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The Genesis of IFT (Interactive Flight Technologies)
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Here is a brief genesis of IFT (Interactive Flight Technology), the company that created and manufactured the IFEN (entertainment system) suspected of causing the sr111 crash.
“Interactive Flight Technologies was formed in 1994 with a $276,000 personal investment by Yuri Itkis, a Russian-degreed scientist and engineer, and his sons, Boris and Michail. Yuri Itkis was the founder and president of a Las Vegas based company that manufactured electronic bingo equipment. Prior to 1994, both sons were employed by their father’s business.
From beginning to end, the inflight entertainment system network was a disaster both from a financial perspective as well as possibly for the innocent victims of sr111 and their families. IFT’s IPO was one of those cited in charges against the underwriter (DH Blair) for securities fraud (brought by the New York distract attorney’s office (see thread on Blair)). DH Blair has a history of involvement in ‘pump and dump’ schemes that left unsuspecting stockholders penniless while brokers and insiders greedily raked in the profits. There were allegations against Blair that included mob involvement. .
IFT was never profitable and its only customer was Swissair. After the company’s inflight entertainment failed, CEO Michail Itkis attempted to redirect the company’s efforts into retail drycleaning. Stockholders were livid and mounted a proxy battle, which eventually resulted in replacement of the board and the management team, including Itkis.
Many asked how a formerly reputable company such as Swissair that prided itself in precision and efficiency could even think about installing an entertainment system in such a shoddy manner risking years of building a hard earned reputation and the lives of their passengers. I think we will have the answers to that someday but we will still be shaking our heads in disbelief over the complete stupidity and senselessness of it all. Other reputable airlines such as Qantas looked at the IFEN but for various reasons decided not to purchase the unproven apparently risky system from this tiny inexperienced company in Arizona. I maintain that the mindset of the management (and the board) that existed at Swissair at the time the IFEN was purchased from a completely unknown entity called Interactive Flight Technology, is not only what may have contributed to the deaths of 229 passengers but also resulted in the undoing of the Swissair airline itself.
Phoenix beats Colorado for Vegas company move
http://phoenix.bizjournals.com/phoenix/stories/1996/07/15/story8.html

May 16, 1997
High-tech firm to trade on Nasdaq
Interactive Flight Technologies Inc., Phoenix, received approval from The Nasdaq Stock Market to begin trading on its national market, Nasdaq officials said. The digital entertainment firm will trade under the symbol FLYT effective May 19.

http://phoenix.bizjournals.com/phoenix/stories/1997/05/12/daily9.html

Underwriter takes heat at Interactive Flight
From the September 26, 1997 print edition
Mary Vandeveire The Business Journal
Early investors in Phoenix-based Interactive Flight Technologies may be getting a check in the mail following a securities industry probe.
In the meantime, current shareholders are watching closely as the company tries to reverse setbacks and sustain operations.
In a settlement with National Association of Securities Dealers Regulation, D.H. Blair & Co. Inc. agreed to pay restitution to investors who paid excessive markups on 16 securities, including Interactive Flight units.
The settlement stems from allegations that, from June 1993 through May 1995, the New York-based firm charged excessive markups on certain securities whose initial public offerings were underwritten by D.H. Blair Investment Banking Corp. The firm was the underwriter on Interactive Flight's March 1995 IPO of 2.8 million units comprising warrants and shares of common stock. The IPO price was $5 per unit.
The recently announced settlement, which levels a $525,000 fine on D.H. Blair's head trader, does not suggest that the affected companies knew of the violations.
More at:
http://phoenix.bizjournals.com/phoenix/stories/1997/09/29/story4.html

Leaving Las Vegas
In-flight gaming firm stakes out Phoenix for move
Martha Reinke The Business Journal
Interactive Flight Technologies Inc., a Las Vegas company that's bringing gambling to the skies, could be moving its entire operation and headquarters to Phoenix, officials confirmed this week.
"So far, Phoenix is at the top of the list," said chief financial officer Robert Aten.
Interactive Flight Technologies is a fledgling public company that designs, manufactures and distributes touch-screen interactive flight entertainment systems that provide European airline passengers with a wide range of movie selections, a variety of merchandise for sale and video gaming, such as slots, poker, blackjack and keno.
The company recently nominated former U.S. Secretary of State Alexander M. Haig Jr. as a board director, an action that's expected to become effective in mid-August. "We want to establish our board so we have some visibility where we need it," Aten said.
More at:
http://phoenix.bizjournals.com/phoenix/stories/1996/06/24/story1.html



A poster at the old sr111 board noted the following information:

The following
information was compiled from filings made by Interactive
Flight Technologies to
the Securities Exchange
Commission. The material is publicly available on the
Internet.
The information was primarily drawn from an
IFT SEC Filing made on 01/27/1998

http://www.sec.gov/edaux/formlynx.htm (link no longer works) although material from other filings have also
been
added. Paragraphs have not been altered
except for some condensing.

