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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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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(Name of small business issuer in its charter)
Delaware 11-2883366
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
99 Seaview Boulevard, 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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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year (1995): $ 3,164,768
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The aggregate market value of the voting stock held by non-affiliates based
upon the average bid and asked prices of such stock as of June 30, 1996 was
$ 399,254 .
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has 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 a court. Yes No
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of common stock as of June 30, 1996,
was 1,701,980 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
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COMPUFLIGHT, INC.
1995 FORM 10-KSB/A ANNUAL REPORT
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . . .14
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . .17
Item 6. Management's Discussion and Analysis or Plan of Operation. . . . . .18
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .24
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. . . . . . . . . .26
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .30
Item 11. Security Ownership of Certain Beneficial Owners and Management . . .32
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . .34
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
INDEX TO EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . .36
INDEX TO FINANCIAL STATEMENTS (F-1). . . . . . . . . . . . . . . . .39
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
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GLOSSARY OF TERMS
Definitions of certain terms used in this Form 10-KSB are as follows:
FIX
The radio beacon which defines the location of an airport or an enroute position
in latitude and longitude.
FLIGHT PLAN
Routing, alternate routing, altitude and fuel consumption information provided
to aircraft operators, and calculations which are based on, among other things,
the aircraft manufacturer's performance data, aircraft specifications,
forecasted upper air winds and estimated payload.
NAVIGATIONAL DATA
Worldwide navigational flight information data which provides name and location
of navigational aids. The data is updated every 28 days and checked against
data provider charts every 56 days.
NOTAMS
The Notices to Airmen features significant notices to airmen and special notices
which can affect a pilot's decision to enter and use areas of domestic or
international airspace.
OPTIMUM RANDOM TRACKS
Where permitted by Air Traffic Control ("ATC"), aircraft may fly a route between
fixes which has not been previously defined.
PAYLOAD
The weight of passenger and cargo carried on the aircraft.
PIREPS
Pilot reports denoting flight conditions. PIREPs serve as a source of valuable
weather information.
RECLEAR OPTION
Use of a reclear option permits a reduction of Federal Air Regulations ("FAR")
10% fuel reserve requirements on international flights, thereby allowing for
increased payload, reduced fuel reserves or both.
SIGMETS/AIRMETS
Types of in-flight weather advisories - Sigmets for relatively severe
conditions, other than thunderstorms; Airmets for less hazardous weather. These
advisories are distributed over teletype circuits and broadcast periodically on
the voice facilities of flight service stations.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
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.
The Company provides four comprehensive product and service solutions:
- - A service bureau product offering marketed under the COMPASS-TM- trade-
mark, which provides the flight operations department of commercial and
corporate airlines with a very easy to use 'single screen' format for the
timely dispatching of flights.
- - The Flight Operations Management System ("FOMS") which, in addition to
providing the airline dispatcher with flight planning functionality,
provides the Flight Operations department with an overall analysis of the
flight plan and supplies extensive information on crew, weather, NOTAMS,
and other factors impacting decision making. The FOMS system can be
implemented on an in-house as well as on a service bureau basis. In
addition, the Company provides full product integration services for
integrating the system with the customers' other mission critical software
applications such as crew scheduling, reservations, and maintenance.
- - The COMRAD product utilizes a mobile computer for use in the aircraft
cockpit. This product provides the commercial airline customer with
aircraft performance data previously delivered solely by ground-based
runway analysis and weight and balance systems.
- - The V(1)PLUS Performance Engineering Service is offered to airlines who do
not maintain in-house engineering departments or who wish to augment
existing capabilities.
These product and service solutions are based on proprietary software developed
by the Company.
The Company's products and services are used by over 50 airline customers
worldwide. These customers represent all facets of the aviation industry,
including national and international airlines, regional airlines, freight
carriers and corporate aircraft operators. Included in this broad array of
industry representation are Delta Airlines, Emery Worldwide and American
Transair.
The Company provides ongoing support services to its customers, including
services provided under annual maintenance agreements. The Company currently
has annual software maintenance agreements with all of the customers who have
licensed the FOMS software. See "Software Support Services". The Company
markets its software and service bureau offering on an international scale to
large national and international carriers through direct sales and agency
arrangements. See "Sales and Marketing".
In seeking to maintain a competitive advantage in the marketplace, the Company
maintains a full-time Research and Development Division, which
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designs and develops innovative software solutions. See "Research and
Development".
The Company was originally incorporated in the State of New York in 1981. In
1987, the Company reincorporated in the State of Delaware. The Company's
principal executive offices are located at 99 Seaview Boulevard, Port
Washington, New York.
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 and
Associates Inc. ("RE&A"), formerly Navtech Systems Consulting Inc., among
others. Pursuant to the agreement, as of the date hereof, the Company has
issued 1,239,644 shares of the Company's common stock (valued at $0.56 per
share) and assumed an $800,000 obligation of RE&A to the Company's former
Chairman for all of the outstanding common stock of EAS (a wholly-owned
subsidiary of RE&A) and Support (a company controlled by RE&A and its principal
shareholders). As of October 31, 1995, the Company had acquired only 88% of the
outstanding common stock of Support. In November 1995, the remaining Support
common shareholder exercised its right to acquire shares of common stock of the
Company in exchange for its Support shares.
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 the
ten year period ending October 2003, 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.
In addition, the Company agreed that its previously existing public stockholders
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 unexercised on February 28, 1995.
GLOBAL WEATHER DYNAMICS, INC.
In January 1994, the Company announced its intent to enter into an agreement
with Global Weather Dynamics, Inc. ("GWDI") which would have resulted in the
acquisition of GWDI by the Company whereby the GWDI shareholders would have
owned a majority controlling interest in the Company's issued and outstanding
shares of common stock. The terms of the business combination were subject to
negotiations between the parties, approval of the Board of Directors of the
Company and the execution of a definitive agreement between the parties.
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In February 1994, GWDI, the Company and Support entered into a Loan Agreement
providing for a loan of $200,000 from GWDI to the Company and Support. Such
loan was repaid in full in December 1994.
The Company announced on January 31, 1995 that it had suspended discussions with
GWDI with regard to a business combination.
INDUSTRY BACKGROUND
The world's commercial airline industry is currently emerging from the most
severe recession it has ever experienced. The industry suffered unprecedented
losses from 1990 to 1993 with International Air Transport Association registered
carriers sustaining reported cumulative losses of approximately USD $15.6
billion on international scheduled services. This downturn occurred as a result
of a number of industry conditions. During this period, the United States
economy experienced a significant recession and the Persian Gulf War erupted,
the latter of which had an adverse effect on both fuel prices and passenger
demand. In order to survive in this hostile economic climate, numerous carriers
introduced lower fare structures to maintain market share. The effect of these
trends caused Eastern Airlines, PanAm, and Midway Airlines to cease operations
and Continental Airlines, America West Airlines and TWA to file for bankruptcy.
Following this turbulent period, the airline industry began to experience a
gradual increase in fare levels. By the end of 1994, the surviving air carriers
began a return to profitability. The airlines, having been exposed to extreme
operating conditions, were forced to review and re-engineer their business to
achieve maximum efficiency. This approach continues to be pervasive throughout
the industry and, as competition increases, airlines find it necessary to
operate more flights on expanding route networks without incurring the risk of
disproportionate growth of the flight operations function. This trend forces
the airlines to strive for a high degree of operational flexibility with respect
to analyzing and selecting the most cost effective routes, schedules and
aircraft assignments.
GEOGRAPHIC TRENDS
The Company is focused on three geographic regions for the delivery of its
products and services: North America, Europe, and the Asia/Pacific region.
These areas comprise over 92.75% of the world market in terms of Revenue
Passenger Kilometers (RPKs) and more than 90.5% of the market in terms of
Revenue Freight Kilometers (RFKs).
In its review of aviation industry trends, the 1995 World Aviation Directory is
projecting scheduled passenger traffic, which grew approximately five percent in
1994, to increase six percent by the end of 1995 and by seven percent in 1996.
In addition, the review indicates that, in North America, Europe, and the
Asia/Pacific region, airlines are struggling to cope with the realities of
competition in a world where traffic growth is not producing the kind of revenue
growth seen in the past, and where cost cutting and control is increasingly seen
as the key to survival. World airlines continue to create and develop alliances
in order to expand into new markets and to avoid being marginalized or relegated
to the status of niche carriers or feeders.
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The review also suggests that political and economic forces will drive
consolidation to a point where major airline alliances will occur. These
airline alliances will face competition from a large number of niche airlines
that differentiate themselves by geography or market segmentation. Smaller
regional groupings of carriers seeking to protect or expand their share of
particular geographical markets or business segments will also compete with the
global alliances.
NORTH AMERICA
The distinguishing characteristic of the North American marketplace continues to
be a demand for lower fares. In response to the low fare threat of carriers
such as ValuJet and Kiwi, some of the larger national carriers (e.g. USAir,
United, and Continental) have launched special low fare programs and cost
cutting initiatives to reduce their overall operations expenditures. American
Airline's parent company, AMR Inc., responded to the market demand by shrinking
unprofitable airline operations, and developing and marketing profitable
Information Technology (IT) and consulting activities.
EUROPE
European airlines are actively forming alliances in order to create larger, more
stable traffic volumes from which to fend off competition from within and
without the European Union. European carriers have negotiated alliances across
the Atlantic to increase passenger volume at American gateways and European
flights at home market hub airports. Most major European airlines have
restructured with a noticeable trend toward the establishment of alliances and
code sharing agreements. One result of this process is a reduction in levels of
government ownership and subsidies. These efforts have also allowed for some
airlines to return to profitability, however, others are still experiencing
severe financial difficulties.
ASIA/PACIFIC
Asia/Pacific is the fastest growing region in the aviation world; however,
financial performance is on a decline. In fiscal 1993/94, net profits of the 15
members of the Oriental Airlines Association ("OAA") were less than half of the
$1.5 billion they reported in fiscal 1991/92. Combined operating revenues
reportedly increased 13.3% but operating costs also reportedly rose 13.5%.
Airline members of the OAA are beginning to experience the effects of "maturity"
(labor/management relations, air/ground congestion; safety/security issues,
etc.) that have afflicted airlines in the United States and Europe. Management
skills can no longer provide the assurance of success in the areas of growth or
high yield. New economic realities in Japan dictate that consumers, who
traditionally paid full fares, are currently looking for bargains.
In addition to regional passenger traffic growth, cargo traffic across all
regions is expected to increase by approximately 6.5 percent during 1996
according to the 1995 World Aviation Directory.
FLIGHT OPERATIONS SOFTWARE MARKET OUTLOOK
The management of the Company has perceived that, as a result of the competitive
pressures experienced by the aviation industry, the flight operations or
Strategic Operations Control Center has emerged as one of the focal points of
airline strategy. Airlines are now seeking new
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software solutions to assist in the effective management of their flight
operations. Air Transport World, a recognized trade publication in the
commercial aviation industry, reported in May 1995 that, based on a study of
flight operations software vendors and commercial airlines requirements, they
expected the flight operations software market to have a growth rate of between
15% and 25% per annum for the remainder of the decade.
PRODUCTS AND SERVICES
The Company provides four comprehensive software and service solutions, COMPASS-
TM-, FOMS, COMRAD and V(1)PLUS, for managing the flight operations department of
an airline and specifically, in the case of COMPASS-TM- and FOMS, for the
creation and filing of a flight plan.
Under Federal Aviation Administration ("FAA") regulations, all aircraft
operators, whether private, corporate or commercial, are required to file flight
plans with air traffic control centers prior to each flight. Flight plans
consist of information relating to the planned flight, including routing,
alternate routing, altitude and fuel consumption information. The calculations
needed to determine this information are based on, among other things, aircraft
performance data, forecasted upper air wind data, the route of flight and the
take off weight of the aircraft. For safety reasons, government regulations
mandate the preparation and filing of basic flight plans. Computerized flight
plans provide more accurate and detailed information to enable aircraft
operators to determine the optimum payload and routing for maximum fuel
conservation and reduction of other related expenses.
COMPASS-TM-. The Company's COMPASS-TM- flight planning software, which is
provided on a service bureau basis, is designed to improve operational
efficiency by providing the flight operations department of a commercial airline
with a very easy to use 'single screen' format for timely dispatching of
flights. Further, the system provides commercial and corporate aircraft pilots
and dispatchers with information regarding upper air wind variations enroute,
revised airway availability, late changes in payload, aircraft performance data
and use of a "reclear option" on international flights. The Company's database
contains information with respect to more than 4,300 airports, 30,000 routes,
50,000 fixes, 100,000 airway segments, and 130 aircraft types.
The system operates in a user friendly format and has the ability to respond
quickly to changing situations so that fuel, flight time, alternate routing and
payload information can be readily modified.
FLIGHT OPERATIONS MANAGEMENT SYSTEM ("FOMS"). FOMS was developed in the "C"
programming language for the Unix Open Systems environment. FOMS specifically
targets the areas of route management, fuel management, winds and weather,
NOTAMS, communications and operations/management reporting. In addition to
providing the airline dispatcher with flight planning functionality, FOMS also
provides the flight operations department with an overall analysis of the flight
plan by supplying extensive information on crew, weather, NOTAMS, and other
factors that impact the decision making ability of the Flight Operations
department. The Company markets the FOMS system on an in-house installation
basis and provides full system integration services for interfacing the product
with the customer's other mission critical software applications such as crew
scheduling, reservations, and maintenance.
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The management of the Company believes that FOMS contains all of the critical
features to fully automate and maximize the efficiency of the flight operations
department. These distinctive competencies include:
- FOMS' ability to create Minimum Time Track ("MTT") flight plans.
The MTT function generates flight plans from any location to any
other location on the globe without using defined airways or
waypoints. This functionality is essential to the next
generation of air traffic management systems, referred to as the
Future Air Navigation System (FANS). Support has assisted two
national aviation agencies and a large United States airline to
perform operational trials using MTT functionality.
