10-Q 1 v09453_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ COMMISSION FILE NUMBER: 0-18222 CHELL GROUP CORPORATION (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.) (ADDRESS OF REGISTRANT'S PRINCIPAL (ZIP CODE) EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (416) 675-0874 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X| As of November 30, 2004, the number of shares issued and outstanding of the Company's common stock, par value $0.0467 per share was 32,129,417. - 1 - CHELL GROUP CORPORATION AND SUBSIDIARIES INDEX
PAGE PART I - FINANCIAL INFORMATION Financial Statements ITEM 1. Consolidated Balance Sheets as of May 31, 2004 (Unaudited) and August 31, 2003 3 Consolidated Statements of Operations for the three and nine months ended May 31, 2004 and 2003 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended May 31, 2004 and 2003 (Unaudited) 5 Notes to Unaudited Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16 ITEM 4. Controls and Procedures 17 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 18 ITEM 2. Changes in Securities and Use of Proceeds 18 ITEM 3. Defaults upon Senior Securities 18 ITEM 4. Submissions of Submissions of Matters to a Vote of Security Holders 18 ITEM 5. Other Information 18 ITEM 6. Exhibits and Reports on Form 8-K 18 Signatures 22
- 2 - ITEM 1. FINANCIAL STATEMENTS CHELL GROUP CORPORATION CONSOLIDATED BALANCE SHEETS (EXPRESSED IN CANADIAN DOLLARS)
----------------------------------------------------------------------------------------------- MAY 31, 2004 August 31, 2003 UNAUDITED $ $ ----------------------------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents 143,550 327,685 Short-term investments 973,468 -- Accounts receivable, trade - net of allowance for doubtful accounts of $575,278 and $356,195, respectively 2,323,511 3,560,286 Inventory 234,218 208,340 Prepaid expenses 41,782 76,077 Buildings held for sale -- 1,177,045 ----------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 3,716,529 5,349,433 ----------------------------------------------------------------------------------------------- Property and equipment, net 399,977 638,143 Goodwill 326,793 276,794 Investments in BPS 225,770 -- Other assets 116,996 63,600 Net assets of discontinued operations - assets held for sale -- 969,292 ----------------------------------------------------------------------------------------------- 4,786,064 7,297,262 ----------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT Bank overdraft 324,461 908,432 Bank indebtedness 4,232,213 3,935,166 Accounts payable and accrued liabilities 4,777,717 5,469,224 Income taxes payable 46,569 -- Accrued interest payable 1,408,586 1,347,220 Deferred revenue 599,152 297,243 S-term advances 202,000 312,191 Current portion, long-term debt 1,144,661 1,305,301 Payable on acquisition 4,852,976 4,852,976 Loan payable, related party 1,362,399 1,020,000 Mortgages of buildings held for sale -- 1,114,583 Convertible debt 8,002,313 7,978,676 ----------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 26,953,047 28,541,012 ----------------------------------------------------------------------------------------------- Long-term debt, net of current portion 90,509 113,392 Liabilities of discontinued operations -- 1,546,454 ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES 27,043,556 30,200,858 ----------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (DEFICIT) PREFERRED SERIES B SHARES: 454,545 SHARES [August 2003 - 454,545] 7,294 7,294 COMMON STOCK 14,295,410 common shares [August 2003 - 10,504,913] 959,754 733,997 Additional paid in capital 26,614,448 26,655,538 Accumulated other comprehensive income 1,126,895 1,150,558 Accumulated deficit (50,965,883) (51,450,983) ----------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (22,257,492) (22,903,596) ----------------------------------------------------------------------------------------------- 4,786,063 7,297,262 -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements - 3 - CHELL GROUP CORPORATION INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 (EXPRESSED IN CANADIAN DOLLARS - UNAUDITED)
--------------------------------------------------------------------------------------------------------------- 3 MONTHS ENDED MAY 31 9 MONTHS ENDED MAY 31 2004 2003 2004 2003 $ $ $ $ --------------------------------------------------------------------------------------------------------------- REVENUE Product sales 3,145,457 10,581,232 15,984,465 26,314,342 Service sales 1,152,678 701,102 2,402,343 1,707,616 --------------------------------------------------------------------------------------------------------------- 4,298,135 11,282,334 18,386,808 28,021,958 --------------------------------------------------------------------------------------------------------------- COST OF SALES Product sales 2,767,976 9,720,280 13,086,739 24,408,777 Service sales 64,277 74,090 358,494 196,707 --------------------------------------------------------------------------------------------------------------- 2,832,253 9,794,370 13,445,233 24,605,484 --------------------------------------------------------------------------------------------------------------- GROSS PROFIT 1,465,882 1,487,964 4,941,575 3,416,474 OPERATING EXPENSES Selling, general and administrative expenses 1,717,819 2,166,544 5,942,844 6,428,657 Depreciation and amortization 95,783 313,460 378,062 939,392 --------------------------------------------------------------------------------------------------------------- 