10-K/A 1 form10katxt.txt 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to_______________________ Commission file number 0-16730 MKTG SERVICES, INC. (Name of small business issuer in its charter) Nevada 88-0085608 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 333 Seventh Avenue, New York, New York 10001 ------------------ -------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (917) 339-7100 -------------- Securities registered pursuant to Section 12(b) of the Act: None -------------- Securities registered pursuant to Section 12(g) of the Act: -------------- Common Stock, par value $.01 per share (Title of class) Check whether the Issuer (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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The issuer's revenues for its fiscal year ended June 30, 2003 was $15,832,655. As of October 24, 2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $4,357,081. As of October 24, 2001, there were 1,092,367 shares of the Registrant's common stock outstanding. 1 Introduction ------------ MKTG Services, Inc. ("MKTG" or the "Company"), filed with the Securities and Exchange Commission (the "Commission") its Annual Report on Form 10-K for its fiscal year June 30, 2003 (the "2003 Form 10-K"), dated October 14, 2003. In accordance with General Instruction G to the Form 10-K, the information called for by items 10, 11, 12, 13 and 14 of Part III of Form 10-K was not included in the body of the 2003 Form 10-K as filed, but was incorporated by reference to the Company's Proxy Statement which was expected to be filed with the Commission within 120 days from its fiscal year end. Because the Company is not in fact filing its Proxy Statement within such 120 day period, this Form 10-K/A amends the 2003 Form 10-K by deleting therefrom the caption and first paragraph under Part III and substituting in its entirety the following replacements for Items 10, 11, 12, 13 and 14 . In addisiton, corrections are being made herein to previously reported historical data in Part II, Item 6 - Selected Financial Data and additional disclosure information related to Item 9A - Controls and Procedures. Part II ------- Item 6 - Selected Financial Data -------------------------------- The selected historical consolidated financial data for the Company presented below as of and for the five fiscal years ended June 30, 2003 have been derived from the Company's audited consolidated financial statements. This financial information should be read in conjunction with management's discussion and analysis (Item 7) and the notes to the Company's consolidated financial statements (Item 15).
Historical Years ended June 30, (In thousands, except per share data) 1999 (1) 2000 (2) 2001 2002 (15) 2003 (16) -------- -------- -------- -------- -------- CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues (11) $ 33,489 $ 62,488 $ 16,860 $ 16,027 $ 15,833 Amortization and depreciation $ 2,282 $ 6,028 $ 351 $ 393 $ 224 Income (loss) from operations $ (7,072) $(11,292) $ (4,996) $(18,011) (12) $ 3,112(17) Income (loss) from continuing operations $ (7,646)(3) $(41,130)(6)$(14,670)(8) $(18,266) $ 3,940 (Loss) gain from discontinued operations - $ (34,543) $ 1,252 (9) $ 1,873 (13) $ (1,480)(18) Net income (loss) $ (7,646) $(75,673)(7)$(65,839) $(65,683) $ (2,615)(19) Net income (loss) available to common stockholders $ (20,181) (4) $(75,673) $ (66,492) (10) $(66,096) (14) $ 11,356(20) Income (loss) per diluted share (21) : Continuing operations $ (66.60) $ (74.24) $ (22.07) $ (22.44) 15.62 Discontinued operations - (62.35) (56.78) (62.03) (1.29) Cumulative effect of change in accounting - - (21.15) - (4.43) -------- -------- -------- -------- -------- $ (66.60) $(136.59) $(100.00) $ (86.47) $ 9.90 Weighted average common shares Outstanding - diluted 303 554 665 764 1,147 OTHER DATA: EBITDA (5) $ (4,346) $ (4,844) $ (4,645) $ (4,718) $ (1,534) Net cash used in operating activities: $ (45) $(11,357) $ (1,764) $(13,086) $ (2,726) Net cash (used in) provided by investing activities: $(18,939) $(60,116) $ 133 $ 72,894 $ 13,447 Net cash provided by (used in) financing activities: $ 16,035 $ 78,904 $ (3,704) $ (6,081) $(12,995) Net cash (used in) provided by discontinued operations - $ (812) $ (1,789) $(50,118) $ (988)
