U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
--------------------------------------------------
[ ] 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 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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(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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock as of September
15, 1997 was 1,701,980 shares.
Page 1 of 12
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COMPUFLIGHT, INC.
Nine Months Ended July 31, 1997
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I N D E X
Page
Numbers
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheet as of July 31, 1997...............3
Consolidated Statements of Operations - For the Nine Months and Three
Months Ended July 31, 1997 and July 31, 1996...........................4
Condensed Consolidated Statements of Cash Flows - For the Nine Months
Ended July 31, 1997 and July 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.....................................................13
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 12
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COMPUFLIGHT, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
July 31,
1997
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Part I, Item 1.
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for
doubtful accounts of $73,277 $ 373,437
Prepaid expenses and other 30,251
------------
Total current assets 403,688
INVESTMENT TAX CREDITS RECEIVABLE 909,323
FIXED ASSETS, NET 444,703
OTHER ASSETS 22,699
------------
$ 1,780,413
============
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 41,439
Accounts payable and accrued liabilities 835,819
Deferred salaries 7,871
Deferred lease inducements - current portion 15,739
Note payable 6,000
Loan payable - current portion 40,793
Due to related parties - current portion 179,095
------------
Total current liabilities 1,126,756
DUE TO RELATED PARTIES 38,367
DEFERRED LEASE INDUCEMENTS 129,845
LOAN PAYABLE 126,080
MINORITY INTERESTS 259,309
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital stock, par value $.001 per share; authorized 2,500,000
shares; issued and outstanding 1,701,980 shares 1,702
Additional paid-in capital 1,545,745
Notes receivable - former Chairmen (868,877)
Cumulative foreign translation adjustment 41,374
Accumulated deficit (619,888)
------------
100,056
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$ 1,780,413
============
See notes to unaudited condensed consolidated financial statements.
Part I, Item 1.
Page 3 of 12
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<TABLE>
<CAPTION>
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COMPUFLIGHT, INC.
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
July 31, July 31,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue
Service fees $ 1,984,628 $ 2,400,632 $ 666,733 $ 731,580
Hardware, software and license sales 70,700 43,522 30,000 16,154
--------- ---------- ---------- ---------
2,055,328 2,444,154 696,733 747,734
--------- ---------- ---------- ---------
Costs and Expenses
Operating 1,503,191 1,488,075 481,526 501,643
Research and development 236,292 326,811 85,987 107,743
Selling, general and administrative 664,398 813,333 217,595 312,246
Depreciation and amortization 128,317 99,346 47,005 33,257
--------- ---------- ---------- ---------
2,532,198 2,727,565 832,113 954,889
--------- ---------- ---------- ---------
Operating (loss) income (476,870) (283,411) (135,380) (207,155)
Other income (expense)
Interest income 42,008 45,786 12,944 14,889
Interest expense - related parties (34,139) (30,835) (10,022) (9,570)
Interest expense - other (52,167) (42,955) (25,523) (17,020)
Office relocation expenses (63,463) - - -
Payable forgiveness 30,814 - 30,814 -
Realized foreign exchange gain (loss (3,630) 2,096 (826) (4,663)
Restructuring costs (90,948) - (48,207) -
Scientific research and development
credits 175,017 177,697 63,845 59,620
Other (2,435) (4,235) (2,435) (2,717)
--------- ---------- ---------- ---------
NET LOSS $ (475,813) $ (135,857) $ (114,790) $ (166,616)
========= ========== ========== =========
Net loss per share $ (0.28) $ (0.08) $ (0.07) $ (0.10)
========= ========== ========== =========
Weighted Average Number of Common
Shares Outstanding 1,701,980 1,694,313 1,701,980 1,701,980
========= ========== ========== =========
See notes to unaudited condensed consolidated financial statements.
</TABLE>
Part I, Item 1.
Page 4 of 12
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<TABLE>
<CAPTION>
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COMPUFLIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended July 31, 1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net loss $ (475,813) $ (135,857)
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities
Depreciation and amortization 128,317 99,346
Consulting fees, net 55,590 53,147
Decrease in operating assets - net 151,397 35,146
Increase in operating liabilities - net 216,271 70,048
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Net cash provided by operating activities 75,762 121,830
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Cash flows from investing activities
Purchase of fixed assets (331,400) (26,370)
Repayments from RE&A - net 25,431 25,939
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Net cash used in investing activities (305,969) (431)
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Cash flows from financing activities
Payment of notes - former affiliate (180,000)
Increase in bank loan 166,873 -
Payment of loans (22,637) -
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Net cash provided by (used in) financing activities 144,236 (180,000)
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Effect of foreign translations on cash 7,180 (1,253)
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NET DECREASE IN CASH AND EQUIVALENTS (78,791) (59,854)
Cash and equivalents at beginning of year 37,352 97,912
------------ ------------
Bank indebtedness at end of period $ (41,439) $ 38,058
============ ============
See notes to unaudited condensed consolidated financial statements.