1,813,602 2,480,004 6,320,906 7,368,049 --------------------------------------------------------------------------------------------------------------- LOSS FROM OPERATIONS (347,720) (992,040) (1,379,331) (3,951,575) Interest expense 396,435 618,832 1,014,648 1,835,601 (Gain) loss on short-term investments 202,398 -- (120,343) -- (Gain) loss on disposal of investments/property (76,458) -- (181,010) 248,587 --------------------------------------------------------------------------------------------------------------- Loss before provision for income taxes (870,095) (1,610,872) (2,092,626) (6,035,763) Provision for income taxes -- 19,500 -- 1,305 --------------------------------------------------------------------------------------------------------------- LOSS FROM CONTINUING OPERATIONS (870,095) (1,630,372) (2,092,626) (6,037,068) --------------------------------------------------------------------------------------------------------------- DISCONTINUED OPERATIONS (Gain) loss on sale of subsidiary -- (829,196) 1,759,312 (829,196) (Loss) Gain from discontinued operations (net of applicable income tax of $0) -- 436,567 818,414 (584,258) Gain on disposal on debt -- -- -- 2,051,215 --------------------------------------------------------------------------------------------------------------- GAIN (LOSS) FROM DISCONTINUED OPERATIONS -- (392,629) 2,577,726 637,761 --------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) (870,095) (2,023,001) 485,100 (5,399,307) OTHER COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION (136,390) 881,780 (23,663) 1,003,904 --------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) (1,006,485) (1,141,221) 461,437 (4,395,403) --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- INCOME (LOSS) PER SHARE: Basic and diluted from continuing operations (0.06) (0.15) (0.15) (0.56) Basic and diluted from discontinued operations -- (0.04) 0.18 0.06 VNet income (loss) per share (0.06) (0.19) 0.03 (0.50) --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Basic weighted average number of common shares outstanding 14,218,487 10,744,234 14,269,863 10,744,234 Diluted weighted average number of common shares outstanding 14,218,487 10,744,234 14,269,863 10,744,234 ---------------------------------------------------------------------------------------------------------------
The accompanying notes form an integral part of these consolidated financial statements. - 4 - CHELL GROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 (EXPRESSED IN CANADIAN DOLLARS - UNAUDITED)
------------------------------------------------------------------------------------------------ 2004 2003 $ $ ------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income (loss) for the period 485,100 (5,399,307) Adjustments to reconcile net loss to net cash used in operating activities: (Gain) loss on sale of subsidiary (1,759,314) 829,196 Investment gain (120,343) -- (Gain) loss on disposal/sale of capital assets (181,010) 248,587 Depreciation and amortization 378,062 2,694,171 Bad debt allowance 219,083 175,860 Interest cost from amortization of discount 62,923 752,713 Gain on settlement of debt -- (2,051,215) Due from stockholder -- 227,365 Changes in assets and liabilities: Decrease (increase) in short-term investments Decrease (increase) in accounts receivable, trade 1,345,675 34,543 Decrease (increase) in inventory (25,878) (803) Decrease (increase) in prepaid expenses 67,502 (21,715) Decrease (increase) in other assets (53,396) 94,091 Increase (decrease) in accounts payable and accrued liabilities 240,743 2,406,141 Increase (decrease) in accrued interest payable (63,731) 774,712 Increase (decrease) in income taxes payable (25,662) 73,155 Increase (decrease) in deferred revenue (137,121) (377,031) ------------------------------------------------------------------------------------------------ CASH PROVIDED BY OPERATING ACTIVITIES 432,633 460,463 ------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchase of property and equipment (112,990) (202,327) Proceeds from disposal of property and equipment 1,460,308 264,759 Investment on BPS (225,770) -- eTelligent payment (50,000) -- Proceeds from the sale of GalaVu -- 176,003 ------------------------------------------------------------------------------------------------ CASH PROVIDED BY INVESTING ACTIVITIES 1,071,548 238,435 ------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Bank Indebtedness 297,047 167,628 Net borrowings on line of credit (583,971) (716,994) Borrowings from related parties 184,379 400,000 Payments to Logicorp shareholders (65,649) (148,655) Borrowings from Logicorp shareholders -- 303,603 Repayment of notes and loans payable (1,184,632) (577,460) ------------------------------------------------------------------------------------------------ CASH USED IN FINANCING ACTIVITIES (1,352,826) (571,878) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ EFFECTS OF FOREIGN EXCHANGE (62,950) (46,010) ------------------------------------------------------------------------------------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD FROM 88,405 81,010 CONTINUING OPERATIONS NET INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD FROM (272,540) (156,728) DISCONTINUE OPERATIONS Cash and cash equivalents, beginning of period 327,685 107,258 ------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD 143,550 31,540 ------------------------------------------------------------------------------------------------ Income taxes paid -- -- Interest paid 482,700 557,752
