10KSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-KSB

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

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

For the transition period from              to             

Commission file number: 0-20995

AXTIVE CORPORATION

(Exact name of small business issuer as specified in its charter)

DELAWARE	13-3778895
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

5001 LBJ FREEWAY, SUITE 275

DALLAS, TEXAS 75244

(Address of principal executive offices)

(972) 560-6328

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

REDEEMABLE WARRANTS, EACH TO PURCHASE ONE SHARE OF COMMON STOCK

(Title of Class)

Check mark 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  ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.    ¨

The issuer’s revenue for its most recent fiscal year was approximately $6.9 million.

The aggregate market value of the issuer’s common stock, $0.01 par value, held by non-affiliates as of March 15, 2005, based on the average bid and asked price of the common stock was approximately $3.3 million.

As of March 15, 2005, the issuer had 49,519,946 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS

			Page
Part I
	Item 1.	Description of Business	1
	Item 2.	Description of Property	14
	Item 3.	Legal Proceedings	15
	Item 4.	Submission of Matters to a Vote of Security Holders	17
Part II
	Item 5.	Market for Common Equity and Related Stockholder Matters	18
	Item 6.	Management’s Discussion and Analysis or Plan of Operation	22
	Item 7.	Financial Statements	29
	Item 8.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	55
	Item 8A	Controls and Procedures	55
	Item 8B	Other Information	55
Part III
	Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	56
	Item 10.	Executive Compensation	58
	Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
	Item 12.	Certain Relationships and Related Transactions	62
	Item 13.	Exhibits	65
	Item 14.	Principal Accountant Fees and Services	70
Signatures			71

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

In this Annual Report on Form 10-KSB, we will refer to Axtive Corporation, a Delaware corporation, as “Axtive,” “Company,” “we,” “us” and “our. “ Prior to October 28, 2002, the Company was known as Edge Technology Group, Inc. Throughout this Annual Report where prior reports included a reference to “Edge” in a historical context, the reference to Edge has been changed to “Axtive.”

Axtive Corporation was incorporated in Delaware in July 1994 and commenced operations in January 1995. Axtive is a publicly traded company (OTC: AXTC.OB).

Our business model is to acquire technology companies that provide professional services and business application software products to middle-market companies. We currently provide system integration, web application development and managed hosting services to government and private sector clients within the United States. Axtive’s five acquisitions to date have been consolidated into two business units. The larger business unit is currently operating as ThinkSpark IT Professional Services, an IT services firm specializing in Infrastructure Assurance and Availability, Collaboration and Enterprise Architecture and professional services related to the development, implementation and integration of technology solutions from Oracle Corporation and various industry standard software products. The second business unit is ThinkSpark Web Services and Solutions, a professional services firm providing comprehensive interactive design, custom application development, online marketing and managed hosting services.

Headquartered in Dallas, Texas, the Company’s subsidiaries primarily serve government and private sector clients located in Dallas, Fort Worth, and San Antonio, Texas. Axtive maintains an acquisition strategy that is currently focused upon acquiring IT professional services firms and IT staffing businesses and will continue to broaden its technical capabilities as well as its geographical reach through these acquisitions. Axtive’s future acquisitions will also include business application software companies that will give Axtive the capability to deliver proprietary applications through its professional services channel. Axtive offers IT professional services for collaboration, business integration and business intelligence, as well as infrastructure assurance and availability under the brand name ThinkSpark. ThinkSpark assists its clients in harnessing the power of business applications by creating innovative solutions, improving database performance, and managing the quality and availability of IT infrastructure. ThinkSpark maintains technical skills, knowledge and experience focused on the Oracle software application and database technology. ThinkSpark creates customer value by building efficient date centric technology solutions that enable business-to-consumer and business-to-business collaboration. The Company primarily provides software development/integration services focused on database programming, which is enhanced by the remote monitoring, and maintenance services that allow clients to maintain high availability for database infrastructure and associated business applications. By actively participating in technology partner programs, ThinkSpark has the knowledge and relationships to provide a full range of advanced e-business consulting and integration services from the middle market of both the private and public sector to Fortune 500 enterprises.

ThinkSpark Web Services & Solutions (“WSS”) provides professional services and application hosting services across multiple technologies. Development services include HTML and Cold Fusion website development, graphic design, streaming video, application interface development, database design and integration and custom scripting. WSS professional services include interactive media planning, site and campaign management, marketing and branding and IT strategy development. WSS operates a dedicated hosting facility located in the InfoMart (Dallas, Texas), providing web hosting, co-location services and application services.

BUSINESS STRATEGY

Axtive will continue to acquire professional services companies, expanding the Company geographically as well as broadening the resource knowledge base. Axtive has also begun the pursuit of the Company’s first true software company acquisitions. Potential software company acquisitions will be evaluated from the normal financial point of view, but we will also seek a company that will be enhanced by our professional services businesses. We believe that targeted software companies could not only benefit from Axtive’s professional services capabilities, but will also obtain additional channels for their products.

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With respect to possible software company acquisitions, Axtive plans to create suites of vertical and generic software products by acquiring companies with proprietary software that fall within Axtive’s targeted product categories and targeted vertical industries. Axtive’s organic product growth will include the creation of new niche applications, consistent with existing core product capabilities and focus, and the development of new versions of existing software, derivative software and enhancements. Organic product development has the lowest cost and highest margins while still offering the most competitive pricing for our targeted customers, estimated at 150,000 middle-market companies primarily within the U.S., with software and consulting needs.

PRODUCT AND SERVICE OFFERINGS

IT Professional Services

IT Professional Services consist of implementation, integration and development of custom technology applications. The global outlook for the industry is expected to be optimistic through 2008, favoring diversified service providers more generously and growing at a compounded annual growth rate of 7.1%. For 2003, Standard & Poor’s estimated that spending on IT services rose approximately 6%, approximating $524 billion.¹ 2004 grew at an estimated 5.5%, with the market exceeding $553 billion. The United States accounted for about 46% (or about $243.1 billion) of the worldwide market for computer services in 2003, growing 5.6% in 2004 (or about $256.8 billion). This percentage is expected to remain constant through 2008 and is expected to continue to grow at approximately 7% compounded annually.² This is a highly fragmented market with industry leaders IBM Global Services (7.9%), EDS (3.9%), Fujitsu (2.9%), Hewlett-Packard Co. (2.4%), Accenture (2.3%) and CSC Corp (2.2%) collectively accounting for 21.6% of the tech services market in 2003.³ Consolidation will continue in the industry as larger firms continue to acquire smaller services providers to expand geographical and technical capabilities.⁴ Among the fastest growing in the industry will be those services providers within the Federal Marketplace, the nation’s largest single consumer of computer services (hardware, software and services) and those providers with business-process-outsourcing services and software application services.⁵

We continue to focus on the needs of middle-market businesses within the United States. Our management estimates that U.S. middle-market companies were responsible for $62 billion of the U.S. revenue in this sector. We generally define middle-market companies as those that generate between $10 million and $2 billion in annual revenue and typically employ between 100 and 10,000 persons. There are approximately 150,000 middle-market companies in the United States that we plan to target as potential customers. In addition, because of the fragmented market for these services, thousands of medium-sized market participants are both our potential competitors for the $62 billion in revenue from U.S. middle-market customers and potential acquisition targets. Gartner has indicated that IT spending by middle-market companies will be growing in the coming years.⁶

We provide IT project and staffing solutions that include planning, design, deployment, consulting and integration and support services based upon industry-leading Oracle, IBM/Informix and Microsoft database technologies to meet the needs of middle market customers.

Business Application Software

Business application software (“BAS”) companies develop, publish and support specific software applications and suites of applications. Software deployment and support buyers spent $50.2 billion in 2003 and were estimated to have spent $52.8 billion in 2004.⁷ Additionally, the market for certain types of BAS is changing significantly. Customer relationship management software (“CRM”) spending will account for 38% of BAS

¹ “Industry Surveys – Computers: Commercial Services”, pg 5; Standard & Poors January 27, 2005.

² Ibid., pg 2.

³ Ibid., pg 8.

⁴ Ibid., pg 24.

⁵ Ibid., pg 6.

⁶ “Being Stuck In The Middle Might Be The Right Place,” VARBusiness, January 21, 2003.

⁷ “Industry Surveys – Computers: Commercial Services”, pg 6; Standard & Poors January 27, 2005.

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spending by 2006.⁸ Supply-chain and product life-cycle management software is expected to increase to 30% by 2006.⁹ Spending for enterprise resource planning (“ERP”) software (actual code) is expected to shrink to 27% by 2006.¹⁰ IDC predicts worldwide sales of database software, relational and object-relational database management systems to reach $20 billion by 2006.¹¹

A new term and application for software, enterprise performance management (or “EPM”), was introduced by AMR Research and described as the application of the future. EPM is the convergence of existing application areas toward improving the overall performance of the company.¹² We view this convergence as integral to our business strategy because customers will be able to connect disparate systems in order to draw valuable business conclusions.

Our value proposition for BAS is similar to IT Professional Services in that both involve integration, implementation and scale to middle-market segments. BAS products typically fall into one of three categories: strategic; operational; or transactional. The typical challenge experienced across all segments of the middle market is that disparate software applications utilized across all three product categories do not communicate with one another.

We have identified six middle-market business application software product categories that the Company expects to pursue through the course of future acquisitions and partnerships consisting of Enterprise Operations, Enterprise Intelligence, E-Business Applications, Collaborative Applications, Content and Knowledge Management and Internet Services.

• Enterprise Operations. Enterprise operations consist of accounting, human resources management, benefits management, workforce management, contract and revenue management, aggregation services and professional service automation services. Our model focuses on the ability to take these disparate but common Enterprise Operations systems and use all data sources as efficiently as possible by minimizing the duplication of entries. Streamlining these data operations allows companies to reduce overhead costs associated with redundant systems and the staffing required for those systems.

• Enterprise Intelligence. Enterprise intelligence consist of on-line analytical processing, database (multidimensional and relational), data processing, data mining, costing, budgeting and forecasting products. With the data input and stored by the Enterprise Operations product category, retrieval and presentation of that data falls in the realm of Enterprise Intelligence products. Because this use of data is the critical component in the guidance and direction of business processes and decisions, we expect to sell and deliver applications that allow companies to make timely decisions and share the information necessary for proper profit management.

• E-Business Applications. E-Business applications consist of customer relationship management, sales force automation, commerce analysis, order taking, transactional back-office, commerce-enabled portals and procurement applications. We plan to use these applications to help customers track their sales activities, make customer service more efficient and implement effective marketing campaigns, for example. The primary focus of CRM is customer service, with issues ranging from order fulfillment to customer support. All customer interaction touch points are maintained in the CRM system with the sole intent of providing positive customer interaction and thereby increasing customer loyalty. eProcurement programs help companies buy everyday items such as paper, office machinery and cleaning supplies via the web and help manufacturers support a supply chain system with timely refills of required parts.

• Collaborative Applications. Collaborative Applications consist of IP communications, portals, calendaring, messaging, whiteboard conferencing, project management and document editing applications. At the core these applications facilitate both internal and external communication, and provide efficiencies

⁸ Study Finds Growth In Enterprise Software Market, InformationWeek, May 31, 2002.

⁹ Ibid.

¹⁰ Ibid.

¹¹ UPDATE - IDC: Database software market heading to $20 billion, ITWorld, May 23, 2002.

¹² Software is HOT – Highlights from AMR’s Spring Conference in the Desert, USBancorp Piper Jaffery, May 31, 2002.

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to tasks that involve resources in disparate locations. These applications allow resources located worldwide to utilize documents in virtual workspaces. Managers are able to use virtual workspaces to hold interactive meetings via digital conference rooms. Supply chain processes are enhanced by the ability to link employees, customers and suppliers in real-time communications during inventory audits and procurement procedures. These products also help manage the general communication of events, calendaring and document tracking for internal process.

• Content and Knowledge Management. Content and knowledge management applications provide customers with the ability to maintain online information, such as product catalogs, inventory reports, research and other mission-critical data for internal and external consumption. Digitalization of legacy content allows prior-period investments to be brought into the current web environment and thereby extend the useful life of that data.

• Assurance and Security. Infrastructure Assurance and Availability (“IAA”) services provide a cost effective IT monitoring solution for the entire application stack that fully integrates the database, network, systems, applications and security (firewalls, patches and vulnerability and intrusion detection). System state of health can be accessed via web-based dashboard or a customer portal that provides a comprehensive view of IT faults, assets, performance and security. Our IAA service is unlike other monitoring products or reporting tools; the offering includes remediation services that help clients monitor, identify and correct IT related issues that arise. This additional coverage can minimize downtime and direct resources to focus on the more valuable issues related to their core business.

Application Services and Management

IT services buyers spent an additional $14.8 billion in 2003 on software application management services, growing 8.8% in 2004 to $16.1 billion.¹³ This growth is attributable to companies of all sizes looking to outsource maintenance and competitive IT management activities in order to focus on more strategic activities.¹⁴ Our strategic objective is to use an ASP delivery mechanism to implement IT solutions for all segments of the middle market. We will deliver BAS products either through an ASP or on-site, linking end-users to applications with significantly lower cost by accessing them through a universal external point. We currently offer third-party software through both ASP and license agreements. Our professional services operating business units generate recurring revenue by providing hosting contracts as part of their ongoing maintenance and upgrades for customers.

MARKETING AND DISTRIBUTION

We believe that products and services we may develop or acquire should be marketed with the goal of improving utilization of business information. We intend for professional services and software applications to support business intelligence systems, enterprise information performance and improved knowledge management throughout our customers’ business operations.

We believe this model will enable middle-market companies to access integrated business process applications that can be delivered on a fully outsourced basis through portal technology or, if needed, delivered as a traditional licensed product. This entails the integration, deployment, hosting, ongoing management and monitoring of business process applications like e-commerce, accounting, scheduling and messaging.

We believe it is necessary for our business plan to have multiple revenue generation models. We are using the two basic sales models in the industry, software application sales and service sales.

The software application sales model that we have deployed consists of:

• License – a one-time fee charged to the customer for a software application which they install and use;

• Maintenance – a recurring annual fee charged to the customer for software upgrades, fixes and repairs;

• Development and Customization – fees earned for making modifications to existing proprietary software or developing extensions and new functionality;

¹³ “Industry Surveys – Computers: Commercial Services”, pg 6; Standard & Poors January 27, 2005.

¹⁴ Ibid.

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• Royalty – a fee charged to co-developers on a single or recurring basis for product usage or installation;

• Subscription Service – fees charged to the customer to use a software application on a contracted time, per user, per transaction basis or some other formula; and

• Transactional or Usage Fees – a fee based on a specified number of uses of software applications charged by computer time, bandwidth, task completion or other metrics.

The service sales model that we use consists of:

• Project-Based Contracts – variable- or fixed-fee contracts for implementation and deployment of application offerings and related training;

• Support Contracts – fees charged for online, phone or on-site support of generic applications assessed on a per-call or contracted basis;

• Development Fees –fees charged for writing new software code for generic applications and implementations; and

• ASP/Hosting Contracts – monthly fees paid in advance for rack space, monitoring, bandwidth and application usage.

COMPETITION

The markets for our products and services are highly fragmented. 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. Our IT Professional Services, Application Services and Management businesses are likely to face competition from four primary categories of businesses: top-tier consulting firms and software consulting divisions; best-of-breed software companies; packaged software sellers; and resellers.

Top-tier consulting firms make up the closest group of competitors in terms of the breadth of their product offerings. Companies such as Accenture and EDS provide many of the same services, but their focus is on Global 2500 customers instead of the middle-market customer. Similarly, Oracle, IBM and Computer Associates all field professional services divisions that implement their solutions, but also focus on large companies. Typically, many middle-market customers are not often given the opportunity to work with these companies.

Best-of-breed software companies such as Seibel, PeopleSoft (now Oracle), SAP and others offer specific products to their customers, but, in most cases, these companies focus on a single offering, intending to be the best in their product category. Our middle-market customers may require implementation and integration of these types of products from time to time. We are qualified to provide those services for these companies’ products.

Packaged software sellers such as Intuit, Great Plains and Lotus offer limited off-the-shelf applications targeted primarily at the small-office and home-office segment of the middle market, where customer requirements can be satisfied with a standard package and self-installation and support.

Resellers of hardware and software products live on very thin margins, and many of these resellers are attempting to expand their business offerings by including professional services. These companies face several challenges including the common customer perception that their recommendations are driven by their own product margins goals instead of the customer’s needs.

Our competitors generally have greater financial, technical and marketing resources than we do and, as a result, may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sales of their products and services.

We can give no assurance that we will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on our business, financial condition, operating results and liquidity.

DEPENDENCE ON MAJOR CUSTOMERS

Certain customers account for a significant portion of our revenues. In 2004, our ten largest customers represented approximately 62% of our total revenues, and our largest customer accounted for approximately 24%.

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No other customer accounted for more than 13% of total revenues in 2004. We seek to develop long-term relationships with our customers. Although a typical individual customer assignment ranges from two to 12 months in duration, some of our customer relationships have continued for more than four years. In late 2004, the project for the customer accounting for approximately 13% of total revenues in 2004 was completed and we do not expect significant future revenues from this customer. In late 2003, we lost one major customer, and in early 2004 we were notified by Oracle Corporation of their intent to terminate the Oracle Approved Education Center Agreement between Oracle and ThinkSpark. The revenue generated by these two losses totaled approximately 11% of our total revenues in 2003. If any additional significant customer 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.

Typically our customers may cancel their contracts on short notice or may reduce their use of our services. Because of this, we do not characterize our engagements as backlog.

ACQUISITIONS

We have expanded our customer base and added to our technical expertise and service offerings through business combinations. Given the highly fragmented nature of the IT services industry, we intend to continue to pursue business combinations as part of our growth and operation strategy. The success of this strategy depends not only upon our ability to identify and acquire businesses on a cost-effective basis, but also upon our ability to integrate acquired operations into our organization effectively, to retain and motivate personnel and to retain customers of acquired or merged companies. In reviewing potential business combinations, we consider, among other factors, the target company’s geographic reach, cultural fit, capabilities in specific technical services, customer base, expected financial performance, valuation expectations and the abilities of management, sales and recruiting personnel. Since January 1, 2002, we have completed the following business combinations:

Acquisition of Media Resolutions, Inc.

In April 2002, we acquired Media Resolutions, Inc., an ASP and website hosting company located in Dallas, Texas. We paid $330,000 in cash and notes and 50,000 restricted shares of our common stock valued at $313,000 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. The excess purchase price over the fair value of the tangible and intangible net assets acquired in the acquisition of Media Resolutions totaled approximately $477,000 and was allocated to goodwill. Of the approximate $477,000 of goodwill recorded in the acquisition of Media Resolutions, Inc., $119,000 was written off in September 2003.

Acquisition of Virtually There, Inc.

In May 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, we paid $120,000 in notes, issued 115,385 shares of our restricted common stock valued at $455,000 to the shareholders of Virtually There, and assumed approximately $185,000 of the existing liabilities of Virtually There as of the date of closing.

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 excess purchase price over the fair value of the tangible and intangible net assets acquired in the acquisition of Virtually There totaled approximately $714,000 and was allocated to goodwill. The value allocated to goodwill exceeded the stated purchase price due to the assumption of liabilities at acquisition.

In July 2003, the Company announced the formation of ThinkSpark Web Services and Solutions, a business unit which combines the operations of its Virtually There, Inc. and Media Resolutions, Inc. subsidiaries.

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Acquisition of The Visionary Group, Inc.

In April 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 had operations in Dallas and Austin, Texas. We paid $910,000 in cash and notes and satisfied 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 excess purchase price over the fair value of the tangible and intangible net assets acquired in the acquisition of The Visionary Group totaled approximately $906,000 and was allocated to goodwill.

Following its acquisition, revenues for The Visionary Group fell below acceptable levels. We believe the decline resulted from an overall decline in the market and the delay or elimination of several significant projects resulting from general economic conditions. Despite aggressive steps to rebuild the business including installing new management and producing new product offerings, we were not successful and the company ceased operations in December 2002. Of the approximate $906,000 of goodwill recorded in the acquisition of The Visionary Group, $600,000 was written off in September 2002, and the balance was written off in December 2002.

Acquisition of Universal Data Technology, Inc.

In May 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 was the sum of a minimum purchase price of $1,127,750 and the product of multiplying two times UDT’s adjusted earnings before interest, taxes, depreciation and amortization for the 12 months immediately following the closing date of the acquisition (the “Measurement Period”). In July 2003, Axtive, UDT Consulting, Inc., and Universal Data Technology, Inc. entered into a settlement agreement to resolve all outstanding obligations of the parties arising from the acquisition of Universal Data Technology, Inc.’s assets. In July 2003, we paid Universal Data Technology, Inc. $310,000 in full and final payment of the purchase price for the acquisition. $390,000, which represents the difference between the $700,000 originally recorded as a note payable as of the acquisition date and the amount paid of $310,000, is included as a “Gain on extinguishment of debt” in the accompanying consolidated statements of operations.

The acquisition was accounted for using the purchase method of accounting. 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. The excess purchase price over the fair value of the tangible and intangible net assets acquired in the acquisition of the assets totaled approximately $1.05 million and was allocated to goodwill.

During the third and fourth quarters of 2003, revenues for UDT Consulting, Inc. fell below acceptable levels. The decline resulted from the loss of several significant contracts and an overall decline in the market. In an effort to retain the remaining UDT business, while reducing overhead costs, all operations of UDT Consulting, Inc. were consolidated under ThinkSpark Corporation, another of the Company’s subsidiaries. Despite ThinkSpark’s aggressive steps to maintain the current business, substantially all remaining revenue was lost in December 2003. Of the approximate $1.05 million of goodwill recorded in the acquisition of Universal Data Technology, $100,000 was written off in September 2003 and the balance was written off in December 2003.

Acquisition of ThinkSpark Corporation

In May 2003, we acquired ThinkSpark Corporation and its subsidiaries, a professional services firm providing IT Professional Services related to Oracle database software, in a merger transaction. ThinkSpark is headquartered in Dallas, Texas with additional offices in Austin, Texas, San Antonio, Texas, Oklahoma City, Oklahoma and Las Vegas, Nevada. The Company believes that ThinkSpark is a significant building block for growing Axtive’s IT professional services business in conjunction with executing the Company’s current business

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plan. As a result of the acquisition, the Company gained an industry savvy management team with decades of professional service experience, an established and profitable partnership with Oracle and numerous long-term government contracts. We assigned a value of $662,000 to non-compete agreements entered into by ThinkSpark management, amortizable over 2 years; $662,000 to the Oracle partnership, amortizable over 2 years; approximately $2.3 million to the government contracts acquired, amortizable over 5 years; and approximately $2.5 million to goodwill.

In exchange for all the outstanding shares of ThinkSpark, we paid approximately $242,000 in cash and notes and $198,000 in acquisition-related costs. As part of the acquisition, Axtive assumed $5.0 million of long-term debt from ThinkSpark’s secured creditor, Merrill Lynch Business Financial Services, Inc. (“Merrill Lynch”). The debt assumed is secured by all of the assets of ThinkSpark, although Merrill Lynch agreed to subordinate its liens on up to $1.0 million of accounts receivable of ThinkSpark under certain circumstances. The debt is also guaranteed by the remaining subsidiaries of Axtive. We also issued Merrill Lynch warrants to acquire 500,000 shares of Axtive’s common stock in exchange for Merrill Lynch’s assignment to Axtive of an additional $1.9 million of debt due from ThinkSpark. The warrants have an exercise price of $0.10 per share and can be exercised anytime prior to the tenth anniversary of their issuance (May 2013).

The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of ThinkSpark have been recorded at their estimated fair value and the results of operations have been included in our consolidated results of operations from the date of acquisition. The excess purchase price over the fair value of the tangible and intangible assets acquired in the acquisition totaled $2.5 million and was allocated to goodwill. As a result of annual impairment tests of goodwill performed in 2004, $1.8 million of the goodwill recorded in the ThinkSpark acquisition was written-off.

Recent Developments

On February 1, 2005, the Company entered into an Asset Purchase Agreement to purchase substantially all the assets of Datatek Group Corporation (“Datatek”) from Diversified Corporate Resources, Inc. (“DCRI”), the sole shareholder of Datatek. Pursuant to the terms of the agreement, the Company’s consideration for the acquired assets will be $4.5 million in cash, 15,333,333 shares of the Company’s common stock and the assumption of specified liabilities. The cash purchase price paid at closing may be increased by up to $500,000 based on the amount of Datatek’s accounts receivable. For purposes of the acquisition, the shares of the Company’s common stock are valued at $4,600,000. The Asset Purchase Agreement may be terminated at any time by either Axtive or DCRI.

The acquisition is subject to various conditions to closing, including receipt of required consents and other customary conditions to closing. In addition, the closing is subject to the following conditions: (1) the Company must obtain at least $6.0 million of financing on terms satisfactory to Axtive; (2) DCRI must redeem at least 150,000 shares of its preferred stock (of which 211,875 are currently outstanding) by exchanging shares of Axtive common stock to be received in the acquisition on terms satisfactory to DCRI; and (3) the parties must provide each other with satisfactory disclosure schedules. Holders of more than 150,000 shares of the DCRI preferred stock have expressed their intent to the Company to exchange their preferred shares for Axtive common stock. The parties are in the process of finalizing their respective disclosure schedules. The Company is currently in negotiations with several sources of equity and debt financing, but has yet to finalize the terms of the required financing.

In order to allow for adequate time to satisfy the closing conditions, on March 31, 2005, the parties entered into Amendment No. 1 to Asset Purchase Agreement for the purpose of changing (1) the originally scheduled closing date from February 18, 2005 to April 15, 2005, and (2) the date upon which parties may respectively give notice to terminate the Asset Purchase Agreement if the closing has not occurred, from February 18, 2005 to April 30, 2005.

The actual closing date may be determined by mutual agreement of the parties following satisfaction of the conditions to closing. The Company estimates the closing date of the acquisition to be on or about April 15, 2005, but cannot give any assurances when the closing will actually occur.

PATENTS, TRADEMARKS, ETC.

We currently have no patents. We acquired the “Axtive” trademark and logo in June 2002. See Item 12, “Certain Relationships and Related Transactions—Acquisition of ‘Axtive’ Name.”

EMPLOYEES

As of December 31, 2004, we employed two executive officers, five full-time employees in the corporate office, 17 full-time employees within our subsidiaries and a total of 32 billable consultants. None of our employees are subject to a collective bargaining arrangement. We have employment agreements with our executive officers. We believe our relations with our employees are good.

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WEBSITE INFORMATION

The Internet address of our website is www.axtive.com. We make available, free of charge through our website, access to our Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K, any amendments to those reports and other filings with the SEC as soon as reasonably practical after filing with the SEC. Our reports filed with or furnished to the SEC are also available directly from the SEC’s website at www.sec.gov.

HISTORY

Axtive was originally organized in Delaware in July 1994 under the name Golf Vision, Inc. The Company changed its name to Edge Technology Group, Inc. in September 2000 and to Axtive Corporation in October 2002.

RISK FACTORS

Readers of this report should carefully consider the following risk factors, in addition to the other information contained in this report. This report contains statements of a forward-looking nature relating to future events or the future financial performance of Axtive within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and which are intended to be covered by the safe harbors created by those statutory provisions. Readers are cautioned that such statements are only predictions and that 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 the forward-looking statements.

Risks Relating to Our Business

Our capital resources are limited and may not be sufficient to finance our capital requirements and desired level of growth.

Our cash from operations may not be sufficient to finance our capital requirements and our desired level of growth. As of December 31, 2004, we had cash and cash equivalents of approximately $22,000, a working capital deficit of approximately $7.9 million and approximately $9 million of total liabilities. We have past due amounts with respect to our debt to Merrill Lynch Business Financial Services, Inc. (“MLBFS”) and certain other of our settlement notes debt, as well as past due payroll tax, 401(k) obligations, professional services payments, and accounts payable. We do not currently maintain a credit facility with any bank or financial institution. We believe that our ability to raise additional financing, either as debt or equity, is further hindered by our continuing operating losses, the low market price of our common stock and the lack of a listing for our stock on a national securities exchange or association.

We expect our liquidity to remain tight both in the short term and for the next 12 months. We believe our current cash reserves and cash flows generated by our acquired companies will not be sufficient to meet our short-term operating needs or the anticipated needs of the Company’s operations for the next 12 months. The Company’s inability to obtain adequate additional funding in a timely manner or generate revenue sufficient to offset the operating costs associated with executing our current business plan could have a material adverse effect on the Company’s ability to continue as a going concern.

We have experienced significant and continuing losses.

The Company has suffered recurring losses from operations and has an accumulated deficit of approximately $59.4 million at December 31, 2004. Of this amount, 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 $6.2 million reflects impairment charges and bad debts stemming from investments and loans made prior to the Company’s creation of its current business plan. For the year ended December 31, 2004, we incurred a net loss of approximately $9.9 million including impairment charges related to goodwill and intangibles of approximately $2.3 million, loss on extinguishment of debt of approximately $2.7 million and write-off of amounts due from a stockholder of $1.4 million.

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We believe we will continue to incur losses until we are able to generate sufficient revenues to offset the operating costs associated with executing our new business plan. These losses could limit our ability to grow and to raise new funds and could ultimately jeopardize our ability to remain in business.

We may not be able to carry out our acquisition strategy.

Our business strategy is focused upon making additional acquisitions of software-related technology companies. To be suitable for acquisition by us, these companies must be small enough to be affordable yet profitable. Acquisition candidates may be few in number and may attract offers from companies with greater financial resources than us. Acquisitions involve numerous risks, including, among others, loss of key personnel of the acquired company, difficulties associated with assimilating the personnel and operations of the acquired company, potential disruption of our ongoing business and the maintenance of uniform standards, controls, procedures and policies. While we believe our past acquisitions are compatible with our business plan, we have not experienced success with all of our past acquisitions.

Our acquisition strategy has been adversely affected by our continuing need for additional financing, which limits our ability to seek and complete acquisitions. Although we entered into the convertible acquisition facility with Laurus Master Fund, Ltd. in July 2004, which is described under “Market for Common Equity and Related Stockholder Matters - Recent Sales of Unregistered Securities,” our ability to access the facility is subject to approval by Laurus and other restrictions. Further, the accounts receivable and other assets of any acquired entity will be encumbered as security for the repayment of funds distributed from the restricted cash account controlled by Laurus as security. In addition, any equity interests of an acquired entity are required to be pledged to Laurus. We can provide no assurance that we will be able to locate suitable acquisition targets or that we will be able to complete additional acquisitions. Our business plan will succeed only if we are able to identify, acquire and manage additional acquisitions. There can be no assurance that we will be able to implement our business plan, either generally or with respect to completing the proposed acquisition of Datatek’s business described in this Annual Report. Failure to effectively implement our business plan will have a material adverse effect on us.

Our current financial condition prevents us from financing an acquisition independently.

Our current financial condition will not allow us to finance additional acquisitions independently. We can offer no assurance that Axtive will be able to obtain financing on acceptable terms or at all. If we cannot obtain additional financing, we will not be able to complete any future acquisitions, including the proposed acquisition of Datatek’s business described in this Annual Report, and will consequently not be able to successfully implement our business plan.

We depend on major customers.

A small number of our customers account for a significant portion of our revenues. In 2004, our ten largest customers represented approximately 62% of our total revenues, and our largest customer accounted for approximately 24%. One other customer accounted for approximately 13% of total revenues in 2004. The project for this customer was completed in 2004 and we do not expect significant future revenues from this customer. Our typical customer assignments are short in duration due to the nature of our products and services. Our customers may cancel their contracts on short notice or may reduce their use of our products or services. In late 2003, we lost one major customer, and on April 1, 2004 Oracle Corporation terminated ThinkSpark’s Oracle Approved Education Center Agreement. The revenue generated by these two losses totaled approximately 11% of our total revenues in 2003. If any additional significant customer terminates its relationship with us or substantially decreases its use of our products or services, it could have a material adverse effect on our business, financial condition and results of operations.

We depend on our officers and key personnel.

Our prospects depend on the personal efforts of Graham C. Beachum II, our Chairman of the Board and Chief Executive Officer, Graham C. “Scooter” Beachum III, our President and Chief Operating Officer, and other key personnel throughout Axtive and its operating companies to implement our acquisition and operating strategies. The loss of the services of these executives could have a material adverse effect on our business and prospects because of their knowledge and experience of, and contacts within, our industry.

Our success depends, to a significant extent, on the continued contributions, experience and knowledge of our senior management team and key technical and marketing personnel and the key personnel of our operating

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companies. Our success also depends upon our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing personnel. No assurance can be given that we will be able to successfully attract, assimilate or retain a sufficient number of qualified personnel. The failure to do so could have a material adverse effect on our business, results of operation and financial condition. Our ability to attract or retain qualified personnel is adversely affected by our continuing operating losses and need for additional financing.

If we fail to manage our growth and integrate our acquired businesses, our business will be adversely affected.

If the business strategy discussed in this report results in significant growth of our operations, we will be required to implement and improve our operating and financial systems and controls, and expand, train and manage our employee base to manage this growth. To the extent that our management is unable to manage the growth and integration effectively, our business, results of operations and financial condition could be adversely affected. We have not been able to successfully grow or integrate all of our acquired companies, which has led to the termination of some of the acquired businesses. In addition, the integration of the acquired entities and their operations will require our management to make and implement a number of strategic operational decisions. The timing and manner of the implementation of these decisions could materially impact our business operations.

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 customers. 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. Our ability to attract or retain qualified personnel is adversely affected by our continuing operating losses and need for additional financing.

We do not rely on long-term contracts.

Although we have many long-standing relationships with our customers, our business depends upon those relationships remaining positive and our ability to develop new customers rather than upon long term contracts. If any significant customer 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.

Our services are provided in the form of projects.

We provide and intend to continue to provide project services to our customers. Projects are distinguishable from the provision of other professional services by the level of responsibility we assume. In a typical project, we assume major responsibility for the management of the project and/or the design and implementation of specific deliverables based upon customer-defined requirements. As our project engagements become larger and more complex and often must be completed in increasingly shorter time frames, it becomes more difficult to manage the project, increasing the likelihood of mistakes. In addition, our projects often involve applications that are critical to our customer’s business. Our failure to timely and successfully complete a project and meet our customer’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

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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 customer 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 customers.

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.

We may be subject to potential liabilities (known and unknown) for acts and omissions of our acquired companies.

Although the Company takes reasonable steps including, among others, conducting due diligence, obtaining indemnification protection from sellers, withholding of consideration to ensure compliance with representations and warrants of the selling shareholders, requiring audits from a recognized independent accounting firm and maintaining a protective legal structure, to protect itself, liabilities could arise that were unknown and obligations stemming from known liabilities could expand, either of which could have a material negative impact on the Company.

Risks Related to Our Common Stock

The shares eligible for future sale may further decrease the price of our Common Stock.

If our stockholders sell substantial amounts of their common stock in the public market, including shares issued upon the exercise of outstanding options, the market price of our common stock could fall. As a result of the private placement of our common stock in February 2004 and the related conversion of our outstanding preferred stock into common stock, which is described under “Market for Common Equity and Related Stockholder Matters - Recent Sales of Unregistered Securities,” we have a substantial number of outstanding shares of common stock that are restricted securities. These shares are subject to demand and incidental registration rights. The sale of a substantial number of shares of our common stock may adversely affect the prevailing price of our common stock in the public market and may impair our ability to raise capital through the sale of our equity securities.

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There are also a substantial number of outstanding options to purchase shares of our common stock. The exercise of any of these options would also have a dilutive effect on our stockholders. Furthermore, holders of options are more likely to exercise them at times when we could obtain additional equity capital on terms that are more favorable to us than those provided in the options. As a result, exercise of the options may adversely effect the terms of future financings and would require us to issue significant amounts of our common stock at the time of exercise.

Our common stock is not listed on any exchange or automated quotation system, which adversely affects its liquidity and market price.

Our common stock currently trades on the OTC Bulletin Board. The lack of a listing on one of the national securities exchanges or automated quotation systems adversely affects the liquidity and market price of our common stock.

Our common stock is subject to the “penny stock” rules, which may make it a less attractive investment.

Our common stock is currently subject to the “penny stock” rules. The SEC has adopted rules that define a “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules impose additional sales practice requirements on broker-dealers who sell these securities to persons other than established customers and accredited investors. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for the purchaser, must have received the purchaser’s written consent to the transaction prior to the sale, must disclose the commissions payable to both the broker-dealer and the registered representative and must provide current quotations for the securities. Additionally, if the broker-dealer is selling the securities as a market maker, the broker-dealer must disclose that fact and that the broker-dealer is presumed to exercise control over the market. Finally, a monthly statement must be sent to the account holder disclosing recent price information and information on the limited market in the particular stock.

As a result of the additional suitability requirements, additional disclosure requirements and additional sales practices imposed by the penny stock rules, both the willingness and ability of a broker-dealer to sell our common stock and the ability of holders of our common stock to sell their securities in the secondary market may be adversely effected.

A small number of stockholders could exercise control over Axtive, which may raise conflicts of interest.

A small number of stockholders, some of which comprise an affiliated group, own a sufficient amount of our common stock to exercise significant control over our business and our policies and affairs and, in general, determine the outcome of any corporate transaction or other matters submitted to the stockholders for approval, all in a manner that could conflict with the interests of other stockholders.

Our right to issue preferred stock and anti-takeover provisions under Delaware law could make a third party acquisition of us difficult.

Our certificate of incorporation provides that our board of directors may issue preferred stock without stockholder approval. The issuance of preferred stock could make it more difficult for a third party to acquire us without the approval of our board of directors. Additionally, Delaware corporate law imposes certain restrictions on corporate control transactions that could make it more difficult for a third party to acquire us without the approval of our board of directors.

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ITEM 2. DESCRIPTION OF PROPERTY

Our principal executive and administrative offices are presently located at 5001 LBJ Freeway, Suite 275, Dallas, TX 75244. We lease our office space, and each of the office locations and property details are set forth in the following table:

Description	Address	Square Feet	Lease Expiration
Virtually There	411 West Seventh Street, Suite 200 Fort Worth, Texas 76102	2,962	January 2006
ThinkSpark	5001 LBJ Freeway, Suite 275 Dallas, TX 75244	8,230	August 2007
	4100 NW Loop 410, Suite 103 San Antonio, TX 78229	1,992	October 2007
TERMINATED LEASES (1)
Houston, Texas		5,959	December 2006
Cleveland, Ohio		6,219	December 2003
Dayton, Ohio		3,138	January 2004
Austin, Texas		1,857	February 2006
Oklahoma City, Oklahoma		5,028	February 2006

(1) Terminated leases represent properties acquired as part of the ThinkSpark acquisition but are no longer needed. The Company is currently in negotiations with the respective landlords and intends to settle any remaining obligations at less than full value. We reached a settlement with the Houston landlord totaling $55,000. Per the terms of the Houston settlement, we made a $27,500 payment in March 2004, a $5,000 payment in August 2004, and an additional $5,000 payment in October 2004; the balance due at December 31, 2004 of $17,500 was due in April 2004. We reached a settlement with the Austin landlord totaling $30,000. Per the terms of the Austin settlement, we made a $5,000 payment in November 2004, and the balance is due in equal monthly installments by May 1, 2005. We reached a settlement with the Oklahoma City landlord totaling $50,000. Per the terms of the Oklahoma City settlement, we made a $5,000 payment in November 2004, and the balance is due in equal monthly installments by October 31, 2005. The remaining contractual payments that have not yet been resolved under terminated leases total approximately $268,000.

We believe our facilities are generally in good condition and are adequate for our current level of operations. We believe that suitable additional or alternative space will be available as needed.

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ITEM 3. LEGAL PROCEEDINGS

PROCEEDINGS AGAINST THINKSPARK

In 2002, a former customer obtained a final judgment against ThinkSpark. The former customer filed a collection suit against ThinkSpark with respect to the judgment in the amount of $940,000, including attorneys’ fees. The former customer also filed a lawsuit against certain of ThinkSpark’s then directors and stockholders with respect to alleged improper repurchases of stock from certain stockholders. Effective with Axtive’s acquisition of ThinkSpark, ThinkSpark entered into a settlement agreement with the former customer. ThinkSpark agreed to make a cash payment of $18,000 to the former customer and issue a promissory note for $150,000. The promissory note bears interest at 6% per year and is payable on a monthly basis amortized over 12 months. In exchange, the former customer agreed not to seek to enforce the judgment, to dismiss with prejudice the separate lawsuit, and upon payment in full of the promissory note, to fully release ThinkSpark and the individual defendants from all claims. In August 2004, the Company made a payment of $40,000, which the former customer accepted as final and full payment on the promissory note. As a result, the Company has been released from all claims. As the final payment was less than the amount due on the note payable, a gain on extinguishment of debt of $11,000 was recorded for the difference.

In October 2002, a former employee and shareholder filed a suit against ThinkSpark, certain of its subsidiaries, and certain of its directors and shareholders seeking damages in the amount of $612,000 for breach of a severance agreement. Effective with Axtive’s acquisition of ThinkSpark, ThinkSpark entered into a mutual release agreement with the former employee. In exchange for mutual releases of all claims, ThinkSpark agreed to issue to the former employee a promissory note in the amount of $169,000, a portion of which represented the merger consideration payable to the former employee and shareholder. The promissory note bears interest at 6% per year and is payable on a monthly basis amortized over 18 months. The former employee agreed to then abate his lawsuit and, upon payment in full of the promissory note, to dismiss all claims against ThinkSpark and the other defendants. As no payments have been made on the promissory note since October 2003, the former employee attempted to seek a default judgment against the former ThinkSpark directors and stockholders named in the lawsuit, which was avoided as a result of answers filed by those individuals. In August 2004, the Company restructured the settlement obligation to reduce the amount due under the note to $50,000, due and payable in installments within 120 days of execution of the restructured note. As of December 31, 2004, the balance remaining due and outstanding on the restructured settlement obligation under the note is $24,000 and is included in “Current portion – settlement notes payable” in the accompanying consolidated balance sheets. Additionally, as part of the settlement, the Company issued the former employee 100,000 shares of our common stock valued at $45,000. As the fair market value of the common stock issued plus the reduced amount of the settlement obligation due under the note was less than the amount owed on the original settlement note at the date of the restructured settlement, a gain on extinguishment of debt of $37,700 was recorded for the difference.

