##### **SECURITIES AND EXCHANGE COMMISSION**

###### **WASHINGTON, DC20549**

 

**FORM10-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 March 31, 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                         ** |

 

**CommissionFile 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 by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes: ý    No: o

 

The number of sharesoutstanding of the Registrant’s common stock, par value $.001, as of May 18,2004 the latest practicable date, was 29,294,483 shares.

 

**TransitionalSmall Business Disclosure Format (Check one): Yes****o  No****ý**

** **

 

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**CENTIV, INC.**

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

 
| Item  1.                       | Financial  Statements                                                                                                   |   |
|--------------------------------|-------------------------------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                                                    |   |
|                           | Condensed  Consolidated Balance Sheet as of   March 31, 2004 (unaudited)                                           |   |
|                           |                                                                                                                    |   |
|                           | Condensed  Consolidated Statement of Operations for the three month periods ended March  31, 2003 and 2004 (unaudited)  |   |
|                           |                                                                                                                    |   |
|                           | Condensed  Consolidated Statements of Cash Flows for the three month periods ended March  31, 2003 and 2004 (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                     |                                                                                                                    |

 

2

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**PART I –FINANCIAL INFORMATIONCENTIV, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCESHEETS****($ in thousands)**

 
|                                                                                                                                       |   | **March 31,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|
|                                                                                                                                       |   | **2004**      |   |
| **ASSETS**                                                                                                                                 |   |          |   |
| Current assets:                                                                                                                            |   |          |   |
| Cash and cash equivalents                                                                                                                  |   | $             | 456    |   |
| Accounts receivable, less allowance for doubtful accounts of $25 at  March 31, 2004                                                        |   | 261           |   |
| Inventories, net                                                                                                                           |   | 39            |   |
| Prepaid expenses and other assets                                                                                                          |   | 174           |   |
| Income taxes receivable                                                                                                                    |   | 2             |   |
| Deferred income taxes – current                                                                                                       |   | 91            |   |
|                                                                                                                                       |   |          |   |
| Total current assets                                                                                                                       |   | 1,023         |   |
|                                                                                                                                       |   |          |   |
| Property and equipment, net                                                                                                                |   | 903           |   |
| Net operating profits interests contract rights                                                                                            |   | 75,425        |   |
| Total assets                                                                                                                               |   | $             | 77,351 |   |
|                                                                                                                                       |   |          |   |
| **LIABILITIES**                                                                                                                            |   |          |   |
|                                                                                                                                       |   |          |   |
| Current liabilities:                                                                                                                       |   |          |   |
| Accounts payable – related parties                                                                                                    |   | $             | 272    |   |
| Accounts payable – trade                                                                                                              |   | 152           |   |
| Accrued expenses, contract obligation and deferred income                                                                                  |   | 404           |   |
| Net operating profits cash calls payable                                                                                                   |   | 55,000        |   |
|                                                                                                                                       |   |          |   |
| Total current liabilities                                                                                                                  |   | 55,828        |   |
|                                                                                                                                       |   |          |   |
| Deferred income taxes                                                                                                                      |   | 91            |   |
| Total liabilities                                                                                                                          |   | 55,919        |   |
|                                                                                                                                       |   |          |   |
| Commitments and Contingencies                                                                                                              |   | —        |   |
|                                                                                                                                       |   |          |   |
| **STOCKHOLDERS’  EQUITY**                                                                                                             |   |          |   |
|                                                                                                                                       |   |          |   |
| Common Stock $.001 par value, 35,000,000 shares authorized; 29,563,483  shares issued, and 29,294,483 shares outstanding at March 31, 2004 |   | 30            |   |
|                                                                                                                                       |   |          |   |
| Treasury Stock, at cost, 268,995 shares at March 31, 2004                                                                                  |   | (759          | )      |
|                                                                                                                                       |   |          |   |
| Preferred Stock, $.001 par value, 5,000,000 shares authorized; no  shares shares issued and outstanding at March 31, 2004                  |   | —        |   |
|                                                                                                                                       |   |          |   |
| Additional paid-in capital                                                                                                                 |   | 45,332        |   |
| Accumulated (deficit)                                                                                                                      |   | (23,171       | )      |
|                                                                                                                                       |   |          |   |
| Total stockholders’ equity                                                                                                            |   | 21,432        |   |
|                                                                                                                                       |   |          |   |
| Total liabilities and stockholders’ equity                                                                                            |   | $             | 77,351 |   |

 

Theaccompanying notes are an integral part of thesecondensed consolidated  financialstatements.

 

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**CENTIV, INC.CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS($ in thousands, except per share data)**

 
|                                                        |   | **Three  Months Ending March 31,** |   |
|-------------------------------------------------------------|--------|------------------------------------|--------|
|                                                        |   | **2004**                           |   | **2003** |   |
|                                                        |   | **(unaudited)**                    |   | **(unaudited)** |   |
|                                                        |   |                               |   |   |   |
| Net sales                                                   |   | $                                  | 627    |   | $ | 4,782 |   |
| Cost of goods sold                                          |   | 272                                |   | 3,412 |   |
| Gross profit                                                |   | 355                                |   | 1,370 |   |
|                                                        |   |                               |   |   |   |
| Operating expenses:                                         |   |                               |   |   |   |
| Selling, general and administrative                         |   | 974                                |   | 1,272 |   |
| Depreciation                                                |   | 122                                |   | 142 |   |
|                                                        |   |                               |   |   |   |
| Loss from operations                                        |   | (741                               | )      | (44 | ) |
|                                                        |   |                               |   |   |   |
| Other Income (expense)                                      |   | —                             |   | — |   |
| Interest income  (expense)                             |   | 14                                 |   | (16 | ) |
|                                                        |   |                               |   |   |   |
| Loss before income taxes                                    |   | (727                               | )      | (60 | ) |
|                                                        |   |                               |   |   |   |
| Benefit for income taxes                                    |   | —                             |   | — |   |
|                                                        |   |                               |   |   |   |
| Net Income (loss)                                           |   | $                                  | (727   | ) | $ | (60 | ) |
|                                                        |   |                               |   |   |   |
| Basic and Diluted Income/(Loss) applicable to common shares |   |                               |   |   |   |
| Weighted average shares outstanding                         |   | 16,  060,966                       |   | 4,196,035 |   |
|                                                        |   |                               |   |   |   |
| Net Loss per share                                          |   | $                                  | (0.05  | ) | $ | (0.01 | ) |

 

Theaccompanying notes are an integral part of thesecondensed consolidated  financialstatements.

 

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**CENTIV, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS($ in thousands)**

 
|                                                                         |   | **Three  Months Ending March 31,** |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | **2004**                           |   | **2003** |   |
|                                                                         |   | **(unaudited)**                    |   | **(unaudited)** |   |
| **Cash  flows from operating activities:**                                   |   |                               |   |   |   |
| Net Income  (loss)                                                           |   | $                                  | (727   | ) | $ | (60 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                               |   |   |   |
| Provision for  doubtful accounts receivable                                  |   | —                             |   | 5 |   |
| Depreciation                                                                 |   | 121                                |   | 142 |   |
| Interest on note  payable (receivable)                                       |   | —                             |   | (12 | ) |
| Compensation for  warrants                                                   |   | —                             |   | (11 | ) |
| Gain on sale of  CalGraph Business                                           |   | —                             |   | — |   |
| Amortization of  Discount on Convertible Subordinated Debt                   |   | —                             |   | 10 |   |
| Changes in net  assets and liabilities                                       |   |                               |   |   |   |
| Accounts  receivable                                                         |   | (15                                | )      | 489 |   |
| Inventories                                                                  |   | (3                                 | )      | 630 |   |
| Prepaid expenses  and other assets                                           |   | 122                                |   | 147 |   |
| Accounts payable  – related party                                       |   | 272                                |   | (1,325 | ) |
| Accounts payable  and accrued expenses                                       |   | (422                               | )      | (1,325 | ) |
| Contract  obligations and deferred income                                    |   | (33                                | )      | (113 | ) |
| Income taxes                                                                 |   | (1                                 | )      | 13 |   |
| Net assets,  discontinued operations                                         |   | —                             |   | — |   |
| Total  adjustments                                                           |   | 41                                 |   | (25 | ) |
| **Net  cash used in operating activities**                                   |   | (686                               | )      | (85 | ) |
|                                                                         |   |                               |   |   |   |
| **Cash  flows from investing activities:**                                   |   |                               |   |   |   |
| Purchase of  property and equipment – continuing operations             |   | (6                                 | )      | (13 | ) |
| Proceeds from  Sale of CalGraph Business                                     |   | —                             |   | 75 |   |
| **Net  cash provided by (used in) investing activities**                     |   | (6                                 | )      | 62 |   |
|                                                                         |   |                               |   |   |   |
| **Cash  flows from financing activities:**                                   |   |                               |   |   |   |
| Proceeds/(repayment),  net, from credit facility                             |   | —                             |   | — |   |
| Proceeds from  repayment of shareholder loan                                 |   | 271                                |   | (500 | ) |
| Net Proceeds  from private placement of securities                           |   | —                             |   | 1,910 |   |
| Proceeds/(repayment),  net, from capital lease                               |   | —                             |   | (8 | ) |
| **Net  cash provided by financing activities**                               |   | 271                                |   | 1,402 |   |
|                                                                         |   |                               |   |   |   |
| **Increase  (decrease) in cash and cash equivalents**                        |   | (421                               | )      | 1,379 |   |
| Cash and cash  equivalents, beginning of year                                |   | 877                                |   | 1,304 |   |
| Cash and cash  equivalents, as of March 31                                   |   | $                                  | 456    |   | $ | 2,683 |   |

 

**Supplemental Schedule of NoncashActivities:**

 

Effective February 4, 2004, the Company acquired allof the assets and assumed certain liabilities of Beijing MultimediaLimited.  In connection with theacquisition, 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 notesare an integral part of thesecondensed consolidated financialstatements.

