1997 FORM 10-KSB FINAL DRAFT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended October 31, 1997
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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
Commission File Number 0-15362
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)
125 Mineola Avenue, Roslyn Heights, NY 11577
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(Address of Principal Executive Offices) (Zip Code)
(516) 625-0202
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Issuer's telephone number
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on 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
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. [X]
State issuer's revenues for its most recent fiscal year (1997): $ 2,790,367
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 September 30, 1999 was
$ 122,689
(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
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's common stock, as of
September 30, 1999 was 2,001,980 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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COMPUFLIGHT, INC.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business..............................................5
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................................................26
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.................28
Item 10. Executive Compensation..............................................31
Item 11. Security Ownership of Certain Beneficial Owners and Management......33
Item 12. Certain Relationships and Related Transactions......................35
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
INDEX TO EXHIBITS...................................................39
INDEX TO FINANCIAL STATEMENTS (F-1).................................41
SIGNATURES..........................................................42
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GLOSSARY OF TERMS
AFTN (Aeronautical Fixed Telecommunications Network)
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An international telecommunications network used for the transmission of NOTAMs,
aircraft movement messages, and other relevant data.
ARINC (Aeronautical Radio, Inc.)
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A vendor of a variety of communications services to the aviation industry.
Airway
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Air traffic controlled airspace established in the form of a corridor, the
centerline of which is normally defined by radio navigational aids.
CNS-ATM
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Communications, Navigation, Surveillance-Air Traffic Management. The key
elements of the Future Air Navigation System (FANS).
Flight Dispatcher, Dispatcher
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An airline employee responsible for pre-flight planning and continuous
communication and monitoring of a flight from start to finish.
Flight Plan
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A plan required by federal regulations to be filed by an aircraft that
identifies the routing, alternate routing, altitude, enroute time, fuel
consumption, and other information. This data is calculated by factoring, among
other things, the aircraft manufacturer's performance data, aircraft
specifications, forecasted upper air winds, and estimated payload.
FOMS
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Navtech's Flight Operations Management System.
FANS (Future Air Navigation System)
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An international initiative by air traffic control providers and aviation users
to provide aircraft with the capability of using any flight path, altitude or
speed in order to obtain the maximum efficiency. Frequently referred to as "Free
Flight".
GUI
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Graphical User Interface.
IATA
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International Air Transport Association. A trade association of the worldwide
scheduled international airline industry with a membership of more that 220
airlines.
ICAO
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International Civil Aeronautical Organization. The governing body for the civil
aviation authorities in each country.
LINUX
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A sophisticated computer operating system which permits multi-tasking.
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Navigational Data Worldwide
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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.
NOTAM (Notice to Airmen)
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A notice containing information concerning the establishment, condition or
change in any aeronautical facility, service procedure or hazard, the timely
knowledge of which is essential to personnel concerned with flight operations.
Oceanic Airspace
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Airspace over the oceans of the world, considered international airspace.
Responsibility for the provisions of air traffic control service in this
airspace is delegated to various countries, based generally upon geographic
proximity and the availability of the required resources.
Preferred Routes
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Fixed routes established between busier airports to increase air traffic control
system efficiency and capacity. Also known as Preferred IFR Routes.
SITA (Societe Internationale de Telecommunication Aeronautique)
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A vendor of aviation communication services.
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PART I
Forward Looking Statements
When used herein, the words "believe," "anticipate," "think," "intend," "may,"
"could," "will be," "expect," "estimate," and similar expressions identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are not guarantees of future
results and involve certain risks and uncertainties discussed herein, which
could cause actual results to differ materially from those in the
forward-looking statements. Readers are cautioned not to place undue reliance on
the forward-looking statements which speak only as of the date hereof. Readers
are also urged to carefully review and consider the various disclosures made by
Compuflight, Inc. which attempt to advise interested parties of the factors
which affect it, including, without limitation, the disclosures made under the
caption "Management's Discussion and Analysis or Plan of Operation" in Item 6
hereof.
Item 1. Description of Business
GENERAL
Compuflight, Inc. (the "Company" or "Compuflight"), 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
operations management systems to the commercial aviation industry. The Company
was originally incorporated in the State of New York in 1981 and then
reincorporated in the State of Delaware in 1987.
Navtech Systems Support Inc. was incorporated in 1987 in the Province of
Ontario. Support's Waterloo, Ontario facility houses the research and
development, customer support, sales, and financial functions of the Company as
well as an operations data center (see Item 2 hereof). Much of Support's early
development work was undertaken for the installation of flight planning systems
at Wardair and Pan American Airways (PanAm). The Company develops and markets
software under the names of both Compuflight and Navtech that is designed to
assist commercial passenger and cargo air carriers in the dynamic environment of
their daily flight operations. Specifically, the Company's software provides
on-line solutions in the areas of flight planning, route of flight analysis and
optimization, hi-level winds, weather, and NOTAM (Notice to Airmen) information,
communications, runway analysis, and various aspects of performance engineering.
The Company's software is licensed for use on UNIX and LINUX open systems,
client server platforms. The Company utilizes two primary delivery mechanisms to
address its target markets: Service Bureau Operations and Product Licensing and
Integration.
The Company's software operates in real time and is designed to enhance airline
operational capabilities and competitiveness through flight plan optimization,
reduced operational and fuel costs, and provision of faster and more inclusive
operational and management information. Additionally, portions of the software
are licensed as core technology around which the Company and its Teaming
Agreement Partners construct leading edge enterprise systems.
The Company's success is based upon its highly skilled and experienced technical
and flight operations personnel who develop and maintain the Company's core
technology. The Company is focused on growing the product licensing and
integration business to match or surpass the revenue generated by the service
Bureau Operations.
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Compuflight is publicly traded on the NASD OTC Electronic Bulletin Board under
the symbol CMFL. The Company's principal executive offices are located at 125
Mineola Avenue, Roslyn Heights, New York (telephone number: (516) 625-0202.
RECENT DEVELOPMENTS
Acquisition of Skyplan Services (UK) Limited
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On October 1, 1999, Support entered into an agreement to purchase all of the
outstanding shares of Skyplan Services (UK) Limited ("Skyplan") from Skyplan
Services Ltd. Skyplan, incorporated in the United Kingdom, provides flight
planning and overflight permit assistance through a service bureau located near
Gatwick Airport, London, England. Currently, there are eight full-time staff
members employed at this location. Skyplan's customer base is primarily located
throughout Europe, Africa and the Middle East.
The Company will be accounting for this acquisition by the purchase method.
Accordingly, the Company will only include results of operations of Skyplan in
its books from October 1, 1999. Furthermore, under the purchase method, the
Company will determine the fair market value of the assets in order to properly
allocate the purchase price and separate out the goodwill component, if any.
Goodwill, if any, will be amortized on a straight line basis over a ten year
period.
In consideration for the shares of Skyplan, Support has agreed to pay to Skyplan
Services Ltd. CDN $180,000 in two installments. The first installment of
$125,000 was payable upon closing. The second installment of $55,000 is payable
upon the successful transfer of services and systems to Support during the
transition period from October 1, 1999 to October 22, 1999. No shares of the
Common Stock of the Company were issued.
Acquisition of Weather Services Division of Global Weather Dynamics Inc. by
Navtech Applied Research Inc.
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On July 15, 1998, Navtech Applied Research Inc. ("NARI"), a principal
shareholder of the Company (see Items 11 and 12 hereof) and affiliate company of
Compuflight, acquired the Weather Services Division ("WSD") of Global Weather
Dynamics Inc. ("GWDI").
In connection with the acquisition, the Company issued 300,000 shares of Common
Stock to NARI at a purchase price of $135,000 (see Item 12 hereof). NARI, in
turn, transferred 250,000 of such shares to GWDI in consideration for the assets
of WSD and issued 50,000 of such shares to Cambridge Information Group, Inc. for
investment banking services.
Following the acquisition by NARI of the assets of WSD, NARI and Compuflight
entered into a non-exclusive, non-transferable licensing agreement for a term
commencing August 1, 1998 and expiring October 31, 2000 pursuant to which
Compuflight was granted the right to install, configure, modify and use the
software acquired by NARI in Compuflight business. In addition, Compuflight also
entered into a sub-lease for the operations data center in Monterey, California,
formerly that of the GWDI Weather Services Division. In addition, Compuflight
hired the former employees of WSD.
The Weather Services Division of Compuflight provides weather data software and
services and other related data services primarily to the commercial aviation
community. The Monterey data center processes data describing or predicting the
state of the atmosphere on a 24 hour, 7 day per week basis from sources
including the U.S. National Weather Service and the Federal Aviation
<PAGE>
Administration circuits as well as a number of other countries' data circuits.
Customers access Compuflight's weather services through land-based
communications networks employing the latest distributed processing
technologies.
INDUSTRY BACKGROUND
Commercial Aviation
The commercial airline industry continued to realize positive results throughout
1997, having increased traffic and sales levels over 1996. The principal impetus
for this turnaround is the ongoing restructuring that airlines were forced to
undertake in 1993 due to a severe recession that lasted from 1990 to 1993,
increased competition from non-traditional carriers seeking to serve a specific
market segment and doing so with a lower operating cost structure, and continued
long-term growth of the North American economies. According to the International
Air Transportation Association ("IATA"), 1996 and 1997 set new profitability
records for the world airline industry, and more specifically the North American
one, with net profit for members rising to $5.5 billion in 1996, an increase of
$300 million over 1995.
Airline Classification
There are over 1,500 commercial airlines providing service around the globe, and
they are typically defined by either the type of service offered, annual
revenues or by the type of aircraft they utilize. Major airlines are categorized
as earning revenues in excess of US$1billion or more annually in scheduled
service and generally providing countries with nationwide service and in some
cases worldwide service. There are approximately 40 carriers in this category.
National carriers are scheduled airlines with annual revenues between US$100
million and US$1billion, and typically serve particular regions of North America
or serve as foreign country flag carriers. The national carriers also provide
long haul and even international service. There are approximately 400 airlines
in this category. Regional airlines are carriers whose service is limited to a
single region of a country and tend to have annual revenue of US$20million to
US$100 million. Their operations tend to either feed passengers to the larger
airline's centers, or operate in under-served markets.
Geographic Trends
Economic forces are expected to continue driving consolidation to a point where
major airline alliances occur, such as the One World Alliance and the Star
Alliance. These alliances will face competition from a large number of niche
airlines, including the national carriers that differentiate themselves by
geography or market segmentation. Smaller regional carriers seeking to protect
or expand their share of particular geographical markets or business segments
will be forced to compete with these global alliances.
Flight Operations Software Market Outlook
While there are significant savings in fuel and flight time to be achieved by
the major U.S. carriers within domestic flight operations, the most dramatic
savings are to be realized on international routes. With the shifts in air
traffic management, particularly the easing of overflight restrictions in China
and the former Soviet republics, international air carriers can literally chart
new territory, saving upwards of two hours per flight. This improvement is a
result of integrating the international development referred to as FANS (Future
Air Navigation System), which provides an air traffic management infrastructure
that relies largely on the use of GPS (Global Positioning System)
satellite-based navigation, with the carrier's flight operations system.
<PAGE>
To address the requirements of FANS, airlines are now seeking new technology
solutions to assist in the development of cost effective flight operations,
including flight planning, weather management, crew scheduling, runway analysis,
and chart management.
PRODUCTS AND SERVICES
Navtech's product strategy is to offer an integrated flight management system to
medium size carriers. In 1998 the Company integrated flight planning, flight
following, weather and NOTAMs into an Operations Control System product called
AURORA. The AURORA product is delivered as an installed system at the customer's
operations facility. In addition to AURORA, the Company offers COMPASS(TM), an
easy to use flight planning software product designed for start-ups and small
airlines. To complement AURORA and COMPASS, the Company also provides
COMRADE(TM) , a Windows-based runway analysis solution for use in an aircraft
cockpit or in the airlines operations center.
In addition to the Company's software products, the customer is also provided
with a range of data services delivered from the Company's hosted systems, such
as weather related data like high-level winds, text weather and NOTAMs. The
Company also provides a subscription service for the provision of aircraft
performance data to be used in the calculation of take-off and landing settings.
Operations Control Systems - AURORA
In March, 1998, the Company released its new core Flight Operations Control
System, AURORA. The new product provides real-time mission critical decision
support to the dispatcher or airline operations manager in the creation of a
flight release and the subsequent tracking and reporting of the airline's
performance.
The AURORA system was designed to operate on the powerful, scalable, open source
LINUX operating system. LINUX provides an alternative to traditional UNIX based
systems at a lesser cost without losing any of the power, speed or reliability
that the commercial airline Information Technology division requires.
The Operations Control System can be implemented as a COTS (Commercial off the
Shelf) application with reduced installation time and increased maintenance
capability.
Through the Company's Value Added Reseller VAR agreement with IBM, the required
hardware components are configured, tested and fully certified prior to delivery
to the customer. As part of its project management services, the Company takes
responsibility for all aspects of the delivery including ordering of
communications circuits, installation of all hardware, and testing at the
customer's site.
Flight Planning
Recognizing the fact that a customer's flight operations department may not grow
large enough in size to utilize a fully integrated flight operations control
system, the Company markets a scaled-down version of its AURORA product. In
addition, the Company also markets to the regional carriers and to the airline
utilizing less than 5 aircraft operators, the text-based flight planning system,
COMPASS(TM), to fill the need to provide a basic flight plan and to position the
Company to develop a relationship, as the carrier grows.
The Company's COMPASS(TM) flight planning software, which is provided on a
service bureau basis, is designed to improve operational efficiency by providing
easy-to-use `single screen' formats for timely dispatching of flights. The
system responds quickly to changing flight situations so that fuel, flight time,
alternate routing, and payload information can be readily modified.
<PAGE>
Runway Analysis - COMRADTM
The Civil Aviation Authority for each country outlines the regulations under
which an aircraft operator must conduct its flying operations. Most
jurisdictions require the operator of a passenger or cargo carrying aircraft to
complete a take-off and landing runway assessment before each flight to
ascertain the feasibility and limitations of operating the aircraft on a
particular runway given specific meteorological conditions.
Traditionally, this function is carried out in two places, the flight operation
dispatch department and the aircraft cockpit. The source of data required to
complete the runway analysis function has been a series of manuals containing
hundreds of aircraft performance tables, which are either generated internally
or by a third party. It is a very cumbersome and time consuming exercise to sort
through these tables and gather the information necessary to complete the
calculation.
The Company has responded by developing COMRAD, a PC/Windows based runway
analysis solution which completely automates the calculation of take-off/landing
speeds and maximum payload values. The major benefits of COMRADTM include:
o accuracy and consistency of output
o timeliness/accessibility of information
o ease of use
All of these benefits result in the aircraft being able to transport the maximum
amount of payload, and therefore, generate the maximum yield for the flight.
To accelerate the growth of this market segment, in 1998 Support entered into a
long-term software licensing agreement with Operational Performance Systems
("OPS") of Lake Forest, CA, a provider of aircraft engine calculation software.
OPS has an extensive library of aircraft engine calculation software and has
agreed to allow Support to incorporate these into its COMRAD product on a
royalty basis.
V1 Plus(TM)
V1PLUS is an aircraft performance engineering subscription service that is
offered to airlines that do not maintain in-house engineering departments or
that wish to augment their existing in-house database.
The V1PLUS Manual provides the airline customer with customized take-off and
landing data specific to various aircraft/engine combinations, flap settings and
runways and is available 24 hours per day/7 days per week from Support's
Waterloo operations center. 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.
Weather Systems
With the establishment of the Company's Weather Services Division, the Company
began providing weather-related products and services to an established customer
base complimentary in nature to its existing products and customers. The
Company's weather-related products include high level winds and raw data feeds,
text weather systems, and NOTAMs.
The Company, through proprietary access to certain data circuits of the U.S.
National Weather Service, has become a primary provider of this data to foreign
governments, marine service companies and airlines. Additionally, the Company
has been able to differentiate itself by offering redundant sources and methods
of delivery, thereby assuring customers of the timely delivery of this critical
data.
<PAGE>
Text Weather Solutions
Weather data is available by querying one of the Company's mainframes in
Monterey or by licensing a distributed system which receives its data via
satellite. Additionally, the customer can use templates and timed messaging
utilities to automate the scheduling and delivery of critical flight
information.
NOTAMs
NOTAMs (Notice to Airmen) are notices published by each country's Civil Aviation
Authority ("CAA") to provide notice of restricted areas, meteorological changes,
runway conditions and other pertinent information required by a pilot for safe
flight.
The Weather Services Division processes, decodes and translates the data
transmissions from 80% of the CAAs around the world. The NOTAMs database can
then be queried by the airline customer to provide the relevant NOTAMs for the
origin, destination and alternate airports along the route of flight.
Customer Support Services
The Company offers comprehensive software support and customer account
management throughout the United States, Canada, Africa, and Europe which 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, including new systems functionality and ongoing enhancements, and
telephone hot-line support. Due to the 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 Company's customer support services are provided from its Waterloo,
Ontario and Monterey, California facilities, operating 24 hours per day, 7 days
per week.
Custom Programming Services
Design and programming services are provided to customers that require specific
custom solutions to their flight operations requirements. Fees are based on time
and material usage as determined through customer specifications and quotations.
The Company perceives that there is an increased demand in the commercial
aviation market for systems integration services which link the Company's
software with third party vendors' applications such as crew scheduling,
maintenance, flight following, and reservations. The Company also provides
consulting services to assist customers in optimizing the use of the product
functionality within their flight operations process.
MARKETING & SALES
The Company maintained its global marketing strategy throughout 1997 and 1998,
either through direct sales or through agency agreements. The intended target
markets were airlines seeking to internalize their flight operations function by
utilizing the Company's software and those of its existing customers seeking to
upgrade to AURORA. Additional emphasis has been placed on the formation of
markets for derivatives of the core product offering and the Company was
successful in licensing its technology to Techsult Eduplus Inc. based in
Montreal, Quebec for the creation of a simulator to be used in the training of
an airline's dispatchers.
To focus on increasing market share in the Company's defined niches, the Company
continued to focus its primary marketing effort in North America and has
achieved an order back-log of four months for its new products. The marketing
<PAGE>
and sales program, as managed by the Vice-President of Sales & Marketing, seeks
to present selected product and service options to current and potential
customers based on the Company's ability to provide a solution to fulfill a
defined business need in the flight operations department.
Although the full potential of the North American market has yet to be realized,
the Company believes that future operational results will depend in part on its
ability to increase sales in the international marketplace, specifically Europe,
South America, and Asia/Pacific. The Company's marketing plans, therefore,
include a strategy to supplement its current agency agreements with direct
marketing efforts, although such a strategy may result in increased expense
which could have a short-term adverse effect on the results of operations.
The Company will be employing local in-country agents to sell the Company's
products offshore. Additionally, through the development of a relationship with
The Republic Group, an Arlington, Virginia based international technology
marketing company, which has an established worldwide network of over 50
in-country agents around the globe, the Company has the opportunity to gain
direct access to various state-owned airlines.
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, relationships, underlying technology, product
architecture, and the financial stability of the vendor.
The Company competes or may compete directly or indirectly with i) development
by the major airlines' Information Technology ("IT") departments, ii) aviation
software vendors that may expand their product offerings by developing or
acquiring flight operations systems, and iii) independent companies that have
developed flight operations management solutions for commercial aviation.
A number of major airlines' have formed independent companies or divisions to
develop, market and install flight operations solutions. American Airlines
("AMR") created The Sabre Group Holdings, Inc. in June 1996 to consolidate AMR's
information technology solutions, including reservations and flight operations,
into a separate company. Sabre currently focuses on providing outsourcing to
AMR, Canadian Airlines, U.S. Airways and other customers. Other examples of
major airline IT spinoffs include British Airway's Speedwing Technologies and
Lufthansa's Informationstechnik & Software GMBH.
In addition to the major airlines direct involvement in the development and
marketing of systems and services, a number of commercial carriers are
utilizing, as partners, the large systems integrators, such as EDS, Unisys,
KPMG, Anderson, and IBM Global Transportation Group. The system integrators
promote complete end to end solutions through partnering with companies that
have expertise in each facet of an airlines' operation and then providing the
project management, integration and support services required by the airline.
The large aviation software vendors have a variety of backgrounds. Jeppesen,
recognized as the industry leader in the provision of aviation charts, has been
the dominant entrant in the provision of flight operations software and services
to the major airlines in North America. In Europe and Africa, SITA, which
started out as an aviation telecommunication organization, has branched out into
a number of airline automation services, including flight operations.
<PAGE>
The independent competitors to the Company tend to be relatively small firms
with customer bases of less than 100 air carriers and have not realized
significant gains in either sales or expanded product lines or consolidation
with competitors.
Many of the Company's competitors have greater financial, technical, marketing,
and other resources and a larger installed base of customers. In order to be
successful in the market, the Company must respond quickly and effectively to
changes in customer requirements.
RESEARCH AND DEVELOPMENT
The Company invested significant resources during fiscal 1997 and fiscal 1998 to
develop new software functionality and to enhance its existing software.
