10-K/A 1 a2029435z10-ka.txt 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended June 30, 2000 Commission File Number: 1-13234 IONIC FUEL TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) Delaware 06-1333140 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation) 300 Delaware Avenue, #1704, Wilmington, Delaware 19801-1622 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (302) 427-5957 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (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 ninety (90) days. Yes: x No: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value of securities held by non-affiliates as of September 15, 2000 - $5,076,741.10. Indicate the number of shares outstanding of each of the registrant's class of common stock, as of the latest practicable date. At September 15, 2000, there were 21,261,789 common shares, 189,000 Underwriters' Warrants, 150,000 Consultant's Warrants, 270,200.059 Series D Warrants and 100,000 Broker's Warrants outstanding. List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security-holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security-holders for fiscal year ended December 24, 1980) 1. The date of the Annual Meeting still needs to be determined. 2. Part IV, Item 14, incorporated by reference the following Exhibits: 3.1, 3.2, 4.1, 4.2, 4.3 and 10.1. 2 PART I Item 1. BUSINESS INTRODUCTION The Company is an environmental technology company engaged in the design, assembly, marketing, sale and leasing of its patented, proprietary IFT System designed to reduce harmful airborne emissions from and increase fuel efficiency of heating and power generation systems. The Company currently markets the System to various industries in the U.K. and Europe. The IFT System, which is attached to a customer's heating or power generation equipment, produces negatively charged ions ("Ions") by passing an air flow over a body of vibrating liquid and into the combustion chamber or air intake of the customer's machinery. The ionized air supply accelerates the normal combustion process. As a result of the improved combustion, the amount of air and fuel supplied to the burner can be reduced while still maintaining a constant measure of power output. This reduction of air and fuel decreases fuel consumption as well as the production of NOx, CO and CO2 and when burning fuel oil, fireside cooking and particulate emissions are also reduced. THE SYSTEM The IFT System is self contained in a cube-shaped metal cabinet. The System's interior mechanism vibrates the surface of a liquid contained inside the cabinet. The vibrating liquid releases negatively charged Ions that are then delivered to the customer's equipment through a connection placed either adjacent to the boiler's combustion chamber or to the boiler's air intake. The System is available in eight sizes ranging from 15" x 12" x 16" to 43" x 31.5" x 35". Such sizes are suitable for boilers generating from approximately 1,000 lbs of steam per hour to approximately 96,000 lbs of steam per hour. Multiple systems are used when either the boiler has more than one burner or the boiler's power generating capacity exceeds the capacity of the largest IFT System. The System generally requires only a routine servicing every six months and may be leased or purchased. Typical performance results of the System reveal a reduction fuel consumption ranging from 2.5% to 7%, a reduction in CO2 emissions ranging from 2.5% to 7%, a reduction in CO emissions ranging from 6% to 80%, a reduction in NOx emissions ranging from 6% to 30% and a reduction in particulate emissions ranging from 6% to 40%. The exact performance of the System depends upon the customer's existing equipment and desired objectives; customers may achieve less favorable results or no improvement if their equipment requires repair or if fuel and air flows cannot be closely controlled. If NOx and CO emissions have been reduced by the use of other equipment, the System may be used to reduce CO2 emissions and fuel consumption. CO2 emission reduction correlates directly with the fuel savings which the IFT System provides. 3 MARKETING AND SALES Performance Trials The Company initially sought to performance test its System in locations where a sale or lease contract could result. It also has performance tested the System in certain locations solely to develop performance test data. The Company has now phased out uncompensated performance testing because the Company's data from its numerous sites supports the claims regarding the benefits offered by the IFT System. The Company has now developed new application software enabling on site performance to be evaluated in real time to show the immediate improvements to the customer resulting in reducing the lead time between performance trials and customer acceptance of the System. The performance trial results obtained at a customer's location enable the Company to use such results to confirm the price of the IFT System to such customer. In setting the price, the Company considers the potential fuel savings and emissions reduction to be realized by that customer from use of the System, thereby enabling a customer to offset the cost of the System. The Company has also participated in a laboratory test conducted by The Building Services Research and Information Association ("BSRIA"), an independent U.K. organization. The BSRIA test was instigated and primarily funded by the British government to generate data on the emissions of various power generation systems and ancillary equipment. BSRIA rendered a favorable report on the IFT System and such report was disseminated to BSRIA's members. Tests were conducted at the Lowenbrau brewery by the German test authority TUV and showed that with the IFT System the boiler was able to operate with less combustion air thereby improving the thermal efficiency. A review on ionisation processes conducted by Portsmouth University sponsored by the Energy Technical Support Unit, ETSU, reported that fuel savings could be achieved by use of the IFT Technology. Marketing The Company currently markets the IFT System to (a) large scale commercial power plant and industrial manufacturers such as breweries, oil refiners, textile plants, chemical plants, vehicle manufactures, and paper mills and (b) commercial industrial heat processors including municipal authorities and universities. The Company had found that its technology was often not readily understood by power plant managers who therefore hesitated to test the IFT System. The Company devised a four step 4 approach to educate the power generation community about its technology. First, it employed people experienced in boiler and burner applications to market the System. Second, the Company has marketed the System to large multiple plant users, with emphasis on well known international companies, so that such companies may be used as references for other potential customers and also that such customers will consider using the IFT System in their other plants. Third, the Company utilizes the services of a recognized authority in flame chemistry to specifically explain the scientific principles behind the System. Fourth, the Company has introduced a reporting system using sophisticated statistical modeling to present the test results to potential customers in a succinct, concise manner. This reporting system computerizes data derived from testing flue gases, monitors fuel to steam performance and then presents in graphic form the benefits offered by the IFT System to the customer. Sales and Rentals The Company has adopted two approaches to its sales efforts. First, it sells directly to industrial users with its own employees in the UK and Belgium supplemented by the use of independent sales agents. Secondly, the Company sells the System though dealers who are assigned a specific territory and compensated on a commission basis. This marketing method is generally used in Europe. During the year the Company launched additional products and services to increase utilization of the company's combustion expertise and contracts were obtained from several new customers. The Company will rent or sell the System. In the general industrial market customers prefer to rent, in the oil and petrochemical industry, the preference is to purchase. Warranty and Service The Company provides a one year warranty on parts and labor to purchasers of the System without additional charge within the terms of the purchase agreement and thereafter servicing under a service contract which is billed separately. Lessees of the system receive service without additional charge within the terms of the rental agreement. Assembly and Suppliers The IFT System is assembled in the U.K. at the Company's facility in Laindon, Essex under strict quality control procedures. Although there have been no sourcing problems, the Company has a policy of dual sourcing where this is deemed advantageous for cost and continuity of supply. Single sourcing is currently confined to vibrators and air pumps that are widely produced for use in other industries and therefore readily available. 