 

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###### **CENTIV, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****        BASISOF PRESENTATION**

 

The accompanying condensed unaudited consolidatedfinancial statements of Centiv, Inc. and subsidiaries (“Centiv” or the“Company”) have been prepared in accordance with generally accepted accountingprinciples for interim financial information and with the instructions per Item 310(b) of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes.  Actual results could differ fromthose estimates.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included.  Operating results forthe three months ended March 31, 2004 are not necessarily indicative of theresults that may be expected for the full year ending December 31, 2004.  For further information, refer to thefinancial statements and the notes to financial statements included in theAnnual Report on Form 10-K for the year ended December 31, 2003.

 

**2.****        INVENTORIES**

 

Inventories, net of reserves, at March 31, 2004consist of the following ($ in thousands):

 
|            |   | **March 31,** |   |
|-----------------|--------|---------------|--------|
|            |   | **2004**      |   |
|            |   |          |   |
| Gross Inventory |   | 71            |   |
| Reserves        |   | (32           | )      |
| Net Inventory   |   | 39            |   |

 

**3.****        NETLOSS PER COMMON SHARE**

 

Basic and diluted net income/(loss) per common shareare computed by dividing net income (loss) by the weighted average number ofcommon shares and common share equivalents outstanding 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 outstanding shares during the three months ended March31, 2004 and 2003 are shown below:

 
|                                        |   | **Three  Months Ending   March 31,** |   |
|---------------------------------------------|--------|--------------------------------------|--------|
|                                        |   | **2004**                             |   | **2003** |   |
| **Common  shares:**                         |   |                                 |   |   |   |
| Outstanding at  beginning of period         |   | 1,677,815                            |   | 4,187,035 |   |
| Shares issued  (redeemed) during the period |   | 27,616,668                           |   | 810,000 |   |
| Outstanding at  end of period               |   | 29,294,483                           |   | 4,997,035 |   |
|                                        |   |                                 |   |   |   |
| Basic and  Diluted weighted average shares  |   | 16,060,966                           |   | 4,196,035 |   |

 

Shares issued during the three months ended March 31,2004 reflect the conversion of Series B preferred stock into common shares asdescribed in Note 6, the acquisition of Beijing Multimedia through the issuanceof common stock, and the exercise of stock grants assumed as part of theacquisition of Beijing Multimedia.

 

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The weighted average common shares exclude securitiesthat would be anti-dilutive upon conversion. Accordingly, as of March 31, 2004,there are 1,000,000 warrants with an exercise price of $0.50 that expire inMarch 2010, 810,000 warrants with an exercise price of $1.50 per share thatexpire in March 2007, and 85,000 warrants with an exercise price of $1.75 pershare that expire in March 2008, 119,250 warrants with exercise prices between$1.00 and $1.15 per share that expire between 2003 and 2007, and 16,532,132stock options that are excluded from the weighted average shares outstanding.

 

**4.****        INCOMETAXES**

 

There was no income tax provision/(benefit) for thethree months ended March 31, 2004 and 2003 as any provision/(benefit) wasoffset by a corresponding reduction/(increase) in the valuation allowance fordeferred income taxes.

 

**5.****         CORPORTATE RESTRUCTURINGAND NEW BUSINESS PLAN**

 

***Acquisition of Beijing Multimedia Limited****. *On January 29, 2004, the Company announced that it hadentered 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.  Theacquisition of Beijing Multimedia under the Stock Purchase Agreement wasapproved and ratified by the Board of Directors of the Company 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, 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 result of the exchange of shares andassumption and satisfaction of obligations, Beijing Multimedia became a whollyowned 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 theacquisition of Beijing Multimedia by the Company, under a Transfer Agreementdated December 16, 2003, Beijing Multimedia acquired certain net operatingprofits interests (“NOP Interests”) amounting to approximately 30 percent ofthe joint advertising activities of CITIC Cultural & Sports Industry Co.Ltd., a company organized under the laws of the People’s Republic of China(“CITIC Cultural”).  Also under theTransfer Agreement, the NOP interests, as determined and under termsguaranteeing certain minimum amounts, will be paid semi-annually to BeijingMultimedia over the term of the Transfer Agreement which is from January 1,2004, through the later of December 31, 2016 or the date on which CITICCultural’s license agreements with two entities terminate, in exchange forcertain NOP Cash Calls totaling $50.0 million (subsequently increased to $55.0million) which were required to be paid to CITIC Cultural by Beijing Multimediaon or before March 31, 2004. If Beijing Multimedia cannot meet the requirementto pay the NOP Cash Calls to CITIC Cultural under the terms of the TransferAgreement or any amendments or extensions thereto, then the NOP Interests ofBeijing Multimedia shall be reduced by .0017 percent 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 acompany that specializes in cultural and media businesses, and its principalbusinesses include film production and distribution, television drama andprogram production and distribution, subway and railway advertising, magazineand newspaper publication, and sports and entertainment businesses.  CITIC Cultural is an affiliate of ChinaInternational Trust & Investment Co. Ltd. and its subsidiaries (collectively,the “CITIC Group”).  The CITIC Group isa large

 

7

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conglomerate in Asia,with total asset value of approximately US$70 billion at the close of itsfiscal year 2003.

 

The TransferAgreement also provides that during the first three years of the term of theagreement, the NOP Interests shall yield in the form of cash transfers toBeijing Multimedia a minimum of $20.0 million per year provided that the fullamount of the NOP Cash Calls, as described above, is paid to CITIC Cultural.  In the event that the full amount of the NOPCash Calls is not paid to CITIC Cultural by Beijing Multimedia, then the NOPInterests payable in the form of cash transfers shall be prorated according tothe formula for reduction of NOP Interests as contained in the Transfer Agreement,but in any event, not below a minimum level of fifteen (15) percent of theinitial NOP Interests, or $3.0 million per year during the first three years ofthe term of the Transfer Agreement. Beijing Multimedia has also obtained an unconditional and irrevocablethird party guarantee from an individual for the payment of the cash transfersfrom NOP Interests for the first three years under the Transfer Agreement inthe event that CITIC Cultural is unable to meet its obligation.

 

Based upon an independent valuation of the NOPInterests acquired from CITIC Cultural, the management of Beijing Multimediahas estimated that the discounted present value of the NOP Interests (withoutconsideration of the NOP cash calls) is between US$40.0 million and US$80million, and such NOP Interests are expected to contribute approximately $20.0million per year, pre-tax cash flow to the Company, on a consolidated basis,provided that the full amount of the NOP Cash Calls is paid, and that the levelof the cash transfers from the NOP Interests continue at similar levels beyondthe first three years of the Transfer Agreement.

 

In conjunction with the issuance of 20,250,000unregistered shares, the Company recorded its NOP interests contract rights onits balance sheet, which has a balance of $75 million as of March 31, 2004.

 

***Amendment of the Transfer Agreement***.  The NOP Interests of Beijing Multimediaunder the Transfer Agreement are subject to the completion of the NOP CashCalls which total $50.0 million (subsequently increased to $55.0 million), and,as explained above, were required to be paid to CITIC Cultural on or beforeMarch 31, 2004.  As of March 31, 2004,Beijing Multimedia was in default under the Transfer Agreement for non-paymentof the NOP 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 aSupplemental Agreement to the Transfer Agreement, wherein the parties agreed(a) to extend the date for the payment of the NOP Cash Calls from March 31,2004, to May 31, 2004; (b) to increase the amount of the NOP Cash Calls from$50.0 million to $55.0 million; (c) that Beijing Multimedia and Centiv, jointlyand 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 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 its Annual Report on Form10-K or qualify for the OTC:BB on or before April 16, 2004, and, as such, wasin default under the Transfer Agreement and the related Supplemental Agreementas of that date.  Effective April 16,2004, the parties to the Supplemental Agreement 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 Annual Report on Form 10-K with the Securities and ExchangeCommission on April 28, 2004, and continued to work on the matters requisite toqualify for the NASDAQ OTC:BB.  On May13, 2004, Centiv qualified to re-list its common stock on the NASDAQ OTC:BB.

 

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As of May18, 2004, Centiv and Beijing Multimedia hadnot paid the first installment NOP Cash Calls of $10.0 million or the secondinstallment of $15.0 million, and were in default to CITIC Cultural under theSupplemental Agreement to the Transfer Agreement.  However, CITIC Cultural, Centiv, Eagle Treasure and BeijingMultimedia entered into an Amended Supplemental Agreement to the TransferAgreement (the “Amended Supplemental Agreement”), and extended the time for thepayment of the NOP Cash Calls as follows: on or before May 31, 2004 - $5.0 million; and, on or before June 30,2004 - $50.0 million.  The AmendedSupplemental Agreement also provides that the Company and Beijing Multimediashall pay all legal fees incurred by CITIC Cultural in connection with theTransfer Agreement and any amendments thereto, and transactions contemplatedthereby.

 

***Funding the NOP Cash Calls***. *** ***In connection with the required payment of the NOPCash Calls by Beijing Multimedia, Centiv became a party to the SupplementalAgreement to the Transfer Agreement, and has agreed to fund the NOP CashCalls.  The Company may obtain thenecessary funding for the NOP Cash Calls through a private placement of itsshares or through a convertible debt security to be issued to the source(s) ofthe funding.  On April 5, 2004, inconnection 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 OTC:BB, and the completion of the necessarydocumentation.  After further analysis,management of Centiv decided not to pursue this alternative for funding.

 

On May 5, 2004, Centiv entered into a Letter of Intentwith an investment firm to structure an equity line of credit of up to £100,000,000(one hundred million pounds sterling). The Letter of Intent sets forth certain terms and conditions pertainingto structure, use of proceeds, draw down procedures, a pricing formula, andother documentation and general conditions that will be finalized in adefinitive subscription agreement between the parties.  Management of Centiv and Beijing Multimediaare currently reviewing the terms of the Letter of Intent.  While management of Centiv and BeijingMultimedia believe that the investment firm is proceeding in good faith, therecan be no assurance that the proposed equity line of credit facility willestablished, or that it will be established in time for the Company and BeijingMultimedia to satisfy their NOP Cash Call obligations of $55.0 million underthe Supplemental Agreement to the Transfer Agreement.

 

***Restructuring****. *Aspart of the acquisition 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 Board of Directors of the Companyrenamed the 1997 Stock Option Plan, the 2004 Non-Qualified Stock Compensation Plan (the “Plan”), filed aregistration statement covering the shares in the Plan with the Securities andExchange Commission, and issued 4,400,000 shares of common stock under the Planon February 11, 2004 to directors, professional advisors, and consultants ofBeijing Multimedia 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 March 31, 2004, the Company had recorded the issuance of 4,800,000shares as primarily an offset of the liability for such shares assumed fromBeijing Multimedia as part of the acquisition transaction, and as nonemployeecompensation expense.

