FORM 10-Q
Securities and Exchange Commission
Washington D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: February 28, 2002
Commission file number: 0-18066
CHELL GROUP CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-2805051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Meteor Drive
Toronto, Ontario, Canada M9W 1A4
(Address of principal executive offices)
(Zip Code)
(416) 675-6666
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of April 15, 2002: 15,062,040 shares of common
stock, par value as US$.0467 per share.
CHELL GROUP CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets -
as at February 28, 2002 (unaudited) and August 31, 2001 1
Consolidated Statements of Operations - For the Three Months
and Six Months Ended February 28, 2002 and February 28, 2001
(unaudited) 2
Consolidated Statements of Cash Flows -
For the Six Months Ended February 28, 2002 and
February 28, 2001 (unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 21
CHELL GROUP CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT FEBRUARY 28, 2002 AND AUGUST 31, 2001
(Expressed in Canadian dollars)
=====================================================================================================
February 28, 2002 August 31, 2001
(unaudited) [restated Note 11]
$ $
=====================================================================================================
ASSETS
Current
Cash and cash equivalents 97,381 356,421
Short-term investments -- 19,676
Accounts receivable, trade - net of allowance for doubtful
accounts of $225,071; August - $150,000 9,486,825 996,557
Other receivables 459,968 84,814
Income taxes receivable 165,005 140,607
Inventory 1,825,015 957
Prepaid expenses 310,793 301,470
- -----------------------------------------------------------------------------------------------------
Total current assets 12,344,987 1,900,502
- -----------------------------------------------------------------------------------------------------
Property and equipment, net 7,710,280 6,305,405
Licenses, net of accumulated amortization 236,524 229,900
Goodwill, net of accumulated amortization 13,609,273 37,421
Investment in Wareforce 176,518 --
Deposit on purchase 1,689,710 1,689,710
Other assets, net of amortization 614,540 388,032
Net assets from discontinued operations 2,488,932 3,790,424
- -----------------------------------------------------------------------------------------------------
38,870,764 14,341,394
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable - trade 11,893,626 2,044,182
Accrued liabilities 2,006,124 1,259,158
Current portion of long-term debt 9,905,300 3,625,587
- -----------------------------------------------------------------------------------------------------
Total current liabilities 23,805,050 6,928,927
- -----------------------------------------------------------------------------------------------------
Long-term debt - net of current portion 4,978,074 5,134,339
Deferred income taxes payable 30,000 30,000
- -----------------------------------------------------------------------------------------------------
Total liabilities 28,813,124 12,093,266
- -----------------------------------------------------------------------------------------------------
Commitments and Contingent liabilities
Shareholders' equity
Share capital
Preferred shares 7,294 --
14,942,540 common shares [August 2001 - 9,028,239] 1,040,524 604,109
Capital in excess of par value 25,366,699 14,143,533
Accumulated deficit (16,356,877) (12,499,514)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 10,057,640 2,248,128
- -----------------------------------------------------------------------------------------------------
38,870,764 14,341,394
=====================================================================================================
The accompanying notes are an integral part of these statements
1
CHELL GROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in Canadian dollars - unaudited)
===========================================================================================================================
For Three Months Ended For Six Months Ended
February 28, February 28, February 28, February 28,
2002 2001 (Restated 2002 2001 (Restated
Note 11) Note 11)
$ $ $ $
===========================================================================================================================
REVENUE
Product sales 9,062,129 -- 9,062,129 --
Service sales 558,243 -- 558,243 --
Network services 1,564,091 1,798,207 3,274,309 3,544,330
Pay-TV 1,204,140 1,511,369 2,736,561 3,296,475
Other (2,592) 49,889 9,647 75,122
- ---------------------------------------------------------------------------------------------------------------------------
12,386,011 3,359,465 15,640,889 6,915,927
- ---------------------------------------------------------------------------------------------------------------------------
COST OF SALES
Product sales 8,290,472 -- 8,290,472 --
Service sales 497,354 -- 497,354 --
Network services 633,988 625,717 1,223,105 1,205,529
Pay-TV 636,693 665,252 1,301,516 1,393,520
- ---------------------------------------------------------------------------------------------------------------------------
10,058,507 1,290,969 11,312,447 2,599,049
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative
expenses 3,232,791 4,471,381 4,819,575 8,578,934
Interest and bank charges 918,818 198,812 1,236,522 280,115
Write off of leasehold improvements -- -- -- 355,560
Depreciation and amortization 530,571 631,948 1,137,948 1,295,790
- ---------------------------------------------------------------------------------------------------------------------------
4,682,180 5,302,141 7,194,045 10,510,399
- ---------------------------------------------------------------------------------------------------------------------------
Loss before undernoted (2,354,676) (3,233,645) (2,865,603) (6,193,521)
Provision for income taxes -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (2,354,676) (3,233,645) (2,865,603) (6,193,521)
Loss from discontinued operations (net of
income tax) (385,880) (188,328) (854,744) (519,021)
- ---------------------------------------------------------------------------------------------------------------------------
Loss and comprehensive loss for the period (2,740,556) (3,421,973) (3,720,347) (6,712,542)
===========================================================================================================================
Earnings (loss) per share: (Note 4)
Basic and diluted from continuing
operations (0.18) (0.39) (0.26) (0.74)
Basic and diluted from discontinued
operations (0.03) (0.02) (0.08) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.21) (0.41) (0.34) (0.80)
===========================================================================================================================
The accompanying notes are an integral part of these statements
2
CHELL GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 AND FEBRUARY 28, 2001
(Expressed in Canadian dollars - unaudited)
====================================================================================================================
February 28, 2002 February 28, 2001
(restated - Note 11)
$ $
====================================================================================================================
OPERATING ACTIVITIES
Net loss and comprehensive loss for the period (3,720,347) (6,712,542)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 1,137,948 1,295,790
Beneficial conversion feature of convertible debt 542,567 --
Accretion of interest on non-interest bearing promissory notes 86,538 86,538
Write-off of leasehold improvements -- 355,560
Services rendered for shares 73,962 429,766
Warrants issued -- 152,702
Write-off of prepaids arising from Chell asset purchase 90,682 367,235
Changes in assets and liabilities:
Decrease in short-term investments 19,676 250,195
(Increase) decrease in accounts receivable, trade (627,929) 101,969
Increase in income taxes receivable (22,962) (98,475)
Increase in inventory (281,717) (29,322)
Decrease (increase) in prepaid expenses 43,211 (94,275)
(Increase) decrease in other accounts receivable (375,154) 122,035
(Increase) decrease in other assets (317,190) 10,435
(Increase) decrease in net assets from discontinued operations (222,103) 188,265
Increase (decrease) in accounts payable and accrued liabilities 3,553,740 (75,301)
- --------------------------------------------------------------------------------------------------------------------
Cash (used in) operating activities (19,078) (3,649,405)
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (312,750) (653,940)
Increase in deposit on purchase -- (1,689,710)
Investment in Logicorp (1,500,000) --
Increase in notes receivable -- (301,100)
- --------------------------------------------------------------------------------------------------------------------
Cash (used in) investing activities (1,812,750) (2,644,750)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes and loans payable 3,396,080 5,151,986
Repayment of notes and loans payable (1,976,871) (18,012)
Proceeds from exercise of options 153,579 26,243
- --------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,572,788 5,160,217
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents during the period (259,040) (1,133,938)
Cash and cash equivalents, beginning of period 356,421 1,355,613
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 97,381 221,675
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Income Taxes Paid -- 98,491
Interest Paid 206,194 55,508
During the 2002 second fiscal quarter, Logicorp was purchased for $13,953,080
with the non-cash component amounting to $2,300,000 in accounts payable,
$395,124 in common shares and $9,757,956 in capital in excess of par value. In
addition, $500,000 debt related to the purchase of GalaVu was repaid with
shares.
