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, 1999
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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 (IRS Employer Identification No.)
of 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)
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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 12
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Compuflight, Inc. and Subsidiaries
Nine Months Ended July 31, 1999
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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, 1999.............3
Consolidated Statements of Operations - For the Nine Months
and Three Months Ended July 31, 1999 and July 31, 1998...............4
Condensed Consolidated Statements of Cash Flows - For the Nine
Months Ended July 31, 1999 and July 31, 1998.........................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)
July 31,
1999
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ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for doubtful accounts of $312,569 $ 203,224
Investment tax credits receivable, net of allowance 499,935
Prepaid expenses and other 91,396
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Total current assets 794,520
FIXED ASSETS, NET 312,402
RESTRICTED CASH 50,000
DUE FROM RELATED PARTIES 424,993
OTHER ASSETS 19,317
$ 1,601,232
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash Overdraft $ 57,397
Bank revolving demand loans 76,199
Accounts payable and accrued liabilities 1,396,058
Deferred lease inducements - current portion 14,406
Due to related parties - current portion 105,152
Long term debt - current portion 173,018
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Total current liabilities 1,822,230
DUE TO RELATED PARTIES 80,477
LONG TERM DEBT 111,100
DEFERRED LEASE INDUCEMENTS 90,037
MINORITY INTERESTS 237,343
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 50,742
Accumulated deficit (2,473,144)
------------
(739,955)
$ 1,601,232
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 Operations
(Unaudited)
Nine Months Ended Three Months Ended
July 31, July 31,
1999 1998 1999 1998
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Revenue
Service fees $ 3,369,987 $ 2,298,709 $ 1,137,836 $ 764,024
Hardware, software and license sales 314,706 249,966 - 246,807
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3,684,693 2,548,675 1,137,836 1,010,831
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Costs and Expenses
Operating 2,809,745 1,884,365 931,855 663,209
Research and development, net of
Investment Tax Credits 17,475 18,600 5,941 6,084
Selling, general and administrative 564,058 558,209 167,210 177,619
Depreciation and amortization 63,124 101,362 20,647 30,944
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3,454,402 2,562,536 1,125,653 877,856
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Operating income (loss) 230,291 (13,861) 12,183 132,975
Other income (expense)
Interest income 78,799 18,576 52,958 6,729
Interest expense - related parties (29,739) (38,765) (4,886) (20,024)
Interest expense - other (234,002) (95,311) (73,582) (40,362)
Other
Provision for bad debt - related party - (349,542) - (349,542)
Realized foreign exchange gain (loss) (15,993) (10,005) 14,382 (8,918)
---------- ----------- ---------- ----------
NET EARNINGS (LOSS) $ 29,356 $ (488,908) $ 1,055 $ (279,142)
========= ========== =========== ==========
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Net earnings (loss) per share $ 0.01 $ (0.28) $ - $ (0.15)
========= ========== ========== =========
Weighted Average Number of Common
Shares Outstanding 2,001,980 1,735,313 2,001,980 1,801,980
========= ============ ========== =========
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 Flows
(Unaudited)
Nine Months Ended July 31, 1999 1998
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Cash flows from operating activities
Net earnings (loss) $ 29,356 $ (488,908)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation and amortization 63,124 101,362
Provision for uncollectable accounts 3,491 9,196
Provision for bad debt related party - 349,542
(Increase) decrease in operating assets - net 175,386 (218,992)
Increase in operating liabilities - net 59,128 305,139
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Net cash provided by operating activities 330,485 57,339
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Cash flows from investing activities
Purchase of fixed assets (58,582) (5,874)
(Advances to) repayments from Navtech Applied Research Inc. (163,837) (378,608)
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Net cash used in investing activities (222,419) (384,482)
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Cash flows from financing activities
Cash Overdraft (1,263) 5,891
Proceeds from issue of common shares 135,000
Advances from (payment to) related parties - net (74,785) 11,216
Proceeds from long term debt 20,914 184,339
Payment of long term debt (33,314) (32,041)
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Net cash (used in) provided by financing activities (88,448) 304,405
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Effect of foreign translations on cash (19,618) 22,738
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NET DECREASE IN CASH AND EQUIVALENTS - -
Cash and equivalents at beginning of year - -
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Bank indebtedness at end of period $ - $ -
============ ============
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 Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended July 31, 1999
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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, 1999, and the
consolidated statements of operations for each of the three months and nine
months ended July 31, 1999 and 1998, and the condensed consolidated statements
of cash flows for each of the nine months ended July 31, 1999 and 1998 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, 1998. Results of operations for the nine months ended July 31,
1999 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.