 

The acquisition of Beijing Multimedia and creation ofCentiv Services allows the Company to act as a holding company for its businessoperations.  In the future, managementintends to conduct

 

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Centiv’s operations solely through wholly owned ormajority owned operating subsidiaries. Management believes that the holding company structure will improveCentiv’s access to capital and provide additional opportunities to makeacquisitions in the multimedia, publishing, and advertising arenas.

 

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

 

In addition, in January 2004, the holders of theCompany’s Series B Preferred stock (770,000 shares of Series B Preferred) soldto eight investors 80 percent of the total outstanding Series B Preferred stockin separate contractual arrangements which included promissory notes andsecurity agreements.  Centiv agreed togrant a 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 ofSeries B Preferred had been converted into common stock of the Company(2,566,668 common shares).

 

***Management Changes***.  In December 2003, Messrs. Thomas Pennell,Daryl Splithoff and J. Smoke Wallin resigned as Directors of the Company.  In January 2004, the holders of a majorityof the voting power of Centiv’s Series B Convertible Preferred appointedPatrick Ma to fill the vacancy on Centiv’s Board of Directors created by theresignation of Director Thomas Pennell. After the election of Mr. Ma to the Board of Directors, Messrs. JohnLarkin, Tom Mason, and Len Finelli resigned as Directors.  The vacancies on the Board of Directors weresubsequently filled by Messrs. Mak Wai Seung (Shawn), Lau Kwok Hung, and Hu Bingto bring the total number of Directors to four.

 

Also, in January 2004, the Board of Directors of theCompany reached an agreement in principle with Mr. Jeffrey Hall to become theCompany’s new President and Director, and to serve as the Chief ExecutiveOfficer and Director of a third wholly owned subsidiary of the Company, TargetPublishing Group Inc. (“Target Publishing”). In connection with Mr. Hall’s prospective employment with Centiv, theCompany also agreed in principle to acquire all of the issued and outstandingcapital stock of Brentwood Media Group Inc. (“BMG”), a California corporation,which is controlled and majority owned by Mr. Hall.  As of the date of this report, all agreements regarding Mr. Hall’semployment and the acquisition of BMG have been terminated between the parties.

 

***New Business Plan***.  In the future, management of the Companyintends to focus its efforts on the acquisition and development of multimediabusinesses – 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 the Company.  Management of the Company believes that theholding company structure will improve Centiv’s diversification and ability tocompete, provide better access to sources of capital, and provide the Companywith additional opportunities to make acquisitions of mature as well asdevelopment stage businesses without endangering the overall financial conditionof the consolidated 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 negotiationswith several entities for acquisition, as well as issued certain letters ofintent and term sheets with certain other entities where completion of theacquisition process is primarily contingent upon the re-listing of theCompany’s stock on the NASDAQ OTC: BB, which was completed on May 13,2004.  There can be no assurance in thenear term that the Company will be successful in completing the acquisition ofany of the entities where negotiations have or are currently being conducted.

 

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***Other Matters.***  Effective February 1, 2004, the Companyentered into a consulting agreement for professional services with anindividual.  The consultant is to assistthe Company in the development, operation and expansion of its entertainmentand multimedia business activities.  Forservices, the consultant is to receive 300,000 shares of Centiv’s common stockas a retainer, 100,000 additional shares of Centiv’s common stock as fee sharesfor consulting services, and an additional amount of shares of common stockbased on the value of each transaction, as determined by the parties, closed byCentiv as a result of the consultant’s efforts or introduction.  The Company also agreed to register theretainer and fee shares with the Securities and Exchange Commission.  The retainer and fee shares were issued tothe consultant 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 anagreement with a member of the Board of Directors of Beijing Multimedia, forproxy and corporate information distribution services.  The agreement has a term through June 30,2005, and provides for the payment of a one-time access fee to databaseinformation of $12,500, and monthly fees of $2,500, plus reimbursement of allout-of-pocket expenses.

 

**6.****              CAPITALSTRUCTURE**

 

### **CLASSA COMMON STOCK**

 

On June 2, 1997, theCompany authorized 31,666,667 shares of Class A Common Stock, $.001 parvalue.  Holders of Class A Common Stockhave the right to cast one vote for each share held of record on all matterssubmitted to a vote of holders of Class A Common Stock.

 

# **REDEEMABLE WARRANTS**

 

As part of theCompany’s initial public offering, the investor received a Redeemable Warrantthat entitled the registered holder to purchase one share of Class A CommonStock at an exercise price of $25.20 per share (adjusted for 1 for 3 reversesplit effective June 16, 2003) at any time until the fifth anniversary of thedate of issue, which was November 10, 2002. Beginning on the first

anniversary of thedate 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 beredeemed if any are redeemed.  TheCompany has reserved from its authorized but unissued shares a sufficientnumber of shares of Class A Common Stock for issuance upon the exercise of theRedeemable Warrants.  The RedeemableWarrants did not contain any voting or other rights of a stockholder of theCompany.  These redeemable warrantsexpired on November 10, 2002.

 

**CLASS B COMMON STOCK**

 

On January 21, 2000, the Company eliminated its dualclass of stock and all outstanding shares of Class B Common Stock wereconverted into Class A Common Stock on a one-for-one basis.  On May 1, 1997, the Company increased theoutstanding shares from 100 to 3,424 by declaring a 34.24-for-1 stock split ofthe Company’s common stock (par value of $1.00).  On June 2, 1997, the Company declared a 400-for-1 stock split ofthe Company’s common stock pursuant to which all of the Company’s outstanding commonstock was exchanged for 4,000,000 shares of Class B Common Stock with a parvalue of $.001.** **During October 1997,the Company affected an .83333325-for-1 reverse stock split pursuant to whichthe outstanding shares of Class B Common Stock were exchanged for 3,333,333shares of Class B Common Stock.  Eachshare of Class B Common Stock

 

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was entitled to five votes on all matters on whichstockholders may vote, including the election of directors.  Each share of Class B Common Stock wasautomatically converted into one share of Class A Common Stock upon (i) itssale, gift of transfer, except in the case of a transfer to a trust for whichthe original holder acts as sole trustee or to any other holder of Class BCommon Stock, (ii) the death of the original holder thereof, including in thecase of the original holder having transferred the Class B Common Stock to atrust for which the original holder served as trustee during his or herlifetime, or (iii) the conversion of an aggregate of 75% of the authorizedshares of Class B Common Stock.

 

# **ESCROWSHARES**

 

In connection with the Company’s initial publicoffering of its securities, the holders of the Company’s Class B Common Stockagreed to place an aggregate of 166,667 shares into escrow.  As part of the settlement of a claim broughtby former dissenting shareholders in connection with the conversion of theClass A Common Stock, 57,067 escrow shares have been forfeited.  In March 2001, the remaining 109,600 sharesin escrow expired and were cancelled. In addition, there were 25,863 shares cancelled relating to the sharesheld in escrow for the 1998 acquisitions. These shares were cancelled as a result of not achieving certain profittargets.

 

**PREFERRED STOCK**

 

The Company has authorized 5,000,000 shares ofpreferred stock.  The Board of Directorshas the authority to issue the preferred stock in one or more series and to fixthe number of shares and the relative rights, conversion rights, voting rightsand terms of redemption and liquidation preferences.

 

**Series AConvertible Preferred Stock:**

 

OnMarch 28, 2002 and April 15, 2002, the Company sold, in two separate closings,a private placement of Series A Convertible Preferred Stock (“Series APreferred”), 191,000 and 25,000 unitsrespectively, each unit consisting of one share of Series A Preferred and onewarrant to purchase one additional share of Series A Preferred.  The purchase price for each unit was $10.00per unit.  This sale of units wasratified by the Company’s stockholders at the annual meeting of shareholdersheld on June 11, 2002.  Because eachshare of Series A Preferred was convertible, initially, into 3.33 shares ofcommon stock, the effective purchase price was $3.00 for each share of common stockpurchased.  The warrant that wasincluded in each unit gave the holder the right, until five years after theissuance of the warrant, to purchase one share of Series A Preferred at apurchase price of $15.00 per share or the equivalent of $4.50 per share ofcommon stock.

 

The Series A Preferred had a liquidation preference overcommon stock equal to the purchase price of the Series A Preferred plus anyaccrued but unpaid dividends.  TheSeries A Preferred contained a dividend feature, such that, if not converted,before March 31, 2003, dividends would have accrued at an annual rate equal to8% of the purchase price of the Series A Preferred.  In addition, if not previously converted into common stock, theSeries A Preferred was subject to redemption at the option of the Company onthe fourth anniversary of the issuance of the Series A Preferred at aredemption price equal to the purchase price plus any accrued but unpaiddividends.  If the Company failed toredeem the Series A Preferred on that date, the holders of the convertiblepreferred stock would have become entitled to elect a majority of the Company’sboard of directors.  Notwithstanding theforegoing, directors elected by virtue of the voting rights of the Series APreferred would have had to recuse themselves from any vote to redeem all or aportion of the Series A Preferred.

 

Proceeds to the Company from the sale of the Series APreferred were $2,160,000, of which $1,910,000 was received at the March 28,2002 closing and the remaining $250,000 was received at the April 15, 2002closing.  Aggregate transaction costs of$135,000 representing legal, accounting

 

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and registration fees were incurred bringing the netproceeds to $2,025,000.  The netproceeds were used to pay off and cancel the Company’s then existing creditfacility with Wachovia Bank, NA.

 

TheCompany recorded a beneficial conversion feature on the Series A Preferred and

warrantsbased on the fair value of the common stock of $3.00 per share as of the dateof commitment.  The warrants with anexercise price of $4.50 per share were valued at $810,000 using theBlack-Scholes valuation method, using the assumptions described in Footnote 14to Notes to Financial Statements.  Thebeneficial conversion feature was calculated to be $810,000 at the commitmentdate of March 28, 2002 and has been recorded as Additional Paid inCapital.  As the preferred shares wereconvertible immediately, the entire amount of the beneficial conversion featurewas accreted into the Accumulated Deficit at March 31, 2002.