In January 2001, ThinkSpark Limited, a United Kingdom subsidiary of ThinkSpark, entered into a lease for office space in London for a 15-year term. ThinkSpark was required to be a surety on this lease agreement. In October 2002, ThinkSpark Limited ceased operations in the United Kingdom and consequently breached the lease agreement. ThinkSpark Limited is now in liquidation. The landlord filed suit against ThinkSpark in the United Kingdom. In May 2003, ThinkSpark and the landlord entered into a settlement agreement. Pursuant to the terms of the settlement agreement, and in consideration of the terms of the settlement, Axtive executed a promissory note in favor of the landlord for $200,000. The promissory note bears interest at 6% per year and is payable over 12 months. Axtive issued 121,915 restricted shares of our common stock to the landlord as security for the promissory note. Pursuant to the settlement agreement and the promissory note, the shares will be returned to us at various stages based upon payments made on the promissory note. In October 2003 and April 2004, 32,589 shares and 44,218 shares, respectively, were returned to the Company and are held as treasury stock. In July 2004, the promissory note was paid in full pursuant to its terms, and all remaining shares are expected to be returned and held as treasury stock. As of December 31, 2004, 45,108 shares have been treated as outstanding in the accompanying financial statements and were recorded at par value with an offset to additional paid in capital.

In December 2003, ThinkSpark received notification of a demand for arbitration based on failure to pay for services rendered under a subcontract agreement and for failure to make payments after entering into a $235,000 promissory note in November 2003 with said subcontractor for a portion of the unpaid services. The amount sought was $304,000 plus interest and attorneys’ fees and costs. In April 2004, ThinkSpark entered into a settlement and escrow agreement with the subcontractor and the original contracting party whereby ThinkSpark agreed to escrow

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$75,000 and the original contracting party agreed to escrow $100,000 pending fulfillment of certain requirements by all parties. As of December 31, 2004, the parties had fulfilled their obligations under the settlement and escrow agreement, all funds were distributed, and all liabilities were satisfied. A $6,000 gain was recorded on the settlement and is included in “(Gain)/loss on the extinguishment of debt” on the accompanying consolidated statements of operations for the year ended December 31, 2004.

ThinkSpark was sued in state court in Cuyahoga County, Ohio, for breach of a November 1998 lease agreement for office space in Cleveland, Ohio, which has been vacated by ThinkSpark. The landlord obtained a judgment in March 2003 for approximately $203,000 plus 10% per year until paid and all costs, including collection costs. The landlord has sought to domesticate the judgment in state court in Texas and ThinkSpark has been served with post-judgment discovery. ThinkSpark has been in discussions with the landlord to settle the judgment; however, we can give no assurance that ThinkSpark will be able to enter into a settlement. Management’s estimate of the potential liability has been recorded at $50,000 and is included in the accompanying consolidated balance sheets as “Lease termination liability” at December 31, 2004.

In August 2003, ThinkSpark was sued in Greene County, Ohio for breach of a November 1998 lease agreement extension for office space in Dayton, Ohio, which has been vacated by ThinkSpark. In September 2003, the landlord obtained a judgment for $55,556 plus post-judgment interest of 10% per year until paid and all of the landlord’s costs in connection with the lawsuit. ThinkSpark has been in discussions with the landlord to settle the judgment; however, we can give no assurance that ThinkSpark will be able to enter into a settlement. Management’s estimate of the potential liability has been recorded at $56,000 and is included in the accompanying consolidated balance sheets as “Lease termination liability” at December 31, 2004.

In July 2003, ThinkSpark was sued for breach of a lease agreement for office space in Las Vegas, Nevada. The landlord sought damages in excess of $10,000 for one month’s rent plus attorney’s fees and costs of the suit. In June 2004, we entered into an agreement to settle the suit for $7,000 where, upon full payment, the landlord has agreed to set aside the judgment. In August 2004, full payment pursuant to the terms of the settlement agreement was made and the judgment was set aside.

OTHER LEGAL PROCEEDINGS

In February 2004, The Visionary Group, Inc., a now-defunct subsidiary of the Company, was notified by Debt Acquisition Company of America (“DACA”) that a bankruptcy claim totaling $48,000 that was sold for $21,600 by The Visionary Group to DACA had been disallowed by the bankruptcy court and DACA was seeking return of the full $21,600. DACA has threatened legal action against The Visionary Group and the Company. The Visionary Group has notified DACA that it ceased business in December 2002 and has no assets or operations. We do not believe that this matter will have a material adverse effect on our financial condition or results of operations.

In July 2004, two of the Company’s subsidiaries, UDT Consulting, Inc. and Virtually There, Inc., received notification from the Trustee of DIC Creditors’ Trust that it seeks to obtain reimbursement of avoidable payments on behalf of the Estate of Daisytek, Incorporated. The Trustee claims that transfers in the amounts of approximately $51,000 and $33,000 which were made to UDT Consulting and Virtually There, respectively, were made within 90 days of Daisytek filing for protection under Chapter 11 of the U.S. Bankruptcy Code and that these transfers constitute avoidable preference payments. We believe that we have strong defenses for both claims and, therefore, have not recorded a liability related to such claims. We believe the claims will have no material adverse effect on our financial condition or results of operations.

In December 2003, UDT Consulting, Inc. (“UDT”) was notified by the Texas Workforce Commission (“TWC”) that a former employee had filed documents with that agency claiming wages and benefits of $60,200 were due him from UDT. The Company disputed this claim and formal hearings were conducted by the TWC in 2004 to determine the validity of the claim by the former employee. As a result of these hearings, in December 2004, the TWC issued a final decision in favor of UDT and the wage claim of the former employee was dismissed. Subsequent to December 31, 2004, the Company received notification the former employee had filed suit in a District Court of the State of Texas against TWC and UDT to recover the same wages and benefits which had been claimed with and dismissed by the TWC. We believe that we have strong defenses for this action and, therefore, have not recorded a liability related to such action. We believe the suit filed by the former employee will have no material adverse effect on our financial condition or results of operations.

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The Company is involved in other legal proceedings arising in the ordinary course of business and has several judgments totaling approximately $12,000 pending against it. As of December 31, 2004, the judgments are recorded in “Other liabilities” in the accompanying consolidated balance sheets. In June 2004, one previously recorded judgment for $33,400 was settled for $12,000; the gain is included in “(Gain)/loss on extinguishment of debt” in the accompanying consolidated statements of operations for the year ended December 31, 2004. We do not expect the ultimate outcome of any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows of the Company as a whole. However, depending on the amount and timing, an unfavorable outcome of any such matters could possibly materially affect our future results of operations or cash flow in any particular period.

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

No matters were submitted to a vote of our stockholders during the fourth quarter of 2004.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

Our common stock is traded on the Over-The-Counter (OTC) Bulletin Board under the symbol “AXTC.OB”.

The following table sets forth, for the period from January 1, 2003 through December 31, 2004, the range of high and low closing bid prices for the common stock reported on the OTC Bulletin Board. The quotations from the OTC Bulletin Board reflect interdealer prices without retail mark-up, markdown or commission, and may not represent actual transactions.

	High	Low
2003
First Quarter	2.70	1.70
Second Quarter	2.50	1.00
Third Quarter	2.50	1.00
Fourth Quarter	3.00	0.80
2004
First Quarter	1.35	0.57
Second Quarter	0.85	0.40
Third Quarter	0.45	0.20
Fourth Quarter	0.70	0.48

HOLDERS OF COMMON STOCK

As of February 28, 2005, the last reported closing bid price of our common stock was $0.58 per share, and there were 155 holders of record of our common stock.

DIVIDENDS

We have not paid cash dividends on our common stock since the inception of the Company, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Instead, we intend to retain our earnings, if any, to finance the further implementation of our business plan and for general corporate purposes. Any payment of future dividends will be at the discretion of our board of directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that our board of directors deems relevant.

Holders of our Series A Preferred Stock were entitled to receive an 8% cumulative dividend payable, when and if declared by the board of directors, in cash or in additional shares of stock. On February 26, 2004, all of our outstanding shares of Series A Preferred Stock, together with all accrued and unpaid dividends, were converted into shares of our common stock. See Item 5, “Market for Common Equity and Related Stockholder Matters—Recent Sales of Unregistered Securities” and Item 6, “Management’s Discussion and Analysis or Plan of Operation—Liquidity and Capital Resources.”

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATIONS PLANS

Equity Compensation Plan Information

(as of December 31, 2004)

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders (1996 Stock Incentive Plan)	85,000	$	23.10	0
Equity compensation plans approved by security holders (2002 Stock Incentive Plan)	1,734,050	$	2.64	3,265,950
Equity compensation plans not approved by security holders	165,000	$	9.03	N/A
Total	1,984,050	$	4.05	3,265,950

1996 Employee Stock Option Plan

In April 1996, we adopted the 1996 Stock Option Plan, which was amended most recently in August 2000. The 1996 Plan provides for the granting to directors, officers, key employees and consultants of up to 50,000 shares of common stock in a year. Grants of options may be incentive stock options or non-qualified stock options and will be at such exercise prices, in such amounts, and upon such terms and conditions, as determined by the board of directors or the compensation committee of the board of directors. The term of any option may not exceed ten years. In August 2000, the 1996 Plan was amended to increase the number of shares reserved for issuance to 100,000 shares of our outstanding common stock.

During 2000 and 2001, stock option grants were made by the board of directors that would cause the number of options issued under the 1996 Plan to exceed the number authorized under the plan. As described below, such grants were transferred to the 2002 Stock Incentive Plan and were approved by the stockholders. As of December 31, 2004, there were options exercisable for 85,000 shares of common stock outstanding under the 1996 Plan, which are held by one optionee, and none available for future grants.

2002 Stock Incentive Plan

In June 2002, the Company adopted the 2002 Stock Incentive 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.

In July 2002, a majority of our shares entitled to vote approved the adoption of the 2002 Plan by written consent. A Schedule 14C Information Statement reflecting this action was mailed to our stockholders and filed with the SEC in October 2002. The stockholder approval of the adoption of the 2002 Plan was effective 20 days after the mailing of the Information Statement to our stockholders.

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For administrative convenience and to provide that all options outstanding for current employees are under a single plan, 291,000 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.

In May 2003, our board of directors approved an amendment of the 2002 Plan to increase the number of shares authorized for issuance under the 2002 Plan from the original number of 12,000,000 to 17,000,000 shares, on a pre-split basis. In addition, the amendment provided that upon the effectiveness of a 1-for-10 reverse stock split announced by the Company, the number of shares authorized for issuance under the 2002 Plan will be 5,000,000 shares. The amendment was immediately effective, but was subject to approval by our stockholders. In May 2003, a majority of our shares entitled to vote approved the adoption of amendment by written consent. On November 24, 2003, a Schedule 14C Information Statement was mailed to our stockholders reflecting this action. The stockholder approval of the adoption of the amendment became effective on December 23, 2003.

As of December 31, 2004, there were 1,734,050 options outstanding under the 2002 Plan (which includes the Transferred Options), of which 1,063,911 were vested, and 3,265,950 shares of our common stock were 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.

Stand-Alone Agreements

During 2001 we issued 50,000 stock options in conjunction with an employment agreement to an executive officer, and during 2002 we issued 215,000 stock options in conjunction with employment agreements to the key management of the acquired companies under stand-alone stock option agreements. As of December 31, 2004, 165,000 remained outstanding. The exercise prices on these options ranged from $4.16 to $15.00 per share with a weighted average price of $9.03 per share. Vesting periods ranged from immediately upon grant to three years with a weighted average vesting period of eight months. All stand-alone options granted in 2001 and 2002 were not intended to be incentive stock options under the Internal Revenue Code of 1986, as amended. The Company recorded no expense related to the grant of options pursuant to stand-alone agreements.

RECENT SALES OF UNREGISTERED SECURITIES

Securities Purchase Agreement with Laurus Master Fund, Ltd.

In July 2004, we entered into a three-year senior secured convertible variable rate term note, for a total principal amount of $4,000,000, with Laurus Master Fund, Ltd. The note bears a variable interest rate of Wall Street Journal Prime plus 2%, with a 6% minimum, subject to possible future adjustments based on our common stock price that may reduce the rate. The repayment terms consist of monthly amortizing payments of the outstanding principal plus interest, both payable in either cash or Axtive common stock, or a combination. The net note proceeds of $3.8 million, after payment of fees and expenses, were required to be placed in a restricted cash account under the dominion and control of Laurus. The net note proceeds are intended to be used for acquisitions and any release of the proceeds is subject to the approval of Laurus. To date, no amounts have been advanced under this agreement. The note is secured by the depositary account and any funds distributed from the account will be secured by the accounts receivable and other assets of any acquired company, as well as pledge of its capital stock or other equity. If we elect or are required to make payments under the note in cash, the payments will be at 101% of the monthly principal amount due plus interest. If we satisfy certain conditions to make payments with shares of our common stock, the number of shares will be determined based upon a fixed conversion price of $0.40, which is based upon 102% of the 10-day average closing prices prior to the closing and which will remain fixed for the term of the note subject to adjustments upon the occurrence of certain events. Therefore, the total principal amount of the note is convertible into 10,000,000 shares of common stock.

In order to make payments with shares of our common stock, we must have an effective registration statement covering the converted shares. Further, our common stock must have an average closing price greater than or equal to $0.44 per share for the 20 trading days immediately preceding the repayment date and the amount of

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any conversion cannot exceed 25% of our aggregate trading volume for the 22 trading days immediately preceding the repayment date. However, we may elect to make payments with shares of our common stock if the average closing price is less than $0.44 per share if the fixed conversion price applicable to the repayment is reduced to an amount equal to 90% of the average of the five lowest closing prices during the 20-day trading period. The fixed conversion price must not be less than $0.25 for us to be able to make this election and the same volume requirement is applicable. We may not make payments with shares of our common stock if the number of shares beneficially owned by Laurus would exceed 4.99% of the outstanding shares of our common stock. If the conditions to repay the note with our common stock are not met, we must make payments in cash at 101% of the monthly principal amount plus interest.

In March 2005, Laurus elected to convert $50,881 of accrued and payable interest and fees into 127,203 shares of our common stock, which were issued as restricted securities. The issuance of the restricted shares of common stock did not involve a public offering. The restricted shares were issued by the Company in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act.

Generally, if we elect to prepay all or part of the outstanding principal of the note, we will be subject to substantial prepayment penalties of 20% or 30%. As part of the Laurus transaction, we issued Laurus warrants to purchase 750,000 shares of common stock at an exercise price equal to 120% of the fixed conversion price, or $0.48 per share.

We also entered into a Registration Rights Agreement, dated July 30, 2004, with Laurus. Pursuant to the terms of the Laurus Registration Rights Agreement, we are required to register the shares of common stock issuable upon the conversion of the Laurus note and upon exercise of the Laurus warrants.

Private Placement of Common Stock

Pursuant to a Subscription and Securities Purchase Agreement, dated February 26, 2004, we agreed to sell a total of 39,375,641 shares of our common stock at a purchase price of $.07687 per share to existing investors in a private offering. On February 26, 2004, we issued 23,459,087 of these shares and received gross proceeds of approximately $1.8 million, consisting of $1.05 million in cash and $760,000 in consideration of the conversion of promissory notes and related warrants issued by Axtive to certain of its shareholders. Of the net cash proceeds, after paying legal expenses related to the offering, we used $167,000 to repay short-term notes and a 12% promissory note issued to one of our investors, $456,000 to satisfy past due liabilities and $296,000 to settle judgments and promissory notes from prior acquisitions. The balance was used for working capital and general corporate purposes. On March 5, 2004, as part of the February 2004 private offering, we issued 571,090 of our common stock at $0.07687 per share to one of our stockholders in consideration of the conversion of a promissory note totaling $43,900 and related warrant issued by Axtive. These purchasers have demand registration rights beginning in February 2005, as well as incidental registration rights, with respect to the shares of common stock issued.

Pursuant to the terms of the February 2004 Purchase Agreement, two of the existing investors agreed to purchase the additional 15,345,464 shares of common stock on a monthly basis, in varying amounts, from March 2004 to November 2004. The additional purchases by these two investors were established as contractual commitments subject only to our delivery of an appropriate officers’ certificate on the scheduled closing date, or other mutually agreed date, which would reaffirm our representations and warranties, fulfillment of customary conditions to closing, and performance of covenants. From March 2004 to December 2004, we received cash proceeds of $1.18 million from these additional purchases, all of which were used for working capital and general corporate purposes.

The issuance of the restricted shares of common stock did not involve a public offering, which were issued by the Company in reliance upon an exemption from registration pursuant to Rule 506 of Regulation D under Section 4(2) of the Securities Act. A Form D was filed with the SEC.

Other Issuances

In January 2005, the Company issued an aggregate of 150,000 restricted shares of common stock to the principals of a financial advisor in consideration of financial advisory services. The issuance of the restricted shares did not involve a public offering. They were issued by the Company in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act.

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ITEM 6. MANAGEMENT’S DISCUSSION AND

ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in Item 7 of this report. This discussion and analysis contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in our filings with the SEC and, specifically, the risk factors set forth in Item 1, “Description of Business—Risk Factors.”

GENERAL

Our business model is to acquire technology companies that provide professional services and business application software products to middle-market companies. We currently provide system integration, web application development and managed hosting services to government and private sector clients within the United States. Axtive’s five (5) acquisitions to date have been consolidated into two business units. The larger business unit is currently operating as ThinkSpark IT Professional Services, an IT services firm specializing in Infrastructure Assurance and Availability, Collaboration and Enterprise Architecture and professional services related to the development, implementation and integration of technology solutions from Oracle Corporation and various industry standard software products. The second business unit is ThinkSpark Web Services and Solutions, a professional services firm providing comprehensive interactive design, custom application development, online marketing and managed hosting services.

Headquartered in Dallas, Texas, the Company’s subsidiaries primarily serve government and private sector clients located in Dallas, Fort Worth, and San Antonio, Texas. Axtive maintains an acquisition strategy that is currently focused upon acquiring IT professional services firms and IT staffing businesses and will continue to broaden its technical capabilities as well as its geographical reach through these acquisitions. Axtive’s future acquisitions will also include business application software companies that will give Axtive the capability to deliver proprietary applications through its professional services channel. Axtive offers IT professional services for collaboration, business integration and business intelligence, as well as infrastructure assurance and availability under the brand name ThinkSpark. ThinkSpark assists its clients in harnessing the power of business applications by creating innovative solutions, improving database performance, and managing the quality and availability of IT infrastructure. ThinkSpark maintains technical skills, knowledge and experience focused on the Oracle software application and database technology. ThinkSpark creates customer value by building efficient date centric technology solutions that enable business-to-consumer and business-to-business collaboration. The company primarily provides software development/integration services focused on database programming, which is enhanced by the remote monitoring, and maintenance services that allow clients to maintain high availability for database infrastructure and associated business applications. By actively participating in technology partner programs, ThinkSpark has the knowledge and relationships to provide a full range of advanced e-business consulting and integration services from the middle market of both the private and public sector to Fortune 500 enterprises.

ThinkSpark Web Services & Solutions (“WSS”) provides professional services and application hosting services across multiple technologies. Development services include HTML and Cold Fusion website development, graphic design, streaming video, application interface development, database design and integration and custom scripting. WSS professional services include interactive media planning, site and campaign management, marketing and branding and IT strategy development. WSS operates a dedicated hosting facility located in the InfoMart (Dallas, Texas), providing web hosting, co-location services and application services.

Our plan of operation for the next 12 months calls for the following:

• Operation of the businesses we have acquired to date;

• Additional fundraising activities to continue our acquisition strategy and fund operational requirements; and

• Additional acquisitions to fill in our end-to-end (“E2E”) offering of business application software products and professional services to meet the needs of middle-market companies.

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RESULTS OF OPERATIONS

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Net Revenues. Revenues decreased $1.9 million to $6.9 million for the year ended December 31, 2004 from $8.8 million for the year ended December 31, 2003. The decrease resulted primarily from a loss of revenue of $1.8 million from our UDT Consulting subsidiary due to the loss of several significant contracts and an overall decline in the market for our services. The remaining UDT contractual obligations were consolidated under ThinkSpark Corporation in December 2003; however, during the year ending December 31, 2004 all remaining UDT Consulting contracts were terminated. Gross margins across all businesses averaged 44.5% during the year ended December 31, 2004 as compared to 40.5% during the year ended December 31, 2003. The slight increase is due primarily to the lower percentage of government contracts, which yield lower margins, in relation to all contracts during the year ended December 31, 2004 as compared to the year ended December 31, 2003 as well as the loss of UDT Consulting contracts and Oracle education in 2004, which also yielded lower margins compared to the other operations of the Company.

General and Administrative Expenses. General and administrative expenses decreased $1.97 million, or 31.8%, to $4.24 million for the year ended December 31, 2004 from $6.21 million for the year ended December 31, 2003. The decrease is primarily due to the following: (1) a reduction of $885,000 from the elimination of all UDT Consulting overhead costs as a result of the cessation of the separate UDT Consulting IT Professional Business Services business in December 2003, (2) a reduction of general and administrative personnel which resulted in a decrease in salaries of $588,000, (3) a reduction of legal and other professional services fees of $242,000, and (4) a $213,000 decrease in rental expenses resulting from the conversion of a matured operating lease to a capital lease, the closure of three subsidiary offices and a new, lower-cost lease for a subsidiary office in 2004.

Depreciation and Amortization Expenses. Depreciation expense decreased $19,500 to $250,300 for the year ended December 31, 2004 from $269,800 for the year ended December 31, 2003. This decrease is primarily related to the software used by Axtive that became fully depreciated in 2003, the sale of office equipment from a number of our subsidiary satellite offices, and the write-off of leasehold improvements on the former ThinkSpark main office location, offset by five additional months of depreciation of the assets acquired in the ThinkSpark acquisition. Amortization expense increased $269,200 to $1.01 million for the year ended December 31, 2004 from $741,200 for the year ended December 31, 2003. The increase is due to an additional five months of amortization related to non-competition agreements entered into with ThinkSpark employees and government contracts acquired in the ThinkSpark acquisition.

Loss on Sale of Property and Equipment. Loss on sale of property and equipment for the year ended December 31, 2004, includes a $69,100 loss on the write-off of leasehold improvements on the former ThinkSpark main office location and a $4,600 loss on furniture and equipment abandoned with the closing of ThinkSpark’s Las Vegas office, offset by a gain of $24,400 on the sale of office equipment from a number of our subsidiary satellite offices.

(Gain)/Loss on Extinguishment of Debt. Loss on extinguishment of debt for the year ended December 31, 2004 includes a loss of $2,891,800 related to the extinguishment of short-term notes payable totaling $802,200 and warrants valued at $2,306,000 through the issuance of 10,435,903 shares of common stock valued at $6,000,000. This loss was partially offset by a $78,500 reduction in the lease termination liabilities entered into as a result of the ThinkSpark acquisition, $38,000 gain on the settlement of three lawsuits, a $37,700 gain on restructuring of a settlement note to a former employee, a $42,000 gain from various reductions of accounts payable and accrued expenses, and a $7,300 gain on conversion of a matured operating lease to a capital lease. Gain on extinguishment of debt for the year ended December 31, 2003 includes $390,000 for a reduction in the final settlement of the amounts owed to UDT Consulting for full and final consideration of the purchase price.

Impairment of Assets. During the year ended December 31, 2004, we were notified that ThinkSpark’s contract as an Oracle Approved Education Center and an authorized reseller of Oracle education prepaid credits was terminated. As such, the intangible asset recorded as part of the ThinkSpark acquisition allocated to “Oracle partnership” that had a carrying value of approximately $303,000 was written off and is included as an impairment of assets for the year ended December 31, 2004. In 2004, the Company determined non-compete agreements with ThinkSpark employees entered into at the time of the ThinkSpark acquisition were not enforceable and, thus, had no value. As a result, in December 2004, the purchase price recorded as part of the ThinkSpark acquisition that was

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allocated to intangible assets and identified as “Non-compete agreements” with a carrying value of approximately $138,000 was written-off and is included as an impairment of assets for the year ended December 31, 2004. During 2004, based on the results of an annual impairment test of intangibles and goodwill of the Company, we recorded an impairment of the goodwill recorded as part of the ThinkSpark acquisition of $1.8 million. During the year ended December 31, 2003, based on annual third party valuations performed for all the intangibles and goodwill of the Company, we recorded a partial impairment of the goodwill recorded as part of the Media Resolutions and UDT Consulting acquisitions of $119,000. In 2003, due to the loss of several significant UDT contracts and an overall decline in the market, the Company ceased the separate operations of UDT and a full impairment of the $1.05 million goodwill recorded in the acquisition of UDT was recorded. Additionally, in 2003, the intangible recorded in conjunction with the acquisition of the “Axtive” name with a carrying value of $177,000 was determined to be impaired and was written-off.

Interest Expense. Interest expense increased $950,800 to $1.26 million for the year ended December 31, 2004 from $313,700 for the year ended December 31, 2003. Interest expense for 2003 primarily included the cost of factoring receivables by our subsidiary, UDT Consulting, and seven month’s interest expense on the installment note and settlement agreements entered into as a result of the ThinkSpark acquisition. Interest expense for 2004 reflects interest expense related to the amortization of debt discounts (see further discussion in Note 8, “Financing Transactions”), interest expense on the installment note and settlement agreements entered into as a result of the ThinkSpark acquisition, interest expense on the senior secured convertible variable rate term note entered into with Laurus Master Fund, Ltd. (see further discussion in Note 8, “Financing Transactions”) and interest expense on a settlement note, a short-term note payable and capital lease obligations entered into during the year ended December 31, 2004. Additionally, in 2004, the Company began amortizing deferred financing fees recorded in conjunction with the three-year senior secured convertible variable rate term note entered into with Laurus Master Fund, Ltd.

Management Fees. Management fees for the years ended December 31, 2003 and 2004 consist of fees we charged PurchasePooling Solutions, Inc. and Demand Aggregation Solutions, LLC (“DAS”), respectively, for services of our Chief Executive Officer, President and other Axtive employees to manage the day-to-day affairs of PurchasePooling and DAS. See Note 5, “Related Party Transactions,” to our consolidated financial statements included elsewhere in this report

Write-off of Due from Stockholder. During the year ended December 31, 2004, the Company determined collection of trade accounts receivable of $494,700, management fees receivable of $500,000 and advances due from DAS of $386,600 recorded under the terms of a management agreement with DAS was not likely. As a result, all amounts due to the Company from DAS totaling $1.38 million were written-off. See Note 5, “Related Party Transactions,” to our consolidated financial statements included elsewhere in this report.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2004, we had cash and cash equivalents of $21,700 and a working capital deficit of $7.9 million, compared to cash and cash equivalents of $146,100 and a working capital deficit of $7.8 million at December 31, 2003. During 2004, net cash used in operating activities was $893,600 as compared to $1.47 million in 2003. The decrease in cash flow from operations in 2004 is primarily the net result of cash used by the net loss of $9.9 million offset by adjustment for non-cash expenses totaling $8.4 million and a net change in all other assets and liabilities of $691,200. During 2003, net cash used in operating activities was $1.47 million. The decrease in cash flow from operations in 2003 is primarily the net result of the following: (1) cash used by the net loss of $2.63 million after adjustment for non-cash expenses, (2) an increase in accounts payable of $1.27 million as a result of the ThinkSpark acquisition, and (3) a net change in all other assets and liabilities of $115,000.

During 2004, net cash used in investing activities was $464,600 as compared to $745,500 in 2003. Net cash used in investing activities in 2004 was primarily related to advances to DAS of $488,500. The year 2003 use was due primarily to settlements of prior acquisitions in the amount of $189,700, management fees receivable and advances due from stockholder in the amount of $395,100 and the acquisition of ThinkSpark, net of cash received, in the amount of $179,100.

During 2004, net cash provided by financing activities was $1.23 million as compared to $1.92 million in 2003. Net cash provided in 2004 included $2.15 million in proceeds from the issuance of common stock, net of costs, and $389,600 in proceeds from the issuance of short-term debt offset by $294,100 in payments of deferred financing fees, $669,600 in payments of long-term debt and settlements notes entered into in

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connection with the ThinkSpark acquisition, $293,900 in payments of related party short-term notes, and $51,300 in payments of lease termination settlements and capital lease obligations. Net cash provided in 2003 included $2.3 million in proceeds from the issuance of preferred stock and warrants, and $700,000 in proceeds from related parties offset by $1.0 million in payments of long-term debt, settlements notes and other short-term notes entered into in connection with the ThinkSpark acquisition.

At February 28, 2005, we had cash and cash equivalents of $26,000 and a working capital deficit of $7.9 million.

The Company has an estimated federal and state payroll tax obligation of $425,600 at December 31, 2004. The Company estimated this obligation to be the amounts withheld from employees and the employer portion of Social Security Federal Tax Obligation, including past due amounts of $282,400 from the second quarter and third quarter of 2004, an estimated accrual of $81,500 for related penalties and interest and $61,700 for current payroll tax obligations as of December 31, 2004. The Company additionally had an estimated 401(k) obligation of $94,800 at December 31, 2004. The Company estimated this obligation to be the amounts withheld from employees, including past due amounts of $35,100 from the second quarter and third quarter of 2004, estimated excise taxes and lost earnings of $50,600 due to the 401(k) participants for late contributions made during 2003 and the year ended December 31, 2004 and $9,100 of current obligations. Subsequent to December 31, 2004, the Company proposed a plan to the Internal Revenue Service (“IRS”) whereby the Company would pay monthly installments of $15,500 to the IRS until the Company’s obligation for payroll taxes and related penalties and interest was paid in full. This installment plan is contingent upon final approval by the IRS and it is not known if final approval will be received.

Concurrent with the ThinkSpark acquisition, the Company entered into an Assignment and Assumption Agreement to assume $5.0 million of debt of ThinkSpark outstanding with Merrill Lynch Business Financial Services, Inc. (“MLBFS”). As of December 31, 2004, the amount outstanding was $4.7 million, including past due monthly payments of principal totaling $211,136. The debt assumed is secured by all of the assets of ThinkSpark, although Merrill Lynch agreed to subordinate its liens on up to $1.0 million of accounts receivable of ThinkSpark under certain circumstances. The debt is also guaranteed by the remaining subsidiaries of Axtive. The debt is payable in monthly installments of $55,000 including 6% interest in year one, and monthly installments of $60,000 including 8% interest in year two, with the remaining balance due on June 1, 2005. In December 2004, the Company received a written notice of default and demand for payment from MLBFS. The notice states that various unspecified defaults and events of defaults have occurred and are continuing under the loan documents. Accordingly, MLBFS accelerated the full amount of the outstanding debt and notified the Company that the debt was immediately due and payable. Subsequent to December 31, 2004, the Company is continuing to communicate with MLBFS through legal counsel in an attempt to resolve the outstanding defaults and cause MLBFS to withdraw the notice of acceleration and demand for payment. The Company can, however, give no assurances that it will be successful in this attempt. If the attempt is not successful, MLBFS may exercise remedies available to it under the loan documents or otherwise under applicable law, including foreclosure of its security interest in the ThinkSpark assets or enforcement of the subsidiary guaranties.

Also concurrent with the ThinkSpark acquisition, the Company entered into various other settlement agreements with former landlords, customers, and employees of ThinkSpark. In April 2004, a mutual release and escrow agreement was entered into with one of the former customers and the related $235,100 promissory note was settled (see further discussion at Note 15, “Commitments and Contingencies”, to our consolidated financial statements included elsewhere in this report). In May 2004, an additional settlement totaling $157,800 was entered into with the current landlord for past due 2002 rent and other unpaid expenses. In July 2004, the Company made final and full payment on a settlement note payable to one of the former customers (see further discussion at Note 15, “Commitments and Contingencies”, to our consolidated financial statements included elsewhere in this report). In August 2004, the Company restructured a settlement obligation to a former employee and shareholder to reduce the amount due under the settlement note payable (see further discussion at Note 15, “Commitments and Contingencies”, to our consolidated financial statements included elsewhere in this report). In August 2004, the Company entered into a payment agreement with Oracle Corporation to pay $272,500 of past due invoices over a period of five fiscal quarters. In October 2004, a settlement for $50,000 was entered into with a landlord for early termination of a lease of office space in Oklahoma City. In November 2004, a settlement for $30,000 was entered into with a landlord for early termination of a lease of office space in Austin. Of the remaining settlements, $500,000 bears interest of 6% and is due and payable within twenty-four months of execution, $157,800 bears interest of 10% and is due and payable within 40 months of execution, and $601,300 bears no interest and is due and payable within four months to twelve months of execution. As of December 31, 2004, the balance remaining due and outstanding is $1.04 million, including past due amounts of $454,400, and is classified as “Settlement notes payable” in the consolidated balance sheets included in this report.

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In July 2004, the Company entered into an addendum to a matured operating lease with GE Capital Corporation to finance the purchase of furniture and equipment for approximately $185,000. The addendum provides for financing of the amount due for a term of 24 months, at 9.5% interest, with a purchase option of $1.00 upon full payment. A payment of $20,000 was paid upon signing of the addendum and a payment of $10,000 was paid in July 2004. There are 22 additional payments of $7,758, each due on the first day of each month beginning on August 1, 2004 and continuing through May 1, 2006. As of December 31, 2004, the balance remaining due and outstanding is $122,900 and is included in “Capital lease obligations” in the consolidated balance sheets included in this report.

During late 2003 and early 2004, in a private notes offering (see further discussion at Note 8, “Financing Transactions,” to our consolidated financial statements included elsewhere in this report), we issued 12% promissory notes totaling approximately $852,000 to several of the Company’s investors and issued warrants to purchase 4,259,145 shares of common stock at a per share price of $1.10. Of the $852,000, we received approximately $370,000 in cash with the balance funded with the proceeds from the repayment of the principal amounts plus accrued and unpaid interest of previous short-term notes. The proceeds from these notes were used for working capital and general corporate purposes. As part of a private common stock offering by the Company in February 2004 (see further discussion at Note 8, “Financing Transactions,” to our consolidated financial statements included elsewhere in this report), all but one of the 12% promissory notes totaling approximately $802,000 and the related warrants were converted into 10,435,903 shares of the Company’s common stock. The remaining note, of approximately $50,000, and all accrued and unpaid interest was paid in full in February 2004 and the related warrant was forfeited.

During the period February to December 2004, as part of the February 2004 private offering as described under “Recent Sales of Unregistered Securities,” we issued 39,375,641 shares of our common stock to several of the Company’s existing investors at $0.07687 per share. We received cash proceeds of approximately $2.2 million, all of which has been or will be used for working capital and general corporate purposes.

Additionally, as part of the February 2004 private offering, the holders of the Series A Preferred Stock elected to convert all of their outstanding shares into common stock and agreed to waive and terminate all warrants issued in conjunction with their previous purchases of Series A Preferred Stock.

In July 2004, the Company entered into a three-year senior secured convertible variable rate term note, for an aggregate principal amount of $4,000,000 with Laurus Master Fund, Ltd. To date, no amounts have been advanced under this note. The note bears a variable interest rate of Wall Street Journal Prime plus 2%, with a 6% minimum, subject to possible future adjustments based on our common stock price that may reduce the rate. The repayment terms consist of monthly amortizing payments of the outstanding principal plus interest, both payable in either cash or Axtive common stock, or a combination thereof. The net note proceeds of $3.8 million, after payment of fees and expenses, were required to be placed in a restricted cash account under the dominion and control of Laurus. The net note proceeds are intended to be used solely for acquisitions and any release of the proceeds is subject to the approval of Laurus. The note is secured by the depositary account and any funds distributed from the account will be secured by the accounts receivable and other assets of any acquired company, as well as pledge of its capital stock or other equity. If the Company elects or is required to make payments under the note in cash, the payments will be at 101% of the monthly principal amount due. If the Company satisfies certain conditions to make payments with shares of its common stock, the number of shares will be determined based upon a fixed conversion price of $0.40, which is based upon 102% of the 10-day average closing prices prior to the closing and which will remain fixed for the term of the note subject to adjustments upon the occurrence of certain events. Generally, if the Company elects to prepay all or part of the outstanding principal of the note, it will be subject to substantial prepayment penalties of 20% or 30%. The Company also issued Laurus warrants to purchase 750,000 shares of Axtive common stock at an exercise price equal to 120% of the fixed conversion price, or $0.48 per share.

We incurred a net loss for the year ended December 31, 2004 of $9.9 million. In addition to the Company’s past due amounts with respect to the MLBFS debt and certain other of its settlement notes debt and its outstanding payroll tax and 401(k) obligations, we have past due professional services payments and accounts payable.

We expect our liquidity to remain tight both in the short term and for the next 12 months. We believe our current cash reserves and cash flows generated by our acquired companies will not be sufficient to meet our short-term operating needs or the anticipated needs of the Company’s operations for the next 12 months. While we have a level of comfort as

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to the projected cash flows generated by our operating 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. The Company’s inability to obtain adequate additional funding in a timely manner or generate revenue sufficient to offset the operating costs associated with executing our current business plan could have a material adverse effect on the Company’s ability to continue as a going concern.

We have historically financed our operations primarily through the sale of equity securities or instruments convertible into equity securities. There can be no assurance that future financings can be completed, whether at all or in a timely manner to meet our capital requirements.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could differ from those estimates. The Company believes the following are the critical accounting policies that could have the most significant effect on the Company’s reported results and require the most difficult, subjective or complex judgments by management.

Accounts Receivable

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness; past transaction history with the customer; current economic industry trends; and changes in customer payment terms. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Revenue Recognition

The Company earns revenues primarily from providing consulting services. Although the Company provides consulting services under both time-and-material and fixed-price contracts, the majority of our service revenues are recognized under time-and-material contracts as hours and costs are incurred. Revenues include reimbursable expenses billed to customers. Revenues from consulting services are recognized when the Company has received a signed agreement, the Company has delivered the services, and collection is considered probable by management. Cost of revenues for consulting services includes salaries, benefits, and other direct expenses related to providing consulting services. Deposits received from customers in advance of the delivery of product or provision of service are included in “Other current liabilities” in the accompanying consolidated balance sheets.

The Company has also earned revenues from providing education services. Education revenues include amounts billed for providing training seminars at Company-owned and third-party facilities. Revenues from Company-organized courses are reported on a gross basis. Revenues from training courses conducted for Oracle Corporation are recorded on a net basis, as the Company receives a percentage of the amounts billed to participants. Cost of revenues for education revenues includes salaries, benefits, and other direct expenses related to providing education services. Education revenues totaled less than 10% of total revenues for the years ended December 31, 2003 and 2004. Effective April 1, 2004, our contract to provide Oracle training courses was terminated.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company performed an annual impairment test of goodwill in the third quarter of 2002, and had valuation reports prepared by a third party to assist us in our annual impairment tests of goodwill in the third and fourth quarters of 2003. Due to an overall decline in business, of approximately $906,000 of goodwill recorded in the acquisition of The Visionary Group, $600,000 was written off in September 2002, and the balance was written off in December 2002; of approximately

27

$477,000 of goodwill recorded in the acquisition of Media Resolutions, Inc., $119,000 was written off in September 2003; and of approximately $1.05 million of goodwill recorded in the acquisition of Universal Data Technology, Inc., $100,000 was written off in September 2003, and the balance was written off in December 2003. Due to the termination of ThinkSpark’s contract as an Oracle Approved Education Center and an authorized reseller of Oracle education prepaid credits, the purchase price recorded as part of the ThinkSpark acquisition that was allocated to intangible assets and identified as “Oracle partnership” with a carrying value of approximately $303,000 was written off in June 2004. In 2004, the Company determined non-compete agreements with ThinkSpark employees entered into at the time of the ThinkSpark acquisition were not enforceable and, accordingly, had no value. As a result, in 2004, the purchase price recorded as part of the ThinkSpark acquisition that was allocated to intangible assets and identified as “Non-compete agreements” with a carrying value of approximately $138,000 was written-off. Additionally, the intangible asset recorded for the Axtive trademark was written off in December 2003. In accordance with SFAS No. 142, in the third and fourth quarters of 2004, the Company performed annual impairment tests of goodwill recorded in the acquisitions of Media Resolutions, Inc., Virtually There, Inc. and ThinkSpark Corporation. Based on the results of these tests, it was determined the goodwill recorded in the acquisitions of Media Resolutions, Inc. and Virtually There, Inc. was not impaired. Also as a result of these tests, of the approximately $2.5 million of goodwill recorded in the ThinkSpark Corporation acquisition, $1.8 million was written-off in December 2004.

Long-Lived Assets

We have adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Under the provisions of this statement, we have evaluated our long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.

We evaluate the recoverability of long-lived assets and certain identifiable intangibles assets to be held and used by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values, less cost to sell.

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.

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 Axtive 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 and Section 21E of the Securities Exchange Act of 1934 and which are intended to be covered by the safe harbors created by those statutory provisions. Readers are cautioned that such statements are only predictions and that actual events or results may differ substantially. Our actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in our filings with the SEC and, specifically, the risk factors set forth in Item 1, “Description of Business—Risk Factors.”

