UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 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.)
1445 ROSS AVENUE, SUITE 4500, DALLAS, TEXAS 75202
(Address of principal executive offices)
(214) 397-0200
(Issuer's telephone number)
6611 HILLCREST AVENUE #223 DALLAS, TEXAS 75205
(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 August 13, 2002, the issuer had 18,939,622 shares of Common
Stock outstanding.
EDGE TECHNOLOGY GROUP, INC.
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2001
and June 30, 2002 (unaudited)........................... 3
Unaudited Consolidated Statements of Operations
for the Three and Six Months Ended June 30,
2001 and 2002........................................... 4
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2001 and 2002......... 5
Notes to Unaudited Consolidated Financial Statements....... 6
ITEM 2. Management's Discussion and Analysis or
Plan of Operations................................ 13
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.................................. 21
ITEM 2. Changes in Securities and Use of Proceeds.......... 21
ITEM 3. Defaults Upon Senior Securities.................... 22
ITEM 4. Submission of Matters to a Vote of Security
Holders....................................... 22
ITEM 5. Other Information.................................. 23
ITEM 6. Exhibits and Reports on Form 8-K................... 24
SIGNATURE.................................................... 26
EDGE TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2001 2002
------------ ------------
(unaudited)
<s> <c> <c>
CURRENT ASSETS
Cash and cash equivalents $ 82,567 $ 499,273
Accounts receivable - 322,067
Other current assets 20,339 69,337
------------ ------------
Total current assets 102,906 890,677
NON-CURRENT ASSETS
Fixed assets, net 35,385 290,287
Note receivable, net of allowance of $1,400,000 as of
December 31, 2001 and $1,145,000 as of June 30, 2002 - -
Goodwill - 3,548,958
Intangible Assets - 153,000
Other assets - 78,732
------------ ------------
TOTAL ASSETS $ 138,291 $ 4,961,654
============ ============
CURRENT LIABILITIES
Accounts payable $ 451,993 $ 732,951
Accrued expenses 239,489 291,952
Other current liabilities - 1,418,942
------------ ------------
Total current liabilities 691,482 2,443,845
Notes payable - related parties 1,639,000 -
Other liabilities - 48,362
------------ ------------
Total non-current liabilities 1,639,000 48,362
TOTAL LIABILITIES 2,330,482 2,492,207
STOCKHOLDERS' EQUITY / (DEFICIT)
Series A convertible preferred stock, no par value, 5,000,000
shares authorized, none issued and outstanding at December 31,
2001 and 4,200 issued and outstanding at June 30, 2002, net of
discount - 3,552,500
Warrants - 370,000
Common stock, $.01 par value, 100,000,000 shares authorized,
16,488,139 issued and outstanding at December 31, 2001 and
18,939,622 issued and outstanding at June 30, 2002 164,881 189,396
Additional paid in capital 40,048,615 41,753,172
Accumulated deficit (42,405,687) (43,395,621)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY / (DEFICIT) (2,192,191) 2,469,447
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT) $ 138,291 $ 4,961,654
============ ============
The accompanying notes are an
integral part of these financial statements.
-3-
EDGE TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2002 2001 2002
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Sales $ - $ 511,101 $ - $ 511,101
Cost of sales - 340,040 - 340,040
------------ ------------ ------------ ------------
Gross profit - 171,061 - 171,061
Operating expenses
General and administrative 97,509 787,521 116,347 979,482
Marketing - 34,185 - 34,185
Depreciation and amortization - 12,167 - 12,167
Impairment of assets 2,495,954 - 2,495,954 -
------------ ------------ ------------ ------------
Total operating expenses 2,593,463 833,873 2,612,301 1,025,834
------------ ------------ ------------ ------------
Operating loss (2,593,463) (662,812) (2,612,301) (854,773)
Other income (expense)
Interest income 281 4,381 981 4,389
Interest expense (19,234) (2,920) (37,350) (37,259)
Taxes - other - (8,386) - (9,348)
Amortization of deferred financing fees (2,680) - (5,705) -
Other - (442) - (442)
------------ ------------ ------------ ------------
Total other income (expense) (21,633) (7,367) (42,074) (42,660)
------------ ------------ ------------ ------------
Loss from continuing operations (2,615,096) (670,179) (2,654,375) (897,433)
------------ ------------ ------------ ------------
Loss from discontinued operations (316,173) - (667,054) -
------------ ------------ ------------ ------------
Net loss (2,931,269) (670,179) (3,321,429) (897,433)
Provision for preferred stock dividends - 82,849 - 82,849
Amortization of discount on preferred stock - 92,500 - 92,500
------------ ------------ ------------ ------------
Net loss attributed to common stockholders $ (2,931,269) $ (845,528) $ (3,321,429) $ (1,072,782)
============ ============ ============ ============
Basic and diluted loss per share
From continuing operations (0.16) $ (0.05) $ (0.16) $ (0.06)
From discontinued operations (0.02) - (0.04) -
------------ ------------ ------------ ------------
Net loss per share attributed to
common stockholders $ (0.18) $ (0.05) $ (0.20) $ (0.06)
============ ============ ============ ============
Weighted average common shares outstanding 16,385,143 17,767,656 16,200,739 17,127,898
============ ============ ============ ============
The accompanying notes are an integral
part of these financial statements.
