United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended April 30, 1998
--------------
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
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CANMAX INC.
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(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
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(Address of principal executive offices) (Zip Code)
(972) 541-1600
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(Registrant's telephone number, including area code)
Not applicable
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(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----8,111,005 shares as of June 15, 1998.
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
This Quarterly Report on Form 10-Q/A amends the Company's Quarterly
Report on Form 10-Q previously filed for the quarter ended April 30, 1998.
This Quarterly Report of Form 10-Q/A is filed in connection with the
Company's restatement of its financial statements for the periods presented
to reflect the effect of the Company's change in revenue recognition policy
for sales of prepaid long distance telephone cards related to its former
subsidiary USCommunications, Services, Inc. Except as otherwise noted,
information contained in this Quarterly Report is as of April 30, 1998.
CANMAX INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, OCTOBER 31,
1998 1997
---------------------------------
ASSETS
Current Assets:
Cash $ 114,083 $ 128,871
Accounts receivable, net 2,134,052 2,751,264
Inventory (Note B) 72,460 46,615
Prepaid expenses and other 201,960 175,494
----------- -----------
Total current assets 2,522,555 3,102,244
Property and equipment at cost less
accumulated depreciation and amortization
of $3,128,098 in 1998 and $2,732,749
in 1997 1,156,081 962,175
Capitalized software costs, net of
accumulated amortization of $954,979
in 1998 and $839,721 in 1997 695,290 494,786
Intellectual property rights, net of
accumulated amortization of $647,951
in 1998 and $639,617 in 1997 22,222 30,556
Goodwill, net accumulated amortization 3,254,455 -
of $171,287 in 1998
Other assets 91,217 117,717
----------- -----------
$ 7,741,820 $ 4,707,478
----------- -----------
----------- -----------
See accompanying notes.
2
CANMAX INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
APRIL 30, OCTOBER 31,
1998 1997
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes Payable (Note C) $ 152,754 $ -
Convertible Debentures - Shareholder
(Note C) 1,200,000 -
Accounts payable 743,750 878,241
Accrued liabilities 722,602 867,233
Deferred revenue 210,958 269,404
Deferred revenue prepaid phone cards 882,473 -
Current portion of lease obligation 83,739 159,364
Current portion of long-term debt 35,195 35,195
Advance from shareholder (Note C) - 100,000
------------ ------------
Total current liabilities 4,031,471 2,309,437
Lease obligations 171,259 127,051
Long - term debt 33,688 51,056
Shareholders' equity:
Common stock, no par value,
44,169,100 shares authorized;
8,111,005 and 6,611,005 shares
issued and outstanding in 1998
and 1997, respectively 25,938,131 23,290,733
Accumulated deficit (22,432,729) (21,070,799)
------------ ------------
Total shareholders' equity 3,505,402 2,219,934
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$ 7,741,820 $ 4,707,478
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------------ ------------
See accompanying notes.
3
CANMAX INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------------------ ----------------------------
1998 1997 1998 1997
----------- ----------- ---------- ----------
Revenues:
Software licenses and product revenue $ 70,872 $ 424,841 $ 286,097 $ 654,761
Development 947,398 2,830,489 1,788,143 6,081,848
Service agreements 768,743 508,635 1,316,723 997,565
Prepaid phone cards, Internet kiosks, long
distance reselling, and other 548,384 - 548,384 -
------------ ------------ ----------- -----------
2,335,397 3,763,965 3,939,347 7,734,174
------------ ------------ ----------- -----------
Costs and expenses:
Costs of software licenses and product
revenue 60,504 252,651 230,413 474,353
Cost of development revenues 481,702 1,516,335 882,784 2,991,773
Cost of prepaid phone cards, Internet
kiosks, long distance reselling and others 443,621 - 443,621 -
Customer service 548,718 587,501 1,025,331 1,154,793
Product development 35,841 37,615 206,785 314,515
Sales and marketing 158,660 143,834 309,998 253,753
General & administrative 1,363,789 921,582 2,147,146 1,878,471
Interest and financing, net (including
interest of $17,014, $0, $21,947, $0 to
a shareholder) 45,959 3,540 55,199 7,250
------------ ------------ ----------- -----------
3,138,794 3,463,058 5,301,277 7,074,908
------------ ------------ ----------- -----------
Net income (loss) $ (803,397) $ 300,907 $(1,361,930) $ 659,266
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Basic earnings (loss) per share (Note F) $ (.10) $ .06 $ (.19) $ .13
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Diluted earnings (loss) per share (Note F) $ (.10) $ .05 $ (.19) $ .10
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
See accompanying notes.
