for the period ended June 30,

Transcription

1 2 N D Q U A R T E R R E P O R T for the period ended June 30,

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. In the Branham Group s annual ranking of the top 300 Canadian Information Technology companies, Quorum was ranked as one of the top 100 IT Professional Services companies in Canada in Quorum was also rated as the 39th fastest growing company in Canada, according to the 2002 PROFIT 100; Canada s authoritative ranking of high-growth companies. 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. AUTOMATE is the only fully integrated Windows-based Dealership and Customer Management software package designed for automotive dealerships. This system streamlines and completely automates every department within a dealership. The Corporation has developed another software product named FasTrack, a sales and change order management tool for the homebuilder industry. 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 Financial Highlights Six months ended Six months ended Q2 ended Q2 ended Q1 ended Q1 ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 March 31, 2002 March 31, 2001 Revenue Enterprise Solutions $ 1,433,362 $ 481,242 $ 890,871 $ 440,772 $ 542,491 $ 40,470 Technology Solutions $ 2,395,356 $ 2,073,830 $ 960,949 $ 1,045,624 $ 1,434,407 $ 1,028,206 TOTAL $ 3,828,718 $ 2,555,072 $ 1,851,820 $ 1,486,396 $ 1,976,898 $ 1,068,676 Gross Profit $ 1,378,372 $ 834,267 $ 824,781 $ 495,794 $ 553,591 $ 338,473 Gross Margin 36% 33% 45% 33% 28% 31% Earnings (Loss) Before Interest, Taxes and Amortization (EBITDA) $ 131,500 $ 79,148 $ 98,208 $ 110,460 $ 33,292 $ (31,312) Net Income (Loss) $ (102,639) $ (88,625) $ (22,045) $ (3,357) $ (80,594) $ (85,268) Earnings per Share $ (0.007) $ (0.011) $ (0.001) $ (0.0004) $ (0.005) $ (0.011) Common Shares Outstanding at Period End 15,244,400 8,100,000 15,244,440 8,100,000 15,104,400 8,100,000 President s Message Quorum had 9 new AUTOMATE installations in the 2nd quarter of 2002 that is our best quarter ever for the Enterprise Solutions Division s AUTOMATE software product! And, our AUTOMATE installation base increased to 43, (total number of Dealerships now utilizing AUTOMATE) which is more than double the number of installations we had a year ago. In addition, we completed our first sales of AUTOMATE into both Quebec and Atlantic Canada, and we now have AUTOMATE installed in 7 out of the 10 Canadian provinces. Maury Marks, C.A. President and CEO Revenue for the 2nd quarter of 2002 increased 25% to $1,851,820 compared to $1,486,396 for the quarter ended June 30, The net loss for the quarter was $22,045 compared to a net loss of $3,357 in the same period last year. Our goal is to generate positive net income, even as we expand AUTOMATE into new markets. Although we are delighted with the strong sales growth, we are working diligently in the 3rd quarter to continue this growth and to also generate a positive net income. As mentioned, we have completed our first sales in both Quebec and Atlantic Canada. The other good news is that we have captured almost 5% of the market share in Ontario. This is an amazing achievement considering we only entered the Ontario market 18 months ago. We are continually working on opening new markets for our AUTOMATE software, and are targeting the US market as the next geographic move. Enterprise Solutions Division (ES) Revenues from the ES Division increased to $890,871 in the second quarter of 2002 as compared to $440,772 in the corresponding period in This represents an increase of 102%. 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 TARGET MARKET Total AUTOMATE Share YTD Share % Dealers Dealers June 30/02 Dec. 31/01 Change GM/Saturn Western Canada % 7.35% 1.11% GM/Saturn Ontario % 2.73% 2.11% GM/Saturn Quebec % 0.52% GM/Saturn Atlantic Canada % 1.47% Hyundai/Kia Canada %.36%.39% Current Targeted Market 1, % 2.66% 1.14% Total North American Market 13, % 0.23% 0.10% GM/Saturn & Hyundai/Kia In the 2nd quarter, we generated approximately $90,000 from each Dealership sale and approximately 50% of that sale amount was from the AUTOMATE software. Of equal importance, each sale includes a 5 year support agreement that will generate approximately $20,000 per year, per Dealership in ongoing support revenues. Research showed The 500 cumulative AUTOMATE sales bar shows that we would have achieved approximately $40 million in sales during the year we install our 500th AUTOMATE dealership. At that time, we would have support revenue from 500 Dealerships and installation revenue