-4-
EDGE TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
2001 2002
------------ ------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities $ (606,174) $ (890,229)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (60,429) (37,006)
Capitalized acquisition costs - (87,418)
Acquisition of subsidiaries - (1,552,750)
Proceeds from the sale of fixed assets 14,694 -
------------ ------------
Net cash used in investing activities (45,735) (1,677,174)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of preferred stock - 2,561,000
Proceeds from note payable, net 400,000 -
Deferred financing fees - (35,007)
Contributed capital 200,000 200,000
------------ ------------
Net cash provided by financing activities 600,000 2,725,993
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (51,909) 158,590
Cash and cash equivalents, beginning of period 169,846 340,683
------------ ------------
Cash and cash equivalents, end of period $ 117,937 $ 499,273
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 275 $ 1,841
============ ============
Cash paid for taxes $ - $ 8,386
============ ============
The accompanying notes are an
integral part of these financial statements.
-5-
EDGE TECHNOLOGY GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In this Quarterly Report on Form 10-QSB, we will refer to Edge
Technology Group, Inc., a Delaware corporation, as "Edge," "Company,"
"we," "us" and "our."
1. BASIS OF PRESENTATION
The consolidated 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 consolidated 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 six months ended June 30, 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 consolidated 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, and those audited and
unaudited financial statements contained in the Company's Form 8-
K/A filed with the Securities and Exchange Commission on June 24, 2002.
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
and six months ended June 30, 2001, included sales of $164,242
and $264,297, respectively, and a net loss of $316,173 and
$667,054, respectively.
3. UNCERTAINTY OF PROPOSED PLAN OF OPERATION
The Company has suffered recurring losses from operations and has
an accumulated deficit of approximately $43.4 million at June 30,
2002. Of this, approximately $33.5 million had accumulated through
March 31, 2001, and is attributable to the Company's former
One-on-One golf video business. Another approximately $6.6 million
reflects impairment charges and bad debts stemming from investments
and loans made prior to the Company's creation of its current
business plan.
The Company's recent change in focus to acquiring Information
Technology ("IT") Professional Services, Business Application
Software and Application Services and Management is a new
business concept for the Company, and we cannot predict the
nature and extent of demand for our anticipated products and
services.
-6-
In order to continue the implementation of our new business plan,
it will be necessary to secure additional financing. 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 additional technology
companies or continue operations.
4. BUSINESS COMBINATIONS
Acquisition of Media Resolutions, Inc.
- -------------------------------------
On April 11, 2002, we closed the previously announced acquisition
of Media Resolutions, Inc., an Application Service Provider
("ASP") and website hosting company located in Dallas, Texas. We
paid $330,000 in cash and 500,000 restricted shares of our Common
Stock valued at $306,250 in exchange for all the outstanding
shares of Media Resolutions. The acquisition was accounted for
using the purchase method of accounting. As such, the assets and
liabilities of Media Resolutions were recorded at their estimated
fair value and the results of operations are included in our
consolidated results of operations from the date of acquisition.
Media Resolutions has five employees and generated revenues of
approximately $283,000 and break even operating results in 2001.
For more information about this acquisition, please see the
Company's Form 8-K/A filed June 24, 2002, with the Securities and
Exchange Commission.
Acquisition of The Visionary Group, Inc.
- ----------------------------------------
On April 8, 2002, we acquired The Visionary Group, Inc., a
professional services firm providing IT Professional 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 was accounted for
using the purchase method of accounting. As such, the assets and
liabilities of The Visionary Group were recorded at their
estimated fair value and the results of operations are included
in our consolidated results of operations from the date of
acquisition. The Visionary Group had 14 employees at the time of
acquisition and generated revenues of $3.4 million and break even
operating results in 2001. The Company filed a Form 8-K/A on
June 24, 2002, with the Securities and Exchange Commission that
provides further information about this acquisition.
Following its acquisition, the gross revenues for The Visionary
Group fell below acceptable levels, and we expect near-term
revenue to be significantly below historical levels. We believe
the decline in gross revenue has resulted from an overall decline
in the market and the delay of several significant projects
resulting from general economic conditions.
-7-
Management has aggressively taken steps to address the business
and operational issues at The Visionary Group. The Visionary
Group has eliminated all non-billable consultants and certain
administrative positions, has curtailed occupancy costs and has
replaced prior management with a leading professional with
more than 20 years of industry experience including building both
Oracle database and Oracle application businesses. No assurances
can be given that these steps will prove adequate to restore the
historical revenues of The Visionary Group.
Acquisition of Universal Data Technology, Inc.
- ---------------------------------------------
On May 31, 2002, our newly created and wholly owned subsidiary,
UDT Consulting, Inc., acquired the assets of Universal Data
Technology, Inc, an IT Professional Services practice
headquartered in Dallas, Texas with additional operations in
Arkansas and Florida. Our total purchase price for substantially
all of Universal Data Technology's assets will be the sum of
$1,127,750 and the product of multiplying two times UDT
Consulting's earnings before interest, taxes depreciation and
amortization (EBITDA) for the twelve months immediately following
the closing date of the acquisition (the "Measurement Period"). The
calculation of the purchase price is subject to certain
deductions and offset provisions. An initial payment of $227,500
and the forgiveness of a $150,000 promissory note from Universal Data
Technology to Edge were applied toward the purchase price as of
the date of the closing. The remainder of the purchase price
will be paid monthly pursuant to an earn-out schedule, with
any remaining payments to be delivered after the end of the
Measurement Period.
The assets acquired from Universal Data Technology were recorded at
their estimated fair value and the results of operations are included
in our consolidated results of operations from the date of
acquisition. For the year ended December 31, 2001, Universal Data
Technology generated revenues of approximately $5.6 million with a
net loss of approximately $390,000. As of August 13, 2002, UDT
Consulting employs approximately 25 full-time consultants and
support staff. The Company filed a Form 8-K/A on June 24, 2002,
with the Securities and Exchange Commission that provides further
information about this acquisition.