 

The Series A Preferred was convertible initially into3.33 shares of common stock for each share of the Series A Preferred.  This conversion ratio, however, was subjectto anti-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 beautomatically converted into common stock if (i) holders of 2/3 of theoutstanding shares of such preferred stock agreed to convert, (ii) theCompany’s revenues exceeded $5 million for any two consecutive quarters, or(iii) the Company recognized $20 million in revenues for the 12-month periodending March 31, 2003.

 

The Company did, in fact, recognize $20 million inrevenues for the 12-month period ending March 31, 2003 and thus, all of theSeries A Preferred issued and outstanding as of the close of business on March31, 2003 was converted into common stock and the associated warrants wereconverted into warrants to purchase common stock.

 

OnMarch 31, 2003, as part of the issuanceof Series B Convertible Preferred discussed below, certain investors who alsoowned Series A Preferred converted 135,000shares of Series A Preferred into 270,000 shares of Series B Preferred.  The associated warrants were cancelled forno value.  No Warrants wereissued in connection with the shares of Series B Preferred issued in conversionfor the Series A Preferred.  The remaining 81,000 outstanding shares of SeriesA Preferred were converted effective March 31, 2003 into 270,003 shares ofcommon stock in accordance with the terms of the Series A Preferred certificateof designations.  Therefore, as of March31, 2003, there were no shares of Series 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 BConvertible Preferred Stock (the “Series B Preferred”) and one warrant topurchase 0.667 shares, on a post reverse stock split 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.  Theremaining $500,000 of Convertible Subordinated Debt was repaid in full fromproceeds of the Series B Preferred offering. In addition, the Company issued an additional 270,000 shares of Series BPreferred in conversion of 135,000 shares of its outstanding Series APreferred.  No Warrants wereissued in connection with the shares of Series B Preferred issued in exchangefor the

 

Series A Preferred.  In addition, the prior warrants to purchaseSeries A Preferred held by the Series A Preferred investors were cancelled withno value in connection with the conversion. The remaining 81,000 outstandingshares of Series A Preferred were converted on March 31, 2003 into 270,003shares, on a post reverse stock split basis) of common stock in accordance withthe terms of

 

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theSeries A Preferred certificate of designation.

 

Thepurchase price for each unit was $5.00 per unit (the “Purchase Price”).  Because each share of Series B Preferred isconvertible, initially, into 3.33 shares of common stock on a post reversestock split basis, the effective purchase price was $1.50 for each share ofcommon stock purchased.  The associatedWarrant gives the holder the right, until seven

yearsafter the issuance of the Warrant, to purchase 0.667 shares of common stock ona post reverse stock split basis at a purchase price of $1.50 per share.

 

TheSeries B Preferred has a liquidation preference over common stock equal to twotimes the Purchase Price plus any accrued and unpaid dividends.  If not previously converted, the Series BPreferred will begin to accrue dividends on April 1, 2004, at a rate equal to8% per

annumof the Purchase Price.  In addition, ifnot previously converted into common stock, the Series B Preferred will be subjectto redemption at the option of the Company on March 31, 2007 at a redemptionprice equal to the Series B Preferred liquidation preference amount.  If the Company fails to redeem the Series BPreferred on that date, the holders of the Series B Preferred become entitledto elect a majority of the board of directors. Notwithstanding the foregoing, directors elected by virtue of the votingrights of the Series B Preferred would have to recuse themselves from any voteto redeem all or a portion of the Series B Preferred.

 

Asstated, the Series B Preferred is initially convertible into 3.33 shares ofcommon stock, on a post reverse stock split basis, for each share of the SeriesB Preferred.  This conversion ratio,however, is subject to anti-dilution adjustment if the Company issues anycapital stock (or securities exercisable for or convertible into capital stock)for a per share price less than the then-current conversion price, except forissuances pursuant to the Company’s stock option plan and certain otherissuances to business partners.  Theanti-dilution adjustment will be made on a full-ratchet basis.  Each share of Series B Preferred is entitledto 3.33 votes on a post reverse stock split basis and the Series B Preferredstockholders vote together with the common stock stockholders on all mattersunless otherwise required by law.

 

Thepurchasers of the Series B Preferred may voluntarily convert the Series BPreferred into common stock at any time. The Series B Preferred will be automatically converted into common stockif (i) the Company meets either Conversion Milestone defined below, or (ii)holders of 2/3 of the outstanding shares of the Series B Preferred agree toconvert.  In either event, however, anautomatic conversion will only occur if a registration statement covering theresale of the shares issuable upon conversion is in effect at that time.  “Conversion Milestone” shall meaneither (a) the Company’s pretax earnings from ongoing operations are equal toor greater than $6 million in the aggregate in any four consecutive fiscalquarters******asdetermined in accordance with United States Generally Accepted AccountingPrinciples (“GAAP”) as applied by the Company on the date when the Series BPreferred was first issued and the closing trading price of the Company’scommon stock is equal to or greater than $6.00 per share (as adjusted for anystock dividends, combinations or splits with respect to such shares after thefiling date hereof) for ten consecutive Trading Days (as defined below), or (b)the closing of a “firm commitment” underwritten public offering of common

stock in which the publicoffering price per share of common stock is at least equal to three times thethen-applicable conversion price for the Series B Preferred and which offering resultsin gross proceeds to the Company of not less than $15 million.  “Trading Day” shall mean a business day onwhich at least 50,000 shares of common stock are traded on the principal UnitedStates securities exchange or automated quotation system on which such securityis 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 registration statement was declared effective on July 16,2003.  The Company also agreed to useits best efforts to maintain the effectiveness of

 

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the registration statement untilthe earlier of (a) the later of (i) two years after all of the Warrants havebeen redeemed or exercised, or (ii) two years after all of the Series BPreferred has been converted, or (b) six years from the closing date.  In addition, the Company granted thepurchasers of the Series B Preferred piggyback registration rights on any otherregistration statement filed by the Company (other than on Forms S-8 orS-4).  The Company is not, however,obligated to register or qualify the resale of the shares of common stockissuable upon conversion of the Series B Preferred and the shares of commonstock issuable upon exercise of the Warrants under the laws of the variousstates, unless specifically requested by the purchasers of the Series BPreferred.  The Company agreed to bearall expenses of each registration, including the costs of one special counselto the purchasers of the Series B Preferred.

 

Pursuant to the terms of the private placement, theCompany may impose blackout periods with respect to the use of the registrationstatement in an aggregate amount of time not to exceed 25 business days in any12-month period if the Company’s board of directors determines in good faiththat (a) an amendment or supplement to a registration statement is required tocorrect a material misstatement or to include information the absence of whichwould render the registration statement materially misleading and (b) thefiling of such amendment or supplement would result in the disclosure ofinformation that the Company has a bona fide business purpose for preserving asconfidential. The Company may not institute more than four blackout periods inany 12-month period.  The Company agreedto notify the purchasers of the Series B Preferred of blackout periods but thepurchasers are not required to notify the Company of sales if no blackout is ineffect.  The registration rights areembodied in an investor rights agreement that contains customary terms andconditions, including cross-indemnities.

 

The Series B PreferredStock financing 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 remainingSenior Convertible Subordinated Debt of $500,000 was repaid out of the proceedsof this financing, and as of March 31, 2003, the Company was debt free andremained so as of December 31, 2003.  Aggregate transaction costs of $90,000representing legal, accounting and registration fees were incurred bringing thenet proceeds, after repaying the Subordinated Debt and transaction costs, to$1,410,000.

 

Therewas no beneficial conversion feature on the Series B Preferred and warrantsbased on the fair value of the common stock of $1.02 per share as of the dateof commitment.  The warrants with anexercise price of $1.50 per share, were valued at $159,176 using theBlack-Scholes valuation method using the assumptions described inFootnote 14 to Notes to Financial Statements.

 

In addition, inJanuary 2004, the holders of the Company’s Series B Preferred stock (770,000shares of Series B Preferred) sold to eight investor 80 percent of the totaloutstanding Series B Preferred stock in separate contractual arrangement whichincluded promissory notes and security agreements.  Centiv agreed to grant a security interest in the stock of CentivServices as collateral for the promissory notes, and as consideration for thepurchased Series B Preferred to be converted into shares of common stock of theCompany.  By March 3, 2004, alloutstanding shares of Series B Preferred had been converted into common stockof the Company (2,566,668 common shares).

 

**7. STOCKOPTION PLAN**

 

The Company’s Board of Directors and stockholdersapproved the 1997 Stock Option Plan (the “Plan”) covering 666,667 shares of theCompany’s Class A Common Stock that may be granted to employees, officers,directors, and certain consultants or advisers to the Company.  Options granted under the Plan may be either(i) options intended to qualify as incentive stock options under Section 422 ofthe Internal Revenue Code or (ii) non-qualified stock options.  Incentive options granted under the Plan areexercisable for a period of up to ten years from the date of grant at anexercise price that is not less than the fair market value of the stock on thedate of grant, except that the term of an

 

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incentive option granted under the Plan to astockholder owning more than 10% of the outstanding voting power may not exceedfive years and its exercise price may not be less than 110% of the fair marketvalue of the stock on the date of grant. In addition, to the extent that the aggregate fair market value, as ofthe date of grant, of the stock for which incentive options become exercisablefor the first time by an optionee during the calendar year exceeds $100,000,the portion of such option that is in excess of the $100,000 limitation will betreated as a non-qualified option.  TheCompany’s Board of Directors administers the Plan, which expires in August2007.

 

On January 7, 2004, the Company granted 171,000 stockoptions and accelerated the exercisability of all outstanding options and toincrease the period of exercisability to 12 months following termination ofemployment with the Company. As of March 31, 2004, the Company had zero stockoptions available for grant under the Plan.

 

As part of the transaction with Eagle Treasure (Note5), Centiv (a) amended and restated its stock plan to reserve 10,000,000 newshares of common stock for future issuance under existing and assumed stockoptions and for incentive compensation to officers, directors, and professionaladvisors.  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 thetransaction with Beijing Multimedia Limited (Note 5), Centiv assumed certaincontracts for professional services which contained options to purchase BeijingMultimedia Limited equity shares.  As aresult of the acquisition of Beijing Multimedia Limited, Centiv assumed theobligation for 15,200,000 stock options due to directors, professionaladvisors, and consultants, and will reserve 15,200,000 options under the NewPlan.  Since the 15,200,000 optionsexceed the total reserve of 10,000,000 new shares of common stock for future issuance,the New Plan will need to be expanded through shareholder vote to provide forthe additional options granted.

