SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 15, 2002
CHELL GROUP CORPORATION
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(Exact name of registrant as specified in its charter)
NEW YORK 005-524525 112805051
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(State or other (Commission (IRS Employer of
jurisdiction incorporation) File Number) Identification No.)
14 METEOR DRIVE, TORONTO, ONTARIO CANADA, M9W 1A4
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (416) 675-6666
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
On March 15, 2002, Chell Group Corporation (the "Company") closed the
Share Purchase Agreement (the "Agreement") dated as of December 13, 2001, as
amended, by and among the Company, Chell Merchant Capital Group, Inc., a
wholly-owned subsidiary of the Company (the "Buyer"), Melanie Johannesen, Randy
Baxandall, Morris Chynoweth, Elaine Chynoweth, the Johannesen Family Trust, the
Baxandall Family Trust, the Merc Family Trust, Logicorp Data Systems Ltd.
("Logicorp Data"), 123557 Alberta Ltd. ("123557"), Logicorp Service Group Ltd.
("Logicorp Group") and 591360 Alberta Ltd. ("591360").
Although not required by New York corporate law, the transaction is
subject to shareholder approval for purposes of compliance with Nasdaq
Marketplace Rule 4350(i)(1)(D)(ii). Mr. Cameron Chell, the Company's Chief
Executive Officer, has executed an irrevocable proxy on behalf of Chell.com,
Ltd., the Company's majority shareholder as of the record date set for the
upcoming Shareholders' Meeting agreeing to vote its shares to approve the
Logicorp transaction at the shareholders' meeting at which such approval will be
submitted to the shareholders for ratification. Pursuant to the Logicorp
transaction, the Company acquired all of the issued and outstanding securities
of Logicorp Data, 123557, Logicorp Group and 591360 (the "Logicorp Securities").
In consideration for such acquisition, in addition to cash payments in the
amount of Cdn$1,500,000 and the issuance of Promissory Notes in the amount of
Cdn$2,540,000, the Company is issuing to the former shareholders of the Logicorp
Securities five million three hundred fifty five thousand (5,355,000)
exchangeable shares of the Company's wholly-owned subsidiary Chell Merchant
Capital Group ("CMCG"), which are being valued for purposes of the transaction
at US$1.20 per share, representing the market price of the Company's shares on
the effective date of the Agreement (the "Exchangeable Shares"). Accordingly,
such issuance has resulted in an increase of US$6,426,000 million dollars in the
Company's shareholders' equity.
The Exchangeable Shares have voting rights in the Company equivalent to
the number of shares into which they are exchangeable and are exchangeable into
shares of the Company's Common Stock on a one for one basis upon the occurrence
of certain events. In addition, the Exchangeable Shares were deposited in escrow
at the closing of the transaction and will not be released until the
shareholders of the Company ratify the Logicorp transaction and approve the
issuance of the shares of the Common Stock of the Company issuable upon the
exchange of the Exchangeable Shares. While the Exchangeable Shares are in
escrow, the holders of the Exhangeable Shares are not entitled to vote,
transfer or encumber such shares, nor are they entitled to dividends.
Attached as Exhibit "A" and made a part hereof is a schedule of the
holders of the Exchangeable Shares. We have been advised that such holders do
not have an agreement with each other with respect to the voting of the
Company's shares. No shareholder or related shareholders are receiving a number
of Exchangeable Shares which upon conversion into shares of Common Stock of the
Company will be in excess of approximately 12% of the number of issued and
outstanding shares of Common Stock of the Company.
2
Attached hereto and made a part hereof are Pro Forma financial projections
with respect to the Logicorp transaction as of August 31, 2001 the last day of
the Company's last fiscal year and December 31, 2001.
Item 7. Financial Statements and Exhibits
Set forth below is a list of the Exhibits applicable to this Current Report on
Form 8-K numbered in accordance with Item 601 of Regulation S-K.
(a) Financial Statements of the businesses in which the Registrant acquired
securities.
Balance sheet and statements of income and cash flows of Logicorp Data
Systems, Ltd., Logicorp Service Group, Ltd. and 591360 Alberta Ltd. for
the fiscal years ended June 30, 2001 and 2000 and 123557 Alberta Ltd for
the fiscal years ended October 31, 2001 and 2000.
(b) Pro forma financial data reflecting the combination of the Company and
Logicorp Data, 123557, Logicorp Group and 591360 for the periods ended August
31, 2001 and December 31, 2001.
(c) Set forth below is a list of the Exhibits applicable to this Current Report
on Form 8-K, numbered in accordance with Item 601 of Regulation S-K.
Exhibit "2.1" 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. +
+ Incorporated by reference. See Exhibit Index
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Chell Group Corporation
a New York Corporation
Date: March 18, 2002 By: /s/ Don Pagnutti
-------------------------------------
Don Pagnutti, Vice President,
Finance and Chief Financial Officer
4
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LOGICORP DATA SYSTEMS LTD.
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FINANCIAL STATEMENTS
JUNE 30, 2001
[LOGO] LOGICORP
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LOGICORP DATA SYSTEMS LTD.
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2001
CONTENTS
PAGE
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AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Loss and Retained Earnings 3
Statement of Cash Flows 4
Notes to the Financial Statements 5-9
Schedule of Branch Operations 10
Schedule of Corporate Office 11
[LETTERHEAD OF GRANT THORNTON]
Auditors' Report
To the Shareholders of
Logicorp Data Systems Ltd.
We have audited the balance sheet of Logicorp Data Systems Ltd. as at June 30,
2001 and the statements of loss and retained earnings and cash flows for the
year then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2001 and the
results of its operations and cash flows for the year then ended in accordance
with Canadian generally accepted accounting principles.
/s/ Grant Thornton LLP
Edmonton, Canada
September 6, 2001 Chartered Accountants
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LOGICORP DATA SYSTEMS LTD.
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BALANCE SHEET
AS AT JUNE 30
ASSETS
2001 2000
- --------------------------------------------------------------------------------
CURRENT
Accounts receivable $ 8,536,751 $ 7,722,714
Inventory 1,549,794 1,726,787
Income taxes receivable 35,693 37,945
Prepaid expenses 99,227 121,316
- --------------------------------------------------------------------------------
10,221,465 9,608,762
CAPITAL ASSETS (Note 2) 1,356,880 837,882
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$11,578,345 $10,446,644
================================================================================
LIABILITIES
CURRENT
Bank indebtedness (Note 3) $ 3,322,930 $ 2,270,523
Accounts payable and accrued liabilities 5,882,472 6,217,742
Current portion of amounts Due to RCA Trusts 48,000 48,000
- --------------------------------------------------------------------------------
9,253,402 8,536,265
DUE TO AFFILIATED COMPANY (Note 4) 561,532 524,445
DUE TO RCA TRUSTS (Note 5) 1,020,454 863,195
DUE TO RELATED PARTIES (Note 6) 298,628 73,628
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11,134,016 9,997,533
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SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 99 99
RETAINED EARNINGS 444,230 449,012
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444,329 449,111
- --------------------------------------------------------------------------------
$11,578,345 $10,446,644
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COMMITMENTS (Note 9)
APPROVED ON BEHALF OF THE BOARD:
_____________________________ Director
_____________________________ Director
See accompanying notes to the financial statements
2.
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LOGICORP DATA SYSTEMS LTD.
