for the period ended October 31, 2001

Transcription

1 Q U A R T E R R E P O R T for the period ended October 31, 2001

2 Quorum Information Technologies Inc. Quorum is a successful Information Technology Company that is uniquely positioned to become known as the Technology Solutions Company for mid-sized business. Quorum received the designation of Canadian Shooting Star from Deloitte & Touche, recognizing the company as one of Canada s fastest growing technology companies. Growth comes with success. Quorum s success comes from developing, marketing, implementing and supporting superior technology products and services specifically for the mid-market, and from our commitment to total customer satisfaction. Quorum has expertise in all aspects of Information Technology and employs the best people in the business to deliver it through two divisions: Enterprise Solutions and Technology Solutions. The Enterprise Solutions Division uses its experience and expertise to take software products from ideas to market. The division has built the required system development, implementation, support, documentation, marketing and sales departments to deliver its proprietary AUTOMATE Dealership Management Software and XSellerator solutions to the automotive market. The Technology Solutions Division provides comprehensive information technology solutions to mid-sized organizations with a group of best-of-class solutions assembled specifically for the mid-market. This group, collectively referred to as Quorum s library of solutions, consists of scalable, cost-effective solutions for ebusiness, Business Software, Unified Communications and Network Services.

3 Presidents Message These are the first financial statements for the Company formed by the reverse takeover of Quorum Information Technologies Inc. by Quorum Information Systems Inc. As part of the post-rto process, the Company elected July 31 as its year-end resulting in this first quarter interim report for the period ended October 31, We believe these statements will provide meaningful information, as the comparatives included in the financial statements are the results from operations of Quorum Information Systems Inc. To simplify and clarify our financial reporting, we will be changing Quorum s year-end to December 31. Maury Marks, C.A., President and CEO The 1st quarter of 2001/2002 was a significant transition period for Quorum. Prior to this quarter, the Company s primary focus was on the development of the Enterprise Solutions (ES) Division s AUTOMATE and XSellerator products, and the Technology Solutions (TS) Division s library of solutions. During the 1st quarter, Quorum made the full transition to a sales and service-centric Company. With this focus, and our best-of-class product suite, Quorum is positioned for significant profitable sales growth. As this is our first public reporting period, I will review the Company s accomplishments over the last 12-month period: Through significant effort, we have established AUTOMATE, our proprietary Dealership Management system, in the Canadian automotive marketplace, increasing Quorum s dealership base to 33 dealers across Canada. Quorum s implementation teams are now fully booked until March We launched our XSellerator product into the automotive marketplace. As with any new product launch, educating the marketplace on the product s features and benefits takes time. To date, sales have been limited but we are generating a significant amount of interest. Quorum grew the Technology Solutions side of the business, and secured some excellent new mid-market customers. In order to round out the TS division s library of solutions offering, the research and development group completed the required technical steps to introduce three new products. Quorum formed a strategic alliance with Meyers Norris Penny LLP (MNP). MNP Partners have invested in Quorum, and together we specialize in providing comprehensive technology solutions that specifically address the business needs of mid-sized companies. With over 900 team members in over 60 offices serving a large and diverse client base, the MNP alliance provides a new avenue for Quorum s continued growth. With Quorum growing to over 50 employees, the Company instituted a new implementation and support delivery model. In order for the company to capitalize on the many opportunities ahead, we needed an organizational model that would allow us to consistently deliver excellent support through periods of fast growth. In August 2001 Quorum became a publicly traded company. As its qualifying transaction, the original capital pool company, QIS Ventures Inc. acquired Quorum Information Systems Inc. through a take-over bid effective August 29, The Company then changed its name to Quorum Information Technologies Inc. Subsequent to these statements, Quorum has changed its year-end to December 31. Financial For its July 31, 2002 fiscal year-end, Quorum has set targets of 50% sales growth ($7.0 million) and positive net income. For the first quarter ended October 2001, we are reporting sales of $2.0 million and positive net income before taxes Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. one

