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 January 31, 1995
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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 Identification No.)
incorporation or organization)
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 No X
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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 March 31,
1996 was 1,701,980 shares.
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COMPUFLIGHT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED JANUARY 31, 1995
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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
January 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the Three
Months Ended January 31, 1995 and January 31, 1994 . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 1995 and January 31, 1994 . . . . . .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
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COMPUFLIGHT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JANUARY 31,
1995
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ASSETS
CURRENT ASSETS
Cash and equivalents $ 77,411
Accounts receivable, net of allowance for
doubtful accounts of $149,556 351,878
License fees receivable 109,305
Prepaid expenses and other 27,196
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Total current assets 565,790
INVESTMENT TAX CREDITS RECEIVABLE 307,693
LICENSE FEES RECEIVABLE 309,061
FIXED ASSETS, NET 386,516
OTHER ASSETS 9,000
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$ 1,578,060
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LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 425,050
Deferred salaries 186,958
Note payable 11,888
Due to related parties - current portion 443,031
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Total current liabilities 1,066,927
DUE TO RELATED PARTIES 222,389
MINORITY INTERESTS 329,775
COMMITMENTS AND CONTINGENCIES
DEFICIENCY IN SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share;
authorized, 2,500,000 shares; issued and
outstanding, 1,576,980 shares 1,577
Additional paid-in capital 1,469,061
Notes receivable - former Chairmen (1,124,615)
Cumulative foreign translation adjustment 5,774
Accumulated deficit (392,828)
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(41,031)
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$ 1,578,060
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See notes to unaudited condensed consolidated financial statements.
Page 3 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1995 1994
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Revenue
Service fees $ 765,591 $ 544,731
Hardware, software and license sales 25,229 12,456
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790,820 557,187
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Costs and Expenses
Operating 420,257 441,783
Research and development 31,351 64,464
Selling, general and administrative 247,697 187,818
Depreciation and amortization 31,930 37,148
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731,235 731,213
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Operating income (loss) 59,585 (174,026)
Other income (expense)
Interest income 9,802 9,065
Interest expense - related parties (16,969) (21,362)
Interest expense - other (14,379) (13,713)
Realized foreign exchange gain (loss) (4,265) 28,999
Scientific research and experimental
development credits 18,106 22,548
Other (3,375) -
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Earnings (loss) before minority interests 48,505 (148,489)
Loss of minority interests 6,615 15,402
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NET EARNINGS (LOSS) $ 55,120 $(133,087)
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Net earnings (loss) per share $ 0.03 $ (0.09)
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Weighted Average Number of Common Shares Outstanding 1,576,980 1,561,980
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See notes to unaudited condensed consolidated financial statements.
Page 4 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1995 1994
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Cash flows from operating activities
Net earnings (loss) $ 55,120 $(133,087)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization 31,930 37,148
Provision for uncollectible accounts 5,867 -
Minority interests (6,615) (15,402)
Consulting fees, net 16,748 -
Decrease (increase) in operating assets - net 185,606 (77,320)
(Decrease) increase in operating liabilities - net (81,009) 145,410
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Net cash provided by (used in) operating
activities 207,647 (43,251)
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Cash flows from investing activities
Cash acquired of Compuflight - 84,242
Purchase of fixed assets (16,720) (5,881)
Advances to RE&A - net (577) -
Repayment of note receivable - director and officer - 7,183
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Net cash provided by (used in) investing
activities (17,297) 85,544
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Cash flows from financing activities
Payment of notes - former affiliate (60,000) -
Increase (decrease) in cash overdraft - (14,234)
Payment of Global demand loan (203,789) -
Proceeds from notes - 508
Payment of notes (8,126) -
Payment of Support shareholder demand loans - 1,444
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Net cash used in financing activities (271,915) (12,282)
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Effect of foreign translations on cash 19,025 2,925
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NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (62,540) 32,936
Cash and equivalents at beginning of year 139,951 -
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Cash and equivalents at end of period $ 77,411 $ 32,936
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See notes to unaudited condensed consolidated financial statements.
Page 5 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 1995
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NOTE A. DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. ("Compuflight") and subsidiaries, Navtech Systems Support Inc.
