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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

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FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File No. 000-23221

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CENTIV, INC.(Exact name of Registrant as specified in its charter)

Georgia(State or other jurisdiction
of incorporation or organization)

58-2033795(IRS Employer
Identification Number)998 Forest Edge Drive, Vernon Hills, Illinois 60061(Address of Principal Executive Offices, including Zip Code)


(847) 876-8300(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:None

Securities Registered Pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 par value
and
Warrants to purchase Class A Common Stock, $8.40 exercise price
(Title of Class)

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý

The
aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was $4,046,517 at March 19, 2002.

The
number of shares of Class A Common Stock outstanding as of March 26, 2002 was 4,956,535.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy statement for the 2002 Annual Meeting of Stockholders of Centiv, Inc. are incorporated by reference into
Part III of this Report.

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CENTIV, INC.  TABLE OF CONTENTS

|ITEM     |                                                                                       | PAGE
|-------- | ------------------------------------------------------------------------------------- | ----
|PART I   |                                                                                       |     
|1.       | Business                                                                              |     
|2.       | Properties                                                                            |     
|3.       | Legal Proceedings                                                                     |     
|4.       | Submission of Matters to a Vote of Security Holders                                   |     
|PART II  |                                                                                       |     
|5.       | Market for the Company's Common Equity and Related Stockholder Matters                |     
|6.       | Selected Financial Data                                                               |     
|7.       | Management's Discussion and Analysis of Results of Operations and Financial Condition |     
|7A.      | Quantitative and Qualitative Disclosures About Market Risks                           |     
|8.       | Financial Statements and Supplementary Data                                           |     
|9.       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |     
|PART III |                                                                                       |     
|10.      | Directors and Executive Officers of the Company                                       |     
|11.      | Executive Compensation                                                                |     
|12.      | Security Ownership of Certain Beneficial Owners and Management                        |     
|13.      | Certain Relationships and Related Transactions                                        |     
|PART IV  |                                                                                       |     
|14.      | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |     
|         | Signatures                                                                            |     

2

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ITEM 1. BUSINESS.

Overview/History

In 1997, Centiv, Inc. was created from a merger of five wholesale distributors specializing in computer graphics products and a manufacturer of personal
computers and servers. In 1998, the Company acquired three additional wholesale distribution companies, and, in 1999, acquired a field service company, Calgraph Technology Services, Inc. The
Company integrated the businesses and distribution systems and became a leader in the distribution of computer graphics technologies through value-added resellers, system integrators, retailers, mass
merchandisers and direct marketers.

Utilizing
its expertise in the computer graphics market and innovation, Centiv expanded its service offering to provide clients a unique opportunity to increase the visibility of
products at the retail level and make the greatest impact on the consumer through digital "Point-of-Purchase" (POP) merchandising.

During
2001, the Company decided to focus on and dedicate its resources to its POP business. To further that goal, in December 2001, the Company sold its Channels Business and,
effective January 31, 2002, sold Calgraph Technology Services, Inc. During most of 2001, however, the Company was organized into three distinct business units:



Strategy

The Company's strategy for the Centiv Business is to offer web services for consumer brand companies to manage their in-store and
on-premise point-of-purchase (POP) process. The final product is high quality digitally produced signage that is mass customized for the unique requirements of each
retail location. Using Internet technology as the access medium, the Company offers these customers on-demand, mass customized digitally produced point-of-purchase
signs and advertising materials for use in in-store or on-premise marketing. This results in faster, more effective point of purchase campaigns and allows our customers to
protect and enhance their brand image.

3

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The Company's Divisions and Products

During 2001, we decided to focus on and dedicate our resources to our Centiv (POP) Business. We sold our Channels Business effective December 31, 2001, and
we sold Calgraph Technology Services, Inc. effective January 31, 2002. During most of 2001, however, the Company consisted of three operating segments:



See
Note 18 of Notes to Consolidated Financial Statements for segment financial information.

Centiv (POP) Business Unit

General

For many years, retailers and manufacturers who sell their products through retail channels have utilized POP signage to promote products and services to
consumers. Typically, that signage has been produced using manual methods (chalkboards, markers, etc.) by in-store personnel, or printed at a central corporate location using standard
lithography printing methods and distributed to retail stores.

Recent
advances in software and hardware have created a new market for customized POP signage using display graphics printers, software and media. This technology allows retailers and
wholesalers to quickly and easily create, print and display retail signs that are more responsive to their needs in full color with photo-realistic quality.

During
1998, as part of its key strategic objectives, the Company was engaged by a major beverage manufacturer to design, implement, and support a customized POP sign-making
system, which allows the beverage manufacturer to quickly make POP signs without the use of highly trained, dedicated personnel. The Company provides product research and development, training,
installation, and technical support for the beverage manufacturers' distributors. The Company also provides outsource fulfillment of inks and media used in the sign-making process.

In
1999, the Company expanded the digital point of purchase signage business by introducing a national initiative designed to engage up to 40 resellers in 2000. In partnership with some
strategic Value Added Reseller (VAR) customers and suppliers, the Company attempted to expand its customer base in the POP market to include a wide range of retailers, including supermarkets,
department stores, drug chains, and large manufacturers of consumer products who rely heavily upon the retail marketplace. That effort, while it was successful in engaging over 30 VAR customers to
pursue the POP market, failed to achieve the anticipated results. The Company terminated the program to target the POP market using indirect VARs in October 2000.

Centiv
is now focused on providing these services directly to the corporate POP market utilizing a direct sales force. During the years ended December 31, 2001, 2000 and 1999, the
revenues of the POP Business Unit accounted for 63%, 64% and 76%, respectively, of the Company's total net revenues from continuing operations. For the years ended December 31, 2001 and 2000,
the operating loss of the Centiv (POP) Business Unit accounted for 92% and 61%, respectively, of the Company's operating loss. For the year ended December 31, 1999, the Centiv (POP) Business
Unit accounted for 117% of the Company's operating profit. The identifiable assets of the Centiv (POP) Business Unit accounted
for 26%, 49% and 31% of the Company's total identifiable assets as of December 31, 2001, 2000 and 1999, respectively.

4

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For
the Centiv (POP) Business, no customers accounted for more than 10% of the sales for the year ended December 31, 2001. For the years ended December 31, 2000 and 1999,
one customer accounted for 97% and 80%, respectively, of net sales. International sales were insignificant for the years ended December 31, 2001, 2000 and 1999.

Products and Markets

The POP Business Unit's products include web services for consumer brand companies to manage their in-store and on-premise POP process.
The final product is high quality digitally produced signage that is mass customized for the unique requirements of each retail location.

The
merchandising solution uses an on-line, Internet-based interface that allows customers to create and order customized digital promotions using a standard Web browser.
Customers have the option of having their signs printed at a central print facility owned and operated by Centiv, or they may print locally at various print devices connected to their local computer.
This Internet-based solution provides a closed-loop information feedback that allows corporate customers to use this information to measure the effectiveness of their retail campaigns and
promotions at the regional or national level.

The
Internet-based on-demand POP approach offers traditional retailer marketers an entirely new way to individually customize various forms of signage used in the retail
environment. This solution allows clients to increase their brand awareness, closely control and monitor their brand image and digital assets and project a consistent message nationally while allowing
local customization.

This
proven solution helps customers to gain market share and increase sales. Additionally, this technology provides quicker turnarounds that enable clients and merchants to preview
signage on-line and either print at their location or have them delivered within two business days. This system allows clients to launch new promotions instantly and better react to
changing consumer trends.

The
Company intends to pursue cross-marketing and co-marketing agreements with companies that serve retail and manufacturing sector as well as potential opportunities to
license its Internet technology and print center services.

Calgraph Technology Services, Inc.

General

CalGraph Technology Services Inc., which was sold effective January 31, 2002, was headquartered in Fullerton, California and operated as an
independent wholly owned subsidiary of the Company. The Company acquired CalGraph from CalComp Technology Inc. on April 1, 1999. CalGraph U.S. and Canadian service and support operations
had 31 years of return to depot, component repair, refurbishment, on-site field service, call center, world-wide parts logistics, installation and training experience in
servicing and supporting large format printers, plotters and scanners.

The
U.S. and Canadian service operations included field service technicians and support personnel in the Company's Technical Support Call Center and field dispatch operations in
Fullerton, California. Also located in Fullerton were our component repair and refurbishment and parts warehousing facilities.

During
the years ended December 31, 2001, 2000 and 1999, the revenues of the CalGraph Business Unit accounted for 41%, 38% and 24%, respectively, of the Company's total revenues.
For the years ended December 31, 2001 and 2000, the CalGraph Business Unit had an operating profit while the Company, as a whole, had an operating loss. For the year ended December 31,
1999, the CalGraph Business Unit accounted for 2% of the Company's operating profit. The identifiable assets of the CalGraph Business Unit accounted for 35%, 29%, and 46% of the Company's total
identifiable assets as of December 31, 2001, 2000 and 1999, respectively.

5

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There
were no customers of CalGraph Technology Services, Inc. that accounted for more than 10% of the Company's net sales for the years ended December 31, 2001, 2000 and
1999. International sales were insignificant for the years ended December 31, 2001, 2000 and 1999.

Products and Markets

CalGraph Technology Services Inc. product offerings included customer on-site capabilities consisting of break-fix service repair,
installation, training, de-installation, re-packaging and relocation of computer graphics equipment, specializing in large format printers, plotters and scanners. CalGraph had
a 31-year history of providing on-site delivery capabilities in the 48 contiguous United States and Canada with 24 hour priority next business day response. CalGraph
provided same day service response in key metropolitan cites. In addition, CalGraph provided on-site installation and training on a worldwide basis for large format digital POP systems.

CalGraph
had a solid and experienced base upon which to expand into a world-class third-party services provider. CalGraph formed relationships with other OEM graphics products
manufacturers to provide maintenance and repair service operations in the U.S. and Canada. Those OEM manufacturers include Canon, Hewlett-Packard, Vidar, Barco, Oce, Seiko, DuPont, Fuji, Epson of
America, and other leaders in the large format and prepress markets.

CalGraph
had installed a state of the art call dispatch and customer service system to allow customers to open and track the status of each service call via the Internet. This system
also allowed a manufacturer to open a service call remotely on our system through internet-based links.

The Channels Business Unit

The Channels Business Unit, sold in December 2001, specialized in the wholesale distribution of computer graphics technologies through a network of 1,250
resellers in North America. This Unit operated in three vertical marketsdisplay graphics, digital prepress and electronic drawing management systems (EDMS). The products sold by this
Business Unit included printers, scanners, proofing devices, film image setters, and other products that are typically used for large format display graphics, digital prepress, presentation graphics,
color desktop publishing, digital imaging, electronic drawing management, computer-aided design and other emerging computer graphics technologies markets. The Channels Business Unit provided computer
graphics manufacturers with a nationwide distribution channel with the value-added benefit of local technical sales and support personnel.

Backlog

The Company does not have significant backlog due to the fact that the Centiv Business Unit is able to integrate and deliver products generally within a few days
of order receipt and long-term contracts to supply products have not been entered into with customers (the Company assembles and sells products on the basis of individual purchase orders
as and when received). CalGraph Technology Service, Inc. provided service typically under a service contract that was invoiced in advance of the service period. As of December 31, 2001,
deferred service revenue representing billing of service contracts in advance
of providing the service was $2.1 million. Excluding deferred service revenue, the backlog at the beginning of a quarter may not represent a significant percentage of the products to be sold in
that quarter. Therefore, management does not consider order backlog a significant indicator of the Company's future revenues.

Competition

While our Centiv Business Unit does not have any direct competition today for its entire range of products, there are certain potential competitors who are
focused on portions of the Centiv Business Unit's products and could represent competition at some future date. Specifically, in the turn-key field deployed POP print systems, the
principal competition potentially comes from highly specialized

6

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Value Added Resellers. Other companies that represent potential competition in the Corporate POP market include Insignia Systems, Inc. (Nasdaq: ISIG) and Catalina Marketing (NYSE: POS).

CalGraph
Technology Services, Inc. competed primarily with third-party service providers and manufacturers' own service organizations. The Company typically maintained agreements
with manufacturers to provide the service for the product.

Our
Channels Business Unit competed primarily with OEM equipment manufacturers that either utilized an in-house sales force to market their products to resellers and
end-users or the services of large, national fulfillment distributors.

Intellectual Property

On March 21, 2001, the Company filed a patent application with the United States Patent and Trademark Office relating to our sign creation and delivery
management system for creating POP signage. The Centiv business will market and sell this system, which allows a user access to an information database for selecting sign templates, inputting data for
the sign templates and selecting signage products for production of the sign templates. The user can then order the created sign templates having data input and selected signage products for delivery
to the user.

Centiv
seeks to protect trade secrets and proprietary know-how, in part, by confidentiality agreements with employees, consultants, advisors and others. There can be no
assurance that such employees, consultants, advisors or others will maintain the confidentiality of such trade secrets or proprietary information, or that the trade secrets or proprietary
know-how of the Company will not otherwise
become known or be independently developed by competitors in such a manner that the Company will have no practical recourse.

Product Research and Market Development

The market for the Company's products is characterized by rapid technological change and evolving industry standards, and it is highly competitive with respect to
timely product innovations. The introduction of products embodying new technology and the emergence of new industry standards can render existing products obsolete and unmarketable. The Company
believes that its future success will depend upon its ability to develop, manufacture and market new products and enhancements to existing products on a cost-effective and timely basis.

If
we are unable for technological or other reasons to develop products in a timely manner in response to changes in the industry, or if products or product enhancements that the Company
develops do not achieve market acceptance, the Company's business will be materially and adversely affected.

Employees

The Company had a total of 108 full-time and three part-time employees as of December 31, 2001. The breakout of employees by
segment is: (i) 31 full-time employees in the Centiv POP Business Unit and (ii) 77 full-time employees in the CalGraph Technology Services Business Unit.
Following the sale of Calgraph Technology Services effective January 31, 2002, we had 31 full-time employees.

The
Company's employees are not represented by a labor union and the Company believes that relations with employees are satisfactory.

7

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ITEM 2. PROPERTIES.

The table below sets forth certain information with respect to leased properties, which represent Centiv and Calgraph Technology Services locations unless
otherwise noted:

Lease Terms:

|Location                                                                       |  | Approximate Square
Footage |  | Expiration
Date
|------------------------------------------------------------------------------ |  | -------------------------- |  | ---------------
|998 Forest Edge Drive
Vernon Hills, Illinois
(Corporate Headquarters)          |  | 20,000                     |  | 5/31/08        
|577 Burning Tree Drive
Fullerton, California
(CalGraph Headquarters)(1)        |  | 30,000                     |  | 6/01/04        
|30 Whitmore Road
Woodbridge, Ontario, Canada
(CalGraph Technology Services)(1) |  | 3,000                      |  | 7/31/02        
|645 Hembree Parkway
Roswell, Georgia(2)                                        |  | 10,447                     |  | 4/30/02        
|444 North Frederick Avenue
Gaithersburg, Maryland(3)                           |  | 3,160                      |  | 7/31/02        
|720 Corporate Woods Parkway
Vernon Hills, Illinois(4)                          |  | 25,382                     |  | 9/30/02        
|980 Corporate Woods Parkway
Vernon Hills, Illinois(4)                          |  | 14,935                     |  | 9/30/02        

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8

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ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in certain claims arising in the normal course of business. In the opinion of management of the Company, although the outcomes of the
claims are uncertain, in the aggregate, they are not likely to have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On December 31, 2001, the Company held a special meeting of its shareholders for the purpose of approving the sale of substantially all of the operating
assets of its Channels Business to TK Acquisition Corporation in exchange for a purchase price of $7,905,000 in cash, subject to post-closing adjustments, and the assumption by TK
Acquisition of some of the liabilities associated with the Channels Business and, in connection with that sale, the change of the Company's corporate name from Tekgraf, Inc. to
Centiv, Inc.