Acquisition of Virtually There, Inc.
- -----------------------------------
On May 30, 2002, we acquired Virtually There, Inc., an ASP and
website hosting company located in Fort Worth, Texas. In
exchange for the outstanding shares of Virtually There, Inc, we
paid $120,000 in cash, issued 1,153,846 shares of our restricted
Common Stock valued at $450,000 to the shareholders of
Virtually There, and assumed approximately $185,000 of
Virtually There's existing liabilities as of the date of closing.
Virtually There currently has eight employee and generated
revenues of approximately $1.0 million with a net loss of
approximately $79,000 for the year ended December 31, 2001. The
acquisition was accounted for using the purchase method of
accounting. As such, the assets and liabilities of
Virtually There were recorded at their estimated fair value and
the results of operations are included in our consolidated
results of operations from the date of acquisition. The Company
filed a Form 8-K/A on June 24, 2002, with the Securities and
Exchange Commission that provides further information about this
acquisition.
The excess purchase price over the fair value of the tangible net
assets acquired in the above transactions totaled approximately
$3.5 million and was allocated to goodwill.
-8-
The following unaudited pro forma consolidated results of
operations have been prepared as if the acquisitions had occurred
at the beginning of 2001 and 2002, respectively.
For the Three Months For the Six Months
Ended June 30 Ended June 30
2001 2002 2001 2002
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Revenue $ 2,874,900 $ 1,180,307 $ 5,273,900 $ 2,587,196
Net loss (2,721,445) (909,472) (3,102,134) (1,623,876)
Loss per share $ (0.15) $ (0.05) $ (0.17) $ (0.09)
5. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the Company and its wholly owned subsidiaries, The Visionary
Group, Inc., UDT Consulting, Inc., Virtually There, Inc. and
Media Resolutions, Inc. Each of the subsidiaries is a
Texas corporation. All intercompany balances and transactions
have been eliminated in consolidation.
6. REVENUE RECOGNITION
Revenue from the sale of products or provision of services is
recognized when the product is delivered or when the service is
provided and collectability of the receivable is reasonably
assured. Deposits received from customers in advance of the
delivery of product or provision of service are included in other
current liabilities in the accompanying balance sheets.
7. GOODWILL
Goodwill of approximately $3.5 million was recorded as a result
of the acquisitions. In accordance with SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets," goodwill is assumed to have an indefinite life and will
not be subject to amortization. The Company will evaluate its
goodwill at least annually and test for impairment by applying a
fair value based test.
8. INTANGIBLE ASSETS - Related Party Transaction
On June 21, 2002, the Company acquired the name "Axtive Corporation"
(pronounced "Active") and its related logo and trademark (collectively,
"intangible assets") and certain tangible assets including furniture
and fixtures, signage and office supplies from Axtive Software
Corporation, as represented by it sole shareholder, Graham C.
"Scooter" Beachum III, Edge's Vice President and General
Manager. The assets were acquired in exchange for an initial grant
of 400,000 restricted shares of Edge $0.01 par value common stock
valued at approximately $168,000 at the time of acquisition. Such
amount was allocated between tangible ($15,000) and intangible
assets ($153,000) based upon their relative fair values.
The intangible assets are assumed to have an indefinite life and will
not be subject to amortization.
If our stock does not trade for at least $.75 per share at any time
during the next 12 months, Mr. Beachum will receive up to an additional
297,674 shares to bring the total shares given in exchange for the
assets to a value not exceeding $300,000 based upon the market price
on the date the assets were acquired. The issuance of additional shares,
if any, will not affect the recorded value of the intangible assets.
9. 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.
-9-
For the periods ended June 30, 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.
10. 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 went into
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.
On May 22, 2002, we entered into a Settlement Agreement and
Release with Hencie and the guarantors whereby we received an
agreed judgment in the amount of $1.65 million, subject to
reduction, and will receive monthly payments of principal and
interest through April 2004 totaling approximately $1.3 million.
The amounts due under the Settlement Agreement and Release are
guaranteed by Hencie's CEO and secured by shares of Alternate
Marketing Networks, Inc. (NASDAQ Small Cap: ALTM), the parent
company of Hencie. Because of uncertainties regarding
collection of amounts due under the agreement and the lack of
liquidity in the collateral, the Company did not record a gain
on settlement. Payments received will be recorded as a
recovery of the bad debts previously written off.
11. FINANCING TRANSACTIONS
2000 Infinity Loans
- -------------------
During 2000, Infinity Investors Limited ("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.
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.
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 was a stockholder
of ours and certain of our directors are officers of an entity
that manages Catalyst Master Fund L.P.
-10-
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 was 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.
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 Preferred Stock (see "2002 Series A
Convertible Preferred Stock" below).
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.
In March 2002, Infinity and Edge mutually agreed to terminate the
option.
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 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.
-11-
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., The Visionary Group, Inc.,
Virtually There, Inc. and the assets of Universal Data Technology,
Inc. and for general corporate purposes (See Note 4 "Business
Combinations").
As of June 30, 2002, there had been no dividends declared on the
Series A Preferred stock. Undeclared but cumulative dividends on
the preferred shares as of that date totaled $82,849 and are
reflected in the consolidated statements of operations.
Receivables Factoring
- ---------------------
One of the Company's subsidiaries, UDT Consulting, Inc., has
engaged with a third-party to factor certain of its receivables.
