<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
TO CURRENT REPORT ON FORM 8-K
ON
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
January 30, 1998
--------------------------------------
Date of Report (Date of earliest event reported)
CANMAX INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wyoming 0-22636 75-2461665
- ------------------------------- ----------- ------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
150 W. Carpenter Freeway
Irving, Texas 75039
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(972) 541-1600
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As discussed in its Current Report on Form 8-K, dated January 30, 1998, Canmax
Inc. (the "Company") acquired USCommunication Services, Inc. in a transaction
recorded under the purchase method. The total purchase price previously
reported in this Form 8-K is hereby amended to $2,952,204, subject to certain
further adjustments.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The following documents are included as part of this report:
(a) Financial Statements of Business Acquired. (Annex A)
USCommunication Services, Inc.:
Report of Ernst & Young LLP, Independent Auditors . . . . . . A-1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . A-2
Consolidated Statements of Operations . . . . . . . . . . . . A-3
Consolidated Statements of Shareholders' Deficit. . . . . . . A-4
Consolidated Statements of Cash Flows . . . . . . . . . . . . A-5
Notes to Consolidated Financial Statements. . . . . . . . . . A-6 to A-11
(b) Pro Forma Financial Information. (Annex B)
Canmax Inc. and Consolidated Subsidiaries:
Unaudited Pro Forma Combined Condensed Financial
Information. . . . . . . . . . . . . . . . . . . . . . . . . B-1
Unaudited Pro Forma Combined Condensed Statements
of Operations. . . . . . . . . . . . . . . . . . . . . . . . B-2 to B-3
Notes to Unaudited Pro Forma Combined Condensed
Financial Statements . . . . . . . . . . . . . . . . . . . . B-4
(c) Exhibits.
Exhibit No. Document Description
----------- --------------------
2.1 Agreement and Plan of Merger dated as of January 30,
1998, among Canmax Inc., CNMX MergerSub, Inc. and
USCommunication Services, Inc. (filed as Exhibit 2.1 to
Form 8-K filed February 9, 1998 (the "USC 8-K"),
incorporated herein by reference)
9.1 Voting Trust Agreement of Nationwide Transportation
Products, Inc. (subsequently known as USCommunication
Services, Inc.) made as of May 1, 1997 (filed as
Exhibit 9.1 to the USC 8-K and incorporated herein by
reference)
9.2 First Amendment to Voting Trust Agreement of
USCommunication Services, Inc. dated as of December 1,
1997 (filed as Exhibit 9.2 to the USC 8-K and
incorporated herein by reference)
10.1 Common Stock Purchase Warrant dated January 30, 1998,
between Canmax Inc. and Delia O'Donnell, Trustee (filed
as Exhibit 10.1 to the USC 8-K and incorporated herein
by reference)
10.2 Common Stock Purchase Warrant dated January 30, 1998,
between Canmax Inc. and Delia O'Donnell, Trustee (filed
as Exhibit 10.2 to the USC 8-K and incorporated herein
by reference)
10.4 Common Stock Purchase Warrant dated January 30, 1998
between Canmax Inc. and James C. Bernet (filed as
Exhibit 10.4 to the USC 8-K and incorporated herein by
reference)
2
<PAGE>
10.5 Common Stock Purchase Warrant dated January 30, 1998
between Canmax Inc. and James C. Bernet (filed as
Exhibit 10.5 to the USC 8-K and incorporated herein by
reference)
23.1 Consent of Ernst & Young LLP, independent auditors*
*Filed herewith
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Canmax Inc.
(Registrant)
DATE: April 15, 1998 By: /s/ Roger D. Bryant
-----------------------------------
Roger D. Bryant
Chief Executive Officer & President
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
USCommunication Services, Inc.
