UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended: AUGUST 31, 2002

                                       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: 0-18066

                             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.)

         800 3RD AVE., 21ST FLOOR, NY, NY                       10022
     (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (416) 675-0874

        Securities registered pursuant to Section 12(b) of the Act: NONE

Securities  registered  pursuant to Section 12(g) of the Act: COMMON STOCK,  PAR
VALUE US$0.0467

      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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      Aggregate  market  value  (i.e.,  last  price)  of  voting  stock  held by
non-affiliates  of the Registrant,  as of April 7, 2004 US$275,000  based on the
closing sale price of US$0.02 on April 7, 2004.

      Indicate  the  number of shares  outstanding  of each of the  Registrant's
classes of common stock, as of April 7, 2004 13,795,907  shares of common stock,
par value US$0.0467 per share

      DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>


                           FORWARD LOOKING STATEMENTS
                           --------------------------

      THIS  ANNUAL  REPORT ON FORM 10-K AND THE  DOCUMENTS  INCORPORATED  HEREIN
CONTAIN   "FORWARD-LOOKING   STATEMENTS"  WITHIN  THE  MEANING  OF  THE  PRIVATE
SECURITIES  LITIGATION  REFORM  ACT OF  1995.  SUCH  FORWARD-LOOKING  STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
THE ACTUAL  RESULTS,  PERFORMANCE OR  ACHIEVEMENTS  OF THE COMPANY,  OR INDUSTRY
RESULTS,  TO BE MATERIALLY  DIFFERENT  FROM ANY FUTURE  RESULTS,  PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING  STATEMENTS. WHEN USED
IN THIS  ANNUAL  REPORT,  STATEMENTS  THAT  ARE NOT  STATEMENTS  OF  CURRENT  OR
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, THE WORDS "PLAN",  "INTEND",  "MAY," "WILL," "EXPECT," "BELIEVE",
"COULD," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR SIMILAR EXPRESSIONS OR OTHER
VARIATIONS   OR   COMPARABLE   TERMINOLOGY   ARE   INTENDED  TO  IDENTIFY   SUCH
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. EXCEPT
AS  REQUIRED  BY LAW,  THE  COMPANY  UNDERTAKES  NO  OBLIGATION  TO  UPDATE  ANY
FORWARD-LOOKING  STATEMENTS,  WHETHER  AS A RESULT  OF NEW  INFORMATION,  FUTURE
EVENTS OR OTHERWISE.

ANY  REFERENCE TO "CHELL",  THE COMPANY OR THE  REGISTRANT,  WE, OUR OR US MEANS
CHELL GROUP CORPORATION, INC. AND ITS SUBSIDIARIES.


<PAGE>


                                TABLE OF CONTENTS

                                 FORM 10-K INDEX

                                                                            PAGE

                                     PART I

Item 1.    Business..........................................................  1
Item 2.    Properties........................................................  9
Item 3.    Legal Proceedings................................................. 10
Item 4.    Submission of Matters to a Vote of Security Holders............... 12

                                    PART II

Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters............................................... 12
Item 6.    Selected Financial Data........................................... 13
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................... 14
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk........ 25
Item 8.    Financial Statements and Supplementary Data....................... 26
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.......................................... 26
Item 9A.   Controls and Procedures........................................... 27

                                   PART III

Item 10.   Directors and Executive Officers of the Registrant................ 28
Item 11.   Executive Compensation............................................ 30
Item 12.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters................................... 33
Item 13.   Certain Relationships and Related Transactions.................... 34
Item 14.   Principal Accountant Fees and Services............................ 35

                                    PART IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K... 36


<PAGE>


                                     PART I

EXCHANGE RATES

      The currency  amounts in this Annual  Report on Form 10-K,  including  the
financial  statements,  are, unless otherwise  indicated,  expressed in Canadian
dollars  ("Cdn$").  This Form 10-K contains  translations  of certain amounts in
Canadian dollars into United States dollars ("US$") based upon the exchange rate
in effect at the end of the period to which the amount relates,  or the exchange
rate on the date specified.  For such purposes, the exchange rate means the noon
buying  rate in New  York  City for  cable  transfers  in  Canadian  dollars  as
certified  for customs  purposes by the  Federal  Reserve  Bank of New York (the
"Noon   Buying   Rate").   These   translations   should  not  be  construed  as
representations  that the Canadian dollar amounts  actually  represent such U.S.
dollar amounts or that Canadian  dollars could be converted into U.S. dollars at
the rate indicated or at any other rate. The Noon Buying Rate at the end of each
of the five years ended  August 31, the average of the Noon Buying  Rates on the
last day of each month  during  each of such  fiscal  years and the high and low
Noon Buying Rate for each of such fiscal years were as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                             Fiscal Year Ended August 31,

                         2004(1)         2003           2002           2001           2000           1999           1998
<S>                    <C>            <C>            <C>            <C>            <C>            <C>            <C>
At end of period       Cdn$1.3113     Cdn$1.3857     Cdn$1.5588     Cdn$1.5508     Cdn$1.4715     Cdn$1.4965     Cdn$1.5722
Average for period         1.3245         1.4822         1.5724         1.5284         1.4714         1.4949         1.4390
High for period            1.3632         1.5778         1.6003         1.5825         1.4955         1.5135         1.5770
Low for period             1.2960         1.3523         1.5317         1.4685         1.4489         1.4760         1.4100
</TABLE>

(1)   Through April 6, 2004.


On April 6, 2004 the Noon Buying Rate was Cdn $1.3093.


ITEM 1. BUSINESS.

OVERVIEW

        GENERAL

        At August 31, 2002, we were engaged in the business of providing systems
integration  and  interactive  entertainment.  Our  business is conducted in our
wholly-owned  operating   subsidiaries.   At  such  date,  we  provided  systems
integration  services  through our  Logicorp  Data  Systems  Ltd.  and  Logicorp
Services Group Ltd.  subsidiaries  (collectively  referred to as "Logicorp") and
eTelligent Solutions Inc. ("eTelligent"); and interactive entertainment services
through  our NTN  Interactive  Network  Inc.  ("NTN")  and GalaVu  Entertainment
Network Inc. ("GalaVu") subsidiaries.

        We sold GalaVu on April 25, 2003 and effective December 15, 2003 we sold
certain  assets and  liabilities of NTN. We  discontinued  the operations in our
merchant capital services subsidiaries comprised of Chell Merchant Capital Group
("CMCG") and Chell.com USA,  during February 2001; CMCG was then used to acquire
Logicorp in January 2002.

        We were  incorporated  on May 12, 1986 pursuant to the laws of the State
of New York as TrioSearch, Inc. In June 1988, we changed our name to NTN Canada,
Inc. In March 1998 we changed our name to Networks  North Inc.  and in September
2000, changed our name to Chell Group Corporation. Our head office and principal
place of business is located at 14 Meteor Drive, Toronto,  Ontario, M9W 1A4. Our
registered  office is located at c/o Reitler Brown LLC, 800 Third  Avenue,  21st
Floor, New York, New York, 10022.

                                       1
<PAGE>


        Through  August  31,  2001,   our  management   employed  an  aggressive
acquisition and disposition strategy. During the year ended August 31, 2002, our
management   employed  a  strategy  of  building  and  maintaining  our  current
operations.

        In October  1996,  we  acquired  all of the  outstanding  stock of Magic
Lantern  Communications Ltd., an Ontario corporation,  and its subsidiaries.  In
August 1997, we acquired  through Magic Lantern certain business assets of Image
Media Ltd. and 802117 Ontario Inc., operating as Pilot Software. Effective March
18, 2002, we sold all of the outstanding  stock of Magic Lantern  Communications
Ltd. for Cdn$1.85 million in cash.

        As of June 1999, we acquired all of the  outstanding  stock of Interlynx
Multimedia  Inc.,  an Ontario  corporation.  Effective  June  2001,  we sold our
interest in Interlynx for $50,000 cash and a $45,000 note.

        In September  1999,  we acquired  substantially  all of the property and
assets (excluding accounts  receivable) of GalaVu Entertainment Inc., an Ontario
corporation. In April 2003, we sold GalaVu for $170,000 and a note for $325,000.

        In September 2000, we acquired  certain assets and the following  shares
from  Chell.com,  a corporation  the sole  stockholder  and director of which is
Cameron Chell,  our former  Chairman of the Board of Directors,  President,  and
Chief Executive Officer,  for an aggregate purchase price of US$27,002,086:  (a)
480,000 shares of cDemo which then  represented  approximately  14.3% of cDemo's
issued and  outstanding  stock;  (b) 875,000  shares of Engyro  Inc.  which then
represented  approximately 34% of Engyro's issued and outstanding stock; and (c)
100% of the issued and  outstanding  stock of  Chell.com  (USA)  Inc.,  a Nevada
corporation. See "Certain Relationships and Related Party Transactions."

        Effective  January 1, 2002,  we acquired  through CMCG all of the issued
and outstanding  shares of 123557 Alberta Ltd. and 591360 Alberta Ltd. which own
1/3 of the shares of Logicorp Data Systems Ltd., and Logicorp Service Group Ltd.
respectively.  The  remaining  2/3 of the shares of  Logicorp  Data  Systems and
Logicorp Service Group were acquired directly by CMCG.

        On March 18, 2002,  we sold our  educational  video and media  resources
business,  which was  conducted  through our Magic  Lantern  subsidiary  and its
subsidiaries.

        Effective  December 15, 2003 we sold certain  assets and  liabilities of
NTN to NTN Communications,  Inc. ("NTN  Communications"),  an unaffiliated third
party from which NTN licenses  portions of its  technology.  The purchase  price
consisted of US$250,000 in cash, US$650,000 in stock of NTN Communications,  and
additional  cash based on working  capital at closing.  The  purchase  price was
offset by approximately  US$700,000 owed by NTN to NTN Communications under this
license agreement.  We believe that the interactive  entertainment industry does
not represent the growth markets that we wish to develop.

        Until April 30,  2001,  Chell.com  USA was an  operating  company in the
merchant  services.  Since then and thru  August 31,  2002,  we have not had any
operations in merchant services.

        Engyro and cDemo were  investment  companies that were invested in under
our  merchant  services  segment.  We have no  further  plans to  develop  these
companies.  We held shares in these companies as investments  which were written
down during the fiscal year ended August 31, 2001 to zero.

        BUSINESS SEGMENTS

        Systems  Integration  is an area of business  in which our  subsidiaries
offer systems  solutions to companies of various sizes.  These  solutions can be
through the delivery and installation of computer  hardware  solutions;  through
offering   services  to  companies  to  aid  in  their  business   processes  or
infrastructures or through  personalized  solutions aided for growing technology
with their organization.

        Interactive Entertainment is an area of business that we have decided to
divest  ourselves of in order to focus our attention on the systems  integration
as is seen with the subsequent  sales of GalaVu and NTN. This segment was viewed
as an  area of  business  in  which  we  could  use our  technology  to  provide
entertainment  to the end user.  In  addition  to being a benefit the end users,
this entertainment  would allow for the interaction with other users or just for
their own benefit.

                                       2
<PAGE>


        Merchant  Services  was  viewed  as an area in which  we  could  provide
financing and  operational  expertise to growing  companies in order to aid them
with their  development  and growth.  This segment has been  discontinued by the
closing down of our CMCG subsidiary's operations.

        ORGANIZATIONAL STRUCTURE

        During the year ended August 31, 2002, we conducted our business through
five  material  operating  subsidiaries  or  subsidiary  groups and three  other
companies  in  which  we held  investments.  The  following  is a list of  these
subsidiaries or groups and investments,  a designation of the business  segments
in which each then operated,  and the percentage of our revenue  attributable to
such subsidiary or group of subsidiaries or investment:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                          PERCENTAGE OF REVENUE
                                                                           FOR THE YEAR ENDED
WHOLLY-OWNED SUBSIDIARIES                    BUSINESS SEGMENT                AUGUST 31, 2002
====================================================================================================

SUBSIDIARIES OR SUBSIDIARY GROUPS                                       ACTUAL        PROFORMA(1)
---------------------------------                                       ------        ----------
<S>                                     <C>                              <C>             <C>
     Logicorp                           Systems Integration              94.9            70.6
     eTelligent                         Systems Integration               5.1             3.7
     NTN (sold December 2003)           Interactive Entertainment         0.0            13.6
     GalaVu (sold April 2003)           Interactive Entertainment         0.0            12.1
     CMCG                               Merchant Services                 0.0             0.0

INVESTMENT COMPANIES

     Engyro, Inc.                       Other                             0.0             0.0
     cDemo Inc.                         Other                             0.0             0.0
======================================================================================================
</TABLE>

(1)     The  operations of NTN were sold on December 15, 2003. We sold GalaVu on
        April 25, 2003. We discontinued the operations of CMCG in February 2001.
        CMCG was then used to acquire Logicorp in January 2002.

        We  believe  that we  currently  beneficially  own less than 5.0% of the
outstanding  securities  of  Engyro  and  cDemo.  As a  result  of our  minority
investment in such entities,  future revenues, when and if realized, will not be
included in our total  revenues.  We have no  obligation  to provide  additional
funding or support to such  corporations and believe that such  corporations are
immaterial to our business.

LOGICORP

        Logicorp is a Western Canadian information technology solution provider,
specializing in network infrastructure,  security,  Microsoft Business Solutions
and managed  services.  Our strategy is for our clients to consider us their one
source for product and services,  to meet their entire  network  infrastructure,
security  and  managed  services  needs,  whether it is at a single or  multiple
locations.  We believe our strong  relationship with manufacturers and suppliers
and our commitment to development  and education can be a huge advantage for our
clients. We provide the strategies, solutions, services and products to help our
clients manage the business and technology  complexities of the digital economy,
bringing  together the world's best  technologies  and  processes to address our
clients'  critical  business  imperatives.  Our  goal is to help  clients  solve
complex business issues and achieve results with technology.

IT  INFRASTRUCTURE.  We offer  comprehensive,  expert development of clients' IT
environments. Through our supply channels and our team of experts, we can assist
a client in creating an IT  infrastructure  that will enable them to concentrate
on managing  their  business  and not the  technology.  Whether  through  remote
monitoring and management, request management, or on-site systems support we can
help a company maintain smooth operation of its network,  regardless of the size
of the network,  by assisting in the management of the desktop  environment  for
end-user communities,  implementation and maintenance of desktop infrastructure,
help-desk  services,  managing  local  area  networks  and  shared  systems  and
technology  lifecycle  management.  We also offer a continuum of fully  managed,
scalable, hosting services,  including assisting clients with the implementation
and  hosting  of  their  enterprise  packaged   applications,   storage  related
consulting,  mainframe management, security and privacy services and web hosting
services.

----------

(1) - See Note 13 of  consolidated  financial  statements for disclosures on
      business acquisitions.

                                       3
<PAGE>


    o   END USER  SERVICES.  Our services are  customized  to manage the desktop
        environment  for  end-user  communities  with  distinct  user  profiles,
        devices,  applications,  work locations or collaboration  needs. Offered
        through a Web portal with flexible  pricing  options.  End user services
        include messaging, digital learning, mobility and mail services.

    o   FIELD  SERVICES.  We offer on-site  implementation  and  maintenance  of
        desktop   infrastructure,   including  hardware  and  software  support,
        install/move/add/change services and warranty management.

    o   HELPDESK  SERVICES.  We provide users with a single point of contact for
        problem and service requests.  These services enable direct  interaction
        between the desktop user and EDS' technical support organizations, which
        leverage both human and technical resources.

    o   INFRASTRUCTURE  SERVICES.  We manage  local  area  networks  and  shared
        systems to defined levels of performance,  including server  management,
        network management, security management and backup/restore services.

    o   TECHNOLOGY LIFECYCLE  MANAGEMENT.  EDS provides a suite of services that
        augment,  support and  increase the value and  productivity  of end-user
        hardware and software. These services include planning and architecture,
        procurement,  global  reporting,  model office services (to test designs
        before    implementation),     security    management    and    business
        continuity/disaster recovery services.

    o   SECURITY AND PRIVACY.  We deliver consulting,  technology,  training and
        managed  solutions  to  ensure  the  privacy,  integrity  and  continued
        availability  of critical  information  and processes.  Our services and
        solutions  include smart cards and biometrics,  perimeter  protection of
        logical  systems,  best practices in business  continuity,  security and
        privacy training and outsourced managed security and privacy.

TRANSFORMATION SERVICES. Our transformation services consist of Business Process
Innovation  Services and Business  Acceleration  Services.  Our Business Process
Innovation   Services  help  clients   achieve  their  business   objectives  by
redesigning and transforming their process and performance  measurement  systems
to effectively  support their  business  strategies.  Our Business  Acceleration
Services optimize  business  processes and deliver solutions that enable clients
to quickly realize business value, generate savings and minimize  implementation
risk.

APPLICATIONS   MANAGEMENT   AND   DEVELOPMENT   SERVICES.   Our  services   help
organizations plan, develop, integrate and manage custom applications,  packaged
software and industry-specific  solutions.  We offer applications management and
development  services on an outsourced or out-tasked basis.  Services range from
outsourcing of all application  development and management to implementation and
management of Logicorp-owned or third-party industry applications.  Our services
are supplemented by our  industry-specific  applications for the communications,
financial,  health care and transportation industries, as well as for government
clients.

SERVICES CONSULTING

        Services  Consulting  consist of a variety of  innovative  and  scalable
solutions from enterprise strategy through  application design,  development and
deployment. Our services encompass the management and deployment of disciplines,
competencies and capabilities within the following areas: Applications Services,
Applied Value Chain Services,  Business Process Innovation Services and Business
Acceleration Services.

    o   APPLICATION   DEVELOPMENT  AND  SUPPORT.  We  create  new  applications,
        providing  full  lifecycle  support  through  delivery.  We  define  the
        application requirements, analyze application characteristics, implement
        to a  production  environment  and monitor  performance  for a warranted
        time.

    o   APPLICATION  SELECTIVE  OUTSOURCING.  We offer full  support  for either
        specific  applications  or an entire  application  portfolio.  An expert
        Logicorp team assesses the specified applications,  plans the transition
        and provides ongoing management to improve the client's productivity and
        operating efficiency.

    o   CUSTOMER  RELATIONSHIP  MANAGEMENT  SERVICES.  Our services help clients
        create   collaborative,   client-centric   organizations.   We   provide
        assessments,   design  and  architecture,   and  implementation  of  CRM
        solutions to manage the customer experience.

                                       4
<PAGE>


    o   ENTERPRISE  RESOURCE  MANAGEMENT  SERVICES.  Our  services  help clients
        assess  and  optimize  their  core  enterprise  business  processes  and
        applications  globally  in  both  shared  and  dedicated   environments.
        Services include solutions engineering,  enterprise modeling,  real-time
        automation, business intelligence and enterprise-software expertise.

    o   INDUSTRY  PRODUCTS.   Services  include  a  full  range  of  consulting,
        planning,  implementation  and  optimization  to  support  adapting  and
        deploying industry-specific solutions to meet our clients' needs.

BUSINESS PROCESS INNOVATION SERVICES

        Business Process Innovation  Services  facilitates  clients in achieving
their business objectives by redesigning and transforming their people,  process
and  performance  measurement  systems to  effectively  support  their  business
strategies.  We create operational efficiencies and enhancements for our clients
to deliver  products and  services to their  clients as well as  throughout  our
client's business.  Services include the prompt  identification of opportunities
for the greatest  impact,  the  development  of a business case for change,  the
implementation  of  industry-specific  best  practices and the  development of a
phased change  implementation  plan.  Our  competencies  are organized  into the
following practice areas:

    o   INTEGRATION SERVICES. By integrating disparate systems, we offer clients
        greater access to information, systems and tools within their enterprise
        or among other  members of their  trading  community.  Our  capabilities
        include   integration   assessment,    application-to-application    and
        business-to-business integration, building of portals and dashboards and
        workflow integration.

    o   PORTALS AND  DASHBOARDS.  Provides  clients with  immediate,  aggregated
        information in a  personalized  view. We focus on  implementing  secure,
        Web-based   solutions   that   provide  a  single  point  of  access  to
        information, applications and services. This practice combines functions
        from many IT  disciplines,  including  business  intelligence,  document
        management and Intranet site development.

    o   COLLABORATION  SERVICES.  Enables  clients to share and coordinate  data
        with  employees,   customers,  suppliers  and  partners,  build  digital
        communities  and  exchange   information  within   applications,   among
        enterprises and across business relationships. We optimize collaboration
        and improve related business processes through the deployment of leading
        messaging and collaboration technologies.

    o   MOBILE APPLICATIONS. Enables clients to extend information sharing to an
        increasingly  remote work force. Our offerings include Mobile Workplace,
        an integrated  service platform  providing  mobile  employees  real-time
        interactive  access to  workplace  applications,  and Mobile  e-mail and
        Collaboration, extending e-mail access to mobile employees.

    o   WEB  CONTENT  MANAGEMENT.  We design and deploy  innovative  Web content
        management  solutions to help clients manage digital contents to deliver
        a personalized Web experience, enable collaboration and promote re-use.

    o   WEB APPLICATION  DEVELOPMENT.  Allows clients to significantly reduce IT
        costs  and  create  more  responsive  and  effective   organizations  by
        seamlessly connecting information, people, systems and devices. We offer
        a range of  services  using  Microsoft  (R) and  Java  (R) 2  Enterprise
        Edition  (J2EE)  platforms  as  well  as  the  advantages  of  certified
        developers,  proven architectural  frameworks and best practice software
        development methodologies.

    o   MICROSOFT ENTERPRISE SERVICES. We build and deliver innovative solutions
        that leverage Microsoft platforms,  products and tools, with emphasis on
        developer  tools,   server  software,   client  software  and  end  user
        applications.

eTELLIGENT SOLUTIONS INC.

        eTelligent  is a western  Canadian team of business  system  consultants
specializing the in  implementation  and integration  e-business,  CRM (customer
relationship  management) and financial  services solutions from Microsoft Great
Plains.  It is comprised of  professional  accountants,  information  technology
specialists and support staff, who provide implementation,  training and support
services.  eTelligent Solutions has offices in Edmonton and

                                       5
<PAGE>


Calgary,  Alberta.  It has offered successful business solutions to a variety of
business  organizations  for over ten years,  and it  currently  represents  and
supports over 70 Microsoft Great Plains customers throughout Alberta. All of its
employees are certified through the Microsoft Great Plains University.

NTN

        NTN  Interactive  Network.  Our NTN  Interactive  Network  subsidiary is
engaged in the  marketing  and  distribution  of the NTN  Entertainment  Network
services  throughout  Canada.  These  activities are being conducted  through an
exclusive  license  covering Canada granted to NTN Sports Inc.,  (predecessor to
our NTN Interactive Network subsidiary) by NTN Communications, Inc. of Carlsbad,
California, an unaffiliated corporation from which NTN licenses a portion of its
technology ("NTN-US"). The license grants our NTN Interactive Network subsidiary
the right to market  the  products  and  programs  of NTN  Communications,  Inc.
throughout  Canada for a 25-year term ending December 31, 2015.  NTN-US does not
have an equity position in us or in our NTN Interactive Network subsidiary.

        Effective on December 15, 2003, we sold certain  assets and  liabilities
of NTN to NTN-US. In exchange for this business and assets, NTN-US has agreed to
pay  US$1.5   million   (Cdn$2.03   million),   consisting  of  (i)   US$650,000
(approximately  Cdn$853,000) of unregistered common stock (approximately 238,000
shares) of NTN-US  (NTN:AMEX)  valued on the closing market price on the date of
sale and (ii) US$250,000  (approximately  Cdn$328,000) in cash at closing,  less
certain fees due from NTN to NTN-US, such amounts payable in three equal monthly
payments.

        THE NTN ENTERTAINMENT NETWORK

        The NTN  Entertainment  Network is owned and operated by NTN-US and uses
existing  technology to broadcast two-way  interactive live events to subscriber
locations.  The  network  provides  digital  data  transmissions,  which  enable
equipment  and  software at  subscriber  locations  to display text and graphics
programming and to interpret responses from network viewers.  All programming is
produced  at and  transmitted  from the  NTN-US  broadcast  center in  Carlsbad,
California. More than 3,600 restaurants,  lounges, hotels, and other hospitality
sites  across North  America have  subscribed  to these  services and  installed
systems  capable of  receiving  network  broadcasts.  These  subscriber  systems
receive satellite  transmissions  containing updates to the network  interactive
programs,  such that  thousands of patrons at subscriber  locations can interact
with the same programs  simultaneously.  Our NTN subsidiary  markets the network
throughout  Canada  to the  hospitality  industry,  installs  the  systems,  and
provides  technical  and  marketing  support  to network  sites.  Over 400 group
subscribers  are located in Canada.  Designed to be  hardware  independent,  the
network may be  transmitted  through a variety of techniques  including,  direct
satellite,  cable, gateway service, FM sideband,  Internet, TV vertical blanking
interval,  and  telephone.  We currently  use direct  satellite as the method of
transmission.

        NETWORK PROGRAMMING.

        The two-way interactive  programming currently featured over the network
includes a variety of  interactive  sports and trivia  games  permitting  viewer
interaction  and  participation  for 16 hours  each  day.  All  present  network
programming  is  structured  to provide  time for  national,  regional and local
advertisements,  as well as for local inserts,  which permit each  subscriber to
display  announcements  of  promotional  prices or other  events at its business
location.

        NTN PLAY-ALONG GAMES.

        NTN  Play-Along  Games are played in  conjunction  with live,  televised
events. The primary NTN Play-Along Game is QB1, a game of football strategy.

        NTN PREMIUM TRIVIA GAMES.

        NTN Premium Trivia Games are  promotion-oriented  weekly game shows that
usually  require  an  hour  of  participation.  Prizes  are  awarded  to the top
finishers.  Games  among all  participating  subscriber  locations  include  the
following:  Showdown, a general knowledge game; Sports Trivia Challenge,  a game
focused on sports, and Spotlight, a game that quizzes players about the world of
show business and celebrities;  Playback,  a music news, trivia,  song title and
musical  topics game;  and Sports IQ, a weekly  sports  trivia  game.  Half-hour
interactive trivia

                                       6
<PAGE>


games comprise the majority of the Network's programming.  Countdown and Wipeout
are trivia games designed for fast competitive  play among  participants at each
subscriber location.

        INTERACTIVE  EVENTS.  Interactive  Events  is  a  customizable,   hosted
interactive trivia,  polling or question event brought to the customer. An event
can be created with a customer's logos,  graphics and content and will be hosted
by a real host to aid in increasing the enjoyment of the event.

        NTN INTERACTIVE NETWORK MARKET. Our NTN subsidiary positions the network
to prospects and clients as a means of  attracting  patrons (to play the games),
retaining  their  patronage (as they return to play again),  and  increasing the
length of time  patrons  stay in their  establishment.  As the  number of repeat
customers and their length of stay increases, the hospitality  establishment has
an increased opportunity to sell additional food and beverage.

        Our NTN  subsidiary's  sales  force  targets the  strongest  hospitality
outlets in  Canada,  including  a number of chain  accounts.  Attractive  rental
packages are in place to support our NTN  subsidiary's  sales  efforts.  Our NTN
subsidiary  promotes  the  network as one of the best and  technically  advanced
forms of on-premises  advertising to this market,  offering long-term repetitive
exposure to a captive, attentive, and enthusiastic audience.

        Each end user receives the  subscriber  system,  including the equipment
and the proprietary software,  from our NTN subsidiary.  In most instances,  the
customer rents the equipment from our NTN  subsidiary.  Our NTN  subsidiary,  in
turn, purchases equipment from several suppliers.  Following installation,  each
end user pays a monthly fee to our NTN subsidiary for the network services.

GALAVU ENTERTAINMENT NETWORK INC.

        Our  GalaVu   subsidiary   (sold  April  2003)  is  a   technology-based
entertainment  provider of interactive in-room  entertainment systems to hotels.
At August 31, 2002,  our GalaVu  subsidiary  was  installed in over 200 Canadian
hotels,  primarily small and mid sized.  GalaVu's interactive system is based on
proprietary  technology  and  provides  a  wide  range  of  affordable,  in-room
entertainment   packages.   Marketed  to  guests   under  the   "Round-the-Clock
Entertainment"  brand,  GalaVu's suite of products  include  Hollywood movies on
demand, premium television programming,  and other information and entertainment
services  designed to enhance the stay of hotel guests while generating  revenue
for our GalaVu subsidiary and its hotel partners.

        Pursuant to a Share Purchase  Agreement dated April 25, 2003, we sold to
DVOD  Networks  Inc.,  an Ontario  corporation  ("DVOD"),  all of the issued and
outstanding  shares of  capital  stock of GalaVu  for  $1.00.  Concurrently,  we
assigned  to DVOD or  caused  our  subsidiaries  to  assign  to DVOD,  for $2.00
promissory  notes and other  receivables  of GalaVu in the  aggregate  amount of
$1,672,608.  In addition,  488605 Ontario  Limited,  a  non-affiliated  Canadian
corporation  ("488605")  and an  individual  assigned a $375,000 note payable by
GalaVu in return  for  $170,000.  This  amount  was paid by DVOD to us and a new
$325,000 note was issued to one of our subsidiaries.

CHELL MERCHANT CAPITAL GROUP

        CMCG  was  set up as a  separate  subsidiary  to be in the  business  of
researching, identifying and acquiring technology companies. CMCG's focus was to
identify  upcoming  technology  trends and create the  effective  infrastructure
required to build out and support these trends.

    ENGYRO

        Engyro is the surviving legal entity resulting from the merger of R Home
Funding Co. Ltd., a Nevada corporation and its wholly owned Delaware subsidiary,
Engyro, Inc. Its headquarters are located in Shelton, Connecticut.  Engyro was a
financial  transaction  engine  designed to support the high demands  created by
rapid growth in the application service Provider industry. We own less than 5.0%
of the stock of Engyro  and the  remaining  equity  of the  company  is owned by
private venture capitalists and Engyro's  management.  The direction and purpose
of the company  may now be very  different  from its  original  intent.  We have
written down our investment to zero as our ownership is less than 5%.

                                       7
<PAGE>


    cDEMO

        cDemo  is a start  up  company  that was  incorporated  in the  State of
Delaware in February  2000.  We own less than 5.0% of the stock of cDemo and the
remainder of the company's  stock is  distributed  as follows:  private  venture
capitalists;  cDemo's management and employees, none of whom are affiliated with
us. Allan Chell,  the brother of Cameron Chell, our former Chairman of the Board
of Directors, President and Chief Executive Officer, is a Director and principal
shareholder of cDemo and it's Vice-President of Strategic Development.

        cDemo plans to  position  itself as a trusted  and  unbiased  electronic
assessment tool and service. To perform a standardized electronic assessment and
listing,  cDemo has researched and developed an assessment  methodology  that is
capable of  "commoditizing"  products,  and displaying  them in a format that is
easy to both read and view. cDemo's unique consortium of technology partners are
producing a  technological  system that we believe  will be capable of tailoring
the cDemo  electronic  assessment  to  industry  and partner  requirements.  The
assessment software will be loaded into a rugged,  handheld tablet.  cDemo plans
to use this tablet  device to collect and transmit an  electronic  demonstration
based on an Internet connection to the cDemo backend database.

GROWTH STRATEGY

        Our growth strategy primarily focuses on increasing the profitability of
our operating companies through process  development and technological  advances
to aid an organization in operating efficiencies, as well as acquiring assets of
or interests in new companies such that we can increase our market share and our
profitability  or acquire  unique  technologies  that our companies can sell and
promote to our existing and potential new clients.

COMPETITION

        The  market for each of our  business  segments  at August  31,  2002 is
rapidly  evolving and highly  competitive.  Although we believe that each of our
business  segments  is  comprised  of a large  number  of actual  and  potential
competitors and that, other than our interactive entertainment business segment,
the business  segments in which we operate  diverse  segments of the interactive
entertainment  and venture capital services  markets will provide  opportunities
for more than one  supplier  of products  and  services  similar to ours,  it is
possible  that a single  supplier  may  dominate  one or more  market  segments.
Competitors  include a wide variety of companies  and  organizations,  including
venture capitalists,  interactive  entertainment  providers,  Internet software,
content, service and technology companies,  telecommunication  companies,  cable
companies and equipment/technology suppliers.

        Our NTN  Interactive  Network  subsidiary  operates  in the  interactive
entertainment services industry. In 1996, we became aware of a new entertainment
system, Sports Active, attempting to enter the hospitality market. Sports Active
offers  only two  programs,  a  football  game and a  trivia  game.  While it is
visually  entertaining,  it requires  audio and we believe this is a significant
drawback in the restaurant  environment in which it is being  marketed.  We have
not found this to be a significant competitive entry.

        With the entrance of motion picture, cable and TV companies, competition
in the interactive entertainment and multimedia industries will likely intensify
in the future.