Please note that
this information is not in chronological order.
However, it should still provide a
general
understanding of IFT, it’s early marketing strategies, the
components of the IFEN, and
the gambling and FAA
regulations that it faced.

In a section near the end
called ‘Later Developments’, you will see how IFT
started to
experience revenue problems, prompting the
Board to consider abandoning it’s IFEN’s in
order
to pursue drycleaning technologies instead.
Accordingly, this led to a shareholder
revolt, and the
original Board was entirely replaced.

INTERACTIVE FLIGHT TECHNOLOGIES
The Company
was incorporated in Delaware in August 1994 and is
the successor by merger to In-Flight Entertainment
Services Corp., a New York corporation incorporated in
February 1994. The Company completed an initial public
offering of its securities in March 1995.

The
Company was a development stage company through January
31, 1996 where the Company’s activities consisted of
developing, testing and receiving FAA approval for their
in-flight entertainment system. On February 1, 1996, the
Company began revenue generation operations with the
acceptance of their first in-flight entertainment network by
Alitalia Airlines, S.p.A.
Interactive Flight
Technologies, Inc. (the “Company”Wink is engaged in the
development, assembly, installation and operation of a
computer-based in-flight entertainment network (the
“Entertainment Network”Wink. The first generation of the
Entertainment Network provided aircraft passengers the
opportunity to view movies, to play computer games and, in
certain cases where permitted by applicable law, to
gamble through an in-seat video touch screen. The
Company has also recently developed a second generation
of the Entertainment Network (the “IFEN-2”Wink which
includes additional features such as secure casino gaming,
the ability for passengers to pay for IFEN-2 usage
through their credit cards, and increased video-on-demand
capacity.
Yuri Itkis, a director and principal stockholder of
the Company, is the President and sole stockholder of
FortuNet and Boris Itkis, a former director of the Company
and a son of Yuri Itkis, is an employee of FortuNet.
Michail Itkis, the Chief Executive Officer and a director
of the Company, is also a son of Yuri Itkis and was
an employee of FortuNet until October 1994.
As of
January 17, 1997, the Company employed 110 people on a
full-time basis and 14 people on a temporary basis. The
Company also retains consultants to conduct specific
engineering or development activities.

IFEN
DESCRIPTION
Passengers operate the in-seat video terminal by touching
the screen on which various touch buttons are
displayed such as “movies,” “shopping,” “arcade games,”
“casino games,” “credit card,” “help” and others. In
order to access the IFEN-2’s features which require
payment, including casino gaming, the passenger will first
open an account with the cabin file server (the
Entertainment Network’s proprietary central computer) by
swiping his or her credit card through the credit card
reader slot. Following the flight, records of the use
charges and gaming losses and winnings will be downloaded
to the Central Ground System, which will then post
the charges, losses and/or winnings to the
passenger’s account.
The Entertainment Network is designed
to offer a variety of video gaming options such as
Slots, Keno, Lotto, Poker, Bingo, Blackjack and (on the
Swissair system) certain games offered by the Swiss
lottery such as “Risiko.” These games feature outstanding
graphics and superior ease of passenger use.

The Company’s gaming software includes, among
other things, certain casino gaming software which is
included in the license from FortuNet described below and
various additional casino games developed by the Company.
The IFEN-2’s advanced distributed network provides
security for all video gaming transactions on the system,
which is necessary to avoid tampering and fraud.
Additionally, the IFEN-2 design permits all payout tables and
betting and loss limits on the system’s video gaming to
be customized to meet an airline’s exact
specifications.
The Entertainment Network is designed to
include a choice of arcade-type games. The system’s Seat
Electronics Boxes (SEB’s) operate under the Windows NT�
operating system, through which the Company believes that
numerous games will be adaptable to the Entertainment
Network once a mouse or joystick is integrated into the
system. The large local hard disk storage capacity of the
system’s SEB’s (a feature the Company believes is unique)
eliminates lengthy downloads of passenger selected
games.
The Entertainment Network is designed to provide
airline management with the capability for real time
gaming management by tracking the entire gaming process
on all of the system’s in-seat video terminals
collectively or individually. In particular, the Entertainment
Network is designed to store the complete history of all
wagers and game outcomes on all of the in-seat video
terminals.
The stored information may include
passenger/player identification numbers, the times of
transactions, the bet amounts, the amounts won or lost, the
cards played, the keno balls called and alarms for
management, such as of large consistent winnings and
progressive jackpot hits. If desired, the IFEN-2 design can
be customized to permit all gaming related
information, including the alarms, to be observable in flight
on the screen on the cabin file server, or on the
ground after periodic downloading using a Central Ground
System described below. The system is also designed to
limit the wagers, aggregate losses and winnings by any
individual player to any amounts selected by the
airline.
The software and the electronics of the Entertainment
Network are designed to also contain multiple layers of
proprietary security measures. The Entertainment Network is
based on a distributed network designed to provide
centralized control while reducing the possibility that a
single point of failure will disrupt the operation of
more than a small portion of the network.
The
Entertainment Network is centrally controlled on an aircraft by
the cabin file server. The cabin file server is the
central computer designed to coordinate and control all
functions of the Entertainment Network. The cabin file
server provides security for transactions on the
Entertainment Network by providing multiple layers of software
and hardware security systems. These security systems
are designed to record all transactions for later
downloading to the Central Ground System, as well as control
the generation of all random factors that determine
the outcome of any casino games being played by the
passengers.
Located at the Company’s executive offices in Phoenix,
Arizona, the Central Ground System is a computer system
developed by the Company to serve as the control focal
point for all of the Company’s installed Entertainment
Networks. The Central Ground System is provided with
accounting and statistical data accumulated by the
Entertainment Networks during flight. The Central Ground System
can then process this data in order to, among other
things, post the passenger transactions to their
respective credit card processing centers and provide
airline management with a variety of accounting and
statistical reports.

