##### ** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

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**FORM 10-QSB**

 
| **(Mark One)**                    |                                                                                                                                                                                               |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                        | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                       |
|                              | ** **                                                                                                                                                                                         |
| ** **                        | **For the quarterly period ended June 30, 2004**                                                                                                                                                   |
| ** **                        | ** **                                                                                                                                                                                         |
| **OR**                            |
|                              |                                                                                                                                                                                               |
| **o**                             | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                      |
|                              |                                                                                                                                                                                               |
|                              | **For the  transition period  from             to             ** |
|                              | ** **                                                                                                                                                                                         |
| **Commission File No. 000-23221** |

 

**CENTIV,INC.**

(Exact name of Registrant as specified in its charter)

 

| **Delaware**                                                    | *** *** | **58-2033795**                        |
|-----------------------------------------------------------------|--------------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) | * *     | (IRS Employer  Identification Number) |
|                                                            | * *     |                                  |
| **P.O. Box 113, Palos Verdes Estates, CA  90274**               |
| (Address of Principal Executive Offices, including Zip Code)    |

** **

**(949) 717-0626******(Registrant’s telephone number, including area code)

 

Indicate bycheck mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes: ý   No: o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act)  Yes: o   No: ý

 

The number ofshares outstanding of the Registrant’s common stock, par value $.001, as ofAugust 20, 2004, the latest practicable date, was 32,629,714  shares.

 

 

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**CENTIV, INC.**

##### **TABLE OF CONTENTS**

 

 
| **PART I  FINANCIAL INFORMATION** |                                                                                                                            |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                            |   |
| Item 1.                           | Financial  Statements                                                                                                           |   |
|                              |                                                                                                                            |   |
|                              | Condensed Consolidated  Balance Sheet as of  June 30, 2004 (unaudited)                                                     |   |
|                              |                                                                                                                            |   |
|                              | Condensed  Consolidated Statements of Operations for the three and six month periods  ended June 30, 2004, and 2003 (unaudited) |   |
|                              |                                                                                                                            |   |
|                              | Condensed Consolidated Statements  of Cash Flows for the six month periods ended June 30, 2004 and 2003  (unaudited)            |   |
|                              |                                                                                                                            |   |
|                              | Notes to Condensed Consolidated  Financial Statements (unaudited)                                                               |   |
|                              |                                                                                                                            |   |
| Item 2.                           | Management’s Discussion and  Analysis or Plan of Operation                                                                 |   |
|                              |                                                                                                                            |   |
| Item 3.                           | Controls and Procedures                                                                                                         |   |
|                              |                                                                                                                            |   |
| **PART II  OTHER INFORMATION**    |                                                                                                                            |
|                              |                                                                                                                            |   |
| Item 1.                           | Legal Proceedings                                                                                                               |   |
|                              |                                                                                                                            |   |
| Item 2.                           | Changes in Securities and Small  Business Issuer Purchases of Equity Securities                                                 |   |
|                              |                                                                                                                            |   |
| Item 3.                           | Defaults Upon Senior Securities                                                                                                 |   |
|                              |                                                                                                                            |   |
| Item 4.                           | Submission of Matters to a Vote of  Security Holders                                                                            |   |
|                              |                                                                                                                            |   |
| Item 5.                           | Other Information                                                                                                               |   |
|                              |                                                                                                                            |   |
| Item 6.                           | Exhibits and Reports on Form 8-K                                                                                                |   |
|                              |                                                                                                                            |   |
| Signatures                        |                                                                                                                            |

 

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**PART I – FINANCIALINFORMATION**

CENTIV,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

($ in thousands)

 
| ** **                                                                                                              | ** ** | **June 30,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                              | ** ** | **(unaudited)**    | ** ** |
| **ASSETS**                                                                                                              |       |               |       |
| Current assets:                                                                                                         |       |               |       |
| Total current assets                                                                                                    |       | $                  | —     |   |
|                                                                                                                    |       |               |       |
| Other assets:                                                                                                           |       |               |       |
| Net operating profits interests                                                                                         |       | 75,425             |       |
| Total assets                                                                                                            |       | $                  | 75,425     |   |
|                                                                                                                    |       |               |       |
| **LIABILITIES**                                                                                                         |       |               |       |
| Current liabilities:                                                                                                    |       |               |       |
| Accounts payable – related  party and other                                                                        |       | $                  | 322        |   |
| Net operating profits interests  payable                                                                                |       | 55,000             |       |
| Total current liabilities                                                                                               |       | 55,322             |       |
|                                                                                                                    |       |               |       |
| Total liabilities                                                                                                       |       | 55,322             |       |
|                                                                                                                    |       |               |       |
| Commitments and Contingencies                                                                                           |       |               |       |
|                                                                                                                    |       |               |       |
| **STOCKHOLDERS’ EQUITY**                                                                                           |       |               |       |
|                                                                                                                    |       |               |       |
| Common Stock $.001 par value,  35,000,000 shares authorized; 32,629,714 shares issued and outstanding at  June 30, 2004 |       | 33                 |       |
|                                                                                                                    |       |               |       |
| Preferred Stock, $.001 par  value, 5,000,000 shares authorized                                                          |       |               |       |
| Series A Preferred Stock,  1,000,000 shares designated; no shares issued or outstanding at June 30, 2004                |       | —             |       |
|                                                                                                                    |       |               |       |
| Series B Preferred Stock,  1,000,000 shares designated; no shares issued or outstanding at June 30, 2004                |       | —             |       |
|                                                                                                                    |       |               |       |
| Additional paid-in capital                                                                                              |       | 21,553             |       |
| Accumulated deficit                                                                                                     |       | (2,483             | )          |
|                                                                                                                    |       |               |       |
| Total stockholders’ equity                                                                                         |       | 19,103             |       |
|                                                                                                                    |       |               |       |
| Total liabilities and  stockholders’ equity                                                                        |       | $                  | 75,425     |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements.

 

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CENTIV,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share data)

 
| ** **                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **2004**                        | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                      | ** ** | **(unaudited)**                 | ** ** | **(unaudited)**               | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Net sales                                       |       | $                               | 547        |                          | $          | 585 |   | $ | 1,174 |   | $ | 5,367 |   |
| Cost of goods sold                              |       | 262                             |       | 247                           |       | 534 |   | 3,659 |   |
| Gross profit                                    |       | 285                             |       | 338                           |       | 640 |   | 1,708 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Operating expenses:                             |       |                            |       |                          |       |   |   |   |   |
| Selling, general and  administrative            |       | 2,821                           |       | 643                           |       | 3,795 |   | 1,915 |   |
| Depreciation                                    |       | 77                              |       | 144                           |       | 199 |   | 286 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Loss from operations                            |       | (2,613                          | )          | (449                          | )          | (3,354 | ) | (493 | ) |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Other income                                    |       | —                          |       | —                        |       | — |   | — |   |
| Interest income  (expense)                 |       | —                          |       | 4                             |       | 14 |   | (12 | ) |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Loss from continuing operations                 |       | (2,613                          | )          | (445                          | )          | (3,340 | ) | (505 | ) |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Loss from discontinued  operations (net of tax) |       | (954                            | )          | —                        |       | (954 | ) | — |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Net loss                                        |       | $                               | (3,567     | )                             | $          | (445 | ) | $ | (4,294 | ) | $ | (505 | ) |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Basic and Diluted Loss Per  Share               |       |                            |       |                          |       |   |   |   |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Weighted average shares  outstanding            |       | 30,797,169                      |       | 1,670,718                     |       | 23,517,322 |   | 1,535,474 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Continuing operations per share                 |       | $                               | (0.09      | )                             | $          | (0.27 | ) | $ | (0.14 | ) | $ | (0.33 | ) |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Discontinued operations per  share              |       | $                               | (0.03      | )                             | $          | 0.00 |   | $ | (0.04 | ) | $ | 0.00 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Net loss per share                              |       | $                               | (0.12      | )                             | $          | (0.27 | ) | $ | (0.18 | ) | $ | (0.33 | ) |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

2

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CENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

 
| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                   | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**               | ** ** | **(unaudited)** | ** ** |
| **Cash flows from operating activities:**                                    |       |                          |       |   |   |
| Net loss                                                                     |       | $                             | (4,294     | ) | $ | (505 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                          |       |   |   |
| Provision for doubtful accounts receivable                                   |       | —                        |       | 11 |   |
| Depreciation                                                                 |       | 199                           |       | 286 |   |
| Non-cash interest on note payable  (receivable)                              |       | —                        |       | (21 | ) |
| Shares issued to consultants                                                 |       | 2,001                         |       | — |   |
| Non-cash compensation for warrants and  options                              |       | —                        |       | 6 |   |
| Amortization of Discount on Convertible  Subordinated Debt                   |       | —                        |       | 10 |   |
| Changes in net assets and liabilities                                        |       |                          |       |   |   |
| Accounts receivable                                                          |       | (163                          | )          | 1,260 |   |
| Inventories                                                                  |       | 11                            |       | 795 |   |
| Prepaid expenses and other assets                                            |       | 302                           |       | 172 |   |
| Accounts payable and accrued expenses                                        |       | (32                           | )          | (2,867 | ) |
| Contract obligations and deferred income                                     |       | (69                           | )          | (87 | ) |
| Other long-term liabilities                                                  |       | (57                           | )          | 47 |   |
| Income taxes                                                                 |       | —                        |       | 16 |   |
| Net assets, discontinued operations                                          |       | 954                           |       | — |   |
| Total adjustments                                                            |       | 3,146                         |       | (372 | ) |
| **Net cash used in operating activities**                                    |       | (1,148                        | )          | (877 | ) |
|                                                                         |       |                          |       |   |   |
| **Cash flows from investing activities:**                                    |       |                          |       |   |   |
| Purchase of property and equipment —  continuing operations             |       | —                        |       | (29 | ) |
| Proceeds from sale of CalGraph Business                                      |       | —                        |       | 150 |   |
| **Net cash provided by investing activities**                                |       | —                        |       | 121 |   |
|                                                                         |       |                          |       |   |   |
| **Cash flows from financing activities:**                                    |       |                          |       |   |   |
| Proceeds of repayment from shareholder loan                                  |       | 271                           |       | — |   |
| Repayment of convertible subordinated debt  facility                         |       | —                        |       | (500 | ) |
| Net proceeds from private placement of  securities                           |       | —                        |       | 1,910 |   |
| Proceeds from stock options exercised                                        |       | —                        |       | 2 |   |
| (Repayment)/Proceeds, net, from capital  lease                               |       | —                        |       | (16 | ) |
| **Net cash provided by financing activities**                                |       | 271                           |       | 1,396 |   |
|                                                                         |       |                          |       |   |   |
| **Increase (decrease) in cash and cash  equivalents**                        |       | (877                          | )          | 640 |   |
| Cash and cash equivalents, beginning of  year                                |       | 877                           |       | 1,304 |   |
| Cash and cash equivalents, as of June 30                                     |       | $                             | —     |   | $ | 1,944 |   |

 

**Supplemental Schedule of NoncashActivities:**

 

Effective February 4, 2004,the Company acquired all of the assets and assumed certain liabilities ofBeijing Multimedia Limited.  In connection with the acquisition,liabilities were assumed as follows:

 

| ** **                              | ** ** | **($’s in Thousands)** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|
|                                    |       |                        |       |
| Fair value of assets acquired           |       | $                           | 75,425     |   |
| Common stock issued (20,250,000 shares) |       | (15,600                     | )          |
| Liabilities assumed                     |       | $                           | 59,825     |   |

 

The accompanying notes are an integral part of these condensed consolidated financialstatements.

 

3

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**CENTIV,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****             ****BASIS OF PRESENTATION**

 

The accompanying condensedunaudited consolidated financial statements of Centiv, Inc. and subsidiaries(“Centiv” or the “Company”) have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions per Item 310(b) of Regulation S-X.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  The preparationof financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included.  Operating results for the three months and the six monthsended June 30, 2004, are not necessarily indicative of the results that may beexpected for the full year ending December 31, 2004.  For further information, refer to theconsolidated financial statements and the footnotes included in the AnnualReport on Form 10-K for the year ended December 31, 2003.

 

**2.****         ****MERGER AND SALE OFDISCONTINUED OPERATION**

 

On or about May 7, 2004, theCompany entered into a merger agreement with CNTV Entertainment Group, Inc., aNevada corporation, primarily to change its corporate domicile from Delaware toNevada and to change its name from Centiv, Inc. to CNTV Entertainment GroupInc. (“CEGI”).  The authorized capitalstock of CEGI  consists of One Billion(1,000,000,000) shares of $.001 par value common stock.  CEGI also has authorized the followingconvertible preferred stock:  Series A -200,000 shares; Series B - 200,000 shares; Series C - 300,000 shares; Series D- 300,000 shares; Series E - 300,000 shares; Series F- 400,000 shares; and,Series G - 400,000 shares.

