<PAGE> 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 April 30, 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 May 29, 1998
----- ---------------------------
Class A Common Stock, $.01 par value 17,324,224 shares
Class B Common Stock, $.01 par value 3,733,334 shares
Transitional Small Business Disclosure Format
Yes ___ No X
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of April 30, 1998
(unaudited) and October 31, 1997 (audited).............................. 3
Condensed Statements of Operations for the Three Months
and Six Months Ended April 30, 1998 and 1997 (unaudited)................ 4
Condensed Statements of Cash Flows for the Six Months
Ended April 30, 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 1. Legal Proceedings....................................................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURES....................................................................14
2
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
ASSETS 1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,706,887 $ 36,890,454
Short-term investment securities 1,698,772 2,137,084
Accounts receivable 544,225 5,654,118
Inventories, net of reserves of $11,635,327
and $11,179,895, respectively 1,107,379 6,110,761
Prepaid expenses 329,505 253,771
Other current assets 692,270 606,883
------------- -------------
Total current assets 45,079,038 51,653,071
------------- -------------
Investment securities 1,509,290 --
Property and equipment, net of accumulated
depreciation of $4,934,603 and $9,555,383,
respectively 2,344,510 2,959,539
Deposits 621,845 166,845
------------- -------------
Total assets $ 49,554,683 $ 54,779,455
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,879,473 $ 5,747,833
Accrued liabilities 3,990,616 4,248,222
Deferred revenue 190,844 2,383,904
Accrued severance costs 55,000 55,000
Accrued maintenance costs 1,138,313 1,286,873
Accrued product warranties 6,856,503 4,610,687
Current maturities of capital lease
obligations 84,876 80,753
------------- -------------
Total current liabilities 14,195,625 18,413,272
------------- -------------
Accrued severance costs, noncurrent 27,500 55,000
Capital lease obligations, less current
maturities 33,346 76,840
------------- -------------
Total liabilities 14,256,471 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 (76,135,654) (76,022,773)
Treasury stock, at cost; 1,053,500 and 0
shares, respectively (1,010,979) --
------------- -------------
Total stockholders' equity 35,298,212 36,234,343
------------- -------------
Total liabilities and stockholders' equity $ 49,554,683 $ 54,779,455
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Six Months
Ended April 30, Ended April 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment sales $ 4,569,337 $ 2,329,422 $ 17,860,563 $ 2,478,131
Service income 162,825 31,940 281,264 109,236
------------ ------------ ------------ ------------
4,732,162 2,361,362 18,141,827 2,587,367
------------ ------------ ------------ ------------
Costs and expenses:
Cost of equipment sales 3,768,459 6,155,089 15,335,854 8,879,913
Cost of service income 7,257 13,828 12,957 95,527
Provision for doubtful accounts -- 13,725 -- 150,315
Research and development expenses 482,389 2,080,017 1,092,316 4,646,361
Marketing and administrative expenses 1,271,967 2,996,333 2,878,398 6,434,330
Bad debt recoveries -- (1,064,284) -- (1,064,284)
------------ ------------ ------------ ------------
5,530,072 10,194,708 19,319,525 19,142,162
------------ ------------ ------------ ------------
Operating loss 797,910 7,833,346 1,177,698 16,554,795
Other:
Interest income 526,180 489,663 1,071,312 893,435
Interest expense (3,234) (1,041) (6,995) (1,041)
Other, net 500 (66,655) 500 (66,655)
------------ ------------ ------------ ------------
Net loss 274,464 $ 7,411,379 $ 112,881 $ 15,729,056
============ ============ ============ ============
Basic and diluted net loss per share $ (0.02) $ (0.40) $ (0.01) $ (1.00)
============ ============ ============ ============
Weighted average shares outstanding 17,992,968 18,723,062 18,363,703 15,690,289
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended April 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (112,881) $(15,729,056)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Provision for inventory obsolescence -- 800,000
Loss on sale of equipment -- 66,655
Depreciation and amortization 641,419 802,154
Expense recognized upon issuance of stock options and
shares of Class A common stock -- 479,436
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 5,109,893 (854,008)
Decrease in allowance for doubtful accounts -- (1,446,111)
Decrease (increase) in inventories 5,003,382 (13,674,814)
Increase in prepaid expenses, other current assets and
deposits (616,121) (376,543)
Increase (decrease) in accounts payable (3,868,360) 3,234,154
Increase (decrease) in accrued liabilities and
maintenance (218,437) 523,187
Decrease in deferred revenue (2,193,060) --
Decrease in accrued severance costs (27,500) (502,500)
Increase in accrued product warranties 2,245,816 502,506
------------ ------------
Net cash provided by (used in) operating activities 5,964,151 (26,174,940)
------------ ------------
Cash flows from investing activities:
Purchases of investments (1,305,593) --
Maturities of investments 234,615 6,810,275
Purchases of property and equipment (26,390) (8,532,103)
------------ ------------
Net cash used in investing activities (1,097,368) (1,721,828)
------------ ------------
Cash flows from financing activities:
Payments on capital lease obligations (39,371) (9,561)
Purchases of treasury stock (1,010,979) --
Redemption of Class B warrants -- (40,576)
Proceeds from issuance of common stock -- 73,589,775
Registration costs -- (4,481,164)
------------ ------------
Net cash provided by (used in) financing activities (1,050,350) 69,058,474
------------ ------------
Increase in cash and cash equivalents 3,816,433 41,161,706
Cash and cash equivalents at beginning of period 36,890,454 7,736,345
------------ ------------
Cash and cash equivalents at end of period $ 40,706,887 $ 48,898,051
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
5
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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 and six months ended April
30, 1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2) COMPUTATION OF NET 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 adopted the provisions of SFAS No. 128
effective November 1, 1997. Net loss per share for the three months and six
months ended April 30, 1997 has been restated 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 April
30, 1998, the Company had repurchased 1,053,500 shares at prices ranging from
$0.75 to $1.00 per share.
4) CONTINGENCIES
On March 6, 1998, the Company was named as a nominal defendant in a
derivative action filed in the Supreme Court of the State of New York. The
lawsuit names ten current and former officers and directors of the Company and
alleges various breaches of fiduciary duty. The complaint seeks at least
$50,000,000 in damages and an injunction against the defendants taking any
action to manage the Company. The plaintiffs have recently filed an amended
complaint, seeking the same relief, to which the defendants have yet to respond.
The defendants intend to defend the actions vigorously.
6
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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 insufficient to support the financing of the system. As a
result, the Company sought to have airlines finance the purchase and
installation of the system themselves, with the Company receiving only a limited
percentage of revenues from the Entertainment Networks.
The decision of the Company not to finance system purchases out of future
contingent revenues eliminated certain potential customers who do not have the
resources to finance the systems independently. Moreover, the Company has had to
attempt to 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 depends on the phase of the
business cycle in the airline industry, as airlines 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 for airlines to justify purchases of the Entertainment Network.
The Company's continuation in the in-flight entertainment business
has been dependent upon its ability to obtain future major orders. As of April
30, 1998, the only order for the Company's Entertainment Network consists of a
letter of intent from Swissair for $3,970,000, which is for first and business
class installations on three Swissair MD-11 aircraft that are being added to the
Swissair fleet in November 1998. The Company has also received a letter of
intent from Swissair for $3,975,000 to extend the warranty on all installed
systems for a second and third year. The Company has had no success in pursuing
other major airlines to fill its pipeline following the completion of the
installation phase of the initial Swissair program in March 1998. Because of the
lack of prospects for success in obtaining additional orders, and in order to
reduce its expenses further, the Company terminated almost all sales and
marketing efforts as of May 29, 1998. Although the Company may respond to any
requests for proposals it receives from airlines, the decision not to continue
to invest resources in sales and marketing reflects the fact that the Company
has no significant prospects for additional revenue from in-flight entertainment
other than those related to the two letters of intent from Swissair. Moreover,
the Company's prior decision not to expend money on developing the next
generation of the Entertainment Network means that any technological leads it
had in this area can be expected to dissipate quickly. As a consequence, the
Company may well not be able to compete in the in-flight entertainment business
even if market conditions were to improve.
