-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCZ8K8fWyLWDvGlS4UvrAuRXoNwBBmtfOCofdUsqXoIaTjaqmaYLHz3R/FRClU6c fsIq4AMI1dPA+otSVpalzA== 0001005477-01-002724.txt : 20010416 0001005477-01-002724.hdr.sgml : 20010416 ACCESSION NUMBER: 0001005477-01-002724 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHELL GROUP CORP CENTRAL INDEX KEY: 0000797313 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112805051 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18066 FILM NUMBER: 1601930 BUSINESS ADDRESS: STREET 1: 14 METEOR DR STREET 2: BLDG 18 CITY: ETOBOCOKE ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 4166756666 MAIL ADDRESS: STREET 1: 14 METEOR DR CITY: ETOBICOKE ONTARIO STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: NETWORKS NORTH INC DATE OF NAME CHANGE: 19980811 FORMER COMPANY: FORMER CONFORMED NAME: NTN CANADA INC DATE OF NAME CHANGE: 19961016 10-Q 1 0001.txt FORM 10-Q FORM 10-Q Securities and Exchange Commission Washington D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: February 28, 2001 Commission file number: 0-18066 CHELL GROUP CORPORATION f/k/a Networks North, Inc. (Exact name of registrant as specified in its charter) New York 11-2805051 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 Meteor Drive Toronto, Ontario, Canada M9W 1A4 (Address of principal executive offices) (Zip Code) (416) 675-6666 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of April 11, 2001: 9,328,065 shares of common stock, par value $.0467 per share. CHELL GROUP CORPORATION (formerly known as Networks North Inc.) AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001 PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Page Consolidated Balance Sheets - as at February 28, 2001 (unaudited) and August 31, 2000 1 Consolidated Statements of Operations and Retained Earnings (deficit) - for the Six Months Ended February 28, 2001 and February 29, 2000 (unaudited) 2 Consolidated Statements of Operations and Retained Earnings (deficit) - for the Three Months Ended February 28, 2001 and February 29, 2000 (unaudited) 2 Consolidated Statements of Cash Flows - for the Six Months Ended February 28, 2001 and February 29, 2000 (unaudited) 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 2. Changes in Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 19 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED BALANCE SHEETS AS AT FEBRUARY 28, 2001 AND AUGUST 31, 2000 (Expressed in Canadian dollars)
============================================================================================== February 28, 2001 (unaudited) August 31, 2000 $ $ ============================================================================================== ASSETS Current Cash and cash equivalents 221,675 1,355,613 Short-term investments 19,532 269,727 Accounts receivable, trade - net of allowance for doubtful accounts of $227,000; August - $178,000 3,055,123 3,154,134 Other receivables 96,360 216,990 Income taxes receivable 241,718 143,227 Inventory 218,823 206,216 Prepaid expenses 751,522 636,726 - ---------------------------------------------------------------------------------------------- Total current assets 4,604,753 5,982,633 - ---------------------------------------------------------------------------------------------- Property and equipment, net 9,148,828 7,721,769 Software development costs, net 175,000 200,000 Licenses, net of accumulated amortization 240,074 250,248 Goodwill, net of accumulated amortization 2,946,655 2,863,146 Notes receivable 461,100 160,000 Deposit on purchase 1,689,710 -- Other assets, net of amortization 383,482 202,799 - ---------------------------------------------------------------------------------------------- 19,649,602 17,380,595 ============================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank indebtedness 121,000 133,000 Accounts payable - trade 2,292,180 1,375,414 Accrued liabilities 994,480 1,654,917 Current portion of long-term debt 3,296,495 397,632 - ---------------------------------------------------------------------------------------------- Total current liabilities 6,704,155 3,560,963 - ---------------------------------------------------------------------------------------------- Long-term debt 6,602,190 4,377,040 Deferred income taxes payable 59,173 59,173 - ---------------------------------------------------------------------------------------------- Total liabilities 13,365,518 7,997,176 - ---------------------------------------------------------------------------------------------- Contingent liabilities Shareholders' equity Share capital 900,000 preferred shares 10,917 10,917 8,531,637 common shares [August - 2,925,141] 568,777 183,235 Capital in excess of par value 13,352,442 10,124,777 Deficit (7,648,052) (935,510) - ---------------------------------------------------------------------------------------------- Total shareholders' equity 6,284,084 9,383,419 - ---------------------------------------------------------------------------------------------- 19,649,602 17,380,595 ==============================================================================================
The accompanying notes are an integral part of these statements 1 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (Expressed in Canadian dollars - unaudited)
============================================================================================================== For Three Months Ended For Six Months Ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 $ $ $ $ ============================================================================================================== REVENUE Network services 1,648,269 1,678,538 3,274,340 3,276,562 Pay-TV 1,511,369 1,409,200 3,296,475 3,245,900 Event programming 136,492 108,451 197,699 209,151 Ad sponsorship 13,446 93,488 72,291 289,298 Video/software sales 902,800 992,510 2,118,654 2,650,880 Digital encoding 309,143 140,562 537,752 243,109 Other 47,949 3,151 75,122 46,596 - -------------------------------------------------------------------------------------------------------------- 4,569,468 4,425,900 9,572,333 9,961,496 - -------------------------------------------------------------------------------------------------------------- COST OF SALES Network