UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549


                                   FORM 10-K/A
                                 Amendment No.1

(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, 2003

                                       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.)

    150, 630 - 8TH AVENUE SW, CALGARY AB                      T2P 1G6
  (Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (403) 303-8258

        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 October 21, 2004, US$1,285,177 based on
the closing sale price of US$0.04 on October 21, 2004.

         Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 21, 2004, 32,129,417 shares of common
stock, par value US$0.0467 per share

      DOCUMENTS INCORPORATED BY REFERENCE:    NONE

<PAGE>

EXPLANATORY NOTE

This Amendment No.1 to our Annual Report on Form 10K for the fiscal year ended
August 31, 2003 includes a change to the number of shares outstanding as of
October 21, 2004. Due to a clerical error, the number was not updated and did
not reflect recent issuances of shares. The number of shares outstanding has
increased to 32,129,417 from 14,295,410. This Form 10-K/A does not attempt to
modify or update any other disclosures set forth in the original filing.
Additionally, this Form 10-K/A does not purport to provide a general update or
discussion of any other developments at the Company subsequent to the original
filing. The filing of this Form 10-K/A shall not be deemed an admission that the
original filing, when made, included any untrue statement of material fact or
omitted to state a material fact necessary to make a statement not misleading

                                     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:

--------------------------------------------------------------------------------
                      2004(1)     2003        2002        2001        2000
================================================================================
At end of period    Cdn$1.3130  Cdn$1.3857  Cdn$1.5588  Cdn$1.5508  Cdn$1.4715
Average for period      1.3320      1.4822      1.5724      1.5284      1.4714
High for period         1.3721      1.5778      1.6003      1.5825      1.4955
Low for period          1.2965      1.3523      1.5317      1.4685      1.4489

(1) Through August 31, 2004.

On October 12, 2004 the Noon Buying Rate was Cdn $1.2573.

ITEM 1. BUSINESS.

OVERVIEW

      GENERAL

      At August 31, 2003,  we were engaged in the business of providing  systems
integration and interactive entertainment. Our business is conducted through our
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  headquarters  and
principal  place of  business  is  located  at Suite  123 2340  Pegasus  Way NE,
Calgary, AB T2E.8M5.  Our registered office is located at c/o Reitler Brown LLC,
800 Third Avenue, 21st Floor, New York, New York, 10022.

      Through August 31, 2001, our management employed an aggressive acquisition
and  disposition  strategy.  Through August 31, 2002, our management  employed a
strategy of building and  maintaining  our current  operations.  During the year
ended  August 31,  2003,  our  management  employed a  strategy  of  maintaining
operations  in  our  core  business  of  system  integration  and  divesting  of
operations that were not part of this segment.


                                       1
<PAGE>

      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
and as such are held as  investments  that were  written  down during the fiscal
year ended August 31, 2001 to zero.

      Effective   August  8,  2004,   the  Company's   previously   wholly-owned
subsidiaries,  , Logicorp  Data Systems  Inc.,  and Logicorp  Service Group Inc.
(together,  "Logicorp")  issued  common  shares  to  NewMarket  Technologies,  a
publicly-traded  company for $2.1 million USD, such that NewMarket  holds 51% of
the  outstanding  equity  securities  of Logicorp.  In exchange for 51% of these
subsidiaries,  NewMarket  will pay $1.1 million in cash and $1.0 million will be
paid to Logicorp according to the terms of a $1.0 million,  24-month  promissory
note.

      BUSINESS SEGMENTS

      Systems Integration is an area of business in which our subsidiaries offer
systems  solutions to companies of various sizes.  These  solutions  include the
delivery and installation of computer hardware solutions;  services to companies
to aid in their business processes or infrastructures or customized solutions to
enable smooth migration to advancing  technologies growing technology with their
organization.


                                       2
<PAGE>

      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.  This  entertainment   would  allow  for  the
interaction  with other users or just for their own  benefit.  This  segment has
been discontinued by the sales of GalaVu and NTN.

      ORGANIZATIONAL STRUCTURE

      During the year ended August 31, 2003, 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:

--------------------------------------------------------------------------------
                                                          PERCENTAGE OF REVENUE
                                                            FOR THE YEAR ENDED
WHOLLY-OWNED SUBSIDIARIES              BUSINESS SEGMENT      AUGUST 31, 2003
================================================================================

Subsidiaries or Subsidiary Groups                        Actual      Proforma(1)
---------------------------------                        ------      -----------
   Logicorp                           Systems               93.8       73.5
                                      Integration
   eTelligent                         Systems                6.2        4.9
                                      Integration
   NTN (sold December 2003)           Interactive            0.0       13.9
                                      Entertainment
   GalaVu (sold April 2003)           Interactive            0.0        7.7
                                      Entertainment
   CMCG                               Merchant Services      0.0        0.0

Investment Companies
--------------------
   Engyro, Inc. (2)                   Other                  0.0        0.0
   cDemo Inc. (2)                     Other                  0.0        0.0
--------------------------------------------------------------------------------
(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. See Note 13 of  consolidated
financial statements for disclosures on business acquisitions

(2) The  percentage  of  ownership  in these  companies  is less than 5% and the
values have been written of in Fiscal 2001

      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.  We want our clients to consider us their sole provider of
computer-related   products  and   services,   to  meet  their  entire   network
infrastructure,  security  and  managed  services  needs,  either 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 intend to provide  the  strategies,  solutions,
services  and  products to help our clients  better  manage  their  business and
technology complexities.

      IT  Infrastructure.  We offer services designed to  comprehensive,  expert
develop and enhance  clients' IT environments  and  infrastructures  through our
supply channels and our staff. Through remote monitoring and management, request
management,  or on-site  systems  support our  services  are  intended to help a
company  maintain  smooth  operation of the network,  whether it is a large site
with many users or a small business network. We help manage desktop environments
for  end-user  communities,  implement  and  maintain  desktop  infrastructures,
help-desk  services,  managing  local  area  networks  and  shared  systems  and
technology  lifecycle  management.  We also offer a continuum of fully  managed,


                                       3
<PAGE>

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.

      o     End User  Services.  Our  customizable  services  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  Logicorp's  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.  Logicorp  provides  a  suite  of
            services   that   augment,   support  and  increase  the  value  and
            productivity of end-user hardware and software. The 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  include 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  encompass a continuum  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.


                                       4
<PAGE>

      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.

      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 help clients achieve their business
objectives  by  redesigning  and  transforming  their  personnel,   process  and
performance   measurement   systems  to   effectively   support  their  business
strategies.  We create  operational  efficiencies  and  enhance  how our clients
deliver products and services to their clients and throughout their  enterprise.
Services  include quickly  identifying  opportunities  for the greatest  impact,
developing  a business  case for  change,  implementing  industry-specific  best
practices and developing 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.


                                       5
<PAGE>

      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  in  implementing   and  integrating   e-business,   CRM  (customer
relationship  management) and financial  services solutions from Microsoft Great
Plains. The organization 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 Calgary,
Alberta. eTelligent Solutions Inc. has provided successful business solutions to
a variety of business organizations for over ten years. They currently represent
and support over 70 Microsoft Great Plains customers  throughout Alberta. All of
their employees are certified through the Microsoft Great Plains University.

NTN

      NTN Interactive  Network. 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
Communications,  Inc.  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 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.


                                       6
<PAGE>

      NTN PLAY-ALONG GAMES.

      NTN  Play-Along  Games are  played in  conjunction  with  live,  televised
events. The prime 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 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 April 25,  2003,  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.


                                       7
<PAGE>

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.  CMCG  is a  wholly-owned
subsidiary of our company.  Our interests in our Logicorp  subsidiaries are held
through Chell Merchant Capital Group.

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%.

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 its 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 around increasing the profitability
in  our  operating  companies  through  process  development  and  technological
advances to aid an  organization  in operating  efficiencies.  While at the same
time searching for companies that will allow for us to increase our market share
and our profitability or allow us the ability to offer 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  was at August 31, 2003 and
remains 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.  With the entrance
of  motion  picture,  cable and TV  companies,  competition  in the  interactive
entertainment and multimedia industries will likely intensify in the future.


                                       8
<PAGE>

      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  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  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 September  15, 2004 we employed 65  employees in the four  operating
subsidiaries, consisting of 3 executives, 3 general managers, 29 salespersons, 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.

ITEM 2. PROPERTIES.

      During the fiscal year ended  August 31, 2003,  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, 2003,  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.


                                       9
<PAGE>

      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, 2003 was Cdn$789,584.  The property at 14
Meteor was sold December 19, 2003.

      During the fiscal year ended August 31, 2003,  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).  GalaVu was sold April 25, 2003 and the  Company no longer  holds any
obligation on these leases.

      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$199,000.  Effective  October
2002,  we  subleased  this  space  to   unaffiliated   third  parties  upon  the
discontinuation of the operations of this subsidiary for Cdn$144,000 per annum.

      Commencing  on December 15, 2003,  we started  utilizing  interim space in
Toronto,  Ontario at nominal cost and there are no lease agreements in place for
the use of the spaces.

      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.

      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 title 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.


                                       10
<PAGE>

      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 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, 2003. 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.

      CHELL MERCHANT CAPITAL GROUP LITIGATION

      In May  2002,  a  former  consultant  filed  a  claim  against  CMCG.  The
consultant claims that he is owed  commissions,  options and expenses related to
his time working at Interlynx.  The  consultant  has offered to settle for which
CMCG has  rejected.  CMCG believes that  firstly,  it is not  responsible  for a
lawsuit  against  Interlynx  and  secondly,  that  the  consultants  claims  are
unjustified.  This lawsuit is scheduled  for trial at the end of October,  2004.
CMCG  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,  2003,  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


                                       11
<PAGE>

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. On June 11, 2004,
the Company  again  requested  that such  deadline  and "put"  period be further
extended to be August 10, 2004 and August 11-24, 2004,  respectively.  Effective
September 14, 2004,  the Company has asked for another  extension to October 11,
2004. In addition,  the Company  proposed that the notes would be  automatically
converted on the earlier of (i) the date that all annual and quarterly reporting
obligations  under federal  securities laws have been complied with or (ii) July
10, 2004. The conversion  price of the notes has been further reduced from $0.25
per share to $0.16 per share.  The  aggregate  number of shares of common  stock
issued upon such  conversion  would be  approximately  29,358,209,  representing
approximately  67.25% 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".

      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.


                                       12
<PAGE>

--------------------------------------------------------------
                                              HIGH      LOW
                                              ----      ---
                                              (US$)    (US$)
==============================================================
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
      Third Quarter                            0.059    0.001
      Fourth Quarter                           0.059    0.029


      On September  14, 2004,  the closing  price of the Common Shares on NASDAQ
pink sheets was US$0.08.

      As of  September  14,  2004,  we had  14,295,410  shares of  common  stock
outstanding.

      As of the close of business on July 8, 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 informed and believe that as of
July 21, 2004,  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, 2003.

Statement of Operations Data (Canadian Dollars):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                Year Ended August 31,
                                                                --------------------
                                               2003            2002          2001        2000       1999
                                               ----            ----          ----        ----       ----
                                               Cdn$            Cdn$          Cdn$        Cdn$       Cdn$
                                                                         Restated (1)
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>           <C>          <C>
Operating revenues                             32,500,096      34,207,924        16,595       13,703      61,804
Cost of sales                                  28,380,248      31,319,987            --           --          --
Gross profit                                    4,119,848       2,887,937        16,595       13,703      61,804
Net loss attributable to common
shareholders                                   (7,541,502)    (30,888,553)  (11,747,639)  (2,323,621)   (971,497)
Net income (loss) per share, basic and
diluted                                             (0.71)          (3.13)        (1.40)       (0.81)      (0.36)
Weighted average number of shares
outstanding, basic and diluted                 10,757,273       9,879,836     8,393,589    2,873,042   2,635,050
=================================================================================================================
</TABLE>


                                       13
<PAGE>

Balance Sheet Data (Canadian Dollars):

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                 August 31,
-----------------------------------------------------------------------------------------------------------
                                       2003          2002         2001          2000            1999
                                       ----          ----         ----          ----            ----
                                                              Restated (1)
-----------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>           <C>           <C>             <C>
Total assets                            7,297,262   13,380,666    9,537,218     10,631,974      12,072,282
Long-term obligations                     113,392    1,051,603    2,417,388      1,206,479       1,243,151
Shareholders' (deficit) equity        (22,910,890) (16,988,536)   3,408,066      9,383,419      10,792,767
===========================================================================================================
</TABLE>

(1) - See Note 17 to consolidated financial statements

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

INTRODUCTION

RECENT EVENTS

      Effective   August  8,  2004,   the  Company's   previously   wholly-owned
subsidiaries,  Logicorp  Data  Systems  Inc.,  and Logicorp  Service  Group Inc.
(together,   "Logicorp")   issued  common   shares  to  NewMarket   Technologies
("NewMarket"),  a  publicly-traded  company  for $2.1  million  USD,  such  that
NewMarket  holds  51% of the  outstanding  equity  securities  of  Logicorp.  In
exchange for 51% of these subsidiaries, NewMarket will pay Logicorp $1.1 million
in cash  at  closing.  An  additional  $1.0  million  will  be paid to  Logicorp
according to the terms of a $1.0 million,  24-month promissory note. As a result
of this  transaction,  the Company holds the  remaining  49% of the  outstanding
shares of Logicorp.

      Twelve (12) months following the first  anniversary of the purchase of the
51% interest, if Logicorp has achieved annual sales of at least $18,000,000 with
at least a  breakeven  profit,  Chell  Group  will  have an  option  to  require
NewMarket  to acquire the  remaining  49% of the sellers  remaining  stock for a
purchase  price of  $1,900,000  to be paid in  NewMarket  stock  with  piggyback
registration  rights.  NewMarket will have an equal right to require the sale of
Chell  Group's   remaining  49%  stock  position  in  Logicorp  under  the  same
performance conditions.

      CORPORATE BACKGROUND

      We are engaged in the  business  of  providing  interactive  entertainment
services and systems integration  services.  Our core businesses are the systems
integration  services provided by our Logicorp Data Systems Ltd.  subsidiary and
the interactive  entertainment  services provided by our NTN Interactive Network
and GalaVu Entertainment Network Inc. subsidiaries.

      As of August 31, 2003, we had a working capital deficit of $22,191,579 and
an accumulated deficit of $51,450,983.  We generated revenues of $32,500,096 for
the 2003 Fiscal Year and incurred a net loss of $7,541,502.  In addition, during
the 2003 Fiscal Year, net cash used in operating activities was $3,323,865.

      We are in a  transitional  stage  of  operations  and,  as a  result,  the
relationships between revenue, cost of revenue, and operating expenses reflected
in the  financial  information  included in this  annual  file do not  represent
future expected financial  relationships.  Accordingly,  we believe that, at our
current  stage  of  operations   period-to-period   comparisons  of  results  of
operations are not meaningful.

      PLAN OF OPERATIONS

      Our business  strategy is to divest  ourselves of non-core  operating  and
wind up all  non-operating  companies.  While at the same  time  refocusing  our
energies  in our  core  companies  and  bring  these  operations  to  profitable
operations.  Our core operations are the systems  integration segment companies.
We will be bringing  our  corporate  entity  current with all of its filings and
will begin to petition  for market  status.  While all the time  looking for new
opportunities that may arise in order to increase our value and profitability.