- An integrated version of the proprietary Variable Cost Index Plan
("VCIPlan") product developed by Applied Aeronautical Systems
Inc. ("AASI"). VCIPlan is a unique flight planning software
module which, when integrated with FOMS, provides airlines with
flexible and optimal flight profiles. VCIPlan flight plans are
computed using advanced optimal control techniques which result
in flight profiles which are fuel and/or time optimized. VCIPlan
is provided to the Company under a marketing arrangement with
AASI.
COMRAD (COMPUFLIGHT'S RUNWAY ANALYSIS DELIVERY SYSTEM). COMRAD is a PC-based
software product which provides performance engineering solutions for the
Company's target market. The first release of the COMRAD product consists of a
mobile computer running Microsoft's Windows 95-TM- to be used in the cockpit of
the aircraft by the flight crew to compute takeoff and landing profiles. This
approach provides the pilot with an alternative to the traditional manual of
tables from which the pilot would look up the required data. Anticipated
additions in 1996 include Weight and Balance functionality and some limited
flight planning capability. The use of the Windows-TM- graphical user interface
and mobile computing technology will become part of the development strategy to
be undertaken by the Company during 1996.
V(1)PLUS PERFORMANCE ENGINEERING SERVICE is offered to airlines who do not
maintain in-house engineering departments or who wish to augment existing
capabilities. V(1)PLUS software is available for licensed use or may be
integrated with FOMS for greater cost effectiveness.
V(1)PLUS provides customized take-off and landing data specific to various
aircraft/engine combinations, flap settings and runways. Commercial pilots are
required by law to have in their possession a current runway analysis for each
flap setting of their aircraft for each end of each runway for each airport
from/to which they depart/land.
SOFTWARE SUPPORT SERVICES provide a stable ongoing source of revenue that
increases as a function of the increase in licensing of the Company's software.
The Company's comprehensive software support is offered throughout the world and
is designed to maximize the benefits and utility of the software at the
customer's location. These services include training and installation support,
software updates, telephone hot-line support on a 24 hour per day, 7 day a week
("24&7") basis. Due to the
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significant value of the customer's investment in the licensing of the Company's
software, the Company believes that quality support services are a critical
component of the customer's satisfaction level.
The software update and maintenance service consists of new releases of system
functionality, ongoing enhancements to current functionality and the technical
support of the entire database. These services are provided to customers
through an annual agreement.
The Company has found an increased demand in the market for systems integration
services which link the Company's software and third party vendors' applications
such as Crew Scheduling, Maintenance, Flight Following and Reservations.
SALES AND MARKETING
The Company currently markets its products and services throughout the world.
For North America and South America the Company uses its own marketing and sales
force. In other parts of the world, the Company's marketing and sales function
is implemented using agency agreements.
The Company conducts a marketing program which includes seminars and an ongoing
customer communications program. The sales and marketing program is managed by
the Company's Vice President of Business Development and its Vice President of
Marketing. The COMPASS-TM- and COMRAD products and services marketing program
targets the flight dispatch staff of the airline while the FOMS marketing
program primarily targets executive and senior management who have decision
making authority over capital expenditure in the flight operations area of the
airline. The sales cycle typically ranges from six to twelve months from the
time a qualified lead is identified to the date of contract signing. The
significant challenge, outside of the Company's direct competition, is the
ability to sell a large complex system to airlines which have the internal
capability to develop their own software.
In addition to its direct marketing and sales efforts, the Company has also
entered into an agency agreement to distribute COMPASS-TM- and V(1)PLUS services
in Africa. During 1995,the Company depended primarily on agents and large
system integrators for international sales and marketing activity.
Revenues outside the United States were approximately $544,347 of the Company's
total revenues in fiscal 1995. The Company believes that the future results of
operations will depend, in part, on its ability to increase sales in the
international marketplace. During fiscal 1995, the Company's international
sales did not increase to the extent expected because the Company did not expand
its sales and support resources to meet the demands of the marketplace. The
Company's marketing plans include a significant increase in sales activity and
the pursuit of additional representation, in the Pacific Rim, Australia and
Europe. Such increased expense could have an adverse effect on the results of
operations.
CUSTOMERS
The Company's COMPASS-TM- computerized flight planning services and aircraft
performance engineering services are provided to more than 25
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commercial airlines. The Company also supplies services to more than 60
corporate aircraft users.
Support provides the FOMS service bureau offering to Canada 3000 and Air
Transat, both well known Canadian charter operators, and more than six other
clients such as Kalitta Flying Services, a major U.S. cargo operator. In-house
FOMS systems have been delivered to five major airline clients, including
American Trans Air, and Emery Worldwide. Support has a contract with Delta
Airlines to help the airline support its contract carrier flight planning
systems which utilizes Support's FOMS product.
COMPETITION
The applications software market for airline operations management systems is
intensely competitive and subject to rapid change. The principal competitive
factors in this market include product functionality and quality, total cost of
solution, support infrastructure, underlying technology, product architecture
and the financial stability of the vendor. The Company believes that it
competes effectively with respect to these factors, although it may be at a
competitive disadvantage against companies with greater financial and marketing
resources.
The two primary competitors to the Company's FOMS product in the commercial
airline in-house systems market are Jeppeson Sanderson ("Jeppeson") and David
Bornemann & Associates ("Bornemann").
- - Jeppeson, based in Denver, Colorado, is the recognized leader in aviation
related charts and maps, as well as computerized flight planning and
aviation weather mapping services. Jeppeson also provides an in depth line
of pilot and instructor training courses and videos. It has been a
dominant information provider in the aviation industry since the
combination of Jeppeson & Company with Sanderson Films in 1974. As a
subsidiary of the Times Mirror Corporation, it clearly has organizational
and financial resources superior to those of the Company.
- - Bornemann, based in Los Angeles, California, is recognized as a leading
provider of crew scheduling software solutions to airlines. The Bornemann
flight planning system, known as the Eagle System, is PC-based and
therefore does not meet the complex multi-tasking and multi-user
requirements of large in-house installations that Jeppeson and other
competitors deliver with their UNIX-based solutions. Bornemann has
therefore targeted its marketing efforts at the regional airline
marketplace.
The primary competitors for COMPASS-TM- in the service bureau marketplace are
Jeppeson, EDS Services("EDS"), Sabre Decision Technologies ("Sabre") and SITA.
- - Jeppeson's service bureau offering, Dataplan, was acquired from Lockheed
Corporation, which had originally designed the system for the United States
Air Force. Jeppeson bundles the flight plan services with its other
products, such as navigational charts and performance engineering services,
and markets it on a price competitive basis.
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- - EDS has particular strengths with the integration of its flight planning
services with a reservations system originally developed by Continental
Airlines.
- - Sabre, the technology and services arm of AMR Corporation (the parent
corporation of American Airlines), also provides flight planning services
to the commercial airline market as a component of an overall airline
management system which includes reservations and accounting systems.
- - SITA, which has the largest market share in Europe and Africa, is part of a
suite of programs including weather and reservations. The key feature of
SITA's systems is its worldwide aviation communications network which
provides an advantage over other competitors who, in the developing
nations, must utilize SITA or ARINC due to the poor quality of their
telecommunications systems. This advantage is quickly eroding due to the
advent of low cost, high quality communications alternatives in both
Eastern Europe, Russia and the developing countries in Asia and Africa.
Many of the Company's COMPASS-TM- competitors have significantly greater
financial, technical, and marketing resources and, as a result, may be able to
respond more effectively to changes in customer requirements or devote greater
resources to new product or technological development.
The Company's products also compete with vendors offering products originally
developed on a custom basis for a single airline customer and with proprietary
systems developed and maintained by the management information system
departments of large commercial airlines such as the LIDO-TM- system developed
by Lufthansa Airlines. Increased competition to the Company's products and
service bureau business could result in price reductions, reduced gross margins
and loss of market share which could have a material adverse effect on the
Company's financial condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company invests significant resources to develop new software functionality
and to enhance its existing software. Research and development expenses were
$223,224 and $225,411 for the years ending October 31, 1995 and 1994,
respectively. See Item 6 hereof.
The Company plans to continue to enhance its existing software functionality in
order to respond to the increasing demands of its customers and to improve the
ease of use of the software. The Company's 1996 Development Plan includes
expansion of the product scope to include a NOTAMs module, increased weather
capability and the development of a graphical user interface. In addition, the
Company is developing a complete client server architecture that is compatible
with the leading UNIX platforms, including Digital, IBM, Hewlett Packard, Unisys
and SUN.
INTELLECTUAL PROPERTY RIGHTS
The Company regards all of its software products as proprietary. The Company's
software products are generally licensed to end-users on a "right to use" basis
pursuant to a perpetual non-transferable license that generally restricts the
use of the software to the customer's operations or third parties affiliated
with the customer. The Company
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relies on a combination of copyright, trademark, and trade secret laws, as well
as non-disclosure agreements, to establish and maintain its proprietary rights.
The Company has not filed for patents due to the lack of effective patent
protection for software. In the past, the Company and Support have licensed
certain versions of source code to a limited number of customers for specific
uses. Also, there can be no assurance that the Company's competitors will not
independently develop software that is equivalent to the Company's. Further, no
assurance can be given that the Company will have the financial resources to
engage in litigation against parties who may infringe its intellectual property
rights. While the Company realizes that its competitive position may be
affected by its ability to legally protect its software, the Company believes
the impact of this protection is less significant to its commercial success than
factors such as the level of experience of the Company's personnel, name
recognition and increased investment in research and development of new
products.
EMPLOYEES AND FACILITIES
As of May 31, 1996, the Company had a total of 51 employees including 18 in
operations and client services, 16 in research and product development, 6 in
sales and marketing and 11 in finance and administration. None of the Company's
employees is represented by a labor union and the Company believes that its
employee relations are good. The Company believes that its success will depend,
to a large degree, upon its ability to attract and retain highly skilled
technical, managerial and sales and marketing personnel, and to retain personnel
with flight operations expertise. The Company has experienced intense
competition for technical staff thereby encountering difficulties in hiring a
sufficient number to meet custom software design and programming order backlog.
There can be no assurance that the Company will be successful in attracting and
retaining the personnel required to develop, market, service and support its
products and conduct its operations successfully.
Page 13 of 40
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company uses approximately 2,689 square feet of leased office space at 99
Seaview Boulevard, Port Washington, New York for its executive offices and
marketing, administration and sales operations. The monthly rent expense of
this facility as of May 31, 1996 was $4,160. The lease terminates on December
31, 1998.
Support maintains offices in Waterloo, Ontario and Ottawa, Ontario. The Support
office, which occupies approximately 4,233 square feet of space at 550 Parkside
Drive, Waterloo, Ontario, functions as the principal operations, research and
development, customer support and administrative offices for the Company. The
monthly rent expense of this lease was approximately $3,570 Canadian as of May
31, 1996. The lease terminates on December 14, 1996. The Support facility at
50 O'Connor Street, Ottawa, Ontario functions as the marketing and sales office
for Federal Systems Sales efforts. The lease is terminable by either party with
sixty (60) days notice. The monthly rent expense of this lease was
approximately $1,451 Canadian as of May 31, 1996.
The Company's total rent expense was approximately $79,700 in fiscal 1995. The
Company believes that its facilities are adequate for its current needs and that
suitable additional space will be available as required.
Page 14 of 40
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
By letter dated January 23, 1996, the Securities and Exchange Commission (the
"Commission") advised the Company that it had failed to file its Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1994 (the "1994 Form 10-
KSB") and Quarterly Reports on Form 10-QSB for the fiscal quarters ended January
31, 1995, April 30, 1995 and July 31, 1995 (collectively, the "1995 Forms 10-
QSB"). The Commission also advised the Company that it had filed late its Form
10-KSB for the fiscal year ended October 31, 1993 and Forms 10-QSB for the
fiscal quarters ended January 31, 1994 and July 31, 1994, and failed to file
Notifications of Late Filing on Form 12b-25 with regard to the 1995 Forms 10-
QSB. By letter dated March 4, 1996, the Commission advised the Company that it
had also failed to file its Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1995 (the "1995 Form 10-KSB").
The Commission's Division of Enforcement had advised the Company further that it
is considering recommending that the Commission institute enforcement action,
which could include civil penalties, against the Company for violations of the
reporting requirements of Section 13(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules thereunder. Pursuant to the
Exchange Act, the amount of the penalty shall be determined by the court in
light of the facts and circumstances; however, for each violation, the amount of
the penalty, with regard to a company, cannot exceed the greater of $50,000 or
the gross amount of pecuniary gain to the Company as a result of any violation.
The Exchange Act provides for substantially greater maximum penalties in the
event the violation involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement and/or such violation directly or
indirectly resulted in substantial losses or created a significant risk of
substantial losses to other persons.
The Company filed its 1994 Form 10-KSB on March 22, 1996. Furthermore, the
Forms 10-QSB for the fiscal periods ended January 31, 1995, April 30, 1995 and
July 31, 1995 were filed on April 9, 1996, April 24, 1996 and April 25, 1996,
respectively.
The Company, in its latest correspondence with the Commission, dated June 27,
1996, has indicated that, in addition to the filing of this 1995 Form 10-KSB
on or before June 28, 1996, it intended to file the 1996 Forms 10-QSB for the
fiscal quarters ended January 31, 1996 and April 30, 1996 on or before July 8
and July 9, 1996, respectively. No assurances can be given that,
notwithstanding the Company's filing of the 1995 Form 10-KSB and
notwithstanding the filing of the 1996 Forms 10-QSB for the fiscal quarters
ended January 31, 1996 and April 30, 1996 on or before the dates set forth
above, the Commission will not seek to recover civil penalties from the
Company with regard to such delinquent reports or the other previously filed
reports by the Company. Any such action taken by the Commission could have a
material adverse effect on the Company's financial position, liquidity and
results of operations. As the Company cannot presently predict, with any
certainty, the ultimate outcome of this matter, no amounts have been provided
for in the accompanying consolidated financial statements.
Page 15 of 40
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended October 31, 1995.