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Historical Years ended June 30, (In thousands) CONSOLIDATED BALANCE SHEETS DATA: 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- Cash and cash equivalents $ 3,285 $ 9,904 $ 1,725 $ 4,438 $ 1,217 Working capital (deficit) $ (9,647) $ 813 $ 29,146 $ 14,004 $ 712 Total goodwill and intangible assets $56,978 $ 154,016 $ 54,363 $ 2,317 $ 2,297 Total assets $97,627 $ 245,567 $ 170,390 $ 50,168 $ 7,648 Total long term debt, net of current portion $ 5,937 $ 36,157 $ 4,429 $ 176 $ - Total stockholders' equity $48,928 $ 113,957 $ 68,778 $ 1,390 $ 3,108
(1) Effective January 1, 1999, the Company acquired all of the outstanding common shares of Stevens- Knox List Brokerage, Inc., Stevens-Knox List Management, Inc. and Stevens-Knox International, Inc. (collectively, "SKA"). The results of operations for SK&A are included in the consolidated statements of operations beginning January 1, 1999. Effective March 1, 1999 the Company sold 85% of its subsidiary Metro Fulfillment. Accordingly, effective March 1, 1999 the results of operations of MFI are no longer consolidated in the Company's statement of operations. On May 13, 1999, the Company acquired all of the outstanding common shares of CMG Direct, Inc. The results of operations are included in the consolidated statements of operations beginning May 14, 1999. The results for the year ended June 30, 1999 have not been restated to reflect discontinued operations resulting from the sale of the Northeast Operations and Grizzard. Please refer to the footnotes 15 and 16 below. (2) On March 31, 2000, the Company acquired all of the outstanding common shares of The Coolidge Company. On March 22, 2000 the Company acquired all of the outstanding common shares of Grizzard Advertising, Inc. Effective October 1, 1999, the Company acquired 87% of the outstanding common shares of The Cambridge Intelligence Agency. The results of operations for these acquisitions are included in the consolidated statements of operations from the date of the respective acquisition. The results for the year ended June 30, 2000 have not been restated to reflect discontinued operations resulting from the sale of the Northeast Operations and Grizzard. Please refer to the footnotes 15 and 16 below (3) Loss from continuing operations includes a severance charge of $1,125 and a compensation expense on option grants of $444 which were granted at exercise prices below market value. (4) Net loss available to common shareholders includes the impact of dividends on preferred stock for (a) adjustment of the conversion ratio of $11,366 for exercises of stock options and warrants; (b) $949 in cumulative undeclared preferred stock dividends; and (c) $220 of periodic non-cash accretions of preferred stock. (5) EBITDA is defined as earnings from continuing operations before interest, income tax, depreciation, amortization and other non-recurring and non-cash items. EBITDA should not be construed as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles), as an indicator of MKTG's operating performance, as an alternative to cash flows provided by operating activities (as determined in accordance with generally accepted accounting principles), or as a measure of liquidity. EBITDA is presented solely as a supplemental disclosure because management believes that it enhances the understanding of the financial performance of a company with substantial amortization and depreciation expense. MKTG's definition of EBITDA may not be the same as that of similarly captioned measures used by other companies.
