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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, 1994
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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
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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 September
14, 1994 and November 15, 1995 was 1,576,980 shares.
Page 1 of 17
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COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 31, 1994
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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, 1994. . . . . . 3
Consolidated Statements of Operations - For the Nine and
Three Months Ended July 31, 1994 and July 31, 1993. . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - For the
Nine Months Ended July 31, 1994 and July 31, 1993 . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . . . 6
Item 2. Management's Discussion and Analysis
or Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . .12
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .16
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 17
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COMPUFLIGHT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31,
1994
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<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,429
Receivables, net of allowance 415,077
Current portion of long term licensing agreements
receivable (Note 4) 207,393
Income taxes receivable (Note 5) 291,730
Prepaid expenses and other current assets 36,506
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Total current assets 956,135
Long term licensing agreements receivable (Note 4) 308,304
Investment in Skyplan Services, Ltd. (Note 6) 175,924
Fixed assets, net of accumulated depreciation 443,758
Other assets 9,000
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$ 1,893,121
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness - Line of credit $ 39,794
Payables and accruals (Note 7) 737,285
Support shareholder demand loans (Note 8) 64,890
Note payable - third party 31,368
Global demand loan payable (Note 9) 207,530
Current portion of loans payable - related parties (Note 10) 11,197
Current portion of note payable - former affiliate (Note 11) 242,910
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Total current liabilities 1,334,974
Long term liabilities
Loans payable - related parties (Note 10) 86,520
Note payable - former affiliate (Note 11) 315,653
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Total long term liabilities 402,173
Minority Interest in Navtech Systems Support Inc. 90,956
Shareholders' Equity
Capital stock, $.001 par value 1,577
Additional paid-in capital 1,769,488
Note receivable - former Chairman (Note 3) (763,408)
Due from related company, net of allowance (Note 12) (388,600)
Cumulative foreign currency translation adjustment 36,131
Deficit (590,170)
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65,018
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$ 1,893,121
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</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 17
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COMPUFLIGHT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Revenue
Service fees $ 1,669,848 $ 413,160 $ 676,303 $ 123,801
Hardware, software and license sales 330,291 93,658 317,835 -
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2,000,139 506,818 994,138 123,801
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Costs and Expenses
Operating 1,416,232 482,863 476,940 170,491
Selling, general and administrative 464,179 88,045 107,241 32,858
Research and development 170,331 248,533 50,930 59,102
Depreciation and amortization 104,588 51,301 30,150 32,295
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2,155,330 870,742 665,261 294,746
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Operating (loss) income (155,191) (363,924) 328,877 (170,945)
Other income (expense)
Interest income 26,612 9,643 8,640 -
Interest expense (101,757) (63,064) (35,383) (20,621)
Management fee - related party (Note 12) - 574,061 - -
Provision for loss - related party (Note 12) - (238,800) - -
Realized foreign exchange gain (loss) 108,311 (131,210) (169) (20,700)
Other 62,531 13,938 10,941 3,457
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Income (loss) before taxes and minority
interest (59,494) (199,356) 312,906 (208,809)
Investment tax credit 36,621 86,992 - 20,680
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Income (loss) before minority interest (22,873) (112,364) 312,906 (188,129)
Minority interest (10,143) - (41,856) -
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Net earnings (loss) $ (33,016) $ (112,364) $ 271,050 $ (188,129)
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Net earnings (loss) per share $ (0.02) $ (0.07) $ 0.17 $ (0.12)
---------- ---------- ---------- ---------
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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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</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 17
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COMPUFLIGHT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JULY 31, 1994 1993
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<S> <C> <C>
Operating Activities
Net loss $ (33,016) $ (112,364)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization 104,588 51,301
Minority interest 10,143 -
Changes in operating assets and liabilities net of the effects
of the acquisition of Compuflight, Inc.