We have audited the accompanying consolidated balance sheets of USCommunication
Services, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' deficit and cash flows for the year
ended December 31, 1997 and the period from inception (August 7, 1996) to
December 31, 1996. 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 USCommunication
Services, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for the year ended December 31, 1997 and the
period from inception (August 7, 1996) to December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
San Diego, California
April 3, 1998
A-1
<PAGE>
USCOMMUNICATION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash $ 39,983 $ 535
Accounts and other receivables, net of allowances
for doubtful accounts of $87,966 and $0 at
December 31, 1997 and 1996, respectively 156,432 -
Prepaids and other current assets 5,415 -
--------- --------
Total current assets 201,830 535
--------- --------
Property and equipment, net (Note 3) 425,343 -
--------- --------
Total assets $ 627,173 $ 535
--------- --------
--------- --------
Liabilities and Shareholders' Deficit:
Notes payable (Note 4) $ 282,863 $ 4,167
Notes payable from shareholders (Note 4) 20,000 -
Accounts payable 439,062 1,463
Accrued liabilities (Note 6) 209,461 800
Advances from shareholder (Note 5) 27,021 40,665
Deferred revenue 103,859 -
--------- --------
Total current liabilities 1,082,266 47,095
--------- --------
Commitments (Note 8)
Shareholders' deficit:
Class A Common Stock:
Common stock, par value $0.001, 24,000,000 shares
authorized; 20,000,000 shares issued and outstanding 20,000 -
Common stock subscribed, 2,050,000 shares,
par value $0.001 - 7,000
Class B Common Stock:
Common stock, par value $0.001, 5,000,000 shares
authorized, none issued and outstanding - -
Additional paid in capital 76,000 -
Accumulated deficit (551,093) (53,560)
--------- --------
Total shareholders' deficit (455,093) (46,560)
--------- --------
Total liabilities and shareholders' deficit $ 627,173 $ 535
--------- --------
--------- --------
</TABLE>
See accompanying notes.
A-2
<PAGE>
USCOMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ -----------------
<C> <C> <C>
Net sales $ 605,705 $ -
Service fees 114,000 44,866
--------- --------
Total revenues 719,705 44,866
Cost of goods sold 545,699 -
--------- --------
Gross profit 174,006 44,866
--------- --------
General and administrative 440,042 85,292
Sales and marketing 223,871 13,009
--------- --------
Total operating expenses 663,913 98,301
--------- --------
Loss from operations (489,907) (53,435)
Interest expense 7,626 125
--------- --------
Net loss $(497,533) $(53,560)
--------- --------
--------- --------
</TABLE>
See accompanying notes.
A-3
<PAGE>
USCOMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
Common Common Additional
Stock Stock Paid-In Accumulated
Shares Amount Subscribed Capital Deficit Total
---------- ------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
August 7, 1996
(inception) - $ - $ - $ - $ - $ -
Common stock
subscribed - - 7,000 - - 7,000
Net loss (53,560) (53,560)
---------- ------- ------- ------- --------- ---------
Balance at
December 31, 1996 - - 7,000 - (53,560) (46,560)
Common stock
issued 20,000,000 20,000 (7,000) 76,000 - 89,000
Net loss (497,533) (497,533)
---------- ------- ------- ------- --------- ---------
Balance at
December 31, 1997 20,000,000 $20,000 $ - $76,000 $(551,093) $(455,093)
---------- ------- ------- ------- --------- ---------
---------- ------- ------- ------- --------- ---------
</TABLE>
See accompanying notes.
A-4
<PAGE>
USCOMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Operating Activities
Net loss $(497,533) $(53,560)
Reconciliation to cash provided by operating activities:
Depreciation and amortization 57,474 -
Provision for bad debt 87,966 -
Changes in operating assets and liabilities
Accounts receivable (244,398) -
Prepaids and other current assets (5,415) -
Accounts payable and accrued liabilities 646,260 2,263
Deferred revenue 103,859 -
--------- --------
Net cash provided by (used in) operating activities 148,213 (51,297)
--------- --------
Investing activities:
Capital expenditures (482,817) -
--------- --------
Net cash used in investing activities (482,817) -
--------- --------
Financing activities:
Proceeds from notes payable 368,235 5,000
Payments on notes payable (69,539) (833)
Advances from shareholder 156,307 64,861
Repayment of shareholder advances (169,951) (24,196)
Common stock subscribed - 7,000
Common stock issued 89,000 -
--------- --------
Net cash provided by financing activities 374,052 51,832
--------- --------
Net increase (decrease) in cash 39,448 535
Cash, beginning of the period 535 -
--------- --------
Cash, end of the period $ 39,983 $ 535
--------- --------
--------- --------
</TABLE>
See accompanying notes.
A-5
<PAGE>
USCOMMUNICATION SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
USCommunication Services, Inc. ("USC" or the "Company") was incorporated in the
state of Delaware on August 7, 1996 as Nationwide Transportation Products, Inc.
On August 19, 1997, the Company changed its name to USCommunication Services,
Inc.