5 Patents The first U.S. Patent for the Ion generating technology utilized by the IFT System was issued in 1975 to F.A. Wentworth, Jr. ("Wentworth"). This original technology employed a "bubble" process whereby the air was "bubbled" through liquid to release Ions at the surface of the liquid. A subsequent patent was issued to Wentworth in December 1990 employing a "vibration" process which substantially enhanced the commercial potential of the technology by increasing the negative charge. The "vibration" technology involves vibrating the surface of the water to release the Charged Particles. In January 1994, an additional patent application was filed in Europe on behalf of the company covering an enhancement to the vibration technology. This improved "vibration" technology allows for a more powerful and more consistent negative charge than the initial Wentworth vibration patent. This improvement has been incorporated into the IFT System. The Company filed counterpart applications to its latest European patent application in the United States and several other foreign countries in 1995. The Company entered into a Royalty Agreement ("Royalty Agreement") dated June 2, 1994 (effective as of December 5, 1991) with Wentworth pursuant to which Wentworth sold all of his interest in the patents relating to the ion generating technology to the Company. As consideration for the assignment and sale, Wentworth received a $50,000 initial payment and a $6,000 per month royalty fee through June 30, 1999. During the year ended June 30, 2000 reduced payments of up to $3,000 per month were agreed through December 2000. Payments from January 2001 will be at a rate to be mutually agreed. In addition, Wentworth purchased 80,000 shares of the Company's Common Stock at $.125 per share in December 1991. Wentworth has retained a security interest in the patent rights transferred to the Company pursuant to the Royalty Agreement. The Company owns six U.S. Patents, twelve foreign patents and five foreign patent applications covering, in the aggregate, up to twenty different countries. Several of the earlier "bubble" technology patents have expired. However, improvement patents covering the "bubble" technology still exist in the United States and several foreign countries, and the more important 6 "vibration" technology patents, which form the basis of the IFT System, run to at least 2007. The Company was also granted a patent in Japan. During 1999 the company determined that impairment of its intangible assets existed based on the review of the undiscounted future cash flow of revenue generated from these patents. As a result, the Company has written off $504,886 of unamortized patents. While the Company intends to vigorously enforce its patent rights against infringement by third parties, no assurance can be given that such rights will be enforceable or will provide the Company with meaningful protection from competitors or that any pending patent applications will be allowed. Even if a competitor's products were to infringe patents owned by the Company, it could be damaging to the Company to enforce its rights because such action would divert funds and resources which otherwise could be used in the Company's operations. No assurance can be given that the Company would be successful in enforcing such rights, that the Company's products or processes do not infringe the patent or intellectual property rights of a third party, or that, if the Company is not successful in a suit involving patents or other intellectual property rights of a third party, a license for such technology from such third party would be available on commercially reasonable terms, if at all. Regulations Concern over environmental pollution has led to legislation introducing tougher and tighter controls on emissions. NOx, for example, is now understood to be a key element in the formation of ground level ozone, widely recognized as a hazard to health and a precursor to urban smog. The problem for industry is to reduce NOx levels as is currently demanded while not increasing emissions of the equally undesirable carbon monoxide or reducing power generation capacity. According to available statistics, approximately 55% of the 20 million tons of annual NOx production comes from utilities, industrial boilers and furnaces, the balance is from motor vehicles. More recently emphasis has been placed on reductions of Carbon Dioxide (CO2), often referred to as "Greenhouse gas" and International programs are being established to achieve reductions of this particular gas. The Federal Clean Air Act, initially adopted in 1970 and extensively amended in 1990 and European Community regulations require compliance with specified air quality standards and empower government to establish and enforce limits on the emission of various pollutants from specific types of industrial facilities. In the USA, the states have primary responsibility for implementing these standards, and, in some cases, have adopted standards more stringent than those established by Federal regulation. In general, emitters of pollution are required to obtain permits issued by the appropriate environmental agency. A typical permit would set forth the amount of pollutants that the "source" may emit, mandatory emission control device description and installation deadlines plus monitoring/reporting requirements. Pollution sources may be charged a fee proportional to the amount of pollution the source creates each year. This provides an incentive for the polluter to acquire technology which will reduce its emissions. IFT is working with customers on an individual basis prior to and during its process of negotiating permits where the System has been accepted by such regulatory agencies. 7 Domestic and international environmental laws and regulations are, and will continue to be, a principal factor affecting demand for the IFT System. Although the Company believes there is a trend toward increasing regulation and enforcement by all levels of government, a decline in enforcement and related expenditures by businesses subject to such laws and regulations could have a significant adverse effect on the demand for the IFT system. In addition, there can be no assurance that the IFT System currently, or as adjusted or enhanced, will enable others to comply with specified or yet unspecified emissions standards implemented by any amendments to present laws and regulations or any future legislation. Competition While most other pollution control technologies are aimed at reducing airborne emissions, the Company is not aware of any technology which enhances combustion efficiency and reduces noxious emissions. The technology used by the Company's competitors can be divided into three categories: pre-combustion, combustion and post-combustion. Pre-combustion techniques include chemical additives, low NOx burners, and water/steam injection added to the fuel. Such techniques can achieve reduction in particulate and NOx emissions but do not result in material fuel savings. Combustion techniques include air/fuel control systems, chemical additives (i.e. urea injection) and flue gas recirculation. These methods reduce NOx emissions but may result in higher particulate emissions and/or reduced boiler efficiency. Furthermore, they are generally more expensive to install than the IFT System. Post-combustion systems include precipitators, bag filters and scrubbers. These systems require large capital expenses often involve high maintenance and operating costs and do not address fuel efficiency. Some have the added disadvantage of producing by-products which may present disposal problems. The IFT technology is not, by itself, a solution to all emissions problems. More frequently the technology is complementary to solutions a customer may wish to utilize. For example, to achieve extremely low NOx emission, ammonia injection might be selected. IFT could enhance combustion efficiency so that less NOx is produced and subsequently less ammonia is required to achieve the final lower NOx level. While the Company believes that its System enjoys significant advantages as compared to its competitors' products, many of the Company's competitors have greater resources, both financial and otherwise, than the Company and therefore may be capable of testing, enhancing, marketing and distributing their products on a wider basis than the Company. In addition, future technological developments and novel approaches in the flame combustion field as well as enhancements of current technology will, in all likelihood, create new products and services that directly compete with the IFT 8 System. There can be no assurance that the Company would not be adversely affected by such technological change. The average number of employees (including directors) during the year was as follows:

Geographical analysis of turnover can be found in note 8 of the financial statements. Item 2. PROPERTY The Company leases approximately 10,000 square feet of space for its principal executive offices, manufacturing and research and development facilities in Laindon, Essex, U.K. This lease expires in December 2007, the base rent for this facility is approximately $7,375 per month to December 2000, with the rent to be reviewed for the January 2001 and January 2005 periods. The Company maintains a sales office in Gent, Belgium pursuant to a three year lease at $460 per month plus utilities. The Company maintains its corporate office in Wilmington, Delaware pursuant to an annual lease with an annual rental of $3,120 including utilities. The Company believes that its facilities are adequate for its present and anticipated needs. Item 3. LEGAL PROCEEDINGS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 9 PART II Item 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the Nasdaq Bulletin Board under the symbol "IFTI" The table set forth below shows, for the period indicated, the high and low bid quotations on the Nasdaq Bulletin Board for the Company's Securities. These amounts represent quotation between dealers in securities, and do not include retail mark-ups, mark-downs or commissions and may not represent actual transactions. The Class A Warrants expired September 30, 1998. The Class B Warrants expired July 30, 2000 The Class C Warrants expried July 10, 2000

10 The company estimates at September 1, 2000, the number of shareholders of record and in street name of the Company's common stock was approximately 800. The Company has not paid any cash dividends. Item 6. SELECTED FINANCIAL DATA

