SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 18, 1999
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Interactive Flight Technologies, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-25668 11-3197148
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(Commission File Number) (IRS Employer Identification No.)
222 North 44th Street, Phoenix, AZ 85034
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(Address of principal executive offices, including zip code)
(602) 629-6200
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(Registrant's telephone number)
4041 N. Central Avenue, Suite B-200, Phoenix, AZ 85012
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(Former name or former address, if changed since last report.)
<PAGE>
The undersigned registrant hereby amends its Current Report on Form 8-K
dated May 17, 1999 which was filed on June 1, 1999, solely to add the pro forma
financial information required by Item 7(b) of Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information
On May 18, 1999, Interactive Flight Technologies, Inc. (the "Company")
received from The Network Connection, Inc. ("TNC") 1,055,745 shares of TNC's
common stock and 2,495,400 shares of its Series D Convertible Preferred Stock in
exchange for $4,250,000 in cash and substantially all the assets and certain
liabilities of the Company's Interactive Entertainment Division ("IED"), as
defined in the Asset Purchase and Sale Agreement dated April 30, 1999, as
amended (the "Transaction"). The Transaction has been accounted for as a reverse
merger whereby, for accounting purposes, the Company is considered the
accounting acquiror and the TNC is treated as the successor to the historical
operations of IED. TNC will continue to file as a Securities and Exchange
Commission ("SEC") registrant and continue to report under the name The Network
Connection, Inc. The Company will continue to report as a separate SEC
registrant, owning the shares of TNC as described above. The historical
financial statements of TNC up to the date of the transaction will no longer be
included in future filings of TNC.
The attached unaudited pro forma condensed combined balance sheet as of
April 30, 1999 and the unaudited pro forma condensed combined statements of
operations for the six months ended April 30, 1999(1) and the year ended October
31, 1998(2) give effect to the acquisition (as described above), as of April 30,
1999 for purposes of the balance sheet and as of the beginning of the periods
presented for purposes of the statements of operations. As a result of the
reverse merger, the assets and liabilities of IED are presented at their
historical cost basis and the assets and liabilities of TNC have been recorded
at their estimated fair market value at the date of the Transaction for purposes
of the purchase price allocation. In addition, the pro forma condensed combined
financial statements reflect the consolidation of TNC and IED into the
operations of the Company based on the percentage ownership of TNC by the
Company.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the future results of operations of the Company or the
results of operations which would have resulted had TNC and the Company's IED
been combined during the periods presented. In addition, the unaudited pro forma
results of operations are not intended to be a projection of future period
results.
- --------
(1) TNC reports on a calendar year basis, and as such, the underlying balance
sheet data and results of operations are as of and for the six months ended
March 31, 1999. The balance sheet data as of March 31, 1999 was derived from
TNC's March 31, 1999 Quarterly Report on Form 10-QSB filed with the SEC. The
results of operations data for the six months ended March 31, 1999 were derived
from the results of operations for the fourth quarter of 1998 (three months
ended December 31, 1998) included in TNC's December 31, 1998 Annual Report on
Form 10-KSB filed with the SEC and the results of operations for the three
months ended March 31, 1999 included in TNC's March 31, 1999 Quarterly Report on
Form 10-QSB filed with the SEC. As such, the results of operations for the
fourth quarter of 1998 for TNC are included in both the Unaudited Pro Forma
Condensed Combined Statement of Operations for the six months ended April 30,
1999 and the year ended October 31, 1998.
(2) TNC reports on a calendar year basis, and as such, the underlying results of
operations are for the period ended December 31, 1998, as filed on Form 10-KSB.