4 of $56,526. Quorum is successfully achieving the sales growth and net income targets that have been set out. The December 31, 2001 financials will contain new targets to coincide with Quorum s new fiscal year-end of December 31. Further details of the first quarter results are included in the Management Discussion and Analysis. Looking Forward Enterprise Solutions Division The ES division is taking advantage of some exciting opportunities. Automotive Vertical AUTOMATE is currently sold to GM/Saturn dealerships in Western Canada and Ontario. In the 2nd quarter of 2001/2002, Quorum will begin delivering AUTOMATE to Hyundai and Kia dealerships. In the 3rd quarter of 2001/2002, Quorum will deliver to our first GM dealership in Atlantic Canada. General Motors of Canada Limited has acknowledged Quorum as the only Dealer Service Provider that is fully integrated to GM s corporate systems. We remain committed to strengthening this integration in order to position AUTOMATE as the product of choice for their dealerships. Concurrently, we are developing relationships with other major automotive manufacturers in readiness for planned future growth within the industry. Management is evaluating Quebec and the US as potential geographic growth markets. XSellerator SBC is garnering a great deal of interest within the automotive dealership industry. Management will work to increase product recognition and sales in a defined geographic area before rolling it out to additional markets. New Vertical Markets The ES division is actively exploring numerous vertical market development or purchase opportunities. In 2002, we should be positioned to add select vertical market solutions to this division. Technology Solutions Division The mid-market has been largely ignored by full service IT companies. Recently, the Gartner Group predicted that through 2004, IT spending by leading mid-sized enterprises will increase 5-9% as a percentage of revenue. We will continue to position the Company as the IT service provider of choice for mid-market companies. Quorum has invested significant resources into defining a group of 3rd party, best of class, cost-effective technology solutions specifically for small and mid-market companies. This group has become Quorum s library of solutions. The library allows us to provide mid-sized clients with a solution more quickly, effectively and efficiently because we have already researched the very best solutions for mid-sized companies. Although our solutions library is very complete, Quorum will remain committed to researching new solutions as they become available. Through our alliance with MNP, we will expand our geographic market to jointly service mid-market organizations throughout Western Canada. Acknowledgement Quick growth is very difficult to manage and maintain. We have an extremely dedicated group of people that excel in a fast paced environment. I would like to take this opportunity to recognize this group because they are responsible for Quorum s success. The members of Quorum s board of directors are: Larry Shelley, Chairman of the Board; Maury Marks, President and CEO; Ross Bevin; Charles Buchanan; and Sid Rieger. Going public is a long and difficult journey, and I would like to acknowledge our shareholders for their patience and support. On behalf of the Board of Directors, Maury Marks, C.A., President and CEO two Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

5 MANAGEMENT S DISCUSSION AND ANALYSIS For the period from August 1 to October 31, 2001 This Management s Discussion and Analysis should be read in conjunction with the unaudited interim consolidated financial statements of the Corporation for the three months ended October 31, 2001 and the audited financial statements of Quorum Information Systems Inc. ( Quorum ) for the year ended July 31, Background and Description of Business On August 29, 2001 Quorum Information Technologies Inc., (the Corporation ) formerly a junior capital pool company pursuant to CDNX Policy 2.4, completed its Qualifying Transaction which was the non-arm s length acquisition of all of the issued and outstanding securities in the capital of Quorum. The acquisition of Quorum by the Corporation has been recorded as a Reverse Take-over Transaction (RTO) for accounting purposes. The Corporation, which is the legal acquirer, issued 8,100,000 common shares and 2,957,400 preferred shares for the acquisition of Quorum at a deemed price of $0.40 per common share and $0.50 per preferred share. The preferred shares were subsequently converted to common shares and share purchase warrants after the completion of the RTO transaction. The acquisition has been accounted for as a purchase transaction, with Quorum being the deemed acquirer as the transaction was a reverse take-over. Quorum is a successful Information Technology Company that is uniquely positioned to become known as the technology solutions company for mid-sized business. As part of its strategy for continued growth, Quorum has formed an alliance with Meyers Norris Penny LLP, a well established Western Canadian chartered accountancy and business advisory firm with 900 team members in over 60 offices. Quorum recently received the designation of Canadian Shooting Star from Deloitte & Touche, recognizing the company as one of Canada s fastest growing technology companies. Growth comes with success. Quorum s success comes from developing, marketing, implementing and supporting superior technology products and services specifically for the mid-market, and from their commitment to total customer satisfaction. Results of Operations Revenue: Revenue for the three month period increased to $1,978,613 (71.58% increase) from $1,153,172 for the same three month period in Overall net income before taxes for the same comparative period increased to $56,526 (2.86% of sales) from a net loss before taxes of $6,024 (0.52% of sales). Corresponding to the increase in sales volumes, cost of sales for the same comparative period increased to $1,251,952 (63.27% of sales) from $770,555 (66.82% of sales). The major contributing factor to this increase in the sales and net income position in the current three month period was the successful rollout of AUTOMATE, which was still in a development phase in the comparative period. The increase in AUTOMATE implementations in the current period is reflected in the % increase in revenue in the Enterprise Solutions Division to $520,300 from $157,110 for the same comparative period. The Corporation also increased its staffing levels to maintain the increase in the number of new customers, which has contributed to the 46.41% increase in revenue in the Technology Solutions Division to $1,458,313 from $996,062 for the same comparative period. Expenditures before amortization during the period have increased by 73.06% when compared to the corresponding period, and are consistent with the overall growth in net sales. Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. three