At
that special meeting there were 2,928,537 votes cast in favor of that sale, 10,800 votes cast against the sale, 0 abstentions and 0 broker non-votes. Accordingly, the sale
was approved by the Company's shareholders.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Delisting from the Nasdaq SmallCap Market for Warrants

In February 2001, the Company received notice from the Nasdaq Stock Market that Nasdaq had determined that the Company's Warrants to purchase common stock,
issued in connection with the Company's initial public offering, no longer met the requirements for listing on Nasdaq's SmallCap Market. As a result, Nasdaq delisted the Warrants from the Nasdaq
SmallCap Market at the opening of business on February 28, 2001.

Public Market for Common Stock

The Company's common stock is quoted on the Nasdaq SmallCap Market under the symbol "CNTV." The following table sets forth, for the periods indicated, the high
and low closing prices per share of the common stock as reported on the Nasdaq SmallCap Market.

2000

High

Low1st Quarter

$
5.00

$
1.382nd Quarter


2.50


1.063rd Quarter


1.63


1.064th Quarter


1.06


.47


2001

High

Low1st Quarter

$
.99

$
.382nd Quarter


1.30


.383rd Quarter


1.70


.804th Quarter


1.40


.81


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Holders

As of March 19, 2002, there were approximately 42 holders of record of the Common Stock.

Dividends

The Company has applied and intends to continue to apply any retained and current earnings toward the development of its business and to finance the growth of the
Company. Consequently, the Company currently does not anticipate paying cash dividends on common stock in the foreseeable future. See "Management's Discussion and Analysis of Results of Operations and
Financial ConditionLiquidity and Capital Resources."

In
addition, the Company may not pay any cash dividends on its common stock unless it has paid dividends on all outstanding shares of its Series A Preferred Stock, which share
were issued in a private placement transaction on March 28, 2002. See Note 17 of Notes to the Consolidated Financial Statements. Unless previously converted, dividends on this preferred
stock will begin to accrue on March 31, 2003 at an annual rate equal to 8% of the purchase price of that preferred stock.

Recent Issuances of Unregistered Securities

On October 12, 2001, the Company issued warrants to purchase up to 12,000 shares of common stock to Selling Dynamics, L.L.C. in partial payment for
consulting services. The warrants are exercisable at $1.00 per share and expire in 2 years. The issuance was exempt from registration under the Securities Act of 1933, as amended, by virtue of
Section 4(2) thereof, no public sale having been involved.

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ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL AND OPERATING DATA

The financial information presented below represents selected historical data for the Company. The following selected financial and operating data presented by
the Company should be read in conjunction with the historical consolidated financial statements of the Company and the related notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." The financial results of the Channels Business have been reflected as discontinued operations and the prior year financial statements have been restated to conform
to the December 31, 2001 presentation.

|                                                      |                                     | Years Ended December 31, |          
|----------------------------------------------------- | ----------------------------------- | ------------------------ | ---------
|
|
|Statement of Operations Data:                         |                                     |                          |          
|Net Sales                                             |                                     | $                        | 19,793   
|Cost of goods sold                                    |                                     |                          | 16,013   
|                                                      |                                     |                          |          
|Gross profit                                          |                                     |                          | 3,780    
|Operating expenses:                                   |                                     |                          |          
|                                                      | Selling, general and Administrative |                          |          
|                                                      | Depreciation                        |                          |          
|                                                      | Restructuring charges               |                          |          
|                                                      |                                     |                          |          
|Operating income (loss)                               |                                     |                          | (2,163   
|                                                      | Interest expense                    |                          |          
|                                                      |                                     |                          |          
|Income (loss) before taxes                            |                                     |                          | (3,035   
|Provision (benefit) for income taxes                  |                                     |                          | 783      
|                                                      |                                     |                          |          
|Income/ (Loss) from continuing operations             |                                     |                          | (3,818   
|Gain/(loss) from discontinued operations, net of tax  |                                     |                          | (3,081   
|                                                      |                                     |                          |          
|Net income (loss)                                     |                                     | $                        | (6,899   
|                                                      |                                     |                          |          
|Basic and diluted weighted average shares outstanding |                                     |                          | 4,976,024
|                                                      |                                     |                          |          
|Basic and diluted loss applicable to common shares:   |                                     |                          |          
|                                                      |                                     | Continuing operations    |          
|                                                      |                                     | Discontinued operations  |          
|                                                      |                                     |                          |          
|                                                      |                                     | Net income (loss)        |          
|                                                      |                                     |                          |          

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|                                    |                            | Years Ended December 31, |       
|----------------------------------- | -------------------------- | ------------------------ | ------
|
|
|Balance Sheet Data:                 |                            |                          |       
|Working capital                     |                            | $                        | (2,201
|Net assets, discontinued operations |                            |                          | 0     
|Total assets                        |                            |                          | 9,144 
|Current debt                        |                            |                          | 795   
|Shareholders' equity                |                            |                          |       
|                                    | Due from stockholders      |                          |       
|                                    | Other                      |                          |       
|                                    |                            |                          |       
|                                    | Total stockholders' equity |                          |       

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

The following discussion should be read in conjunction with the information contained in the Consolidated Financial Statements, including the related notes.

Overview

In 1997, Centiv, Inc. was created from a merger of five wholesale distributors specializing in computer graphics products and a manufacturer of personal
computers and servers. In 1998, the Company acquired three additional wholesale distribution companies, and in 1999, acquired a field service company, Calgraph Technology Services, Inc. The
Company integrated the businesses and distribution systems and became a leader in the distribution of computer graphics technologies through value-added resellers, system integrators, retailers, mass
merchandisers and direct marketers.

Utilizing
its expertise in the computer graphics market and innovation, Centiv expanded its service offering to provide clients a unique opportunity to increase the visibility of their
products at the retail level and make the greatest impact on the consumer through digital "Point-of-Purchase" (POP) merchandising.

During
2001, the Company decided to focus on and dedicate its resources to its POP business. To further that goal, in December 2001, the Company sold our Channels Business and,
effective January 31, 2002, sold Calgraph Technology Services, Inc. During most of 2001, however, the Company was organized into three distinct business units:



12

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Results of Operations

Net sales reflect the sale of the Company's products, net of allowances for returns and other adjustments. Sales for the Centiv (POP) business are generated from
the sale of products and services primarily in the United States. CalGraph Technology Services sales are generated from the maintenance and repair of products in the United States. and Canada and the
sale of printer and plotter parts on an international basis.

Cost
of goods sold consists primarily of product costs, freight charges, direct costs and associated overhead with providing services performed by the Company for its customers.

A
large portion of the Company's operating expenses is relatively fixed. Since the Company does not obtain long-term purchase orders or commitments from its customers, it
must anticipate the future volume of orders based upon historical purchasing practices of its customers. Cancellations, reductions or delays in orders by a customer or group of customers could have a
material adverse effect on the Company's business, financial condition and results of operations.

Selling,
general and administrative (SG&A) expenses include costs for sales representatives, marketing and advertising of the Company's products, training, warehouse costs, information
technology, corporate and administrative functions, employee benefits, and facility costs.

Interest
expense includes costs and expenses associated with working capital indebtedness, as evidenced by outstanding balances on the Company's current credit facilities, offset by
interest income associated with loans to shareholders.

In
previous years, the Company had three business units: Channels, Centiv (POP) and CalGraph Technology Services. As discussed in Note 15 of the Notes to Consolidated Financial
Statements, the Channels Business was sold as of December 31, 2001. The Company now segments the business into two business units: Centiv and CalGraph Technology Services. Certain corporate
expenses and assets have not been allocated to the individual business segments. All prior year results have been restated to be comparative to the current year's results.

The
Centiv and Services business units are revenue producing components of the Company about which separate financial information is produced internally and operating decisions are made.
For the Centiv Business, no customers accounted for more than 10% of the sales for the year ended December 31, 2001. For the years ended December 31, 2000 and 1999, one customer
accounted for 97% and 80%, respectively, of net sales for the Centiv Business. No customers accounted for more than 10% of net sales for the CalGraph Technology Services Business for each of the years
ended December 31, 2001, 2000 and 1999. International sales for both divisions were insignificant for each of the years ended December 31, 2001, 2000 and 1999.

Year Ended December 31, 2001 Compared With Year Ended December 31, 2000.

Net Sales.Net sales from continuing operations decreased $4.1 million, or 17.0%, to
$19.8 million for the year ended December 31, 2001 compared to $23.9 million for the year ended December 31, 2000.

The
Centiv Business net sales decreased $2.8 million, or 18.4%, to $12.4 million for the year ended December 31, 2001 compared to $15.2 million for the year
ended December 31, 2000. The decline is attributable to a $4.2 million equipment upgrade program in the fourth quarter of 2000. This was a one-time upgrade of several
customers' POP systems used in the printing of custom signage.

13

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Excluding the $4.2 million upgrade, the Centiv Business sales grew $1.4 million, or 12.6%, to $12.4 million for the year ended December 31, 2001 compared to
$11.0 million for the year ended December 31, 2000.

The
net sales from Calgraph Technology Services decreased $1.0, or 11.3%, to $8.1 million for the year ended December 31, 2001 compared to $9.1 for the year ended
December 31, 2000. The decrease in net sales is due to the decline in the number of units being serviced.

Gross Profit.Gross profit from continuing operations decreased $1.1 million, or 22.6% to
$3.8 million for the year ended December 31, 2001 compared to $4.9 million for the year ended December 31, 2000. The gross profit decline was primarily as a result of the
revenue decline as well as the higher cost of servicing a lower number of units for the Calgraph Technology Services business.

Despite
the revenue decline of $2.8 million, gross profit for the Centiv Business decreased only $57,000, or 2.2%, to $2.4 million for the year ended December 31,
2001 compared to $2.5 million for the year ended December 31, 2000. Gross profit as a percentage of sales for the Centiv Business increased to 19.7% for the year ended
December 31, 2001 compared to 16.4% for the year ended December 31, 2001. The increase in gross profit as a percentage to sales is attributable to the lower margin upgrade program that
occurred during 2000 as well as a higher margin product offering for the year ended December 31, 2001.

Gross
profit for Calgraph Technology Services decreased $1.0 million, or 44.4%, to $1.3 million for the year ended December 31, 2001 compared to $2.3 million
for the year ended December 31, 2000. Gross profit as a percentage of sales for the Calgraph Technology Services Business decreased to 16.9% for the year ended December 31, 2001 compared
to 25.8% for the year ended December 31, 2000. The decrease in gross profit is due to the decline in net sales without a corresponding reduction in the cost in field service expenses as the
Company needed to maintain the service representatives to support the service contracts.

SG&A Expenses.SG&A expenses from continuing operations decreased $79,000, or 1.4%, to
$5.3 million for the year ended December 31, 2001 compared to $5.4 million for the year ended December 31, 2000. SG&A expenses as a percentage of sales were 27.1% and 22.8%
for the years ended December 31, 2001 and 2000, respectively. SG&A expenses for the period ending December 31, 2001 include expenses of approximately $2.2 million relating to the
product launch of Centiv's web enabled custom signage order entry and fulfillment system.

Depreciation Expense.Depreciation expense from continuing operations increased $375,000, or 188%, to
$575,000 for the year ended December 31, 2001, compared to $200,000 for the year ended December 31, 2000. The increase is due to new financial software packaged that was implemented
during 2001. The increase is also due to the web enabled customer signage order entry and fulfillment center that was placed in operation during 2001.

Interest Expense.Net interest expense from continuing operations increased $497,000 to $872,000 for
year ended December 31, 2001 compared to $375,000 for the year ended December 31, 2000. The increase in interest expense relates to the Company having a higher average bank debt for the
year ended December 31, 2001 compared to the average bank debt for the year ended December 31, 2000. However, the Company reduced the bank debt to $795,000 as of December 31, 2001
from $11.1 million as of December 31, 2000 due to strong working capital management as well as using the proceeds from the sale of the Channels Business. During the year ended
December 31, 2001, the Company also paid off a $1.8 million note issued to certain dissenting shareholders in connection with the settlement of a dissenters' claim in 2000. The Company
anticipates that interest expense for 2002 will be significantly
reduced due to the pay down of the bank debt and the pay off the dissenter's note payable during 2001 as well as the private capital investment of $2.2 million, which occurred during the first
quarter of 2002.

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Benefit for Income Taxes.The Company's effective tax rate from continuing operations was a
tax
provision of 16.3% for the year ended December 31, 2001 as compared to tax benefit of 32.5% for the year ended December 31, 2000. The Company recorded a valuation reserve against the
deferred income tax asset of $2.1 million for the year ended December 31, 2001. The Company maintains a valuation allowance with respect to deferred tax assets as a result of the
uncertainty of ultimate realization. At December 31, 2001, the Company had net operating loss carryforwards of approximately $5.3 million expiring in various years through 2021. The
difference between the Company's effective and statutory tax rates was primarily due to the valuation reserve for the deferred tax asset, the amortization of non-deductible goodwill and to
state taxes, net of the federal benefit.

Loss from Continuing Operations.Loss from continuing operations increased $3.0 million to a
loss of $3.8 million for the year ended December 31, 2001 compared to a loss of $793,000 for the year ended December 31, 2000. This increase is attributable to the valuation
reserve of $2.1 million for the Company's net loss carry forward recorded for the year ended December 31, 2001, an increase in depreciation expense of $375,000 during 2001 and an
increase in interest expense of $497,000 during 2001.

Discontinued Operations.Net sales from discontinued operations decreased $30.2 million, or
38.4%, to $48.4 million for the year ended December 31, 2001 compared to $78.6 million for the year ended December 31, 2000. Of the decrease of $30.2 million in net
sales, $23.4 million relates to the Channels Business, which was sold on December 31, 2001, and $6.8 million relates to the Tekgraf Systems Division, which was divested on
October 31, 2000 as part of the dissenter's settlement mentioned above.

Gross
profit from discontinued operations decreased $2.5 million, or 26.0%, to $7.1 million for the year ended December 31, 2001 compared to $9.5 million for
the year ended December 31, 2000.

Loss
from discontinued operations for the year ended December 31, 2001 of $3.1 million is comprised of a loss from operations of the Channels Business of
$0.7 million and a loss on the sale of the Channels Business of $2.4 million. The loss on the sale of the Channels Business included the write off of goodwill of $1.9 million and
the write off of the deferred tax asset of $184,000 for the year ended December 31, 2001.

Net Loss.Net loss increased $4.6 million to a net loss of $6.9 million for the year
ended December 31, 2001 compared to a net loss of $2.3 million for the year ended December 31, 2000. The increase in net
loss is attributable to the valuation reserve against the Company's net operating loss carry forward that was recorded for the year ended December 31, 2001 and the loss on the sale of the
Channels Business.

Basic and Diluted Loss Applicable to Common Shares.Loss applicable to common shares increased $1.01
to a loss of $1.39 for the year ended December 31, 2001 compared to a loss of $0.38 for the year ended December 31, 2000. The net loss applicable to common shares from continuing
operations increased $0.64 to a loss of $0.77 for the year ended December 31, 2001 compared to a loss of $0.13 for the year ended December 31, 2000. The net loss applicable to common
shares from discontinued operations increased $0.37 to a loss of $0.62 for the year ended December 31, 2001 compared to loss of $0.25 for the year ended December 31, 2000.

Year Ended December 31, 2000 Compared With Year Ended December 31, 1999.

Net Sales.Net sales from continuing operations increased $1.5 million, or 6.6%, to
$23.9 million for the year ended December 31, 2000 compared to $22.4 million for the year ended December 31, 1999.

The
Centiv Business net sales decreased $1.7 million, or 9.9%, to $15.2 million for the year ended December 31, 2000 compared to $16.9 million for the year
ended December 31, 1999. The decrease

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in net sales is attributable to a decrease in equipment sales for the year ended December 31, 2000, as the prior year contained sales relating to the installation of new POP systems.