2
<PAGE>
Interactive Flight Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For The Six Months Ended April 30, 1999
($ In Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company TNC Adjustments Notes Combined
------- --- ----------- ----- --------
<S> <C> <C> <C> <C>
Revenues $ 627 $ (16) $ -- $ 611
Cost of revenues 374 257 -- 631
------- ------- ------- -------
Gross profit (loss) 253 (273) -- (20)
------- ------- ------- -------
Selling, general and administrative 3,645 1,952 (207) (E) 5,390
Research and development -- 290 -- 290
Provision for doubtful accounts and
inventory reserves -- 3,622 -- 3,622
Reversal of warranty, maintenance and
commission accruals (1,987) -- -- (1,987)
Expenses associated with investments 300 -- -- 300
Special charges -- 595 -- 595
Amortization of goodwill -- -- 236 (E) 236
------- ------- ------- -------
1,958 6,459 29 8,446
------- ------- ------- -------
Operating loss (1,705) (6,732) (29) 8,446
Interest income 845 -- -- 845
Interest expense (3) (525) -- (528)
Other income (expense) 49 -- -- 49
Minority interest share of loss (I) -- -- 1,550 1,550
------- ------- ------- -------
Net loss (814) (7,257) 1,521 (6,550)
Preferred stock dividends -- 303 -- 303
------- ------- ------- -------
Net loss to common stockholders $ (814) $(7,560) $ 1,521 $(6,853)
======= ======= ======= =======
Earnings per share $ (0.15) $ (1.26)
Weighted average shares 5,428 5,428
</TABLE>
3
See accompanying notes to unaudited pro forma
condensed combined financial statements.
<PAGE>
Interactive Flight Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended October 31, 1998
($ in Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company TNC Adjustments Notes Combined
------- --- ----------- ----- --------
<S> <C> <C> <C> <C>
Revenues $ 19,143 $ 5,003 $ -- $ 24,146
Cost of revenues 15,762 3,005 -- 18,767
-------- -------- -------- --------
Gross profit 3,381 1,998 -- 5,379
-------- -------- -------- --------
Selling, general and administrative 11,388 3,966 (590)(E) 14,764
Research and development 1,092 397 -- 1,489
Provision for doubtful accounts
and inventory reserves 10 6,464 -- 6,474
Special charges 400 595 -- 995
Amortization of goodwill -- -- 473(E) 473
-------- -------- -------- --------
12,890 11,422 (117) 24,195
-------- -------- -------- --------
Operating loss (9,509) (9,424) 117 816
Interest income 2,251 -- -- 2,251
Interest expense (12) (209) -- (221)
Other income (expense) 10 -- -- 10
Minority interest share of loss (I) -- -- 2,093 2,093
-------- -------- -------- --------
Net loss (7,260) (9,633) 2,210 (14,683)
Preferred stock dividends 575 -- 575
-------- -------- -------- --------
Net loss to common stockholders $ (7,260) $(10,208) $ 2,210 $(15,258)
======== ======== ======== ========
Earnings per share $ (1.22) $ (2.57)
Weighted average shares 5,933 5,933
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
4
<PAGE>
Interactive Flight Technologies, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
April 30, 1999
($ in Thousands)
<TABLE>
<CAPTION>
Company
TNC TNC Consolidated Company
Company-IED March 31, Pro Forma Pro Forma Excluding IED Pro Forma Pro Forma
April 30, 1999 1999 Adjustments Notes Combined April 30, 1999 Adjustments Notes Combined
---------- ---- ------------ ----- -------- -------------- ----------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash & cash equivalents $ 4,369 $ 107 $ - $ 4,476 $ 15,363 $ 19,839
Restricted cash 447 - - 447 135 582
Short-term Investments - - - - 7,990 7,990
Notes receivable - 229 - 229 - 229
Accounts receivable 1,251 1,478 - 2,729 30 2759
Inventories, net 1,513 2,681 (1,281)(C) 2,913 - 2,913
Prepaid expenses 7 26 - 33 432 465
Assets held for use - - - - 523 523
Other current assets 109 - - 109 934 1043
-------- ------- --------- --------- -------- --------- ---------
Total current assets 7,696 4,521 (1,281) 10,936 25,407 36,343
Investment securities - - - - 1,674 1,674
Notes receivable - - - - 1,050 (750)(H) 300
Property and equipment, 594 2,414 (806 (B) 2,202 42 2,244
net
Goodwill - - 4,728 (A) 4,728 - 4,728
Other assets 555 84 - 639 542 1,181
======== ======= ========= ========= ======== ========= =========
