As filed with the Securities and Exchange Commission on July 31, 1996
Registration No. 333-1970
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre Effective Amendment No. 1 to FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CANMAX INC.
(Exact name of registrant as specified in its charter)
Wyoming 75-2461665
(State of Incorporation) (I.R.S. Identification Number)
7872
(Primary Standard Industrial Classification Code Number)
150 West Carpenter Freeway Philip M. Parsons
Irving, Texas 75039 150 West Carpenter Freeway
(214) 541-1600 Irving, Texas 75039
(Address, and telephone number of (214) 541-1600
Registrant's Principal Executive (Name, Address and telephone
Offices) number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
If any of the securities being registered on the Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1993 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
No dealer, sales representative or other person has been authorized to
give any information or to make any representations in conncetion with
this offering other than those contained in this Prospectus, and, if given
or made, such information or representation must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to the date hereof.
This Prospectus does not constitute an offer to sell, or solicitation of
an offer to buy, any securities other than the registered securities to
which it relates or an offer to, or a solicitation of, any person in any
circumstances in which such offer or solicitation is unlawful.
TABLE OF CONTENTS
Available Information........................ 3
Prospectus Summary........................... 4
Risk Factors................................. 5
Use of Proceeds..............................11
Plan of Distribution.........................11
Market for Common Stock......................13
Selected Consolidated Financial Information..15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................17
Business.....................................28
Major Contracts..............................28
Marketplace and Strategy.....................30
Properties...................................35
Legal Proceedings............................35
Management...................................36
Summary Compensation Table...................38
Option Grants in Last Fiscal Year............40
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Options...........40
Security Ownership of Certain Beneficial
Owner, Directors and Management............43
Certain Relationships and Related
Transactions...............................45
Description of Capital Stock.................46
Selling Stockholders.........................47
Indemnification..............................49
Index to Financial Statements...............F-1
<PAGE>
364,670 Shares
CANMAX INC.
Common Stock
PROSPECTUS
July 30, 1996
364,670 Shares of Common Stock
PROSPECTUS
July 31, 1996
CANMAX INC.
This Prospectus relates to 364,670 shares of Common Stock
without par value of Canmax Inc. (the "Company") that may be
offered and sold by the holders thereof named herein (the
"Selling Stockholders").
The Selling Stockholders directly, through agents to be
designated from time to time, or through dealers, may sell the
shares from time to time in over the counter transactions, in
negotiated transactions or a combination of such methods of
sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. See "Plan of
Distribution."
None of the proceeds from the sale of the shares are to be
received by the Company. The aggregate proceeds to the Selling
Stockholders from the sale of the shares will be the selling
price of the shares, less aggregate agents' commission, if any,
and other expenses of issuance and distribution not borne by
the Company. The Company will pay substantially all of the
expenses of this offering (estimated to be $40,000) other than
commissions and discounts paid to dealers or agents.
The Company's Common Stock is quoted on the NASDAQ
SmallCap Market tier of The Nasdaq Stock Market under the
symbol "CNMX". On July 23, 1996 the last reported per share
sale price of the Common Stock was $2.00. See "Market For the
Common Stock."
Prospective investors should carefully consider the matters set
forth under the caption "Risk Factors" beginning on page 6
hereof.
_________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSIONS NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________________
<PAGE>
AVAILABLE INFORMATION
The Company is subject to certain informational requirements of
the Securities Exchange Act of 1934 (the "1934 Act") and, in
accordance therewith, files reports and other information with
the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material or any portion of the Registration
Statement may be obtained from the Public Reference Section of
the Commission, upon payment of prescribed fees. In addition,
such reports, proxy statements and other information concerning
the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850.
The Company has filed with the Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement,
does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules
and regulations of the Commission. Statements contained herein
concerning the provisions of documents are necessarily
summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the
applicable document filed with the Commission as an exhibit to
the Registration Statement.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and the Consolidated Financial
Statements, including notes thereto, appearing elsewhere in
this Prospectus. Investors should carefully consider the
information under "Risk Factors."
The Company
The Company develops and licenses proprietary computer
applications software, sells ancillary hardware, and licenses
certain third party software to operators of convenience stores
and gas stations. It provides related development,
customization and software enhancements to its customers. The
Company also provides services such as installation of systems
and integration, and provides a 24 hour per day, 365 day per
year, help desk.
The Company's customers use the software and related products
and services to automate retail accounting, point-of-sale, and
information management. Customers typically pay a one-time
license fee and annual fees for support and maintenance.
The Company was previously named "International Retail Systems
Inc." On November 30, 1994 its name was changed to "Canmax
Inc." The Company's principal executive offices are located at
150 West Carpenter Freeway, Irving, Texas 75039 and its
telephone number is (214) 541-1600. As used in this
Prospectus, the terms "Company" and "Canmax" mean Canmax Inc.
and each of its subsidiaries and predecessors unless otherwise
indicated in the Prospectus.
The Offering
This Prospectus relates to 364,670 shares of Common Stock that
may be offered and sold from time to time by the Selling
Stockholders who acquired such shares for services, on exercise
of warrants, and in a private placement between September 1994
and February 1995. See "Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by
the Selling Stockholders. In addition to other information in
this Prospectus, Prospective investors should carefully
consider matters discussed under "Risk Factors" before making
an investment.
<PAGE>
<TABLE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
Six Months
Ended
April 30 Years Ended October 31
_____________ ________________________________________
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Statements
of
Operations
Data:
Net Revenues $ 5,159 $ 3,263 $ 8,996 $ 9,675 $ 4,659 $ 2,224 $ 3,956
Net Loss (554) (3,095) (3,734) (6,042) (1,142) (1,992) (762)
Net Loss per (0.11) (0.69) (0.79) (1.54) (0.31) (0.60) (0.30)
Share
Balance Sheet
Data:
Working
Capital
(Deficiency) $ (628) $ (572) $ (469) $ 146 $ 526 $ (748) $ 556
Total Assets 4,288 4,132 4,702 5,328 6,883 2,051 1,972
Non-current
Liabilities 208 504 265 1,375 146 56 39
Shareholders'
Equity 1,371 1,849 1,719 1,910 4,045 496 912
</TABLE>
<PAGE>
RISK FACTORS
In addition to the other information contained in this
Prospectus including the Company's Consolidated Financial
Statements and notes thereto, the following risk factors should
be carefully considered before making an investment in the
Common Stock.
Lack of Profitable Operating History
The Company has never been profitable on a full year basis and
has an accumulated deficit of $21,863,218 as of April 30, 1996.
Operating results for future periods are subject to numerous
uncertainties and there can be no assurances that the Company
will be able to achieve profitable operations in the future.
Liquidity and Potential Need for Additional Financing
At October 31, 1995, the Company has a net working capital
deficiency of $468,653. During fiscal 1995, the Company used
cash in operating activities of $1,529,593. The Company was
able to maintain liquidity during fiscal 1995 primarily from:
1) the receipt of proceeds from the sale of common shares and
exercise of stock options, 2) the conversion of certain EDS
development obligations into shares of the Company's common
stock, and 3) proceeds received from shareholder advances. At
April 30, 1996, the Company had a net working capital
deficiency of $627,931. During the six month period ended
April 30, 1996, the Company used cash in operating activities
of $199,353. The Company was able to maintain liquidity during
the first and second quarter of 1996 primarily from net
proceeds arising from the sale of stock through the exercise of
stock options which provided cash of $208,940 during the second
quarter of 1996.
There is an emerging preference by customers for systems,
solutions and software that run under Microsoft Windows family
of operating systems. To date, the Company has experienced
only isolated instances of sales resistance for its current
UNIX based systems; however, it is seen as critical to the
future growth of the corporation that it develop a Windows
based product. Work on a next generation Windows based product
commenced in May of 1996 and is currently expected to be
completed in the second calendar quarter of 1997. Completion
of this project is dependent on the successful and timely
completion of a key phase of work currently under negotiation
with The Southland Corporation. Once the development is
completed, the Company will be uniquely positioned in the
market place and will offer both a Windows NT based and UNIX
solution to its customers.
<PAGE>
Management of the Company believes the development of the
Windows based product in conjunction with The Southland
Corporation will help ensure that the new product offering
encompasses state of the art technology and industry best
practices for the management of retail gas stations and
convenience stores.
The majority of the Company's new product will be developed in
conjunction with work currently under negotiation with The
Southland Corporation. However, the Company will need to
perform additional development that is not funded by work done
for The Southland Corporation. Costs necessary to perform the
additional development, to bring the new product to market, and
provide for infrastructure improvements are estimated to be in
the range of $3.0 - $5.0 million. The Company believes that it
will be necessary to raise additional capital to complete
development of its next generation product within the necessary
window of opportunity and to provide vital marketing and other
support services.
No financing arrangements have been entered into by the Company
at this time; however, the Company is currently discussing
financing arrangements with a number of institutions and is
anticipating that it will be able to raise the necessary funds.
Any future equity capital funding would be dilutive. There
can be no assurances that the Company will be able to obtain
suitable financing.
During the third quarter of 1996, the Company received progress
payments from The Southland Corporation for this project
amounting to $1,437,000 to enable development to commence;
however, no contract is in place as yet. Should the Company
not be successful in concluding these negotiations on a timely
basis and no further progress payments are received, the
Company will require additional financing to continue as a
going concern without restructuring operations. Should the
Company successfully conclude negotiations with The Southland
Corporation but is not able to raise additional capital
financing, the Company could continue operations; however,
product development plans would need to be reduced and the
release of the Company's new Windows based product would also
be delayed. Based on the Company's capital raising plan
mentioned above and the anticipated successful negotiation of a
new contract for The Southland Corporation project described
above, Management believes that it will have adequate capital
resources to continue operations into the foreseeable future;
however, there can be no assurances that this will occur.
<PAGE>
New Operating Environments
To date, the Company's primary software product (C-Serve) runs
under MS-DOS and UNIX operating systems. There is an emerging
preference by customers for systems, solutions and software
that run under the Microsoft Windows family of operating
systems. To date, the Company has experienced only isolated
instances of sales resistance for its current UNIX based
systems; however, it is seen as critical to the future growth
of the corporation that it develop a Windows based product.
Work on a next generation Windows based product commenced in
May of 1996 and is currently expected to be completed in the
second calendar quarter of 1997. Completion of this project is
dependent on the successful and timely completion of a key
phase of development work currently under negotiation with The
Southland Corporation. Once the development is completed,
Management believes that the company will be uniquely
positioned in the market place and will offer both a Windows NT
based and UNIX solution to its customers.
Any failure of market acceptance or significant delay in the
adoption of this new product or the Windows operating system by
the marketplace could adversely affect the Company's ability to
generate revenue from many of its future products.
The emergence of alternative technologies or the acceptance of
new industry standards could render the Company's existing or
future products obsolete or unmarketable.
Customer Concentration
The Company's operating results are dependent in part on
existing contracts with certain significant customers.
In particular, the Southland Corporation accounted for
approximately 64%, 61%, 50% and 43% of the Company's revenues
for the six months ended April 30, 1996 and in fiscal 1995,
1994 and 1993, respectively.
Further, EDS accounted for 4%, 10%, 38% and 0% of the Company's
revenues for the six months ended April 30, 1996 and in fiscal
1995, 1994 and 1993, respectively.
Also, NCR (formerly AT&T Global Information Solutions Company)
accounted for 31%, 12%, 0% and 0% of the Company's revenues for
the six months ended April 30, 1996 and in fiscal 1995, 1994
and 1993, respectively.
There can be no assurance that these customers will continue to
do business with the Company at historical levels or at all.
If these customers or other material customers reduce or
eliminate their business with the Company, the Company's
business, financial and operating results would be materially
and adversely affected.
<PAGE>
Dependence On Single Industry
The Company's product offerings are intended for the retail
petroleum and convenience store market. Petroleum retailers
may experience reduced profitability and embark on major
cutbacks in staffing and capital expenditures. These economic
factors could result in delays in planned automation programs
and reduced overall market demand for automation solutions.
Product Concentration
C-Serve is the Company's primary software product. The Company
derived approximately 55% of its revenues in fiscal 1995 and
1994 from sales, installation, training and other services
related to the C-Serve software product.
C-Serve and related enhancements and related services are
expected to account for the majority of the Company's revenues
in the near future. Because of this product concentration, a
decline in demand for these products or services, as a result
of competition or otherwise, would have a significant effect on
the Company.
Undetected Defects
Although the Company has had significant experience in the
installation and support of multi-site installations, any major
product defects or weaknesses in C-Serve (its primary software
product) becoming evident in a mass roll-out scenario involving
thousands of sites could severely affect the profitability of
the Company.
Future Products
The software industry in which the Company competes is
characterized by frequent and rapid changes in technology and
customer preference, new product introduction, short to
moderate product life cycles and price competition. The
Company's competitiveness depends on its ability to enhance its
existing products and offer new products on a timely basis.
The Company, having more limited resources than some of its
competitors, must restrict its product development efforts.
There can be no assurance that these efforts will be
technologically successful, that any resulting products will
achieve market acceptance or that the Company will elect to
develop software products for the operating environments
(generally viewed as encompassing a user interface, an
operating system and the hardware platform on which they
operate) that ultimately are accepted by the marketplace. In
addition, the Company has experienced delays in the development
and delivery of its products and may experience such delays in
the future. Such delays could result in a loss of
competitiveness of the Company's products and could adversely
affect the Company.
<PAGE>
Fluctuations in Operating Results
The Company's quarterly and annual results have been, and will
continue to be affected by a wide variety of factors that in
the past have had, and in the future could have, a material
adverse effect on the Company's business, financial condition
and operating results. Factors that could affect future
operating results include, but are not limited to, the timing
and size of new contracts, loss of existing contracts,
competitive and pricing pressures, timing or delays in new
product introductions by the Company or its competitors,
timelines of the Company's and its competitors' responses to
changing customer requirement, advances in technologies,
seasonal revenue fluctuations and general economic conditions.
Many of these factors are beyond the Company's control.
Dependence on Key Employees; Limited Personnel Resources
The future success of the Company is substantially dependent on
the continued service of existing members of management, namely
the President and Chief Executive Officer, Roger D. Bryant and
other key personnel namely the Vice President of Advanced
Research, Ivor Flannery and on attracting and retaining
additional qualified employees. Except as noted in the
employee compensation and employee agreements section elsewhere
in this Prospectus, none of the Company's employees has an
agreement obligating them to remain in the employment of the
Company, and the Company does not maintain key person life
insurance on any officer or other employee. Attracting and
retaining product design and development personnel has been,
and is expected to continue to be, critical for the continued
growth of the Company's human resources. The Company has
experienced difficulty in locating and attracting qualified
software engineers. Effective marketing and sales efforts also
will be critical to the Company's ability to grow. The Company
is seeking to strengthen its marketing and sales functions by
continuing to expend significant efforts to identify and hire
qualified personnel. Competition in attracting and retaining
qualified personnel is extremely intense in the software
industry, and the Company expects such competition to continue
in the future. The Company also utilizes a help desk work
force of semi-skilled employees. The current unemployment rate
in the Dallas area is low and growth in demand for semi-skilled
employees has increased competition for such employees. There
can be no assurance that current employees will not leave the
Company or that the Company will be able to attract or retain
the technical, professional and management personnel which it
will need, failure to do any of which could have a material
adverse effect on the Company's business, financial condition
and operating results.
<PAGE>
Management of Expanded Operations
The Company has experienced periods of rapid growth and
expansion, which have placed, and may continue to place, a
significant strain on the Company's limited personnel and other
resources. The Company's ability to manage its expanded
operations effectively will require it to continue to improve
its operational, financial and management systems and to
successfully train, motivate and manage its employees. If the
Company's management is unable to manage its expanded
operations effectively, the Company's business, financial
condition and operating results could be materially and
adversely affected.
Intense Competition
The markets for the Company's products are extremely
competitive, and the Company expects this competition to
increase. In the retail petroleum and convenience market, the
Company competes primarily with pump manufacturers, point of
sale equipment manufacturers and specialized application
software companies.
Many of the Company's current and prospective competitors have
substantially greater financial, technical and marketing
resources than the Company. The Company also anticipates that
additional competitors may enter certain of the Company's
markets, resulting in even greater competition. There can be
no assurance that the Company will be able to compete with
existing or new competitors. Increased competition could
result in significant price reductions with negative effects
upon the Company's gross margins and a loss of market share,
which could materially and adversely affect the Company's
business, financial condition and operating results.
Dependence on Intellectual Property; Risks of Litigation
The Company regards its software as proprietary and attempts to
protect it with copy rights, patents, trademarks, trade secret
laws and restrictions on disclosure and transferring title.