The accompanying notes are an integral part of these consolidated financial statements. - 5 - CHELL GROUP CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 (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 Chell Group Corporation (the "Company") (Commission No.0-18066), filed with the Securities and Exchange Commission on May 13, 2004. The results of operations for the three and nine months ended May 31, 2004 are not necessarily indicative of the results for the full fiscal year ending August 31, 2004. NOTE 2. GENERAL The financial statements of the Company for the three and nine months ended May 31, 2004 (the "2004 Third Fiscal Quarter" and "2004 First Three Fiscal Quarters")), include the operations of the Company's wholly-owned subsidiaries Chell Merchant Capital Group Inc. ("CMCG"), Chell.com (USA) Inc., and 3484751 Canada Inc.. The financial statements also CMCG's wholly-owned subsidiaries Logicorp Data Systems Ltd. and Logicorp Service Group Ltd., 123557 Alberta Ltd., and 591360 Alberta Ltd., which will be together referred to as "Logicorp" and Logicorp's wholly-owned subsidiary eTelligent Solutions Inc. ("eTelligent). Discontinued operations consist of NTN Interactive Network Inc. ("NTNIN") which was sold on December 15, 2003 and GalaVu Entertainment Network Inc. ("GalaVu") which was sold April 25, 2003. Effective August 8, 2004, the Company's previously wholly-owned subsidiaries, Logicorp Data Systems Inc., and Logicorp Service Group Inc. (together, "Logicorp") issued common shares to NewMarket Technologies, a publicly-traded company for $2.1 million USD, such that NewMarket holds 51% of the outstanding equity securities of Logicorp. In exchange for 51% of these subsidiaries, NewMarket will pay $1.1 million in cash and $1.0 million will be paid to Logicorp according to the terms of a $1.0 million, 24-month promissory note The financial statements of the Company for the three and nine months ended May 31, 2003 (the "2003 Third Fiscal Quarter" and "2003 First Three Fiscal Quarters"), include the operations of the Company's wholly-owned subsidiaries CMCG, Chell.com (USA) and 3484751 Canada Inc.. The financial statements also CMCG's wholly-owned subsidiaries Logicorp Data Systems Ltd. and Logicorp Service Group Ltd., 123557 Alberta Ltd., and 591360 Alberta Ltd., which will be together referred to as "Logicorp". Discontinued operations consist of NTNIN (sold December 15, 2003), GalaVu (sold April 25, 2003). Prior period's figures have been reclassified to be consistent with any reclassifications in the current period. - 6 - NOTE 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144), that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The new rules on asset impairment supersede SFAS 121, Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and portions of Accounting Principles Board Opinion 30, "Reporting the Results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The Company is currently assessing the potential impact of SFAS 144 on the operating results and financial position. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, business combinations can no longer be reflected by using the pooling of interests method of accounting and goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. - 7 - NOTE 4 - SEGMENT INFORMATION (UNAUDITED) The following describes the performance by segment for the three and nine months ended May, 2004 and 2003:
------------------------------------------------------------------------------------------------ FOR THE THREE MONTHS For the Nine months Ended May ENDED MAY 31 31 2004 2003 2004 2003 $ $ $ $ ------------------------------------------------------------------------------------------------ EXTERNAL REVENUE Systems Integration 4,298,135 11,282,334 18,386,808 28,021,958 ------------------------------------------------------------------------------------------------ 4,298,135 11,282,334 18,386,808 28,021,958 ------------------------------------------------------------------------------------------------ OPERATING PROFIT (LOSS) Systems Integration 28,640 (502,837) (308,106) (2,207,257) Corporate (376,360) (489,203) (1,071,225) (1,744,318) ------------------------------------------------------------------------------------------------ (347,720) (992,040) (1,379,331) (3,951,575) ------------------------------------------------------------------------------------------------ NET INCOME (LOSS) Systems Integration (207,516) (647,880) (740,395) (2,584,688) Corporate (662,579) (982,492) (1,352,232) (3,452,380) Discontinued operations -- (392,629) 2,577,727 637,761 ------------------------------------------------------------------------------------------------ (870,095) (2,023,001) 485,100 (5,399,307) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ As at MAY 31, 2004 May 31, 2003 $ $ ------------------------------------------------------------------------------------------------ TOTAL ASSETS Systems Integration 3,335,078 5,731,433 Corporate 1,450,986 1,778,127 Discontinued operations -- 804,598 ------------------------------------------------------------------------------------------------ 4,786,064 8,314,158 ------------------------------------------------------------------------------------------------
- 8 - NOTE 5. 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 and nine months ended May 31, 2004 and May 31, 2003 unaudited.
