10-Q 1 a2037664z10-q.txt FORM-10-Q United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (MARK ONE) [x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended December 31, 2000 or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the Transition Period From _________ to _________ 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 incorporation or organization) Identification No.) 300 Delaware Avenue, Suite 1704 Wilmington, Delaware 19801-1622 -------------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) (302) 427-5957 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable -------------------------------------------------------------------------------- (Former name, former address and former year, if changed since last report) 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 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements, for the past 90 days. Yes X No ----- ------ Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes ___ No ___ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practical date Common Stock, $.01 Par Value - 21,261,789 shares, 189,000 Underwriters' warrants, 150,000 Consultant's Warrants, 270,200.059 Series D Warrants and 100,000 Broker's Warrants outstanding as of December 31, 2000 IONIC FUEL TECHNOLOGY, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets - December 31, 2000 and June 30, 2000 Consolidated statements of operations - Three months ended December 31, 2000 and 1999; six months ended December 31, 2000 and 1999 Consolidated statements of cash flows - Six months ended December 31, 2000 and 1999 Notes to consolidated financial statements - December 31, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER~~DECEMBER ~~30,~~31 JUNE 30, 2000 2000 --------------~~----~~ ------------- ~~ASSETS~~ (UNAUDITED) (AUDITED) ASSETS Current assets Cash and cash equivalents (Note 3) $ 6372,~~785~~614 $ 231,202 Trade accounts receivable ~~285~~394,~~526~~147 264,362 Inventory (Note 4) ~~331~~333,~~801~~941 333,472 Prepaid expenses 75,~~119~~785 58,048 Stock subscriptions receivable 1,000 - ------------ ------------- Total current assets ~~756~~877,~~231~~487 887,084 Equipment and vehicles, net of accumulated depreciation of $~~362~~364,~~936~~008 at ~~September~~December 3031, 2000 and $361,097 at June 30, 2000 149,~~810~~612 141,311 ------------ ------------ TOTAL ASSETS $ ~~906~~1,~~041~~027,099 $ 1,028,395 ============ ============= LIABILITIES AND STOCKHOLDERS' ~~DEFICIENCY~~EQUITY Current liabilities ~~Accounts~~Bank ~~payable~~overdraft $ ~~137~~98,~~908~~926 $ ~~172~~217,~~215~~587 ~~Accrued~~Current ~~expenses~~portion ~~169,704~~of ~~185,511~~long ~~Bank~~term ~~overdraft~~debt 7437,~~075~~343 ~~217,587~~- ~~Current~~Accounts ~~portion~~payable of249,065 ~~note payable~~266,050 ~~bank~~Accrued 36expenses 196,~~963~~506 -91,676 Provisions for warranties and returns ~~108~~103,~~142~~279 134,066 Provision for refurbishment and inventory ~~132~~133,~~145~~951 103,714 Accrued royalty, ~~due to officer~~ 27,200 27,200 Current portion of royalty agreement 2212,~~050~~600 18,900 Accrued salary, benefits and payroll taxes 2724,~~736~~670 28,360 Current portion of capital lease obligations 1213,~~583~~701 7,538 ------------ ------------- Total current liabilities ~~748~~897,~~506~~241 895,091 Long-term liabilities ~~Note~~Long ~~payable,~~term ~~bank~~debt, less current portion 7374,~~925~~685 - Long-term capital lease obligations, less current portion 2443,~~263~~305 4,427 ~~Other~~Long ~~long-~~term ~~liabilities~~royalty ~~292~~agreement obligations,~~825~~ less current portion 299,125 299,125 ------------ ------------- Total long-term liabilities ~~391~~417,~~013~~115 303,552 Stockholders' ~~deficiency~~equity Common stock, $.01 par value: 50,000,000 shares authorized; issued and outstanding 21,261,789 shares at December 31, 2000 and 15,951,789 at June 30, 2000 212,618 159,518 Common stock subscribed -12,570 33,100 Capital in excess of par value 14,~~276~~414,~~041~~312 14,096,041 Accumulated deficit (14,~~566~~769,~~199~~895) (14,311,623) Accumulated other comprehensive income - cumulative translation adjustment (~~155~~156,~~938~~862) (147,284) ------------- ------------- ~~Total~~TOTAL ~~stockholders~~STOCKHOLDERS' ~~deficiency~~EQUITY (~~233~~287,~~478~~257) (170,248) ------------- ------------- ~~TOTAL~~Total ~~LIABILITIES~~liabilities ~~AND~~and ~~STOCKHOLDERS~~stockholders' ~~DEFICIENCY~~equity $ ~~906~~1,~~041~~027,099 $ 1,028,395 ============ =============

