-----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, VsquPmK2wJ0LrjrB/TQ8IIkOvRbTZvM+Ht+iEMj+KlXz5SivJhJb6sdQhOmWfgaZ xLh1NSvutZfeKlfcIowvrg== 0000950153-98-000227.txt : 19980310 0000950153-98-000227.hdr.sgml : 19980310 ACCESSION NUMBER: 0000950153-98-000227 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980309 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 SEC ACT: SEC FILE NUMBER: 000-25668 FILM NUMBER: 98560444 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 1 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB -------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended January 31, 1998 [ ] 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 11-3197148 (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification Number) 4041 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012 (Address of Principal Executive Offices) (602) 200-8900 (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 February 28, 1998 ----- -------------------------------- Class A Common Stock, $.01 par value 17,459,124 shares Class B Common Stock, $.01 par value 3,733,334 shares Transitional Small Business Disclosure Format Yes___ No X 2 INTERACTIVE FLIGHT TECHNOLOGIES, INC. INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets as of January 31, 1998 (unaudited) and October 31, 1997 (audited)....................... 3 Condensed Statements of Operations for the Three Months Ended January 31, 1998 and 1997 (unaudited)...................... 4 Condensed Statements of Cash Flows for the Three Months Ended January 31, 1998 and 1997 (unaudited)...................... 5 Notes to Condensed Financial Statements ......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................................13 SIGNATURES.................................................................14 2 3 INTERACTIVE FLIGHT TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS
JANUARY 31, OCTOBER 31, ASSETS 1998 1997 ------------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 37,959,310 $ 36,890,454 Short-term investment securities 1,697,023 2,137,084 Accounts receivable 4,598,895 5,654,118 Inventories, net of reserves of $11,202,848 and $11,179,895, respectively 2,609,317 6,110,761 Prepaid expenses 97,995 253,771 Other current assets 715,578 606,883 ------------- ------------- Total current assets 47,678,118 51,653,071 ------------- ------------- Investment securities 815,299 -- Property and equipment, net of accumulated depreciation of $7,070,932 and $9,555,383, respectively 2,644,876 2,959,539 Deposits 468,579 166,845 ------------- ------------- Total assets $ 51,606,872 $ 54,779,455 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,793,683 $ 5,747,833 Accrued liabilities 4,503,799 4,248,222 Deferred revenue 64,792 2,383,904 Accrued severance costs 55,000 55,000 Accrued maintenance costs 1,379,447 1,286,873 Accrued product warranties 6,362,681 4,610,687 Current maturities of capital lease obligations 82,789 80,753 ------------- ------------- Total current liabilities 15,242,191 18,413,272 ------------- ------------- Accrued severance costs, noncurrent 41,250 55,000 Capital lease obligations, less current maturities 55,362 76,840 ------------- ------------- Total liabilities 15,338,803 18,545,112 ------------- ------------- Stockholders' equity: Preferred stock, par value $0.01 per share, 5,000,000 shares authorized, none issued -- -- Class A common stock, one vote per share, par value $0.01 per share, 40,000,000 shares authorized; 18,377,724 and 18,189,995 shares issued, respectively 183,777 181,900 Class B common stock, six votes per share, par value $0.01 per share, 4,000,000 shares authorized; 3,733,334 shares issued and outstanding including 3,200,000 shares held in escrow 37,334 37,334 Additional paid-in capital 112,223,734 112,037,882 Accumulated deficit (75,861,190) (76,022,773) Treasury stock, at cost; 326,800 and 0 shares, respectively (315,586) -- ------------- ------------- Total stockholders' equity 36,268,069 36,234,343 ------------- ------------- Total liabilities and stockholders' equity $ 51,606,872 $ 54,779,455 ============= =============
See accompanying notes to condensed financial statements. 3 4 INTERACTIVE FLIGHT TECHNOLOGIES, INC. CONDENSED STATEMENTS OF OPERATIONS UNAUDITED
Three Months Ended January 31, -------------------------------- 1998 1997 ------------ ------------ Revenue: Equipment sales $ 13,291,226 $ 148,709 Service income 118,439 77,296 ------------ ------------ 13,409,665 226,005 ------------ ------------ Costs and expenses: Cost of equipment sales 11,567,395 2,673,624 Cost of service income 5,700 81,699 Provision for doubtful accounts -- 136,590 Research and development expenses 609,927 2,624,516 Marketing and administrative expenses 1,606,431 3,431,025 ------------ ------------ 13,789,453 8,947,454 ------------ ------------ Operating loss (379,788) (8,721,449) Other: Interest income 545,132 403,772 Interest expense (3,761) -- ------------ ------------ Net income (loss) $ 161,583 $ (8,317,677) ============ ============ Basic and diluted net income (loss) per share $ 0.01 $ (0.66) ============ ============ Weighted average shares outstanding 18,722,349 12,657,715 ============ ============
See accompanying notes to condensed financial statements. 4 5 INTERACTIVE FLIGHT TECHNOLOGIES, INC. CONDENSED STATEMENTS OF CASH FLOWS UNAUDITED