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STATEMENTS OF LOSS AND RETAINED EARNINGS
FOR THE PERIOD ENDED JUNE 30
2001 2000
(12 Months) (4 Months)
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EARNINGS (LOSS) FROM BRANCH OPERATIONS (Page 10) $ 603,911 $ (65)
(LOSS) EARNINGS FROM CORPORATE OFFICE (Page 11) (200,971) 71,455
- --------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 402,940 71,390
OTHER REVENUE AND (EXPENSE)
Interest revenue 3,593 2,791
Retirement compensation agreements (400,000) --
- --------------------------------------------------------------------------------
NET EARNINGS BEFORE INCOME TAXES 6,533 74,181
PROVISION FOR INCOME TAXES 11,315 7,903
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NET (LOSS) EARNINGS (4,782) 66,278
RETAINED EARNINGS, beginning of period 449,012 382,734
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RETAINED EARNINGS, end of period $ 444,230 $ 449,012
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See accompanying notes to the financial statements
3.
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LOGICORP DATA SYSTEMS LTD.
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STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED JUNE 30
2001 2000
(12 Months) (4 Months)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES
Net (loss) earnings $ (4,782) $ 66,278
Items not requiring an outlay of cash:
Amortization 122,046 29,075
- --------------------------------------------------------------------------------
117,264 95,353
CHANGES IN NON-CASH WORKING CAPITAL BALANCES
Accounts receivable (814,037) 1,089,473
Inventory 176,993 (104,290)
Prepaid expenses 22,089 (40,512)
Accounts payable and accrued liabilities (335,270) (1,591,077)
Income taxes receivable 2,252 1,583
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(830,709) (549,470)
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FINANCING ACTIVITIES
Advances from Directors 225,000 --
Advances from (to) affiliated company 37,087 (240,126)
Advances from (to) RCA Trusts 157,259 (38,353)
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419,346 (278,479)
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INVESTING ACTIVITIES
Additions to capital assets (641,044) (28,954)
- --------------------------------------------------------------------------------
DECREASE IN CASH AND CASH
EQUIVALENTS (1,052,407) (856,903)
BANK INDEBTEDNESS, beginning of period (2,270,523) (1,413,620)
- --------------------------------------------------------------------------------
BANK INDEBTEDNESS, end of period $(3,322,930) $(2,270,523)
================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 311,022 $ 59,794
Income taxes 3,294 6,320
See accompanying notes to the financial statements
4.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of operations
The company is a computer service organization which specializes in
the supply and integration of computer products, with branches in
Vancouver, Calgary, Edmonton and Saskatoon. The company serves both
large and small organizations and is particularly valued by
organizations having complex data and communication configurations.
(b) Cash and cash equivalents
Cash and cash equivalents include cash on hand and balances with
banks, net of bank overdrafts. The operating line of credit is
included in cash and cash equivalents.
(c) Inventory
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
(d) Capital assets
Capital assets are recorded at cost. Amortization is provided
annually at rates calculated to write-off the assets over their
estimated useful lives as follows:
Automotive equipment 30% diminishing balance
Computer equipment 30% diminishing balance
Computer software 30% diminishing balance
Leasehold improvements 20% diminishing balance
Office equipment 20% diminishing balance
Small tools 100% diminishing balance
(e) Revenue recognition
For product sold, revenue is recognized when the product is shipped.
For maintenance contracts, revenue is recognized when the service
has been provided.
(f) Use of estimates
In preparing the company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
5.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
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2. CAPITAL ASSETS
Accumulated 2001 2000
Cost Amortization Net Book Net Book
Value Value
- --------------------------------------------------------------------------------
Automotive equipment $ 23,300 $ 12,027 $ 11,273 $ 318
Computer equipment 38,154 28,613 9,541 9,812
Computer software 888,611 28,985 859,626 325,399
Leasehold improvements 142,004 60,883 81,121 80,531
Office equipment 662,885 267,566 395,319 421,822
Small tools 791 791 -- --
- --------------------------------------------------------------------------------
$1,755,745 $ 398,865 $1,356,880 $837,882
================================================================================
3. BANK INDEBTEDNESS
Bank indebtedness bears interest at 0.82% over the bank prime rate and
consists of the following:
2001 2000
- --------------------------------------------------------------------------------
Bank overdraft $ 927,112 $ 615,523
Operating line of credit 2,395,818 1,655,000
- --------------------------------------------------------------------------------
$3,322,930 $2,270,523
================================================================================
As collateral for the bank indebtedness the company has provided a General
Security Agreement, a guarantee and postponement of claim for amounts owed
to Directors, related companies and RCA Trusts. In addition, the company's
Directors have provided guarantees in the amount of $1,050,000. Credit
available under the operating line of credit is $3,000,000.
4. DUE TO AFFILIATED COMPANY
The amounts due to Logicorp Service Group Ltd. are unsecured, non-interest
bearing and have no specific terms of repayment.
6.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
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5. DUE TO RCA TRUSTS
2001 2000
- --------------------------------------------------------------------------------
Amounts due to retirement compensation
agreements (RCA) trusts $1,068,454 $911,195
Less amounts due within one year 48,000 48,000
- --------------------------------------------------------------------------------
$1,020,454 $863,195
================================================================================
The amounts due to the RCA Trusts are secured by promissory notes repayable
in quarterly installments of $12,000 plus interest at prime +4 3/4%.
Estimated principal repayments in each of the next four years is as follows:
2002 $ 48,000
2003 48,000
2004 48,000
2005 48,000
Subsequent 876,454
6. DUE TO RELATED PARTIES
Amounts due to related parties are unsecured, non-interest bearing and have
no specific terms of repayment.
Due to (from) Directors $ 19,794 $ (55,206)
Due to Director's Family Trusts 200,000 100,000
Due to other related parties 78,834 28,834
- --------------------------------------------------------------------------------
$298,628 $ 73,628
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7. SHARE CAPITAL
Authorized
Unlimited Class A common voting shares
Unlimited Class B common voting shares
Unlimited Class C preferred shares
2001 2000
- --------------------------------------------------------------------------------
Issued
1,980 Class A common voting shares $99 $99
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7.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
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8. RELATED PARTY TRANSACTIONS
The company is affiliated with Logicorp Service Group Ltd. by virtue of
common control. During the year the company purchased services from Logicorp
Service Group Ltd. and charged fees to Logicorp Service Group Ltd. as
follows:
2001 2000
- --------------------------------------------------------------------------------
Services purchased $1,674,325 $633,456
Administrative support charged $ 780,392 $474,000
The administrative support consists of rent allocation, business taxes,
insurance, administrative wages and other administration charges paid by the
company on behalf of Logicorp Service Group Ltd.
9. LEASE COMMITMENTS
The company leases office space and equipment for its operations in
Edmonton, Calgary, Vancouver and Saskatoon. Lease terms vary from four to
six years. Base lease payable for the next five years is as follows:
2002 $530,000
2003 530,000
2004 530,000
2005 530,000
2006 530,000
10. FINANCIAL INSTRUMENTS
Financial instruments consist of accounts receivable, bank indebtedness,
accounts payable and accrued liabilities, amounts due to affiliated company,
amounts due to RCA trusts and amounts due to related parties.
Credit risk
The company is subject to credit risk through trade receivables. Credit risk
is minimized by a large customer base and its geographic dispersion. The
company maintains provisions for potential credit losses and any such losses
to date have been within management's expectations.
Fair value of financial instruments
The carrying value of accounts receivable, bank indebtedness, accounts
payable and accrued liabilities approximate fair value because of the near
term maturity of these instruments. It was not practicable to determine
the fair value of amounts due to affiliated company, RCA trusts or related
parties as there is no secondary market for these financial instruments.
Interest rate risk
Bank indebtedness bears interest at a floating rate. The floating rate debt
is subject to interest rate cash flow risk, as the required cash flows to
service the debt will fluctuate as a result of changes in market rates. It is
management's opinion that interest rate risk is not significant.