SEE ACCOMPANYING NOTES Note: The balance sheet at June 30, 2000 has been derived from the auited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. -3- IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED ~~SEPTEMBER~~SIX 30MONTHS ENDED DECEMBER 31 DECEMBER 31 2000 1999 2000 1999 ------------------------------------- --------------------------------- Revenues ~~Engineering~~Sales ~~consulting~~$ 12,276 $ ~~118~~82,~~703~~461 $ -36,895 ~~Sales~~$ 24119,~~619~~895 37Rentals 88,~~434~~526 ~~Rental~~85,464 72161,~~587~~113 86171,~~438~~902 Engineering consulting 231,843 - 350,546 - ----------- ----------- ----------- ----------- Total revenues ~~215~~332,~~909~~645 ~~123~~167,~~872~~925 548,554 291,797 Cost of revenues ~~Engineering~~Sales ~~consulting~~1,989 4362,~~256~~797 -7,246 ~~Sales~~104,502 5Rentals 80,~~257~~383 4193,~~705~~045 ~~Rental~~256,530 ~~176~~247,~~148~~298 ~~154~~Engineering 155,~~253~~271 - 198,528 - ----------- ----------- ----------- ----------- Total cost of revenues ~~224~~237,~~661~~644 ~~195~~155,~~958~~842 462,304 351,800 ----------- ----------- ----------- (8----------- 95,~~752)~~002 12,083 86,250 (7260,~~086~~003) Operating expenses General and administrative ~~193~~168,~~545~~342 ~~181~~138,~~975~~966 361,887 320,941 Sales and marketing 46126,~~429~~606 7872,~~220~~303 173,035 150,523 Research and development - 9537 - 132 ------------ ----------- ~~239~~------------ ----------- 294,~~974~~948 ~~260~~211,~~290~~306 534,922 471,596 ------------ ----------- ------------ ----------- Operating (loss) (~~248~~199,~~726~~946) (~~332~~199,~~376~~223) (448,672) (531,599) Other income (expense) Interest income 02,100 1190 2,~~861~~100 2,051 Interest (expense) adjustment (5,850) 4,014 (1211,~~115~~700) (8,101) ----------- ----------- ------------ ----------- (53,~~850~~750) 4,204 (109,~~254~~600) (6,050) ------------- ----------- ------------ ----------- Net (loss) $ (~~254~~203,~~576~~696) $ (~~342~~195,~~630~~019) $ (458,272) $ (537,649) ============ =========== ~~Net~~============ ~~loss~~=========== ~~per share (.01) (.03) ------------ -----------~~ Weighted average number of common shares 1821,~~516~~261,~~463~~789 11,283,289 19,889,126 11,283,289 ============ =========== ============ ===========

SEE ACCOMPANYING NOTES -4- IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~THREE~~SIX MONTHS ENDED ~~SEPTEMBER~~DECEMBER 3031 2000 1999 --------------------------------- OPERATING ACTIVITIES Net (loss) $ (~~254~~458,~~576~~272) $ (~~342~~537,~~630~~649) Adjustments to reconcile net loss to net cash used byin operating activities: Depreciation 1025,~~322~~176 1835,~~241~~335 Loss on disposal of vehicle 11,967 - (Increase) decrease in: Accounts receivable (25132,~~030~~586) 5925,~~835~~974 Inventory 35,~~868~~232 83,~~840~~870 Prepaid expenses (1218,~~541~~213) 515,~~333~~990 Increase ~~(decrease)~~ in: Accounts payable and accrued expenses ~~(40~~87,~~698)~~014 174,~~558~~960 ----------- ------------ Net cash used by operating activities (~~318~~479,~~655~~682) (~~232~~451,~~823~~520) INVESTING ~~ACTIVITY~~ACTIVITIES Acquisition of equipment (110,~~378~~740) (511,~~549~~041) ------------ ------------- Cash used by investing activities (10,740) (11,041) FINANCING ACTIVITIES Reduction of bank overdraft (118,661) - Principal payments on capital leases (26,~~411~~029) (917,~~054~~576) Principal payments under licensing agreement (36,~~150~~300) (3,899) ~~Reduction~~Proceeds infrom ~~bank~~long ~~overdraft~~term ~~(143~~debt 112,~~512)~~028 - Proceeds from sale of stock ~~200~~349,~~000~~841 ~~- Proceeds from note payable~~184,720 ~~bank 111,223~~ - ---------- ------------ Net cash provided (used) by financing activities ~~162~~330,~~150~~879 ~~(12~~163,~~953)~~245 Effects of exchange rate differences on cash ~~(9,534)~~955 34,~~725~~068 ----------- ------------ Decrease in cash and cash equivalents (~~167~~158,~~417~~588) (~~247~~295,~~600~~248) Cash and cash equivalents, beginning of period 231,202 312,277 ----------- ------------ Cash and cash equivalents, end of period $ 6372,~~785~~614 $ 6417,~~677~~029 =========== ============ Interest paid $ 511,~~850~~700 $ 128,~~115~~101 =========== ============ NONCASH ~~INVESTING AND~~ FINANCING ~~ACTIVITIES~~ACTIVITY: Acquisition of ~~vehicle~~vehicles with capital ~~lease~~leases $ 2751,~~544~~706 $ - =========== ============ Stock subscriptions receivable $ 1,000 $ 48,705 =========== ===========