                                       14
<PAGE>

      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, 2003, 2002, and 2001.

================================================================================
                                            2003          2002          2001
                                              $             $             $
                                                                      Restated
================================================================================
Revenue
  Systems Integration                    32,500,096    34,205,614            --
  Corporate                                      --         2,310        16,595
--------------------------------------------------------------------------------
                                         32,500,096    34,207,924        16,595
--------------------------------------------------------------------------------
Operating loss
  Systems Integration                    (3,034,169)   (1,162,568)           --
  Merchant Service                               --            --    (5,076,619)
  Corporate                              (2,709,541)  (15,089,159)   (3,115,758)
--------------------------------------------------------------------------------
                                         (5,743,710)  (16,251,727)   (8,192,377)
--------------------------------------------------------------------------------
Net loss attributable to common
shareholders
    Systems Integration                  (3,659,647)  (12,173,848)           --
    Merchant Service                             --            --    (6,524,427)
    Corporate                            (4,795,166)  (16,698,965)   (3,115,758)
    Discontinued Operations                 913,311    (2,015,740)   (2,107,454)
--------------------------------------------------------------------------------
                                         (7,541,502)  (30,888,553)  (11,747,639)
--------------------------------------------------------------------------------
Total assets
  Systems Integration                     4,534,621     6,435,982            --
  Merchant Service                               --            --     1,589,465
  Education                                      --            --       128,986
  Corporate                               1,793,349     2,810,773     3,170,689
  Discontinued Operations                   969,292     4,133,911     4,648,078
--------------------------------------------------------------------------------
                                          7,297,262    13,380,666     9,537,218
--------------------------------------------------------------------------------
Capital expenditures
  Systems Integration                       275,104       127,737            --
  Corporate                                  24,896         7,355        46,978
--------------------------------------------------------------------------------
                                            300,000       135,092        46,978
--------------------------------------------------------------------------------
Depreciation & Amortization
  Systems Integration                       573,186       425,692            --
  Merchant Service                               --            --       431,967
  Corporate                                 470,762       601,550       162,836
--------------------------------------------------------------------------------
                                          1,043,948     1,027,242       594,803
--------------------------------------------------------------------------------
Interest expense
   Systems Integration                      625,479       182,209            --
   Corporate                              1,837,037     9,940,974     1,146,708
--------------------------------------------------------------------------------
                                          2,462,516    10,123,183     1,146,708
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS

YEAR ENDED AUGUST 31, 2003 COMPARED TO YEAR ENDED AUGUST 31, 2002

      REVENUES.  Revenues  from  product  sales  for the 2003  Fiscal  Year were
$30,321,968  compared to  $32,468,400  for the 2002 Fiscal  Year,  a decrease of
$2,146,432 or 6.6%. For comparative purposes,  Logicorp was purchased on January
1, 2002,  thus we are comparing 12 months for the 2003 Fiscal Year compared to 8
months for the 2002 Fiscal  Year.  Logicorp  experience  an overall  decrease in
sales. This decrease is attributed to a slumping technology market and decreased
sales due to a reorganization in the sales force.


                                       15
<PAGE>

      Revenues  from  service  sales for the 2003  Fiscal  Year were  $2,178,128
compared  to  $1,739,524  for the 2002 Fiscal  Year,  an increase of $438,604 or
25.2%. For comparative purposes, Logicorp was purchased on January 1, 2002, thus
we are comparing 12 months for the 2003 Fiscal Year compared to 8 months for the
2002 Fiscal  Year.  In  addition,  eTelligent  was  purchased  June 1, 2002 thus
resulting  in a full year of sales for the 2003  Fiscal  Year as  compared  to 3
months worth of sales for the 2002 Fiscal Year.  eTelligent's sales for the 2003
Fiscal Year were  $1,136,206  compared to $473,553 for the 2002 Fiscal Year,  an
increase of $662,653.  Logicorp experienced an overall decrease in service sales
of $224,049.  This decrease is attributed  to a slumping  technology  market and
decreased sales due to a reorganization in the sales force.

      As a result of the  foregoing,  our total  revenues in the aggregate  were
$32,500,096  for the 2003  Fiscal  Year,  compared to  $34,207,924  for the 2002
Fiscal  Year,  a  decrease  of  $1,707,828.  The  decrease  is due to a slumping
technology market and a decreased sales staff.

      COST OF REVENUES.  Cost of revenues from product sales for the 2003 Fiscal
Year was $28,088,752 compared to $30,725,499,  a decrease of $2,636,747 or 8.6%.
This  decrease  is the result of  decreasing  comparative  sales and a change in
sales mix to higher margin products

      Cost of revenue from service sales for the 2003 Fiscal Year were $291,496,
compared to $594,488 for the 2002 Fiscal Year. The decrease is  attributable  to
increases in the sales of services,  offset by decreasing  the costs  associated
with the sales department.

      As a result of the  foregoing,  our total cost of revenues for  continuing
operations was $28,380,248 for the 2003 Fiscal Year, compared to $31,319,987 for
the 2002 Fiscal  Year,  a decrease of  $2,939,739  or 9.4%.  The decrease is the
result of decreasing sales from the weak technology market.

      GROSS  PROFIT.  Gross  profit  was  $4,119,848  for the 2003  Fiscal  Year
compared to $2,887,937 for the 2002 Fiscal Year. The increase is attributable to
having Logicorp and eTelligent for a full fiscal year in the 2003 Fiscal Year.

      EXPENSES. Selling, general and administrative expenses for the 2003 Fiscal
Year were  $8,656,468,  compared  to  $7,622,873  for the 2002 Fiscal  Year,  an
increase of $1,033,595 or 13.6%.  Due to having  Logicorp and  eTelligent  for a
full  fiscal  year,  there  was in  increase  of  $3,143,406.  The  major  items
offsetting  the increase  were;  no cost  associated  with the  acquisition  and
financing  raises  in the  2003  Fiscal  Year  when  compared  to  approximately
$2,600,000 in the 2002 Fiscal Year;  decreased costs associated with the closing
on CMCG in the 2002 Fiscal year of $528,711 and decreased  legal and  accounting
fees of $717,860. As a percentage of our total revenues, such costs increased to
26.6% for the 2003 Fiscal Year from 22.3% for the 2002 Fiscal Year.

      Write-off on leasehold  improvements for the 2003 Fiscal Year was $163,142
compared to $nil for the 2002 Fiscal Year.  Since the Company was not  occupying
the space leased by CMCG,  it was  determined  that the value of the  leaseholds
needed to written off to represent the PV of rent received from the sublease.

      Depreciation  and  amortization  for the 2003 Fiscal Year were $1,043,948,
compared  to  $1,027,242  for the 2002  Fiscal  Year,  an increase of $16,706 or
1.6%.. As a percentage of our total  revenues,  such costs increased to 3.2% for
the 2003 Fiscal Year compared to 3.0% for the 2002 Fiscal Year.

      Loss from the  impairment  of  goodwill  for the 2003  Fiscal Year was nil
compared to $10,489,549  for the 2002 Fiscal Year. The costs for the 2002 Fiscal
Year arose from the  impairment  of our  subsidiaries  in the Logicorp  Group of
Companies.

      Loss from  operations for the 2003 Fiscal Year was $5,743,710  compared to
$16,251,727  for the 2002 Fiscal Year, a decrease of $10,508,017 or 64.7%.  This
decrease was caused  primarily by no  impairment of goodwill for the 2003 Fiscal
Year  ($10,489,549  for the 2002 Fiscal  Year) and an  increase in gross  profit
($1,231,911  for the 2003  Fiscal  Year)  associated  with having  Logicorp  and
eTelligent for a full fiscal year.


                                       16
<PAGE>

      Loss on  extinguishment  of debt was nil for the 2003 Fiscal Year compared
to $521,120 for the 2002 Fiscal Year.  The 2002 Fiscal Year loss resulted from 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 2003 Fiscal  Year were  $2,462,516,  compared to
$10,123,183  for the 2002 Fiscal Year, a decrease of  $7,660,667  or 75.7%.  The
decrease was primarily the result of not having the interest costs of beneficial
conversion  features   ($6,283,881)  and  interest  costs  associated  with  the
financing  raises  ($1,909,011)for  the 2003 Fiscal Year. As a percentage of our
total  revenues,  such costs decreased to 7.6% for the 2003 Fiscal Year compared
to 29.6% for the 2002 Fiscal Year.

      Loss on  disposals  of  investments/property  were  $248,587  for the 2003
Fiscal Year  compared to  $1,838,140  for the 2002 Fiscal Year.  The costs arose
from the loss from the sale of one of the  properties.  In the 2002  Fiscal Year
the loss arose from the writing down the deposit on Applicationstation.com. As a
percentage of the Company's  total  revenues,  such costs were 5.4% for the 2002
Fiscal Year.

      NET  INCOME/LOSS.  As a result of all of the above, the Company's net loss
for the 2003 Fiscal Year was $7,541,502  (which includes  $913,311 of gains from
discontinued  operations)  compared to net loss of $30,751,537  (which  includes
$2,015,740 of losses from  discontinued  operations) for the 2002 Fiscal Year, a
change of $23,210,035.

      DISCONTINUED  OPERATIONS.  The  Company  sold GalaVu on April 25, 2003 and
Interactive on December 15, 2003 (see Note 4 of financial statements for further
discussion).  Accordingly,  the Company is  following  the  guidance in SFAS 144
Accounting for the Impairment or Disposal of Long-Lived  Assets.  The operations
of GalaVu,  Interactive and Magic are presented as  discontinued  operations for
all periods presented.

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  for the 2002 Fiscal  Year,  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  for the 2002 Fiscal Year,  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.


                                       17
<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  were  increases  to 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
impairment  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 782.8%.  The
increase was primarily 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 on April  25,  2003,
Interactive  on  December  15,  2003 and Magic on March 18,  2002 (see Note 4 of
financial  statements  for  further  discussion).  Accordingly,  the  Company is
following the guidance in SFAS 144  Accounting for the Impairment or Disposal of
Long-Lived Assets. The operations of GalaVu, Interactive and Magic are presented
as discontinued operations for all periods presented.

      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.


                                       18
<PAGE>

      At the 2003 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 2004
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 $150,000 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
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 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  $3,700,000;  (ii) equipment loan up to
$300,000; (iii) demand Evergreen Capital loan/lease 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,  2003 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,  2003,  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 has
signed a new  forbearance  agreement  that will  extend to October  31, 2004 and
anticipates signing a longer forbearance before the end of October 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  Cdn. $1.0 million.  On January 7, 2003, the board
      determined  that the  Company  would  grant  3.5  million  shares  (actual
      issuance of shares  occurred in Fiscal  2004) of common stock to Mr. Chell


                                       19
<PAGE>

      for such guarantees and other consideration in support of the Company. The
      valuation on the shares was  determined  by the 10 day  preceding  trading
      average of the Company's  common stock,  which  resulted in an approximate
      $134,000  US$   compensation   expense   recorded  in  Fiscal  2003.   See
      "Management's  Discussion and Analysis of Financial  Condition and Results
      of Operations" for a description of the loans.

The bank line of credit consists of debts from the following entities:

        -----------------------------------------------------------
        Company                                      2003     2002
        -----------------------------------------------------------
        Logicorp Data Systems Ltd. ("LDS")         908,432  603,740
        eTelligent Solutions Inc.                        0        0
        -----------------------------------------------------------
                                                   908,432  603,740
        ===========================================================

      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,  2003,  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.  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 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 mandatorily  converted  into shares of common stock.  On June 11,
2004, the Company again requested that such deadline and "put" period be further
extended  to be  August  10,  2004 and  August  11-24,  2004,  respectively.  In
addition,  the Company proposed that the notes would be automatically  converted
on the  earlier  of (i)  the  date  that  all  annual  and  quarterly  reporting
obligations  under federal  securities laws have been complied with or (ii) July
10, 2004. The conversion  price of the notes has been further reduced from $0.25
per share to $0.16 per share.  The  aggregate  number of shares of common  stock
issued upon such conversion (principal and unpaid accrued interest thru July 11,
2004 [date of new  conversion  agreement])  would be  approximately  29,358,209,
representing  approximately 67.25% of the common stock outstanding giving effect
to such conversion (based upon 14,295,410  shares  outstanding at time of filing
the August 31, 2003 Form 10-K) . On August 10, 2004, the Company  requested such
deadline  and "put"  period be further  extended  to be  September  10, 2004 and
September 11-24, 2004,  respectively.  Effective September 14, 2004, the Company
has asked for  another  extension  to  October  11,  2004.  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


                                       20
<PAGE>

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 was 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 was fully amortized during the year ended
August 31, 2002.

      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%. 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.

      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. During the year ended August 31, 2003, the Company recorded additional
discount of $0 and  amortized  $1,000,504.  As of August 31,  2003,  outstanding
balance of this debt net of unamortized discount of $154,424 totaled $2,201,166.
As of August  31,  2002,  outstanding  balance  of this debt net of  unamortized
discount of $1,154,928 totaled $1,360,311.


                                       21
<PAGE>

      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.  This convertible debt matured in October 2003,  however
CALP and ABFL were  managed  by Thomas  Kerrnighan  ("TK"),  which has  declared
bankruptcy.  The Company has been unable to locate the trustee or obtain contact
from any former  employee  of TK. The debt will  remain on the  Company's  books
indefinitely until a settlement can be reached.

      LDS agreed to pay $212,291  payable to HP in regards to the  settlement of
claims with a discount of $53,073.  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.

      The Term loan is comprised of the following:

        ----------------------------------------------------------------
        Company                                       2003          2002
        ================================================================
        Current
        Logicorp Data Systems Ltd. [a]                  --        79,716
        Etelligent Solutions Inc. [b]                1,470        49,278
        ----------------------------------------------------------------
                                                     1,470       128,994

        Non-current
        Logicorp Data Systems Ltd. [a]                  --       152,790
        Etelligent Solutions Inc. [b]                   --            --
        ----------------------------------------------------------------
                                                        --       281,784
        ================================================================

      [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.  Approximate  principal  repayments are as follows 2003 -$79,716,
2004-$79,716 and 2005-$73,074. Logicorp accelerated the payments in 2004.

      [b] Small Business  Equipment  Loans bearing  interest at Prime plus 2.25%
per annum.

      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, 2003 was 4.06% (August 2002 - 5.75%).  The principal  remaining as of
August 31, 2003 was $789,583 (August 2002 - $1,166,667). 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.

      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.


                                       22
<PAGE>

                    Loan amount                 $3,300,000
                    Discount                      (637,302)
                    --------------------------------------
                    Discounted loan             $2,662,698
                    Payment                       (500,000)
                    Amortization of discount       390,724
                    --------------------------------------
                    Loan at time of settlement  $2,533,422
                    Payment for settlement        (500,000)
                    Legal Fees                      17,793
                    --------------------------------------
                    Gain on settlement of debt  $2,051,215
                    ======================================

      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.  This debt was settled with
the sale of GalaVu;  the  $375,000  debt was repaid and then  re-issued to Chell
Group Corporation in the amount of $325,000.