Three Months Ended January 31, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net income (loss) $ 161,583 $ (8,317,677) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for doubtful accounts -- 136,590 Depreciation and amortization 320,357 191,851 Expense recognized upon issuance of stock options and shares of Class A common stock -- 474,181 Changes in assets and liabilities: Decrease (increase) in accounts receivable 1,055,223 (42,377) Decrease in inventories 3,501,444 1,153,759 Increase in prepaid expenses, other current assets and deposits (254,653) (898,272) Increase (decrease) in accounts payable (2,954,150) 2,390,012 Increase in accrued liabilities and maintenance 535,880 422,801 Decrease in deferred revenue (2,319,112) -- Decrease in accrued severance costs (13,750) (450,450) Increase (decrease) in accrued product warranties 1,751,994 (52,569) ------------ ------------ Net cash provided by (used in) operating activities 1,784,816 (4,992,151) ------------ ------------ Cash flows from investing activities: Purchases of investments (500,547) -- Maturities of investments 125,309 6,810,275 Purchases of property and equipment (5,694) (12,032,051) ------------ ------------ Net cash used in investing activities (380,932) (5,221,776) ------------ ------------ Cash flows from financing activities: Purchases of treasury stock (315,586) -- Payments on capital lease obligations (19,442) -- Proceeds from issuance of common stock -- 73,589,775 Registration costs -- (4,481,164) ------------ ------------ Net cash provided by (used in) financing activities (335,028) 69,108,611 ------------ ------------ Increase in cash and cash equivalents 1,068,856 58,894,684 Cash and cash equivalents at beginning of period 36,890,454 7,736,345 ------------ ------------ Cash and cash equivalents at end of period $ 37,959,310 $ 66,631,029 ============ ============
See accompanying notes to condensed financial statements. 5 6 INTERACTIVE FLIGHT TECHNOLOGIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The condensed financial statements of Interactive Flight Technologies, Inc. (the "Company") included herein have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying condensed financial statements reflect all adjustments (consisting of normal recurring accruals) which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto for the fiscal year ended October 31, 1997, 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, 1997. The results of operations for the three months ended January 31, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year. (2) COMPUTATION OF NET INCOME (LOSS) PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128") which specifies the computation, presentation, and disclosure requirements for earnings per share for entities with publicly held common stock. This Statement is effective for both interim and annual periods ending after December 15, 1997. The Company has adopted the provisions of SFAS No. 128 for the quarter ended January 31, 1998 and has restated the 1997 data to conform to SFAS No. 128. (3) TREASURY STOCK On December 17, 1997, the Board of Directors authorized the Company to repurchase shares of its Class A Common Stock on the open market. As of January 31, 1998, the Company had repurchased 326,800 shares at prices ranging from $0.75 to $1.00 per share. 6 7 INTERACTIVE FLIGHT TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Interactive Flight Technologies, Inc. ("the Company") has been engaged in the development, manufacture, installation and operation of a computer-based in-flight entertainment network ("Entertainment Network" or "system"), which provides aircraft passengers the opportunity to view movies, purchase goods and services, play computer games and, in certain cases where permitted by applicable law, gamble through an in-seat video touch screen. The Company had originally based its business plan on allowing airlines to finance the purchase of the system out of a share of gaming revenues without paying any money down. However, gaming revenues from the operation of the system have proven to be significantly less than originally estimated, and are insufficient to support the financing of the system. As a result, the Company has determined that it will not finance the purchase of additional Entertainment Networks based on contingent future system generated revenues. Instead, the Company has been seeking to have airlines finance the purchase and installation of the system themselves, with the Company receiving only a limited percentage in revenues from the Entertainment Networks. The decision of the Company not to finance system purchases out of future contingent revenues has eliminated certain potential customers who do not have the resources to finance the systems independently. Moreover, the Company must now justify the costs of the Entertainment Networks (both purchase and operational) based solely on a perceived competitive need, rather than on ancillary revenue. The perception of that need may depend on the phase of the business cycle in the airline industry, as potential purchasers are more likely to invest in competitive factors at times when competition for customers is intense. With load factors at a historically high level, this is a difficult phase of the industry cycle to justify purchases. Accordingly, there is no assurance that the customers currently considering purchase of the systems, or indeed any customers, will ultimately purchase the Entertainment Network at a