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 April 30, 1997
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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 May 31, 1997
was 1,701,980 shares.
Page 1 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Six Months Ended April 30, 1997
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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 April 30, 1997...........3
Consolidated Statements of Earnings for the Six and Three Months
Ended April 30, 1997 and April 30, 1996.............................4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended April 30, 1997 and April 30, 1996.............................5
Notes to Condensed Consolidated Financial Statements................6
Item 2. Management's Discussion and Analysis or
Plan of Operation...................................................7
PART II. OTHER INFORMATION..................................................13
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 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
April 30,
1997
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ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for
doubtful accounts of $73,232 $ 378,939
Prepaid expenses and other 40,960
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Total current assets 419,899
INVESTMENT TAX CREDITS RECEIVABLE 835,690
FIXED ASSETS, NET 446,754
OTHER ASSETS 28,678
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$ 1,731,021
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 73,170
Accounts payable and accrued liabilities 804,901
Deferred salaries 7,779
Note payable 12,000
Deferred lease inducements - current portion 15,555
Due to related parties - current portion 205,924
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Total current liabilities 1,119,329
DUE TO RELATED PARTIES 37,918
DEFERRED LEASE INDUCEMENTS 132,217
MINORITY INTERESTS 256,306
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share; authorized
2,500,000 shares; issued and outstanding 1,701,980
shares 1,702
Additional paid-in capital 1,545,745
Notes receivable - former Chairmen (893,564)
Cumulative foreign translation adjustment 36,466
Accumulated deficit (505,098)
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185,251
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$ 1,731,021
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See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 3 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Six Months Ended Three Months Ended
April 30, April 30,
1997 1996 1997 1996
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Revenue
Service fees $ 1,317,895 $ 1,669,052 $ 672,214 $ 831,940
Hardware, software and license sales 40,700 27,368 13,700 10,659
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1,358,595 1,696,420 685,914 842,599
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Costs and Expenses
Operating 1,021,665 1,019,187 510,236 522,055
Research and development 150,305 219,068 81,972 120,627
Selling, general and administrative 446,803 472,557 215,351 221,853
Depreciation and amortization 81,312 66,089 42,032 33,171
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1,700,085 1,776,901 849,591 897,706
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Operating (loss) (341,490) (80,481) (163,677) (55,107)
Other income (expense)
Interest income 29,064 30,897 13,847 15,564
Interest expense - related parties (24,117) (21,265) (13,419) (13,318)
Interest expense - other (26,644) (25,935) (21,796) (9,292)
Office relocation expenses (63,463) - (2,509) -
Realized foreign exchange (loss) gain (2,804) 6,759 (288) 10,339
Restructuring costs (42,741) - (42,741) -
Scientific research and development
credits 111,172 118,077 60,651 65,051
Other - 2,707 - 6
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NET (LOSS) EARNINGS $ (361,023) $ 30,759 $ (169,932) $ 13,243
========= ========= ========= =========
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Net (loss) earnings per share $ (0.21) $ 0.02 $ (0.10) $ 0.01
========= ========= ========= ========
Weighted Average Number of Common
Shares Outstanding 1,701,980 1,681,147 1,701,980 1,701,980
========= ========= ========= =========
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 4 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Unaudited)
For The Six Months Ended April 30, 1997 1996
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Cash flows from operating activities
Net (loss) earnings $ (361,023) $ 30,759
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 81,312 66,089
Consulting fees, net 36,851 35,232
Decrease (increase) in operating assets - net 191,741 (61,442)
Increase in operating liabilities - net 224,814 4,726
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Net cash provided by operating activities 173,695 75,364
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Cash flows from investing activities
Purchase of fixed assets (286,585) (22,608)
Repayments from RE&A 15,790 10,210
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Net cash used in investing activities (270,795) (12,398)
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Cash flows from financing activities
Payment of notes - former affiliate - (100,000)
Payment of loans (22,639) -
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Net cash used in financing activities (22,639) (100,000)
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Effect of foreign translations on cash 9,217 (5,486)
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NET DECREASE IN CASH AND EQUIVALENTS (110,522) (42,520)
Cash and equivalents at beginning of year 37,352 97,912
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(Bank indebtedness)cash and equivalents at end of period $ (73,170) $ 55,392
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See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 5 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended April 30, 1997
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NOTE A. DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. (the "Company"), directly or indirectly 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 April 30, 1997, and the
consolidated statements of earnings for the three and six months ended April 30,
1997 and 1996, and the condensed consolidated statements of cash flow for the
six months ended April 30, 1997 and 1996 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, 1996. Results of operations for the six months ended April 30,
1997 are not necessarily indicative of the operating results for the full year.