Research and development expenses were approximately $99,494 and $77,445 for the
years ending October 31, 1997 and 1998, respectively. See Item 6 hereof.
The Company completed the commercial product release of its Aurora system in
March, 1998 following beta testing at its launch customer, Southern Air
Transport.
The research and development plans for the Year 2000 are based on a study of the
customer requirements. The key results are as follows:
- - The requirement to introduce new subject matter expertise to lead the
design and development of new functional requirements.
- - The adoption of a new design modeling framework to aid in rapid prototyping
and testing of new technologies.
- - A detailed product strategy plan and resultant research and development
statement of work to achieve the goals of the plan. Some of these
activities will include the integration of runway analysis, increased text
weather capabilities, and overflight billing.
- - Other activities are focused on the completion of the Company's integration
project at its Monterey operation.
<PAGE>
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 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 that
of the Company. 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
As of September 30, 1999, the Company had a total of 67 employees including 29
in operations and account management, 21 in research and product development, 4
in sales and marketing, and 13 in management, finance and administration. None
of the Company's employees are 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. Competition for such
personnel is intense, and 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>
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains offices in the following locations.
Roslyn Heights, New York
Compuflight leases approximately 1090 square feet of office space at 125 Mineola
Avenue, Roslyn Heights, New York. Concurrent with the move of the Company's
executive offices from Port Washington to Roslyn Heights on July 1, 1998, the
remaining operational functions in New York were shifted to Monterey, California
and Waterloo, Ontario. The monthly rent expense as of September 30, 1999 is
approximately $3,000 per month and the lease terminates on December 31, 1999 at
which time the executive offices will be transferred to the Monterey, California
offices.
Until June, 1998, Compuflight leased approximately 2,700 square feet of office
space at 99 Seaview Boulevard, Port Washington, New York, for its executive
offices. The monthly rent expense as of June 1, 1998 was $4,499 per month.
Monterey, California
Effective as of July 31, 1998, Compuflight subleased approximately 5,400 square
feet of office space at 2400 Garden Road, Monterey, California for the
establishment of the Company's Weather Services Division. The monthly rent
expense as of September 30, 1999 was $6,150. The main tenant's lease expires
December 31, 2001.
Waterloo, Ontario
Support leases approximately 9,300 square feet of office space at 175 Columbia
Street West, Waterloo, Ontario, which is used for flight operations, software
development, customer support, and administration. This lease became effective
November 1, 1996 and terminates October 31, 2006. The monthly rent expense,
inclusive of common area rent, is approximately CDN $14,100 as of September 30,
1999. The lease calls for additional increases on each anniversary.
Ottawa, Ontario
Support's leased premises in Ottawa, Ontario function as the corporate offices
for the Company. Until September 1, 1998, the space encompassed approximately
1,000 square feet at 50 O'Connor Street, Ottawa, Ontario with a monthly rent
expense, inclusive of common area rent, of CDN $1,400 per month.
As of September 1, 1998, Support's office was relocated to 275 Slater Street,
Ottawa, Ontario. The sublease for approximately 1,000 square feet expires on
September 30, 2000, and the monthly rent expense as of September 30, 1999 was
approximately CDN $1,790.
The Company's total rent expenses were approximately $149,000 for the years
ending October 31, 1996 and 1997, respectively. The Company believes that its
facilities are adequate for its current needs and that suitable additional space
will be available as required.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
<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, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the NASD OTC Electronic Bulletin under
the symbol "CMFL". The high and low bid prices of the common stock, as furnished
by the National Quotation Bureau, Incorporated, are shown for the fiscal periods
indicated. Such prices represent prices between dealers which, do not include
retail markup, markdown or commission and do not represent actual transactions.
<PAGE>
Fiscal Year Ended Bid Price
October 31, 1997 High Low
- ----------------- ---- ---
First Quarter $ 1/2 $ 3/8
Second Quarter 13/32 3/8
Third Quarter 3/8 1/4
Fourth Quarter 2/3 5/16
Fiscal Year Ended
October 31, 1996 High Low
- ------------------ ---- ---
First Quarter $ 5/8 $5/8
Second Quarter 1 1/2
Third Quarter 1/2 1/2
Fourth Quarter 1/2 1/2
<PAGE>
(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
September 30, 1999 was 826.
(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.
<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 statements of operations for the
years indicated:
Percentage of Total Revenue
Year ended October 31,
1997 1996
--------------------------------
Revenue
Service fees 96% 86%
Hardware sales and software licenses
sales 4 14
--------------- --------------
Total revenue 100 100
--------------- --------------
Costs and expenses
Operating 86 57
Research and development, net 1 3
Selling, general and administrative 55 32
Allowance for reduction in SR&ED credits 11 -
Restructuring costs 3
Office relocation costs 2
Depreciation and amortization 6 4
--------------- --------------
Total operating expenses 164 96
-------------- --------------
Income (Loss) from operations (64) 4
Other (expense) income (1) -
--------------- --------------
Net (loss) earnings (65)% 4%
=============== ==============
REVENUE
The Company's revenue is derived from two major sources: (i) service fees for
the provision of flight planning services, runway analysis services, and ongoing
customer support and (ii) sales of hardware and software license sales. Revenue
from license fees is recognized at the later of delivery of the software master
copy 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. 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 decreased approximately $784,000, or approximately 22%, from
approximately $3.6 million in 1996 to approximately $2.8 million in 1997.
<PAGE>
Geographic Analysis
Total Revenue (in $'000) % of Total Revenue
------------------------------------ -------------------------------
For the year ended October 31,
--------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
United State $ 2,052 $ 2,970 73% 83%
Canada 524 369 19% 10%
Other jurisdictions 214 236 8% 7%
------- -------- ---- ----
$ 2,790 $ 3,575 100% 100%
======= ======= ==== ====
The Company's products and services are used by airline carriers primarily in
the United States and Canada, although its customers are also located in Europe,
Mexico, Africa, and South America (see Recent Developments - Acquisition of
Skyplan Services (UK) Limited). In fiscal 1997, the Company derived
approximately $2.1 million from sales in the United States as compared to
approximately $3.0 million in fiscal 1996. This decrease is due primarily to the
inclusion in fiscal 1996 of a one-time settlement from Harris Corporation
("Harris") related to a software development contract in a prior year, for which
the Company had not previously included any income as the ultimate settlement
was not measurable. Sales in Canada accounted for approximately $524,000 in
fiscal 1997 as compared to approximately $369,000 in fiscal 1996. This increase
is due primarily to an increase in Canadian customer billings and customer base.
Sales in other jurisdictions amounted to approximately $214,000 in fiscal 1997
as compared to approximately $236,000 in fiscal 1996, which represents a
decrease of approximately $22,000, or approximately 9%. This decrease is due
primarily to the loss of one customer.
Service Fees
Revenue from service fees was approximately $2.7 million in 1997 compared with
approximately $3.1 million in 1996, a decrease of 13% or approximately $413,000.
The decrease is primarily attributable to the termination of a contract with a
large airline customer in June 1996, resulting in a decline of approximately
$77,000. Subsequent to July 1997, a new software development agreement was
signed with the aforementioned airline. Furthermore, revenue for the year ended
October 31, 1996 included approximately $106,000 from a teaming arrangement with
a U.S. systems integrator which was completed in 1996. Also, approximately
$136,000 was lost due to the bankruptcies of three airline customers and
approximately $368,000 of the decline was attributable to the loss of two larger
service bureau customers. Increases were realized from revenue from a contract
with the United States Postal Service totaling approximately $61,000, as well as
from a net increase in billings of approximately $213,000 from existing and new
customers.
Hardware Sales and SoftwareLicenses/Sales
Revenue from hardware sales and software license sales decreased approximately
$371,000, or approximately 75%, from approximately $497,000 in 1996 to
approximately $125,000 in 1997. This decrease is primarily attributable to the
inclusion of the Harris settlement of $450,000 in fiscal 1996 and is offset by
licenses of both the Company's COMRAD and AURORA product of approximately
$79,000.
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 operating expenses are the communication costs associated with the
provision of in-house flight planning services and customer support.
<PAGE>
Operating expenses were approximately $2.4 million in 1997 compared with
approximately $2.0 million in 1996, an increase of approximately $374,000, or
approximately 19%. This increase is primarily attributable to an increase in
salaries and benefits of approximately $370,000 from the addition of several
senior staff in sales, as well as additional operations and support staff.
Furthermore, a decrease in computer maintenance and lease costs of approximately
$31,000, a decrease in communications charges of approximately $25,000, an
increase in rent costs of approximately $50,000 and an increase in subcontractor
charges of approximately $16,000 added to the overall increase in operating
expenses. There was a decline in other operating expenses of $6,000.
Research and Development Expenses
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 recognized at 20% when
such taxes become payable. These refundable tax credits are netted against gross
research and development expenses for financial statement purposes.
Net research and development expenses decreased from approximately $122,000 in
1996 to approximately $35,000 in 1997, representing a decrease of approximately
$87,000, or approximately 71%. The Company's research and development team had
completed the majority of its work on the new AURORA program during the last
quarter of fiscal 1996 and the first quarter of fiscal 1997. Accordingly, this
resulted in a decline in research and development expenses during 1997. The
Company has claimed scientific research and experimental development investment
tax credits of approximately $64,000 for the year ended October 31, 1997 as
compared to a claim of approximately $290,000 for the same period in 1996.
The Company recorded an allowance for the assessed reduction of its Investment
Tax Credits. These reductions are as a result of the technical audit performed
by Revenue Canada and the Company has filed a Notice of Objection to these
assessments. No assurance can be given as to the Company's ultimate success with
respect to the Notice of Objection.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased by approximately
$375,000, or approximately 32%, from approximately $1.2 million in 1996 to
approximately $1.5 million in 1997. This increase can be attributed primarily to
increases in bad debt expense of approximately $38,000 and in consulting fees of
approximately $539,000. The increase in consulting fees is directly attributable
to the write down of the note receivable due from a former Chairman of the
Company. The note was being reduced on a monthly basis by payments due under a
consulting agreement between the former Chairman and the Company. Based on an
evaluation by the Company that it no longer derives any benefit from the
consulting agreement, it has offset the required future contractual payments
against the note in its entirety. The note had previously been included as a
component of equity.
The Company recorded declines in several expense items, which served to offset
the increases noted above. Specifically, professional fees decreased
approximately $48,000, travel decreased approximately $52,000, shareholder
relations costs decreased approximately $29,000 and net other selling, general
and administrative expenses decreased approximately $73,000. Both professional
fees and shareholder relations costs in 1996 reflected the additional costs
incurred to remedy the Company's delinquent filings.
<PAGE>
Restructuring Costs
The Company has segregated costs related to its restructuring plan, which
commenced in February 1997. The plan was initiated to consolidate the Company's
operations in the Port Washington and Waterloo offices, including the transfer
of the aircraft performance engineering software development effort. As a result
of these activities, both staff levels and related operating costs have been
reduced at the New York facility.
Office Relocation Costs
The Company has segregated office relocation expenses related to the move of its
operations and administrative center to premises in Waterloo, Canada. These
costs include, among other items, the cost of contract management for the
construction phase and the successful transfer of the Company's communications
and computer system.
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 increased approximately $18,000, or 20%, from approximately
$87,000 in 1996 to approximately $105,000 in 1997 due to continued deferrals on
debt payments and from penalties related to late remittances with Revenue
Canada.
NET EARNINGS
The financial statements reflect a net loss of $1.9 million for fiscal 1997, as
compared to net earnings of $149,666 for fiscal 1996. This represents a decline
of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, the Company financed a significant part of its operations by
negotiating a fixed term bank loan for the purchase of specific
operation-critical fixed assets as well as a revolving line of credit with the
same bank. In addition, the Company's lease at its new facility in Waterloo,
Ontario provided for the landlord to install leasehold improvements at no
additional cost.
As of October 31, 1997, the Company had a working capital deficiency of
$1,039,201. The financial position of the Company has improved subsequent to the
year ended October 31, 1997, primarily as a result of the partial collection of
the Company's investment tax credits in the fourth quarter of 1998 and the
second quarter of 1999. In addition, the Company has issued three AURORA
licenses since the year ended October 31, 1997. These items are more fully
disclosed in the Form 10-QSB for the particular quarter.
Cash flows from operations amounted to a net outflow of $221,574 in 1997 as
compared to a net inflow of $104,361 in 1996. This outflow is primarily due to
the impact of the net loss for the year, which in turn was offset by the write
off of the note receivable from the Company's former Chairman. Lastly, the
Company continued to defer payables whenever possible. Cash flows from investing
activities amounted to a net outflow of approximately $123,000 as compared to a
net outflow of approximately $10,000 in 1996. The change is primarily
attributable to the purchase of fixed assets, less the proceeds from lease
<PAGE>
inducements received by the Company. Cash flows from financing activities
amounted to a net outflow of approximately $155,000 in 1996, as compared to a
net inflow of approximately $293,000 in 1997. This inflow is attributable
primarily to the receipt of proceeds from a fixed term bank loan by Support for
the purchase of specific fixed assets, as well as proceeds from bank revolving
demand loans. As a result of these activities and the resulting effect of
foreign currency transactions, the Company recorded a net cash outflow of
$37,362 in 1997 as compared to a net cash outflow of $60,550 in 1996.
As of October 31, 1997, the Company had no significant capital commitments.
Reference is made to Item 1 hereof for a discussion of the Company's October 1,
1999 acquisition of all of the shares of Skyplan Services (UK) Limited. The
Company may, from time to time, consider additional acquisitions of
complementary businesses, products or technologies.
The Company's bank indebtedness, after offsetting the restricted cash held as
security against the loans, as of October 31, 1997, was $113,611.
<PAGE>
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-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, 1997, no
dividends had been paid or declared on these shares.
Employment and Consulting Agreements
Reference is made to Note I-2 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.
Effective August 25, 1999, the Company entered into a retirement agreement with
its current Chairman, Russell K. Thal. This agreement replaces a previous
employment agreement, as amended, and calls for the payment, among other things,
of $600,000 in 96 semimonthly payments commencing shortly after Mr. Thal's
retirement on October 31, 1999. Mr. Thal will continue on as Chairman without
additional compensation (other than standard fees, if any, paid to outside
directors). See Item 12 hereof.
PLAN OF OPERATION
The Company's Plan of Operation is discussed in its Form 10-KSB for the year
ended October 31, 1998 and Form 10-QSB for the period ended July 31, 1999, which
are being filed concurrently with this Form 10-KSB.
YEAR 2000 COMPLIANCE
In 1998, the Company implemented a Year 2000 Project Management Plan in which
the Company adopted a phased-in approach in preparing its internal operations
for the Year 2000 date change. These phases are identified as follows: Awareness
and Strategy Phase - the process of defining project objectives and methodology
while setting key milestones; Inventory Assessment and Business Impact Phase the
process of taking inventory of all core business processes and assessing
business and customer risks associated with non compliance; Renovation and
Conversion Phase - the process of systematically diagnosing and replacing known
systems identified to have Year 2000 date issues; Validation Phase - the process
of testing replaced systems and ensuring compliance and the Implementation Phase
- - the process of executing and monitoring action plans and contingency planning.
The Company's operations were segregated into six core systems areas as follows:
Commercial Software Systems, Financial Systems, Facilities and Operations,
Information Systems, Data Exchange and Communications Interchange. Within each
business process, categorizations of high, medium and low priorities were
assigned to each inventoried item covering all facets of operations including
hardware and software systems through to power generators and security systems.
The Company has been addressing the non IT areas of the business. Specific areas
identified as having high priority to the continued day-to-day operation of the
Company include electrical power and other utilities. It was determined that
should such vendors suffer a business interruption from the Year 2000 date
change, that could also cause the Company to suffer a business interruption. The
Company has asked these vendors to certify the year 2000 readiness of the
products and/or services they supply, as well as their own internal compliance
programs. The majority of the vendors have furnished such certification. Those
remaining vendors with a product or service determined not to be compliant or
too cost excessive for replacement were isolated and alternative solutions
implemented.
<PAGE>
As part of the Year 2000 Project Management Plan the Company has also addressed
third-party telecommunications vendors. The Company's business is dependent on
the ability to transmit data via telecommunication service providers, including
AT&T, SITA, ARINC and MCI Worldcom. Some or all of these service providers may
rely on other communication service providers who may have insufficient
resources to address Year 2000 compliance. A failure within any part of the
telecommunications network could disrupt the Company's ability to provide
services to its customers and depending on the severity of the interruption, it
could have a material adverse effect on the Company's business and results of
operations. The Company has asked the four above-named vendors to certify the
Year 2000 readiness of the products and/or services they supply, as well as
their own internal compliance programs, and has received certification from all
of them. The Company does not anticipate the Year 2000 problems that could be
encountered to be materially different from those of its competitors.
The Company has substantially completed Year 2000 readiness preparations as of
the end of September 1999. The remaining work to be completed includes the
testing of Data Exchange and Communications Interchange systems which have been
scheduled for completion by October 31, 1999. Extensive testing has and will
continue throughout 1999. The status of the Company's readiness efforts is as
follows across the six core business processes: Commercial Software
Systems-remediation complete with ongoing assessment and testing; Financial
Systems-complete; Facilities and Operations-complete; Information
Systems-substantially complete, with minor testing scheduled to be completed by
November 15; Data Exchange-substantially complete, with minor systems testing
scheduled to be completed by October 31; Communications
Interchange-substantially complete, with minor re-testing scheduled to be
completed by November 15.
Risks of Year 2000 Non Compliance
The Company has designed and tested the most current versions of its Commercial
Software and confirmed them to be Year 2000 compliant. However, there can be no
assurances that the Company's current customer systems, internal systems and
third party systems do not contain undetected Year 2000 defects. The most
reasonably likely worst case scenario is that such a defect would include the
partial failure of a system that is of mission-critical importance to the
Company. Such a scenario could expose the Company to litigation that could have
a material adverse impact on the Company.
Costs of Year 2000 Project
The Company expects to incur hardware, software and labour costs, as well as
other related expense, in its Year 2000 Project. The Company's total estimated
cost of the project is approximately $300,000, of which approximately $240,000
was incurred as of September 30, 1999. Costs of the Year 2000 Project will be
expensed as incurred and will be paid from operating cash flows.
Contingency Planning
From the onset of the original Project Management Plan, and to the extent
practical, contingency plans have been developed to address failures caused by
the Year 2000 date change. Contingency planning will address a variety of issues
including access to alternative third party vendors for any services, software,
and hardware systems. The Company has already begun addressing potential and
expected effects of the Year 2000 date change, such as planning for increased
customer support in December 1999 and early January 2000, with significant
resources scheduled for the cross-over period. The plans also include
calculating flight plans and processes manually .The contingency planning will
continue to be refined until the transition has been completed.
<PAGE>
The aviation industry may be adversely affected by risks associated with Year
2000. The Company's business and results of operations could be materially
adversely affected if internal or third-party data, software and hardware
products are not Year 2000 compliant in time. There can be no assurances that
the Company will not experience serious unanticipated negative consequences by
undetected Year 2000 defects in its internal systems, including third party
provided data, software or hardware products.
Although the Company is not aware of any claims against the Company related to
Year 2000 compliance, the Company may be subjected to litigation. Such
litigation, depending on the outcome, could have a material adverse effect on
the Company.
<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>
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
<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 September 30, 1999:
Executive Officers and Directors
============================= --------- ========================================
Age Positions and Offices Presently Held
Name with the Company and Support
============================= --------- ========================================
Russell K. Thal 65 Chairman of the Board, Executive Vice
President and Director
============================= --------- ========================================
Duncan Macdonald 40 Chief Executive Officer
============================= --------- ========================================
Derek Dawson 30 Chief Operating Officer
============================= --------- ========================================
Dorothy A. English 56 Executive Vice President & Director of
the Company, Managing Director of
Support
============================= --------- ========================================
Denis L. Metherell 65 Secretary and Director
============================= --------- ========================================
Rainer Vietze 33 Chief Financial Officer
============================= --------- ========================================
Kenneth M. Snyder 51 Director
============================= --------- ========================================
Significant Employees
============================= --------- ========================================
Positions and Offices Presently Held
with the Company and Support
Name Age
============================= --------- ========================================
William Bowra 38 Vice President - Sales and Marketing
============================= --------- ========================================
Robert Sosnowski 34 Vice President, Chief Technology Officer
============================= --------- ========================================
<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 (see Item 12 hereof).
Duncan Macdonald has served as Chief Executive Officer of the Company since
March 1996 and served as Chief Financial Officer of the Company from July 1995
to January 1999 (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 Kintyre & Company, Inc., a management consulting firm based
in Ottawa, Ontario.
Derek Dawson has served as the Vice President - Operations since September
1997 and was appointed Chief Operating Officer in January 1999. From 1995 to
1997, Mr. Dawson served as Manager for Corporate Development for a large
industrial contracting firm. From 1991 to 1995, Mr. Dawson was an air navigator
with the Canadian Air Force involved in strategic and tactical airlifts as well
as training duties.
