UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number: 0-20995
EDGE TECHNOLOGY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3778895
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
6611 HILLCREST AVENUE #223, DALLAS, TEXAS 75205
(Address of principal executive offices)
(214) 999-2245
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
As of May 10, 2002, the issuer had 17,385,776 shares of Common
Stock outstanding.
EDGE TECHNOLOGY GROUP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
----------
ITEM 1. Financial Statements:
Balance Sheets as of December 31, 2001 and
March 31, 2002 (unaudited)...................... 3
Unaudited Statements of Operations for the
Three Months Ended March 31, 2001 and 2002...... 4
Unaudited Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2002...... 5
Notes to Unaudited Financial Statements........... 6-9
ITEM 2. Management's Discussion and Analysis
or Plan of Operations...................... 9
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings............................. 16
ITEM 2. Changes in Securities and Use of Proceeds..... 16
ITEM 3. Defaults Upon Senior Securities............... 17
ITEM 4. Submission of Matters to a Vote of
Security Holders........................... 17
ITEM 5. Other Information............................. 17
ITEM 6. Exhibits and Reports on Form 8-K.............. 17
SIGNATURE.............................................. 18
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EDGE TECHNOLOGY GROUP, INC.
BALANCE SHEETS
December 31, March 31,
2001 2002
------------ ------------
(unaudited)
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CURRENT ASSETS
Cash and Cash Equivalents $ 82,567 $ 489,819
Other Current Assets 20,339 20,370
------------ ------------
Total Current Assets 102,906 510,189
NON-CURRENT ASSETS
Fixed Assets, net 35,385 31,632
Note Receivable, net of allowance of $1,400,000 as
of December 31, 2001 and March 31, 2002 - -
Capitalized Acquisition Costs and Deferred
Financing Fees - 56,278
------------ ------------
$ 138,291 $ 598,099
============ ============
CURRENT LIABILITIES
Accounts Payable $ 451,993 $ 473,455
Accrued Expenses 239,489 234,582
------------ ------------
Total Current Liabilities 691,482 708,037
Notes Payable - Related Parties 1,639,000 1,639,000
Advanced Funding of Equity Issuance - 470,507
------------ ------------
Total Non-current Liabilities 1,639,000 2,109,507
------------ ------------
TOTAL LIABILITIES 2,330,482 2,817,544
============ ============
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY (DEFICIT)
Series A Convertible Preferred Stock, no par value,
5,000,000 shares authorized, none issued or outstanding
at December 31, 2001 or March 31, 2002 - -
Common Stock, $.01 par value, 100,000,000 shares authorized,
16,488,139 issued and outstanding at December 31, 2001
and March 31, 2002 164,881 164,881
Additional Paid in Capital 40,048,615 40,248,615
Accumulated Deficit (42,405,687) (42,632,941)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (2,192,191) (2,219,445)
------------ ------------
$ 138,291 $ 598,099
============ ============
The accompanying notes are an integral part
of these financial statements.
-3-
EDGE TECHNOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended March 31,
--------------------------
2001 2002
----------- -----------
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Sales - $ -
Operating Expenses
General and Administrative 19,050 191,961
----------- -----------
Operating Loss (19,050) (191,961)
Other Income (Expense)
Interest Income 700 8
Interest Expense (18,116) (34,339)
Taxes - Other - (962)
Amortization of Deferred Financing Fees (2,813) -
----------- -----------
Total Other Income (Expense) (20,229) (35,293)
----------- -----------
Loss from Continuing Operations (39,279) (227,254)
Loss from Discontinued Operations (350,881) -
----------- -----------
Net Loss $ (390,160) $ (227,254)
=========== ===========
Basic and Diluted Loss Per Share
From Continuing Operations $ - $ (0.01)
From Discontinued Operations (0.02) -
----------- -----------
Net Loss Per Share $ (0.02) $ (0.01)
=========== ===========
Weighted Average Common Shares Outstanding 16,016,335 16,488,139
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-4-
EDGE TECHNOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended March 31,
---------------------------
2001 2002
------------ ------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (390,160) $ (227,254)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash stock and stock option compensation expense 141,605 -
Depreciation and amortization 9,706 3,753
Gain on disposal of fixed assets (589) -
Change in assets and liabilities:
Decrease in accounts receivable 7,448 -
Increase in inventory (708) -
Decrease in prepaid expenses - advance royalties 5,024 -
Decrease (increase) in other current assets 7,235 (31)
Increase in other assets (14,906) -
(Decrease) increase in accounts payable (19,970) 21,462
Increase (decrease) in accrued expenses 85,054 (4,907)
Decrease in other current liabilities (30,777) -
------------ ------------
Net cash used in operating activities (201,038) (206,977)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized acquisition costs - (29,211)
Proceeds from the sale of fixed assets 14,176 -
------------ ------------
Net cash provided by (used in) investing activities 14,176 (29,211)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, net 100,000 -
Deferred financing fees - (27,067)
Advanved funding of equity issuance - 470,507
Contributed Capital - 200,000
------------ ------------
Net cash provided by financing activities 100,000 643,440
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (86,862) 407,252
Cash and Cash Equivalents, beginning of period 169,846 82,567
------------ ------------
Cash and Cash Equivalents, end of period $ 82,984 $ 489,819
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 2,043 $ -
============ ============
Cash paid for taxes $ - $ 962
============ ============
The accompanying notes are an integral part
of these financial statements.