---------------------------------------------------------------------------------------------------------------- For the Three Months For the Nine months Ended May 31 Ended May 31 2004 2003 2004 2003 $ $ $ $ ---------------------------------------------------------------------------------------------------------------- NUMERATOR: Net loss (numerator for basic and diluted loss per share) from continuing operations (870,095) (1,630,372) (2,092,626) (6,037,068) Net income (loss) (numerator for basic and diluted income (loss) per share) from discontinued operations -- (392,629) 2,577,726 637,761 ---------------------------------------------------------------------------------------------------------------- Net income (loss) (numerator for basic and diluted income (loss) per share) (870,095) (2,023,001) 485,100 (5,399,307) ================================================================================================================ DENOMINATOR FOR BASIC AND DILUTED INCOME (LOSS) PER SHARE -adjusted weighted average number of shares and assumed conversions 14,218,487 10,744,234 14,269,863 10,744,234 ================================================================================================================ Basic and diluted loss per share from continuing (0.06) (0.15) (0.15) (0.56) operations Basic and diluted income (loss) per share from discontinued operations -- (0.04) 0.18 0.06 ---------------------------------------------------------------------------------------------------------------- Net income (loss) per share (0.06) (0.19) 0.03 (0.50) ================================================================================================================
NOTE 6. GAIN ON SALE OF PROPERTY/ASSETS GAIN ON DISPOSAL OF PROPERTY On December 19, 2003, we sold an approximately 25,000 square foot parcel of land, located at 14 Meteor Drive in Toronto, Ontario, on which stands a 12,500 square foot, one story building. We sold this land and building to an unrelated party. The transaction is outlined below: ---------------------------------------------- Proceeds $730,000 NBV of Building and Land 576,016 Commission 43,866 Release costs/legal fees 5,566 ---------------------------------------------- Gain from sale of Property $104,552 ---------------------------------------------- On March 7, 2004, we sold an approximately 29,000 square foot parcel of land, located at 10 Meteor Drive, Toronto, Ontario, on which stands a 14,000 square foot, two story building. We sold this land and building to an unrelated party. The transaction is outlined below: ---------------------------------------------- Proceeds $710,000 NBV of Building and Land 584,985 Commission 47,557 Legal Fees 1,000 ---------------------------------------------- Gain from sale of Property $ 76,458 ---------------------------------------------- - 9 - GAIN ON SALE OF SUBSIDIARY Effective the 15th day of December, 2003, the Company sold to NTN Communications, Inc. (Amex: NTN) the assets and certain liabilities of NTN Interactive Network, Inc. The Company sold NTN Interactive Network's assets for approximately USD$1.55 million. The consideration was composed of USD$250,000 in cash, USD$650,000 in shares of unregistered NTN common stock (approximately 238,000 shares valued at the closing market price on the date of sale which was $2.73 per share). The Company intends to hold the shares of NTN for an indeterminate period of time, no less than the required time for Rule 144 restrictions to be removed. The remainder of the purchase price was based upon the application of unpaid licensing payables (approximating USD$650,000) owed to NTN Communications, Inc., at the closing of the transaction. The Company has adopted SFAS 144 and as a result the Fiscal balances have been restated in order to conform with the presentation of Fiscal 2004 financial presentation. Interactive is reported as part of the discontinued business segment (previously entertainment segment). In an effort to streamline and focus the Company's resources on its core business segment of systems integration, all other segments were decided to be discontinued. Interactive had historical been profitable, provided positive cash flows and faced little or no competition; however the organization no longer strategically fit with the Company and the asset were sold. Details of the transaction are detailed below ---------------------------------------------- Proceeds Shares $ 853,125 Loan receivable 328,125 Assets sold (953,267) Liabilities assumed 1,531,330 ---------------------------------------------- Gain from sale of subsidiary $1,759,313 ---------------------------------------------- NOTE 7. RESIGNATION OF KEY EXECUTIVE Effective April 28, 2004, Stephen McDermott resigned his posts of Chief Executive Officer and Chairman of the Board. David Bolink, current Board Member has been appointed Chief Executive Office and Chairman of the Board NOTE 8. INVESTMENT IN BROKER PAYMENT SERVICES On May 26, 2004, the Company founded a new Canadian subsidiary corporation, 1109822 Alberta Ltd. This wholly-owned subsidiary was created to act as a holding company for investments in various sectors, including electronic payment processing. 1109822 Alberta Ltd. has purchased 33 Units of a Canadian limited partnership, Tech Income Limited Partnership 1 ("Tech Income") for CDN$495,000 (approximately US$390,000 at current exchange rates). Tech Income was founded in early 2004 with the objective of building products and services to compete in the growing online payment processing industry. Tech Income is currently carrying on business as "Broker Payment Systems" or "BPS". This is an electronic payment transfer system which facilitates payments and transfers of funds securely and in real time to and from equity brokerage firms for investing clients. BPS is currently marketing this system in the United States. Management of the Company (and its subsidiary) believes that the Chell Group can better profit from the expected growth in this sector by pooling resources with Tech Income (and its existing product offering) rather than by moving into this area alone. The most recent information provided to us by Tech Income (as at September 15, 2004) shows that 1109822 Alberta Ltd. holds approximately 32% of Tech Income's issued and outstanding units. This position may be diluted as Tech Income continues to sell units to other investors. The Company expects to account for this under the equity method of accounting. - 10 - Broker Payment Management Inc., which works with Tech Income in distributing the BPS products and services, has been invested in directly by the Company ($495,000 Cdn has been advanced as of June 18, 2004). Chell Group currently (as at October 