Total assets $ 8,845 $ 7,019 $ 2,641 $ 18,505 $ 28,715 $ (750) $ 46,470
======== ======= ========= ========= ======== ========= =========
Current liabilities:
Accounts payable $ 654 $ 2,497 - $ 3,151 $ 397 $ 3,548
Payable to stockholder - 75 - 75 - 75
Notes payable - 2,293 - 2,293 - (750)(H) 1,543
Accrued liabilities 2.028 - - 2,028 271 2,299
Deferred revenue 2,158 521 - 2,679 - 2,679
Accrued product
warranties 3,836 - - 3,836 1 3,837
Current portion long-term
debt and leases - 37 - 37 - 37
-------- ------- --------- --------- -------- --------- --------
Total current liabilities 8,676 5,423 - 14,099 669 (750) 14,768
Long term debt - 693 - 693 - - 693
-------- ------- --------- --------- -------- --------- --------
Total liabilities 8,676 6,116 - 14,792 669 (750) 15,461
Series A preferred stock of
Company $0.01 par
value and $1,000 - - - - - 3,050 (G) 3,050
stated value
Minority interest in TNC - - - - - 494 (F) 494
Series B 8% preferred
(1,500 shares $.01 par
value) - 1,549 (1,549)(D) - - -
Stockholders' equity:
Series B 8% preferred
(1,500 shares $.01 par
value and $1,000 stated
value) - - 15 (D) 15 - (15)(G) -
Series C 8% preferred
(800 shares $.01 par value
and $1,000 stated value - - 8 (D) 8 - (8)(G) -
Series D preferred
(2,495,400 shares
$.01 par value and - - 25 (D) 25 - (25)(G) -
$1,000 stated value)
Common stock TNC - 5 1 (D) 6 - (6)(G) -
Class A common stock of
Company $0.1 par value - - - - 54 54
Class B common stock of -
Company $0.1 par value - - - - -
Treasury stock - - - - (194) (194)
Additional paid in capital - 16,704 (13,214)(D) 3,490 110,079 (3,490)(G) 110,079
Unrealized gains - - - - 2,374 2,374
Retained earnings (deficit) 169 (17,355) 17,355 (D) 169 (84,267) (84,098)
-------- ------- --------- --------- -------- --------- --------
Total shareholders' equity 169 (646) 4,190 3,713 28,046 (3,544) 28,215
-------- ------- --------- --------- -------- --------- ---------
Total liabilities and
equity $ 8,845 $ 7,019 $ 2,641 $ 18,505 $ 28,715 $ (750) $ 46,470
======== ======== ========= ========= ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements.
5
<PAGE>
i) Basis of Accounting
On May 18, 1999, The Network Connection, Inc. ("TNC") completed the
issuance of 1,055,745 shares of its common stock and 2,495,400 shares of its
Series D Convertible Preferred Stock in exchange for $4,250,000 in cash and all
the assets and certain liabilities of Interactive Flight Technologies, Inc.'s
(the "Company") Interactive Entertainment Division ("IED"), as defined in the
Asset Purchase and Sale Agreement, dated April 30, 1999, as amended (the
"Transaction"). The transaction has been accounted for as a reverse merger
whereby, for accounting purposes, the Company is considered the accounting
acquiror and TNC is treated as the successor to the historical operations of the
Company.
TNC will continue to file as a SEC registrant and continue to report under
the name The Network Connection, Inc. The Company will also continue to report
as a separate SEC registrant, owning the shares of TNC as described above.
The unaudited pro forma condensed combined balance sheet as of April 30,
1999, gives effect to the Transaction as if the Transaction had taken place on
April 30, 1999 and combines the Company's unaudited April 30, 1999 assets and
liabilities, as derived from the Company's unaudited April 30, 1999 financial
statements, with TNC's unaudited balance sheet as of March 31, 1999.
The unaudited pro forma condensed combined statement of operations for the
six months ended April 30, 1999 is presented using TNC's unaudited statement of
operations for the six months ended March 31, 1999 (see footnote 1 on page 1)
combined with the Company's unaudited statement of operations for the six months
ended April 30, 1999 as if the Transaction had taken place on November 1, 1998.
The unaudited pro forma condensed combined statement of operations for the
year ended October 31, 1998 is presented using TNC's audited statement of
operations for the year ended December 31, 1998 combined with the Company's
audited statement of operations for the year ended October 31, 1998, as if the
Transaction had taken place on November 1, 1997.
