U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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
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 / / No /X/
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock
as of April 15, 1996 was 1,701,980 shares.
Page 1 of 13
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COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 31, 1995
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INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheet
as of July 31, 1995 3
Consolidated Statements of Operations
- For the Nine and Three Months Ended
July 31, 1995 and July 31, 1994 4
Condensed Consolidated Statements of
Cash Flows - For the Nine Months
Ended July 31, 1995 and July 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
Page 2 of 13
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COMPUFLIGHT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JULY 31,
1995
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ASSETS
CURRENT ASSETS
Cash and equivalents $ 70,078
Accounts receivable, net of allowance for doubtful accounts
of $143,252 540,069
License fees receivable 111,279
Prepaid expenses and other 33,439
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Total current assets 754,865
INVESTMENT TAX CREDITS RECEIVABLE 388,810
LICENSE FEES RECEIVABLE 250,035
FIXED ASSETS, NET 379,546
OTHER ASSETS 9,000
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$ 1,782,256
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 657,786
Deferred salaries 52,205
Note payable 8,213
Due to related parties - current portion 429,588
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Total current liabilities 1,147,792
DUE TO RELATED PARTIES 94,695
MINORITY INTERESTS 346,207
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share; authorized
2,500,000 shares; issued and outstanding, 1,576,980 shares 1,577
Additional paid-in capital 1,469,061
Notes receivable - former Chairmen (1,062,103)
Cumulative foreign translation adjustment 16,088
Accumulated deficit (231,061)
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193,562
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$ 1,782,256
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See notes to unaudited condensed consolidated financial statements.
Page 3 of 13
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COMPUFLIGHT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
1995 1994 1995 1994
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Revenue
Service fees $ 2,282,897 $ 1,669,848 $678,738 $676,303
Hardware, software and license sales 49,887 366,922 11,967 317,835
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2,332,784 2,036,770 690,705 994,138
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Costs and Expenses
Operating 1,269,385 1,416,232 384,498 476,940
Research and development 150,775 170,331 64,767 50,930
Selling, general and administrative 627,541 464,179 189,912 107,241
Depreciation and amortization 99,842 104,588 34,633 30,150
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2,147,543 2,155,330 673,810 665,261
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Operating income (loss) 185,241 (118,560) 16,895 328,877
Other income (expense)
Interest income 30,207 26,612 11,490 8,640
Interest expense - related parties (46,768) (67,092) (14,403) (26,662)
Interest expense - other (42,899) (34,665) (15,355) (8,721)
Realized foreign exchange gain (loss) 9,189 108,311 (30,972) (169)
Scientific research and development
credits 87,074 36,621 37,403 --
Other 4,658 25,900 8,141 10,941
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Earnings (loss) before minority
interests 226,702 (22,873) 13,199 312,906
Earnings of minority interests (9,817) (10,143) (7,516) (41,856)
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NET EARNINGS (LOSS) $ 216,885 $ (33,016) $5,683 $ 271,050
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Net earnings (loss) per share $ 0.14 $ (0.02) $ -- $ 0.17
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Weighted Average Number of Common
Shares Outstanding 1,576,980 1,576,980 1,576,980 1,576,980
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See notes to unaudited condensed consolidated financial statements.
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COMPUFLIGHT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1995 1994
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Cash flows from operating activities
Net earnings (loss) $ 216,885 $ (33,016)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization 99,841 104,588
Provision for uncollectible accounts (804) --
Minority interests 9,817 10,143
Consulting fees, net 50,814 --
Increase in operating assets - net (6,360) (370,250)
Increase in operating liabilities - net 31,245 259,192
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Net cash provided by (used in) operating
activities 401,438 (29,343)
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Cash flows from investing activities
Cash acquired of Compuflight -- 84,242
Purchase of fixed assets (76,484) (50,166)
Repayments from (advances to) RE&A - net 32,403 (7,022)
Repayment of note receivable - director
and officer -- 7,183
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Net cash provided by (used in)
investing activities (44,081) 34,237
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Cash flows from financing activities
Payment of notes - former affiliate (216,046) --
Decrease in cash overdraft -- (113,859)
Payment of Global demand loan (203,789) (8,322)
Proceeds from Global demand loan -- 204,490
Payment of loans (20,850) (117,206)
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Net cash used in
financing activities (440,685) (34,897)
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Effect of foreign translations on cash 13,455 35,432
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NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (69,873) 5,429
Cash and equivalents at beginning of year 139,951 --
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Cash and equivalents at end of period $ 70,078 $ 5,429
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See notes to unaudited condensed consolidated financial statements.
Page 5 of 13
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COMPUFLIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED JULY 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 July 31, 1995, the
consolidated statements of operations for the three and nine months ended
July 31, 1995 and 1994, and the condensed consolidated statements of cash
flow for the nine months ended July 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 July 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 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, 1994. Results of operations for the nine
months ended July 31, 1995 are not necessarily indicative of the operating
results for the full year.
Page 6 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1995
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RESULTS OF OPERATIONS
REVENUE
Revenue from service fees was approximately $2.3 million in the nine
months ended July 31, 1995 compared with approximately $1.7 million
for the nine months ended July 31, 1994, an increase of 37% or
approximately $600,000. The increase in service fees is attributed primarily
to the addition of a systems integration customer in February 1994
representing a quarterly revenue stream of $100,000 as well as increased
usage fees for service bureau, support and performance engineering services
of approximately $500,000. Specifically, however, fees related to certain
service bureau and performance engineering customers have decreased
approximately $150,000 during the three months ended July 31, 1995.