services 624,377 568,001 1,205,189 1,095,267 Pay-TV 586,786 676,100 1,315,054 1,187,900 Event programming 1,340 21,976 340 40,914 Ad sponsorship -- 7,530 -- 11,280 Video/software sales 326,133 368,959 723,807 1,107,507 Digital encoding 8,140 43,776 14,055 46,188 Other -- 36,006 -- 40,482 - -------------------------------------------------------------------------------------------------------------- 1,546,776 1,722,348 3,258,445 3,529,538 - -------------------------------------------------------------------------------------------------------------- EXPENSES Selling, general and administrative expenses 5,389,974 2,928,099 10,627,987 5,515,497 Bad debt 32,150 110,972 67,029 115,512 Interest and bank charges 199,763 68,290 292,218 148,469 Write off of leasehold improvements -- -- 355,560 -- Depreciation and amortization 797,453 608,865 1,648,130 1,108,342 - -------------------------------------------------------------------------------------------------------------- Loss before undernoted (3,396,648) (1,012,674) (6,677,036) (455,862) Provision for (recovery of) income taxes -- (75,458) -- 223,000 Minority interest 25,326 1,322 35,506 (2,931) - -------------------------------------------------------------------------------------------------------------- Loss and comprehensive loss for the period (3,421,974) (938,538) (6,712,542) (675,931) Retained earnings (deficit), beginning of period (4,226,078) 1,312,939 (935,510) 1,050,332 - -------------------------------------------------------------------------------------------------------------- Retained earnings (deficit), end of period (7,648,052) 374,401 (7,648,052) 374,401 ============================================================================================================== Earnings (loss) per share: Basic (0.41) (0.33) (0.80) (0.24) Diluted (0.41) (0.33) (0.80) (0.24) ==============================================================================================================
The accompanying notes are an integral part of these statements 2 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 (Expressed in Canadian dollars - unaudited)
========================================================================================================= February 28, 2001 February 29, 2000 $ $ ========================================================================================================= OPERATING ACTIVITIES Net income (loss) and comprehensive income (loss) for the period (6,712,542) (675,931) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,648,130 1,108,342 Accretion of interest on non-interest bearing promissory notes 91,721 86,538 Write-off of leasehold improvements 355,560 -- Services rendered for shares 429,766 -- Warrants issued 152,702 -- Write-off of prepaids arising from Chell asset purchase 367,235 -- Changes in assets and liabilities: Decrease in short-term investments 250,195 3,303 Decrease (increase) in accounts receivable, trade 99,011 (1,436,095) Decrease (increase) in income taxes receivable (98,491) 157,464 Decrease (increase) in inventory (12,607) 23,908 Increase in prepaid expenses (69,752) (110,110) Decrease in other accounts receivable 122,035 -- Decrease in other assets 36,679 -- Increase in accounts payable and accrued liabilities 49,446 950,834 Increase in income taxes payable -- 61,042 - --------------------------------------------------------------------------------------------------------- Cash (used in) provided by operating activities (3,290,912) 169,295 - --------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property and equipment (964,229) (1,178,810) Increase in deposit on purchase (1,689,710) -- Increase in notes receivable (301,100) -- - --------------------------------------------------------------------------------------------------------- Cash used in investing activities (2,955,039) (1,178,810) - --------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Bank indebtedness (12,000) (12,000) Increase in notes and loans payable 5,151,986 -- Repayment of notes and loans payable (27,973) (24,853) Proceeds from exercise of options -- 4,336 - --------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 5,112,013 (32,517) - --------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents during the period (1,133,938) (1,042,032) Cash and cash equivalents, beginning of period 1,355,613 2,018,122 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period 221,675 976,090 ========================================================================================================= - --------------------------------------------------------------------------------------------------------- Income Taxes Paid 98,491 2,500 Interest Paid 64,428 61,931
Non cash items arose from the purchase of Chell.com assets during the 2001 First Fiscal Half. They are $1,936,272 of property & equipment, $107,589 of goodwill, $45,044 of prepaids, $1,404 in other accounts receivable and in addition shares were issued (Note 5). Other assets of $217,362 arose from the issue of warrants, and shares were issued for consulting fees and salaries in the amount of $429,766. The accompanying notes are an integral part of these statements 3 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 (UNAUDITED) Note 1. Basis of Presentation The accompanying financial statements for the interim periods are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K of Networks North Inc. (the "Company") (Commission No.:0-18066), filed with the Securities and Exchange Commission on December 14, 2000. The results of operations for the six months ended February 28, 2001 are not necessarily indicative of the results for the full fiscal year ending August 31, 2001. Note 2. General The financial statements of the Company for the three and six months ended February 28, 2001 (the "2001 Second Fiscal Quarter" and "2001 First Fiscal Half"), include the operations of the Company's wholly-owned subsidiaries Chell Merchant Capital Group Inc. ("CMCG"), Chell.com (USA) Inc., NTN Interactive Network Inc. ("NTNIN"), 3484751 Canada Inc., GalaVu Entertainment Network Inc. ("GalaVu") and NTNIN's wholly-owned subsidiaries Magic Lantern Communications Ltd. ("Magic") and Interlynx Multimedia Inc. ("Interlynx"). The financial statements of the Company for the three and six months ended February 29, 2000 (the "2000 First Fiscal Quarter" and "2000 First Fiscal Half"), include the operations of the Company's wholly-owned subsidiaries NTNIN, 3484751 Canada Inc., GalaVu and NTNIN's wholly-owned subsidiaries Magic and Interlynx. Magic conducts its operations directly and through its wholly owned subsidiaries, 745695 Ontario Ltd. ("Custom Video"), B.C. Learning Connection Inc. ("BCLC"), and 1113659 Ontario Ltd. ("Viewer Services") and its 75% ownership of the outstanding shares of Sonoptic Technologies Inc. ("Sonoptic"). Effective September 1, 2000 the operations of BCLC and Custom Video were merged with Magic and the BCLC and Custom Video corporations were wound up. Also, effective September 1, 2000 Magic's wholly owned subsidiary TutorBuddy Inc. commenced operations. 