purchase price at which the Company could make a profit. Because of the long lead-time for aircraft installments, the Company must schedule programs well in advance, and its success depends on its ability to continue to obtain major orders. The Company has been pursuing other major airlines to fill its pipeline following the scheduled completion of the installation phase of the Swissair program in March 1998. The Company has not succeeded in this effort to date and there can be no assurance that the Company will be successful in this effort in the future. As of January 31, 1998, the only remaining firm orders for the Company's Entertainment Network consisted of those under the Swissair agreement, which were first and business class installations on two Swissair MD-11 aircraft. In the absence of the system being offered as original equipment by airplane manufacturers, the ability of the Company to convince major airlines to purchase its system depends in large part upon the airline having decided to initiate a major cabin upgrade, a decision over which the Company has little or no control. Once such a decision has been reached by the airline, the Company must compete with other vendors on the basis of such factors as price, weight and features. The Company believes that it presently compares favorably with other competitors in these matters; however, the Company must find ways to overcome concerns about the Company's relatively small financial resources compared to the hundreds of millions of dollars 7 8 involved in an in-flight entertainment purchase decision by a major airline. In addition, as with all technically oriented purchases, the Company must contend with questions about deferring purchase decisions pending future developments. There can be no assurance that customers will in fact decide to buy now rather than wait, that the Company will in fact be able to compete successfully on price, weight and features, or that the Company can find a way to adequately address concerns about its size. The Company believes that it has cash and liquidity resources in excess of that required to fulfill its current contractual commitments, although this will depend in large part on the ability of the Company to fulfill those obligations in an efficient manner. The Company could use those additional resources towards pursuing additional customers and development efforts in the in-flight entertainment business or could seek to use the resources in other businesses. At the present time, based on the low level of demand in the industry at this point in the business cycle, the Company intends to limit the resources it expends in pursuing new in-flight entertainment business until and unless it obtains another customer. In particular, the Company is reducing its workforce and overhead since the Company's current backlog consists of Swissair only. The Company has also decided not to develop the next generation of the Entertainment Network unless a new customer is obtained. The Company's future research and development efforts will consist only of those efforts that are required contractually by the Swissair agreement. Conserving cash in this manner may permit the Company to pursue alternative businesses, but could well mean that the Company will not be able to continue to compete in the in-flight entertainment business even if market conditions improve. Because of the difficulties in obtaining new in-flight entertainment customers, the Company is also looking for possible acquisitions to use any available cash. The Company has not identified any specific areas for alternative business development. There can be no assurance that the Company will find acceptable opportunities for alternative business development or that the Company will be successful in entering or operating in alternative business areas. In addition, the Company has used, and may continue to use, a portion of its cash to repurchase its own shares. EXISTING INSTALLATIONS The Company has installed shipsets on aircraft operated by three European airlines: Swissair, Debonair and Alitalia Airlines S.p.S. ("Alitalia"). The Swissair agreement provides for the Company to be responsible for all costs including materials, installation and maintenance through September 1998 for the installation of the Entertainment Network in the first, business and economy class sections of two MD-11 and one B-747 aircraft. Title to these three systems transfer at no cost to Swissair one-year after installation; title to the system on the first MD-11 transferred to Swissair in January 1998. The Company expensed the estimated material, installation, maintenance, warranty and upgrade costs for these three systems during fiscal 1997. For another sixteen aircraft, Swissair will purchase Entertainment Networks covering only first and business class for an average of $1.7 million per aircraft. The Company is responsible for the installation and maintenance costs through September 1998 for the sixteen aircraft. The Swissair agreement also provides a one-year warranty on all of the Entertainment Networks and specific upgrades to the Entertainment Networks currently being installed. The Company is obligated to deliver several software and hardware upgrades whose development is not yet complete. If the upgrades are not completed by specified deadlines, the Company will face significant penalties. The Company must also meet and maintain certain operational reliability criteria for the Entertainment Networks or be subject to certain penalties. 