6 As a result of the increase in the overall operating activities and the selling of more AUTOMATE the net income after taxes for the quarter increased to $26,202 (1.32% of sales) as compared to a loss of $93,400 (8.10% of sales) in the corresponding period. Basic earnings per share for the three months ended October 31, 2001 was $0.002 per share, as compared to a basic loss per share of $0.010 per share for the corresponding period. Liquidity, Capital Resources and Risk Factors Working capital at October 31, 2001 was $637,384, an increase of $858,989 from July 31, 2001 which had a working capital deficiency of $221,605. This increase in the liquidity position is largely due to the increase in share capital and higher gross margins in the Enterprise Solutions Division, and the overall increase in the net profitability position of the Corporation. The current ratio of 1.48 at October 31, 2001 reflects the increased liquidity compared to the current ratio of 0.81 at July 31, The substantial increase in working capital has provided the Corporation with the ability to invest in new technology solutions and products, and with an opportunity to venture into new markets. Other than the shareholders loans, the Corporation does not carry any significant long-term debt at October 31, Material Contracts & Commitments During the quarter the Corporation did not enter into any new material contracts or commitments. Related Party Transactions During the quarter ended October 31, 2001, the Corporation incurred fees in the amount of $152,377 from an entity of which two directors are principals. Of this amount $28,891 remains unpaid at October 31, Subsequent Events On November 6, 2001 a final 505,000 units were issued at $0.50 per unit as part of the ongoing private placement offering, and the offering was closed on November 16, Each unit consists of one common share of the Corporation and one share purchase warrant, with each warrant entitling the holder to acquire an additional common share at $1.25 per share on or before October 31, Business Risks and Uncertainties The information technology and services industry involves business risks that could significantly impact the operating results, financial condition, and future development plans of the Corporation. Outlook Quorum continues to focus on its July 31, 2002 fiscal year-end targets of 50% sales growth and positive net income. Based on our existing sales activity, the Corporation remains confident that we can continue to meet those targets. four Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

7 Consolidated Interim Balance Sheets As at October 31 July 31 July (Unaudited) (Unaudited) (Audited) (Note 1) (Note 1) Assets Current Accounts receivable $ 1,527,510 $ 700,071 $ 559,943 Income tax receivable (Note 9) 69,769 70,627 68,294 Inventory 349, ,803 62,720 Prepaid expenses 24,410 47,923 9,528 1,970, , ,485 Future tax asset (Note 9) 360, ,639 Software development costs (Note 3) 1,953,353 1,878, ,805 Capital assets (Note 4) 393, , ,841 Deferred expenses (Note 5) 48,489 54,418 $ 4,726,022 $ 3,489,574 $ 1,751,131 Liabilities Current Bank indebtedness (Note 6) $ 93,211 $ 368,659 $ 210,671 Accounts payable and accrued liabilities 1,182, , ,514 Current portion of long-term debt (Note 7) 58,028 69,941 28,037 1,333,519 1,142, ,222 Due to shareholders (Note 8) 114, ,034 88,497 Long-term debt (Note 7) 12,877 27,386 85,748 Future tax liability (Note 9) 80,087 1,461,321 1,324, ,554 Shareholders equity Share capital (Note 10) 2,957,253 1,993, ,576 Share subscriptions received in advance (Note 12) 110,000 Retained earnings 197, , ,001 3,264,701 2,165, ,577 $ 4,726,022 $ 3,489,574 $ 1,751,131 Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. five