Despite these precautions, it may be possible for unauthorized
third parties to copy aspects of the Company's products or to
obtain and use information that the Company regards as
proprietary. The Company has no patents and existing copyright
laws afford only limited practical protection. In addition, the
laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the
United States. The Company's products are not physically copy
protected.
Litigation may be necessary to protect the Company's
intellectual property rights and trade secrets and to defend
against claims of infringement or invalidity. Litigation could
be expensive and time consuming, could divert management
resources and could have a material adverse effect on the
Company's business, financial condition and operating results,
regardless of the outcome of the litigation.
<PAGE>
International Marketing Efforts
The Company intends to expand its marketing efforts and its
product offerings to Europe, Asia, and South America.
International marketing is expensive and there are no
assurances that these efforts will result in sales.
Market Overhang; Possible Volatility of Stock
Because the sales of shares of Common Stock offered by this
Prospectus will not be effected through an underwriter, there
will be a substantial number of shares available for sale on
the market at one time without any control over the timing or
volume of sales by the Company or any third party. The Company
cannot foresee the impact of such potential sales on the
market, but it is possible that if a significant percentage of
such available shares are attempted to be sold within a short
period of time, the effect on the market may be negative. It
is also doubtful whether or not the market for the Common Stock
could absorb such a large number of shares in a short period of
time, regardless of the price at which the same might be
offered. Even if a substantial number of sales are not
effected within a short period of time, the mere existence of
this "market overhang" could have a negative effect on the
market for the Common Stock and the Company's future ability to
conduct any equity financing.
Under the Exchange Act and applicable rules and regulations
promulgated thereunder, any person engaged in a distribution of
any of the Shares may not simultaneously engage in market
making activities with respect to the Shares for a period,
depending upon certain circumstances, of either two days or
nine days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations promulgated
thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of
any of the Shares by the Selling Stockholders.
EDS Option; Possible Dilutive Effect and Change of Control
Pursuant to agreements entered into between the Company and
Electronic Data Systems ("EDS"), EDS has invested $4,861,659
into the Company between April 1993 and October 1994. (See
"Major Contracts" on page 28 in this prospectus.)
In connection with the agreements and in consideration , in
part, for their investment in the Company, EDS was granted an
option to purchase up to 25% of the Company's Common Stock. The
exercise price of the option is not to be less than 75% of the
then market value of the Common Stock at the time of exercise.
The option expires April 22, 1998.
<PAGE>
As of June 30, 1996, EDS owns 265,228 unregistered shares of
common stock in the Company or 5.3% of the outstanding Common
Stock. Such shares were received by EDS as consideration for
settlement of obligations owed by the Company to EDS in fiscal
1993 and 1994. EDS's current ownership of 5.3% forms part of
their option to purchase up to 25% of the outstanding Common
Stock of the Company.
At this time, the Company is not aware of any plans by EDS to
exercise its option. While the Company cannot foresee the
impact on the stock price of a decision by EDS to exercise its
option, it is possible that it would have a negative effect on
the market for the Common Stock. This overhang may also
negatively effect the ability of the Company to conduct future
equity financing.
Further, should EDS exercise its option, it would become the
major shareholder in the Company. Accordingly, it is possible
that EDS would seek to participate in the management and
control of the Company. The impact of such a decision by EDS
on the Company is not possible to predict at this time.
USE OF PROCEEDS
All of the proceeds from the sales of the shares offered hereby
will be received by the Selling Stockholders. The Company will
not receive any proceeds from the sale of the shares of Common
Stock.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell all or a portion of the
Common Stock offered by this Prospectus from time to time (i)
in the over-the-counter market, (ii) in negotiated
transactions, or (iii) by a combination of the foregoing
methods of sale at fixed prices which may be changed, at market
prices prevailing at the time of sale or at prices related
thereto or at negotiated prices. The Selling Stockholders may
effect such transactions by selling the Common Stock to or
through one or more broker-dealers. Such broker-dealers may
receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and /or the
purchasers of the Common Stock for whom such broker-dealers may
act as agents or to whom they may sell as principal, or both.
The Company is not aware as of the date of this Prospectus of
any agreements between any of the Selling Stockholders and any
broker-dealers with respect to the sale of the shares offered
by this Prospectus. The Selling Stockholders and any broker-
dealer or other agent executing sell orders on behalf of the
Selling Stockholders may be deemed to be "underwriters" within
the meaning of the 1933 Act. Such commissions received by a
broker-dealer or agent may be in excess of customary
compensation.
<PAGE>
The Company will pay all of the costs, expenses and fees
incident to the offering and sale of the shares to the public
other than commissions and discounts of underwriters, broker-
dealer, or agent.
As the Registration Statement will be maintained effective by
the Company for an undetermined period of time, it will be
necessary for the Company to supplement and amend the
Registration Statement and the prospectus from time to time.
Upon notice from the Company that any such supplement or
amendment is necessary, a Selling Stockholder shall cease any
effort to sell any shares of Common Stock offered for sale
pursuant to the Registration Statement, and shall cause any
selling agent to cease all sales efforts, and will not so sell
any such shares of Common Stock until he has received the
supplemental or amended prospectus and delivered a copy of the
same to any prospective purchaser or broker effective any such
sale, as required by law.
Under the Exchange Act and applicable rules and regulations
promulgated thereunder, any person engaged in a distribution of
any of the Shares may not simultaneously engage in market
making activities with respect to the Shares for a period,
depending upon certain circumstances, of either two business
days or nine business days prior to the commencement of such
distribution. In addition and without limiting the foregoing,
the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Rules 10b-
6 and 10b-7, which provisions may limit the timing of purchases
and sales of any of the Shares by the Selling Stockholders.
Under the securities laws of certain states, the Shares may be
sold in such states only through registered or licensed brokers
or dealers. In addition, in certain states the Shares may not
be sold unless the Shares have been registered or qualified for
sale in such state or an exemption from registration or
qualification is available and is complied with.
In effecting the sale of the shares of Common Stock offered by
this Prospectus, each of the Selling Stockholders must comply
with Rule 10b-6 under the Securities Exchange Act of 1934,
which requires that a Selling Stockholder, as well as any
person who acts in concert with such Selling Stockholder and
the broker, if any, who sells the shares on behalf of such
Selling Stockholder, suspend all purchases of shares of Common
Stock for a period depending on the circumstances of either two
business days or nine business days prior to and during any
offers and sales by such Selling Stockholder who is an
affiliate of the Company, Rule 10b-6 also requires the Company
and all persons who are in a control relationship with the
Company to suspend all purchases of shares of the Company for a
period depending on the circumstances of either two business
days or nine business days prior to and during any offers and
sales by the affiliate Selling Stockholder of the shares of
Common Stock offered by this Prospectus.
<PAGE>
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company has only one kind and class of shares namely common stock
without par value, which is traded on the NASDAQ SmallCap Market tier
of the Nasdaq Stock Market. Each share ranks equally as to dividends,
voting rights, participation in assets on winding-up and in all other
respects. No shares have been or will be issued subject to call or
assessment. There are no preemptive rights, provisions for redemption
or purchase for either cancellation or surrender or provisions for
sinking or purchase funds. Provisions as to the modification,
amendment or variation of such rights or such provisions are contained
in the laws of the State of Wyoming.
The Company's common stock trades on the Nasdaq SmallCap Market tier
of The Nasdaq Stock Market under the symbol CNMX. On November 25,
1995, the Company's common stock was granted a temporary exception to
the Minimum Bid Price listing requirement and the Company's stock
remained listed and traded under the symbol CNMXC.
At the time, the Company's stock had been trading below the minimum
bid price of $1.00. Nasdaq granted the Company a temporary listing
exception subject to the Company achieving a minimum bid price in
excess of $1.00 on or before January 22, 1996. In order to meet the
Nasdaq listing requirements, the Board of Directors of the Company
approved a one-for-five reverse stock split effective December 21,
1995. From this date, the Company had a temporary new trading symbol
of CNMCD, previously CNMXC. The Company's stock has traded in excess
of the minimum bid price requirement since December 21, 1995.
On January 15, 1996, Nasdaq advised the Company that it was in
compliance with all requirements necessary for continued listing on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market. Effective
January 17, 1996, the Company's trading symbol reverted back to CNMX.
While the Company anticipates meeting Nasdaq listing requirements in
the future, there can be no assurances that the Company will continue
to comply with the listing requirements.
Pursuant to the amended April 22, 1993 agreements with EDS, the
Company has granted EDS an option to purchase common stock of the
Company so that after the exercise EDS will hold up to 25% of the then
outstanding stock. The option is exercisable any time from April 22,
1994 to April 22, 1998. The price is 75% of the then market value of
the Company's stock determined as the average of the mean between the
bid and the asked price per share as reported by a nationally accepted
over-the-counter market for each of the sixty trading days prior to
EDS' notice to exercise the option. The exercise price will be
reduced by $4,861,659, provided under the amended EDS agreements, less
royalties paid by the Company to EDS.
The Company has not paid dividends and has no near-term plans to pay
dividends. The table below shows the high and low prices of the
Company's common stock as reported by NASDAQ for each quarter during
the past two years.
<PAGE>
Fiscal 1996 High (1) Low (1)
Quarter Ended April 30, 1996 $ 4.75 $ 2.50
Quarter Ended January 31, 1996 $ 4.75 $ 2.13
Fiscal 1995
Quarter Ended October 31, 1995 $ 5.94 $ 2.19
Quarter Ended July 31, 1995 $ 7.80 $ 3.30
Quarter Ended April 30, 1995 $ 6.90 $ 3.45
Quarter Ended January 31, 1995 $ 8.75 $ 4.40
Fiscal 1994
Quarter Ended October 31, 1994 $ 10.00 $ 5.00
Quarter Ended July 31, 1994 $ 16.25 $ 10.00
Quarter Ended April 30, 1994 $ 18.75 $ 13.10
Quarter Ended January 31, 1994 $ 19.75 $ 15.50
There were approximately 568 registered stockholders as at June 30, 1996.
(1) All per share amounts have been retroactively adjusted to reflect
a one-for-five reverse stock split of the Company's Common Stock,
effective December 21, 1995.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of operations data presented below for the
three years in the period ended October 31, 1995, and the consolidated
balance sheet data as of October 31, 1995 and 1994, have been derived
from audited consolidated financial statements of the Company, which
have been audited by Ernst & Young LLP, independent auditors, and
included herein. The statements of operations data for the years
ended October 31, 1992 and 1991 and the balance sheet data as of
October 31, 1993, 1992 and 1991 have been derived from the Company's
consolidated financial statements which have also been audited by
Ernst & Young LLP, independent auditors. The consolidated financial
data for the six months ended April 30, 1996 and 1995 have been
derived from unaudited consolidated financial statements. In the
opinion of Management, such unaudited consolidated financial
statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the consolidated
financial position and results of operations for the periods. The
operating results for the six months ended April 30, 1996 may not be
indicative of the results that may be expected in future periods. The
selected financial information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements of the
Company and the Notes thereto included elsewhere in this Prospectus.
<PAGE>
<TABLE>
Consolidated Statements of Operations Data:
Six Months
Ended
April 30 Year Ended October 31
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $5,158,888 $3,262,805 $8,996,087 $9,674,595 $4,659,029 $2,224,185 $3,956,216
Cost of
software
licenses,
and product
revenues 1,106,411 369,300 2,143,721 1,585,233 747,295 632,693 1,024,160
Cost of
development
revenues 933,064 982,312 1,896,725 877,426 578,141 - -
Development
expenses 672,781 1,600,886 2,267,725 2,432,040 1,134,744 - -
Other
operating
expenses 2,982,148 2,256,346 6,372,627 6,628,433 3,312,327 3,577,981 3,478,054
Interest
expense 18,632 12,395 50,425 66,345 28,812 5,634 216,070
Writedown of
capitalized
software - - - 4,127,232 - - -
Net loss (554,148) (3,095,258) (3,734,450) (6,042,114) (1,142,290) (1,992,123) (762,068)
Net loss
per share(1) (.11) (.69) (.79) (1.54) (.31) (.60) (.30)
(1) All per share amounts have been retroactively adjusted to reflect a one-
for-five reverse stock split of the Company's Common Stock, effective
December 21, 1995.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheet Data:
As of
April 30 As of October 31
____________________ ________________________________________________________
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Total
Assets $4,288,415 $4,131,803 $4,701,902 $5,327,798 $6,882,954 $2,050,914 $1,971,897
Working
Capital
(Deficiency) (627,931) (571,795) (468,653) 146,029 525,958 (747,871) 555,657
Non-
Current
Liabilities 208,013 504,646 265,015 1,374,556 146,296 55,505 39,094
Shareholders'
Equity 1,371,015 1,848,639 1,718,672 1,909,905 4,044,761 496,394 911,998
(1) All per share amounts have been retroactively adjusted to reflect a one-
for-five reverse stock split of the Company's Common Stock, effective
December 21, 1995.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company generates its revenues primarily through three sources:
i) licensing its sophisticated software systems and selling or
licensing ancillary hardware and third party software
to operators of petroleum retail and convenience stores;
ii) providing related development, customization and enhancement to
its customers, and
iii) providing maintenance by way of 24 hour per day, 365 day
per year help desk, and other services.
<PAGE>
<TABLE>
Results of Operations
The following table sets forth certain financial data as a percentage
of total net revenues and the percentage change for the periods
indicated.
Percentage Increase
(Decrease)
Six Six
Months Months Year
Percentage of Ended Ended Ended
Total Revenues April 30 Year Ended October 31 April 31 October 31
1996 1995 1994
vs vs vs
1996 1995 1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses
and product
revenue 27.4% 20.6% 34.8% 50.7% 31.1% 109.8% (36.2%) 238.4%
Development 44.7 47.6 42.2 41.5 57.6 48.6 5.3 49.6
Service
agreements 27.9 31.8 23.0 7.8 11.3 38.8 72.4 43.5
100.0 100.0 100.0 100.0 100.0 58.1 (7.0) 107.7
Costs and expenses:
Cost of software
licenses, product
revenues and
development
revenues 39.5 41.4 44.9 25.5 28.4 51.0 64.1 85.8
Product
Development 13.1 49.1 25.2 25.1 24.3 (58.0) 6.8 114.3
Customer Service 20.0 34.9 24.1 20.9 19.1 (9.4) 6.9 128.0
Administration
and general 21.9 44.7 30.2 20.8 24.7 (22.5) 35.2 75.1
Sales and
Marketing 7.0 10.9 7.1 13.7 19.7 2.3 (51.9) 44.7
Depreciation and
amortization 8.9 13.6 9.4 13.1 7.7 3.6 (33.0) 251.9
Interest and
financing costs 0.4 0.4 0.6 0.7 0.6 50.3 (24.0) 130.3
Writedown of
capitalized
software - - - 42.6 - - (100.0) -
110.7 195.0 141.5 162.4 124.5
Net Loss (10.7%) (95.0%) (41.5%) (62.4%) (24.5%) (82.1%) (38.2%) 428.9%
</TABLE>
<PAGE>
Results of Operations - Quarter ended April 30, 1996 and six months
ended April 30, 1996 Compared to the Quarter ended April 30, 1995 and
six months ended April 30, 1995
Revenue
During the second quarter of 1996, the Company had revenues of
$2,090,886, an increase of $454,212 or 27.8% over the second quarter
of 1995. For the six months ended April 30, 1996 the Company had
revenues of $5,158,888, an increase of $1,896,083 or 58.1% over the
comparable period in 1995. The improvement in revenue is a result of
moderate growth in software revenues from the Company's proprietary
software product C-Serve, significant growth in hardware sales and
development revenue as the Company completed its current contract for
the sale of hardware components to The Southland Corporation and as a
result of the provision of additional development services to The
Southland Corporation.
Software, hardware, and product license revenue for the second quarter
of 1996 was $283,363, a decrease of $30,589 or 9.7% over the second
quarter of 1995. The decline is due to a reduction in revenue from the
Company's proprietary software product C-Serve over the same period in
1995 arising from a reduction in the number of new systems sold,
offset by an increase in revenue from the sale of hardware components
produced by the company. Software, hardware, and product license
revenue declined 75.0% from the first quarter of 1996 primarily due to
the completion during the first quarter of 1996 of the Company's
current contract for the sale of hardware components to The Southland
Corporation.
For the six months ended April 30, 1996 the Company had software,
hardware, and product license revenue of $1,415,598, an increase of
109.8% over the comparable period in 1995. This increase was primarily
due to the sale of hardware components to The Southland Corporation
and other customers during 1996 which did not occur during the
comparable period in 1995.