28

ITEM 7. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	30
Consolidated Balance Sheets as of December 31, 2003 and 2004	31
Consolidated Statements of Operations for the Years Ended December 31, 2003 and 2004	32
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2003 and 2004	33
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and 2004	34
Notes to Consolidated Financial Statements	36

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Axtive Corporation

We have audited the accompanying consolidated balance sheets of Axtive Corporation and Subsidiaries (the “Company”), as of December 31, 2003 and 2004, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Axtive Corporation and Subsidiaries as of December 31, 2003 and 2004, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company incurred a net loss of approximately $9.9 million during the year ended December 31, 2004, and, as of December 31, 2004, the Company’s current liabilities exceeded its current assets by approximately $7.9 million. Additionally, the Company is in default on certain debt which is secured by all of the assets of the Company’s largest subsidiary and guaranteed by the remaining subsidiaries of the Company. These factors, among others, as discussed in Note 2 to the consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

KBA GROUP LLP

Dallas, Texas

February 25, 2005

30

AXTIVE CORPORATION and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2003			2004
CURRENT ASSETS
Cash and cash equivalents	$	146,055		$	21,728
Accounts receivable, net of allowance for doubtful accounts of $149,325 and $101,382 at December 31, 2003 and 2004, respectively		1,816,278			824,513
Other current assets		225,128			163,841
Total current assets		2,187,461			1,010,082
NON-CURRENT ASSETS
Property and equipment, net		471,697			441,965
Goodwill, net		3,579,608			1,755,530
Intangible assets, net		3,097,515			1,645,897
Deferred financing fees, net		—			518,592
Other assets		36,168			31,003
TOTAL ASSETS	$	9,372,449		$	5,403,069
CURRENT LIABILITIES
Accounts payable	$	1,982,803		$	960,285
Accrued expenses		628,246			1,607,398
Short-term notes payable		100,000			100,000
Short-term notes payable - related parties, net of debt discount of $108,794 and $0 at December 31, 2003 and 2004, respectively		607,491			9,824
Current portion - long-term debt		4,883,646			4,664,672
Current portion - settlement notes payable		1,006,199			949,650
Current portion - capital lease obligations		12,913			119,056
Lease termination liability		236,650			122,336
Other current liabilities		542,696			332,795
Total current liabilities		10,000,644			8,866,016
NON-CURRENT LIABILITIES
Settlement notes payable, less current portion		173,359			85,405
Capital lease obligations, less current portion		8,339			85,601
Other non-current liabilities		45,396			—
Total non-current liabilities		227,094			171,006
TOTAL LIABILITIES		10,227,738			9,037,022
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ DEFICIT
Series A convertible preferred stock, $.01 par value, 5,000,000 shares authorized, 6,825 issued and outstanding at December 31, 2003, net of discount; liquidation preference of $6,825,000, and none issued and outstanding at December 31, 2004		5,871,440			—
Common stock, $.01 par value, 100,000,000 shares authorized, 2,195,688 issued at December 31, 2003 and 49,319,550 issued at December 31, 2004		21,957			493,196
Additional paid in capital		43,063,909			55,240,581
Treasury shares (32,589 shares and 76,807 shares at December 31, 2003 and December 31, 2004, respectively)		(326	)		(768	)
Accumulated deficit		(49,417,132	)		(59,366,962	)
Management fees receivable and advances due from stockholder		(395,137	)		—
TOTAL STOCKHOLDERS’ DEFICIT		(855,289	)		(3,633,953	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	9,372,449		$	5,403,069

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

31

AXTIVE CORPORATION and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the year ended December 31,
	2003			2004
Net revenues	$	8,828,091		$	6,893,950
Cost of revenues		(5,251,183	)		(3,828,132	)
Gross profit		3,576,908			3,065,818
Operating expenses
General and administrative		6,214,010			4,240,865
Depreciation and amortization		1,010,961			1,260,741
Loss on sale of property and equipment		—			49,395
(Gain) loss on extinguishment of debt		(390,619	)		2,687,947
Impairment of assets		1,347,997			2,265,265
Total operating expenses		8,182,349			10,504,213
Operating loss		(4,605,441	)		(7,438,395	)
Other income (expense)
Interest expense		(313,719	)		(1,264,517	)
Management fee income, related party		200,000			240,000
Write-off of due from stockholder		—			(1,381,358	)
Other income (expense), net		(111,470	)		(105,560	)
Total other income (expense), net		(225,189	)		(2,511,435	)
Net loss		(4,830,630	)		(9,949,830	)
Provision for preferred stock dividends		(470,580	)		(91,197	)
Amortization of discount on preferred stock		(429,934	)		—
Gain on settlement of preferred stock dividends with common stock		—			353,985
Net loss attributed to common stockholders	$	(5,731,144	)	$	(9,687,042	)
Net loss per share attributed to common stockholders, basic and diluted	$	(2.80	)	$	(0.27	)
Weighted average common shares outstanding, basic and diluted		2,046,783			35,756,101

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

32

AXTIVE CORPORATION and SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

	Common Stock			Preferred Stock					Additional Paid in Capital			Management Fees Receivable and Advances Due From Stockholder			Treasury Stock			Accumulated Deficit			Total Stockholders Equity (Deficit)
	Shares	Amount		Shares		Amount
Balance December 31, 2002	1,904,005	$	19,040	4,440		$	3,925,572		$	42,095,640		$	—		$	—		$	(44,586,502	)	$	1,442,892
- Issuance of Series A Preferred Stock and Warrants, Net of Offering Costs of $124,000	—		—	2,385			1,849,934			411,000			—			—			—			2,260,934
- Issuance of Warrants and Stock for Services	140,000		1,400	—			—			116,600			—			—			—			118,000
- Amortization Of Preferred Stock Beneficial Conversion Feature	—		—	—			95,934			(95,934	)		—			—			—			—
- Issuance of Common Stock to Settle Liability (see Note 12)	121,915		1,219	—			—			(1,219	)		—			—			—			—
- Additional Shares Issued for Acquisition of Assets	29,768		298	—			—			14,702			—			—			—			15,000
- Issuance of Warrants to Settle Note Payable	—		—	—			—			414,000			—			—			—			414,000
- Issuance of Warrants to Investors in Connection With Obtaining Debt Financing	—		—	—			—			108,794			—			—			—			108,794
- Treasury Stock Acquired (see Note 12)	—		—	—			—			326			—			(326	)		—			—
- Management Fees Receivable and Advances Due From Stockholder	—		—	—			—			—			(395,137	)		—			—			(395,137	)
- Realized Loss on Sale of Marketable Securities	—		—	—			—			—			—			—			—			10,858
- Net Loss	—		—	—			—						—			—			(4,830,630	)		(4,830,630	)
Balance December 31, 2003	2,195,688		21,957	6,825			5,871,440			43,063,909			(395,137	)		(326	)		(49,417,132	)		(855,289	)
- Sale of Common Stock, Net of Offering Costs of $71,522	28,939,738		289,398							1,863,695												2,153,093
- Conversion of Preferred Stock and Dividends to Common Stock	7,648,221		76,482	(6,825	)		(5,871,440	)		5,794,958			—			—			—			—
- Conversion of Notes Payable and Warrants to Common Stock	10,435,903		104,359	—			—			3,589,618			—			—			—			3,693,977
- Management Fees Receivable and Advances Due From Stockholder	—		—	—			—			—			(488,509	)		—			—			(488,509	)
-Treasury Stock Acquired (See Note 12)	—		—	—			—			442			—			(442	)		—			—
- Issuance of Stock to Settle Note Payable	100,000		1,000	—			—			44,000			—			—			—			45,000
- Fair Value of Warrants Issued in Connection with Financing	—		—	—			—			883,959			—			—			—			883,959
- Write-off of Due from Stockholder	—		—	—			—						883,646			—			—			883,646
- Net Loss	—		—	—			—												(9,949,830	)		(9,949,830	)
Balance December 31, 2004	49,319,550	$	493,196	—		$	—		$	55,240,581		$	—		$	(768	)	$	(59,366,962	)	$	(3,633,953	)

The accompanying notes are an integral part of this consolidated financial statement.

33

AXTIVE CORPORATION and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2003			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(4,830,630	)	$	(9,949,830	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for bad debt		90,707			(47,943	)
Depreciation and amortization		1,010,961			1,260,741
Impairment of assets		1,347,997			2,265,265
(Gain) loss on extinguishment of debt		(390,619	)		2,687,947
Loss on disposal of fixed assets		3,258			49,395
Common stock and warrants issued for services		118,000			—
Amortization of deferred financing fees		—			75,502
Amortization of debt discount		—			692,754
(Gain) loss on sale of marketable securities		21,654			—
Write-off of amounts due from stockholder		—			1,381,358
Change in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		177,680			361,346
Other current assets		(18,136	)		61,287
Other assets		3,312			5,164
Accounts payable		1,271,996			(388,654	)
Accrued liabilities		(330,939	)		268,887
Other current liabilities		(147,506	)		383,209
Other non-current liabilities		200,625			—
Net cash used in operating activities		(1,471,640	)		(893,572	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net		2,395			(8,243	)
Proceeds from the sale of fixed assets		—			32,132
Acquisition of subsidiaries, net of cash received		(179,091	)		—
Settlements of prior acquisitions		(189,710	)		—
Proceeds from the sale of marketable securities		16,077			—
Advances to affiliated company		(395,137	)		(488,509	)
Net cash used in investing activities		(745,466	)		(464,620	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of Common Stock		—			2,153,093
Proceeds from the issuance of preferred stock and warrants		2,176,818			—
Deferred financing fees		—			(294,094	)
Payments on long-term debt		(116,354	)		(218,974	)
Proceeds from short-term debt (including $0 and $707,549 from related parties, respectively)		716,284			389,649
Payment on lease terminations		—			(35,792	)
Payment of settlement notes		(490,245	)		(450,662	)
Payment of related party debt		—			(293,896	)
Payment of short-term notes payable		(324,893	)		—
Principal payments under capital leases		(42,724	)		(15,458	)
Net cash provided by financing activities		1,918,886			1,233,865
NET CHANGE IN CASH AND CASH EQUIVALENTS		(298,220	)		(124,327	)
Cash and cash equivalents, beginning of year		444,275			146,055
Cash and cash equivalents, end of year	$	146,055		$	21,728

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

34

AXTIVE CORPORATION and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2003		2004
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	202,383	$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Fair value of warrants issued in connection with sale of preferred stock	$	411,000	$	—
Fair value of warrants issued to settle a note payable	$	414,000	$	—
Amortization of preferred stock beneficial conversion feature	$	429,934	$	—
Issuance of common stock as collateral	$	12,191	$	—
Issuance of notes payable in connection with acquisition of ThinkSpark	$	181,440	$	—
Preferred stock issued in satisfaction of note payable	$	84,115	$	—
Issuance of common stock as payment for assets	$	15,000	$	—
Related party notes settled through the issuance of common stock	$	—	$	802,214
Settlement notes settled through issuance of common stock	$	—	$	45,000
Conversion of preferred stock and dividends to common stock	$	—	$	5,871,440
Fair value of warrants issued in connection with obtaining debt financing	$	108,794	$	883,959
Fair value of common stock issued as settlement of related party notes	$	—	$	5,999,863
Fair value of warrants converted to common stock	$	—	$	2,305,886
Issuance of note payable as settlement of accounts payable	$	—	$	415,253
Settlement resulting in offset of notes payable and accounts payable against accounts receivable	$	—	$	180,650
Property and equipment acquired with a capital lease	$	—	$	198,863
Property and equipment acquired with a note payable	$	—	$	94,997

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

35

AXTIVE CORPORATION and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2004

1. NATURE OF OPERATIONS and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Axtive Corporation (“Axtive” or “Company”), formerly Edge Technology Group, Inc., was incorporated in Delaware in July 1994 and commenced operations in January 1995. We changed the name of our company to Axtive Corporation in October 2002 to better reflect our current business operations and business strategy.

Axtive is a publicly traded company (OTC: AXTC.OB). On December 23, 2003, the Company effected a 1-for-10 reverse share split of all of its common stock. Unless otherwise indicated in this report, all share numbers reflect the 1-for-10 reverse share split for all periods presented.

Our business model is to acquire technology companies that deliver software products and related professional information technology services to middle-market companies. Our acquisitions have included ThinkSpark, a professional services firm specializing in the installation and integration of technology solutions from Oracle Corporation; VirtuallyThere, a web services firm; UDT Consulting, a professional services firm specializing in the installation, integration and application of software solutions from IBM, Informix and Microsoft; and Media Resolutions, an application and managed hosting services provider.

We will continue to offer products and services that improve the utilization of business information for middle-market companies, initially within the United States. We expect that customer organizations will benefit from integrated business application solutions that are delivered through portal technology or as traditional licensed products. Future acquisitions will target companies with existing strategic relationships with Oracle, IBM or Microsoft, allowing us to take advantage of partnership opportunities available only to select parties. The technology companies targeted for acquisition are those that operate within the following business sectors and operating business units: (1) IT Professional Services; (2) Business Application Software comprised of six product groups; and (3) Application Services and Management.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include bank demand deposits, money market funds and other highly liquid investments with original maturities of three months or less at the date of purchase.

Accounts Receivable

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness; past transaction history with the customer; current economic industry trends; and changes in customer payment terms. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

36

Property and Equipment

Property and equipment, comprised primarily of computer equipment, software and office equipment, are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets that range from 3 to 7 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life of the related asset. Expenditures for maintenance and repairs are charged against income as incurred and betterments are capitalized.

Long-Lived Assets

We follow Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Under the provisions of this statement, we have evaluated our long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.

We evaluate the recoverability of long-lived assets and certain identifiable intangibles assets to be held and used by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values, less cost to sell.

Revenue Recognition

The Company earns revenues primarily from providing consulting services. Although the Company provides consulting services under both time-and-material and fixed-price contracts, the majority of our service revenues are recognized under time-and-material contracts as hours and costs are incurred. Revenues include reimbursable expenses billed to customers. Revenues from consulting services are recognized when the Company has received a signed agreement, the Company has delivered the services, and collection is considered probable by management. Cost of revenues for consulting services includes salaries, benefits, and other direct expenses related to providing consulting services. Deposits received from customers in advance of the delivery of product or provision of service are included in “Other current liabilities” in the accompanying consolidated balance sheets.

The Company has also earned revenues from providing education services. Education revenues include amounts billed for providing training seminars at Company-owned and third-party facilities. Revenues from Company-organized courses are reported on a gross basis. Revenues from training courses conducted for Oracle Corporation are recorded on a net basis, as the Company receives a percentage of the amounts billed to participants. Cost of revenues for education revenues includes salaries, benefits, and other direct expenses related to providing education services. Education revenues totaled less than 10% of total revenues for the years ended December 31, 2003 and 2004. Effective April 1, 2004, our contract to provide Oracle training courses was terminated.

Principles of Consolidation

The Company’s consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and intercompany transactions have been eliminated in consolidation.

Goodwill and Other Intangible Assets

Effective January 1, 2002, we adopted SFAS No, 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and also specifies the criteria for the recognition of intangible assets separately from goodwill. In accordance with SFAS No. 142, goodwill is no longer amortized but is subject to an impairment test at least annually or more frequently if impairment indicators arise. In accordance with SFAS No. 142, the Company performs an annual impairment test of goodwill. Due to an overall decline in business, of approximately $477,000 of goodwill recorded in the acquisition of Media Resolutions, Inc., $119,000 was written off in September 2003; and of approximately $1.05 million of goodwill recorded in the acquisition of Universal Data Technology, Inc., $100,000 was written off in September 2003, and the balance was written off in December 2003. Due to the termination of ThinkSpark’s contract as an Oracle Approved Education Center and an

37

authorized reseller of Oracle education prepaid credits, the purchase price recorded as part of the ThinkSpark acquisition that was allocated to intangible assets and identified as “Oracle partnership” with a carrying value of approximately $303,000 was written off in June 2004. In December 2004, we determined that non-compete agreements with ThinkSpark employees entered into at the time of the ThinkSpark acquisition were not enforceable and, accordingly, had no value. As a result, in December 2004, the purchase price recorded as part of the ThinkSpark acquisition that was allocated to intangible assets and identified as “Non-compete agreements” with a carrying value of approximately $138,000 was written-off. In accordance with SFAS No. 142, during 2004 the Company performed annual impairment tests of goodwill recorded in the acquisitions of Media Resolutions, Inc., Virtually There, Inc. and ThinkSpark Corporation. Based on the results of these tests, it was determined the goodwill recorded in the acquisitions of Media Resolutions, Inc. and Virtually There, Inc. was not impaired. Also as a result of these tests, of the approximately $2.5 million of goodwill recorded in connection with the ThinkSpark Corporation acquisition, $1.8M was written-off in December 2004. No other events or circumstances have occurred that would indicate the remaining intangibles are impaired.

A summary of the changes in goodwill is as follows:

Net carrying value at December 31, 2002	$	2,247,714
Acquisition of ThinkSpark Corporation		2,507,544
Settlements of previous acquisitions		(5,290	)
Impairment losses		(1,170,360	)
Net carrying value at December 31, 2003		3,579,608
Impairment losses		(1,824,078	)
Net carrying value at December 31, 2004	$	1,755,530

Intangible assets consist of the following as of December 31:

	2003				2004
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Amortizable intangible assets:
Non-compete agreements	$	911,040	$	328,334	$	911,040	$	847,921
Oracle partnership		661,792		193,023		661,792		661,792
Government contracts acquired		2,316,270		270,230		2,316,270		733,492
Total	$	3,889,102	$	791,587	$	3,889,102	$	2,243,205

Amortization expense related to the intangible assets totaled $741,177 and $1,010,432 for the years ended December 31, 2003 and 2004, respectively. The aggregate estimated future amortization expense for intangible assets remaining as of December 31, 2004 is as follows:

2005	$	489,738
2006		489,738
2007		473,406
2008		193,015
Total	$	1,645,897

Income Taxes

In accordance with SFAS No. 109, “Accounting for Income Taxes,” deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period. If

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available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is established to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance would be included in the provision for deferred income taxes in the period of change. Due to the continuing losses experienced by Axtive, we continue to fully reserve all net deferred tax assets due to the uncertainty surrounding their recoverability.

Major Customers

During 2004, one customer accounted for approximately 24% of our total revenues and a second customer accounted for approximately 13% of our total revenues. The project for the customer accounting for approximately 13% of our total revenues was completed in 2004 and we do not expect significant future revenues from this customer. No other customer accounted for more than 5%.

During 2003, one customer accounted for approximately 12% of our total revenues. No other customer accounted for more than 7%.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, notes payable, accounts receivable and accounts payable as reflected in the accompanying consolidated balance sheets approximate fair value due to the short-term maturity of these instruments.

Loss per Share

Basic loss per share is calculated by dividing loss attributed to common stockholders by the weighted average number of shares of common stock outstanding during each period.

As of December 31, 2003 and 2004, due to our net losses, all shares of Common Stock issuable upon conversion of convertible stock and the exercise of outstanding options and warrants have been excluded from the computation of diluted loss per share in the accompanying consolidated statements of operations as their impact would be antidilutive. The aggregate number of potentially dilutive instruments including preferred stock, warrants and options excluded from the loss per share calculation for the years ended December 31, 2003 and 2004 are 11,935,763 and 3,436,984 respectively.

Accounting for Stock Based Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB Opinion No. 25, compensation expense for employees is based on the excess, if any, on the date of grant, between the fair value of the Company’s stock over the exercise price. Under APB Opinion No. 25, if the exercise price of an employee’s stock option equals or exceeds the fair market value of the Company’s stock on the date of grant, no compensation expense is recognized. The Company did not record compensation expense related to the issuance of stock options during the years ended December 31, 2003 and 2004. Had the Company determined compensation based on the fair value at the grant date for its stock options under SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure and amendment of FASB Statement No. 123,” net loss and loss per share would have been increased as indicated below:

	For the Year Ended December 31,
	2003			2004
Net loss attributed to common stockholders
As reported	$	(5,731,144	)	$	(9,687,042	)
Pro forma compensation expense		(1,790,224	)		(848,579	)
Pro forma	$	(7,521,368	)	$	(10,535,621	)
Basic and diluted loss per share
As reported	$	(2.80	)	$	(0.27	)
Pro forma	$	(3.67	)	$	(0.29	)

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The assumptions used in determining the fair value of options granted for purposes of the preceding pro forma disclosures are included in Note 14.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS 123 and supercedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. For the Company, SFAS 123R is effective for periods beginning after December 15, 2005. Early application of SFAS 123R is encouraged, but not required. We plan to adopt SFAS 123R on January 1, 2006 using the modified prospective application method described in SFAS 123R. Under the modified prospective method, we will apply the standard to new awards and to awards modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for the unvested portion of awards outstanding as of the effective date will be recognized as compensation expense as the requisite service is rendered after the effective date.

We are evaluating the impact of adopting SFAS 123R and expect that after adoption we will record non-cash stock compensation expenses. The adoption of SFAS 123R is not expected to have a significant effect on our financial condition or cash flows but may have a significant, adverse effect on our results of operations. The future impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted by us in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss attributed to common stockholders included in the Accounting for Stock Based Compensation policy footnote.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation.

2. GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that Axtive will continue as a going concern. We incurred net losses of approximately $4.8 million and $9.9 million during the years ended December 31, 2003 and 2004, respectively, and, as of those dates, our current liabilities exceeded our current assets by approximately $7.8 million and $7.9 million, respectively. Additionally, at December 31, 2004 we are not in compliance with certain performance covenants under the terms of our debt to Merrill Lynch Business Financial Services, Inc. (“MLBFS”) and had past due amounts totaling $665,500 related to the MLBFS debt and certain other settlement notes debt. MLBFS has notified us that we are in default of the loan agreement. The amount due to MLBFS is secured by all of the assets of our largest subsidiary, ThinkSpark, and guaranteed by the remaining subsidiaries. We also had estimated federal and state payroll tax obligations of $425,600 at December 31, 2004, including past due amounts, penalties and interest of $363,900. We also have an estimated accrual for interest and penalties, and estimated 401(k) employee withholding obligations of $94,800 at December 31, 2004, including past due amounts of $35,100 and estimated excise taxes and lost earnings for late contributions of $50,600. These

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factors, among others, raise substantial doubt about our ability to continue as a going concern. We expect our available resources to remain tight throughout 2005. We will look to additional fundraising activities, our current cash reserves and cash flows generated from operations to meet current liquidity requirements. While we have a level of comfort as to the projected cash flows generated by our 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. There can be no assurance that future financings can be completed. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

3. ACQUISITION OF THINKSPARK CORPORATION

In May 2003, we acquired ThinkSpark Corporation and its subsidiaries (“ThinkSpark”), a professional services firm providing IT Professional Services related to Oracle database software. ThinkSpark is headquartered in Dallas, Texas with an additional office in San Antonio. The Company believes ThinkSpark is a significant building block for growing Axtive’s IT professional services business in conjunction with executing the Company’s current business plan. As a result of the acquisition, the Company gained a management team with decades of professional service experience, an established and profitable partnership with Oracle, and numerous long-term government contracts. We assigned a value of $662,000 to non-compete agreements entered into by ThinkSpark management, amortizable over 2 years; $662,000 to the Oracle partnership, amortizable over 2 years; and approximately $2.3 million to the government contracts acquired, amortizable over 5 years; and approximately $2.5 million to goodwill.

In exchange for all of the outstanding shares of ThinkSpark, we paid approximately $242,000 in cash and notes and $198,000 in acquisition-related costs. As part of the acquisition, Axtive assumed $5.0 million of long-term debt from ThinkSpark’s secured creditor, Merrill Lynch Business Financial Services, Inc. The debt assumed is secured by all of the assets of ThinkSpark, although Merrill Lynch agreed to subordinate its liens up to $1.0 million of accounts receivable of ThinkSpark under certain circumstances. The debt is also guaranteed by the remaining subsidiaries of Axtive. We also issued Merrill Lynch warrants to acquire 500,000 shares of Axtive’s common stock in exchange for the retirement of an additional $1.9 million of debt due from ThinkSpark to Merrill Lynch. The warrants have an exercise price of $0.10 per share and can be exercised anytime prior to the tenth anniversary of their issuance (May 2013). The issuance of these warrants, valued at $414,000 using the Black-Scholes model, had no effect in the statements of operations as the debt was recorded at fair value as part of the ThinkSpark acquisition.

The acquisition was accounted for using the purchase method of accounting. As such, the assets and liabilities of ThinkSpark have been recorded at their estimated fair value and the results of operations have been included in our consolidated results of operations from the date of acquisition. The excess purchase price over the fair value of the tangible and intangible assets acquired in the acquisition totaled $2.5 million and was allocated to goodwill.

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Following is a summary of the amounts assigned to the assets and liabilities of ThinkSpark:

Net Assets Acquired

Cash	$	79,823
Accounts receivable		1,692,622
Property and equipment		445,746
Goodwill		2,507,544
Intangibles		3,639,854
Other assets		115,635
Total assets acquired		8,481,224
Accounts payable and accrued expenses		1,102,121
Other liabilities		6,938,749
Total liabilities assumed		8,040,870
Total purchase price	$	440,354

None of the goodwill recorded as a result of the ThinkSpark acquisition is expected to be deductible for tax purposes.

Pro Forma Results

The following unaudited pro forma consolidated results of operations have been prepared as if the ThinkSpark acquisition had occurred on January 1, 2003.

	For the Year Ended December 31, 2003
Revenues	$	13,403,013
Net loss attributed to common stockholders	$	(6,553,626	)
Net loss per share attributed to common stockholders, basic and diluted	$	(3.12	)
Weighted average shares outstanding, basic and diluted		2,101,042

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4. PROPERTY AND EQUIPMENT

Property and equipment, including equipment acquired under capital leases, consist of the following:

	As of December 31,						Lives (Years)
	2003			2004
Machinery and computer equipment	$	268,169		$	500,263		5
Computer software		100,201			100,201		3-5
Office furniture and equipment		365,727			270,470		3
Leasehold improvements		100,639			95,430		3-7
		834,736			966,364
Less: accumulated depreciation and amortization		(363,039	)		(524,399	)
Property and equipment, net	$	471,697		$	441,965

Included in property and equipment costs at December 31, 2003 and 2004 is $21,518 and $218,014, respectively, of property and equipment under capital leases. The related amortization expense charged to operations for the years ended December 31, 2003 and 2004 was approximately $7,200 and $31,300, respectively.

5. RELATED PARTY TRANSACTIONS

PurchasePooling Solutions, Inc. and Demand Aggregation Solutions, LLC

In September 2000, we issued 264,485 shares of Axtive common stock to PurchasePooling Investment Fund in return for 9,593,824 shares of Series A Convertible Preferred Stock of PurchasePooling Solutions, Inc. (“PurchasePooling”), a start up web-based demand aggregator working toward enabling government and educational entities to save significantly on large-ticket capital items by combining their purchasing power nationwide and globally. In December 2000, we invested an additional $620,000 in PurchasePooling in return for 2,214,285 shares of its Series C Convertible Preferred Stock. In December 2000, we entered into a management agreement with PurchasePooling, in which PurchasePooling pays us a management fee ranging from $15,000 to $30,000 per month in return for the services provided by our President and other Axtive employees. We recognized $50,000 in management fees from PurchasePooling during 2003. Of such amount, $10,000 is reflected as a reduction of management salaries and included in “General and administrative” expenses, with the balance reflected as “Management fees, related party” in the accompanying consolidated statements of operations for 2003.

In October 2001, we participated in the amount of $400,000 in a syndicated loan to PurchasePooling in the total amount of $1,600,000. The loan was considered impaired and written off by the Company during 2001. In February 2003, the lenders to PurchasePooling (including Axtive) declared the loan to PurchasePooling in default and foreclosed upon the assets of the company. The previous lenders formed a new entity, Demand Aggregation Solutions, LLC (“DAS”), to hold the assets, and Axtive, under a management agreement, has agreed to manage the affairs of DAS in exchange for a management fee of $25,000 per month beginning in May 2003. We recognized $200,000 and $300,000 in management fees from DAS during 2003 and 2004, respectively. Of such amounts, $40,000 and $60,000 is reflected as a reduction of management salaries and included in “General and administrative” expenses, with the balance reflected as “Management fees, related party” in the accompanying consolidated statements of operations for 2003 and 2004, respectively. Stemming from Axtive’s participation in the loan, the Company has a 25% membership interest in DAS that is subject to forfeiture if Axtive breaches its obligations under the management agreement. Additionally, the management agreement with DAS obligates Axtive to advance DAS amounts for working capital needs and provides that Axtive is not required to make any advances in excess of $50,000 per month on average nor in excess of $1.2 million in the aggregate over the three year life of the agreement. DAS is to pay all amounts due and owing to Axtive pursuant to the terms of the management agreement from its surplus cash flow and from the aggregate proceeds of any sale of all or substantially all of the assets of DAS. Since the inception of the management agreement, as of December 31, 2004, Axtive has provided consulting and software development services to DAS for which Axtive has recorded trade accounts receivable in the amount of $494,700, advanced DAS $386,600 for other working capital needs and recorded management fee revenue of $500,000. In December 2004, Axtive determined DAS’s ability to generate sufficient cash flow or to sell all or substantially all of the assets of DAS to pay the amounts due was not likely and all amounts due from DAS totaling $1.38 million were written-off.

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Acquisition of “Axtive” Name

In June 2002, the Company acquired the name “Axtive” and its related logo and trademark and certain tangible assets including furniture and fixtures, signage and office supplies from Axtive Software Corporation, as represented by its sole shareholder, G.C. “Scooter” Beachum III, our President and Chief Operating Officer. The assets were acquired in exchange for an initial grant of 40,000 restricted shares of Axtive’s common stock, which was valued at approximately $168,000 at the time of acquisition. This amount was allocated between relative fair values of the intangible ($153,000) and tangible assets ($15,000) purchased by us.

On July 1, 2003, we issued 29,768 restricted shares of our common stock, valued at $15,000, to TSTC International Holding Company, formerly known as Axtive Software Corporation. These shares constituted an additional payment due to TSTC in connection with our June 2002 purchase discussed above. We were obligated to issue the additional restricted shares, not in excess of 29,768 shares, if the market price of our common stock had not been at or above $7.50 within the one-year period after our purchase. G.C. “Scooter” Beachum, our President and Chief Operating Officer, is the sole shareholder and director of TSTC. The issuance of the restricted shares of common stock did not involve a public offering. In December 2003, we determined that the entire intangible was impaired, and wrote off the carrying value totaling approximately $177,000.

6. ACCRUED EXPENSES

Accrued expenses are summarized as follows:

	As of December 31,
	2003		2004
Professional fees	$	65,938	$	44,160
Interest and related fees		59,391		518,077
Salaries, bonuses and benefits		323,477		193,079
401(K) amounts		52,603		94,753
Payroll taxes		9,369		425,592
Other		117,468		331,737
	$	628,246	$	1,607,398

The Company has an estimated federal and state payroll tax obligation of approximately $425,600 at December 31, 2004. The Company estimated this obligation to be the amounts withheld from employees and the employer portion of Social Security Federal Tax Obligation, including past due amounts of $282,400 from the second quarter and third quarter of 2004, an estimated accrual of $81,500 for related penalties and interest and current payroll tax obligations of $61,700. The Company additionally had an estimated 401(k) obligation of $94,800 at December 31, 2004. The Company estimated this obligation to be the amounts withheld from employees, including past due amounts of $35,100 from the second quarter and third quarter of 2004, estimated excise taxes and lost earnings of $50,600 due to the 401(k) participants for late contributions made during 2003 and 2004 and current amounts withheld of $9,100.

7. OTHER CURRENT LIABILITIES

Other current liabilities are summarized as follows:

	As of December 31,
	2003		2004
Liabilities assumed in acquisitions	$	382,380	$	237,879
Amounts due on receivables sold		11,232		—
Customer deposits		65,496		25,496
Deferred revenue		83,588		69,420
	$	542,696	$	332,795

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8. FINANCING TRANSACTIONS

12% Promissory Notes

In a private notes offering, on December 15, 2003, we issued G.C. “Scooter” Beachum a 12% promissory note in the amount of $13,441 and issued a warrant to purchase 67,205 shares of common stock at a per share price of $1.10. The 12% promissory note had a December 15, 2004 maturity date and was secured by the Company’s assets, including stock of its subsidiaries and other equity investments. Interest on the note was payable quarterly, in arrears, on the last day of March, June, September and December of each year until the maturity date, commencing March 31, 2004. The warrant was valued at $11,521 using the Black-Scholes model and was recorded as a debt discount. The debt discount was amortized to interest expense over the term of the note. The note was funded with the proceeds from the repayment of the principal amount plus accrued and unpaid interest of a previous short-term loan. As part of the Private Placement of Common Stock by the Company in February 2004, discussed below, the note (based on the outstanding principal balance) and the related warrant were converted into 174,854 shares of the Company’s common stock. The fair market value of the common stock issued in the conversion of this note was $99,666. The value of the warrant, using the Black-Scholes model, on the conversion date was $38,306. As the fair market value of the common stock issued was greater than the amount owed under the note plus the value of the warrant, a loss on extinguishment of debt was recorded for the difference, which totaled $47,919. Upon settlement of this liability, the unamortized debt discount related to the note totaling $9,223 was charged to interest expense.

On December 15, 2003, as part of the same private notes offering, we issued three of the Company’s investors, US Technology Investors LLC, Paul Morris and Jack E. Brown 12% promissory notes in the amounts of $43,900, $20,000 and $56,410, respectively and issued warrants to purchase 219,500, 100,000 and 282,050, respectively, shares of common stock at a per share price of $1.10. The 12% promissory notes and the warrants had the same terms as described above, including security for the notes. The warrants were valued at $35,120, $16,000 and $46,154, respectively, using the Black-Scholes model and were recorded as a debt discount. The debt discount was amortized to interest expense over the term of the note. The proceeds from the issuance of the notes were used for working capital. As part of the February 2004 Private Placement of Common Stock, discussed below, these notes (based on the outstanding principal balances) and the related warrants were converted into 1,565,099 shares of the Company’s common stock. The fair market value of the common stock issued in the conversion of these notes was $943,505. The value of the warrants, using the Black-Scholes model, on the conversion date was $362,634. As the fair market value of the common stock issued was greater than the amount owed under the notes plus the value of the warrants, a loss on extinguishment of debt was recorded for the difference, which totaled $460,561. Upon settlement of this liability, the unamortized debt discount related to the notes totaling $78,266 was charged to interest expense.

On January 15, 2004, as part of the private notes offering begun in December 2003, we issued GCA Strategic Investment Fund Limited a 12% promissory note in the amount of $668,463 and issued a warrant to purchase 3,342,315 shares of common stock at a per share price of $1.10. The 12% promissory note and the warrant had the same terms as described above, including security for the notes. The warrant was valued at $557,971 using the Black-Scholes model and was recorded as a debt discount. The debt discount was amortized to interest expense over the term of the note. The Company received a cash payment of $200,000, with the balance of the note funded with the proceeds from the repayment of the principal amount plus accrued and unpaid interest of previous short-term loans. The proceeds from the issuance of the notes were used for working capital. As part of the February 2004 Private Placement of Common Stock, discussed below, the note (based on the outstanding principal balance) and the related warrant was converted into 8,695,951 shares of the Company’s common stock. The fair market value of the common stock issued in the conversion of this note was $4,956,692. The value of the warrant, using the Black-Scholes model, on the conversion date was $1,904,946. As the fair market value of the common stock issued was greater than the amount owed under the note plus the value of the warrant, a loss on extinguishment of debt was recorded for the difference, which totaled $2,383,283. Upon settlement of this liability, the unamortized debt discount related to the note totaling $493,942 was charged to interest expense.

On January 19, 2004, as part of the private notes offering begun in December 2003, we issued Agincourt, L.P. a 12% promissory note in the amount of $49,615 and issued a warrant to purchase 248,075 shares of common stock at a per share price of $1.10. The 12% promissory note and the warrant had the same terms as described above, including security for the notes. The warrant was valued at $25,989 using the Black-Scholes model and was recorded as a debt discount. The debt discount was amortized to interest expense over the term of the note. The proceeds from the issuance of the note were used for working capital. As part of the February 2004 common stock offering, in lieu of conversion, the principal and interest amounts due on the note were repaid and the related warrant was forfeited. Upon repayment of the note in full, the unamortized debt discount related to the note totaling $23,290 was charged to interest expense.

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Short-term Advance

On February 20, 2004, Agincourt, L.P made a short-term advance to the Company in the amount of $126,523. The advance, which was used for working capital and general corporate purposes, was repaid in full on February 26, 2004.

Private Placement of Common Stock

Pursuant to a Subscription and Securities Purchase Agreement, dated February 26, 2004, we agreed to sell a total of 39,375,641 shares of our common stock at a purchase price of $.07687 per share to existing investors in a private offering. On February 26, 2004, we issued 23,459,087 of these shares and received gross proceeds of approximately $1.8 million, consisting of $1.05 million in cash and $760,000 in consideration of the conversion of promissory notes and related warrants issued by Axtive to certain of its shareholders. As a result of this transaction, the Company recorded a loss on extinquishment of debt of $2.7 million. Of the net cash proceeds, after paying legal expenses related to the offering, we used $167,000 to repay short-term notes and a 12% promissory note issued to one of our investors, $456,000 to satisfy past due liabilities and $296,000 to settle judgments and promissory notes from prior acquisitions. The balance was used for working capital and general corporate purposes. On March 5, 2004, as part of the February 2004 private offering, we issued 571,090 of our common stock at $0.07687 per share to one of our stockholders in consideration of the conversion of a promissory note totaling $43,900 and related warrants issued by Axtive. As a result of this transaction, the Company recorded a loss on extinguishment of debt of $188,200. These purchasers have demand registration rights beginning in February 2005, as well as incidental registration rights, with respect to the shares of common stock issued.

Pursuant to the terms of the February 2004 Purchase Agreement, two of the existing investors agreed to purchase the additional 15,345,464 shares of common stock on a monthly basis, in varying amounts, from March 2004 to November 2004. From March 2004 to December 2004, we received cash proceeds of $1.18 million from these additional purchases, all of which were used for working capital and general corporate purposes.

Additionally on February 26, 2004, the holders of the Series A Preferred Stock elected to convert all of their outstanding shares into common stock. In accordance with the terms of the Series A Preferred, the conversion price was $1.00 per share. In addition, the Board declared the cumulative dividends on the Series A Preferred that had accumulated through February 26, 2004 totaling $823,221. The dividends were also paid through the issuance of common stock at the same rate that the Series A Preferred converted into common stock. Thus, 6,825,000 shares of common stock were issued for the conversion of 6,825 shares of Series A Preferred and 823,221 shares of common stock were issued as payment of the preferred dividends for the total number of shares issued to the holders of the Series A Preferred of 7,648,221. Concurrent with this conversion, the preferred stockholders agreed to waive and terminate all warrants issued in conjunction with their previous purchases of Series A Preferred Stock.

Dividends in Arrears

As part of the February 2004 private offering, the total of dividends in arrears at February 26, 2004 of $823,221 was converted into shares of common stock. The common shares were valued at $469,236 using the fair market value on the date of conversion. The gain on the payment of preferred stock dividends with common stock totals $353,985 and is included in “Net loss attributed to common stockholders” in the accompanying consolidated statements of operations. Undeclared dividends for the year ended December 31, 2004, calculated through February 26, 2004, on the preferred shares as of that date totaled $91,197 and are reflected in the computation of net loss attributable to common stockholders in the accompanying consolidated statements of operations.

Senior Secured Convertible Variable Rate Term Note

In July 2004, the Company entered into a three-year senior secured convertible variable rate term note, for an aggregate principal amount of $4,000,000 with Laurus Master Fund, Ltd (“Laurus”). To date no amounts have been borrowed under this note. The note bears a variable interest rate of Wall Street Journal Prime plus 2%, with a 6% minimum, subject to possible future adjustments based on our common stock price that may reduce the rate. As

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of December 31, 2004, the Company has recorded interest expense of $117,000. The repayment terms consist of monthly amortizing payments of the outstanding principal plus interest, both payable in either cash or Axtive common stock, or a combination thereof. The net note proceeds of $3.8 million, after payment of fees and expenses of $166,500, are required to be placed in a restricted cash account under the dominion and control of Laurus. The net note proceeds are solely intended to be used for acquisitions and any release of the proceeds is subject to the approval of Laurus. The note is secured by the depositary account and any funds distributed from the account will be secured by the accounts receivable and other assets of any acquired company, as well as pledge of its capital stock or other equity. If the Company elects or is required to make payments under the note in cash, the payments will be at 101% of the monthly principal amount due. If the Company satisfies certain conditions to make payments with shares of its common stock, the number of shares will be determined based upon a fixed conversion price of $0.40, which is based upon 102% of the 10-day average closing prices prior to the closing and which will remain fixed for the term of the note subject to adjustments upon the occurrence of certain events. Generally, if the Company elects to prepay all or part of the outstanding principal of the note, it will be subject to substantial prepayment penalties of 20% or 30%. The Company also issued Laurus warrants to purchase 750,000 shares of Axtive common stock at an exercise price equal to 120% of the fixed conversion price, or $0.48 per share. The warrants were valued at $300,000 using the Black-Scholes model and are included in “Deferred financing fees” in the accompanying consolidated balance sheets. In addition to the value of the warrants, other fees and expenses of $294,100 incurred by the Company directly attributable to entering into the note with Laurus, including the $166,500 of expenses deducted from the gross proceeds of the note, have been recorded as “Deferred financing fees” in the accompanying consolidated balance sheets. These deferred financing fees are being amortized over the contractual term of the related note, which is three years.

9. LONG-TERM DEBT AND SETTLEMENT NOTES PAYABLE

Concurrent with the ThinkSpark acquisition, the Company entered into an Assignment and Assumption Agreement to assume $5.0 million of debt of ThinkSpark outstanding with Merrill Lynch Business Financial Services, Inc. (“MLBFS”). As of December 31, 2004, the total amount outstanding is $4.7 million, including past due monthly payments of principal totaling $211,136. The debt is secured by all of the assets of ThinkSpark, although Merrill Lynch agreed to subordinate its liens on up to $1.0 million of accounts receivable of ThinkSpark under certain circumstances. The debt is also guaranteed by the remaining subsidiaries of Axtive. The debt is payable in monthly installments of $55,000 including 6% interest in year one, and monthly installments of $60,000 including 8% interest in year two, with the remaining balance due on June 1, 2005. The Company also issued Merrill Lynch warrants to acquire 500,000 shares of Axtive’s common stock at $0.10 per share for a term of 10 years in exchange for Merrill Lynch’s assignment to Axtive and settlement of an additional $1.9 million of debt due from ThinkSpark. These warrants were valued at $414,000 using the Black-Scholes model on the date of grant.

In December 2004, the Company received a written notice of default and demand for payment from MLBFS. The notice states that various unspecified defaults and events of defaults have occurred and are continuing under the loan documents. Accordingly, MLBFS accelerated the full amount of the outstanding debt and notified the Company that the debt was immediately due and payable. Subsequent to December 31, 2004, the Company is continuing to communicate with MLBFS through legal counsel in an attempt to resolve the outstanding defaults and cause MLBFS to withdraw the notice of acceleration and demand for payment. The Company can, however, give no assurances that it will be successful in this attempt. If the attempt is not successful, MLBFS may exercise remedies available to it under the loan documents or otherwise under applicable law, including foreclosure of its security interest in the ThinkSpark assets or enforcement of the subsidiaries’ guaranties.