8.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2001
- --------------------------------------------------------------------------------
11. COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform to
the current period's financial statement presentaion.
9.
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LOGICORP DATA SYSTEMS LTD.
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FINANCIAL STATEMENTS
June 30, 2000
[LOGO] LOGICORP
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LOGICORP DATA SYSTEMS LTD.
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JUNE 30, 2000
CONTENTS
Page
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AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-9
Schedule of Branch Operations 10
Schedule of Corporate Operations 11
AUDITOR'S REPORT
To the Shareholders of:
LOGICORP DATA SYSTEMS LTD.
We have audited the balance sheet of LOGICORP DATA SYSTEMS LTD. as at June 30,
2000 and the statements of income, retained earnings and changes in financial
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2000 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
Edmonton, Alberta
July 19, 2000 CHARTERED ACCOUNTANTS
1.
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LOGICORP DATA SYSTEMS LTD.
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BALANCE SHEET
AS AT
ASSETS
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
CURRENT
Accounts receivable $ 7,722,714 $ 8,812,187
Inventory (Note 2) 1,726,787 1,622,497
Income taxes receivable 37,945 39,528
Prepaid expenses 121,316 80,804
- --------------------------------------------------------------------------------
9,608,762 10,555,016
CAPITAL ASSETS (Note 3) 837,882 838,003
- --------------------------------------------------------------------------------
$10,446,644 $11,393,019
================================================================================
LIABILITIES
CURRENT
Bank indebtedness (Note 5) $ 2,270,523 $ 1,413,620
Accounts payable and accrued liabilities 6,217,742 7,808,819
Current portion of amounts Due to RCA Trusts 48,000 48,000
- --------------------------------------------------------------------------------
8,536,265 9,270,439
DUE TO AFFILIATED COMPANY (Note 6) 524,445 764,571
DUE TO RCA TRUSTS (Note 7) 863,195 901,548
DUE TO SHAREHOLDERS (Note 4) 73,628 73,628
- --------------------------------------------------------------------------------
9,997,533 11,010,186
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SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) 99 99
RETAINED EARNINGS 449,012 382,734
- --------------------------------------------------------------------------------
449,111 382,833
- --------------------------------------------------------------------------------
$10,446,644 $11,393,019
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APPROVED ON BEHALF OF THE BOARD:
_____________________________ Director
_____________________________ Director
See accompanying notes to the financial statements
2.
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LOGICORP DATA SYSTEMS LTD.
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STATEMENTS OF LOSS AND DEFICIT
FOR THE PERIOD ENDED
JUNE 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
- --------------------------------------------------------------------------------
SALES $ 633,456 $ 1,804,346
- --------------------------------------------------------------------------------
COST OF SALES
Product 85,918 112,007
Administrative support 474,000 1,035,000
Salaries, wages and benefits 101,186 373,793
- --------------------------------------------------------------------------------
661,104 1,520,800
- --------------------------------------------------------------------------------
GROSS PROFIT (27,648) 283,546
- --------------------------------------------------------------------------------
EXPENSES
Advertising and promotion -- 5,895
Interest and bank charges 1,491 3,800
Office expense 41 8,973
Professional fees -- 591
Salaries and benefits 33,856 30,050
Training 728 11,809
Travel 580 19,931
- --------------------------------------------------------------------------------
36,696 81,049
- --------------------------------------------------------------------------------
(LOSS) INCOME FROM OPERATIONS (64,344) 202,497
- --------------------------------------------------------------------------------
OTHER REVENUE
Interest revenue -- 68
- --------------------------------------------------------------------------------
NET (LOSS) INCOME BEFORE INCOME TAXES (64,344) 202,565
(RECOVERY OF) PROVISION FOR
INCOME TAXES (7,568) 32,624
- --------------------------------------------------------------------------------
NET (LOSS) INCOME (56,776) 169,941
RETAINED EARNINGS, beginning of period 33,827 13,886
DIVIDENDS -- (150,000)
- --------------------------------------------------------------------------------
(DEFICIT) RETAINED EARNINGS, end
of period $ (22,949) $ 33,827
================================================================================
See accompanying notes to the financial statements
3.
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LOGICORP DATA SYSTEMS LTD.
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STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED
June 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES
Net income (loss) $ 66,278 $ (22,023)
Items not requiring an outlay of cash:
Amortization 29,075 94,329
- --------------------------------------------------------------------------------
95,353 72,306
CHANGES IN NON-CASH WORKING CAPITAL BALANCES
Accounts receivable 1,089,473 (1,559,053)
Inventory (104,290) 1,008,274
Prepaid expenses (40,512) (10,248)
Accounts payable and accrued liabilities (1,591,077) 792,304
Income taxes receivable 1,583 (48,036)
- --------------------------------------------------------------------------------
(549,470) 255,547
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances from shareholders -- 75,000
Advances (to) from affiliated company (240,127) 568,278
(Decrease) increase in Due to RCA Trusts (38,353) 234,738
- --------------------------------------------------------------------------------
(278,480) 878,016
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (28,954) (744,030)
- --------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (856,904) 389,533
BANK INDEBTEDNESS, beginning of period (1,413,620) (1,803,153)
- --------------------------------------------------------------------------------
BANK INDEBTEDNESS, end of period $(2,270,524) $(1,413,620)
================================================================================
Supplementary cash flow information:
Interest paid 47,041 86,699
Income taxes 6,320 31,650
See accompanying notes to the financial statements
4.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
The company is a computer service organization which specializes in
the supply and integration of computer products, with branches in
Vancouver, Calgary, Edmonton and Saskatoon. The company serves both
large and small organizations and is particularly valued by
organizations having complex data and communication configurations.
(b) Cash and cash equivalents
Cash and cash equivalents include cash on hand and balances with
banks, net of bank overdrafts. The operating line of credit is
included in cash and cash equivalents.
(c) Inventory
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
(d) Capital Assets
Capital assets are recorded at cost. Amortization is provided
annually at rates calculated to write-off the assets over their
estimated useful lives as follows:
Automotive equipment -30% diminishing balance
Computer equipment -30% diminishing balance
Computer software -30% diminishing balance
Leasehold improvements -20% diminishing balance
Office equipment -20% diminishing balance
Small tools -100% diminishing balance
(e) Revenue Recognition
For product sold, revenue is recognized when the product is shipped.
For maintenance contracts, revenue is recognized when the service
has been provided.
(f) Use of Estimates
In preparing the company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
5.
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LOGICORP DATA SYSTEMS LTD.
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NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
- --------------------------------------------------------------------------------
2. INVENTORY
During the prior year, the Company changed the estimate of internally used
inventory to have an economic life of approximately 4 years. Office
inventory was not previously amortized. Beginning the year ended February
29, 2000, office inventory has been amortized on a straight line basis at
2% per month. This change in estimate resulted in recording amortization
of inventory of $39,930 for the current 4 month period, (February 29, 2000
- $137,028 for the prior 12 month period).
3. CAPITAL ASSETS
Accumulated June 30, 2000 Feb 29, 2000
Cost Amortization Net Book Net Book
Value Value
- ----------------------------------------------------------------------------------------
Automotive equipment $ 10,300 $ 9,982 $ 318 $ 352
Computer equipment 35,010 25,198 9,812 10,902
Computer software 346,397 20,998 325,399 190,485
Leasehold improvements 123,452 42,921 80,531 188,481
Office and equipment 598,753 176,931 421,822 447,783
Small tools 791 791 -- --
- ----------------------------------------------------------------------------------------
$1,114,703 $276,821 $837,882 $838,003
========================================================================================
Amortization recorded in the current year amounted to $29,075; (Feb 29, 2000
- $94,329).