Page 16 of 40
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market under the
symbol "CMFL". Until May 25, 1994, the Company's common stock was listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). The high and low bid prices of the common stock, as furnished by
NASDAQ through May 25, 1994 and thereafter by the National Quotation Bureau,
Incorporated, are shown for the fiscal periods indicated. Such prices represent
prices between dealers, do not include retail markup, markdown or commission and
do not represent actual transactions.
Fiscal Year Ended Bid Price
October 31, 1995 High Low
- ------------------- ---------------------
First Quarter $1/2 $1/4
Second Quarter 5/8 1/4
Third Quarter 5/8 1/2
Fourth Quarter 5/8 1/2
Fiscal Year Ended
October 31, 1994
- -------------------
First Quarter $1-9/16 $7/8
Second Quarter 1-1/4 7/8
Third Quarter 7/8 1/4
Fourth Quarter 1/2 1/4
(b) APPROXIMATE NUMBER OF RECORD HOLDERS
Management has been advised by its transfer agent (North American Transfer Co.)
that the approximate number of record holders of the Company's common stock at
May 31, 1996 was 848.
(c) PAYMENT OF CASH DIVIDENDS
No cash dividends have been paid by the Company on its common stock and no cash
dividends are anticipated in the foreseeable future.
Pag 17 of 40
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue represented by
certain items in the Company's consolidated statement of earnings for the
years indicated:
PERCENTAGE OF TOTAL REVENUE
---------------------------
YEAR ENDED OCTOBER 31
---------------------------
1995 1994
---------------------------
---------------------------
REVENUE
Service fees 98% 87%
Hardware, software and license sales 2 13
--------- ---------
Total revenue 100 100
--------- ---------
COSTS AND EXPENSES
Operating 63 62
Research and development 7 8
Selling, general and administrative 28 26
Depreciation and amortization 4 5
--------- ---------
Total operating expenses 102 101
--------- ---------
LOSS FROM OPERATIONS (2) (1)
Other income 7 2
--------- ---------
INCOME BEFORE MINORITY INTEREST 5 1
Earnings of minority interest - (1)
--------- ---------
NET EARNINGS 5% -%
--------- ---------
--------- ---------
REVENUE
The Company's revenue is derived from two major sources: (i) service fees
derived from the provision of flight planning, runway analysis services and
ongoing customer support and (ii) sales of hardware and licenses of software.
Revenue from license fees is recognized at the later of delivery of the software
executable code or, if applicable, fulfillment of all other significant
obligations under terms of a license agreement. For those agreements where
there is uncertainty as to ultimate collection, revenue is recognized as cash is
received. The face value of a long term licensing agreement is discounted to
give an effective rate of return of 15% over the life of the contract to cover
financing costs. Systems consulting and implementation fees and hardware
commissions are recognized upon rendering of services. Custom software
development, communication charges and aviation database income, and service
bureau and support revenue are recognized ratably over applicable contractual
periods or as services are performed.
Total revenue increased to approximately $3.2 million in 1995 from approximately
$2.9 million in 1994.
The Company's products and services are used by airlines throughout the
world. The Company operates primarily in the United States and Canada,
although its customers are also located in Europe, Mexico and South America.
In Fiscal 1995, the Company derived approximately $2.6 million from sales in
the United States as compared to approximately $2.1 million in fiscal 1994.
This increase is due to the increase in usage fees which are primarily
attributable to U.S.-based customers. Sales in Canada accounted for
approximately $371,000 in fiscal 1995 as compared to approximately $839,000
in fiscal 1994. This decline is due primarily to the inclusion in 1994 of a
fee for the renewal of a software license.
Page 18 of 40
<PAGE>
Sales in other jurisdictions amounted to approximately $174,000 in fiscal
1995 as compared to approximately $61,000 in fiscal 1994. This increase is
due primarily to the Company's continued efforts to expand its markets.
REVENUE FROM SERVICE FEES was approximately $3.1 million in 1995 compared
with approximately $2.6 million in 1994, an increase of 21% or approximately
$500,000. 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
$600,000. Specifically, however, fees related to certain service bureau and
performance engineering customers have decreased approximately $200,000
during the latter half of the year.
REVENUE FROM HARDWARE, SOFTWARE AND LICENSE SALES decreased approximately
$323,000 from approximately $385,000 in 1994 to approximately $62,000 in 1995.
This decrease occurred since 1994 revenue included a fee of approximately
$300,000 for the renewal of the software license held by Skyplan Services, Ltd.,
whereas 1995 revenue included only the income related to financing this
contract.
COSTS AND EXPENSES
OPERATING EXPENSES. Operating expenses consist mainly of personnel and other
expenses related to providing product support, service bureau operation and
custom development. Also included in this expense component are the
communication costs associated with the provision of in-house flight planning
services and customer support. Personnel costs relating to ongoing research
and development have been segregated and are shown as a separate component of
costs and expenses.
Operating expenses increased from approximately $1.8 million in 1994 to
approximately $2.0 million in 1995, representing an increase of approximately
$200,000, or 9%. This increase is primarily attributable to increased
payroll costs due to additional staff involved in the new systems integration
projects, although, as a partial offset, communication charges declined
conversely. This decline in communication charges is indicative of a general
industry trend toward lower long distance telecommunications rates. In
addition, an account payable of approximately $14,000 was forgiven by the
supplier.
RESEARCH AND DEVELOPMENT EXPENSES. The majority of the Company's Research and
Development activities are undertaken in Canada. Support qualifies for certain
Scientific Research and Experimental Development (SR&ED) investment tax credits
under the Income Tax Act (Canada) on eligible research and development
expenditures. Refundable tax credits have been recorded at a rate of 35% and
non-refundable tax credits, which can be used to offset Canadian federal income
taxes otherwise payable, will be recorded at 20% when such taxes become payable.
Research and Development expenses decreased from approximately $225,000 in 1994
to approximately $223,000 in 1995, representing a reduction of 1%. Support's
involvement in qualifying activities as per the Income Tax Act varied during the
year with a higher percentage of activity in the latter half due to the timing
of the commencement and conclusion of projects during such period. The market
for the Company's products is
Page 19 of 40
<PAGE>
characterized by continued technological change and the increasing demands of
airline customers for software that responds to the operational issues facing
them. As a result, the Company believes that substantial expenditures for
research and development will continue to be required in future years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $125,000, or 16%, from
approximately $772,000 in 1994 to approximately $897,000 in 1995. This increase
can be attributed primarily to the inclusion of consulting fees paid to RE&A
under a contract that commenced January 1, 1995. Furthermore, professional fees
remained high as the Company continues to incur expenses related to additional
advisory services.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, realized foreign
exchange gains and losses and certain other items as more fully discussed below.
INTEREST EXPENSE decreased approximately $22,000, or 15%, from approximately
$139,000 in 1994 to approximately $117,000 in 1995 due to a reduction in
balances due to certain creditors and a decline in interest rates over the
period.
SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT INVESTMENT TAX CREDITS
increased approximately $122,000, or 335%, from approximately $37,000 in 1994 to
approximately $159,000 in 1995. Although the research and development
expenditures on which the credits are based actually decreased between 1994 and
1995, the Company was not eligible for the 35% refund rate between April 1994
and October 1994 as the result of the application of an associated companies'
combined income eligibility threshold. Eligible expenditures in that period
were 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 is not reflected in the consolidated financial statements.
WAIVER OF DEFERRED SALARIES. During fiscal 1995 certain employees waived
salaries accrued in prior years, and, accordingly, the Company has presented
the effect of such waivers as a component of other income in the accompanying
consolidated statements of earnings.
EARNINGS OF MINORITY INTEREST
EARNINGS OF MINORITY INTEREST reflect the share of earnings attributable to the
12% minority shareholder of the Company's subsidiary, Support.
Earnings of minority interest for fiscal 1995 were approximately $8,000 as
compared to approximately $24,000 in fiscal 1994 as based on income in
Support of approximately $69,000 and approximately $187,000 for fiscal 1995
and 1994, respectively. A large portion of this decrease in Support's
earnings is due to the inclusion in 1994 of a fee for the renewal of the
software license held by Skyplan Services, Ltd.
Subsequent to the year end, the remaining minority shareholder in Support
exercised its option to exchange its 500,000 shares of common stock in Support
for 125,000 shares of common stock of
Compuflight.
Page 20 of 40
<PAGE>
Accordingly, as of the date of this exchange, the Company will own all of the
outstanding common stock of Support.
NET EARNINGS
The financial statements reflect net earnings of $154,207 for fiscal 1995, as
compared to $3,812 for fiscal 1994. The increase of $150,395 is due primarily
to the moderate increase in revenues, the Company's ability to maintain its
expenses at similar levels as last year and an increase in refundable scientific
research and experimental development investment tax credits.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, the Company financed a considerable part of its operations through the
early payment of a license fee receivable, a modest increase in revenue and
effective cost cutting measures that maintained expenses at levels similar to
1994. The principal use of these funds has been the retirement of the Global
loan and the financing of the Company's software development activities and
additions to capital assets.
The Company's financial position in 1995 declined somewhat as cash decreased by
$42,039. However the deficiency in working capital decreased by approximately
$34,000 from $496,760 in 1994 to $463,003 in 1995.
Cash flows from operations increased approximately $201,000 to approximately
$449,000 in 1995 primarily due to the early payment of a license fee
receivable as well as an increase in accounts payable. Cash flows from
investing activities amounted to a net outflow of approximately $56,000 as
compared to a net inflow of approximately $42,000 in 1994. The change is
primarily attributable to the purchase of fixed assets as well as the one
time cash infusion in 1994 as a result of the reverse acquisition of the
Company. Cash flows from financing activities amounted to a net outflow of
approximately $125,000 in 1994, as compared to a net outflow of approximately
$455,000 in 1995. This outflow is attributable primarily to the repayment of
amounts due to Global and Sandata, Inc., a former affiliate of the Company.
As a result of these activities and the resulting effect of foreign currency
transactions, the Company recorded a net decrease in cash flows of $42,039 in
1995 as compared to a net cash inflow of $139,951 in 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 October 31, 1995, the Company's available funds consisted of $97,912 in
cash.
COMMITMENTS AND CONTINGENCIES
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-
Page 21 of 40
<PAGE>
cumulative dividends of $8 Canadian per share and are redeemable at the
option of Support for an aggregate amount of $540,000 Canadian. As at
October 31, 1995, no dividends had been paid or declared on these shares.
EMPLOYMENT AND CONSULTING AGREEMENTS
Reference is made to Note I-4 to the Company's consolidated financial statements
included herein as Item 7 for a discussion of certain employment and consulting
agreements entered into by the Company or Support and certain minimum
compensation obligations thereunder.
SECURITIES AND EXCHANGE COMMISSION FILINGS
Reference is made to Item 3 hereof for a discussion of certain correspondence
between the Company and the Commission with regard to certain delinquent filings
under the Exchange Act and certain authorized penalties with regard thereto.
PLAN OF OPERATION
The Company's liquidity at October 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:
HARRIS CORPORATION
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 statement of 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 subsequently 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 payments from the Air Force.
By letter dated June 12, 1996, Harris advised the Company that the Air Force's
technical, contracts and legal departments have been conducting an evaluation of
the Request for Equitable Adjustment (REA) submitted by Harris to the Air Force
on December 15, 1995. Harris' letter indicates that all of these evaluations
were scheduled to be completed by June 30, 1996 and that the Air Force should
commence negotiations regarding the outstanding claim within thirty days
following the review completion.
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 pursue
Page 22 of 40
<PAGE>
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 $195,652 as of October 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 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 its creditors, these extensions have ensured the continued viability of the
Company. The Company is continuing to actively pursue additional extensions
with its creditors.
INCREASE REVENUES FROM EXISTING CUSTOMERS
The Company's products and services are used by more than 50 customers
worldwide. The Company is seeking to expand its current customer revenues 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 year, 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 Vice President of Marketing (see
Item 9 hereof), a Vice President of Business Development (see Item 9 hereof) and
a dedicated professional account executive.
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 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 assurances 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 23 of 40
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements, under Item 13 hereof, begin on Page F-1 following the
main body of this document.
Page 24 of 40
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
Page 25 of 40
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the positions and offices
presently held with the Company and Support by each present Director and
executive officer, as well as by each significant employee of the Company and
Support, and his or her age as of May 31, 1996:
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
POSITIONS AND OFFICES PRESENTLY
HELD WITH
NAME AGE THE COMPANY AND SUPPORT
- -------------------------------------------------------------------------------
Russell K. Thal 62 Chairman of the Board, Executive
Vice President and Director
Duncan Macdonald 37 Chief Executive Officer and Chief
Financial Officer
Dorothy A. English 54 Executive Vice President and
Director of the Company and
Managing Director of Support
Bruce Meyerson 53 Vice President - Marketing and
Sales
Denis L. Metherell 63 Secretary and Director
Kenneth M. Snyder 50 Director
SIGNIFICANT EMPLOYEES
- ---------------------
POSITIONS AND OFFICES PRESENTLY
HELD WITH
NAME AGE THE COMPANY AND SUPPORT
- -------------------------------------------------------------------------------
William Bowra 35 Vice President - Business
Development for Support
Kahal de Haan 32 Director of Functional
Architecture for Support
Robert Dowding 29 Director of Systems Development
for Support
Eric Johnson 53 Vice President - Technical for
Support
Joseph Pampalone 43 Director of Performance
Engineering
Robert Sosnowski 30 Director of Technical Architecture
for Support
Michael Taylor 55 Director of Flight Operations for
Support
Rainer Vietze 29 Director of Finance
Page 26 of 40
<PAGE>
RUSSELL K. THAL, a founder of the Company, has served as Chairman of
the Board of the Company since October 1994, Executive Vice President of the
Company since March 1996 and a Director of the Company since its formation in
1981. Mr. Thal also served as the Company's President from 1981 to July 1995,
Chief Executive Officer from July 1995 to March 1996 and Treasurer from 1981 to
December 1993. In addition to managing the Company's operations, Mr. Thal has
been responsible for its marketing efforts. Prior to founding the Company, Mr.