The receivables are sold with recourse to UDT Consulting, and
amounts due under the Factoring and Security Agreement are
secured by a pledge of receivables and other assets of UDT
Consulting, and are guaranteed by Edge Technology Group. Under
the agreement, UDT Consulting receives approximately 80% of the
face amount of the receivable, pays interest at a rate of prime
plus 2% and is subject to additional fees in certain
circumstances. At June 30, 2002, UDT Consulting had
approximately $57,000 of receivables sold under the agreement.
12. OTHER CURRENT LIABILITIES
Other current liabilities are primarily amounts due to the
sellers of the businesses Edge has acquired. Such amounts
represent deferred payment of the purchase price and amounts
withheld at closing to ensure compliance with representations and
warranties made by the sellers. In general, such amounts are due
one year from the date of acquisition.
13. SUBSEQUENT EVENTS
New Investors under 2002 Series A Convertible Preferred Stock
Offering
- -------------------------------------------------------------
In July and August 2002, the Company raised additional funds
under the Series A Preferred offering by issuing 240 shares of
Series A Preferred Stock at $1,000 per share providing proceeds
to us of $240,000. The terms for the issuance of the Series A
Preferred were identical to those investors who had invested in
April 2002. In particular, we issued additional warrants
exercisable for a total of 64,000 shares of Common Stock in the
offering. The proceeds from the offering were used for general
corporate purposes.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated 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 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, without
limitation, the ability to adopt and successfully execute a
revised business plan, respond to future business opportunities,
and overcome numerous other risks and difficulties generally
experienced by early stage business models, 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 discussed in the Form 8-K/A
filed on June 24, 2002, as well as the Form 8-K filed on
July 8, 2002.
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 IT Professional Services, 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 and six months ended June 30, 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 and six months ended June 30, 2001, include neither
sales nor costs of sales.
-13-
OUR ONGOING PLAN
Our plan of operation for the upcoming months calls for the
following:
* Additional fundraising activities to continue our
acquisition strategy;
* Additional acquisitions to fill in Edge's end-to-end
("E2E") offering of business application software
products and professional services to meet the needs
of middle market companies; and
* Operating the businesses that Edge has acquired to date.
Recent Developments
- -------------------
2002 Series A Convertible Preferred Stock
- -----------------------------------------
We issued 4,440 shares of Series A Preferred between April and
August, 2002 as described in Note 11 "Financing Transactions" and
Note 13 "Subsequent Events" listed in the Notes to Unaudited
Consolidated Financial Statements included herein. 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 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 valued at $306,250 in
exchange for all the outstanding shares of Media Resolutions.
The acquisition was accounted for using the purchase method of
accounting. As such, the assets and liabilities of Media
Resolutions were recorded at their estimated fair value and the
results of operations are included in our consolidated results of
operations from the date of acquisition. Media Resolutions has
five employees and generated revenues of approximately $283,000
and break even operating results in 2001. For more information
about this acquisition, please see the Company's Form 8-K/A filed
June 24, 2002, with the Securities and Exchange Commission.
Acquisition of The Visionary Group, Inc.
- ----------------------------------------
On April 8, 2002, we acquired The Visionary Group, Inc., a
professional services firm providing IT Professional 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 was accounted for
using the purchase method of accounting. As such, the assets and
liabilities of The Visionary Group were recorded at their
estimated fair value and the results of operations are included
in our consolidated results of operations from the date of
acquisition. The Visionary Group had 14 employees at the time of
acquisition and generated revenues of $3.4 million and break even
operating results in 2001. The Company filed a Form 8-K/A on
June 24, 2002, with the Securities and Exchange Commission that
provides further information about this acquisition.
-14-
Following the acquisition, the gross revenues for The Visionary
Group fell below acceptable levels and we expect near-term
revenue to be significantly below historical levels. We believe
the decline in gross revenue has resulted from an overall decline
in the market and the delay of several significant projects
resulting from general economic conditions.
Management has aggressively taken steps to address the business
and operational issues at The Visionary Group. The Visionary
Group has eliminated all non-billable consultants and certain
administrative positions, has curtailed occupancy costs and has
replaced prior management with a leading professional with
more than 20 years of industry experience including building both
Oracle database and Oracle application businesses. No assurances
can be given that these steps will prove adequate to restore the
historical revenues of The Visionary Group.
Acquisition of Universal Data Technology, Inc.
- ---------------------------------------------
On May 31, 2002, our newly created and wholly owned subsidiary,
UDT Consulting, Inc., acquired the assets of Universal Data
Technology, Inc, an IT Professional Services practice
headquartered in Dallas, Texas with additional operations in
Arkansas and Florida. Our total purchase price for substantially
all of Universal Data Technology's assets will be the sum of
$1,127,750 and the product of multiplying two times UDT
Consulting's earnings before interest, taxes, depreciation and
amortization (EBITDA) for the twelve months immediately following
the closing date of the acquisition (the "Measurement Period"). The
calculation of the purchase price is subject to certain
deductions and offset provisions. An initial payment of $227,500 and
the forgiveness of a $150,000 promissory note from Universal Data
Technology to Edge were applied toward the purchase price as of
the date of the closing. The remainder of the purchase price
will be paid monthly pursuant to an earn-out schedule, with
any remaining payments to be delivered after the end of the
Measurement Period.
The assets acquired from Universal Data Technology were recorded
at their estimated fair value and the results of operations are
included in our consolidated results of operations from the date of
acquisition. For the year ended December 31, 2001, Universal Data
Technology generated revenues of approximately $5.6 million with a
net loss of approximately $390,000. As of August 13, 2002, UDT
Consulting employs approximately 25 full-time consultants and
support staff. The Company filed a Form 8-K/A on June 24, 2002,
with the Securities and Exchange Commission that provides further
information about this acquisition.