("Support") and Efficient Aviation Systems Inc. ("EAS") (herein referred to
collectively as the "Company"), are engaged in the business of (1) providing
computerized flight planning service to all segments of the aviation industry,
but principally to commercial airlines and corporate aircraft users and (2)
licensing customized versions of their proprietary software to end users mainly
throughout the United States and Canada.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated balance sheet as of January 31, 1995, and the
consolidated statements of operations and cash flows for the three months ended
January 31, 1995 and 1994, 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 at January 31, 1995, and for all periods presented,
have been made.
The condensed consolidated financial statements include the accounts of
Compuflight, its 88%-owned subsidiary, Support, and its wholly-owned subsidiary,
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 in the statement of deficiency
in 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, 1994. Results of operations for the three months ended
January 31, 1995 are not necessarily indicative of the operating results for the
full year.
Page 6 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JANUARY 31, 1995
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RESULTS OF OPERATIONS
REVENUE
Revenue from service fees was approximately $766,000 in the three months ended
January 31, 1995 compared with approximately $545,000 for the three months ended
January 31, 1994, an increase of 41% or approximately $221,000. The increase in
service fees is attributed primarily to the addition of a systems integration
customer in February 1994 resulting in quarterly revenue of approximately
$100,000, as well as increased usage service fees from existing
customers aggregating an additional $100,000 of revenue in the quarter.
Revenue from hardware sales and software licenses increased 103% or
approximately $13,000 from approximately $12,000 for the three months ended
January 31, 1994 to approximately $25,000 for the three months ended January 31,
1995. The change is due primarily to an increase in the financed portion of
long term license fees receivable.
COSTS AND EXPENSES
Operating expenses decreased approximately 5% or $22,000 from approximately
$442,000 for the three months ended January 31, 1994 to approximately $420,000
for the three months ended January 31, 1995. This change is primarily
attributable to the reduction in third party computer services costs resulting
from the transfer of service bureau operations from the Port Washington,
New York facility to the Waterloo, Ontario facility in the previous quarter.
Research and development costs decreased approximately 51% or $33,000 from
approximately $64,000 for the three months ended January 31, 1994 to
approximately $31,000 for the three months ended January 31, 1995.
Selling, general and administrative expenses increased approximately 32% or
$60,000 from approximately $188,000 for the three months ended January 31, 1994
to approximately $248,000 for the three months ended January 31, 1995. This
increase is primarily attributable to an increase in consulting fees (including
payments required under the marketing contract with Ray English and
Associates Inc.) of approximately $34,500, an increase in professional fees of
approximately $10,000 and an increase in travel related to ongoing efforts to
increase sales of approximately $10,000.
OTHER INCOME (EXPENSE)
The Company recorded a loss of approximately $4,000 on realized foreign exchange
transactions for the three months ended January 31, 1995 as compared to a gain
of approximately $29,000 for the three months ended January 31, 1994. This
change is due mainly to continuing fluctuations in the exchange rate.
NET EARNINGS
The unaudited consolidated financial statements reflect net earnings of
approximately $55,000 for the three months ended January 31, 1995 as compared to
a net loss of approximately $133,000 for the three months ended January 31,
1994. This represents a change of approximately
Page 7 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JANUARY 31, 1995
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$188,000 and is primarily attributable to the increase in revenues noted above
along with overall expenses remaining constant for each of the two periods
presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company showed a net decrease in cash resources of $62,540 for the three
months ended January 31, 1995 as compared to a net increase of $32,936 for the
three months ended January 31, 1994. In addition, at January 31, 1995, the
Company had a working capital deficiency of $501,137.
Cash flows from operations accounted for an increase in cash of approximately
$208,000, primarily as a result of the early payment of a license fee
receivable. Cash flows from investing activities for the three months ended
January 31, 1995 represent a net outflow of $17,297, primarily due to the
purchase of fixed assets. Cash flows from financing activities for the three
months ended January 31, 1995 represent a net outflow of $271,915. A
substantial portion of this outflow relates to the repayment of the Global loan
in December 1994.
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.
As of January 31, 1995, the Company's available funds consisted of $77,411 in
cash.