      The $325,000  bears  interest at a rate of 13% and matures on November 25,
2003 and the monthly  payments are for interest  only.  The loan was extended in
November 2003, to a maturity date of December 15, 2003. The loan was repaid with
the proceeds from the sale of 14 Meteor Drive (see note 6).

      In May  2002,  we  completed  a private  equity  raise  for  $443,189  Cdn
($290,000  US). The shares were priced at a $1, thus resulting in 290,000 shares
to be issued.  At the end of the August 2002, the Company had not yet issued the
shares and thus a loan  payable was created  until the time at which the Company
would issue the shares. The Company issued the share on October 18, 2002 and the
loan has been decreased by the corresponding share capital entries required.

      In December 2002, the three former  shareholders  of Logicorp Data Systems
Ltd.  and  Logicorp  Service  Group Ltd.  advanced  Logicorp  Data  Systems Ltd.
$200,000 each, totaling $600,000.  These advances were due on demand and did not
carry a stated interest rate. 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.

      The  retirement  compensation  trusts  ("RCA's")  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% (8.0% at August 31, 2003,  8.75% at August 31,
2002). The original  repayment terms have not been met, but the determination of
breach lies with the individual  trustees appointed to monitor each individual's
loan to the Company.  The trustee of the former LDS  President has demanded full
payment and is part of the lawsuit  (Note 12).  The trustee for the other former
Logicorp  owners are  accepting of the current  payment  terms of $9,750,  which
repay the  principal and interest  components of personal  loans that each party
had taken to finance their loans to the Company.  No lump sum payments have been
made on the  RCA's  and no  further  agreements  have  been  made for a lump sum
payment.  Through our bank we  currently  make cash  payments  monthly to offset
interest and payment  incurred on the primaries  loans for the money they loaned
back to Logicorp. This constitutes the repayments we make against the RCA's. The
RCA's then increase by the interest  component  the primaries  charge us for the
loans.

      1) During the year ended August 31, 2003,  B.O.T.B.,  a company controlled
by Cameron Chell,  advanced Logicorp Data Systems Ltd. $820,000,  and during the
period of September 1, 2003 through  August 31,  2004,  advanced  Logicorp  Data
Systems Ltd.  $318,144.  The advances  are  unsecured,  due on demand and do not
carry a stated  interest rate. The Company has imputed  interest on the advances
at a rate of 9% per annum.  As of August 31, 2004, the aggregate  amount of such
advances was $1,138,144.


                                       23
<PAGE>

      2)  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  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,  2003 and 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 (see
Note 13). The loan remains  outstanding  as the loan and the shares  issued to a
former  President  of LDS are subject to a suit and  countersuit  regarding  the
former  President  of LDS.  The loan bears no interest and interest is not being
accrued as the company does not view the loan as owed. Interest charges, if any,
are pending the settlement of the lawsuit.

      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  31,2003.  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 (see Note 12).

      The Company's  subsidiary CMCG, purchased Logicorp (see note 13[a]) for an
adjusted number of shares 3,355,000 (from 5,355,000 originally). 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 value of the shares
is $4,852,976 and bears no interest. The shares have not been issued.

The long-term debt consists of the HP loan (8[iv]),  the Term loan (8[v] and the
RCA trusts (8[ix].  Approximate  future annual principal  payments for long-term
debt are as follows:

                      ------------------------------------
                      Years  ended  August 31,
                      2004                      $1,305,301
                      2005                          53,073
                      2006                          53,073
                      2007                           7,246
                      2008                              --
                      Thereafter                        --
                      ------------------------------------
                                                 1,418,693
                      ====================================

Short-term and Long-term debt are presented as follows

                 ----------------------------------------------
                                                2003       2002
                 ==============================================
                 Current
                 Term Loan (v)                 1,470    128,994
                 RCA Trust (ix)            1,250,758    741,154
                 HP Loan (iv)                 53,073         --
                 ----------------------------------------------
                 Current portion           1,305,301    870,148

                 Non-current
                 Term Loan (v)                    --    152,790
                 RCA Trust (ix)                   --    686,522
                 HP Loan (iv)                113,392    212,291
                 ----------------------------------------------
                 Non-current portion         113,392  1,051,603
                 ==============================================


                                       24
<PAGE>

      At August 31, 2003, we had a working capital  deficit of  $23,191,579,  an
increase of $3,776,645 from working capital deficit of $19,414,934 at August 31,
2002.

      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 2003 Fiscal  Year,  we had a net cash  outflow of $52,117,  a cash
outflow of $315,336 for the 2002 Fiscal Year and  $999,192  cash outflow for the
2001 Fiscal  Year.  The decrease in net cash inflow for the 2003 Fiscal Year was
primarily due to cash provided by operating activities.

      Cash used in operating  activities  for the 2003 Fiscal Year was $480,283.
The major factor contributing to the cash used in operations for the 2003 Fiscal
Year is the net  loss  with  non-cash  expenses  added  back of  $4,569,228  and
decrease in deferred  revenue of $321,825;  major factors  contributing  to cash
provided  by  operations  were:  decreases  in  accounts  receivable,  trade  of
$1,309,461,  increase in accounts payable and accrued liabilities of $1,988,981,
and an increase  in accrued  interest  payable of  $899,757.  The major  factors
contributing  to the cash used in  operations  for the 2002 Fiscal Year include:
net loss with  non-cash  expenses  added back of  $8,742,707  and a decrease  in
accounts payable and other liabilities of $3,883,743; major factors contributing
to cash  provided  by  operations,  were a decrease in  accounts  receivable  of
$3,697,333.  Cash used in  operating  activities  for the 2001  Fiscal  Year was
$2,858,450.  The major factor contributing to the cash used in operations during
the  2001  Fiscal  Year  was net  loss  with  non-cash  expenses  added  back of
$5,438,340;  major factors  contributing  to cash provided by operations  were a
decrease in accounts  receivable of $790,018 and an increase of accounts payable
and accrued liabilities of $1,072,244.

      Cash  provided  by  investing  activities  in the  2003  Fiscal  Year  was
$212,887.  This amount  resulted  from the purchase of property and equipment of
$391,648,  offset by the proceeds  from  disposal of property  and  equipment of
$434,532  and the  proceeds  from the sale of GalaVu of  $170,003.  Cash used in
investing activities in the 2002 Fiscal Year was $779,515.  This amount resulted
primarily from the purchase of capital assets totaling $2,098,150,  the purchase
of Logicorp and eTelligent,  $1,500,000 and $75,000  respectively  offset by the
proceeds from the sale of Magic Lantern of $1,850,000  and the proceeds from the
sale of property and equipment of $1,111,000.  Cash used in investing activities
in the 2001 Fiscal Year was $3,070,672.  This amount resulted primarily from the
purchase  of  property  and  equipment  of   $1,430,962   and  the  purchase  of
Applicationstation.com of $1,689,710.

      Cash  provided  by  financing  activities  in the 2003  Fiscal  Year  were
$265,307,  the increase is primarily made up of increased borrowings against the
bank  indebtedness  of $336,879,  increased  borrowings  from related parties of
$820,000 and increased borrowings from Logicorp  shareholders of $312,191 offset
by  repayments  to debt of  $777,375,  line of credit of $203,774  and  Logicorp
shareholders  of $222,614.  Cash  provided by financing  activities  in the 2002
Fiscal  Year  were  $9,268,626  which  consisted  primarily  of  the  $6,587,622
convertible  promissory  note  offset by payments  of debt of  $1,408,287.  Cash
provided by financing in the 2001 Fiscal Year were  $4,929,930.  The increase is
primarily due to the sale of the convertible debenture and the bridge financing.

      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, 2003,  August 31, 2002 and August 31,
2001  and  inflation  is not  expected  to  have  a  significant  impact  on our
operations or financial position during the 2004 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.


                                       25
<PAGE>

      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  difference 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,  assets  and
liabilities of discontinued  operations,  and rebates and coop fund.  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  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 adoption of SFAS 148 did
not 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
it did not 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


                                       26
<PAGE>

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  adoption  of  this
pronouncement did not 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.  The
adoption of this  pronouncement  did not 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.

      In December 2003, the  Securities and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  ("SAB") No.  104,  "Revenue  Recognition."  SAB 104
supersedes SAB 101,  "Revenue  Recognition in Financial  Statements."  SAB 104's
primary purpose is to rescind  accounting  guidance contained in SAB 101 related
to multiple element revenue arrangements, superseded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally,  SAB 104  rescinds  the SEC's  Revenue  Recognition  in  Financial


                                       27
<PAGE>

Statements  Frequently  Asked  Questions and Answers ("the FAQ") issued with SAB
101 that had been  codified  in SEC  Topic  13,  Revenue  Recognition.  Selected
portions of the FAQ have been  incorporated  into SAB 104.  While the wording of
SAB  104 has  changed  to  reflect  the  issuance  of EITF  00-21,  the  revenue
recognition  principles of SAB 101 remain  largely  unchanged by the issuance of
SAB 104,  which was  effective  upon  issuance.  The adoption of SAB 104 did not
impact the consolidated 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, 2003  (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 2003 and 2002, 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,
2003 or 2002.

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.


                                       28
<PAGE>

      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:

      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.


                                       29
<PAGE>

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.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

CURRENT COMPOSITION

--------------------------------------------------------------------------------
NAME                 AGE  PRINCIPAL POSITIONS WITH THE COMPANY         DIRECTOR
                                                                        SINCE
================================================================================
David Bolink          36  Chief Executive Officer, Chairman, Director    2003
Andy Quinn            41  Director                                       2004
Neil Brown            31  Secretary, Corporate Controller                 N/A

      Mr. Bolink was elected at our Annual  Shareholders'  Meeting held in 2003.
Mr. Quinn was appointed by Mr. Bolink, the then-sole director, to fill a vacancy
of the Board of Directors in 2004.  All of our Directors  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 has been our director since November 2003, and also served as
a director  from 2000 to 2002.  He 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.

      ANDREW W. QUINN,  JR. has served as our director  since April 2004. He has
been the Business  Development  Manager,  Telecommunications  for the Futurelink
Distribution  Company  from July  1999-February  2000.  Mr.  Quinn served as the
Executive Vice President for Engyro,  Inc.,  from March  2000-July  2002.  Since
September  2002,  Mr. Quinn has worked for  QuickCompliance,  Inc. and currently
serves  as the  Chief  Technology  Officer  and  Vice  President  Implementation
Services.

      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
Games Workshop Canada, a retail, wholesale and mail order company.


                                       30
<PAGE>

      No individual on our Board of Directors possesses all of the attributes of
an audit  committee  financial  expert and no one on our Board of  Directors  is
deemed  to be an audit  committee  financial  expert.  In  forming  our Board of
Directors,  we sought out  individuals who would be able to guide our operations
based on their business  experience,  both past and present, or their education.
Our business model is not complex and our accounting issues are straightforward.
Responsibility  for our operations is centralized  within  management,  which is
comprised of four people.  We rely on the assistance of others,  to help us with
the preparation of our financial information.  We recognize that having a person
who possesses all of the attributes of an audit committee financial expert would
be a valuable addition to our Board of Directors,  however,  we are not, at this
time, able to compensate such a person  therefore,  and we may find it difficult
to attract such a candidate.

CODE OF ETHICS

      On July 22, 2004 our Board of Directors adopted a Code of Business Conduct
and Ethics that applies to all of our officers, directors and employees.

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, 2003 and August 31,
2002.

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,  2003 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 2003 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>
David Bolink (2)                  2004         --         --            --                     --                 --
Chief Executive Officer                        --         --            --                     --                 --

Stephen McDermott(3)              2003       212,703      --            --                     --                 --
Chief Executive Officer           2002         --         --            --                     --                 --

Donald Pagnutti (4)               2003         n/a        n/a           n/a                    n/a                n/a
President, and Chief Financial    2002       160,000      --            --                   250,000              --
Officer                           2001       160,000      --            --                     --                 --

Cameron Chell                     2002         --         --            --                     --                 --
Chief Executive Officer (5)       2001         --         --            --                     --                 --

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

NOTES:

      (1)   Perquisites and other personal  benefits  received in 2001, 2002 and
            2003 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.


                                       31
<PAGE>

      (2)   Mr.  Bolink was hired  subsequent  to the Fiscal 2003 year end after
            the resignation of Stephen McDermott.

      (3)   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 his position  effective May 7,
            2004.

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

      (5)   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,  perquisites  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 2003 Fiscal Year,  (b) the
percentage  the grant  represents of the total number of options  granted to all
our employees  during the 2003 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.

<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
----------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>          <C>           <C>             <C>            <C>
Stephen McDermott           Nil              Nil          Nil           Nil             Nil            Nil
Chief Executive
Officer
Donald Pagnutti (1)         n/a              n/a          n/a           n/a             n/a            n/a
President and Chief
Financial Officer
Cameron Chell (2)           n/a              n/a          n/a           n/a             n/a            n/a
Chief Executive
Officer
</TABLE>

NOTES:
      (1)   Mr.  Pagnutti  resigned as  President  and Chief  Financial  Officer
            effective October 31, 2002.
      (2)   Mr. Chell  resigned as Chief  Executive  Officer  effective June 27,
            2002.


                                       32
<PAGE>

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
2004 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,  2004,
separately  identified between those exercisable and those not exercisable,  and
(iv) the aggregate value of in-the-money, unexercised options held on August 31,
2004, 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, 2004             Options at August 31, 2004
                         (#)            ($)                   (#)                              ($)
--------------------------------------------------------------------------------------------------------------------

                                                  EXERCISABLE   UNEXERCISABLE   EXERCISABLE(1)    UNEXERCISABLE(1)
                                                  -----------   -------------   --------------    ----------------
<S>                      <C>            <C>        <C>               <C>              <C>               <C>
Stephen McDermott        Nil            Nil        3,000,000         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,  2003,  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.

COMPENSATION OF DIRECTORS

      Prior to September 8, 2000,  each  director,  not  otherwise our full time
employee,  was  eligible  to  receive  $500 for  each  meeting  of the  Board of
Directors or committee thereof which they attended, along with the reimbursement
of their reasonable expenses incurred on our behalf. In addition, each director,
not  otherwise  our full time  employees  were  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              45,000
year vesting schedule)
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 his position  effective May 7,
2004


                                       33
<PAGE>

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      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 July 1, 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.

<TABLE>
<CAPTION>
                                                                 Amount & Nature          Percentage
Name and Address (1)                                             of Beneficial Ownership  of Class (2)
----------------------                                           -----------------------  ------------
<S>                                                         <C>           <C>                  <C>
Chell.com Ltd.                                              (3)           498,354              1.6%
114, 1215  -- 13th Street S.E.
Calgary, Alberta T2G 3J4

Cameron Chell                                                            1,225,000             3.8%

Canadian Advantage Limited Partnership                      (4)           451,868              1.4%
c/o Thomson Kernaghan & Co. Limited
120 Adelaide Street West, Suite 1800
Toronto Ontario M5H 1T1

CEDE & CO                                                                3,406,326            10.6%

Michael J. Rice                                                          1,700,000             5.3%

Naveen Chanana                                                            748,452              2.3%

ISCA Financial Services                                                   637,636              2.0%

Jayvee & CO                                                              4,201,487            13.1%

Stephen McDermott (President and Chief Executive Officer)   (5)          3,000,000             9.3%

All directors and executive officers as a group  2 persons                    0                0.0%
</TABLE>

(1) Unless otherwise stated, the address of the directors and executive officers
of the corporation is c/o Chell Group Corporation,  800 3rd Avenue,  21st floor,
New York, NY, USA 10022.


