Press Releases     Financial Reports	Analysts Coverage Current Stock Price

Xentel		.	Press Release
			MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT XENTEL INTERACTIVE INC. EXECUTIVE OFFICE Suite 101, 1108 - 53rd Avenue N.E. Calgary, Alberta T2E 6N9 NOTICE OF AN ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS OF XENTEL INTERACTIVE INC. NOTICE IS HEREBY GIVEN THAT an annual general and special meeting of holders of shares of Xentel Interactive Inc. (the "Corporation") will be held at Ramada Hotel, 708 - 8th Avenue S.W., Calgary, Alberta T2P 1H2, at 2:00 p.m., on August 24, 1998, for the following purposes: To receive the annual report of the Board of Directors to the shareholders and to approve the audited financial statements of the Corporation for the fiscal year ended December 31, 1997. To consider and, if deemed fit, to pass, with or without variation, a special resolution approving the amalgamation of the Corporation with GWE Group Inc. pursuant to an Amalgamation Agreement between the parties dated June 30, 1998. To transact such other business as may be properly brought before the meeting. DATED at the City of Calgary, in the Province of Alberta, this 20th day of July, 1998. BY ORDER OF THE BOARD OF DIRECTORS (Signed) GEOFFREY J. PICKERING Chairman of the Board IMPORTANT It is desirable that as many securities as possible be represented at the meeting. If you do not expect to attend and would like your securities represented, please complete the enclosed instrument of proxy and return it as soon as possible in the envelope provided for that purpose. All proxies, to be valid, must be deposited at the office of the Registrar and Transfer Agent of the Corporation, Montreal Trust Company of Canada, 600, 530 - 8th Avenue S.W., Calgary, Alberta, T2P 3S8, at least forty-eight (48) hours prior to the meeting or any adjournment thereof. XENTEL INTERACTIVE INC. INFORMATION CIRCULAR For the Annual General and Special Meeting of Shareholders to be held on August 24, 1998 PROXIES Solicitation of Proxies This Information Circular is furnished in connection with the solicitation of proxies by the management of Xentel Interactive Inc. (the "Corporation"or "Xentel") for use at the Annual General and Special Meeting of the holders of securities (the "Shareholders") of the Corporation to be held on August 24, 1998, at the Ramada Hotel, 708 - 8th Avenue S.W., Calgary, Alberta T2P 1H2, at 2:00 p.m. (Calgary time) and at any adjournment thereof (the "Meeting"), for the purposes set forth in the Notice of Meeting. Proxies must be delivered to Montreal Trust Company of Canada at the address shown on the envelope not less than 48 hours before the time for holding the Meeting. Only a Shareholder of record at the close of business on July 20, 1998, will be entitled to vote at the Meeting unless that Shareholder has transferred any securities subsequent to that date and the transferee Shareholder establishes ownership to the securities and demands at least ten days before the Meeting that his or her name be included on the list of Shareholders. The instrument appointing a proxy shall be in writing and shall be executed by the Shareholder or his or her attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized. The persons named in the enclosed Form of Proxy are directors and executive officers of the Corporation. A Shareholder submitting the proxy has the right to appoint a person (who need not be a Shareholder) to represent him or her at the Meeting. To exercise this right, the Shareholder should insert the name of the desired representative in the blank space provided in the Form of Proxy and strike out the other names, or submit another appropriate proxy. Revocability of Proxy A Shareholder who has submitted a proxy may revoke it at any time prior to the exercise thereof. If a person who has given a proxy attends personally at the Meeting such person may revoke the proxy and vote in person. In addition to revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing executed by the Shareholder or his or her attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized, and deposited either at the head office of the Corporation at any time up to 4:30 p.m. (Calgary time) the last business day before the day of the Meeting, or with the Chairman of the Meeting on the day of the Meeting, and upon either of such deposits, the proxy is revoked. Persons Making the Solicitation This solicitation is made on behalf of the management of the Corporation. The costs incurred in the preparation and mailing of the Form of Proxy, Notice of Meeting and this Information Circular will be borne by the Corporation. In addition to the use of mail, proxies may be solicited by personal interviews, or by other means of communication or by the directors, officers and employees of the Corporation, who will not be remunerated therefor. Exercise of Discretion by Proxy The securities represented by proxies in favour of management nominees will be voted on any poll at the Meeting and where the Shareholder specifies a choice with respect to any matter to be acted upon, the securities will be voted on any poll in accordance with the specification so made. In the absence of such specification, such securities will be voted in favour of the matters to be acted upon as set out herein. The persons appointed under the Form of Proxy furnished by the Corporation are conferred with discretionary authority with respect to amendments or variations of those matters specified in the Form of Proxy and Notice of Meeting and with respect to any other matters which may properly be brought before the Meeting. In the event that amendments or variations to matters identified in the Notice of Meeting are properly brought before the Meeting, it is the intention of the persons designated in the enclosed Form of Proxy to vote in accordance with their best judgment on such matter or business. At the time of printing this Information Circular, the management of the Corporation knows of no such amendment, variation, or other matter. MATTERS TO BE ACTED UPON AT THE MEETING 1.Amalgamation with GWE Group Inc. The shareholders will be asked to approve the amalgamation of GWE Group Inc. ("GWE") with the Corporation pursuant to an agreement made as of June 30, 1998, between GWE and Xentel (the "Amalgamation Agreement"). The name of the amalgamated corporation will be Xentel DM Inc. (the "Amalgamated Corporation") and it will continue to carry on the business of both GWE and the Corporation. GWE is Canada's largest integrated relationship marketing organization. Its revenues are derived from a variety of proprietary sports or entertainment events, telemarketing services, fund raising for non-profit organizations and through the sale of marketing data. GWE is the largest customer of Xentel's predictive diallers. Detailed information regarding GWE is set out in the "Business of GWE" section of this Management Information Circular. The information relating to GWE has been provided to the Corporation by GWE, and the Corporation has relied upon the representations of GWE regarding its business. There are risks associated with the business of GWE (see "Risk Factors"). Assuming that all of the escrowed shares of Xentel are either released or cancelled in accordance with the applications that have been made to The Alberta Stock Exchange (see "Information Concerning Xentel - Escrowed Shares"), the Amalgamation Agreement anticipates the Amalgamated Corporation issuing approximately 11,461,585 Class A Common Shares (the "Amalgamated Common Shares") and approximately 3,538,415 Class B Non-Voting Convertible Preferred Shares (the "Preferred Shares"). 