UNITED STATES
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, 1999
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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
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NAVTECH, 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
incorporation or organization) (I.R.S. Employer Identification Number)
2400 Garden Road, Monterey, CA 93940
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (519) 747-9883
COMPUFLIGHT, INC. 125 Mineola Ave., Roslyn Heights, NY 11577
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(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
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 X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year (1999): $ 5,253,576
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The aggregate market value of the voting stock held by non-affiliates based
upon the average bid and asked prices of such stock as of December 31, 1999 was
$ 379,039
(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
December 31, 1999, was 2,001,980 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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NAVTECH, INC.
1999 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business..........................................4
Item 2. Description of Property.........................................13
Item 3. Legal Proceedings...............................................14
Item 4. Submission of Matters to a Vote of Security Holders.............15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........16
Item 6. Management's Discussion and Analysis or Plan of Operation.......17
Item 7. Financial Statements............................................27
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure............................................28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...........29
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)
SIGNATURES......................................................42
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GLOSSARY OF TERMS
AFTN (Aeronautical Fixed Telecommunications Network)
An international telecommunications network used for the transmission of NOTAMs,
aircraft movement messages, and other relevant data.
ARINC (Aeronautical Radio, Inc.)
A vendor of a variety of communications services to the aviation industry.
Flight Dispatcher, Dispatcher
An airline employee responsible for pre-flight planning and continuous
communication and monitoring of a flight from start to finish.
Flight Plan
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.
FANS (Future Air Navigation System)
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
Graphical User Interface.
IATA
International Air Transport Association, a trade association of the worldwide
scheduled international airline industry with a membership of more that 220
airlines.
LINUX
Linux is a robust, high quality implementation of UNIX. It is a multi-user,
multi-tasking operating system that runs on many platforms, including Intel,
Motorola, MC68K and Alphas.
Navigational Data
Worldwide navigational flight information data which provides name and location
of navigational aids. The data is updated every 28 days and checked against data
provider charts every 56 days (AIRAC update).
NOTAM (Notice to Airmen)
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.
SITA (Societe Internationale de Telecommunication Aeronautique) 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
Navtech, 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
Navtech, Inc. ("Navtech"), formerly known as Compuflight, Inc, and subsidiaries,
Navtech Systems Support Inc. ("Navtech-Canada"), Navtech Systems (UK) Limited
("Navtech-UK") and Efficient Aviation Systems Inc. ("EAS") (herein referred to
collectively as the "Company"), are engaged in the business of developing,
marketing, licensing, and supporting computerized flight operations management
systems to the commercial aviation industry. Navtech was originally incorporated
in the State of New York in 1981 and then reincorporated in the State of
Delaware in 1987. The Company changed its name from Compuflight, Inc. to
Navtech, Inc on January 14, 2000. (see "Recent Developments").
Navtech-Canada was incorporated in 1987 in the Province of Ontario.
Navtech-Canada's Waterloo, Ontario facility houses the Company's primary
operations center along with the research and development, customer support,
sales, and the accounting departments (see Item 2 hereof). Navtech-Canada's
early development work was undertaken for the installation of flight planning
systems at Wardair and Pan American Airways (PanAm).
The Weather Services Division of Navtech provides weather data software and
services and other related data services primarily to the commercial aviation
community. The Monterey data center (see Item 2 hereof) 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 Administration circuits as well as a number of other countries'
data circuits. Customers access Navtech's weather services through land-based
communications networks employing the latest distributed processing
technologies.
Navtech (UK) Limited was incorporated in 1994 in the United Kingdom. The
facility, located near the London Gatwick Airport (see Item 2 hereof), houses an
operations and dispatch center, which provides flight planning and overflight
billing assistance to European, African and Middle Eastern customers. This
office will also provide the support services for the Company's international
marketing efforts.
The Company develops and markets software under both the Compuflight and Navtech
names 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 and query-based 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 system, 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 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 exceed revenue generated from its Service Bureau
Operations.
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Navtech is publicly traded on the NASD OTC Electronic Bulletin Board under the
symbol NAVH. The Company's principal executive offices are located at 2400
Garden Road, Monterey, CA, 93940; telephone number: (519) 747-9883.
Recent Developments
Annual Meeting of Stockholders
On January 14, 2000, at an annual meeting of stockholders of Navtech the
following proposals were approved:
o to change the name of the Company to "Navtech, Inc." o to increase the number
of authorized Common Shares from 2,500,000 to
10,000,000.
o to decrease the number of authorized Preferred Shares from 10,000,000 to
2,000,000.
o to adopt the Company's 1999 Stock Option Plan.
o to require unanimous, rather than majority, written consent of shareholders
in lieu of a meeting under certain circumstances.
o to adopt amended and restated By-Laws for the Company.
Following such stockholder approval, the Company changed its trading symbol to
"NAVH".
Acquisition of Skyplan Services (UK) Limited
On October 1, 1999, Navtech-Canada purchased all of the outstanding shares of
Skyplan Services (UK) Limited ("Skyplan") from Skyplan Services Ltd. The name of
Skyplan was subsequently changed to Navtech (UK) Limited. Navtech-UK,
incorporated in the United Kingdom, provides flight planning and overflight
permit assistance through an operations center located near Gatwick Airport.
Currently, there are eight full-time staff members employed at this location.
Navtech-UK's customer base is primarily located throughout Europe, Africa and
the Middle East.
The Company accounted for the acquisition as a purchase and as such, the fair
values of the assets acquired and liabilities assumed have been recorded on the
date of the acquisition and the results of operations are included in the
Company's consolidated statements of operations since the acquisition date. The
excess of the consideration paid and the related costs of acquisition over the
estimated fair value of the net assets acquired, totaling $108,000, has been
recorded as goodwill and is being amortized on a straight-line basis over ten
years.
In consideration for the shares of Navtech-UK, Navtech-Canada paid to Skyplan
Services Ltd. $180,000 Canadian in two installments. The first installment of
$125,000 was paid upon closing. The second installment of $55,000 was paid upon
the successful transfer of services and systems to Navtech-Canada during the
transition period from October 1, 1999 to October 22, 1999. No shares of the
Common Stock of the Company were issued.
The Navtech-UK facility provides the needed support services for the Company's
international marketing plan. This activity is being focused specifically on the
European, African, and Middle Eastern geographic segments with the Asian
marketplace being serviced by the Waterloo operation (see "Marketing and
Sales").
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INDUSTRY BACKGROUND
Commercial Aviation
The commercial airline industry enters the new millennium with experts
predicting record profits of US $10.5 billion in 2000, compared with US $9
billion in 1999 (Air Transport World, January 2000), but split on the
vulnerability of airlines to a recession in the major world economies. Cost
increases are outpacing revenue growth and the average margin of 3% offers
little ability to financially manage an industry crisis. Leading the increased
costs is the sharp rise in the spot prices for jet fuel, which climbed
approximately 23% between August and November, 1999 (Reuters Benchmark).
Deregulation began in the early 1990's throughout Europe and parts of Asia. The
number of scheduled airlines in these regions has risen at rates comparable to
the United States in the 1970's, when it underwent deregulation. In 1997 Europe
had 189 scheduled service airlines compared to 127 in 1987. Similar numbers for
Asia-Pacific were 189 and 111 respectively. Comparatively, North America saw a
decline over the same period from 247 to 187 (OAG, September 1999). The
expansion in the number of carriers creates short-term opportunities for growth
for service providers but long-term growth opportunities diminish as many
start-ups fail or are assumed by established operations.
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 annual revenues in excess of $1billion or more 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 either scheduled service or charter airlines with annual
revenues between $100 million and $1 billion, and typically serve particular
regions of North America or Europe or serve as foreign country flag carriers.
The nationals 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 $20 million to $100 million. Their operations tend to either feed
passengers to the larger airline's centers, or operate in under-served markets
(World Aviation Directory).
Geographic Trends
Economic forces are expected to continue driving consolidation to a point where
major airline alliances, such as the One World Alliance and the Star Alliance,
occur. These alliances will face competition from a large number of niche
airlines, including the Nationals, 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, and in particular 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.
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.
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PRODUCTS AND SERVICES
Navtech's product strategy is to offer an integrated flight management system to
national, charter, regional and cargo carriers, start-ups, and small specialty
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 installed at the customer's operations facility. In addition
to AURORA, the Company offers COMPASS(TM) 2000, an easy to use flight dispatch
software product designed for start-ups and small airlines. COMPASS TM 2000 is
anticipated to be offered as a web-based product in the second quarter of 2000.
To complement AURORA and COMPASS TM 2000, the Company also provides COMRAD, 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 System - AURORA
In March, 1998, the Company released its new core Flight Operations Control
System, AURORA. The 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 and its PC counterpart, Windows NT, at a significant improvement in
price and performance.
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 the Company's services, the project
management group takes responsibility for all aspects of the system deployment
including communications circuits, installation of all hardware, and testing at
the customer's site.
The AURORA product has been targeted at cargo and passenger airlines in the
Company's "mid-sized" airline market niche. However, in 1999, the Company also
had sales of the AURORA System to aviation companies in the "large" market
niche.
Flight Planning
The Company also markets a scaled-down version of its AURORA product to airlines
whose fleet size limits the requirement for an in-house system installation. In
addition, the Company also markets its text based flight planning system,
COMPASS TM 2000, to the regionals and to the aircraft operators with less than 5
planes. COMPASS TM 2000 is designed to fill the need to provide a basic flight
plan and to position the Company to develop a relationship, as the carrier
grows.
It is anticipated that during the second quarter, COMPASS TM 2000 will also be
offered as a web-based product, such that customers can directly access this
product utilizing the Company's website.
Runway Analysis - COMRAD
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.
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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 COMRAD 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, Navtech-Canada 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 Navtech-Canada to incorporate these into its COMRAD
product on a royalty basis.
V1 Plus Performance Engineering Services
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 on a 24 hours per day, 7 days per week basis from
Navtech-Canada's Waterloo operations center.
Weather Services
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.
Text Weather Solutions
Weather data is available by utilizing a distributed client-server system,
FCSII, querying the Company's servers via internet, 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"), the FAA in the United States, to provide notice of restricted
areas, meteorological changes, runway conditions and other pertinent information
required by a pilot for safe flight.
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The Weather Services Division processes, decodes and translates the data
transmissions from eighty percent 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 in 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 at its Waterloo, Ontario,
Monterey, California, and London, Gatwick, UK 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 AND SALES
During 1999, the Company continued to focus its marketing effort in North
America. 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. The marketing 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.
International Marketing Strategy
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,
Africa, South America, and Asia/Pacific. The Company's marketing plans in the
fiscal 2000 involve the implementation of a dual strategy of a direct
international sales initiative supported from the Navtech-UK office and the
establishment of an international agency agreement with a major US technology
marketing firm. Such a strategy may result in increased expense, which could
have a short-term adverse effect on the results of operations.
The Navtech-UK facility provides the needed infrastructure from which a large
portion of the Company's international marketing strategy is being implemented.
This activity is being focused specifically on the European, African, and Middle
Eastern marketplace and is focused on the same airline market niche that has
driven the Company's sales growth in North America. The web-based products
currently being developed and marketed by the Company form an excellent synergy
with marketing efforts in these regions due to the low cost of communication
that this access method offers.
To facilitate the process of introducing the Company's core products and new
web-based products to new market regions, such as South America, Central
America, Asia and areas of the Middle East and Europe not currently targeted by
the Navtech-UK facility, the Company has established an agency agreement with
The Republic Group, an Arlington, Virginia based international technology
marketing company, which has an established worldwide network of over 50
in-country agents.
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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, Andersen, 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 airline's 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 and to many of the smaller airlines
around the world. In Europe and Africa, SITA, which started out as an aviation
industry backed telecommunication organization, has branched out into a number
of airline automation services, including flight operations.
The independent competitors to the Company tend to be relatively small firms
with customer bases of less than 100 air carriers that 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, and be innovative and cutting-edge in areas
such as Web-based product development and the utilization of newer, less
expensive, and more reliable operating systems including the LINUX technology.
Research and Development
The Company invested resources during fiscal 1999 and fiscal 1998 to develop new
software functionality and to enhance its existing software. Research and
development expenses were approximately $72,000 and $77,000 for the years ending
October 31, 1999 and 1998, respectively. See Item 6 hereof.
The research and development plans for the Year 2000 are based on a study of the
customer requirements and assessments of the marketing group regarding long-term
market. The Company's research and development resources are also allowed a
certain latitude to experiment with the newest technologies in order to maintain
the Company's market position. It is because of this philosophy that the Company
adopted the LINUX operating system as it core operating systems as early as
1998. The key research and development activities are detailed below.
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Internet-based Product Development
The Company is committed to the development of new Web-based technologies and
the integration of existing products to a "web architecture". This not only
includes the development of products such as the web-based version of COMPASS TM
2000, but the utilization of the internet as a communication alternative to the
more traditional vehicles such as frame relay technology.
New Functional Requirements
Other research and development activities include the requirement to introduce
new subject matter expertise to lead the design and development of new
functional requirements. As the sales activities in the North American
marketplace begin to mature, the integration of other required functionality to
the Company's core products should form the basis for a renewed sales cycle.
The adoption of a new design modeling framework to aid in rapid prototyping and
testing of new technologies is another research and development initiative. A
detailed product strategy plan and resultant research and development statement
of work to achieve the goals of the plan has led to development activities
including the Integration of Runway Analysis, Increased Text Weather
Capabilities, and Overflight Billing.