Other Information
Nine Months Ended July 31, 1999
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Results of operations
Revenue
Revenue from service fees was approximately $3.4 million in the nine months
ended July 31, 1999 compared with approximately $2.3 million for the nine months
ended July 31, 1998, representing a increase of approximately 47%, or
approximately $1.1 million. The increase is primarily attributable to both an
increase in fees from new and existing flight planning customers of
approximately $545,000 and the in increase of approximately $870,000 in weather
and NOTAMs fees from the Monterey facility (which commenced operations in July
1998). These increases were offset by the loss of revenue of approximately
$176,000 from customers who had provided the Company with one-time revenues in
the nine months ended July 31, 1998 and the loss of fees of approximately
$139,000 from customers who ceased operations in prior periods.
Revenue from hardware sales and software licenses increased approximately 63%,
or approximately $65,000, from approximately $250,000 for the nine months ended
July 31, 1998 to approximately $315,000 for the nine months ended July 31, 1999.
Furthermore, the Company has deferred revenue of approximately $61,000 related
to a system sale. This system was delivered in the last quarter of 1999 and
resulted in revenue of approximately $250,000.
Costs and expenses
Operating expenses increased approximately 49%, or approximately $925,000, from
approximately $1.9 million for the nine months ended July 31, 1998 to
approximately $2.8 million for the nine months ended July 31, 1999. This change
is primarily attributable to an increase salaries and benefits of approximately
$594,000 along with an increase in communications costs of approximately
$228,000. These increases, along with an increase in royalties of approximately
$66,000 and an increase in rent of approximately $37,000 relate primarily to the
operation of the Monterey facility, which began operations in July 1998. There
were minimal changes in other operating costs.
Research and development expenditures decreased approximately 28%, or
approximately $5,000, during the nine months ended July 31, 1999 over the same
period in fiscal 1998. 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, 1999. The Company has claimed scientific research and
experimental development credits of approximately $38,000 for the nine months
ended July 31, 1999 compared to approximately $40,000 for the nine months ended
July 31, 1998.
Selling, general and administrative expenses increased approximately 1%, or
approximately $6,000, from approximately $558,000 for the nine months ended July
31, 1998 to approximately $564,000 for the nine months ended July 31, 1999. The
increase is primarily attributable to an increase in travel of approximately
$23,000 related to travel between the Company's facilities in California and
Ontario. This increase was offset by a decrease in consulting and professional
fees of approximately $16,000 and a net decrease in other selling, general and
administrative costs of approximately $5,000.
Part II Part 7 of 12
Other income (expense)
The Company recorded a loss of $15,993 on realized foreign exchange transactions
for the nine months ended July 31, 1999. 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
The unaudited consolidated financial statements reflect a net earnings of
approximately $29,000 for the nine months ended July 31, 1999 compared to a net
loss of approximately $489,000 for the nine months ended July 31, 1998. This
change is due to an increase in revenues as offset by a smaller decrease in
costs and expenses. Furthermore, 1998 includes a one-time write off of a
receivable from a related party.
Liquidity and Capital Resources
The Company had no cash resources at either July 31, 1999 or July 31, 1998. In
addition, at July 31, 1999, the Company had a working capital deficiency of
$1,068,792 as compared to $1,222,816 as of October 31, 1998.
Cash flows from operations for the nine months ended July 31, 1999 accounted for
an inflow in cash of $330,485, primarily as a result of the decrease in
operating assets and an increase in operating liabilities. Included in assets is
approximately $33,000 in deferred acquisition of Skyplan Services (UK) Limited,
which was completed in the fourth quarter of 1999 and approximately $40,000 in
deferred costs related to the deferred revenue recorded on a software
installation completed in the fourth quarter of 1999. Cash flows from investing
activities for the nine months ended July 31, 1999 represent a net outflow of
$222,419, primarily due to advances made to the Company's parent company. Cash
flows from financing activities for the nine months ended July 31, 1999
represent a net outflow of $88,448, primarily due to payments on long term and
related debt.
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 this Form 10-QSB for a discussion of the Company's October 1, 1999
acquisition of all of the shares of Skyplan Services (UK) Limited. Furthermore,
the Company may, from time to time, consider additional acquisitions of
complementary businesses, products or technologies.
As of July 31, 1999, the Company's bank indebtedness, net of the restricted cash
held by the bank as security for its loans, equaled $83,596.
Part II Page 8 of 12
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 the 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).