Acquisition of Virtually There, Inc.
- -----------------------------------
On May 30, 2002, we acquired Virtually There, Inc., an ASP and
website hosting company located in Fort Worth, Texas. In
exchange for the outstanding shares of Virtually There, Inc, we
paid $120,000 in cash, issued 1,153,846 shares of our restricted
Common Stock valued at $450,000 to the shareholders of
Virtually There, assumed approximately $185,000 of
Virtually There's existing liabilities as of the date of closing.
Virtually There currently has eight employee and generated
revenues of approximately $1.0 million with a net loss of
approximately $79,000 for the year ended December 31, 2001. The
acquisition was accounted for using the purchase method of
accounting. As such, the assets and liabilities of
Virtually There were recorded at their estimated fair value and
the results of operations are included in our consolidated
results of operations from the date of acquisition. The Company
filed a Form 8-K/A on June 24, 2002, with the Securities and
Exchange Commission that provides further information about this
acquisition.
-15-
Acquisition of "Axtive" Name
- -----------------------------
On June 21, 2002, the Company acquired the name Axtive
Corporation (pronounced "Active") and its related logo,
trademark and certain tangible assets including furniture and
fixtures, signage and office supplies from Axtive Software
Corporation, as represented by its sole shareholder, Graham
C. "Scooter" Beachum III, Edge's Vice President and General
Manager. The assets were acquired in exchange for an initial
grant of 400,000 shares of Edge $.01 par value common stock
valued at approximately $168,000 at the time of acquisition.
If our stock does not trade for at least $.75 per share at
any time during the next 12 months, Mr. Beachum will receive up
to an additional 297,674 shares to bring the total shares given
in exchange for the assets to a value not exceeding $300,000
based upon the market price on the date the assets were acquired.
The transaction was negotiated at arms-length between Axtive
Software Corporation and Edge. Graham C. Beachum, II, director
of Edge and father of Graham C. "Scooter" Beachum, recused himself
from voting on this issue.
By a vote of a majority of the shares entitled to vote, we have
obtained the consent necessary to change the name of the Company
to Axtive Corporation. We are in the process of preparing and
filing a Form 14-C "Information Statement and Notice of Action
Taken Without a Meeting," in connection with the approval of an
amendment to our Corporate Charter to adopt the new name.
Pending this action, we have adopted Axtive Corporation as our
dba ("doing business as") in the state of Delaware. The approval
of our name change is expected to be effective 20 days after the
mailing of the Information Statement to our stockholders.
Adoption of the 2002 Stock Incentive Plan
- -----------------------------------------
On June 25, 2002, the Company adopted, the 2002 Stock Incentive
Plan (the "2002 Plan"), which provides for the issuance of non-
qualified stock options and incentive stock options as well as
restricted stock awards, unrestricted stock awards, performance
stock awards, dividend equivalent rights, stock appreciate rights
(in connection with options) and long-term performance awards to
eligible employees, officers, independent consultants and
directors of the Company and its subsidiaries. Under the terms
of the 2002 Plan, options to purchase Common Stock are generally
granted at not less than fair market value, become exercisable as
established by the administering committee of the Board of
Directors and generally expire ten years from the date of grant.
If any shares reserved for an award are forfeited, repurchased or
any such award otherwise terminates without a payment being made
to the participant in the form of stock, such shares underlying
such award will also become available for future awards under the
2002 Plan.
By a vote of a majority of the shares entitled to vote, we have
obtained the consent necessary to adopt the 2002 Plan. We are in
the process of preparing a Form 14-C "Information Statement and
Notice of Action Taken Without a Meeting" to mail to our
stockholders. The adoption of the 2002 Plan is expected to be
effective 20 days after the mailing of the Information Statement
to our stockholders.
-16-
For administrative convenience and to provide that all options
outstanding for current employees are under a single plan,
2,910,000 options previously granted pursuant to the 1996 Stock
Option Plan, but in excess of the number of shares authorized under
the plan (the "Transferred Options") were transferred to the 2002 Plan.
The administrative transfer did not change the number of option
shares, the vesting schedule or the exercise price of the options
previously granted under the 1996 Plan. As a result, there was
no accounting impact to the Company.
Twelve million options are authorized for issuance under the 2002
Plan. As of August 13, 2002, there were 4,032,500 options outstanding
under the 2002 Plan, (which includes the Transferred Options)
of which 1,492,118 are vested, and 7,967,500 shares of Common Stock
are available for future awards under the 2002 Plan. To date, the
Company has not issued any restricted or unrestricted stock
awards, stock appreciation rights, dividend equivalents rights or
long-term performance awards under the 2002 Plan.
RESULTS OF OPERATIONS
Quarter ended June 30, 2002 compared with quarter ended June 30,
2001.
- ---------------------------------------------------------------
Sales from continuing operations for the three months ended June
30, 2002, increased to $511,011, driven by the recent
acquisitions as noted above. Results from operations of each
subsidiary were included only during the portion of the quarter
that Edge owned that subsidiary.
The cost of sales for the three months ended June 30, 2002, was
$340,040, reflecting the mixture of expenses related to
consulting and hosting services.
Excluding $2,495,954 recorded in 2001 as an impairment of assets,
operating expenses for the three months ended June 30, 2002,
increased 855% to $833,873, as compared to $97,509 for the three
months ended June 30, 2001. The increase in operating expenses is
related to the operating activities of the Company and the
corporate staff that Edge has assembled during the last twelve
months in order to pursue its new business plan. As of August
13, 2002, the corporate group has two executives and eight
employees.
