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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission File No. 000-23221
CENTIV, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-2033795
(State or other jurisdiction (IRS Employer
of incorporation or organization) 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)
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: X No:
---
The number of shares outstanding of the Registrant's common stock, par value
$.001, as of August 6, 2002 the latest practicable date, was 4,976,535 shares.
CENTIV, INC.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Balance Sheets as of June 30, 2002 and December 31, 2001. . 3
Statements of Operations for the three months and six months
ended June 30, 2002 and 2001 . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the six months ended June 30,
2002 and 2001 . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 12
Item 3. Quantitative and Qualitative Disclosures about Market Risks 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . 17
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a Vote of Security Holders. . . . 30
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 31
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 32
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXPLANATORY NOTE
On June 11, 2002, after approval by the Company's shareholders at its regularly
scheduled annual meeting, the Company was reincorporated in Delaware. This was
effected by the merger of Centiv, Inc., an Illinois corporation with a wholly
owned Delaware subsidiary of the Company with the Delaware corporation being the
survivor under the name Centiv, Inc., a Delaware corporation.
2
PART I - FINANCIAL INFORMATION
CENTIV, INC.
BALANCE SHEETS
($ in thousands)
June 30, December 31,
2002 2001
------------ ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 107 $ 228
Accounts receivable, less allowance for doubtful accounts of $30 and $43
at June 30, 2002 and December 31, 2001, respectively 929 969
Inventories, net 1,038 978
Prepaid expenses and other assets 493 278
Income taxes receivable 44 617
Deferred income taxes - current 205 303
Net current assets, discontinued operations 0 2,801
------------ ---------
Total current assets 2,816 6,174
------------ ---------
Property and equipment, net 1,996 2,071
Other assets 325 39
Net other assets, discontinued operations 0 860
------------ ---------
Total assets $ 5,137 $ 9,144
============ =========
LIABILITIES
Current liabilities:
Current debt $ 0 $ 795
Accounts payable 1,790 3,617
Accrued expenses 585 1,000
Contract obligation and deferred income 69 208
Net current liabilities, discontinued operations 0 2,755
------------ ---------
Total current liabilities 2,444 8,375
------------ ---------
Deferred income taxes 157 157
------------ ---------
Total liabilities 2,601 8,532
------------ ---------
STOCKHOLDERS' EQUITY
Class A Common Stock $.001 par value, 35,000,000 shares authorized;
4,976,535 shares and 4,956,535 shares issued and outstanding at June 30,
2002 and December 31, 2001, respectively 5 5
Preferred Stock, $.001 par value, 5,000,000 shares authorized; 216,000 and
no shares issued and outstanding at June 30, 2002 and shares December 31,
2001, respectively (liquidation value of $2,160,000 at June 30, 2002) 0 0
Due from stockholders (2,457) (2,366)
Additional paid-in capital 22,468 19,618
Accumulated deficit (17,480) (16,645)
------------ ---------
Total stockholders' equity 2,536 612
------------ ---------
Total liabilities and stockholders' equity $ 5,137 $ 9,144
============ =========
The accompanying notes are an integral part of these consolidated financial statements.
3
CENTIV, INC.
STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
Three Months Ending Six Months Ending
June 30, June 30,
2002 2001 (*) 2002 2001 (*)
----------- ------------ ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales $3,501 $ 2,999 $ 7,308 $ 5,933
Cost of goods sold 2,539 2,397 5,388 4,723
----------- ------------ ------------- -------------
Gross profit 962 602 1,920 1,210
Operating expenses:
Selling, general and administrative 1,223 1,085 2,426 2,050
Depreciation 134 35 267 93
----------- ------------ ------------- -------------
Loss from operations (395) (518) (773) (933)
Other Income (expense) 0 0 0 0
Interest income (expense) 57 (189) 85 (423)
----------- ------------ ------------- -------------
Loss before income taxes from continuing operations (338) (707) (405) (1,356)
Benefit for income taxes from continuing operations 0 (269) 0 (505)
----------- ------------ ------------- -------------
Loss from continuing operations (338) (438) (405) (851)
Income from discontinued operations (net of tax) 0 140 380 239
----------- ------------ ------------- -------------
Net Loss $ (338) $ (298) $ (25) $ (612)
=========== ============ ============= ============
Effect of beneficial conversion feature of preferred stock 0 0 (810) 0
----------- ------------ ------------- -------------
Net Loss attributable to common shareholders $ (338) $ (298) $ (835) $ (612)
=========== ============ ============= ============
Basic and Diluted Income/(Loss) applicable to common
shares
Weighted average shares outstanding 4,961,645 4,929,906 4,959,104 4,995,952
Continuing operations per share $ (0.07) $ (0.09) $ (0.25) $ (0.17)
Discontinued operations per share $ 0.00 $ 0.03 $ 0.08 $ 0.05
----------- ------------ ------------- -------------
Net Loss per share $ (0.07) $ (0.06) $ 0.17 $ (0.12)
=========== ============ ============= ============
*Prior year results have been reclassified for discontinued operations.
The accompanying notes are an integral part of these consolidated financial
statements.
4
CENTIV, INC.
STATEMENTS OF CASH FLOWS
($ in thousands)
Six Months Ending June 30,
----------------------------
2002 2001
------------- -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------
Net Loss $ (25) $ (612)
Adjustments to reconcile net loss to
- ---------------------------------------
Net cash (used in) provided by operating activities:
- -----------------------------------------------------
Provision for doubtful accounts receivable 8 0
Depreciation 267 93
Non-cash interest on note payable (receivable) (107) (37)
Non-cash compensation for stock options 5 0
Gain on sale of CalGraph Business (488) 0
Deferred Taxes 0 (285)
Changes in net assets and liabilities
Accounts receivable 32 4,676
Inventories (60) (51)
Prepaid expenses and other assets (38) (102)
Accounts payable and accrued expenses (2,460) (2,948)
Contract obligations and deferred income (139) (642)
Income taxes 573 0
Net assets, discontinued operations 123 4,898
------------ --------
Total adjustments (2,284) 5,602
------------ --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,309) 4,990
------------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of property and equipment - continuing operations (193) (958)
Purchase of property and equipment - discontinuing operations roperty and equipment -. 0 (28)
Proceeds from Sale of CalGraph Business
1,100 0
------------ --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 907 (986)
------------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------
Proceeds/(repayment), net, from credit facility (796) (2,677)
Net Proceeds from capital investment 2,026 0
Proceeds/(repayment), net, from capital lease 42 0
Proceeds from stock options exercised 9 0
Dissenters' settlement payments 0 (1,309)
------------ --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,281 (3,986)
------------ --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (121) 18
Cash and cash equivalents, beginning of year 228 491
------------ --------
Cash and cash equivalents, as of June 30 $ 107 $ 509
============ ========
The accompanying notes are an integral part of these financial statements.
5
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included.
Operating results for the three months and the six months ended June 30, 2002
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 2002. For further information, refer to the
consolidated financial statements and the footnotes included in the Form 10-K
for the year ended December 31, 2001.
2. INVENTORIES
Inventories, net of reserves, at June 30, 2002 and December 31, 2001 consist of
the following ($ in thousands):
June 30, December 31,
2002 2001
----- -----
Supplies 1,038 978
===== =====
3. NET LOSS PER COMMON SHARE
Basic and diluted net income/(loss) per common share are computed by dividing
net income (loss) by the weighted average number of common shares and common
share equivalents outstanding during the period. Since the Company has a net
loss from continuing operations, there were no common share equivalents that
were dilutive during any of the periods presented. The changes in outstanding
shares during the three months and six months ended June 30, 2001 and 2002 are
shown below:
Three Months Ending Six Months Ending
June 30, June 30,
2002 2001 2002 2001
========= ========= ========= ==========
COMMON SHARES:
- --------------
Outstanding at beginning of period 4,956,535 5,061,998 4,956,535 5,061,998
Shares issued (redeemed) during the period 20,000 0 20,000 (105,463)
--------- --------- --------- ----------
Outstanding at end of period 4,976,535 5,061,998 4,976,535 4,956,535
========= ========= ========= ==========
Basic and Diluted weighted average shares 4,961,645 4,929,906 4,959,104 4,995,952
========= ========= ========= ==========
6
The weighted average common shares exclude securities that would be
anti-dilutive upon conversion. Accordingly, there are 1,308,462 stock options,
2,160,000 common shares (216,000 preferred shares convertible at 10 common
shares each), 2,100,000 warrants with an exercise price of $8.40 that expire in
November 2002, 2,160,000 warrants (216,000 preferred warrants convertible at 10
common shares each) with an exercise price of $1.50 per share that expire in
March 2007, and 72,000 warrants with exercise prices between $1.00 and $1.15 per
share that expire in 2003.