8 Consolidated Interim Statement of Income and Retained Earnings Quarter Quarter Year Year ended ended ended ended October 31 October 31 July 31 July (Unaudited) (Unaudited) (Unaudited) (Audited) Revenue Enterprise Solutions $ 520,300 $ 157,110 $ 860,903 $ 553,530 Technology Solutions 1,458, ,062 3,929,097 2,983,630 1,978,613 1,153,172 4,790,000 3,537,160 Cost of goods sold Enterprise Solutions 203,457 77, , ,053 Technology Solutions 1,048, ,959 2,764,042 2,086,467 1,251, ,555 3,207,418 2,360,520 Gross profit 726, ,617 1,582,582 1,176,640 Expenses Salary, benefits and employee training 317, , , ,815 General and administrative expenses 173,124 87, , ,670 Sales and marketing 45,728 25, , ,326 Bank charges and interest 21,685 10,789 84,499 19,348 Amortization 111,813 66, ,106 60, , ,641 2,024,386 1,140,319 Income (loss) for the period before taxes 56,526 (6,024) (441,804) 36,321 Income taxes (recovery) (Note 9) 30,324 87,376 (300,049) 3,528 Net income (loss) for the period 26,202 (93,400) (141,755) 32,793 Retained earnings, beginning of period 171, , , ,208 Retained earnings, end of period $ 197,448 $ 219,601 $ 171,246 $ 313,001 Basic earnings (loss) per share $ $ (0.010) $ (0.018) $ six Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

9 Consolidated Interim Statement of Cash Flows Quarter Quarter Year Year ended ended ended ended October 31 October 31 July 31 July (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from operating activities Cash receipts from customers $ 1,151,174 $ 793,930 $ 4,649,872 $ 3,207,519 Cash paid to suppliers and employees (1,533,165) (585,628) (4,684,762) (3,095,447) Interest paid (21,685) (10,789) (84,499) (19,348) Income taxes paid 22,167 (3,290) (403,676) 197,513 (97,222) 89,434 Cash flows from financing activities Cash received on issuance of shares net of share issue costs 791,915 1,432, ,322 Share subscriptions received in advance 110,000 Shareholders loans (40,109) 66,537 Proceeds from long-term debt 61, ,000 Repayment of long-term debt (26,422) (7,010) (78,371) (18,364) 835,384 (7,010) 1,482, ,958 Cash flows from investing activities Purchase of capital assets (2,720) (61,685) (175,276) (334,666) Computer software development costs (153,540) (167,297) (1,296,549) (238,472) Deferred expenses (30,235) (71,146) (156,260) (259,217) (1,542,971) (573,138) Increase (decrease) in cash and cash equivalents 275,448 (68,714) (157,988) (4,746) Cash and cash equivalents, beginning of period (368,659) (210,671) (210,671) (205,925) Cash and cash equivalents, end of period $ (93,211) $ (279,385) $ (368,659) $ (210,671) Basic cash flow from operations per share $ (0.028) $ $ (0.012) $ Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. seven

10 Consolidated Notes to Interim Financial Statements 1. Significant Accounting Policies Quorum Information Technologies Inc. ( QIS or the Corporation ) (formerly QIS Ventures Inc.) is incorporated under the laws of Alberta. The Corporation was party to a reverse takeover transaction ( RTO ) between QIS (the deemed acquiree) and Quorum Information Systems Inc. ( Quorum ) (the deemed acquirer), effective August 29, The corporate structure is that effective August 29, 2001, Quorum became the wholly-owned subsidiary of QIS. Quorum is incorporated under the laws of Alberta. QIS has a December 31st year-end and has been filing quarterly financial statements, the last one being the second quarter ended June 30, Quorum has a July 31st year-end and has subsequently changed its year end to December 31st to be consistent with QIS. In conjunction with the RTO, management made an application to the Securities Commissions to file its year-end audited financial statements on the basis that Quorum, which still has a July 31 year-end, is the Filing Issuer within the meaning of National Policy 51. QIS proposes to change its year-end at a later date to December 31. Accordingly, QIS will have a five month period as at December 31, In accordance with the provisions of the National Policy 51, the Corporation is providing interim consolidated financial statements for the First Quarter ended October 31, 2001 and will provide audited consolidated financial statements for the five month period ended December 31, The interim financial statements of the Corporation have been prepared by management in accordance with generally accepted accounting principles in Canada. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements have, in management s opinion, been properly prepared using careful judgement with reasonable limits of materiality. These interim unaudited financial statements and notes do not include all disclosures required for annual statements and should be read in conjunction with the Information Circular dated June 6, During the year, the Corporation made the following changes to its accounting policies: The Corporation adopted the treasury stock method of reporting earnings and other per share amounts. Basic earnings per common share and cash flow from operations per common share are computed by dividing earnings and cash flow from operations by the weighted average number of common shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments, in accordance with new standards approved by Canadian Institute of Chartered Accountants. This change did not have any impact on the reported earnings per share. eight Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