Development revenue for the second quarter of 1996 was $1,036,611, an
increase of $406,383 or 64.5% over the second quarter of 1995. While
development revenue from the base contract with The Southland
Corporation declined in accordance with the terms of the contract
compared with the same period in 1995, the Company recognized
additional development revenue of $ 570,748 for work associated with a
contract between the Company and NCR to develop a point of sale system
for The Southland Corporation. No such revenue was recorded in 1995.
The additional project for The Southland Corporation is due to
conclude during the third quarter of 1996. The Company is currently
negotiating another new contract with NCR and The Southland
Corporation to provide development services. Development revenue
declined 18.3% from the first quarter of 1996 due to the decline in
revenue from the work associated with a contract between the Company
and NCR to develop a point of sale system for The Southland
Corporation in accordance with the terms of the agreement as the
contract nears completion.
For the six months ended April 30, 1996, the Company had development
revenue of $2,305,422, an increase of $753,516 or 48.6% over the
comparable period in 1995. The increase is due to the factors noted
above.
<PAGE>
Service agreements revenue for the second quarter of 1996 was
$770,912, an increase of $78,418 or 11.3% over the second quarter of
1995. This improvement resulted from an increase in revenue from 24
hour/ 7 day a week help desk services reflecting an increase in the
number of sites supported from 2660 at April 30, 1995 to 5834 as of
April 30, 1996. While the number of sites supported more than doubled,
revenue increased at a lower rate due to the structure of the support
contract with The Southland Corporation which provided for a minimum
payment until a certain volume of support calls was achieved. In
addition, the Company recorded service revenue of $168,545 for work
associated with an agreement between the Company and NCR in relation
to the development of a point of sale system for The Southland
Corporation. No such revenue was recorded in 1995.
For the six months ended April 30, 1996, the Company recorded service
agreement revenue of $1,437,868, an increase of $401,846 or 38.8% over
the comparable period in 1995. This improvement results from an
increase in revenue from the 24 hour/ 7 day a week help desk which
increased to $897,200 for the six months ended April 30. This change
resulted from an increase in the number of sites supported from 2660
as at April 30, 1995 to 5834 as at April 30, 1996. Further, the
Company recorded $400,003 in services revenue for the six months ended
April 30, 1996 for work associated with an agreement between the
Company and NCR in relation to the development of a point of sale
system for The Southland Corporation. No such revenue was recorded in
1995.
Gross Margin
Gross margin, as a percentage of software, hardware, product licenses
and development revenue was 32.8% for the second quarter of 1996
compared with 35.0% for the same period in 1995. This decrease in
gross margin is due to the following.
Gross margin on software sales was 60.7% for the second quarter of
1996 compared with 63.3% for the same period in 1995. The slight
decline is due to reduced levels of sales of the Company's high margin
proprietary software C-Serve as a result of reduced demand for the
product during the reporting period. Gross margin on hardware sales
was 41.3% for the second quarter of 1996 compared with 57.0% for the
second quarter of 1995. The decline in margin resulted from a change
in the mix of hardware components sold. Compared to the second
quarter of 1995, sales of higher margin third party components
declined while sales of a lower margin product manufactured by the
Company increased in line with customer orders. Included in cost of
revenues for software, hardware, and product licenses for the second
quarter of 1996 is a one time writedown of $105,763 for software
inventory that the Company determined was necessary due to the limited
likelihood of future sales of that item. Further, also included in
cost of revenues for software, hardware and product licenses for the
second quarter of 1996 is a one time writedown of inventory to net
realizable value of $111,860 that the Company determined was required.
These charges totaling $217,623 resulted in the negative margin on
software, hardware and product license revenue in the second quarter
of 1996.
<PAGE>
For the six months ended April 30, 1996 the gross margin on software
sales was 77.0% compared with 76.0% for the same period in 1995. For
the six months ended April 30, 1996 the gross margin on hardware sales
was 31.9% compared with 58.4% for the same period in 1995. As noted
above, mix changes in products sold, driven by customer orders,
accounted for the decline, and as previously discussed, gross margins
on software, hardware and product license revenue were negatively
impacted by the $217,623 writedown recorded in the second quarter of
1996.
Gross margin for development for the second quarter of 1996 was 50.9%
compared with 26.5% for the same period in 1995. For the six months
ended April 30, 1996 the gross margin on development was 59.5%
compared with 36.7% for the same period in 1995. The overall
improvement for the three month period and six month period ended
April 30, 1996 compared with the same periods in 1995 is a result of
improved profit margins on development projects mentioned above. The
gross margin declined from the first quarter of 1996 from 66.5% to
50.9% as a result of the need to utilize more costly contractors to
complete certain projects on time during the second quarter.
Customer service costs for the second quarter of 1996 decreased 11.7%
compared with the same period in 1995, despite an increase in 24
hour/ 7 day a week help desk revenue. For the six months ended April
30, 1996, customer service costs declined 9.4% compared with the same
period in 1995. In both cases, the decline in costs is due to lower
operating costs for the service arising from increased efficiencies
and lower overall expenditure levels.
Expenses
Product development costs declined from $785,029 for the second
quarter of 1995 to $356,106 for the second quarter of 1996, a decrease
of 54.6%. The reduction is due to the following:
- A reduction in investment in product development funded by the
Company and
- A significant increase in funded development projects which
resulted in development expenditure being included in cost of
revenues.
For the six months ended April 30, 1996 product development costs
declined from $1,600,886 for the same period in 1995 to $672,781, a
reduction of 58.0%. The reduction is due to the reasons noted above
and due to the capitalization of software development costs amounting
to $128,874 relating to a new credit card processing network interface
the company developed during the first quarter of 1996.
Selling and administrative expenses declined 23.2% for the second
quarter of 1996 compared with the second quarter of 1995 and declined
13.1% for the six months ended April 30, 1996 compared with the same
period in 1995. These cost reductions are a result of lower
expenditure levels and cost savings arising from the reduction in
staffing levels and improved supply contracts for certain services.
As a result of the foregoing, the Company incurred a net loss of
$721,839, or a net loss of $0.15 per share for the second quarter of
1996, as compared to a net loss of $1,710,687 or a net loss of $0.37
per share for the second quarter of 1995.
<PAGE>
For the six months ended April 30, 1996, the Company incurred a net
loss of $554,148 or a net loss of $0.11 per share, as compared to a
net loss of $3,095,258, or a net loss of $0.69 per share for the
comparable period in 1995.
Liquidity and Sources of Capital
At April 30, 1996, the Company has a net working capital deficiency of
$627,931. During the six months ended April 30, 1996, the Company
used cash in operating activities of $199,353. The Company was able
to maintain liquidity during the first and second quarter of 1996
primarily from net proceeds arising from the sale of the stock from
the exercise of stock options which provided cash of $208,940 during
the second quarter of 1996.
There is an emerging preference by customers for systems, solutions
and software that run under Microsoft Windows family of operating
systems. To date, the Company has experienced only isolated instances
of sales resistance for its current UNIX based systems; however, it
is seen as critical to the future growth of the corporation that it
develop a Windows based product. Work on a next generation Windows
based product commenced in May of 1996 and is currently expected to be
completed in the second calendar quarter of 1997. Completion of this
project is dependent on the successful and timely completion of a key
phase of work currently under negotiation with The Southland
Corporation. Once the development is completed, the company will be
uniquely positioned in the market place and will offer both a Windows
NT based and UNIX solution to its customers.
Management of the Company believes the development of the Windows
based product in conjunction with The Southland Corporation should
ensure that the new product offering encompasses state of the art
technology and industry best practices for the management of retail
gas stations and convenience stores.
The majority of the Company's new product will be developed in
conjunction with work currently under negotiation with The Southland
Corporation. However, the Company will need to perform additional
development effort that is not funded by work done for The Southland
Corporation. Costs necessary to perform the additional development to
bring the new product to market and provide for infrastructure
improvements are estimated to be in the range of $3.0 - $5.0 million.
The Company believes that it will be necessary to raise additional
capital to complete development of its next generation product within
the necessary window of opportunity and to provide vital marketing and
other support services.
No financing arrangements have been entered into by the Company at
this time, however the Company is currently discussing financing
arrangements with a number of institutions and is anticipating that it
will be able to raise the necessary funds. Any future equity capital
funding would be dilutive. There can be no assurances that the
Company will be able to obtain suitable financing.
<PAGE>
During the third quarter of 1996, the Company received progress
payments from The Southland Corporation for this project amounting to
$1,437,000 to enable development to commence; however, no contract is in
place as yet. Should the Company not be successful in concluding the
negotiations with The Southland Corporation on a timely basis and no
further progress payments are received, the Company will require
additional financing to continue as a going concern without
restructuring its operations. Restructuring plans would include
reducing expenditures through reducing staff levels and eliminating or
reducing services currently provided to existing customers. Should
the Company successfully conclude negotiations with The Southland
Corporation but is not able to raise additional capital financing, the
Company could continue operations; however, product development plans
would need to be reduced and the release of the Company's new Windows
based product would also be delayed. Based on the Company's capital
raising plan discussed above and the anticipated successful
negotiation of a new contract for The Southland Corporation project
described above, Management believes that it will have adequate
capital resources to continue operations into the foreseeable future;
however there can be no assurances that this will occur.
Results of Operations - 1995 versus 1994
Summary
For the year ended October 31, 1995, the Company incurred a net loss of
$3,734,450 or $0.79 cents per share compared to a net loss of
$6,042,144 for the year ended October 31, 1994 or $1.54 cents per
share.
Of the loss for the year, $3,095,258 or 82.9% was incurred in the first
half of the year as the Company continued to invest significantly in
bidding for potential new business and as a result of reduced revenues
due to delays in the rollout schedule for The Southland Corporation and
installation delays for the Army and Air Force Exchange (AAFES).
Revenues for the first half of fiscal 1995 were 10.7% below the same
period in 1994 and expenses were up 37.8% over the comparable period.
In June of 1995, the Company took actions to reduce expenditures and
focus on operational stability and revenue improvement as part of a 5
step plan for restructuring the Company. The Plan, completed in
January of 1996, included:
- Replacing several senior management positions including the Chief
Financial Officer, Vice President of Development, Chief Operations
Officer and Vice President of Marketing. Further, the former
President and Chief Executive Officer was replaced by Mr. Roger
Bryant on November 15, 1994.
- Modifying the composition of the Board of Directors to comprise 4
outside members and 3 inside members
- Improving productivity through process improvement.
- Implementing a restructuring of operations in June 1995 to reduce
expenditure levels through lower staff numbers and strong cost
containment. These cost reductions contributed towards the
improvement in cash flows experienced by the Company during the
second half of 1995. Improved cash flow during the second half of
1995 contributed to the reduction in liabilities and an overall
strengthening of the balance sheet during the second half of 1995.
<PAGE>
Revenue for the fourth quarter was $3,141,786, up 34.2% over the same
period last year on an operating basis, adjusting for a one time sale
of licenses to EDS (for future use) for $1,810,670 in the prior year.
Revenue growth was attributed to a strong demand for software and help
desk services and continued demand for licenses. Operating expenses
for the fourth quarter of fiscal 1995 were down 39.2% over the same
period in 1994 and the Company reported a net profit of $111,922 for
the quarter resulting from revenue growth and significantly reduced
costs.
Management does not consider that inflation had a significant impact on
the Company's operations to date, nor is it expected to have an impact
next year.
Revenues
Revenues for fiscal 1995 declined 7.0% from $9,674,595 to $8,996,087
for fiscal 1994.
Revenue from software sales declined from $2,927,307 in fiscal 1994 to
$1,385,137 in fiscal 1995. Fiscal 1994 software revenue included one
time sales of the company's proprietary software C-Serve, to EDS and
AAFES amounting to $2,082,700. During fiscal 1995, the company and EDS
installed only 4 of the 788 licenses, and EDS continues to hold 784
licenses for future use. Excluding these sales, software revenues
increased from $844,607 in fiscal 1994 to $1,388,137 in fiscal 1995 as
a result of increased sales of third party software to The Southland
Corporation for installation in their 7-Eleven stores under the five
year agreement with the Company.
Revenue from hardware and component parts declined by 3% from
$1,975,805 in fiscal 1994 to $1,742,298 in fiscal 1995. The Company
continued to sell hardware and components to The Southland Corporation
for use in their 7-Eleven store as part of the five year agreement with
the Company.
Service agreement revenue increased 172% from $758,963 in fiscal 1994
to $2,067,444 in fiscal 1995. This increase resulted from installation
services provided to AAFES during the year where the Company installed
its proprietary C-Serve software in some 68 locations during the year
and from an increase in the number of installed sites supported by the
Company's 24 hour / 7 day help desk. The number of supported locations
increased from 1747 at October 31, 1994 to 3654 at October 31, 1995.
Of the increase of 1907 locations, AAFES accounted for 68 to bring
their total supported sites to 82 at October 31, 1995 and The Southland
Corporation which increased from 1166 to 2951 at October 31, 1995 as
the Company continued to rollout and install the system developed for
The Southland Corporation under the five year agreement with the
Company. The Company continued to support 411 ARCO locations at
October 31, 1995, up from 391 at October 31, 1994.
Development revenue declined from $4,012,520 in fiscal 1994 to
$3,801,208 in fiscal 1995, or 5.3%. The decline is a result of the
reduction in joint development work on business opportunities for major
oil companies with EDS, compared with fiscal 1994. Of the revenue for
fiscal 1995, approximately 60%, is attributable to work performed for
The Southland corporation as part of the five year agreement and under
a contract with NCR to develop a point-of-sale system for the 7-Eleven
stores.
<PAGE>
Gross Margin
Gross Margin, as a percentage of software, hardware, product license
and development revenue, decreased from 72.4% in fiscal 1994 to 41.7%
in fiscal 1995. Gross Margin on software sales declined from 75.2% in
fiscal 1994 to 32.1% in fiscal 1995 as a result of low margin third
party software products sold to The Southland Corporation under the
terms of the five year agreement with the Company and due to
significantly lower sales of the Company's proprietary software C-
Serve. Gross margin on hardware sales declined from 58.9% to 27.9% as
a result of low margins on sales on components to The Southland
Corporation and inventory adjustments. Cost of revenue for development
revenue declined from 78.1% to 50.1% as a result of an increase in
direct expenses attributable to development revenue. The additional
costs arose as a result of a change in the mix of staff working on the
projects. During the year ended October 31, 1995 the Company had a
larger percentage of contractors employed on development projects than
in the prior year compared to the number of full-time employees.
Contractors can be up to two or three times more expensive than
employees.
Expenses
Customer service expenses increased 6.9% in fiscal 1995 from $2,024,837
to $2,165,145. Costs were essentially maintained flat compared to
prior year despite a 172.4% increase in revenue, without any reduction
in support levels or customer satisfaction. The company commenced the
1995 fiscal year with sufficient resources to support the revenue
growth.
During fiscal 1995, the Company spent $2,267,039 on product
development, or 6.8% less than fiscal 1994. However, during fiscal
1994, the Company wrote off $4,127,232 of software development costs
which was initially capitalized and subsequently written off in
October, 1994 because of uncertainty of future revenue in the near
term. Expenditure on such activities in fiscal 1995 was significantly
reduced, and the Company did not capitalize any development costs in
fiscal 1995.
Administration and general expenses increased 35,2% in fiscal 1995 from
$2,012,286 to $2,721,483 predominately as a result of expenditure and
expansion in the first half of fiscal 1995. In the second half of
1995, administration and general expenses were lower than the
comparable period in 1994 primarily as a result of cost reduction
through lower staff numbers and expenditure control.
Sales and marketing costs decreased 51.9% in fiscal 1995 from
$1,323,718 to $636,748. The reduction was a result of a reduction in
the number of staff members and other cost reductions resulting from a
refocus of activities from large contracts to smaller, less time
consuming and less expensive contracts.
Depreciation and amortization decreased from $1,267,592 in fiscal 1994
to $849,251 in fiscal 1995, a reduction of 33%. The reduction is due
to the effect of writing down previously capitalized software
development costs in fiscal 1994.
<PAGE>
For the year ended October 31, 1995, the Company incurred a net loss of
$3,734,450 or a net loss of $0.79 per share, as compared to a net loss
of $6,042,114 or a net loss of $1.54 per share for the year ended
October 31, 1994.