1,500,000 Amalgamated Common Shares will be issued to the existing shareholders of Xentel at an approximate ratio of one Amalgamated Common Share for every 30.8 Common Shares of Xentel. There are currently 51,574,013 Common Shares of Xentel issued and outstanding. Pursuant to the Amalgamation Agreement, 9,961,585 Amalgamated Common Shares will be issued to the existing shareholders of GWE as well as 3,538,415 Preferred Shares. Each Preferred Share will be converted into one Amalgamated Common Share automatically upon the addition of Amalgamated Common Shares to the public float of the Amalgamated Corporation. "Public Float" is defined as Amalgamated Common Shares that are not owned by insiders of the Corporation or subject to hold periods or the provisions of an Escrow Agreement. The relative values of Xentel and GWE were negotiated between the parties. Mr. Geoffrey J. Pickering, Chairman of the Board of Directors and Chief Executive Officer of Xentel is also President and one of the two principal shareholders of GWE. Mr. Larry Dow, a Director of Xentel is also a shareholder of GWE. Consequently, the Amalgamation is a non-arms length transaction. An independent committee of the Board of Directors of Xentel was formed and retained Evans & Evans Inc. ("Evans & Evans") to perform a valuation of the two companies dated June 4, 1998 (the "Valuation Report"). The Valuation Report indicates that the Corporation is worth approximately $1,125,000 and GWE is worth approximately $14,750,000 (see "Valuation Report and Fairness Opinion"). The Amalgamation Agreement was negotiated on the basis of a $1,475,000 value of Xentel. Evans & Evans Inc. has provided the Board of Directors of Xentel with an opinion advising that in their view the terms of the Amalgamation are fair to Xentel. The Corporation and GWE decided, on an arbitrary basis, that the Amalgamated Corporation will have an initial capitalization of 15,000,000 shares with one tenth of those shares going to the holders of Xentel Common Shares and the remainder going to the holders of GWE shares. Under the Amalgamation Agreement the Board of Directors of the Amalgamated Corporation will consist of a minimum of four directors and a maximum of fifteen directors, and the first directors of the Amalgamated Corporation will be Michael P. Platz, Geoffrey J. Pickering, Cori D. Simms, and John S. Burns, Q.C. (see "Directors"). The Amalgamated Corporation will adopt the existing option plan of Xentel which gives directors the power to grant options to purchase the Amalgamated Corporation's shares to employees, officers, directors, and consultants of the Amalgamated Corporation. The plan restricts the total number of options that may be granted by the Amalgamated Corporation to less than 10% of its issued and outstanding capital stock. No individual can receive more than one-half of the options that may be granted under the plan and the maximum length of any options granted under the plan is five years. The options issued pursuant to the plan must have an exercise price equal to the closing price of the Amalgamated Common Shares on those Stock Exchanges on which such shares are listed on the business day immediately preceding the day when such options are issued, less any discount approved by the Directors and which such Stock Exchanges may allow. Xentel currently has no options issued and outstanding. (See "Executive Compensation"). The Amalgamation Agreement contains a price adjustment clause that will require the Amalgamated Corporation to issue additional shares to the current shareholders of GWE in the event a material undisclosed or contingent liability of Xentel is discovered. The Amalgamated Corporation will issue to the GWE shareholders such additional Amalgamated Common Shares as are necessary to preserve the relative valuations of Xentel and GWE as if the liability had been included in the valuation of Xentel as of the date of Amalgamation. The valuation of the liability and the determination of the number of shares to be issued to the GWE Shareholders is to be performed by an independent valuator supervised by a committee of the outside directors of the Amalgamated Corporation. The price adjustment clause will operate only for the next 24 months. Pursuant to the Amalgamation Agreement, Price Waterhouse Coopers, Chartered Accountants will act as the auditors for the Amalgamated Corporation for the ensuing year. It is one of the conditions of The Alberta Stock Exchange's approval of the Amalgamation that 60% of the Amalgamated Common Shares held by certain insiders of GWE are subject to an escrow agreement to be entered into as of the date of the Amalgamation. Under the proposed escrow agreement the escrowed shares will be released on a time release basis of 1/3 of the escrowed securities per year for three years. Pursuant to section 167 and 177 of the Business Corporations Act (Alberta) the Amalgamation must be approved by the shareholders of Xentel by way of a Special Resolution. A Special Resolution consists of a resolution passed by two-thirds of the shares voted at a duly called shareholders meeting. Pursuant to Ontario Securities Commission Policy 9.1 and the policies of The Alberta Stock Exchange, as the transaction is not at arms-length, those insiders who have a material interest in the transaction may not vote on the resolution. The text of the Special Resolution to be considered at the meeting is as follows: "BE IT RESOLVED as a Special Resolution of the shareholders of the Corporation that the Amalgamation Agreement dated June 30, 1998 between the Corporation, GWE Group Inc. and certain shareholders of GWE be approved and that the Corporation amalgamate with GWE pursuant to the terms of such Amalgamation Agreement on the basis of all the issued and outstanding Common Shares of the Corporation being converted into 1,500,000 Class "A" Common Shares of the Amalgamated Corporation". Any interested shareholder may examine the Amalgamation Agreement at the offices of the Corporation during normal business hours until the date of the meeting. DISSENT RIGHTS OF SHAREHOLDERS Pursuant to section 177(2) of the Business Corporations Act (Alberta), shareholders of the Corporation have a right to dissent to the proposed Amalgamation with GWE as described herein. The shareholders' right to dissent is governed by section 184 of the Business Corporations Act (Alberta). A dissenting shareholder who complies with the provisions of section 184 is entitled to be paid the fair value of his or her shares by the Corporation. The fair value of the shares will be determined as of the close of business on the last day prior to the shareholders' meeting. A dissenting shareholder must send to the Corporation a written objection to the resolution adopting the Amalgamation Agreement at or before the Meeting. The shareholder or the Corporation may then apply to the Court to fix the fair value of the shares. At least 10 days prior to the date of the Court hearing, the directors of the Corporation must send to the dissenting shareholder a written offer to pay the shareholder an amount considered by the directors to be the fair value of the shares. This offer must contain statements showing how the fair value was determined. In the event the shareholder does not accept the offer, the fair value will be fixed by a Court. Except in unusual circumstances the dissenting shareholder is not required to pay the costs of the Court application. The Corporation is not obligated to re-acquire the shares if there are reasonable grounds for believing that the Corporation is or will, after the payment, be unable to pay its obligations as they become due or that the realizable value of the Corporation's assets will be less than the aggregate of its liabilities. VALUATION REPORT AND FAIRNESS OPINION The independent committee of the Board of Directors of Xentel commissioned Evans & Evans to prepare a valuation report and related fairness opinion dated June 4, 1998. The terms of the engagement of Evans & Evans were set out in an engagement letter which was executed effective April 29, 1998. The engagement letter provides for the payment to Evans & Evans of fees totalling $17,500 plus reimbursement for Evans & Evans's reasonable out-of-pocket expenses. Evans & Evans was founded in 1989 and has been extensively involved in the financial services and management consulting fields. The company has offices in Vancouver, Calgary and Seattle. Evans & Evans has been involved with the preparation of over 300 technical and assessment reports, business plans, business valuations and feasibility studies for submission to various Canadian stock exchanges and securities commissions. The Valuation Report contains a statement of independence in which Evans & Evans indicates that neither it nor any of its principals have been involved in any valuation, appraisal or review, either of GWE or Xentel or their affiliates, except that Evans & Evans did perform some preliminary work for GWE in March, 1998 in connection with reviewing GWE's business plan. The fees received by Evans & Evans for its review of the business plan were not material. Evans & Evans, its principals and employees have no interest in any of the assets, shares or business undertakings of GWE or Xentel. The Valuation Report was based on all available financial statements for GWE for the period from fiscal year end June 30, 1993 to the present, and Xentel's consolidated financial statements from the fiscal year ended December 31, 1995 to the present. In addition, Evans & Evans examined financial projections for GWE and Xentel prepared by those companies' respective management; tax returns for GWE for fiscal years 1995 to 1997; site visits and tours of GWE's facilities in Calgary and