8 9 The Company has completed the installation of Entertainment Networks in the economy, business and first class sections of two Swissair MD-11 aircraft and one B-747 Swissair aircraft as of January 31, 1998. The Company has also completed the installation of Entertainment Networks in the first and/or business class sections of twelve Swissair MD-11 aircraft and two B-747 Swissair aircraft as of January 31, 1998. The remaining installations are expected to be completed by March 31, 1998. The Company is working to further improve the reliability of the system through software revisions and through design improvements. The Company believes that the reliability goals for the system can be met; however, there can be no assurance that technical obstacles may not prove more difficult than anticipated or that as yet undetermined issues will not appear. The Company is subject to certain penalties, which could be substantial, if the Entertainment Networks do not meet and maintain certain operational reliability criteria through the year 2003. This may require the Company to continue to maintain a presence in the in-flight entertainment business even if it pursues other businesses. In conjunction with the Swissair agreement, the Company has an agreement with Interkantonale Landeslotterie ("ILL"), a Swiss non-profit organization that organizes lotteries in Switzerland. Pursuant to the agreements, any net gaming profits generated from the Swissair Entertainment Networks are to be divided between the three parties with 4% being paid to the ILL and the remaining 96% being divided between the Company and Swissair based on a priority of expenses. As of January 31, 1998, the Company's cumulative portion of the net gaming profits generated by the Swissair systems was $20,277. Pursuant to a separate Media Programming Services Agreement with Swissair, the Company may bill Swissair for costs incurred related to the supply of program material and other entertainment programming costs. Swissair receives all entertainment programming revenues generated by the Entertainment Networks. Advertising and shopping revenues generated by the systems are split between the Company and Swissair. The Debonair agreement originally required the Company to manufacture, assemble, deliver, install, operate and maintain the system on six Debonair aircraft. As long as Debonair utilized the casino gaming features of the systems, payment of the purchase price of these systems was to be made solely through a revenue-sharing agreement. The Company completed the first installation of a Debonair aircraft in August 1997. In October 1997, the Company notified Debonair that the revenues being generated by the Entertainment Network were insufficient to justify continued operation of the Entertainment Network and further installations. In February 1998, the Company and Debonair signed a Termination Agreement. Pursuant to the agreement, Debonair will remove the Entertainment Network from its aircraft and no further installations of the system on Debonair aircraft will be completed. As full and final settlement of all of its obligations with Debonair, the Company will pay $134,235 to Debonair. Pursuant to the contract with Alitalia, the Company delivered five first generation systems for installation on Alitalia aircraft during fiscal 1996. However, Alitalia installed only four of the five Entertainment Networks and did not purchase sufficient spare parts to support continued operation of the systems. Alitalia has notified the Company that it does not intend to continue operation of the systems, and the Company has indicated that it will not support the systems because of the actions of Alitalia. As of January 31, 1998, the final outcome of this matter is unclear. RESULTS OF OPERATIONS Revenues for the quarter ended January 31, 1998 were $13,409,665, an increase of 9 10 $13,183,660 (or 5833%) over revenues of $226,005 for the corresponding quarter of the previous fiscal year. Equipment sales generated during the quarter ended January 31, 1998 were principally from the installation of the Entertainment Networks on Swissair aircraft. As of January 31, 1998, the Company had completed installations on seventeen Swissair aircraft, including three B-747 aircraft and fourteen MD-11 aircraft. During the quarter ended January 31, 1997, the Company did not complete any installations of the Entertainment Network and had $148,709 of miscellaneous equipment sales. Service income of $118,439 for the quarter ended January 31, 1998 was principally generated from services provided to Swissair pursuant to a Media Programming Services Agreement and the Company's share of gaming profits generated by the Swissair systems. Service income of $77,296 for the quarter ended January 31, 1997 was primarily derived from entertainment programming services provided to Alitalia and another air carrier. Cost of equipment sales and service income for the quarter ended January 31, 1998 were $11,573,095, an increase of $8,817,772 (or 320%) over cost of sales of $2,755,323 for the corresponding quarter of the previous fiscal year. The increase in cost of sales is due to the installations on eight Swissair aircraft during the first quarter of fiscal 1998. Pursuant to the Swissair agreement, the Company is responsible for