Results of Operations - 1994 Versus 1993
Summary
For the year ended October 31, 1994, the Company incurred a net loss of
$6,042,114 or $1.54 per share compared to a net loss of $1,142,290 or
$0.31 per share for the year ended October 31, 1993. A significant
component of the loss for the year was a charge of $4,127,232 or $1.05
per share related to a writedown of capitalized software to net
realizable value.
Revenues
Total revenues for the year increased 108% from $4,659,029 in fiscal
1993 to $9,674,595 in fiscal 1994.
Revenue from software sales increased 568% from $438,555 in fiscal 1993
to $2,927,307 in fiscal 1994. Major sales of the Company's proprietary
software "C-Serve" licenses and increased sales of third party
products accounted for the increase. Specifically 788 C-Serve licenses
were sold to EDS for $1,810,670 and 300 licenses sold to AAFES for
$270,300 in fiscal 1994. Sales of third party software increased
significantly in fiscal 1994 from $89,592 in fiscal 1993 to $649,979.
The majority of this software was sold to The Southland Corporation for
installation in their 7-Eleven locations under the five year contract
the Company has with the Company.
Revenue from hardware and component parts increased from $735,727 in
fiscal 1993 to $1,727,865 in fiscal 1994. The majority of the increase
resulted from sales to The Southland Corporation of hardware and
components for use in their 7-Eleven stores as part of the systems
development being undertaken by the Company under the five year
agreement.
Service agreement revenue increased 44% from $528,743 to $758,963. The
majority of the increase resulted from an increase in the number of
installed sites supported by the Company's 24 hour / 7 day a week help
desk which rose from 545 at October 31, 1993 to 1747 at October 31,
1994. The increase resulted from the installation of systems developed
by the Company for The Southland Corporation and installed during the
year. The number of SLC locations supported increased from 2 at
October 31, 1993 to 1166 at October 31, 1994.
Software development revenue increased 50% from $2,681,553 in fiscal
1993 to $4,012,520 in fiscal 1994. Of the revenue for fiscal 1994, the
Company received approximately 15% from EDS for development work
performed for EDS to build systems to bid and compete for major new
business contracts. A further 22% of the revenue is attributable to
development performed for The Southland Corporation under the five year
agreement.
<PAGE>
Gross Margin
Gross margin, as a percentage of software, hardware, product license
and development revenue, improved from 67.9% in fiscal 1993 to 72.4% in
fiscal 1994. Gross margin on software sales declined from 85.2% in
fiscal 1993 to 75.2% in fiscal 1994 as a result of low margin products
sold to The Southland Corporation in fiscal 1994, under the terms of
their five year agreement with the Company. Gross margin on hardware
sales improved from 49.4% in fiscal 1993 to 58.9% in fiscal 1994 as a
result of an increase in sales of component parts sold to The Southland
Corporation which despite having a lower than normal margin, comprised
the majority of the sales mix for the year. The gross margin on
development revenues remained relatively constant at 78.1% for fiscal
1994 compared with 78.4% in fiscal 1993.
Product development expense increased from $1,134,744 in fiscal 1993 to
$2,432,040 in fiscal 1994, an increase of 114%. In addition, the
Company spent $3,522,948 in software development which was initially
capitalized, for a total product development cost of $5,954,988. The
increase in development expenditure is related to:
- customization and enhancements performed at EDS's request
to enable EDS jointly with the Company to compete for
contracts with major oil companies. During 1994, under
the joint agreements signed with EDS, the Company and EDS
identified a number of opportunities for sale of the
Company's products; however, modification of the software
was required which involved additional development effort,
compared with 1993.
- during 1994, the Company enhanced its products and
allocated additional resources to these enhancements,
particularly for the Vista and Viewpoint products.
Customer service expense increased 128% from $887,995 in fiscal 1993
to $2,024,837 in fiscal 1994. The increase is largely attributable to
higher staffing levels which increased from 30 at October 31, 1993 to
46 at October 31, 1994, in order to support the rollout of systems to
The Southland Corporation's 7-Eleven stores.
Expenses
Administration and general expense increased 75% from $1,149,294 in
fiscal 1993 to $2,012,286 in 1994. The increase was caused by
increased staffing and the costs associated with registering the
Company's stock with the SEC and obtaining a listing on the NASDAQ
SmallCap Market.
Sales and marketing expense increased 45% from $914,815 in fiscal 1993
to $1,323,718 in fiscal 1994. The increase was caused by increased
staffing and a commitment to EDS for joint marketing.
Depreciation and amortization increased 252% from $360,223 in fiscal
1993 to $1,267,592 in fiscal 1994. The increase is due to the increase
in capitalized software prior to writedown.
<PAGE>
Writedown of Capitalized Software
The Company regularly evaluates the carrying value of capitalized
software costs in accordance with FASB 86. At October 31, 1994 the
Company reviewed the value of its capitalized software and determined
that there was some uncertainty associated with future revenue
opportunities in the near term from certain products. Accordingly,
capitalized software was written down by $4,127,232 to a carrying value
of $813,387.
The write-down of capitalized software projects during the fourth
quarter of Fiscal 1994 consisted primarily of two projects - EDS
Development Projects ($1.5 million) and Remote Store Management ($2.0
million).
EDS Development Projects
During fiscal 1994, the Company entered into a Joint Marketing
Agreement (JMA) with EDS whereby the Company's core product offering,
C-Serve, would be jointly marketed by EDS and the Company to the
retail petroleum and convenience store industry. C-Serve is a
sophisticated point of sale system developed by the Company
specifically for the use in gas stations and convenience stores.
Prospective customers approached by EDS and the Company often
requested modifications and enhancements to the base C-Serve product
which required development efforts to be undertaken. The Company
elected to undertake the development for four of these potential
customers in 1994 as it was believed by management of the Company that
the enhancements, in addition to solving the particular customers
needs, had broad market application to its target customer base. The
Company's intention was that once development was completed, the
enhancements would become further options available on the base C-
Serve product and thus the costs capitalized would be recovered from
the Company's estimate of sales for the base C-Serve product. EDS
agreed to fund a portion of the development costs. An agreement was
reached whereby EDS would fund 50% of the jointly incurred product
development costs. This arrangement has been disclosed in Note 3 to
Notes to Consolidated Financial Statements. The Company capitalized
its portion of development costs incurred based upon FASB 86 criteria
during 1994 on each of these EDS development projects. As development
on these projects progressed during fiscal 1994, it became apparent to
management of the Company that specific orders from these customers
and orders from other customers would not materialize. Thus,
management concluded in the fourth quarter of fiscal 1994 that the EDS
development projects should be written off.
RSMS - Remote Store Management System
The remote store management system (RSMS) was originally conceived as
a corporate headquarters system to remotely access C-Serve locations.
The company had determined that this type of system was required to
service the emerging and long term needs of the industry and its
customers. The Company believed that the future success of C-Serve and
future sales opportunities required the completion of this product.
<PAGE>
The RSMS system was to be implemented in a client server environment
and development was planned in two phases. Version one would support
the ability to set up store parameters at the corporate headquarters
and down load these to the remote location. Further, sales information
and other pertinent information collected at the store level could be
uploaded to the corporate headquarters for consolidation, accounting
and reporting purposes. Version two would include the functionality
to support corporate merchandise price books.
The Company entered into a contract with The Southland Corporation
during 1993 and the RSMS project was expanded to include the
requirements for The Southland Corporation. The requirements for The
Southland Corporation were to be incorporated into the RSMS design.
In mid 1994, The Southland Corporation amended their requirements to
specifically exclude a client server application.
For the year ended October 31, 1994 the Company reviewed the RSMS
product and concluded that the project had diverged significantly from
its original design and was now specific to the requirements of The
Southland Corporation. Further, there was an emerging requirement from
the industry which reversed the trends identified at the commencement
of the project, such that price book management was now more important
than two way data interchange. Consequently, management of the Company
concluded during the fourth quarter of Fiscal 1994 that the product
had limited or no application for customers and accordingly the
unamortized capitalized costs of the software was written down to its
net realizable value of $0.
Impact of Recently Issued Accounting Standards
In October 1995 the Financial Accounting Standards Board issued SFAS
No. 123., "Accounting For Stock - Based Compensation". The Company is
currently evaluating the impact that SFAS No. 123 will have on its
financial statements. Based upon the Company's review of the new
pronouncement, management does not expect any significant impact on
the Company's Financial Statements other than expanded disclosures
which will result when adoption of the new pronouncement occurs in
fiscal 1996.
The above statements discussed in this Form S-1 include forward-
looking statements that involve risks and uncertainties, including the
timely development and acceptance of new products, the impact of
competitive products and pricing, the successful negotiation of new
business, and the timely funding of customers' projects, and other
risks detailed from time to time in the Company's SEC reports.
<PAGE>
Business
Canmax Inc. (hereinafter referred to as the "Company") was
incorporated on July 10, 1986 under the name 311824 B.C. Ltd. under
the Company Act of the Province of British Columbia, Canada. The
Company changed its name to International Retail Systems Inc. on
August 13, 1986. On August 7, 1992, the Company renounced its
original province of incorporation and incorporated under the laws of
the State of Wyoming. The Company was listed on the NASDAQ SmallCap
Market on February 10, 1994, and trades under the symbol: CNMX. On
November 30, 1994, the Company changed its name to Canmax Inc.
The principal executive offices of the Company are located at 150 West
Carpenter Freeway, Irving, Texas 75039, and its telephone number is
(214) 541-1600.
The Company develops and licenses sophisticated software systems,
sells ancillary hardware, and licenses certain third party software to
operators of convenience stores and gas stations. It provides related
development, customization and software enhancements to its customers.
The Company also provides services such as integration, installation
and training, and provides a 24 hour per day, 365 day per year, help
desk.
Major Contracts
EDS
In April 1993, the Company and Electronic Data Systems Corporation
("EDS") signed agreements which provide for the Company and EDS to
jointly market the Company's products and services and provided EDS
with an option to purchase up to 25% of the Company's Common Stock.
These agreements were amended in October 1994 and will expire April
22, 1998.
Under the amended agreements, EDS will exclusively market the
Company's products to the retail petroleum industry. The Company will
offer EDS, on a customer-by-customer basis, an opportunity to market
its services to the Company's customers and prospective customers.
Pursuant to the amended agreements, the Company received $2,600,000 in
cash from EDS of which $2,000,000 was used to enhance the Company's
products, $500,000 was used for marketing expenses, and $100,000 was
received as consideration for a software license granted to EDS. EDS
also provided $2,000,000 in services (measured by reference to EDS
cost or where cost was not available, at a 25% discount to EDS
commercial rates). In connection with the amended agreements, EDS
received an option to purchase Common Stock of the Company in an
amount equal to up to 25% of the outstanding Common Stock of the
Company following the purchase. The exercise price of the option is
not less than 75% of the market value of the Common Stock at the time
of exercise, minus $4,000,000, subject to adjustment. The $4,000,000
discount was negotiated and is subject to adjustment for royalties
paid by the Company to EDS when the Company licenses software without
EDS involvement.
<PAGE>
During 1994, the Company purchased $1,972,329 in services from EDS.
Pursuant to the amended agreements, $861,659 of this amount was not
paid and has been added to the original $4,000,000 option amount.
The balance of $1,110,670 was offset against EDS' liability to the
Company for site licenses sold to EDS.
In connection with prospective business opportunities with major oil
companies, the Company and EDS jointly incurred $2,130,130 in product
development costs. EDS funded that total cost which included
reimbursing the Company for $1,679,977 in expenses paid by the
Company. By agreement, the Company owed EDS for one-half of the total
cost in fiscal 1994. That development obligation in the amount of
$1,065,065 owed to EDS and additional EDS obligations totaling $34,935
were extinguished by issuing 229,167 shares of Common Stock of the
Company to EDS on November 15, 1994. The amount of funding received
by the Company from EDS, less the Company's development obligation
amount, $614,912, was recognized as development revenue by the
Company in fiscal 1994. In fiscal 1995, EDS and the Company jointly
incurred $346,190 in product development costs. By agreement, the
Company owed EDS for one-half of the total cost. The Company's
obligation of $173,095 was converted to 36,061 shares in common stock
on April 20, 1995.
During 1994 the Company sold EDS 788 site licenses for $1,810,670.
Pursuant to the contract, the amount receivable for this transaction
was used to offset amounts payable to EDS of $1,110,670 and to settle
a disputed $400,000 liability with respect of deferred marketing
funding that arose from an amendment to the original agreements with
EDS. The balance of $300,000 was received in cash after October 31,
1994. During 1995, the Company was contracted by EDS to install 4 of
the 788 licenses sold to EDS. For the six months ended April 30,
1996, EDS installed a further 5 licenses and continues to hold 779
licenses.
In addition to the site license revenues described in the preceding
paragraph, the Company recognized additional revenue from EDS of
approximately $0.9 million and $1.9 million for fiscal 1995 and 1994,
respectively, for services and development work in conjunction with
prospective business opportunities with major oil companies. For the
six months ended April 30, 1996, the Company received $359,148 in
revenue from EDS for services, site license fees and development.
Under the amended agreements, the cost of future product development
work performed in order to jointly compete for contracts with major
oil companies will, at the Company's option, be incurred by EDS.
Where a contract is signed, the Company will receive site license
fees and other revenues. In the event the Company funds such
development work, the Company will receive a higher site license fee
from EDS or the customer, if the contract is signed.
At June 30, 1996, EDS held a total of 265,228 shares in the Company
(229,167 issued on November 15, 1994 and 36,061 issued on April 20,
1995) in consideration for amounts owed to EDS. This represents
approximately 5.3% of the outstanding common stock of the Company.
EDS has an option to purchase up to 25% of the Common Stock, and their
current 5.3% ownership forms part of the total of 25%.
<PAGE>
The Southland Corporation and NCR
On December 7, 1993, the Company signed a five-year agreement with The
Southland Corporation ("SLC") whereby the Company will provide SLC
with software licenses, development services, ancillary hardware, and
help desk services. SLC chose the company's proprietary convenience
store automation software, C-Serve, as the basis for its automation of
store functions and operations at its more than 5,600 corporate and
franchise operated 7-Eleven convenience stores in the U.S. and Canada.
Software license and product revenue and service revenue recorded by
the Company in fiscal 1995 and 1994 under this contract totaled
$3,733,487 and $2,117,753, respectively. Development revenues recorded
under this contract in fiscal 1995 and 1994 totaled $1,792,206 and
$2,468,385, respectively. For the six months ended April 30, 1996,
the Company received revenue from The Southland Corporation of $32,929
for software licenses, $838,305 for hardware, $2,547,985 for
development and $570,748 for services.
Canmax contracted with NCR during 1995 to successfully bid for two (2)
additional contracts with SLC. The first project, a business
requirements definition is complete and resulted in revenue to the
company of approximately $0.5 million in fiscal 1995. The second
project has a contract value in excess of $2.0 million and commenced
in fiscal 1995 and will be completed fiscal 1996. Fiscal 1995 revenue
recorded under the second project was $472,916. This project is for
the development of Point of Sale systems for installation in all SLC
locations. For the six months ended April 30, 1996, the Company
recognized revenue of $1,515,204 for the development of Point of Sale
systems for The Southland Corporation.
There can be no assurance that the Company's expectations of revenue
from the SLC agreement will be realized in full. There are currently
over 5,000 7-Eleven stores using software developed by the Company.
MARKETPLACE AND STRATEGY
Management estimates there are over 200,000 gas stations/convenience
stores in the U.S. and over 500,000 world wide. Very few of these
retail outlets employ any degree of automation although not all of
these outlets are potential customers for the Company's products and
services.
A recent study by the National Association of Convenience Stores
revealed that 74% of convenience store chains plan to use point-of-
sale scanning technology in the near future. While not every user of
scanning technology will fully automate its stores, management is
optimistic that this trend will result in greater sales and increased
software licensing revenue and an additional service revenue for the
Company.
<PAGE>
Management strategy to compete in the marketplace can be summarized:
- offering current and enhanced versions of a complete set of
products for the automation and management of convenience stores/gas
stations;
- maintaining the Company's relationship with a major systems
integrator providing customers the assurance to sign multi-year
multi-million dollar contracts with small companies;
- enhancing the Company's state-of-the-art help desk and training
facilities, and
- continuing to invest in the Company's products by implementing
open systems technology.
Products and Services
(a) Proprietary Products
C-Serve
C-Serve was designed exclusively for the retail petroleum and
convenience store marketplace and integrates point-of-sale functions
with a comprehensive set of store management tools.
