UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q ---------- (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ ------------ COMMISSION FILE NUMBER: 0-18222 ---------- CHELL GROUP CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------- NEW YORK 11-2805051 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 150, 630 - 8TH AVENUE SW, CALGARY AB T2P 1G6 (ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (403) 303-8258 ---------- 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|_| No |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X| As of November 30, 2004, the number of shares issued and outstanding of the Company's common stock, par value $0.0467 per share was 32,129,417. CHELL GROUP CORPORATION AND SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets as of February 29, 2004 (Unaudited) and August 31, 2002 3 Consolidated Statements of Operations for the three and six months ended February 29, 2004 and February 28, 2003(Unaudited) 4 Consolidated Statements of Cash Flows for the six months ended February 29, 2004 and February 28, 2003 (Unaudited) 5 Notes to Unaudited Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15 ITEM 4. Controls and Procedures 15 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 15 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 15 ITEM 3. Defaults upon Senior Securities 15 ITEM 4. Submissions of Submissions of Matters to a Vote of Security Holders 16 ITEM 5. Other Information 16 ITEM 6. Exhibits 16 Signatures 20 2 ITEM 1. FINANCIAL STATEMENTS CHELL GROUP CORPORATION CONSOLIDATED BALANCE SHEETS (EXPRESSED IN CANADIAN DOLLARS) - ------------------------------------------------------------------- --------------- ---------------- FEBRUARY 29 August 31, 2004 2003 (UNAUDITED) (Audited) $ $ - ------------------------------------------------------------------- --------------- ---------------- ASSETS CURRENT Cash and cash equivalents 746,013 327,685 Short-term investments 1,175,865 -- Accounts receivable, trade - net of allowance for doubtful accounts of $507,007 and $356,195, respectively 4,925,545 3,560,286 Inventory 128,513 208,340 Prepaid expenses 22,062 76,077 Buildings held for sale 584,985 1,177,045 - ------------------------------------------------------------------- --------------- ---------------- TOTAL CURRENT ASSETS 7,582,983 5,349,433 - ------------------------------------------------------------------- --------------- ---------------- Property and equipment, net 479,819 638,143 Goodwill 301,793 276,794 Other assets 116,996 63,600 Net assets of discontinued operations - assets held for sale -- 969,292 - ------------------------------------------------------------------- --------------- ---------------- 8,481,591 7,297,262 - ------------------------------------------------------------------- --------------- ---------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT Bank overdraft 678,914 908,432 Bank indebtedness 4,288,669 3,935,166 Accounts payable and accrued liabilities 7,091,282 5,469,224 Accrued interest payable 1,283,489 1,347,220 Deferred revenue 160,122 297,243 S-term advances 252,192 312,191 Current portion, long-term debt 1,233,270 1,305,301 Payable on acquisition 4,852,976 4,852,976 Loan payable, related party 1,532,399 1,020,000 Mortgages of buildings held for sale 327,083 1,114,583 Convertible debt 7,837,383 7,978,676 - ------------------------------------------------------------------- --------------- ---------------- TOTAL CURRENT LIABILITIES 29,537,779 28,541,012 - ------------------------------------------------------------------- --------------- ---------------- Long-term debt, net of current portion 109,726 113,392 Liabilities of discontinued operations -- 1,546,454 - ------------------------------------------------------------------- --------------- ---------------- TOTAL LIABILITIES 29,647,505 30,200,858 - ------------------------------------------------------------------- --------------- ---------------- SHAREHOLDERS' EQUITY (DEFICIT) PREFERRED SERIES B SHARES: 454,545 SHARES [August 2003 - 7,294 7,294 454,545] COMMON STOCK 14,295,410 common shares [August 2003 - 10,504,913] 959,754 733,997 Additional paid in capital 26,614,448 26,655,538 Accumulated other comprehensive income 1,348,378 1,150,558 Accumulated deficit (50,095,788) (51,450,983) - ------------------------------------------------------------------- --------------- ---------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (21,165,914) (22,903,596) - ------------------------------------------------------------------- --------------- ---------------- 8,481,591 7,297,262 - ------------------------------------------------------------------- --------------- ---------------- The accompanying notes are an integral part of these consolidated financial statements 3 CHELL GROUP CORPORATION INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 (EXPRESSED IN CANADIAN DOLLARS - UNAUDITED) - ---------------------------------------------------- -------------------------------- ------------------------------- THREE MONTHS ENDED FEBRUARY SIX MONTHS ENDED FEBRUARY 2004 2003 2004 2003 $ $ $ $ - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- REVENUE Product sales 4,883,305 10,127,182 12,839,007 15,733,110 Service sales 661,252 528,449 1,249,665 1,006,514 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- 5,544,557 10,655,631 14,088,672 16,739,624 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- COST OF SALES Product sales 3,854,160 9,468,0310 10,318,763 14,688,497 Service sales 65,458 63,708 294,217 122,617 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- 3,919,618 9,531,738 10,612,980 14,811,114 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- GROSS PROFIT 1,624,939 1,123,893 3,474,692 1,928,510 OPERATING EXPENSES Selling, general and administrative expenses 2,165,411 2,269,935 4,225,026 4,262,113 Depreciation and amortization 92,405 314,445 282,278 625,932 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- 2,257,816 2,584,380 4,507,304 4,888,045 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- LOSS FROM OPERATIONS (632,877) (1,460,487) (1,031,612) (2,959,536) Interest expense 275,927 627,069 618,213 1,216,769 Gain on short-term investments (322,740) -- (322,740) -- (Gain) loss on disposal of investments/property (104,552) -- (104,552) 248,586 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- Loss before provision for income taxes (481,512) (2,087,556) (1,222,533) (4,424,891) Provision for income taxes -- (20,477) -- (18,195) - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- LOSS FROM CONTINUING OPERATIONS (481,512) (2,067,079) (1,222,533) (4,406,696) - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- DISCONTINUED OPERATIONS Gain on sale of subsidiary 1,759,313 -- 1,759,313 -- Gain (loss) from discontinued operations (net of applicable income tax of $0) 396,363 (338,251) 818,414 (1,020,825) Gain on disposal on debt -- -- -- 2,051,215 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- GAIN (LOSS) FROM DISCONTINUED OPERATIONS 2,155,676 (338,251) 2,577,727 1,030,390 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- NET INCOME (LOSS) 1,674,164 (2,405,330) 1,355,195 (3,376,306) OTHER COMPREHENSIVE INCOME - FOREIGN CURRENCY TRANSLATION (426,375) 518,080 112,727 122,124 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- COMPREHENSIVE LOSS 1,247,789 (1,887,250) 1,467,922 (3,254,182) - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- INCOME (LOSS) PER SHARE: Basic and diluted from continuing operations (0.03) (0.19) (0.09) (0.41) Basic and diluted from discontinued operations 0.15 (0.03) 0.18 0.10 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- Net Income (loss) per share 0.12 (0.22) 0.09 (0.31) - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- Basic weighted average number of common shares outstanding 14,295,410 10,795,410 14,256,736 10,718,504 Diluted weighted average number of common shares outstanding 14,295,410 10,795,410 14,256,736 10,718,504 - ---------------------------------------------------- ------------- ------------------ ------------- ----------------- The accompanying notes form an integral part of these consolidated financial statements. 4 CHELL GROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 (EXPRESSED IN CANADIAN DOLLARS - UNAUDITED) - ------------------------------ --------------------------------------- ------------------ ------------------- 2003 2002 (restated - Note 6) $ $ - ------------------------------ --------------------------------------- ------------------ ------------------- OPERATING ACTIVITIES Net Income (loss) for the period from continuing operations 1,355,195 (3,376,306) Adjustments to reconcile net loss to net cash used in operating activities: Gain on sale of subsidiary (1,759,314) -- Investment gain (322,740) -- (Gain) loss on disposal/sale of capital assets (104,552) 248,587 Depreciation and amortization 286,643 2,193,456 Interest cost from amortization of discount 62,923 533,804 Gain on settlement of debt -- (2,051,215) Bad debt allowance 150,812 117,240 Due from stockholder -- 227,365 Changes in assets and liabilities: Decrease (increase) in accounts receivable, trade (1,188,084) (1,427,214) Decrease (increase) in inventory 79,827 (80,925) Decrease (increase) in prepaid expenses 87,220 (30,062) Decrease (increase) in other assets (53,396) 129,608 Increase (decrease) in accounts payable and accrued liabilities 1,992,117 3,224,191 Increase (decrease) in accrued interest payable (63,731) 565,450 Increase (decrease) in deferred revenue (137,121) (347,297) Increase (decrease) in income taxes payable (25,617) 53,471 - ---------------------------------------------------------------------- -------- ---------- ------------------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 360,182 (19,847) - ---------------------------------------------------------------------- ------------------ ------------------- INVESTING ACTIVITIES Purchase of property and equipment (101,413) (115,031) Proceeds from disposal of property and equipment 750,308 265,289 Etelligent payment (25,000) -- - ---------------------------------------------------------------------- ------------------ ------------------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 623,895 150,258 - ---------------------------------------------------------------------- ------------------ ------------------- FINANCING ACTIVITIES Bank Indebtedness 353,503 232,111 Net borrowings on line of credit (229,518) (616,646) Borrowings from related parties 512,399 250,000 Borrowing from Logicorp shareholders -- 401,068 Payments to Logicorp shareholders (65,649) -- Repayment of notes and loans payable (857,548) (506,626) - ---------------------------------------------------------------------- ------------------ ------------------- CASH USED IN FINANCING ACTIVITIES (286,813) (240,093) - ---------------------------------------------------------------------- ------------------ ------------------- - ---------------------------------------------------------------------- ------------------ ------------------- - ---------------------------------------------------------------------- ------------------ ------------------- - ---------------------------------------------------------------------- ------------------ ------------------- EFFECTS OF FOREIGN EXCHANGE (6,396) (311,396) - ---------------------------------------------------------------------- ------------------ ------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE 690,868 (421,078) PERIOD FROM CONTINUING OPERATIONS NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE (272,540) 355,338 PERIOD FROM DISCONTINUE OPERATIONS Cash and cash equivalents, beginning of period 327,685 107,258 - ---------------------------------------------------------------------- ------------------ ------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD 746,013 41,518 - ---------------------------------------------------------------------- ------------------ ------------------- Income taxes paid -- -- Interest paid 253,192 349,835 The accompanying notes are an integral part of these consolidated financial statements. 5 CHELL GROUP CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying financial statements for the interim periods are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K of Chell Group Corporation (the "Company") (Commission No. 0-18066), filed with the Securities and Exchange Commission on May 13, 2004. The results of operations for the three and six months ended February 29, 2004 are not necessarily indicative of the results for the full fiscal year ending August 31, 2003. NOTE 2. GENERAL The financial statements of the Company for the three and six months ended February 29, 2004 (the "2004 Second Fiscal Quarter" and "2004 First Fiscal Half"), include the operations of the Company's wholly-owned subsidiaries Chell Merchant Capital Group Inc. ("CMCG"), Chell.com (USA) Inc., and 3484751 Canada Inc. The financial statements also include CMCG's wholly-owned subsidiaries Logicorp Data Systems Ltd. and Logicorp Service Group Ltd., 123557 Alberta Ltd., and 591360 Alberta Ltd., which will be together referred to as "Logicorp" and Logicorp's wholly-owned subsidiary eTelligent Solutions Inc. ("eTelligent). Discontinued