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. Because of the difficulties in
7
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obtaining new in-flight entertainment customers, the Company has begun actively
looking for possible acquisitions in other lines of business. The Company is
working to identify specific areas for alternative business development or
acquisition which can use the Company's principal assets -- its cash and net
operating losses. There can be no assurance that the Company will find
acceptable opportunities for alternative business development or acquisition, or
that the Company will be successful in entering or operating in alternative
business areas. In addition, the Company has used in the past, and may continue
to use, a portion of its cash to repurchase its own shares.
SWISSAIR INSTALLATIONS
The Company's main agreement with Swissair requires the Company to install
and maintain the Entertainment Network in the first, business and economy class
sections of three aircraft at no cost and in only the first and business class
of another sixteen aircraft at an average price of $1.7 million per aircraft. As
of April 30, 1998, the Company had completed all installations under the initial
Swissair program. The Company is responsible for maintenance costs through
September 1998 for all nineteen aircraft. The Swissair agreement also provides a
one-year warranty (which would be extended to three years under the recent
letter of intent) on all of the Entertainment Networks and requires specific
software and hardware upgrades to the Entertainment Networks. Development of
these upgrades is not complete. If the upgrades are not completed by specified
deadlines, the Company will face significant penalties.
The Company must also meet operational reliability criteria for the
Entertainment Networks. 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 these operational
reliability criteria through the year 2003. Avoiding these penalties 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 April 30, 1998, the Company's cumulative portion of the net gaming profits
generated by the Swissair systems was $30,167.
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.
As previously noted, the Company has recently entered into two letters of
intent with Swissair. The first is for a $3,970,000 order for first and business
class installations on three Swissair MD-11 aircraft that are being added to the
Swissair fleet in November 1998. The Company has also received a letter of
intent from Swissair for $3,975,000 to extend the warranty on all installed
systems for a second and third year. No assurance can be given that these
letters of intent will actually become signed contracts.
8
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OTHER INSTALLATIONS
With regard to other airlines, the Company had an agreement with Debonair
to manufacture, assemble, deliver, install, operate and maintain the
Entertainment Network on six aircraft. In February 1998, the Company and
Debonair signed a Termination Agreement under which Debonair removed the
Entertainment Network from the one aircraft on which it had been installed and
the Company paid $134,235 in settlement of its obligations to Debonair. Pursuant
to a contract with Alitalia Airlines, the Company delivered five first
generation systems for installation on Alitalia aircraft during fiscal 1996.
However, Alitalia installed only four of these five Entertainment Networks and
did not purchase sufficient spare parts to support continued operation of the
systems. Alitalia has ceased operation of the systems, and the Company has
ceased supporting the systems. To date, no contractual resolution has been
sought by either party.
RESULTS OF OPERATIONS
Revenues for the quarter ended April 30, 1998 were $4,732,162, an increase
of $2,370,800 (or 100%) over revenues of $2,361,362 for the corresponding
quarter of the previous fiscal year. Revenues for the six months ended April 30,
1998 were $18,141,827, an increase of $15,554,460 (or 601%) over revenues of
$2,587,367 in the corresponding period of the previous fiscal year. Equipment
sales generated during the three months and six months ended April 30, 1998 were
principally from the installation of the Entertainment Networks on Swissair
aircraft. During the three and six months ended April 30, 1998, the Company
completed installations under the initial Swissair program on seven aircraft and
nine aircraft, respectively. During the six months ended April 30, 1997, the
Company completed installations of the Entertainment Network on two Swissair
aircraft. Service income of $162,825 and $281,264 for the three months and six
months ended April 30, 1998, respectively, was principally generated from
services provided to Swissair pursuant to a Media Programming Services
Agreement, the Company's share of gaming profits generated by the Swissair
systems and revenue earned under the Swissair Letter of Intent to extend the
warranty. Service income of $31,940 and $109,236 for the three months and six
months ended April 30, 1997, respectively, 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 April 30,
1998 were $3,775,716, an increase of $2,393,201 (or 39%) over cost of sales of
$6,168,917 for the corresponding quarter of the previous fiscal year. Cost of
equipment sales and service income for the six months ended April 30, 1998 were
$15,348,811, an increase of $6,373,371 (or 71%) over cost of sales of $8,975,440
in the corresponding period of the previous fiscal year. As a percentage of
revenue, cost of equipment sales and service were 80% and 85% for the three and
six months ended April 30, 1998, respectively, compared to 261% and 347% for the
three and six months ended April 30, 1997, respectively. The increase in cost of
sales is due to the installations on additional Swissair aircraft during the
first six months 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 six months ended April
30, 1997 also included provisions for inventory obsolescence of $800,000 and
scrapped inventory and rework adjustments of $3,462,684. The scrapped inventory
resulted from the re-design of certain components of the Entertainment Network
during the first quarter of fiscal 1997.
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There was no provision for doubtful accounts during the three months and
six months ended April 30, 1998, compared to $13,725 and $150,315 for the three
months and six months ended April 30, 1997, respectively. Fiscal 1997 provisions
resulted from entertainment programming services provided under the Alitalia
agreement.
Bad debt recoveries of $1,064,284 during the three months and six months
ended April 30, 1997 resulted from the recovery of accounts receivable under the
Alitalia agreement which were reserved for during the Company's fourth quarter
of its fiscal year ended October 31, 1996.
Research and development expenses for the quarter ended April 30, 1998
were $482,389, a decrease of $1,597,628 (or 77%) over expenses of $2,080,017 for
the corresponding quarter of the previous fiscal year. Research and development
expenses for the six months ended April 30, 1998 were $1,092,316, a decrease of
$3,554,045 (or 76%) over expenses of $4,646,361 in the corresponding period 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
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 anticipated costs
of developing these upgrades were included in the Company's statements of
operations as a cost of equipment sales upon installations of the systems. The
Company expects to continue any development efforts that are required to support
the Swissair system reliability guarantees through the year 2003.
Marketing and administrative expenses for the quarter ended April 30, 1998
were $1,271,967, a decrease of $1,724,366 (or 58%) over expenses of $2,996,333
for the corresponding quarter of the previous fiscal year. Marketing and
administrative expenses for the six months ended April 30, 1998 were $2,878,398,
a decrease of $3,555,932 (or 55%) over expenses of $6,434,330 for the
corresponding period 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. The Company has
further reduced its sales and marketing efforts and other administrative
expenses subsequent to April 30, 1998.
Interest income of $526,180 and $1,071,312 for the three months and six
months ended April 30, 1998 increased from $489,663 and $893,435 for the three
months and six months ended April 30, 1997, respectively. 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 six months of
fiscal 1998 compared to fiscal 1997.
Interest expense was $3,234 and $6,995 for the three months and six months
ended April 30, 1998 compared to $1,041 for the three months and six months
ended April 30, 1997. The increase in expense is due to capital lease agreements
that the Company entered into during the second quarter of fiscal 1997. The
leases expire in September 1999.
Other income of $500 for the three months and six months ended April 30,
1998 and other expense of $66,655 for the three months and six months ended
April 30, 1997 represents the net loss or gain on sales of equipment.
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LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, the Company had working capital of approximately $30.9
million. The Company's primary source of funding has been through equity
offerings. Excluding any payments to be received under the Swissair Letter of
Intent to extend the warranty, the Company's backlog consists only of
installations on three Swissair aircraft. Therefore, the Company does not expect
any significant profit for the foreseeable future. As a result working capital
may continue to decrease.
During the six months ended April 30, 1998, the Company generated $6.0
million of cash from operating activities, an increase of $32.1 million from the
corresponding period of the previous fiscal year. The cash provided by
operations during the six months ended April 30, 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 six months ended April 30,
1998 were $26,390 compared to $8.5 million for the six months ended April 30,
1997. Capital expenditures for the first six months 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 April
30, 1998, the Company had repurchased 1,053,500 shares at prices ranging from
$0.75 to $1.00 per share.