11 2. Business Combinations For the Quarter ended October 31, 2001 (a) Pursuant to a reverse takeover ( RTO ) transaction, effective August 29, 2001, QIS, the legal acquirer, issued 8,100,000 common shares and 2,957,400 preferred shares for the acquisition of Quorum at a deemed price of $0.40 per common share and $0.50 per preferred share. The preferred shares were subsequently converted to common shares following the completion of the RTO transaction (see Note 10(b)(i)). The acquisition has been accounted for as a purchase transaction with Quorum being the deemed acquirer since the transaction was a reverse takeover. The carrying values of the assets and liabilities of QIS as at the effective date, August 29, 2001, and the consideration issued are as follows: Net assets: Net working capital $ 859,823 Future income tax asset 142,007 $ 1,001,830 Consideration: Attributed to the 3,502,000 common shares (see Note 10 (b)), net of share issue costs of $338,757 less future taxes of $140,991. $ 1,001,830 For the year ended July 31, 2001 On June 29, 2001, Quorum amalgamated with Shield Network and Computer Services Ltd. (Shield), Alberta Ltd. (AlbCo.) and Skytech Computer Services Inc.(Skytech). (b) Shield Network and Computer Services Ltd. ( Shield ) Shield was a Canadian Controlled Private Corporation (CCPC) incorporated in the province of Alberta which provided computer network services for the past five years. Effective October 31, 2000, all the 100 common shares of Shield were acquired by the Corporation and on June 29, 2001, Shield was amalgamated with Quorum. Earnings of Shield are included in these financial statements effective November 1, The purchase of Shield was recorded by Quorum as follows: Net assets: Net working capital deficiency $ (178,987) Capital Assets 421,346 Long-term loan (161,045) Goodwill* 50,196 $ 131,510 Consideration: Payable to Vendors in cash (Note 7) $ 131,510 (c) *Goodwill has been fully written off to general and administration expenses Alberta Ltd. ( AlbCo ) AlbCo was incorporated in the province of Alberta in The purpose of the AlbCo was to raise venture capital for the major transaction of QIS. Effective June 29, 2001, all the 2,957,400 common shares of AlbCo were acquired by Quorum. AlbCo amalgamated with Quorum and the former shareholders of AlbCo received 2,957,400 convertible preferred shares of Quorum upon the amalgamation. Earnings of AlbCo are included in these financial statements effective June 30, The purchase of AlbCo was recorded by Quorum as follows: Net assets: Net working capital $ 1,474,636 Consideration: Issue of 2,957,400 preferred shares of Quorum (see Note 10 (b)) $ 1,474,636 Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. nine

12 2. Business Combinations - Continued (d) Skytech Computer Services Inc. (Skytech) Skytech was a Canadian Controlled Private Corporation (CCPC) incorporated in the province of Alberta. Skytech was a holding company which had invested in 4,279,541 Series I and 125,105 Series 2 shares of Quorum. Effective June 29, 2001, all the 1,000 common shares of Skytech were acquired. Skytech amalgamated with Quorum and the former shareholders of Skytech received 4,279,541 Series I and 125,105 Series 2 common shares of Quorum. Earnings of Skytech are included in these financial statements effective June 30, The shares of Quorum owned by Skytech have been cancelled on amalgamation. The purchase of Skytech was recorded by Quorum as follows: Net assets: Net working capital $ 3,002 Investment in Quorum 92,552 Shareholder loan (3,002) $ 92,552 Consideration: Issue of 4,279,541 Series I share of Quorum (43,655) Issue of 125,105 Series 2 shares of Quorum (48,897) $ 92, Software Development Costs October 31, 2001 July 31, 2001 July 31, 2000 (Unaudited) (Unaudited) (Audited) Accumulated Net Book Net Book Net Book Cost Amortization Value Value Value AUTOMATE $ 1,393,641 $ 93,068 $ 1,300,573 $ 1,289,792 $ 697,805 Xsellerator 151,210 5, , ,571 Library of Solutions 603,043 95, , ,835 $ 2,147,894 $ 194,541 $ 1,953,353 $ 1,878,198 $ 697,805 Software Development Costs are amortized as follows: AUTOMATE 20% of the value of the AUTOMATE sale XSellerator 20% of the value of the XSellerator sale Library of Solutions 25% straight line 4. Capital Assets October 31, 2001 July 31, 2001 July 31, 2000 (Unaudited) (Unaudited) (Audited) Accumulated Net Book Net Book Net Book Cost Amortization Value Value Value Computer equipment $ 284,823 $ 132,596 $ 152,227 $ 164,570 $ 124,578 Computer software 12,900 10,944 1,956 2,608 3,906 Leasehold improvements 177,715 59, , , ,717 Office equipment 122,325 41,265 81,060 82,181 50,488 Automotive equipment 30,048 12,684 17,364 18,772 25,541 Vendor distribution rights 24,651 2,686 21,965 22,334 13,611 $ 652,462 $ 259,346 $ 393,116 $ 417,895 $ 352,841 ten Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