Revenue from hardware sales and software licenses was approximately
$50,000 for the nine months ended July 31, 1995 as compared with
approximately $367,000 for the nine months ended July 31, 1994. The
difference is primarily attributable to the inclusion of a fee of
approximately $318,000 for the renewal of a software license held by
Skyplan Services, Ltd. in the nine months ended July 31, 1994.
COSTS AND EXPENSES
Operating expenses decreased approximately 10% or $147,000 from
approximately $1.4 million for the nine months ended July 31, 1994 to
approximately $1.3 million for the nine months ended July 31, 1995. This
change is primarily attributable to the waiver of deferred salaries of
approximately $137,000 as well as the foregiveness of an account payable by
a supplier of approximately $14,000.
Research and development costs were approximately $151,000 for the nine
months ended July 31, 1995 as compared to approximately $170,000
for the nine months ended July 31, 1994. This decrease in expenditure
levels is due to the completion of a number of projects initiated prior
to the year ended October 31, 1994. The market for the Company's products is
characterized by continuing technological change and the increasing
demands of airline customers for software that responds to the
operational issues faced by them. As a result, the Company believes that
substantial expenditures for research and development will continue to be
required in future quarters.
Selling, general and administrative expenses increased approximately
35% or $164,000 from approximately $464,000 for the nine months ended July
31, 1994 to approximately $628,000 for the nine months ended July 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. ("RE&A")) of approximately $60,000. In
addition, there was an increase in professional fees of approximately
$30,000 to implement new accounting procedures and controls and comply
with regulatory requirements and an increase in travel expenses of
approximately $60,000 related to ongoing efforts to increase sales.
OTHER INCOME (EXPENSE)
The Company recorded a gain of approximately $9,000 on realized
foreign exchange transactions for the nine months ended July 31, 1995
as compared to a gain of approximately $108,000 for the nine
Page 7 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1995
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months ended July 31, 1994. 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 development credits of
approximately $87,000 in the nine months ended July 31, 1995 as compared to
approximately $37,000 for the nine months ended July 31, 1994. Although the
research and development expenses on which the credits are based
actually decreased between 1995 and 1994, the Company was not eligible for the
35% refund rate between April 1994 and October 1994. Eligible expenditures in
that period are credited at a rate of 20% to be offset against future taxes
payable by Support. Since Support is not currently in a taxable position, the
value of these credits are not reflected in the financial statements.
NET EARNINGS
The unaudited consolidated financial statements reflect net earnings of
approximately $217,000 for the nine months ended July 31, 1995 as
compared to a net loss of approximately $33,000 for the nine months
ended July 31, 1994. This represents a change of approximately $250,000
and is primarily attributable to the net increase in revenues noted above
along with overall expenses remaining generally constant for each of the two
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company showed a net decrease in cash resources of $69,873 for the nine
months ended July 31, 1995 as compared to a net increase of $5,429 for the
nine months ended July 31, 1994. In addition, at July 31, 1995, the
Company had a working capital deficiency of $392,927.
Cash flows from operations for the nine months ended July 31, 1995
accounted for an increase in cash of approximately $401,000, primarily
as a result of the Company's net income for the period. Cash flows from
investing activities for the nine months ended July 31, 1995 represented
a net outflow of $44,081, primarily due to the purchase of fixed assets
(offset by net repayments from RE&A). Cash flows from financing activities
for the nine months ended July 31, 1995 represented a net outflow of
approximately $441,000. A substantial portion of this outflow relates to
the repayment of the Global loan in December 1994 and the payment of amounts
due to Sandata, Inc.
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 July 31, 1995, the Company's available funds consisted of $70,078 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. 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 July 31, 1995, no dividends had been paid or declared on these shares.
Page 8 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1995
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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, provides for the obtaining of an annuity
and/or insurance policy under which 60 consecutive monthly payments of
$10,000 would be payable upon his retirement 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 cash resources and credit
availability, as well as cash generated from operations, are
insufficient to finance its operations and product development objectives.
Planning is ongoing to secure external financing during 1996. Management
is continually streamlining the Company's operations with a view
toward reducing fixed costs, extending credit terms and expanding its
marketing and sales efforts. Specific initiatives to reduce the working
capital deficiency include:
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 $246,903 as of July 31,
1995 and which comprises a portion of "Due
Page 9 of 13
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1995
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to Related Parties") to the extent of 75% of all monies received from
Harris. Such prepayment is to be applied to the last amounts due 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 of 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 was successful in obtaining waivers of deferred salaries of
approximately $137,000 during the period. The Company is also
continuing its efforts to have deferred salaries ($52,205 at July 31,
1995) waived in addition to those previously waived.
INCREASE REVENUES FROM EXISTING CUSTOMERS
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.
EXPAND SALES EFFORTS
During the quarter ended July 31, 1995, the Company expanded its sales and
marketing capabilities to support the increased demand from new airlines
entering the North American marketplace. This included the addition
of a dedicated account executive at the end of the third quarter.
SUMMARY
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).
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 enhancing stockholder value.
These business combinations may include mergers and acquisitions as well
as strategic technology and marketing alliances.
Page 10 of 13
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COMPUFLIGHT, INC.
OTHER INFORMATION
NINE MONTHS ENDED JULY 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:
(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).
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COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 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 24, 1996 By: /s/ Russell K. Thal
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Chairman of the Board
Date: April 24, 1996 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial
Officer
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