operations consist of NTN Interactive Network Inc. ("NTNIN") which was sold on December 15, 2003 and GalaVu Entertainment Network Inc. ("GalaVu") which was sold on April 25, 2003. Effective August 8, 2004, the Company's previously wholly-owned subsidiaries, Logicorp Data Systems Inc., and Logicorp Service Group Inc. (together, "Logicorp") issued common shares to NewMarket Technologies, a publicly-traded company for US$2.1 million, such that NewMarket holds 51% of the outstanding equity securities of Logicorp. In exchange for 51% of these subsidiaries, NewMarket will pay $1.1 million in cash and $1.0 million will be paid to Logicorp according to the terms of a $1.0 million, 24-month promissory note. The financial statements of the Company for the three and six months ended February 28, 2003 (the "2003 Second Fiscal Quarter" and "2003 First Fiscal Half"), include the operations of the Company's wholly-owned subsidiaries CMCG, Chell.com (USA) and 3484751 Canada Inc. The financial statements also include CMCG's wholly-owned subsidiaries Logicorp Data Systems Ltd. and Logicorp Service Group Ltd., 123557 Alberta Ltd., and 591360 Alberta Ltd., which will be together referred to as "Logicorp". Discontinued operations consist of NTNIN (sold December 15, 2003), GalaVu (sold April 25, 2003. Prior period's figures have been reclassified to be consistent with any reclassifications in the current period. 6 NOTE 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144), that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The new rules on asset impairment supersede SFAS 121, Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and portions of Accounting Principles Board Opinion 30, "Reporting the Results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The Company is currently assessing the potential impact of SFAS 144 on the operating results and financial position. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, business combinations can no longer be reflected by using the pooling of interests method of accounting and goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. NOTE 4 - SEGMENT INFORMATION (UNAUDITED) The following describes the performance by segment for the three and six months ended February, 2004 and 2003: - ------------------------------------- -------------------------- ---- --------------------------- FOR THE THREE MONTHS For the Six Months Ended ENDED FEBRUARY February 2004 2003 2004 2003 $ $ $ $ - ------------------------------------- ------------ ------------- ---- -------------- ------------ EXTERNAL REVENUE Systems Integration 5,544,557 10,655,631 14,088,672 16,739,624 - ------------------------------------- ------------ ------------- ---- -------------- ------------ 5,544,557 10,655,631 14,088,672 16,739,624 - ------------------------------------- ------------ ------------- ---- -------------- ------------ OPERATING PROFIT (LOSS) Systems Integration (179,205) (310,094) (336,746) (359,790) Corporate (453,672) (1,770,582) (694,866) (2,599,745) - ------------------------------------- ------------ ------------- ---- -------------- ------------ (632,877) (1,460,488) (1,031,612) (2,959,536) - ------------------------------------- ------------ ------------- ---- -------------- ------------ NET INCOME (LOSS) Systems Integration (281,714) (808,869) (532,879) (1,936,803) Corporate (199,798) (1,258,210) (689,653) (2,469,888) Discontinued operations 2,155,676 (338,251) 2,577,727 1,030,390 - ------------------------------------- ------------ ------------- ---- -------------- ------------ 1,674,164 (2,405,330) 1,355,195 (3,376,306) - ------------------------------------- ------------ ------------- ---- -------------- ------------ 7 - ------------------------------------- ------------ ------------- ---- -------------- ------------ As at FEBRUARY 29, February 2004 28, 2003 $ $ - ------------------------------------- ------------ ------------- ---- -------------- ------------ TOTAL ASSETS Systems Integration 5,955,522 7,901,376 Corporate 2,526,069 1,609,910 Discontinued operations -- 2,566,999 - ------------------------------------- ------------ ------------- ---- -------------- ------------ 8,481,591 12,078,285 - ------------------------------------- ------------ ------------- ---- -------------- ------------ NOTE 5. EARNINGS PER SHARE Earnings per share were calculated in accordance with Statement of Financial Accounting Standards No. 128. The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended February 29, 2004 and February 28, 2003: - ------------------------------------------------------- ------------------------- --- --------------------------- For the Three Months For the Six Months Ended Ended February 28 February 28 2004 2003 2004 2003 $ $ $ $ - ------------------------------------------------------- ------------- ----------- --- -------------- ------------ NUMERATOR: Net loss (numerator for basic and diluted loss per share) from continuing operations (481,512) (2,067,079) (1,222,533) (4,406,696) Net loss (numerator for basic and diluted loss per share) from discontinued operations 2,155,676 (338,251) (2,577,727) 1,030,390 - ------------------------------------------------------- ------------- ----------- --- -------------- ------------ Net loss (numerator for basic and diluted loss per share) 1,674,164 (2,405,330) 1,355,195 (3,376,306) ======================================================= ============= =========== === ============== ============ DENOMINATOR FOR BASIC AND DILUTED LOSS PER SHARE - adjusted weighted average number of shares and assumed conversions 14,295,410 10,785,410 14,256,736 10,718,504 ======================================================= ============= =========== === ============== ============ Basic and diluted loss per share from continuing operations (0.03) (0.19) (0.09) (0.41) Basic and diluted loss per share from discontinued operations 0.15 (0.03) 0.18 0.10 - ------------------------------------------------------- ------------- ----------- --- -------------- ------------ Net Income (loss) per share 0.12 (0.22) 0.09 (0.31) ======================================================= ============= =========== === ============== ============ NOTE 6. GAIN ON SALE OF PROPERTY/ASSETS GAIN ON DISPOSAL OF PROPERTY On December 19, 2003, we sold an approximately 25,000 square foot parcel of land, located at 14 Meteor Drive in Toronto, Ontario, on which stands a 12,500 square foot, one story building. The transaction is outlined below: --------------------------------- ------------ $ --------------------------------- ------------ Proceeds $730,000 NBV of Building and Land 576,016 Commission 43,866 Release