SEE ACCOMPANYING NOTES - 5 - IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) December 31, 2000 1. GOING CONCERN Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses, and its operations have not produced positive cash flow. As such, this condition raises substantial doubt about the Company's ability to continue as a going concern. During the past period, the principal use of the Company's cash has been to fund its operating losses and to bring its new products to market. The Company has been utilizing approximately $80,000 per month to fund operations. To fund operations, the Company raised approximately $150,000 of additional capital through the issuance of 1,257,007 stock subscriptions at a price of $0.12 per share. The Company is presently attempting to raise additional capital to fund operations. If additional capital is not secured within the next few months, it will be necessary to substantially curtail or cease operations. In the six month period to December 31, 2000 the Company has issued 5,310,000 shares of common stock at a price of $0.10 per share. Of these shares issued, subscriptions for 3.310,000 had been received by the Company prior to June 30, 2000. 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended December 31, 2000 are not necessarily indicative of the results that may be expected for the year ending June 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2000. 3. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. 4. INVENTORY Inventory is comprised of the following: DECEMBER 31 JUNE 30 2000 2000 ----------- -------- Material and supplies $126,755 $131,609 Finished goods 207,186 201,863 -------- -------- $333,941 $333,472 ======== ======== Included in finished goods inventory are units, at customer sites, on a short-term trial basis. - 6 - IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) December 31, 2000 (Continued) 5. COMPREHENSIVE INCOME The Company's comprehensive income is as follows:

~~SEPTEMBER~~THREE 30MONTHS ~~JUNE~~ENDED 30SIX MONTHS ENDED, DECEMBER 31 DECEMBER 31 2000 1999 2000 1999 ---------------------------- ----------------------------- ~~Material~~Net ~~and~~loss ~~supplies~~$(203,696) $~~127~~(195,~~880~~019) $~~131~~(458,~~609~~272) ~~Finished~~$(537,649) ~~goods~~Foreign ~~203~~currency translation adjustment (924) (5,~~921~~635) ~~201~~(9,~~863~~578) 15,917 ---------- --------- --------- --------- Total comprehensive loss $~~331~~(204,~~801~~620) $~~333~~(200,~~472~~654) $(467,850) $(521,732) ========= ========= ========= ========= 6. EARNINGS PER SHARE Net (loss) $ 203,696) $(195,019) $(458,272) $(537,649) ========= ========= ========= ========= Net (loss) per share $ (0.01) $ (0.02) $ (0.02) $(0.05) ========= ========= ========= ========= Weighted average number of common shares 21,261,789 11,283,289 19,889,126 11,283,289 ========== ========== ========== ==========

During the six month period ended December 31, 2000, the Company issued 139,000 share options to employees and 150,000 to a financial public relations firm in lieu of a $30,000 fee for services carried out in the period to April 30, 2001. All were at a fair market value of $0.20. At December 31, 2000 the total number of options outstanding was 795,500. No share options have been included in the calculation of earnings per share as their effect is anti-dilutive. 7. 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. - 7 - IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) December 31, 2000 (Continued) 7. SEGMENT REPORTING (CONTINUED) Segment Reporting of the Company is as follows:

~~THREE~~UNITED ~~MONTHS~~STATES ~~ENDED~~EUROPE ~~SEPTEMBER~~TOTAL 30--------------------------------------------------------- Three months ended December 31, 2000 ~~1999~~Revenues: Sales $ - $ 12,276 $ 12,276 Rental - 88,526 88,526 Engineering consultancy - 231,843 231,843 -------------------------------------------------------- ~~Net~~Total revenue $ - $ 332,645 $ 332,645 ======================================================== Segment loss $ (~~254~~45,~~576~~201) $ (~~342~~158,~~630~~495) ~~Foreign~~$ ~~currency~~(203,696) ~~translation~~Three ~~adjustment~~months ended December 31, 1999 Revenues: Sales $ - $ 82,461 $ 82,461 Rental - 85,464 85,464 Engineering consultancy - - - -------------------------------------------------------- Total revenue $ - $ 167,925 $ 167,925 ======================================================== Segment loss $ (85,~~654~~620) 21$ (189,~~552~~399) $ (195,019) Six months ended December 31, 2000 Revenues: Sales $ - $ 36,895 $ 36,895 Rental - 161,113 161,113 Engineering consultancy - 350,546 350,546 ------ -------------------------------------------------- Total ~~comprehensive~~revenue $ - $ 548,554 $ 548,554 ======================================================== Segment loss $ (~~263~~115,~~230~~894) $ (~~321~~342,~~078~~378) $ (458,272) Six months ended December 31, 1999 Revenues: Sales $ - $ 119,895 $ 119,895 Rental - 171,902 171,902 Engineering consultancy - - - -------------------------------------------------------- Total revenue $ - $ 291,797 $ 291,797 ======= ================================================= Segment loss $ (74,913) $ (462,736) $ (537,649)