EBITDA Reconciliation: 1999(1) 2000(2) 2001 2002 2003 -------- -------- -------- -------- -------- Loss from operations $ (7,072) $(11,292) $ (4,996) $(18,011) $ 3,112 Depreciation and amortization $ 2,282 $ 6,027 $ 351 $ 393 $ 224 4 Goodwill write-down $ - $ - $ - $ 6,500 $ - Loss (gain) on sale of subsidiary $ - $ - $ - $ - $ - Compensation expense on option grants and severance $ 444 $ 106 $ - $ - $ - Abandoned lease reserve / gain on termination $ - $ - $ - $ 6,400 $ (3,905) Legal settlements and legal fees $ - $ 315 $ - $ - $ (965) -------- -------- -------- -------- -------- EBITDA $ (4,346) $ (4,844) $ (4,645) $ (4,718) $ (1,534) ======== ======== ======== ======== ========
(6) Loss from continuing operations includes a charge for $27,216 for write-downs of certain Internet investments. (7) On September 21, 2000, the Company's Board of Directors approved a plan to discontinue the operation of its WiredEmpire subsidiary, which at the time included the assets of Pegasus Internet, Inc. The Company shut down operations, which was completed by the end of January 2001. The estimated losses associated with WiredEmpire are $34,543 and are reported as discontinued operations. All prior period results have been classified as discontinued operations. (8) Loss from operations includes a write-down of Internet investments of $7,578 and expenses associated with settlement of litigation of $1,298. (9) In January 2001, the company sold certain assets of WiredEmpire for a gain of $1,252. (10) Net loss available to common stockholders includes a cumulative effect of a change in accounting of $14,064 in connection with the adoption of EITF 00-27. (11) Pursuant to the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," ("SAB 101") the Company has reviewed its accounting policies for the recognition of revenue. SAB 101 was required to be implemented in fourth quarter 2001. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition in financial statements. The Company's policies for revenue recognition are consistent with the views expressed within SAB 101. See Note 2, "Significant Accounting Policies," for a description of the Company's policies for revenue recognition. The adoption of SAB 101 did not have a material effect on the Company's consolidated financial position, cash flows, or results of operations. Although net income was not materially affected, the adoption did have an impact on the amount of revenue recorded as the revenue associated with the Company's list sales and services product line are now required to be shown net of certain costs. The Company believes this presentation is consistent with the guidance in Emerging Issues Task Force ("EITF") 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent." All prior periods presented have been restated. (12) Loss from operations includes an impairment write-down of goodwill of $6,500 and a write-down of abandoned leased property of $6,400. (13) Discontinued operations include a loss on early extinguishments of debt of $4,859. (14) Net loss available to common stockholders includes a deemed dividend in the amount of $413 in connection with the redemption of preferred stock. (15) Effective July 31, 2001, the Company sold Grizzard Communications Group, Inc. The results of operations for Grizzard are no longer included in the Company's results from the date of sale. Amounts have been reclassified to discontinued operations. (16) In December 2002, the Company completed the sale of substantially all of the assets related to its direct list sales and database services and website development and design business held by certain of its wholly owned subsidiaries (the "Northeast Operations") to Automation Research, Inc. for approximately $10.4 million in cash plus the assumption of all directly related liabilities. The results of the operations are no longer included in the company's results from the date of sale. Amounts have been reclassified to discontinued operations. (17) Income from operations includes a gain on termination of lease of $3.9 million. (18) In December 2002, the Company sold certain assets of the Northeast Operations for a loss of $0.2 million (19) Net loss includes a gain from settlement of lawsuit of $1.0 million and a loss from a cumulative effect of change in accounting of $5.1 million. (20) Net gain / (loss) available to common shareholders contains a gain (deemed dividend) on redemption of preferred stock of $13.9 million. (21) On January 22, 2003, the Board of Directors approved an eight-for-one reverse split of the common stock. Par value of the common stock remains $.01 per share and the number of authorized shares of common stock is reduced to 9,375,000. The stock split was effective January 27, 2003. All stock prices, per share and share amounts have been retroactively restated to reflect the reverse split and are reflected in this document. The following is a summary of the quarterly operations for the years ended June 30, 2002 and 2003.