Non cash items arose from the purchase of Chell.com assets during the 2001
First Fiscal Quarters. They are $1,936,272 of property & equipment, $107,589 of
goodwill, $42,706 of prepaids, $1,404 in other accounts receivable and in
addition 5,426,772 shares were issued from the purchase of Cameron Chell and
Chell.com assets. In addition, the depreciation from discontinued operations was
$352,340.
The accompanying notes are an integral part of these statements
3
CHELL GROUP CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 AND FEBRUARY 28, 2001
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying financial statements for the interim periods are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations, contained in the
Annual Report on Form 10-K of Chell Group Corporation (the "Company")
(Commission No.:0-18066), filed with the Securities and Exchange Commission on
November 30, 2001. The results of operations for the six months ended February
28, 2002 are not necessarily indicative of the results to be expected for the
full fiscal year ending August 31, 2002.
Note 2. General
The financial statements of the Company for the three and six months ended
February 28, 2002 (the "2002 Second Fiscal Quarter" and "2002 First Fiscal
Half"), include the operations of the Company's wholly-owned subsidiaries Chell
Merchant Capital Group Inc. ("CMCG"), Chell.com (USA) Inc., NTN Interactive
Network Inc. ("NTNIN"), 3484751 Canada Inc., GalaVu Entertainment Network Inc.
("GalaVu"), and discontinued operations from NTNIN's wholly-owned subsidiary
Magic Lantern Communications Ltd. ("Magic"), which was sold effective in March
2002. The financial statements for the three months ended February 28, 2002 also
include the operations of Logicorp Data Systems Ltd. and Logicorp Service Group
Ltd., which will be together referred to as "Logicorp". Logicorp was purchased
effective in January 2002.
The financial statements of the Company for the three and six months ended
February 28, 2001 (the "2001 Second Fiscal Quarter" and "2001 First Fiscal
Half"), include the operations of the Company's wholly-owned subsidiaries CMCG,
Chell.com (USA), NTNIN, 3484751 Canada Inc., GalaVu and NTNIN's wholly-owned
subsidiary Magic. Discontinued operations are the results of NTNIN's
wholly-owned subsidiaries Interlynx, which was sold effective in July 2001, and
Magic, which was sold effective in March 2002.
Prior period's figures have been restated (see note 11) and may have been
reclassified to be consistent with any reclassifications in the current period.
4
Note 3. Business Segment Data for the three and six months ended February 28,
2002 and February 28, 2001
================================================================================================================
For Three Months Ended For Six Months Ended
February 28, February 28, February 28, February 28,
2002 2001 2002 2001
$ $ $ $
================================================================================================================
External revenue
Entertainment 2,770,321 3,349,190 6,023,574 6,899,442
Systems Integration 9,620,372 -- 9,620,372 --
Merchant Services -- -- -- --
Corporate (4,682) 10,275 (3,057) 16,485
- ----------------------------------------------------------------------------------------------------------------
12,386,011 3,359,465 15,640,889 6,915,927
- ----------------------------------------------------------------------------------------------------------------
Inter-segment revenue
Entertainment -- -- -- --
Systems Integration -- -- -- --
Merchant Services -- -- -- --
Corporate -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
-- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Operating profit (loss)
Entertainment (658,599) (299,654) (611,728) (332,113)
Systems Integration (65,560) -- (65,560) --
Merchant Services (269,103) (2,028,649) (522,749) (4,828,305)
Corporate (1,361,414) (905,342) (1,665,566) (1,033,103)
- ----------------------------------------------------------------------------------------------------------------
(2,354,676) (3,233,645) (2,865,603) (6,193,521)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss)
Entertainment (658,599) (299,654) (611,728) (332,113)
Systems Integration (65,560) -- (65,560) --
Merchant Services (269,103) (2,028,649) (522,749) (4,828,305)
Corporate (1,361,414) (905,342) (1,665,566) (1,033,103)
Discontinued Operations (385,880) (188,328) (854,744) (519,021)
- ----------------------------------------------------------------------------------------------------------------
(2,740,556) (3,421,973) (3,720,347) (6,712,542)
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
As at
February 28, February 28,
2002 2001
$ $
================================================================================================================
Total assets
Entertainment 6,162,483 7,549,286
Systems Integration 25,163,648 --
Merchant Services 1,103,300 2,124,984
Corporate 3,952,401 2,913,200
Discontinued Operations 2,488,932 5,048,066
- ----------------------------------------------------------------------------------------------------------------
38,870,764 17,635,536
- ----------------------------------------------------------------------------------------------------------------
5
Note 4. Earnings per share
Earnings per share were calculated in accordance with Statement of
Financial Accounting Standards No. 128. The following table sets forth the
computation of basic and diluted earnings per share for the three months and six
months ended February 28, 2002 and February 28, 2001:
===========================================================================================================================
For Three Months Ended For Six Months Ended
February 28, February 28, February 28, February 28,
2002 2001 2002 2001
$ $ $ $
===========================================================================================================================
Numerator:
Net loss (numerator for basic and diluted
loss per share) from continuing operations (2,354,676) (3,233,645) (2,865,603) (6,193,521)
Net loss (numerator for basic and diluted
loss per share) from discontinued operations (385,880) (188,328) (854,744) (519,021)
- ---------------------------------------------------------------------------------------------------------------------------
Net loss (numerator for basic and diluted
loss per share) (2,740,556) (3,421,973) (3,720,347) (6,712,542)
===========================================================================================================================
Denominator for basic and diluted loss
per share -adjusted weighted average
number of shares and assumed conversions 12,892,028 8,417,123 10,976,487 8,356,045