costs 5,566 --------------------------------- ------------ Gain from sale of Property $104,552 --------------------------------- ------------ 8 GAIN ON SALE OF SUBSIDIARY Effective the 15th day of December, 2003, the Company sold to NTN Communications, Inc. (Amex: NTN) the assets and certain liabilities of NTN Interactive Network, Inc. The Company sold NTN Interactive Network's assets for approximately US$1.55 million. The consideration was composed of US$250,000 in cash, USD$650,000 in shares of unregistered NTN common stock (approximately 238,000 shares valued at the closing market price on the date of sale which was $2.73 per share). The Company intends to hold the shares of NTN for an indeterminate period of time, no less than the required time for Rule 144 restrictions to be removed. The remainder of the purchase price was based upon the application of unpaid licensing payables (approximating US$650,000) owed to NTN Communications, Inc., at the closing of the transaction. The Company has adopted SFAS 144 and as a result the Fiscal balances have been restated in order to conform with the presentation of Fiscal 2004 financial presentation. Interactive is reported as part of the discontinued business segment (previously entertainment segment). In an effort to streamline and focus the Company's resources on its core business segment of systems integration, all other segments were decided to be discontinued. Interactive had historical been profitable, provided positive cash flows and faced little or no competition; however the organization no longer strategically fit with the Company and the asset were sold. Details of the transaction are detailed below: ---------------------------------- ------------ $ ---------------------------------- ------------ Proceeds Shares $853,125 Loan receivable 328,125 Assets sold (953,267) Liabilities assumed 1,531,330 ---------------------------------- ------------ Gain from sale of subsidiary $1,759,313 ---------------------------------- ------------ NOTE 7. SUBSEQUENT EVENTS [A] SALE OF BUILDINGS AND LAND During the fiscal year ended August 31, 2002, we owned an approximately 29,000 square foot parcel of land, located at 10 Meteor Drive, Toronto, Ontario, on which stands a 14,000 square foot, two story building. We sold this land and building to an unrelated party on March 7, 2004 for approximately $710,000. The Company anticipates a gain of approximately $70,000. [B] LOGICORP ADVANCES During 2003, B.O.T.B., an affiliated company, advanced Logicorp Data Systems $820,000. The advance is due on demand and did not carry a stated interest rate. Due to its long-term nature, the Company has imputed interest on the advance at a rate of 9%. [C] RESIGNATION OF STEPHEN MCDERMOTT (CEO) Effective April 28, 2004, Stephen McDermott resigned his posts of Chief Executive Officer and Chairman of the Board. David Bolink, current Board Member has been appointed Chief Executive Officer and Chairman of the Board. 9 [D] SALE OF LOGICORP Effective August 8, 2004, the Company's previously wholly-owned subsidiaries, Logicorp Data Systems Inc., and Logicorp Service Group Inc. (together, "Logicorp") issued common shares to NewMarket Technologies ("NewMarket"), a publicly-traded company for US$2.1 million, such that NewMarket holds 51% of the outstanding equity securities of Logicorp. In exchange for 51% of these subsidiaries, NewMarket will pay Logicorp $1.1 million in cash at closing. An additional $1.0 million will be paid to Logicorp according to the terms of a $1.0 million, 24-month promissory note. As a result of this transaction, the Company holds the remaining 49% of the outstanding shares of Logicorp. Twelve (12) months following the first anniversary of the purchase of the 51% interest, if Logicorp has achieved annual sales of at least $18,000,000 with at least a breakeven profit, Chell Group will have an option to require NewMarket to acquire the remaining 49% of the sellers remaining stock for a purchase price of $1,900,000 to be paid in NewMarket stock with piggyback registration rights. NewMarket will have an equal right to require the sale of Chell Group's remaining 49% stock position in Logicorp under the same performance conditions. [E]1109822 ALBERTA INC. Subsequent to year end, on May 26, 2004, the Company founded a new Canadian subsidiary corporation, 1109822 Alberta Ltd. This wholly-owned subsidiary was created to act as a holding company for investments in various sectors, including electronic payment processing. 1109822 Alberta Ltd. has purchased 33 Units of a Canadian limited partnership, Tech Income Limited Partnership 1 ("Tech Income") for $495,000 (approximately US$390,000 at current exchange rates). Tech Income was founded in early 2004 with the objective of building products and services to compete in the growing online payment processing industry. Tech Income is currently carrying on business as "Broker Payment Systems" or "BPS". This is an electronic payment transfer system which facilitates payments and transfers of funds securely and in real time to and from equity brokerage firms for investing clients. BPS is currently marketing this system in the United States. Management of the Company (and its subsidiary) believes that the Chell Group can better profit from the expected growth in this sector by pooling resources with Tech Income (and its existing product offering) rather than by moving into this area alone. The most recent information provided to us by Tech Income (as at September 15, 2004) shows that 1109822 Alberta Ltd. holds approximately 32% of Tech Income's issued and outstanding units. This position may be diluted as Tech Income continues to sell units to other investors. The Company expects to account for this under the equity method of accounting. Broker Payment Management Inc., which works with Tech Income in distributing the BPS products and services, has been invested in directly by the Company ($495,000 was advanced on June 18, 2004). Chell Group currently (as at September 15, 2004) holds approximately 19% of Broker Payment Management Inc.'s equity shares. The Company expects to account for this under the cost method of accounting. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Management is responsible for preparing the Company's consolidated financial statements and related information that appears in this Form 10-Q. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and reasonably present the Company's consolidated financial condition and results of operations in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Management has included in the Company's consolidated financial statements amounts that are based on estimates and judgments, which it believes are reasonable under the circumstances. The Company maintains a system of internal accounting policies, procedures and controls intended to provide reasonable assurance, at the appropriate cost, that transactions are executed in accordance with the Company's authorization and are properly recorded and reported in the consolidated financial statements, and that assets are adequately safeguarded. 10 The Company's operations are primarily conducted through its 100% owned subsidiaries: Logicorp Data Systems Ltd. ("LDS"), and Logicorp Service Group Ltd., ("LSG") and LDS wholly-owned subsidiary eTelligent Solutions Inc. ("eTelligent"). The following discussion addresses the financial condition and results of operations of the Company. This discussion should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2003 and with the Company's unaudited consolidated interim financial statements as of February 29, 2004 and for the three and six month periods ended February 29, 2004 and 2002 contained herein. Results for any interim periods are not necessarily indicative of results for any full year. CORPORATE BACKGROUND We are engaged in the business of providing interactive entertainment services and systems integration services. Our core businesses are the systems integration services provided by our Logicorp Data Systems Ltd. subsidiary and the interactive entertainment services provided by our NTN Interactive Network subsidiary. As of February 29, 2004, we had a working capital deficit of $21,954,796 and an accumulated deficit of $50,095,788. We generated revenues of $14,088,672 for the 2004 First Fiscal Half and incurred a net income of $1,355,195. In addition, during the 2003 Fiscal Year, net cash provided by operating activities was $360,182. We are in a transitional stage of operations and, as a result, the relationships between revenue, cost of revenue, and operating expenses reflected in the financial information included in this annual file do not represent future expected financial relationships. Accordingly, we believe that, at our current stage of operations period-to-period comparisons of results of operations are not meaningful. PLAN OF OPERATIONS Our business strategy is to divest ourselves of non-core operating and wind up all non-operating companies. While at the same time refocusing our energies in our core companies and bring these operations to profitable operations. Our core operations are the systems integration segment companies. We will be bringing our corporate entity current with all of its filings and will begin to petition for market status. While all the time looking for new opportunities that may arise in order to increase our value and profitability. We expect our general and administrative costs to increase in future periods due to our operating as a public company whereby we will incur added costs for filing fees, increased professional services and insurance costs. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2004 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 2003. The Company's total revenues for the 2003 First Fiscal Quarter were $5,544,557, compared to $10,655,631 for the 2003 Second Fiscal Quarter, a decrease of $5,111,074 or 48.0%. Logicorp experience extreme decreased sales orders for the quarter. Total cost of sales for the 2004 Second Fiscal Quarter were $3,919,618 compared to $9,531,738 for the 2003 Second Fiscal Quarter, a decrease of $5,612,120 or 58.9%. The decrease results from decreased costs associated with our service sales. 11 Total selling, general and administrative expenses for the 2004 Second Fiscal Quarter were $2,165,411, compared to $2,269,935 for the 2003 Second Fiscal Quarter, a decrease of $104,524 or 4.6%. The decrease can be attributed to decreased staffing costs in Logicorp and Corporate. As a percentage of total revenue these costs increased to 39.1% from 21.3% in the 2003 Second Fiscal Quarter. Interest and bank charges for the 2004 Second Fiscal Quarter were $275,927, compared to $627,069 for the 2003 Second Fiscal Quarter, a decrease of $351,141 or 56%. The decrease results from the discount on the convertible debt being fully amortized. The amortization of the discount for the 2003 Second Fiscal Quarter was $260,322. As a percentage of total revenue these costs decreased to 1.7% from 23.0% in the 2003 Second Fiscal Quarter. There was a $322,740 gain on short-term investments resulting from an increase in the share of the shares being held. The shares were the 238,000 shares of NTN Communications Inc. (Amex:NTN) received from the sale of Interactive's assets. There is no similar transaction in the 2003 Second Fiscal Quarter as the transaction was effective December 15, 2003. There was a $104,552 gain on the disposal of property. This gain resulted from the sale of an approximately 25,000 square foot parcel of land, located at 14 Meteor Drive in Toronto, Ontario, on which stands a 12,500 square foot, one story building. On December 19, 2003, we sold this land and building to an unrelated third party for $730,000. There was no recovery of or provision for income taxes recorded in the 2004 Second Fiscal Quarter compared with a $20,477 recovery of income taxes for the 2003 Second Fiscal Quarter. As the tax provision is based upon the individual companies' taxable income, a minimal provision was incurred, as not all the companies are in a taxable position. There are no deferred tax assets recorded by the Company. As a result of all of the above, the net loss from continuing operations for the 2004 Second Fiscal Quarter was $481,512, compared to net loss of $2,067,079 for the 2003 Second Fiscal Quarter, a decrease of $1,585,567. This loss was primarily the result of increase to the gross margin percentage (29% from 10%), decreased interest costs ($351,142), selling general and administrative costs ($104,524), gains from short-term investments ($322,740), gains from sale of property ($104,552) and decreased depreciation. The gain from discontinued operations for the 2004 Second Fiscal Quarter was $2,155,676, compared to net loss of $338,251 for the 2003 Second Fiscal Quarter, an improvement of $2,493,927. In addition, GalaVu was sold in April 2003 and thus there is no loss ($477,142 for the 2003 Second Fiscal Quarter) associated with this discontinued subsidiary for the 2004 First Fiscal Quarter. The discontinued subsidiary of NTN experienced a net income of $396,363 for the 2004 First Fiscal Quarter, compared to a gain of $140,158 for the 2003 Second Fiscal Quarter. There was a gain of $1,759,313 resulting from the sale on NTN's assets to NTN Communications. As a result of all of the above, the net income for the 2004 Second Fiscal Quarter was $1,674,164, compared to net loss of $2,405,330 for the 2003 Second Fiscal Quarter, a decrease of $4,079,494. The 2004 Second Fiscal Quarter reduced loss resulted primarily from improvements from discontinued operations ($2,493,927), gains from short-term investments ($322,740) and disposal of property ($104,522) and decreased interest costs ($351,142). RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 COMPARED TO THE SIX MONTHS ENDED FEBRUARY 28, 2003. The Company's total revenues for the 2004 First Fiscal Half are $14,088,672, compared to $16,739,624 for the 2003 First Fiscal Half, a decrease of $2,650,952 or 15.8%. Logicorp has experienced decreased sales levels. 