U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number 0-15362
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COMPUFLIGHT, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 11-2883366
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
99 Seaview Drive, Port Washington, NY 11050
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(Address of principal executive offices) (Zip code)
Issuer's telephone number 516-625-0202
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock as of August 30,
1996 was 1,701,980 shares.
Page 1 of 13
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COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 31, 1996
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I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheet
as of July 31, 1996...................................3
Consolidated Statements of Operations-
For the Nine and Three Months Ended
July 31, 1996 and July 31, 1995.......................4
Condensed Consolidated Statements of
Cash Flows - For the Nine Months Ended
July 31, 1996 and July 31, 1995.......................5
Notes to Condensed Consolidated
Financial Statements..................................6
Item 2. Management's Discussion and Analysis
or Plan of Operation..................................7
PART II. OTHER INFORMATION....................................12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Page 2 of 13
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COMPUFLIGHT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
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July 31,
1996
ASSETS
CURRENT ASSETS
Cash and equivalents .................................................. $ 38,058
Accounts receivable, net of allowance for doubtful accounts of $ 20,900 277,946
License fee receivable ................................................ 129,800
Prepaid expenses and other ............................................ 21,206
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Total current assets ............................................... 467,010
INVESTMENT TAX CREDITS RECEIVABLE ........................................... 627,921
LICENSE FEE RECEIVABLE ...................................................... 122,951
FIXED ASSETS, NET ........................................................... 282,411
OTHER ASSETS ................................................................ 30,415
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$ 1,530,708
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities .............................. $ 801,662
Deferred salaries ..................................................... 13,370
Note payable .......................................................... 8,404
Due to related parties - current portion .............................. 163,119
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Total current liabilities .......................................... 986,555
DUE TO RELATED PARTIES ...................................................... 90,105
MINORITY INTERESTS .......................................................... 260,670
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share; authorized 2,500,000
shares; issued and outstanding 1,701,980 shares .................... 1,702
Additional paid-in capital ............................................ 1,545,745
Notes receivable - former Chairmen .................................... (966,392)
Cumulative foreign translation adjustment ............................. 41,920
Accumulated deficit ................................................... (429,597)
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193,378
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$ 1,530,708
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See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 3 of 13
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COMPUFLIGHT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Nine Months Ended Three Months Ended
July 31, July 31,
1996 1995 1996 1995
Revenue
Service fees ............................... $ 2,400,632 $ 2,282,897 $ 731,580 $ 678,738
Hardware, software and license sales ....... 43,522 49,887 16,154 11,967
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2,444,154 2,332,784 747,734 690,705
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Costs and Expenses
Operating .................................. 1,488,075 1,269,385 501,643 384,498
Research and development ................... 326,811 150,775 107,743 64,767
Selling, general and administrative ........ 813,333 627,541 312,246 189,912
Depreciation and amortization .............. 99,346 99,842 33,257 34,633
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2,727,565 2,147,543 954,889 673,810
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Operating (loss) income .......................... (283,411) 185,241 (207,155) 16,895
Other income (expense)
Interest income ............................ 45,786 30,207 14,889 11,490
Interest expense - related parties ......... (30,835) (46,768) (9,570) (14,403)
Interest expense - other ................... (42,955) (42,899) (17,020) (15,355)
Realized foreign exchange gain (loss) ...... 2,096 9,189 (4,663) (30,972)
Scientific research and development
credits ................................. 177,697 87,074 59,620 37,403
Other ...................................... (4,235) 4,658 (2,717) 8,141
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(Loss) earnings before minority interests (135,857) 226,702 (166,616) 13,199
Loss of minority interests ....................... (9,817) (7,516)
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NET (LOSS) EARNINGS ..................... $ (135,857) $ 216,885 $ (166,616) $ 5,683
=========== =========== =========== ===========
Net (loss) earnings per share .................... $ (0.08) $ 0.14 $ (0.10) $ 0
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding ......................... 1,694,313 1,576,980 1,701,980 1,576,980
=========== =========== =========== ===========
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 4 of 13
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COMPUFLIGHT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended July 31, 1996 1995
Cash flows from operating activities
Net (loss) earnings .................................... $(135,857) $ 216,855
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities
Depreciation and amortization .................. 99,346 99,841
Provision for uncollectible accounts ........... (804)
Minority interests ............................. 9,817
Consulting fees, net ........................... 53,147 50,814
Decrease (increase) in operating assets - net .......... 35,146 (6,360)
Increase in operating liabilities - net ................ 70,048 31,245
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Net cash provided by operating activities .. 121,830 401,438
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Cash flows from investing activities
Purchase of fixed assets ............................... (26,370) (76,484)
Repayments from RE&A - net ............................. 25,939 32,403
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Net cash used in investing activities ...... (431) (44,081)
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Cash flows from financing activities
Payment of notes - former affiliate .................... (180,000) (216,046)
Payment of Global demand loan .......................... (203,789)
Payment of loans ....................................... (20,850)
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Net cash used in financing activities ...... (180,000) (440,685)
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Effect of foreign translations on cash ....................... (1,253) 13,455
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NET DECREASE IN CASH AND EQUIVALENTS ....... (59,854) (69,873)
Cash and equivalents at beginning of year .................... 97,912 139,951
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Cash and equivalents at end of period ........................ $ 38,058 $ 70,078
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See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 5 of 13
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COMPUFLIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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NOTE A. DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. (the "Company"), directly through its wholly-owned Canadian
subsidiaries, Navtech Systems Support Inc. ("Support"), and Efficient Aviation
Systems Inc. ("EAS"), is engaged in the business of developing, marketing,
licensing and supporting computerized flight planning and aircraft performance
engineering services for the aviation industry.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated balance sheet as of July 31, 1996, and the
consolidated statements of operations for the three and nine months ended July
31, 1996 and 1995, and the condensed consolidated statements of cash flows for
the nine months ended July 31, 1996 and 1995 have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include only
normal recurring accrual adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented have
been made.