Historical Quarter ended June 30, (In thousands, except per share data) (unaudited) 9/31/2001(9) 2/31/2001(9) 3/31/2001(9) 6/30/2001(9) ----------- ---------- ----------- ----------- Revenues (1) $ 3,793 $ 2,926 $ 3,381 $ 5,927 Loss from operations $ (1,340) $ (1,904) $(7,826) (2) $ (6,941) (3) Net loss $(10,314) $ (4,177) $(39,439) $(11,753) Net loss available to common stockholders $(10,314) $ (4,177) $(39,439) (4) $(11,753) (4) Basic and diluted loss per share (5): Continuing operations $ (2.75) $ (2.38) $ (10.20) $ (9.11) Discontinued operations (15.71) (3.52) (38.67) (4.13) Cumulative effect of change in accounting - - - - -------- -------- -------- --------- Basic and diluted loss per share $ (18.46) $ (5.90) $ (48.88) $ (13.24) ======== ======== ======== =========
Historical Quarter ended June 30, (In thousands, except per share data) (unaudited) 9/30/2002(9) 12/31/2002(9) 3/31/2003(9) 6/30/2003(9) ----------- ----------- ----------- ----------- Revenues (1) $ 4,504 $ 3,159 $ 3,483 $ 4,687 Loss from operations $ (109) $ 3,362(6) $ (322) $ 181 Net income (loss) $ (4,917)(7) $ 2,636 $ (403) $ 69 Net income (loss) available to common stockholders $ (4,917) $ 2,636 $ 13,567(8) $ 69 Basic earnings (loss) per share (5): Continuing operations $ 0.97 $ 3.71 $ 12.55 $ 0.09 Discontinued operations (0.79) (0.79) (0.06) (0.03) Cumulative effect of change in accounting principle (6.10) - - - --------- --------- --------- --------- Basic earning (loss) per share $ (5.92) $ 2.92 $ 12.49 $ 0.06 ========= ========= ========= ========= 5 Diluted earnings (loss) per share (5): Continuing operations $ 0.31 $ 1.27 $ 11.09 $ 0.08 Discontinued operations (0.25) (0.27) (0.06) (0.03) Cumulative effect of change in accounting principle (1.92) - - - --------- --------- --------- --------- Diluted earning (loss) per share $ (1.86) $ 1.00 $ 11.03 $ 0.05 ========= ========= ========= =========
(1) Prior periods presented have been restated in accordance with SAB 101. See Note 2, "Significant Accounting Policies," of the Company's consolidated financial statements included in this Form 10-K. (2) Includes a write-off due to goodwill impairment of $6,500. (3) Includes a write-down of abandoned leased property of $6,400. (4) Includes a net deemed dividend in the amount of $413 for the quarter ending March 31,2002 in connection with the redemption of preferred stock. (5) On January 22, 2003, the Board of Directors approved an eight-for-one reverse split of the common stock. Par value of the common stock remains $.01 per share and the number of authorized shares of common stock is reduced to 9,375,000. The stock split was effective January 27, 2003. All stock prices, per share and share amounts have been retroactively restated to reflect the reverse split. (6) Includes a gain on termination of lease of $3.9 million. (7) Includes a gain on settlement of lawsuit of $1.0 million and a loss from cumulative effect of change in accounting principle of $5.1 million. (8) Includes a gain on redemption of preferred stock of $13.9 million. (9) In December 2002, the Company completed the sale of substantially all of the assets related to its direct list sales and database services and website development and design business held by certain of its wholly owned subsidiaries (the "Northeast Operations") to Automation Research, Inc. for approximately $10.4 million in cash plus the assumption of all directly related liabilities. The results of the operations are no longer included in the company's results from the date of sale. Amounts have been reclassified to discontinued operations. Item 9A - Controls and Procedures --------------------------------- The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including Jeremy Barbera, the Company's Chairman, Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the Registrant's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934. Based on that evaluation, Mr. Barbera has concluded that the Company's disclosure controls and procedures as of June 30, 2003 were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission's rules and forms. There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Part III Item 10 - Executive Officers and Directors of the Registrant The Company's executive officers and directors and their positions with MKTG are as follows: Name Age Position --------------------------- --- ------------------------------------ J. Jeremy Barbera 46 Chairman of the Board of Directors, Chief Executive Officer and Interim Chief Financial Officer John T. Gerlach 71 Director Seymour Jones 72 Director C. Anthony Wainwright 70 Director* Mr. Barbera has been Chairman of the Board and Chief Executive since April 1997, and served as a Director and officer since October 1996 when they acquired MKTG Services- New York, Inc. in an exchange of stock. Mr. Barbera has been serving as Interim Chief Financial Officer since March 12, 2003, upon the resignation of Ms. Cindy Hill as Chief Accounting Officer. He founded MKTG Services- New York in 1987. Prior to founding MKTG Services- New York, Mr. Barbera held various management positions at Lincoln Center for the Performing Arts as well as scientific research positions at NASA/Goddard Space Flight Center resoluting in 20 years of experience in the areas of entertainment marketing and database management services. Mr. Barbera is a Physicist educated at New York University, and graduated from the MIT Enterprise Forum at the Sloan School of Management. Mr. Gerlach has been a Director of the Company since December 1997. Mr. Gerlach is the chairman of the M&A Committee and the chairman of the Audit Committee and a member