18, 2004) holds approximately 19% of Broker Payment Management Inc.'s equity shares. The Company expects to account for this under the cost method of accounting. NOTE 9. SUBSEQUENT EVENTS [A] LOGICORP ADVANCES During 2003, B.O.T.B., an affiliated company, advanced Logicorp Data Systems $820,000. The advance is due on demand and did not carry a stated interest rate. Due to its long-term nature, the Company has imputed interest on the advance at a rate of 9%. [B] SALE OF LOGICORP Effective August 8, 2004, the Company's previously wholly-owned subsidiaries, Logicorp Data Systems Inc., and Logicorp Service Group Inc. (together, "Logicorp") issued common shares to NewMarket Technologies ("NewMarket"), a publicly-traded company for $2.1 million USD, such that NewMarket holds 51% of the outstanding equity securities of Logicorp. In exchange for 51% of these subsidiaries, NewMarket will pay Logicorp $1.1 million in cash at closing. An additional $1.0 million will be paid to Logicorp according to the terms of a $1.0 million, 24-month promissory note. As a result of this transaction, the Company holds the remaining 49% of the outstanding shares of Logicorp. Twelve (12) months following the first anniversary of the purchase of the 51% interest, if Logicorp has achieved annual sales of at least $18,000,000 with at least a breakeven profit, Chell Group will have an option to require NewMarket to acquire the remaining 49% of the sellers remaining stock for a purchase price of $1,900,000 to be paid in NewMarket stock with piggyback registration rights. NewMarket will have an equal right to require the sale of Chell Group's remaining 49% stock position in Logicorp under the same performance conditions. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Management is responsible for preparing the Company's consolidated financial statements and related information that appears in this Form 10-Q. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and reasonably present the Company's consolidated financial condition and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Management has included in the Company's consolidated financial statements amounts that are based on estimates and judgments, which it believes are reasonable under the circumstances. The Company maintains a system of internal accounting policies, procedures and controls intended to provide reasonable assurance, at the appropriate cost, that transactions are executed in accordance with the Company's authorization and are properly recorded and reported in the consolidated financial statements, and that assets are adequately safeguarded. The Company's operations are primarily conducted through its 100% owned subsidiaries: Logicorp Data Systems Ltd. ("LDS"), and Logicorp Service Group Ltd., ("LSG") and LDS wholly-owned subsidiary eTelligent Solutions Inc. ("eTelligent"). - 11 - The following discussion addresses the financial condition and results of operations of the Company. This discussion should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2003 and with the Company's unaudited consolidated interim financial statements as of May 31, 2004 and for the three and nine month periods ended May 31, 2004 and 2002 contained herein. Results for any interim periods are not necessarily indicative of results for any full year. CORPORATE BACKGROUND We are engaged in the business of providing interactive entertainment services and systems integration services. Our core businesses are the systems integration services provided by our Logicorp Data Systems Ltd. subsidiary and the interactive entertainment services provided by our NTN Interactive Network and GalaVu Entertainment Network Inc. subsidiaries. As of May 31, 2004, we had a working capital deficit of $23,236,518 and an accumulated deficit of $50,965,883. We generated revenues of $11,282,334 for the 2004 First Three Fiscal Quarters and incurred a net income of $485,100. In addition, during the 2004 Fiscal Year, net cash used in operating activities was $432,633. We are in a transitional stage of operations and, as a result, the relationships between revenue, cost of revenue, and operating expenses reflected in the financial information included in this annual file do not represent future expected financial relationships. Accordingly, we believe that, at our current stage of operations period-to-period comparisons of results of operations are not meaningful. PLAN OF OPERATIONS Our business strategy is to divest ourselves of non-core operating and wind up all non-operating companies. While at the same time refocusing our energies in our core companies and bring these operations to profitable operations. Our core operations are the systems integration segment companies. We will be bringing our corporate entity current with all of its filings and will begin to petition for market status. While all the time looking for new opportunities that may arise in order to increase our value and profitability. We expect our general and administrative costs to increase in future periods due to our operating as a public company whereby we will incur added costs for filing fees, increased professional services and insurance costs. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2004 COMPARED TO THE THREE MONTHS ENDED MAY 31, 2003. The Company's total revenues for the 2004 Third Fiscal Quarter were $4,298,135, compared to $11,282,334 for the 2003 Third Fiscal Quarter, a decrease of $6,984,199 or 61.9%. Logicorp experienced a major decrease in its sales levels, due to changes in sales staff, slumping technology market and decreased government expenditures. Total cost of sales for the 2004 Third Fiscal Quarter were $2,832,253 compared to $9,794,370 for the 2003 Third Fiscal Quarter, a decrease of $6,962,117 or 71.1%. The decrease results from decreased costs associated with our service sales and changes to product mix. Total selling, general and administrative expenses for the 2004 Third Fiscal Quarter were $1,717,819, compared to $2,166,544 for the 2003 Third Fiscal Quarter, a decrease of $448,725 or 20.7%. The decrease can be attributed to decreases in accounting and legal fees and decreased operating costs, main in the area of salaries. As a percentage of total revenue these costs increased to 40.0% from 19.2% in the 2003 Third Fiscal Quarter. - 12 - Interest and bank charges for the 2004 Third Fiscal Quarter were $396,435, compared to $618,832 for the 2003 Third Fiscal Quarter, a decrease of $222,397 or 35.9%. The decrease results from no more amortization of the discount on the convertible debt. As a percentage of total revenue these costs increased to 9.2% from 5.5% in the 2003 Third Fiscal Quarter. There was a $202,398 loss on short-term