Mealy's model of a sequential machine is assumed and a relation of ``compatibility'' of states is introduced to further the analysis of such machines. In the event that input restrictions exist it is often possible to effect combinations of states under this relation in addition to those permitted under equivalence of states, a relation previously studied. Compatibility of states is analyzed by an iterative technique, rigorously established, which makes it possible to determine readily connection matrices of simpler ``compatible'' machines.
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