===========================================================================================================================
Basic and diluted loss per share from
continuing operations (0.18) (0.39) (0.26) (0.74)
Basic and diluted loss per share from
discontinued operations (0.03) (0.02) (0.08) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.21) (0.41) (0.34) (0.80)
===========================================================================================================================
Note 5. Business Acquisition
Effective January 1, 2002, the Company acquired 100% of Logicorp Data
Systems Ltd., Logicorp Service Group Ltd., 123557 Alberta Ltd. and 591360
Alberta Ltd. (collectively " Logicorp") for a purchase price of $13,953,080
calculated on a discounted basis. Logicorp is a Canadian systems integrator
handling all aspects of IT systems integration and solutions development,
including network integration and management, desktop support, hardware/software
procurement, systems architecture design and consulting. The acquisition was
recorded using the purchase method of accounting and, accordingly the purchase
price has been allocated as set out below:
$
- --------------------------------------------------------------------------------
Goodwill 13,501,419
Net tangible assets 451,661
- --------------------------------------------------------------------------------
13,953,080
- --------------------------------------------------------------------------------
The purchase price was satisfied by $1,500,000 in cash, the issuance of
two non-interest bearing promissory notes with a maturity value of $2,300,000
and the issuance of 5,355,000 exchangeable shares of CMCG. These shares are
exchangeable on a one for one basis for the Common shares of the Company. The
first promissory note with a maturity value of $1,800,000 is due June 30, 2002.
Prior to payment of the first promissory note, the Company can elect to adjust
the purchase price by substituting the $1,800,000 note for an interest-free
promissory note in the amount of $2,040,000 one half of which would be due
6
June 30, 2002 and the second half would be due December 31, 2002. The second
promissory note has a maturity value of $500,000 and is due March 31, 2003.
In addition, the purchase price may be adjusted upwards because the
Company is required to pay an amount by which the earnings before taxes,
interest, depreciation and amortization (EBITDA) of Logicorp exceeds $1,000,000
for the year ended December 31, 2002. The purchase price may be adjusted
downward by three times the amount that EBITDA for this period is less than
$1,000,000.
The purchase price will be further adjusted on June 30, 2002, in the event
that the weighted average closing stock price of the Company's common shares for
the 10 trading days prior to June 30, 2002 is less than US$1.00. The Company
will issue additional common shares equal to the difference in the weighted
common share price and US$1.00 to a maximum of US$0.15 per share multiplied by
5,355,000 shares. However, if the weighted common share price is less than
US$0.50, then the maximum adjustment to the purchase price will be US$0.20 per
share multiplied by 5,355,000 shares.
The operating results of Logicorp are included in the Company's
consolidated statements of operations from the effective date of acquisition.
Pro forma information
The following pro forma information on results of operations assumes that
Logicorp was purchased at the beginning of each period presented.
=====================================================================================================================
For Three Months Ended For Six Months Ended
February 28, February 28, February February 28,
2002 2001 28, 2002 2001
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Revenues 13,090,941 13,223,204 26,886,710 31,738,981
Loss before extraordinary items (2,120,348) (2,058,831) (2,745,812) (5,763,594)
Loss before extraordinary items per share (0.16) (0.24) (0.25) (0.42)
Net loss (2,506,228) (2,247,159) (3,600,556) (6,282,615)
Net loss per share (0.19) (0.27) (0.33) (0.46)
- ---------------------------------------------------------------------------------------------------------------------
Note 6. Investment in Wareforce.com, Inc.
Effective February 6, 2002, the Company issued 454,545 Series B preferred
shares in exchange for 454,545 Series A 6% convertible preferred shares of
Wareforce.com, Inc. ("Wareforce). The Wareforce preferred shares have a stated
value of US$10.00 per share and can be converted to common shares at 95% of the
market price of Wareforce's common shares. The conversion of these preferred
shares is limited such that the Company cannot convert if this conversion
results in the Company owning more than 5% of the then outsatnding common shares
of Wareforce. The investment in Wareforce has been valued based on the market
value of Wareforce common shares. This transaction was entered into in part to
act as an incentive for the holders of the Series B preferred shares to
participate in the private placement discussed in Note 7. Which at February 28,
2002 aggregated $176,518.
7
The Series B preferred shares have a par value of US$.01 per share and a
stated value of US$10.00 per share. The aggregate stated value is US$4,545,450
convertible to common shares of the Company at US$1.00. There is a limitation on
the conversion feature whereby shares are not convertible if the conversion
would result in the holder owning more than 5% of the outstanding common shares
of the Company.
Note 7. Convertible Promissory Notes
The Company has issued 8% convertible notes in the amount of $3,191,568
under a private placement memorandum. These notes are due August 9, 2002. These
notes may be voluntarily converted into Common Stock at a price between US$0.80
and US$1.00 per share, calculated as 50% of the average of the closing bid
prices for the Common Stock for ten trading days immediately prior to the
automatic conversion, but within the price range specified. The notes are
automatically converted into Common Stock if prior to their maturity, there are
closings of the acquisition of two or more of the following companies: (a)
Wareforce.com, Inc. (b) Stardrive Solutions, Inc. and (c) Logicorp Data Systems
Ltd. The automatic conversion will be at a price between US$0.50 and US$2.50,
calculated as 50% of the average of the closing bid prices for the Common Stock
for ten trading days immediately prior to the automatic conversion, but within
the price range specified. If all of these convertible notes were converted at
the lowest conversion price of US$0.50, the number of common shares issued would
be 4,039,960 resulting in a dilution of the current common stockholders.
