United states
securities and exchange commission
Washington, D.C. 20549
Form 10-QSB
[x] Quarterly Report PURSuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended July 31, 1998
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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 0-15362
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 Identification No.)
incorporation or organization)
125 Mineola Ave., Roslyn Heights, NY 11577
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(Address of principal executive offices) (Zip code)
516-625-0202
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(Registrant's telephone number, including area code)
99 Seaview Blvd., Port Washington, NY 11050
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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 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 No X
Applicable only to issuers involved in bankruptcy
proceedings during the preceding five years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
Applicable only to corporate issuers
The number of shares outstanding of the issuer's common stock as of September
30, 1999 was 2,001,980 shares.
Page 1 of 11
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Compuflight, Inc. and SUBSIDIARIES
Nine Months Ended July 31, 1998
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I n d e x
Page
Numbers
Part I. Financial Information
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheet (Unaudited) as of
July 31, 1998........................................................3
Consolidated Statements of Operations (Unaudited) - For the Nine
Months and Three Months Ended July 31, 1998 and July 31, 1997........4
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended July 31, 1998 and July 31, 1997............5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis or Plan of Operation............7
Part II. Other Information...................................................10
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 11
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Compuflight, Inc. and SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
July 31,
1998
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ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for
doubtful accounts of $182,912 $ 405,072
Investment tax credits receivable, net of allowance 497,900
Prepaid expenses and other 15,845
------------
Total current assets 918,817
FIXED ASSETS, NET 291,012
RESTRICTED CASH 50,000
DUE FROM RELATED PARTY 281,644
OTHER ASSETS 19,783
$ 1,561,256
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 87,887
Bank revolving demand loans 83,249
Accounts payable and accrued liabilities 1,198,870
Deferred lease inducements - current portion 14,435
Due to related parties - current portion 91,019
Long term debt - current portion 114,967
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Total current liabilities 1,590,427
DUE TO RELATED PARTIES 153,179
LONG TERM DEBT 185,004
DEFERRED LEASE INDUCEMENTS 104,649
MINORITY INTERESTS 237,809
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Capital stock, par value $.001 per share; authorized 2,500,000
shares; issued and outstanding 2,001,980 shares 2,002
Additional paid-in capital 1,680,445
Cumulative foreign translation adjustment 60,372
Accumulated deficit (2,452,631)
------------
(709,812)
$ 1,561,256
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 3 of 11
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Compuflight, Inc. and SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
July 31, July 31,
1998 1997 1998 1997
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Revenue
Service fees $ 2,298,709 $ 1,984,628 $ 764,024 $ 666,733
Hardware, software and license sales 249,966 70,700 246,807 30,000
--------- ---------- ---------- ---------
2,548,675 2,055,328 1,010,831 696,733
--------- ---------- ---------- ---------
Costs and Expenses
Operating 1,884,365 1,497,518 663,209 481,526
Research and development, net of
Investment Tax Credits 18,600 61,275 6,084 22,142
Restructuring costs - 90,948 - 48,207
Selling, general and administrative 558,209 670,071 177,619 217,595
Office relocation expenses - 63,463 - -
Depreciation and amortization 101,362 128,317 30,944 47,005
--------- ---------- ---------- ---------
2,562,536 2,511,592 877,856 816,475
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Operating income (loss) (13,861) (456,264) 132,975 (119,742)
Other income (expense)
Interest income 18,576 42,008 6,729 12,944
Interest expense - related parties (38,765) (34,139) (20,024) (10,022)
Interest expense - other (95,311) (52,167) (40,362) (25,523)
Other 28,379 28,379
Provision for bad debt-related party (349,542) - (349,542) -
Realized foreign exchange gain (loss) (10,005) (3,630) (8,918) (826)
NET EARNINGS (LOSS) $ (488,908) $ (475,813) $ (279,142) $ (114,790)
========= ========== =========== =========
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Net earnings (loss) per share $ (0.28) $ (0.28) $ (0.15) $ (0.07)
========= ========== ========== =========
Weighted Average Number of Common
Shares Outstanding 1,735,313 1,701,980 1,801,980 1,701,980
========= ========== ========== =========
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 4 of 11
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Compuflight, Inc. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended July 31, 1998 1997
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Cash flows from operating activities
Net loss $ (488,908) $ (475,813)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 101,362 128,317
Provision for uncollectable accounts 9,196 -
Provision for bad debt-related party 349,542
Consulting fees, net - 55,590
(Increase) decrease in operating assets - net (218,992) 151,397
Increase in operating liabilities - net 305,139 216,271
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Net cash provided by operating activities 57,339 75,762
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Cash flows from investing activities
Purchase of fixed assets (5,874) (331,400)
(Advances to) repayments from Navtech Applied Research Inc. (378,608) 25,431
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Net cash used in investing activities (384,482) (305,969)
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Cash flows from financing activities
Cash overdraft 5,891 8,190
Proceeds from bank revolving loans - 83,249
Restricted cash - (50,000)
Proceeds from issue of common shares 135,000 -
Advances from (payment to) related parties - net 11,216 -
Proceeds from long term debt 184,339 -
Payment of long term debt (32,041) -
Increase in bank loan - 166,873
Payment of loans - (22,637)
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Net cash provided by financing activities 304,405 185,675
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Effect of foreign translations on cash 22,738 7,180
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NET DECREASE IN CASH AND EQUIVALENTS - (37,352)
Cash and equivalents at beginning of year - 37,352
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Cash and equivalents at end of period $ - $ -
============ ============
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1. Page 5 of 11
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Compuflight, Inc. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended July 31, 1998
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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 July 31, 1998, and the
consolidated statements of operations for each of the three months and nine
months ended July 31, 1998 and 1997, and the condensed consolidated statements
of cash flows for each of the nine months ended July 31, 1998 and 1997 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, 1997. Results of operations for the nine months ended July 31,
1998 are not necessarily indicative of the operating results for the full year.