from approximately 120 Dealerships. that the competition price their software and support at the relative same dollar value in both countries, and charge Canadian dollars in Canada, and US dollars in the US. Obviously, we have a long road ahead of us and must overcome many obstacles to reach 500 cumulative AUTOMATE sales. However, the return when we get there is Our revenue model is heavily weighted towards ongoing well worth the journey. support. Extrapolating our revenue model to project 500, 1,000 and 1,500 cumulative AUTOMATE sales produces the following results. Technology Solutions Division (TS) Revenues in the TS Division for the second quarter of 2002 were $960,949 as compared to $1,045,624 for the REVENUE POTENTIAL ($Millions) AUTOMATE Market Potential Support Revenue p/a x 5 years Project Revenue 500 / 3.8% 1,000 / 7.61% 1,500 / 11.42% Primary Market: Canada 1129 GM/Saturn and Hyundai/Kia Dealers Secondary Market: USA 12,000 GM/Saturn and Hyundai/Kia Dealers corresponding quarter of We have spent a great deal of time focusing our efforts on selling higher margin solutions and on streamlining operations to ensure this Division continuously produces positive cash flow to help support the growth of AUTOMATE. This effort is paying off, and based on closed sales today, the 3rd quarter of 2002 will be better than the 2nd quarter for the Technology Solutions Division. NUMBER OF AUTOMATE SALES / Market Share % Maury Marks, C.A. President and CEO Quorum Information Technologies Inc. August 6, 2002 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 of Financial Condition and Results of Operations The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the Corporation s consolidated results of operations and financial condition. This discussion should be read in conjunction with the unaudited interim Consolidated Financial Statements and accompanying notes included in this Quarterly Report and with the audited Consolidated Financial Statements and accompanying notes, included in the Corporation s Annual Report for the period ended December 31, Certain statements contained in the following Management s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements, relating to the operations or to the environment in which we operate, which are based on our operations, forecasts and projections. Readers are cautioned to carefully review and consider all disclosures made by the Corporation in this Quarterly Report and the Annual Report for the period ended December 31, 2001, that attempt to advise interested parties of the risks and factors that may affect the Corporation s business. Background and Description of Business On August 29, 2001 Quorum Information Technologies Inc., (the Corporation ) formerly a capital pool company pursuant to TSX Venture Exchange 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 Information Systems Inc. ( Quorum ). The acquisition of Quorum by the Corporation has been recorded as a Reverse Take-over Transaction (RTO) for accounting purposes. Quorum is a 100% subsidiary of the Corporation. Quorum is an Information Technology Company offering technology solutions for mid size business. Through the ES Division, Quorum develops, markets, implements and supports its own software products for specific vertical markets. These products include AUTOMATE, a Dealership Management System for the automotive market, and FasTrack, a Sales and Change Order Tracker for the homebuilder market. The TS Division markets, implements and supports a library of superior 3rd party technology products and services specifically chosen for mid market organizations. Quorum has formed a strategic alliance with Meyers Norris Penny LLP (MNP). MNP has been in business for over 50 years, and is a Western Canadian chartered accountancy and business advisory firm, with over 900 team members. Overview For the second quarter ( Q2 ) of fiscal year ( FY ) 2002, revenue was $1.9 million compared to $1.5 million in the same period last year, an increase of $0.4 million or 25%. The net loss from operations for the Q2 of FY2002 was $22,045 or $0.001 per share, compared to a net loss of $3,357 or $ per share in the previous year. Revenue for the first six months of FY2002 was $3.8 million, an increase of $1.2 million or 50% compared to the $2.6 million in the same period last year. The net loss from operations for the first six months of FY2002 was $102,639 or $0.007 per share, compared to a net loss of $88,625 or $0.011 per share in the same period last year. June 30, 2001 numbers are those of Quorum. Revenue