of the Compensation Committee of the Board of Directors. He is presently Senior Executive Professor of the graduate business program and an associate professor of finance at Sacred Heart University in Fairfield, CT. Previously, Mr. Gerlach was a Director in Bear Stearns' corporate finance department, with responsibility for mergers and financial restructuring projects; he was President and Chief Operating Officer of Horn & Hardart, supervising restaurant and mail order subsidiaries, including Hanover Direct; and he was the Founder and President of Consumer Growth Capital, a venture capital firm. Mr. Gerlach also serves as a director for Uno Restaurant Co.; SAFE Inc.; and the Board of Regents at St. John's University in Collegeville, MN. Mr. Jones has been a Director of the Company since June 1996. Mr. Jones is a member of the Audit Committee. Since September 1993, Mr. Jones has been a professor of accounting at New York University. From April 1974 to September 1995, Mr. Jones was a senior partner of the accounting firm of Coopers & Lybrand L.L.P. Mr. Jones has over 40 years of public accounting experience including experience as an arbitrator and as an expert witness, particularly in the areas of fraud, mergers and acquisitions and accounting matters. Mr. Jones also functions as a consultant to Milberg Factors, CHF Industries, Dubilier & Co., and World Diagnostics, Inc. Mr. Jones also serves as a director for Reliance Bank. *Mr. Wainwright had been a Director of the Company since May 1991 until his passing on October 3, 2003. Mr. Wainwright was the chairman of the Compensation Committee of the Board of Directors. The Company is actively searching for a qualified candidate to fill the vacancy on its Board of Directors created by the untimely death of Mr. Wainwright. Section 16(A) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the "Commission") and the NASDAQ Market. Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file reports on Form 5 for the fiscal year ended June 30, 2003, the Company believes that all its officers, directors and greater than ten percent beneficial owners complied with all filing requirements applicable to them with respect to transactions during the fiscal year ended June 30, 2003. Item 11 - Executive Compensation: The following table provides certain information concerning compensation of the Company's Chief Executive Officer and any other executive officer of the Company who received compensation in excess of $100,000 during the fiscal year ended June 30, 2003 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE Fiscal Securities Year Other Underlying Ended Annual Annual Annual Options/ Name and Principal June 30, Salary ($) Bonus Compensation SARs (#) ------------------ -------- ---------- ----- ------------ -------- Position -------- J. Jeremy Barbera (1) 2003 442,305(1) 75,000 (2) - - Chairman of the 2002 487,308(3) 250,000 (4) - - Board and 2001 456,642(5) - - - Chief Executive Officer and Interim Chief Financial Officer Cindy Hill 2003 125,914(6) 5,000(7) - - Former Chief Accounting 2002 194,923 75,000(8) - - Officer 2001 200,000 - - - Thomas Smith 2003 37,308 - - - Former Chief Operating 2002 237,981(9) - - - Officer 2001 195,519 - - - David Greenspan 2003 110,673(10) - - - Former Chief Operating 2002 231,250(11) - 115,000 - Officer 2001 250,000 - - 33,334
(1) In February 2003, Mr. Barbera voluntarily forgave a portion of his compensation to effect a reduction of approximately 30% to $350,000. (2) In connection with the successful sale of the Northeast Operations, Mr. Barbera was awarded a bonus in the amount of $75,000. (3) In March 2002, Mr. Barbera voluntarily forgave a portion of compensantion such that his annual salary was reduced from $500,000 to $450,000 until further notice. In addition, the Company entered into certain transactions with Mr. Barbera. See Section "ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." (4) In connection with the successful sale of the Company's Grizzard Communications subsidiary, Mr. Barbera was awarded a bonus in the amount of $250,000. (5) The annual salary for Mr. Barbera commencing January 1, 2000 was raised from $350,000 to $500,000. Notwithstanding, Mr. Barbera forgave this increase for the period January 2000 through December 2000. (6) In February 2003, Ms. Hill voluntarily forgave a portion of her compensation to effect a reduction of approximately 30% to $125,000. (7) In connection to the successful sale of the Northeast Operations, Ms. Hill was awarded a bonus of $5,000. (8) In connection with the successful sale of the Company's Grizzard Communications Subsidiary, Ms. Hill was awarded a bonus in the amount of $75,000. (9) In March 2002, Mr. Smith agreed to reduce his annual salary from $250,000 to $225,000. Effective July 2002, Mr. Smith's employment contract was amended and he is no longer the Chief Operating Officer of the Company. Mr. Smith's employment was terminated in November 2002. (10) Amount represents severance pay to Mr. Greenspan. (11) In March 2002, Mr. Greenspan agreed to reduce his annual salary from $250,000 to $225,000. In May 2002, Mr. Greenspan resigned his employment with the Company. In connection with the resignation, the Company has agreed to pay severance in the amount of $115,000 to be paid through November 2002. STOCK OPTION GRANTS No options were granted to executive officers or any other employees during Fiscal Year ended June 30, 2003. AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth information regarding the number and value of securities underlying unexercised stock options held by the Named Executive Officers as of June 30, 2003.