Features include:
- point-of-sale transaction processing, incorporating with
touch screen, or PC POS keyboard, or integrated POS
terminals,
- fueling transactions,
- dispenser controls,
- settlement transactions for credit/debit cards,
- shift and day reporting,
- store maintenance,
- file maintenance,
- inventory controls,
- fuel inventory management,
- reporting capabilities,
- accounts receivable controls,
- island payment terminals,
- credit/debit card authorizations,
- communications to or from head office,
- security controls,
- shelf label generation,
- interface to handheld terminals and scanners, and
- time and attendance records.
- car wash interface
C-Serve has been developed as a series of interactive modules thereby
allowing customers to choose and combine system features and
applications to meet their requirements. All functions are controlled
by a single Intel based personal computer.
C-Serve is an "open system" - it works with various industry standard
operating systems such as Xenix, Unix, and AIX with a planned Windows
NT offering in early 1997. The system is multi-tasking, multi-user
(up to 32 terminals) and operates communications in a batch or
interactive environment.
<PAGE>
Vista
Vista is a remote store management system that will provide a central
facility for a corporation to modify pricing of both fuel and
merchandise at multiple retail outlets. The system will also provide
a price book management system which gives a corporation the ability
to manage products provided from multiple vendors and multiple retail
prices charged across a wide range of stores. The system will also
establish and maintain logical groupings of stores based upon
individual store characteristics. Installation of this system will
establish a communication network to the stores and will be used as a
facility to transmit corporate messages such as merchandising
bulletins and policy statements. The product provides superior
decision support information and trend reporting capabilities to
corporate headquarters. Vista will also provide detailed reports such
as sales analysis, site profiles and competitive pricing as well as
many others.
Vantage
The Company has developed "Vantage" a single box POS offering, which
is intended to provide the basic functions of C-Serve on a reduced
scale for intended use of smaller gas stations including "kiosk-type"
convenience stores. The vantage system is a low cost solution.
The Company believes its four software products, offer operators of
gas stations and convenience stores the ability to manage and automate
their operations in an efficient manner.
Hardware
In addition to the software components of its products, the Company,
through its wholly owned subsidiary, Dataplane Technologies Inc., has
designed, engineered and developed certain communication processor
boards for microchannel architecture and industry standard
architecture personal computers. These boards enable the C-Serve
system to handle the many different communication protocols and device
drivers required for such a complex operating environment. The
Company sub-contracts the actual assembly of these boards through
companies specializing in the manufacture and/or assembly of such
products.
(b) Ancillary Services and Products
In addition to revenues generated from the licensing of C-Serve
software and sale of proprietary communication boards, associated
revenues are generated from the following services:
1) modification and custom development contracts,
2) installation and training services,
3) annual maintenance and support services contracts, and
4) the provision of third-party ancillary software and
hardware.
<PAGE>
Although the Company's objective is to have a flexible generic system
that can be easily modified to meet the individual needs and
preferences of most customers, this is rarely possible notwithstanding
the similar needs of most retail petroleum and convenience store
outlets. As a result, the major oil companies ("the Majors") normally
require a certain degree of customization and will also require that
certain unique interfaces be developed to communicate with existing
proprietary networks, host systems, etc. This area of the Company's
business is operated in a similar fashion to most systems development
companies in that development services are charged out at a standard
rate for labor and related development costs. Revenues from this area
are generally derived throughout the duration of a relationship with a
customer since source code ownership, which is essential to effect
program changes, remains the property of the Company.
Installation and training revenues are generated on a per-site basis.
Second line back-up or technical support services are provided by the
Company to such front-line service providers. The fee for this
service is based on a per-site levy each year which typically runs
between 10-20% of the initial software license fees.
Third party software and hardware products such as operating systems,
local and wide area network software and modems are also packaged with
the Company's software and firmware products and sold in accordance
with distribution agreements entered into with such suppliers. These
third party products comprise about 15-20% of the initial charge for a
typical system configuration.
The Company does not usually directly sell hardware such as personal
computers and point-of-sale terminals although it does provide a small
amount of related equipment which may not be readily available from
the principal hardware vendor. The majority of hardware products
supplied to customers is provided by hardware vendors such as IBM
Corporation ("IBM") and NCR, a division of American Telephone and
Telegraph Company.
Product Development
Due to the rapid pace of technological change in its industry, the
Company believes that its future success will depend, in part, on its
ability to enhance and develop its software products to meet customer
needs.
C-Serve is also being enhanced by expanding the number of peripheral
devices that can be controlled by C-Serve, increasing the number of
point-of-sale devices that can be controlled by one computer, adding
customer or patronage reporting, and obtaining certification on more
financial networks. The Company also plans to change C-Serve
architecture to allow for computer-assisted translation of C-Serve to
foreign languages.
<PAGE>
The Company has developed Vista (commonly referred to as a "host
system") which will enable operators of chains of gas
stations/convenience stores to monitor and control activities at
stores. Operators will be able to obtain "real time" store level
information (from all stores or any number of selected stores) at
headquarters over communications lines to provide timely information
for decision making. The Company is also developing Viewpoint which
is targeted for area supervisors.
During the last three fiscal years, the Company has expensed the
following amounts on product development activities:
1995 $2,267,039
1994 2,432,040
1993 1,134,744
In addition, the Company incurred $3,522,948 in 1994 and $1,951,328 in
1993 in software development costs which were initially capitalized.
No software development costs were capitalized in 1995. These costs
relate primarily to the porting of C-Serve to additional hardware
platforms, the development of the Vista and Viewpoint, and product
development work performed with respect to EDS joint business
prospects. However, because of the uncertainty of future revenue in
the near term from certain products, the Company recorded a writedown
of $4,127,232 of capitalized software costs in fiscal 1994.
The Company is currently developing a Windows NT based version of its
C-Serve product, refer to section ``New Operating Environments'' on
page 6 in this document.
Sales and Marketing
The Company markets C-Serve and ancillary products and services from
its offices in Irving, Texas.
Virtually all sales efforts are focused on the U.S., Canada and Mexico
at this time. However, the Company plans to market internationally in
the future. More than 99% of 1995 revenue was derived from U.S. based
customers.
The Company and EDS jointly market C-Serve under the name "Summit"
(Superior Marketing Management through Information Technology). This
marketing effort has consisted of responding to "requests for
proposals" from major oil companies, distribution of sales literature,
press releases, periodic announcements, and participation in trade
shows and industry conferences.
Support
The Company provides a help desk service to its customers which
operates 24 hours per day and seven days per week. Help desk
personnel utilize specialized tools to access stores remotely, and
store problems are usually resolved without any visit to the store.
<PAGE>
Backlog
Product is generally delivered to customers when ordered. There is no
backlog of orders; however the Company has signed contracts with
customers for the future delivery of products and services. Revenue
from these contracts may be affected by changes in customer
requirements, competition, technology and economic factors. There can
be no assurance that the Company's expectation of revenue will be
realized in full.
Competition
The Company believes its competition can be categorized as follows:
- pump manufacturers,
- point-of-sale equipment manufacturers, and
- specialized application software companies.
Traditionally, pump manufacturers supply the majority of point-of-sale
devices used by gas stations and convenience stores. They supply
specialized equipment with proprietary interfaces specific to their
pump control consoles. The proprietary nature of their products
limits the technology used and ability to interface to other devices.
The Company believes certain pump vendors are involved in the
development of an "open system".
Some point-of-sale equipment manufacturers produce low function level
electronic cash registers ("ECRs") and others produce intelligent
processor based point-of-sale terminals. While low-end ECRs do
provide some competition, and the Canmax product - Vantage - is
designed for this market, the equivalent
competitor is the high function point-of-sale terminal. Most of these
vendors do not provide a petroleum-specific software application to
accompany their point-of-sale equipment, relying on software
integrators such as the Company.
Software firms specializing in gas and convenience store applications
have advantages of specialized knowledge and applications. It is in
this area that most advancements in solution functions have been
developed. Market penetration, however, is difficult for small
software companies with limited financial resources and an inadequate
infrastructure to handle installation, training and support demands.
This represents a barrier to entry into the larger opportunities as
the Majors are reluctant to rely on small software companies and require
24 hours per day and seven day per week support services. The most
significant threat from this segment is the possibility that a
software competitor may form an alliance with a major point-of-sale
vendor, integrated systems vendor or pump control vendor, or some
combination thereof.
Employees
As at June 30, 1996, the Company had 99 full time employees. The
functional distribution of the people was: sales and marketing - 5;
product development and advanced research - 47; general and
administration - 10; and service, support and education - 37. All are
located in Irving, Texas. None of its employees is represented by a
labor union, and the Company considers its employee relations to be
excellent.
<PAGE>
Other
The Company does not believe it has been or will be materially
affected by environmental laws.
Properties
The Company occupies 47,178 square feet of office space in a stand-
alone building located at 150 West Carpenter Freeway, Irving, Texas,
pursuant to a lease which expires August 31, 1998. The space is used
for executive, administrative, sales and engineering personnel, as
well as for inventory storage and demonstration purposes. The Company
does not have an option to renew the lease.
Legal Proceedings
Neither the Company nor any of its subsidiaries are party to any
material legal proceedings.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and directors of the Company:
Name Age Position with the Company
Roger D. Bryant 53 President, Chief Executive Officer, and
Director
Debra L. Burgess 37 Executive Vice President, Secretary and
Director
Philip M. Parsons 37 Executive Vice President,
Chief Financial Officer, Treasurer and
Director
Nick DeMare 41 Director
W. Thomas Rinehart 55 Director
Gerald R. Seay 48 Director
Robert M. Fidler 57 Director
Roger D. Bryant has served as President, Chief Executive Officer and a
director of the Company since November 15, 1994. Prior to joining the
Company, Mr. Bryant was President of Network Data Corporation, a
private corporation in the software development industry. Mr. Bryant
has also served as President of Wayne Division, USA, of Dresser
Industries Inc., a manufacturer of fuel dispensing equipment, and
President of Retail Petroleum Division, USA, of Schlumberger Limited.
Mr. Bryant holds a degree in electrical engineering.
Debra L. Burgess has served the Company since 1989 in increasingly
responsible positions. Since November 1994, she has been the Company's
Chief Operating Officer and a director. Ms. Burgess was previously
Manager of retail automation at Fina Oil and Chemical Company. Ms.
Burgess is a Certified Public Accountant. Since the end of calendar
1995, Ms. Burgess has been promoted to Executive Vice President - New
Business Development.
Philip M. Parsons has served as Executive Vice President Finance, Chief
Financial Officer and Treasurer since June 1, 1995 and was elected a
director in December, 1995. Previously, Mr. Parsons was a Director of
Financial Planning and Business Analysis for KFC International. Mr.
Parsons is a Chartered Accountant (Australia).
Nick DeMare has served as a director of the Company since January 1991.
Since May, 1991, Mr. DeMare has been the President and Chief Financial
Officer of Chase Management Ltd. In both positions, his overall
responsibility included providing a broad range of administrative,
management and financial services to private and public companies with
varied interests in mineral exploration and development, precious and
base metals production, oil and gas, venture capital and computer
software. Mr. DeMare has served and continues to serve on the boards
of a number of public companies, and is a Chartered Accountant
(Canada).
<PAGE>
W. Thomas Rinehart has served as a director since May, 1991. He was
co-founder and Executive Vice President of BASS, Inc. from June 1981
until his retirement in September 1992. BASS, Inc., a private
corporation, is a supplier of retail automation hardware and software
to the grocery store marketplace. Mr. Rinehart joined NCR in 1964
where he held various staff and management levels within its retail
software development divisions.
Robert M. Fidler, has served as a director of the Company since
November 1994. Mr. Fidler joined Atlantic Richfield Company ("ARCO")
thirty-five years ago, has been a member of ARCO's executive management
team since 1976 and was most recently ARCO's manager of New Marketing
Programs. Mr. Fidler has extensive knowledge and experience in
managing retail petroleum operations.
Gerald R. Seay has served as a director of the Company since November
1994. Since 1992, Mr. Seay has been president of Resort Properties
Limited Partnership which purchases and develops commercial and
residential real estate. Previously, Mr. Seay served as Chairman of
the Board and President of Flint Resources Co. Mr. Seay has extensive
business experience and serves as director on several community
organizations.
The Board of Directors has established Compensation and Audit
Committees. The Compensation Committee was established on November 15,
1994; previously, the entire board considered compensation levels for
the Company's executive officers. The Compensation Committee consists
of Messrs. DeMare, Rinehart and Fidler.
The Audit Committee consists of Messrs. Rinehart, DeMare and Seay and
is responsible for recommending independent auditors and reviewing with
the independent auditors the scope and results of the audit engagement.
The individuals serving on the Board of Directors will continue to
serve until reelected or replaced at the next annual meeting of
stockholders of the Company, or until their earlier resignation or
removal. Mr. Parsons serves at the discretion of the Board of
Directors, and Mr. Bryant and Ms. Burgess have employment contracts
with the Company.
<PAGE>
EXECUTIVE COMPENSATION
The following table shows a summary of all compensation paid by the
Company and its subsidiaries during the years ended October 31, 1995,
1994 and 1993 for services in all capacities to each of the Company's
chief executive officer and the four highest paid executive officers of
the Company whose total annual salary and bonus exceeded $100,000.
Other than those listed below, no other employee was paid in excess of
$100,000 during fiscal 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
Annual Compensation
Long Term
Name Other Compensation
and Annual Awards:
Principal Compensation Options
Position Year Salary($) Bonus($) ($) Granted
Roger D. Bryant 1995 144,327 - None 35,000
President & CEO 1994 - - None -
1993 - - None -
Debra L. Burgess 1995 104,263 - None 15,800
Executive Vice 1994 78,300 30,000 None -
President 1993 68,017 - None 9,000
Dwight J. Romanica 1995 55,000 - None -
Prior President 1994 113,100 - None 45,000
& CEO 1993 105,400 - None 25,000
Nancy L. Romanica 1995 55,000 - None -
Previous VP 1994 106,000 - None 45,000
Marketing & Sales 1993 105,400 - None 25,000
No other annual or long-term compensation was received or is receivable
by the executive officers named above in respect of employment in 1995
or prior years.
Employment Agreements
Dwight J. Romanica and Nancy L. Romanica, the co-founders of the
Company resigned as executive officers of the Company in November and
December 1994 respectively. In January 1995, Mr. Romanica and Mrs.
Romanica resigned as directors. Each of Mr. and Mrs. Romanica have
signed consulting agreements with the Company, whereby each individual
will receive $55,000 per year for consulting services and have agreed
not to compete with the Company. The agreements expire December 31,
1996.
Peter Lucas resigned as Chief Financial Officer and Director of the
Company on June 30, 1995. Under the terms of his resignation agreement,
Mr. Lucas received $4,000 per month through December 31, 1995.
<PAGE>
Roger D. Bryant joined the Company as its President and Chief Executive
Officer on November 15, 1994. Mr. Bryant and the Company have signed
an employment contract which is effective November 15, 1994 and expires
November 14, 1997. In the event the Company terminates Mr. Bryant's
employment:
- between November 15, 1995 and November 14, 1996, Mr. Bryant will
receive nine months' salary, and
- between November 15, 1996 and November 14, 1997, Mr. Bryant will
continue to receive his salary until November 14, 1997.
Mr. Bryant is compensated at a rate of $165,000 per annum and may
receive performance bonuses, if any, at the discretion of the Board of
Directors.
Debra L. Burgess and the Company signed an employment contract which is
effective November 1, 1994 and expires October 31, 1996. In the event
the Company terminates Ms. Burgess' employment prior to October 31,
1996, without cause, Ms. Burgess is to receive six months salary. Ms.
Burgess is compensated at a rate of $120,000 per annum and may receive
performance bonuses, if any, at the discretion of the Board of
Directors.
Stock Options
The Board of Directors introduced a stock option plan (the "Stock
Option Plan"), pursuant to a resolution dated March 29, 1990, in the
form approved by the Company's shareholders at an annual general
meeting held March 20, 1990.
The Stock Option Plan authorizes the Directors to grant options to
purchase common shares of the Company provided that, when exercised,
such options will not exceed 10% of the issued and outstanding shares
of the Company and no options will be granted to any individual
director or employee which will, when exercised, exceed 5% of the
issued and outstanding shares of the Company. The term of any option
granted under the Stock Option Plan is fixed by the Board of Directors
at the time the options are granted, provided that the exercise period
may not be longer than 10 years from the date of granting. The
exercise price of any options granted under the Stock Option Plan is
the fair market value at the date of grant.
