
| Total unrecognized compensation cost related to unvested stock option awards at March 31, 2008 amounted to $2,195 and is expected to be recognized over a weighted average period of one year. Total compensation cost for the option awards amounted to $104,240 and $121,112 for the years ended March 31, 2008 and 2007, respectively. |
| |
| (ii)Warrants |
| |
| At the end of March 31, 2008 there were outstanding warrants to purchase an aggregate of 40,766 shares of common stock at an exercise price of $3.68 per share held by one individual. These warrants were to expire on April 30, 2007. In April 2007, in consideration of services provided, the expiration date of these warrants was extended to April 30, 2010. |
| |
| (iii)Restricted Stock |
| |
| As of March 31, 2008, pursuant to the authorization of the Company’s Board of Directors and certain Restricted Stock Agreements, the Company had awarded 464,352 shares (net of forfeited shares) of common stock under the Company’s 2002 Plan to certain employees. Grant date fair value is determined by the market price of the Company’s common stock on the date of grant. The aggregate value of these shares at their respective grant dates amount to approximately $1,123,901 and are recognized ratably as compensation expense over the vesting periods. The shares of common stock granted pursuant to such agreements vest in various tranches over one to five years from the date of grant. |
| |
| The shares awarded to employees under the restricted stock agreements vest on the applicable vesting dates only to the extent the recipient of the shares is then an employee of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment is terminated. |
| |
| As of March 31, 2008, pursuant to the authorization of the Company’s Board of Directors and certain Restricted Stock Agreements, the Company had awarded 300,000 shares of common stock that were not issued under the Company’s 2002 Plan. These shares include the award of 200,000 shares to the Company’s Chief Executive Officer as described below. |
31
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(5) | Stockholders’ Equity (Continued) |
| |
| (iii)Restricted Stock (continued) |
| |
| On October 9, 2006, pursuant to a Restricted Stock Agreement and as approved by the Company’s Board of Directors, the Company awarded 200,000 shares of common stock to its newly appointed President and Chief Executive Officer. Such shares were not issued under the Company’s 2002 Plan. The fair value of these shares was determined by the market price of the Company’s common stock on the date of grant. The value of the shares at the grant date amounted to approximately $380,000. The shares will vest in one installment on October 9, 2011 provided the recipient is then employed by the Company. In addition, as set forth in the Restricted Stock Agreement, the shares will be subject to earlier incremental vesting to the extent the Company’s shares of common stock trade above specified thresholds for a minimum period of 20 consecutive trading days during the term of his employment with the Company. The accelerated vesting will occur as follows: |
| | |
Share Price Threshold | | Percentage of Shares Vested |
| |
|
$3.00 | | 20% |
$4.00 | | 40% |
$5.00 | | 60% |
$6.00 | | 80% |
$7.00 | | 100% |
| |
| A summary of all non-vested stock activity as of March 31, 2008, and changes during the two years then ended is presented below: |
| | | | | | | | | | | | | |
| | Weighted average grant date fair value | | Number of
shares | | Aggregate Intrinsic Value | | Weighted average remaining contractual term | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
Unvested at March 31, 2006 | | $ | 2.13 | | | 190,000 | | | | | | | |
| | | | | | | | | | | | | |
Granted | | $ | 1.81 | | | 678,750 | | | | | | | |
Vested | | $ | 2.13 | | | (30,000 | ) | | | | | | |
Forfeited | | $ | 1.86 | | | (102,500 | ) | | | | | | |
| |
|
| |
|
| | | | | | | |
| | | | | | | | | | | | | |
Unvested at March 31, 2007 | | $ | 1.87 | | | 736,250 | | | | | | | |
| | | | | | | | | | | | | |
Granted | | $ | 2.65 | | | 359,352 | | | | | | | |
Vested | | $ | 1.96 | | | (81,180 | ) | | | | | | |
Forfeited | | $ | 1.99 | | | (361,250 | ) | | | | | | |
| |
|
| |
|
| | | | | | | |
| | | | | | | | | | | | | |
Unvested at March 31, 2008 | | $ | 2.22 | | | 653,172 | | $ | 431,094 | | | 3.82 | |
| |
|
| |
|
| |
|
| |
|
| |
32