Subsequent to February 28, 2002 all of the 8% convertible notes were converted
to Common Stock at US$0.95 resulting in the issuance of approximately 2,126,000
shares.
Note 8. Beneficial Conversion Feature
Convertible Promissory Notes
The beneficial conversion feature of the 8% promissory notes issued in
February 2002 has been recognized by recording additional paid in capital and
interest expense for the three months ended February 28, 2002. The amount of the
beneficial conversion and interest expense is calculated as of the date of
issuance as the difference between the conversion price and the fair value of
the common stock into which the notes are convertible. The Company recognized
beneficial conversion interest expense and corresponding additional paid in
capital in the amount of approximately $543,000 for the three months ending
February 28, 2002.
Series B Preferred Shares
The beneficial conversion feature of the Series B preferred shares issued
in February 2002 has been recognized by recording additional paid in capital and
a deemed dividend for the three months ended February 28, 2002. The amount of
the beneficial conversion and deemed dividend is calculated as of the date of
issuance as the difference between the conversion price and the fair value of
the common stock into which the shares are convertible. The Company recognized a
deemed dividend and corresponding additional paid in capital in the amount of
approximately $137,000 for the three months ending February 28, 2002.
8
Note 9. Subsequent Events
Financing
A term sheet for the following transactions has been signed, however all
of the conditions for completion of these transactions have not been met. It is
anticipated that during the third fiscal quarter, these transactions will be
completed and will be effective September 1, 2001. The Company intends to issue
secured notes in the aggregate principal amount of U.S$3,370,000. In addition
options to purchase 812,000 common shares will be issued.
(a) The first part of this transaction will be an exchange of the
convertible debentures held by CALP II Limited Partnership ("CALP
II") on behalf of Canadian Advantage Limited Partnership ("CALP")
and Advantage (Bermuda) Fund Ltd. ("ABFL") for notes and warrants.
The existing convertible debentures of the Company, in the aggregate
principal amount of US$1,700,000, are currently held by CALP II on
behalf of CALP and ABFL. Together with interest at 10% from October
3, 2000, the total amount owing under these convertible debentures
at August 31, 2001 was approximately US$1,870,000. The convertible
debentures will be cancelled. The Company will issue notes to CALP
and ABFL in the aggregate principal amount of US$1,870,000. These
notes will have a five year term bearing interest at 10% per annum
payable semi-annually in arrears. The interest is payable in stock
of the Company calculated at 100% of the market price as at the date
such payment is due. Prepayment is permitted at any time on 30 days
prior notice. The notes will be secured by a general security
agreement against the assets of the Company in priority to all other
claims subject to the existing security of the Bank of Montreal and
the CIBC. The note will be held as to US$1,365,100 by CALP and as to
US$504,900 by ABFL.
Five year options to purchase 625,000 shares of common stock of the
Company at an exercise price of US$3.00 will be issued by Chell.com
Ltd. to CALP and ABFL. Three year options to purchase 187,000 shares
of the Company's common stock at an exercise price of US$2.00 will
also be issued by Chell.com Ltd. The sole shareholder of Chell.com
Ltd. is Cameron Chell, the controlling shareholder of the Company.
Therefore the costs associated with these options will be recorded
by the Company. The financing cost associated with these options
will be approximately US$345,000 and will be amortized over the five
year term of the notes payable to CALP and ABFL.
(b) The second part of the transaction is the purchase of 250,000 units
in VC Advantage (Bermuda) Fund Ltd. in exchange for a US$1,500,000
note. The note will have a term of five years and will bear interest
at 3% per annum payable semi-annually in arrears. The interest is
payable in stock of the Company calculated at 100% of the market
price as at the date such payment is due. The note will be
discounted for financial reporting purposes to reflect the Company's
cost of borrowing. This discount will result in a maximum of
approximately US$178,000
9
additional interest expense over the five year term of the note.
Prepayment is permitted at any time on 30 days prior notice. The note will
be secured by a general security agreement against the assets of the
Company ranking pari passu to the notes in the first part of this
transaction.
BOTB Corporation, an Alberta corporation of which Cameron Chell is
the sole beneficial shareholder, whose sole asset is a residence in
Laguna Beach, California, will provide the Company a guarantee with
a minimum value of $1,500,000 for the units purchased and will
provide a second mortgage on this property to secure the guarantee.
Conversion of CALP and ABFL Notes Payable
During the third fiscal quarter, agreements were reached with CALP and
ABFL to convert the above-noted notes payable and accrued interest into shares
of the Common Stock of the Company, at the rate of US$0.80. The Company will
issue 2,405,678 shares of Common Stock in full satisfaction of the principal
amount of US$1,870,000 plus accrued interest of US$54,542.
Sale of Magic Lantern
Commencing in the second fiscal quarter, the Company began negotiations to
sell Magic Lantern and its subsidiaries. Effective March 18, 2002, the Company
completed this sale for cash consideration of $1,850,000. The Company's
financial statements have been restated to reflect Magic as a discontinued
operation for all periods presented. Summarized operating results of Magic's
discontinued operations are as follow:
=======================================================================================================================
For Three Months Ended For Six Months Ended
February 28, February 28, February February 28,
2002 2001 28, 2002 2001
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Revenues 804,707 1,000,803 1,507,993 2,367,520
(Loss) income before extraordinary items (358,880) 23,064 (854,744) (179,304)
(Loss) income before extraordinary items per share (0.03) (0.00) (0.08) (0.02)
Net (loss) income (358,880) 23,064 (854,744) (179,304)
Net (loss) income per share (0.03) (0.00) (0.08) (0.02)
- -----------------------------------------------------------------------------------------------------------------------
Note 10. New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets (SFAS 144), that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The new
rules on asset impairment supersede SFAS 121, Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and portions of
Accounting Principles Board Opinion 30, "Reporting the Results of Operations."
This Standard provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. Classification as held-for-sale is an
important distinction
10
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the measurement date as presently
required. The Company is currently assessing the potential impact of SFAS 144 on
the operating results and financial position.
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, business combinations can no longer be
reflected by using the pooling of interests method of accounting and goodwill
(and intangible assets deemed to have indefinite lives) will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter in the year beginning September
1, 2002 (Fiscal 2003). During fiscal 2003, the Company will perform the first of
the required impairment tests of goodwill and indefinite lived intangible assets
as of September 1, 2002 and has not yet determined what the effects of these
tests will be on the earnings and financial position of the Company.