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 the
Company's wholly-owned subsidiary, Navtech Systems Support Inc. ("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.
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., which leases computers to Support (see Item 12 hereof).
From 1976 to 1992, Mr. Metherell served as a technical consultant to Northwest
Airlines.
Rainer Vietze, MTax, C.A., C.P.A. joined the Company in November 1995 as
the Director of Finance. He was appointed as Chief Financial Officer in January
1999. Prior to joining the Company, Mr. Vietze worked as a manager for Grant
Thornton Chartered Accountants for the period from 1990 to 1995.
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. 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.
<PAGE>
William Bowra has served as Vice President of Sales and Marketing for
Support since March 1996. Furthermore, he served as Vice President of Business
Development and Chief Operating Officer of the Company from October 1996 to
January 1999. From 1993 to 1996, Mr. Bowra served as the Regional Sales Manager
for AT&T Canada, a Canadian telecommunications service provider. From 1988 to
1993, Mr. Bowra served as a Corporate Account Manager for AT&T/NCR.
Robert Sosnowski has served as Vice President and Chief Technology Officer
since January 1999. Prior to that he 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.
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, 1997, all
Section 16(a) filing requirements applicable to the Company's officers,
Directors and 10% stockholders were complied with.
<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, 1997
who had a total salary and bonus for such year in excess of $100,000 as well as
Duncan Macdonald, the Chief Executive Officer of the Company during the fiscal
year ended October 31, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------
Awards Payouts
==========================================================================================================
Common
Name and Restricted Stock
Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- --------------- ----- ----------- --------- -------------- ------------ ----------- --------- =============
Duncan
Macdonald, 1997 -0- -0- $118,826(1) -0- -0- -0- -0-
Chief 1996 -0- -0- $106,359(1) -0- -0- -0- -0-
Executive 1995 -0- -0- $ 95,316(1) -0- 200,000 -0- -0-
Officer
- --------------- ----- ----------- --------- -------------- ------------ ----------- --------- =============
Russell K. 1997 $139,526 -0- $ 14,800(2)(3) -0- -0- -0- -0-
Thal, 1996 $135,863 -0- $ 14,800(2)(3) -0- -0- -0- -0-
Chairman 1995 $128,808 -0- $ 14,800(2)(3) -0- -0- -0- -0-
=============== ===== =========== ========= ============== ============ =========== ========= =============
</TABLE>
(1) Represents amounts paid as an independent advisor to the Company. See
Item 12 hereof.
(2) Includes $12,000 paid by the Company as an automobile allowance.
(3) Includes $2,800 paid by the Company as an allowance for the purchase
of disability insurance.
(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, 1997 to
the persons named in Item 10(a) hereof:
<TABLE>
<S> <C> <C> <C> <C>
==========================================================================================================
Shares of Percent of
Common Stock Total Options
Underlying Granted to Exercise
Options Employees in Price/ Expiration
Name Granted Fiscal Year Share Date
- ----------------------------------------------------------------------------------------------------------
Duncan Macdonald -0- -0- N/A N/A
- ----------------------------------------------------------------------------------------------------------
Russell K. Thal -0- -0- N/A N/A
==========================================================================================================
</TABLE>
<PAGE>
<TABLE>
(c) Fiscal Year-End Option Value Table
The following table sets forth certain information concerning the value as
of October 31, 1997 of unexercised options held by the persons named in Item
10(a) hereof:
<S> <C> <C>
=======================================================================================================
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
October 31, 1997 at October 31, 1997
- -------------------------------------------------------------------------------------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------
Duncan Macdonald 200,000/-0- -0-/-0-
- -------------------------------------------------------------------------------------------------------
Russell K. Thal 75,938/-0- -0-/-0-
============================= ================================== ======================================
</TABLE>
No options were exercised by any of the named persons during the fiscal year
ended October 31, 1997.
(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.
(e) Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
See Item 12 hereof for a discussion of a certain Key Advisor Agreement
between Support and Mr. Macdonald.
Mr. Thal was employed by the Company pursuant to an employment
agreement, as amended, (the "Employment Agreement"), which expired on July 31,
1999 (the "Expiration Date") and provided for a minimum annual salary of
$125,000 effective December 1, 1993, with annual cost of living increases.
Effective August 25, 1999, the Company entered into a retirement agreement (the
"Retirement Agreement") with Mr. Thal. The Retirement Agreement replaces the
Employment Agreement and calls for, among other things, the continued employment
of Mr. Thal at the then existing salary rate until Mr. Thal's retirement date of
October 31, 1999. In addition, the Company has committed itself to the payment
of $600,000 in 96 semimonthly payments commencing after Mr. Thal's retirement.
Mr. Thal will continue as Chairman without compensation (other than standard
fees, if any, paid to outside directors) upon his retirement.
Pursuant to the Retirement Agreement, the Company also agreed to reimburse Mr.
Thal for expenses incurred in the amount of $60,594 (payable over the period
August 1999 to May 2000) and obtain a declining balance life insurance policy on
Mr. Thal commencing with coverage of $600,000 and declining at the rate of
$150,000 per year. Any proceeds received will be used by the Company to prepay
to Mr. Thal's estate any remaining portion of the $600,000 due. All amounts due
by the Company are evidenced by promissory notes that contain acceleration
provisions in the event of, among other things, a default in payment.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The total number of shares of Common Stock outstanding as of September
30, 1999 was 2,001,980. 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 Common Stock
beneficially owned as of September 30, 1999 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 the Summary Compensation Table above, and (iv) all of the
Company's present executive officers and Directors as a group:
<TABLE>
<S> <C> <C>
==========================================================================================================
Approximate
Name and Address of Beneficial Number of Shares Beneficially Owned Percentage of
Owner Outstanding Shares
- ----------------------------------------------------------------------------------------------------------
Dorothy A. English 1,007,766(1)(2) 50.3%
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Navtech Applied Research Inc.
175 Columbia Street West 802,766(2)(3) 40.1%
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Kenneth M. Snyder 350,000(4) 14.9%
207 Pittman Place
Carson City, Nevada
- ----------------------------------------------------------------------------------------------------------
Innovation Ontario 125,000 6.2%
Corporation
56 Wellesley Street West
Toronto, Ontario, Canada
- ----------------------------------------------------------------------------------------------------------
Russell K. Thal 93,813(5) 4.5%
125 Mineola Avenue
Roslyn Heights, NY
- ----------------------------------------------------------------------------------------------------------
Denis L. Metherell 6,000 *
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Duncan Macdonald - (6) *
275 Slater Street, Suite 2002
Ottawa, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
All executive officers and 1,457,579(1)(4)(5) 60.0%
Directors as a group (7 persons)
==========================================================================================================
*Less than 1%
</TABLE>
(1) Represents 802,766 shares beneficially owned by Navtech Applied Research
Inc. ("NARI") (see footnote (3) below) and 205,000 shares beneficially
owned by Ms. English.
(2) Such persons may be deemed parents of the Company.
(3) Represents shares beneficially owned by NARI, of which, the Company has
been advised, Ms. English is the Chairman, Chief Executive Officer and sole
stockholder. Furthermore, the Company has been advised that these shares
have been pledged to Raymond English as collateral for certain amounts due
to Mr. English under an agreement between Mr. English and NARI. NARI has
maintained voting control over these shares (see Item 12 hereof).
(4) Represents shares issuable upon exercise of options that are currently
exercisable.
(5) 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.
(6) Mr. Macdonald has voluntarily agreed not to exercise his 200,000 currently
exercisable options until such time as the authorized share capital of the
Company has been sufficiently increased.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTIES
1. Navtech Applied Research Inc.
General
Ray English and Associates Inc. ("RE&A") was a corporation incorporated in
Ontario, Canada. Until July 15, 1995, RE&A was controlled by Raymond English, a
former Chairman of the Company. As of that date, pursuant to a share transfer
agreement, the ownership of RE&A was transferred to Mr. English's former spouse,
Dorothy A. English. Dorothy A. English is an Executive Vice President and
Director of the Company. As of July 2, 1998, RE&A was merged with Navtech
Applied Research Inc. ("NARI") and continued operations under the latter name.
NARI was incorporated in Ontario, Canada, on December 31, 1997 and during all
material times has been wholly owned by Dorothy A. English, who serves as its
Chairman and Chief Executive Officer.
References to RE&A below will pertain strictly to the Company as it existed
prior to the merger with NARI.
Share Ownership
NARI owns 802,766 shares of the Common Stock of the Company. On or about July
15, 1995, RE&A had transferred all of its Common Stock of the Company to Dorothy
A. English, as voting trustee pursuant to a voting trust agreement between them.
When control of RE&A was transferred to Dorothy A. English, and RE&A and NARI
had been merged, the voting trust was terminated and the share certificates
returned to NARI. At that time, the shares were placed in escrow as security for
amounts owed by NARI to Mr. English and payable under the share transfer
agreement.
RE&A/Support Transactions
In 1993, Support charged RE&A, its then parent company, a management, consulting
and marketing fee in connection with the management of certain software owned by
EAS, formerly a subsidiary of RE&A. Support also advanced funds to RE&A in order
to assist RE&A in meeting its continuing obligations. Effective July 15, 1995,
RE&A executed and delivered to Support a promissory note in the principal amount
of CDN $750,000 (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.
Effective with the merger, NARI, by operation of law, assumed the obligations
represented by the RE&A Note.
Further, pursuant to a consulting and marketing agreement between RE&A and
Support, RE&A agreed to provide software marketing services to the Company.
Support had the right to offset CDN $3,500 per month against compensation
otherwise payable to RE&A thereunder as payment of amounts due under the RE&A
Note. Effective July 15, 1998, this agreement was terminated by NARI and
Support.
<PAGE>
2. Global Weather Dynamics, Inc.
On or about February 18, 1998, NARI entered into an agreement with Global
Weather Dynamics, Inc. ("GWDI") to purchase all of the assets of the GWDI's
Weather Services Division ("WSD") for a consideration consisting of $250,000 in
cash, the delivery of 250,000 shares of the Common Stock of the Company to GWDI
and the delivery of 50,000 shares of the Common Stock of the Company to an
unrelated third party involved in brokering the deal. The agreement was
consummated on July 15, 1998.
The primary assets acquired included the weather and NOTAMs software that had
been developed by GWDI. Also, pursuant to the agreement, NARI obtained an
assignment of the WSD contracts.
Following the acquisition by NARI of WSD, NARI and Compuflight entered into a
non-exclusive, non-transferable software license agreement (the "license
agreement") for a term commencing August 1, 1998 and expiring initially on
October 31, 1999. Pursuant to which Compuflight has been granted the right to
install, configure, modify and use the software acquired by NARI in
Compuflight's business. Pursuant to the license agreement, the term
automatically renews for additional one year periods unless either party gives
at least 60 days prior written notice of it's desire not to renew. Since no
notice was given at least 60 days prior to October 31, 1999, the current term of
the license agreement has been extended to October 31, 2000. In addition,
pursuant to the license agreement Compuflight is obligated to pay royalties in
an amount equal to 10% of certain revenues derived from the sale of data
processed using the licensed software. Concurrently, with the execution of the
license agreement, NARI also signed to Compuflight the rights it had obtained
from GWDI with respect to the WSD customer contracts.
In order to effect NARI's acquisition of WSD certain transactions were
undertaken between the Company and NARI to provide the necessary financing as
follows:
i. NARI purchased 300,000 shares of the Common Stock of the Company in return
for cash consideration of $300 and the delivery of a promissory note in the
amount of $134,700, payable in 36 monthly installments and bearing an
interest rate of 10% per annum. The note provides that payments are to be
made by offsetting royalties due under the Licensing Agreement.
ii. Compuflight borrowed $210,000 from a Canadian financial institution, which
loan is repayable over a 28 month term bearing interest at a rate of 9.18%
per month. Dorothy A. English was required to personally guarantee the
payment of this loan.
iii. The proceeds from the loan were transferred to Support which, in turn,
loaned $150,000 to NARI. This loan bears interest commencing November 1,
1998 at a rate of 10% per annum and repayable in 36 monthly installments
commencing November 1, 1999.
iv. Subsequent to October 31, 1998, the Company advanced an additional $100,000
to NARI.
The weather and NOTAMs software acquired by NARI and licensed to the Company was
of critical importance to the Company in order for it to maintain a competative
advantage in the delivery of its products to the marketplace. The Company had
determined that the internal development of this solftware wold require at least
10 man-years to complete at a cost estimated to be in excess of $700,000.
Furthermore, the Company was paying a third party weather supplier approximately
$4,000 per month for information it had determined was below the standards
required by the Company's customers.
<PAGE>
3. Russell K. Thal
Reference is made to Item 10(O) hereof.
4. AVCON Associates Inc. ("AVCON")
AVCON, an entity of which Denis L. Metherell, Secretary and a Director of the
Company, is a Vice President and a Director, leased certain computer equipment
to Support. Effective January 31, 1996, the leases were terminated. On October
1, 1996, the Company entered into two new lease agreements for certain computer
equipment. These agreements were replaced on June 1, 1999 with amended lease
agreements. Under the present agreements, the Company is required to make
varying payments until November 2004. The Company believes that the lease
payments, which commenced July 1999 at $1,952 Canadian per month, are no higher
than would be payable to a nonaffiliated third party.
On October 31, 1996, the Company executed and delivered to AVCON a promissory
note in the principal amount of $53,000 Canadian (the "AVCON Note") to evidence
amounts due under the terminated lease agreement noted above and outstanding as
of such date. On June 1, 1999, the Company amended the note (the "Amended AVCON
Note") to include additional arrears that had accumulated on the two leases. The
Amended AVCON Note is in the principle amount of $90,000 Canadian and is payable
on May 1, 2005 or sooner and provides for payments as follow:
(i) interest of $1,350 Canadian only from July 1999 to September 2000;
(ii) interest and principal of $2,400 Canadian from October 2000 to April 2005;
and,
(iii)a residual payment of principal and interest of $1,263 during May 2005.
5. Duncan Macdonald
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, as amended in
January 1997, Mr. Macdonald is entitled to receive a base weekly fee of $3,000
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 has waived his entitlement to the bonus amounts
related to each of the fiscal quarters of 1997. The Macdonald Key Advisor
Agreement expired in 1998 and has not been replaced. Mr. Macdonald continues to
serve as Chief Executive Officer. Effective January 1, 1999, the base weekly fee
has been paid to a company controlled by Mr. Macdonald, again without the
benefit of an agreement.
<PAGE>
ITEM 13. EXHIBITS, LIST 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)
10(A)Employment Agreement dated as of December 1, 1993 between the
Company and Russell K. Thal (3) Amendment #1 thereto dated March
14, 1996 (1), and amendment thereto dated January 8, 1997 (4)
10(B) Incentive Stock Option Plan (2)
10(C) Non-Qualified Stock Option Plan (5)
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 (6)
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 (6)
10(F)Lease dated October 8, 1996 between Ferdi Investments Company
Limited and Navtech Systems Support Inc. with respect to
Waterloo, Ontario premises (4)
10(G) 1995 Key Employees and Advisors Stock Option Plan as amended (1)
10(H)Consulting and Marketing Agreement dated as of January 1, 1995
between Navtech Systems Support Inc. and Ray English and
Associates Inc. (1)
10(I)Promissory Note dated as of July 15, 1995 payable by Ray English
and Associates Inc. to Navtech Systems Support, Inc., in the
principal amount of $750,000 (1)
10(J)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 (7)
10(K)Key Advisor Agreement dated as of October 1, 1995 between
Compuflight, Inc. and Kenneth M. Snyder (1)
10(L)Amended and Restated Stock Option Agreement dated as of August
9, 1995 between Compuflight, Inc. and Kenneth M. Snyder (1)
10(M)Stock Option Agreement dated as of August 9, 1995 between
Compuflight, Inc. and Duncan Macdonald (1)
10(N)Key Advisor Agreement dated as of June 1, 1996 between Navtech
Systems Support Inc. and Duncan Macdonald (7)
10(O)Retirement Agreement dated as of August 5, 1998, between Russell
K. Thal and Compuflight, Inc.
10(P)Promissory Note dated as of August 5, 1999 payable by
Compuflight, Inc., to the order of Russell K. Thal in the
principal amount of $600,000.
10(Q)Promissory Note dated as of August 5, 1999 payable by
Compuflight, Inc., to the order of Russell K. Thal in the
principal amount of $60,594.
10(R)Sale Purchase Agreement dated as of October 1, 1999 between
Navtech Systems Support, Inc., and Skyplan Services Limited for
the shares of Skyplan Services (UK) Limited.
10(S)Forbearance and Continued Service Agreement dated as of October
1, 1999 between Navtech Systems Support and Skyplan Services
Limited.
10(T)Software License Agreement dated as of August 1, 1998 between
Navtech Applied Research, Inc. and Compuflight, Inc.
10(U)Promissory Note dated as of July 15, 1998 payable by Navtech
Applied Research, Inc., to the order of Compuflight, Inc., in the
principal amount of $134, 700.
10(V)Promissory Note dated as of July 15, 1998 payable by Navtech
Applied Research, Inc., to the order of Compuflight, Inc., in the
principal amount of $150,000.
21 Subsidiaries(3)
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 Annual Report on Form 10-KSB for the fiscal year ended October
31, 1994.
(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 Registration Statement on Form S-18 as Registration No.
2-93714-NY.
(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 Annual Report on Form 10-KSB for the fiscal year ended October
31, 1993.
(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, 1996.
b) Reports on Form 8-K
(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, 1992.
(6) 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.
(7) 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, 1995.
The Company did not file any Current Reports on Form 8-K during the
quarter ended October 31, 1996.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheet as of October 31, 1997 F-3
Consolidated Statements of Operations for the Years
Ended October 31, 1997 and 1996 F-4
Consolidated Statement of Shareholders' Deficit for the Years
Ended October 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended October 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 - F-27
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, 1997 and the related
consolidated statements of operations, shareholders' deficit 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, 1997, and the results of
its consolidated operations and its cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, as of October 31, 1997, the Company has a deficiency in working
capital and shareholders equity of $1,039,201 and $651,535, respectively, and
has incurred a net loss of $1,818,652 for the year ended October 31, 1997. 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
August 5, 1999
F-2
<PAGE>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
October 31, 1997
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for doubtful accounts
of $178,997 $ 250,476
Prepaid expenses and other 18,206
-----------
Total current assets 268,682
INVESTMENT TAX CREDITS RECEIVABLE, NET OF ALLOWANCE 490,850
FIXED ASSETS, NET 403,475
RESTRICTED CASH 50,000
OTHER ASSETS 22,120
-----------
$1,235,127
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 81,996
Bank revolving demand loans 81,615
Accounts payable 473,429
Accrued and other liabilities 442,178
Due to related parties - current portion 169,608
Current portion of long-term debt 43,627
Current portion of deferred lease inducements 15,430
----------
1,307,883
DUE TO RELATED PARTIES 76,672
LONG-TERM DEBT 112,702
DEFERRED LEASE INDUCEMENTS 123,440
OTHER LIABILITIES 11,751
MINORITY INTERESTS 254,214
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common 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 (278,325)
Cumulative foreign exchange adjustment 43,070
Accumulated deficit (1,963,727)
----------
(651,535)
$1,235,127
==========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
<TABLE>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended October 31,
<S> <C> <C>
1997 1996
----------- -----------
Revenue
Service fees ............................................... $ 2,665,337 $ 3,078,084
Hardware, software and license sales ....................... 125,030 496,505
----------- -----------
2,790,367 3,574,589
----------- -----------
Costs and expenses
Operating .................................................. 2,398,086 2,023,678
Research and development, net .............................. 35,334 122,177
Selling, general and administrative ........................ 1,532,665 1,157,488
Allowance for reduction in scientific research and
experimental development credits ......................... 296,029
Restructuring costs ........................................ 90,948
Office relocation costs .................................... 67,678
Depreciation and amortization .............................. 162,448 133,072
----------- -----------
4,583,188 3,436,415
----------- -----------
Operating (loss) income ............................... (1,792,821) 138,174
Other income (expense)
Interest income ............................................ 54,590 59,825
Interest expense - related parties ......................... (35,680) (40,351)
Interest expense - other ................................... (68,834) (46,587)
Realized foreign exchange loss ............................. (7,690) (645)
Waiver of deferred salaries ................................ 5,499
Other ...................................................... 30,783 33,751
----------- -----------
NET (LOSS) INCOME ..................................... $(1,819,652) $ 149,666
=========== ===========
Net (loss) income per share .................................... $ (1.07) $ 0.09
=========== ===========
Weighted average number of common shares outstanding ........... 1,701,980 1,691,563
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
<TABLE>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Years ended October 31, 1997 and 1996
<S> <C> <C> <C> <C> <C> <C>
Notes Cumulative
Additional Receivable - foreign
Common stock paid -in former translation Accumulated
Shares Amount capital chairmen adjustment deficit Total
-------- ------ ---------- ----------- ---------- ------------ -----------
Balance at November 1, 1995 1,576,980 $1,577 $1,444,308 $(1,050,533) $ 54,034 $ (293,741) $ 155,645
Issuance of common stock 125,000 125 101,437 101,562
Amortization of notes receivable -
former chairman 71,266 71,266
Repayments from RE&A - net 16,759 16,759
Foreign translation adjustment 11,125 11,125
Net income 149,666 149,666
--------- ------ ---------- ----------- ---------- ----------- -----------
Balance at October 31, 1996 1,701,980 1,702 1,545,745 (962,508) 65,159 (144,075) 506,023
Write off of notes receivable -
former chairman 599,456
Repayments from RE&A - net 84,727
Foreign translation adjustment (22,089) (22,089)
Net loss (1,819,652) (1,819,652)
--------- ------ ---------- ----------- ---------- ------------ ----------
Balance at October 31, 1997 1,701,980 $1,702 $1,545,745 $ (278,325) $ 43,070 $(1,963,727) $ (651,535)
========= ===== ========= ========== ====== ========== ===========
The accompanying notes are an integral part of this statement.
