United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Period Ended January 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition Period From
_______________ to_______________
Commission file number 0-22636
CANMAX INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Wyoming 75-2461665
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 W. Carpenter Freeway
Irving, Texas 75039
_______________________________ ____________________
(Address of principal (Zip Code)
executive offices)
(972) 541-1600
_________________________________________________________________
(Registrant's telephone number, including area code)
Not applicable
_______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes__X____ No______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, No Par Value----5,012,869 shares as of February 28, 1997.
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
January 31 October 31
1997 1996
ASSETS
Current Assets:
Cash $ 1,153,721 $ 908,772
Accounts receivable,
net (Note B) 2,145,692 2,027,288
Inventory (Note C) 179,312 388,800
Prepaid expenses and other 200,680 202,513
Total current assets 3,679,405 3,527,373
Property and equipment at cost
less accumulated depreciation
and amortization of $2,213,163
in 1997 and $2,126,891 in 1996 1,244,527 1,411,567
Capitalized software costs, net
of accumulated amortization of
$665,710 in 1997 and $607,857
in 1996 459,146 516,999
Intellectual property rights,
net of accumulated amortization
of $627,117 in 1997 and $620,173
in 1996 43,056 50,000
Other assets 145,859 144,194
$ 5,571,993 $ 5,650,133
See accompanying notes.
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, continued
(Unaudited)
January 31 October 31
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,943,703 $ 1,724,195
Accrued liabilities 511,402 778,521
Deferred revenue 268,794 558,122
Current portion of lease obligation 129,720 128,282
Current portion of long-term debt 34,408 34,022
Advance from shareholder (Note E) 35,293 95,765
Total current liabilities 2,923,320 3,318,907
Lease obligations 137,631 169,794
Long-term debt 77,356 86,114
Shareholders' equity;
Common stock, no par value,
44,169,100 shares authorized;
5,012,869 shares issued and
outstanding in 1997 and 1996 18,372,574 18,372,574
Option to purchase common stock
(Note D) 4,861,659 4,861,659
Accumulated deficit (20,800,547) (21,158,915)
Total shareholders' equity 2,433,686 2,075,318
$ 5,571,993 $ 5,650,133
See accompanying notes.
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
For the three months
ended January 31
1997 1996
Revenues:
Software licenses and product revenue $ 229,920 $ 1,141,460
Development 3,251,359 1,469,665
Service agreements 488,930 456,877
3,970,209 3,068,002
Costs and expenses:
Cost of software licenses and
product revenue 163,848 727,481
Cost of development revenues 1,400,880 424,550
Customer service 504,215 471,460
Product development 262,908 187,801
Selling and administration 1,279,999 1,089,019
3,611,850 2,900,311
Net income $ 358,359 $ 167,691
Net income per common and common
equivalent share (Note F) $ .05 $ .03
Weighted average common and common
equivalent shares outstanding (Note F) 6,611,805 6,424,818
See accompanying notes.
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the three months
ended January 31
1997 1996
Operating Activities
Net income $ 358,359 $ 167,691
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 235,832 218,859
Loss on disposal of assets 8,958 -
Changes in operating assets and
liabilities:
Accounts receivable (118,404) 199,327
Inventory 209,488 (205,028)
Prepaid expenses and other 1,833 (91,507)
Accounts payable 219,508 (310,684)
Accrued liabilities (267,119) (39,703)
Deferred revenue (289,328) (2,760)
Net cash provided by (used in)
operating activities 359,127 (63,805)
Investing activities:
Purchase of property and equipment (12,953) (20,862)
Capitalized software costs - (128,874)
(Increase) decrease in other assets (1,665) 19,817
Net cash used in investing activities (14,618) (129,919)
Financing activities:
Net proceeds from issuance of
common stock - 190
Decrease in lease obligation (30,725) (27,131)
Decrease in development obligation - (65,000)
Repayment of shareholder advance (60,472) -
Repayment on borrowing (8,372) -
Net cash used in financing activities (99,569) (91,941)
Effect of exchange rate changes on cash 9 (1,226)
Net increase (decrease) in cash 244,949 (286,891)
Cash at beginning of period 908,772 477,364
Cash at end of period $ 1,153,721 $ 190,473
See accompanying notes.
CANMAX INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended
January 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending October 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10K
for the year ended October 31, 1996. Certain amounts in the 1996
condensed consolidated statement of income have been reclassified to
conform with the 1997 presentation.