Toronto and Xentel's facility in Calgary; discussions with the management of GWE and Xentel; discussions with the companies' auditors, external accountants and legal counsel; discussions with the customers of Xentel; a review of the material agreements entered into by GWE and Xentel; and a review of various materials prepared by third parties relating to the performance of companies similar to GWE and Xentel in the public markets and in their respective industries. The Valuation Report states that Evans & Evans was provided with full access to the records, management and advisors of GWE and Xentel. The Valuation Report defines the fair market value as the highest price available in an open and unrestricted market between informed and prudent parties, acting at arms-length. The Valuation Report does not include synergies or any other special purchaser considerations in its calculation of fair market value. The Valuation Report reviews the business and operating history of GWE and Xentel and then considers the financial position of the two companies as reflected in their March 31, 1998 and fiscal year end financial statements. It also reviews the historical results of operations and financial projections of the two companies. The Valuation Report concludes that discounted cash flow is the valuation method most appropriate for determining the fair market value of GWE and Xentel. Evans & Evans considers certain comparable companies to confirm its final valuations. Evans & Evans selected a discount rate of 25% to 30% to apply to the adjusted financial projections of GWE. The rationale for the selection of this discount rate is that GWE's current asset to liability ratio of 1.8 to 1 is above the industry average of 1.5 to 1. In addition, GWE is a well established company which has been in operation for a number of years and has developed a history of profitable operations. GWE has a diversified client base and a strong management team. However, GWE operates in a competitive industry with low barriers to entry, GWE is in the process of updating its financial systems and reporting abilities, growth in revenue has been moderate and there has been a recent shake-out in the call centre industry, resulting in a number of large competitors of GWE. In relation to Xentel, the Valuation Report applies a discount rate in the range of 30% to 40% to the projected after tax cash flow for the operations of the company. The discount rate is based on the fact that Xentel's telephony products division is profitable, the company has a reputation as a recognized telephony product and service provider and that the company's products are based on an underlying technology that is well understood by Xentel. However, Xentel has been and remains reliant on GWE for the majority of its sales, there is no assurance that the technology can be kept current over the next three years, significant competition exists in all three segments of the company's business and the company has a long sales cycle. After applying the appropriate discount rates to GWE's cash flow over the next five years, the Valuation Report arrives at a range of value for GWE from $13,958,197 to $15,621,047 with a rounded mid-point of $14,750,000. By applying the discounted cash flow rates to the projected revenues of Xentel over the next five years, the Valuation Report arrives at a range of value from $1,224,077 to $1,022,742 with a mid-point of $1,125,000. These values are comparable to the valuations placed by public markets on certain companies operating in the same industries as GWE and Xentel. The Valuation Report contains an opinion of Evans & Evans that the terms of the amalgamation are fair, from a financial point of view, to the holders of Xentel's common shares. Shareholders of Xentel may receive copies of the Valuation Report by mailing or faxing a written request for the same to the offices of Xentel. Alternatively, copies of the Valuation Report are available at the offices of Xentel during normal business hours for review by interested shareholders. INFORMATION CONCERNING GWE GWE was formed through the amalgamation of Great West Entertainment Ltd. and Bakerfield Artistic Consultants Ltd. pursuant to the provisions of the Canada Business Corporations Act on July 1, 1984. The head office of GWE is located at Suite 300, 417 - 14th Street N.W., Calgary, Alberta, T2N 2A1. The registered office of GWE is located at Suite 550, 521 - 3rd Avenue S.W., Calgary, Alberta, T2P 3T3. As of the effective date of the Amalgamation, the head office of the Amalgamated Corporation will be Suite 300, 417 - 14th Street N.W., Calgary, Alberta, T2N 2A1. It is anticipated that the operations of Xentel and GWE will be centralized into one location. BUSINESS OF GWE Great West Entertainment Ltd. was incorporated by Mr. Pickering in Calgary in 1979 as a direct marketing company. Bakerfield Artistic Consultants Ltd. was a telemarketing business based in Toronto and owned by Mr. Platz. GWE currently operates in every Province of Canada and has 1,200 employees. Its revenues are derived from direct marketing initiatives in several major business categories. Direct marketing consists of identifying the narrow range of individuals who are potential customers of a company or potential donors to a charity and assisting a company or charity make contact with those potential customers or donors. As such it is distinct from other more broad-based forms of marketing that make use of the mass media. GWE's business consists of assisting companies and non-profit organizations identify and reach those individuals most likely to be interested in the company's products or non-profit organization's activities. Once a relationship with that individual has been created, GWE assists its clients in maintaining and expanding on that relationship. GWE's revenues are derived from four major business categories: 1.Entertainment and Sporting Events GWE owns a number of sports and entertainment events which include the Oldtimers' Hockey Challenge (this consists of NHL Hall of Fame players such as Lanny McDonald, Guy Lafleur, Stan Nakita, Bobby Hull and Darryl Sittler playing games in 62 Canadian and American cities each year); Legends-Alive! (a show consisting of tributes to musical performers that plays in 20 cities a year); The Allstars Baseball Benefit (a 25 city tour that allows partner organizations to play slow-pitch baseball with retired professional baseball, football and hockey athletes); Magic'n Miracles (a variety of illusionists that tour for three months each winter for 86 shows in 31 cities); and the Royal Canadian Circus (a European-style circus which puts on 120 shows in 40 cities). GWE creates these events, schedules the tours and partners with corporate sponsors. GWE's revenue is derived from the sale of tickets and from advertising revenue. 2.Product, Service and Political Telemarketing GWE operates 10 inbound and outbound call centres across Canada with 800 automated agent stations. GWE operates sales centres in Halifax, Montreal, Ottawa, Toronto, Hamilton, Winnipeg, Brandon, Calgary, Edmonton and Vancouver. The Corporation operates processing centres to fill orders and respond to requests for further information or pledge packages in Toronto, Hamilton, Winnipeg, Calgary and Vancouver. In 1998 the Corporation built a flag-ship 160 seat state-of-the-art call centre in Toronto with multi-lingual capabilities. GWE's clients for its telemarketing operations have included AT&T Canada, Affinicorp U.S.A. Inc. (HFC Financial Services), Shaw Communications, Eatons, Paragon Research, 20th Century Fox, and various political parties and candidates. On average, GWE's call centres operate at 80% capacity throughout the year. 3.Fundraising and Donor Development for Non-profit Organizations GWE assists over 50 charitable organizations in planning, targeting and conducting fundraising activities. GWE owns the single largest database of philanthropically orientated Canadians (over 1.7 million households and businesses) and its clients include the Easter Seals Society, The National Hepatitis "C" Foundation, The Children's Emergency Foundation, The Cerebral Palsy Sports Association, Canadian Cultural Society of the Deaf, Kawanis Clubs, Burn Rehabilitation Societies, Foster Parent Programs and Blind Sports Associations. GWE is paid for its donor development services on an hourly basis with a minimum number of hours contracted. GWE guarantees its campaigns will generate at least sufficient revenues to cover the campaign costs and thus removes the often significant risks to a non-profit organization that a fundraising campaign will incur financial loss. 4.Data Licensing and Related Services As a result of GWE's