</TABLE>
Part I, Item 1. Page 5 of 12
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COMPUFLIGHT, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended July 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 July 31, 1997, and the
consolidated statements of operations for each of the three months and nine
months ended July 31, 1997 and 1996, and the condensed consolidated statements
of cash flows for each of the nine months ended July 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
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 nine months ended July 31,
1997 are not necessarily indicative of the operating results for the full year.
Part I, Item 1.
Page 6 of 12
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COMPUFLIGHT, INC.
Management's Discussion and Analysis or Plan of Operation
(Unaudited)
Nine Months Ended July 31, 1997
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Part I, Item 2.
RESULTS OF OPERATIONS
REVENUE
Revenue from service fees was approximately $1.984 million in the nine months
ended July 31, 1997 compared with approximately $2.400 million for the nine
months ended July 31, 1996, representing a decrease of approximately 17%, or
approximately $416,000. This decrease is primarily attributable to the
expiration of a joint software development contract with a large airline
customer in June 1996, resulting in a decline of approximately $88,000.
Furthermore, revenue for the nine months ended July 31, 1997 included
approximately $106,000 from a teaming arrangement with a U.S. systems integrator
which was completed in 1996. Also, approximately $49,000 was lost due to the
bankruptcies of two airline customers and approximately $282,000 was
attributable to the loss of two larger service bureau customers. Increases were
realized from revenues from a contract with the United States Postal Service
totaling approximately $81,000 as well as a net increase in billings of
approximately $56,000 from existing customers.
Revenue from hardware sales and software licenses increased approximately 62%,
or approximately $27,000, from approximately $44,000 for the nine months ended
July 31, 1996 to approximately $71,000 for the nine months ended July 31, 1997.
This increase can be attributed to the sale of a license of the Company's
performance engineering system to an airline customer.
Costs and expenses
Operating expenses increased approximately 1%, or approximately $15,000, from
approximately $1.488 million for the nine months ended July 31, 1996 to
approximately $1.503 million for the nine months ended July 31, 1997. This
change is primarily attributable to an increase in rent expense of approximately
$13,000 and an increase in subcontracting expense of approximately $28,000.
These increases were offset by a decrease in salaries and benefits of
approximately $30,000.
Research and development expenditures decreased approximately 28%, or
approximately $91,000, during the nine months ended July 31, 1997 as a result of
the move of the research and development activities to the new facility in
Waterloo during the quarter ending January 31, 1997.
Selling, general and administrative expenses decreased approximately 18%, or
approximately $149,000, from approximately $813,000 for the nine months ended
July 31, 1996 to approximately $664,000 for the nine months ended July 31, 1997.
This decrease is primarily attributable to a decrease in consulting expense of
approximately $25,000, a decrease in travel costs of approximately $40,000, a
decrease in publications costs of approximately $19,000 and a decrease in office
expenses of approximately $7,000. In addition, professional fees decreased
approximately $35,000 although this was offset by a charge of $15,000 associated
with the bankruptcy of a former airline customer.
Part I, Item 2. Page 7 of 12
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Other income (expense)
The Company recorded a loss of $3,630 on realized foreign exchange transactions
for the nine months ended July 31, 1997. 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 $175,000 for the nine months ended July 31, 1997 compared to
approximately $178,000 for the nine months ended July 31, 1996. The decrease is
due primarily to a decrease in research and development expenditures as noted
above, all of which are eligible for the credit.
The Company has segregated office relocation expenses related to the move of its
operations and adminstrative center to premises in Waterloo, Ontario, Canada.
These costs include, among other items, the cost of contract management for the
construction phase and the successful transfer of the Company's communication
and computer systems.
The Company has also segregated costs related to its restructuring plan which
commenced in February 1997. See "Restructuring of the Company's Operations"
below.
