-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFnnn0FnrH5avWXWEfSj6OS7fK7csFFfsf82krtCaquocWdkC5DJFMTwaNLFg4bD n23o4gGNUsUA23c7EkCThA== 0000950137-02-003451.txt : 20020531 0000950137-02-003451.hdr.sgml : 20020531 20020531161458 ACCESSION NUMBER: 0000950137-02-003451 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020531 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVE IQ TECHNOLOGIES INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 412004369 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12401 FILM NUMBER: 02667979 BUSINESS ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 BUSINESS PHONE: 9524495000 MAIL ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 FORMER COMPANY: FORMER CONFORMED NAME: METEOR INDUSTRIES INC DATE OF NAME CHANGE: 19960313 10-Q/A 1 c69573a1e10vqza.txt AMENDMENT NO. 1 TO FORM 10-Q U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 1-12401 - ------------------------------------------------------------------------------- ACTIVE IQ TECHNOLOGIES, INC. (Exact Name of Registrant as specified in Its Charter) MINNESOTA 41-2004369 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 5720 SMETANA DRIVE, SUITE 101, MINNETONKA, MN 55343 (Address of Principal Executive Offices) 952.345.6600 (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] As of May 30, 2002, there were 11,646,345 shares of common stock, $.01 par value, outstanding. 1 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to us that is based on the current beliefs of our management as well as assumptions made by and information currently available to management, including statements related to the markets for our products, general trends in our operations or financial results, plans, expectations, estimates and beliefs. In addition, when used in this Form 10-Q, the words "may," "could," "should," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Form 10-Q with respect to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results or financial condition. Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. We undertake no obligation to update forward-looking statements. The risks identified in the section of Item 2 entitled "RISK FACTORS," among others, may impact forward-looking statements contained in this Form 10-Q. 2 ACTIVE IQ TECHNOLOGIES, INC. FORM 10-Q INDEX MARCH 31, 2002
Page ---- PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 4 Condensed Consolidated Balance Sheets - As of March 31, 2002 and December 31, 2001 4 Condensed Consolidated Statements of Operations - For the three months ended March 31, 2002 and March 31, 2001 5 Condensed Consolidated Statements of Cash Flows - For the three months ended March 31, 2002 and March 31, 2001 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
3 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) March 31, December 31, 2002 2001 ------------ ------------ ASSETS CURRENT ASSETS Cash and equivalents $ 330,601 $ 1,764,893 Accounts receivable, net 249,566 284,451 Note receivable 291,918 500,000 Inventories 54,571 60,121 Prepaid expenses 36,533 24,985 ------------ ------------ Total current assets 963,189 2,634,450 PROPERTY and EQUIPMENT, net 419,875 520,489 ACQUIRED SOFTWARE DEVELOPED, net 854,747 933,407 PREPAID ROYALTIES 1,448,597 1,500,000 OTHER ASSETS, net 48,208 74,950 GOODWILL, net 5,916,924 5,916,924 OTHER INTANGIBLES, net 1,753,896 2,048,552 ------------ ------------ $ 11,405,436 $ 13,628,772 ============ ============ LIABILITIES and SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion notes payable - shareholders $ 2,252,918 $ 2,791,521 Accounts payable 339,825 443,212 Deferred revenue 1,593,054 1,481,750 Accrued expenses 298,049 597,421 ------------ ------------ Total current liabilities 4,483,846 5,313,904 LONG-TERM SHAREHOLDERS NOTES PAYABLE, Less current portion 45,935 307,551 ------------ ------------ Total liabilities 4,529,781 5,621,455 ------------ ------------ COMMITMENTS and CONTINGENCIES SHAREHOLDERS' EQUITY Series B Convertible Preferred Stock, $1.00 par value, shares issued and outstanding are 0 and 365,000 at March 31, 2002 and December 31, 2001 -- 365,000 Common stock, $.01 par value, 39,635,000 shares authorized; 11,646,345 and 10,731,345 shares issued and outstanding 116,463 107,313 Additional paid-in capital 21,770,342 19,335,027 Stock subscriptions receivable (2,200,000) (200,000) Deferred compensation (279,772) (311,701) Warrants 1,728,687 1,633,917 Accumulated deficit (14,260,065) (12,922,239) ------------ ------------ Total shareholders' equity 6,875,655 8,007,317 ------------ ------------ $ 11,405,436 $ 13,628,772 ============ ============
See accompanying notes to condensed consolidated financial statements 4 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31, 2002 2001 ------------ ------------ REVENUES $ 1,224,314 $ 35,311 ------------ ------------ OPERATING EXPENSES: Cost of goods 497,265 -- Selling, general and administrative 1,621,498 782,311 Depreciation and amortization 422,809 188,984 Product development 44,869 198,195 Loss on disposal of assets 25,480 -- ------------ ------------ Total operating expenses 2,611,921 1,169,490 ------------ ------------ LOSS FROM OPERATIONS (1,387,607) (1,134,179) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 41,464 23,858 Other income 20,000 -- Interest expense (11,683) (5,413) ------------ ------------ Total other income 49,781 18,445 ------------ ------------ NET LOSS $ (1,337,826) $ (1,115,734) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.12) $ (0.25) ============ ============ BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 11,377,023 4,472,300 ============ ============
See accompanying notes to condensed consolidated financial statements 5 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, 2002 2001 ----------- ----------- OPERATING ACTIVITIES: Net loss $(1,337,826) $(1,115,734) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization 344,150 188,984 Deferred compensation expense 31,929 31,900 Loss on disposal of assets 71,145 -- Warrants issued to non-employee 61,020 -- Amortization of debt discount 31,272 -- Amortization of acquired software developed 78,660 -- Changes in operating assets and liabilities: Accounts receivable, net 242,968 (7,134) Inventories 5,550 -- Prepaid expenses (11,549) (15,908) Prepaid royalties 1,403 -- Other assets 26,742 (68,293) Accounts payable (103,387) 45,451 Deferred revenue 111,304 -- Accrued expenses (299,373) (20,545) ----------- ----------- Net cash used in operating activities (745,992) (961,279) ----------- ----------- INVESTING ACTIVITIES: Acquisition of Edge Technologies Incorporated -- (308,016) Purchases of property and equipment (20,025) (45,899) ----------- ----------- Net cash used in investing activities (20,025) (353,915) ----------- ----------- FINANCING ACTIVITIES: Net decrease on bank line of credit -- (2,179) Payments on short-term notes payable (1,197,740) -- Common stock repurchased and retired (63,035) -- Cash proceeds from issuance of common stock -- 1,100,000 Cash proceeds from exercise of options and warrants 142,500 -- Cash proceeds from short-term notes payable and warrants 450,000 -- ----------- ----------- Net cash provided by (used in) financing activities (668,275) 1,097,821 ----------- ----------- DECREASE IN CASH and EQUIVALENTS (1,434,292) (217,373) CASH AND EQUIVALENTS, beginning of period 1,764,893 1,349,457 ----------- ----------- CASH AND EQUIVALENTS, end of period $ 330,601 $ 1,132,084 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 1,365 $ 5,414 Non-cash financing and investing activities: Common stock issued in exchange for stock subscription receivable $ 2,000,000 $ -- Conversion of preferred stock into common stock $ 365,000 $ -- Common stock issued in acquisitions $ -- $ 933,199 Capital lease obligations $ -- $ 45,460
