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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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



For the quarterly period ended March 31, 2003



OR



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



For the transition period from  to



Commission file number: 0-20995



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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.)



1445 ROSS AVENUE,
SUITE 4500, DALLAS, TEXAS 75202

(Address of principal executive offices)



(214) 397-0200

(Issuers telephone number)





(Former name, former address and former fiscal year, if changed since last report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes ̈No x



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.



As of July 25, 2003, the issuer had 21,956,445 shares of Common Stock outstanding.

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AXTIVE CORPORATION



TABLE OF CONTENTS



|                                                                   |  |                                                                                                                     |  | Page No.
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                   | 
|PART I  FINANCIAL INFORMATION                                     |  |                                                                                                                    
|                                                                   | 
|ITEM 1. Financial Statements:                                      |  |                                                                                                                    
|                                                                   |  |                                                                                                                    
|                                                                   |  | Consolidated Balance Sheets as of December 31, 2002 and March 31, 2003 (unaudited)                                  |  | 3       
|                                                                   |  |                                                                                                                    
|                                                                   |  | Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2003                  |  | 4       
|                                                                   |  |                                                                                                                    
|                                                                   |  | Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2002 and 2003 |  | 4       
|                                                                   |  |                                                                                                                    
|                                                                   |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2003        |  | 5       
|                                                                   |  |                                                                                                                    
|                                                                   |  | Unaudited Consolidated Statements of Stockholders Equity for the Three Months Ended March 31, 2003                 |  | 6       
|                                                                   |  |                                                                                                                    
|                                                                   |  | Notes to Unaudited Consolidated Financial Statements                                                                |  | 7       
|                                                                   | 
|ITEM 2. Managements Discussion and Analysis or Plan of Operations |  | 13                                                                                                                 
|                                                                   | 
|ITEM 3. Controls and Procedures                                    |  | 18                                                                                                                 
|                                                                   | 
|PART II  OTHER INFORMATION                                        |  |                                                                                                                    
|                                                                   | 
|ITEM 1. Legal Proceedings                                          |  | 19                                                                                                                 
|                                                                   | 
|ITEM 2. Changes in Securities and Use of Proceeds                  |  | 20                                                                                                                 
|                                                                   | 
|ITEM 3. Defaults Upon Senior Securities                            |  | 21                                                                                                                 
|                                                                   | 
|ITEM 4. Submission of Matters to a Vote of Security Holders        |  | 21                                                                                                                 
|                                                                   | 
|ITEM 5. Other Information                                          |  | 21                                                                                                                 
|                                                                   | 
|ITEM 6. Exhibits and Reports on Form 8-K                           |  | 22                                                                                                                 
|                                                                   | 
|SIGNATURES                                                         |  | 23                                                                                                                 



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AXTIVE CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                               |  | December 31, 2002 |             |   | March 31, 2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | -------------- | -
|                                                                                                                                                                                                               |  |                   |             |   | (unaudited)    |  
|CURRENT ASSETS                                                                                                                                                                                                 |  |                   |             |   |                |  
|Cash and cash equivalents                                                                                                                                                                                      |  | $                 | 444,275     |   |                | $
|Marketable securities                                                                                                                                                                                          |  |                   | 26,873      |   |                |  
|Accounts receivable                                                                                                                                                                                            |  |                   | 392,043     |   |                |  
|Other current assets                                                                                                                                                                                           |  |                   | 121,984     |   |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|Total current assets                                                                                                                                                                                           |  |                   | 985,175     |   |                |  
|                                                                                                                                                                                                               |  |                  
|NON-CURRENT ASSETS                                                                                                                                                                                             |  |                   |             |   |                |  
|Property and equipment, net                                                                                                                                                                                    |  |                   | 301,388     |   |                |  
|Goodwill                                                                                                                                                                                                       |  |                   | 2,247,714   |   |                |  
|Intangible assets, net                                                                                                                                                                                         |  |                   | 361,476     |   |                |  
|Other assets                                                                                                                                                                                                   |  |                   | 8,853       |   |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|TOTAL ASSETS                                                                                                                                                                                                   |  | $                 | 3,904,606   |   |                | $
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|CURRENT LIABILITIES                                                                                                                                                                                            |  |                   |             |   |                |  
|Accounts payable                                                                                                                                                                                               |  | $                 | 408,187     |   |                | $
|Accrued expenses                                                                                                                                                                                               |  |                   | 322,380     |   |                |  
|Short-term note payable                                                                                                                                                                                        |  |                   | 995,619     |   |                |  
|Other current liabilities                                                                                                                                                                                      |  |                   | 666,333     |   |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|Total current liabilities                                                                                                                                                                                      |  |                   | 2,392,519   |   |                |  
|                                                                                                                                                                                                               |  |                  
|OTHER NON-CURRENT LIABILITIES                                                                                                                                                                                  |  |                   | 69,195      |   |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|TOTAL LIABILITIES                                                                                                                                                                                              |  |                   | 2,461,714   |   |                |  
|                                                                                                                                                                                                               |  |                  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                  |  |                   |            |   |                |  
|                                                                                                                                                                                                               |  |                  
|STOCKHOLDERS EQUITY                                                                                                                                                                                           |  |                   |             |   |                |  
|Series A convertible preferred stock, $.01 par value, 5,000,000 shares authorized, 4,440 issued and outstanding at December 31,
2002 and March 31, 2003, net of discount; liquidation preference of $4,440,000 |  |                   | 3,925,572   |   |                |  
|Common stock, $.01 par value, 100,000,000 shares authorized, 19,039,622 issued and outstanding at December 31, 2002 and March 31,
2003.                                                                        |  |                   | 190,396     |   |                |  
|Additional paid in capital                                                                                                                                                                                     |  |                   | 41,924,284  |   |                |  
|Accumulated deficit                                                                                                                                                                                            |  |                   | (44,586,502 | ) |                |  
|Accumulated other comprehensive income (loss)                                                                                                                                                                  |  |                   | (10,858     | ) |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                                     |  |                   | 1,442,892   |   |                |  
|                                                                                                                                                                                                               |  |                   |             |   |                |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                     |  | $                 | 3,904,606   |   |                | $
|                                                                                                                                                                                                               |  |                   |             |   |                |  