        GalaVu's  competition  includes other interactive in-room  entertainment
providers.  With  the  development  of  new  satellite  technologies,   and  the
increasing  speed of network  connections,  GalaVu  expects the  competition  to
develop new  services.  These new services may include  digital  programming  on
demand,  enhanced hotel concierge services,  billing presentment and settlement,
and others.  GalaVu  expects  that new  technologies  will lead to  intensifying
competition in the future.

INTELLECTUAL PROPERTY

        Our success is dependent upon software and other  intellectual  property
from third parties. Notwithstanding the foregoing, no one license is material to
our business prospects,  financial  condition or results of operations.  We must
conduct our operations  without  infringing on the  proprietary  rights of third
parties.  We also rely upon  non-patented  trade  secrets and the  know-how  and
expertise  of our  employees.  To  protect  our  licensed  technology  and other
intellectual  property,  we rely primarily on a combination  of the  protections
provided by applicable contract, copyright,  trademark, and trade secret laws as
well as on confidentiality  procedures and licensing  arrangements.  Although we
believe  that we have  taken  appropriate  steps  to  protect  our  non-patented
proprietary rights, including requiring that our employees and third parties who
are  granted  access  to our  licensed  technology  enter  into

                                       8
<PAGE>


confidentiality  agreements  with  us,  there  can be no  assurance  that  these
measures will be sufficient to protect our rights against third parties.  Others
may  independently  develop or otherwise  acquire  non-patented  technologies or
products similar or superior to ours.

        We license from third parties  certain  software and Internet tools that
we  include  in  our  services  and  products.  If any of  these  licenses  were
terminated,  we could be required to seek  licenses  for  similar  software  and
Internet  tools from other third parties or develop these tools  internally.  We
may not be able to  obtain  such  licenses  or  develop  such  tools in a timely
fashion, on acceptable terms, or at all. Companies participating in the software
and Internet technology  industries are frequently involved in disputes relating
to  intellectual  property.  We may in the  future be  required  to  defend  our
intellectual property rights against infringement,  duplication,  discovery, and
misappropriation  by third parties or to defend  against  third-party  claims of
infringement.  Likewise,  disputes  may  arise in the  future  with  respect  to
ownership of technology  developed by employees who were previously  employed by
other  companies.  Any such  litigation or disputes  could result in substantial
costs to, and a  diversion  of effort by,  us. An  adverse  determination  could
subject  us to  significant  liabilities  to third  parties,  require us to seek
licenses  from,  or pay royalties  to, third  parties,  or require us to develop
appropriate  alternative  technology.  Some or all of these  licenses may not be
available to us on  acceptable  terms or at all, and we may be unable to develop
alternate technology at an acceptable price or at all. Any of these events could
have a material adverse effect on our business, prospects,  financial condition,
and results of operations.

EMPLOYEES

        As of March 31, 2004,  we employed 65  employees  in the four  operating
subsidiaries,  consisting of 3 executives,  3 general managers, 29 salespersons,
and 3 in marketing,  5  individuals  involved in  administration,  5 individuals
involved in finance  and  accounting,  17  individuals  involved in  information
services. We believe that our staff is adequate for our anticipated needs.

EMPLOYEE COMPENSATION

        For the years ended August 31, 2002,  2001, and 2000,  among our current
and former executive  officers and directors,  Don Pagnutti,  our then President
had annual  compensation  exceeding  $100,000.  No  long-term  compensation  was
awarded or paid to these individuals in such years.

        As of August 31,  2002,  we did not have any formal  written  employment
agreements  with any of our directors,  executives or other employees and we had
not  issued  any stock  options or stock  appreciation  rights to any  executive
officers  (or  any  other  persons).]  We  may  grant  stock  options  or  stock
appreciation rights to these or other executive officers or other persons in the
future at the discretion of our Board of Directors.

ITEM 2.         PROPERTIES.

        On October 12, 2002, we sold an office  building owned by 3484751 Canada
Ltd. located at 775 Pacific Road, Oakville Ontario to an unrelated 3rd party for
approximately  $560,000.  The  sale  of  the  building  resulted  in a  loss  of
approximately $250,000.

        During the fiscal year ended August 31, 2002, we owned 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
approximately  $730,000  and  recorded  a gain  on  the  sale  of  approximately
$100,000.

        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
sale resulted in an approximate gain of $70,000.

        The properties  located at 10 & 14 Meteor Drive in Toronto,  Ontario and
775 Pacific Road in Oakville had been financed through a mortgage, with the Bank
of Montreal,  dated April 24, 2002. The principal balance outstanding  regarding
these two properties,  as at August 31, 2002 was Cdn$1,166,667.  The property at
14 Meteor was sold December 19, 2003 and our former subsidiary NTN and ourselves
are occupying the property at 10 Meteor.  NTN has signed a 2-month lease for the
premises.

                                       9
<PAGE>


        During the fiscal year ended August 31, 2002, GalaVu leased 8,619 square
feet of office space in a building  located at 3790 - 3820 Victoria Park Avenue,
North  York,  Ontario,  which  lease  expires on October  31,  2002  (CND$77,729
annually).

        During the fiscal year ended August 31,  2002,  Chell  Merchant  Capital
Group leased  12,043 square feet of office space in Suites 301, 500 and 700 in a
building  located  at 630 - 8th  Avenue  S.W.  Calgary,  Alberta,  T2P 1G6.  The
combined  annual rent of the three suites was  Cdn$202,087.  We  subleased  this
space to unaffiliated  third parties upon the  discontinuation of the operations
of this subsidiary for Cdn$150,000 per annum.

        Commencing on December 15, 2002, we started  utilizing  interim space in
Toronto, Ontario at nominal cost.

        Logicorp  leases  approximately  17,502 square feet in Edmonton,  11,800
square feet in Calgary and  approximately  4,500  square feet in  Vancouver  for
approximately annual rent of $220,350,  $115,640 and $62,300  respectively.  The
leases expire as follows: Edmonton - December 2006, Calgary - July 31, 2012, and
Vancouver - March 31, 2007.

        We  believe  that  our  facilities  and  those of our  subsidiaries  are
adequate for their present requirements.

ITEM 3.         LEGAL PROCEEDINGS.

        In the ordinary  course of business we may be subject to litigation from
time to time. Set forth below is a description of material pending litigation to
which we are a party.

        NTN LITIGATION

        On June 18, 1992,  Interactive  Network Inc.  (Interactive)  commenced a
lawsuit  against us, NTN  Communications  and our NTN  subsidiary in the Federal
Court of Canada, Trial Division,  Montreal, Quebec, under the titled INTERACTIVE
NETWORK, INC. v. NTN COMMUNICATIONS, INC., NTN SPORTS, INC. AND NTN CANADA, INC.
This action alleges that Interactive granted NTN Communications the right to use
the Interactive Patent,  which right  Communications then improperly licensed to
our NTN  subsidiary  and us.  Interactive  alleges  that the  license  agreement
between NTN  Communications  and our NTN  subsidiary  and us infringes  upon the
Interactive  Patent.  The action  seeks a  declaration  of the  validity  of the
Interactive Patent, an injunction restraining us from further infringement,  and
either  damages (in an unspecified  amount) or an accounting of profits  derived
from certain games used in Canada. Except for the aforementioned  pleadings,  no
proceedings or discovery have been undertaken in this action.

        We believe that the  licenses  granted to us by NTN  Communications  are
valid and that the  patent  infringement  claims  underlying  this  action  will
ultimately  be  proven to be  unfounded.  We intend  to  vigorously  defend  our
position and to prosecute the Interactive position in the action; however, there
can be no assurance that any or all of these actions will be decided in favor of
us. We believe,  based in part upon the advice of outside,  independent counsel,
that the  costs of  defending  and  prosecuting  these  actions  will not have a
material adverse effect upon our financial position.

        In its Quarterly  Report on Form 10-Q,  for the quarter ended  September
30, 1996, NTN  Communications  stated that "[w]ith the courts [SIC]  assistance,
[Communications]  and [Interactive]  have been able to reach a resolution of all
pending  disputes in the United  States and have  agreed to private  arbitration
regarding any future licensing, copyright or infringement issues which may arise
between the parties." The disputes  referred to in the NTN  Communications  Form
10-Q involved  litigation in the United States involving  allegations similar to
the allegations  underlying the actions  between  Interactive and us. In the NTN
Communication  Form 10-Q,  NTN  Communications  also noted that "no  substantive
action has been taken in the  furtherance  of" the Company Action or Interactive
Action.

        CANADA CUSTOMS AND REVENUE AGENCY LITIGATION

        Canada Customs and Revenue  Agency is currently in  discussions  with us
regarding a  potential  liability  with  respect to  withholding  tax on certain
amounts paid to  Communications.  An assessment  in the amount of  approximately
$550,000 has been made to date by Canada  Customs and Revenue Agency and we have
filed a notice of objection. We believe that we have valid defenses with respect
to these matters and accordingly, no amount has

                                       10
<PAGE>


been  recorded in the  Company's  financial  statements.  In the event that such
matters are settled in favor of Canada Customs and Revenue  Agency,  the amounts
could be  material  and would be  recorded  in the period in which  they  become
determinable.

        LOGICORP DATA SYSTEMS LITIGATION

        On January 27, 2003, a former President of Logicorp Data Systems filed a
wrongful  dismissal  claim  against  Logicorp  Data  Systems  and us. A round of
examinations  for  discovery has been held and  preparation  of the affidavit of
records is underway.  Further discoveries were held during the week of September
8, 2003.  Our  counsel  has  determined  that it is too early in the  process to
evaluate the merits of the case. We have not accrued any liabilities  related to
this claim as of August 31, 2002. We have filed a counter-suit  stating that the
former President was fraudulent in his representation to the Company.

        In June 2001, a former employee filed a wrongful dismissal claim against
LDS.  Subsequently  the employee  offered to settle for which LDS  rejected.  No
further action has taken place since October 2001 and accordingly,  LDS believes
it will prevail and has not accrued  liabilities on the  accompanying  financial
statements related to this claim.

8% CONVERTIBLE NOTES

        On  December  1, 2001,  the  Company  offered to  certain  investors  8%
convertible  notes  up  to a  maximum  amount  of  US$  8,000,000  in a  private
placement.  The  Company  received  approximately   Cnd$6,587,622  through  this
offering.  Under the terms of this  offering,  the  notes are  convertible  into
shares  of  common  stock at a price of the  greater  of (1) 50% of the  average
closing bid prices for the ten trading days prior to  conversion or (2) US$0.50.
These notes were due August 9, 2002.  On April 9, 2002 all of the holders of the
notes  signed  commitments  to  voluntarily  convert  the  notes  based  on  the
conversion  price per the terms of the  agreement,  which was  determined  to be
US$0.95 per share.  This  conversion  was subject to shareholder  approval.  The
conversion of these notes would have  resulted in the issuance of  approximately
4,389,000  shares  representing  approximately  20% of the total  common  shares
outstanding after the issuance, and diluting the current common stockholders. As
of August 31,  2002,  none of these  shares has been issued and the  outstanding
amount of the convertible notes was classified as liabilities. As of December 2,
2002,  the Company,  Joseph Gunnar & Co., LLC ("JGUN"),  the placement  agent in
this  offering,  and the  holders  of  these  notes  entered  into a  settlement
agreement providing that the conversion price for these notes shall equal 85% of
the two day  weighted  average  trading  price of the common  stock for the five
trading days preceding  effective date of the  registration  statement under the
Securities  Act of 1933,  as  amended,  relating  to the resale of the shares of
common stock issuable upon such conversion, provided, that such conversion price
cannot be greater than $0.75 or less than $0.40.  Effective January 7, 2003, the
Company,  JGUN,  Cameron  Chell and the holders of the notes agreed that if this
registration  statement  is not  declared  effective on or prior to September 1,
2003, the noteholders could "put" their shares of common stock to Mr. Chell at a
price of $0.475 per share during the period of December 1 - 14,  2003.  At April
30,  2004,  such  registration  statement  has not been filed.  By letter  dated
December 4, 2003,  the  noteholders  agreed to permit the Company until February
28, 2004 to file all required  filing and periodic  reports under the Securities
Exchange Act of 1934, as amended,  and to amend the period during which they may
"put" their shares  issuable  upon such  conversion  to Mr. Chell from  December
1--14,  2003,  to March 1 - 14, 2004, in exchange for the extension of the "put"
period and the reduction of the conversion  price to $0.25 per share,  provided,
that,  if such  deadline was not  satisfied by the Company  such  agreement  and
reduction  of the  conversion  price  would be null and void.  By letter,  dated
February 26, 2004,  this  deadline and the "put" period were amended to be April
30, 2004 and May 1 - 14, 2004,  respectively.  By letter,  dated April 29, 2004,
the Company  requested that such deadline and "put" period be further amended to
be May 30, 2004 and June 1 - 14, 2004, respectively. In the event that the notes
should be converted into shares of common stock at the conversion price of $0.25
per share,  the  aggregate  number of shares of common  stock  issued  upon such
conversion would be approximately 16,640,000,  representing approximately 54% of
the common stock  outstanding  giving effect to such conversion.  One noteholder
has  indicated  to the Company  that it  believes  that it has a cause of action
against the Company  with  respect to the  foregoing  and its rights  under such
notes, and has threatened to bring such action against the Company. In the event
that the  Company  should be found to be in default of the notes or the  related
agreements,  the  Company may be required to repay the notes in the event that a
settlement is not reached with the noteholders.  In such event, the Company does
not believe that it currently has the necessary  capital  available to repay the
notes and would be  required  to seek  additional  sources  of  capital  or seek
protection  from  creditors.   See  "Management's  Discussion  and  Analysis  of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources".

                                       11
<PAGE>


        Neither our property nor  ourselves  are a party or subject to any other
material  pending  legal  proceedings,  other than ordinary  routine  litigation
incidental to our business.

        To our knowledge no other  proceedings of a material nature have been or
are contemplated against us.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

                                     PART II

ITEM 5.         MARKET  PRICE FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED
                STOCKHOLDER MATTERS.

        Our common stock, par value $.0467 per share (the "Common  Stock"),  was
delisted from the over-the-counter market and was quoted on the NASDAQ Small Cap
Market ("NASDAQ"),  under the symbol "CHEL". It is now traded on the NASDAQ pink
sheets under the symbol "CHEL.PK".  Set forth below is the range of high and low
bid  prices  (US$) for  shares of Common  Stock for each full  quarterly  period
within our three most recent  fiscal years and our quarter of the current  year.
The information reflects inter-dealer prices, without retail mark-ups, markdowns
or commissions and may not necessarily represent actual transactions.

       -----------------------------------------------------------------
                                                  HIGH          LOW
                                                -------       ------
                                                 (US$)         (US$)
       =================================================================
        2000 FISCAL YEAR
                 First Quarter                    2.500         1.500
                 Second Quarter                   3.625         1.375
                 Third Quarter                    7.875         2.250
                 Fourth Quarter                  11.438         3.000
        2001 FISCAL YEAR
                 First Quarter                    7.219         3.000
                 Second Quarter                   4.813         1.813
                 Third Quarter                    2.313         0.938
                 Fourth Quarter                   1.600         0.870
        2002 FISCAL YEAR
                 First Quarter                    1.310         0.510
                 Second Quarter                   1.990         0.520
                 Third Quarter                    2.250         1.190
                 Fourth Quarter                   1.40          0.109
        2003 FISCAL YEAR
                 First Quarter                    0.909         0.109
                 Second Quarter                   0.209         0.019
                 Third Quarter                    0.409         0.109
                 Fourth Quarter                   0.499         0.001
        2004 FISCAL YEAR
                 First Quarter                    0.259         0.001
                 Second Quarter                   0.109         0.01

       -----------------------------------------------------------------

        On April 7, 2004,  the closing price of the Common Shares on NASDAQ pink
sheets was US$0.02.

        As  of  April  7,  2004,  we  had  13,795,907  shares  of  common  stock
outstanding.

        As of the close of business on April 7, 2004,  there were  approximately
228  holders  of  record  of  our  Common  Stock.  We  believe  that  there  are
approximately 1,100 beneficial holders of Common Stock. We are


                                       12
<PAGE>


informed and believe that as of December  10,  2003,  Cede & Co. held  3,406,326
shares of our common stock as nominee for  Depository  Trust  Company,  55 Water
Street,  New York, New York 10004. It is our  understanding  that Cede & Co. and
Depository Trust Company both disclaim any beneficial ownership therein and that
such shares are held for the account of numerous other persons.

        Since its inception in 1986, we have not paid any cash  dividends on our
Common Stock.  However,  we have, in the past,  declared certain stock dividends
and stock splits.  We intend to retain earnings,  if any, to finance  operations
and, therefore, do not expect to declare or pay any cash dividends on the Common
Stock in the foreseeable future.

ITEM 6.         SELECTED FINANCIAL DATA.

        The  following  table  sets  forth  a  summary  of  selected   financial
information regarding the Company and its subsidiaries,  consolidated,  for each
of the five fiscal years ended August 31, 2002.

STATEMENT OF OPERATIONS DATA (CANADIAN DOLLARS):

<TABLE>
<CAPTION>
        --------------------------------------------------------------------------------------------------------------------
                                                               YEAR ENDED AUGUST 31,

                                                   2002              2001            2000           1999            1998
                                                -----------       ---------       ---------      ----------      -----------
                                                   Cdn$              Cdn$            Cdn$           Cdn$            Cdn$
                                                                 Restated(1)
        ====================================================================================================================
<S>                                             <C>             <C>              <C>               <C>              <C>
        Operating revenues                       34,207,924          16,595          13,703          61,804         117,561

        Cost of sales                            31,319,987              --              --              --              --

        Gross profit                              2,887,937          16,595          13,703          61,804         117,561

        Net income (loss)                       (30,751,537)    (11,747,639)     (2,323,621)       (971,497)        618,065

        Net income (loss) per share,
        basic and diluted                             (3.11)          (1.40)          (0.81)          (0.36)           0.24

        Weighted average number of
         shares outstanding, basic
         and diluted                              9,879,836       8,393,589       2,873,042       2,635,050       2,550,805
        ====================================================================================================================

BALANCE SHEET DATA (CANADIAN DOLLARS):

<CAPTION>
        --------------------------------------------------------------------------------------------------------------------
                                                                                  AUGUST 31,
                                                   2002              2001            2000           1999            1998
                                                -----------       ---------       ---------      ----------      -----------
                                                                 RESTATED(1)
        ====================================================================================================================
<S>                                             <C>             <C>              <C>               <C>              <C>
        Total assets                              9,246,755       9,537,219      10,631,974      12,072,282      12,952,836

        Long-term obligations                     2,914,656       2,417,388       1,206,479       1,243,151       1,857,245

        Shareholders' (deficit) equity          (16,988,536)      3,408,066       9,383,419      10,792,767      11,033,178
        ====================================================================================================================
</TABLE>

(1) - See Note 17 to consolidated financial statements


                                       13
<PAGE>


ITEM 7.         MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS.

        THIS  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS AND OTHER PORTIONS OF THIS REPORT CONTAIN  FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND  UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS
COULD  DIFFER   MATERIALLY  FROM  THOSE   ANTICIPATED  BY  THE   FORWARD-LOOKING
INFORMATION.  FACTORS  THAT MAY  CAUSE  SUCH  DIFFERENCES  INCLUDE,  BUT ARE NOT
LIMITED TO, AVAILABILITY AND COST OF FINANCIAL RESOURCES, PRODUCT DEMAND, MARKET
ACCEPTANCE  AND OTHER  FACTORS.  THIS  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S  FINANCIAL  STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN
THIS REPORT.

INTRODUCTION

        CORPORATE BACKGROUND

        We are engaged in the  business of providing  interactive  entertainment
services,   electronic/on-line   products  and  services,   systems  integration
services,  corporate services and merchant capital services. Our core businesses
are interactive  entertainment  services provided by our NTN Interactive Network
and GalaVu Entertainment  Network Inc.  subsidiaries and the systems integration
services provided by our Logicorp Data Systems Ltd. subsidiary.

        As of August 31, 2002, we had a working  capital  deficit of $17,960,854
and an accumulated deficit of $43,909,481.  We generated revenues of $34,207,924
for the 2002 Fiscal Year and  incurred a net loss of  $30,751,537.  In addition,
during  the  2002  Fiscal  Year,  net  cash  used in  operating  activities  was
$9,019,544.

        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.  Much  of the  cost of  revenue  and
operating expenses reflected in our consolidated  financial statements are costs
based  on  costs  associated  with  raising  funds,  retirement  of  debt  and a
write-down  of goodwill.  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 focus on our core operating  companies in order
to make the profitable, to divest ourselves of non-core operating and to wind up
all other non-operating companies, as well as to find new opportunities in order
to increase our value and  profitability.  Our core  operations  are the systems
integration  segment companies.  Additionally,  we intend to become current with
all of our filings and we will begin to petition for market status.

    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.

        The following is our selected  statement of operations  data by business
segment for the years ended August 31, 2002, 2001, and 2000.

                                       14
<PAGE>


================================================================================
                                       2002            2001            2000
                                         $               $               $
                                                     Restated        Restated
================================================================================
REVENUE
  Systems Integration                34,205,614              --              --
  Corporate                               2,310          16,595          13,703
--------------------------------------------------------------------------------
                                     34,207,924          16,595          13,703
--------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
  Systems Integration                (1,162,568)             --              --
  Merchant Service                           --      (5,076,619)             --
  Corporate                         (15,089,159)     (3,115,758)     (1,321,542)
--------------------------------------------------------------------------------
                                    (16,251,727)     (8,192,377)     (1,321,542)
--------------------------------------------------------------------------------
NET LOSS
  Systems Integration               (12,173,848)             --              --
  Merchant Service                           --      (6,524,427)             --
  Corporate                         (16,561,949)     (3,115,758)     (1,367,902)
  Discontinued Operations            (2,015,740)     (2,107,454)       (955,719)
--------------------------------------------------------------------------------
                                    (30,751,537)    (11,747,639)     (2,323,621)
--------------------------------------------------------------------------------
TOTAL ASSETS
  Systems Integration                 6,435,982              --              --
  Merchant Service                           --       1,589,465              --
  Education                                  --         128,986       1,088,157
  Corporate                           2,810,773       3,170,689       1,818,027
  Discontinued Operations                    --       4,648,078       7,725,789
--------------------------------------------------------------------------------
                                      9,246,755       9,537,218      10,631,973
--------------------------------------------------------------------------------
CAPITAL EXPENDITURES
  Systems Integration                   127,737              --              --
  Corporate                               7,355          46,978              --
--------------------------------------------------------------------------------
                                        135,092          46,978              --
--------------------------------------------------------------------------------
DEPRECIATION & AMORTIZATION
  Systems Integration                   425,692              --              --
  Merchant Service                           --         431,967              --
  Corporate                             601,550         162,836          47,055
--------------------------------------------------------------------------------
                                      1,027,242         594,803          47,055
--------------------------------------------------------------------------------
INTEREST EXPENSE
  Systems Integration                   182,209              --              --
  Corporate                          10,077,990       1,146,708          46,360
--------------------------------------------------------------------------------
                                     10,260,199       1,146,708          46,360
--------------------------------------------------------------------------------


        RESULTS OF OPERATIONS

YEAR ENDED AUGUST 31, 2002 COMPARED TO YEAR ENDED AUGUST 31, 2001

        REVENUES.  Revenues  from  product  sales for the 2002  Fiscal Year were
$32,468,400.  As  Logicorp  was  purchased  in the 2002  Fiscal Year there is no
comparison for our fiscal year ended August 31, 2001 (the "2001 Fiscal Year").

        Revenues from service sales for the 2002 Fiscal Year were $1,739,524. As
Logicorp was purchased in the 2002 Fiscal Year there is no comparison.

        Other  revenues were nil,  compared to $16,595 for the 2001 Fiscal Year.
Other revenue  composed of income derived from securities  held. Since there are
no longer such investments, there was a decrease.

        As a result of the  foregoing,  our total revenues in the aggregate were
$34,207,924,  compared  to $16,595  for the 2001  Fiscal  Year,  an  increase of
$34,191,329. The increase is due to the purchase of the Logicorp entities.

        COST OF  REVENUES.  Cost of  revenues  from  product  sales for the 2002
Fiscal Year was  $30,725,499.  As Logicorp was purchased in the 2002 Fiscal Year
there is no comparison for our 2001 Fiscal Year.

        Cost of  revenues  from  service  sales  for the 2002  Fiscal  Year were
$594,488.  As  Logicorp  was  purchased  in the  2002  Fiscal  Year  there is no
comparison.

        As a result of the foregoing,  our total cost of revenues for continuing
operations  was  $31,319,987,  compared  to $nil for the 2001  Fiscal  Year,  an
increase of $31,319,987 or 100%.

        GROSS  PROFIT.  Gross  profit was  $2,887,937  for the 2002  Fiscal Year
compared to $16,595 for the 2001 Fiscal Year.  As Logicorp was  purchased in the
2002 Fiscal Year there is no comparison for our 2001 Fiscal Year.

                                       15
<PAGE>


        EXPENSES.  Selling,  general and  administrative  expenses  for the 2002
Fiscal Year were $7,622,873, compared to $7,258,609 for the 2001 Fiscal Year, an
increase of $364,264 or 5.0%. Of this,  there was increased legal and accounting
fees of $1,324,433 offset by decreasing operating costs of CMCG. These increased
due to the acquisition and the financing raises.

        Depreciation  and amortization for the 2002 Fiscal Year were $1,027,242,
compared to $594,803 for the 2001 Fiscal Year, an increase of $432,439 or 72.7%.
This  increase is the result of $425,692 of  additional  depreciation  resulting
from the  addition of Logicorp  and  eTelligent.  As a  percentage  of our total
revenues, such costs decreased to 3.0% for the 2002 Fiscal Year.

        Loss  from the  impairment  of  goodwill  for the 2002  Fiscal  Year was
$10,489,549  compared to nil for the 2001 Fiscal Year.  The costs arose from the
revaluation  of our  subsidiaries  in the  Logicorp  Group  of  Companies.  As a
percentage of the Company's total  revenues,  such costs were 30.7% for the 2002
Fiscal Year.

        Loss from operations for the 2002 Fiscal Year was  $16,251,727  compared
to $8,192,377 for the 2001 Fiscal Year, an increase of $8,059,350 or 98.4%. This
increase was caused primarily by the impairment of goodwill of $10,489,549.

        Loss on  extinguishment  of debt was  $521,120  for the 2002 Fiscal Year
with no  comparison  for the 2001  Fiscal  Year.  A  beneficial  conversion  and
interest  expense was  calculated as of the date of the agreement to convert the
notes to common shares,  as the difference  between the conversion price and the
fair value of the common stock into which the notes are convertible. The Company
recognized a loss on extinguishment of debt and corresponding additional paid in
capital and the balance of this debt has been retired.

        Interest expense for the 2002 Fiscal Year were $10,123,183,  compared to
$1,146,708  for the 2001 Fiscal Year, an increase of  $8,976,475 or 782.6%.  The
increase was the result of the interest costs of beneficial  conversion features
($6,283,881),  interest costs associated with the financing raises ($1,909,011),
the amortization of the discount on debt  ($589,981),  increased debt levels and
the addition of Logicorp ($193,602). As a percentage of our total revenues, such
costs increased to 29.5% for the 2002 Fiscal Year.

        Loss  on  write-down  of  investments  for the  2002  Fiscal  Year  were
$1,838,140  compared  to nil for the 2001  Fiscal  Year.  The costs  arose  from
writing   off   the    investment    in    Wareforce    and   the   deposit   on
Applicationstation.com.  As a percentage of the Company's total  revenues,  such
costs were 5.4% for the 2002 Fiscal Year.

        The financing  costs,  write-down on investments and the loss on sale of
subsidiaries  are one-time in nature and we don't view them as  occurring  until
similar transactions happen.

        NET INCOME/LOSS. As a result of all of the above, the Company's net loss
for the 2002 Fiscal Year was  $30,751,537  (which  includes  2,015,740 of losses
from  discontinued  operations)  compared  to net  loss  of  $11,747,639  (which
includes  2,107,454 of losses from discontinued  operations) for the 2001 Fiscal
Year, a change of $19,003,898.

        DISCONTINUED  OPERATIONS.   The  Company  sold  Galavu  and  Interactive
subsequent  to August 31, 2002 (See Note 4 of financial  statements  for further
discussion).  Accordingly,  the  Company is  following  the  guidance in APB 30,
"Reporting  the  Results of  Operations-Reporting  the  Effects of Disposal of a
Segment of a Business,  and Extraordinary,  Unusual, and Infrequently  Occurring
Events  and  Transactions,"  and EITF  95-18  "Accounting  and  Reporting  for a
Discontinued Business Segment When the Measurement Date Occurs After the Balance
Sheet Date but Before the Issuance of Financial  Statements".  The operations of
Galavu  and  Interactive,  along  with  Magic,  are  presented  as  discontinued
operations for all periods presented.

YEAR ENDED AUGUST 31, 2001 COMPARED TO YEAR ENDED AUGUST 31, 2000

        REVENUES.

        Other  revenues  were  $16,595,  compared to $13,703 for the 2000 Fiscal
Year, an increase of $2,892 or 21.1%.

                                       16
<PAGE>


        As a result of the  foregoing,  our total revenues in the aggregate were
$16,595,  compared to $13,703 for the 2000 Fiscal Year, an increase of $2,892 or
21.1%.

        COST OF REVENUES. Cost of revenues were nil for network services for the
2001 and 2000 Fiscal Years.

        GROSS  PROFITS.  Gross  profits  were  $16,595  for the 2001 Fiscal Year
compared to $13,703 for the 2000 Fiscal Year, an increase of $2,892 or 21.1%.

        EXPENSES.  Selling,  general and  administrative  expenses  for the 2001
Fiscal Year were $7,258,609, compared to $1,288,190 for the 2000 Fiscal Year, an
increase of $5,970,419 or 463.5%. The increase was caused by the addition of the
Chell Merchant Capital Group and Chell.com (USA). Chell Merchant Capital Group's
and Chell.com (USA)'s selling,  general and administration expenses for the 2001
Fiscal Year were $5,452,378 and $121,715  respectively (There are no comparative
figures for the 2000 Fiscal Year).  There were increased  consulting,  legal and
accounting fees of $298,556, $819,215 and $302,739 respectively. These increased
due  to the  acquisition  and  the  increased  reporting  requirements  for  the
Quarterly reviews. There were also increased operating costs due to the addition
of the two new companies, such as: communications ($202,531), rent and utilities
($117,649),  travel  ($992,595),  office  supplies  ($100,023).  Also  there was
increased advertising and promotion ($418,557) and investor and public relations
($492,846)  associated  with the two new  companies.  In  addition  there was an
increase in salaries and benefits of $1,762,128. These staffing levels have been
reduced and these costs  should not be  incurred in the next fiscal  year.  As a
whole,  Chell  Merchant  Capital Group and Chell.com  (USA)  attributed  for the
increase in selling,  general and administrative  expenses,  however these costs
have been  dramatically  decreased and should not occur with our current company
structure in the next fiscal year.

        Write-off of  leaseholds  was  $355,560 for the 2001 Fiscal Year.  Chell
Merchant Capital Group experienced the one-time write-offs.

        Interest  and bank  charges for the 2001  Fiscal  Year were  $1,146,708,
compared to $46,360  for the 2000 Fiscal  Year,  an  increase of  $1,100,348  or
2,373.5%.  The increase was the result of the increased  debt levels  associated
with the promissory note and convertible debenture. As a percentage of our total
revenues,  such costs  increased to 6910.0% for the 2001 Fiscal Year from 338.3%
for the 2000 Fiscal Year.

        Depreciation  and  amortization  for the 2001 Fiscal Year were $594,803,
compared  to $47,055  for the 2000  Fiscal  Year,  an  increase  of  $547,748 or
1,164.1%.  This  increase is the result of  depreciation  on the  capital  asset
additions  in  2001,  and the  addition  of our  Chell  Merchant  Capital  Group
subsidiary  ($431,697).  As a  percentage  of our  total  revenues,  such  costs
increased  to 3,584.2%  for the 2001 Fiscal Year from 343.4% for the 2000 Fiscal
Year.

        NET INCOME/LOSS. As a result of all of the above, the Company's net loss
for the 2001 Fiscal Year was  $11,747,639  (which  includes  2,107,454 of losses
from discontinued operations) compared to net loss of $2,323,621 (which includes
955,719 of losses from  discontinued  operations)  for the 2000 Fiscal  Year,  a
change of $9,424,018.

        LIQUIDITY AND CAPITAL RESOURCES

        Our  principal   sources  of  liquidity   have  been  cash  provided  by
operations,  sale of subsidiaries,  capital raises, issuance of short-term notes
payable and credit terms from suppliers and  subcontractors.  Our principal uses
of cash have been for operations and working  capital.  We anticipate these uses
will continue to be our principal uses of cash in the future.

