This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "estimate," "project," "believe," "anticipate," "intend," "expect," "plan," "predict," "may," "should," "will," the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in those forward-looking statements. Factors that could cause actual results to differ materially from the Company's expectations are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2008 under "Risk Factors," including but not limited to "Recent Losses," "Customers," "Dependence on Key Personnel," "Unpredictable Revenue Patterns," "Competition," and "Risks Associated with Acquisitions," in addition to other information set forth herein and elsewhere in our other public filings with the Securities and Exchange Commission. The forward-looking statements contained in this report speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

CoActive Marketing Group, Inc., 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 company. We develop, manage and execute sales promotion programs at both national and local levels, utilizing both online and offline media channels. Our programs help our clients effectively promote their goods and services directly to retailers and consumers and are intended to assist them in achieving maximum impact and return on their marketing investment. Our activities reinforce brand awareness, provide incentives to retailers to order and display our clients' products, and motivate consumers to purchase those products, and are designed to meet the needs of our clients by focusing on communities of consumers who want to engage brands as part of their lifestyles.

On June 30, 2008, the Company, through U.S. Concepts LLC, acquired substantially all of the assets of 3 For All Partners, LLC d/b/a mktgpartners ("mktgpartners"), a marketing services company. The consideration for the acquisition consisted of $3.25 million in cash and 332,226 common shares (the "Share Consideration") of the Company's common stock, valued at approximately $1,000,000 pursuant to an Asset Purchase Agreement between the Company, U.S. Concepts LLC, mktgpartners and mktgpartners' members. The foregoing summary does not purport to be complete and is subject to and qualified in its entirety by reference to the actual text of the Asset Purchase Agreement, which has been filed as Exhibit 10.4 to the Company's Current Report on Form 8-K. filed July 2, 2008

CoActive was formed under the laws of the State of Delaware in March 1992 and is the successor to a sales promotion business originally founded in 1972. CoActive began to engage in the promotion business following a merger consummated on September 29, 1995 that resulted in Inmark becoming its wholly-owned subsidiary.

On July 31, 2008, the Company began conducting business under the name 'mktg.' The Company will seek the approval of its stockholders to formally change its legal name to 'mktg inc.' at its Annual Meeting of Stockholders in September 2008.

Our corporate headquarters are located at 75 Ninth Avenue, New York, New York 10011, and our telephone number is 212-660-3800. Our Web site is www.mktg.com. Copies of all reports we file with the Securities and Exchange Commission are available on our Web site.

Results of Operations

          The following table presents operating data of the Company expressed
as a percentage of operating revenue, which is defined as sales, net of
reimbursable program costs and expenses and outside production and other program
expenses.


                                                    Three Months Ended
                                                         June 30,
                                                  ----------------------
                                                     2008         2007
                                                  ----------    --------

Statement of Operations Data:
Operating revenue                                      100.0 %     100.0 %
Compensation expense                                    74.5 %      85.3 %
General and administrative expense                      16.9 %      19.6 %
Operating income (loss)                                  8.6 %      (4.9 %)
Interest income, net                                     0.1 %       0.2 %
Income (loss) before provision for income taxes          8.7 %      (4.7 %)
Provision (benefit) for income taxes                     3.6 %      (1.5 %)
Net income (loss)                                        5.1 %      (3.2 %)

Sales.Sales consist of fees for services, commissions, reimbursable program costs and expenses and other production and program expenses. We purchase a variety of items and services on behalf of our clients for which we are reimbursed pursuant to our client contracts. The amount of reimbursable program costs and expenses, and outside production and other program expenses which are included in revenues will vary from period to period, based on the type and scope of the service being provided. The general trend for the three months ended June 30, 2008 has been toward lower reimbursable program costs and other expenses as a percentage of total revenues versus the comparable period in the prior year. This trend is due in large part to our previously reported efforts to eliminate single-project work in favor of more profitable recurring work.