Acquisition of Skyplan Services (UK) Limited
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On October 1, 1999, Support entered into an agreement to purchase all of the
outstanding shares of Skyplan Services (UK) Limited ("Skyplan") from Skyplan
Services Ltd. Skyplan, incorporated in the United Kingdom, provides flight
planning and overflight permit assistance through a service bureau located near
Gatwick Airport, London, England. Currently, there are eight full-time staff
members employed at this location. Skyplan's customer base is primarily located
throughout Europe, Africa and the Middle East.
The Company will be accounting for this acquisition by the purchase method.
Accordingly, the Company will only include results of operations of Skyplan in
its books from October 1, 1999. Furthermore, under the purchase method, the
Company will determine the fair market value of the assets in order to properly
allocate the purchase price and separate out the goodwill component, if any.
Goodwill, if any, will be amortized on a straight line basis over a ten year
period.
In consideration for the shares of Skyplan, Support has agreed to pay to Skyplan
Services Ltd. CDN $180,000 in two installments. The first installment of
$125,000 was payable upon closing. The second installment of $55,000 is payable
upon the successful transfer of services and systems to Support during the
transition period from October 1, 1999 to October 22, 1999. No shares of the
Common Stock of the Company were issued.
PLAN OF OPERATION
The Company's liquidity at October 31, 1998 was insufficient to meet operating
requirements. The Company has therefore undertaken the following initiatives and
actions to reduce its working capital deficiency and alleviate cash flow
demands:
Management Team Development and Structure
The Company has continued to strengthen the skill set of its management team.
While the Company has always had significant strength in the areas of product
development and technical and operational support, the recruitment focus has
been on intermediate and senior managers that could bring experience in the
areas of people management, project planning and implementation, and business
strategy. The result of these activities has been realized in the development of
a true business culture that includes product planning strategies, software
development programs, detailed resource management, and more rigid internal
controls and procedures.
Trade Creditors
The Company's objective is to be current with all of its trade creditors. As an
interim step, the Company has renegotiated payment terms with several larger
trade creditors including its key suppliers of communication services and with
federal tax authorities. The Company is continuing to actively pursue additional
extensions with its creditors.
Renegotiation of Demand Loans
During the past year, the Company has been successful in renegotiating two of
its demand loans, resulting in payment terms that reflect reduced interest rates
and fixed payment dates.
Part II Page 9 of 12
Increase Revenues from Existing Customers
The Company's products and services are used by more than 70 customers
worldwide. By leveraging its solid market reputation, the Company has focused
its efforts on expanding current customer revenues by providing additional
products and services, by licensing additional users, and by upgrading customers
to higher level products as their needs arise. The introduction of the Company's
account management group has given the Company the ability to more readily
identify these potential revenue opportunities, and to be proactive in
supplementing the efforts of the sales group. The addition of weather and
NOTAMs, and the related integration of these systems into the Company's
products, has provided another key component in the Company's plans to become
the premier aviation flight operations systems supplier in the mid-range market.
Expanded Sales and Marketing Efforts
Sales and marketing activities have increased significantly during the past
year, as the Company's product strategy has been implemented. The Company has
added sales staff to provide more representation in its traditional North
American market, while also establishing agent relationships to provide more
focus in other areas of the world including Asia and Europe. This successful
beginning of this plan has been evident by the Company's success with the sales
programs of its largest new product offering, the Aurora Flight Planning system.
Business Rationalization
With new management in place, the Company has implemented a number of programs
aimed at more effectively utilizing the business's assets, while shedding
redundant activities. Some of these projects include the closure of a small
regional office, the subletting of unutilized office space, and the migration to
more cost-effective production equipment in the Monterey facility. While some of
these projects may have resulted in short term cost increases, the long term
cost savings are expected to be significant.
Summary
The Company's management team is committed to implementing and enhancing the
above noted activities. At the same time, a business evaluation process has been
put in place to regularly review these activities and to develop and implement
new programs as needed.
The benefits of these projects have been immediate; however the Company will
require additional funding to achieve its stated plans and objectives. As such,
various financing sources, including debt or equity offerings, will be
investigated when and if such financing is available to the Company. No
assurances can be given that any required financing will be available with
commercially reasonable terms or otherwise. In addition, no assurances can be
given that the Company's activities, as set forth above, will be successful
whether due to lack of required financing or otherwise.
In carrying out its future growth strategy, the Company will also continue to
investigate possible business combinations aimed at improving the operating
efficiencies of the Company, and complementary product lines or market regions,
and ultimately enhancing shareholder value. These business combinations may
include mergers and acquisitions of businesses or technologies, as well as
strategic technology and marketing alliances.
Part II Page 10 of 12
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Compuflight, Inc.
Other Information
Nine Months Ended July 31, 1999
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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.
Nine Months Ended July 31, 1999
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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 12 of 12