13 5. Deferred Expenses October 31, 2001 July 31, 2001 July 31, 2000 (Unaudited) (Unaudited) (Audited) Accumulated Net Book Net Book Net Book Cost Amortization Value Value Value Marketing costs $ 71,146 $ 22,657 $ 48,489 $ 54,418 $ 6. Bank Indebtedness The Corporation maintains an operating line of credit with a commercial bank that permits the Corporation to borrow up to the lesser of $750,000 or 75% of accounts receivable at the time the funds are advanced. The loan bears interest at the bank s prime rate plus 1.25% and is secured by a general security agreement on the Corporation s assets. Bank indebtedness consists of: October 31 July 31 July (Unaudited) (Unaudited) (Audited) Line of credit $ (585,939) $ (368,659) $ (210,671) Cash in bank 492,728 Net bank indebtedness $ (93,211) $ (368,659) $ (210,671) 7. Long-Term Debt October 31 July 31 July (Unaudited) (Unaudited) (Audited) Finance contract bearing interest at 1.9% repayable in monthly instalments of $669. The loan is due in 2004 and is secured by automotive equipment $ 15,405 $ 17,414 $ 25,452 Business improvement loan bearing interest at the bank s prime rate plus 2.75% repayable in monthly instalments of $1,667 plus interest, secured by a general assignment of the Corporation s assets and shareholder guarantees. The loan was repaid during the year 88,333 Payable to Shield Vendors (Note 2(b)) is non interest bearing and is payable in instalments by October 31, ,500 79,913 70,905 97, ,785 Less: current portion 58,028 69,941 28,037 $ 12,877 $ 27,386 $ 85, Due to Shareholders Amounts due to shareholders are non interest bearing and are not intended to by paid within the next twelve months. Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. eleven

14 9. Income Taxes Income tax expense differs from the amount that would be obtained by applying the combined Canadian Federal and Provincial statutory income tax rate of approximately 41.62% to earnings before income taxes for the period ended October 31, 2001 and for the year ended July 31, 2001 and the small business combined Canadian Federal and Provincial statutory income tax rate for Canadian controlled private corporations of 19.12% to earnings before income taxes for the year ended July 31, 2000, which are as follows: October 31 July 31 July (Unaudited) (Unaudited) (Audited) Estimated corporate tax rate 41.62% 41.62% 19.12% Income (loss) before income taxes $ 56,526 $ (441,804) $ 36,321 Calculated income tax provision (recovery) 23,526 (183,878) 6,945 Non deductible items for tax purposes 4,266 10,509 2,469 Tax expense (benefit) not recognized in the financial statements - application of public company rate 100,691 - temporary differences 2,532 (227,371) (5,886) Net income tax expense (benefit) $ 30,324 $ (300,049) $ 3,528 Income tax expense consists of: Current income taxes(recoverable) payable $ $ (24,500) $ (18,937) Future income taxes 30,324 (275,549) 22,465 $ 30,324 $ (300,049) $ 3,528 Future income taxes assets and liabilities reflect the temporary differences between the carrying amounts of certain accounts and their corresponding amounts for income tax purposes The principal components of these differences are as follows: October 31 July 31 July (Unaudited) (Unaudited) (Audited) Future income taxes asset (liability) Current Investment tax credits receivable $ (29,312) $ (29,312) $ (13,058) Long-term Capital assets and software development costs (4,941) (52,201) (69,453) Loss carry forwards 200, ,551 Share issue costs 194,007 25,601 2,424 Net future tax asset (liability) $ 360,161 $ 218,639 $ (80,087) Income tax receivable represents SR&ED claim of $70,000 made by Quorum as at July 31, 2001 and investment tax credits receivable. 10. Share Capital (a) Authorized Unlimited number of Common voting shares Preferred voting shares twelve Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