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



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AXTIVE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                              |  | For the three months ending March 31, |           
|------------------------------------------------------------- |  | ------------------------------------- | ----------
|                                                              |  | 2002                                  |           
|Net sales                                                     |  | $                                     |          
|Cost of sales                                                 |  |                                       |          
|                                                              |  |                                       |           
|Gross profit                                                  |  |                                       |          
|                                                              |  |                                      
|Operating expenses                                            |  |                                       |           
|General and administrative                                    |  |                                       | 190,021   
|Marketing                                                     |  |                                       | 1,940     
|Bad debt                                                      |  |                                       |          
|Depreciation and amortization                                 |  |                                       |          
|                                                              |  |                                       |           
|Total operating expenses                                      |  |                                       | 191,961   
|                                                              |  |                                       |           
|Operating loss                                                |  |                                       | (191,961  
|                                                              |  |                                      
|Other income (expense)                                        |  |                                       |           
|Interest income                                               |  |                                       | 8         
|Interest expense                                              |  |                                       | (34,339   
|Incomeother                                                  |  |                                       |          
|Expensesother                                                |  |                                       | (962      
|                                                              |  |                                       |           
|Total other income (expense)                                  |  |                                       | (35,293   
|                                                              |  |                                       |           
|Net loss                                                      |  |                                       | (227,254  
|                                                              |  |                                      
|Provision for preferred stock dividends                       |  |                                       |          
|Amortization of discount on preferred stock                   |  |                                       |          
|                                                              |  |                                       |           
|Net loss attributed to common stockholders                    |  | $                                     | (227,254  
|                                                              |  |                                       |           
|Net loss per share, basic and diluted                         |  | $                                     | (0.01     
|                                                              |  |                                       |           
|Weighted average common shares outstanding, basic and diluted |  |                                       | 16,488,139
|                                                             
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)       
|Net loss                                                      |  | $                                     | (227,254  
|Unrealized loss on available for sale securities              |  |                                       |          
|                                                              |  |                                       |           
|Comprehensive loss                                            |  | $                                     | (227,254  
|                                                              |  |                                       |           



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



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AXTIVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                 |  | For the Three Months Ended March 31, |         
|------------------------------------------------ |  | ------------------------------------ | --------
|                                                 |  | 2002                                 |         
|CASH FLOWS FROM OPERATING ACTIVITIES             |  |                                      |         
|Net cash used in operating activities            |  | $                                    | (206,977
|                                                 |  |                                     
|CASH FLOWS FROM INVESTING ACTIVITIES             |  |                                      |         
|Capital expenditures                             |  |                                      |        
|Capitalized acquisiton costs                     |  |                                      | (29,211 
|                                                 |  |                                      |         
|Net cash used in investing activities            |  |                                      | (29,211 
|                                                 |  |                                     
|CASH FLOWS FROM FINANCING ACTIVITIES             |  |                                      |         
|Issuance of options to Infinity                  |  |                                      | 200,000 
|Deferred financing fees                          |  |                                      | (27,067 
|Advance funding of equity issue                  |  |                                      | 470,507 
|                                                 |  |                                      |         
|Net cash provided by financing activities        |  |                                      | 643,440 
|                                                 |  |                                     
|NET CHANGE IN CASH AND CASH EQUIVALENTS          |  |                                      | 407,252 
|                                                 |  |                                     
|Cash and cash equivalents, beginning of period   |  |                                      | 82,567  
|                                                 |  |                                      |         
|Cash and cash equivalents, end of period         |  | $                                    | 489,819 
|                                                 |  |                                      |         
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |  |                                      |         
|Cash paid for interest                           |  | $                                    |        
|Cash paid for taxes                              |  | $                                    | 962     



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



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AXTIVE CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(In Thousands except Shares of Common Stock)

(UNAUDITED)



|                                                                 |  | Common Stock |  | PreferredStock |     | AdditionalPaid inCapital |   |       | Accumulated Other Comprehensive Income (loss) |   |        | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|---------------------------------------------------------------- |  | ------------ |  | -------------- | --- | ------------------------ | - | ----- | --------------------------------------------- | - | ------ | ------------------ |  | - | ----------------------- | -
|                                                                 |  | Shares       |  | Amount         |     |                          |   |       |                                              
|BalanceDecember 31, 2002                                        |  | 19,039,622   |  | $              | 190 |                          | $ | 3,926 |                                               | $ | 41,925 |                    |  | $ | (11                     | )
|-  Amortization of Preferred Stock Beneficial Conversion Feature |  |             |  |                |    |                          |   | 96    |                                               |   | (96    | )                  |  |   |                         |  
|-  Change in fair value of marketable securities                 |  |             |  |                |    |                          |   |      |                                               |   |       |                    |  |   | (12                     | )
|-  Net loss                                                      |  |             |  |                |    |                          |   |      |                                               |   |       |                    |  |   |                        |  
|                                                                 |  |              |  |                |     |                          |   |       |                                               |   |        |                    |  |   |                         |  
|BalanceMarch 31, 2003                                           |  | 19,039,622   |  | $              | 190 |                          | $ | 4,022 |                                               | $ | 41,829 |                    |  | $ | (23                     | )
|                                                                 |  |              |  |                |     |                          |   |       |                                               |   |        |                    |  |   |                         |  



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



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AXTIVE CORPORATION



NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



In this
Quarterly Report on Form 10-QSB, 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 Quarterly Report where prior reports included a reference to Edge in a historical context, the reference to Edge has been changed to Axtive. Axtive is a publicly traded company
(OTC:AXTV.PK).