4. DUE TO SHAREHOLDERS
Amounts due to shareholders are unsecured, non-interest bearing and have no
specific terms of repayment.
6.
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LOGICORP DATA SYSTEMS LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
- --------------------------------------------------------------------------------
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at 1% over the bank prime rate and consists
of the following:
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
Bank overdraft $ 615,523 $ 488,620
Operating line of credit 1,655,000 925,000
- --------------------------------------------------------------------------------
$2,270,523 $1,413,620
================================================================================
As collateral for the bank indebtedness the company has provided a General
Security Agreement, guarantee and postponement of claim in the amount of
$425,000 from Logicorp Service Group Ltd. and guarantees in the amount of
$1,800,000 from the Company's Directors.
6. DUE TO AFFILIATED COMPANY
The amounts due to Logicorp Service Group Ltd. are unsecured, non-interest
bearing and have no specific terms of repayment.
7. DUE TO RCA TRUSTS
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
Amounts due to retirement compensation
agreements (RCA) trusts $911,195 $949,548
Less amounts due within one year 48,000 48,000
- --------------------------------------------------------------------------------
$863,195 $901,548
================================================================================
The amounts due to the RCA Trusts are secured by promissory notes repayable
in quarterly installments of $12,000 plus interest at prime +4 3/4%.
Estimated principal repayments in each of the next five years is as follows:
2001 $ 48,000
2002 48,000
2003 48,000
2004 48,000
Subsequent 719,195
7.
================================================================================
LOGICORP DATA SYSTEMS LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
- --------------------------------------------------------------------------------
8. SHARE CAPITAL
Unlimited Class A common voting shares
Unlimited Class B common voting shares
Unlimited Class C preferred shares
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
Issued
1,980 Class A common voting shares $99 $99
================================================================================
9. RELATED PARTY TRANSACTIONS
The company is affiliated with Logicorp Service Group Ltd. by virtue of
common control. During the year the company purchased services from Logicorp
Service Group Ltd. and charged fees to Logicorp Service Group Ltd. as
follows:
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
Services Purchased $633,456 $1,804,344
Administrative support charged $474,000 $1,035,000
The administrative support consists of rent allocation, business taxes,
insurance, administrative wages and other administration charges paid by
the company on behalf of Logicorp Service Group Ltd.
10.LEASE COMMITMENTS
The company leases office space and equipment for its operations in Edmonton,
Calgary, Vancouver and Saskatoon. Lease terms vary from four to six years.
Base lease payable for the next five years is as follows.
2001 $495,000
2002 495,000
2003 495,000
2004 495,000
2005 495,000
8.
================================================================================
LOGICORP DATA SYSTEMS LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
Credit risk
The company is subject to credit risk through trade receivables. Credit risk
is minimized by a large customer base and its geographic dispersion. The
company maintains provisions for potential credit losses and any such losses
to date have been within management's expectations.
Fair value of financial instruments
The carrying value of bank indebtedness, accounts receivable, inventory and
payables and accruals approximate fair value because of the near term
maturity of these instruments. It was not practicable to determine the fair
value of amounts due to affiliated company, RCA trusts or shareholders as
there is no secondary market for these financial instruments.
Interest rate risk
Bank indebtedness bears interest at a floating rate. The floating rate
debt is subject to interest rate cash flow risk, as the required cash
flows to service the debt will fluctuate as a result of changes in market
rates. It is management's opinion that interest rate risk is not
significant.
12. COMPARATIVE FIGURES
Certain of the prior year's figures have been restated to conform to the
current period's financial statement presentaion.
13. CHANGE OF FISCAL YEAR
The company has changed its fiscal year end from February 29 to June 30 to
better reflect the natural operating cycle of the business.
9.
================================================================================
LOGICORP DATA SYSTEMS LTD.
================================================================================
SCHEDULE OF BRANCH OPERATIONS
FOR THE PERIOD ENDED
Edmonton Calgary Vancouver Saskatoon June 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
SALES $7,912,631 $ 6,766,564 $2,757,139 $ 1,332,503 $ 18,768,837 $53,034,932
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF SALES 7,549,535 6,498,782 2,517,431 1,347,343 17,913,091 49,937,473
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 363,096 267,782 239,708 (14,840) 855,746 3,097,459
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advertising and promotion 16,287 16,107 34,803 4,200 71,397 240,732
Amortization 15,283 4,116 3,215 2,066 24,680 62,248
Bad debt expense -- -- -- -- -- 5,542
Corporate expense allocation 158,484 135,189 55,140 26,609 375,422 1,083,972
Insurance 1,778 1,252 788 493 4,311 8,894
Interest and bank charges 25,826 19,446 9,135 5,386 59,793 199,489
Licences, memberships and taxes 4,209 3,786 750 719 9,464 35,658
Office expenses 18,153 15,551 16,278 9,305 59,287 164,965
Professional fees -- 22,146 2,933 -- 25,079 42,052
Rent 6,453 4,731 6,196 890 18,270 49,999
Salaries and benefits 54,153 37,467 30,508 16,207 138,335 387,539
Telephone 6,801 4,915 4,738 4,153 20,607 129,013
Training 2,976 6,621 -- -- 9,597 80,983
Travel 18,930 12,747 3,557 4,335 39,569 261,600
- ------------------------------------------------------------------------------------------------------------------------------------
329,333 284,074 168,041 74,363 855,811 2,752,686
- ------------------------------------------------------------------------------------------------------------------------------------
(LOSS)INCOME FROM
OPERATIONS $ 33,763 $ (16,292) $ 71,667 $ (89,203) $ (65) $ 344,773
====================================================================================================================================
See accompanying notes to the financial statements
10.
================================================================================
LOGICORP DATA SYSTEMS LTD.
================================================================================
SCHEDULE OF CORPORATE OPERATIONS
FOR THE PERIOD ENDED
JUNE 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
(4 Months) (12 Months)
Revenues $ 595,895 $1,550,828
- --------------------------------------------------------------------------------
Expenses
Advertising and promotion 25,267 87,611
Amortization 4,395 32,081
Insurance 13,887 42,949
Interest and bank charges 4 10,270
Licences, memberships and taxes 3,850 6,731
Office expenses 15,348 49,520
Professional fees 59,852 84,335
Rent 29,661 26,732
Salaries and benefits 338,093 1,056,149
Telephone 5,590 13,315
Training 3,736 22,764
Travel 24,757 38,616
- --------------------------------------------------------------------------------
524,440 1,471,073
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 71,455 $ 79,755
================================================================================
See accompanying notes to the financial statements
11.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
FINANCIAL STATEMENTS
JUNE 30, 2000
[LOGO] LOGICORP
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
JUNE 30, 2000
CONTENTS
PAGE
----
AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Loss and Deficit 3
Statement of Cash Flows 4
Notes to Financial Statements 5-7
AUDITOR'S REPORT
To the Shareholders of:
LOGICORP SERVICE GROUP LTD.