 

The merger shall becomeeffective at the time of the filing of the appropriate articles of merger withthe Secretary of State of the State of Nevada and the Secretary of State of theState of Delaware.  As of the date ofthis  report, the merger is noteffective, however, is expected to become effective in the quarter endingSeptember 30, 2004.

 

On the anticipated effectivedate, every ten shares of the issued and outstanding$.001 par value commonstock of Centiv, Inc. are anticipate to be converted into one share of the$.001 common stock of CEGI.  One wholeshare is anticipated to be issued to any shareholder of Centiv, Inc. withrespect to fractional shares in the CEGI resulting from such division.

 

Options, warrants, andconversion rights to acquire capital stock of Centiv, Inc. is anticipated to beconverted into the number of shares of options, warrants, and conversion rightsto acquire capital stock of the CEGI into which shares of capital stock ofCentiv, Inc. covered by the option, warrant, or conversion right would havebeen  converted if such shares had beenheld by the holder of the option, warrant, or conversion rights at anappropriately adjusted option, purchase, or conversion price.

 

In connection with themerger, the Company also spun off all of its shares held in Centiv Services,Inc., a wholly owned subsidiary (“CS”) to the former holders of the Series Bpreferred stock (See Note 5).  As such,the Company accounted for this transaction as a sale of a discontinuedoperation, and recorded a loss of $954,000 (the value of the net assets of CS)resulting from the spin off).

 

4

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**3.****             ****NET LOSS PER COMMON SHARE**

 

Basic and diluted netincome/(loss) per common share are computed by dividing net income (loss) bythe weighted average number of common shares and common share equivalentsoutstanding during the period.  Since the Company has a net loss fromcontinuing operations, there were no common share equivalents that weredilutive during any of the periods presented.  The changes in outstandingshares during the three months ended June 30, 2004 and 2003 are shown below:

 
| ** **                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **2004**                         | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Common shares:**                         |       |                             |       |                           |       |   |   |   |   |
| Outstanding at beginning of period         |       | 29,294,483                       |       | 1,665,731                      |       | 1,677,815 |   | 1,395,728 |   |
| Shares issued (redeemed) during the period |       | 3,335,231                        |       | 9,584                          |       | 30,951,899 |   | 279,587 |   |
| Outstanding at end of period               |       | 32,629,714                       |       | 1,675,315                      |       | 32,629,714 |   | 1,675,315 |   |
|                                       |       |                             |       |                           |       |   |   |   |   |
| Basic and Diluted weighted average shares  |       | 30,797,169                       |       | 1,670,718                      |       | 23,517,322 |   | 1,535,474 |   |

 

Shares issued during the sixmonths ended June 30, 2004, reflect the conversion of Series B preferred stockinto common shares as described in Note 6, the acquisition of BeijingMultimedia through the issuance of common stock, and the issuance of stockgrants assumed as part of the acquisition of Beijing Multimedia.  Also, shares issued during the three monthsended June 30, 2004, reflect shares issued to related parties and consultantsas described in Note 6.

 

The weighted average commonshares exclude securities that would be anti-dilutive upon conversion. Accordingly,as of June 30, 2004, there are 1,000,000 warrants with an exercise price of$0.50 that expire in March 2010, 810,000 warrants with an exercise price of$1.50 per share that expire in March 2007, 85,000 warrants with an exerciseprice of $1.75 per share that expire in March 2008, 119,250 warrants withexercise prices between $1.00 and $1.15 per share that expire between 2003 and2007, and 16,532,132 stock options that are excluded from the weighted averageshares outstanding.

 

**4.****             ****INCOME TAXES**

 

There was noincome tax provision/(benefit) for the three months and six months ended June30, 2004, and 2003 as any provision/(benefit) was offset by a correspondingreduction/(increase) in the valuation allowance for deferred income taxes.  In connection with the spin off of CS, theCompany no longer has any deferred income tax amounts as of June 30, 2004.

 

**5.****             ****CORPORATE RESTRUCTURING ANDNEW BUSINESS PLAN**

 

***Acquisition of Beijing Multimedia Limited****. *On January 29, 2004, the Company announcedthat it had entered into a Stock Purchase Agreement with Eagle Treasure Limited(“Eagle Treasure”), a company incorporated in the British Virgin Islands, underwhich Centiv acquired all of the issued capital stock of Eagle Treasure’ssubsidiary, Beijing Multimedia Limited (“Beijing Multimedia”), a companyincorporated in the British Virgin Islands.  The acquisition of BeijingMultimedia under the Stock Purchase Agreement was approved and ratified by theBoard of Directors of the Company on January 16, 2004.  On February 4, 2004,to complete the Stock Purchase Agreement with Eagle Treasure, Centiv issued20,250,000 unregistered shares of its $.001 par value common stock in the nameof Eagle Treasure in exchange for the entire 202,500 shares of the issued

 

5

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and paid up share capital ofBeijing Multimedia.  Further, Centiv assumed certain pre-existingobligations of Beijing Multimedia, including but not limited to the issuance ofcertain fee shares of capital stock, and stock options to directors,professional advisors, and consultants of Beijing Multimedia.  As a resultof the exchange of shares and assumption and satisfaction of obligations,Beijing Multimedia became a wholly owned subsidiary of the Company.  OnFebruary 6, 2004, the Company filed a Current Report on Form 8-K with theSecurities and Exchange Commission describing in detail the transaction withEagle Treasure and the acquisition of Beijing Multimedia.

 

***Transfer Agreement***.  Prior to the acquisition of Beijing Multimedia by the Company,under a Transfer Agreement dated December 16, 2003, Beijing Multimedia acquiredcertain net operating profits interests (“NOP Interests”) amounting toapproximately 30 percent of the joint advertising activities of CITIC Cultural &Sports Industry Co. Ltd., a company organized under the laws of the People’sRepublic of China (“CITIC Cultural”).  Also under the Transfer Agreement,the NOP interests, as determined and under terms guaranteeing certain minimumamounts, will be paid semi-annually to Beijing Multimedia over the term of theTransfer Agreement which is from January 1, 2004, through the later of December31, 2016, or the date on which CITIC Cultural’s license agreements with twoentities terminate, in exchange for certain NOP Cash Calls totaling $50.0million (subsequently increased to $55.0 million) which were required to bepaid to CITIC Cultural by Beijing Multimedia on or before March 31, 2004. IfBeijing Multimedia cannot meet the requirement to pay the NOP Cash Calls to CITICCultural under the terms of the Transfer Agreement or any amendments orextensions thereto, then the NOP Interests of Beijing Multimedia shall bereduced by .0017 percent for each $100,000 in NOP Cash Calls not funded, butnot below a minimum level of fifteen (15) percent of the initial NOP Interests.

 

CITIC Cultural is a companythat specializes in cultural and media businesses.  Its principal businesses include filmproduction and distribution, television drama and program production anddistribution, subway and railway advertising, magazine and newspaperpublication, and sports and entertainment entities.  CITIC Cultural is anaffiliate of China International Trust & Investment Co. Ltd. and itssubsidiaries (collectively, the “CITIC Group”).

 

The Transfer Agreement alsoprovides that during the first three years of the term of the agreement, theNOP Interests shall yield in the form of cash transfers to Beijing Multimedia aminimum of $20.0 million per year provided that the full amount of the NOP CashCalls, as described above, is paid to CITIC Cultural.  In the event thatthe full amount of the NOP Cash Calls is not paid to CITIC Cultural by BeijingMultimedia, then the NOP Interests payable in the form of cash transfers shallbe prorated according to the formula for reduction of NOP Interests ascontained in the Transfer Agreement, but in any event, not below a minimumlevel of fifteen (15) percent of the initial NOP Interests, or $3.0 million peryear during the first three years of the term of the Transfer Agreement. Beijing Multimedia has also obtained an unconditional and irrevocable thirdparty guarantee from an individual for the payment of the cash transfers fromNOP Interests for the first three years under the Transfer Agreement in the eventthat CITIC Cultural is unable to meet its obligation.

 

Based upon an independentvaluation of the NOP Interests acquired from CITIC Cultural, the management ofBeijing Multimedia has estimated that the discounted present value of the NOPInterests (without consideration of the NOP Cash Calls) is between US$40.0million and US$80 million, and such NOP Interests are expected to contributeapproximately $20.0 million per year, pre-tax cash flow to the Company, on aconsolidated basis, provided that the full amount of the NOP Cash Calls ispaid, and that the level of the cash transfers from the NOP Interests continueat similar levels beyond the first three years of the Transfer Agreement.

 

In conjunction with theissuance of 20,250,000 unregistered shares, the Company recorded its NOPInterests contract rights on its balance sheet, which has a balance of $75million as of June 30, 2004.

 

6

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***Amendment of the Transfer Agreement***.  The NOP Interests of BeijingMultimedia under the Transfer Agreement are subject to the completion of theNOP Cash Calls which total $50.0 million (subsequently increased to $55.0million), and, as explained above, were required to be paid to CITIC Culturalon or before March 31, 2004.  As of June 30, 2004, Beijing Multimedia wasin default under the Transfer Agreement for non-payment of the NOP Cash Calls,and was subject to a reduction of its NOP Interests, as explained above. On April 9, 2004, CITIC Cultural, Beijing Multimedia, Centiv, and EagleTreasure entered into a Supplemental Agreement to the Transfer Agreement,wherein the parties agreed (a) to extend the date for the payment of the NOPCash Calls from March 31, 2004, to May 31, 2004; (b) to increase the amount ofthe NOP Cash Calls from $50.0 million to $55.0 million; (c) that BeijingMultimedia and Centiv, jointly and severally, would pay the $55.0 million ofNOP Cash Calls as follows:  on or before April 30, 2004 - $10.0 million;on or before May 16, 2004 - $15.0 million; and, on or before May 31, 2004 -$30.0 million, and (d) that the Company would complete and file its AnnualReport on Form 10-K with the Securities and Exchange Commission and do othersuch matters so as to qualify for the NASDAQ OTC:BB on or before April 16, 2004.

 

The Company did not file itsAnnual Report on Form 10-K or qualify for the OTC:BB on or before April 16,2004, and, as such, was in default under the Transfer Agreement and the relatedSupplemental Agreement as of that date.  Effective April 16, 2004, theparties to the Supplemental Agreement entered into an amendment agreement andextended the due date for the Company to file its Annual Report on Form 10-Kand complete other such matters so as to qualify for the NASDAQ OTC:BB fromApril 16, 2004, to April 28, 2004.  Centiv filed its Annual Report on Form10-K with the Securities and Exchange Commission on April 28, 2004, andcontinued to work on the matters requisite to qualify for the NASDAQOTC:BB.  On May 13, 2004, Centiv qualified to re-list its common stock onthe NASDAQ OTC:BB.

 

As of June 30, 2004, Centivand Beijing Multimedia were in default under the Supplemental Agreement to theTransfer Agreement and had not paid any of the NOP Cash Call obligations toCITIC.  Effective August 9, 2004, CITICCultural, Beijing Multimedia, Eagle Treasure Limited and Centiv entered into aSecond Amendment to the Transfer Agreement (the “Second Amendment”) whichsuperceded the Supplemental Agreement to the Transfer Agreement.  In addition, the Second Amendment extendedthe due date for the payment of the NOP Cash Calls of $55.0 million from March31, 2004, to September 30, 2004.  TheSecond Amendment also provides for the automatic extension of the due date forthe payment of the NOP Cash Calls for thirty-day (30) periods provided thatwritten confirmation of each extension is provided by CITIC Cultural withinthree (3) days before the expiration of each 30-day extension period.  The Second Amendment also provides thatCentiv shall use its best efforts to obtain up to $40.0 million in debtfinancing or by a placement of Centiv’s capital stock to create the financingfor Beijing Multimedia to satisfy the NOP Cash Calls due to CITIC Culturalunder the Transfer Agreement.

 

***Funding the NOP Cash Calls***. *** ***Inconnection with the required payment of the NOP Cash Calls by BeijingMultimedia, Centiv became a party to the Supplemental Agreement to the TransferAgreement and the Second Amendment, and has agreed to fund the NOP CashCalls.  The Company may obtain the necessary funding for the NOP CashCalls through a private placement of its shares or through a convertible debtsecurity to be issued to the source(s) of the funding.  On April 5, 2004,in connection with the Company’s efforts to arrange the financing to allow BeijingMultimedia and Centiv to make the required NOP Cash Call payments to CITICCultural, an investment firm offered to establish an equity line of credit inthe initial amount of $50.0 million, with draws on the line of credit to beavailable to the Company immediately following Centiv’s filing of its AnnualReport on Form 10-K for the period ended December 31, 2003, the re-listing ofits shares on the NASDAQ

 

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OTC:BB, and the completionof the necessary documentation.  After further analysis, management ofCentiv decided not to pursue this alternative for funding.