        At the 2002  Fiscal Year end, we had the  requisite  working  capital to
fund  our  ongoing  business  operations  based  upon the  losses  that had been
incurred  during the previous two fiscal years.  In addition,  our business plan
for 2003 contemplates  obtaining additional working capital through refinancings
or restructurings of our existing loan agreements, 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.

        We may require  additional  financing in order to implement our business
plan. We currently  anticipate capital  expenditures of at least $250,000 during
the  next  12  months  for the  replacement  of  older  capital  assets.  If the
anticipated   cash  generated  by  our  operations  are   insufficient  to  fund
requirements and losses,  we will need to obtain  additional funds through third
party financing in the form of equity,  debt or bank financing.  There can be no

                                       17
<PAGE>


assurance that we will be able to obtain the necessary  additional  capital on a
timely basis or on acceptable  terms,  if at all. If  additional  capital is not
raised, our business, prospects,  financial condition, and results of operations
would be materially and adversely affected. As a result of a financing involving
equity, the holders of our common stock may experience  substantial dilution. In
addition, as our results may be negatively impacted and thus delayed as a result
of political and economic factors beyond our control,  our capital  requirements
may increase.

        The  following  factors,  among  others,  could cause actual  results to
differ from those  indicated in the above  forward-looking  statements:  pricing
pressures in the industry;  the loss of any of our major customers;  a continued
downturn in the economy in general or in the interactive entertainment sector; a
further  decrease in demand for our products or continued  weak demand for these
products; our ability to attract new customers;  our ability to reduce costs; an
increase in competition  in the market for  interactive  entertainment;  and the
ability  of some of our new  customers  to obtain  financing.  These  factors or
additional  risks and  uncertainties  not known to us or that we currently  deem
immaterial  may impair  business  operations and may cause our actual results to
differ materially from any forward-looking statement.

        Although we believe the  expectations  reflected in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking  statements  after the date of this  report to  conform  them to
actual results or to make changes in our expectations.

        We have  listed  below the  details of all the debt and  borrowings  the
Company has.

        In March 2001, LDS replaced the entered into a line of credit  agreement
with  HSBC Bank of  Canada.  Bank  advances  are  payable  on  demand.  The loan
agreement  covers (i) a demand revolving  operating loan up to $3,000,000;  (ii)
equipment  loan  up to  $300,000;  (iii)  demand  Evergreen  capital  loan/lease
facility up to $300,000; (iv) loan on forward exchange contracts up to $500,000.
The  operating  loan carries an interest rate of 0.82% over the prime rate while
the equipment  and  Evergreen  Capital loans carry an interest rate equal to, at
the  option of the  Company,  (a) 1.05%  over the prime  rate at the end of each
month;  or (b) a fixed rate agreed by both the Bank and the  Company.  Under the
terms of the agreement, the Company can borrow, under the operating loan and 31%
of the forward exchange contracts outstanding,  up to an aggregate of (i) 70% of
acceptable  accounts receivable (ii) 50% of the lesser of cost or current market
value of its inventory  not to exceed  $750,000.  Borrowings  under the line are
subject  to  certain   financial   covenants  and   restrictions  on  additional
indebtedness  and other related items.  As of August 31, 2002, the Company is in
violation of maximum debt to net worth and minimum  working  capital  covenants.
The loans are  secured by the  assets of the  Company  under a general  security
agreement,  and are  guaranteed by the Logicorp  Service  Group Ltd.,  through a
security agreement and are also personally guaranteed by the former shareholders
of LDS.

        LDS aggress to pay $212,290 payable to HP with respect to the settlement
of claims.  The loan is payable  in  monthly  installments  of $4,423 due on the
first day of every month,  commencing on May 1, 2003 through April 2007 carrying
an interest rate of 0%.  Amortization  of imputed  interest is immaterial to the
accompanying consolidated financial statements.

        In November 2001, the Bank of Montreal made available to the Company,  a
Demand  loan,  non-revolving  and/or  Fixed  Rate  Term  Loan in the  amount  of
$1,250,000.  The loan was for payment of the Matched  Fund Term Loan held in the
prior year by The Royal Bank of Canada for properties at 10 Meteor Drive and 775
Pacific Road.  Borrowings are repayable by blended monthly principal payments of
$10,417 and  interest  based on 10-year  term which  matures in  December  2011.
Interest  is  currently  calculated  at Prime Rate plus  1.25%.  The Company may
convert the Demand loan,  non-revolving  advances in part or in total to a Fixed
Rate Term Loan advances, and may be converted back to Demand loan, non-revolving
at maturity of terms.  Fixed Rate Term Loan rates are to be determined  based on
applicable rates at time of draw and the available terms are from 1 to 5 years.

        On  December  1, 2001,  the  Company  offered to  certain  investors  8%
convertible  notes  up  to a  maximum  amount  of  US$  8,000,000  in a  private
placement.  The  Company  received  approximately   Cnd$6,587,622  through  this
offering.  Under the terms of this  offering,  the  notes are  convertible  into
shares  of  common  stock at a price of the  greater  of (1) 50% of the  average
closing bid prices for the ten trading days prior to  conversion or (2) US$0.50.
These notes were due August 9, 2002.  On April 9, 2002 all of the holders of the
notes  signed  commitments  to  voluntarily  convert  the  notes  based  on  the
conversion  price per the terms of the  agreement,  which was  determined  to be
US$0.95 per share.  This  conversion  was subject to shareholder  approval.  The
conversion of these notes would

                                       18
<PAGE>


have resulted in the issuance of  approximately  4,389,000  shares  representing
approximately 20% of the total common shares outstanding after the issuance, and
diluting the current common  stockholders.  As of August 31, 2002, none of these
shares has been issued and the outstanding  amount of the convertible  notes was
classified as liabilities.  As of December 2, 2002, the Company, Joseph Gunnar &
Co., LLC ("JGUN"),  the  placement  agent in this  offering,  and the holders of
these notes entered into a settlement  agreement  providing  that the conversion
price for these notes shall equal 85% of the two day  weighted  average  trading
price of the common stock for the five trading days preceding  effective date of
the  registration  statement  under  the  Securities  Act of 1933,  as  amended,
relating  to the  resale  of the  shares  of  common  stock  issuable  upon such
conversion, provided, that such conversion price cannot be greater than $0.75 or
less than $0.40. Effective January 7, 2003, the Company, JGUN, Cameron Chell and
the  holders of the notes  agreed  that if this  registration  statement  is not
declared effective on or prior to September 1, 2003, the noteholders could "put"
their  shares of common stock to Mr. Chell at a price of $0.475 per share during
the period of  December  1 - 14,  2003.  At April 30,  2004,  such  registration
statement has not been filed.  By letter dated December 4, 2003, the noteholders
agreed to permit the Company until February 28, 2004 to file all required filing
and periodic reports under the Securities Exchange Act of 1934, as amended,  and
to amend the period during which they may "put" their shares  issuable upon such
conversion  to Mr. Chell from  December  1--14,  2003, to March 1 - 14, 2004, in
exchange  for  the  extension  of the  "put"  period  and the  reduction  of the
conversion  price to $0.25 per share,  provided,  that, if such deadline was not
satisfied by the Company such  agreement and reduction of the  conversion  price
would be null and void. By letter,  dated  February 26, 2004,  this deadline and
the  "put"  period  were  amended  to be April  30,  2004 and May 1 - 14,  2004,
respectively.  By letter,  dated April 29, 2004, the Company requested that such
deadline and "put" period be further amended to be May 30, 2004 and June 1 - 14,
2004, respectively.  The Company believes that, as these notes have been held by
the noteholders for an excess of two years,  and none of such noteholders are or
have been  affiliates of the Company during the preceding 90 days, the notes may
be  converted  tat any time and the shares of common  stock  issuable  upon such
conversion  could be resold  pursuant to Rule  144(k),  and,  provided  that the
Company files all filings and periodic reports under the Securities Exchange Act
prior to May 31, 2004, these notes shall be mandatorily converted into shares of
common  stock.  In the event that the notes should be  converted  into shares of
common stock at the conversion price of $0.25 per share, the aggregate number of
shares of  common  stock  issued  upon such  conversion  would be  approximately
16,640,000,  representing  approximately  54% of the  common  stock  outstanding
giving effect to such  conversion.  One  noteholder has indicated to the Company
that it believes that it has a cause of action  against the Company with respect
to the  foregoing and its rights under such notes,  and has  threatened to bring
such action  against the Company.  In the event that the Company should be found
to be in default of the notes or the  related  agreements,  the  Company  may be
required to repay the notes in the event that a  settlement  is not reached with
the  noteholders.  In such event the Company  does not believe that it currently
has the necessary  capital available to repay the notes and would be required to
seek  additional  sources of  capital or seek  protection  from  creditors.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources".

        In addition, since this debt is convertible into equity at the option of
the  note  holder  at  beneficial   conversion  rates,  an  embedded  beneficial
conversion  feature was recorded as a debt discount and will be amortized  using
the effective  interest rate method over the life of the debt in accordance with
EITF 00-27.  Total cost of beneficial  conversion  feature of  Cnd$6,177,647  is
recorded as a discount of the convertible  debt which is fully amortized  during
the year ended August 31, 2002.

        During the year ended August 31, 2003, B.O.T.B., a company controlled by
Cameron Chell, advanced Logicorp Data Systems $820,000, and during the period of
September  1, 2003  through  April 30,  2004,  advanced  Logicorp  Data  Systems
$567,399.  The  advances  are due on demand  and do not carry a stated  interest
rate. Due to their  long-term  nature,  the Company has imputed  interest on the
advances at a rate of 9% per annum.  As of April 30, 2004, the aggregate  amount
of such advances was $1,387,399.

        On January 15, 2001, the Company  received  US$1,500,000  (approximately
Cnd$2,280,000)  in return for a promissory note payable to Naveen Channana.  The
note  bears  interest  at 2% per month and  US$1,000,000  of the  principal  and
accrued interest was due and payable on December 5, 2001. Effective May 6, 2002,
the  remaining  principal and interest  expense was converted to 725,952  common
shares. A beneficial  conversion and interested expense was calculated as of the
date of the agreement to convert the notes to common  shares,  as the difference
between the  conversion  price and the fair value of the common stock into which
the notes are convertible.  The Company  recognized a loss on  extinguishment of
debt and corresponding additional paid in capital in the amount of approximately
$521,000.  During the year ended August 31, 2002, the Company recorded  interest
of $522,564,  made cash payments of $1,520,000 and settled the remaining balance
of $1,282,564 with 725,952 shares of the Company's common stock.

                                       19
<PAGE>


        On October  3,  2000,  the  Company  closed  the sale of a  US$3,000,000
(approximately  Cnd$4,740,000)  Convertible  10%  Debenture  to the VC Advantage
Limited   Partnership   ("VCALP").   As  at  August   31,   2001,   US$1,700,000
(approximately  Cnd$2,635,000)  has been advanced.  This  unsecured  convertible
debenture  is due three  years  from  issue.  The  Convertible  Debenture  bears
interest at 10% per annum, payable upon conversion,  redemption or maturity. The
unpaid  principal  of the  debenture  bears  interest  from the date  that it is
actually  advanced  until  paid.  Interest  is  payable  in cash or stock at our
option.  The Convertible  Debenture is convertible into common stock, at US$3.00
per share,  in amounts  specified  by the VCALP.  The  maximum  number of common
shares VCALP will receive is one  million.  On the close date,  the Company also
issued 50,000  warrants to purchase 50,000 common shares at US$3.00 per share to
VCALP.  The warrants have a term of four years. The fair value of these warrants
totaling approximately $220,000 was computed using the Black-Scholes model under
the following  assumptions:  (1) expected life of 1 1/2 years; (2) volatility of
80%, (3) risk free  interest of 5.87% and (4)  dividend of 0%. This  convertible
debt matured in 2003. The Company can elect to pay the outstanding  loan balance
in shares of common  stock at a fixed  conversion  price of US$3.  In  addition,
since this debt is  convertible  into equity at the option of the note holder at
beneficial  conversion  rates,  an embedded  beneficial  conversion  feature was
recorded as a debt discount and will be amortized  using the effective  interest
rate method over the life of the debt in accordance with EITF 00-27.  Total cost
of beneficial  conversion  feature of $1,728,134  and the relative fair value of
the warrants of $220,000 are recorded as a discount of the lines of credit.  For
the quarter  ended  November  30,  2003,  the  amortization  of the  discount is
immaterial  to the  accompanying  financial  statements.  During  the year ended
August 31,  2001,  the Company  amortized  $563,367 as interest  expense.  As of
August  31,  2001,  the  outstanding  balance  of this  debt net of  unamortized
discount totaled $1,250,233.

        On November 30, 2000 the convertible  debenture was assigned by VCALP to
CALP II Limited Partnership.

        During the 2002 Third Fiscal Quarter, the convertible  debenture held by
CALP II Limited  Partnership ("CALP II") on behalf of Canadian Advantage Limited
Partnership  ("CALP") and Advantage  (Bermuda) Fund Ltd.  ("ABFL") was exchanged
for a note payable to CALP in the amount of  US$1,365,100  and a note payable to
ABFL in the amount of  US$504,900.  These notes provide for payment of principal
and  interest  at the rate of 10% per annum on August  31,  2006.  The notes are
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 terms of the debt were changed and thus resulted in a
decrease in the discount by the amount of $408,155.

        Effective  April 15, 2002,  the Company  entered into an agreement  with
CALP to convert the  principal  amount of the note plus  accrued  interest  into
Common Stock at the rate of US$0.80  pursuant to which CALP  received  1,314,000
shares of the Company.  CALP will receive an additional  442,145 shares upon the
approval of the Company's shareholders.

        Effective  April 15,  2002,  the Company  also entered into an agreement
with ABFL to convert the principal amount of the note plus accrued interest into
Common  Stock at the rate of US$0.80  pursuant  to which ABFL  received  486,000
shares of the Company.  ABFL will receive an additional  163,533 shares upon the
approval of the Company's shareholders.

        Certain  terms of the  convertible  debt has been changed  including the
fixed conversion price reduced from $3 to $0.80. The Company recorded additional
discount of $677,216 and amortized $787,294. As of August 31, 2002,  outstanding
balance of this debt net of unamortized discount totaled $1,360,311.

        The  conversion  of the  debt  has been  approved  and the debt  will be
converted from debt to equity upon the filling of the registration statement and
issuance of the shares.

        The  retirement  compensation  trusts  were set up  pursuant  to section
248(1) of the Income Tax Act of Canada to provide retirement income to the three
individuals  who owned Logicorp.  Pursuant to the original and amended  purchase
agreements  of  Logicorp,  the  Company  will make  monthly  payments  including
interest in various  amounts.  The loan  carries an interest  rate of prime plus
4.75%.

The Term loans are comprised of the following:

                                       20
<PAGE>


        [a]     Loan bearing  interest at Prime plus 1.25% per annum,  repayable
in monthly principal installments of $6,643 together with interest.  Loan is due
July 31, 2005. Outstanding balance of this loan totaled $38,050 as of August 31,
2002.

        [b]     Small Business  Equipment  Loans bearing  interest at Prime plus
2.25% per annum.  Outstanding  balance of this loan totaled $11,227 as of August
31, 2002.

Approximate  future annual principal  payments for long-term debt,  exclusive of
the above bank indebtedness, are as follows:

              ---------------------------------------------------
              Years ended August 31,

              2003                                    $  450,739
              2004                                     2,378,634
              2005                                       656,266
              2006                                       254,755
              2007                                       125,000
              Thereafter                                 583,335
              ---------------------------------------------------
                                                       4,448,729
              ===================================================


        In May 2002, the Company did a private  financing raise in the amount of
US$290,000 ($443,189).  Since the shares have not been issued the raise has been
placed as a note payable.  Upon the issuance of the Company's  shares,  the note
will be converted from debt to equity.

        At August  31,  2002,  the  Company  had a working  capital  deficit  of
$17,960,854,  an increase of $14,672,711  from working  capital of $3,288,143 at
August 31, 2001.

        A comparison  of balance  sheet  accounts  does not provide any relevant
information  since all prior operating  companies are not listed as discontinued
operations.  In  addition,  there is no  historical  comparison  for our current
operating companies as they were acquired within the 2002 Fiscal Year.

        For the 2002 Fiscal Year,  we had a net cash outflow of $25,902,  a cash
outflow of $978,153 for the 2001 Fiscal Year and  $906,809  cash outflow for the
2000  Fiscal  Year.  The  decrease in net cash flow for the 2002 Fiscal Year was
primarily due to cash used in operating activities.

        Cash  used  in  operating  activities  for  the  2002  Fiscal  Year  was
$6,031,515. The major factor contributing to the cash used in operations for the
2002  Fiscal  Year  is the  net  loss  with  non-cash  expenses  added  back  of
$10,684,237  and a decrease in  accounts  payable  and  accrued  liabilities  of
$2,619,458;  cash provided by operations were: decrease in accounts  receivable,
trade of $3,002,443,  and a decrease in assets from  discontinued  operations of
$2,794,223.  The major factors  contributing  to the cash used in operations for
the 2001 Fiscal Year  include:  net loss with  non-cash  expenses  added back of
$9,006,617;  cash provided by operations, a decrease in assets from discontinued
operations  of  $3,254,147,  and an  increase  in  accounts  payable  and  other
liabilities of $1,361,950. Cash used in operating activities for the 2000 Fiscal
Year  was  $1,153,743.  The  major  factor  contributing  to the  cash  used  in
operations during the 2000 Fiscal Year was net loss with non-cash expenses added
back of $2,708,476;  cash provided by operations was a decrease in  discontinued
operations of $771,835.

        Cash  provided  by  investing  activities  in the 2002  Fiscal  Year was
$207,690.  This amount  resulted  from the purchase of property and equipment of
$135,092,  the  acquisition  of the Logicorp  group of companies and  eTelligent
Solutions of $1,500,000 and $240,000  respectively,  offset by the proceeds from
disposal of property and equipment of $232,782 and the proceeds from the sale of
Magic  Lantern of  $1,850,000.  Cash used in  investing  activities  in the 2001
Fiscal Year was  $1,686,688.  This amount  resulted from the purchase of capital
assets totaling $46,978 and the deposit on purchase of Applicationstation.com of
$1,689,710. Cash used in investing activities in the 2000 Fiscal Year was nil.

        Cash provided by financing in the 2002 Fiscal Year were $5,797,923,  the
increase in primarily  made up of the  $6,587,622  convertible  promissory  note
offset by payments of debt of $1,577,839. Cash provided by financing in the 2001
Fiscal Year were  $4,880,321.  The increase is primarily  due to the sale of the
convertible debenture and

                                       21
<PAGE>


the bridge  financing.  Cash  provided by  financing in the 2001 Fiscal Year was
$246,934  resulting  primarily from the $281,134 proceeds of exercised  employee
stock options.

        We purchased the Logicorp group of companies and eTelligent Solutions in
Fiscal 2002, both of which are in the Systems  Integration  segment.  We have no
obligation to fund these operations, as they are self-sufficient operations.

        INFLATION

        The  rate of  inflation  has had  little  impact  on our  operations  or
financial  position during the years ended August 31, 2002,  August 31, 2001 and
August 31, 2000 and  inflation is not expected to have a  significant  impact on
our operations or financial position during the 2003 Fiscal Year.

        We pay a number of our  suppliers,  including our 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
our gross profit as well as our net income.  If the value of the Canadian dollar
falls against the US dollar, our cost of revenues will increase thereby reducing
our gross profit and net income. Conversely, if the value of the Canadian dollar
rises against the US dollar, our gross profit and net income will increase.

        CRITICAL ACCOUNTING POLICIES

        As discussed in our financial  statements,  the preparation of financial
statements in conformity with accounting  principles  generally  accepted in the
U.S.  requires  management to make estimates and assumptions about future events
that affect the amounts  reported in the financial  statements and  accompanying
notes.  Since future events and their effects cannot be determined with absolute
certainty,  the  determination  of estimates  requires the exercise of judgment.
Actual results could differ from those  estimates,  and such  differences may be
material to the financial statements.  The most significant accounting estimates
inherent in the preparation of our financial  statements include estimates as to
the appropriate  carrying value of certain assets and liabilities  which are not
readily apparent from other sources,  primarily accounts receivable,  inventory,
property and equipment,  intangible assets,  deferred revenue,  rebates and coop
fund and warranty costs. Management bases its estimates on historical experience
and on  various  assumptions  which  are  believed  to be  reasonable  under the
circumstances.   We   reevaluate   these   significant   factors  as  facts  and
circumstances   change.   Historically,   actual   results   have  not  differed
significantly from our estimates.

        IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

        In July 2001, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No.  141  "BUSINESS  COMBINATIONS."  SFAS  No.  141  supersedes  Accounting
Principles  Board  ("APB") No. 16 and requires  that any  business  combinations
initiated  after June 30,  2001,  be  accounted  for as a  purchase,  therefore,
eliminating the pooling-of-interest  method defined in APB No. 16. The statement
was effective for any business  combination  initiated  after June 30, 2001, and
must  have  been  applied  to all  business  combinations  accounted  for by the
purchase  method for which the date of  acquisition  was July 1, 2001, or later.
The adoption of this  statement did not have a material  impact to our financial
position or results of operations.

        In July  2001,  the  FASB  issued  SFAS No.  142,  "GOODWILL  AND  OTHER
INTANGIBLE  ASSETS",  which requires the use of a  non-amortization  approach to
account for  purchased  goodwill  and certain  intangibles.  This  statement  is
effective for fiscal years  beginning  after  December 15, 2001. We adopted this
statement on September 1, 2001. Under the  non-amortization  approach,  goodwill
and certain  intangibles  will not be amortized into results of operations,  but
instead will be reviewed for impairment,  written down and charged to results of
operations  only in periods in which the recorded  value of goodwill and certain
intangibles is more than its fair value.  The adoption of this statement did not
have a material impact to our financial position or results of operations.

        In October  2001,  the FASB issued SFAS No. 143,  "ACCOUNTING  FOR ASSET
RETIREMENT OBLIGATIONS",  which requires companies to record the fair value of a
liability  for asset  retirement  obligations  in the  period in which  they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction,  and  development or through the normal  operation of a long-lived
asset. When a liability is initially recorded,  the company would capitalize the
cost,  thereby  increasing  the  carrying  amount  of  the  related  asset.  The
capitalized asset retirement cost is depreciated over the life of the

                                       22
<PAGE>


respective  asset while the  liability  is accreted to its present  value.  Upon
settlement of the liability, the obligation is settled at its recorded amount or
the company  incurs a gain or loss.  The statement is effective for fiscal years
beginning  after June 30, 2002. We do not expect the adoption of this  statement
to have a material impact on our financial position or results of operations.

        In August  2001,  the FASB  issued  SFAS No.  144,  "ACCOUNTING  FOR THE
IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR  LONG-LIVED  ASSETS TO BE DISPOSED OF".
SFAS No. 144 addresses financial  accounting and reporting for the impairment or
disposal of long-lived  assets.  SFAS No. 144 requires that long-lived assets be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that its carrying  amount may not be recoverable and is measured by a comparison
of the  carrying  amount  of an  asset to  undiscounted  future  net cash  flows
expected  to be  generated  by the  asset.  If the  carrying  amount of an asset
exceeds its estimated future  undiscounted  cash flows, an impairment  charge is
recognized for the amount by which the carrying  amount of the asset exceeds the
fair value of the asset.  SFAS No. 144 requires  companies to separately  report
discontinued  operations  and extends that reporting to a component of an entity
that either has been disposed of (by sales,  abandonment or in a distribution to
owners) or is classified as held for sale. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. We adopted
SFAS No. 144 on September 1, 2002. The effects of the adoption will be reflected
in the consolidated financial statements for the year ended August 31, 2003. For
the year ended  August  31,  2002,  the  Company  has  followed  the  disclosure
requirements of APB 30 and EITF 95-18.

        In  April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  SFAS-145 eliminates the current requirement that gains and losses
on  extinguishments  of debt must be  classified as  extraordinary  items in the
income  statement.   Instead,   SFAS-145  requires  that  gains  and  losses  on
extinguishments  of  debt  be  evaluated  against  the  criteria  in  Accounting
Principles  Board (APB)  Opinion 30,  "Reporting  the Results of  Operations  --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring  Events and  Transactions,"  to  determine
whether  or  not  it  should  be  classified  as  an   extraordinary   item.  If
classification  as an extraordinary  item is not  appropriate,  the gain or loss
would be included as part of income from  operations.  The Company  adopted SFAS
No. 145 on September 1, 2001 and reported the loss of  extinguishment of debt of
$521,120 as loss from operations.

        In June 2002, the FASB issued  Statement No. 146,  "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES". This Statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN
ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)".  The provisions
of this  Statement  are  effective  for  exit or  disposal  activities  that are
initiated after December 31, 2002, with early application encouraged.  We do not
expect the  adoption  to have a material  impact on our  financial  position  or
results of operations.

        In December  2002,  the Financial  Accounting  Standards  Board ("FASB")
issued Statement of Financial  Accounting  Standards (SFAS) No. 148, "ACCOUNTING
FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE".  SFAS 148 amends FASB
Statement  No.  123,  "ACCOUNTING  FOR  STOCK-BASED   COMPENSATION",   providing
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also amends
the  disclosure  provisions of SFAS 123 and  Accounting  Principles  Board (APB)
Opinion No. 28, "INTERIM FINANCIAL REPORTING",  to require prominent disclosures
in both annual and interim  financial  statements about the method of accounting
for  stock-based  employee  compensation  and the effect of the  method  used on
reported  results.  Amendments to SFAS 123 related to the  transition and annual
disclosures  are effective  for fiscal  year's  ending after  December 15, 2002.
Amendments  to  disclosure  requirements  of APB  Opinion 28 are  effective  for
interim periods beginning after December 15, 2002. We do not expect the adoption
of SFAS 148 will have a material  impact on our financial  position,  results of
operations or cash flows.

        In  November  2002,  FASB  issued  FASB  Interpretation  (FIN)  No.  45,
"GUARANTOR'S  ACCOUNTING AND DISCLOSURE  REQUIREMENTS FOR GUARANTEES,  INCLUDING
INDIRECT  GUARANTEES  OF  INDEBTEDNESS  OF  OTHERS".  FIN 45  requires  that the
guarantor recognize, at the inception of certain guarantees, a liability for the
fair value of the obligation  undertaken in issuing such guarantee.  FIN 45 also
requires additional  disclosure  requirements about the guarantor's  obligations
under  certain  guarantees  that it has  issued.  The  initial  recognition  and
measurement  provisions of this  interpretation  are applicable on a prospective
basis  to  guarantees  issued  or  modified  after  December  31,  2002  and the
disclosure  requirements  are effective for financial  statement  periods ending
after

                                       23
<PAGE>


December 15, 2002.  The Company  adopted FIN No. 45 on September 1, 2002 and did
not expect the  adoption  of FIN 45 to have a material  impact on the  Company's
financial position, results of operations or cash flows.

        In January 2003, FASB issued  Interpretation  No. 46,  "CONSOLIDATION OF
VARIABLE  INTEREST  ENTITIES".  FIN 46 changed the criteria by which one company
includes another entity in its consolidated  financial  statements.  Previously,
the criteria were based on control  through voting  interest.  FIN 46 requires a
variable  interest  entity to be  consolidated  by a company if that  company is
subject to a majority of the risk of loss from the  variable  interest  entity's
activities or entitled to receive a majority of the entity's residual returns or
both.  A company  that  consolidates  a variable  interest  entity is called the
primary  beneficiary of that entity.  The  consolidation  requirements of FIN 46
apply  immediately to variable interest entities created after January 31, 2003.
The consolidation  requirements apply to older entities in the first fiscal year
or interim  period  beginning  after June 15,  2003.  Certain of the  disclosure
requirements  apply in all financial  statements  issued after January 31, 2003,
regardless of when the variable interest entity was established.  During October
2003, the FASB deferred the effective date for applying the provisions of FIN 46
until the end of the first interim or annual  period  ending after  December 31,
2003,  if the variable  interest  was created  prior to February 1, 2003 and the
public  entity has not  issued  financial  statements  reporting  such  variable
interest entity in accordance with FIN 46. On December 24, 2003, the FASB issued
FASB  Interpretation  No. 46 (Revised December 2003),  CONSOLIDATION OF VARIABLE
INTEREST ENTITIES,  (FIN-46R),  primarily to clarify the required accounting for
interests in variable interest entities. FIN-46R replaces FIN-46 that was issued
in January 2003.  FIN-46R exempts  certain  entities from its  requirements  and
provides for special  effective  dates for entities that have fully or partially
applied FIN-46 as of December 24, 2003. In certain situations, entities have the
option of  applying or  continuing  to apply  FIN-46 for a short  period of time
before applying FIN-46R.  While FIN-46R modifies or clarifies various provisions
of FIN-46, it also  incorporates many FASB Staff Positions  previously issued by
the FASB.  Management is currently assessing the impact, if any, FIN 46 may have
on us;  however,  our  management  does not  anticipate  the  adoption to have a
material impact to the Company's financial position or results of operations.

        In April 2003, FASB issued SFAS No. 149,  "AMENDMENT OF STATEMENT 133 ON
DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES.  This  Statement  amends  and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No. 133,  "ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES" and is
effective  for  contracts  entered into or modified  after June 30,  2003.  This
Statement amends Statement 133 for decisions made (i) as part of the Derivatives
Implementation  Group process that effectively  required amendments to Statement
133,  (ii) in  connection  with  other  FASB  projects  dealing  with  financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net  investment  that is smaller  than would be required for other
types of contracts that would be expected to have a similar  response to changes
in market  factors,  the meaning of  underlying,  and the  characteristics  of a
derivative  that contains  financing  components.  We do not anticipate that the
adoption  of this  pronouncement  will have a material  effect on the  financial
statements.

        In May 2003, FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY". This Statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics of both liabilities and equity, and
is effective for financial  instruments  entered into or modified  after May 31,
2003,  and otherwise is effective at the  beginning of the first interim  period
beginning  after June 15,  2003.  SFAS 150  requires  that an issuer  classify a
financial  instrument  that is within its scope as a  liability  (or an asset in
some  circumstances).  Many of those  instruments were previously  classified as
equity. Some of the provisions of this Statement are consistent with the current
definition  of  liabilities  in FASB  Concepts  Statement  No. 6,  "ELEMENTS  OF
FINANCIAL STATEMENTS". The remaining provisions of this Statement are consistent
with FASB's proposal to revise that definition to encompass certain  obligations
that a reporting  entity can or must  settle by issuing  its own equity  shares,
depending on the nature of the relationship  established  between the holder and
the  issuer.  While  FASB  still  plans to revise  that  definition  through  an
amendment to Concepts  Statement 6, FASB decided to defer issuing that amendment
until it has concluded its deliberations on the next phase of this project. That
next phase  will deal with  certain  compound  financial  instruments  including
puttable shares,  convertible bonds, and dual-indexed financial instruments.  We
do not anticipate that the adoption of this  pronouncement  will have a material
effect on the financial statements.

        In December  2003,  the FASB issued a revised SFAS No. 132,  "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which replaces the
previously  issued  Statement.  The revised  Statement  increases  the  existing
disclosures  for  defined  benefit  pension  plans  and  other  defined  benefit
postretirement plans. However, it

                                       24
<PAGE>


does not change the  measurement or recognition of those plans as required under
SFAS No. 87,  "Employers'  Accounting  for Pensions,"  SFAS No. 88,  "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for  Termination  Benefits,"  and  SFAS  No.  106,  "Employers'  Accounting  for
Postretirement  Benefits  Other  Than  Pensions."   Specifically,   the  revised
Statement  requires  companies to provide  additional  disclosures about pension
plan  assets,  benefit  obligations,  cash flows,  and benefit  costs of defined
benefit  pension plans and other defined  benefit  postretirement  plans.  Also,
companies  are required to provide a breakdown of plan assets by category,  such
as debt, equity and real estate, and to provide certain expected rates of return
and target allocation  percentages for these asset  categories.  The adoption of
this  pronouncement  is not expected to have a material  impact to the Company's
financial statements.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to market risks from changes in foreign currency exchange
rates and interest rates. We and our  wholly-owned  subsidiaries  are located in
Canada and its functional currency is the Canadian dollar.

        INTEREST RATE RISKS.

         We also had various loans outstanding at August 31, 2002 (approximately
$11,500,000),  which bear interest at a fixed rate. A  hypothetical  10% adverse
change in the interest rate on this debt would negatively  affect net income and
cash flow by approximately $115,000.

The  Company did not use any  derivative  financial  instruments  to manage this
exposure.

        FOREIGN EXCHANGE RATE RISKS.

        We are subject to foreign  currency  exchange rate  fluctuations  in the
Canadian dollar value of foreign currency-denominated transactions. Based on our
average  annual net  currency  positions  in fiscal 2002 and 2001, a 10% adverse
change in average  annual  foreign  currency  exchange rates would not have been
material to our consolidated financial statements for the years ended August 31,
2002 or 2001.