                                       34
<PAGE>

(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  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.  The  percentages
reflected  in this table  assume the  approval of the  issuance of shares of our
common stock pursuant to the Logicorp transaction, the issuance of shares of our
common stock pursuant to the conversion of the 8% convertible  promissory  notes
and the issuance of shares of our common stock pursuant to the conversion of two
promissory notes issued by us.

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

(4) 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.

(5)  Consists  of options  granted in fiscal  2004 to  acquire an  aggregate  of
3,000,000  shares of Common Stock at the exercise price of $0.05 per share.  Mr.
McDermott no longer served as an officer or director on and after May 7, 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 us and our
directors,  which occurred or existed during the 2003 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.

      License  Agreement  between us, Cameron Chell,  and Chell Merchant Capital
Group dated  August 31,  2000  whereby Mr.  Chell  grants us 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.

      Securities  Purchase Agreement with VC Advantage Fund ("VC") on October 3,
2000, for up to  US$3,000,000  loan to us. VC received a Convertible  Debenture,
which is convertible into our Common,  based upon an agreed  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
as Mr. Chell has no interests in CALP II.

      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.  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.

      The 3,000,000  option issuance to Stephen  McDermott was part of the Board
approved  compensation package during the 2004 Fiscal Year. The options were for
services rendered to date.


                                       35
<PAGE>

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 their services relating to the 2002 fiscal year audit will
be reflected in the period incurred.  The aggregate fees billed for professional
services were as follows:

             ------------------------------------------------------------
             Year                                 Audit Fees
             ------------------------------------------------------------
             2003                                 $797,918
             2002                                 $159,842
             2001                                 $244,560
             ------------------------------------------------------------

ALL OTHER FEES

      No other  services were rendered by Stonefield  Josephson,  Inc., or Lazar
Levine & Felix in fiscal year 2003, 2002 and 2001.

                                    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:

                 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:

                            CHELL GROUP CORPORATION
                           ANNUAL REPORT ON FORM 10-K

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    Exhibit
     Number                                   Description of Exhibit                                  Location
     ------                                   ----------------------                                  --------

<S>                 <C>                                                                            <C>
          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
</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>
    Exhibit
     Number                                   Description of Exhibit                                  Location
     ------                                   ----------------------                                  --------

<S>                 <C>                                                                            <C>
         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
        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
</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>
    Exhibit
     Number                                   Description of Exhibit                                  Location
     ------                                   ----------------------                                  --------

<S>                 <C>                                                                            <C>
        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.;
        10.31       Form of Assignment of Debt and Security, dated April 25, 2003 among
                    488605 Ontario Limited, Ruth Margel and DVOD Networks Inc., minus
                    schedules thereto.
        10.32       Stock Purchase Agreement dated as of August 2, 2004, by and among
                    NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd.    +5, Exh. 10.25
        10.33       Bonus Agreement entered into August 2, 2004, by and between the
                    Registrant and NewMarket Technology.                                          +5, Exh. 10.26
        10.34       Form of Promissory Note issued by NewMarket Technology, Inc. to Logicorp
                    Data Systems, Ltd.                                                            +5, Exh. 10.27
        10.35       Unanimous Shareholders Agreement dated August 2, 2004 by and among
                    NewMarket Technology, Inc., the Registrant and Logicorp Data Systems, Ltd.    +5, Exh. 10.28
        10.36       Registration Rights Agreement dated as of August 2, 2004, is entered into
                    by and among NewMarket Technology, Inc., and the Registrant.                  +5, Exh. 10.29
         14.1       Code of Ethics ..........................................................               14.1
           22       List of Subsidiaries.....................................................              p. 92
         31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         32.1   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


                                       38
<PAGE>

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

+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.

EXHIBIT 22. LIST OF  SUBSIDIARIES  OF CHELL GROUP  CORPORATION  AS AT AUGUST 31,
            2003

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.


                                       39
<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


Date: October 22, 2004               By: /S/ David Bolink
                                        ------------------------------------
                                            David Bolink, President, CEO and
                                                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            President,                        October 22, 2004
------------------------    Chief  Executive Officer and
David Bolink                Chief Accounting Officer

/S/ Andy Quinn
------------------------    Director                          October 22, 2004
Andy Quinn


                                       40
<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
Notes to Consolidated Financial Statements........................   F - 7 thru
                                                                       F - 38


                                       41
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Chell Group Corporation

      We have audited the consolidated balance sheets of Chell Group Corporation
(a New York corporation) and subsidiaries as of August 31, 2003 and 2002 and the
related  consolidated  statements of operations,  shareholders' equity (deficit)
and cash flows for each of the years in the  two-year  period  ended  August 31,
2003. Our audits 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 audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). 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 consolidated financial position of
Chell Group Corporation and  subsidiaries,  as of August 31, 2003, and 2002, and
the results of their  consolidated  operations and their consolidated cash flows
for  each of the  years  in the  two-year  period  ended  August  31,  2003,  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, negative cash
flows from operations,  and default on certain loan agreements 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 16, the Company has restated its financial statements
as of August 31, 2001, and for the year then ended,  previously audited by other
auditors.


/s/ Stonefield Josephson, Inc.
------------------------------
Stonefield Josephson, Inc.
Irvine, California
May 15, 2004, except
for Note 20[c] and
20[d], for which the
date is May 26, 2004
and August 8, 2004
respectively


                                      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)

<TABLE>
<CAPTION>
=============================================================================================================================
                                                                                   AUGUST 31, 2003         August 31, 2002
                                                                                         $                       $
=============================================================================================================================
<S>                                                                                <C>                     <C>
ASSETS
CURRENT
Cash and cash equivalents                                                                     327,685                107,258
Accounts receivable, trade - net of allowance for doubtful
           accounts of $356,195 and $160,000, respectively                                  3,560,286              4,944,843
Other receivables                                                                                  --                 31,406
Inventory                                                                                     208,340                268,980
Prepaid expenses                                                                               76,077                     --
Property held for sale                                                                      1,177,045                     --
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                        5,349,433              5,352,487
=============================================================================================================================
Property and equipment, net                                                                   638,143              3,460,763
Licenses, net of accumulated amortization                                                          --                 47,015
Goodwill                                                                                      276,794                276,794
Other assets                                                                                   63,600                109,696
Assets of discontinued operations - assets held for sale                                      969,292              4,133,911
-----------------------------------------------------------------------------------------------------------------------------
                                                                                            7,297,262             13,380,666
=============================================================================================================================

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT
Bank overdraft                                                                                908,432                603,740
Bank indebtedness                                                                           3,935,166              2,990,914
Accounts payable and accrued liabilities                                                    5,469,224              4,613,824
Accrued interest payable                                                                    1,347,220                655,050
Deferred revenue                                                                              297,243                422,980
Short-term advances                                                                           312,191                     --
Current portion, long-term debt                                                             1,305,301                870,148
Payable on acquisition                                                                      4,852,976              4,852,976
Loan payable, related party                                                                 1,020,000                200,000
Short-term note and loan payable, other                                                            --                443,189
Mortgages on buildings held for sale                                                        1,114,583              1,166,667
Convertible debt                                                                            7,978,676              7,947,933
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                                  28,541,012             24,767,421
=============================================================================================================================
Long-term debt, net of current portion                                                        113,392              1,051,603
 Liabilities of discontinued operations                                                     1,546,454              4,542,884
-----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                          30,200,858             30,361,908
=============================================================================================================================

COMMITMENTS AND CONTINGENT LIABILITIES                                                             --                     --

CONVERTIBLE PREFERRED SERIES B SHARES: 454,545 SHARES [August 2002 -                            7,294                  7,294
454,545]

SHAREHOLDERS' DEFICIT
    10,795,410 common shares [August 2002 - 10,504,913]                                       733,997                712,652
    Due from shareholder                                                                           --               (227,365)
    Additional paid in capital                                                             26,655,538             26,220,561
    Accumulated other comprehensive income                                                  1,150,558                215,097
    Accumulated deficit                                                                   (51,450,983)           (43,909,481)
-----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT                                                               (22,910,890)           (16,988,536)
=============================================================================================================================
                                                                                            7,297,262             13,380,666
=============================================================================================================================
</TABLE>

       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>

=============================================================================================================================
                                                                             2003              2002               2001
                                                                                                               (Restated)
                                                                               $                 $                 $
=============================================================================================================================
<S>                                                                         <C>               <C>               <C>
REVENUE
Product sales                                                                30,321,968         32,468,400                --
Service sales                                                                 2,178,128          1,739,524                --
Other                                                                                --                 --            16,595
-----------------------------------------------------------------------------------------------------------------------------
                                                                             32,500,096         34,207,924            16,595
-----------------------------------------------------------------------------------------------------------------------------

COST OF SALES
Product sales                                                                28,088,752         30,725,499                --
Service sales                                                                   291,496            594,488                --
-----------------------------------------------------------------------------------------------------------------------------
                                                                             28,380,248         31,319,987                --

GROSS PROFIT                                                                  4,119,848          2,887,937            16,595

OPERATING EXPENSES
Selling, general and administrative expenses                                  8,656,468          7,622,873         7,258,609
Write off of leasehold improvements                                             163,142                 --           355,560
Depreciation and amortization                                                 1,043,948          1,027,242           594,803
Impairment of goodwill                                                               --         10,489,549                --
-----------------------------------------------------------------------------------------------------------------------------
                                                                              9,863,558         19,139,664         8,208,972
-----------------------------------------------------------------------------------------------------------------------------

Loss on extinguishments of debt                                                      --            521,120                --
Interest expense                                                              2,462,516         10,123,183         1,146,708
Loss from equity investment in Engyro                                                --                 --           301,100
Loss on disposal of investments/property                                        248,587          1,838,140                --
Miscellaneous                                                                        --              1,627                --
-----------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before provision for income taxes            (8,454,813)       (28,735,797)       (9,640,185)
Provision for income taxes                                                           --                 --                --
-----------------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS                                              (8,454,813)       (28,735,797)       (9,640,185)
-----------------------------------------------------------------------------------------------------------------------------
 DISCONTINUED OPERATIONS
Loss on disposal/sale of subsidiary (net of applicable income tax of $0)       (829,199)          (305,091)         (937,711)
Loss from discontinued operations (net of applicable income tax of $0)         (308,705)        (1,710,649)       (1,169,743)
Gain on settlement of debt                                                    2,051,215                 --                --
-----------------------------------------------------------------------------------------------------------------------------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS                                        913,311         (2,015,740)       (2,107,454)
-----------------------------------------------------------------------------------------------------------------------------
NET LOSS                                                                     (7,541,502)       (30,751,537)      (11,747,639)
Deemed dividend on preferred shares                                                  --           (137,016)               --
-----------------------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                                 (7,541,502)       (30,888,553)      (11,747,639)
=============================================================================================================================

-----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER SHARE:
Basic and diluted from continuing operations                                      (0.79)             (2.93)            (1.15)
Basic and diluted from discontinued operations                                     0.08               (.20)            (0.25)
-----------------------------------------------------------------------------------------------------------------------------
Net loss per share                                                                (0.71)             (3.13)            (1.40)
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS:
   Net loss before dividends on preferred shares                             (7,541,502)       (30,751,537)      (11,747,639)
   Other comprehensive income - foreign currency translation                    935,461            215,097                --
-----------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                           (6,606,041)       (30,536,440)      (11,747,639)
-----------------------------------------------------------------------------------------------------------------------------

=============================================================================================================================
</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, 2003, 2002 AND 2001
                         (Expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                                                             Accumulated   Accumulated    Total
                                                                Additional                      other       retained   shareholders'
                                                                 paid in       Due from     comprehensive   earnings      equity
                  Preferred shares           Common shares       capital      shareholder       income     (deficit)     (deficit)
              ------------------------------------------------
                Shares     Amount         Shares        Amount
====================================================================================================================================
<S>           <C>         <C>         <C>           <C>       <C>             <C>            <C>          <C>           <C>
Balance,       900,000     10,917      2,925,141    191,122    10,454,669             --            --    (1,273,289)     9,383,419
 August 31,
 2000
 (restated -
 Note 16)

Purchase of
 assets and
 issuance of
 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 16)           --         --             --         --            --             --            --   (11,747,639)   (11,747,639)
====================================================================================================================================
Balance,
 August 31,
 2001
 (restated -
 Note 16)           --         --      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
 extinguishmen
 of debt            --         --             --         --       521,120             --            --            --        521,120

 Preferred
 shares
 issued             --         --             --         --       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
 issued as
 compensation       --         --             --         --       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)

Sale of
 common stock       --         --        290,000     21,309       434,977             --            --            --        456,286

Share
 adjustment         --         --            497         36            --             --            --            --             36

Payable from
 stockholder        --         --             --         --            --        227,365            --            --        227,365

Foreign
 currency
 translation
 adjustment         --         --             --         --            --             --       935,461            --        935,461

Net loss            --         --             --         --            --             --            --    (7,541,502)    (7,541,502)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
 AUGUST 31,
 2003               --         --     10,795,410    733,997    26,655,538             --     1,150,558   (51,450,983)   (22,910,890)
====================================================================================================================================
</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>
==================================================================================================================
                                                                           2003           2002           2001
                                                                                                     (Restated)
                                                                            $              $              $
==================================================================================================================
<S>                                                                     <C>           <C>            <C>
OPERATING ACTIVITIES
Net loss                                                                (7,541,502)   (30,751,537)   (11,747,639)
Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                       2,591,256      1,019,396      3,040,407
     (Gain) loss on retirement of debt                                  (2,051,215)       521,120             --
     Amortization of long-term debt discount                             1,016,232             --             --
     Due from shareholder expense                                          227,365             --        355,560
     Impairment of assets                                                  163,242             --             --
     Provision for doubtful accounts                                       196,195        299,918             --
     Loss on sale of subsidiary                                            829,199        305,091             --
     Loss on disposal/sale of capital assets and investments                    --      1,838,140             --
     Accretion of interest on non-interest bearing promissory notes             --             --        183,513
     Amortization of discount on Gunnar note                                    --      6,531,218             --
     Impairment of goodwill                                                     --     10,489,549             --
     Interest cost from amortization of discount                                --             --        589,628
     Deferred taxes                                                             --        (59,173)            --
     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
Changes in assets and liabilities:
     Decrease (increase) in short-term investments                              --             --        250,051
     Decrease (increase) in accounts receivable, trade                   1,309,461      3,697,333        790,018
     Decrease (increase) in other receivables                                   --         84,814        133,580
     Decrease (increase) in income taxes receivable                             --         46,365        (11,977)
     Decrease (increase) in inventory                                       38,949       (181,439)       100,626
     Decrease (increase) in prepaid expenses                                15,712        742,490         98,779
     Decrease (increase) in other assets                                    85,781             --         42,859
     Decrease (increase) in assets from discontinued operations                 --             --        103,710
     Increase (decrease) in accounts payable and accrued liabilities     1,988,981     (3,883,743)     1,072,244
     Increase (decrease) in accrued interest payable                       899,757             --             --
     Increase (decrease) in income taxes payable                            72,129             --             --
     Increase (decrease) in deferred revenue                              (321,825)      (782,660)            --
------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES                                         (480,283)    (9,019,544)    (2,858,450)
==================================================================================================================