 

On May 5, 2004, Centiventered into a Letter of Intent with an investment firm to structure an equityline of credit of up to £100,000,000 (one hundred million poundssterling).  The Letter of Intent sets forth certain terms and conditionspertaining to structure, use of proceeds, draw down procedures, a pricingformula, and other documentation and general conditions that will be finalizedin a definitive subscription agreement between the parties.  Management ofCentiv and Beijing Multimedia are currently pursuing the completion of theequity line of credit.  While managementof Centiv and Beijing Multimedia believe that the investment firm is proceedingin good faith, there can be no assurance that the proposed equity line ofcredit facility will be established, or that it will be established under theterms of the Second Amendment.   As ofAugust 20, 2004, neither Centiv nor Beijing Multimedia had obtained any writtenagreements to provide the necessary funds to meet the payment obligations of$55.0 million to CITIC Cultural described above.

 

***Restructuring****. *As part of the acquisition transaction with Eagle Treasure, Centiv (a)amended and restated its stock plan to reserve 10,000,000 new shares of commonstock for future issuance under existing and assumed stock options and forincentive compensation to officers, directors, and professional advisors. The Board of Directors of the Company renamed the 1997 Stock Option Plan, the2004 Non-Qualified Stock Compensation Plan (the “Plan”), filed a registrationstatement covering the shares in the Plan with the Securities and ExchangeCommission, and issued 4,400,000 shares of common stock under the Plan on February11, 2004, to directors, professional advisors, and consultants of BeijingMultimedia in connection with the acquisition, and 400,000 shares to aconsultant of the Company, (b) created a wholly owned subsidiary, CentivServices, Inc. (“Centiv Services”), a Nevada corporation, and transferred itscurrent U.S. based POP signage operations into that entity, (c) changed themakeup of its Board of Directors and Executive Management team (see below), and(d) adopted a new business plan which is designed to grow the Company as aninternational multimedia holding company.   As of June 30, 2004, theCompany had recorded the issuance of 4,800,000 shares as primarily an offset ofthe liability for such shares assumed from Beijing Multimedia as part of theacquisition transaction and as nonemployee compensation expense.

 

The acquisition of BeijingMultimedia and creation of Centiv Services allows the Company to act as aholding company for its business operations.  In the future, managementintends to conduct Centiv’s operations solely through wholly owned or majorityowned operating subsidiaries.  Management believes that the holdingcompany structure will improve Centiv’s access to capital and provideadditional opportunities to make acquisitions in the multimedia, publishing,and advertising arenas.

 

Further, on January 16,2004, the Company’s Board of Directors approved a three-for-four (3:4) reversestock split of the Company’s common stock.  To date, the reverse stocksplit has not been affected by the Company.

 

In addition, in January2004, the holders of the Company’s Series B Preferred stock (770,000 shares ofSeries B Preferred Stock) sold to eight investors 80 percent of the totaloutstanding Series B Preferred stock in separate contractual arrangements whichincluded promissory notes and security agreements.  Centiv agreed to granta security interest in the stock of Centiv Services as collateral for thepromissory notes, and as consideration for the purchased Series B Preferred tobe converted into shares of common stock of the Company.  By March 3,2004, all outstanding shares of Series B Preferred had been converted intocommon stock of the Company (2,566,668 common shares).  The promissory notes were not paid whendue.  As such Centiv was called upon underthe collateral arrangement, to satisfy the obligations.  Effective May 31, 2004, the Company executeda Share Transfer Agreement with the eight investors, and transferred 100,000shares of common stock of Centiv Services (representing all of the outstandingshares of common stock held by Centiv) to satisfy the promissory notes.  In addition, the Company also assigned all ofits right, title, and interest in the name “Centiv” and related trademarks andservice marks, and all goodwilll related thereto including the centiv.comdomain name.  This transaction caused theCompany to take the measures as described in Note 2.

 

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***Management Changes***.  In December 2003, Messrs. Thomas Pennell, Daryl Splithoff, andJ. Smoke Wallin resigned as Directors of the Company.  In January 2004,the holders of a majority of the voting power of Centiv’s Series B ConvertiblePreferred appointed Patrick Ma to fill the vacancy on Centiv’s Board ofDirectors created by the resignation of Director Thomas Pennell.  Afterthe election of Mr. Ma to the Board of Directors, Messrs. John Larkin, TomMason, and Len Finelli resigned as Directors.  The vacancies on the Boardof Directors were subsequently filled by Messrs. Mak Wai Seung (Shawn), LauKwok Hung, and Hu Bing to bring the total number of Directors to four.

 

Also, in January 2004, theBoard of Directors of the Company reached an agreement in principle with Mr.Jeffrey Hall to become the Company’s new President and Director, and to serveas the Chief Executive Officer and Director of a third wholly owned subsidiaryof the Company, Target Publishing Group Inc. (“Target Publishing”).  Inconnection with Mr. Hall’s prospective employment with Centiv, the Company alsoagreed in principle to acquire all of the issued and outstanding capital stockof Brentwood Media Group Inc. (“BMG”), a California corporation, which iscontrolled and majority owned by Mr. Hall.  As of the date of this report,all agreements regarding Mr. Hall’s employment and the acquisition of BMG havebeen terminated between the parties.

 

***New Business Plan***.  In the future, management of the Company intends to focus itsefforts on the acquisition and development of multimedia businesses –publishing and advertising, film production and distribution, televisionprogramming, and other multimedia-related entities – all to be owned, operatedand managed as wholly owned or majority owned subsidiaries of theCompany.  Management of the Company believes that the holding companystructure will improve Centiv’s diversification and ability to compete, providebetter access to sources of capital, and provide the Company with additionalopportunities to make acquisitions of mature as well as development stagebusinesses without endangering the overall financial condition of theconsolidated group as a whole.

 

***Letters of Intent and Target Acquisitions***.  Since January 2004, management of theCompany has been actively engaged in the search for and identification ofpotential acquisition candidates under its new business plan, including theacquisition of BMG, as explained above.  As of the date of this report,the Company has initiated negotiations with several entities for acquisition,as well as issued certain letters of intent and term sheets with certain otherentities where completion of the acquisition process is primarily contingentupon the re-listing of the Company’s stock on the NASDAQ OTC: BB, which wascompleted on May 13, 2004.  There can be no assurance in the near termthat the Company will be successful in completing the acquisition of any of theentities where negotiations have or are currently being conducted.

 

On June 17, 2004, theCompany announced that it had entered into a letter of intent with theshareholders of Rhino Films Inc. (“Rhino”) to acquire 100% ownership of Rhinothrough a cash and share-for-share exchange with the Rhino shareholders.  As of the date of this report, the parties tothe letter of intent have agreed that the acquisition transaction is consideredto be “on hold” until Centiv completes, if at all, its capital formationactivities related to the equity line of credit.

 

***Other Matters.***  Effective February 1, 2004, the Company entered into aconsulting agreement for professional services with an individual.  Theconsultant is to assist the Company in the development, operation and expansionof its entertainment and multimedia business activities.  For services,the consultant is to receive 300,000 shares of Centiv’s common stock as aretainer, 100,000 additional shares of Centiv’s common stock as fee shares forconsulting services, and an additional amount of shares of common stock basedon the value of each transaction, as determined by the parties, closed byCentiv as a result of the consultant’s efforts or introduction.  TheCompany also agreed to register the retainer and fee shares with the Securitiesand Exchange Commission.  The retainer and fee shares were issued to theconsultant from the Company’s non-qualified Plan as part of the 4,800,000common shares issued on February 11, 2004, as described above.

 

Effective January 1, 2004,the Company entered into an agreement with a member of the Board of Directorsof Beijing Multimedia, for proxy and corporate information distributionservices.  The

 

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agreement has a term throughJune 30, 2005, and provides for the payment of a one-time access fee todatabase information of $12,500, and monthly fees of $2,500, plus reimbursementof all out-of-pocket expenses.

 

**6.****             ****CAPITAL STRUCTURE**

 

### **CLASS A COMMON STOCK**

### ** **

On June 2, 1997, the Companyauthorized 31,666,667 shares of Class A Common Stock, $.001 par value. Holders of Class A Common Stock have the right to cast one vote for each shareheld of record on all matters submitted to a vote of holders of Class A CommonStock.

 

# **REDEEMABLE WARRANTS**

# ** **

As part of the Company’sinitial public offering, the investor received a Redeemable Warrant thatentitled the registered holder to purchase one share of Class A Common Stock atan exercise price of $25.20 per share (adjusted for 1 for 3 reverse spliteffective June 16, 2003) at any time until the fifth anniversary of the date ofissue, which was November 10, 2002.  Beginning on the first anniversary ofthe date of issue, the Redeemable Warrants were redeemable by the Company on 30days written notice and at a redemption price of $.05 per Redeemable Warrant ifthe closing price of the Class A Common Stock for any 30 consecutive tradingdays ending within 15 days of the notice of redemption averages in excess of$35.25 per share (adjusted for 1 for 3 reverse split effective June 16,2003).  All Redeemable Warrants must be redeemed, if any areredeemed.  The Company has reserved from its authorized but unissuedshares a sufficient number of shares of Class A Common Stock for issuance uponthe exercise of the Redeemable Warrants.  The Redeemable Warrants did notcontain any voting or other rights of a stockholder of the Company.  Theseredeemable warrants expired on November 10, 2002.

 

**CLASS BCOMMON STOCK**

 

On January 21, 2000, theCompany eliminated its dual class of stock and all outstanding shares of ClassB Common Stock were converted into Class A Common Stock on a one-for-onebasis.  On May 1, 1997, the Company increased the outstanding shares from100 to 3,424 by declaring a 34.24-for-1 stock split of the Company’s commonstock (par value of $1.00).  On June 2, 1997, the Company declared a400-for-1 stock split of the Company’s common stock pursuant to which all ofthe Company’s outstanding common stock was exchanged for 4,000,000 shares ofClass B Common Stock with a par value of $.001.** **During October 1997, the Company affected an..83333325-for-1 reverse stock split pursuant to which the outstanding shares ofClass B Common Stock were exchanged for 3,333,333 shares of Class B CommonStock.  Each share of Class B Common Stock was entitled to five votes onall matters on which stockholders may vote, including the election ofdirectors.  Each share of Class B Common Stock was automatically convertedinto one share of Class A Common Stock upon (i) its sale, gift of transfer,except in the case of a transfer to a trust for which the original holder actsas sole trustee or to any other holder of Class B Common Stock, (ii) the deathof the original holder thereof, including in the case of the original holderhaving transferred the Class B Common Stock to a trust for which the originalholder served as trustee during his or her lifetime, or (iii) the conversion ofan aggregate of 75% of the authorized shares of Class B Common Stock.

 

# **ESCROW SHARES**

# ** **

In connection with theCompany’s initial public offering of its securities, the holders of theCompany’s Class B Common Stock agreed to place an aggregate of 166,667 sharesinto escrow.  As part of the settlement of a claim brought by formerdissenting shareholders in connection with the

 

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conversion of the Class ACommon Stock, 57,067 escrow shares have been forfeited.  In March 2001,the remaining 109,600 shares in escrow expired and were cancelled.  Inaddition, there were 25,863 shares cancelled relating to the shares held inescrow for the 1998 acquisitions.  These shares were cancelled as a resultof not achieving certain profit targets.

 

**PREFERREDSTOCK**

 

The Company has authorized5,000,000 shares of preferred stock.  The Board of Directors has theauthority to issue the preferred stock in one or more series and to fix thenumber of shares and the relative rights, conversion rights, voting rights andterms of redemption and liquidation preferences.

 

**Series AConvertible Preferred Stock****:**

 

On March 28, 2002 and April15, 2002, the Company sold, in two separate closings, a private placement ofSeries A Convertible Preferred Stock (“Series A Preferred”), 191,000 and 25,000units respectively, each unit consisting of one share of Series A Preferred andone warrant to purchase one additional share of Series A Preferred.  Thepurchase price for each unit was $10.00 per unit.  This sale of units wasratified by the Company’s stockholders at the annual meeting of shareholdersheld on June 11, 2002.  Because each share of Series A Preferred wasconvertible, initially, into 3.33 shares of common stock, the effectivepurchase price was $3.00 for each share of common stock purchased.  Thewarrant that was included in each unit gave the holder the right, until fiveyears after the issuance of the warrant, to purchase one share of Series APreferred at a purchase price of $15.00 per share or the equivalent of $4.50per share of common stock.

 

The Series A Preferred had aliquidation preference over common stock equal to the purchase price of theSeries A Preferred plus any accrued but unpaid dividends.  The Series APreferred contained a dividend feature, such that, if not converted, beforeMarch 31, 2003, dividends would have accrued at an annual rate equal to 8% ofthe purchase price of the Series A Preferred.  In addition, if notpreviously converted into common stock, the Series A Preferred was subject to redemptionat the option of the Company on the fourth anniversary of the issuance of theSeries A Preferred at a redemption price equal to the purchase price plus anyaccrued but unpaid dividends.  If the Company failed to redeem the SeriesA Preferred on that date, the holders of the convertible preferred stock wouldhave become entitled to elect a majority of the Company’s board ofdirectors.  Notwithstanding the foregoing, directors elected by virtue ofthe voting rights of the Series A Preferred would have had to recuse themselvesfrom any vote to redeem all or a portion of the Series A Preferred.