The cabin file server controls a number of
cluster controllers, and each cluster controller controls
a group of approximately 32 in-seat video
terminals. Consequently, the failure of one in-seat video
terminal should not affect the operation of other
terminals on the aircraft.
Similarly, the failure of an
individual cluster controller is expected to affect only the
in-seat video terminals controlled by that cluster
controller, and not the operation of the other in-seat video
terminals on the aircraft. Further, even if the cabin file
server fails, each cluster controller is designed to
continue to operate autonomously without the cabin file
server, except for certain gaming management functions
which are performed by the cabin file
server.

THE SWISSAIR AGREEMENT
On May 1, 1996, the
Company entered into a letter of intent with Swissair.
The parties have until July 31, 1996 to reach a
formal agreement incorporating the terms outlined in the
letter of intent. If an agreement is not reached by this
time, neither the Company nor Swissair will have any
liability to the other.
Effective July 18, 1996, the
Company entered into an agreement with Swissair (which
was amended and restated effective October 22, 1996)
to provide for delivery and installation by the
Company of IFEN-2 systems on sixteen Swissair MD-11
aircraft and five Swissair B-747 aircraft (as amended, the
“Swissair Agreement”Wink. Under the Swissair Agreement, the
Company will also provide various maintenance and
operational services for the installed IFEN-2
systems.
Installation of the IFEN-2 on the first Swissair aircraft is
scheduled to be completed on or about
January 26, 1997.
The remaining installations are scheduled to take
place at the rate one to two
shipsets per month
through February 1998. Subject to certain exceptions, the
Swissair Agreement subjects the Company to certain
penalties if IFEN-2 systems are not timely
installed.
Under the agreement, the Company agreed to finance the
purchase price (approximately $72 million plus certain
costs of installation and upgrades) of the twenty-one
IFEN-2 shipsets out of revenues from passenger use of
the systems. This arrangement was based on certain
assumptions about gaming revenue, and the parties agreed to
renegotiate the contract if these assumptions were not met.

Although the experience of the Company to date with
operation of the system has been limited, revenue from
gaming generated to date has been significantly less
than assumed and is insufficient to support the
purchase of the system by Swissair out of revenues. These
results are not necessarily indicative of future results,
and the Company and Swissair have begun to implement
certain changes in the gaming features on the system and
marketing plans associated with the system. Due to the
insufficient revenues being generated by gaming, the Company
and Swissair have been renegotiating the original
agreement.
As a result, the two parties signed a
Memorandum of Understanding (“MOU”Wink which the parties are
operating under until June 23, 1997 or a renegotiated
agreement is reached. If agreement is reached under the
Swissair MOU, the Company would be responsible for all
costs including shipset components, installation and
twelve months of maintenance costs for two MD-11 and one
747 aircraft installation in the first, business and
economy class sections of the aircrafts. For the
remaining eighteen aircraft, only first and business class
would be installed and Swissair would purchase the
shipsets (regardless of gaming revenues) for an average of
$1.7 million per aircraft.

costs for the eighteen aircraft. The split of
revenues generated from gaming and passenger use of the
system for all twenty-one aircraft would be determined
in the renegotiated agreement. In the renegotiation
process, the Company and Swissair have discussed the
possibility of transferring title to the Entertainment
Networks installed in the first, business and economy
sections of three aircraft from the Company to Swissair.

Should the Company and Swissair agree to the title
transfer in the renegotiated agreement, the Company would
probably receive no immediate sales proceeds for the
Entertainment Networks other than the Company’s share of gaming
revenues as anticipated in the original contract and incur
a loss for the estimated hardware, installation,
maintenance and warranty costs incurred and expected to be
incurred for the shipsets.
The Company’s best estimate
of these costs at this time is approximately $11
million. However, there can be no assurance that the title
transfer will occur or that a renegotiated agreement will
be reached on terms acceptable to both parties. If
the parties cannot reach an agreement, either party
could cancel the MOU, in which case the Swissair
Agreement would likely be terminated. In the event the
agreement is terminated, an evaluation of the
recoverability of the shipsets would be based upon a revised
estimate of future gaming reserves.