12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company commenced operations in late December 1991. During 1992, the Company's primary focus was on completing the design and testing of the IFT System. In 1993, the first production equipment was made available and a customer testing program was commenced. Simultaneously, the Company stepped-up its marketing and promotional activities. In 1993, the Company changed its year end to June 30. During fiscal 1994 the Company increased its staffing levels and acquired the Vapormid business from EcoLab, BVBA, a distributor of the Company's earlier "bubble technology". On July 18, 1994 the Company's Initial Public Offering was completed generating net proceeds of $4,768,414. In conjunction with the public offering, the Company increased its operational and marketing activities in an effort to achieve cash flow break even by fiscal year end. This objective was not accomplished in part because of long lead times experienced between initial sales presentations and invoicing, together with a lack of positive test data on three very large pulverized coal facilities. Therefore a sharp reduction in expenses, including staff cuts, was implemented in May which reduced annual costs by approximately $1,200,000 during fiscal 1996. In early 1996, a leading international oil company completed testing the IFT System in its central research facility with positive results and recommendations to its operating units to utilize the technology. As a consequence, the Company has installed an IFT System on a large Texaco boiler with follow on orders expected. Likewise initial installations have been completed at sites with British Petroleum and Degussa. An average size refinery or petrochemical plant could utilize IFT technology and equipment valued at approximately $1,000,000. During 1999 the company introduced four new services and products following market investigation with its contractors affording its combustion expertize to customer problem solving and plant performance evaluation. The additional volume of business can be accommodated within the existing capacity of the Company allowing for increases in material purchases. The attainment of positive cash flow remains the Company's primary financial objective and the immediate focus of operations will be the European community where the IFT technology has achieved market recognition. The Company is presently attempting to raise additional capital to fund operations. If additional capital is not secured within the next three months, it may be necessary to substantially curtail or cease operations. The Company will continue to focus its operations primarily on expansion within the European Community. 13 Year ended June 30, 2000 and June 30, 1999 Total revenues increased to approximately $622,000 during the year ended June 30, 2000 from $609,000 in the fiscal year ended June 30, 1999. The net increase relates to an increase in rentals to approximately $381,000 ($342,000 in 1999) and the addition of $136,000 in engineering consulting services. There was a gross loss of approximately $183,000 during the year ended June 30, 2000 compared to a loss of approximately $289,000 during the year ended June 30, 1999. The decreased gross loss related primarily to the decrease in cost of revenues. These decreased approximately $92,000 to $805,000 ($897,000 for fiscal 1999) whereas revenues increased by approximately $13,000. During the year the Company launched additional products and services to increase utilization of the company's combustion expertise and contracts were obtained from several new customers. General and administrative expenses decreased to approximately $648,000 during the year ended June 30, 2000 from approximately $684,000 in the year ended June 30, 1999, a decrease of $36,000. This decrease is primarily due to tighter cost control and a reduction in royalty expenses, elimination of amortization of patent costs written off at June 30, 1999 and reduced financial public relations expenses. Sales and marketing expenses decreased to $249,000 during the year ended June 30, 2000 from approximately $305,000 during the year ended June 30, 1999. The decrease of $56,000 is primarily due to decrease in marketing and promotion. Royalty expense decreased to $10,000 during the year ended June 30, 2000 from approximately $60,000 during the year ended June 30, 1999. The decrease of $50,000 is due to the cessation of certain royalty payments and accruals. Other income (expense) net was approximately $12,000 net expense during the year ended June 30, 2000 compared to expense of $30,000 during the year ended June 30, 1999, a decrease of $18,000, primarily due to a decrease in interest income net of a decrease in interest expense and the loss on disposal of equipment. Year ended June 30, 1999 and June 30, 1998 Total revenues increased to approximately $609,000 during the year ended June 30, 1999 from $438,000 in the fiscal year ended June 30, 1998. The net increase relates to an increase in system sales to approximately $266,000 ($89,000 in 1998). 14 There was a gross loss of approximately $289,000 during the year ended June 30, 1999 compared to a loss of approximately $255,000 during the year ended June 30, 1998. The increased gross loss related primarily to the increase in cost of revenues. These increased approximately $204,000 to $897,000 ($693,000 for fiscal 1998) whereas revenues increased by approximately $171,000. General and administrative expenses decreased to approximately $684,000 during the year ended June 30, 1999 from approximately $729,000 in the year ended June 30, 1998, a decrease of $44,000. This decrease is primarily due to tighter cost control and a reduction in stock market related expenses. Sales and marketing expenses increased to $305,000 during the year ended June 30, 1999 from approximately $217,000 during the year ended June 30, 1998. The increase of $88,000 is primarily due to additional marketing promotion, recruitment costs and an additional sales person. Other income (expense) net was approximately ($30,000) during the year ended June 30,1999 compared to income of $14,000 during the year ended June 30, 1998, a decrease of $44,000, primarily due to a decrease in interest income. Going Concern Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses, and its operations have not produced a positive cash flow. As such, this condition raises substantial doubt about the Company's ability to continue as a going concern. During the past year, the principal use of the Company's cash has been to fund its operating losses. The Company has been utilizing approximately $67,000 per month to fund operations. The Company has raised additional capital through the sale of common shares to fund operations. If additional capital is not secured within the next three months, it may be necessary to substantially curtail or cease operations. In June 2000 an additional $200,000 was accepted as subscriptions for 2,000,000 shares of common stock. The acceptance of the $200,000 had the affect of turning the stockholders' equity from a deficit at year end to positive equity. The Company intends to raise additional capital through the sale of common shares subsequent to September 30, 2000. Liquidity and Capital Resources The Company is presently attempting to raise additional capital to fund operations. If additional capital is not secured within the next three months, it will be necessary to substantially curtail or cease operations. The Company will continue to focus its operations primarily on expansion within the European Community. Since inception, the Company's funding requirements have been met through the initial public offering of equity securities totaling approximately $4.8 million, the private placement of equity securities totaling approximately $7 million, and revenue generated from operations. On April 1, 1999 the Company sold an additional 4,838,334 common shares with net proceeds of $648,439 and on February 1, 2000 sold an additional 4,668,500 common shares with net proceeds of$283,425. In June 2000, the company accepted subscriptions for 3,310,000 of common shares netting proceeds $294,787. Commitments to subscribe for a further 2,000,000 of common shares were received and cash of $200,000 was received after the year end. Net cash used in operations was approximately $800,000, $1.2 million and $1.2 million for the years ended June 30, 2000, 1999, and 1998, respectively. The principal use of cash was to fund operating losses incurred by the company in developing (?) engineering services, sales, marketing and promotional activities. Working capital was approximately $225,000 $466,000 and $1.3 million at June 30, 2000, 1999, and 1998, respectively. Fluctuations in working capital have been primarily due to fluctuations in cash, accounts payable and other accruals. Capital expenditures amounted to approximately $16,000, $134,000, and $88,000 during fiscal years 2000, 1999, and 1998, respectively. Capital expenditures were associated with the purchase of equipment used in manufacturing as well as expenditures incurred to produce rental equipment. Under an Assignment and Royalty Agreement with the inventor of the Technology utilized by the Company's System ("Royalty Agreement"), the Company is required to make payments to the inventor. The amount of the payment is determined each year by agreement between the Company and the inventor. 15 During the year ended June 30, 2000 the average rate of exchange used to translate revenues and expenses denominated in Pounds Sterling has decreased to approximately 1.59 U.S. dollars to 1 Pound Sterling, compared with 1.65 US dollars to 1 Pound Sterling for the year ended June 30, 1999. Inflation The Company does not believe that inflation has had a significant impact on the results of its operations since inception. Forward-Looking Statements Forward-looking statements made in this Annual Report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties including without limitation risks in technology development, risks in product development and market acceptance of and demand for the 16 Company's products, risks associated with the competition and competitive pricing pressures, risks associated with foreign sales and other risks detailed in the Company's filings with the Securities and Exchange Commission. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Based on its current and planned future activities relative to derivative instruments, the Company believes that the adoption of SFAS No. 133 will not have a significant effect on its financial statements. On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 summarizes some of the SEC's interpretations of the application of generally accepted accounting principles to revenue recognition. Revenue recognition under SAB 101 was initially effective for the Company's first quarter 2000 financial statements. However, SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101 until no later than the fourth fiscal quarter 2000. Changes resulting from SAB 101 require that a cumulative effect of such changes for 1999 and prior years be recorded as an adjustment to net income on January 1, 2000 plus adjust the statement of operations for the three months ended in the quarter of adoption. Although the Company is still in the process of reviewing SAB 101, it believes that its revenue recognition practices are in substantial compliance with SAB 101 and that adoption of its provisions would not be material to its annual or quarterly results of operations. In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation No. 44"), an interpretation of APB Opinion No. 25, Accounting for Certain Transactions involving Stock Compensation. Interpretation No. 44 is effective after July 1, 2000, but certain conclusions in Interpretation No. 44 cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that Interpretation No. 44 covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying Interpretation No. 44 are recognized on a prospective basis from July 1, 2000. The Company believes that adoption will not have a significant impact on the Company. Item 7A. MARKET RISK DISCLOSURES Currency Fluctuation The Company's revenues are invoiced primarily in Pounds Sterling and also currencies of other European countries (Belgium, the Netherlands and Germany). With the introduction of the European common currency, the euro, the Company also expects to invoice revenues in this currency for those sales to countries within Europe who have joined the European Monetary System. Revenues invoiced to customers within the United Kingdom will continue to be in Pounds Sterling. Changes in exchange rates of these currencies relative to the U.S. dollar could affect the Company's operations and cash flow. During the fiscal years ended June 30, 2000, 1999, and 1998, currency fluctuations were not significant and were not an influence on the Company's revenues and expenses. Currently, the Company does not enter into derivative contracts to hedge currency risks. During the year ended June 30, 2000 the average rate of exchange used to translate revenues and expenses denominated in Pounds Sterling has decreased to approximately 1.59 U.S. dollars to 1 Pound Sterling, compared with 1.65 US dollars to 1 Pound Sterling for the year ended June 30, 1999. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the consolidated financial statements and the financial statement schedule set forth in Item 14 of this annual report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS Listed below are the Company's directors whose terms expire at the next annual meeting of shareholders.