                                       25
<PAGE>


ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        Set forth below is a list of the  consolidated  financial  statements of
the Company  being  furnished in this Annual Report on Form 10-K pursuant to the
instructions to Item 8 to Form 10-K and their respective locations herein.


FINANCIAL STATEMENT                                                     LOCATION

Report of Independent Auditors
     Current..........................................................   F - 1
     Predecessor......................................................   F - 2
Consolidated Balance Sheets...........................................   F - 3
Consolidated Statements of Operations.................................   F - 4
Consolidated Statements of Shareholders' Equity (Deficit).............   F - 5
Consolidated Statements of Cash Flows.................................   F - 6
Notes to Consolidated Financial Statements............................   F - 7


ITEM 9.         CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURES.

        On July 3,  2003,  the  Company's  Board  of  Directors  terminated  the
engagement of Lazar, Levine & Felix, LLP, as its auditors. The reports issued by
Lazar,  Levine & Felix LLP on the financial  statements  for the past two fiscal
years of the  Company did not contain an adverse  opinion  nor a  disclaimer  of
opinion,  and were not  qualified  or modified  as to audit scope or  accounting
principles.

        There were no disagreements with Lazar, Levine & Felix LLP on any matter
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing  scope  or  procedure,  which  disagreements,  if not  resolved  to the
satisfaction  of Lazar,  Levine & Felix LLP,  would have caused Lazar,  Levine &
Felix LLP to make reference thereto in their report on the financial  statements
for such years or such interim periods.

        The Company has requested that Lazar, Levine & Felix LLP furnish it with
a letter  addressed to the Commission  stating whether or not it agrees with the
above  statements.  A copy of such  letter  dated,  July 21,  2003,  is filed as
Exhibit 2 to Form 8-K filed on October 18, 2003.

        On August 11,  2003,  the  Company's  Board of  Directors  ratified  the
engagement of Stonefield Josephson, Inc. as its auditors. The decision to retain
this accountant was approved by the Board of Directors.  The Company  authorized
Lazar,  Levine  &  Felix,  LLP to  fully  respond  to any and all  inquiries  of
Stonefield Josephson, Inc. concerning Lazar, Levine & Felix, LLP termination.

        Prior to our  engagement  of  Stonefield  Josephson,  Inc.  the  Company
requested that  Stonefield  Josephson,  Inc.  assist with auditing the financial
statements for Logicorp, a subsidiary group of the Registrant's,  for the twelve
months ended February 28, 2000,  four months ended June 30, 2000,  twelve months
ended June 30,  2001,  and six months ended  December  30,  2001.  Other than as
described  above,  during our two most recent  fiscal years prior to the date of
engagement, and the subsequent interim period prior to engaging this accountant,
neither the Company (nor someone on the  Company's  behalf)  consulted the newly
engaged accountant regarding any matter.

        The Company has allowed  Stonefield  Josephson,  Inc. to review its Form
8-K before it is filed with the Commission.  Stonefield Josephson,  Inc. has not
furnished the Company with a clarification, or disagreement with the information
set forth herein.

        On  October  12,  2000,  Ernst  & Young  LLP  ("E&Y"),  the  independent
accountants who were engaged as the principal accountants to audit our financial
statements resigned as our certifying accountants. E&Y's report on our financial
statements  as at August 31, 1999 and for the two years then ended  contained no
adverse opinion or disclaimer of opinion,  and were not qualified or modified as
to  uncertainty,  audit scope or accounting  principles.  During the fiscal year
ended August 31, 1999 and during the subsequent  interim period  preceding E&Y's
resignation  we had  no  disagreement  with  E&Y on  any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure. The facts and circumstances that relate to E&Y's resignation,  as far
as we know them, are as follows:

                                       26
<PAGE>


        E&Y served as our certifying accountants since 1995. E&Y orally informed
us that pursuant to E&Y's  internal  rules,  E&Y would resign as our  certifying
accountants  since  it was  unwilling  and  therefore  unable  to rely  upon the
representations of Mr. Cameron Chell, our President and Chief Executive Officer,
due to the existence of a Settlement  Agreement dated November 6, 1998,  between
Cameron Chell,  and the Alberta Stock  Exchange.  On April 3, 2000, our board of
directors  appointed  Mr. Chell as a director  and elected him as our Chair;  on
April 3, 2000,  Chell.com.  Ltd.,  an Alberta  corporation  wholly-owned  by Mr.
Chell,  purchased  approximately 16% of our issued and outstanding common stock;
and on  April  7,  2000,  we  advised  E&Y of the  existence  of the  Settlement
Agreement.  Pursuant  to  this  Settlement  Agreement  with  the  Alberta  Stock
Exchange,  Mr. Chell  acknowledged  the existence of certain facts that occurred
during 1996 and 1997 while Mr. Chell was a registered representative in Alberta,
Canada, licensed by the Alberta Securities Commission,  and he agreed to certain
restrictions imposed by the Alberta Stock Exchange and to pay a Cdn$25,000 civil
fine.  Specifically,  Mr. Chell acknowledged that he had breached certain duties
of  supervision,  disclosure,  and  compliance of the Alberta Stock  Exchange in
connection  with  various  offers and sales of  securities.  Those  restrictions
included Mr.  Chell's loss of Alberta  Stock  Exchange  approval for a five-year
period and enhanced supervision for a three-year period.

        E&Y's  unwillingness  to rely upon Mr. Cameron  Chell's  representations
were based upon the existence of the Settlement Agreement with the Alberta Stock
Exchange and not based upon any representations made by Cameron Chell.

        On November 1, 2000,  our Board of Directors  ratified the engagement of
Lazar,  Levine & Felix, LLP as our auditors for the year ending August 31, 2000.
We have  authorized  E&Y to fully  respond  to any and all  inquiries  of Lazar,
Levine & Felix, LLP concerning E&Y's resignation.

ITEM 9A.        CONTROLS AND PROCEDURES

(a)     Evaluation of Disclosure Controls and Procedures

        Our management,  with the  participation of our Chief Executive  Officer
and Chief  Financial  Officer,  evaluated the  effectiveness  of our  disclosure
controls  and  procedures  as of the end of the period  covered by this  report.
Based on that  evaluation,  our Chief  Executive  Officer  and  Chief  Financial
Officer  concluded that our disclosure  controls and procedures as of the end of
the period covered by this report were designed and  functioning  effectively to
provide reasonable assurance that the information required to be disclosed by us
in reports  filed under the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange Act"), is recorded, processed, summarized and reported within the time
periods  specified  in the SEC's  rules and forms.  We  believe  that a controls
system,  no matter how well  designed  and  operated,  cannot  provide  absolute
assurance that the objectives of the controls  system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.

(b)     Change in Internal Control over Financial Reporting

        No change in our internal  control  over  financial  reporting  occurred
during our most  recent  fiscal  quarter  that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                       27
<PAGE>


                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

CURRENT COMPOSITION

<TABLE>
<CAPTION>
   -----------------------------------------------------------------------------------------------
   NAME                       AGE   PRINCIPAL POSITIONS WITH THE COMPANY               DIRECTOR
                                                                                         SINCE
   ===============================================================================================
<S>                           <C>   <C>                                                  <C>
   David Bolink               34    Director; Acting Chief Executive Officer             2004
   Neil Brown                 31    Secretary, Corporate Controller                       N/A


AS AT AUGUST 31, 2002

<CAPTION>
   -----------------------------------------------------------------------------------------------
   NAME                       AGE   PRINCIPAL POSITIONS WITH THE COMPANY               DIRECTOR
                                                                                         SINCE
   ===============================================================================================
<S>                           <C>   <C>                                                  <C>
   Adrian P. Towning          59    Director, Chairman of the Board                      2000
   Don Pagnutti               53    Directory                                            2000
   Robert Stone               60    Director                                             2000
   Shelly Singhal             36    Director                                             2001
   Michael Rice               37    Director                                             2001
   Stephen McDermott          38    Chief Executive Officer, President                    N/A
   Mark Truman                49    Secretary, Chief Financial Officer                    N/A
</TABLE>


        All of our  Directors  and  Executive  Officers  were  re-elected at our
Annual  Shareholders'  Meeting  held on  February  28, 2001 and will hold office
until  the next  succeeding  Annual  Meeting  of  Shareholders  or  until  their
successors  are duly  elected  and  qualified.  There  were no  resignations  of
directors due to differences.

        DAVID BOLINK was a Managing  Director of Chell  Merchant  Capital  Group
from  September  2000 to January 19, 2001 and served as Chell.com.  Ltd.'s first
President  from  December  1999 to July 2000.  Mr.  Bolink served as Director of
Business  Management of FutureLink  Distribution  Corp., an application  service
provider and a provider of  server-based  computing  services,  from May 1998 to
December  1999. Mr. Bolink also served as Business  Manager of Edmonton  Society
for  Christian  Education  from May 1996 to May 1998.  From February 1989 to May
1996,  Mr.  Bolink served as Asset  Manager of Wilson  Holdings,  a property and
financial management company.

        NEIL BROWN has been  promoted to the position of Director of  Operations
and Corporate Controller and the Company's Corporate  Secretary,  effective June
15,  2003.  Neil has  served  as  Assistant  Controller  of Chell  Group and its
predecessor Networks North Inc., since 1999. Previously, Neil served as Canadian
Controller of Games Workshop Canada, a retail, wholesale and mail order company.

        RESIGNED BOARD MEMBERS

        STEPHEN MCDERMOTT joined Chell Group as Director of Corporate Finance in
February 2002 and was promoted to Chief Executive Officer of the Company in June
2002 until his resignation  April 28, 2004.  From January 1998 through  February
2002, Mr.  McDermott  served as managing  director of Stamford  Capital partners
LLC, an investment  banking firm. Mr.  McDermott has over 13 years of investment
banking and private equity sales  experience in the  technology,  healthcare and
biotech  industries.  He has also served in corporate  finance and institutional
retail sales  positions with life sciences  focused  investment  banks Paramount
Capital and D. Blech & Company as well as with Gruntal & Co., and Paine Webber.

        ADRIAN TOWNING is a private,  independent  investor in several companies
involved in the communications industry. As a result of his investments,  he has
served  as  a  director   of  some  of  these   companies,   including   Medical
Communications Corporation, which we refer to as MCC, from 1994 to July 1996. On
May 14,  1996,  MCC  filed a  petition  under  Chapter  7 of the  United  States
Bankruptcy Code and the Bankruptcy  Court appointed a Trustee of MCC on July 11,
1996. On July 16, 1996, MCC was dissolved. From 1983 to 1989, he established and
managed Anglo-Massachusetts Investments Incorporated, with offices in Boston and
London, which was involved in providing financial advice to Europeans.

                                       28
<PAGE>


        DON PAGNUTTI was appointed our Vice President,  Finance on September 19,
2000 until his  resignation  October 31,  2002.  Mr.  Pagnutti  has retained his
position as one of our  directors.  Mr.  Pagnutti  had been our Chief  Financial
Officer since  September  1998,  and was our Executive  Vice President and Chief
Operating  Officer from September 1997 to September  2000. From 1996 to 1997, he
worked for Sullivan  Entertainment  Inc., as Executive  Vice President and Chief
Financial  Officer.  From 1980 to 1996, he worked for  Telemedia  Communications
Ltd., a large Canadian media company as Vice President, Radio. Mr. Pagnutti is a
Chartered  Accountant and has a Masters Degree in Business  Administration and a
Bachelor of Commerce Degree from the University of Toronto.

        ROBERT STONE served in various  capacities  with Cominco Ltd., a company
listed on the Toronto Stock Exchange, and the American Stock Exchange, being the
Vice-President,  Finance and Chief  Financial  Officer of that company from 1980
until 1997.  From 1969 until 1973 Mr. Stone was the Director of Finance of Great
Northern  Capital  Corporation.  From 1964  until  1969 Mr.  Stone  worked  with
Clarkson Gordon, Chartered Accountants.

        SHELLY SINGHAL from June 2001 to date,  has served as Managing  Director
for SBI USA LLC and its current and former  affiliates,  and served as President
of vFinance Capital from December 2001 to December,  2002. From November of 2000
until May of 2001 he was Managing Director of Technology  Investment Banking for
BlueStone  Capital  Securities,  Inc. From July of 1995 until August of 2000 Mr.
Singhal was  Managing  Director of Corporate  Finance at Roth  Capital  Partners
where  he was head of the  E-Commerce  Group  and  Manager  of the Roth  Capital
Partners Bridge Fund.

        MICHAEL J. RICE is President of Prudential  Securities.  Mr. Rice joined
Prudential  Securities in October 1997,  assuming  responsibility  for strategic
development  of the firm's retail arm.  Until then, he had been a Vice President
and Branch  Manager at Smith  Barney.  Mr.  Rice serves on the Board of New York
City's  Rhinelander  School  for deaf  children  and is  Prudential  Securities'
Corporate  Champion for the INROADS  Program,  which is dedicated to  developing
high-potential  minority youths.  He was also recently honored by IRISH AMERICAN
magazine  as a member of "The Wall  Street  Top 50".  He holds an  undergraduate
degree  from  Georgetown  University  and an MBA  from  the  Wharton  School  of
Business.

        MARK TRUMAN, until his resignation in January 2003, has been promoted to
the position of Chief  Financial  Officer  effective  November 1, 2002. Mark has
served as Corporate Controller of Chell Group and its predecessor Networks North
Inc., since 1994 and since 1997 has served as the Company's Corporate Secretary.
Previously,  Mark served as  Canadian  Controller  and Audit  Manager for Arthur
Andersen and as a financial consultant to the health care publishing industry.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

        Section  16(a) of the Exchange Act requires our  directors and executive
officers,  and persons who own more than ten  percent  (10%) of our  outstanding
Common  Stock,  to file with the SEC  initial  reports of  ownership  and report
changes  in  ownership  of  Common  Stock.  Such  persons  are  required  by SEC
regulations to furnish the Company with copies of all such reports they file. To
our knowledge, based solely on a review of the copies of reports furnished to us
and written or oral representations that no other reports were required for such
persons,  all Section  16(a) filing  requirements  applicable  to our  officers,
directors  and  greater  than ten  percent  (10%)  beneficial  owners  have been
complied  with  respect to the fiscal years ended August 31, 2002 and August 31,
2001.


                                       29
<PAGE>


ITEM 11.        EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

        The following table sets forth  information  concerning the compensation
paid or accrued  by us during  the three  years  ended  August  31,  2002 to the
individuals who served as our Chief Executive  Officer,  Chief Financial Officer
and Chief Technology Strategist, (collectively, the "Named Executive Officers"),
who  received   total  annual   salary  and  bonuses  in  excess  of  US$100,000
(Cdn$157,240) during the 2002 Fiscal Year.

<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                                      ANNUAL COMPENSATION                  COMPENSATION
                                            ----------------------------------------    -------------------
                                                                    OTHER ANNUAL         SECURITIES UNDER      ALL OTHER
NAME AND PRINCIPAL POSITION                 SALARY(1)   BONUS      COMPENSATION(1)        OPTIONS/GRANTED     COMPENSATION
                                 YEAR         (CDN$)    (CDN$)          ($)                    (#)                ($)
----------------------------------------    ----------------------------------------    ------------------------------------
<S>                               <C>        <C>          <C>           <C>                  <C>                  <C>
Stephen McDermott (2)             2002         --         --            --                     --                 --
Chief Executive Officer

Donald Pagnutti (3)               2002       160,000      --            --                   250,000              --
President, and Chief Financial    2001       160,000      --            --                     --                 --
Chief Financial Officer           2000       156,249      --            --                    22,500              --

Cameron Chell                     2002         --         --            --                     --                 --
Chief Executive Officer (4)       2001         --         --            --                     --                 --

----------------------------------------    ----------------------------------------    ------------------------------------
</TABLE>

NOTES:

        (1)     Perks and other  personal  benefits  received in 2000,  2001 and
                2002 did not exceed the lesser of US$50,000 and 10% of the total
                annual  salary  and  bonuses  for  any  of the  Named  Executive
                Officers.

        (2)     Mr.  McDermott was appointed Chief Executive  Officer  effective
                June 27, 2002. His salary commenced August 16, 2002 and was less
                than  US$100,000.  Mr.  McDermott  resigned  as Chief  Executive
                Officer effective April 28, 2004.

        (3)     Mr. Pagnutti  resigned as President and Chief Financial  Officer
                effective  October 31,  2002.  (4) Mr.  Chell  resigned as Chief
                Executive Officer effective June 27, 2002.

        During the three year period ended August 31, 2002, we did not grant any
restricted stock awards or stock appreciation rights.  Additionally,  all of our
group life, health, hospitalization,  medical reimbursement or relocation plans,
if any, do not discriminate in scope, terms or operation,  in favor of the Named
Executive  Officers  and are  generally  available  to all  salaried  employees.
Further, no Named Executive Officer received, in any of the periods specified in
the Summary Compensation Table, perks and other personal benefits, securities or
property in an aggregate amount in excess of the lesser of $50,000 or 10% of the
total salary and bonus  reported for the Named  Executive  Officer in the fiscal
year in which such benefits were  received,  and no single type of perquisite or
other personal benefits exceeded 25% of the total perquisites and other benefits
reported for the Named Executive Officer in the applicable fiscal year.

OPTION GRANTS TABLE

        The  following  table  sets  forth (a) the  number of shares  underlying
options granted to each Named Executive Officer during the 2002 Fiscal Year, (b)
the  percentage the grant  represents of the total number of options  granted to
all our employees  during the 2002 Fiscal Year, (c) the per share exercise price
of each option,  (d) the expiration  date of each option,  and (e) the potential
realized  value of each  option  based  on:  (i) the  assumption  of a five (5%)
percent  annualized  compounded  appreciation  of the market price of the Common
Stock from the date of the grant of the subject  option to the end of the option
term,  and (ii) the  assumption  of a ten (10%)  percent  annualized  compounded
appreciation  of the market price of the Common Stock from the date of the grant
of the subject option to the end of the option term.


                                       30
<PAGE>


<TABLE>
<CAPTION>
                                                                                          Potential Realizable Value
                                                                                          at Assumed Rates of Stock
                                                                                            Price Appreciation for
                                                                                                 Option Term
Name                           Number of      Percentage of   Exercise  Expiration Date       5%             10%
                                Shares        Total Options    Price
                              underlying       Granted to
                               Options        Employees in
                               Granted         Fiscal Year
                              -----------    ---------------  --------  ---------------     -------        -------
Stephen McDermott (1)             Nil              Nil          Nil           Nil             Nil            Nil
Chief Executive Officer

<S>                             <C>               <C>          <C>       <C>                <C>            <C>
Donald Pagnutti (2)             250,000           17.04        $1.00     November 30,       $12,500        $25,000
President and Chief                                                          2011
Financial Officer

Cameron Chell (3)                 Nil              Nil          Nil           Nil             Nil            Nil
Chief Executive Officer
</TABLE>

NOTES:

        (1)     Mr.  McDermott  resigned as Chief  Executive  Officer  effective
                April 28, 2004.

        (2)     Mr. Pagnutti  resigned as President and Chief Financial  Officer
                effective October 31, 2002.

        (3)     Mr. Chell resigned as Chief Executive Officer effective June 27,
                2002.

OPTIONS EXERCISED AND REMAINING OUTSTANDING

        Set forth in the table below is information, with respect to each of the
Named  Executive  Officers,  as to the (a) number of shares  acquired during the
2002 Fiscal Year upon each exercise of options granted to such individuals,  (b)
the  aggregate  value  realized upon each such exercise  (i.e.,  the  difference
between the market  value of the shares at exercise and their  exercise  price),
(iii)  the  total  number  of  unexercised  options  held on  August  31,  2001,
separately  identified between those exercisable and those not exercisable,  and
(iv) the aggregate value of in-the-money, unexercised options held on August 31,
2002, separately identified between those exercisable and those not exercisable.

<TABLE>
<CAPTION>
                     SECURITIES      AGGREGATE
                     ACQUIRED ON       VALUE        UNEXERCISED OPTIONS AT      VALUE OF UNEXERCISED IN THE MONEY
                      EXERCISE       REALIZED           AUGUST 31, 2002             OPTIONS AT AUGUST 31, 2002
                         (#)            ($)                   (#)                              ($)
                     -----------    ----------    ---------------------------   ----------------------------------

                                                  EXERCISABLE   UNEXERCISABLE   EXERCISABLE(1)    UNEXERCISABLE(1)
                                                  -----------   -------------   --------------    ----------------
<S>                      <C>            <C>         <C>            <C>                <C>               <C>
Stephen McDermott        Nil            Nil           Nil            Nil              Nil               Nil
Mark Truman              Nil            Nil         45,000         15,000             Nil               Nil
Donald Pagnutti          Nil            Nil        187,500         62,500             Nil               Nil
Cameron Chell            Nil            Nil           Nil            Nil              Nil               Nil
</TABLE>

NOTE:

        (1)     The value of the  unexercised  "in-the-money"  options  has been
                determined by subtracting the exercise price of the options from
                the closing  Common  Share price of US$0.379 on August 30, 2002,
                and  multiplying  by the  number  of Common  Shares  that may be
                acquired upon the exercise of the options.  The current exercise
                price of the  options is higher than the  closing  Common  Share
                price of US$0.379, therefore the Value of the options is nil.


                                       31
<PAGE>


COMPENSATION OF DIRECTORS

        Prior to September 8, 2000, each  non-employee  director was eligible to
receive $500 for each  meeting of the Board of  Directors  or committee  thereof
which  such  director  attended,  along  with the  reimbursement  of  reasonable
expenses  incurred on our behalf. In addition,  each  non-employee  director was
eligible to receive 1,500 stock options annually.

        As of December  11,  2000,  the Board of  Directors  formally  adopted a
standard   arrangement   pursuant  to  which  only  our  outside  directors  are
compensated for their services in their capacity as directors. This compensation
arrangement is retroactive to September 19, 2000 (the date of the closing of the
Agreement of Purchase  and Sale  between  Networks  North Inc.,  Networks  North
Acquisition Corp., Chell.com Ltd. and Cameron Chell).

                          OUTSIDE DIRECTOR COMPENSATION

--------------------------------------------------------------------------------
                                                       Options      Cash (US$)
--------------------------------------------------------------------------------
Directorship Acceptance Options
 (one time grant with a 3 year vesting schedule)                     45,000

Annual Retainer-Chairman                               20,000        10,000

Annual Retainer-Director                               6,000

Annual Retainer-Committee Member
(over and above directorship retainer)                 3,000

Annual Retainer-Committee Chair
(over and above directorship retainer
and committee retainer)                                2,000

Board Meeting Attendance Fee                          750/mtg.
Committee Attendance Fee                              500/mtg

EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS

        Effective August 16, 2002, we entered into an employment  agreement with
Stephen  McDermott,  pursuant to which Mr. McDermott will serve as our President
and Chief Executive  Officer for a period of one year. The contracted  salary is
US$120,000(Cdn$183,288).  Mr. McDermott  resigned as Chief Executive Officer and
President  effective  April 28, 2004.  Mr.  McDermott also resigned his position
with the Board of Directors.

        Effective November 1, 2002, we entered into an employment agreement with
Mark  Truman,  pursuant to which Mr.  Truman  will serve as our Chief  Financial
Officer.  Subsequent to this  agreement,  Mark Truman  terminated his employment
with the Company for personal reasons.

        In November  1999, we renewed  Donald  Pagnutti's  employment  agreement
originally  dated August 15, 1997,  pursuant to which Mr. Pagnutti serves as our
Executive Vice President,  Chief Financial Officer and Chief Operating  Officer.
On  September  19, 2000,  Mr.  Pagnutti's  title was changed to Vice  President,
Finance and Chief  Financial  Officer.  Effective  June 27, 2002 Mr.  Pagnutti's
title was changed to President and Chief Financial Officer. Mr. Pagnutti did not
to renew the current  contract  and has entered  into a one-year  agreement as a
consultant to the Company,  effective  November 1, 2002. We have terminated this
agreement. Mr. Pagnutti resigned his position with the Board of Directors.

        On September  19, 2000,  we entered into an  employment  agreement  with
Cameron  Chell,  pursuant to which Mr. Chell served as our  President  and Chief
Executive  Officer.  The agreement  provided for an initial base compensation of
$360,000,  together with automobile expenses of $8,400. In addition to the fixed
remuneration,  we were to provide Mr.  Chell with the  services of an  Executive
Assistant on an ongoing basis and an Accountant for a reasonable  period of time
to allow for the completion of outstanding  accounting  work related to existing
companies  in which  Mr.  Chell is  involved.  It was the  understanding  of the
parties  that this  agreement  was to be  replaced  by a  definitive  employment
agreement before October 10, 2000; however,  such agreement has not been entered
into at this time. Since the signing of this agreement, Mr. Chell has eliminated
both his  salary  and  automobile  allowance  in an effort  to  reduce  our cash
requirements.  Mr. Chell resigned as our President and Chief  Executive  Officer
effective June 27, 2002.

        We do not have any other employment  agreements in effect with any other
executive employee.

                                       32
<PAGE>


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        Our Audit and  Compensation  Committees at August 31, 2002  consisted of
Robert Stone, Shelly Singhal and Adrian P. Towning.  Messrs.  Stone, Singhal and
Towning  are  not our  officers  or  employees,  and  have  not  served  in such
capacities in the past.  None of our executive  officers served as a director or
member of the compensation  committee (or group performing similar functions) of
another  entity,  one of  whose  executive  officers  served  on the  Audit  and
Compensation Committee or as a director of the Company.

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        Set forth in the table below is information concerning the ownership, as
of the close of business on April 30,  2004,  of the common stock by each person
who is known to us to be the beneficial  owner of more than five (5%) percent of
the common stock, our directors and named executive officers,  and all directors
and  executive  officers as a group.  The  percentage  beneficial  ownership  as
calculated below does not include the effects of the potential conversion of the
8% convertible  notes.  See  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".

                                                   AMOUNT & NATURE    PERCENTAGE
                                                    OF BENEFICIAL         OF
NAME AND ADDRESS (1)                                  OWNERSHIP        CLASS(2)
--------------------                               ---------------    ----------

Chell.com Ltd.                              (3)         498,354          3.5%
114, 1215 -- 13th Street S.E.
Calgary, Alberta T2G 3J4

Cameron Chell                               (4)       1,225,000          8.6%

Canadian Advantage Limited Partnership      (5)         451,868          3.2%
c/o Thomson Kernaghan & Co. Limited
120 Adelaide Street West, Suite 1800
Toronto Ontario M5H 1T1

CEDE & CO                                             3,406,326         23.8%

Michael J. Rice                                       1,700,000         11.9%

Naveen Chanana                                          748,452          5.2%

ISCA Financial Services                                 637,636          4.5%

Jayvee & CO                                           4,201,487         29.4%

Stephen McDermott (President and
  Chief Executive Officer)                  (6)       3,000,000         17.8%

All directors and executive officers
  as a group   2 persons                                  0              0.0%


(1)     Unless  otherwise  stated,  the address of the  directors  and executive
officers of the  corporation is c/o Chell Group  Corporation  c/o Reitler Brown,
800 Third Avenue, 21st floor, NY,NY 10022.

(2)     Unless  otherwise  indicated,  we believe that all persons  named in the
table have sole voting and investment power with respect to all shares of common
stock  beneficially owned by them. A person is deemed to be the beneficial

                                       33
<PAGE>


owner of securities  that may be acquired by such person within 60 days from the
date on which  beneficial  ownership is to be  determined,  upon the exercise of
options, warrants or convertible securities.  Each beneficial owner's percentage
ownership is  determined  by assuming  that  options,  warrants and  convertible
securities that are held by such person (but not those held by any other person)
and which are exercisable within such 60-day period, have been exercised.

(3)     Cameron Chell is the sole director and shareholder of Chell.com Ltd.

(4)     Cameron  Chell  and  Jayee  & Co.  have  a  pending  dispute  as to  the
beneficial ownership of up to an additional 3.5 million shares currently held by
Jayvee & Co. While Mr. Chell currently disclaims  beneficial  ownership of these
shares,  in the event that this dispute should be resolved in Mr. Chell's favor,
Mr. Chell would  beneficially  own an  aggregate  of 4,725,000  shares of common
stock, representing 33.1% of the outstanding common stock at April 30, 2004.

(5)     Includes  36,500  shares  issuable  upon the  exercise of  Warrants  and
442,145  shares of our  common  stock to be  issued  upon  shareholder  approval
scheduled for October 30, 2002.

(6)     Consists of warrants  granted in fiscal 2003 to acquire an  aggregate of
3,000,000  shares of Common Stock at the exercise price of $0.05 per share.  The
warrants expire in 2013. Mr. McDermott  resigned all positions with us effective
April 28, 2004.

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        Set forth below is a description of certain  transactions between us and
our directors,  executive officers, beneficial owners of five percent or more of
the outstanding  Common Stock, or members of the immediate  family of any of the
foregoing persons, as well as certain business  relationships between the us and
our  directors,  which  occurred  or  existed  during the 2002  Fiscal  Year and
subsequent thereto.  Our management believes that the transactions  described in
this  section  were made on terms no less  favorable  than those that could have
been obtained from third parties.

        The Company entered into a License  Agreement with,  Cameron Chell,  and
Chell  Merchant  Capital Group dated August 31, 2000 pursuant to which Mr. Chell
granted  the  Company  and  Chell  Merchant  Capital  Group the right to use the
trademarks  "Chell.com",   "Chell  Merchant  Capital  Group"  and  "Chell  Group
Corporation" in exchange for the fee of $1.00 per year.

        The  Company  entered  into a  Securities  Purchase  Agreement  with  VC
Advantage Fund ("VC") on October 3, 2000, pursuant to which VC may lend up to an
aggregate of US$3,000,000 to the Company.  VC received a Convertible  Debenture,
which is convertible  into the Company's  Common Stock, at a conversion price of
$3.00 per share.  As of November  30,  2000,  VC had assigned its rights in this
Agreement to Canadian  Advantage Limited  Partnership ("CALP II") and a total of
US$1,700,000  has been  advanced to the  Company.  The  US$1,700,000  advance is
convertible  into  566,667  Common  shares.  Cameron  Chell  is a  Director  and
shareholder of VC Advantage Limited,  the general partner of VC. Pursuant to the
assignment of this agreement to CALP II, this is no longer a related transaction
because Mr. Chell has no beneficial interest in CALP II.

        On January 7, 2003, the Company,  JGUN, Mr. Chell and the holders of our
8%  convertible  notes  entered  into an  agreement  pursuant to which Mr. Chell
agreed that if a registration statement under the Securities Act relating to the
resale of the shares of common stock  issuable upon  conversion of such notes is
not declared  effective on or prior to September 1, 2003, the noteholders  could
"put"  these  shares of common  stock to Mr.  Chell at $0.475  per  share.  This
agreement  was amended on December 4, 2003 and  February  26,  2004,  and may be
amended  as of  April  29,  2004.  See  "Management's  Discussion  of  Financial
Condition and Results of Operations 00 Liquidity and Capital Resources".

        On January 22, 2002, Mr. Chell guaranteed liabilities of Logicorp to its
principal lender,  HSBC, in the amount of Cdn$1.0 million. On December 24, 2002,
Mr.  Chell  guaranteed  trade  credit of  Logicorp  to  Synnex in the  amount of
approximately  Cd. $1.0 million.  On January 7, 2003, the board  determined that
the Company would grant 3.5 million shares of common stock to Mr. Chell for such
guarantees and other consideration in support of the Company.  See "Management's
Discussion  and Analysis of Financial  Condition and Results of Operation" for a
description of the loans.

                                       34
<PAGE>


        During the year ended August 31, 2003, B.O.T.B., a company controlled by
Cameron Chell, advanced Logicorp Data Systems $820,000, and during the period of
September  1, 2003  through  April 30,  2004,  advanced  Logicorp  Data  Systems
$567,399.  The  advances  are due on demand  and do not carry a stated  interest
rate. Due to their  long-term  nature,  the Company has imputed  interest on the
advances at a rate of 9% per annum.  As of April 30, 2004, the aggregate  amount
of such advances was $1,387,399.

ITEM 14.        PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

        Lazar  Levine & Felix,  LLP audited  our  financial  statements  for the
fiscal year ended August 31, 2001 and 2000.  In addition,  Lazar Levine & Felix,
LLP had reviewed  our 10-Q's for the period and had begun the audit  process for
the August 31, 2002 until we hired our new auditors Stonefield  Josephson,  Inc.
in August 2003.  Fees for there services  relating to the 2002 fiscal year audit
will be  reflected  in the  period  incurred.  The  aggregate  fees  billed  for
professional services rendered by Lazar were as follows:

             ------------------------------------------------------
             Year                                 Audit Fees
             ------------------------------------------------------
             2002                                 $159,842
             2001                                 $244,560
             2000                                 $173,860
             ------------------------------------------------------

ALL OTHER FEES

        No other  services  were rendered by Lazar Levine & Felix in fiscal year
2002, 2001 and 2000.