The condensed consolidated financial statements include the accounts of
Compuflight, Inc. ("Compuflight") and its wholly-owned Canadian subsidiaries,
Support and EAS. All material intercompany balances and transactions have been
eliminated. In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translations," assets and liabilities of foreign
operations are translated at current rates of exchange while results of
operations are translated at average rates in effect for that period. Unrealized
translation gains or losses are shown as a separate component of shareholders'
equity.
For information concerning the Company's significant accounting policies,
reference is made to the Company's Annual Report on Form 10-KSB for the year
ended October 31, 1995. Results of operations for the nine months ended July 31,
1996 are not necessarily indicative of the operating results for the full year.
NOTE C. ACQUISITION OF MINORITY INTEREST
Effective November 24, 1995, the Company issued 125,000 shares of its common
stock in exchange for 500,000 shares of Support, which represented the common
shares of Support held by the one remaining common shareholder of Support,
Innovation Ontario Corporation, a provincial government agency, and accordingly,
the Company now owns 100% of the outstanding common shares of Support. The
excess of the fair market value of the Company's common stock on the date of the
exchange ($101,563) over the Company's minority interest ($78,411) has been
recorded as goodwill (included in Other Assets) in the accompanying consolidated
balance sheet. The remaining minority interest relates to 3,600 shares of Class
B, non voting shares of Support. Such shares, issued for $358,200 Canadian
($260,670 U.S. at July 31, 1996), are entitled to non-cumulative dividends of $8
per share, are redeemable at the option of the Company for $540,000 Canadian
($392,970 U.S.) and do not share in the income of Support. To date, no
dividends have been declared or paid with respect to such shares.
Part I, Item 1. Page 6 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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RESULTS OF OPERATIONS
REVENUE
Revenue from service fees was approximately $2.4 million in the nine months
ended July 31, 1996 compared with approximately $2.3 million for the nine months
ended July 31, 1995, an increase of 5%, or approximately $118,000. This increase
is primarily attributable to an increase in fees from new and existing customers
for the provision of new or enhanced services of approximately $528,000 as well
as the addition of revenue of approximately $106,000 through a teaming agreement
with a U.S. systems integrator to design and develop modifications to the
Company's existing product in order to solicit a Federal Aviation Administration
("FAA") contract. These increases were offset by the loss of a number of service
bureau customers and a decline in billable communications charges representing
an aggregate fee base of approximately $516,000.
Revenue from hardware sales and software licenses decreased 13%, or
approximately $6,000, from approximately $50,000 for the nine months ended July
31, 1995 to approximately $44,000 for the nine months ended July 31, 1996. The
decrease is the result of payments made against the financed portion of the long
term license fee receivable.
COSTS AND EXPENSES
Operating expenses increased approximately 17%, or $219,000, from approximately
$1.3 million for the nine months ended July 31, 1995 to approximately $1.5
million for the nine months ended July 31, 1996. This change is primarily
attributable to an increase in salaries and benefits of approximately $367,000
from the addition of several senior staff in sales as well as additional
research and development staff. Furthermore, an increase in computer maintenance
and lease costs of approximately $23,000 and an increase in long distance phone
charges of approximately $18,000 added to the overall increase in operating
expenses. These increases were offset by a decline in communications costs of
approximately $182,000 and a decrease in other operating expenses of
approximately $7,000.
Research and development expenditures increased approximately 117%, or
approximately $176,000, during the nine months ended July 31, 1996 over the same
period in fiscal 1995 as the result of increased activities in the research and
development of new products and an increase in manpower required for the FAA
project. While the Company still maintains its commitment to utilizing in-house
personnel and expertise, the Company has had to retain contract services for
the delivery of this integration project (teaming agreement) due to an
aggressive timetable requiring specific skill sets. Approximately $53,000
of the net increase above is due to the inclusion of these contract services.