Earnings (loss) per share is computed as follows:
Three Months Six Months
Ending Ending
June 30, June 30,
2002 2001 2002 2001
------ ------ ------- ------
INCOME AVAILABLE TO COMMON SHAREHOLDERS:
- ---------------------------------------
Loss from continuing operations (338) (438) (405) (851)
Effect of Beneficial Conversion Feature of convertible preferred stock 0 0 (810) 0
------ ------ ------- ------
Loss from continuing operations attributable to common shareholders (338) (438) (1,215) (851)
====== ====== ======= ======
Income from discontinued operations
0 140 380 239
------ ------ ------- ------
Net loss attributable to common shareholders (338) (298) (835) (612)
====== ====== ======= ======
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED:
- ---------------------------------------------
Continuing Operations (0.07) (0.09) (0.25) (0.17)
Discontinued Operations 0.00 0.03 0.08 0.05
------ ------ ------- ------
Net Loss (0.07) (0.06) (0.17) (0.12)
====== ====== ======= ======
4. INCOME TAXES
The Company's effective tax rate was 0% and 38.0% for the three months ended
June 30, 2002 and 2001, respectively. The Company's effective tax rate was 0%
and 37.2% for the six months ended June 30, 2002 and 2001, respectively. The
tax rate was 0% for the three months and six months ended June 30, 2002 as the
Company's tax provision/(benefit) was offset by a corresponding
reduction/(increase) in the valuation allowance for deferred income taxes that
was established in 2001.
5. CURRENT DEBT
In June 2002, the Company entered into a Loan and Security Agreement (the
"Agreement"), with Cole Taylor Bank which expires on June 30, 2003, with a bank
that provides for a revolving credit facility initially for $750,000 with the
possibility of increases up to $2.0 million. The availability under the credit
facility will be increased to $2.0 million if the Company achieves earnings
before interest, taxes, depreciation and amortization of at least $50,000 for
three (3) consecutive months. Outstanding advances under the Agreement bear
interest at prime plus 1.00%. Pursuant to the terms of the Agreement, the
Company has pledged accounts receivables, inventory and equipment as collateral.
During the three months ended June 30, 2002, there were no amounts borrowed
under this credit facility.
7
In accordance with the Agreement, the Company is required to maintain certain
financial covenants, which specifically include tangible net worth, a debt to
equity ratio and a debt service coverage ratio. At June 30, 2002, the Company
was in compliance with the financial covenants.
6. ESCROW SHARES
The number of outstanding common 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.
7. PATENT APPLICATION
On March 20, 2002, the Company filed a patent application with the United States
Patent and Trademark Office for a "Method and System for Point of Purchase Sign
Creation and Delivery." In addition, the Company filed an international patent
application for the same invention to protect patent rights in foreign
countries. The Company expects that after examination, it will be awarded a
patent to protect its valuable intellectual property. Centiv has developed this
system which allows a user access to an information database for selecting sign
templates, inputting data for the sign templates and selecting and ordering
signage products for production of the sign templates having the data input.
8 RESTRUCTURING CHARGES
During the fourth quarter of 2000, the Company consolidated and centralized its
operations and, therefore, recorded a restructuring charge of $541,000 for
employee severance and leased premises no longer necessary. The restructuring
charges were recorded in discontinued operations for the year ended December 31,
2000.
The following table provides a roll forward of the liabilities incurred in
connection with the 2000 business restructuring.
($ in thousands)
December 31, 1st Qtr 2002 2nd Qtr 2002 June 30,
2001 Restructuring Restructuring 2002
Category Balance Expenditures Expenditures Balance
- -------------------- -------- -------------- -------------- --------
Employee Separations $ 11 $ (11) $ 0 $ 0
Facility Closings 84 (34) (34) 16
-------- -------------- -------------- --------
Total $ 95 $ (45) $ (34) $ 16
======== ============== ============== ========
8
A total of $79,000 was charged to the restructuring reserve during the six
months ended June 30, 2002 with $45,000 charged in the first quarter of 2002 and
$34,000 charged in the second quarter of 2002. Employee separations of $11,000
and facility closings of $68,000 were charged against the restructuring reserve
for the six months ended June 30, 2002.
9. SEGMENT DISCLOSURES
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.
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 the
Channels Business and, effective January 31, 2002, sold Calgraph Technology
Services, Inc. As a result of these divestitures, the Company currently
operates as a single business unit.
10. RECLASSIFICATIONS
Certain amounts in the June 30, 2001 financial statements have been reclassified
to conform to the June 30, 2002 presentation.
11. DISCONTINUED OPERATIONS
CHANNELS BUSINESS
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.
9
CALGRAPH TECHNOLOGY SERVICES BUSINESS
Effective January 31, 2002, the Company sold the assets of the Calgraph
Technology Services Business to Graphic Enterprises of Ohio, Inc. 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 wrote off
the deferred tax asset of $98,000 relating to the Calgraph Technology Services
Business. The pretax loss from operations for Calgraph Technology Services
Business in January 2002 was $108,000.
The Company's consolidated financial statements for 2001 have been reclassified
to report separately the results of operations for the Channels Business and the
Calgraph Technology Services Business. The operating results (in thousands) for
the three months and six months ended June 30, 2001 consist of:
Three months ended June 30, 2001
--------------------------------
Channels Calgraph Total
--------- --------- -------
Net sales: $ 13,553 $ 2,125 $15,678
Income/(Loss) from operations before income taxes 213 51 264
Provision/(Benefit) from income taxes 104 20 124
--------- --------- -------
Income from discontinued operations $ 109 $ 31 $ 140
========= ========= =======
Six months ended June 30, 2001
------------------------------
Channels Calgraph Total
--------- --------- -------
Net sales:. . . . . . . . . . . . . . . . . . . . $ 27,999 $ 4,265 $32,264
Income/(Loss) from operations before income taxes 306 153 459
Provision/(Benefit) from income taxes 161 59 220
--------- --------- -------
Income from discontinued operations $ 45 $ 94 $ 239
========= ========= =======
12. CAPITAL INVESTMENT
On March 28, 2002 and April 15, 2002, the Company sold, in two separate closings
of one private placement, 191,000 units and 25,000 respectively, each unit
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. This sale of units was ratified by the
Company's shareholders at the annual meeting of shareholders held on June 11,
2002. 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
10
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 filed, on April 26, 2002, 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
latest 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 were
$2,160,000, of which $1,910,000 was received at March 28, 2002 closing and the
remaining $250,000 was at the April 25, 2002 closing. Aggregate transaction
costs of $136,000 representing legal, accounting and registration fees were
incurred bringing the net proceeds to $2,024,000. The net proceeds were used to
pay off and cancel the Company's previous credit facility with Wachovia Bank,
NA.
11
The Company has recorded a beneficial conversion feature on the convertible
preferred stock and warrants based on the fair value of the common stock of
$1.00 per share as of the date of commitment. The warrants with an exercise
price of $1.50 per share, were valued at $810,000 using the Black-Scholes
valuation method. The beneficial conversion feature was calculated to be
$810,000 at the commitment date of March 28, 2002 and has been recorded as
Additional Paid in Capital. As the preferred shares are convertible immediately,
the entire amount of the beneficial conversion feature has been accreted into
the Accumulated Deficit at March 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- --------------
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the related notes.
