<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 January 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. 0-25668
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-3197148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
4041 NORTH CENTRAL AVENUE
SUITE 2000
PHOENIX, ARIZONA 85012
(Address of Principal Executive Offices)
(602) 200-8900
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No___
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at February 28, 1998
----- --------------------------------
Class A Common Stock, $.01 par value 17,459,124 shares
Class B Common Stock, $.01 par value 3,733,334 shares
Transitional Small Business Disclosure Format
Yes___ No X
<PAGE> 2
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of January 31, 1998
(unaudited) and October 31, 1997 (audited)....................... 3
Condensed Statements of Operations for the Three Months
Ended January 31, 1998 and 1997 (unaudited)...................... 4
Condensed Statements of Cash Flows for the Three Months
Ended January 31, 1998 and 1997 (unaudited)...................... 5
Notes to Condensed Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................13
SIGNATURES.................................................................14
2
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
ASSETS 1998 1997
------------- -------------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 37,959,310 $ 36,890,454
Short-term investment securities 1,697,023 2,137,084
Accounts receivable 4,598,895 5,654,118
Inventories, net of reserves of $11,202,848 and $11,179,895,
respectively 2,609,317 6,110,761
Prepaid expenses 97,995 253,771
Other current assets 715,578 606,883
------------- -------------
Total current assets 47,678,118 51,653,071
------------- -------------
Investment securities 815,299 --
Property and equipment, net of accumulated depreciation of $7,070,932
and $9,555,383, respectively 2,644,876 2,959,539
Deposits 468,579 166,845
------------- -------------
Total assets $ 51,606,872 $ 54,779,455
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,793,683 $ 5,747,833
Accrued liabilities 4,503,799 4,248,222
Deferred revenue 64,792 2,383,904
Accrued severance costs 55,000 55,000
Accrued maintenance costs 1,379,447 1,286,873
Accrued product warranties 6,362,681 4,610,687
Current maturities of capital lease obligations 82,789 80,753
------------- -------------
Total current liabilities 15,242,191 18,413,272
------------- -------------
Accrued severance costs, noncurrent 41,250 55,000
Capital lease obligations, less current maturities 55,362 76,840
------------- -------------
Total liabilities 15,338,803 18,545,112
------------- -------------
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized, none issued -- --
Class A common stock, one vote per share, par value $0.01 per
share, 40,000,000 shares authorized; 18,377,724 and 18,189,995
shares issued, respectively 183,777 181,900
Class B common stock, six votes per share, par value $0.01 per
share, 4,000,000 shares authorized; 3,733,334 shares issued and
outstanding including 3,200,000 shares held in escrow 37,334 37,334
Additional paid-in capital 112,223,734 112,037,882
Accumulated deficit (75,861,190) (76,022,773)
Treasury stock, at cost; 326,800 and 0 shares, respectively (315,586) --
------------- -------------
Total stockholders' equity 36,268,069 36,234,343
------------- -------------
Total liabilities and stockholders' equity $ 51,606,872 $ 54,779,455
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months
Ended January 31,
--------------------------------
1998 1997
------------ ------------
Revenue:
<S> <C> <C>
Equipment sales $ 13,291,226 $ 148,709
Service income 118,439 77,296
------------ ------------
13,409,665 226,005
------------ ------------
Costs and expenses:
Cost of equipment sales 11,567,395 2,673,624
Cost of service income 5,700 81,699
Provision for doubtful accounts -- 136,590
Research and development expenses 609,927 2,624,516
Marketing and administrative
expenses 1,606,431 3,431,025
------------ ------------
13,789,453 8,947,454
------------ ------------
Operating loss (379,788) (8,721,449)
Other:
Interest income 545,132 403,772
Interest expense (3,761) --
------------ ------------
Net income (loss) $ 161,583 $ (8,317,677)
============ ============
Basic and diluted net income (loss) per share $ 0.01 $ (0.66)
============ ============
Weighted average shares outstanding 18,722,349 12,657,715
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 161,583 $ (8,317,677)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Provision for doubtful accounts -- 136,590
Depreciation and amortization 320,357 191,851
Expense recognized upon issuance of stock options
and shares of Class A common stock -- 474,181
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,055,223 (42,377)
Decrease in inventories 3,501,444 1,153,759
Increase in prepaid expenses, other current assets and
deposits (254,653) (898,272)
Increase (decrease) in accounts payable (2,954,150) 2,390,012