Selling, general and administrative expenses increased approximately 30%, or
$186,000, from approximately $628,000 for the nine months ended July 31, 1995 to
approximately $813,000 for the nine months ended July 31, 1996. This increase is
primarily attributable to an increase in consulting fees paid to Ray English and
Associates Inc. ("RE&A") of approximately $41,000, which incorporate a full nine
months as compared to four months in 1995 and an increase of approximately
$65,000 in consulting fees due mainly to the Company's entering into a Key
Part I, Item 2. Page 7 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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Advisor Agreement with Kenneth M. Snyder, a director of the Company.
Furthermore, travel expenses increased approximately $89,000 as a result of the
Company's increase in marketing and sales activities targeted at increasing
revenues from current customers. These increases, in addition to an increase in
other administrative expenses of approximately $52,000, were offset by decreases
in professional fees of approximately $62,000 attributed to the Company's
Finance and Accounting Department's increased capability to manage the process
associated with filing the Company's outstanding regulatory reports.
OTHER INCOME (EXPENSE)
The Company recorded a gain of $2,096 on realized foreign exchange transactions
for the nine months ended July 31, 1996. Gains and losses in foreign exchange
are attributable to the difference in rates between the transaction date and the
settlement date and cannot readily be compared between periods.
The Company has submitted a claim to Revenue Canada for scientific research and
experimental development investment tax credits of approximately $178,000 in the
nine months ended July 31, 1996 compared to approximately $87,000 for the nine
months ended July 31, 1995.
EARNINGS OF MINORITY INTERESTS
During the nine months ended July 31, 1996, the remaining minority common
shareholder in Support, Innovation Ontario Corporation, an agency of the Ontario
provincial government, exercised its option to exchange its 500,000 common
shares of Support for 125,000 shares of common stock of Compuflight.
Accordingly, the Company now owns all of the outstanding common shares of
Support.
NET EARNINGS
The unaudited consolidated financial statements reflect a net loss of
approximately $136,000 for the nine months ended July 31, 1996 compared to net
earnings of approximately $217,000 for the nine months ended July 31, 1995. The
net loss is due to a lower than expected increase in sales coupled with an
increase in expenses due to higher salaries and costs related to a larger sales
force and an increase in product development costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash resources of $59,854 for the nine months
ended July 31, 1996 compared to a net decrease of $69,873 for the nine months
ended July 31, 1995. In addition, at July 31, 1996, the Company had a working
capital deficiency of $519,545 as compared to $463,225 as of October 31, 1995.
Part I, Item 2. Page 8 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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Cash flows from operations accounted for an increase in cash of $121,830,
primarily as a result of the addition of non-cash charges (i.e., depreciation
and amortization) as well as a decrease in operating assets and an increase in
operating liabilities. Cash flows from investing activities for the nine months
ended July 31, 1996 represent a net outflow of $431, primarily due to the
purchase of fixed assets offset by repayments on the RE&A note. Cash flows from
financing activities for the nine months ended July 31, 1996 represent a net
outflow of $180,000, all of which relates to payments to Sandata, Inc. pursuant
to that certain promissory note of the Company, dated July 31, 1993, in the
approximate principal amount of $676,000.
The Company currently has no significant capital commitments but may, from time
to time, consider business combinations with complementary corporations or
acquisitions of new technologies or services; it has no present understandings,
commitments or agreements with respect to any such combinations or acquisitions.
As of July 31, 1996, the Company's available funds consisted of $38,058 in cash.
COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
The employment agreement with the Company's current Chairman, Russell K. Thal,
as amended, provides for the obtaining of an annuity and/or insurance policy
under which 60 consecutive monthly payments of $10,000 would be payable upon
termination of his employment and $600,000 would be payable upon his death
through March 31, 2004 (which amount decreases to the extent of the $10,000
payments).
SECURITIES AND EXCHANGE COMMISSION FILINGS
By letter dated July 30, 1996, the Commission advised the Company that the staff
inquiry into the delinquent filings of periodic reports had been terminated and
that, at that time, no enforcement action had been recommended to the Commission
by the Division of Enforcement. No assurances can be given that the Commission
will not ultimately take action with regard to the foregoing.
PLAN OF OPERATION
The Company believes that its existing working capital is insufficient to
finance its research and development, marketing and operational activities.
During the nine months ended July 31, 1996, Management has expended considerable
resources in its efforts to ensure compliance with the regulatory requirements
of the Commission, culminating in the Company's filing of this Form 10-QSB on a
timely basis. The Company, having established its filing procedures, will
now focus the efforts of its Management and staff on fully integrating the U.S.