business activities it owns one of the most valuable direct marketing lists in Canada. For the past several years this list has been the most sought after direct marketing list at Cornerstone List Managers Inc., Canada's largest direct marketing list agency. GWE licenses both up-to-date raw data and data refined to target particular types of households, businesses, donation or spending patterns. GWE always retains ownership of the data. Users of GWE's data include Citibank Canada, Telemedia, the Special Olympics, Columbia House, and various United Ways. No single client or event provides in excess of 15% of GWE's revenues. BUSINESS OF THE AMALGAMATED CORPORATION Both GWE and Xentel are principally in the business of direct marketing. The telephony products division of Xentel was originally incorporated as Xentel Inc. in 1988 by Mr. Platz, Mr. Pickering and certain officers of the Corporation to develop and assemble predictive dialling systems for use by GWE's telemarketing operations and others. GWE is the Corporation's largest and most significant customer for its telephony products. One expected synergy for the Amalgamated Corporation will be the joint marketing of Xentel's predictive diallers with customized calling lists created from the GWE database. This should assist the Amalgamated Corporation in selling the predictive diallers and in increasing licensing revenues from its database. In addition, it is expected that the Amalgamated Corporation will make use of Xentel's telephony and New Media expertise to develop internet-linked call centre capabilities for GWE's existing call centres. The New Media division of the Corporation was incorporated as Magellan Interactive Multimedia Inc. with the intent of making use of the enhanced capabilities offered by CD-ROM Technology and the World Wide Web portion of the Internet to assist clients identify and target customers with greater accuracy than possible with traditional advertising mediums. In connection with this focus, the New Media division of the Corporation developed a variety of software tools to assist it in creating interactive, multi-media marketing products. For the past several years the New Media division of the Corporation has developed significant experience in designing, planning and conducting direct marketing campaigns. GWE is currently a significant client of the New Media division of Xentel. It is anticipated the Amalgamated Corporation will place an initial emphasis on marketing New Media services to GWE's current established clients and event partners. In addition, there may be significant opportunities to integrate digital marketing and electronic commerce solutions with GWE's current marketing of its proprietary events. These New Media marketing initiatives will assist GWE in its plans to supplement its direct marketing database with e-mail information, which would increase the value of the database. It is anticipated by the management of both Xentel and GWE that the amalgamation of the two companies will create a vertically and horizontally integrated direct marketing company with the capacity to conduct direct marketing operations in both traditional and new media. MANAGEMENT AND SHAREHOLDERS OF THE AMALGAMATED CORPORATION The following are the names and municipal residences of the current and proposed directors and officers of the Amalgamated Corporation, their proposed positions and offices with the Amalgamated Corporation, their principal occupations during the last five years and their percentage shareholdings after the Amalgamation. Name and Municipality Office Principal Occupation during the last five years Number of Common Shares and Preferred Shares after Amalgamation Percentage of Shareholdings after the Amalgamation Michael P. Platz Toronto, Ontario Chairman of the Board of Directors Chairman of the Board of Directors of GWE 6,165,696 41.10% Geoffrey J. Pickering Calgary, Alberta President of the Corporation and Directors President, GWE 6,208,183 41.39% John S. Burns Calgary, Alberta Director Partner, Bennett Jones Verchere 0 0 Cori D. Simms Toronto, Ontario Director President, Simms Management Associates, a health related products marketing service company 0 0 A. Cameron Strong, C.A. Mississauga, Ontario Chief Financial Officer Controller, Draxis Health Inc. 0 0 F. Leonard Wolstenholme Calgary, Alberta Corporate Affairs President,Xentel Interactive Inc.; Chief Operating Officer, Xentel Interactive Inc.; Corporate Affairs, GWE 31,449 0.21% Mike T. Dodd Calgary, Alberta Vice-President, Technology President, Xentel Interactive Inc.; President, Technology Products Division, Xentel Interactive Inc. 33,536 0.22% The following is a brief description of the background of the persons who will be considered management and key personnel of the Amalgamated Corporation: Michael P. Platz possesses more than 25 years experience in client development, direct marketing, sports and entertainment marketing, fund raising and alliance building with service organizations throughout Canada. Mr. Platz is also active in commercial and residential real estate and equity investments. Mr. Platz studied commerce at Mohawk College, Hamilton, Ontario. Geoffrey J. Pickering possesses over 25 years experience in the direct marketing business. Mr. Pickering is secretary and half owner of Western Canadian Furnace Co. He received his B.Sc. (honours) from the University of Toronto. John S. Burns, Q.C. is a partner in the corporate/commercial department of Bennett Jones Verchere. Mr. Burns obtained his Bachelor of Arts degree from the University of Alberta in 1963 and graduated from Dalhousie Law School in 1966. His areas of practice are principally corporate, corporate finance and securities law. Mr. Burns is a member of the Law Societies of Alberta and Upper Canada and the Calgary and Canadian Bar Associations. Cori D. Simms possesses over 20 years experience in the direct marketing business. Ms. Simms is president of Simms Management Associates which provides marketing services in the fields of health related products and programs and which provides services in the areas of administration and finance for natural resource companies. Ms. Simms obtained a Bachelor of Commerce degree in 1976 from the University of Manitoba and has completed the Canadian Securities Course. Ms. Simms also has 13 years of marketing and management experience at IBM Canada. A. Cameron Strong, C.A. spent the past 16 years performing various accounting, financial management, corporate finance and M&A assistance to both public and private companies. Mr. Strong received his B.Comm from the University of Toronto. P. Leonard Wolstenholme has advised GWE on legal, regulatory, public affairs and corporate development matters for 11 years. He has been active in the private and not for profit sectors for more than 25 years and served in the management of Xentel in the capacity of Chief Operating Officer and President from 1996 to 1997. Mike Dodd possesses over 13 years of computer industry experience. He began his career with The Braemore Group, and was a founding partner of CD Pubco., a pioneer in CD-ROM publishing. He is fully conversant with developments, trends and applications in telephony voice and data products, speech recognition, interactive voice response systems, predictive dialling systems and call distributors and has a comprehensive understanding of computer telephony integration. Principal Holders of the Shares in the Amalgamated Corporation Upon Amalgamation the principal holders of the common and preferred shares the Amalgamated Corporation will be as follows: Name and Municipality Number of Shares in GWE(1) Number of Shares in Xentel Number of Amalgamated Common Shares after Amalgamation Number of Preferred Shares after Amalgamation Michael P. Platz(2) 960,000 1,616,635 4,563,391 1,769,208 Geoffrey J. Pickering(2) 960,000 2,925,230 4,605,877 1,769,207 Notes: (1) Includes shares of all classes. (2) Includes all shares directly or indirectly owned or controlled by the individual. RISK FACTORS The business of GWE is subject to certain risk factors typical of companies in its markets which should be considered by the shareholders of Xentel in determining whether to approve the Amalgamation: Reliance on Key Clients. GWE has strong relationships with a number of clients which sponsor events, products and services of GWE's event-related marketing programs. While GWE does not feel the departure of any one client is sufficient to materially impact its revenues, if several established partners do not renew their involvement in GWE's activities, GWE's sales and income could be materially and adversely effected. Database and Attrition. GWE's consumer database expands on average 