Increase in accrued liabilities and maintenance 535,880 422,801
Decrease in deferred revenue (2,319,112) --
Decrease in accrued severance costs (13,750) (450,450)
Increase (decrease) in accrued product warranties 1,751,994 (52,569)
------------ ------------
Net cash provided by (used in) operating activities 1,784,816 (4,992,151)
------------ ------------
Cash flows from investing activities:
Purchases of investments (500,547) --
Maturities of investments 125,309 6,810,275
Purchases of property and equipment (5,694) (12,032,051)
------------ ------------
Net cash used in investing activities (380,932) (5,221,776)
------------ ------------
Cash flows from financing activities:
Purchases of treasury stock (315,586) --
Payments on capital lease obligations (19,442) --
Proceeds from issuance of common stock -- 73,589,775
Registration costs -- (4,481,164)
------------ ------------
Net cash provided by (used in) financing activities (335,028) 69,108,611
------------ ------------
Increase in cash and cash equivalents 1,068,856 58,894,684
Cash and cash equivalents at beginning of period 36,890,454 7,736,345
------------ ------------
Cash and cash equivalents at end of period $ 37,959,310 $ 66,631,029
============ ============
</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 ended January 31, 1998
are not necessarily indicative of the results to be expected for the entire
fiscal year.
(2) COMPUTATION OF NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128") which specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock. This Statement is effective for both interim and annual periods ending
after December 15, 1997. The Company has adopted the provisions of SFAS No. 128
for the quarter ended January 31, 1998 and has restated the 1997 data to conform
to SFAS No. 128.
(3) TREASURY STOCK
On December 17, 1997, the Board of Directors authorized the Company to
repurchase shares of its Class A Common Stock on the open market. As of January
31, 1998, the Company had repurchased 326,800 shares at prices ranging from
$0.75 to $1.00 per share.
6
<PAGE> 7
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Interactive Flight Technologies, Inc. ("the Company") has been engaged
in the development, manufacture, installation and operation of a computer-based
in-flight entertainment network ("Entertainment Network" or "system"), which
provides aircraft passengers the opportunity to view movies, purchase goods and
services, play computer games and, in certain cases where permitted by
applicable law, gamble through an in-seat video touch screen.
The Company had originally based its business plan on allowing airlines
to finance the purchase of the system out of a share of gaming revenues without
paying any money down. However, gaming revenues from the operation of the system
have proven to be significantly less than originally estimated, and are
insufficient to support the financing of the system. As a result, the Company
has determined that it will not finance the purchase of additional Entertainment
Networks based on contingent future system generated revenues. Instead, the
Company has been seeking to have airlines finance the purchase and installation
of the system themselves, with the Company receiving only a limited percentage
in revenues from the Entertainment Networks.
The decision of the Company not to finance system purchases out of
future contingent revenues has eliminated certain potential customers who do not
have the resources to finance the systems independently. Moreover, the Company
must now justify the costs of the Entertainment Networks (both purchase and
operational) based solely on a perceived competitive need, rather than on
ancillary revenue. The perception of that need may depend on the phase of the
business cycle in the airline industry, as potential purchasers are more likely
to invest in competitive factors at times when competition for customers is
intense. With load factors at a historically high level, this is a difficult
phase of the industry cycle to justify purchases. Accordingly, there is no
assurance that the customers currently considering purchase of the systems, or
indeed any customers, will ultimately purchase the Entertainment Network at a
purchase price at which the Company could make a profit.
Because of the long lead-time for aircraft installments, the Company
must schedule programs well in advance, and its success depends on its ability
to continue to obtain major orders. The Company has been pursuing other major
airlines to fill its pipeline following the scheduled completion of the
installation phase of the Swissair program in March 1998. The Company has not
succeeded in this effort to date and there can be no assurance that the Company
will be successful in this effort in the future. As of January 31, 1998, the
only remaining firm orders for the Company's Entertainment Network consisted of
those under the Swissair agreement, which were first and business class
installations on two Swissair MD-11 aircraft.