 

Proceeds to the Company fromthe sale of the Series A Preferred were $2,160,000, of which $1,910,000 wasreceived at the March 28, 2002 closing and the remaining $250,000 was receivedat the April 15, 2002 closing.  Aggregate transaction costs of $135,000representing legal, accounting and registration fees were incurred bringing thenet proceeds to $2,025,000.  The net proceeds were used to pay off and cancelthe Company’s then existing credit facility with Wachovia Bank, NA.

 

The Company recorded abeneficial conversion feature on the Series A Preferred and warrants based onthe fair value of the common stock of $3.00 per share as of the date ofcommitment.  The warrants with an exercise price of $4.50 per share werevalued at $810,000 using the Black-Scholes valuation method.  The beneficial conversion feature wascalculated to be $810,000 at the commitment date of March 28, 2002 and has beenrecorded as Additional Paid in Capital.  As the preferred shares wereconvertible immediately, the entire amount of the beneficial conversion featurewas accreted into the Accumulated Deficit at March 31, 2002.

 

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The Series A Preferred wasconvertible initially into 3.33 shares of common stock for each share of theSeries A Preferred.  This conversion ratio, however, was subject toanti-dilution adjustment for stock splits, combinations and other similarchanges and if the Company issued, except in limited circumstances, any capitalstock for a per share price less than the then-current conversion price.

 

The Series A Preferred was,pursuant to its terms, to be automatically converted into common stock if (i)holders of 2/3 of the outstanding shares of such preferred stock agreed toconvert, (ii) the Company’s revenues exceeded $5 million for any twoconsecutive quarters, or (iii) the Company recognized $20 million in revenuesfor the 12-month period ending March 31, 2003.

 

The Company did, in fact,recognize $20 million in revenues for the 12-month period ending March 31, 2003and thus, all of the Series A Preferred issued and outstanding as of the closeof business on March 31, 2003 was converted into common stock and the associatedwarrants were converted into warrants to purchase common stock.

 

On March 31, 2003, as partof the issuance of Series B Convertible Preferred discussed below, certaininvestors who also owned Series A Preferred converted 135,000 shares of SeriesA Preferred into 270,000 shares of Series B Preferred.  The associatedwarrants were cancelled for no value.  No Warrants were issued inconnection with the shares of Series B Preferred issued in conversion for theSeries A Preferred.  The remaining 81,000 outstanding shares of Series APreferred were converted effective March 31, 2003 into 270,003 shares of commonstock in accordance with the terms of the Series A Preferred certificate ofdesignations.  Therefore, as of March 31, 2003, there were no shares ofSeries A Preferred issued and outstanding.

 

**Series BConvertible Preferred Stock:**

 

On March 31, 2003, theCompany sold, in a private placement exempt from registration, 500,000 units,each consisting of one share of Series B Convertible Preferred Stock (the “SeriesB Preferred”) and one warrant to purchase 0.667 shares, on a post reverse stocksplit basis, of common stock (the “Warrant”).  As part of the privateplacement, the holders of $500,000 of the outstanding Convertible SubordinatedDebt converted each $5.00 of Subordinated Convertible Debt into one share ofSeries B Preferred and one warrant to purchase 0.667 shares, on a post reversestock split basis, of common stock.  The remaining $500,000 of ConvertibleSubordinated Debt was repaid in full from proceeds of the Series B Preferredoffering.  In addition, the Company issued an additional 270,000 shares ofSeries B Preferred in conversion of 135,000 shares of its outstanding Series APreferred.  No Warrants were issued in connection with the shares of SeriesB Preferred issued in exchange for the Series A Preferred.  In addition,the prior warrants to purchase Series A Preferred held by the Series APreferred investors were cancelled with no value in connection with theconversion.  The remaining 81,000 outstanding shares of Series A Preferredwere converted on March 31, 2003 into 270,003 shares, on a post reverse stocksplit basis) of common stock in accordance with the terms of the Series APreferred certificate of designation.

 

The purchase price for eachunit was $5.00 per unit (the “Purchase Price”).  Because each share ofSeries B Preferred is convertible, initially, into 3.33 shares of common stockon a post reverse stock split basis, the effective purchase price was $1.50 foreach share of common stock purchased.  The associated Warrant gives theholder the right, until seven years after the issuance of the Warrant, topurchase 0.667 shares of common stock on a post reverse stock split basis at apurchase price of $1.50 per share.

 

The Series B Preferred has aliquidation preference over common stock equal to two times the Purchase Priceplus any accrued and unpaid dividends.  If not previously converted, theSeries B Preferred will begin to accrue dividends on April 1, 2004, at a rateequal to 8% per annum of the

 

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Purchase Price.  Inaddition, if not previously converted into common stock, the Series B Preferredwill be subject to redemption at the option of the Company on March 31, 2007 ata redemption price equal to the Series B Preferred liquidation preferenceamount.  If the Company fails to redeem the Series B Preferred on thatdate, the holders of the Series B Preferred become entitled to elect a majorityof the board of directors.  Notwithstanding the foregoing, directorselected by virtue of the voting rights of the Series B Preferred would have torecuse themselves from any vote to redeem all or a portion of the Series BPreferred.

 

As stated, the Series BPreferred is initially convertible into 3.33 shares of common stock, on a postreverse stock split basis, for each share of the Series B Preferred.  Thisconversion ratio, however, is subject to anti-dilution adjustment if theCompany issues any capital stock (or securities exercisable for or convertibleinto capital stock) for a per share price less than the then-current conversionprice, except for issuances pursuant to the Company’s stock option plan andcertain other issuances to business partners.  The anti-dilutionadjustment will be made on a full-ratchet basis.  Each share of Series BPreferred is entitled to 3.33 votes on a post reverse stock split basis and theSeries B Preferred stockholders vote together with the common stockstockholders on all matters unless otherwise required by law.

 

The purchasers of the SeriesB Preferred may voluntarily convert the Series B Preferred into common stock atany time.  The Series B Preferred will be automatically converted intocommon stock if (i) the Company meets either Conversion Milestone definedbelow, or (ii) holders of 2/3 of the outstanding shares of the Series BPreferred agree to convert.  In either event, however, an automaticconversion will only occur if a registration statement covering the resale ofthe shares issuable upon conversion is in effect at that time. “Conversion Milestone” shall mean either (a) the Company’s pretax earnings fromongoing operations are equal to or greater than $6 million in the aggregate inany four consecutive fiscal quarters******as determined in accordance with UnitedStates Generally Accepted Accounting Principles (“GAAP”) as applied by theCompany on the date when the Series B Preferred was first issued and theclosing trading price of the Company’s common stock is equal to or greater than$6.00 per share (as adjusted for any stock dividends, combinations or splitswith respect to such shares after the filing date hereof) for ten consecutiveTrading Days (as defined below), or (b) the closing of a “firm commitment”underwritten public offering of common stock in which the public offering priceper share of common stock is at least equal to three times the then-applicableconversion price for the Series B Preferred and which offering results in grossproceeds to the Company of not less than $15 million.  “Trading Day” shallmean a business day on which at least 50,000 shares of common stock are tradedon the principal United States securities exchange or automated quotationsystem on which such security is listed or traded.

 

The Company agreed to file aregistration statement on Form S-3 to cover the resale of the shares of commonstock issuable upon conversion of the Series B Preferred and the shares ofcommon stock issuable upon exercise of the Warrants.  That registrationstatement was declared effective on July 16, 2003.  The Company alsoagreed to use its best efforts to maintain the effectiveness of theregistration statement until the earlier of (a) the later of (i) two yearsafter all of the Warrants have been redeemed or exercised, or (ii) two yearsafter all of the Series B Preferred has been converted, or (b) six years fromthe closing date.  In addition, the Company granted the purchasers of theSeries B Preferred piggyback registration rights on any other registrationstatement filed by the Company (other than on Forms S-8 or S-4).  TheCompany is not, however, obligated to register or qualify the resale of theshares of common stock issuable upon conversion of the Series B Preferred andthe shares of common stock issuable upon exercise of the Warrants under thelaws of the various states, unless specifically requested by the purchasers ofthe Series B Preferred.  The Company agreed to bear all expenses of eachregistration, including the costs of one special counsel to the purchasers ofthe Series B Preferred.

 

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Pursuant to the terms of theprivate placement, the Company may impose blackout periods with respect to theuse of the registration statement in an aggregate amount of time not to exceed25 business days in any 12-month period if the Company’s board of directorsdetermines in good faith that (a) an amendment or supplement to a registrationstatement is required to correct a material misstatement or to includeinformation the absence of which would render the registration statementmaterially misleading and (b) the filing of such amendment or supplement wouldresult in the disclosure of information that the Company has a bona fidebusiness purpose for preserving as confidential. The Company may not institutemore than four blackout periods in any 12-month period.  The Companyagreed to notify the purchasers of the Series B Preferred of blackout periodsbut the purchasers are not required to notify the Company of sales if noblackout is in effect.  The registration rights are embodied in aninvestor rights agreement that contains customary terms and conditions,including cross-indemnities.

 

The Series B Preferred Stockfinancing resulted in cash proceeds of $2,000,000 plus the conversion of$500,000 of the Company’s Senior Convertible Subordinated Debt that was issuedon September 28, 2002.  The remaining Senior Convertible Subordinated Debtof $500,000 was repaid out of the proceeds of this financing, and as of March31, 2003, the Company was debt free and remained so as of December 31, 2003. Aggregate transaction costs of $90,000 representing legal, accounting andregistration fees were incurred bringing the net proceeds, after repaying theSubordinated Debt and transaction costs, to $1,410,000.

 

There was no beneficialconversion feature on the Series B Preferred and warrants based on the fairvalue of the common stock of $1.02 per share as of the date ofcommitment.  The warrants with an exercise price of $1.50 per share, werevalued at $159,176 using the Black-Scholes valuation method using theassumptions described in Footnote 14 to Notes to Financial Statements.

 

In addition, in January2004, the holders of the Company’s Series B Preferred stock (770,000 shares ofSeries B Preferred) sold to eight investor 80 percent of the total outstandingSeries B Preferred stock in separate contractual arrangement which includedpromissory notes and security agreements.  Centiv agreed to grant asecurity interest in the stock of Centiv Services as collateral for thepromissory notes, and as consideration for the purchased Series B Preferred tobe converted into shares of common stock of the Company.  By March 3,2004, all outstanding shares of Series B Preferred had been converted intocommon stock of the Company (2,566,668 common shares).

 

The promissorynotes were not paid when due.  As such,Centiv was called upon under the collateral arrangement to satisfy theobligations.  Effective May 31, 2004, theCompany executed a Share Transfer Agreement with the eight investors, andtransferred 100,000 shares of common stock of Centiv Services (representing allof the outstanding shares of common stock held by Centiv) to satisfy thepromissory notes.  In addition, theCompany also assigned all of its right, title, and interest in the name“Centiv” and related trademarks and service marks, and all good will relatedthereto including the Centiv.com domain name. This transaction caused the Company to take the measures as described inNote 2.

 

**THE MAY 20,2004 COMMON STOCK ISSUANCE**

 

On or about May 20, 2004,the Company issued 3,335,231 shares of its common stock (The “May 20, 2004Share Issuance”) as consideration related parties and consultants forprofessional services rendered.  TheCompany recorded consulting expense in the amount of $2,001,039 or $.60 pershare.  No amounts were due to theserelated parties or consultants as of June 30, 2004.

 

**7.****             ****STOCK OPTION PLAN**

 

The Company’s Board ofDirectors and stockholders approved the 1997 Stock Option Plan (the “Plan”) covering666,667 shares of the Company’s Class A Common Stock that may be granted toemployees, officers, directors, and certain consultants or advisers to theCompany.  Options granted under the Plan may be either (i) optionsintended to qualify as incentive stock options under Section 422 of theInternal Revenue Code or (ii) non-qualified stock options.  Incentiveoptions granted under the Plan are exercisable for a period of up to ten yearsfrom the date of grant at an exercise price that is not less than the fairmarket value of the stock on the date of grant, except that the term of anincentive option granted under the Plan to a stockholder owning more than 10%of the outstanding voting power may not exceed five years and its exerciseprice may not be less than 110% of the fair 

 

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market value of the stock onthe date of grant.  In addition, to the extent that the aggregate fairmarket value, as of the date of grant, of the stock for which incentive optionsbecome exercisable for the first time by an optionee during the calendar yearexceeds $100,000, the portion of such option that is in excess of the $100,000limitation will be treated as a non-qualified option.  The Company’s Boardof Directors administers the Plan, which expires in August 2007.

 

On January 7, 2004, theCompany granted 171,000 stock options and accelerated the exercisability of alloutstanding options and to increase the period of exercisability to 12 monthsfollowing termination of employment with the Company. As of June 30, 2004, theCompany had zero stock options available for grant under the Plan.