                                       35
<PAGE>


                                     PART IV

ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)     The  following   financial   statements  and   supplementary   financial
        information are filed as part of this Annual Report on Form 10-K:

        (1)     The  financial  statements  listed in the Index to  Consolidated
                Financial  Statements  are  filed  as part of this  report.

        (2)     Schedule of Valuation and Qualifying Accounts

(b)     The following 8-K's have been filed since the Company's last 10-Q: None

(c)     The  following  list sets forth the  applicable  exhibits  (numbered  in
        accordance  with Item 601 of  Regulation  S-K) required to be filed with
        this Annual Report on Form 10-K:


                                       36
<PAGE>


                             CHELL GROUP CORPORATION
                           ANNUAL REPORT ON FORM 10-K

                                  EXHIBIT INDEX

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. ............................................... +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

                               1
<PAGE>


  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

  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.;

                              2
<PAGE>


  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

  22        List of Subsidiaries


  31.1      Certification of the Acting Chief Executive
            Officer pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002


  32.1      Certification of the Acting Chief Executive
            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.

+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.


                                       3
<PAGE>


EXHIBIT 22.     LIST OF SUBSIDIARIES OF CHELL GROUP CORPORATION AS AT NOVEMBER
                26, 2002

NAME OF SUBSIDIARY(1)                              JURISDICTION OF INCORPORATION

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
Chell Merchant Capital Group, Inc........................................Ontario
NTN Interactive Network Inc. (sold December 2003).........................Canada
3484751 Canada Inc........................................................Canada
GalaVu Entertainment Network Inc. (sold April 2003)......................Ontario
Viewer Services (4)......................................................Ontario
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, Inc.

        (3)     Wholly-owned subsidiary of Logicorp Data Systems Ltd.

        (4)     Wholly-owned subsidiary of NTN Interactive Network Inc.


                                       4
<PAGE>


                                   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

                                                /s/ David Bolink

Date: May 11, 2004               By:
                                    --------------------------------------------
                                    David Bolink, Acting Chief Executive Officer
                                         and Acting Chief Accounting Officer


                Pursuant to the requirements of the Securities Exchange Act of
1934, this report on has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

SIGNATURE                                TITLE(S)                        DATE

/s/ David Bolink               Acting Chief Executive Officer,      May 11, 2004
-----------------------        Acting Chief Accounting Officer
David Bolink                   and Director


                                       5
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Auditors
   Current.......................................................      F - 1
   Predecessor...................................................      F - 2
Consolidated Balance Sheets......................................      F - 3
Consolidated Statements of Operations............................      F - 4
Consolidated Statements of Shareholders' Equity..................      F - 5
Consolidated Statements of Cash Flows............................   F - 6, F - 7
Notes to Consolidated Financial Statements.......................    F - 7 thru
                                                                        F-41


                                       6
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Chell Group Corporation





        We have audited the consolidated balance sheet of Chell Group
Corporation (a New York corporation) and subsidiaries as of August 31, 2002 and
the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the year ended August 31, 2002. Our audit also
included the financial statement schedule listed in Item 14. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.

        We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chell Group Corporation and subsidiaries, as of August 31, 2002, and the results
of their consolidated operations and their consolidated cash flows for the year
ended August 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

        The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company's significant recurring
operating losses, working capital deficit, shareholders' deficit, and negative
cash flows from operations raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters also are
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

        As discussed in Note 17, the Company has restated its financial
statements as of August 31, 2001 and 2000, and for the years then ended,
previously audited by other auditors.

/s/ STONEFIELD JOSEPHSON, INC.
----------------------------------
STONEFIELD JOSEPHSON, INC.
IRVINE, CALIFORNIA
DECEMBER 29, 2003


                                      F-1
<PAGE>


                           INDEPENDENT AUDITORS REPORT

The Board of Directors
Chell Group Corporation
Toronto, Ontario

            We have  audited the  accompanying  consolidated  balance  sheets of
Chell Group  Corporation and subsidiaries as of August 31, 2001 and 2000 and the
related consolidated  statements of operations and shareholders' equity and cash
flows for each of the two years in the  period  ended  August  31,  2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

            We  conducted  our  audits in  accordance  with  auditing  standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

            In our opinion,  the consolidated  financial  statements referred to
above present fairly, in all material respects,  the financial position of Chell
Group  Corporation  and  subsidiaries  as of August 31,  2001 and 2000,  and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

/S/ LAZAR LEVINE & FELIX LLP
----------------------------

Lazar Levine & Felix LLP
New York, New York
November 16, 2001


                                      F-2
<PAGE>


                             CHELL GROUP CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                         (Expressed in Canadian dollars)

================================================================================
                                                August 31, 2002  August 31, 2001
                                                                  (Restated)
                                                  $               $
--------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents                             107,258         133,160
Short-term investments                                     --          19,676
Accounts receivable, trade - net of allowance
    for doubtful accounts of $160,000 and $0,
    respectively                                    4,944,843              --
Other receivables                                      31,406          84,914
Income taxes receivable                                    --           2,481
Inventory                                             268,980              --
Prepaid expenses                                           --         158,304
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                5,352,487         398,535
================================================================================
Property and equipment, net                         3,460,763       2,533,494
Licenses, net of accumulated amortization              47,015          54,861
Goodwill                                              276,794              --
Other assets                                          109,696         212,541
Deposit on purchase                                        --       1,689,710
Net assets from discontinued operations                    --       4,648,078
--------------------------------------------------------------------------------
                                                    9,246,755       9,537,218
================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT
Bank overdraft                                        603,740              --
Bank indebtedness                                   2,990,914              --
Current portion, long-term debt                     1,534,073              --
Accounts payable and accrued liabilities            5,268,874       1,406,678
Payable on acquisition                              4,852,976              --
Loan payable, related party                           200,000              --
Short-term note and loan payable, other               443,189       2,280,000
Deferred revenue                                      422,980              --
Convertible debt                                    6,587,622              --
Net liabilities from discontinued operations          408,973              --
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                          23,313,341       3,686,678
--------------------------------------------------------------------------------
Long-term debt, net of current portion              2,914,656       2,417,388

--------------------------------------------------------------------------------
TOTAL LIABILITIES                                  26,227,997       6,104,066
--------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENT LIABILITIES                     --              --

PREFERRED SERIES B SHARES: 454,545 SHARES
  [AUGUST 2001 - NIL]                                   7,294              --

SHAREHOLDERS' EQUITY (DEFICIT)
  10,504,913 common shares
    [August 2001 - 9,028,239]                         712,652         604,109
  Due from shareholder                               (227,365)        (25,086)
  Additional paid in capital                       26,220,561      15,849,971
  Accumulated other comprehensive income              215,097              --
  Accumulated deficit                             (43,909,481)    (13,020,928)
--------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)              (16,988,536)      3,408,066
--------------------------------------------------------------------------------
                                                    9,246,755       9,537,218
================================================================================

The accompanying notes are an integral part of these
consolidated financial statements


                                      F-3
<PAGE>


                             CHELL GROUP CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                          FOR THE YEARS ENDED AUGUST 31
                         [Expressed in Canadian dollars]

<TABLE>
<CAPTION>
===============================================================================================
                                                     2002             2001            2000
                                                                   (Restated)      (Restated)
                                                      $                $                $
-----------------------------------------------------------------------------------------------
<S>                                               <C>              <C>             <C>
REVENUE
Product sales                                      32,468,400              --              --
Service sales                                       1,739,524              --              --
Other                                                      --          16,595          13,703
-----------------------------------------------------------------------------------------------
                                                   34,207,924          16,595          13,703
-----------------------------------------------------------------------------------------------

COST OF SALES
Product sales                                      30,725,499              --              --
Service sales                                         594,488              --              --
-----------------------------------------------------------------------------------------------
                                                   31,319,987              --              --
-----------------------------------------------------------------------------------------------
GROSS PROFIT                                        2,887,937          16,595          13,703

OPERATING EXPENSES
Selling, general and administrative expenses        7,622,873       7,258,609       1,288,190
Write off of leasehold improvements                        --         355,560              --
Depreciation and amortization                       1,027,242         594,803          47,055
Impairment of goodwill                             10,489,549              --              --
-----------------------------------------------------------------------------------------------
                                                   19,139,664       8,208,972       1,335,245
-----------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS                              (16,251,727)     (8,192,377)     (1,321,542)

Loss on extinguishments of debt                       521,120              --              --
Interest expense                                   10,123,183       1,146,708          46,360
Loss from equity investment in Engyro                      --         301,100              --
Loss on disposal of investments                     1,838,140              --              --
Miscellaneous                                           1,627              --              --
-----------------------------------------------------------------------------------------------
Loss before provision for income taxes            (28,735,797)     (9,640,185)     (1,367,902)
Provision for income taxes                                 --              --              --
-----------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS                   (28,735,797)     (9,640,185)     (1,367,902)
                                             --------------------------------------------------
DISCONTINUED OPERATIONS
Loss on disposal/sale of subsidiary
(net of applicable income tax of $0)                 (305,091)       (937,711)             --
Loss from discontinued operations
(net of applicable income tax of $0)               (1,710,649)     (1,169,743)       (955,719)
                                             --------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS                  (2,015,740)     (2,107,454)       (955,719)
                                             --------------------------------------------------

NET LOSS                                          (30,751,537)    (11,747,639)     (2,323,621)
OTHER COMPREHENSIVE INCOME - FOREIGN
  CURRENCY TRANSLATION                                215,097              --              --
-----------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                (30,536,440)    (11,747,639)     (2,323,621)
===============================================================================================
---------------------------------------------
LOSS PER SHARE:

Basic and diluted from continuing operations            (2.91)          (1.15)          (0.48)
Basic and diluted from discontinued operations          (0.20)          (0.25)          (0.33)
-----------------------------------------------------------------------------------------------
Net loss per share                                      (3.11)          (1.40)          (0.81)
===============================================================================================
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements

                                      F-4
<PAGE>


                             CHELL GROUP CORPORATION
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
               FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000
                        (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                                                               Accumulated  Accumu-
                                                                                                   other     lated        Total
                                    Preferred shares      Common shares    Additional  Due from   compre-   retained   shareholders'
                                   --------------------------------------    paid in    stock-    hensive   earnings      equity
                                   Shares     Amount    Shares     Amount    capital    holder     income   (deficit)    (deficit)
====================================================================================================================================
<S>                               <C>        <C>       <C>        <C>       <C>         <C>       <C>       <C>         <C>
Balance, August 31, 1999           900,000    10,917   2,756,641  171,635   9,559,883        --        --    1,050,332   10,792,767
  GalaVu acquisition                    --        --     100,000    6,897     288,463                               --      295,360
  Change in preferred share
    conversion rate                     --        --          --    7,887     329,892                               --      337,779
  Exercise of 68,500 stock options      --        --      68,500    4,703     276,431                               --      281,134
  Net loss (restated - Note 17)         --        --          --       --          --                       (2,323,621)  (2,323,621)
------------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 2000
  (restated - Note 17)              900,000    10,917   2,925,141  191,122  10,454,669        --        --   (1,273,289)   9,383,419
  Purchase of assets and shares         --        --   5,426,772  372,923   2,229,291                               --    2,602,214
  Shares issued in lieu of salary       --        --     131,974    9,484     315,577                               --      325,061
  Settlement of debt                    --        --      36,602    2,694     109,085                               --      111,779
  Preferred shares converted      (900,000)  (10,917)    300,000   13,065          (9)                              --        2,139
  Warrants                              --        --          --       --     117,359                               --      117,359
  Receivable from stockholder                                                           (25,086)                            (25,086)
  Consulting services rendered          --        --     145,000   10,405     456,218                               --      466,623
  Exercise of 62,750 stock options      --        --      62,750    4,416     208,637                               --      213,053
  Beneficial conversion on Debt         --        --          --       --   1,959,144                               --    1,959,144
  Net loss (restated - Note 17)         --        --          --       --          --                      (11,747,639) (11,747,639)
------------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 2001
 (restated - Note 17)                   --        --   9,028,239  604,109  15,849,971   (25,086)       --  (13,020,928)   3,408,066
  Settlement of debt                    --        --   1,226,986   90,126   1,833,280                               --    1,923,406
  Loss on extinguishments of debt       --        --          --       --     521,120                               --      521,120
  Preferred shares issued (Note 10)     --        --          --       --     169,225                               --      169,225
  Foreign currency translation
    adjustment                                                                                    215,097                   215,097
  Receivable from stockholder                                                          (202,279)                           (202,279)
  Deemed dividend on Preferred
    shares issued                       --        --          --       --     137,016                         (137,016)          --
  Warrants                              --        --          --       --     947,711                               --      947,711
  Beneficial conversion feature
    on Gunnar convertible note          --        --          --       --   5,743,924                               --    5,743,924
  Beneficial conversion feature
    on change of terms on
    convertible note                    --        --          --       --     677,216                               --      677,216
  Consulting services rendered          --        --      63,500    4,674     111,189                               --      115,863
  Exercise of 186,188 stock
    options                             --        --     186,188   13,743     229,909                               --      243,652
  Net loss                              --        --          --       --          --                      (30,751,537) (30,751,537)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 2002                --        --  10,504,913  712,652  26,220,561  (227,365)  215,097  (43,909,481) (16,988,536)
====================================================================================================================================
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements

                                      F-5
<PAGE>


                             CHELL GROUP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          FOR THE YEARS ENDED AUGUST 31
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
=======================================================================================================================
                                                                            2002              2001              2000
                                                                                           (Restated)        (Restated)
                                                                             $                 $                 $
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>               <C>
OPERATING ACTIVITIES
Net loss for the year from continuing operations                        (30,751,537)      (11,747,639)      (2,323,621)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Compensation costs related to the change in the conversion rate
      of preferred shares                                                        --                --          337,799
   Depreciation and amortization                                          1,019,396         3,040,407        2,249,321
   Accretion of interest on non-interest bearing promissory notes                --           183,513          173,076
   Amortization of discount on Gunner                                     6,531,218                --               --
   Impairment of goodwill                                                10,489,549                --               --
   Loss on disposal of capital assets                                     1,838,140                --               --
   Interest cost from amortization of discount                                   --           589,628               --
   Loss on extinguishments of debt                                          521,120                --               --
   Loss on sale of MLC                                                      305,091                --               --
   Deferred taxes                                                           (59,173)               --               --
   Write-off of leasehold improvements                                           --           355,560               --
   Services rendered for shares                                             115,863           659,359               --
   Warrants issued                                                          947,711           174,084               --
   Write-off of prepaids arising from Chell asset purchase                       --           367,235               --
   Write-off of assets arising from discontinued operations                 939,513                --
   Provision for doubtful accounts                                          299,918                --               --
Changes in assets and liabilities:
   Decrease (increase) in short-term investments                                 --           250,051           (7,801)
   Decrease (increase) in accounts receivable, trade                      3,697,333           790,018         (614,830)
   Decrease (increase) in other receivables                                  84,814                --               --
   Decrease (increase) in income taxes receivable                            46,365           (11,977)        (143,227)
   Decrease (increase) in inventory                                        (181,439)          100,626           54,652
   Decrease (increase) in prepaid expenses                                  742,490            98,779          119,616
   Decrease (increase) in other accounts receivable                              --           133,580          (30,796)
   Decrease (increase) in other assets                                           --            42,859         (202,799)
   Decrease (increase) in assets from discontinued operations                    --           103,710         (267,046)
   Increase (decrease) in liabilities from discontinued operations               --                --               --
   Increase (decrease) in accounts payable and accrued liabilities       (3,883,743)        1,072,244          919,707
   Increase (decrease) in deferred revenue                                 (782,660)               --               --
-----------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES                                        (9,019,544)       (2,858,450)         264,031
=======================================================================================================================

INVESTING ACTIVITIES
Purchase of property and equipment                                       (2,098,150)       (1,430,962)      (1,162,146)
Proceeds from disposal of property and equipment                          1,111,000                --               --
Purchase of Logicorp                                                     (1,500,000)               --               --
Purchase of eTelligent Solutions                                            (75,000)               --               --
Proceeds from sale of Magic Lantern                                       1,850,000                --               --
Proceeds from sale of Interlynx                                                  --            50,000               --
Increase in deposit on purchase                                                  --        (1,689,710)              --
Due from shareholder                                                       (227,365)               --               --
Note receivable                                                             160,000                --               --
-----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                            (779,515)       (3,070,672)      (1,162,146)
=======================================================================================================================

FINANCING ACTIVITIES
Bank Indebtedness                                                         3,480,223                --               --
Net borrowings on line of credit                                          4,579,849                --               --
Increase in notes and loans payable                                       3,973,189         5,006,134           21,908
Payment on Logicorp note                                                 (1,800,000)               --               --
</TABLE>


                                      F-6
<PAGE>


<TABLE>
<CAPTION>
=======================================================================================================================
                                                                            2002              2001              2000
                                                                                           (Restated)        (Restated)
                                                                             $                 $                 $
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>               <C>
Borrowing from Logicorp shareholders                                        200,000                --               --
Repayment of notes and loans payable                                     (1,408,287)         (102,447)         (67,436)
Proceeds from exercise of options                                           243,652            26,243          281,134
-----------------------------------------------------------------------------------------------------------------------
CASH  PROVIDED BY FINANCING ACTIVITIES                                    9,268,626         4,929,930          235,606
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
EFFECTS OF FOREIGN EXCHANGE                                                 215,097                --               --
-----------------------------------------------------------------------------------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE            (315,336)         (999,192)        (662,509)
PERIOD FROM CONTINUING OPERATIONS

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE
PERIOD FROM DISCONTINUED OPERATIONS

Cash and cash equivalents, beginning of period                              356,421         1,355,613        2,018,122
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                     41,085           356,421        1,355,613
=======================================================================================================================

Income taxes paid                                                                --            98,491           59,956
Interest paid                                                               412,388           146,781          121,579
</TABLE>

        2002 Fiscal  Year - Non cash items  arose from the  purchase of Logicorp
Group of Companies and eTelligent  Solutions  during the 2002 Fiscal Year.  They
are $2,677,782 of property & equipment, $5,000,000 of goodwill.

        2001 Fiscal Year - Non cash items arose from the  purchase of  Chell.com
assets during the 2001 Fiscal Year. They are $1,936,272 of property & equipment,
$107,589 of goodwill,  $45,044 of prepaids,  $1,404 in other accounts receivable
and in addition  shares were  issued.  Other  assets of $174,084  arose from the
issue of warrants,  shares were issued for  consulting  fees and salaries in the
amount of $659,359, shares were issued for a debt payment on the GalaVu purchase
in the amount of $115,165,  write-off of leaseholds of $355,560 and write-off of
prepaids from Chell purchase of $367,235.

        2000  Fiscal  Year - Non cash items  arose from the  purchase  of GalaVu
Entertainment  Network Inc. during the 2000 Fiscal Year. They are: $3,300,000 of
long-term debt, and the associated unamortized discount of ($637,302), accretion
of interest of $173,076 in accrued  liabilities;  assumption of  liabilities  of
$529,440,  $337,779 one-time  compensation charge arising from the change in the
preferred  share  conversion  rate  and the  issuance  of  shares  amounting  to
$295,360.

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

1. DESCRIPTION OF BUSINESS AND OPERATIONS

        Chell Group Corporation [the "Company"] was incorporated  under the laws
of the State of New York on May 12, 1986. The Company is the holding company for
NTN Interactive Network Inc. ["Interactive"],  GalaVu Entertainment Network Inc.
["GalaVu"], Chell Merchant Capital Group ["CMCG"], and Chell.com ("USA"), all of
which are  wholly-owned  operating  companies.  The Company also owns all of the
outstanding stock of 3484751 Canada Inc., a corporation the Company  established
and incorporated  under the Canada Business  Corporations Act on April 20, 1998.
3484751 Canada Inc. was  incorporated for the sole purpose of owning a property,
purchased in 1998, on behalf of the Company, which is currently unoccupied. CMCG
owns all the outstanding stock of Logicorp Data Systems Ltd.  ["LDS"],  Logicorp
Service  Group  Ltd.  ["LSG"],  123557  Alberta  Ltd.  and 591360  Alberta  Ltd.
(collectively  "  Logicorp").  LDS  also  owns  all  the  outstanding  stock  of
eTelligent  Solutions  Inc.,   ["eTelligent"].   Interactive  owns  all  of  the
outstanding stock of 1113659 Ontario Ltd., which is inactive.

        LDS was incorporated on March 31, 1988 as an Alberta, Canada corporation
and is  registered  in the  provinces  of  British  Columbia,  Saskatchewan  and
Ontario,  Canada. LDS is a computer service  organization,  which specializes in
the supply and integration of computer products. LDS serves both large and small
organizations  and is particularly  valued by organizations  having complex data
and communication configurations.

        LSG was  incorporated on December 10, 1993 under the name 591363 Alberta
Ltd., as an Alberta,  Canada corporation.  On February 28, 1995, LSG changed its
name to  Logicorp  Service  Group Ltd.  LSG is a computer  service  organization
specializing in the servicing of computer products in Edmonton.  LSG serves both
as a warranty depot for  manufacturers  of computer  products and as a technical
resource for small, medium and large commercial businesses.

                                      F-7
<PAGE>


        eTelligent was  incorporated  on July 21, 2000.  eTelligent is a team of
business  system  consultants   specializing  in  implementing  and  integrating
e-business,  CRM  (customer  relationship  management)  and  financial  services
solutions from Microsoft  Great Plains.  eTelligent is comprised of professional
accountants  and  information  technology  specialists,  all  certified  through
Microsoft Great Plains University.

        CMCG is incorporated under the Ontario Business  Corporations Act and is
the parent  company for Logicorp  Data Systems Ltd.  ("LDS"),  Logicorp  Service
Group Ltd.  ("LSG"),  591360  Alberta  Ltd. and 123557  Alberta Ltd.  eTelligent
Solutions Inc. is a wholly-owned  subsidiary of LDS. These  subsidiaries of CMCG
(collectively   "Logicorp")  operate  in  the  information   technology  systems
integration industry, predominantly in western Canada.

        Interactive is incorporated  under the Canada Business  Corporations Act
and has signed a license agreement [the "NTNC license"] with NTN Communications,
Inc.,  an unrelated  Delaware  company,  for exclusive  representation  of their
interactive  communications for all industry sectors in Canada. This interactive
entertainment  network allows viewers to participate  actively with a variety of
television  programs,  trivia  and  sports  games.  Present  subscribers  to the
Company's  networks are hotels,  restaurants,  bars and university  clubs.  Each
subscriber  either  purchases the system  hardware  directly or rents the system
from  Interactive.   Interactive   purchases  the  subscriber  system  from  NTN
Communications,  Inc. and various other suppliers.  Following the  installation,
each  subscriber  pays a monthly fee to Interactive  for the program content and
maintenance  services,  which  ranges from $650 to $750.  The  monthly  fees for
rental systems range from  approximately $255 to $290. On July 2003, the Company
signed a letter of intent to sell certain assets of Interactive.

        GalaVu is incorporated  under the Ontario Business  Corporations Act and
is  a   technology-based   entertainment   provider   of   interactive   in-room
entertainment  systems  for small and  mid-sized  hotels.  GalaVu's  interactive
system is based upon  proprietary  technology  and  provides a suite of products
including movies on demand, premium television programming and other information
and entertainment services. Effective April 25, 2003, the Company sold GalaVu.

The Company's primary market to date has been Canada.

GOING CONCERN ASSUMPTION

        The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America,  which  contemplate  continuation  of the  Company as a going  concern.
However,  the Company has reported net losses of  $30,751,537,  $11,747,639  and
$2,323,621 for the years ended August 31, 2002, 2001 and 2000, respectively, and
has an  accumulated  deficit of  $43,909,481  as of August 31, 2002.  Also,  the
Company  has  negative  cash flows from  operations  for each of the years ended
August 31, 2002,  2001 and 2000.  In addition,  the Company has working  capital
deficit of  $17,960,854  and net asset deficit of  $16,988,536  as of August 31,
2002. These factors raise  substantial  doubtful about the Company's  ability to
continue as a going concern.

        The Company cannot be certain that anticipated  revenues from operations
will be sufficient  to satisfy its ongoing  capital  requirements.  Management's
belief  is  based on the  Company's  operating  plan,  which in turn is based on
assumptions that may prove to be incorrect. If the Company's financial resources
are  insufficient,  the  Company may require  additional  financing  in order to
execute its operating plan and continue as a going  concern.  The Company cannot
predict whether this additional  financing will be in the form of equity,  debt,
or another form. The Company may not be able to obtain the necessary  additional
capital on a timely  basis,  on  acceptable  terms,  or at all.  In any of these
events,  the Company may be unable to implement its current plans for expansion,
repay  its  debt  obligations  as they  become  due or  respond  to  competitive
pressures,  any of which  circumstances  would have a material adverse effect on
its business, prospects, financial condition and results of operations.

        Should these  financing  sources fail to materialize,  management  would
seek alternate  funding sources through sale of common and/or  preferred  stock.
The Company's business plans for 2004 contemplate  obtaining  additional working
capital through  refinancings or restructurings of its existing loan agreements,
reducing   operating   overhead  (which  has  already  begun  through  workforce
consolidation), and sales of some of its existing subsidiaries including sale of
Galavu in April 2003 and NTN in December 2003. 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 in the future.  Through the acquisition of Logicorp Data
Systems Ltd. and Logicorp  Service Group Ltd.,  the Company  expects the revenue
for 2003 and 2004 to be substantially higher than that for 2002 and expects this
division will generate positive cash in 2004 and beyond.

                                      F-8
<PAGE>


2. ECONOMIC DEPENDENCE

        Interactive  is  dependent  upon NTN  Communications,  Inc.  as its sole
supplier for the  transmission of program content to the Company's  subscribers.
In  the  event  that  NTN   Communications,   Inc.,  which  operates  under  the
going-concern  assumption,  terminates the transmission of program content,  the
Company  believes,  but  cannot  assure,  that such  services  are  likely to be
continued by others.  As of September  30, 2002,  NTN  Communications,  Inc. had
shareholders'  equity of $1,869,000 and working capital of $1,700,000  according
to  its  unaudited  balance  sheet  included  in  its  quarterly   report.   NTN
Communications,  Inc.  has reported a quarterly  net loss for the quarter  ended
September 2002 of $689,000, a quarterly net loss for the quarter ended June 2002
of  $898,000  and a  quarterly  net loss for the  quarter  ended  March  2002 of
$166,000. It reported an unaudited net loss for the year ended December 31, 2001
of $3,656,000.  All such amounts are quoted in US dollars. In December 2003, the
Company completed the sales of assets and liabilities of Interactive. During the
years ended August 31, 2002,  2001,  and 2000,  the Company paid  commission  of
$1,772,375, $1,865,974, and $1,822,684 to NTN Communications, Inc.

3. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        These consolidated financial statements have been prepared in accordance
with accounting  principles  generally accepted in the United States of America.
They are  expressed  in Canadian  dollars,  which is the currency of the primary
economic environment in which operations are conducted.

        The preparation of consolidated  financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

CONSOLIDATION POLICY

        These  consolidated  financial  statements  include the  accounts of the
Company and its wholly-owned subsidiaries:  Logicorp, CMCG, Interactive, GalaVu,
3484751 Canada Inc., Chell.com USA Inc., Magic and Interlynx.  In December 2003,
the  Company  completed  the sale of  assets  and  liabilities  of  Interactive.
Effective April 25, 2003, the Company sold its wholly-owned  subsidiary  GalaVu.
Effective March 18, 2002, the Company sold Magic and its wholly-owned subsidiary
Tutorbuddy  and its 75% ownership of STI for cash  consideration  of $1,850,000.
Effective June 30th 2001, the Company sold Interlynx, a wholly-owned  subsidiary
of  Interactive  for $50,000 and a  promissory  note of $45,000.  The  Company's
consolidated  financial  statements  have been restated to reflect  Interactive,
GalaVu,  Magic  and  Interlynx  as  discontinued   operations  for  all  periods
presented.  The Company uses the equity method for  investments in which it owns
less than 51% but over 20%.

All significant intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION

        Revenue from product sales is recognized  when the product is shipped to
customers.  For maintenance  contracts,  revenue is recognized  ratably over the
life of the related contract.  Provisions for discounts to customers,  estimated
returns and allowances and other price  adjustments are provided for in the same
periods the related revenue is recorded.  Outbound shipping charges to customers
are included in net sales.

        Software sales are recognized in accordance with the American  Institute
of Certified  Public  Accountants  Statement of Position  (SOP) 97-2,  "Software
Revenue  Recognition,"  as  amended  by SOP  98-9,  "Modification  of SOP  97-2,
SOFTWARE REVENUE RECOGNITION, With Respect to Certain Transactions." Pursuant to
SOP 97-2,  software  sales are  recognized  on sales  contracts  when all of the
following  conditions are met: persuasive evidence of an agreement exists (e.g.,
a signed contract is

                                      F-9
<PAGE>


obtained),   delivery  has   occurred,   the  total  sales  price  is  fixed  or
determinable,  collectability is probable,  and any uncertainties with regard to
customer  acceptance  are  insignificant.  For those  contracts  that  include a
combination  of software and services,  sales are allocated  among the different
elements based on company-specific evidence of fair value of each element. Sales
allocated  to software  are  recognized  as the above  criteria  are met.  Sales
allocated to services are  recognized  as services are performed and accepted by
the  customer  or,  for  maintenance  agreements,  ratably  over the life of the
related contract.

        Revenue for resale of software and technology  equipment and service fee
is recognized based on guidance  provided in Securities and Exchange  Commission
(SEC) Staff  Accounting  Bulletin  No. 101,  "Revenue  Recognition  in Financial
Statements," as amended,  (SAB 101).  Software and technology  equipment  resale
revenue is recognized  when all of the  components  necessary to run software or
hardware  have been  shipped.  Service  revenues  include  maintenance  fees for
providing system updates for software products, user documentation and technical
support  and are  recognized  over  the  life  of the  contract.  Other  service
revenues,  including training and consulting, are recognized as the services are
performed.  The Company  records an allowance  for  uncollectible  accounts on a
customer-by-customer basis as appropriate.

DEFERRED REVENUE

        Deferred  Revenue is recorded  when  payments are received in advance of
the Company's performance in the underlying service agreement.  Deferred revenue
is amortized ratably over the period in which the services are provided.

REBATES AND COOP FUNDS

        The  Company's  wholly-owned  subsidiary,  Logicorp  Data Systems  Ltd.,
receives  rebates and  marketing  campaign  reimbursements  ("coop  funds") from
manufacturers  based on  sales  volume  and  based on  special  pricing  for its
customers.  Rebates are  classified  as reduction  of cost of sales,  while coop
funds are  classified  as reductions  of selling and  marketing  expenses.  Such
expenses for each reporting period are summarized as follows for the period from
January 1, 2002  (effective  date of the  acquisition  of Logicorp  Data Systems
Ltd.) to August 31, 2002:

--------------------------------------------------------------------------------
                                    2002             2001             2000

================================================================================
Rebates                            197,744            --               --
Coop Funds                         277,278            --               --
--------------------------------------------------------------------------------
Total                              475,022            --               --
--------------------------------------------------------------------------------


ADVERTISING

        The Company expenses  advertising,  promotion,  and marketing costs when
incurred. Such expenses are summarized as follows:

--------------------------------------------------------------------------------
                                    2002             2001             2000

================================================================================
Advertising                        34,458           29,561            24,665
Promotion                          63,344           64,424            65,504
Marketing                          27,443           43,482            59,520
--------------------------------------------------------------------------------
Total                             125,245          137,467           149,689
--------------------------------------------------------------------------------

COMPREHENSIVE INCOME

        The Company's consolidated financial statements are reported in Canadian
dollars  since the  majority of its assets are located in Canada and majority of
its operations took place in Canada.  Transactions for Chell Group  Corporation,
the registrant,  (excluding all the  subsidiaries) are conducted in U.S. dollars
and all the related assets and  liabilities  are translated at exchange rates in
effect at the end of the year.  Accounts for  statements  of operations of Chell
Group  Corporation  (excluding all the  subsidiaries) are translated at weighted
average rates for the year. Gains and losses from translation of

                                      F-10
<PAGE>


foreign  currency  financial  statements  into Canadian  dollars are included in
other comprehensive  income (loss). The accumulated foreign currency translation
adjustment  was  $215,097 and $0, for the years ended August 31, 2002 and August
31, 2001, respectively.

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents  include cash and term deposits,  which mature
in less than three  months from the date of issue.  The  carrying  value of cash
equivalents approximates their fair values.