 

Pursuant to the offer made to John Larkin as Presidentand Chief Operation Officer of Centiv, 474,334 options were granted on October28, 2002 outside of the Stock Option Plan. The vesting period was initially over a six-year period.  Effective January 7, 2004, all the vestingperiods on all the options were accelerated.

 

The amount of the pro forma charge has been determinedusing the Black-Scholes model, as permitted by SFAS 123.  For purposes of the calculation, managementused an average interest rate of 5.18% based on the U.S. Treasury Strip(zero-coupon) bonds, a projected volatility rate of 80%, a dividend yield of 0%and an expected life of 5 years for the grants.

 

**8. THIRD PARTY STOCK WARRANTS**

 

The Company has agreements with various entitieswhereby the Company granted warrants in exchange for services.  The value of the warrants was determinedusing the Black-Scholes option model on the date of grant and a non-cash chargewas recorded.  Below is a scheduleshowing the warrants issued and outstanding, the expiration date, exerciseprice 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 the following warrantsissued: (1) 270,003 warrants issued to the Series A Preferred investors at anexercise price of $4.50 and expiration date of March 28, 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 ACCOUNTING PRONOUNCEMENTS**

 

On May 15, 2003,the FASB issued SFAS No. 150, *Accounting forCertain Financial Instruments with Characteristics of Both Liabilities andEquity* (“SFAS 150”), which improves the accounting for certainfinancial instruments that, under previous guidance, issuers could account foras equity or “*mezzanine”*equity,by now requiring those instruments to be classified as liabilities in thestatement of financial position.  SFAS150 requires disclosure regarding the terms of those instruments and settlementalternatives.  SFAS 150 affects anentity’s classification of the following freestanding instruments:  a) mandatorily redeemable instruments, b)financial instruments to repurchase an entity’s own equity instruments, c)financial instruments embodying obligations that the issuer must or couldchoose to settle by issuing a variable number of its shares or other equityinstruments based solely on (i) a fixed monetary amount known at inception or(ii) something other than changes in its own equity instruments, d) SFAS 150does not apply to features embedded in a financial instrument that is not aderivative in its entirety.  The Companydoes not expect that adoption of this statement will have any material effecton its results of operations or financial position.

 

**10.SUBSEQUENT EVENTS**

 

As described inNote 5 above, the Company and its subsidiaries are involved in certaintransactions and obligations that are in the process of being transacted or yetto be transacted.  See Note 5 for adescription of these business activities.

 

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

 

The following discussion should be read in conjunction with theinformation contained in the condensed consolidated financial statements,including the related notes thereto provided elsewhere herein.  In particular, it should be emphasized thatduring the three months ended March 31, 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 adopted a holding companystructure to seek additional capital and to pursue business opportunitiesrelated to multimedia, publishing and advertising.  The Overview that follows discusses the business transacted byCentiv during the three months ended March 31, 2004 and 2003.

 

The forward-looking statements generally includemanagement’s plans and objectives for future operations, including plans,objectives and expectations relating to future economic performance, businessprospects, revenues, working capital, liquidity, ability to obtain financing,generation of income and actions of secured parties. The forward-lookingstatements may also relate to the Company’s current beliefs regarding revenuesthat it might earn if it is successful in implementing its business strategies.The forward-looking statements generally can be identified by the use of thewords “believe,” “intend,” “plan,” “expect,” “forecast,” “project,” “may,”“should,” “could,” “seek,” “pro forma,” “estimates,” “continues,” “anticipate”and similar words. The forward-looking statements and associated risks mayinclude, relate to, or be qualified by other important factors, including,without limitation:

 

•                         anticipatedtrends in the consolidated financial condition and results of operations of theCompany and subsidiaries (including expected changes in gross margin andgeneral, administrative and selling expenses);

 

•                         theprojected growth or contraction in products and services markets in which theCompany and its subsidiaries operate;

 

•                         theability of the Company and its subsidiaries to finance working capital andother cash requirements;

 

•                         thebusiness strategy for expanding the presence in products and services markets;and

 

•                         theability to distinguish the Company and subsidiaries from current and futurecompetitors.

 

The management of the Company and subsidiariesdoes not undertake to update, revise or correct any forward-looking statements.The forward-looking statements are based largely on current expectations and aresubject to a number of risks and uncertainties. Actual results could differmaterially from these forward-looking statements. Important factors to considerin evaluating forward-looking statements include:

 

•                         theshortage of reliable market data regarding product markets;

 

•                         changesin external competitive market factors or in internal budgeting process thatmight impact trends in consolidated results of operations;

 

•                         changesin business strategy or an inability to execute strategy due to unanticipatedchanges in product markets; and

 

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•                         variousother factors that may prevent the Company and subsidiaries from competingsuccessfully in the marketplace.

 

The information contained in this report is not acomplete description of the business or the risks associated with an investmentin Centiv’s common stock. Before deciding to buy or maintain a position inCentiv’s common stock, you should carefully review and consider the variousdisclosures that have been made in this Quarterly Report on Form 10-QSB, and inother materials filed with the Securities and Exchange Commission that discussbusiness in greater detail and that disclose various risks, uncertainties andother factors that may affect the Company’s consolidated business, results ofoperations or financial condition. In particular, you should review the “RiskFactors” section of the Annual Report on Form 10-K for the year ended December31, 2003, and the following risk factors:

 

**RisksRelated to The Company**

 

**Centivis a dramatically different company.**

 

In January 2004, Centiv announced theacquisition of Beijing Multimedia which holds significant assets and paymentobligations, changed its management team, changed its capital structure,increased the size of its amended and restated non-qualified stock compensationplan, transferred its on-going POP signage operations to Centiv Services, andadopted a holding company structure to seek additional capital and to pursuebusiness opportunities related to multimedia, publishing and advertising.  The consolidated financial statements andnotes thereto also include disclosures concerning the significant events,agreements or transactions that occurred or were effected during the three monthsended March 31, 2004.  During theremainder of 2004, the value of Centiv and its subsidiaries 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, theCompany’s securities may trade with potentially significant volatility as thesecurities markets evaluate and digest information about the business, bothhistorically and to be transacted by Centiv and its subsidiaries in the future.

 

**TheCompany has incurred consolidated operating losses that exceed twenty sevenmillion dollars.**

 

Asof March 31, 2004, Centiv reported an accumulated deficit of $27 million.

 

**The Companycannot predict its future results because of the Significant Changes Occurringafter March 31, 2004.**

 

Giventhe operating history, it will be difficult to predict future results.  The reader should consider the followinguncertainties that may be encountered as an early stage company in a new andrapidly evolving market.

 

•                                          market acceptance of the Centiv products orservices;

•                                          consumer demand for, and acceptance of Centiv’sproducts, services and follow-on products; and

•                                          Centiv’s unproven and evolving business model.

 

**The Centiv POPBusiness has not generated significant revenues to date and incurred losses incalendar years 2001, 2002, 2003 and three months ended March 31, 2004.**

 

TheCentiv POP Business was commenced in 1998, has a limited operating history, andincurred losses for the years 2000 — 2003, although it did make an operatingprofit in 1998 and 1999.  Management ofthe Company expects losses to continue into calendar year 2004.  The Centiv POP Business will need to achievegreater revenues to achieve profitability. There can be no assurance that the Company will be successful inincreasing revenues of the Centiv POP Business, or generating acceptablemargins, or, if it

 

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does,that operation of the Centiv POP Business will be a profitable businessenterprise.  If the Company is unable toachieve significantly greater recurring revenue from its Centiv POP Business,losses will likely continue indefinitely. The Company will likely have to seek additional outside sources ofcapital.  There can be no assurance thatit will be able to obtain such capital on favorable terms and conditions or atall.  If this occurs, the market priceof the Company’s common stock could suffer.

 

**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 results have varied, and may continue to vary,significantly from year to year and from quarter to quarter as a result of avariety of factors, including the introduction of new products by competitors,pricing pressures, the timing of the completion or the cancellation of projects,the evolving and unpredictable nature of the markets in which computer productsare sold and economic conditions generally or in certain geographic areas inwhich customers do business. Furthermore, the Company may be unable to control spending in a timelymanner to compensate for any unexpected revenue shortfall.  Accordingly, it cannot provide assurancethat sales and net income, if any, in any particular quarter will not be lowerthan sales and net income, if any, in a preceding or comparable quarter orquarters.  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.  The trading 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**

 

InJanuary 2004, Centiv announced the acquisition of Beijing Multimedia whichholds significant assets and payment obligations, changed its management team,changed its capital structure, increased the size of its amended and restatednon-qualified stock compensation plan, transferred its on-going POP signageoperations to Centiv Services, and adopted a holding company structure to seekadditional capital and to pursue business opportunities related to multimedia,publishing and advertising.  Note 5 tothe condensed consolidated financial statements include disclosures concerningthe significant events, agreements or transactions that occurred or wereeffected during the three months ended March 31, 2004. During the remainder of2004, the value of Centiv and its subsidiaries will be greatly influenced bythe performance of the newly acquired assets, capital formation activities, thecompletion of funding obligations, and the decisions of the new managementteam.  Moreover, the Company’ssecurities may trade with potentially significant volatility as the securitiesmarkets evaluate and digest information about the business, both historicallyand to be transacted by Centiv and its subsidiaries in the future.  The following discusses the transactionswhich dramatically changed our business activities and our capital structure.

 

***Acquisition of BeijingMultimedia Limited****. *On January 29, 2004, Centiv announced thatit 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 Beijing Multimedia under the Stock Purchase Agreementwas approved and ratified by the Board of Directors 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, Centiv assumed certain pre-existingobligations of Beijing Multimedia, including but not limited to the issuance ofcertain fee shares and stock options to employees, officers,

 

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directors, and advisors of Beijing Multimedia.  As a result of the exchange of shares,Beijing Multimedia became a wholly owned subsidiary of Centiv.  On February 6, 2004, Centiv filed a CurrentReport on Form 8-K with the Securities and Exchange Commission describing indetail the transaction with Eagle Treasure, and the acquisition of BeijingMultimedia.