Interest expense for the three months ended June 30, 2002,
decreased 85% to $2,920 from $19,234 for the three months ended
June 30, 2001. This decrease is primarily attributable to the
conversion of the Sandera and Infinity loans that were converted
into equity (See Note 11 "2002 Series A Convertible Preferred
Stock" in the Notes to Unaudited Consolidated Financial Statements
under Item 1 herein for more information).
-17-
Excluding $2,495,954 recorded in 2001 as an impairment of assets,
net loss before preferred stock dividends for the three months
ended June 30, 2002, increased $234,864 to $670,179 from $435,315
for the three months ended June 30, 2001. Excluding the impairment
of assets in 2001, net loss per share, basic and diluted, for the
three months ended June 30, 2002, increased to $0.05 from $0.03
compared with the three months ended June 30, 2001.
Six months ended June 30, 2002 compared to the six months ended
June 30, 2001.
- ---------------------------------------------------------------
Sales from continuing operation for the six months ended June 30,
2002, increased to $511,011, driven by the recent acquisitions as
noted above. Results from operations of each subsidiary were
included only during the portion of the current quarter that Edge
owned that subsidiary.
The cost of sales for the six months ended June 30, 2002, was
$340,040, reflecting the mixture of expenses related to
consulting and hosting services.
Excluding $2,495,954 recorded in 2001 as impairment of assets,
operating expenses for the six months ended June 30, 2002
increased 871% to $1,013,667, as compared to $116,347 for the six
months ended June 30, 2001. The increase in operating expenses is
related to the operating activities of the Company and the
corporate staff that Edge has assembled during the last twelve
months in order to pursue its new business plan.
As a result of the factors described above, the operating loss
for the six months ended June 30, 2002, decreased $1,769,695 or
68% to $842,606 from $2,612,301 for the six months ended June 30,
2001.
Interest expense for the six months ended June 30, 2002,
decreased by $91 to $37,259 from $37,350 for the six months ended
June 30, 2001. Because Edge issued its interest-bearing notes
to investors during the second quarter of 2001 and converted them
into common stock during the first quarter of 2002 as noted
above, the net difference is minimal.
Excluding $2,495,954 recorded in 2001 as impairment of assets,
net loss before preferred stock dividends for the six months
ended June 30, 2002, increased $71,958 to $897,433 from $825,475
for the six months ended June 30, 2001. Excluding the impairment
of assets in 2001, net loss per share, basic and diluted, for the
six months ended June 30, 2002, increased from $0.05 compared to
$0.06 for the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, we had cash and cash equivalents of
approximately $499,000 and a working capital deficit of
approximately $1.5 million 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 six
months ended June 30, 2002, net cash used in operating activities
was $890,229, net cash used in investing activities was
$1,677,174 and net cash provided by financing activities,
primarily the sale of the Series A Preferred Stock, was
$2,725,993 for a total increase in cash and cash equivalents
for the period of $158,590.
-18-
We expect our liquidity to remain tight throughout 2002. Due to
an unacceptable level of performance at one of our recent
acquisitions, The Visionary Group, the Company advanced money to
cover its operating expenses while taking aggressive steps to
eliminate non-revenue generating overhead and reduce its cash
needs going forward. Advancing funds to The Visionary Group
further taxed our limited resources, and the Company is
considering the sale of non-core assets to improve its
near-term 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 financing described in Note 11 "Series A Convertible
Preferred Stock" above, there can be no assurance that future
financings can be completed. In order to continue the
implementation of our new business plan, it will be necessary
to secure additional financing. 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 additional technology companies or
continue operations.
Ability to Continue as a Going Concern
Our independent accountants have 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 companies and acquisition
candidates, the IT Professional 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.
RISK FACTORS
In addition to the information contained herein, readers of this
report or any of our press releases should carefully consider the
risk factors contained in previous filings, in particular, our
Annual Report (Form 10-KSB), our 8-K/A filed June 24, 2002 and our
8-K filed on July 8, 2002. 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.
-19-
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 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.
-20-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hencie Matter
- -------------
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.
On May 22, 2002, we entered into a Settlement Agreement and
Release with Hencie and the guarantors whereby we received an
agreed judgment in the amount of $1.65 million, subject to
reduction, and will receive monthly payments of principal and
interest through April 2004 totaling approximately $1.3 million.
The amounts due under the Settlement Agreement and Release are
guaranteed by Hencie's CEO and secured by shares of Alternate
Marketing Networks, Inc. (ALTM), the parent company of Hencie.
As a result, we have written down the loan to approximately
$1.3 million to reflect the settlement. Because of uncertainties
regarding collection of amounts due under the agreement and the
lack of liquidity in the collateral, the Company did not record a
gain on settlement. Payments received will be recorded as a
recovery of the bad debts previously written off.
Proceedings against The Visionary Group
- ---------------------------------------
On June 4, 2002, we were notified The Visionary Group and Edge
had been sued in the District Court of Dallas County, Texas for
non-payment of approximately $110,000 due to a former sub-contractor.
We have defenses to the suit and intend to defend the matter vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
2002 Series A Convertible Preferred Stock
- -----------------------------------------
We issued 4,440 shares of Series A Preferred between April and
August, 2002 as described in Note 11 "Financing Transactions" and
Note 13 "Subsequent Events" listed above. 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.
-21-
Issuance of Restricted Common 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.
On May 30, 2002, we acquired Virtually There, Inc. In exchange for
the outstanding shares of Virtually There, Inc, we paid $120,000
in cash, issued 1,153,846 shares of our restricted Common Stock
to the shareholders of Virtually There, and assumed approximately
$185,000 of Virtually There's existing liabilities as of the date
of closing. The shares were issued in private placement in
conformity with section 4(2) of the Securities Act.