12 Total cost of sales for the 2004 First Fiscal Half were $10,612,980 compared to $14,811,114 for the 2003 First Fiscal Half, a decrease of $4,198,134 or 28.3%. Logicorp has experienced decreased sales, but is experiencing sales of higher margin products. Total selling, general and administrative expenses for the 2004 First Fiscal Half were $4,225,026, compared to $4,262,113 for the 2003 First Fiscal Half, a decrease of $37,087 or 9.0%. There are decreased staffing levels that are resulting in decreased costs. Interest and bank charges for the 2004 First Fiscal Half were $618,213, compared to $1,216,769 for the 2003 First Fiscal Half, a decrease of $598,556 or 49.2%. The decrease results from the discount on the convertible debt being fully amortized. The amortization of the discount for the 2003 First Fiscal Half was $520,645. As a percentage of total revenue these costs decreased to 4.4% from 7.3% in the 2003 Second Fiscal Quarter. There was a $322,740 gain on short-term investments resulting from an increase in the share of the shares being held. The shares were the 238,000 shares of NTN Communications Inc. (Amex:NTN) received from the sale of Interactive's assets. There is no similar transaction in the 2003 Second Fiscal Quarter as the transaction was effective December 15, 2003. There was a $104,552 gain on the disposal of property. This gain resulted from the sale of an approximately 25,000 square foot parcel of land, located at 14 Meteor Drive in Toronto, Ontario, on which stands a 12,500 square foot, one story building. On December 19, 2003, we sold this land and building to an unrelated third party for $730,000. There was no recovery of income taxes recorded in the 2004 First Fiscal Half compared with $18,195 provision for income taxes for the 2003 First Fiscal Half. As the tax provision is based upon the individual companies' taxable income, a minimal provision was incurred, as not all the companies are in a taxable position. There are no deferred tax assets recorded by the Company. As a result of all of the above, the net loss from continuing operations for the 2004 First Fiscal Half was $1,222,533, compared to net loss of $4,406,696 for the 2003 First Fiscal Half, an increase of $3,184,163. Even though Logicorp experience decreased sales, the sales were at a higher profit margin, thus resulting in less of a loss. The gain from discontinued operations for the 2004 First Fiscal Half was $2,577,727, compared to net gain of $1,030,390 for the 2003 First Fiscal Half, an increase of $1,547,337. This gain was primarily the result of net income from discontinued operations of $818,414 compared to loss of $1,020,825 an increase of $1,839,239. As a result of all of the above, the net income for the 2004 First Fiscal Half was $1,355,195, compared to net loss of $3,376,306 for the 2003 First Fiscal Half, a decrease of $4,731,501. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital deficit changed from $23,191,579 at August 31, 2003 to $21,954,796 at February 29, 2004, a decrease of $1,236,783. For the 2004 First Fiscal Half, the Company had a net increase of cash of $690,868 compared to a net decrease of $421,078 in the 2003 First Fiscal Half. Cash provided by operating activities for the 2004 First Fiscal Half was $360,182, compared to $19,847 used in operating activities in the 2003 First Fiscal Half. In 2003, the major item that contributed to cash being provided by operating activities was the increase in accounts payable and accrued liabilities of $1,992,117. The major items that contributed to cash being used in operating activities were net income with non-cash expenses added back of $331,033 and the increase in accounts receivable of $1,188,084. In 2003, the major item that contributed to cash being used in operating activities was the net loss with non-cash expenses added back of $2,107,069, the increase in accounts receivable of $1,427,214, the increase in deferred revenue of $347,297. The major sources of cash provided by operating activities included increases in accounts payable and accrued liabilities of $3,224,191 and the increase in accrued interest payable of $565,450. 13 Cash provided by investing activities in the 2004 First Fiscal Half was $623,895 compared to the $150,258 provided by investing activities in the 2003 First Fiscal Half, an increase of $473,637. The increase was primarily the result of the sale of one of the properties owned by the company. In addition the Company paid a $25,000 purchase amount for Etelligent meeting requirements in purchase agreement. Cash used in financing activities in the 2004 First Fiscal Half was $286,813, compared to the $240,093 used in the 2003 First Fiscal Half Our business plan for 2004 contemplates obtaining additional working capital through refinancing or restructuring of our existing loan agreements, reducing operating overhead (which has already begun through workforce consolidation), and the possible sale of some of our existing subsidiaries. Our management is of the opinion that they will be able to obtain enough working capital and that together with funds provided by operations, there will be sufficient working capital for the Company's requirements. CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The Company and its representatives may, from time to time, make written or oral forward-looking statements with respect to their current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties, which could cause the Company's actual results and experiences to differ materially from the anticipated results and expectations, expressed in such forward-looking statements. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the factors that may affect the operating results of the Company are the following: (i) fluctuations in the cost and availability of raw materials, such as feed grain costs in relation to historical levels; (ii) market conditions for finished products, including the supply and pricing of alternative proteins which may impact the Company's pricing power; (iii) risks associated with leverage, including cost increases attributable to rising interest rates; (iv) changes in regulations and laws, including changes in accounting standards, environmental laws, occupational and labor laws, health and safety regulations, and currency fluctuations; and (v) the effect of, or changes in, general economic conditions. This management discussion and analysis of the financial condition and results of operations of the Company may include certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements with respect to anticipated future operations and financial performance, growth and acquisition opportunity and other similar forecasts and statements of expectation. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, should and variations of those words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligations to update or review any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include, without limitation, general industrial and economic conditions; cost of capital and capital requirements; shifts in customer demands; changes in the continued availability of financial amounts and the terms necessary to support the Company's future business. 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INFLATION The rate of inflation has had little impact on the Company's operations or financial position during the six months ended February 29, 2004 and February 28, 2003 and inflation is not expected to have a significant impact on the Company's operations or financial position during the 2003 Fiscal Year. FOREIGN EXCHANGE RISK The Company pays a number of its suppliers, including its licensor and principal supplier, NTN Communications, Inc., in US dollars. In addition the Company holds a large amount of US dollar debt, fluctuations in the value of the Canadian dollar against the US dollar will have an impact on its gross profit as well as its net income. If the value of the Canadian dollar falls against the US dollar, the cost of sales of the Company will increase thereby reducing its gross profit and net income. Conversely, if the value of the Canadian dollar rises against the US dollar, its gross profit and net income will increase. As of February 29, 2004, the Company had outstanding indebtedness of approximately $5.3 million denominated in U.S. dollars. The potential foreign exchange loss resulting from a hypothetical 10% increase for the six months ended February 29, 2004 in the devaluation of the Cdn/US dollar exchange rate would be approximately $530,000. This loss would be reflected in the balance sheet as increases in the principal amount of its dollar-denominated indebtedness and in the income statement as an increase in foreign exchange losses, reflecting the increased cost of servicing dollar-denominated indebtedness. This analysis does not take into account the positive effect that the hypothetical increase would have on accounts receivable and other assets denominated in U.S. dollars. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Section 13a-15(e) and 15d-15(3) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls over financial reporting that occurred during the Company's second fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15 None. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS (a) Exhibits The following list sets forth the applicable exhibits (numbered in accordance with Item 601 of Regulation S-K) required to be filed with this Quarterly Report on Form 10-Q: Exhibit Number Description of Exhibit Location - ------------- ------------------------------------------------------------------------- ------------- 2.1 Stock Purchase Agreement, dated October 1, 1996, among Connolly-Daw Holdings Inc., 1199846 Ontario Ltd., Douglas Connolly, Wendy Connolly and NTN Interactive Network Inc., minus Schedules thereto.................... +1, Exh. 10.1 3.1 Articles of Incorporation, as amended to date p. 59 3.2 By-Laws, as amended to date p. 62 4.1 Specimen Stock Certificate p. 71 10.1 License Agreement, dated March 23, 1990, between NTN Communications, Inc. and NTN Interactive Network Inc. +2, Exh. 10.9 10.2 Stock Purchase Agreement, dated as of October 4, 1994, between NTN Canada and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.)...... +3, Exh. A 10.3 Option, dated as of October 4, 1994, registered in the name of NetStar Enterprises Inc. (formerly, Labatt Communications Inc)................... +3, Exh. B 10.4 Designation Agreement dated as of October 4, 1994, among NTN Canada, Inc., NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.) +3, Exh. C 10.5 Registration Rights Agreement, dated as of October 4, 1994, between NTN Canada and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.) +3, Exh. D 10.6 Promissory Note of NTN Interactive Network Inc. registered in the name of Connolly-Daw Holdings, Inc. +1, Exh. 10.2 10.7 Promissory Note of NTN Interactive Network Inc., registered in the name of 1199846 Ontario Ltd. +1, Exh. 10.3 10.8 Option Agreement, dated October 1, 1996, among Connolly-Daw Holdings Inc., NTN Interactive Network Inc. and NTN Canada, Inc................... +1, Exh. 10.5 10.9 Option Agreement, dated October 1, 1996, among 1199846 Ontario Ltd., NTN Interactive Network Inc. and NTN Canada, Inc. +1, Exh. 10.6 10.10 Registration Rights Agreement, dated October 1, 1996, among NTN Canada, Inc., Connolly-Daw Holdings Inc. and 1199846 Ontario Ltd................. +1, Exh. 10.4 10.11 Employment Agreement dated as of August 31, 1994, between NTN Interactive Network Inc. and Peter Rona 16 Exhibit Number Description of Exhibit Location - ------------- ------------------------------------------------------------------------- ------------- +4, Exh. 10.11 10.12 Management Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Connolly-Daw Holdings Inc. +4, Exh. 10.12 10.13 Employment Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Douglas Connolly +4, Exh. 10.13 10.14 Employment Agreement dated October 1, 1996, between Magic Lantern Communications Ltd. and Wendy Connolly +4, Exh. 10.14 10.15 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.15 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. +5, Exh. 10.16 10.17 General Security Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.17 10.18 Securities Pledge Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.18 10.19 Certificate to the Escrow Agent certifying that the conditions of