USC provides telecommunication and internet products and services to its
customers, most of which are in the transportation industry. USC's products and
services include prepaid calling cards, one plus long distance services, public
internet access kiosks, pay telephones and pallet exchange services.
2. SUMMARY OF SIGNIFICANT POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USC and its
wholly-owned subsidiary, Convenient Pallets, Inc. All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
The following describe USC's revenue recognition policies by type of activity:
PREPAID PHONE CARDS
Under the majority of agreements with customers, USC sells phone cards to the
customer at a fixed price with normal credit terms. Upon shipment of the
customer's order, revenue is recognized, except for phone cards shipped on
consignment to certain customers at which time revenue is recognized upon
sale of phone cards to end users. Concurrently with the recognition of
revenue, USC accrues the estimated cost of the phone card minutes sold based
on historical information. As USC receives invoices from its suppliers for
actual minutes used, the accrual account is reduced.
USC periodically evaluates the cost of actual minutes used and updates its
estimates accordingly. At the end of each period, USC adjusts the accrued
minutes account to reflect the estimated cost of unused calling time
outstanding. Such adjustments typically result from the expiration of cards
containing unused calling time and differences in minutes decremented on the
calling card platform versus minutes invoiced by USC's supplier.
INTERNET KIOSKS
Revenue from internet kiosks is recognized as minutes are logged by the
customer. The customer pays for internet access at the time of usage by cash or
credit card. Under the majority of agreements with kiosk locations, USC pays
the location a commission based on a percentage of net revenues generated by the
location. Net revenues are defined as gross revenue from the internet kiosk
less direct costs including line charges. Additional commissions are paid under
a technology license agreement with one of USC's suppliers. (See Note 9).
OTHER
Revenue from long distance reselling agreements is recognized based on actual
usage by the customer. Revenue from pallet exchange services is recognized upon
sale of pallets to customers. Revenue from fuel management, sales and marketing
services is recognized monthly as services are provided.
A-6
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from 2 to 5 years.
Maintenance and repairs are charged to expense as incurred. The Company
capitalizes renewals and betterments which significantly enhance the value or
extend the useful life of an asset. Upon sale or retirement of depreciable
assets, the cost and related accumulated depreciation are removed from the
accounts, and the resulting gain or loss is credited to or charged against
income.
INCOME TAXES
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.
STATEMENT 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. Included in the
Company's cash balance at December 31, 1997 is $40,466 in cash deposits made by
customers for reimbursement of fuel purchased under the Company's fuel
management program. Total interest paid during 1997 and 1996 amounted to $5,253
and $125, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of accounts receivable. USC primarily markets its products
and services to individuals and businesses in the transportation industry
through national and regional truckstops and trucking fleets. USC performs
periodic credit evaluations of its customers and generally does not require
collateral. Billed receivables are generally due within 30 days. No
customer accounted for more than 10% of revenues for either period presented
or accounted for more than 10% of accounts receivable at either December 31,
1997 or 1996.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amounts of its cash, accounts receivable,
accounts payable, accrued liabilities, advances from shareholders and notes
payable approximate their fair market values due to their short-term nature or
variable interest rates.
EQUITY
On October 3, 1997, the Company effected a 16,000 for 1 stock split. All share
amounts have been retroactively restated to reflect this stock split.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
REPORTING COMPREHENSIVE INCOME and SFAS 131, SEGMENT INFORMATION. Both of
these standards are effective for the fiscal years
A-7
<PAGE>
beginning after December 15, 1997. SFAS 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. The Company's
comprehensive loss will not be materially different than net loss as reported.
SFAS 131 amends the requirements for public enterprises to report financial and
descriptive information about its reportable operating segments. The Company
currently operates in one business and operating segment and does not believe
adoption of this standard will have a material impact on the Company's financial
statements as reported.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
1997
--------
<S> <C>
Furniture and fixtures $ 368
Payphone equipment 6,288
Computer equipment 132,589
Kiosk equipment 219,420
Dispensing equipment 124,152
--------
482,817
Less accumulated depreciation (57,474)
--------
$425,343
--------
--------
</TABLE>
4. NOTES PAYABLE
<TABLE>
<S> <C>
Notes payable consists of the following at December 31, 1997:
Notes payable to shareholders, interest at 15%, principal and interest
due January 30, 1998 $ 20,000
Notes payable to individuals, interest at 15%, principal and interest
due January 30, 1998 50,000
Notes payable to Canmax Inc., interest at 12%, interest payable
monthly, principal due December 12, 1998, personally guaranteed by
shareholder and President of USC 100,000
Revolving line of credit, interest at prime plus 1% (9.3% at
December 31, 1997), principal and interest of $25,000 payable monthly 132,863
--------
$302,863
--------
--------
</TABLE>
The Company maintains a $500,000 revolving line of credit with a major supplier,
PayNet Communications, Inc. ("Paynet"), to finance the installation of computer
equipment for the Company's internet kiosk product. The line is collateralized
by the related equipment, personally guaranteed by the President of USC and
expires August 1, 2000. At December 31, 1997, the Company had amounts
outstanding and available under such line of $132,863 and $367,137,
respectively.