INVESTING ACTIVITIES
Purchase of property and equipment                                        (391,648)    (2,098,150)    (1,430,962)
Proceeds from disposal of property and equipment                           434,532      1,111,000             --
Proceeds from sale of GalaVu                                               170,003             --             --
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                            212.887       (779,515)    (3,070,672)
==================================================================================================================
</TABLE>


                                       F-6
<PAGE>

<TABLE>
<CAPTION>
==================================================================================================================
                                                                           2003           2002           2001
                                                                                                     (Restated)
                                                                            $              $              $
==================================================================================================================
<S>                                                                     <C>           <C>            <C>
FINANCING ACTIVITIES
Bank indebtedness                                                          336,879      3,480,223             --
Net borrowings on line of credit                                          (203,774)     4,579,849             --
Increase in notes and loans payable                                        820,000      3,973,189      5,006,134
Payment on Logicorp note                                                  (222,614)    (1,800,000)            --
Borrowing from Logicorp shareholders                                       312,191        200,000             --
Repayment of notes and loans payable                                      (777,375)    (1,408,287)      (102,447)
Proceeds from exercise of options                                               --        243,652         26,243
------------------------------------------------------------------------------------------------------------------
CASH  PROVIDED BY FINANCING ACTIVITIES                                     265,307      9,268,626      4,929,930
------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------
EFFECTS OF FOREIGN EXCHANGE                                                (50,028)       215,097             --
------------------------------------------------------------------------------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING THE
 PERIOD FROM CONTINUING OPERATIONS                                         (52,117)      (315,336)      (999,192)

CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS                       272,544         66,173             --

Cash and cash equivalents, beginning of period                             107,258        356,421      1,355,613
------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                   327,685        107,258        356,421
==================================================================================================================

Income taxes paid                                                               --             --         98,491
Interest paid                                                              791,368        412,388        146,781

</TABLE>

      2003 Fiscal Year - Non cash items arose for the issuance of the  Company's
common  stock.  The common stock was issued for a $456,286,  Cdn  ($290,000  US)
raise of funds which had been raised in Fiscal 2002 as classified  previously as
a liability (Note 10b)

      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 and $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.

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 ("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.


                                      F-7
<PAGE>

      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 a technical
resource for small, medium and large commercial businesses.

      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 December 15, 2003, the
Company sold certain assets of Interactive (see Note 4).

      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 (see Note 4).

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 attributable to common shareholders
of $7,541,502,  $30,888,553 and $11,747,639 for the years ended August 31, 2003,
2002 and 2001, respectively, and has an accumulated deficit of $51,450,983 as of
August 31, 2003.  Also, the Company has negative cash flows from  operations for
each of the years ended August 31, 2003, 2002 and 2001. In addition, the Company
has working  capital  deficit of $23,191,579 and net asset deficit of 22,903,596
as of August 31,  2003.  Furthermore,  as discussed in Note 8, the Company is in
default on certain loan agreements.  These factors raise substantial doubt 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.


                                      F-8
<PAGE>

      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
NTN in December 2003 (see Note 4). If  management is unable to raise  additional
capital and expected  significant  revenues do not result in positive cash flow,
the  Company  will  not be able to meet  its  obligations  and may have to cease
operations. 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.

      The accompanying  financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.

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  June  30,  2004,  NTN  Communications,  Inc.  had
shareholders'  equity of $24,034,000 and working capital of $10,481,00 according
to  its  unaudited  balance  sheet  included  in  its  quarterly   report.   NTN
Communications,  Inc.  has reported a quarterly  net loss for the quarter  ended
June 30,  2004 of  $1,074,000  and a net loss of  $2,368,000  for the six months
ended  June 30,  2004.  It  reported  an  unaudited  net loss for the year ended
December 31, 2003 of $2,711,000.  All such amounts referred to in this paragraph
are quoted in US dollars.

      In December 2003, the Company completed the sale of assets and liabilities
of Interactive  (see Note 4). During the years ended August 31, 2003,  2002, and
2001, the Company paid  commission of $1,502,370,  $1,772,375,  and  $1,865,974,
respectively, in Canadian dollars, 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.

CONSOLIDATION POLICY

      These  consolidated  financial  statements  include  the  accounts  of the
Company and its  wholly-owned  subsidiaries:  CMCG (which includes  Logicorp and
eTelligent),  Interactive,  GalaVu, 3484751 Canada Inc., Chell.com USA Inc., and
Magic.  In  December  2003,  the  Company  completed  the  sale  of  assets  and
liabilities of Interactive  (see Note 4).  Effective April 25, 2003, the Company
sold its wholly-owned  subsidiary GalaVu (see Note 4). 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  (see  Note  4).  The
Company's  consolidated  financial  statements  have been  restated  to  reflect
Interactive,  GalaVu,  and  Magic as  discontinued  operations  for all  periods
presented.  The Company uses the equity method for  investments in which it owns
less than 50% but over 20%.

All significant  intercompany  accounts and transactions have been eliminated in
consolidation.


                                      F-9
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

      The  Company  has  the   following   financial   instruments   within  its
consolidated  financial  statements:  accounts  receivable,  bank  indebtedness,
accounts payable,  accrued liabilities,  accrued interest,  convertible debt and
long-term debt.

      The following methods and assumptions were used to estimate the fair value
of each class of financial  instruments  for which it is practicable to estimate
that value:

      The carrying amount  approximates fair value because of the short maturity
of these instruments: accounts receivable, bank indebtedness accrued liabilities
and accounts payable.

      The carrying amount for accrued interest  approximates  fair value because
the interest  accruals are based upon the actual or imputed  interest  rate from
contractual debt agreements or other obligations,  thus making the amount easily
determined.

      The carrying amount for long-term debt approximates fair value because the
amounts  are based upon the amount from  contractual  debt  agreements  or other
obligations, thus making the amount easily determined.

USE OF ESTIMATES

      The  preparation  of 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 as of
the date of the financial  statements  and the reported  amounts of revenues and
expenses during the reporting periods. 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,  assets  and
liabilities of discontinued operations, rebates and coop fund. Actual results in
subsequent   periods  could  differ  from   management's   estimates  and  those
differences could be material.

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 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.


                                      F-10
<PAGE>

CASH AND CASH EQUIVALENTS

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

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 $316,195 in allowance  for doubtful  accounts and
$40,000 in allowance  for price  adjustments  as of August 31, 2003  compared to
$120,000 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:

                                                  2003              2002
                                              ----------         ----------
           Beginning balance                  $  160,000         $  227,000
           Increase through acquisition
           of Logicorp Data
           Systems                                    --            270,000
           Provision for doubtful accounts       203,448            (11,223)
           Write-offs                             (7,253)          (218,477)
           Reclassification to
           discontinued operations                    --           (107,300)
                                              ----------         ----------
           Ending balance                     $  356,195         $  160,000
                                              ==========         ==========

      The Company's policies for allowance for doubtful accounts are as follows:
1) all amounts over 365 days  outstanding  are provided for 100% and are sent to
collections,  and 2) an  evaluation of all  amounts/customers  that have amounts
outstanding  in the 90+ days  outstanding  are reviewed to determine the reasons
for the delay in  receiving  payment  and thus are  assigned  a  probability  of
collection. The probability is determined based on historical experience for the
company.  Any account  receivable under 60% probability of collection is allowed
for.

      The  policy  for  charging  off  uncollectible  trade  receivables  are as
follows:  1) all amounts over 365 days are directly  written-off as soon as they
are allowed  for, and 2) amounts are also  written-off  if  settlement  has been
reached with the customer to decrease the amount owing.

      It is reasonably possible that the Company's estimate of the allowance for
doubtful accounts and price adjustments will change.

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.

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.


                                      F-11
<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.  Computer equipment
is amortized on a straight-line  basis over 3 years.  Software is amortized over
the following:  server and enterprise  software is amortized on a  straight-line
basis over 3 years,  desktop and other  operational  software is  amortized on a
straight-line  basis over 1 year.  Autos are amortized on a straight-line  basis
over 3 years. 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

      Effective  September 1, 2002, and in accordance with SFAS 144,  Accounting
for the  Impairment  or  Disposal 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 adoption of SFAS 144 did not have a material effect
on the Company's  financial  statements.  The Company  evaluates at each balance
sheet date whether events and circumstances have occurred that indicate 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. For comparative  purposes with the
2003 balance sheet,  the Company has presented the 2002 balance sheet  following
the guidance in SFAS 144 for long-lived assets held for sale.

GOODWILL AND OTHER INTANGIBLE ASSETS

      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.  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 and at any other time if events occur or  circumstances  indicate
that the carrying amount of goodwill may not be recoverable.  Prior to September
1, 2001,  goodwill  was stated at cost less  accumulated  amortization.  The net
effect of the adoption of SFAS 142 on results of  operations  prior to September
1, 2001 would not have a material effect on the consolidated  financial  results
of the  Company  as  the  amortization  of the  goodwill  was  allocated  to the
discontinued operations.

      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 the valuation of 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.

      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.


                                      F-12
<PAGE>

      Due to the  substantial  increase in operating  losses 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  the  accompanying   consolidated   statements  of
operations for the year ended August 31, 2002.  Measurement of the fair value of
these reporting units is based on present value  techniques of estimated  future
cash flows.

      The goodwill remaining on our consolidated balance sheets in the amount of
$276,794  as of August 31, 2003 and 2002 arose from the  purchase of  eTelligent
and this goodwill is allocated to the systems integration segment.

OTHER ASSETS

      Other assets  include  long-term  deposits which are related to our leased
facilities and are held until settlement of account.

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.

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.

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  foreign
currency  financial  statements  into  Canadian  dollars  are  included in other
comprehensive  income (loss).  The foreign  currency  translation  adjustment in
other comprehensive income was $935,461 and $215,097, for the years ended August
31, 2003 and August 31, 2002, respectively.

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


                                      F-13
<PAGE>

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
                                                EXERCISE
                                                 PRICE          TOTAL
                                                 U.S. $           #
========================================================================
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                                 1,543,840
Issued                                                 0.0            0
Exercised                                              0.0            0
Expired                                               0.96   (1,224,609)
-----------------------------------------------------------------------
BALANCE AS AT AUGUST 31, 2003                         1.00      319,231
=======================================================================

EXERCISE PRICE RANGES                          EXPIRATION       TOTAL
U.S. $                                           DATE             #
=======================================================================
1.00                                      November 1, 2011       95,106
1.00                                     November 30, 2011      224,125
-----------------------------------------------------------------------
BALANCE AS AT AUGUST 31, 2003                                   319,231
=======================================================================

      The number of stock options that are  exercisable at August 31, 2003, 2002
and 2001 is 319,231, 959,906 and 761,163, respectively.

      The weighted  average fair value of options  granted was U.S. $0.00 during
2003, $0.936 during 2002, and $1.17 during 2001.


                                      F-14
<PAGE>

      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 2003,
2002,  and 2001: (a) risk-free  interest rate of 4.35% for 2003,  5.09% for 2002
and 5.39% for 2001;  dividend  yield of 0% for 2003,  2002 and 2001;  volatility
factor of 931.8% for 2003,  120.5% for 2002,  and 70.7% for 2001; and a weighted
average expected life of the options of 8 years for 2003, 9 years for 2002 and 3
years for 2001.

      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:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                    2003           2002          2001
                                                                              (restated)
                                                     $              $              $
------------------------------------------------------------------------------------------
<S>                                              <C>           <C>            <C>
Net loss as reported                             (7,541,502)   (30,888,553)   (11,747,639)
Add:  Stock-based  employee  compensation
expense  included in reported net loss, net
of related tax effect                                    --             --             --
Deduct: Total stock-based employee
compensation  expense determined  under fair
value-based  method for all awards,  net
of related tax effect                                    --     (1,381,607)    (1,253,205)
------------------------------------------------------------------------------------------
Pro forma net loss                               (7,541,502)   (32,270,160)   (13,000,844)
==========================================================================================

Basic and diluted loss per share  as reported         (0.71)         (3.13)         (1.40)
Pro forma basic and diluted loss per share            (0.71)         (3.27)         (1.49)
==========================================================================================
</TABLE>

LOSS PER SHARE

      Basic loss per share is computed by dividing net loss  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  391,231,  1,543,840  and  1,325,000  as of August 31,  2003,  2002 and 2001,
respectively.  These options and warrants are not included in the calculation of
diluted loss per share as their effect is anti-dilutive.


                                      F-15
<PAGE>

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, 2003:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                    2003           2002          2001
==========================================================================================
<S>                                              <C>           <C>            <C>
Rebates                                           1,574,651        197,744             --
Coop Funds                                          157,750        277,278             --
------------------------------------------------------------------------------------------
Total                                             1,732,401        475,022             --
------------------------------------------------------------------------------------------
</TABLE>

ADVERTISING

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                   2003            2002           2001
==========================================================================================
<S>                                                 <C>            <C>            <C>
Advertising                                          17,022         34,458         29,561
Promotion                                           147,769         63,344         64,424
Marketing                                             4,725         27,443         43,482
------------------------------------------------------------------------------------------
Total                                               169,516        125,245        137,467
------------------------------------------------------------------------------------------
</TABLE>

      Advertising  costs are dealt with on a case by case basis. Any advertising
that is  purchased  that is  longer  than  one  month  in  nature  is setup as a
short-term  asset in prepaids and is expensed over the length of the period.  If
the length of the term is longer than one year,  the amount would be  classified
as other assets.  All other advertising costs are expensed when incurred.  As of
August 31, 2003, the Company had no prepaid advertising expenses longer than one
year in nature.

SHIPPING AND HANDLING COSTS

      The Company's shipping and handling costs are included in cost of sales in
the  accompanying   consolidated   statements  of  operations  for  all  periods
presented.

WARRANTY COST

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

BUSINESS ACQUISITIONS

      Effective  January 1, 2002,  the Company  acquired  100% of Logicorp  Data
Systems Ltd.,  Logicorp  Service  Group Ltd.,  123557  Alberta Ltd.,  and 591360
Alberta Ltd. Effective June 1, 2002, Logicorp Data Systems Ltd. acquired 100% of
the  shares  of  eTelligent  Solutions  Inc.  The  operating  results  of  these
subsidiaries  are  included  in  the  accompanying  consolidated  statements  of
operations from the date of acquisition (see Note 13).

DISCONTINUED OPERATIONS

      The  discontinued  operations  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 April 25,  2003,  the date GalaVu was
sold,  and (3)  Interactive  for the period from September 1, 2001 to August 31,
2003. Operating results of the above mentioned  subsidiaries for the years ended
August 31, 2003, 2002 and 2001 have been reported as discontinued  operations in
the accompanying consolidated statements of operations. See Note 4.