(Increase) decrease in assets - net (439,805) 48,932
Increase in liabilities - net 259,192 99,993
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Net cash (used in) provided by operating activities (98,898) 87,862
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Investing Activities
Repayment of note receivable - director and officer 7,183 -
Increase in advance to related company (7,022) (404,335)
Partial redemption of Investment in Skyplan Services, Ltd. 69,555 16,653
Advance from Compuflight, Inc. - 50,908
Purchase of fixed assets (50,166) (52,202)
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Net cash provided by (used in) investing activities 19,550 (388,976)
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Financing Activities
Net cash on acquisition of Compuflight, Inc. 84,242 -
(Decrease) increase in bank indebtedness (113,859) 77,308
Issue of shares - 256,679
Proceeds from Global demand loan 196,168 -
Proceeds from Support shareholder demand loans - 115,498
Payment of loans (117,206) (3,842)
Payments of Support shareholder demand loans - (168,517)
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Net cash provided by financing activities 49,345 277,126
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Effect of Translation Adjustments on Cash 35,432 23,988
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Net Increase in Cash and Cash Equivalents 5,429 -
Cash and Cash Equivalents at Beginning of Year - -
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Cash and Cash Equivalents at End of Period $ 5,429 $ -
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</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 17
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COMPUFLIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1994
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1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of July 31, 1994, consolidated
statements of operations for the three and nine months ended July 31, 1994 and
1993 and the consolidated statements of cash flow for the nine months ended July
31, 1994 and 1993 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 flow at July 31, 1994 and for all periods presented, have
been made.
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, 1993. Results of operations for the nine months ended July
31, 1994 are not necessarily indicative of the operating results for the full
year.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Compuflight, Inc.
(the "Company") and its subsidiaries since the date of acquisition described in
Note 3 below. All material intercompany balances and transactions have been
eliminated. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, 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 the period. Unrealized translation gains and losses are
shown as a separate component of stockholders' equity.
3. BASIS OF PRESENTATION
ACQUISITION OF EFFICIENT AVIATION SYSTEMS INC. AND NAVTECH SYSTEMS SUPPORT INC.
On December 1, 1993, the Company and its former Chairman consummated a stock
purchase agreement, dated as of October 31, 1993, with Ray English & Associates
Inc. ("RE&A"), formerly Navtech Systems Consulting Inc., among others. Pursuant
to the agreement, as at July 31, 1994, the Company had issued 1,114,644 shares
of the Company's common stock (valued at $.56 per share) and assumed an $800,000
obligation of RE&A to the Company's former Chairman (valued at $133,768; the
decrement in value, $666,232, was charged to Compuflight's fiscal 1993
operations) as discussed below for all of the outstanding stock of Efficient
Aviation Systems Inc. ("EAS", a wholly-owned subsidiary of RE&A) and
approximately 87% of the outstanding common shares of Navtech Systems Support
Inc. ("Support", a company controlled by RE&A and its principal shareholders).
Contemporaneously with the stock purchase agreement, the Company's former
Chairman and his immediate family sold their 238,872 shares of the Company's
common stock to RE&A in exchange for an $800,000 note payable to the Company's
former Chairman. In connection with the Company's acquisition of EAS, the
Company has assumed RE&A's note payable to the Company's former Chairman and as
a result the former Chairman's indebtedness to the Company was reduced to
$804,000. Such indebtedness is payable in equal monthly installments over a ten
year period,
Page 6 of 17
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together with interest at 4 1/2% per annum. Further, the Company entered into a
ten year consulting agreement with its former Chairman providing for fees
payable, substantially upon the same terms as the indebtedness repayment, and,
accordingly, this note has been presented as a component of Shareholders'
Equity.
The Company also granted the remaining Support common shareholder the right to
acquire 125,000 shares of the Company's stock on the same basis as accorded to
RE&A and the other Support shareholders (which right was exercised in November
1995). In addition, the Company agreed that its previously existing public
shareholders of record on December 11, 1993 would have the right to purchase one
share of the Company's common stock for each share then held at a price of
$1.29. Such rights expired on February 28, 1995.
As a result of the above, as of July 31, 1994, RE&A and the other former
shareholders of Support had acquired approximately 87% of the Company's common
stock, and accordingly, the Company has accounted for the above transactions as
a recapitalization of Support and EAS with Support and EAS as the acquirer of
the Company for financial reporting purposes. Accordingly, Support and EAS's
combined net assets have been presented at historical cost and the Company's net
assets have been recorded at their fair market value, which has been determined
to approximate historical cost. The historical operating results are those of
the acquirer (Support and EAS) and the Company's operating results have been
included from the effective date of the acquisition (November 1, 1993).
