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Xentel		.	Financial Report - August 17, 2001
Q2 Report 2001			Notes to Consolidated Financial Statements    Note 1 - Significant Accounting Policies    Note 2 - Long Term Debt    Note 3 - Future Income Taxes    Note 4 - Related Party Transactions    Note 5 - Share Capital    Note 6 - Earnings per Share    Note 7 - Geographic Segmented Information    Note 8 - December 31, 2000 Financial Statement Notes   Note 1 Significant Accounting Policies Basis of Presentation These consolidated financial statements include the accounts of Xentel DM Incorporated (the Company) and its wholly owned subsidiaries Xentel, Inc., GWE Consulting Group (USA) Inc. and Advanced Technology Concepts Inc. There has been no change in the accounting policies of the Company from those reported on in the December 31, 2000 Annual Report. Management Estimates The preparation of the consolidated financial statements requires management to make estimates based on currently available information. Actual results could differ from estimates and assumptions used. The most significant estimates made by management in the preparation of these consolidated financial statements relate to the estimates used to determine the valuation of the Work in Progress and the valuation of the benefits to be recognized from the application of non capital income tax losses available to reduce future years’ income taxes payable.     Note 2 Long Term Debt   June 30, 2001 December 31, 2000 $5,250,000 secured subordinated notes bearing interest at 12% per annum, maturing May 31, 2004 with payments of interest only until maturity. The notes can be repaid in whole or in part any time prior to maturity. $450,000 of the funds received from financing have been classified as equity and will be amortized as interest expense over 5 years until maturity, bringing the total debt repayable to $5,250,000, resulting in an effective interest rate of 14.5%. As part of the financing, warrants to purchase an aggregate of 2,200,000 Class A common shares having an initial exercise price of $1.48 per share were issued. $ 4,987 $ 4,943       Loan repayable in monthly payments of principal and interest of $8,700, due December 31, 2001,with interest at prime plus 2.5% per annum (June 30, 2001 — 8.5%, December 31, 2000 — 8.5%), secured by assets under lease 78 99       US Dollar loan, repayable in annual installments of US $50,000, due June 23, 2002 with interest at US prime plus 2.75% per annum (June 30, 2001 —10.0%, December 31, 2000 — 8.5%) ,secured by assets under lease     76     145       Capital lease repayable in monthly payments of $7,774 with interest at 9.35% per annum, due August 10, 2002 and secured by assets under lease 106 148       Capital lease repayable in quarterly payments of $3,704 with interest at 13.87% per annum, due January 1, 2005 and secured by assets under lease 43 53       Capital lease repayable in monthly payments of US $8,343 with interest at 7.22% per annum, due November 30, 2002 and secured by assets under lease 193 274   _____ ______   5,483 5,662       Less portion included in current liabilities (342) (417)   ______ _____   $ 5,141 $ 5,245   ===== ==== The subordinated notes are secured by a general security agreement over the assets of the Company, a securities pledge agreement of the Company relating to all securities issued by each subsidiary, an assignment of all intellectual property of the Company, a postponement of shareholder loans and an assignment of insurance on the assets of the Company. The security is subordinated to a $2,100,000 line of credit with a Canadian chartered bank. Additional covenants include providing regular reporting and restrictions on the payment of dividends by the Company. Bank indebtedness and long term loans are due to a Canadian chartered bank and are secured by the assignment of all risks insurance, a general assignment of book debts of the Canadian operation and a general securities agreement over the assets of the Company. The Company is not within certain technical covenants, but within the accounts receivable margin limits and has met all its principal and interest payments. The lender has not indicated an intention to change any repayment terms of the loans and has continued to maintain its relationship with the Company.     Note 3 Future income taxes The net future income tax liability is comprised of:   June 2001 December 31 2000       Future Income Tax Liabilities — Current           Deferred revenue for income tax purposes $ 1,257 $ 1,257       Less non capital income tax losses carried forward 267 915   _____ _____ Net Future Income Tax Liability — Current $ 990 $ 342   ==== ==== Future Income Tax Liabilities — Long Term           Capital assets in excess of income tax values $ 265 $ 265       Less share issue costs deferred for income tax purposes 220 220 _____ _____ Net Future Income Tax Liability — Long Term $ 45 $ 45   ==== ==== At June 30, 2001 the Company had Canadian non capital income tax losses available for carry forward for application against future years’ incomes of approximately $ 300,000 (December 31, 2000 - $2,000,000) which expire during the years 2002 to 2004. These non capital income tax losses in Canada are subject to change of control rules applicable to each jurisdiction. In the opinion of management, the successor businesses meet the income tax definitions for similar businesses and such losses will be available for application against future years’ incomes. At June 30, 2001, the Company had United States non capital income tax losses available for carry forward for application against future years’ incomes of approximately $ 7,500,000 (December 31, 2000 - $8,900,000) which expire during the years 2006 to 2017. No recognition has been given in the financial statements to the possible future benefit of these tax losses.     Note 4 Related Party Transactions During the first quarter of 2001, the Company and 354401 Alberta Ltd. agreed to postpone repayment of the $500,000 in favour of the bank indebtedness.     