The
CalGraph Technology Services Business net sales increased $3.7 million, or 68.5%, to $9.1 million for the year ended December 31, 2000 compared to
$5.4 million for the year ended December 31, 1999. The Calgraph Technology Services Business was acquired on April 1, 1999. On a pro forma basis, if the Calgraph Technology
Services Business would have been acquired on January 1, 1999 instead of April 1, 1999, net sales would have been $7.3 million in 1999. On that basis, comparing net sales for the
year ended December 31, 2000 of $9.1 million versus the pro forma sales of $7.3 million for the year ended December 31, 1999, net sales increased $1.8 million, or
24.7%. The increase relates to third-party service contracts awarded to Calgraph during 2000.

Gross Profit.Gross profit from continuing operations decreased $1.9 million, or 28.2%, to
$4.9 million for the year ended December 31, 2000 compared to $6.8 million for 1999. Gross profit as a percentage of sales decreased to 20.5% for the year ended
December 31, 2000 compared to 30.4% for the year ended December 31, 1999.

Gross
profit for the Centiv Business decreased $2.1 million, or 46%, for the year ended December 31, 2000 to $2.5 million compared to $4.6 million for the
year ended December 31, 1999. Gross profit as a percentage of sales for the Centiv Business decreased to 16.5% for the year ended December 31, 2000 compared to 27.5% for the year ended
December 31, 1999. The decrease in gross profit as a percentage to sales is attributable to the lower margin equipment upgrade program that occurred during 2000.

Gross
profit for Calgraph Technology Services increased $1.0 million, or 75.6%, to $2.3 million compared to $1.3 million for the year ended December 31, 2000.
The increase in gross profit is due to the additional revenue generated without a corresponding increase in field service costs.

SG&A Expenses.SG&A expenses from continuing operations increased $1.1 million, or 25.6%, to
$5.4 million for the year ended December 31, 2000 compared to $4.3 million for the year ended December 31, 1999. The increase in SG&A expenses is attributable to the
Calgraph Technology Services Business that was acquired on April 1, 1999, as well as legal expenses relating to the dissenters claim, and costs associated with relocating the Company's
headquarters from Atlanta to Vernon Hills. SG&A expenses as a percentage of sales were 22.8% and 19.1% for the years ending December 31, 2000 and 1999, respectively.

Depreciation Expense.Depreciation expense from continuing operations increased $15,000 to $200,000
for the year ended December 31, 2000, compared to $185,000 for the year ended December 31, 1999. The increase in depreciation expense relates to new software and computer equipment
purchased for the Calgraph Technology Services Business during the third quarter of 1999.

Interest Expense.Net interest expense from continuing operations increased $218,000 to $375,000 for
year ended December 31, 2001 compared to $157,000 for the year ended December 31, 2000. The increase in interest expense relates to the Company having a higher average bank debt for the
year ended December 31, 2000 compared to the average bank debt for the year ended December 31, 1999.

Benefit for Income Taxes.The Company's effective tax rate from continuing operations was a tax
benefit of 32.5% for the year ended December 31, 2000 as compared to tax provision of 42.7% for the year ended December 31, 1999. The difference between the Company's effective and
statutory tax rates was primarily due to the amortization of non-deductible goodwill and to state taxes, net of the federal benefit.

Gain/(loss) from Continuing Operations.The Company had a loss from continuing operations of $793,000
for the year ended December 31, 2000 compared to a gain from continuing operations for $1.0 million for the year ended December 31, 1999. The loss from continuing operations for
the year

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ended December 31, 2000 is attributable to the decrease in gross profit of $1.0 million, the increase in SG&A expenses due to the Calgraph Technology Services Business acquired in April
of 1999, as well as depreciation and net interest expense.

Discontinued Operations.Net sales from discontinued operations decreased $9.1 million, or
10.2%, to $79.6 million for the year ended December 31, 2000 compared to $88.7 million for the year ended December 31, 1999. Of the decrease of $9.1 million in net
sales, $7.3 million relates to the Channels Business, which was sold on December 31, 2001, $800,000 relates to the Tekgraf Systems Division which was divested on October 31, 2000,
and $975,000 relates to Prisym Technologies, which was sold on February 28, 1999.

Gross
profit from discontinued operations decreased $1.5 million, or 13.6%, to $9.5 million for the year ended December 31, 2000 compared to $11.1 million for
the year ended December 31, 1999.

The
net Loss from discontinued operations for the year ended December 31, 2000 of $1.5 million is comprised of a pre-tax loss from operations from the Channels
Business of $2.1 million, a benefit from income taxes of $721,000, a pre-tax loss from operations from the Tekgraf Systems Division of $190,000, and a benefit from income taxes of
$72,000. The net loss from the Channels Business includes a restructuring charge of $541,000 relating to severance and leased property no longer necessary to the Company.

The
net loss from discontinued operations for the year ended December 31, 1999 is comprised of a pre-tax loss from operations from the Channels Business of
$8.7 million with a tax benefit of $751,000 and a pre-tax loss from the Tekgraf Technology Services Business of $271,000 with a tax benefit of $103,000. The loss from the Channels
Business for the year ended December 31, 1999 includes a write down of goodwill of $6.2 million and restructuring charge of $847,000.

Net Income/(Loss).Net loss decreased $4.8 million to a net loss of $2.3 million for
the year ended December 31, 2000, compared to a net loss of $7.1 million for the year ended December 31, 1999. The decrease in net loss is attributable to the write off of
goodwill for the year ended December 31, 1999.

Basic and Diluted Loss Applicable to Common Shares.Loss applicable to common shares decreased $0.78
to a loss of $0.38 for the year ended December 31, 2000 compared to a loss of $1.16 for the year ended December 31, 1999. The net loss applicable to common shares from continuing
operations increased $0.29 to a loss of $0.13 for the year ended December 31, 2000 compared to income of $0.16 for the year ended December 31, 1999. The net loss applicable to common
shares from discontinued operations decreased $1.07 to a loss of $0.25 for the year ended December 31, 2000 compared to loss of $1.32 for the year ended December 31, 1999.

Liquidity and Capital Resources

Since inception, the Company has financed its operations through a combination of cash flows from operations, bank borrowings, equity capital and the net proceeds
from the Company's initial public offering in November 1997.

On
March 28, 2002, the Company sold, in a private placement, 216,000 units, each consisting of one share of convertible preferred stock and one warrant to purchase one additional
share of convertible preferred stock. The purchase price for each unit was $10.00 per unit. Because each share of convertible preferred stock is convertible, initially, into ten shares of common
stock, the effective purchase price was $1.00 for each share of common stock purchased. The warrant that is included in each unit gives the holder the right, until five years after the issuance of the
warrant, to purchase one share of convertible preferred stock at a purchase price of $15.00 per share (the equivalent of $1.50 per share of common stock). Neither the convertible preferred stock nor
the warrants have been

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registered under the Securities Act of 1933. Therefore, they may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The
convertible preferred stock has a liquidation preference over common stock equal to the purchase price of the convertible preferred stock plus any accrued but unpaid dividends. If
not previously converted, the convertible preferred stock will begin to accrue dividends on March 31, 2003 at an annual rate equal to 8% of the purchase price of the convertible preferred
stock. In addition, if not previously converted into common stock, the convertible preferred stock is subject to redemption at the option of the Company on the fourth anniversary of the issuance of
the convertible preferred stock at a redemption price equal to the purchase price plus any accrued but unpaid dividends. If the Company fails to redeem the convertible preferred stock on that date,
the holders of the convertible preferred stock become entitled to elect a majority of the board of directors. Notwithstanding the foregoing, directors elected by virtue of the voting rights of the
convertible preferred stock would have to recuse themselves from any vote to redeem all or a portion of the convertible preferred stock.

The
convertible preferred stock is initially convertible into ten shares of common stock for each share of the convertible preferred stock. This conversion ratio, however, is subject to
anti-dilution adjustment for stock splits, combinations and other similar changes and if the Company issues, except in limited circumstances, any capital stock for a per share price less
than the then current conversion price.

The
convertible preferred stock is automatically converted if (i) holders of 2/3 of the outstanding shares of such preferred stock agree to convert, (ii) the
Company's revenues for the Centiv Business exceed
$5 million for any two consecutive quarters, or (iii) the Company recognizes $20 million in revenues for the Centiv Business for the 12-month period ending
March 31, 2003.

The
Company has agreed, by April 28, 2002, to file a registration statement to cover the resale of the shares of common stock issuable upon conversion of the convertible
preferred stock and the shares of common stock issuable upon exercise of the warrants or upon conversion of the convertible preferred stock issuable upon exercise of the warrants. The Company will use
its best efforts to have the registration statement declared effective and will maintain the effectiveness of the registration statement until the earlier of (a) the later of (i) two
years after all of the warrants have been redeemed or exercised, or (ii) two years after all of the preferred stock has been converted, or (b) six years from the closing date. The
Company has also granted the purchasers of the convertible preferred stock piggy-back registration rights on any other Registration Statement filed by the Company (other than on Forms
S-8 or S-4). The Company will bear all expenses of each registration, including the costs of one special counsel to the holders of registrable securities.

Proceeds
to the Company from the sale of the convertible preferred stock will be $2,160,000, of which $1,910,000 was received on March 28, 2002 and the remaining $250,000 will be
received in April 2002. The proceeds were used to pay off and cancel the Company's current credit facility with the bank. The Company is currently pursuing a new credit facility and anticipates
that a new agreement will be in place during the second quarter of 2002. There can be no assurance that the Company will be able to enter into a new credit facility or, if it is able to do so, that it
will be on terms favorable to the Company.

In
December 2001, as part of the sale of the Channels Business, the Company agreed to reduce its credit line under its Loan and Security Agreement (the "Agreement") to
$2.5 million. In addition, the Company agreed to maintain a pretax loss of no greater the $125,000 per month effective January 2002 and to the expiration of the Agreement as of
March 31, 2002. Effective as of January 31, 2002, the Calgraph Technology Services Business was sold (See Note 16 to Notes to Consolidated Financial Statements), and the Company
agreed to reduce its credit line to $1.5 million. Outstanding advances under the Agreement bear interest at the Prime Interest Rate plus 2.5%.

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Pursuant
to the terms of the Agreement, the Company pledged accounts receivables, inventory and equipment as collateral. In accordance with the Agreement, the Company was required to
maintain certain financial covenants, which specifically included a debt to equity ratio and a fixed charge coverage ratio. During the years ended December 31, 2001 and 2000, the Company
borrowed $64.4 million and $32.5 million, respectively, and repaid $74.7 million and $25.6 million, respectively, under this credit facility. As of December 31, 2001
and 2000, the Company had an outstanding balance of $795,000 and $11.1 million, respectively, under the credit facility. The decrease in debt as of December 31, 2001 is attributable to
strong working capital management, which resulted in improvement in collections for accounts receivable as well as the reduction of the Company's inventory balances. The reduction of debt is also
attributable to the Company using the proceeds from the sale of
the Channels Business to repay the credit facility (See Note 15 to the Notes to the Consolidated Financial Statements).

The
Company was below the fixed charge coverage ratio required under the Agreement and obtained a waiver from the bank for the year ended December 31, 2001.

After
paying the outstanding balance under its credit facility, the Company was left with approximately $1.1 million of available funds from the private capital investment. The
Company believes that this will be adequate to satisfy its current and planned operations for at least the next 12 months.

On
December 31, 2001, the Company had $228,000 in cash with negative working capital of $2.2 million compared to $491,000 in cash and positive working capital of
$2.5 million on December 31, 2000.

For
the year ended December 31, 2001, the Company generated $7.8 million in cash from operating activities, compared to cash used of $6.2 million for the year ended
December 31, 2000. During the year ended December 31, 2001, accounts receivable from continuing operations generated cash of $4.9 million. This is due to increased sales in the
fourth quarter of 2000 that were collected in the first quarter of 2001. The cash used of $0.8 million primarily related to an increase of prepaid expenses of $0.3 million and an
increase in income tax receivable of $0.5 million for the year ended December 31, 2001. Net assets from discontinued operations generated $6.2 million of cash for the year ended
December 31, 2001 due to a reduction in accounts receivable and inventory. The Company had non-cash items affecting the operating cash flows for the year ended December 31,
2001 of $4.3 million consisting primarily of $2.1 million for the loss on the sale of the Channels Business and a $2.1 million valuation reserve for the Company's net loss carry
forward.

For
the year ended December 31, 2001, the Company generated $4.5 million of cash from investing activities compared to $1.4 million of cash used for the year ended
December 31, 2000. For the year ended December 31, 2001, the Company used $1.5 million of cash for the purchase of property and equipment. Of the $1.5 million of capital
equipment purchases, $0.9 million was for a new state of the art accounting and warehousing package that was implemented during the second quarter of 2001 and $0.6 million was for the
development and implementation of the Centiv Business' new web enabled order entry and fulfillment software package that was implemented during the second quarter of 2001. Cash of $5.9 million
was generated from the sale of the Channels Business on December 31, 2001.

For
the year ended December 31, 2001, the Company used cash from financing activities of $12.5 million, compared to $6.4 million of cash generated for the year ended
December 31, 2000. The credit facility was reduced by $10.3 million to $795,000 as of December 31, 2001 from a balance of $11.1 million as of December 31, 2000. Of
the $10.3 million pay down of the credit facility, $4.4 million was repaid through the Company's operating activities through improved working capital management and $5.9 million
was repaid from the proceeds from the sale of the Channels Business on December 31, 2001. The Company also paid off a $1.8 million note issued to certain dissenting shareholders in
connection with the settlement of a dissenters' claim that was recorded for the year

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ended December 31, 2000. The Company no longer has any outstanding liabilities concerning the settlement.

In
connection with the sale of the Channels Business, the Company made loans to three former members of the management team involved in the transaction. The total amount of the loans is
$250,000 and will bear an interest rate of 25 basis points over the Company's current rate on the credit facility. The principal amount of this loan plus accrued interest shall be due and payable on
December 28, 2003. The Company also recorded interest income of $175,000 on a loan to another shareholder.

For
the year ended December 31, 2000, the Company used $6.2 million in cash from operating activities compared to $1.3 million for the year ended December 31,
1999. For the year ended December 31, 2000, the cash used in operations resulted primarily from the Company's net loss of $2.3 million as well as an increase in accounts receivable of
$3.9 million offset by accounts payable and accrued expenses of $2.5 million. The change in accounts receivable was attributable to the timing of sales in the fourth quarter of 2000. Net
assets from discontinued operations used $892,000 of cash from higher inventory balances offset by lower accounts receivable.

For
the year ended December 31, 2000, the Company used cash in investing activities of $1.4 million for the purchase of property and equipment, which primarily consisted of
capital improvements for new computer equipment and software.

For
the year ended December 31, 2000, the Company had cash provided by financing activities of $6.4 million. Cash was provided from the Company's credit facility in the
amount of $6.8 million and from a note relating to the dissenters' settlement in the amount of $1.8 million. The Company used $3.1 million to purchase the dissenters' shares,
which consists of: (1) a cash payment of $275,000 paid at closing of the dissenters claim; (2) a note in the amount of $1.8 million payable to the dissenters; and (3) the
exchange of the net assets of the Tekgraf Systems Division in the amount of $1.1 million. The Company recorded interest income of $161,000 on a loan to a shareholder for the year ended
December 31, 2000.

For
the year ended December 31, 1999, the Company used $1.3 million in cash from operating activities. The cash used in operations resulted primarily from the increase in
accounts receivable of $935,000 offset by a decrease of inventory of $1.2 million and by the increase in accounts payable and accrued expenses of $343,000. The net assets from discontinued
operations includes a non-cash charge of $6.3 million for the impairment of goodwill. Deferred and current income taxes decreased $640,000 for the year ended December 31,
1999. The change in accounts receivable was attributable to the timing of sales for the fourth quarter of 1999.

For
the year ended December 31, 1999, the Company used cash in investing activities of approximately $958,000 as follows: (1) to purchase property and equipment of
$1.4 million for capital improvements for continuing and discontinued operations related to the acquisition of the CalGraph Services Business and additional purchases related to the new MIS
system and (2) to make a cash payment for the CalGraph Technology Services Business of $400,000 and to pay related acquisition costs of $139,000. The investments were partially offset by
proceeds of $979,000 from the sale of Prisym Technologies, Inc. of Georgia.