NOTE B - ACCOUNTS RECEIVABLE
At January 31, 1997, accounts receivable included approximately
$950,000 of work performed for which billings have not been presented
to the customer or for which amounts are not contractually billable.
The Company billed and collected approximately $550,000 of this amount
in February, 1997. The remaining amount is scheduled to be billed and
collected in March, 1997.
NOTE C - INVENTORY
Inventory consists primarily of computer hardware and purchased
software.
NOTE D - EDS AGREEMENT
The Company signed agreements with Electronic Data Systems Corporation
("EDS") in April 1993 which were amended in October 1994. Under the
terms of the amended agreements, EDS marketed the Company's software
services and hardware technology to the retail petroleum marketplace
exclusively, and the Company offered EDS the right to participate with
its customers and prospective customers.
In connection with the above agreements, EDS received an option to
purchase up to 25% of the common stock of the Company calculated on a
fully diluted basis at the time of exercise at an exercise price of not
less than 75% of the market value of the common stock at the time of
exercise, minus $4,861,659, which will be reduced by royalties or
similar payments received by EDS from any licensing of the Company's
product other than through EDS. The stock option is exercisable at
EDS' option any time between April 22, 1994 and April 22, 1998.
NOTE E - ADVANCES FROM SHAREHOLDERS
During the first quarter of 1995, a director, W. Thomas Rinehart,
advanced the Company $250,000. The advance was unsecured and had an
interest rate of 10%. The principal balance is due on demand and is
being repaid in weekly installments. Principal payments totaling
$60,472 were made during the quarter ended January 31, 1997.
NOTE F - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based upon the
weighted average number of common shares outstanding, and when
dilutive, common equivalent shares outstanding during the period.
Common equivalent shares consist of stock options (using the treasury
stock method) and the EDS Option (Note D).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue
During the first quarter of 1997, the Company had revenues of
$3,970,209, an increase of $902,207 or 29.4% over the first quarter of
1996.
Software licenses and product revenue for the first quarter of 1997 was
$229,920, a decrease of $911,540 or 80.0% from the first quarter of
1996. The decrease is primarily due to the decline in sales of software
and hardware components to The Southland Corporation (SLC) under their
contract with the Company. The delivery of these items to SLC under
their contract with the Company commenced during 1995 and concluded
during the first quarter of 1996.
Development revenue for the first quarter of 1997 was $3,251,359, an
increase of $1,781,694 or 121.2% over the first quarter of 1996.
Development revenue from the base contract with SLC continued to
decline from approximately $411,000 during the first quarter of 1996 to
approximately $185,000 during the same period in 1997, in accordance
with the terms of the contract. Additionally, during the first quarter
of 1996, the Company recognized development revenue of approximately
$900,000 for work associated with a contract between the Company and
NCR Corporation (NCR) to develop a preliminary (non scanning) point of
sale software application in UNIX for SLC. This project was completed
in July 1996. These reductions in development revenue were more than
offset by additional development revenues of approximately $3,058,500
for work performed under an agreement with NCR and SLC to develop a
scanning point of sale application for SLC and other associated
inventory, merchandising and back office functions, running in a
Windows NT environment.
Service agreements revenue for the first quarter of 1997 was $488,930,
an increase of $32,053 or 7.0% over the first quarter of 1996. This
improvement results from an increase in revenue from the 24 hour/7 day
a week help desk services of 23%, reflecting an increase in the number
of sites supported from approximately 5,300 as of January 31, 1996 to
approximately 5,900 as of January 31, 1997. This increase was offset
by a decline in the installation and site survey revenues reflecting a
lower number of new installations of the Company's proprietary
software.
Gross Margin
Gross margin as a percentage of software licenses and product revenue
and development revenue was 55.1% for the first quarter of 1997
compared with 55.9% for the same period in 1996.
Gross margin on software sales was 48.9% for the first quarter of 1997
compared with 81.3% for the same period in 1996. The decline is due to
reduced levels of sales of the Company's high margin proprietary
software, C-Serve.
Gross margin for development revenue for the first quarter of 1997 was
56.9% compared with 71.1% for the same period in 1996. This decrease is
due to lower planned profit margins on the current NCR and SLC
development project, the scanning point of sale application with
associated inventory, merchandising and back office functions which
operates in a Windows NT environment, as compared to the development
project in progress in 1996, the preliminary (non scanning) point of
sale software application in UNIX. The lower planned profit margin is a
result of the need to employ a significant number of highly skilled
contractors to complete certain phases of the NCR/SLC Windows NT based
project throughout the life of the project including the first quarter
of 1997. No such requirements were necessary or incurred during the
first quarter of 1996.