 

As part of the transactionwith Eagle Treasure (Note 5), Centiv (a) amended and restated its stock plan toreserve 10,000,000 new shares of common stock for future issuance underexisting and assumed stock options and for incentive compensation to officers,directors, and professional advisors.  The Board of Directors of theCompany renamed the 1997 Stock Option Plan, the 2004 Non-Qualified StockCompensation Plan (the “New Plan”), filed a registration statement covering theshares in the New Plan with the Securities and Exchange Commission, and issued4,800,000 shares of common stock under the New Plan on February 11, 2004.

 

As part of the transactionwith Beijing Multimedia Limited (Note 5), Centiv assumed certain contracts forprofessional services which contained options to purchase Beijing MultimediaLimited equity shares.  As a result of the acquisition of BeijingMultimedia Limited, Centiv assumed the obligation for 15,200,000 stock optionsdue to directors, professional advisors, and consultants, and will reserve15,200,000 options under the New Plan.  Since the 15,200,000 optionsexceed the total reserve of 10,000,000 new shares of common stock for futureissuance, the New Plan will need to be expanded through shareholder vote toprovide for the additional options granted.

 

Pursuant to the offer madeto John Larkin as President and Chief Operation Officer of Centiv, 474,334options were granted on October 28, 2002 outside of the Stock OptionPlan.  The vesting period was initially over a six-year period. Effective January 7, 2004, all the vesting periods on all the options wereaccelerated.

 

The amount of the pro formacharge has been determined using the Black-Scholes model, as permitted by SFAS123.  For purposes of the calculation, management used an average interestrate of 5.18% based on the U.S. Treasury Strip (zero-coupon) bonds, a projectedvolatility rate of 80%, a dividend yield of 0% and an expected life of 5 yearsfor the grants.

 

**8.****             ****THIRD PARTY STOCK WARRANTS**

 

The Company has agreementswith various entities whereby the Company granted warrants in exchange forservices.  The value of the warrants was determined using the Black-Scholesoption model on the date of grant and a non-cash charge was recorded. Below is a schedule showing the warrants issued and outstanding, the expirationdate, exercise price and the value of the non-cash charge:

 
| **Date  of Grant** | ** ** | **Warrants  Issued** | ** ** | **Warrants  Outstanding** | ** ** | **Expiration  Date** | ** ** | **Exercise  Price** | ** ** | **Value**           | ** ** |
|--------------------|------------|----------------------|------------|---------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|
|               |       |                 |       |                      |       |                 |       |                |       | **($In thousands)** |       |
| November 11, 2002  |       | 15,750               |       | 15,750                    |       | 11/11/07             |       | 3.00                |       | 7,607               |       |

 

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The above table excludes thefollowing warrants issued: (1) 270,003 warrants issued to the Series APreferred investors at an exercise price of $4.50 and expiration date of March28, 2007 (see Note 6,  (2) 28,335 warrants issued for the SeniorConvertible Subordinated Debt holders with an exercise price of $5.25 with8,335 warrants expiring on September 30, 2007 and 20,000 warrants expiring onMarch 31, 2008, (3) 333,336 warrants issued to the Series B Preferred investorsat an exercise price of $1.50 and an expiration date of March 31, 2010 (seeNote 6).

 

**9.****             ****RECENT ACCOUNTINGPRONOUNCEMENTS**

 

On May 15, 2003, the FASBissued SFAS No. 150, *Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity*(“SFAS 150”), which improves the accounting for certain financial instrumentsthat, under previous guidance, issuers could account for as equity or “*mezzanine”*equity, by now requiring thoseinstruments to be classified as liabilities in the statement of financialposition.  SFAS 150 requires disclosure regarding the terms of thoseinstruments and settlement alternatives.  SFAS 150 affects an entity’sclassification of the following freestanding instruments:  a) mandatorilyredeemable instruments, b) financial instruments to repurchase an entity’s ownequity instruments, c) financial instruments embodying obligations that theissuer must or could choose to settle by issuing a variable number of itsshares or other equity instruments based solely on (i) a fixed monetary amountknown at inception or (ii) something other than changes in its own equityinstruments, d) SFAS 150 does not apply to features embedded in a financialinstrument that is not a derivative in its entirety.  The Company does notexpect that adoption of this statement will have any material effect on its resultsof operations or financial position.

 

**10.****      ****SUBSEQUENT EVENTS**

 

As described in Note 5above, the Company and its subsidiaries are involved in certain transactionsand obligations that are in the process of being transacted or yet to betransacted.  See Note 5 for a description of these business activities.

 

As described in Note 2above, the Company entered into a merger agreement which significantly changedits capital structure.

 

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussionshould be read in conjunction with the information contained in the condensedconsolidated financial statements, including the related notes thereto providedelsewhere herein.  In particular, it should be emphasized that during thethree months and six months ended June 30, 2004, the Company reported theacquisition of significant assets and payment obligations, changed itsmanagement team, changed its capital structure, increased the size of itsamended and restated non-qualified stock compensation plan, transferred itson-going POP operations to Centiv Services and spun off Centiv Services as asubsidiary, and adopted a holding company structure to seek additional capitaland to pursue business opportunities related to multimedia, publishing andadvertising.  The Overview that follows discusses the business transactedby Centiv during the three months and six months ended June 30, 2004 and 2003.

 

The forward-lookingstatements generally include management’s plans and objectives for futureoperations, including plans, objectives and expectations relating to futureeconomic performance, business prospects, revenues, working capital, liquidity,ability to obtain financing, generation of income and actions of secured parties.The forward-looking statements may also relate to the Company’s current beliefsregarding revenues that it might earn if it is successful in implementing itsbusiness strategies. The forward-looking statements generally can be identifiedby the use of the

 

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words “believe,” “intend,”“plan,” “expect,” “forecast,” “project,” “may,” “should,” “could,” “seek,” “proforma,” “estimates,” “continues,” “anticipate” and similar words. Theforward-looking statements and associated risks may include, relate to, or bequalified by other important factors, including, without limitation:

 

•                  anticipated trends in the consolidatedfinancial condition and results of operations of the Company and subsidiaries(including expected changes in gross margin and general, administrative andselling expenses);

 

•                  the projected growth or contraction inproducts and services markets in which the Company and its subsidiariesoperate;

 

•                  the ability of the Company and its subsidiariesto finance working capital and other cash requirements;

 

•                  the business strategy for expanding thepresence in products and services markets; and

 

•                  the ability to distinguish the Company andsubsidiaries from current and future competitors.

 

The management of theCompany and subsidiaries does not undertake to update, revise or correct anyforward-looking statements. The forward-looking statements are based largely oncurrent expectations and are subject to a number of risks and uncertainties.Actual results could differ materially from these forward-looking statements.Important factors to consider in evaluating forward-looking statements include:

 

•                  the shortage of reliable market dataregarding product markets;

 

•                  changes in external competitive marketfactors or in internal budgeting process that might impact trends inconsolidated results of operations;

 

•                  changes in business strategy or an inabilityto execute strategy due to unanticipated changes in product markets; and

 

•                  various other factors that may prevent theCompany and subsidiaries from competing successfully in the marketplace.

 

The information contained inthis report is not a complete description of the business or the risksassociated with an investment in Centiv’s common stock. Before deciding to buyor maintain a position in Centiv’s common stock, you should carefully reviewand consider the various disclosures that have been made in this QuarterlyReport on Form 10-QSB, and in other materials filed with the Securities andExchange Commission that discuss business in greater detail and that disclosevarious risks, uncertainties and other factors that may affect the Company’sconsolidated business, results of operations or financial condition. Inparticular, you should review the “Risk Factors” section of the Annual Reporton Form 10-K for the year ended December 31, 2003, and the following riskfactors:

 

**Risks Related to The Company**

 

**Centiv is adramatically different company.**

 

In January 2004, Centivannounced the acquisition of Beijing Multimedia which holds significant assetsand payment obligations, changed its management team, changed its capitalstructure,

 

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increased the size of itsamended and restated non-qualified stock compensation plan, transferred itson-going POP signage operations to Centiv Services, and adopted a holdingcompany structure to seek additional capital and to pursue businessopportunities related to multimedia, publishing and advertising.  Theconsolidated financial statements and notes thereto also include disclosuresconcerning the significant events, agreements or transactions that occurred orwere effected during the three and six months ended June 30, 2004.  Duringthe remainder of 2004, the value of Centiv and its subsidiary will be greatlyinfluenced by the performance of the newly acquired assets, capital formationactivities, the completion of funding obligations, and the decisions of the newmanagement team.  Moreover, the Company’s securities may trade withpotentially significant volatility as the securities markets evaluate anddigest information about the business, both historically and to be transactedby Centiv and its subsidiaries in the future.

 

**The Companyhas incurred consolidated operating losses that exceed twenty seven milliondollars.**

 

As of June 30, 2004, Centivreported an accumulated deficit of $2.5 million.

 

**The Companycannot predict its future results because of the Significant Changes Occurringafter June 30, 2004.**

 

Given the operating history,it will be difficult to predict future results.  The reader shouldconsider the following uncertainties that may be encountered as an early stagecompany in a new and rapidly evolving market.

 

•                  market acceptance of the Centiv products orservices;

•                  consumer demand for, and acceptance ofCentiv’s products, services and follow-on products; and

•                  Centiv’s unproven and evolving businessmodel.

 

**The CentivPOP Business has not generated significant revenues to date and incurred lossesin calendar years 2001, 2002, 2003 and three and six months ended June 30,2004.  Further, the Centiv POP Businesswas spun off effective May 31, 2004.**

 

The Centiv POP Business wascommenced in 1998, has a limited operating history, and incurred losses for theyears 2000 — 2003, although it did make an operating profit in 1998 and1999.  Losses continued into the year 2004, and Centiv Services, as asubsidiary of Centiv, was spun off effective May 31, 2004.

 

**Thequarterly and annual sales and financial results have varied significantly inthe past, and the Company expects to experience fluctuations in the future,which means that period-to-period comparisons are not necessarily meaningful orindicative of future performance.**

 

Sales and operating resultshave varied, and may continue to vary, significantly from year to year and fromquarter to quarter as a result of a variety of factors, including theintroduction of new products by competitors, pricing pressures, the timing ofthe completion or the cancellation of projects, the evolving and unpredictablenature of the markets in which computer products are sold and economicconditions generally or in certain geographic areas in which customers dobusiness.  Furthermore, the Company may be unable to control spending in atimely manner to compensate for any unexpected revenue shortfall. Accordingly, it cannot provide assurance that sales and net income, if any, inany particular quarter will not be lower than sales and net income, if any, ina preceding or comparable quarter or quarters.  In addition, sales and netincome, if any, in any particular quarter are not likely to be indicative ofthe results of operations for any other quarter or for the full year.  Thetrading 

 

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prices of the Company’ssecurities may fluctuate significantly in response to variations in theCompany’s quarterly or annual results of operations.

 

### **OVERVIEW**

### ** **

**Centiv –Parent Holding Company and Beijing Multimedia Limited - Subsidiary**

 

In January 2004, Centivannounced the acquisition of Beijing Multimedia which holds significant assetsand payment obligations, changed its management team, changed its capitalstructure, increased the size of its amended and restated non-qualified stockcompensation plan, transferred its on-going POP signage operations to CentivServices, and adopted a holding company structure to seek additional capitaland to pursue business opportunities related to multimedia, publishing andadvertising.  Note 5 to the condensed consolidated financial statementsinclude disclosures concerning the significant events, agreements ortransactions that occurred or were effected during the six months ended June30, 2004. During the remainder of 2004, the value of Centiv and its continuingsubsidiary (Beijing Multimedia) will be greatly influenced by the performanceof the newly acquired assets, capital formation activities, the completion offunding obligations, and the decisions of the new management team. Moreover, the Company’s securities may trade with potentially significantvolatility as the securities markets evaluate and digest information about thebusiness, both historically and to be transacted by Centiv and its subsidiaryin the future.  The following discusses the transactions which dramaticallychanged our business activities and our capital structure.

 

***Acquisition of Beijing Multimedia Limited****. *On January 29, 2004, Centiv announced that ithad entered into a Stock Purchase Agreement with Eagle Treasure Limited (“EagleTreasure”), a company incorporated in the British Virgin Islands, under whichCentiv acquired all of the issued capital stock of Eagle Treasure’s subsidiary,Beijing Multimedia Limited (“Beijing Multimedia”), a company incorporated inthe British Virgin Islands.  The acquisition of Beijing Multimedia underthe Stock Purchase Agreement was approved and ratified by the Board ofDirectors of Centiv on January 16, 2004.  On February 4, 2004, to completethe Stock Purchase Agreement with Eagle Treasure, on February 4, 2004, Centivissued 20,250,000 unregistered shares of its $.001 par value common stock inthe name of Eagle Treasure in exchange for the entire 202,500 shares of theissued and paid up share capital of Beijing Multimedia.  Further, Centivassumed certain pre-existing obligations of Beijing Multimedia, including butnot limited to the issuance of certain fee shares and stock options toemployees, officers, directors, and advisors of Beijing Multimedia.  As aresult of the exchange of shares, Beijing Multimedia became a wholly ownedsubsidiary of Centiv.  On February 6, 2004, Centiv filed a Current Reporton Form 8-K with the Securities and Exchange Commission describing in detailthe transaction with Eagle Treasure, and the acquisition of Beijing Multimedia.