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 Navtech-Canada 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.
GOVERNMENT REGULATION
The Company is not subject to any government regulation with respect to the
flight planning operations of its business. It is an airline's responsibility to
ensure that the flight plan meets all local civil aviation authority regulations
and requirements.
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Employees
As of December 31, 1999, the Company had a total of 74 employees (of which 70
were full time employees) including 22 in operations, 5 in account management,
25 in research and product development, 7 in sales and marketing and 15 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 12
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains offices in the following locations:
Monterey, California
Effective as of July 31, 1998, Navtech subleased approximately 5,400 square feet
of office space at 2400 Garden Road, Monterey, California on a month to month
basis for the establishment of the Company's Weather Services Division.
Effective January 1, 2000 the Company relocated its executive offices to this
location. The monthly rent expense as of December 31, 1999 was $6,150. The main
tenant's lease expires December 31, 2001.
Waterloo, Ontario
Navtech-Canada 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 $14,930 Canadian as of
December 31, 1999. The lease calls for additional increases on each anniversary.
Ottawa, Ontario
As of September 1, 1998, Navtech-Canada subleased office space as corporate
offices located at 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 December 31, 1999 was approximately $1,790 Canadian.
Nepean, Ontario
As of October 1, 1999, Navtech-Canada leased office space for software
development purposes located at Unit 209, 21 Antares Dr., Nepean, Ontario. The
lease for approximately 1,100 square feet expires on September 30, 2000, and the
monthly rent expense as of December 31, 1999 was approximately $1,425 Canadian.
Crawley, West Sussex, UK
Navtech-UK has a five year lease, expiring February 28, 2003, for the premises
located at Durand House, Manor Royal, Crawley, West Sussex, UK. This office
encompasses approximately 1,870 square feet of space being used for flight
operations, customer support and administration. The monthly rent expense as of
December 31, 1999 is approximately 1,867 Pounds.
The Company's total rent expenses were approximately $242,210 for the year ended
October 31, 1999. The Company believes that its facilities are adequate for its
current needs and that suitable additional space will be available as required.
Page 13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On September 13, 1999, the Company received a demand from the attorneys for the
Chapter 11 Creditors Committee of Southern Air Transport, Inc. for alleged
preferential payments of $88,850 made to Navtech-Canada within 90 days of the
filing of the bankruptcy petition of the Debtor in the United States Bankruptcy
Court for the Southern District of Ohio on October 1, 1998. The Company is of
the view that the payments received were for contemporaneous consideration and
were therefore not preferential payments. The Company has further determined
that the matter is still under review and no adversary proceedings have been
launched as of December 31, 1999. At this time no determination of the eventual
outcome of potential loss has been made.
Page 14
<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, 1999.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASD OTC Electronic Bulletin under
the symbol "NAVH". 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, do not include retail
markup, markdown or commission and do not represent actual transactions.
Fiscal Year Ended Bid Price
October 31, 1999 High Low
First Quarter $.5625 $.3125
Second Quarter .5625 .13
Third Quarter .13 .13
Fourth Quarter .13 .0625
Fiscal Year Ended Bid Price
October 31, 1998 High Low
First Quarter $.5625 $.45
Second Quarter .45 .45
Third Quarter .50 .45
Fourth Quarter .50 .375
(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 December 31, 1999 was 820.
(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 16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This section and other parts of this Form 10-KSB contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 7 of this
Form 10-KSB. All information is based on the Company's fiscal calendar.
RESULTS OF OPERATIONS
The following table sets forth annual results of operations for fiscal years
1999 and 1998 (in thousands except per share amounts):
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------- -------------------------- -------------------------
Results of Operations Percentage of Total
Revenue
For the year ended October 31,
1999 1998 1999 1998
------------------------------------------- ------------ ------------- ------------ ------------
Revenue
Service fees $ 4,649 $ 3,340 88% 87%
Hardware, software and license sales 605 510 12 13
-------- -------- ----- -----
5,254 3,850 100 100
------- ------- ---- ----
Costs and expenses
Operating 3,860 2,759 73 72
Research and development, net 31 24 1 1
Selling, general and administration 1,071 927 20 24
Depreciation and amortization 87 134 2 3
--------- -------- ------ ------
5,049 3,844 96 100
------- ------- ----- ----
Operating income 205 6 4 -
Other income (expense)
Interest income 104 53 2 1
Interest expense (350) (201) (7) (5)
Realized foreign exchange loss (27) (2) - -
Provision for bad debt - related party (316) (395) (6) (10)
------- ------- ----- ------
Net loss before taxes (384) (539) (7) (14)
Income tax benefit 4 - - -
---- ------- ---- ----
Net loss $ (380) $ (539) (7)% (14)%
======= ======= ===== ======
Net loss per share - basic and diluted $ (0.19) $ (0.30)
====== =======
------------------------------------------- ------------ ------------- ------------ ------------
</TABLE>
Overview
During 1999, the Company improved its operating income and reduced its net loss.
The change in operating income was achieved for several major reasons. First,
the Company continued an internal restructuring plan that involved the
centralization of all North American flight planning activities within the
Company's Canadian facility, the downsizing of the New York office and the
placing in service of the Company's Monterey facility. Second, the Company's
focus on the sale of flight operations control system licenses generated two
more sales during the year, as well as one more sale which was completed in the
first quarter of 2000. Flight operations control system license sales, while
generating one time income of approximately $250,000 per license, also result in
longer term revenue from the provision of maintenance and support services
included as separate components in the customer's contract. Third, the
substantial costs of developing the Company's premier flight operations control
system, AURORA, have been expensed in prior periods so that the costs associated
with each new system license sale have been limited to the development cost of
any customer specific enhancements, as well as the implementation costs of each
system. Fourth, the Company expanded its operations with the acquisition of
Navtech (UK) Limited by Navtech Systems Support Inc. in October 1999. Navtech
(UK) Limited provides flight planning and overflight management services within
the European, Middle Eastern and African marketplace. Synergy from this
acquisition is expected in a short time since Navtech-UK was already utilizing
an earlier non-GUI version of the Company's flight planning software.
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<PAGE>
Despite the increase in operating income, the Company continues to reflect a net
loss after taxes. This loss is primarily due to the increased costs of financing
that the Company has faced based on its prior financial results. The Company is
moving to reduce the cost of financing over the next four quarters, and although
Company's management has not yet adopted any specific plans, it may consider a
refinancing of its current debt or the issuance of new share capital. The
Company has also taken a write down of advances made to its parent company,
Navtech Applied Research Inc. ("NARI"), in each of the last two years. See Item
12 hereof and Note H to the consolidated financial statements. Revenue
The Company's revenue is derived from two major sources: (i) service fees for
the provision of flight planning services, runway analysis services, weather and
NOTAMs data, and ongoing customer support and (ii) sales of hardware and
licenses of software. Revenue from license fees is recognized at the later of
delivery of the software 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 are recognized upon
rendering of services. Custom software development, communication charges,
aviation database income and service bureau and support revenue are recognized
ratably over applicable contractual periods or as services are performed.
Total revenue increased approximately $1.4 million, or approximately 36%, from
approximately $3.9 million in 1998 to approximately $5.3 million in 1999.
During the quarter ended October 31, 1999, the Company commenced installation of
a flight planning system, along with the development of certain
customer-requested enhancements, for Universal Weather and Aviation, Inc., a
major aviation services provider based in the United States. The installation
and customer acceptance were completed within two weeks of the completion of the
year end; however, in accordance with generally accepted accounting principles,
such revenue cannot be reflected in the financial results for 1999 until such
time as the software has been accepted by the customer. Accordingly, deferred
revenue includes approximately $326,000 representing amounts received from the
customer prior to the year end, as offset by costs associated with the
installation and development work up to year end. This contract provides for the
payment of approximately $1.1 million over a three-year period. Approximately
$535,000 of this will be reflected as revenue in the first quarter of fiscal
2000. All amounts payable by the customer for the delivery of the system were
received by the end of November 1999.
Geographic Analysis
The following sets forth total revenues on a geographic basis for fiscal 1999
and 1998 (in thousands except percentage amounts):
<TABLE>
<S> <C> <C> <C> <C>
-------------------------- --------------------------------- ----------------------------------
Total Revenue Percentage of Total
Revenue For the year ended October 31, For the
year ended October 31,
1999 1998 1999 1998
-------------------------- ---------------- ---------------- --------------- ------------------
United States $ 4,145 $ 3,092 79% 80%
Canada 668 528 13 14
Other 441 230 8 6
--------- --------- ------ ------
$ 5,254 $ 3,850 100% 100%
======== ======== ==== ====
-------------------------- ---------------- ---------------- --------------- ------------------
</TABLE>
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<PAGE>
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. In fiscal 1999, the Company derived
approximately $4.1 million from sales in the United States as compared to
approximately $3.1 million in fiscal 1998. This increase is due primarily to a
net increase in fees to existing customers of approximately $656,000, a loss of
revenue of approximately $264,000 related to lost contracts and bankruptcies and
the addition of new customers representing approximately $586,000 in further
revenues, mainly from weather and NOTAMs customers. Also, gross systems sales
revenue increased approximately $95,000, mainly through the bundling of hardware
with the two systems sales in fiscal 1999. Sales in Canada accounted for
approximately $668,000 in fiscal 1999 as compared to approximately $528,000 in
fiscal 1998. This increase is due primarily to an increase in Canadian customer
billings and customer base. Sales in other jurisdictions amounted to
approximately $441,000 in fiscal 1999 as compared to approximately $230,000 in
fiscal 1998, which represents an increase of approximately $211,000, or
approximately 92%. This increase is due primarily to the increase of
approximately $111,000 from the inclusion of a full year of weather and NOTAMs
fees, an increase in net fees to existing customers of approximately $62,000 and
the addition of revenue from the UK operations of approximately $40,000,
reflecting operations from the October 1, 1999 acquisition of Skyplan UK.
Service Fees
Revenue from service fees was approximately $4.6 million in 1999 as compared
with approximately $3.3 million in 1998, an increase of approximately 39%, or
approximately $1.3 million. The increase is primarily attributable to a net
increase in fees to existing customers of approximately $839,000, mainly
resulting from an increase in the demand for flight planning services as well as
additional support fees from customers that switched to an in-house system.
Furthermore, the Company has signed several new service bureau customers
resulting in an increase of approximately $106,000. The Company's weather and
NOTAMs operations, which commenced in July 1998, now reflect a full year worth
of revenue. Accordingly, net revenues from weather and NOTAMs have increased
approximately $679,000. Service fees also include approximately $40,000 related
to one month of revenue from the Company's operations in the United Kingdom,
which were acquired October 1, 1999. These increases were offset by decreases
from both the loss of customers aggregating approximately $174,000 and the
bankruptcy or non-renewal of services of customers aggregating approximately
$181,000.
Hardware, Software, and License Sales
Revenue from hardware, software, and license sales increased approximately
$95,000, or approximately 19%, from approximately $510,000 in 1998 to
approximately $605,000 in 1999. During both 1998 and 1999, the Company sold two
AURORA systems licenses, each for an average sales price of approximately
$250,000. In 1999, the Company also bundled hardware with each sale resulting in
additional revenue. Each such sale provides for the provision of add-on support
and maintenance services, which are reflected in the increase in Service Fees
noted above.
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. The
following table sets forth the major components of operating expenses for fiscal
years 1999 and 1998 (in thousands except percentage amounts):
<TABLE>
<S><C> <C> <C> <C>
---------------------------------- ------------------------------- ---------------
Operating Expenses
For the year ended October 31, Percentage
1999 1998 Change
---------------------------------- --------------- --------------- ---------------
Salaries and benefits $ 2,632 $ 1,983 33%
Communication costs 859 534 39%
Rent 204 157 30%
Royalty fees 91 29 215%
Other operating expenses 74 56 33%
--------- ---------
Total operating expenses $ 3,860 $ 2,759 40%
======= =======
---------------------------------- --------------- --------------- ---------------
</TABLE>
Page 19
<PAGE>
Operating expenses were approximately $3.9 million in 1999 compared with
approximately $2.8 million in 1998, an increase of approximately $1.1 million,
or approximately 40%. This increase is primarily attributable to an increase in
salaries and benefits of approximately $649,000, an increase in communication
costs of approximately $325,000, an increase in rent of approximately $47,000
and an increase in other expenses of approximately $18,000.
Furthermore, the impact of the royalty agreement between the Company and NARI
resulted in an increase of approximately $62,000. This agreement is more fully
discussed under Item 12. The royalties commenced with the opening of the
Monterey facility in July 1998.
Of the increases noted above, approximately $834,000 reflect the inclusion of
twelve months of expenses related to the weather and NOTAMs operation in
Monterey, California, which commenced operations in July 1998. The remainder can
be attributed to increased staff levels and communications costs that have
resulted from an increase in the customer base and associated work effort.
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 increased from approximately $24,000 in
1998 to approximately $31,000 in 1999, representing an increase of approximately
$6,000, or approximately 27%. During fiscal 1998, the Company turned its
attention to the sale of the AURORA system. Development personnel are used
extensively in this process both for installation activities and customization
of the program for the end user. These activities are usually reimbursed by the
customer and do not fall explicitly within Research and Development activities.