OVERVIEW
We are a developer and provider of Web-enabled point-of-purchase (POP) solutions
used by manufacturers and mass retailers. The delivered product is high quality,
digitally produced signage that is mass-customized for the unique requirements
of each retail location. With our premier product, Instant Impact, a company
gains the ability to target important consumer segments at the point of purchase
by allowing brand managers or retailers to order mass-customized, on-demand,
color POP materials and receive quantitative feedback on the success of their
in-store or on-premise marketing campaigns.
Instant Impact allows a marketing manager, brand manager or retailer to create,
edit, schedule and delivery of POP materials by using pre-approved,
field-editable sign templates. This Internet-based user interface is clear,
flexible, user-friendly and changeable to allow control of the message at a
corporate or local store level. The signage can either be printed in a Centiv
print center, or an industry-standard print-formatted file can be delivered via
the Internet to any print provider in the world. This rapid delivery of signage
results in a dramatic reduction in POP lead time and the costs associated with
launching or changing in-store or on-premises messaging.
The roots of Instant Impact were formed in 1998 when Centiv partnered with
Anheuser-Busch to design, configure, deliver and implement POP signage systems
to Anheuser-Busch wholesale distributors in the United States and 16 foreign
countries. Since the formal launch of the Internet-based Instant Impact in March
2001, Centiv and DuPont Tyvek have formed a strategic alliance and co-branding
agreement that includes company-wide implementation of Instant Impact.
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. As a result of these
divestitures, the Company currently operates as a single business unit.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001
NET SALES FROM CONTINUING OPERATIONS. Total net sales from continuing operations
increased 17% or $502,000, to $3.5 million for the three months ended June 30,
2002, compared to $3.0 million for the three months ending June 30, 2001. The
increase is attributable primarily to the new web based services offered
12
through the new Instant Impact product launched in 2001 as well as growth in the
supplies revenue for Point of Purchase (POP) systems that are installed at
customer sites.
GROSS PROFIT FROM CONTINUING OPERATIONS. Gross profit from continuing
operations increased 60% or $360,000 for the three months ended June 30, 2002 to
$964,000 as compared to $602,000 for the three months ended June 30, 2001. The
gross profit as a percentage of sales increased 7.4 percentage points to 27.5%
for the three months ended June 30, 2002 compared to 20.1% for the three months
ended June 30, 2001. The margin improvement relates to higher margin web based
sales. In addition, the margin improvement is due to the technical support call
center now being handled directly by Centiv instead of outsourcing this activity
to another entity.
SG&A EXPENSES FROM CONTINUING OPERATIONS. SG&A expenses from continuing
operations increased $138,000 or 13% to $1.2 million for the three months ended
June 30, 2002 compared to $1.1 million for the three months ended June 30, 2001.
The increase in SG&A expenses is due to administrative costs that are now being
absorbed by Centiv as the other businesses were divested.
DEPRECIATION EXPENSE FROM CONTINUING OPERATIONS. Depreciation expense from
continuing operations increased $99,000, to $134,000 for the three months ended
June 30, 2002, as compared to $35,000 for the three months ended June 30, 2001.
The increase in depreciation expense relates to the Company implementing a new
state of the art enterprise wide software package as well as the cost of the new
online Instant Impact point-of-purchase system.
INCOME TAXES FROM CONTINUING OPERATIONS. The Company's effective tax rate for
continuing operations was 0% for the three months ended June 30, 2002 compared
to a benefit of 38% for the three months ended June 30, 2001. The tax rate was
0% for the three months ended June 30, 2002 as the Company's tax benefit was
offset by a corresponding increase in the valuation allowance for deferred
income taxes that was established in 2001.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS. The Company had a net loss from
continuing operations of $338,000 for the three months ended June 30, 2002, as
compared to a net loss of $438,000 for the three months ended June 30, 2001.
The decrease in the net loss is attributable to the improvement in gross profit
as well as a reduction in interest expense.
DISCONTINUED OPERATIONS:
The Company had net income from discontinued operations for the three months
ended June 30, 2001 of $140,000. See Note 11 of the Notes to Consolidated
Financial Statements for a description and breakdown of the discontinued
operations.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001
NET SALES FROM CONTINUING OPERATIONS. Total net sales from continuing operations
increased 23% or $1.4 million, to $7.3 million for the six months ended June 30,
2002, compared to $5.9 million for the six months ending June 30, 2001. The
increase is attributable primarily to the new web based services offered through
the new Instant Impact product launched in 2001 as well as growth in the
supplies revenue for Point of Purchase (POP) systems that are installed at
customer sites.
13
GROSS PROFIT FROM CONTINUING OPERATIONS. Gross profit from continuing
operations increased 59% or $710,000 for the six months ended June 30, 2002 to
$1.9 million as compared to $1.2 million for the six months ended June 30, 2001.
The gross profit as a percentage of sales increased 6 percentage points to 26%
for the six months ended June 30, 2002 compared to 20% for the six months ended
June 30, 2001. The margin improvement relates to higher margin web based sales.
In addition, the margin improvement is due to the technical support call center
now being handled directly by Centiv instead of outsourcing this activity to
another entity.
SG&A EXPENSES FROM CONTINUING OPERATIONS. SG&A expenses from continuing
operations increased $376,000 or 18% to $2.4 million for the six months ended
June 30, 2002 compared to $2.1 million for the six months ended June 30, 2001.
The increase in SG&A expenses is due to administrative costs that are now being
absorbed by Centiv as the other businesses were divested.
DEPRECIATION EXPENSE FROM CONTINUING OPERATIONS. Depreciation expense from
continuing operations increased $174,000, to $267,000 for the six months ended
June 30, 2002, as compared to $93,000 for the six months ended June 30, 2001.
The increase in depreciation expense relates to the Company implementing a new
state of the art enterprise wide software package as well as the cost of the new
online Instant Impact point-of-purchase system.
OTHER INCOME FROM CONTINUING OPERATIONS. Other Income of $283,000 represents
the settlement of outstanding liabilities associated with the termination of
vendor contracts relating to the sale of the Channels Business.
INCOME TAXES FROM CONTINUING OPERATIONS. The Company's effective tax rate for
continuing operations was 0% for the six months ended June 30, 2002 compared to
a benefit of 37% for the six months ended June 30, 2001. The tax rate was 0%
for the six months ended June 30, 2002 as the Company's tax benefit was offset
by a corresponding increase in the valuation allowance for deferred income taxes
that was established in 2001.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS. The Company had a net loss from
continuing operations of $405,000 for the six months ended June 30, 2002, as
compared to a net loss of $851,000 for the six months ended June 30, 2001. The
decrease in the net loss is attributable to the improvement in gross profit as
well as the other income and reduced interest expense.
DISCONTINUED OPERATIONS:
The Company had net income from discontinued operations of $380,000 for the six
months ended June 30, 2002 compared to $239,000 net income for the six months
ended June 30, 2001. See Note 11 of the Notes to Consolidated Financial
Statements for a description and breakdown of the discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2002, the Company had a positive working capital of $372,000,
compared to a negative working capital of $2.2 million as of December 31, 2001.
14
The Company used $2.3 million of cash from operations for the six months ended
June 30, 2002 compared to cash generated of $5.1 million from operations for the
six months ended June 30, 2001. During the six months ended June 30, 2002, cash
was used to pay accounts payable and accrued expenses of $2.5 million relating
to the payment of transaction costs as well as other payments for vendor
settlements associated with the sale of the Channels Business.
For the six months ended June 30, 2002, the Company generated cash of $907,000
from investing activities. The Company received cash of $1,100,000 from the
sale of the CalGraph Business (see Note 11 of the Notes to Consolidated
Financial Statements), partially offset by cash used of $193,000 for the
purchase of software licenses, computer hardware and production equipment.
Approximately $89,000 of the $193,000 of purchases related to one-time
expenditures for splitting the software licenses and computer hardware due to
the divestitures of Channels and CalGraph business units. The cash used for the
six months ended June 30, 2001 of $986,000 relates to the Company implementing a
new state of the art enterprise wide software package as well as the cost of the
new online Instant Impact point-of-purchase system.