The notes payable to shareholders and individuals aggregating $70,000 were
initially convertible into common stock of USC at a conversion price of $1 per
share for $11,000 of the notes and $0.685 per share for the remaining $59,000 of
the notes. On January 23, 1998, the terms of the aforementioned notes were
amended. The parties agreed to waive the conversion feature of the notes and
extend the due dates of notes to April 1, 1998 in exchange for increasing the
interest rate on the notes to 16%.
A-8
<PAGE>
5. ADVANCES FROM SHAREHOLDER
Throughout 1996 and 1997, the President and a beneficial shareholder of USC made
advances to USC. These advances are unsecured and do not bear interest.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
1997 1996
-------- ----
<S> <C> <C>
Accrued network costs $166,487 $ -
Accrued payroll 39,413 -
Other 3,561 800
-------- ----
$209,461 $800
-------- ----
-------- ----
</TABLE>
7. INCOME TAXES
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 December 31 are as
follows:
<TABLE>
1997 1996
---------------------- ---------------------
Asset Liability Asset Liability
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 35,186 $ - $ - $ -
Depreciation 3,750 - - -
Organizational costs 13,683 - 14,876 -
Other - - - (3,876)
Net operating losses 152,910 - 6,691 -
--------- ------- -------- -------
$ 205,529 $ - $ 21,567 $(3,876)
--------- ------- -------- -------
--------- ------- -------- -------
Current deferred tax asset (liability) $ 35,186 $ (3,876)
Valuation allowance (35,186) -
--------- --------
$ - $ (3,876)
--------- --------
--------- --------
Noncurrent deferred tax asset $ 170,343 $ 21,567
Valuation allowance (170,343) (17,691)
--------- --------
$ - $ 3,876
--------- --------
--------- --------
</TABLE>
A-9
<PAGE>
The reconciliation of income tax provision at the statutory United States
federal income tax rates to the income tax provision is:
<TABLE>
1997 1996
--------- --------
<S> <C> <C>
Federal income tax benefit at
statutory rate $(169,161) $(18,210)
State income taxes, net of
federal tax benefit (29,851) -
Valuation allowance 187,838 17,691
Other 11,174 519
--------- --------
$ - $ -
--------- --------
--------- --------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $413,000 and $207,000
which expire in 2004 through 2012. Utilization of net operating losses may
be subject to annual limitations due to the ownership change limitation
provided by the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses before utilization.
8. COMMITMENTS
Effective December 22, 1997, the Company began leasing office space under a
noncancellable operating lease agreement which expires December 31, 2000.
Future minimum lease payments for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 36,355
1999 38,172
2000 40,081
--------
$114,608
--------
--------
</TABLE>
Prior to December 22, 1997, the Company subleased office space on a month-to-
month basis from the President and beneficial shareholder of the Company for
$1,500 per month. Total rent expense paid to this related party, was $18,000
and $7,500 for 1997 and 1996, respectively.
9. MAJOR SUPPLIERS
WORLDCOM NETWORK SERVICES, INC.
Both inbound calls to and outbound calls from USC's platform placed by consumers
through USC's prepaid phone cards and long distance calls placed by customers
subscribing to USC's one plus long distance services are carried by WorldCom
Network Services, Inc. ("WorldCom"). USC obtains telecommunication services
pursuant to supply agreements with WorldCom. Effective March 1, 1998, the
WorldCom supply agreement was amended. The amended agreement expires March 1,
2001 and reflects revised supply rates and discounts agreed to by both parties.
Pursuant to the terms of the amended supply agreement, USC is subject to the
following monthly supply commitments.