F-5
</TABLE>
<PAGE>
Compuflight, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended October 31,
<TABLE>
<S> <C> <C>
1997 1996
----------- -----------
Cash flows from operating activities
Net (loss) income ........................................................... $(1,819,652) $ 149,666
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ........................................... 162,448 133,072
Provision for uncollectible accounts .................................... 106,731 68,685
Allowance for reduction in investment tax credits ....................... 296,029
Write off of note receivable - former chairman .......................... 599,456
Consulting fees, net .................................................... 71,266
(Increase) decrease in operating assets
Accounts receivable ................................................... 237,336 (266,390)
Scientific research and experimental
development credits
(61,827) (290,559)
License fees receivable ............................................... 104,502 235,110
Prepaid expenses and other ............................................ 9,164 3,247
Increase (decrease) in operating liabilities
Accounts payable and accrued liabilities .............................. 144,239 264
----------- -----------
Net cash (used in) provided by operating activities ................... (221,574) 104,361
----------- -----------
Cash flows from investing activities
Purchase of fixed assets .................................................... (330,225) (27,247)
Proceeds from lease inducements ............................................. 141,023
Payments from RE&A .......................................................... 66,223 16,759
----------- -----------
Net cash used in investing activities ................................. (122,979) (10,488)
----------- -----------
Cash flows from financing activities
Cash overdraft .............................................................. 81,995
Proceeds from bank revolving demand loans ................................... 81,616
Restricted cash ............................................................. (50,000)
Payment of notes - former affiliate ......................................... (197,337)
Proceeds from bank loan ..................................................... 158,752
Proceeds from loan .......................................................... 13,948
Proceeds from note .......................................................... 47,215 44,753
Payment of notes ............................................................ (40,031) (2,943)
----------- -----------
Net cash provided by (used in) financing activities ................... 293,495 (155,527)
----------- -----------
Effect of foreign translations on cash ......................................... 13,696 1,104
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(37,362) (60,550)
Cash and cash equivalents at beginning of year ................................. 37,362 97,912
----------- -----------
Cash and cash equivalents at end of year ....................................... $ $ 37,362
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997 and 1996
NOTE A - DESCRIPTION OF BUSINESS AND ORGANIZATION
Compuflight, Inc. (the "Company"), directly or indirectly through its
wholly owned subsidiaries, Navtech Systems Support Inc. ("Support"), and
Efficient Aviation Systems ("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 - LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. However, as of October 31, 1997,
the Company has a deficiency in working capital and shareholders' equity of
$1,039,201 and $651,535, respectively, and has a net loss of $1,819,652 for
the year ended October 31, 1997. 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.
The Company and its senior management group have focused on four
specific areas to address both strategic direction and daily
operational issues in an effort to position the Company for future
profitability as outlined below.
The Company has increased its marketing endeavors with respect to its
two major software products, AURORA and COMRAD. This increase is also
tied to a strategic redirection by senior management to focus the
Company on the sale of systems versus the provision of flight planning
on a service bureau basis. These efforts have resulted in several
larger system sales in fiscal 1997. In addition, the Company continues
to develop complementary products to address marketplace demands.
The Company has added to its senior management team in order to
provide support for the development, customer support and operations
areas of the business. As a result, management believes, an efficient
management structure has been created with a clear division between
strategic and operational policy development.
The Company devoted time to the realization of its investment tax
credits receivable under the Canadian Scientific Research and
Experimental Development incentive program.
The Company has continued its pursuit of financing.
F-7
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE B (continued)
The Company's operation is dependent upon its ability to obtain new
customers, to maintain profitable levels of service and to maintain
existing financial arrangements or obtain new financing. There can be
no assurance that sufficient cash flows will be generated by the
Company to avoid the further depletion of its working capital.
Additionally, there can be no assurance that additional debt or equity
financing will be available, if and when needed, or that if available,
such financing could be completed on commercially favorable terms.
Furthermore, no assurances can be given the above plans will enable the
Company to continue in existence.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in
the preparation of the consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Compuflight and its 100%-owned subsidiaries, Support and EAS. All
material intercompany balances and transactions have been
eliminated in consolidation. In accordance with Statement of
Financial Accounting Standards ("SFAS") 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' deficit.
2. Fixed Assets
Fixed assets are recorded at cost. Depreciation and amortization
is provided using the straight-line and declining balance methods
over the estimated useful lives of the related assets.
3. Goodwill
Goodwill is recorded at cost and is included as a component of
other assets. Amortization is computed on the straight-line
method over ten years.
F-8
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE C (continued)
4. Software Development 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 by the straight-line method over the estimated useful
life of the software.
5. Minority Interests
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, Innovation Ontario
Corporation, a provincial government agency, 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.
Minority interests at October 31, 1997 consist of 3,600 shares of
Class B, nonvoting shares of Support. Such shares, issued for
$358,200 Canadian ($254,214 U.S. at October 31, 1997), are
entitled to noncumulative dividends of $8 per share and are
redeemable at the option of the Company for $540,000 Canadian
($383,238 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.
F-9
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE C (continued)
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. A valuation allowance has been established to
offset the deferred tax assets as it is more likely than not that
such deferred tax assets will not be realized.
8. Stock-based Compensation
During fiscal 1997, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted under this standard,
the Company elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly,
compensation expense for stock options is measured as the excess,
if any, of the fair value of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock.
Pro forma disclosures of net income and income per common share
for fiscal 1996, as if the fair value-based method prescribed by
SFAS No. 123 had been applied in measuring compensation expense,
are presented in Note I.
9. Net (Loss) Income Per Share
Net (loss) income per share of common stock is based upon the
weighted average number of shares outstanding during each year.
Common stock equivalents consist of additional shares that would
be outstanding assuming the exercise of dilutive outstanding
stock options. Potential common stock equivalents from
outstanding stock options are excluded in computing net loss per
share for fiscal 1997 as their effects would be antidilutive. No
common stock equivalents were included in the net income per
common share calculation during fiscal 1996 as their inclusion
would not be materially dilutive.
F-10
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE C (continued)
10. Revenue Recognition
Revenue from license fees is recognized at the later of delivery
of software master copy or, if applicable, fulfillment of all
other significant obligations under terms of license agreements.
The Company has no significant expenditures relating either to
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.
11. 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 $57,800 and $47,600
during the years ended October 31, 1997 and 1996, respectively.
12. Accounting Pronouncements Not Yet Adopted
In February 1997, SFAS No. 128, "Earnings Per Share" was issued
and is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Early adoption of
the new standard is not permitted. The new standard eliminates
primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the Company's
financial statements.
F-11
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE C (continued)
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 requires that a company (a)
classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance
sheet. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
The adoption of SFAS No. 130 is not expected to have a material
affect on the Company's consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued. SFAS No. 131
establishes standards for the way that public companies report
selected information about operating segments in annual financial
statements and requires that those companies report selected
information about segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and
major customers. SFAS No. 131, which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major
customers, requires that a public company report financial and
descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis
that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS No. 131
requires that a public company report a measure of segment profit
or loss, certain specific revenue and expense items, and segment
assets. However, SFAS No. 131 does not require that reporting of
information that is not prepared for internal use if reporting it
would be impracticable. SFAS No. 131 also requires that a public
company report descriptive information about the way that the
operating segments were determined, the products and services
provided by the operating segments, differences between the
measurements used in reporting segment information and those used
in the enterprise's general-purpose financial statements, and
changes in the measurement of segment amounts from period to
period. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. The adoption of SFAS
No. 131 is not expected to have a material affect on the
Company's segment disclosure.
F-12
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE C (continued)
In October 1997, the Accounting Standards Executive Committee
("AcSEC") of the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 97-2, "Software
Revenue Recognition". SOP 97-2 provides guidance on the timing
and amount of revenue recognition when licensing, selling,
leasing or otherwise marketing computer software and is effective
for transactions entered into during fiscal years beginning after
December 15, 1997. On March 18, 1998, the Financial Accounting
Standards Board issued a new SOP that provides for the one-year
deferral of certain provisions of SOP 97-2 pertaining to its
requirements for what constitutes vendor specific evidence of the
fair value of multiple elements included in an arrangement. It is
AcSEC's intention to immediately begin a project to consider
whether guidance is needed on any restrictions that should be
placed on what constitutes evidence of fair value and, if so,
what the guidance should be. Because of the uncertainties with
respect to the outcome of any such project, the Company believes
that the impact of the deferred provisions of SOP 97-2 on its
financial position or results of operations upon expiration of
the one-year deferral period is not currently determinable.
However, the Company believes that those provisions of SOP 97-2
that have not been deferred, and therefore are applicable
commencing January 1, 1998, will not materially affect its
consolidated financial position or results of operations.
In February 1998, AcSEC issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use" which is effective for years beginning after December 15,
1998. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when
such costs should be capitalized. The Company does not expect SOP
98-1 to have a significant impact on the Company's consolidated
financial condition or results of operations.
13. Reclassifications
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation.
F-13
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE D - INVESTMENT TAX CREDITS RECEIVABLE
The Company has filed claims for Canadian investment tax credits
aggregating $946,053 for fiscal years ended October 31, 1992 through
October 31, 1997. These scientific research and experimental development
investment tax credits are available to certain entities located in Canada
for qualified scientific research expenditures. The rate of credit for
qualified research and development expenditures varies according to the
status of the company and, in certain instances, the company's taxable
income for the prior year. Credits aggregating approximately $64,000 and
$290,000, in 1998 and 1997, respectively, have been recorded as a reduction
in research and development expense.
In September 1998, Revenue Canada, the Canadian taxing authority, issued an
assessment to the Company with respect to its claims for fiscal years ended
October 31, 1992 through October 31, 1995 and an assessment for the
Company's claim related to fiscal 1996 followed in January 1999. The
assessments resulted from the completion of both financial and scientific
audits.
All of the Company's claims were subjected, by Revenue Canada, to
reductions based on Revenue Canada's disallowance of certain expenses
related to projects deemed non-qualifying. In addition, Revenue Canada also
denied the Company's claims for the enhanced refundable credit for the
fiscal years ended October 31, 1994 through October 31, 1996 on the basis
that the Company did not qualify as a Canadian-controlled private
corporation ("CCPC").
The Company challenged these assessments through the filing of Notices of
Objection for each of the claim years. Accordingly, after a review of the
file by Revenue Canada Appeals, CCPC status was conferred on the Company
and the local appeals officer was ordered to reassess.
The Company continues to object to the reductions resulting from the
scientific audits. At this time, the Company cannot reasonably determine
the likelihood of success in appealing the reductions resulting from the
scientific audits and has therefore recorded an allowance in fiscal 1997 of
$296,029 against its scientific research and experimental development
investment tax credits receivable. Due to continued delays in the
processing of such appeals at Revenue Canada, it is estimated that a result
may take over one year to obtain. To date, the Company has received
approximately $285,000 of such credits, which have been applied to
outstanding payroll taxes (see Note J).
F-14
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE E - FIXED ASSETS
Fixed assets consist of the following:
Useful
life 1997
------ ----
Computer software 5-10 years $ 411,328
Computer equipment 5-10 years 374,175
Furniture and fixtures 5-20 years 46,507
Leasehold improvements 5-10 years 142,298
Office equipment 5 years 78,086
---------
1,052,394
Less accumulated depreciation and amortization (648,919)
$ 403,475
=========
Amortization expense for capitalized software totaled approximately $65,500
and $75,000 in 1997 and 1996, respectively. Accumulated amortization
approximated $362,000 at October 31, 1997.
NOTE F - TRANSACTIONS WITH RELATED PARTIES
Notes Receivable - Former Chairmen
1. The Company's former Chairman's (through December 1, 1993) total
indebtedness (the "Note") to the Company of $804,000 as of November 1,
1993 is payable in equal monthly installments over a ten-year period
together with interest at 4-1/2% per annum. Further, the Company
entered into a ten-year consulting agreement, as of November 1, 1993,
with the former Chairman providing for fees payable substantially upon
the same terms of the indebtedness repayment. As of the fourth quarter
of fiscal 1997, the Company has written-off the note receivable
against future payments due to the former Chairman under the
consulting agreement as the Company no longer expects to derive any
substantive services from the former Chairman.
Accordingly, the Company has recorded a charge against earnings of
$599,456.
F-15
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE F (continued)
2. In 1993, Support charged its parent company, Navtech Applied Research
Inc. ("NARI"), the successor company to Ray English and Associates
Inc. ("REA"), a management and marketing fee in connection with the
management of certain software owned by EAS, formerly a subsidiary of
NARI. Support also advanced funds to NARI in order to assist NARI in
meeting its obligations. NARI was 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, NARI executed and delivered to Support a promissory
note in the principal amount of $750,000 Canadian (the "NARI Note") to
evidence certain obligations to Support as of such date. The NARI 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 NARI
and Support, NARI was to provide software marketing services to the
Company. Support had the right to offset $3,500 Canadian per month
($2,484 U.S. at October 31, 1997) against compensation otherwise
payable to NARI thereunder as a payment of amounts due under the NARI
Note. The consulting and marketing agreement also provided for
finder's fees and commissions of 2% and 10%, respectively, for the
introduction of potential clients and for the licensing of software.
Further, the Company had the right to apply 10% to 25%, as defined, of
the finder's fees and commissions against amounts outstanding on the
NARI Note.
Concurrent with the signing of the NARI Note, NARI also transferred
all of its common stock of the Company (802,766 shares) to a Voting
Trust ("Trust") under the sole administration of Dorothy A. English.
Mrs. English is an Executive Vice President of the Company. Effective
with the succession of REA by NARI during 1998, Dorothy A. English
became the sole shareholder of NARI and at such time the voting trust
was revoked and the common stock of the Company was placed in escrow
as collateral for amounts payable by NARI to the former chairman under
a share transfer agreement. Further, the above consulting agreement
between NARI and Support was terminated.
The Company has provided for an allowance of $300,000 Canadian as of
October 31, 1997 ($212,910 U.S. as of October 31, 1997) to reflect
management's estimate of the amount ultimately collectible from NARI.
Such estimate is based principally on the estimated net worth of NARI,
which, in turn, is substantially based upon the estimated fair value
of the common shares of the Company beneficially owned by NARI.
F-16
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE F (continued)
Since the amount due from NARI is in all likelihood recoverable only from
amounts payable by the Company to NARI or from the proceeds derived from
NARI's sale of the Company's common stock, the amount due from NARI, net of
allowance, has been classified as a separate component of shareholders'
equity.
Due to Related Parties
Due to related parties at October 31, 1997 consists of the following:
Support shareholder demand loans (i) $ 35,485
Accrued interest (i) 57,847
Loans payable - related parties (ii) 68,118
Note payable - related party (iii) 84,830
--------
$ 246,280
(i) Support shareholder demand loans bear interest at 15% per
annum. Interest in the amount of $56,654 is in arrears and
is included in accrued interest.
(ii) Loan payable - related party consists of a chattel mortgage
on specific computer equipment in the original amount of
$120,000 Canadian due to a company owned by the brother of a
shareholder of the Company. This note was originally due May
10, 1997 and bears interest at 15% per annum payable
monthly. Under an agreement dated August 1, 1998, the
balance of $95,982 Canadian remaining at that time, plus
accrued interest through July 31, 1998, was payable in six
monthly payments of $5,000 Canadian each and then continuing
monthly payments of $10,000 Canadian until the loan and
interest have been paid off.
(iii)Notes payable - related parties includes a note payable to
a company related to a director of the Company and a note
payable to a director of the Company. Interest in the amount
of $1,193 on the latter note is in arrears and is included
in accrued interest. The payments on the note payable to a
company related to a director of the Company are not fixed.
Amounts due on the note payable to a director of the Company
are due at various scheduled dated through March 2000.
F-17
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE G - BANK REVOLVING DEMAND LOANS AND LONG TERM DEBT
The Company has a revolving bank demand loan facility which provides for
borrowings of up to $115,000 Canadian which are payable on demand. These
demand loans bear interest at the bank's prime rate plus 1.25%.
Long-term debt is as follows as of October 31, 1997:
Smallbusiness bank loan payable, interest at the bank's prime
rate plus 1.75%, payable in monthly principal payments of $5,123
Canadian plus interest based on a 48 month amortization period
$156,329
Less current portion (43,627)
Long-term portion $112,702
Substantially all of the Company's assets are pledged as collateral for
revolving demand loans and long term debt. In addition, the revolving
demand loans are hypothecated by a U.S. term deposit in the amount of
$50,000 (U.S.) which is presented as "restricted cash" in the accompanying
balance sheet.
F-18
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE H - INCOME TAXES
The Company's fiscal 1997 and 1996 effective income tax rate differs from
the statutory U.S. Federal income tax rate as a result of the following:
1997 1996
--------- -------
Statutory U.S. Federal tax rate (34.0)% 34.0%
Increase in valuation allowance 34.0
Utilization of NOL carryforward (34.0)
--------- -------
- % - %
========= =========
The temporary differences which give rise to deferred tax assets and
liabilities at October 31, 1997 are summarized as follows:
Deferred tax assets
Net operating loss carryforwards $ 425,000
Deferred salaries and other compensatio 313,000
Allowance for doubtful accounts 177,000
Fixed assets 24,000
---------
Total deferred tax assets 939,000
---------
Deferred tax liabilities
License fees receivable (31,000)
Scientific research and experimental development
credits, net (203,000)
Total deferred tax liabilities (234,000)
---------
Net deferred tax assets $ 705,000
========
Valuation allowance $(705,000)
During fiscal 1997, the Company increased its allowance by $558,000
principally due to the recognition of additional U.S. net operating loss
carryforwards.
F-19
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE H (continued)
The Company, for United States purposes, has available to offset future
taxable income net operating loss carryforwards approximating $478,000 at
October 31, 1997, which expire through 2017. For Canadian tax purposes, the
Company has available net operating loss carryforwards and scientific
research and experimental development credits of $693,000 Canadian
($500,000 U.S.) and $61,000 Canadian ($44,000 U.S.), respectively, expiring
through 2001 and 2006, respectively. The Company has established a
valuation allowance with respect to its net deferred tax assets, as it
cannot presently assess the utilization of such deferred tax assets as more
likely than not.
NOTE I - 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 300,000 shares of its common
stock at exercise prices ranging from $.20 to $.50 Canadian per share.
Further, in 1995, the Company adopted the 1995 Key Advisor 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, as amended in 1996, of 700,000 shares of the
Company's common stock. Under the terms of the 1995 Advisor Plan, the
options, which expire no later than ten years after grant, are exercisable
at a price determined by the Board of Directors, and become exercisable in
accordance with terms established at the time of the grant.
F-20
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE I (continued)
Summary information with respect to the stock option plans follows:
<TABLE>
<S> <C> <C> <C> <C>
Range of Outstanding Weighted Outstanding
exercise options average options
prices granted exercise price exercisable
-------- ----------- -------------- -----------
Balance at November 1, 1995 $0.625 - $3.24 1,228,377 0.658 427,877
Terminated 0.625 (600,000) 0.625
Granted 0.625 25,000 0.625
Became exercisable 0.625 - 3.24 225,250
--------- -------
Balance at October 31, 1996 0.625 - 3.24 653,377 0.687 653,127
Expired 0.625 - 3.24 (27,001) 0.77 (26,751)
---------- --------
Balance at October 31, 1997 0.625 - 1.88 626,376 0.684 626,376
========== ========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable nonqualified stock options:
<TABLE>
<S> <C> <C> <C>
Weighted-average
Number outstanding remaining Weighted-average
and contractual life exercise
exercisable (months) price
Range of exercise prices
$0.00 to $0.99 550,000 33 $.625
$1.00 to $1.88 76,376 68 $1.11
The weighted-average option fair value on the grant date was $0.17 for options
issued during the year ended October 31, 1996.