On June 21, 2002, we issued 400,000 restricted shares of our
Common Stock to Graham C. "Scooter" Beachum, our Vice President
and General Manager in exchange for the purchase of the name
"Axtive Corporation" and its related logo, trademark and certain
tangible assets. We are obligated, subject to certain
conditions, to issue up to an additional 297,674 restricted
shares on June 21, 2003. The restricted stock was issued to Mr.
Beachum 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
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
- ---------------------------------------------
Our Board of Directors has unanimously adopted an amendment to
our Certificate of Incorporation to change the name of our
corporation from "Edge Technology Group, Inc." to "Axtive
Corporation," (pronounced "Active"). Because of the many
references in general commerce to "edge" as both a company name
(or part thereof) and a brand name, we believed it was desirable
to create a unique name that better portrays the proper image and
provides a foundation for future marketing efforts. In addition,
within the State of Texas and elsewhere, we became aware of other
companies whose names could lead to confusion with Edge
Technology Group.
Under Delaware General Corporation Law, the affirmative vote of
the holders of a majority of the outstanding shares of common
stock is required to amend and restate our Certificate of
Incorporation. Through the written consent of a majority of the
outstanding shares of our Common Stock and our Series A Preferred
Stock, the Company obtained the necessary votes to approve the
amendment. For voting purposes holders of our Series A Preferred
Stock participate in such a vote on an as-converted basis, which
means that each share of Series A Preferred Stock is the
equivalent of 1,333.33 shares of Common Stock. Since our board
has obtained the required approval for the amendment to our
Certificate of Incorporation by means of this written consent, a
meeting to approve the Amendment to Certificate of Incorporation
is unnecessary, and our board decided to forego the expense of
holding a meeting to approve this matter.
-22-
The amendment to our certificate of incorporation will become
effective upon the filing of the Amendment to Certificate of
Incorporation with the Secretary of State of Delaware, which is
expected to occur 20 calendar days following the mailing to our
stockholders of a Form 14-C "Information Statement and Action
Taken Without a Meeting." In the meantime, the Company has
adopted "Axtive Corporation" as its "doing business as" (dba) and
will conduct its business using the Axtive name.
ADOPTION OF 2002 STOCK INCENTIVE PLAN
- -------------------------------------
Our Board of Directors has unanimously adopted the 2002 Stock
Incentive Plan.
Under the terms of the 2002 Plan, the affirmative vote of
the holders of a majority of the outstanding shares of common
stock must approve the 2002 Plan within twelve months of the
adoption by the Board of Directors. Any grants made under the
2002 Plan prior to this stockholder approval shall be subject to
obtaining such approval. Through the written consent of a
majority of the outstanding shares of our Common Stock and our
Series A Preferred Stock, the Company obtained the necessary
votes to approve the amendment. For voting purposes holders of
our Series A Preferred Stock participate in such a vote on an
as-converted basis, which means that each share of Series A
Preferred Stock is the equivalent of 1,333.33 shares of Common
Stock. Since our board has obtained the required approval for
the 2002 Plan by means of this written consent, a
meeting to approve the 2002 Plan is unnecessary, and our board
decided to forego the expense of holding a meeting to approve
this matter.
The 2002 Stock Incentive Plan is expected to become effective 20
calendar days following the mailing of a Form 14-C information
statement to our stockholders. A copy of the plan is attached as
an exhibit hereto.
ITEM 5. OTHER INFORMATION
Purchase of the "Axtive" Name
On June 21, 2002, the Company acquired the name Axtive
Corporation (pronounced "Active") and its related logo, trademark
and certain tangible assets including furniture and fixtures,
signage and office supplies from Axtive Software Corporation, as
represented by its sole shareholder, Graham C. "Scooter" Beachum
III, Edge's Vice President and General Manager. The assets were
acquired in exchange for an initial grant of 400,000 shares of
Edge $.01 par value common stock valued at approximately $168,000
at the time of acquisition. If our stock does not trade to at
least $.75 per share during the next 12 months, Mr. Beachum will
receive up to an additional 297,674 shares to bring the total
shares given in exchange for the assets to a value not exceeding
$300,000 based upon the market price on the date the assets were
acquired. The transaction was negotiated at arms-length between
Axtive Software Corporation and Edge. Graham C. Beachum, II,
director of Edge and father of Graham C. "Scooter" Beachum,
recused himself from voting on this issue.
-23-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (The following Exhibits are filed as part of this Report as
required by Item 601 of Regulation S-B.
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------
4.9 Form of Subscription and Securities Purchase
Agreement dated April 1, 2002, between Edge
Technology Group, Inc. and Purchasers as named
therein. (Incorporated by reference to Exhibit 4.9
of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2001 filed on April 16,
2002.)
4.10 Certificate of Designation, Preference and Rights of
Series A Convertible Preferred Stock of Edge
Technology Group, Inc. dated April 1, 2002.
(Incorporated by reference to Exhibit 4.10 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
4.11 Form of Common Stock Purchase Warrant dated April 1,
2002, issued to purchasers of Series A Convertible
Preferred Stock. (Incorporated by reference to
Exhibit 4.11 of the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 2001
filed on April 16, 2002.)
4.12 Registration Rights Agreement dated April 1, 2002
pertaining to Series A Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4.12 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
4.13 Letter Agreement dated April 1, 2002 pertaining to
conversion of Infinity Note into shares of Common
Stock. (Incorporated by reference to Exhibit 4.13
of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2001 filed on April 16,
2002.)