 

***Transfer Agreement***. Prior to the acquisition of Beijing Multimedia by Centiv, under aTransfer Agreement dated December 16, 2003, Beijing Multimedia acquired certainnet operating profits interests (“NOP Interests”) amounting to approximately 30percent of the joint advertising activities of CITIC Cultural & SportsIndustry Co. Ltd., a company organized under the laws of the People’s Republicof China (“CITIC Cultural”).  Also underthe Transfer Agreement, the NOP interests, as determined and under termsguaranteeing certain minimum amounts, will be paid semi-annually to BeijingMultimedia over the term of the Transfer Agreement which is from January 1,2004, through the later of December 31, 2016 or the date on which CITICCultural’s license agreements with two entities terminate, in exchange forcertain NOP Cash Calls totaling $50.0 million (subsequently increased to $55.0million) which were required to be paid to CITIC Cultural by Beijing Multimediaon or before March 31, 2004. If Beijing Multimedia cannot meet the requirementto pay the NOP Cash Calls to CITIC Cultural under the terms of the TransferAgreement or any amendments or extensions thereto, then the NOP Interests ofBeijing Multimedia shall be reduced by .0017 percent 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 company that specializes in cultural andmedia businesses, and its principal businesses include film production anddistribution, television drama and program production and distribution, subwayand railway advertising, magazine and newspaper publication, and sports andentertainment businesses.  CITICCultural is an affiliate of China International Trust & Investment Co. Ltd.and its subsidiaries (collectively, the “CITIC Group”).  The CITIC Group is a large conglomerate inAsia, with total asset value of approximately US$70 billion at the close of itsfiscal year 2003.

 

The Transfer Agreement also provides that during the firstthree years of the term of the agreement, the NOP Interests shall yield in theform of cash transfers to Beijing Multimedia a minimum of $20.0 million peryear provided that the full amount of the NOP Cash Calls, as described above,is paid to CITIC Cultural.  In the eventthat the full amount of the NOP Cash Calls is not paid to CITIC Cultural byBeijing Multimedia, then the NOP Interests payable in the form of cashtransfers shall be prorated according to the formula for reduction of NOPInterests as contained in the Transfer Agreement, but in any event, not below aminimum level of fifteen (15) percent of the initial NOP Interests, or $3.0million per year during the first three years of the term of the TransferAgreement.  Beijing Multimedia has alsoobtained an unconditional and irrevocable third party guarantee from anindividual for the payment of the cash transfers from NOP Interests for thefirst three years under the Transfer Agreement in the event that CITIC Culturalis unable to meet its obligation.

 

Based upon an independent valuation of the NOP Interests acquired fromCITIC Cultural, the management of Beijing Multimedia has estimated that thediscounted present value of the NOP Interests (without consideration of the NOPcash calls) is between US$40.0 million and US$80 million, and such NOPInterests are expected to contribute approximately $20.0 million per year,pre-tax cash flow to the Company, on a consolidated basis, provided that thefull amount of the NOP Cash Calls is paid, and that the level of the cashtransfers from the NOP Interests continue at similar levels beyond the firstthree years of the Transfer Agreement.

 

In conjunction with the issuance of 20,250,000 unregistered shares ofcommon stock, Centiv recorded its NOP interests contract rights on its balancesheet, which has a balance of $75 million as of March 31, 2004.

 

***Amendment of theTransfer Agreement***. The NOP Interests of Beijing Multimedia under the Transfer Agreement aresubject to the completion of the NOP Cash Calls which total $50.0 million(subsequently increased to $55.0 million), and, as explained above, wererequired to be paid to CITIC Cultural on or before March 31, 2004.  As of March 31, 2004, Beijing Multimedia wasin default under the Transfer

 

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Agreement for non-payment of the NOP Cash Calls, and was subject to areduction of its NOP Interests, as explained above.  On April 9, 2004, CITIC Cultural, Beijing Multimedia, Centiv, andEagle Treasure 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 beforeApril 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 Centiv would completeand file its Annual Report on Form 10-K with the Securities and ExchangeCommission and do other such matters so as to qualify for the NASDAQ OTC:BB onor before April 16, 2004.  Centivqualified for the NASDAQ OTC:BB on May 14, 2004.

 

Centiv did not file its Annual Report on Form 10-K or qualify for theOTC:BB on or before April 16, 2004, and, as such, was in default under theTransfer Agreement and the related Supplemental Agreement as of that date.  Effective April 16, 2004, the parties to theSupplemental Agreement entered into an amendment agreement and extended the duedate for the Company to file its Annual Report on Form 10-K and complete othersuch matters so as to qualify for the NASDAQ OTC:BB from April 16, 2004 toApril 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 qualifiedto re-list its common stock on the NASDAQ OTC:BB.

 

As of May18, 2004, theCentiv and Beijing Multimedia had not paid the first installment NOP Cash Callsof $10.0 million or the second installment of $15.0 million to CITIC Culturaland were in default under the Supplemental Agreement to the TransferAgreement.  However, CITIC Cultural ,Centiv, Eagle Treasure and Beijing Multimedia entered into an AmendedSupplemental Agreement to the Transfer Agreement (the “Amended SupplementalAgreement”), and extended the time for the payment of the NOP Cash Calls asfollows:  on or before May 31, 2004 -$5.0 million; and, on or before June 30, 2004 - $50.0 million.  The Amended Supplemental Agreement alsoprovides that the Company and Beijing Multimedia shall pay all legal feesincurred by CITIC Cultural in connection with the Transfer Agreement and anyamendments thereto, or transactions contemplated thereby.

 

***Funding the NOPCash 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 has agreed to fund the NOP Cash Calls.  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 theCompany’s efforts to arrange the financing to allow Beijing Multimedia andCentiv 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 Centivdecided no 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 setsforth certain terms and conditions pertaining to structure, use of proceeds,draw down procedures, a pricing formula, and other documentation and generalconditions that will be finalized in a definitive subscription agreementbetween the parties.  Management ofCentiv and Beijing Multimedia are currently reviewing the terms of the Letterof Intent.  While management of Centiv andBeijing Multimedia believe that the investment firm is proceeding in goodfaith, there can be no assurance that the proposed equity line of creditfacility will established, or that it will be established in time for the

 

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Company and BeijingMultimedia to satisfy their NOP Cash Call obligations of $55.0 million underthe Supplemental Agreement to the Transfer Agreement.

 

***Restructuring****. *Aspart of the transaction with Eagle Treasure, Centiv (a) amended and restatedits stock plan to reserve 10,000,000 new shares of common stock for futureissuance under existing and assumed stock options and for incentivecompensation to officers, directors, and professional advisors.  The Board of Directors of Centiv renamed the1997 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 stock under the Plan onFebruary 11, 2004 to directors, professional advisors, and consultants (b)created a wholly owned subsidiary, Centiv Services, Inc. (“CentivServices”), a Nevada corporation, and transferred its current U.S. based POPsignage operations into that entity, (c) changed the makeup of its Board ofDirectors and Executive Management team (see below), and (d) adopted a newbusiness plan which is designed to grow the Company as an internationalmultimedia holding company.   As ofMarch 31, 2004, the Company had recorded the issuance of 4,800,000 shares asprimarily an offset of the liability for such shares assumed from BeijingMultimedia as part of the acquisition transaction, and as nonemployeecompensation expense.

 

The acquisition of Beijing Multimedia and creation of Centiv Servicesallows Centiv to act as a holding company for its business operations.  In the future, management intends to conductCentiv’s operations solely through wholly owned or majority owned operatingsubsidiaries.  Management believes thatthe holding company structure will improve Centiv’s access to capital andprovide additional opportunities to make acquisitions in the multimedia,publishing, and advertising arenas.

 

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

 

In addition, in January 2004, the holders of Centiv’s Series BPreferred stock (770,000 shares of Series B Preferred) sold to eight investors80 percent of the total outstanding Series B Preferred stock in separatecontractual arrangements which included promissory notes and securityagreements.  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, all outstanding shares of Series B Preferredhad been converted into common stock of Centiv (2,566,668 common shares).

 

***Management Changes***.  In December 2003, Messrs. Thomas Pennell,Daryl Splithoff and J. Smoke Wallin resigned as Directors of the Company.  In January 2004, the holders of a majorityof the voting power of Centiv’s Series B Convertible Preferred appointedPatrick Ma to fill the vacancy on Centiv’s Board of Directors created by theresignation of Director Thomas Pennell. After the election of Mr. Ma to the Board of Directors, Messrs. JohnLarkin, Tom Mason, and Len Finelli resigned as Directors.  The vacancies on the Board of Directors werefilled by Messrs. Mak Wai Seung (Shawn), Lau Kwok Hung, and Hu Bing to bringthe total number of Directors to four.

 

Also, in January 2004,the Board of Directors of the Company reached an agreement in principle withMr. Jeffrey Hall to become the Company’s new President and Director, and toserve as the Chief Executive Officer and Director of a third wholly ownedsubsidiary of the Company, Target Publishing Group Inc. (“TargetPublishing”).  In connection with Mr.Hall’s prospective employment with Centiv, the Company also agreed in principleto acquire all of the issued and outstanding capital stock of Brentwood MediaGroup Inc. (“BMG”), a California corporation, which is controlled and majorityowned by Mr. Hall.  As of the date ofthis report, all agreements regarding Mr. Hall’s employment and the acquisitionof BMG have been terminated between the parties.

 

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***New Business Plan***.  In the future, management of the Centivintends to focus its efforts on the acquisition and development of multimediabusinesses – publishing and advertising, film production and distribution,television programming, and other multimedia-related entities – all to beowned, operated and managed as wholly owned or majority owned subsidiaries ofCentiv.  Management of Centiv believesthat the holding company structure will improve Centiv’s diversification andability to compete, provide better access to sources of capital, and provideCentiv with additional opportunities to make acquisitions of mature as well asdevelopment stage businesses without endangering the overall financialcondition of the consolidated group as a whole.