<PAGE>
<TABLE>
The following table shows options granted to the named executive
officers during the year ended October 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realized
Value at
Assumed
Annual
Rates of
Stock Price
Number of % of Appreciation
Securities Total Options For Option
Underlying Granted to Exercise Term
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C
Roger D. Bryant 35,000 22.8% $2.50 10/26/00 24,175 53,420
Debra L. Burgess 15,800 10.3% $2.50 10/26/00 10,913 24,115
</TABLE>
The following table shows the exercise of options by named executive
officers during the year ended October 31, 1995 and the number and
value of unexercised options at October 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTIONS
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
October 31, October 31,
1995 1995 ($)
Shares Acquired Value (All are (All are
Name on Exercise (#) Realized($) exercisable) exercisable)
Roger D. Bryant - - 35,000 $43,750
Debra L. Burgess - - 28,800 $19,750
On October 31, 1995, there were 490,550 outstanding stock options with
a weighted average exercise value of $4.50 per share.
<PAGE>
Director Compensation
During the year ended October 31, 1995, non-employee directors received
$1,500 per meeting attended, in accordance with company policy. During
1995, the company incurred expenses of $18,000 for compensation to non-
employee directors.
Compensation Committee Report
In fiscal 1995 the Company's compensation committee consisted of 3
outside directors; Messrs. DeMare, Rinehart and Fidler. The committee
was responsible for determining the compensation for the Company's
executive officers and other key senior employees, including the CEO.
It is the Company's compensation policy to set compensation levels
after considering general market conditions, the experience and skill
of the individual and the contribution of the individual to the company
to ensure that the Company can attract and retain quality individuals.
This is critical to both the short term and long term success of the
Company. The Company also enables executives, through its stock option
plan, to achieve ownership in the Company in order to align the
interests of the executives with those of the shareholders.
With respect to the compensation of the CEO, Roger D. Bryant, the
compensation committee considered the following corporate performance
factors, in addition to those described above, in determining his
compensation:
- Profitability improvement
- Real revenue growth
<PAGE>
Stock Performance Graph
Securities and Exchange Commission rules require that a line graph
performance presentation be provided comparing cumulative total
stockholder return with a performance indicator of a broad market index
and a nationally recognized industry index. The following performance
graph compares the cumulative total shareholder return on the Company's
stock with the Nasdaq Stock Market Total Return Index (Nasdaq Index)
and the Nasdaq Computer and Data Processing Services Stocks Total
Return Index (Industry Index).
The Company's stock has traded on the Nasdaq SmallCap market tier of
The Nasdaq Stock Market since February 10, 1994.
The comparison assumes that $100 was invested on February 10, 1994 in
the Company's shares and in each of the indices. Past performance is
not necessarily an indicator of future performance.
COMPARISON OF TWO YEARS ENDED OCTOBER 31, 1995
CUMULATIVE TOTAL RETURN
Canmax Inc., Nasdaq Stock Market Index and Nasdaq Computer and Data
Processing Services Index
February 10, October 31, October 31,
1994 1994 1994
Canmax Inc. 100 42.30 23.05
Nasdaq Index 100 105.40 141.82
Nasdaq Industry Index 100 120.34 183.74
The data set forth in the above graph and related table was obtained
from the Nasdaq Stock Market. All Canmax share data is based on the
last closing price of the month. The total return calculation is based
upon weighting at the beginning of the period.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
The following table sets forth information as of April 30, 1996,
concerning those persons known to the Company, based on information
obtained from such persons, the Company's records and schedules
required to be filed with the Company, with respect to the beneficial
ownership of the Company's Common Stock by (i) each shareholder known
by the Company to own beneficially 5% or more of such outstanding
Common Stock, (ii) each current director or the Company, (iii) each
current executive officer and (iv) all executive officers and directors
of the Company as a group. Except as otherwise indicated below, each
of the entities or persons named in the table has sole voting and
investment power with respect to all shares of Common Stock
beneficially owned. Effect has been given to shares reserved for
issuance under outstanding stock options where indicated.
Beneficial Ownership
Number % of Class
Name and Address(1) of Shares Outstanding(2)
Electronic Data Systems
Corporation(3) 1,376,599 25.0%
Roger D. Bryant(4) 35,000 *
Nick DeMare(5) 31,882 *
W. Thomas Rinehart(6) 86,600 1.8%
Philip M. Parsons(7) 10,400 *
Debra L. Burgess(8) 30,800 *
Robert M. Fidler(9) 5,000 *
Gerald R. Seay(10) 7,600 *
All Executive Officers and
Directors as a group
(7 persons)(11) 205,282 4.2%
* Less than 1%
1. The address for all persons except Electronic Data Systems
Corporation ("EDS") is 150 W. Carpenter Freeway, Irving, Texas
75039. The address for EDS is 5400 Legacy Drive, Plano, Texas
75024.
2. All percentages are calculated as if that individual or the group
of individuals exercised options but no one else.
3. Consists of 265,228 shares and 1,111,371 options. EDS has an
option to acquire up to a total of 25% of the outstanding stock of the
Company.
4. Consists of 35,000 options.
<PAGE>
5. Consists of 10,282 shares and 21,600 options.
6. Consists of 66,600 shares and 20,000 options.
7. Consists of 400 shares and 10,000 options.
8. Consists of 2,000 shares and 28,800 options.
9. Consists of 5,000 options.
10. Consists of 600 shares and 7,000 options.
11. Consists of 77,882 shares and 127,400 options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dwight J. Romanica and Nancy L. Romanica, co-founders of the Company
and executive officers during fiscal year 1994 and directors until
January 1995 are married to each other. No other family relationship
exists between management.
During 1994, Dwight J. Romanica advanced the Company $300,000. The
advance was unsecured and the Company paid interest of $24,000. Half
of the advance ($150,000) was repaid by February 28, 1995 and $150,000
was converted to 30,000 common shares.
During 1995, a director, W. Thomas Rinehart advanced the company
$250,000. The advance was unsecured and had a interest rate of 1%
above the current prime rate. The company repaid principal of $30,000
and paid interest of $13,456 in fiscal 1995. The remaining principal
balance of $220,000 is being repaid in 52 weekly installments which
commenced April 5, 1996.
Dwight J. Romanica and Nancy L. Romanica, the co-founders of the
Company resigned as executive officers of the Company in November and
December 1994 respectively. In January 1995, Mr. Romanica and Mrs.
Romanica resigned as directors. Each of Mr. and Mrs. Romanica have
signed consulting agreements with the Company, whereby each individual
will receive $55,000 per year for consulting services and have agreed
not to compete with the Company. The agreements expire December 31,
1996.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 44,169,100
shares of Common Stock. As of May 30, 1996, there were 5,012,869
shares of Common Stock held of record by record of 580 stockholders.
The Common Stock is the only class of capital stock authorized by the
Company's Articles of Incorporation. Each share of Common Stock ranks
equally as to dividends, voting rights, participation in assets on
winding-up and in all other respects. No shares have been or will be
issued subject to call or assessment. There are no pre-emptive rights,
provisions for redemption or purchase for either cancellation or
surrender or provisions for sinking or purchase funds. Provisions as
to the modification, amendment or variation of such rights or such
provisions are contained in the laws of the State of Wyoming. All
outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered hereby will, upon issuance and
payment therefor (as described herein), be fully paid and non-
assessable.
The Company's common stock trades on the Nasdaq SmallCap Market tier
of The Nasdaq Stock Market under the symbol CNMX.
On November 25, 1995, the Company's common stock was granted a
temporary exception to the Minimum Bid Price listing requirement and
the Company's stock remained listed and traded under the symbol CNMXC.
At the time, the Company's stock had been trading below the minimum
bid price of $1.00. Nasdaq granted the Company a temporary listing
exception subject to the company achieving a minimum bid price in
excess of $1.00 on or before January 22, 1996.
In order to meet the Nasdaq listing requirements, the Board of
Directors of the Company approved a one-for-five reverse stock split
effective December 21, 1995. No fractional shares were issued
pursuant to such change. In lieu of issuing fractional shares, one
additional share was issued to replace the fractional share. From
this date, the Company had a temporary new trading symbol of CNMCD,
previously CNMXC. The Company's stock has traded in excess of the
minimum bid price requirement since December 21, 1995.
On January 15, 1996, Nasdaq advised the Company that it was in
compliance with all requirements necessary for continued listing on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market. Effective
January 17, 1996, the Company's trading symbol reverted back to CNMX.
While the Company anticipates meeting Nasdaq listing requirements in
the future, there can be no assurances that the Company will continue
to comply with the listing requirements.
<PAGE>
SELLING STOCKHOLDERS
The following table provides the name of each Selling Stockholder, and
the number of shares of Common Stock owned by each Selling
Stockholder, the number of shares to be registered hereunder, and the
percentage of Common Stock to be owned by each Selling Stockholder
after the sale of Common Stock registered hereunder.
Shares of
Common
Beneficial Stock to Beneficial
Ownership be Sold Ownership
Prior to in the After the
Offering Offering Offering (1)
Name Number Percent Number Percent
Robert F. Smith 100,000 2.2% 100,000 - -
Dwight J. Romanica
and Nancy L. Romanica,
as a group(2) 229,167 5.0 70,000 - -
First Southwest
Company(3) 80,000 1.7 80,000 - -
Phil A. Labarbera 41,385 * 40,000 1,385 *
Robyn E. Miller 13,334 * 13,334 - -
Norman J. Stricoff 18,000 * 8,000 10,000 *
William J. Mosley 24,334 * 13,334 11,000 *
Nat Mosley 17,554 * 13,334 4,220 *
Louis D. Paolino, Jr. 13,334 * 13,334 - -
D & E Unitrust Partners 13,334 * 13,334 - -
* Less than 1%
(1) Assumes that all of the Common Stock offered hereby is sold.
(2) Dwight J. Romanica and Nancy L. Romanica are married to each
other, are the co-founders of the Company, and served as directors and
officers of the Company until their resignation.
(3) First Southwest Company acts as a market maker for the Company's
Common Stock. On November 2, 1993, First Southwest Company received a
warrant to purchase 80,000 shares of the Company's Common Stock for
$23.125 per share. On September 24, 1994 the warrant was repriced at
$5.00 per share. In October 1994, First Southwest Company exercised
its warrant. In connection with a private placement of 214,666 shares
of Common Stock for $804,998, First Southwest Company received a fee
of $37,750.
<PAGE>
INDEMNIFICATION
The Bylaws of the Company provide that directors and officers of the
Company will be indemnified by the Company for any proceeding brought
about because the person is a director or officer if: (a) the person
conducted himself in good faith; (b) the person reasonably believed
that his or her conduct was in or not opposed to the best interest of
the Company; and (c) in the case of a criminal proceeding, the person
had no reasonable cause to believe his conduct was unlawful. The
Bylaws provide that they are not exclusive and mandate indemnification
and advancement of expenses to the extent permitted by law. Wyoming
law mandates indemnification of directors and officers under certain
circumstances.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
for the Company by its counsel.
EXPERTS
The consolidated financial statements of Canmax Inc. at October 31,
1995 and 1994, and for each of the three years in the period ended
October 31, 1995, included in this Prospectus and the Registration
Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of said firm as experts in
accounting and auditing.
<PAGE>
Canmax Inc. and Subsidiaries
Index To Financial Statements
1. The Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Report of Ernst & Young LLP,
Independent Auditors, for the fiscal year ended October 31,
1995:
Report of Ernst & Young LLP, Independent Auditors. F-2
Consolidated Balance Sheets at October 31, 1995 and October 31,
1994. F-3
Consolidated Statements of Operations for the fiscal years ended
October 31, 1995, October 31, 1994, and October 31, 1993. F-4
Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 31, 1995, October 31, 1994, and
October 31, 1993. F-5
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1995, October 31, 1994, and October 31, 1993. F-6
Notes to Consolidated Financial Statements. F-7
2. The Condensed Consolidated Financial Statements (unaudited), and
the Notes to the Condensed Consolidated Financial Statements for the
six month periods ended April 30, 1996 and 1995:
Condensed Consolidated Balance Sheets (unaudited) at April 30,
1996 and 1995. F-18
Condensed Consolidated Statements of Operations (unaudited) for
the three and six month periods ended April 30, 1996 and 1995. F-20
Consolidated Statements of Cash Flows (unaudited) for the six
month periods ended April 30, 1996 and 1995. F-21
Notes to Condensed Consolidated Financial Statements for the six
month periods ended April 30, 1996 and 1995 F-22
3. Financial Statements Schedules
All schedules are omitted because they are not applicable or
because the required information is shown in the consolidated
financial statements or notes hereto.
<PAGE>
Report of Independent Auditors
The Board of Directors
Canmax Inc.
We have audited the accompanying consolidated balance sheets of Canmax
Inc. and subsidiaries as of October 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended October 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Canmax Inc. and subsidiaries at October 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended October 31, 1995, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
January 5, 1996
<PAGE>
<TABLE>
Canmax Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
October 31
____________________________
1995 1994
<S> <C> <C>
Current assets:
Cash $ 477,364 $ 10,581
Accounts receivable, less allowance for
doubtful accounts of $ 71,177 in 1995
and $ 85,488 in 1994 1,221,458 1,375,993
Accounts receivable from EDS (note 3) - 446,976
Inventory 474,481 322,915
Prepaid expenses and other 76,259 32,901
Total current assets 2,249,562 2,189,366
Property and equipment (note 4) 1,634,325 1,990,605
Capitalized software costs, net
of accumulated amortization of
$ 381,811 in 1995 and $ 182,595 in 1994 614,171 813,387
Intellectual property rights, net
of accumulated amortization of
$ 497,005 in 1995 and $ 366,409 in 1994 173,168 303,764
Other assets 30,676 30,676
$ 4,701,902 $ 5,327,798
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,290,263 $ 756,977
Accounts payable to EDS (note 3) - 205,907
Accrued liabilities 511,641 596,348
Deferred revenue 586,836 153,935
Current portion of leasehold
obligation 109,475 102,970
Advances from shareholders (note 5) 220,000 227,200
Total current liabilities 2,718,215 2,043,337
Leasehold obligation (note 6) 200,015 309,491
Development obligation (note 3) 65,000 1,065,065
Commitments (notes 6 and 9)
Shareholders' equity (notes 3, 7 and 10)
Common stock, no par value, 44,169,100
shares authorized; 4,935,269 and
4,131,174 shares issued and outstanding
in 1995 and 1994, respectively 18,163,634 14,614,539
Option to purchase common stock (note 3) 4,861,659 4,861,659
Accumulated deficit (21,295,328) (17,560,878)
Foreign currency translation adjustment (11,293) (5,415)
Total shareholders' equity 1,718,672 1,909,905
$ 4,701,902 $ 5,327,798
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Canmax Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended October 31
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Software licenses and
product revenue $ 3,127,435 $ 4,903,112 $ 1,448,733
Development 3,801,208 4,012,520 2,681,553
Service agreements 2,067,444 758,963 528,743
8,996,087 9,674,595 4,659,029
Costs and expenses:
Cost of software
licenses and product
revenue 2,143,721 1,585,233 747,295
Cost of development
revenues 1,896,725 877,426 578,141
Customer service 2,165,145 2,024,837 887,995
Product development 2,267,039 2,432,040 1,134,744
Administration and general 2,721,483 2,012,286 1,149,294
Sales and marketing 636,748 1,323,718 914,815
Depreciation and
amortization 849,251 1,267,592 360,223
Interest and financing
costs 50,425 66,345 28,812
Writedown of capitalized
software - 4,127,232 -
12,730,537 15,716,709 5,801,319
Net loss $( 3,734,450) $ ( 6,042,114) $ (1,142,290)
Net loss per common
share (note 11) $ ( 0.79) $ (1.54) $ ( 0.31)
Weighted average common
shares outstanding 4,706,382 3,918,889 3,683,339
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Canmax Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Option to Foreign
Purchase Currency
Common Stock Common Accumulated Translation
Shares Amount Stock Deficit Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
October 31, 1992 3,555,206 $10,882,168 $ - $(10,376,474) $ (9,300) $ 496,394
Shares issued:
For cash on
exercise of
options 260,890 1,725,472 - - - $ 1,725,472
Net loss - - - (1,142,290) - (1,142,290)
Translation
adjustment - - - - 17,884 17,884
Original EDS
option to
purchase
common stock - - 2,947,301 - - 2,947,301
__________ ___________ __________ ____________ ________ ___________
Balance at
October 31, 1993 3,816,096 12,607,640 2,947,301 (11,518,764) 8,584 4,044,761
Shares Issued:
For cash on
exercise of
options 102,000 666,848 - - - 666,848
For cash on
exercise of
warrants 117,950 656,163 - - - 656,163
For services 40,000 307,257 - - - 307,257
For conversion
of advances
from
shareholders 55,128 376,631 - - - 376,631
Net loss - - - (6,042,114) - (6,042,114)
Translation
adjustment - - - - (13,999) (13,999)
Original EDS
option to
purchase
common stock - - 1,052,699 - - 1,052,699
Liability to EDS
converted to option
to purchase
common stock - - 861,659 - - 861,659
--------- --------- --------- --------- ------- ----------
Balance at
October 31, 1994 4,131,174 14,614,539 4,861,659 (17,560,878) (5,415) 1,909,905
Shares issued:
For cash on
exercise of
options 294,200 1,321,000 - - - 1,321,000
For conversion
of advances
from
shareholders 30,000 150,000 - - - 150,000
EDS 265,228 1,273,095 - - - 1,273,095
Private
Placement 214,667 805,000 - - - 805,000
Net loss - - - (3,734,450) - (3,734,450)
Translation
adjustment - - - - (5,878) (5,878)
__________ _________ ________ _________ _______ ___________
Balance at
October 31, 1995 4,935,269 $18,163,634 $4,861,659 $(21,295,328) $(11,293) $1,718,672
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Canmax Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended October 31
1995 1994 1993
<S> <C> <C> <C>
Operating activities
Net loss $ (3,734,450) $ (6,042,114) $(1,142,290)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Issuance of common
stock for accrued
interest and services - 343,888 -
Write down of
capitalized software - 4,127,232 -
Depreciation and
amortization 849,251 1,267,592 360,223
Accounts payable to
EDS converted to
option to purchase
common stock - 861,659 -
Changes in operating
assets and liabilities:
Accounts receivable 154,535 (218,412) (701,363)
Accounts receivable
from EDS 446,976 (446,976) -
Accounts receivable
from shareholders - 71,921 (46,709)
Inventory (151,566) (88,041) (114,538)
Prepaid expenses
and other (43,358) 47,497 (33,290)
Accounts payable 533,286 (85,550) 314,768
Accounts payable
to EDS 67,539 205,907 -
Accrued liabilities (84,707) (3,627) 425,137
Accrued interest - (22,939) 22,939
Deferred revenue 432,901 (21,217) (88,786)
Net cash used in
operating activities (1,529,593) (3,180) (1,003,909)
Investing activities
Purchase of property
and equipment (163,575) (1,106,379) (770,997)
Capitalized software
costs - (3,127,459) (1,420,216)
Decrease (increase)
in other assets - - 2,773
Net cash used in
investing activities (163,575) (4,233,838) (2,188,440)
Financing activities
Net proceeds from
issuance of common stock 2,126,000 1,323,011 1,725,472
Agreements with EDS:
-proceeds - 1,065,065 2,900,000
-funds used for marketing - (272,975) (227,025)
-services received - - 410,189
Increase(decrease) in
leasehold obligation (102,971) 227,836 115,755
Repayment of shareholder
advances (107,200) - (519,115)
Advances from shareholders 250,000 227,200 340,000
Net cash provided by
financing activities 2,165,829 2,570,137 4,745,276
Effect of exchange rate
changes on cash (5,878) 4,381 17,884
Net increase(decrease)
in cash 466,783 (1,662,500) 1,570,811
Cash at beginning of year 10,581 1,673,081 102,270
Cash at end of year $ 477,364 $ 10,581 $ 1,673,081
See accompanying notes.