F-21
</TABLE>
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE I (continued)
The Company has adopted the disclosure provisions of SFAS No. 123, it
applies APB Opinion No. 25 and related interpretations in accounting for
the plans and does not recognize compensation expense for such plans. If
the Company had elected to recognize compensation expense based upon the
fair value at the grant dates for awards under these plans consistent with
the methodology prescribed by SFAS No. 123, the Company's reported net
income and income per share would be reduced to the pro forma amount
indicated below for the fiscal year ended October 31, 1996:
1996
----
Net income $149,666
As reported 145,416
Pro forma
Income per common share
As reported $0.09
Pro forma $0.09
There were no options issued by the Company in fiscal 1997, therefore there
is no pro forma effect presented.
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before fiscal 1996. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for the fiscal year ended
October 31, 1996: expected volatility of 30%; risk-free interest rate of
5.50%; and expected term of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
F-22
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Failure to File Timely Reports
By letter dated March 2, 1998, 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,
1997. In such letter, the Company was advised by the Commission that it
reserved the right to bring an enforcement action, as appropriate, at
any time.
This failure to file on a timely basis could expose the Company to
enforcement actions by the Securities and Exchange Commission, 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 has also failed to file its Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1998 and Quarterly Reports on
Form 10-QSB for the fiscal quarters ended January 31, 1998, April 30,
1998, July 31, 1998, January 31, 1999, April 30, 1999 and July 31,
1999.
The Company intends to file its Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1997; its Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1998; and its Quarterly Reports
on Form 10-QSB for the fiscal quarters ended January 31, 1998, April
30, 1998, July 31, 1998, January 31, 1999, April 30, 1999 and July 31,
1999 all on or before October 20, 1999. No assurances can be given
that, notwithstanding the Company's filing of the aforementioned
documents on or before the date 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 2006. 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
a company controlled by the spouse of an Officer and Director of the
Company pursuant to an agreement which expires in fiscal 2000.
F-23
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE J (continued)
Future minimum annual rental payments pursuant to these leasing agreements
as of October 31, 1997 are summarized as follows:
Related
Office party
space Equipment equipment Total
--------- --------- -------- ---------
1998 $ 98,611 $30,084 $14,478 $143,173
1999 58,660 26,467 26,827 111,954
2000 56,283 22,625 29,665 108,573
2001 62,904 9,429 72,333
2002 62,904 7,886 70,790
--------- -------- --------- --------
$ 339,362 $96,491 $70,970 $506,823
========= ======== ========= ========
Rental costs for fiscal 1997 and 1996 were $199,207 and $162,468,
respectively. Rental cost incurred in 1997 and 1996 in connection with the
equipment lease with the related party was $21,049 and $11,448,
respectively.
3. Employment and Consulting Contracts
The Company has entered into employment and consulting agreements with
its chairman, chief executive officer, 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 September 1997 through March 31, 2004. Further,
the Company has entered into a retirement agreement with its chairman
dated August 5, 1999, which provides for, among other things, the
payment of 96 consecutive semi-monthly payments of $6,250 commencing
November 25, 1999 for services rendered for the period from November
1996 through March 1997. The Company has provided for approximately
$150,000 relating to the net present value of the services provided by
the chairman during fiscal 1997. Concurrent with the term of this
retirement agreement, the Company has also agreed to reimburse the
chairman for expenses incurred in the amount of $60,594 (payable over
the period August 1999 to May 2000) and to obtain a declining balance
life insurance policy on the chairman commencing with coverage at
$630,000 and declining at a rate of $150,000 per year. The proceeds
would be payable in full settlement of any remaining obligation at the
time of the former chairman's demise. All amounts due by promissory
notes contain acceleration provisions in the event of, among other
things, default in payment.
F-24
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE J (continued)
Approximate aggregate minimum compensation obligations under all agreements
at October 31, 1997 are summarized as follows:
Year Amount
---- ------
1998 $ 323,000
1999 205,000
2000 188,000
2001 131,000
2002 120,000
Thereafter 170,000
----------
$1,137,000
=========
4. Nonremittance of Payroll Taxes
During and as of the year ended October 31, 1997, the Company has not
timely remitted to the respective tax collecting jurisdictions payroll
taxes withheld from employees' earnings. At October 31, 1997, the
unremitted balance aggregated approximately $269,000 Canadian
($191,000 U.S. and included in accrued and other liabilities) which is
subject to additional penalty and interest charges until paid.
5. Legal Proceedings
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business. In the
opinion of management, the amount of any ultimate liability with
respect to these actions will not have a material adverse effect on
the Company's consolidated results of operations, cash flow or
financial position.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS AND
BUSINESS CONCENTRATIONS
The carrying amounts of cash, accounts receivable, and investment tax
credits receivable are estimated to approximate their fair values. The
Company believes that the carrying amount of its bank revolving demand
loans and long-term debt approximates the fair value as the variable
interest rate approximates the current prevailing interest rate. The
Company believes that it is not practicable to estimate the fair value of
its other liabilities due to its current financial condition.
In fiscal 1997, two customers each accounted for 11% of the Company's
consolidated revenues, and, in 1996, three customers accounted for 13%, 11%
and 10%, respectively, of the Company's consolidated revenues.
F-25
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE L - OFFICE RELOCATION COSTS AND RESTRUCTURING CHARGES
During fiscal 1997, the Company moved its Canadian facility to a new
facility in Waterloo, Ontario. Costs associated with this relocation are
recorded in the accompanying Statements of Operations as "office relocation
costs" and aggregated $67,678 during fiscal 1997.
In addition, as a result of the Company's consolidation of its New York
facility into the new Waterloo, Ontario facility, which was also completed
in fiscal 1997, the Company has recorded $90,948 of pre-tax restructuring
charges. The restructuring charges include costs incurred for moving from
the New York facility to the recently acquired Canadian facility. As of
October 31, 1997, all expenses have been incurred pertaining to the above
mentioned charges.
NOTE M - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1997, the Company wrote off a note
receivable from its former Chairman against earnings aggregating $599,456,
established an allowance of $296,029 against its investment tax credits
receivable and increased the allowance for doubtful accounts by
approximately $106,297.
NOTE N - 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.
A summary of the Company's operations by geographic area for the fiscal
years ended October 31, 1997 and 1996 is as follows:
F-26
<PAGE>
Compuflight, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1997 and 1996
NOTE N (continued)
<TABLE>
<S> <C> <C>
1997 1996
----------- -----------
Net sales
United States .................... $ 2,052,518 $ 2,970,308
Canada ........................... 523,556 368,743
Other ............................ 214,293 235,538
----------- -----------
Total net sales .............. $ 2,790,367 $ 3,574,589
----------- ===========
Operating (loss) profit
United States .................... $(1,165,939) 556,944
Canada ........................... (626,882) (418,770)
----------- -----------
Total operating (loss) income $(1,792,821) $ 138,174
=========== ===========
Identifiable assets
United States .................... $ 1,040,648 $ 1,570,299
Canada ........................... 995,610 1,095,580
Eliminations ..................... (851,131) (850,981)
----------- -----------
Total identifiable assets ... $ 1,185,127 $ 1,814,898
=========== ===========
</TABLE>
F-28
<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: October 20, 1999 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
---------- -------- ----
/s/ Russell K. Thal Chairman of the Board of October 20, 1999
- ---------------------- Directors, Executive Vice-
Russell K. Thal President and Director
/s/ Duncan Macdonald Chief Executive Officer October 20, 1999
- --------------------------- (Principal Executive Officer)
Duncan Macdonald
/s/ Dorothy A. English Executive Vice President October 20, 1999
- --------------------------- and Director
Dorothy A. English
/s/ Denis L. Metherell Secretary and Director October 20, 1999
- ---------------------------
Denis L. Metherell
/s/ Kenneth M. Snyder Director October 20, 1999
- ---------------------------
Kenneth M. Snyder
/s/ Rainer Vietze Chief Financial Officer October 20, 1999
- ---------------------------
Rainer Vietze
COMPUFLIGHT, INC.
c/o Navtech Systems Support Inc.
Suite 102
175 Columbia Street West
Waterloo, Ontario Canada N2L-5Z5
August 5, 1999
Mr. Russell K. Thal
26 Ridge Drive
Port Washington, New York 11050
Re: Retirement Agreement
Dear Russ:
This agreement (the "Retirement Agreement") shall confirm the understanding
between Compuflight, Inc. (the "Company") and Russell K. Thal (the "Employee")
with respect to the retirement of the Employee from the Company. Both the
Company and the Employee acknowledge and agree that all rights and obligations
of the parties hereunder shall be governed by and subject to the following terms
and conditions.
1. Retirement. (a) The parties acknowledge and agree that, effective
October 31, 1999 (the "Retirement Date"), the Employee's employment with the
Company will end. The parties agree further that the Employment Agreement dated
as of December 1, 1993 between the Company and the Employee, as amended by the
amendments thereto dated as of March 14, 1996, January 8, 1997, June 17, 1997,
March 30, 1999, and April 30, 1999 (collectively, the "Employment Agreement"),
and any and all obligations of the Company to the Employee, or for the
Employee's benefit, incurred prior to the date hereof are hereby terminated and
of no further force or effect, and neither the Employee nor the Company shall
have any further liability or obligation thereunder or otherwise in connection
with the Employee's employment by the Company, except as expressly provided for
herein.
(b) Prior to the Retirement Date (the "Pre-Retirement Period"), the
Employee shall continue to be employed by the Company and shall be entitled to
receive salary at the rate of one hundred fifty-one thousand dollars ($151,000)
per annum and the health and medical insurance benefits which he currently
receives. During the Pre-Retirement Period, the Employee shall provide twenty
(20) hours of service per month in the performance of his duties and shall
perform such services on behalf of the Company as shall be directed by the Chief
Executive Officer of the Company. The Employee acknowledges and agrees that,
notwithstanding anything herein to the contrary, he shall not accrue any
additional vacation or other leave during the Pre-Retirement Period and that no
amounts are or shall be payable by the Company for any accrued vacation or other
leave.
(c) The Company represents to the Employee that all amounts withheld from
the Employee's salary with regard to his SEPP IRA during 1999 will have been
deposited into the Company's 401(k) plan account for the Employee's benefit by
the Retirement Date.
<PAGE>
2. Post-Retirement Obligations. (a) The parties agree that, as the only
obligation of the Company to the Employee on and after the Retirement Date
(other than the obligations of the Company under Section 4 hereof) and in
consideration of past services and the Employee's covenants set forth herein,
the Company shall pay to the Employee, as a retirement payment, the amount of
six hundred thousand dollars ($600,000) (the "Retirement Payment"), payable in
ninety-six (96) equal installments of six thousand two hundred fifty dollars
($6,250) payable on the tenth (10th) and twenty-fifth (25th) days of each month
beginning November 25, 1999 and ending November 10, 2003 (the "Payout Period").
The provisions of that certain letter dated August 10, 1999 from the Company to
the Employee with respect to the Retirement Payment, a copy of which is attached
hereto as Exhibit A, shall be considered a part hereof.
(b) The Company's obligation to pay the Retirement Payment is evidenced by
a promissory note of the Company of even date in the principal amount of six
hundred thousand dollars ($600,000) (the "Retirement Note"). The Company shall
be entitled to deduct from each payment due under the Retirement Note all
applicable withholding taxes. The Retirement Note will be delivered to the
Employee on the day following the date on which this Retirement Agreement
becomes effective in accordance with the provisions of Section 5 hereof.
(c) In connection with the Retirement Note, the Company agrees to purchase
by September 1, 1999 a decreasing term life insurance policy on the life of the
Employee (the "Policy") in the original amount of the Retirement Note. The
Policy amount shall decrease to the extent of one hundred fifty thousand dollars
($150,000) per year. The Company agrees to maintain the Policy in effect until
all payments due to the Employee under the Retirement Note have been paid. In
the event of the death of the Employee, the Company shall use the proceeds from
the Policy to prepay to the estate of the Employee any amounts due to the
Employee under the Retirement Note. Under no circumstances shall the Company be
obligated to pay, as insurance premiums for the Policy, an amount in excess of
such number of dollars per annum as shall equal two percent (2%) of the
declining death benefit on each annual anniversary date (the "Premium Cap"). In
the event the Company is unable to obtain life insurance coverage for a premium
equal to or less than the Premium Cap (whether as a result of the Employee's
health or otherwise) from at least two (2) insurers, then the Policy amount
shall be reduced to an amount that can be obtained for the Premium Cap. The
Employee agrees to cooperate fully in connection with the Company's efforts to
obtain the Policy. In no event shall the Company be liable for its failure to
obtain the Policy if the Employee is considered uninsurable by at least two (2)
insurers. The Company agrees to furnish to the Employee a copy of the Policy
when issued and to direct the insurer to send to the Employee copies of all
correspondence sent by it to the Company.
<PAGE>
(d) The Company agrees that, if permitted by applicable law and regulation,
following the Retirement Date and until the end of the Payout Period, it shall
include the Employee in its group medical insurance plan. The Employee shall be
responsible for the payment of all premiums that are due.
3. Resignation. By executing this Retirement Agreement, effective as of the
Retirement Date, the Employee voluntarily and irrevocably resigns from all
capacities and positions with the Company, except that the Employee shall remain
as Chairman of the Board of Directors of the Company, to serve until the next
annual meeting of shareholders and until his successor has been elected and has
qualified, or until his earlier resignation or removal. The Employee
acknowledges and agrees that he shall not be entitled to receive any
compensation for his services as Chairman of the Board of Directors (except for
standard director fees, if any are payable to other outside directors, and
reimbursement for expenses reasonably incurred in connection with his attendance
at any meetings of the Board of Directors of the Company) and that, at the
request of the Company, shall resign his position as such. The Employee
understands and agrees further that, except as expressly provided herein, the
Company shall have no obligation to the Employee, whether for compensation,
payments, benefits or otherwise, arising under or relating to the Employee's
employment with the Company, his retirement therefrom, the Employment Agreement,
or otherwise.
4. Expense Reimbursement. (a) The Employee acknowledges and agrees that,
except for the amount of sixty thousand five hundred ninety-four dollars
($60,594) (the "Reimbursement Amount"), he has been reimbursed for all costs and
expenses that he incurred at any time on behalf of the Company and that, except
as expressly provided herein, he shall be entitled to no further reimbursements
for costs or expenses incurred through the Retirement Date or thereafter. The
Reimbursement Amount, which the parties acknowledge and agree includes a car
allowance in the amount of one thousand dollars ($1,000) per month through the
Retirement Date, shall be payable as follows:
Date Amount
August 25, 1999 $ 5,000
September 25, 1999 5,000
October 25, 1999 5,000
November 25, 1999 10,000
December 25, 1999 10,000
January 25, 2000 10,000
February 25, 2000 5,000
March 25, 2000 5,000
April 25, 2000 5,000
May 25, 2000 Balance
<PAGE>
(b) The Company's obligation to pay the Reimbursement Amount is evidenced
by a promissory note of the Company of even date in the principal amount of
sixty thousand five hundred ninety-four dollars ($60,594) (the "Reimbursement
Note" and together with the Retirement Note, the "Notes"). The Reimbursement
Note will be delivered to the Employee on the day following the date on which
this Retirement Agreement becomes effective in accordance with the provisions of
Section 5 hereof.
(c) The parties acknowledge and agree that the Employee has incurred
charges on three credit cards in his name in the performance of his duties on
behalf of the Company and that the last outstanding combined balances due with
respect to the credit cards is twenty thousand five hundred twenty-two dollars
($20,522) (the "Credit Card Amount"), which amount is included within the
Reimbursement Amount. The Employee agrees that he shall use a portion of each
Reimbursement Note payment to pay at least the minimum monthly amount payable to
the credit card companies with respect to the Credit Card Amount, and, following
his receipt of the initial forty thousand seventy-two dollars ($40,072) pursuant
to the Reimbursement Note, shall use all amounts received pursuant thereto to
pay in full the amounts due with respect to the credit cards. The Company agrees
to pay any additional interest charges that are incurred with respect to the
credit cards, except to the extent that the Employee fails to comply with the
provisions of the immediately preceding sentence.
(d) The Company agrees to continue to reimburse the Employee for all
reasonable expenses incurred by him during the Pre-Retirement Period in
connection with his services on behalf of the Company.
5. Release. (a) In consideration of the Company executing and delivering to
the Employee this Retirement Agreement and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the Employee, the Employee hereby releases and forever discharges the Company,
its parent, subsidiaries, affiliates, related companies, controlling
shareholders, directors, officers, employees, agents, attorneys, successors, and
assigns (collectively, the "Releasees") from all liabilities, causes of action,
suits, claims, damages and demands whatsoever, whether known or unknown, at law
or in equity, whether statutory or common law, whether federal, state, local, or
otherwise, related to, or arising out of, any aspect of his employment with the
Company, or his retirement from such employment, including, but not limited to,
any claims of employment discrimination on any basis which he (including his
heirs, executors, administrators, successors, and assigns) has asserted or could
have asserted, or otherwise. Nothing herein shall be construed to relieve the
Company from its obligations expressly provided for under this Agreement or the
Notes.
(b) The Employee understands that, once this Retirement Agreement becomes
effective, he waives and releases, to the extent consistent with applicable law,
any rights or claims he may have under the numerous laws and regulations
regulating employment, whether federal, state, local or otherwise, including,
but not limited to, the Age Discrimination in Employment Act of 1967, as
amended, Title VII of the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act, Section 1981 (42 U.S.C. ss. 1981) of the Civil Rights Act
of 1966, the Fair Labor Standards Act, the Equal Pay Act, the Employee
Retirement Income Security Act of 1974, as amended (known as ERISA), the Family
and Medical Leave Act, and the New York State Human Rights Law.
<PAGE>
(c) This Retirement Agreement shall not in any way be construed as an
admission by the Releasees of any liability, or of any wrongful, discriminatory,
or unlawful acts whatsoever against the Employee or any other person, and the
Releasees specifically disclaim any liability to, or wrongful, discriminatory,
or unlawful acts against, the Employee or any other person, on the part of the
Releasees.
(d) The Employee acknowledges that he has had no less than twenty-one (21)
days in which to consider the terms of this Retirement Agreement.
(e) This Retirement Agreement will not become effective until seven (7)
days after the date Employee signs this Retirement Agreement, and the Employee
may revoke this Retirement Agreement within seven (7) days after the date this
Retirement Agreement is signed by him, provided that such revocation is in
writing, and is signed and delivered to the Company within such time period. In
the event of such timely revocation by the Employee, this Retirement Agreement
shall be deemed null and void.
6. Confidential Information. (a) The Employee acknowledges and agrees that
it is the policy of the Company to maintain as secret and confidential all
valuable information, not otherwise available to the general public, heretofore
or hereafter acquired, developed or used by the Company and/or any of its
subsidiaries (all references in this Section 6 as well as Sections 7 and 8
hereof to the "Company" shall be deemed to refer to the Company and/or its
subsidiaries) relating to its business, operations, employees and customers (all
such information is referred to herein as "Confidential Information"). Excluded
from the term Confidential Information is information which is or becomes
generally available to the public other than as a result of a disclosure by the
Employee or breach of an agreement of confidence. The Employee recognizes that,
by reason of his employment with the Company, he has acquired, and may continue
to acquire, Confidential Information. The Employee further acknowledges that
such Confidential Information is the property of the Company and is of great
value to the Company. The Employee confirms that it is necessary to protect the
Company's goodwill, and, accordingly, hereby agrees that he will not, directly
or indirectly, at any time, use, publish, disseminate or otherwise disclose any
Confidential Information. In furtherance of the foregoing, the Employee
expressly waives and renounces any claims, and hereby assigns and transfers to
the Company, free and clear of any and all liens or encumbrances, any and all of
his right, title and interest, if any, in and to any and all Confidential
Information.
<PAGE>
(b) In the event that the Employee is requested or required (by oral
questions, interrogatories, requests for information or document, subpoena or
similar processes) by a court of competent jurisdiction or by a government
agency to disclose any of the Confidential Information, it is agreed that the
Employee will (a) promptly notify the Company in writing of the existence, terms
and circumstances surrounding any such request and cooperate with the Company so
that the Company may, in addition to any other rights or remedies it may have,
seek an appropriate protective order; and (b) consult with the Company on the
advisability of taking steps to resist or narrow the request. If, in the absence
of a protective order or the receipt of a waiver hereunder, the Employee is
nonetheless, in the opinion of counsel provided and paid for by the Company,
legally required to disclose the Confidential Information, the Employee shall
furnish only that portion of the Confidential Information as he is advised by
such legal counsel is legally required to be disclosed in order to prevent him
from being held liable for contempt or other censure or penalty. The Company
shall reimburse the Employee for all reasonable travel expenses incurred in
connection therewith.