Note 11. Restatement of financial statements
In Fiscal 2001, the Company sold its wholly-owned subsidiary, Interlynx.
In Fiscal 2002, the Company sold its wholly-owned subsidiary and it's associated
subsidiaries, Magic Lantern Communications, Sonoptic Technologies Inc. and
Tutorbuddy Inc. The Company's financial statements have been restated to reflect
Interlynx and Magic Lantern as discontinued operations for all periods
presented. (See Note 9).
Note 12. Changes in share capital
During the six months ended February 28, 2002, the following transactions
resulted in the issuance of 5,914,301 common shares of the Company. The
acquisition of Logicorp resulted in the issuance of 5,355,000 common shares of
the Company held in escrow pending shareholder approval. In addition 463,051
shares were issued as payment for debt. Also during the six months ended
February 28, 2002, options totaling 96,250 were exercised resulting in the
issuance of additional 96,250 common shares of the Company.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The financial statements of the Company and the information contained in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations are expressed in Canadian dollars.
General
We are engaged in the business of providing interactive entertainment
services, systems integration products and services and merchant capital
services. Our core businesses are interactive entertainment services provided by
our NTN Interactive Network subsidiary and the merchant capital services
provided through our Merchant Capital Group subsidiary. GaluVu is a
technology-based entertainment provider of interactive in-room entertainment
systems to hotels across Canada. Interactive entertainment services also
involve, for example electronic sports trivia games played on computer units
installed in bars, pubs and restaurants. System integration products and
services are provided by our Logicorp subsidiary. Logicorp is a Western Canadian
Network Infrastructure provider, specializing in Server-Based Computing
solutions, Managed Services - using Computer Associates' Unicentre, Network
design, delivery, administration, and support Procurement services,
Warranty/Off-Warranty [W/OW] hardware support services, and Information Storage
technologies. Logicorp's primary focus is high-performance computer systems for
the corporate market. The firm provides solutions to mid-range and large
corporations, as well as the government, education and medical markets. In
addition, the business of merchant capital services involves our investment in
and acquisition of significant but undervalued operating companies or
technologies, to which we then apply management experience, in an effort to
appreciate the value of those companies.
Our main business strategy is to operate or invest in companies that
represent the latest in technological innovations. We apply our expertise,
industry contacts, and market foresight to these companies in order to create
shareholder value.
Results of Operations for the Three Months ended February 28, 2002
The Company's total revenues for the 2002 Second Fiscal Quarter were
$12,386,011, compared to $3,359,465 for the 2001 Second Fiscal Quarter, an
increase of $9,026,546 or 268.7%.
Revenues from product sales for the 2002 Second Fiscal Quarter were
$9,062,129. There are no comparative figures for the 2001 Second Fiscal Quarter
as the revenues arose from the purchase of Logicorp in January 2002.
Revenues from service sales for the 2002 Second Fiscal Quarter were
$558,243. There are no comparative figures for the 2001 Second Fiscal Quarter as
the revenues arose from the purchase of Logicorp in January 2002.
12
Revenues from network services for the 2002 Second Fiscal Quarter were
$1,564,091, compared to $1,798,207 for the 2001 Second Fiscal Quarter, a
decrease of $234,116 or 13.0%. The decrease can be attributed to a decrease in
event programming of $90,855 offset by an increase of $30,553 in advertising
sponsorship. The revenues are decreasing due to a slight decrease in the number
of Hospitality sites between the 2002 and 2001 Second Fiscal Quarters.
Revenues from Pay-tv for the 2002 Second Fiscal Quarter were $1,204,140
compared to $1,511,369 for the 2001 Second Fiscal Quarter, a decrease of
$307,229 or 20.3%. This decrease can be attributed to travel levels still being
depressed as a result of September 11th.
Total cost of sales for the 2002 Second Fiscal Quarter were $10,058,507,
compared to $1,290,969 for the 2001 Second Fiscal Quarter, an increase of
$8,767,538 or 679.1%. The increase is primarily the result of the addition of
Logicorp's product and service cost of sales to the company. Product
($8,290,472) and service ($497,354) resulted in a total addition of $8,787,826
or almost 100% of the increase. Since Logicorp was added in January 2002, there
are no comparative figures for the 2001 Second Fiscal Quarter. Network services
cost of sales were $633,988 in the 2002 Second Fiscal Quarter, compared to
$625,717 in the 2001 Second Fiscal Quarter, an increase of $8,271 or 1.3%.
Pay-TV cost of sales were $636,693 in the 2002 Second Fiscal Quarter, compared
to $665,252 in the 2001 Second Fiscal Quarter, a decrease of $28,559 or 4.3%. As
a percentage of revenues, cost of sales increased in the 2002 Second Fiscal
Quarter to 81.2% from 38.4% in the 2001 Second Fiscal Quarter.
Total selling, general and administrative expenses for the 2002 Second
Fiscal Quarter were $3,232,791, compared to $4,471,381 for the 2001 Second
Fiscal Quarter, a decrease of $1,238,590 or 27.7%. The decrease can be
attributed to a couple of items: there was a decrease in the merchant services
segment of $2,000,999 resulting from decreased staffing costs and associated
cost reductions; offset by an increase resulting from the addition of Logicorp
$823,331 which purchased during January 2002, thus resulting in no comparative
figures.
Total selling, general and administrative expenses for the 2002 Second
Fiscal Quarter for Logicorp comprised the following major items salaries of
$521,847 and supplies and materials of $197,697.
As a percentage of the Company's total revenues, selling, general and
administration expenses decreased to 26.1% for the 2002 Second Fiscal Quarter
from 133.1% for the 2001 Second Fiscal Quarter.
Interest and bank charges for the 2002 Second Fiscal Quarter were
$918,818, compared to $198,812 for the 2001 Second Fiscal Quarter, an increase
of $720,006 or 362.2%. The increase results from an increase in debt related to
the sale of the convertible debenture and bridge financing. The Company is now
experiencing a full quarter of the expense for Second Fiscal 2002 as compared to
partial months in 2001 Second Fiscal Quarter. In addition, a $542,567 deemed
interest expense was incurred on the financing raised. As a percentage of the
Company's total revenues, interest and bank charges increased to 7.4% for the
2002 Second Fiscal Quarter from 5.9% for the 2001 Second Fiscal Quarter.
13
Total depreciation and amortization expense for the 2002 Second Fiscal
Quarter was $530,571, compared to $631,948 for the 2001 Second Fiscal Quarter, a
decrease of $101,377 or 16.0%. This decrease is primarily the result of some
assets becoming fully depreciated.