10% each year. However, there is also considerable attrition in the database due to consumer apathy, changing financial circumstances, spending patterns or relocation. There is a risk that the identification of new consumers would fail to keep pace with attrition. This would significantly affect that portion of the Corporation's revenues that depend on the currency and completeness of the Corporation's database. Product Exhaustion. GWE's event-related business is reliant upon the development of new, marketable entertainment and other cause-related products and services. Failure to identify new opportunities in this field and changing patterns of public taste could force the Corporation to rely increasingly on highly competitive fee-for-service telemarketing activities which offer low margins and greater volatility. Technology. Almost every aspect of GWE's business and activities relies on the effective use of technology. GWE's call centres, list management and data mining business, and Xentel's targeted electronic commerce products rely on the company remaining competitive in its use of technology. The ability of GWE to compete with other companies would be eroded if it were unable to maintain its present position of technological leadership. Dependence on Key Personnel. GWE's business is dependant on its ability to attract and retain highly skilled persons. Development of new direct marketing strategies and campaigns will require additional personnel in a variety of fields. Competition for qualified personnel is intense, and GWE's future success will all depend in large part on its continuing ability to attract and retain qualified employees. Cost of Labour. GWE's business is very labour intensive and nearly half of all revenue is expended on the salaries of call centre agents and support personnel. Telemarketing, in particular, is characterized by high turn-over and accordingly labour costs are directly affected by unemployment rates which vary regionally and nationally. In the future, GWE expects the cost of recruiting, selecting and training personnel will increase as its direct marketing operations become more sophisticated and as technology becomes more important. Collective Bargaining. None of GWE's operations is presently unionized. However, more individuals have chosen telemarketing as a long-term employment option rather than as a temporary employment measure. As a consequence, it is possible that some or all of GWE's operations could be organized into collective bargaining units. This could have the effect of creating work stoppages and increasing the cost of labour. Dependence on Regulated Telephone Utilities. Recent efforts by CDMA (Canadian Direct Marketing Association) and the Direct Marketing Association to voluntarily maintain "do not call" lists and "do not mail" lists and to require members to adhere to them, have helped to diffuse criticism of direct marketing. In addition, the Corporation has sought to develop marketing channels in addition to out-bound call centres. However, there continues to be efforts from time to time to introduce legislation or policies that would restrict telemarketing. Any changes to the regulations governing GWE's telemarketing activities could have an adverse impact on the Corporation's revenues. The cost of challenging such measures in the courts, even if successful, could be considerable. The Corporation is unaware of any current efforts to alter the regulatory regime under which it operates. Postal Interruption. Approximately 80% of the Corporation's revenues are derived from marketing campaigns in which orders or donations are fulfilled through the mail. The Corporation is seeking to increase the use of credit cards and electronic funds transfer in the fulfilment process. However, significant or protracted interruption of postal services would have a significant impact on the Corporation's business. Competition. The markets for most of GWE's products and services are highly competitive. GWE's ability to continue to develop and introduce new products and services or enhancements of existing products and services may require significant additional expenditures. The international competitors of GWE have greater financial and other resources, particularly those competitors involved in the live entertainment industry. The barriers to entry into most of GWE's markets are low. INFORMATION CONCERNING XENTEL The following information relates to the business and capital structure of Xentel. Escrowed Shares Over the course of the Corporation's history it has entered into three separate escrow agreements. The first escrow agreement was dated May 31, 1993 and related to the acquisition of the assets that formed the basis for the Corporation's 1-900 Products (subsequently sold to third parties) and lo-call services (the "Call 900 Escrow Agreement"). A total of 3,650,000 Common Shares of Xentel were escrowed pursuant to the Call 900 Escrow Agreement. Under the terms of the agreement the shares were to be released on the basis of one escrowed share for each $0.10 of cash flow generated by Xentel. Application has been made to The Alberta Stock Exchange to effect the release of these escrowed shares. The Corporation entered into a second escrow agreement dated August 31, 1994 in relation to 2,236,035 shares it issued to acquire a company, Xentel Inc., which eventually became the telephony products division of the Corporation (the "Telephony Escrow Agreement"). Under the Telephony Escrow Agreement one share was to be released from escrow for each $0.229 of cash flow generated by the telephony products division. Application has been made to The Alberta Stock Exchange to effect release of these escrowed shares. The third escrow agreement was entered into by the Corporation on March 20, 1995 in connection with shares it issued to acquire all the issued and outstanding shares of Magellan Interactive Multimedia Inc. ("Magellan") which became a wholly-owned subsidiary of the Corporation and was renamed Xentel New Media Inc. Under the terms of this agreement a total of 10,200,000 shares were escrowed. 5,371,582 of these escrowed shares were issued to officers of Magellan as compensation for their services to the Company. The remaining escrowed shares were issued to various shareholders of Magellan who paid cash for their shares in Magellan (the "Investors"). The Corporation has made application to The Alberta Stock Exchange for the release from escrow all of the shares held by the Investors. The officers of Magellan who acquired shares for services voluntarily agreed to the cancellation of their escrowed shares in consideration for The Alberta Stock Exchange approval to release the Investor's escrowed shares. Voting Shares and the Principal Holders Thereof The Corporation is authorized to issue an unlimited number of common shares. As at July 20, 1998, 51,574,013 Common Shares were issued and outstanding. Each Common Share carries the right to one vote on a ballot at the Meeting. A quorum for the Meeting consists of at least two persons present in person or by proxy and holding or representing not less than 5% of the shares entitled to vote. The close of business on July 20, 1998 has been fixed as the record date for the purpose of determining the holders of common shares entitled to receive notice of and vote at the Meeting. Only shareholders of record at the close of business on July 20, 1998 will be entitled to vote the Common Shares recorded in their names at the Meeting and at any adjournment thereof, unless, after that date, such Common Shares are transferred, and the transferee of those shares produces properly endorsed share certificates or otherwise establishes ownership and demands, not less than 10 days prior to the Meeting that the transferees name be included in the list of shareholders entitled to vote, in which case such transferee will then be entitled to vote such shares. To the knowledge of the Corporation and the directors and senior officers thereof, as at the date hereof no person or corporation beneficially owns, directly or indirectly, or exercises control or direction of, voting securities carrying more than 10% of the voting rights attached to any class of voting securities of the Corporation. EXECUTIVE COMPENSATION Cash Remuneration of Officers The Corporation has two executive officers. Aggregate cash compensation in the amount of $345,789 was paid to the executive officers of the Corporation and its subsidiaries for services rendered during the past financial year. No Officer received more than $100,000 in salary and bonus during the past year. Mr. Pickering, Chief Executive Officer of the Corporation received no salary or any other form of compensation