Part I, Item 1. Page 6 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
Six Months Ended April 30, 1997
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RESULTS OF OPERATIONS
Revenue
Revenue from service fees was approximately $1.3 million in the six months ended
April 30, 1997 compared with approximately $1.7 million for the six months ended
April 30, 1996, a decrease of 21%, or approximately $350,000. This decrease is
primarily attributable to the expiration of a joint software development
contract with a large airline customer in June 1996, resulting in a decline of
approximately $170,000. Furthermore, revenue for the six months ended April 30,
1996 included approximately $106,000 from a teaming arrangement with a U.S.
systems integrator which was completed in 1996. Also, approximately $49,000 was
lost due to the bankruptcies of two airline customers and approximately $156,000
was attributable to the loss of two larger service bureau customers. Increases
were realized from revenues from a contract with the United States Postal
Service totaling approximately $81,000 as well as an increase in billings of
approximately $50,000 from existing customers.
Revenue from hardware, software and license sales increased approximately 49%,
or approximately $14,000, from approximately $27,000 for the six months ended
April 30, 1996 to approximately $41,000 for the six months ended April 30, 1997.
Revenue for fiscal 1997 and fiscal 1996 was obtained through the sale of a
performance engineering system and the sale of a license to use the Company's
flight planning software, respectively. During the third quarter of 1997, the
airline customer that purchased the performance engineering system committed to
an enhancement of the current system to be delivered prior to the end of fiscal
1997 for a fee of approximately $40,000.
Costs and expenses
Operating expenses increased approximately 0.02%, or $2,000, from approximately
$1,019,000 for the six months ended April 30, 1996 to approximately $1,021,000
for the six months ended April 30, 1997. This change is primarily attributable
to an increase in communication costs of approximately $23,000, an increase in
rent expense of approximately $29,000 and an increase in subcontracting expense
of approximately $28,000. These increases were offset by a decrease in salaries
and benefits of approximately $55,000, a decrease in telephone costs of
approximately $15,000, a decrease in equipment rental and lease charges of
approximately $3,000, and a net decrease in other operating expenses of
approximately $5,000.
Research and development expenditures decreased approximately 31%, or
approximately $69,000, during the six months ended April 30, 1997 over the same
period in fiscal 1996 as the result of the Company entering an analysis and
design phase of new product development.
Selling, general and administrative expenses decreased approximately 5%, or
approximately $26,000, from approximately $473,000 for the six months ended
April 30, 1996 to approximately $447,000 for the six months ended April 30,
1997. This decrease is primarily attributable to a decrease in consulting
expense of approximately $3,000 and a decrease in travel costs of approximately
$36,000. These decreases were offset by an increase in copier expense of
approximately $8,000 and a charge of $15,000 associated with the bankruptcy of a
former airline customer.
Part I, Item 2. Page 7 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
Six Months Ended April 30, 1997
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Other income (expense)
The Company recorded a loss of approximately $3,000 on realized foreign exchange
transactions for the six months ended April 30, 1997. 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 claimed scientific research and experimental development credits
of approximately $111,000 in the six months ended April 30, 1997 compared to
approximately $118,000 for the six months ended April 30, 1996. The decrease is
due primarily to a decrease in research and development expenditures as noted
above, all of which are eligible for the credit.
The Company has segregated office relocation expenses related to the move of its
operations and administrative center to larger premises in Waterloo, Ontario,
Canada. These costs include, among other items, the cost of contract management
for the construction phase and the successful transfer of the Company's
communication and computer networks.
The Company has also segregated costs related to its restructuring plan which
commenced in February 1997. See "Restructuring of the Company's Operations"
below.
Net (loss) earnings
The unaudited consolidated financial statements reflect a net loss of
approximately $361,000 for the six months ended April 30, 1997 compared to net
earnings of approximately $31,000 for the six months ended April 30, 1996. The
change is due to the decline in revenues and the costs of both the office
relocation and the restructuring effort and is offset by a decline in total
costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash resources of $110,522 for the six months
ended April 30, 1997 compared to a net decrease of $42,520 for the six months
ended April 30, 1996. In addition, at April 30, 1997, the Company had a working
capital deficiency of $699,430 as compared to $240,648 as of October 31, 1996.
Cash flows from operations accounted for an increase in cash of $173,695,
primarily as a result of the collection of the large receivable due from Harris
Corporation and the deferral of lease inducements over the term of the new lease
and is offset by the net loss during the quarter. Cash flows from investing
activities for the six months ended April 30, 1997 represent a net outflow of
$270,795, primarily due to the purchase of fixed assets. Cash flows from
financing activities for the six months ended April 30, 1997 represent a net
outflow of $22,639, all of which relates to payments on existing notes and
related accrued interest.