Closing have been satisfied or waived. +5, Exh. 10.19 10.20 Certificate to the Escrow Agent certifying that the conditions of Closing have not been satisfied or waived. +5, Exh. 10.20 10.21 Occupancy and Indemnity Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.21 10.22 Order of the Ontario Superior Court of Justice, dated September, 1999, approving the transaction contemplated herein, and vesting in the Purchaser the right, title and interest of GalaVu and the Receiver, if any, in and to the Purchased Assets, free and clear of the right, title and interest of any other person other than Permitted Encumbrances....... +5, Exh. 10.22 10.23 Bill of Sale, dated September 13, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.23 10.24 Covenant of Networks North Inc. for valuable consideration to allot and issue and pay to the Receiver 100,000 common shares in accordance with the Purchase Agreement date September 10, 1999, between 1373224 Ontario Limited and the Receiver +5, Exh. 10.24 10.25 Agreement of Purchase and Sale dated August 4, 2000 by and among Networks North Inc., Networks North Acquisition Corp., Chell.com Ltd. and Cameron Chell . +6, Exh. A 10.26 Valuation of Chell.com Ltd. as of May 31, 2000 by Stanford Keene......... +6, Exh. B. 10.27 Share Purchase Agreement by and among Chell Group Corporation, Chell Merchant Capital Group, Inc., Melanie Johannesen, Randy Baxandall, Morris Chynoweth, Elaine Chynoweth, the Johannesen Family Trust, the Baxandall Family Trust, the Merc Family Trust, Logicorp Data Systems Ltd., 123557 Alberta Ltd., Logicorp Service Group Ltd. and 591360 Alberta Ltd................................................................ +7, Exhibit 2.1 17 Exhibit Number Description of Exhibit Location - ------------- ------------------------------------------------------------------------- ------------- 10.28 Share Purchase Agreement, dated as of April 25, 2003 between DVOD Networks Inc., and Chell Group Corporation, minus schedules thereto; 10.29 Assignment of Debt and Security, dated April 25, 2003 between Chell Group Corporation and DVOD Networks Inc; 10.30 Assignment of Debt and Security, dated April 25, 2003 among NTN Interactive Network Inc., DVOD Networks Inc and GalaVu Entertainment Network Inc.; 10.31 Form of Assignment of Debt and Security, dated April 25, 2003 among 488605 Ontario Limited, Ruth Margel and DVOD Networks Inc., minus schedules thereto. 10.32 Stock Purchase Agreement dated as of August 2, 2004, by and among +5, Exh. 10.25 NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd. 10.33 Bonus Agreement entered into August 2, 2004, by and between the +5, Exh. 10.26 Registrant and NewMarket Technology. 10.34 Form of Promissory Note issued by NewMarket Technology, Inc. to Logicorp +5, Exh. 10.27 Data Systems, Ltd. 10.35 Unanimous Shareholders Agreement dated August 2, 2004 by and among +5, Exh. 10.28 NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd. 10.36 Registration Rights Agreement dated as of August 2, 2004, is entered into +5, Exh. 10.29 by and among NewMarket Technology, Inc., and the Registrant. . . . . . 21 List of Subsidiaries p. 19 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - ---------------- +1 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's Current Report on Form 8-K (Date of Report: October 2, 1996) (File No. 0-18066), filed on = October 17, 1996. +2 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Annual Report on Form 10-K of NTN Communications, Inc., for its fiscal year ended December 31, 1990) (File No. 2-91761-C), filed on April 1, 1991. +3 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's Current Report on Form 8-K (Date of Report: October 4, 1994) (File No. 0-18066), filed on = October 18, 1994. +4 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's Annual Report on Form 10-K (Date of Report: November 27, 1996) (File No. 0-18066), filed on = December 16, 1996. +5 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's 8-K (Date of Report: September 13, 1997) (File No. 0-18066), filed on December 16, 1996. = 18 +6 All Exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Definitive Proxy Statement on Form 14A of the Registrant (File No. 000-18066), filed with the Securities and Exchange Commission on August 8, 2000. +7 All Exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Company's Current Report on Form 8-K (Date of Report: December 13, 2001) (File No. 0-18066), filed on December 28, 2001. ++ Filed electronically pursuant to Item 401 of Regulation S-T. Exhibit 21. List of Subsidiaries of Chell Group Corporation as at February 29, 2004 Name of Subsidiary(1) Jurisdiction of Incorporation - ------------------------------------------------------------------ ----------------------------- Chell Merchant Capital Group, Inc...........................................................................Ontario Logicorp Data Systems Ltd. (2) .............................................................................Alberta Logicorp Service Group Ltd. (2) ............................................................................Alberta 123557 Alberta Ltd. (2) ....................................................................................Alberta 591360 Alberta Ltd. (2) ....................................................................................Alberta eTelligent Solutions Inc. (3) ..............................................................................Alberta HBA Holdings Inc. (formerly known as NTN Interactive Network Inc)...........................................Canada 1113659 Ontario Ltd. ("Viewer Services) (4).................................................................Ontario 3484751 Canada Inc..........................................................................................Canada Chell.com (USA) Ltd.........................................................................................Nevada - ---------- NOTES: (1) Unless otherwise indicated, all named entities are wholly-owned subsidiaries of Chell Group Corporation. (2) Wholly-owned subsidiary of Chell Merchant Capital Group. (3) Wholly-owned subsidiary of Logicorp Data Systems Ltd... (4) Wholly-owned subsidiary of NTN Interactive Network Inc. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHELL GROUP CORPORATION By /s/ David Bolink Dated: November 30, 2004 ------------------------ DAVID BOLINK CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ David Bolink Dated: November 30, 2004 ------------------------ DAVID BOLINK CHIEF EXECUTIVE OFFICER By /s/ David Bolink Dated: November 30, 2004 ------------------------ DAVID BOLINK CHIEF ACCOUNTING OFFICER 20