-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N/ct1nNPF4KpJShLrUm2JU264zI4xC2X9qGuvpLRLgO3whmDRJ1FwhY3E7zC+1Xd saMTKayeAvWZa7e/Ki5ruA== 0000944209-97-000054.txt : 19970123 0000944209-97-000054.hdr.sgml : 19970123 ACCESSION NUMBER: 0000944209-97-000054 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19970122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERACTIVE FLIGHT TECHNOLOGIES INC CENTRAL INDEX KEY: 0000932021 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 113197148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25668 FILM NUMBER: 97509219 BUSINESS ADDRESS: STREET 1: 4041 NORTH CENTRAL AVENUE STREET 2: SUITE 2000 CITY: PHOENIX STATE: AZ ZIP: 85012 BUSINESS PHONE: 6022008900 MAIL ADDRESS: STREET 1: 4041 N CENTRAL AVE STREET 2: STE 2000 CITY: PHOENIX STATE: AZ ZIP: 85012 10QSB/A 1 FORM 10-QSB/A U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A ___________ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended April 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File No. 0-25668 INTERACTIVE FLIGHT TECHNOLOGIES, INC. (Exact Name of Small Business Issuer as Specified in Its Charter) DELAWARE 11-319748 (State or Other Jurisdiction of (I.R.S. Employer Incorporation of organization) Identification Number) 3070 WEST POST ROAD LAS VEGAS, NEVADA 89118 (Address of Principal Executive Offices) (702) 896-8900 (Issuer's Telephone Number, Including Area Code) Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at May 31, 1995 ----- --------------------------- Class A Common Stock, $.01 par value 3,220,000 shares Class B Common Stock, $.01 par value 4,000,000 shares Transitional Small Business Disclosure Format Yes No X --- --- Page 1 of 14 Exhibit Index on Page 13 INTERACTIVE FLIGHT TECHNOLOGIES, INC. (a development stage company) INDEX TO FORM 10-QSB/A
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as at April 30, 1996 and 1995 (unaudited)................................................... 3 Statement of Operations for the Three and Six Months ended April 30, 1996 and 1995 (unaudited).............. 4 Statement of Cash Flows for the Six Months ended April 30, 1996 and 1995 (unaudited)..................... 5 Notes to Financial Statements...................................... 6 Item 2. Results of Operations.................................... 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................ 11 Item 6. Exhibits and Reports on Form 8-K......................... 11 SIGNATURES......................................................... 12
Page 2 of 14 PART I. FINANCIAL INFORMATION Item 1: Financial Statements INTERACTIVE FLIGHT TECHNOLOGIES, INC. BALANCE SHEET UNAUDITED
April 30, April 30, 1996 1995 ---------- ---------- ASSET ----- Current Assets: Cash and cash equivalents 730,658 10,572,482 Accounts receivable 1,640,908 - Inventory 2,285,163 874,188 Prepaid expenses and other current assets 445,767 200,555 ---------- ---------- Total current assets 5,102,496 11,647,225 Machinery and equipment net of accumulated depreciation of $240,411 and $14,485 1,616,684 220,952 Deferred costs of securities registration 206,589 - Deposits 29,108 75,003 ---------- ---------- TOTAL 6,954,877 11,943,180 ========== ========== LIABILITIES ----------- Current Liabilities: Accounts payable 2,227,011 543,685 Accrued expenses 335,260 70,408 Accrued product warranties 466,404 - ---------- ---------- Total current liabilities 3,028,675 614,093 Noncurrent accrued product warranties 202,014 - Commitments/Contingencies (Note B) STOCKHOLDERS' EQUITY (NOTE A) - ----------------------------- Preferred stock, par value $0.01 per share, 5,000,000 shares authorized, none issued - - Class B common stock, six votes per share, par value $0.01 per share, 4,000,000 shares authorized, issued and outstanding including 3,200,000 shares placed in escrow 40,000 40,000 Class A common stock, one vote per share, par value $0.01 per share, 40,000,000 shares authorized, 3,226,257 issued 32,263 32,200 Capital in excess of par value 15,355,455 14,230,432 Accumulated Deficit (11,703,530) 2,973,545 ---------- ---------- Total stockholders' equity 3,724,188 11,329,087 ---------- ---------- TOTAL 6,954,877 11,943,180 ========== ==========
Page 3 of 14 INTERACTIVE FLIGHT TECHNOLOGIES, INC. STATEMENT OF OPERATIONS UNAUDITED