Pursuant to the
agreements with Schweizerische Luftverkehr AG, a Swiss
corporation (Swissair)
and Interkantonale Landeslotterie,
a Swiss non-profit organization which organizes
lotteries in
Switzerland (ILL), the Company will
manufacture, install, support, and maintain
twenty-one
shipsets of the in-flight entertainment network until
December 31, 2001 as to five B-747 airplanes
and until
December 31, 2003 as to sixteen MD-11 airplanes.
Installation is expected to occur
during the two years
ended October 31, 1998. The Swissair agreement subjects
the Company to
certain penalties, which could be
substantial, if the in-flight entertainment networks are not

installed on a timely basis. Management anticipates that
operating and product costs will be
recovered over the
term of the contract through casino gaming revenue
sharing between
Swissair, ILL, and the Company. In
anticipation of the fulfillment of the Swissair contract, the

Company has entered into an agreement with Hollingsead
International, Inc. (Hollingsead)
pursuant to which
Hollingsead will provide engineering services, manufacture
installation
kits, provide installation labor, and perform
airworthiness certification procedures in accordance
with
Federal Aviation Administration regulations.

SALES AND MARKETING
Although the Company has
commenced negotiations with several airlines, it has thus
far entered
into agreements only with Swissair,
Debonair and Alitalia for the purchase of the
Entertainment
Network. Because the Company believes the
demand for in-flight entertainment systems is

greater on longer flights, the Company is focusing its
marketing assistance on airlines with long-
haul routes.
In addition, because gaming can generally be
expected to generate greater
revenues and
profitability than other features of the Entertainment Network,
and because the use
of gaming devices is
prohibited on flights to and from the United States, the
Company is directing
its sales efforts primarily
toward international carriers or domestic carriers with
international
routes.

The purchase price of an
Entertainment Network is relatively high - estimated to range
from approximately $700,000 to $6,500,000 per aircraft
depending upon various factors such as the size and type of
the aircraft.
The Company believes that the market
for technologically advanced in-flight entertainment
systems is still emerging and that competition to provide
such services to the airlines will be intense. The
Company is aware of several other companies that provide
systems that compete with the Entertainment Network, some
of which have been installed on aircraft. Most of
these competitors have substantially greater financial
and other resources than the Company and,
accordingly, may have a significant competitive advantage over
the Company. The Company’s principal competitors
include BE Aerospace, TNCI, Hughes-Avicom, Matsushita and
Sony.
Research and development expenses during fiscal 1996 and
fiscal 1995 were approximately $5.3 Million and $2.4
Million, respectively. Such amounts have not been borne by
customers.
The Company also intends to continue to
expand its library of movies, games and other
programming available to passengers. The Company has
arrangements with certain movie distributors pursuant to which
the Company chooses from lists of available movies
from each distributor, and compiles the lists for
presentation to the airlines. However, with the exception of
certain casino gaming software licensed from FortuNet and
a limited number of casino and arcade games
developed to date by the Company, the Company does not
currently own or have rights to use or include any
entertainment or other programming software for use on the
Entertainment Network.
Because gaming can generally be
expected to generate greater revenues and profitability
than other entertainment options expected to be
available on the Entertainment Network, the inability to
offer gaming on flights may have a material adverse
impact on the Company’s business and on the market
acceptance by airlines of the Entertainment Network.
Both
of the contracts are subject to the gaming laws of
various jurisdictions. The sole market for the Company’s
products is expected to be commercial airlines. There are
a limited number of major commercial airlines
worldwide. Accordingly, even assuming a sustained commercial
viability and the successful marketing of the Entertainment
Network, the Company expects to have contracts with only a
limited number of customers, each of which may account
for a substantial portion of the Company’s revenues.

The inability to generate new contracts to
replace completed contracts could result in substantial
losses in future fiscal periods. Moreover, because
gaming is prohibited on all United States air carriers
and on aircraft operated to or from the United States
by foreign carriers, the Entertainment Network may
be commercially less attractive to a significant
segment of the commercial airline market. Regulatory
Restrictions on Gaming Devices. United States law, with
certain exceptions, currently prohibits the knowing
transportation of gaming devices on aircraft operated in
interstate air transportation.
In addition, states may
prohibit the transportation and use of gaming devices on
flights operating between two points in a single state.
Federal law also prohibits the installation,
transportation or operation of gaming devices by any U.S. or
foreign air carrier or for such carriers to permit their
use on aircraft operated to or from the United States
in foreign air transportation. The United States
Secretary of Transportation has conducted a study and has
reported to Congress in March 1996, regarding the safety,
commercial and operational issues posed by gaming devices
aboard commercial aircraft.
However, this report did
recommend that Congress take immediate action to modify
Federal law regarding gaming devices on commercial
aircraft and it is uncertain what effect the report will
have, if any. Moreover, the laws regarding the
transmission of gaming data into, out of, or within United
States territory, even where such data was lawfully
obtained in another jurisdiction, are unclear. As a
result, there can be no assurance that the transmission
of such data will not be restricted or prohibited.