For the Q2 of FY2002, lower revenues of $960,949 from the TS Division, an 8% decline compared to the same period last year, were offset by increased revenues in ES Division of $890,871 or 102% increase compared to the same period last year. This has resulted in an overall increase in revenues for the Q2 of FY2002 of 25% compared to the same period last year. The increase in the number of AUTOMATE installs, 9 installs in Q2 of FY2002 as compared to 4 installs for the same period last year, has contributed to the 102% increase in the ES Division s revenue as explained above. The decrease in the TS Division s revenues for the Q2 of FY2002 is largely due to lower project sales and implementations, which resulted in an 8% decline in that Division s revenue as explained above. During the Q2 of FY2002 AUTOMATE was installed for the first time in the Provinces of Quebec and Nova Scotia, opening up new opportunities in those Provinces. 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 Management s Discussion and Analysis (continued) Second Quarter Fiscal Results of Operations Year / Quarter Six months Six months Q2 Q2 Q1 Q1 ended ended June 30 June 30 March 31 March 31 June 30, 2002 June 30, Revenue Enterprise Solutions $1,433,362 $ 481,242 $ 890,871 $ 440,772 $ 542,491 $ 40,470 Technology Solutions 2,395,356 2,073, ,949 1,045,624 1,434,407 1,028,206 3,828,718 2,555,072 1,851,820 1,486,396 1,976,898 1,068,676 Cost of Sales Enterprise Solutions 711, , , , ,355 16,908 Technology Solutions 1,738,478 1,414, , ,646 1,102, ,295 2,450,346 1,720,805 1,027, ,602 1,423, ,203 Gross profit 1,378, , , , , ,473 Expenses Salaries, general and administration, sales and marketing, bank charges and interest 1,252, , , , , ,626 Amortization 245, , ,037 92, ,138 65,640 1,497, , , , , ,266 Net loss before income taxes (119,360) (129,004) (34,641) (9,211) (84,719) (119,793) Future income tax (recovery) (16,721) (40,379) (12,596) (5,854) (4,125) (34,525) Net loss for the period $ (102,639) $ (88,625) $ (22,045) $ (3,357) $ (80,594) $ (85,268) KEY MANAGEMENT METRICS AUTOMATE Installations in the quarter AUTOMATE Installations to date 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 Consistent with the Company s revenue recognition policy, AUTOMATE revenues continued to be recognized in the period that the XSellerator server and the AUTOMATE software is installed at the customer s site, irrespective of when the customer intends to go live with the AUTOMATE software. FasTrack has been actively marketed to the home building industry in Western Canada during Q2 of FY2002. The Company continues to work towards developing a market for this product. Gross Margin: The gross margin increased to $824,781 or 45% of revenue in Q2 of FY2002 compared to $495,794 or 33% of revenue in the same period last year. The margin improvement in Q2 of FY2002 is due to an increased proportion of AUTOMATE software revenues in the ES Division. The gross margin from ES Division for the Q2 of FY2002 has increased to 56% as compared to 35% for the same period last year due to an increased ratio of AUTOMATE software revenues to the total ES revenues. The gross margin from TS Division for the Q2 of FY2002 has remained consistent at 34% as compared to 33% for the same period last year. The gross margin in the first six months of FY2002 increased to $1,378,372 or 36% of revenue compared to $834,267 or 33% of revenue in the first six months of FY2001 and reflects a return to what has been the Corporation s historic gross margin level. The gross margin from ES Division for the first six months of FY2002 has increased to 50% as compared to 36% for the same period last year. The margin improvement for the first six months of FY2002 is due to an increased portion of AUTOMATE software revenues in the ES Division. Gross margin from TS Division for the first six months of FY2002 declined to 27% as compared to 31% for the same period last year due to the change in the sales mix between products and consulting revenues. Expenses Total expenses before amortization for Q2 of FY2002 were $721,385, an increase of $309,064 or 75% compared with the $412,321 incurred in the same period last year. This increase is largely due to the increase in payroll related costs, which have increased to $504,622 for the Q2 of FY2002 as compared to $188,097 for the same period last year. The introduction of an Employee Stock Purchase plan during this period, plus increased staffing levels in both Divisions to support the higher number of AUTOMATE installs, contributed to the