Part I, Item 1. Page 6 of 11
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Compuflight, Inc. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
(Unaudited)
Nine Months Ended July 31, 1998
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Results of operations
Revenue
Revenue from service fees was approximately $2.3 million in the nine months
ended July 31, 1998 compared with approximately $2.0 million for the nine months
ended July 31, 1997, representing a increase of approximately 16%, or
approximately $314,000. This increase is primarily attributable to net increases
in fees from existing customers of approximately $502,000 and the addition of
approximately $71,000 from new customers added since the end of the third
quarter of 1997. These increases are offset by the reduction in fees of
approximately $150,000 related to customers who did not renew contracts and
approximately $131,000 related to customers that have ceased operations.
Furthermore, revenues for the nine months ended July 31, 1997 included
approximately $23,000 related to the Company's contract with the United States
Postal Service. Also included in revenue for the nine months ended July 31, 1998
are the fees of approximately $22,000 related to the provision of weather
services from the operation in Monterey, California.
Revenue from hardware sales and software licenses increased approximately 254%,
or approximately $179,000, from approximately $71,000 for the nine months ended
July 31, 1997 to approximately $250,000 for the nine months ended July 31, 1998.
This increase can be attributed to the sale of an AURORA license to Southern Air
Transport for $236,500. Revenue for the nine months ended July 31, 1997 included
proceeds from the sale and enhancement of a performance engineering system..
Costs and expenses
Operating expenses increased approximately 26%, or approximately $387,000, from
approximately $1.5 million for the nine months ended July 31, 1997 to
approximately $1.9 million for the nine months ended July 31, 1998. This change
is primarily attributable to an increase in salaries and benefits of
approximately $486,000, which is offset by a decreases in communications costs
of approximately $25,000, computer lease and maintenance expenses of
approximately $42,000 and subcontracting costs of approximately $32,000. A
significant portion of the increase in salaries and benefits relates to the
decrease in pure research and development activities; accordingly, those
salaries are also allocated to operating expenses.
Research and development expenditures decreased approximately 70%, or
approximately $43,000, during the nine months ended July 31, 1998 over the same
period in fiscal 1997. By the end of fiscal 1997, the Company's research and
development team had completed the majority of its work on the new AURORA
program, and, accordingly, this resulted in a decline in research and
development expenses during the nine months ended July 31, 1998. The Company has
claimed scientific research and experimental development credits of
approximately $40,000 for the nine months ended July 31, 1998 compared to
approximately $175,000 for the nine months ended July 31, 1997.
Selling, general and administrative expenses decreased approximately 17%, or
approximately $112,000, from approximately $670,000 for the nine months ended
July 31, 1997 to approximately $558,000 for the nine months ended July 31, 1998.
Part I, Item 2. Page 7 of 11
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Compuflight, Inc. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
(Unaudited)
Nine Months Ended July 31, 1998
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This decrease is primarily attributable to decreases in professional fees of
approximately $94,000, consulting fees of approximately $38,000 and travel
expenses of approximately $25,000. Offsetting these decreases, the Company's
insurance expense increased approximately $15,000, most of which related to the
insurance of receivables arranged by Canada's Export Development Corporation,
taxes increased approximately $10,000 and other selling, general and
administrative expenses increased approximately $20,000. The reduction in
professional fees and consulting fees, in turn, is attributable to the costs
expended in the nine months ended July 31, 1997 to remedy the deficient
regulatory filings.