In the absence of the system being offered as original equipment by
airplane manufacturers, the ability of the Company to convince major airlines to
purchase its system depends in large part upon the airline having decided to
initiate a major cabin upgrade, a decision over which the Company has little or
no control. Once such a decision has been reached by the airline, the Company
must compete with other vendors on the basis of such factors as price, weight
and features. The Company believes that it presently compares favorably with
other competitors in these matters; however, the Company must find ways to
overcome concerns about the Company's relatively small financial resources
compared to the hundreds of millions of dollars
7
<PAGE> 8
involved in an in-flight entertainment purchase decision by a major airline. In
addition, as with all technically oriented purchases, the Company must contend
with questions about deferring purchase decisions pending future developments.
There can be no assurance that customers will in fact decide to buy now rather
than wait, that the Company will in fact be able to compete successfully on
price, weight and features, or that the Company can find a way to adequately
address concerns about its size.
The Company believes that it has cash and liquidity resources in excess
of that required to fulfill its current contractual commitments, although this
will depend in large part on the ability of the Company to fulfill those
obligations in an efficient manner. The Company could use those additional
resources towards pursuing additional customers and development efforts in the
in-flight entertainment business or could seek to use the resources in other
businesses. At the present time, based on the low level of demand in the
industry at this point in the business cycle, the Company intends to limit the
resources it expends in pursuing new in-flight entertainment business until and
unless it obtains another customer. In particular, the Company is reducing its
workforce and overhead since the Company's current backlog consists of Swissair
only. The Company has also decided not to develop the next generation of the
Entertainment Network unless a new customer is obtained. The Company's future
research and development efforts will consist only of those efforts that are
required contractually by the Swissair agreement. Conserving cash in this manner
may permit the Company to pursue alternative businesses, but could well mean
that the Company will not be able to continue to compete in the in-flight
entertainment business even if market conditions improve. Because of the
difficulties in obtaining new in-flight entertainment customers, the Company is
also looking for possible acquisitions to use any available cash. The Company
has not identified any specific areas for alternative business development.
There can be no assurance that the Company will find acceptable opportunities
for alternative business development or that the Company will be successful in
entering or operating in alternative business areas. In addition, the Company
has used, and may continue to use, a portion of its cash to repurchase its own
shares.
EXISTING INSTALLATIONS
The Company has installed shipsets on aircraft operated by three
European airlines: Swissair, Debonair and Alitalia Airlines S.p.S. ("Alitalia").
The Swissair agreement provides for the Company to be responsible for
all costs including materials, installation and maintenance through September
1998 for the installation of the Entertainment Network in the first, business
and economy class sections of two MD-11 and one B-747 aircraft. Title to these
three systems transfer at no cost to Swissair one-year after installation; title
to the system on the first MD-11 transferred to Swissair in January 1998. The
Company expensed the estimated material, installation, maintenance, warranty and
upgrade costs for these three systems during fiscal 1997. For another sixteen
aircraft, Swissair will purchase Entertainment Networks covering only first and
business class for an average of $1.7 million per aircraft. The Company is
responsible for the installation and maintenance costs through September 1998
for the sixteen aircraft. The Swissair agreement also provides a one-year
warranty on all of the Entertainment Networks and specific upgrades to the
Entertainment Networks currently being installed. The Company is obligated to
deliver several software and hardware upgrades whose development is not yet
complete. If the upgrades are not completed by specified deadlines, the Company
will face significant penalties. The Company must also meet and maintain certain
operational reliability criteria for the Entertainment Networks or be subject to
certain penalties.
8
<PAGE> 9
The Company has completed the installation of Entertainment Networks in
the economy, business and first class sections of two Swissair MD-11 aircraft
and one B-747 Swissair aircraft as of January 31, 1998. The Company has also
completed the installation of Entertainment Networks in the first and/or
business class sections of twelve Swissair MD-11 aircraft and two B-747 Swissair
aircraft as of January 31, 1998. The remaining installations are expected to be
completed by March 31, 1998. The Company is working to further improve the
reliability of the system through software revisions and through design
improvements. The Company believes that the reliability goals for the system can
be met; however, there can be no assurance that technical obstacles may not
prove more difficult than anticipated or that as yet undetermined issues will
not appear. The Company is subject to certain penalties, which could be
substantial, if the Entertainment Networks do not meet and maintain certain
operational reliability criteria through the year 2003. This may require the
Company to continue to maintain a presence in the in-flight entertainment
business even if it pursues other businesses.