investments resulting from an increase in the share of the shares being held. The shares were the 238,000 shares of NTN Communications Inc. (Amex:NTN) received from the sale of Interactive's assets. There is no similar transaction in the 2003 Third Fiscal Quarter as the transaction was effective December 15, 2003. There was a $76,458 gain on the disposal of property. This gain resulted from the sale of an approximately 29,000 square foot parcel of land, located at 14 Meteor Drive in Toronto, Ontario, on which stands a 14,000 square foot, one story building. On March 9, 2004, we sold this land and building to an unrelated third party for $710,000. There was no recovery of or provision for income taxes recorded in the 2004 Third Fiscal Quarter compared with a $19,500 provision for income taxes for the 2003 Third Fiscal Quarter. As the tax provision is based upon the individual companies' taxable income, a minimal provision was incurred, as not all the companies are in a taxable position. There are no deferred tax assets recorded by the Company. As a result of all of the above, the net loss from continuing operations for the 2004 Third Fiscal Quarter was $870,095, compared to net loss of $1,630,372 for the 2003 Third Fiscal Quarter, a decrease of $760,277. The decrease in loss was primarily the result of decreased operating losses and decreased interest costs. The loss from discontinued operations for the 2004 Third Fiscal Quarter was $nil, compared to net loss of $392,629 for the 2003 Third Fiscal Quarter. All of the discontinued operations have been sold. As a result of all of the above, the net loss for the 2004 Third Fiscal Quarter was $870,095, compared to net loss of $2,023,001 for the 2003 Third Fiscal Quarter, a decrease of $1,152,906. The 2004 Third Fiscal Quarter reduced loss resulted primarily from decreased losses from discontinued operations and continuing operations and decreased interest costs. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2004 COMPARED TO THE NINE MONTHS ENDED MAY 31, 2003. The Company's total revenues for the 2004 First Three Fiscal Quarters are $18,386,808, compared to $28,021,958 for the 2003 First Three Fiscal Quarters, a decrease of $9,635,150 or 34.4%. Logicorp experienced a major decrease in its sales levels, due to changes in sales staff, slumping technology market and decreased government expenditures. Total cost of sales for the 2004 First Three Fiscal Quarters were $13,445,233 compared to $24,605,484 for the 2003 First Three Fiscal Quarters, a decrease of $11,160,251 or 45.4%. The decrease results from decreased costs associated with our service sales and changes to product mix. Total selling, general and administrative expenses for the 2004 First Three Fiscal Quarters were $5,942,844, compared to $6,428,657 for the 2003 First Three Fiscal Quarters, a decrease of $485,813 or 7.6%%. The decrease can be attributed to decreases in accounting and legal fees and decreased operating costs, main in the area of salaries. Interest and bank charges for the 2004 First Three Fiscal Quarters were $1,014,648, compared to $1,835,601 for the 2003 First Three Fiscal Quarters, a decrease of $820,953or 44.7%. The decrease results from no more amortization of the discount on the convertible debt. - 13 - There was a $120,343 gain on short-term investments resulting from an increase in the share of the shares being held. The shares were the 238,000 shares of NTN Communications Inc. (Amex:NTN) received from the sale of Interactive's assets. There is no similar transaction in the 2003 First Three Fiscal Quarters as the transaction was effective December 15, 2003. There was an $181,010 gain on the disposal of property for the 2004 First Three Fiscal Quarters compared to a loss $248,587 for the 2003 First Three Fiscal Quarters. The gain resulted from the sale of two properties the company owned located at 14 and 10 Meteor Drive in Toronto, Ontario. The loss resulted from sale of another property the company had a 775 Pacific Road in Oakville, Ontario. All properties were sold to unrelated parties. There was no provision for income taxes recorded in the 2004 First Three Fiscal Quarters compared with a $1,305 provision for income taxes for the 2003 First Three Fiscal Quarters. As the tax provision is based upon the individual companies' taxable income, a minimal provision was incurred, as not all the companies are in a taxable position. There are no deferred tax assets recorded by the Company. As a result of all of the above, the net loss from continuing operations for the 2004 First Three Fiscal Quarters was $2,092,626, compared to net loss of $6,037,068 for the 2003 First Three Fiscal Quarters, a decrease of $3,944,442 or 65.3%. The decrease in loss was primarily the result of decreased operating costs. The gain from discontinued operations for the 2004 First Three Fiscal Quarters was $2,577,726, compared to a gain of $637,761 for the 2003 First Three Fiscal Quarters, an increase of $1,939,965. This gain was primarily the result of the gain from the sale of discontinued operations compared to a loss and the income from discontinued operations compared to losses. As a result of all of the above, the net income for the 2004 First Three Fiscal Quarters was $485,100, compared to net loss of $5,399,307 for the 2003 First Three Fiscal Quarters, an increase of $5,884,407. The 2004 First Three Fiscal Quarters reduced loss resulted primarily from decreased operating losses from continuing and discontinued operations. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital deficit changed from $23,191,579 at August 31, 2003 to $23,236,518 at May 31, 2004, an increase of $44,939. For the 2004 First Three Fiscal Quarters, the Company had a net decrease of cash of $184,134 compared to a net increase of $75,718 in the 2003 First Three Fiscal Quarters. Cash provided by operating activities for the 2004 First Three Fiscal Quarters was $432,633, compared to $460,463 provided by operating activities in the 2003 First Three Fiscal Quarters. In 2003, the major items that contributed to cash being provided by operating activities were as follows: the decrease in accounts receivable of $1,345,675 and the increase in accounts payable and accrued liabilities of $240,743. The major items that contributed to cash being provided used in operating activities were as follows: net income with non-cash expenses added back of $915,499 and the decrease in deferred revenue of $137,121. In 2003, the major item that contributed to cash being provided by operating activities were the increase in accounts payable and accrued liabilities of $2,406,141 and the increase in interest payable of $774,712. The major sources of cash used in operating