For the six months ended June 30, 2002, the Company generated cash of $1,281,000
from financing activities. The Company received net proceeds of $2,026,000 from
a private equity offering (see Note 12 of the Notes to Consolidated Financial
Statements). The net proceeds were used to pay off and cancel the Company's
credit facility with the bank. In June 2002, the Company entered into a Loan and
Security Agreement (the "Agreement"), with Cole Taylor Bank, which expires on
June 30, 2003, that provides for a revolving credit facility initially for
$750,000 with the possibility of increases up to $2.0 million. The availability
under the credit facility will be increased to $2.0 million if the Company
achieves earnings before interest, taxes, depreciation and amortization of at
least $50,000 for three (3) consecutive months. Outstanding advances under the
Agreement bear interest at prime plus 1.00%. Pursuant to the terms of the
Agreement, the Company has pledged accounts receivables, inventory and equipment
as collateral. During the three months ended June 30, 2002, there were no
amounts borrowed under this credit facility.
For the six months ended June 30, 2001, the Company used cash of $4.0 million
from financing activities to pay down the bank line of $2.7 million and to make
payments of $1.3 million on the note issued in connection with the settlement of
the Dissenters' Lawsuit. During the six months ended June 30, 2001 the Company
had borrowings of $28.3 million and repayments of $30.9 million with the
outstanding bank loan.
The Company believes that its available funds together with its credit
facilities will be adequate to satisfy its current and planned operations,
including restructuring accruals, for at least the next 12 months
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:
15
1. All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling if interest method of accounting
is prohibited except for transactions initiated before July 1, 2001.
2. Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sole,
transferred, licensed, rented, or exchanged, either individually or as part
of a related contract, asset, or liability.
3. Goodwill and other intangible assets with indefinite lives, acquired after
June 30, 2001, are not amortized. Effective January 1, 2002, all previously
recognized goodwill and intangible assets with indefinite lives will no
longer be subject to amortization.
4. Effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicated.
5. All acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
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 has
adopted SFAS No. 144 at January 1, 2002, and has determined that adoption does
not have a material effect on its results of operations or financial position.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements appear in a number of places
in this report and include all statements that are not historical facts. Some
of the forward-looking statements relate to the intent, belief or expectations
of the Company and its management regarding the Company's strategies and plans
for operations and growth. Other forward-looking statements relate to trends
affecting the Company's financial condition and results of operations, and the
Company's anticipated capital needs and expenditures.
Investors are cautioned that such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that actual
results may differ materially from those that are anticipated in the
forward-looking statements as a result of the impact of competition and
competitive pricing, business conditions and growth in the industry, general and
economic conditions, and other risks. Investors should review the more detailed
description of these and other possible risks contained in the Company's filings
with the Securities and Exchange Commission, including the Company's Form 10-K.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- --------------------------------------------------------------------
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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 28, 2002, the Company filed a lawsuit in the Circuit Court of the
Nineteenth Judicial Circuit, Lake County, Illinois Chancery Division against
Encad, Inc., a wholly owned subsidiary of Eastman Kodak Company, seeking to
prevent Encad from terminating a multi-year supply agreement between the Company
and Encad. On July 1, 2002, Encad filed counterclaims against the Company
seeking in excess of $10 million in alleged damages for past and future lost
profits and expenses based upon claims that Centiv breached the supply agreement
and alleged fiduciary duties to Encad. Encad's counterclaims are based upon
allegations that the Company did not fulfill obligations to recommend Encad's
products to certain of the Company's customers. At the initial hearing on the
case, the parties agreed to a temporary court order ensuring that Centiv would
have access to the products supplied by Encad through an Encad reseller at
non-wholesale prices.
On August 6, 2002, the Company filed an amended complaint seeking, among other
things, damages from Encad based upon allegations that Encad wrongfully
terminated the supply agreement. On August 6, 2002, the Company also filed a
motion to dismiss some of Encad's counterclaims and an answer to the remaining
counterclaims. In its answer, the Company denied the allegations upon which
Encad seeks damages.
The Company intends to pursue its claims and defend Encad's allegations
vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 11, 2002, after approval by the Company's shareholders at its regularly
scheduled annual meeting, the Company was reincorporated in Delaware. This was
effected by the merger of Centiv, Inc., an Illinois corporation ("Centiv") with
a wholly owned Delaware subsidiary of the Company with the Delaware corporation
being the survivor under the name Centiv, Inc., a Delaware corporation
("Centiv-DE").
17
The table below summarizes some similarities and differences between Georgia law
and Delaware law and among the charters and bylaws of Centiv and Centiv-DE. You
should review the table in conjunction with the discussion following the table,
as well as the text of the merger agreement, the Certificate of Incorporation of
Centiv-DE and the bylaws of Centiv-DE attached as exhibits to this report.
18
Item Centiv-DE (Delaware) Centiv (Georgia)
- ----------------------------------------- ------------------------------------- ------------------------------------
Amendment of Charter Centiv's charter may have been
amended, in limited instances,
solely by the approval of the
Centiv-DE's charter may be board of directors. In all other
amended by the approval of (i) instances, it may have been
the board of directors, (ii) a amended by the approval of (i)
majority of the outstanding stock the board of directors, (ii) a
entitled to vote on the majority of the votes entitled to
amendment, and (iii) a majority be cast on the amendment, and
of each class of stock entitled to (iii) a majority vote of each
vote on the amendment; provided group, if any, entitled to vote on
that the Certificate of the amendment; provided that the
Designations, Preferences and Certificate of Designations,
Rights of the convertible Preferences and Rights of the
preferred stock may not be convertible preferred stock was
amended without the approval of not able to be amended without
at least two-thirds of the holders the approval of at least two-
of the convertible preferred thirds of the holders of the
stock. convertible preferred stock.
- ----------------------------------------- ------------------------------------- ------------------------------------
Amendment of Bylaws Centiv-DE's bylaws may be Centiv's bylaws may have been
amended by the stockholders or, amended by the shareholders.
if the charter so authorizes, by They may also have been
the board of directors. amended by the board of
directors, provided the
amendment does not establish
staggered terms for directors or
fix a greater quorum for
shareholders than is required by
Georgia law.
- ----------------------------------------- ------------------------------------- ------------------------------------
Number of Directors Centiv-DE's charter provides that Centiv's bylaws provided that the
the board of directors will board determines the number of
determine the number of directors, provided that there may
directors within any limits less than three directors.
prescribed in the bylaws, which
provide that there may not be
not be less than three directors.
- ----------------------------------------- ------------------------------------- ------------------------------------
Cumulative Voting for Delaware law permits cumulative Georgia law permits cumulative
Directors voting for directors, if provided voting for directors, if provided
for in the charter, but Centiv for in the charter, but Centiv's
-DE's charter does not so charter did not so provide.
provide.
- ----------------------------------------- ------------------------------------- ------------------------------------
19
Item Centiv-DE (Delaware) Centiv (Georgia)
- ----------------------------------------- ------------------------------------- ------------------------------------
Classified Board of Directors Delaware law permits up to three Georgia law permits the election
classes of directors, which may of up to three groups directors
(i) be elected for staggered terms, for staggered terms. Each group
(ii) hold differing terms, or (iii) must have the same number of
have differing voting rights. directors, or as nearly so as
Centiv-DE's charter provides for possible. Centiv's charter did not
a classified board of directors provide for a classified board of
consisting of three classes with directors.
staggered terms.
- ----------------------------------------- ------------------------------------- ------------------------------------
Removal of Directors by Delaware law and Centiv-DE's Georgia law and Centiv's charter
Shareholders charter permit a majority of permitted a majority of shares
shares entitled to vote at an entitled to vote at an election of
election of directors to remove all directors to remove all or any of
or any of the directors; provided the directors; provided that a
that a director that is elected by a director that was elected by a
specified group of stockholders specified group of shareholders
may only be removed by a may only have been removed by a
majority of the shares of that majority of the shares of that
group. group.