Also concurrent with the ThinkSpark acquisition, the Company entered into various other settlement agreements with former landlords, customers, and employees of ThinkSpark. In April 2004, a mutual release and escrow agreement was entered into with one of the former customers and the related $235,100 promissory note was settled (see further discussion at Note 15, “Commitments and Contingencies”). In May 2004, an additional settlement totaling $157,800 was entered into with the current landlord for past due 2002 rent and other unpaid expenses. In July 2004, the Company made final and full payment on a settlement note payable to one of the former customers (see further discussion at Note 15, “Commitments and Contingencies”). In August 2004, the Company restructured a settlement obligation to a former employee and shareholder to reduce the amount due under the settlement note payable (see further discussion at Note 15, “Commitments and Contingencies”). In August 2004, the Company entered into a payment agreement with Oracle Corporation to pay $272,500 of past due invoices over a period of five fiscal quarters ending in December 2005. In October 2004, a settlement for $50,000 was entered into with a landlord for early termination of a lease of office space in Oklahoma City. In November 2004, a

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settlement for $30,000 was entered into with a landlord for early termination of a lease of office space in Austin. Of the remaining settlements, $500,000 bears interest of 6% and is due and payable within twenty-four months of execution, $157,800 bears interest of 10% and is due and payable within 40 months of execution, and $601,300 bears no interest and is due and payable within four months to twelve months of execution. As of December 31, 2004, the balance remaining due and outstanding is $1,035,055, including past due amounts of $454,400, and is classified as “Settlement notes payable” in the accompanying consolidated balance sheets.

Future maturities of settlement notes payable are as follows at December 31, 2004:

2005	$	949,650
2006		49,534
2007		35,871
Total	$	1,035,055

10. CAPITAL LEASE OBLIGATIONS

In July 2004, the Company entered into an addendum to a matured operating lease with GE Capital Corporation to finance the purchase of furniture and equipment for approximately $185,000. The addendum provides for financing of the amount due for a term of 24 months, at 9.5% interest, with a purchase option of $1 upon full payment. A payment of $20,000 was paid upon signing of the addendum and a payment of $10,000 was paid in July 2004. There are 22 additional payments of $7,758, each due on the first day of each month beginning on August 1, 2004 and continuing through May 1, 2006. As of December 31, 2004, the balance remaining due and outstanding is $122,900 and is included in “Capital lease obligations” in the accompanying consolidated balance sheets.

In August and October 2004, the Company entered into four agreements to lease computer equipment. The agreements require monthly payments totaling $2,677 for a term of 36 months and provide a purchase option of $1 at the termination of the leases. As of December 31, 2004, the balance remaining due and outstanding under the agreements is approximately $71,000 and is included in “Capital lease obligations” in the accompanying consolidated balance sheets.

The Company has two other capital lease obligations with balances due and outstanding of $10,700 as of December 31, 2004.

Future maturities (principal only) of capital lease obligations are as follows at December 31, 2004:

2005	$	119,056
2006		68,203
2007		17,398
Total	$	204,657

11. LEASE TERMINATION LIABILITY

During 2002, ThinkSpark closed certain offices that had existing lease obligations. The Company has estimated the liability associated with terminating these leases prior to their respective maturity dates. As of December 31, 2004, all but two of the lease terminations have been settled, and one additional settlement of $16,000 remains outstanding. The estimated liability related to these two obligations that has been recorded by the Company totaled approximately $122,000 at December 31, 2004 ($237,000 at December 31, 2003) and is included in “Lease termination liability” in the accompanying consolidated balance sheets. This estimate is based on signed releases, if applicable, or management’s expected liability based on ongoing negotiations. The Company is involved in litigation related to unpaid rent on both of these facilities, however management believes that the Company will be able to settle these claims and that the ultimate remaining liability will approximate $122,000.

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12. CERTAIN COMMON STOCK TRANSACTIONS

In June 2003, we issued 121,915 shares of our common stock in connection with the acquisition of ThinkSpark to one of ThinkSpark’s former landlords as security for a promissory note (see Note 15, “Commitments and Contingencies” below). Based upon payments made by us on the promissory note, 32,589 and 44,218 shares were returned to the Company in October 2003 and April 2004, respectively, and are held by the Company as treasury stock.

In July 2003, we issued 29,768 shares of our common stock in connection with the acquisition of the name “Axtive” and the related trademark and logo and certain furniture and fixtures. The shares were valued at $15,000, using the fair value of the Company’s common stock on the date of issuance.

In July 2003, we issued 140,000 shares of our common stock in exchange for advisory services related to mergers and acquisitions and financing. The shares were valued at $118,000, using the fair value of the Company’s common stock on the date of issuance.

In August 2004, as part of a restructured settlement agreement, we issued 100,000 shares of our common stock to a former employee and shareholder. The shares were valued at $45,000 using the fair value of the Company’s common stock on the date of issuance. The restructured settlement agreement with the former employee and shareholder is discussed further in Note 15, “Commitments and Contingencies.”

13. INCOME TAXES

Temporary differences between the financial reporting and tax basis of assets and liabilities that give rise to deferred income tax assets and liabilities are as follows:

	As of December 31,
	2003			2004
Deferred tax assets
Net operating loss carryforwards	$	9,544,337		$	11,457,865
Property and equipment		13,343			31,930
Goodwill		333,639			—
Accounts receivable		77,141			60,840
Capital losses carried forward		2,479,931			2,479,931
Other		77,826			76,465
Total deferred tax assets		12,526,217			14,107,031
Deferred tax liabilities
Intangibles		(971,078	)		(480,176	)
Net deferred tax assets		11,555,139			13,626,855
Valuation allowance		(11,555,139	)		(13,626,855	)
	$	—		$	—

Income tax expense differs from the statutory rate as follows:

	As of December 31,
	2003			2004
Income tax benefit at statutory rate	$	1,642,414		$	3,382,942
Permanent differences		(91,907	)		(1,311,226	)
Change in valuation allowance, including company acquired in 2003		(1,276,681	)		(2,071,716	)
Change in prior year estimate		(273,826	)		—
	$	—		$	—

At December 31, 2004, we had net operating loss carryforwards (NOL’s) of approximately $33.7 million, which will expire in 2012 through 2024. However, because of changes in ownership of our common stock, use of these NOL’s of approximately $25.6 million accumulated through 2002 is limited to approximately $115,000 per year. The NOL created in 2004 of approximately $5.6 million has no such limitations.

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14. STOCK OPTION PLANS

1996 Employee Stock Option Plan

In April 1996, we adopted the 1996 Stock Option Plan, which was amended most recently in August 2000. As of December 31, 2004, there were options exercisable for 85,000 shares of common stock outstanding under the 1996 Plan, which are held by one optionee, and none available for future grants.

2002 Stock Incentive Plan

In June 2002, the Company adopted the 2002 Stock Incentive 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. As of December 31, 2004, there were 1,734,050 options outstanding under the 2002 Plan (which includes the Transferred Options), of which 1,063,911 were vested, and 3,265,950 shares of our common stock were available for future awards under the 2002 Plan.

Stand-Alone Agreements

During 2001 we issued 50,000 stock options in conjunction with an employment agreement to an executive officer, and during 2002 we issued 215,000 stock options in conjunction with employment agreements to the key management of the acquired companies under stand-alone stock option agreements. As of December 31, 2004, 165,000 remained outstanding and 151,081 are exercisable.

Stock option activity during the periods is indicated as follows:

	Number of Options		Weighted Average Exercise Price
Balance at December 31, 2002	682,589		$	13.70
Granted	1,231,500			1.00
Exercised	—			—
Forfeited	(279,539	)		5.81
Balance at December 31, 2003	1,634,550			5.48
Granted	450,000			0.45
Exercised	—			—
Forfeited	(100,500	)		11.18
Balance at December 31, 2004	1,984,050		$	4.05

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At December 31, 2003 and 2004, there were 1,130,743 and 1,299,992 options exercisable, respectively. At December 31, 2004, the weighted-average exercise price and weighted-average remaining contractual life of outstanding options were as follows:

	Outstanding		Exercisable
Exercise Price	Number of Options	Weighted Average Remaining Contractual Life (years)	Number of Options
$        0.42	350,000	9.38	—
$        0.55	100,000	9.42	—
$        1.00	1,060,500	7.43	883,750
$        4.16	43,550	8.41	36,929
$        7.53	25,000	7.28	16,500
$        7.70	50,000	7.19	50,000
$      15.00	270,000	7.01	227,813
$      23.10	85,000	5.55	85,000
	1,984,050	7.75	1,299,992

As of December 31, 2004, we had 1,452,934 warrants outstanding at an average exercise price of $1.97.

In determining the fair value of options granted for purposes of the SFAS No. 123 pro forma disclosures in Note 1, the Company used the Black-Scholes option pricing model with the weighted-average assumptions: risk-free interest rates of 3.25% in 2003 and 2.25% in 2004; dividend yield of zero; volatility of 151% in 2003 and 591% in 2004; and expected option lives of ten years in 2003 and 7 years in 2004.

The weighted average fair value of options granted during 2003 and 2004 was $1.00 and $.45 respectively.

At December 31, 2003 and 2004, common stock that would be issued upon conversion of outstanding preferred stock or exercise of stock options and warrants are as follows:

	2003	2004
Preferred stock	7,557,024	—
Stock options	1,634,550	1,984,050
Stock warrants	2,744,189	1,452,934
	11,935,763	3,436,984

15. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space and office equipment under operating leases expiring through 2007. Expense recorded for these leases for the years ended December 31, 2003 and 2004 was approximately $689,000 and $193,000 respectively. Minimum rental commitments under noncancelable operating leases are as follows:

2005	$	270,269
2006		240,127
2007		149,871
Total	$	660,267

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Legal Proceedings

Proceedings Against ThinkSpark

In 2002, a former customer obtained a final judgment against ThinkSpark. The former customer filed a collection suit against ThinkSpark with respect to the judgment in the amount of $940,000, including attorneys’ fees. The former customer also filed a lawsuit against certain of ThinkSpark’s then directors and stockholders with respect to alleged improper repurchases of stock from certain stockholders. Effective with Axtive’s acquisition of ThinkSpark, ThinkSpark entered into a settlement agreement with the former customer. ThinkSpark agreed to make a cash payment of $18,000 to the former customer and issue a promissory note for $150,000. The promissory note bears interest at 6% per year and is payable on a monthly basis amortized over 12 months. In exchange, the former customer agreed not to seek to enforce the judgment, to dismiss with prejudice the separate lawsuit, and upon payment in full of the promissory note, to fully release ThinkSpark and the individual defendants from all claims. In August 2004, the Company made a payment of $40,000, which the former customer accepted as final and full payment on the promissory note. As a result, the Company has been released from all claims. As the final payment was less than the amount due on the note payable, a gain on extinguishment of debt of $11,000 was recorded for the difference.

In October 2002, a former employee and shareholder filed a suit against ThinkSpark, certain of its subsidiaries, and certain of its directors and shareholders seeking damages in the amount of $612,000 for breach of a severance agreement. Effective with Axtive’s acquisition of ThinkSpark, ThinkSpark entered into a mutual release agreement with the individual. In exchange for mutual releases of all claims, ThinkSpark agreed to issue to the individual a promissory note in the amount of $169,000, a portion of which represented the merger consideration payable to the former employee and shareholder. The promissory note bears interest at 6% per year and is payable on a monthly basis amortized over 18 months. The individual agreed to then abate his lawsuit and, upon payment in full of the promissory note, to dismiss all claims against ThinkSpark and the other defendants. As no payments have been made on the promissory note since October 2003, the individual attempted to seek a default judgment against the former ThinkSpark directors and stockholders named in the lawsuit, which was avoided as a result of answers filed by those individuals. In August 2004, the Company restructured the settlement obligation to reduce the amount due under the note to $50,000, due and payable in installments within 120 days of execution of the restructured note. As of December 31, 2004, the balance remaining due and outstanding on the restructured settlement obligation under the note is $24,000 and is included in “Current portion – settlement notes payable” in the accompanying consolidated balance sheets. Additionally, as part of the settlement, the Company issued the individual 100,000 shares of our common stock valued at $45,000. As the fair market value of the common stock issued plus the reduced amount of the settlement obligation due under the note was less than the amount owed on the original settlement note at the date of the restructured settlement, a gain on extinguishment of debt of $37,700 was recorded for the difference.

In January 2001, ThinkSpark Limited, a United Kingdom subsidiary of ThinkSpark, entered into a lease for office space in London for a 15-year term. ThinkSpark was required to be a surety on this lease agreement. In October 2002, ThinkSpark Limited ceased operations in the United Kingdom and consequently breached the lease agreement. ThinkSpark Limited is now in liquidation. The landlord filed suit against ThinkSpark in the United Kingdom. In May 2003, ThinkSpark and the landlord entered into a settlement agreement. Pursuant to the terms of the settlement agreement, and in consideration of the terms of the settlement, Axtive executed a promissory note in favor of the landlord for $200,000. The promissory note bears interest at 6% per year and is payable over 12 months. Axtive issued 121,915 restricted shares of our common stock to the landlord as security for the promissory note. Pursuant to the settlement agreement and the promissory note, the shares will be returned to us at various stages based upon payments made on the promissory note. In October 2003 and April 2004, 32,589 shares and 44,218 shares, respectively, were returned to the Company and are held as treasury stock. In July 2004, the promissory note was paid in full pursuant to its terms, and all remaining shares are expected to be returned and held as treasury stock. As of December 31, 2004, 45,108 shares have been treated as outstanding in the accompanying financial statements and were recorded at par value with an offset to additional paid in capital.

In December 2003, ThinkSpark received notification of a demand for arbitration based on failure to pay for services rendered under a subcontract agreement and for failure to make payments after entering into a $235,000 promissory note in November 2003 with said subcontractor for a portion of the unpaid services. The amount sought was $304,000 plus interest and attorneys’ fees and costs. In April 2004, ThinkSpark entered into a settlement and escrow agreement with the subcontractor and the original contracting party whereby ThinkSpark agreed to escrow $75,000 and the original contracting party agreed to escrow $100,000 pending fulfillment of certain requirements by all parties. As of December 31, 2004, the parties had fulfilled their obligations under the settlement and escrow agreement, all funds were distributed, and all liabilities were satisfied. A $6,000 gain was recorded on the settlement and is included in “Gain/(loss) on the extinguishment of debt” on the accompanying consolidated statements of operations for the year ended December 31, 2004.

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ThinkSpark was sued in state court in Cuyahoga County, Ohio, for breach of a November 1998 lease agreement for office space in Cleveland, Ohio, which has been vacated by ThinkSpark. The landlord obtained a judgment in March 2003 for approximately $203,000 plus 10% per year until paid and all costs, including collection costs. The landlord has sought to domesticate the judgment in state court in Texas and ThinkSpark has been served with post-judgment discovery. ThinkSpark has been in discussions with the landlord to settle the judgment; however, we can give no assurance that ThinkSpark will be able to enter into a settlement. Management’s estimate of the potential liability has been recorded at $50,000 and is included in the accompanying consolidated balance sheets as “Lease termination liability” at December 31, 2003 and 2004.

In August 2003, ThinkSpark was sued in Greene County, Ohio for breach of a November 1998 lease agreement extension for office space in Dayton, Ohio, which has been vacated by ThinkSpark. In September 2003, the landlord obtained a judgment for $55,556 plus post-judgment interest of 10% per year until paid and all of the landlord’s costs in connection with the lawsuit. ThinkSpark has been in discussions with the landlord to settle the judgment; however, we can give no assurance that ThinkSpark will be able to enter into a settlement. Management’s estimate of the potential liability has been recorded at $56,000 and is included in the accompanying consolidated balance sheets as “Lease termination liability” at December 31, 2003 and 2004.

In July 2003, ThinkSpark was sued for breach of a lease agreement for office space in Las Vegas, Nevada. The landlord sought damages in excess of $10,000 for one month’s rent plus attorney’s fees and costs of the suit. In June 2004, we entered into an agreement to settle the suit for $7,000 where, upon full payment, the landlord has agreed to set aside the judgment. In August 2004, full payment pursuant to the terms of the settlement agreement was made and the judgment was set aside.

Other Legal Proceedings

In February 2004, The Visionary Group, Inc., a now-defunct subsidiary of the Company, was notified by Debt Acquisition Company of America (“DACA”) that a bankruptcy claim totaling $48,000 that was sold for $21,600 by The Visionary Group to DACA had been disallowed by the bankruptcy court and DACA was seeking return of the full $21,600. DACA has threatened legal action against The Visionary Group and the Company. The Visionary Group has notified DACA that it ceased business in December 2002 and has no assets or operations. We do not believe that this matter will have a material adverse effect on our financial condition or results of operations.

In July 2004, two of the Company’s subsidiaries, UDT Consulting, Inc. and Virtually There, Inc., received notification from the Trustee of DIC Creditors’ Trust that it seeks to obtain reimbursement of avoidable payments on behalf of the Estate of Daisytek, Incorporated. The Trustee claims that transfers in the amounts of approximately $51,000 and $33,000 which were made to UDT Consulting and Virtually There, respectively, were made within 90 days of Daisytek filing for protection under Chapter 11 of the U.S. Bankruptcy Code and that these transfers constitute avoidable preference payments. We believe that we have strong defenses for both claims and, therefore, have not recorded a liability related to such claims. We believe the claims will have no material adverse effect on our financial condition or results of operations.

In December 2003, UDT Consulting, Inc. (“UDT”) was notified by the Texas Workforce Commission (“TWC”) that a former employee had filed documents with that agency claiming wages and benefits of $60,200 were due him from UDT. The Company disputed this claim and formal hearings were conducted by the TWC in 2004 to determine the validity of the claim by the former employee. As a result of these hearings, in December 2004, the TWC issued a final decision in favor of UDT and the wage claim of the former employee was dismissed. Subsequent to December 31, 2004, the Company received notification the former employee had filed suit in a District Court of the State of Texas against TWC and UDT to recover the same wages and benefits which had been claimed with and dismissed by the TWC. We believe that we have strong defenses for this action and, therefore, have not recorded a liability related to such action. We believe the suit filed by the former employee will have no material adverse effect on our financial condition or results of operations.

The Company is involved in other legal proceedings arising in the ordinary course of business and has several judgments totaling approximately $12,000 pending against it. As of December 31, 2004, the judgments are recorded in “Other current liabilities” in the accompanying consolidated balance sheets. In June 2004, one previously recorded judgment for $33,400 was settled for $12,000; the gain is included in “(Gain)/loss on

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extinguishment of debt” in the accompanying consolidated statements of operations for the year ended December 31, 2004. We do not expect the ultimate outcome of any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows of the Company as a whole. However, depending on the amount and timing, an unfavorable outcome of any such matters could possibly materially affect our future results of operations or cash flow in any particular period.

16. SUBSEQUENT EVENTS (unaudited)

Asset Purchase Agreement with Diversified Corporate Resources, Inc.

On February 1, 2005, the Company entered into an Asset Purchase Agreement to purchase substantially all the assets of Datatek Group Corporation (“Datatek”) from Diversified Corporate Resources, Inc. (“DCRI”), the sole shareholder of Datatek. Pursuant to the terms of the agreement, the Company’s consideration for the acquired assets will be $4.5 million in cash, 15,333,333 shares of the Company’s common stock and the assumption of specified liabilities. The cash purchase price paid at closing may be increased by up to $500,000 based on the amount of Datatek’s accounts receivable. The Company is currently in negotiations with several sources of equity and debt financing, but has yet to finalize the terms of the required financing. The Company estimates the closing date of the acquisition to be on or about April 15, 2005.

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 8A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and principal financial and accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based upon their evaluation, the CEO and the principal financial and accounting officer concluded that our disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by Axtive in such reports is accumulated and communicated to the Company’s management, including the CEO and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure.

INTERNAL CONTROL OVER FINANCIAL REPORTING

During the quarter ended December 31, 2004, there were no changes in the Company’s internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

None.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Name	Age	Position
Directors and Executive Officers
Graham C. Beachum II	57	Chairman of the Board and Chief Executive Officer
Ron Beneke	60	Director (1)(2)
Paul L. Morris	63	Director (1)
Brad A. Thompson	40	Director (1)(2)
Alan W. Tompkins	43	Director (1)(2)
G.C. “Scooter” Beachum III	35	President and Chief Operating Officer
Other Key Employees
Stephen P. Slay	42	Corporate Controller

(1) Member of the audit committee

(2) Member of the compensation committee

Set forth below is a description of the backgrounds of each of our directors, executive officers and key employees.

Graham C. Beachum, II has been a director and the Chairman of the Board and Chief Executive Officer of Axtive since January 2001. From January 2001 to April 2004, he also served as the Company’s President. From January 2000 to December 2000, Mr. Beachum was a private investor. From September 1996 to January 2000, Mr. Beachum was the Chairman and Chief Executive Officer of Axtive Software Corporation, a maker of customer relationship management software that was sold to Remedy Corporation in 2000. Mr. Beachum is the father of Graham C. “Scooter” Beachum III, our President and Chief Operating Officer.

Ron Beneke became a director of Axtive in May 2003 in connection with our additional sale of shares of Series A Preferred Stock. Since he founded the company in April 1992 Mr. Beneke has served as President of Beneke Companies of Texas, Inc., of Dallas, which is a partner of Beneke/Krieg Company of Texas, L.P., a national real estate partnership whose primary business is the acquisition of apartment projects financed with tax-exempt housing bonds. Mr. Beneke’s 28 years of experience in the real estate industry include ten years in legal practice. He spent six years as managing partner of a forty-lawyer firm of which he was a founding member. Mr. Beneke is a member of the Management Committee of Demand Aggregation Solutions, LLC and a member of the Board of Directors of NetLink Transaction Services, LLC. He is a Managing Director of Investment Security Services, L.L.L.P. and serves as Chief Executive Officer of many of its affiliated companies.

Paul L. Morris became a director of Axtive in May 2003 in connection with our additional sale of shares of Series A Preferred Stock. Mr. Morris has been President and CEO of Wagner & Brown, Ltd., a large, closely-held independent oil and gas company headquartered in Midland, Texas since 1994. Prior to joining Wagner & Brown, Mr. Morris served as President of Banner Energy and in management positions with Columbia Gas System. Mr. Morris currently holds Board positions with the Rawls College of Business at Texas Tech University, Memorial Hospital and Medical Center (Midland) and the Petroleum Museum of Midland, where he is President. He is a past President of the Permian Basin Petroleum Association and has served on the Boards of the Midland Chamber of Commerce and United Way. Mr. Morris is the father-in-law of Graham C. “Scooter” Beachum III, our President and Chief Operating Officer.

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Bradley A. Thompson became a director of Axtive in May 2003 in connection with our additional sale of shares of Series A Preferred Stock. Mr. Thompson, of St. Croix, U.S. Virgin Islands, has been the Chief Investment Officer and Chief Financial Analyst of Global Capital Advisors, LLC, a fund management firm that is the exclusive advisor to a Bermuda exempt investment fund and a licensed small business investment company, since 1998. Mr. Thompson is the former President of Time Plus of Athens, Georgia, a payroll and accounting firm, and he was also previously the Chief Financial Officer of AAPG, Inc., a specialty retail sporting goods firm. Mr. Thompson began his career with SunTrust, and has also held financial consulting and financial analyst positions with Merrill Lynch and SAFECO Insurance Company of America.

Alan W. Tompkins became a director of Axtive in May 2003 in connection with our additional sale of shares of Series A Preferred Stock. Mr. Tompkins has been Vice President and General Counsel of Unity Hunt, Inc. in Dallas since March 2003. In 2002, Mr. Tompkins practiced law for the firm of Hance Scarborough Wright Ginsberg & Brusilow LLP. Between 1997 and 2001, Mr. Tompkins served as associate general counsel to Richmont Corporation. Mr. Tompkins practiced law in Dallas for more than six years at firms including Weil Gotshal & Manges, with a focus on corporate merger and acquisition transactions, venture capital and private equity investments. Mr. Tompkins has extensive experience in the merchant banking business, where he worked primarily with companies in the manufacturing, distribution, financial and broadcast industries. Mr. Tompkins is a Certified Public Accountant and a former adjunct professor of business law at the Edwin L. Cox School of Business at SMU. He presently serves on the board of directors of the USA Film Festival and on the Judicial Nominating Commission for the City of Dallas.

Graham C. “Scooter” Beachum III became our President and Chief Operating Officer in April 2004. From June 2003 to April 2004, he served as Executive Vice President and General Manager. In June 2003, he was designated an executive officer. Mr. Beachum also served as our Vice President and General Manager from January 2001 to June 2003. Mr. Beachum began his career as the founder of “StreetSmart,” a technology product and pricing report that provided competitive intelligence to Dell Computer Corporation, IBM Corporation, Digital Equipment Corporation and other personal computer companies. In 1993, he sold his first entrepreneurial venture and shortly thereafter founded Axtive Software Corporation, with the development of “ART,” an embedded customer relationship solution that captures customer registration data and initiates ongoing licensing, marketing and service relationships. The “ART” product line was followed by “e.Monogram,” an E-business personalization application suite for business-to-business enterprises. After supporting customer organizations such as IBM and Lotus Development, Axtive Software Corporation’s technology and development operations were acquired by Remedy Corporation in 2000. Mr. Beachum is the son of Graham C. Beachum II and the son-in-law of Paul L. Morris.

Stephen P. Slay has been the Corporate Controller of Axtive since September 2003. He has 18 years of experience in accounting and finance in both public accounting and private industry. Prior to joining Axtive, Mr. Slay spent five years at Network Associates, Inc. where he served as Manager of Channels Finance and Controller of Professional Services.

ELECTION OF DIRECTORS

Effective with our issuance of Series A Preferred Stock in May 2003, our board of directors was expanded from three to seven members. At the same time, two members of our board, J. Keith Benedict and John A. Wagner, resigned from the board and four new members were appointed to fill the new vacancies. There are currently two vacancies on the board of directors.

Pursuant to the terms and conditions of the Series A Preferred Stock, the holders of Series A Preferred Stock generally have the right to elect two members of our board of directors. The holders of shares of Series A Preferred Stock issued before May 1, 2003, as long as shares with a liquidation preference of at least $2.0 million, remain outstanding, have the right, voting separately as a class, to elect one member of the board of directors. The holders of shares of Series A Preferred Stock issued after May 1, 2003, as long as shares with a liquidation preference of at least $1.0 million remain outstanding, have the right, voting separately as a class.

In May 2003, the then principal holders of Series A Preferred Stock, consisting of Sandera Partners, L.P., Global Capital Funding Group, L.P., GCA Strategic Investment Fund Limited and Demand Aggregation Solutions, LLC, entered into a Stockholders and Voting Agreement with respect to the Company’s capital stock they owned or would acquire in the future. They agreed to vote their shares to elect two independent directors to the board. For

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this purpose, an independent director is an individual who is not (1) an officer or director of the voting stockholder, the Company or any affiliate of either, (2) the holder of more than 10% of the voting power of the voting Stockholder, the Company or any Affiliate of either or (iii) a relative (as defined in the Stockholders and Voting Agreement) of the voting stockholder or any person described in the preceding clauses. These principal holders also agreed to vote their shares of Axtive capital stock to elect the individuals currently serving as directors to our board of directors. With its purchase of common stock in the February 2004 private offering, B/K Venture Capital, LLP, an affiliate of Mr. Beneke, also became bound by the Stockholders and Voting Agreement with respect to the share it owns or acquires.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of copies of the reports filed with the SEC, or written representations of the reporting person, each of Graham C. Beachum III and Bradley A. Thompson was late with respect to one filing by one business day in 2004.

AUDIT COMMITTEE

In January 2005, our audit committee was reconstituted and is composed of our four non-employee directors. We have not yet designated an audit committee financial expert from the members of the audit committee. Although the members of the audit committee are financially literate and sophisticated, we do not believe that any of the current members qualify as an audit committee financial expert as defined by the SEC. Our objective is to fill at least one of the current vacancies on the board with an independent director who would qualify as an audit committee financial expert and serve on the audit committee.

CODE OF ETHICS

In April 2004, our board of directors adopted a Code of Business Conduct and Ethics, which is designed to help officers, directors and employees resolve ethical issues in an increasingly complex business environment. The Code of Business Conduct and Ethics is applicable to all of our officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller and other persons performing similar functions. The Code of Business Conduct and Ethics covers topics, including but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Our Code of Business Conduct and Ethics is available, free of charge, on our website at www.axtive.com.

Waivers from our Code of Business Conduct and Ethics are discouraged, but any waivers from the Code of Business Conduct and Ethics that relate to our principal executive officer, principal financial officer, principal accounting officer or controller and other persons performing similar functions or any other executive officer or director must be approved by our audit committee and will be posted on our website at www.axtive.com.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

The following table provides summary information concerning compensation paid by us to our Chief Executive Officer and our executive officers in 2004, if any, who earned more than $100,000 in salary and bonus for all services rendered in all capacities during the fiscal year ended December 31, 2004. We refer to the executive officers listed below as named executive officers. For a list of our current executive officers, see Item 9, “Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act—Directors, Executive Officers and Key Employees.”

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Name and Principal Position	Year	Annual Compensation Salary		Long-term Compensation Awards/Securities underlying options (#)
Graham C. Beachum II Chief Executive Officer	2004 2003 2002	$ $ $	148,750 100,000 100,000	—   604,500 —
Graham C. “Scooter” Beachum III President and Chief Operating Officer	2004 2003 2002	$ $ $	150,000 150,000 111,042	—   300,000 —

In accordance with the rules of the SEC, other compensation in the form of perquisites and other personal benefits has been omitted for the named executive officers listed in the table above because the aggregate amount of these perquisites and other personal benefits was less than the lesser of $50,000 or 10% of the total of annual salary and bonuses for the named executive officers in 2004.

No restricted stock awards have been made to the named executive officers listed in the table above.

STOCK OPTIONS GRANTED DURING THE YEAR ENDED DECEMBER 31, 2004

No stock options were granted to the named executive officers during fiscal 2004.

OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

None of the named executive officers exercised any stock options during the year ended December 31, 2004. The following table provides information regarding the number of shares covered by both exercisable and unexercisable stock options as of December 31, 2004, and the values of “in-the-money” options, which values represent the positive spread between the exercise price of any such option and the fiscal year end value of our common stock.

	Number of securities underlying unexercised options at fiscal year-end		Value of the unexercised in-the- money options at fiscal year-end
Name	Exercisable #	Unexercisable #	Exercisable $	Unexercisable $
Graham C. Beachum II	625,625	128,875	—	—
Graham C. “Scooter” Beachum III	310,939	64,061	—	—

DIRECTOR COMPENSATION

Currently, our directors who are not our employees receive no compensation for their service as directors.

EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS

Graham C. Beachum II. In January 2001, we entered into an employment agreement with Mr. Beachum to serve as our President and Chief Executive Officer. The agreement expires on January 2, 2005, unless terminated earlier. Under the agreement, Mr. Beachum was entitled to receive an annual base salary of $100,000, which would be increased to $240,000 upon the successful conclusion of an equity offering by Axtive of at least $10 million. The annual base salary will be increased by 5% each fiscal year. Pursuant to the agreement, Mr. Beachum will also be eligible to receive a bonus based on our performance, as determined by the board of directors or its compensation committee. In the event that Mr. Beachum is terminated without cause, including a change of control (as defined in the agreement), or terminates his employment for good reason (as defined in the agreement), he will be entitled to

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receive as severance the amount of his base salary for (1) the remainder of his term of employment or (2) six months, whichever period is shorter. The agreement also contains customary nondisclosure and non-competition covenants, as well as an assignment of inventions.

Effective as of April 1, 2004, the employment agreement was amended to increase Mr. Beachum’s annual base salary to $165,000. Among other things, the amendment also restates the terms of discretionary incentive compensation, which is to be determined by the compensation committee of our board of directors, and sets forth certain significant objectives to be considered for purposes of a discretionary bonus with respect to the 2004 fiscal year. Mr. Beachum is also eligible to receive additional grants of stock options as determined by the compensation committee.

Mr. Beachum is the father of Graham C. “Scooter” Beachum III, our President and Chief Operating Officer.

Graham C. “Scooter” Beachum III . In January 2001, we entered into an employment agreement with Mr. Graham C. “Scooter” Beachum III to serve as our President and Chief Operating Officer. The employment agreement expired on January 2, 2005. The employment agreement provided for Mr. Beachum to receive an annual base salary of $95,000, which would be increased to $165,000 upon the successful conclusion of an equity offering by Axtive of at least $10 million. The annual base salary was to be increased by 5% each fiscal year. Mr. Beachum is currently paid $150,000 annually. In addition, Mr. Beachum was granted options to purchase 750,000 shares of Axtive’s common stock at an exercise price of $1.50 per share, of which 25% vested upon the grant date and the remainder vesting at the rate of 18.75% on January 2 of each successive year. The employment agreement also provided for Mr. Beachum to receive a bonus based on our performance, as determined by the Board of Directors or its Compensation Committee. If terminated without cause, including a change of control (as defined in the employment agreement), the employment agreement provided for Mr. Beachum to receive as severance the amount of his base salary for (i) the remainder of his term of employment, or (ii) six months, whichever period is shorter. The employment agreement contained customary nondisclosure and non-competition covenants, as well as an assignment of inventions.

Mr. Beachum is the son of Graham C. Beachum II and the son-in-law of Paul L. Morris, one of our directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information as of March 15, 2005 (the “Ownership Date”) with respect to the beneficial ownership of our common stock by:

• each of our directors and named executive officers;

• all of our executive officers and directors as a group; and

• each person or group of affiliated persons known to us to own beneficially more than 5% of our common stock.

Unless otherwise indicated in the footnotes to the table, and subject to community property laws where applicable, the following persons have sole voting and investment control with respect to the shares beneficially owned by them. In accordance with SEC rules, if a person has a right to acquire beneficial ownership of any shares of common stock, on or within 60 days of the Ownership Date, upon (1) exercise of outstanding options, (2) the exercise of common stock purchase warrants or (4) otherwise, the shares are deemed beneficially owned by that person, are deemed to be outstanding solely for the purpose of determining the percentage of our shares that person beneficially owns and are reflected in the table. These shares are not included in the computations of percentage ownership for any other person.

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Person or Group	Shares of Common Stock Beneficially Owned
Directors and Named Executive Officers (1):
Graham C. Beachum II (2)	754,500	1.5	%
Ron Beneke (3)	19,698,638	39.8	%
Paul Morris	381,361		*
Alan W. Tompkins	—	—
Bradley A. Thompson (4)	11,267,612	22.8	%
Graham C. “Scooter” Beachum III (5)	732,121	1.5	%
All executive officers and directors as a group (6 persons) (6)	32,834,232	64.8	%
Beneficial Owners of 5% or More of Our Outstanding Common Stock :
B/K Venture Capital, LLP (7)	19,698,638	39.8	%
GCA Strategic Investment Fund Limited (8)	10,536,728	21.3	%
Sandera Partners, L.P. (9)	13,007,242	26.3	%
Laurus Master Fund, Ltd. (10)	10,877,203	18.0	%

 * Less than 1%

(1) Except as otherwise noted, the address of each executive officer and director is c/o Axtive Corporation, 5001 LBJ Freeway, Suite 275, Dallas, Texas 75244.

(2) Includes options to purchase 754,500 shares of common stock that were exercisable on or within 60 days of the Ownership Date.

(3) Includes shares of common stock directly owned by B/K Venture Capital, L.P.. Mr. Beneke is CEO of B/K Venture Capital, L.P. and, therefore, may be deemed to share voting and investment power with respect to the shares of Common Stock. This filing should not be construed as an admission by Mr. Beneke that he is the beneficial owner of the shares of common stock. Mr. Beneke’s address is c/o B/K Venture Capital, L.P., Grand Galleria, 43-46 Norre Gade, Suite 232, St. Thomas, U.S. Virgin Islands 00802.

(4) Includes shares of common stock directly owned by Global Capital Funding Group, L.P. and GCA Strategic Investment Fund Limited with respect to which Mr. Thompson shares voting or dispositive power. Mr. Thompson’s address is 227 King Street, Frederiksted, U.S. Virgin Islands 00804.

(5) Includes (a) 49,768 shares of common stock owned by TSTC International Holding Company, which is wholly owned by Mr. Scooter Beachum, (b) options to purchase 375,000 shares of common stock that were exercisable on or within 60 days of the Ownership Date and (c) 132,500 shares of common stock in which he has an indirect beneficial ownership interest as a result of his membership interest in Beachum Investments, LLC.

(6) Includes options to purchase a total of 936,564 shares of common stock that were exercisable on or within 60 days of the Ownership Date.

(7) Includes shares of common stock directly owned by B/K Venture Capital, L.P.. The address of B/K Venture Capital, L.P. is Grand Galleria, 43-46 Norre Gade, Suite 232, St. Thomas, U.S. Virgin Islands 00802.

(8) The address of GCA Strategic Investment Fund Limited is c/o Prince Management Ltd., Mechanics Building, 12 Church Street, Hamilton, Bermuda HM 11.

(9) Includes shares of common stock directly owned by Sandera Partners, L.P. The address of Sandera Partners, L.P. is 1601 Elm Street, Suite 4000, Dallas, Texas 75201.

(10) Includes shares issuable upon conversion of senior secured convertible variable rate term note. The address of Laurus Master Fund, Ltd. is c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands.

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FINANCINGS

PurchasePooling Investment

In September 2000, we issued 264,485 shares of Axtive common stock to PurchasePooling Investment Fund in return for 9,593,824 shares of Series A Convertible Preferred Stock of PurchasePooling Solutions, Inc., a start up web-based demand aggregator working toward enabling government and educational entities to save significantly on large-ticket capital items by combining their purchasing power nationwide and globally. In December 2000, we invested an additional $620,000 in PurchasePooling in return for 2,214,285 shares of its Series C Convertible Preferred Stock. As a result, at December 31, 2000, we had an approximately 18% ownership interest in PurchasePooling. In 2000, we entered into an agreement to acquire from Odyssey Ventures Online S.A. 975,000 shares of Series A Convertible Preferred Stock of PurchasePooling in exchange for 26,881 shares of Axtive common stock. In April 2001, the agreement was finalized and the shares of Axtive common stock were issued.

Based on a valuation obtained on PurchasePooling in July 2001, we determined that the investment was impaired. Accordingly, we recorded an impairment charge of $2.5 million.

In October 2001, we participated in the amount of $400,000 in a syndicated loan to PurchasePooling in the amount of $1,600,000. The loan, structured as a Convertible Note with Warrants, bore interest at 15% per annum, and if not converted earlier, would mature in October 2003. Because PurchasePooling was in its development stage and was not generating any cash flows, we had no expectation for repayment of the loan. We did not accrue interest on the note.

Based upon the ongoing evaluation of our investment in PurchasePooling, we determined in April 2002, that our investment was not recoverable. As a result, we wrote off the remaining $2,680,000 of our investment in PurchasePooling as of December 31, 2001. The write-off for the year 2001 was $5.2 million.

Through February 2003, Graham C. Beachum II was the interim Chief Executive Officer of PurchasePooling. In February 2003, the lenders to PurchasePooling (including Axtive) declared the loan to PurchasePooling in default and foreclosed upon the assets of the company. The previous lenders formed a new entity, Demand Aggregation Solutions, LLC (“DAS”), to hold the assets, and Axtive, under a management agreement, has agreed to manage the affairs of DAS in exchange for a management fee of $25,000 per month. We recognized $200,000 and $300,000 in management fees from DAS during 2003 and 2004, respectively. Stemming from Axtive’s participation in the loan, the Company has a 25% membership interest in DAS that is subject to forfeiture if Axtive breaches its obligations under the management agreement. Additionally, the management agreement with DAS obligates Axtive to advance DAS for working capital needs and provides that Axtive is not required to make any advances in excess of $50,000 per month on average nor in excess of $1.2 million in the aggregate over the three year life of the agreement. DAS is to pay all amounts due and owing to Axtive pursuant to the terms of the management agreement from its surplus cash flow and from the aggregate proceeds of any sale of all or substantially all of the assets of DAS. Since the inception of the management agreement, through December 31, 2004, Axtive has provided consulting and software development services to DAS for which Axtive has recorded trade accounts receivable in the amount of $494,700 and advanced DAS $386,600 for other working capital needs. In December 2004, Axtive determined DAS’s ability to generate sufficient cash flow or to sell all or substantially all of the assets of DAS to pay the amounts due was not likely and all amounts due from DAS totaling $1.38 million were written-off.

Acquisition of “Axtive” Name

In June 2002, the Company acquired the name “Axtive” (pronounced “active”) and its related logo and trademark and certain tangible assets including furniture and fixtures, signage and office supplies from Axtive Software Corporation, as represented by it sole shareholder, G.C. “Scooter” Beachum III, our President and Chief Operating Officer. The assets were acquired in exchange for an initial grant of 40,000 restricted shares of Axtive’s common stock, which was valued at approximately $168,000 at the time of acquisition. This amount was allocated between relative fair values of the intangible ($153,000) and tangible assets ($15,000) purchased by us.

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In July 2003, we issued 29,768 restricted shares of our common stock to TSTC International Holding Company, formerly known as Axtive Software Corporation. These shares constituted an additional payment due to TSTC in connection with our June 2002 purchase of certain intangible assets, including the name “Axtive,” and certain tangible assets. We were obligated to issue the additional restricted shares, not in excess of 29,768 shares, if the market price of our common stock had not been at or above $7.50 within the one-year period after our purchase. Mr. Scooter Beachum is the sole shareholder and director of TSTC. The issuance of the restricted shares of common stock did not involve a public offering. In December 2003, we determined that the intangible was impaired and wrote off the balance totaling approximately $177,000.

AFFILIATE RELATIONSHIPS IN FINANCING TRANSACTIONS

Until the end of May 2003, J. Keith Benedict and John A. Wagner served as members of our board of directors and were representatives of the investment manager (or its affiliates) of H.W. Capital L.P. Concurrent with the May 2003 financing activities, Alan W. Tompkins became a member of our board of directors. Mr. Tompkins is Vice President and General Counsel of Unity Hunt, Inc., a Texas corporation owned by several trusts. Those trusts hold limited partnership interests in Sandera Partners, L.P., which is one of our stockholders. Sandera was a purchaser of shares of Series A Preferred Stock in April 2002 and May 2003 and a purchaser of our common stock in the February 2004 private offering.

Concurrent with the May 2003 financing activities, Ron Beneke became a member of our board of directors. Mr. Beneke is a member of the management committee of DAS, one of the purchasers of shares of Series A Preferred Stock in May 2003. Mr. Beneke is also a principal of B/K Venture Capital, L.P., one of the purchasers of our common stock in the February 2004 private offering.

In September to December 2003, affiliates of Mr. Beneke made bridge loans to us in the aggregate principal amount of $113,745 which bore interest rates from 6% to 12% per year. In February 2004, we repaid the affiliates all amounts due, plus accrued interest. In January 2004, as part of a December 2003 private offering of 12% promissory notes and warrants, an affiliate of Mr. Beneke purchased a 12% promissory note in the original principal amount of $49,615 and was issued related warrants to purchase common stock. As part of the February 2004 private offering of our common stock, in lieu of converting this 12% promissory note and warrant to common stock, the affiliate elected to be repaid, terminated the warrant, and B/K Venture Capital, L.P. increased the amount of its purchase of common stock by an amount equal to the principal amount of the 12% promissory note. In February 2004, an affiliate of Mr. Beneke made a short-term advance to the Company in the amount of $126,523. The advance was repaid in full in February 2004.

Concurrent with the May 2003 financing activities, Bradley A. Thompson became a member of our board of directors. Mr. Thompson is a director of GCA Strategic Investment Fund Limited and an officer of Global Capital Advisors, Ltd, which is the sole shareholder of the general partner of Global Capital Funding Group, L.P. GCA Strategic Investment Fund Limited purchased shares of Series A Preferred Stock in April 2002 and May 2003. In December 2003, as part of the December 2003 private notes offering, GCA Strategic Investment Fund Limited purchased a 12% promissory note in the original principal amount of $668,463 and was issued related warrants to purchase common stock. As part of the February 2004 private offering of our common stock, GCA Strategic Investment Fund Limited converted its 12% promissory note and related warrants into 8,695,951 shares of our common stock. Global Capital Funding Group, L.P. purchased shares of Series A Preferred Stock in April 2002.

Concurrent with the May 2003 financing activities, Paul L. Morris became a member of our board of directors. Mr. Morris was one of the purchasers of shares of Series A Preferred Stock in April 2002. In December 2003, as part of the December 2003 private notes offering, Mr. Morris purchased a 12% promissory note in the original principal amount of $20,000 and was issued related warrants to purchase common stock. As part of the February 2004 private offering of our common stock, Mr. Morris converted his 12% promissory note and related warrants into 260,178 shares of our common stock.

Graham C. “Scooter” Beachum III, our President and Chief Operating Officer, and Stanley D. Strifler, former President of ThinkSpark Corporation, are each members of Beachum Investments, LLC, one of the purchasers of shares of Series A Preferred Stock in May 2003. In addition, Scooter Beachum was an individual purchaser of Series A Preferred Stock in May 2003.

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In September 2003, Scooter Beachum made a bridge loan to us in the principal amount of $13,220, which bore interest at 6% per year. In December 2003, as part of the December 2003 private notes offering, Scooter Beachum purchased a 12% promissory note in the original principal amount of $13,441 and was issued related warrants to purchase common stock. We repaid Scooter Beachum’s bridge loan, including accrued interest, out of the proceeds of the December 2003 private notes offering. As part of the February 2004 private offering of our common stock, Scooter Beachum converted his 12% promissory note and related warrants into 174,853 shares of our common stock.

See Item 5, “Market for Common Equity and Related Stockholder Matters—Recent Sales of Unregistered Securities” and Item 6, “Management’s Discussion and Analysis or Plan of Operation—Liquidity and Capital Resources.”

EMPLOYMENT RELATIONSHIPS

We have entered into employment agreements or employment letters with each of Graham C. Beachum II and Graham C. “Scooter” Beachum III. See Item 10, “Executive Compensation—Employment Contracts and Change-in-Control Arrangements” with respect to the employment arrangements with named executive officers.

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ITEM 13. EXHIBITS

The following exhibits are filed as part of this report as required by Item 601 of Regulation S-B.

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Visual Edge Systems, Inc. (changing the name of the Company from Visual Edge Systems, Inc. to Edge Technology Group, Inc. among other things) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 1, 2000 and filed with the SEC on September 15, 2000).
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc. (to effect the 1-for-4 reverse stock split) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report of Form 8-K dated September 1, 2000 and filed with the SEC on September 15, 2000).
3.3	Certificate of Correction to Correct Certain Errors in the Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc., dated March 18, 2002 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form SB-2, Registration No. 333-118921, filed with the SEC on September 10, 2004).
3.4	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc., dated March 20, 2002 (increasing the authorized capital stock of the Company) (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form SB-2, Registration No. 333-118921, filed with the SEC on September 10, 2004).
3.5	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc. (changing the name of the Company from Edge Technology Group to Axtive Corporation) (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2002 filed with the SEC on November 14, 2002).
3.6	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Axtive Corporation (to effect the 1-for-10 reverse stock split) (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
3.7	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Axtive Corporation (to increase number of authorized shares) (filed herewith).
3.8	Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 filed with the SEC on July 23, 2003).
4.1	Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
4.2	Subscription and Securities Purchase Agreement, dated as of May 22, 2003, by and among Axtive, Demand Aggregation Solutions, LLC, Beachum Investments, LLC, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Kerry Osborne, and Graham C. Beachum III (incorporated by reference to Exhibit 3 the Schedule 13D dated May 23, 2003 and filed by Graham C. “Scooter” Beachum III with the SEC on June 5, 2003).
4.3	First Restated Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Axtive Corporation, dated May 23, 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.4	Acknowledgement of Discharge of Indebtedness, Release of Claims and Agreement, dated as of May 22, 2003, by and among Graham C. Beachum II, Graham C. Beachum III, and Axtive (incorporated by reference to Exhibit 1 to the Schedule 13D dated May 23, 2003 and filed by Graham C. Beachum II with the SEC on June 2, 2003).

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Exhibit No.	Description
4.5	Acknowledgement of Discharge of Indebtedness, Release of Claims and Agreement, dated as of May 22, 2003, by and among Sandera Partners, L.P. and Axtive (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.6	Registration Rights Agreement, dated May 23, 2003, by and among Axtive, Demand Aggregation Systems, LLC, Beachum Investments, LLC, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Kerry Osborne and Graham C. Beachum III (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.7	Stockholders and Voting Agreement, dated as of May 23, 2003, among Sandera Partners, L.P., Global Capital Funding Group, L.P., GCA Strategic Investment Fund Limited, and Demand Aggregation Solutions, LLC (incorporated by reference to Exhibit 3 the Schedule 13D dated May 23, 2003 and filed by Demand Aggregation Systems, LLC with the SEC on June 20, 2003).
4.8	Form of Warrant to Purchase Common Stock of Axtive Corporation, dated as of May 23, 2003, as issued to May 2003 purchasers of Series A Preferred Stock (incorporated by reference to Exhibit 5 the Schedule 13D dated May 23, 2003 and filed by Graham C. ”Scooter” Beachum III with the SEC on June 5, 2003).
4.9	Restated Registration Rights Agreement, dated May 23, 2002, by and among Axtive, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Global Capital Funding Group, L.P., Paul Morris, Jack Brown, Alex Rankin, U.S. Technology Investors, Inc. and Rex Jobe (incorporated by reference to Exhibit 4.12 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.10	Form of Restated Warrant to Purchase Common Stock of Axtive Corporation, dated as of May 23, 2003, as issued to 2002 purchasers of Series A Preferred Stock (incorporated by reference as Exhibit 4.13 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.11	Subscription Agreement, dated May 22, 2003, by and between Axtive and Graham C. Beachum III (incorporated by reference to Exhibit 4 the Schedule 13D dated May 23, 2003 and filed by Graham C. Beachum III with the SEC on June 5, 2003).
4.12	Subscription and Securities Purchase Agreement, dated as of December 15, 2003, by and among Axtive Corporation, the Reporting Person, Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 8 to the Schedule 13D/A dated February 26, 2004 and filed by Graham C. Beachum III with the SEC on March 3, 2004).
4.13	Form of Warrant to Purchase Common Stock of Axtive Corporation, as issued to purchasers of 12% Promissory Notes pursuant to December 15, 2003 Subscription and Securities Purchase Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
4.14	Subscription and Securities Purchase Agreement, dated as of February 26, 2004, by and among Axtive Corporation, the Reporting Person, B/K Venture Capital, L.P., Sandera Partners, L.P., W. Robert Dyer, Jr., Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 7 to the Schedule 13D dated February 26, 2004 and filed by Graham C. Beachum III with the SEC on March 3, 2004).
4.15	Registration Rights Agreement, dated as February 26, 2004, by and among Axtive Corporation, the Reporting Person, B/K Venture Capital, L.P., Sandera Partners, L.P., W. Robert Dyer, Jr., Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 4.15 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).

66

Exhibit No.	Description
*10.1	Amended and Restated 1996 Stock Option Plan (incorporated by reference to the Company’s 1996 definitive Proxy Statement filed on April 7, 1997).
*10.2	2002 Stock Incentive Plan, adopted effective June 25, 2002 (incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2002 and filed with the SEC on August 19, 2002).
*10.3	Amendment No. 1 to 2002 Stock Incentive Plan, dated effective as of May 23, 2003 (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.4	Employment Agreement, dated as of January 2, 2001, between Edge and Graham C. Beachum II (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.5	Amendment No. 1 to Employment Agreement, dated as of April 1, 2004, between the Company and Graham C. Beachum II (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004 and filed with the SEC on May 13, 2004).
*10.6	Employment Agreement, dated as of January 2, 2001, between Edge and Graham C. Beachum III (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.7	Employment letter, dated May 9, 2003, between Axtive and Stanley D. Strifler (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.8	Management Services Agreement, dated as of February 14, 2003, by and between Axtive and Demand Aggregation Solutions, LLC (incorporated by reference to Exhibit 1 the Schedule 13D dated May 23, 2003 and filed by Demand Aggregation Systems, LLC with the SEC on June 20, 2003).
10.9	Agreement and Plan of Merger, dated April 8, 2002, among Edge, Visionary Acquisition Corp., The Visionary Group, Inc. and The Visionary Group Shareholders (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001 and filed with the SEC on April 16, 2002).
10.10	Agreement and Plan of Merger, dated April 11, 2002, among Edge Technology Group, Inc., Media Resolutions Acquisition Corp., Media Resolutions, Incorporated and Media Resolutions Shareholders (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001 and filed with the SEC on April 16, 2002).
10.11	Agreement and Plan of Merger, dated May 30, 2002, among Edge Technology Group, Inc., VT Acquisition Corp., Virtually There, Inc. and the shareholders of Virtually There, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 30, 2002 and filed with the SEC on June 14, 2002).
10.12	Asset Purchase Agreement, dated as of May 31, 2002, by and among Universal Data Technology, Inc., its Shareholders, Edge Technology Group, Inc. and UDT Consulting, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 30, 2002 and filed with the SEC on June 14, 2002).
10.13	Agreement and Plan of Merger by and among Axtive Corporation, Axtive Acquisition Corp., ThinkSpark Corporation and Kerry Osborne dated as of May 23, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 23, 2003 and filed with the SEC on June 9, 2003).
10.14	Assignment and Assumption Agreement, dated as of May 27, 2003, among ThinkSpark Corporation, ThinkSpark, L.P., Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).

67

Exhibit No.	Description
10.15	Term Loan Agreement, dated as of May 27, 2003, between Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.16	Debt Exchange Agreement, dated as of May 27, 2003, by and among ThinkSpark Corporation, Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.17	Warrant to Purchase Common Stock of Axtive Corporation, dated May 27, 2003, and issued to Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.18	Bill of Sale and Asset Purchase Agreement, dated as of June 21, 2002, by and between Axtive Software Corporation and Edge (incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, and filed with the SEC on August 19, 2002).
10.19	Factoring and Security Agreement, dated June 24, 2002, between UDT Consulting, Inc., and Landry Marks Partners, LP (incorporated by reference to Exhibit 10.29 of the Company’s Form 10-QSB for the quarterly period ended June 30, 2002 and filed with the SEC on August 19, 2002).
10.20	Factoring and Security Agreement, dated August 7, 2003, between ThinkSpark L.P., and Landry Marks Partners, LP (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.21	Letter of Agreement, dated August 18, 2003, among ThinkSpark Corporation, ThinkSpark, L.P., Landry Marks Partners, LP and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.22	Securities Purchase Agreement, dated July 30, 2004, by and between Axtive Corporation and Laurus Master Fund, Ltd (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.23	Secured Convertible Term Note, dated July 30, 2004, executed by Axtive Corporation and payable to Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.24	Common Stock Purchase Warrant, dated July 30, 2004, executed by Axtive Corporation to Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.25	Registration Rights Agreement, dated July 30, 2004, by and between Axtive Corporation and Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.26	Restricted Account Agreement, dated July 30, 2004, by and among North Fork Bank, Axtive Corporation and Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form SB-2, No. 333-118921, Amendment No. 1, filed with the SEC on October 26, 2004).
10.27	Restricted Account Security Agreement, dated July 30, 2004, to Laurus Master Fund, Ltd. from Axtive Corporation (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form SB-2, No. 333-118921, Amendment No. 1, filed with the SEC on October 26, 2004).
10.28	Asset Purchase Agreement, dated as of February 1, 2005, by and among the Company, Axtive Acquisition Corp., Datatek Group Corporation and Diversified Corporate Resources, Inc. (filed herewith).

68

Exhibit No.	Description
21.1	Subsidiaries of Axtive (filed herewith).
31.1	Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Chief Executive Officer’s and Principal Financial Officer’s Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

* Indicates management contract or compensatory plan or arrangement.

69

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

KBA Group LLP is our current independent auditor and served as our independent auditor for 2003 and 2004. The fees for all professional services provided to us by our independent auditors during each of the last two fiscal years were as follows:

	2003		2004
Audit Fees		99,350		107,700
Audit-Related Fees		67,575		38,300
Tax Fees		10,000		8,000
All Other Fees		—		—
Total	$	176,925	$	154,000

Audit Fees. Audit fees consisted principally of audit work performed on the consolidated financial statements and review work on our interim consolidated financial statements.

Audit-Related Fees. Audit-related fees for 2004 consisted of fees related to the preparation of the Registration Statement on Form SB-2 with respect to the shares of our common stock issuable pursuant to the convertible note issued to Laurus in July 2004 and the audit of the 401(k) Plan. Audit-related fees for 2003 related to the acquisition of ThinkSpark and the audit of the 401(k) plan.

Tax Fees. Tax fees consisted of fees related to the preparation of federal and state tax returns.

All Other Fees. We did not pay our independent auditors any other fees during the last two fiscal years.

The audit committee of our board of directors has adopted a written approval policy with respect to both audit and non-audit services. The approval policy requires that the audit committee pre-approve all audit and non-audit services provided to us by our independent auditors. All audit and non-audit services performed in 2004 were pre-approved by the audit committee.

70

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AXTIVE CORPORATION

/s/ GRAHAM C. BEACHUM II

Graham C. Beachum II

Chairman of the Board and Chief Executive Officer

(principal executive officer)

Date: March 31, 2005

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Name	Title	Date
/s/ GRAHAM C. BEACHUM II Graham C. Beachum II	Chairman of the Board, Chief Executive Officer and Director (principal executive officer)	March 31, 2005
/s/ STEPHEN P. SLAY Stephen P. Slay	Corporate Controller (principal financial and accounting officer)	March 31, 2005
/s/ RON BENEKE Ron Beneke	Director	March 31, 2005
Paul L. Morris	Director	March     , 2005
/s/ BRAD A. THOMPSON Brad A. Thompson	Director	March 31, 2005
/s/ ALAN W. TOMPKINS Alan W. Tompkins	Director	March 31, 2005

71

EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Visual Edge Systems, Inc. (changing the name of the Company from Visual Edge Systems, Inc. to Edge Technology Group, Inc. among other things) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 1, 2000 and filed with the SEC on September 15, 2000).
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc. (to effect the 1-for-4 reverse stock split) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report of Form 8-K dated September 1, 2000 and filed with the SEC on September 15, 2000).
3.3	Certificate of Correction to Correct Certain Errors in the Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc., dated March 18, 2002 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form SB-2, Registration No. No. 333-118921, filed with the SEC on September 10, 2004).
3.4	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc., dated March 20, 2002 (increasing the authorized capital stock of the Company) (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form SB-2, Registration No. No. 333-118921, filed with the SEC on September 10, 2004)
3.5	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Edge Technology Group, Inc. (changing the name of the Company from Edge Technology Group to Axtive Corporation) (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2002 filed with the SEC on November 14, 2002).
3.6	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Axtive Corporation (to effect the 1-for-10 reverse stock split) (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
3.7	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Axtive Corporation (to increase number of authorized shares) (filed herewith).
3.8	Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 filed with the SEC on July 23, 2003).
4.1	Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
4.2	Subscription and Securities Purchase Agreement, dated as of May 22, 2003, by and among Axtive, Demand Aggregation Solutions, LLC, Beachum Investments, LLC, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Kerry Osborne, and Graham C. Beachum III (incorporated by reference to Exhibit 3 the Schedule 13D dated May 23, 2003 and filed by Graham C. “Scooter” Beachum III with the SEC on June 5, 2003).
4.3	First Restated Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock of Axtive Corporation, dated May 23, 2003 (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.4	Acknowledgement of Discharge of Indebtedness, Release of Claims and Agreement, dated as of May 22, 2003, by and among Graham C. Beachum II, Graham C. Beachum III, and Axtive (incorporated by reference to Exhibit 1 to the Schedule 13D dated May 23, 2003 and filed by Graham C. Beachum II with the SEC on June 2, 2003).

Exhibit No.	Description
4.5	Acknowledgement of Discharge of Indebtedness, Release of Claims and Agreement, dated as of May 22, 2003, by and among Sandera Partners, L.P. and Axtive (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.6	Registration Rights Agreement, dated May 23, 2003, by and among Axtive, Demand Aggregation Systems, LLC, Beachum Investments, LLC, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Kerry Osborne and Graham C. Beachum III (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.7	Stockholders and Voting Agreement, dated as of May 23, 2003, among Sandera Partners, L.P., Global Capital Funding Group, L.P., GCA Strategic Investment Fund Limited, and Demand Aggregation Solutions, LLC (incorporated by reference to Exhibit 3 the Schedule 13D dated May 23, 2003 and filed by Demand Aggregation Systems, LLC with the SEC on June 20, 2003).
4.8	Form of Warrant to Purchase Common Stock of Axtive Corporation, dated as of May 23, 2003, as issued to May 2003 purchasers of Series A Preferred Stock (incorporated by reference to Exhibit 5 the Schedule 13D dated May 23, 2003 and filed by Graham C. ”Scooter” Beachum III with the SEC on June 5, 2003).
4.9	Restated Registration Rights Agreement, dated May 23, 2002, by and among Axtive, Sandera Partners, L.P., GCA Strategic Investment Fund Limited, Global Capital Funding Group, L.P., Paul Morris, Jack Brown, Alex Rankin, U.S. Technology Investors, Inc. and Rex Jobe (incorporated by reference to Exhibit 4.12 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.10	Form of Restated Warrant to Purchase Common Stock of Axtive Corporation, dated as of May 23, 2003, as issued to 2002 purchasers of Series A Preferred Stock (incorporated by reference as Exhibit 4.13 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
4.11	Subscription Agreement, dated May 22, 2003, by and between Axtive and Graham C. Beachum III (incorporated by reference to Exhibit 4 the Schedule 13D dated May 23, 2003 and filed by Graham C. Beachum III with the SEC on June 5, 2003).
4.12	Subscription and Securities Purchase Agreement, dated as of December 15, 2003, by and among Axtive Corporation, the Reporting Person, Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 8 to the Schedule 13D/A dated February 26, 2004 and filed by Graham C. Beachum III with the SEC on March 3, 2004).
4.13	Form of Warrant to Purchase Common Stock of Axtive Corporation, as issued to purchasers of 12% Promissory Notes pursuant to December 15, 2003 Subscription and Securities Purchase Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
4.14	Subscription and Securities Purchase Agreement, dated as of February 26, 2004, by and among Axtive Corporation, the Reporting Person, B/K Venture Capital, L.P., Sandera Partners, L.P., W. Robert Dyer, Jr., Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 7 to the Schedule 13D dated February 26, 2004 and filed by Graham C. Beachum III with the SEC on March 3, 2004).

Exhibit No.	Description
4.15	Registration Rights Agreement, dated as February 26, 2004, by and among Axtive Corporation, the Reporting Person, B/K Venture Capital, L.P., Sandera Partners, L.P., W. Robert Dyer, Jr., Jack E. Brown, Paul Morris, U.S. Technology Investors, LLC, GCA Strategic Investment Fund Limited, and Agincourt, L.P. (incorporated by reference to Exhibit 4.15 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
*10.1	Amended and Restated 1996 Stock Option Plan (incorporated by reference to the Company’s 1996 definitive Proxy Statement filed on April 7, 1997).
*10.2	2002 Stock Incentive Plan, adopted effective June 25, 2002 (incorporated by reference to Exhibit 10.27 of the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2002 and filed with the SEC on August 19, 2002).
*10.3	Amendment No. 1 to 2002 Stock Incentive Plan, dated effective as of May 23, 2003 (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.4	Employment Agreement, dated as of January 2, 2001, between Edge and Graham C. Beachum II (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.5	Amendment No. 1 to Employment Agreement, dated as of April 1, 2004, between the Company and Graham C. Beachum II (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004 and filed with the SEC on May 13, 2004).
*10.6	Employment Agreement, dated as of January 2, 2001, between Edge and Graham C. Beachum III (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
*10.7	Employment letter, dated May 9, 2003, between Axtive and Stanley D. Strifler (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.8	Management Services Agreement, dated as of February 14, 2003, by and between Axtive and Demand Aggregation Solutions, LLC (incorporated by reference to Exhibit 1 the Schedule 13D dated May 23, 2003 and filed by Demand Aggregation Systems, LLC with the SEC on June 20, 2003).
10.9	Agreement and Plan of Merger, dated April 8, 2002, among Edge, Visionary Acquisition Corp., The Visionary Group, Inc. and The Visionary Group Shareholders (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001 and filed with the SEC on April 16, 2002).
10.10	Agreement and Plan of Merger, dated April 11, 2002, among Edge Technology Group, Inc., Media Resolutions Acquisition Corp., Media Resolutions, Incorporated and Media Resolutions Shareholders (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001 and filed with the SEC on April 16, 2002).
10.11	Agreement and Plan of Merger, dated May 30, 2002, among Edge Technology Group, Inc., VT Acquisition Corp., Virtually There, Inc. and the shareholders of Virtually There, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 30, 2002 and filed with the SEC on June 14, 2002).
10.12	Asset Purchase Agreement, dated as of May 31, 2002, by and among Universal Data Technology, Inc., its Shareholders, Edge Technology Group, Inc. and UDT Consulting, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 30, 2002 and filed with the SEC on June 14, 2002).

Exhibit No.	Description
10.13	Agreement and Plan of Merger by and among Axtive Corporation, Axtive Acquisition Corp., ThinkSpark Corporation and Kerry Osborne dated as of May 23, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 23, 2003 and filed with the SEC on June 9, 2003).
10.14	Assignment and Assumption Agreement, dated as of May 27, 2003, among ThinkSpark Corporation, ThinkSpark, L.P., Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.15	Term Loan Agreement, dated as of May 27, 2003, between Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.16	Debt Exchange Agreement, dated as of May 27, 2003, by and among ThinkSpark Corporation, Axtive and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.17	Warrant to Purchase Common Stock of Axtive Corporation, dated May 27, 2003, and issued to Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 and filed with the SEC on July 23, 2003).
10.18	Bill of Sale and Asset Purchase Agreement, dated as of June 21, 2002, by and between Axtive Software Corporation and Edge (incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, and filed with the SEC on August 19, 2002).
10.19	Factoring and Security Agreement, dated June 24, 2002, between UDT Consulting, Inc., and Landry Marks Partners, LP (incorporated by reference to Exhibit 10.29 of the Company’s Form 10-QSB for the quarterly period ended June 30, 2002 and filed with the SEC on August 19, 2002).
10.20	Factoring and Security Agreement, dated August 7, 2003, between ThinkSpark L.P., and Landry Marks Partners, LP (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.21	Letter of Agreement, dated August 18, 2003, among ThinkSpark Corporation, ThinkSpark, L.P., Landry Marks Partners, LP and Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on April 14, 2004).
10.22	Securities Purchase Agreement, dated July 30, 2004, by and between Axtive Corporation and Laurus Master Fund, Ltd (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.23	Secured Convertible Term Note, dated July 30, 2004, executed by Axtive Corporation and payable to Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.24	Common Stock Purchase Warrant, dated July 30, 2004, executed by Axtive Corporation to Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).
10.25	Registration Rights Agreement, dated July 30, 2004, by and between Axtive Corporation and Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form SB-2, No. 333-118921, filed with the SEC on September 10, 2004).

Exhibit No.	Description
10.26	Restricted Account Agreement, dated July 30, 2004, by and among North Fork Bank, Axtive Corporation and Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form SB-2, No. 333-118921, Amendment No. 1, filed with the SEC on October 26, 2004).
10.27	Restricted Account Security Agreement, dated July 30, 2004, to Laurus Master Fund, Ltd. from Axtive Corporation (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form SB-2, No. 333-118921, Amendment No. 1, filed with the SEC on October 26, 2004).
10.28	Asset Purchase Agreement, dated as of February 1, 2005, by and among the Company, Axtive Acquisition Corp., Datatek Group Corporation and Diversified Corporate Resources, Inc. (filed herewith).
21.1	Subsidiaries of Axtive (filed herewith).
31.1	Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Chief Executive Officer’s and Principal Financial Officer’s Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

* Indicates management contract or compensatory plan or arrangement.

EX-3.7

Exhibit 3.7

CERTIFICATE OF AMENDMENT

TO THE AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF AXTIVE CORPORATION

Pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware, Axtive Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify:

FIRST: That the Board of Directors of the Corporation, by unanimous consent pursuant to Section 141(f) of the General Corporation Law of the State of Delaware, adopted a resolution setting forth and declaring advisable the following proposed amendment to the Amended and Restated Certificate of Incorporation, as amended, of the Corporation:

That Article Four of the Corporation’s Amended and Restated Certificate of Incorporation, as amended, be amended and restated in its entirety as follows:

“ARTICLE FOUR

Capital Stock

The Company shall have the authority to issue a total of Two Hundred Five Million (205,000,000) shares, consisting of (a) Two Hundred Million (200,000,000) shares of common stock, par value $0.01 per share, and (b) Five Million (5,000,000) shares of preferred stock, par value $0.01 per share. The preferred stock may be issued from time to time in one or more series and with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, option or other special rights or qualifications, or restrictions thereof, as shall be stated and expressed in this Certificate or in any amendment hereto, or in a resolution adopted by the board of directors.”

SECOND: That thereafter, pursuant to resolution of the Board of Directors, the proposed amendment was submitted to the stockholders of the Corporation, and the necessary number of shares as required by statute was voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

FOURTH: That this Certificate of Amendment shall be effective upon the filing hereof.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Graham C. Beachum III, its President and Chief Operating Officer, this 11th day of January, 2005.

AXTIVE CORPORATION
By:	/s/ GRAHAM C. BEACHUM III
	Graham C. Beachum III
	President and Chief Operating Officer

EX-10.28

Exhibit 10.28

ASSET PURCHASE AGREEMENT

by and among

AXTIVE CORPORATION,

AXTIVE ACQUISITION CORP.,

DATATEK GROUP CORPORATION,

and

DIVERSIFIED CORPORATE RESOURCES, INC.

Dated as of February 1, 2005

TABLE OF CONTENTS

ARTICLE I DEFINITIONS			1
	1.1	Definitions	1
	1.2	Interpretation	9
ARTICLE II THE PLAN OF ACQUISITION			10
	2.1	Acquisition of the Assets	10
	2.2	Excluded Assets	11
	2.3	Assumed Liabilities	12
	2.4	Assignment and Assumption of Contracts	12
	2.5	Liabilities Not Assumed	12
ARTICLE III PURCHASE PRICE; CLOSING			13
	3.1	Purchase Price	13
	3.2	Payment or Delivery of Purchase Price	14
	3.3	Escrow	14
	3.4	Substitute Consideration	14
	3.5	Closing	15
	3.6	Closing Adjustments.	15
	3.7	Payment of Additional Cash Consideration	15
	3.8	Allocation of Purchase Price	16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER			16
	4.1	Organization and Good Standing	16
	4.2	Power, Authorization, and Validity.	16
	4.3	Capitalization.	17
	4.4	Subsidiaries	18
	4.5	No Violation of Existing Agreements	18
	4.6	Litigation; Legal Impediments	18
	4.7	Seller Financial Statements; Books and Records	19
	4.8	Liabilities and Obligations	20
	4.9	Accounts and Notes Receivable	20
	4.10	Assets.	21
	4.11	Agreements and Commitments	22
	4.12	Customers and Suppliers	25
	4.13	Intellectual Property	26
	4.14	Compliance with Laws	27
	4.15	Permits.	28
	4.16	Environmental Matters	28
	4.17	Employees	29
	4.18	Employee Benefit Matters	30
	4.19	Taxes	31

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	4.20	Insurance	33
	4.21	WARN Compliance	33
	4.22	Absence of Certain Changes	33
	4.23	Corporate Documents	35
	4.24	Certain Transactions and Agreements	35
	4.25	Absence of Certain Business Practices	35
	4.26	Bank Accounts and Powers of Attorney	35
	4.27	No Brokers	35
	4.28	Advisability of Obtaining Separate Counsel	36
	4.29	No Implied Representations	36
	4.30	Disclosure	36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF AXTIVE AND PURCHASER			36
	5.1	Organization and Good Standing	36
	5.2	Power, Authorization, and Validity.	36
	5.3	No Violation of Existing Agreements.	37
	5.4	SEC Filings	38
	5.5	Disclosure	38
	5.6	No Implied Representations	38
	5.7	No Brokers	38
	5.8	Capitalization.	38
	5.9	No Material Adverse Changes	39
	5.10	Industry Experience	39
	5.11	Financial Ability	39
ARTICLE VI CERTAIN COVENANTS			39
	6.1	Access	39
	6.2	Conduct of Business	39
	6.3	Schedules.	40
	6.4	Further Actions; Future Cooperation; and Tax Matters	41
	6.5	Confidentiality of Agreement; Public Announcements	41
	6.6	Non-Disclosure of Seller Proprietary Information.	42
	6.7	Responsibility for COBRA Continuation Health Coverage for Division Employees	44
	6.8	Employees.	44
	6.9	Consents	44
	6.10	Name Change	45
	6.11	Post-Closing Audit	45
	6.12	Web Site	45
	6.13	Acquisition Proposals	45
	6.14	Employment Agreements	46
	6.15	Microsoft Master License Agreement	46
	6.16	Release of Shareholder and Seller.	46

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ARTICLE VII INDEMNIFICATION			47
	7.1	Indemnification by Seller and Shareholder	47
	7.2	Indemnification by Axtive	47
	7.3	Third Person Claims	48
	7.4	Non-Third Person Claims	48
	7.5	Notice of Claim	49
	7.6	Survival of Representations and Warranties	49
	7.7	Limitations on Indemnification.	50
ARTICLE VIII NONCOMPETITION COVENANTS			50
	8.1	Prohibited Activities.	50
	8.2	Equitable Relief	51
	8.3	Reasonable Restraint	51
	8.4	Severability; Reformation	51
	8.5	Material and Independent Covenant	51
ARTICLE IX CONDITIONS TO CLOSING			52
	9.1	Conditions to Obligations of Purchaser	52
	9.2	Conditions to Obligations of Seller	54
ARTICLE X ACTIONS AT CLOSING			55
	10.1	Transfers at Closing	55
	10.2	Consents	56
ARTICLE XI TERMINATION			56
	11.1	Events of Termination	56
	11.2	Consequences of Termination	57
ARTICLE XII FEDERAL SECURITIES ACT RESTRICTIONS ON AXTIVE COMMON STOCK; RESALE REGISTRATION			57
	12.1	Compliance with Law	57
	12.2	Economic Risk; Sophistication; Accredited Investors	57
	12.3	Rule 144 Reporting	58
	12.4	Resale Registration	58
ARTICLE XIII MISCELLANEOUS			58
	13.1	Successors and Assigns	58
	13.2	Entire Agreement	58
	13.3	No Joint Venture	59
	13.4	Absence of Third Party Beneficiary Rights	59
	13.5	Expenses	59

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13.6	Notices	59
13.7	Exercise of Rights and Remedies	60
13.8	Construction of Agreement	60
13.9	Reformation and Severability	60
13.10	Governing Law; Venue	60
13.11	Dispute Resolution	61
13.12	Counterparts	62

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is dated and effective as of February 1, 2005, by and among Axtive Corporation, Inc., a Delaware corporation (“Axtive”), Axtive Acquisition Corp., a Texas corporation and a wholly owned subsidiary of Axtive (“Purchaser”), Datatek Group Corporation, a Texas corporation (“Seller”), and Diversified Corporate Resources, Inc., a Texas corporation and the sole shareholder of Seller (the “Shareholder”).

RECITALS

Seller desires to sell its business as a going concern and, in connection therewith, Seller desires to sell substantially all of its assets, and Purchaser desires to purchase such business and assets and assume certain liabilities of Seller relating thereto, upon the terms and conditions set forth in this Agreement (“Asset Purchase”).

NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants contained herein, the parties hereto, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. Capitalized terms used in this Agreement shall have the following meanings:

“Acquisition Proposal,” means any offer or proposal for, or any indication of interest in, any merger or other business combination involving Seller, any sale of Seller’s capital stock or any sale of the assets of Seller (other than in the ordinary course of business), other than the transactions contemplated by this Agreement.

“AAA Rules” has the meaning set forth in Section 13.11.

“Accounts Receivable” means the accounts and notes receivable of Seller, including with respect to both billed and unbilled revenue, but excluding (a) revenue related to work not performed and (b) intercompany accounts receivable of Seller and accounts receivable of Seller from Affiliates.

“Accounts Receivable Surplus” has the meaning set forth in Section 3.6(b).

“Acquisition Financing” means the debt and/or equity financing obtained by Axtive for the purpose of consummating the Asset Purchase.

“Additional Cash Consideration” has the meaning set forth in Section 3.6(b).

“Affiliate” of, or “Affiliated” with, a specified person or entity means a person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person or entity.

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Ancillary Agreements” means the Seller Ancillary Agreements and the Axtive Ancillary Agreements.

“Asset Purchase” has the meaning set forth in the Recitals.

“Assets” has the meaning set forth in Section 2.1.

“Assigned Intellectual Property” has the meaning set forth in Section 2.1(l).

“Assigned Permits” has the meaning set forth in Section 2.1(k).

“Assumed Contracts” has the meaning set forth in Section 2.1(i).

“Assumed Liabilities” has the meaning set forth in Section 2.3.

“Axtive Share Value” means the $0.30 per share of Axtive Common Stock.

“Axtive” has the meaning set forth in the preamble to this Agreement.

“Axtive Ancillary Agreements” has the meaning set forth in Section 5.2(a).

“Axtive Common Stock” means the Common Stock, $0.01 par value per share, of Axtive.

“Axtive Expiration Date” has the meaning set forth in Section 7.6(b).

“Axtive Indemnified Persons” has the meaning set forth in Section 7.1(a).

“Axtive Losses” has the meaning set forth in Section 7.1(a).

“Balance Sheet Date” has the meaning set forth in Section 4.7(a)(ii).

“Business Day” means any day except a Saturday, Sunday, or other day on which commercial banks in the State of Texas are authorized or required by law to close.

“Cash Consideration” has the meaning set forth in Section 3.1.

“Closing” has the meaning set forth in Section 3.4.

“Closing Date” has the meaning set forth in Section 3.4.

“COBRA” has the meaning set forth in Section 6.7.

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“Code” means the Internal Revenue Code of 1986, as amended.

“Competitive Business” means the provision of services or products to any Major Customer and any other person or entity that (a) has been a customer of Seller during the 12 months prior to Closing or (b) is a customer of Seller at Closing, including customers that have not yet been invoiced (collectively, the “Customers”); provided, however, that (i) providing staffing services to a Customer in a different business sector or industry than Seller has provided or is providing to such Customer, or (ii) providing permanent or direct placement services to a Customer, shall not be deemed to be a “Competitive Business” hereunder.

“Continuation Coverage” has the meaning set forth in Section 6.7.

“Covered Persons” has the meaning set forth in Section 6.7.

“Current Accounts Receivable” means the Accounts Receivable excluding such Accounts Receivable outstanding more than 90 days from the date of invoice.

“Datatek Consulting Purchase Agreement” means that certain Purchase Agreement, dated as of March 6, 2000, by and among Shareholder, Datatek Consulting Group Corporation, Datatek Corporation, Julia L. Wesley, and Michael P. Connolly.

“Datatek MS Software Licenses” has the meaning set forth in Section 6.15.

“Datatek Web Site” means the web site located at http://www.datatekonline.com.

“DCRI Web Site” means the web site located at http://www.dcri.net.

“Dispute” has the meaning set forth in Section 13.11.

“Employee benefit plan” has the meaning given to that term in Section 3(3) of ERISA.

“Employee Plan” means each employee benefit plan, whether or not subject to ERISA, and each other employee profit-sharing, incentive, deferred compensation, welfare, pension, retirement, severance, group insurance, stock option, bonus and other employee benefit plan, arrangement, agreement and practice which relates to employee benefits sponsored, maintained or contributed to by Seller, or any ERISA Affiliate, or under which Seller or any ERISA Affiliate has any current or future obligation or liability with respect to a present or former officer, employee, agent, or consultant of Seller or under which any present or former officer, employee, agent, or consultant of Seller, or such present or former officer’s, employee’s, agent’s, or consultant’s dependents or beneficiaries, have any current or future right to benefits

“Employment Agreements” has the meaning set forth in Section 6.14.

“Encumbrances” means all liens, encumbrances, mortgages, pledges, security interests, conditional sales agreements, charges, options, preemptive rights, rights of first refusal, reservations, restrictions, or other encumbrances or defects in title.

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“Environmental, Health and Safety Laws” means any federal, state, or local Law now in effect, including any judicial or administrative interpretation thereof, any judicial or administrative order, consent decree, or judgment, or agreement with any Governmental Authority, relating to (a) pollution, exposure to oil, pollutants, contaminants, hazardous, or toxic materials or waste, (b) the protection, preservation, or restoration of the environment, including Laws relating to exposures to, or emissions, discharges, releases, or threatened releases of oil, pollutants, contaminants, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or land surface or subsurface strata or (c) the manufacture, processing, labeling, distribution, use, treatment, storage, transport, handling, or disposal of oil, pollutants, contaminants, hazardous, or toxic materials or wastes or relating to the environment, plant and animal life, natural resources, or health, safety, or any Hazardous Substance. “Environmental, Health and Safety Laws” include (i) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601 et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq., the Clean Air Act, 42 U.S.C. §§ 7401 et seq., the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 5101 et seq., the Atomic Energy Act, 42 U.S.C. §§ 2011 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq., and the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq., in each case as amended from time to time, and any other federal, state or local Laws now or hereafter relating to any of the foregoing, and (ii) any common law or equitable doctrine (including injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of, effects of or exposure to any Hazardous Substance.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means any other corporation or trade or business under common control with Seller or treated as a single employer with Seller as determined under Sections 414(b), (c), (m), or (o) of the Code.

“Escrow Account” has the meaning set forth in Section 3.3.

“Escrow Agent” means the escrow agent to be mutually agreed upon by Purchaser and Seller and to be set forth in the Escrow Agreement.

“Escrow Agreement” has the meaning set forth in Section 3.3.

“Escrow Shares” has the meaning set forth in Section 3.3.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Contracts” has the meaning set forth in Section 2.4.

“Excluded Liabilities” has the meaning set forth in Section 2.5.

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“Filing Date” means the date of Axtive’s filing with the SEC of an amendment to its Current Report on Form 8-K with respect to the Asset Purchase to include all required financial statements.

“FIRPTA” means the Foreign Investment in Real Property Tax Act of 1980, as amended.

“GAAP” means United States generally accepted accounting principles, consistently applied.

“Governmental Authority” means any federal, state, local, or foreign government, political subdivision, or governmental or regulatory authority, agency, board, bureau, commission, instrumentality, or court or quasi-governmental authority.

“Government Bid” means any bid or proposal in response to a solicitation with respect to a Government Contract.

“Government Contract” means any prime contract, subcontract, letter contract, purchase order or delivery order, task order, or other agreement of any kind executed or submitted to or on behalf of any independent or executive agency, division, subdivision, audit group, or procuring office of a Governmental Authority or any prime contractor or higher level subcontractor of a prime contractor, or under which any Governmental Authority or any such prime contractor or higher level subcontractor otherwise has or may acquire any right or interest.

“Hazardous Substances” means any substance presently listed, defined, designated, or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental, Health and Safety Law. The term “Hazardous Substances” includes any substance to which exposure is regulated by any Governmental Authority or any Environmental, Health and Safety Law including any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos or asbestos containing material, urea formaldehyde foam insulation, lead, or polychlorinated biphenyls.

“Indemnified Party” has the meaning set forth in Section 7.3.

“Indemnifying Party” has the meaning set forth in Section 7.3.

“Intellectual Property” means all patents, patent applications, patent licenses, trademarks, trademark applications, service marks, service mark applications, trade names, trade names, copyrights, copyright applications, trade secrets, know-how, technologies, computer software, and other intellectual property or proprietary property rights, including any licenses with respect thereto.

“Interim Balance Sheet” has the meaning set forth in Section 4.7(a)(ii).

“Interim Financial Statements” has the meaning set forth in Section 4.7(a)(ii).

“KBA” means KBA Group LLP.

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“Law” or “Laws” means any and all federal, state, local, or foreign statutes, laws, ordinances, proclamations, codes, regulations, licenses, permits, authorizations, approvals, consents, legal doctrines, published requirements, orders, decrees, judgments, injunctions, and rules of any Governmental Authority, including those covering environmental, Tax, energy, safety, health, transportation, bribery, recordkeeping, zoning, discrimination, antitrust, and wage and hour matters, in each case as amended and in effect from time to time.

“Letter of Intent” means that certain letter of intent dated August 5, 2004 by and between Axtive and Shareholder, as amended by that certain letter dated September 23, 2004, and as otherwise amended or supplemented.

“Loss” or “Losses” means all liabilities, losses, claims, damages, actions, suits, proceedings, demands, assessments, adjustments, fees, costs, and expenses (including reasonable attorneys’ fees and costs and expenses of investigation), net of income Tax effects with respect thereto (including income Tax benefits recognized in connection therewith and income Taxes upon any indemnification recovery therefor) and net of insurance proceeds paid to the party incurring such loss.

“Major Customers” has the meaning set forth in Section 4.12.

“Material Adverse Effect” has the meaning set forth in Section 4.1.

“Microcapital” means Microcapital Strategies, Inc.

“Microcapital Preferred Shares” means the shares of Preferred Stock that were purchased by Microcapital and thereafter purchased by and assigned to the Microcapital Transferees pursuant to certain Assignment and Assumption Agreements by and between Microcapital and each of the Microcapital Transferees.

“Microcapital Transferees” means O.S. Hawkins, HIR Preferred Partners, L.P., Jupiter Orbit Fund, Ltd., Mercury Orbit Fund, Ltd., and Jack Pogue.

“Microsoft Master License Agreement” means that certain Master License Agreement by and between Shareholder and Microsoft Corporation dated July 29, 2002, which expires July 31, 2005.

“Non-Assumed Contracts” has the meaning set forth in Section 2.2(d).

“Noncompete Term” has the meaning set forth in Section 8.1(a).

“OTC Bulletin Board” means the OTC Bulletin Board automated stock quotation system owned and operated by The Nasdaq Stock Market, Inc.

“Permits” means licenses (other than licenses for the use of Intellectual Property), franchises, permits, authorizations of transportation authorities, operating authorizations, titles (including motor vehicle titles and current registrations), certificates, and other authorizations issued by Governmental Authorities.

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“Permitted Encumbrances” means (a) any Encumbrances reflected or reserved against in the Interim Balance Sheet that is not in excess of $10,000; (b) Encumbrances for property or ad valorem Taxes reflected or reserved against in the Interim Balance Sheet or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on Seller’s books in accordance with GAAP; (c) obligations under any operating and capital leases described in Schedule 4.11; and (d) all contracts, agreements, instruments, obligations, Encumbrances, defects, and irregularities of title, if any, affecting Seller’s assets that, individually or in the aggregate, do not materially detract from the value or materially interfere with the present or future operation or value of Seller’s business or the value or use of Seller’s Assets or otherwise materially impair the business operations being conducted by Seller.

“Post-Closing Audit” has the meaning set forth in Section 6.11.

“Post-Closing Review” has the meaning set forth in Section 6.11.

“Post-Closing Period” has the meaning set forth in Section 6.6(c).

“Preferred Purchase” has the meaning set forth in Section 3.4.

“Preferred Purchase Consideration” has the meaning set forth in Section 3.4.

“Preferred Purchase Shareholders” has the meaning set forth in Section 3.4.

“Preferred Purchase Shares” has the meaning set forth in Section 3.4.

“Preferred Release” means a release in the form determined by Shareholder, in its sole discretion, releasing Shareholder from any and all claims, liabilities, and obligations arising from the sale of the shares of Preferred Stock by Shareholder, including all accrued and unpaid dividends on the shares of Preferred Stock and claims under Section 10(b) and Rule 10b-5 of the Exchange Act, Section 20A of the Exchange Act, Sections 5, 10, 11, 12, and 17 of the Securities Act, Regulation FD promulgated under the Exchange Act, the Racketeer Influenced and Corrupt Organizations Act, claims for negligent misrepresentation, breach of fiduciary duty, and fraud, and any and all claims for attorneys’ fees related thereto.

“Preferred Shareholders” means the holders of the Preferred Stock.

“Preferred Stock” means the Series A Convertible Voting Preferred Stock, $10.00 par value per share, of Shareholder

“Purchase Price” has the meaning set forth in Section 3.1.

“Purchaser” has the meaning set forth in the preamble to this Agreement.

“Registration Rights Agreement” has the meaning set forth in Section 12.4.

“Restricted Shares” has the meaning set forth in Section 12.1.

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“Schedules” means the disclosure or other schedules, including supplemental schedules, to be delivered by Seller or Shareholder, on the one hand, or Purchaser or Axtive, on the other hand, pursuant to this Agreement.

“SEC” means Securities and Exchange Commission.

“SEC Filings” has the meaning set forth in Section 5.4.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” has the meaning set forth in the preamble to this Agreement.

“Seller Ancillary Agreements” has the meaning set forth in Section 4.2(a).

“Seller Employees” has the meaning set forth in Section 2.5(b).

“Seller Expiration Date” has the meaning set forth in Section 7.6(a).

“Seller Facilities” has the meaning set forth in Section 2.1(h).

“Seller Financial Statements” has the meaning set forth in Section 4.7(a).

“Seller Indemnified Persons” has the meaning set forth in Section 7.2(a).

“Seller Intellectual Property” has the meaning set forth in Section 4.13(a).

“Seller Losses” has the meaning set forth in Section 7.2(a).

“Seller Owned Intellectual Property” has the meaning set forth in Section 4.13(a).

“Seller Proprietary Information” has the meaning set forth in Section 6.6(a).

“Seller Required Consents” has the meaning set forth in Section 4.5(b).

“Seller Used Intellectual Property” has the meaning set forth in Section 4.13(a).

“Shareholder” has the meaning set forth in the preamble to this Agreement.

“Stock Consideration” has the meaning set forth in Section 3.1.

“Substitute Consideration” has the meaning set forth in Section 3.4.

“Subcontract” has the meaning set forth in Section 2.4.

“Taxes” means (i) all taxes, charges, fees, levies, or other assessments, including income, gross receipts, excise, property, sales, withholding, social security, unemployment, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees, and charges imposed by the United States or any state, local, or foreign government or subdivision or agency thereof, whether computed on a separate, consolidated, unitary, combined, or any other basis, including

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any interest, fines, penalties, or additional amounts attributable to or imposed with respect to any such taxes, charges, fees, levies, or other assessments, (ii) liability of Seller for the payment of any amounts of the type described in clause (i) as a result of transferee liability, being a member of an affiliated, consolidated, combined, or unitary group for any period, or otherwise through operation of law, and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any Tax sharing, Tax indemnity or Tax allocation agreement or any other express or implied agreement to indemnify any other person.

“Tax Returns” means all returns, declarations of estimated tax payments, reports, forms, estimates, information returns, statements, and other documentation, including any related or supporting information filed with respect to any of the foregoing, maintained, filed, or to be filed with any Taxing Authority in connection with the determination, assessment, collection, or administration of any Taxes.

“Taxing Authority” means any Governmental Authority exercising any Taxing authority or any other authority exercising Tax regulatory authority.

“Territory” has the meaning set forth in Section 8.1(a).

“Third Person” has the meaning set forth in Section 7.3.

“Trading Day” means a day on which The Nasdaq Stock Market, Inc. is open for trading or quotations.

“USRPHC” has the meaning set forth in Section 4.19(e).

“WARN Act” has the meaning set forth in Section 4.21.

“Year-End Financial Statements” has the meaning set forth in Section 4.7(a)(i).

1.2 Interpretation. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a) the term “fraud” shall refer only to fraud as the result of intentional acts or omissions by a party and shall not include constructive fraud;

(b) the terms defined in Section 1.1 and elsewhere in this Agreement include the plural as well as the singular;

(c) all accounting terms not otherwise defined herein have the meanings ascribed to them in accordance with GAAP;

(d) a reference to one gender includes the other gender and the neuter;

(e) the words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, or other subdivision; and

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(f) the terms “include,” “includes” and “including” are not limiting and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.”

ARTICLE II

THE PLAN OF ACQUISITION

2.1 Acquisition of the Assets. At the Closing, Seller shall sell, convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchase from Seller, all of the assets, properties, businesses, franchises, goodwill, and rights of every kind and character, tangible, or intangible, real or personal, whether owned or leased, set forth in this Section 2.1, specifically excluding the Excluded Assets (collectively, the “Assets”), free and clear of all Encumbrances other than Permitted Encumbrances and any Encumbrances created by Purchaser. The Assets include the following:

(a) all petty cash of Seller;

(b) all Accounts Receivable;

(c) all prepaid lease deposits;

(d) all customer lists, sales records, credit data and other information relating to Seller’s customers;

(e) all marketing materials relating to Seller’s products and services, including the information and content contained on the Datatek Web Site at http://www.datatekonline.com (including, with respect thereto, the HTML code, any and all scripts, applets, graphics, images, pictures, text and all other content);

(f) all of Seller’s backlog of orders;

(g) all supplier lists, files, records, and data;

(h) all real property leasehold interests related to the real property described on Schedule 2.1(h), including all leasehold improvements, rights, or licenses related or appurtenant thereto and deposits paid in connection therewith (the “Seller Facilities”);

(i) all rights, title, and interest of Seller in, to and under all existing contracts and agreements, written and oral, including leases for real property and leases for personal property, and including deposits paid in connection therewith, as listed in Schedule 2.1(i) (collectively the “Assumed Contracts”);

(j) all equipment and other tangible personal property set forth in Schedule 4.10 (the “Equipment”);

(k) all rights, title, and interest of Seller in and to and under all Permits owned or possessed by Seller, including those listed in Schedule 4.15 (the “Assigned Permits”);

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(l) all rights, title, and interest of Seller in, to and under all Intellectual Property of Seller, the goodwill associated therewith and the rights and privileges used in the conducting of the business of Seller and the right to recover for infringement thereon, including the Seller Intellectual Property set forth on Schedule 4.13 (the “Assigned Intellectual Property”);

(m) all of Seller’s and Shareholder’s rights in the names “Datatek,” “Datatek Group Corporation,” and “Datatek Consulting Group” and any other trade names or assumed names under which Seller operates;

(n) all rights, title and interest of Seller in, to, and under the telephone numbers or numbers set forth in Schedule 2.1(n);

(o) originals or copies of Seller’s books, records, papers, and instruments of whatever nature and wherever located that relate to the business of Seller or the Assets or which are required or necessary in order for Purchaser to conduct the businesses of Seller from and after the Closing in the manner in which its being conducted before the Closing, including such books, records, papers, and instruments for the three-year period ended December 31, 2003, and the interim period ending on the Closing Date;

(p) all insurance proceeds and insurance claims of Seller relating to its respective businesses or all or any part of the Assets, other than with respect to the Excluded Liabilities, and to the extent transferable, the benefit of and the right to enforce the covenants and warranties, if any, that Seller is entitled to enforce with respect to the Assets against its predecessors in title to the Assets, if any;

(q) all rights, title, and interest of Seller in computer equipment and hardware, including all central processing units, terminals, disk drives, tape drives, electronic memory units, printers, keyboards, screens, peripherals (and other input/output devices), modems, and other communication controllers, networking equipment, and any and all parts and appurtenances thereto, together with all software and intellectual property used with such computer equipment and hardware; and

(r) all rights, title, and interests of Seller in, to and under all rights, privileges, claims, causes of action, and options related to Seller’s business or the Assets.

2.2 Excluded Assets. Seller shall retain, and the Assets shall specifically not include, the following assets and other rights of Seller (collectively, the “Excluded Assets”):

(a) cash reserved by Greenfield Commercial Credit or Wells Fargo against the Accounts Receivable;

(b) intercompany accounts receivable of Seller and accounts receivable of Seller from Affiliates;

(c) all legal rights and benefits arising under the Excluded Contracts, except to the extent of any Subcontract;

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(d) all legal rights and benefits arising under any contract, agreement, or commitment listed in Schedules 4.11(a), 4.13, or 4.17, which is not included as part of the Assumed Contracts or the Excluded Contracts, including the Datatek Consulting Purchase Agreement (the “Non-Assumed Contracts”);

(e) all Employee Plans maintained by Seller; and

(f) the assets of Seller listed in Schedule 2.2.

2.3 Assumed Liabilities. As further consideration for the purchase of the Assets, Purchaser shall assume and discharge all (i) liabilities, obligations, or contingencies of Seller with respect to Seller or the Assets specifically listed in Schedule 2.3 (A) that are accrued or reserved against in the Financial Statements or reflected in the notes thereto or (B) that were incurred after the Balance Sheet Date and were incurred in the ordinary course of the businesses of Seller, consistent with past practices, (ii) liabilities and obligations of Seller that are of a nature not required to be reflected in the Financial Statements, provided the Financial Statements are prepared in accordance with GAAP, and that were incurred in the normal course of business and are described in Schedule 4.8 and (iii) liabilities and obligations arising under the Assumed Contracts from and after the Closing Date, but specifically excluding the Excluded Liabilities (collectively, the “Assumed Liabilities”).

2.4 Assignment and Assumption of Contracts. Seller shall assign all of its rights, title, and interest in and to, and Purchaser will assume, perform, and discharge all of Seller’s remaining obligations under, the Assumed Contracts from and after the Closing Date. Notwithstanding the foregoing, the Assumed Contracts do not include, and nothing in this Agreement will be deemed to constitute an assignment or attempted assignment of, any contract, agreement, or license to which Seller is a party if the attempted assignment without the consent of the other party thereto would constitute a breach or affect in any way the rights of Seller thereunder and for which consent has not been obtained (collectively, the “Excluded Contracts”). If the consent of any such other party is not obtained on or prior to the Closing Date, or an attempted assignment on the Closing Date would be ineffective and would affect the rights of Seller, or Purchaser as assignee thereunder, Seller will cooperate with Purchaser in a reasonable arrangement designed to provide for Purchaser the economic benefits, to the extent of Purchaser’s performance of Seller’s obligations, under each Excluded Contract and will continue after the Closing to use its commercially reasonable efforts to obtain consent to such assignment. If requested by Purchaser with respect to any Excluded Contract, following the Closing Seller shall enter into a subcontract or sublicense with or to Purchaser, in the form mutually agreed upon by Purchaser and Seller, dated as of the Closing Date (each a “Subcontract”).

2.5 Liabilities Not Assumed. Except for the Assumed Liabilities, Purchaser shall not assume or become liable or otherwise obligated to pay, perform, or discharge any, and Seller shall remain expressly liable for all, liabilities and obligations of Seller (the “Excluded Liabilities”), including the following liabilities and obligations of Seller:

(a) intercompany accounts payable of Seller and accounts payable of Seller to Affiliates;

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(b) any liabilities or obligations with respect to employees of Seller, including employees employed in connection with Seller’s business, arising from such employment (the “Seller Employees”), except such liabilities or obligations expressly set forth in Schedule 2.3;

(c) any liabilities or obligation resulting from, arising under, or relating to the termination of employment by Seller of any employee of Seller;

(d) any liabilities or obligations resulting from, arising under, or relating to any Employee Plan maintained by Seller;

(e) any liabilities or obligations resulting from, arising under, or relating to any Employee Plan maintained by Seller’s Affiliates;

(f) all Taxes, documentary charges, recording fees, or similar charges, fees, or expenses that may become payable in connection with the sale of Assets or the transactions contemplated hereby, other than those Taxes imposed on the net income of Purchaser;

(g) all Taxes related to Seller or Seller’s business payable with respect to all periods prior to and including the Closing Date, together with any interest or penalties thereon, including all accrued and unpaid payroll taxes of any kind, except such tax liabilities or obligations expressly set forth in Schedule 2.3;

(h) any liabilities or obligations resulting from, arising under, or relating to any Non-Assumed Contract, including any liabilities or obligations resulting from, arising under, or relating to the Datatek Consulting Purchase Agreement other than the liability of Seller thereunder with respect to managers’ bonuses or earn-outs as expressly set forth in Schedule 2.3;

(i) any liabilities or obligations resulting from, arising under, or relating to any Excluded Contract; and

(j) any liability or obligation resulting from, arising under, or relating to any action, suit, or proceeding based upon an event occurring or a claim arising on or prior to the Closing or after the Closing in the case of claims in respect of products sold or services delivered by Seller on or prior to the Closing or attributable to acts performed or omitted by Seller or its employees or representatives on or prior to the Closing.

ARTICLE III

PURCHASE PRICE; CLOSING

3.1 Purchase Price. Purchaser shall pay Seller a purchase price for the Assets (the “Purchase Price”) consisting of (a) an amount in cash equal to $4,500,000 (the “Cash Consideration”) and (b) 15,333,333 shares of Axtive Common Stock (the “Stock Consideration”) with an aggregate value, based upon the Axtive Share Value, of $4,600,000 (and rounded to the nearest whole share).

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3.2 Payment or Delivery of Purchase Price. At Closing, Purchaser shall (a) pay to or on behalf of Seller, by wire transfer of immediately available funds and as set forth in Schedule 3.2, the Cash Consideration and (b) deliver, or cause to be delivered, to Seller a copy of an irrevocable instruction letter to Axtive’s transfer agent directing that certificates representing the Stock Consideration less the Escrow Shares be delivered to or on behalf of Seller as set forth in Schedule 3.2.

3.3 Escrow. At Closing, Purchaser shall deposit 1,250,000 shares of Axtive Common Stock of the Stock Consideration (the “Escrow Shares”), together with an executed stock power, into an escrow account (the “Escrow Account”) maintained by the Escrow Agent pursuant to the terms of an Escrow Agreement containing customary terms and terms consistent with this Section 3.3 and otherwise in a form to be mutually agreed upon by Purchaser and Seller or Shareholder (the “Escrow Agreement”). Subject to the following provisions of this Section 3.3 regarding disbursements, the Escrow Shares shall be held by the Escrow Agent for a period of one year from the Closing Date pursuant to the terms of the Escrow Agreement and shall be generally available to satisfy any claims for indemnification made by Purchaser or Axtive pursuant to ARTICLE VII:

(a) on the date that is 180 days after the Closing Date, an amount equal to one-half of the Escrow Shares less the number of Escrow Shares equal to the sum of (i) the total number of Escrow Shares disbursed from the Escrow Account during such 180-day period to satisfy indemnification claims made by Purchaser or Axtive pursuant to ARTICLE VII and (ii) the number of Escrow Shares equal to the total dollar amount subject to pending indemnification claims made by Purchaser or Axtive pursuant to ARTICLE VII as of the end of such 180-day period, and not covered by any Escrow Amount, divided by the Axtive Share Value; and

(b) on the first anniversary of the Closing Date, the remaining balance in the Escrow Account less the number of Escrow Shares with a value equal to the total dollar amount subject to pending indemnification claims made by Purchaser or Axtive pursuant to ARTICLE VII as of such date, which shall remain on deposit in the Escrow Account until finally resolved pursuant to ARTICLE VII, at which time any remaining balance shall be disbursed to Seller.

For the purpose of satisfying any claims for indemnification made by Purchaser or Axtive pursuant to ARTICLE VII, the number of Escrow Shares shall be determined based upon the Axtive Share Value (and rounded to the nearest whole share). Notwithstanding anything to the contrary in this Agreement, in the event of any conflict between the terms of this Agreement and the terms of the Escrow Agreement, the terms of the Escrow Agreement shall be controlling for all purposes.

3.4 Substitute Consideration. If Axtive or Purchaser shall enter into an agreement or agreements to purchase, on or before the Closing (the “Preferred Purchase”), shares of Preferred Stock (the “Preferred Purchase Shares”) from one or more Preferred Shareholders (the

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“Preferred Purchase Shareholders”) for consideration consisting of shares of Axtive Common Stock (the “Preferred Purchase Consideration”), and provided Axtive or Purchaser shall deliver to Shareholder at the Closing (a) the certificates representing the Preferred Purchased Shares for cancellation and (b) a Preferred Release duly executed by each of the Preferred Purchase Shareholders (collectively, the “Substitute Consideration”), the Stock Consideration shall be reduced by an amount equal to the Preferred Purchase Consideration and the Substitute Consideration shall be included as part of the Purchase Price delivered to Seller at Closing; provided, however, that (a) the Preferred Purchase Consideration to be paid to any Preferred Shareholder divided by the number of Preferred Purchase Shares to be purchased from such Preferred Shareholder shall not be greater than (b) the aggregate consideration that may be offered prior to the Closing by Shareholder to the Preferred Shareholders for the redemption of shares of Preferred Stock and purchase of Preferred Releases divided by the total number of shares of Preferred Stock.

3.5 Closing. The consummation of the purchase of the Assets and the other transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Gardere Wynne Sewell LLP, 1601 Elm Street, Suite 3000, Dallas, Texas 75201-4761, on February 18, 2005, and shall be effective as of 6:30 p.m., Central Time, on such date, or at such other time and date as Purchaser and Seller may mutually agree, which in no event shall be later than three Business Days following the satisfaction of the final condition to Closing under ARTICLE IX, which date and time shall be referred to as the “Closing Date.”

3.6 Closing Adjustments.

(a) If the total amount of Accounts Receivable (net of reserves for bad debts and service charges) as set forth on Supplemental Schedule 4.9 exceeds $1,500,000, then the Cash Consideration shall be increased dollar-for-dollar by such excess, up to a maximum increase of $500,000 (subject to Section 3.6(b)(i)).

(b) In addition to the adjustment in Section 3.6(a), if the total amount of Accounts Receivable (net of reserves for bad debts and service charges) as set forth on Supplemental Schedule 4.9 exceeds $2,100,000 (such excess being referred to herein as the “Accounts Receivable Surplus”), then the Cash Consideration shall be increased on a dollar-for-dollar basis by such Accounts Receivable Surplus (the “Additional Cash Consideration”).

(c) The calculations pursuant to Section 3.6 shall be set forth in Schedule 3.6 and delivered by Purchaser to Seller the first Business Day preceding the Closing.

3.7 Payment of Additional Cash Consideration.

(a) If there is an Accounts Receivable Surplus, at such time as Purchaser (or Axtive on behalf of Purchaser) has collected cash proceeds from the Accounts Receivable in an amount in excess of $2,100,000, Purchaser (or Axtive on behalf of Purchaser) shall pay any such excess collections amount to Seller within two Business Days of the collection until such time as the Additional Cash Consideration has been paid in full to Seller.

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(b) If the Additional Cash Consideration has not been paid in full to Seller within 30 days after the Closing Date, Purchaser (or Axtive on behalf of Purchaser) shall pay any remaining balance of the Additional Cash Consideration to Seller on the 30th day after the Closing Date (or if such date is not a Business Day, on the first Business Day immediately following such date)

(c) Neither Axtive nor Purchaser shall have any right to offset or reduce the Additional Cash Consideration for any purpose whatsoever.

(d) If there is an Accounts Receivable Surplus, Purchaser shall deliver a weekly report to Seller during the 30 days following the Closing Date (beginning with the first full week following the Closing Date), which shall consist of an update of Supplemental Schedule 4.9 reflecting the amount of cash proceeds received with respect to each Account Receivable, the date of receipt thereof, the total amount of cash proceeds collected from the Accounts Receivable, and, once such total amount of cash proceeds collected exceeds $2,100,000, the date of payment of such excess collections to Seller, up to the amount of the Additional Cash Consideration.

3.8 Allocation of Purchase Price. The manner in which the Purchase Price and the Assumed Liabilities shall be allocated among the Assets and set forth in Schedule 3.7(d). Axtive, Purchaser, Seller, and Shareholder agree that they shall not take any position or action inconsistent with such allocation in the filing of any federal income tax returns.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF

SELLER AND SHAREHOLDER

Subject to the qualifications and exceptions set forth in the Schedules with respect to this ARTICLE IV, Seller and Shareholder, jointly and severally, represent and warrant to Purchaser and Axtive as follows:

4.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Texas and has the requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as now conducted. Seller is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction listed in Schedule 4.1, which is each jurisdiction in which the ownership of its properties, the employment of its personnel, or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not reasonably be expected to have a material adverse effect on Seller, its assets, properties, or financial condition (a “Material Adverse Effect”).

4.2 Power, Authorization, and Validity.

(a) Each of Seller and Shareholder has the requisite corporate right, power, legal capacity, and authority to enter into and perform its obligations under this Agreement and all agreements to which Seller or Shareholder is or will be a party as contemplated by this

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Agreement (the “Seller Ancillary Agreements”). The execution, delivery, and performance of this Agreement and the Seller Ancillary Agreements by Seller have been duly and validly approved by Seller’s board of directors and Shareholder, as required by applicable Law. The execution, delivery, and performance of this Agreement and the Seller Ancillary Agreements (to which Shareholder is a party) by Shareholder have been duly and validly approved by Shareholder’s board of directors. No additional corporate proceedings on the part of Seller or Shareholder are necessary to authorize the execution and delivery of this Agreement and the Seller Ancillary Agreements and the consummation by Seller and Shareholder of the transactions contemplated hereby and thereby.

(b) Except for the Seller Required Consents, no filing, authorization, approval, or consent, governmental or otherwise, is necessary to enable Seller or Shareholder to enter into, and to perform their respective obligations under, this Agreement and the Seller Ancillary Agreements.

(c) This Agreement has been duly and validly executed and delivered by Seller and Shareholder. Assuming the due authorization, execution, and delivery thereof by Axtive and Purchaser, this Agreement constitutes, and the Seller Ancillary Agreements, when executed and delivered by Seller and Shareholder, will constitute, valid, and binding obligations of Seller and Shareholder, as the case may be, enforceable against each of them in accordance with their respective terms, except as to the effect, if any, of:

(i) applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws affecting the rights of creditors generally;

(ii) rules of Law governing specific performance, injunctive relief, and other equitable remedies; and

(iii) any rights to indemnification being limited under applicable securities Laws.

provided, however, that the Axtive Ancillary Agreements will not be effective until the earlier of the date set forth therein or the Closing Date.

4.3 Capitalization.

(a) Authorized/Outstanding Capital Stock. The authorized capital stock of Seller consists solely of 1,000 shares of common stock, $1.00 par value per share, of which 1,000 shares are issued and outstanding as of the date of this Agreement, and all of which issued and outstanding shares are held of record and beneficially owned by Shareholder.

(b) Options; Rights. There are none of the following applicable to any of Seller’s outstanding securities: (i) stock appreciation rights, options, warrants, conversion privileges, or preemptive or other rights or agreements of any kind outstanding to purchase or otherwise acquire any of Seller’s authorized but unissued capital stock; (ii) options, warrants, conversion privileges, or preemptive or other rights or agreements

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outstanding to which Seller or Shareholder is a party involving the purchase or other acquisition of any share of Seller’s capital stock; (iii) liabilities for dividends accrued but unpaid; or (iv) voting agreements, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and state securities Laws).

4.4 Subsidiaries. Seller does not own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into or exchangeable for capital stock or any other equity interest in any corporation, association, or other business entity. Seller is not, directly or indirectly, an equity owner of or equity participant in any joint venture, limited liability company, partnership, or other noncorporate entity.

4.5 No Violation of Existing Agreements.

(a) Neither the execution and delivery of this Agreement or any Seller Ancillary Agreement by Seller or Shareholder, nor the consummation of the transactions provided for herein or therein, will conflict with, result in the creation of any Encumbrance, other than a Permitted Encumbrance, upon any of the properties or assets of Seller under or (with or without notice or lapse of time, or both) result in a termination or right of termination, breach, default, violation, acceleration of performance, or right of acceleration of performance of:

(i) any provision of the Articles of Incorporation or Bylaws of Seller, as currently in effect;

(ii) any material instrument or contract to which Seller or Shareholder is a party or by which Seller or any of its properties or assets may be bound or affected; or

(iii) any Laws applicable to Seller or Shareholder or any of the properties or assets of Seller or Shareholder and that would have a Material Adverse Effect.

(b) The consummation of the Asset Purchase and the transactions contemplated hereby by Seller and Shareholder will not require the consent of any third party, other than as set forth in Schedule 4.5 (the “Seller Required Consents”).

4.6 Litigation; Legal Impediments. Except as set forth in Schedule 4.6:

(a) There is no claim, action, suit, proceeding, or, to the knowledge of Seller, investigation (including any product liability, warranty or similar claim, action, suit, proceeding, or, to the knowledge of Seller, investigation) that has been asserted against Seller since December 31, 2003, other than as set forth in the Seller Financial Statements, pending or, to the knowledge of Seller, threatened against or affecting Seller, at law or in equity, before any Governmental Authority. No written notice of any claim, action, suit, proceeding, or investigation, whether pending or threatened, has been received by Seller and, to the knowledge of Seller, there is no basis therefor.

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(b) There is no order, decree, or ruling by any Governmental Authority or, to the knowledge of Seller, threat thereof that would prohibit or render illegal the transactions provided for in this Agreement.

(c) There is no litigation or proceeding pending or, to the knowledge of Seller, threatened that would have the probable effect of enjoining or preventing the consummation of any of the transactions provided for in this Agreement.

4.7 Seller Financial Statements; Books and Records

(a) Seller has delivered to Purchaser complete and correct copies of the following consolidated financial statements, which are attached to Schedule 4.7 (the “Seller Financial Statements”).

(i) the unaudited balance sheets of Seller as of December 31, 2002 and 2003 and the related unaudited statements of operations for the two-year period ended December 31, 2003 (the “Year-End Financial Statements”); and

(ii) the unaudited balance sheet (the “Interim Balance Sheet”) of Seller as of October 31, 2004 (the “Balance Sheet Date”) and the related unaudited statement of operations for the interim period ended on the Balance Sheet Date (such Interim Balance Sheet, the related statement of operations are referred to herein as the “Interim Financial Statements”).

(b) The Seller Financial Statements have been prepared on an accrual basis and, in all material respects, are in accordance with GAAP (except for the absence of notes) and fairly and accurately represent the financial condition of Seller at the respective dates specified therein and the results of operations for the respective periods specified therein. The Seller Financial Statements reflect all material transactions of the business of Seller during the periods covered thereby consistent with the basis of accounting historically used by Seller, and all documentation that is necessary to support such transactions is maintained by Seller.

(c) Seller maintains accurate books, records, and accounts reflecting its assets and liabilities that:

(i) are in all material respects true and complete;

(ii) have been maintained in accordance with reasonable business practices on a basis consistent with prior years; and

(iii) accurately and fairly reflect in all material respects the basis for the Seller Financial Statements.

(d) Except as set forth in Schedule 4.7, to the knowledge of Seller, Seller maintains proper and adequate internal control over financial reporting that provides assurance that:

(i) transactions are executed with management’s authorization;

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(ii) transactions, including disposition of assets of Seller, are recorded as necessary to permit preparation of Seller’s financial statements, including accurately and fairly reflecting, in all material respects, such transactions, and to maintain accountability for Seller’s assets;

(iii) access to Seller’s assets is permitted only in accordance with management’s authorization;

(iv) the reporting of Seller’s assets is compared with existing assets at regular intervals; and

(v) accounts, notes, and other receivables and inventory are recorded accurately and proper and adequate procedures are implemented to collect them on timely basis.

4.8 Liabilities and Obligations. Except as set forth in Schedule 4.8, Seller has no material debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or disclosed in the Seller Financial Statements, including any liability or obligation with respect to credits, rebates, or similar items owed, or claimed to be owed, by Seller to a customer. Schedule 4.8 contains a reasonable estimate by Seller and Shareholder of the maximum amount that may be payable with respect to material liabilities included in the Assumed Liabilities that are not fixed. For each such liability for which the amount is not fixed or is contested, Seller has provided a summary description of the liability together with copies of all relevant documentation relating thereto. Attached to Schedule 4.8 is an accurate schedule of the Assumed Liabilities, including (a) with respect to any Seller indebtedness for borrowed money, a detailed debt schedule setting forth information as of the date hereof including outstanding principal amounts, accrued interest, interest rates, account and creditor information, and applicable prepayment penalties, and (b) an accurate list of the trade accounts payable of Seller as of the Balance Sheet Date, including (i) the amount and the identity of the payee and (ii) the applicable invoice number or similar identifying information, the date of the invoice or other basis for payment, the payment due date, and any accrued interest or penalties (provided, that the information set forth in clause (ii) may be provided by providing Purchaser with a copy of each invoice or other documentary evidence of the trade accounts payable). Such schedule of the Assumed Liabilities shall be updated as Supplemental Schedule 4.8 as of the second Business Day preceding the Closing Date and provided to Purchaser on the first Business Day preceding the Closing Date.

4.9 Accounts and Notes Receivable.

(a) Schedule 4.9 sets forth an accurate list of the Accounts Receivable as of the Balance Sheet Date, including any such amounts that are not reflected in the Interim Balance Sheet. With respect to each Account Receivable, Schedule 4.9 shall reflect (i) the invoice number, (ii) the customer name, (iii) the amount of such invoice, and (iv) an accurate aging of the receivable based on 30-day aging categories. Schedule 4.9 shall also reflect the amount of reserves for bad debts and service charges with respect to the

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Accounts Receivable. Receivables from and advances to employees, Shareholder, and any entities or persons related to or Affiliates of Shareholder are separately identified in Schedule 4.9. Such list of the Accounts Receivable shall be updated as Supplemental Schedule 4.9 as of the second Business Day preceding the Closing Date and provided to Purchaser on the first Business Day preceding the Closing Date.

(b) Except as set forth in Schedule 4.9, the accounts receivable set forth in Schedule 4.9 represent valid and bona fide sales to third parties incurred in the ordinary course of business, subject to no defenses, set-offs, or counterclaims other than those resulting from applicable insolvency or similar Laws and are collectible in the amounts shown on Schedule 4.9 net of reserves reflected in the Interim Financial Statements with respect to the accounts receivable as of the Balance Sheet Date, and net of reserves reflected in the books and records of Seller (consistent with the methods used in the Seller Financial Statements) with respect to accounts receivables of Seller after the Balance Sheet Date.

4.10 Assets.

(a) Seller owns and, in the case of real property, has good and marketable title to, or, in the case of assets being leased, valid leasehold interests in, all of the Assets, including the assets as shown on the Interim Balance Sheet, free and clear of all Encumbrances (other than for Taxes not yet due and payable and Permitted Encumbrances), other than such material assets set forth in Schedule 4.10 as were sold by Seller in the ordinary course of business since the Balance Sheet Date or which are subject to capitalized leases. Except as set forth in Schedule 4.10, there are no UCC financing statements of record naming Seller as debtor.

(b) Schedule 4.10 sets forth an accurate list of all real and personal property included in “property and equipment” on the Interim Balance Sheet and all other tangible assets of Seller with a book value in excess of $1,000 (i) owned by Seller as of the Balance Sheet Date or (ii) acquired since the Balance Sheet Date.

(c) Except as specifically described in Schedule 4.10, the tangible and intangible assets of Seller include all the assets used in the operation of the business of Seller as conducted at the Balance Sheet Date, except for dispositions of assets since such date in the ordinary course of business, consistent with past practices.

(d) Schedule 4.10 contains true, complete, and correct copies of all title reports and title insurance policies received or owned by Seller.

(e) Except as set forth in Schedule 4.10, all leases of real or personal property to which Seller is a party are in full force and effect and afford Seller peaceful and undisturbed possession of the subject matter of the lease. Seller has provided Purchaser with true, correct, and complete copies of all such leases.

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4.11 Agreements and Commitments.

(a) Identification of Agreements and Commitments. Except as set forth in Schedule 4.11(a), or as listed in any Schedule set forth in Section 4.13 or Section 4.17, Seller is not a party or subject to any oral or written agreement, obligation, or commitment that is material to Seller, its financial condition, business, or prospects or which is described below:

(i) any contract, commitment, letter agreement, quotation or purchase order providing for payments by or to Seller in an aggregate amount of

(A) $50,000 or more in the ordinary course of business; or

(B) $10,000 or more not in the ordinary course of business;

(ii) any Government Contract;

(iii) any license agreement as licensor (except for any nonexclusive software license granted by Seller to end-user customers where the form of the license, excluding standard immaterial deviations, has been provided to Purchaser);

(iv) any agreement by Seller to encumber, transfer, or sell rights in or with respect to any Seller Intellectual Property;

(v) any agreement for the sale or lease of real or personal property involving more than $2,500 per year;

(vi) any dealer, distributor, sales representative, original equipment manufacturer, value added remarketer, or other agreement for the distribution of products of Seller;

(vii) any franchise agreement or financing statement;

(viii) any stock redemption or purchase agreement;

(ix) any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons;

(x) any instrument evidencing indebtedness for borrowed money by way of direct loan, sale of debt securities, purchase money obligations, conditional sale, guarantee, or otherwise, except for trade indebtedness or any advance to any employee of Seller incurred or made in the ordinary course of business, and except as disclosed in the Seller Financial Statements; or

(xi) any agreement containing covenants purporting to limit the freedom of Seller to compete in any line of business in any geographic area or solicit employees or obligating Seller to maintain the confidentiality of information.

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(b) Validity of Agreements and Commitments. All agreements, obligations, and commitments listed in Schedule 4.11(a) or any Schedule set forth in Section 4.13 or Section 4.17, as the case may be, are valid and in full force and effect in all material respects, and except as set forth in Schedule 4.11(a), a true and complete copy of each has been delivered or been made available to Axtive or its counsel. Except as noted on Schedule 4.11(a), to the knowledge of Seller, Seller is in compliance with all, and is not in breach of or default under any, material terms of any such agreement, obligation, or commitment. No notice of default under such agreements has been received by Seller, and Seller is not aware of any basis therefor. With respect to any lease of real or personal property, except as set forth in Schedule 4.11(a), Seller has made all lease payments when due or within any applicable grace period. Seller is not a party to any contract or arrangement that it reasonably expects will have a Material Adverse Effect.

(c) Bids and Proposals. Schedule 4.11(c) sets forth a summary of each outstanding bid or proposal by Seller.

(d) Government Contracts.

(i) Except as set forth in Schedule 4.11(d), with respect to each Government Contract or Government Bid to which Seller is a party: (A) all representations and certifications made by Seller were accurate in all material respects as of their effective date, and Seller has fully complied with such representations and certifications in all material respects; (B) to the knowledge of Seller, no material termination or default, cure notice, or show cause notice has been issued and remains unresolved, and no material event, condition, or omission has occurred or exists that would constitute grounds for such action; (C) neither a Governmental Authority nor any prime contractor, subcontractor, vendor, or other third party has notified Seller in writing that Seller has breached or violated any applicable Law; and (D) to the knowledge of Seller, no money due to Seller has been withheld or set off.

(ii) Except as set forth in Schedule 4.11(d): (A) to the knowledge of Seller, none of the officers, employees, Affiliates, consultants, agents, or representatives of Seller is (or during the last four years has been) under any administrative, civil, or criminal investigation or indictment by any Governmental Authority with respect to the conduct of the business of Seller; (B) to the knowledge of Seller, there is no pending audit or investigation of Seller or any of its officers, employees, Affiliates, consultants, agents, or representatives resulting in any material adverse finding with respect to any material alleged irregularity, misstatement or omission arising under or relating to any Government Contract or Government Bid; (C) to the knowledge of Seller, no cost incurred by Seller pertaining to any Government Contract or Government Bid is the subject of an investigation or has been disallowed by a Governmental Authority; and (D) during the last four years, Seller has not made any voluntary

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disclosure to any Governmental Authority with respect to any material alleged irregularity, misstatement, or omission arising under or relating to any Government Contract or Government Bid.

(iii) Except as set forth in Schedule 4.11(d), with respect to each Government Contract and bid or proposal in response to a solicitation with respect to a Government Bid to which Seller is a party, there are, to the knowledge of Seller: (A) no outstanding claims against Seller, either by a Governmental Authority or any prime contractor, subcontractor, vendor, or other third party; and (B) no outstanding disputes between Seller, on the one hand, and any Governmental Authority, on the other hand. Except as disclosed in Schedule 4.11(d), to the knowledge of Seller, no event, condition, or omission has occurred that would constitute grounds for a claim or a dispute under clauses (A) or (B) of the immediately preceding sentence. Except as disclosed in Schedule 4.11(d), to the knowledge of Seller, Seller has no interest in any pending or potential claim under the Contract Disputes Act against any Governmental Authority of the U.S. government or any prime contractor, subcontractor, or vendor arising under or relating to any Government Contract or Government Bid.

(iv) Except as disclosed in Schedule 4.11(d), to the knowledge of Seller, none of Seller or any of its officers, employees, Affiliates, consultants, agents, or representatives is (or during the last four years has been) suspended or debarred from doing business with any Governmental Authority or is (or during the last four years was) the subject of a finding of noncompliance, non-responsibility, or ineligibility for contracting with any Governmental Authority. To the knowledge of Seller, no valid basis or specific circumstances exist that with the passage of time could reasonably be expected to result in the suspension or disbarment of Seller or any of its officers, employees, Affiliates, consultants, agents, or representatives from bidding on contracts or subcontracts for or with any Governmental Authority.

(v) With respect to all Government Contracts to which Seller is a party, to the extent applicable thereto and except as set forth in Schedule 4.11(d) (and further limited to the knowledge of Seller with respect to any period prior to March 6, 2000):

(A) the rates and rate schedules submitted to any Governmental Authority of the U.S. government have been closed for all years prior to 1999;

(B) Seller is in compliance in all material respects with all national security obligations, including those specified in the National Industry Security Program Operating Manual, DOD 5220.22-M (January 1995);

(C) Seller has reached agreement with appropriate representatives of the Governmental Authority approving

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and closing all indirect costs charged to Government Contracts for each of the years in the period 1997-2001, and those years are closed;

(D) Seller is not subject to any forward pricing rate agreements;

(E) all of the product or service warranties and guarantees extended by Seller currently in effect are contained therein, there have not been any modifications to or deviations from such warranties and guarantees and no written claims, or claims threatened in writing, exist against Seller with respect to such warranties and guarantees;

(F) all reports, documents, and notices required to be filed, maintained, or furnished with or to any Governmental Authority by Seller have been so filed, maintained or furnished and all such reports, documents, and notices were complete and correct in all material respects on the date filed or furnished;

(G) Seller is not aware of any costs, in connection with any work-in-progress, with respect to which there is any reason to believe will not be covered by the current contract price;

(H) Seller is in compliance with all aspects of the Foreign Corrupt Practices Act of 1977 and the Anti-Kickback Act and, to the knowledge of Seller, there is no basis for any claim to be brought against Seller under either the Foreign Corrupt Practices Act or the Anti-Kickback Act;

(I) to the knowledge of Seller, Seller has never received a negative performance rating on any Government Contract; and

(J) to the knowledge of Seller, within the five years preceding the Closing Date, Seller has not received any notice of deficiency from any Governmental Authority in any area of service or production.

(e) Set forth on Schedule 4.11(e) is a list of all release agreements, settlement agreements, or similar agreements entered into by Seller since December 31, 2002 and on or before the date of this Agreement with respect to a claim or claims, whether pursuant to a lease, other agreement, or otherwise. A copy of each such agreement has been provided to Purchaser.

4.12 Customers and Suppliers. Schedule 4.12 contains an accurate list of all customers of Seller from and after January 1, 2003, (b) identifies the Customers as of the date of this Agreement, and (3) identifies Seller’s top five customers for the interim period ended on the

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Balance Sheet Date (the “Major Customers”). Such schedule shall be updated as Supplemental Schedule 4.12 to identify any additional Customers as of the Closing Date and provided to Purchaser on or before the Closing Date. Except as set forth in Schedule 4.12, (a) since December 31, 2003, no customer has canceled its purchases of any of Seller’s products or services or reduced its purchases thereof by 25% or more or (b) to the knowledge of Seller, none of the customers or suppliers of Seller (during the period of one year prior to the date of this Agreement) has communicated to Seller that it will cease to do business with Seller, has threatened in writing to cease to do business with Seller, or has communicated to Seller its intent to reduce its business with Seller by 25% or more. Seller is not required to provide any bonding or other financial security arrangements in any amount in connection with any transactions with any of its customers or suppliers.

4.13 Intellectual Property.

(a) Seller owns all right, title, and interest in (“Seller Owned Intellectual Property”), or, to the knowledge of Seller, has the right to use (“Seller Used Intellectual Property” and, together with the Seller Owned Intellectual Property, the “Seller Intellectual Property”), all Intellectual Property used in the conduct of the business of Seller as presently conducted. Neither Seller, nor, to the knowledge of Seller, any other person or entity, is in breach of or default under any license, contract, or legal requirement relating to the Seller Owned Intellectual Property or the Seller Used Intellectual Property. Each license of the Assigned Intellectual Property to which Seller is a party is now, and will be in the foreseeable future (through the termination date set forth therein), valid and in full force and effect.

(b) Set forth on Schedule 4.13(b) is a true and complete list of all copyrights (and any applications therefor), trademark registrations (and any applications therefor), and patents (and any applications therefor) constituting Seller Owned Intellectual Property. Seller has no knowledge of any material loss, cancellation, termination, or expiration of any such registration or patent except as set forth on Schedule 4.13(b). Seller has taken reasonable measures to protect all Seller Owned Intellectual Property. Except as set forth on Schedule 4.13(b), Seller has no knowledge of any infringement of any Seller Owned Intellectual Property by any third party. To the knowledge of Seller, the development, license, use, sale, distribution, modification, and other exploitation of the Seller Owned Intellectual Property has not infringed on or otherwise violated the rights of any other person or entity or constituted an unlawful disclosure, use, or misappropriation of the right or rights of any other person or entity.

(c) Seller possesses all right, title, and interest in and to all of the Seller Owned Intellectual Property, free and clear of any Encumbrances, other than Permitted Encumbrances, or other ownership interest of any other person or entity. Except as set forth in Schedule 4.13(c), Seller has not granted to any person or entity or obligated itself to grant to any person or entity any license, option, or other right in or with respect to any of the Seller Owned Intellectual Property, whether or not requiring payment to Seller. No person or entity has either asserted any rights in or offered to grant Seller a license or any other right of use with respect to the Seller Owned Intellectual Property. Seller has no obligation to compensate any person or entity for any development, license, use, sale,

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distribution, or modification of any of the Seller Owned Intellectual Property. None of the Seller Owned Intellectual Property was developed as part of the performance of any obligation for any person or entity other than Seller which would require the taking of any action, whether or not actually taken, in order for all rights to the Seller Owned Intellectual Property to become vested in or retained by Seller.

(d) The Seller Used Intellectual Property is listed in Schedule 4.13(d). Except as set forth in Schedule 4.13(d), Seller has obtained appropriate licensing rights to the Seller Used Intellectual Property and the use by Seller of the Seller Used Intellectual Property does not infringe the rights of the licensors of the Seller Used Intellectual Property.

(e) To the knowledge of Seller, Seller is not using any confidential information or trade secrets of any former employer of any past or present employees.

(f) To the knowledge of Seller, the business of Seller as conducted as of the date hereof, including the business of development, production, marketing, licensing, and sale of commercial products using Seller Intellectual Property and proprietary rights, does not infringe or violate any of the Intellectual Property of any other person, and Seller has not received any written or oral claim or notice of infringement or potential infringement of the intellectual property of any other person or entity.

(g) The Assigned Intellectual Property constitutes all of the Intellectual Property necessary to operate Seller’s business in the manner conducted as of the date of this Agreement.

4.14 Compliance with Laws. Except as set forth in Schedule 4.14, Seller has complied, and is and will be at the Closing Date in material compliance, with all Laws applicable to Seller or to the assets, properties and business of Seller, as such business is currently conducted, including the following Laws or all applicable Laws pertaining to:

(a) the sale, licensing, leasing, ownership, or management of Seller’s owned, leased, occupied, or licensed real or personal property, products, or technical data;

(b) employment or employment practices, terms, and conditions of employment or wages and hours;

(c) fire prevention, building standards, zoning, or other similar matters;

(d) the Export Administration Act and regulations promulgated thereunder or other Laws applicable to the export or re-export of controlled commodities or technical data;

(e) the Immigration Reform and Control Act; or

(f) the Americans with Disabilities Act.

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provided, however, that this Section 4.14 shall not apply with respect to any Law to the extent Shareholder has provided a representation and warranty elsewhere in this Agreement as to full past and present compliance by Seller with such Law.

4.15 Permits.

(a) Schedule 4.15 contains an accurate list of all material Permits of Seller. Seller has made available to Axtive for examination all Permits and all applications for Permits.

(b) Seller has received all material Permits from and has made all filings with third parties, including Governmental Authorities, that are necessary to the conduct of its business as presently conducted. Such Permits are valid, and Seller has not received any written notice that any Governmental Authority intends to cancel, terminate, or not renew any such Permit. Seller has conducted and is conducting its business in compliance with the requirements, standards, criteria, and conditions set forth in such Permits, as well as the applicable orders, approvals, and variances related thereto.

(c) To Seller’s knowledge, the Assigned Permits are all the Permits that are required by Law for Seller’s business as currently conducted and the ownership of the Assets.

4.16 Environmental Matters. Except as set forth in Schedule 4.16, (a) Seller has complied with and is in compliance, in all material respects, with all Environmental, Health and Safety Laws, including Environmental, Health and Safety Laws relating to air, water, land, and the generation, storage, use, handling, transportation, treatment, or disposal of Hazardous Substances; (b) Seller has obtained and complied, in all material respects, with all necessary permits and other approvals necessary to treat, transport, store, dispose of, and otherwise handle Hazardous Substances and has reported, to the extent required by all Environmental, Health and Safety Laws, all past and present sites owned or operated by Seller where Hazardous Substances have been treated, stored, disposed of, or otherwise handled; (c) there have been no “releases” or threats of “releases” (as defined in any Environmental, Health and Safety Laws) at, from, in, or on any property owned or operated by Seller; (d) there is no on-site or off-site location to which Seller has transported or disposed of Hazardous Substances or arranged for the transportation or disposal of Hazardous Substances which is the subject of any federal, state, local, or foreign enforcement action or any other investigation which could lead to any claim against Seller, Purchaser, or Axtive for any clean-up cost, remedial work, damage to natural resources, or personal injury, including any claim under any Environmental, Health and Safety Law; and (e) Seller has no contingent liability in connection with any release or disposal of any Hazardous Substance into the environment. None of the past or present sites owned or operated by Seller or by Seller is currently or has ever been designated as a treatment, storage, and/or disposal facility, nor has any such facility ever applied for a Permit designating it as a treatment, storage, or disposal facility, under any Environmental, Health and Safety Law.

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4.17 Employees.

(a) Except as set forth in Schedule 4.17(a), Seller has no employment contract or material consulting agreement currently in effect that is not terminable at will and if terminated would result in penalty or payment of compensation by Seller.

(b) Except as set forth in Schedule 4.17(b), Seller:

(i) has not ever been and is not now experiencing a union organizing effort;

(ii) is not subject to any collective bargaining agreement with respect to any of its employees;

(iii) is not subject to any other contract, written or oral, with any trade or labor union or similar organization that acts as its employees’ exclusive bargaining representative; and

(iv) to the knowledge of Seller, has no material current labor dispute, and Seller has no knowledge of any facts indicating that the consummation of the transactions provided for herein will have a Material Adverse Effect on its labor relations.

(c) To the knowledge of Seller, no employee of Seller is in material violation of any term of any employment contract, patent disclosure agreement, or noncompetition agreement or any other contract or agreement, or any restrictive covenant, relating to the right of any such employee to be employed by Seller or to use trade secrets or proprietary information of others. To the knowledge of Seller, the employment of any employee of Seller does not of itself subject Seller to any liability to any third party.

(d) Except as set forth in Schedule 4.17(d), Seller is not a party to any:

(i) agreement with any executive officer or other key employee of Seller

(A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Seller in the nature of any of the transactions contemplated by this Agreement, or any other business combination transaction;

(B) providing any term of employment or compensation guarantee; or

(C) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment; or

(ii) agreement or plan, including any stock option plan, stock appreciation rights plan, or stock purchase plan, any of the benefits of which will

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be materially increased, or the vesting of benefits of which will be materially accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement.

(e) A list of all employees, officers, and development consultants of Seller and their current compensation and benefits or related agreements (including base salary, incentive compensation, and commissions) as of the date of this Agreement is set forth on Schedule 4.17(e), and Seller has no knowledge that any of its key employees (each of whom is listed on Schedule 4.17(e)) intends to leave the employ of Seller.

(f) Except as set forth in Schedule 4.17(f), as of the Closing Date, there are no outstanding payment obligations due to any employee of Seller, or any claims outstanding by any employee, for accrued and unpaid wages, salaries, bonuses, pensions, severance pay, or other benefits.

(g) To the knowledge of Seller, no person or entity that was engaged by Seller or an ERISA Affiliate as an independent contractor or in any other non-employee capacity can or will be characterized or deemed to be an employee of Seller or an ERISA Affiliate under applicable Laws for any purpose whatsoever including for purposes of federal, state, and local income taxation, workers’ compensation and unemployment insurance and eligibility for the Employee Plans.

4.18 Employee Benefit Matters. Except as disclosed in Schedule 4.18:

(a) Set forth in Schedule 4.18 is a true, complete, and correct list of all Employee Plans. All the Employee Plans are being, and have been, maintained, operated. and administered in accordance with their respective terms and in compliance with all applicable laws.

(b) Neither Seller nor an ERISA Affiliate has within the past six years had an obligation to contribute to a “defined benefit plan” as defined in Section 3(35) of ERISA, a pension plan subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code, or a “multiemployer plan” as defined in Section 3(37) of ERISA. No other trade or business is, or, at any time within the past six years, has been treated, together with Seller or an ERISA Affiliate, as a single employer under Section 414 of the Code or Section 4001 of ERISA.

(c) Neither Seller nor any ERISA Affiliate has any current or future obligation or liability with respect to an Employee Plan pursuant to the provisions of a collective bargaining agreement.

(d) Purchaser will incur no liability, cost, or expense arising from, or with respect to, any Employee Plan or any other similar plan or arrangement maintained, or contributed to, by Seller or any ERISA Affiliate.

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4.19 Taxes. Except as disclosed in Schedule 4.19:

(a) Tax Returns. Seller has timely filed all requisite federal, state, local, foreign, and other Tax Returns for all taxable periods ended on or before the Closing (or the due date for filing, with any applicable extensions, has not yet run). All such Tax Returns are true, correct, and complete in all material respects and did not contain a disclosure statement under Section 6662 of the Code (or any predecessor provision or comparable provision of state, local or foreign law). Seller has not filed, nor is it required to have filed, a disclosure schedule pursuant to Section 1.6011-4T of the Treasury Regulations. Except for extensions to file Tax Returns requested in the ordinary course of business, no agreements, waivers or other arrangements exist providing for an extension of time or statutory periods of limitation with respect to any claim for, payment by, or assessment against, Seller of any Tax and no request for any such arrangements, waivers or other agreements have been made. Furthermore, no unrevoked power of attorney with respect to any Tax has been executed or filed with any Taxing Authority.

(b) Payment of Taxes. Except as set forth in Schedule 4.19(b), Seller has timely paid in full or has made adequate provision in the Financial Statements for the payment of all Taxes for which Seller is or may become liable for payment, insofar as such Taxes are, were or will be due and payable with respect to taxable periods ending on or prior to the Closing Date, or, in the case of taxable periods beginning before the Closing Date and ending after the Closing Date, with respect to the pro rata portions of such periods up to and including the Closing Date. Except as set forth in Schedule 4.19(b), Seller has duly withheld and paid or remitted all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other person or entity that required withholding under any applicable Law, including any amounts required to be withheld or collected with respect to social security, unemployment compensation, sales or use taxes, or workers’ compensation.

(c) Proceedings. Seller is not the subject of, nor has it been notified in writing, or otherwise to the knowledge of Seller and Shareholder, that it is the subject of, any action, suit or proceeding against Seller in respect of any Tax, or any examination, investigation, assessment, adjustment, audit, or other proceeding proposing any deficiency in respect of any Tax, and, to the knowledge of Seller and Shareholder, none of the foregoing has been threatened. All Tax deficiencies assessed against Seller as a result of any examination of Tax Returns of Seller have been paid or are being contested in good faith as disclosed on Schedule 4.19(c). There are no Tax liens as of the date hereof upon any of the assets or properties of Seller, except for statutory liens for Taxes not yet due or delinquent. There are no requests for ruling in respect of any Tax pending between Seller and any Taxing Authority.

(d) Provisions and Reserves. Seller has made adequate provisions on the Financial Statements for all Taxes payable by Seller for any period for which no Tax Return has yet been filed or for which Tax Returns have been filed but payment of the Tax shown to be due thereon is not yet due, including all Taxes that Seller is obligated to withhold from amounts paid or payable to or benefits conferred upon employees, creditors, and third parties. Furthermore, adequate reserves have been maintained to pay such Taxes as they are due. The unpaid Taxes of Seller will not exceed the provisions on

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the Seller Financial Statements for Taxes as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Seller in filing its Tax Returns.

(e) Foreign Persons. Seller is not a “foreign person” as that term is used in Section 1.1445-2 of the Treasury Regulations, and Seller is not a United States Real Property Holding Corporation (a “USRPHC”) within the meaning of Section 897 of the Code and was not a USRPHC on any “determination date” (as defined in Section 1.897-2(c) of the Treasury Regulations) that occurred in the five-year period preceding the Closing Date. Seller has not made any payments, is not obligated to make any payments, and is not a party to any agreement that under any circumstances could obligate it to make payments, in each case that would, separately or in the aggregate, constitute “excess parachute payments” under Section 280G of the Code. Seller has not filed a consent under Section 341(f) of the Code concerning collapsible corporations.

(f) Consolidated Group. Other than the affiliated group of which Shareholder is the common parent, Seller has not been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code, or a member of a combined, consolidated, or unitary group for state, local, or foreign Tax purposes. Seller has no liability for Taxes under Section 1.1502-6 of the Treasury Regulations (or any similar provision of state, local, or foreign law) as a member of any consolidated, combined, or unitary group. Seller has not distributed stock of another entity, nor has it had its stock distributed by another entity, in a transaction that purported to or was intended to be governed in whole or in part by Section 355 or Section 361 of the Code. No claim has been made by any Governmental Authority in any jurisdiction where Seller does not file Tax Returns that it is or may be subject to Tax by that jurisdiction. Seller has not been a personal holding company under Section 542 of the Code.

(g) Accounting Method. Seller currently utilizes the accrual method of accounting for income Tax purposes. Such method of accounting has not changed in the past four years. Seller will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date under Section 481(c) of the Code (or any corresponding or similar provision of state, local, or foreign income Tax Law), (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local, or foreign income Tax Law) executed on or prior to the Closing Date, (iii) installment sale or open transaction disposition made on or prior to the Closing Date, or (iv) prepaid amount received on or prior to the Closing Date.

(h) Other. Seller is not a party to, nor has any obligations under, any Tax allocation, sharing, or similar agreement and is not otherwise liable or obligated to indemnify any person or entity with respect to any Taxes.

(i) Records. Seller has previously provided true, correct, and complete copies of the following items to Purchaser: (i) the federal, state, foreign, and local Tax Returns of Seller for the last four fiscal years; (ii) Tax examinations; (iii) extensions of statutory

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limitations; (iv) all ruling requests, private letter rulings, revenue agent reports, information document requests and responses thereto, notices of proposed deficiencies, deficiency notices, applications for changes in method of accounting, protests, petitions, closing agreements, settlement agreements, and any similar documents submitted by, received by, or agreed to by, or on behalf of, Seller for the last four fiscal years; and (v) all record retention agreements currently in effect between Seller and any Taxing Authority.

4.20 Insurance. Copies of all insurance policies of Seller for the current policy year, all of which are in full force and effect, have been made available to Axtive or its counsel. Except as set forth in Schedule 4.20, Seller has no knowledge that any such insurance policy will not be renewed in the normal course by any insurer thereunder. Schedule 4.20 sets forth an accurate list of all claims or losses valued within the last 90 days provided by each applicable insurance company showing all workers’ compensation, property, marine, inland marine, fidelity, aviation, liability, auto, or other insurance claims relating to any event or occurrence that took place or was discovered at any time during the past two policy years. Schedule 4.20 contains the following information with respect to all insurance policies carried by Seller for each of the last five policy years: (i) insurer; (ii) type of policy; (iii) coverage period; and (iv) policy limits and deductibles, self-insured retentions, or retrospective loss limits. Except as set forth in Schedule 4.20, none of such policies are “claims made” policies. Any open claims as of the Closing Date are recoverable under such policies, except to the extent of any applicable deductible or loss retention as set forth on Schedule 4.20. Seller or Shareholder has provided Purchaser with the insurance requirements for all material current contracts with Seller’s customers. If Seller or an Affiliate provides (or has provided) self-funded coverage for Seller’s employees’ health, medical, or dental claims, Schedule 4.20 sets forth the aggregate dollar amount of claims paid by Seller or such Affiliate with respect to such coverage for each month in the two-year period prior to the date of this Agreement.

4.21 WARN Compliance. Since the Balance Sheet Date, Seller has not incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act (the “WARN Act”) or similar state Laws. Seller has not (a) closed any facilities or discontinued any operating unit with 50 or more workers; (b) laid off or terminated 33% or more of the total workforce at any single site of employment, or (c) laid off or terminated 500 or more workers at a single site of employment during the 90-day period preceding the Closing Date. Further, Seller is fully and solely responsible for any WARN Act liability or notice requirements relating to any events occurring prior to and through the Closing Date.

4.22 Absence of Certain Changes. Since the Balance Sheet Date, except as set forth in Schedule 4.22, or as otherwise contemplated by this Agreement or the Seller Ancillary Agreements, there has not been with respect to Seller:

(a) any change in the financial condition, properties, assets, liabilities business, results of operations, or prospects of Seller, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or can reasonably be expected to have a Material Adverse Effect;

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(b) except for the Asset Purchase and this Agreement, any purchase or sale or other disposition, or any agreement or other arrangement for the purchase, sale, or other disposition, of any of the properties or assets of Seller other than in the ordinary course of business;

(c) any material Encumbrance placed on any of the properties of Seller;

(d) any material obligation or liability incurred by Seller other than in the ordinary course of business;

(e) any contingent liability incurred by Seller as guarantor or surety with respect to the obligations of others;

(f) any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the properties, assets, or business, as currently conducted, of Seller;

(g) any material labor dispute or claim of material unfair labor practices, any change in the compensation payable or to become payable to any officers, employees, or agents of Seller earning compensation at an anticipated annual rate in excess of $25,000, or any bonus payment or arrangement made to or with any of such officers, employees, or agents; or any change in the compensation payable or to become payable to any of the other officers, employees, or agents of Seller other than normal annual compensation increases in accordance with past practices or any bonus payment or arrangement made to or with any of such other officers, employees or agents other than normal bonuses or other arrangements made in accordance with past practices;

(h) any material change with respect to the management, supervisory, development, or other key personnel of Seller;

(i) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to Seller or any payment or discharge of a material lien or liability of Seller;

(j) any waiver of any material rights or claims of Seller;

(k) any material breach, amendment, or termination of any material contract, agreement, Permit, or other right to which Seller is a party or any of its property is subject;

(l) any change in the authorized capital stock of Seller or in its outstanding securities or any change in Shareholder’s ownership interests in Seller or any grant of any options, warrants, calls, conversion rights, or commitments;

(m) any obligation, or material liability incurred by Seller to any of its officers, directors or shareholders, or any loans or advances made to any of its officers, directors, shareholders, or Affiliates, except normal compensation and expense allowances payable to officers; or

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(n) any other material transaction by Seller outside the ordinary course of business.

4.23 Corporate Documents. Seller has made available to Axtive for examination all documents and information with respect to Seller reasonably requested by Axtive or its legal counsel or accountants.

4.24 Certain Transactions and Agreements. Except as set forth in Schedule 4.24, no shareholder, officer or director of Seller, or a member of any officer’s or director’s immediate family:

(a) has any direct or indirect ownership or financial interest in, or is a director, officer, employee, or Affiliate of, any corporation, firm, association, or business organization that is a client, supplier, customer, lessor, lessee of Seller or that engages in a Competitive Business with Seller (except with respect to any interest in less than 1% of the outstanding voting shares of any corporation the stock of which is publicly traded on a national securities exchange, the Nasdaq Stock Market or over the counter);

(b) is directly or indirectly interested in any material contract or informal arrangement with Seller, except for compensation for services as an officer, director, or employee of Seller and except for the normal rights of a shareholder;

(c) has any interest in any property, real or personal, tangible or intangible, including inventions or any Seller Intellectual Property, used in the business of Seller, except for the normal rights of a shareholder; or

(d) has any outstanding and unpaid debt obligations due and owing from or to Seller.

4.25 Absence of Certain Business Practices. Neither Seller nor any of its Affiliates has given or offered to give anything of value to any governmental official, political party, or candidate for government office that was illegal to give or offer to give nor has it otherwise taken any action which would constitute a violation of the Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.

4.26 Bank Accounts and Powers of Attorney. Schedule 4.26 sets forth each bank, savings institution, and other financial institution with which Seller has an account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. Each person holding a power of attorney or similar grant of authority on behalf of Seller is identified on Schedule 4.26. Except as disclosed on Schedule 4.26, Seller has not given any revocable or irrevocable powers of attorney to any person, firm, corporation, or organization relating to its business for any purpose whatsoever.

4.27 No Brokers. Except as disclosed in Schedule 4.27, Seller is not obligated for the payment of fees or expenses of any investment banker, broker, or finder in connection with the origin, negotiation, or execution of this Agreement or in connection with any transaction contemplated hereby.

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4.28 Advisability of Obtaining Separate Counsel. Each of Seller and Shareholder hereby acknowledges that Axtive has advised and encouraged them to obtain separate counsel to review this Agreement and to represent Seller and Shareholder in the negotiating and closing of this Agreement and the related transactions, and further each of Seller and Shareholder represent and warrant that the decision whether to obtain such legal counsel has been made independently and in the exercise of each such party’s discretion.

4.29 No Implied Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the express understanding of Seller and Shareholder that Axtive and Purchaser are not making any representation or warranty whatsoever, express or implied, other than those representations and warranties of Axtive and Purchaser expressly set forth in this Agreement.

4.30 Disclosure. Shareholder and Seller have fully provided Axtive or its representatives with all the information that Axtive has requested in analyzing whether to consummate the Asset Purchase and the other transactions described in this Agreement. The representations and warranties of Shareholder in this Agreement, and the schedules thereto delivered to Axtive do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF AXTIVE AND PURCHASER

Axtive and Purchaser, jointly and severally, represent and warrant to Seller as follows:

5.1 Organization and Good Standing. Axtive is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Texas. Each of Axtive and Purchaser has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. Each of Axtive and Purchaser is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of its properties, the employment of its personnel or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on Axtive, its assets, properties, or financial condition taken as a whole.

5.2 Power, Authorization, and Validity.

(a) Each of Axtive and Purchaser has the requisite corporate right, power, legal capacity, and authority to enter into and perform its obligations under this Agreement and all agreements to which it is or will be a party as contemplated by this Agreement (the “Axtive Ancillary Agreements”). The execution, delivery, and performance of this Agreement and the Axtive Ancillary Agreements by Axtive and Purchaser have been duly and validly approved by the boards of directors of Axtive and Purchaser and by Axtive, as the sole shareholder of Purchaser, as required by applicable Law. No

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additional corporate proceedings on the part of Purchaser or Axtive are necessary to authorize the execution and delivery of this Agreement and the Axtive Ancillary Agreements and the consummation by Purchaser and Axtive of the transactions contemplated hereby and thereby.

(b) No filing, authorization, approval, or consent, governmental or otherwise, is necessary to enable Axtive and Purchaser to enter into, and to perform their obligations under, this Agreement and the Axtive Ancillary Agreements.

(c) This Agreement has been duly and validly executed and delivered by Axtive and Purchaser. Assuming the due authorization, execution, and delivery thereof by Seller and Shareholder, this Agreement constitutes, and the Axtive Ancillary Agreements, when executed and delivered by Axtive and/or Purchaser will constitute, valid and binding obligations of Axtive and Purchaser, as the case may be, enforceable against each of them in accordance with their respective terms, except as to the effect, if any, of:

(i) applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws affecting the rights of creditors generally;

(ii) rules of Law governing specific performance, injunctive relief, and other equitable remedies; and

(iii) any rights to indemnification being limited under applicable securities Laws;

provided, however, that the Axtive Ancillary Agreements will not be effective until the earlier of the date set forth therein or the Closing Date.

5.3 No Violation of Existing Agreements.

(a) Neither the execution and delivery of this Agreement or any Axtive Ancillary Agreement by Axtive or Purchaser, nor the consummation of the transactions provided for herein or therein, will conflict with, will result in a termination or right of termination, breach, default, violation, acceleration of performance, or right of acceleration of performance of:

(i) any provision of the Certificate or Articles of Incorporation or Bylaws of either of Axtive or Purchaser, as currently in effect;

(ii) any material instrument or contract to which Axtive or Purchaser is a party or by which Axtive or any of its properties or assets may be bound or affected; or

(iii) any Laws applicable to Axtive or Purchaser or any of the properties or assets of Axtive or Purchaser and that would have a material adverse effect on the properties, assets or business of either.

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(b) The consummation of the Asset Purchase and the transactions contemplated hereby by Axtive and Purchaser will not require the consent of any third party.

5.4 SEC Filings. Axtive has filed with the SEC all material forms, statements, reports, and documents required to be filed by it prior to the date hereof under each of the Securities Act and the Exchange Act, and the respective rules and regulations thereunder (the “SEC Filings”), (a) all of which, as amended, if applicable, complied when filed in all material respects with all applicable requirements of the appropriate Act and the rules and regulations thereunder, and (b) none of which, as amended, if applicable, contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made and at the time they were made, not misleading.

5.5 Disclosure. Axtive and Purchaser have fully provided Shareholder or its representatives with all the information that Shareholder has requested in analyzing whether to consummate the Asset Purchase and the other transactions described in this Agreement, including documents approved by Axtive’s Board of Directors with respect to the Acquisition Financing. The representations and warranties of Axtive and Purchaser in this Agreement and the schedules thereto delivered to Seller or Shareholder do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

5.6 No Implied Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the express understanding of Axtive and Purchaser that Seller and Shareholder are not making any representation or warranty whatsoever, express or implied, other than those representations and warranties of Seller and Shareholder expressly set forth in this Agreement.

5.7 No Brokers. Neither Axtive nor Purchaser is obligated for the payment of fees or expenses of any investment banker, broker, or finder in connection with the origin, negotiation, or execution of this Agreement or in connection with any transaction contemplated hereby.

5.8 Capitalization.

(a) Authorized/Outstanding Capital Stock. The authorized capital stock of Axtive consists solely of (i) 200,000,000 shares of Axtive Common Stock of which 49,392,743 shares are issued and outstanding as of the date of this Agreement and 76,807 shares are held as treasury stock, and (ii) 5,000,000 shares of preferred stock, $0.01 par value per shares, of which no shares are issued and outstanding as of the date of this Agreement.

(b) Options; Rights. Except as set forth in Schedule 5.8, there are none of the following applicable to any of Axtive’s outstanding securities: (i) stock appreciation rights, options, warrants, conversion privileges, or preemptive or other rights or agreements of any kind outstanding to purchase or otherwise acquire any of Axtive’s authorized but unissued capital stock; (ii) options, warrants, conversion privileges, or preemptive or other rights or agreements outstanding to which Purchaser or Axtive is a

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party involving the purchase or other acquisition of any share of Axtive’s capital stock; (iii) liabilities for dividends accrued but unpaid; or (iv) voting agreements, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and state securities Laws).

(c) The shares of Axtive Common Stock constituting the Stock Consideration shall be, upon issuance, validly issued, fully paid, and non-assessable.

(d) The Axtive Common Stock is publicly traded, and Axtive has no current plans to go private or otherwise take steps that would result in a trading market for the Axtive Common Stock to cease to exist.

5.9 No Material Adverse Changes. Since September 30, 2004, except as set forth in the SEC Filings, there has not been any change with respect to Axtive that could reasonably be expected to have a material adverse effect on Axtive, its assets, properties, or financial condition.

5.10 Industry Experience. Axtive acknowledges that it has experience in the staffing industry and is fully aware of the inherent risks and volatility of the staffing industry.

5.11 Financial Ability. Assuming consummation of the Asset Purchase and the Acquisition Financing, Axtive and Purchaser have the financial ability to pay all of the Assumed Liabilities (as and when they shall become due and payable) and to perform all of Purchaser’s obligations under the Assumed Contracts.

ARTICLE VI

CERTAIN COVENANTS

6.1 Access. Prior to the Closing, Seller shall provide or make available to Purchaser and Axtive and their respective representatives such additional information concerning Seller’s business and the Assets as Purchaser or Axtive reasonably request. Seller shall give Purchaser, Axtive, and their respective representatives reasonable access during normal business hours, or otherwise as mutually agreeable, to all of the facilities, books, and records of Seller, and Seller shall use commercially reasonable efforts to make its officers and employees (including all technical employees) available during normal business hours, or otherwise as mutually agreeable, to Purchaser as Purchaser or Axtive shall from time to time reasonably request. In addition, from the date of this Agreement until the Closing Date, Axtive shall provide Shareholder and its representatives with (a) any additional documents approved by Axtive’s Board of Directors with respect to the Acquisition Financing after the date of this Agreement and (b) pro forma capitalization tables reflecting the fully diluted equity capitalization of Axtive as of the Closing after giving effect to the Asset Purchase, the Acquisition Financing, and any Preferred Purchase.

6.2 Conduct of Business. From the date of this Agreement through the Closing Date, except as otherwise specifically set forth in this Agreement or disclosed in Schedule 6.2, or with the prior written consent of Purchaser, Seller shall:

(a) conduct Seller’s business in the ordinary and usual course of business and consistent with past practice;

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(b) use commercially reasonable efforts to maintain Seller’s business intact and to preserve for Purchaser Seller’s goodwill and business relationships with customers, suppliers, and others having business relationships with Seller;

(c) not make any material change in the policies affecting Seller’s business;

(d) not sell, pledge, lease, exchange, dispose of, or encumber any assets of Seller;

(e) not amend, modify, or terminate any Assumed Contract or Excluded Contract, except for purchase orders amended, modified, or terminated in the ordinary and usual course of business;

(f) not settle or compromise any claims that are Assets or Assumed Liabilities;

(g) not make any material change in any financial reporting or accounting method of Seller’s business;

(h) not enter into or amend any employment, severance, special pay arrangement with respect to termination of employment, or other similar arrangements or agreements with any Seller employee;

(i) except for normal increases in the ordinary and usual course of business consistent with past practice that, in the aggregate, not materially increase benefits or compensation expenses of Seller, not increase the compensation of any Seller employee or pay any benefit or amount not required by a plan or arrangement as in effect on the Closing Date to any such person; or

(j) not authorize any of the foregoing or enter into any contract, agreement, binding commitment, or arrangement to do any of the foregoing.

6.3 Schedules.

(a) Following the date of this Agreement (except as otherwise provided herein), Seller and Shareholder shall promptly deliver to Purchaser the Schedules set forth herein, each of which shall speak as of the date of this Agreement (unless the underlying provision expressly sets forth a different date). Prior to Closing, Seller and Shareholder shall deliver to Purchaser such Supplemental Schedules as set forth in ARTICLE IV and a list of material additions to and changes from the Schedules originally delivered by Seller pursuant to this Agreement, if any. Such delivery shall not affect the accuracy of the representations and warranties of Seller as of the date hereof, except for representations and warranties that speak as a later date.

(b) Following the date of this Agreement, Purchaser and Axtive shall promptly deliver to Seller Schedule 5.8, which shall speak as of the date of this Agreement.

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(c) Purchaser and Axtive shall deliver Schedule 6.14 to Seller on the date of this Agreement.

(d) Prior to Closing, Seller and Purchaser shall mutually agree on and deliver to each other Schedule 3.6.

6.4 Further Actions; Future Cooperation; and Tax Matters

(a) Following the Closing, each of the parties hereto shall, at its own expense, execute and deliver such further documents and other papers and take such further actions as may be reasonably required or requested by the other party to carry out the provisions of this Agreement and Ancillary Agreements, to give effect to the transactions contemplated by this Agreement and the Ancillary Agreements and to assign any Assets and any Assumed Contracts to Purchaser and take all such actions as may be necessary to affect such assignments.

(b) Seller will cooperate and use its commercially reasonable efforts to have the present officers, directors, and employees of Seller cooperate with Purchaser at and after the Closing in furnishing information, evidence, testimony, and other assistance in connection with any actions, proceedings, arrangements, or disputes of any nature with respect to matters pertaining to all periods prior to the Closing. Purchaser will provide Seller with access to such of Seller’s books and records as may be reasonably requested by Seller in connection with Tax or other matters relating to periods prior to the Closing. Seller shall provide Purchaser with access to such of Seller’s books and records not included in the Assets as reasonably requested by Purchaser in connection with Tax or other matters related to Seller’s business for periods prior to the Closing. The party requesting cooperation, information, or actions under this Section 6.4(b) shall reimburse the other party for all reasonable out-of-pocket costs and expenses paid or incurred in connection therewith, which costs and expenses shall not, however, include per diem charges for employees or allocations of overhead charges.

6.5 Confidentiality of Agreement; Public Announcements. Except as provided in this Section 6.5, Seller, Shareholder, Purchaser, and Axtive agree that this Agreement (including the terms and provisions hereof), the transactions contemplated hereby and the Ancillary Agreements (including the terms and provisions thereof) shall be held in confidence and not disclosed to any third party, except to the extent disclosure or delivery of an Ancillary Agreement to a third party may be reasonably required in order to obtain the consent to or evidence the transfer of any Asset or the assumption of any Assumed Liability. Seller and Purchaser each shall not, nor shall they permit any of their respective Affiliates to, without prior consultation with the other party and such other party’s review of and written consent to any public announcement or other disclosure to a third party concerning the transactions contemplated hereby, issue any press release, make any public announcement or make any other disclosure with respect to the transactions contemplated hereby except such disclosures as may be required by applicable Law. Seller and Purchaser shall, to the extent practicable, allow the other party reasonable time to review and comment on any such required release, announcement, or disclosure in advance of its issuance and use commercially reasonable efforts in good faith to reflect the reasonable and good faith comments of such other party, provided, however, that no party shall be prevented from making any disclosure required by applicable Law at the time so required.

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6.6 Non-Disclosure of Seller Proprietary Information.

(a) Seller and Shareholder, by virtue of their involvement with and ownership interest in Seller, each recognize and acknowledge that it had and may continue to have access to confidential, proprietary, and highly sensitive information relating to the business of Seller, which are valuable, special, and unique assets of Seller (the “Seller Proprietary Information”). The Seller Proprietary Information includes information pertaining to:

(i) the identities of customers and clients with which or whom Seller does or seeks to do business, as well as the point of contact persons and decision-makers at these customers and clients, including their names, addresses, e-mail addresses, and positions;

(ii) the past or present purchasing history and the past and/or current job requirements of each past and/or existing customer and client;

(iii) the volume of business and the nature of the business relationship between Seller and its customers and clients;

(iv) the business plans and strategy of Seller, including customer or client assignments and rearrangements, sales and administrative staff expansions, marketing and sales plans and strategy, proposed adjustments in compensation of sales personnel, revenue, expense and profit projections, industry analyses, and any proposed or actual implemented technology changes;

(v) information regarding the employees and independent contractors of Seller, including their identities, skills, talents, knowledge, experience, and compensation;

(vi) the financial results and business condition of Seller;

(vii) computer programs and software developed by Seller and tailored to its needs by its employees, independent contractors, consultants, or vendors;

(viii) information relating to Seller’s engineers, designers, contractors, or persons likely to become engineers, designers, or contractors;

(ix) any past, present or future merchandise or supply sources of Seller; and

(x) system designs, procedure manuals, automated data programs, reports, and personnel procedures of Seller.

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(b) Notwithstanding the foregoing, “Seller Proprietary Information” does not include the following:

(i) information that has become publicly known through no wrongful act of the receiving party;

(ii) information that has been rightfully received from a third party authorized by the party that is the owner, creator, or compiler thereof to make such disclosure without restriction;

(iii) information that has been approved or released by written authorization of the party that is the owner, creator, or compiler thereof; or

(iv) information that is being or has been disclosed pursuant to a valid court order after a reasonable attempt has been made to notify the party that is the owner, creator, or compiler thereof.

(c) In light of the foregoing, and as a material inducement to Purchaser and Axtive to enter into this Agreement and consummate the Asset Purchase, each of Seller and Shareholder hereby agree that for a period of two years and one day after the Closing Date (such time period to be referred to hereafter as the “Post-Closing Period”) it will not use, publish, disclose, or divulge, directly or indirectly, at any time, any Seller Proprietary Information for its own benefit or for the benefit of any person, entity, or corporation other than Seller, to any person who is not then a current employee of the Purchaser, without the express, written consent of Axtive, unless such disclosure is required by Law, provided, that prior to disclosing any Seller Proprietary Information pursuant to this clause, Seller or Shareholder, as the case may be, shall, to the extent possible, give prior written notice to Purchaser and Axtive and provide Purchaser and Axtive the opportunity to contest such disclosure. To the extent that Seller or Shareholder has obligations similar to those outlined in this Section 6.6 in any other agreement with Purchaser and/or Axtive, then the terms of this Section 6.6 shall control to the extent Section 6.6 provides for a broader scope and/or longer duration of such obligations.

(d) Because of the difficulty of measuring economic losses as a result of the breach of the covenants in Section 6.6(c), because a breach of such covenants would diminish the value of the assets and business of Seller being sold pursuant to this Agreement, and because of the immediate and irreparable damage that would be caused for which Purchaser or Axtive would have no other adequate remedy, Seller and Shareholder agree that the covenants in Section 6.6(c) may be enforced against them by injunctions, restraining orders, and other equitable actions. Nothing herein shall be construed as prohibiting Purchaser or Axtive from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages.

Nothing in this Section 6.6 is intended to prevent Seller or Shareholder from conducting any business that is not a Competitive Business. In the event of a conflict or inconsistency between this Section 6.6 and ARTICLE VIII, ARTICLE VIII shall control.

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6.7 Responsibility for COBRA Continuation Health Coverage for Division Employees. If, immediately prior to the Closing, Seller maintains a health plan (or Shareholder maintains a health plan that is applicable to Seller’s employees) that is subject to continuation health coverage requirements (“Continuation Coverage”) under Section 4980B of the Code and Section 601 et seq. of ERISA (“COBRA”) or other applicable Law, Seller (or Shareholder) shall either maintain such health plan or otherwise provide Continuation Coverage under COBRA or such other applicable Law for the benefit of (a) all former employees of Seller and their eligible dependents who are receiving Continuation Coverage at the time of the Closing and (b) all Seller employees and their eligible dependents who elect Continuation Coverage as the result of termination of employment with Seller upon consummation of the transactions contemplated hereby (such individuals referred to in (a) and (b) collectively referred to as “Covered Persons”). If Seller or Shareholder, as the case may be, is unable or fails to maintain its health plan or otherwise provide Continuation Coverage for any Covered Person and, as a result, Purchaser is required under COBRA or other applicable Law to provide Continuation Coverage for such Covered Person, Seller and Shareholder, jointly and severally, shall reimburse and fully indemnify Purchaser for all Losses incurred, directly or indirectly, by Purchaser as a result of Seller’s failure to provide Continuation Coverage.

6.8 Employees.

(a) Seller shall discharge all of its obligations and liabilities to any Seller employee under any and all pay and compensation practices, and under all of the Employee Plans and under any employment agreements or terms and conditions of employment, except for such employee-related liabilities or obligations expressly set forth in Schedule 2.3. Seller shall be responsible for and shall pay all severance costs, if any, in respect of Seller employees severed on or prior to the Closing Date.

(b) Purchaser shall offer employment to each of Seller’s employees on terms and conditions satisfactory to Purchaser in its sole discretion. Purchaser shall neither assume, nor be obligated with respect to, any employee benefit plan or any policy, procedure, or practice, including payroll practices, which are or have been maintained by Seller prior to the date of Closing with respect to Seller’s employees.

(c) Seller and Shareholder will use all commercially reasonable efforts to cause all present employees of Seller to execute Axtive’s forms of assignments of copyright and other intellectual property rights, noncompetition and trade secret agreements and confidentiality agreements.

(d) Purchaser shall not assume or continue any Employee Plan or have any responsibility or liability whatsoever with respect to any Employee Plan.