Expenses
Customer service costs for the first quarter of 1997 increased 7.0%
compared with the same period in 1996. This increase in costs is
consistent with the increased revenues generated from the additional
number of sites supported.
Product development costs increased from $187,801 in the first quarter
of 1996 to $262,908 for the first quarter of 1997. This 40.0% increase
is due to the Company capitalizing $128,874 of software development
costs relating to a new credit card processing network it had developed
during the quarter ended January 31, 1996. No such costs were
capitalized during the first quarter of 1997.
Selling and administrative expenses increased 17.5% for the first
quarter of 1997 compared with the first quarter of 1996, predominately
as a result of the establishment of a business development unit
responsible for identifying new business opportunities and project
management as well as amounts accrued in the first quarter of 1997 for
performance based compensation which were not accrued during the first
quarter of 1996.
As a result of the foregoing, the Company earned net income of
$358,359, or $0.05 cents per share for the first quarter of 1997 as
compared with net income of $167,691 or $0.03 cents per share for the
first quarter of 1996.
Liquidity and Capital Resources
At January 31, 1997, the Company had net working capital of $756,085.
During the quarter ended January 31, 1997, cash flow generated from
operating activities was $359,127, an improvement of $422,932 over the
three months ended January 31, 1996. To maintain liquidity during
fiscal 1997, the Company must increase revenue volume through the
successful completion of on-going development contracts with customers,
the introduction of new products to the marketplace, and increasing the
market share for existing products and services.
The Company continues to utilize the majority of its development
resources to complete the NCR/SLC Windows NT based project currently in
progress. This project was originally scheduled to be completed by
April 30, 1997. However, due to external factors and changes in
requirements outside the control of the Company, the anticipated
completion date for the Company's development activities is now May 31,
1997, with some testing and implementation to extend through August
1997. Modifications to project requirements will increase total
project revenues from $9.5 million to $9.9 million. These
modifications will have little impact on gross margins. Through
January 31, 1997, approximately $7 million in revenues have been
recognized under this contract. The Company currently has several
projects under negotiation that are expected to absorb existing
development resources at the completion of the NCR/SLC project and
generate additional development revenues.
The Company continues to develop a version of its C-Serve software that
runs under the Microsoft Windows family of operating systems. This
product is expected to be completed in the summer of 1997. The new
product is being developed in conjunction with the NCR/SLC project
noted above and is expected to include state of the art technology and
best industry practices for the management of retail gas stations and
convenience stores. Completion of the new product is dependent, among
other things, on the successful and timely conclusion of key components
of the development project currently in process for NCR/SLC.
To complete development of the next generation Windows based product,
the Company will need to perform additional development effort that is
not funded by work currently being performed for SLC. Costs necessary
to perform the additional development, to bring the new product to
market and to provide for infrastructure improvements are estimated to
range from $1.5 - $2.0 million. The Company has increased its sales
and marketing efforts in order to generate market interest in existing
systems as well as new products under development.
The Company believes that it may be necessary to raise additional
capital to complete development of its next generation product within
the critical window of opportunity and to provide vital marketing and
other support services. If cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the
Company may be required to sell additional debt or equity securities or
obtain lines of credit, delay new product development or restructure
operations to reduce costs. No financing arrangements to support this
development project have been entered into by the Company at this time
and there can be no assurances that such arrangements will be available
in the future.
The foregoing "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains various forward-
looking statements within the meaning of the Securities Act of 1933 and
the Securities Exchange Act of 1934, which represent the Company's
expectations or beliefs concerning, among other things, future
operating results and various components thereof and the adequacy of
future operations to provide sufficient liquidity. The Company
cautions that such matters necessarily involve significant risks and
uncertainties that could cause actual operating results and liquidity
needs to differ materially from such statements, including, without
limitation: user acceptance of Windows NT as an operating system,
continued acceptance of UNIX based software and the Company's products
and services, timing of completion of development projects and new
products, competitive factors such as pricing and the release of new
products and services by competitors, potential need for additional
financing to fund product development, marketing and related support
services, general economic conditions, product demand and manufacturing
efficiencies.
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended January 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.01 Statement re: Computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended January 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Canmax Inc.
(Registrant)
DATE: March 14, 1997 /s/ PHILIP M. PARSONS
________________________________
Philip M. Parsons
Chief Financial Officer
and Authorized Signatory
DATE: March 14, 1997 /s/ ROGER D. BRYANT
_______________________________
Roger D. Bryant
President & CEO