The net loss from continuing operations for the 2002 Second Fiscal Quarter
was $2,354,676, compared to net loss of $3,233,645 for the 2001 Second Fiscal
Quarter, a decrease of $878,969. The decrease primarily resulted from the cost
savings in the Merchant Services sector, offset by the increased cost from the
addition of Logicorp and increased costs associated with the raising of
financing.
As a result of all of the above, the net loss for the 2002 Second Fiscal
Quarter was $2,740,556, compared to net loss of $3,421,973 for the 2001 Second
Fiscal Quarter, a decrease of $681,417. The decrease primarily resulted from the
cost savings in the Merchant Services sector, offset by the increased cost from
the addition of Logicorp. The 2002 Second Fiscal Quarter loss resulted primarily
from the corporate costs associated with running and growing the organization
and the decrease in profits from the operating companies due the economic
downturn experienced since September 11th.
Results of Operations for the Six Months ended February 28, 2002
The Company's total revenues for the 2002 First Fiscal Half were
$15,640,889, compared to $6,915,927 for the 2001 First Fiscal Half, an increase
of $8,724,962 or 126.2%.
Revenues from product sales for the 2002 First Fiscal Half were
$9,062,129. There are no comparative figures for the 2001 First Fiscal Half as
the revenues arose from the purchase of Logicorp in January 2002.
Revenues from service sales for the 2002 First Fiscal Half were $558,243.
There are no comparative figures for the 2001 First Fiscal Half as the revenues
arose from the purchase of Logicorp in January 2002.
Revenues from network services for the 2002 First Fiscal Half were
$3,274,309, compared to $3,544,330 for the 2001 First Fiscal Half, a decrease of
$270,021 or 7.6%. The decrease can be attributed to a decrease in event
programming of $81,075 offset by an increase of $63,064 in advertising
sponsorship. The revenues are decreasing due to a slight decrease in the number
of Hospitality sites between the 2002 and 2001 First Fiscal Half.
Revenues from Pay-tv for the 2002 First Fiscal Half were $2,736,561
compared to $3,296,475 for the 2001 First Fiscal Half, a decrease of $559,914 or
17.0%. This decrease can be attributed to travel levels still being depressed as
a result of September 11th.
Total cost of sales for the 2002 First Fiscal Half were $11,312,447,
compared to $2,599,049 for the 2001 First Fiscal Half, an increase of $8,713,398
or 335.3%. The increase is primarily the result of the addition of Logicorp's
product and service cost of sales to the company. Product ($8,290,472) and
service ($497,354) resulted in a total addition of $8,787,826 or almost 100% of
the increase. Since Logicorp was added in January 2002, there
14
are no comparative figures for the 2001 First Fiscal Half. Network services cost
of sales were $1,223,105 in the 2002 First Fiscal Half, compared to $1,205,529
in the 2001 First Fiscal Half, an increase of $17,576 or 1.5%. Pay-TV cost of
sales were $1,301,516 in the 2002 First Fiscal Half, compared to $1,393,520 in
the 2001 First Fiscal Half, a decrease of $92,004 or 6.6%. As a percentage of
revenues, cost of sales increased in the 2002 First Fiscal Half to 72.3% from
37.6% in the 2001 First Fiscal Half.
Total selling, general and administrative expenses for the 2002 First
Fiscal Half were $4,819,575, compared to $8,578,934 for the 2001 First Fiscal
Half, a decrease of $3,759,359 or 43.8%. The decrease can be attributed to a
couple of items: there was a decrease in the merchant services segment of
$4,025,433 resulting from decreased staffing costs and associated cost
reductions; offset by an increase resulting from the addition of Logicorp
$823,331 which purchased during January 2002, thus resulting in no comparative
figures.
Total selling, general and administrative expenses for the 2002 First
Fiscal Half for Logicorp comprised the following major items; salaries of
$521,847 and supplies and materials of $197,697.
As a percentage of the Company's total revenues, selling, general and
administration expenses decreased to 30.8% for the 2002 First Fiscal Half from
124.0% for the 2001 First Fiscal Half.
During the 2001 First Fiscal Half, Chell Merchant Capital Group Inc.
vacated certain leased space and as a result the Company wrote off the net book
value of the related leasehold improvements in the amount of $355,560. There
were no similar transactions in the 2002 First Fiscal Half.
Interest and bank charges for the 2002 First Fiscal Half were $1,236,522,
compared to $280,115 for the 2001 First Fiscal Half, an increase of $956,407 or
341.4%. The increase results from an increase in debt related to the sale of the
convertible debenture and the bridge financing and the deemed interest expense
of $542,567 incurred on the funds raised. These items were not present for the
entire 2001 First Fiscal Half. As a percentage of the Company's total revenues,
interest and bank charges increased to 4.4% for the 2002 First Fiscal Half from
7.9% for the 2001 First Fiscal Half.
Total depreciation and amortization expense for the 2002 First Fiscal Half
was $1,137,948, compared to $1,295,790 for the 2001 First Fiscal Half, a
decrease of $157,842 or 12.2%. This decrease is primarily the result of some
assets becoming fully depreciated.
The net loss from continuing operations for the 2002 First Fiscal Half was
$2,865,603, compared to net loss of $6,193,521 for the 2001 First Fiscal Half, a
decrease of $3,327,918. The decrease primarily resulted from the cost savings in
the Merchant Services sector, offset by the increased cost from the addition of
Logicorp.
As a result of all of the above, the net loss for the 2002 First Fiscal
Half was $3,720,347, compared to net loss of $6,712,542 for the 2001 First
Fiscal Half, a decrease of $2,992,195. The decrease primarily resulted from the
cost savings in the Merchant Services
15
sector, offset by the increased cost from the addition of Logicorp. The 2002
First Fiscal Half loss resulted primarily from the corporate costs associated
with running and growing the organization and the decrease in profits from the
operating companies due the economic downturn experienced since September 11th.
Liquidity and Capital Resources
At February 28, 2002, the Company had a working capital deficit of
$11,460,063, a decrease of $6,431,638 from working deficit of $5,028,425 at
August 31, 2001.