In conjunction with the Swissair agreement, the Company has an
agreement with Interkantonale Landeslotterie ("ILL"), a Swiss non-profit
organization that organizes lotteries in Switzerland. Pursuant to the
agreements, any net gaming profits generated from the Swissair Entertainment
Networks are to be divided between the three parties with 4% being paid to the
ILL and the remaining 96% being divided between the Company and Swissair based
on a priority of expenses. As of January 31, 1998, the Company's cumulative
portion of the net gaming profits generated by the Swissair systems was $20,277.
Pursuant to a separate Media Programming Services Agreement with
Swissair, the Company may bill Swissair for costs incurred related to the supply
of program material and other entertainment programming costs. Swissair receives
all entertainment programming revenues generated by the Entertainment Networks.
Advertising and shopping revenues generated by the systems are split between the
Company and Swissair.
The Debonair agreement originally required the Company to manufacture,
assemble, deliver, install, operate and maintain the system on six Debonair
aircraft. As long as Debonair utilized the casino gaming features of the
systems, payment of the purchase price of these systems was to be made solely
through a revenue-sharing agreement. The Company completed the first
installation of a Debonair aircraft in August 1997. In October 1997, the Company
notified Debonair that the revenues being generated by the Entertainment Network
were insufficient to justify continued operation of the Entertainment Network
and further installations. In February 1998, the Company and Debonair signed a
Termination Agreement. Pursuant to the agreement, Debonair will remove the
Entertainment Network from its aircraft and no further installations of the
system on Debonair aircraft will be completed. As full and final settlement of
all of its obligations with Debonair, the Company will pay $134,235 to Debonair.
Pursuant to the contract with Alitalia, the Company delivered five
first generation systems for installation on Alitalia aircraft during fiscal
1996. However, Alitalia installed only four of the five Entertainment Networks
and did not purchase sufficient spare parts to support continued operation of
the systems. Alitalia has notified the Company that it does not intend to
continue operation of the systems, and the Company has indicated that it will
not support the systems because of the actions of Alitalia. As of January 31,
1998, the final outcome of this matter is unclear.
RESULTS OF OPERATIONS
Revenues for the quarter ended January 31, 1998 were $13,409,665, an
increase of
9
<PAGE> 10
$13,183,660 (or 5833%) over revenues of $226,005 for the corresponding quarter
of the previous fiscal year. Equipment sales generated during the quarter ended
January 31, 1998 were principally from the installation of the Entertainment
Networks on Swissair aircraft. As of January 31, 1998, the Company had completed
installations on seventeen Swissair aircraft, including three B-747 aircraft and
fourteen MD-11 aircraft. During the quarter ended January 31, 1997, the Company
did not complete any installations of the Entertainment Network and had $148,709
of miscellaneous equipment sales. Service income of $118,439 for the quarter
ended January 31, 1998 was principally generated from services provided to
Swissair pursuant to a Media Programming Services Agreement and the Company's
share of gaming profits generated by the Swissair systems. Service income of
$77,296 for the quarter ended January 31, 1997 was primarily derived from
entertainment programming services provided to Alitalia and another air carrier.
Cost of equipment sales and service income for the quarter ended
January 31, 1998 were $11,573,095, an increase of $8,817,772 (or 320%) over cost
of sales of $2,755,323 for the corresponding quarter of the previous fiscal
year. The increase in cost of sales is due to the installations on eight
Swissair aircraft during the first quarter of fiscal 1998. Pursuant to the
Swissair agreement, the Company is responsible for all costs related to the
installation of the Entertainment Networks on the Swissair aircraft and
maintenance costs of the systems until September 1998. Both the installation and
maintenance required under the Swissair agreement are out-sourced by the Company
to third parties. Cost of equipment sales includes materials, installation and
maintenance costs, as well as estimated warranty costs and costs of upgrades to
the Swissair Entertainment Networks that the Company is contractually committed
to providing to Swissair. Cost of equipment sales and service income for the
quarter ended January 31, 1997 were principally a result of scrapped inventory
and provisions for the valuation of inventory. The scrapped inventory resulted
from the re-design of certain components of the Entertainment Network during the
first quarter of fiscal 1997.
There was no provision for doubtful accounts for the quarter ended
January 31, 1998, compared to $136,590 for the quarter ended January 31, 1997.
Fiscal 1997 provisions resulted from entertainment programming services provided
under the Alitalia agreement.
Research and development expenses for the quarter ended January 31,
1998 were $609,927, a decrease of $2,014,589 (or 77%) over expenses of
$2,624,516 for the corresponding quarter of the previous fiscal year. The
decrease in expenses reflects the Company's decision not to develop the next
generation of the Entertainment Network and the resulting reduction in staff and
professional fees. The Company does not plan to continue its research and
development beyond those efforts that are required contractually by the Swissair
agreement. The Swissair agreement requires the Company to provide specific
upgrades to the Entertainment Network currently being installed on Swissair
aircraft. The Company expects to complete the development and implementation of
these upgrades by December 1998 and does not plan to develop any further
upgrades to the Entertainment Network. The costs of developing these upgrades
are included in the Company's statements of operations as a cost of equipment
sales. The Company will continue any development efforts that are required to
support system reliability guarantees through the year 2003.
Marketing and administrative expenses for the quarter ended January 31,
1998 were $1,606,431, a decrease of $1,824,594 (or 53%) over expenses of
$3,431,025 for the corresponding quarter of the previous fiscal year. The
decrease in expenses reflects the Company's reduction in staff in administrative
areas, including production, marketing and program management departments.
During the quarter ended January 31, 1997, the Company
10
<PAGE> 11
recorded an expense of $466,875 upon the issuance of restricted Class A Common
Stock to Hyatt Ventures, Inc. in exchange for the execution of an agreement
necessary during a bid process with Qantas.
Interest income of $545,132 for the quarter ended January 31, 1998
increased from $403,772 for the quarter ended January 31, 1997. The interest
arose principally out of short-term investments of working capital. The increase
in income is due to the higher average cash balance during the first quarter of
fiscal 1998 compared to fiscal 1997.
Interest expense was $3,761 for the quarter ended January 31, 1998
compared to none for the quarter ended January 31, 1997. The increase is due to
capital lease agreements that the Company entered into during the second quarter
of fiscal 1997. The leases expire in September 1999.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company had working capital of approximately
$32.4 million. The Company's primary source of funding has been through equity
offerings. Since the Company has no backlog after the installation of the
Entertainment Network on two remaining Swissair aircraft, the Company expects
that losses will continue for the foreseeable future. As a result, unless funds
are received from additional financings, working capital is expected to continue
to decrease.
During the quarter ended January 31, 1998, the Company generated $1.8
million of cash from operating activities, an increase of $6.8 million from the
corresponding period of the previous fiscal year. The cash provided by
operations during the quarter ended January 31, 1998 is primarily a result of
decreases in accounts receivable and inventories and an increase in accrued
product warranties, partly offset by decreases in accounts payable and deferred
revenue.
Purchases of property and equipment for the quarter ended January 31,
1998 were $5,694 compared to $12.0 million for the quarter ended January 31,
1997. Capital expenditures for the first quarter of fiscal 1997 were primarily
related to the manufacture of the system under the Debonair agreement, the
installation of systems on three aircraft under the Swissair Agreement, and
research and development equipment.
On December 17, 1997, the Board of Directors authorized the Company to
repurchase shares of its Class A Common Stock on the open market. As of January
31, 1998, the Company had repurchased 326,800 shares at prices ranging from
$0.75 to $1.00 per share.
At January 31, 1998, the Company's material capital commitments were
(i) purchase orders of approximately $4.0 million relating primarily to
inventory purchases and (ii) its obligations under the Swissair Agreement.
The Company is currently using its working capital to finance its
current expenses, including installations, equipment purchases, product
development, inventory and other expenses associated with the delivery and
installation of the Swissair systems. The Company believes that its current cash
balances will be sufficient to meet the Company's currently anticipated cash
requirements for at least the next twelve months. However, in the event the
Company were to obtain additional orders for systems (as to which there can be
no assurance), the Company may require significant additional financing for
manufacture, assembly and installation of any such future orders. The Company
may also in the future elect to explore business opportunities,
11
<PAGE> 12
including additional applications for its technologies other than in-flight
entertainment. To do so, the Company would require significant additional
capital for research and development and, if such development efforts are
successful, for marketing, manufacturing and installing its new products.