4
CANMAX INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED APRIL 30,
------------------------------
1998 1997
--------- ---------
Operating activities:
Net income (loss) $ (1,361,930) $ 659,266
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 690,676 470,935
Loss on disposal of assets - 8,958
Changes in assets and liabilities:
Accounts receivable 833,339 (698,808)
Inventory (21,451) 338,218
Prepaid expenses and other (5,893) 50,798
Accounts payable (612,685) (896,992)
Accrued liabilities (485,475) (281,955)
Deferred revenue (141,518) (286,251)
Deferred revenue prepaid phone cards 882,473 -
------------ ----------
Net cash used in operating activities (222,464) (635,831)
Investing activities:
Purchase of property and equipment (46,265) (36,496)
Capitalized software costs (316,211) -
Purchase of business, net of cash (378,982) -
acquired
Decrease in other assets 26,500 9,865
------------ ----------
Net cash used in investing activities (714,958) (26,631)
Financing activities:
Proceeds from converible debentures -
shareholders 1,200,000 -
Payments made on lease obligation (96,340) (62,178)
Repayment of shareholder advance (100,000) (95,765)
Repayment on borrowing (81,026) (16,833)
------------ ----------
Net cash (used in) provided by financing
activities 922,634 (174,776)
Effect of exchange rate changes on cash - 39
------------ ----------
Net decrease in cash (14,788) (837,199)
Cash at beginning of period 128,871 908,772
------------ ----------
Cash at end of period $ 114,083 $ 71,573
------------ ----------
------------ ----------
See accompanying notes.
5
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 and six month period
ended April 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending October 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Canmax's annual report on Form 10-K for the year ended October 31, 1997.
Certain amounts in the 1997 condensed consolidated statement of operations have
been reclassified to conform with the 1998 presentation.
NOTE B - REVENUE RECOGNITION
Phone cards - Revenue recognition originates from customer usage of prepaid
calling cards. The Company sells cards to retailers and distributors at a
fixed price. When the retailer or distributor is invoiced, deferred revenue
is recognized. The Company recognizes revenue, and reduces the deferred
revenue account as the customer utilizes calling time and upon expiration of
cards, containing unused calling time.
NOTE C - INVENTORY
Inventory consists primarily of computer hardware and purchased software.
NOTE D - NOTES PAYABLE AND ADVANCES FROM SHAREHOLDERS
NOTES PAYABLE
USC maintains a $500,000 revolving line of credit with PayNet Communications,
Inc., which is secured by the interests in Location Agreements and equipment
obtained by USC when installing its Internet Kiosk product, TravelNet. The note
bears interest at the Prime Rate plus one percent, and has a term of three
years. See note - "Subsequent Events - USCommunications Acquisition Reversal."
Prior to consummation of the acquisition of USC, certain beneficial owners of
shares of USC loaned USC $70,000. Funds obtained from these holders bear
interest at 16%. All principal and interest were due on April 1, 1998. During
April 1998, $40,000 of these loans were repaid and the remaining $30,000 was
repaid in May 1998.
ADVANCES FROM SHAREHOLDERS
On October 30, 1997, a shareholder, Founders Equity Group, Inc. ("Founders"),
advanced Canmax $100,000. The advance was unsecured and had an interest rate of
12%. On November 6, 1997, Canmax repaid principal and interest of $100,230,
which fully satisfied Canmax's obligation.