                                      F-16
<PAGE>

RECLASSIFICATIONS

      Certain 2002 and 2001  balances have been  reclassified  to conform to the
fiscal  year  2003  presentation.  These  reclassifications  had  no  effect  on
previously reported results of operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      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 adoption of SFAS 148 did
not 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
it did not 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.


                                      F-17
<PAGE>

      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  adoption  of  this
pronouncement did not 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.  The
adoption of this  pronouncement  did not 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.

      In December 2003, the  Securities and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  ("SAB") No.  104,  "Revenue  Recognition."  SAB 104
supersedes SAB 101,  "Revenue  Recognition in Financial  Statements."  SAB 104's
primary purpose is to rescind  accounting  guidance contained in SAB 101 related
to multiple element revenue arrangements, superseded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally,  SAB 104  rescinds  the SEC's  Revenue  Recognition  in  Financial
Statements  Frequently  Asked  Questions and Answers ("the FAQ") issued with SAB
101 that had been  codified  in SEC  Topic  13,  Revenue  Recognition.  Selected
portions of the FAQ have been  incorporated  into SAB 104.  While the wording of
SAB  104 has  changed  to  reflect  the  issuance  of EITF  00-21,  the  revenue
recognition  principles of SAB 101 remain  largely  unchanged by the issuance of
SAB 104,  which was  effective  upon  issuance.  The  adoption of SAB 104 is not
expected to have a material impact on the consolidated financial statements.


                                      F-18
<PAGE>

4. DISCONTINUED OPERATIONS

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$1.55   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 of
the purchase price was based upon the application of unpaid  licensing  payables
(approximating USD$650,000) owed to NTN Communications,  Inc., at the closing of
the transaction.

      The  Company  has  adopted  SFAS 144 and as a result the  Fiscal  2002 and
Fiscal  2001   balances  have  been  restated  in  order  to  conform  with  the
presentation of Fiscal 2003 financial  presentation.  Interactive is reported as
part of the discontinued business segment (previously entertainment segment).

      At  the  date  of  sale,  the  assets  of  Interactive   were  tested  for
recoverability  in accordance  with SFAS 144 which  resulted in no impairment to
recognize.

      In an effort to streamline  and focus the Company's  resources on its core
business segment of systems  integration,  all other segments were decided to be
discontinued.  Interactive had historically  been profitable,  provided positive
cash flows and faced  little or no  competition;  however  the  organization  no
longer strategically fit with the Company and the assets were sold.

      The following is a listing of the major classes of assets and  liabilities
of  Interactive  as of August 31,  2003 and 2002  (combined  with  GalaVu on the
consolidated balance sheet as of August 31, 2002):

------------------------------------------------------------
INTERACTIVE:                             2003           2002
------------------------------------------------------------
Accounts receivable               $   252,026    $   338,394
Fixed assets                          437,540        464,348
Other current assets                   98,092        335,743
Intangible assets                     181,634        130,509
------------------------------------------------------------
Assets                            $   969,292    $ 1,268,994
------------------------------------------------------------

------------------------------------------------------------
INTERACTIVE:                             2003           2002
------------------------------------------------------------
Cash overdraft                    $   272,544    $        --
Accounts payable                      959,769        603,407
Accrued liabilities                   260,657        407,941
Other current liabilities              53,484             --
------------------------------------------------------------
Liabilities                       $(1,546,454)   $(1,011,348)
------------------------------------------------------------


                            F-19
<PAGE>

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

-------------------------------------------------------------------------------
                                      Year Ended    Year Ended      Year Ended
                                       August 31,    August 31,     August 31,
                                          2003         2002            2001
===============================================================================
Sales                                 $ 5,755,244   $ 4,613,673   $ 2,386,401
Net income from discontinued
  operations, net of tax              $     8,408   $ 1,021,845   $   609,366
Loss on disposal of discontinued
  operations, net of tax                       --            --            --
-------------------------------------------------------------------------------

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,
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).

      In an effort to streamline  and focus the Company's  resources on its core
business segment of systems  integration,  all other segments were decided to be
discontinued.  Since the GalaVu  was no longer  considered  a  priority  for the
Company's  resources,  GalaVu was not receiving the capital  funding it required
for growth.  The  Management of GalaVu  approached  the Company's  management to
inquire about selling GalaVu.  Since GalaVu no longer strategically fit with the
Company, GalaVu was sold.

At the date of sale,  the assets of GalaVu  were  tested for  recoverability  in
accordance with SFAS 144 which resulted in no impairment to recognize.

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

           ----------------------------------------
           GALAVU:                         2002
           ----------------------------------------
           Accounts receivable      $    583,837
           Fixed assets                2,211,894
           Other current assets           69,186
           ----------------------------------------
           Assets                   $  2,864,917
           ----------------------------------------

           ----------------------------------------
           GALAVU:                         2002
           ----------------------------------------
           Accounts payable              886,489
           Accrued liabilities           291,890
           Long-term debt              2,353,157
           ----------------------------------------
           Liabilities              $  3,531,536
           ----------------------------------------


                                      F-20
<PAGE>

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                        Year Ended      Year Ended    Year Ended
                                                                        August 31,      August 31,     August 31,
                                                                          2003(1)         2002            2001
===================================================================================================================
<S>                                                                     <C>            <C>            <C>
Sales                                                                   $ 3,226,759    $ 5,564,277    $ 2,937,189
Net loss from discontinued operations, net of tax                          (317,113)    (1,516,355)      (602,293)
Gain on retirement of debt (see reconciliation in Note 8)                 2,051,215             --             --
Loss on disposal of discontinued operations, net of tax                    (829,199)            --             --
-------------------------------------------------------------------------------------------------------------------
</TABLE>

1) Period is through April 25, 2003, the date when GalaVu was sold.

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:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                        Year Ended     Year Ended
                                                                        August 31,     August 31,
                                                                          2002           2001
===================================================================================================
<S>                                                                     <C>            <C>
Sales                                                                   $ 1,621,287    $ 4,616,992
Net loss from discontinued operations, net of tax                        (1,216,139)      (511,143)
Loss on disposal of discontinued operations, net of tax                    (305,901)            --
---------------------------------------------------------------------------------------------------
</TABLE>

      In an effort to streamline  and focus the Company's  resources on its core
business segment of systems  integration,  all other segments were decided to be
discontinued.  Since Magic was no longer considered a priority for the Company's
resources,  Magic was not receiving the capital  funding it required for growth.
The  Management of Magic  approached  the Company's  management to inquire about
selling Magic. Since Magic no longer  strategically fit with the Company,  Magic
was  sold.  Magic  is  reported  as part of the  discontinued  business  segment
(previously education segment).

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:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                               Year Ended August    Year Ended August
                                                                    31, 2002            31, 2001
======================================================================================================
<S>                                                                          <C>    <C>
Sales                                                                        N/A    $        313,555
Net loss from discontinued operations, net of tax                            N/A            (665,673)
Loss on disposal of discontinued operations, net of tax                      N/A            (937,711)
------------------------------------------------------------------------------------------------------
</TABLE>

      The Company's financial statements have been restated to reflect Interlynx
as a discontinued operation for all periods presented.  Interlynx is reported as
part of the discontinued business segment (previously E-commerce segment).


                                      F-21
<PAGE>

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                     2003                                               2002
                                 ==============================================     ==============================================
                                     COST         ACCUMULATED       NET BOOK            Cost         Accumulated      Net book
                                                  DEPRECIATION       VALUE                          depreciation        value
                                       $               $               $                  $               $               $
----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                <C>             <C>              <C>              <C>             <C>
Land 1                                      --                --            --            785,500               --        785,500
Buildings 1                                 --                --            --          1,396,963          206,151      1,190,812
Equipment                            1,161,135           937,227       223,908          1,094,650          713,963        380,687
Software                               397,714           341,499        56,215            335,900          231,946        103,954
Automobiles                             23,300            23,300            --             23,300           21,055          2,245
Computer Equipment                   1,653,840         1,519,132       134,708          1,856,983        1,400,393        456,590
Leasehold improvements 2             1,012,144           788,832       223,312          1,149,693          608,718        540,975
----------------------------------------------------------------------------------------------------------------------------------
                                     4,248,133         3,609,990       638,143          6,642,989        3,182,226      3,460,763
==================================================================================================================================
</TABLE>

      1)    In Fiscal  2003,  the Company  reclassified  land and  buildings  to
            "Property held for sale" in the  accompanying  consolidated  balance
            sheet (Note 6).

      2)    CMCG  subleases  its  property  and a  $163,142  impairment  of  the
            leaseholds  has been  determined and has been expensed as "write-off
            of leasehold improvements". The leaseholds have been written down to
            the value of the future income from the sublease.

      Depreciation and amortization of property and equipment was $1,030,645 for
2003, $1,019,396 for 2002, and $586,957 for 2001.

6. PROPERTY HELD FOR SALE

      During the fiscal year ended August 31, 2003, we made the determination to
sell Interactive. Upon the Company receiving a letter of intent for Interactive,
it was  reasonably  determined  that the sale  would  occur,  as  evident by the
December 15, 2003 sale (see Note 4). Since  receiving the LOI, there would be no
operations  occupying  the  property  at 14  Meteor  drive  and thus we made the
determination to sell the building and its property.  Simultaneously,  since the
property at 10 Meteor drive was vacant also, we made the  determination  to sell
this property also. Therefore, both properties have been classified as "Property
held for sale" in the accompanying  consolidated  balance sheet as of August 31,
2003.

      During the fiscal year ended  August 31, 2003,  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
(net of costs).

      During the fiscal year ended  August 31, 2003,  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 (net of costs).

      The details of the properties held for sale are listed below:

----------------------------------------------------------------------------
                                         3484751
                                      Canada Ltd.  Interactive       Total
----------------------------------------------------------------------------
Furniture & Fixtures NBV                  12,184             -       12,184
Building                                 318,991       342,370      661,361
Land                                     265,000       238,500      503,500
----------------------------------------------------------------------------
Property held for sale                   596,175       580,870    1,177,045
============================================================================


                                      F-22
<PAGE>

      We have two mortgages  associated with the properties:  a demand-loan with
the Bank of Montreal (principal remaining - $789,583) and a second mortgage from
Harvey Margel ($325,000). The Bank of Montreal demanded payment for its mortgage
upon  learning of the intention to sell  Interactive,  for which the assets were
used as collateral.  The Margel mortgage was originally due in November 2003 and
was extended to December upon the  settlement of the first  property  sale.  All
mortgages  associated  with the properties  were paid in full subsequent to year
end. As a result,  we have  classified the assets as "property held for sale" in
current  assets  and  the  corresponding   mortgages  as  current   liabilities,
respectively, due to the sale of the properties subsequent to year end.

7. INCOME TAXES

The provision for income taxes consists of the following:

------------------------------------------------------------------------------
                                         2003           2002          2001
                                                                   (restated)
                                           $              $             $
------------------------------------------------------------------------------
Current and deferred
   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 2003,  39.3% for 2002,  and 42.1% for 2001 to income  before income
taxes is as set out below:

------------------------------------------------------------------------------
                                         2003           2002           2001
Taxes on continuing operations                                     (restated)
                                          $              $              $
------------------------------------------------------------------------------

STATUTORY RATE APPLIED TO LOSS FROM
 CONTINUING OPERATIONS                (3,322,742)   (11,293,168)    (4,051,216)
Benefit of current year's losses
 not recognized (change in valuation
   allowance)                          3,125,547     11,080,091      3,734,669
Expenses not deductible for
  tax purposes                           197,195        213,077        316,547
------------------------------------------------------------------------------
                                              --             --             --
==============================================================================

------------------------------------------------------------------------------
                                         2003           2002           2001
Taxes on discontinued operations                                    (restated)
                                          $               $              $
------------------------------------------------------------------------------

STATUTORY RATE APPLIED TO GAIN (LOSS)
  FROM DISCONTINUED OPERATIONS           358,931       (792,186)      (675,025)
Loss of subsidiary sold during the
  year                                  (121,321)      (672,285)      (539,922)
Capital (gain) loss on sale
  of subsidiary                         (480,253)       119,901      1,064,133
Benefit of current year's losses
  not recognized
  (change in valuation allowance)        242,643      1,344,570        150,814
------------------------------------------------------------------------------
                                              --             --             --
==============================================================================

      For the years ended August 31, 2003,  2002, and 2001, 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,  2003,  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  $24,500,000,  was nil.  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. 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, 2003
and 2002.


                                     F-23
<PAGE>

      At August 31, 2003, the Company and certain  subsidiaries  have loss carry
forwards of approximately $40,000,000 that can be carried forward against future
taxable income. The loss carry forwards began to expire in 2003.

8. LOANS AND NOTES PAYABLE/ BANK INDEBTEDNESS

Loans and notes payable consist of the following:

                                                        2003          2002
                                                         $             $
----------------------------------------------------------------------------
BANK DEBT
Bank indebtedness [i]                                3,935,166    2,990,914
Bank overdraft [i]                                     908,432      603,740
----------------------------------------------------------------------------
                                                     4,843,598    3,594,654
----------------------------------------------------------------------------

CONVERTIBLE DEBT
Convertible promissory notes [ii]                    5,777,510    6,587,622
Debenture payable [iii]                              2,201,166    1,360,311
----------------------------------------------------------------------------
                                                     7,978,676    7,947,933
----------------------------------------------------------------------------

OTHER LOANS
HP loan [iv]                                           166,465      212,291
Term loan[v]                                             1,470      281,824
Mortgages on buildings held for sale [vi]            1,114,583    1,166,667
Short-term loan other [vii]                               --        443,189
Short-term advances [viii]                             312,191         --
RCA Trusts [ix]                                      1,250,758    1,427,676
Related parties [x]                                  1,020,000      200,000
Payable on acquisition [xi]                          4,852,976    4,852,976
----------------------------------------------------------------------------
                                                     8,718,443    8,584,623
----------------------------------------------------------------------------
TOTAL DEBT, NOTES AND INDEBTEDNESS                  21,540,717   20,127,210
============================================================================

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

------------------------------------------------------------------------------
Company                                                       2003        2002
==============================================================================
Logicorp Data Systems Ltd. ("LDS") [a]                   3,852,790   2,872,850
eTelligent Solutions Inc.                                   82,376     118,064
------------------------------------------------------------------------------
                                                         3,935,166   2,990,914
==============================================================================

     [a] In March 2001,  LDS 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  $3,700,000;  (ii)
     equipment loan up to $300,000;  (iii) demand Evergreen  Capital  loan/lease
     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, 2003
     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, 2003,  the Company is in violation of maximum debt
     to net worth and minimum working capital  covenants.  The loans are secured


                                     F-24
<PAGE>

     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  has signed a new  forbearance  agreement  that will extend to
     October 31, 2004 and anticipates  signing a longer  forbearance  before the
     end of October 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  Cdn. $1.0 million.  On January 7, 2003, the
     board  determined  that the Company would grant 3.5 million  shares (actual
     issuance of shares  occurred in Fiscal  2004) of common  stock to Mr. Chell
     for such guarantees and other consideration in support of the Company.  The
     valuation  on the shares was  determined  by the 10 day  preceding  trading
     average of the Company's  common stock,  which  resulted in an  approximate
     $134,000  US$   compensation   expense   recorded  in  Fiscal   2003.   See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations" for a description of the loans.