See accompanying notes to condensed consolidated financial statements 6 ACTIVE IQ TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 (UNAUDITED) NOTE 1 - NATURE OF BUSINESS Active IQ Technologies, Inc. ("we," "us," "our" or the "Company") provides industry-specific solutions for managing, sharing and collaborating on business information via the Web, accounting software and until March 2002, eBusiness services solutions. Through an exclusive worldwide-hosted licensing agreement with Stellent, Inc., we develop and distribute web-based content management solutions. Our hosted delivery model minimizes implementation complexities by capturing paper and electronic documents, transforms them to web-viewable formats, personalizes them based on security needs and delivers them over the Web to a broad range of users. We also offer traditional accounting and financial management software solutions through our accounting publishers of Red Wing Business Systems ("Red Wing"), Champion Business Systems ("Champion") and FMS Marketing, Inc. ("FMS") our wholly owned subsidiaries. Effective December 31, 2001, we merged FMS into Red Wing. Until March 28, 2002, we offered eBusiness applications and software solutions as part of our Epoxy Network, at which time, we granted a non-exclusive license to use and distribute our Epoxy Network to an unrelated third party. We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. On April 30, 2001, the Company, activeIQ Technologies Inc. ("Old AIQ") and a wholly owned subsidiary of the Company closed a triangular reverse merger transaction whereby Old AIQ merged with and into the Company subsidiary. Immediately prior to the merger, the Company (i) sold all of its assets relating to its petroleum and gas distribution business, (ii) was reincorporated under Minnesota law, and (iii) changed its name to Active IQ Technologies, Inc. As a result of the sale of the Company's petroleum and gas distribution assets, it discontinued all operations in the petroleum and gas distribution business and has adopted the business plan of Old AIQ. Because Old AIQ was treated as the acquiring company in the merger for accounting purposes, all financial and business information contained herein relating to periods prior to the merger is the business and financial information of Old AIQ. Old AIQ was incorporated in Minnesota on April 11, 1996, and was considered a development stage company until January 2001, when it began to recognize revenues as a result of its acquisition of Edge Technologies Incorporated. Old AIQ was formed to develop and provide eBusiness application software and services for small-to-medium sized accounting software customers. Since its inception and up through the merger, Old AIQ's efforts have been devoted to the development of its principal product and raising capital. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Statement Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K filed April 5, 2002. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year as a whole. 7 Revenue Recognition and Deferred Revenue We currently derive revenues from subscribers of our hosted solutions. We recognize monthly revenues after all of the following criteria have been met: (i) the subscriber executes a twelve month license agreement, (ii) the license fee is fixed and payable monthly over the twelve months, and (iii) the software has been delivered to the prescribed hosted server. If we do not receive the monthly license fee as described in the agreement, we have the right to terminate the agreement. Revenue related to multiple elements in the arrangement is allocated to each element based on the fair value of element, such as license fees and professional services. Fair value is determined based on vendor specific objective evidence. Through March 28, 2002, we recognized revenues from our Epoxy Network, at which time, we granted the non-exclusive rights to use and distribute our Epoxy Network to an unrelated third party. Epoxy Network subscription revenue was recognized monthly after the customer accepted the license agreement and we verified that the customer had a version of software we interfaced with. After the initial period of set up and configuration, customers were invoiced at the beginning of each month for all services subscribed to. Through our subsidiaries of Red Wing and Champion, we recognize the revenues derived from software sales after all of the following criteria have been met: (i) there is an executed license agreement, (ii) software has been delivered to the customer, (iii) the license fee is fixed and payable within twelve months, (iv) collection is deemed probable, and (v) product returns are reasonably estimable. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value is determined based on vendor specific objective evidence. Service revenue is recognized ratably over the term of the agreement, which is typically one year. All service revenue invoiced in excess of revenue recognized is recorded as deferred revenue. Net Loss per Common Share Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive. Use of Estimates Preparing financial statements in conformity with US GAAP 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 period. Actual results could differ from those estimates. Income Taxes We account for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of our assets and liabilities at currently enacted tax rates. We have recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits. Software Development Costs Effective January 1, 1999, we implemented Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Pursuant to SOP 98-1, expenditures for internal use software are expensed during the preliminary project stage. 8 Segment Reporting We sell software in the United States within the business and agricultural industries, providing similar products to similar customers. The software packages also possess similar pricing structures specific to each industry, resulting in similar long-term expected financial performance characteristics. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment. NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", effective for acquisitions initiated on or after July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations. SFAS No. 142 indicates that goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company adopted the new rules effective January 1, 2002. The Company will perform the first required goodwill impairment test during the quarter ending June 30, 2002 based on the carrying amount as of January 1, 2002. In accordance with the initial adoption of SFAS No. 142, each reporting unit with assigned goodwill will need to be valued. The Company's two reporting units include software marketed under the Red Wing Business Systems/Champion Business Systems and Edge Technologies brands. If the fair value of these reporting units is greater than the book value, including goodwill, no further testing is required. Based on the preliminary estimates of the fair value of the reporting units, the Company believes there will be no impairment charge relating to goodwill recorded on prior acquisitions. First quarter 2001 pro forma net loss, adjusted for the application of the nonamortization provisions of SFAS No. 142, would have been $980,064 (a decrease in the reported net loss of $135,670) and pro forma net loss per common share would have been $.22 per common share (versus a reported loss per share of $.25). Application of the nonamortization provisions for the entire year 2001 would have decreased the net loss by approximately $2.65 million (or $0.32 per share) and application of the nonamortization provisions for the entire year 2000 and 1999 would not have changed the reported loss of $2,840,419 and $461,981, respectively, as the Company did not record goodwill prior to January 1, 2001. The gross carrying amount of intangible assets as of December 31, 2001, totaled $2,357,248 (customer list $1,737,248 and noncompete agreements $620,000) and accumulated amortization of $308,696 (customer list $228,435 and noncompete agreements $80,261). The gross carrying amount of intangible assets as of March 31, 2002, totaled $2,357,248 (customer list $1,737,248 and noncompete agreements $620,000) and accumulated amortization of $603,352 (customer list $446,481 and noncompete agreements $156,872). The aggregate amortization expense on intangible assets was $294,656 and $0 for the quarters ended March 31, 2002 and 2001, respectively. Aggregate amortization expense for intangible assets was $319,000, $0 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. The estimated aggregate amortization expense for intangible assets is $1,178,624, $883,968, $0, $0 and $0 for each of the five succeeding years ending December 31, 2002, 2003, 2004, 2005 and 