Number of Securities Value of unexercised Underlying Unexercised In-the-Money Options/ Number of Options/SARs at Fiscal SARs at Fiscal Year Securities Value Year End (#) End ($) Exercised (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable J. Jeremy Barbera - - 0/0 0/0 Cindy Hill - - 0/0 0/0 Thomas Smith - - 0/0 0/0 David Greenspan - - 0/0 0/0 -----------
COMPENSATION OF DIRECTORS Beginning in March 2002, directors who are not employees of the Company receive an annual retainer fee of $15,000, $1,000 for each Board Meeting attended, $500 for each standing committee meeting attended and $500 for each standing committee meeting for the Chairman of such Committee. Prior thereto, directors who were not employees of the Company received an annual retainer fee of $25,000. Fees for attending meetings and committee meetings remained the same. Such Directors will also be reimbursed for their reasonable expenses for attending board and committee meetings, and will receive an annual grant of options on June 30 of each year to acquire 10,000 shares of common stock for each fiscal year of service, at an exercise price equal to the fair market value on the date of grant. Any Director who is also an employee of the Company is not entitled to any compensation or reimbursement of expenses for serving as a Director of the Company or a member of any committee thereof. The Directors agreed to waive the annual option grant for the fiscal year ended June 30, 2001, 2002 and 2003. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS The Company had entered into employment agreements with each of its Named Executive Officers. Mr. Barbera was appointed to the position of Chairman of the Board, Chief Executive Officer and President of MKTG by the Board, effective March 31, 1997. Mr. Barbera had previously served as President and CEO of MKTG Services- New York, Inc. Mr. Barbera entered into a new employment agreement effective January 1, 2000. The agreement provides for a three year term expiring December 31, 2002 (the "Employment Term"). The base salary during the employment term is $500,000 for the first year and an amount not less than $500,000 for the remaining two years. Mr. Barbera is eligible to receive bonuses equal to 100% of the base salary each year at the determination of the Compensation Committee of the Board of Directors of the Company, based on earnings and other targeted criteria. The $500,000 annual slary for Mr. Barbera under his employment agreement reflected a raise from $350,000. Notwithstanding, Mr. Barbera forgave this increase for the period January 2000 through December 2000. In March 2002, Mr. Barbera voluntary agreed to decrease his annual salary to $450,000 until further notice. The Employment Agreement was automatically renewed for up to an additional three years. On May 27, 1997, Mr. Barbera was granted options to acquire 166,667 shares of Common Stock of the Company; 55,556 exercisable at $15.75 per share, 55,556 exercisable at $18.00 per share and 55,556 exercisable at $21.00 per share. One third of the options in each tranche vest immediately and one third of each tranche will become available on each of the next two anniversary dates. On June 30, 2000, Mr. Barbera was granted options to acquire 137,500 shares of Common Stock of the Company at $26.625 per share; 68,750 exercisable on December 31, 2000; 34,375 exercisable on December 31, 2001 and 2002. If Mr. Barbera is terminated without cause (as defined in the agreement), Employee shall receive severance pay consisting of a single lump sum distribution (with no present value adjustment) equal to 2.99 times the sum of the employee's annual base salary plus the maximum annual bonus as outlines in section 3(d)), and all outstanding stock options shall fully vest and become immediately exercisable. Mr. Barbera has agreed in his employment agreement (i) not to compete with MKTG or its subsidiaries, or to be associated with any other similar business during the employment term, except that he may own up to 5% of the outstanding common stock of certain corporations, as described more fully in the employment agreement, and (ii) upon termination of employment with MKTG and its subsidiaries, not to solicit or encourage certain clients of MKTG or its subsidiaries to cease doing business with MKTG and its subsidiaries and not to do business with any other similar business for a period of three years from the date of such termination. Ms. Hill entered into an employment agreement effective January 1, 2000, providing for employment as Chief Accounting Officer of the Company. The agreement provided for a two year term expiring on December 31, 2001 (the "Employment Term"). The base salary during the Employment Term was $200,000 for the first year and not less than $200,000 for the second year. Ms. Hill