We have audited the balance sheet of LOGICORP SERVICE GROUP LTD. as at June 30,
2000 and the statements of income, retained earnings and changes in financial
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2000 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
Edmonton, Alberta
July 19, 2000 CHARTERED ACCOUNTANTS
1.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
BALANCE SHEET
AS AT
ASSETS
JUNE 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
CURRENT
Cash and cash equivalents $ 3,940 $ 1,189
Accounts receivable 98,298 71,730
Income taxes receivable 28,613 13,062
Prepaid expenses 43 137
- --------------------------------------------------------------------------------
130,894 86,118
DUE FROM AFFILIATED COMPANY (Note 2) 524,445 764,571
GOODWILL 1 1
- --------------------------------------------------------------------------------
$ 655,340 $850,690
================================================================================
LIABILITIES
CURRENT
Salaries and wages payable $ 6,293 $ 6,147
Due to related parties (Note 3) 150,000 150,000
- --------------------------------------------------------------------------------
156,293 156,147
DEFERRED REVENUE (Note 4) 521,965 660,685
- --------------------------------------------------------------------------------
678,258 816,832
- --------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL (Note 5) 31 31
(DEFICIT) RETAINED EARNINGS (22,949) 33,827
- --------------------------------------------------------------------------------
(22,918) 33,858
- --------------------------------------------------------------------------------
$ 655,340 $850,690
================================================================================
APPROVED ON BEHALF OF THE BOARD:
_____________________________ Director
_____________________________ Director
See accompanying notes to the financial statements
2.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD ENDED
JUNE 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
- --------------------------------------------------------------------------------
(LOSS) INCOME FROM BRANCH OPERATIONS (Page 10) $ (65) $ 344,773
INCOME FROM CORPORATE OPERATIONS (Page 11) 71,455 79,755
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 71,390 424,528
OTHER REVENUE AND (EXPENSE)
Interest revenue 2,791 3,449
Retirement compensation agreements -- (450,000)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE INCOME TAXES 74,181 (22,023)
PROVISION FOR INCOME TAXES 7,903 --
- --------------------------------------------------------------------------------
NET INCOME (LOSS) 66,278 (22,023)
RETAINED EARNINGS, beginning of period 382,734 404,757
- --------------------------------------------------------------------------------
RETAINED EARNINGS, end of period $ 449,012 $ 382,734
================================================================================
See accompanying notes to the financial statements
3.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED
JUNE 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES
Net (loss) income $ (56,776) $ 169,941
CHANGES IN NON-CASH WORKING CAPITAL BALANCES
Accounts receivable (26,568) 14,105
Prepaid expenses 94 735
Salaries and wages payable 146 5,140
Income taxes receivable (15,551) (34,407)
Deferred revenue (138,720) 562,666
- --------------------------------------------------------------------------------
(237,375) 718,180
FINANCING ACTIVITIES
Advances from (to) affiliated company 240,126 (568,278)
Dividends -- (150,000)
- --------------------------------------------------------------------------------
240,126 (718,278)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,751 (98)
CASH AND CASH EQUIVALENTS, beginning of
period 1,189 1,287
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 3,940 $ 1,189
================================================================================
Supplementary cash flow information:
Income taxes paid 6,117 32,624
4.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
The company is a computer service organization which specializes in
the supply and integration of computer products. The company serves
both large and small organizations and is particularly valued by
organizations having complex data and communication configurations.
(b) Revenue Recognition
For product sold, revenue is recognized when the product is shipped.
For maintenance contracts, revenue is recognized when the service
has been provided.
(c) Use of Estimates
In preparing the company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
(d) Cash and cash equivalents
Cash and cash equivalents include cash on hand and balances with
banks, net of bank overdrafts.
2. DUE FROM AFFILIATED COMPANY
The amounts due from Logicorp Data Systems Ltd. are unsecured, non-interest
bearing and have no specific terms of repayment.
3. DUE TO RELATED PARTIES
Amounts due to related parties are non-interest bearing and have no specific
terms of repayment.
4. DEFERRED REVENUE
Deferred revenue represents maintenance contracts for which the company has
received consideration, but has yet to provide the services called for under
the contract.
5.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
- --------------------------------------------------------------------------------
5. SHARE CAPITAL
Authorized
Unlimited Class A common voting shares
Unlimited Class B common non-voting shares
Unlimited Class II preferred non-voting shares
Unlimited Class I preferred non-voting shares
redeemable at issue price
June 30, 2000 Feb 29, 2000
- --------------------------------------------------------------------------------
Issued
3,000 Class A common voting shares $30 $30
1 Class I preferred non-voting share 1 1
- --------------------------------------------------------------------------------
$31 $31
================================================================================
6. RELATED PARTY TRANSACTIONS
The company is affiliated with Logicorp Data Systems Ltd. by virtue of
common control. During the period the company sold services to Logicorp
Data Systems Ltd. and was charged fees from Logicorp Data Systems Ltd. as
follows:
June 30, 2000 Feb 29, 2000
(4 Months) (12 Months)
- --------------------------------------------------------------------------------
Services Sold $633,456 $1,804,346
Administrative support fees charged $474,000 $1,035,000
The administrative support fee consists of rent allocation, business taxes,
insurance, administrative wages and other administration charges from
Logicorp Data Systems Ltd.
7. COMPARATIVE FIGURES
Certain balances of the preceding period have been reclassified to conform
with the current period's financial statement presentation.
6.
================================================================================
LOGICORP SERVICE GROUP LTD.
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
- --------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS
Credit risk
The company is subject to credit risk through trade receivables. Credit risk
is minimized by a large customer base and its geographic dispersion. The
company maintains provisions for potential credit losses and any such losses
to date have been within management's expectations.
Fair value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable,
salaries and wages payable approximate fair value because of the near term
maturity of these instruments. It was not practicable to determine the
fair value of amounts due from the affiliated company or to related
parties as there is no secondary market for these financial instruments.
9. CHANGE OF FISCAL YEAR
The company has changed its fiscal year from February 29 to June 30 to
better reflect the natural operating cycle of the business.
7.
591360 Alberta Ltd.
Financial Statements
For the years ended June 30, 2001 and 2000
[BDO LOGO]
591360 Alberta Ltd.
Financial Statements
For the years ended June 30, 2001 and 2000
Contents
================================================================================
Auditors' Report 2
Financial Statements
Balance Sheets 3
Statements of Operations and Retained Earnings 4
Summary of Significant Accounting Policies 5
Notes to Financial Statements 6
[BDO LOGO]
[BDO LOGO] BDO Dunwoody LLP 1000 First Edmonton Place
Chartered Accountants 10665 Jasper Avenue
and Consultants Edmonton Alberta Canada T5J 3S9
Telephone: (780) 423-4353
Telefax: 17801 424-2110
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholder of
591360 Alberta Ltd.
We have audited the balance sheets of 591360 Alberta Ltd. as at June 30, 2001
and 2000 and the statements of operations and retained earnings for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
The Company accounts for its investment in a company subject to significant
influence on a cost basis. Canadian generally accepted accounting principles
require that the investment be accounted for on an equity basis.
In our opinion, except that the investment subject to significant influence is
accounted for on a cost basis rather than an equity basis, these financial
statements present fairly, in all material respects, the financial position of
the Company as at June 30, 2001 and 2000 and the results of its operations for
the years then ended in accordance with Canadian generally accepted accounting
principles.
/s/ BDO Dunwoody LLP
Chartered Accountants
Edmonton, Alberta
January 29, 2002
2
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
================================================================================
591360 Alberta Ltd.
Balance Sheets
June 30 2001 2000
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 464 $ 442
Long-term investment (Note 1)
Due from related parties 10 10
(Note 3) 173,395 119,535
----------------------
$173,869 $119,987
================================================================================
Liabilities and Shareholder's Equity
Current
Accounts payable and accrued liabilities $ 3,500 $ 1,250
----------------------
Shareholder's equity
Share capital (Note 4) 10 10
Retained earnings 170,359 118,727
----------------------
170,369 118,737
----------------------
$173,869 $119,987
================================================================================
On behalf of the Board:
/s/ [ILLEGIBLE] Director
- ----------------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
[BDO LOGO]
3
================================================================================
591360 Alberta Ltd.
Statements of Operations and Retained Earnings
For the years ended June 30 2001 2001
- --------------------------------------------------------------------------------
Dividend income $ 53,860 $ 50,000
-----------------------
Expenses (recovery)
Bank charges and interest (22) 22
Professional fees 2,250 661
-----------------------
2,228 683
-----------------------
Net income for the year 51,632 49,317
Retained earnings, beginning of year 118,727 106,410
Dividends paid -- (37,000)
-----------------------
Retained earnings, end of year $ 170,359 $ 118,727
================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
[BDO LOGO]
4
================================================================================
591360 Alberta Ltd.
Summary of Significant Accounting Policies
June 30, 2001 and 2000
- --------------------------------------------------------------------------------
Nature of Business The Company is incorporated under the laws
of Alberta and is a holding company.