Because gaming can generally be expected to generate
significantly greater revenues and profitability than other
entertainment options expected to be available on the
Entertainment Network, the inability to offer gaming on flights
would have a material adverse impact on the Company’s
business and on the market acceptance by airlines of the
Entertainment Network
As the installed customer base of
Entertainment Networks increases, and assuming the Company is
able to enter into agreements with airlines containing
revenue sharing provisions, it expects to generate a
greater portion of its revenues from revenue sharing with
the airlines and a lesser percentage from sales of
the Entertainment Network.
As of October 31, 1996,
the Company has entered into agreements with several
non-affiliated sales representatives in foreign countries to
market and promote the Company’s product and to assist
in the negotiations with airlines. Such agreements
typically provide for the sales representatives to act as
the Company’s exclusive representative in a
particular territory or with respect to a particular
airline. The Company currently has agreements covering
specified areas of and/or airlines in Europe, the Middle
East, North and South America, the Far East, Africa,
Australia and Egypt. Such arrangements generally provide
for a commission based on a percentage of the
purchase price ranging from 7.5% to 18% and expire
December 1, 1996 through March 18, 1998.

OTHER AGREEMENTS
In October 1994, the Company
entered into an Intellectual Property License and Support
Services Agreement with FortuNet, which was amended and
restated on November 7, 1996 (as amended, the “FortuNet
License”Wink. FortuNet is a licensed gaming equipment
manufacturer that distributes to casinos and other gaming
establishments video gaming networks which incorporate certain
of the technologies developed by FortuNet and
licensed to the Company for airline use. The FortuNet
License grants the Company a worldwide, perpetual license
to FortuNet’s current and future patents,
copyrights, trade secrets and related know-how covering a
computerized system for use in all fields other than bingo
halls.
The Company also has to compensate FortuNet at the
rate of 108% of costs for development, enhancement,
installation, support and maintenance services required under
the License Agreement. The Company paid FortuNet
$100,000 during each year ended October 31, 1996 and 1995.
Concurrent with the License Agreement, the Company has
entered into a consulting agreement with Yuri Itkis, a
related party, who is a principal stockholder and
director of the Company and sole stockholder of FortuNet.
The term of the consulting agreement is consistent
with the term of the licensing agreement. The Company
paid Yuri Itkis $100,000 during each year ended
October 31, 1996 and 1995.
Effective October 22, 1996,
the Company also executed an agreement (the “ILL
Agreement”Wink with Interkantonale Landeslotterie (“ILL”Wink, the
operator of the Swiss lottery based in Zurich,
Switzerland, under which the IFEN-2 systems installed on
Swissair aircraft will allow passengers to participate in
various Swiss lottery games. The IFEN-2 shipsets
installed on Swissair aircraft are expected to include
various gaming options, including Slots, Keno and Risiko
(a Swiss lottery game). The Swissair system may also
feature other casino-style games pending, among other
things, approval of Swissair, ILL and Swiss
authorities.
Under the Swissair Agreement and the ILL Agreement,
subject to the terms thereof, the Company is entitled to
receive an aggregate purchase price for the twenty-one
IFEN-2 systems of approximately $72 Million, plus costs
of installation and upgrades and certain design
modification costs. The Company’s cost of goods sold for the
Swissair systems is expected to be substantially
comparable to the aggregate purchase price. The Company is
also entitled to be reimbursed for certain costs to be
incurred in connection with maintaining and operating the
installed systems. However, the Company’s operating
expenses and the purchase price are payable only out of
net revenues (after deducting credit card and lottery
permit fees) received from passenger participation in
the lottery and, if any, casino games.

Further, the Company may receive such amounts
only after Swissair is first reimbursed from the net
lottery revenues for certain expenses incurred in
connection with the installation and operation of the IFEN-2
systems. ILL is entitled to any net gaming revenues
remaining after payment of Swissair’s operating expenses,
the Company’s operating expenses and the aggregate
system purchase price. The Company will also receive a
percentage of revenues and commissions from advertising and
shopping services available on the installed IFEN-2
systems.
The Alitalia Agreement provides for the Company to
sell, service and support the first generation

Entertainment Network in the first/business class section on
five Alitalia aircraft. The system
provided to
Alitalia is designed to feature video-on-demand
capability, offering passengers up to 20 movies and/or short
subjects to choose from, and various arcade games. The
Alitalia Agreement does not presently provide for, and is
not expected to provide for, passenger use of
gambling features of the Entertainment
Network.

MANUFACTURING, ASSEMBLY AND INSTALLATION
System installation
generally requires at least four to seven days per aircraft
(or longer for initial installations), depending on
the number of installed seats, and therefore the
Company anticipates that most installations will occur
during an airline’s off-season, generally during the
winter months. As a result, the Company might experience
related seasonality in its operation and wide
fluctuations in revenues. In addition, the Company might not
receive any portion of the purchase price until 60 to 90
days after the related installation is complete, which
may strain the Company’s cash resources or lead to
cash flow shortages.
The Company obtains most of
the components of the Entertainment Network from
commercially
available sources. To date, the Company has
engaged in only limited manufacturing operations
and,
when required components have not been commercially
available, has subcontracted out
substantially all
component manufacturing. The Company has leased
manufacturing and
warehouse facilities in Phoenix which it
uses to assemble the Entertainment Networks. The

Company anticipates that this facility will be sufficient
to satisfy the Company’s needs through
1998.
Installation of the Entertainment Network on an aircraft is
estimated to require at least four
to seven days,
depending upon the number of installed seats, and longer
for the initial
installations. Moreover, due to
the high cost of grounding an airplane, the Company
anticipates
that installations are more likely to be
scheduled during the off-season for the airline customer,

generally the winter months. Because of the manpower and
experience required to perform
installations, and due to
the inherent relationship between installation and
the STC application
and compliance process, the
Company has contracted with Hollingsead International to
perform
system installation on all Swissair aircraft.

Alitalia made, and Debonair is expected to make,
its own arrangements for installation of the system
on its aircraft. The Company anticipates that future
installations, if any, will be performed by an experienced
third-party subcontractor such as Hollingsead International.

GOVERNMENT REGULATION
The installation and use of the
Entertainment Network on any particular aircraft will require
prior certification and approvals from the FAA and
certification and approvals from aeronautical agencies of
foreign governments. Because the installation of the
Entertainment Network is considered a major modification to an
aircraft, the Company must apply for and be granted a
Supplemental Type Certificate (“STC”Wink from the FAA. This is a
multi-step process involving required interim approvals. A
separate STC will be required with respect to each
aircraft type on which the Entertainment Network will be
installed. Once an STC is issued with respect to an aircraft
type, the unit may be installed on other aircraft of
the same type with the same configuration provided
each installation is performed in a manner as
specified by the aircraft specific STC. To date, the
Company has obtained one STC for Alitalia MD-11
aircraft.
Because the process of obtaining an STC is highly
technical, the Company has entered into agreements with
Hollingsead International and its subsidiary Elsinore
Aerospace Services (collectively, “Hollingsead”Winkto assist
the Company in the application and approval
process.
((Editor’s note: Elsinore and Hollingsead are subsidaries of
DeCrane Aircraft Holdings. Collectively, their systems
integration services include design and engineering of
aircraft electronic and other systems, certifications on
behalf of the Federal Aviation Administration, the
assembly of installation kits for various aircraft
systems, and installation services. Smoke detection, fire
suppression and in-flight entertainment systems for aircraft
are among the systems for which they supply design,
certification, assembly and/or installation services. They also
manufacture many of the components required to complete a
systems integration project, including electrical
contacts, connectors, power and control devices, wire
harness assemblies, and structural supports for
connectors and harnesses.))
Further, because the Company
lacks the FAA authorization to perform these functions,
the Company must contract with third parties to
obtain FAA certifications of the Entertainment Network
on each proposed type of host aircraft, and to
install the Entertainment Networks on customers aircraft.
The Company has contracted with Elsinore Aerospace
Services (“Elsinore”Wink, an FAA-designated engineering
representative experienced in flight entertainment systems, to
assist the Company in the application and approval
process in connection with the Debonair systems.
Similarly, the Company has contracted with Hollingsead
International to assist with such process in connection with
the Swissair systems and to perform the installation
of the Entertainment Networks on Swissair aircraft.
((S-3A Nov 11 1996 filing))

Any breach or delay in performance by either of
these contractors could have a material adverse effect
on the Company’s results of operations and its
relationships with its airline customers. Hollingsead is an FAA
designated engineering representative experienced in-flight
entertainment systems and has the authority to approve, subject
to final FAA review, certain aspects of the
Company’s STC applications.
Once the Company identifies
the specific aircraft type on which the Entertainment
Network will be installed, it will, through the
subcontractor, make application to the FAA for the STC for that
aircraft type. Thereafter, the FAA will initially
establish the certification criteria required to be met for
approval, which will include an in-flight test. The FAA, or
its designee, subject to FAA review, will review all
necessary certification and technical drawings, manuals and
procedures for adequacy and compliance; issue necessary
interim approvals including permission to conduct a
flight test of the Entertainment Network; review the
results of the flight test; perform inspections to ensure
that both the components of the EntertainmentNetwork
and their installation and operation conform to the
certification requirements; and issue the STC.
In addition,
the Company or its subcontractor must obtain from the
FAA a Parts Manufacturer Approval (“PMA”Wink with
respect to the components of the Entertainment Network to
be installed on each specific aircraft type for
which an STC is granted. There can be no assurance that
the Company will be issued the STCs and PMAs for
which it applies or that if such approvals are granted,
that they will be granted within a reasonable time
frame or within the amount budgeted by the Company for
such approvals.
The FAA, in the issuance of the
STC, will consider such factors as whether the
Entertainment Network will interfere with the operational and
navigational equipment installed on the aircraft; whether the
electrical components of the Entertainment Network are
compatible with those of the aircraft; whether the
components of the Entertainment Network installed in the
passenger seats will interfere with emergency egress from
the aircraft; whether the components of the
Entertainment Network will, if subjected to heat or fire, emit
toxic fumes; and similar safety and flight-related
concerns.
Federal law grants to the FAA the authority
to reexamine at any time the basis upon which
certification and approval of the Entertainment Network may be
granted and, if appropriate, to amend or revoke such
certifications and approvals, subject to certain appeal rights.
In addition to approvals required to be obtained
from the FAA, the Company may be required to obtain
certification and approval of the Entertainment Network from
the aeronautical authorities of foreign countries.