Six Months Three Months Ended April 30, Ended April 30, -------------------------- -------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- REVENUES Sales 1,613,376 - 1,613,376 - Video service fees 55,029 - 28,847 - ---------- ---------- ---------- ---------- Total 1,668,405 - 1,642,223 - COSTS AND EXPENSES Cost of goods sold 2,406,421 - 2,355,444 - Research and development expenses 1,662,001 999,344 910,571 523,616 Marketing and administrative expenses 3,645,088 808,528 2,581,610 462,032 Interest and amortization of debt issue costs - 851,218 - 587,731 ---------- ---------- ---------- ---------- Total 7,713,510 2,659,090 5,847,625 1,573,379 OTHER INCOME Interest income 75,136 87,825 24,148 76,005 ---------- ---------- ---------- ---------- NET LOSS 5,969,969 2,571,265 4,181,254 1,497,374 Net loss per share of common stock $ (1.48) $ (1.56) $ (1.03) $ (0.59) ========== ========== ========== ========== Weighted average shares outstanding 4,040,548 1,649,282 4,040,699 2,527,191 ========== ========== ========== ==========
Page 4 of 14 INTERACTIVE FLIGHT TECHNOLOGIES, INC. STATEMENT OF CASH FLOWS UNAUDITED
Six Months Ended April 30, ------------------------------- 1996 1995 ----------- ------------ Cash Flows From Operating Activities: Net loss (5,969,969) (2,571,265) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation 170,227 13,785 Amortization of Debt Discount and Deferred Financing Costs - 738,418 Expense recognized upon issuance of options and warrants 1,110,400 - Changes in operating assets and liabilities: Increase in accounts receivable (1,605,995) - Increase in inventory (238,939) (874,188) Decrease in deferred costs 300,000 - Increase in prepaid expenses and other current assets (214,800) (183,063) Increase in accounts payable 1,641,314 543,684 Increase/(decrease) in accrued expenses 175,224 (43,621) Increase in accrued product warranties 668,418 - ---------- ----------- Net cash used in operating activities (3,964,120) (2,376,250) Cash flows from investing activities: Capital expenditure (149,739) (224,744) Deposits (164) (60,105) ---------- ----------- Net cash used in investing activities (149,903) (284,849) Cash flows from financing activities: Proceeds from issuance of common stock 14,688 13,827,384 Proceeds from bridge notes - (2,025,000) Registration costs (206,589) - ---------- ----------- Net cash provided by financing activities (191,901) 11,802,384 Net (decrease)/increase in cash (4,305,924) 9,141,258 Cash - beginning of period 5,036,582 1,421,197 ---------- ----------- Cash - end of period 730,658 10,572,482 ========== ===========
Page 5 of 14 INTERACTIVE FLIGHT TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS The financial statements of Interactive Flight Technologies, Inc. included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-QSB and reflect all adjustments (consisting of normal recurring accruals) and disclosures which, in the opinion of management, are necessary for a fair statement of results for the interim period presented. It is suggested that these financial statement be read in conjunction with the financial statements and notes thereto for the fiscal year ended October 31, 1995, included in the Company's Annual Report on Form 10-KSB and amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995. The results of operations for the six months ended April 30, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year. NOTE A - CLASS A WARRANT EXERCISE OFFER: The Company filed a registration statement with the SEC with respect to an Exercise Offer on April 12, 1996 pursuant to which the Company offered the holders of the Company's Class A Redeemable Stock Purchase Warrants who exercise their Class A Warrants pursuant to the Exercise Offer, (i) to issue an extra 1/2 Class B Redeemable Stock Purchase Warrant (in addition to the securities currently underlying the Class A Warrants) for each Class A Warrant so exercised and (ii) to reduce the exercise price of Class A Warrants to $5.75 per share (from $7.00 per share) for each Class A Warrant exercised. The Company completed its exercise offer on May 17, 1996 and received net proceeds of approximately $25,160,000 net of the underwriter's commission's and expenses of approximately $1,609,000. NOTE B - COMMITMENTS/CONTINGENCIES The Company is a defendant in an action entitled Andrew Maxon v. Interactive Flight Technologies, Inc. brought in the United States District Court for the Eastern District of New York. The action was filed in February 1995 by an individual who performed certain services for the Company and with whom the Company had been engaged in negotiations to become an officer of the Company. The plaintiff claims breach of an alleged contract and wrongful discharge and is seeking damages of approximately $250,000 plus options to purchase 25,000 shares of the Company's stock. The Company believes that the claims are without merit and intends to defend them vigorously. Page 6 of 14 ITEM 2: RESULTS OF OPERATIONS GENERAL Interactive Flight Technologies, Inc. (the "Company") is engaged in the development, manufacture, installation and operation of a computer-based network inflight entertainment network ("The Entertainment Network"), which provides aircraft passengers