Management Estimates These financial statement have been prepared
by management in accordance with Canadian
generally accepted accounting principles.
Because the precise determination of many
assets, liabilities, revenue and expenses is
dependent on future events, the preparation
of financial statements for a period
necessarily includes the use of estimates
and approximations which have been made
using careful judgement. Actual results
could differ from those estimates. These
financial statements have, in management's
opinion, been properly prepared within
reasonable limits of materiality and within
the framework of the accounting principles
summarized below.
Financial Instruments The Company as part of its operations
carries a number of financial instruments.
Unless otherwise noted, it is management's
opinion that the Company is not exposed to
significant interest, currency or credit
risks arising from these financial
instruments.
Long-term Investment The investment in shares in recorded at
cost.
[BDO LOGO]
5
===============================================================================
591360 Alberta Ltd.
Notes to Financial Statements
June 30, 2001 and 2000
- --------------------------------------------------------------------------------
1. Long-term Investment
The Company owns 1/3 of the outstanding shares of Logicorp Service Group
Ltd., a Canadian private company.
- --------------------------------------------------------------------------------
2. Income Taxes
The Company has losses available for income tax purposes totalling $5,283.
This amount can be used to reduce taxable income of future years, the
benefit of which has not been recorded in these financial statements.
These losses expire as follows:
Year Amount
2003 $ 731
2005 907
2006 734
2007 683
2008 2,228
-------
$ 5,283
=======
- --------------------------------------------------------------------------------
3. Related Party Transactions
At the end of the year, the amounts due from related parties are as
follows:
2001 2000
----------------------
Company under common control $ 69,535 $ 69,535
Company subject to significant influence 103,860 50,000
----------------------
$173,395 $119,535
======================
These balances are unsecured, non-interest bearing, with no fixed terms of
repayment.
- --------------------------------------------------------------------------------
4. Share Capital
Authorized
An unlimited number of Class A common, voting shares
An unlimited number of Class B common, non-voting shares
An unlimited number of Class I and II preferred, non-voting shares
Issued
2001 2000
----------------------
1,000 Class A common shares $ 10 $ 10
======================
- --------------------------------------------------------------------------------
[BDO LOGO]
6
================================================================================
591360 Alberta Ltd.
Notes to Financial Statements
June 30, 2001 and 2000
- --------------------------------------------------------------------------------
5. Statement of Cash Flows
A statement of cash flows was not presented since the cash flow
information is readily apparent from other financial statements or is
adequately disclosed in the notes to these financial statements.
- --------------------------------------------------------------------------------
[BDO LOGO]
7
123557 Alberta Ltd.
(Formerly Merc Management Limited)
Financial Statements
For the years ended October 31, 2001 and 2000
[BDO LOGO]
123557 Alberta Ltd.
Financial Statements
For the years ended October 31, 2001 and 2000
Contents
================================================================================
Auditors' Report 2
Financial Statements
Balance Sheets 3
Statements of Operations and Retained Earnings 4
Summary of Significant Accounting Policies 5
Notes to Financial Statements 6
[BDO LOGO]
[BDO LOGO] BDO Dunwoody LLP 1000 First Edmonton Place
Chartered Accountants 10665 Jasper Avenue
and Consultants Edmonton Alberta Canada T5J 3S9
Telephone: (780) 423-4353
Telefax: (780) 424-2110
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders of
123557 Alberta Ltd.
We have audited the balance sheets of 123557 Alberta Ltd. as at October 31, 2001
and 2000 and the statements of operations and retained earnings for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
The Company accounts for its investment in a company subject to significant
influence on a cost basis. Canadian generally accepted accounting principles
require that the investment be accounted for on an equity basis.
In our opinion, except that the investment subject to significant influence is
accounted for on a cost basis rather than an equity basis, these financial
statements present fairly, in all material respects, the financial position of
the Company as at October 31, 2001 and 2000 and the results of its operations
for the years then ended in accordance with Canadian generally accepted
accounting principles.
/s/ BDO Dunwoody LLP
Chartered Accountants
Edmonton, Alberta
February 23, 2002
[BDO LOGO]
2
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
================================================================================
123557 Alberta Ltd.
Balance Sheets
October 31 2001 2000
- --------------------------------------------------------------------------------
Assets
Current
Cash $ -- $ 4,267
Short-term investments -- 48,522
Accounts receivable -- 1,000
Income taxes recoverable -- 4,700
Due from related parties -- 4,355
----------------------
-- 62,844
Long-term investment (Note 1) 5,228 5,228
----------------------
$ 5,228 $ 68,072
================================================================================
Liabilities and Shareholder's Equity
Current
Accounts payable and accrued liabilities $ 2,499 $ 3,200
----------------------
Shareholder's equity
Share capital (Note 2) 20 20
Retained earnings 2,709 64,852
----------------------
2,729 64,872
----------------------
$ 5,228 $ 68,072
================================================================================
On behalf of the Board:
/s/ [ILLEGIBLE] Director
- -------------------
/s/ [ILLEGIBLE] Director
- -------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
[BDO LOGO]
3
================================================================================
123557 Alberta Ltd.
Statements of Operations and Retained Earnings
For the years ended June 30 2001 2001
- --------------------------------------------------------------------------------
Revenue
Consulting $ 9,000 $ 12,000
Investment loss (6,335) (1,315)
-----------------------
2,665 10,685
Expenses
Avertising and promotion 8,049 7,802
Automotive 4,400 4,466
Bank charges and interest 38 60
Office 2,246 3,104
Professional fees 5,185 1,114
Telephone and utilities -- 109
Travel 4,612 2,957
-----------------------
24,530 19,612
-----------------------
Net income for the year (21,865) (8,927)
Retained earnings, beginning of year 64,852 73,779
Dividends paid (36,812) --
Adjustment on transaction with a company under common
control (Note 5) (3,466) --
-----------------------
Retained earnings, end of year $ 2,709 $ 64,852
================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
[BDO LOGO]
4
================================================================================
123557 Alberta Ltd.
Summary of Significant Accounting Policies
October 31, 2001 and 2000
- --------------------------------------------------------------------------------
Nature of Business The Company is incorporated under the laws
of Alberta and is a holding company.
Management Estimates These financial statements have been
prepared by management in accordance with
Canadian generally accepted accounting
principles. Because the precise
determination of many assets, liabilities,
revenue and expenses is dependent on future
events, the preparation of financial
statements for a period necessarily includes
the use of estimates and approximations
which have been made using careful
judgement. Actual results could differ from
those estimates. These financial statements
have, in management's opinion, been properly
prepared within reasonable limits of
materiality and within the framework of the
accounting principles summarized below.
Financial Instruments The Company as part of its operations
carries a number of financial instruments.
Unless otherwise noted, it is management's
opinion that the Company is not exposed to
significant interest, currency or credit
risks arising from these financial
instruments.
Short-term Investments Temporary investments are stated at the
lower of cost and market value.
Long-term Investments The investment in shares is recorded at
cost.