 

***Letters of Intentand Target Acquisitions***. Since January 2004, management of Centiv has been actively engaged inthe search for and identification of potential acquisition candidates under itsnew business plan, including the acquisition of 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 assurancein the near term that Centiv will be successful in completing the acquisitionof any of the entities where negotiations have or are currently beingconducted.

 

***Other Matters.***  Effective February 1, 2004, Centiv enteredinto a consulting agreement for professional services with an individual.  The consultant is to assist Centiv in thedevelopment, operation and expansion of its entertainment and multimediabusiness 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 to register the retainer and fee shares with theSecurities and Exchange Commission.  Theretainer and fee shares were issued to the consultant from the Centiv’snon-qualified Plan as part of the 4,800,000 common shares issued on February11, 2004, as described above.

 

Effective January 1,2004, the Company entered into an agreement with a member of the Board ofDirectors of Beijing Multimedia, for proxy and corporate informationdistribution services.  The agreementhas a term through June 30, 2005, and provides for the payment of a one-timeaccess fee to database information of $12,500, and monthly fees of $2,500, plusreimbursement of all out-of-pocket expenses.

 

**Centiv Services – Wholly owned subsidiary**

 

CentivServices is a wholly owned subsidiary of Centiv.  Its operations are essentially the same operations of Centivduring the periods prior to March 2003 where its main source of revenues camefrom distribution agreement with Anheuser-Busch (A-B).   But in March 31, 2003, the agreement withA-B terminated and sales dramatically declined since then, ultimately leadingto a shift in business focus and acquisition of Beijing Multimedia Limiteddiscussed above.  Centiv Servicescontinues to operate the same business as it did prior to the termination ofA-B agreement, but on a much smaller scale with much smaller revenues thanexperienced prior to March 2003.

 

CentivServices is a developer and provider of Web-enabled point-of-purchase (POP)solutions for consumer goods manufacturers and multi-location retailers.  The Instant Impact solution allows marketingmanagers, brand managers and retailers to create, edit and schedule delivery ofcustomized POP signage, using field-editable sign templates created and/orapproved by manufacturers. Instant Impact POP signage is print quality anddigitally produced for the unique requirements of each retail location,allowing users to target specific consumer segments at the POP and accumulatequantitative data for analysis and feedback on the success of their in-store oron-premise marketing campaigns. Our products allow a user to access aninformation database for selecting sign templates approved or created

 

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by manufacturers, inputdata for the sign templates and select signage products for production of thesign templates. Our Internet-baseduser interface is clear, flexible, user-friendly and changeable to allowcontrol of the message at a corporate or local store level. Instant Impactsignage can either be printed in a Centiv print center, or an industry-standardprint-formatted file can be delivered via the Internet to any print provider inthe world.  We believe that our InstantImpact solution improves marketing results (due to improved signageutilization, customization and images), provides measurable marketing feedback,reduces signage lead time, allows for distribution of brand identity whileprotecting the integrity of that identity and reduces the costs associated within-store and on-premises custom signage.

 

Theroots of Centiv Service’s introduction to the custom POP segment were formed in1998 when we partnered with Anheuser-Busch (A-B) to design, configure, deliverand implement a proprietary A-B POP signage system in over 730 A-B wholesaledistributors in the United States and 16 foreign countries. This led to arelationship with Anheuser-Busch pursuant to which we installed a POP systemfor A-B allowing distributors to access that system to create custom signageusing templates created by A-B.  Inaddition, as part of our agreement, Centiv Service maintained rights to supplyconsumable print materials to these distributors supported by an in-house callcenter service. As a result of our exposure to the custom signage businessCentiv Services invested in the development of a web- based platform for thecollaborative versioning of POP signage. Beginning in 2001, Centiv Services began the commercialization ofInstant Impact.   In December 2002, A-Bnotified Centiv Services that upon its expiration on March 31, 2003, CentivServices would no longer be the preferred supplier for various consumables ofthe system and our preferred supplier technical support agreement would not berenewed.  Our activities with A-B andits distributors terminated upon the expiration of that agreement.

 

Withthe termination of the preferred supplier and support agreement effective March31, 2003, the sales to A-B and the wholesale distributor network will not occurin the future quarters of 2003 and 2004. Total sales from A-B and its wholesale distributor network for the threemonths ended March 31, 2003 were $4.1 million. In response to this, we have undertaken a downsizing of our operationsand have reduced our headcount and other operating expenses to a level that webelieve will enable us to continue to operate our 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-B relationship was part of the legacy business model as awholesaler of digital printing hardware and provider of consumable printingmaterials. The A-B relationship had never involved the use of Instant Impactä.  As a result, A-B’s decision in no wayreflects upon the relevancy and viability of this innovative service goingforward.  Despite the revenue impact oflosing our supply relationship with A-B, the net contribution impact wasnegligible. After a prudent assessment of our overhead costs and spending,Centiv Services developed a strategy to defer or reduce ongoing expenses inorder to minimize the financial impact of this event.

 

**Results of Operations**

 

Net sales reflect the sale of Centiv Services’ products, net ofallowances for returns and other adjustments.** **Sales are generated from the sale of products, supplies, andservices primarily in the United States. The web-based Instant Impact product has the following revenuecomponents:  One-time set-up fees,template design and product configuration fees, user training fees, and printservices fees.  Revenue is recognizedwhen the service has been performed or in the case of the printing when theproduct has been shipped.

 

Cost of goods sold consists primarily of product costs, freightcharges, direct costs, and associated overhead with providing servicesperformed by Centiv Services for its customers.

 

A large portion of Centiv Services’ operating expense is relativelyfixed.  Since Centiv Services does notobtain long-term purchase orders or commitments from its customers, managementmust anticipate the

 

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future volume of orders based upon historical purchasingpractices.  Cancellations, reductions,or delays in orders by a customer or group of customers could have a materialadverse effect on Centiv Services business, financial condition and results ofoperations.

 

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

 

Depreciation expense reflects the cost of associated with expensingproperty and equipment purchases over the useful life of the asset.  Property and equipment are depreciated on astraight-line basis over their estimated useful lives, which generally rangefrom 3 to 7 years.

 

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

 

# **Critical AccountingPolicies**

 

The preparation of financial statements, in conformity with accountingprinciples generally accepted in the United States of America, requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting period. Management bases its estimates on historical experience and otherassumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, therevisions are included in Centiv Services results of operations for the periodin which the actual amounts become known.

 

Accounting policies are considered critical when they requiremanagement to make assumptions about matters that are highly uncertain at thetime the estimate is made and when different estimates than managementreasonably could have used have a material impact on the presentation of CentivServices financial condition, changes in financial condition or results ofoperations.

 

Centiv Services critical accounting policies are described below:

 

**Revenue Recognition and AccountsReceivable:**

 

Centiv Services recognizes revenue upon the shipment of its products tothe customer provided that Centiv Services has received a signed purchaseorder, the price is fixed, title has transferred, product returns arereasonably estimable, collection of resulting receivable is reasonably assured,there are no customer acceptance requirements and there are no remainingsignificant obligations.

 

Centiv Services establishes reserves for customer accounts receivablebalances that are potentially uncollectible. The methods used to estimate the required allowance are based on severalfactors including the age of the receivables, the historical ratio of actualwrite-offs to sales, and projected write-offs. These analyses take into consideration economic conditions that may havean impact on a specific industry, group of customers, or a specificcustomer.  The reserves could bematerially different if economic conditions change or actual results deviatefrom historical trends.

 

**Inventory Reserves:**

 

Centiv Services establishes inventory reserves for valuation,shrinkage, and excess and obsolete inventory. Inventories are stated at the lower of cost or market.  Centiv Services accounts for the inventoryon the first-in, first-out (FIFO) method of inventory costing.

 

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Centiv Services records provisions for inventory shrinkage based uponhistorical experience to account for unmeasured usage or loss.  Actual results differing from theseestimates could significantly affect Centiv Services inventories and cost ofgoods sold.

 

Centiv Services records provisions for excess and obsolete inventoriesfor the difference between the cost of inventory and its estimated realizablevalue based on assumptions about future product demand and marketconditions.  Actual product demand ormarket conditions could be different than projected by management.

 

**Valuation Allowance of Deferred TaxAssets:**

 

Centiv Services maintains a valuation allowance with respect todeferred tax assets.  Centiv Servicesestablishes 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 thedeferred tax benefit depends on the existence of sufficient taxable incomewithin the carry-back or carry-forward period under the tax law.

 

Changes in circumstances, such as Centiv Services generating taxableincome, could cause a change in judgment about the realizability of the relateddeferred tax asset.  Any change in thevaluation allowance will be included in income in the year of the change inestimate.

 

**Other:**

 

Other significant accounting policies, not involving the same level of measurementuncertainties as those discussed above, are nevertheless important to anunderstanding of the financial statements. Policies relating to revenue recognition, fair value of financialinstruments, depreciation, long-lived assets, income taxes and warrantiesrequire judgments on complex matters that are often subject to multipleexternal sources of authoritative guidance such as the Financial AccountingStandards Board, Securities and Exchange Commission, etc.  Although no specific conclusions reached bythese authorities appear likely to cause a material change in Centiv Services’accounting policies, outcomes cannot be predicted with confidence.

 

**ThreeMonths Ended March 31, 2004 Compared With Three Months Ended March 31, 2003**

 

***Net Sales.***  Total sales from continuing operations of$627,000 for the three months ended March 31, 2004, decreased 87% or $4.2million, compared to $4,782,000****for the three months ending March 31,2003.  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 distributor network for the three monthsended March 31, 2004.  Sales to A-B and its wholesale distributornetwork were $4.1 million for the three months ended March 31, 2003.

 

Sales of the Instant Impact product line were $627,000for the three months ended March 31, 2004, compared to $717,000 or a decrease of $90,000 over the sales of$717,000 for the three months ended March 31, 2003.  The sales decreasefor the three months ended March 31, 2004 over the same period in the prioryear was attributable primarily to a shift in the timing of the spending of thepromotional budget for one of our customers. In 2003, this customer spent the promotional budget in Q1 2003, but isexpecting to spread the expenditure across Q2 to Q4 quarters in 2004.  Sales for this one customer accounted for$224,000 for the three months ended March 31, 2003 and sales of $4,000 for thethree months ended March 31, 2004. Excluding the impact of the timing of the expenditure for this onecustomer, sales of Instant Impact for the three months ended March 31, 2004increased by 26% from sales of $493,000 in Q1 2003 to $624,000 in Q1 2004.