the opportunity to view movies, to purchase goods and services, to play computer games and, in certain cases where permitted by applicable law, to gamble through a high-resolution video touch screen. The Company entered into its first airline contract (the "Alitalia Contract") with Alitalia Airlines S.p.S. ("Alitalia") in 1995, and Alitalia accepted the contract following early completion of a trial period on February 1, 1996. The Alitalia Contract provides for the delivery of The Entertainment Network for installation on five MD-11 aircraft and the operation of The Entertainment Network on those aircraft over a period of approximately eight years. However, the Alitalia Contract does not presently provide for, and is not expected to provide for, passenger use of The Entertainment Network gambling features. In February 1996, an agreement was also signed with Debonair (the "Debonair Contract") to install and operate The Entertainment Network (including video casino style gambling) on Debonair's entire fleet, which consists of six RJ-146 aircraft. In April 1996, nonbinding letters of intent were signed with Swissair and Oasis International Airlines S.A. ("Oasis") to install The Entertainment Network (including video casino style gambling) on five 747's and sixteen MD-11 aircraft for Swissair and on two Airbus A-310 aircraft for Oasis. There can be no assurance that the Company will successfully negotiate definitive agreements with either Swissair or Oasis. During the quarter ended April 30, 1996, the Company generated its first revenues, totaling $1,613,376, arising out of the acceptance of the Alitalia Contract on February 1, 1996 and the subsequent delivery of The Entertainment Network for installation on two additional Alitalia aircraft during the quarter. The Company incurred a net loss of $4,181,254 during the quarter ended April 30, 1996, an increase of $2,683,880 (or 179%) from a net loss of $1,497,374 for the quarter ended April 30, 1995. The Company incurred a net loss of $5,969,969 during the six months ended April 30, 1996, an increase of $3,398,704 (or 132%) from a net loss of $2,571,265 for the six months ended April 30, 1995. The increased losses were due to increasing of staff and building of facilities to fulfill the Company's requirements under the Alitalia Contract, the Debonair Contract and other contracts under negotiation, increased marketing fees in connection with the issuance of warrants for services provided in connection with sales support for a potential airline customer, and increased professional and administrative fees and research and development expenses. The Company expects to continue to incur losses for the foreseeable future. At April 30, 1996 the Company's accumulated deficit was $11,703,530. Research and development expenses during the quarter ended April 30, 1996 were $910,571, an increase of $386,955 (or 74%) from $523,616 during the quarter ended April 30, 1995. Research and development expenses during the six months ended April 30, 1996 were $1,662,001, an increase of $662,657 (or 66%) from $999,344 during the six months ended April 30, 1995. These increases reflect expenses incurred in the continuing development of The Entertainment Network. The Company anticipates that research and development expenses will continue at their present levels or will increase during the remainder of fiscal 1996. Page 7 of 14 Marketing and administrative expenses during the quarter ended April 30, 1996 were $2,581,610, an increase of $2,119,578 (or 459%) from $462,032 for the quarter ended April 30, 1995. Marketing and administrative expenses during the six months ended April 30, 1996 were $3,645,088, an increase of $2,836,561 (or 351%) from $808,527 for the six months ended April 30, 1995. These increases were primarily due to substantially increased marketing activities (such as attendance at trade shows and travel relating to sales to airlines), increases in administrative staff and related expenses, and the issuance of warrants to Banner Aerospace, Inc., and Leonard Toboroff in exchange for certain services rendered to the Company in connection with the Company's proposals to a major European airline. Costs of goods sold were $2,406,421 (144% of sales) and $2,355,444 (143% of sales), respectively, for the six month and three month periods ended April 30, 1996. Although the Company hopes to reduce the cost of goods sold as a percentage of sales for future periods, these percentages are likely to remain high over the next few quarters since the Company's business plan is to derive a substantial portion of its revenues from future passenger use of The Entertainment Network. The Company completed a $3,100,000 bridge financing (the "Bridge Financing") in October and