4 Prior period's figures have been reclassified to be consistent with any reclassifications in the current period. Note 3. Business Segment Data for the three and six months ended February 28, 2001 and February 29, 2000
======================================================================================== For Three Months Ended For Six Months Ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 $ $ $ $ ======================================================================================== External revenue Entertainment 3,344,857 3,293,981 6,895,109 7,062,260 Education 1,109,447 1,093,876 2,371,850 2,664,574 E-commerce 104,886 39,195 288,886 229,415 ASP Services -- -- -- -- Corporate 10,278 (1,152) 16,488 5,247 - ---------------------------------------------------------------------------------------- 4,569,468 4,425,900 9,572,333 9,961,496 - ---------------------------------------------------------------------------------------- Inter-segment revenue Entertainment -- (3,539) -- 28,475 Education 46,584 -- 98,741 -- Corporate -- 32,049 -- 64,300 - ---------------------------------------------------------------------------------------- 46,584 28,510 98,741 92,775 - ---------------------------------------------------------------------------------------- Operating profit (loss) Entertainment (140,192) (208,329) (223,136) 353,296 Education (199,713) (233,840) (391,901) (161,507) E-commerce (157,896) (542,506) (286,221) (629,536) ASP Services (2,028,649) -- (4,828,305) -- Corporate (870,198) (27,999) (947,473) (18,115) - ---------------------------------------------------------------------------------------- (3,396,648) (1,012,674) (6,677,036) (455,862) - ---------------------------------------------------------------------------------------- Net income (loss) Entertainment (140,192) (132,871) (223,136) 130,296 Education (225,039) (235,162) (427,407) (158,576) E-commerce (157,896) (542,506) (286,221) (629,536) ASP Services (2,028,649) -- (4,828,305) -- Corporate (870,198) (27,998) (947,473) (18,115) - ---------------------------------------------------------------------------------------- (3,421,974) (938,538) (6,712,542) (675,931) - ----------------------------------------------------------------------------------------
================================================================================ As at February 28, February 29, 2001 2000 $ $ ================================================================================ Total assets Entertainment 10,628,126 12,229,724 Education 3,483,320 4,310,639 E-commerce 243 578,222 ASP Services 2,033,304 -- Corporate 3,504,609 1,031,459 - -------------------------------------------------------------------------------- 19,649,602 18,150,044 - -------------------------------------------------------------------------------- 5 Note 4. Earnings per share Earnings per share were calculated in accordance with Statement of Financial Accounting Standards No. 128. The following table sets forth the computation of basic and diluted earnings per share for the three months and six months ended February 28, 2001 and February 29, 2000:
======================================================================================================== For Three Months Ended For Six Months Ended February 28, February 29, February 28, February 29, 2001 2000 2001 2000 $ $ $ $ ======================================================================================================== Numerator: Net income (loss) (numerator for basic and diluted earnings (loss) per share) $(3,421,974) $ (938,538) $(6,712,542) $ (675,931) ======================================================================================================== Denominator for basic and diluted loss per share-adjusted weighted average number of shares and assumed conversions 8,356,399 2,848,558 8,356,399 2,848,558 ======================================================================================================== Basic loss per share $ (0.41) $ (0.33) $ (0.80) $ (0.24) ======================================================================================================== Diluted loss per share $ (0.41) $ (0.33) $ (0.80) $ (0.24) ========================================================================================================
Note 5. Purchase of assets and shares from Chel.com Ltd. and Cameron Chell On September 19, 2000, pursuant to an Agreement of Purchase and Sale dated as of August 4, 2000, the Company and its subsidiary Chell Merchant Capital Group acquired, certain shares and assets from Cameron Chell and Chell.com Ltd. ("Chell.com"), a Company owned 100% by Cameron Chell. Pursuant to the Agreement, the Company acquired: (a) 480,000 common shares of cDemo Inc. (23%); (b) 875,000 common shares of Engyro, Inc. (34%); (c) 150,000 common shares of cMeRun Corp. (1%); and (d) 60,000 common shares of Chell.com USA (100%). In addition, Chell Merchant Capital Group acquired 962,500 common shares of eSupplies (Alberta) Ltd. (27%) as well as certain assets from Chell.com. This acquisition was not reflected in the financial statements for the year ended August 31, 2000 since shareholder approval to ratify the above purchase transaction was not voted on and approved until September 8, 2000. In consideration for this acquisition, the Company issued 4,974,904 shares of its common stockand Chell Merchant Capital Group issued 