The Company currently has no significant capital commitments but may, from time
to time, consider acquisitions of complementary businesses, products or
technologies; it has no present understandings, commitments or agreements with
respect to any such acquisitions.
Part I, Item 2. Page 8 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
Six Months Ended April 30, 1997
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As of April 30, 1997, the Company's bank indebtedness consisted of $73,170.
See "Plan of Operation-Financing Initiatives" for a discussion of certain
lending arrangements entered into by the Company.
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 on
or before November 1, 1997 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).
PLAN OF OPERATION
The Company believes that its existing working capital is insufficient to
finance its research and development, marketing and operational activities.
Management has undertaken several initiatives to both alleviate the working
capital deficiency and return the Company to profitability as more fully
described below.
Marketing and Operations Focus
Management undertook an appraisal of its operations, new product strategies and
customer delivery capabilities in the first quarter of fiscal 1997 in an effort
to address the working capital deficiency. As a result, the 1997 Operational
Plan focuses the Company's marketing and operations resources on its service
bureau solution for customers in the North American commercial aviation sector.
The first stage of the plan is the delivery of custom enhancements, integration
services and communication systems upgrades by the newly formed Technical
Operations Group. Management believes that it can increase profitability by
growing revenues from its current customer base which can also be leveraged into
new sales opportunities.
Scientific Research and Experimental Development Investment Tax Credits
The Company is currently working on providing initial responses to the Revenue
Canada technical auditor assigned to the Company's SR&ED claim, and it is
anticipated that the scientific audit of the Company's claims will be undertaken
during the latter half of the quarter ended July 31, 1997.
Restructuring of the Company's Operations
Management has prepared and initiated the implementation of a restructuring plan
which consolidates the operations of its Port Washington and Waterloo
facilities. During the month of May 1997, the Company successfully integrated
its Performance Engineering services into its Waterloo operations
Part I, Item 2. Page 9 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
Six Months Ended April 30, 1997
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center. It is anticipated that COMRAD development, currently performed in the
Port Washington facility, will shift to the Waterloo development team by the end
of the third quarter of 1997. As a result, staff levels in Port Washington will
be significantly reduced.
The Company has also successfully merged its accounting and administrative group
in the Waterloo office resulting in a further anticipated reduction in operating
expense.
During the quarter ended April 30, 1997, the Company incurred approximately
$43,000 in costs associated with this restructuring. The majority of these costs
relate to contract work being undertaken to restructure the operations in Port
Washington.
As this restructuring does not represent an exit from an activity, but rather a
move of activities, current accounting pronouncements preclude the Company from
recording the entire financial impact associated with this plan as a single
restructuring charge in the second quarter. While the Company has not yet
determined the full effect of its plan for future quarters, it is anticipated
that termination benefits with respect to the downsizing of the Port Washington
facility will not exceed approximately $30,000. Further costs will include
expenditures related to the movement of required assets and the cost of staff
and consultants used in this restructuring. In return, the Company sees the
major benefit of this restructuring to be the freeing up of both capital and
working capital associated with the Port Washington facility.
Financing Initiatives
In March 1997, the Company's subsidiary, Support, obtained a line of credit from
its Canadian bank in the amount of $115,000 Canadian (approximately $82,000 US
as of April 30, 1997). The line of credit provides for interest at the rate of
prime plus 1.25% per annum (6% at April 30, 1997) and is secured by a specific
security interest in the receivables of Support, as well as a security interest
in a 30 day term deposit in the amount of $50,000. This term deposit has been
netted against bank indebtedness for presentation purposes. As of April 30,
1997, Support has drawn down the full amount of this line of credit.
In June 1997, Support obtained a four year term loan of $230,520 Canadian
(approximately $162,000 US as of April 30, 1997) from such bank. The loan
provides for interest at the rate of prime plus 1.75% per annum (6.5% at April
30, 1997) and is repayable in monthly principal installments of approximately
$5,000 Canadian plus interest with principal payments commencing in September
1997. Repayment of the loan is secured by a general security interest in all
the assets of Support.
The Company is continuing discussions to secure additional financing in the
second half of 1997.
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.
Part I, Item 2. Page 10 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Other Information
Six Months Ended April 30, 1997
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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, 1994 (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 11 of 12
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COMPUFLIGHT, INC. and SUBSIDIARIES
Six Months Ended April 30, 1997
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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: June 20, 1997 By: /s/ Russell K. Thal
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Chairman of the Board
Date: June 20, 1997 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial Officer
Page 12 of 12