November 1994. Under the Bridge Financing, the Company paid non-recurring interest and debt charges of $587,731 and $851,218 for the quarter and six months ended April 30 1995, respectively (which includes $112,800 for accrued interest through March 14, 1995, non-cash charges of $432,313 for amortization of deferred financing costs and $306,105 for amortization of the value of certain related Bridge Warrants). The Company repaid the Bridge Financing indebtedness with a portion of the proceeds from its initial public offering in February 1995, and consequently has incurred no interest or debt charges thereunder in fiscal 1996. The Company currently intends to relocate its principal executive offices and its design and assembly facilities to Phoenix, Arizona. The Company is considering various proposed sites and expects to execute a lease for office and industrial space during the current quarter. Effective May 10, 1996, Donald H. Goldman resigned from his positions of President and director of the Company, which he had held since the Company's inception in February 1994. Mr. Goldman resigned voluntarily to pursue other interests. Further, one of Mr. Goldman's main responsibilities was in the area of entertainment programming. As the Company's operations have expanded, it has become clear that the entertainment aspect of the Company's business will be based in the western United States, and Mr. Goldman did not wish to relocate at this time. The Company is actively conducting a search for a successor to Mr. Goldman. LIQUIDITY AND CAPITAL RESOURCES At April 30, 1996 the Company had working capital of approximately $2.54 Million and has incurred losses since that date. The Company increased its working capital in May 1996 from the proceeds of its Class A Warrant Exercise Offer, its third financing, from which the Company received proceeds (net of expenses of $1.6 Million) of approximately $25.2 Million. The Company expects that losses will continue for the foreseeable future and, as a result, unless funds are received from additional financing, working capital is expected again to decrease following the initial increase attributable to receipt of proceeds from the aforementioned Exercise Offer. The Company's principal sources of funds to date have been through debt and equity financing. Page 8 of 14 At May 30, 1996, the Company' only material capital commitments were purchase orders of approximately $7.8 Million relating primarily to inventory purchases. The Company's revenues have been generated, and are anticipated to be generated in the future, from sales, installation and servicing of The Entertainment Network aboard commercial and charter aircraft. The contracts the Company has executed and is currently negotiating generally provide for the Company to install the Entertainment Network on an aircraft and to be paid for the equipment and for its installation and maintenance out of revenue generated by passenger use of the installed network on the aircraft. As a result, the Company must expend significant capital amounts for the assembly, installation and maintenance of The Entertainment Network on each aircraft, but revenue as payment for the system will be received, if at all, only as a result of the use of the system over a potentially significant period of time. Moreover, the Company may also enter into commitments to purchase equipment necessary for additional installations, even in the absence of a purchase commitment from an airline, if such action is determined to be necessary or desirable to pursue business opportunities. The Company also expects its cash requirements to increase in future periods due to higher expenses associated with increased sales and marketing activities and financing of inventory purchases, installations and accounts receivable. As a consequence, the Company will need additional financing to perform under its existing contracts (i.e., the Alitalia Contract and the Debonair Contract) in addition to any future contracts that it may enter into, including those it is currently negotiating. Although the Company has been in discussions with a number of external sources of capital to raise portions of the funds needed, there can be no assurances that such funds will be available in the near future when it will be needed for the contracts involved. Without additional funding from external capital sources or from exercise of the Company's outstanding warrants, the Company will not have sufficient cash to complete all of its existing and pending contracts. Moreover, although the Company's model of being paid out of revenues from the operation of The Entertainment Network provides it with substantial potential upside if such revenues are high, it also subjects the Company