- ----------------------------------------- ------------------------------------- ------------------------------------
Voting by Ballot Delaware law requires directors Georgia law contains no
to be elected by ballot and/or comparable statute.
electronic transmission.
- ----------------------------------------- ------------------------------------- ------------------------------------
Eliminating Personal Centiv-DE's charter limits the Centiv's charter limited the
Monetary Liability of monetary liability of its directors, monetary liability of its directors
except liability (i) for breach of to the maximum extent permitted
Directors opportunity of the corporation, by Georgia law, which allows
the director's duty of loyalty, (ii) limitation except for
acts not in good faith or (i) appropriation of a business
involving intentional misconduct opportunity of the corporation,
or knowing violation of the law, (ii) acts or omissions involving
(iii) for unlawful payment of intentional misconduct or
dividends or (iv) for any knowing violation of the law,
transaction from which the (iii) unlawful payment of
director derived improper transaction from which the
personal benefit. director derived improper
personal benefit.
- ----------------------------------------- ------------------------------------- ------------------------------------
Who May Call Special Under Delaware law and Centiv
Shareholder Meetings -DE's charter, a special Under Centiv's charter, a special
stockholder meeting may be shareholder meeting may have
called by the board of directors, been called by the board of
the Chairman or President or by directors, the Chairman or
stockholders holding not less President or by shareholders
than 20% of the outstanding holding not less than 20% of the
stock entitled to vote. outstanding stock entitled to vote.
20
Item Centiv-DE (Delaware) Centiv (Georgia)
- ----------------------------------------- ------------------------------------- ------------------------------------
Action by Written Consent of Delaware law and Centiv-DE's Georgia law and Centiv's charter
Shareholders charter permit stockholders to act permitted shareholders to act
without a meeting by the written without a meeting by the written
consent of the number of shares consent of the number of shares
that would be needed to approve that would be needed to approve
the action at a meeting if all the action at a meeting if all
shares were present. shares were present.
- ----------------------------------------- ------------------------------------- ------------------------------------
Loans to Officers and Delaware law expressly permits a Although these loans are
Employees corporation to make a loan to, or permissible under Georgia
guarantee the obligations of, any common law, Georgia law
officer or employee of the contains no comparable statute.
corporation if the board of
directors determines that the loan
may reasonably be expected to
benefit the corporation.
- ----------------------------------------- ------------------------------------- ------------------------------------
Indemnification of Directors Delaware law generally permits Georgia law generally permits
and Officers indemnification of directors and indemnification of directors who
officers who act in good faith act in good faith and the best
and the best interests of the interests of the corporation and,
corporation, subject to certain to a broader extent,
limits. indemnification of officers,
subject to certain limits.
- ----------------------------------------- ------------------------------------- ------------------------------------
Dividends A corporation may declare and A corporation may not make a
pay a dividend out of the surplus distribution (including any
or net profits of the corporation. distribution of cash or property as
A corporation may not pay a a dividend or for repurchase of
dividend so long as the capital of shares) if the distribution would
the corporation is less than the render the corporation insolvent
aggregate capital represented by or unable to pay its debts as they
outstanding stock having a become due. Holders of preferred
preference on the distribution of stock have a preferential right,
assets. Holders of preferred and no cash dividends may be
stock have a preferential right, paid to common shareholders
and no cash dividends may be unless accrued dividends on all
paid to common stockholders outstanding preferred shares have
unless accrued dividends on all been paid.
outstanding preferred shares
have been paid.
- ----------------------------------------- ------------------------------------- ------------------------------------
Approval of Certain Delaware law prohibits business Georgia law prohibits business
Transactions combinations with 15% combinations with 10%
stockholders unless (i) the board shareholders unless (i) the board
approves the transaction, (ii) the approves the transaction, (ii) the
stockholder owns 85% or more shareholder owns 90% or more of
of the outstanding voting stock or the outstanding voting stock, or
(iii) two thirds of the (iii) a majority of the
disinterested stockholders disinterested shareholders
approve the transaction. approve the transaction.
- ----------------------------------------- ------------------------------------- ------------------------------------
21
Item Centiv-DE (Delaware) Centiv (Georgia)
- ----------------------------------------- ------------------------------------- ------------------------------------
Dissenters' Rights Georgia law provides broader
Delaware law provides dissenters' rights than Delaware
dissenters' (i.e., appraisal) rights in that shareholders have
to stockholders in the event of dissenters' rights under a wider
certain major corporate range of transactions, including a
transactions, generally in the sale of substantially all the assets
context of a merger or of the corporation and certain
consolidation. material charter amendments.
- ----------------------------------------- ------------------------------------- ------------------------------------
Right of Shareholders to Under Delaware law, a Under Georgia law, a shareholder
Inspect Shareholder List stockholder has the right to has the right to inspect books and
inspect the stock ledger, Records of corporation regardless
stockholder list, books and of purpose. Furthermore, a
records of the corporation shareholder has the right to
for any inspect board minutes, accounting
purpose reasonably related to his records and the shareholder list,
or her interest as a stockholder. where examination is asked for in
good faith and for a proper
purpose reasonably related to the
shareholder's interest as such.
- ----------------------------------------- ------------------------------------- ------------------------------------
Dissolution Unless a majority of the board of A corporation may only dissolve
directors approves a proposal to pursuant to a proposal submitted
dissolve, the dissolution of the to the shareholders by the board
corporation must be approved of directors. Unlike Delaware
unanimously by the stockholders law, Georgia law makes no
entitled to vote on dissolution. If provision for dissolution by
a majority of the board of unanimous consent of the
directors approves of dissolution, shareholders.
only the approval of a majority of
the stockholders is required.
- ----------------------------------------- ------------------------------------- ------------------------------------
Shareholder Derivative Suits Generally, a stockholder may Generally, a shareholder may
bring a derivative action on bring a derivative action on
behalf of the corporation only if behalf of the corporation only if
the stockholder was a stockholder the shareholder was a shareholder
of the corporation at the time of of the corporation at the time of
the transaction in question or the transaction in question or
received his or her shares by received his or her shares by
operation of law. operation of law. In Georgia, the shareholder
must fairly and adequately represent the
interests of the corporation in enforcing its
rights.
The following is a more thorough discussion of the material provisions of
Delaware and Georgia corporation law as well as the material provisions of the
organizational documents of Centiv and Centiv-DE. Although this discussion
provides greater detail that the above summary it is not intended to be a
complete discussion and you should read the discussion in conjunction with the
Centiv-DE Certificate of Incorporation and bylaws attached as Exhibits 3.1 and
3.2, respectively.
22
Amendment of Charter.
Under Delaware law, Centiv-DE's Certificate of Incorporation may be amended
by the approval of (i) the board of directors, (ii) holders of a majority of the
outstanding stock entitled to vote on the amendment, and (iii) a majority of
each class of stock entitled to vote on the amendment. In general, a class of
stock is entitled to vote on an amendment if the rights, powers, preferences or
authorized shares of that class will be affected by the amendment. Under
Georgia law, only the approval of the board of directors was required to amend
Centiv's Articles of Incorporation under certain enumerated circumstances. In
all other instances, the amendment of Centiv's Articles of Incorporation
required the approval of (i) the board of directors, (ii) the holders of a
majority of the votes entitled to be cast on the amendment, and (iii) a majority
vote of each group, if any, entitled to vote on the amendment. In general, a
group is entitled to vote on the amendment if the amendment, either directly or
through any of several enumerated indirect methods, will affect the group's
designation, rights, preferences, limitations or number of authorized shares.
Amendment of Bylaws.
Under Delaware law, the stockholders always have the power to adopt, amend and
repeal a corporation's bylaws. The Certificate of Incorporation may also permit
the board of directors to take these actions. In general, under Georgia law,
bylaws may be amended by either the shareholders or the board of directors,
though the shareholders in amending or repealing a particular bylaw may
expressly provide that the board of directors may not amend or repeal that
bylaw. In addition, articles of incorporation may, in whole or in part, reserve
the power to amend the bylaws to the shareholders. A bylaw that establishes
staggered terms for directors or fixes a greater quorum for shareholders than is
required by Georgia law may only be adopted, amended or repealed by the
shareholders. The Centiv-DE Certificate of Incorporation provides that
generally the Centiv-DE bylaws may be amended by either the directors or the
stockholders; however, certain provisions may only be amended with the
affirmative vote of the holders of at least 80% of the stockholders.