Presented below are the unaudited pro forma condensed operating results for the
nine months ended July 31, 1993, as if the transactions had been consummated on
November 1, 1992.
Revenue $ 1,561,703
Costs and expenses 2,307,995
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Operating loss (746,292)
Other income 253,284
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Net loss before taxes and minority interest (493,008)
Income tax benefit 86,992
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Net loss before minority interest (406,016)
Minority interest 14,608
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Net loss $ (391,408)
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Net loss per share $ (0.25)
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Average shares outstanding 1,576,980
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Page 7 of 17
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4. LONG TERM LICENSING AGREEMENTS
Support licenses the use of its computer software products under long-term
licensing agreements. In cases where a licensing agreement transfers
substantially all of the risks and benefits of ownership of said license to a
licensee, the licensing agreement is recorded as a software sale in the period
in which the software is installed and operational. Amounts due under long-term
licensing agreements, $515,697 at July 31, 1994, are recorded net of estimated
amounts related to ongoing software support. Of this amount, $308,304 is due
after one year.
5. INCOME TAXES RECEIVABLE
Income taxes receivable consist of:
Scientific Research and Experimental Development
Investment Tax Credits recoverable $ 286,451
Other income taxes receivable 5,279
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$ 291,730
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SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT ELIGIBLE EXPENDITURES
(INVESTMENT TAX CREDITS)
Support is engaged in Scientific Research and Experimental Development
activities directed toward developing new software functionality. Under the
Income Tax Act (Canada), Support is entitled to claim investment tax credits for
certain eligible current and capital expenditures. These amounts are shown as a
component of income tax expense (benefit). In addition, the Company has earned
investment tax credits relating to Scientific Research and Experimental
Development eligible expenditures totaling $13,135 which can only be claimed to
offset taxes payable and have therefore not been recorded in this fiscal period
6. INVESTMENT IN SKYPLAN SERVICES, LTD. ("SKYPLAN")
The investment in shares of Skyplan Systems, Ltd., of Calgary, Alberta, Canada,
$175,924 at July 31, 1994, represents redeemable preferred stock received by the
Company in settlement of a receivable from the sale of a license for the use of
its computer software product FOMS (Flight Operations Management Software). The
shares are valued at their stated cost of $5.00 Canadian per share. Prior to
June, 1994, the shares of Skyplan were being redeemed at varying amounts on an
irregular repayment schedule. Pursuant to a revised licensing agreement signed
in June 1994, the remaining 56,000 Series N shares of Skyplan are to be redeemed
at $5.00 Canadian per share at a rate of $18,000 Canadian per month
Page 8 of 17
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7. PAYABLES AND ACCRUALS
Payables and accruals at July 31,1994 consist of the following:
Trade payables $ 418,424
Accrued liabilities 72,425
Accrued interest - related parties 51,513
Deferred salaries 194,923
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$ 737,285
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8. SUPPORT SHAREHOLDER DEMAND LOANS
Support shareholder demand loans are unsecured and bear interest at 15% per
annum. The loans are due on demand and, accordingly, have been classified as
current. The shareholders have the option to convert these loans into common
shares of Support at various amounts per share.
9. GLOBAL DEMAND LOAN PAYABLE
On February 8, 1994, Global Weather Dynamics, Inc. ("Global"), Compuflight and
Support entered into a Loan Agreement providing for a loan of $200,000 from
Global to Compuflight and Support. Additional amounts, including interest on
the outstanding balance, were advanced after that date. In December 1994, the
loan was paid in full through the early discounted repayment of the complete
balance of the long term software licensing agreement between the Company and
Emery Worldwide Airlines, Inc. Previous to February 8, 1994, Global had
advanced funds with substantially the same terms as the loan described above.
10. LOANS PAYABLE - RELATED PARTIES
Loans payable - related parties includes a chattel mortgage on specific computer
equipment in the amount of $120,000 Canadian ($86,520 U.S. at July 31, 1994) due
to a company owned by the brother of a shareholder of the Company. The mortgage
is due May 10, 1997 and bears interest at 15% per annum payable monthly. Also
included is a separate chattel mortgage on specific computer equipment, due to
the above noted brother personally, which bears interest at 15% per annum and
is payable in monthly installments of principal and interest of $1,078 Canadian.