 

***Transfer Agreement***.  Prior to the acquisition of Beijing Multimedia by Centiv, undera Transfer Agreement dated December 16, 2003, Beijing Multimedia acquiredcertain net operating profits interests (“NOP Interests”) amounting toapproximately 30 percent of the joint advertising activities of CITIC Cultural& Sports Industry Co. Ltd., a company organized under the laws of thePeople’s Republic of China (“CITIC Cultural”).  Also under the TransferAgreement, the NOP interests, as determined and under terms guaranteeingcertain minimum amounts, will be paid semi-annually to Beijing Multimedia overthe term of the Transfer Agreement which is from January 1, 2004, through thelater of December 31, 2016 or the date on which CITIC Cultural’s licenseagreements with two entities terminate, in exchange for certain NOP Cash Callstotaling $50.0 million (subsequently increased to $55.0 million) which wererequired to be paid to CITIC Cultural by Beijing Multimedia on or before March31, 2004. If Beijing Multimedia cannot meet the requirement to pay the NOP CashCalls to CITIC Cultural under the terms of the Transfer Agreement or anyamendments or extensions thereto, then the NOP Interests of Beijing Multimediashall be reduced by .0017 percent

 

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for each $100,000 in NOPCash Calls not funded, but not below a minimum level of fifteen (15) percent ofthe initial NOP Interests.

 

CITIC Cultural is a companythat specializes in cultural and media businesses, and its principal businessesinclude film production and distribution, television drama and programproduction and distribution, subway and railway advertising, magazine andnewspaper publication, and sports and entertainment businesses.  CITICCultural is an affiliate of China International Trust & Investment Co. Ltd.and its subsidiaries (collectively, the “CITIC Group”).

 

The Transfer Agreement alsoprovides that during the first three years of the term of the agreement, theNOP Interests shall yield in the form of cash transfers to Beijing Multimedia aminimum of $20.0 million per year provided that the full amount of the NOP CashCalls, as described above, is paid to CITIC Cultural.  In the event thatthe full amount of the NOP Cash Calls is not paid to CITIC Cultural by BeijingMultimedia, then the NOP Interests payable in the form of cash transfers shallbe prorated according to the formula for reduction of NOP Interests ascontained in the Transfer Agreement, but in any event, not below a minimumlevel of fifteen (15) percent of the initial NOP Interests, or $3.0 million peryear during the first three years of the term of the Transfer Agreement. Beijing Multimedia has also obtained an unconditional and irrevocable thirdparty guarantee from an individual for the payment of the cash transfers fromNOP Interests for the first three years under the Transfer Agreement in theevent that CITIC Cultural is unable to meet its obligation.

 

Based upon an independentvaluation of the NOP Interests acquired from CITIC Cultural, the management ofBeijing Multimedia has estimated that the discounted present value of the NOPInterests (without consideration of the NOP cash calls) is between US$40.0million and US$80 million, and such NOP Interests are expected to contributeapproximately $20.0 million per year, pre-tax cash flow to the Company, on aconsolidated basis, provided that the full amount of the NOP Cash Calls ispaid, and that the level of the cash transfers from the NOP Interests continueat similar levels beyond the first three years of the Transfer Agreement.

 

In conjunction with theissuance of 20,250,000 unregistered shares of common stock, Centiv recorded itsNOP interests contract rights on its balance sheet, which has a balance of $71million as of June 30, 2004.

 

***Amendment of the Transfer Agreement***.  The NOP Interests of BeijingMultimedia under the Transfer Agreement are subject to the completion of theNOP Cash Calls which total $50.0 million (subsequently increased to $55.0million), and, as explained above, were required to be paid to CITIC Culturalon or before March 31, 2004.  As of June 30, 2004, the Company and BeijingMultimedia were in default under the Transfer Agreement for non-payment of theNOP Cash Calls, and was subject to a reduction of its NOP Interests, asexplained above.  On April 9, 2004, CITIC Cultural, Beijing Multimedia,Centiv, and Eagle Treasure entered into a Supplemental Agreement to theTransfer Agreement, wherein the parties agreed (a) to extend the date for thepayment of the NOP Cash Calls from March 31, 2004, to May 31, 2004; (b) toincrease the amount of the NOP Cash Calls from $50.0 million to $55.0 million;(c) that Beijing Multimedia and Centiv, jointly and severally, would pay the$55.0 million of NOP Cash Calls as follows:  on or before April 30, 2004 -$10.0 million; on or before May 16, 2004 - $15.0 million; and, on or before May31, 2004 - $30.0 million, and (d) that Centiv would complete and file itsAnnual Report on Form 10-K with the Securities and Exchange Commission and doother such matters so as to qualify for the NASDAQ OTC:BB on or before April16, 2004.  Centiv qualified for the NASDAQ OTC:BB on May 14, 2004.

 

Centiv did not file itsAnnual Report on Form 10-K or qualify for the OTC:BB on or before April 16,2004, and, as such, was in default under the Transfer Agreement and the relatedSupplemental Agreement as of that date.  Effective April 16, 2004, theparties to the Supplemental Agreement

 

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entered into an amendmentagreement and extended the due date for the Company to file its Annual Reporton Form 10-K and complete other such matters so as to qualify for the NASDAQOTC:BB from April 16, 2004 to April 28, 2004.  Centiv filed its AnnualReport on Form 10-K with the Securities and Exchange Commission on April 28,2004, and continued to work on the matters requisite to qualify for the NASDAQOTC:BB.  On May 13, 2004, Centiv qualified to re-list its common stock onthe NASDAQ OTC:BB.

 

As of June 30, 2004, Centivand Beijing Multimedia were in default under the Supplemental Agreement to theTransfer Agreement and had not paid any of the NOP Cash Call obligations toCITIC Cultural.  Effective August 9,2004, CITIC Cultural, Beijing Multimedia, Eagle Treasure Limited and Centiventered into a Second Amendment to the Transfer Agreement (the “SecondAmendment”) which superceded the Supplemental Agreement to the TransferAgreement.  In addition, the SecondAmendment extende3d the due date for the payment of the NOP Cash Calls of $55.0million from March 31, 2003 to September 30, 2004.  The Second Amendment also provides for theautomatic extension of the due date for the payment of the NOP Cash Calls forthirty-day (30) periods provided that written confirmation of each extension isprovided by CITIC Cultural within three (3) days before the expiration of each30-day extension period.  The SecondAmendment also provides that Centiv shall use its best efforts to obtain up to$49.0 million in debt financing or by a placement of Centiv’s capital stock tocreate the financing for Beijing Multimedia to satisfy the NOP Cash Calls dueto CITIC Cultural under the Transfer Agreement.

 

***Funding the NOP Cash Calls***. *** ***Inconnection with the required payment of the NOP Cash Calls by Beijing Multimedia,Centiv became a party to the Supplemental Agreement to the Transfer Agreementand the Second Amendment, and has agreed to fund the NOP Cash Calls.  TheCompany may obtain the necessary funding for the NOP Cash Calls through aprivate placement of its shares or through a convertible debt security to beissued to the source(s) of the funding.  On April 5, 2004, in connectionwith the Company’s efforts to arrange the financing to allow Beijing Multimediaand Centiv to make the required NOP Cash Call payments to CITIC Cultural, aninvestment firm offered to establish an equity line of credit in the initialamount of $50.0 million, with draws on the line of credit to be available tothe Company immediately following Centiv’s filing of its Annual Report on Form10-K for the period ended December 31, 2003, the re-listing of its shares onthe NASDAQ OTC:BB, and the completion of the necessary documentation. After further analysis, management of Centiv decided not to pursue thisalternative for funding.

 

On May 5, 2004, Centiventered into a Letter of Intent with an investment firm to structure an equityline of credit of up to £100,000,000 (one hundred million poundssterling).  The Letter of Intent sets forth certain terms and conditionspertaining to structure, use of proceeds, draw down procedures, a pricingformula, and other documentation and general conditions that will be finalizedin a definitive subscription agreement between the parties.  Management ofCentiv and Beijing Multimedia are currently pursuing the completion of theequity line of credit.  While managementof Centiv and Beijing Multimedia believe that the investment firm is proceedingin good faith, there can be no assurance that the proposed equity line ofcredit facility will established, or that it will be established under theterms of the Second Amendment.   As ofAugust 20, 2004, neither Centiv nor Beijing Multimedia had obtained any writtenagreements to provide the necessary funds to meet the payment obligations of$55.0 million to CITIC Cultural described above.

 

***Restructuring****. *As part of the transaction with Eagle Treasure, Centiv (a) amended andrestated its stock plan to reserve 10,000,000 new shares of common stock forfuture issuance under existing and assumed stock options and for incentivecompensation to officers, directors, and professional advisors.  The Boardof Directors of Centiv renamed the 1997 Stock Option Plan, the 2004Non-Qualified Stock Compensation Plan (the “Plan”), filed a registrationstatement covering the shares in the Plan with the Securities and ExchangeCommission, and issued 4,800,000 shares of common

 

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stock under the Plan onFebruary 11, 2004 to directors, professional advisors, and consultants (b)created a wholly owned subsidiary, Centiv Services, Inc. (“Centiv Services”), aNevada corporation, and transferred its current U.S. based POP signageoperations into that entity, (c) changed the makeup of its Board of Directorsand Executive Management team (see below), and (d) adopted a new business planwhich is designed to grow the Company as an international multimedia holdingcompany.   As of June 30, 2004, the Company had recorded the issuanceof 4,800,000 shares as primarily an offset of the liability for such sharesassumed from Beijing Multimedia as part of the acquisition transaction, and asnonemployee compensation expense.

 

The acquisition of BeijingMultimedia and creation of Centiv Services allows Centiv to act as a holdingcompany for its business operations.  In the future, management intends toconduct Centiv’s operations solely through wholly owned or majority ownedoperating subsidiaries.  Management believes that the holding companystructure will improve Centiv’s access to capital and provide additionalopportunities to make acquisitions in the multimedia, publishing, andadvertising arenas.

 

Further, on January 16,2004, the Company’s Board of Directors approved a three-for-four (3:4) reversestock split of the Company’s common stock.  As of the date of this report,the reverse stock split has not been affected by Centiv.

 

In addition, in January2004, the holders of Centiv’s Series B Preferred stock (770,000 shares ofSeries B Preferred) sold to eight investors 80 percent of the total outstandingSeries B Preferred stock in separate contractual arrangements which includedpromissory notes and security agreements.  Centiv agreed to grant asecurity interest in the stock of Centiv Services as collateral for thepromissory notes, and as consideration for the purchased Series B Preferred tobe converted into shares of common stock of Centiv.  By March 3, 2004, alloutstanding shares of Series B Preferred had been converted into common stockof Centiv (2,566,668 common shares).

 

The promissorynotes were not paid when due.  As such,Centiv was called upon under the collateral arrangement to satisfy theobligations.  Effective May 31, 2004, theCompany executed a Share Transfer Agreement with the eight investors, andtransferred 100,000 shares of common stock of Centiv Services (representing allof the outstanding shares of common stock held by Centiv) to satisfy thepromissory notes.  In addition, theCompany also assigned all of its right, title, and interest in the name“Centiv” and related trademarks and service marks, and all good will relatedthereto including the Centiv.com domain name. This transaction caused the Company to take the measures as described inNote 2.

 

***Management Changes***.  In December 2003, Messrs. Thomas Pennell, Daryl Splithoff andJ. Smoke Wallin resigned as Directors of the Company.  In January 2004,the holders of a majority of the voting power of Centiv’s Series B ConvertiblePreferred appointed Patrick Ma to fill the vacancy on Centiv’s Board ofDirectors created by the resignation of Director Thomas Pennell.  Afterthe election of Mr. Ma to the Board of Directors, Messrs. John Larkin, TomMason, and Len Finelli resigned as Directors.  The vacancies on the Boardof Directors were filled by Messrs. Mak Wai Seung (Shawn), Lau Kwok Hung, andHu Bing to bring the total number of Directors to four.

 

Also, in January 2004, theBoard of Directors of the Company reached an agreement in principle with Mr.Jeffrey Hall to become the Company’s new President and Director, and to serveas the Chief Executive Officer and Director of a third wholly owned subsidiaryof the Company, Target Publishing Group Inc. (“Target Publishing”).  Inconnection with Mr. Hall’s prospective employment with Centiv, the Company alsoagreed in principle to acquire all of the issued and outstanding capital stockof Brentwood Media Group Inc. (“BMG”), a California corporation, which iscontrolled and majority owned by Mr. Hall.  As of the date of this report,all agreements regarding Mr. Hall’s employment and the acquisition of BMG havebeen terminated between the parties.