Furthermore, development staff also focused more efforts on the improvement of
the existing systems. As a result, the Company has submitted lower claims than
those in prior years. The Company has claimed scientific research and
experimental development investment tax credits of approximately $51,000 for the
year ended October 31, 1999 as compared to a claim of approximately $53,000 for
the same period in 1998.
Selling, General, and Administrative Expenses
The following table sets for the major components of selling, general and
administrative expenses for fiscal 1999 and 1998 (in thousands except percentage
amounts):
<TABLE>
<S> <C> <C> <C>
---------------------------------- ------------------------------- ---------------
Operating Expenses
For the year ended October 31, Percentage
1999 1998 Change
---------------------------------- --------------- --------------- ---------------
Professional and consulting $ 435 $ 334 30%
Travel 349 206 69%
Marketing 26 14 79%
NARI marketing fees 46 (100)%
Bad debt 59 137 (57)%
Other SG&A expenses 202 190 6%
-------- --------
Total SG&A expenses $ 1,071 $ 927 16%
======= ========
---------------------------------- --------------- --------------- ---------------
</TABLE>
Selling, general, and administrative expenses increased by approximately
$144,000, or approximately 16%, from approximately $927,000 in 1998 to
approximately $1.1 million in 1999. This increase can be attributed primarily to
an increase in professional and consulting fees of approximately $101,000, an
increase in travel costs of approximately $143,000 and an increase in marketing
costs of approximately $12,000. The increase in professional and consulting fees
relates to, among other things, the effort required to bring the Company's
regulatory filings current as well as fees related to contract negotiations on
systems license sales. Increased travel costs are primarily attributable to the
maintenance of operations in Monterey, California and Waterloo, Ontario.
Page 20
<PAGE>
The termination of the NARI consulting and marketing agreement on July 15, 1998
(see Item 12 hereof) has resulted in a decrease of approximately $46,000 over
the 1998 fiscal year. Furthermore, there was a decrease in bad debt expenses of
approximately $78,000 as the Company instituted better credit policies. Net
other expenses increased by approximately $12,000
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
Interest expense increased approximately $149,000, or approximately 74%, from
approximately $201,000 in 1998 to approximately $350,000 in 1999. This increase
is primarily attributable to the increased interest costs related to the
factoring of the Company's receivables, the inclusion of interest from new loans
and the penalties and interest associated with the Company's delinquent payroll
tax remittances.
Provision for bad debt - related party
During the year, the Company recorded an additional provision of approximately
$316,000 on amounts due from its parent company, NARI. The total allowance of
$943,219 as at October 31, 1999 against a total receivable of $1,253,491 is
based principally on the estimated net worth of the parent company and the
historical cost of the software assets owned by the parent company (see Item 12
hereof).
Net Loss
The financial statements reflect a net loss of approximately $380,000 for fiscal
1999, as compared to a net loss of approximately $539,000 for fiscal 1998. This
represents a decrease in the net loss of approximately $159,000.
The Company reflected a net increase in revenue of approximately $1.4 million,
as offset by a net increase in costs and expenses of approximately $1.2 million,
resulting in a net increase in operating profit of approximately $198,000.
Offsetting this gain was the increase of approximately $149,000 in interest
expense. Furthermore, the Company recorded a provision against a related party
debt in 1998 of approximately $394,000 and a further provision of approximately
$316,000 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1999, the Company's available funds consisted of $4,504 in
cash and the Company's working capital deficiency was $1,333,728.
In 1999, the Company financed a significant part of its operations through
amounts received from systems license sales, as well as through loans from a
related party (see Item 12 hereof). In addition, the Company has continued to
enter into longer term repayment agreements with its suppliers.
Cash flows from operations amounted to a net inflow of $352,760 in 1999 as
compared to a net inflow of $166,302 in 1998. Cash generated by operations was
primarily from the refund of a portion of the Company's investment tax credit
claims, the receipt of funds from a customer before year end reflected as
deferred revenue, an increase in payables, and proceeds from factoring. These
were partially offset by an increase in accounts receivable and the impact of
the net loss for the year.
Page 21
<PAGE>
In addition to the purchase of fixed assets of approximately $77,000, net cash
used by investing activities included approximately $103,000 for the purchase of
the Company's investment in Navtech (UK) Limited and approximately $52,000 in
net advances to the Company's parent company.
Cash flows from financing activities amounted to a net inflow of $147,020 in
1998, as compared to a net outflow of $120,817 in 1999. This outflow is
attributable primarily to the repayment of the Company's overdraft as well as
other loan repayments, and is offset by proceeds from loans from related parties
As of October 31, 1999, the Company had no significant capital commitments.
However, the Company may, from time to time, consider additional acquisitions of
complementary businesses, products or technologies.
PLAN OF OPERATION
The Company's liquidity at October 31, 1999 was insufficient to meet operating
requirements. The Company has therefore undertaken the following initiatives and
actions and adopted the following strategies to reduce its working capital
deficiency, alleviate cash flow demands and position the Company for
profitability:
Management Team Development and Structure
The Company has continued to strengthen its management team. While the Company
has always had significant strength in the areas of product development and
technical and operational support, the recruitment focus has been on senior
managers that bring experience in the area of resource management, including
cost control, budgeting and project planning. The result of these activities has
been realized with the introduction of comprehensive product plans, software
development programs, detailed resource management, and more rigid internal cost
controls and procedures.
Trade Creditors
The Company's objective is to be current with all of its trade creditors. As an
interim step, the Company has renegotiated payment terms with several larger
trade creditors including its key suppliers of communication services and with
federal tax authorities. The Company is continuing to actively pursue additional
concessions with its creditors.
Expanded Marketing Efforts to Existing Customers
The Company's products and services are used by more than 70 customers
worldwide. By leveraging its solid market reputation, the Company has focused
its efforts on expanding current customer revenues by providing additional
products and services including Web-based product offerings, by licensing
additional users, and by upgrading customers to higher level products as their
needs arise. The introduction of the Company's account management group has
given the Company the ability to more readily identify these potential revenue
opportunities, and to be proactive in supplementing the efforts of the sales
group. The addition of weather and NOTAMs, and the related integration of these
systems into the Company's products, has provided another key component in the
Company's plans to become the premier aviation flight operations systems
supplier in the mid-range market. Finally, the addition of a base of operations
in the United Kingdom and the related customers has provided another source of
ongoing revenue and the ability to fully implement an international marketing
strategy.
Integration of Navtech (UK) Limited
The Company has focused its initial integration efforts on updating the software
used by the UK operation and establishing dedicated communications lines with
the Waterloo operations center. In undertaking the update, the Company took
steps to ensure a successful and problem free migration of the customer base
onto the new systems.
Growth
In carrying out its future growth strategy, the Company will also continue to
investigate possible business combinations aimed at improving the operating
efficiencies of the Company, and complementary product lines or market regions,
and ultimately enhancing shareholder value. These business combinations may
include mergers and acquisitions of businesses or technologies, as well as
strategic technology and marketing alliances.
Page 22
<PAGE>
International Marketing Strategy
The Company is in the implementation phase of its international marketing plan.
The newly acquired Navtech-UK facility provides the needed infrastructure from
which the European, African and Middle Eastern markets will be supported. To
facilitate this process of introducing the Company's core products and new
web-based products to these new market regions, the Company is employing local
in-country agents through The Republic Group. The Company anticipates that these
efforts will drive sales growth in the future.
Financing Initiatives
The Company will require additional funding to achieve its stated plans and
objective. As such, various financing sources, including debt or equity
offerings, will be investigated when and if such financing is available to the
Company. No assurances can be given that any required financing will be
available with commercially reasonable terms or otherwise. In addition, no
assurances can be given that the Company's activities, as set forth above, will
be successful whether due to lack of required financing or otherwise.
YEAR 2000 COMPLIANCE
The information presented below related to Year 2000 compliance contains
forward-looking statements that are subject to risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
below and elsewhere in this Form 10-KSB regarding Year 2000 compliance.
Year 2000
The Year 2000 (Y2K) issue is the result of certain computer hardware, operating
system software and software application programs having been developed using
two digits rather than four to define a year. For example, some operating
systems may recognize a date using "00" as the year 1900 rather than 2000. This
type of outcome could result in the failure of major systems or miscalculations,
which could have a material impact on companies through business interruption or
shutdown, financial loss, damage to reputation, and legal liability to third
parties.
Preparations for Date Change
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 substantially completed Year 2000 readiness preparations as of the
end of September 1999. The remaining testing of Data Exchange and Communications
Interchange systems was completed by October 31, 1999. Extensive testing
continued throughout 1999.
The Company also instituted a moratorium on all software development and
enhancement work commencing December 22, 1999 and ending January 10, 2000. This
was done to allow all developers to focus on any problems that may have arisen
within the Company's systems or the Company's client-based installations.
Page 23
<PAGE>
Third Party Relationships
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 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 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.
As part of the Year 2000 Project Management Plan, the Company 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 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 received certification from all of them.
Costs of Year 2000 Project
The Company has incurred hardware, software and labor 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 $250,000 was
incurred as of October 31, 1999. Costs of the Year 2000 Project will be expensed
as incurred and will be paid from operating cash flows. The Company is not
separately identifying Y2K costs incurred that are the result of utilization of
existing internal resources. Also, this estimate does not include the costs that
could be incurred by the Company if one or more of its significant third party
service providers fails to achieve Y2K compliance.
Page 24
<PAGE>
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 yet 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.
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 addressed a variety of issues
including access to alternative third party vendors for any services, software,
and hardware systems. The Company addressed potential and expected effects of
the Year 2000 date change, such as increased customer support in December 1999
and early January 2000, with significant resources provided 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.
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. Notwithstanding that Year 2000
crossover has occurred, 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 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.
Year 2000 Rollover Experience
Summary
The culmination of 18 months of planning and preparation took place during the
rollover period between December 31, 1999 and January 1, 2000 with no
interruptions to business operations.
The final elements of Phase 5 Implementation, as documented in the Year 2000
Project Management Plan and Methodology Document, were in preparing sufficient
resources and emergency contingency plans surrounding mission critical points of
failure. In the event that an issue arose which was not caught during the
analysis and testing phases, the Company was ready to act upon its contingency
plans. In addition, Phase 5 also included the enforcement of a software
moratorium on all commercial software systems between December 22, 1999 and
January 10, 2000.
Due to the fact that the Company has customers throughout the world utilizing
its Weather, NOTAMS and Flight Planning products, the "Year 2000 Watch" started
early in the Eastern Hemisphere and continued until all countries had
experienced the date rollover. With the airline industry utilizing the Universal
Time Clock (U.T.C.), the height of the rollover period occurred at 7:00pm EST
(00 U.T.C.) December 31, 1999 and during this time elements of each Core
Business Process identified as being mission critical were placed under close
observation.
Each and every system identified as mission critical remained operational and
continues to do so at the time of this filing. The success of maintaining
business operations has been due in large part to the thoroughness of the Year
2000 Committee in ensuring that each and every element of day-to-day operations
came under scrutiny.
With the minimal impact of the Year 2000 rollover, the Company made a software
release to its entire customer base effective January 12, 2000. This release
incorporated bugs and enhancements completed during the time the moratorium was
in place.
Page 25
<PAGE>
Continuance of Service
As of this filing the Company continues to operate under normal day-to-day
operations and although scaling back on the resources assigned to the Year 2000
watch, will continue to observe and monitor all systems in place.
Page 26
<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 27
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Page 28
<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 Navtech-Canada by each present Director and executive
officer, and his or her age as of January 14, 2000:
Executive Officers and Directors
<TABLE>
<S> <C> <C>
=========================================== ---------- =============================================
Age Positions and Offices Presently Held With
Name the Company and Navtech-Canada
=========================================== ---------- =============================================
Duncan Macdonald 40 Chairman of the Board and Chief Executive
Officer
=========================================== ---------- =============================================
Derek Dawson 30 President and Chief Operating Officer
=========================================== ---------- =============================================
David Strucke 31 Chief Financial Officer
=========================================== ---------- =============================================
Dorothy A. English 57 Executive Vice President and Director of
the Company and Managing Director of
Navtech-Canada
=========================================== ---------- =============================================
Denis L. Metherell 67 Secretary and Director
=========================================== ---------- =============================================
Kenneth M. Snyder 51 Director
=========================================== ========== =============================================
Russell K. Thal 65 Director
=========================================== ========== =============================================
</TABLE>
Duncan Macdonald has served as Chief Executive Officer of the
Company since March 1996, Chairman of the Board of the Company since January
2000, and a Director of the Company since December 1999. He served as Chief
Financial Officer of the Company from July 1995 to January 1999. From July 1994
to July 1995, Mr. Macdonald provided management consulting services to the
Company and Navtech-Canada in a non-officer capacity. Since January 1992, Mr.
Macdonald has also served as managing partner of Kintyre & Company Limited, a
management consulting firm based in Ottawa, Ontario. In addition, since December
1998, Mr. Macdonald has served as President of St. Andrews Technology
Associates, Inc., the general partner of St. Andrews Capital Limited
Partnership, a California-based investment partnership (see Item 12 hereof).
Derek Dawson has served as Chief Operating Officer of the
Company since January 1999 and President of the Company since January 2000. Mr.
Dawson has been a business instructor, on a part-time basis, at Wilfrid Laurier
University since 1997. From September 1997 to January 1999, Mr. Dawson was Vice
President - Operations of the Company. 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.