Thal served as Director - Stations for New York Air from December 1980 to June
1981. From 1978 to December 1980, he was Director of Operations for Seaboard
World Airlines, and Senior Director-Military and Charter Operations for Flying
Tigers, where he was responsible for day-to-day control of operations, charter
and military operations, and fuel purchasing.
DUNCAN MACDONALD has served as Chief Executive Officer of the Company
since March 1996 and Chief Financial Officer of the Company since July 1995 (see
Item 12 hereof). From July 1994 to July 1995, Mr. Macdonald provided management
consulting services to the Company and Support in a non-officer capacity. Since
January 1992, Mr. Macdonald has also served as managing partner of Decision
Strategies Inc., a management consulting firm. From January 1988 to January
1992, Mr. Macdonald served as President of BCW Systems Ltd., a company in the
healthcare systems field.
DOROTHY A. ENGLISH has served as Executive Vice President of the
Company since July 1995 and a Director of the Company since February 1994. Mrs.
English also served as the Company's Chief Operating Officer from December 1993
to July 1994 and Chief Executive Officer from July 1994 to July 1995. She co-
founded Support and has served as its Managing Director since March 1996, its
Treasurer since February 1992 and a Director since 1987. Mrs. English also
served as Vice President and Secretary of Support from 1987 to February 1992,
President from February 1992 to October 1993 as well as from October 1995 to
March 1996, and Chief Operating Officer from February 1992 to October 1993.
KENNETH M. SNYDER has served as a Director of the Company since
February 1994. Since October 1995, he has also served as a management
consultant to entities in the aviation industry and, since such date, has
provided certain consulting, advisory and corporate finance services to the
Company (see Item 12 hereof). Mr. Snyder served as Vice President and Treasurer
of the Company from October 1993 to November 1994 and Chief Operating Officer
from November 1994 to July 1995. From October 1993 to October 1995, he served
as President and Chief Operating Officer of Support. Prior thereto and from
1984, Mr. Snyder served as Vice President of American AirLease Corporation, a
company engaged in the leasing and financing of aircraft.
BRUCE MEYERSON has served as Vice President - Marketing and Sales of
the Company since December 1995. From 1990 to 1995, Mr. Meyerson served as Vice
President - Marketing and Sales for Global Weather Dynamics, Inc., a company
which provides weather and information services (see Item 1 hereof).
DENIS L. METHERELL has served as Secretary of the Company since
October 1994 and a Director of the Company since July 1994. Mr. Metherell also
served as Treasurer of the Company from November 1994 to March 1996 and Chief
Financial Officer from November 1994 to July 1995. He served as Vice President
of Support from June 1993 to July 1995 and also serves as Vice President and a
Director of AVCON Associates Inc.,
Page 27 of 40
<PAGE>
which leases computers to Support (see Item 12 hereof). From 1976 to 1992, Mr.
Metherell served as a technical consultant to Northwest Airlines.
WILLIAM BOWRA has served as Vice President - Business Development for
Support since March 1996. From 1993 to 1996, Mr. Bowra served as the Regional
Sales Manager for Unitel, a Canadian telecommunications service provider. From
1988 to 1993, Mr. Bowra served as a Corporate Account Manager for AT&T/NCR.
KAHAL DE HAAN has served as the Director of Functional Architecture
for Support since September 1995. Prior thereto and from 1990, Mr. de Haan
served as a software engineer for Support.
ROBERT DOWDING has served as the Director of Systems Development for
Support since September 1995. Prior thereto and from 1992, Mr. Dowding served
as a software engineer for Support. From 1990 to 1992, Mr. Dowding was a
software engineer with Navtel, Inc., a Canadian telecommunications firm.
ERIC JOHNSON has held the position of Vice President - Technical of
Support since 1987. From 1982 to 1987, Mr. Johnson owned Hangar Books, a
publishing company that specialized in the aviation field. Mr. Johnson also has
fifteen years experience as a navigator in the Royal Canadian Air Force.
JOSEPH PAMPALONE has served as the Company's Director of Performance
Engineering since September 1995. Prior thereto and from 1992, Mr. Pampalone
served as the Company's Manager of Systems Development. He also served as a
dispatcher/program analyst for the Company from 1988 to 1992.
ROBERT SOSNOWSKI has served as the Director of Technical Architecture
for Support since September 1995. Prior thereto and from 1989, Mr. Sosnowski
served as a software engineer for Support.
MICHAEL TAYLOR has served as the Director of Flight Operations for
Support since 1991. Prior to joining Support, Mr. Taylor spent seven years with
Worldways Canada where he served as training captain and check pilot. Mr.
Taylor was also a pilot for the Royal Canadian Air Force for 28 years.
RAINER VIETZE, C.A., joined the Company in November 1995 as the
Director of Finance. Prior to joining the Company, Mr. Vietze worked as a
manager for Doane Raymond Chartered Accountants (the Canadian member firm of
Grant Thornton International) for the period from 1990 to 1995.
Each Director will hold office until the next Annual Meeting of
Stockholders or until his or her successor is elected and qualified. Each
executive officer will hold office until the next regular meeting of the Board
of Directors following the next Annual Meeting of Stockholders or until his or
her successor is elected or appointed and qualified.
To the Company's knowledge, based solely on a review of copies of
Forms 3, 4 and 5 furnished to the Company and written representations that no
other reports were required, during the fiscal year ended October 31, 1995, all
Section 16(a) filing requirements
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applicable to the Company's officers, Directors and 10% stockholders were
complied with except that Mr. Snyder filed one Form 4 late, reporting one
transaction.
Page 29 of 40
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation of all executive officers of the Company as of October 31, 1995 who
had a total salary and bonus for such year in excess of $100,000 as well as all
persons who served as Chief Executive Officer of the Company during the fiscal
year ended October 31, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ---------------------------------------
AWARDS PAYOUTS
---------------------------------------
COMMON
NAME AND RESTRICTED STOCK LTIP
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING PAYOUTS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell K. 1995 $128,808 -0- $14,800(1)(2) -0- 250,000(3) -0- -0-
Thal, 1994 $125,000 -0- $14,800(1)(2) -0- 65,000 -0- -0-
Chairman 1993 $100,000 $10,000 $12,000(1) -0- -0- -0- -0-
---------------------------------------------------------------------------------------------------------------------------------
Dorothy A. 1995 $36,309(5) -0- -0- -0- 250,000(3) -0- -0-
English, 1994 -0- (5) -0- -0- -0- -0- -0- -0-
Executive Vice 1993 -0- (5) -0- -0- -0- -0- -0- -0-
President(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Kenneth M. 1995 $116,508 -0- $11,000(8) -0- 350,000 -0- -0-
Snyder, 1994 $ 31,901(7) -0- -0- -0- -0- -0- -0-
Vice President 1993 -0- (7) -0- -0- -0- -0- -0- -0-
(6)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $12,000 paid by the Company as an automobile allowance.
(2) Includes $2,800 paid by the Company as an allowance for the purchase of
disability insurance.
(3) Grants are subject to shareholder approval of 1995 Stock Option Plan and
an increase in the authorized capitalization of the Company.
(4) Ms. English served as Chief Executive Officer of the Company from July
1994 to July 1995. She currently serves as Executive Vice President of the
Company.
(5) Ms. English agreed to waive all salary due her through December 1994.
(6) See Item 9 hereof for a description of Ms. Snyder's service as an
officer of the Company.
(7) Mr. Snyder agreed to waive all salary due him through July 1994.
(8) Represents amount paid as an independent advisor to the Company. See
Item 12 hereof.
Page 30 of 40
<PAGE>
(b) OPTION GRANTS TABLE
The following table sets forth certain information with regard to the
grants of stock options during the fiscal year ended October 31, 1995 to the
persons named in Item 10(a) hereof:
SHARES OF PERCENT OF
COMMON STOCK TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE/ EXPIRATION
NAME GRANTED FISCAL YEAR SHARE DATE
- --------------------------------------------------------------------------------
Russell K. 250,000(1) 29.4% $0.625 7/28/00
Thal
- --------------------------------------------------------------------------------
Dorothy A. 250,000(1) 29.4% $0.625 7/28/00
English
- --------------------------------------------------------------------------------
Kenneth M. 350,000 41.2% $0.625 8/9/00
Snyder
- --------------------------------------------------------------------------------
(1) Grants are subject to shareholder approval of 1995 Stock Option Plan and an
increase in the authorized capitalization of the Company.
(c) FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning the
value as of October 31, 1995 of unexercised options held by the persons named in
Item 10(a) hereof:
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
OCTOBER 31, 1995 AT OCTOBER 31, 1995
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------------------
Russell K. Thal 75,938/250,000(1) -0-/-0-
- --------------------------------------------------------------------------------
Dorothy A. English -0-/250,000(1) -0-/-0-
- --------------------------------------------------------------------------------
Kenneth M. Snyder 200,000/150,000 -0-/-0-
- --------------------------------------------------------------------------------
(1) Options are held subject to shareholder approval of 1995 Stock Option Plan
and an increase in the authorized capitalization of the Company.
No options were exercised by any of the named persons during the fiscal year
ended October 31, 1995.
(d) COMPENSATION OF DIRECTORS
The By-Laws of the Company provide that Directors shall be reimbursed
for travel expenses incurred in attending any meeting of the Board or any
committee thereof and each Director, except salaried officers of the Company,
shall be paid a fee for attending each meeting of the Board or any such
committee as may be fixed by the Board from time to time. No Directors' fees
have been paid to date. The By-Laws of the Company also provide, to the extent
permitted by law, for certain indemnification of its Directors.
Page 31 of 40
<PAGE>
(e) EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Thal is employed by the Company pursuant to an employment
agreement (the "Employment Agreement") which expires on March 31, 1999 (the
"Expiration Date") and provides for a minimum annual salary of $125,000
effective December 1, 1993, with annual cost of living increases. Pursuant to
the Employment Agreement, as amended, subject to the terms and conditions
thereof, the Company has agreed to acquire an annuity and/or universal life
insurance policy which will provide for the following: (i) Mr. Thal being the
beneficiary thereof; (ii) provided that Mr. Thal does not voluntarily terminate
his employment with the Company prior to the Expiration Date, following the
cessation of Mr. Thal's employment with the Company, the payment to him of an
aggregate of $600,000, payable in 60 equal monthly installments of $10,000 each
and (iii) a death benefit covering Mr. Thal's death through the fifth
anniversary of the Expiration Date, which face amount shall decrease to the
extent of any monthly benefits paid pursuant to (ii) above. In addition,
pursuant to the Employment Agreement, in the event of Mr. Thal's death during
the employment period, his estate would be entitled to receive payments equal to
three months salary. Further, under certain circumstances, Mr. Thal may be
entitled to receive two years severance payments upon the termination of his
employment.
Page 32 of 40
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The total number of shares of Common Stock outstanding as of June 30
1996 was 1,701,980. The Common Stock is the only class of securities
outstanding. Each share is entitled to one vote. The following table sets
forth certain information regarding the Company's outstanding shares of Common
Stock beneficially owned as of June 30, 1996 by (i) each person who is known by
the Company to own beneficially or exercise voting or dispositive control over
more than 5% of the Company's Common Stock, (ii) each present Director, (iii)
each person named in Item 10(a) hereof, and (iv) all of the Company's present
executive officers and Directors as a group:
APPROXIMATE
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- --------------------------------------------------------------------------------
Dorothy A. English 1,007,766(1)(2) 59.2%
550 Parkside Drive (3)
Waterloo, Ontario,
Canada
- --------------------------------------------------------------------------------
Raymond F. English 918,766(1)(2) 51.0%
22 West McKay Crescent (4)(5)
Cochrane, Alberta,
Canada
- --------------------------------------------------------------------------------
Ray English and 802,766(2)(5) 47.2%
Associates Inc.
17 Cardinal Street
Elmira, Ontario,
Canada
- --------------------------------------------------------------------------------
Kenneth M. Snyder 350,000(6) 17.1%
207 Pittman Place
Carson City, Nevada
- --------------------------------------------------------------------------------
Duncan Macdonald 200,000(7) 10.5%
50 O'Connor
Ottawa, Ontario,
Canada
- --------------------------------------------------------------------------------
Innovation Ontario 125,000 7.3%
Corporation
56 Wellesley Street
West
Toronto, Ontario,
Canada
- --------------------------------------------------------------------------------
Russell K. Thal 93,813(3)(8) 5.3%
99 Seaview Boulevard
Port Washington, NY
- --------------------------------------------------------------------------------
Denis L. Metherell 3,000(3) *
550 Parkside Drive
Waterloo, Ontario,
Canada
- --------------------------------------------------------------------------------
All executive officers 1,679,579(1)(3) 71.4%
and Directors as a (6)(7)
group (6 persons) (8)(9)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Less than 1%
Page 33 of 40
<PAGE>
(1) Represents 802,766 shares beneficially owned by RE&A and 205,000 shares
beneficially owned by Mrs. English. All such shares are held by Mrs. English as
voting trustee pursuant to a Voting Trust Agreement which expires on the date
the promissory note payable by RE&A to Support, as discussed in Item 12 hereof,
is satisfied in full and canceled. Does not include 16,000 shares beneficially
owned by Raymond F. English, Mrs. English's husband. Mrs. English disclaims
beneficial interest in such shares.
(2) Such persons may be deemed parents of the Company.
(3) Does not include 250,000 (Dorothy A. English), 250,000 (Russell K. Thal),
or 100,000 (Denis L. Metherell) shares, respectively, subject to options granted
under the Company's 1995 Stock Option Plan (the "Option Plan"). The Option Plan
and the options granted thereunder are subject to shareholder approval of (a)
the Option Plan and (b) an increase in the authorized capitalization of the
Company.
(4) Includes 802,766 shares beneficially owned by RE&A, of which, the Company
has been advised, Mr. English is the Chairman, Chief Executive Officer and sole
stockholder. Such shares are held pursuant to a Voting Trust Agreement as
discussed in footnote (1) hereof.