2006, respectively. There were no changes in the carrying amounts of goodwill from December 31, 2001 to March 31, 2002. NOTE 4 - NOTE RECEIVABLE We completed our merger with Old AIQ on April 30, 2001 and we entered into a note receivable in the amount of $500,000. The note is secured by a stock pledge dated April 27, 2001, pledging 1,500,000 shares of common stock of Capco Energy, Inc. We granted an extension of the due date to May 10, 2002. The note receivable accrues interest at 10% per annum. As of March 31, 2002, the remaining principal balance due was approximately $292,000. NOTE 5 - PREPAID ROYALTIES We have an application service provider software license agreement with Stellent, Inc., a shareholder of ours, which required advance royalty payments and certain minimum royalty fees. The prepaid royalties at March 31, 2002 of $1,448,597 relates to minimum royalty fees required under the agreement. (See Note 5 - Debt for a further explanation of the Stellent agreement.) NOTE 6 - DEBT Notes Payable - Shareholders Two investors in Red Wing receive monthly principal and interest payments, ranging from 7% to 8 1/2%. The investors are current employees at Red Wing. Note balances as of March 31, 2002 were $12,397 and $49,588, requiring monthly principal and interest payments of $317 and $1,267, both through December 2005. 9 Pursuant to a Stock Purchase Agreement dated June 6, 2001, we purchased all of the outstanding capital stock from the shareholders of Red Wing Business Systems, Inc. Under the agreement, we are obligated to pay a remaining $800,000 of cash in two future payments of $400,000, due June 2002 and December 2002. We are recording an imputed interest expense of 7% per annum. Pursuant to the terms of the merger agreement dated August 30, 2001 we purchased all of the outstanding capital stock from the shareholders of Champion Business Systems, Inc. Under the agreement, we are obligated to pay a remaining $750,000 in three future payments of $250,000 due on the May 18 and September 18, 2002, and on January 18, 2003. We are recording an imputed interest expense of 7% per annum. Currently, we are in discussions with these shareholders to re-negotiate the payment terms of the notes. Pursuant to the terms of the merger agreement dated October 10, 2001, we purchased all of the outstanding capital stock from the shareholders of FMS Marketing, Inc. Under the agreement, we were obligated to pay the remaining $300,000 on April 10, 2002. Currently, these notes remain outstanding as we attempt to re-negotiate the payment terms. We are recording an imputed interest expense of 7% per annum. On December 28, 2001, we entered in an application service provider (ASP) software license agreement (the "2001 ASP Agreement") with Stellent, Inc., a shareholder of ours. The 2001 ASP Agreement provides us with a three-year worldwide exclusive license to be the hosted ASP solution for Stellent's Content Management software. We agreed to pay Stellent a royalty of 20% of net receipts, as defined in the 2001 ASP License Agreement, or $500 per month per customer, whichever is greater, with an aggregate minimum royalty payment of $2,000,000. The minimum royalty was payable as follows: a credit of $500,000 from existing prepaid royalties recorded at Stellent, a payment of $500,000 was paid with the execution of the agreement and two $500,000 payments were due in September and December 2002. On March 29, 2002 we paid the balance due on the royalties and in consideration of the early payment, we received a 5% discount, or $50,000. On March 29, 2002, we borrowed $450,000 from Blake Capital Partners, LLC, an entity wholly owned by Mr. Mills who currently is a director and shareholder. The loan is evidenced by a 90-day promissory note and accrues interest at the rate of 7% annually. We used the proceeds of the loan to pay the remaining balance owed to Stellent, pursuant to the 2001 ASP Agreement discussed above. In connection with the loan, we also issued to Blake Capital Partners, LLC a 5-year warrant to purchase 25,000 shares of common stock at a price of $3.00 per share. The proceeds were allocated to the fair value of the securities issued (debt and warrant issued). NOTE 7 - SHAREHOLDERS' EQUITY Series B Convertible Preferred Stock During February 2002, all 365,000 shares of Series B Convertible Preferred Stock were converted into units, each unit consisting of one share of common stock and one warrant to purchase common stock. The warrants issued as part of the units converted are exercisable until May 15, 2005, at an exercise price of $2.50 per share. Stock Subscription Receivable In December 2000, we entered into a subscription receivable for the purchase of 100,000 shares of common stock at a price of $2.75 per share with a director of the Company. In April 2002, the receivable was paid. On January 1, 2002, we amended the employment agreement with D. Bradly Olah, our President and Chief Executive Officer. Following the amendment of his employment agreement, Mr. Olah was awarded an option to purchase an additional 500,000 shares at $4.00 per share. On January 14, 2002, Mr. Olah exercised his right to acquire all 500,000 shares subject to the option, though none had yet vested, by delivering a promissory note to us in the amount of $2,000,000 and pledging all 500,000 shares acquired as security for the repayment of the note, all in accordance with the terms of the option agreement. Mr. Olah cannot sell or otherwise transfer any of the shares acquired under this option agreement until such time as the shares would have vested in accordance with the vesting schedule provided in the option agreement and the note has been repaid. Warrant Grants During March 2002 we issued a warrant to purchase 54,000 shares of common stock at $5.50 per share to an underwriter who exercised a warrant for which he was entitled to receive 54,000 units, each unit consisting of one share of common stock and a warrant to purchase one share of common stock. The original warrant had an exercise price of $6.875 and was re-priced to $2.00 per share. We recorded an expense of $61,020 related to the exercise of the warrant using the Black-Scholes pricing model. The newly issued warrant expires on April 30, 2006. Also in March 2002, we issued a 5-year warrant to purchase 25,000 shares of common stock at $3.00 per share in conjunction with a loan from a director. We recorded $33,750 against the loan using the Black-Scholes pricing model. 10 Information regarding the Company's warrants is summarized below:
Weighted average Range of Number exercise price exercise price Outstanding at December 31, 2001 7,779,456 $ 5.28 $ 1.00 - 60.00 Granted 79,000 4.71 3.00 - 5.50 Cancelled or expired 13,500 2.43 2.43 Exercised 54,000 2.00 2.00 --------- -------- ---------------- Outstanding at March 31, 2002 7,790,956 $ 5.25 $ 1.00 - 60.00 ========= ======== ================
NOTE 8 - RELATED PARTY TRANSACTIONS On March 29, 2002, we borrowed $450,000 from Blake Capital Partners, LLC, an entity wholly owned by Wayne W. Mills who currently is a director and shareholder of the Company. The loan is evidenced by a 90-day promissory note and accrues interest at the rate of 7% annually. In connection with the loan, we also issued to Blake Capital Partners, LLC a 5-year warrant to purchase 25,000 shares of common stock at a price of $3.00 per share. NOTE 9 - SUBSEQUENT EVENT In May 2002, we received a $75,000 payment on the note receivable discussed in Note 3 above. 