10.23 Agreement and Plan of Merger Among Edge Technology
Group, Inc., Visionary Acquisition Corp., The
Visionary Group, Inc. and The Visionary Group
Shareholders dated April 8, 2002. (Incorporated by
reference to Exhibit 10.23 of the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 2001 filed on April 16, 2002.)
10.24 Agreement and Plan of Merger Among Edge Technology
Group, Inc., Media Resolutions Acquisition Corp.,
Media Resolutions, Incorporated and Media
Resolutions Shareholders dated April 11, 2002.
(Incorporated by reference to Exhibit 10.24 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
-24-
10.25 Agreement and Plan of Merger Among Edge Technology
Group, Inc., VT Acquisition Corp., Virtually There,
Inc. and the shareholders of Virtually There, Inc.
dated May 30, 2002. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on
Form 8-K filed on June 14, 2002.)
10.26 Asset Purchase Agreement by and among Universal Data
Technology, Inc., its Shareholders, Edge Technology
Group, Inc. and UDT Consulting, Inc. (Incorporated
by reference to Exhibit 10.2 of the Registrant's
Current Report on Form 8-K filed on June 14, 2002.)
10.27* 2002 Stock Incentive Plan dated June 25, 2002.
(filed herewith)
10.28 Bill of Sale and Asset Purchase Agreement by and
between Axtive Software Corporation and Edge
Technology Group dated June 21, 2002. (filed
herewith)
10.29 Factoring and Security Agreement between UDT
Consulting, Inc., and Landry Marks Partners, LP
dated June 24, 2002. (filed herewith)
99.1 Section 906 Certifications Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. (filed herewith)
* Indicates management contract or compensatory plan or
arrangement
(b) Reports on Form 8-K
On June 14, 2002, Edge filed a Form 8-K announcing the
acquisition of Virtually There, Inc. and the purchase of the
assets of Universal Data Technologies, Inc. as of May 30, 2002
and May 31, 2002, respectively.
On June 24, 2002, Edge filed a Form 8-K/A detailing the four
companies acquired during April and May 2002, including (i)
Audited Financial Statements of The Visionary Group, Inc., Media
Resolutions, Inc., Virtually There, Inc. and Universal Data
Technology, Inc. as of and for the year ended December 31, 2001;
(ii) unaudited interim financial information for Virtually There,
Inc. and Universal Data Technology, Inc. for the three months
ended March 31, 2002; (iii) unaudited combined pro forma Balance
Sheets of Edge Technology Group, Inc., The Visionary Group, Inc.,
Media Resolutions, Inc., Virtually There, Inc. and Universal Data
Technology, Inc. as of March 31, 2002, and the related unaudited
combined pro forma Statements of Operations for the year ended
December 31, 2001, and the three months ended March 31, 2002.
On July 8, 2002, Edge filed a Form 8-K stating that the operating
results of its subsidiary, The Visionary Group, were below
acceptable levels.
-25-
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
--------------------------------
David N. Pilotte
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
August 19, 2002
-26-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------
4.9 Form of Subscription and Securities Purchase
Agreement dated April 1, 2002, between Edge
Technology Group, Inc. and Purchasers as named
therein. (Incorporated by reference to Exhibit 4.9
of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2001 filed on April 16,
2002.)
4.10 Certificate of Designation, Preference and Rights of
Series A Convertible Preferred Stock of Edge
Technology Group, Inc. dated April 1, 2002.
(Incorporated by reference to Exhibit 4.10 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
4.11 Form of Common Stock Purchase Warrant dated April 1,
2002, issued to purchasers of Series A Convertible
Preferred Stock. (Incorporated by reference to
Exhibit 4.11 of the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 2001
filed on April 16, 2002.)
4.12 Registration Rights Agreement dated April 1, 2002
pertaining to Series A Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4.12 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
4.13 Letter Agreement dated April 1, 2002 pertaining to
conversion of Infinity Note into shares of Common
Stock. (Incorporated by reference to Exhibit 4.13
of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2001 filed on April 16,
2002.)
10.23 Agreement and Plan of Merger Among Edge Technology
Group, Inc., Visionary Acquisition Corp., The
Visionary Group, Inc. and The Visionary Group
Shareholders dated April 8, 2002. (Incorporated by
reference to Exhibit 10.23 of the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 2001 filed on April 16, 2002.)
10.24 Agreement and Plan of Merger Among Edge Technology
Group, Inc., Media Resolutions Acquisition Corp.,
Media Resolutions, Incorporated and Media
Resolutions Shareholders dated April 11, 2002.
(Incorporated by reference to Exhibit 10.24 of the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 2001 filed on April 16,
2002.)
10.25 Agreement and Plan of Merger Among Edge Technology
Group, Inc., VT Acquisition Corp., Virtually There,
Inc. and the shareholders of Virtually There, Inc.
dated May 30, 2002. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on
Form 8-K filed on June 14, 2002.)
10.26 Asset Purchase Agreement by and among Universal Data
Technology, Inc., its Shareholders, Edge Technology
Group, Inc. and UDT Consulting, Inc. (Incorporated
by reference to Exhibit 10.2 of the Registrant's
Current Report on Form 8-K filed on June 14, 2002.)
10.27* 2002 Stock Incentive Plan dated June 25, 2002.
(filed herewith)
10.28 Bill of Sale and Asset Purchase Agreement by and
between Axtive Software Corporation and Edge
Technology Group dated June 21, 2002. (filed
herewith)
10.29 Factoring and Security Agreement between UDT
Consulting, Inc., and Landry Marks Partners, LP
dated June 24, 2002. (filed herewith)
99.1 Section 906 Certifications Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. (filed herewith)
* Indicates management contract or compensatory plan or
arrangement