(5) Includes 100,000 shares issuable upon exercise of currently exercisable
options.
(6) Represents shares issuable upon exercise of options which are
exercisable currently or within 60 days.
(7) Represents shares issuable upon exercise of options which are
exercisable currently or within 60 days.
(8) Includes 75,938 shares issuable pursuant to currently exercisable options
and 312 shares owned by Mr. Thal's wife. This shall not be deemed an admission
that Mr. Thal is the beneficial owner of the shares owned by his wife.
(9) Includes 25,000 shares issuable to an executive officer upon exercise of
currently exercisable options. An additional 25,000 shares are issuable upon
exercise of options not yet exercisable.
Page 34 of 40
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AVCON Associates Inc., an entity of which Denis L. Metherell,
Secretary and a Director of the Company, is a Vice President and a Director,
leases certain computer equipment to Support. The Company believes that the
lease payments, which currently aggregate approximately $4,000 Canadian per
month, are no higher than would be payable to a nonaffiliated third party.
In 1993, prior to the acquisition discussed in Item 1 hereof, RE&A
engaged Support to provide certain management and marketing services in
connection with the management of the military and air traffic control ("ATC")
versions of the FOMS software. During such year and prior thereto, Support also
advanced funds to RE&A in order to assist RE&A in meeting its obligations. RE&A
is wholly owned by Raymond F. English, a former Chairman of the Company, who
resigned from such position on October 31, 1994 (see Item 11 hereof).
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 portion of its obligation to Support as of such date. 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.
Prior to the acquisition described in Item 1 hereof, RE&A was engaged
in the business of managing and marketing the military and ATC versions of the
FOMS software, especially as it related to large-scale Canadian Government
traffic management projects. As part of the acquisition transaction, the
software rights for the military and ATC versions of FOMS were transferred to
the Company's subsidiary, EAS.
Effective January 1, 1995, Support and RE&A entered into a five year
Consulting and Marketing Agreement (the "Consulting Agreement") pursuant to
which RE&A provides consulting and marketing services with regard to Support's
FOMS software. The Consulting Agreement provides for the payment to RE&A of a
base monthly fee of $11,000 Canadian as well as an additional aggregate fee of
$12,000 for certain additional services provided. The Consulting Agreement
provides further for commissions and finder's fees to RE&A for the licensing of
the FOMS software and introduction of Support to potential clients. Pursuant to
the Consulting Agreement, 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. In addition, the Consulting Agreement
provides for the 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 fees
earned during a contract year; and
(iii) 25% of any earned commissions or finder's fees exceeding $20,000
Canadian in a contract year.
The Consulting Agreement is terminable by Support under certain
circumstances.
Effective as of October 1, 1995, the Company entered into a one year
Key Advisor Agreement (the "Snyder Key Advisor Agreement") with
Page 35 of 40
<PAGE>
Kenneth Snyder pursuant to which Mr. Snyder has been retained to provide
certain consulting, advisory and corporate finance services. Mr. Snyder has
the right to extend the expiration date for a period of six months. In the
event Mr. Snyder exercises such right, the Company shall have the right to
extend the term of the Snyder Key Advisor Agreement further for a period of
six months. Pursuant to the Snyder Key Advisor Agreement, Mr. Snyder is
entitled to receive a base monthly fee of $11,000 as well as, under certain
circumstances, certain finders fees with respect to equity and/or debt
financings (such fee, with respect to any particular transaction, to equal
the lesser of 5% of the financing proceeds or $75,000 Canadian).
Effective as of June 1, 1996, Support entered into a two year Key
Advisor Agreement (the "Macdonald Key Advisor Agreement") with Duncan Macdonald
pursuant to which Mr. Macdonald has been retained to serve as Chief Executive
Officer of the Company. Pursuant to the Macdonald Key Advisor Agreement, Mr.
Macdonald is entitled to receive a base weekly fee of $2,500 Canadian. In
addition, a bonus of $5,000 Canadian per fiscal quarter is payable during the
term of the agreement. Mr. Macdonald has agreed to expend at least 75% of his
working time in the fulfillment of his duties under the Macdonald Key Advisor
Agreement. Mr. Macdonald shall have the right to extend the term of the
Macdonald Key Advisor Agreement for a period of six months.
Page 36 of 40
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
2(A) Stock Purchase Agreement dated as of October 31, 1993
among Bert E. Brodsky, Muriel Brodsky, Navtech Systems Consulting Inc. (now
called Ray English and Associates Inc.), Ray English and Dorothy English (1)
2(B) Stock Purchase Agreement dated as of October 31, 1993
among Compuflight, Inc., Bert E. Brodsky, Navtech Systems Consulting Inc.(now
called Ray English and Associates Inc.), Ray English and Dorothy English (1)
3(A) Certificate of Incorporation and amendments thereto
including Certificate of Ownership and Merger (5)
3(B) By-Laws (3)
9 Voting Trust Agreement dated as of July 15, 1995 among
Ray English and Associates Inc., Dorothy A. English and Dorothy A. English, as
voting trustee (5)
10(A) Employment Agreement dated as of December 1, 1993
between the Company and Russell K. Thal (4) and amendment thereto dated March
14, 1996 (5)
10(B) Incentive Stock Option Plan (3)
10(C) Non-Qualified Stock Option Plan (2)
10(D) Consulting Agreement dated as of November 1, 1993
between Compuflight, Inc. and Bert E. Brodsky, together with amendment thereto
dated December 2, 1993 (1)
10(E) Promissory Note dated as of November 1, 1993 payable by
Bert E. Brodsky to the order of Compuflight, Inc. in the principal amount of
$804,000 (1)
10(F) Loan Agreement dated February 8, 1994 among Global
Weather Dynamics, Inc., Compuflight, Inc. and Navtech Systems Support Inc. (4)
10(G) Letter agreement dated November 1, 1993 between
Sandata, Inc. and Compuflight, Inc. (5)
10(H) Lease dated March 31, 1994 between Seagull Associates
Inc. and Compuflight, Inc., as amended, with respect to Port Washington, New
York premises (5)
10(I) Lease dated June 5, 1991 between Vandor Realty
Corporation and Navtech Systems Support Inc. with respect to Waterloo, Ontario
premises (5)
10(J) 1995 Stock Option Plan (5)
10(K) 1995 Key Employees and Advisors Stock Option Plan as
amended.
Page 37 or 40
<PAGE>
10(L) Consulting and Marketing Agreement dated as of January
1, 1995 between Navtech Systems Support Inc. and Ray English and Associates Inc.
(5)
10(M) Promissory Note dated as of July 15, 1995 payable by
Ray English and Associates Inc. in the principal amount of $750,000 (5)
10(N) Amendment to the Promissory Note payable by Ray English
and Associates Inc. in the principal amount of $750,000 dated as of June 12,
1996
10(O) Stock Option Agreement dated as of July 28, 1995
between Compuflight, Inc. and Russell K. Thal (5)
10(P) Stock Option Agreement dated as of July 28, 1995
between Compuflight, Inc. and Dorothy A. English (5)
10(Q) Stock Option Agreement dated as of July 28, 1995
between Compuflight, Inc. and Denis L. Metherell (5)
10(R) Key Advisor Agreement dated as of October 1, 1995
between Compuflight, Inc. and Kenneth M. Snyder (5)
10(S) Amended and Restated Stock Option Agreement dated as of
August 9, 1995 between Compuflight, Inc. and Kenneth M. Snyder (5)
10(T) Stock Option Agreement dated as of August 9, 1995
between Compuflight, Inc. and Duncan Macdonald (5)
10(U) Key Advisor Agreement dated as of June 1, 1996 between
Navtech Systems Support Inc. and Duncan Macdonald
21 Subsidiaries(4)
27 Financial Data Schedules
(1) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Current Report on Form 8-K for an event dated December 1, 1993.
(2) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 1992.
(3) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Registration Statement on Form S-18 as Registration No. 2-
93714-NY.
(4) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
October 31, 1993.
Page 38 of 40
<PAGE>
(5) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1994.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended October 31, 1994.
Page 39 of 40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheet as of October 31, 1995 F-3
Consolidated Statements of Earnings for the Years Ended
October 31, 1995 and 1994 F-4
Consolidated Statement of Shareholders' Equity for the
Years Ended October 31, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
COMPUFLIGHT, INC.
We have audited the accompanying consolidated balance sheet of Compuflight, Inc.
and Subsidiaries (the "Company") as of October 31, 1995 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Compuflight, Inc. and Subsidiaries as of October 31, 1995, and the results of
their consolidated operations and their cash flows for each of the two years
then ended in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has a deficiency in working capital of
$463,225. This factor, among others, as described in Note B to the consolidated
financial statements, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note B. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Grant Thornton LLP
Melville, New York
June 21, 1996
F-2
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 97,912
Accounts receivable, net of allowance for doubtful
accounts of $71,400 403,369
License fee receivable 119,371
Prepaid expenses and other 25,708
----------
Total current assets 646,360
INVESTMENT TAX CREDITS RECEIVABLE 460,916
LICENSE FEE RECEIVABLE 226,710
FIXED ASSETS, NET 356,053
OTHER ASSETS 9,000
----------
$1,699,039
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 730,601
Deferred salaries 13,655
Due to related parties - current portion 365,329
----------
1,109,585
DUE TO RELATED PARTIES 89,184
MINORITY INTERESTS 344,625
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $.001 per share; authorized
2,500,000 shares; issued and outstanding 1,576,980 shares 1,577
Additional paid-in capital 1,444,308
Notes receivable - former Chairmen (1,050,533)
Cumulative foreign exchange adjustment 54,034
Accumulated deficit (293,741)
----------
155,645
----------
$1,699,039
----------
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-3
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED OCTOBER 31,
1995 1994
---------- ----------
Revenue
Service fees $3,102,667 $2,560,053
Hardware, software and license sales 62,101 385,105
---------- ----------
3,164,768 2,945,158
---------- ----------
Costs and expenses
Operating 2,001,449 1,832,826
Research and development 223,224 225,411
Selling, general and administrative 896,759 771,703
Depreciation and amortization 132,874 153,377
---------- ----------
3,254,306 2,983,317
---------- ----------
Operating loss (89,538) (38,159)
Other income (expense)
Interest income 42,983 27,007
Interest expense - related parties (75,858) (96,116)
Interest expense - other (41,520) (42,582)
Realized foreign exchange (loss) gain (20,919) 108,057
Scientific research and experimental
development credits 159,395 36,621
Waiver of deferred salaries 174,759
Other 13,140 33,315
---------- ----------
Earnings before minority interests 162,442 28,143
Earnings of minority interests (8,235) (24,331)
---------- ----------
NET EARNINGS $ 154,207 $ 3,812
---------- ----------
---------- ----------
Net earnings per share $ 0.10 $ -
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding 1,576,980 1,576,980
---------- ----------
---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
COMPUFLIGHT, INC. AND SUBSIDIARIES
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995 AND 1994
NOTES CUMULATIVE
COMMON STOCK ADDITIONAL RECEIVABLE - FOREIGN
---------------------- PAID-IN FORMER TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL CHAIRMEN ADJUSTMENT DEFICIT TOTAL
--------- -------- ------------ ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1993 1,114,644 $1,114 $1,072,944 $(409,199) $35,203 $(451,760) $248,302
Recapitalization 462,336 463 371,364 (804,000) (432,173)
Amortization of Notes receivable -
former Chairman 65,143 65,143
Advances to RE&A - net (1,724) (1,724)
Foreign translation adjustment 2,325 2,325
Net earnings 3,812 3,812
---------- ------- --------- --------- -------- -------- -------
Balance at October 31, 1994 1,576,980 1,577 1,444,308 (1,149,780) 37,528 (447,948) (114,315)
Amortization of Notes receivable -
former Chairman 68,136 68,136
Repayments from RE&A - net 31,111 31,111
Foreign translation adjustment 16,506 16,506
Net earnings 154,207 154,207
---------- ------- --------- --------- -------- -------- -------
BALANCE AT OCTOBER 31, 1995 1,576,980 $1,577 $1,444,308 $(1,050,533) $54,034 $(293,741) $155,645
---------- ------- --------- --------- -------- -------- -------
---------- ------- --------- --------- -------- -------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMPUFLIGHT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31,
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 154,207 $ 3,812
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 132,874 153,377
Provision for uncollectible accounts 9,892 121,378
Minority interests 8,235 24,331
Consulting fees, net 68,136 65,143
Gain on fixed assets -- (2,635)
(Increase) decrease in operating assets
Accounts receivable (54,047) (169,339)
Scientific research and experimental development credits (160,106) (36,112)
License fees receivable 296,727 (122,614)
Prepaid expenses and other (607) 15,512
Increase (decrease) in operating liabilities
Accounts payable and accrued liabilities 271,140 113,787
Deferred salaries (174,759) 34,871
Due to related parties (102,815) 45,944
----------- ----------
Net cash provided by operating activities 448,877 247,455
----------- ----------
Cash flows from investing activities
Cash acquired of Compuflight -- 84,242
Purchase of fixed assets (87,284) (53,897)
Proceeds from sale of fixed assets -- 3,478
Purchase of minority interests -- (3,669)
Payments from (advances to) RE&A 31,111 (1,724)
Repayment of note receivable - director and officer -- 7,183
Other -- 6,357
----------- ----------
Net cash (used in) provided by investing activities (56,173) 41,970
----------- ----------
Cash flows from financing activities
Payment of notes - former affiliate (240,000) (180,000)
Increase (decrease) in cash overdraft - (152,938)
(Repayment of) proceeds from Global demand loan (203,789) 203,789
Proceeds from notes 17,578 27,663
Payment of notes (29,063) (12,668)
Payment of Support shareholder demand loans -- (11,027)
----------- ----------
Net cash used in financing activities (455,274) (125,181)
----------- ----------
Effect of foreign translations on cash 20,531 (24,293)
----------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (42,039) 139,951
Cash and cash equivalents at beginning of year 139,951 --
----------- ----------
Cash and cash equivalents at end of year $ 97,912 $ 139,951
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
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) selling customized versions of their proprietary
software to end users mainly throughout the United States and Canada.
