INTERACTIVE FLIGHT TECHNOLOGIES INC, PRE 14A, 1996-07-01

INTERACTIVE FLIGHT TECHNOLOGIES INC
PRE 14A, 1996-07-01
MISCELLANEOUS MANUFACTURING INDUSTRIES

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement

[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))

[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

----------------

Interactive Flight Technologies, Inc.
(Name of Registrant as Specified In Its Charter)

----------------

Payment of Filing Fee (Check the appropriate box):

[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
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INTERACTIVE FLIGHT TECHNOLOGIES, INC
3070 W. POST ROAD
LAS VEGAS, NV 89118

July 11, 1996

Dear Fellow Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Interactive Flight Technologies, to be held at the Company's New York office
located at 44 East 55th Street, New York, New York 10019, Fifth Floor, on August
12, 1996, at 10:00 a.m., local time.

At the Annual Meeting, in addition to the election of directors and the
appointment of independent auditors, you will be asked to consider and approve
certain modifications of the terms of an escrow agreement pursuant to which
certain of the Company's Class B Common Stock owned by officers and directors of
the Company are held. You will also be asked to consider and approve an
increase in the number of shares of the Company's Class A Common Stock for which
options may be granted under the Company's 1994 Stock Option Plan.

The enclosed proxy statement contains important information concerning the
directors to be elected at the Annual Meeting and the other proposals to be
considered at the Annual Meeting. We hope you will take the time to study it
carefully. Your vote is very important, regardless of how many shares you own.
Even if you presently plan to attend our Annual Meeting, please complete, sign,
date and return the enclosed proxy card promptly in the accompanying self-
addressed postage prepaid envelope. If you do join us at the Annual Meeting and
wish to vote in person, you may revoke your proxy at that time.

Sincerely,

Michail Itkis
Chairman of the Board and
Chief Executive Officer

PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD WHETHER OR
NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING.
<PAGE>

INTERACTIVE FLIGHT TECHNOLOGIES, INC.
3070 W. POST ROAD
LAS VEGAS, NV 89118

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

----------------

JULY 11, 1996

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To the Stockholders of
INTERACTIVE FLIGHT TECHNOLOGIES, INC.:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Interactive Flight Technologies, Inc., a Delaware corporation (the
"Company") will be held at the Company's New York office located at 44 East
55th Street, New York, New York 10019, Fifth Floor, on August 12, 1996, at
10:00 a.m., local time, for the following purposes, all as more fully described
in the attached Proxy Statement:

1. To elect seven directors to serve for a term of one year and until
their respective successors are elected and qualified.

2. To approve the modification (the "Modification") of the terms of an
escrow agreement (the "Escrow Agreement") pursuant to which an aggregate of
3,200,000 shares of Class B Common Stock owned by officers and directors of
the Company are held. The Escrow Agreement currently contains conditions
providing for the release of the subject shares if certain stock price
and/or net income levels are reached within certain specified time frames.
The Modification, if approved, will reduce certain of the stock price
levels and extend certain of the specified times.

3. To approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of the Company's Class A Common Stock for
which options may be granted under such Plan.

4. To approve the appointment by the Board of Directors of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors of the
Company for the fiscal year ended October 31, 1996.

5. To transact such other business as may properly come before the
meeting and any and all adjournments thereof.

A copy of the Company's Annual Report for the fiscal year ended October 31,
1995 is enclosed.

YOU ARE EARNESTLY REQUESTED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF
PROXY IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT PURPOSE (TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES) WHETHER OR NOT YOU EXPECT TO
ATTEND THE ANNUAL MEETING IN PERSON. THE PROXY IS REVOCABLE BY YOU AT ANY TIME
PRIOR TO ITS EXERCISE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE
EVENT YOU ATTEND THE ANNUAL MEETING. THE PROMPT RETURN OF THE PROXY WILL BE OF
ASSISTANCE IN PREPARING FOR THE ANNUAL MEETING AND YOUR COOPERATION IN THIS
RESPECT WILL BE GREATLY APPRECIATED.

By Order of the Board of Directors

Lance Fieldman
Secretary
July 11, 1996

YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
3070 W. POST ROAD
LAS VEGAS, NV 89118

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PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12,
1996

----------------

This Proxy Statement and the accompanying proxy are being furnished to
stockholders of Interactive Flight Technologies, Inc., a Delaware corporation
(the "Company") in connection with the solicitation of proxies by the Board of
Directors for use in voting at the Annual Meeting of Stockholders to be held at
the Company's New York office located at 44 East 55th Street, New York, New
York, Fifth Floor, on August 12, 1996, at 10:00 a.m., local time, and at any
and all adjournments thereof (the "Annual Meeting"). This Proxy Statement and
the accompanying proxy, together with a copy of the Annual Report of the
Company for the fiscal year ended October 31, 1995, including financial
statements, are first being mailed or delivered to stockholders of the Company
on or about July 11, 1996.

At the Annual Meeting, stockholders will be asked to consider and vote upon
the following proposals:

1. To elect seven directors to serve for a term of one year and until
their respective successors are elected and qualified.

3. To approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of the Company's Class A Common Stock for
which options may be granted under such Plan.

4. To approve the appointment by the Board of Directors of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors of the
Company for the fiscal year ended October 31, 1996.

The enclosed proxy provides that each stockholder may specify that his or her
shares be voted "for", "against" or "abstain" from voting with respect to each
of the proposals. If the enclosed proxy is properly executed, duly returned to
the Company in time for the Annual Meeting and not revoked, your shares will be
voted in accordance with the instructions contained thereon. Where a signed
proxy is returned, but no specific instructions are indicated, your shares will
be voted FOR each of the proposals. Proxies marked as abstaining will be
treated as present for purposes of determining a quorum for the Annual Meeting,
but will not be counted as voting in respect of any matter as to which
abstinence is indicated.

Any stockholder who executes and returns a proxy may revoke it in writing at
any time before it is voted at the Annual Meeting by: (i) filing with the
Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating
to the same shares; or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).

Representatives of KPMG Peat Marwick LLP, independent accountants of the
Company, are expected to be present at the Annual Meeting and available to
respond to appropriate questions. Such representatives also will have the
opportunity, should they so desire, to make any statements to the stockholders
which they deem appropriate.

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Whether or not you attend the Annual Meeting, your vote is important.
Accordingly, you are asked to sign and return the accompanying proxy regardless
of the number of shares you own. Shares can be voted at the Annual Meeting only
if the holder is represented by proxy or is present.

VOTING RIGHTS AND VOTING SECURITIES

VOTING AT THE ANNUAL MEETING

The Board of Directors has fixed the close of business on June 28, 1996 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting (the "Record Date"). Only stockholders of
record at the close of business on the Record Date will be entitled to vote at
the Annual Meeting or any and all adjournments thereof. On the Record Date, the
Company had (i) 7,907,734 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), and (ii) 4,000,000 shares of Class B Common
Stock, par value $0.01 per share (the "Class B Common Stock" and, together with
the Class A Common Stock, the "Common Stock") issued and outstanding. Each
stockholder of Class A Common Stock will be entitled to one vote per share, and
each stockholder of Class B Common Stock will be entitled to six votes per
share, either in person or by proxy, on each matter presented to the
stockholders of the Company at the Annual Meeting.

The holders of a majority of all of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting constitute a quorum at the Annual
Meeting. The affirmative vote of the holders of a plurality of the outstanding
Common Stock represented in person or by proxy at the Annual Meeting is
required to approve Proposal 1. The affirmative vote of the holders of a
majority of the outstanding Common Stock represented in person or by proxy at
the Annual Meeting, other than holders of shares of Common Stock who are party
to the Escrow Agreement, is required to approve Proposal 2. The affirmative
vote of the holders of a majority of the outstanding Common Stock represented
in person or by proxy at the Annual Meeting is required to approve Proposal 3
and Proposal 4.

By virtue of their ownership of shares of Class B Common Stock, certain
officers, directors and affiliates of the Company controlled approximately 65%
of the outstanding voting power of the Common Stock on the Record Date. Such
individuals have informed the Company of their intent to vote FOR all of the
director nominees in Proposal 1 and to vote FOR Proposal 3 and Proposal 4.
Accordingly, all of the directors nominated in Proposal 1 will be elected, and
Proposal 3 and Proposal 4 will be approved, at the Annual Meeting. Because
certain of such individuals are parties to the Escrow Agreement, such
individuals will not be entitled to cast a vote with respect to Proposal 2. See
"Proposal 2: Modification of Escrow Agreement."

PROPOSAL 1: ELECTION OF DIRECTORS

REQUIRED AFFIRMATIVE VOTE

The election of directors requires a plurality vote of those shares of Common
Stock represented in person or by proxy at the Annual Meeting.

The Company's Board of Directors currently consists of seven members. At the
Annual Meeting, seven directors are to be elected to serve for a term of one
year and until their respective successors are elected and qualified. Each of
the nominees for election as director, including Mr. James H. Zukin, is now a
director of the Company with the exception of General Alexander M. Haig, Jr.
Mr. Zukin was appointed on June 13, 1996, to succeed Donald H. Goldman as a
director of the Company. Each incumbent director of the Company was nominated
for re-election with the exception of Mr. Pollack. The persons named in the
enclosed proxy intend to vote for the election of the nominees for director,
who are listed below, unless the proxy is marked to indicate that such
authorization is expressly withheld. Should any of the listed persons be unable
to accept nomination or election (which the Board of Directors does not
anticipate), it is the intention of the persons named in the enclosed proxy to
vote for the election of such persons as the Board of Directors may recommend.
Proxies cannot be voted for a greater number of persons than the number of
nominees named.

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The following table sets forth the names, ages and current positions with the
Company of the nominees for director:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James H. Zukin 47 Director
Michail Itkis 32 Chief Executive Officer and Director
Steven M. Fieldman 51 Vice President--Business Development and Director
Yuri Itkis 54 Director
Boris Itkis 27 Director
Howard J. Tytel 49 Director
General Alexander M.
Haig 71 Director Nominee
</TABLE>

JAMES H. ZUKIN has been a director of the Company since June 13, 1996. Mr.
Zukin is Senior Managing Director-Product Development, Chairman of the
Executive Committee, and a member of the Board of Directors of Houlihan Lokey
Howard & Zukin ("Houlihan Lokey"), a specialty investment banking firm. Prior
to joining Houlihan Lokey in September 1976, Mr. Zukin was founder and director
of ESOT Valuation Group at Marshall & Stevens and Vice President at
Niederhoffer, Cross & Zeckhauser. Currently, Mr. Zukin is a member of the ESOP
Association of America and the National Center for Employee Ownership, and a
member of the Board of Directors of Recreation World, Inc. and of the Brandeis-
Bardin Institute.

MICHAIL ITKIS has been the Chief Executive Officer of the Company since
October 1994. Prior thereto, from January 1990, Mr. Itkis served as the
director of product development of FortuNet, Inc. ("FortuNet"), a licensed
gaining equipment manufacturer which distributes video gaming networks to
casinos and other gaming establishments. The Company has an exclusive license
from FortuNet for gaming technology for airline use. From May 1989 to November
1989, Mr. Itkis was project engineer for Computer Sciences Corp., a software
development firm, and, from July 1985 to May 1989, was project engineer for
TRW, Inc., a company engaged in defense system design.

STEVEN M. FIELDMAN has been Vice President-Business Development of the
Company since October 1994 and was marketing representative for the Company
from March 1994 to October 1994. From October 1991 to March 1994, Mr. Fieldman
was an independent consultant in the market research field. From 1969 to
October 1991, Mr. Fieldman was president of Lance Westfield U.S.A., Ltd., an
executive search firm founded by Mr. Fieldman. Mr. Fieldman has a permanent
medical disability that precludes him from devoting more than a maximum of
approximately 20 hours per week to the Company.

YURI ITKIS has been a director of the Company since October 1994. Since
October 1989, Mr. Itkis has been the president and sole stockholder of
FortuNet.

BORIS ITKIS has been a director of the Company since October 1994. Since
November 1990, Mr. Itkis has served as the director of engineering of FortuNet.
From September 1987 to December 1991, Mr. Itkis was a student at the University
of California, Los Angeles, from which he received a bachelor's degree in
electrical engineering.

HOWARD J. TYTEL has been a director of the Company since March 7, 1995. Mr.
Tytel has been a director, executive vice president and general counsel of
Sillerman Communications Management Corporation ("SCMC"), a diversified
communications management firm, since 1985; a director and officer of Sillerman
Media Choices, Inc., an indirect general partner of Sillerman Communications
Partners, L.P., an investment partnership, since 1989; and an officer and
director of Legacy Broadcasting Inc. ("Legacy"), the general partner of Legacy
Broadcast Partners, L.P., a radio stations operator, from 1991 to 1993. Mr.
Tytel has been a director and executive vice president of SFX Broadcasting,
Inc. ("SFX") since 1992. SCMC is the management consultant to SFX and to Multi-
Market Radio, Inc. Mr. Tytel was a director and executive vice president of
Legacy Broadcasting Inc. (a company unrelated to Legacy), which owned radio
stations, and Metropolitan Broadcasting Corporation from 1986 to 1989, and 1988
to 1989, respectively. Mr. Tytel is also of counsel to the law firm of Baker &
McKenzie, which has performed certain legal services on behalf of the Company.

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GENERAL ALEXANDER M. HAIG, JR. is a nominee for director. General Haig is the
Chairman and President of Worldwide Associates, Inc., a consulting firm which
assists public and private corporations both here and abroad in developing and
implementing marketing and acquisition strategies in addition to providing
strategic advice on the domestic and international political, economic and
security environment as will affect global commercial activities. General Haig
graduated from the U.S. Military Academy in 1947, was commissioned a Second
Lieutenant in the Army and served in Japan, Korea, Europe and Vietnam in a
variety of military assignments. From 1962 to 1965 he served in the Pentagon
and received the Distinguished Service Cross for heroism during his service in
Vietnam in 1966 and 1967. Advancing through the military ranks, he was promoted
to full General in 1972. General Haig was named White House Chief of Staff by
President Nixon in 1973, at which point he retired from the military. In 1974,
President Ford recalled General Haig to active duty as Commander-in-Chief, U.S.
European Command, and was later appointed Supreme Allied Commander in Europe,
responsible for NATO's military force until he retired in 1979. General Haig
was elected President and Chief Operating Officer of United Technologies
Corporation and a member of its Board of Directors in 1979. On January 22,
1981, General Haig was sworn in as the Nation's 59th Secretary of State under
President Reagan. He resigned from this position on July 5, 1982. He was an
official candidate (1987-1988) for the nomination of the Republican Party for
the presidency of the United States. General Haig is member of the Board of
Directors of America Online, Inc., Inteneuron Pharmaceutical, Inc., MGM Grand,
Inc., and Progenitor, Inc. The Company has a consulting agreement with
Worldwide Associates, Inc. and General Haig. See "Certain Relationships and
Related Transactions."

Yuri Itkis is the father, and Boris Itkis is the brother, of Michail Itkis.

Directors serve until the next annual meeting or until their successors are
elected and qualified, subject to the provisions of a stockholders' agreement.
See "Certain Relationships and Related Transactions." Officers serve at the
discretion of the Board of Directors, subject to rights, if any, under
contracts of employment.

MEETINGS OF THE BOARD OF DIRECTORS

The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board are kept informed through various
reports and documents sent to them, through operating and financial reports
routinely presented at Board and committee meetings by Michail Itkis, as the
Chairman of the Board, and other officers, and through other means. In
addition, directors of the Company discharge their duties throughout the year
not only by attending Board meetings, but also through personal meetings and
other communications, including considerable telephone contact, with the Chief
Executive Officer and others regarding matters of interest and concern to the
Company.

During the fiscal year ended October 31, 1995, the Company's Board of
Directors held four formal meetings. Each person who was a director attended
all of the Board meetings and any applicable committee meetings during fiscal
1995.

BOARD COMMITTEES

The Company's Board of Directors has an Option Committee, an Audit Committee
and a Compensation Committee but does not have a nominating committee. The
members of each committee are appointed by the Board of Directors.

Option Committee. The Option Committee reviews recommendations from
management regarding the issuance of stock options by the Company and approves
all such issuances. The Board of Directors first designated an Option Committee
in October 1994, and appointed Mr. Boris Itkis and Mr. Dennis Pollack, a
director of the Company who was not nominated for re-election, to serve as
members thereon. The Option Committee held a committee meeting on October 3,
1995, and was in session during each of the meetings of the Board of Directors
during fiscal 1995.

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Audit Committee. The Audit Committee recommends to the Board of Directors the
auditing firm to be selected each year as independent auditors of the Company's
financial statements and to perform services related to the completion of such
audit. The Audit Committee also has responsibility for (i) reviewing the scope
and results of the audit, (ii) reviewing the Company's financial condition and
results of operations with management, (iii) considering the adequacy of the
internal accounting and control procedures of the Company, and (iv) reviewing
any non-audit services and special engagements to be performed by the
independent auditors and considering the effect of such performance on the
auditors' independence. The Board of Directors first designated an Audit
Committee in December 1995 and appointed Mr. Howard Tytel and Mr. Dennis
Pollack, a director of the Company who was not nominated for re-election, to
serve as members thereon. Accordingly, there was no Audit Committee in session
during any of the meetings of the Board of Directors during fiscal 1995.

Compensation Committee. The Compensation Committee reviews and recommends to
the Board of Directors the compensation and benefits of all officers of the
Company, reviews general policy matters relating to compensation and benefits
of employees of the Company and administers the Company's stock incentive plan.
The Compensation Committee currently consists of Michail Itkis and Lance
Fieldman, and also included Donald H. Goldman until his resignation as of May
10, 1996. The Compensation Committee was in session at various times during
fiscal 1995.

PROPOSAL 2: MODIFICATION OF ESCROW AGREEMENT

BACKGROUND

In connection with the Company's initial public offering (the "IPO") in March
1995, the underwriter of the IPO (the "Underwriter") required that Messrs.
Michail Itkis, Yuri Itkis, Boris Itkis, Donald H. Goldman, Steven N. Fieldman
and Lance Fieldman (collectively, the "Escrowed Stockholders") deposit into
escrow an aggregate of 3,200,000 shares of Class B Common Stock (the "Escrow
Shares"), respectively. The Escrow Shares are subject to an Amended and
Restated Escrow Agreement among the Company, the Escrowed Stockholders and an
Escrow Agent dated as of November 30, 1994, as further amended by the Amended
Escrow Agreement dated as of February 29, 1996 (the "Escrow Agreement"). The
Escrow Agreement contains conditions providing for the release from escrow of
the Escrow Shares if certain stock price and/or income levels are reached
within certain specified time frames. The current terms of such release as set
forth in the Escrow Agreement are set forth in detail below.

Believing that the Company had shown substantial progress with respect to
both stock price levels and development of the Company's business, the Escrowed
Stockholders requested that the Underwriter consent to certain favorable
modifications of the terms of release of the Escrow Shares, which consent is
required pursuant to the terms of the Escrow Agreement. The Underwriter
subsequently consented to such modifications. However, the Escrow Agreement
requires that no such modifications will be effective without the prior consent
of the holders of a majority of the outstanding shares of Common Stock, other
than shares held by the Escrowed Stockholders. ACCORDINGLY, PROPOSAL 2 SEEKS TO
OBTAIN THE CONSENT FROM THE STOCKHOLDERS OF THE COMPANY TO THE MODIFICATIONS TO
THE TERMS OF THE ESCROW AGREEMENT SET FORTH BELOW.

CURRENT TERMS OF THE ESCROW AGREEMENT
RELATING TO RELEASE OF ESCROW SHARES

Currently, the Escrow Agreement provides that of the Escrow Shares, 1,250,000
shares (the "First Released Shares") will be released from escrow, on a pro
rata basis, if, and only if, one or more of the following conditions is/are
met:

(a) the Company's net income before provision for income taxes and exclusive
of any extraordinary earnings (all as audited by the Company's independent
certified public accountants) (the "Minimum Pretax Income") amounts to at least
$5.9 million for the fiscal year ending October 31, 1995 or 1996;

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(b) the Minimum Pretax Income amounts to at least $8.0 million for the fiscal
year ending October 31, 1997;

(d) the Bid Price (as defined) of the Company's Class A Common Stock averages
in excess of $16.00 per share for 30 consecutive business days during the 18
month period commencing March 7, 1995;

(e) the Bid Price of the Company's Class A Common Stock averages in excess of
$20.00 per share for 30 consecutive business days during the 18 month period
commencing 18 months from March 7, 1995; or

(f) during the periods specified in (d) or (e) above, the Company is acquired
by or merged into another entity in a transaction in which the value of the per
share consideration received by the stockholders of the Company on the date of
such transaction or at any time during the applicable period set forth in (d)
or (e), respectively, equals or exceeds the applicable levels set forth in (d)
or (e), respectively.

The remaining 1,950,000 Escrow Shares (the "Second Released Shares") will be
released from escrow if, and only if, one or more of the following conditions
is met:

(i) the Minimum Pretax Income amounts to at least $8.5 million for the
fiscal year ending on October 31, 1995 or 1996;

(ii) the Minimum Pretax Income amounts to at least $11.5 million for the
fiscal year ending on October 31, 1997;

(iii) the Minimum Pretax Income amounts to at least $14.5 million for the
fiscal year ending on October 31, 1998;

(iv) the Bid Price of the Company's Class A Common Stock averages in
excess of $22.00 per share for 30 consecutive business days during the 18
month period commencing March 7, 1995; or

(v) the Bid Price averages in excess of $28.00 per share for 30
consecutive business days during the 18 month period commencing 18 months
from March 7, 1995; or

(vi) during the periods specified in (iv) or (v) above, the Company is
acquired by or merged into another entity in a transaction in which the
value of the per share consideration received by the stockholders of the
Company on the date of such transaction or at any time during the
applicable period set forth in (iv) or (v), respectively, equals or exceeds
the applicable levels set forth in (iv) or (v), respectively.

The Minimum Pretax Income target for any year set forth above may be deferred
one year for good cause by unanimous action of the unaffiliated directors of
the Company (defined, for such purpose, as being those directors who have no
beneficial interest in any of the Escrow Shares).

The Minimum Pretax Income amounts set forth above shall (i) be calculated
exclusively of any extraordinary earnings including, but not limited to, any
charge to income resulting from release of the Escrow Shares, and (ii) be
increased proportionately, with certain limitations, in the event additional
shares of Common Stock or securities convertible into, exchangeable for or
exercisable into Common Stock are issued after completion of this offering. The
Bid Price amounts set forth above are subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events.

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PROPOSED MODIFICATION OF THE TERMS OF THE
ESCROW AGREEMENT RELATING TO RELEASE OF ESCROW SHARES

With respect to the First Released Shares, the proposed modifications are as
follows: 250,000 of the First Released Shares will be released from escrow if
the Bid Price of the Company's Class A Common Stock averages in excess of
$13.00 per share (instead of $16.00 per share as currently provided) for 30
consecutive business days from the period when the holders of the Class A
Common Stock approve the adoption of such modification (the "Commencement
Date") through December 31, 1996 (instead of September 7, 1996 as currently
provided); 250,000 of the First Released Shares will be released from escrow if
the Bid Price of the Company's Class A Common Stock averages in excess of
$14.00 per share (instead of $16.00 per share as currently provided) for 30
consecutive business days during the period from the Commencement Date through
December 31, 1996 (instead of September 7, 1996 as currently provided); 750,000
of the First Released Shares will be released from escrow if the Bid Price of
the Company's Class A Common Stock averages in excess of $16.00 per share for
30 consecutive business days during the period from the Commencement Date
through December 31, 1996 (instead of September 7, 1996 as currently provided);
and any and all remaining First Released Shares will be released from escrow if
the Bid Price of the Company's Class A Common Stock averages in excess of
$20.00 per share for 30 consecutive business days commencing January 1, 1997
(instead of October 7, 1996) and ending on March 6, 1998.

With respect to the Second Released Shares, the proposed modification to the
Escrow Agreement provides that all of the Second Released Shares will be
released from escrow if the Bid Price of the Company's Class A Common Stock
averages in excess of $19.00 (instead of $22.00 as currently provided) per
share for 30 consecutive business days during the period from the Commencement
Date through December 31, 1996 (instead of September 7, 1996 as currently
provided); and any remaining Second Released Shares will be released from
escrow if the Bid Price of the Company's Class A Common Stock averages in
excess of $28.00 per share for 30 consecutive business days commencing January
1, 1997 (instead of October 7, 1996) and ending on March 6, 1998.

OTHER CURRENT TERMS OF THE ESCROW AGREEMENT

Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Bid Price levels set
forth above have been met by January 31, 1999 (or January 31, 2000, in the
event the one-year deferral is approved) the Escrow Shares, as well as any
dividends or other distributions made with respect thereto, will be cancelled
and contributed to the capital of the Company. The Company expects that the
release of the Escrow Shares to officers, directors, employees and consultants
of the Company will be deemed compensatory and, accordingly, will result in a
substantial charge to reportable earnings, which would equal the fair market
value of such shares on the date of release. Such charge could substantially
increase the loss or reduce or eliminate the Company's net income for financial
reporting purposes for the period(s) during which such shares are, or become
probable of being, released from escrow. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity, it may have a negative effect on the market price of the
Company's securities.

The Minimum Pretax Income and Bid Price levels set forth above were
determined by negotiation between the Company and the Underwriter, and should
not be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.

REQUIRED AFFIRMATIVE VOTE

The affirmative vote of the holders of a majority of the outstanding Common
Stock represented in person or by proxy at the Annual Meeting, other than the
Escrowed Stockholders, is required to approve Proposal 2.

7
<PAGE>

SINCE THE ESCROWED STOCKHOLDERS (OTHER THAN DONALD H. GOLDMAN) ARE OFFICERS,
DIRECTORS AND AFFILIATES OF THE COMPANY, THE BOARD OF DIRECTORS IS NOT MAKING A
RECOMMENDATION AS TO WHETHER THE STOCKHOLDERS SHOULD VOTE FOR OR AGAINST
PROPOSAL 2.

PROPOSAL 3: APPROVAL OF AMENDMENT TO THE 1994 STOCK OPTION PLAN

The Board of Directors proposes that the Plan be amended to increase the
aggregate number of shares of Class A Common Stock subject to issuance under
the Plan by 1,800,000 shares from 600,000 shares to 2,400,000 shares. The
proposed increase is intended to serve the purposes of the Plan, which are to
ensure the retention of existing executive personnel, key employees, directors,
consultants and advisors and to provide additional incentive by permitting such
individuals to participate in the ownership of the Company.

"For a detailed description of the principle features of the Plan, see
"Executive Compensation--Stock Options" and "--Directors' Options."

REQUIRED AFFIRMATIVE VOTE

Approval of the amendment to the Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock.

THE BOARD OF DIRECTORS BELIEVES THAT PROPOSAL 3 IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE PLAN AS SET FORTH IN THIS PROPOSAL 3.

PROPOSAL 4: SELECTION OF INDEPENDENT AUDITORS

Effective May 10, 1995, the Company changed its independent accountants from
Richard A. Eisner & Company LLP ("Eisner") to KPMG Peat Marwick ("Peat
Marwick"). Management of the Company believes that the change in accounting
firms was desirable since Peat Marwick has greater international experience
than its former accountants, as well as a specialty in foreign tax issues, and
that such expertise will be desirable as the Company continues to develop its
international business. Prior to the retention of Peat Marwick, neither the
Company or any person on its behalf consulted with Peat Marwick regarding the
application of accounting principals to any transaction or the types of audit
opinion that might be rendered on the Company's financial statements. The
decision to change accountants was recommended by the Board of Directors of the
Company.

There were no disagreements with Eisner on any matter of accounting
principals or practices, financial statement disclosures, or auditing scope or
procedures which disagreements, if not resolved to their satisfaction, would
have caused them to make reference in connection with their opinion to the
subject matter of the disagreement. The auditor's report of Eisner included in
the Company's financial statements for the fiscal year ended October 31, 1994
contains an explanatory paragraph indicating that, due to the Company's early
stage of development, substantial losses since inception and expectation of
continuing losses, there was substantial doubt about the Company's ability to
continue as a going concern. Other than the foregoing, the audit report of
Eisner for the fiscal year ended October 31, 1994 did not contain any adverse
opinion or disclaimer of opinion. The stockholders are being asked to approve
the Board. The approval requires a majority vote of those shares of Common
Stock represented at the Annual Meeting. In the event the appointment is not
approved, the Board of Directors will reconsider its selection.

Representatives of Peat Marwick are expected to be present at the Annual
Meeting and available to respond to appropriate questions. Such representatives
also will have the opportunity, should they so desire, to make any statements
to the stockholders which they deem appropriate.

8
<PAGE>

REQUIRED AFFIRMATIVE VOTE

The Board of Directors unanimously recommends that the stockholders vote FOR
Proposal 4. APPROVAL OF THE APPOINTMENT OF KPMG PEAT MARWICK, CERTIFIED PUBLIC
ACCOUNTANTS, AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1996 REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE SHARES OF COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING.

EXECUTIVE COMPENSATION

The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal period commencing
February 1, 1994 (commencement of operations) through October 31, 1994 and the
fiscal year ended October 31, 1995 (the "Fiscal Year") to (i) the Chief
Executive Officer (the "CEO"), and (ii) the only other executive officer other
than the CEO whose total annual compensation for the Fiscal Year exceeded
$100,000 (the "Named Executive Officer"):

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
FISCAL COMPENSATION STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTIONS (#)
- --------------------------- ------ ------------ ------------
<S> <C> <C> <C>
Michail Itkis, Chief Executive Officer..... 1995 $125,000 15,000
1994 -- --
Donald H. Goldman, President(2)............ 1995 $150,000 10,000
1994 -- --
</TABLE>
- --------
(1) Represents compensation paid pursuant to employment agreements. See "--
Employment Agreements."
(2) Donald H. Goldman resigned as President as of May 10, 1996.

OPTION GRANTS IN FISCAL YEAR

The following table sets forth the grant of stock options made during the
Fiscal Year to the CEO and the Named Executive Officer:
<TABLE>
<CAPTION>
% TOTAL OPTIONS
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED 1995 FISCAL YEAR(1) PRICE(2) DATE
- ---- ------- ----------------------- -------- ----------
<S> <C> <C> <C> <C>
Michail Itkis............... 15,000 5.79% $4.40 1/31/2005
Donald H. Goldman........... 10,000 3.86% $4.40 1/31/2005
</TABLE>
- --------
(1) Based on a total of 259,000 options granted to employees during the Fiscal
Year.
(2) Represents 110% of the fair market value of the Class A Common Stock on the
date of grant.

9
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL YEAR
AND FY-END OPTION VALUE

The following table provides certain information regarding stock option
ownership and exercises by the CEO and the Named Executive Officer, as well as
the number and assumed value of exercisable and unexercisable options held by
those persons, at October 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
AT OCTOBER 31, OPTIONS AT
1995 (#) OCTOBER 31, 1995($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
- ---- --------------- ------------ ---------------- -------------------
<S> <C> <C> <C> <C>
Michail Itkis........... -- -- 15,000/0 $44,625/0
Donald H. Goldman....... -- -- 10,000/0 $29,750/0
</TABLE>
- --------
(1) Value of exercisable "in-the-money" options is equal to the difference
between the closing bid price per share of the Class A Common Stock on the
Nasdaq Small-Cap Market of $7.375 at October 31, 1995 and the option
exercise price per share multiplied by the number of shares subject to
options.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Michail
Itkis, Steven M. Fieldman, Robert J. Aten, the Company's Chief Financial
Officer, and Lance Fieldman, the Company's Secretary. The agreements have a
term of one to three years and provide for per annum base salaries of $125,000,
$50,000, $125,000 and $90,000, respectively, and the grant of options to
purchase 15,000, 30,000, 30,000 and 5,000 shares of Class A Common Stock per
year, respectively, at an exercise price equal to the fair market value on the
date of grant, except for the first grant. Each agreement provides for 6 to 12
months severance pay (with certain offset provisions) if the employee is
terminated by the Company under certain conditions. The agreements also provide
that such individuals will not compete with the Company during the term of the
agreements and for a period of three years thereafter. The agreement with Steve
Fieldman provides for employment on a part-time basis, not to exceed 20 hours
per week.

Donald H. Goldman was employed by the Company as President until he resigned
from the position as of May 10, 1996. Mr. Goldman left the Company 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 became clear that the entertainment aspect of the Company's
business will be based in Los Angeles, California, and Mr. Goldman does not
wish to relocate at this time. Nevertheless, Mr. Goldman currently serves as
consultant to the Company. See "--Consulting Arrangements."

CONSULTING ARRANGEMENTS

The Company has a consulting agreement with Yuri Itkis (the "Itkis Consulting
Agreement") that provides for annual payments of $100,000, and the grant of
options to purchase 40,000 shares exercisable at $4.40 per share. The Company
also has a consulting arrangement with Howard J. Tytel pursuant to which he
received fees of $30,000 for the fiscal year ended October 31, 1995. Mr.
Tytel's services to the Company included assistance in negotiating the FortuNet
License, the Stockholders' Agreement, the employment agreements of the Company
and consulting on various business and financial matters. In addition, the
Company has a consulting arrangement with Donald H. Goldman that entitles Mr.
Goldman to receive, for a period of 15 months from May 10, 1996, the same
annual compensation and similar stock option rights as he was previously
entitled to receive under his employment agreement with the Company. Under the
consulting arrangement, Mr. Goldman will render such consulting, legal and
other services to the Company as are requested by the Company, except that Mr.
Goldman shall not be required to perform more than five hours of services for
the Company in any month unless he and the Company mutually agree in advance on
the services to be performed and the compensation to be paid to him therefor.
Mr. Goldman agreed not to compete with the Company for a period of three years
commencing on May 10, 1996. See "Certain Relationships and Related
Transactions."

10
<PAGE>

DIRECTOR COMPENSATION

Directors are reimbursed for expenses actually incurred in connection with
each meeting of the Board of Directors or any Committee thereof attended. In
addition, each of Messrs. Pollack and Tytel receives $1,000 for each Board
meeting and $500 for each Committee meeting attended. Certain directors are
entitled to automatic grants of options under the Company's 1994 Stock Option
Plan. See "--Directors' Options."

Stock Options

In October 1994, the Board of Directors adopted and in November 1994, the
Company's stockholders approved, the 1994 Stock Option Plan (the "Plan")
covering 600,000 shares of the Company's Class A Common Stock pursuant to which
employees, officers and directors of, and consultants or advisers to, the
Company and any subsidiary corporations are eligible to receive incentive stock
options ("incentive options") within the meaning of Section 422 of the Code
and/or options that do not qualify as incentive options ("non-qualified
options"). The Plan, which expires in September 2004, is administered by the
Board of Directors or a committee of the Board of Directors, provided, however,
that with respect to "officers" and "directors," as such terms are defined for
the purposes of Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act,
such committee shall consist of "disinterested" directors as defined in Rule
16b-3, but only if at least two directors meet the criteria of "disinterested"
directors as defined in Rule 16b-3. The purposes of the Plan are to ensure the
retention of existing executive personnel, key employees, directors,
consultants and advisors and to provide additional incentive by permitting such
individuals to participate in the ownership of the Company, and the criteria to
be utilized by the Board of Directors or the committee in granting options
pursuant to the Plan will be consistent with these purposes. The Plan provides
for automatic grants of options to certain directors in the manner set forth
below under "--Directors' Options."

PROPOSAL 3 OF THIS PROXY STATEMENT IS TO AMEND THE PLAN TO INCREASE THE
NUMBER OF SHARES OF CLASS A COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER
TO 2,400,000.

Options granted under the Plan may be either incentive options or non-
qualified options. Incentive options granted under the Plan are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Class A Common Stock on the date of
the grant, except that the term of an incentive option granted under the Plan
to a stockholder owning more than 10% of the outstanding voting power may not
exceed five years and its exercise price may not be less than 110% of the fair
market value of the Class A Common Stock on the date of the grant. To the
extent that the aggregate fair market value, as of the date of grant, of the
shares for which incentive options become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, such options will be
treated as non-qualified options to the extent that the fair market value of
the optioned shares exceeds $100,000. Additionally, the aggregate number of
shares of Class A Common Stock that may be subject to options granted to any
person in a calendar year shall not exceed 25% of the maximum number of shares
of Class A Common Stock which may be issued from time to time under the Plan.
Options granted under the Plan to officers, directors or employees of the
Company may be exercised only while the optionee is employed or retained by the
Company or within 90 days of the date of termination of the employment
relationship or directorship except that the options granted to Donald H.
Goldman on February 20, 1996 will continue to vest and be exercisable through
February 19, 2006, despite his resignation as President and a director of the
Company. However, options which are exercisable at the time of termination by
reason of death or permanent disability of the optionee may be exercised within
12 months of the date of termination of the employment relationship or
directorship. Upon the exercise of an option, payment may be made by cash or by
any other means that the Board of Directors or the committee determines. No
option may be granted under the Plan after October 2004.

Options may be granted only to such employees, officers and directors of, and
consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the

11
<PAGE>

Company shall be eligible to receive incentive options. As of June 28, 1996,
the number of current employees, officers and directors of the Company eligible
to receive options under the Plan was approximately 50 persons, and the number
of consultants and advisors to the Company eligible to receive grants under the
Plan was three. An optionee may be granted more than one option under the Plan.
The Board of Directors or the committee will, in its discretion, determine
(subject to the terms of the Plan) who will be granted options, the time or
times at which options shall be granted, and the number of shares subject to
each option, whether the options are incentive options or non-qualified
options, and the manner in which options may be exercised. In making such
determination, consideration may be given to the value of the services rendered
by the respective individuals, their present and potential contributions to the
success of the Company and its subsidiaries and such other factors deemed
relevant in accomplishing the purpose of the Plan.

Under the Plan, the optionee has none of the rights of a stockholder with
respect to the shares issuable upon the exercise of the option until such
shares shall be issued upon such exercise. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior
to the date of exercise, except as provided in the Plan. During the lifetime of
the optionee, an option shall be exercisable only by the optionee. No option
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.

The Board of Directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted
to reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3
or Section 422 of the Code. No action taken by the Board may materially and
adversely affect any outstanding option grant without the consent of the
optionee.

Under current tax law, there are no federal income tax consequences to either
the employee or the Company on the grant of non-qualified options if granted
under the terms set forth in the Plan. Upon exercise of a non-qualified option,
the excess of the fair market value of the shares subject to the option over
the option price (the "Spread") at the date of exercise is taxable as ordinary
income to the optionee in the year it is exercised and is deductible by the
Company as compensation for federal income tax purposes, if federal income tax
is withheld on the Spread. However, if the shares are subject to vesting
restrictions conditioned on future employment or the holder is subject to the
short-swing profits liability restrictions of Section 16(b) of the Exchange Act
of (i.e., is an executive officer, director or 10% stockholder of the Company)
then taxation and measurement of the Spread is deferred until such restrictions
lapse, unless a special election is made under Section 83(b) of the Code to
report such income currently without regard to such restrictions. The
optionee's basis in the shares will be equal to the fair market value on the
date taxation is imposed and the holding period commences on such date.

Incentive option holders incur no regular federal income tax liability at the
time of grant or upon exercise of such option, assuming that the optionee was
an employee of the Company from the date the option was granted until 90 days
before such exercise. However, upon exercise, the Spread must be added to
regular federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for federal
income tax purposes in connection with the grant or exercise of such option.

If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or
within one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary income
rates. Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary

12
<PAGE>

income, a Disqualifying Disposition may result in taxable income subject to
capital gains treatment if the sales proceeds exceed the optionee's basis in
the shares (i.e., the option price plus the amount includable as ordinary
income). The amount of the optionee's taxable ordinary income will be
deductible by the Company in the year of the Disqualifying Disposition.

At the time of sale of shares received upon exercise of an option (other than
a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.

On February 20, 1996, the Board of Directors granted the following options,
all at an exercise price of $11.00 per share, under the Plan: Michail Itkis,
75,000; Steven Fieldman, 25,000; Donald Goldman, 25,000; Lance Fieldman,
35,000; and Yuri Itkis, 50,000. The foregoing is not intended to be an
exhaustive analysis of the tax consequences relating to stock options issued
under the Plan. For instance, the treatment of options under state and local
tax laws, which is not described above, may differ from the treatment for
federal income tax purposes.

As of June 28, 1996, options to purchase an aggregate of 603,500 shares have
been granted under the Plan at exercise prices of between $4.40 and $16.125 per
share, of which 50,000 had been exercised and 56,500 had been forfeited.
Accordingly, as of June 28, 1996, options to purchase 547,000 shares were
outstanding under the Plan. The Company has filed a registration statement with
the Commission covering the 600,000 shares of Class A Common Stock issuable
upon exercise of options granted under the Plan. Certain forfeited options have
been reissued by the Company such that options have been granted with respect
to an aggregate of 603,500 shares, albeit the total number of optioned shares
has never exceeded 600,000. The Company intends to amend the registration
statement filed with the Commission to cover the additional 1,800,000 shares of
Class A Common Stock which will become available for issuance if Proposal 3 of
this Proxy Statement is approved at the Annual Meeting.

Directors' Options

The provisions of the Plan provide for the automatic grant of non-qualified
stock options to purchase shares of Common Stock ("Director Options") to
directors of the Company who are not employees or principal stockholders of the
Company ("Eligible Directors"). Eligible Directors of the Company were granted
a Director Option to purchase 10,000 shares of Class A Common Stock on March 7,
1995 ("Initial Director Option"). Further, commencing on the day immediately
following the date of the annual meeting of stockholders for the Company's
fiscal year ending October 31, 1996, each Eligible Director, other than
directors who received an Initial Director Option since the last annual
meeting, will be granted a Director Option to purchase 1,000 shares of Common
Stock ("Automatic Grant") on the day immediately following the date of each
annual meeting of stockholders, as long as such director is a member of the
Board of Directors. The exercise price for each share subject to a Director
Option shall be equal to the fair market value of the Class A Common Stock on
the date of grant, except for directors who receive incentive options and who
own more than 10% of the voting power, in which case the exercise price shall
be not less than 110% of the fair market value on the date of grant. Director
Options are exercisable in four equal annual installments, commencing one year
from the date of grant. Director Options will expire the earlier of 10 years
after the date of grant or 90 days after the termination of the director's
service on the Board of Directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In March 1994, the Company sold 566,666, 566,666 and 200,001 shares of Class
B Common Stock to Donald H. Goldman, Steven M. Fieldman and Lance Fieldman,
respectively, for an aggregate purchase price of $25,000. The purchase price
was paid between February and August 1994 through a series of cash
contributions to capital resulting in a purchase price per share of $.02. In
addition, Mr. Goldman and Steven M. Fieldman provided advances to the Company
during the period from March to October 1994 aggregating

13
<PAGE>

$39,125 and $44,375, respectively. These advances were repaid from the proceeds
of the Bridge Financing on October 31, 1994, without interest, although Mr.
Fieldman subsequently repaid to the Company $9,748 representing an excess
reimbursement.

In March 1994, the Company sold 888,889 shares of Class B Common Stock to
each of Michail Itkis, Yuri Itkis and Boris Itkis for an aggregate purchase
price of $50,000. The purchase price was paid between June and July 1994
through cash contributions to capital resulting in a purchase price per share
of $.02. Such cash contributions were advanced by FortuNet on behalf of each
such individual, and each such individual has repaid to FortuNet all such
amounts in full. In addition, from February to October 31, 1994, FortuNet
incurred expenses on behalf of the Company of $130,057 for which it was paid
out of the proceeds of the Bridge Financing on October 31, 1994.

Each of Mr. Goldman, Steven M. Fieldman and his wife, jointly, Michail Itkis
and his wife, jointly, and Boris Itkis invested $50,000 in the Bridge Financing
in October 1994 (on the same terms as the non-affiliated investors) and,
accordingly, each received Notes in such principal amount, which were repaid
from the proceeds of the IPO, and 25,000 Bridge Warrants (which were exchanged
for 25,000 Class A Warrants upon completion of the IPO). Donald H. Goldman was
the President and a director of the Company, Steven M. Fieldman is the Vice
President--Business Development and a director of the Company, and Lance
Fieldman is the Secretary and an employee of the Company and the son of Steven
M. Fieldman. Michail Itkis is the Chief Executive Officer and a director of the
Company, and Yuri Itkis and Boris Itkis are directors of the Company. Yuri
Itkis is the father, and Boris Itkis is the brother, of Michail Itkis.

In October 1994, the Company entered into the FortuNet License with FortuNet
which provides for an annual license fee of $100,000 and the payment to
FortuNet for support services at a rate equal to 108% of FortuNet's costs for
such services. The Company simultaneously entered into the Itkis Consulting
Agreement with Yuri Itkis, which provides for an annual consulting fee of
$100,000 and the grant of stock options to purchase 40,000 shares of Class A
Common Stock at an exercise price of $4.40 per share, being equal to 110% of
the fair market value on the date of grant. Yuri Itkis, a director and
principal stockholder of the Company, is the President and sole stockholder of
FortuNet and Boris Itkis, a director of the Company and a son of Yuri Itkis, is
an employee of FortuNet. Michail Itkis, the Chief Executive Officer and a
director of the Company, is also a son of Yuri Itkis and was an employee of
FortuNet until October 1994. The FortuNet License was entered into after
extensive negotiations between the parties and the Company believes that the
terms of the agreement are no less favorable to the Company than could be
obtained from an unaffiliated third party.

In the first quarter of fiscal 1996, the Board of Directors paid Howard J.
Tytel, a director of the Company, a fee of $75,000 for engaging in successful
negotiations regarding certain financing arrangements for the Company.