As a result, TNC's results of operations for the three months ended
December 31, 1998 are included in the unaudited pro forma condensed combined
statements of operations for both the six months ended April 30, 1999 and the
year ended December 31, 1998.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with TNC's unaudited financial statements as of and for the
three months ended March 31, 1999 as filed on Form 10-QSB and the audited
financial statements as of and for the year ended December 31, 1998, as filed on
Form 10-KSB, and with the Company's unaudited consolidated financial statements
as of and for the six months ended April 30, 1999 as filed on Form 10-QSB and
the audited consolidated financial statements as of and for the year ended
October 31, 1998 as filed on Form 10-KSB.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the future results of operations of the Company or the
results of operations which would have resulted had TNC and the Company's IED
been combined during the periods presented. In addition, the unaudited pro forma
results are not intended to be a projection of future period results. The
purchase price was allocated to assets and liabilities based on management's
current estimate of their value. The final allocation of the purchase price may
vary from the estimated allocation herein. The pro forma condensed combined
financial statements reflect the consolidation of TNC and IED into the
operations of the Company based on the percentage ownership of TNC by the
Company.
ii) Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro
Forma Condensed Combined Statements of Operations
The accompanying pro forma adjustments reflect adjustments for the
following items:
A. To reflect the excess of acquisition cost over the estimated fair value of
net liabilities assumed (goodwill). The purchase price and purchase-price
allocation are summarized as follows (all dollars in thousands):
6
<PAGE>
<TABLE>
<S> <C> <C>
Purchase price paid as:
Cash $ 4,250
Net fair value of assets of the Company
contributed per the Agreement
(excluding cash contribution
but including other cash equivalents) 4,595
Net fair value of liabilities of the Company
contributed per the Agreement (8,676)
-------
Total purchase consideration $ 169
Allocated to:
Historical book value of TNC's net liabilities (971)
Adjustments to write-down assets to fair value:
Inventories, net (1,281)
Property and equipment (806)
Total fair value of net liabilities assumed (3,058)
Excess of fair value of TNC Series B and Series C preferred
stock over its recorded or stated value (1,501)
-------
Excess of purchase price over fair value of net liabilities assumed
(goodwill) $ 4,728
=======
</TABLE>
B. To reflect the write-down in property and equipment to fair value based on
new management's estimate of fair market value based on a review of such assets
and independent third party data where available.
C. To reflect adjustments to arrive at the fair market value of such assets
based on management's estimate of fair market value based on a review of such
assets and other available data. Adjustments to inventory reflect certain
changes in business strategy and potential customer orders since March 31, 1999,
with respect to market opportunities for TNC's future service offerings.
D. To reflect the elimination of certain stockholders' equity and mezzanine
preferred stock accounts of TNC, to reflect the issuance of TNC common stock and
Series D preferred stock in connection with the Transaction and to reflect the
separate purchase (prior to the acquisition date) of TNC's Series B and C
preferred stock by the Company.
E. To reflect the decrease in depreciation and amortization expense due to (1)
the amortization of goodwill on a straight-line basis over ten years, and (2)
decrease in depreciation resulting from the write-down of property and
equipment, depreciated on a straight-line basis over periods of approximately
five years.
F. To reflect the minority ownership interest in TNC.
G. To reflect the elimination of certain stockholders' equity accounts of TNC
and to reflect the issuance of the Company's Series A 8% Convertible Preferred
Stock in connection with the Company's purchase of TNC's Series B 8% Preferred
Stock and Series C 8% Preferred Stock prior to the Transaction.
H. To reflect the elimination of the Company's Secured promissory note issued to
TNC, prior to May 18, 1999.
I. Minority interest share of loss was derived by applying the approximately
20.5% of TNC shares not owned by the Company, to the net loss to common stock
holders. The Company's ownership percentage, for purposes of these pro forma
financial statements, includes the 1,055,745 shares of common stock of TNC
issued to the Company by TNC in connection with the Transaction, 15,090,569
common shares issuable to the Company upon conversion of the Series D
Convertible Preferred Stock which was issued by TNC to the Company in connection
with the Transaction, and 1,176,471 common shares issuable to the Company upon
conversion of TNC's Series B 8% preferred and Series C 8% preferred provided by
the Company in connection with the Transaction.
7
<PAGE>
(c) Exhibits None.
8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Registrant
By: MORRIS C. AARON
------------------------------------
Morris C. Aaron, Vice President
Chief Financial Officer
Date: August 2, 1999
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