1,928,267 special convertible shares, inclusive of 1,476,399 shares issued in exchange for the shares of eSupplies (Alberta) Ltd., to Cameron Chell, Chell.com and others. The shares of the Company that were issued in exchange for the shares of eSupplies (Alberta) Inc. have been placed in escrow and the investments in this company will not be recorded until such time as certain contingent conditions are met. Each share issued by Chell Merchant Capital Group is convertible into one share of common stock of the Company. Pursuant to a Voting and Exchange Trust Agreement entered into with a trustee, whereby voting privileges have been granted, such shares issued by Chell Merchant Capital Group can be voted by the trustee 6 immediately. The amount of shares issued was determined based upon an appraisal valuation of the investments and assets acquired which aggregated US $28,652,086. The shares of the Company that were originally issued in exchange for the shares of cMeRun Corp. were placed in escrow and the investment in this company was not recorded. The conditions of the escrow were not met for cMeRun Corp. and subsequently these shares were cancelled. As a result of the above, Cameron Chell and Chell.com now own approximately 65% of the Company's outstanding common stock, that is the Company has in effect been acquired in a reverse acquisition. This acquisition of the Company by Cameron Chell and Chell.com and the acquisition by the Company of the equity interests, as described in the first paragraph, are reflected at historical cost in the Company's separate financial statements. The Company will reflect the minority equity investments using the equity method of accounting. Note 6. Purchase of Richard Wolff Enterprises, Inc. assets Pursuant to an asset purchase agreement dated September 1, 2000, Magic acquired the assets and business operations of Richard Wolff Enterprises, Inc. ("RWE"), a company based in Illinois, for a purchase price of $289,590 calculated on a discounted basis. As a result, Magic has expanded its library of educational titles and now has access to the international distribution infrastructure formerly held by RWE. The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to property and equipment. The purchase price was satisfied by $154,825 in cash and the issuance of four promissory notes with maturity values aggregating $147,350. These promissory notes mature over a period of two years. The fair values of these promissory notes approximate their carrying value. The asset purchase agreement also contains a purchase price adjustment clause whereby the price may be adjusted upwards to a maximum of an additional US$100,000 if certain revenue levels are achieved. Specifically, if gross revenues for the acquired business exceed US$500,000 for the 12 month period ending August 31, 2001, Magic will pay to RWE US$50,000, and if gross revenues exceed US$600,000 for the second 12 month period ending August 31, 2002, Magic will pay to RWE an additional US$50,000. The operating results related to the acquisition are included in the Company's consolidated statements of operations and retained earnings from the date of acquisition. Pro-forma information has not been provided for the prior year because it is not material. Note 7. Deposit on purchase of Applicationstation.com, Inc. shares On November 22, 2000, the Company entered into an agreement with Chell.com Ltd. to participate in the purchase of a 51% interest in the shares of ApplicationStation.com, Inc. 7 The Company has provided a deposit of $1,689,710 to Chell.com Ltd. for its 25% share of the 51% interest in the shares of ApplicationStation.com, Inc. The Company's investment will be reflected using the equity method of accounting. Note 8. Note payable On January 15, 2001, the Company received US$1,500,000 in return for a promissory note payable. The note bears interest at 2% per month and the principal and accrued interest is due and payable on April 15, 2001. Note 9. Convertible debenture - related party transaction On October 3, 2000, the Company closed the sale of a US$3,000,000 Convertible 10% Debenture to the VC Advantage Limited Partnership ("VCALP"). As at February 28, 2001, US$1,700,000 has been advanced. This unsecured convertible debenture is due three years from issue. The Convertible Debenture bears interest at 10% per annum, payable upon conversion, redemption or maturity. The unpaid principal of the debenture bears interest from the date that it is actually advanced until paid. Interest is payable in cash or stock at the Company's option. The Convertible Debenture is convertible into common stock of the Company, at US$3.00 per share, in amounts specified by the VCALP. The maximum number of common shares VCALP will receive is one million. On the close date, the Company also issued 50,000 warrants to purchase 50,000 common shares at US$3.00 per share to VCALP. The warrants have a term of four years. On November 30, 2000 the convertible debenture was assigned by VCALP to CALP II Limited Partnership. Note 10. Contingent Liabilities On June 18, 1992, Interactive Network Inc., a third party, instituted proceedings against NTN Communications Inc., one of the Company's major suppliers, NTN Interactive Network Inc. and the Company in the Federal Court of Canada and in the California Supreme Court claiming patent infringement. It is the opinion of the Company's management that this patent infringement claim will be successfully defended. Canada Customs and Revenue Agency is currently in discussions with the Company regarding a potential liability with respect to withholding tax on certain amounts paid to NTN Communications, Inc. No assessment has been made to date by Canada Customs and Revenue Agency. Management believes that it has valid defenses with respect to these matters and, accordingly, no amount has been recorded in these consolidated financial statements. In the event that such matters are settled in favour of Canada Customs and Revenue Agency, the amounts could be material and would be recorded in the period in which they become determinable. 