7. Restrictive Covenants. (a) During the four (4) year period commencing
with the Retirement Date, the Employee will not at any time, without the prior
written approval of the Company, directly or indirectly, anywhere throughout the
world, whether individually or as a principal, officer, employee, partner,
director, shareholder, member, manager, agent of or consultant for any entity,
(a) engage or participate in a business which is competitive with that of the
Company, and shall not make any investments in any such competitive entity
(except that the foregoing shall not prohibit the Employee from acquiring up to
one percent (1%) of the outstanding capital stock of any such entity if the
securities of such entity are listed on a national securities exchange, are
reported on the National Association of Securities Dealers Automated Quotation
System, or are traded regularly traded in the over-the-counter market by a
member of a national securities exchange); (b) cause or seek to persuade any
director, officer, employee, customer, account, agent or supplier of the Company
to discontinue the status, employment or relationship of such person or entity
with the Company, or to become employed in any activity competitive with the
activities of the Company; (c) cause or seek to persuade any prospective
customer or account of the Company (which during the year prior to the
Retirement Date was actively being solicited by the Company) to determine not to
enter into a business relationship with Company; (d) hire or retain any
director, officer or employee of the Company; or (e) solicit or cause or
authorize to be solicited, for or on behalf of himself or any third party, any
business which is competitive with the Company from (i) others who are, or were
within one (l) year prior to the Retirement Date, customers or accounts of the
Company, or (ii) any prospective customer or account of the Company which was
then actively being solicited by the Company.
(b) The provisions of paragraph (a) hereof shall terminate in the event the
Company shall fail to make any payment due hereunder and such failure shall
continue unremedied for a period of thirty (30) days following receipt of
written notice thereof from the Employee.
8. Nondisparagement. (a) The Employee agrees that he shall not make any
statement, written or oral, to any officer, director, employee, consultant,
agent, independent contractor, customer or account of the Company, or other
person or entity, or otherwise in general to the public or business community,
or take any action, directly or indirectly, that disparages or is likely to
diminish the reputation of the Company, any officer, director, employee,
consultant, agent or independent contractor of the Company, or which would
adversely affect the ability of any of the foregoing to obtain financing or
otherwise enter into or consummate any business transaction, or the goodwill,
business or reputation of any of the foregoing.
(b) The Company agrees that it shall not make any statement, written or
oral, to any officer, director, employee, consultant, agent, independent
contractor, customer or account of the Company, or other person or entity, or
otherwise in general to the public or business community, or take any action,
directly or indirectly, that disparages or is likely to diminish the reputation
of the or which would adversely affect the ability of the Employee to obtain
financing or otherwise enter into or consummate any business transaction, or the
goodwill, business or reputation of the Employee.
9. Governing Law; Jurisdiction. (a) This Retirement Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to its conflicts of law rules or principles.
(b) The parties hereby agrees that any legal action with regard to this
Retirement Agreement shall be brought in the courts of the State of New York or
of the United States of America for the Eastern District of New York. The
Company hereby appoints Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue,
East Meadow, New York 11554, attention: Fred Skolnik, Esq., as its agent for
service of process in connection therewith. The Employee hereby appoints Holmes,
Schwartz & Gordon, 300 Endo Boulevard, Garden City, New York 11530, attention
Robert S. Schwartz, Esq., as his agent for service of process in connection
therewith.
10. Entire Agreement. This Retirement Agreement contains the full and
complete understanding and agreement of the parties hereto with respect to the
subject matter contained herein and supersedes all prior or contemporaneous
written or oral understandings or agreements with respect to the subject matter
hereof, including, without limitation, the Employment Agreement. No modification
of this Retirement Agreement shall be binding unless made in writing and signed
by the party hereto sought to be charged.
11. Binding Effect; Due Authorization. (a) This Retirement Agreement shall
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors, assigns and legal representatives.
(b) The Company represents that this Retirement Agreement has been duly
authorized by its Board of Directors and that the Chief Executive Officer of the
Company has been duly authorized to execute and deliver this Retirement
Agreement and the Notes. A copy of the Board of Directors resolutions with
respect thereto is attached hereto as Exhibit B.
12. Equitable Relief; Breach. The parties acknowledge and agree that, in
the event the Employee shall violate or threaten to violate any of the
restrictions of Section 6, 7 or 8 hereof or the Company shall violate or
threaten to violate any of the restrictions of Section 8 hereof, the other party
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 necessity of proving
damages and without prejudice to any other remedies which it may have at law or
in equity, it being understood that such remedy shall be in addition to any
other remedies which the party may have at law or in equity. No bond or other
security shall be required in connection therewith.
13. Waiver; Severability. The waiver by either party of a breach of any
provision of this Retirement Agreement shall not operate or be construed as a
waiver of any subsequent breach. If any provision, or part thereof, of this
Retirement Agreement shall be held to be invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision, or part
thereof, and not in any way affect or render invalid or unenforceable any other
provisions of this Retirement Agreement, and this Retirement 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.
14. Notices; Deliveries. (a) Any notice, delivery or other communication
required or permitted hereunder shall be sufficiently given if delivered by hand
or sent by certified mail, return receipt requested, facsimile transmission or
overnight mail or nationally recognized overnight courier, addressed as follows:
If to the Company:
Suite 102
175 Columbia Street West
Waterloo, Ontario Canada N2L-5Z5
Attention: Duncan Macdonald, Chief Executive Officer
Telecopier Number: (519) 747-1003
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred Skolnik, Esq.
Telecopier Number: (516) 296-7111
If to the Employee:
26 Ridge Drive
Port Washington, New York 11050
Telecopier Number: (516) 944-9466
with a copy to:
Holmes, Schwartz & Gordon
300 Endo Boulevard
Garden City, New York 11530
Attention: Robert S. Schwartz, Esq.
Telecopier Number: (516) 832-2533
or such other address as shall be furnished in writing by either such party as
provided for above.
(b) Notwithstanding the foregoing, any delivery pursuant to Section 5(e)
hereof shall be made by hand, facsimile transmission or overnight mail or
nationally recognized overnight courier.
15. Counterparts; Headings. This Retirement Agreement may be executed in
counterparts, each of which shall be an original, but all of which taken
together shall constitute one agreement. The headings contained in this
Retirement Agreement are solely for the convenience of the parties, and are not
intended to and do not limit, construe or modify any of the terms and conditions
hereof.
16. Representation by Counsel. (a) The Employee acknowledges and agrees
that he has been represented by counsel of his choice in connection with the
negotiation and execution of this Retirement Agreement, and that he has read and
understands this Retirement Agreement, including, without limitation, the
provisions of Section 5 hereof, and has signed it freely and voluntarily.
(b) The Employee acknowledges and agrees that, since he has been
represented by counsel in connection with this Retirement Agreement, any rule or
law or any legal decision that would require the interpretation of any claimed
ambiguities in this Retirement Agreement against the party that drafted it has
no application and is expressly waived by him. The provisions of this Retirement
Agreement shall be interpreted in a reasonable manner to give effect to the
intent of the parties hereto.
If this Retirement Agreement correctly sets forth our agreement with
respect to the subject matter contained herein, please so indicate by signing
where indicated below and returning it to the Company at the address set forth
above.
Very truly yours,
COMPUFLIGHT, INC.
/s/ Duncan Macdonald
--------------------
By:
Duncan Macdonald
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
/s/ Russel K. Thal
- ---------------------
Russell K. Thal
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On August __ , 1999, before me, personally came Russell K. Thal, to me
known, and known to me to be the individual described in, and who executed the
foregoing Retirement Agreement, and duly acknowledged to me that he executed
same.
/s/ Notary Public
------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On August __, 1999, before me personally came Duncan Macdonald, to me
known, who, by me duly sworn, did depose and say that deponent is the Chief
Executive Officer of Compuflight, Inc., the corporation described in, and which
executed the forgoing Retirement Agreement, and that deponent signed deponent's
name by order of the Board of Directors of such corporation.
/s/ Notary Public
--------------------------
Notary Public
<PAGE>
Exhibit B
RESOLUTIONS ADOPTED BY
BOARD OF DIRECTORS
OF
COMPUFLIGHT, INC.
AUGUST 25, 1999
RESOLVED, that the Corporation enter into a Retirement Agreement with Russell K.
Thal (the "Agreement") providing for, among other things, the payment to Mr.
Thal of a retirement payment of $600,000 and the reimbursement of expenses of
approximately $60,594; that, in connection therewith, the Corporation execute
and deliver to Mr. Thal Promissory Notes in such principal amounts evidencing
its obligation to pay the amounts owed (the "Notes"); and that the Chief
Executive Officer of the Corporation be, and he hereby is, authorized and
directed to execute and deliver the Agreement and the Notes in, or substantially
in, the forms attached hereto as exhibits, with such changes thereto as such
authorized officer shall deem necessary or appropriate (to be conclusively
presumed by his execution and delivery thereof).
RESOLVED, that the Chief Executive Officer of the Corporation and each other
officer of the Corporation be, and each of them hereby is, authorized, empowered
and directed to take all such further action and to execute and deliver all such
further agreements, instruments and documents in the name and on behalf of the
Corporation and under its corporate seal or otherwise, and to pay all such
expenses and taxes, as in their judgment shall be necessary, proper or advisable
in order to carry out fully the intent and accomplish the purposes of the
foregoing resolution.
PROMISSORY NOTE
$600,000 August 5, 1999
FOR VALUE RECEIVED, COMPUFLIGHT, INC., a Delaware corporation (the
"Maker"), with its principal place of business at 175 Columbia Street West,
Waterloo, Ontario Canada, promises to pay to the order of RUSSELL K. THAL (the
"Payee"), with an address at 26 Ridge Drive, Port Washington, New York 11050, or
at such other place as the holder hereof may from time to time designate in
writing, the principal sum of SIX HUNDRED THOUSAND DOLLARS ($600,000), without
interest, in ninety-six (96) equal installments of SIX THOUSAND TWO HUNDRED
FIFTY DOLLARS ($6,250), payable on the tenth (10) and twenty-fifth (25th) days
of each month beginning November 25, 1999 and ending November 10, 2003 ("Note").
Notwithstanding the foregoing, the Maker shall be entitled to deduct from each
payment due hereunder all applicable withholding taxes.
This Note is given pursuant and subject to the terms and conditions of that
certain Retirement Agreement of even date between the Maker and the Payee.
If any of the following events or conditions shall happen or occur (in any
case, an "Event of Default"): (i) a default by the Maker in the due and punctual
payment of any amount due hereunder and the continuance thereof for a period of
fifteen (15) days following receipt of written notice of default from the Payee;
(ii) the application by the Maker for, or consent by the Maker to, the
appointment of a receiver, trustee or liquidator of itself or of its property;
(iii) a general assignment by the Maker for the benefit of creditors; (iv) the
filing by the Maker of a voluntary petition in bankruptcy or a petition or an
answer seeking reorganization or an arrangement with creditors; or (v) the Maker
having an involuntary petition in bankruptcy filed against it which is not
dismissed, discharged or stayed within sixty (60) days, then and in each and
every such Event of Default, the Payee may, by written notice to the Maker,
declare the entire unpaid amount of this Note then outstanding to be forthwith
due and payable whereupon the same shall become forthwith due and payable.
This Note may not be waived, changed, modified or discharged orally, but
only by an agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
Should this Note be placed in the hands of any attorneys for collection
upon the occurrence of an Event of Default, the Maker agrees to pay, in addition
to all other amounts due and payable hereunder, all costs and expenses of
collection, including reasonable attorneys' fees.
Except as provided for above, the Maker expressly waives presentment,
demand, protest, notice of dishonor, notice of maturity, notice of protest, and
diligence in collection.
<PAGE>
Any notice, demand or request relating to any matter set forth herein shall
be in writing and shall be deemed effective when hand delivered, or one (1) day
following the date mailed by overnight mail or nationally recognized overnight
courier to the Maker or the Payee at its address stated herein (provided
confirmation of receipt is obtained) or at such other address of which it or he
shall have notified the party giving such notice in writing as aforesaid.
This Note may be prepaid in whole or in part without premium or penalty.
This Note shall be governed by, and interpreted and construed in accordance
with, the laws of the State of New York, excluding choice of law principles
thereof.
The Maker hereby agrees that any legal action with regard to this Note
shall be brought in the courts of the State of New York or of the United States
of America for the Eastern District of New York and hereby appoints Certilman
Balin Adler & Hyman, LLP, 90 Merrick Avenue, East Meadow, New York 11554,
Attention: Fred Skolnik, Esq., as its agent for service of process in connection
therewith.
<PAGE>
IN WITNESS WHEREOF, the Maker has duly executed this Promissory Note as of
the day and year first above written.
COMPUFLIGHT, INC.
By:/s/ Duncan Macdonald
-----------------------
Duncan Macdonald
Chief Executive Officer
PROMISSORY NOTE
$60,594 August 5, 1999
FOR VALUE RECEIVED, COMPUFLIGHT, INC., a Delaware corporation (the
"Maker"), with its principal place of business at 175 Columbia Street West,
Waterloo, Ontario Canada, promises to pay to the order of RUSSELL K. THAL (the
"Payee"), with an address at 26 Ridge Drive, Port Washington, New York 11050, or
at such other place as the holder hereof may from time to time designate in
writing, the principal sum of SIXTY THOUSAND FIVE HUNDRED NINETY-FOUR DOLLARS
($60,594), without interest, as follows:
Date Amount
August 25, 1999 $ 5,000
September 25, 1999 5,000
October 25, 1999 5,000
November 25, 1999 10,000
December 25, 1999 10,000
January 25, 2000 10,000
February 25, 2000 5,000
March 25, 2000 5,000
April 25, 2000 5,000
May 25, 2000 Balance
This Note is given pursuant and subject to the terms and conditions of that
certain Retirement Agreement of even date between the Maker and the Payee.
If any of the following events or conditions shall happen or occur (in any
case, an "Event of Default"): (i) a default by the Maker in the due and punctual
payment of any amount due hereunder and the continuance thereof for a period of
fifteen (15) days following receipt of written notice of default from the Payee;
(ii) the application by the Maker for, or consent by the Maker to, the
appointment of a receiver, trustee or liquidator of itself or of its property;
(iii) a general assignment by the Maker for the benefit of creditors; (iv) the
filing by the Maker of a voluntary petition in bankruptcy or a petition or an
answer seeking reorganization or an arrangement with creditors; or (v) the Maker
having an involuntary petition in bankruptcy filed against it which is not
dismissed, discharged or stayed within sixty (60) days, then and in each and
every such Event of Default, the Payee may, by written notice to the Maker,
declare the entire unpaid amount of this Note then outstanding to be forthwith
due and payable whereupon the same shall become forthwith due and payable.
<PAGE>
This Note may not be waived, changed, modified or discharged orally, but
only by an agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
Should this Note be placed in the hands of any attorneys for collection
upon the occurrence of an Event of Default, the Maker agrees to pay, in addition
to all other amounts due and payable hereunder, all costs and expenses of
collection, including reasonable attorneys' fees.
Except as provided for above, the Maker expressly waives presentment,
demand, protest, notice of dishonor, notice of maturity, notice of protest, and
diligence in collection.
Any notice, demand or request relating to any matter set forth herein shall
be in writing and shall be deemed effective when hand delivered, or one (1) day
following the date mailed by overnight mail or nationally recognized overnight
courier to the Maker or the Payee at its address stated herein (provided
confirmation of receipt is obtained) or at such other address of which it or he
shall have notified the party giving such notice in writing as aforesaid.
This Note may be prepaid in whole or in part without premium or penalty.
This Note shall be governed by, and interpreted and construed in accordance
with, the laws of the State of New York, excluding choice of law principles
thereof.
The Maker hereby agrees that any legal action with regard to this Note
shall be brought in the courts of the State of New York or of the United States
of America for the Eastern District of New York and hereby appoints Certilman
Balin Adler & Hyman, LLP, 90 Merrick Avenue, East Meadow, New York 11554,
Attention: Fred Skolnik, Esq., as its agent for service of process in connection
therewith.
<PAGE>
IN WITNESS WHEREOF, the Maker has duly executed this Promissory Note as of
the day and year first above written.
COMPUFLIGHT, INC.
/s/ Duncan Macdonald
--------------------
By:
Duncan Macdonald
Chief Executive Officer
September 24, 1999
Mr. Douglas Robinson
Director
Skyplan Services Limited
1441 Aviation Park
Calgary, Alberta
T2E 8M7
Dear Douglas:
Re: Skyplan Services (UK) Limited (the "Company")
This letter will serve to set out the terms and conditions upon which
Navtech Systems Support Inc. (herein called "Navtech") or an affiliate
designated by Navtech (the "Purchaser") agrees to purchase from Skyplan Services
Limited (the "Shareholder") all of the issued and outstanding common shares of
the Company (the "Purchased Shares"). If acceptable to the Shareholder, once
executed, this letter will become a legally binding agreement. Should the
Purchaser be an affiliate, Navtech will provide a guarantee of performance.
The terms of the offer are as follows:
1. Offer to Purchase
The Purchaser hereby offers to purchase from the Shareholder the
Purchased Shares. On the Closing Date, the Purchased Shares are to be
transferred to the Purchaser free and clear of any security interests, pledges,
charges, or other encumbrances.
2. Purchase Price
The purchase price payable for the Purchased Shares (the "Purchase
Price") shall be One Hundred and Eighty Thousand Dollars ($180,000.00) payable
in accordance with Section 3.
3. Payment of Purchase Price
(a) The Purchase Price shall be paid to the Shareholder as follows:
(i) $125,000.00 on the Closing Date (as hereinafter defined) by
certified cheque, and
(ii) the balance of the Purchase Price shall be deposited into
the trust account of Bennett Jones ("Purchaser's Counsel")
on the Closing Date, to be held in trust subject to the
terms of this letter agreement. Such funds (the "Holdback")
shall be released for the benefit of the Shareholder upon
expiry of the Post-Closing Term unless Purchaser's Counsel
has received written notice as contemplated by paragraph 5
hereof.
<PAGE>
(b) It is agreed that all monies payable pursuant to paragraph 3(a)
above shall be paid to Shareholder's counsel on the trust
condition that the same be remitted to the Toronto Dominion Bank
(the "TD Bank") on behalf of the Shareholder in such amounts as
are necessary to extinguish all indebtedness of the Shareholder
and its affiliates to TD Bank in respect of the Shareholder's
domestic line of credit, as agreed with TD Bank (it being
understood that if the amounts paid pursuant to paragraph 3(a)
are insufficient to discharge such indebtedness, the entire
amount shall be paid to TD Bank).
4. Post-Closing Term
For the time period commencing immediately after Closing and ending on
the close of business on October 22, 1999 (the "Post-Closing Term"), the
Shareholder shall:
(a) continue to "host" the software of the Company in its offices in
Calgary in order to insure that all software currently utilized
and owned by the Company can continue to be utilized, unaffected,
through the Post-Closing Term;
(b) transfer to the Company all data, software and parameter files
owned, used or licenced by the Shareholder or any of its
affiliates which are used or required by the Company to support
its current customer base, including, but not limited to, the
items listed in Schedule "B" hereto, but excluding CyberTrac One;
(c) provide or cause to be provided the following to the Company,
without remuneration:
(i) operational and technical support for the Calgary server and
the London (Gatwick) office including communication links,
twenty four hours a day, seven days a week;
(ii) dedicated technical assistance by Michel Terroux (for a
minimum of forty hours during the Post-Closing Term), for
the purposes of transferring customer-specific data,
parameter files and software to operate and support the
Company's customers; and
(iii)provide all navigation and meteorological data (including
AIRACs) on a timely and routine basis; and
(d) cause all closing documents delivered by fax on the Closing Date
to be delivered in original form.
5. Breach During Post-Closing Term
(a) In the event the Purchaser contends during the Post-Closing Term
that: (i) the Shareholder is in breach of any of the
representations or warranties referred to in Section 9 hereof,
and that such breach is material; or (ii) that paragraph 4 has
been breached by the Shareholder; the Purchaser shall provide the
Shareholder and Purchaser's Counsel with written notice thereof,
which notice shall contain complete particulars of the alleged
breach.
(b) In the event that Purchaser's Counsel has received written notice
as contemplated by subparagraph 5(a) above, it shall retain such
<PAGE>
portion of the Holdback as is equal to the amount claimed in such
notice (or all of the Holdback if less than the amount claimed).
The unclaimed portion shall be paid to the Shareholder's counsel
at the end of the Post-Closing Term on the trust condition that
the same be remitted to TD Bank on behalf of the Shareholder in
such amount as may be necessary to pay the balance owed, if any,
on the Shareholder's domestic line of credit, to the extent of
the available funds, with the remainder, if any, released to the
Shareholder. The claimed portion shall remain in trust until the
subject matter of the notice or notices has been resolved.
6. Closing
The purchase and sale of the Purchased Shares shall be completed on
October 1, 1999, or such other date as may be mutually agreed upon (herein
called the "Closing Date"). Closing shall occur on the basis of faxed
signatures, which are to be delivered as soon as practicable thereafter by
courier.
7. Non-Solicitation Agreement
On the Closing Date, the Shareholder shall provide to the Purchaser its
written covenant, binding upon all of its subsidiaries and affiliates, in form
and substance satisfactory to the Purchaser, not to solicit customers or
employees of the Company, for a period of two years following the Closing Date.
8. Communications with Company Employees
From the date hereof until the Closing Date the Purchaser shall be
entitled to hold discussions with each employee of the Company.
9. Representations and Warranties of Shareholder
The Shareholder represents and warrants to the Purchaser as follows,
and acknowledges that the Purchaser is relying on such representations and
warranties in connection with its purchase of the Purchased Shares:
(a) Third Party Rights. No third party has any written or oral
agreement or option or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or
option for the purchase or acquisition of any shares of any
nature or kind in the capital of the Company.