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(5) | Stockholders’ Equity (Continued) |
| |
| (iii)Restricted Stock (continued) |
| |
| Total unrecognized compensation cost related to unvested stock awards at March 31, 2008 amounted to $1,169,267 and is expected to be recognized over a weighted average period of 3.77 years. Total compensation cost for the stock awards amounted to $329,992 and $71,844 for the years ended March 31, 2008 and 2007, respectively |
| |
(6) | Income Taxes |
| |
| The components of income tax provision from continuing operations for the years ended March 31, 2008 and 2007 are as follows: |
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Current: | | | | | |
State and local | | $ | 20,639 | | $ | 101,450 | |
Federal | | | 25,886 | | | 18,765 | |
| |
|
| |
|
| |
| | | 46,525 | | | 120,215 | |
| |
|
| |
|
| |
| | | | | | | |
Deferred: | | | | | | | |
State and local | | | 210,000 | | | 58,734 | |
Federal | | | 1,191,000 | | | 393,063 | |
| |
|
| |
|
| |
| | | 1,401,000 | | | 451,797 | |
| |
|
| |
|
| |
| | | | | | | |
| | $ | 1,447,525 | | $ | 572,012 | |
| |
|
| |
|
| |
| |
| The differences between the provision for income taxes from continuing operations computed at the federal statutory rate and the reported amount of tax expense attributable to income form continuing operations before provision for income taxes for the years ended March 31, 2008 and 2007 are as follows: |
| | | | | | |
| | 2008 | | 2007 |
| |
| |
|
Statutory Federal income tax | | 34.0 | % | | 34.0 | % |
State and local taxes, net of Federal benefit | | 6.8 | | | 4.6 | |
| | | | | | |
Permanent differences | | .8 | | | 4.9 | |
Other | | 7.7 | | | (10.7 | ) |
| |
| | |
| |
Effective tax rate | | 49.3 | % | | 32.8 | % |
| |
| | |
| |
33
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(6) | Income Taxes (Continued) |
| |
| The tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities that are included in net deferred tax asset are as follows: |
| | | | | | | |
| | 2008 | | 2007 | |
| |
| |
| |
Deferred tax (liabilities) assets: | | | | | | | |
Current: | | | | | | | |
Unbilled revenue | | $ | (1,216,327 | ) | $ | (385,566 | ) |
Allowance for doubtful accounts | | | 155,108 | | | 142,317 | |
Accrued compensation | | | 660,184 | | | — | |
| |
|
| |
|
| |
| | | (401,035 | ) | | (243,249 | ) |
| |
|
| |
|
| |
Non-current: | | | | | | | |
Goodwill, principally due to differences in amortization | | | 383,576 | | | 1,656,873 | |
Net operating loss carryforwards | | | 2,227,857 | | | 2,938,063 | |
Share-based payment arrangements | | | 781,491 | | | — | |
Other | | | 311,905 | | | 341,478 | |
| |
|
| |
|
| |
| | | 3,704,829 | | | 4,936,414 | |
| |
|
| |
|
| |
Net deferred tax asset | | $ | 3,303,794 | | $ | 4,693,165 | |
| |
|
| |
|
| |
| |
| At March 31, 2008, the Company has federal net operating loss carry-forwards of approximately $5,475,000 that begin to expire March 31, 2024. |
| |
| In assessing the realizability of deferred tax assets and liabilities, management considers whether it is more likely than not that some or all or them will not be realized. As of March 31, 2008 and 2007, the Company determined that a valuation allowance against its deferred tax asset was not necessary. The Company must generate approximately $8,260,000 of taxable income, exclusive of any reversals of timing differences, to fully utilize its net deferred tax asset. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets. |
| |
(7) | Significant Customer |
| |
| For the years ended March 31, 2008 and 2007, Diageo North America, Inc. (“Diageo”) accounted for approximately 65% and 53%, respectively, of the Company’s revenues. At March 31, 2008 and 2007, Diageo accounted for 62% and 64%, respectively, of the Company’s accounts receivable. |
34
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(8) | Employee Benefit Plan |
| |
| The Company has a savings plan available to substantially all salaried employees which is intended to qualify as a deferred compensation plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). Pursuant to the 401(k) Plan, employees may contribute up to 15% of their eligible compensation, up to the maximum amount allowed by law. The Company at its sole discretion may from time to time make discretionary matching contributions as it deems advisable. The Company’s current policy is to match its employee’s contributions to the 401(k) Plan at the rate of 50%, with the maximum matching contribution per employee being the lower of 2.5% of salary or $5,750 in any calendar year. For the years ended March 31, 2008 and 2007, the Company made discretionary contributions of approximately $148,000 and $181,000, respectively. |