-5-
EDGE TECHNOLOGY GROUP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
In this Quarterly Report on Form 10-QSB, we will refer to Edge
Technology, Inc., a Delaware corporation, as "Edge," "Company,"
"we," "us" and "our."
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by us
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations. In the opinion
of management, the accompanying unaudited financial statements
include all necessary adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows of the Company.
The results of operations and cash flows for the three months
ended March 31, 2002, are not necessarily indicative of the
results of operations or cash flows that may be reported for the
year ended December 31, 2002. The unaudited financial statements
included herein should be read in conjunction with the audited
financial statements and the notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 2001.
2. DISCONTINUED OPERATIONS - SALE OF "ONE-ON-ONE" ASSETS
On September 10, 2001, we closed the previously announced sale of
assets related to our One-on-One business to a newly formed,
unrelated entity, Visual Edge, Inc. Accordingly, results of this
operation have been classified as discontinued and prior periods
have been restated.
The operating results of the discontinued operation for the three
months ended March 31, 2001, included sales of $100,055 and a net
loss of $350,881.
3. UNCERTAINTY OF PROPOSED PLAN OF OPERATION
The Company has suffered recurring losses from operations and has
an accumulated deficit of approximately $42.6 million at March
31, 2002.
The Company's recent change in focus to acquiring information
technology consulting services, business process software
applications and application services is a new business concept
for the Company and we cannot predict the nature and extent of
demand for our anticipated products and services.
In order to implement our new business plan it will be necessary
to secure additional financing, and there can be no assurance
that any additional financing will be available on acceptable
terms. Should we be unable to obtain additional financing, we
would be unable to acquire technology companies or continue
operations.
-6-
4. LOSS PER SHARE
Basic loss per share is calculated by dividing loss attributable
to common stockholders by the weighted average number of shares
of common stock outstanding during each period.
As of March 31, 2001 and 2002, due to our net losses, shares of
our $.01 par value common stock ("Common Stock") issuable upon
the exercise of outstanding options and warrants have been
excluded from the computation of diluted loss per share in the
accompanying statements of operations as their impact would be
antidilutive.
5. NOTE RECEIVABLE
On September 22, 2000, we made an unsecured loan of $1.4 million
to Hencie, Inc. ("Hencie"), a Texas-based IT Services business.
The loan was guaranteed by a related company, Hencie Consulting
Services, Inc. and personally guaranteed by Hencie's CEO.
The loan to Hencie matured November 22, 2001, and is in default.
Due to the uncertainty surrounding collection of the note, no
interest was accrued in 2001 or 2002 and, during the fourth
quarter of 2001, the note was fully reserved to reflect our
estimate of its net realizable value.
6. ADVANCED FUNDING OF EQUITY ISSUANCE
Advance Funding of Equity Issuance of approximately $470,000
reflects funds received prior to March 31, 2002, in anticipation
of closing subsequent thereto, the April 2002 Series A
Convertible Preferred Stock offering (see note 8 "Subsequent
Events").
7. FINANCING TRANSACTIONS
2000 Infinity Loans
During 2000, Infinity, a related party, made certain loans to us
for working capital purposes. These loans totaled approximately
$219,000 and bear interest at a rate equal to 8.5% per annum. As
part of the reorganization of Edge effective September 1, 2000,
Infinity became entitled to the repayment of these loans. The
loan agreement was renegotiated in April 2001 and again in
January 2002 to extend the due date to March 31, 2002. At
December 31, 2001 and March 31, 2002, there was $219,000 in
principal outstanding.