1. BASIS OF PRESENTATION



The consolidated financial statements included herein have been prepared by
us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Additionally, certain amounts reported in prior periods have been reclassified to conform to the current periods presentation.



In the opinion of management, the accompanying unaudited
consolidated financial statements include all necessary adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows of the Company. The
results of operations and cash flows for the three months ended March 31, 2003, are not necessarily indicative of the results of operations or cash flows that may be reported for the year ended December 31, 2003. The unaudited consolidated financial
statements included herein should be read in conjunction with the audited financial statements and the notes thereto included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2002 (Annual Report).



2. UNCERTAINTY OF PROPOSED PLAN OF OPERATION



The Company has suffered recurring losses from operations and has an
accumulated deficit of approximately $45.0 million at March 31, 2003. Of this, approximately $33.5 million had accumulated through March 31, 2001, and is attributable to the Companys former One-on-One golf video business. Another approximately
$6.2 million reflects impairment charges and bad debts stemming from investments and loans made prior to the Companys creation of its current business plan.



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 raise new funds and could ultimately jeopardize our ability to remain in business.



Our business strategy is dependent 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 can provide no assurance that we will be able to locate other 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, and failure to
effectively implement our business plan will have a material adverse effect on us.



Our current financial condition will not allow us to finance additional acquisitions independently. We cannot assure you that Axtive will be able to obtain financing in addition to that secured in connection with the
issuance of the offering of our series A convertible preferred stock (Series A Preferred Stock) in April 2002 and May 2003, on acceptable terms or at all. If we cannot obtain additional financing, we will not be able to complete any
future acquisitions and will consequently not be able to successfully implement our business plan.



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3. BUSINESS COMBINATIONS



The acquisitions described below were made pursuant to our business model as discussed in the Annual Report. The purchase price for each acquisition
was generally based upon a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted for certain non-recurring costs deemed to be unique to the particular company or situation. Since the acquired
companies are technology service companies with minimal tangible or intangible assets, the purchases resulted in payments characterized as goodwill.



Acquisition of Media Resolutions, Inc.



On April 11, 2002, we closed the acquisition of Media Resolutions, Inc., an Application Service Provider (ASP) and website hosting company
located in Dallas, Texas.



Acquisition of Universal Data
Technology, Inc.



On May 31, 2002, our newly created and
wholly owned subsidiary, UDT Consulting, Inc., acquired the assets of Universal Data Technology, Inc., an IT Professional Services practice headquartered in Dallas, Texas with additional operations in Arkansas and Florida.



Acquisition of The Visionary Group, Inc.



On April 8, 2002, we acquired The Visionary Group, Inc., a professional
services firm providing IT Professional Services related to Oracle applications software. Headquartered in Dallas, Texas, The Visionary Group has operations in Dallas and Austin, Texas.



Acquisition of Virtually There, Inc.



In May 2002, we acquired Virtually There, Inc., an ASP and website hosting company located in Fort Worth, Texas.



Pro Forma Results



The following unaudited pro forma consolidated results of operations have
been prepared for March 31, 2002 as if the acquisitions had occurred at January 1, 2002:



|                                                                        |  | For the Three Months Ended March 31, 2002 |           
|----------------------------------------------------------------------- |  | ----------------------------------------- | ----------
|                                                                        | 
|Sales                                                                   |  | $                                         | 1,406,839 
|                                                                        | 
|Net loss attributed to common stockholders                              |  | $                                         | (656,036  
|                                                                        | 
|Net loss per share attributed to common stockholders, basic and diluted |  | $                                         | (0.04     
|                                                                        | 
|Weighted average shares outstanding, basic and diluted                  |  |                                           | 18,141,985



4. RELATED PARTY TRANSACTIONS



Investment in PurchasePooling Solutions, Inc.



In October 2001, we participated in the amount of $400,000
in a syndicated loan to PurchasePooling in the amount of $1,600,000. 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. 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 fund DASs working capital needs at a rate



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not exceeding, on average, $50,000 per month up to a maximum of $1.2 million over the three year life of the agreement.



In connection with the formation of DAS and Axtives
agreement to manage its affairs, DAS participated in the 2003 Series A Preferred Financing (see Note 13 Subsequent Events) investing $1.2 million of the $2.3 million raised.



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 it sole shareholder, G.C. Scooter Beachum III, our Executive Vice President and General Manager. The assets were
acquired in exchange for an initial grant of 400,000 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.



Subsequent Event



On July 1, 2003, we issued
297,674 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 297,674 shares, if the market price of our common stock had not been at or above
$0.75 within the one-year period after our purchase. G.C. Scooter Beachum, our Executive Vice President and General Manager, is the sole shareholder and director of TSTC.



5. PRINCIPLES OF CONSOLIDATION



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



6. REVENUE
RECOGNITION



Although we provide 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. Deposits received
from customers in advance of the delivery of product or provision of service are included in other current liabilities in the accompanying balance sheets.



7. GOODWILL AND OTHER INTANGIBLE ASSETS



Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (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. Under the new rules, 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, we performed
an annual impairment test of goodwill in the third quarter of 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.