| |
(9) | Investment in MarketVision |
| |
| On May 22, 2006, the Company sold its 49% interest in MarketVision back to MarketVision for $1,100,000. In connection with the sale, the Company recorded a pre-tax gain of approximately $175,000 and an after tax loss of approximately $127,000 in fiscal 2007. The after tax loss reflects a tax provision of approximately $302,000 on the sale and reflects the estimated tax due as a result of the sale. This tax provision reflects the difference in the book and tax basis of the Company’s holdings in MarketVision and resulted in a corresponding reduction in the Company’s deferred tax asset on its consolidated balance sheet. The after tax loss of approximately $127,000 is included in the computation of the loss from discontinued operations in the Company’s consolidated statement of operations. The results of operations for MarketVision for the period April 1, 2006 through May 22, 2006 have been reclassified to discontinued operations, on a net of tax basis. Summarized financial information for MarketVision, reflected as discontinued operations, is as follows: |
| Results of Operations for the period April 1, 2006 through May 22, 2006: |
| | | | |
Sales | | $ | 1,197,677 | |
| |
|
| |
Operating expenses: | | | | |
Reimbursable program costs and expenses | | | 617,663 | |
Outside production and other program expenses | | | 151,184 | |
Compensation expense | | | 397,082 | |
General and administrative expenses | | | 163,705 | |
| |
|
| |
Total operating expenses | | | 1,329,634 | |
| |
|
| |
| | | | |
Operating (loss) | | | (131,957 | ) |
Interest (expense) | | | (1,963 | ) |
Benefit for income taxes | | | 32,591 | |
Minority interest | | | 51,679 | |
| |
|
| |
Net (loss) | | $ | (49,650 | ) |
| |
|
| |
35
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(10) | Related Party Transactions |
| | |
| (a) | In connection with the Company’s acquisition of Optimum, the Company entered into a lease agreement with Thomas Lachenman, a former director of the Company and former owner of Optimum, for the lease of the Cincinnati principal office of Optimum. The lease provides for an annual rental, adjusted annually based upon changes in the local consumer price index. Rent expense under this lease amounted to approximately $178,000 and $173,000 in 2008 and 2007, respectively. The lease expires in December 2010. |
| | |
| (b) | On June 14, 2006, the Board of Directors accepted the resignation of John Benfield, the Company’s Chief Executive Officer, and appointed Marc C. Particelli, a member of the Company’s Board of Directors, to serve as Chief Executive Officer and Chairman of the Board on an interim basis. Both Mr. Benfield’s resignation and Mr. Particelli’s appointment were effective as of July 12, 2006. |
| | |
| | In connection with his appointment as interim Chief Executive Officer, the Board and Mr. Particelli entered into an employment agreement pursuant to which Mr. Particelli was to be paid an annual salary of $250,000 for devoting approximately 50% of his working time to the Company. In addition, for his agreement to serve as interim Chief Executive Officer, the Board approved the grant to Mr. Particelli of a five-year stock option to purchase 80,000 shares of the Company’s common stock at a price of $1.57 per share (the market price of the common stock on the date the grant was authorized), 40,000 which vested immediately and the balance vesting upon the earlier of the selection by the Company of a permanent Chief Executive Officer or June 20, 2007. Accordingly, in October 2006, upon the appointment of the Company’s new Chief Executive Officer, the remaining 40,000 shares of unvested options pursuant to this agreement became vested. |
| | |
| | In addition, in connection with his resignation, the Company entered into an agreement with Mr. Benfield pursuant to which Mr. Benfield continued to be paid his salary and receive the same benefits previously provided to him by the Company for a period of one year following his termination. The Company recorded a pre-tax charge of approximately $330,000 during the year ended March 31, 2007 in connection with its obligations under the agreement with Mr. Benfield. |