15 10. Share Capital - Continued (b) Issued and outstanding October 31, 2001 (Unaudited) Number Post-RTO Amount Common Shares Balance, July 31, ,100,000 $ 519,243 Conversion of preferred shares (i) 2,957,400 1,474,636 Balance, October 31, ,057,400 1,993,879 Share issue costs net of future taxes $7,731 (10,844) Balance before RTO (ii) 11,057,400 1,983,035 RTO transaction net of deficiency of $1,404 (iii) 3,502,000 1,199,596 Share issue costs on RTO transaction net of future taxes $160,675 (225,378) Balance, October 31, ,559,400 2,957,253 Preferred Shares Balance, July 31, ,957,400 1,474,636 Conversion of preferred shares (i) (2,957,400) (1,474,636) Balance, October 31, 2001 Total Share Capital 14,559,400 $ 2,957,253 July 31, 2001 July 31, 2000 (Unaudited) (Audited) Number of Shares Amount Number of Shares Amount Common Shares Balance at beginning of year 7,480,866 $ 474,743 6,455,866 $ 74,997 Series 2 private placement 1,025, ,000 Series 1 issued on conversion of preferred shares** 212,778 63,833 Series 3 issued to employees exercising stock options 126,500 6,325 Additional shares issued on split of Series 1 shares ( to 1) 1,877,228 Additional shares issued on split of Series 2 shares ( to 1) 402,628 Share consolidation of Series 1 shares ( to 1) (2,000,000) 8,100, ,901 1,025, ,997 Exchanged to common shares (8,100,000) (544,901) Issue of common shares on amalgamation 8,100, ,901 Share issue costs net of future taxes $ 23,177 (July 31, $2,424) (25,658) (10,254) 8,100, ,243 7,480, ,743 Preferred Shares Issue of preferred shares to Alberta Ltd. on amalgamation, net of deficit of $4,064 2,957,400 1,474,636 2,957,400 1,474,636 Preferred Shares Series 1 Balance at beginning of year 90 $ 63, $ 63,833 Series 1 issued on conversion of preferred shares** (90) (63,833) 90 63,833 Total Share Capital $ 1,993,879 $ 538,576 Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. thirteen

16 10. Share Capital - Continued (i) On the completion of the reverse take-over transaction, each preferred share of Quorum issued to the shareholders of Alberta Ltd. was converted into one unit of QIS comprising of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to acquire one additional share of QIS at $1.25 per share on or before October 31, (ii) 11,057,400 common shares were issued to the shareholders of Quorum as a result of the RTO transaction (see Note 2(a)). 6,606,970 of these 11,057,400 common shares are subject to escrow restrictions. 10% or 660,695 shares were released from escrow when the business combination received final approval on September 26, 2001, and a further 15% of the escrowed shares will be released on each of the 6,12,18,24,30 and 36 months anniversaries of September 26, (iii) The 3,502,000 common shares represent the issued and outstanding shares of QIS as at the date of the RTO transaction (see Note 2(a)). 1,502,000 of the 3,502,000 shares were issued for cash at $0.50 per share pursuant to the private placement offering on July 16, (see Note 12). (iv) 1,016,000 of the 3,502,000 common shares are subject to escrow restrictions. 10% or 101,600 shares were released from escrow when the business combination was approved and a further 15% of the escrowed shares will be released on each of the 6,12,18,24,30 and 36 month anniversaries of September 26, (c) Stock Options In conjunction with the RTO, the Corporation received regulatory approval to reserve 10% of the outstanding shares. The exercise price of the options are determined by the Board of Directors in accordance with the policies of the Canadian Venture Exchange. The options have a maximum term of five years and have a hold period of four months from the date of the initial grant. Stock option transactions for the respective periods and the number of stock options outstanding are summarised as follows: Number of Weighted Expiry Date Optioned Average Common Shares Exercise Price Balance, July 31, ,000 $ 0.30 May 3, 2005 Options granted September 12, ,105,740 $ 0.40 Sept. 12, 2006 Options expired, October 10, 2001 (80,000) $ 0.30 Balance, October 31, ,225,740 The Corporation has reserved 100,000 common shares of the Corporation at a price of $0.30 per share for a single non-transferable option to purchase 100,000 common shares granted to the agent pursuant to the Agency Agreement. These options will expire on April 17, Subsequent to October 31, 2001, 40,000 options were exercised on November 30, 2001 at $0.30 per share. fourteen Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c.