David Strucke has served as Chief Financial Officer since
January 2000. Mr. Strucke served as Vice President Finance & Accounting of
Navtech-Canada from October 1999 to January 2000 and as its Director of Finance
and Accounting and Business Analyst from January 1999 to October 1999. Prior to
joining Navtech-Canada, Mr. Strucke served as a Financial Analyst focusing on
mergers and acquisitions for an automotive capital equipment manufacturer from
1997 to 1998. From 1996 to 1997, Mr. Strucke performed financial and accounting
consulting work for manufacturing companies. In 1995 he served as a Business
Analyst for a publicly traded sheet metal manufacturer.
Page 29
<PAGE>
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 Navtech-Canada, 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 Navtech-Canada 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 Navtech-Canada from June 1993 to July 1995 and also serves as Vice
President and a Director of AVCON Associates Inc., which leases computers to
Navtech-Canada (see Item 12 hereof). From 1976 to 1992, Mr. Metherell served as
a technical consultant to Northwest Airlines.
Kenneth M. Snyder has served as a Director of the Company
since February 1994. Since October 1995, he has also served as a management
consultant to entities in the aviation industry and, since such date, has
provided certain consulting, advisory and corporate finance services to the
Company (see Item 12 hereof). Mr. Snyder served as Vice President and Treasurer
of the Company from October 1993 to November 1994 and Chief Operating Officer
from November 1994 to July 1995. From October 1993 to October 1995, he served as
President and Chief Operating Officer of Navtech-Canada. 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.
Russell K. Thal, a founder of the Company, has served as a
Director of the Company since its formation in 1981and served as Chairman of the
Board of the Company from October 1994 to January 2000. Mr. Thal also served as
the Company's President from 1981 to July 1995, Chief Executive Officer from
July 1995 to March 1996, Executive Vice President from March 1996 to October
1999 and Treasurer from 1981 to December 1993. 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 10(e) hereof).
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, 1999, all
Section 16(a) filing requirements applicable to the Company's officers,
Directors and 10% stockholders were complied with, except that Messrs. Dawson
and Strucke, and Rainer Vietze, a former officer of the Company, filed their
respective Form 3 late.
Page 30
<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, 1999 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, 1999:
<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, 1999 $5,000 $20,000 $ 28,927(1) -0- -0- -0- -0-
Chief 1998 -0- -0- $106,486(1) -0- -0- -0- -0-
Executive 1997 -0- -0- $118,826(1) -0- -0- -0- -0-
Officer
- --------------- ----- ----------- --------- -------------- ------------ ----------- --------- =============
Russell K. 1999 $148,780 -0- $ 14,800(2)(3) -0- -0- -0- -0-
Thal, 1998 $143,683 -0- $ 14,800(2)(3) -0- -0- -0- -0-
Chairman 1997 $139,526 -0- $ 14,800(2)(3) -0- -0- -0- -0-
=============== ===== =========== ========= ============== ============ =========== ========= =============
</TABLE>
(1) Represents amounts paid as an independent advisor to the Company.
Excludes amounts paid to Kintyre and Company Limited, an entity
controlled by Mr. Macdonald, for consulting services rendered to
Navtech-Canada. 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, 1999 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>
(c) Fiscal Year-End Option Value Table
The following table sets forth certain information concerning the value as
of October 31, 1999 of unexercised options held by the persons named in Item
10(a) hereof:
<TABLE>
<S> <C> <C>
================================= ---------------------------------- ======================================
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
October 31, 1999 at October 31, 1999
================================= ---------------------------------- ======================================
Name Exercisable/Unexercisable Exercisable/Unexercisable
================================= ---------------------------------- ======================================
Duncan Macdonald -0-/ 200,000 -0-/-0-
================================= ================================== ======================================
Russell K. Thal 75,938/-0- -0-/-0-
================================= ================================== ======================================
</TABLE>
Page 31
<PAGE>
No options were exercised by either of the named persons during the fiscal year
ended October 31, 1999.
(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 Employment Agreement
between the Company and Mr. Macdonald.
Mr. Thal was employed by the Company pursuant to an employment
agreement, as amended (the "Thal 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, with a commencement date of August 5, 1999, the
Company entered into a retirement agreement (the "Retirement Agreement") with
Mr. Thal. The Retirement Agreement replaces the Thal 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 agreed to the payment of $600,000 in 96 semimonthly
payments commencing after Mr. Thal's 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 32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Common Shares are 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 Shares beneficially owned as of
January 14, 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 Shares, (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 Percentage of
Owner Number of Shares Beneficially Owned Outstanding Shares
- ----------------------------------------------------------------------------------------------------------
Dorothy A. English 1,007,766(1)(2)(3) 50.3%
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Duncan Macdonald 504,251(4) 20.1%
275 Slater Street
Ottawa, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
Kenneth M. Snyder 350,000(5) 14.9%
1751 Westwood Drive
Minden, Nevada
- ----------------------------------------------------------------------------------------------------------
St. Andrews Capital Limited Partnership 304,251(4) 13.2%
2400 Garden Road
Monterey, California
- ----------------------------------------------------------------------------------------------------------
Global Weather Dynamics, Inc 250,000 12.5%
2400 Garden Road
Monterey, California
- ----------------------------------------------------------------------------------------------------------
Ontario Development Corporation 125,000 6.2%
56 Wellesley Street West
Toronto, Ontario, Canada
- ----------------------------------------------------------------------------------------------------------
Russell K. Thal 93,813(6) 4.5%
125 Mineola Avenue
Roslyn Heights, New York
- ----------------------------------------------------------------------------------------------------------
Denis L. Metherell 6,000 *
175 Columbia Street West
Waterloo, Ontario,
Canada
- ----------------------------------------------------------------------------------------------------------
All executive officers and
directors as a group (7 persons) 1,961,831(1)(4)(5)(6) 66.9%
- ----------------------------------------------------------------------------------------------------------
</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 person may be deemed a parent of the Company.
Page 33
<PAGE>
(3) The Company has been advised that Ms. English is the Chairman, Chief
Executive Officer and sole shareholder of NARI. Furthermore, the Company
has been advised that the 802,766 shares owned by NARI 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 200,000 Common Shares that are issuable to Mr. Macdonald upon
exercise of options that are currently exercisable and, as discussed in
Item 12 hereof, a maximum of 304,251 Common Shares issuable to St. Andrews
Capital Limited Partnership, an entity controlled by Mr. Macdonald,
pursuant to the terms of a convertible loan made by such entity to the
Company.
(5) Represents shares issuable upon exercise of options that are currently
exercisable.
(6) 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.
Page 34
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. Navtech Applied Research Inc.
General
Ray English and Associates Inc. ("RE&A") was a corporation incorporated in
Ontario, Canada. Until June 29, 1998, 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 Common Shares of the Company. On or about July 15, 1995,
RE&A had transferred all of its Common Shares 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, as discussed above,
and RE&A and NARI merged, the voting trust agreement was terminated and the
shares returned to NARI. As a condition of the share transfer agreement, NARI
agreed to place the shares in escrow as security for amounts payable by NARI to
Mr. English, as evidenced by a promissory note. Pursuant to the promissory note,
NARI is obligated make 120 consecutive monthly payments of $6,000 Canadian, and
should the payments go into default, Mr. English has the option to sell the
requisite number of shares held in escrow to remedy the default.
RE&A/Navtech-Canada Transactions
In 1993, Navtech-Canada 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. Navtech-Canada
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
Navtech-Canada a promissory note in the principal amount of $750,000 Canadian
(the RE&A Note") to evidence certain obligations to Navtech-Canada as of such
date. The RE&A Note is payable on July 15, 200 (or sooner, as described below)
and provides for interest at the rate of 5% per annum payable annually.
Effective with the merger of RE&A and NARI, NARI, by operation of law, assumed
the obligation represented by the RE&A Note.
Further, pursuant to a consulting and marketing agreement between RE&A and
Navtech-Canada, RE&A agreed to provide software marketing services to the
Company. Navtech-Canada had the right to offset $3,500 Canadian 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 Navtech-Canada.
Advances
During the fiscal year ending October 31, 1999, the Company made additional
advances to NARI aggregating approximately $263,000, which carry no repayment
terms.
2. Global Weather Dynamics, Inc.
On July 15, 1998, NARI acquired from Global Weather Dynamics, Inc. ("GWDI")
all of the assets of GWDI's Weather Services Division ("WSD") for a
consideration consisting of $250,000 in cash, the delivery of 250,000 Common
Shares of the Company to GWDI and the delivery of 50,000 Common Shares of the
Company to an unrelated third party as a finder's fee. The primary assets
acquired included the weather and certain other software that had been developed
by GWDI. In addition, NARI obtained an assignment of the WSD customer contracts.
Page 35
<PAGE>
Following the WSD acquisition by NARI, NARI and Navtech 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 Navtech has been granted the right to
install, configure, modify and use in its business the software acquired by
NARI. 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 its 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, Navtech 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. During the fiscal year ended October 31, 1999, $92,000 was payable
pursuant to the License Agreement. Such amount was deducted from amounts owing
to the Company as discussed below. Concurrently with the execution of the
License Agreement, NARI also assigned to Navtech 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:
1. NARI purchased from Navtech 300,000 Common Shares of the Company in
consideration of $300 in cash and the delivery of a promissory note in the
amount of $134,700, payable in 36 monthly installments and bearing interest
at the rate of 10% per annum. The note provides that payments may be made
by offsetting royalties due under the License Agreement. As of October 31,
1999, the principal amount of the promissory note was $25,379.
2. Navtech borrowed $210,000 from a Canadian financial institution, which loan
is repayable over a 28-month term bearing interest at the rate of 9.18% per
annum. Dorothy A. English personally guaranteed the repayment of this loan.
3. The proceeds from the loan were transferred to Navtech-Canada which, in
turn, loaned $150,000 to NARI. This loan bears interest commencing November
1, 1998 at the rate of 10% per annum and is repayable in 36 monthly
installments commencing November 1, 1999. The note provides that royalties
payable to NARI under the License Agreement may be used to offset amounts
payable to the extent they have not already been used to repay the $134,700
note referred to above.
4. Subsequent to October 31, 1998, the Company advanced an additional $112,000
to NARI. The additional advance is repayable commencing with the payment in
full of the promissory note in Item 3 above. The note bears interest at a
rate of 10% per annum and is repayable in 22 monthly installments. The note
provides that royalties payable to NARI under the License Agreement may be
used to offset amounts payable to the extent they have not already been
used to repay the $150,000 note referred to above.
The payment of each of the above NARI notes is secured by the grant of
a security interest in the weather and NOTAMs software acquired by NARI from
GWDI.
The weather and other software acquired by NARI and licensed to the
Company was of critical importance to the Company in order for it to maintain a
competitive advantage in the delivery of its products to the marketplace. The
Company had determined that the internal development of this software would
require at least 10 man-years to complete at a cost estimated to be in excess of
$700,000. Furthermore, the Company was paying third party weather suppliers
approximately $4,000 per month for weather and related data it had determined
was below the standards required by the Company's customers.
3. Russell K. Thal
Reference is made to Item 10(e) for a discussion of a certain retirement
agreement entered into between the Company and Mr. Thal.
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 and of which Mr. Metherell's
wife is the controlling shareholder, leased certain computer equipment to
Navtech-Canada. 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.
Page 36
<PAGE>
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 principal amount of $90,000
Canadian, provides for interest at the rate of 18% per annum and is payable as
follows:
1. interest only of $1,350 Canadian per month from July 1999 to September
2000;
2. interest and principal of $2,400 Canadian per month from October 2000
to April 2005; and
3. a residual payment of principal and interest of $1,263 in May 2005.
5. Duncan Macdonald
Effective as of June 1, 1996, Navtech-Canada entered into a two year Key
Advisor Agreement (the "Macdonald Key Advisor Agreement") with Duncan Macdonald
pursuant to which Mr. Macdonald was retained to serve as Chief Executive Officer
of the Company. Pursuant to the Macdonald Key Advisor Agreement, as amended in
January 1997, Mr. Macdonald was entitled to receive a base weekly fee of $3,000
Canadian. In addition, a bonus of $5,000 Canadian per fiscal quarter was payable
during the term of the Macdonald Key Advisor Agreement. Mr. Macdonald 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, although Mr. Macdonald continued to serve
as Chief Executive Officer until December 1998 under the same terms.
Effective December 1, 1998, the Company entered into a twenty month
Employment Agreement (the "Macdonald Employment Agreement") engaging Mr.
Macdonald as Chief Executive Officer of the Company. Mr. Macdonald is entitled
to receive a base quarterly fee of $1,250 commencing with the fiscal quarter
ended January 31, 1999. Mr. Macdonald has agreed to make 30% of his working time
available to the Company. Other services are rendered by Mr. Macdonald as
provided for in the following paragraph.
Effective January 1, 1999, Navtech-Canada entered into a two year Services
Agreement (the "Kintyre - Navtech-Canada Agreement") with Kintyre & Company
Limited ("Kintyre"), a company controlled by Mr. Macdonald. Under the Kintyre
- -Navtech-Canada Agreement, Kintyre has agreed to provide the services of Mr.
Macdonald, as well as other Kintyre staff as needed, to assist Navtech-Canada in
its strategic corporate structuring and corporate finance and accounting
activities. Kintyre is entitled to receive a base monthly fee of $13,000
Canadian, plus an annual bonus of $8,700 Canadian.