all costs related to the installation of the Entertainment Networks on the Swissair aircraft and maintenance costs of the systems until September 1998. Both the installation and maintenance required under the Swissair agreement are out-sourced by the Company to third parties. Cost of equipment sales includes materials, installation and maintenance costs, as well as estimated warranty costs and costs of upgrades to the Swissair Entertainment Networks that the Company is contractually committed to providing to Swissair. Cost of equipment sales and service income for the quarter ended January 31, 1997 were principally a result of scrapped inventory and provisions for the valuation of inventory. The scrapped inventory resulted from the re-design of certain components of the Entertainment Network during the first quarter of fiscal 1997. There was no provision for doubtful accounts for the quarter ended January 31, 1998, compared to $136,590 for the quarter ended January 31, 1997. Fiscal 1997 provisions resulted from entertainment programming services provided under the Alitalia agreement. Research and development expenses for the quarter ended January 31, 1998 were $609,927, a decrease of $2,014,589 (or 77%) over expenses of $2,624,516 for the corresponding quarter of the previous fiscal year. The decrease in expenses reflects the Company's decision not to develop the next generation of the Entertainment Network and the resulting reduction in staff and professional fees. The Company does not plan to continue its research and development beyond those efforts that are required contractually by the Swissair agreement. The Swissair agreement requires the Company to provide specific upgrades to the Entertainment Network currently being installed on Swissair aircraft. The Company expects to complete the development and implementation of these upgrades by December 1998 and does not plan to develop any further upgrades to the Entertainment Network. The costs of developing these upgrades are included in the Company's statements of operations as a cost of equipment sales. The Company will continue any development efforts that are required to support system reliability guarantees through the year 2003. Marketing and administrative expenses for the quarter ended January 31, 1998 were $1,606,431, a decrease of $1,824,594 (or 53%) over expenses of $3,431,025 for the corresponding quarter of the previous fiscal year. The decrease in expenses reflects the Company's reduction in staff in administrative areas, including production, marketing and program management departments. During the quarter ended January 31, 1997, the Company 10 11 recorded an expense of $466,875 upon the issuance of restricted Class A Common Stock to Hyatt Ventures, Inc. in exchange for the execution of an agreement necessary during a bid process with Qantas. Interest income of $545,132 for the quarter ended January 31, 1998 increased from $403,772 for the quarter ended January 31, 1997. The interest arose principally out of short-term investments of working capital. The increase in income is due to the higher average cash balance during the first quarter of fiscal 1998 compared to fiscal 1997. Interest expense was $3,761 for the quarter ended January 31, 1998 compared to none for the quarter ended January 31, 1997. The increase is due to capital lease agreements that the Company entered into during the second quarter of fiscal 1997. The leases expire in September 1999. LIQUIDITY AND CAPITAL RESOURCES At January 31, 1998, the Company had working capital of approximately $32.4 million. The Company's primary source of funding has been through equity offerings. Since the Company has no backlog after the installation of the Entertainment Network on two remaining Swissair aircraft, the Company expects that losses will continue for the foreseeable future. As a result, unless funds are received from additional financings, working capital is expected to continue to decrease. During the quarter ended January 31, 1998, the Company generated $1.8 million of cash from operating activities, an increase of $6.8 million from the corresponding period of the previous fiscal year. The cash provided by operations during the quarter ended January 31, 1998 is primarily a result of decreases in accounts receivable and inventories and an increase in accrued product warranties, partly offset by decreases in accounts payable and deferred revenue. Purchases of property and equipment for the quarter ended January 31, 1998 were $5,694 compared to $12.0 million for the quarter ended January 31, 1997. Capital expenditures for the first quarter of fiscal 1997 were primarily related to the manufacture of the system under the Debonair agreement, the installation of systems on three aircraft under the Swissair Agreement, and research and development equipment. On December 17, 1997, the Board of Directors authorized the Company to repurchase shares of its Class A Common Stock on the open market. As of January 31, 1998, the Company had repurchased 326,800 shares at prices ranging from $0.75 to $1.00 per share. At January 31, 1998, the Company's material capital commitments were (i) purchase orders of approximately $4.0 million relating primarily to inventory purchases and (ii) its obligations under the Swissair Agreement. The Company is currently using its working capital to finance its current expenses, including installations, equipment