| | |
| (c) | On October 9, 2006, the Company entered into a three year employment agreement with Charles Tarzian under which Mr. Tarzian joined the Company as its President and Chief Executive Officer, replacing Marc C. Particelli, who had been serving as Chairman of the Board and Chief Executive Officer on an interim basis. The employment agreement with Mr. Tarzian is for a three-year term and provides Mr. Tarzian with: |
| | | |
| | | |
| | · | An annual base salary of $375,000. |
| | | |
| | · | An annual bonus based on the achievement of annual performance targets approved by the Company’s Board of Directors. |
| | | |
| | · | An award of 200,000 shares of the Company’s common stock under a Restricted Stock Agreement. The shares will vest in one installment on October 9, 2011 provided Mr. Tarzian is then employed by the Company. In addition, as set forth in the Restricted Stock Agreement, the shares will be subject to earlier incremental vesting to the extent the Company’s shares of common stock trade above specified thresholds for a minimum period of 20 consecutive trading days during the term of his employment with the Company. |
36
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| | | |
(10) | Related Party Transactions (Continued) |
| | | |
| | · | Up to an additional 50,000 shares of restricted Common Stock per year based on the achievement of annual targets approved by the Company’s Board of Directors. |
| | | |
| | In addition, pursuant to the employment agreement, in the event that Mr. Tarzian’s employment is terminated by the Company without “Cause” or by Mr. Tarzian for “Good Reason”, Mr. Tarzian will be entitled to six months severance pay. In connection with Mr. Tarzian’s appointment as President and Chief Executive Officer, the Company’s Board of Directors approved compensation for Mr. Particelli, as the Company’s non-executive Chairman of the Board following such appointment, in the amount of $100,000 per annum. |
| | | |
(11) | Leases |
| | | |
| The Company has several non-cancelable operating leases, primarily for property, that expire through 2015. One of the Company’s facilities is leased from the former owner of Optimum, who is also a former director of the Company. This lease expires in December 2010. The Company incurred rent expense under this related party lease in Fiscal 2008 and 2007 in the amounts of approximately $178,000 and $173,000, respectively. Rent expense for the years ended March 31, 2008 and 2007 amounted to approximately $1,314,000 and $1,456,000, respectively. Future non-cancelable minimum lease payments under all of the leases as of March 31, 2008 are as follows: |
| | | | | |
Year ending March 31, | | | | |
| 2009 | | $ | 1,292,000 | |
| 2010 | | | 1,236,000 | |
| 2011 | | | 1,188,000 | |
| 2012 | | | 1,066,000 | |
| 2013 | | | 1,137,000 | |
| Thereafter | | | 2,803,000 | |
| | |
|
| |
| | | $ | 8,722,000 | |
| | |
|
| |
| |
| The Company has a one-time option to terminate early its sublease for its principal office space in New York, effective October 25, 2009. To exercise this option, the Company would be required to notify the landlord in October 2008 and pay a non-refundable cancellation fee of $342,182 to the landlord at the time of such notification. The New York sublease also provides for an upwards adjustment in the lease payments, at the landlord’s option, effective November 1, 2009, to a rate equal to 90% of the then current market rate. The Company’s current payments under the lease are below current market rates, and as a result the Company anticipates that these lease provisions will likely result in an upwards adjustment of its lease payment or the Company’s termination of the sublease and relocation of its New York offices. The Company is unable to determine at this time what the adjusted lease payments would be following such adjustment. The lease payments disclosed in the above schedule do not reflect the effect of the potential termination of the sublease or the lease adjustment described above. |
37
COACTIVE MARKETING GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
| |
(12) | Subsequent Event |
| |
| On June 12, 2008, the Company signed a commitment letter with a commercial lender providing for a $5,000,000 senior secured credit facility consisting of a three-year revolving credit facility in the principal amount of $2,500,000 and a three-year term loan in the amount of $2,500,000. |