During the fiscal year ended October 31, 1999, Navtech-Canada paid
approximately $78,000 and $64,000 to Kintyre for the services of Mr. Macdonald
and Mr. Vietze (then Chief Financial Officer of the Company), respectively.
In April 1999, St. Andrews Capital Limited Partnership ("St. Andrews LP")
advanced $90,000 to the Company for working capital purposes. Mr. Macdonald
serves as the President of the general partner of St. Andrews LP and is the
controlling stockholder of such general partner. The advance from St. Andrews LP
is repayable, together with interest at the rate of 19.562% per annum, in 22
monthly installments. The repayment of the loan is to be secured by the grant of
a security interest in substantially all of the assets of Navtech-UK and a
pledge of the Navtech-UK shares held by Navtech-Canada.
On October 1, 1999, St. Andrews LP advanced $128,830 to the Company to
finance the Company's acquisition of Skyplan Services (UK) Limited. At the time
of the loan, the Company had sufficient working capital to undertake the
transaction, but determined that it was prudent to obtain outside financing. As
provided for in a term sheet (which calls for the completion of definitive loan
documents), the loan bears interest at the rate of 10% per annum and is
repayable in 24 equal monthly payments of approximately $5,945 commencing
November 1, 1999 and the repayment of the loan is to be secured by the grant of
a security interest in substantially all of the assets of Navtech-UK and a
pledge of the Navtech-UK stock held by Navtech-Canada. The term sheet provides
that the principal amount of the loan is convertible into Common Shares of the
Company at a conversion price of $0.375 per share effective on the first day of
the month following the approval of an increase in the authorized share capital
of the Company sufficient for such purpose. The Company held an annual meeting
of shareholders on January 14, 2000 at which meeting a proposal to increase the
authorized share capital of the Company was approved, thus providing sufficient
share capital to permit such conversion.
Page 37
<PAGE>
As of January 14, 2000, the outstanding principal balance of the loan
was $114,094. Accordingly, such principal amount is convertible, effective
February 1, 2000, into 304,251 Common Shares of the Company. Since the loan is
to be repaid in monthly installments, as described above, as installments are
paid, the number of shares issuable upon conversion of the principal amount will
be reduced.
Page 38
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
3(A) Certificate of Amendment of the Certificate of Incorporation providing
for the elimination of the Series A Convertible Cumulative Preferred
Stock
3(B) Certificate of Amendment of the Certificate of Incorporation
containing items amended following the January 14, 2000 Annual
Meeting of Stockholders
3(C) Certificate of Incorporation and amendments thereto including
Certificate of Ownership and Merger prior to filing the amendments
above (5)
3(D) By-Laws
10(A)Employment Agreement dated as of December 1, 1993 between the Company
and Russell K. Thal (4) Amendment #1 thereto dated March 14, 1996 (5),
and amendment thereto dated January 8, 1997 (7)
10(B) Incentive Stock Option Plan (3)
10(C) Non-Qualified Stock Option Plan (2)
10(D)Consulting Agreement dated as of November 1, 1993 between
Compuflight, Inc. and Bert E. Brodsky, together with amendment thereto
dated December 2, 1993 (1)
10(E)Promissory Note dated as of November 1, 1993 payable by Bert E.
Brodsky to the order of Compuflight, Inc. in the principal amount of
$804,000 (1)
10(F)Lease dated October 8, 1996 between Ferdi Investments Company Limited
and Navtech Systems Support Inc. with respect to Waterloo, Ontario
premises (7)
10(G) 1995 Key Employees and Advisors Stock Option Plan as amended (5)
10(H)Consulting and Marketing Agreement dated as of January 1, 1995
between Navtech Systems Support Inc. and Ray English and Associates
Inc. (5)
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 (5)
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 (6)
10(K)Key Advisor Agreement dated as of October 1, 1995 between
Compuflight, Inc. and Kenneth M. Snyder (5)
10(L)Amended and Restated Stock Option Agreement dated as of August 9,
1995 between Compuflight, Inc. and Kenneth M. Snyder (5)
10(M)Stock Option Agreement dated as of August 9, 1995 between
Compuflight, Inc. and Duncan Macdonald (5)
10(N)Key Advisor Agreement dated as of June 1, 1996 between Navtech
Systems Support Inc. and Duncan Macdonald (6)
10(O)Retirement Agreement dated as of August 5, 1999, between Russell K.
Thal and Compuflight, Inc. (8)
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. (8)
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. (8)
Page 39
<PAGE>
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. (8)
10(S)Forbearance and Continued Service Agreement dated as of October 1,
1999 between Navtech Systems Support and Skyplan Services Limited. (8)
10(T)Software License Agreement dated as of August 1, 1998 between Navtech
Applied Research Inc. and Compuflight, Inc. (8)
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. (8)
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. (8)
10(W)Employment Agreement dated as of December 1, 1998 between Duncan
Macdonald and Compuflight, Inc. (9)
10(X)Employment Agreement dated as of December 1, 1998 between Rainer
Vietze and Compuflight, Inc. (9)
10(Y)Contract for Services Agreement between Navtech Systems Support Inc.
and Kintyre and Company Limited dated as of January 1, 1999. (9)
21 Subsidiaries(4)
27 Financial Data Schedules
(1) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Current Report on Form 8-K for an event dated December 1, 1993.
(2) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1992.
(3) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Registration Statement on Form S-18 as Registration No.
2-93714-NY.
(4) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1993.
(5) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1994.
(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 Annual Report on Form 10-KSB for the fiscal year ended October
31, 1995.
Page 40
<PAGE>
(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, 1996.
(8) 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, 1997.
(9) 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 Amended Annual Report on Form 10-KSB/A for the fiscal year
ended October 31, 1998.
b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended October 31, 1999.
Page 41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheet as of October 31, 1999 F-3
Consolidated Statements of Operations for the Years Ended
October 31, 1999 and 1998 F-4
Consolidated Statement of Shareholders' Deficit for the
Years Ended October 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-28
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Navtech, Inc.
We have audited the accompanying consolidated balance sheet of Navtech, Inc.,
formerly Compuflight, Inc., and Subsidiaries (the "Company") as of October 31,
1999 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
Navtech, Inc. and Subsidiaries as of October 31, 1999, 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, 1999, the Company has a deficiency in working
capital and shareholders equity of $1,333,728 and $1,149,122, respectively, and
has incurred a net loss of $380,244 for the year ended October 31, 1999. These
factors, among others, as described in Note B to the consolidated financial
statements, raise 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 December 10, 1999, except for Note A as to which the date is
January 14, 2000
F-2
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
CONSOLIDATED BALANCE SHEET
October 31, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,504
Accounts receivable, net of allowance for doubtful accounts
of $189,329 853,876
Prepaid expenses and other 21,156
Total current assets 879,536
INVESTMENT TAX CREDITS RECEIVABLE, NET OF ALLOWANCE 314,603
FIXED ASSETS, NET 340,488
DUE FROM RELATED PARTY 318,760
OTHER ASSETS 123,468
$ 1,976,855
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued and other liabilities $ 1,286,923
Deferred revenue 326,193
Note payable - factoring 191,016
Due to related parties - current portion 265,696
Current portion of long-term debt 128,672
Current portion of deferred lease inducements 14,764
-----------
Total current liabilities 2,213,264
DUE TO RELATED PARTIES 533,843
LONG-TERM DEBT 47,043
DEFERRED LEASE INDUCEMENTS 88,584
MINORITY INTERESTS 243,243
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common stock, par value $.001 per share; authorized
10,000,000 shares; issued and outstanding, 2,001,980 shares 2,002
Additional paid-in capital 1,680,445
Accumulated other comprehensive income 51,175
Accumulated deficit (2,882,744)
----------
(1,149,122)
$ 1,976,855
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended October 31,
<TABLE>
<S> <C> <C>
1999 1998
------------- ------------
Revenue
Service fees $ 4,648,483 $ 3,339,818
Hardware, software and license sales 605,093 509,928
------------ ------------
5,253,576 3,849,746
----------- -----------
Costs and expenses
Operating 3,860,240 2,758,518
Research and development, net 30,906 24,413
Selling, general and administrative 1,070,655 926,761
Depreciation and amortization 87,120 133,833
------------ ------------
5,048,921 3,843,525
----------- -----------
Operating income 204,655 6,221
Other income (expense)
Interest income 104,347 52,501
Interest expense - related parties (52,312) (46,126)
Interest expense - other (297,980) (155,121)
Realized foreign exchange loss (26,904) (1,795)
Provision for bad debt - related party (316,453) (394,453)
----------- -----------
Net loss before income taxes (384,647) (538,773)
Income tax benefit 4,403
NET LOSS $ (380,244) $ (538,773)
============ ===========
Net loss per share - basic and diluted $(0.19) $(0.30)
===== =====
Weighted average number of common shares outstanding 2,001,980 1,801,980
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
Years ended October 31, 1999 and 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes Accumulated
Additional Receivable Other
Common stock Paid -in Former Comprehensive Accumulated Comprehensive
Shares Amount Capital Chairmen Income deficit Total loss
------ ------ ------- -------- ------ ------- ----- ----
Balance at November 1, 1997 1,701,980 $1,702 $1,545,745 $(278,325) $43,070 $(1,963,727) $(651,535)
Issuance of shares to NARI 300,000 300 134,700 135,000
Reclassification - NARI note 278,325 278,325
receivable
Foreign translation adjustment 14,380 14,380 $14,380
Net loss (538,773) (538,773) (538,773)
--------- ------ ---------- --------- --------- ---------- -------- --------
Comprehensive loss $(524,393)
=======
Balance at October 31, 1998 2,001,980 2,002 1,680,445 - 57,450 (2,502,500) (762,603)
Foreign translation adjustment (6,275) (6,275) $ (6,275)
Net loss (380,244) (380,244) (380,244)
--------- ------ --------- --------- ---------- ----------- --------- ---------
Comprehensive loss $(386,519)
=========
Balance at October 31, 1999 2,001,980 $2,002 $1,680,445 $ - $ 51,175 $(2,882,744) $(1,149,122)
========= ===== ========= ========= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended October 31,
<TABLE>
<S> <C> <C>
1999 1998
---------- ----------
Cash flows from operating activities
Net loss $ (380,244) $(538,773)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 87,120 133,833
Provision for uncollectible accounts 59,423 147,064
Write off of note receivable - former chairmen 394,453
Other (14,521) (14,841)
(Increase) decrease in operating assets
Accounts receivable (246,489) (398,404)
Scientific research and experimental development credits
143,065 7,262
Prepaid expenses and other 9,174 (4,720)
Increase (decrease) in operating liabilities
Accounts payable and accrued liabilities 183,407 440,428
Deferred revenue 320,809
Note payable - factoring 191,016
----------
Net cash provided by operating activities 352,760 166,302
---------- ----------
Cash flows from investing activities
Purchase of Navtech-UK, net (103,166)
Purchase of fixed assets (76,910) (62,477)
Advances to parent company, net (51,600) (279,151)
----------- ---------
Net cash used in investing activities (231,676) (341,628)
---------- ---------
Cash flows from financing activities
Repayment of cash overdraft (136,858)
Restricted cash 50,000
Proceeds from issuance of common shares 300
Repayment on bank loan, net (41,055) (41,961)
Proceeds from loans 252,830 180,087
Proceeds from note 26,905
Repayment of loans (168,819)
Payment of notes (76,915) (18,311)
----------- ---------
Net cash (used in) provided by financing activities (120,817) 147,020
---------- --------
Effect of foreign translations on cash 4,237 28,306
------------ --------
Net increase in cash and cash equivalents 4,504
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year $ 4,504 $
=========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998
NOTE A - DESCRIPTION OF BUSINESS AND ORGANIZATION
Navtech, Inc. ("Navtech"), formerly Compuflight, Inc., and its
Subsidiaries, Navtech Systems Support Inc. ("Navtech-Canada"), Navtech
Systems (UK) Limited ("Navtech-UK") and Efficient Aviation Systems Inc.
("EAS") (herein referred to collectively as the "Company") are engaged in
the business of (1) providing computerized flight pla nning, weather, and
services to all segments of the aviation industry, but principally to
commercial airlines and corporate aircraft users and (2) licensing
customized versions of their proprietary software to end users mainly
throughout North America, Europe and Africa.
On January 14, 2000 the Company's shareholders approved the change of the
Company's name to Navtech, Inc. and to increase the number of authorized
common shares to 10,000,000.
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, 1999,
the Company has a deficiency in working capital and shareholders' equity of
$1,333,728 and $1,149,122, respectively, and has incurred a net loss of
$380,244 for the year ended October 31, 1999. 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 three specific
areas to address both the strategic direction required and the daily
operational issues to position the Company for profitability. First, the
Company has continued to increase its marketing endeavors to obtain new
customers and will be introducing a number of complementary products to
address marketplace demands. Secondly, the Company believes it has been
building an effective management structure. Thirdly, the Company has
continued its pursuit of financing.
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.
F-7
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
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 Navtech
and its subsidiaries, Navtech-Canada, Navtech-UK 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 and
comprehensive income.
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. An evaluation to determine the amount of goodwill impairment, if
any, would be measured on the basis of estimated future undiscounted
cash flows associated with the asset. The estimated future undiscounted
cash flows would be compared to the asset's carrying value to determine
whether a write-down is required.
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.