In many cases, through technical working agreements
between the FAA and the foreign aeronautical authorities,
such authorities accept the FAA issuance of the STC as
approval, although certain country authorities reserve
theright to independently review the data and the
compliance criteria which support the issuance of the STC
and to reach an independent determination on whether
to approve the equipment for installation and
operation. There can be no assurance that necessary foreign
government approvals will be obtained, or if obtained,
within a reasonable time frame or within the amount
budgeted by the Company for this aspect of the project.

MISC.
In March 1995, the Company raised
approximately $13.9 Million through its initial public offering
of 3,220,000 Units, each Unit consisting of one
share of Class A Common Stock, one Class A Warrant and
one Class B Warrant. The Company has subsequently
raised additional capital aggregating approximately
$95.1 Million from exercises of its Class A and Class B
Warrants. To date, the Company has generated revenues of
approximately $3.0 Million and has incurred a cumulative losses
of approximately $25.0 Million through October 31,
1996, and further losses since that date.
As of
January 17, 1997, there were 61 record holders of Class A
Common Stock and 6 holders of record of Class B
Warrants.
Marketing and administrative expenses were $9,973,867 for
the year ended October 31, 1996, an increase of
$7,531,452 (or 308%) from $2,442,415 for the year ended
October 31, 1995. This increase was primarily due to
increased marketing efforts and increase in staff and
related expenses. Additionally, the Company recorded
charges of $1,545,847 and $919,596 upon the issuance of
warrants and Class A Common Stock, respectively.
The
warrants were issued pursuant to an agreement whereby
Banner Aerospace, Inc. agreed to provide logistical
support to enhance the Company’s chances of obtaining
business with a major European airline. The stock was
issued upon the exercise of employee stock options
which, because of a cashless exercise, resulted in a
charge to compensation expense equal to the value of the
shares issued.
In addition, in July 1996 the Company
relocated its principal offices and its design and assembly
facilities to Phoenix, Arizona, and recorded relocation
costs of $591,000 in connection therewith. The Company
has granted options to purchase stock to various
parties. All options were issued at a price equal to or
greater than the market price of the Company’s common
stock at the date immediately prior to the grant and
have a term of ten years.
Expenses for unusual
items were $1,266,390 during the year ended October 31,
1996, as compared to $0 for the year ended October 31,
1995 In April 1996, the Company’s President resigned
but agreed to continue to serve as a consultant for
one year. In October 1996, the Company’s Vice
President of Business Development, the Company’s Vice
President of Sales and Secretary, and the Company’s Chief
Financial Officer resigned, although each agreed to
continue to serve as a consultant for one year. In
connection with these resignations, the Company recognized
severance expense in the amount of $752,500. In addition,
the Company terminated an agreement with a foreign
sales representative and consultant and, as a result,
recorded $420,000 as unusual charges.

The Company’s revenues have been generated, and
are anticipated to be generated, primarily from
sales, leasing installation and servicing of the
Entertainment Network aboard commercial and charter aircraft.
The contracts the Company has executed and is
currently negotiating generally provide for the Company to
install the Entertainment Network on an aircraft and to
be paid for the equipment and its installation and
maintenance out of revenue generated by passenger use of the
installed network on the aircraft.
As a result, the
Company must expend significant capital amounts for the
test installations (which require the assembly and
installation of approximately 30 to 280 in-seat video
terminals, cabin file servers, cluster controllers,
video-on-demand servers and SEBs and cabling the first, business
and/or economy class sections of the aircraft) and
subsequent assembly, installation and maintenance of the
Entertainment Network on each aircraft.
However, revenue as
payment for the system will typically be received, if at
all, only as a result of the use of the system over a
potentially significant period of time. Moreover, the Company
may also enter into commitments to purchase equipment
necessary for additional installations, even in the absence
of a purchase commitment from an airline, if such
action is determined to be necessary or desirable to
pursue business opportunities.
The Company is
currently using its working capital to finance all of its
current expenses, including test installations, equipment
purchases, product development, inventory and other expenses
associated with the delivery and installation of the
Swissair and Debonair Entertainment Networks, as well as
for payment of continued marketing and research and
development expenses.
The Company plans to continue to
use a substantial portion of its cash resources to
fund its plan of operations described above. The
Company believes that its current cash reserves will be
sufficient to fund the Company’s performance under its
current contracts and to fund its other planned
operations through approximately December 31, 1997. In
November 1996, the Company entered into a nonbinding
arrangement pursuant to which it will work with BT Securities
in structuring a proposed financing of up to $150
Million of debt and equity securities.