 

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Salesof the Instant Impact product line for three months ended March 31, 2004,increased 67% or $251,000 over the three months ended December 31, 2003.  This increase is due, in part, toseasonality within the existing customer base as well as growth from existingand new customers.

 

***Gross Profit.***  Gross profit from continuing operations of$355,000 for the three months ended March 31, 2004 decreased 74% or $1015,000,compared to $1,370,000 for the three months ended March 31, 2003.  However, gross profit as a percentage ofsales increased 28% to 57% for the three months ended March 31, 2004 comparedto 29% for the three months ended March 31, 2003.  The gross profit percentage in 2004 is reflective of the InstantImpact sales, while the prior year gross profit margin contained a mix ofInstant Impact sales and sales to A-B. Instant Impact margins were 57% compared to margins of 23% for the A-Bsales for the three months ended March 31, 2003.

 

The reason for the margin difference is that the A-B businessrelationship consisted of sales of lower margin digital printing hardware andconsumable printing materials, while the Instant Impact business consists ofweb-based services including web set-up fees, creative services as well asproduction of customized point of purchase signage.

** **

***SG&AExpenses.***  SG&A expenses from continuing operationsof $696,000 for the three months ended March 31, 2004 decreased $576,000 or45%, compared to $1.3 million for the three months ended March 31, 2003.  As a result of the termination of the A-Bagreement, Centiv Services restructured its operations and eliminated the costsassociated with the A-B business have been eliminated effective March 31, 2003.

** **

***Depreciation Expense..  ***Depreciation expensedecreased $20,000, or 14%, to $122,000 for the three months ended March 31,2004, as compared to $142,000 for the three months ended March 31, 2003.  The decrease in depreciation expense relatesto the $154,000 write-off of fixed assets in Q4 2003 for assets that are nolonger in use.

 

***Interest Income/expense.  ***Interest income of$14,000 for the three months ended March 31, 2004, compared to interest expenseof $16,000 for the three months ended March 31, 2003.  The interest income in 2004 relates to the interest on theoutstanding loans due from stockholders which were paid in full during Q12004.  For Q1 2003, the interest expenseof $16,000 related to the interest on the convertible subordinated debt thatwas retired on March 31, 2003

 

***Income Taxes.***  Centiv Services effective tax rate forcontinuing operations was 0% for the three months ended March 31, 2004 and 2003as Centiv Services tax benefit was offset by a corresponding increase in thevaluation allowance for deferred income taxes.

 

***Net Loss.***  Centiv Services had a net loss of $449,000for the three months ended March 31, 2004, compared to the net loss of $60,000for the three months ended March 31, 2003. The increase in the net loss is attributable primarily to the lowersales and margins as a result of the termination of the A-B business effectiveMarch 31, 2003.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

On March 31, 2004, Centiv Services had $456,000 in cash and a positiveworking capital of $471,000 compared to $877,000 in cash and $536,000 inworking capital as of December 31, 2003. Centiv Services used $765,000 of cashfrom operations for the three months ended March 31, 2004 compared to $85,000of cash used from operations for the three months ended March 31, 2003.  During the three months ended March 31,2004, cash was used to pay accounts payable and accrued expenses of $419,000primarily relating to the lease termination payout of $348,000.

 

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During the three months ended March 31, 2003, cash of $85,000 was usedto pay accounts payable and accrued expenses of $1.3 million relating to vendorpayments for the Anheuser Busch equipment upgrade that took place in Q42002.  Offsetting these payments wascash of $1.3 million through a reduction in accounts receivable, inventoriesand prepaid expenses as a result of the termination of the Anheuser Buschagreement.

 

For the three months ended March 31, 2004, Centiv Services generatedcash of $69,000 from investing activities. 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 threemonths ended March 31, 2003, Centiv Services generated cash of $62,000 frominvesting activities.  Centiv Servicesreceived 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.

 

**For the three months endedMarch 31, 2003, Centiv Services generated cash of $275,000 from financingactivities.  Centiv Services receivedproceeds of $283,000 from repayment of shareholder loans as a result of thesale of the Channels Business on December 31, 2001.**

** **

**For the three months endedMarch 31, 2003, Centiv Services generated cash of $1,402,000 from financingactivities.  Centiv Services receivednet proceeds of $1,910,000 from a private equity offering.  In addition, Centiv Services repaid $500,000of convertible subordinated debt**

** **

Centiv Services believes that its available funds togetherwill be adequate to satisfy its current and planned operations, includingrestructuring accruals, for at least the next 12 months

 

**RECENTACCOUNTING 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 disclosureregarding the terms of those instruments and settlement alternatives.  SFAS 150 affects an entity’s classificationof the following freestanding instruments: a) mandatorily redeemable instruments, b) financial instruments torepurchase an entity’s own equity instruments, c) financial instrumentsembodying obligations that the issuer must or could choose to settle by issuinga variable number of its shares or other equity instruments based solely on (i)a fixed monetary amount known at inception or (ii) something other than changesin its own equity instruments, d) SFAS 150 does not apply to features embeddedin a financial instrument that is not a derivative in its entirety.  The Company does not expect that adoption ofthis statement will have any material effect on its results of operations orfinancial position.

### ** **

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

 

Thisreport contains “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Thesestatements appear in a number of places in this report and include allstatements 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-looking statements relate to trends affecting theCompany’s financial condition and results of operations, and the Company’santicipated capital needs and expenditures.

 

Investors are cautionedthat such forward-looking statements are not guarantees of future performanceand involve risks and uncertainties, and that actual results may differmaterially from those that are anticipated in the forward-looking statements asa result of the impact of competition and competitive

 

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pricing, businessconditions and growth in the industry, general and economic conditions, andother risks.  Investors should reviewthe more detailed description of these and other possible risks contained inthe Company’s filings with the Securities and Exchange Commission, includingthe Company’s Form 10-K for the year ended December 31, 2003.

 

**ITEM3.  CONTROLS AND PROCEDURES**

 

1.               Evaluation ofdisclosure controls and procedures.

 

Under the supervision and with the participation ofmanagement of the Company, including the Chief Executive Officer and ChiefFinancial Officer, the Company evaluated the effectiveness of the design andoperation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date (the “Evaluation Date”) within 90 daysprior to the filing date of this report. 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 internalcontrols.

 

There were no significant changes made in the internalcontrols of the Company and subsidiaries during the period covered by thisreport or, to the knowledge of management, in other factors that couldsignificantly affect these controls subsequent to the date of their evaluation.

 

**PARTII    OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

Not applicable

 

**ITEM2.  CHANGES IN SECURITIES AND USE OFPROCEEDS**

 

In January 2004, Centiv amended and restated its stock plan to reserve10,000,000 new shares of common stock for future issuance under existing andassumed stock options and for incentive compensation to directors, professionaladvisors, and consultants.  The Board ofDirectors of Centiv renamed the 1997 Stock Option Plan, the 2004 Non-Qualified StockCompensation Plan (the “Plan”), filed a registration statement covering theshares in the Plan with the Securities and Exchange Commission, and issued4,800,000 shares of common stock under the Plan on February 11, 2004 toofficers, directors and professional advisors

 

On February 4, 2004, to complete the Stock Purchase Agreement withEagle Treasure, Centiv issued 20,250,000 unregistered shares of its $.001 parvalue common stock in the name of Eagle Treasure in exchange for the 202,500shares of the issued and paid up share capital of Beijing Multimedia, and theassumption of certain obligations.

 

In January 2004, the holders of Centiv’s Series B Preferred stock(770,000 shares of Series B Preferred) sold to eight investors 80 percent ofthe total outstanding Series B Preferred stock in separate contractualarrangements which included promissory notes and security agreements.  Centiv agreed to grant a security interestin the stock of Centiv Services as collateral for the promissory notes, and asconsideration for the purchased Series B Preferred to be converted into sharesof common stock of Centiv.  By March 3,2004, all outstanding shares of Series B Preferred had been converted intocommon stock of Centiv (2,566,668 common shares).

 

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**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

Not applicable

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

Not applicable

 

**ITEM 5.  OTHER INFORMATION**

 

On April 4, 2003, NASDAQ SmallCap Market informed the Company thatNASDAQ has accepted the Company’s evidence of compliance with the shareholders’equity requirements necessary for continued listing on The NASDAQ SmallCapMarket.  A previously scheduled oralhearing on the listing status was subsequently cancelled by NASDAQ’s HearingsDepartment.

 

The Companydoes not currently comply with the additional NASDAQ listing requirement ofsustaining a closing bid price of at least $1.00 per share for a minimum of tenconsecutive trading days. Centiv must remedy this deficiency within a graceperiod set by NASDAQ, which expires on June 9, 2003. The Company plans to seekstockholder approval at the Annual Shareholder Meeting, to amend itsCertificate of Incorporation to grant the Board authority to effect a reversestock split, if necessary, to achieve compliance with this requirement.

 

**ITEM6.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)                                  Exhibits.

 
| **Exhibit  Number**                      |   | **Description**                                                                                                                                                                  |
|------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |   |                                                                                                                                                                             |
| **[List  option agreements, etc of BM]** |
|                                     |
| 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 |

 

 

**Reportson Form 8-K**

 

The following reports on Form 8-K have been filed during the threemonths ended March 31, 2002:

 

On February 6, 2004, Centiv 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.

 

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**SIGNATURES**

 

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-QSB TO BE SIGNED ON ITSBEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED THIS 18th DAY OF MAY,2004.

 
| CENTIV, INC. |                            |                                                                                          |   |
|--------------|---------------------------------|-----------------------------------------------------------------------------------------------|--------|
|         |                            |                                                                                          |   |
| SIGNATURE    |                            | Title                                                                                         |   |
|         |                            |                                                                                          |   |
| By:          | /s/  Mak Wai  Keung, Shawn |                                                                                          |   | Chief Executive  Officer, |   |
|         |                            |                                                                                          |   | President and Director  (principal |   |
|         |                            |                                                                                          |   | executive officer) |   |
|         |                            |                                                                                          |   |
|         |                            |                                                                                          |   |
| 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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