purchases, product development, inventory and other expenses associated with the delivery and installation of the Swissair systems. The Company believes that its current cash balances will be sufficient to meet the Company's currently anticipated cash requirements for at least the next twelve months. However, in the event the Company were to obtain additional orders for systems (as to which there can be no assurance), the Company may require significant additional financing for manufacture, assembly and installation of any such future orders. The Company may also in the future elect to explore business opportunities, 11 12 including additional applications for its technologies other than in-flight entertainment. To do so, the Company would require significant additional capital for research and development and, if such development efforts are successful, for marketing, manufacturing and installing its new products. Alternatively, the Company is considering seeking opportunities to acquire or develop other business in which to deploy its cash resources. No assurance can be given that any such alternative opportunities could be located, or if located, could be successfully acquired and operated profitably. FORWARD-LOOKING INFORMATION Except for historical information contained herein, the matters discussed in this Quarterly Report on Form 10-QSB are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1993, as amended and Section 21E of the Securities Exchange Act of 1934, as amended) 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, but are not limited to, the failure of passenger use of the systems to generate sufficient revenues, the inability of the Company to convince customers to purchase its systems, the failure to execute definitive agreements with additional airlines on favorable terms or at all, cost overruns in connection with the Company's current contracts, failure of installed systems to perform in accordance with system specifications, the failure of the Company to receive sufficient financing to perform under any new airline contracts or to perform sufficient future research and development, the impact of competition and downward pricing pressures, the effect of changing economic conditions and conditions in the airline industry, the inability of the Company to locate, evaluate, purchase and operate other businesses, the impact of any changes in domestic and foreign regulatory environments or the Company's inability to obtain requisite government approvals, risks in technology development, the risks involved in currency fluctuations, and the other risks and uncertainties detailed 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, 1997. 12 13 PART II. OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS 3.1(1)* - Certificate of Ownership and Merger 3.2(1)* - Amended and Restated Certificate of Incorporation of the Registrant 3.3(1)* - Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant 3.4(1)* - By-laws of the Registrant 4.5(1)* - Form of Underwriter's Unit Purchase Option 4.6(1)* - Specimen of Class A Common Stock Certificate 4.7(1)* - Specimen of Class B Common Stock Certificate 4.10(2)* - Specimen of Class D Warrant Certificate 4.11(4)* - Stock Purchase Warrant, dated as of November 7, 1996, issued to FortuNet, Inc. 4.12(4)* - Stock Purchase Warrant, dated as of November 12, 1996, issued to Houlihan Lokey Howard & Zukin 27 - Financial Data Schedule
- -------------------------- * Incorporated by reference from the Registrant's Annual Report on Form 10-KSB for the fiscal year ended October 31, 1997 and Amendment No. 1 to the Annual Report on Form 10-KSB/A filed with the Securities and Exchange Commission. (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended January 31, 1998. 13 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: March 9, 1998 INTERACTIVE FLIGHT TECHNOLOGIES, INC. By: /s/ Michail Itkis Michail Itkis Chief Executive Officer By: /s/ John W. Alderfer John W. Alderfer Chief Financial Officer 14 15 INDEX OF EXHIBITS
Exhibit No. Description Page No. - ----------- ----------- -------- 3.1(1) Certificate of Ownership and Merger * 3.2(1) Amended and Restated Certificate of Incorporation of the Registrant * 3.3(1) Certificate of Amendment of Amended and Restated Certificate of * Incorporation of Registrant 3.4(1) By-laws of the Registrant * 4.5(1) Form of Underwriter's Unit Purchase Option * 4.6(1) Specimen of Class A Common Stock Certificate * 4.7(1) Specimen of Class B Common Stock Certificate * 4.10(2) Specimen of Class D Warrant Certificate * 4.11(4) Stock Purchase Warrant, dated as of November 7, 1996, issued to * FortuNet, Inc. 4.12(4) Stock Purchase Warrant, dated as of November 12, 1996, issued to * Houlihan Lokey Howard & Zukin 27 Financial Data Schedule 16
- --------------------------- * Incorporated by reference from the Registrant's Annual Report on Form 10-KSB for the fiscal year ended October 31, 1997 and Amendment No. 1 to the Annual Report on Form 10-KSB/A filed with the Securities and Exchange Commission. 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS OCT-31-1998 NOV-01-1997 JAN-31-1998 37,959,310 1,697,023 4,598,895 0 2,609,317 47,678,118 9,715,808 7,070,932 51,606,872 15,242,191 0 0 0 221,111 36,046,958 51,606,872 13,291,226 13,409,665 11,567,395 11,573,095 2,216,358 0 3,761 161,583 0 0 0 0 0 161,583 0.01 0.01
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