COMMITMENTS AND CONTINGENCIES
SUPPORT CLASS B SHAREHOLDERS REDEMPTION
In 1987 and 1989, Support issued a total of 3,600 Class B special shares for
$358,200 Canadian. Such amount is incuded as a component of the Company's
minority interest liability. These shares are non-voting, entitled to
non-cumulative dividends of $8 Canadian per share and are redeemable at the
option of Support for a current aggregate amount of $540,000 Canadian. As at
January 31, 1995, no dividends had been paid or declared on these shares.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment and consulting agreements with its
Chairman, former Chairmen and a Director of the Company which provide for
minimum monthly compensation. The Company's obligations under such agreements
expire at various times during the period from March 1997 through
March 31, 2004. Further, the employment agreement with the Company's Chairman,
as amended subsequent to fiscal 1994, 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).
PLAN OF OPERATION
The Company's liquidity at January 31, 1995 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:
Page 8 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JANUARY 31, 1995
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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 subcontract 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 has 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 payment from the Air Force. However, 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 actively 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.
The Company is required to make a prepayment of the promissory note due to
Sandata, Inc. (the principal balance of which was $375,653 as of January 31,
1995 and which comprises a portion of "Due to Related Parties") to the extent
of 75% of all monies received from Harris. Such prepayment is to be applied to
the last amounts under the note.
TRADE CREDITORS
The Company has successfully negotiated extended repayment terms with several
large trade creditors. Although the Company's objective is to be current with
all its creditors, these extensions have ensured the continued viability of the
Company. The Company is continuing to pursue additional extensions with its
creditors.
DEFERRED SALARIES
The Company is continuing its efforts to have deferred salaries ($186,958 at
January 31, 1995) waived in addition to those previously waived.
CORPORATE STRATEGY
In an effort to increase working capital and expand market share, the Company
has adopted the following key strategies:
EXPAND WORLDWIDE DISTRIBUTION. The Company plans to continue to expand its
sales efforts both in domestic and international markets. The Company has also
established and intends to continue expanding alternate channels of distribution
through teaming agreements, joint marketing agreements and strategic alliances
with major aviation software vendors, leading consulting firms and systems
integrators. In particular, Support established a joint marketing agreement
with Transquest, an Atlanta, Georgia based systems integrator, on May 11, 1994,
under which Transquest will market Support's software and services
internationally and domestically.
Page 9 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE MONTHS ENDED JANUARY 31, 1995
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EXPAND PRODUCT BREADTH AND FUNCTIONALITY. The Company intends to continue
adding new features and applications and enhancing existing features to meet the
marketplace demands. To this end, the Company intends to incorporate new
technologies and standards as they are embraced by the aviation industry.
LEVERAGE EXISTING CUSTOMER BASE. The Company's products and services are used
by more than 40 customers worldwide. The Company is seeking to expand its
customer relationships by providing additional products and services, by
licensing additional users and by upgrading customers from service bureau to in-
house systems.
MANAGEMENT
The Company has experienced significant changes in its business, such as the
integration of the operations of Support, the establishment of new and
demanding joint marketing relationships, and the expansion of its products and
services. Such changes have placed, and may continue to place, a significant
strain on the Company's management and operations. In order to manage such
changes, the Company has added a number of new staff positions including a Chief
Financial Officer, a Vice President of Marketing and Sales and a Director of
Finance.
The Company must also continue to improve its operational, financial and
business systems and hire the required management to implement the systems and
manage change effectively.
SUMMARY
Management will continue to aggressively pursue its objectives of integrating
the Canadian operations, improving customer service and maximizing shareholder
return. To this end, management is committed to implementing and enhancing the
above noted plans on an ongoing basis. While these plans have resulted in some
immediate benefits, the Company may require additional funding to completely
achieve its objectives and intends to seek such from various sources, including
debt or equity offerings when and if such financing is available to the Company.
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).
Page 10 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
OTHER INFORMATION
THREE MONTHS ENDED JANUARY 31, 1995
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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:
None
Page 11 of 12
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COMPUFLIGHT, INC. AND SUBSIDIARIES
THREE MONTHS ENDED JANUARY 31, 1995
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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: April 8, 1996 By: /s/ Russell K. Thal
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Chairman of the Board
Date: April 8, 1996 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial Officer
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