to substantial risk if passengers fail to make sufficient use of The Entertainment Network. The Company intends to use a substantial portion of its cash resources to fund its plan of operations, which includes the following elements, for approximately the next 12 months: . Completing the development of The Entertainment Network, including reconfiguring hardware components to meet the requirements of the FAA and airlines with which the Company has contracts, and developing certain software interfaces. . Performing under the Alitalia Contract, including manufacturing, assembling and delivering the balance of The Entertainment Network for the remaining two aircraft. . Performing under the Debonair Contract, including manufacturing, assembling and delivering the balance of The Entertainment Network for the six RJ-146 aircraft. Page 9 of 14 . Finalizing contracts with Swissair and Oasis to install The Entertainment Network on Swissair's sixteen MD-11 and five B-747 aircraft and on Oasis' two Airbus A-310 aircraft. . Marketing The Entertainment Network to airlines, primarily to international carriers. . Updating and enhancing the programming software initially included in The Entertainment Network and developing or acquiring from third parties new programming software. Because the technology incorporated in The Entertainment Network is rapidly developing, the Company will also continue to develop hardware and software enhancements to meet market and customer demand. The foregoing represents the Company's current plan of operation for the next 12 months. Future events, including changes in technological, economic, regulatory or competitive conditions or the results of the Company's sales and marketing activities, may require changes in the Company's plans. FORWARD-LOOKING INFORMATION Except for historical information contained herein, the matters discussed in this Quarterly Report on Form 10-QSB/A are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, the failure of passenger use of The Entertainment Network to generate sufficient revenues, the failure to execute definitive agreements with Swissair and/or Oasis on favorable terms or at all, the failure of the Company to receive sufficient financing to perform its obligations under its existing and contemplated agreements, the impact of competition and downward pricing pressures, the effect of changing economic conditions, risks in technology development, the risks involved in currency fluctuations, and the other risks and uncertainties detailed from Registration Statement on Form SB-2 dated March 7, 1995, the Company's Annual Report on Form 10-KSB and amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995. Page 10 of 14 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS Reference is made to the information set forth under "Legal Proceedings" in the Company's Annual Report on Form 10-KSB and amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.2* - Amended and Restated Certificate of Incorporation of the Registrant 3.3* - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant 3.4* - By-laws of the Registrant 27 - Financial Data Schedules ___________________________ * Incorporated by Reference from the Registrant's Registration Statement on Form SB-2, Registration No. 33-86928. (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the second quarter of the fiscal year ending October 31, 1996. Page 11 of 14 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 22, 1997 INTERACTIVE FLIGHT TECHNOLOGIES, INC. By: /s/Michail Itkis ---------------------------- Michail Itkis Chief Executive Officer By: /s/ John W. Alderfer ---------------------------- John W. Alderfer Chief Financial Officer Page 12 of 14 INDEX OF EXHIBITS
Exhibit No. Description Page No. - ----------- ----------- -------- 3.2 Amended and Restated Certificate of Incorporation of * the Registrant 3.3 Certificate of Amendment of Amended and Restated * Certificate of Incorporation of Registrant 3.4 By-laws of the Registrant * 27 Financial Data Schedule 14
___________________________ * Incorporated by Reference from the Registrant's Registration Statement on Form SB-2, Registration No. 33-86928. Page 13 of 14 EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 6-MOS 3-MOS OCT-31-1996 OCT-31-1996 NOV-1-1996 FEB-1-1996 APR-30-1996 APR-30-1996 730,658 10,572,482 0 0 1,640,908 0 0 0 2,285,163 874,188 5,102,496 11,647,225 1,857,095 235,437 240,411 14,485 6,954,877 11,943,180 3,028,675 614,093 0 0 0 0 0 0 72,263 72,200 0 0 6,954,877 11,943,180 1,613,376 1,613,376 1,668,405 1,642,223 2,406,421 2,355,444 7,713,510 5,847,625 0 0 0 0 0 0 (5,969,969) (4,181,254) 0 0 0 0 0 0 0 0 0 0 (5,969,969) (4,181,254) (1.48) (1.03) (1.48) (1.03)
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