      [b] The bank line of credit consists of debts from the following entities:

---------------------------------------------------------------------------
Company                                                     2003      2002
===========================================================================
Logicorp Data Systems Ltd. ("LDS")                       908,432   603,740
eTelligent Solutions Inc.                                      0         0
---------------------------------------------------------------------------
                                                         908,432   603,740
===========================================================================

[ii]  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,  2003,  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.  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 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 mandatorily  converted  into shares of common stock.  On June 11,


                                     F-25
<PAGE>

2004, the Company again requested that such deadline and "put" period be further
extended  to be  August  10,  2004 and  August  11-24,  2004,  respectively.  In
addition,  the Company proposed that the notes would be automatically  converted
on the  earlier  of (i)  the  date  that  all  annual  and  quarterly  reporting
obligations  under federal  securities laws have been complied with or (ii) July
10, 2004. The conversion  price of the notes has been further reduced from $0.25
per share to $0.16 per share.  The  aggregate  number of shares of common  stock
issued upon such conversion (principal and unpaid accrued interest thru July 11,
2004 [date of new  conversion  agreement])  would be  approximately  29,358,209,
representing  approximately 67.25% of the common stock outstanding giving effect
to such conversion (based upon 14,295,410  shares  outstanding at time of filing
the August 31, 2003 Form 10-K) . On August 10, 2004, the Company  requested such
deadline  and "put"  period be further  extended  to be  September  10, 2004 and
September 11-24, 2004,  respectively.  Effective September 14, 2004, the Company
has asked for  another  extension  to  October  11,  2004.  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 was 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 was fully amortized during the year ended
August 31, 2002.

[iii] 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%. 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.

      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").


                                     F-26
<PAGE>

      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. During the year ended August 31, 2003, the Company recorded additional
discount of $0 and  amortized  $1,000,504.  As of August 31,  2003,  outstanding
balance of this debt net of unamortized discount of $154,424 totaled $2,201,166.
As of August  31,  2002,  outstanding  balance  of this debt net of  unamortized
discount of $1,154,928 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.  This convertible debt matured in October 2003,  however
CALP and ABFL were  managed  by Thomas  Kerrnighan  ("TK"),  which has  declared
bankruptcy.  The Company has been unable to locate the trustee or obtain contact
from any former  employee  of TK. The debt will  remain on the  Company's  books
indefinitely until a settlement can be reached.

[iv] LDS agreed to pay $212,  291 payable to HP in regards to the  settlement of
claims with a discount of $53,073.  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.

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

---------------------------------------------------------------------------
Company                                                     2003      2002
===========================================================================
Current
Logicorp Data Systems Ltd. [a]                                --    79,716
Etelligent Solutions Inc. [b]                              1,470    49,278
---------------------------------------------------------------------------
                                                           1,470   128,994
Non-current
Logicorp Data Systems Ltd. [a]                                --   152,830
Etelligent Solutions Inc. [b]                                 --        --
---------------------------------------------------------------------------
                                                              --   281,824
===========================================================================

      [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.  Approximate  principal  repayments are as follows 2003 -$79,716,
2004-$79,716 and 2005-$73,074. Logicorp accelerated the payments in 2004.

      [b] Small Business  Equipment  Loans bearing  interest at Prime plus 2.25%
per annum.

[vi] 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, 2003 was 4.06% (August 2002 - 5.75%).  The principal  remaining as of
August 31, 2003 was $789,583 (August 2002 - $1,166,667). The Company may convert
the Demand loan, non-revolving advances in part or in total to a Fixed Rate Term


                                     F-27
<PAGE>

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.

      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 following is a reconciliation of the gain on settlement of the debt:

           Loan amount                               $ 3,300,000
           Discount                                     (637,302)
           -----------------------------------------------------
           Discounted loan                           $ 2,662,698
           Payment                                      (500,000)
           Amortization of discount                      370,724
           -----------------------------------------------------
           Loan at time of settlement                $ 2,533,422
           Payment for settlement                       (500,000)
           Legal Fees                                     17,793
           -----------------------------------------------------
           -----------------------------------------------------
           Gain on settlement of debt                $ 2,051,215
           =====================================================

      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.  This debt was settled with
the sale of GalaVu;  the  $375,000  debt was repaid and then  re-issued to Chell
Group Corporation in the amount of $325,000.

      The $325,000  bears  interest at a rate of 13% and matures on November 25,
2003 and the monthly  payments are for interest  only.  The loan was extended in
November 2003, to a maturity date of December 15, 2003. The loan was repaid with
the proceeds from the sale of 14 Meteor Drive (see Note 6).

[vii] In May 2002, the Company completed a private equity raise for $456,286 Cdn
($290,000  US). The shares were priced at a $1, thus resulting in 290,000 shares
to be issued.  At the end of the August 2002, the Company had not yet issued the
shares and thus a loan  payable was created  until the time at which the Company
would  issue the shares.  The Company  issued the shares on October 18, 2002 and
the loan has been decreased by the corresponding share capital entries required.

[viii] In December 2002, the three former  shareholders of Logicorp Data Systems
Ltd.  and  Logicorp  Service  Group Ltd.  advanced  Logicorp  Data  Systems Ltd.
$200,000 each, totaling $600,000.  These advances were due on demand and did not
carry a stated interest rate. 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.

[ix] The  retirement  compensation  trusts  ("RCA's")  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% (8.0% at August 31, 2003,  8.75% at August 31,
2002). The original  repayment terms have not been met, but the determination of
breach lies with the individual  trustees appointed to monitor each individual's
loan to the Company.  The trustee of the former LDS  President has demanded full


                                      F-28
<PAGE>

payment and is part of the lawsuit  (Note 12).  The trustee for the other former
Logicorp  owners are  accepting of the current  payment  terms of $9,750,  which
repay the  principal and interest  components of personal  loans that each party
had taken to finance their loans to the Company.  No lump sum payments have been
made on the  RCA's  and no  further  agreements  have  been  made for a lump sum
payment.  Through our bank we  currently  make cash  payments  monthly to offset
interest and payment  incurred on the primaries  loans for the money they loaned
back to Logicorp. This constitutes the repayments we make against the RCA's. The
RCA's then increase by the interest  component  the primaries  charge us for the
loans.

[x]   1) During the year ended August 31, 2003,  B.O.T.B.,  a company controlled
by Cameron Chell,  advanced Logicorp Data Systems Ltd. $820,000,  and during the
period of September 1, 2003 through  August 31,  2004,  advanced  Logicorp  Data
Systems Ltd.  $318,144.  The advances  are  unsecured,  due on demand and do not
carry a stated  interest rate. The Company has imputed  interest on the advances
at a rate of 9% per annum.  As of August 31, 2004, the aggregate  amount of such
advances was $1,138,144.

      2)  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  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,  2003 and 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 (see
Note 13). The loan remains  outstanding  as the loan and the shares  issued to a
former  President  of LDS are subject to a suit and  countersuit  regarding  the
former  President  of LDS.  The loan bears no interest and interest is not being
accrued as the company does not view the loan as owed. Interest charges, if any,
are pending the settlement of the lawsuit.

      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, 2003. 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 (see Note 12).

      [xi] The Company's subsidiary CMCG purchased Logicorp (see note 13[a]) for
an adjusted number of shares 3,355,000 (from 5,355,000  originally).  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 value of the shares
is $4,852,976 and bears no interest. The shares have not been issued.

The long-term debt consists of the HP loan (8[iv]), the Term loan (8[v]) and the
RCA trusts (8[ix]).  Future annual principal  payments for long-term debt are as
follows:

           -----------------------------------------------------
           Years ended August 31,
           2004                                       $1,305,301
           2005                                           53,073
           2006                                           53,073
           2007                                            7,246
           2008                                               --
           Thereafter                                         --
           -----------------------------------------------------
                                                       1,418,693
           =====================================================


                                      F-29
<PAGE>

Current and non-current portions of long-term debt are presented as follows:

---------------------------------------------------------------------------
                                                       2003           2002
===========================================================================
Current
Term Loan (v)                                         1,470        128,994
RCA Trust (ix)                                    1,250,758        741,154
HP Loan (iv)                                         53,073             --
---------------------------------------------------------------------------
Current portion                                   1,305,301        870,148

Non-current
Term Loan (v)                                            --        152,790
RCA Trust (ix)                                           --        686,522
HP Loan (iv)                                        113,392        212,291
---------------------------------------------------------------------------
Non-current portion                                 113,392      1,051,603
===========================================================================

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 sold certain  assets and  liabilities  to NTN  Communications,
Inc. effective December 15, 2003 (see Note 4).

      Total amounts  expensed  under this  agreement  were  $1,502,370 for 2003,
$1,770,275 for 2002 and $1,865,675 for 2001.

[b]   Lease commitments

      During the fiscal year ended August 31, 2002, Chell Merchant Capital Group
("CMCG") 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$199,000.  Effective  October
2002,  we  subleased  this  space  to   unaffiliated   third  parties  upon  the
discontinuation of the operations of CMCG for Cdn$144,000 per annum, plus taxes.
The lease and sublease agreements expire on January 31, 2005.

      Our  obligations,  less  applicable  taxes,  under this lease and sublease
agreement are outlined as follows:

------------------------------------------------------------------------------
Years ended August 31,       Lease agreement  Sublease income  Our obligation
------------------------------------------------------------------------------
2004                                 199,000        (144,000)          55,000
2005                                  82,917         (60,000)          22,917
------------------------------------------------------------------------------
                                     281,917        (204,000)          77,917
==============================================================================

      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.  These  leases are  included in the future  minimum
lease table that follows.


                                     F-30
<PAGE>

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

           Years ended August 31,
           -----------------------------------------------------
           2004                                       $  394,650
           2005                                          343,068
           2006                                          366,669
           2007                                          268,556
           2008 and beyond                               750,200
           -----------------------------------------------------
                                                      $2,123,143
           =====================================================

Operating lease expenses were $682,084 for 2003, $682,084 for 2002, and $398,073
for 2001.

[c]   Employment agreements

      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 his position  effective May 7,
2004.

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

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
$0.068 [U.S. $0.0467] per share and 1,500,000  non-cumulative Series B preferred
shares  with a par  value of  $0.016  [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.

[b]   ISSUED AND OUTSTANDING SHARES

      Common shares  outstanding at August 31, 2003 and 2002 were 10,795,410 and
10,504,913,  respectively.  At  August  31,  2003,  there are  454,545  Series B
convertible  preferred  shares issued and  outstanding  that have a par value of
US$0.01  per share  (454,545  August 31,  2002).  There is a  limitation  on the
conversion   feature  whereby  preferred  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 September 14, 2004,  the maximum  number of
shares the preferred  shares can be converted to is 714,771,  which is 5% of the
total shares outstanding.

      In May 2002, the Company completed a private equity raise for $456,286 Cdn
($290,000  US). The shares were priced at a $1, thus resulting in 290,000 shares
to be issued.  At the end of the August 2002, the Company had not yet issued the
shares and thus a loan  payable was created  until the time at which the Company
would issue the shares. The Company issued the shares on October 18, 2002.

[c]   RESERVED FOR FUTURE ISSUANCES

      As of December 29, 2003, the Company has reserved  3,822,073 common shares
for future  issuance.  This is comprised of 319,231  options  outstanding  as of
August 31, 2003 and 3,502,842 warrants,  of which 466,342 were outstanding as of
August 31, 2003.


                                     F-31
<PAGE>

[d]   WARRANTS OUTSTANDING

      The Company has the following warrants outstanding:

<TABLE>
<CAPTION>
           --------------------------------------------------------------------------------------------
                                                            Number          Price        Remaining Avg.
           ============================================================================================
           <S>                                             <C>           <C>             <C>
           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
           Issued                                              0              0                0
           --------------------------------------------------------------------------------------------
           Warrants outstanding as of August 31, 2003       466,342      $1.00-3.00        1.5 years
           ============================================================================================
</TABLE>

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>
----------------------------------------------------------------------------------------------------------------------
                                                                               2003            2002           2001
                                                                                                            (restated)
                                                                                $               $                $
======================================================================================================================
<S>                                                                         <C>           <C>            <C>
NUMERATOR:
Net loss (numerator for basic and diluted loss per share) from
continuing operations                                                       (8,454,813)   (28,735,797)    (9,640,185)
Net income (loss) (numerator for basic and diluted income (loss) per
share) from discontinued operations                                            913,311     (2,015,740)    (2,107,454)
Deemed preferred stock dividends                                                    --       (137,016)            --
======================================================================================================================
Net loss applicable to common  stockholders (numerator for basic and        (7,541,502)   (30,888,553)   (11,747,639)
diluted loss per share)
======================================================================================================================

DENOMINATOR FOR BASIC LOSS PER SHARE - adjusted weighted average number
of shares and assumed conversions                                           10,757,273      9,879,836      8,393,589

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                                    10,757,273      9,879,836      8,393,589
======================================================================================================================

Basic and diluted loss per share from continuing operations                      (0.79)         (2.93)         (1.15)
Basic and diluted income (loss) per share from discontinued operations
                                                                                  0.08          (0.20)         (0.25)
----------------------------------------------------------------------------------------------------------------------
Net loss per share                                                               (0.71)         (3.13)         (1.40)
======================================================================================================================
</TABLE>

      During the year ended August 31, 2003,  290,000 common shares were issued.
No preferred shares or warrants were issued.

      At August 31, 2003, options to purchase 319,231 common shares, warrants to
purchase  466,342  common shares and  convertible  preferred to 539,771  commons
shares were outstanding.  These securities were not included in the diluted loss
per share calculation because the effect would be anti-dilutive.

      During the year ended August 31, 2002,  454,545 Series B preferred  shares
were issued.  In addition,  at August 31,  2002,  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.


                                      F-32
<PAGE>

      At August 31, 2001, 900,000 preferred shares convertible to 300,000 common
shares were exercised and are no longer outstanding.  In addition, at August 31,
2001,  options to  purchase  1,325,000  common  shares and  warrants to purchase
50,000 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, 2003. 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  any  liabilities  on the  accompanying
financial 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.,  (Interactive)  commenced a
lawsuit  against us, NTN  Communications  and our NTN  subsidiary in the Federal
Court of Canada, Trial Division,  Montreal,  Quebec, under the title 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 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


                                      F-33
<PAGE>

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 NTN Interactive  Network Inc. to NTN
Communications.  As part of the agreement,  NTN  Communications  will assume the
liabilities related to this claim, if any.

      In May  2002,  a  former  consultant  filed  a  claim  against  CMCG.  The
consultant claims that he is owed  commissions,  options and expenses related to
his time working at Interlynx.  The  consultant  has offered to settle for which
CMCG has  rejected.  CMCG believes that  firstly,  it is not  responsible  for a
lawsuit  against  Interlynx  and  secondly,  that  the  consultants  claims  are
unjustified.  This lawsuit is scheduled  for trial at the end of October,  2004.
CMCG  believes  it  will  prevail  and  has  not  accrued   liabilities  on  the
accompanying financial statements related to this claim.

      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
(see Note 8[xi]) 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.