The outstanding balance at July 31, 1994 was $15,530 Canadian ($11,197 U.S.).
The balance in its entirety was repaid in July 1995.
11. NOTE PAYABLE - FORMER AFFILIATE
At July 31, 1993, the Company had outstanding accounts payable due to Sandata,
Inc. ("Sandata"), an affiliate of Bert E. Brodsky, the Company's former
Chairman, in the approximate amount of $676,000. On such date, the Company
delivered to Sandata a promissory note in such approximate principal amount
payable with interest at the rate of 1% over the prime rate in equal monthly
payments of principal and interest of $20,000 until April 1994, when the balance
of such obligation
Page 9 of 17
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was to become due (the "Sandata Note"). The Sandata Note replaced the Company's
accounts payable obligation to Sandata for the same amount. The Company had
made $60,000 in payments against this promissory note as of November 1, 1993.
Effective November 1, 1993, the Sandata Note was modified so that it is
repayable in equal monthly installments of principal in the amount of $20,000,
together with accrued interest thereon at the rate of 10% per annum, commencing
February 28, 1994. During the period February 1, 1994 to July 31, 1994 the
Company had made $117,089 in payments against this promissory note. In addition
to such monthly payments in payment of the Sandata Note, the Company is required
to pay to Sandata an amount equal to (a) 20% of all monies received from stand-
alone commercial system sales and/or licensing of flight planning software by
the Company, EAS or Support or any subsidiary thereof and (b) 75% of all monies
received by Compuflight from Harris Corporation ( see MD&A "Harris Corporation")
with respect to the Company's claims discussed herein. Payment of the Sandata
Note is secured by a first lien on substantially all of Compuflight's assets as
they were recorded at the date of acquisition.
12. DUE FROM RELATED COMPANY, NET OF ALLOWANCE
In 1993, Support charged its parent company, RE&A, a management and marketing
fee in connection with the management of the Military and Air Traffic Control
("ATC") versions of the FOMS software. Support also advanced funds to RE&A in
order to assist RE&A in meeting its obligations. Substantially all such fees
were incurred and funds were advanced prior to the acquisition discussed in Note
3. The Company has taken an allowance of $238,800 for the period ended July 31,
1993 (valued at $216,300 on the balance sheet at July 31, 1994) against the
total receivable to show a net amount believed by the Company to be equivalent
approximately to the net worth of RE&A as of the particular date (such net worth
being substantially based upon the shares of the Company beneficially owned by
RE&A as of such date).
RE&A is owned by Raymond F. English, a former Chairman of the Company, who
resigned from that position on October 31, 1994. RE&A was engaged in managing
and marketing the Military and ATC versions of FOMS, especially as it related to
large scale Canadian Government traffic management projects. With the transfer
of the software rights for the Military and ATC versions of FOMS to the
Company's subsidiary, EAS, as part of the acquisition, RE&A has turned its
efforts to a marketing representative arrangement under which RE&A will
represent FOMS to a defined account base comprised of large national and
international air carriers. This arrangement is defined under the terms and
conditions of a Consulting and Management Agreement between RE&A and Support
dated January 1, 1995.
Effective July 15, 1995, RE&A executed and delivered to Support a promissory
note in the principal amount of $750,000 Canadian (the "RE&A Note") to evidence
a certain obligation to Support as of such date (net of certain amounts payable
through May 31, 1995 pursuant to the Consulting and Marketing Agreement referred
to above). The RE&A Note is payable on July 15, 2005 (or sooner as provided
below) and provides for interest at the rate of 5% per annum payable annually.
The Consulting and Marketing Agreement provides that Support shall have the
right to offset $3,500 Canadian per month against compensation otherwise payable
to RE&A thereunder as a payment of amounts due under the RE&A Note. The
Consulting and Marketing Agreement also provides for
Page 10 of 17
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commissions and finder's fees for the introduction to potential clients or the
sale of a FOMS software license. Such agreement provides for additional payment
of the RE&A Note on the following basis:
i) 15% of the first $10,000 Canadian of commissions or finder's fees
earned during a contract year ;
ii) 20% of the next $10,000 Canadian of commissions and finder's fee
earned during a contract year; and,
iii) 25% of any earned commissions or finder's fees exceeding $20,000
Canadian in a contract year.