Net loss
The unaudited consolidated financial statements reflect a net loss of
approximately $476,000 for the nine months ended July 31, 1997 compared to a net
loss of approximately $136,000 for the nine months ended July 31, 1996. The
change is due to the decline in revenues as well as the costs incurred in the
office relocation and the restructuring effort, and is offset by the decline in
costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash resources of $78,791 for the nine months
ended July 31, 1997 compared to a net decrease of $59,854 for the nine months
ended July 31, 1996. In addition, at July 31, 1997, the Company had a working
capital deficiency of $723,068 as compared to $519,545 as of July 31, 1996.
Cash flows from operations for the nine months ended July 31, 1997 accounted for
an increase in cash of $75,762, 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 as offset by the net loss over
the nine months. Cash flows from investing activities for the nine months ended
July 31, 1997 represent a net outflow of $305,969, primarily due to the purchase
of fixed assets. Cash flows from financing activities for the nine months ended
July 31, 1997 represent a net inflow of $144,236, primarily due to the Company
obtaining a four year term loan in June 1997 as previously described in the Form
10-QSB for the quarter ended April 30, 1997.
Part I, Item 2. Page 8 of 12
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The Company currently has no significant capital commitments but may, from time
to time, consider business combinations with complementary corporations or
acquisitions of new technologies or services; it has no present understandings,
commitments or agreements with respect to any such combinations or acquisitions.
As of July 31, 1997, the Company's bank indebtedness consisted of $41,439.
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 on
or before November 1, 1997 under which 60 consecutive monthly payments of
$10,000 would be payable upon termination of his employment and $600,000 would
be payable upon his death through March 31, 2004 (which amount decreases to the
extent of the $10,000 payments).
PLAN OF OPERATION
The Company believes that its existing working capital is insufficient to
finance its research and development, marketing and operational activities.
Management has continued to undertake several initiatives which it feels will
contribute to improving the working capital deficiency and to returning the
Company to profitability, as more fully described below.
Restructuring of the Company's Operations
The restructuring plan which was initiated during the second quarter of 1997 to
consolidate the operations of the Company's Port Washington and Waterloo
facilities continued to be implemented throughout the quarter ending July 31,
1997. The aircraft performance engineering software development effort has been
successfully transferred from Port Washington to the Waterloo facility.
Administration and accounting functions performed in Port Washington have also
been integrated into the finance and administration department located in
Waterloo. As a result of these activities, both staff levels and related
operating costs have been reduced at the Port Washington facility.
Scientific Research and Experimental Development Tax Credits
The Company is in the final stages of providing its response to the Revenue
Canada technial auditor's initial review with respect to the Company's
outstanding SR&ED claim. It is anticipated that the scientific audit of the
Company's claims will be undertaken during the month of September, 1997.
Part I, Item 2. Page 9 of 12
<PAGE>
Marketing and Sales Focus
Over the quarter ending July 31, 1997, Management has positioned the Company in
the service bureau flight oeprations market segment. The Company was also
proactive in identifying new markets for expansion of its service bureau and
performance engineering lines of business. As a result, the Company will enter
the next fiscal year with a diversified revenue base and a plan for aggressive
expansion of its presence in the North American market.
External and Contract Financing
The Company is continuing discussions to secure additional financing during the
last quarter of 1997.
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.
Part I, Item 2. Page 10 of 12
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COMPUFLIGHT, INC.
Other Information
Nine Months Ended July 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).
Part II Page 11 of 12
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COMPUFLIGHT, INC.
Nine Months Ended July 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.
(Registrant)
Date: September 22, 1997 By: /s/ Russell K. Thal
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Chairman of the Board
Date: September 22, 1997 By: /s/ Duncan Macdonald
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Chief Executive Officer
and Chief Financial Officer
Page 12 of 12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Nov-01-1996
<PERIOD-END> Jul-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 446,714
<ALLOWANCES> 73,277
<INVENTORY> 0
<CURRENT-ASSETS> 403,688
<PP&E> 1,073,541
<DEPRECIATION> 628,838
<TOTAL-ASSETS> 1,780,413
<CURRENT-LIABILITIES> 1,126,756
<BONDS> 0
0
0
<COMMON> 1,702
<OTHER-SE> 98,354
<TOTAL-LIABILITY-AND-EQUITY> 1,780,413
<SALES> 0
<TOTAL-REVENUES> 2,055,328
<CGS> 0
<TOTAL-COSTS> 2,532,198
<OTHER-EXPENSES> (87,363)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,306
<INCOME-PRETAX> (475,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (475,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475,813)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