(b) Authorization. This Agreement has been duly executed and
delivered by the Shareholder and is a legal, valid and binding
obligation of the Shareholder, enforceable against the
Shareholder by the Purchaser in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors generally and except that
equitable remedies may be granted only in the discretion of a
court of competent jurisdiction.
(c) No Other Agreements to Purchase. No third party has any written
or oral agreement or option or any right or privilege (whether by
law, pre-emptive or contractual) capable of becoming an agreement
or option for the purchase or acquisition from the Shareholder of
any of the Purchased Shares.
(d) Ownership of the Purchased Shares. The Shareholder is the legal
and beneficial owner of record of the Purchased Shares, free and
<PAGE>
clear of all Encumbrances (as hereinafter defined) and, without
limiting the generality of the foregoing, the Purchased Shares
are not subject to any voting trust, shareholder agreement or
voting agreement. At the time of completion of the transaction
contemplated by this Agreement, the Purchaser will own all of the
issued and outstanding share capital of the Company.
(e) Encumbrances. "Encumbrance" means any encumbrance, lien, charge,
hypothec, pledge, mortgage, title retention agreement, security
interest of any nature, adverse claim, any matter capable of
registration against title, option, right of pre-emption,
privilege or any contract to create any of the foregoing.
(f) No Violation. The execution and delivery of this letter of
agreement by the Shareholder and the consummation of the
transactions herein provided for will not result in either:
(i) the breach or violation of any of the provisions of, or
constitute a default under, or conflict with or cause the
acceleration of any obligation of the Shareholder or the
Company under:
(A) any judgment, decree, order or award of any court,
governmental body or arbitrator having jurisdiction
over the Shareholder or the Company;
(B) to the best of its knowledge, any contract to which the
Company is a party or by which its assets are bound;
(C) any contract to which the Shareholder is a party or by
which its assets are bound;
(D) to the best of its knowledge, any applicable law,
statute, ordinance, regulation or rule; or
(E) the articles of incorporation and any amendments
thereto, the by-laws and resolutions of the Company and
the Shareholder; or
(ii) the creation or imposition of any Encumbrance on any of the
Purchased Shares or to the best of its knowledge, any of the
property or assets of the Company.
(g) Financial Statements. The financial statements for the Company as
provided to the Purchaser have been prepared in accordance with
generally accepted accounting principles, and present fairly the
assets, liabilities (whether accrued, absolute, contingent, or
otherwise) and the financial condition of the Company as at the
respective dates of the relevant statements, and in particular
the financial statement for the period ending May 31st, 1999, as
well as the sales, earnings, and liabilities of the Company
during the periods covered by the financial statements. Further,
the Shareholder and the Company have made complete and accurate
disclosure to the Purchaser of all liabilities of the Company.
(h) Accounts Payable. The accounts payable of the Company to ordinary
creditors (other than its affiliates), exclusive of secured or
preferred creditors, do not exceed (pound)125,000 as of the
Closing Date.
<PAGE>
(i) Corporate Records. To the knowledge of Douglas Robinson,
Robin Smith and Adrian Bone, the Company has complied with
all corporate legislation and is in good standing; the
corporate records of the Company fully disclose all
shareholder and director resolutions relating to the
business and affairs of the Company; all corporate
proceedings and actions reflected in the corporate records
shall have been conducted or taken in compliance with all
applicable laws and with the articles and by-laws of the
Company; and the minute books of the Company contain all
resolutions, certificates, articles, bylaws, agreements and
registers properly to be contained therein.
(j) Contracts.
(i) To the best of its knowledge each of the contracts to which
the Company is party is in full force and effect, unamended,
and there exists no default or event of default relating to
any such contract which has not been disclosed to Navtech;
(ii) There are no agreements or contracts, written or verbal,
under which the Company has any obligation, or pursuant to
which the Company derives any benefit, and to which any
affiliate of the Company is a party or has in the past
customarily assisted in the performance thereof; and
(iii)There are no existing facts, circumstances or relationships
in existence which may reasonably be expected to be harmed
or prejudiced by a change in ownership of the Company and
the consequent severing of the relationship of the Company
with its current affiliates.
(k) Employees. None of the employees of the Company has any written
contract of employment with the Company, other than as disclosed
to the Purchaser.
(l) Claims. There is no claim, at law or in equity, by any person,
pending or threatened, against or affecting the Company.
(m) Compliance with Laws. To the best of its knowledge, the business
and affairs of the Company has been conducted in accordance and
compliance with all applicable laws and regulations.
(n) Subsidiaries. The Company has no subsidiaries.
(o) Income Taxes. The liability for income tax for the Company does
and shall not exceed(pound)5,000 as of the Closing Date.
(p) Usual Course of Business. The Company has carried on business in
the usual course, without extraordinary transactions since July
1, 1999 and without restricting the foregoing the Company has
made no loans or other dispositions to any of the affiliates,
employees, consultants, officers or directors, other than has
been disclosed to Navtech.
(q) Assets. As of the Closing Date, the Company is the legal and
beneficial owner of all of the items set forth in Schedule "A"
hereto.
(r) Ability to Carry on Business. Other than the items required to be
transferred by the Shareholder pursuant to subparagraph 4(b), the
<PAGE>
Company has, and as of the Closing Date will have, all assets,
including software, data, hardware and personnel, required to
carry on the business as currently conducted by it.
10. Conditions of Closing
The parties acknowledge that completion of the transaction provided for
herein is conditional upon the following:
(a) the Purchaser shall be satisfied, acting reasonably, that the
Company has, as of the Closing Date, no outstanding liabilities,
except for (i) unsecured liabilities to trade creditors incurred
in the ordinary course of the Company's business, which shall not
exceed (pound)125,000 and (ii) with respect to income taxes
payable, as disclosed in such subparagraph 9(o) above.
(b) the Purchaser shall be satisfied with its negotiations with the
employees and consultants of the Company with respect to
Post-Closing employment;
(c) the Purchaser shall have received written confirmation from all
secured parties and governmental bodies that the Purchased Shares
may be transferred as contemplated hereby, free of all charges or
encumbrances;
(d) all directors and officers of the Company shall have resigned and
released the Company of further liability, except for those
directors and officers whom the Purchaser wishes to retain;
(e) the Shareholder shall provide the Company with a general release,
in form and substance satisfactory to the Purchaser, of any claim
existing as at the Closing Date;
(f) the Shareholder and the directors of the Company shall have
executed the various corporate documents and resolutions of the
Company that require execution by the Shareholder and the
directors of the Company, and in the event that any of the
corporate records have deficiencies, the Shareholder will assist
the Purchaser to rectify such deficiencies;
(g) the representations and warranties of the Shareholder contained
in this Agreement shall be true and correct as of the Closing
Date with the same force and effect as if such representations
and warranties had been made on and as of such date;
(h) all approvals requested for the transfer of the Purchased Shares
shall have been obtained including the approval of the board of
directors of the Company;
(i) the Shareholder shall have returned all material and documents of
the Company in his possession, and shall verify that any
electronically stored information has been returned with all
copies destroyed;
(j) TD Bank shall have provided its written consent to this
transaction in terms satisfactory to the Shareholder and the
Purchaser; and
(k) the Purchaser and the Shareholder shall have executed and
delivered a forbearance agreement addressing the status of the
<PAGE>
Navtech Flight Operations Support Software, systems products and
services (including without limitation Navtech Master Products &
Services Agreement No. 94-05) ("Navtech FOMS").
11. Inter-Company Payables
Provided that Closing has occurred, all amounts owing to affiliates by
the Company, and all amounts owing by affiliates to the Company shall be deemed
to have been extinguished.
12. Professional Costs
The parties shall be responsible for their respective legal and other
professional costs incurred in connection with negotiating and completing this
Agreement. For greater certainty the Shareholder will be responsible for the
costs for the services for his own personal legal, accounting, tax and other
related matters.
13. Public Announcement
Any public announcement or other communication concerning this
Agreement shall be subject to the joint approval of the Purchaser and the
Shareholder. The Shareholder acknowledges that the Purchaser is subject to
certain disclosure obligations based on the materiality of this Agreement and as
such the Purchaser shall have the right to make such disclosure upon giving
written notice to the Shareholder.
14. Further Assurances
Each party to this Agreement covenants and agrees that, from time to
time subsequent to the Closing Date, it will at the request and expense of the
requesting party, execute and deliver all such documents, including, without
limitation, all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party hereto,
acting reasonably, may from time to time request be executed or done in order to
better evidence or perfect or effectuate any provision of this Agreement or of
any agreement or other document executed pursuant to this Agreement or any of
the respective obligations intended to be created hereby or thereby.
15. Change of Name
Within 180 days of the Closing Date, the Purchaser shall change the name of
the Company to a name which does not reference "Skyplan".
16. Binding Agreement
This Letter, if accepted by the Shareholder, shall constitute a legally
binding agreement in accordance with the terms hereof.
17. Jurisdiction
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the parties hereto hereby irrevocably
attorn to the exclusive jurisdiction of the courts of that province.
<PAGE>
18. Counterparts
This Letter may be executed in separate counterparts each of which
shall be an original and all of which shall constitute one and the same
agreement.
19. Notices
Any notices to be provided by this Agreement may be mailed, delivered,
or forwarded by facsimile. If to the Shareholder, the address is as follows:
Mr. Adrian Bone
President
Skyplan Services Limited
1441 Aviation Park
Calgary, AB, T2E 8M7
Fax: (403) 275-3877
If to the Purchaser, the address is as follows:
Mr. Duncan Macdonald
Chief Executive Officer
Navtech Systems Support Inc.
175 Columbia Street W.
Suite 102
Waterloo, ON, N2L 5Z5
Fax: (519) 747-1003
20. Time of the Essence
Time shall in all respects be of the essence.
21. Arbitration
All disputes arising out of or in connection with the matters set forth
in this letter agreement shall be decided by a single arbitrator pursuant to the
Arbitration Act (Alberta).
22. Acceptance
If the foregoing general terms and conditions are acceptable to you,
please sign the enclosed duplicate copy of this Letter and return it to us.
Yours truly,
NAVTECH SYSTEMS SUPPORT INC.
/s/ Duncan Macdonald
---------------------------
Per:
Title: Chief Executive Officer
<PAGE>
For good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, Skyplan Services Limited, by its duly authorized
officer, hereby agrees to the terms and conditions above set forth and by the
acceptance hereof, the foregoing shall constitute a binding agreement between
Navtech Systems Support Inc. and Skyplan Services Limited, as set forth above,
this 24th day of September, 1999.
SKYPLAN SERVICES LIMITED
Per: /s/ Douglas Robinson
----------------------------------------
Douglas Robinson
Director and Officer
Per: /s/ Adrian Bone
----------------------------------------
Adrian Bone
President
<PAGE>
Schedule "A"
Fixed Asset Listing As of December 31, 1998 audit working papers:
Improvements to property
- ------------------------
Stamp duty
Partitioning/Redecorations
Installation network points
Electrical works
Office Furniture
- ----------------
Office furniture
Chairs/Bookcase
Desks/Ops table/Filing cabinet
5 Chairs/Arms
Office Equipment
- ----------------
Office equipment
Mobile phone
Printing calculator
Fans
Vacuum cleaner
Call logging equipment
Photocopier
Handset for answer system
Telephone equipment
Computer Equipment
Computer equipment
Power supply unit
Modem cable
Processor motherboard
Processor motherboard
Modem cable
Network (WAN) equipment
Computer memory
Lap top computer R. Smith
Various computer equipment
Monitor
HP Jet printer server
Computer system IBM (4 computers)
Laser Jet printer
Network equipment Tricom
Computer system
<PAGE>
Schedule "B"
- - Aircraft Performance Data;
- - Aircraft Characteristics Files;
- - Customer Policies for Fuel Reserves and ETPs;
- - Customer Stored Routes;
- - Customer Networking Addresses (AFTN, SITA, ARINC, Fax);
- - Customer-specific NOTAMs;
- - Flight Plan Format Files;
- - Airport Data for Airport(s) in a designated city-pair for any customer of
the Company;
- - Enhancements to the FOMS system as currently provided to the Company's
customers (e.g. MORA).
October 1, 1999
Mr. Douglas Robinson
Director
Skyplan Services Limited
1441 Aviation Park
Calgary, Alberta
T2E 8M7
Dear Douglas:
Re: Forbearance and Continued Service
Skyplan Services Limited (the "Debtor") is currently indebted to Navtech Systems
Support Inc. ("Navtech") in the approximate amount of $95,000.00 (the
"Arrears"), which amount has accumulated due to a failure to pay fees for
services and licensing. This letter is intended to form a legally binding
agreement upon execution by Debtor. This agreement shall govern the conditions
under which Navtech will refrain from taking legal action for the collection of
the Arrears, and setting forth the terms and conditions under which Navtech will
continue to provide services.
1. Forbearance
On the first day of each calendar month for the next ensuing 24
consecutive months beginning November 1, 1999, the Debtor shall pay
$3,958.33, without interest, and so long as such payments are made on
time, the Arrears shall have been fully repaid at the end of the 24
month period. Further, immediately upon execution of this Agreement,
the Debtor will grant a promissory note (the "Promissory Note") for the
amount of the Arrears, and a security interest in all rights of the
Debtor in and to Navtech Operations Support Software, systems, products
and services, (including without limitation the Navtech Master Products
& Services Agreement No. 94-05 (the "Agreement")), by way of a security
agreement (the "Security Agreement") in form satisfactory to Navtech,
acting reasonably, which security interest shall secure the repayment
of the Arrears, and which may be registered by Navtech at applicable
registries. So long as the Debtor continues to make the aforementioned
monthly payments on time, (a) Navtech shall not take any action to
enforce its security or collect the Arrears, and will not demand
repayment of the Promissory Note; and (b) the Agreement will be
considered to be in good standing in the name of the Debtor as
licensee. The Agreement will be assignable by the Debtor to Skyplan
International Inc. in accordance with the terms of the Security
Agreement.
2. Performance of Services
For the next ensuing 6 calendar months beginning October 1, 1999,
Navtech shall continue to provide the services referred to in Schedule
"A" attached hereto (hereinafter referred to as the "Services"), so
long as the Debtor has paid the monthly fee for such Services at the
beginning of each month, in advance, equal to $7,100.00 plus GST.
Certain additional services may be provided for an additional hourly
fee, all of which additional fees shall be payable at the end of each
month in which such additional services are provided.
3. Termination
All of the covenants and obligations of Navtech under this Agreement
shall terminate immediately upon the failure of the Debtor to comply
with any of the terms of this Agreement, or upon the occurrence of an
Act of Insolvency.
4. Act of Insolvency
An Act of Insolvency shall be deemed to have occurred in the event that
any of the following occur in relation to the Debtor:
(a) a receiver or a receiver manager is appointed over its affairs,
or a receiving order in bankruptcy is granted or the Debtor makes
an assignment for the benefit of its creditors or files for
protection from its creditors under applicable insolvency
legislation;
(b) any of its assets are seized or attached by a creditor pursuant
to a judgment or security agreement or security interest, and
such action is not disputed by the Debtor, acting bona fide;
(c) the Debtor is dissolved, wound-up or liquidated, or discontinues
carrying on its business as now conducted in the ordinary course.
5. Further Assurances
Each party to this Agreement covenants and agrees that, from time to
time it will at the request and expense of the requesting party,
execute and deliver all such documents, including, without limitation,
all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party
hereto, acting reasonably, may from time to time request be executed or
done in order to better evidence or perfect or effectuate any provision
of this Agreement or of any agreement or other document executed
pursuant to this Agreement or any of the respective obligations
intended to be created hereby or thereby.
6. Binding Agreement
This Agreement, if accepted by the Shareholder, shall constitute a
legally binding agreement in accordance with the terms hereof.
7. Jurisdiction
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta, and the parties hereby irrevocably
attorn to the exclusive jurisdiction of the courts of that province.
8. Counterparts
This Agreement may be executed in separate counterparts each of which
shall be an original and all of which shall constitute one and the same
agreement.
9. Notices
Any notices to be provided by this Agreement may be mailed, delivered,
or forwarded by facsimile. If to the Debtor, the address is as follows:
Mr. Adrian Bone
President
Skyplan Services Limited
1441 Aviation Park
Calgary, AB, T2E 8M7
Fax: (403) 275-3877
If to Navtech, the address is as follows:
Mr. Duncan Macdonald
Chief Executive Officer
Navtech Systems Support Inc.
175 Columbia Street W.
Suite 102
Waterloo, ON, N2L 5Z5
Fax: (519) 747-1003
10. Time of the Essence
Time shall in all respects be of the essence.
Yours truly,
NAVTECH SYSTEMS SUPPORT INC.
/s/ Duncan Macdonald
---------------------------
Per: Duncan Macdonald
Title: Chief Executive Officer
<PAGE>
For good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, Skyplan Services Limited, by its duly authorized officer,
hereby agrees to the terms and conditions above set forth and by the acceptance
hereof, the foregoing shall constitute a binding agreement between Navtech
Systems Support Inc. and Skyplan Services Limited, as set forth above, this 1st
day of October, 1999.
SKYPLAN SERVICES LIMITED
Per:/s/ Douglas Robinson
-----------------------------------------
Douglas Robinson
Director and Officer
Per:/s/ Adrian Bone
-----------------------------------------
Adrian Bone
President
<PAGE>
SCHEDULE "A"
SOFTWARE SUPPORT AND SERVICES
MONTHLY SERVICES
Fee: $7,100.00 plus applicable GST
1. AIRAC DATA UPDATES
Provision of the 28 day AIRAC data differences for airways and waypoints.
2. SIDS/STARS MONTHLY DIFFERENCES
Navtech will provide a datafile that contains the changes in the SIDS and
STARS that have occurred during the month. This file will be created after
the AIRAC 28 day updates have been completed.
NAVTECH APPLIED RESEARCH, INC.
Software License Agreement
THIS IS A Software License Agreement (called the "Agreement") between Navtech
Applied Research, Inc., an Ontario corporation with its principal place of
business located at 175 Columbia Street West, Suite 102, Waterloo, Ontario, N2L
5Z5 (called "NARI") and Compuflight, Inc., a Delaware corporation, with its
principal place of business located at 2400 Garden Road, Monterey, California
93940 (called "Compuflight").
1.0 BACKGROUND CONTEXT.
1.1 In July 1998, NARI acquired the Weather and NOTAM System Software
described in Exhibit A (called the "NARI Software").
1.2 The NARI Software is a very complex tool that may be used as the
central component of a computerized weather data processing and reporting
system.
1.3 Compuflight is in the business of providing flight route planning and
other data to airlines and other air traffic managers.
1.4 Compuflight desires to license the NARI Software so that it will have
the ability to add weather data to the information it provides to its present
and future customers.
1.5 This Agreement sets forth the terms and conditions under which
Compuflight is licensed to use the NARI Software.
2.0 GRANT OF LICENSE.
2.1 NARI grants Compuflight a non-exclusive, non-transferable license to do
each of the following for the duration of this Agreement: (a) install the NARI
Software on computer systems located at Compuflight's place or places of
business, (b) configure the NARI Software for use in Compuflight's business, (c)
modify and create derivatives of the NARI Software to the extent reasonably
necessary to maintain and enhance the NARI Software for use in Compuflight's
business, and (d) use the NARI Software to process data for Compuflight's
internal use and for sale to Compuflight's customers.
2.2 Compuflight may exercise its rights under this License directly using
its own facilities, personnel, or contractors and may also exercise its rights
using the facilities, personnel, or contractors of its wholly owned subsidiary.
2.3 Compuflight is expressly prohibited from sublicensing any of
Compuflight's rights under this Agreement to any third party and may only
distribute processed data to its third party customers.
2.4 All copies of the NARI Software, including the original copies provided
by NARI and any copies or derivatives of the NARI Software created by
Compuflight shall be kept in the possession and under the control of Compuflight
or its authorized wholly owned subsidiary at all times.
2.5 NARI reserves all rights not expressly granted to Compuflight under
this Agreement.
3.0 TERM OF THIS LICENSE.
3.1 The term of this Agreement is for a period of one (1) year beginning on
August 1, 1998 and ending on July 31, 1999. Thereafter, this Agreement shall
automatically renew for an additional one (1) year term beginning on August 1
and ending the following July 31 each time it expires unless either party gives
the other written notice, not less than sixty (60) days before the beginning of
any renewal term, that it does not want the Agreement to automatically renew on
the expiration of the then current term. The automatic renewal of this Agreement
in accordance with this Paragraph 3.0 shall not renew or extend any warranty
beyond its initial term provided in this Agreement.
3.2 Either party shall have the right to terminate this Agreement at any
time if the other party commits a material breach of this Agreement and fails to
cure that breach within sixty (60) days after receiving written notice of the
breach from the non breaching party unless the breach is cured before the end of
the sixty day cure period.