Since the amount due from RE&A is in all likelihood recoverable only from
amounts payable by Support, the amount due from related company, net of
allowance, has been classified as an element of Shareholders' Equity.
Concurrent with the signing of the RE&A Note, RE&A also transferred all of its
common stock of the Company to a Voting Trust ("Trust") under the sole
administration of Dorothy A. English. Mrs. English is an Executive Vice
President of the Company and the spouse of Raymond F. English, Chairman and CEO
of RE&A. RE&A has the ability to recover its stock from the Trust upon the full
payment of the RE&A Note and all accrued interest. Furthermore, while the RE&A
Note remains outstanding, all dividends accruing to RE&A's common stock held in
the Trust will be applied against the balance owing on the RE&A Note.
Page 11 of 17
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COMPUFLIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED JULY 31, 1994
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As discussed in the notes to the Company's financial statements included herein,
due to the change in control resulting from the Company's acquisitions of EAS
and Support, the Company's statements of operations for the three and nine
months ended July 31, 1993 and statement of cash flow for the nine months ended
July 31, 1993 reflect the combined operations of EAS and Support (and not
Compuflight) for such periods; however, Compuflight's operations are included in
the three and nine months ended July 31, 1994. Accordingly, the significant
variances in revenue and costs and expenses between the three and nine months
ended July 31, 1994 and 1993 are primarily the result of such accounting
treatment. The pro forma discussion below reflects the operations of the
Company (i.e., EAS, Support and Compuflight) for the nine months ended July 31,
1993, as if the acquisitions had occurred as of November 1, 1992.
RESULTS OF OPERATIONS
Revenue from service fees and hardware, software and license sales increased
from $506,818 during the nine months ended July 31, 1993 to $2,000,139 for the
nine months ended July 31, 1994, primarily due to the inclusion of Compuflight's
service fee revenue of approximately $1,145,973. On a pro forma basis, revenue
increased approximately $438,436 primarily due to the inclusion of a fee of
approximately $318,000 for the renewal of the software license held by Skyplan
Services, Ltd as well an increase in customer base.
Other income for the nine months ended July 31, 1994 decreased $68,871 or 42% as
compared to the nine month period ended July 31, 1993. The decrease was due
mainly to the inclusion of a one time management and marketing fee of $335,261,
net of allowance, charged to RE&A in the nine months ended July 31, 1993 which
was partially offset by the realized foreign exchange loss for that period of
$131,210 as compared to a gain of $108,311 for the same period in 1994.
Operating expenses for the nine months ended July 31, 1994 increased $933,369 or
193% as compared to the same nine month period ended July 31, 1993, primarily
due to the inclusion of Compuflight's operating expenses of approximately
$820,000 for the current period and the waiver of previously expensed and
deferred salaries of $82,991 during the 1993 period. On a pro forma basis,
operating expenses decreased approximately $386,000 during the nine month period
ended July 31, 1994, primarily due to decreased subcontracting costs of
Compuflight (approximately $220,000) and the above noted waiver.
Selling, general and administrative expenses for the nine months ended July 31,
1994 increased $376,134 or 427% as compared to the nine month period ended July
31, 1993. The increase was primarily due to the inclusion of Compuflight's
selling, general and administrative expenses of approximately $329,000. On a
pro forma basis, selling, general and administrative expenses increased
approximately $88,000 during the nine months ended July 31, 1994, as compared to
the nine months ended July 31, 1993, and as a percentage of revenue decreased
from approximately 24% to 23%. Such increase was primarily the result of
increases in professional and consulting fees.
The net loss for the nine months ended July 31, 1994 decreased $79,348 as
compared to the nine month period ended July 31, 1993. The decrease was
primarily due to the impact of the inclusion of the software license renewal fee
and the realized foreign exchange gain, each referred to above,
Page 12 of 17
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offset by the management and marketing fee and waiver of deferred salary during
the 1993 period, each referred to above. On a pro forma basis, the net loss for
the nine months ended July 31, 1993 was $391,408 as compared to $33,016 for the
nine months ended July 31, 1994 primarily due to the factors noted above as well
as Compuflight's loss during the prior period..