July 1, 1998 to September 30, 1998 $ 250,000
October 1, 1998 to December 31, 1998 $ 500,000
January 1, 1999 to March 31, 1999 $ 750,000
April 1, 1999 to March 1, 2001 $1,000,000
CALLSOURCE, INC.
USC's prepaid phone card services are delivered through proprietary switching,
application, and database access software running on the USC platform. The USC
platform located in California, is owned by USC and is operated for
USC by CallSource, Inc. ("CallSource"). The USC platform allows users to access
USC's prepaid phone card services.
A-10
<PAGE>
PAYNET COMMUNICATIONS, INC.
USC's TravelNet kiosks are operated under a technology license agreement with
PayNet Communications, Inc. ("PayNet"). As part of the technology license
agreement, USC has agreed to pay to PayNet a commission of 50% of net revenues.
Net revenues are defined as gross revenue from the internet kiosks less direct
costs including line charges and commissions paid to the location.
Additionally, PayNet provides a revolving line of credit to USC. (See Note 4).
10. SUBSEQUENT EVENTS
On January 30, 1998, USC was acquired by Canmax, Inc. ("Canmax"). Pursuant to
the terms of an Agreement and Plan of Merger dated as of January 30, 1998 (the
"Merger Agreement") by and among Canmax, USC and a wholly owned subsidiary of
Canmax (the "Subsidiary"), USC was merged with and into the Subsidiary, with the
Subsidiary being the surviving corporation in the merger (the "Surviving
Corporation") and electing to continue its operations under the name
"USCommunication Services, Inc." Pursuant to the Merger Agreement, the former
stockholders of USC received an aggregate of 1.5 million shares of Canmax Common
Stock, a warrant that is exercisable during the five (5) year period commencing
January 30, 1998 to acquire 1.5 million shares of Canmax Common Stock at an
exercise price of $1.25 per share, and a warrant that is exercisable during the
five (5) year period commencing January 30, 2000 to acquire 1.0 million shares
of Canmax Common Stock at an exercise price of $2.00 per share.
A-11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On January 30, 1998, Canmax acquired USC in a transaction recorded under the
purchase method. The total purchase price of the acquisition was $2,952,204
comprised of the following consideration:
<TABLE>
Number of shares Value Assigned
---------------- --------------
<S> <C> <C>
Canmax Common Stock 1,500,000 $1,458,973
Warrants 1,500,000 653,055
Warrants 1,000,000 535,370
--------- ----------
Subtotal 4,000,000 2,647,398
---------
---------
Cash advances made to USC 250,000
Acquisition costs 54,806
----------
Total Purchase Price $2,952,204
----------
----------
</TABLE>
The fair value of the warrants issued in connection with the acquisition was
estimated using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<S> <C>
Risk-free interest rates 5.5% - 6.0%
Dividend yields 0%
Volatility factor 0.921
Expected life of warrants 2 - 4 yrs
</TABLE>
In accordance with the purchase method of accounting, the purchase price was
allocated to the assets acquired and liabilities assumed based on the estimated
fair value of such assets and liabilities at the date of acquisition. The
excess of the purchase price over the fair value of the net assets acquired was
recorded as goodwill and will be amortized over 5 years on a straight-line
basis.
The USC acquisition is reflected in the unaudited consolidated balance sheet of
Canmax previously filed with the Commission on Form 10-Q for the quarter ended
January 31, 1998.
The unaudited pro forma combined condensed statement of operations for the three
months ended January 31, 1998 combines the unaudited consolidated statement of
operations of Canmax for the three months ended January 31, 1998 and the
unaudited consolidated statement of operations of USC for the three months ended
December 31, 1997, as if the acquisition had occurred at the beginning of the
respective period.
The unaudited pro forma combined condensed statement of operations for the year
ended October 31, 1997, combines the audited consolidated statement of
operations of Canmax for the year ended October 31, 1997, and the audited
consolidated statement of operations of USC for the year ended December 31,
1997, as if the acquisition had occurred at the beginning of the respective
fiscal year.
The unaudited pro forma combined condensed financial information described above
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the acquisition occurred at the beginning of the periods presented,
nor is it necessarily indicative of future financial position or results of
operations.
The unaudited pro forma combined condensed statements of operations should be
read in conjunction with (i) the historical financial statements of Canmax which
are included in the annual report on Form 10-K for the year ended October 31,
1997 and on Form 10-Q for the three months ended January 31, 1998, previously
filed with the Commission and (ii) the historical financial statements of USC
for the year ended December 31, 1997 included herein.