[BDO LOGO]
5
================================================================================
123557 Alberta Ltd.
Notes to Financial Statements
October 31 2001 and 2000
- --------------------------------------------------------------------------------
1. Long-term Investment
The Company owns 1/3 of the outstanding shares of Logicorp Data Systems
Ltd., a Canadian private company.
- --------------------------------------------------------------------------------
2. Share Capital
Authorized
10,000 Class A common, voting shares
5,000 Class B common, non-voting shares
5,000 preferred, non-voting shares
Issued
2001 2000
----------------------
100 Class A common shares $ 10 $ 10
10 Class A common shares 10 10
----------------------
$ 20 $ 20
======================
- --------------------------------------------------------------------------------
3. Income Taxes
The Company has losses available for income tax purposes totalling
$74,210. This amount can be used to reduce taxable income of future years,
the benefit of which has not been recorded in these financial statements.
These losses expire as follows:
Year Amount
2004 $14,431
2005 520
2006 30,242
2007 4,220
2008 24,887
-------
$74,210
=======
- --------------------------------------------------------------------------------
4. Statement of Cash Flows
A statement of cash flows was not presented since the cash flow
information is readily apparent from other financial statements or is
adequately disclosed in the notes to these financial statements.
- --------------------------------------------------------------------------------
[BDO LOGO]
6
================================================================================
123557 Alberta Ltd.
Notes to Financial Statements
October 31, 2001 and 2000
- --------------------------------------------------------------------------------
5. Related Party Transaction
During the year, the Company transferred a significant portion of its nets
assets to a company under common control for the following proceeds which
approximate fair market value.
Cash $ 406
Short-term investments 38,725
Accounts receivable 2,000
Income taxes recoverable 4,700
-------
Total proceeds $45,831
=======
Assumption of accounts payable $ 5,885
Assumption of shareholders' loans 39,946
=======
Total consideration $45,831
=======
This transaction has been recorded in these financial statements at the
carrying amount of the assets as reflected on the books of the seller
being $49,297. The difference between the consideration paid and the
carrying amount has been recorded as a reduction to retained earnings of
$3,466.
- --------------------------------------------------------------------------------
7
CHELL GROUP CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Expressed in Canadian dollars)
On March 15, 2002, Chell Group Corporation ("Chell"), through its
wholly-owned subsidiary Chell Merchant Capital Group, acquired, effective as of
January 1, 2002, all of the outstanding capital stock of Logicorp Data Systems
Ltd., Logicorp Service Group Ltd., 123557 Alberta Ltd. and 591360 Alberta Ltd.
("Logicorp"). The aggregate purchase price was $14,182,048, satisfied by
$1,500,000 in cash, the issuance of two non-interest bearing promissory notes
with a maturity value of $2,540,000 and the issuance of 5,355,000 exchangeable
shares of Chell's wholly owned subsidiary Chell Merchant Capital Group.
The acquisition is accounted for using the purchase method of accounting,
with the assets acquired and the liabilities assumed recorded at fair values.
The results of operations of Logicorp will be included with those of Chell as
of the effective date of the Logicorp transaction. The pro forma condensed
consolidated balance sheet as of August 31, 2001 is based on the historical
balance sheet of Chell and Logicorp as of that date. The pro forma condensed
consolidated statement of operations for the year ended August 31, 2001 is based
on the historical statement of operations of Chell and Logicorp for that period.
The pro forma statement of operations assumes the acquisition took place on
September 1, 2000.
The pro forma condensed consolidated balance sheet as of December 31, 2001
is based on the historical balance sheet of Chell and Logicorp as of that date.
The pro forma condensed consolidated statement of operations for the 4 months
ended December 31, 2001 is based on the historical statement of operations of
Chell and Logicorp for that period. The pro forma statement of operations
assumes the acquisition took place on September 1, 2001.
The pro forma condensed financial statements are not intended to be
indicative of the financial position or results of operations which actually
would have been realized had the acquisition occurred at the date assumed, nor
of the future results of operations of the combined entities. The accompanying
pro forma condensed financial statements should be read in conjunction with the
historical financial statements and notes of Chell
CHELL GROUP CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
As at August 31, 2001
(Unaudited - Expressed in Canadian dollars)
- ---------------------------------------------------------------------------------------------------------------
Chell Group
Corporation LogiCorp Adjustments Profroma
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 356,421 -- -- 356,421
Short-term investments 19,676 -- -- 19,676
Accounts receivable, trade - net of allowance for -- -- -- --
doubtful accounts 2,308,790 7,902,741 -- 10,211,531
Other receivables 84,814 -- -- 84,814
Income taxes receivable 155,204 (3,705) -- 151,499
Inventory 105,590 1,589,057 -- 1,694,647
Prepaid expenses 570,868 80,526 -- 651,394
- ---------------------------------------------------------------------------------------------------------------
3,601,363 9,568,619 -- 13,169,982
- ---------------------------------------------------------------------------------------------------------------
Property and equipment, net 8,260,282 1,379,045 -- 9,639,327
Licenses, net of accumulated amortization 247,321 -- -- 247,321
Goodwill, net of accumulated amortization 1,795,737 -- 13,799,215 15,594,952
Notes receivable 160,000 -- -- 160,000
Deposit on purchase 1,689,710 -- -- 1,689,710
Other assets, net of amortization 388,032 -- -- 388,032
Net assets from discontinued operations 82,558 -- -- 82,558
- ---------------------------------------------------------------------------------------------------------------
16,225,003 10,947,664 13,799,215 40,971,882
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness -- 3,829,086 -- 3,829,086
Accounts payable - trade 2,469,663 5,662,285 -- 8,131,948
Notes payable -- -- 4,040,000 4,040,000
Accrued liabilities 1,789,042 -- -- 1,789,042
Current portion of long-term debt 3,774,658 -- -- 3,774,658
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 8,033,363 9,491,371 4,040,000 21,564,734
- ---------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 5,884,339 1,073,459 -- 6,957,798
Deferred income taxes payable 59,173 -- -- 59,173
- ---------------------------------------------------------------------------------------------------------------
13,976,875 10,564,830 4,040,000 28,581,705
- ---------------------------------------------------------------------------------------------------------------
Commitments and Contingent liabilities
Shareholders' equity
Share capital
Common shares 604,109 130 394,565 998,804
Capital in excess of par value 14,143,533 -- 9,747,354 23,890,887
Retained earnings (deficit) (12,499,514) 382,704 (382,704) (12,499,514)
- ---------------------------------------------------------------------------------------------------------------
2,248,128 382,834 9,759,215 12,390,177
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
16,225,003 10,947,664 13,799,215 40,971,882
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed financial statements
CHELL GROUP CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2001
[Unaudited - Expressed in Canadian dollars]
- ---------------------------------------------------------------------------------------------------------------------
Chell Group
Corporation Logicorp Adjustments Proforma
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
REVENUE 18,222,374 58,759,601 -- 76,981,975
COST OF SALES 6,818,111 51,859,917 -- 58,678,028
- ---------------------------------------------------------------------------------------------------------------------
11,404,263 6,899,684 -- 18,303,947
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative 16,421,578 6,134,579 -- 22,556,157
Loss from equity investment in Engyro 301,100 -- -- 301,100
Write-off of leaseholds 355,560 -- -- 355,560
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) before interest & depreciation (5,673,975) 765,105 -- (4,908,870)
- ---------------------------------------------------------------------------------------------------------------------