On May 27, 1998, the Company executed a lease termination agreement for
its office space in California. Pursuant to the termination agreement, the
Company paid $6,604 to terminate its lease as of May 31, 1998. Additionally, the
Company executed a lease surrender agreement as of May 12, 1998 for a portion of
its office space in Arizona. Pursuant to the surrender agreement, the Company
surrendered a portion of its leased premises in exchange for a reduction in the
monthly rental rate.
At April 30, 1998, the Company's material capital commitments were
purchase orders of approximately $2.8 million relating primarily to inventory
purchases for its obligations under the Swissair Agreements.
The Company is currently using its working capital to finance its current
expenses, including installations, product development, inventory purchases,
repairs 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 (which the Company does not consider likely), the
Company may require significant additional financing for manufacture, assembly
and installation of any such future orders. As an alternative, as previously
noted, the Company is 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 can be located, or if located, could be successfully
acquired and operated profitably.
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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, cost overruns in connection
with the Company's current and future contracts, failure of installed systems to
perform in accordance with system specifications, the failure to execute
definitive agreements relating to the letters of intent with Swissair, the
inability of the Company to locate, evaluate, purchase and operate other
businesses, the inability of the Company to convince airlines to purchase its
systems, the failure of the Company to receive sufficient financing to perform
under any new airline contracts, the impact of competition and downward pricing
pressures, the effect of changing economic conditions and conditions in the
airline and other industries, the impact of any changes in domestic and foreign
regulatory environments, the Company's inability to obtain requisite government
approvals, technology changes, 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.
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On March 6, 1998, the Company was named as a nominal defendant in a
derivative action filed in the Supreme Court of the State of New York, County of
New York, entitled Barington Capital Group, L.P. et al. v. Yuri Itkis et al.
(no. 98103878). The lawsuit names ten current and former officers and directors
of the Company and alleges various breaches of fiduciary duty. The complaint
seeks at least $50,000,000 in damages and an injunction against the defendants
taking any action to manage the Company. The plaintiffs have recently filed an
amended complaint, seeking the same relief, to which the defendants have yet to
respond. The defendants intend to defend the actions vigorously.
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
10.20 - Debonair Termination Agreement, dated as of February 13,
1998
10.21 - Lease Termination Agreement, dated as of May 27, 1998
10.22 - Lease Surrender Agreement, dated as of May 12, 1998
27 - Financial Data Schedule
27.1 - Financial Data Schedule, Restated Fiscal Years Ended
October 31, 1997 and 1996
27.2 - Financial Data Schedule, Restated Quarters 1, 2, and 3
of Fiscal Year Ended October 31, 1997
- ----------
* 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
April 30, 1998.
13
<PAGE> 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: June 5, 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
<PAGE> 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
10.20 Debonair Termination Agreement, dated as of
February 13, 1998 19
10.21 Lease Termination Agreement, dated as of May
27, 1998 21
10.22 Lease Surrender Agreement, dated as of May
12, 1998 26
27 Financial Data Schedule 16
27.1 Financial Data Schedule, Restated Fiscal
Years Ended October 31, 1997 and 1996 17
27.2 Financial Data Schedule, Restated Quarters 1,
2, and 3 of Fiscal Year Ended October 31, 1997 18
- ----------
* 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
<PAGE> 1
Exhibit 10.20
TERMINATION AGREEMENT
This Termination Agreement is made as of this 13 day of February 1998 by
DEBONAIR AIRWAYS, LTD. ("DEBONAIR") and INTERACTIVE FLIGHT TECHNOLOGIES, INC.
("IFT") with reference to the following facts:
DEBONAIR and IFT are parties to that certain agreement dated as of March
1996 (as subsequently amended and supplemented, the "AGREEMENT") relating to the
purchase and installation of an IFEN-2 in-flight entertainment network. The
Agreement originally provided for the installation of six ship sets, but the
parties have decided to terminate their relationship on the terms and
conditions set forth herein.
Now, therefore, in consideration of these premises and the mutual
covenants contained herein, the parties agree as follows:
1. PAYMENT AND TERMINATION. In full and final settlement of all of its
obligations to DEBONAIR under the Agreement, IFT agrees to pay immediately to
DEBONAIR the sum of $81,274.63 sterling. Upon receipt by DEBONAIR of such
payment, all rights, liabilities and obligations of the parties under the
Agreement are hereby terminated and the Agreement shall be of no force or
effect. DEBONAIR understands and acknowledges that it will be responsible for
removing the IFEN-2 from the aircraft on which it was installed and returning
to IFT at IFT's cost. Shipping arrangements must be pre-approved by IFT and
completed by DEBONAIR in a commercially reasonable time frame. However,
DEBONAIR shall have no liability whatsoever (including, without limitation,
liability for loss of use, loss of revenue or loss of profit) for any damage to
any IFEN-2 sustained during such removal or otherwise, except for that arising
from gross negligence or willful misconduct of DEBONAIR.
2. RELEASE. Each of DEBONAIR and IFT does hereby fully and forever
release and discharge, respectively, the IFT Group and the DEBONAIR Group from
any and all Claims that DEBONAIR and IFT have had, may have had, or now has, or
hereafter can, shall or may have through and including the date hereof.
"CLAIMS" means any and all claims, demands, agreements, contracts, covenants,
representations, warranties, promises, undertakings, actions, suits, causes of
action, obligations, controversies, debts, costs, expenses, accounts, damages,
judgments, losses, injuries and liabilities, of whatever kind or nature, in
law, equity or otherwise, present and future, whether known or unknown,
suspected or unsuspected, contingent or fixed. "IFT GROUP" and "DEBONAIR
GROUP" mean, respectively, IFT and DEBONAIR and their present and former
subsidiaries, successors, and assigns and, in their capacity as such, their
directors, officers, partners, agents, affiliates, attorneys and employees.
3. REPRESENTATIONS AND WARRANTIES. Each of DEBONAIR and IFT represents
and warrants that it (i) has full power and authority to enter into this
Termination Agreement and (ii) is the owner of the Claims that it has released
herein and (iii) has not (nor has it purported to have) assigned, conveyed,
encumbered, or in any manner transferred any
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<PAGE> 2
portion of the Claims covered hereby. IFT represents and warrants that it has
full power and authority to enter into this Termination Agreement. Each party
hereby agrees to indemnify and hold the other harmless from any and all claims
(including, but not limited to, all attorneys' fees actually incurred)
resulting from any breach of that party's warranties and representations in
this Termination Agreement. Except as expressly set forth herein, none of the
parties hereto has made any representations or warranties in connection with
this Termination Agreement, and no party has relied upon any oral or written
representation or warranty of any other party in entering into this
Termination Agreement.
4. MODIFICATION. This Termination Agreement may not be amended,
modified or altered except by an express writing executed by the parties.
5. ATTORNEYS' FEES. In any dispute between the parties hereto or their
representatives concerning any provision of this Agreement or the rights and
duties of any person or entity hereunder, the party or parties prevailing in
such dispute shall be entitled, in addition to such other relief as may be
granted, to the reasonable attorneys' fees and court costs incurred by reason
of such litigation.
6. GOVERNING LAW. This Termination Agreement has been entered into in
the State of Nevada and shall be governed by and interpreted in accordance with
the laws of that State, without giving effect to the conflict of laws
provisions thereof or of any other jurisdiction.
7. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties approved and executed this Termination
Agreement as of the date first set forth above.
DEBONAIR INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: /s/ F. Mancassola By: /s/ John W. Alderfer
-------------------- -----------------------
Printed Printed
name: F. Mancassola name: John W. Alderfer
------------------ ---------------------
Title: Chairman CEO Title: Treasurer
----------------- --------------------
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<PAGE> 1
Exhibit 10.21
LEASE TERMINATION AGREEMENT
This LEASE TERMINATION AGREEMENT (the "Agreement") is dated as of
May , 1998 and is entered into by and between PACIFIC CORPORATE TOWERS LLC,
a Delaware limited liability company ("Landlord"), and INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Standard Office
Lease dated as of August 21, 1996 ("Lease") for certain premises (the
"Premises") known as Suite 1507 in the building located at 222 North Sepulveda
Boulevard, El Segundo, California.