CONVERTIBLE DEBENTURES TO SHAREHOLDERS
On December 15, 1997, Canmax entered into a Convertible Loan Agreement with a
Shareholder, Founders Equity Group, Inc., ("Founders") providing for a loan
of up to $500,000. On February 11, 1998, Canmax and Founders executed a Loan
Commitment Letter providing for a multiple advance loan of up to an
additional $2.0 million. The outstanding loans under the convertible loan
agreement and the commitment letter was consolidated into the First Restated
Convertible Loan Agreement dated as of March 31, 1998 (the "Convertible Loan
Agreement"). Pursuant to the terms of the Convertible Loan Agreement, the
indebtedness outstanding thereunder bears interest at the rate of twelve
percent (12%) per annum and is collateralized by a blanket lien on all of the
assets of Canmax. Interest under the Convertible Loan Agreement is payable
monthly, and borrowings thereunder mature on April 1, 1999. Each extension of
credit under the Convertible Loan Agreement is evidenced by a debenture which
is convertible into shares of common stock of Canmax at a conversion price of
$.80 per share. Additionally, the outstanding principal amount of each
debenture is redeemable at the option of Canmax at the principal amount
outstanding thereunder plus any accrued but unpaid interest. As consideration
for the loan commitment, Canmax paid a commitment fee of $10,000. As of
April 30, 1998, $1.5 million has been advanced to Canmax under the
Convertible Loan Agreement.
6
NOTE D - ACQUISITIONS
On January 30, 1998, Canmax acquired USC in a transaction recorded under the
purchase method. The total purchase price of the acquisition was $2,952,204.
See Note H - Subsequent Events USCommunications Acquisition Reversal
NOTE E - SHAREHOLDERS' EQUITY
On February 26, 1998, the Board of Directors increased the number of shares
issuable under Canmax's stock option plan (the "Stock Option Plan") from 1.2
million shares to 2.3 million shares so that stock options previously granted by
the Board in excess of those permitted by the Stock Option Plan could be covered
by the Plan. As of February 27, 1998, 1,121,990 shares of Canmax Common Stock
have been issued under the Stock Option Plan, 1,063,100 shares remain subject to
outstanding options under the Stock Option Plan, and 114,910 shares were
available for future grants under the Stock Option Plan.
NOTE F - EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FASB 128),
effective for both interim and annual periods ending after December 15, 1997.
Statement 128 requires companies to report basic and diluted earnings per share.
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding during each period. Diluted earnings per share is
computed using the weighted average number of shares of common stock outstanding
during each period and common equivalent shares consisting of stock options and
warrants (using the treasury stock method). All earnings per share amounts
reported have been restated to conform to the new standard.
7
The following table sets forth the computation of basic and diluted earnings per
share as calculated in accordance with FASB 128.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
APRIL 30, APRIL 30,
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
Numerator for basic and
diluted earnings per share -
Net income (loss) $ (803,397) $ 300,907 $(1,361,930) $ 659,266
Denominator:
Denominator for basic earnings
per share - weighted average shares 8,111,005 5,048,782 7,356,861 5,030,528
Effect of dilutive securities:
Stock Options - 1,576,704 - 1,587,819
Warrants - - - -
10% convertible debentures - - - -
---------- ---------- ----------- ----------
Dilutive potential common shares - 1,576,704 - 1,587,819
---------- ---------- ----------- ----------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 8,111,005 6,625,486 7,356,861 6,618,347
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Basic earnings (loss) per share $ (.10) $ .06 $ (.19) $ .13
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Diluted earnings (loss) per share $ (.10) $ .05 $ (.19) $ .10
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
NOTE H - NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FASB 131), which supercedes existing
accounting standards related to disclosures of operating segment information.
The provisions of FASB 131 are effective for Canmax beginning the year ended
October 31, 1999. Historically, Canmax has operated in one industry segment.
However Canmax is evaluating the impact of FASB 131 on its reporting
requirements as it increases its operations in the telecommunications industry.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 97-2,
"Software Revenue Recognition" (SOP 97-2), which supercedes Statement of
Position No. 91-1. SOP 97-2 will be effective for all transactions entered into
by Canmax subsequent to October 31, 1998. Canmax is currently evaluating the
impact that SOP 97-2 will have on software license revenue transactions entered
into subsequent to October 31, 1998.
NOTE I - RESTATEMENT
The Company has restated financial information throughout this filing to
reflect a change in its revenue recognition policy related to revenues
generated by its former subsidiary USCommunications. In the previously
reported results USCommunications recorded revenue related to its sale of
prepaid calling cards at the time of sale. The results as currently reported
record revenue and the related costs of revenue as the minutes are used.
A summary of the significant effects of the restatement are as follows:
Three Months Ended Six Months Ended
April 30, 1998 April 30, 1998
----------------------------- ---------------------------
As previously As As previously As
Reported Restated Reported Restated
------------- ----------- ------------- -----------
Statement of Operations Data:
Revenues from prepaid phone cards,
internet kiosk, long distance reselling,
and other $1,430,857 $ 548,384 $ 1,430,857 $ 548,384
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Cost of prepaid phone cards $1,655,494 $ 933,859 $ 1,655,494 $ 933,859
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Net income (loss) $ (642,559) $(803,397) $(1,201,092) $(1,361,930)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic earnings (loss) per share $ (.08) $ (.10) $ (.16) $ (.19)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Diluted earnings (loss) per share $ (.08) $ (.10) $ (.16) $ (.19)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
April 30, 1998
----------------------------
As previously As
Reported Restated
------------- ------------
Balance Sheet Data:
Accrued liabilities $ 1,444,236 $ 722,602
------------- ------------
------------- ------------
Deferred revenue-prepaid
phone cards $ - $ 882,473
------------- ------------
------------- ------------
Accumulated deficit $(22,271,890) $(22,432,729)
------------- ------------
------------- ------------
NOTE J - SUBSEQUENT EVENTS
NASDAQ DELISTING
On June 8, 1998, Canmax was delisted from the Nasdaq SmallCap Market, and is
now traded on the OTC Bulletin Board. In management's opinion the delisting
will not
8
materially affect the ability of Canmax to raise capital for the levels required
for current expansion plans, nor will it affect the liquidity of Canmax
operations.
NEWLY FORMED SUBSIDIARY
On June 5, 1998, Canmax established a wholly owned subsidiary, Canmax Telecom,
Inc., to focus on the telecommunications marketplace.
USCOMMUNICATIONS ACQUISITION REVERSAL
On June 15, 1998, Canmax and USCommunications signed an agreement to reverse the
purchase of USCommunications. Canmax will recover 1.5 million shares, and
warrants to purchase an additional 4.5 million share as a result of this
reversal. Cash payments made on behalf of USCommunications will be recovered
through a note payable. The two board members who were elected as part of the
acquisition agreement have resigned.
ACQUISITION OF TALK TIME, INC.
On June 16, 1998, Canmax acquired Talk Time, Inc. of Littleton, Colorado, a
leading wholesale distributor of prepaid calling cards to convenience stores in
the Rocky Mountain and Oklahoma Regions through its newly formed subsidiary,
CANMAX Telecom, Inc. Talk Time is expected to contribute approximately $1
million in revenues this year through direct card sales at more than 100
convenience stores and petroleum retailers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
REVENUE
During the second quarter of 1998, Canmax had revenues of $2,335,397, a decrease
of $1,428,568 or 38% over the second quarter of 1997. During the second
quarter of 1998, The Southland Corporation (Southland) and NCR Corporation (NCR)
accounted for approximately 65.4% of the Company's total revenue as compared
with approximately 94% for the comparable period of 1997. For the six months
ended April 30, 1998 Canmax had revenues of $3,939,347, a decrease of
$3,794,827 or 49% over the comparable period in 1997. For the six months
ended April 30, 1998, Southland and NCR accounted for approximately 73% of the
Company's total revenue as compared to approximately 94% for the comparable
period of 1997. The decline in revenue is due to a decrease in development
sales to Southland which was partially offset by revenue generated by the
recently acquired telecommunications business. Revenues from pre-paid phone
cards and other telecommunication products for the three month period ending
April 30, 1998 was $548,384.
Revenues from prepaid phone cards, internet kiosks, long distance reselling,
and other telecommunications products and services for each of the three and
six month periods ended April 30, 1998 increased $548,384 or 100% due to
the acquistion of USCommunication Services, Inc. (USC) on January 30, 1998.
Software licenses and product revenue for the three month period ended April
30, 1998 and 1997 decreased $ 353,969 or 83.3% from $ 424,841 to $ 70,872,
respectively. This decrease is primarily due to purchased software sales to
Southland in the second quarter of 1997 that did not occur during the
comparable period in 1998.