for services to the Corporation during the past year. Compensation of Directors The directors receive $500 for each meeting of the Board of directors they attend in person and $250 for each meeting at which they attend by telephone. In addition, the Corporation pays for the expenses of those directors that must travel to attend meetings of the Board of Directors. No annual fees or committee fees are paid to members of the Board. Directors of the Corporation currently hold no options. Stock Option Plan The Corporation's stock option plan (the "Plan") permits the Board of Directors to grant to employees, officers and directors options to purchase from treasury common shares equal to up to 10% of the issued and outstanding common shares. All options issued by the Corporation have an exercise price equal to the market value of the common shares of the Corporation on the date of issuance. The Corporation currently has no options outstanding under the Plan. INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS No director or senior officer nor any of their respective associates or affiliates, is or has been at any time indebted to the Corporation since the date of incorporation or indebted to any subsidiary of the Corporation at any time since the date such company became a subsidiary of the Corporation. YEAR 2000 COMPLIANCE The board of governors of The Alberta Stock Exchange has recently adopted policies requiring all issuers listed on the stock exchange to disclose material information regarding those companies' compliance or lack thereof with Year 2000 standards. The Year 2000 problem arises from the fact that the information systems upon which many businesses depend recognize only two digit years. As a result, software systems may breakdown when confronted with dates from the 21st century. Both Xentel and GWE have conducted thorough investigations of their proprietary software and all other information systems upon which their operations depend. The Xentel telephony software runs in the most recently released UNIX operating environment on personal computers and is Year 2000 compliant. In any event, the dates used in the telephony systems are not used in the operating system or for application calculations but solely to provide information to the human operators of the systems. All these dates possess four digits. The New Media software applications were developed in the Macintosh operating environment which is not subject to Year 2000 concerns and are therefore Year 2000 compliant. GWE uses Xentel predictive diallers exclusively, which are Year 2000 compliant. The operating systems for GWE's information system, HPUX, is Year 2000 compliant and all shrink-wrapped application software is the most recent release of that software and is Year 2000 compliant as well. The current accounting software of GWE is not Year 2000 compliant and is in the process of being replaced. The complete move to new software will occur in the first quarter of 1999. INTEREST OF INSIDERS IN MATTERS TO BE ACTED UPON Messrs. Pickering and Dow as disclosed elsewhere in this Management Information Circular are officers and shareholders of GWE. The remaining director of Xentel, David Rosenvall, formed an independent committee of the Board of Directors, retained independent accounting and professional advice and retained the services of Evans & Evans to provide an independent valuation of GWE and Xentel and a fairness opinion of the proposed transaction. The independent committee recommended the Amalgamation Agreement be approved by the directors based on its review of the agreement, its own due diligence concerning the transaction and its review of the Valuation Report. In addition, as disclosed elsewhere, Mr. Pickering and Mr. Dow will not be voting their shares on the resolution to approve the Amalgamation. INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS A significant percentage of the shares that the Corporation has applied to The Alberta Stock Exchange to be released from escrow as detailed in "Information Concerning Xentel - Escrowed Shares" are held by insiders of the Corporation. The Corporation has requested that those shares be released on the same basis as the shares held by third parties. Other than as set forth in this Information Circular, the management of the Corporation is not aware of any material interest, direct or indirect, of any director, proposed director, senior officer or any associate or affiliate of any of the foregoing persons, in any other material transaction in the past year. MANAGEMENT CONTRACTS Management functions of the Corporation are performed by the directors and senior officers of the Corporation and are not performed by any other person or corporation. FINANCIAL STATEMENTS The audited financial statements of GWE for June 30, 1997 and the unaudited financial statements for GWE for the interim period ending March 31, 1998 are appended hereto and are specifically incorporated into and form a part of this Management Information Circular. Dated: July 20, 1998 CERTIFICATE The foregoing constitutes full, true and plain disclosure of all material facts relating to the particular matters to be acted upon by the security holders. The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it is made. (Signed) Michael Dodd President   (Signed) Geoffrey J. Pickering Chief Executive Officer ON BEHALF OF THE DIRECTORS (Signed) Geoffrey J. Pickering Chairman   (Signed) David L. Rosenvall Director ON BEHALF OF GWE GROUP INC. (Signed) Michael Platz Chairman   (Signed) A. Cameron Strong GWE Group Inc. CONSOLIDATED FINANCIAL STATEMENTS (unaudited - see Review Engagement Report) March 31, 1998 July 9, 1998 REVIEW ENGAGEMENT REPORT To the Shareholders of GWE Group Inc. We have reviewed the consolidated balance sheet of GWE Group Inc. as at March 31, 1998 and the consolidated statements of earnings and retained earnings and changes in financial position for the nine months then ended. Our review was made in accordance with generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these consolidated financial statements. Based on our review, nothing has come to our attention that causes us to believe that these consolidated financial statements are not, in all material respects, in accordance with generally accepted accounting principles. (Signed) Pricewaterhouse Coopers Chartered Accountants CONSOLIDATED BALANCE SHEET (unaudited - see Review Engagement Report)   March 31   1998 1997   Assets Current   Cash and short-term investments $  224,901 $  344,294   Accounts receivable 3,322,249 2,450,874   Due from related parties (Note 10) 1,065,116 2,006,222   Inventory 106,876 103,510   Other investments (Note 6) 4,099 -     Prepaid expenses 173,046 155,069   Work-in-progress 1,835,225 2,160,688     6,731,512 7,220,657 Investment in related companies (Note 2) 51,999 101,548 Capital assets (Note 3) 1,812,245 2,011,810     $  8,595,756 $  9,334,015   Liabilities Current liabilities   Bank indebtedness and outstanding cheques (Note 4) $  1,011,760 $  1,549,566   Accounts payable and accrued liabilities 2,144,008 1,633,476   Due to related parties (Note 10) 432,220 765,451   Income taxes payable 910,121 49,542   Deferred income taxes 717,387 981,010   Current portion of long-term debt (Note 5) 56,608 114,992     5,272,104 5,094,037     Long-term debt (Note 5) 194,940 251,485 Government assistance (Note 7) 366,823 396,823 Deferred income taxes 255,157 272,728      6,089,024 6,015,073   Shareholders' Equity Share capital (Note 11) 510,201 270,201 Retained earnings 1,996,531 3,048,741      2,506,732 3,318,942      $  8,595,756 $  9,334,015   Approved by the Board:(Signed) Michael Platz Director:(Signed) Geoffrey Pickering :Director CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS (unaudited - see Review Engagement Report)   Nine months ended March 31   1998 1997   Revenue $  26,920,294 $  26,186,035   Cost of revenue   Direct campaign costs 19,433,817 19,898,005   Cost of materials 1,094,459 1,148,605   Other 34,652 -       20,562,928 21,046,610   Gross margin 6,357,366 5,139,425     Other income 173,046 155,069   Interest 4,148 28,224   (Loss) gain on sale of investments and capital assets (27,374) 14,475     6,334,140 5,182,124 Expenses     Branch and manager overhead costs 2,635,145 2,762,008   Corporate administration costs 2,376,247 1,830,683   Depreciation and amortization 333,241 302,469     5,344,633 4,895,160     Write-down of investments -   98,731   Earnings before income taxes 989,507 188,233   Income taxes     Current 912,298 42,139   Deferred (recovery) (281,196) 173,682      631,102 215,821   Net earnings (loss) for the period 358,405 (27,588)     Retained earnings, beginning of period 1,638,126 