 

***New Business Plan***.  In the future, management of the Centiv intends to focus itsefforts on the acquisition and development of multimedia businesses –publishing and advertising, film production and distribution, televisionprogramming, and other multimedia-related entities – all to be owned, operatedand managed as wholly owned or majority owned subsidiaries of Centiv. Management of Centiv believes that the holding company structure will improveCentiv’s diversification and ability to compete, provide better access tosources of capital, and provide Centiv with additional opportunities to makeacquisitions of mature as well as development stage businesses withoutendangering the overall financial condition of the consolidated group as awhole.

 

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***Letters of Intent and Target Acquisitions***.  Since January 2004, management ofCentiv has been actively engaged in the search for and identification of potentialacquisition candidates under its new business plan, including the acquisitionof BMG, as explained above.  As of the date of this report, Centiv hasinitiated negotiations with several entities for acquisition, as well as issuedcertain letters of intent and term sheets with certain other entities wherecompletion of the acquisition process is primarily contingent upon there-listing of the Company’s stock on the NASDAQ OTC: BB, which was completed onMay 13, 2004.  There can be no assurance in the near term that Centiv willbe successful in completing the acquisition of any of the entities wherenegotiations have or are currently being conducted.

 

On June 17, 2004, theCompany announced that it had entered into a letter of intent with theshareholders of Rhino Films Inc. (“Rhino”) to acquire 100% ownership of Rhinothrough a cash and share-for-share exchange with the Rhino shareholders.  As of the date of this report, the parties tothe letter of intent have agreed that the acquisition transaction is consideredto be “on hold” until Centiv completes, if at all, its capital formationactivities related to the equity line of credit.

*** ***

***Other Matters.***  Effective February 1, 2004, Centiv entered into a consultingagreement for professional services with an individual.  The consultant isto assist Centiv in the development, operation and expansion of itsentertainment and multimedia business activities.  For services, theconsultant is to receive 300,000 shares of Centiv’s common stock as a retainer,100,000 additional shares of Centiv’s common stock as fee shares for consultingservices, and an additional amount of shares of common stock based on the valueof each transaction, as determined by the parties, closed by Centiv as a resultof the consultant’s efforts or introduction.  Centiv also agreed toregister the retainer and fee shares with the Securities and ExchangeCommission.  The retainer and fee shares were issued to the consultantfrom the Centiv’s non-qualified Plan as part of the 4,800,000 common sharesissued on February 11, 2004, as described above.

 

Effective January 1, 2004,the Company entered into an agreement with a member of the Board of Directorsof Beijing Multimedia, for proxy and corporate information distributionservices.  The agreement has a term through June 30, 2005, and providesfor the payment of a one-time access fee to database information of $12,500,and monthly fees of $2,500, plus reimbursement of all out-of-pocket expenses.

 

**CentivServices – Wholly owned subsidiary**

 

Centiv Services was a whollyowned subsidiary of Centiv through May 31, 2004.  Its operations wereessentially the same operations of Centiv during the periods prior to March2003 where its main source of revenues came from distribution agreement withAnheuser-Busch (A-B).   But in March 31, 2003, the agreement with A-Bterminated and sales dramatically declined since then, ultimately leading to ashift in business focus and acquisition of Beijing Multimedia Limited discussedabove.  Centiv Services continued to operate the same business as it didprior to the termination of A-B agreement, but on a much smaller scale withmuch smaller revenues than experienced prior to March 2003.

 

Centiv Services was adeveloper and provider of Web-enabled point-of-purchase (POP) solutions forconsumer goods manufacturers and multi-location retailers.  The InstantImpact solution allowed marketing managers, brand managers and retailers tocreate, edit and schedule delivery of customized POP signage, usingfield-editable sign templates created and/or approved by manufacturers. InstantImpact POP signage is print quality and digitally produced for the uniquerequirements of each retail location, allowing users to target specificconsumer segments at the POP and accumulate quantitative data for analysis andfeedback on the success of their in-store or on-premise marketing campaigns.The products of Centiv Services allowed a user to access an informationdatabase for selecting sign templates approved or created by manufacturers,input data for the sign templates and select signage products for production ofthe sign templates. Its Internet-based user interface was clear, flexible,user-friendly and changeable to allow control of the message at a corporate orlocal store level. Instant Impact signage can either be printed in a Centivprint center, or an industry-standard print-formatted file can be delivered viathe Internet to any print provider in the world.  The management

 

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of Centiv Services believedthat its Instant Impact solution improves marketing results (due to improvedsignage utilization, customization and images), provided measurable marketingfeedback, reduced signage lead time, allowed for distribution of brand identitywhile protecting the integrity of that identity and reduced the costsassociated with in-store and on-premises custom signage.

 

The roots of CentivService’s introduction to the custom POP segment were formed in 1998 when itpartnered with Anheuser-Busch (A-B) to design, configure, deliver and implementa proprietary A-B POP signage system in over 730 A-B wholesale distributors inthe United States and 16 foreign countries. This led to a relationship withAnheuser-Busch pursuant to which Centiv Services installed a POP system for A-Ballowing distributors to access that system to create custom signage usingtemplates created by A-B.  In addition, as part of its agreement, CentivService maintained rights to supply consumable print materials to thesedistributors supported by an in-house call center service. As a result of itsexposure to the custom signage business Centiv Services invested in thedevelopment of a web- based platform for the collaborative versioning of POPsignage.  Beginning in 2001, Centiv Services began the commercializationof Instant Impact.   In December 2002, A-B notified Centiv Servicesthat upon its expiration on March 31, 2003, Centiv Services would no longer bethe preferred supplier for various consumables of the system and our preferredsupplier technical support agreement would not be renewed.  Its activitieswith A-B and its distributors terminated upon the expiration of that agreement.

 

With the termination of thepreferred supplier and support agreement effective March 31, 2003, the sales toA-B and the wholesale distributor network were not reflected after the firstquarter of 2003, nor in the first two calendar quarters of 2004.  Totalsales from A-B and its wholesale distributor network for the three and sixmonths June 30, 2004 and 2003 were $0 and $4.1 million, respectively.  Inresponse to this, Centiv Services downsized its operations and reduced itsheadcount and other operating expenses to a level that it believed would enableit to continue to operate its business.

 

Although Centiv Servicesvalued its relationship with A-B, the contract did not include the InstantImpact web-based process for POP design and delivery.  The A-Brelationship was part of the legacy business model as a wholesaler of digitalprinting hardware and provider of consumable printing materials. The A-Brelationship had never involved the use of Instant Impact.  As a result,A-B’s decision in no way reflects upon the relevancy and viability of thisinnovative service going forward.  Despite the revenue impact of losingits supply relationship with A-B, the net contribution impact was negligible.After a prudent assessment of overhead costs and spending, Centiv Servicesdeveloped a strategy to defer or reduce ongoing expenses in order to minimizethe financial impact of this event.

 

Effective May 31, 2004,Centiv Services was spun off to the former holders of the Series B PreferredStock and therefore was no longer a subsidiary as of June 30, 2004.  The Company recorded a loss of $954,000 andadditional liabilities of $1,000,000 in connection with the spin off (see Note2).

 

**Results ofOperations**

 

Net sales reflect the saleof Centiv Services’ products, net of allowances for returns and otheradjustments.** **Sales aregenerated from the sale of products, supplies, and services primarily in theUnited States.  The web-based Instant Impact product has the followingrevenue components:  One-time set-up fees, template design and productconfiguration fees, user training fees, and print services fees.  Revenueis recognized when the service has been performed or in the case of theprinting when the product has been shipped.

 

Cost of goods sold consistsprimarily of product costs, freight charges, direct costs, and associatedoverhead with providing services performed by Centiv Services for itscustomers.

 

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A large portion of CentivServices’ operating expense is relatively fixed.  Since Centiv Servicesdoes not obtain long-term purchase orders or commitments from its customers,management must anticipate the future volume of orders based upon historicalpurchasing practices.  Cancellations, reductions, or delays in orders by acustomer or group of customers could have a material adverse effect on CentivServices business, financial condition and results of operations.

 

Selling, general andadministrative (SG&A) expenses include costs for sales representatives,marketing and advertising of Centiv Services’ products, training, warehousecosts, information technology, corporate and administrative functions, employeebenefits, and facility costs.

 

Depreciation expensereflects the cost of associated with expensing property and equipment purchasesover the useful life of the asset.  Property and equipment are depreciatedon a straight-line basis over their estimated useful lives, which generallyrange from 3 to 7 years.

 

Interest expense (income)includes costs and expenses associated with working capital indebtedness andinterest on the Convertible Subordinated Debt, offset by interest incomeassociated with loans to shareholders.

 

# **Critical Accounting Policies**

# ** **

The preparation of financialstatements, in conformity with accounting principles generally accepted in theUnited States of America, requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the reportingperiod.  Management bases its estimates on historical experience and otherassumptions, which it believes are reasonable.  If actual amounts areultimately different from these estimates, the revisions are included in CentivServices results of operations for the period in which the actual amountsbecome known.

 

Accounting policies areconsidered critical when they require management to make assumptions aboutmatters that are highly uncertain at the time the estimate is made and whendifferent estimates than management reasonably could have used have a materialimpact on the presentation of Centiv Services financial condition, changes infinancial condition or results of operations.

 

Centiv Services criticalaccounting policies are described below:

 

**RevenueRecognition and Accounts Receivable****:**

 

Centiv Services recognizedrevenue upon the shipment of its products to the customer provided that CentivServices received a signed purchase order, the price was fixed, title hadtransferred, product returns were reasonably estimable, collection of resultingreceivable was reasonably assured, there were no customer acceptancerequirements and there were no remaining significant obligations.

 

Centiv Services establishesreserved for customer accounts receivable balances that were potentiallyuncollectible.  The methods used to estimate the required allowance werebased on several factors including the age of the receivables, the historicalratio of actual write-offs to sales, and projected write-offs.  Theseanalyses took into consideration economic conditions that may have had animpact on a specific industry, group of customers, or a specificcustomer.  The reserves could be materially different if economicconditions changed or actual results deviated from historical trends.

 

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**InventoryReserves:**

 

Centiv Services establishedinventory reserves for valuation, shrinkage, and excess and obsoleteinventory.  Inventories were stated at the lower of cost or market. Centiv Services accounted for the inventory on the first-in, first-out (FIFO)method of inventory costing.

 

Centiv Services recordedprovisions for inventory shrinkage based upon historical experience to accountfor unmeasured usage or loss.  Actual results differing from these estimatescould significantly affect Centiv Services inventories and cost of goods sold.

 

Centiv Services recordedprovisions for excess and obsolete inventories for the difference between thecost of inventory and its estimated realizable value based on assumptions aboutfuture product demand and market conditions.  Actual product demand ormarket conditions could have been different than projected by management.

 

**ValuationAllowance of Deferred Tax Assets:**

 

Centiv Services maintained avaluation allowance with respect to deferred tax assets.  Centiv Servicesestablished a valuation allowance based upon potential likelihood of realizingthe deferred tax asset and taking into consideration the companies currentfinancial position and results of operations for the current and precedingyears.  Future realization of the deferred tax benefit depended on theexistence of sufficient taxable income within the carry-back or carry-forwardperiod under the tax law.

 

Changes in circumstances,such as Centiv Services generating taxable income, could have caused a changein judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance was included in income in the year of thechange in estimate.

 

**Other:**

 

Other significant accountingpolicies, not involving the same level of measurement uncertainties as thosediscussed above, are nevertheless important to an understanding of thefinancial statements.  Policies relating to revenue recognition, fairvalue of financial instruments, depreciation, long-lived assets, income taxesand warranties require judgments on complex matters that are often subject tomultiple external sources of authoritative guidance such as the FinancialAccounting Standards Board, Securities and Exchange Commission, etc. Conclusions reached by these authorities caused no material change in CentivServices’ accounting policies.

 

**ThreeMonths Ended June 30, 2004 Compared With Three Months Ended June 30, 2003**

 

***Net Sales.*** Total sales from continuing operations of $547,000 for the three months endedJune 30, 2004, decreased 6.5% or $38,000 million, compared to $585,000 for the three months ended June 30,2003.  The decrease was mostly attributable to having two months ofoperations from Centiv Services due to the spin off (Note 2) effective May 31,2004 as compared to having three months of operations during the three monthsended June 30, 2003.  Also, as previouslymentioned, with the expiration of the Anheuser-Busch (A-B) preferred supplierand support agreement effective March 31, 2003, there were no sales to A-B andthe wholesale distributor network for the three months ended June 30,2004.  Sales to A-B and its wholesale distributor network were $3.3million for the three months ended June 30, 2003.  Due to the spin off Centiv Services, theserevenues will not recur in the future.

 

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Sales of the Instant Impactproduct line were $547,000for the three months ended June 30, 2004, compared to$585,000 or a decrease of $38,000, for the three months ended June 30,2003.  The decrease was mostly attributable to having two months ofoperations from Centiv Services due to the spin off (Note 2) effective May 31,2004 as compared to having three months of operations during the three monthsended June 30, 2003.  Due to the spin offCentiv Services, these revenues will not recur in the future.