For the six months ended April 30, 1998 and 1997 software licenses and
product revenue decreased $ 368,664 or 56.8% from $654,761 in 1997 to
$286,097 in 1998. The decrease is primarily due to the decline in sales of
hardware components to other customers and a decrease in software and
hardware sales to SLC.
Development revenue for the three month periods ended April 30, 1997 and 1998
decreased $1,883,091 or 66.5% from $2,830,489 to $947,398, respectively. During
the second quarter of 1997, Canmax recognized approximately $2,578,000 of
development revenue for work performed under an agreement which commenced in
May, 1996 with NCR and Southland to develop a scanning point of sale application
for Southland and other associated inventory, merchandising, and back office
functions, running in a Windows NT environment (the "Southland Windows NT
development project"). This decrease was partially offset by an increase in
revenues from development and other resources provided to Southland
9
on an as-needed basis under an agreement which commenced in January, 1998 and
extends through December, 1998. During the second quarter of 1998, Canmax
recognized approximately $728,000 of development revenue related to these
efforts.
For the six months ended April 30, 1998 and 1997 development revenue
decreased $4,293,705 or 70.6%, from $6,081,848 in 1997 to $1,788,143 in 1998.
During the six month period ended April 30, 1997, Canmax recognized
approximately $5,636,000 of development revenue for work performed on the
Southland Windows NT development project noted above. This decrease was
partially offset by an increase in development revenue from the base contract
with Southland which increased from approximately $427,000 in 1997 to
approximately $431,000 during the same period of 1998 and an increase in
revenues from development and other resources provided to Southland on an
as-needed basis under an agreement which commenced in January, 1998 and
extends through December, 1998. During the second quarter of 1998, Canmax
recognized approximately $1,365,000 of development revenue related to these
efforts.
Service agreements revenue for the three months ended April 30, 1998 and 1997
increased $260,108 or 51.1% from $508,635 to $768,743, respectively. For the six
months ended April 30, 1998, service agreement revenue increased $319,158 or
32.0% from $997,565 in 1997 to $1,316,723 in 1998. This increase resulted from
the net result of rate increases, and decrease in calls received.
See discussion in "Liquidity and Sources of Capital" for future trends and
status of contracts.
GROSS MARGIN
Gross margin, as a percentage of software licenses and product revenue, was -
14.63% for the three months ended April 30, 1998 as compared with 54.2% for the
same period in 1997. Gross margin on hardware sales for the second quarter of
1998 was 47.8% compared to 30.1% for the same period in 1997. The percentage
increase in margin resulted from a change in the mix of hardware components
sold. This percentage increase in hardware margins accompanied by margin
increases from increased sales of hardware components to Southland during the
first quarter of 1998 over the comparable period of 1997 more than offset a
decrease in margins on software sales. The decrease in margins on software
sales was due to purchased software sales to Southland in the first quarter of
1997 that did not occur during the comparable period of 1998. Gross margin on
development revenues for the three months ended April 30, 1998 was 65.8% as
compared with 49% for the same period in 1997.
Gross margin on prepaid phone cards and other telecommunication products was
(19%) for the three and six months ended April 30, 1998.
EXPENSES
Customer service costs for the three months ended April 30, 1998 decreased by
$38,783 or 6.6% compared with the same period in 1997. For the six months ended
April 30, 1998, customer service costs decreased $129,462 or 11.2% from
$1,154,793 in 1997 to $1,025,331 in 1998. The decline in costs is due to lower
operating costs for the service arising from increased efficiencies and lower
overall expenditure levels.
Product development costs decreased $1,774 or 4.72% from $37,615 for the
three months ended April 30, 1997 to $35,841 for the comparable period in
1998 and decreased $107,730 or 34.25% for the six months ended April 30, 1998
from $314,515 for the same period in 1997 to $206,785.
General and administrative expenses increased $442,207 or 48% from $921,582
for the second quarter of 1997 to $1,363,789 for the second quarter of 1998
and $268,675 or 14.3% from $1,878,471 for the six months ended April 30, 1997
to $2,147,146 for the comparable period of 1998. The increase is primarily
due to increased general and administrative expenses of the USCommunications
operations.