3,076,329   Retained earnings, end of period $  1,996,531 $  3,048,741   CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited - see Review Engagement Report)   Nine months ended March 31   1998 1997   Operating activities   Net earnings (loss) for the period $ 358,405 $ (27,588) Add (deduct) items not affecting cash     Depreciation and amortization   333,241   302,469   Deferred taxes   (281,196)   173,682   Loss on sale of investments     and capital assets   27,374   -     Government assistance recognized   (30,000)   (101,567)   Write-down of investments   -     98,731       407,824   445,727   Net change in non-cash working capital   110,662   (761,461) Net change in balances due from related companies   (603,316)   (2,144,395)       (84,830)   (2,460,129) Financing activities   Repayment of long-term debt   (41,349)   (384,984) Issue of long-term debt   -     242,343       (41,349)   (142,641)   Investing activities   Additions to capital assets   (342,330)   (312,630) Reductions to investments   298,525   2,008,565 Proceeds on disposal of capital assets   10,000   -         (33,805)   1,695,935   Decrease in cash   (159,984)   (906,835) Bank indebtedness, beginning of period   (626,875)   (298,347)   Bank indebtedness, end of period $ (786,859) $ (1,205,182)   Cash (bank indebtedness) consists of   Cash and short-term investments $ 224,901 $ 344,294 Bank indebtedness and outstanding cheques   (1,011,760)   (1,549,476)     $ (786,859) $ (1,205,182) GWE Group Inc. CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 September 26, 1997 AUDITORS' REPORT To the Shareholders of GWE Group Inc. The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. (Signed) Pricewaterhouse Coopers Chartered Accountants GWE GROUP INC. CONSOLIDATED BALANCE SHEET   Year ended June 30   1997 1996 (restated - Note 13) Assets     Current     Cash and short-term investments $ 55,274 $ 510,844   Accounts receivable   2,470,163   2,236,945   Due from related parties - trade     (Note 10)   519,977   296,202   Inventory   127,182   111,225   Work-in-progress   1,859,131   1,667,887   Prepaid expenses   179,771   333,684   Other investments (Note 6)   7,026   -         5,218,524   5,156,787 Investment in and advances to related companies (Note 2)   350,524   2,110,113 Capital assets (Note 3)   1,840,530   2,001,649     $ 7,409,578 $ 9,268,549   Liabilities     Current     Bank indebtedness (Note 4) $ 682,149 $ 809,191   Accounts payable and accrued liabilities   2,104,719   1,873,557   Due to related parties - trade (Note 10)   490,397   1,101,045   Income taxes payable   40,528   50,662   Deferred income taxes   981,010   861,460   Current portion of long-term debt     (Note 5)   64,000   509,118       4,362,803   5,205,033   Long-term debt (Note 5)   228,897   -   Government assistance (Note 7)   396,823   498,390 Deferred income taxes   272,728   218,596       5,261,251   5,922,019   Shareholders' Equity     Share capital (Note 11)   510,201   270,201 Retained earnings   1,638,126   3,076,329       2,148,327   3,346,530     $ 7,409,578 $ 9,268,549 Approved by the Board (Signed) Michael Platz Director (Signed) Geoffrey Pickering Director GWE GROUP INC. CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS   Year ended June 30   1997 1996 (restated - Note 13) Revenue $ 35,611,900 $ 32,462,056   Cost of revenue     Direct campaign costs   27,144,145   24,247,869   Cost of materials   1,391,643   1,181,050   Other   122,791   33,797       28,658,579   25,462,716   Gross margin   6,953,321   6,999,340   Other income     Interest   26,496   13,316   Gain on sale of investments     and capital assets   25,675   7,278       7,005,492   7,019,934   Expenses     Branch and manager overhead costs   3,642,724   3,987,225   Corporate administration costs   2,750,203   2,676,981   Interest on long-term debt   10,037   86,216   Depreciation and amortization   472,029   415,589       6,874,993   7,166,011   Write-down of investments   102,881   -     Earnings (loss) before income taxes   27,618   (146,077)   Income taxes     Current   42,139   42,330   Deferred   173,682   (1,543)       215,821   40,787   Net loss for the year   (188,203)   (186,864)   Retained earnings, beginning of year(Note 13)   3,076,329   3,263,193   Less dividends paid   1,250,000   -     Retained earnings, end of year $ 1,638,126 $ 3,076,329 GWE GROUP INC. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION   Year ended June 30   1997 1996 (restated - Note 13) Operating activities     Net loss $ (188,203) $ (186,864)   Add (deduct) items not affecting cash       Depreciation and amortization   472,029   415,589     Deferred taxes   173,682   (1,543)     Gain on sale of investments     and capital assets   (25,675)   (7,278)     Government assistance recognized   (101,567)   (101,567)     Write-down of investments   102,881   -       433,147   118,337     Net change in non-cash working capital   (72,504)   (104,123)   Net change in balances due     to/from related companies   (834,423)   382,938       (473,780)   397,152   Financing activities     Repayment of long-term debt   (536,221)   (240,882)   Issue of long-term debt   320,000   250,000   Government assistance received   -     85,100   Issuance of shares   240,000   -     Dividends paid   (1,250,000)   -         (1,226,221)   94,218   Investing activities     Additions to capital assets   (310,910)   (546,876)   Reductions (additions) to     investments and advances   1,480,937   (150,714)   Proceeds on disposal of capital assets   -     2,071   Net proceeds on disposal of investment   201,446   15,064       1,371,473   (680,455)   Decrease in cash   (328,528)   (189,085)   Bank indebtedness, beginning of year   (298,347)   (109,262)   Bank indebtedness, end of year $ (626,875) $ (298,347)   Cash (bank indebtedness) consists of     Cash and short-term investments $ 55,274 $ 510,844   Bank indebtedness   (682,149)   (809,191)     $ (626,875) $ (298,347) GWE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 1 Significant accounting policies a) Principles of consolidation These consolidated financial statements include the accounts of GWE Group Inc. and its wholly owned subsidiary, GWE Consulting Group (USA) Inc. b) Revenue recognition The Company's primary activities are related to charitable fund raising and family special event marketing. Revenue from these activities is recognized when cash is received in respect of a pledge. Costs incurred are recorded as work-in-progress on a standard costs basis. Work-in-progress is charged to cost of revenue in the period that the related pledge is received as cash. c) Inventory Inventory of material and supplies is valued at the lower of cost or net realizable value. Inventory is recorded primarily on the first-in, first-out basis. d) Capital assets Capital assets are recorded at cost less accumulated amortization. The Company provides for amortization of capital assets using the declining balance method at the following annual rates: Office furniture and fixtures Computer equipment Mobile equipment 20% 20% 20% In the year the asset is acquired, amortization is prorated for the period of ownership. Leasehold improvements are being amortized on a straight-line basis over five years. e) Foreign currency translation Foreign operations are fully integrated and accordingly are translated into Canadian dollars using the temporal method whereby monetary items are translated at rates prevailing at the balance sheet date and non-monetary items are translated at historical rates. Revenues and expenses are translated at average exchange rates throughout the year (other than amortization which is translated at the same rates as the related assets). Translation gains and losses are included in income, except those pertaining to monetary items having a fixed life extending beyond the end of the following fiscal year. Such gains and losses are deferred and amortized over the remaining term of the related asset or liability. f) Government assistance The Company receives financial assistance pursuant to certain government incentive programs. These programs are designed to create employment in designated regions. When stipulated thresholds of job creation are met, the requirement for payment of principal and interest is waived. At the time the assistance is received, the Company records the obligation as a liability. Where management believes that it has maintained full compliance with the terms of the loan, the associated benefits are recognized on a straight-line basis as income over the life of the loan. Required payment will be charged to earnings in the year of demand. g) Deferred income taxes The Company follows the tax allocation method of accounting for the tax effect of the timing differences between taxable income and income recorded in the financial statements. Timing differences giving rise to deferred income taxes related primarily to amortization, where the cumulative amount claimed for tax purposes differs from the amount written off for accounting purposes; and deferred revenue, where the amount claimed for tax purposes differs from the amount written off for accounting purposes. 