Cash
provided by financing activities of $2.2 million for the year ended December 31, 1999 was attributable to payments of $463,000 received from stockholders for deficient
net asset values, and net proceeds of $3.5 million in debt received under the Company's credit facility, which were offset by a $1.8 million loan to a stockholder.

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Impact of Inflation

Management believes that inflation has not had a material impact on the Company's business, its net sales and revenues or its income (loss) from continuing
operations.

Disclosure Regarding Forward-Looking Statements

Safe Harbor For Forward-Looking Statements

This report and statements we or our representatives make contain forward-looking statements that involve risks and uncertainties. These statements may be found
in "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in the report. We develop forward-looking statements by combining currently
available information with our beliefs and assumptions. These statements often contain words like believe, expect, anticipate, intend, contemplate, seek, plan, estimate or similar expressions.
Forward-looking statements do not guarantee future performance. Recognize these statements for what they are and do not rely upon them as facts.

Forward-looking
statements involve risks, uncertainties and assumptions, including, but not limited to, those discussed below under the caption "Factors That May Affect Future Results"
and elsewhere in this report. We make these statements under the protection afforded them by Section 21E of the Securities Exchange Act of 1934, as amended. Because we cannot predict all of the
risks and uncertainties that may affect us, or control the ones we do predict, these risks and uncertainties can cause our results to differ materially from the results we express in our
forward-looking statements.

Factors That May Affect Future Results

You should carefully consider the risks and uncertainties described below and other information in this report. These are not the only risks and uncertainties
that we face. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial may also harm our business operations. If any of these risks or
uncertainties occurs, it could have a material adverse effect on our business.

Risks Related to Our Company

We have incurred operating losses in four of the past five years.

During fiscal years 1997, 1998, 1999, 2000 and 2001, we experienced net income (losses) of ($393,337), $91,167, ($7,118,331), ($2,334,000) and ($6,888,000),
respectively. We cannot be certain that we will achieve profitability in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future. If we are unable to become profitable, our liquidity could be materially harmed.

Prior
to its sale, our Channels Business and CalGraph Business accounted for the majority of our revenues and our Centiv Business revenues are not expected in the near term to replace
our revenues from our Channels and CalGraph Businesses.

The
Channels Business comprised approximately 71% of our revenue for the year ended December 31, 2001, and more than 70% for each of our two prior fiscal years. The CalGraph
Business comprised approximately 12% of our revenue for the year ended December 31, 2001, and more than 10% for each of the two prior fiscal years. Although our Centiv Business has grown
steadily, these revenues are not expected to equal or exceed our revenues from the Channels and CalGraph Businesses in the near term, and we will be operating at a loss until the revenues generated by
the Centiv Business increase sufficiently to offset its expenses. The sale of the Channels Business and the CalGraph Business

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significantly reduced our revenues and our total operations. There can be no assurance that we will have sufficient operations and revenue to achieve profitability.

We cannot predict our future results because our Centiv Business has a limited operating history, particularly as a stand-alone business.

Given our limited operating history in the Centiv Business, particularly as a stand-alone business it will be difficult to predict our future results. You should
consider the uncertainties that we may encounter as an early stage company in a new and rapidly evolving market. These uncertainties include:



Our Centiv Business has not generated significant revenues to date and incurred losses in fiscal years 2000 and 2001, and we expect these losses to continue into fiscal year
2002.

The Centiv Business was commenced in 1998, has a limited operating history and incurred losses for 2000 and 2001, although it did make an operating profit in 1998
and 1999. We expect these losses to continue into fiscal year 2002. The Centiv Business will need to achieve greater revenues to achieve profitability. There can be no assurance that we will be
successful in increasing revenues of the Centiv Business, or generating acceptable margins, or, if we do, that operation of the Centiv Business will be a profitable business enterprise. If we are
unable to achieve significantly greater recurring revenue from our Centiv Business, our losses will likely continue indefinitely. We will likely have to seek additional outside sources of capital for
our Centiv Business. There can be no assurance that we will be able to obtain such capital on favorable terms and conditions or at all. If this occurs the market price of our common stock could
suffer.

Our quarterly and annual sales and financial results have varied significantly in the past, and we expect to experience fluctuations in the future, which means that
period-to-period comparisons are not necessarily meaningful or indicative of future performance.

Our 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 a variety 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 products are sold and
economic conditions generally or in certain geographic areas in which our customers do business. Furthermore, we may be unable to control spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, we cannot assure you that sales and net income, if any, in any particular quarter will not be lower than sales and net income, if any, in a preceding or comparable
quarter or quarters. In addition, sales and net income, if any, in any particular quarter are not likely to be indicative of the results of operations for any other quarter or for the full year. The
trading prices of our securities may fluctuate significantly in response to variations in our quarterly or annual results of operations.

We may not be able to sustain or accelerate growth, or sustain or accelerate recurring revenue from the Centiv Business.

There can be no assurance that demand for our Centiv services and products will increase or be sustained, or that our current or future products will have market
acceptance in that product category. Our acquisition costs per customer are currently very high due to the significant costs associated with sales, product development and marketing. To the extent we
do not achieve growth and this cost per customer is not reduced, it will be difficult for us to generate meaningful revenue at acceptable margins or achieve profitability. To the extent that our
Centiv Business model is not successful, because market acceptance

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declines, or other competing technologies evolve in connection with the evolving Internet market or for any other reason, we might have future unexpected declines in revenue. In order to achieve and
maintain profitability, our POP program needs to achieve national program status. In order to obtain participating manufacturers and retailers at the rate desired, this service program must achieve
increases in sales. In achieving these results, we will be competing for the marketing expenditures or branded product manufacturers who use various forms of point-of-purchase
marketing methods. We cannot assure you that our POP program will achieve or maintain the marketplace acceptance or profitability necessary to compete successfully with traditional marketing methods.

Rapid technological change could render our POP products and services obsolete.

The Internet and the e-commerce industries are characterized by rapid technological innovation, sudden changes in user and customer requirements and
preferences, frequent new product and service introductions and the emergence of new industry standards and practices. Each of these characteristics could render our Centiv services, products,
intellectual property and systems obsolete. The rapid evolution of our market requires that we improve continually the performance, features and reliability of our products and services, particularly
in response to competitive offerings. Our success also will depend, in part, on our ability:



If
we are unable, for technical, financial, legal or other reasons, to adapt in a timely manner to changing market conditions or user preferences, we could lose customers, which would
cause a decrease in our revenue.

We may be unable to obtain additional capital needed to grow our business, which would adversely impact our business. If we raise additional financing, you may suffer
significant dilution.

Although we expect that our current cash and cash from operations will be sufficient to satisfy our working capital and capital expenditure needs over the next
12 months, we plan to seek additional third-party investment and a new bank line of credit in order to provide additional working capital. We cannot be certain that financing from third parties
will be available on acceptable terms to us or at all. Our future capital requirements will depend upon several factors, including the rate of market acceptance of our products and services, our
ability to expand our customer base and our level of expenditures for sales and marketing. If our capital requirements vary materially from those currently planned, we may require additional financing
sooner than anticipated. If we cannot raise funds on acceptable terms, we may not be able to develop our products and services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, any of which could have a material adverse effect on our ability to grow our business. Further, if we issue equity securities, you will experience dilution of
your ownership percentage, and the new equity securities may have rights, preferences or privileges senior to those of our common stock.

Many of our competitors have significantly greater resources than we do and may be able to respond more quickly to new or emerging technologies and changes in customer
requirements.

While our Centiv Business Unit does not have any direct competition today for its entire range of products, there are certain potential competitors who are
focused on portions of the Centiv Business Unit's products and could represent competition at some future date. Specifically, in the turn-key field deployed POP print systems, the principal
competition potentially comes from highly specialized Value Added Resellers. Other companies that represent potential competition in the Corporate POP market include Insignia Systems, Inc. (Nasdaq:
ISIG) and Catalina Marketing (NYSE: POS). Certain of our potential

23

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competitors have significantly greater financial, technical, marketing, and other resources than we do and may be able to respond more quickly to new or emerging technologies and changes in customer
requirements. Additional competition could result in price reductions, reduced margins and loss of market. We cannot guarantee that we will be able to compete successfully against future competitors
or that future competitive pressures will not materially and adversely affect our business, financial condition and results of operations.

Our business depends on our intellectual property rights, and if we fail to protect them, our competitive position will suffer.

We have no patents, and our success partially depends on our ability to preserve our trade secrets and to operate without infringing on the proprietary rights of
third parties. We seek to protect our trade secrets and proprietary know-how, in part, by confidentiality agreements with employees, consultants, advisors and others. We cannot guarantee
that these individuals will maintain the confidentiality of our trade secrets and proprietary know-how, or that our competitors will not learn of or independently develop our trade secrets
or proprietary know-how in a manner that leaves us with no practical recourse.

If we lose the services of our key personnel, we may be unable to replace them, and our business could be negatively affected.

Our success depends in large part on the continued service of our management and other key personnel and our ability to continue to attract, motivate and retain
highly qualified employees. In particular, the services of William Rychel, our President and Chief Executive Officer, and Thomas Mason, our Vice President, Finance and Chief Financial Officer are
integral to the execution of our business strategy. If one or more of our key employees leaves Centiv, we will have to find a replacement with the combination of skills and attributes necessary to
execute our strategy. Because competition from other technology companies for skilled employees is intense, and the process of finding qualified individuals can be lengthy and expensive, we believe
that the loss of the services of key personnel could negatively affect our business, financial condition and results of operations.

Risks Related to Our Industry

Weak economic conditions in the market may negatively impact sales of computer graphics products and services.

From time to time the market for our products and services experiences weak economic conditions. To the extent that general economic conditions affect the demand
for products and services in this market, it could have an adverse effect on our ability to sell our products and services.

Risks Related to Our Capital Stock

The public market for our common stock may be volatile.

The market price of our common stock has been and is likely to continue to be volatile and significantly affected by various factors, including:



24

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The
stock markets, especially the Nasdaq SmallCap Market, have experienced significant price and volume fluctuations that have affected the market prices of many technology companies'
stocks. These fluctuations have often been unrelated or disproportionate to operating performance. These broad market or technology sector fluctuations may adversely affect the market price of our
common stock. General economic, political and market conditions such as recessions and interest rate fluctuations may also have an adverse effect on the market price of our common stock. In addition,
the market price of our common stock has also been and is likely to continue to be affected by expectations of analysts and investors.

We may not be able to maintain our eligibility for the Nasdaq SmallCap Market.

In order for our common stock to continue to be traded on the Nasdaq SmallCap Market, we must maintain one of the following: "net tangible assets" (defined as the
book value of total assets, minus intangible assets, minus all liabilities) of at least $2 million, shareholders' equity of at least $2.5 million, market capitalization of at least
$35 million, or net income from continuing operations of at least $500,000 in the latest fiscal year or in two of the last three fiscal years. We also must have a bid price for our common stock
of at least $1 per share, have a public float of 500,000 shares, and meet certain other criteria. We cannot assure you that we can maintain compliance with these standards or that our stock will
continue to be listed on the Nasdaq SmallCap Market. The loss of the listing of our common stock on the Nasdaq SmallCap Market would impair the marketability of our common stock.

Since our executive officers and directors have substantial control of our voting stock, takeovers not supported by them will be more difficult, possibly preventing you from
obtaining optimal share price.

The control of a significant amount of our stock by insiders could adversely affect the market price of our common stock. As of March 28, 2002, our
executive officers and directors beneficially own or control 2,579,549 shares, or 41%, of the outstanding common stock. For this purpose, beneficial ownership includes any shares a director or
executive officer can vote or transfer, shares subject to stock options and warrants that are exercisable currently or become exercisable within sixty (60) days and shares subject to
convertible securities that are convertible currently or within sixty (60) days. If our executive officers and directors choose to act or vote together, they will have the ability to influence
significantly all matters requiring the approval of our stockholders, including the election of directors and the approval of significant corporate transactions. Without the consent of these
stockholders, we could be prevented from entering into transactions that could be beneficial to us.

Our preferred stock has certain preferences over our common stock with regard to liquidation, and dividends and election of directors.

Our issued and outstanding preferred stock will begin to accrue dividends on March 31, 2003 at an annual rate equal to 8% of the purchase price of that
preferred stock. The preferred stock also has a liquidation preference equal to the purchase price for that preferred stock plus all accrued and unpaid dividends. The preferred stock is also subject
to redemption at our option on the fourth anniversary of
its issuance. If we fail to make that redemption, the holders of the preferred stock will become entitled to elect a majority of our Board of Directors. Prior to a failure to redeem the preferred
stock, holders of preferred stock are entitled to appoint one member to our board of directors and to appoint one observer.

Our ability to issue additional preferred stock may adversely affect the rights of our common stockholders and may make takeovers more difficult, possibly preventing you from
obtaining optimal share price.

Our Articles of Incorporation authorize the issuance of shares of "blank check" preferred stock, which would have the designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the Board of Directors will be empowered, without shareholder

25

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approval (but subject to applicable government regulatory restrictions), to issue additional preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect
the voting power or other rights of the holders of the common stock. In the event of an issuance, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of Centiv.

If we redeem our outstanding warrants, it may be disadvantageous to the warrant holders.

We may redeem outstanding warrants issued in connection with our initial public offering at a price of $.05 per warrant upon not less than 30 days' prior
written notice if the closing bid price of the common stock has averaged in excess of $9.80 per share for 30 consecutive trading days ending within 15 days of the notice of redemption. In
addition, we may redeem warrants issued in connection with the convertible preferred stock upon 15 business days notice at a price of $0.01 per share at any time that the closing price for the common
stock on the principal exchange or quotation system on which it is traded exceeds the exercise price of such warrant by 20% for 10 consecutive trading days (counting only those trading days in which
at least 25,000 shares are traded). Redemption of the warrants could force their holders to (i) exercise the warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so, (ii) sell the warrants at the then-current market price when they might otherwise wish to hold the warrants, or (iii) accept the nominal redemption price that,
at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants. The conditions required for us to redeem the warrants are not currently
satisfied, and, therefore, we do not anticipate redeeming the warrants in the foreseeable future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

The Company was subject to risk due to changes in interest rates in connection with its Loan and Security Agreement. The Loan and Security Agreement provided for
up to $1.5 million at interest rates of prime rate plus 2.5% per annum. The Company has paid off and cancelled this credit facility. Financial instruments that potentially subject the Company
to significant concentrations of credit risk consist principally of trade accounts receivable. Credit risks with respect to trade receivables are limited due to the diversity of customers comprising
the Company's customer base. The Company performs ongoing credit evaluations and charges uncollectible amounts to operations when they are determined to be uncollectible.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Consolidated Financial Statements beginning on page F-1. Consolidated condensed quarterly financial information on the Company is included in
Note 20 of Notes to the Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Upon recommendation of the audit committee, the board of directors dismissed PricewaterhouseCoopers LLP as the Company's independent accountants effective
November 13, 2000 and appointed Grant Thornton LLP as the Company's new independent accountants effective as of the same date.

The
independent accountants' reports of PricewaterhouseCoopers LLP on the consolidated financial statements of the Company for each of the fiscal years ended December 31, 1999 and
December 31, 1998 contained no adverse opinion or disclaimer of opinion and neither of those reports was qualified or modified as to uncertainty, audit scope or accounting principle.

26

---

During
the two fiscal years ended December 31, 1999 and December 31, 1998, and through the date of dismissal, the Company had no disagreements with PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the subject matter of the disagreement in connection with filings with the Securities and Exchange Commission.

PricewaterhouseCoopers
LLP furnished the Company with a letter addressed to the Securities and Exchange Commission stating that it agrees with the Company's statements. A copy of that
letter is filed as Exhibit 16.1 to the Company's Current Report on Form 8-K filed on November 16, 2000.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

The information relating to the Company's directors, nominees for election as directors and executive officers under the headings "Election of Directors",
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for the 2002 Annual Meeting of Shareholders is incorporated herein
by reference to such proxy statement.

ITEM 11. EXECUTIVE COMPENSATION.