activities included net loss with non-cash expenses added back of $2,522,630 and the decrease in deferred revenue of $377,031. Cash provided by investing activities in the 2004 First Three Fiscal Quarters was $1,071,548 compared to the $238,435 provided by investing activities in the 2003 First Three Fiscal Quarters, an increase of $833,113. The increase was the result of the sale of Interactive's assets along with purchase of BPS. - 14 - Cash used in financing activities in the 2004 First Three Fiscal Quarters was $1,352,826, compared to the $571,878 used in the 2003 First Three Fiscal Quarters. The increase is primarily due to the payments on debt on the sale of the related assets. Our business plan for 2003 contemplates obtaining additional working capital through refinancing or restructuring of our existing loan agreements, reducing operating overhead (which has already begun through workforce consolidation), and the possible sale of some of our existing subsidiaries. Our management is of the opinion that they will be able to obtain enough working capital and that together with funds provided by operations, there will be sufficient working capital for the Company's requirements. - 15 - CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The Company and its representatives may, from time to time, make written or oral forward-looking statements with respect to their current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties, which could cause the Company's actual results and experiences to differ materially from the anticipated results and expectations, expressed in such forward-looking statements. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the factors that may affect the operating results of the Company are the following: (i) fluctuations in the cost and availability of raw materials, such as feed grain costs in relation to historical levels; (ii) market conditions for finished products, including the supply and pricing of alternative proteins which may impact the Company's pricing power; (iii) risks associated with leverage, including cost increases attributable to rising interest rates; (iv) changes in regulations and laws, including changes in accounting standards, environmental laws, occupational and labor laws, health and safety regulations, and currency fluctuations; and (v) the effect of, or changes in, general economic conditions. This management discussion and analysis of the financial condition and results of operations of the Company may include certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements with respect to anticipated future operations and financial performance, growth and acquisition opportunity and other similar forecasts and statements of expectation. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, should and variations of those words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligations to update or review any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include, without limitation, general industrial and economic conditions; cost of capital and capital requirements; shifts in customer demands; changes in the continued availability of financial amounts and the terms necessary to support the Company's future business. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INFLATION The rate of inflation has had little impact on the Company's operations or financial position during the three months ended November 30, 2002 and November 30, 2001 and inflation is not expected to have a significant impact on the Company's operations or financial position during the 2003 Fiscal Year. FOREIGN EXCHANGE RISK The Company pays a number of its suppliers, including its licensor and principal supplier, NTN Communications, Inc., in US dollars, in addition the Company holds a large amount of US dollar debt, 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. - 16 - As of May 31, 2004, the Company had outstanding indebtedness of approximately $5.3 million denominated in U.S. dollars. The potential foreign exchange loss resulting from a hypothetical 10% increase for the nine months ended May 31, 2004 in the devaluation of the Cdn/US dollar exchange rate would be approximately $530,000. This loss would be reflected in the balance sheet as increases in the principal amount of its dollar-denominated indebtedness and in the income statement as an increase in foreign exchange losses, reflecting the increased cost of servicing dollar-denominated indebtedness. This analysis does not take into account the positive effect that the hypothetical increase would have on accounts receivable and other assets denominated in U.S. dollars. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Section 13a-15(e) and 15d-15(3) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls over financial reporting that occurred during the Company's Third Fiscal Quarter that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. - 17 - PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 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 Description of Exhibit Location 2.1 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.................... +1, Exh. 10.1 3.1 Articles of Incorporation, as amended to date p. 59 3.2 By-Laws, as amended to date p. 62 4.1 Specimen Stock Certificate p. 71 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 as of October 4, 1994, between NTN Canada and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.)...... +3, Exh. A 10.3 Option, dated as of October 4, 1994, registered in the name of NetStar Enterprises Inc. (formerly, Labatt Communications Inc)................... +3, Exh. B 10.4 Designation Agreement dated as of October 4, 1994, among NTN Canada, Inc., NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.) +3, Exh. C 10.5 Registration Rights Agreement, dated as of October 4, 1994, between NTN Canada and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.) +3, Exh. D -18- 10.6 Promissory Note of NTN Interactive Network Inc. registered in the name of Connolly-Daw Holdings, Inc. +1, Exh. 10.2 10.7 Promissory Note of NTN Interactive Network Inc., registered in the name of 1199846 Ontario Ltd. +1, Exh. 10.3 10.8 Option Agreement, dated October 1, 1996, among Connolly-Daw Holdings Inc., NTN Interactive Network Inc. and NTN Canada, Inc................... +1, Exh. 10.5 10.9 Option Agreement, dated October 1, 1996, among 1199846 Ontario Ltd., NTN Interactive Network Inc. and NTN Canada, Inc. +1, Exh. 10.6 10.10 Registration Rights Agreement, dated October 1, 1996, among NTN Canada, Inc., Connolly-Daw Holdings Inc. and 1199846 Ontario Ltd................. +1, Exh. 10.4 10.11 Employment Agreement dated as of August 31, 1994, between NTN Interactive Network Inc. and Peter Rona +4, Exh. 10.11 10.12 Management Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Connolly-Daw Holdings Inc. +4, Exh. 10.12 10.13 Employment Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Douglas Connolly +4, Exh. 10.13 10.14 Employment Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Wendy Connolly +4, Exh. 10.14 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. 10.15 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. +5, Exh. 10.16 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. 10.17 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. 10.18 10.19 Certificate to the Escrow Agent certifying that the conditions of Closing have been satisfied or waived. +5, Exh. 10.19 10.20 Certificate to the Escrow Agent certifying that the conditions of Closing have not been satisfied or waived. +5, Exh. 10.20 10.21 Occupancy and Indemnity 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. 10.21 10.22 Order of the Ontario Superior Court of Justice, dated September, 1999, approving the transaction contemplated herein, and vesting in the Purchaser the right, title and interest of GalaVu and the Receiver, if any, in and to the Purchased Assets, free and clear of the right, title and interest of any other person other than Permitted Encumbrances....... +5, Exh. 10.22 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. 10.23 -19- 10.24 Covenant of Networks North Inc. for valuable consideration to allot and issue and pay to the Receiver 100,000 common shares in accordance with the Purchase Agreement date September 10, 1999, between 1373224 Ontario Limited and the Receiver +5, Exh. 10.24 10.25 Agreement of Purchase and Sale dated August 4, 2000 by and among Networks North Inc., Networks North Acquisition Corp., Chell.com Ltd. and Cameron Chell . +6, Exh. A 10.26 Valuation of Chell.com Ltd. as of May 31, 2000 by Stanford Keene......... +6, Exh. B. 10.27 Share Purchase Agreement by and among Chell Group Corporation, Chell Merchant Capital Group, Inc., Melanie Johannesen, Randy Baxandall, Morris Chynoweth, Elaine Chynoweth, the Johannesen Family Trust, the Baxandall Family Trust, the Merc Family Trust, Logicorp Data Systems Ltd., 123557 Alberta Ltd., Logicorp Service Group Ltd. and 591360 Alberta Ltd................................................................ +7, Exhibit 2.1 10.28 Share Purchase Agreement, dated as of April 25, 2003 between DVOD Networks Inc., and Chell Group Corporation, minus schedules thereto; 10.29 Assignment of Debt and Security, dated April 25, 2003 between Chell Group Corporation and DVOD Networks Inc; 10.30 Assignment of Debt and Security, dated April 25, 2003 among NTN Interactive Network Inc., DVOD Networks Inc and GalaVu Entertainment Network Inc.; 10.31 Form of Assignment of Debt and Security, dated April 25, 2003 among 488605 Ontario Limited, Ruth Margel and DVOD Networks Inc., minus schedules thereto. 10.32 Stock Purchase Agreement dated as of August 2, 2004, by and among +5, Exh. 10.25 NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd. 10.33 Bonus Agreement entered into August 2, 2004, by and between the +5, Exh. 10.26 Registrant and NewMarket Technology. 10.34 Form of Promissory Note issued by NewMarket Technology, Inc. to Logicorp +5, Exh. 10.27 Data Systems, Ltd. 10.35 Unanimous Shareholders Agreement dated August 2, 2004 by and among +5, Exh. 10.28 NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd. 10.36 Registration Rights Agreement dated as of August 2, 2004, is entered into +5, Exh. 10.29 by and among NewMarket Technology, Inc., and the Registrant. 21 List of Subsidiaries p. 19 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-20- ---------------- +1 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's Current Report on Form 8-K (Date of Report: October 2, 1996) (File No. 0-18066), filed on October 17, 1996. +2 All Exhibits so indicated are incorporated herein by reference to the exhibit 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 listed above in the Company's Current Report on Form 8-K (Date of Report: October 4, 1994) (File No. 0-18066), filed on October 18, 1994. +4 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's Annual Report on Form 10-K (Date of Report: November 27, 1996) (File No. 0-18066), filed on December 16, 1996. +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, 1997) (File No. 0-18066), filed on December 16, 1996. +6 All Exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Definitive Proxy Statement on Form 14A of the Registrant (File No. 000-18066), filed with the Securities and Exchange Commission on August 8, 2000. +7 All Exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Company's Current Report on Form 8-K (Date of Report: December 13, 2001) (File No. 0-18066), filed on December 28, 2001. ++ Filed electronically pursuant to Item 401 of Regulation S-T. Exhibit 21. List of Subsidiaries of Chell Group Corporation as at May 31, 2004
Name of Subsidiary(1) Jurisdiction of Incorporation Chell Merchant Capital Group, Inc.............................................................Ontario Logicorp Data Systems Ltd. (2) ...............................................................Alberta Logicorp Service Group Ltd. (2) ..............................................................Alberta 123557 Alberta Ltd. (2) ......................................................................Alberta 591360 Alberta Ltd. (2) ......................................................................Alberta eTelligent Solutions Inc. (3) ................................................................Alberta HBA Holdings Inc. (formerly known as NTN Interactive Network Inc)..............................Canada 1113659 Ontario Ltd. ("Viewer Services) (4)...................................................Ontario 3484751 Canada Inc.............................................................................Canada Chell.com (USA) Ltd............................................................................Nevada
---------- NOTES: (1) Unless otherwise indicated, all named entities are wholly-owned subsidiaries of Chell Group Corporation. (2) Wholly-owned subsidiary of Chell Merchant Capital Group. (3) Wholly-owned subsidiary of Logicorp Data Systems Ltd... (4) Wholly-owned subsidiary of NTN Interactive Network Inc. -21- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. CHELL GROUP CORPORATION Dated: November 30, 2004 By /s/ David Bolink ------------------------ DAVID BOLINK CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: November 30, 2004 By /s/ David Bolink ------------------------ DAVID BOLINK CHIEF EXECUTIVE OFFICER Dated: November 30, 2004 By /s/ David Bolink ------------------------ DAVID BOLINK CHIEF ACCOUNTING OFFICER -22-