was eligible to receive raises and bonuses based upon the achievement of earnings and other targeted criteria if and as determined by the Compensation Committee of the Board of Directors. The agreement also provided for the granting to Ms. Hill of options to acquire Common Stock if and as determined by the Compensation Committee. If Ms. Hill was terminated without cause (as defined in the agreement), then MKTG shall pay her a lump sum payment equal to two times the then base rate. Ms. Hill has agreed in her employment agreement (i) not to compete with MKTG or to be associated with any other similar business during the Employment Term, except that she may own up to 5% of the outstanding common stock of certain corporations, as described more fully in her employment agreement, and (ii) upon termination of employment with MKTG, not to solicit or encourage certain clients of MKTG (as more fully described in the relevant employment agreement), to cease doing business with MKTG, and not to do business with any other similar business, for a period of three years from the date of such termination. Ms. Hill's employment agreement was not renewed as of December 31, 2001 and thus became an employee at will. Ms. Hill resigned her position for medical reasons effective March 12, 2003. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee during fiscal year 2003 were C. Anthony Wainwright, and John Gerlach. Mr.Wainwright was Chairman of the Committee. There were no compensation interlocks. Mr. Gerlach and Mr. Wainwright served as members of the Compensation Committee of the Company's Board of Directors during all of fiscal year 2003. None of such persons is an officer or employee, or former officer or employee of the Company or any of its subsidiaries. No interlocking relationships exist between the member of the Company's Board of Directors or Compensation Committee and the Board of Directors or Compensation Committee of any other Company, nor has any such relationship existed in the past. Item 12 - Security Ownership of Certain Beneficial Owners and Management SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of securities Number of Securities to be issued upon Weighted-average remaining available exercise of exercise price of for future issuances outstanding options, outstanding options, under equity Plan Category warrants and rights warrants and rights compensation plans ------------- ------------------- ------------------- ------------------ Equity compensation plans approved by security holders 1999 Stock Option Plan (1) 6,361 351.66 313,342 Equity compensation plans not approved by security holders 1991 Stock Option Plan (1) 12,696 135.54 34,472 Warrants 228,887 .56 - Executive Options 3,334 248.16 33,336
--------------------- (1) MKTG maintains a non qualified stock option plan for key employees, officers, directors and consultants. The plan is administered by the compensation committee of the Board of Directors which has the authority to determine which officers and key employees of the Company will be granted options, the option price and vesting of the options. In no event shall an option expire more than ten years after the date of grant. The following table sets forth certain information regarding the beneficial ownership of Common Stock as of September 30, 2002 by: (i) each Director and each of the Named Executive Officers; (ii) all executive officers and Directors of the Company as a group; and (iii) each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock. Amount and Nature of Common Stock Beneficially Owned ame and Address of Beneficial Holder (1) Number Percent ------ ------- Directors and Named Executive Officers: J. Jeremy Barbera................................... 110,000 10.07% Seymour Jones....................................... 2,779 * C. Anthony Wainwright............................... 1,611 * John Gerlach........................................ 2,032 * All Directors and Executive Officers as a group (4 persons).............................. 114,811 10.51% 5% Stockholders: GE Capital Corporation(2)........................... 312,109 23.74% Rose Glen Capital Management(3)..................... 108,279 9.91% Castle Creek Technology Partner LLC(4).............. 