11 ACTIVE IQ TECHNOLOGIES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 2001. OVERVIEW Active IQ Technologies, Inc. ("we," "us," "our" or the "Company") provides industry-specific solutions for managing, sharing and collaborating on business information via the Web, accounting software and until March 2002, eBusiness services solutions. Through an exclusive worldwide-hosted licensing agreement with Stellent, Inc., we develop and distribute web-based content management solutions. Our hosted delivery model minimizes implementation complexities by capturing paper and electronic documents, transforms them to web-viewable formats, personalizes them based on security needs and delivers them over the Web to a broad range of users. We also offer traditional accounting and financial management software solutions through our accounting publishers of Red Wing Business Systems ("Red Wing") and Champion Business Systems ("Champion") our wholly owned subsidiaries. Until March 28, 2002, we offered eBusiness applications and software solutions as part of our Epoxy Network, at which time, we granted a non-exclusive license to use and distribute our Epoxy Network to an unrelated third party. We were originally incorporated under Colorado law in December 1992 under the name Meteor Industries, Inc. On April 30, 2001, the Company, activeIQ Technologies Inc. ("Old AIQ") and a wholly owned subsidiary of the Company completed a triangular reverse merger transaction whereby Old AIQ merged with and into the Company's subsidiary. Immediately prior to the merger, the Company (i) sold all of its assets relating to its petroleum and gas distribution business, (ii) was reincorporated under Minnesota law, and (iii) changed its name to Active IQ Technologies, Inc. As a result of the sale of the Company's petroleum and gas distribution assets, it discontinued all operations in the petroleum and gas distribution business and has adopted the business plan of Old AIQ. Because Old AIQ was treated as the acquiring company in the merger for accounting purposes, all financial and business information contained herein relating to periods prior to the merger is the business and financial information of Old AIQ. Old AIQ was incorporated in Minnesota on April 11, 1996, and was considered a development stage company until January 2001, when it began to recognize revenues as a result of its acquisition of Edge Technologies Incorporated. Old AIQ was formed to develop and provide eBusiness application software and services for small-to-medium sized accounting software customers. We are still developing and implementing our business plan, which will require additional financing that may not be available on acceptable terms or even at all. See Liquidity and Capital Resources. We are also subject to risks and uncertainties common to developing technology-based companies, including but not limited to: our limited operating history, the rapid technological changes, acceptance of our products, dependence on our current personnel, the ability to form and maintain strategic relationships with third-party manufacturers, security and privacy issues. 12 RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002 COMPARED TO MARCH 31, 2001. Revenues Revenues for the quarter ended March 31, 2002 were $1,224,314 compared to $35,311 for the same period in 2001. Our revenues by product line were as follows: our hosted solutions generated $57,014, the Epoxy Network generated $46,774, and $1,120,526 from Red Wing and Champion. The increase of $1,189,003 is primarily due to the acquisitions of the accounting publishers of Red Wing, Champion and FMS Marketing, Inc. ("FMS" which was subsequently merged into Red Wing). Through March 28, 2002, we recognized revenues from our Epoxy Network, at which time, we granted a non-exclusive license to use and distribute our Epoxy Network to an unrelated third party. We have retained the full ownership of the Epoxy Network code and should continue to receive insignificant royalties from the grantee. Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations will not be adequate to fund operations and service our indebtedness during the next four quarters of operations. Operating Expenses Cost of goods sold for the quarter ended March 31, 2002 were $497,265 compared to no costs for the same period in 2001. These costs include hosting fees, wages, compact discs and manuals, overhead allocation and shipping and packaging costs. The costs are primarily related to our accounting publishers operations. Selling, general and administrative expenses for the quarter ended March 31, 2002 were $1,621,498 compared to $782,311 for the same period in 2001. The $839,187 increase in selling, general and administrative expenses was primarily related to our accounting publishers operations. Depreciation and amortization expense for the quarter ended March 31, 2002 was $422,809 compared to $188,984 for the same period in 2001. Based on the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangibles" on January 1, 2002, amortization of goodwill was $0 for the quarter ended March 31, 2002 compared to $135,670 for the quarter ended March 31, 2001. Depreciation and amortization expense of property, equipment and other intangibles was $128,153 and other acquisition related intangible amortization expense was $294,656 for the quarter ended March 31, 2002. The expenses are primarily related to the acquisitions of our accounting publishers. Product development expenses for the quarter ended March 31, 2002 were $44,869 as compared to $198,195 for the same period in 2001. The decrease of $153,326 relates to the reduction in the number of software engineers we employed during 2001. As we begin to develop our hosted solutions business model, we anticipate that product development costs for the remainder of 2002 should remain consistent with 2001. On February 12, 2002, we closed our Las Vegas, Nevada office and entered into a sub-lease and received from our sub-tenant an agreement to indemnify us against claims from our sub-landlord. With this closure, we recorded a loss on disposal of assets located within this leased facility of $24,879 for the quarter ended March 31, 2002. Other Income and Expenses Our other income and expense consists of interest income, other income and interest expense. Interest income for the quarter ended March 31, 2002 was $41,464 compared to $23,858 for the same period in 2001. The $17,606 increase is due primarily to the interest we are recording relating to our note and stock subscription receivables. We expect interest income to remain at similar levels in the near future. 13 We also recorded $20,000 of other income for the quarter ended March 31, 2002, when we granted the non-exclusive rights to use and distribute our Epoxy Network to an unrelated third party. In addition, we are entitled to monthly royalty payments of 7.5% of all fees or charges accrued or received by the grantee. There are no guaranteed minimum royalties and we are entitled to receive an aggregate of $100,000 of royalty payments. No receivable has been recorded against the future royalties. Interest expense for the quarter ended March 31, 2002 was $11,683 compared to $5,413 for the same period in 2001. This expense relates primarily to the amortization of the debt discount on the non-interest bearing notes payable to the old shareholders of Red Wing, Champion and FMS. We record a 7% imputed interest expense against the notes. We expect interest expense to remain consistent over the remainder of the next three quarters. Adoption of New Accounting Standards In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", effective for acquisitions initiated on or after July 1, 2001, and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations. SFAS No. 142 indicates that goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company adopted the new rules effective January 1, 2002. The Company will perform the first required goodwill impairment test during the quarter ending June 30, 2002 based on the carrying amount as of January 1, 2002. In accordance with the initial adoption of SFAS No. 142, each reporting unit with assigned goodwill will need to be valued. The Company's two reporting units include software marketed under the Red Wing Business Systems/Champion Business Systems and Edge Technologies brands. If the fair value of these reporting units is greater than the book value, including goodwill, no further testing is required. Based on the preliminary estimates of the fair value of the reporting units, the Company believes there will be no impairment charge relating to goodwill recorded on prior acquisitions. First quarter 2001 pro forma net loss, adjusted for the application of the nonamortization provisions of SFAS No. 142, would have been $980,064 (a decrease in the reported net loss of $135,670) and pro forma net loss per common share would have been $.22 per common share (versus a reported loss per share of $.25). Application of the nonamortization provisions for the entire year 2001 would have decreased the net loss by approximately $2.65 million (or $0.32 per share) and application