Intangible assets consist of the following as of March
31, 2003:



|                                               |  | Gross CarryingValue |           | AccumulatedAmortization
|---------------------------------------------- |  | ------------------- | --------- | -----------------------
|Amortizable intangible assets:                 |  |                     |           |                        
|Non-compete agreements                         |  | $                   | 249,248   |                        
|                                               |  |                     |           |                        
|Intangible assets not subject to amortization: |  |                     |           |                        
|Tradename                                      |  | $                   | 162,638   |                        
|Goodwill                                       |  |                     | 2,247,714 |                        
|                                               |  |                     |           |                        
|Total                                          |  | $                   | 2,410,352 |                        
|                                               |  |                     |           |                        



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Amortization expense related to the intangible assets totaled $21,224 for the three months ended March
31, 2003. The aggregate estimated amortization expense for intangible assets remaining as of March 31, 2003 is as follows:



|2003  |  |   | 63,672 
|----- |  | - | -------
|2004  |  |   | 50,823 
|2005  |  |   | 26,486 
|2006  |  |   | 26,485 
|2007  |  |   | 10,148 
|      |  |   |        
|Total |  | $ | 177,614
|      |  |   |        



8. LOSS PER SHARE



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



For the three months ended March 31, 2002 and 2003, due to our net losses, all shares of our Common Stock issuable upon conversion of convertible stock,
convertible debt and the exercise of outstanding options and warrants have been excluded from the computation of diluted loss per share in the accompanying statements of operations as their impact would be antidilutive. The aggregate number of
Series A Convertible Stock, warrants and options excluded from the loss per share calculation for the three months ended March 31, 2002 and 2003 are 4,274,334 and 12,332,500, respectively.



9. ACCOUNTING FOR STOCK BASED COMPENSATION



We apply Accounting Principles Board Opinion No. 25 (APB No. 25),
Accounting for Stock Issued to Employees, in accounting for our stock plans. Under APB No. 25, no compensation cost is recognized for stock options granted to employees in which the exercise price is equal to or greater than the market price on the
grant date. Compensation cost related to stock options recognized by us in accordance with APB No. 25 was not significant during the first three months of 2002 or 2003.



The following table illustrates the effect had we determined compensation cost based on fair value at the grant date for our
stock options under SFAS No. 123, Accounting for Stock-Based Compensation:



|                                                 |  | For the Three Months Ended March 31, |           
|------------------------------------------------ |  | ------------------------------------ | ----------
|                                                 |  | 2002                                 |           
|Net loss attributed to common stockholders       |  |                                      |           
|As reported                                      |  | $                                    | (227,254  
|Pro forma compensation expense                   |  | $                                    | (851,995  
|                                                 |  |                                      |           
|Pro forma loss attributed to common stockholders |  | $                                    | (1,079,249
|                                                 |  |                                      |           
|Basic and diluted loss per share                 |  |                                      |           
|As reported                                      |  | $                                    | (0.01     
|Pro forma                                        |  | $                                    | (0.07     



10. FINANCING TRANSACTIONS



Receivables Factoring



One of the Companys subsidiaries, UDT Consulting, Inc., has engaged
with a third-party to factor certain of its receivables. The receivables are purchased by the factor with recourse to UDT Consulting, and amounts due



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under the Factoring and Security Agreement are secured by a pledge of receivables and other assets of UDT Consulting, and
are guaranteed by Axtive. Under the agreement, UDT Consulting receives approximately 80% of the face amount of the receivable, pays interest at a rate of prime plus 2% and is subject to additional fees in certain circumstances. At March 31, 2003,
UDT Consulting had approximately $196,000 of receivables sold under the agreement. The related liability to the factor is included in Other Current Liabilities in the Consolidated Balance Sheet.



Dividends in Arrears



As of March 31, 2003, there had been no dividends declared on the Series A
Preferred stock and total dividends in arrears at March 31, 2003 is $349,948. Undeclared dividends for the first three months of 2003 on the preferred shares as of that date totaled $88,504 and are reflected in the Consolidated Statements of
Operations as a relation of earnings attributed to common stockholders.



11.
ACCRUED EXPENSES



Accrued expenses are summarized as
follows:



|                     |  | December 31, |         | March 31,
|-------------------- |  | ------------ | ------- | ---------
|                     |  | 2002         |         | 2003     
|Professional fees    |  | $            | 59,632  |          
|Salaries and bonuses |  |              | 223,806 |          
|Other                |  |              | 38,942  |          
|                     |  |              |         |          
|                     |  | $            | 322,380 |          
|                     |  |              |         |          



12. OTHER CURRENT LIABILITIES



Other current liabilities are summarized as follows:



|                                             |  | December 31, |         | March 31,
|-------------------------------------------- |  | ------------ | ------- | ---------
|                                             |  | 2002         |         | 2003     
|Current portion of capital lease obligations |  | $            | 41,522  |          
|Deferred vendor liabilities                  |  |              | 377,969 |          
|Amounts due on receivables sold              |  |              | 151,089 |          
|Customer deposits                            |  |              | 39,941  |          
|Deferred revenue                             |  |              | 37,707  |          
|Other                                        |  |              | 18,105  |          
|                                             |  |              |         |          
|                                             |  | $            | 666,333 |          
|                                             |  |              |         |          



13. SUBSEQUENT EVENTS



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 additional offices in Austin, San Antonio, Oklahoma City, and Las Vegas,
Nevada.



In exchange for all the outstanding shares of
ThinkSpark, we paid approximately $107,000 in cash and notes, ThinkSpark shareholders satisfied approximately $121,000 in debt due to ThinkSpark, and 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 $1.0 million of accounts receivable of ThinkSpark and is guaranteed by the remaining subsidiaries of Axtive. We also issued Merrill Lynch warrants to acquire 5,000,000 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 $0.01 per share and can be exercised anytime prior to the 10th
anniversary of their issuance in May 2013. As a result of the warrants, Merrill Lynch could acquire a significant equity interest in Axtive.