2 Investment in and advances to related companies   June 30   1997 1996 Advances to 354401 Alberta Ltd., a company related by virtue of common control. The advances are unsecured, non-interest bearing with no specific terms of repayment $ 295,176 $ 1,776,113 BCS Technology Inc. (157,000 special warrants), a company related by virtue of a common director   54,950   105,000 Xentel Interactive Inc. (a public company related by virtue of a common Chief Executive Officer) investment in 451,000 shares (which includes 447,207 shares in escrow), market value - $398 (1996 - $300,000)   398   229,000     $ 350,524 $ 2,110,113 3 Capital assets   June 30 1997 June 30 1996   Cost Accumulated amortization Net Net   Leasehold improvements $ 267,640 $ 229,386 $ 38,254 $ 55,292 Office furniture and fixtures   800,981   573,269   227,712   272,084 Mobile equipment   621,410   240,838   380,572   472,179 Computer equipment   2,856,148   1,662,156   1,193,992   1,202,094     $ 4,546,179 $ 2,705,649 $ 1,840,530 $ 2,001,649 4 Bank indebtedness Bank indebtedness bears interest at prime plus 1.50% (6.25% at June 30, 1997). The Company's maximum line of credit is $1,000,000. Refer to Note 5 for security for bank indebtedness. 5 Long-term debt   June 30   1997 1996   Bank of Montreal loan repayable in monthly payments of principal in the amount of $22,727, plus interest calculated at the rate of prime plus 1.75% per annum, due June 30, 1997 $ -   $ 250,000   Bank of Montreal loan repayable in monthly payments of principal and interest in the amount of $23,130 at prime, plus 1.75% per annum, due June 30, 1997   -     259,118   Bank of Montreal loan repayable in monthly payments of principal and interest of $6,261. Interest is calculated at the rate of prime plus 1.75% per annum (6.50% at June 30, 1997), due December 31, 2001   292,897   -         292,897   509,118 Less portion included in current liabilities   64,000   509,118     $ 228,897 $ -   Long-term debt and bank indebtedness is secured by the personal guarantees of the chairman and the president, assignment of fire insurance, a general assignment of book debts, a general security agreement over the assets of GWE Group Inc., and a guarantee from Allwest Productions Inc. and 354401 Alberta Ltd. The minimum annual repayments of long-term debt required over each of the next five years are as follows: 1998 1999 2000 2001 2002 $ 64,000 60,118 64,248 68,655 35,876 6 Other investments   June 30   1997 1996   End of year cash value $ 60,352 $    -     Less: Current surrender charges   53,326      -         $ 7,026 $    -     The Company holds life insurance policies for the chairman and the president. The investment entitlement for these policies is $7,026 if the policies were cancelled as at June 30, 1997. The policy had face value of $60,352 at June 30, 1997. The policy was in good standing and no action has been taken to trigger the surrender charges. 7 Government assistance   June 30   1997 1996   Government of Manitoba industrial recruitment program ("MIRI"), repayable in instalments of $200,000 on January 1, 1998 and 1999, and $84,000 on January 1, 2000; interest is calculated at prime plus 1% per annum $ 345,714 $ 414,857 Less assistance recognized   (69,143)   (69,143)       276,571   345,714   Government of Nova Scotia economic renewal program assistance payable on May 31, 2000; interest calculated at 10% per annum   152,676   185,100 Less assistance recognized   (32,424)   (32,424)       120,252   152,676     $ 396,823 $ 498,390 Government assistance is secured by a letter of credit in favor of the Manitoba Development Corporation for $100,000, and the personal guarantees of the principals of the Company for $100,000. In the opinion of management, the Company has maintained full compliance of the terms of the assistance to ensure that the waivers of principal and interest payments are received. 8 Income taxes As at June 30, 1997, the Company had net capital loss carried forward for income tax purposes in the amount of $11,726. This loss is available to reduce future taxable capital gains. The Company had accounting losses carried forward of $705,451 in the United States. The potential future income tax benefit arising from the availability of these amounts has not been recorded in the accounts. 9 Commitments The Company rents certain equipment and premises under leases which require annual rental commitments as follows: Equipment 1997 1998 1999 2000   $   187,475 77,135 51,575 8,155     $ 324,340   Premises 1997 1998 1999 2000 2001   $   403,923 186,374 111,958 98,081 79,855     $ 880,191 10 Related party transactions During the year, the Company paid certain amounts to companies who are related by virtue of significant common ownership as follows: Related company Nature of relationship Type of payment Year ended June 30 1997 1996 922219 Ontario Inc 4.7% shareholder Contract fees $  1,440,863 $  1,805,647 Scandata Processing Inc. Common control List purchases 1,502,591 1,141,001 Allwest Productions Inc. Common president Management fees 803,153 235,177 Xentel Interactive Inc. Common chairman Capital and operating purchases 224,235 594,664 Eleemosynary Directions Inc. Common chairman Management fees 552,734 374,949 354401 Alberta Ltd. Common control Rent 199,945 151,848 Affinitek Canada Inc. Common control Advance 16,050 69,943 These transactions were in the normal course of operations and were measured at the exchange amount, which was the amount of consideration established and agreed to by the related parties. At the end of the year, the amounts due to related parties were as follows:   June 30   1997 1996   922219 Ontario Inc. $ -   $ 37,043 Scandata Processing Inc. 458,649 690,613 Allwest Productions Inc. 30,384 23,129 Xentel Interactive Inc. 1,364 350,260     $ 490,397 $ 1,101,045 Amounts due from related parties were as follows:   June 30   1997 1996   Allwest Productions Inc. $ 68,497 $ 105,168 Xentel Interactive Inc -   5,565 Eleemosynary Directions Inc. 194,020 115,526 Affinitek Canada Inc. 18,530 69,943 922219 Ontario Inc. 25,930 -   354401 Alberta Ltd. 213,000 -     $ 519,977 $ 296,202 11 Share capital Share capital consists of: Authorized Unlimited number of Class A to E voting shares Class F to J non-voting shares Class K non-voting shares, preferred as to payment of dividends and repayment of capital Class L non-voting shares, issuable in series, preferred as to repayment of capital Issued and fully paid June 30 1997 1996 960,000 (1996 - 960,000) Class B voting shares $ 1 $ 1 960,000 (1996 - 960,000) Class C voting shares 150,100 150,100 200,000 (1996 - 100,000) Class E voting shares 360,100 120,100 $ 510,201 $ 270,201 During fiscal 1997, the Company issued 100,000 Class E voting shares at $2.40. 12 Financial instruments Fair values The Company's current financial instruments, including accounts receivable, bank overdraft, accounts payable and accrued liabilities, approximate fair values. Credit risk The Company's accounts receivable arise from campaigns in Canada and the United States. The majority of clients are charity organizations and are subject to normal credit terms. Interest rate risk At June 30, 1997, the increase or decrease in net earnings for each one percent change in interest rate on floating rate debt would be insignificant. 13 Comparative figures Certain 1996 figures were reclassified for comparative purposes. During the year, the Company retroactively changed its method for recording deferred income taxes. Previously, deferred income taxes were recorded at the rate of approximately 20%, such rate being the approximate rate of tax applied to the first $200,000 of taxable income for a Canadian Controlled Private Corporation. Because the timing difference reversals will attract taxes at the higher tax rate of 45%, management has restated the Company's deferred tax provisions for prior years. The effect of such change on the comparative financial statements was as follows: As previously reported Adjustment Restated Deferred income taxes $ 558,766 $ 521,290 $ 1,080,056 Retained earnings, opening $ 3,768,080 $ (504,887) $ 3,263,193 Deferred tax expense $ (17,946) $ 16,403 $ (1,543)

Press Releases  -   Financial Reports  -  Analysts Coverage  -   Current Stock Price

Home  -   About Us  -   Services  -   Live Enter