6.9 Consents. Seller shall obtain the Seller Required Consents on or prior to the Closing; provided, however, that the failure to obtain any Seller Required Consent prior to the Closing shall not constitute a waiver by Purchaser of Seller’s obligations as set forth in this Section. Seller acknowledges and agrees that the disclosure of the Seller Required Consents with respect to Major Customers in Schedule 4.5(b) or any waiver of the delivery of any such Seller Required Consent on or before the Closing does not relieve Seller of any liability or obligation to

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Purchaser, including under this Section, with respect to the failure to obtain any such Seller Required Consents. With respect to any Seller Required Consent, other than with respect to a Major Customer, the delivery of which on or before the Closing is waived by Purchaser, Seller and Shareholder shall use their commercially reasonable efforts from and after the Closing to deliver such Seller Required Consents to Purchaser or Axtive, but Seller and Shareholder shall have no liability to Purchaser, including under this Section, if such Seller Required Consents are not obtained, provided that Seller and Shareholder have used commercially reasonable efforts. With respect to any real property lease with a Seller Required Consent, Seller shall use its commercially reasonable efforts to obtain such Seller Required Consent in a form of Assignment and Assumption of Lease mutually agreed upon by Purchaser and Seller, but Seller and Shareholder shall have no liability to Purchaser, including under this Section, if such Seller Required Consents are not obtained, provided that Seller and Shareholder have used commercially reasonable efforts.

6.10 Name Change. Not later than the next Business Day after the Closing Date, Seller shall cause Articles of Amendment to its Articles of Incorporation to be filed with the Secretary of State of the State of Texas to change its name that does not include the word “Datatek” or a word that is deceptively similar thereto.

6.11 Post-Closing Audit. Promptly after the Closing, Axtive shall engage KBA to perform (a) an audit (the “Post-Closing Audit”) of the Year-End Financial Statements and (b) a review of the Interim Financial Statements (the “Post-Closing Review”). Seller and Shareholder agree to use their respective best efforts to cooperate fully with KBA in connection with the Post-Closing Audit and the Post-Closing Review, including causing Shareholder’s previous and current independent auditors to cooperate fully with KBA and provide KBA with access to their respective workpapers relating to Seller.

6.12 Web Site. Within 10 Business Days following the Closing Date, Shareholder shall remove from the DCRI Web Site all references to “Datatek” and Seller’s business.

6.13 Acquisition Proposals. From the date Axtive has obtained a firm financing commitment or commitments, reasonably satisfactory to Axtive and Shareholder, for Acquisition Financing of at least $6.0 million until the earlier to occur of (a) Closing or (b) the termination of this Agreement, none of Seller, Shareholder, or any Affiliate, director, officer, employee, or representative of any of them shall, directly or indirectly, (i) solicit or initiate the submission from, or provide any information to, or participate in any discussions with, any other person or entity concerning an Acquisition Proposal, (ii) permit access by any person or entity to the Company’s premises or provide any information to any other person or entity for purposes of reviewing the Company or the Company’s assets or business in connection with any Acquisition Proposal, or (iii) enter into any oral or written agreement with any other person or entity in connection with any Acquisition Proposal or engage anyone to enter into such an agreement. Seller and Shareholder shall promptly provide written notice to Purchaser of any inquiries or expressions of interest with respect to any Acquisition Proposal received from any other person or entity during such period. Seller and Shareholder shall immediately cease and cause to be terminated any existing activities, discussions or negotiations with any persons conducted heretofore with respect to any Acquisition Proposal.

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6.14 Employment Agreements. At the Closing, Shareholder shall use commercially reasonable efforts in assisting Purchaser to enter into mutually acceptable Employment Agreements with each of the individuals identified in Schedule 6.14 to be delivered by Purchaser (collectively, the “Employment Agreements”).

6.15 Microsoft Master License Agreement. Shareholder shall enter into a Subcontract to give Purchaser the rights, as between Shareholder and Purchaser, to use the Microsoft software licenses under (i) the Microsoft Master License Agreement (which covers desktop operating systems), and (ii) from the Closing Date until the expiration of the Microsoft Master License Agreement, the Microsoft Select 5 Standard Enrollment Acceptance Letter that expired June 30, 2004 (which covers applications and server software), that are used by Seller and included in the Seller Used Intellectual Property as of the Closing (the “Datatek MS Software Licenses”). When the Microsoft Master License Agreement is scheduled for renewal by Shareholder, Shareholder shall not renew the Microsoft Master License Agreement with respect to the Datatek MS Software Licenses, and Purchaser shall be responsible for entering into one or more appropriate license agreements with Microsoft Corporation with respect to the Datatek MS Software Licenses at that time.

6.16 Release of Shareholder and Seller.

(a) With respect to the liability of Seller or Shareholder under the Datatek Consulting Purchase Agreement regarding managers’ bonuses or earn-outs, as expressly set forth in Schedule 2.3 and included as an Assumed Liability, Axtive and Purchaser shall use their respective best efforts to have Shareholder or Seller, as the case may be, released from such obligation on or before the Closing Date.

(b) Upon written request of Shareholder or Seller, Axtive and Purchaser shall use their commercially reasonable efforts to have Shareholder and Seller, as applicable, formally released from one or more obligations comprising the Assumed Liabilities.

(c) If after the expiration of 120 days after the Closing, any of the Assumed Liabilities other than trade account payables remain outstanding, Axtive and Purchase shall use their commercially reasonable best efforts to have Shareholder or Seller, as the case may be, released from each obligation comprising such Assumed Liabilities.

(d) With respect to any release pursuant to this Section 6.16, neither Axtive nor Purchaser shall have any obligation to prepare the documentation evidencing any such release, pay any fee to a third party with respect to any such release, or pay the legal fees or expenses of a third party, Shareholder, or Seller with respect to any such release.

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ARTICLE VII

INDEMNIFICATION

7.1 Indemnification by Seller and Shareholder. Seller and Shareholder hereby make the following covenants:

(a) General Indemnification. Subject to the limitations set forth in this ARTICLE VII, Seller and Shareholder covenant and agree that they will, jointly and severally, indemnify, defend, protect, and hold harmless Axtive, Purchaser, and their respective officers, directors, employees, stockholders, agents, representatives, and Affiliates and each person, if any, who controls or may control them (the “Axtive Indemnified Persons”) from and against any and all Losses as a result of or arising out of the following: (i) until the Seller Expiration Date, any breach of the representations and warranties set forth herein or in the Schedules or certificates delivered by or on behalf of Seller or Shareholder pursuant hereto; (ii) any breach, default, or nonfulfillment of any covenant or agreement on the part of Shareholder or Seller under this Agreement or any Seller Ancillary Agreement; (iii) all Taxes payable by Seller for all periods prior to and including the Closing Date (excluding such tax liabilities or obligations expressly set forth in Schedule 2.3); or (iv) the Excluded Liabilities (collectively, the “Axtive Losses”).

(b) Exclusive Remedy. The exclusive remedy of any Axtive Indemnified Person, absent fraud, for any Axtive Loss shall be pursuant to this Section 7.1. Notwithstanding the foregoing, this limitation shall not apply to equitable relief sought by Axtive with regard to the covenants of Shareholder set forth in Section 6.6 and ARTICLE VIII.

(c) Threshold Amount. Axtive Indemnified Persons shall have no claims under Section 7.1(a)(i) against Shareholder unless and until the Axtive Losses exceed $75,000 (the “Threshold Amount”), at which time all such claims may be asserted in full from the first dollar of any such Losses.

7.2 Indemnification by Axtive. Axtive hereby makes the following covenants:

(a) General Indemnification. Subject to the limitations set forth in this ARTICLE VII, Axtive covenants and agrees that it will indemnify, defend, protect and hold harmless Shareholder and his agents, representatives, Affiliates, beneficiaries and heirs and employees (the “Seller Indemnified Persons”) from and against any and all Losses as a result of or arising out of the following: (i) until the Axtive Expiration Date, any breach of the representations and warranties of Axtive or Purchaser set forth herein or in the Schedules or certificates delivered by or on behalf of Purchaser or Axtive pursuant hereto; (ii) any breach, default or nonfulfillment of any covenant or agreement on the part of Axtive or Purchaser under this Agreement or any Axtive Ancillary Agreement; (iii) all income Taxes payable by Axtive or Purchaser for periods beginning after the Closing Date; or (iv) the Assumed Liabilities (collectively, the “Seller Losses”).

(b) Exclusive Remedy. The exclusive remedy of any Seller Indemnified Person, absent fraud, for any Seller Loss shall be pursuant to this Section 7.2.

(c) Threshold Amount. Seller Indemnified Persons shall have no claims under Section 7.2(a)(i) against Axtive unless and until the Seller Losses exceed the Threshold Amount, at which time all such claims may be asserted in full from the first dollar of any such Losses.

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(d) Action by Shareholder. If two or more Seller Indemnified Persons deliver, whether separately or together, a Claim to Axtive pursuant to this Section 7.2 arising from or relating to the same or a reasonably similar matter, then Shareholder shall act on behalf of each such Seller Indemnified Person for purposes of this Section 7.2.

7.3 Third Person Claims. Promptly after any party hereto (hereinafter the “Indemnified Party”) has received notice of or has knowledge of any claim by a person not a party to this Agreement (“Third Person”), of the commencement of any action or proceeding by a Third Person that the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement, the Indemnified Party shall give to the party obligated to provide indemnification pursuant to Sections 7.1 or 7.2 (hereinafter the “Indemnifying Party”) written notice of such claim or the commencement of such action or proceeding. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel, any such matter so long as the Indemnifying Party pursues the same diligently and in good faith. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof and in any settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records, and other information reasonably requested by the Indemnifying Party and in the Indemnified Party’s possession or control. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled, at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof. The Indemnifying Party shall not settle any such Third Person claim without the consent of the Indemnified Party, unless the settlement thereof imposes no liability or obligation on, and includes a complete release from liability of, the Indemnified Party. If the Indemnifying Party desires to accept a final and complete settlement of any such Third Person claim and the Indemnified Party refuses to consent to such settlement, then the Indemnifying Party’s liability under this Section with respect to such Third Person claim shall be limited to the amount so offered in settlement by said Third Person; provided, however, that notwithstanding the foregoing, the Indemnified Party shall be entitled to refuse to consent to any such proposed settlement and the Indemnifying Party’s liability hereunder shall not be limited by the amount of the proposed settlement if such settlement does not provide for the complete release of the Indemnified Party. If, upon receiving notice, the Indemnifying Party does not timely undertake to defend such matter to which the Indemnified Party is entitled to indemnification hereunder, or fails diligently to pursue such defense, the Indemnified Party may undertake such defense through counsel of its choice, at the cost and expense of the Indemnifying Party, and the Indemnified Party may settle such matter, in its discretion, and the Indemnifying Party shall reimburse the Indemnified Party for the amount paid in such settlement and any other liabilities or expenses incurred by the Indemnified Party in connection therewith.

7.4 Non-Third Person Claims. In the event that any Indemnified Party asserts the existence of a claim giving rise to Losses (but excluding claims resulting from the assertion of liability by Third Persons), such party shall give written notice to the Indemnifying Party. Such

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written notice shall state that it is being given pursuant to this Section 7.4, specify the nature and amount of the claim asserted, and indicate the date on which such assertion shall be deemed accepted and the amount of the claim deemed a valid claim (such date to be established in accordance with the next sentence). If such Indemnifying Party, within 60 days after the mailing of notice by such Indemnified Party, shall not give written notice to such Indemnified Party announcing such Indemnifying Party’s intent to contest such assertion of such Indemnified Party, such assertion shall be deemed accepted and the amount of such claim shall be deemed a valid claim. In the event, however, that such Indemnifying Party contests such assertion of a claim by giving such written notice to the Indemnified Party within said period, then the parties shall act in good faith to reach agreement regarding such claim. In the event that litigation shall arise with respect to any such claim, the prevailing party shall be entitled to reimbursement of costs and expenses incurred in connection with such litigation including reasonable attorneys’ fees, if the parties hereto, acting in good faith, cannot reach agreement with respect to such claim within 60 days after the notice provided by the Indemnified Party.

7.5 Notice of Claim. Any written notice of a claim required under Section 7.3 or Section 7.4 shall be in writing, shall be given in accordance with Section 13.6 and shall contain the following information to the extent reasonably available to party giving the notice:

(a) The good faith estimate of the party giving the notice of the reasonably foreseeable maximum amount of the alleged Losses (which amount may be the amount of damages claimed by a Third Person in a claim); and

(b) A brief description in reasonable detail of the facts, circumstances or events giving rise to the alleged Losses based on good faith belief thereof of the party giving the notice and the basis under this Agreement for such claim, including the identity and address of any Third Person claimant (to the extent reasonably available to the party giving the notice) and copies of any formal demand, complaint or other document related to the claim.

7.6 Survival of Representations and Warranties.

(a) Representations and Warranties of Seller and Shareholder. All representations and warranties of Shareholder contained in ARTICLE IV shall survive the Closing for a period of 18 months and one day after the Closing Date (the “Seller Expiration Date”), regardless of any investigation made by or on behalf of the parties to this Agreement (except to the extent Axtive has actual knowledge of a breach of a representation and warranty at or before Closing), except that (i) the representations and warranties contained in Section 4.10(a) (assets) shall survive the Closing for the Post-Closing Period, which shall be deemed to be the Seller Expiration Date therefor, and (ii) the representations and warranties contained in Section 4.16 (environmental matters), Section 4.18 (employee benefit matters, but only with respect to Tax matters), and Section 4.19 (taxes) shall survive until such time as the applicable limitations period has run, which shall be deemed to be the Seller Expiration Date therefor. Notwithstanding the preceding provisions of this Section 7.6(a), any act or omission constituting fraud shall survive until such time as the applicable limitations period has run.

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(b) Axtive’s Representations. All representations and warranties of Axtive contained in ARTICLE V shall survive the Closing for a period of 18 months and one day after the Closing Date (the “Axtive Expiration Date”), regardless of any investigation made by or on behalf of the parties to this Agreement, except that the representations and warranties contained in Section 5.4 shall survive the Closing for the Post-Closing Period, which shall be deemed to be the Axtive Expiration Date therefor. Notwithstanding the preceding provisions of this Section 7.6(b), any act or omission constituting fraud shall survive until such time as the applicable limitations period has run.

7.7 Limitations on Indemnification.

(a) Aggregate Limitation. The aggregate indemnification obligation of Seller and Shareholder under Section 7.1 and of Axtive under Section 7.2 shall each be limited to an amount equal to $1,000,000; provided, however, that to the extent of any Axtive Losses as a result of or arising out of Section 7.1(a)(iii), the aggregate indemnification obligation of Seller and Shareholder shall be $2,000,000. Notwithstanding the foregoing, the limitations set forth in this Section 7.7(a) shall not apply to any Loss as a result of or arising from any act or omission constituting fraud.

(b) Primary Source of Recovery. The Escrow Shares shall be the first source of recovery for any Axtive Loss and the satisfaction of Seller and Shareholder’s indemnification obligations pursuant to Section 7.1.

(c) Secondary Source of Recovery. If there are any indemnification obligations of Seller and Shareholder pursuant to Section 7.1 that are not satisfied with the delivery of Escrow Shares to Axtive, Seller and Shareholder may satisfy any such indemnification obligation by the transfer to Axtive of the number of shares of Axtive Common Stock received as part of the Stock Consideration (free and clear of all liens, claims, and encumbrances) with a value equal to the amount of the indemnification obligation. The value of the shares of Axtive Common Stock for purposes of this Section 7.7(c) shall be calculated based on the Axtive Share Value.

ARTICLE VIII

NONCOMPETITION COVENANTS

8.1 Prohibited Activities.

(a) In connection with and for no additional consideration, Seller, Shareholder, and their respective Affiliates will not for a period of two years following the Closing Date (the “Noncompete Term”), without the prior written consent of Axtive, directly or indirectly, for itself or on behalf of or in conjunction with any other person, company, partnership, corporation, or business of whatever nature:

(i) engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial or advisory capacity, whether as an employee, independent contractor, consultant, advisor, representative, or agent, in any Competitive Business in the United States (the “Territory”);

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(ii) hire any person who is, at that time, an employee or consultant of Purchaser, or recruit, hire, solicit, or attempt to recruit, hire, or solicit, directly or by assisting others, any such person for the purpose or with the intent or effect of enticing such employee or consultant away from or out of the employ or contract with Purchaser; or

(iii) call upon any person or entity which is, at that time, or which has been, within one year prior to that time, a customer of Seller, Purchaser or any Affiliates of such parties within the Territory for the purpose of soliciting or selling services or products in a Competitive Business within the Territory.

(b) Notwithstanding the above, Section 8.1(a) shall not be deemed to prohibit Shareholder from acquiring, as a passive investor with no involvement in the operations of the business, not more than 1% of the capital stock of a Competitive Business the stock of which is publicly traded on a national securities exchange, the Nasdaq Stock Market, or over the counter.

8.2 Equitable Relief. Because of the difficulty of measuring economic losses to Axtive and Purchaser as a result of a breach of the covenants in this ARTICLE VIII, because a breach of such covenant would diminish the value of the assets and business of Seller being sold pursuant to this Agreement, and because of the immediate and irreparable damage that could be caused to Axtive and Purchaser for which it would have no other adequate remedy, Seller and Shareholder agree that the covenants in this ARTICLE VIII may be enforced against them by injunctions, restraining orders, and other equitable actions.

8.3 Reasonable Restraint. It is agreed by the parties hereto that the covenants in this ARTICLE VIII are necessary in terms of time, activity, and territory to protect Axtive’s and Purchaser’s interest in the assets and business being acquired pursuant to the terms of this Agreement and impose a reasonable restraint on Seller and Shareholder in light of the activities and businesses of Seller on the date of the execution of this Agreement and the current plans of Seller.

8.4 Severability; Reformation. The covenants in this ARTICLE VIII are severable and separate, and the unenforceability of any specific covenant shall not affect the continuing validity and enforceability of any other covenant. In the event any court of competent jurisdiction shall determine that the scope, time, or territorial restrictions set forth in this ARTICLE VIII are unreasonable and therefore unenforceable, then it is the intention of the parties that such restrictions be enforced to the fullest extent that the court deems reasonable and this Agreement shall thereby be reformed.

8.5 Material and Independent Covenant. Seller and Shareholder each acknowledge that its agreements and the covenants in this ARTICLE VIII are material conditions to Axtive’s and Purchaser’s agreements to execute and deliver this Agreement and to consummate the transactions contemplated hereby and that Axtive and Purchaser would not have entered into this Agreement without such covenants. All of the covenants in this ARTICLE VIII shall be construed as an agreement independent of any other provision in this Agreement.

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ARTICLE IX

CONDITIONS TO CLOSING

9.1 Conditions to Obligations of Purchaser. Except as may be waived by Purchaser in writing, the obligations of Purchaser to consummate the transactions described in this Agreement are subject to satisfaction of the following conditions:

(a) No action, suit or proceeding shall be pending or threatened before any Governmental Authority or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (i) prevent consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements, (ii) cause any of the transactions contemplated by this Agreement or the Ancillary Agreements to be rescinded following consummation, (iii) affect adversely the right of Purchaser to own the Assets, or (iv) affect adversely the right of Seller to own its assets and to operate its businesses, and no such injunction, judgment, order, decree, ruling, or charge shall be in effect.

(b) The representations and warranties of Seller and Shareholders under this Agreement and in each agreement, document, or instrument delivered pursuant hereto or in connection with the transactions described herein on or before the Closing Date shall have been true and correct in all respects on and as of the date thereof (after giving effect to the delivery of the Schedules with respect to such representations and warranties to be delivered by Seller or Shareholder as provided in Section 6.3(a)) and shall be true and correct in all respects as of and on the Closing Date, as though made on and as of the Closing Date.

(c) Each of Seller and Shareholder shall have performed in all respects the covenants, agreements, and obligations required to be performed by it under this Agreement prior to and on the Closing Date.

(d) Seller and Shareholder shall have delivered to Purchaser each of the Schedules and Supplemental Schedules to be delivered by Seller or Shareholder pursuant hereto, including as set forth in Section 6.3(a), and each such Schedule and Supplemental Schedule shall be satisfactory to Axtive, as determined in its sole but reasonable discretion.

(e) Each of Seller and Shareholder shall have delivered to Purchaser a certificate or certificates certifying that (i) each of the conditions specified above in Section 9.1(a)-(c) is satisfied in all respects, (ii) the Bylaws of each of Shareholder and Seller and the effectiveness thereof, (iii) the adoption and effectiveness of appropriate resolutions by Shareholder and each of Shareholder’s and Seller’s Board of Directors authorizing the transactions contemplated hereby and by the Seller Ancillary Agreements, together with a copy thereof, (iv) the adoption and effectiveness of

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appropriate resolutions by Shareholder authorizing the Asset Purchase, together with a copy thereof, and (v) with respect to the incumbency of the officers of Seller and Shareholder executing this Agreement and the Ancillary Agreements.

(f) Seller shall have delivered to Purchaser a certificate duly executed by Seller certifying that Seller is not a foreign person for purposes of FIRPTA.

(g) The Assets shall be free and clear of all Encumbrances, except for Permitted Encumbrances.

(h) The total amount of Accounts Receivable shall not exceed $2,200,000.

(i) The total amount of the Assumed Liabilities as set forth on Supplemental Schedule 4.8 shall not exceed the total amount of the Current Accounts Receivable (net of reserves for bad debts and service charges as set forth on Supplemental Schedule 4.9) as set forth on Supplemental Schedule 4.9.

(j) Seller shall have delivered to Purchaser or Axtive each of the Seller Required Consents, pursuant to Section 6.9 and Section 10.2, with respect to the Major Customers; provided, however, that Purchaser and Seller may mutually waive in writing, as a condition to Closing, the delivery of any such Seller Required Consent.

(k) Seller shall have delivered to Purchaser or Axtive each of the other Seller Required Consents pursuant to Section 6.9 and Section 10.2; provided, however, that Purchaser may waive in writing, as a condition to Closing, the delivery of any such Seller Required Consent.

(l) The Axtive Common Stock shall continue to be quoted for trading on the OTC Bulletin Board as of the Closing Date.

(m) Purchaser shall have received from Seller the respective items, and Seller shall have taken the actions required of it, pursuant to ARTICLE X.

(n) The Employment Agreements shall have been executed and delivered to Purchaser.

(o) Seller shall have delivered to Purchaser on or before the Closing Date (i) certificates of existence and good standing for Seller issued by the appropriate Governmental Authorities of the State of Texas and (ii) certificates of qualification or authority to do business (or similar certificates) for Seller issued by the appropriate Governmental Authorities of each other jurisdiction listed on Schedule 4.1 (each such certificate to be dated not more than five days prior to the Closing Date).

(p) Seller shall have delivered to Purchaser such other documents and instruments as Purchaser or its counsel may reasonably request in good faith to consummate the transactions described in this Agreement.

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(q) Purchaser shall have obtained Acquisition Financing of at least $6.0 million on terms and conditions satisfactory to Purchaser and Axtive.

9.2 Conditions to Obligations of Seller. Except as may be waived by Seller in writing, the obligations of Seller to consummate the transactions described in this Agreement are subject to satisfaction of the following conditions:

(a) No action, suit or proceeding shall be pending or threatened before any Governmental Authority or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (i) prevent consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements, (ii) cause any of the transactions contemplated by this Agreement or the Ancillary Agreements to be rescinded following consummation, (iii) affect adversely the right of Purchaser to own the Company Shares and to control the Company, or (iv) affect adversely the right of the Company to own its assets and to operate its businesses, and no such injunction, judgment, order, decree, ruling or charge shall be in effect.

(b) The representations and warranties of Purchaser and Axtive under this Agreement and in each agreement, document, or instrument delivered pursuant hereto or in connection with the transactions described herein on or before the Closing Date shall have been true and correct in all respects on and as of the date thereof (after giving effect to the delivery of the Schedules with respect to such representations and warranties to be delivered by Axtive or Purchaser as provided in Section 6.3(b)) and shall be true and correct in all respects as of and on the Closing Date, as though made on and as of the Closing Date.

(c) Each of Purchaser and Axtive shall have performed in all respects the covenants, agreements, and obligations required to be performed by it under this Agreement prior to and on the Closing Date.

(d) Purchaser and Axtive shall have delivered to Seller each of the Schedules and Supplemental Schedules to be delivered by Axtive or Purchaser pursuant hereto, including Schedule 5.8, and each such Schedule and Supplemental Schedule shall be satisfactory to Shareholder, as determined in its sole but reasonable discretion.

(e) Each of Purchaser and Axtive shall have delivered to Seller a certificate or certificates certifying that (i) each of the conditions specified above in Section 9.2(a)-(c) is satisfied in all respects, (ii) the Bylaws of each of Axtive and Purchaser and the effectiveness thereof, (iii) the adoption and effectiveness of appropriate resolutions by Axtive’s Board of Directors authorizing the transactions contemplated hereby and by the Axtive Ancillary Agreements, together with a copy thereof, and (iv) with respect to the incumbency of the officers of Axtive and Purchaser executing this Agreement and the Ancillary Agreements.

(f) Seller shall have delivered to Purchaser or Axtive each of the Seller Required Consents, pursuant to Section 6.9 and Section 10.2, with respect to the Major Customers; provided, however, that Purchaser and Seller may mutually waive in writing, as a condition to Closing, the delivery of any such Seller Required Consent.

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(g) The Axtive Common Stock shall continue to be quoted for trading on the OTC Bulletin Board as of the Closing Date.

(h) The total amount of Accounts Receivable shall not exceed $2,200,000.

(i) Shareholder shall have (a) redeemed, on terms satisfactory to Shareholder in its sole discretion, at least 150,000 of the Microcapital Preferred Shares, (b) received the certificates representing the redeemed Microcapital Preferred Shares for cancellation, and (c) received a Preferred Release, duly executed by each of the redeeming Preferred Shareholders; provided, however, that this condition shall be satisfied by the consummation of the Preferred Purchase consisting of at least 150,000 of the Microcapital Preferred Shares and otherwise as contemplated in Section 3.4.

(j) Seller shall have received from Purchaser the respective items, and Purchaser shall have taken the actions required of it, pursuant to ARTICLE X.

(k) Purchaser shall have delivered to Seller on or before the Closing Date certificates of existence and good standing for Axtive and Purchaser issued by the appropriate Governmental Authorities of the State of Delaware and the State of Texas, respectively (each such certificate to be dated not more than five days prior to the Closing Date).

(l) Purchaser shall have delivered to Seller such other documents and instruments as Seller or its counsel may reasonably request in good faith to consummate the transactions described in this Agreement.

ARTICLE X

ACTIONS AT CLOSING

10.1 Transfers at Closing. At Closing:

(a) Seller and Purchaser shall execute and deliver to each other a completed Bill of Sale, Receipt, and Assignment and Assumption Agreement, in the form mutually agreed upon by Purchaser and Seller, covering all of the Assets and the Assumed Liabilities, duly executed by Seller and Purchaser.

(b) Seller and Purchaser shall execute and deliver to each other a completed Assignment and Assumption of Lease, in the form mutually agreed upon by Purchaser and Seller, covering each of the real property leases for the Seller Facilities, duly executed by Seller and Purchaser.

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(c) Seller shall execute and deliver to Purchaser a completed Assignment of Trademarks, in the form mutually agreed upon by Purchaser and Seller, covering the registered trademarks or service marks included in the Assets, duly executed by Seller.

(d) Seller shall deliver to Purchaser such other articles of transfer, assignments, licenses, and such other instruments of transfer and conveyance, each duly executed by Seller, as shall be reasonably necessary or appropriate to vest in Purchaser good and indefeasible title to the Assets, free and clear of all Encumbrances other than Permitted Encumbrances and to comply with the purposes and intent of this Agreement.

(e) Seller shall deliver to Purchaser releases of all Encumbrances relating to the Assets (except for Permitted Encumbrances), duly executed by each respective lien holder.

(f) Seller or Shareholder and Axtive shall execute and deliver to each other the Registration Rights Agreement.

(g) Seller and Shareholder shall deliver to Purchaser the various certificates, instruments, and documents set forth in Section 9.1;

(h) Axtive and Purchaser shall deliver to Seller the various certificates, instruments, and documents set forth in Section 9.2;

(i) Purchaser shall deliver to Seller the Purchase Price as provided in Section 3.2.

(j) Seller or Shareholder and Purchaser shall execute and deliver to each other the Escrow Agreement.

10.2 Consents. At or before the Closing, Seller shall deliver to Purchaser or Axtive the Seller Required Consents.

ARTICLE XI

TERMINATION

11.1 Events of Termination. This Agreement may be terminated by written notice of termination at any time before the Closing Date only as follows:

(a) by mutual written agreement of Seller and Purchaser; or

(b) by either Seller or Purchaser, by giving written notice of such termination to the other party, if Closing has not occurred on or prior to February 18, 2005; provided, however, that the terminating party is not then in material breach of its obligations under this Agreement.

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11.2 Consequences of Termination. In the event of termination of this Agreement, as provided by Section 11.1, this Agreement shall have no further force or effect, except for the provisions of this Section 11.2 and Section 6.5, and such termination shall be without any liability on the part of any of the parties, their Affiliates and their respective directors, officers, or stockholders in respect of this Agreement, except for any breach of this Agreement, and termination by the other party shall be without prejudice to its rights to recover damages for any such breach by the breaching party.

ARTICLE XII

FEDERAL SECURITIES ACT RESTRICTIONS ON AXTIVE COMMON STOCK;

RESALE REGISTRATION

12.1 Compliance with Law. Shareholder acknowledge the shares of Axtive Common Stock issued in accordance with the terms of this Agreement (the “Restricted Shares”) will not be registered under the Securities Act, except as set forth in and required by the Registration Rights Agreement with respect to future registration for resale, and therefore may not be resold without compliance with the Securities Act. The Restricted Shares are being or will be acquired by Shareholder solely for its own account, for investment purposes only, and with no present intention of distributing, selling, or otherwise disposing of them in connection with a distribution. Shareholder covenants, warrants, and represents that none of the Restricted Shares will be, directly or indirectly, offered, sold, assigned, pledged, hypothecated, transferred, or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act and the rules and regulations of the SEC. Certificates representing the Restricted Shares shall bear the following legend:

The shares represented by this certificate were not issued in a transaction registered under the Securities Act of 1933, as amended (“Securities Act”), or any applicable state securities laws. The shares represented hereby have been acquired for investment and may not be sold or transferred unless such sale or transfer is covered by an effective registration statement under the Securities Act and applicable state securities laws or, in the opinion of counsel to the issuer, is exempt from the registration requirements of the Securities Act and such laws.

12.2 Economic Risk; Sophistication; Accredited Investors. Shareholder is able to bear the economic risk of an investment in the Restricted Shares and can afford to sustain a total loss of such investment. Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment and therefore has the capacity to protect its own interests in connection with the acquisition of the Restricted Shares pursuant hereto. Shareholder represents to Axtive that it is an “accredited investor,” as that term is defined in Regulation D under the Securities Act. Shareholder or its representatives have had an adequate opportunity to ask questions and receive answers from the officers of Axtive concerning, among other matters, Axtive, its management, and its business.

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12.3 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the resale of Axtive Common Stock to the public without registration, for a period of two years after the Closing, Axtive agrees to use its commercially reasonable efforts to:

(a) make and keep public information (as such terms are defined in Rule 144) regarding Axtive available;

(b) file with the SEC in a timely manner all reports and other documents required of Axtive under the Securities Act and the Exchange Act; and

(c) furnish Shareholder upon written request a written statement by Axtive as to its compliance with the reporting requirements of Rule 144, the Securities Act, and the Exchange Act, a copy of the most recent annual or quarterly report of Axtive, and such other reports and documents so filed as Shareholder may reasonably request in availing himself of any rule or regulation of the SEC allowing Shareholder to sell any such shares without registration.

12.4 Resale Registration. At the Closing, Axtive shall enter into a Registration Rights Agreement, in a form mutually agreed upon by Axtive and Seller (the “Registration Rights Agreement”), with Seller or Shareholder, which shall include customary terms and conditions and provide as follows: (a) Axtive shall prepare and file with the SEC, within five Business Days after the Filing Date, a registration statement, on Form SB-2 or such other appropriate form as may then be available for use by Axtive, covering the resale of the Restricted Securities in an offering to be made on a continuous basis pursuant to Rule 415 (or, alternatively, Axtive may include the resale of the Restricted Securities in a registration statement previously filed by Axtive with the SEC), (b) Axtive shall use its commercially reasonable efforts to cause the registration statement to be declared effective by the SEC within 60 days after the initial filing thereof, (c) if the registration statement is not filed on or prior to the date in clause (a) above or if the registration statement is not declared effective by the SEC by the 135th day following the initial filing thereof, Axtive shall pay to the holders of the Restricted Shares covered by the Registration Rights Agreement liquidated damages in an aggregate amount equal to $1,500 per day until such filing or effectiveness has occurred, and (d) the Registration Rights shall bind and inure to the benefit of the respective successors and assigns of the parties thereto, including transferees of the Restricted Shares.

ARTICLE XIII

MISCELLANEOUS

13.1 Successors and Assigns. This Agreement and the rights of the parties hereunder may not be assigned (except by operation of Law) and shall be binding upon and shall inure to the benefit of the parties hereto, the successors of Axtive, Purchaser, Seller, and Shareholder.

13.2 Entire Agreement. This Agreement (including the Schedules), and the Ancillary Agreements and other documents delivered pursuant hereto, constitute the entire agreement and understanding among Shareholder, Seller, Purchaser, and Axtive and supersede any prior

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agreement and understanding relating to the subject matter hereof, whether oral or written, including the Letter of Intent. This Agreement may be modified or amended only by a written instrument executed by Shareholder, Seller, Purchaser, and Axtive, acting through their respective officers, duly authorized by their respective boards of directors.

13.3 No Joint Venture. Nothing contained in this Agreement shall be deemed or construed as creating a joint venture or partnership among the parties. No party is by virtue of this Agreement authorized as an agent, employee, or legal representative of any other party. No party shall have the power to control the activities and operations of any other, and the parties’ status is, and at all times, shall continue to be, that of independent contractors with respect to each other. Except as provided in Section 7.2(d) with respect to Shareholder, no party shall have any power or authority to bind or commit any other. No party shall hold itself out as having any authority or relationship in contravention of this Section 13.3.

13.4 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are intended, nor shall be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, partner, or employee of any party or any other person or entity, unless specifically provided otherwise herein.

13.5 Expenses. Unless otherwise provided in the Agreement, each party shall bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to this Agreement and the transactions described herein or in connection therewith.

13.6 Notices. All notices and communications required or permitted hereunder shall be in writing and may be given by (i) depositing the same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested (which shall be deemed given upon the earlier of actual delivery or on the third Business Day following deposit in the mails), (ii) delivering the same in person or by express or overnight delivery to an officer or agent of such party (which shall be deemed given upon actual delivery), or (iii) facsimile (which shall be deemed given when it is so transmitted and the appropriate confirmation of transmittal is received). All such notices and communications shall be addressed as follows:

(a) If to Axtive or Purchaser, addressed to them at:

Axtive Corporation

5001 LBJ Freeway, Suite 275

Dallas, Texas 75244

Attn: President

Facsimile: 972-560-6383

with a copy (which shall not constitute notice) to:

Gardere Wynne Sewell LLP

1601 Elm Street, Suite 3000

Dallas, Texas 75201-4761

Attn: Randall G. Ray, Esq.

Facsimile: 214-999-3544

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(b) If to Seller or Shareholder, addressed to them at:

Diversified Corporate Resources, Inc.

10670 North Central Expressway, Suite 600

Dallas, Texas 75231

Attn: Chief Executive Officer

Facsimile: 972-960-6936

with a copy (which shall not constitute notice) to:

J. Paul Caver, Esq.

2724 Routh Street

Dallas, Texas 75201

Facsimile: 214-468-8867

or such other address as any party hereto shall specify pursuant to this Section 13.6 from time to time.

13.7 Exercise of Rights and Remedies. Except as otherwise provided herein, (i) any and all remedies expressly conferred herein upon a party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by Law on such party, and the exercise of any one remedy shall not preclude the exercise of any other, (ii) no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later, and (iii) no waiver of any single breach or default shall be deemed a waiver of any other breach or default occurring before or after that waiver.

13.8 Construction of Agreement. The language in this Agreement shall not be construed for or against either party. A reference to a Section or Schedule refers to a section in or a schedule to this Agreement, unless otherwise expressly set forth herein. The titles and headings in this Agreement are for reference purposes only and shall not in any manner limit the construction of this Agreement. For the purposes of such construction, this Agreement shall be considered as a whole.

13.9 Reformation and Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable, but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case, the validity, legality, and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

13.10 Governing Law; Venue. The laws of the State of Texas (without regard to its choice of law principles that might apply the law of another jurisdiction) shall govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties. If any action is brought with respect to injunctive relief as

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provided in Section 6.6(d) and Section 8.2 or the enforcement of an arbitrator’s order pursuant to Section 13.11, venue for such action shall be in Dallas County, Texas. Each of the parties hereto expressly submits to jurisdiction in any state or federal court located in Dallas County, Texas, and waives any claim of improper jurisdiction or lack of venue in connection with any such matter. Each party hereby agrees that such courts, as applicable, shall have in personam jurisdiction with respect to such party, and such party hereby submits to the personal jurisdiction of such courts.

13.11 Dispute Resolution. Except with respect to injunctive relief as provided in Section 6.6(d) and Section 8.2 (which relief may be sought from any court or administrative agency with jurisdiction with respect thereto), any unresolved dispute or controversy arising under or in connection with this Agreement (“Dispute”) shall be settled exclusively by arbitration in Dallas, Texas and, except as herein specifically stated, in accordance with the commercial arbitration rules of the American Arbitration Association then in effect (“AAA Rules”) then in effect. In all respects, however, these arbitration provisions shall govern over any conflicting rules that may now or hereafter be contained in the AAA Rules.

(a) Compensation of Arbitrator. Any such arbitration shall be conducted before a single arbitrator who shall be compensated for his or her services at a rate to be determined by the parties or by the American Arbitration Association, but based upon a reasonable hourly or daily consulting rate for the arbitrator if the parties are not able to agree upon his or her rate of compensation.

(b) Selection of Arbitrator. The parties shall obtain from the American Arbitration Association a list of arbitrators available to conduct the arbitration who are lawyers familiar with Texas contract law and experienced in mergers and acquisitions; provided, however, that such lawyers cannot work for a firm then performing services for either party or otherwise have a conflict of interest. The parties shall use their reasonable efforts to agree upon an arbitrator on such list to conduct the arbitration. If the parties are unable to agree upon an arbitrator, each party shall choose one person from the list of arbitrators provided by the American Arbitration Association, and the two persons so selected shall select from the list provided by the American Arbitration Association the person who shall act as the arbitrator.

(c) Burden of Proof. For any Dispute submitted to arbitration, the burden of proof shall be as it would be if the Dispute were litigated in a Texas judicial proceeding.

(d) Payment of Costs. Axtive and Shareholder shall each pay 50% of the initial compensation to be paid to the arbitrator in any such arbitration and 50% of the costs of transcripts and other normal and regular expenses of the arbitration proceedings; provided, however, that the prevailing party in any arbitration shall be entitled to an award of attorneys’ fees and costs, and all costs of arbitration, including those provided for above, shall be paid by the non-prevailing party, and the arbitrator shall be authorized to make such determinations.

(e) Award. Upon the conclusion of any arbitration proceedings hereunder, the arbitrator shall render findings of fact and conclusions of law and a written opinion

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setting forth the basis and reasons for any decision reached and shall deliver such documents to each party to this Agreement along with a signed copy of the award. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted to resolve a Dispute; provided, however, the arbitrator shall not have the authority to add to, detract from, or modify any provision hereof nor to award punitive damages to any injured party. Subject to Section 13.11(d), the arbitrator shall have the authority to order payment of damages, reimbursement of costs, including those incurred to enforce this Agreement, and payment of interest thereon to the prevailing party. A decision by the arbitrator shall be final and binding.

(f) Judgment on Award. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the subject matter thereof.

(g) Exclusive Remedy. Except as specifically otherwise provided in this Agreement, arbitration shall be the sole and exclusive remedy of the parties for any Dispute arising out of this Agreement.

13.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. Facsimile transmission of any signed original document or retransmission of any signed facsimile transmission shall be deemed the same as delivery of an original. At the request of any party, the parties will confirm facsimile transmission by signing a duplicate original document.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

AXTIVE ACQUISITION CORP.
By:	/s/ GRAHAM C. BEACHUM III
	Graham C. Beachum III
	President
AXTIVE CORPORATION.
By:	/s/ GRAHAM C. BEACHUM III
	Graham C. Beachum III
	President and Chief Operating Officer
DATATEK GROUP CORPORATION
By:	/s/ J. MICHAEL MOORE
Name:	J. Michael Moore
Title:	C. E. O.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:	/s/ J. MICHAEL MOORE
Name:	J. Michael Moore
Title:	C. E. O.

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF

AXTIVE CORPORATION

Name	State of Incorporation
UDT Consulting, Inc.	Texas
Media Resolutions, Incorporated	Texas
Virtually There, Inc.	Texas
The Visionary Group, Inc.	Texas
Visual Edge Systems, Inc.	Texas
ThinkSpark Corporation	Delaware

EX-31.1

EXHIBIT 31.1

RULE 13a-14(a)/15a-14(a) CERTIFICATIONS

I, Graham C. Beachum II, certify that:

1. I have reviewed this Form 10-KSB of Axtive Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted.]

c. Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: March 31, 2005	/s/ GRAHAM C. BEACHUM II
	Graham C. Beachum II
	Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

RULE 13a-14(a)/15a-14(a) CERTIFICATIONS

I, Stephen P. Slay, certify that:

1. I have reviewed this Form 10-KSB of Axtive Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted.]

c. Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: March 31, 2005	/s/ STEPHEN P. SLAY
	Stephen P. Slay
	Corporate Controller

EX-32.1

EXHIBIT 32.1

SECTION 1350 CERTIFICATIONS

In connection with the Annual Report of Axtive Corporation (the “Company”) on Form 10-KSB for the annual period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and dates indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ GRAHAM C. BEACHUM II	Date: March 31, 2005
Graham C. Beachum II
Chairman of the Board and Chief Executive Officer
/s/ STEPHEN P. SLAY	Date: March 31, 2005
Stephen P. Slay
Corporate Controller

These Certifications shall not be deemed to be “filed” or part of the referenced Annual Report on Form 10-KSB or incorporated by reference into any of the registrant’s filings with the Securities and Exchange Commission by implication or by any reference in any such filing to such report.