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The acquisition will be accounted for using the purchase method of accounting. As such, the assets and
liabilities of ThinkSpark will be recorded at their estimated fair value and the results of operations will be included in our consolidated results of operations from the date of acquisition. We have not completed the allocation of purchase price to
assets acquired. We expect a significant amount of goodwill to result from the acquisition.



2003 Series A Preferred Financing



On May 23, 2003, we issued $2.3 million worth of additional Series A Preferred shares to new and previous investors in exchange for cash. The additional shares were issued on similar terms and conditions as the 2002
issuances except the initial conversion price is $0.10 per share. We issued warrants to acquire 4.8 million shares of Common Stock at $0.20 per share in connection with the transaction. Demand Aggregation Solutions, LLC (DAS) purchased
$1.2 million of the Series A Preferred Stock. See Note 4 Related Party Transactions regarding our obligation to provide up to $1.2 million in funding to DAS.



The 2002 issuances of Series A Preferred provided that subsequent issuances of such securities on terms more favorable than
those provided to the original investors in the Series A Preferred would automatically adjust the terms and conditions on the outstanding Series A Preferred to the more favorable terms and conditions (Superior Rights). As a result, the
initial conversion price on all Series A Preferred outstanding prior to the 2003 issuance was reduced from $0.75 to $0.10 per share and the exercise price of the warrants was reduced from $1.15 per share to $0.20 per share. We issued warrants to
acquire 4,670,000 shares of Common Stock in connection with the new financing.



In July 2003, we issued an additional 50 shares of Series A Preferred Stock in a private offering to a purchaser in the May 2003 offering, G.C. Scooter Beachum, who is also one of our executive officers.
The terms were identical to the May 2003 sale of Series A Preferred Stock. The Company received gross proceeds of $50,000 in cash. Net proceeds of the sale will be used for general corporate purposes. As part of this subsequent issuance, we issued
additional warrants exercisable for 100,000 shares of our common stock.



Acquisition of Universal Data Technology, Inc. Update



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s
assets. We paid Universal Data Technology $310,000 in full and final payment of the purchase price for the acquisition.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS



The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included as Item 1 of
this report. This document contains forward-looking statements 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 thereby. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to our management. These
statements include without limitation, statements regarding our future capital requirements and our ability to satisfy our capital needs, statements regarding our recent acquisitions, statements regarding our ability to implement our plans to
acquire additional companies, and other statements which speak to projections of future conditions or our anticipated performance which contain the words anticipate, believe, expect and words or phrases of similar
import, as they relate to us or our management. You should be aware that these forward-looking statements are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the ability
to adopt and successfully execute a revised business plan, respond to future business opportunities, and overcome numerous other risks and difficulties generally experienced by early stage business models, including, but not limited to, those
factors set forth under the heading RISK FACTORS in Annual Report on Form 10-KSB for our fiscal year ended December 31, 2002. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may
vary materially from those described herein. We expressly undertake no obligation to update these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any written or oral
forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.



GENERAL



Axtives business model is to acquire software related technology companies that deliver software products and related information technology services to middle-market companies. We 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 process applications that are delivered on a fully
outsourced basis through portal technology or, if needed, as traditional licensed products. Our acquisition targets are companies with existing strategic relationships with Oracle, IBM or Microsoft that will allow 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.



Initial development of our business model has involved the acquisition of IT Professional Services and Application Services and Management firms that have existing relationships with numerous middle-market customers.
Subsequent acquisitions are expected to target software products with common data structures (such as Oracle, IBM and Microsoft) designed for the application service delivery channel. We expect that synergistic relationships will develop between the
acquired companies and that funding for operating business unit -specific projects will be provided through public and private offerings of Axtive securities. Nearly all operations are expected to continue within each operating business unit while a
small corporate staff will interface with the capital markets, formulate and manage our overall strategic objectives and oversee all mergers and acquisitions.



Prior to our emphasis on IT Professional Services, Business Application Software and Application Services and Management, the business consisted
primarily of developing, marketing and selling personalized videotape golf lessons featuring One-on-One golf video instruction by leading professional golfer Greg Norman, sold under the name One-on-One with Greg Norman. In September
2001, we sold all the assets related to our One-on-One business to Visual Edge, Inc., a newly created company formed by certain members of our previous management. Visual Edge, Inc. is not related to us.



OUR ONGOING PLAN



Our plan of operation for the upcoming months calls for the following:



|· |  | Operation of the businesses Axtive has acquired to date;
|- |  | --------------------------------------------------------



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|· |  | Additional fundraising activities to continue our acquisition strategy and funding operational requirements; and
|- |  | ----------------------------------------------------------------------------------------------------------------



|· |  | Additional acquisitions to fill in Axtives end-to-end (E2E) offering of business application software products and professional services to meet the needs of
middle market companies.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



RECENT DEVELOPMENTS



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 additional offices in Austin, San Antonio, Oklahoma City, and Las Vegas,
Nevada.



In exchange for all the outstanding shares of
ThinkSpark, we paid approximately $107,000 in cash and notes, ThinkSpark shareholders satisfied approximately $121,000 in debt due to ThinkSpark, and 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 $1.0 million of accounts receivable of ThinkSpark and is guaranteed by the remaining subsidiaries of Axtive. We also issued Merrill Lynch warrants to acquire 5,000,000 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 $0.01 per share and can be exercised anytime prior to the 10th
anniversary of their issuance in May 2013. As a result of the warrants, Merrill Lynch could acquire a significant equity interest in Axtive.



The acquisition will be accounted for using the purchase method of accounting. As such, the assets and liabilities of ThinkSpark will be recorded at their
estimated fair value and the results of operations will be included in our consolidated results of operations from the date of acquisition. We have not completed the allocation of purchase price to assets acquired. We expect a significant amount of
goodwill to result from the acquisition.



2003 Series A
Preferred Financing



On May 23, 2003, we issued $2.3
million worth of additional Series A Preferred shares to new and previous investors in exchange for cash. The additional shares were issued on similar terms and conditions as the 2002 issuances except the initial conversion price is $0.10 per share.
We issued warrants to acquire 4.8 million shares of Common Stock at $0.20 per share in connection with the transaction. Demand Aggregation Solutions, LLC (DAS) purchased $1.2 million of the Series A Preferred Stock. See Note 4,
Related Party TransactionsInvestment in PurchasePooling Solutions, Inc., to our unaudited consolidated financial statements included in this report regarding our obligation to provide up to $1.2 million in funding to DAS.



The 2002 issuances of Series A Preferred provided that
subsequent issuances of such securities on terms more favorable than those provided to the original investors in the Series A Preferred would automatically adjust the terms and conditions on the outstanding Series A Preferred to the more favorable
terms and conditions (Superior Rights). As a result, the initial conversion price on all Series A Preferred outstanding prior to the 2003 issuance was reduced from $0.75 to $0.10 per share and the exercise price of the warrants was
reduced from $1.15 per share to $0.20 per share. We issued warrants to acquire 4,670,000 shares of Common Stock in connection with the new financing.



In July 2003, we issued an additional 50 shares of Series A Preferred Stock in a private offering to a purchaser in the May 2003 offering, G.C.
Scooter Beachum, who is also one of our executive officers. The terms were identical to the May 2003 sale of Series A Preferred Stock. The Company received gross proceeds of $50,000 in cash. Net proceeds of the sale will be used for
general corporate purposes. As part of this subsequent issuance, we issued additional warrants exercisable for 100,000 shares of our common stock.



Acquisition of Universal Data Technology, Inc. Update



In July 2003, Axtive, UDT, and Universal Data Technology entered into a settlement agreement to resolve all outstanding obligations of the parties arising
from the acquisition of Universal Data Technologys assets. We paid Universal Data Technology $310,000 in full and final payment of the purchase price for the acquisition.



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RESULTS OF OPERATIONS



Three months ended March 31, 2003 compared to three months ended March 31, 2002



Net Sales.As a result of our acquisitions in 2002, sales from continuing operations for the three months ended March
31, 2003 were $986,284. Gross margins across all businesses averaged 55.1% and reflect a continuous improvement since the completion of the acquisitions. This improvement in gross margins reflects the Companys efforts to contain costs and to
reduce fixed costs in favor of variable costs.



General and
Administrative Expenses.General and administrative expenses increased $614,600 to $804,600 for the three months ended March 31, 2003 from $190,000 for the three months ended March 31, 2002. This increase is substantially a result of the
acquisitions which resulted in an increase in our overhead expenses.



Marketing Expenses.Marketing expenses increased $114,500 to $116,400 for the three months ended March 31, 2003 from $1,900 for the three months ended March 31, 2002. This increase in expenses was primarily related to salaries and
bonuses of internal sales and marketing personnel stemming from the acquisitions in 2002.



Depreciation and Amortization Expenses.The depreciation expense of $39,900 for the three months ended March 31, 2003 was related primarily to the property and equipment acquired through the acquisitions. The
amortization expense of $21,200 related to non-competition agreements entered into with former employees of the acquired companies.



Interest Expense.Interest expense decreased $13,800 to $20,500 for the three months ended March 31, 2003 from $34,300 for the three months ended
March 31, 2002. Interest expense in the first three months of 2002 was attributable to certain loans that were converted into equity in April 2002 with the issuance of Series A Preferred Stock. Interest expense in the three months ended March 31,
2003, reflects primarily the cost of factoring receivables by our subsidiary, UDT Consulting.



LIQUIDITY AND CAPITAL RESOURCES



At March 31, 2003, we had cash and cash equivalents of $38,000 and a working capital deficit of $1.8 million compared to cash and cash equivalents of $444,300 and a working capital deficit of $1.4 million on December 31, 2002. During the
three months ended March 31, 2003, net cash used in operating activities was $403,200 and net cash used in investing activities was $3,100, for a total decrease in cash and cash equivalents for the period of $406,300. We do not maintain a bank
credit facility.



As a result of our May 2003 issuance of
Series A Preferred Stock (see Note 13, Subsequent Events2003 Series A Preferred Financing, to our unaudited consolidated financial statements included in this report), at June 30, 2003 we had cash and cash equivalents of $1.1
million and a working capital deficit of $1.9 million.



We
expect our liquidity to remain tight throughout the remainder of 2003. We will look to our current cash reserves, cash reserves created by our additional issuance of shares of Series A Preferred Stock in May 2003 and cash flows generated by our
acquired companies 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.



Ability to Continue as a Going Concern



Our
independent accountants have included an explanatory paragraph in their report on our financial statements for the year ended December 31, 2002, contained in our most recent Annual Report on Form 10-KSB, that states that our consolidated financial
statements have been prepared assuming that we will continue as a going concern, but that substantial doubt exists as to our ability to do so.



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SEASONALITY



Based upon our review of current companies and acquisition candidates, the IT Professional Service businesses experience a moderate level of seasonality.
The first quarter revenue tends to be the lowest, higher revenues are generally reflected in the second and third quarters and revenues in the fourth quarter decline from the mid-year levels. Revenues for Business Application Software and
Application Services and Management do not reflect a discernable pattern of seasonality.



RISK FACTORS



In
addition to the information contained herein, readers of this report or any of our press releases should carefully consider the risk factors contained in previous filings, in particular our most recent Annual Report on Form 10-KSB.



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 forward-looking statements 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 thereby. Readers are cautioned that such statements are only predictions and that actual events or results may materially differ with
those statements. In evaluating such statements, readers should specifically consider the various risk factors and other information identified that could cause actual results to differ materially from those indicated by the forward-looking
statements.



SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES



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 are considered to 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.



Marketable
Securities



Marketable equity securities are classified as
available-for-sale and are recorded at fair market value determined based on quoted market prices. The net unrealized gain or loss of marketable securities is included in accumulated other comprehensive income in the equity section of the
Consolidated Balance Sheet. Realized gains and losses and declines in market value determined to be other than temporary are included in other income. Realized gains and losses are based on the average cost of shares acquired. At March 31, 2003, we
owned 984 shares of Overture Services, which were acquired as part of our acquisition of Media Resolutions, Inc. in April 2002 (see Note 3, Business Combinations, to our unaudited consolidated financial statements included in this
report). These shares are pledged to the selling shareholders of Media Resolutions to secure the payment of merger consideration withheld at closing to secure representations and warranties made by the selling shareholders in that acquisition.



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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 5 years.



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.



Revenue Recognition



Although we provide 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. Deposits received from customers in advance of
the delivery of product or provision of service are included in Other Current Liabilities in the Consolidated Balance Sheet.



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 Intangibles 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. Under the new rules, 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, we performed an annual impairment test of goodwill in the third quarter of 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.



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 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 the tax benefit on these losses due to the uncertainty surrounding their
recoverability.



Management Fees  Related Party



In December 2000, we entered into a management agreement
with PurchasePooling Solutions, Inc. pursuant to which PurchasePooling was to pay 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 collected $50,000 in
management



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fees from PurchasePooling during the three months ended March 31, 2003. Of such amounts, $10,000 is reflected as a
reduction in General and administrative expenses, with the balance reflected as Incomeother in our Consolidated Statements of Operations.



ITEM 3. CONTROLS AND PROCEDURES



Within the ninety days prior to the filing date of 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 Accounting Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief
Executive Officer and the Principal Accounting Officer concluded that our disclosure controls and procedures are effective 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 CFO, as appropriate to allow timely decisions regarding required disclosure.



There have been no significant changes in the Companys internal controls or in other factors that could significantly
affect internal controls subsequent to the date the Company carried out its evaluation.



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PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



PROCEEDINGS AGAINST
THE VISIONARY GROUP



In June 2002, we were notified that
The Visionary Group and Axtive had been sued in the District Court of Dallas County, Texas for non-payment of approximately $110,000 due to former sub-contractors of The Visionary Group. In order to limit our costs to defend the matter, Axtive
agreed to a partial summary judgment pursuant to which Axtive admitted the liability of The Visionary Group, but retained our defenses on the third-party beneficiary claim against Axtive. Trial has been set for October 2003.



The Visionary Group ceased operations in December 2002. The company has no
employees and no assets and identified liabilities totaling, including the $110,000 non-payment discussed above, of approximately $190,000. Accordingly, we do not expect that an adverse judgment against The Visionary Group in this lawsuit would have
a material impact on Axtive.



With respect to any exposure
directly against Axtive Corporation, we believe we have meritorious defenses, but an adverse judgment against Axtive could have a material negative impact on our business.



In April 2003, a judgment was entered against The Visionary Group in the amount of approximately $3,000 for failure to pay
the business related expenses of a former employee. The judgment remains outstanding.



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 and a tolling 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 October 2002, a former employee 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. 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.



In January 2001, 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, the ThinkSpark subsidiary ceased operations in the United Kingdom and consequently breached the lease agreement. The United Kingdom subsidiary 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 1,219,149 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. Assuming the promissory note is paid in full pursuant to its terms, all of the
shares will be returned. All returned shares will be held by us as treasury shares. If there is a default on the promissory note, the landlord has the right to keep all or part of the shares to satisfy any remaining obligation.



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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
filed in state court in Texas an authenticated copy of a judgment for domestication under the Uniform Enforcement of Foreign Judgments Act, and ThinkSpark has been served with post-judgment discovery. The ThinkSpark subsidiary is in discussions with
the landlord to settle the judgment; however, we can give you no assurance that ThinkSpark will be able to enter into a settlement.



A subsidiary of ThinkSpark was sued in state court in Tarrant County, Texas for breach of an October 1998 lease agreement for office space in Fort Worth,
Texas, which has been vacated by the ThinkSpark subsidiary. The landlord seeks damages for past due rent, utilities and other sums due under the lease, future rents, brokerage commissions paid by the landlord at the commencement of the lease, and
unreimbursed tenant improvement expenses in the total amount of approximately $212,000, plus attorneys fees. The ThinkSpark subsidiary is in discussions with the landlord to settle the claims; however, we can give you no assurance that the
ThinkSpark subsidiary will be able to enter into a settlement or otherwise successfully defend against the landlords claims.



A subsidiary of ThinkSpark was sued in state court in Fulton County, Georgia for breach of a June 2000 lease agreement for office space in Atlanta,
Georgia, which has been vacated by the ThinkSpark subsidiary. The landlord seeks damages for past due rent of approximately $12,000 per month since August 2002. The action as originally filed claimed past due rent from August-November 2002; however,
the landlord has indicated its intent to seek the full remaining obligation under the lease from November 2002 of approximately $420,000. The ThinkSpark subsidiary is in discussions with the landlord to settle the claims; however, we can give you no
assurance that the ThinkSpark subsidiary will be able to enter into a settlement or otherwise successfully defend against the landlords claims.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



ISSUANCE OF SERIES A PREFERRED STOCK



On May
23, 2003, we issued 2,335 shares of our Series A Preferred Stock in a private offering to new and existing private, accredited investors at $1,000 per share. We received gross proceeds of $2.3 million, consisting of $2.25 million in cash and $84,000
in satisfaction of debt owed by Axtive to a stockholder and to an executive officer. Of the net cash proceeds, after $224,000 in legal expenses related to the issuance of Series A Preferred Stock, the acquisition of ThinkSpark and the preparation of
the management agreement regarding Demand Aggregation Solutions, LLC, we have used or expect to use $500,000 to satisfy current liabilities arising from prior acquisitions and $61,000 in cash merger consideration for the ThinkSpark acquisition. The
balance is available for working capital and general corporate purposes.



Each new share of our Series A Preferred Stock carries an 8% cumulative dividend and is convertible into shares of our common stock at an initial conversion price of $0.10 per share. The new shares of Series A
Preferred Stock were immediately convertible upon issuance. Each new purchaser was also granted warrants to purchase 20 shares of our common stock for each 100 shares of common stock the investor was initially entitled to receive upon conversion of
the Series A Preferred Stock. The warrants are exercisable at a price of $0.20 per share. We issued warrants to acquire 4,670,000 shares of common stock in connection with the new financing.



The initial issuance of Series A Preferred Stock in 2002 provided that
subsequent issuances of the shares on terms more favorable than those provided to the original investors in the Series A Preferred would automatically adjust the terms and conditions on the outstanding Series A Preferred Stock to the more favorable
terms and conditions. As a result, the initial conversion price on all shares of Series A Preferred Stock issued in 2002 was reduced from $0.75 to $0.10 per share, and the exercise price of the warrants issued in 2002 was reduced from $1.15 per
share to $0.20 per share. Each purchaser of Series A Preferred Stock in 2002 was issued a restated warrant exercisable for additional shares as a result of the decrease in the initial conversion price. The restated warrants are exercisable for a
total of 7,696,002 additional shares of common stock. In addition, the holders of the Series A Preferred Stock were given the right to elect one member of our board of directors.



In July 2003, we issued an additional 50 shares of Series A Preferred Stock in a private offering to a purchaser in the May
2003 offering, G.C. Scooter Beachum, who is also one of our executive officers. This issuance was pursuant to an irrevocable subscription agreement executed by the purchaser at the time of the issuance of Series A Preferred Stock in May
2003. The terms were identical to the May 2003 sale of Series A Preferred Stock. The Company received gross proceeds of $50,000 in cash. Net proceeds of the sale will be used for general



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corporate purposes. As part of this subsequent issuance, we issued additional warrants exercisable for 100,000 shares of
our common stock.



We paid no commissions in connection with
issuance of the new shares of Series A Preferred Stock in 2003. The new shares of Series A Preferred Stock and warrants to purchase common stock 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 of 1933. A Form D was filed with the SEC.



OTHER ISSUANCES



In
connection with the settlement of a lease dispute involving a United Kingdom subsidiary of ThinkSpark Corporation, ThinkSpark entered into a settlement agreement with the landlord. See Item 3, Legal ProceedingsProceedings Against
ThinkSpark. Pursuant to the terms of the settlement agreement, we issued 1,219,149 restricted shares of our common stock to the landlord as security for a promissory note from Axtive for $200,000. 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. Assuming the promissory note is paid in full pursuant to its terms, all of the shares will be returned. All returned shares will be
held by us as treasury shares. If there is a default on the promissory note, the landlord has the right to keep all or part of the shares to satisfy any remaining obligation. 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.



Effective May 1, 2003, we entered into a new services agreement with Atlas Capital Services, LLC. Pursuant to the agreement,
in exchange for financial advisory services as described in the agreement Atlas was entitled to an advisory fee consisting of (1) 1,115,000 restricted shares of our common stock, (2) 250,000 restricted shares of our common stock to be issued
directly to Leeb Brokerage Services for Leebs introduction of Atlas to us, (3) warrants to purchase 1,250,000 restricted shares of our common stock, and (4) a monthly cash fee. The warrants were issued effective June 26, 2003, upon the same
terms as the warrants issued to the purchasers of Series A Preferred Stock in May 2003. The restricted shares of common stock were issued in July 2003. The issuance of the restricted shares of common stock and warrants did not involve a public
offering. The restricted shares and warrants were issued by the Company in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act.



On July 1, 2003, we issued 297,674 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 if the market price of our common stock had not been at or above $0.75 within the one-year period after our purchase. G.C. Scooter Beachum, our Executive Vice President and General
Manager, is the sole shareholder and director of TSTC. The issuance of the restricted shares of common stock did not involve a public offering. The restricted shares were issued to TSTC by the Company in reliance upon an exemption from registration
pursuant to Section 4(2) of the Securities Act.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



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



No matters were submitted to a vote of our stockholders during the first quarter of 2003.



ITEM 5. OTHER INFORMATION



None.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------



|ExhibitNumber |  | Description                                                              
|------------- |  | -------------------------------------------------------------------------
|              | 
|99.1          |  | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



None.



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SIGNATURES



In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



AXTIVE CORPORATION

|    | 
|--- | 
|By: | 
|    | 



August 5, 2003



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CERTIFICATION



I, Graham C. Beachum II, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Axtive Corporation;
|-- |  | ---------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: August 5, 2003



/s/ Graham C. Beachum II

Graham C.
Beachum II

Chairman of the Board, President and Chief Executive Officer



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CERTIFICATION



I, David N. Pilotte, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Axtive Corporation;
|-- |  | ---------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: August 5, 2003



/s/ David N. Pilotte

David N. Pilotte

Executive Vice President, Chief Financial Officer and Secretary



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INDEX TO EXHIBITS



|ExhibitNumber |  | Description                                                              
|------------- |  | -------------------------------------------------------------------------
|              | 
|99.1          |  | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.