F-8
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE C (continued)
5. Minority Interests
Effective November 24, 1995, the Company issued 125,000 shares of its
common stock in exchange for 500,000 shares of Navtech-Canada, which
represented the common shares of Navtech-Canada held by the one
remaining common shareholder of Navtech-Canada, Innovation Ontario
Corporation, a provincial government agency, and, accordingly, the
Company now owns 100% of the outstanding common shares of
Navtech-Canada. 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, 1999 consist of 3,600 shares of Class
B, nonvoting shares of Navtech-Canada. Such shares, issued for $358,200
Canadian ($243,243 U.S. at October 31, 1999), are entitled to
noncumulative dividends of $8 per share and are redeemable at the
option of Navtech-Canada for $540,000 Canadian ($366,698 U.S.). To
date, no dividends have been declared or paid with respect to such
shares.
6. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences by employing enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. 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.
F-9
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE C (continued)
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 K.
9. Net Loss Per Share
In fiscal 1998, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share." SFAS No. 128 replaces the calculation of primary
and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. Diluted earning per share is very similar to the previously
reported fully diluted earnings per share. Potential common stock
equivalents from outstanding stock options are excluded in computing
net loss per share for fiscal 1999 and 1998 as their effects would be
antidilutive.
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 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.
F-10
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE C (continued)
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 $320,000 and $219,000 during
the years ended October 31, 1999 and 1998, respectively. During the
year ended October 31, 1999, the Company issued a non-interest bearing
promissory note to its Chairman for amounts previously accrued pursuant
to a retirement agreement. During fiscal 1998, non-cash investing and
financing activities consisted of the issuance of 300,000 shares of the
Company's common stock in exchange for a promissory note of $134,700.
12. Comprehensive Income
In fiscal 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on the Company's
net loss or stockholders' deficit. SFAS No. 130 requires cumulative
translation adjustments, which prior to adoption were reported
separately in stockholders' deficit, to be included in accumulated
other comprehensive income (loss). Prior year financial statements have
been reclassified to conform to the requirements of SFAS No. 130. The
cumulative foreign currency translation adjustment was $51,175 and
$57,450 as of October 31, 1999 and 1998, respectively.
13. Accounting Pronouncements Not Yet Adopted
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 AcSEC
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. On December 22, 1998, the AcSEC
issued SOP 98-4, which provides further guidance on what constitutes
vendor specific evidence of the fair value of multiple elements
included in a software arrangement. The Company believes that those
provisions of SOP 97-2 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.
F-11
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE D - INVESTMENT TAX CREDITS RECEIVABLE
Navtech-Canada has filed claims for Investment Tax Credits on its
scientific research and experimental development activities for fiscal
years ended October 31, 1992 through October 31, 1999. Scientific research
and experimental development Investment Tax Credits ("ITCs") are available
to certain entities located in Canada for the prosecution of qualified
research and development. Further, these credits, since 1995, have been
available at both the federal and provincial level.
Claims: 1992 - 1995
All of Navtech-Canada's claims for the fiscal years ended October 31,
1992 through October 31, 1995 were subjected to both financial and
technical audits by Revenue Canada, the Canadian taxing authority.
Based on its technical audit, Revenue Canada disallowed certain
expenses related to projects deemed non-qualifying, and accordingly,
reduced the final assessed claim. Navtech-Canada has filed Notices of
Objection to these assessments. The amounts in dispute are as follows:
Taxation year ended:
March 31, 1992 $ 26,807
March 31, 1993 101,179
March 31, 1994 41,087
October 31, 1995 79,139
--------
248,212
Less Allowance (248,212)
$ -
========
At this time, the Company cannot reasonably determine the likelihood of
success in appealing the reductions resulting from the scientific
audits and has therefore continued to provide an allowance against its
ITC 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.
Navtech-Canada has received approximately $211,000 on its 1992-1995
claims (at the federal level), which has been applied to outstanding
payroll taxes and other government liabilities. Included in this amount
was interest of approximately $44,000. Additional amounts remaining
receivable at year end are identified below.
F-12
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE D (continued)
Claims: 1996 - 1997
Navtech-Canada's 1996 and 1997 submissions were subjected only to
financial audits. As a result, the 1996 claim has been assessed both at
the federal and provincial level and the 1997 claim has been assessed
at the federal level. The financial audit for 1996 resulted in a
reduction in the total claim due to the disallowance of one staff
member. Navtech-Canada does not intend to object to this assessment.
The financial audit for 1997 resulted in no disqualifications and a
marginal increase in the total claim, pending the receipt of the
assessment from the Ontario Ministry of Finance.
Navtech-Canada has received approximately $104,000 on its 1996 claims,
which has been applied to outstanding payroll taxes and other
government liabilities. Additional amounts remaining receivable at year
end are identified below.
Claims: 1998 - 1999
During fiscal 1999 and 1998, Navtech-Canada has applied for ITCs of
approximately $51,000 and $53,000, respectively. These ITCs have been
recorded as a reduction of research and development expenses.
Investment Tax Credits Receivable
Investment Tax Credits Receivable consists of the following amounts:
Disputed Claims 1992 - 1995 $ 248,212
Assessed Claims 1992 - 1995 16,825
Assessed Claims 1996 137,334
Assessed Claims 1997 47,187
Unassessed Claims 1997 9,010
Unassessed Claims 1998 52,637
Unassessed Claims 1999 51,610
--------
562,815
Less Allowance (248,212)
$ 314,603
F-13
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE E - FIXED ASSETS
Fixed assets consist of the following:
Useful
life 1999
Computer software 5-10 years $ 439,071
Computer equipment 5-10 years 465,580
Furniture and fixtures 5-20 years 63,224
Leasehold improvements 5-10 years 150,205
Office equipment 5 years 104,702
--------
1,222,782
Less accumulated depreciation and amortization (882,294)
$ 340,488
Amortization expense for capitalized software totaled approximately $8,700
and $52,100 in 1999 and 1998, respectively. Accumulated amortization
approximated $477,000 at October 31, 1999.
NOTE F - DEFERRED REVENUE
During the quarter ended October 31, 1999, the Company commenced
installation of a flight planning system, along with the development of
certain customer-requested enhancements, for a significant customer based
in the United States. The installation and customer acceptance were
completed within two weeks of the completion of the year end; however,
based on generally accepted accounting principles and the interpretation
afforded such principles by the Accounting Staff of the Securities and
Exchange Commission, such revenue cannot be reflected in the financial
results for 1999 due to the uncertainty of completion that existed at the
year end. Accordingly, deferred revenue includes approximately $326,000
representing amounts received from the customer prior to the year end, as
offset by costs associated with the installation and development work up to
year end. The gross revenue from this contract of approximately $580,000
will be shown in the first quarter of 2000. All amounts payable for the
delivery of the system were received by the end of November 1999.
F-14
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE G - ACQUISITION OF SUBSIDIARY
On October 1, 1999, the Company, though its subsidiary, Navtech-Canada,
acquired all of the outstanding shares of Skyplan Services (UK) Limited for
an aggregate cost of $150,000. The purchase agreement contained a covenant
not to solicit the former employees or customers for a period of two years.
The Company accounted for the acquisition as a purchase and as such, the
fair values of the assets acquired and liabilities assumed have been
recorded on the date of the acquisition and the results of operations are
included in the Company's consolidated statements of operations since the
acquisition date. The excess of the consideration paid and the related
costs of acquisition over the estimated fair value of the net assets
acquired, totaling $108,000, has been recorded as goodwill and is being
amortized on a straight-line basis over ten years. Pro forma historical
results of operations are not presented, as such results would not be
materially different from the historical results of the Company.
A summary of the assets and liabilities acquired follows:
Current Assets $ 256,000
Other Assets 27,000
Liabilities Assumed (241,000)
-------
Acquisition Costs 150,000
Goodwill $ 108,000
=======
NOTE H - TRANSACTIONS WITH RELATED PARTIES
Notes Receivable - Parent Company
Navtech Applied Research Inc. ("NARI"), the parent company of the
Company, is the continuing Canadian corporation resulting from the
merger of Ray English and Associates Inc. ("RE&A") and NARI (the
"Merger"). NARI is owned by an executive vice-president and director of
the Company. Prior to the Merger, RE&A had been 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.
The balance owing from NARI as at October 31, 1999 is composed of the
following amounts:
Promissory Note # 1 $ 509,303
Promissory Note # 2 25,379
Promissory Note # 3 165,935
Promissory Note # 4 118,685
Intercompany advances receivable 434,189
---------
1,253,491
Less: Allowance (934,731)
$ 318,760
F-15
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE H (continued)
Promissory Note # 1 ("Note # 1")
In 1993, Navtech-Canada charged its then parent company, RE&A, a
management and marketing fee in connection with the management of
certain software owned by EAS, formerly a subsidiary of RE&A. Effective
July 15, 1995, RE&A executed and delivered to Navtech-Canada a
promissory note in the principal amount of $750,000 Canadian to
evidence certain obligations to Navtech-Canada as of such date. Note #
1 is payable on July 15, 2005 and provides for interest at the rate of
5% per annum payable annually.
Promissory Note # 2 ("Note # 2")
In July 1998, NARI purchased 300,000 shares of the Company in
consideration for $300 cash and a promissory note in the principal
amount of $134,700. Note # 2 is payable in forty eight monthly
installments of principal and interest of $4,375 and provides for an
interest rate of 10% per annum. Additional payments of principal are
permitted based on amounts due to NARI under a royalty agreement as
discussed below. Note # 2 is secured by the certain weather and NOTAMs
software owned by NARI
Effective July 15, 1998, NARI and the Company entered into a royalty
agreement (the "Royalty Agreement") that provides the Company with a
non-exclusive license to use the weather and NOTAMs software owned by
NARI. The royalty is calculated as 10% of a Gross Revenue Base as
defined in the Royalty Agreement. NARI is applying the excess of the
monthly royalty amount over its required payments on Note # 2 as
additional payments of principal. Further, once Note # 2 has been
repaid, amounts due under the Royalty Agreement may be used to
accelerate repayment of Note # 3 and then Note #4.
Promissory Note # 3 ("Note # 3")
In July 1998, NARI borrowed $150,000 from Navtech-Canada as evidenced
by Note # 3. Note # 3 is payable in thirty six monthly installments of
principal and interest of $5,854. Interest at a rate of 10% per annum
commenced November 1998. Additional payments of principal are permitted
based on amounts due to NARI under the Royalty Agreement as discussed
above. Note # 3 is secured by the certain weather and NOTAMs software
owned by NARI.
F-16
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE H (continued)
Promissory Note # 4 ("Note # 4")
Commencing December 1998 and concluding July 1999, the Company advanced
approximately $112,000 to NARI required to complete the purchase of the
above noted weather and NOTAMs software. Note # 4 is payable in twenty
two monthly installments of principal and interest of $7,854 commencing
with the repayment of Note # 3.
Note # 4 bears interest at a rate of 10% per annum. Additional payments
of principal are permitted based on amounts due to NARI under the
Royalty Agreement as discussed above. Note # 4 is secured by the
certain weather and NOTAMs software owned by NARI.
Intercompany Advances Receivable
The Company has made additional advances to its parent company
aggregating approximately $263,000, which carry no repayment terms.
Allowance
NARI has used the common stock purchased and the advances received
under promissory notes # 3 and # 4 to purchase the weather and NOTAMs
software licensed to the Company. As a result of the above transactions
by and amongst NARI and the Company, management has revised its
estimate of the ultimate amount presently collectible from NARI and
provided for an additional allowance of $316,453, increasing the
allowance to $943,731. Such estimate is based principally on the
estimated net worth of NARI and the historical cost of the software
assets owned by NARI.
F-17
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE H (continued)
Due to Related Parties
Due to related parties at October 31, 1999 consists of the following:
Demand loans - related party (i) $ 1,191
Loan payable - related party (ii) 1,925
Other notes payable - related parties (iii) 149,616
Loans payable - related party (iv) 196,487
Note payable - Chairman (v) 450,320
--------
799,539
Less current portion (265,696)
Long-term portion $ 533,843
========
(i) The demand loans bear interest at 9.18% per annum,
compounded monthly. The amount is due to a company
controlled by an officer of the Company
(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. The loan 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) Other notes payable - related parties bear interest from 5%
- 18% and require monthly payments of interest and principal
through May 2005.
(iv) Loans payable - related party consist of two loans made by a
limited partnership related to a director of the Company.
Loan # 1, in the principal amount of $90,000, bears interest
at 19.562% and is payable in twenty-two blended monthly
installments of $4,845. Loan # 2, in the principal amount of
$128,830, bears interest at 10% per annum and is payable in
twenty-four blended monthly installments of $5,945. Each of
the loans is to be secured by substantially all of the
assets of Navtech-UK and the shares of Navtech-UK held by
Navtech-Canada. In addition, the balance of Loan # 2 will be
convertible into common shares of the Company at a rate of
$0.375 per share at the lender's discretion on the first day
of the month following shareholder approval of an increase
in authorized share capital sufficient to permit the
conversion.
F-18
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE H (continued)
(v) Note payable - Chairman consists of a non-interest bearing
promissory note in the principal amount of $600,000 as
further described in Note L. The Company has recorded the
liability, payable in 96 consecutive semi-monthly payments,
at its net present value as at October 31, 1999.