Alternatively, the Company is considering seeking opportunities to acquire or
develop other business in which to deploy its cash resources. No assurance can
be given that any such alternative opportunities could be located, or if
located, could be successfully acquired and operated profitably.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-QSB are forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1993, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended) that are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward-looking statements. Such risks
and uncertainties include, but are not limited to, the failure of passenger use
of the systems to generate sufficient revenues, the inability of the Company to
convince customers to purchase its systems, the failure to execute definitive
agreements with additional airlines on favorable terms or at all, cost overruns
in connection with the Company's current contracts, failure of installed systems
to perform in accordance with system specifications, the failure of the Company
to receive sufficient financing to perform under any new airline contracts or to
perform sufficient future research and development, the impact of competition
and downward pricing pressures, the effect of changing economic conditions and
conditions in the airline industry, the inability of the Company to locate,
evaluate, purchase and operate other businesses, the impact of any changes in
domestic and foreign regulatory environments or the Company's inability to
obtain requisite government approvals, risks in technology development, the
risks involved in currency fluctuations, and the other risks and uncertainties
detailed in the Company's Annual Report on Form 10-KSB and amendment No. 1 to
the Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1997.
12
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PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBITS
<S> <C>
3.1(1)* - Certificate of Ownership and Merger
3.2(1)* - Amended and Restated Certificate of Incorporation of
the Registrant
3.3(1)* - Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant
3.4(1)* - By-laws of the Registrant
4.5(1)* - Form of Underwriter's Unit Purchase Option
4.6(1)* - Specimen of Class A Common Stock Certificate
4.7(1)* - Specimen of Class B Common Stock Certificate
4.10(2)* - Specimen of Class D Warrant Certificate
4.11(4)* - Stock Purchase Warrant, dated as of November 7, 1996, issued to
FortuNet, Inc.
4.12(4)* - Stock Purchase Warrant, dated as of November 12, 1996,
issued to Houlihan Lokey Howard & Zukin
27 - Financial Data Schedule
</TABLE>
- --------------------------
* Incorporated by reference from the Registrant's Annual Report on Form
10-KSB for the fiscal year ended October 31, 1997 and Amendment No. 1
to the Annual Report on Form 10-KSB/A filed with the Securities and
Exchange Commission.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended January 31, 1998.
13
<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: March 9, 1998 INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: /s/ Michail Itkis
Michail Itkis
Chief Executive Officer
By: /s/ John W. Alderfer
John W. Alderfer
Chief Financial Officer
14
<PAGE> 15
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.1(1) Certificate of Ownership and Merger *
3.2(1) Amended and Restated Certificate of Incorporation of the Registrant *
3.3(1) Certificate of Amendment of Amended and Restated Certificate of *
Incorporation of Registrant
3.4(1) By-laws of the Registrant *
4.5(1) Form of Underwriter's Unit Purchase Option *
4.6(1) Specimen of Class A Common Stock Certificate *
4.7(1) Specimen of Class B Common Stock Certificate *
4.10(2) Specimen of Class D Warrant Certificate *
4.11(4) Stock Purchase Warrant, dated as of November 7, 1996, issued to *
FortuNet, Inc.
4.12(4) Stock Purchase Warrant, dated as of November 12, 1996, issued to *
Houlihan Lokey Howard & Zukin
27 Financial Data Schedule 16
</TABLE>
- ---------------------------
* 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 37,959,310
<SECURITIES> 1,697,023
<RECEIVABLES> 4,598,895
<ALLOWANCES> 0
<INVENTORY> 2,609,317
<CURRENT-ASSETS> 47,678,118
<PP&E> 9,715,808
<DEPRECIATION> 7,070,932
<TOTAL-ASSETS> 51,606,872
<CURRENT-LIABILITIES> 15,242,191
<BONDS> 0
0
0
<COMMON> 221,111
<OTHER-SE> 36,046,958
<TOTAL-LIABILITY-AND-EQUITY> 51,606,872
<SALES> 13,291,226
<TOTAL-REVENUES> 13,409,665
<CGS> 11,567,395
<TOTAL-COSTS> 11,573,095
<OTHER-EXPENSES> 2,216,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,761
<INCOME-PRETAX> 161,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,583
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