REVERSE aCQUISITION OF THE COMPANY AND RECAPITALIZATION.
On December 1, 1993, Compuflight and its former Chairman consummated a
stock purchase agreement, dated as of October 31, 1993, with Ray English
and Associates Inc. ("RE&A"), formerly Navtech Systems Consulting Inc., and
RE&A shareholders. Pursuant to the agreement, effective November 1, 1993,
Compuflight had issued 1,114,644 shares of its common stock ($.56 per
share) and assumed an $800,000 obligation of RE&A to Compuflight's former
Chairman for all of the outstanding stock of Efficient Aviation Systems
Inc. (a wholly-owned subsidiary of RE&A) and approximately 88% of the
outstanding common shares of Navtech Systems Support Inc. (a company
controlled by RE&A and its principal shareholders).
Contemporaneously with the stock purchase agreement, Compuflight's former
Chairman and his immediate family sold their 238,872 shares of
Compuflight's common stock to RE&A in exchange for an $800,000 note payable
to Compuflight's former Chairman. In connection with Compuflight's
acquisition of EAS, Compuflight has assumed RE&A's note payable to
Compuflight's former Chairman and as a result the former Chairman's
indebtedness to Compuflight was reduced to $804,000. Such indebtedness is
payable in equal monthly installments over a ten year period, together with
interest at 4 1/2% per annum. Further, Compuflight 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 receivable from the former Chairman has been
presented as a component of Shareholders' Equity.
As a result of the above, effective November 1, 1993, RE&A and the other
former shareholders of Support had acquired approximately 86% of
Compuflight's common stock, and accordingly, Compuflight has accounted for
the above transactions as a recapitalization of Support and EAS with
Support and EAS as the acquirer of Compuflight for financial reporting
purposes. Accordingly, Support and EAS's combined net assets have been
presented at historical cost and Compuflight's net assets have been
recorded at their fair market value, which has been determined to
approximate historical cost.
F-7
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE A - (CONTINUED)
Compuflight also granted the remaining common shareholder of Support the
right to acquire 125,000 shares of Compuflight's stock on the same basis as
accorded to RE&A and the other Support shareholders. In November 1995, the
remaining Support shareholder exercised such right and, accordingly,
Compuflight now owns all of the outstanding common stock of Support. In
addition, Compuflight agreed that its previously existing public
shareholders of record on December 11, 1993 would have the right to
purchase one share of Compuflight's common stock for each share then held
at a price of $1.29 per share. Such rights expired unexercised on February
28, 1995.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the consolidated financial statements follows:
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. However, as of October 31, 1995,
the Company has a deficiency in working capital of $463,225. This raises
substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that may result should the Company be unable to continue in
existence.
Management's plans in regard to these matters include concerted efforts to
(i) pursue its claim against Harris Corporation (Note I), (ii) continue to
negotiate extended terms with trade creditors, (iii) expand its marketing
activities and (iv) seek additional financing sources, including debt or
equity offerings. However, no assurances can be given that the Company
will be able to obtain additional financing or that the above plans will
enable the Company to continue in existence.
2. PRINCIPLES OF CONSOLIDATION
The 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 the
period. Unrealized translation gains or losses are shown as a separate
component of shareholders' equity.
F-8
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE B (CONTINUED)
3. FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided using the
straight-line and declining balance methods over the estimated useful lives
of the related assets.
4. SOFTWARE COSTS
The Company capitalizes expenditures incurred for the development of
existing software which has already reached technological feasibility and
expenses all other costs. Amortization is computed on the straight-line
method over the estimated useful life of the software.
5. MINORITY INTERESTS
Minority interests include the portion of common equity of Support not
owned by the Company. Also included in minority interests are 3,600 shares
of Class B, nonvoting shares of Support. Such shares, issued for $358,200
Canadian ($266,214 U.S. at October 31, 1995), are entitled to noncumulative
dividends of $8 per share and are redeemable at the option of the Company
for $540,000 Canadian ($401,328 U.S.). To date, no dividends have been
declared or paid with respect to such shares.
6. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. INCOME TAXES
Deferred income taxes are recognized for the tax consequences of temporary
differences by employing enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. Pursuant to SFAS No. 109, a valuation
allowance has been established to reduce the deferred tax assets as it is
more likely than not that all, or some portion of, the deferred tax assets
will not be realized.
F-9
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE B (CONTINUED)
8. NET EARNINGS PER SHARE
Net earnings per share of common stock are based upon the weighted average
number of shares outstanding during each year, after giving retroactive
effect to the reverse merger described in Note A. Common stock equivalents
consist of additional shares that would be outstanding assuming the
exercise of dilutive outstanding stock options and stock warrants. No
common stock equivalents were included in the earnings per share
calculation during fiscal 1995 and 1994 as their inclusion would not be
materially dilutive.
9. REVENUE RECOGNITION
Revenue from license fees is recognized at the later of the delivery
of software master copy or, if applicable, fulfillment of all other
significant obligations under the terms of license agreements. The
Company has no significant expenditures relating to either warranties
or post-contract customer support bundled with the initial sale of
the license and, therefore, no provision is included in the
consolidated financial statements. For those agreements where there
is uncertainty as to ultimate collection, revenue is recognized only
as cash is received. Systems consulting and implementation fees and
hardware commissions are recognized upon rendering of services.
Custom programming, communication and database income, and service
bureau and support revenue are recognized ratably over applicable
contractual periods or as services are performed. Amounts billed but
not yet earned and payments received prior to the earnings of the
revenue are recorded as deferred revenue.
10. CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. The Company paid interest of
approximately $69,300 in fiscal 1995 and income taxes and interest of
approximately $5,300 and $120,400, respectively, in fiscal 1994.
11. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," is required to be implemented in fiscal 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by the entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
F-10
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE B (CONTINUED)
The Company believes that implementation of this statement will not have
any material effect on its results of operations and financial position.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," is also required to be
implemented in fiscal 1996 and introduces a choice in the method of
accounting used for stock-based compensation. Entities may use the
"intrinsic value" method currently based on APB No. 25 or the new "fair
value" method contained in SFAS No. 123. The Company intends to implement
SFAS No. 123 in fiscal 1996 by continuing to account for stock-based
compensation under APB No. 25. As required by SFAS No. 123, the pro forma
effects on net income and earnings per share will be determined as if the
fair-value-based method had been applied and disclosed in the notes to the
consolidated financial statements.
NOTE C - LICENSE FEE RECEIVABLE
The Company has entered into license agreements granting end user licensees
a nonexclusive perpetual right to use the Company's flight-planning
software. Historically, the Company has offered its licensees extended
payment terms. In those instances, the related license fees have been
discounted to reflect financing costs of 15% per annum. Revenue from such
agreements is recorded upon the later of the delivery of the software
master copy or, if applicable, fulfillment of all other significant
obligations under the contract. For agreements where there is uncertainty
as to ultimate collection, revenue is recognized only as cash is received.
The license fee receivable at October 31, 1995 consists of the following:
Discounted
Payment terms amount
------------- ----------
$18,000 Canadian per month through May 1998 $346,081
Less: Current portion 119,371
--------
$226,710
--------
--------
The Company has significant concentrations in credit risk with respect to
its license fee receivable in that the remaining unpaid fee receivable is
due from a single customer in the commercial air transportation business.
Generally, the Company does not obtain other collateral in addition to its
software license.
F-11
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE D - FIXED ASSETS
Fixed assets consist of the following:
Useful
life 1995
---------- ---------
Computer software 5-10 years $407,870
Computer equipment 5-10 years 283,658
Furniture and fixtures 5-20 years 24,985
Leasehold Improvements 5 years 8,025
--------
724,538
Less accumulated depreciation
and amortization 368,485
--------
$356,053
--------
--------
Amortization expense for capitalized software totaled approximately $85,000
and $117,000 in 1995 and 1994, respectively. Accumulated amortization
approximated $224,000 and $139,000 at October 31, 1995 and 1994,
respectively.
NOTE E - LOAN FROM GLOBAL
In January 1994, the Company announced its intention to enter into an
agreement with Global Weather Dynamics, Inc. ("Global"), a company that
provides weather services to the Company, which would have resulted in the
acquisition of Global by the Company, whereby the Global shareholders would
have owned a majority interest in the Company's issued and outstanding
shares of common stock. In January 1995, the Company announced that it had
suspended discussions with Global with regard to the proposed business
combination.
On February 8, 1994, Global, Compuflight and Support entered into a Loan
Agreement providing for a loan of $200,000 from Global to Compuflight and
Support. In December 1994, the loan was repaid in full.
F-12
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE F - TRANSACTIONS WITH RELATED PARTIES
NOTES RECEIVABLE - FORMER CHAIRMEN
1. As described in Note A, the Company's former Chairman's (through
December 1, 1993) total indebtedness to the Company was reduced to
$804,000 as of November 1, 1993 and is payable in equal monthly
installments over a ten-year period together with interest at 4-1/2%
per annum. Contemporaneously, the Company entered into a ten-year
consulting agreement with the former Chairman providing for fees
payable substantially upon the same terms of the indebtedness
repayment. As the balance of the Note will be recovered by the
Company through the utilization of the former Chairman's consulting
services, the Note has been presented as a separate component of
shareholders' equity.
2. In 1993, Support charged its parent company, RE&A, a management and
marketing fee in connection with the management of certain software
owned by EAS. 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 reverse acquisition
described in Note A. RE&A is owned by a former Chairman of the
Company (for the period from December 1, 1993 through October 31,
1994) who resigned from that position on October 31, 1994. 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 certain obligations to Support as of such date. The RE&A
Note is payable on July 15, 2005 (or sooner, as described below) and
provides for interest at the rate of 5% per annum payable annually.
Further, pursuant to a Consulting and Marketing Agreement between
RE&A and Support, RE&A will provide software marketing services to
the Company. Support shall have the right to offset $3,500 Canadian
per month ($2,601 U.S. at October 31, 1995) 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 finder's fees and commissions of 2% and 10%,
respectively, for the introduction of potential clients and for the
licensing of software. The Company has the right to apply 10% to
25%, as defined, of the finder's fees and commissions against
amounts outstanding on the RE&A Note.
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 may 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.
F-13
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE F (CONTINUED)
The Company has provided for an allowance of $300,000 Canadian as of
October 31, 1995 ($222,960 U.S. as of October 31, 1995) to reflect
management's estimate of the amount ultimately collectible from
RE&A. Such estimate is based principally on the estimated net worth
of RE&A, which, in turn, is substantially based upon the value of
the common shares of the Company beneficially owned by RE&A.
Since the amount due from RE&A is in all likelihood recoverable only
from amounts payable by the Company to Support or from the proceeds
derived from RE&A's sale of the Company's common stock, the amount
due from RE&A, net of allowance, has been classified as a separate
component of shareholders' equity.
DUE TO RELATED PARTIES
Due to related parties at October 31, 1995 consists of the following:
Notes Payable - former affiliate (i) $195,652
Accounts Payable - former affiliate (i) 52,750
Support shareholder demand loans (ii) 55,740
Accrued interest (ii) 61,187
Loans payable - related parties (iii) 89,184
--------
$454,513
--------
--------
(i) At July 31, 1993, the Company had outstanding accounts payable
due to Sandata, Inc. ("Sandata"), a company whose Chairman was the
Company's former Chairman, in the approximate amount of $676,000.
These accounts payable related specifically to work undertaken by
Sandata, as a sub contractor to the Company, to provide software
development services for the "Harris " contract as discussed in Note
I. 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 was to become due (the "Sandata Note").
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. In addition to
such monthly payments on the Sandata Note, the Company is required
to accelerate its payment to
F-14
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE F - (CONTINUED)
Sandata thereunder in an amount equal to (a) 20% of all monies
received from standalone 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 with respect to the Company's claims discussed in Note I.
Payment of the Sandata Note is secured by a first lien on
substantially all of Compuflight's assets as of the date of
acquisition as well as certain after-acquisition assets.
(ii) Support shareholder demand loans bear interest at 15% per
annum. Interest in the amount of $42,838 is in arrears and is
included in accrued interest.
(iii) Loans payable - related parties includes a chattel
mortgage on specific computer equipment in the amount of $120,000
Canadian ($89,184 U.S. at October 31, 1995) 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.
WAIVER OF DEFERRED SALARIES
During fiscal 1995 certain employees waived salaries accrued in prior
years, and, accordingly, the Company has presented the effect of such
waivers as a component of other income in the accompanying consolidated
statements of earnings.
NOTE G - INCOME TAXES
As described in Note B-7, the Company adopted the provisions of SFAS No.
109 effective in fiscal 1993.
The Company's fiscal 1995 and 1994 effective income tax rate differs from
the statutory U.S. Federal income tax rate as a result of the following:
1995 1994
------ ------
Statutory U.S. Federal tax rate 34.0% 34.0%
Utilization of NOL carryforward (34.0) (34.0)
------ ------
Effective Rate - -
------ ------
------ ------
F-15
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE G (CONTINUED)
The temporary differences which give rise to deferred tax assets and
liabilities at October 31, 1995 are summarized as follows:
Deferred tax assets
Net operating loss carryforwards $ 327,600
Deferred salaries 7,600
Allowance for doubtful accounts 105,700
---------
Total deferred tax assets 440,900
---------
Deferred tax liabilities
License fees receivable (150,700)
Scientific research and experimental development
credits, net (150,000)
Excess tax over book depreciation (2,800)
---------
Total deferred tax liabilities (303,500)
---------
Net deferred tax assets $ 137,400
---------
Valuation allowance $(137,400)
---------
---------
The Company, for United States purposes, has available to offset future
taxable income net operating loss carryforwards approximating $1,558,000 at
October 31, 1995, which expire through 2009. However, due to the change in
the Company's ownership, utilization of the Company's net operating loss
carryforwards is limited, pursuant to Internal Revenue Code Section 382, to
an annual amount of approximately $13,000. Therefore, of the $1,558,000 in
net operating loss carryforwards, the Company will only be able to utilize
approximately $281,000 of these net operating loss carryforwards to offset
future taxable income. Further, for Canadian tax purposes, the Company has
available net operating loss carryforwards and scientific research and
experimental development credits of approximately $655,000 Canadian
($486,000 U.S.) and $77,000 Canadian ($57,000 U.S.), respectively, expiring
through 1999 and 2004, respectively. In fiscal 1995, the Company increased
its deferred tax valuation allowance by $13,300, as the ultimate
utilization of such deferred tax assets remains uncertain.