Maturities of related party debts as of October 31, 1999 are as follows:
October 31,
2000 $ 265,696
2001 219,733
2002 130,176
2003 151,534
2004 22,342
Beyond 10,058
--------
$ 799,539
NOTE I - BANK REVOLVING AND OTHER DEMAND LOANS AND LONG-TERM DEBT
The Company has a revolving bank demand loan facility which provides for
borrowings of up to $40,000 Canadian which are payable on demand. These
demand loans bear interest at the bank's prime rate plus 1.25%.
<TABLE>
<S> <C>
Long-term debt is as follows as of October 31, 1999:
Small business 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
$ 66,094
Term loan, interest at 9.18%, payable in monthly payments of principal
and interest of $7,351 through September 30, 2000 90,562
Equipment note, payable in monthly payments of principal and interest of
$598 through August 2003 19,059
------
175,715
Less current portion (128,672)
Long-term portion $ 47,043
=========
</TABLE>
F-19
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE I (continued)
Substantially all of the Company's assets are pledged as collateral for
revolving demand loans and long term debt.
As of October 31, 1999, both Navtech and Navtech-Canada had factored
certain trade receivables with full recourse if not paid within 120 days.
Under the factoring agreements, the Company is required to pay an
administration charge of 0.4% on the initial factored amount, a factoring
commission of 3.2%, which covers the first thirty days of the advance, and
a daily charge of 0.108% on receivables outstanding more than thirty days.
As of October 31, 1999 borrowings amounted to approximately $191,000.
Maturities of long-term debt as of October 31, 1999 are as follows:
October 31,
2000 $ 128,672
2002 36,117
2003 5,462
2004 5,464
---- -----
$ 175,715
NOTE J - INCOME TAXES
The Company's fiscal 1999 and 1998 effective income tax rate differs from
the statutory U.S. Federal income tax rate as a result of the following:
1999 1998
--------- ------
Statutory U.S. Federal tax rate (34.0)% (34.0)%
Increase in valuation allowance 34.0 34.0
---- ----
- % - %
====== ======
F-20
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE J (continued)
The temporary differences which give rise to deferred tax assets and
liabilities at October 31, 1999 are summarized as follows:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforwards $ 413,000
Deferred salaries and other compensation 380,000
Allowance for doubtful accounts 456,000
Other 156,000
--------
Total deferred tax assets 1,405,000
Deferred tax liabilities
License fees receivable (35,000)
Scientific research and experimental development
credits, net (122,000)
Fixed Assets (26,000)
Total deferred tax liabilities (183,000)
---------
Net deferred tax assets $ 1,222,000
==========
Valuation allowance $(1,222,000)
===========
</TABLE>
During fiscal 1999, the Company increased its allowance by $347,000
principally due to an increase in the Company's deferred tax assets.
The Company, for United States purposes, has available to offset future
taxable income net operating loss carryforwards approximating $1,008,000 at
October 31, 1999, which expire through 2019. For Canadian tax purposes, the
Company has fully utilized its available net operating loss carryforwards.
The Company has available scientific research and experimental development
credits of $46,000 Canadian ($31,000 U.S.). 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.
F-21
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE K - 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,
Navtech-Canada, has outstanding options to purchase 300,000 shares of its
common stock at exercise prices ranging from $.20 to $.50 Canadian per
share.
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.
Further, in 1999, the Company adopted, subject to shareholder approval, the
1999 Stock Option Plan (the "1999 Stock Option Plan"), which provides for
the granting to directors, employees, consultants and advisors of the
Company of incentive stock options and non-statutory stock options for the
purchase of a maximum of 1,500,000 shares of the Company's common stock.
Under the terms of the 1999 Stock Option Plan, the options, which expire no
later than ten years after grant, are exercisable at a price no less than
fair market value of the Company's common stock at the date of grant and
become exercisable in accordance with terms established at the time of the
grant.
Summary information with respect to the stock option plans follows:
<TABLE>
<S> <C> <C> <C> <C>
Weighted
Range of Outstanding Average Outstanding
Exercise Options Exercise Options
Prices Granted Price Exercisable
Balance at October 31, 1997 0.625 - 1.88 626,376 0.684 626,376
========== =======
Balance at October 31, 1998 0.625 - 1.88 626,376 0.684 626,376
========== =======
Balance at October 31, 1999 0.625 - 1.88 626,376 0.684 626,376
========== =======
</TABLE>
During fiscal 1999, no options were granted or terminated. On July 15,
1998, an option holder agreed to not exercise 200,000 options until such
time as the Company's authorized capital has been increased.
F-22
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE K (continued)
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 21 $.625
$1.00 to $1.88 76,376 56 $1.11
</TABLE>
There were no options issued by the Company in fiscal 1999 or 1998; therefore,
there is no pro forma effect presented.
NOTE L - 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.
F-23
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE L (continued)
The Company had also failed to file on a timely basis 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 filed 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 21, 1999. No assurances can be given that,
notwithstanding the Company's filing of the aforementioned documents,
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 2004.
Future minimum annual rental payments pursuant to these leasing
agreements as of October 31, 1999 are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Related
Office Party
Space Equipment Equipment Total
2000 $ 104,540 $ 47,869 $ 7,936 $ 160,345
2001 75,403 33,579 5,606 114,588
2002 75,403 8,623 6,704 90,730
2003 65,260 1,766 8,014 75,040
2004 66,525 - 9,582 76,107
-------- ----------- -------- --------
$ 387,131 $ 91,837 $ 37,842 $ 516,810
======== ======== ======= ========
</TABLE>
F-24
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE L (continued)
Rental costs for fiscal 1999 and 1998 were $240,111 and $205,668,
respectively. Rental cost incurred in 1999 and 1998 in connection with
the equipment lease with the related party was $7,386 and $4,310,
respectively.
3. Compensation Agreements
The Company has entered into various compensation agreements with its
Chairman, its Chief Executive Officer, its Chief Financial Officer and
a company controlled by its Chief Executive Officer as more fully
described below.
The Company has entered into a retirement agreement (the "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 (as evidenced by a non-interest bearing note in the amount of
$600,000 (see Note H)) commencing November 25, 1999 for services
rendered for the period from November 1996 through October 1999. The
Company has provided for approximately $450,000 relating to the net
present value of the services provided by the Chairman during fiscal
1999, 1998 and 1997. Pursuant to the 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 $600,000 and declining at a rate of
$150,000 per year, the proceeds of which are to be used to prepay to
the Chairman's estate any remaining portion of the $600,000 originally
due. All amounts due are evidenced by promissory notes that contain
acceleration provisions, in the event of, among other things, default
in payment.
Effective December 1, 1998, the Company entered into a twenty month
Employment Agreement (the "Macdonald Employment Agreement") engaging
Mr. Macdonald as Chief Executive Officer of the Company. Mr. Macdonald
is entitled to receive a base quarterly fee of $1,250 commencing with
the fiscal quarter ended January 31, 1999. Mr. Macdonald has agreed to
make 30% of his working time available to the Company.
Effective December 1, 1998, the Company entered into a twenty month
Employment Agreement (the "Vietze Employment Agreement") engaging Mr.
Vietze as Chief Financial Officer of the Company. Mr. Vietze is
entitled to receive a base quarterly fee of $625 commencing with the
fiscal quarter ended January 31, 1999. Mr. Vietze has agreed to make
30% of his working time available to the Company.
F-25
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE L (continued)
Effective January 1, 1999, Navtech-Canada entered into a two year
Services Agreement (the "Kintyre-Navtech Agreement") with Kintyre &
Company Limited ("Kintyre"), a company controlled by Mr. Macdonald, the
Company's Chief Executive Officer. Under the Kintyre-Navtech Agreement,
Kintyre has agreed to provide the services of Mr. Macdonald and Mr.
Vietze, as well as other Kintyre staff as needed, to assist
Navtech-Canada in its strategic corporate structuring and corporate
finance and accounting activities. Kintyre is entitled to receive a
base monthly fee of $23,250 Canadian, plus as annual bonus of $8,750
Canadian.
Approximate aggregate minimum compensation obligations under the above
agreements at October 31, 1999 are summarized as follows:
Year Amount
2000 $ 344,777
2001 187,519
2002 150,000
2003 150,000
2004 6,250
------------
$ 838,546
=======
4. Nonremittance of Payroll Taxes
During and as of the year ended October 31, 1999, the Company has not
timely remitted to the respective tax collecting jurisdictions payroll
taxes withheld from employees' earnings. At October 31, 1999, the
unremitted balance aggregated approximately $190,000 (included in
accrued and other liabilities) which is subject to additional penalty
and interest charges until paid.
F-26
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE L (continued)
5. Legal Proceedings
On September 13, 1999, the Company received a demand from the attorneys
for the Chapter 11 Creditors Committee of Southern Air Transport, Inc.
for alleged preferential payments of $88,850 made to Navtech-Canada
within 90 days of the filing of the bankruptcy petition of the Debtor
in the United States Bankruptcy Court for the Southern District of Ohio
on October 1, 1998. The Company is of the view that the payments
received were for contemporaneous consideration and were therefore not
preferential payments. The Company has further determined that the
matter is still under review and no adversary proceedings have been
launched as of December 31, 1999. At this time no determination of the
eventual outcome of potential loss has been made.
The Company is subject to various other 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 M - 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 1999, one customer accounted for 11% of the Company's
consolidated revenues, and, in 1998, one customer accounted for 10% of the
Company's consolidated revenues.
NOTE N - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1999, the Company took an additional
allowance against amounts owed by NARI in the amount of $316,453 and
recorded additional amounts owing to a related party of $61,406, portions
of which amounts should have been provided for during each of the quarters
in fiscal 1999.
F-27
<PAGE>
Navtech, Inc., formerly Compuflight, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1999 and 1998
NOTE O - 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, 1999 and 1998 is as follows:
<TABLE>
<S> <C> <C>
1999 1998
------------- -------------
Net sales by customer location
United States $ 4,144,983 $ 3,092,291
Canada 667,609 527,706
Other 440,984 229,749
---------- -----------
Total net sales $ 5,253,576 $ 3,849,746
---------- ----------
Operating profit (loss) by Company office location
United States $ (32,342) $ (20,660)
Canada 253,742 26,881
United Kingdom (16,745)
----------
Total operating income (loss) $ 204,655 $ 6,221
========== =========
Identifiable assets by Company office location
United States $ 1,401,436 $ 1,274,007
Canada 1,282,687 1,350,778
United Kingdom 256,692
Eliminations (1,154,976) (1,047,131)
---------- ----------
Total identifiable assets $ 1,785,839 $ 1,577,654
========== ==========
</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: January 26, 2000 NAVTECH, INC.
By: /s/ Duncan Macdonald
Duncan Macdonald,
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.
<TABLE>
<S> <C> <C>
Signatures Capacity Date
---------- -------- ----
Chairman of the Board and
/s/ Duncan Macdonald Chief Executive Officer and Director January 26, 2000
- --------------------------- (Principal Executive Officer)
Duncan Macdonald
/s/ Dorothy A. English Executive Vice President and Director January 26, 2000
- ---------------------------
Dorothy A. English
/s/ Denis L. Metherell Secretary and Director January 26, 2000
- ---------------------------
Denis L. Metherell
/s/ Kenneth M. Snyder Director January 26, 2000
- ---------------------------
Kenneth M. Snyder
/s/ Russell K. Thal Director January 26, 2000
- ---------------------------
Russell K. Thal
/s/ David Strucke Chief Financial Officer January 26, 2000
- --------------------------- (Principal Financial Officer and
David Strucke Principal Accounting Officer)
</TABLE>
Page 42
<PAGE>
EXHIBIT 3(A)
COMPUFLIGHT, INC.
Certificate Providing for the Elimination of the Series A
Convertible Cumulative Preferred Stock
Compuflight, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance with
the provisions of Section 151 thereof, DOES HEREBY CERTIFY:
FIRST: No shares of Series A Convertible Cumulative Preferred Stock of
the Corporation are issued or outstanding as of the date hereof and none will be
issued subject to the Certificate of Amendment of the Certificate of
Incorporation previously filed with respect thereto.
SECOND: Pursuant to the authority conferred upon the Board of Directors
by Section 151 of the General Corporation Law of the State of Delaware, said
Board of Directors, at a meeting thereof held on the date hereof, adopted a
resolution providing for the elimination of the Series A Convertible Cumulative
Preferred Stock of the Corporation, which resolution is as follows:
RESOLVED, that the Company amend its Certificate of
Incorporation to eliminate the Series A Convertible Cumulative
Preferred Stock therefrom.
THIRD: Accordingly, Article FOURTH of the Certificate of Incorporation of
the Corporation is amended to delete Paragraph 3 therefrom.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed on its behalf this 11th day of January, 2000.
COMPUFLIGHT, INC.
By: /s/Dorothy English
-------------------
Dorothy English
Executive Vice President
<PAGE>
EXHIBIT 3(B)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
COMPUFLIGHT, INC.
(Pursuant to Section 242 of the
General Corporation Law of Delaware)
Compuflight, Inc., a corporation organized and existing under the Delaware
General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended to change the name of the Corporation, to increase the number of Common
Shares that the Corporation shall be authorized to issue, to decrease the number
of Preferred Shares that the Corporation shall be authorized to issue and to
require that, under certain circumstances, action to be taken by the
stockholders of the Corporation without a meeting be taken only with the written
consent of the holders of all of the shares of capital stock of the Corporation
entitled to vote on such action.