Upon maturity, as of April 1, 2002, Infinity elected to convert
the outstanding principal and interest totaling $258,464 into
Edge's $.01 par value Common Stock at $.65 per share resulting in
397,637 shares issued by us.
-7-
Sandera Loan (formerly "Catalyst Loan")
On December 13, 2000, we entered into a loan agreement with
Catalyst Master Fund, L.P. ("Catalyst"), a related party, to
borrow $620,000 (the "Catalyst Loan"). Catalyst is a stockholder
of ours and certain of our directors are officers of an entity
that manages Catalyst Master Fund L.P.
The Catalyst Loan was convertible at the option of the holder
into Edge Common Stock at a conversion price of $1.50 per share.
The Catalyst Loan was also secured by a pledge of substantially
all of our assets. Effective April 16, 2001, we entered into an
amended loan agreement with Catalyst that increased the
borrowings available under the original loan agreement from
$620,000 to a total of $2,120,000. Under the amended loan
agreement, we could draw down amounts under the loan agreement as
we had a need for funds, subject to our being in compliance with
the covenants contained in that loan agreement. The amended loan
agreement bears interest at eight percent (8%) per annum and was
due March 31, 2002. The additional amount available under the
amended loan agreement is also convertible into Edge Common Stock
at a conversion price of $1.50 per share and was secured by a
pledge of substantially all of our assets. At December 31, 2001
and March 31, 2002, the principal balance outstanding on the
Catalyst Loan was $1,420,000.
On December 28, 2001, Catalyst Master Fund, L. P. assigned the
Catalyst Loan, and its rights thereunder, to Sandera Partners, L.
P. ("Sandera") as part of a redemption of Sandera's limited
partnership interest in Catalyst. Certain of our directors are
officers of an entity that manages Sandera.
On April 1, 2002, Sandera converted all principal and interest
due under the note (total of $1,530,124) and contributed an
additional amount of approximately $470,000 in cash in exchange
for 2,000 shares of Series A Convertible Preferred Stock (see
note 8 "Subsequent Events).
Infinity Option
On May 31, 2001, we sold to Infinity an option in return for the
payment of $1.0 million payable in five payments of $200,000 each
commencing on May 31, 2001 ("Infinity Option"). Pursuant to the
Infinity Option, Infinity could elect on May 31, 2002, to
exercise its option by assigning its interest in a note
receivable of $10.0 million in exchange for 3,333,333 shares of
Edge Common Stock. We received $200,000 during the three months
ended March 31, 2002, which was recorded as paid in capital.
In March 2002, Infinity and Edge mutually agreed to terminate the
option.
8. SUBSEQUENT EVENTS
April 2002 Series A Convertible Preferred Stock
- -----------------------------------------------
On April 1, 2002, we issued 4,200 shares of Series A Convertible
Preferred Stock ("Series A Preferred") at $1,000 per share
providing proceeds to us of $2,669,876 calculated as $4,200,000,
less $1,530,124 of the pre-existing Sandera debt converted to
Series A Preferred. The Series A Preferred shares carry an 8%
cumulative dividend and are convertible, at the option of the
holder, into shares of $.01 par value Common Stock of Edge any
time after one year at an initial conversion price of $.75 per
share. The preferred shares have voting rights pari pasu with
the Common Stock and as a separate class on certain matters. The
shares also have an antidilution
-8-
provision whereby the price and number of shares issuable upon
conversion adjusts for stock splits, stock dividends and future
share issuances below the conversion price of the Series A
Preferred. The Series A Preferred have demand registration
rights after one year following closing of the financing
transaction and the right to elect one member to our Board of
Directors.
In connection with the issuance of Series A Preferred, each
purchaser received warrants entitling the holder to purchase 20
shares of Edge's $.01 par value Common Stock for each 100 shares
of Common Stock the holder is entitled to receive upon
conversion. The warrants entitle the holder to purchase common
shares at the price of $1.15 per share. The warrants become
exercisable on the second anniversary of the issuance of the
Series A Preferred and, unless exercised earlier, will expire on
the fourth anniversary of the issuance. We issued warrants
exercisable for a total of 1,119,998 shares of Common Stock in
the offering. We paid no commissions in connection with issuance
of Series A Preferred. Proceeds from the offering were used to
acquire Media Resolutions, Inc. and The Visionary Group (see
below) and for general corporate purposes.