Interest and bank charges 881,398 286,395 -- 1,167,793
Depreciation and amortization 3,040,407 60,986 -- 3,101,393
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) before undernoted (9,595,780) 417,724 -- (9,178,056)
- ---------------------------------------------------------------------------------------------------------------------
Minority interest (27,061) -- -- (27,061)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (9,622,841) 417,724 -- (9,205,117)
- ---------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations (net of income tax) (1,603,384) -- -- (1,603,384)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) and comprehensive income
(loss) for the year (11,226,225) 417,724 -- (10,808,501)
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
Proforma information
Loss per share $ (1.34) $ (0.79)
Shares used in calculation 8,393,589 13,728,589
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed financial statements
CHELL GROUP CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31,
2001 [Unaudited - Expressed in
Canadian dollars]
Pro forma adjustments to record the purchase of Logicorp:
Components of purchase price:
Cash 1,500,000
Notes payable 2,540,000
Issuance of shares 10,142,049
Shareholders Equity of Logicorp (382,834)
----------
Goodwill 13,799,215
==========
CHELL GROUP CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
As at Dec 31, 2001
(Unaudited - Expressed in Canadian dollars)
- ------------------------------------------------------------------------------------------------------------------
Chell Group
Corporation LogiCorp Adjustments Profroma
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 165,339 -- -- 165,339
Short-term investments 4,719 -- -- 4,719
Accounts receivable, trade -- net of allowance for -- -- -- --
doubtful accounts 1,979,869 7,862,338 -- 9,842,207
Other receivables 233,236 -- -- 233,236
Income taxes receivable 155,271 1,436 -- 156,707
Inventory 89,535 1,542,340 -- 1,631,875
Prepaid expenses 576,816 52,536 -- 629,352
- ------------------------------------------------------------------------------------------------------------------
3,204,785 9,458,650 -- 12,663,435
- ------------------------------------------------------------------------------------------------------------------
Property and equipment, net 7,513,307 1,428,067 -- 8,941,374
Licenses, net of accumulated amortization 240,123 -- -- 240,123
Goodwill, net of accumulated amortization 1,764,597 -- 13,730,387 15,494,984
Notes receivable 160,000 -- -- 160,000
Deposit on purchase 1,689,710 -- -- 1,689,710
Other assets, net of amortization 328,682 -- -- 328,682
- ------------------------------------------------------------------------------------------------------------------
14,901,204 10,886,715 13,730,387 39,518,308
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness -- 3,615,343 -- 3,615,343
Accounts payable -- trade 2,777,433 5,230,816 -- 8,008,249
Notes payable -- -- 4,040,000 4,040,000
Accrued liabilities 1,984,478 -- -- 1,984,478
Current portion of long-term debt 3,625,587 -- -- 3,625,587
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,387,498 8,846,159 4,040,000 21,273,657
- ------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 6,049,797 1,588,896 -- 7,638,693
Deferred income taxes payable 59,173 -- -- 59,173
- ------------------------------------------------------------------------------------------------------------------
14,496,468 10,435,055 4,040,000 28,971,523
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingent liabilities
Shareholders' equity
Share capital
Common shares 604,109 130 394,565 998,804
Capital in excess of par value 14,143,533 -- 9,747,354 23,890,887
Retained Earnings (deficit) (12,499,514) 382,704 (382,704) (12,499,514)
Net income (loss) (1,843,392) 68,828 (68,828) (1,843,392)
- ------------------------------------------------------------------------------------------------------------------
404,736 451,662 9,690,387 10,546,785
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
14,901,204 10,886,717 13,730,387 39,518,308
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed financial statements
CHELL GROUP CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2001
[Unaudited - Expressed in Canadian dollars]
- ---------------------------------------------------------------------------------------------------------------------------
Chell Group Corp Logicorp Adjustments Proforma
(audited)
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------
REVENUE 5,010,305 14,791,620 19,801,925
COST OF SALES 1,859,279 13,022,951 14,882,230
- ---------------------------------------------------------------------------------------------------------------------------
3,151,026 1,768,669 -- 4,919,695
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative 3,605,574 1,559,626 5,165,200
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) before interest & depreciation (454,548) 209,043 -- (245,505)
- ---------------------------------------------------------------------------------------------------------------------------
Interest and bank charges 462,933 116,142 579,075
Depreciation and amortization 940,175 24,073 964,248
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) before undernoted (1,857,656) 68,828 -- (1,788,828)
- ---------------------------------------------------------------------------------------------------------------------------
Minority interest 14,264 -- -- 14,264
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) and comprehensive income (loss)
for the period (1,843,392) 68,828 -- (1,774,564)
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Proforma information
Loss per share $ (0.20) $ (0.12)
Shares used in calculation 9,028,239 14,363,239
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed financial statements
CHELL GROUP CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31,
2001 [Unaudited - Expressed in
Canadian dollars]
Pro forma adjustments to record the purchase of Logicorp:
Components of purchase price:
Cash 1,500,000
Notes payable 2,540,000
Issuance of shares 10,142,049
Shareholders Equity of Logicorp (451,662)
-----------
Goodwill 13,730,387
===========
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Location
- ------- ---------------------- ----------
2.1 Share Purchase Agreement by and among Chell Exhibit "A"
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.
All Exhibits so indicated are incorporated herein by reference to the exhibit
listed above in the Company's Form 8-KA (Date of Report: January 22, 2002) (File
No. 0-18066), filed with the Securities and Exchange Commission on January 22,
2002.
RESOLUTION OF THE DIRECTORS
OF
CHELL MERCHANT CAPITAL GROUP INC.
(the "Corporation")
ALLOTMENT AND ISSUE OF EXCHANGEABLE SHARES FOR CASH
BE IT RESOLVED THAT:
a) pursuant to a Share Purchase Agreement dated December 13, 2001 and
subsequent amendments thereto (collectively the "Agreement") and made
between the between Melanie Johannesen, Randy Baxandall, Morris Chynoweth,
Elaine Thynoweth, Johannesen Family Trust, Baxandall Family Trust, Merc
Family Trust, Logicorp Dan Systems Ltd., 123557 Alberta Ltd., Logicorp
Service Group Ltd., 591360 Alberta Ltd., Chell Group Corporation and the
Corporation, the board of directors of the Corporation, acting in good
faith and in the best interests of the Corporation) hereby allot and issue
five million three hundred fifty five thousand (5,355,000) Exchangeable
shares in the capital of the Corporation, to die following persons in the
numbers and at the subscription prices set opposite their respective
names:
SUBSCRIPTION NO. OF
OF SHARES
--------------------------------------------------------------------------
MELAINE JOHANNESEN 1,257,574
JOHANNESEN FAMILY TRUST 527,426
RANDY BAXANDALL 1,596,181
BAXANDALL FAMILY TRUST 188,819
MORRIS CHYNOWETH 703,506
ELAINE CHYNOWETH 703,506
MERC FAMILY TRUST 377,988
b) upon receipt by the Corporation of the consideration set out in the
Agreement for the allotment and issue of the said five million three
hundred fifty five thousand (5,355,000) Exchangeable shares, the said
Exchangeable shares shall be allotted and issued to Baxandall Family Trust
Randy Baxandafl, Elaine Chynoweth, Morris Chynoweth, Johannesen Family
Trust., Melaine Johannesen and Mere Family Trust as fully paid and
non-assessable, and certificates therefor be issued to them or as they may
in writing direct.
-2-
THE FOREGOING RESOLUTION is hereby consented to by all of the directors of the
Corporation, as evidenced by their respective signatures hereto in accordance
with the provisions of section 129(1) of the Business Corporations Act
(Ontario).
DATED as of the 1st day of January, 2002.
/s/ Donald Pagnutti /s/ Cameron Chell
- ------------------------------- -----------------------------
DONALD PAGNUTTI CAMERON CHELL
/s/ Gordon Herman
- -------------------------------
GORDON HERMAN