In addition, the Company took an allowance of approximately $350,000 in 1997
against amounts owed to it from a related party. The remaining balance has been
deemed collectible.
The reduction in professional fees and consulting fees, in turn, is attributable
to the costs expended in the nine months ended July 31, 1997 to remedy the
deficient regulatory filings.
Other income (expense)
The Company recorded a loss of $10,005 on realized foreign exchange transactions
for the nine months ended July 31, 1998. 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.
Net (loss) earnings
The unaudited consolidated financial statements reflect a net loss of
approximately $489,000 for the nine months ended July 31, 1998 compared to a net
loss of approximately $476,000 for the nine months ended July 31, 1997. The
change is due to an increase in revenues as offset by a smaller increase in
costs and expenses. In addition, other expenses for the nine months ended July
31, 1997 included one time charges for office relocation costs and restructuring
costs.
Liquidity and Capital Resources
The Company had no cash and equivalents as of July 31, 1998 and July 31, 1997.
In addition, at July 31, 1998, the Company had a working capital deficiency of
$671,610 as compared to $1,039,201 as of October 31, 1997.
Cash flows from operations for the nine months ended July 31, 1998 accounted for
an increase in cash of $57,339, primarily as a result of an increase in
operating liabilities, which were in turn offset by an increase in operating
assets. Cash flows from investing activities for the nine months ended July 31,
1998 represent a net outflow of $384,482, primarily due to advances made to the
Company's parent company. Cash flows from financing activities for the nine
months ended July 31, 1998 represent a net inflow of $304,405, primarily due to
the obtaining of a four year term loan and the proceeds from a share issuance.
As of July 31, 1998, the Company had no significant capital commitments.
Reference is made to the Company's Form 10-KSB for the year ended October 31,
1998 and Form 10-QSB for the quarter ended July 31, 1999 for a discussion of the
Company's October 1, 1999 acquisition of all of the shares of Skyplan Services
(UK) Limited. The Company may, from time to time, consider additional
acquisitions of complementary businesses, products or technologies.
Part I, Item 2. Page 8 of 11
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Compuflight, Inc. and SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation
(Unaudited)
Nine Months Ended July 31, 1998
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As of July 31, 1998, the Company's bank indebtedness, after offsetting the loans
with restricted cash held by the bank as security, consisted of $121,136.
COMMITMENTS AND CONTINGENCIES
Employment Agreement
Effective August 25, 1999, the Company entered into a retirement agreement with
its current Chairman, Russell K. Thal. This agreement replaces a previous
employment agreement, as amended, and calls for the payment, among other things,
of $600,000 in 96 semimonthly payments commencing shortly after Mr. Thal's
retirement on October 31, 1999. Mr. Thal will continue on as Chairman without
additional compensation (other than standard fees, if any, paid to outside
directors).
Plan of Operation
The Company's Plan of Operation is discussed in its Form 10-KSB for the year
ended October 31, 1998 and Form 10-QSB for the period ended July 31, 1999, which
are being filed concurrently with this Form 10-QSB.
Part I, Item 2. Page 9 of 11
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Compuflight, Inc. and SUBSIDIARIES
Other Information
Nine Months Ended July 31, 1998
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Part II. Other Information
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
On July 15, 1998, the Company issued 250,000 shares of common stock to
Global Weather Dynamics, Inc. ("GWDI") in connection with the
acquisition of certain assets of GWDI by Navtech Applied Research
Inc., ("NARI"), the holder of 40% of the Company's outstanding share
of common stock. In connection therewith, the Company issued 50,000
shares of Common Stock to Cambridge Information Group, Inc. for
investment banking services.
Concurrently, the Company and NARI entered into a software license
agreement pursuant to which NARI received a royalty payment from the
Company for the Company's usage of the acquired software. The offering
of the shares of Common Stock was a private offering, not involving a
public offering and was exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof. The
Company determined that each investor had such knowledge and
experience in financial and business matters that it was capable of
evaluating the merits and risks of an investment in the shares.
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 10 of 11
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Compuflight, Inc. and SUBSIDIARIES
Nine Months Ended July 31, 1998
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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.
(Registrant)
Date: October 20, 1999 By:/s/ Russell K. Thal
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Chairman of the Board
Date: October 20, 1999 By:/s/ Duncan Macdonald
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Chief Executive Officer
Date: October 20, 1999 By:/s/ Rainer Vietze
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Chief Financial Officer
Page 11 of 11