                                      F-34
<PAGE>

      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  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,  2003 and 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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                                               For Year Ended
                                                            Aug 31, 2002          Aug 31, 2001
-----------------------------------------------------------------------------------------------
                                                                   $                   $
<S>                                                         <C>                <C>
Revenues                                                      48,640,400            61,926,494
Net loss                                                     (28,146,376)          (10,606,336)
Net loss per share - basic and diluted                             (2.85)                (1.26)
-----------------------------------------------------------------------------------------------
</TABLE>


                                      F-35
<PAGE>

      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.

      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 years because it is
not material.


                                      F-36
<PAGE>

14. 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  systems  integration,  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. The Company assigns any goodwill from acquisitions to
the segment in which the acquisition  occurred.  Currently the only goodwill the
company  has is  associated  with the  purchase  of  eTelligent  which is in the
systems  integration  segment.  In  Fiscal  2002,  the  goodwill  impairment  of
$10,489,549 associated with the purchase of Logicorp was expensed to the systems
integration segment. Business segment information for the years ended August 31,
2003, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                               2003            2002              2001
                                                 $              $                 $
                                                                               Restated
===========================================================================================
<S>                                         <C>             <C>              <C>
Revenue
   Systems Integration                       32,500,096      34,205,614                --
   Corporate                                         --           2,310            16,595
===========================================================================================
                                             32,500,096      34,207,924            16,595
-------------------------------------------------------------------------------------------
Operating loss
   Systems Integration                      (3,034,169)     (1,162,568)               --
   Merchant Service                                 --              --        (5,076,619)
   Corporate                                (2,709,541)    (15,089,159)       (3,115,758)
-------------------------------------------------------------------------------------------
                                            (5,743,710)    (16,251,727)       (8,192,377)
-------------------------------------------------------------------------------------------
Net loss attributable to shareholders
    Systems Integration                     (3,659,647)    (12,173,848)              --
    Merchant Service                                --              --        (6,524,427)
    Corporate                               (4,795,166)    (16,698,965)       (3,115,758)
    Discontinued Operations                     913,311     (2,015,740)       (2,107,454)
-------------------------------------------------------------------------------------------
                                            (7,541,502)    (30,888,553)      (11,747,639)
-------------------------------------------------------------------------------------------
Total assets
   Systems Integration                        4,534,621       6,435,982               --
   Merchant Service                                 --               --         1,589,465
   Education                                        --               --           128,986
   Corporate                                  1,793,349       2,810,773         3,170,689
   Discontinued Operations                      969,292       4,133,911         4,648,078
-------------------------------------------------------------------------------------------
                                              7,297,262      13,380,666         9,537,218
-------------------------------------------------------------------------------------------
Capital expenditures
   Systems Integration                          275,104         127,737                --
   Corporate                                     24,896           7,355            46,978
-------------------------------------------------------------------------------------------
                                                300,000         135,092            46,978
-------------------------------------------------------------------------------------------
Depreciation & Amortization
   Systems Integration                          573,186         425,692                --
   Merchant Service                                  --              --           431,967
   Corporate                                    470,762         601,550           162,836
-------------------------------------------------------------------------------------------
                                              1,043,948       1,027,242           594,803
-------------------------------------------------------------------------------------------
Interest expense
   Systems Integration                          625,479         182,209                --
   Corporate                                  1,837,037       9,940,974         1,146,708
-------------------------------------------------------------------------------------------
                                              2,462,516      10,123,183         1,146,708
-------------------------------------------------------------------------------------------
</TABLE>

      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.


                                      F-37
<PAGE>

      The 2002 and 2001 comparative  segment  information has been  reclassified
from statements  previously presented to conform to the presentation of the 2003
segment information.

15. RELATED PARTY TRANSACTIONS

Payable to /Due from Shareholders

      Included in shareholders' deficit is $nil at August 31, 2003, and $227,365
at August 31,  2002,  of amounts due from  shareholders.  $202,279  due from and
$1,066,043  payable to, was advanced  during the years ended August 31, 2002 and
2003, respectively.  The amounts are non-interest bearing, unsecured and are due
on demand and have been reclassified to payables.

Loans

      During the year ended August 31, 2003,  B.O.T.B.,  a company controlled by
Cameron  Chell,  advanced  Logicorp Data Systems Ltd.  $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. 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.

16. RESTATED FINANCIAL STATEMENTS

[a]   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
2001:

                                        As Previously    As Restated in
                                           Reported      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-38
<PAGE>

17. 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 2001 were
as  follows  (there  were  no  investments  in and  advances  to  unconsolidated
subsidiaries for 2003):

                                                                 Percent Owned
   cDemo Inc. (written off in 2001)                                   14.3%
   Engyro Inc. (written off in 2001)                                  22.1%
   Wareforce Inc. (written off in 2002; see Note 18)                $176,518

      At August 31, 2002,  the  investment  in  Wareforce  Inc. was deemed to be
permanently   impaired  and  has  been  written  off  to  loss  on  disposal  of
investment/property 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. In addition,  due to dilution
in the cDemo Inc. and Engyro Inc., our current  position is not greater than 5%.
The percent owned in the above table  represents  the position owned at the date
the investment was written off in the noted Fiscal Year.

18. LOSS ON DISPOSAL OF INVESTMENT/PROPERTY

      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. The Company has provided a deposit of $1,661,622 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 the 2002
Fiscal Year.

      At August 31, 2002,  the $176,518  investment in Wareforce Inc. was deemed
to be  permanently  impaired  and  has  been  written  off in the  statement  if
operations for 2002.


                                      F-39
<PAGE>

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.
(dollars in thousands except per share data)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                TOTAL           FOURTH           THIRD          SECOND          FIRST
-----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>            <C>             <C>             <C>
YEAR ENDED 8/31/2003

Total net sales                            32,500,096        4,478,138      11,282,334      10,655,631      6,083,993
Gross profit                                4,119,848          703,374       1,487,964       1,123,892        804,618
(Loss) before income taxes                                          --
     and discontinued operations           (8,454,813)      (2,417,745)     (1,630,372)     (2,067,079)    (2,339,617)
Net (loss) attributable to common
shareholders                               (7,541,502)      (2,142,195)     (2,023,001)     (2,405,330)      (970,976)
NET (LOSS) PER SHARE:                                               --
Basic and diluted from continuing
     operations                                 (0.79)           (0.19)          (0.15)          (0.19)         (0.26)
Basic and diluted from discontinued
     operations                                  0.08             0.03           (0.04)          (0.03)          0.15
-----------------------------------------------------------------------------------------------------------------------
NET (LOSS) PER SHARE                            (0.71)           (0.20)          (0.19)          (0.22)         (0.09)
-----------------------------------------------------------------------------------------------------------------------
                                                                    --
   (Loss) from discontinued operations       (308,705)         275,553         436,567        (338,251)      (682,574)
   (Loss) on disposal/sale of
    subsidiary                               (829,199)              (3)       (829,196)             --             --
   Gain on disposal of debt                 2,051,215               --              --              --      2,051,215

YEAR ENDED 8/31/2002

Total net sales                            34,207,924        6,807,495      17,783,115       9,615,690          1,625
Gross profit                                2,887,937          547,339       1,511,110         827,864          1,625
(Loss) before income taxes                                          --
     and discontinued operations          (28,735,797)     (17,326,399)     (8,769,811)     (1,710,560)      (929,027)
Net (loss) attributable to common
shareholders                              (30,888,553)     (15,359,856)    (11,473,025)     (2,934,633)    (1,121,039)
NET (LOSS) PER SHARE:                                               --
Basic and diluted from continuing
operations                                      (2.93)           (1.69)          (0.95)          (0.18)         (0.11)
Basic and diluted from discontinued
operations                                      (0.20)            0.23           (0.29)          (0.12)         (0.02)
-----------------------------------------------------------------------------------------------------------------------
NET (LOSS) PER SHARE                            (3.13)           (1.46)          (1.24)          (0.30)         (0.13)
-----------------------------------------------------------------------------------------------------------------------

   (Loss) from discontinued operations     (1,710,649)       1,970,693      (2,401,976)     (1,087,057)      (192,012)
   (Loss) on disposal/sale of
     subsidiary                              (305,091)          (3,853)       (301,238)             --             --
</TABLE>


                                      F-40
<PAGE>

20. SUBSEQUENT EVENTS

[a] SALE OF BUILDINGS AND LAND

      During the fiscal year ended  August 31, 2003,  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, 2003,  we owned an  approximately
29,000 square foot parcel of land, located at 10 Meteor Drive, Toronto, Ontario,
on which stands a 14,000 square foot, two story building.  We sold this land and
building to an unrelated party on March 7, 2004 for approximately  $710,000. The
Company anticipates a gain of approximately $70,000.

[b] RESIGNATION OF STEPHEN MCDERMOTT (CEO)

      Effective April 28, 2004,  Stephen  McDermott  resigned his posts of Chief
Executive Officer and Chairman of the Board.  Dave Bolink,  current Board Member
has been appointed Chief Executive Officer and Chairman of the Board.

[c] SALE OF LOGICORP

      Effective   August  8,  2004,   the  Company's   previously   wholly-owned
subsidiaries,  Logicorp  Data  Systems  Inc.,  and Logicorp  Service  Group Inc.
(together,   "Logicorp")   issued  common   shares  to  NewMarket   Technologies
("NewMarket"),  a  publicly-traded  company  for $2.1  million  USD,  such  that
NewMarket  holds  51% of the  outstanding  equity  securities  of  Logicorp.  In
exchange for 51% of these subsidiaries, NewMarket will pay Logicorp $1.1 million
in cash  at  closing.  An  additional  $1.0  million  will  be paid to  Logicorp
according to the terms of a $1.0 million,  24-month promissory note. As a result
of this  transaction,  the Company holds the  remaining  49% of the  outstanding
shares of Logicorp.

      Twelve (12) months following the first  anniversary of the purchase of the
51% interest, if Logicorp has achieved annual sales of at least $18,000,000 with
at least a  breakeven  profit,  Chell  Group  will  have an  option  to  require
NewMarket  to acquire the  remaining  49% of the sellers  remaining  stock for a
purchase  price of  $1,900,000  to be paid in  NewMarket  stock  with  piggyback
registration  rights.  NewMarket will have an equal right to require the sale of
Chell  Group's   remaining  49%  stock  position  in  Logicorp  under  the  same
performance conditions.

[d]1109822 ALBERTA INC.

      Subsequent  to year  end,  on May 26,  2004,  the  Company  founded  a new
Canadian  subsidiary   corporation,   1109822  Alberta  Ltd.  This  wholly-owned
subsidiary  was created to act as a holding  company for  investments in various
sectors,  including  electronic  payment  processing.  1109822  Alberta Ltd. has
purchased  33 Units of a  Canadian  limited  partnership,  Tech  Income  Limited
Partnership  1 ("Tech  Income") for  CDN$495,000  (approximately  US$390,000  at
current  exchange  rates).  Tech  Income  was  founded  in early  2004  with the
objective of building  products  and  services to compete in the growing  online
payment  processing  industry.  Tech Income is currently carrying on business as
"Broker Payment Systems" or "BPS". This is an electronic payment transfer system
which  facilitates  payments and transfers of funds securely and in real time to
and  from  equity  brokerage  firms  for  investing  clients.  BPS is  currently
marketing this system in the United  States.  Management of the Company (and its
subsidiary)  believes  that the Chell Group can better  profit from the expected
growth in this sector by pooling  resources  with Tech Income (and its  existing
product  offering)  rather than by moving into this area alone.  The most recent
information  provided to us by Tech Income (as at September 15, 2004) shows that
1109822  Alberta  Ltd.  holds  approximately  32% of Tech  Income's  issued  and
outstanding units. This position may be diluted as Tech Income continues to sell
units to other  investors.  The  Company  expects to account  for this under the
equity method of accounting.


                                      F-41
<PAGE>

      Broker  Payment   Management   Inc.,  which  works  with  Tech  Income  in
distributing the BPS products and services, has been invested in directly by the
Company  ($495,000 Cdn was advance on June 18, 2004).  Chell Group currently (as
at September  15, 2004) holds  approximately  19% of Broker  Payment  Management
Inc.'s  equity  shares.  The Company  expects to account for this under the cost
method of accounting.

<TABLE>
<CAPTION>
                                            SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

----------------------------------------------------------------------------------------------------------------------------------
                                                Balance at      Charged to Costs    Charged to                   Balance at End
                                            Beginning of Year     and Expenses    Other Accounts    Deductions        Year
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                 <C>              <C>               <C>           <C>
For the fiscal year ended August 31, 2001

  Allowance for doubtful accounts             $     178,000      $   166,500      $            --  $  (117,500)    $     227,000
==================================================================================================================================
For the fiscal year ended August 31, 2002

  Allowance for doubtful accounts             $     227,000      $   270,000 [a]  $      (229,700) $   (70,218)    $     160,000
==================================================================================================================================
For the fiscal year ended August 31, 2003

  Allowance for doubtful accounts             $     160,000      $        --      $       148,913  $    47,282     $     356,195
==================================================================================================================================
</TABLE>

[a] added from Logicorp acquisition in January 2002.

                             CHELL GROUP CORPORATION
                                    FORM 10-K

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number    Description of Exhibit                                                                              Location
-------   ----------------------                                                                              --------
<S>       <C>                                                                                                 <C>
  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
</TABLE>


                                      F-42
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number    Description of Exhibit                                                                              Location
-------   ----------------------                                                                              --------
<S>       <C>                                                                                                 <C>
  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

  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
</TABLE>


                                      F-43
<PAGE>

<TABLE>
<CAPTION>

Exhibit
Number    Description of Exhibit                                                                              Location
-------   ----------------------                                                                              --------
<S>       <C>                                                                                                 <C>
  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.;

  10.31   Form of Assignment of Debt and Security,  dated April 25, 2003 among 488605 Ontario  Limited,
          Ruth Margel and DVOD Networks Inc., minus schedules thereto.

  10.32   Stock Purchase Agreement dated as of August 2, 2004, by and among NewMarket
          Technology, Inc., the Registrant and Logicorp Data Systems, Ltd.                              +5, Exh. 10.25

  10.33   Bonus Agreement entered into August 2, 2004, by and between the Registrant and
          NewMarket Technology.                                                                         +5, Exh. 10.26

  10.34   Form of Promissory Note issued by NewMarket Technology, Inc. to Logicorp Data Systems,
          Ltd.                                                                                          +5, Exh. 10.27

  10.35   Unanimous Shareholders Agreement dated August 2, 2004 by and among NewMarket
          Technology, Inc., the Registrant and Logicorp Data Systems, Ltd.                              +5, Exh. 10.28

  10.36   Registration Rights Agreement dated as of August 2, 2004, is entered into by and among
          NewMarket Technology, Inc., and the Registrant.                                               +5, Exh. 10.29

  14.1    Code of Ethics

  22      List of Subsidiaries...................................................................................p. 92
</TABLE>

----------
+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.


                                      F-44
<PAGE>

+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-45
<PAGE>

EXHIBIT 22. LIST OF  SUBSIDIARIES  OF CHELL GROUP  CORPORATION  AS AT AUGUST 31,
2003

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

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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.


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