B-1
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
Historical Pro Forma
------------------------------------ -------------------------
USCommunication
Canmax Inc. Services, Inc.
Three months Three months
ended ended
January 31, 1998 December 31, 1997 Adjustments Combined
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses and
product revenue $ 215,225 $ - $ - $ 215,225
Development 840,745 - - 840,745
Service agreements 547,980 - - 547,980
Prepaid phone cards,
kiosks, long distance
reselling and other - 543,205 - 543,205
---------- ---------- --------- -----------
1,603,950 543,205 - 2,147,155
---------- ---------- --------- -----------
Costs and expenses:
Costs of software licenses
and product revenue 169,909 - - 169,909
Cost of development revenues 401,082 - - 401,082
Costs of prepaid phone cards,
kiosks, long distance
reselling and other - 489,815 - 489,815
Customer service 476,613 - - 476,613
Product development 170,944 - - 170,944
Sales and marketing 151,338 153,968 - 305,306
General and administrative 783,357 390,090 146,435(A) 1,319,882
---------- ---------- --------- -----------
2,153,243 1,033,873 146,435 3,333,551
---------- ---------- --------- -----------
Operating (loss) (549,293) (490,668) (146,435) (1,186,396)
Other expense:
Interest, net 9,240 7,189 - 16,429
---------- ---------- --------- -----------
Net loss $ (558,533) $ (497,857) $(146,435) $(1,202,825)
---------- ---------- --------- -----------
---------- ---------- --------- -----------
Net loss per common and
common equivalent share -
basic and diluted $ (0.08) $ (0.15)
---------- -----------
---------- -----------
Shares used in per share
computation - basic and diluted 6,627,309 8,111,005
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
B-2
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
Historical Pro Forma
------------------------------------- ---------------------------
USCommunication
Canmax Inc. Services, Inc.
Year ended Year ended
October 31, 1997 December 31, 1997 Adjustments Combined
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses and
product revenue $ 1,924,897 $ - $ - $ 1,924,897
Development 8,704,338 - - 8,704,338
Service agreements 2,106,988 - - 2,106,988
Prepaid phone cards,
kiosks, long distance
reselling and other - 719,705 - 719,705
----------- ---------- --------- -----------
12,736,223 719,705 - 13,455,928
----------- ---------- --------- -----------
Costs and expenses:
Costs of software licenses
and product revenue 772,502 - - 772,502
Cost of development
revenues 4,564,441 - - 4,564,441
Costs of prepaid phone
cards, kiosks, long
distance reselling and
other - 545,699 - 545,699
Customer service 2,254,986 - - 2,254,986
Product development 614,503 - - 614,503
Sales and marketing 608,445 223,871 - 832,316
General and
administrative 3,813,267 440,042 585,740 (A) 4,839,049
----------- ---------- --------- -----------
12,628,144 1,209,612 585,740 14,423,496
----------- ---------- --------- -----------
Operating income (loss) 108,079 (489,907) (585,740) (967,568)
Other expense:
Interest, net 20,748 7,626 - 28,374
----------- ---------- --------- -----------
Net income (loss) $ 87,331 $ (497,533) $(585,740) $ (995,942)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
Net income (loss) per
common and common
equivalent share - basic
and diluted $ 0.01 $ (0.14)
----------- -----------
----------- -----------
Shares used in per share
computation - basic 5,827,262 7,327,262
----------- -----------
----------- -----------
Shares used in per share
computation - diluted 6,649,641 7,327,262
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
B-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(A) Adjustment to reflect the pro forma amortization of goodwill over 5 years
on a straight-line basis of $146,435 and $585,740 for the three months
ended January 31, 1998 and the year ended October 31, 1997, respectively.
B-4
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-23313) pertaining to the Canmax Inc. Stock Option Plan and
the Registration Statement (Form S-3 No. 333-33523) pertaining to 863,364
shares of Canmax Inc. common stock of our report dated April 3, 1998, with
respect to the consolidated financial statements of USCommunication Services,
Inc. included in Amendment No. 1 to Current Report on Form 8-K dated January
30, 1998, filed with the Securities and Exchange Commission on or about April
15, 1998.
ERNST & YOUNG LLP
San Diego, California
April 13, 1998