of the nonamortization provisions for the entire year 2000 and 1999 would not have changed the reported loss of $2,840,419 and $461,981, respectively, as the Company did not record goodwill prior to January 1, 2001. The gross carrying amount of intangible assets as of December 31, 2001, totaled $2,357,248 (customer list $1,737,248 and noncompete agreements $620,000) and accumulated amortization of $308,696 (customer list $228,435 and noncompete agreements $80,261). The gross carrying amount of intangible assets as of March 31, 2002, totaled $2,357,248 (customer list $1,737,248 and noncompete agreements $620,000) and accumulated amortization of $603,352 (customer list $446,481 and noncompete agreements $156,872). The aggregate amortization expense on intangible assets was $294,656 and $0 for the quarters ended March 31, 2002 and 2001, respectively. Aggregate amortization expense for intangible assets was $319,000, $0 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. The estimated aggregate amortization expense for intangible assets is $1,178,624, $883,968, $0, $0 and $0 for each of the five succeeding years ending December 31, 2002, 2003, 2004, 2005 and 2006, respectively. There were no changes in the carrying amounts of goodwill from December 31, 2001 to March 31, 2002. Liquidity and Capital Resources We have funded our operations and satisfied our capital expenditure requirements primarily through the sale of our common stock in private placements and the exercise of employee stock options, in addition to the cash received from our merger with Meteor Industries. Net cash used by operating activities was $745,992 for the quarter ended March 31, 2002, compared to net cash used by operating activities of $961,279 for the same period in 2001. We had a working capital deficit of $3,520,657 at March 31, 2002, compared to working capital deficit of $2,679,454 at December 31, 2001. Cash and equivalents were $330,601 at March 31, 2002, representing a decrease of $1,434,292 from the cash and equivalents of $1,764,893 at December 31, 2001. Our principal commitment consists of payments to the former shareholders at Red Wing, Champion and FMS. The remaining notes payable to Red Wing of $800,000 (two payments of $400,000 each) are due June 2002 and December 2002 and we currently are attempting to re-negotiate the terms of the June 2002 payment. The remaining notes payable to Champion of $750,000 (three payments of $250,000 each), one of which was due May 2002, and the others are due September 2002 and January 2003. Currently, we are attempting to re-negotiate the terms of the May 2002 payments. The remaining notes payable to FMS Marketing of $300,000 were due April 10, 2002. The FMS notes payable have been extended until December 15, 2002. In addition, a 10% payment ($30,000) was made in May 2002, and interest of 12% is payable monthly on the unpaid balance of the notes. Although we have no material commitments for capital expenditures, we anticipate continued capital expenditures consistent with our anticipated growth in operations, infrastructure and personnel. On December 28, 2001, we entered in an application service provider software license agreement (the "2001 ASP Agreement") with Stellent, Inc., a shareholder of ours. We agreed to pay Stellent a royalty of 20% of net receipts, as defined in the 2001 ASP License Agreement, or $500 per month per customer, whichever is 14 greater, with an aggregate minimum royalty payment of $2,000,000. The minimum royalty was payable as follows: a credit of $500,000 from existing prepaid royalties recorded at Stellent, a payment of $500,000 was paid with the execution of the agreement and two $500,000 payments were due in September and December 2002. On March 29, 2002 we paid the balance due on the royalties and in consideration of the early payment we received a 5% discount, or $50,000. On March 14, 2002, we issued a warrant to purchase 54,000 shares of common stock at $5.50 per share to an underwriter who exercised a warrant for which he was entitled to receive 54,000 units, each unit consisting of one share of common stock and a warrant to purchase one share of common stock. The original warrant had an exercise price of $6.875 and was re-priced to $2.00 per share, providing net proceeds of $108,000. We recorded an expense of $61,020 related to the exercise of the warrant using the Black-Scholes pricing model. The newly issued warrant expires on April 30, 2006. On March 29, 2002, we borrowed $450,000 from Blake Capital Partners, LLC, an entity wholly owned by Wayne W. Mills who currently is a director and shareholder of our Company. The loan is evidenced by a 90-day promissory note and accrues interest at the rate of 7% annually. We used the proceeds of the loan to pay the remaining balance owed to Stellent, pursuant to the 2001 ASP Agreement discussed above. In connection with the loan, we also issued to Blake Capital Partners, LLC a 5-year warrant to purchase 25,000 shares of common stock at a price of $3.00 per share. We anticipate that we will continue to experience growth in our operating expenses for the foreseeable future and that our operating expenses will be a material use of our cash resources. We believe that the existing sources of liquidity and the results of our operations will not provide cash to fund operations for the next twelve months. We will continue our attempt to raise additional capital. Some of the possibilities available to us are through private equity transactions, to develop a credit facility with a lender, the exercise of options and warrants or to sell assets. There can be no assurance that additional capital will be available on terms acceptable to us or on any terms whatsoever. In the event that we are unable to obtain additional capital, we would be forced to reduce operating expenditures and/or cease operations altogether. RISKS FACTORS WE HAVE NO MEANINGFUL OPERATING HISTORY ON WHICH TO EVALUATE OUR BUSINESS OR PROSPECTS. We were a development stage company until January 2001 when we acquired Edge Technologies. Accordingly, we do not have a significant operating history on which you can base an evaluation of our business and prospects. Our business prospects must therefore be considered in the light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets using new and unproven business models. These risks include our: - - substantial dependence on products with only limited market acceptance; - - need to create sales and support organizations; - - competition; - - need to manage changing operations; - - customer concentration; - - reliance on strategic relationships; and - - dependence on key personnel. We also depend heavily on the growing use of the Internet for commerce and communication and on general economic conditions. Our management cannot be certain that our business strategy will be successful or that it will successfully address these risks. WE ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE. For the quarter ended March 31, 2002, we had a net loss of $1.34 million, and since our inception as Old AIQ in April 1996 through March 31, 2002, we have incurred an aggregate net loss of $14.26 million. As of March 31, 2002, we had total assets of $11.4 million. We expect operating losses to continue for the foreseeable future and there can be no assurance that we will ever be able to operate profitably. Furthermore, to the extent our business strategy is successful, we must manage the transition to higher volume operations, which will require us to control overhead expenses and add necessary personnel. WE WILL REQUIRE FUTURE FINANCINGS IN ORDER TO COMPLETE THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES AND TO IMPLEMENT OUR BUSINESS PLAN. THERE IS NO ASSURANCE THAT SUCH FINANCINGS WILL BE AVAILABLE ON ACCEPTABLE TERMS OR EVEN AT ALL. Further financing will be needed in order to complete development of our products, to develop our brand and services and to otherwise implement our business plan. Product development, brand development and other aspects of Internet-related businesses are extremely expensive, and there is no precise way to predict when further financing will be needed or how much will be needed. Moreover, we cannot guarantee that the additional financing will be available when needed. If it is