B. Tenant has requested that Landlord agree to an early
termination of the Lease and that Landlord release Tenant from liability for
the performance of its prospective obligations under the Lease in exchange for
a lump sum payment from Tenant, and Landlord has agreed thereto, upon and
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals, the terms
and mutual covenants contained herein, and for other consideration, the
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree
as follows:
AGREEMENT
1. Termination of Lease. Subject to satisfaction of the
conditions set forth in Section 2 hereof, the Lease shall terminate as of the
date that both Landlord and Tenant have executed and delivered this Agreement
("Termination Date"); provided, however, such termination shall not release,
waive or terminate any obligations of Tenant under Article 9, Article 10,
Article 13.1, Article 22, or Article 28.3 of the Lease which shall have accrued
prior to the Termination Date ("Continuing Obligations"). Tenant hereby agrees
that the Continuing Obligations shall survive the termination of the Lease and
the execution of this Agreement.
2. Conditions to Termination. The termination of the Lease
pursuant to this Agreement shall be subject to the satisfaction of all of the
following conditions on or before the Termination Date ("Termination
Conditions"):
(a) Termination Payment. In consideration for Landlord's
agreement to early termination of the Lease, Tenant shall pay to Landlord,
concurrently with the execution and delivery of this Agreement, without
deduction or offset, the sum of Six Thousand Six Hundred Three Dollars and
Seventy-four Cents ($6,603.74) ("Termination Payment"). The Termination Payment
is comprised of two (2) months Basic Rental. The Termination Payment is not
intended to be, and is not being, paid or retained on account of an antecedent
debt of Tenant to Landlord, but rather as a settlement and compromise of claims
Landlord has against Tenant and as a contemporaneous exchange for new value
given.
-1-
<PAGE> 2
(b) Vacation and Surrender. Prior to the Termination Date, Tenant
shall, at Tenant's sole cost and expense, deliver to Landlord all keys delivered
to Tenant under the Lease, remove all of Tenant's personal property from the
Premises, and surrender the Premises to Landlord in the condition required by
Article 29.2 and Article 29.4 of the Lease, free and clear of all occupants and
tenancies. Any and all personal property of Tenant not so removed by the
Termination Date shall be deemed to have been abandoned by Tenant and shall
otherwise be governed by the terms of Article 29.3 of the Lease, and Landlord
may, in its sole and absolute discretion, store and/or dispose of such property
in any manner and at Tenant's expense in accordance therewith. Tenant shall from
time to time reimburse Landlord for all costs incurred by Landlord to store or
dispose of property abandoned by Tenant (the "Tenant Property Costs") within
five (5) business days after notice by Landlord to Tenant of any Tenant Property
Costs, and such obligation shall survive the termination of the Lease.
If either Termination Condition is not satisfied on or before the
Termination Date, then this Agreement shall, at Landlord's option, be null and
void and the Lease shall remain in full force and effect as if this Agreement
had never been executed. In such event, Landlord shall apply the Termination
Payment to any amounts due from Tenant under the Lease until the Termination
Payment is exhausted. If Tenant fails to pay the Termination Payment
concurrently with execution of this Agreement or vacate and surrender the
Premises in the condition specified herein prior to the Termination Date,
Tenant shall protect, defend, indemnify and hold Landlord harmless from and
against any claim, loss, cost, damage or judgment arising out of Tenant's
failure to comply with this Agreement, including but not limited to, any claims
made by a tenant under any new lease for the Premises arising out of Landlord's
inability to deliver the Premises to such new tenant due to Tenant's failure to
comply with this Agreement.
3. Holdover. If Tenant remains in occupancy of the Premises after the
Termination Date, then subject to Landlord's election to proceed with this
Agreement, Tenant shall be a tenant at sufferance only, at a rental rate equal
to Two Thousand Dollars ($2,000) per day. No payment of money nor holdover of
the Premises by Tenant after the Termination Date shall reinstate, continue or
extend the term of the Lease. In the event of any holdover of the Premises by
Tenant after the Termination Date, Landlord, without notice, may immediately
commence unlawful detainer proceedings against Tenant for possession of the
Property, and Tenant hereby waives all notices of termination of Tenant's
occupancy or tenancy at sufferance of the Premises and all notices of any
action for Landlord's eviction of Tenant from the Premises.
4. Release. In consideration of Landlord's termination of the Lease, and
subject to satisfaction of the Termination Conditions on or before the
Termination Date or if the Termination Conditions are not consummated by the
Termination Date, subject to Landlord's election to proceed with this Agreement,
and except as expressly set forth in this Agreement, Landlord and its parent
companies, partners, members, affiliates, subsidiaries, directors, officers,
successors and assigns, agents, employees, and representatives are hereby
unconditionally and fully released and discharged from any and all obligations,
claims, actions, and liability, past, present, and future, of whatever kind or
character, known or unknown, by reason of, growing out of, arising out of or
existing in connection with the execution of the Lease or any of the terms or
provisions thereof, Tenant's use and occupancy of the Premises, or by reason of
the breach or
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<PAGE> 3
alleged breach of Landlord, or conduct or activity resulting in the breach or
alleged breach of Landlord, of any of the terms or provisions of the Lease.
Except as expressly set forth in this Agreement, this Agreement shall fully and
finally settle all demands, claims, charges, accounts or causes of action of
Tenant of any nature arising out of or connected with the provisions of the
Lease.
Tenant hereby acknowledges that it is familiar with Section 1542 of the
California Civil Code which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Tenant hereby waives and relinquishes every right or benefit it may have
under Civil Code Section 1542 and all other similar statutes or laws with
respect to any claims and other matters released in this Agreement. In
connection with such waiver and relinquishment, Tenant hereby acknowledges that
it is aware that it may hereafter discover facts in addition to or different
from those which it now knows or believes to be true, but that it is its
intention to fully, finally and forever settle and release all claims and other
matters released in this Agreement, known or unknown, suspected or unsuspected,
which may now exist or which may have previously existed, and Tenant hereby
agrees that the foregoing releases shall be and remain in effect notwithstanding
the discovery or existence of any such additional or different facts.
Landlord's Initials:_______ Tenant's Initials:_______
5. Return of Security Deposit. If the Termination Conditions are
satisfied on or before the Termination Date, then within thirty (30) days after
the Termination Date, Landlord shall return to Tenant the security deposit in
the amount of Three Thousand Three Hundred One Dollars and Eighty-seven Cents
($3,301.87), less any amounts Landlord is authorized to deduct therefrom
pursuant to Article 4 of the Lease.
6. Tenant's Representations and Warranties. Tenant hereby represents and
warrants to Landlord as follows:
(a) Tenant has not made any assignment, sublease, transfer,
conveyance or other disposition of (i) the Lease; (ii) its interest in the
Lease; or (iii) any claim, demand, obligation, liability, action, or cause of
action arising under the terms of the Lease, to any person, firm, partnership,
association, or other entity;
(b) Tenant has full power and authority to sign and deliver this
Agreement, and the execution and delivery of this Agreement will not violate and
will not constitute a default under any agreements Tenant has with any third
parties; and
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<PAGE> 4
(c) Tenant shall indemnify, defend and hold Landlord harmless against
all actions, demands, liabilities, costs, expenses, rights of action, or causes
of action based on, arising out of, or in connection with any breach of any of
the foregoing representations and warranties.
7. Jurisdiction. Tenant hereby submits to personal jurisdiction in the
State of California for the enforcement of Tenant's obligations hereunder and
waives any and all personal rights under the law of any other state or
jurisdiction to object to jurisdiction in the State of California for purposes
of litigation to enforce such obligation of Tenant. In the event such
litigation is commenced, Tenant agrees that, in addition to any other manner
provided by applicable law or court rule, service of process may be made and
personal jurisdiction over Tenant obtained, by service of a copy of the summons,
complaint and other pleadings required by applicable law to commence such
litigation upon Tenant's appointed Agent for Service of Process in the State of
California.
8. Miscellaneous. Time is of the essence of each and every provision of
this Agreement. This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts between
California residents entered into and to be performed entirely within the State
of California. This Agreement will be binding upon and inure to the benefit of
Landlord and Tenant and their respective successors and assigns. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
specific subject matter hereof, and supersedes and replaces any and all prior
negotiations and agreements between the parties, whether written or oral, as
well as any contemporaneous oral negotiations and agreements. This Agreement
may only be amended by a written agreement executed by both parties. Any waiver
of any portion of this Agreement must be in writing executed by the waiving
party. This Agreement may be executed in counterpart originals, each of which,
and all of which together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement on
the date first written above.
LANDLORD:
PACIFIC CORPORATE TOWERS LLC, a
Delaware limited liability company
By: GE Capital Investment Advisors, Inc.,
its authorized investment advisor
By: _____________________________
Name: _____________________________
Title: _____________________________
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<PAGE> 5
TENANT:
INTERACTIVE FLIGHT TECHNOLOGIES,
INC., a Delaware corporation
By: /s/ John W. Alderfer
------------------------
Name: John W. Alderfer
------------------------
Title: Treasurer
------------------------
By:
------------------------
Name:
------------------------
Title:
------------------------
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<PAGE> 1
Exhibit 10.22
AGREEMENT
This AGREEMENT (this "Agreement") is made as of this 12th day of May,
1998, by and between INTERACTIVE FLIGHT TECHNOLOGIES, INC., A DELAWARE
CORPORATION ("Interactive"), having an address at 4041 North Central Avenue,
Phoenix, Arizona 85012; SAMARITAN HEALTH SYSTEM, AN ARIZONA NON-PROFIT
CORPORATION ("Sublandlord"), having an address at 1441 North 12th Street,
Phoenix, Arizona 85006; FEDERAL INSURANCE COMPANY, AN INDIANA CORPORATION
("Federal"), having an address at 15 Mountain View Road, Post Office Box 1615,
Warren, New Jersey 07059; and METROPOLITAN LIFE INSURANCE COMPANY, A NEW YORK
CORPORATION ("Landlord"), having an address at 4041 North Central Avenue,
Phoenix, Arizona 85012.
WITNESSETH:
WHEREAS, Landlord's predecessor and Sublandlord's predecessor entered
into that certain Office Lease, dated October 28, 1987, as same may have been
amended (the "Original Lease"), pursuant to which Landlord has leases to
Sublandlord, and Sublandlord has hired from Landlord, for a term expiring on
October 31, 1998, certain premises located on the first and second floors of
Building B located at 4041 Central Plaza, Phoenix, Arizona (the "Leased
Premises"); and
WHEREAS, Interactive, Sublandlord or its predecessor and Landlord's
predecessor entered into that certain Sublease and Consent, dated as of July 19,
1996, as same may have been amended (the "Interactive Sublease"), pursuant to
which Sublandlord leased to Interactive, and Interactive hired from Sublandlord,
for a term expiring on October 31, 1998, the Leased Premises; and
WHEREAS, Landlord's predecessor and Interactive entered into that
certain Office Lease, dated July 16, 1996, as the same may have been amended
(the "Interactive Prime Lease") pursuant to which Landlord's predecessor has
leased to Interactive, and Interactive has hired from Landlord, space at 4041
Central Plaza, including but not limited to, effective as of November 1, 1998,
the Leased Premises; and
WHEREAS, Landlord's predecessor and Sublandlord's predecessor entered
into that certain Parking Agreement, dated October 28, 1997 (the "Samaritan
Parking Agreement"), pursuant to which Landlord's predecessor licensed
Sublandlord's predecessor to use certain parking spaces at 4041 Central Plaza
during the term of the Original Lease; and
WHEREAS, Landlord's predecessor and Interactive entered into that
certain Parking Agreement, dated July, 1996 (the "Interactive 20th Floor Parking
Agreement"), pursuant to which Landlord has licensed Interactive to use
seventy-one (71) parking spaces at 4041 Central Plaza; and
WHEREAS, Landlord's predecessor and Interactive, in connection with the
Interactive Sublease, entered into that certain Parking Agreement dated July __,
1996 (the "Interactive Building B Parking Agreement"), pursuant to which
Landlord licensed Interactive to
<PAGE> 2
use up to 44 spaces (consisting of up to three (3) covered reserve spaces and
up to forty-one (41) covered unreserved or roof top spaces) at 4041 Central
Plaza until the earlier of the Expiration Date of the Interactive Sublease
and/or the Interactive Prime Lease or the abandonment by Interactive of the
Leased Premises; and
WHEREAS, the rights of Sublandlord to use any parking spaces under the
Samaritan Parking Agreement were suspended and negated pursuant to the terms of
the Interactive Sublease for so long as the Interactive Sublease is in effect;
and
WHEREAS, Interactive desires to surrender (a) a portion of the Leased
Premises, consisting of the entire first floor of Building B except for the
computer/switch room in the location depicted on Exhibit A annexed hereto (which
space to be surrendered is hereinafter referred to as the "Surrender Space" and
which computer/switch room on the first floor consists of approximately 301
square feet and is hereinafter referred to as the "Computer/Switch Room") and
(b) thirty-seven (37) parking spaces (consisting of three (3) covered reserved
spaces and thirty-four (34) covered unreserved or roof top spaces licensed to
Interactive under the Interactive Building B Parking Agreement (the
"Surrendered Parking Spaces"); and
WHEREAS, in order to induce Landlord to accept the surrender of the
Surrender Space, Interactive has proposed that Federal lease the portion of
the Surrender Space depicted on EXHIBIT A annexed hereto (the "Federal
Premises"), which excludes the Computer/Switch Room and the bathroom, elevator
and common hallways on the first floor of Building B, directly from Landlord;
and
WHEREAS, Landlord has agreed to accept such surrender upon the condition
that Federal enter into a lease with Landlord relating to the Federal Premises
for the remainder of the terms of the Interactive Sublease and of the
Interactive Prime Lease and that Federal, Sublandlord, Interactive and Landlord
enter into certain other agreements; and
WHEREAS, Landlord has agreed to lease to Federal, and Federal has agreed
to lease from Landlord, the Federal Premises, pursuant to the terms and
conditions of that certain Lease Agreement between Landlord and Federal of this
date (the "Federal Lease"), on the condition that Landlord, Sublandlord,
Federal and Interactive enter into the other agreements more particularly set
forth herein; and
WHEREAS, the Federal Lease, among other things, also grants to Federal the
right to extend the term of the Federal Lease beyond the expiration date of the
Interactive Prime Lease and, in addition, it is possible that Federal and
Landlord may wish to extend the term of the Federal Lease beyond the expiration
of the extension periods now permitted by the Federal Lease; and
WHEREAS, Interactive has also leased from a third party certain furniture
which is now located in the Federal Premises (the "Furniture") and in the
second floor of the Leased Premises;
2
<PAGE> 3
NOW, THEREFORE, in consideration of the foregoing premises, the
promises herein contained, and other good and valuable consideration, receipt of
which is hereby acknowledged. Interactive, Federal, Sublandlord and Landlord
hereby agree as follows:
1. Surrender. Effective as of June 15, 1998 (the "Surrender Date"),
Interactive and Sublandlord each hereby surrenders, and Landlord and Sublandlord
hereby accepts the surrender of, the Surrender Space under the Original Lease,
the Interactive Prime Lease and the Interactive Sublease, as applicable.
Landlord also accepts the surrender of the Surrendered Parking Spaces in
accordance with the provisions of Section 10 hereof. Except for any obligations
expressly set forth herein, Interactive, Sublandlord and Landlord hereby release
each other as of the Surrender Date from and against any liability arising under
the Original Lease, the Interactive Sublease and the Interactive Prime Lease
relating to the Surrender Space which accrues after the Surrender Date, but not
for any liabilities that exist as of the Surrender Date and not for any
liability with respect to space subject to the Original Lease, the Interactive
Sublease or the Interactive Prime Lease other than the Surrender Space.
In connection with such surrender:
(a) Landlord and Sublandlord agree that, effective upon the
Commencement Date of the Federal Lease, the Base Rent otherwise owing each
month under the Original Lease shall be reduced by $13,618.13 and that
Tenant's Pro Rata Share of Operating Expenses and Taxes shall be
appropriately reduced to reflect such surrender.
(b) Sublandlord and Interactive agree that, effective upon
the Commencement Date of the Federal Lease, the Base Rent otherwise owing
each month under the Interactive Sublease shall be reduced by $15,131.25
and all other obligations of Interactive under the Interactive Sublease
shall be appropriately reduced to reflect such surrender.
(c) Landlord and Interactive agree that, effective November
1, 1998, but in no event earlier than the Commencement Date under the
Federal Lease, the Base Rent otherwise owing each month under the
Interactive Prime Lease, after increase pursuant to Rider Three of the
Interactive Prime Lease, shall be reduced by $17,653.13; the Tenant's Pro
Rata Share of Taxes and Operating Expenses, after increase pursuant to
Rider Three of the Interactive Prime Lease, shall be appropriately reduced
to reflect such surrender; and any other obligations of Landlord pursuant
to Rider Three of the Interactive Prime Lease shall be appropriately
reduced to reflect such surrender.
In addition, each of the Original Lease, the Interactive Sublease and the
Interactive Prime Lease shall be deemed terminated with respect to, but only
with respect to, the Surrender Space and, except as specifically provided
herein, the Sublandlord and Interactive shall fully comply with all obligations
of such entity that apply to such Surrender Space upon the termination or
expiration of the existing
3
<PAGE> 4
Lease or Sublease for such Surrender Space, including but not limited to the
removal of personal property and trade fixtures from the Surrender Space.
2. Common Areas. The portions of the Surrender Space which are
located outside of the Federal Premises (the "New Common Areas") will be common
areas of the building as of the Surrender Date.
3. Installation. Prior to the Surrender Date, (a) Landlord shall
install, at its own expense, a door and, to the extent necessary, a wall in the
location designated on Exhibit A restricting access from the New Common Areas
to the Federal Premises (the "Federal Common Area Door"); (b) Interactive
shall, at its own cost and expense, (i) close and seal the existing door from
the Computer/Switch Room into the Federal Premises so as to prohibit access
through such existing door; (ii) install a door (the "Computer Room Door") and,
to the extent necessary, walls at the location designated on Exhibit A in order
to separate all of the Computer/Switch Room from the remaining portions of the
first floor of the building and to provide access from the Computer/Switch Room
into the hallway west of the Computer/Switch Room; and (iii) reinstall the
Landlord's card key security access system at the northeast entry door for
Building B; and (c) Federal shall have the right to install, at its option, a
card key security access system at the Federal Common Area Door and/or the
Computer/Switch Room and/or the hallway adjacent to the Computer Room Door so
that access to the Federal Premises is restricted to persons designated by
Federal and also by Interactive pursuant to the license rights granted to
Interactive in Section 7 below. The mandatory improvements described in
Subsections (a) and (b) above are a material inducement for Federal's and
Landlord's entry into the Federal Lease. If such improvements are not completed
prior to the Surrender Date, then the Surrender Date and the Commencement Date
under the Federal Lease shall be extended until such improvements have been
completed.
4. Right of First Refusal. Federal shall have an ongoing first
right of refusal through July 31, 1999 (the "Federal ROFR") to lease all or any
portion of the second floor of the Leased Premises (the "Expansion Space"), on
the following terms and conditions. If Interactive receives a bona fide offer
to sublease all or any portion of the Expansion Space (the "Offer Space") for a
term commencing after October 31, 1998, which Interactive desires to accept,
Interactive shall notify Federal and Landlord of the receipt of said offer.
Within five (5) business days after receipt of notice of such offer, Federal
shall notify Interactive and Landlord whether Federal wishes to lease such
Offer Space on the terms and conditions set forth in that offer, with the
following exceptions: (a) instead of subleasing the Offer Space directly from
Interactive, Federal shall enter into a lease directly with Landlord; (b)
rental for the Offer Space shall be at the same rent per square foot as set
forth in the Federal Lease; (c) the terms of the offer must be acceptable to
the Landlord; and (d) Landlord shall not be obligated to license to Federal
more than three (3) parking spaces for each full 1,000 square feet of
additional space leased by Federal, with the fee for such additional spaces to
be at the same rate as for the spaces licensed to Federal under the Federal
Lease. If Federal exercises the Federal ROFR and the offer is acceptable to
Landlord, then Landlord agrees to amend the Federal Lease through the term of
the Federal Lease to include the Offer Space and also to accept the surrender
of the Offer Space from Interactive on the same terms and conditions as
specified in
4
<PAGE> 5
the first paragraph of Section 1 of this Agreement; provided, however, the
number of parking spaces surrendered shall be in accordance with Section 10(d)
below and the Base Rent and Tenant's Pro Rata Share of Operating Expenses and
Taxes shall also be proportionately reduced. If Federal does not exercise the
Federal ROFR within five (5) business days after receipt of Interactive's notice
or the terms of the offer are not acceptable to Landlord, then Federal shall
have waived the Federal ROFR with respect to such offer, but not with respect to
any subsequent offers. In no event shall the Federal ROFR apply during any
extension of the Federal Lease pursuant to Section 2.2 of the Federal Lease,
but, if the Federal ROFR has been exercised prior to July 31, 1999, and the term
of the Lease has been extended pursuant to Section 2.2 of the Lease, then such
extension shall apply to all of the space then leased under the Federal Lease
including, but not limited to, space leased pursuant to the Federal ROFR.
5. Expansion Option. Federal shall also have an on-going option through
July 31, 1999 (the "Federal Expansion Option"), to lease all or any portion of
the Expansion Space which has not been leased to a third party after a failure
by Federal to exercise the Federal ROFR with respect to such space under Section
4 above; provided, however, the term of the lease with respect to such Expansion
Space may commence no earlier than November 1, 1998, and no later than July 31,
1999. The Federal Expansion Option must be exercised, and the lease of such
Expansion Space shall be, in accordance with the following terms and conditions.
Federal may notify Interactive and Landlord of its wish to exercise the Federal
Expansion Option at any time and from time to time on or before ninety (90) days
prior to the date upon which the lease with respect to such Expansion Space is
to commence and of the portion of the Expansion Space to be so leased. Upon each
such exercise of the Federal Expansion Option, the Federal Lease shall be
amended to add the portion of the Expansion Space so designated as a portion of
the Federal Premises, effective as of the commencement date with respect to such
Expansion Space specified in Federal's notice; provided, however, as of the
effective date of such expansion, the rental under the Federal Lease shall be
increased to at all times reflect that the rental of the Expansion Space is to
be at the same rent per square foot from time to time as is applicable under the
Federal Lease to the original Federal Premises. In addition, Landlord shall not
be obligated to license to Federal more than three (3) additional parking spaces
for each 1,000 square feet of additional space leased by Federal, with the fee
for such additional spaces to be at the same rate as for the spaces licensed to
Federal under the Federal Lease. If Federal exercises the Federal Expansion
Option, then Landlord agrees to accept the surrender of, and Interactive agrees
to surrender, the applicable portion of the Expansion Space on the same terms
and conditions as specified in the first paragraph of Section 1 of this
Agreement; provided, however, the number of parking spaces surrendered shall be
in accordance with Section 10(d) below and the Base Rent and Tenant's Pro Rata
Share of Operating Expenses and Taxes shall also be proportionately reduced. In
no event shall the Federal Expansion Option apply during any extension of the
Federal Lease pursuant to Section 2.2 of the Federal Lease but, if the Federal
Expansion Option has been exercised so that the Federal Lease includes portions
of the Expansion Space prior to July 31, 1999, and the term of the Lease has
been extended pursuant to Section 2.2 of the Federal Lease, then such extension
shall apply to all of the space then leased under the Federal Lease including,
but not limited to, space leased pursuant to the Federal Expansion Option.
5
<PAGE> 6
6. Furniture. Interactive agrees that Federal shall have the right, at no
cost and expense, to use the Furniture now located within the Federal Premises
during the term of the Federal Lease, including any extension of the Federal
Lease pursuant to the provisions of Section 2.2 of the Federal Lease or
otherwise. In addition, if Federal exercises the Federal ROFR or the Federal
Expansion Option for any portion of the Expansion Space. Interactive agrees that
Federal shall have the right to use any of the Furniture which is now located in
such portion of the Expansion Space and, for the purposes of the remainder of
this Section 6, the term "Furniture" shall include such additional furniture
which Federal becomes entitled to use. Federal shall maintain the Furniture in
as good condition as at the commencement of the Federal Lease or the date the
applicable portion of the Expansion Space is added to the Federal Lease, as
applicable, ordinary wear and tear excepted. Upon expiration of the Federal
Lease, Federal shall surrender the Furniture to Interactive, and Interactive
shall remove the Furniture from the Federal Premises, no later than the
expiration of the Federal Lease. Landlord agrees that, notwithstanding anything
set forth in the Federal Lease to the contrary, Landlord shall look solely to
Interactive for the removal of such Furniture and for the enforcement of any
remedies arising out of the failure of Interactive to remove such Furniture.
Federal acknowledges that, except for Landlord's payment obligations pursuant to
the next paragraph of this Section 6. Landlord has no responsibility to Federal
of any type with respect to the Furniture and Federal's failure to obtain the
use of the Furniture, or loss of use of such Furniture, for any reason shall not
affect the Federal Lease.
Anything in the foregoing to the contrary notwithstanding, if Federal
wishes to continue to use the Furniture on the Federal Premises for any period
after July 31, 1999, and so notifies Interactive on or before May 31, 1999, (a)
Interactive shall, if Interactive has not previously done so, acquire fee
ownership of the Furniture then on the Federal Premises, as the Federal Premises
may have been expanded pursuant to Sections 4 and/or 5 above; (b) Interactive
shall permit Federal to continue to use the Furniture on the Federal Premises
until the earlier of (i) receipt by Interactive of notice from Federal that
Federal no longer wishes to use the Furniture or (ii) the date Federal ceases to
occupy the Federal Premises; and (c)Landlord shall pay to Interactive, in
consideration for Federal's use of the Furniture after July 31, 1999, the sum of
(i) $500 per month for each month after July 31, 1999, that Federal uses the
Furniture that was on the first floor of the Leased Premises and (ii) the sum of
$500 per month for each month after July 31, 1999, that Federal uses the
Furniture that was located on the Expansion Space, which sums shall be paid by
Landlord to Interactive on or before ten (10) days after the first day of each
calendar month that the Furniture is used by Federal after July 31, 1999;
provided, however, if Federal has, as of July 31, 1999, occupied some but not
all of the Expansion Space, then such $500 sum applicable to the Expansion Space
shall be equitably reduced to reflect the fact that Federal is entitled to use
only the Furniture that was on the portion of the Expansion Space occupied by
Federal. Upon termination of Federal's right to use the Furniture during such
period after July 31, 1999. Interactive shall, as required in the first
paragraph of this Section 6, promptly remove the Furniture from all of the
Federal Premises.
7. Computer/Switch Room. Federal hereby grants to Interactive a license
to enter the Federal Premises for the limited purpose of accessing the
Computer/Switch Room of Interactive located on the first floor of Building B.
Interactive shall exercise such license in a
6
<PAGE> 7
manner that does not interrupt, and that minimizes the interference with,
Federal's use and enjoyment of the Federal Premises. Interactive agrees to
indemnify and hold harmless Federal from and against any loss, damage or
liability arising out of the exercise of this license by Interactive, or its
employees, agents, contractors or invitees.
8. Brokerage. Interactive hereby agrees to pay to the Brokers (defined
in the Federal Lease) all commissions due to the Brokers arising out of the
Federal Lease or any extension or renewal thereof; arising out of this
Agreement, including but not limited to any commissions owing as a result of
the exercise of the Federal ROFR and/or the Federal Expansion Option: and
arising out of any exercise by Federal of the extension right set forth in
Section 2.2 of the Federal Lease. Interactive shall indemnify and save harmless
Landlord and Federal from and against any and all liabilities, claims, suits,
demands, judgments, costs, interests and expenses to which Landlord or Federal
may be subject or suffer by reason of any claim made by any person, firm or
corporation other than the Brokers for any commission, expense or other
compensation as a result of the execution and delivery of the Federal Lease and
based on alleged conversations or negotiations by said person, firm or
corporation with Interactive.
9. Deficiency Obligation. Interactive shall pay to Landlord the
following amounts, as determined on a monthly basis:
(a) During the period from the Commencement Date under the Federal
Lease through October 31, 1998, the excess of (i) the payments for such
month which would have been owing to Landlord by the Sublandlord under the
Original Lease for all Base Rent, rental tax and other charges of any type
(except for the Tenant's Pro Rata Shares of Operating Expenses and Taxes
payable under Articles 7(A) and 7(B) of the Original Lease) with respect to
the Federal Premises but for the execution of this Agreement and (ii) the
payments for such month to be received by Landlord from Federal under the
Federal Lease, whether or not such payments are actually received from
Federal; and
(b) During the period from the later of (i) the Commencement Date
under the Federal Lease or (ii) November 1, 1998, through July 31, 1999,
the excess of (A) the payments for such month which would have been owing
to Landlord by Interactive under the Interactive Prime Lease for all Base
Rent, rental tax and other charges of any type with respect to the Federal
Premises (as such Federal Premises may have been expanded pursuant to
Sections 4 and 5 of this Agreement) but for the execution of this Agreement
and (B) the payments for such month to be received by Landlord from Federal
under the Federal Lease (including but not limited to payments received as
a result of the expansion of the Federal Premises pursuant to Sections 4
and 5 of this Agreement), whether or not such payments are actually
received from Federal under the Federal Lease.
The determination of such amounts shall be made by Landlord in the exercise of
Landlord's reasonable discretion and, unless otherwise appropriate, the
calculations of amounts which would have been owing to Landlord under
Subsections (a)(i) and (b)(i) above for the Federal Premises shall
7
<PAGE> 8
be made on the basis of square footage of the Federal Premises and New Common
Areas and the square footage of the Leased Premises remaining subject to the
Original Lease or the Interactive Prime Lease, as applicable. All payments
owing by Interactive under this Section 9 shall be due and payable within
fourteen (14) days after receipt by Interactive of a statement therefor.
Statements for such sums shall be sent to Interactive at the address of
Interactive established by the Interactive Prime Lease. The failure of Landlord
to receive any such payment within fourteen (14) days after the receipt by
Interactive of such statement shall constitute a default by Interactive under
Article 23(A)(i) of the Interactive Prime Lease which, if not cured within ten
(10) days after notice from Landlord, shall entitle Landlord, in addition to
any other rights and remedies Landlord may have at law or in equity for such
failure, to exercise the remedies set forth in Article 23 of the Lease and to
consider the amounts owing hereunder to be unpaid Rent owing and in default
under the Interactive Prime Lease.
10. Parking Amendments. The parking provisions of the various Parking
Agreements are hereby amended and clarified as follows:
(a) This Agreement and the surrender by Interactive of the Surrender
Space shall not affect the continued applicability of Paragraph 20 of
Rider One to the Interactive Sublease and the Interactive Sublease shall
be considered to still be in full force and effect for the purposes of
said Paragraph 20 despite the effect of any of the provisions of this
Agreement on the Interactive Sublease or the Sublease Premises thereunder.
(b) The Interactive 20th Floor Parking Agreement shall not be
affected by this Agreement.