Classified Board of Directors.
Under Delaware law, a classified board provision in a company's bylaws or
certificate of incorporation may provide that directors will be classified into
up to three classes, each having as nearly equal a number of directors as
possible. At each annual meeting of stockholders following the initial
classification and election of a three class board of directors, the successors
to the class of directors whose terms expire at that meeting would be elected
for a term expiring at the third succeeding annual meeting of stockholders after
their election. Delaware law does not require classified boards to have a
specific number of directors in each class. Directors chosen to fill vacancies
on a classified board hold office until the next election of the class for which
they have been chosen, and until their successors are elected and have been
qualified.
Under Delaware law, unless the certificate of incorporation provides otherwise,
directors serving on a classified board of directors may be removed only for
cause (see "Removal of Directors" below). A classified board provision may
significantly extend the time required to effect a change in control of a board
of directors and may discourage hostile takeover bids for companies that have
classified board provisions. For companies without a classified board, a change
in control of the board of directors can be made by stockholders holding a
majority of the votes cast at a single annual meeting of stockholders. By
comparison, with a classified board provision in place, it would take at least
two annual meetings of stockholders for even a majority of stockholders to
effect a change in control of the Board of Directors of Centiv-DE absent
resignations because only a minority of the directors would be elected at each
meeting. A classified board provision is intended to encourage persons seeking
to acquire control of a company, including through proxy fights or hostile
takeovers, to initiate those efforts through negotiations with the board of
directors. A classified board provision also generally increases the bargaining
23
leverage of a board of directors, on behalf of its stockholders, in any
negotiations concerning a potential change of control of a company. Classified
board provisions, however, make more difficult or discourage a proxy contest or
the assumption of control by a substantial stockholder and thus could increase
the likelihood that incumbent directors retain their positions. A classified
board provision could also have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of a company
even though the attempt might be beneficial to the stockholders.
The Certificate of Incorporation of Centiv-DE calls for a classified board of
directors consisting of three classes of directors with staggered terms. The
Certificate of Incorporation of Centiv-DE provides for three classes of
directors with two directors in each class, each elected for a term of three
years expiring in successive years. The first class will include Mr. Carnavale
and Ms. Feil, the second class with include Messrs. Mason and Dalton and the
third class will include Messrs. Sisto and Rychel. One director in the first
class is elected by the preferred stockholders, and the other director in the
first class as well as the directors in the second and third classes are elected
by the preferred stockholders and the common stockholders voting together.
Thus, we have a classified board of directors, which is divided into three
classes with directors serving staggered three-year terms, except for the first
term of Class I directors, who initially serve a one-year term and the first
term of Class II directors, who initially serve a two-year term.
Under Georgia law, staggered boards are permitted if authorized in the bylaws or
articles of incorporation, but no provision is made for differing voting rights
or terms.
Removal of Directors.
Delaware law generally permits a majority of shares entitled to vote at an
election of directors to remove all or any of the directors. However, a
director that is a member of a class (see "Classified Board of Directors" above)
may only be removed for cause. Georgia law similarly permits a majority of
shares entitled to vote at an election of directors to remove all or any of the
directors, with or without cause (except those elected for staggered terms who
may only be removed for cause), unless the articles of incorporation or bylaws
provide otherwise. Both states provide that a director that is elected solely
by one class or group of stock may only be removed by that class. Both states
also provide that, if cumulative voting is authorized by the charter, a director
may not be removed if the number of votes sufficient to elect the director is
cast against removal. The Centiv-DE bylaws provide that directors may be
removed only for cause and only by the affirmative vote of the holders of 80% of
the combined voting power of the then outstanding shares of stock entitled to
vote on the election of such director. Thus, because the preferred stockholders
of Centiv-DE, voting alone, elect one of the Class I directors, only a vote of
the holders of 80% of the outstanding preferred stock of Centiv-DE may remove
that director.
Indemnification of Directors and Officers.
Delaware law permits indemnification of directors and officers who act in good
faith and in a manner believed to be in or not opposed to the best interests of
the corporation. In the case of a proceeding brought by the corporation, the
corporation may not indemnify an unsuccessful defendant officer or director,
except (in the discretion of the court) to the extent of expenses incurred in
the defense. Georgia law permits indemnification of a director who, in the case
of conduct in the director's official capacity, acts in good faith and in a
manner reasonably believed to be in the best interests of the corporation. In
the case of conduct outside the director's official capacity, Georgia law
permits indemnification of a director who acts in good faith and in a manner
reasonably believed to be not opposed to the best interests of the corporation.
24
Georgia law prohibits the indemnification (except for expenses) of an
unsuccessful defendant in a case brought by the corporation or with respect to
any conduct from which the director received an improper benefit. Georgia law
permits the indemnification of officers to the same extent as directors and as
otherwise set forth in the articles of incorporation, bylaws, board resolution
or contract; provided that no officer may be indemnified for appropriation of a
business opportunity of the corporation, intentional misconduct, knowing
violations of law or unlawful distributions. Both Delaware and Georgia law
require indemnification (as to expenses) of directors who are wholly successful
on the merits of any proceeding due to the directors position as such.
Advance Notice Requirements for Stockholder Proposals and Nomination for
Directors.
Georgia and Delaware law are silent as to advance notice of stockholder
proposals and director nominations. Generally, the Centiv bylaws provide that
notice of a shareholder proposal 120 days but not more than 150 days before the
anniversary date of the prior year's proxy statement and a shareholder director
nomination must be received no later than 60 days but not more than 75 days
prior to the meeting. The Centiv-DE bylaws provide that notice of a stockholder
proposal must be received at least 120 days but not more than 150 days prior to
the anniversary date of the immediately preceding meeting, and notice of a
stockholder director nomination must be received at least 120 days but not more
than 150 days prior to the anniversary date of the immediately preceding annual
meeting.
Special Meetings of Shareholders.
Under Centiv's charter and byalws, a special shareholder meeting could have been
called by the board of directors, the Chairman or President or by shareholders
holding not less than 20% of the outstanding stock entitled to vote. Delaware
law provides that special meetings of stockholders may be called by the board of
directors or by such persons as may be authorized by the certificate of
incorporation or bylaws. The Centiv-DE bylaws allow special meetings to be
called only by the chairman, the president or the board of directors pursuant to
a resolution approved by a majority of the board.
Stockholder Action by Written Consent.
Delaware law generally allows for stockholder actions to be taken pursuant to a
written consent signed by stockholders having not less than the minimum number
of votes necessary to authorize or take such action, provided that a subsequent
notice of the taking of corporate action by less than unanimous written consent
is sent to stockholders who have not consented in writing. The Centiv-DE
Certificate of Incorporation and bylaws, however, prohibit stockholder action by
written consent. Georgia law is substantially similar to Delaware law in
permitting action by written consent. The Centiv bylaws provided for
shareholder action by written consent.
Dividends.
Under Delaware law, a corporation may declare and pay a dividend out of the
surplus or net profits of the corporation. A corporation may not pay a dividend
so long as the amount of the capital of the corporation following the
declaration and payment is less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Under Georgia law, a corporation
may not make a distribution (including any distribution of cash or property as a
dividend or for repurchase of shares) if, after giving effect to such
distribution, (i) the corporation would be unable to pay its debts as they
become due in the ordinary course, or (ii) the corporation's total assets would
be less than its total liabilities, including the amount needed to satisfy any
25
preferential rights upon dissolution. In calculating total assets, the board of
directors may consider financial statements or on a "fair valuation" or other
reasonable method.
Approval of Certain Transactions.