Acquisition of Media Resolutions, Inc.
- --------------------------------------
On April 11, 2002, we closed the previously announced acquisition
of Media Resolutions, Inc., an ASP and website hosting company
located in Dallas, Texas. We paid $330,000 in cash and 500,000
restricted shares of our Common Stock in exchange for all the
outstanding shares of Media Resolutions. The acquisition will be
accounted for using the purchase method of accounting. As such,
the assets and liabilities of Media Resolutions will be recorded
at their estimated fair value and the results of operations will
be included in our consolidated results of operations from the
date of acquisition. Media Resolutions has four employees and
generated revenues of approximately $283,000 and break even
operating results in 2001.
Acquisition of The Visionary Group, Inc.
- ----------------------------------------
On April 8, 2002, we acquired The Visionary Group, Inc., a
professional services firm providing IT consulting services
related to Oracle applications software. Headquartered in
Dallas, Texas, The Visionary Group has operations in Dallas and
Austin, Texas. We paid $910,000 in cash and paid approximately
$70,000 of existing debt in exchange for all the outstanding
shares of The Visionary Group. The acquisition will be accounted
for using the purchase method of accounting. As such, the assets
and liabilities of The Visionary Group will be recorded at their
estimated fair value and the results of operations will be
included in our consolidated results of operations from the date
of acquisition. The Visionary Group has 14 employees and
generated revenues of $3.4 million and break even operating
results in 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
included as Item 1 of this report. This document contains
"forward-looking statements" made under the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on the beliefs
of our management as well as assumptions made by and information
currently available to our management. These statements include
without limitation, statements regarding our future capital
requirements and our ability to
-9-
satisfy our capital needs; statements regarding our recent
acquisitions; statements regarding our ability to implement our
plans to acquire additional companies; and other statements
which speak to projections of future conditions or our
anticipated performance which contain the words "anticipate" "
believe," "expect" and words or phrases of similar import,
as they relate to us or our management. You should be aware
that these "forward-looking" statements are subject to
certain risks, uncertainties and assumptions related to
certain factors including, but not limited to those factors
set forth under the heading "RISK FACTORS" in our annual report
filed on Form 10-KSB for our fiscal year ended December 31,
2001, and herein.
Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to have been correct.
Based upon changing conditions, should any one or more of these
risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially
from those described herein. We expressly undertake no
obligation to update these forward-looking statements. Except as
required by federal securities laws, we undertake no obligation
to publicly update or revise any written or oral forward-looking
statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date
of this report.
GENERAL
Prior to our emphasis on Information Technology ("IT") Consulting
Services and Integration, Business Application Software and
Application Services and Management, the business consisted
primarily of developing, marketing and selling personalized
videotape golf lessons featuring One-on-One golf video
instruction by leading professional golfer Greg Norman, sold
under the name "One-on-One with Greg Norman."
On September 10, 2001, we sold all the assets related to our One-
on-One business to Visual Edge, Inc., a newly created company
formed by certain members of our previous management. Visual
Edge, Inc. is not related to us.
The results of operations generated by the One-on-One business
have been presented as "discontinued operations" in the financial
statements because it represented a separate segment of our
business. During the three months ended March 31, 2001, we had
no operations other than those related to the business sold in
September 2001. As such, the basic financial statements for the
three months ended March 31, 2001, include neither sales nor
costs of sales.
Although the Company has had revenues from operations in each of
the last two fiscal years, we believe such historical financial
information is not representative of our current business or
financial position in light of the discontinuance of the One-on-
One business and the shift in our business model to that of
providing IT Consulting Services and Integration, Business
Application Software and Application Services and Management.
-10-
RECENT DEVELOPMENTS
- -------------------
April 2002 Series A Convertible Preferred Stock
- -----------------------------------------------
We issued 4,200 shares of Series A Convertible Preferred Stock
("Series A Preferred") on April 1, 2002. Each share of our
Series A Preferred was issued at a purchase price of $1,000 per
share, carries an 8% cumulative dividend and is convertible into
shares of our Common Stock at an initial conversion price of $.75
per share. For each 100 shares of Common Stock received upon
conversion of the Series A Preferred we issued warrants to
purchase 20 shares of our Common Stock at a purchase price of
$1.15 per share.