For the 2002 First Fiscal Half, the Company had a net decrease in cash of
$259,040 compared to a net decrease of $1,133,938 in the 2001 First Fiscal
Half.
Cash used in operating activities for the 2002 First Fiscal Half was
$19,078, compared to $3,649,405 used in operating activities in the 2001 First
Fiscal Half. In 2002, the major items that contributed to cash being used in
operating activities were as follows: the net loss with non-cash expenses added
back of $1,788,650, the increase in accounts receivable of $627,929, the
increase in income taxes receivable of $22,962, the increase in inventory of
$281,717, the increase in other accounts receivable of $375,154, the increase in
other assets of $317,190 and the increase in net assets from discontinued
operations of $222,103. The major item that contributed to cash being provided
by operating activities was the increase in accounts payable and accrued
liabilities of $3,553,740. In 2001, the major items that contributed to cash
being used in operating activities were as follows: net loss with non-cash
expenses added back of $4,024,951, increases in income taxes receivable and
prepaids of $98,475 and $94,275 respectively, and a decrease in accounts payable
and accrued liabilities of $75,301. The major sources of operating funds
included decreases in short-term investments of $250,195 and accounts receivable
of $101,969, a decrease in other accounts receivable of $122,035 and a decrease
in net assets from discontinued operations of $188,265.
Cash used in investing activities in the 2002 First Fiscal Half was
$1,812,750 compared to the $2,644,750 used in investing activities in the 2001
First Fiscal Half, a decrease of $832,000. In the 2002 First Fiscal Half,
$312,750 of property and equipment was purchased compared to $653,940 in the
2001 First Fiscal Half, a decrease of $341,190. In the 2002 First Fiscal Half,
$1,500,000 was used in the purchase of Logicorp (note 5), where in the 2001
First Fiscal Half; a $1,689,710 deposit on purchase occurred, a decrease of
$189,710. In addition, a $301,000 increase in notes receivable occurred in the
2001 First Fiscal Half. There was no similar change in the 2002 First Fiscal
Half.
Cash provided by financing activities in the 2002 First Fiscal Half was
$1,572,788, compared to the $5,160,217 provided in the 2001 First Fiscal Half.
This decrease is primarily due to increases in debt repaid and a lower level of
new debt incurred in the 2002 First Fiscal Half.
During the 2002 Second Fiscal Quarter the Company issued promissory notes
in the amount of $3,191,568 under a private placement memorandum. The net
proceeds of approximately $2,900,000 were used as follows: to repay debt of
approximately $790,000; $1,400,000 was used in the acquisition of Logicorp; and
approximately $710,000 was used for working capital and expenses. The Company is
in the process of raising additional capital under its private placement
memorandum. It is anticipated that such funds raised will be converted to
equity. These funds will allow the Company to realize its acquisition strategy
and to repay its loan obligations. In addition, in the 2002 Third Fiscal Quarter
the Company has negotiated the conversion of approximately $2,954,600 owing to
CALP and ABFL to equity. The Company's subsidiaries operating in the
entertainment and systems integration segments create liquidity sufficient to
fund their operations. Management believes that the current negotiations for
terms and financing will be successful and that Company will have the required
liquidity for its planned operating activities in the current year.
16
Inflation
The rate of inflation has had little impact on the Company's operations or
financial position during the six months ended February 28, 2002 and February
28, 2001 and inflation is not expected to have a significant impact on the
Company's operations or financial position during the 2002 Fiscal Year.
The Company pays a number of its suppliers, including its licensor and
principal supplier, NTN Communications, Inc., in US dollars. Therefore,
fluctuations in the value of the Canadian dollar against the US dollar will have
an impact on its gross profit as well as its net income. If the value of the
Canadian dollar falls against the US dollar, the cost of sales of the Company
will increase thereby reducing its gross profit and net income. Conversely, if
the value of the Canadian dollar rises against the US dollar, its gross profit
and net income will increase.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following list sets forth the applicable exhibits (numbered in
accordance with Item 601 of Regulation S-K) required to be filed with this
Quarterly Report on Form 10-Q:
Exhibit
Number Title
- ------ -----
3.1 Certificate of Incorporation, as amended to date.
3.2 By-Laws, as amended to date.
10.1 License Agreement, dated March 23, 1990, between NTN Communications,
Inc. and NTN Interactive Network Inc.+
10.2 Stock Purchase Agreement, dated as of October 4, 1994, between NTN
Canada Inc. and NetStar Enterprises Inc. (formerly, Labatt
Communications Inc.). +
Option, dated as of October 4, 1994, registered in the name of
NetStar Enterprises Inc. (formerly, Labatt Communications Inc). +
10.4 Designation Agreement dated as of October 4, 1994, among Networks
North Inc. (formerly know as NTN Canada, Inc.), NTN Interactive
Network Inc. and NetStar Enterprises Inc. (formerly Labatt
Communications Inc.). +
10.15 Asset Purchase Agreement, dated September 10, 1999, by and between
1373224 Ontario Limited, Networks North Inc. and Arthur Andersen
Inc., to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent
jurisdiction as the receiver or receiver and manager of the
property, assets and undertaking of GalaVu. +
10.16 Promissory Note, dated September 10, 1999, by and between 1373224
Ontario Limited, as Debtor, and the Holder, as Creditor. +
10.17 General Security Agreement, dated September 10, 1999, by and between
1373224 Ontario Limited, to acquire the property and assets of
GalaVu Entertainment Inc., from the person appointed by the court of
competent jurisdiction as the receiver or receiver and manager of
the property, assets and undertaking of GalaVu. +
10.18 Securities Pledge Agreement, dated September 10, 1999, by and
between 1373224 Ontario Limited to acquire the property and assets
of GalaVu Entertainment Inc., from the person appointed by the court
of competent jurisdiction as the receiver or receiver and manager of
the property, assets and undertaking of GalaVu. +
10.23 Bill of Sale, dated September 13, 1999, by and between 1373224
Ontario Limited to acquire the property and assets of GalaVu
Entertainment Inc., from the person appointed by the court of
competent jurisdiction as the receiver or receiver and manager of
the property, assets and undertaking of GalaVu. +
10.24 Covenant of Networks North Inc., dated September 13, 1999, to allot
and issue and pay to the Bank in writing 100,000 common shares of
NETN. +
10.25 Agreement and Plan of Merger and Reorganization, dated November 21,
2001, by and among Chell Group Corporation, Chell Group Corporation,
in trust for Chell SSI Acquisition Corp., and Stardrive Solutions
Inc. +
10.26 Share Purchase Agreement, dated December 13, 2001, by and among
Chell Group
19
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. +
11. List of Subsidiaries
22. Computation of Earnings Per Share (see note 4).
+ Incorporated by reference. See Exhibit Index.