Under both Delaware and Georgia law, "business combinations" by corporations
with "interested shareholders" are subject to a moratorium of three or five
years, respectively, unless specified conditions are met. The prohibited
transactions include a merger with, disposition of assets to, or the issuance of
stock to, the interested shareholder, or specified transactions that have the
effect of increasing the proportionate amount of the outstanding securities held
by the interested shareholder. Under Delaware and Georgia law, interested
shareholders are those shareholders who own 15% and 10% of the voting stock of a
corporation, respectively. Interested shareholders may avoid the prohibitions
against significant transactions with corporations in Delaware and Georgia under
the following circumstances:
Delaware Georgia
- ------------------------------------------- -------------------------------------------
- Prior to becoming an interested - Prior to becoming an interested
stockholder, the board of directors shareholder, the board of directors
approves the transaction or approves the transaction or
transactions by which the stockholder transactions by which the shareholder
becomes an interested stockholder; becomes an interested shareholder;
- The interested stockholder owned at - The interested shareholder owns at
least 85% of the voting stock, least 90% of the voting stock,
excluding specified shares, upon excluding specified shares, upon
consummation of the transaction that consummation of the transaction that
results in the stockholder becoming an results in the shareholder becoming an
interested stockholder; or interested shareholder; or
- At, or subsequent to, the time the - At, or subsequent to becoming an
stockholder becomes an interested interested shareholder the interested
stockholder, the board of directors and shareholder holds 90% of the
at stockholders holding at least outstanding voting stock, excluding
66-2/3% of the outstanding shares, specified shares (including shares held
excluding shares held by the interested by the interested shareholder), and the
stockholder, approve the transaction. transaction is approved by a majority
of the shareholders of the voting stock
entitled to vote thereon, excluding
specified shares (including shares held
by the interested shareholder).
Georgia law also includes "fair price requirements" that would apply to any
business combinations between Centiv and an interested shareholder. Business
combinations with interested shareholders must be unanimously approved by at
least three "continuing directors" of Centiv or recommended by at least 66 2/3%
of continuing directors and approved by a majority of the votes entitled to be
cast by shareholders, other than voting shares beneficially owned by the
interested shareholder. This vote is not required if: (1) the fair market value
of the aggregate cash or securities to be received by the shareholders is as
high as the fair market value of their shares; (2) the shareholders receive the
same form of consideration as the interested shareholder previously paid for
shares of the same class or series; (3) there are no changes with respect to
dividends; and (4) the interested shareholder has not received the benefit of
any loans, advances, guarantees, pledges or other financial assistance provided
by Centiv.
26
Dissenters' Rights.
Under both Delaware and Georgia law, a shareholder of a corporation
participating in a specified major corporate transaction may be entitled to
dissenters' or appraisal rights pursuant to which the shareholder may receive
cash in the amount of the fair value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction.
Under Delaware law, these rights are not available with respect to: (1) the
sale, lease or exchange of all or substantially all of the assets of a
corporation or an amendment to the corporation's certificate of incorporation
(unless otherwise provided in the corporation's certificate of incorporation);
(2) a merger or consolidation by a corporation the shares of which are either
listed on a national securities exchange or held of record by more than 2,000
stockholders if the stockholders are required to receive only shares of the
surviving corporation, shares of any other corporation that are either listed on
a national securities exchange or held of record by more than 2,000 holders,
cash in lieu of fractional shares or a combination of the foregoing; or (3) a
merger if no vote of the stockholder of the surviving corporation is required to
approve the merger because the merger does not amend the certificate of
incorporation, and each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does not exceed 20% of the
shares of the surviving corporation outstanding immediately prior to the merger.
In contrast, under Georgia law, dissenters' rights are available in the
following cases: (1) a merger if shareholder approval is required for the
merger and the shareholder is entitled to vote on the merger, or if the
corporation is a subsidiary that is merged with its parent; (2) a share exchange
in which the corporation's shares will be acquired, if the shareholder is
entitled to vote on the share exchange; (3) a sale or exchange of all or
substantially all of the assets of a corporation, if a shareholder vote is
required, other than a sale pursuant to a court order or a sale for cash the
proceeds of which will be distributed to the shareholders within one year; (4)
an amendment of the articles of incorporation that adversely affects rights
relating to the shareholder's shares; or (5) any corporate action taken pursuant
to a shareholder vote to the extent the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or non-voting
shareholders are entitled to dissent and obtain payment for their shares.
Furthermore, under Georgia law, this right is not available when the affected
shares are listed on a national securities exchange or held of record by more
than 2,000 shareholders unless: (1) the articles of incorporation or a
resolution of the board of directors approving the transaction provide
otherwise; or (2) in a plan of merger or share exchange, the shareholders of
shares are required to accept anything other than shares of the surviving
corporation or another publicly held corporation which at the effective date of
the merger or share exchange are either listed on a national securities exchange
or held of record by more than 2,000 shareholders, except for payments in lieu
of fractional shares.
THE CHARTERS AND BYLAWS OF CENTIV AND CENTIV-DE
The provisions of the Centiv-DE Certificate of Incorporation and bylaws, as
currently in existence are substantially similar to the Articles of
Incorporation and bylaws of Centiv as existed immediately prior to the
reincorporation. The following discussion of the Certificate of Incorporation
and bylaws of Centiv-DE is qualified by reference to the Certificate of
Incorporation and Bylaws of Centiv-DE, which are attached as exhibits to this
report and which you should review carefully.
27
Number of Authorized Shares.
Under its previous Articles of Incorporation Centiv was authorized to issue up
to 35,000,000 shares of Class A common stock, $.001 par value, and up to
5,000,000 shares of preferred stock, $.001 par value. Pursuant to a Certificate
of Designations, Preferences and Rights filed on March 28, 2002, Centiv
designated 1,000,000 shares of preferred stock as Series A Convertible Preferred
Stock. In addition, the board of directors was entitled to designate new series
of preferred stock and determine the powers, preferences and rights, and the
qualifications and limitations or restrictions of the authorized and unissued
preferred stock without shareholder approval.
The Certificate of Incorporation of Centiv-DE authorizes Centiv-DE to issue the
same number of shares of both common and preferred stock and includes an
identical Certificate of Designations, Preferences and Rights with regard to the
Series A Convertible Preferred Stock. Like the Articles of Incorporation of
Centiv, the Certificate of Incorporation of Centiv-DE provides that the Board of
Directors is entitled to determine the powers, preferences and rights, and the
qualifications, limitations or restrictions, of the authorized and unissued
preferred stock without further approval of the stockholders.
Size of Board of Directors.
Centiv's bylaws permitted the board of directors to determine the size of the
board provided that there must have been at least three directors. Immediately
prior to the reincorporation merger, the size of the board was set at six
members. Delaware law, like Georgia law, permits a board of directors, acting
alone, to change the authorized number of directors by amending to the bylaws or
the adopting of a resolution, unless the directors are not authorized to amend
the bylaws or the number of directors is fixed in the certificate of
incorporation (in which case a change in the number of directors may be made
only by amendment to the certificate of incorporation following stockholder
approval of the change). The Certificate of Incorporation of Centiv-DE provides
that the number of directors will be determined by a resolution of the Board
within any limits prescribed in the bylaws, which shall be only that there be
not less than three members of the board of directors.
Monetary Liability of Directors.
The Articles of Incorporation of Centiv provided and the Certificate of
Incorporation of Centiv-DE continues to provide for the elimination of personal
monetary liability of directors to the fullest extent permissible under the laws
of the respective states.
Indemnification.
The Centiv Articles of Incorporation were silent on the ability of Centiv to
indemnify its officers and directors through bylaw provisions, agreements with
them, vote of shareholders or disinterested directors or otherwise. The Centiv
bylaws, however, provided that Centiv would indemnify its directors and officers
and other corporate agents to the fullest extent allowed by Georgia law. The
Centiv-DE Certificate of Incorporation and bylaws require Centiv-DE to indemnify
the company's directors and officers and other corporate agents, all to the
maximum extent and in the manner permitted by Delaware law. The Certificate of
Incorporation and bylaws of Centiv-DE may be broader in this regard in that
Delaware law does not contain the same restrictions as Georgia law.