not available, we may be forced to discontinue our business, and your investment in our securities may be lost. If the financing is available only at a low valuation of our company, your investment may be substantially diluted. The continued health of the market for Internet-related securities and other factors beyond 15 our control will have a major impact on the valuation of our company when we raise capital in the future. BECAUSE WE ARE DEPENDENT UPON THIRD-PARTY SYSTEMS AND STRATEGIC RELATIONSHIPS, OUR BUSINESS MAY BE HARMED IF WE DO NOT MAINTAIN THOSE RELATIONSHIPS. We license key elements of our hosted solutions offerings from third parties, including Stellent, Inc., a shareholder of ours, from which we license, among other things, its Content Management solution. Termination of these licenses would adversely affect our business. We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain strategic relationships with key software vendors, distribution partners and customers. We believe these relationships are important in order to validate our technology, facilitate broad market acceptance of our products, and enhance our sales, marketing and distribution capabilities. If we are unable to develop key relationships or maintain and enhance existing relationships, we may have difficulty selling our products and services. OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITIONS WITH OUR BUSINESS PLAN. From June 2001 to October 2001, we acquired Red Wing Business Systems, Inc., Champion Business Systems, Inc. and FMS Marketing, Inc. (which we later merged into Red Wing Business Systems) and we are currently integrating those businesses and products with ours. The integration of Red Wing Business Systems, Champion Business Systems and FMS Marketing with our operations involves the following risks: - - failure to develop complementary pro+duct offerings and marketing strategies; - - failure to maintain the customer relationships of the acquired businesses; - - failure to retain the key employees of the acquired businesses; - - failure to effectively coordinate product development efforts; - - failure to successfully manage operations that are geographically diverse; and - - diversion of our management's time and attention from other aspects of our business. We cannot be sure that we will be successful in integrating and growing the businesses and products of Red Wing Business Systems, Champion Business Systems and FMS Marketing as part of our core business and products. If we are not, our business, operating results and financial condition may be materially adversely affected. POTENTIAL FLUCTUATIONS IN OUR OPERATING RESULTS AND DIFFICULTY IN PREDICTING OUR OPERATING RESULTS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR SECURITIES. We expect our anticipated revenues and operating results to vary significantly from quarter to quarter. As a result, quarter-to-quarter comparisons of our revenues and operating results may not be meaningful. In addition, due to the fact that we have little or no operating history with our new and unproven technology, we may be unable to predict our future revenues or results of operations accurately. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenues relative to its planned expenditures could have an immediate adverse effect on our business and results of operations. Lack of operating history and rapid growth makes it difficult for us to assess the effect of seasonality and other factors outside our control. Nevertheless, we expect our business to be subject to fluctuations, reflecting a combination of various Internet-related factors. 16 OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE. We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We face competition in the overall Internet, Corporate Intranet and Extranet infrastructure market. We will experience increased competition from current and potential competitors, many of which have significantly greater financial, technical, marketing and other resources. We compete with a number of companies to provide intelligent software-based solutions, many of which have operated services in the market for a longer period, have greater financial resources, have established marketing relationships with leading online software vendors, and have secured greater presence in distribution channels. Our business does not depend on significant amounts of proprietary rights and, therefore, our technology does not pose a significant entry barrier to potential competitors. Additionally, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can. In addition, our current and potential competitors may bundle their products with other software or hardware, including operating systems and browsers, in a manner that may discourage users from purchasing services and products offered by us. Also, current and potential competitors have greater name recognition, more extensive customer bases that could be leveraged, and access to proprietary content. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share. BECAUSE THE MARKETS IN WHICH WE COMPETE ARE RAPIDLY CHANGING AND HIGHLY COMPETITIVE, OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO DEVELOP AND INTRODUCE SUCCESSFUL NEW APPLICATIONS AND SERVICES IN A TIMELY MANNER. Our markets are characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete. Our future success will depend upon our ability to develop and introduce a variety of new products and product enhancements to address the increasingly sophisticated needs of our customers. We may be unable to develop any products on a timely basis, or at all, and we may experience delays in releasing new products and product enhancements. Material delays in introducing new products and enhancements may cause our customers to forego purchases of our products and purchase those of our competitors. IF WE ARE UNABLE TO DEVELOP AND GROW OUR SALES AND SUPPORT ORGANIZATIONS, OUR BUSINESS WILL NOT BE SUCCESSFUL. We will need to create and substantially grow our direct and indirect sales operations, both domestically and internationally, in order to create and increase market awareness and sales. Our products and services will require a sophisticated sales effort targeted at several people within our prospective customers. Competition for qualified sales personnel is intense, and we might not be able to hire the kind and number of sales personnel we are targeting. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners, including value added resellers. We cannot be certain that we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. There is also no assurance that the pricing model relating to our hosted solution product will be accepted by our customers. Similarly, the anticipated complexity of our products and services and the difficulty of customizing them require highly trained customer service and support personnel. We will need to hire staff for our customer service and support organization. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet. IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING INEFFICIENCIES AND HAVE DIFFICULTY MEETING THE DEMAND FOR OUR 17 PRODUCTS. Our ability to successfully offer products and services and implement our business plan in a rapidly evolving market requires an effective planning and management process. Rapid growth will place a significant strain on our management systems and resources. We expect that we will need to continually improve our financial and managerial controls and reporting systems and procedures, and will need to continue to expand, train and manage our work force. Furthermore, we expect that we will be required to manage multiple relationships with various customers and other third parties. POTENTIAL ACQUISITIONS MAY CONSUME SIGNIFICANT RESOURCES. We may continue to acquire businesses that we feel will complement or further our business plan. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired operations and products, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees of acquired businesses. No assurance can be given as to our ability to consummate any acquisitions or integrate successfully any operations, personnel, services or products that might be acquired in the future, and our failure to do so could have a material adverse effect on our business, financial condition and operating results. OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN AND RECRUIT KEY PERSONNEL. Our products and technologies are complex and we are substantially dependent upon the continued service of our existing engineering personnel. We also expect to continue to add other important personnel in the near future. The loss of any of those individuals may have a material adverse impact on our business. We intend to hire a significant number of sales, support, marketing, and research and development personnel in fiscal 2002 and beyond. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain additional highly qualified personnel in the future. Further, some of these individuals may be either unable to begin or continue working for us because they may be subject to non-competition agreements with their former employers. OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY. If we are unable to protect our intellectual property, or incur significant expense in doing so, our business, operating results and financial condition may be materially adversely affected. Any steps we take to protect our intellectual property may be inadequate, time consuming and expensive. We currently have no patents, registered trademarks or service marks, or pending patent, trademark or service mark applications. Without significant patent, trademark, service mark or copyright protection, we may be vulnerable to competitors who develop functionally equivalent products and services. We may also be subject to claims that our products infringe on the intellectual property rights of others. Any such claim may have a material adverse effect on our business, operating results and financial condition. Our success and ability to compete are substantially dependent upon our internally developed products and services, which we intend to protect through a combination of patent, copyright, trade secret and trademark law. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. As with any knowledge-based product, we anticipate that policing unauthorized use of our products will be difficult, and we cannot be certain that the steps we intend to take to prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, will be successful. Other businesses may also independently develop substantially equivalent information. OUR TECHNOLOGY MAY INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS. We anticipate that software product developers will be increasingly subject to infringement claims due to growth in the number of products and competitors in our industry, and the overlap in functionality of products in different 18 industries. We also believe that many of our competitors in the intelligent applications business have filed or intend to file patent applications covering aspects of their technology that they may claim our technology infringes. We cannot be certain that these competitors or other third parties will not make a claim of infringement against us with respect to our products and technology. Any infringement claim, regardless of its merit, could be time-consuming, expensive to defend, or require us to enter into royalty or licensing agreements. Such royalty and licensing agreements may not be available on commercially favorable terms, or at all. We are not currently involved in any intellectual property litigation. Our products and services operate in part by making copies of material available on the Internet and other networks and making this material available to end users. This creates the potential for claims to be made against us (either directly or through contractual indemnification provisions with customers) for defamation, negligence, copyright or trademark infringement, personal injury, invasion of privacy or other legal theories based on the nature, content or copying of these materials. These claims have been brought, and sometimes successfully pressed, against online service providers in the past. Although we carry general liability insurance, that insurance may not cover potential claims of this type or may not be adequate to protect us from all liability that may be imposed. GOVERNMENT REGULATION OF E-COMMERCE IS INCREASING AND THERE ARE MANY UNCERTAINTIES RELATING TO THE LAWS OF THE INTERNET. Laws and regulations directly applicable to communications or commerce over the Internet are becoming more prevalent. Recent sessions of the United States Congress have resulted in Internet laws regarding children's privacy, copyrights, taxation and the transmission of sexually explicit material. The European Union recently enacted its own privacy regulations. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. In addition, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet could adversely affect our business. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Sensitivity We do not enter into contracts for speculative purposes, nor are we a party to any leveraged instruments. There has been no material change in our market risks associated with debt obligations during the quarter ended March 31, 2002. 19 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On March 14, 2002, the holder of a warrant issued as compensation to an underwriter of the Company's 1998 offering, exercised the warrant for which he was entitled to receive 54,000 units, each unit consisting of one share of common stock and a warrant to purchase one share of common stock (the "Warrant"). The Warrant was exercised at a price of $2.00 per unit. The Warrant as originally issued, had an exercise price of $6.875. The new warrants issued upon exercise of the Warrant, have an exercise price of $5.50. No commission was paid in connection with this transaction. In connection with this issuance, we relied upon the exemptions from registration provided by Sections 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 promulgated thereunder since this was a private, isolated transaction, not constituting a public offering, and we had a reasonable basis for concluding that the warrant holder met the definition of "accredited investor." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.1 Warrant BCP-1 dated March 29, 2002 10.1 Promissory Note dated March 29, 2002 (b) Reports on Form 8-K On January 4, 2002, the Company filed a Current Report on Form 8-K dated December 28, 2001, under items 5 and 7 disclosing our Application Service Provider Software License Agreement with Stellent, Inc. On April 17, 2002, the Company filed a Current Report on Form 8-K/A, dated September 18, 2001, under items 2 and 7. The Company previously filed an 8-K on September 21, 2001 to disclose the Company's acquisition of Champion Business Systems and on November 13, 2001, the Company filed an amendment to Form 8-K to include the financial statements and pro forma financial information required by item 7 of Form 8-K. The Company filed this April 17, 2002 Amendment to Form 8-K to revise to the financial statements and the related notes. On April 17, 2002, the Company filed a Current Report on Form 8-K/A dated June 6, 2001, under items 2 and 7. The Company previously filed a current report on Form 8-K on June 15, 2001 to disclose the Company's acquisition of Red Wing Business Systems, Inc., and on August 13, 2001 the Company filed an amendment to Form 8-K to include financial statements and pro forma financial information required by Item 7 of Form 8-K. The Company filed this April 17, 2002 Amendment to Form 8-K to revise to the financial statements and the related notes. On April 17, 2002, the Company filed a Current Report on Form 8-K/A dated April 30, 2001, under Items 2, 4, 5 and 7. The Company filed a current report on Form 8-K on May 14, 2001, to (1) disclose the completion of the merger by and between Meteor Industries, Inc., active IQ Technologies, Inc., and MI Merger, Inc.; (2) disclose the disposition of the assets of Meteor Industries, Inc. to Capco Energy, Inc.; (3) disclose a change of accountants; (4) disclose the extension of the expiration date of the Company's outstanding public warrants; and (5) file the Audited Financial Statements of active IQ Technologies, Inc. for the fiscal year ended December 31, 2000. The Company filed this April 17, 2002 Amendment to Form 8-K to revise to the financial statements and the related notes. 