</TABLE>
<PAGE>
Canmax Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Nature or Business
Canmax Inc. (the "Company") was incorporated on July 10, 1986 as
311824 B.C. Ltd. under the Company Act of the Province of British
Columbia, Canada. On August 13, 1986, the Company changed its name
to International Retail Systems Inc. On August 7, 1992,
International Retail Systems Inc. renounced its original province of
incorporation and reincorporated in the state of Wyoming. On
November 30, 1994, the name of the Company was changed to Canmax Inc.
The business of the Company is to develop, market and license retail
automation software and sell ancillary software, services and
hardware to the retail petroleum and convenience store industries.
Liquidity
At October 31, 1995, the Company has an accumulated deficit of
$21,295,328 and a net working capital deficiency of $468,653. During
fiscal 1995, the Company incurred a net loss of $3,734,450 and used
cash in operating activities of $1,529,593. To maintain liquidity
during the next year, the Company must increase revenue volumes
through the successful development and introduction of new products
to the marketplace and through increasing the market share for
existing products and services. If the Company is not successful in
its efforts to increase revenue volumes in the near term, this will
negatively impact liquidity. In the event that expected revenue
volume increases are not realized in the near term, management plans
include delay of planned headcount additions and reduction of payroll
costs and other operating expense levels to better align operating
capacity with revenue volumes realized. Additionally, the Company
may enter into debt or other financing arrangements to maintain
liquidity. No financing arrangements have been obtained by the
Company at this time.
2.Summary of Significant Accounting Policies
Principles of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Canmax Retail Systems Inc.
(Texas), Canmax Retail Systems Inc. (British Columbia), The Point of
Sale Corporation and Dataplane Technologies, Inc. All significant
intercompany transactions have been eliminated.
<PAGE>
Revenue recognition
Revenue from software licenses and product sales is recognized when
the software or products have been delivered to the customer and
collectibility is probable and no significant vendor obligations
remain after delivery. Revenue from software development contracts
is recognized as the Company performs the services in accordance with
the contract terms. Revenue from maintenance agreements is
recognized ratably over the term of the agreement. Revenue from
long-term contracts is recognized using the percentage-of-completion
method. Progress to completion is measured based upon the
relationship that total costs incurred to date bears to the total
costs expected to be incurred on a specific project. Losses on fixed
price contracts are recorded when estimable. At October 31, 1995 and
1994, unbilled receivables relating to long-term contracts of $0 and
$290,797, respectively, were included in trade accounts receivable.
These amounts represent recoverable costs and accrued profit not
billable to the customer at the balance sheet date.
Inventory
Inventory is stated at the lower of cost (first in - first out) or
market and is primarily comprised of computer hardware and purchased
software.
Property and equipment
Depreciation and amortization of property and equipment is calculated
using the straight-line method over the estimated useful lives of
assets ranging from five to seven years.
Capitalized software costs
Under provisions of the Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," software development costs are
charged to expense when incurred until technological feasibility for
the product has been established, at which time the costs are
capitalized until the product is available for release. The Company
begins amortizing capitalized software costs upon general release of
the software products to customers. The Company evaluates the net
realizable value for each of its capitalized projects by comparing
the estimated future gross revenues from a project less estimated
future disposal costs to the amount of the unamortized capitalized
cost. The Company recorded a writedown of $4,127,232 in 1994 for
projects for which the net book value was in excess of net realizable
value. Remaining costs are being amortized using the greater of 1)
the ratio that current gross revenues for a capitalized software
project bears to the total of current and future gross revenue for
that project or, 2) the straight-line method over the remaining
economic life of the related projects which is estimated to be a
period of five years. Amortization of capitalized software costs
amounted to $199,216 and $692,486 in 1995 and 1994, respectively.
<PAGE>
Intellectual property rights
Intellectual property rights consist of the rights to computer
software used in the Company's products. Expenditures are recorded
at cost and are being amortized on a straight-line basis over a
projected life of five years. Amortization of intellectual property
rights amounted to $130,569 and $130,596 in 1995 and 1994,
respectively.
Foreign currency translation
The Company's functional currency is the United States dollar. For
operations outside the United States, monetary assets and liabilities
denominated in foreign currencies are converted at the exchange rate
in effect at the balance sheet date and non-monetary assets and
liabilities at the rate in effect on the dates of the transactions.
Revenues and expenses are converted at rates approximating exchange
rates in effect at the time of the transactions. Gains or losses
arising on conversion of foreign currency transactions are included
in operations in the period they occur, except for gains or losses on
fixed term monetary liabilities which are included in shareholders'
equity. During 1995, 1994 and 1993, 1%, 1% and 0%, respectively, of
the Company's sales resulted from operations in Canada.
Net loss per share
Net loss per common share is based upon the weighted average number
of common shares outstanding as adjusted for the one-for-five reverse
stock split (see note 11) of 4,706,382, 3,918,889 and 3,683,339 for
1995, 1994 and 1993, respectively. Common equivalent shares
consisting of stock options and an option to purchase common stock
held by EDS (see note 3) do not enter into the computation because of
their anti-dilutive effect.
Income taxes
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Statements of cash flows
For purposes of the statements of cash flows, the Company considers
all cash and highly liquid short-term deposits to be cash
equivalents.
Total interest paid during 1995, 1994 and 1993 amounted to $43,733,
$52,653 and $5,873, respectively.
<PAGE>
Concentration of credit risk and significant customers
The Company derives its sales primarily from customers in the retail
petroleum market. The Company performs periodic credit evaluations
of its customers and generally does not require collateral. Billed
receivables are generally due within 30 days. Credit losses have
historically been insignificant. A significant portion of the
Company's revenues is from three customers. The Southland Corporation
accounted for 61%, 50%, and 43%, NCR (formerly AT&T Global
Information Solutions Company) accounted for 12%, 0% and 0% and EDS
accounted for 10%, 38% and 0% of the Company's revenues for 1995,
1994 and 1993, respectively. At October 31, 1995 and 1994, accounts
receivable from The Southland Corporation accounted for 54% and 40%,
respectively, of total accounts receivable. At October 31, 1995 and
1994 receivables from NCR accounted for 28% and 0%, respectively of
total accounts receivable. Management feels the allowance for
doubtful accounts adequately provides for any losses that may occur.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
3.EDS Agreements
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 markets the
Company's software services and hardware technology to the retail
petroleum marketplace exclusively, and the Company offers EDS the
right to participate with its customers and prospective customers.
EDS provided $2,600,000 in cash of which $2,000,000 was used for
product development, $500,000 was used to support the Company's
marketing efforts, and $100,000 as consideration for a software
license granted to EDS. EDS also provided $2,000,000 in services to
the Company.
In connection with the above agreements, EDS received an option to
purchase up to 25% of the common stock of the Company at an exercise
price of not less than 75% of the market value of the common stock at
the time of exercise, minus $4,000,000, 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.
The Company accounted for the transaction as follows:
$4,000,000 as an option to purchase common stock
$ 500,000 as a deferred marketing credit with respect to the cash
intended for marketing support and
$ 100,000 as revenue with respect to the software license.
<PAGE>
The financial statements include the following non-cash transactions
related to the services provided by EDS to the Company pursuant to
the EDS agreements:
- services received from EDS and included in expenses -
$1,188,168 and $663,210 in 1995 and 1994, respectively, and
- programming services received from EDS and capitalized as software
costs - $0 and $389,489 in 1995 and 1994, respectively.
During 1994, the Company purchased services from EDS valued at
$1,972,329. By agreement $861,659 of this amount was not paid by the
Company and has been added to the original $4,000,000 option amount.
The balance, $1,110,670, was offset against EDS' liability to the
Company for site licenses sold to EDS.
In connection with prospective business opportunities with major oil
companies, the Company and EDS jointly incurred $2,130,130 in product
development costs. EDS funded that total cost, which included
reimbursing the Company for $1,679,977 in expenses paid by the
Company. By agreement, the Company owed EDS for one-half of the
total cost. That development obligation for $1,065,065 and other
amounts due to EDS of $34,935 were converted into 229,167 common
shares of the Company on November 15, 1994. The price per share of
$4.80 was determined pursuant to agreement with EDS and represents
75% of market value. In fiscal 1995, EDS and the Company jointly
incurred $346,190 in product development costs. By agreement the
Company owed EDS for one half of the total cost. On April 20, 1995,
the $173,095 development obligation due to EDS was converted into
36,061 common shares of the Company at a conversion rate of $4.80 per
share.
During 1994 the Company sold EDS 788 site licenses for $1,810,670.
Pursuant to the contract, the amount receivable for this transaction
was used to offset amounts payable to EDS of $1,110,670 and to settle
a disputed $400,000 liability with respect of deferred marketing
funding that arose from an amendment to the original agreements with
EDS. The balance of $300,000 was received in cash after October 31,
1994.
In addition to the site license revenues described in the preceding
paragraph, the Company recognized additional revenue from EDS of
approximately $0.9 million and $1.9 million for fiscal 1995 and 1994
respectively, for services and development work in conjunction with
prospective business opportunities with major oil companies.
<PAGE>
<TABLE>
A summary of transactions with EDS for each of the last three fiscal
years is set forth below:
Recorded As
Option to
Year/ Total Purchase Deferred
Transaction Amount of Common Common Capitalized Marketing Revenue
Description Transaction Stock Stock Software Credit (Expense)
<S> <C> <C> <C> <C> <C> <C>
1993
Cash received from
EDS for option to
purchase Company's
common stock $2,000,000 $2,000,000 $ - $ - $ - $ -
Cash for marketing
from EDS 500,000 - - - 500,000 -
Licenses sold to
EDS 100,000 - - - - 100,000
Development services
provided by EDS 947,301 947,301 - 537,112 - (410,189)
1994
Development and
programming services
purchased from EDS 1,052,699 1,052,699 - 389,489 - (663,210)
Other services
purchased from EDS 1,972,329 861,659 - - - (1,972,329)
Sale of 788 site
licenses to EDS 1,810,670(1) - - - - 1,810,670
Development revenue 614,912 - - - - 614,912
Product & services
revenue 1,250,764 - - - - 1,250,764
1995
Other development
services purchased
from EDS 1,188,168 - - - - (1,188,168)
Conversion of
development
obligations due to
EDS into shares of
the Company's
common stock 1,273,095(2) - 1,273,095 - - -
Development revenue 175,513 - - - - 175,513
Product & services
revenue 751,440 - - - - 751,440
(1) $1,110,670 of the sales amount was used to offset existing EDS
obligations, $400,000 was used to settle a disputed obligation
with EDS and $300,000 was paid in cash to the Company
(2) EDS obligations were converted into 265,228 shares of the
Company's Common Stock
</TABLE>
<PAGE>
4. Property and equipment
Property and equipment consist of the following at October 31:
1995 1994
At cost:
Furniture and Fixtures $ 915,161 $ 888,735
Computer equipment 1,371,273 1,243,865
Computer software 322,372 312,631
Leasehold improvements 593,843 593,843
3,202,649 3,039,074
Less accumulated depreciation
and amortization (1,568,324) (1,048,469)
$ 1,634,325 $ 1,990,605
Depreciation and amortization expense amounted to $519,439, $444,511
and $172,855 in 1995, 1994 and 1993, respectively.
5. Advances from shareholders
During 1993, three shareholders advanced the company $340,000. The
advance was unsecured, had an interest rate of 10% and was
convertible to common shares. In March 1994, the Company issued
55,128 common shares at $6.85 to the three shareholders to satisfy
the advances and accrued interest of $36,631.
During 1994, Dwight Romanica advanced the Company $300,000. The
advance was unsecured and the Company paid interest of $24,000. Half
of the advance ($150,000) was repaid by February 28, 1995 and
$150,000 was exchanged for 30,000 common shares.
During 1995, a director, W. Thomas Rinehart advanced the company
$250,000. The advance was unsecured and had a interest rate of 1%
above the current prime rate. The company repaid principal of
$30,000 and paid interest of $13,456 in fiscal 1995. The remaining
principal balance of $220,000 is due on demand.
6. Leasehold obligations
In each of 1995, 1994 and 1993, leasehold obligations of $0, $300,000
and $133,476, respectively, were incurred on behalf of the Company.
These costs have been capitalized as leasehold improvements and are
to be repaid, with interest calculated at 8% to 11% per annum, in
monthly installments of $11,104 including interest, over the
remaining term of the lease, to terminate on August 31, 1998.
Future principal payments on the leasehold obligation for the next
five fiscal years ending October 31 are as follows:
1996 $ 109,475
1997 105,414
1998 94,601
$ 309,490
<PAGE>
7. Stock Options
In 1990, the Company adopted a stock option plan (the Plan). The
Plan authorizes the Board of Directors to grant options to directors,
employees and persons providing services to the Company to purchase
common stock of the Company provided that, when exercised, such
options will not exceed 10% of the issued and outstanding stock of
the Company and no options granted to an individual will, when
exercised, exceed 5% of the issued and outstanding stock of the
Company. The term of any options granted under the Plan is fixed by
the Board of Directors at the time the options are granted, provided
that the exercise period may not be greater than 10 years from the
date of granting. The exercise price of any options granted under
the Plan represents the fair market value of the stock on the day of
the date of grant. The Company has reserved 493,527 shares for
issuance under the Plan. All options outstanding at October 31, 1995
are exercisable.