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1994, the Company had a working capital deficiency of $378,839. The
Company's operations for the nine months ended July 31, 1994, used cash flows of
$98,898. Investing activities for the same period provided $19,550 primarily
due to a partial redemption of Support's investment in Skyplan Services, Ltd.
offset by the purchase of fixed assets. Financing activities for the nine
months ended July 31, 1994 provided $49,345 primarily due to the proceeds of a
$200,000 received during that period as well as cash provided by the reverse
acquisition of Compuflight, Inc. offset by the repayment of bank indebtedness
and the Sandata note. The Company had no material non-working capital
commitments as of July 31, 1994.
COMMITMENT
SUPPORT CLASS B SPECIAL 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 $100 Canadian each plus a bonus amount. As at July 31, 1994, no dividends
have been paid or declared on these shares. The bonus amount is dependent on
the length of time the shares are outstanding. The aggregate amount required to
redeem such shares is as follows:
If redeemed at: $ Canadian
--------------- ----------
July 31, 1994 516,000
October 31, 1994 528,000
October 31, 1995, and thereafter 540,000
PLAN OF OPERATION
The Company's liquidity at July 31, 1994 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
HARRIS CORPORATION
On January 17, 1991, the Company entered into a fixed price subcontract with
Harris Corporation ("Harris") for the development of flight planning software,
training and related documentation for
Page 13 of 17
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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 statement
of work of the fixed price contract.
In January 1995, the Company filed with Harris claims aggregating approximately
$737,000 for services which the Company considered beyond the scope of the
subcontract. Harris has advised the Company that it intends to include in its
claims to the Air Force approximately $612,000 for services rendered by the
Company. Harris has further advised the Company that it will pay such claims on
a proportionate basis to the extent it receives payments from the Air Force.
The Company believes that it is entitled to recover the entire $737,000 claim
from Harris whether or not Harris receives payment from the Air Force and,
therefore, is continuing to actively pursue its claims against Harris. No
assurances can be given that any amounts will be received by the Company as a
result of its claims. Accordingly, such claims are not accounted for in the
determination of estimated earnings on the Harris subcontract and will be
recognized only when and if realized.
TRADE CREDITORS
The Company has successfully negotiated extended repayment terms with several
larger 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 actively pursue additional extensions
with its creditors.
DEFERRED SALARIES
The Company is continuing its efforts to have deferred salaries ($194,923 at
July 31, 1994) waived in addition to those previously waived ($82,991 at July
31, 1993).
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 has established a joint marketing agreement
with Transquest, an Atlanta, Georgia based systems integrator, on May 12, 1994,
under which Transquest will market Support's software and services
internationally and domestically.
Page 14 of 17
<PAGE>
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 to 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 15 of 17
<PAGE>
- --------------------------------------------------------------------------------
COMPUFLIGHT, INC.
OTHER INFORMATION
NINE MONTHS ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
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 16 of 17
<PAGE>
- --------------------------------------------------------------------------------
COMPUFLIGHT, INC.
NINE MONTHS ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
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: November 29, 1995 By: /s/ Russell K. Thal
-------------------------- -----------------------------------
Chief Executive Officer
Date: November 29, 1995 By: /s/ Duncan Macdonald
-------------------------- -----------------------------------
Chief Financial Officer
Page 17 of 17
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> JUL-31-1994
<CASH> 5,429
<SECURITIES> 0
<RECEIVABLES> 415,077
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 956,135
<PP&E> 443,758
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,893,121
<CURRENT-LIABILITIES> 1,334,974
<BONDS> 0
<COMMON> 1,577
0
0
<OTHER-SE> 63,441
<TOTAL-LIABILITY-AND-EQUITY> 1,893,121
<SALES> 0
<TOTAL-REVENUES> 2,000,139
<CGS> 0
<TOTAL-COSTS> 2,155,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,757
<INCOME-PRETAX> (59,494)
<INCOME-TAX> (36,621)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,016)
<EPS-PRIMARY> (.02)
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