SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHELL GROUP CORPORATION 11-2805051
(Incorporated in the State of New York) (I.R.S. Employee Identification Number)
14 Meteor Drive
Toronto, Ontario M9W 1A4
(416) 675-6666
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
Frederick M. Mintz, Esq.
Mintz & Fraade, P.C.
488 Madison Avenue
New York, NY 10022
(212) 486-2500
(Name and Address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
i
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Calculation of registration fee
Proposed maximum Proposed maximum
Title of Securities Amount to be offering price per aggregate offering Amount of
to be registered registered (1) share (2) price registration fee
- ------------------- -------------- ------------------ ------------------ ----------------
Common Stock, par 12,307,398 (3) $1.36 $16,738,061 $1,539.90
value $0.0467
(1) For the account of certain Selling Shareholders named herein.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) of the Securities Act, the registration fee has
been calculated based upon the closing sale price as reported by NASDAQ
Small-Cap Market for our common stock on May 29, 2002.
(3) Includes Warrants to purchase 205,571 shares of common stock.
We hereby amend this Registration Statement on such date or dates as may
be necessary to delay its effective date until we shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED May 30, 2002
PROSPECTUS
12,307,398 Shares Common Stock
Chell Group Corporation
This Prospectus relates to an offering by certain selling shareholders of
an aggregate of up to 12,307,398 shares of our common stock. We will not receive
any of the proceeds from the sale of common stock by the selling shareholders.
The common stock may be offered from time to time by the selling
shareholders through ordinary brokerage transactions in the over-the-counter
market, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices.
The common stock is traded in the over-the-counter market and is quoted on
the NASDAQ Small-Cap Market under the symbol CHEL. On May 29, 2002, the closing
sale price of the Common Stock as reported by NASDAQ was US$1.36.
The securities offered hereby involve a high degree of risk. See risk
factors commencing on page 6.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission. Neither the
Securities and Exchange Commission nor any state securities commission has
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
The date of this Prospectus is ________, 2002
iii
TABLE OF CONTENTS
Prospectus Summary.............................................................1
Risk Factors...................................................................6
Special Note Concerning Forward Looking Statements............................14
Use of Proceeds...............................................................14
Selling Shareholders..........................................................14
Plan of Distribution..........................................................16
Description of Securities to be Registered....................................17
Legal Matters.................................................................19
Experts.......................................................................19
Where you can get more information............................................20
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Prospectus summary
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein. This
Prospectus contains certain forward looking statements concerning our
operations, economic performance and financial condition. Such statements are
subject to a number of risks and uncertainties. Our actual results could differ
materially from those currently anticipated due to a number of factors including
those identified under "Risk Factors" and elsewhere in this Prospectus.
Our business
We are engaged in the business of providing interactive entertainment
services, electronic/on-line products and services, systems integration
services, corporate services and merchant capital services. Our corporate and
merchant capital businesses involves our investment in and acquisition of
significant but undervalued operating companies or technologies, to which we
then apply our management experience, in an effort to appreciate the value of
those companies. The interactive entertainment services involve, for example
electronic sports trivia games played on computer units installed in bars, pubs
and restaurants and audio-visual entertainment for the hospitality industry. Our
newly acquired systems integration business provides server based computing,
network design and delivery, network administration and support, procurement
services, hardware support services, and storage area network services. Our
revenue is primarily generated through our systems integration business through
our subsidiary, Logicorp Data Systems Ltd., and our interactive entertainment
services operations within two of our operating subsidiaries, being NTN
Interactive Network Inc. and GalaVu Entertainment Network Inc., as well as a NTN
Interactive Network subsidiary.
Abbreviated references to dollar amounts contained in this Registration
Statement, are denoted as "Cdn$" or "US$". "Cdn$" refers to Canadian dollars.
"US$" refers to United States dollars.
During the two most recent fiscal years, those ending August 31, 2000 and
August 31, 2001, we sustained operating losses in the respective approximate
amounts of Cdn$2,000,000 and Cdn$11,000,000. For the six-month period ending
February 28, 2002, we sustained a loss from continuing operations in the amount
of Cdn$2,865,603. We anticipate that we will incur additional operating losses
in the immediate future as well. As a result, we expect to continue to incur
significant operating losses and may not have enough money to satisfy our
existing obligations and expand our business operations in the future.
We currently conduct our business through ten directly or indirectly
wholly-owned subsidiaries and two partially owned subsidiaries. The following is
a list of such subsidiaries, and which of our business segments each operates
in:
Wholly-owned subsidiaries Business Segment
- ------------------------- ----------------
o Chell Merchant Capital Group - Merchant Services
o Chell.com USA Inc. - Merchant Services
o NTN Interactive Network Inc. - Entertainment
o GalaVu Entertainment Network Inc. - Entertainment
o 348751 Canada Inc. - Corporate
o Logicorp Data Systems Ltd. - Systems Integration
o Logicorp Service Group - Corporate
o 123557 ALBERTA LTD. - Corporate
o 591360 ALBERTA LTD. - Corporate
Partially Owned Subsidiaries
- ----------------------------
o Engyro, Inc. (approx. 8%) - Merchant Services
o cDemo Inc. (14.3%) - Merchant Services
According to our most recent quarter-end financial reports, our revenues
by industry segment, with their percentage of our total revenue, are set forth
in the table below:
6-month period ended
February 28, 2002
Cdn$ amount and percentage
REVENUE
Entertainment 6,023,574 38.5 (%)
Systems Integration 9,620,372 61.51(%)
Corporate (3,057) --
Merchant Services -- --
- --------------------------------------------------------------------------------
Cdn$15,640,889
No minimum amount of securities must be sold pursuant to this offering and
accordingly, no minimum amount of proceeds will be raised. Therefore, investors
may ultimately hold securities in a company that has failed to raise sufficient
capital to continue operations and/or may have an illiquid market for its
shares.