| |
(13) | Selected Quarterly Consolidated Financial Data (Unaudited) |
| | | | | | | | | | | | | |
| | First Quarter
Ended June 30,
2007 | | Second Quarter
Ended
September 30,
2007 | | Third Quarter
Ended
December 31,
2007 | | Fourth Quarter
Ended March 31,
2008 | |
| |
|
|
|
|
|
|
| |
Sales | | $ | 20,408,420 | | $ | 17,831,661 | | $ | 24,144,613 | | $ | 23,137,998 | |
Operating expenses | | | 20,789,818 | | | 16,482,178 | | | 22,860,032 | | | 22,543,543 | |
| |
|
|
|
|
|
|
|
|
|
|
| |
Operating income (loss) | | | (381,398 | ) | | 1,349,483 | | | 1,284,581 | | | 594,455 | |
| |
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss) | | $ | (246,236 | ) | $ | 821,598 | | $ | 840,060 | | $ | 71,414 | |
Net income (loss) per common share: | | | | | | | | | | | | | |
Basic | | $ | (.04 | ) | $ | .12 | | $ | .12 | | $ | .01 | |
Diluted | | $ | (.04 | ) | $ | .12 | | $ | .12 | | $ | .01 | |
Weighted average common shares: | | | | | | | | | | | | | |
Basic | | | 6,923,751 | | | 6,929,311 | | | 6,940,510 | | | 6,950,706 | |
Diluted | | | 6,923,751 | | | 7,091,856 | | | 7,181,518 | | | 7,074,628 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | First Quarter
Ended June 30,
2006 | | Second Quarter
Ended
September 30,
2006 | | Third Quarter
Ended
December 31,
2006 | | Fourth Quarter
Ended March 31,
2007 | |
| |
|
|
|
|
|
|
| |
Sales | | $ | 27,021,465 | | $ | 25,650,355 | | $ | 23,938,534 | | $ | 19,269,604 | |
Operating expenses | | | 25,485,242 | | | 23,875,271 | | | 23,854,374 | | | 20,678,400 | |
| |
|
|
|
|
|
|
|
|
|
|
| |
Operating income (loss) | | | 1,536,223 | | | 1,775,084 | | | 84,160 | | | (1,408,796 | ) |
| |
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss) | | $ | 756,362 | | $ | 862,912 | | $ | 88,126 | | $ | (711,349 | ) |
Net income (loss) per common share: | | | | | | | | | | | | | |
Basic | | $ | .11 | | $ | .13 | | $ | .01 | | $ | (.10 | ) |
Diluted | | $ | .11 | | $ | .12 | | $ | .01 | | $ | (.10 | ) |
Weighted average common shares: | | | | | | | | | | | | | |
Basic | | | 6,785,054 | | | 6,849,751 | | | 6,855,575 | | | 6,859,751 | |
Diluted | | | 7,012,784 | | | 7,161,932 | | | 7,393,459 | | | 6,859,751 | |
38
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
| |
| Not Applicable. |
| |
Item 9A(T). | Controls and Procedures. |
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, we concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed in the our reports filed or submitted under the Exchange Act.
Management’s Report On Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Exchange Act defines internal control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| | |
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| | |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| | |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2008. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission in “Internal Control – Integrated Framework”.
Based upon its assessment, management concluded that, as of March 31, 2008, the Company’s internal control over financial reporting is effective based upon those criteria.
39
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
The information required to be disclosed in Part III (Items 10, 11, 12, 13 and 14, and fees and services) will be incorporated by reference from the Company’s definitive proxy statement if filed prior to July 30, 2008 or, if such proxy statement is not filed by such date, such information will be disclosed by amendment to this Form 10-K prior to July 30, 2008.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules. |
| | |
| (a) | The following documents are filed as part of this Report. |
| |
| Page |
Index to Financial Statements | 16 |
Report of Independent Registered Public Accounting Firm | 17 |
Consolidated Financial Statements: | |
Balance Sheets as of March 31, 2008 and 2007 | 18 |
Statements of Operations for the years ended March 31, 2008 and 2007 | 19 |
Statements of Stockholders' Equity for the years ended March 31, 2008 and 2007 | 20 |
Statements of Cash Flows for the years ended March 31, 2008 and 2007 | 21 |
Notes to Consolidated Financial Statements | 22 |
| | |
| 2. | Financial Statement Schedules: |
| |
Schedule II - Valuation and Qualifying Accounts | 43 |
40
| | | |
| Exhibit
Number | |
Description of Exhibits.