Note 5 Share Capital Authorized Unlimited number of: Class A common voting shares Class B non voting convertible preferred shares Issued   Six months ended June 30, 2001 Year ended December 31, 2000             # of shares $ # of shares $ Class A common shares                   Opening balance 21,296,656 $ 3,924,887 16,713,459 $ 1,370,899           Conversion of Class B convertible non voting shares - - 1,873,140 1           Conversion of warrants on March 7, 2000 - - 2,950,000 2,079,770           Issued by private placement on April 25, 2000 - - 784,500 474,217           Issued for The Gehl Corporation and Advanced Technology Concepts Inc.         Cancellation of Escrow Shares (674,833) - (1,025,167) -   _________ __________ _________ _________ Closing balance 20,621,823 $ 3,924,887 21,296,656 $ 3,924,887   ======== ========= ======== ======== The Escrow Shares are subject to hold back provisions that allow the Company to retain, each year, the shares equal to 150% of any indemnification claims pending or settled by the Company during that previous year. An indemnification claim is any claim against the previous owner of The Gehl Corporation or Advanced Technology Concepts Inc. as a consequence of any incorrect representations and warranties contained in the agreements. Escrow Shares equal to the value of the indemnification claim will be cancelled upon resolution of the claim. During the year a Partial Settlement and Release Agreement was executed whereby 674,833 Class A common shares of the Escrow Shares were cancelled, leaving a balance as at March 31, 2001 of 1,600,000 Class A common shares subject to the terms of Escrow. Weighted Average Shares The weighted average number of shares outstanding for the three and six months ended June 30, 2001 was 19,021,823. The weighted average number of shares outstanding for the three and six months ended June 30, 2000 was 18,806,301 and 17,435,823 respectively. The weighted average number of shares for the respective dates excludes the escrowed shares outstanding at that time. Stock Options The Board of Directors has received shareholder approval to set a maximum of 10% of the Company’s outstanding Class A common shares for option issuance under the stock option plan. Each option granted under the plan expires in November, 2003.   June 30, 2001 December 31, 2000             # of shares Weighted Average Exercise Price # of shares Weighted Average Exercise Price           Opening balance 856,343 $ 2.50 856,343 $ 2.50           Granted 500,000 $ 1.00 - -           Expired/cancelled (856,343) $ 2.50 - -   _______ ______ _______ ______           Closing balance 500,000 $ 1.00 856,343 $ 2.50   ====== ===== ====== =====           Exercisable at period end 500,000 $ 1.00 295,353 $ 2.50   ====== ===== ====== ===== In the Spring of 2001, The Company instituted an employee stock option plan, whereby designated employees shall be granted options in the Company. Subject to the Canadian Venture Exchange approval, which is in the process of application, 50% of such options shall vest immediately upon grant, while the remaining 50% shall vest 1 year after grant. Upon Canadian Venture Exchange approval there will approximately 1.2 million share options with an option price of $1.00 per share expiring 2 years from the final date of issue.     Note 6 Earnings per Share  The Company adopted the recommendation of the CICA Handbook Section 3500, relating to Earnings Per Share (EPS), effective January 1, 2001. The revised section requires the presentation of both basic and diluted EPS on the income statement regardless of the materiality of the difference between them and requires the use of the treasury stock method to compute the dilutive effect of the options as opposed to the former imputed earnings method. For the three and six months ended June 30, 2001 and June 30, 2000, outstanding stock options do not have a dilutive effect on EPS. For the abovenoted periods, there is no difference between the average number of shares outstanding for the Basic earnings per share calculation and the Diluted earnings per share calculation.     Note 7 Geographic Segmented Information The Company operates in one business segment producing and marketing benefit and sports entertainment events with partnership host organizations assisting not for profit and fund raising organizations in conducting fund raising activities. The Company operates in two geographic areas, Canada and the United States of America. (in thousands of Canadian dollars) Three months ending June 30 Six months ending June 30     2001   2000   2001   2000 Revenues                 Canada $ 11,575 $ 10,940 $ 23,524 $ 22,772 United States   12,200   11,145   24,419   24,470 Total revenues $ 23,775 $ 22,085 $ 47,943 $ 47,242                   Net earnings                 Canada $ 723 $ 241 $ 824 $ 446 United States   553   (3,070)   1,393   (2,471) Total net earnings $ 1,276 $ (2,829) $ 2,217 $ (2,025)                   EBITDA                 Canada $ 1,472   709 $ 1,848   1,305 United States   1,125   (2,486)   2,543   (1,321) Total EBITDA $ 2,597 $ (1,777) $ 4,391 $ (16)                   Interest                 Canada $ 51 $ 73 $ 100 $ 125 United States   185   202   376   389 Total interest $ 236 $ 275 $ 476 $ 514                   Depreciation and Amortization                 Canada $ 131 $ 150 $ 276 $ 303 United States   386   382   774   762 Total depreciation and amortization $ 517 $ 532 $ 1,050 $ 1,065   June 30, 2001 June 30, 2001 December 31, 2000 Total Assets             Canada $ 12,075 $ 9,969 $ 9,550 United States   10,537   11,401   11,329 Total assets $ 22,612 $ 21,370 $ 20,879               Customer contracts and capital assets             Canada $ 2,773 $ 2,977 $ 2,883 United States   4,716   6,261   5,456 Total customer contracts and capital assets $ 7,489 $ 9,238 $ 8,339   Note 8 December 31, 2000 Financial Statement Notes These interim financial statements for the period ending June 30, 2001 should be read in conjunction with the Notes to Consolidated Financial Statements of December 31, 2000 as presented in the Company’s Annual Report.

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