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Resignation of previous auditors
In October 2000, Ernst & Young LLP ("E&Y") resigned as our independent
accountants. E&Y's decision to resign was based upon their belief that they
could no longer rely upon the representations made by Cameron Chell, our
President and Chief Executive Order, because of disciplinary actions taken
against Mr. Chell by the Alberta Stock Exchange in November 1998. Mr. Chell, in
an agreement with the Alberta Stock Exchange, acknowledged that he had violated
certain duties of supervision, disclosure and compliance while he worked as a
registered securities representative licensed by the Alberta Securities
Commission.
We have subsequently hired the accounting firm of Lazar, Levine & Felix,
LLP as our certifying accountants. We have authorized E&Y to fully respond to
any and all inquiries of Lazar, Levine & Felix, LLP concerning E&Y's
resignation.
The consolidated financial statements of Chell Group Corporation for the
fiscal years ending August 31, 2001 and 2000 incorporated by reference in this
Prospectus and Registration Statement have been audited by Lazar, Levine &
Felix, LLP.
3
The offering
Securities Offered 12,307,398 shares of Common Stock
Common Stock Outstanding 22,477,698 shares, assuming the approval
at the annual stockholders' meeting
scheduled for June 28, 2002 of the
issuance of shares of our common stock
pursuant to the Logicorp transaction,
the issuance of shares of our common
stock pursuant to the conversion of the
8% convertible promissory notes and the
issuance of shares of our common stock
pursuant to the conversion of two
promissory notes issued by us.
Use of Proceeds We will not receive any proceeds from
sales of Common Stock by the Selling
Shareholders
Risk Factors Prospective investors should consider
carefully certain Risk Factors, which we
outline commencing on page 9 relating to
an investment in us.
NASDAQ Symbol CHEL
4
Statement of Operations Data (Canadian Dollars):
- ----------------------------------------------------------------------------------------
Year Ended August 31,
2001 2000 1999 1998 1997
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
- ----------------------------------------------------------------------------------------
Operating revenues 18,222,374 19,107,290 12,823,691 13,404,542 10,351,689
- ----------------------------------------------------------------------------------------
Cost of sales 6,818,111 7,204,919 4,874,768 5,030,602 3,395,898
- ----------------------------------------------------------------------------------------
Gross profit 11,404,263 11,902,371 7,948,923 8,373,940 6,955,791
- ----------------------------------------------------------------------------------------
Net income (loss) (11,226,225) (2,323,621) (971,497) 618,065 609,387
- ----------------------------------------------------------------------------------------
Net income (loss) per share (1.34) (0.81) (0.36) 0.24 0.25
- ----------------------------------------------------------------------------------------
Weighted average number of
Shares outstanding 8,393,589 2,873,042 2,635,050 2,550,805 2,441,992
- ----------------------------------------------------------------------------------------
Six-month period Six-month period
ending ending
February 28, 2002 February 28, 2001
- -------------------------------- ----------------------- -----------------------
Operating Revenue $15,640,889 $6,915,927
- -------------------------------- ----------------------- -----------------------
Cost of Sales 11,312,447 2,599,049
- -------------------------------- ----------------------- -----------------------
Gross Profit 4,328,442 4,316,878
- -------------------------------- ----------------------- -----------------------
Net income (loss) (3,720,347) (6,712,542)
- -------------------------------- ----------------------- -----------------------
Net income (loss) per share (.34) (.80)
- -------------------------------- ----------------------- -----------------------
Weighted average number of 10,976,487 8,356,045
shares outstanding
- -------------------------------- ----------------------- -----------------------
As at August 31:
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------
Total assets 16,225,003 17,220,211 14,546,003 15,802,359 14,287,602
- --------------------------------------------------------------------------------------
Long-term obligations 5,943,512 4,436,213 2,216,675 2,840,218 2,185,249
- --------------------------------------------------------------------------------------
Shareholders' equity 2,248,128 9,383,419 10,792,767 11,033,178 9,488,648
- --------------------------------------------------------------------------------------
As at February 28, 2002
- --------------------------------------------------------------------------------
Total assets 38,870,764
- --------------------------------------------------------------------------------
Long-term obligations 28,813,124
- --------------------------------------------------------------------------------
Shareholders' equity 10,057,640
- --------------------------------------------------------------------------------
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Risk factors
Risks related to our business:
Because we may not have operating income or net income in the future and may not
be able to obtain requisite financing, we may be unable to develop our business.
During the fiscal years ended August 31, 2000 and August 31, 2001, we
sustained an operating loss in the respective approximate amounts of
Cdn$2,000,000 and Cdn$11,000,000. For the six-month period ending February 28,
2002, we sustained a loss from continuing operations in the amount of
Cdn$2,865,603. We anticipate continuing to incur additional operating expenses
in the future (including significant cost of revenues, selling, general and
administrative and amortization expenses). As a result, we may not have enough
money to expand our business in the future. Accordingly, we expect we will have
to raise, by way of debt or equity financing, considerable funds to meet our
continuing needs and to develop our businesses. There can be no assurance that
we will be able to raise the funds needed for our business. Failure to raise the
necessary funds or raise them in a timely fashion may seriously inhibit our
growth.
We rely upon the services of NTN Communications, Inc., a company that has
reported substantial losses.
NTN Communications, Inc., a company based in Carlsbad, California,
provides all of the programming for our hospitality network. This programming is
supplied through independent transmission companies. In addition, NTN
Communications, Inc. is our sole supplier of selected components of our network
subscribers systems, including the interactive game, playmaker devices. We have
no equity interest in NTN Communications and the long-term viability of our
network business is dependent upon the continued availability of program content
services originating at NTN Communications Broadcast Center.
NTN Communications, Inc. has incurred substantial losses. It reported a
net loss of US$3,656,000 for the year ended December 31, 2001 and a net loss of
US$66,000 for the three month period ending March 31, 2002.
If the deterioration of NTN Communications' financial health results in
its dissolution or inability to provide programming, we would be required to
obtain programming services from other sources. If NTN Communications ceases
operations or terminates program content services, we believe, but cannot
assure, that services of the nature, quantity, and quality currently provided by
NTN Communications would become available from others. Any interruption in
program content services would result in an interruption in those services
normally delivered to subscribers. Other services would continue, including the
availability of interactive programs and games, although the content of such
games would remain static. Although we believe that we would in fact be able to
find a suitable substitute for such programming services and that we
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would not lose our customers, the transition between providers and any potential
delay in finding a replacement provider may have an impact upon our operating
costs.
The resignation of independent auditors creates a perceived damage to our image
and reputation.
On October 12, 2000, Ernst & Young LLP ("E&Y"), the independent
accountants who were engaged as the principal accountants to audit our financial
statements resigned as our certifying accountants. E&Y's report on our financial
statements as at August 31, 1999 and for the two years then ended contained no
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During the fiscal year
ended August 31, 1999 and during the subsequent interim period preceding E&Y's
resignation we had no disagreement with E&Y on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. The facts and circumstances that relate to E&Y's resignation, as far
as they are known to us, are as follows:
E&Y served as our certifying accountants since 1995. E&Y orally informed
us that pursuant to E&Y's internal rules, E&Y would resign as our certifying
accountants since it was unwilling and therefore unable to rely upon the
representations of Mr. Cameron Chell, our President and Chief Executive Officer,
due to the existence of a Settlement Agreement dated November 6, 1998, between
Cameron Chell and the Alberta Stock Exchange. On April 3, 2000, our board of
directors appointed Mr. Chell as a director and elected him as our Chair; on
April 3, 2000, Chell.com. Ltd., an Alberta corporation wholly-owned by Mr.
Chell, purchased approximately 16% of our issued and outstanding common stock;
and on April 7, 2000, we advised E&Y of the existence of the Settlement
Agreement. Pursuant to this Settlement Agreement with the Alberta Stock
Exchange, Mr. Chell acknowledged the existence of certain facts that occurred
during 1996 and 1997 while Mr. Chell was a registered representative in Alberta,
Canada, licensed by the Alberta Securities Commission, and he agreed to certain
restrictions imposed by the Alberta Stock Exchange and to pay a Cdn$25,000 civil
fine. Specifically, Mr. Chell acknowledged that he had breached certain duties
of supervision, disclosure, and compliance of the Alberta Stock Exchange in
connection with various offers and sales of securities. Those restrictions
included Mr. Chell's loss of Alberta Stock Exchange approval for a five-year
period and enhanced supervision for a three-year period.
E&Y's unwillingness to rely upon Mr. Cameron Chell's representations were
based upon the existence of the Settlement Agreement with the Alberta Stock
Exchange and not based upon any representations made by Cameron Chell.
Although E&Y's resignation creates a perceived damage to our image and
reputation, we do not believe that E&Y's resignation as our independent auditors
will have an impact on our performance.
On November 1, 2000, our Board of Directors ratified the engagement of
Lazar, Levine & Felix, LLP as our auditors for the year ending August 31, 2000.
In addition, Lazar, Levine & Felix acted as our auditors for the fiscal year
ended August 31, 2001. We have authorized E&Y
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to fully respond to any and all inquiries of Lazar, Levine & Felix, LLP
concerning E&Y's resignation.
We rely upon satellite communications systems which are controlled by third
parties.
In view of our dependence upon satellite technologies, an operating
failure to one or more of the broadcast satellites, upon which we depend, could
conceivably render the whole network useless for an indefinite period of time.
With a lack of operating history, the business and development plans of cDemo
and Engyro may prove to be unsuccessful.
One of our partially owned subsidiaries, cDemo, has not yet commenced
operations and the other, Engyro, began its operations in the third quarter of
its last fiscal year and recently began to generate revenues. Both of these
partially owned subsidiaries either have or will be entering a highly
competitive market. Investors should be aware of the difficulties that cDemo and
Engyro will encounter, since cDemo and Engyro are recently formed companies and
cDemo has not commenced operations, including, but not limited to, competition,
unanticipated costs and expenses, and their requirment of substantial additional
capital to survive. There can be no assurance that cDemo and Engyro will ever
realize a positive net cash flow from their planned operations. If the business
and development plans of cDemo and Engyro prove to be unsuccessful, they may not
be able to continue in business and our investment will lose most or all of its
value.
We may incur significant costs to avoid investment company status and our
business may be adversely affected if we are deemed to be an investment company.
We may incur significant costs to avoid investment company status and our
business may be otherwise adversely affected if we are deemed to be an
investment company under the Investment Company Act of 1940. Some of our equity
investments in other businesses and our venture subsidiaries may constitute
investment securities under the Investment Company Act of 1940. A company may be
deemed to be an investment company if it owns investment securities with a value
exceeding 40% of its total assets, subject to certain exclusions. If we were to
be deemed an investment company, we would become subject to the requirements of
the Investment Company Act of 1940. As a consequence, we would be prohibited
from engaging in business or issuing our securities as we have in the past and
might be subject to civil and criminal penalties for noncompliance. In addition,
certain of our contracts might be voidable, and a court-appointed receiver could
take control of us and liquidate our business.
Although the value of our investment securities currently comprises less
than 40% of our total assets, fluctuations in the value of these securities or
of other assets presently owned or acquired in the future may cause this limit
to be exceeded. Unless an exclusion or safe harbor were available to us, we
would have to attempt to reduce our investment securities as a percentage of our
total assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may sell
them sooner than we otherwise would. These sales may be at depressed prices and
we may never realize anticipated benefits
8
from, or may incur losses on, these investments. Some investments may not be
sold due to contractual or legal restrictions or the inability to locate a
suitable buyer. Moreover, we may incur tax liabilities when we sell assets. We
may also be unable to purchase additional investment securities that may be
important to our operating strategy. If we decide to acquire non-investment
security assets, we may not be able to identify and acquire suitable assets and
businesses.
Our strategy of expanding our business through acquisitions of other businesses
and technologies presents special risks.
We intend to continue to expand through the acquisition of businesses,
technologies, products and services from other businesses. Acquisitions involve
a number of special problems, including:
o difficulty integrating acquired technologies, operations, and personnel
with the existing business;
o diversion of management attention in connection with both negotiating the
acquisitions and integrating the assets;
o strain on managerial and operational resources as management tries to
oversee larger operations;
o exposure to unforeseen liabilities of acquired companies;
o potential issuance of securities in connection with the acquisition which
securities dilute the rights of holders of our currently outstanding
securities;
o the need to incur additional debt; and
o the requirement to record additional future operating costs for the
amortization of goodwill and other intangible assets, which amounts could
be significant.
We may not be able to successfully address these problems. Moreover, our
future operating results will depend to a significant degree upon our ability to
successfully manage growth and integrate acquisitions.
Our strategy of selling assets of, or investments in, the companies which we
have acquired and developed presents risks.
One element of our business plan involves raising cash for working capital
for our systems integration business by selling, in public or private offerings,
some of the companies, or portions of the companies, which we have acquired and
developed. This element of our business plan is subject to market and other
conditions largely beyond our control, including, but not limited to, the
following:
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o our ability to engage in such sales;
o the timing of such sales; and
o the amount of proceeds from such sales.
As a result, we may not be able to sell some or all of these assets. In
addition, even if we were able to sell we may not be able to do so at favorable
prices. If we are unable to sell these assets at favorable prices, our business
will be adversely affected.
We own a minority share in and do not have managerial control over Engyro and
cDemo.
As a result of our minority position in each of Engyro, a Delaware
corporation and cDemo, a Delaware corporation, we do not have the right to
control the management and business activities of Engyro or cDemo. As of
September 19, 2000, pursuant to an Agreement of Purchase and Sale, we acquired
22.1% of Engyro's shares (reduced to approximately 8% by subsequent financing)
and 14.3% of cDemo's shares. While cDemo has not commenced operations, Engyro
began its operations in the third quarter of its current fiscal year and
recently began to generate revenues. We may lose some or all of our investment
in these companies.
We do not own the rights to our name.
We have licensed the names Chell Group Corporation and Chell Merchant
Capital Group from Cameron Chell for a yearly fee of Cdn$1.00. Should we be
unable to maintain the agreement, our ability to widely use the name in
connection with the products or services to be rendered by us would cease. Loss
of the ability to use our name could adversely affect us.
We are open to exchange losses due to our operations being located in Canada.
It is expected that a significant portion of our revenues may be received
in Canadian dollars and a portion of our expenses will be incurred in U.S.
dollars. As a result, decreases in the value of the Canadian dollar relative to
the U.S. dollar could materially and adversely affect our results of operations
in the future. To the extent that we do not fully hedge our currency exposure
and exchange risk or are not able to or do not raise our prices to reflect an
adverse change in exchange rates, the operating results of our business would be
adversely affected.
Our principal shareholder has effective control over our business matters.
Cameron Chell, the President and Chief Executive Officer, beneficially
owns approximately 15.3% of our outstanding Common Shares. As a result, Mr.
Chell possesses significant influence over us on matters, including the election
of directors. Mr. Chell has agreed to vote in favor of all of the proposals
which will be brought before the shareholders at our annual meeting scheduled
for June 28, 2002. The concentration of our share ownership may:
o delay or prevent a change in our control;
o impede a merger, consolidation, takeover, or other transaction involving
us; or
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o discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us.
Not all of our Officers and Directors nor those of Engyro and cDemo are full
time employees.
To the extent that our Officers and Directors and those of Engyro and
cDemo are not full time employees, the transactions which are described in this
Prospectus involve or may involve conflicts of interest among the persons who
are associated with this transaction including, but not limited to, engaging in
other businesses similar or dissimilar to Engyro and cDemo and allocating their
time and services between Engyro and cDemo and any such other entities.
In view of the fact that Engyro and cDemo have limited historical financial data
upon which to base their planned operating expenses, it is likely that revenues
and operating results will fluctuate.
CDemo and Engyro have limited historical financial data upon which to base
their planned operating expenses. Accordingly, the expense levels of cDemo and
Engyro are based in part upon their respective managements, estimates and
expectations with respect to future revenue and anticipated growth. In view of a
number of factors, the revenues and operating results of cDemo and Engyro may
fluctuate from quarter to quarter. Such factors include, but are not limited to,
variations in expenditures for personnel and marketing, interest in their
products and services and sales, resulting from the introduction of new systems
or services by cDemo and Engyro and their competitors, and general economic
conditions. In view of such factors, there can be no assurance that cDemo and
Engyro will be able to attain profitability on a quarterly or annual basis.
There may be a significant conflict of interest among those persons who are
associated with us.
There are potential conflicts of interest to which our directors and
officers will be subject in connection with our operations. Although there are
no present conflicts of interest, it is possible that our directors and officers
may become engaged in business activities on their own behalf or have interests
in other companies and/or industries and situations may arise where our
directors and officers will be in direct competition with us. Our outside
directors are involved in other business enterprises which require their time
and attention. Accordingly, they will be engaging in other businesses similar or
dissimilar to ours and allocating their time and services between us and any
such other entities. The conflicts of interest will be dealt with in the manner
required by the laws applicable to us.
11
Risks Related to our Industry
We are subject to intense competition in our existing and intended business
areas and those of Engyro and cDemo.
Competition in the market for Internet products and services is highly
competitive. Moreover, the market for Internet products and services lacks
significant barriers to entry, enabling new businesses to enter this market
relatively easily. Competition in the market for Internet products and services
may intensify in the future. Numerous well-established companies and smaller
entrepreneurial companies are focusing significant resources on developing and
marketing products and services that will compete with our products and
services. In addition, many of our current and potential competitors have
greater financial, technical, operational and marketing resources. We may not be
able to compete successfully against these competitors in selling our goods and
services. Competitive pressures may also force prices for Internet goods and
services down and such price reductions may reduce our revenues.
Competitors with superior resources may be able to bring new, better and
cheaper products to the market more quickly than our subsidiaries, Engyro and
cDemo, thereby gaining a competitive edge. We believe that the quality of our
respective goods and services combined with the expertise of our respective
management should give each of us a competitive edge. However, there can be no
assurance that we will each be able to compete successfully or that competitive
pressures faced by each of us will not materially or adversely affect each of
our businesses and our operating results and financial condition.
We may not be able to keep pace with technological advances and may face
technological obsolescence.
The computer industry and related businesses are marked by rapid and
significant technological development and change. The systems integration
services, the interactive entertainment and the online products and services
aspects of our business are heavily reliant upon the most recent technology and
equipment. We do not have the latest developments in digital and wireless
technology and equipment. It is possible that our technology and services will
be rendered obsolete by ongoing technological developments. There also is no
assurance that we will be able to respond effectively to technological changes.
Our ability to compete is dependent in large part upon our continued ability to
enhance and improve our products and technologies, our ability to adapt our
services to evolving industry standards and our ability to continually improve
the performance, features and reliability of our service and product offerings.
In order to do so, we must effectively utilize and expand our research and
development capabilities, and, once developed, expeditiously convert new
technology into products and processes which can be commercialized. Our
competitors may succeed in tapping into markets previously monopolized by us by
developing technologies, products and processes that render our processes and
products obsolete. Our development efforts are subject to all the risks inherent
in the development of new products and technologies, including unanticipated
delays, expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to satisfactorily complete development, which could
result in abandonment or substantial change
12
in product commercialization. There can be no assurance that product development
efforts will be successfully completed on a timely basis, or at all, or that
unanticipated events will not occur which would result in increased costs or
material delays in product development or commercialization.
Regulation of the Internet could have an adverse effect upon us.
There are currently few laws or regulations directly applicable to the
Internet. However, based upon the increasing popularity and use of the Internet,
a number of legislative and regulatory proposals are under consideration, and
there is a possibility that a number of laws and regulations may be adopted with
respect to the Internet, relating to such issues as, user privacy, taxation,
infringement, pricing, and quality of products and services. Although we and our
subsidiaries will make every effort to comply with applicable regulations, there
can be no assurance of their ability to do so. Additionally, the adoption of
such laws and regulations may decrease growth in the use of the Internet.
Therefore, if we and our subsidiaries are unable to comply with new laws and
regulations, or Internet use decreases as a result, their business, operations
and financial conditions would be adversely affected.
Risks related to this offering:
Computer and technology related securities are generally subject to greater
volatility in price than those of traditional manufacturing or services
companies.
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. The market prices of the securities of many publicly-traded
companies in the computer industry have in the past been and can be expected in
the future to be especially volatile. Factors such as our operating results,
announcements by us or by our competitors concerning technological innovations,
or new products and/or systems may have a significant impact upon the market
price of our securities.
The shares in this offering represent a high percentage of what will be our
total issued and outstanding shares after this offering.
The shares to be registered in this offering (12,307,398) represent
approximately 54.75% of our total issued and outstanding shares after this
offering, which includes the shares issued pursuant to the Logicorp transaction,
subject to the approval by a majority of votes cast at our annual meeting of the
shareholders scheduled for June 28, 2002.
86.3% of our total issued and outstanding shares prior to this offering
were restricted and could not be freely traded pursuant to Rule 144 which was
promulgated by the Securities and Exchange Commission pursuant to ss.4(1) of the
Securities Act of 1933. If the investors who purchase shares pursuant to this
offering sell such shares in the near future, in view of the past limited
trading market, share value may drop substantially.
13
Special note concerning forward looking statements
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Registration Statement, in
evaluating an investment in the Securities offered hereby. This Registration
Statement contains forward looking statements which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this Registration
Statement.
The ownership and trading of our shares of common stock are speculative
and offer a high degree of risk, including, but not necessarily limited to, the
risk factors described below. One should carefully consider the following risk
factors inherent in and affecting our business before making an investment
decision.
Use of proceeds
We will not receive any proceeds from the sale of shares of Common Stock
by the Selling Shareholders. We have agreed to pay certain expenses in
connection with this offering, currently estimated to be approximately
US$50,000.
Selling shareholders
An aggregate of up to 12,307,398 shares may be sold pursuant to this
Prospectus by the Selling Shareholders. We will not receive any of the proceeds
from the sale of shares of Common Stock by the Selling Shareholders.
The following table sets forth certain information with respect to the
Selling Shareholders:
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Selling Shareholders Shares Owned Percentage of Shares Registered Shares Owned Percentage of
Prior to Offering shares Prior to After Offering Shares After
Offering the Offering
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Michael J. Alfano 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Neil T. Anderson 526,316 2.34% 526,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Jason W. Assad 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Paul Auersperg 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Hubert F. & Claudia A. 26,316 * 26,316 0 --
Bonfili
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Burnett Family Trust 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Scott Carr 21,053 * 21,053 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Larry Paul & Gail Cavallo 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
14
Caydal LLC 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Kelley A. Clowe 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Corley Family Trust 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
G.F. Courtney 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Louis & Antoinette Fanty 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Farshid Faridina 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Gladstone Group 78,947 * 78,947 0 --
Investments, Inc
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Lorraine A. Grambush 42,105 * 42,105 0 --
Income Trust
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Joseph Gunnar & Co., 147,782 * 147,782 0 --
L.L.C. (2)
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Brian Hilgendorf 131,579 * 131,579 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Terry Hudson 36,821 * 36,821 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
K & K Investors Co, Inc 210,526 * 210,526 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Steve Kalafer 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Mitchell & Allison 52,632 * 52,632 0 --
Kersch
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Timothy & Theresa
Klouda 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Eugene J. & Carol
Kowalczyk 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Leon Krajian 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ross T. Krueger 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Michael S. & Stephanie 52,632 * 52,632 0 --
M. Kuglitsch
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Sam Levinson 694,737 3.09% 694,737 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Lhargo Management 52,632 * 52,632 0 --
Limited
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Mark A. & Kangping
F. Lowenstein 131,579 * 131,579 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Gary Martin 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
James A. McCaughey 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ian & Frances Mead 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ian Mead 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Marc & Cathy Medway 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ming Capital 52,632 * 52,632 0 --
Enterprises, Inc
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
North Bar Capital 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
P. Con Consulting, Inc 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Pichalski 157,895 * 157,895 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Russell A. Pomeroy 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Lynden L. Rader 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ardell J. Schelich 105,263 * 105,263 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Ronald Shear 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Theodore L Stortz 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Dennis J. Stvan 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Taz LP Family Limited 42,105 * 42,105 0 --
Partnership
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
15
TERJAC Distribution 26,316 * 26,316 0 --
Systems, Inc
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Triton Private Equities
Fund L.P. 796,718 3.54% 796,718 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Venture Round Group,
LLC (2) 57,789 * 57,789 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Frank S. & Vivian R.
Vigliarolo 10,526 * 10,526 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Michael Vuocolo IRA 15,789 * 15,789 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Johnny Walker 52,632 * 52,632 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Gary & Joan Wolff 26,316 * 26,316 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
The Shaar Fund Ltd. 3,896,100 17.33% 3,896,100 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Canadian Imperial
Bank of Commerce 637,546 2.84% 500,944 136,602 2.23%
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
XL Investments 210,526 * 210,526 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Melanie Johannesen 628,787 2.80 628,787 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Johannesen Family Trust 262,713 1.17% 262,713 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Randy Baxandall 798,090 3.55% 798,090 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Baxandall Family Trust 94,410 * 94,410 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Morris Chynoweth 351,753 1.56% 351,753 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Elaine Chynoweth 351,753 1.56% 351,753 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Merc Family Trust 188,994 * 188,994 0 --
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
Total: 12,444,000 12,307,418
- --------------------------- ------------------ --------------- ------------------ --------------- ----------------
* Less than 1%.
(1) Assumes all of the shares offered hereby are sold by the Selling
Shareholders.
(2) Includes Warrants to purchase shares of our common stock.
Plan of distribution
The Common Stock will be offered and sold from time to time as market
conditions permit in the over-the-counter market, or otherwise, at prices and
terms then prevailing or at prices related to the then-current market price, or
in negotiated transactions. The shares offered hereby may be sold by one or more
of the following methods, without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate. Such broker
or dealers may receive commissions or discounts from the Selling Shareholder in
amounts to be negotiated. Such brokers and dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act, in connection with such sales. Any commissions, discounts or
16
other fees payable to a broker, dealer or market maker in connection with the
sale of any Common Stock will be borne by the Selling Stockholder.
Exchange Rates
This Registration Statement contains conversions of certain amounts in
Canadian dollars ("Cdn$") into United States dollars ("US$") based upon the
exchange rate in effect at the end of the period to which the amount relates, or
the exchange rate on the date specified. For such purposes, the exchange rate
means the noon buying rate in New York City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate"). These translations should not be construed as
representations that the Canadian dollar amounts actually represent such U.S.
dollar amounts or that Canadian dollars could be converted into U.S. dollars at
the rate indicated or at any other rate. The Noon Buying Rate at the end of each
of the five years ended August 31, 2001, the average of the Noon Buying Rates on
the last day of each month during each of such fiscal years and the high and low
Noon Buying Rate for each of such fiscal year's were as follows:
August 31,
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
2001 2000 1999 1998 1997
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
At end of period Cdn$1.5478 Cdn$1.4715 Cdn$1.4965 Cdn$1.5722 Cdn$1.3885
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
Average for period 1.5298 1.4714 1.4949 1.4390 1.3676
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
High for period 1.5784 1.4955 1.5135 1.5770 1.3942
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
Low for Period 1.4995 1.4489 1.4760 1.4100 1.3381
- ------------------------- ---------------- ------------------ ------------------ ----------------- ------------------
The Noon Buying Rate as of May 29, 2002 was 1.5345.
Description of Securities to be Registered
We are authorized to issue 50,000,000 Common Shares of which 22,477,698
Common Shares were outstanding as at the date hereof (assuming the approval at
the annual stockholders' meeting scheduled for June 28, 2002 of the issuance of
shares of our common stock pursuant to the Logicorp transaction, the issuance of
shares of our common stock pursuant to the conversion of the 8% convertible
promissory notes and the issuance of shares of our common stock pursuant to the
conversion of two promissory notes issued by us). We have proposed to increase
the number of authorized of our common stock to 75,000,000, which is subject to
shareholder approval at the annual shareholders' meeting.
As at the date hereof, we had also issued warrants which enable holders
thereof to acquire up to 555,571 Common Shares and had also issued stock options
which entitle holders thereof to acquire up to 1,324,625 Common Shares.
17
Common Shares
The holders of Common Shares are entitled to one vote per share held at
meetings of shareholders, to receive such dividends as declared by us and to
receive the remaining property and assets of the Corporation upon our
dissolution or winding up. The Common Shares are not subject to any future call
or assessment and there are no pre-emptive, conversion or redemption rights
attached to such shares.
On October 12, 2000, we issued a convertible debenture in the amount of
US$3,000,000 to VC Advantage Limited Partnership. Cameron Chell is a director
and shareholder of VC Advantage Limited Partnership. The convertible debenture
bore interest at 10% per annum, payable upon conversion, redemption or maturity.
The unpaid principal of the debenture bore interest from the date that it is
actually advanced until paid. Interest was payable in cash or stock at our
option. The convertible debenture was convertible into our Common Shares, at
US$3.00 per share. On November 30, 2000, VC Advantage Limited Partnership
assigned the convertible debenture to Canadian Advantage Limited Partnership II.
Canadian Advantage Limited Partnership II is not related to or affiliated with
us in any way. On September 1, 2001, we exchanged the convertible debenture in
the face amount of U.S.$3,000,000, of which an aggregate principal amount of
U.S.$1,700,000 was outstanding, which, with interest at 10%, resulted in a total
amount outstanding of US$1,870,000, which was held by Canadian Advantage Limited
Partnership II on behalf of Canadian Advantage Limited Partnership and Advantage
(Bermuda) Fund Ltd. for Promissory Notes in the aggregate amount of
U.S.$1,870,000, secured by a General Security Agreement against our assets, in
priority to all other claims, subject to the existing security of the Bank of
Montreal in connection with loans in the total amount of CDN$1,250,000. On
December 11, 2001, Canadian Advantage Limited Partnership II and Advantage
(Bermuda) Fund Ltd. offered to convert their promissory notes to equity at
US$0.80 per share. The original note dated Sept 1, 2001 between us and Advantage
(Bermuda) Fund Ltd. in the amount of US$504,900 was converted into 649,533
shares of our common stock. The original note dated Sept 1, 2001 between us and
Canadian Advantage Limited Partnership in the amount of US$1,365,100 was
converted into 1,756,145 shares of our common stock.
We also issued 50,000 warrants to VC Advantage Limited Partnership. Each
Warrant entitles the holder thereof to acquire one of our Common Shares at
US$3.00 per share at any time prior to October 3, 2004 for an aggregate of
50,000 shares.
As of the date hereof, we issued 250,000 Common Share Purchase Warrants.
200,000 Warrants may be exercised for Common Shares at a price of US$4.375 at
any time prior to April 4, 2003 for an aggregate of 200,000 Common Shares.
50,000 Warrants may be exercised for Common Shares at a price of US$3.00 at any
time prior to October 3, 2004 for an aggregate of 50,000 Common Shares.
18
Preferred Shares
We are authorized to issue up to one million five hundred thousand
(1,500,000) shares of Preferred Stock. Shares of Preferred Stock may be issued
in one or more series as determined by the Board of Directors. The Board will
determine by resolution the powers, designations, preferences and relative
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions of any series of Preferred Stock, including, the
number of shares, dividend rights, redemption rights, liquidation preferences,
voting rights and conversion rights.
Pursuant to a Securities Exchange Agreement dated February 6, 2002 by and
between us and Triton Private Equities Fund, L.P. we issued 64,935 shares of our
Series B Convertible Preferred Stock, par value US$.01 per share to Triton
Private Equities Fund, L.P. in exchange for 64,935 shares of Series "A" 6%
Convertible Preferred Stock of Wareforce.com Inc. Pursuant to a Securities
Exchange Agreement dated February 6, 2002 by and between us and Shaar Fund Ltd.
we issued 389,610 shares of our Series B Convertible Preferred Stock, par value
US$.01 per share to Shaar Fund Ltd in exchange for 389,610 shares of Series "A"
6% Convertible Preferred Stock of Wareforce.com Inc.
Legal Matters
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby are being passed upon for the Company by Mintz & Fraade,
P.C., 488 Madison Avenue, New York, New York 10022.
Experts
The consolidated financial statements of Chell Group Corporation as at
August 31, 2001 and 2000 and for the fiscal years then ended, appearing in Chell
Group Corporation's amended Annual Report for the year ended August 31, 2001
(Form 10-K/A), incorporated by reference in this Prospectus and Registration
Statement, have been audited by Lazar, Levine & Felix, LLP, independent
auditors, to the extent indicated, in their report incorporated by reference
therein. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
Our consolidated financial statements of Chell Group Corporation as at
August 31, 1999 and for the fiscal year then ended appearing, in Chell Group
Corporation's amended Annual Report for the year ended August 31, 2001 (Form
10-K/A), incorporated by reference in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, to the
extent indicated in their report incorporated by reference therein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
19
Where you can get more information
At your request, we will provide you, without charge, a copy of any
exhibits to our registration statement incorporated by reference in this
prospectus. If you want more information, write or call us at: Chell Group
Corp., 14 Meteor Drive, Toronto, Ontario, Canada, M9W 1A4, telephone: (416)
675-6666.
Our fiscal year ends on August 31. We furnish our shareholders annual
reports containing audited financial statements and other appropriate reports.
In addition, we are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings are also available to
the public on the SEC Internet site at http:\\www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to these documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below, which we have already filed with the
SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until the selling stockholder
sells all of the securities offered by this prospectus.
Chell Group Corporation SEC filing (File No. 000-18066)
1. Annual Reports on Form 10-K/A for the year ended August 31, 2001, as
filed with the Commission on May 23, 2002;
2. Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarters ending
February 28, 2002 and November 30, 2001, as filed with the Commission on April
15, 2002 and May 22, 2002, respectively;
3. Current Reports on Form 8-K and Form 8-K/A, as filed with the
Commission on May 24, 2002, April 18, 2002, April 3, 2002, March 8, 2002,
February 25, 2002 and January 22, 2001, December 28, 2001 and December 6, 2001;
and
4. Preliminary Proxy Statement on Form DEF 14A, as filed with the
Commission on May 24, 2002.
You should rely only upon the information incorporated by reference or
provided in this prospectus.
20
We have not authorized anyone to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus or
the documents incorporated by reference is accurate as of any date other than
the date on the front of this prospectus or those documents.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by us or the Selling Shareholders.
Neither the delivery of this Prospectus, nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
our affairs since the date hereof or that the information contained herein is
correct as of any date subsequent to the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
21
12,307,398 Shares of
Common Stock
CHELL GROUP CORPORATION
PROSPECTUS
May____, 2002
22
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the issuance and distribution of the
securities being registered (estimated except in the case of the registration
fee) are as follows:
Registration Fee US$1,539.90
Legal and Accounting Fees
and Expenses *45,000.00
Miscellaneous 3,460.10
TOTAL 50,000.00
The above fees will be paid by the Company.
* Estimate
Item 15. Indemnification of Directors and Officers.
Article Tenth of our Amended Certificate of Incorporation provides for the
elimination of personal liabilities of directors of the registrant for breaches
of certain of their fiduciary duties to the full extent permitted by Sections
717 and 719 of the New York Business Corporation Law ("BCL"). Specifically, it
states that no director of the Registrant shall be personally liable to the
corporation or any of its shareholders for damages of any breach of duty in any
such capacity except if a judgment or other final adjudication adverse to them
establishes that their acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of the law, or that they
personally gained in fact a financial profit or other advantage to which they
were not legally entitled or that their acts violated Section 719 of the BCL.
Section 801(b)(14) of the BCL enables a corporation in its certificate of
incorporation to strike out, change or add any provision not inconsistent with
the BCL or any other statute, relating to the business of the corporation, its
affairs, its rights or powers or the rights or powers of its shareholders, or
directors or officers. Section 717 provides for the elimination of personal
liabilities of directors provided they act in good faith and with the degree of
care used by an ordinary prudent person under like circumstances. Thus, no such
provision may eliminate or limit the liability of a director for breaching their
duty of loyalty, failing to act in good faith, engaging in intentional
misconduct or knowingly violating the law, paying an unlawful dividend,
approving an illegal stock repurchase or obtaining an improper personal benefit.
23
Item 16. Exhibits
Exhibit No.
5.1 Opinion of Mintz & Fraade, P.C.
23.1 Consent of Lazar, Levine & Felix, LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Mintz & Fraade, P.C. (included in Section 5.1)
24. Power of Attorney
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (The "Securities Act");
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission (the "Commission") pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and prices represent no
more than 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the information required to be filed with a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange of Act of 1934 (the "Exchange Act") that are incorporated by reference
in the registration statement.
(2) that for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed a new registration statement
relating to the securities
24
offered therein, and the offering of such securities at that time shall be
deemed the initial bona fide offering thereof.
(3) to remove by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(4) that for the purpose of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other that the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Toronto, Province of Ontario, on this 30th day
of May, 2002.
Chell Group Corporation
By: /s/ Don Pagnutti
------------------------------
Don Pagnutti, Director, Vice
President-Finance, Chief Financial
Officer
POWER OF ATTORNEY
I, the undersigned director of Chell Group Corporation, hereby constitute
and appoint Don Pagnutti, my true and lawful attorney-in-fact and agent, with
full power of substitution, for me and in my stead, in any and all capacities,
to sign any and all amendments (including pre-effective and post-effective
amendments) to this Registration Statement and all documents in connection
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing necessary or advisable to be done in
and about the premises, as full to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Signature Title(s) Date
- --------- -------- ----
/s/ Cameron Chell President & Chief Executive
- --------------------- Officer May 30, 2002
Cameron Chell
/s/ David Bolink Director May 30, 2002
- ---------------------
David Bolink
/s/ Gordon Herman Director May 30, 2002
- ---------------------
Gordon Herman
26
/s/ Don Pagnutti Director, Vice President-Finance,
- --------------------- Chief Financial Officer May 30, 2002
Don Pagnutti
/s/ Shelly Singhal Director May 30, 2002
- ---------------------
Shelly Singhal
/s/ Robert Stone Director May 30, 2002
- ---------------------
Robert Stone
/s/ Adrian P. Towning Director May 30, 2002
- ---------------------
Adrian P. Towning
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on the dates stated.
Signature Title(s) Date
- --------- -------- ----
/s/ Cameron Chell President & Chief Executive
- --------------------- Officer May 30, 2002
Cameron Chell
/s/ David Bolink Director May 30, 2002
- ---------------------
David Bolink
/s/ Gordon Herman Director May 30, 2002
- ---------------------
Gordon Herman
/s/ Don Pagnutti Director, Vice President-Finance,
- --------------------- Chief Financial Officer May 30, 2002
Don Pagnutti
/s/ Michael J. Rice Director May 30, 2002
- ---------------------
Michael J. Rice
27
/s/ Shelly Singhal Director May 30, 2002
- ---------------------
Shelly Singhal
/s/ Robert Stone Director May 30, 2002
- ---------------------
Robert Stone
/s/ Adrian P. Towning Director May 30, 2002
- ---------------------
Adrian P. Towning
28