|
|
| |
|
| 3.1 | | Certificate of Incorporation, as amended, of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the three month period ended September 30, 1999, initially filed with the Securities and Exchange Commission on November 22, 1999). |
| | | |
| 3.2 | | Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on December 4, 2007). |
| | | |
| 10.1* | | CoActive Marketing Group, Inc. 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit A to Registrant’s Definitive Proxy Statement initially filed with the Securities and Exchange Commission on July 29, 2002). |
| | | |
| 10.2 | | Stock Purchase Agreement, dated as of May 22, 2006, by and between the Registrant, Yvonne Garcia and Market Vision (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 22, 2006, filed with the Securities and Exchange Commission on May 22, 2006). |
| | | |
| 10.3* | | Employment Agreement dated June 20, 2006 between Registrant and Marc C. Particelli (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 14, 2006, filed with the Securities and Exchange Commission on June 20, 2006). |
| | | |
| 10.4* | | Agreement dated June 19, 2006 between Registrant and John P. Benfield (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated June 14, 2006, filed with the Securities and Exchange Commission on June 20, 2006). |
| | | |
| 10.5* | | Employment Agreement dated October 9, 2006 between Registrant and Charles Tarzian (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 9, 2006, filed with the Securities and Exchange Commission on October 10, 2006). |
| | | |
| 10.6* | | Restricted Stock Agreement dated October 9, 2006 between Registrant and Charlie Tarzian (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 9, 2006, filed with the Securities and Exchange Commission on October 10, 2006). |
| | | |
| 10.7* | | Form of Indemnification Agreement for Directors and Officers, dated as of November 8, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November 8, 2006, filed with the Securities and Exchange Commission on November 14, 2006). |
| | | |
| 10.8* | | Agreement, dated as of March 27, 2007, between the Registrant and Paul Amershadian (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 28, 2007, filed with the Securities and Exchange Commission on April 2, 2007). |
| | | |
| 10.9* | | Employment Agreement dated April 2, 2007 between Registrant and Brian Murphy (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 2, 2007, filed with the Securities and Exchange Commission on April 6, 2007). |
41
| | | |
| Exhibit
Number | |
Description of Exhibits.
|
|
| |
|
| 10.10* | | Agreement, dated as of April 30, 2007, between the Registrant and Erwin Mevorah (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 30, 2007, filed with the Securities and Exchange Commission on April 30, 2007). |
| | | |
| 10.11* | | Letter Agreement dated as of September 28, 2007, between the Registrant and Fred Kaseff (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 15, 2007, filed with the Securities and exchange Commission on October 16, 2007). |
| | | |
| 10.12* | | Registered Stock Agreement dated October 15, 2007 between Registrant and Fred Kaseff incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K dated October 15, 2007, filed with the Securities and exchange Commission on October 16, 2007). |
| | | |
| 14 | | Registrant’s Code of Ethics (incorporated by reference to Exhibit 14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, initially filed with the Securities and Exchange Commission on July 22, 2004). |
| | | |
| 21 | | Subsidiaries of the Registrant (incorporated by reference to Exhibit 14 to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006, initially filed with the Securities and Exchange Commission on July 12, 2006). |
| | | |
| 23.1 | | Consent of Lazar, Levine & Felix LLP |
| | | |
| 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act. |
| | | |
| 31.2 | | Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) of the Exchange Act. |
| | | |
| 32.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act. |
| | | |
| 32.2 | | Certification of Principal Accounting Officer pursuant to Rule 13a-14(b) of the Exchange Act. |
| | | |
| * | | Indicates a management contract or compensatory plan or arrangement |
42
Schedule II – Valuation and Qualifying Accounts
| | | | | | | | | | | | | |
Allowance for Doubtful Accounts | | Balance
at beginning
of period | | Additions | | Deductions | | Balance
at end
of period | |
| |
| |
| |
| |
| |
|
Year ended March 31, 2008 | | $ | 364,916 | | $ | 22,853 | | $ | — | | $ | 387,769 | |
Year ended March 31, 2007 | | $ | 325,210 | | $ | 122,790 | | $ | 83,084 | | $ | 364,916 | |
The amounts listed in the deductions column above, represent reductions to the allowance for doubtful accounts resulting from either a) write offs of certain identified uncollectible accounts receivables or b) a reduction of bad debt expense previously provided for.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | |
| | |
| By: | /s/ FRED KASEFF | |
| |
| |
| Fred Kaseff | |
| Chief Financial Officer | |
| (Principal Accounting Officer) | |
| | |
| Dated: June 23, 2008 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
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Signature and Title | | Signature and Title | |
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By: | /s/ CHARLES F. TARZIAN | | By: | /s/ FRED KASEFF | |
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Charles F. Tarzian | | Fred Kaseff | |
President and | | Chief Financial Officer | |
Chief Executive Officer | | (Principal Accounting Officer) | |
(Principal Executive Officer) | | | | |
Dated: June 23, 2008 | | Dated: June 23, 2008 | |
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By: | /s/ HERBERT M. GARDNER | | By: | /s/ MARC C. PARTICELLI | |
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Herbert M. Gardner | | Marc C. Particelli | |
Director | | Director | |
Dated: June 23, 2008 | | Dated: June 23, 2008 | |
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By: | /s/ JOHN A. WARD, III | | By: | /s/ JAMES H. FEENEY | |
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John A. Ward, III | | James H. Feeney | |
Director | | Director | |
Dated: June 23, 2008 | | Dated: June 23, 2008 | |
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