SHORT-TERM INVESTMENTS

        Investments at August 31, 2001 consist of marketable equity  securities.
The Company has  classified its portfolio as "trading".  Trading  securities are
bought and held principally for the purpose of selling them in the near term and
are recorded at fair value.  Unrealized  gains and losses on trading  securities
are included in the  determination  of net income (loss) for the year.  The fair
value of these securities represents current quoted market offer prices.

CONCENTRATION OF CREDIT RISK

        The  Company  generally  extends  credit  to  its  customers,   who  are
concentrated  in the  government  units and  large  corporations,  and  performs
ongoing credit  evaluations of its  customers.  Typically,  the Company does not
require  collateral.  The Company  routinely  reviews the  collectability of its
accounts  receivable  and provides an allowance  for  potentially  uncollectible
amounts and price  adjustments.  The  Company's  estimate is based on historical
collection  experience  and a review of the  current  status  of trade  accounts
receivable.  It is reasonably  possible that the Company's estimate of allowance
for doubtful accounts and price adjustments will change.

FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying value of accounts receivable,  bank indebtedness,  accounts
payable,   accrued  liabilities,   long-term  debt,  and  due  to  shareholders,
approximates fair value because of the near term maturity of these instruments.

USE OF ESTIMATES

        The  preparation  of financial  statements in conformity  with U.S. GAAP
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities as of the date of the financial  statements and the reported amounts
of revenues and  expenses  during the  reporting  period.  The most  significant
accounting  estimates  inherent in the  preparation of our financial  statements
include  estimates as to the  appropriate  carrying  value of certain assets and
liabilities  which  are not  readily  apparent  from  other  sources,  primarily
accounts  receivable,  inventory,  property and  equipment,  intangible  assets,
deferred  revenue,  rebates and coop fund and warranty costs.  Actual results in
subsequent periods could differ from management's estimates.

BUSINESS ACQUISITION

        Effective  January 1, 2002,  the Company  acquired 100% of Logicorp Data
Systems Ltd.  and Logicorp  Service  Group Ltd. The  operating  results of these
subsidiaries  are  included  in  the  accompanying  consolidated  statements  of
operations from the date of acquisition.

DISCONTINUED OPERATIONS

        Discontinued  operations  for 2002 include the disposal loss of the sale
of Magic Lantern Communications  ("Magic") which was sold on March 18, 2002. For
2001, it includes the disposal loss on the sale of Interlynx.

        The  discontinued  operations also include the operating  results of (1)
Magic from  September  1, 2001 to March 18,  2002 the date  Magic was sold;  (2)
Galavu  for the  period  from  September  1, 2001 to August  31,  2002,  and (3)
Interactive for the period from September 1, 2001 to August 31, 2002.  Operating
results of the above mentioned subsidiaries for the years

                                      F-11
<PAGE>


ended  August  31,  2002,  2001 and 2000  have  been  reported  as  discontinued
operations in the accompanying consolidated statements of operations.

IMPAIRMENT OF GOODWILL

        Goodwill  represents  the excess of the  purchase  price of an  acquired
enterprise or assets over the fair values of the  identifiable  assets  acquired
and  liabilities  assumed.  Commencing  September 1, 2001, the Company no longer
amortizes goodwill,  but tests for impairment of goodwill on an annual basis and
at any other time if events occur or  circumstances  indicate  that the carrying
amount of goodwill may not be recoverable.

        Circumstances  that could trigger an impairment test include but are not
limited  to: a  significant  adverse  change in the  business  climate  or legal
factors;  an  adverse  action  or  assessment  by  a  regulator;   unanticipated
competition;  loss of key  personnel;  the  likelihood  that a reporting unit or
significant  portion of a  reporting  unit will be sold or  otherwise  disposed;
results of testing for  recoverability  of a  significant  asset group  within a
reporting unit; and  recognition of a goodwill  impairment loss in the financial
statements of a subsidiary that is a component of a reporting unit.

        Due to the  substantial  increase in operating loss and severe  negative
cash flows of Logicorp Data Systems Ltd. and Logicorp  Service Group Ltd.  since
the  acquisitions,  the Company assessed the fair value of these reporting units
and determined that the carrying  amount of the reporting unit goodwill  exceeds
the implied fair value of that  goodwill.  Accordingly,  an  impairment  loss of
$10,489,549 is recorded in accompanying  consolidated  statements of operations.
Measurement of the fair value of these reporting units is based on present value
techniques of estimated future cash flows.

WARRANTY COST

        The Company does not provide any warranties on its products.  Warranties
that are provided are the liability of the manufacturers.

INVENTORY

        Inventory  consists of finished  goods held for sale or rent,  which are
valued  at the lower of cost,  using  the  first-in,  first-out  method,  or net
realizable value.

ACCOUNTS RECEIVABLE

        The Company's  division in the computer reselling business often adjusts
its product  prices  after the  products  are shipped due to price  errors.  The
Company  estimates  an  allowance  for  price  adjustments  at the  end of  each
reporting  period based on the  historical  price  adjustment  to its sales.  In
addition,   the  Company   estimates  the   allowance   for  doubtful   accounts
periodically.  The Company has $120,000 in allowance  for doubtful  accounts and
$40,000  in  allowance  for price  adjustments  as of August 31,  2002.  No such
allowance  was accrued prior to the  acquisition  of this division on January 1,
2002.

         CHANGES IN THE ALLOWANCE FOR DOUBTFUL ACCOUNTS ARE AS FOLLOWS:

                                                 2002            2001
                                              ---------       ---------
        Beginning balance                     $ 227,000       $ 178,000
        Increase through acquisition
          of Logicorp Data Systems              270,000              --
        Provision for doubtful accounts         (11,223)        166,500
        Write-offs                             (218,477)       (117,500)
        Reclassification to discontinued
          operations                           (107,300)       (227,000)
                                              ---------       ---------
        Ending balance                        $ 160,000       $     -0-
                                              =========       =========

                                      F-12
<PAGE>


PROPERTY AND EQUIPMENT

        Property and equipment are stated at cost less accumulated depreciation.
Depreciation  and  amortization  of equipment  are provided  over the  estimated
useful  lives  of  1  to 3  years  using  the  straight-line  method.  Leasehold
improvements  are  amortized  on a  straight-line  basis over the shorter of the
economic  useful  lives  or  the  lease  term.  Buildings  are  amortized  on  a
straight-line basis over the economic useful lives of 25 years.

EVALUATION OF LONG-LIVED ASSETS

The Company  requires  long-lived  assets to be held and used to be analyzed for
impairment whenever events or changes in circumstances indicate that the related
carrying amounts may not be recoverable.  The Company  evaluates at each balance
sheet date  whether  events  and  circumstances  have  occurred  that  indicated
possible  impairment.  If there are indications of impairment,  the Company uses
future  undiscounted  cash flows of the related asset or asset grouping over the
remaining  life in measuring  whether the assets are  recoverable.  In the event
such cash flows are not expected to be sufficient to recover the recorded  asset
values,  the assets are written down to their  estimated fair value.  Long-lived
assets to be  disposed of are  reported at the lower of carrying  amount or fair
value of the assets, less the costs to sell.

GOODWILL AND OTHER INTANGIBLE ASSETS

        Effective  September 1, 2001,  we adopted  SFAS 142,  GOODWILL AND OTHER
INTANGIBLE  ASSETS.  SFAS 142 requires that goodwill and certain  intangibles no
longer be amortized,  but instead tested for impairment at least annually. Prior
to September 1, 2001, goodwill was stated at cost less accumulated amortization.

        SFAS  142  requires  that  goodwill  be  tested  for  impairment  at the
reporting unit level (operating segment or one level below an operating segment)
on an annual  basis  (Aug 31st for the  Company)  and  between  annual  tests in
certain  circumstances.  Application  of the goodwill  impairment  test requires
judgment,  including the identification of reporting units, assigning assets and
liabilities  to reporting  units,  assigning  goodwill to reporting  units,  and
determining  the  fair  value  of each  reporting  unit.  Significant  judgments
required to estimate the fair value of reporting units include estimating future
cash  flows,  determining  appropriate  discount  rates and  other  assumptions.
Changes  in  these  estimates  and  assumptions   could  materially  affect  the
determination of fair value and/or goodwill impairment for each reporting unit.

        On an ongoing basis,  management  reviews the valuation and amortization
of  the  licenses  and  goodwill,  taking  into  consideration  any  events  and
circumstances  which might have  impaired  the fair value.  The Company  assumes
there is an impairment  if the carrying  amount is greater than the expected net
future  cash flows.  The amount of  impairment,  if any,  is  measured  based on
projected  discounted future cash flows, using a discount rate that reflects the
Company's average cost of funds.

There was an impairment  of goodwill  arising from the Logicorp  purchase.  This
impairment  has been recorded in the fourth quarter of the year ended August 31,
2002.

OTHER ASSETS

        Other assets  includes  legal cost related to debt  financing  which are
being amortized over the term of the convertible debt. Any remaining unamortized
costs at date of conversion will be netted against additional paid in capital.

INCOME TAXES

        Deferred tax assets and  liabilities  are  recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities,  and their respective tax
basis.  Deferred tax assets,  including tax loss and credit carry forwards,  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment  date.  Deferred  income tax expense  represents the change during the
period in the deferred tax assets and deferred tax  liabilities.  The components
of the  deferred  tax assets and  liabilities  are  individually  classified  as
current  and  non-current  based on their  characteristics.  Realization  of the
deferred tax asset is dependent  upon  generating  sufficient  taxable income in
future years.  Deferred tax assets are reduced by a valuation allowance when, in
the opinion of  management,  it is more likely than not that some portion or all
of the deferred tax assets will not be realized.

                                      F-13
<PAGE>


LOSS PER SHARE

        Basic loss per share is computed by dividing income  available to common
shareholders by the weighted average number of common shares outstanding for the
period  excluding  contingent  shares  issued in  accordance  with SFAS No. 128,
EARNINGS PER SHARE. Diluted earnings per share are calculated in accordance with
the treasury  stock method (which assumes that proceeds from the exercise of all
warrants and options are used to  repurchase  common stock at market  value) and
are based on the weighted  average  number of common shares and dilutive  common
share equivalents outstanding.  The Company has outstanding options and warrants
of  1,543,840,  1,325,000  and  1,297,000 as of August 31, 2002,  2001 and 2000,
respectively.  These options and warrants are not included in the calculation of
diluted loss per share as their effect is anti-dilutive.

STOCK-BASED COMPENSATION

        The Company  accounts for  stock-based  compensation  in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees,"  and complies  with the  disclosure  provisions of SFAS No. 123,
"Accounting for Stock-Based  Compensation."  Under APB No. 25, compensation cost
is recognized  over the vesting period based on the excess,  if any, on the date
of grant of the fair value of the Company's shares over the employee's  exercise
price.  When the exercise  price of the option is less than the fair value price
of the  underlying  shares on the grant date,  deferred  stock  compensation  is
recognized  and amortized to expense in  accordance  with  Financial  Accounting
Standards  Board  ("FASB")   Interpretation  No.  44,  "Accounting  for  Certain
Transactions  Involving Stock Compensation-an  Interpretation of APB Opinion No.
25," over the vesting  period of the  individual  options.  Accordingly,  if the
exercise  price of the Company's  employee  options equals or exceeds the market
price of the underlying shares on the date of grant, no compensation  expense is
recognized.  Options  or shares  awards  issued to  non-employees  are valued in
accordance with SFAS 123 using the Black-Scholes pricing model and expensed over
the period services are provided.

EMPLOYEE STOCK OPTIONS

        The Company has adopted a Long-Term Incentive Plan [the "Plan"] designed
to  compensate  key  employees  of our  Company  for the  performance  of  their
corporate  responsibilities.  The  benefits  to  employees  under  the  Plan are
dependent upon improvement in market value of the Company's  common shares.  The
Plan offers  selected key employees the  opportunity  to purchase  common shares
through the  exercise of a stock  option.  An option  entitles  the  employee to
purchase  common  shares from the Company at a price  determined on the date the
option is granted. The option exercise price is the closing trading price of the
stock on the day prior to the grant  date.  The  options  vest over a  four-year
period from the grant date, at the rate of 25% per year.  Options  granted prior
to August 31, 1998 vest over a two-year  period  from the grant date,  50% after
one year and 50% at the end of the second  year.  The options  expire five years
after the grant date.  The Plan also  provides  that  selected key employees may
receive common shares as an award of Restricted Stock. Restricted Stock consists
of common  shares  that are  awarded  subject  to  certain  conditions,  such as
continued employment with the Company or an affiliate for a specified period. Up
to 20% of the outstanding  common stock, on a fully diluted basis on the date of
the grant, excluding outstanding options may be issued under the Plan.

The following is a summary of outstanding stock options:

                                        WEIGHTED AVERAGE           TOTAL
                                         EXERCISE PRICE
                                             U.S. $                  #
      ====================================================================
      BALANCE AS AT AUGUST 31, 1999                               719,000
      Issued                                  9.42                772,000
      Exercised                               2.79                (68,500)
      Expired                                 2.92               (125,500)
      --------------------------------------------------------------------
      BALANCE AS AT AUGUST 31, 2000                             1,297,000
      Issued                                  4.33                 94,500
      Exercised                               2.68                (62,750)
      Expired                                 2.40                 (3,750)
      --------------------------------------------------------------------
      BALANCE AS AT AUGUST 31, 2001                             1,325,000
      Issued                                  0.95              1,731,215
      Exercised                               0.83               (186,188)
      Expired                                 6.25             (1,326,187)
      --------------------------------------------------------------------
      BALANCE AS AT AUGUST 31, 2002           0.95              1,543,840
      ====================================================================

                                      F-14
<PAGE>


EXERCISE PRICE RANGES                EXPIRATION DATE                     TOTAL
U.S. $                                                                       #
================================================================================
1.00                                 November 1, 2011                  263,965
1.00                                 November 30, 2011               1,079,875
0.60                                 January 7, 2012                   200,000
--------------------------------------------------------------------------------
BALANCE AS AT AUGUST 31, 2002                                        1,543,840
================================================================================

        The number of stock  options  that are  exercisable  at August 31, 2002,
2001 and 2000 is 959,906, 761,163 and 363,666, respectively.

The weighted  average fair value of options granted was U.S. $0.936 during 2002,
$1.17 during 2001, and $1.58 during 2000.

        The Company  accounts for its stock option plans and its employee  stock
purchase plan in accordance with the provisions of APB 25. Accordingly,  because
the exercise  price of the employee stock options equals the market price of the
underlying  stock  on the  date of  grant,  no  compensation  expense  has  been
recognized in the consolidated financial statements for these plans.

        Pro forma  information  regarding  net income and  earnings per share is
required by SFAS 123, and has been  determined  as if we had  accounted  for the
Company's  employee stock options under the fair value method of that Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes  option  valuation model with the following  assumptions for 2002,
2001,  and 2000: (a) risk-free  interest rate of 5.09% for 2002,  5.39% for 2001
and 5.84% for 2000;  dividend  yield of 0% for 2002,  2001 and 2000;  volatility
factor of 120.5% for 2002,  70.7% for 2001,  and 84.8% for 2000;  and a weighted
average expected life of the options of 3 years for 2002, 3 years for 2001 and 4
years for 2000.

        The  Black-Scholes  option  valuation  model  was  developed  for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  our  stock  options  have  characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of the Company's employee stock options.

        Had compensation cost for these stock options been determined consistent
with SFAS No. 123, the Company's net loss and net loss per share would have been
increased to the following pro forma amounts:

                                         2002           2001           2000
--------------------------------------------------------------------------------
                                          $              $              $
Net loss as reported                 (30,751,537)    (11,747,639)  (2,323,621)
================================================================================
Pro forma net loss                   (32,133,114)    (13,000,844)  (2,518,310)
================================================================================


Basic and diluted loss per share
   as reported                             (3.11)          (1.40)       (0.81)
Proforma basic and diluted loss
   per share                               (3.26)          (1.49)       (0.88)
================================================================================


                                      F-15
<PAGE>


RECLASSIFICATIONS

        Certain 2001 and 2000 balances have been  reclassified to conform to the
fiscal  year  2002  presentation.  These  reclassifications  had  no  effect  on
previously reported results of operations or financial position.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

        In July 2001, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No.  141  "BUSINESS  COMBINATIONS."  SFAS  No.  141  supersedes  Accounting
Principles Board ("APB") Opinion No. 16, "BUSINESS  COMBINATIONS,"  and requires
that any business combination initiated after June 30, 2001, be accounted for as
a purchase, therefore, eliminating the pooling-of-interest method defined in APB
No. 16. The statement was effective for any business combination initiated after
June 30, 2001, and must have been applied to all business combinations accounted
for by the purchase  method for which the date of acquisition  was July 1, 2001,
or later.  The adoption of this statement did not have a material  impact to the
Company's financial position or results of operations.

        In October  2001,  the FASB issued SFAS No. 143,  "ACCOUNTING  FOR ASSET
RETIREMENT OBLIGATIONS",  which requires companies to record the fair value of a
liability  for asset  retirement  obligations  in the  period in which  they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction,  and  development or through the normal  operation of a long-lived
asset. When a liability is initially recorded,  the company would capitalize the
cost,  thereby  increasing  the  carrying  amount  of  the  related  asset.  The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value.  Upon  settlement of
the liability,  the obligation is settled at its recorded  amount or the Company
incurs a gain or loss.  The  statement is effective  for fiscal years  beginning
after June 30, 2002.  The  adoption of this  statement is not expected to have a
material impact to the Company's financial position or results of operations.

        In August  2001,  the FASB  issued  SFAS No.  144,  "ACCOUNTING  FOR THE
IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR  LONG-LIVED  ASSETS TO BE DISPOSED OF".
SFAS No. 144 addresses financial  accounting and reporting for the impairment or
disposal of long-lived  assets.  SFAS No. 144 requires that long-lived assets be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that its carrying  amount may not be recoverable and is measured by a comparison
of the  carrying  amount  of an  asset to  undiscounted  future  net cash  flows
expected  to be  generated  by the  asset.  If the  carrying  amount of an asset
exceeds its estimated future  undiscounted  cash flows, an impairment  charge is
recognized for the amount by which the carrying  amount of the asset exceeds the
fair value of the asset.  SFAS No. 144 requires  companies to separately  report
discontinued  operations  and extends that reporting to a component of an entity
that either has been disposed of (by sales,  abandonment or in a distribution to
owners) or is classified as held for sale. Assets to be disposed of are reported
at the  lower of the  carrying  amount or fair  value  less  costs to sell.  The
Company  adopted SFAS No. 144 on September 1, 2002.  The effects of the adoption
will be reflected in the  consolidated  financial  statements for the year ended
August 31, 2003.  For the year ended  August 31, 2002,  the Company has followed
the accounting and disclosure  requirements  of APB 30 "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," and
EITF 95-18.

        In  April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  SFAS-145 eliminates the current requirement that gains and losses
on  extinguishments  of debt must be  classified as  extraordinary  items in the
income  statement.   Instead,   SFAS-145  requires  that  gains  and  losses  on
extinguishments  of  debt  be  evaluated  against  the  criteria  in  Accounting
Principles  Board  (APB)  Opinion  30 to  determine  whether or not it should be
classified as an extraordinary  item. If classification as an extraordinary item
is not  appropriate,  the gain or loss would be  included as part of income from
operations.  The Company  adopted SFAS No. 145 on September 1, 2001 and reported
the loss of extinguishment of debt of $521,120 as loss from operations.

        In June  2002,  the FASB  issued  SFAS No.  146,  "ACCOUNTING  FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES". This Statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN
ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)".  The provisions
of this  Statement  are  effective  for  exit or  disposal  activities  that are
initiated  after  December  31, 2002,  with early  application  encouraged.  The
Company  does not expect the  adoption of SFAS 146 to have a material  impact to
the Company's financial position or results of operations.

                                      F-16
<PAGE>


        In  December  2002,  the FASB  issued  SFAS  No.  148,  "ACCOUNTING  FOR
STOCK-BASED  COMPENSATION  - TRANSITION  AND  DISCLOSURE".  SFAS 148 amends FASB
Statement  No.  123,  "ACCOUNTING  FOR  STOCK-BASED   COMPENSATION",   providing
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also amends
the  disclosure  provisions of SFAS 123 and  Accounting  Principles  Board (APB)
Opinion No. 28, "INTERIM FINANCIAL REPORTING",  to require prominent disclosures
in both annual and interim  financial  statements about the method of accounting
for  stock-based  employee  compensation  and the effect of the  method  used on
reported  results.  Amendments to SFAS 123 related to the  transition and annual
disclosures  are  effective  for fiscal years  ending  after  December 15, 2002.
Amendments  to  disclosure  requirements  of APB  Opinion 28 are  effective  for
interim  periods  beginning after December 15, 2002. The Company does not expect
the adoption of SFAS 148 will have a material impact on its financial  position,
results of operations or cash flows.

        In  November  2002,  FASB  issued  FASB  Interpretation  (FIN)  No.  45,
"GUARANTOR'S  ACCOUNTING AND DISCLOSURE  REQUIREMENTS FOR GUARANTEES,  INCLUDING
INDIRECT  GUARANTEES  OF  INDEBTEDNESS  OF  OTHERS".  FIN 45  requires  that the
guarantor recognize, at the inception of certain guarantees, a liability for the
fair value of the obligation  undertaken in issuing such guarantee.  FIN 45 also
requires additional  disclosure  requirements about the guarantor's  obligations
under  certain  guarantees  that it has  issued.  The  initial  recognition  and
measurement  provisions of this  interpretation  are applicable on a prospective
basis  to  guarantees  issued  or  modified  after  December  31,  2002  and the
disclosure  requirements  are effective for financial  statement  periods ending
after December 15, 2002. The Company adopted FIN No. 45 on September 1, 2002 and
did not expect the adoption of FIN 45 to have a material impact on the Company's
financial position, results of operations or cash flows.

        In January 2003, FASB issued  Interpretation  No. 46,  "CONSOLIDATION OF
VARIABLE  INTEREST  ENTITIES".  FIN 46 changed the criteria by which one company
includes another entity in its consolidated  financial  statements.  Previously,
the criteria were based on control  through voting  interest.  FIN 46 requires a
variable  interest  entity to be  consolidated  by a company if that  company is
subject to a majority of the risk of loss from the  variable  interest  entity's
activities or entitled to receive a majority of the entity's residual returns or
both.  A company  that  consolidates  a variable  interest  entity is called the
primary  beneficiary of that entity.  The  consolidation  requirements of FIN 46
apply  immediately to variable interest entities created after January 31, 2003.
The consolidation  requirements apply to older entities in the first fiscal year
or interim  period  beginning  after June 15,  2003.  Certain of the  disclosure
requirements  apply in all financial  statements  issued after January 31, 2003,
regardless of when the variable interest entity was established.  During October
2003, the FASB deferred the effective date for applying the provisions of FIN 46
until the end of the first interim or annual  period  ending after  December 31,
2003,  if the variable  interest  was created  prior to February 1, 2003 and the
public  entity has not  issued  financial  statements  reporting  such  variable
interest entity in accordance with FIN 46. On December 24, 2003, the FASB issued
FASB  Interpretation  No. 46 (Revised December 2003),  CONSOLIDATION OF VARIABLE
INTEREST ENTITIES,  (FIN-46R),  primarily to clarify the required accounting for
interests in variable interest entities. FIN-46R replaces FIN-46 that was issued
in January 2003.  FIN-46R exempts  certain  entities from its  requirements  and
provides for special  effective  dates for entities that have fully or partially
applied FIN-46 as of December 24, 2003. In certain situations, entities have the
option of  applying or  continuing  to apply  FIN-46 for a short  period of time
before applying FIN-46R.  While FIN-46R modifies or clarifies various provisions
of FIN-46, it also  incorporates many FASB Staff Positions  previously issued by
the FASB.  Management is currently assessing the impact, if any, FIN 46 may have
on the  Company;  however,  management  of the Company does not  anticipate  the
adoption  will have a material  impact to the  Company's  financial  position or
results of operations.

        In April 2003, FASB issued SFAS No. 149,  "AMENDMENT OF STATEMENT 133 ON
DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES".  This  Statement  amends and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No. 133,  "ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES" and is
effective  for  contracts  entered into or modified  after June 30,  2003.  This
Statement amends Statement 133 for decisions made (i) as part of the Derivatives
Implementation  Group process that effectively  required amendments to Statement
133,  (ii) in  connection  with  other  FASB  projects  dealing  with  financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net  investment  that is smaller  than would be required for other
types of contracts that would be expected to have a similar  response to changes
in market  factors,  the meaning of  underlying,  and the  characteristics  of a
derivative that contains financing  components.  The Company does not anticipate
that the  adoption  of this  pronouncement  will have a  material  effect on the
financial statements.

        In May 2003, FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY". This Statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial

                                      F-17
<PAGE>


instruments  with  characteristics  of  both  liabilities  and  equity,  and  is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003.  SFAS 150  requires  that an issuer  classify a
financial  instrument  that is within its scope as a  liability  (or an asset in
some  circumstances).  Many of those  instruments were previously  classified as
equity. Some of the provisions of this Statement are consistent with the current
definition  of  liabilities  in FASB  Concepts  Statement  No. 6,  "ELEMENTS  OF
FINANCIAL STATEMENTS". The remaining provisions of this Statement are consistent
with FASB's proposal to revise that definition to encompass certain  obligations
that a reporting  entity can or must  settle by issuing  its own equity  shares,
depending on the nature of the relationship  established  between the holder and
the  issuer.  While  FASB  still  plans to revise  that  definition  through  an
amendment to Concepts  Statement 6, FASB decided to defer issuing that amendment
until it has concluded its deliberations on the next phase of this project. That
next phase  will deal with  certain  compound  financial  instruments  including
puttable shares, convertible bonds, and dual-indexed financial instruments.  The
Company does not anticipate that the adoption of this  pronouncement will have a
material effect on the financial statements.

        In December  2003,  the FASB issued a revised SFAS No. 132,  "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which replaces the
previously  issued  Statement.  The revised  Statement  increases  the  existing
disclosures  for  defined  benefit  pension  plans  and  other  defined  benefit
postretirement plans. However, it does not change the measurement or recognition
of those  plans as  required  under  SFAS No.  87,  "Employers'  Accounting  for
Pensions," SFAS No. 88, "Employers'  Accounting for Settlements and Curtailments
of Defined  Benefit  Pension Plans and for  Termination  Benefits," and SFAS No.
106,  "Employers'  Accounting for Postretirement  Benefits Other Than Pensions."
Specifically,  the revised Statement  requires  companies to provide  additional
disclosures  about pension plan assets,  benefit  obligations,  cash flows,  and
benefit  costs of  defined  benefit  pension  plans  and other  defined  benefit
postretirement  plans.  Also,  companies  are required to provide a breakdown of
plan assets by category,  such as debt,  equity and real estate,  and to provide
certain  expected rates of return and target  allocation  percentages  for these
asset categories.  The adoption of this  pronouncement is not expected to have a
material impact to the Company's financial statements.

4. DISCONTINUED OPERATIONS

SALE OF GALAVU

        Pursuant to a Share Purchase  Agreement  dated 25th day of April,  2003,
the Company, sold to DVOD Networks Inc., an Ontario corporation ("DVOD"), all of
the  issued and  outstanding  shares of  capital  stock of GalaVu  Entertainment
Network Inc., a  technology-based  entertainment  provider  ("GalaVu") for $1.00
(Canadian).   Concurrently,   the  Company   assigned  to  DVOD  or  caused  its
subsidiaries to assign to DVOD, for $2.00 (Canadian)  promissory notes and other
receivables of GalaVu of the Company or its subsidiaries in the aggregate amount
of  $1,672,608   (Canadian).   At  the  same  time  488605  Ontario  Limited,  a
non-affiliated  Canadian corporation ("488605") and Ruth Margel (one of the note
holders,  an unrelated party) assigned a note payable by GalaVu in the principal
amount of $375,000  (Canadian) to DVOD in return for $170,000 (Canadian) paid by
DVOD and a new note in the  amount of  $325,000  (Canadian)  payable  by 3484751
Canada Inc., a Canadian  corporation  and subsidiary of the Company,  which such
new note was  issued to  reflect  additional  advances  made by 488605  and Ruth
Margel to the Company or  subsidiaries  of the  Company in the past.  There have
been  no  defaults  on  this  agreement.  GalaVu  is  reported  as  part  of the
discontinued business segment (previously entertainment segment).

The  following is a listing of the major  classes of assets and  liabilities  of
GalaVu as of August 31,  2002 and 2001  (presented  as net with  Interactive  on
consolidated balance sheet):

     ----------------------------------------------------------------------
     GALAVU:                          2002                   2001
     ----------------------------------------------------------------------
     Accounts receivable         $    583,837             $  223,261
     Fixed assets                   2,211,894              2,999,173
     Other current assets              69,186                 93,433
     Current liabilities            1,178,379                197,917
     Long-term debt                 2,353,157              2,662,698

     Net assets (liabilities)     $  (666,619)            $  455,252
     ----------------------------------------------------------------------

                                      F-18
<PAGE>


Summarized operating results of GalaVu's discontinued operations are as follows:

--------------------------------------------------------------------------------
                                     Year Ended      Year Ended    Year Ended
                                     August 31,      August 31,    August 31,
                                        2002            2001          2000
================================================================================
Sales                               $ 5,564,277    $ 2,937,189      $ 2,764,160
Net loss from discontinued
  operations, net of tax             (1,516,355)      (602,293)           7,261
Loss on disposal of discontinued
  operations, net of tax                     --             --               --
--------------------------------------------------------------------------------


SALE OF INTERACTIVE

        Pursuant to an Asset purchase  agreement dated the 15th day of December,
2003, the Company sold to NTN  Communications,  Inc. (Amex:  NTN) the assets and
certain  liabilities  of NTN  Interactive  Network,  Inc.  The Company  sold NTN
Interactive   Network's   assets  for   approximately   USD$1.5   million.   The
consideration  was composed of  USD$250,000  in cash,  USD$650,000  in shares of
unregistered  NTN  common  stock  (approximately  238,000  shares  valued at the
closing market price on the date of sale which was $2.73 per share). The Company
intends to hold the shares of NTN for an  indeterminate  period of time, no less
than the required time for Rule 144  restrictions  to be removed.  The remainder
was based  upon the  application  of unpaid  licensing  payables  (approximating
$700,000) owed to NTN Communications, Inc., at the closing of the transaction.

The  Company is  following  the  guidance in APB 30,  "Reporting  the Results of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," and
EITF 95-18  "Accounting and Reporting for a Discontinued  Business  Segment When
the Measurement Date Occurs After the Balance Sheet Date but Before the Issuance
of Financial  Statements".  Following the guidance in these pronouncements,  the
Company will be recording the loss on the sale of  Interactive in fiscal 2003 as
all of the conditions  that arose for the sale to take place did not occur until
after  the  2002  fiscal  year  end.  Interactive  is  reported  as  part of the
discontinued business segment (previously entertainment segment).

The  following is a listing of the major  classes of assets and  liabilities  of
Interactive as of August 31, 2002 and 2001 (presented as net with Interactive on
consolidated balance sheet):

       -----------------------------------------------------------------
       INTERACTIVE:                   2002                 2001
       -----------------------------------------------------------------
       Accounts receivable              $  338,394            $ 166,700
       Fixed assets                       464, 348              772,738
       Other current assets                335,743              216,718
       Intangible assets                  130, 509              192,460
       Current liabilities               1,011,348              896,082
                               -----------------------------------------

                               -----------------------------------------
       Net assets                       $  257,646            $ 452,534
                               -----------------------------------------

       -----------------------------------------------------------------


Summarized  operating  results of  Interactive  discontinued  operations  are as
follows:

--------------------------------------------------------------------------------
                                     Year Ended      Year Ended    Year Ended
                                     August 31,      August 31,    August 31,
                                        2002            2001          2000
================================================================================
Sales                                $4,613,673      $2,386,401    $ 2,390,671
Net income from discontinued
  operations, net of tax             $1,021,845        $609,366       $711,612
Loss on disposal of discontinued
  operations, net of tax                     --              --             --
--------------------------------------------------------------------------------

                                      F-19
<PAGE>


SALE OF MAGIC LANTERN COMMUNICATIONS LTD. ("MAGIC")

        Effective  March 18,  2002,  the  Company  completed  this sale for cash
consideration   of   $1,850,000.   Summarized   operating   results  of  Magic's
discontinued operations are as follows:

--------------------------------------------------------------------------------
                                     Year Ended      Year Ended    Year Ended
                                     August 31,      August 31,    August 31,
                                        2002            2001          2000
================================================================================
Sales                               $ 1,621,287      $4,616,992    $4,971,823
Net loss from discontinued
  operations, net of tax             (1,216,139)       (511,143)     (817,176)
Loss on disposal of discontinued
  operations, net of tax            $  (305,901)             --            --
--------------------------------------------------------------------------------

The  Company's  financial  statements  have been  restated to reflect Magic as a
discontinued operation for all periods presented.