SECOND: Article FIRST of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"FIRST: The name of the corporation (hereinafter called the
"corporation") is Navtech, Inc."
THIRD: Paragraphs 1 and 2 of Article FOURTH of the Certificate of
Incorporation of the Corporation are hereby amended to read as follows:
"FOURTH: 1. The aggregate number of shares of capital stock
which the corporation shall have the authority to issue is
TWELVE MILLION (12,000,000) shares, of which TEN MILLION
(10,000,000) shares shall be Common Stock with a par value of
$.001 per share and TWO MILLION (2,000,000) shares shall be
Preferred Stock with a par vale of $.01 per share.
2. The 2,000,000 shares of Preferred Stock may be issued in
series. The Board of Directors is vested with the authority to
establish and designate series, to fix the number of shares
therein, and to fix the variations in the relative rights,
preferences and limitations as between series."
FOURTH: A new Article TWELFTH is hereby added to the Certificate of
Incorporation, to read in its entirety as follows:
"TWELFTH: If action is to be taken by the stockholders of the
corporation without a meeting, then the written consent of the
holders of all of the shares of capital stock entitled to vote
on such action shall be required to take such action, unless
the action has been authorized by the Board of Directors of
the corporation, in which case the written consent of the
holders of not less than a majority of the shares of capital
stock entitled to vote on such action shall be required to
take such action."
FIFTH: The foregoing amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Executive Vice President of the Corporation has
hereunto set her hand to this Certificate this 14th day of January, 2000.
COMPUFLIGHT, INC.
By: /s/Dorothy English
-------------------
Dorothy English
Executive Vice President
<PAGE>
EXHIBIT 3(D)
COMPUFLIGHT, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. The principal office of the corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held at such time
and place as may be fixed from time to time by the board of directors of the
corporation.
Section 2. Annual meetings of stockholders shall be held for the
election of directors of the corporation. At such annual meeting, the
stockholders shall elect a board of directors by a plurality vote (as provided
in Section 10 of this Article II), and shall transact such other business as may
properly be brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by, at the direction of or upon authority granted by
the board of directors, (b) otherwise brought before the meeting by, at the
direction of or upon authority granted by the board of directors, or (c) subject
to Section 12 hereof, otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the corporation not less than 60
days nor more than 90 days prior to the date which is one year from the date of
the mailing of the corporation's Proxy Statement for the prior year's annual
meeting of stockholders. If during the prior year the corporation did not hold
an annual meeting, or if the date of the meeting for which a stockholder intends
to submit a proposal has changed more than 30 days from the date of the meeting
in the prior year, then such notice must be received a reasonable time before
the corporation mails the Proxy Statement for the current year.
<PAGE>
A stockholder's notice to the secretary must set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in the By-Laws to the contrary, but subject to Section 12 hereof, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2. The chairman of an annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 2, and, if he should so determine, he shall so declare to the meeting,
and any such business not properly brought before the meeting shall not be
transacted.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat not less than ten nor more than 60 days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address and number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, during ordinary business hours, for a period
of at least ten days prior to the election, either at a place within the city,
town or village where the election is to be held and which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, shall be called by the secretary of the corporation at the
request in writing of a majority of the entire board of directors. Such request
shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and purposes thereof, shall be given to each stockholder
entitled to vote thereat, not less ten nor more than 60 days before the date
fixed for the meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
<PAGE>
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of a statute, the
by-laws or the certificate of incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 10. Except as provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the certificate of incorporation, the meeting
and vote of stockholders may be dispensed with, if all the stockholders who
would have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken unless such action has
been authorized by the board of directors, in which event such action may be
taken by the written consent of the holders of not less than a majority of the
shares of capital stock entitled to vote upon such action.
Section 12. Only persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be qualified for election as
directors. Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the board of directors or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the procedures
set forth in this Section 12. In order for persons nominated to the board of
directors, other than those persons nominated by or at the direction of the
board of directors, to be qualified to serve on the board of directors, such
nomination shall be made pursuant to timely notice in writing to the secretary
of the corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that, in the event that
less than 70 days' notice of the date of the meeting is given to stockholders
and public disclosure of the meeting date, pursuant to a press release, is
either not made or is made less than 70 days prior to the meeting date, then
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the earlier of (a) the day on which
such notice of the date of the meeting was mailed to stockholders or (b) the day
on which such public disclosure was made.
<PAGE>
A stockholder's notice to the secretary must set forth (a) as
to each person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitation of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
from time to time (including, without limitation, such documentation as is
required by Regulation 14A to confirm that such person is a bona fide nominee);
and (b) as to the stockholder giving the notice (i) the name and address, as
they appear on the corporation's books, of such stockholder and (ii) the class
and number of shares of the corporation which are beneficially owned by such
stockholder. At the request of the board of directors, any person nominated by
the board of directors for election as a director shall furnish to the secretary
of the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be qualified
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section 12. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with procedures prescribed by the By-Laws,
and, if he should so determine, he shall so declare to the meeting, and the
defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be fixed from time to time by the board of directors of the
corporation. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
<PAGE>
Section 5. The first meeting of each newly elected board of directors
shall be held immediately following the close of the annual meeting of
stockholders at the place of the holding of said annual meeting. No notice of
any such meeting shall be necessary to the newly elected directors in order
legally to constitute the meeting, provided a quorum shall be present. In the
event such meeting is not held at such time and place, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board of directors may be called by
the chairman of the board, the chief executive officer or the president on one
(1) day's notice to each director, either personally, by overnight mail, by
telegram, by telecopier or by telephone. For purposes hereof, one (1) day's
notice shall be satisfied by the delivery of such notice as shall result in the
director receiving notice by 5:00 p.m., New York City time, on the day
immediately preceding the date of the meeting (provided that the time of the
meeting is no earlier than 8:00 a.m., New York City time).
Section 8. At all meetings of the board, a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors. If a quorum shall not be present at
any meeting of the board of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if prior to such action a written consent thereto is signed
by all members of the board or such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors, by resolution adopted by a majority
of the entire board, may designate from among its members an executive committee
and other committees, which committees shall serve at the pleasure of the board
of directors. The board of directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member or
members of such committee. The board of directors, by resolution adopted by a
majority of the entire board, may remove a member of any such committee with or
without cause. To the extent provided in said resolution and to the extent
permitted by the laws of the State of Delaware, each such committee shall have
and may exercise the powers of the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
<PAGE>
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors and such salary or
other compensation as directors, as the board by resolution may determine. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
ARTICLE IV
NOTICES
Section 1. Except as provided for herein, notices to directors and
stockholders shall be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of the
corporation.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated herein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a chairman of the board, a chief executive officer, a
president and chief operating officer, a secretary and a treasurer. The board of
directors may also choose a chief financial officer, a chief technology officer,
and one or more executive vice-presidents, vice-presidents, assistant
secretaries and assistant treasurers. Two or more offices may be held by the
same person.
Section 2. The board of directors, at its first meeting after each
annual meeting of stockholders, shall choose a chairman of the board, a chief
executive officer, a president and chief operating officer, a secretary and a
treasurer, none of whom need be a member of the board.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
fixed by the board of directors.
<PAGE>
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the board of directors. Any
vacancy occurring in any office of the corporation shall be filled by the board
of directors.
CHAIRMAN OF THE BOARD
Section 6. The chairman of the board of directors shall preside at all
meetings of the board of directors and stockholders; shall be ex-officio a
member of all standing committees; and shall perform such other duties as from
time to time may be assigned to him by the board of directors.
CHIEF EXECUTIVE OFFICER
Section 7. The chief executive officer shall have general supervision
and control over the business, management and finances of the corporation,
subject to the control of the board of directors, and shall see that all orders
and resolutions of the board are carried into effect.
PRESIDENT AND CHIEF OPERATING OFFICER
Section 8. The president and chief operating officer shall have general
supervision and control over the day-to-day business and management of the
corporation, subject to the control of the chief executive officer and the board
of directors, and shall see that all orders and resolutions of the board are
carried into effect.
EXECUTIVE VICE-PRESIDENTS
Section 9. The executive vice-president, or, if there shall be more
than one, the executive vice-presidents in the order determined by the board of
directors, shall generally assist the president and chief operating officer in
the management of the day-to-day business and affairs of the corporation and, in
the absence or disability of the president and chief operating officer, shall
perform the duties and exercise the powers of the president and chief operating
officer, and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
VICE-PRESIDENTS
Section 10. The vice-president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the executive vice-president, perform the duties and
exercise the powers of the executive vice-presidents, and shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe.
<PAGE>
CHIEF FINANCIAL OFFICER
Section 11. The chief financial officer shall have general supervision
and control over the day-to-day finances of the corporation, subject to the
control of the chief executive officer and the board of directors, and shall see
that all orders and resolutions of the board are carried into effect.
CHIEF TECHNOLOGY OFFICER
Section 12. The chief technology officer shall have general supervision
and control over the business and management of the corporation with respect to
technology matters, subject to the control of the president or chief operating
officer and the board of directors, and shall see that all orders and
resolutions of the board are carried into effect.
SECRETARY AND ASSISTANT SECRETARIES
Section 13. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors, under
whose supervision he shall be. He shall keep in safe custody the seal of the
corporation and, when authorized by the board of directors, affix the same to
any instrument requiring it and, when so affixed, it shall be attested by his
signature or by the signature of an assistant secretary.
Section 14. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 15. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books and belongings to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of directors.
Section 16. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer, the president
and chief operating officer, the chief financial officer, and the board of
directors, at its regular meetings, or when the board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
<PAGE>
Section 17. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 18. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman of the board, the president, an executive vice-president or a
vice-president and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by him in the corporation.
Section 2. Where a certificate is signed (a) by a transfer agent or an
assistant transfer agent or (b) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such chairman of the board,
president, executive vice-president, vice-president, treasurer, assistant
treasurer, secretary or assistant secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the corporation.
LOST CERTIFICATES
<PAGE>
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS; RECORD DATE
Section 5. The board of directors may close the stock transfer books of
the corporation for a period not exceeding 60 days preceding the date of any
meeting of stockholders or the date for payment of any dividend or the date for
the allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect or for a period of not exceeding 60 days in
connection with obtaining the consent of stockholders for any purpose. In lieu
of closing the stock transfer books as aforesaid, the board of directors may fix
in advance a date, which date shall not be more than 60 nor less than ten days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, and any adjournment thereof, or entitled to receive payment of any
such dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to give
such consent, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
<PAGE>
ARTICLE VII
FINANCIAL MATTERS
CONTRACTS
Section 1. The Board of Directors, except as these By-Laws otherwise
provide, may authorize any officer or officers, agent or agents, to execute and
deliver any contract on behalf of the corporation, and such authority may be
general or confined to specific instances.
LOANS
Section 2. Any two of the officers of the corporation as may from time
to time be designated for such purpose by the Board of Directors, or any two
officers of the corporation duly authorized by the Board of Directors with
respect to a particular loan or advance, acting together, may effect loans and
advances at any time for the corporation from any bank, trust company or other
institution, or from any firm or individual, and for such loans and advances may
make, execute and deliver promissory notes and other evidences of indebtedness
of the corporation. No property whatever owned or held by the corporation shall
be pledged, hypothecated or transferred as security for loans and advances
except by two officers of the corporation, acting together, who shall have been
designated for such purpose by the Board of Directors, or by any two officers
thereunto duly authorized by the Board of Directors with respect to a particular
loan or advance.
CHECKS AND DRAFTING
Section 3. All checks, drafts, orders for the payment of money, bills
of lading, warehouse receipts, obligations, bills of exchange, insurance
certificates and all endorsements (except endorsements for collections for the
account of the corporation or for deposit to its credit) shall be signed by such
officer or officers, employee or employees, of the corporation or by facsimile
signature of such officer or officers, employee or employees, of the corporation
as shall from time to time be determined by resolution of the Board of
Directors.
DEPOSITS
Section 4. All funds of the corporation, unless otherwise authorized
and directed by a resolution of the Board of Directors duly recorded in the
minutes of the meetings of the Board of Directors, shall be deposited from time
to time to the credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may elect or as may be selected by any
officer or officers, agent or agents, of the corporation to whom such power may
from time to time be delegated by the Board of Directors; and for the purpose of
such deposit, checks, drafts and other orders for payment of money which are
payable to the order of the corporation may be endorsed, assigned and delivered
by the chief executive officer, president and chief operating officer, or an
executive vice-president, or a vice-president, or the treasurer or an assistant
treasurer, or the secretary or an assistant secretary, or by any agent or
employee of the corporation to whom any of said officers, in writing, or the
Board of Directors, by resolution, shall have delegated such power.
BANK ACCOUNTS
Section 5. The Board of Directors may from time to time authorize the
opening and keeping with such banks, trust companies or other depositories as
the Board may select of general and specific bank accounts, and may make such
special rules and resolutions with respect thereto, not inconsistent with the
provisions of these By-Laws, as it may deem expedient.
DIVIDENDS
Section 6. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 7. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 8. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
FISCAL YEAR
Section 9. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 2. The corporation shall to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto. The
indemnifications authorized hereby shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under or through
any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in the official capacity of those seeking indemnification and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
persons. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of Section 145.
ARTICLE IX
AMENDMENTS
Section 1. These by-laws may be altered or repealed (a) at any regular
meeting of the stockholders or of the board of directors, (b) at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting or (c)
by unanimous written consent of the stockholders or board of directors.
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