In October 1994, the Company entered into a stockholders' agreement with Yuri
Itkis, Michail Itkis, Boris Itkis, Steven M. Fieldman, Donald H. Goldman and
Lance Fieldman (the "Stockholders' Agreement"). In May 1996, in connection with
Mr. Goldman's resignation as President and a director of the Company, the
parties to the Stockholders' Agreement entered into an agreement which
terminated the Stockholders' Agreement as to Mr. Goldman and caused all
references to him in the Stockholders' Agreement to be deleted, but without
modifying the Stockholders' Agreement as to the other parties thereto. The
Stockholders' Agreement generally covers certain corporate governance matters.
Prior consent of each of the stockholder parties to the Stockholders' Agreement
except Mr. Goldman (each, a "Stockholder") is required for any future issuance
of Class A Common Stock by the Company which requires stockholder approval and
which includes an issuance to any of the Stockholders in an amount
disproportionate to the other Stockholders. Each of Boris Itkis and Michail
Itkis is entitled to nominate one director. Yuri Itkis is entitled to nominate
two directors, one of whom must be a non-affiliated outside director, and
Steven Fieldman and Lance Fieldman as a group (the "Fieldman Stockholders"),
are entitled to nominate three directors, one of whom must be a non-affiliated
outside director. Each Stockholder agreed to vote all the shares of Common
Stock owned by him for the election of the directors so nominated and not to
take any action to remove any director so elected (except for the director(s)
nominated by such Stockholder).

14
<PAGE>

Corporate decisions are required to be made by the majority of the directors
of the Company, provided that such majority includes at least one director
nominated by Boris Itkis, Michail Itkis or Yuri Itkis (as a group, the "Itkis
Stockholders") and one director nominated by the Fieldman Stockholders. In
addition, except for public sales of their Common Stock pursuant to a
registration statement, Rule 144 under the Securities Act of 1933, as amended,
or otherwise, the Company and the other Stockholders have a right of first
refusal to purchase any shares of a Stockholder desiring to sell, transfer,
pledge or otherwise dispose of their shares (except that this restriction does
not apply to a disposition by an Itkis Stockholder to any of the Itkis
Stockholders or by a Fieldman Stockholder to any of the Fieldman Stockholders).

Each Stockholder also agreed in the Stockholders' Agreement, for so long as
he is a stockholder of the Company and for a period of three years thereafter,
not to compete with the Company. Mr. Goldman similarly agreed not to compete
with the Company after his resignation for a period of three years commencing
on May 10, 1996.

The Stockholders' Agreement will terminate in the event that the Itkis
Stockholders or the Fieldman Stockholders beneficially own less than one-third
of the aggregate amount of the shares owned by such stockholders on the date of
the agreement.

On April 12, 1996, the Company offered the holders of the Company's Class A
Redeemable Stock Purchase Warrants who exercise their Class A Warrants pursuant
to the 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 $25,205,000 net of the
underwriter's commission's and expenses of approximately $1,600,000.

The Company has employment agreements with each of its executive officers and
has granted such officers options to purchase shares of Class A Common Stock.
The Company also has an employment agreement with Lance Fieldman, the Company's
Secretary and Sales Manager for North America. See "-- Executive Compensation--
Employment Agreements." Michail Itkis's wife, Lauren Snopkowski, and sister-in-
law, Jennifer Snopkowski, are also employees of the Company and receive annual
compensation of $105,250 and $80,000, respectively. Lauren Snopkowski, the
Company's Controller, was the Vice President-Finance of FortuNet for over four
years and holds an M.B.A. from the University of California, Los Angeles.
Jennifer Snopkowski, the Company's Product Engineering Manager, was a project
engineer for Hughes Aircraft Company for over 10 years, and has masters and
bachelors degrees in Mechanical Engineering from the Massachusetts Institute of
Technology. Mr. Fieldman, the Company's Sales Manager for North America, has
over seven years experience in marketing and sales in the architectural design
and construction and real estate industry.

On April 8, 1996, the Company entered into a consulting agreement (the "Haig
Consulting Agreement") with General Alexander M. Haig, Jr. and Worldwide
Associates, Inc., a corporation controlled by General Haig. Pursuant to the
Haig Consulting Agreement, General Haig will provide strategic advisory
services for the Company to advance the Company's interests worldwide. In
consideration of such services, during the three-year term of the Haig
Consulting Agreement the Company will pay an aggregate of $50,000 annually and
a fee of one percent (1%) of gross revenues received by the Company from
customers obtained through the significant advice or assistance provided by
General Haig. The Haig Consulting Agreement contemplates that, subject to the
stockholder approval thereof at the Annual Meeting, General Haig would become a
director of the Company and receive options to acquire an aggregate of 150,000
shares of Class A Common Stock over a three-year period.

In May 1996, in connection with Donald H. Goldman's resignation as President
and a director of the Company, the Company and Mr. Goldman agreed that Mr.
Goldman will render such consulting, legal and other services to the Company,
consistent with his experience and background and subject to his other

15
<PAGE>

business commitments, as may be reasonably requested by the Company's then
President or Chief Executive Officer during the 15 month period commencing on
May 10, 1996 (the "Consulting Term"). The Company agreed to pay Mr. Goldman at
the rate of $150,000 per year during the Consulting Term and to grant Mr.
Goldman an option to purchase 10,000 shares of Class A Common Stock in the
event that either or both of Messrs. Michail Itkis and Steven Fieldman receive
compensatory options during the Consulting Term.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of the Record Date
regarding the ownership of Class A Common Stock and Class B Common Stock by (i)
each person known by the Company to own beneficially more than five percent of
any class of outstanding Common Stock, (ii) each director of the Company, (iii)
each "named executive officer" as defined under the rules and regulations of
the Securities Act of 1933, as amended, and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
CLASS B CLASS A
COMMON STOCK(2) COMMON STOCK(2)
--------------------- ---------------------
PERCENT
PERCENT NUMBER PERCENT OF TOTAL
NAME AND ADDRESS OF NUMBER OF OF OF VOTING
BENEFICIAL OWNER(1) OF SHARES CLASS SHARES CLASS POWER(3)
------------------- --------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Michail Itkis............. 888,889(4) 22.2% 15,000(5)(6) * 16.8%
Donald H. Goldman......... 566,666 14.2 22,500(7) * 10.8
Steven M. Fieldman........ 566,666(8) 14.2 30,000(9) * 10.8
Yuri Itkis................ 888,889(10) 22.2 40,000(11) * 16.9
Boris Itkis............... 888,889(12) 22.2 50,000(13) * 16.9
Lance Fieldman............ 180,001(14) 4.5 -- (15) * 3.4
Dennis Pollack............ -- -- 10,000(16) * *
Howard J. Tytel........... -- -- 10,000(16) * *
Robert J. Aten............ -- -- 20,047 * *
All executive officers and
directors of the Company
as a group (eight
persons)................. 3,413,334 85.3% 175,047(17) 2.2% 64.6%
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Interactive Flight Technologies, Inc., 3070 West Post Road, Las Vegas,
Nevada 89118. Donald H. Goldman's address is 5B Orchard Beach Road, Port
Washington, New York 11050. Unless otherwise noted, the Company believes
that all persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them,
except that the Itkis Stockholders and the Fieldman Stockholders have
agreed to vote their shares as a group in certain cases. See "Certain
Relationships and Related Transactions."
(2) Shares of Class B Common Stock convert on a share for share basis into
shares of Class A Common Stock automatically upon their transfer to any
person other than another Class B stockholder. Of the 4,000,000 shares of
Class B Common Stock, 3,200,000 are shares held in escrow. See "--Escrow
Shares."
(3) Based on 4,000,000 shares of Class B Common Stock, each of which has six
votes per share, and 7,907,734 shares of Class A Common Stock outstanding,
except that shares underlying options to purchase Class A Common Stock
exercisable within 60 days are deemed to be outstanding for purposes of
calculating the percentage owned by the holder of such options.
(4) Excludes shares owned by Yuri Itkis and Boris Itkis, Michail Itkis' father
and brother, respectively, as to which shares Michail Itkis disclaims
beneficial ownership.
(5) Includes 15,000 shares issuable upon exercise of currently exercisable
options.
(6) Excludes (i) 5,000 shares issuable upon exercise of currently exercisable
options held by Mr. Itkis' wife, an employee of the Company, as to which
Mr. Itkis disclaims beneficial ownership, and (ii) 75,000 shares issuable
upon exercise of options granted under the Company's 1994 Stock Option
Plan, which are not exercisable within 60 days. See "Executive
Compensation--Stock Options."