LATER DEVELOPMENTS
((Editor's Note: The
following paragraphs are compiled from various SEC
filings))

The Company has successfully completed the
installation of the IFEN-2 shipsets in the economy, business
and first class sections of two Swissair MD-11
aircraft and has commenced full installation on one 747
aircraft. The Company has also completed the installation
of the IFEN-2 shipsets in the business class section
of three Swissair MD-11 aircraft, with the most
recent installation being completed in May 1997. While
the installations to date have been successful, 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.

An agreement with
Debonair Airlines (“Debonair”Wink to install and operate
Entertainment Networks on six Debonair RJ-146 aircraft, with
the purchase price to be paid over time from revenues
out of passenger use. In August 1997, the Company
completed the installation of an Entertainment Network on
one Debonair RJ-146 aircraft. 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. Accordingly, the C
 
Posts: 2537 | Location: USA | Registered: Sun April 07 2002Reply With QuoteReport This Post
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Here is an old article that appeared in Airline Financial News in '97. Apparently Qantas had the good sense to not buy an entertainment system from this unknown, inexperienced company out in Arizona.

IFT SIGNS QANTAS, READIES SECOND GENERATION VIDEO SYSTEM
Jan 13, 1997
Interactive Flight Technologies (IFT) has signed its biggest customer to date for its inflight entertainment system. Qantas Airways may install IFT's digital inflight entertainment system on up to 48 aircraft, if a "bid alignment process" Qantas conducted shows than an integrated IFE system can be provided to Qantas' specifications.

The contract, if finalized, will put the Phoenix-based IFE provider in a profitable mode for the first time since it began developing interactive digital entertainment systems in the early 1990s, according to Tom Metzler, the new president of the company.

The contract, like previous contracts with Swissair, Alitalia, and European new entrant Debonair, includes the introduction of an inflight gambling system. It will allow passengers to use their credit cards to play poker, blackjack and other games. The video units are located in the back of passenger seats, tray tables, or on swiveling video units in some premium classes.

The Qantas contract, unfortunately for IFT, will not be finalized until late 1997. Michael Itkis, a longtime developer of ground-based gambling systems and chief executive officer and founder of IFT, said, "We understand that Qantas has made no commitment but are hopeful that the airline will purchase our inflight entertainment systems, with IFT providing ongoing service and support."

Itkis noted that a recent decision by Hyatt Ventures to provide technical and marketing assistance was a factor in getting the Qantas contract. Hyatt and the Pritzker family have had close ties to Qantas through the development of marketing ties between the airline and the Hyatt hotel chain.

Metzler, speaking to Airline Marketing News, said profit on a monthly basis "will come some time in 1997," based in part on the new contract. IFT is just beginning to install its fully-interactive video system on board long-haul Swissair aircraft this month, and will have 21 Swissair airplanes installed as part of its contract with the Swiss carrier.

IFT Begins Development of `Second Generation'
Through its work with Alitalia, Metzler said IFT is developing a "second generation" of interactivity in its onboard video system. The second generation will be faster, more reliable, and have a clearer picture than the system that was first installed aboard Alitalia test aircraft, and it will include the inflight gambling system which Alitalia planes did not have.

The inflight gambling system will vary among airlines and will have specialized games. IFT's major competitor in the gambling software business, Inflight Entertainment Ltd. (IEL), a joint operation of Sky Games International and Harrahs, is also developing specialized gambling games based on carrier and passenger preference.

But inflight entertainment developers have one major hurdle: under the Federal Aviation Administration Act of 1994, neither U.S. nor foreign carriers are allowed to operate gambling devices on fights between the U.S. and foreign points.

Swissair, IFT Develop Unique Cost-containment Contract
Additionally, Metzler revealed, the Swissair contract provides a unique way for IFT to substantially hold down maintenance costs for the IFE units. IFT has contracted to a maintenance division of Swissair, Swissair Technical, to provide maintenance on the IFT units on an ongoing basis.

What this provides for Swissair and IFT, Metzler said, is a way to provide maintenance at all of Swissair's station's around the world without IFT having to provide on-site maintenance personnel and offices. IFT, just like its major competitors, still have only a few major customers, and the whole arena of interactive inflight entertainment is still in the early stages of use aboard commercial aircraft.
 
Posts: 10 | Registered: Tue December 23 2003Reply With QuoteReport This Post
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