SALE OF INTERLYNX MULTIMEDIA INC. ("INTERLYNX")

        During fiscal 2001, the Company sold Interlynx for cash consideration of
$50,000 and a $45,000 promissory note receivable.

Summarized  operating  results  of  Interlynx  discontinued  operations  are  as
follows:

--------------------------------------------------------------------------------
                                     Year Ended      Year Ended    Year Ended
                                     August 31,      August 31,    August 31,
                                        2002            2001          2000
================================================================================
Sales                                    N/A          313,555       586,756
Net loss from discontinued
  operations, net of tax                 N/A         (665,673)     (857,416)
Loss on disposal of discontinued
  operations, net of tax                 N/A         (937,711)           --
--------------------------------------------------------------------------------

The Company's financial  statements have been restated to reflect Interlynx as a
discontinued operation for all periods presented.

5. SHORT-TERM INVESTMENTS

Short-term investments consist of the following:

                                                            2002        2001
                                                              $          $
--------------------------------------------------------------------------------
Common shares in Stardrive Solutions, Inc.                    --       19,676
--------------------------------------------------------------------------------
                                                              --       19,676
================================================================================

The Company was not a  significant  shareholder  in  Stardrive.  During the year
ended August 31, 2002,  the Company  sold the  investment  as the Company was no
longer targeting Stardrive for acquisition.


                                      F-20
<PAGE>


6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                            2002                                  2001
                          ======================================  =====================================
                             COST      ACCUMULATED   NET BOOK        Cost     Accumulated   Net book
                                      DEPRECIATION     VALUE                  depreciation    value
                               $            $            $             $           $            $
-------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>         <C>           <C>            <C>       <C>
Land                          785,500            --     785,500       503,500           --     503,500
Buildings                   1,396,963       206,151   1,190,812       824,633      161,719     662,914
Equipment                   1,094,650       713,963     380,687       409,734      107,456     302,278
Software                      335,900       231,946     103,954        58,477       19,492      38,985
Automobiles                    23,300        21,055       2,245            --           --          --
Computer Equipment          1,856,983     1,400,393     456,590       464,987      155,055     309,932
Leasehold improvements      1,149,693       608,718     540,975       894,302      178,417     715,885
-------------------------------------------------------------------------------------------------------
                            6,642,989     3,182,226   3,460,763     3,155,633      622,139   2,533,494
=======================================================================================================
</TABLE>

Depreciation  of property and equipment was  $1,019,396  for 2002,  $586,957 for
2001, and $38,514 for 2000.

7. INCOME TAXES

The provision for income taxes consists of the following:

                                                   2002      2001       2000
                                                     $         $         $
--------------------------------------------------------------------------------
Current
   FEDERAL                                           --        --         --
   PROVINCIAL                                        --        --         --
--------------------------------------------------------------------------------
                                                     --        --         --
================================================================================

         The  difference  between the  provision for income taxes and the amount
computed by applying the combined basic federal and  provincial  income tax rate
of 39.3% for 2002,  42.1% for 2001,  and 43.9% for 2000 to income  before income
taxes is as set out below:

<TABLE>
<CAPTION>
                                                                2002           2001         2000
Taxes on continuing operations                                    $              $            $
----------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>
STATUTORY RATE APPLIED TO LOSS FROM CONTINUING OPERATIONS    (12,492,253)   (4,051,216)   (509,125)
Benefit of current year's losses not recognized (change
 in valuation allowance)                                      12,279,176     3,734,669     405,563
Expenses not deductible for tax purposes                         213,077       316,547     117,745
Other                                                                 --            --     (14,183)
----------------------------------------------------------------------------------------------------
                                                                      --            --          --
====================================================================================================

<CAPTION>
                                                                2002           2001         2000
Taxes on discontinued operations                                  $              $            $
-----------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>
STATUTORY RATE APPLIED TO LOSS FROM DISCONTINUED OPERATIONS     (792,186)     (675,025)   (376,406)
Loss of subsidiary sold during the year                         (672,285)     (539,922)         --
Capital loss on sale of subsidiary                               119,901     1,064,133          --
Benefit of current year's losses not recognized (change in
 valuation allowance)                                          1,344,570       150,814     376,406
-----------------------------------------------------------------------------------------------------
                                                                      --            --           --
=====================================================================================================
</TABLE>

                                      F-21
<PAGE>


        For the years  ended  August  31,  2002,  2001,  and 2000,  the  Company
incurred net operating  losses and,  accordingly,  no provision for income taxes
has been  recorded.  In addition,  no benefit for income taxes has been recorded
due to the uncertainty of the realization of any tax assets.

        As at August 31,  2002,  the  Company's  deferred  tax assets  primarily
relating to the benefit of realizing  losses available for carry forward and the
timing  difference  of the  write-off of property and  equipment,  net of a full
valuation  allowance  of  $16,750,000,  was nil.  As at  August  31,  2001,  the
Company's  deferred  tax assets  primarily  relating to the benefit of realizing
losses available for carry forward and the timing difference of the write-off of
property and  equipment,  net of a full valuation  allowance of $5,600,000,  was
nil. Based on the available objective evidence,  including the Company's history
of losses,  management believes it is more likely than not that the net deferred
tax assets will not be fully realizable. Accordingly, the Company provided for a
full valuation  allowance against its net deferred tax assets at August 31, 2002
and 2001.

        At  August  31,  2002,  the  Company  and  certain   subsidiaries   have
non-capital loss carry forwards of approximately $30,000,000 that can be carried
forward  against  future  taxable  income and  capital  losses of  approximately
$2,800,000  that can be  carried  forward  indefinitely  against  capital  gains
realized in future years. The non-capital losses began to expire in 2002.

8. LOANS AND NOTES PAYABLE/ BANK INDEBTEDNESS

Loans and notes payable consist of the following:

                                                        2002           2001
                                                          $             $
--------------------------------------------------------------------------------

BANK INDEBTEDNESS                                      2,990,914             --
--------------------------------------------------------------------------------
                                                       2,990,914             --
--------------------------------------------------------------------------------

LOANS PAYABLE
--------------------------------------------------------------------------------
Short-term note payable [v]                                   --      2,280,000
--------------------------------------------------------------------------------
Convertible promissory notes [iv]                      6,587,622             --
--------------------------------------------------------------------------------
                                                       6,587,622      2,280,000
--------------------------------------------------------------------------------

LONG TERM DEBT:
Term Loan [ia]                                           232,506             --
HP Loan [ii]                                             212,291             --
Royal Bank of Canada [x]                                      --      1,206,478
Bank of Montreal [iii]                                 1,166,667             --
Debenture & Note Payable [v & vi]                      1,360,311      1,250,233
RCA Trusts [vii]                                       1,427,676             --
Term loan [viii]                                          49,278             --
--------------------------------------------------------------------------------
                                                       4,448,729      2,456,711
LESS CURRENT PORTION                                   1,534,073         39,323
--------------------------------------------------------------------------------
LONG TERM DEBT LESS NON CURRENT                        2,914,656      2,417,388
--------------------------------------------------------------------------------


[i]     The bank indebtedness consists of debts from the following entities:

            --------------------------------------------------------
            Company                                         Amount
            ========================================================
            Logicorp Data Systems Ltd. ("LDS") [a]        2,872,850
            eTelligent Solutions Inc.                       118,064
            --------------------------------------------------------
                                                          2,990,914
            ========================================================

                [a]     In March 2001, LDS Logicorp Data Solutions  entered into
        a line of credit  agreement with HSBC Bank of Canada.  Bank advances are
        payable  on demand.  The loan  agreement  covers (i) a demand  revolving
        operating  loan up to  $3,000,000;  (ii)  equipment loan up to $300,000;
        (iii) demand Evergreen Capital loan/lease

                                      F-22
<PAGE>


        facility up to $300,000;  and (iv) loan on forward exchange contracts up
        to $500,000.  The operating  loan carries an interest rate of 0.82% over
        the prime rate while the equipment and Evergreen  Capital loans carry an
        interest rate equal to, at the option of the Company, (a) 1.05% over the
        prime rate at the end of each  month;  or (b) a fixed rate  agreed to by
        both the Bank and the  Company.  Under the terms of the  agreement,  the
        Company  can  borrow,  under the  operating  loan and 31% of the forward
        exchange  contracts  outstanding,  up to an  aggregate  of  (i)  70%  of
        acceptable  accounts  receivable  and (ii) 50% of the  lesser of cost or
        current  market  value of its  inventory  not to  exceed  $750,000.  The
        effective rate at August 31, 2002 was 4.32%.  Borrowings  under the line
        are  subject  to  certain   financial   covenants  and  restrictions  on
        additional  indebtedness and other related items. As of August 31, 2002,
        the  Company is in  violation  of maximum  debt to net worth and minimum
        working  capital  covenants.  The loans are secured by the assets of the
        Company under a general  security  agreement,  and are guaranteed by the
        Logicorp Service Group Ltd.,  through a security  agreement and are also
        personally guaranteed by the former shareholders of LDS. Under the terms
        of the line of credit  agreement,  the bank may declare all  outstanding
        amounts immediately due and payable. The Bank has not called the loan. A
        forbearance  agreement  was signed  that  expired in October  2003.  The
        Company anticipates signing a new forbearance agreement that will extend
        to July 31, 2004.

        On January 22, 2002, Mr. Chell guaranteed liabilities of Logicorp to its
        principal  lender,  HSBC, in the amount of Cdn$1.0 million.  On December
        24, 2002, Mr. Chell guaranteed trade credit of Logicorp to Synnex in the
        amount of approximately Cd. $1.0 million.  On January 7, 2003, the board
        determined  that the Company  would  grant 3.5 million  shares of common
        stock to Mr.  Chell  for such  guarantees  and  other  consideration  in
        support of the Company.  See  "Management's  Discussion  and Analysis of
        Financial  Condition and Results of Operation"  for a description of the
        loans.

[ii]    LDS agreed to pay $212,  291 payable to HP in regards to the  settlement
of claims (NOTE 20[c]).  The loan is payable in monthly  installments  of $4,423
due on the first day of every month,  commencing  on May 1, 2003  through  April
2007  carrying an interest  rate of 0%. This  liability has been recorded at its
full  settlement  value since  calculation  of imputed  interest  is  considered
immaterial to the accompanying consolidated financial statements.

[iii]   In November  2001,  the Bank of Montreal made available to the Company a
Demand  loan,  non-revolving  and/or  Fixed  Rate  Term  Loan in the  amount  of
$1,250,000.  The loan was for payment of the Matched  Fund Term Loan held in the
prior year by The Royal Bank of Canada for properties at 10 Meteor Drive and 775
Pacific Road.  Borrowings are repayable by blended monthly principal payments of
$10,417 and  interest  based on 10-year  term which  matures in  December  2011.
Interest is currently calculated at Prime Rate plus 1.25%. The effective rate at
August  31,  2002  was  5.75%.   The  Company  may  convert  the  Demand   loan,
non-revolving  advances in part or in total to a Fixed Rate Term Loan  advances,
and may be converted  back to Demand loan,  non-revolving  at maturity of terms.
Fixed Rate Term Loan rates are to be  determined  based on  applicable  rates at
time of draw and the available terms are from 1 to 5 years.  The loan is secured
by accounts receivables, inventory and equipment of Interactive and Galavu under
a general security  agreement.  The Demand loan is subject to certain  financial
covenants and restrictions on additional indebtedness and other related items.

[iv]  On  December  1,  2001,  the  Company  offered  to  certain  investors  8%
convertible notes up to a maximum amount of US$8,000,000 in a private placement.
The Company received  approximately  Cdn$6,587,622 through this offering.  Under
the terms of this  offering,  the notes are  convertible  into  shares of common
stock at a price of the greater of (1) 50% of the average closing bid prices for
the ten trading days prior to  conversion  or (2) US$0.50.  These notes were due
August  9,  2002.  On  April 9,  2002 all of the  holders  of the  notes  signed
commitments to voluntarily  convert the notes based on the conversion  price per
the terms of the agreement,  which was determined to be US$0.95 per share.  This
conversion  was subject to shareholder  approval.  The conversion of these notes
would  have  resulted  in  the  issuance  of   approximately   4,389,000  shares
representing  approximately 20% of the total common shares outstanding after the
issuance,  and diluting the current common stockholders.  As of August 31, 2002,
none of  these  shares  has  been  issued  and  the  outstanding  amount  of the
convertible  notes was  classified as  liabilities.  As of December 2, 2002, the
Company,  Joseph  Gunnar  & Co.,  LLC  ("JGUN"),  the  placement  agent  in this
offering,  and the holders of these notes  entered into a  settlement  agreement
providing that the  conversion  price for these notes shall equal 85% of the two
day weighted average trading price of the common stock for the five trading days
preceeding effective date of the registration statement under the Securities Act
of 1933,  as  amended,  relating  to the  resale of the  shares of common  stock
issuable upon such  conversion,  provided,  that such conversion price cannot be
greater than $0.75 or less than $0.40.  Effective  January 7, 2003, the Company,
JGUN,  Cameron  Chell  and  the  holders  of  the  notes  agreed  that  if  this
registration  statement  is not  declared  effective on or prior to September 1,
2003, the noteholders could "put" their shares of common stock to Mr. Chell at a
price of $0.475 per share during the period of December 1-14, 2003. At April 30,
2004, such  registration  statement has not beem filed. By letter dated December
4, 2003, the noteholders agreed to permit the Company until February 28, 2004 to
file all required filing and periodic reports under the Securities  Exchange Act
of 1934,  as amended,  and to amend the period during which they may "put" their
shares issuable upon such  conversion to Mr. Chell from December 1-14,  2003, to
March 1-14,  2004,  in exchange  for the  extension  of the "put" period and the
reduction of the conversion  price to $0.25 per share,  provided,  that, if such
deadline was not  satisfied by the Company such  agreement  and reduction of the
conversion  price would be null and void.  By letter,  dated  February 26, 2004,
this  deadline  and the "put"  period was  amended to be April 30,  2004 and MAy
1-14, 2004, respectively. By letter, dated April 29, 2004, the Company requested
that such  deadline and "put"  period be further  amended to be May 30, 2004 and
June 1-14,  2004,  respectively.  The Company believes that, as these notes have
been  held by the  noteholders  for an  excess  of two  years,  and none of such
noteholders  are or have been affiliates of the Company during the preceeding 90
days,  the notes may be  converted  (at any time and the shares of common  stock
issuable  upon such  conversion  could be resold  pursuant to Rule 144(k),  and,
provided  that the  Company  files all filings and  periodic  reports  under the
Securities  Exchange Act prior to May 31, 2004, these notes shall be manditorily
converted  into shares of common  stock.  In the event that the notes  should be
converted  into  shares of  common  stock at the  conversion  price of $0.25 per
share,  the  aggregate  number  of  shares  of  common  stock  issued  upon such
conversion would be approximately 16,640,000,  representing approximately 54% of
the common stock  outstanding  giving effect to such conversion.  One noteholder
has  indicated  to the Company  that it  believes  that it has a cause of action
against the Company  with  respect to the  foregoing  and its rights  under such
notes, and has threatened to bring such action against the Company. In the event
that the  Company  should be found to be in default of the notes or the  related
agreements,  the  Company may be required to repay the notes in the event that a
settlement is not reached with the  noteholders.  In such event the Company does
not believe that it currently has the necessary  capital  available to repay the
notes and would be  required  to seek  additional  sources  of  capital  or seek
protection from creditors. See "Managements Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

        In addition, since this debt is convertible into equity at the option of
the  note  holder  at  beneficial   conversion  rates,  an  embedded  beneficial
conversion  feature was recorded as a debt discount and will be amortized  using
the effective  interest rate method over the life of the debt in accordance with
EITF 00-27,  "APPLICATION OF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS."
Total cost of beneficial  conversion feature of Canadian  $6,177,647 is recorded
as a discount of the convertible  debt which is fully amortized  during the year
ended August 31, 2002.

[v]     On January 15, 2001, the Company  received  US$1,500,000  (approximately
Cnd$2,280,000)  in return for a promissory  note.  The note bears interest at 2%
per month and  US$1,000,000  of the principal  and accrued  interest was due and
payable on December 5, 2001.  Effective May 6, 2002, the remaining principal and
interest expense was converted to 725,952 common shares of the Company' stock. A
beneficial  conversion and interest expense was calculated as of the date of the
agreement to convert the notes to common shares,  as the difference  between the
conversion price and the fair value of the common stock into which the notes are
convertible.  The  Company  recognized  a loss on  extinguishment  of  debt  and
corresponding  additional  paid  in  capital  in  the  amount  of  approximately
$521,120.  During the year ended August 31, 2002,

                                      F-23
<PAGE>


the Company recorded interest of $522,564,  made cash payments of $1,520,000 and
settled the remaining balance of $1,282,564 with 725,952 shares of the Company's
common stock.  The Company  authorized  the  settlement of the debt at $1.16 per
share on May 1, 2002 while the quoted market price of the common stock was $1.62
with a  discount  of  approximately  $521,120  which  is  classified  as loss on
extinguishment of debt. As of August 31, 2002 and 2001, the outstanding  balance
of the note was $0 and $2,280,000, respectively.

[vi]    On October  3,  2000,  the  Company  closed  the sale of a  US$3,000,000
(approximately   Canadian  $4,740,000)  Convertible  10%  Debenture  to  the  VC
Advantage Limited  Partnership  ("VCALP").  As at August 31, 2001,  US$1,700,000
(approximately  Canadian  $2,635,000)  has been  advanced to the  Company.  This
unsecured  convertible  debenture is due three years from issue. The Convertible
Debenture bears interest at 10% per annum,  payable upon conversion,  redemption
or maturity.  The unpaid principal of the debenture bears interest from the date
that it is actually advanced until paid. Interest is payable in cash or stock at
our option.  The  Convertible  Debenture is  convertible  into common stock,  at
US$3.00 per share,  in amounts  specified  by the VCALP.  The maximum  number of
common shares VCALP will receive is one million.  On the close date, the Company
also issued  50,000  warrants to purchase  50,000  common  shares at US$3.00 per
share to VCALP.  The warrants have a term of four years. The fair value of these
warrants  totaling  approximately  $220,000 was computed using the Black-Scholes
model under the following  assumptions:  (1) expected  life of 1 1/2 years;  (2)
volatility  of 80% (3) risk free  interest of 5.87% and (4) dividend of 0%. This
convertible  debt  matured in October  2003.  The  Company  can elect to pay the
outstanding  loan balance in shares of common stock at a fixed  conversion price
of US$3.00 per share. In addition, since this debt is convertible into equity at
the  option of the note  holder at  beneficial  conversion  rates,  an  embedded
beneficial  conversion  feature  was  recorded  as a debt  discount  and will be
amortized using the effective  interest rate method over the life of the debt in
accordance  with EITF  00-27.  Total cost of  beneficial  conversion  feature of
$1,728,134  and the relative fair value of the warrants of $220,000 are recorded
as a discount of the  convertible  debentures.  During the year ended August 31,
2001, the Company amortized $563,367 as interest expense. As of August 31, 2001,
the  outstanding  balance  of this  debt  net of  unamortized  discount  totaled
$1,250,233.

        On November 30, 2000 the convertible  debenture was assigned by VCALP to
CALP II Limited Partnership.

        During the 2002 Third Fiscal Quarter, the convertible  debenture held by
CALP II Limited  Partnership ("CALP II") on behalf of Canadian Advantage Limited
Partnership  ("CALP") and Advantage  (Bermuda) Fund Ltd.  ("ABFL") was exchanged
for a note payable to CALP in the amount of  US$1,365,100  and a note payable to
ABFL in the amount of  US$504,900.  These notes provide for payment of principal
and  interest  at the rate of 10% per annum on August  31,  2006.  The notes are
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 Canadian Imperial Bank of Commerce ("CIBC").

        Effective  April 15, 2002,  the Company  entered into an agreement  with
CALP to convert the  principal  amount of the note plus  accrued  interest  into
Common Stock at the rate of US$0.80  pursuant to which CALP  received  1,314,000
shares of the Company.  CALP will receive an additional  442,145 shares upon the
approval of the Company's shareholders.

        Effective  April 15,  2002,  the Company  also entered into an agreement
with ABFL to convert the principal amount of the note plus accrued interest into
Common  Stock at the rate of US$0.80  pursuant  to which ABFL  received  486,000
shares of the Company.  ABFL will receive an additional  163,533 shares upon the
approval of the Company's shareholders.

        Certain terms of the  convertible  debt have been changed  including the
fixed  conversion  price reduced from $3 to $0.80.  During the year ended August
31, 2002,  the Company  recorded  additional  discount of $677,216 and amortized
$787,294.  As of  August  31,  2002,  outstanding  balance  of this  debt net of
unamortized discount totaled $1,360,311.

        The  conversion  of the  debt  has been  approved  and the debt  will be
converted from debt to equity upon the filling of the registration statement and
issuance of the shares.

[vii]   The  retirement  compensation  trusts  were set up  pursuant  to section
248(1) of the Income Tax Act of Canada to provide retirement income to the three
individuals  who owned Logicorp.  Pursuant to the original and amended  purchase
agreements  of  Logicorp,  the  Company  will make  monthly  payments  including
interest in various amounts through  December 2005. The loan carries an interest
rate of prime plus 4.75% (8.75% at August 31, 2002).

                                      F-24
<PAGE>


[viii]  The Term loan is comprised of the following:

        [a]     Loan bearing  interest at Prime plus 1.25% per annum,  repayable
in monthly principal installments of $6,643 together with interest.  Loan is due
July 31, 2005. Outstanding balance of this loan totaled $38,050 as of August 31,
2002.

        [b]     Small Business  Equipment  Loans bearing  interest at Prime plus
2.25% per annum.  Outstanding  balance of this loan totaled $11,228 as of August
31, 2002.

Approximate  future annual principal  payments for long-term debt,  exclusive of
the above bank indebtedness, are as follows:

               --------------------------------------------------
               Years ended August 31,

               2003                                    $ 450,739
               2004                                    2,378,634
               2005                                      656,266
               2006                                      254,755
               2007                                      125,000
               Thereafter                                583,335
               --------------------------------------------------
                                                       4,448,729
               ==================================================

[ix]    Other loans

In May  2002,  the  Company  did a  private  financing  raise in the  amount  of
US$290,000 ($443,189).  Since the shares have not been issued the raise has been
placed as a note payable.  Upon the issuance of the Company's  shares,  the note
will be  converted  from debt to  equity.  Per the  agreement  with the  private
investors,  the Company  agreed to sell the share of its common  stock at $1 per
share which results in issuance of 290,000 shares of common stock in relation to
this private financing.  As of December 29, 2003, the Company has not yet issued
these shares to the private investors.

[x]     In April 1998,  the Royal Bank of Canada made  available a Matched  Fund
Term Loan in the amount of  $1,319,000  in order to finance  the  purchase of 10
Meteor Drive, including leaseholds, and to refinance the demand installment loan
on 775 Pacific  Road, a property  owned by Magic.  Borrowings  are  repayable by
blended  monthly   payments  of  principal  and  interest  based  on  a  20-year
amortization  period  with the  balance due and payable at the end of the 5-year
term on April 7, 2003.  The interest rate in effect for the first 5-year term of
the loan is 6.98%. The fair value of the loan approximates its carrying value.

The loan is collateralized  by a fixed debenture of $1,000,000,  hypothecated to
Magic's land and buildings,  a guarantee and  postponement  of claim of $650,000
signed by Magic, a collateral first mortgage in the amount of $490,000  covering
the property at 10 Meteor Drive, and a general security  agreement  covering all
the assets of Interactive, other than real property.

During the year ended August 31, 2002, the Company paid off this debt. At August
31, 2001, $1,206,478 was outstanding under this loan agreement.

9. COMMITMENTS

[a]     Commissions expense to NTN Communications, Inc.

        Pursuant  to  an  agreement  dated  March  23,  1990,  Interactive  pays
commissions to NTN Communications,  Inc. when the related revenues are earned at
the rate of U.S.  $2,205  per year per  subscriber.  Interactive  also  pays NTN
Communications,  Inc. a royalty fee equal to 25% of the net  revenues as defined
in the agreement  derived from all services  except for certain  hospitality and
special  projects  that  existed at March 23,  1990;  a royalty fee equal to the
production quotation submitted by NTN Communications, Inc. plus 10% of the gross
profit of special projects  [special  broadcasts for a non-continuous  selective
event];  and  a  one-time  royalty  fee  equal  to  NTN  Communications,  Inc.'s
production costs for any new programming developed by Interactive to be added to
the existing programming schedule. The agreement expires on December 31, 2015.

The  Company  has signed a Letter of Intent for the sale of certain  Interactive
assets to NTN Communications, Inc.

                                      F-25
<PAGE>


Total amounts expensed under this agreement were $1,770,275 for 2002, $1,865,675
for 2001 and $1,822,684 for 2000.

[b]     Lease commitments

        During the fiscal year ended August 31,  2002,  Chell  Merchant  Capital
Group leased  12,043 square feet of office space in Suites 301, 500 and 700 in a
building  located  at 630 - 8th  Avenue  S.W.  Calgary,  Alberta,  T2P 1G6.  The
combined  annual rent of the three suites was  Cdn$202,087.  We  subleased  this
space to unaffiliated  third parties upon the  discontinuation of the operations
of this subsidiary for Cdn$150,000 per annum.

        Logicorp  leases  approximately  17,502 square feet in Edmonton,  11,800
square feet in Calgary and  approximately  4,500  square feet in  Vancouver  for
approximately annual rent of $220,350,  $115,640 and $62,300  respectively.  The
leases expire as follows: Edmonton - December 2006, Calgary - July 31, 2006, and
Vancouver - March 31, 2006.

The future minimum annual lease payments under operating leases are as follows:

               Years ended August 31,
               ----------------------------------------------------
               2003                                     $  319,157
               2004                                        342,445
               2005                                        342,445
               2006                                        226,715
               ----------------------------------------------------
                                                        $1,230,762
               ====================================================

Operating lease expenses were $682,084 for 2002, $398,073 for 2001, and $264,177
for 2000.

[c]     Employment agreements

        The  Company and  certain  subsidiaries  have  entered  into  employment
agreements with certain executive management employees with terms of between one
and two years. These agreements expire in fiscal 2003. The remaining  commitment
for 2003 is approximately $208,000.

        On September 19, 2000, the Company entered into an employment  agreement
with  Cameron  Chell,  pursuant  to which  Mr.  Chell  served  as the  Company's
President and Chief  Executive  Officer.  The agreement  provided for an initial
annual base  compensation  of $360,000,  together  with  automobile  expenses of
$8,400 annually. In addition to the fixed remuneration, the Company provided Mr.
Chell with the  services of an Executive  Assistant  on an ongoing  basis and an
Accountant  for a  reasonable  period  of time to allow  for the  completion  of
outstanding accounting work related to existing companies in which Mr. Chell was
involved.  It was the understanding of the parties that this agreement was to be
replaced by a definitive  employment agreement before October 10, 2000; however,
such an agreement  has not been entered into at this time.  Since the signing of
this  agreement,  Mr.  Chell  has  eliminated  both his  salary  and  automobile
allowance in an effort to reduce our cash  requirements.  These were  eliminated
with the  understanding  that the  compensation  of Mr.  Chell will be  mutually
agreed upon between the parties. During 2002 Mr. Chell resigned as President and
Chief Executive Officer of the Company.

10. STOCKHOLDERS' EQUITY

[A]     AUTHORIZED SHARES

        The Company's  authorized  share  capital  comprises  50,000,000  common
shares (increased from 20,000,000 shares on February 28, 2001), with a par value
of  $0.063  [U.S.  $0.0467]  per  share and  1,500,000  non-cumulative  Series B
preferred shares with a par value of $0.012 [U.S.  $0.010] per share. The Series
B preferred  shares are voting and convertible  such that 3 preferred shares are
exchangeable for 1 common share, at the option of the holders.

                                      F-26
<PAGE>


[b]     ISSUED AND OUTSTANDING SHARES

        On  February  6, 2002,  the Company  issued  454,545  Series B preferred
shares  that have a par value of US$.01 per share to acquire  all the issued and
outstanding  preferred  shares  of  Wareforce.com.  The  value  of the  Series B
preferred shares was determined based on the estimated market  capitalization of
the  Company  on  February  6, 2002 which  approximated  $170,500.  Since  these
preferred  shares are convertible  into equity at the option of the note holder,
an embedded  beneficial  conversion  feature of $137,016 has been  recorded as a
dividend in accordance  with EITF 0027.  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.  As
of February 6, 2002,  the maximum  number of shares that can be  converted  into
common  stock was 474,565.  During the year ended  August 31, 2002,  the Company
wrote off the carrying value of the investment in Wareforce of $176,518.

 At August 31, 2001, there were no preferred shares outstanding.

[c]    RESERVED FOR FUTURE ISSUANCES

        As of December  29,  2003,  the Company has  reserved  5,046,682  common
shares for future issuance.  This is comprised of 1,543,840 options  outstanding
as of August 31, 2002 and 3,502,842 warrants,  of which 466,342 were outstanding
as of August 31, 2002.

[d]     WARRANTS OUTSTANDING

        The Company has the following warrants outstanding:

                                                                       REMAINING
                                          NUMBER        PRICE          AVG. TERM

         Warrants outstanding
           as of August 31, 2000              --           --

         Issued                           50,000        $3.00          4.0 years
                                         -------------------------
         Warrants outstanding
           as of August 31, 2001          50,000         $3.00         2.8 years

         Issued                          416,342     $1.00 - 2.00      3.0 years
                                         -------------------------
         Warrants outstanding
           as of August 31, 2002         466,342     $1.00 - $3.00     2.5 years
                                         -------------------------

11.  LOSS PER SHARE

Loss per  share  was  calculated  in  accordance  with  Statement  of  Financial
Accounting  Standards No. 128,  "EARNINGS  PER SHARE." The following  table sets
forth the  computation  of basic and diluted  loss per share for the years ended
August 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                  2002            2001              2000
                                                                    $               $                $
---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>                <C>
NUMERATOR:

Net loss (numerator for basic and diluted loss per share)
from continuing operations                                     (28,735,797)      (9,640,185)       (1,367,902)
Net loss (numerator for basic and diluted loss per share)
from discontinued operations                                    (2,015,740)      (2,107,454)         (955,719)
---------------------------------------------------------------------------------------------------------------
Net loss (numerator for basic and diluted loss per share)      (30,751,537)     (11,747,639)       (2,323,621)
===============================================================================================================

DENOMINATOR FOR BASIC LOSS PER SHARE - adjusted weighted
average number of shares and assumed conversions                 9,879,836        8,393,589         2,873,042
</TABLE>

                                      F-27
<PAGE>


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                  2002            2001              2000
                                                                    $               $                $
---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>                <C>
EFFECT OF DILUTIVE SECURITIES

Convertible preferred shares                                            --               --                --
Convertible promissory notes                                            --               --                --
Employee stock options                                                  --               --                --

---------------------------------------------------------------------------------------------------------------
DENOMINATOR  FOR DILUTED LOSS PER SHARE - adjusted
weighted  average  number of shares and assumed conversions      9,879,836        8,393,589         2,873,042
===============================================================================================================

Basic and diluted loss per share from continuing operations          (2.91)           (1.15)            (0.48)
Basic and diluted loss per share from discontinued operations        (0.20)           (0.25)            (0.33)
---------------------------------------------------------------------------------------------------------------
Net loss per share                                                   (3.11)           (1.40)            (0.81)
===============================================================================================================
</TABLE>

        During the year ended August 31,  2002,  454,545  preferred  shares were
issued. In addition, options to purchase 1,543,840 common shares and warrants to
purchase  466,342  common shares were  outstanding.  These  securities  were not
included in the diluted loss per share  calculation  because the effect would be
anti-dilutive.

        At August 31, 2001,  900,000  preferred  shares  convertible  to 300,000
common shares were exercised and are no longer outstanding. In addition, options
to purchase 1,325,000 common shares were outstanding.  These securities were not
included in the diluted loss per share  calculation  because the effect would be
anti-dilutive.

        At August 31, 2000,  900,000  preferred  shares  convertible  to 300,000
common  shares were  outstanding.  In  addition,  options to purchase  1,297,000
common  shares  were  outstanding.  These  securities  were not  included in the
diluted loss per share calculation because the effect would be anti-dilutive.

12. CONTINGENT LIABILITIES

        On  January  27,  2003,  a former  President  of LDS,  filed a  wrongful
dismissal  claim  against  LDS and the  Company.  A round  of  examinations  for
discovery has been held and preparation of the affidavit of records is underway.
Further  discoveries  were  held  during  the week of  September  8,  2003.  The
Company's counsel has determined that it is too early in the process to evaluate
the merits of the case. The Company has not accrued any  liabilities  related to
this claim as of August 31, 2002. The Company has filed a  counter-suit  stating
that the former President was fraudulent in his representation to the Company in
connection with the Company's acquisition of LDS.