increase in payroll costs for the Q2 of FY2002. Expenses before amortization for the first six months of Q2 of FY2002 increased by $447,610 or 56% to $1,252,557 compared to $804,947 in the same period last year. This increase is consistent with the overall growth in sales. Amortization for the Q2 of FY2002 has increased to $138,037 as compared to $92,684 for the same period last year as a result of the increase in AUTOMATE sales during the period, and the amortization of 20% of the sale value of the AUTOMATE software. Amortization for the first six months of FY2002 has increased to $245,175 compared to $158,324 for the same period last year, and is consistent with the increased number of AUTOMATE sales during the period. Liquidity, Capital Resources and Risk Factors As at June 30, 2002, the Corporation held current assets from operations of $1,256,822 principally in the form of accounts receivable of $1,052,520, income taxes receivable of $70,627, inventory of $107,476 and prepaid expenses of $26,199. Income taxes receivable represents a SR&ED claim made by Quorum in 2001 which is still pending for assessment by Canada Customs and Revenue Agency (CCRA). As at June 30, 2002, the Corporation had current liabilities of $829,013 principally in the form of bank indebtedness of $19,440, accounts payable of $770,421 and current portion of long-term debt of $39,152. Working capital at June 30, 2002 was $427,809, a decrease of $166,727 from December 31, 2001, which had a working capital of $594,536. This decrease in the liquidity position is reflected in the overall cash outflow for the first six months of FY2002 with respect to continued development of AUTOMATE and development of the new FasTrack product. The current ratio of 1.52 at June 30, 2002 is slightly lower than the current ratio of 1.56 at December 31, Operations consumed cash of $47,220 in Q2 of FY2002 compared to $10,939 for the same period last year. For the first six months of FY2002 operations provided cash of $451,988, an increase of $858,402 over the $406,414 cash consumed in the same period last year. The Corporation did not carry any significant long-term debt at June 30, 2002 and did not raise any new finances during the Q2 of FY2002 other than exercise of 100,000 agents options at $0.30 per share for a total of $30,000 and 40,000 stock options at $0.30 per share for a total of $12,000. During the Q2 of FY ,000 stock options were issued to a director at an exercise price of $0.48 per share expiring June 3, For the first six months of FY2002 a total of 185,000 stock options were issued. 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 As at June 30, 2002 there are 1,455,740 (December 31, ,310,740) stock options outstanding at an exercise price between $0.30 and $0.52 expiring between October 17, 2005 to June 3, As at June 30, 2002 there are 4,964,400 (December 31, ,964,400) outstanding share purchase warrants. Each share purchase warrant entitles the holder to acquire one additional common share of the Corporation at $1.25 per share on or before October 31, As at June 30, 2002 there are 5,717,230 (December 31, ,860,675) shares subject to escrow restrictions that are scheduled to be released in installments over the next 27 months. Research and Development All research and development expenses are expensed as incurred unless they satisfy the generally accepted accounting criteria for deferral and subsequent amortization. The Corporation continues to conduct ongoing research and development towards the improvement of AUTOMATE, and has capitalized payroll costs of approximately $135,000 in the Q2 of FY2002 as compared to $170,000 for the same period last year. Research and development costs as a percentage of ES Division s revenue has decreased in Q2 of FY2002 to 15% as compared to 36% for the same period last year. Research and development costs as a percentage of ES Division s revenue for the first six months of FY2002 has decreased to 22% as compared to 138% for the same period last year. In August 2002, the Corporation will release Version 4.1 of AUTOMATE. This release reflects one year of continued development on the AUTOMATE product. The improved functionality of Version 4.1 will streamline all processes to provide increased efficiency to all dealership users. Also during Q2 of FY2002, new components of AUTOMATE were developed to facilitate the sale of the product into the Provinces of Quebec and Nova Scotia, which are new sales areas. All research and development costs on FasTrack have been expensed in Q2 of FY2002 and no