10
Sales and marketing expenses increased by $14,826 or 10.31% from $143,834 for
the second quarter of 1997 to $158,660 for the second quarter of 1998 and
from $253,753 for the six months ended April 30, 1997 to $309,998 for the
comparable period of 1998, an increase of $56,245 or 22.17%. These increases
are due to marketing expenditures aimed at generating interest in existing
products as well as Canmax's new Windows based product scheduled for release
in the third calendar quarter of 1998.
For the three month and six month periods ended April 30, 1997 Canmax recorded
no tax provision as net operating loss carryforwards of approximately $19.1
million would offset any tax liability. No tax provision was recorded for the
three month and six month periods ended April 30, 1998 as Canmax generated both
a book and taxable loss during that period.
As a result of the foregoing, Canmax incurred a net loss of $803,397 or
$0.10 per share, for the three months ended April 30, 1998 as compared with
net income of $300,907 or $0.06 per share (basic), for the three months ended
April 30, 1997.
For the six months ended April 30, 1998, Canmax incurred a net loss of
$1,361,930 or $0.19 per share as compared with net income of $659,266 or
$0.13 per share, for the same period in 1997.
LIQUIDITY AND SOURCES OF CAPITAL
To maintain liquidity during fiscal 1998, Canmax must (i) increase revenue
through the successful completion of on-going development contracts with
customers, the introduction of new products to the marketplace, increasing the
market share for existing products and services, and negotiating new development
contracts with customers and/or (ii) increase revenue with low cost/rapid entry
into the telecommunications market and/or (iii) utilize existing loan agreements
or obtain additional lines of credit. See "Convertible Loan Agreements."
Canmax believes that it will meet its liquidity needs in 1998 through cash
generated from the operations of its existing software business, its entree into
the telecommunications business, and, if necessary, through utilization of its
existing loan and loan commitment agreements.
PRODUCT DEVELOPMENT
To complete development of the next generation Windows based product, Canmax is
performing additional development effort that is not funded by work currently
being performed for Southland Corporation. Costs necessary to perform the
additional development and to bring the new product to market are estimated to
range from $250,000 to $500,000. Canmax increased its sales and marketing
efforts in 1997 in order to generate market interest in existing systems as well
as new products under development.
ACQUISITIONS
Canmax continues to review an acquisition strategy within its current industry
and other related markets. From time to time Canmax will review acquisition
candidates with products, technologies or other services that could enhance
Canmax product offerings or services. Any material acquisitions could result in
Canmax issuing or selling additional debt or equity securities, obtaining
additional debt or other lines of credit and may result in a decrease to Canmax
working capital depending on the amount, timing and nature of the consideration
to be paid.
SIGNIFICANT CUSTOMERS
Southland Corporation has accounted for 95% of the Revenue of Canmax in prior
periods, and is in discussions with Canmax regarding the renegotiating of its
contract, which currently expires in December of 1998.
NEW ACCOUNTING STANDARDS
11
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 97-2,
"Software Revenue Recognition" (SOP 97-2), which supercedes Statement of
Position No. 91-1. SOP 97-2 will be effective for all transactions entered into
by Canmax subsequent to October 31, 1998. Canmax is currently evaluating the
impact that SOP 97-2 will have on software license revenue transactions entered
into subsequent to October 31, 1998.
The foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Canmax" section contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act which represent Canmax'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.
Canmax 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: (i) user
acceptance of Windows NT as an operating system, (ii) concentration of revenues
in one customer and Canmax's relationship with such customer, (iii) the ability
of Canmax to manage its growth, (iv) Canmax's need for additional financing to
fund product development, marketing and related support services, and
acquisitions, (v) future technological developments and product acceptance, (vi)
intense price and product competition within the industry, (vii) future
operating results and continued growth of USC's business and (viii) other risks
indicated herein and in filings with the commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
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
April 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-1 Rescission Agreement dated as of June 15, 1998 (filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
On December 23, 1997, the Registrant filed a report on Form 8-K regarding the
signing of a letter of intent to acquire USCommunication Services, Inc. ("USC").
Additionally, on February 9, 1998, the Registrant filed a report on Form 8-K
regarding the consummation of the USC acquisition and on February 13, 1998 the
Registrant filed a report on Form 8-K regarding the possible change of control
of the Registrant at a subsequent date.
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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: November 11, 1998 /s/ Roger D. Bryant
---------------------------- ----------------------------
Roger D. Bryant
President & CEO
13