90,651 8.30% ----------- * Less than 1% (1) Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective Director, executive officer or stockholder, as the case may be. Except as otherwise noted, each person has an address in care of the Company. (2) Includes 222,292 beneficially owned shares of Common Stock issuable upon the exercise of warrants which are currently exercisable or are exercisable with 60 days of the date herein. The address for the 5% Stockholder is as follows: 120 Long Ridge Road, Stamford, Connecticut 06927. (3) The address for this 5% Stockholder is as follows: C/O Rose Glen Capital Management, L.P., 3 Bala Plaze East, Suite 501, 51 St. Asaphs Road, Bala Cynwyd, Pennsylvania, 19004. (4) The address for this 5% Stockholder is as follows: 111 West Jackson Boulevard, Suite 2020, Chicago, Illinois, 60604. Item 13 - Certain Relationships and Related Transactions Transactions with Mr. Barbera: During the year ended June 30, 2002, the Company advanced $1,000,000 pursuant to a promissory note receivable to Mr. Barbera due and payable to the Company at maturity, October 15, 2006. The Company recorded the note receivable at a discount of approximately $57,955 to reflect the incremental borrowing rate of Mr. Barbera and is being amortized as interest income over the term of the note using the straight-line method. The note receivable is collateralized by current and future holdings of MKTG common stock owned by the officer and bears interest at prime. Interest is due and payable yearly on October 15th. The Company recognized interest income of $36,488 for the year ended June 30, 2002. The note was entered into as an inducement to the continued employment of Mr. Barbera and to provide additional security in the event of a change in control. Accordingly, the note will be forgiven in the event of a change in control. Transactions with Mr. Annex: Mr.Annex, corporate secretary and a former Director of the Company, is a partner in the law firm of Greenberg Traurig, LLP, which provides legal services to the Company. The Company incurred expenses aggregating approximately $476,806, $921,901 and $1,014,524 for the years ended June 30, 2003, 2002 and 2001, respectively. Mr. Annex has informed the Company that such fees did not represent more than 5% of such firm's revenues for its fiscal years ending during such periods. The Company believes that the fees for services provided by the law firm were at least as favorable to the Company as the fees for such services from unaffiliated third parties. Transactions with 5% Stockholders: In 1999, a lawsuit under Section 16(b) of the Securities Exchange Act of 1934 was commenced against General Electric Capital Corporation ("GECC") by Mark Levy, derivatively on behalf of the Company, to recover short swing profits allegedly obtained by GECC in connection with the purchase and sale of MKTG securities. The case was filed in the name of Mark Levy v. General Electric Capital Corporation, in the United States District Court for the Southern District of New York, Civil Action Number 99 Civ. 10560(AKH). In February 2002, a settlement was reached among the parties. The settlement provided for a $1,250,000 payment to be made to MKTG by GECC and for GECC to reimburse MKTG for the reasonable cost of mailing a notice to stockholders up to $30,000. On April 29, 2002, the court approved the settlement for $1,250,000, net of attorney fees plus reimbursement of mailing costs. In July 2002, the court ruling became final and the Company received and recorded the net settlement payment of $965,486 plus reimbursement of mailing costs. Item 14 - Principle Accountant Fees and Services Not Applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K/A to be signed on its behalf by the undersigned hereunto duly authorized. MARKETING SERVICES GROUP, INC. By: /s/ Jeremy Barbera Name : J. Jeremy Barbera Title : Chief Executive Officer and Interim Chief Financial Officer Date: October 28, 2003 CERTIFICATIONS I, J. Jeremy Barbera, certify that: (1) I have reviewed the annual report on this Form 10-K/A of MKTG Services, Inc.; (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered in this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. (4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted in accordance with SEC transition instructions]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report.) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: October 28, 2003 /s/ J. Jeremy Barbera --------------------- J. Jeremy Barbera Chairman of the Board, Chief Executive Officer and Interim Chief Financial OfficerOfficer (Principal (Executive Officer and Principal Financial Officer) Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U. S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of MKTG Services, Inc. (the "Company") as amended on Form 10-K/A for the year ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, J. Jeremy Barbera, as Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934: and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 28, 2003 /s/ J. Jeremy Barbera --------------------- J. Jeremy Barbera Chairman of the Board, Chief Executive Officer and Interim Chief Financial OfficerOfficer (Principal (Executive Officer and Principal Financial Officer) This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form with the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.