The information under the headings "Executive Compensation" and "Director Compensation" in the Company's definitive proxy statement for the 2002 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information under the heading "Ownership of Centiv Common Stock" in the Company's definitive proxy statement for the 2002 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information under the heading "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for the 2002 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

|(a)(1) |  | Consolidated Financial Statements.                        
|------ |  | ----------------------------------------------------------
|       |  | Reports of Independent Accountants                        
|       |  | Consolidated Balance Sheets                               
|       |  | Consolidated Statements of Operations                     
|       |  | Consolidated Statements of Changes in Stockholders' Equity

27

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|       |  | Consolidated Statements of Cash Flows                                                          
|------ |  | -----------------------------------------------------------------------------------------------
|       |  | Notes to Consolidated Financial Statements                                                     
|(a)(2) |  | Consolidated Financial Statement Schedule for the Years Ended December 31, 2001, 2000 and 1999.

Schedule IIValuation
and Qualifying Accounts on page F-25.

All
other financial statement schedules are omitted because the information is not required, or is otherwise included in the Consolidated Financial Statements or the notes thereto
included in this Annual Report on Form 10-K.

Consolidated
condensed quarterly financial information on the Company is included in Note 20 of Notes to the Consolidated Financial Statements.

|(a)(3) |  | Exhibits.
|------ |  | ---------

The
following exhibits are filed with or incorporated by reference into this Annual Report on Form 10-K.

|EXHIBIT
NO. |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                                                                            
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Asset Purchase Agreement dated October 29, 2001 by and between Tekgraf, Inc. and SCB Acquisitions, LLC (Filed as Appendix A to the Company's Definitive Proxy Statement filed October 21, 2002 and incorporated herein by
reference).                                                                                             
|2.2         |  | Asset Purchase Agreement effective as of January 31, 2002 by and among CalGraph Technology Services, Inc.,, Centiv, Inc., the sole shareholder of CalGraph and Graphic Enterprises of Ohio, Inc. (Filed as Exhibit 99.2 to the
Company's Current Report on Form 8-K filed February 20, 2002 and incorporated herein by reference).
|3.1         |  | Restated Articles of Incorporation dated January 21, 2000 as amended December 31, 2001 and related Certificate of Designations filed March 28, 2002.                                                                                                                                                                              
|3.2         |  | Bylaws (Filed as Exhibit 3.1 to the Company's quarterly report filed on May 12, 2000 and incorporated herein by reference).                                                                                                                                                                                                       
|4.1         |  | Form of Securities Purchase Agreement dated March 28, 2002 by and among Centiv, Inc. and the purchasers identified on Exhibit A thereto.                                                                                                                                                                                          
|4.2         |  | Form of Investors Rights Agreement dated March 28, 2002 by and among Centiv, Inc. and the investors who are signatories thereto.                                                                                                                                                                                                  
|4.3         |  | Form of Warrant issued pursuant to Securities Purchase Agreement dated March 28, 2002 by and among Centiv, Inc. and the purchasers identified on Exhibit A thereto.                                                                                                                                                               
|10.1*       |  | Amended and Restated 1997 Stock Option Plan of the Company (Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference).                                                                                                                       
|10.2        |  | Escrow Agreement dated August 1997 (Filed as Exhibit 10.11 to the Registration Statement on Form S-1, No. 333-33449, and incorporated herein by reference).                                                                                                                                                                       

28

---

|10.3  |  | Indemnification Agreement dated 1997 (Filed as Exhibit 10.12 to the Registration Statement on Form S-1, No. 333-33449, and incorporated herein by reference).                                                                                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | Lease Agreement dated May 1, 1992 between Microsouth, Inc. and ASC North Fulton Associates Joint Venture (Filed as Exhibit 10.18 to the Registration Statement on Form S-1, No. 333-33449, and incorporated herein by
reference).                                                                                                                                                                              
|10.5  |  | Amended and Restated Loan and Security Agreement dated June 9, 2000 between Tekgraf, Inc., as Borrower and all Subsidiaries of Borrower, as Subsidiary Guarantors, and Wachovia Bank, National Association, as Lender (Filed as
Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference).                                        
|10.6  |  | Loan agreement between William Rychel and Tekgraf, Inc. dated December 1, 1999 (filed as Exhibit 8 to Schedule 13-D dated December 3, 1999 and incorporated herein by reference).                                                                                                                                                                                                                              
|10.7  |  | Amendment No. 1 to Loan Agreement between William M. Rychel and Tekgraf, Inc. dated as of December 1, 2000 (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 5, 2000 and
incorporated herein by reference).                                                                                                                                                                 
|10.8  |  | Amendment No. 2 to Loan Agreement between William M. Rychel and Tekgraf, Inc. dated as of December 1, 2001 (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 4, 2001 and
incorporated herein by reference).                                                                                                                                                                 
|10.9  |  | Asset purchase agreement dated October 31, 2000, between Anita Ltd., Micro Environments, LLC and Tekgraf, Inc. and related documents (Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 and incorporated herein by reference).                                                                                                                     
|10.10 |  | Settlement agreement and mutual releases dated December 21, 2000 (Filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on January 4, 2001 and incorporated herein by reference).                                                                                                                                                                                                            
|10.11 |  | Unsecured Installment Note dated December 21, 2000 (Filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on January 4, 2001 and incorporated herein by reference).                                                                                                                                                                                                                          
|10.12 |  | Amendment dated February 27, 2001 to the Amended and Restated Loan and Security Agreement dated June 9, 2000 between Tekgraf, Inc., as Borrower, and all Subsidiaries of Borrower, as Subsidiary Guarantors, and Wachovia Bank, National
Association, as Lender (Filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference).
|10.13 |  | Financial consulting agreement dated July 25, 2000, between Tekgraf, Inc. and LaSalle St. Capital Markets, Inc. (Filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                
|10.14 |  | Loan Agreement dated December 31, 2001 between Tekgraf, Inc. and Scott C. Barker and related Pledge and Security Agreement dated December 31, 2001.                                                                                                                                                                                                                                                            
|10.15 |  | Consulting Agreement dated July 3, 2001 between the Company and Piedmont Consulting, Inc. (Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein
by reference).                                                                                                                                                                

29

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|10.16 |  | Non-Competition and Confidentiality Agreement between William M. Rychel and the Company dated as of November 30, 2001 (Filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 4, 2001 and incorporated
herein by reference).
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11.1  |  | Statements of Computation of Earnings Per Share                                                                                                                                                                                                          
|21.1  |  | Subsidiaries                                                                                                                                                                                                                                             
|23.1  |  | Consent of Grant Thornton LLP                                                                                                                                                                                                                            
|23.2  |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                    

---

The
following reports on Form 8-K have been filed during the three months ended December 31, 2001:



30

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SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED THIS 28th DAY OF MARCH, 2002.

| |  | CENTIV, INC.(Registrant)
| |  | ------------------------
| |  | By:                     

PURSUANT
TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON
THE DATES INDICATED.

|SIGNATURE                                  |  | Title                                                                             |  | Date          
|------------------------------------------ |  | --------------------------------------------------------------------------------- |  | --------------
|                                           |  |                                                                                   |  |               
|/s/WILLIAM M. RYCHELWilliam M. Rychel      |  | Chief Executive Officer, President and Director (principal executive officer)     |  | March 28, 2002
|/s/THOMAS M. MASONThomas M. Mason          |  | Chief Financial Officer and Director (principal financial and accounting officer) |  | March 28, 2002
|/s/ALBERT E. SISTOAlbert E. Sisto          |  | Director                                                                          |  | March 28, 2002
|/s/FRANK X DALTON, JR.Frank X. Dalton, Jr. |  | Director                                                                          |  | March 28, 2002
|/s/STEVEN CARNEVALESteven Carnevale        |  | Director                                                                          |  | March 28, 2002

31

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Centiv, Inc.        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS        Financial Statements of Centiv, Inc.

|Report of Independent AccountantsGrant Thornton LLP         |  | F-2
|------------------------------------------------------------ |  | ---
|Report of Independent AccountantsPricewaterhouseCoopers LLP |  | F-3
|Consolidated Balance Sheets                                  |  | F-4
|Consolidated Statements of Operations                        |  | F-5
|Consolidated Statements of Changes in Stockholders' Equity   |  | F-6
|Consolidated Statements of Cash Flows                        |  | F-7
|Notes to Consolidated Financial Statements                   |  | F-8

F-1

---



INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders of Centiv, Inc.

We
have audited the accompanying consolidated balance sheets of Centiv, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Centiv, Inc. as of December 31,
2001 and 2000, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.

We
have also audited Schedule II for the years ended December 31, 2001 and 2000. In our opinion, this schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

|/s/ Grant Thornton, LLP                                                                     |  | 
|------------------------------------------------------------------------------------------- |  | 
|Chicago, Illinois
February 6, 2002, except for Note 17
for which the date is March 28, 2002 |  | 

F-2

---



REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors and Stockholders of Centiv, Inc. :

In
our opinion, the consolidated statement of operations, of changes in stockholders' equity and of cash flows for year ended December 31, 1999 present fairly, in all material
respects, the results of operations and cash flows of Centiv, Inc. and its subsidiaries for the year ended December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein for the year ended December 31, 1999, when read in conjunction with the related consolidated financial statements. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have not audited the
consolidated financial statements and financial statement schedule of Centiv, Inc. for any period subsequent to December 31, 1999.

|/s/ PricewaterhouseCoopers LLP |  | 
|------------------------------ |  | 
|                               |  | 

Atlanta,
Georgia
March 3, 2000 except for Note 15 regarding the
discontinuance of the Tekgraf Technology Services
Division, for which the date is October 31, 2000 and
regarding the discontinuance of the Channels Business,
for which the date is December 28, 2001

F-3

---



CENTIV, INC.        CONSOLIDATED BALANCE SHEETS        ($ in thousands)

|                                                                                                                                                                      |                                                                                                                        | DECEMBER 31, |                                           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------
|
|ASSETS                                                                                                                                                                |                                                                                                                        |              |                                           
|Current assets:                                                                                                                                                       |                                                                                                                        |              |                                           
|                                                                                                                                                                      | Cash and cash equivalents                                                                                              |              | $                                         
|                                                                                                                                                                      | Accounts receivable, less allowance for doubtful accounts of $145 and $160 at December 31, 2001 and 2000, respectively |              |                                           
|                                                                                                                                                                      | Inventories, net                                                                                                       |              |                                           
|                                                                                                                                                                      | Prepaid expenses and other assets                                                                                      |              |                                           
|                                                                                                                                                                      | Income taxes receivable                                                                                                |              |                                           
|                                                                                                                                                                      | Deferred income taxescurrent                                                                                          |              |                                           
|                                                                                                                                                                      | Net current assets, discontinued operations                                                                            |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total current assets                      
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|Property and equipment, net                                                                                                                                           |                                                                                                                        |              | 2,908                                     
|Deferred income taxes                                                                                                                                                 |                                                                                                                        |              | 0                                         
|Other assets                                                                                                                                                          |                                                                                                                        |              | 62                                        
|Net other assets, discontinued operations                                                                                                                             |                                                                                                                        |              | 0                                         
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total assets                              
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|LIABILITIES                                                                                                                                                           |                                                                                                                        |              |                                           
|Current liabilities:                                                                                                                                                  |                                                                                                                        |              |                                           
|                                                                                                                                                                      | Current debt                                                                                                           |              | $                                         
|                                                                                                                                                                      | Current note payable                                                                                                   |              |                                           
|                                                                                                                                                                      | Accounts payable                                                                                                       |              |                                           
|                                                                                                                                                                      | Accrued expenses                                                                                                       |              |                                           
|                                                                                                                                                                      | Contract obligation and deferred income                                                                                |              |                                           
|                                                                                                                                                                      | Net current liabilities, discontinued operations                                                                       |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total current liabilities                 
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|Deferred income taxes                                                                                                                                                 |                                                                                                                        |              | 157                                       
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total liabilities                         
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|STOCKHOLDERS' EQUITY                                                                                                                                                  |                                                                                                                        |              |                                           
|Class A Common Stock $.001 par value, 35,000,000 shares authorized; 4,956,535 and 5,061,998 shares issued and outstanding at December 31, 2001 and 2000, respectively |                                                                                                                        |              | 5                                         
|Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2001 and 2000                                         |                                                                                                                        |              | 0                                         
|Due from stockholders                                                                                                                                                 |                                                                                                                        |              | (2,366                                    
|Additional paid-in capital                                                                                                                                            |                                                                                                                        |              | 19,618                                    
|Accumulated deficit                                                                                                                                                   |                                                                                                                        |              | (16,645                                   
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total stockholders' equity                
|                                                                                                                                                                      |                                                                                                                        |              |                                           
|                                                                                                                                                                      |                                                                                                                        |              | Total liabilities and stockholders' equity
|                                                                                                                                                                      |                                                                                                                        |              |                                           

The accompanying notes are an integral part of these consolidated financial statements.

F-4

---

CENTIV, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        ($ in thousands, except per share data)

|                                                                                                                       |                                     | YEARS ENDED DECEMBER 31,                                                             |          
|---------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------------------------------------------------------ | ---------
|
|Net sales                                                                                                              |                                     | $                                                                                    | 19,793   
|Cost of goods sold                                                                                                     |                                     |                                                                                      | 16,013   
|                                                                                                                       |                                     |                                                                                      |          
|                                                                                                                       |                                     | Gross profit                                                                         |          
|Operating expenses:                                                                                                    |                                     |                                                                                      |          
|                                                                                                                       | Selling, general and administrative |                                                                                      |          
|                                                                                                                       | Depreciation                        |                                                                                      |          
|                                                                                                                       | Restructuring charges               |                                                                                      |          
|                                                                                                                       |                                     |                                                                                      |          
|                                                                                                                       |                                     | Income (loss) from operations                                                        |          
|Interest expense                                                                                                       |                                     |                                                                                      | 872      
|                                                                                                                       |                                     |                                                                                      |          
|                                                                                                                       |                                     | Income (loss) before provision (benefit) for income taxes from continuing operations |          
|Provision (benefit) for income taxes from continuing operations                                                        |                                     |                                                                                      | 783      
|                                                                                                                       |                                     |                                                                                      |          
|Gain/(loss) from continuing operations                                                                                 |                                     |                                                                                      | (3,818   
|Loss from discontinued operations (net of tax provision/(benefit) of $184 in 2001, $(793) in 2000, and $(854) in 1999) |                                     |                                                                                      | (3,081   
|                                                                                                                       |                                     |                                                                                      |          
|                                                                                                                       |                                     | Net loss                                                                             |          
|                                                                                                                       |                                     |                                                                                      |          
|Basic and diluted weighted average shares outstanding                                                                  |                                     |                                                                                      | 4,976,024
|                                                                                                                       |                                     |                                                                                      |          
|Basic and Diluted Income/(Loss) applicable to common shares                                                            |                                     |                                                                                      |          
|                                                                                                                       |                                     | Continuing operations                                                                |          
|                                                                                                                       |                                     | Discontinued operations                                                              |          
|                                                                                                                       |                                     |                                                                                      |          
|                                                                                                                       |                                     | Net loss                                                                             |          
|                                                                                                                       |                                     |                                                                                      |          

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---



CENTIV, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)

|                                                           |          | NUMBER
OF SHARES
CLASS A |   | CLASS A
COMMON
STOCK |    | NUMBER
OF SHARES
CLASS B |            | CLASS B
COMMON
STOCK |   | DUE FROM
STOCK-
HOLDERS |   | ADDITIONAL
PAID-IN
CAPITAL |        | RETAINED
EARNINGS
(ACCUMULATED
DEFICIT) |   | TOTAL  |  
|---------------------------------------------------------- | -------- | ------------------------ | - | -------------------- | -- | ------------------------ | ---------- | -------------------- | - | ----------------------- | - | -------------------------- | ------ | --------------------------------------- | - | ------ | -
|Balances, December 31, 1998                                |          | 3,169,165                |   | $                    | 3  |                          | 3,159,166  |                      | $ | 3                       |   | $                          | (608   | )                                       | $ | 22,557 |  
|Due from acquisition stockholders, net                     |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            | 595    |                                         |   |        |  
|Loan to stockholder                                        |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            | (1,767 | )                                       |   |        |  
|Conversion of Class B Common Stock to Class A Common Stock |          | 32,867                   |   |                      |    |                          | (32,867    | )                    |   |                         |   |                            |        |                                         |   |        |  
|                                                           | Net loss |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|                                                           |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|Balances, December 31, 1999                                |          | 3,202,032                |   | $                    | 3  |                          | 3,126,299  |                      | $ | 3                       |   | $                          | (1,780 | )                                       | $ | 22,557 |  
|Interest on loan to Stockholder                            |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            | (161   | )                                       |   |        |  
|Stock options and warrants issued for services             |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   | 70     |  
|Conversion of Class B Common Stock to Class A Common Stock |          | 3,126,299                |   |                      | 3  |                          | (3,126,299 | )                    |   | (3                      | ) |                            |        |                                         |   |        |  
|Repurchase of Dissenters' shares                           |          | (1,266,333               | ) |                      | (1 | )                        |            |                      |   |                         |   |                            |        |                                         |   | (3,106 | )
|                                                           | Net loss |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|                                                           |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|Balances, December 31, 2000                                |          | 5,061,998                |   | $                    | 5  |                          | 0          |                      | $ | 0                       |   | $                          | (1,941 | )                                       | $ | 19,521 |  
|Loan to shareholders                                       |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            | (250   | )                                       |   |        |  
|Interest on loan to Stockholder                            |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            | (175   | )                                       |   |        |  
|Stock options and warrants issued for services             |          | 30,000                   |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   | 97     |  
|Escrow shares cancellation                                 |          | (135,463                 | ) |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|                                                           | Net loss |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|                                                           |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  
|Balances, December 31, 2001                                |          | 4,956,535                |   | $                    | 5  |                          | 0          |                      | $ | 0                       |   | $                          | (2,366 | )                                       | $ | 19,618 |  
|                                                           |          |                          |   |                      |    |                          |            |                      |   |                         |   |                            |        |                                         |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.