16
<PAGE>

(7) Includes 10,000 shares issuable upon exercise of currently exercisable
options, and excludes 25,000 shares issuable upon exercise of options
granted under the Company's 1994 Stock Option Plan, which are not
exercisable within 60 days. See "Executive Compensation--Stock Options."
(8) Excludes shares owned by Lance Fieldman, Steven Fieldman's son, as to
which shares Steven Fieldman disclaims beneficial ownership.
(9) Includes 30,000 shares issuable upon exercise of currently exercisable
options, and excludes 25,000 shares issuable upon exercise of options
granted under the Company's 1994 Stock Option Plan, which are not
exercisable within 60 days. See "Executive Compensation--Stock Options."
(10) Excludes shares owned by Michail Itkis and Boris Itkis, as to which shares
Yuri Itkis disclaims beneficial ownership.
(11) Includes 40,000 shares issuable upon exercise of currently exercisable
options, and excludes 50,000 shares issuable upon exercise of options
granted under the Company's 1994 Stock Option Plan, which are not
exercisable within 60 days. See "Executive Compensation--Stock Options."
(12) Excludes shares owned by Michail Itkis and Yuri Itkis, as to which shares
Boris Itkis disclaims beneficial ownership.
(13) Represents 50,000 shares issuable upon exercise of Class A Warrants.
(14) Excludes shares owned by Steven Fieldman, as to which shares Lance
Fieldman disclaims beneficial ownership.
(15) Excludes 35,000 shares issuable upon exercise of options granted under the
Company's 1994 Stock Option Plan, which are not exercisable within 60
days. See "Executive Compensation--Stock Options."
(16) Represents 10,000 shares issuable upon exercise of options exercisable
within 60 days.
(17) Includes 105,000 shares issuable upon exercise of options which are
exercisable within 60 days, and 50,000 shares issuable upon exercise of
Class A Warrants held by executive officers and directors.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The Securities and Exchange Commission (the "Commission") has comprehensive
rules relating to the reporting of securities transactions by directors,
officers and stockholders who beneficially own more than 10% of the Company's
Common Stock (collectively, the "Reporting Persons"). These rules are complex
and difficult to interpret. Based solely on a review of Section 16 reports
received by the Company from Reporting Persons, the Company believes that no
Reporting Person has failed to file a Section 16 report on a timely basis
during the most recent fiscal year (or prior fiscal years which was discovered
prior to the filing of the Company's Annual Report on Form 10-KSB).

1997 STOCKHOLDER PROPOSALS

In order for stockholder proposals for the 1997 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's 1997 Proxy
Statement, they must be received by the Company at its principal executive
offices, (Attn: Secretary), prior to December 31, 1996. The Board of Directors
will review any stockholder proposals that are filed as required and will
determine whether such proposals meet applicable criteria for inclusion in the
Company's 1997 Proxy Statement for the Annual Meeting.

OTHER MATTERS

The Board of Directors does not know of any other matters that are to be
presented for consideration at the Annual Meeting. Should any other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy on behalf of the
stockholders they represent in accordance with their best judgment.

17
<PAGE>

SOLICITATION OF PROXIES

The cost of this solicitation of proxies will be borne by the Company.
Directors, officers and regular employees of the Company may solicit proxies in
person, by telephone, by mail or by other means of communication, but such
persons will not be specially compensated for such services. The Company will
reimburse American Stock Transfer & Trust Company for forwarding proxy
materials to beneficial owners and serving as inspectors of election. The total
estimated cost for this solicitation of proxies is $ , and the total
expenditures to date for, in furtherance of, or in connection with this
solicitation of proxies is $20,000.

THE COMPANY SHALL PROVIDE TO ANY STOCKHOLDER, WITHOUT CHARGE, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB, AS AMENDED, FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1995, UPON THE WRITTEN REQUEST THEREFOR TO INTERACTIVE FLIGHT
TECHNOLOGIES, INC., 3070 W. POST ROAD, LAS VEGAS, NV 89118, ATTENTION: ROBERT
J. ATEN, CHIEF FINANCIAL OFFICER.

Lance Fieldman
Secretary

July 11, 1996

18
<PAGE>

PROXY
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Michail Itkis and Steven M. Fieldman (with
full power to act without the other and with power to appoint his substitute) as
the undersigned's proxies to vote all shares of Common Stock of the undersigned
in INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), which the undersigned would be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Company's New York
Office located at 44 East 55th Street, New York, York 10019, Fifth Floor, on
August 12, 1996, at 10:00 a.m., local time, and at any and all adjournments or
postponements thereof as follows:

1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below (except as marked to
the contrary below)

[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below

James H. Zukin; Michail Itkis; Steven M. Fieldman; Yuri Itkis; Boris Itkis;
- --------------------------------------------------------------------------------
Howard J. Tytel; Alexander M. Haig, Jr.
- ---------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)

- --------------------------------------------------------------------------------

2. Proposal to approve the modification of the terms of an Escrow Agreement
relating to the Escrow Shares owned by officers and directors of the Company.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. Proposal to approve an amendment to the Company's 1994 Stock Option Plan (the
"Plan") to increase the number of shares of the Company's Class A Common
Stock for which options may be granted under the Plan to 2,400,000, as
described more fully in the Proxy Statement accompanying this Proxy.

4. Proposal to approve the Board of Directors' recommendation of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors of the
Company for the fiscal year ending October 31, 1996.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

5. In their discretion such other business as may properly come before the
meeting and any and all adjournments thereof.

- --------------------------------------------------------------------------------
Please sign on the reverse side and return promptly in the enclosed envelope

- --------------------------------------------------------------------------------

THE SHARES OF CLASS A COMMON STOCK AND/OR CLASS B COMMON STOCK REPRESENTED BY
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE FOREGOING INSTRUCTIONS. IN
THE ABSENCE OF ANY INSTRUCTIONS, SUCH SHARES WILL BE VOTED FOR THE ELECTION
OF ALL THE NOMINEES LISTED IN ITEM 1 AND FOR THE PROPOSALS IN ITEMS 2, 3 AND
4.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders to be held on August 12, 1996 and the Proxy Statement of the
Company, each dated July 11, 1996, and the Company's Annual Report for the
fiscal year ended October 31, 1995.

The undersigned hereby revokes any proxy to vote shares of Class A Common
Stock and/or Class B Common Stock of the Company heretofore given by the
undersigned.

Dated
----------------------------------

----------------------------------
Signature

----------------------------------
Signatures, if held jointly

----------------------------------
Title (if applicable)

Please date, sign exactly as name appears
on this proxy, and promptly return in the
enclosed envelope. When signing as
guardian, executor, administrator,
attorney, trustee, custodian, or in any
other similar capacity, please give full
title. If a corporation, sign in full
corporate name by president or other
authorized officer, giving title, and
affix corporate seal. If a partnership,
sign in partnership name by authorized
person. In the case of joint ownership,
each joint owner must sign.