<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended January 31, 1999
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From _______________ to _______________
Commission file number 0-22636
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ARDIS Telecom & Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2801677
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 Jetstar Drive, Suite 100
Irving, Texas 75063
---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(972) 929-1920
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Canmax Inc.
150 W. Carpenter Freeway
Irving, Texas 75039
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of March 14, 1999, 6,861,005 shares of common stock, $.001 par value per
share, were outstanding.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, OCTOBER 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................... $ 2,270,680 $ 207,609
Trade accounts receivable............................................... 731,388 292,086
Inventory............................................................... 212,954 229,672
Prepaid expenses and other.............................................. 90,197 29,002
Current portion of long-term receivable................................. 204,586 177,845
Current assets of discontinued operations............................... -- 2,305,502
-------------- -------------
Total current assets.................................................. 3,509,805 3,241,716
-------------- -------------
PROPERTY AND EQUIPMENT, net............................................... 65,491 59,135
PROPERTY AND EQUIPMENT OF DISCONTINUED OPERATIONS, net.................... -- 524,849
LONG-TERM RECEIVABLE, net of current portion.............................. 343,104 397,851
OTHER ASSETS.............................................................. 9,722 17,387
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS............................... -- 1,049,641
-------------- -------------
TOTAL ASSETS.............................................................. $ 3,928,122 $ 5,290,579
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................................. $ 355,670 $ 622,836
Accrued liabilities..................................................... 155,515 227,578
Deferred revenue........................................................ 23,425 46,033
Advances from shareholder............................................... 500,000 1,500,000
Current liabilities of discontinued operations.......................... -- 1,683,591
Note payable - current.................................................. 35,195 --
-------------- -------------
Total current liabilities............................................. 1,069,805 4,080,038
-------------- -------------
LONG-TERM LIABILITIES
Long-term payables...................................................... 7,006 --
Long-term payables of discontinued operations........................... -- 146,693
-------------- -------------
Total long-term liabilities........................................... 7,006 146,693
============== =============
SHAREHOLDERS' EQUITY
Common stock, 44,169,100 shares authorized; 6,861,005 and 6,611,005
shares, no par value per share, issued and outstanding at January 31,
1999 and October 31, 1998, respectively............................... 24,938,974 24,858,809
Accumulated deficit..................................................... (22,082,244) (23,789,545)
Foreign currency translation adjustment................................. (5,419) (5,416)
-------------- -------------
Total shareholders' equity............................................ 2,851,311 1,063,848
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $ 3,928,122 $ 5,290,579
============== =============
</TABLE>
See accompanying notes.
2
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Prepaid phone cards and other............................................. $ 1,542,719 $ --
------------ ------------
Total revenues.......................................................... 1,542,719 --
------------ ------------
COSTS AND EXPENSES
Prepaid phone cards and other............................................. 1,417,221 --
Sales & marketing......................................................... 220,098 --
General & administrative.................................................. 420,721 --
Depreciation and amortization............................................. 10,363 --
------------ ------------
Total cost of revenues.................................................. 2,068,403 --
------------ ------------
OTHER INCOME (EXPENSES)
Interest expense.......................................................... (39,868) --
Interest income........................................................... 38,978 --
------------ ------------
Total other expense..................................................... (890) --
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS......................................... (526,574) --
DISCONTINUED OPERATIONS
Income (loss) from operation of software business,
net of income taxes of $0............................................... 218,376 (558,533)
Gain on sale of software business, net of income taxes of $0.............. 2,015,494 --
------------ ------------
NET INCOME (LOSS)........................................................... $ 1,707,296 $ (558,533)
============ ============
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations..................................................... $ (0.08) $ --
Discontinued operations................................................... 0.34 (0.08)
------------ -----------
Net earnings (loss)....................................................... $ 0.26 $ (0.08)
============ ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations..................................................... $ (0.08) $ --
Discontinued operations................................................... 0.34 (0.08)
------------ ------------
Net earnings (loss)....................................................... $ 0.26 $ (0.08)
============ ============
SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS:
Basic common shares....................................................... 6,627,309 6,627,309
Dilutive impact of stock options and warrants............................. -- --
------------ ------------
Diluted common shares..................................................... 6,627,309 6,627,309
------------ ------------
</TABLE>
See accompanying notes.
3
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
JANUARY 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................................... $ 1,707,296 $ (558,533)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operating activities:
Loss (income) from discontinued operations................................ (218,376) 558,533
Gain on disposal of software business..................................... (2,015,494) --
Stock issued for services................................................. 74,225 --
Warrants issued for services.............................................. 5,942 --
Depreciation and amortization............................................... 10,363 --
(Increase) decrease in:
Trade accounts receivable............................................... (439,302) --
Inventory............................................................... 16,718 --
Prepaid expenses and other.............................................. (65,362) --
Other assets............................................................ 7,665 --
Increase (decrease) in:
Trade accounts payable.................................................. (267,166) --
Accrued liabilities..................................................... (50,509) --
Deferred revenue........................................................ (22,608) --
------------ ------------
Net cash provided by (used in) operating activities from
continuing operations..................................................... (1,256,608) --
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of software business..................................... 3,769,917 --
Purchase of property and equipment.......................................... (12,552) --
Payments on note receivable................................................. 6,452 --
------------ ------------
Net cash provided by investing activities of
continuing operations..................................................... 3,763,817 --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of convertible debenture-shareholder.............................. (1,000,000) --
Payments on notes payable................................................... (9,011) --
------------ ------------
Net cash provided by (used in) financing activities
of continuing operations.................................................. (1,009,011) --
------------ ------------
Cash provided by (used in) discontinued operations.......................... 564,873 312,004
------------ ------------
NET INCREASE IN CASH........................................................ 2,063,071 312,004
Cash at beginning of period................................................. 207,609 128,871
------------ ------------
Cash at end of period....................................................... $ 2,270,680 $ 440,875
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Cash paid for interest.................................................... $ 39,868 $ 9,240
============ ============
Offset of accounts payable against notes receivable....................... $ 21,554 $ --
============ ============
Stock issued for services................................................. $ 74,225 $ --
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended January
31, 1999 are not necessarily indicative of the results that may be expected for
the year ending October 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K/A for the year ended October 31, 1998.
A predecessor to ARDIS Telecom & Technologies, Inc. (the "Company" or "Ardis")
was incorporated on July 10, 1986 under the Company Act of the Province of
British Columbia, Canada, and subsequently changed its name to "International
Retail Systems Inc." On August 7, 1992, this predecessor company renounced its
original province of incorporation and elected to continue its domicile under
the laws of the State of Wyoming, and on November 30, 1994, its name was changed
to "Canmax Inc." On February 1, 1999 this predecessor company reincorporated
under the laws of the State of Delaware and changed its name to "ARDIS Telecom &
Technologies, Inc."
During 1998, the Company began competing in the telecommunications market
through its wholly-owned subsidiary, Canmax Telecom, Inc. ("Telecom"). Telecom's
operations include mainly sales and distribution of prepaid domestic and
international calling cards to wholesale and retail customers (the
"Telecommunications Business"). In August 1998, the Company entered into an
agreement with PT-1 Communications, Inc. ("PT-1"). The agreement provides for
PT-1 to supply long distance telecom and debit services, for use in the
Company's marketing and distribution of domestic and international prepaid long
distance calling cards. PT-1 is currently the sole source of these services to
the Company.
The Company, through its wholly owned subsidiary Canmax Retail Systems, Inc.
("CRSI") developed and provided enterprise wide technology solutions to the
convenience store and retail petroleum industries, its "Software Business." On
December 7, 1998, the Company obtained shareholder approval for the sale of, and
sold, the assets of its Software Business (the "Software Business Sale"). The
results of operations of the Software Business through December 7, 1998 have
been presented in the financial statements as discontinued operations. Results
of operations in prior years have been restated to reclassify the Software
Business as discontinued operations. The measurement date for the sale is
December 7, 1998, the date the shareholders approved the transaction.
NOTE B - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
DISCONTINUED OPERATIONS:
Prior to December 7, 1998, the Company derived its sales primarily from
customers in the retail petroleum market. The Company performed periodic
credit evaluations of its customers and generally did not require
collateral. Billed receivables were generally due within 30 days. Credit
losses have historically been insignificant.
5
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS (Continued)
The Company's revenues were concentrated in The Southland Corporation
("Southland"), which accounted for approximately 86% and 84%, of the
Company's total discontinued revenue for the three month periods ended
January 31, 1999 and 1998, respectively. The Company's revenues derived
from its relationship with Southland included products and services
provided directly by the Company to Southland and indirectly through NCR
Corporation ("NCR") to Southland pursuant to NCR's contract with Southland.
No other customer accounted for over 10% of Ardis's total revenues.
CONTINUING OPERATIONS:
Two customers accounted for approximately 45% of revenues during the three
month period ended January 31, 1999, and approximately 48% of the trade
accounts receivable balance at January 31, 1999. The Company generally does
not require collateral for its trade accounts. The Company has a note
receivable from its prior subsidiary, USCommunication Services, Inc.
("USC"), totaling $547,690. The note is secured by a lien on all of USC's
assets, bears interest at 12% per annum, is payable in monthly installments
of principal and interest and matures June 15, 2001.
NOTE C - CONVERTIBLE DEBENTURES
On December 15, 1997, the Company executed a convertible loan agreement (the
"Original Agreement") with a shareholder, Founders Equity Group, Inc.
("Founders"), which provided financing of up to $500,000. Funds obtained under
the loan agreement were collateralized by all assets of the Company and bear
interest at 10%. Required payments were for interest only and were due monthly
beginning February 1, 1998. Borrowings under the loan agreement originally
matured January 1, 1999, unless otherwise redeemed or converted. Under the terms
of the loan agreement, Founders was entitled to exercise its right at any time
to convert all, or in multiples of $25,000, any part of the borrowed funds into
Common Stock at a conversion price of $1.25 per share. The conversion price was
subject to adjustment for certain events and transactions as specified in the
loan agreements. Additionally, the outstanding principal amount was redeemable
at the option of the Company at 110% of par.
On February 11, 1998, the Company and Founders executed a loan commitment letter
(the "Loan Commitment") which provided for multiple advance loans of up to $2
million upon terms similar to the Original Agreement; however, indebtedness
outstanding under the Loan Commitment was convertible into shares of Common
Stock at a conversion price equal to the average closing prices of the Common
Stock over the five-day trading period immediately preceding the date of each
advance. As consideration for the Loan Commitment, the Company paid a commitment
fee of $10,000.
As of March 31, 1998, Founders (and certain of its affiliates) entered into the
First Restated Loan Agreement (the "Loan Agreement"), which consolidated all
rights and obligations of the Company to Founders under the Original Agreement
and the Loan Commitment. Amounts advanced under the Loan Agreement bore interest
at the rate of 12% per annum, were secured by a lien on all other Company's
assets and were convertible into shares of Common Stock, at the option of
Founders, at $0.80 per share. On August 25, 1998, Founders agreed to release its
lien on all of the Company's assets upon the consummation of the sale of the
Software Business. As consideration for the release, the Company agreed, upon
the consummation of the sale, to repay $1.0 million of the $1.5 million
currently outstanding under the Loan Agreement, and to allow Founders to
convert, at the Company's option, the remaining $0.5 million plus accrued but
unpaid interest outstanding under the Loan Agreement into shares of Common Stock
at a conversion price of $.50 per share.
6
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CONVERTIBLE DEBENTURES (Continued)
On February 5, 1998, Founders and the Company entered into a financial
consulting agreement pursuant to which Founders agreed to provide financial
advisory and consulting services to the Company, and the Company agreed to pay
to Founders a fee equal to 3% of the value of the consideration received in any
sale or merger of any division or subsidiary of the Company. As a result of this
agreement, Founders received $120,000 of the initial proceeds of the sale of the
Software Business. Founders agreed to forego any further payments that may be
attributable to the Company's receipt of deferred payments in connection with
the sale.
On December 11, 1998, the Company and Founders executed Amendment No. 1 to the
Loan Agreement. As a result of the amendment, the Company agreed to defer
Founders' conversion of the remaining indebtedness outstanding under the Loan
Agreement in exchange for (a) Founders' waiver of any registration obligation
under the Registration Rights Agreement dated May 1, 1997 or under the Loan
Agreement until February 1, 1999 or the Company's earlier delivery of a
conversion notice with regard to the outstanding indebtedness, (b) the
adjustment of the conversion price for the remaining convertible indebtedness
outstanding under the Loan Agreement ($500,000) from $.50 per share to the
greater of $.50 per share or 75% of the average closing price of the Common
Stock over the ten trading days preceding the delivery of a conversion notice,
and (c) Founders' agreement to convert the remaining outstanding principal
amount under the Loan Agreement ($500,000) upon written notice from the Company
at the adjusted conversion agreed to price described above. Further, the
amendment to the Loan Agreement reduced the interest rate payable on the
outstanding principal amount under the Loan Agreement from 12% to 9% per annum.
The amendment also terminated any additional funding obligations of Founders
under the Loan Agreement.
The Company used $1,000,000 from the Software Business Sale proceeds to pay down
the Founders debt. At January 31, 1999, shareholder advances from Founders
totaled $500,000.
Interest expense in connection with Founders debt was $24,615 for the three
month period ended January 31, 1999.
NOTE D - LIQUIDITY
Upon consummation of the Software Business Sale on December 7, 1998, the Company
received its initial installment of $4,000,000, approximately $1,100,000 of
which has been used to repay amounts owed to Founders and $250,000 of which was
used to pay transaction expenses. The Company plans to commit approximately $1.0
million for capital investments in the Telecommunications Business during fiscal
1999, and plans to internally fund additional infrastructure development through
operations of the Telecommunications Business. The Company believes existing
capital resources and cash from operations will be sufficient to meet the
Company's capital and liquidity needs through fiscal 1999.
7
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - DISCONTINUED OPERATIONS
On December 7, 1998, the Company sold substantially all of the assets of CRSI.
Pursuant to the terms of the Purchase Agreement, the Company sold the assets and
received $4,000,000 at closing and transferred certain liabilities arising from
the Software Business. Ardis is entitled to receive additional deferred payments
of up to an additional $3,625,000 calculated as described below.
The deferred payments will be calculated at the end of each calendar quarter
during the twelve month period commencing on January 1, 1999. Each deferred
payment is calculated based upon the cumulative level of revenue attributable to
the Software Business from January 1, 1999 through the end of each three month
period through December 31, 1999, and equals (a) the sum of (i) 75% of all such
revenues greater than $4 million and less than or equal to $7 million plus (ii)
13.75% of all such revenues greater than $7 million or less than or equal to $17
million, minus (b) the sum of any deferred payments previously made. If CRSI
disputes any calculation of the amount of any deferred payment and such dispute
cannot be resolved among the parties, then the independent public accountants
for each party are to mutually designate a third independent public accountant
to resolve such dispute and the determination of such designated party will be
conclusive and binding on all parties.
On January 21, 1999, the purchaser and Ardis calculated the net working capital
(generally current assets other than cash minus current liabilities) as of the
closing date, and the purchaser received an amount equal to the negative
difference between the net working capital as of the closing of $230,083.
The Company recorded a gain on the sale of the Software Business of $2,015,494.
The gain is calculated as net proceeds of $3,769,917 less net assets of
$1,693,259 less legal and accounting fees related to the sale of $61,164.
Summarized operating results of the discontinued Software Business operations
are as follows:
<TABLE>
<CAPTION>
Period from
November 1, Three months
through Ended
December 7, January 31,
1998 1998
-------------- ---------------
<S> <C> <C>
Revenues.............................. $ 1,686,945 $ 1,603,950
Costs and expenses.................... 1,468,569 2,162,483
-------------- ---------------
Net income (loss)..................... $ 218,376 $ (558,533)
============== ===============
</TABLE>
8
<PAGE>
ARDIS TELECOM & TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Canmax Inc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - SHAREHOLDERS' EQUITY (Continued)
WARRANT ISSUANCES
On January 11, 1999, the Company retained a consultant to assist in its investor
relations activities by issuing warrants to acquire 50,000 shares of Company
common stock at an exercise price of $.29 per share. The right to acquire 25,000
shares under such warrant vests on January 10, 2000, and the right to acquire
the remaining 25,000 shares under the warrant vests on July 10, 2000.
Ardis recorded expense of $5,942 in January 1999 related to these Warrants. This
amount represents Ardis's estimate of the fair value of these warrants at the
date of grant using a Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 6.0%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock of
1.02; and an expected life of the warrant of 1 year.
COMMON STOCK ISSUANCES
On January 25, 1999 the Company issued 250,000 shares of the Company's common
stock to employees of the Company as compensation. In connection with the
issuance, the Company recorded $74,225 of compensation expense, such expense
being calculated as the difference between the trading price of the common stock
on the date of issuance and the proceeds received for the issuance.
NOTE G - YEAR 2000
The Company has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. The Company has
initiated communications with all of its significant suppliers and customers to
determine the extent to which the Company's internal systems and developed
software products are vulnerable to those third parties failure. In connection
with the sale of the Software Business, the Company and the purchaser of the
Software Business conducted a Year 2000 compliance audit of software and systems
developed by the Company. Such audit did not reveal any material items of
noncompliance, and the Company does not expect to incur any material expenses to
cause its developed software and systems to become Year 2000 compliant.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Through December 7, 1998, the Company operated two distinct businesses, its
retail automation software business (the "Software Business") and its prepaid
phone card and other telecommunications business (the "Telecommunications
Business"). For the three month period ended January 31, 1998, the Software
Business accounted for all of the Company's revenues. On December 7, 1998, the
Company consummated the sale of the Software Business to Affiliated Computer
Services, Inc. ("ACS"). As a result of the Software Business Sale, the Company
will no longer engage in the Software Business, and, its business will be
focused solely on its Telecommunications Business. Therefore, historic financial
information attributable to the Software Business will be reported as
discontinued operations.
The following discussion should be read in conjunction with the Company's Form
10-K/A and the consolidated financial statements for the years ended October 31,
1998, 1997 and 1996; the Company's Form 10-Q for the quarter ending January 31,
1998; and the consolidated financial statements and related notes for the
quarter ended January 31, 1999 found elsewhere in this report.
RESULTS OF OPERATIONS
In the later part of fiscal 1996, the Company decided that it was critical that
it expand its market beyond one vertical market and one large customer. After
evaluating a number of alternative strategies, the Company decided that the
rapidly expanding telecommunications market presented an opportunity to utilize
some of the technology and support capabilities that it had developed through
its Software Business. The Company chose to make its entry into the
telecommunications industry via the prepaid long distance market.
On January 30, 1998, the Company acquired USCommunications ("USC"). Effective
May 27, 1998, the Company and principals of USC agreed to rescind the USC
acquisition. Following its entry into the Telecommunications Business, the
Company formed Canmax Telecom, Inc., its telecommunications operating company
and a wholly-owned subsidiary, and has established sales and marketing
activities in four principle marketing channels for its prepaid phone card
program, including (a) wholesale and retail sales through independent
distributors, (b) direct sales to retail stores, (c) telemarketing sales to
retail stores, and (d) promotional and specialty marketing sales to businesses.
The initial product used to introduce the Company's Telecom division to the
market was referred to as the Latino Card, as it was targeted to the long
distance market for calls originating within the continental United States to
certain Latin American countries. Services required to offer this card were
provided by USC, and the Company continued to purchase those services from USC
following the rescission of the acquisition.
The Company has established a strategic relationship with PT-1 Communications,
Inc., the nation's largest prepaid card provider. This relationship enables the
Company to pursue its rapid growth plan in the prepaid market prior to the
commitment of a large facilities investment. The Company began marketing prepaid
phone cards with services provided by PT-1 in the latter part of August, 1998,
and at that time discontinued purchasing any services from USC except those
required to complete the operation of the already distributed Latino Cards.
The Company plans to commit approximately $1.0 million in capital investments
for fiscal 1999 to its Telecommunications Business, and plans to be able to
internally fund additional infrastructure development through operations. The
Telecommunications Business was launched during the second quarter of 1998. The
Company's interim financial statements for the three month period ended January
31, 1999 and management's discussion and analysis of the results of operations
for such period reflect the results of operations of the Telecommunications
Business only. Because Telecommunications Business was launched in the second
quarter of the 1998 fiscal
10
<PAGE>
RESULTS OF OPERATIONS (Continued)
year, the Company is not able to compare the results of operations for the
Telecommunications Business during the first quarter of fiscal 1999 to prior
periods. The results of operations of the Software Business have been condensed
into the line item caption "Discontinued Operations" in the Company's financial
statements and, because the Software Business has been discontinued, management
has not discussed the results of operations for the Software Business for the
three month period ended January 31, 1999 as compared to the same period in 1998
and the operations for the three month period ended January 31, 1998 as compared
to the same period in 1997.
REVENUE
For the three months ended January 31, 1999, the Company had pre-paid calling
card revenues from continuing operations of $1,543,000.
EXPENSES
For the three month period ended January 31, 1999, the Company had total costs
of revenues relating to revenue from continuing operations of $2,068,000. The
costs of revenues are mainly composed of pre-paid calling card activation costs,
printing and freight costs.
General and administrative costs attributable to continuing operations were
$421,000 for the three month period ended January 31, 1999. These costs were
primarily comprised of management, accounting, legal and overhead expenses.
Sales and marketing costs attributable to continuing operations during this
three month period were $220,000. Included in these costs are wages, travel and
promotional expenses.
Interest expense attributable to continuing operations were $40,000 for the
three month period ended January 31, 1999. These expenses were associated with
indebtedness outstanding under the Loan Agreement with Founders that was
entered into during fiscal 1998 and long term debt.
As a result of the foregoing, the Company incurred a net loss from continuing
operations of $527,000 or $0.08 per share for the three month period ended
January 31, 1999.
LIQUIDITY AND SOURCES OF CAPITAL
Upon consummation of the Software Business Sale on December 7, 1998, the Company
received its initial installment of $4.0 million from ACS, approximately $1.1
million of which has been used to repay amounts owed to Founders under the Loan
Agreement and $250,000 of which was used to pay transaction expenses. The
Company plans to commit approximately $1.0 million for capital investments in
the Telecommunications Business for fiscal 1999, and plans to internally fund
additional infrastructure development through operations of the
Telecommunications Business. The Company believes existing capital resources and
cash from operations will be sufficient to meet the Company's capital and
liquidity needs through fiscal 1999.
At January 31, 1999, the Company had cash and cash equivalents of approximately
$2,271,000, up from $441,000 for the same period in 1998, an increase of
$1,830,000.
Cash used in continuing operating activities totaled $1,257,000 for the three
months ended January 31, 1999. Cash used was comprised of the Company's net
income of $1,707,000, adjusted for: gains from discontinued operations of
$218,000; gain on disposal of the Software Business of $2,015,000; issuance of
common stock to employees; depreciation of $10,363; and net changes in operating
assets and liabilities of $821,000.
11
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL (Continued)
Cash provided by investing activities from continuing operations for the three
months ended January 31, 1999 totaled $3,764,000 and was primarily comprised of
proceeds from the sale of the Software Business of $3,770,000 and purchases of
property and equipment of $13,000.
Cash used in financing activities for continuing operations for the three months
ended January 31, 1999 totaled $1,009,000 reflecting the repayment of borrowings
under the Loan Agreement that was entered into during fiscal 1998.
Current assets from continuing operations totaled $3,510,000 at the end of the
first quarter of 1999, resulting in net working capital from continuing
operations of $2,440,000. Accounts receivable totaled $731,000 and represented
21% of current assets from continuing operations. Accounts receivable include
two significant account which comprised 48% of total trade accounts receivable
from continuing operations. The current portion of the note receivable totaled
$205,000 at January 31, 1999 and represented funds provided to USC.
Net property and equipment from continuing operations totaled $65,000 at the end
of the first quarter of 1999. The majority of property and equipment is
comprised of furniture, fixtures and computer equipment.
Current liabilities from continuing operations totaled $1,070,000 at the end of
the first quarter of 1999. The majority of liabilities were comprised of
convertible debentures issued under the Loan Agreement, accounts payable and
accrued liabilities.
In connection with the rescission of the Company's acquisition of USC, USC
executed a note payable to the Company in the amount of $725,000. The USC note
matures on June 15, 2001, and is payable in monthly installments on the
fifteenth day of each month. Monthly payments for November and December of 1998
are $15,000 and monthly payments thereafter through the maturity date are
approximately $20,000. The USC note is secured by a lien on all of USC's assets.
As of January 31, 1999, approximately $548,000 remained outstanding under the
USC note.
IMPACT OF YEAR 2000
The Company has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. The Company has
initiated communications with all of its significant suppliers and customers to
determine the extent to which the Company's internal systems and developed
software products are vulnerable to those third parties failure. In connection
with the Software Business Sale, the Company and ACS conducted a Year 2000
compliance audit of software and systems developed by the Company. Such audit
did not reveal any material items of noncompliance, and the Company does not
expect to incur any material expenses to cause its developed software and
systems to become Year 2000 compliant.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Quarterly Report on Form 10-Q include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of such terms as
"expects", "will", "anticipates", "estimates", "believes" and words of similar
meaning. These forward-looking statements relate to business plans, programs,
trends, results of future operations, satisfaction of future cash requirements,
funding of future growth, acquisition plans and other matters. In light of the
risks and uncertainties inherent in all such projected matters, the inclusion of
forward-looking statements in this Form 10-Q should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved or that operating expectations will be realized.
Revenues and results of operations are difficult to forecast and could differ
materially from those projects in forward-looking statements contained herein,
including without limitation statements regarding the Company's belief of the
sufficiency of capital resources and
12
<PAGE>
its ability to compete in the Telecommunications Business. Actual results
could differ from those projected in any forward-looking statements for,
among others, the following reasons: (a) increased competition in the prepaid
phone card business from existing and new competitors, (b) the relatively low
barriers to entry for start-up prepaid operators, (c) the price-sensitive
nature of consumer demand, (d) the relative lack of customer loyalty to any
particular prepaid card company, (e) the Company's dependence upon favorable
pricing from its suppliers to compete in the prepaid phone card industry, (f)
increased consolidation in the telecommunication industry, which may result
in larger competitors being able to compete more effectively, (g) the failure
to attract or retain key employees, (h) continuing changes in governmental
regulations affecting the telecommunications industry and (i) the "Certain
Business Factors" identified in the Company's Annual Report on Form 10-K/A
for the year ended October 31, 1998. The Company does not undertake to update
any forward-looking statements contained herein. Readers are cautioned not to
place undue reliance on the forward-looking statements made in, or
incorporated by reference into, this Quarterly Report on Form 10-Q or in any
document or statement referring to this Quarterly Report on Form 10-Q.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders was held on December 7,
1998. Nine items of business were acted upon at the meeting: (1) the election of
five directors to serve until the next Annual Meeting of Stockholders and until
their successors are duly elected and qualified; (2) the approval of the sale of
the Company's Software Business to Affiliated Computer Services, Inc.; (3) the
approval of the merger of the Company into a wholly-owned subsidiary organized
under the laws of Delaware (the "Delaware Subsidiary") to effect the change of
the Company's state of incorporation from Wyoming to Delaware; (4) the approval
of provisions of the Certificate of Incorporation ("Delaware Certificate") of
the Delaware Subsidiary which authorized 10,000,000 shares of preferred stock,
par value $.001 per share; (5) the approval of provisions of the Delaware
Certificate requiring all shareholder action to be taken at a shareholder
meeting; (6) the approval of provisions of the Delaware Certificate permitting
officers and directors of the Company to receive indemnification to the fullest
extent permitted by law; (7) the approval of provisions of the Delaware
Certificate to require a 66-2/3% vote of shareholders to amend the foregoing
proposals no. 5 and no. 6 and to amend the bylaws of the Delaware Subsidiary
when shareholder amendments are sought; (8) the approval of the bylaws of the
Delaware Subsidiary; (9) the ratification of the selection of King, Griffin &
Adamson P.C. to serve as independent public accountants for the Company for the
1998 fiscal year.
The results of the voting for the election of directors were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld Abstentions
<S> <C> <C> <C>
Roger D. Bryant 6,200,914 8,040 90,390
Debra L. Burgess 6,187,824 21,130 90,390
Nick DeMare 6,202,034 6,920 90,390
Robert M. Fidler 6,201,824 7,130 90,390
W. Thomas Rinehart 6,201,224 7,730 90,390
</TABLE>
Accordingly, each of the five nominees received a plurality of the votes cast
and was elected.
The results of the voting on the approval of the sale of the Software
Business to ACS was as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,855,631 54,635 8,514
</TABLE>
Accordingly, the number of shares voted for the proposal constituted a majority
of the shares entitle to vote thereon, and the sale of the Company's Software
Business to ACS was approved.
The results of the voting on the approval of the merger of the Company into
a wholly-owned subsidiary organized under the laws of Delaware to effect the
change in the Company's state of incorporation from Wyoming to Delaware were as
follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,817,022 88,965 11,793
</TABLE>
Accordingly, the number of shares voted for the proposal constituted a majority
of the shares entitled to vote thereon, and the reincorporation merger was
approved.
The results of the voting on the approval of provisions of the Delaware
Certificate authorizing 10,000,000 shares of preferred stock, par value $.001
per share, of the Company were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,643,387 252,879 22,514
</TABLE>
14
<PAGE>
Accordingly, the number of shares voted for the proposal constituted a majority
of the shares entitled to vote thereon, and the provisions of the Delaware
Certificate authorizing 10,000,000 shares of preferred stock was approved.
The results of the voting on the approval of provisions of the Delaware
Certificate requiring all shareholder action to be taken at a shareholder
meeting were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,797,361 97,620 23,799
</TABLE>
Accordingly, the number of shares voted for the proposal constituted a majority
of the shares entitled to vote thereon, and the provisions of the Delaware
Certificate requiring all shareholder action to be taken at a shareholder
meeting were approved.
The results of the voting on the approval of provisions of the Delaware
Certificate permitting officers and directors of the Company to receive
indemnification to the fullest extent permitted by law were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
5,932,453 330,462 36,429
</TABLE>
Accordingly, the number of shares voted for the proposal constituted a majority
of the shares entitled to vote thereon, and the provisions of the Delaware
Certificate entitling officers and directors of the Company to receive
indemnification to the fullest extent permitted by law were approved.
The results of the voting on the approval of provisions of the Delaware
Certificate requiring a 66-2/3% vote of shareholders to amend specified
provisions of the Delaware Certificate or to amend the bylaws of the Delaware
Subsidiary when shareholder amendments are sought were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,763,703 139,968 15,109
</TABLE>
Accordingly, the number of shares voted for the proposal constitute a majority
of the shares entitled to vote thereon, and the provisions of the Delaware
Certificate requiring 66-2/3% shareholder approval for the specified matters
were approved.
The results of the voting on the approval of the bylaws of the Delaware
Subsidiary as described in the proxy statement for the 1998 Annual Meeting were
as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
3,805,256 98,810 13,714
</TABLE>
Accordingly, the number of shares voted for the proposal constitute a majority
of the shares entitled to vote thereon, and the bylaws of the Delaware
Subsidiary were approved.
The results of the voting on the ratification of the selection of King,
Griffin & Adamson P.C. as the Company's independent auditors for the 1998 fiscal
year were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
6,196,640 89,765 12,939
</TABLE>
Accordingly, the number of shares voted for the proposal constitute a majority
of the shares entitled to vote thereon, and the selection of King, Griffin &
Adamson P.C. as the Company's independent auditors for the 1998 fiscal year was
ratified.
ITEM 5. OTHER INFORMATION
On February 1, 1999, the Company consummated its reincorporation into the state
of Delaware and, in connection therewith, changed its name from Canmax Inc. to
ARDIS Telecom & Technologies, Inc.
15
<PAGE>
Effective March 1, 1999, the Company changed its principal business address
from 150 W. Carpenter Freeway, Irving, Texas 75039 to 8100 Jetstar Drive, Suite
100, Irving, Texas 75063.
As a result of the Company's commencement of its telecommunications business
and sale of its Software Business, the Company's standard industrial
classification code has changed from 7872 to 4813.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are required to be filed with this quarterly report
on Form 10-Q:
11 Statement re Computation of Per Share Earnings (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
On December 22, 1998, the Registrant filed a report on Form 8-K regarding the
sale of its Software Business.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARDIS Telecom & Technologies, Inc.
(Registrant)
DATE: March 17, 1999 /s/ Debra L. Burgess
---------------------------- ----------------------------
Debra L. Burgess
Executive Vice President,
Treasurer, Chief Operating
Officer and Chief Financial
Officer
17
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share as calculated in accordance with FASB 128.
<TABLE>
<CAPTION>
Three months Ended January 31,
------------------------------
1999 1998
---------------------------- ------------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
NUMERATOR:
Net (loss) from continuing operations $ (526,574) $ (526,574) $ -- $ --
Net income (loss) from discontinued operations 2,233,870 2,233,870 (558,533) (558,533)
----------- ----------- ---------- ----------
Net income (loss) $ 1,707,296 $ 1,707,296 $ (558,533) $ (558,533)
=========== =========== =========== ===========
DENOMINATOR:
Weighted average shares outstanding 6,627,309 6,627,309 6,627,309 6,627,309
----------- ----------- ---------- ----------
Stock options and warrants -- -- -- --
----------- ----------- ---------- ----------
Weighted average shares outstanding 6,627,309 6,627,309 6,627,309 6,627,309
=========== =========== =========== ===========
Earnings (loss) per share - continuing operations $(0.08) $(0.08) $ -- $ --
Earnings (loss) per share - discontinued operations $ 0.34 $ 0.34 $(0.08) $(0.08)
----------- ----------- ---------- ----------
Earnings (loss) per share $ 0.26 $ 0.26 $(0.08) $(0.08)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 2,270,680
<SECURITIES> 0
<RECEIVABLES> 731,388
<ALLOWANCES> 0
<INVENTORY> 212,954
<CURRENT-ASSETS> 3,509,805
<PP&E> 79,962
<DEPRECIATION> (14,471)
<TOTAL-ASSETS> 3,928,122
<CURRENT-LIABILITIES> 1,069,805
<BONDS> 0
0
0
<COMMON> 24,938,974
<OTHER-SE> (22,087,663)
<TOTAL-LIABILITY-AND-EQUITY> 3,928,122
<SALES> 1,542,719
<TOTAL-REVENUES> 1,542,719
<CGS> 2,068,403
<TOTAL-COSTS> 2,068,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,868
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (526,574)
<DISCONTINUED> 2,233,870
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,707,296
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (558,533)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (558,533)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