        In June 2001, a former employee filed a wrongful dismissal claim against
LDS.  Subsequently  the employee  offered to settle for which LDS  rejected.  No
further action has taken place since October 2001 and accordingly,  LDS believes
it will prevail and has not accrued  liabilities on the accompanying  financials
statements related to this claim.

        On June 12,  1992,  the  Company  filed a lawsuit  against an  unrelated
company,  Interactive Network Inc. of Mountain view, California,  U.S.A. and its
president.  The suit  seeks a  non-infringement  declaration  with  respect to a
Canadian patent. This action was discontinued on September 9, 1998.

        On June 18, 1992,  Interactive  Network Inc., a third party,  instituted
proceedings against NTN Communications, Inc. ("Communications"), NTN Interactive
Network  Inc.  and  the  Company  in the  Federal  Court  of  Canada  and in the
California Supreme Court claiming patent infringement.  It is the opinion of our
Company's  management  and counsel that this patent  infringement  claim will be
successfully defended.

        Canada Customs and Revenue  Agency is currently in discussions  with the
Company  regarding a potential  liability  with  respect to  withholding  tax on
certain amounts paid to Communications.  An assessment of approximately $550,000
has been made to date by Canada  Customs and Revenue  Agency and the Company has
filed a notice of objection.  Management  and counsel  believe that it has valid
defenses  with  respect to these  matters and,  accordingly,  no amount has been
recorded  in these  consolidated  financial  statements.  In the event that such
matters are settled in favor of Canada Customs and Revenue  Agency,  the amounts
could be  material  and would be  recorded  in the period in which  they  became
determinable.  In December 2003,  the Company  entered into an agreement to sell
certain operating assets and liabilities of the NTN Interactive  Network Inc. to
NTN Communications. As part of the agreement, NTN Communications will assume the
liabilities related to this claim, if any.

                                      F-28
<PAGE>


        The Company and its subsidiaries are not a party or subject to any other
material  pending  legal  proceedings,  other than ordinary  routine  litigation
incidental to its business.  To the knowledge of management no other proceedings
of a material nature have been or are contemplated against the Company.

13. BUSINESS ACQUISITIONS

[a] PURCHASE OF LOGICORP DATA SYSTEMS LTD.,  LOGICORP SERVICE GROUP LTD., 123557
    ALBERTA LTD. AND 591360 ALBERTA LTD.

        Effective  January 1, 2002, the Company acquired 100% of the outstanding
common stock of Logicorp Data Systems Ltd. ("LDS"), Logicorp Service Group Ltd.,
123557  Alberta Ltd. and 591360  Alberta Ltd.  (collectively  "Logicorp")  for a
collective  purchase  price  of  $13,879,686.  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.
Systems  Integration  is an area of  business  in which  the  Company  can offer
systems solutions to companies of various sizes.  These solutions can be through
the delivery and installation of computer hardware  solutions;  through offering
services to companies to aid in their business  processes or  infrastructures or
through   personalized   solutions  aided  for  growing  technology  with  their
organization.

        The  acquisition  was recorded  using the purchase  method of accounting
and, accordingly, the purchase price has been allocated as set out below:

                                                                          $
--------------------------------------------------------------------------------
Goodwill (see below for discussion
  on amended purchase price and impairment)                          13,429,307
Accounts receivable                                                   8,252,652
Inventory                                                               738,081
Fixed assets                                                          2,366,038
Other current assets                                                    783,932
Accounts payable and accrued expenses                               (8,800,327)
Other current liabilities                                           (2,889,997)
--------------------------------------------------------------------------------
                                                                     13,879,686
--------------------------------------------------------------------------------

        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   shares  of  CMCG  which  had  a  fair  value
approximating  $10,000,000.  As the shares were exchangeable into Company shares
at  inception,  the fair value of the shares  issued was  determined by using an
average  trading  price of the  Company's  common stock for a reasonable  period
before and after the  acquisition  date, in  accordance  with SFAS 141 "Business
Combinations".  These shares of CMCG are exchangeable on a one for one basis for
common  shares of the  Company.  The  election  to exchange is not subject to or
contingent on any future events or conditions and is solely at the option of the
sellers.  The first  promissory note with a maturity value of $1,800,000 was due
June 30, 2002.  Prior to payment of the first  promissory  note, the Company had
the option 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 June 30, 2002 and the second half would be due  December  31, 2002.
The Company did not make this election and paid the $1,800,000  promissory  note
in cash.  The second  promissory  note has a maturity  value of $500,000 and was
initially 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 could 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 was less than US$1.00. The
weighted average closing stock price was greater than US$1.00 during this period
and accordingly, no adjustment to the purchase price was required.

        During the fourth quarter of fiscal 2002, the Company began negotiations
to adjust the purchase price of Logicorp due to an investigation of claims filed
by Logicorp owed by  Hewlett-Packard  (Canada)  Ltd.  ("HP").  As a result,  the
purchase

                                      F-29
<PAGE>


price for Logicorp has been amended,  the issuance of exchangeable common shares
has been decreased by 2,000,000 to 3,355,000 (from 5,355,000 originally) and the
second  promissory note of $500,000 has been  cancelled.  This has resulted in a
balance of $200,000  still owed which is classified  as a loan payable,  related
party on the August 31, 2002 balance sheet. In addition,  a historical  audit of
Logicorp resulted in significant  restatement  issues which resulted in combined
negative  book  values  of  ($2,074,567)  as of  December  31,  2001  (the  date
immediately prior to acquisition date). The purchase price has been adjusted for
these events. For financial reporting  purposes,  goodwill is being allocated to
the  integrated  systems  segment.  For tax  purposes,  all of the  goodwill  is
expected  to  be  deductible.  The  following  is  the  revised  purchase  price
allocation which was recorded in the fourth quarter of fiscal 2002:

      AMENDED PURCHASE PRICE                                    $
      --------------------------------------------------------------------
      Goodwill (see below for discussion on impairment)        10,489,549
      Accounts receivable                                       7,754,995
      Inventory                                                   377,016
      Fixed assets                                                743,118
      Other current assets                                        489,817
      Accounts payable and accrued expenses                   (6,056,814)
      Line of credit                                          (3,119,979)
      Other current liabilities                               (1,401,728)
      Long Term debt                                            (861,425)
      --------------------------------------------------------------------
                                                                8,414,549
      --------------------------------------------------------------------

        As a result  of the  financial  statement  restatement  issue  discussed
above,  and in  addition to the  significant  operating  losses  incurred by the
Logicorp entities subsequent to the acquisition date,  management of the Company
has  determined  that an  impairment  of goodwill  had occurred as of August 31,
2002. Accordingly,  the $10,489,549 was written off in its entirety effective in
the fourth quarter of fiscal 2002.

        The  operating  results  of  Logicorp  are  included  in  the  Company's
consolidated  statements of operations  from the effective  date of  acquisition
(January 1, 2002).

PRO FORMA INFORMATION (UNAUDITED)

        The following  pro forma  information  on results of operations  assumes
that Logicorp was purchased at the beginning of each period presented.

                                                     For Year Ended
                                        Aug 31, 2002  Aug 31, 2001  Aug 31, 2000
                                             $             $             $
                                        ------------  ------------  ------------
Revenues                                 48,640,400    61,926,494    64,885,421

Net loss                                (28,146,376)  (10,606,336)  (12,265,788)
Net loss per share - basic and diluted        (2.85)        (1.26)        (1.58)

The pro forma  information is presented for  informational  purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had the  acquisition  been  consummated as of that time, nor is it
intended to be a projection of future results.

[b]     PURCHASE OF ETELLIGENT SOLUTIONS INC.

        Effective June 1, 2002,  Logicorp Data Systems Ltd. acquired 100% of the
shares of eTelligent  Solutions  Inc.  ("eTelligent"),  for a purchase  price of
$165,000  which was payable as follows:  $75,000 was paid at the date of closing
and the balance is to be paid by four interest free promissory  notes due on the
following  dates:  $22,500 payable on March 1, 2003, June 1, 2003,  September 1,
2003 and January 1, 2004.

                                      F-30
<PAGE>


        The  purchase  price may be adjusted  downward  dollar for dollar by the
amount that the  earnings  before  taxes of  eTelligent  from June 1, 2002 until
October 31, 2003 is less than  $245,000.  However,  the purchase price cannot be
less than $150,000.

        The purchase price may be adjusted  upward eighty cents for every dollar
that eTelligent's  Earnings before taxes exceed $245,000 from June 1, 2002 until
October 31, 2003. The purchase price may be further adjusted:

        a.      By any increase in the Loans above $75,000

        b.      By any increase in the eTelligent  line of credit before June 1,
                2002 above $135,000,  or

        c.      If the Term Loan was increased above $65,000 before June 1, 2002

        The operating  results  related to the  acquisition  are included in the
Company's  consolidated  statements of operations  from the date of acquisition.
Pro-forma information has not been provided for the prior year because it is not
material.

[c]     PURCHASE OF ASSETS AND SHARES FROM CHELL.COM LTD. AND CAMERON CHELL

        On  September  19,  2000,  pursuant to an Agreement of Purchase and Sale
dated as of August 4,  2000,  the  Company  and its  subsidiary  Chell  Merchant
Capital Group acquired certain assets from Chell.com Ltd.  ("Chell.com") and the
following shares for an aggregate purchase price of US$27,002,086:

        (a)     480,000  shares of cDemo  were  acquired  by the  Company  which
                represents approximately 14.3% of cDemo's issued and outstanding
                stock;

        (b)     875,000 shares of Engyro Inc. were acquired by the Company which
                represents  approximately 34% of Engyro's issued and outstanding
                stock;

        (c)     60,000  Common   Shares  of  Chell.com   (USA)  Inc.,  a  Nevada
                corporation  were acquired by the Company which  represents 100%
                of Chell.com (USA)'s outstanding stock; and

        (d)     962,500  Common  Shares of eSupplies,  Inc.,  which were held in
                escrow as discussed below, were subsequently released.

        Pursuant to the Purchase and Sale  Agreement,  the Company  acquired the
above-referenced  shares for an aggregate  purchase price of US$25,234,583.  The
Company also acquired  certain  assets from Chell.com  including  office leases,
office equipment and computers,  insurance  contracts,  employment contracts and
service  agreements  for  a  price  of  US$1,767,503.   The  sole  director  and
shareholder  of Chell.com is Cameron Chell.  Chell  Merchant  Capital Group also
assumed a liability owing by Chell.com to Canadian Advantage Limited Partnership
II, in the amount of  US$1,767,499  on the  condition  that  Canadian  Advantage
Limited  Partnership  II accept full  settlement of such  indebtedness  by Chell
Merchant  Capital  Group  issuing  451,868  exchangeable  shares.  The aggregate
purchase  price payable by the Company under the Purchase and Sale  Agreement of
US$27,002,086 was paid by the Company issuing a total of 5,396,733 Common Shares
at the deemed price of US$3.91155  per share and 1,506,439  shares of CMCG which
were  exchangeable for the Company's  Common Shares on a one-for-one  basis. The
1,476,398  exchangeable  shares  of CMCG  that were  originally  issued  for the
962,500 eSupplies shares had been held in escrow pursuant to an escrow agreement
dated October 11, 2000 among Cameron Chell,  the Company and Wolff Leia Huckell,
Barristers and Solicitors.  These CMCG  exchangeable  shares were to be released
from escrow after receiving  written notice from the Company that the new course
of business  being taken by eSupplies fit with the Company's  business model and
provided  significant  value to the Company.  Since the Company has subsequently
determined  that  eSupplies'  business  profile does not fit with the  Company's
business  profile,  the CMCG  exchangeable  shares have been  cancelled  and the
962,500 eSupplies shares have been returned to Cameron Chell.  Subsequent to the
cancellation  of the eSupplies  transaction,  the aggregate  purchase  price was
reduced to US$21,227,081.

        This  acquisition was not reflected in the financial  statements for the
year  ended  August  31,  2000 since  shareholder  approval  to ratify the above
purchase transaction was not voted on and approved until September 8, 2000. As a
result of the above,  Cameron Chell and Chell.com  owned greater than 50% of the
Company's  outstanding  common  stock,  that is the  Company  has in effect been
acquired in a reverse acquisition.

        This  acquisition  of the Company by Cameron Chell and Chell.com and the
acquisition  by the Company of the equity  interests,  as described in the first
paragraph,   are  reflected  at  historical  cost  in  the  Company's  financial
statements.

                                      F-31
<PAGE>


[d]     GALAVU ENTERTAINMENT NETWORK INC.

        On September 13, 1999,  pursuant to an Asset Purchase Agreement dated as
of the 10th day of  September,  1999,  the  Company,  through  its  wholly-owned
subsidiary,   GalaVu,   acquired,   effective  as  of  September   13th,   1999,
substantially all of the property and assets [excluding accounts  receivable] of
GalaVu  Entertainment  Network,  Inc.  The  purchase  price  of  $2,958,058  was
satisfied by the issuance of 100,000  common shares of the  Company's  stock and
the issuance of a promissory note [the "Note"]. The Note is secured by a general
security interest in all of GalaVu's present and after-acquired assets. The Note
shall be payable in cash or in common  shares of the Company's  stock  annually,
for the term consisting of each of the next five fiscal years in an amount equal
to 50% of the earnings before interest,  taxes, depreciation and amortization of
GalaVu for the immediately  preceding annual period.  Pursuant to the provisions
of the Note,  the minimum  amount to be received by the holder of the Note is as
follows: fiscal 2001 - $300,000, fiscal 2002 - $500,000, fiscal 2003 - $750,000,
fiscal 2004 - $875,000 and fiscal 2005 - $875,000.

        The  present  value of the Note,  discounted  at the  Company's  average
borrowing  rate  (6.5%)  amounted to  $2,662,698.  The fair value of the Note at
August 31, 2001  approximated its carrying value. The interest  accretion on the
discounted note amounted to $173,076  during fiscal 2001.  This  acquisition was
recorded using the purchase  method of accounting and  accordingly  the purchase
price has been allocated as follows:

                                                                      $
        ----------------------------------------------------------------

        Property and equipment                                3,487,498
        Assumption of liabilities                             (529,440)
        ----------------------------------------------------------------
        PURCHASE PRICE                                        2,958,058
        ================================================================

    Subsequentto  year-end,  GalaVu entered into an agreement for the settlement
of the note payable to CIBC.

    In April 2003 the Company sold GalaVu (see Note 4).

14. DEPOSIT ON PURCHASE OF APPLICATIONSTATION.COM, INC. SHARES

        On  November  22,  2000,  the Company  entered  into an  agreement  with
Chell.com Ltd. to participate in the purchase of a 51% interest in the shares of
ApplicationStation.com,  Inc.,  an unrelated  party.  The Company has provided a
deposit of $1,689,710 to Chell.com Ltd. for its 25% share of the 51% interest in
the shares of  ApplicationStation.com,  Inc.  The purchase  transaction  did not
close. A demand for repayment has been sent to Chell.com Ltd. It does not appear
that the deposit  will be  recoverable.  It has  therefore  been  written off in
fiscal 2000. The Company is no longer pursuing the matter.

15. SEGMENT INFORMATION

        The  Company  operates  in the  entertainment,  education  and  merchant
services industries. Reportable segments have been identified by the Company due
to  differences  in the services of the  entertainment,  education  and merchant
services  industries.  Corporate relates to costs that are not associated with a
specific industry  segment,  but are required for the operations of the Company.
Business segment  information for the years ended August 31, 2002, 2001 and 2000
are as follows:

                                      F-32
<PAGE>


================================================================================
                                         2002          2001           2000
                                           $             $             $
                                                     Restated
--------------------------------------------------------------------------------

REVENUE
  Systems Integration                   34,205,614            --             --
  Corporate                                  2,310        16,595         13,703
--------------------------------------------------------------------------------
                                        34,207,924        16,595         13,703
--------------------------------------------------------------------------------
OPERATING LOSS
  Systems Integration                   (1,162,568)           --             --
  Merchant Service                              --    (5,076,619)            --
  Corporate                            (15,089,159)   (3,115,758)    (1,321,542)
--------------------------------------------------------------------------------
                                       (16,251,727)   (8,192,377)    (1,321,542)
--------------------------------------------------------------------------------
NET LOSS
  Systems Integration                  (12,173,848)           --             --
  Merchant Service                              --    (6,524,427)            --
  Corporate                            (16,561,949)   (3,115,758)    (1,367,902)
  Discontinued Operations               (2,015,740)   (2,107,454)      (955,719)
--------------------------------------------------------------------------------
                                       (30,751,537)  (11,747,639)    (2,323,621)
--------------------------------------------------------------------------------
TOTAL ASSETS
  Systems Integration                    6,435,982            --             --
  Merchant Service                              --     1,589,465             --
  Education                                     --       128,986      1,088,157
  Corporate                              2,810,773     3,170,689      1,818,027
  Discontinued Operations                       --     4,648,078      7,725,789
--------------------------------------------------------------------------------
                                         9,246,755     9,537,218     10,631,973
--------------------------------------------------------------------------------
CAPITAL EXPENDITURES
  Systems Integration                      127,737            --             --
  Corporate                                  7,355        46,978             --
--------------------------------------------------------------------------------
                                           135,092        46,978             --
--------------------------------------------------------------------------------
DEPRECIATION & AMORTIZATION
  Systems Integration                      425,692            --             --
  Merchant Service                              --       431,967             --
  Corporate                                601,550       162,836         47,055
--------------------------------------------------------------------------------
                                         1,027,242       594,803         47,055
--------------------------------------------------------------------------------
INTEREST EXPENSE
   Systems Integration                     182,209           ---            ---
   Corporate                            10,077,990     1,146,708         46,360
--------------------------------------------------------------------------------
                                        10,260,199     1,146,708         46,360
--------------------------------------------------------------------------------

        Operating  profit  (loss) is equal to profit  (loss) before income taxes
and minority  interest,  and includes  deductions for items such as interest and
depreciation and amortization.  Identifiable assets by industry are those assets
used in our operations in each industry.  Corporate  assets are principally cash
and cash equivalents, short-term investments and intangible assets.

Our business segment revenues are all generated  primarily  between customers in
Canada and the United States.

        The 2001 and 2000 comparative  segment information has been reclassified
from  statements  previously  presented to conform with the  presentation of the
2002 segment information.

16. RELATED PARTY TRANSACTIONS

Due From Shareholders

Included in shareholders'  equity is $227,365 at August 31, 2002, and $25,086 at
August 31,  2001,  of amounts due from  shareholders.  $25,086 and  $202,279 was
advanced  during the years  ended  August 31, 2001 and 2002,  respectively.  The
amounts are non-interest bearing, unsecured and are due on demand.

17. RESTATED FINANCIAL STATEMENTS

[a]     CHANGE IN PREFERRED SHARE CONVERSION RATE (FISCAL 2000 RESTATEMENT)

        On  April  4th,  2000,  the  ratio at which  preferred  shares  could be
converted to common  shares was changed from 4.67 to 1 to 3 to 1. The  resulting
change  from  192,857 to 300,000  common  shares upon  conversion  resulted in a
one-time  compensation charge of $337,779.  In order to reflect this change, the
fiscal 2000 financial statements have been restated.

                                      F-33
<PAGE>


[b]     DISCOUNT ON CONVERTIBLE DEBT (FISCAL 2001 RESTATEMENT)

On October 3, 2000, the Company  closed the sale of a $4,740,000  (US$3,000,000)
Convertible 10% Debenture of which $2,635,000  (US$1,700,000) has been advanced.
EITF-00-27  requires the debt to be  discounted  resulting  from any  beneficial
conversion  feature.  The  Company  did not  book the  discount  on the debt and
therefore had to make an adjustment to the Fiscal 2001 financial statements.  As
a result,  the  Company  has now  recorded a  beneficial  conversion  feature of
$1,728,134 and has amortized  $563,367 for the year ended August 31, 2001. There
were  warrants  associated  with the debt and the Company  recognized a $220,000
cost associated with these warrants. The Company had previously expensed $77,215
and  recorded  $175,491 in other  assets,  for which both  amounts have now been
reversed out completely  because a portion of the proceeds has been allocated to
the value of the warrants.

The following  table presents the impact for each of the  restatements in fiscal
2000 and 2001:

--------------------------------------------------------------------------------
                                                As Previously     As Restated
                                                   Reported        in 10-K/A
                                                                    for 2000
================================================================================
YEAR ENDED AUGUST 31, 2000

  Balance sheet:
    Share Capital
      Common shares                                  183,235          191,122
      Capital in excess of par value              10,124,777       10,454,669
      Deficit                                       (935,510)      (1,273,289)
  Statement of operations:
    Selling, general and administration           10,726,556       11,064,335[a]
    Net loss                                      (1,985,842)      (2,323,621)

  EPS
    Basic and diluted loss per share             $      0.69      $      0.81


                                                As Previously     As Restated
                                                   Reported        in 10-K/A
                                                                    for 2001
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,  2001

  Balance sheet:
      Other Assets                                   388,802          212,541
  Long-term debt                                   5,884,339        4,523,822
    Share Capital
      Capital in excess of par value              14,143,533       15,849,971
      Deficit                                    (12,499,514)     (13,020,928)

  Statement of operations:
    Selling, general and administration           16,250,171       16,181,604[a]
    Interest and bank charges                        881,398        1,471,379[a]
    Net loss                                      (9,622,841)     (11,747,639)

  EPS
    Basic and diluted loss per share             $      1.34      $      1.40

[a]     before discontinued operations presentation in 2002 10-K.

                                      F-34
<PAGE>


18. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES

        Investments in unconsolidated  subsidiaries and other investees in which
the Company exercises  significant  influence are recorded on the equity method,
adjusted for the Company's  proportionate share of their undistributed  earnings
or losses.

Investments  carried on the equity method of  accounting  during 2002 (and as of
August 2001) were as follows:

                                                        Percent
                                                         Owned

             cDemo Inc.                                   14.3%
             Engyro Inc.                                  22.1%
             Wareforce Inc.                             $176,518

        At August 31, 2002,  the  investment in Wareforce  Inc. was deemed to be
permanently impaired and has been written off in the statement if operations for
2002. At August 31, 2001,  the Company's  proportionate  share of  undistributed
losses for cDemo Inc. and Engyro Inc.  exceeded its  investment  and advances by
$301,100.  Accordingly,  the Company's  investment  has been reduced to zero and
$301,100 has been recorded as an expense in the statement of operations in 2001.


19. QUARTERLY INFORMATION (UNAUDITED)

The summarized quarterly financial data presented below reflects all adjustments
which,  in the  opinion  of  management,  are of a normal and  recurring  nature
necessary to present fairly the results of operations for the periods presented.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                   AS REPORTED           FOURTH          THIRD          SECOND          FIRST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>             <C>             <C>            <C>
YEAR ENDED 8/31/2001

Total net sales                                    18,222,374[a]       3,857,064       4,569,468       4,792,977      5,002,865

Gross profit                                       11,404,263[a]       2,062,126       3,022,692       3,071,198      3,248,247

(Loss) before income taxes
     and discontinued operations                  (10,144,255)        (1,838,438)     (3,549,901)     (1,356,506)    (3,399,410)

Net (loss)                                        (10,144,255)          (752,402)     (3,549,901)     (2,442,542)    (3,399,410)

Net (loss) per share:
Basic and diluted from continuing operations            (1.15)             (0.21)          (0.42)          (0.16)         (0.36)
Basic and diluted from discontinued operations          (0.25)             (0.12)             --           (0.13)            --
                                                  -------------------------------------------------------------------------------
Net income (loss) per share                             (1.40)             (1.10)           0.42           (0.29)         (0.41)
(Loss) from discontinued operations                (1,169,743)           (83,707)             --      (1,086,036)            --
(Loss) on disposal/sale of subsidiary                (937,711)          (937,711)             --              --             --
</TABLE>

[a] prior to discontinued operations presentation

                                      F-35
<PAGE>


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                   AS REPORTED           FOURTH          THIRD          SECOND          FIRST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>             <C>             <C>            <C>
YEAR ENDED 8/31/2002

Total net sales                                    34,207,924         (2,775,432)     20,639,179      12,386,011      3,958,166

Gross profit                                        2,887,937         (5,048,946)      3,038,983       2,327,504      2,570,396

(Loss) before income taxes
     and discontinued operations                  (28,735,797)       (14,392,630)    (10,810,393)     (2,411,735)    (1,121,039)

Net (loss)                                        (30,751,537)       (15,359,857)    (11,473,026)     (2,797,615)    (1,121,039)

Net (loss) per share:
Basic and diluted from continuing operations            (2.91)             (1.39)          (1.14)          (0.26)         (0.12)
Basic and diluted from discontinued operations          (0.20)             (0.08)          (0.08)          (0.04)            --
                                                  -----------        -----------     -----------     -----------     ----------
Net (loss) per share                                    (3.11)             (1.47)          (1.22)          (0.30)         (0.12)

(Loss) from discontinued operations                (1,710,649)          (963,374)       (361,395)       (385,880)            --

(Loss) on disposal/sale of subsidiary                (305,091)            (3,853)       (301,238)             --             --
</TABLE>


20. SUBSEQUENT EVENTS

[a] GALAVU NOTE PAYABLE

On November 21, 2002,  pursuant to a Debt and Security Purchase  Agreement dated
on the  29th  day of  October,  2002,  the  Company,  through  its  wholly-owned
subsidiary,  GalaVu,  settled the  promissory  note [the "Note"] issued from the
acquisition of substantially all of the property and assets [excluding  accounts
receivable]  of  GalaVu.  The  present  value  of the  Note,  discounted  at the
Company's average borrowing rate (6.5%) amounted to $2,662,698.  Arthur Andersen
Inc.,  (the  "Assignor")  agreed to assign to the Company all of the  Assignor's
right, title and interest, if any, in and to the Note for the amount of $500,000
(the "Purchase  Price").  The purchase price was paid in the following manner: A
$150,000  deposit was made upon execution of the agreement and $350,000 was paid
at the time of closing.

The $350,000 paid at the time of closing to the Assignor, was financed through a
term loan in the  principal  sum of  $375,000.  The loan was  secured  through a
second mortgage on our 10 and 14 Meteor Drive  properties and a general security
agreement on the capital assets of GalaVu. GalaVu can obtain a release from this
security  agreement  upon a prepayment of $150,000 on account of principal  plus
interest on any payment  date.  The term of this loan is one year with an annual
interest rate of 13%.

[b] CONVERTIBLE PROMISSORY NOTES

During 2002, the Company issued 8% convertible notes in the amount of $6,587,622
under a private  placement  memorandum.  These notes are  convertible  to common
shares at a conversion  price of $0.95 per share.  A dispute has arisen with the
note holders with respect to the conversion of these notes.  In order to resolve
this dispute,  effective December 2, 2002, the Company entered into an agreement
with Joseph Gunnar & Co., LLC ("JGUN") and the note holders.  The Company,  JGUN
and the note  holders have all signed the  agreement.  Under the  agreement  the
conversion  price will not be less than $0.40 or greater than $0.75.  The change
in conversion price could result in the issuance of  approximately  4,400,000 to
12,100,000 additional common shares depending on the final conversion price.

                                      F-36
<PAGE>


[c] SETTLEMENT OF CLAIMS FILED BY LOGICORP

On December 19, 2002,  Hewlett-Packard  (Canada) Ltd. ("HP") on behalf of itself
and Compaq Canada ("Compaq"),  a HP Company, entered into a settlement agreement
with LDS in respect to certain  questioned  rebate  claims.  It was agreed  that
under the terms of the  settlement  agreement that HP will relieve LDS of all of
its  obligations  owing to HP and Compaq under these  questioned  rebate claims,
forgiving  approximately  $1,350,000  of  claims,  for a note in the  amount  of
$238,291  (which has been  recorded by the Company as of August 31,  2002).  The
note will be payable in 48 monthly  installments  of $4,423  (and HP will offset
$26,000 in outstanding rebate claims). HP will have the right to offset payments
against receivable  balances.  The note contains no stated interest rate and the
Company  imputed  interest  on the  note  at a  rate  of  9%.  As a part  of the
settlement,  the  Company  committed  to pay  $1,200 in  monthly  audit  fees in
relation to rebate claims.

[d] SALE OF BUILDINGS AND LAND

On October 12, 2002,  we sold an office  building  owned by 3484751  Canada Ltd.
located at 775 Pacific  Road,  Oakville  Ontario to an  unrelated  3rd party for
approximately  $560,000.  The  sale  of  the  building  resulted  in a  loss  of
approximately $250,000.

During the fiscal year ended August 31, 2002, we owned 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  approximately
$730,000 and recorded a gain on the sale of approximately $100,000.

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.

[e] LOGICORP ADVANCES

In December  2002,  the three former  shareholders  of Logicorp Data Systems and
Logicorp Service Group advanced  Logicorp Data Systems  $200,000 each,  totaling
$600,000.  These advances were due on demand and did not carry a stated interest
rate. Due to their long-term  nature,  the Company has imputed interest on these
advances  at a rate of 9%.  During the year ended  August 31,  2003,  one of the
advances was fully repaid and total payments of approximately $110,000 have been
paid against the remaining advances.

During the year ended August 31, 2003, B.O.T.B., a company controlled by Cameron
Chell,  advanced  Logicorp  Data  Systems  $820,000,  and  during  the period of
September  1, 2003  through  April 30,  2004,  advanced  Logicorp  Data  Systems
$567,399.  The  advances  are due on demand  and do not carry a stated  interest
rate. Due to their  long-term  nature,  the Company has imputed  interest on the
advances at a rate of 9% per annum.  As of April 30, 2004, the aggregate  amount
of such advances was $1,387,399.

                                      F-37
<PAGE>


                                   SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                   Balance at      Charged to       Charged to
                                                  Beginning of      Costs and          Other                        Balance at End
                                                      Year          Expenses         Accounts        Deductions         of Year

------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>            <C>              <C>                 <C>
For the fiscal year ended August 31, 2000

  Allowance for doubtful accounts                  $ 119,000        $  59,000      $        --      $         --        $ 178,000
                                                   =========        =========      ===========      ============        =========


For the fiscal year ended August 31, 2001

  Allowance for doubtful accounts                  $ 178,000        $ 166,500      $        --      $   (117,500)       $ 227,000[a]
                                                   =========        =========      ===========      ============        =========


For the fiscal year ended August 31, 2002

  Allowance for doubtful accounts                  $ 227,000        $ 270,000[b]   $  (229,700)     $    (70,218)       $ 160,000
                                                   =========        =========      ===========      ============        =========
</TABLE>

        [a] included in "net assets from discontinued operations"

        [b] added from Logicorp acquisition in January 2002.

                                      F-38
<PAGE>


                             CHELL GROUP CORPORATION
                                    FORM 10-K

                                  EXHIBIT INDEX

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................................................. +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

                                      F-39
<PAGE>


  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

  10.28     Share  Purchase  Agreement,  dated as of April 25,
            2003 between DVOD Networks  Inc.,  and Chell Group
            Corporation, minus schedules thereto;

                                      F-40
<PAGE>


  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.

  22        List of Subsidiaries.................................         p. 110


----------

+1      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit  listed above in the Company's  Current Report on Form 8-K (Date
        of Report:  October 2, 1996)  (File No.  0-18066),  filed on October 17,
        1996.

+2      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit  listed  above  in  the  Annual  Report  on  Form  10-K  of  NTN
        Communications, Inc., for its fiscal year ended December 31, 1990) (File
        No. 2-91761-C), filed on April 1, 1991.

+3      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit  listed above in the Company's  Current Report on Form 8-K (Date
        of Report:  October 4, 1994)  (File No.  0-18066),  filed on October 18,
        1994.

+4      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit  listed above in the Company's  Annual Report on Form 10-K (Date
        of Report: November 27, 1996) (File No. 0-18066),  filed on December 16,
        1996.

+5      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit listed above in the Company's 8-K (Date of Report: September 13,
        1997) (File No. 0-18066), filed on December 16, 1996.

+6      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit  number listed above in the Definitive  Proxy  Statement on Form
        14A of the Registrant  (File No.  000-18066),  filed with the Securities
        and Exchange Commission on August 8, 2000.

+7      All Exhibits so indicated  are  incorporated  herein by reference to the
        exhibit number listed above in the Company's  Current Report on Form 8-K
        (Date of  Report:  December  13,  2001)  (File  No.  0-18066),  filed on
        December 28, 2001.

++      Filed electronically pursuant to Item 401 of Regulation S-T.


                                      F-41
<PAGE>


EXHIBIT 22.     LIST OF SUBSIDIARIES  OF CHELL GROUP  CORPORATION AS AT NOVEMBER
                26, 2001

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
NTN Interactive Network Inc...............................................Canada
1113659 Ontarion Ltd. ("Viewer Services) (4).............................Ontario
3484751 Canada Inc........................................................Canada
GalaVu Entertainment Network Inc. .......................................Ontario
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.

                                      F-42