F-6

---

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

|                                                                                                  |                                                      | YEARS ENDED DECEMBER 31,                |        
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------- | -------
|
|Cash flows from operating activities:                                                             |                                                      |                                         |        
|Net loss                                                                                          |                                                      | $                                       | (6,899 
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities:         |                                                      |                                         |        
|                                                                                                  | Provision for doubtful accounts receivable           |                                         |        
|                                                                                                  | Provision /write-down of inventory                   |                                         |        
|                                                                                                  | Depreciation                                         |                                         |        
|                                                                                                  | Valuation reserve for deferred tax asset             |                                         |        
|                                                                                                  | Gain on sale of Prisym Technologies, Inc. of Georgia |                                         |        
|                                                                                                  | Non-cash interest on note payable                    |                                         |        
|                                                                                                  | Non-cash compensation for warrants and stock options |                                         |        
|                                                                                                  | Loss on sale of Channels Business                    |                                         |        
|                                                                                                  | Deferred taxes                                       |                                         |        
|                                                                                                  | Changes in net assets and liabilities                |                                         |        
|                                                                                                  |                                                      | Accounts receivable                     |        
|                                                                                                  |                                                      | Inventories                             |        
|                                                                                                  |                                                      | Prepaid expenses and other assets       |        
|                                                                                                  |                                                      | Accounts payable and accrued expenses   |        
|                                                                                                  |                                                      | Deferred income and contract obligation |        
|                                                                                                  |                                                      | Income taxes                            |        
|                                                                                                  |                                                      | Net assets, discontinued operations     |        
|                                                                                                  |                                                      |                                         |        
|Total adjustments                                                                                 |                                                      |                                         | 14,701 
|                                                                                                  |                                                      |                                         |        
|Net cash provided by (used in) operating activities                                               |                                                      |                                         | 7,802  
|                                                                                                  |                                                      |                                         |        
|Cash flows from investing activities:                                                             |                                                      |                                         |        
|Purchase of property and equipmentcontinuing operations                                          |                                                      |                                         | (1,455 
|Purchase of property and equipmentdiscontinued operations                                        |                                                      |                                         | 0      
|Proceeds from sale of Prisym Technologies, Inc. of Georgia                                        |                                                      |                                         | 0      
|Cash paid for acquisitions, including overdrafts acquired from acquisitions and acquisition costs |                                                      |                                         | 0      
|Proceeds from sale of Channels Business                                                           |                                                      |                                         | 5,931  
|                                                                                                  |                                                      |                                         |        
|Net cash provided by (used in) investing activities                                               |                                                      |                                         | 4,476  
|                                                                                                  |                                                      |                                         |        
|Cash flows from financing activities:                                                             |                                                      |                                         |        
|Proceeds, net, from credit facility                                                               |                                                      |                                         | (10,347
|Payments from stockholders for deficient net asset values                                         |                                                      |                                         | 0      
|Dissenters' settlement payments                                                                   |                                                      |                                         | (1,769 
|Loan to stockholder                                                                               |                                                      |                                         | (425   
|                                                                                                  |                                                      |                                         |        
|Net cash provided by (used in) financing activities                                               |                                                      |                                         | (12,541
|                                                                                                  |                                                      |                                         |        
|Increase (decrease) in cash and cash equivalents                                                  |                                                      |                                         | (263   
|Cash and cash equivalents, beginning of year                                                      |                                                      |                                         | 491    
|                                                                                                  |                                                      |                                         |        
|Cash and cash equivalents, end of year                                                            |                                                      | $                                       | 228    
|                                                                                                  |                                                      |                                         |        
|Supplemental disclosure of cash flow information:                                                 |                                                      |                                         |        
|Cash paid during the year for interest                                                            |                                                      | $                                       | 1,046  
|                                                                                                  |                                                      |                                         |        
|Cash paid during the year for income taxes                                                        |                                                      | $                                       | 0      
|                                                                                                  |                                                      |                                         |        
|Divestiture of Tekgraf Systems, Inc. in exchange for Dissenters' shares stock                     |                                                      | $                                       | 0      
|                                                                                                  |                                                      |                                         |        
|Note payable for Dissenter's settlement in exchange for Dissenters' shares                        |                                                      | $                                       | 0      
|                                                                                                  |                                                      |                                         |        

The accompanying notes are an integral part of these financial statements.

F-7

---



CENTIV, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, BASIS OF PRESENTATION, AND NATURE OF OPERATIONS



In 1997, Centiv, Inc. (the "Company") was created from a merger of five wholesale distributors specializing in computer graphics products and a
manufacturer of personal computers and servers. In 1998, the Company acquired three additional wholesale distribution companies, and, in 1999, acquired a field service company, Calgraph Technology
Services, Inc. The Company integrated the businesses and distribution systems and became a leader in the distribution of computer graphics technologies through value-added resellers, system
integrators, retailers, mass merchandisers and direct marketers.

Utilizing
its expertise in the computer graphics market and innovation, Centiv expanded its service offering to provide clients a unique opportunity to increase the visibility of their
products at the retail level and make the greatest impact on the consumer through digital "Point-of-Purchase" (POP) merchandising.

During
2001, the Company decided to focus on and dedicate its resources to its POP business. To further that goal, in December 2001, the Company sold its Channels Business and,
effective January 31, 2002, the Company sold Calgraph Technology Services, Inc. During most of 2001, however, Centiv was organized into three distinct business units:



The consolidated financial statements are prepared on the basis of generally accepted accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at December 31, 2001 and 2000, and
reported amounts of revenues and expenses for each of the three years in the period ended December 31, 2001, 2000 and 1999. Significant estimates primarily include those made for the allowance
for doubtful accounts, reserves for obsolete and slow-moving inventory and valuation allowance for deferred tax assets. Actual results could differ from those estimates made by management.

F-8

---



Centiv offers web services for consumer brand companies to manage their in-store and on-premise point-of-purchase
(POP) process. The final product is high quality digitally produced signage that is mass customized for the unique requirements of each retail location.

The
CalGraph Technology Services business provides on-site installation support, service and warranty repair, and preventative maintenance services in North America. The
business includes the maintenance and repair of the Calcomp, Epson and Canon wide-format printers and plotter products in the U.S. and Canada. The world-wide parts business
involves the supply of Calcomp printer parts and components to successors of Calcomp's service divisions outside the U.S. and Canada. This business was sold effective January 31, 2002. (see
Note 16)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inherent in the accompanying consolidated financial statements are certain risks and uncertainties. These risks and uncertainties include, but are not limited to
the impact of competitive products, competition, available sources of supply and various technology related risks.



The Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents.



Inventories are stated at the lower of cost or market (determined principally by the first-in, first-out method, which approximates
average cost). The Company maintains a reserve for its estimate of excess, obsolete and damaged goods. In most instances, the Company receives warranties on its products from its vendors that are at
least equivalent to those it provides to its customers.



Property and equipment are stated at cost. Property and equipment are depreciated on a straight-line basis over their estimated useful lives, which
generally range from 3 to 7 years. Amounts expended for maintenance and repairs are charged to expense as incurred. Upon disposition, both the related cost and accumulated depreciation accounts
are relieved and the related gain or loss is credited or charged to operations.



Sales are recognized upon the shipment of products to the customer. Service revenue represents amounts earned by providing equipment maintenance services. Where
such services are provided under annual agreements, revenues are recognized on a pro rata basis over the periods of the agreements. Other service revenues are recognized when the services are
performed.

Concentration
of credit risk with respect to trade accounts receivable is generally diversified due to the number of entities comprising the Company's customer base. The Company performs
ongoing credit evaluations and provides an allowance for potential credit losses against the portion of

F-9

---

accounts receivable which is estimated to be uncollectible. Such losses have historically been within management's expectations.



The provision for income taxes and corresponding balance sheet accounts are determined in accordance with SFAS No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax liabilities and assets are determined based on temporary differences between the bases of certain assets and liabilities for income tax and
financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.



The Company's financial instruments include its debt obligations. Management believes that these instruments bear interest at rates that approximate prevailing
market rates for instruments with similar characteristics and, accordingly, that the carrying values for these instruments are reasonable estimates of fair value.

3. INVENTORIES

Inventories, net of reserves, at December 31, 2001 and 2000 consist of the following:

2001

2000Service Parts

$
1,870

$
1,970Finished goods


978


998Inventories, net

$
2,848

$
2,968


4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net of accumulated depreciation, at December 31, 2001 and 2000, consists of the following:

2001

2000($ in thousands)Furniture and fixtures

$
614

$
359Computer equipment


792


437Computer software


2,274


1,432Leasehold improvements


176


1733,856


2,401Less: accumulated depreciation


(948
)

(373
)Property and equipment, net

$
2,908

$
2,028


F-10

---

5. CURRENT DEBT

In December 2001, as part of the sale of the Channels Business, the Company agreed to reduce its credit line under its Loan and Security Agreement (the
"Agreement") to $2.5 million. In addition, the Company agreed to maintain a pretax loss of no greater the $125,000 per month effective January 2002 and to the expiration of the Agreement
as of March 31, 2002. Effective as of January 31, 2002, the Calgraph Technology Services Business was sold (See Note 16 to Notes to Consolidated Financial Statements), and the
Company agreed to reduce its credit line to $1.5 million. Outstanding advances under the Agreement bear interest at the Prime Interest Rate plus 2.5%.

Pursuant
to the terms of the Agreement, the Company pledged accounts receivables, inventory and equipment as collateral. In accordance with the Agreement, the Company was required to
maintain certain financial covenants, which specifically included a debt to equity ratio and a fixed charge
coverage ratio. During the years ended December 31, 2001 and 2000, the Company borrowed $64.4 million and $32.5 million, respectively, and repaid $74.7 million and
$25.6 million, respectively, under this credit facility. As of December 31, 2001 and 2000, the Company had an outstanding balance of $795,000 and $11.1 million, respectively,
under the credit facility. The reduction of debt is partially attributable to the Company using the proceeds from the sale of the Channels Business to repay the credit facility. (see Note 15)

The
Company was below the fixed charge coverage ratio required under the Agreement and has obtained a waiver from the bank for the year ended December 31, 2001.

A
subsequent event occurred on March 28, 2002 (see Note 17) in which the Company issued convertible preferred stock and warrants of $2.0 million. A portion of the
proceeds was used to pay off and cancel the Company's current credit facility with the bank. The Company is currently pursuing a new credit facility and expects to have a new agreement in place during
the second quarter of 2002.

6. INCOME TAXES

The provision (benefit) for income taxes for the years ended December 31, 2001, 2000 and 1999 is as follows:

2001

2000

1999($ in thousands)CurrentFederal

$
0

$
(600
)
$
66State


0


(112
)

13Subtotal Current

$
0

$
(712
)
$
79DeferredFederal

$
(953
)
$
(380
)
$
(172
)State


(135
)

(33
)

(15
)Change in valuation allowance


2,055


0


0Subtotal Deferred

$
967

$
(413
)
$
(187
)Total Provision/(Benefit)

$
967

$
(1,125
)
$
(108
)


F-11

---

A
reconciliation of federal statutory and effective income tax rates is as follows:

2001

2000

1999Statutory U.S. federal income tax rate

(34.0
)%
(34.0
)%
(34.0
)%Effect of:State income taxes, net of federal benefit

(3.0
)
(3.3
)
(0.5
)Nondeductible goodwill amortization

12.2

1.8

31.6Nondeductible meals and entertainment

0.3

0.9

0.2Nondeductible foreign loss

0.1

0.6

1.1Return to accrual reconciliation

1.8

0.4

0Sale of Channels business

3.1

0

0Valuation reserve for NOL carry forward

34.7

0

0Other, net

1.1

1.1

0.1Effective income tax rate

16.3
%
(32.5
)%
(1.5
)%


An
analysis of the deferred income tax assets and liabilities at December 31, 2001 and 2000 is as follows:

2001

2000($ in thousands)Current deferred income tax assets:Accounts receivable

$
56

$
195Inventory


52


152Vacation


43


46Warranty


81


0Restructuring accruals


38


155263A Capitalization


33


76NOL carry forward


0


0Total current deferred income tax assets

$
303

$
624Noncurrent deferred income tax assets:Net operating loss carryforward


2,055


625Valuation allowance on net operating loss carryforward


(2,055
)

0Other


0


7Total non-current deferred income tax asset

$
0

$
632Noncurrent deferred income tax liabilities, netSection 475 adjustment


0


(54
)Depreciation


(103
)

(241
)Other


(55
)

0Total noncurrent deferred income tax liabilities


(157
)

(295
)Noncurrent deferred income tax asset (liability), net

$
(157
)
$
337


The
Company maintains a valuation allowance with respect to deferred tax assets as a result of the uncertainty of ultimate realization. At December 31, 2001, the Company had net
operating loss carryforwards of approximately $5,295, expiring in various years through 2021.

F-12

---

7. COMMITMENTS AND CONTINGENCIES



The Company leases office space under various operating leases that expire through 2008. At December 31, 2001, minimum rentals due under these leases were
as follows (in thousands):

2002

$
5582003


4112004


2972005


2162006


2222007


2282008


110$
2,042


Rent
expense for the years ended December 31, 2001, 2000 and 1999 was approximately $886,000, $804,000 and $887,000, respectively.

The
Company sold the Calgraph Technology Services Business on January 31, 2002 (see Note 16) and the lease obligations were transferred with the sale of the business. The
following table reflects the minimum lease rentals due after the sale of the Calgraph Technology Services Business (in thousands):

2002

$
3282003


2052004


2112005


2162006


2222007


2282008


110$
1,520




The Company is currently in negotiations to resolve the outstanding issues surrounding the termination of a vendor contract. The final amount of the liability has
not yet been determined.

8. LITIGATION

The Company is involved in certain claims arising in the normal course of business. In the opinion of management of the Company, although the outcomes of the
claims are uncertain, in the aggregate, they are not likely to have a material adverse effect on the Company.