17 11. Earnings Per Share Basic earnings per share and cash flow from operations per share is based on common voting shares issued and out standing for the period. October 31, July 31, (Unaudited) (Unaudited) (Unaudited) (Audited) Weighted average number of shares Basic 14,559,400 9,697,681 8,068,375 9,558, Subsequent Events On completion of the RTO on August 29th, 2001, the Corporation made a private placement offering which was ongoing at October 31, As at October 31, 2001, 1,502,000 units had been issued at $0.50 per unit. Each unit consists of one common share and one share purchase warrant, with each warrant entitling the holder to acquire an additional common share at $1.25 per share on or before October 31, On November 6, 2001, an additional 505,000 units were issued and the private placement closed on November 16, Subscription monies for 220,000 of the 505,000 units, or a total of $110,000, were received in advance as at October 31, All the shares issued under the private placement have a hold period of four months from the original date of issue. 13. Related Party Transactions During the quarter ended October 31, 2001, the Corporation incurred fees in the amount of $152,377 from an entity of which two directors are principals. Of this amount $28,891 remains unpaid at October 31, Q u o r u m I n f o r m a t i o n T e c h n o l o g i e s I n c. fifteen

18 Corporate Information Directors Ross Bevin Director Vice President of Business Development Quorum Information Systems Inc. Charles Buchanan Secretary and Director Director, Technology Consulting Meyers Norris Penny Maury Marks Director President and Chief Executive Officer Quorum Information Technologies Inc. Larry Shelley Chairman of Board of Directors President and Chief Executive Officer of Tamarack and Executive Vice-President Meyers Norris Penny Sid Rieger Director Partner Meyers Norris Penny Corporate Counsel Burnet Duckworth & Palmer Calgary, Alberta Bankers Canadian Imperial Bank of Commerce Calgary, Alberta Auditors Buchanan Barry & Co. Calgary, Alberta Stock Exchange Listing Canadian Venture Exchange Trading Symbol QIS Registrar and Transfer Agent Computershare Trust Company of Canada Calgary, Alberta Quorum Information Technologies Inc. Corporate Office Suite 100, 2451 Dieppe Avenue SW Calgary, Alberta, Canada T3E 7K1 Phone: Fax: Web Site:

19 Market Potential Enterprise Solutions The opportunities for XSellerator and AUTOMATE are vast. Strategies are in place to grow market share in: GM/Saturn Dealerships across Western Canada and Ontario. New geographic markets in both Atlantic Canada and the US. Hyundai/Kia Dealerships across Canada. Part of Quorum s success has come from developing relationships directly with automotive manufacturers. General Motors of Canada Limited has acknowledged Quorum as the only Dealer Service Provider that is fully integrated to GM s corporate systems. We will strengthen this integration in order to position AUTOMATE as the product of choice for their dealerships. Concurrently, we are developing relationships with other major automotive manufacturers. The ES division is also exploring vertical market development or purchase opportunities, and should be positioned to add select vertical market solutions in Technology Solutions Division The mid-market has been largely ignored by full service IT companies. Recently, the Gartner Group predicted that through 2004, IT spending by leading mid-sized enterprises would increase 5-9% as a percentage of revenue. We will continue to position the Company as the IT service provider of choice for mid-market companies. Through our alliance with MNP, we will expand our geographic market to jointly service mid-market organizations throughout Western Canada. Produced by Sherry Hewitt, Quorum Information Technologies Inc. Designed by Two Birds, One Stone Design

20 Quorum Information Technologies Inc. Quorum Information Technologies Inc. (CDNX: QIS) Suite 100, 2451 Dieppe Avenue S.W. Calgary, Alberta, Canada T3E 7K1 Tel: (403) Toll Free: Fax: (403) Web: