U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number 0-15362
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COMPUFLIGHT, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 11-2883366
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
99 Seaview Drive, Port Washington, NY 11050
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(Address of principal executive offices) (Zip code)
Issuer's telephone number 516-625-0202
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock as of March 15,
1997 was 1,701,980 shares.
Page 1 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet (Unaudited)
as of January 31, 1997 .............................................3
Consolidated Statements of Earnings (Unaudited) for the Three Months
Ended January 31, 1997 and January 31, 1996 ........................4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended January 31, 1997 and January 31, 1996 ...........5
Notes to Condensed Consolidated Financial Statements ...............6
Item 2. Management's Discussion and Analysis
or Plan of Operation ...............................................7
PART II. OTHER INFORMATION .................................................10
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Page 2 of 11
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
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COMPUFLIGHT, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
January 31,
1997
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ASSETS
CURRENT ASSETS
Cash and equivalents $ 42,141
Accounts receivable, net of allowance for doubtful
accounts of $73,374 374,847
Prepaid expenses and other 10,596
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Total current assets 427,584
INVESTMENT TAX CREDITS RECEIVABLE 805,234
FIXED ASSETS, NET 484,121
OTHER ASSETS 29,257
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$ 1,746,196
============
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 731,861
Deferred salaries 8,072
Deferred lease inducements - current portion 16,140
Due to related parties - current portion 219,504
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Total current liabilities 975,577
DUE TO RELATED PARTIES 39,345
DEFERRED LEASE INDUCEMENTS 131,703
MINORITY INTERESTS 265,913
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share; authorized
2,500,000 shares; issued and outstanding 1,701,980
shares 1,702
Additional paid-in capital 1,545,745
Notes receivable - former Chairmen (930,892)
Cumulative foreign translation adjustment 52,269
Accumulated deficit (335,166)
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333,658
$ 1,746,196
============
See notes to unaudited condensed consolidated financial statements.
Page 3 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
For The Three Months Ended January 31, 1997 1996
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Revenue
Service fees $ 672,681 $ 837,112
Hardware, software and license sales - 16,709
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672,681 853,821
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Costs and Expenses 505,756 491,910
Operating 68,333 98,441
Research and development 237,125 255,926
Selling, general and administrative 39,280 32,918
Depreciation and amortization ------------ ------------
850,494 879,195
Operating Loss (177,813) (25,374)
Other income (expense)
Interest income 15,217 15,333
Interest expense - related parties (10,698) (7,947)
Interest expense - other (4,848) (16,643)
Office relocation expenses (60,954)
Realized foreign exchange loss (2,516) (3,580)
Scientific research and experimental
development credits 50,521 53,026
Other - 2,701
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NET (LOSS) EARNINGS $ (191,091) $ 17,516
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Net (loss) earnings per share $ (0.11) $ 0.01
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Weighted Average Number of Common Shares
Outstanding 1,701,980 1,660,313
============ ============
See notes to unaudited condensed consolidated financial statements.
Page 4 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Unaudited)
For The Three Months Ended January 31, 1997 1996
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Cash flows from operating activities
Net (loss) earnings $ (191,091) $ 17,516
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 39,280 32,918
Provision for uncollectible accounts 770
Consulting fees, net 18,322 17,516
Decrease (increase) in operating assets-net 293,336 (40,580)
Increase (decrease) in operating liabilities-net 119,336 (6,726)
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Net cash provided by operating activities 279,953 20,644
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Cash flows from investing activities
Purchase of fixed assets (270,123) (14,475)
Payments from (advances to) RE&A 9,570 2,740
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Net cash used in investing activities (260,553) (11,735)
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Cash flows from financing activities
Payment of notes - former affiliate - (60,000)
Payment of notes (15,325)
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Net cash used in financing activities (15,325) (60,000)
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Effect of foreign translations on cash 704 (2,720)
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NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS 4,779 (53,811)
Cash and equivalents at beginning of year 37,362 97,912
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Cash and equivalents at end of period $ 42,141 $ 44,101
========== =========
See notes to unaudited condensed consolidated financial statements.
Page 5 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended January 31, 1997
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NOTE A. DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. (the "Company"), directly or indirectly through its
wholly-owned Canadian subsidiaries, Navtech Systems Support Inc. ("Support"),
and Efficient Aviation Systems Inc. ("EAS"), is engaged in the business of
developing, marketing, licensing, and supporting computerized flight planning
and aircraft performance engineering services for the aviation industry.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated balance sheet as of January 31, 1997, and the
consolidated statements of earnings and cash flows for the three months ended
January 31, 1997 and 1996, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring
accrual adjustments) necessary to present fairly the financial position, results
of operations and cash flows at January 31, 1997, and for all periods presented,
have been made.
The condensed consolidated financial statements include the accounts of
Compuflight, Inc. ("Compuflight") and its wholly-owned Canadian subsidiaries,
Support and EAS. All material intercompany balances and transactions have been
eliminated. In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translations," assets and liabilities of foreign
operations are translated at current rates of exchange while results of
operations are translated at average rates in effect for that period. Unrealized
translation gains or losses are shown as a separate component of shareholders'
equity.
For information concerning the Company's significant accounting policies,
reference is made to the Company's Annual Report on Form 10-KSB for the year
ended October 31, 1996. Results of operations for the three months ended January
31, 1997 are not necessarily indicative of the operating results for the full
year.
NOTE C. ACQUISITION OF MINORITY INTEREST
Effective November 24, 1995, the Company issued 125,000 shares of its common
stock in exchange for 500,000 shares of Support, which represented the common
shares of Support held by the one remaining common shareholder of Support, and
accordingly, the Company now owns 100% of the outstanding common shares of
Support. The excess of the fair market value of the Company's common stock on
the date of the exchange ($101,563) over the Company's minority interest
($78,411) has been recorded as goodwill (included in Other Assets) in the
accompanying consolidated balance sheet.
Page 6 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
Revenue
Revenue from service fees was approximately $673,000 in the three months ended
January 31, 1997 compared with approximately $837,000 for the three months ended
January 31, 1996, a decrease of 20%, or approximately $164,000. This decrease is
primarily due to the expiration of a joint software development contract with a
large airline customer in June 1996, resulting in a decline of approximately
$100,000. Furthermore, revenue for the three months ended January 31, 1996
included approximately $49,000 from a teaming arrangement with a U.S. systems
integrator which was completed in 1996. Also, approximately $24,000 in revenue
was lost due to the bankruptcies of two airline customers. A portion of this
lost revenue was offset by the addition of several new customers.
Revenue from hardware sales and software licenses decreased 100%, or
approximately $17,000. During the fourth quarter of 1996, the remaining long
term license fee receivable was converted to a fixed term receivable, and the
resulting monthly financing charges were eliminated.
Costs and expenses
Operating expenses increased approximately 3% or $14,000 from approximately
$492,000 for the three months ended January 31, 1996 to approximately $506,000
for the three months ended January 31, 1997. This change is primarily
attributable to an increase in salaries and benefits of approximately $3,000, an
increase in communications costs of approximately $3,000, an increase in rent of
approximately $16,000 and a net decrease in other operating expenses of
approximately $8,000.
Net research and development expenditures decreased approximately 31%, or
approximately $30,000, during the three months ended January 31, 1997 over the
same period in fiscal 1996 as the result of disruptions during the transfer of
the Company's communication and computer networks to the new location.
Selling, general and administrative expenses decreased approximately 7%, or
$19,000, from approximately $256,000 for the three months ended January 31, 1996
to approximately $237,000 for the three months ended January 31, 1997. This
decrease is primarily attributable to decreases in consulting fees of
approximately $17,000, travel costs of approximately $3,000, and a net increase
in other expenses of approximately $1,000.
Other income (expense)
The Company recorded a loss of $3,000 on realized foreign exchange transactions
for the three months ended January 31, 1997 which is similar to the loss
recorded for the same period in 1996. Gains and losses in foreign exchange are
attributable to the difference in rates between the transaction date and the
settlement date and cannot readily be compared between periods.
The Company has claimed scientific research and experimental development credits
of approximately $51,000 in the three months ended January 31, 1997 as compared
Page 7 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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to approximately $53,000 for the three months ended January 31, 1996. The
decrease is due primarily to a decrease in research and development expenditures
as noted above.
The Company has segregated office relocation expenses related to the move of its
operations and administrative centre to larger premises in Waterloo, Ontario,
Canada. These costs include, among other items, the cost of managing both the
construction phase and the successful transfer of the Company's communication
and computer networks.
Net (loss) earnings
The unaudited consolidated financial statements reflect a net loss of
approximately $181,000 for the three months ended January 31, 1997 as compared
to net earnings of approximately $18,000 for the three months ended January 31,
1996. The change is due to the decline in revenues and the one time cost of the
office relocation and is offset by a decline in total costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net increase in cash resources of $4,779 for the three months
ended January 31, 1997 compared to a net decrease of $53,811 for the three
months ended January 31, 1996. In addition, at January 31, 1997, the Company had
a working capital deficiency of $538,293 as compared to $240,648 as of October
31, 1996.
Cash flows from operations accounted for an increase in cash of $279,953,
primarily as a result of the collection of the large receivable due from Harris
Corporation and the deferral of lease inducements over the term of the new lease
and offset by the net loss during the quarter. Cash flows from investing
activities for the three months ended January 31, 1997 represent a net outflow
of $260,553, primarily due to the purchase of fixed assets. Cash flows from
financing activities for the three months ended January 31, 1997 represent a net
outflow of $15,325, all of which relates to payments on existing notes and
related accrued interest.
The Company currently has no significant capital commitments but may, from time
to time, consider acquisitions of complementary businesses, products or
technologies; it has no present understandings, commitments or agreements with
respect to any such acquisitions.
As of January 31, 1997, the Company's available funds consisted of $42,141 in
cash.
COMMITMENTS AND CONTINGENCIES
Employment Agreement
The employment agreement with the Company's current Chairman, Russell K. Thal,
as amended, provides for the obtaining of an annuity and/or insurance policy
under which 60 consecutive monthly payments of $10,000 would be payable upon
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).
Page 8 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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PLAN OF OPERATION
The Company believes that its existing working capital is insufficient to
finance its research and development, marketing, and operational activities.
Management recently undertook an appraisal of its operations, new product
strategies, and customer delivery capabilities in an effort to address this
working capital deficiency. This in-depth appraisal resulted in a decision to
refocus the Company's marketing and operations resources on its service bureau
solution for customers in the North American commercial aviation sector.
To achieve this objective, the Company launched a development effort dedicated
to providing customer support services by offering custom enhancements,
integration services, and communication systems upgrades. Through this Technical
Operations Support Group, Management believes that it can increase profitability
by growing revenues from its current customer base which can also be leveraged
into new sales opportunities.
In addition to refocusing the Company's product strategy, a number of other
initiatives are underway with results expected during the second and third
quarters. The most significant of these is the effort to realize the refundable
investment tax credits from scientific research and development efforts under
the Revenue Canada SR&ED program. Due to delays on the part of Revenue Canada,
it is anticipated that the scientific audit of the Company's claims will be
undertaken during the latter half of the quarter ended April 30, 1997.
Management is preparing a restructuring plan for presentation to the Board of
Directors during the second quarter which further consolidates its Port
Washington and Waterloo facilities. It is anticipated that this effort will
result in decreased costs and increased profitability for the Company.
No assurance can be given that any required financing will be available on
commercially reasonable terms or otherwise. In addition, no assurances can be
given that the Company's Plan of Operation as set forth above will be
successful.
Page 9 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
None
Item 2. CHANGES IN SECURITIES:
None
Item 3. DEFAULTS UPON SENIOR SECURITIES:
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
Item 5. OTHER INFORMATION:
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
3(A) Certificate of Incorporation and amendments
thereto including Certificate of Ownership and
Merger (1)
3(B) By-Laws (2)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 1994 (File No. 0-15362).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-18 (Registration No. 2-93714-NY).
Page 10 of 11
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COMPUFLIGHT, INC. and SUBSIDIARIES
Three Months Ended January 31, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUFLIGHT, INC.
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(Registrant)
Date: March 24, 1997 By: /s/ Russell K. Thal
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Chairman of the Board
Date: March 24, 1997 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial Officer
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 42,141
<SECURITIES> 0
<RECEIVABLES> 448,221
<ALLOWANCES> 73,374
<INVENTORY> 0
<CURRENT-ASSETS> 427,584
<PP&E> 1,024,501
<DEPRECIATION> 540,380
<TOTAL-ASSETS> 1,746,196
<CURRENT-LIABILITIES> 965,877
<BONDS> 0
0
0
<COMMON> 1,702
<OTHER-SE> 341,656
<TOTAL-LIABILITY-AND-EQUITY> 1,746,196
<SALES> 0
<TOTAL-REVENUES> 672,681
<CGS> 0
<TOTAL-COSTS> 840,794
<OTHER-EXPENSES> (2,268)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,546
<INCOME-PRETAX> (181,391)
<INCOME-TAX> 0
<INCOME-CONTINUING> (181,391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,391)
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
</TABLE>