9. CAPITAL STRUCTURE

On November 11, 1997, in connection with the initial public offering of the Company's securities, 2,100,000 units were issued. Each unit consisted of one
share of Class A Common Stock and one

F-13

---

Redeemable Warrant. The Class A Common Stock and Redeemable Warrant were transferable separately immediately upon issuance.



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



Each Redeemable Warrant entitles the registered holder to purchase one share of Class A Common Stock at an exercise price of $8.40 at any time until the
fifth anniversary of the date of issue, which is November 10, 2002. Beginning on the first anniversary of the date of issue, the Redeemable Warrants are redeemable by the Company on
30 days written notice and at a redemption price of $.05 per Redeemable Warrant if the closing price of the Class A Common Stock for any 30 consecutive trading days ending within
15 days of the notice of redemption averages in excess of $11.75 per share. All Redeemable Warrants must be redeemed if any are redeemed. The Company has reserved from its authorized but
unissued shares a sufficient number of shares of Class A Common Stock for issuance upon the exercise of the Redeemable Warrants. The Redeemable Warrants do not contain any voting or other
rights of a stockholder of the Company.



On January 21, 2000, the Company eliminated its dual class of stock and all outstanding shares of Class B Common Stock were converted into
Class A Common Stock on a one-for-one basis. On May 1, 1997, the Company increased the outstanding shares from 100 to 3,424 by declaring a
34.24-for-1 stock
split of the Company's common stock (par value of $1.00). On June 2, 1997, the Company declared a 400-for-1 stock split of the Company's common stock pursuant to which
all of the Company's outstanding common stock was exchanged for 4,000,000 shares of Class B Common Stock with a par value of $.001. During October 1997, the Company effected a
..83333325-for-1 reverse stock split pursuant to which the outstanding shares of Class B Common Stock were exchanged for 3,333,333 shares of Class B Common Stock.
Each share of Class B Common Stock was entitled to five votes on all matters on which stockholders may vote, including the election of directors. Each share of Class B Common Stock was
automatically converted into one share of Class A Common Stock upon (i) its sale, gift of transfer, except in the case of a transfer to a trust for which the original holder acts as sole
trustee or to any other holder of Class B Common Stock, (ii) the death of the original holder thereof, including in the case of the original holder having transferred the Class B
Common Stock to a trust for which the original holder served as trustee during his or her lifetime, or (iii) the conversion of an aggregate of 75% of the authorized shares of Class B
Common Stock.



In connection with the Company's initial public offering of its securities, the holders of the Company's Class B Common Stock agreed to place an aggregate
of 166,667 shares into escrow. As part of the settlement of a claim brought by former dissenting shareholders in connection with the conversion of the Class A Common Stock, 57,067 escrow shares
have been forfeited. In March 2001, the remaining 109,600 escrow shares expired and were cancelled. In addition, there were 25,863 shares cancelled relating to the shares held in escrow for the
1998 acquisitions. These shares were cancelled as a result of not achieving certain profit targets.

F-14

---

The
number of outstanding shares does not include 228,266 shares held in escrow in connection with an acquisition by the Company pursuant to a Pledge, Security and Escrow Agreement dated
June 2, 1997. All of the interest in and title to these 228,266 shares was transferred to Anita Ltd. and then subsequently transferred to the Company as part of a Settlement Agreement
and Mutual Releases dated as of December 21, 2000. These shares will ultimately be released from the escrow to the Company and will be cancelled. Therefore, the Company has, for accounting
purposes, treated these shares as cancelled effective as of December 21, 2000.



On June 2, 1997, the Company authorized 5,000,000 shares of preferred stock. The Board of Directors has the authority to issue the preferred stock in one
or more series and to fix the number of shares and the relative rights, conversion rights, voting rights and terms of redemption and liquidation preferences,
without further vote or action by the stockholders. There were no outstanding shares of preferred stock as of December 31, 2001.

Subsequent
to year end, on March 28, 2002, the Company issued, in a private placement, 216,000 units, each consisting of one share of convertible preferred stock and one warrant
to purchase one additional share of convertible preferred stock. (see Note 17)

10. STOCK OPTION PLAN

During August 1997, the Company's Board of Directors and stockholders approved the 1997 Stock Option Plan (the "Plan") covering 300,000 shares of the
Company's Class A Common Stock that may be granted to employees, officers, directors, and certain consultants or advisers to the Company. In May 1999, the Board of Directors and
shareholders approved a Plan amendment to increase the number of shares of Class A Common Stock reserved for issuance there under from 300,000 to 600,000. In May 2000, the Board of
Directors and shareholders approved a Plan amendment to increase the number of shares of Class A Common Stock reserved for issuance thereunder from 600,000 to 1,000,000. In May 2001, the
Board of Directors and shareholders approved a plan amendment to increase the number of shares of Class A Common Stock reserved for issuance thereunder from 1,000,000 to 1,250,000. Options
granted under the Plan may be either (i) options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code or (ii) non-qualified
stock options. Incentive options granted under the Plan are exercisable for a period of up to ten years from the date of grant at an exercise price that is not less than the fair market value of the
stock on the date of grant, except that the term of an incentive option granted under the Plan to a stockholder owning more than 10% of the outstanding voting power may not exceed five years and its
exercise price may not be less than 110% of the fair market value of the stock on the date of grant. In addition, to the extent that the aggregate fair market value, as of the date of grant, of the
stock for which incentive options become exercisable for 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 be treated as a non-qualified option. The Company's Board of Directors administers the Plan, which expires in August 2007. The Company has 314,413 stock options
available for future grant at December 31, 2001.

F-15

---

The
sale of the Channels Business (See Note 15) involved five members of management whose stock options vested immediately upon the consummation of the Channels Business
transaction with the vesting period extended to one year or December 28, 2002. The Company recorded an expense of $60,528 relating to the accelerated vesting and extension of the vesting period
of the stock options for the five members of management.

A
summary of stock options as of December 31, 2001, 2000 and 1999 and activity during the period ending those dates is as follows:

|                                     |  | 2001     |   | 2000 |  | 1999    
|------------------------------------ |  | -------- | - | ---- |  | --------
|
|
|Options at beginning of period       |  | 596,837  |   | 2.12 |  | 275,500 
|Granted                              |  | 510,500  |   | 0.62 |  | 446,837 
|Exercised                            |  | 0        |   |     |  | 0       
|Forfeited                            |  | (171,750 | ) | 1.86 |  | (125,500
|                                     |  |          |   |      |  |         
|Outstanding at the end of period     |  | 935,587  |   | 1.35 |  | 596,837 
|Options exercisable at end of period |  | 433,546  |   | 1.75 |  | 170,087 

Weighted
average fair value of options granted during the period are as follows:

|                                 |  | 2001 |  | 2000 |  | 1999
|-------------------------------- |  | ---- |  | ---- |  | ----
|
|Option granted during the year   |  |      |  |      |  |     
|Option price > fair market value |  | 0.52 |  | 0.47 |  |    
|Option price =fair market value  |  | 0.65 |  | 0.65 |  | 1.91
|Option price < fair market value |  |     |  |     |  |    

The
Company applies APB Opinion No. 25 ("APB 25") and related Interpretations in accounting for the Plan. The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123") changing the methods for recognition of cost on plans similar to those of the Company. Adoption of the accounting provisions of
FAS 123 is optional; however, pro forma disclosures as if the Company adopted the cost recognition requirements under FAS 123 are required.

F-16

---

The weighted average fair value of stock options granted during 2001, 2000 and 1999 was $0.62, $1.91, and $1.50, respectively. Had compensation cost for the Plan been determined on a
fair value basis in accordance with the provisions of FAS 123, the Company's net income (loss) for the three years ended December 31, 2001, 2000 and 1999 would have been as follows:

2001

2000

1999($ in thousands)Net income (loss)as reported

$
(6,888
)
$
(2,334
)
$
(7,118
)Net income (loss)pro forma

$
(7,457
)
$
(2,470
)
$
(7,173
)Earnings per sharepro forma

$
(1.50
)
$
(0.40
)
$
(1.18
)


The
amount of the pro forma charge has been determined using the Black-Scholes model, as permitted by FAS 123. For purposes of the calculation, management used a weighted average
interest rate of 5.70% 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.

11. THIRD PARTY STOCK WARRANTS

On July 3, 2001, the Company entered into an agreement with one service provider whereby the Company granted 60,000 warrants. On the date of grant, these
options had an estimated fair value aggregating $29,700 using the Black-Scholes option model. On October 12, 2001, the Company entered into an agreement with one service provider whereby the
Company granted 12,000 warrants. On the date of grant, these options had an estimated fair value aggregating $3,912 using the Black-Scholes option model. The Company's operations for the year ended
December 31, 2000 include non-cash charges of $33,612 relating to the warrants.

12. NET INCOME (LOSS) PER COMMON SHARE

Potential common stock is in the form of stock options and warrants that do not have an effect on the 2000, 1999 and 1998 diluted net income (loss) per common
share calculations. The following table presents information necessary to calculate basic and diluted EPS for the years ended December 31, 2001, 2000 and 1999:

2001

2000

1999Weighted average shares outstanding

4,976,024

6,239,966

6,328,331Escrow shares

0

(109,600
)
(166,667
)4,976,024

6,130,366

6,161,664


13. RELATED PARTY TRANSACTIONS

On December 1, 1999, the Company entered into a Loan Agreement with William M. Rychel pursuant to which the Company loaned Mr. Rychel a total of
$1,775,000 to purchase from certain shareholders a total of 806,983 shares of our common stock. The original term of the loan was one year which the Company extended until December 1, 2001 and,
on December 1, 2001, the Company entered into another amendment with Mr. Rychel that extended the due date of the loan until December 1, 2002. In exchange for extending the loan,
Mr. Rychel agreed to a non-compete

F-17

---

and a confidentiality and assignment of inventions agreement. The loan is measured for impairment based on the underlying collateral or other assets available to repay the loan. A loan is considered
impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The
Company's ability to collect amounts due according to the contractual terms of the Loan Agreement is largely dependent on the ultimate realization from the sale of assets owned by Mr. Rychel,
including his investment in common stock in the Company. When determining the fair value of investments in common stock, the Company considers both the current market price and volatility in the stock
price.

Upon
consummation of the Channels Business transaction, Centiv made loans to three former members of Centiv's management team involved in the transaction. A loan in the amount of
$200,000 was made to Scott Barker. This loan is secured by 100,000 shares of Centiv common stock owned by Mr. Barker and will bear interest at a rate of 25 basis points over the current rate on
the Company's senior debt facility, as adjusted from time to time. The principal amount of this loan plus accrued interest shall be due and payable 24 months following the date of the loan.
Upon the completion of the Channels Business transaction, the Company also made loans to Dave Boston and Pat McLaughlin on the same terms and conditions in the amounts of $30,000 and $20,000,
respectively.

14. RESTRUCTURING CHARGES AND OTHER EXPENSES

During 2000, the Company continued its consolidation and centralization effort. Therefore, the Company recorded a restructuring charge of $541,000 relating to the
Channels Business' employee severance and leased premises no longer necessary to the Company during the fourth quarter of 2000. The restructuring charges were recorded in discontinued operations for
the year ended December 31, 2000.

The
following table provides a rollforward of the liabilities incurred in connection with the 2000 business restructuring.

|Type of Cost         |       | December 31,
2000
Balance |     | 2001
Restructuring
Charges
Against the
Reserve |   | 2001
Restructuring
Accrual |      | December 31,
2001
Balance
|-------------------- | ----- | ------------------------- | --- | ---------------------------------------------- | - | -------------------------- | ---- | -------------------------
|
|Employee Separations |       | $                         | 157 |                                                | $ | (146                       | )    | $                        
|Facility Closings    |       |                           | 399 |                                                |   | (315                       | )    |                          
|                     |       |                           |     |                                                |   |                            |      |                          
|                     | Total |                           | $   | 556                                            |   | $                          | (461 | )                        
|                     |       |                           |     |                                                |   |                            |      |                          

For
the year ended December 31, 2001, the 2000 restructuring reserve balances were reduced by $461,000. Employee separations of $146,000 and facility closings of $315,000 were
charged against the restructuring reserve for the year ended December 31, 2001, relating to the 2000 restructuring reserve. As mentioned above, a restructuring reserve was established in 2000,
to continue the consolidation and centralization of the Company. The

F-18

---

reserve consists of $11,000 of employee separations and $84,000 relating to facility closings. The restructuring reserve balance is $95,000 as of December 31, 2001.

15. DISCONTINUED OPERATIONS



As of December 31, 2001, the Company sold the assets of its Channels Business to TK Acquisition Corporation, as successor by merger to SCB Acquisitions, in
exchange for a purchase price of $7,905,000 in cash, subject to a post-closing adjustment based upon fluctuations in working capital from June 30, 2001 and December 31, 2001.
The post closing adjustment was $1,598,573. Another adjustment to the purchase price is the net asset value adjustment, which is the amount by which the book value of the net assets (defined as
accounts receivable, inventory, prepaid expenses and other assets included in the purchased assets excluding fixed assets less the liabilities and accrued expenses assumed by TK Acquisition) has
increased or decreased from June 30, 2001 to the closing of the Channels Business transaction of December 31, 2001. This net asset adjustment is estimated to be a further reduction in
the purchase price of $54,000, bringing the net purchase price after adjustments to $6,252,427 before transaction costs. The Company recorded $404,000 of transaction costs associated with financial
advisor fees, legal and accounting fees.

The
Channels Business produced $48.4 million in revenue and had a pre-tax operating loss of $722,000 for the year ended December 31, 2001. The sale of the
Channels Business resulted in a pre-tax loss of $2,175,000, which is comprised of the difference between the purchase price and the book value of the net assets and transaction fees
associated with the sale of the business. The Company wrote off the deferred tax asset of $184,000 associated with the Channels Business.

The
Company's 2001, 2000 and 1999 consolidated financial statements have been reclassified to report separately the results of operations for the Channels Business. The operating results
for the year ended December 31, 2001 of the discontinued Channels Business consist of:

Year endedDecember 31,
2001

December 31,
2000

December 31
1999($ in thousands)Net sales:

$
48,403

$
72,854

$
80,122Loss from operations before income taxes


(722
)

(2,144
)

(8,702
)Loss on sale of business


(2,175
)

0


0(Benefit)/provision from income taxes


184


(721
)

(751
)Loss from discontinued operations

$
(3,081
)
$
(1,423
)
$
(7,951
)


F-19

---



Year endedDecember 31,
2001

December 31,
2000($ in thousands)Current assets

$
9,236

$
18,161Other assets


2,569


2,991Total assets


11,805


21,152Current liabilities


(3,781
)

(6,935
)Total net assets


8,024


14,217




As of October 31, 2000, the Company sold the assets of its Tekgraf Systems Division to Micro Environments, LLC, a limited liability company, controlled by
Anita, Ltd., one of the dissenting shareholders in the Dissenter's Lawsuit. As consideration for the assets of the Tekgraf Systems division, Anita, Ltd. transferred to the Company
375,752 shares of Class A common stock in partial settlement of the Dissenter's Lawsuit. Tekgraf Systems is an integrator of desktop PC's and servers. The division produced $6.0 million
in revenue and had an pre-tax operating loss of $190,000 for the ten months ended October 31, 2000.

The
Company's 1999 and 1998 consolidated financial statements have been reclassified to report separately the results of operations for the Tekgraf Technology Systems Division. The
operating results (in thousands) for the year ended December 31, 2000 of the discontinued Tekgraf Systems Division consist of:

Year endedDecember 31,
2000

December 31,
1999($ in thousands)Net sales:

$
6,747

$
8,532Loss from operations before income taxes


(190
)

(271
)Benefit from income taxes


(72
)

(103
)Loss from discontinued operations

$
(118
)
$
(168
)


16. SUBSEQUENT EVENTSALE OF CALGRAPH TECHNOLOGY SERVICES BUSINESS

On February 6, 2002, the Company sold the assets of the Calgraph Technology Services Business to Graphic Enterprises of Ohio, Inc. The effective
date of the transaction was January 31, 2002. Centiv received consideration for the sale of the Calgraph assets in the amount of $1,050,000 in cash plus a minimum royalty of $625,000 to be paid
over a 25 month period beginning in May 2002. Graphic Enterprises also assumed certain liabilities of Calgraph. The Company realized a pre-tax gain on the sale of $586,000,
which is the cash received plus the present value of the royalty payments less the book value of the net assets and less transaction fees associated with the sale of the business. In addition, the
Company will write off the deferred tax asset of $97,000 relating to the Calgraph Technology Services Business. The pretax loss from operations for Calgraph Technology Services Business in
January 2002 was $108,000.