further development costs are intended to be capitalized for this product. FasTrack is being amortized on a straight-line basis at 20% per annum, and relevant amortization for FY2002 has been recorded in the Q2 of FY2002. For the first six months of FY2002, general and administrative expenses have decreased to $218,173 as compared to $264,396 for the same period last year. Sales and Marketing Sales and marketing expenses have increased to $79,482 for the Q2 of FY2002 as compared to $40,887 for the same period last year. Sales and marketing expenses were higher in this quarter due to the hiring of new sales personnel which has resulted in increased AUTOMATE sales. This level of sales and marketing expense is expected to continue for the rest of the fiscal year For the first six months of FY2002 sales and marketing expenses increased to $140,524 as compared to $114,602 for the same period last year. Interest and Bank Charges Interest expense for the Q2 of FY2002 is a net credit of $5,188. The reason for this credit is due to the reversal of interest expense recorded in Q1 of FY2002 representing interest charges on a vendor account. During Q2 of FY2002 the vendor agreed to forego the interest charges and issued credit notes to that effect. Interest expense for Q2 of FY2001 was higher at $26,987 due to the interest on a note payable to Alberta Ltd., which was converted into share capital on the amalgamation of Alberta Ltd. with Quorum on June 29, For the first six months of FY2002 interest and bank charges have decreased to $5,685 as compared to $49,828 for the same period last year. Income Taxes Income taxes represent future tax recovery. For the year ended July 31, 2001 a SR&ED claim of $70,000 has been made on qualified research expenditures. As at June 30, 2002 this has not been assessed by CCRA, and the SR&ED claim is still outstanding. Material Contracts & Commitments During the Q2 of FY2002 the Corporation did not enter into any new material contracts or commitments, other than establishing an Employee Stock Purchase Plan. General and Administration Expenses General and administrative expenses have decreased to $142,469 for the Q2 of FY2002, as compared to $156,350 for the same period last year. This decline reflects the Corporation s ongoing cost reduction initiatives. 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 Related Party Transactions For the first six months of FY2002, the Corporation incurred fees in the amount of $16,626 (June 30, 2001 Nil) from an entity of which one director is a principal. This amount has been fully paid at June 30, For the Q2 of FY 2002, the Corporation incurred fees in the amount of $2,876. The fees were related to the share issue costs and ongoing investor relations and corporate governance services. Fees related to share issue costs have been offset with share capital, and fees relating to investor relations have been expensed. Related party transactions have been recorded at their exchange amounts, which represent carrying values. Subsequent Events There are no significant subsequent events to be reported. Business Risks and Prospects Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions and the Company s actual results may differ materially from those anticipated in these forward-looking statements. Factors which may cause such differences include, but are not limited to those set forth under Business Risks and Prospects. The Corporation does not take any obligation to release any public information of the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances occurring in the future. As a young and still evolving information technology company, the Corporation faces key risks, including emergence of superior competing technologies, retention of skilled employees, reliance on relatively few key suppliers and customers, and adequacy of capital and/or cash flow to pursue our business plan objectives. This list is not intended to be exhaustive, but merely to communicate to shareholders certain key risks faced by the Corporation in its business. Quorum attempts to mitigate these risks through various strategic and operating mechanisms such as ongoing research and development, growth through diversification into new products and services, fair and equitable compensation and workplace policies, flexibility in operational decision making, review and discussion of competitors policies to maintain market advantage, and ongoing interaction with both debt and capital markets. Management believes these strategies reduce the Corporation s business risk to