(c) Interactive, effective as of the Commencement Date of the
Federal Lease, shall have the license under the Interactive Building B
Parking Agreement to use only up to seven (7) of the forty-one (41)
covered non-reserved or roof top parking spaces now licensed under the
Inactive Building B Parking Agreement and shall not have the right to use
any of the three (3) covered reserved spaces now licensed to Interactive
under the Interactive Building B Parking Agreement.
(d) If Federal from time to time exercises the Federal ROFR and/or
the Federal Expansion Option, Interactive's license to use the seven (7)
non-reserved covered spaces or roof top spaces which continue to be
licensed to Interactive after the Commencement Date for the Federal Lease
shall be reduced for such seven (7) spaces in accordance with the
following schedule:
8
<PAGE> 9
<TABLE>
<CAPTION>
CUMULATIVE ADDITIONAL SQUARE CUMULATIVE REDUCTION IN SPACES
FEET OF SPACE LEASED BY FEDERAL LICENSED TO INTERACTIVE
------------------------------- -----------------------
<S> <C>
0-999 0
1000-1999 3
2000-2999 6
Over 3000 7
</TABLE>
11. CONTINGENCIES. This Agreement shall be effective only upon execution
and delivery hereof by all of the parties hereto. This Agreement is expressly
contingent upon the execution and delivery of the Federal Lease by Landlord and
Federal.
12. NOTICES. All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communications required or permitted to be
given hereunder shall be in writing; shall be either hand delivered, delivered
by respectable priority overnight delivery service, or mailed by first class
registered or certified mail, postage prepaid, addressed to the address for
such party set forth above, or to such other address as any party shall
designate to the others in writing; and shall be deemed to have been given when
delivered or three (3) days after being mailed. Notwithstanding the foregoing,
any notice changing the address of a party shall not be deemed given until
received by the party to whom it was addressed.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same instrument. The partially executed signature page of any counterpart
of this Agreement may be attached to any other partially executed counterpart
of this Agreement without impairing the legal effect of the signature(s) on
such signature page.
14. INTERPRETATION. Except as set forth herein, the Original Lease, the
Interactive Sublease and the Interactive Prime Lease shall remain unmodified
and in full force and effect.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first set forth above.
INTERACTIVE FLIGHT TECHNOLOGIES INC.
By: /s/ JOHN W. ALDERFER
------------------------------
Name: John W. Alderfer
------------------------------
Title: Treasurer
------------------------------
SAMARITAN HEALTH SYSTEM
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
FEDERAL INSURANCE COMPANY
By: /s/ JOAN L. O'SULLIVAN
------------------------------
Name: Joan L. O'Sullivan
------------------------------
Title: Vice President
------------------------------
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ MICHAEL J. MATHEWS
------------------------------
Name: Michael J. Mathews
------------------------------
Title: Asset Manager
------------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1998
<PERIOD-START> NOV-01-1997 FEB-01-1998
<PERIOD-END> APR-30-1998 APR-30-1998
<CASH> 40,706,887 40,706,887
<SECURITIES> 1,698,772 1,698,772
<RECEIVABLES> 544,225 544,225
<ALLOWANCES> 0 0
<INVENTORY> 1,107,379 1,107,379
<CURRENT-ASSETS> 45,079,038 45,079,038
<PP&E> 7,279,113 7,279,113
<DEPRECIATION> 4,934,603 4,934,603
<TOTAL-ASSETS> 49,554,683 49,554,683
<CURRENT-LIABILITIES> 14,195,625 14,195,625
<BONDS> 0 0
0 0
0 0
<COMMON> 221,111 221,111
<OTHER-SE> 35,077,101 35,077,101
<TOTAL-LIABILITY-AND-EQUITY> 49,554,683 49,554,683
<SALES> 17,860,563 4,569,337
<TOTAL-REVENUES> 18,141,827 4,732,162
<CGS> 15,335,854 3,768,459
<TOTAL-COSTS> 15,348,811 3,775,716
<OTHER-EXPENSES> 3,970,714 1,754,356
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,995 3,234
<INCOME-PRETAX> (112,881) (274,464)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (112,881) (274,464)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (112,881) (274,464)
<EPS-PRIMARY> (0.01) (0.02)
<EPS-DILUTED> (0.01) (0.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-KSB FOR THE YEAR,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERECE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1996
<PERIOD-START> NOV-01-1996 NOV-01-1995
<PERIOD-END> OCT-31-1997 OCT-31-1996
<CASH> 36,890,454 7,736,345
<SECURITIES> 2,137,084 6,810,275
<RECEIVABLES> 5,654,118 1,838,979
<ALLOWANCES> 0 1,732,377
<INVENTORY> 6,110,761 4,726,935
<CURRENT-ASSETS> 51,653,071 20,554,960
<PP&E> 12,514,922 5,111,301
<DEPRECIATION> 9,555,383 451,801
<TOTAL-ASSETS> 54,779,455 25,307,490
<CURRENT-LIABILITIES> 18,413,272 7,489,619
<BONDS> 0 0
0 0
0 0
<COMMON> 219,234 120,620
<OTHER-SE> 36,015,109 17,587,251
<TOTAL-LIABILITY-AND-EQUITY> 54,779,455 25,307,490
<SALES> 10,524,828 2,671,924
<TOTAL-REVENUES> 11,100,709 2,985,402
<CGS> 24,646,334 3,711,702
<TOTAL-COSTS> 24,878,460 4,577,277
<OTHER-EXPENSES> 38,981,344 18,251,217
<LOSS-PROVISION> 216,820 1,732,377
<INTEREST-EXPENSE> 13,423 2,076
<INCOME-PRETAX> (51,022,312) (19,266,901)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (51,022,312) (19,266,901)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (51,022,312) (19,266,901)
<EPS-PRIMARY> (2.96)<F1> (3.11)<F1>
<EPS-DILUTED> (2.96)<F1> (3.11)<F1>
<FN>
<F1>EPS-PRIMARY AND EPS-DILUTED ARE RESTATED TO INCLUDE THE IMPACT OF FINANCIAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1997 OCT-31-1997
<PERIOD-START> NOV-01-1996 NOV-01-1996 NOV-01-1996
<PERIOD-END> JUL-31-1997 APR-30-1997 JAN-31-1997
<CASH> 36,042,027 48,898,051 66,631,029
<SECURITIES> 0 0 0
<RECEIVABLES> 5,518,041 2,692,987 1,881,356
<ALLOWANCES> 314,316 286,266 1,868,968
<INVENTORY> 16,224,670 17,601,749 3,573,176
<CURRENT-ASSETS> 58,832,159 70,477,806 72,293,024
<PP&E> 12,412,299 13,693,888 16,499,701
<DEPRECIATION> 6,356,031 1,160,417 653,556
<TOTAL-ASSETS> 64,961,831 83,084,368 88,882,399
<CURRENT-LIABILITIES> 11,207,551 10,226,696 9,350,213
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 219,234 219,231 219,225
<OTHER-SE> 53,145,943 71,307,055 78,753,761
<TOTAL-LIABILITY-AND-EQUITY> 64,961,831 83,084,368 88,882,399
<SALES> 3,642,842 2,478,131 148,709
<TOTAL-REVENUES> 4,129,865 2,587,367 226,005
<CGS> 11,841,364 8,879,913 148,404
<TOTAL-COSTS> 12,001,862 8,975,440 230,103
<OTHER-EXPENSES> 27,563,188 10,166,722 8,717,351
<LOSS-PROVISION> 179,319 150,315 136,590
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (33,891,478) (15,729,056) (8,317,677)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (33,891,478) (15,729,056) (8,317,677)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (33,891,478) (15,729,056) (8,317,677)
<EPS-PRIMARY> (2.03)<F1> (1.00)<F1> (0.66)<F1>
<EPS-DILUTED> (2.03)<F1> (1.00)<F1> (0.66)<F1>
<FN>
<F1>EPS-PRIMARY AND EPS-DILUTED ARE RESTATED TO INCLUDE THE IMPACT OF FINANCIAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 128.
</FN>
</TABLE>