8 Note 11. Changes in share capital During the six months ended February 28, 2001, the following transactions resulted in the issuance of 5,606,496 common shares of the Company and Chell Merchant Capital Group Inc. The acquisition of certain assets of Chell.com and Cameron Chell was satisfied by the issuance of 5,426,772 common shares of the Company. In addition 95,000 shares were issued as payment for consulting fees rendered and 21,974 shares issued in lieu of salary issued as a finders fee. Also during the six months ended February 28, 2001, options totaling 62,750 were exercised resulting in the issuance of additional 62,750 common shares of the Company. Effective February 28, 2001, common shares authorized to be issued was increased to 50,000,000. Note 12. Recent pronouncements In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain issues, including the definition of an employee, the treatment of the acceleration of stock options and the accounting treatment for options assumed in business combinations. FIN 44 became effective on July 1, 2000, but is applicable for certain transactions dating back to December 1998. The adoption of FIN 44 did not have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." (SAB No. 101). SAB No. 101 expresses the views of the SEC staff in applying generally accepted accounting principles to certain revenue recognition issues. The adoption of the provisions of SAB No. 101 in the first quarter of fiscal 2001 did not have a material impact on the Company's financial position or its results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."(SFAS No. 133). SFAS No. 133, as amended by SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the statement of financial position and the measurement of those instruments at fair value. The Company adopted this standard in the first quarter of fiscal year 2001 pursuant to SFAS No. 137 (issued in June 1999), which delays the adoption of SFAS No. 133 until that time. The adoption of SFAS No. 133 did not have a material impact on the Company's financial position or its results of operations. Note 13. Subsequent Events On March 23, 2001, the Company entered into a financial public relations consulting agreement, that will provide the consultant with options valued at US$2.00 to purchase 500,000 free trading shares of the common stock of the Company subject to certain conditions being met. The agreement covers the period of March 21, 2001 to September 21, 2001. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The financial statements of the Company and the information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations are expressed in Canadian dollars. General Chell Group Corporation is engaged in the business of defining, building and re-engineering businesses, interactive entertainment services and electronic/online products and services using new economy technologies to maximize market value. The Company's main business strategy is to operate or invest in companies that represent the latest in technological innovations. In that regard, the Company has two main categories of companies: operating subsidiaries and investment companies. The Company applies its expertise, industry contacts, and market foresight to these companies in order to create shareholder value. The core businesses of the Company are the merchant capital services provided through Chell Merchant Capital Group Inc. (referred to as the "Merchant Capital Group") and the interactive entertainment services provided by NTN IN. In addition, GalaVu is a technology based entertainment provider of interactive in-room entertainment systems to hotels across Canada; the Magic Lantern Group is involved in the marketing and distribution of educational video and media resources and the conversion of analog video to digital video formats; and Interlynx designs and develops web-based training software. Results of Operations for the Three Months ended February 28, 2001 The Company's total revenues for the 2001 Second Fiscal Quarter were $4,569,468, compared to $4,425,900 for the 2000 Second Fiscal Quarter, an increase of $143,568 or 3.2%. Revenues from network services for the 2001 Second Fiscal Quarter were $1,648,269, compared to $1,678,538 for the 2000 Second Fiscal Quarter, a decrease of $30,269 or 1.8%. These revenues are relatively constant between years due to the number of Hospitality sites remaining at approximately the same level between the 2001 and 2000 Second Fiscal Quarters. Revenues from Pay-tv for the 2001 Second Fiscal Quarter were $1,511,369 compared to $1,409,200 for the 2000 Second Fiscal Quarter, an increase of $102,169 or 7.3%. This increase can be attributed to more popular movies available in the 2001 Second Fiscal Quarter than in the 2000 Second Fiscal Quarter. Revenues from event programming for the 2001 Second Fiscal Quarter were $136,492, compared to $108,451 for the 2000 Second Fiscal Quarter, an increase of $28,041 or 25.9%. The increase was due to an increased number of corporate events hosted in the 2001 Second Fiscal Quarter when compared to the number of events hosted in 2000 Second Fiscal Quarter. 10 Revenues from ad sponsorship were $13,446 for the 2001 Second Fiscal Quarter, compared to $93,488 for the 2000 Second Fiscal Quarter, a decrease of 80,042 or 85.6%. The decrease was the result of a decrease in the number and size of corporate sponsors over the level experienced in the previous period. Revenues from video and software sales for the 2001 Second Fiscal Quarter were $902,800, compared to $992,510 for the 2000 Second Fiscal Quarter, a decrease of $89,710 or 9.0%. The decrease is primarily the result of a decrease in analog video sales, yet the demand for digital video has not increased at the same corresponding levels. Revenues from digital encoding were $309,143 for the 2001 Second Fiscal Quarter, compared to $140,562 for the 2000 Second Fiscal Quarter, an increase of $168,581 or 119.9%. The increase can be attributed to increased demand for digital services and the greater sales effort in this area. Total cost of sales for the 2001 Second Fiscal Quarter were $1,546,776, compared to $1,722,348 for the 2000 Second Fiscal Quarter, a decrease of $175,572 or 10.2%. The decrease is the result of decreased costs associated with a change in the focus of event programming, the decreased sales