Acquisition of Media Resolutions, Inc.
- --------------------------------------
On April 11, 2002, we paid $330,000 in cash and 500,000
restricted shares of our Common Stock in exchange for all the
outstanding shares of Media Resolutions, Inc., an ASP and website
hosting company located in Dallas, Texas. We will use Media
Resolutions to develop and host websites and deliver the
proprietary software products we intend to acquire as we further
implement our business plan.
Acquisition of The Visionary Group, Inc.
- ----------------------------------------
On April 8, 2002, we paid $910,000 in cash and paid approximately
$70,000 of existing debt in exchange for all the outstanding
shares of The Visionary Group, Inc., a professional services firm
providing IT consulting services related to Oracle applications
software. We intend to expand the operations of The Visionary
Group through the introduction of the proprietary software
products we intend to acquire as we further implement our
business plan.
RESULTS OF OPERATIONS
Results of Operations for the three months ended March 31, 2001 and 2002
General and Administrative Expense
For the three months ended March 31, 2001, general and
administrative expense was comprised primarily of salary and
contract labor expense totaling approximately $89,000 and legal
fees of approximately $5,000, offset by management fees earned
from PurchasePooling Solutions Inc. of $80,000. PurchasePooling
is a company in which Edge has an investment. Although the
investment was written-down by Edge to its estimated realizable
value in 2001, the company continues to collect a monthly
management fee.
For the three months ended March 31, 2002, general and
administrative expense was comprised primarily of salary expenses
of approximately $163,000; legal fees of approximately $28,000
for general corporate matters; and directors and officers
insurance of $30,000. The increase in salary expense between the
periods stems from the difference in headcount. General and
administrative expenses during the three months ended March 31,
2002, were offset by management fees earned from PurchasePooling
Solutions, Inc. of $60,000.
-11-
Interest Expense
Interest expense for the three months ended March 31, 2002,
includes approximately $28,000 related to the Sandera Loan and
approximately $5,000 related to the 2000 Infinity Loans. The
total weighted average balances on the loans were $872,000 and
$1,639,000 for the three months ended March 31, 2001 and 2002,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had cash and cash equivalents of
approximately $490,000 and a working capital deficit of
approximately $198,000 compared to cash and cash equivalents of
approximately $83,000 and a working capital deficit of
approximately $589,000 on December 31, 2001. During the three
months ended March 31, 2002, net cash used in operating
activities was approximately $207,000, net cash used in
investing activities was approximately $29,000, and net
cash provided by financing activities was approximately
$643,000 for a total increase in cash and cash equivalents
for the period of approximately $407,000. We do not
maintain a bank credit facility.
We expect our liquidity to remain tight throughout 2002. We will
look to our current cash reserves, cash reserves created by our
April 2002 Series A Convertible Preferred Stock financing and
cash flows generated by our newly acquired companies (Media
Resolutions and The Visionary Group) to meet liquidity
requirements in the coming year. While we have a level of
comfort as to the projected cash flows generated by our newly
acquired companies, we are relying on projections based upon
assumptions and forecasts, including factors beyond our control.
Actual results could vary from our projections and such variance
could have a significant adverse effect on our liquidity.
We have historically financed our operations primarily through
the sale of equity securities or instruments convertible into
equity securities. Although we just completed the Series A
Preferred Convertible Stock financing described in "Recent
Developments" above, there can be no assurance that future
financings can be completed.
Ability to Continue as a Going Concern
- --------------------------------------
Our independent accountants have previously included an
explanatory paragraph in their report on our financial statements
for the year ended December 31, 2001, contained in our most
recent Annual Report on Form 10-KSB, that states that our
financial statements have been prepared assuming that we will
continue as a going concern, but that substantial doubt exists as
to our ability to do so.
Seasonality
- -----------
Based upon our review of current acquisition candidates, the IT
Service businesses experience a moderate level of seasonality.
The first quarter revenue tends to be the lowest, higher revenues
are generally reflected in the second and third quarters and
revenues in the fourth quarter decline from the mid-year levels.
Revenues for Business Application Software and Application
Services and Management do not reflect a discernable pattern of
seasonality.