an acceptable level, which will allow the Corporation to continue to grow and maximize shareholder value. The information technology industry is subject to rapid technological change, and the products and services provided by the Corporation are also expected to be subject to rapid technological changes. To remain competitive, the Corporation must be able to keep pace with the technological developments in this industry and change its product and services lines to meet new demands. The Corporation will depend on research and development of new products and services that have not been commercially tested to accelerate its future growth. Trends and Business Prospects The automotive market has traditionally implemented older, character based technology. Additionally, the auto manufacturers are developing numerous new electronic interfaces between their systems and the auto dealerships systems. The Corporation anticipates that there will be a considerable amount of demand from the auto dealership industry to upgrade to the latest technology and to deal with companies that utilize this technology to electronically interface with the auto manufacturers. This provides a good opportunity for the Corporation to market its AUTOMATE product both at the dealership and the manufacturer level. The Corporation believes that its success depends largely upon the following factors: Sales, installations and support of the Corporation s software products Sales, implementation and support of third party software products Enhancements and upgrades to the Corporation s software products Relationships with the automotive manufacturers Identification of software development opportunities Management is optimistic about the Corporation s prospects and believes that the ES Division s automotive solutions are at the start of a significant growth curve. Management believes the TS Division will continue to increase revenues as Corporations increase technology expenditures. 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 Quorum Information Technologies Inc. (formerly QIS Ventures Inc.) Balance Sheets Interim Consolidated As at June 30 December (Unaudited) (Audited) Assets Current Accounts receivable $ 1,052, 520 $ 1,522,908 Income tax receivable 70,627 70,627 Inventory 107,476 54,818 Prepaid expenses 26,199 10,559 1,256,822 1,658,912 Future tax asset 221, ,174 Software development costs 2,105,608 1,976,111 Capital assets 321, ,198 Deferred expenses 37,549 49,407 Liabilities Current $ 3,942,816 $ 4,250,802 Bank indebtedness $ 19,440 $ 83,992 Accounts payable and accrued liabilities 770, ,203 Current portion of long-term debt 39,152 63,528 Due to shareholders 76, ,013 1,064,376 Long-term debt 2,338 6, ,351 1,071,083 Shareholders Equity Share capital (Note 3) 3,210,609 3,176,224 Retained earnings (Deficit) (99,144) 3,495 3,111,465 3,179,719 $ 3,942,816 $ 4,250,802 twenty-four eight Q u o r u m I n f o r m a t i o n T e c Qh un ol ro ug mi e s I ni fn oc r. m a t i o n T e c h n o l o g i e s I n c. twenty-five

11 Quorum Information Technologies Inc. (formerly QIS Ventures Inc.) Statements Operations Unaudited Interim Consolidated of Revenue Three months Three months Six months Six months ended ended ended ended June 30, June 30, June 30, June 30, Enterprise Solutions $ 890,871 $ 440,772 $1,433,362 $ 481,242 Technology Solutions 960,949 1,045,624 2,395,356 2,073,830 Cost of goods sold 1,851,820 1,486,396 3,828,718 2,555,072 Enterprise Solutions 391, , , ,864 Technology Solutions 635, ,646 1,738,478 1,414,941 1,027, ,602 2,450,346 1,720,805 Gross profit 824, ,794 1,378, ,267 Expenses Salary, benefits and employee training 504, , , ,121 General and administrative expenses 142, , , ,396 Sales and marketing 79,482 40, , ,602 Bank charges and interest (5,188) 26,987 5,685 49,828 Amortization 138,037 92, , , , ,005 1,497, ,271 Loss before income taxes (34,641) (9,211) (119,360) (129,004) Future income taxes (recovery) (12,596) (5,854) (16,721) (40,379) Net loss for the period (22,045) (3,357) (102,639) (88,625) Retained earnings (deficit), beginning of period (77,099) (29,639) 3,495 55,629 Deficit end of period $ (99,144) $ (32,996) $ (99,144) $ (32,996) Basic earnings (loss) per share $ (0.001) $ (0.0004) $ (0.007) $ (0.011) Fully diluted earnings (loss) per share $ (0.001) $ $ (0.007) $ Weighted average number of common shares - Basic 15,133,240 8,100,000 15,133,240 8,100,000 Weighted average number of common shares - Fully diluted 15,682,224 15,682,224 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 Quorum Information