(b) Reports on Form 8-K
The Company filed an Amended Current Report on Form 8-KA (Date of Report:
December 4, 2000) with the Commission on December 6, 2001, reporting an
Agreement and Plan of Merger and Reorganization, dated November 21, 2001, by and
among Chell Group Corporation, Chell Group Corporation, in trust for Chell SSI
Acquisition Corp., and Stardrive Solutions Inc.
The Company filed a Current Report on Form 8-KA (Date of Report: January
16, 2001) with the Commission on December 28, 2001, reporting a Share Purchase
Agreement, dated December 13, 2001, 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.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHELL GROUP CORPORATION
Dated: April 15, 2002 By: /s/ Cameron Chell
------------------------------------
Cameron Chell,
President and Chief Executive Officer
(Duly Authorized Officer)
Dated: April 15, 2002 By: /s/ Don Pagnutti
------------------------------------
Don Pagnutti,
Principal Financial Officer
21
CHELL GROUP CORPORATION
FORM 10-Q
February 28, 2002
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Location
- ------ ---------------------- --------
3.1 Certificate of Incorporation, as amended to
date +1, Exh. 3.1
3.2 By-Laws, as amended to date +1, Exh. 3.2
10.1 License Agreement, dated March 23, 1990,
between NTN Communications, Inc. and NTN
Interactive Network Inc. +2, Exh. 10.9
10.2 Stock Purchase Agreement, dated October 1,
1996, among Connolly-Daw Holdings Inc., 1199846
Ontario Ltd., Douglas Connolly, Wendy Connolly
and NTN Interactive Network Inc., minus
Schedules thereto +3, Exh. 10.1
10.4 Designation Agreement dated as of October 4,
1994, among Networks North Inc. (formerly known
as NTN Canada, Inc.), NTN Interactive Network
Inc. and NetStar Enterprises Inc. (formerly
Labatt Communications Inc.) +4, Exh. C
10.15 Asset Purchase Agreement, dated September 10,
1999, by and between 1373224 Ontario Limited,
Networks North Inc. and Arthur Andersen Inc.,
to acquire the property and assets of GalaVu
Entertainment Inc., from the person appointed
by the court of competent jurisdiction as the
receiver or receiver and manager of the
property, assets and undertaking of GalaVu. +5, Exh. 10.1
10.16 Promissory Note, dated September 10, 1999, by
and between 1373224 Ontario Limited, as Debtor,
and the Holder, as Creditor. +5, Exh. 10.2
10.17 General Security Agreement, dated September 10,
1999, by and between 1373224 Ontario Limited,
to acquire the property and assets of GalaVu
Entertainment Inc., from the person appointed
by the court of competent jurisdiction as the
receiver or receiver and manager of the
property, assets and undertaking of GalaVu.+5, Exh. 10.3
10.18 Securities Pledge Agreement, dated September
10, 1999, by and between 1373224 Ontario
Limited to acquire the property and assets of
GalaVu Entertainment Inc., from the person
appointed by the court of competent
jurisdiction as the receiver or receiver and
manager of the property, assets and undertaking
of GalaVu+5, Exh. 10.4
10.23 Bill of Sale, dated September 13, 1999, by and
between 1373224 Ontario Limited to acquire the
property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of
competent jurisdiction as the receiver or
receiver and manager of the property, assets
and undertaking of GalaVu.+5, Exh. 10.9
22
10.24 Covenant of Networks North Inc. for valuable
consideration to allot and issue and pay to the
Bank in writing 100,000 common shares of NETN.
+5, Exh. 10.10
10.25 Agreement and Plan of Merger and
Reorganization, dated November 21, 2001, by and
among Chell Group Corporation, Chell Group
Corporation, in trust for Chell SSI Acquisition
Corp., and Stardrive Solutions Inc. +6
10.26 Share Purchase Agreement, dated December 13,
2001, by and among Chell Group Corporation,
Chell Merchant Capital Group, Inc., Melanie
Johannesen, Randy Baxandall, Morris Chynoweth,
Elaine Chynoweth, the Johannesen Family Trust,
the Baxandall Family Trust, the Merc Family
Trust, Logicorp Data Systems Ltd., 123557
Alberta Ltd., Logicorp Service Group Ltd. and
591360 Alberta Ltd. +7
11 Computation of earnings per share (see Note 4)
22 List of Subsidiaries +1, Exh. 22
++1 All exhibits so indicated are incorporated herein by reference to the
exhibit number listed above in the Annual Report on Form 10-K of the
Company, for its fiscal year ended August 31, 1996 (File No. 0-18066),
filed on December 16, 1996.
++2 All exhibits so indicated are incorporated herein by reference to the
exhibit number listed above in the Annual Report on Form 10-K of NTN
Communications, Inc., for its fiscal year ended December 31, 1990 (File
No. 2-91761-C), filed on April 1, 1991.
++3 All exhibits so indicated are incorporated herein by reference to the
exhibit number listed above in the Current Report on Form 8-K of the
Company (Date of Report: October 2, 1996) (File No. 0-18066), filed on
October 17, 1996.
++4 All exhibits so indicated are incorporated herein by reference to the
exhibit number listed above in the Current Report on Form 8-K of the
Company (Date of Report: October 4, 1994) (File No. 0-18066), filed on
October 18, 1994.
++5 All Exhibits so indicated are incorporated herein by reference to the
exhibit listed above in the Company's 8-K (Date of Report: September 13,
1999) (File No. 0-18066), filed on September 29, 1999.
++6 All Exhibits so indicated are incorporated herein by reference to the
exhibit listed above in the Company's 8-K (Date of Report: November 21,
2001) (File No. 0-18066) filed on December 6, 2001.
++7 All Exhibits so indicated are incorporated herein by reference to the
exhibit listed above in the Company's 8-K (Date of Report: December 13,
2001) (File No. 0-18066) filed on December 28, 2001.
++ Filed electronically pursuant to Item 401 of Regulation S-T.
23