During fiscal 1994 and 1995, the Company filed claims for scientific
research and experimental development credits and other credits aggregating
approximately $617,000 Canadian ($460,916 U.S.) which were recognized for
accounting purposes. Such claims for refundable credits, which arose from
activities conducted in fiscal 1992, 1993, 1994 and 1995, are currently
being reviewed by the Canadian tax authorities and will be collected upon
approval. Such credits are included in taxable income in the period
collected.
F-16
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE H - STOCK OPTIONS
The Company has adopted an incentive stock option plan which, as amended,
reserved 125,000 unissued shares of common stock for the plan. The plan
requires that all options be granted at exercise prices not less than the
fair market value of the stock on the date of grant. In September 1987,
the Company adopted a nonqualified stock option plan which reserved 62,500
unissued shares of common stock for the plan. The Company's subsidiary,
Support, has outstanding options to purchase 330,000 shares of its common
stock at exercise prices ranging from $.20 to $.50 Canadian per share.
In 1995, the Company adopted, subject to shareholder approval, the
1995 Stock Option Plan (the "1995 Plan"), which provides for the
granting to directors, employees, consultants and advisors of the
Company of incentive stock options and nonqualified stock options
for the purchase of a maximum of 1,400,000 shares of the Company's
common stock. The adoption of the 1995 Plan is also subject to
shareholder approval of an increase in the authorized capitalization of
the Company. Under the terms of the plan, the options, which
expire no later than ten years after grant, are exercisable at a
price equal to the fair market value of the Company's common stock
at the date of the grant and become exercisable in accordance with
the terms established at the time of the grant. During fiscal 1995,
600,000 options were issued pursuant to the 1995 Plan.
Further, in 1995, the Company adopted the 1995 Key Employees and Advisors
Stock Option Plan (the "1995 Advisor Plan"), which provides for the
granting to key employees and advisors of the Company of
nonqualified stock options for the purchase of a maximum of 600,000
shares of the Company's common stock. Under the terms of the plan,
the options are exercisable at a price and during the term determined by
the Board of Directors, and become exercisable in accordance with terms
established at the time of the grant. During fiscal 1995, 550,000 options
were granted pursuant to the 1995 Advisor Plan with exercise prices equal
to the fair market value of the Company's common stock at the date of the
grant.
Summary information with respect to the stock option plans follows:
Range of Outstanding Outstanding
exercise options options
prices granted exercisable
----------- ----------- -----------
Balance at November 1, 1993 1.50 - 3.24 107,170 106,170
Granted 1.00 65,000 -
Cancelled 1.50 - 2.08 (93,793) (93,793)
Became exercisable 1.00 - 3.24 - 65,250
--------- -------
Balance at October 31, 1994 1.00 - 3.24 78,377 77,627
Granted 0.625 1,150,000 -
Became exercisable 0.625 - 3.24 - 350,250
--------- -------
Balance at October 31, 1995 0.625 - 3.24 1,228,377 427,877
--------- -------
--------- -------
F-17
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE I - COMMITMENTS AND CONTINGENCIES
1. FAILURE TO FILE TIMELY REPORTS
By letter dated January 23, 1996, the Securities and Exchange Commission
(the "Commission") advised the Company that it had failed to file its
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1994
(the "1994 Form 10-KSB") and Quarterly Reports on Form 10-QSB for the
fiscal quarters ended January 31, 1995, April 30, 1995 and July 31, 1995
(collectively, the "1995 Forms 10-QSB"). The Commission also advised the
Company that it had filed late its Form 10-KSB for the fiscal year ended
October 31, 1993 and Forms 10-QSB for the fiscal quarters ended January 31,
1994 and July 31, 1994, and failed to file Notifications of Late Filing on
Form 12b-25 with regard to the 1995 Forms 10-QSB. By letter dated March 4,
1996, the Commission advised the Company that it had also failed to file
its Annual Report on Form 10-KSB for the fiscal year ended October 31, 1995
(the "1995 Form 10-KSB").
The Commission's Division of Enforcement had advised the Company further
that it is considering recommending that the Commission institute
enforcement action, which could include civil penalties, against the
Company for violations of the reporting requirements of Section 13(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules thereunder. Pursuant to the Exchange Act, the amount of the
penalty shall be determined by the court in light of the facts and
circumstances; however, for each violation, the amount of the penalty, with
regard to a company, cannot exceed the greater of $50,000 or the gross
amount of pecuniary gain to the Company as a result of any violation. The
Exchange Act provides for substantially greater maximum penalties in the
event the violation involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement and/or such violation
directly or indirectly resulted in substantial losses or created a
significant risk of substantial losses to other persons.
The Company filed its 1994 Form 10-KSB on March 22, 1996. Furthermore, the
Forms 10-QSB for the fiscal periods ended January 31, 1995, April 30, 1995
and July 31, 1995 were filed on April 9, 1996, April 24, 1996 and April 25,
1996, respectively.
F-18
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE I (CONTINUED)
The Company, in its latest correspondence with the Commission, dated
June 27, 1996, has indicated that, in addition to the filing of its 1995
Form 10-KSB on or before July 3, 1996, it intended to file the 1996
Forms 10-QSB for the fiscal quarters ended January 31, 1996 and
April 30, 1996 on or before July 8 and July 9, 1996, respectively. No
assurances can be given that, notwithstanding the Company's filing of the
1995 Form 10-KSB and 1996 Forms 10-QSB for the fiscal quarters ended
January 31, 1996 and April 30, 1996 on or before the dates set forth
above, the Commission will not seek to recover civil penalties from the
Company. Any such action taken by the Commission could have a material
adverse effect on the Company's financial position, liquidity and results
of operations. As the Company cannot presently predict, with any
certainty, the ultimate outcome of this matter, no amounts have been
provided for in the accompanying consolidated financial statements.
2. OPERATING LEASE COMMITMENTS
The Company leases equipment and office space pursuant to various lease
agreements which expire through fiscal 1999. The annual rent of office
space consists of minimum rent, real estate taxes, maintenance and other
expenses. The Company also leases certain computer equipment from an
Officer and Director of the Company pursuant to an agreement which expires
in fiscal 1998.
Future minimum annual rental payments pursuant to these leasing agreements
as of October 31, 1995 are summarized as follows:
Related
Office party
space Equipment equipment Total
-------- --------- --------- --------
1996 $ 81,368 $35,806 $ 34,809 $151,983
1997 56,543 25,484 34,809 116,836
1998 53,647 13,541 27,547 94,735
1999 8,000 10,553 10,469 29,022
2000 1,456 1,456
-------- ------- -------- --------
$198,558 $86,840 $107,634 $394,032
-------- ------- -------- --------
-------- ------- -------- --------
F-19
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE I (CONTINUED)
Rental costs for fiscal 1995 and 1994 were $173,543 and $161,231,
respectively. Rental cost incurred in 1995 in connection with the
equipment lease with the related party was $32,485.
3. 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
statement of 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 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 payments from the Air Force.
By letter dated June 12, 1996, Harris advised the Company that the Air
Force's technical, contracts and legal departments have been conducting an
evaluation of the Request for Equitable Adjustment (REA) submitted by
Harris to the Air Force on December 15, 1995. All of these evaluations are
scheduled to be completed by June 30, 1996 and, according to Harris, the
Air Force should be in negotiations regarding the outstanding claim within
thirty days following the June 30, 1996 review completion.
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 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.
4. EMPLOYMENT CONTRACTS
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
F-20
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE I (CONTINUED)
Chairman, as amended subsequent to fiscal 1995, 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).
Approximate aggregate minimum compensation obligations under all agreements
at October 31, 1995 are summarized as follows:
Year Amount
---- ----------
1996 $ 302,500
1997 302,500
1998 302,500
1999 289,500
2000 216,200
Thereafter 660,000
----------
$2,073,200
----------
----------
NOTE J - BUSINESS CONCENTRATIONS
In fiscal 1995, two customers accounted for 15% and 14%, respectively, of
the Company's consolidated revenues, and, in fiscal 1994, two customers
accounted for 13% and 11%, respectively, of the Company's consolidated
revenues.
NOTE K - INDUSTRY SEGMENT INFORMATION AND
GEOGRAPHIC AREA OPERATIONS
The Company operates in one business segment, providing computerized flight
planning services and software to commercial airlines and corporate
aircraft users in the aviation industry.
F-21
<PAGE>
COMPUFLIGHT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995 AND 1994
NOTE K (CONTINUED)
A summary of the Company's operations by geographic area for the fiscal
years ended October 31, 1995 and 1994 is as follows:
1995 1994
---------- ----------
Net sales
United States $2,620,421 $2,054,331
Canada 370,766 839,003
Foreign 173,581 60,824
---------- ----------
Total net sales $3,164,768 $2,945,158
---------- ----------
---------- ----------
Operating profit (loss)
United States $ 91,461 $ (148,988)
Canada (6,240) 110,829
---------- ----------
Total operating profit (loss) $ 85,221 $ (38,159)
---------- ----------
---------- ----------
Identifiable assets
United States $1,261,846 $1,282,579
Canada 1,186,761 1,341,100
Eliminations (749,568) (749,568)
---------- ----------
Total identifiable assets $1,699,039 $1,874,111
---------- ----------
---------- ----------
F-22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 3, 1996 COMPUFLIGHT, INC.
By: /s/ Russell K. Thal
---------------------
Russell K. Thal, Chairman
of the Board of Directors
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signatures Capacity Date
---------- -------- ----
Chairman of the Board
of Directors, Executive
Vice President and
/s/ Russell K. Thal Director July 3, 1996
- ----------------------
Russell K. Thal
Chief Executive Officer
and Chief Financial
Officer (Principal
Executive Officer and
Principal Financial
/s/ Duncan Macdonald Officer) July 3, 1996
- ----------------------
Duncan Macdonald
Executive Vice President
/s/ Dorothy A. English and Director July 3, 1996
- ----------------------
Dorothy A. English
/s/ Denis L. Metherell Secretary and Director July 3, 1996
- ----------------------
Denis L. Metherell
/s/ Kenneth M. Snyder Director July 3, 1996
- ----------------------
Kenneth M. Snyder
Page 40 of 40
<PAGE>
KEY ADVISOR AGREEMENT
KEY ADVISOR AGREEMENT ("Agreement") made as of June 1, 1996 between NAVTECH
SYSTEMS SUPPORT INC., a company incorporated under the laws of the province of
Ontario with offices at A1-500 Parkside Drive, Waterloo, Ontario N2L 3G4 (the
"Company"), and DUNCAN MACDONALD, whose address is 22 Arundel Avenue, Ottawa,
Ontario K1K 0B6 (the "Advisor").
The Company desires to engage the Advisor to perform certain managing, advisory,
and corporate finance services, and the Advisor desires to perform such
services, on the terms and conditions hereinafter set forth.
1. ENGAGEMENT; TERM
1.1 the Company hereby engages the Advisor to perform, and the Advisor hereby
agrees to perform, certain management, advisory, and corporate finance
services on behalf of the company, on the terms and conditions of this
Agreement, for a period commencing on the date hereof and ending at the
close of business on the date set forth on Exhibit A attached hereto,
subject to extension as set forth in Exhibit A (as extended, the
"Engagement Period"), unless terminated sooner as set forth in paragraph 7
hereof.
2. DUTIES AND SERVICES
2.1 During the Engagement Period, the Advisor shall provide those certain
management, advisory, and corporate finance services to the company set
forth on Exhibit B attached hereto (the "Services"). The Advisor agrees to
devote such time and effort, and assign such resources as set forth on
Exhibit B, as is required to perform the Services hereunder. All Services
required hereunder shall be performed to the best of the Advisor's
abilities and to the Company's satisfaction, and shall be of the highest
professional standards. In providing Services hereunder, the Advisor shall
be subject to the direction of the President of the company. The Advisor
acknowledges and agrees that his engagement hereunder is on a non-exclusive
basis. Accordingly, the Company may utilize its own employees, and may
engage and utilize other independent contractors, to provide management,
advisory, and/or corporate finance services on its behalf.
3. COMPENSATION; EXPENSE REIMBURSEMENT
3.1 As sole compensation (the "Compensation") for the Advisor's Services during
the Engagement Period and in consideration of the Advisor's
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<PAGE>
representations, warranties and covenants herein, the company shall pay to
the Advisor a certain sum in accordance with the Compensation schedule set
forth on Exhibit C attached hereto, subject to the provisions of this
paragraph 3.
3.2 Notwithstanding the foregoing, in the event, as of any Compensation payment
date, there is then payable by the Advisor to the company any amount
relating to any obligation, the company shall have the right to offset the
amount of such obligation against any Compensation otherwise payable to the
Advisor.
3.3 The Advisor shall be entitled to be reimbursed by the company for all
reasonable and necessary expenses incurred for and on behalf of the company
in the performance of his duties under this Agreement, including those
incurred for travel and accommodations if he is required to perform any of
his duties away from his primary place of residence. All reimbursable
expenses must be documented and submitted with appropriate receipts in
accordance with the company's normal expense policies.