Part I, Item 2. Page 9 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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and Canadian operations, increasing the sales of the Company's products and
services and pursuing additional working capital. As part of this effort,
Management will also review current costs in order to prepare and present
recommendations to the Board of Directors before the end of fiscal 1996.
CASH MANAGEMENT
The Company has completed the first phase of consolidating the cash management
functions of Compuflight and Support in an effort to maximize foreign exchange
gains, improve internal financing capability and reduce the level of manpower
associated with the current cash management process. The second phase of this
effort, in which all financial functions will be centralized, is anticipated to
be completed prior to October 31, 1996.
SOFTWARE CONTRACT CLAIM
On January 31, 1991, the Company was awarded a fixed price subcontract with
Harris Corporation ("Harris") for the development of flight planning software,
training and related documentation for the United States Air Force ("Air
Force"). The total fixed price for the 24 month subcontract was $2,168,268. As
of October 31, 1993, the full fixed price subcontract had been billed and
collected. During the course of the contract, Harris and the Company undertook
additional work effort requested by the Air Force, which Harris and the Company
considered beyond the scope of the statement of work of the fixed price
contract. In January 1995, the Company filed with Harris claims aggregating
$736,687 for services which the Company considered beyond the scope of the
subcontract.
Harris subsequently advised the Company that a portion of the Company's claim
($612,000) together with Harris' separate claim has been submitted to the Air
Force and that Harris will pay the Company's revised claim on a proportionate
basis, to the extent it receives payments from the Air Force.
By letter dated June 12, 1996, Harris advised the Company that the Air Force's
technical, contracts and legal departments have been conducting an evaluation of
the Request for Equitable Adjustment (REA) submitted by Harris to the Air Force
on December 15, 1995. Harris' letter indicates that all of these evaluations
were scheduled to be completed by June 30, 1996 and that the Air Force should
commence negotiations regarding the outstanding claim within thirty days
following the review completion.
Subsequent to the June 12, 1996 letter, the Company has initiated negotiations
with Harris to present the Company's terms and conditions for joining the Harris
REA. The Company is awaiting response from Harris to the written proposal
submitted to Harris on September 13, 1996.
No assurances can be given that Harris will be successful in obtaining any
amounts from the Air Force or that the Company will be successful in collecting
any amounts from Harris. The Company is continuing to pursue its claims against
Harris. Such claims have not been accounted for in the determination of
estimated earnings on the Harris subcontract and will be recognized only when
and if realized.
Part I, Item 2. Page 10 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1996
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SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT TAX CREDITS
Support has claimed investment tax credits under Revenue Canada's Scientific
Research and Experimental Development ("SR&ED") Program ($627,921 U.S. as of
July 31, 1996), although it is not anticipated that payment of the refundable
credits will occur during the fiscal year ended October 31, 1996. The delay in
Revenue Canada's processing of SR&ED claims is due to a large volume of claims
filed prior to September 14, 1994. This final filing date established by the
Canadian Minister of Finance for any prior year claims created a backlog of
several thousand claims and a waiting period of eighteen to twenty four months
from the date of submission.
EXTERNAL AND CONTRACT FINANCING
While the plans noted above should result in some short term benefits, the
Company will require additional external funding to completely achieve its
objectives and intends to seek such from various sources, including the
refinancing of the Company's long term license fee receivable. The Company has
entered into negotiations with the licensee and anticipates a positive effect on
working capital.
MARKETING AND SALES FOCUS
Over the last quarter, Management has positioned the Company well in the niche
market of flight operations. Not only was it able to recognize the limitations
of its capabilities in terms of its size in the U.S. market, the Company was
proactive in finding new markets for expansion of its service bureau and
performance engineering lines of business. As a result, the Company will enter
the new fiscal year with a diversified revenue base and a plan for aggressive
expansion of its presence in the North American market.
No assurance can be given that any required financing will be available on
commercially reasonable terms or otherwise. In addition, no assurances can be
given that the Company's Plan of Operation as set forth above will be successful
(whether due to a lack of required financing or otherwise).
Part I, Item 2. Page 11 of 13
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COMPUFLIGHT, INC.
OTHER INFORMATION
NINE MONTHS ENDED JULY 31, 1996
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
None
Item 2. CHANGES IN SECURITIES:
None
Item 3. DEFAULTS UPON SENIOR SECURITIES:
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
Item 5. OTHER INFORMATION:
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
3(A) Certificate of Incorporation and amendments
thereto including Certificate of Ownership and
Merger (1)
3(B) By-Laws (2)
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 1995 (File No. 0-15362).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-18 (Registration No. 2-93714-NY).
Part II Page 12 of 13
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COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 31, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUFLIGHT, INC.
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(Registrant)
Date: September 16, 1996 By: /s/ Russell K. Thal
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Chairman of the Board
Date: September 16, 1996 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial Officer
Page 13 of 13