-12-
RISK FACTORS
Readers of this report or any of our press releases should
carefully consider the following risk factors, in addition to the
other information contained herein. This report and our press
releases contain statements of a forward-looking nature relating
to future events or the future financial performance of Edge
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, and which are intended to be covered by the
safe harbors created thereby. ONLY RISK FACTORS THAT HAVE
MATERIALLY CHANGED FROM THOSE CONTAINED IN OUR FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 2001, ARE INCLUDED BELOW, AND READERS
ARE ENCOURAGED TO READ THE FOLLOWING RISK FACTORS IN CONJUNCTION
WITH THOSE IN THE FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
2001. Readers are cautioned that such statements are only
predictions and actual events or results may differ
substantially. In evaluating those statements, readers should
specifically consider the various factors identified in this
report, including the matters set forth below, which could cause
actual results to differ substantially from those indicated by
those forward-looking statements.
Due to the recent acquisitions of The Visionary Group and Media
Resolutions and our new status as an operating company, we now
face risks in addition to those contained in the Form 10-KSB for
the year ended December 31, 2001, including:
We must attract and retain qualified consultants.
- ------------------------------------------------
Our future success depends, in part, on our ability to attract
and retain adequately trained personnel who can address the
changing and increasingly sophisticated technology needs of our
clients. While the current employment conditions have lessened
our risk somewhat in attracting high caliber consultants, there
can be no assurance that such conditions will continue and we
will be successful in attracting and retaining the personnel we
require to conduct and expand our operations in the future.
We do not rely on long-term contracts.
- -------------------------------------
Although we have many long-standing relationships with our
clients, our business depends upon those relationships and our
ability to develop new clients rather than upon long term
contracts. If any significant client terminates its relationship
with us or substantially decreases its use of our services, it
could have a material adverse effect on our business, financial
condition and results of operations.
We are dependent upon our relationship with Oracle.
- --------------------------------------------------
We have a significant relationship with Oracle as an
implementation partner. In the event Oracle products become less
desirable or competitive in the marketplace, the need for our
implementation services would lessen and we could suffer a
material adverse effect.
Our services are provided in the form of projects.
- -------------------------------------------------
We provide and intend to continue to provide project services to
our clients. Projects are distinguishable from the provision of
other professional services by the level of responsibility we
assume. In a typical project, we assume major responsibilities
for the management of the project and/or the design and
implementation of specific deliverables based upon client-defined
requirements. As our project engagements become larger and more
complex and often must be completed in shorter time frames, it
becomes more difficult to manage the project and the likelihood
of mistakes increase. In addition, our projects often involve
applications that are critical
-13-
to our client's business. Our failure to timely and successfully
complete a project and meet our client's expectations could have
a material adverse effect on our business, results of operations
or financial condition. Such adverse effects may include delayed
or lost revenues, additional services being provided at no charge
and a negative impact to our reputation. In addition, claims for
damages may be brought against us, regardless of our
responsibility, and our insurance may not be adequate to cover
such claims. Our contracts generally limit our liability for
damages that may arise in rendering our services. However, we
cannot be sure these contractual provisions will successfully
protect us from liability if we are sued. We sometimes undertake
projects on a fixed-fee basis or cap the amount of fees we may
bill on a time and materials basis. Any increased or unexpected
costs or unanticipated delays could make such projects less
profitable or unprofitable and could have a material adverse
effect on our business, results of operations and financial
condition.
The market for our services is competitive.
- ------------------------------------------
We operate in a competitive industry. We believe that we
currently compete principally with IT professional services
firms, technology vendors and internal information systems
groups. Many of the companies that provide services in our
markets have significantly greater financial, technical and
marketing resources than we do. In addition, there are
relatively few barriers to entry into our markets and we have
faced, and expect to continue to face, competition from new
entrants into our markets. There can be no assurance that we
will be able to continue to compete successfully with existing or
future competitors or that competition will not have a material
adverse effect on our business, results of operations and
financial condition.
Our operating results may be difficult to predict.
- -------------------------------------------------
Our quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are
outside our control. Factors that may affect our quarterly
revenues or operating results generally include: costs relating
to the expansion of our business; the extent and timing of
business acquisitions; our ability to obtain new and follow-on
client engagements; the timing of assignments from customers; our
consultant utilization rate (including our ability to transition
employees quickly from completed assignments to new engagements);
the seasonal nature of our business due to variations in holidays
and vacation schedules; the introduction of new services by us or
our competitors; price competition or price changes; and our
ability to manage costs and economic and financial conditions
specific to our clients. Quarterly sales and operating results
can be difficult to forecast, even in the short term. Due to all
of the foregoing factors, it is possible that our revenues or
operating results in one or more future quarters will fail to
meet or exceed the expectations of security analysts or
investors. In such event, the price of our common stock would
likely be materially adversely affected.