 

***Gross Profit.***  Gross profit from continuing operations of $285,000 for thethree months ended June 30, 2004 decreased 16% or $53,000, compared to $338,000for the three months ended June 30, 2003.  However, gross profit as apercentage of sales decreased 10% to 52% for the three months ended June 30,2004 compared to 58% for the three months ended June 30, 2003.  Thedecrease in gross profit dollars was mostly attributable to having two monthsof operations from Centiv Services due to the spin off (Note 2) effective May31, 2004, as compared to having three months of operations during the threemonths ended June 30, 2003.

 

***SG&A Expenses.***  SG&A expenses from continuing operations of $2.8 million forthe three months ended June 30, 2004 increased $2.2 million or 337%, comparedto $645,000 for the three months ended June 30, 2003.  As a result of thetermination of the A-B agreement, Centiv Services restructured its operationsand eliminated the costs associated with the A-B business effective March 31,2003.  Also, on or about May 20, 2004,there were 3,335,231 shares of common stock issued as consideration for related party and professional consultingservices rendered in the amount of $2,001,039. There was no such expense during the same period in 2003.

 

***Depreciation Expense.  ***Depreciation expense decreased $67,000, or46%, to $77 for the three months ended June 30, 2004, as compared to $144,000for the three months ended June 30, 2003.  The decrease in depreciationexpense relates to the $154,000 write-off of fixed assets in the fourth quarterof 2003 for assets that were no longer in use. The decrease is alsoattributable to having two months of depreciating fixed assets from CentivServices due to the spin off (Note 2) effective May 31, 2004, as compared tohaving three months of operations during the three months ended June 30, 2003.

 

***Interest Income/expense.  ***Interest income  is none for the three months ended June 30,2004, compared to interest income of $4,000 for the three months ended June,2003.  There were no interest bearing assets held during the three monthsended June 30, 2004.

 

***Loss from discontinued operations.***  Effective May 31, 2004, CentivServices was spun off to the former holders of the Series B Preferred Stock andtherefore was no longer a subsidiary of Centiv as of June 30, 2004.  The Company incurred a loss of $954,000 (seeNote 2).

 

***Net Loss.*** Centiv Services had a net loss of $4,567,000 for the three months ended June30, 2004, compared to the net loss of $445,000 for the three months ended June30, 2003.  The increase in the net loss is attributable primarily to thespin off of Centiv Services and increase in SGA as both are described above.There was no comparable events during the same period in 2003.

 

**Six MonthsEnded June 30, 2004 Compared With Six Months Ended June 30, 2003**

 

***Net Sales.*** Total sales from continuing operations of $1,174,000 for the six months ended June30, 2004, decreased 78% or $4.2 million, compared to $5,367,000 for the six months ended June 30, 2003. As previously mentioned, with the expiration of the Anheuser-Busch (A-B)preferred supplier and support agreement effective March 31, 2003, there wereno sales to A-B and the wholesale

 

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distributor network for thesix months ended June 30, 2004.  Sales to A-B and its wholesaledistributor network were $4.1 million for the six months ended June 30, 2003.The decrease was also attributable to having five months of operations fromCentiv Services due to the spin off (Note 2) effective May 31, 2004, ascompared to having six months of operations during the period ended June 30,2003.

 

Sales of the Instant Impactproduct line were $1,174,000 for the six months ended June 30, 2004, comparedto $1.3 million for the six months ended June 30, 2003.  The decrease wasalso attributable to having five months of operations from Centiv Services dueto the spin off (Note 2) effective May 31, 2004, as compared to having sixmonths of operations during the period ended June 30, 2003.

 

***Gross Profit.***  Gross profit from continuing operations of $640,000 for the sixmonths ended June 30, 2004 decreased 62% or $1,068,000, compared to $1.7million for the six months ended June 30, 2003.  However, gross profit asa percentage of sales increased 71% to 55% for the six months ended June 30,2004 compared to 32% for the six months ended June 30, 2003.  The decreasein gross profit dollars was mostly attributable to not having the sales to A-Bas discussed as compared to the same period in 2003.

 

***SG&A Expenses.***  SG&A expenses from continuing operations of $3.8 million forthe six months ended June 30, 2004 decreased $1.9 million or 100%, compared to$1.9 million for the six months ended June 30, 2003.  As a result of thetermination of the A-B agreement, Centiv Services restructured its operationsand eliminated the costs associated with the A-B business were eliminated effectiveMarch 31, 2003.  Also, on or about May20, 2004, there were 3,335,231 shares of common stock  issued as consideration for related party andprofessional consulting services rendered in the amount of $2,001,039.  There was no such expense during the same periodin 2003.

 

***Depreciation Expense..  ***Depreciation expense decreased $87,000, or30%, to $199,000 for the six months ended June 30, 2004, as compared to$386,000 for the six months ended June 30, 2003.  The decrease indepreciation expense relates to the $154,000 write-off of fixed assets in thefourth quarter of 2003 for assets that were no longer in use.

 

***Interest Income/expense.  ***Interest income of $14,000 for the six monthsended June 30, 2004, increased  $26,000compared to interest expense of $12,000 for the six months ended June,2003.  The interest income in 2004 relates to the interest on theoutstanding loans due from stockholders which were paid in full during thefirst quarter of 2004.  Interest expense in 2003 reflects interest costsfor the convertible subordinated debt of $1 million that was retired on March31, 2003.

 

***Loss from discontinued operations.***  In May 2004, Centiv Services was spunoff to the former holders of the Series B Preferred Stock and therefore was nolonger a subsidiary at June 30, 2004. Centiv incurred a loss of $954,000 (see Note 2).

 

***Net Loss.*** Centiv Services had a net loss of $5.3 million for the six months ended June30, 2004, compared to the net loss of $505,000 for the six months ended June30, 2003.  The increase in the net loss is attributable primarily to thespin off of Centiv Services and increase in SGA as both are described above.There was no comparable events during the same period in 2003.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

On June 30, 2004, CentivServices had no cash or positive working capital as compared to $1.9 million incash and $2.1 million in working capital as of June 30, 2003. In order tosustain the Company during the next twelve months, Centiv will need to obtainadditional debt or equity

 

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financing.  Since the Company has no cash or workingcapital, it will need to issue debt or equity securities on terms lessfavorable than if it had cash or working capital.  As such, it is likely that future dilution ofthe Company’s capital will occur to existing and future shareholders if theCompany obtains additional debt or equity financing, if at all.  There is no assurance that the Company canobtain debt or equity financing sufficient to sustain its operations.

 

Since the Company has noworking capital, the Company paid for a portion of its operating expenses withthe issuance of its common stock.  On orabout May 20, 2004, the Company issued 3,335,231 shares of its common stock asconsideration for related party and professional consulting servicesrendered.  The Company recordedconsulting expense in the amount of $2,001,039. The Company may again pay for services rendered by issuing its commonstock which will cause dilution to existing shareholders.

 

CentivServices used 1.1 million of cash from operations for the six months ended June30, 2004 compared to $877,000 of cash used from operations for the six monthsended June 30, 2003.  During the sixmonths ended June 30, 2004, cash was used to pay accounts payable and accruedexpenses related to operations.  Duringthe six months ended June 30, 2003, cash was used to pay accounts payable andaccrued expenses of $2.8 million related to vendor payments for the A-B equipmentupgrade that took place in the fourth quarter of 2002.  Offsetting these payments was cash of $2.2million through a reduction in accounts receivable, inventories and prepaidexpenses as a result of the termination of the A-B agreement.

 

There was nocash flows from investing activities for the six months ended June 30, 2004,compared to $121,000 of cash provided by investing activities for the sixmonths ended June 30, 2003. Centiv Services received cash of $75,000 from the sale of the CalGraphBusiness, partially offset by cash used of $6,000 for the purchase of computerand production equipment.  For the six months ended June 30, 2003, CentivServices generated cash of $62,000 from investing activities.  CentivServices received cash of $75,000 from the sale of the CalGraph Business, partiallyoffset by cash used of $13,000 for the purchase of computer and productionequipment.

 

Financing activities provided $271,000 in cash for the six months endedJune 30, 2004 compared to $1,396,000 provided by financing activities for thesix months ended June 30, 2003.  Forthe six months ended June 30, 2003, Centiv Services generated cash of$1,402,000 from financingactivities.  Centiv Services received net proceeds of $1,910,000 from aprivate equity offering.  In addition, Centiv Services repaid $500,000 ofconvertible subordinated debt.

 

**RECENT ACCOUNTING PRONOUNCEMENTS**

 

On May 15, 2003, the FASBissued SFAS No. 150, *Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity*(“SFAS 150”), which improves the accounting for certain financial instrumentsthat, under previous guidance, issuers could account for as equity or “*mezzanine”*equity, by now requiring thoseinstruments to be classified as liabilities in the statement of financialposition.  SFAS 150 requires disclosure regarding the terms of thoseinstruments and settlement alternatives.  SFAS 150 affects an entity’sclassification of the following freestanding instruments:  a) mandatorilyredeemable instruments, b) financial instruments to repurchase an entity’s ownequity instruments, c) financial instruments embodying obligations that theissuer must or could choose to settle by issuing a variable number of itsshares or other equity instruments based solely on (i) a fixed monetary amountknown at inception or (ii) something other than changes in its own equityinstruments, d) SFAS 150 does not apply to features embedded in a financialinstrument that is not a derivative in its entirety.  The Company does notexpect that adoption of this statement will have any material effect on itsresults of operations or financial position.

 

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### **DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS**

### ** **

This report contains“forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended.  These statements appear in a number of places inthis report and include all statements that are not historical facts. Some of the forward-looking statements relate to the intent, belief orexpectations of the Company and its management regarding the Company’sstrategies and plans for operations and growth.  Other forward-lookingstatements relate to trends affecting the Company’s financial condition andresults of operations, and the Company’s anticipated capital needs andexpenditures.

 

Investors are cautioned thatsuch forward-looking statements are not guarantees of future performance andinvolve risks and uncertainties, and that actual results may differ materiallyfrom those that are anticipated in the forward-looking statements as a resultof the impact of competition and competitive pricing, business conditions andgrowth in the industry, general and economic conditions, and other risks. Investors should review the more detailed description of these and otherpossible risks contained in the Company’s filings with the Securities andExchange Commission, including the Company’s Form 10-K for the year endedDecember 31, 2003.

 

**ITEM3.  CONTROLS AND PROCEDURES**

 

1.             Evaluation of disclosure controls and procedures.

 

Under the supervision andwith the participation of management of the Company, including the ChiefExecutive Officer and Chief Financial Officer, the Company evaluated the effectivenessof the design and operation of its disclosure controls and procedures (asdefined in Rule 13a-14 (c) under the Exchange Act) as of a date (the“Evaluation Date”) within 90 days prior to the filing date of thisreport.  Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, as of the Evaluation Date, the disclosurecontrols and procedures were effective in timely alerting them to the materialinformation relating to us (or our consolidate subsidiaries) required to beincluded in the Company’s periodic SEC filings.

 

2.             Changes in internal controls.

 

There were no significantchanges made in the internal controls of the Company and subsidiaries duringthe period covered by this report or, to the knowledge of management, in otherfactors that could significantly affect these controls subsequent to the dateof their evaluation.

 

**PARTII    OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

Not applicable

 

**ITEM 2.  CHANGES IN SECURITIES AND USE OFPROCEEDS**

 

On or about May 20, 2004, the Company issued3,335,231 shares of its common stock as consideration for related party andprofessional consulting services rendered. It recorded consulting expense in the amount of $2,001,039 or $.60 pershare in connection with the issuance.

 

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**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

Not applicable

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

Not applicable

 

**ITEM 5.  OTHER INFORMATION**

 

**ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)                           Exhibits.

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                 |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                            |
| 31                  |       | Certifications required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended, as adopted pursuant to Section  302 of the Sarbanes-Oxley Act of 2002            |
|                |       |                                                                                                                                                                            |
| 32                  |       | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

**Reports on Form 8-K**

 

None

 

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**SIGNATURES**

 

PURSUANT TO THE REQUIREMENTS OF THE SECURITIESEXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-QSBTO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED THIS15th DAY OF AUGUST, 2004.

 

CENTIV, INC.

 
| **SIGNATURE** | ** **                     | **Title**                                                                                     |
|---------------|--------------------------------|-----------------------------------------------------------------------------------------------|
|          |                           |                                                                                          |
|          |                           |                                                                                          |
| By:           | /s/  Mak Wai Keung, Shawn |                                                                                          |   | Chief Executive Officer,  President and Director |
|          |                           | (principal  executive officer and  duly authorized officer of the Registrant)                 |
|          |                           |                                                                                          |
|          |                           |                                                                                          |
| By:           | /s/  Lau Kwok Hung        |                                                                                          |   | Chief Financial Officer  and Director |
|          |                           | (principal financial and  accounting  officer and duly authorized officer  of the Registrant) |
|               |                                |                                                                                               |  |  |  |

 

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