F-20

---

17. SUBSEQUENT EVENTCAPITAL INVESTMENT

On March 28, 2002, the Company sold, in a private placement, 216,000 units, each consisting of one share of convertible preferred stock and one warrant to
purchase one additional share of convertible preferred stock. The purchase price for each unit was $10.00 per unit. Because each share of convertible preferred stock is convertible, initially, into
ten shares of common stock, the effective purchase price was $1.00 for each share of common stock purchased. The warrant that is included in each unit gives the holder the right, until five years
after the issuance of the warrant, to purchase one share of convertible preferred stock at a purchase price of $15.00 per share (the equivalent of $1.50 per share of common stock). Neither the
convertible preferred stock nor the warrants have been registered under the Securities Act of 1933. Therefore, they may not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements.

The
convertible preferred stock has a liquidation preference over common stock equal to the purchase price of the convertible preferred stock plus any accrued but unpaid dividends. If
not previously converted, the convertible preferred stock will begin to accrue dividends on March 31, 2003 at an annual rate equal to 8% of the purchase price of the convertible preferred
stock. In addition, if not previously converted into common stock, the convertible preferred stock is subject to redemption at the option of the Company on the fourth anniversary of the issuance of
the convertible preferred stock at a redemption price equal to the purchase price plus any accrued but unpaid dividends. If the Company fails to redeem the convertible preferred stock on that date,
the holders of the convertible preferred stock become entitled to elect a majority of the board of directors. Notwithstanding the foregoing, directors elected by virtue of the voting rights of the
convertible preferred stock would have to recuse themselves from any vote to redeem all or a portion of the convertible preferred stock.

The
convertible preferred stock is initially convertible into ten shares of common stock for each share of the convertible preferred stock. This conversion ratio, however, is subject to
anti-dilution adjustment for stock splits, combinations and other similar changes and if the Company issues, except in limited circumstances, any capital stock for a per share price less
than the then current conversion price.

The
convertible preferred stock is automatically converted if (i) holders of  2/3 of the outstanding shares of such preferred stock agree to convert,
(ii) the Company's revenues for the Centiv Business exceed $5 million for any two consecutive quarters, or (iii) the Company recognizes $20 million in revenues for the
Centiv Business for the 12-month period ending March 31, 2003.

The
Company has agreed, by April 28, 2002, to file a registration statement to cover the resale of the shares of common stock issuable upon conversion of the convertible
preferred stock and the shares of common stock issuable upon exercise of the warrants or upon conversion of the convertible preferred stock issuable upon exercise of the warrants. The Company will use
its best efforts to have the registration statement declared effective and will maintain the effectiveness of the registration statement until the earlier of (a) the later of (i) two
years after all of the warrants have been redeemed or exercised, or (ii) two years after all of the preferred stock has been converted, or (b) six years from the closing date. The
Company has also granted the purchasers of the convertible preferred stock piggy-back registration rights on any other Registration Statement filed by the Company (other than on Forms
S-8 or S-4). The Company will bear all expenses of each registration, including the costs of one special counsel to the holders of registrable securities.

F-21

---

Proceeds
to the Company from the sale of the convertible preferred stock will be $2,160,000, of which $1,910,000 was received on March 28, 2002 and the remaining $250,000 will be
received in April 2002. The proceeds were used to pay off and cancel the Company's current credit facility with the bank. The Company is currently pursuing a new credit facility and anticipates
that a new agreement will be in place during the second quarter of 2002. There can be no assurance that the Company will be able to enter into a new credit facility or, if it is able to do so, that it
will be on terms favorable to the Company.

Steven J.
Carnevale, a director of the Company, is a General Partner and Director of Private Equity Investing for Talkot Capital, LLC, the lead investor in this private placement.

A
pro forma condensed consolidated balance sheet is presented below for illustrative purposes to give the effect of the private equity investment of $2,160,000 less transaction cost of
$100,000 as if the transaction had occurred as of December 31, 2001.

|                                   |  | As Reported
December 31, 2001 |       | Private Equity
Adjustment |   | Pro forma
December 31, 2001
|---------------------------------- |  | ----------------------------- | ----- | ------------------------- | - | ---------------------------
|
|Current assets                     |  | $                             | 6,174 |                           | $ | 1,265                      
|Other assets                       |  |                               | 2,970 |                           |   | 0                          
|                                   |  |                               |       |                           |   |                            
|Total assets                       |  | $                             | 9,144 |                           | $ | 1,265                      
|                                   |  |                               |       |                           |   |                            
|Current debt                       |  | $                             | 795   |                           | $ | (795                       
|Other current liabilities          |  |                               | 7,580 |                           |   | 0                          
|Non current liabilities            |  |                               | 157   |                           |   | 0                          
|                                   |  |                               |       |                           |   |                            
|Total liabilities                  |  | $                             | 8,532 |                           | $ | (795                       
|                                   |  |                               |       |                           |   |                            
|Total equity                       |  | $                             | 612   |                           | $ | 2,060                      
|                                   |  |                               |       |                           |   |                            
|Total liabilities and total equity |  | $                             | 9,144 |                           | $ | 1,265                      
|                                   |  |                               |       |                           |   |                            

After
paying the outstanding balance under its credit facility, the Company was left with approximately $1.1 million of available funds from the private capital investment. The
Company believes that this will be adequate to satisfy its current and planned operations for at least the next 12 months.

18. SEGMENT INFORMATION

In previous years, the Company had three business units: Channels, Centiv (POP) and Services. As mentioned in Note 15 above, the Channels Business was sold
as of December 31, 2001. As a result, as of December 31, 2001, the Company segments its business into two business units: Centiv and Services. Certain corporate expenses and assets have
not been allocated to the individual business segments. All prior year results have been restated to be comparative to the current year's results.

F-22

---

The
Centiv and Services business units are revenue producing components of the Company about which separate financial information is produced internally and operating decisions are made.
For the Centiv Business net sales, no customers accounted for more than 10% of the sales for the year ended December 31, 2001. For the years ended December 31, 2000 and 1999, one
customer accounted for 97% and 80%, respectively, of net sales for the Centiv Business. No customers accounted for more than 10% of net sales for the Services Division for the years ended
December 31, 2001, 2000 and 1999. International sales for both divisions were insignificant for the years ended December 31, 2001, 2000 and 1999. The following segment information is for
the years ended December 31, 2001, 2000 and 1999:

|                                                                                         |                    | 2001                                                         |        | 2000   |        | 1999   |       
|---------------------------------------------------------------------------------------- | ------------------ | ------------------------------------------------------------ | ------ | ------ | ------ | ------ | ------
|
|Net sales:                                                                               |                    |                                                              |        |        |        |        |       
|                                                                                         | Centiv             |                                                              | $      | 12,432 |        | $      | 15,242
|                                                                                         | Services           |                                                              |        | 8,074  |        |        | 9,104 
|                                                                                         | Sales Eliminations |                                                              |        | (713   | )      |        | (496  
|                                                                                         |                    |                                                              |        |        |        |        |       
|                                                                                         |                    | Total net sales                                              |        | $      | 19,793 |        | $     
|                                                                                         |                    |                                                              |        |        |        |        |       
|Net sales from discontinued operations                                                   |                    |                                                              | 48,403 |        |        | 78,600 |       
|Operating income (loss) for continuing operations:                                       |                    |                                                              |        |        |        |        |       
|                                                                                         | Centiv             |                                                              | $      | (1,984 | )      | $      | (454  
|                                                                                         | Services           |                                                              |        | 20     |        |        | 729   
|                                                                                         | Corporate          |                                                              |        | (188   | )      |        | (1,025
|                                                                                         |                    |                                                              |        |        |        |        |       
|Total operating income (loss) for continuing operations before interest and income taxes |                    | $                                                            | (2,152 | )      | $      | (750   | )     
|                                                                                         |                    |                                                              |        |        |        |        |       
|                                                                                         |                    | Total operating loss for discontinued operations, net of tax |        | $      | (2,794 | )      | $     
|                                                                                         |                    |                                                              |        |        |        |        |       
|Identifiable assets for continuing operations:                                           |                    |                                                              |        |        |        |        |       
|                                                                                         | Centiv             |                                                              | $      | 2,822  |        | $      | 6,949 
|                                                                                         | Services           |                                                              |        | 3,872  |        |        | 4,105 
|                                                                                         | Corporate          |                                                              |        | 4,348  |        |        | 3,064 
|                                                                                         |                    |                                                              |        |        |        |        |       
|                                                                                         |                    | Total identifiable assets for continuing operations          |        | $      | 11,042 |        | $     
|                                                                                         |                    |                                                              |        |        |        |        |       
|Identifiable assets for discontinued operations:                                         |                    | $                                                            | 0      |        | $      | 21,152 |       
|                                                                                         |                    |                                                              |        |        |        |        |       

As
mentioned in Note 16 above, the Services Business was sold subsequent to December 31, 2001.

19. RECENT ACCOUNTING PRONOUNCEMENTS

On July 20, 2001, the Financial Accounting Standard Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Intangible Assets." SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001, and the effective date of SFAS No. 142.
Major provisions of the Statements and their effective dates for the Company are as follows:

F-23

---



At
December 31, 2001, the Company had no goodwill recorded.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30. "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business. The Company plans to adopt SFAS No. 144 at January 1, 2002, and has determined that adoption will not
have a material effect on its results of operations or financial position.

F-24

---

20. CONSOLIDATED CONDENSED QUARTERLY INFORMATION (UNAUDITED)

Selected unaudited financial information for each of the four quarters in the years ended December 31, 2001 and 2000 are as follows ($ in thousands, except
per share data):

|       |       | NET
SALES |       | GROSS
PROFIT |   | NET INCOME
(LOSS) FROM
CONTINUING
OPERATIONS |       | NET INCOME
(LOSS) FROM
DISCONTINUED
OPERATIONS |        | NET INCOME/(LOSS)
PER SHARE BASIC
AND DILUTED FROM
CONTINUING
OPERATIONS |   | NET INCOME/(LOSS)
PER SHARE BASIC
AND DILUTED FROM
DISCONTINUED
OPERATIONS |        | WEIGHTED
AVERAGE SHARES
OUTSTANDING
BASIC AND
DILUTED
|------ | ----- | --------- | ----- | ------------ | - | -------------------------------------------- | ----- | ---------------------------------------------- | ------ | ------------------------------------------------------------------------ | - | -------------------------------------------------------------------------- | ------ | -----------------------------------------------------
|2001   |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      
|First  |       | $         | 4,903 |              | $ | 1,022                                        |       | $                                              | (350   | )                                                                        | $ | 35                                                                         |        | $                                                    
|Second |       |           | 4,954 |              |   | 967                                          |       |                                                | (408   | )                                                                        |   | 110                                                                        |        |                                                      
|Third  |       |           | 5,082 |              |   | 1,113                                        |       |                                                | (650   | )                                                                        |   | (289                                                                       | )      |                                                      
|Fourth |       |           | 4,854 |              |   | 678                                          |       |                                                | (2,410 | )                                                                        |   | (2,937                                                                     | )      |                                                      
|       |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      
|       | Total |           | $     | 19,793       |   | $                                            | 3,780 |                                                | $      | (3,818                                                                   | ) | $                                                                          | (3,081 | )                                                    
|       |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      
|2000   |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      
|First  |       | $         | 5,010 |              | $ | 1,635                                        |       | $                                              | 158    |                                                                          | $ | (304                                                                       | )      | $                                                    
|Second |       |           | 5,308 |              |   | 1,000                                        |       |                                                | (341   | )                                                                        |   | (244                                                                       | )      |                                                      
|Third  |       |           | 4,072 |              |   | 826                                          |       |                                                | (355   | )                                                                        |   | (316                                                                       | )      |                                                      
|Fourth |       |           | 9,460 |              |   | 1,425                                        |       |                                                | (255   | )                                                                        |   | (677                                                                       | )      |                                                      
|       |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      
|       | Total |           | $     | 23,850       |   | $                                            | 4,886 |                                                | $      | (793                                                                     | ) | $                                                                          | (1,541 | )                                                    
|       |       |           |       |              |   |                                              |       |                                                |        |                                                                          |   |                                                                            |        |                                                      

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

|DESCRIPTION                     |  | BALANCE AT
BEGINNING
OF YEAR |         | CHARGED TO
COSTS AND
EXPENSES |   | DEDUCTIONS
AND
RECLASSIFICATIONS |  | BALANCE
AT END
OF YEAR
|------------------------------- |  | ---------------------------- | ------- | ----------------------------- | - | -------------------------------- |  | ----------------------
|
|2001                            |  |                              |         |                               |   |                                  |  |                       
|Allowance for doubtful accounts |  | $                            | 160,232 |                               | $ | 63,000                           |  | $                     
|Inventory reserves              |  | $                            | 0       |                               | $ | 134,440                          |  | $                     
|2000                            |  |                              |         |                               |   |                                  |  |                       
|Allowance for doubtful accounts |  | $                            | 94,547  |                               | $ | 78,725                           |  | $                     
|Inventory reserves              |  | $                            | 0       |                               | $ | 0                                |  | $                     
|1999                            |  |                              |         |                               |   |                                  |  |                       
|Allowance for doubtful accounts |  | $                            | 0       |                               | $ | 94,547                           |  | $                     
|Inventory reserves              |  | $                            | 0       |                               | $ | 0                                |  | $                     

F-25

---



|Officers and Directors                                                                                                                                                                                                                           |  | Corporate Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|William A. RychelChief Executive Officer and
Director Thomas M. MasonChief Financial Officer,
Secretary and Director James M. KearneyChief Information Officer Steven J. Carnevale.Director Frank X. Dalton, Jr.Director Albert E. SistoDirector |  | Corporate Office998 Forest Edge Drive
Vernon Hills, Illinois 60061
(847)876-8300 Registrar and Transfer AgentAmerican Stock Transfer & Trust Company
40 Wall Street
46th Floor
New York, New York 10005 Independent AuditorsGrant Thornton
700 One Prudential Plaza
130 E. Randolph Drive
Chicago, Illinois 60601 General CounselGardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610 Annual Shareholders' MeetingThe annual meeting of shareholders
will be held on
Thursday, May 23, 2002, at 10:00 a.m. CST
Centiv Headquarters
998 Forest Edge Drive
Vernon Hills, Illinois 60061
Phone: (847)876-8300

F-26

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INDEX OF EXHIBITS

|EXHIBIT
NO. |  | DESCRIPTION OF EXHIBIT                                                                                                                                             
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Restated Articles of Incorporation dated January 21, 2000 as amended December 31, 2001 and related Certificate of Designations filed March 28, 2002.               
|4.1         |  | Form of Securities Purchase Agreement dated March 28, 2002 by and among Centiv, Inc. and the purchasers identified on Exhibit A thereto.                           
|4.2         |  | Form of Investors Rights Agreement dated March 28, 2002 by and among Centiv, Inc. and the investors who are signatories thereto.                                   
|4.3         |  | Form of Warrant issued pursuant to Securities Purchase Agreement dated March 28, 2002 by and among Centiv, Inc. and the purchasers identified on Exhibit A thereto.
|10.14       |  | Loan Agreement dated December 31, 2001 between Tekgraf, Inc. and Scott C. Barker and related Pledge and Security Agreement dated December 31, 2001.                
|11.1        |  | Statements of Computation of Earnings Per Share                                                                                                                    
|21.1        |  | Subsidiaries                                                                                                                                                       
|23.1        |  | Consent of Grant Thornton LLP                                                                                                                                      
|23.2        |  | Consent of PricewaterhouseCoopers LLP                                                                                                                              

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