20 SIGNATURES In accordance with the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ D. Bradly Olah ----------------------------------- D. Bradly Olah Chief Executive Officer By: /s/ Mark D. Dacko ----------------------------------- Mark D. Dacko Controller (Principal Accounting Officer Date: May 30, 2002 21 EX-4.1 3 c69573a1exv4w1.txt WARRANT BCP-1 DATED MARCH 29, 2002 EXHIBIT 4.1 THE WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAWS"). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS WARRANT OR THE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH BOTH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS, AND ASSURANCES THAT THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION WILL BE MADE ONLY IN COMPLIANCE WITH THE CONDITIONS OF ANY SUCH REGISTRATION OR EXEMPTION. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ACTIVE IQ TECHNOLOGIES, INC. WARRANT NO. BCP-1 Minneapolis, Minnesota March 29, 2002 This certifies that, for value received, BLAKE CAPITAL PARTNERS, LLC, or its successors or assigns (the "Holder") is entitled to purchase from Active IQ Technologies, Inc. (the "Company") Twenty Five Thousand (25,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price of $3.00 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant may be exercised by Holder at any time after the date hereof; provided, however, that, Holder shall in no event have the right to exercise this Warrant or any portion thereof later than the five (5) year anniversary of the date hereof, at which time all of Holder's rights hereunder shall expire. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Minneapolis, Minnesota, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. 22 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which Holder consents and agrees: (a) Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. (b) This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. (c) The Warrant may not be transferred, and the Shares underlying this Warrant may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. (d) Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: (a) Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. (b) Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in 23 the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (c) Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (d) Effect of Reorganization, Reclassification, Merger, etc. If at any time while this Warrant is outstanding there should be (i) any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), (ii) any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, or (iii) any dividend or any other distribution upon any class of stock of the Company payable in stock of the Company of a different class, other securities of the Company, or other property of the Company (other than cash), then, as a part of such transaction, lawful provision shall be made so that Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if this Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrant) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrant as if the Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Holder had carried out the terms of the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 5. No Rights as Shareholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a shareholder of the Company. 6. Registration Rights. If at any time the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock (the "Registration Statement"), it will notify the Holder hereof at least thirty (30) days prior to each such filing (the "Registration Notice") and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Shares purchased or purchasable by the Holder upon the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Shares proposed to be offered by such Holder for registration, as well as the number of securities of any other selling 24 shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. The Holder understands that if the Company has not received such information requested by the Company in the Registration Notice within 20 days after Holder's receipt thereof, the Company shall have no obligation to include any of Holder's Shares in the Registration Statement. 7. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 8. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holder. 9. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to Active IQ Technologies, Inc., 601 Carlson Parkway, Suite 1550, Minnetonka, Minnesota 55305, or to such other address as the Company or the Holder shall notify the other as provided in this Section. IN WITNESS WHEREOF, Active IQ Technologies, Inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ D. Bradly Olah ------------------------------------------ D. Bradly Olah President and Chief Executive Officer 25 SUBSCRIPTION FORM (TO BE SIGNED ONLY UPON EXERCISE OF WARRANT) The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____________________ of the shares of Common Stock of Active IQ Technologies, Inc. (the "Shares") to which such Warrant relates and herewith makes payment of $_____________ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, ____________________________, the address for whom is set forth below the signature of the undersigned: Dated: ____________________ _____________________________________________ (Signature) _____________________________________________ _____________________________________________ (Address) ASSIGNMENT FORM (TO BE SIGNED ONLY UPON AUTHORIZED TRANSFER OF WARRANT) FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto _____________________________________ the right to purchase shares of Common Stock of Active IQ Technologies, Inc. to which the within Warrant relates and appoints ____________________ attorney, to transfer said right on the books of _________________ with full power of substitution in the premises. Dated: ____________________ _____________________________________________ (Signature) _____________________________________________ _____________________________________________ (Address) 26 EX-10.1 4 c69573a1exv10w1.txt PROMISSORY NOTE DATED MARCH 29, 2002 EXHIBIT 10.1 PROMISSORY NOTE Minneapolis, Minnesota $450,000.00 March 29, 2002 FOR VALUE RECEIVED, Active IQ Technologies, Inc., a Minnesota corporation (the "Maker"), hereby unconditionally promises to pay to Blake Capital Partners, LLC, or its successors and assigns (the "Payee"), at Minneapolis, Minnesota or at such other place or places as may be designated by Payee from time to time, the sum of Four Hundred Fifty Thousand Dollars ($450,000) (the "Principal Sum"). The Principal Sum, together with interest thereon at the rate of seven percent (7%), shall be due and payable by Maker to Payee on or before June 27, 2002 (the "Maturity Date") in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. All payments on account of this Note, when paid, shall be applied first to the payment of all interest then due on the unpaid balance of this Note and the balance, if any, shall be applied to reduction of the unpaid balance of the Principal Sum. This Note may be prepaid in full or in part at any time without premium. Maker agrees to pay on demand the costs of collection, including, without limitation, reasonable attorneys' fees incurred by Payee in collecting or attempting to collect any amount under this Note after the failure of Maker to make any payment required to be made under this Note within ten (10) days after written notice from Payee to Maker that such payment is due or to enforce its rights under this Note. All such costs of collection shall bear interest, payable on demand, from the date of payment thereof by Payee until paid in full by Maker at the rate applicable to the principal amount of this Note. Maker waives presentment, protest and demand, notice of protest, notice of dishonor and non-payment of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of Maker. The terms, conditions and provisions of this Note shall be construed and enforced according to the laws of the State of Minnesota. IN WITNESS WHEREOF, the duly authorized officer of Maker has caused this Note to be executed on the date first above written. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ D. Bradly Olah ---------------------------------------- D. Bradly Olah President and Chief Executive Officer 27 -----END PRIVACY-ENHANCED MESSAGE-----