                                                 Three Months Ended
                                                      June 30,
                                     -------------------------------------------
                    Sales                2008         %         2007         %
                     --------        ------------   -----   ------------   -----
            Sales                    $ 22,331,000     100   $ 20,408,000     100
            Reimbursable program
            costs and outside
            production expenses        13,055,000      58     12,594,000      62
                                     - ----------   - ---   - ----------   - ---
            Operating Revenue        $  9,276,000      42   $  7,814,000      38
                                     - ----------   - ---   - ----------   - ---

Sales for the three months ended June 30, 2008 increased 9% to $22,331,000, compared to $20,408,000 for the quarter ended June 30, 2007. This $1,923,000 increase in sales and proportionately higher increase in Operating Revenue reflects growth in wine and spirits events and a shift in certain client contracts, under which the Company's compensation is based primarily on labor, with lower associated reimbursable program and production costs.

Outside Production and other Program Expenses. Outside production and other program expenses consist of the costs of purchased materials, media, services, certain direct labor charged to programs and other expenditures incurred in connection with and directly related to sales but which are not classified as reimbursable program costs and expenses. Outside production and other program expenses for the three months ended June 30, 2008 were $8,346,000 compared to $6,422,000 for the three months ended June 30, 2007. The weighted mix of outside production and other program expenses related to these components may vary significantly from project to project based on the type and scope of the services being provided.

Operating Revenue. We believe operating revenue is a key performance indicator. Operating Revenue is defined as our sales less outside reimbursable program costs and expenses and outside production and other program expenses. Operating Revenue is the net amount derived from sales to customers that we believe is available to fund our compensation and general and administrative expenses, and capital expenditures. For the three months ended June 30, 2008, Operating Revenue increased by 19% to $9,276,000, compared to $7,814,000 for the three months ended June 30, 2007. The increase is a result of the Company's shift toward client contracts under which the Company's compensation is based primarily on labor, with lower associated reimbursable program and production costs. In addition, Operating Revenue as a percentage of total sales increased to 42% for the three months ended June 30, 2008 from 38% for the three months ended June 30, 2007.

Compensation Expense.Compensation expense, exclusive of reimbursable program costs and expenses and other program expenses, consists of the salaries, payroll taxes and benefit costs related to indirect labor, overhead personnel and certain direct labor otherwise not charged to programs. For the three months ended June 30, 2008, compensation expense was $6,909,000, compared to $6,665,000 for the three months ended June 30, 2007, an increase of $244,000 The increase in compensation expense for the three months ended June 30, 2008 reflect additional costs associated with recruiting senior talent to support our technology, marketing and finance groups.

General and Administrative Expenses.General and administrative expenses, consisting of office and equipment rent, depreciation and amortization, professional fees, other overhead expenses and charges for doubtful accounts, were $1,566,000 for the three months ended June 30, 2008, compared to $1,530,000 for the three months ended June 30, 2007, an increase of $36,000.

Interest Income, Net.Net interest income for the three months ended June 30, 2008 was $10,000 compared to $15,000 for the three months ended in June 30, 2007. Interest income consists primarily of interest on our money market and CD accounts that paid interest at average rate of approximately 2.85% and 3.25% for the three months ended June 30, 2008 and 2007, respectively.

Income (loss) before Provision for Income Taxes. The Company's income
(loss) before the provision for income taxes for the three months ended June 30, 2008 and 2007 amounted to $811,000 and ($366,000), respectively.

Provision (benefit) for Income Taxes. The provision for federal, state and local income taxes for the three months ended June 30, 2008 and 2007 were based upon the Company's estimated effective tax rate for the respective fiscal years.

Net Income. As a result of the items discussed above, net income for the three months ended June 30, 2008 was $477,000 compared to net loss of $246,000 for the three months ended June 30, 2007. Fully diluted earnings per share amounted to $.07 for the three months ended June 30, 2008, compared to a loss of ($.04) per share in the three months ended June 30, 2007.