Number of shares Option price per share
Options outstanding at
October 31, 1992 327,900 $2.15 - $13.90
Options granted 307,900 5.75 - 15.00
Options exercised 260,890 8.45 - 15.00
Options canceled 116,200 2.15 - 15.00
Options outstanding at
October 31, 1993 258,710 2.15 - 15.00
Options granted 272,300 5.00 - 7.85
Options exercised 102,000 1.95 - 12.10
Options canceled 17,100 6.75 - 15.00
Options outstanding at
October 31, 1994 411,910 1.95 - 6.25
Options granted 418,200 2.50 - 5.00
Options exercised 294,200 3.75 - 5.00
Options canceled 45,360 5.00 - 6.75
Options outstanding at
October 31, 1995 490,550 $2.50 - $ 5.00
<PAGE>
8. Income taxes
As a result of adopting FAS No. 109 in fiscal 1994, the Company
recorded no deferred income tax asset, after a valuation allowance of
$3,860,000, which resulted in no cumulative effect of the accounting
change. Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount used for
income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of October 31 are as follows:
1995 1994
Deferred tax assets:
Current
Allowance for doubtful accounts $ 24,200 $ 29,066
Less: valuation allowance (24,000) (29,066)
Total current - -
Noncurrent:
Capitalized software and
intellectual property 896,104 1,354,374
Fixed assets 20,741 24,640
Net operating losses 6,101,502 4,343,333
Other 40,717 -
Less: valuation allowance (7,059,064) (5,722,347)
Total noncurrent - -
Total deferred tax assets $ - $ -
The valuation allowance for deferred tax assets increased by
$1,336,717 during the year ended October 31, 1995.
The reconciliation of income tax provision at the statutory United
States federal income tax rates to income tax provision is:
Year Ended October 31, 1995
1995 1994 1993
Income tax benefit at
statutory rate $(1,269,713) $(2,039,918) $ (388,379)
Benefit of net operating
loss not recognized 1,331,851 2,039,918 388,379
Other (62,138) - -
$ - $ - $ -
At October 31, 1995 and 1994, the Company has net operating loss
carry forwards for federal income tax purposes of approximately $17.9
million and $ 12.8 million, respectively, that begin to expire in
2006.
<PAGE>
9. Commitments
The Company leases office space, office equipment and one automobile
under noncancelable operating leases. Future minimum lease payments
for the fiscal years ending October 31 are as follows:
1996 $ 528,208
1997 607,956
1998 511,351
1999 27,016
$ 1,674,531
Total rent expense amounted to $633,060, $528,940 and $156,920 for
1995, 1994 and 1993, respectively.
10. Benefit Plan
Effective January 1, 1994, the Company implemented an Internal
Revenue Code Section 401(k) Profit Sharing Plan. The Plan provides
for voluntary contributions by employees into the Plan subject to the
limitations imposed by the Internal Revenue Code Section 401(k). The
company will match employee contributions to a discretionary
percentage of the employees contribution . The Company's matching
funds are determined at the discretion of the board of directors and
are subject to a seven year vesting schedule from the date of
original employment. The Company made no matching contributions
during the years ended October 31, 1995 and 1994.
11. Subsequent event
In December, 1995, the Company's Board of Directors authorized a one-
for-five reverse stock split of the Company's Common Stock, effective
December 21, 1995. All applicable share and per share data have been
retroactively restated to give effect to the reverse stock split.
<PAGE>
<TABLE>
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
April 30 October 31
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 207,142 $ 477,364
Accounts receivable, net 1,356,094 1,221,458
Inventory (Note B) 331,606 474,481
Prepaid expenses and other 186,614 76,259
Total current assets 2,081,456 2,249,562
Property and equipment at cost
less accumulated depreciation
and amortization of $1,844,702
in 1996 and $1,568,324 in 1995 1,463,459 1,634,325
Capitalized software costs, net
of accumulated amortization of
$481,410 in 1996 and $381,811
in 1995 643,446 614,171
Intellectual property rights, net
of accumulated amortization of
$580,978 in 1996 and $497,005
in 1995 89,195 173,168
Other assets 10,859 30,676
$ 4,288,415 $ 4,701,902
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, continued
(Unaudited)
April 30 October 31
1996 1995
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,028,374 $ 1,290,263
Accrued liabilities 551,414 511,641
Deferred revenue 806,151 586,836
Current portion of
leasehold obligation 119,602 109,475
Advance from shareholder
(Note D) 203,846 220,000
Total current liabilities 2,709,387 2,718,215
Leasehold obligation 208,013 200,015
Development obligation (Note C) - 65,000
Shareholders' equity;
Common stock, no par value,
44,169,100 shares authorized;
5,012,869 and 4,935,269 shares
issued and outstanding in 1996
and 1995, respectively. 18,372,574 18,163,634
Option to purchase common stock
(Note C) 4,861,659 4,861,659
Deficit (21,863,218) (21,306,621)
Total shareholders' equity 1,371,015 1,718,672
$ 4,288,415 $ 4,701,902
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CANMAX INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months For the six months
ended April 30 ended April 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Software, hardware and
product licenses $ 283,363 $ 313,952 $ 1,415,598 $ 674,877
Development 1,036,611 630,228 2,305,422 1,551,906
Service agreements 770,912 692,494 1,437,868 1,036,022
2,090,886 1,636,674 5,158,888 3,262,805
Costs and expenses:
Cost of software,
hardware & product
license revenues 378,929 151,113 1,106,411 369,300
Cost of development
revenues 508,515 462,996 933,064 982,312
Customer service 558,280 631,953 1,029,740 1,137,153
Product development 356,106 785,029 672,781 1,600,886
Selling and
administration 1,010,895 1,316,270 1,971,040 2,268,412
2,812,725 3,347,361 5,713,036 6,358,063
Net loss $ (721,839) $(1,710,687) $ (554,148) $(3,095,258)
Net loss per
common share $ (0.15) (0.37) (0.11) (0.69)
Weighted average
common shares
outstanding 4,970,674 4,615,177 4,952,824 4,476,619
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CANMAX INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the six months
ended April 30
1996 1995
<S> <C> <C>
Net loss $ (554,148) $ (3,095,258)
Adjustments to reconcile
net income to net cash
used in operating activities:
Depreciation and amortization 441,077 443,652
Writedown of inventory 217,623 -
Writedown of investment 18,675 -
Changes in assets and liabilities:
Accounts receivable (134,636) 1,200,221
Inventory (74,748) (121,542)
Prepaid expenses and other (110,355) (78,633)
Accounts payable (261,889) (209,871)
Accrued liabilities 39,733 (220,600)
Deferred revenue 219,315 168,404
Net cash used in operations (199,353) (1,913,627)
Investing activities:
Purchase of property and equipment (31,226) (230,300)
Capitalized software costs (128,874) -
Decrease in other assets 19,817 -
Net cash used in investing activities (140,283) (230,300)
Financing activities:
Net proceeds from issuance of
common stock 208,940 3,039,095
Payments on leasehold obligation (55,963) (50,397)
Decrease in development obligation (65,000) (815,065)
Repayment of shareholder advance (16,154) (7,200)
Net cash provided by financing
activities 71,823 2,166,433
Effect of exchange rate changes on cash (2,409) (5,103)
Net increase (decrease) in cash (270,222) 17,403
Cash at beginning of period 477,364 10,581
Cash at end of period $ 207,142 $ 27,984
See accompanying notes.
</TABLE>
<PAGE>
CANMAX INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1996
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 and
six month period ended April 30, 1996 are not necessarily indicative
of the results that may be expected for the year ended October 31,
1996. 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, 1995. Certain
amounts in the 1995 consolidated statement of operations and
consolidated statement of cash flows have been reclassified to conform
with the 1996 presentation.
NOTE B - INVENTORY
Inventory consists of raw materials and finished products, primarily
computer hardware, software, and components for sale to software
licensees.
April 30, 1996 October 31, 1995
Raw Materials $ - $ 75,040
Finished Products 331,606 399,441
$ 331,606 $ 474,481
NOTE C - 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 markets the Company's software
services and hardware technology to the retail petroleum marketplace
exclusively, and the Company offers EDS the right to participate with
its customers and prospective customers. EDS provided $2,600,000 in
cash of which $2,000,000 was used for product development, $500,000
was used to support the Company's marketing efforts, and $100,000 as
consideration for a software license to EDS. EDS also provided
$2,000,000 in services to the Company.
<PAGE>
In connection with the above agreements, EDS received an option to
purchase up to 25% of the common stock of the Company at an exercise
price of not less than 75% of the market value of the common stock at
the time of exercise, minus $4,000,000, 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.
The Company accounted for the transaction as follows:
$4,000,000 as an option to purchase common stock
$ 500,000 as a deferred marketing credit with respect to the cash
intended for marketing support and
$ 100,000 as revenue with respect to the software license.
During 1994, the Company purchased services from EDS valued at
$1,972,329. By agreement, $861,659 of this amount was not paid by the
Company and has been added to the original $4,000,000 option amount.
The balance, $1,110,670, was offset against EDS' liability to the
Company for site licenses sold to EDS.
In connection with prospective business opportunities with major oil
companies, the Company and EDS jointly incurred $2,130,130 in product
development costs. EDS funded that total cost, which included
reimbursing the Company for $1,679,977 in expenses paid by the
Company. By agreement, the Company owed EDS for one-half of the total
cost. That development obligation for $1,065,065, and other amounts
due to EDS of $34,935 were converted into 229,167 common shares of the
Company on November 15, 1994. The price per share of $4.80 was
determined pursuant to agreement with EDS and represents 75% of market
value. In fiscal 1995, EDS and the Company jointly incurred $346,190
in product development costs. By agreement the Company owed EDS for
one half of the total cost. On April 20, 1995, the $173,095
development obligation due to EDS was converted into 36,061 common
shares of the Company at a conversion rate of $4.80 per share. The
balance of the outstanding amounts owed to EDS at October 31, 1995
have been repaid in full.
During 1994, the Company sold EDS 788 site licenses for $1,810,670.
Pursuant to the contract, the amount receivable for this transaction
was used to offset amounts payable to EDS of $1,110,670 and to settle
a disputed $400,000 liability with respect of deferred marketing
funding that arose from an amendment to the original agreements with
EDS. The balance of $300,000 was received in cash after October 31,
1994.
NOTE D - 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 1% above the current prime rate. The company repaid
principal of $30,000 during the first quarter of 1995. The remaining
principal balance of $203,846 is being repaid in weekly installments.
Principal payments totaling $16,154 were repaid during the quarter
ended April 30, 1996.
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee $ 591
Legal Fees and expenses 20,000
Accounting fees and expenses 20,000
State registration fees 9,000
Total Estimated Expense $49,591
Item 14. Indemnification of Directors and Officers
Pursuant to the Company's Bylaws, subject to the provisions of the
laws of the State of Wyoming, the Company shall indemnify an
individual made a party to any proceeding because he or she is a
director, officer, employee or agent of the Company provided the
individual acted in good faith, believed his or her conduct was not
opposed to the best interest of the Company, and had no reasonable
cause to believe his or her conduct was unlawful.
The Board of Directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a
Director, officer, employee or agent of the company or as a director,
officer, employee or agent of any corporation of which the Company is
or was a shareholder and his heirs or personal representatives against
any liability incurred by him as such Director, director, officer,
employee or agent. Such insurance has been purchased by the Company.
<PAGE>
<TABLE>
Item 15. Recent Sales of Unregistered Securities
The table below lists sales of all securities of the Registrant from
July 1, 1992 to March 1, 1996 which were not registered under the
Securities Act of 1933, as amended. Transactions in Canadian currency
have been translated to U.S. currency at rates published by the Bank
of Canada (the central bank of Canada).
Date Nature Number Principal Aggregate Aggregate
of of of Underwriters Offering Underwriting
Sale Transaction Shares(1) or Purchaser Price Commissions
<S> <C> <C> <C> <C> <C>
07/92 Options Exercised 6,100 Employees $ 35,805 $ -
09/92 Options Exercised 2,950 Employees 12,853 -
10/92 Options Exercised 5,050 Employees 10,226 -
11/92 Options Exercised 1,350 Employees 2,734 -
01/93 Options Exercised 86,800 Employees 519,115 -
02/93 Options Exercised 350 Employees 700 -
03/93 Options Exercised 23,200 Employees 106,580 -
04/93 Options Exercised 22,600 Employees 120,800 -
05/93 Options Exercised 9,710 Employees 92,863 -
06/93 Options Exercised 37,180 Employees 386,265 -
07/93 Options Exercised 19,990 Employees 172,242 -
08/93 Options Exercised 7,640 Employees 45,990 -
09/93 Options Exercised 4,500 Employees 16,375 -
10/93 Options Exercised 45,570 Employees 246,200 -
11/93 Warrants Granted 80,000 First Southwest Company None -
11/93 Options Exercised 3,400 Employees 21,950 -
09/94 Shares Issued for Service 40,000 DJ & NL Romanica 200,000 -
10/94 Warrants Exercised 80,000 First Southwest Company 400,000 -
11/94 Conversion of Debt 229,167 Electronic Data Systems
Corporation 1,100,000 -
01/95 Conversion of Debt 30,000 DJ & NL Romanica 150,000 -
02/95 Private Placement 40,000 Phil A. Labarbera 150,000 7,500
02/95 Private Placement 100,000 Robert F. Smith 375,000 18,750
02/95 Private Placement 8,000 Norman J. Stricof 30,000 1,500
02/95 Private Placement 13,334 William J. Mosey 50,000 2,500
02/95 Private Placement 13,334 Nat Mosley 50,000 2,500
02/95 Private Placement 13,334 Louis D. Paolino 50,000 2,500
02/95 Private Placement 13,334 D & E Unitrust Partners 50,000 2,500
02/95 Private Placement 13,334 Robyn E. Miller 50,000 -
04/95 Conversion of Debt 36,061 Electronic Data Systems
Corporation 173,095 -
(1) All per share amounts have been retroactively adjusted to reflect
a one-for-five reverse stock split of the Company's Common Stock,
effective December 21, 1995.
</TABLE>
<PAGE>
Securities sold by the Company prior to August 8, 1992 were not
registered under the Securities Act of 1933 as amended since such
securities were issued by the Company when it was not a United States
corporation to persons who were not U.S. citizens or residents.
All sales of securities issued by the Company after August 7, 1992
were deemed to be exempt from registration under the Securities Act of
1933 as amended by virtue of Section 4(2) thereof. All the offers and
sales were made without public solicitation or advertising to
individuals with whom the Company had a previously existing
relationship. Options exercised after August 7, 1992 were exercised
by a total of 27 employees of the Company who had specific and
detailed knowledge of the Company. Employees were informed that the
securities acquired were not registered and instructed that the
securities could not be sold in the U.S. or to U.S. residents or
citizens.
Item 16. Exhibits and Financial Statement Schedules
Exhibit Number and Description
3.01 Articles of Incorporation and Bylaws of International Retail
Systems Inc. (1)
10.01 Escrow Agreement (1)
10.02 Stock Option Plan (1)
10.03 Joint Marketing Agreement with EDS (1)
10.04 Stock Option Agreement (1)
10.05 Contract with The Southland Corporation (2)
10.06 Contract with NCR (formerly AT&T) - Business Requirements
Definition (3)
23.01 Consent of Ernst & Young LLP
(1) Incorporated by reference to the Exhibit identified in
parentheses, filed as an exhibit to the Registrant's
Registration Statement on Form 10, Filed October 15, 1993.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended October 31, 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended October 31, 1995 and
incorporated herein by reference.
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, dating any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising
after the effective date of the registration statement ( or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any actions, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
*****
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CANMAX INC.
(Registrant)
Date: July 24, 1996 By: /s/ ROGER D. BRYANT
(Roger D. Bryant, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Roger D. Bryant President, Chief
Executive Officer and July 24, 1996
(Roger D. Bryant) Director (Principal
Executive Officer)
/s/ Philip M. Parsons Executive Vice
President, July 24, 1996
(Philip M. Parsons) Chief Financial Officer
and Director
(Principal Financial
Officer and Chief
Accounting Officer)
/s/ Debra L. Burgess Executive Vice
President July 24, 1996
(Debra L. Burgess) Director
/s/ Robert M. Fidler Director July 24, 1996
(Robert M. Fidler)
Exhibit 23.01
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions
"Selected Consolidated Financial Data" and "Experts" and
to the use of our report dated January 5, 1996, in the
Registration Statement and related Prospectus of Canmax Inc.
for the registration of 364,670 shares of its common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
July 29, 1996