All members of the Board of Directors serve for a one (1) year term or until their successors shall have been appointed. Set forth below is a brief background of the executive officer and directors of the Company. NAME, AGE AND PRINCIPAL OCCUPATION ANTHONY J.S. GARNER, 60, has served as a Director and as President of the Company, and as Chairman and Chief Executive Officer of IFT, Ltd. since both companies' inceptions. Upon the resignation of Douglas F. Johnston on December 1, 1999, Mr. Garner assumed the additional positions of Chairman, Chief Executive Officer and Chief Financial Officer of the Company. From October 1991 to December 1991 Mr. Garner performed a due diligence investigation on the Wentworth Technology underlying the IFT System (the "Wentworth Technology") in conjunction with Mr. Johnston and Paul C. O'Neill, to determine whether to enter into the business. From December 1990 until October 1991, Mr. Garner was a private investor. From June 1988 until December 1990, Mr. Garner was Chief Executive Officer and managing director of Sigma Corp. Ltd., a manufacturer of custom gauges for the aerospace industry. He also served as Chief Executive Officer of Winchmore PLC, a distributor of commercial boilers and air conditioners. Mr. Garner has the U.K. equivalent of a B.S. in Mechanical Engineering. FRANK J. HOLLENDONER, 53, has served as a Director since January, 1997. Mr. Hollendoner also currently serves as Chairman of three European companies: Doughty Hanson & Co., a money management concern; Independent Care Group, a firm that develops, owns and operates private hospitals in Britain; and Norden Pac Industries A.B., a Swedish packaging equipment company. From 1986 to 1994, Mr. Hollendoner was a principal and a managing director of Ovington Securities Ltd. Mr. Hollendoner holds a BA in Economics from Georgetown University and an MBA from Stanford University School of Business. HENRY W. SULLIVAN, 59, has served as a Director since August, 1997. Since 1991 Mr. Sullivan has been the President and a Director of GAIA Technologies, Inc., a company engaged in the chemical business. He was also the Vice Chairman and a Director of Huntsman Chemical Corporation, the nation's largest private chemical company, from 1983 to 1991. Mr. Sullivan holds a B.S. degree in Chemical Engineering from Cooper Union and a Masters degree and Ph.D in Engineering from New York University. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (the "SEC"). Officers, directors and greater than ten percent shareholders also are required by rules promulgated by the SEC to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to the Company, the absence of a Form 3 or Form 5 or written representations that no Forms 5 were required, the Company believes that, during fiscal year 2000, its officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements. ITEM 11. EXECUTIVE COMPENSATION

OPTION GRANTS IN LAST FISCAL YEAR No options were granted to the executive officer in the fiscal year 2000. OPTIONS EXERCISED AND YEAR-END OPTION HOLDINGS None. DIRECTOR COMPENSATION Messrs. Hollendoner and Sullivan were granted stock options of 25,000 each during the fiscal year 2000. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS. The executive officer is not currently serving under an employment contract with the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The current members of the Board's Compensation Committee are Messrs. Sullivan and Hollendoner, neither of whom is an employee of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of May 26, 2000 (the "TABLE DATE") with respect to the beneficial ownership of the Company's Common Stock by (i) each person the Company believes beneficially holds more than 5% of the outstanding shares of Common Stock; (ii) each director; (iii) Executive Officer and (iv) all directors and executive officers as a group. On the Table Date, 15,924,988 shares of Common Stock were issued and outstanding. Unless otherwise indicated, all persons named as beneficial owners of Common Stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

--------------------- * Less than 1% (l) Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and generally includes voting or investment power with respect to securities. Shares of Common Stock issuable upon the exercise of options, warrants and convertible notes currently exercisable or convertible within sixty days are deemed outstanding for computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of ownership of any other person. Unless otherwise indicated, the Company believes that all persons named in the table have sole investment and voting power with respect to the shares of Common Stock beneficially owned by them. (2) Includes immediately exercisable options to purchase 160,000 shares at $1.875 per share granted to Mr. Garner by Mr. Johnston and Paul C. O'Neill from their personal holdings. Also includes 170,000 shares of Common Stock held by Brutus Investments Ltd., an investment company owned by Brutus Trust. Mr. Garner is neither an officer nor director of Brutus Investments, Ltd. nor a settlor, trustee or currently a beneficiary of Brutus Trust. To the extent he or any member of his family may become a beneficiary of Brutus Trust in the future, Mr. Garner disclaims any beneficial interest in such shares. (3) Includes 2,000 shares of Common Stock and immediately exercisable options to purchase 14,000 shares of Common Stock at $1.75 per share. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to written agreement, as of September 1, 1999, the Company terminated the accrual and payment to Douglas F. Johnston, who resigned as a director of the Company on December 1, 1999, of any royalties, including but not limited to that certain "over ride royalty of $5,000 per month on the Wentworth license" referred to in the Minutes of the First Meeting of the Board of Directors of the Company dated January 21, 1992. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page A. (1) Financial Statements Report of Independent Auditors F-1 Consolidated Balance Sheets - June 30, 2000 and 1999 F-2 Consolidated Statements of Operations - Years Ended F-3 June 30, 2000, 1999, and 1998 Consolidated Statements of Stockholders' Equity - F-4 Years Ended June 30, 2000, 1999, and 1998 Consolidated Statements of Cash Flows - Years Ended F-5 June 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements F-6 The following consolidated financial statement schedule of Ionic Fuel Technology, Inc. is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits 3.1 Certificate of Incorporation Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 3.2 By-Laws Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 4.1 Specimen Certificate of Common Stock Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 4.2 Specimen Certificate of B Warrant Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 10.1 Stock Option Plan Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 27 Financial Data Schedule B. Reports on form 8-K Form 8-K dated 19 July 1999 electronically filed and accepted on 26 July 1999 Accession No. 0001005477-99-003249. Reference Item 5 Other Events: On July 19 1999 The registrant extended the expiration date on the Class B Warrants from July 28 1999 to July 30 2000. Form 8-K dated 9 May 2000 electronically filed and accepted on 9 May 2000 Accession No. 0000912057-00-022480. Reference Item 4 Change in Registrant's Certifying Accountant: On 8 may 2000 the registrant recommended the engagement of BDO Seidman LLP as auditors. Form 8-K/A dated 8 May 2000 electronically filed and accepted on 11 May 2000 Accession number 0000912057-00-023264. This form amended the form mentioned above and recommended the appointment of BDO Stoy Hayward as auditors. IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 AND 1999 IONIC FUEL TECHNOLOGY, INC. CONTENTS JUNE 30, 2000 PAGE Accountant's report F-2 Consolidated balance sheets F-3 Consolidated statements of operations F-4 Consolidated statements of stockholders' equity F-5 Consolidated statements of cash flows F-6 Notes to consolidated financial statements F-7 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Ionic Fuel Technology, Inc. We have audited the accompanying consolidated balance sheet of Ionic Fuel Technology, Inc. as of June 30, 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ionic Fuel Technology, Inc. at June 30, 1999, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 1999, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that Ionic Fuel Technology, Inc. will continue as a going concern. As more fully described in Note 1, Ionic Fuel Technology, Inc. has incurred recurring operating losses and its operations have not produced a positive cash flow. This condition raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Ernst & Young LLP Stamford, Connecticut September 8, 1999 F-2 IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEET

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. F-3 IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF OPERATIONS

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. F-4 IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. F-5 IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. F-6 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GOING CONCERN Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses, and its operations have not produced a positive cash flow. As such, this condition raises substantial doubt about the Company's ability to continue as a going concern. During the past year, the principal use of the Company's cash has been to fund its operating losses. The Company has been utilizing approximately $67,000 per month to fund operations. The Company has raised additional capital through the sale of common shares to fund operations. If additional capital is not secured within the next three months, it may be necessary to substantially curtail or cease operations. In June 2000 an additional $200,000 was accepted as subscriptions for 2,000,000 shares of common stock. The acceptance of the $200,000 had the affect of turning the stockholders' equity from a deficit at year end to positive equity. The Company intends to raise additional capital through the sale of common shares subsequent to September 30, 2000. BASIS OF PRESENTATION The Company, a Delaware corporation formed on December 10, 1991, manufactures ion generating equipment for sale or lease to entities in various industries, in Europe, to reduce airborne emissions and fuel consumption. The Company also provides related engineering consulting services. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Ionic Fuel Technology USA, Inc. ("IFT, USA"), a company incorporated in the U.S. and Ionic Fuel Technology Ltd. ("IFT Ltd."), a company incorporated in the United Kingdom. All significant intercompany accounts and transactions have been eliminated in consolidation. CONCENTRATION OF CREDIT RISK At June 30, 1999, the Company maintained cash balances of approximately $219,000 at a bank in excess of the insurance limits ($100,000) of the Federal Deposit Insurance Corporation. The Company performs periodic evaluations of its customers financial condition and generally does not require collateral. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. INVENTORY Inventory is valued at the lower of cost, determined by the first-in, first-out method, or net realizable value. F-7 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EQUIPMENT AND VEHICLES Equipment and vehicles are stated at cost less accumulated depreciation and amortization provided on the straight-line basis over the estimated useful lives of the assets, which range from three to ten years. Equipment under lease to third parties is depreciated over the life of the lease, generally five years. INTANGIBLE ASSETS During 1999 the Company determined that impairment of its intangible assets existed based on the review of the undiscounted future cash flow of revenue generated from these patents. As a result, the Company has written off $504,886 of unamortized patents. Patents were carried at acquisition cost, less accumulated amortization provided on the straight-line basis over the estimated useful lives which originally ranged from five to fifteen years. Amortization expense (which included the write-offs of the patents) for these intangible assets amounted to $571,581, and $64,155 for the years ended June 30, 1999, and 1998, respectively. Accumulated amortization amounted to $984,004 at June 30, 1999. INCOME TAXES The Company accounts for income taxes under the liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS 109, the effect upon deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. FAIR VALUE Cash and cash equivalents, accounts receivable, accounts payable and capital lease obligations and other long-term liabilities: The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and capital lease obligations and other long-term liabilities approximate their fair value. STOCK COMPENSATION The Company applies the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" in accounting for stock options issued to employees. F-8 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNING PER SHARE The Company follows SFAS No. 128, "Earnings per Share," which requires presentation of basic earnings per share and diluted earnings per share by all entities that have publicly traded common stock or potential common stock (options, warrants, convertible securities or contingent stock arrangements). Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to total dilutive potential common shares outstanding during the period. Assumed exercise of options and warrants has not been included in the calculation of diluted earnings per share since the effect would be anti-dilutive. Accordingly, basic and diluted net loss per share do not differ for any period presented. FOREIGN CURRENCIES Adjustments resulting from the translation of the financial statements of the Company's foreign subsidiary are excluded from the determination of income (loss) and are accumulated in a separate component of stockholders' equity. REVENUE RECOGNITION Sales are recognized upon shipment of the equipment and are recorded net of an allowance for returns. Rental income under operating leases is recognized on a straight-line basis over the lease term. The equipment leased is owned by the Company and, accordingly, the Company bears all repairs and maintenance costs incurred. The lease term is generally five years with an option for renewal. Engineering consultancy revenues are recognized as services are performed. WARRANTY COSTS Estimated warranty costs are provided for when the product is sold. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Based on its current and planned future activities relative to derivative instruments, the Company believes that the adoption of SFAS No. 133 will not have a significant effect on its financial statements. F-9 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 summarizes some of the SEC's interpretations of the application of generally accepted accounting principles to revenue recognition. Revenue recognition under SAB 101 was initially effective for the Company's first quarter 2000 financial statements. However, SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101 until no later than the fourth fiscal quarter 2000. Changes resulting from SAB 101 require that a cumulative effect of such changes for 1999 and prior years be recorded as an adjustment to net income on January 1, 2000 plus adjust the statement of operations for the three months ended in the quarter of adoption. Although the Company is still in the process of reviewing SAB 101, it believes that its revenue recognition practices are in substantial compliance with SAB 101 and that adoption of its provisions would not be material to its annual or quarterly results of operations. In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation No. 44"), an interpretation of APB Opinion No. 25, Accounting for Certain Transactions involving Stock Compensation. Interpretation No. 44 is effective after July 1, 2000, but certain conclusions in Interpretation No. 44 cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that Interpretation No. 44 covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying Interpretation No. 44 are recognized on a prospective basis from July 1, 2000. The Company believes that adoption will not have a significant impact on the Company. USE OF ESTIMATES The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and as such, include amounts based on judgments and estimates made by management, which may differ from actual results. 2. INVENTORY Inventory is comprised of the following:

Included in finished goods inventory are units, at customer sites, on a short-term trial basis. F-10 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. EQUIPMENT AND VEHICLES Equipment and vehicles are comprised of the following:

Depreciation expense, relating to the leased equipment, amounted to $28,215, $27,101 and $29,129 for the years ended June 30, 2000, 1999 and 1998, respectively. 4. ROYALTY AGREEMENT Under an agreement effective as of December 1991, the Company purchased certain patents and inventions for $50,000 and agreed to make payments of $6,000 per month over the remaining life of the patents (initially 15 years). During the year ended June 30, 2000, reduced payments of up to $3,000 per month were agreed through December 2000. Payments from January 2001 will be at a rate to be mutually determined. The Company has valued these patent rights ($428,698) based upon the present value of the future minimum royalty payments using an interest rate of 15% per annum. In the absence of an agreement for reduced payment terms beyond December 2000, the liability has not been changed from that originally calculated. The remaining balance of this obligation, less amounts currently due ($18,900), is included in other long-term liabilities and has the following maturities:

If certain annual profitability levels are achieved, an additional royalty of $24,000 per annum will be payable. The Company has not yet been required to pay this additional royalty. In conjunction with this agreement, the Company granted the inventor a security interest in the patents and inventions during the royalty period. F-11 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. ROYALTY AGREEMENT (CONTINUED) The Company's former Chairman, Douglas F. Johnston, was to receive an override royalty of $5,000 per month until the last of the patents expired in 2007. Following the resignation of Mr. Johnston during the year, this royalty agreement was cancelled as of September 1, 1999. This expense amounted to $10,000, $60,000, and $60,000 for the years ended June 30, 2000, 1999, and 1998, respectively. Commencing in 1995, $1,600 per month of this override royalty was deferred resulting in an accrued royalty expense of $27,200 and $24,000 at June 30, 2000 and 1999, respectively. 5. COMMITMENTS AND CONTINGENCIES LEASES The Company is the lessee of vehicles under capital leases which expire in 2001. The Company leases its facility under a noncancelable operating lease expiring in 2007. The future minimum lease payments under operating and capital leases as of June 30, 2000 are as follows:

The cost of assets under capital leases amounted to $40,099 and $65,698 at June 30, 2000 and 1999. Rent expense for operating leases amounted to $153,972, $148,071, and $143,873 for the years ended June 30, 2000, 1999 and 1998, respectively. The future minimum lease payments receivable under noncancelable operating leases as of June 30, 2000 are as follows:

LONG-TERM OBLIGATIONS Long-term obligations as of June 30, 2000, consist of various capital leases amounting to $11,965, which $4,427 is classified as long-term. F-12 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES At June 30, 2000, the Company has available operating loss carryforwards for United States federal income tax purposes of $2,983,681 which are available to offset future U.S. taxable income. The losses expire in varying amounts from 2007 through 2015 and are subject to limitations on utilization resulting from prior changes in the ownership of the Company. The Company's subsidiary has unused operating loss carryforwards, with no expiration date, for United Kingdom income tax purposes, of $9,799,692 at June 30, 2000. Significant components of the Company's deferred tax assets are as follows:

7. STOCKHOLDERS' EQUITY On July 28, 1994, the Company issued 1,200,000 units, each unit consisting of one share of common stock, par value $0.01 per share, one Series A redeemable common stock purchase warrant and one Series B redeemable common stock purchase warrant. Two Series A Warrants entitle the holder to purchase one share of Common Stock for $6.50 until September 30, 1998. Two Series B Warrants entitle the holder to purchase one share of Common Stock for $7.50 until July 28, 1999 which was subsequently extended to July 30, 2000. Each Series of Redeemable Warrants is redeemable at a price of $0.01 per two Redeemable Warrants, upon not less than 30 days prior written notice, if the last sale price of the Common Stock has been at least $9.50 with respect to the Series A Warrants and $10.50 with respect to the Series B Warrants for the 20 consecutive trading days ending on the third day prior to the notice of redemption. As a result of the offering, the Company raised $4,768,414, net of discounts, commissions and offering expenses of $1,231,586. Subsequent to year end the Series B Warrants expired unexercised. On July 14, 1997, the Company completed a private offering of its common stock and Series C Warrants at a price of $2.25 per unit. The Company issued 771,833 units. Each unit is comprised of one share of common stock, par value $0.01 per share and one warrant to purchase one share of common stock at a price of $2.95, expiring July 10, 2000. The Company granted 77,183 Series C Warrants to their broker in exchange for the services provided. The Company received total proceeds of $1,552,116, net of offering expenses of $184,508. In December 1997, 97,722 of the Series C warrants were exercised. Subsequent to year end the Series C Warrants expired unexercised. On March 31, 1998 the Company completed an offering of 147,800 shares of common stock, par value $0.01 per share, at a price of $2.50 per share. Concurrent with the offering, 25,000 warrants issued in April 1997 to a financial consultant (see discussion below) were exercised at a price of $2.25. Also, a founder/officer of the Company who received an override royalty (see Note 4), received 21,800 shares in consideration of $54,500 of accrued royalties owed to him by the Company. The Company raised $300,750 net of offering expenses of $8,000 and the accrued royalty liability of $54,500. F-13 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) On April 1, 1999 the Company completed an offering of 4,838,334 shares of common stock, par value $0.01 per share, at a price of $0.15 per share. The Company raised $648,439 net of related costs of $77,311 and issued 270,200.059 warrants to placement agents . On February 1, 2000 the Company completed an offering of 4,668,500 shares of common stock, par value $0.01 per share, at a price of $0.05 per share. The company raised $233,425. During June 2000 the Company accepted subscriptions for 3,310,000 shares of common stock, par value $0.01, at a price of $0.10 per share. The Company raised a $294,787 net of related costs of $36,213 and net of the issue of 100,000 warrants to a placement agent for assistance in the offering. An additional $200,000 was accepted after June 30, 2000 as subscriptions for 2,000,000 shares of common stock. The acceptance of the $200,000 had the affect of turning stockholders' equity from a deficit at year end to positive equity. The Company, in July 2000, increased the number of authorized common shares to 50,000,000. STOCK OPTIONS The Company's 1992 Stock Option Plan, as amended, (the "Plan"), provides for the granting of qualified or nonqualified options to acquire up to 450,000 common shares by certain key employees of the Company or its subsidiary. Options granted under the Plan are issued at the fair market value at the date of issuance and have a contractual life of ten years. The Plan was amended in 1999 to increase the number of shares available under the 1992 Stock Option Plan by500,000 shares, for a total of 950,000. Options granted to directors are exercisable immediately. As of June 30, 2000, 130,000 director options were granted and exercisable. All non-director options are exercisable one year after the date of grant at a rate of 20% per annum, on a cumulative basis. Options may be granted through November 30, 2002, although the Plan may be terminated at any time. Pro forma information regarding net income and net loss per share is required by SFAS No. 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to June 30, 1995 under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended June 30, 2000, 1999, and 1998, respectively; risk-free interest rates of 5.9%, 4.5%, and 5.8%; volatility factors of the expected market price of the Company's common stock of 46%, 128%, and 93% and a weighted-average expected life for the options of 5 years and no anticipated dividends for all periods. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options and warrants are amortized to expense over the vesting periods. The Company's pro forma net loss would have been approximately $1,172,455, $1,988,914, and $1,396,993 and pro forma net loss per share would have been $(0.09), $(0.26), and $(0.22) for the years ended June 30, 2000, 1999, and 1998, respectively. F-14 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) The following presents a summary of the Company's stock option activity and related information:

At June 30, 2000, options for 443,500 shares were available for future grants and 373,400 options were exercisable. The following table summarizes information concerning outstanding and exercisable options, as of June 30, 2000:

The weighted-average fair value of options granted during the years ended June 30, 2000, 1999, and 1998 was $0.28, $0.47 and $2.56, respectively. F-15 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. STOCKHOLDERS' EQUITY (CONTINUED) In April 1997, the Company issued 150,000 options to a financial public relations firm in lieu of a $20,000 fee required under a written contract for annual services commencing January 1, 1997. The options were divided into thirds and are exercisable at $2, $3 and $4 a share, respectively. They are exercisable immediately and expire on December 31, 2002. For each of the years ended June 30, 1999, 1998, and 1997, the Company has recognized compensation expense for the fair value of these options of $10,000. WARRANTS In April 1997, the Company issued 150,000 warrants to a financial consultant in lieu of present and future compensation for services. Each warrant entitles the holder to purchase one share of Common Stock. The exercise price of 75,000 of the warrants is $2.25 per warrant and the exercise price of the remaining 75,000 warrants is $3.50 per warrant. The warrants were exercisable immediately and expire on March 15, 2001. The fair value of the warrants, $48,000 was based on contract value of the services to be provided. Compensation expense of $18,000, $24,000 and $6,000 was recognized for the years ended June 30, 1999, 1998, and 1997, respectively. As noted above, 25,000 warrants were exercised at a price of $2.25 per warrant as part of the March 1998 offering. F-16 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SEGMENT REPORTING The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information in 1998, which changes the way the Company reports information about its operating segments. All prior year's information has been restated to conform with the current year presentation. The Company has two segments, determined geographically and is made up of the operations of the United States and Europe. The European segment makes up a majority of the Company's operations, as it is engaged in the design and assembly of its patented IFT system. Segment Reporting of the Company are as follows:

Adjustments and eliminations represent the elimination, on consolidation, of intra-group balances and investments. F-17 IONIC FUEL TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SEGMENT REPORTING (CONTINUED) Revenues analyzed geographically are as follows:

F-18 SIGNATURES Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 3, 2000 IONIC FUEL TECHNOLOGY, INC. By: Anthony J.S. Garner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Name Titles Date Anthony J.S. Garner Chairman, Chief Executive and November 3, 2000 Financial Officer & Director Frank J. Hollendoner Director November 3, 2000 Henry W. Sullivan Director November 3, 2000 AUDIT REPORT REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Ionic Fuel Technology, Inc. We have audited the accompanying consolidated balance sheet of Ionic Fuel Technology, Inc as of June 30, 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ionic Fuel Technology, Inc at June 30, 2000, and the consolidated results of its operations and its cash flows for the year ended June 30, 2000, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Ionic Fuel Technology, Inc will continue as a going concern. As more fully described in Note 1, Ionic Fuel Technology, Inc has incurred recurring operating losses and its operations have not produced a positive cash flow. This condition raises substantial doubt about the company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Stoy Hayward 27 September 2000

IONIC FUEL TECHNOLOGY INC 10-K/A