Liquidity and Capital Resources

On June 26, 2008 the Company entered into a Credit Agreement with Sovereign Bank under which the Company obtained a three-year revolving credit facility in the principal amount of $2,500,000 for working capital purposes, and a three-year term loan in the amount of $2,500,000 that was used to fund a portion of the purchase price for the assets of 3 For All Partners, LLC.

• All outstanding loans under the Credit Agreement will become due on June 30, 2011 (the "Maturity Date").

• The Term Loan will be repaid in 12 consecutive quarterly installments commencing on September 30, 2008. The first 11 installments will be in the amount of $168,750, with a final payment in the amount of $643,750 being due on the Maturity Date.

• Interest accrues on outstanding loans under the Credit Agreement at a per annum rate equal to, at the Company's option, the prime rate (5.0% at June 30, 2008) from time to time in effect (but in no event less than the Federal Funds Rate plus one-half percent), or a LIBOR rate selected by the Company, plus a margin of 2.25%.

• The Company is required to comply with a number of affirmative, negative and financial covenants. Among other things, these covenants restrict the Company's ability to pay dividends, limit annual capital expenditures, provide that the Company's "Consolidated Debt Service Coverage Ratio" cannot be less than 1.5 to 1.0 as of the end of any fiscal quarter, that its "Consolidated Leverage Ratio" can not exceed 2:25 to 1:00 at the end of any fiscal quarter, and that the Company can not incur a "Consolidated Pre-Tax Net Loss" in excess of $500,000 in the aggregate in any period of two consecutive fiscal quarters. As of June 30, 2008, the Company was in compliance with these covenants.

At June 30, 2008, we had cash and cash equivalents of $2,772,000, a working capital deficit of $1,395,000, borrowing availability of $2,500,000 under the revolving credit facility, and stockholders' equity of $12,595,000. In comparison, at March 31, 2008, we had cash and cash equivalents of $5,323,000, a working capital deficit of $783,000, and stockholders' equity of $11,988,000, with no line of credit. The decrease of $2,552,000 in cash and cash equivalents from March 31, 2008 to June 30, 2008 was primarily due to the acquisition of fixed assets and cash used in operating activities. Management believe that cash on hand, together with borrowings available under the Credit Agreement and cash anticipated to be generated from operations, will provide the Company with adequate financing to fund operations through the end of Fiscal 2009.

Operating Activities. Net cash used in operating activities was $1,593,000 and $6,587,000 for the three months ended June 30, 2008 and 2007, respectively. For the quarter ended June 30, 2008, cash used in operating activities primarily consisted of a decrease in deferred revenue, partially offset by net income and collections of accounts receivable. For the prior year, cash used in operating activities was primarily due to an increase in accounts receivable during the three months ended June 30, 2007.

Investing Activities. For the three months ended June 30, 2008, net cash used by investing activities amounted to $3,458,000, primarily due to the purchase of the assets of 3 For All Partners, LLC. For the three months ended June 30, 2007, net cash used by investing activities was $172,000, primarily due to the purchase of computer equipment and software

Financing Activities. For the three months ended June 30, 2008, net cash provided by financing activities amounted to $2,500,000 of bank borrowings utilized to fund a portion of the purchase price for the acquisition of the assets of 3 For All Partners, LLC. For the three months ended June 30, 2007, net cash used in financing activities amounted to $2,000,000 resulting from repayments of bank borrowings.

Critical Accounting Policies

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Certain of the estimates and assumptions required to be made relate to matters that are inherently uncertain as they pertain to future events. While management believes that the estimates and assumptions used were the most appropriate, actual results may vary from these estimates under different assumptions and conditions.

Please refer to the Company's 2008 Annual Report on Form 10-K for a discussion of the Company's critical accounting policies relating to revenue recognition, goodwill and other intangible assets and accounting for income taxes. During the three months ended June 30, 2008, there were no material changes to these policies.