THIRD PARTY REPORTS AND PRESS RELEASES
We do not make financial forecasts or projections nor do we
endorse the financial forecasts or projections of third parties
or comment on the accuracy of third-party reports. We do not
participate in the preparation of the reports or the estimates
given by analysts. Analysts who issue financial reports are not
privy to non-public financial information. Any purchase of our
securities
-14-
based on financial estimates provided by analysts or third
parties is done entirely at the risk of the purchaser.
We periodically issue press releases to update stockholders on
new developments at Edge and our business. These releases may
contain certain statements of a forward-looking nature relating
to future events or our future financial performance within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended, and which are intended to be
covered by the safe harbors created thereby.
Readers are cautioned that such statements are only predictions
and that actual events or results may materially differ with
those statements. In evaluating such statements, readers should
specifically consider the various risk factors identified which
could cause actual results to differ materially from those
indicated by such forward-looking statements.
-15-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Unchanged since originally reported in our Annual Report on Form
10-KSB for the year ended December 31, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Issuance of Series A Convertible Preferred Stock
- ------------------------------------------------
We issued shares of Series A Convertible Preferred Stock ("Series
A Preferred") on April 1, 2002, at $1,000 per share. We issued
4,200 shares of Series A Preferred to a total of five investors
in exchange for cash in the amount of $2,669,876 cash and
$1,530,124 in conversion of the pre-existing Sandera Loan. We
paid no commissions in connection with the issuance of Series A
Preferred.
The shares of Series A Preferred (a) carry an 8% cumulative
dividend; (b) are convertible, one year after the date it is
issued and at the option of the holder, into shares of our Common
Stock; (c) are convertible at an initial conversion price of $.75
per share; (d) have voting rights pari pasu with the Common Stock
and as a separate class on certain matters; (e) provide for
antidilution protection whereby the price and number of shares
issuable upon conversion of such share of Series A Preferred
adjusts for stock splits, stock dividends and future share
issuances below the conversion price of the Series A Preferred;
(f) provide for demand registration rights after one year
following closing of the financing transaction; and (g) provide
the majority of the Series A Preferred the right to elect one
member to our Board of Directors. Proceeds from the offering
were used to acquire Media Resolutions, Inc., and The Visionary
Group and for general corporate purposes.
Issuance of Warrants
- --------------------
In connection with the issuance of Series A Preferred, each
purchaser received warrants entitling the holder to purchase 20
shares of our Common Stock for each 100 shares of Common Stock
the holder is entitled to receive upon conversion of the Series A
Preferred, at a purchase price of $1.15 per share. The warrants
become exercisable on the second anniversary of the issuance of
the Series A Preferred and, unless exercised earlier, will expire
on the fourth anniversary of the issuance. We issued warrants
exercisable for a total of 1,119,998 shares of Common Stock in
the offering.
Our issuance of the shares of Series A Preferred and the Warrants
was conducted as a private placement in conformity with Section
4(2) of the Securities Act and Regulation D promulgated
thereunder.
-16-
Issuance of Restricted Stock
- ----------------------------
On April 11, 2002, we issued 500,000 restricted shares of our
Common Stock as part of the consideration for our acquisition of
Media Resolutions, Inc. The shares were issued to two investors
in a private placement in conformity with Section 4(2) of the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Action was taken by written consent of the holders of a majority
of the outstanding shares of our Common Stock entitled to vote on
such action to approve the amendment of our Certificate of
Incorporation to increase the authorized number of shares of our
Common Stock from 22,500,000 shares to 100,000,000 shares. We
provided notice to our stockholders of this action in the form of
a Schedule 14C Information Statement. The Information Statement
was first mailed to our stockholders on January 4, 2002, and
filed with the Securities and Exchange Commission on that same
date. This stockholder action was effective on January 24, 2002.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) Edge filed a Form 8-K on April 23, 2002,
announcing the acquisition of The Visionary Group Inc.
and the acquisition of Media Resolutions, Inc. as of
April 8, 2002 and April 11, 2002, respectively.
-17-
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Edge Technology Group Inc.
By: /s/ DAVID N. PILOTTE
-------------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: May, 14, 2002