Amendment of Bylaws and Charter.
The bylaws and charter of Centiv may have been and those of Centiv-DE may
be amended or repealed by a vote of holders of a majority of the outstanding
stock entitled to vote or
28
by the board of directors, so long as proper notice of the meeting is given and
the notice includes in its purposes the amendment or repeal of the bylaws or
charter; provided that the Certificate of Designations, Preferences and Rights
of the convertible preferred stock may not be amended without the approval of at
least two-thirds of the holders of the convertible preferred stock.
PRIVATE OFFERING
On March 28, 2002 and April 15, 2002, the Company sold, in two separate closings
of one private placement, 191,000 units and 25,000 respectively, each unit
consisting of one share of convertible preferred stock and one warrant to
purchase one additional share of convertible preferred stock. This offering was
made pursuant to an exemption from registration under Rule 506 of Regulation D
under the Securities Act of 1933. 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. In connection with this offering the Company,
pursuant to its Articles of Incorporation filed a Certificate of Designations,
Rights and Preferences with the Secretary of State of the State of Georgia
defining the rights of the preferred stock.
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 filed, on April 26, 2002, 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
29
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2002 Annual Meeting of Stockholders was held on June 11, 2002.
The votes for each proposal were as follows:
PROPOSAL 1 - ELECTION OF SIX DIRECTORS , ONE TO BE ELECTED BY THE PREFERRED
- ----------------------------------------------------------------------------
SHAREHOLDERS AND FIVE DIRECTORS TO BE ELECTED BY BOTH THE COMMON SHAREHOLDERS
- -----------------------------------------------------------------------------
AND THE PREFERRED SHAREHOLDERS VOTING AS A SINGLE CLASS:
- --------------------------------------------------------
Steven J. Carnevale was elected by the preferred shareholders and the other
directors were elected by both the common and preferred shareholders.
PROPOSAL 1 RESULTS FOR AGAINST ABSTAIN
------------------ --- ------- -------
Steven J Carnevale (elected
by preferred shareholders only) 1,550,000 2,000 0
Frank X Dalton 4,534,729 2,000 0
Albert E. Sisto 4,534,729 2,000 0
Kim Feil 4,534,729 2,000 0
William M. Rychel 4,534,729 57,000 0
Thomas M. Mason 4,534,729 57,000 0
PROPOSAL 2 - APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN TO INCREASE THE
- ----------------------------------------------------------------------------
NUMBER OF SHARES THAT WE MAY ISSUE UNDER THE PLAN FROM 1,250,000 TO 1,500,000:
- ------------------------------------------------------------------------------
PROPOSAL 2 RESULTS FOR AGAINST ABSTAIN
------------------ --- ------- -------
Total All Classes 4,313,590 23,200 3,200
PROPOSAL 3 - APPROVAL OF THE REINCORPORATION OF THE COMPANY INTO DELAWARE:
- --------------------------------------------------------------------------
30
PROPOSAL 3 RESULTS FOR AGAINST ABSTAIN
------------------ ----------- -------- -------
Common Shares 2,730,290 56,500 3,200
Preferred Shares 1,550,000 0 0
----------- -------- ---------
Total All Classes 4,280,290 56,500 3,200
PROPOSAL 4 - RATIFICATION OF THE ISSUANCE OF THE 216,000 UNITS, EACH CONSISTING
- -------------------------------------------------------------------------------
OF ONE SHARE OF CONVERTIBLE PREFERRED STOCK AND A WARRANT TO PURCHASE ONE
- -------------------------------------------------------------------------
ADDITIONAL SHARE OF PREFERRED STOCK AND THE DEEMED CHANGE OF CONTROL RESULTING
- -------------------------------------------------------------------------------
FROM SUCH ISSUANCE (COMMON SHAREHOLDERS ONLY VOTED ON THIS PROPOSAL):
- ---------------------------------------------------------------------
PROPOSAL 4 RESULTS FOR AGAINST ABSTAIN
------------------ --- ------- -------
Total All Classes 4,447,796 182,150 7,900
PROPOSAL 5 - APPROVAL OF THE ISSUANCE AND SALE, IN A PRIVATE OFFERING, UP TO
- ----------------------------------------------------------------------------
330,000 UNITS, EACH CONSISTING OF SHARES OF CAPITAL STOCK AND A WARRANT TO
- --------------------------------------------------------------------------
PURCHASE ADDITIONAL SHARES OF STOCK AND THE DEEMED CHANGE OF CONTROL THAT MAY
- -----------------------------------------------------------------------------
OCCUR AS A RESULT OF THIS ISSUANCE AND SALE:
- --------------------------------------------
PROPOSAL 5 RESULTS FOR AGAINST ABSTAIN
------------------ --- ------- -------
Common Shares 2,781,990 4,800 3,200
Preferred Shares 1,550,000 0 0
--------- ------ --------
Total All Classes 4,331,990 4,800 3,200
ITEM 5. OTHER INFORMATION
On April 8, 2002, the Company received a letter from The Nasdaq Stock Market,
Inc. requesting that the Company provide Nasdaq with a detailed description of
how the Company intends to continue to comply with the listing requirements of
the Nasdaq SmallCap Market. The Company has responded to that inquiry with a
detailed plan of how the Company plans to remain in compliance with all of the
listing requirements of the Nasdaq SmallCap Market. On May 15, 2002, the
Company received notification from the Nasdaq Stock Market that it has closed
this matter and the Company was in compliance with the listing requirements of
the Nasdaq SmallCap Market.
31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
- --------
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).
2.3 Agreement and Plan of Merger dated as of June 11, 2002 by Centiv, Inc.,
a Georgia corporation and Centiv, Inc., a Delaware corporation
3.1 Certificate of Incorporation of Centiv, Inc. dated April 11, 2002 and
related Certificate of Designations, Preferences and Rights filed May 21, 2002.
3.2 Bylaws of Centiv, Inc.
4.1 Form of Securities Purchase Agreement dated March 28, 2002 by and among
Centiv, Inc. and the purchasers identified on Exhibit A thereto (Filed as
Exhibit 4.1 to the Company annual report on form 10-K filed on April 1, 2002 and
incorporated herein by reference).
4.2 Form of Investors Rights Agreement dated March 28, 2002 by and among
Centiv, Inc. and the investors who are signatories thereto (Filed as Exhibit 4.2
to the Company annual report on form 10-K filed on April 1, 2002 and
incorporated herein by reference).
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 (Filed as Exhibit 4.3 to the Company annual report on form
10-K filed on April 1, 2002 and incorporated herein by reference).
10.1 Loan Agreement dated June 12, 2002 between the Company and Cole Taylor
Bank.
10.2 Security Agreement dated June 12, 2002 between the Company and Cole
Taylor Bank.
11.1 Statements of Computation of Earnings Per Share (Filed as Exhibit 11.1
to the Company annual report on form 10-K filed on April 1, 2002 and
incorporated herein by reference)
21.1 Subsidiaries (Filed as Exhibit 21.1 to the Company annual report on
form 10-K filed on April 1, 2002 and incorporated herein by reference)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32
REPORTS ON FORM 8-K
- -------------------
The following reports on Form 8-K have been filed during the three months ended
June 30, 2002:
Current Report on Form 8-K filed April 5, 2002, which included disclosure under
Item 5 relating to the issuance of units, each consisting of on share of
convertible preferred stock and one warrant to purchase one additional share of
convertible preferred stock.
Current Report on Form 8-K filed July 5, 2002, which included disclosure under
Item 5 relating to the lawsuit filed by the Company against Encad, Inc.
33
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-Q TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED THIS 9th DAY OF AUGUST, 2002.
CENTIV, INC.
SIGNATURE Title
--------- -----
By: /s/ William M. Rychel Chief Executive Officer,
----------------------- President and Director (principal
William M. Rychel executive officer)
By: /s/ Thomas M. Mason Chief Financial Officer
-------------------- (principal financial and accounting
Thomas M. Mason officer and duly authorized officer
of the Registrant)
34