3.3 Upon the expiration or termination of this Agreement Compuflight shall
promptly destroy all copies of the NARI Software and its derivatives.
Compuflight's management shall provide NARI with written certification that all
copies of the NARI Software and its derivatives have been destroyed within
thirty (30) days after the effective date of the expiration or termination of
this Agreement.
4.0 RECORD KEEPING, ROYALTY PAYMENTS, AND AUDIT RIGHTS.
4.1 Compuflight shall have complete discursion in the marketing of data
processed using the NARI Software or its derivatives except that Compuflight
shall price, market, and distribute the data it processes using the NARI
Software or its derivatives separately from Compuflight's other products, data,
and services. Compuflight shall set up and maintain a separate set of accounts
to record the entire gross revenue it receives from the sale of data processed
using the NARI Software or its derivatives following generally accepted
accounting practices (called the "Gross Revenue"). The components of Gross
Revenue are described and defined in Exhibit B. All records and payments will be
maintained in U. S. Dollars, and any revenue received in other currencies shall
be converted to U. S. Dollars by Compuflight for record keeping, reporting, and
payment purposes under this Agreement.
4.2 Compuflight shall allocate the Gross Revenue it receives from the sale
of data processed using the NARI Software into a "Royalty Base Account" and a
"Non Royalty Base Account" in accordance with the definitions and criteria set
forth in Exhibit B.
4.3 Compuflight shall accrue a royalty payable to NARI equal to ten percent
(10%) of the revenue allocated to the Royalty Base Account each month as it is
received by Compuflight.
4.4 A royalty report setting forth the Gross Revenue for the preceding
month, the amount allocated to the Non Royalty Base Account, the amount
allocated to the Royalty Base Account, and the amount of the royalty due to NARI
shall be prepared and sent to NARI within thirty (30) days after the end of each
month in which Compuflight receives any Gross Revenue from the sale of data
processed using the NARI Software or its derivatives.
4.5 The monthly royalty due to NARI under this Agreement may either be
applied to the payment of any amounts due to Compuflight from NARI, paid by a
bank check payable to NARI, or some combination of the two in Compuflight's
reasonable discretion.
4.6 If any royalty report is not provided and any payment due is not
credited against NARI's obligations to Compuflight or paid to NARI within
fifteen (15) days after the due date, the royalty due shall be subject to a late
payment charge equal to one and one half percent (11/2%) per month or fraction
thereof from the original due date until it is actually paid or credited to
NARI's obligations to Compuflight (or the highest amount allowed by law,
whichever is less).
4.7 NARI shall have the right to have an independent certified public
accountant retained and paid by the NARI audit Compuflight's records once each
year to verify the accuracy of Compuflight's records and royalty reports. In the
event that any such audit discloses an underpayment of more than two percent
(2%), Compuflight shall reimburse the NARI for the reasonable cost of the audit.
Compuflight shall promptly pay any past due royalties together with a late
payment charge calculated from the original due date until the past due amount
is paid at a rate eighteen percent (18%) per annum or the highest amount allowed
by law, whichever is less.
5.0 SOURCE CODE.
NARI will provide the NARI Software to Compuflight in both source code and
executable code form.
6.0 SOFTWARE SUPPORT.
NARI will provide Compuflight with the source code for the NARI Software
under this License, and accordingly Compuflight will be solely responsible for
providing its own technical support and software maintenance services as and
when they are required. NARI shall have no support obligation to Compuflight
under this Agreement. The level and structure of the royalties Compuflight is
required to pay to NARI under this Agreement reflect the allocation of support
and maintenance responsibilities for the NARI Software to Compuflight.
7.0 NONDISCLOSURE OBLIGATION.
7.1 All copies of the NARI Software, including the original copies provided
by NARI and any copies or derivatives of the NARI Software created by
Compuflight, shall be deemed to be NARI's confidential information. Compuflight
shall protect all copies of the NARI Software and its derivatives from
unauthorized use or disclosure.
7.2 Compuflight shall only use the NARI Software as provided in this
Agreement, and for a period of three (3) years from the date of this Agreement
expires or terminates, Compuflight shall not disclose any information related to
the NARI Software or its derivatives to any other person, firm, or corporation,
or use the information for its own benefit except as expressly provided in this
Agreement. Compuflight shall use reasonable care to prevent use or disclosure of
the NARI Software or related information, and no less stringent degree of care
to avoid disclosure or use of such software and information than Compuflight
employs with respect to its own confidential software and information which it
does not wish to be disseminated, published or disclosed.
7.3 The following shall not be deemed to be confidential, and Compuflight
shall not owe a duty of confidentiality to NARI with respect to information
that:
7.3.1 is already known to Compuflight at the time of disclosure
through lawful channels of communication; or
7.3.3 is or becomes publicly known through no wrongful act of
Compuflight; or
7.3.4 is rightfully received from a third party without similar
restriction and without breach of this Agreement; or
7.3.5 is independently developed by Compuflight without breach of this
Agreement; or
7.3.6 is furnished to a third party by NARI without a similar
restriction on the third party's rights; or
7.3.7 is approved for release by written authorization of NARI.
8.0 LIMITED WARRANTY AND DISCLAIMER OF LIABILITY.
The NARI Software provided under this Agreement is a complex business tool.
Its successful installation and operation is dependent in large part on the
skill of Compuflight in designing and completing its implementation of the NARI
Software and upon the operating practices and procedures employed by Compuflight
in its use of the NARI Software.
8.1 NARI warrants that the original media which the NARI Software is
recorded on and the documentation provided with it are free from defects in
material and workmanship under normal use. NARI warrants that the NARI Software
itself will perform substantially in accordance with the specifications set
forth in the documentation provided with the NARI Software, provided that the
software is properly configured, installed, and operated by Compuflight.
8.2 NARI expressly excludes any warranty that the NARI Software is Year
2000 compliant or that it will properly process date information after December
31, 1999. Compuflight assumes the entire responsibility for testing its
implementation of the NARI Software for year 2000 compliance and for correcting
any year 2000 problems that may exist in Compuflight's installation of the NARI
Software. This warranty is designated as a Year 2000 Readiness Disclosure under
the Year 2000 Information And Readiness Disclosure Act.
8.3 The above warranties are made for a period of ninety (90) days from the
commencement of the initial term of this Agreement. Items replaced under
warranty will be warranted for the remainder of the original warranty term or
thirty (30) days whichever is greater.
8.4 If there is a defect in any media or documentation, NARI will replace
the defective item without charge on an exchange basis.
8.5 If the NARI Software itself does not perform in substantial accordance
with the specifications set forth in the documentation provided by NARI or if
there is an error in the documentation, NARI will either replace or correct the
defective NARI Software or documentation without additional charge. This will be
done by providing Compuflight with corrective code, a corrected copy of the NARI
Software, or corrected documentation on an exchange basis, at NARI's option. If
for any reason, NARI is unable to cure a breach of this warranty after a
reasonable effort, NARI may, at its sole option, terminate this license and
refund the royalties actually paid by Compuflight for the defective delivery.
8.6 NARI does not warrant that the functions contained in the NARI Software
will meet Compuflight's requirements or that the operation of the NARI Software
will be uninterrupted or error free. The warranty does not cover any media or
documentation which has been subjected to damage or abuse by Compuflight. The
NARI Software warranty does not cover any copy of the NARI Software once it has
been altered or changed in any way by Compuflight. NARI is not responsible under
this warranty for problems caused by changes in the operating characteristics of
the computer hardware or operating systems which are made after the execution of
this Agreement or the delivery of the NARI Software, whichever first occurs, nor
for problems in the interaction of the NARI Software with any other software
unless it is provided or specified by NARI.
8.7 ANY IMPLIED WARRANTIES COVERING THE MEDIA, THE DOCUMENTATION, OR THE
NARI SOFTWARE INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
8.8 NARI SHALL NOT IN ANY CASE BE LIABLE FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL, INDIRECT, OR OTHER SIMILAR DAMAGES ARISING FROM BREACH OF
WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, OR ANY OTHER LEGAL THEORY EVEN IF NARI
OR ITS AGENT HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.9 In order to obtain warranty replacements for any defective NARI
Software or documentation, Compuflight must contact NARI during the warranty
period. Compuflight must be able to provide NARI with sufficient technical
information about the nature of the apparent problem and the precise
circumstances that give rise to the problem, to enable NARI to reproduce the
difficulty.
8.10 The warranties set forth above are in lieu of all other warranties,
whether oral, written, express, or implied, and THE REMEDIES SET FORTH ABOVE ARE
CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES. Only an authorized officer of NARI may
make modifications to this warranty, or additional warranties binding on NARI.
Accordingly, additional statements such as advertising or presentations, whether
oral or written, do not constitute warranties by NARI and should not be relied
upon as such.
9.0 PATENT, COPYRIGHT, TRADEMARK, AND TRADE SECRET INDEMNITY.
NARI will defend or settle, at NARI's expense, any action brought against
Compuflight based on a claim that the use of the NARI Software as provided for
in this Agreement infringes any U.S. patent, U. S. trademark, or any copyright,
or trade secret rights of a third party, provided that Compuflight, at
Compuflight's expense, (a) notifies NARI promptly in writing of any claim, (b)
supplies NARI with all available information, assistance and authority that NARI
requires to defend or settle the claim, and (c) that Compuflight permits NARI to
control the defense, compromise, or settlement of the claim. Compuflight may not
incur any cost or expense subject to this indemnity without the advance written
consent of NARI. If NARI determines that the NARI Software does or is likely to
infringe the rights of a third party, NARI may at its option: (a) procure at no
cost to Compuflight the right to continue to use the NARI Software in accordance
with this Agreement, (b) replace or modify the NARI Software to avoid the
infringement on an exchange basis, or (c) terminate this Agreement and refund
the license royalties paid by Compuflight for the use of the NARI Software
during the three (3) months immediately preceding the termination of this
Agreement under this provision of Paragraph 9.0. This provision states NARI's
entire liability for any infringement of any third party rights.
10.0 GENERAL CONDITIONS.
10.1 This Agreement shall in all respects be interpreted, construed in
accordance with, and governed by the internal laws of the State of California,
without regard to the rules on conflict of laws. The parties exclude the
application of the 1980 United Nations Convention on Contracts for the
International Sale of Goods if otherwise applicable. The place of making and the
place of performance for all purposes shall be Monterey, California regardless
of the actual place of execution or performance. In the event of any litigation
between the parties, the parties stipulate that the sole and exclusive
jurisdiction for such action shall be in the State Courts for the County of
Monterey, California or the United States District Court for the Northern
District of California. Both parties agree that the above referenced courts
shall have personal and exclusive jurisdiction over the parties for any dispute
arising out of this Agreement that is not covered by the Arbitration provision.
10.2 Except for the right of either party to apply to a court of competent
jurisdiction for a Temporary Restraining Order, a Preliminary Injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm
pending the selection and confirmation of the arbitrator(s), all disputes,
controversies, or differences which may arise between the parties, out of, in
relation to, or in connection with this Agreement, or the breach thereof, shall
be finally settled by binding arbitration pursuant to the Commercial Arbitration
Rules of the American Arbitration Association in effect as of the date the
dispute arises. Any such arbitration shall be under the rules and administration
of the American Arbitration Association's San Francisco office, and all hearings
shall be held in the city of San Jose, California. The arbitrator(s) shall
enforce the express terms of this Agreement, shall follow the applicable law
where the Agreement is silent on a matter in dispute, and shall have no
authority to award punitive damages nor any damages expressly excluded by the
terms of this Agreement. All proceedings in any arbitration shall be conducted
in the English language. The arbitrator's award may be enforced in any court of
competent jurisdiction.
10.3 This Agreement sets forth the entire agreement and understanding of
the parties relating to the subject matter herein and merges all prior
discussions, proposals, advertising, or other exchanges between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing and signed by both
parties to this Agreement.
10.4 Any notice required or permitted by this Agreement shall be in writing
and shall be sent by FAX and confirmed by prepaid express courier or registered
air mail addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives notice
hereunder. Such notice shall be deemed to have been given the earlier of the
date of actual receipt or five (5) days after deposit in the mail.
10.5 Nonperformance of either party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, earthquakes,
governmental acts or orders or restrictions, failure of suppliers, or
contractors, or any other reason where failure to perform is beyond the control
and not caused by the negligence of the non-performing party.
10.6 If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
10.7 This Agreement is not transferable without the prior written consent
of NARI. Once transferred, this Agreement shall be binding upon and be for the
benefit of both the original and the substitute parties hereto, their successors
and assignees.
10.8 In any litigation or arbitration between the parties, the prevailing
party shall be entitled to reasonable attorney fees and all costs of proceedings
incurred in enforcing this Agreement.
10.9 In no case shall NARI's liability under this Agreement exceed the
royalties paid by Compuflight during the three (3) months immediately preceding
the data the claim giving rise to the liability accrued.
10.10 NARI rejects any and all printed terms and conditions contained on
any purchase order or other ordering document submitted by Compuflight now and
hereafter. The parties' performance under this Agreement shall be governed
exclusively by the terms and conditions contained in this Agreement and any
signed written amendments, supplements, extensions to it.
10.11 Paragraph headings are for convenience only and shall not be
considered in the interpretation of this Agreement.
10.12 NARI and Compuflight are and shall remain independent contractors.
Neither party is the representative or agent of the other and neither party
shall have any power to assume any obligations on behalf of the other.
10.13 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
instrument.
10.13 NARI and Compuflight agree that the terms and conditions of this
Agreement are confidential, and that neither party shall disclose the contents
of this Agreement without the prior written consent of the other.
EXECUTED BY THE PARTIES AS PROVIDED BELOW:
Navtech Applied Research, Inc. Compuflight, Inc.
By: /s/ Dorothy English By: /s/ Derek Dawson
--------------------------- ---------------------------
Title: President Title: Chief Operating Officer
-------------------------- ---------------------------
Date: August 1, 1998 Date: August 1, 1998
PROMISSORY NOTE
US$134,700 July 15, 1998
FOR VALUE RECEIVED, NAVTECH APPLIED RESEARCH INC., an Ontario
corporation (the "Maker"), with its principal place of business at 175 Columbia
Street West, Waterloo, Ontario, Canada, promises to pay to the order of
COMPUFLIGHT, INC., a Delaware corporation (the "Payee"), with its principal
place of business at 175 Columbia Street West, Waterloo, Ontario, Canada, or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of ONE HUNDRED THIRTY FOUR THOUSAND SEVEN HUNDRED US
DOLLARS (US$134,700), bearing 10% interest calculated using the 360 Day Method,
in thirty-six (36) equal installments of FOUR THOUSAND THREE HUNDRED SEVENTY
FIVE US DOLLARS AND TWENTY FIVE CENTS (US$4,375.25), is payable on the last day
of the month beginning July 31, 1998, and ending on June 30, 2000 ("Note").
Notwithstanding the foregoing, the Maker shall be entitled to deduct from each
payment due hereunder all applicable withholding taxes.
The Maker agrees that the Royalty Payments defined in the Navtech Applied
Research Inc. Software License Agreement to be entered into no later than August
1, 1998 ("License Agreement") may be applied, in whole or in part, against any
outstanding principle amounts at the discretion of the Payee.
If any of the following events or conditions shall happen or occur (in
any case, an "Event of Default"): (i) a default by the Maker in the due and
punctual payment of any amount due hereunder and the continuance thereof for a
period of fifteen (15) days following receipt of written notice of default from
the Payee; (ii) the application by the Maker for, or consent by the Maker to,
the appointment of a receiver, trustee or liquidator of itself or of its
property; (iii) a general assignment by the Maker for the benefit of creditors;
(iv) the filing by the Maker of a voluntary petition in bankruptcy or a petition
or an answer seeking reorganization or an arrangement with creditors; or (v) the
Maker having an involuntary petition in bankruptcy filed against it which is not
dismissed, discharged or stayed within sixty (60) days, then and in each and
every such Event of Default, the Payee may, by written notice to the Maker,
declare the entire unpaid amount of this Note then outstanding to be forthwith
due and payable whereupon the same shall become forthwith due and payable.
This Note may not be waived, changed, modified or discharged orally,
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
Should this Note be placed in the hands of any attorneys for collection
upon the occurrence of an Event of Default, the Maker agrees to pay, in addition
to all other amounts due and payable hereunder, all costs and expenses of
collection, including reasonable attorneys' fees.
Except as provided for above, the Maker expressly waives presentment,
demand, protest, notice of dishonor, notice of maturity, notice of protest, and
diligence in collection.
Any notice, demand or request relating to any matter set forth herein
shall be in writing and shall be deemed effective when hand delivered, or one
(1) day following the date mailed by overnight mail or nationally recognized
overnight courier to the Maker or the Payee at its address stated herein
(provided confirmation of receipt is obtained) or at such other address of which
it or he shall have notified the party giving such notice in writing as
aforesaid.
This Note may be prepaid in whole or in part without premium or
penalty.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the Province of Ontario, excluding choice of law
principles thereof.
The Maker hereby agrees that any legal action with regard to this Note
shall be brought in the courts of the Province of Ontario and hereby appoints
Frank R. Volpini, M.A., LL.B., 375 University Avenue East, Waterloo, Ontario,
N2K 3M7, as its agent for service of process in connection therewith.
IN WITNESS WHEREOF, the Maker has duly executed this
Promissory Note as of the day and year first above written.
NAVTECH APPLIED RESEARCH INC.
/s/ Dorothy English
----------------------
By:
Dorothy English
PROMISSORY NOTE
US$150,000 July 15, 1998
FOR VALUE RECEIVED, NAVTECH APPLIED RESEARCH INC., an Ontario
corporation (the "Maker"), with its principal place of business at 175 Columbia
Street West, Waterloo, Ontario, Canada, promises to pay to the order of
COMPUFLIGHT, INC., a Delaware corporation (the "Payee"), with its principal
place of business at 175 Columbia Street West, Waterloo, Ontario, Canada, or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of ONE HUNDRED FIFTY THOUSAND US DOLLARS
(US$150,000). This sum bears no interest until November 1, 1998, at which time
interest, at a rate of 10% calculated using the 360 Day Method, becomes payable
monthly. On November 1, 1999, the principal sum and interest are to be repaid
monthly in thirty-six (36) equal installments of FIVE THOUSAND EIGHT HUNDRED
FIFTY FOUR US DOLLARS AND FIFTEEN CENTS (US$5,854.15), payable on the last day
of the month beginning November 30, 1999 and ending on October 31, 2002.
Notwithstanding the foregoing, the Maker shall be entitled to deduct from each
payment due hereunder all applicable withholding taxes.
The Maker agrees that the Royalty Payments defined in the Navtech Applied
Research Inc. Software License Agreement to be entered into no later than August
1, 1998 ("License Agreement") may be applied, in whole or in part, against any
outstanding principle amounts at the discretion of the Payee.
If any of the following events or conditions shall happen or occur (in
any case, an "Event of Default"): (i) a default by the Maker in the due and
punctual payment of any amount due hereunder and the continuance thereof for a
period of fifteen (15) days following receipt of written notice of default from
the Payee; (ii) the application by the Maker for, or consent by the Maker to,
the appointment of a receiver, trustee or liquidator of itself or of its
property; (iii) a general assignment by the Maker for the benefit of creditors;
(iv) the filing by the Maker of a voluntary petition in bankruptcy or a petition
or an answer seeking reorganization or an arrangement with creditors; or (v) the
Maker having an involuntary petition in bankruptcy filed against it which is not
dismissed, discharged or stayed within sixty (60) days, then and in each and
every such Event of Default, the Payee may, by written notice to the Maker,
declare the entire unpaid amount of this Note then outstanding to be forthwith
due and payable whereupon the same shall become forthwith due and payable.
This Note may not be waived, changed, modified or discharged orally,
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
Should this Note be placed in the hands of any attorneys for collection
upon the occurrence of an Event of Default, the Maker agrees to pay, in addition
to all other amounts due and payable hereunder, all costs and expenses of
collection, including reasonable attorneys' fees.
Except as provided for above, the Maker expressly waives presentment,
demand, protest, notice of dishonor, notice of maturity, notice of protest, and
diligence in collection.
Any notice, demand or request relating to any matter set forth herein
shall be in writing and shall be deemed effective when hand delivered, or one
(1) day following the date mailed by overnight mail or nationally recognized
overnight courier to the Maker or the Payee at its address stated herein
(provided confirmation of receipt is obtained) or at such other address of which
it or he shall have notified the party giving such notice in writing as
aforesaid.
This Note may be prepaid in whole or in part without premium or
penalty.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the Province of Ontario, excluding choice of law
principles thereof.
The Maker hereby agrees that any legal action with regard to this Note
shall be brought in the courts of the Province of Ontario and hereby appoints
Frank R. Volpini, M.A., LL.B., 375 University Avenue East, Waterloo, Ontario,
N2K 3M7, as its agent for service of process in connection therewith.
IN WITNESS WHEREOF, the Maker has duly executed this
Promissory Note as of the day and year first above written.
NAVTECH APPLIED RESEARCH INC.
/s/ Dorothy English
-----------------------
By:
Dorothy English
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