4. REPRESENTATIONS AND WARRANTIES OF THE ADVISOR
4.1 The Advisor represents and warrants to the company that (a) he has received
all authorizations, permits and licenses necessary to enter into this
Agreement and perform his duties and obligations hereunder, (b) all
Services performed by the Advisor under this Agreement shall be performed
in a professional and highly skilled manner and (c) the Advisor is not
under any physical or mental disability that would hinder his performance
under this Agreement. In addition, the Advisor hereby represents and
warrants to the company that neither the execution of this Agreement nor
his performance hereunder will (a) violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under the
terms, conditions or provisions of any contract, agreement or other
instrument or obligation to which the Advisor is a party, or by which he
may be bound, or (b) violate any order, judgment, writ, injunction or
decree applicable to the Advisor.
4.2 In the event of a breach of paragraph 4.1, in addition to the company's
right to terminate this Agreement, the Advisor shall indemnify the company
and hold it harmless from and against any and all claims, losses,
liabilities and expenses (including legal fees) incurred or suffered in
connection with or as a result of the company's entering into this
Agreement or engaging the Advisor hereunder.
4.3 the Company represents and warrants to the Advisor that neither the
execution of this Agreement nor its performance hereunder will (a)
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<PAGE>
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under the terms, conditions or provisions
of any contract, agreement or other instrument or obligation to which the
company is a party, or by which it is bound or (b) violate any order,
judgment, writ, injunction or decree applicable to the company.
4.4 In the event of a breach of paragraph 4.3, in addition to the Advisor's
right to terminate this Agreement, the company shall indemnify the Advisor
and hold it harmless from and against any and all claims, losses,
liabilities and expenses (including legal fees) incurred or suffered in
connection with or as a result of the Advisor entering into this Agreement.
5. RESTRICTIVE COVENANT
5.1 In consideration for the Compensation to be received hereunder by the
Advisor and in view of (a) the unique and valuable services it is expected
that the Advisor will render and (b) the knowledge of the Advisor of the
business, services, customers, trade secrets, and other proprietary
information relating to the business of the company, and its customers and
suppliers, that it is expected the Advisor will obtain, the Advisor agrees
that he will not, during the Engagement Period, without the prior written
approval of the company, directly or indirectly, anywhere in the world,
whether individually or as a principal, officer, employee, partner,
director, Advisor or agent of or consultant for any entity, do any of the
following:
(i) engage or participate in the ownership, management, operation or
control of, or otherwise be connected with, a business which is
similar to or competitive with, directly or indirectly, that
engaged in by the company at any time during the Engagement
Period and shall not make any investments in any such similar or
competitive entity (except that the foregoing shall not restrict
the Advisor from owning not more than five percent (5%) of the
outstanding Common Stock of any corporation, the Common Stock of
which is listed on a national securities exchange of NASDAQ);
(ii) cause or seek to persuade any director, officer, employee,
customer, subscriber, account, agent or supplier of the Company
to discontinue the status, employment or relationship of such
person or entity with the company, or
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<PAGE>
to become employed in any activity similar to or competitive with
the activities of the company;
(iii) cause or seek to persuade any prospective customer, subscriber or
account of the company to determine not to enter into a business
relationship with the Company;
(iv) hire or retain any director, officer or employee of the Company;
or
(v) solicit or cause or authorize to be solicited, for or on behalf
of him or any third party, any business which is competitive,
directly or indirectly, with the company from others who are, at
any time during the Engagement Period, (a) customers,
subscribers or accounts of the Company, or (b) prospective
customers, subscribers or accounts of the Company who are
actively being solicited by the Company.
5.2 a) The Advisor represents that he has been informed that it is the policy
of the Company to maintain as secret all confidential information relating
to the Company, including, without limitation, any and all knowledge or
information with respect to secret or confidential methods, processes,
plans, materials, customer lists or data, or with respect to any other
confidential or secret aspect of the Company's activities, and further
acknowledges that such confidential information is of great value to the
Company. The Advisor recognizes that, by reason of his engagement by the
Company, he has acquired and will acquire confidential information as
aforesaid. The Advisor confirms that it is reasonably necessary to protect
the Company's goodwill, and, accordingly, hereby agrees that he will not,
directly or indirectly (except where authorized by the Board of Directors
of the Company for the benefit of the Company), at any time during the term
of this Agreement or thereafter divulge to any person, firm or other
entity, or use, or cause or authorize any person, firm or other entity to
use, any such confidential information.
(b) The Advisor agrees that he will not, at any time, remove from the
Company's premises any drawings, notebooks, data or other confidential
information relating to the business and procedures heretofore or hereafter
acquired, developed and/or used by the Company, except where necessary in
the fulfillment of his duties hereunder.
(c) The Advisor agrees that, upon the expiration or termination of
this Agreement for any reason whatsoever, he shall promptly deliver to the
Company any and all drawings, notebooks, data and other documents and
material, including all copies thereof, in his possession or under his
- --------------------------------------------------------------------------------
<PAGE>
control relating to any confidential information or discoveries, or which
is otherwise the property of the Company.
(d) For purposes hereof, the term "confidential information" shall mean all
information given to the Advisor, directly or indirectly, by the Company
and all other information relating to the Company otherwise acquired by the
Advisor during the course of his engagement by the Company, other than
information which (i) was in the public domain at the time furnished to, or
acquired by, the Advisor, or (ii) thereafter enters the public domain other
than through disclosure, directly or indirectly, by the Advisor or others
in violation of an agreement of confidentiality or nondisclosure.
5.3 For purposes of this Paragraph 5, the term "the company" shall mean and
include the parent company Compuflight, Inc., Support and all subsidiaries,
and any and all affiliates in existence from time to time.
6. INDEPENDENT CONTRACTOR; INDEMNIFICATION
6.1 The Advisor shall perform the specified Services as an independent Advisor,
and nothing contained in this Agreement shall be construed to create or
imply a joint venture, partnership, or employment relationship between the
Company and the Advisor. Without express written authorization from the
Company, the Advisor shall not take any action or permit any action to be
taken on its behalf which purports to be done in the name of or on behalf
of the Company and shall have no power or authority to bind the Company or
to assume or create any obligation or responsibility, express or implied,
on the Company's behalf or in its name, nor shall the Advisor represent to
anyone that he has such power or authority. The Advisor shall not, in any
sense, be considered an employee of the Company, nor shall the Advisor be
eligible or entitled to any benefits, perquisites or privileges given or
extended to the Company's employees. No oral representations by employees
of the Company shall have the effect of overriding this Agreement.
6.2 The Advisor agrees to indemnify and hold harmless the Company and its
officers, directors and employees from and against any and all claims,
losses, liabilities, expenses and costs (including, without limitation,
legal fees) which they or any of them may suffer or become liable for as a
result of, or in connection with, any representation, express or implied,
of the Advisor that it has any authority to bind the Company to any
agreement or obligation with any third party or which arise by reason of
the Advisor being considered an agent, Advisor or employee of the Company,
including liability for notice of termination or severance pay, statutory
or otherwise. If a competent governmental authority
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<PAGE>
should assert that the Company is responsible for making any source
deductions for the Advisor, then the Company shall be entitled to commence
making any source deductions from any amounts then payable by the Company
to the Advisor hereunder. Further, if a competent governmental authority
asserts that the Company is retroactively responsible for any of such
deductions or other payments that should have been made but were not made,
the Company shall be entitled to make such payments retroactively and to
deduct an amount equal to such payments, together with any and all costs
and expenses (including, without limitation, legal fees) incurred by the
Company related to such assertions or deductions, from any amounts then
payable by the Company to the Advisor hereunder. To the extent that such
amounts are not recoverable by the Company by way of set-off as aforesaid,
the Advisor will promptly indemnify the Company for such amounts following
receipt of written demand for the same from the Company.
6.3 The provisions of this Paragraph 6 shall apply to the Company's Parent in
the same manner as they apply to the Company.
7. TERMINATION
7.1 Notwithstanding anything herein contained, at any time prior to the end of
the Engagement Period, the Company shall have the right to immediately
terminate this Agreement for "cause". As used in this Agreement, "cause"
shall include, but not necessarily be limited to, (a) thirty (30) days
notice of termination by the company, (b) the Advisor's commission of any
act in the performance of his duties constituting common law fraud, a
felony or other gross malfeasance of duty, (c) any material
misrepresentation or breach of any covenant on the Advisor's part herein
set forth, (d) the Advisor's engagement in misconduct which is materially
injurious to the Company or its Affiliates, (e) the appointment of a
receiver for any part of the Advisor's property, an assignment for the
benefit of the Advisor's creditors or the commencement of any proceedings
under any bankruptcy, reorganization or arrangement laws by or against the
Advisor, (f) the death of the Advisor.
8. INJUNCTIVE RELIEF
8.1 The Advisor acknowledges and agrees that, in the event he shall violate any
of the restrictions of Paragraph 5 or 6 hereof, the Company will be without
an adequate remedy at law and will therefore be entitled to enforce such
restrictions by temporary or permanent injunctive or mandatory relief in
any court of competent jurisdiction without the
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<PAGE>
necessity of proving damages and without prejudice to any other remedies
which it may have at law or in equity. No bond or other security shall be
required to be posted by the Company in connection therewith.
9. NOTICES
9.1 Any notice required or permitted to be given pursuant to this Agreement
shall be deemed to have been duly given when delivered by hand or sent by
certified or registered mail, return receipt requested and postage prepaid,
overnight mail or courier, or telecopier to each party at its address set
forth above, or at such other address as any party shall designate by
notice to the other party given in accordance with this Paragraph 9.
10. GOVERNING LAW
10.1 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the province of Ontario applicable to
agreements made and to be performed entirely in the province of Ontario.
11. WAIVER OF BREACH; PARTIAL INVALIDITY
11.1 The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach. If
any provision, or part thereof, of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and not in any way affect or render invalid or
unenforceable any other provisions of this Agreement, and this Agreement
shall be carried out as if such invalid or unenforceable provision, or part
thereof, had been reformed, and any court of competent jurisdiction is
authorized to so reform such invalid or unenforceable provision, or part
thereof, so that it would be valid, legal and enforceable to the fullest
extent permitted by applicable law.
12. THIRD PARTY BENEFICIARIES
12.1 All Affiliates of the Company, including, without limitation, the parent
company Compuflight, Inc., are intended third party beneficiaries of
this Agreement.
13. ENTIRE AGREEMENT
13.1 This Agreement and the exhibits hereto constitute the entire agreement
between the parties and there are no representations, warranties or
commitments except as set forth herein. This Agreement supersedes all
prior agreements, understandings, negotiations and discussions, whether
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<PAGE>
written or oral, of the parties hereto relating to the matters covered by
this Agreement. This Agreement may be amended only by a writing executed
by the parties hereto.
14. BINDING AGREEMENT; NO ASSIGNMENT
14.1 This Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the parties hereto; provided, however, that the
obligations of the Advisor under this Agreement shall not be delegated
without the prior written consent of the Company.
15. CANADIAN DOLLARS
15.1 Except as expressly set forth herein or in an exhibit hereto, all dollar
amounts expressed herein are Canadian dollars.
16. COUNTERPARTS
16.1 This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.
17. FACSIMILE SIGNATURES
17.1 Signatures transmitted by facsimile transmission shall be deemed original
signatures.
18. HEADINGS
18.1 The headings in this Agreement are solely for convenience of reference and
shall be given no effect in the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
NAVTECH SYSTEMS SUPPORT, INC.
By:/s/ Dorothy English
---------------------------
Dorothy English, President
ADVISOR
By:/s/ Duncan Macdonald
---------------------------
Duncan Macdonald
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<PAGE>
EXHIBIT A
The initial term of this Agreement shall expire on the second anniversary of the
date thereof. The Advisor shall have the option to extend the term of this
Agreement for an additional six (6) months (through November 30,1998), by giving
written notice to the Company no later than April 30, 1998, of the exercise of
such option.
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<PAGE>
EXHIBIT B
1. DESCRIPTION OF SERVICES GENERALLY.
During the Engagement Period, the Advisor shall perform the following
consulting, advisory, marketing and corporate finance services for
Compuflight and, at the request of Compuflight, for Support and their
respective Affiliates:
(a) Perform the role of Chief executive Officer of Compuflight and its
subsidiary Navtech Systems Support Inc.;
(b) Perform a comprehensive review of Compuflight's business requirements in
order to develop action plans with quantitative goals and performance
indicators for short to medium term implementation;
(c) Advise Compuflight on the implementation of action plans designed to
improve the Company's performance;
(d) Advise Compuflight on the implementation of action plans designed to
improve various aspects of its management processes and use of technology;
(e) Advise Compuflight on strategies and methodologies which may apply to
mergers, acquisitions, teaming arrangements, and corporate finance, and the
effective implementation of various aspects of these strategies and
methodologies which may benefit Compuflight in its planning process; and,
(f) Where applicable and upon prior written authorization of Compuflight
management, attempt to bring new sources of debt or equity financing to
Compuflight's consideration.
2. CORPORATE FINANCE SERVICES. Corporate finance activities may include, but
would not be limited to, the negotiation of financing arrangements and the
introduction and implementation of business combinations. The parties
agree that initial corporate finance efforts will be targeted at government
funding initiatives and private capital sources which could assist in
furthering Compuflight's business objectives.
3. DEVOTION OF TIME. During the Engagement Period, the Representative shall
expend at least seventy-five percent (75%) of his working time in the
fulfillment of his duties and obligations under the Agreement.
4. NATURE OF SERVICES TO COMPUFLIGHT AND AFFILIATES. In the event the Advisor
provides Services to Affiliates of Compuflight hereunder, the nature and
mode of such Services shall be, unless otherwise directed by Compuflight,
the same as that provided to Compuflight hereunder.
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<PAGE>
EXHIBIT C
COMPENSATION In consideration of the provision of Services under and in
accordance with the terms and conditions of this Agreement, including Exhibit B
thereto, the Advisor shall be entitled to receive a fee of Two Thousand and Five
Hundred Dollars ($2,500) per week (plus any applicable Canadian Goods and
Services Taxes), payable on a weekly basis. The Company shall also pay the
Advisor a bonus of Five Thousand Dollars ($5,000) per quarter (plus any
applicable Canadian Goods and Services Taxes), payable ten (10) days following
the end of the financial quarter.
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