Technologies Inc. (formerly QIS Ventures Inc.) Statements Cash Flows Unaudited Interim Consolidated of Cash flows from operating activities Three months Three months Six months Six months ended ended ended ended June 30, June 30, June 30, June 30, Cash receipts from customers $2,118,743 $1,665,801 $4,299,106 $2,661,921 Cash paid to suppliers and employees (2,171,151) (1,647,331) (3,841,433) (3,031,116) Interest (paid) recovered 5,188 (26,987) (5,685) (49,828) Income taxes received (2,422) 12,609 Cash flows from financing activities (47,220) (10,939) 451,988 (406,414) Cash received on issuance of shares net of share issue costs 42,000 (42,510) 34,385 (42,510) Loan from Alberta Ltd. 1,140,000 1,440,000 Shareholders loans received (repaid) (131,510) (76,653) 18,265 Paid to Shield vendors (12,500) (39,697) (25,000) (39,697) Repayment of long-term debt (1,248) (163,052) (3,745) (245,062) Cash flows from investing activities 28, ,231 (71,013) 1,130,996) Cash acquired on purchase of Alberta Ltd. 19,636 19,636 Bank indebtedness acquired on purchase of Shield Network and Computer Services Ltd. (79,768) (79,768) Purchase of capital assets (1,397) (66,568) (3,490) (102,089) Proceeds on sale of capital assets 188, ,522 Computer software development costs (135,121) (307,903) (312,933) (666,651) Deferred expenses (5,500) (25,000) (136,518) (251,581) (316,423) (665,350) (Decrease) increase in cash and cash equivalents (155,486) 500,711 64,552 59,232 Cash and cash equivalents, beginning of period 136,046 (657,709) (83,992) (216,230) Cash and cash equivalents, end of period $ (19,440) $ (156,998) $ (19,440) $ (156,998) Basic cash flow from operations per share $ (0.003) $ (0.001) $ $ (0.050) Fully diluted cash flow from operations per share $ (0.003) $ $ $ Weighted average number of common shares - Basic 15,133,240 8,100,000 15,133,240 8,100,000 Weighted average number of common shares Fully diluted 15,682,224 15,682,224 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 Quorum Information Technologies Inc. (formerly QIS Ventures Inc.) Financial Statements Unaudited Notes to Interim Consolidated 1. Nature of Operations and Basis of Presentation Quorum Information Technologies Inc. ( QIS or the Corporation ) (formerly QIS Ventures Inc.) is incorporated under the laws of Alberta. The Corporation changed its name on September 17, 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 whollyowned subsidiary of QIS. Quorum is incorporated under the laws of Alberta. Quorum is an Information Technology Company offering technology solutions for mid size business. Quorum develops, markets, implements and supports its own software products for specific vertical markets. These products include AUTOMATE, a Dealership Management System for the automotive market, and FasTrack TM, a Sales and Change Order Tracker for the homebuilder market. Quorum also markets, implements and supports a library of superior 3rd party technology products and services specifically chosen for mid market organizations. The June 30, 2001 comparative numbers are those of Quorum. The accompanying unaudited interim consolidated financial statements include all information and footnote disclosures required under Canadian generally accepted accounting principles for interim financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations and cash flows as at June 30, 2002, and for all periods presented, have been included. The unaudited interim consolidated balance sheet, consolidated statement of operations and consolidated statements of cash flows have been prepared in accordance with Canadian generally accepted accounting principles for interim financial statements. These interim consolidated financial statements and notes do not include all disclosures required for annual statements and should be read in conjunction with the audited financial statements and notes thereto included in the Corporation s annual report for the fiscal year ended December 31, Significant Accounting Policies The unaudited interim consolidated financial statements of the Corporation have been prepared by management in accordance with generally accepted accounting principles in Canada. The accounting policies and methods of application used in preparation of these financial statements are consistent with the December 31, 2001 audited financial statements unless noted otherwise. 3. Share Capital (a) Authorized Unlimited number of Common voting shares Preferred shares issuable in series (b) Issued and outstanding Common Shares Number of Shares Amount Balance, December 31, ,104,400 $ 3,176,224 Share issue costs net of future taxes $6,135 (7,615) Balance at March 31, ,104,400 3,168,609 Exercise of 100,000 agent s options at $0.30 per share 100,000 30,000 Exercise of 40,000 options at $0.30 per share 40,000 12,000 Balance, June 30, ,244,400 $ 3,210,609 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 Quorum Information Technologies Inc. (formerly QIS Ventures Inc.) Unaudited Notes to Interim Consolidated Financial Statements (continued) (c) Stock Options In conjunction with the RTO, the Corporation received regulatory approval to reserve 10% of the outstanding shares for stock options. The exercise price of the options are determined by the Board of Directors in accordance with the policies of the TSX 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 summarized as follows: Number of Weighted Expiry Date Optioned Common Average Shares Exercise Price Balance, July 31, 2000 & ,000 $ 0.30 Oct. 17, 2005 Options granted September 12, ,105,740 $ 0.40 Sept. 12, 2006 Options granted December 14, ,000 $ 0.52 Dec. 14, 2006 Options exercised, November 30, 2001 (40,000) $ 0.30 Options expired, October 10, 2001 (80,000) $ 0.30 Balance, December 31, ,310,740 Options granted January 16, ,000 $ 0.52 Jan. 16, 2007 Options granted June 3, ,000 $ 0.48 June 3, 2007 Options exercised, June 27, 2002 (40,000) $ 0.30 Balance, June 30, ,455,740 The Corporation had reserved 100,000 common shares at a price of $0.30 per share for a single non-transferable option granted to the listing agent pursuant to the Agency Agreement. These options were fully exercised on May 10, (d) Share Purchase Warrants As at June 30, 2002 there are 4,964,400 (December 31, ,964,400) outstanding share purchase warrants. Each share purchase warrant entitles the holder to acquire one additional share of QIS at $1.25 per share on or before October 31, (e) Escrowed Shares 7,622,970 common shares were originally under escrow restrictions. 10% or 762,295 shares were released from escrow when the business combination received final approval on September 26, 2001 and a further 15% of the escrowed shares are scheduled to be released on each of the 6,12,18,24,30 and 36 months anniversaries of September 26, As at June 30, 2002, 5,717,230 (December 31, ,860,675) are subject to escrow restrictions. 4. Related Party Transactions For the six month period ended June 30, 2002, the Corporation incurred fees in the amount of $16,626 (June 30, 2001 Nil) from an entity of which one director is a principal. This amount has been fully paid at June 30, The fees were related to the share issue costs and ongoing investor relations and corporate governance services. Fees related to share issue costs have been offset with share capital and fees relating to investor relations have been expensed. Related party transactions have been recorded at their exchange amounts which represent carrying values. 5. Segmented Information The Corporation operates in one segment, in the computer network and business software solutions industry and operates in one geographical location, Canada. 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 Corporate Information Quorum Information Technologies Inc. Board of Directors Maury Marks Director President and Chief Executive Officer Quorum Information Technologies Inc. Larry Shelley Chairman of Board of Directors President of Tamarack Group Ltd. and Executive Vice-President of Advisory Services of Meyers Norris Penny LLP Dan Laplante Director President of Continental Oilfield Supply Canada Ross Bevin Director Vice President of Business Development Quorum Information Systems Inc. Steve Remmington Director President and Chief Executive Officer, Entero Corp. Officers Maury Marks President and Chief Executive Officer Swapan Kakumanu Chief Financial Officer Corporate Counsel Burnet Duckworth & Palmer Calgary, Alberta Bankers Canadian Imperial Bank of Commerce Calgary, Alberta Auditors Buchanan Barry LLP Calgary, Alberta Stock Exchange Listing TSX Venture Exchange (formerly CDNX) 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: Quorum Information Systems Inc. is a wholly owned subsidiary of Quorum Information Technologies Inc. Directors and Senior Management Maury Marks Director, President Glen Wilchek Director, Vice President - Operations Swapan Kakumanu Director, Chief Financial Officer Dan Munkittrick Director of Sales Dan Ichelson Director of Implementations Produced by Quorum Information Technologies Inc. Designed by Two Birds, One Stone Design

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