in ad sponsorship and the decrease in video and software sales. As a percentage of revenues, cost of sales decreased in the 2001 Second Fiscal Quarter to 33.9% from 38.9% in the 2000 Second Fiscal Quarter. Total selling, general and administrative expenses for the 2001 Second Fiscal Quarter were $5,389,974, compared to $2,928,099 for the 2000 Second Fiscal Quarter, an increase of $2,461,875 or 84.1%. The increase was caused mainly by the addition of the ASP Services segment, which accounted for an increase of $2,260,416. The Company has also experienced increased investor and public relation costs as a result of the addition of the ASP Services segment. Total selling, general and administrative expenses for the 2001 Second Fiscal Quarter for the ASP Services segment comprised the following major items; salaries of $934,782, professional fees of $749,043, travel of $349,293, and investor and public relation costs of $90,193. As a percentage of the Company's total revenues, selling, general and administration expenses increased to 118.0% for the 2001 Second Fiscal Quarter from 66.2% for the 2000 Second Fiscal Quarter. During the 2001 Second Fiscal Quarter, Chell Merchant Capital Group Inc. decreased its staffing levels in the ASP Services segment. The costs of restructuring this company are of a one time nature and will not be incurred beyond the 2001 Second Fiscal Quarter. Interest and bank charges for the 2001 Second Fiscal Quarter were $199,763, compared to $68,290 for the 2000 Second Fiscal Quarter, an increase of $131,473 or 192.5%. This increase results from an increase in debt related to the purchase of the RWE assets and the sale of the convertible debenture. As a percentage of the Company's total revenues, 11 interest and bank charges increased to 4.4% for the 2001 Second Fiscal Quarter from 1.5% for the 2000 Second Fiscal Quarter. Total depreciation and amortization expense for the 2001 Second Fiscal Quarter was $797,453, compared to $608,865 for the 2000 Second Fiscal Quarter, an increase of $188,588 or 31.0%. This increase is primarily the result of depreciation on the fixed assets acquired from RWE and Chell.com Ltd. There was no provision of income taxes recorded in the 2001 Second Fiscal Quarter compared with a recovery of income taxes of $75,458 for the 2000 Second Fiscal Quarter. As the tax provision is based upon the individual company's taxable income, no provision was incurred, as the companies are not in a taxable position. The minority interest share in profit for the 2001 Second Fiscal Quarter was $25,326. This is compared to the minority interest share in losses for the 2000 Second Fiscal Quarter of $1,322, an overall change of $26,648. This change results from profitable operations in Sonoptic Technologies Inc., in which there is a 25% minority interest. As a result of all of the above, the net loss for the 2001 Second Fiscal Quarter was $3,421,974, compared to net loss of $938,538 for the 2000 Second Fiscal Quarter, a decrease of $2,483,436. The 2001 Second Fiscal Quarter loss resulted primarily from the addition of Chell Merchant Capital Group Inc. and Chell.com (USA) Inc. to the Company and their activities including the provision of services to developing ASP companies in which the Company has invested. Results of Operations for the Six Months ended February 28, 2001 The Company's total revenues for the 2001 First Fiscal Half were $9,572,333, compared to $9,961,496 for the 2000 First Fiscal Half, a decrease of $389,163 or 3.9%. Revenues from network services for the 2001 First Fiscal Half were $3,274,340, compared to $3,276,562 for the 2000 First Fiscal Half, a decrease of $2,222 or 0.1%. These revenues are relatively constant between years due to the number of Hospitality sites remaining at approximately the same level between the 2001 and 2000 First Fiscal Halves. Revenues from Pay-tv for the 2001 First Fiscal Half were $3,296,475 compared to $3,245,900 for the 2000 First Fiscal Half, an increase of $50,575 or 1.6%. This increase can be attributed to more popular movies. Revenues from event programming for the 2001 First Fiscal Half were $197,699 compared to $209,151 for the 2000 First Fiscal Half, a decrease of $11,452 or 5.5%. The decrease was due to a decreased number of corporate events hosted in the 2001 First Fiscal Half when compared to the number of events hosted in 2000 First Fiscal Half. Revenues from ad sponsorship were $72,291 for the 2001 First Fiscal Half, compared to $289,298 for the 2000 First Fiscal Half, a decrease of 217,007 or 75.0%. The decrease was the 12 result of a decrease in the number and size of corporate sponsors over the level experienced in the previous period. Revenues from video and software sales for the 2001 First Fiscal Half were $2,118,654, compared to $2,650,880 for the 2000 First Fiscal Half, a decrease of $532,226 or 20.1%. In the First Fiscal Half of 2000, a one time large sale of $294,600 was recorded that resulted in abnormally high revenue when year compared to 2001 First Fiscal Half. Revenues from digital encoding were $537,752 for the 2001 First Fiscal Half, compared to $243,109 for the 2000 First Fiscal Half, an increase of $294,643 or 121.2%. The increase can be attributed to increased demand for digital services and the greater sales effort in this area. Total cost of sales for the 2001 First Fiscal Half were $3,258,445, compared to $3,529,538 for the 2000 First Fiscal Half, a decrease of $271,093. The decrease is commensurate with the decreased sales levels experienced offset by increased cable costs in the Pay-tv segment. As a percentage of revenues, cost of sales decreased in the 2001 First Fiscal Half to 34.0% from 35.4% in the 2000 First Fiscal Half. Total selling, general and administrative expenses for the 2001 First Fiscal Half were $10,627,987, compared to $5,515,497 for the 2000 First Fiscal Half, an increase of $5,112,490 or 92.7%. The increase was caused mainly by the addition of the ASP Services segment, which accounted for an increase of $4,597,209. Total selling, general and administrative expenses for the 2001 First Fiscal Half for the ASP Services segment comprised the following major items; salaries $1,645,825, professional fees of $1,021,422, communication costs of $107,313, travel of $778,991, advertising and promotion of $391,403, and investor and public relation costs of $464,820. As a percentage of the Company's total revenues, selling, general and administrative expenses increased to 111.0% for the 2001 First Fiscal Half from 55.4% for the 2000 First Fiscal Half. During the 2001 First Fiscal Half, Chell Merchant Capital Group Inc. vacated certain leased space and as a result the Company wrote off the net book value of the related leasehold improvements in the amount of $355,560. There were no similar transactions in the 2000 First Fiscal Half. Interest and bank charges for the 2001 First Fiscal Half were $292,218, compared to $148,469 for the 2000 First Fiscal Half, an increase of $143,749 or 96.8%. This increase results from an increase in debt related to the purchase of the RWE assets and the sale of the convertible debenture. As a percentage of the Company's total revenues, interest and bank charges increased to 3.1% for the 2001 First Fiscal Half from 1.5% for the 2000 First Fiscal Half. 13 Total depreciation and amortization expense for the 2001 First Fiscal Half was $1,648,130, compared to $1,108,342 for the 2000 First Fiscal Half, an increase of $539,788 or 48.7%. This increase is primarily the result of depreciation on the fixed assets acquired from RWE and Chell.com Ltd. There was no provision of income taxes recorded in the 2001 First Fiscal Half compared with a provision for income taxes of $223,000 for the 2000 First Fiscal Half. As the tax provision is based upon the individual company's taxable income, no provision was incurred, as the companies are not in a taxable position. The minority interest share in profit for the 2001 First Fiscal Half was $35,506. This is compared to the minority interest share in losses for the 2000 First Fiscal Half of $2,931, an overall change of $38,437. This change results from profitable operations in Sonoptic Technologies Inc., in which there is a 25% minority interest. As a result of all of the above, the net loss for the 2001 First Fiscal Half was $6,712,542, compared to net loss of $675,931 for the 2000 First Fiscal Half, an increase of $6,036,611. The 2001 First Fiscal Half loss resulted primarily from the addition of Chell Merchant Capital Group Inc. and Chell.com (USA) Inc. to the Company and their activities including the provision of services to developing ASP companies in which the Company has invested. Liquidity and Capital Resources At February 28, 2001, the Company had a working capital deficit of $2,099,402, a decrease of $4,521,072 from working capital of $2,421,670 at August 31, 2000. For the 2001 First Fiscal Half, the Company had a net decrease of cash of $1,133,938 compared to a net decrease of $1,042,032 in the 2000 First Fiscal Half. Cash used in operating activities for the 2001 First Fiscal Half was $3,290,912, compared to $169,295 provided by operating activities in the 2000 First Fiscal Half. In 2001, the major items that contributed to cash being used in operating activities were as follows: the net loss with non-cash expenses added back of $3,667,428, the increase in income taxes receivable of $98,491 and the increase in prepaid expenses of $69,752. The major items that contributed to cash being provided by operating activities were as follows: the decrease in accounts receivable of $99,011 a decrease in short-term investments of $250,195 and a decrease in other accounts receivable of $122,034. In 2000, the major items that contributed to cash being provided by operating activities were as follows: net income with non-cash expenses added back of $518,949, decreases in income taxes receivable and inventory of $157,464 and $23,908 respectively, and increases in accounts payable and accrued liabilities and income taxes payable of $950,834 and $61,042 respectively. The major uses of operating funds included increases in accounts receivable and prepaid expenses of $1,436,095 and $110,110 respectively. Cash used in investing activities in the 2001 First Fiscal Half was $2,955,039 compared to the $1,178,810 used in investing activities in the 2000 First Fiscal Half, an 14 increase of $1,776,229. This increase was the result of an increase in note receivable from Engyro and the deposit of $1,689,710 on the purchase of shares in ApplicationStation.com, Inc. Cash provided by financing activities in the 2001 First Fiscal Half was $5,112,013, compared to the $32,517 used in the 2000 First Fiscal Half. The increase is primarily due to the sale of the convertible debenture and the bridge financing. The Company is in the process of attempting to raise additional capital in order to realize its ASP strategy and to repay its loan obligations that are currently being negotiated. The Company's subsidiaries operating in the entertainment, education and E-commerce segments create liquidity sufficient to fund their operations. Management believes that the current negotiations for terms and financing will be successful and that combined with the reorganizing of the ASP segment in the First Fiscal 2001 Half, the Company will have the required liquidity for its planned operating activities in the current year. Inflation The rate of inflation has had little impact on the Company's operations or financial position during the six months ended February 28, 2001 and February 29, 2000 and inflation is not expected to have a significant impact on the Company's operations or financial position during the 2001 Fiscal Year. The Company pays a number of its suppliers, including its licensor and principal supplier, NTN Communications, Inc., in US dollars. Therefore, fluctuations in the value of the Canadian dollar against the US dollar will have an impact on its gross profit as well as its net income. If the value of the Canadian dollar falls against the US dollar, the cost of sales of the Company will increase thereby reducing its gross profit and net income. Conversely, if the value of the Canadian dollar rises against the US dollar, its gross profit and net income will increase. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities Pursuant to the Board of Directors authorization and a vote of a majority of the issued and outstanding voting securities of the Company at the Annual Meeting of Shareholders held on February 28, 2001, the following change in the Company's securities were executed by Certificate of Amendment of the Company's Certificate of Incorporation: The authorized capital stock of the Company was increased by increasing the number of authorized shares of Common Stock from 20,000,000 to 50,000,000 shares. Item 3. Defaults Upon Senior Securities None. 16 Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of Shareholders was held on February 28, 2001 at which the following items were voted upon:
Item For Against Abstain Non-Vote - ----------------------------------------------------------------------------------------------------------------- 1) Election of members of the Board of Directors: David Bolink 5,854,741 0 3,480 Cameron Chell 5,854,526 0 3,695 Gordon Herman 5,854,741 0 3,480 Don Pagnuti 5,854,741 0 3,480 Peter Rona 5,854,741 0 3,480 Adrian Towning 5,854,741 0 3,480 Robert Stone 5,854,312 0 3,909 2) Increase authorized number of Common Shares from 20,000,000 to 50,000,000 5,842,118 3) Ratify the appointment of Lazar Levine & Felix LLP Certified Public Accountants as independent auditors of the Company for the year ending August 31, 2001 5,855,584
Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following list sets forth the applicable exhibits (numbered in accordance with Item 601 of Regulation S-K) required to be filed with this Quarterly Report on Form 10-Q: Exhibit Number Title ------ ----- 3.1 Certificate of Incorporation, as amended to date. 3.2 By-Laws, as amended to date. 10.1 License Agreement, dated March 23, 1990, between NTN Communications, Inc. and NTN Interactive Network Inc.+ 10.2 Stock Purchase Agreement, dated as of October 4, 1994, between NTN Canada Inc. and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.). + Option, dated as of October 4, 1994, registered in the name of NetStar Enterprises Inc. (formerly, Labatt Communications Inc).+ 10.4 Designation Agreement dated as of October 4, 1994, among Networks North Inc. (formerly know as NTN Canada, Inc.), NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.). + 10.15 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. + 10.17 General Security Agreement, dated September 10, 1999, by and between 1373224 17 Ontario Limited, to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.18 Securities Pledge Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.23 Bill of Sale, dated September 13, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.24 Covenant of Networks North Inc., dated September 13, 1999, to allot and issue and pay to the Bank in writing 100,000 common shares of NETN. 11. Computation of Earnings Per Share (see note 4). 22 List of Subsidiaries + Incorporated by reference. See Exhibit Index. (b) Reports on Form 8-K The Company filed an Amended Current Report on Form 8-KA (Date of Report: December 4, 2000) with the Commission on December 4, 2000, reporting Pro-forma Financial Statements in connection with the Agreement of Purchase and Sale dated as of August 4, 2000, between the Company, Chell Merchant Capital Group, Cameron Chell and Chell.com Ltd. The Company filed a Current Report on Form 8-KA (Date of Report: January 16, 2001) with the Commission on February 6, 2001, reporting a Promissory Note made on January 16, 2001, by and between Chell Group Corporation and Naveen Chanana. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NETWORKS NORTH INC. Dated: April 11, 2001 By: /s/ Cameron Chell ---------------------------------------- Cameron Chell, President and Chief Executive Officer (Duly Authorized Officer) Dated: April 11, 2001 By: /s/ Don Pagnutti ---------------------------------------- Don Pagnutti, Principal Financial Officer 19 NETWORKS NORTH INC. FORM 10-Q February 28, 2001 EXHIBIT INDEX Exhibit Number Description of Exhibit Location ------ ---------------------- -------- 3.1 Certificate of Incorporation, as amended to date +1, Exh. 3.1 3.2 By-Laws, as amended to date +1, Exh. 3.2 10.1 License Agreement, dated March 23, 1990, between NTN Communications, Inc. and NTN Interactive Network Inc. +2, Exh. 10.9 10.2 Stock Purchase Agreement, dated October 1, 1996, among Connolly-Daw Holdings Inc., 1199846 Ontario Ltd., Douglas Connolly, Wendy Connolly and NTN Interactive Network Inc., minus Schedules thereto +3, Exh. 10.1 10.4 Designation Agreement dated as of October 4, 1994, among Networks North Inc. (formerly known as NTN Canada, Inc.), NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.) +4, Exh. C 10.15 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.1 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. +5, Exh. 10.2 10.17 General Security Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu.+5, Exh. 10.3 10.18 Securities Pledge Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu+5, Exh. 10.4 10.23 Bill of Sale, dated September 13, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu.+5, Exh. 10.9 20 10.24 Covenant of Networks North Inc. for valuable consideration to allot and issue and pay to the Bank in writing 100,000 common shares of NETN. +5, Exh. 10.10 11 Computation of earnings per share (see Note 4) 22 List of Subsidiaries +1, Exh. 22 +1 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Annual Report on Form 10-K of the Company, for its fiscal year ended August 31, 1996 (File No. 0-18066), filed on December 16, 1996. +2 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Annual Report on Form 10-K of NTN Communications, Inc., for its fiscal year ended December 31, 1990 (File No. 2-91761-C), filed on April 1, 1991. +3 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Current Report on Form 8-K of the Company (Date of Report: October 2, 1996) (File No. 0-18066), filed on October 17, 1996. +4 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Current Report on Form 8-K of the Company (Date of Report: October 4, 1994) (File No. 0-18066), filed on October 18, 1994. +5 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's 8-K (Date of Report: September 13, 1999) (File No. 0-18066), filed on September 29, 1999. ++ Filed electronically pursuant to Item 401 of Regulation S-T. 21 -----END PRIVACY-ENHANCED MESSAGE-----