- 8 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Six Months Ended December 31, 2000 and December 31, 1999 -------------------------------------------------------- TOTAL REVENUES INCREASED TO APPROXIMATELY $549,000 DURING THE SIX MONTH PERIOD ENDED DECEMBER 31, 2000 FROM APPROXIMATELY $292,000 FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999. THE INCREASE OF APPROXIMATELY $257,000 IN REVENUES RELATED PRIMARILY TO AN INCREASE IN ENGINEERING CONSULTING REVENUE WHICH IS AN ADDITIONAL PRODUCT THIS YEAR. GROSS PROFIT IMPROVED FROM A LOSS OF APPROXIMATELY $60,000 DURING THE SIX MONTHS ENDED DECEMBER 31, 1999 TO A PROFIT OF APPROXIMATELY $86,000 DURING THE SIX MONTHS ENDED DECEMBER 31, 2000 DUE TO INCREASED REVENUE FROM OUR NEW ENGINEERING CONSULTING ACTIVITIES. GENERAL AND ADMINISTRATIVE EXPENSES INCREASED TO APPROXIMATELY $361,000 DURING THE SIX MONTHS ENDED DECEMBER 31, 2000 FROM APPROXIMATELY $321,000 DURING THE SIX MONTHS ENDED DECEMBER 31, 1999. THE INCREASE OF APPROXIMATELY $40,000 IN GENERAL AND ADMINISTRATIVE EXPENSES RELATED TO AN INCREASE IN LEGAL AND PROFESSIONAL EXPENSES AND STOCK MARKET RELATED EXPENSES. SALES AND MARKETING EXPENSES INCREASED TO APPROXIMATELY $173,000 DURING THE SIX MONTH PERIOD ENDED DECEMBER 31, 2000 FROM APPROXIMATELY $150,000 FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999. THIS INCREASE OF APPROXIMATELY $23,000 IS DUE TO ADDITIONAL SALES COST ASSOCIATED WITH PROMOTING THE NEW PRODUCTS. Three Months Ended December 31, 2000 and December 31, 1999 ---------------------------------------------------------- Total revenues increased to approximately $333,000 during the three month period ended December 31, 2000 from approximately $168,000 for the three month period ended December 31, 1999. The increase of approximately $165,000 in revenues is primarily due to new sales of engineering consulting services. Gross profit increased to a profit of approximately $95,000 during the three months ended December 31, 2000 (profit of approximately $12,000 in 1999) due to increased sales of engineering services. General and administrative expenses increased to approximately $168,000 during the three months ended December 31, 2000 from approximately $139,000 during the three months ended December 31, 1999. The increase of approximately $29,000 in general and administrative related to increases in legal and professional expenses, royalty and stock market related expenses. Sales and marketing expenses rose to approximately $127,000 for the three months ended December 31, 2000 from approximately $72,000 for the three months ended December 31,1999. This increase of $55,000 relates to additional sales costs associated with promoting the new products. - 9 - LIQUIDITY AND SOURCES OF CAPITAL Net cash used by operations was approximately $480,000 for the six months ended December 31, 2000 and approximately $450,000 for the six months ended December 31, 1999. Cash was utilized in all departments, i.e. sales, marketing and administration in the United Kingdom and Europe. Working capital was approximately $(21,000) at December 31, 2000 and approximately $(8,000) at June 30, 2000. Working capital has been utilized primarily to fund operations. In December 2000, the Company accepted subscriptions for 1,257,007 shares of common stock par value $.01. As a result, the Company raised approximately $150,000. The Company also raised $200,000 through the issue of shares of common stock in the three months ended September 30, 2000. The Company is presently attempting to raise additional capital to fund operations. If additional capital is not raised within the next three months, it will be necessary to substantially curtail or cease operations. CURRENCY FLUCTUATION Currency fluctuations were insignificant to the Company's operations for the six months ended December 31, 2000 and 1999. The Company operates in the United States and United Kingdom (Pound Sterling); sales and rentals may also be denominated in other currencies, such as the Euro, French Franc, the Belgian Franc, the Dutch Guilder and the German Mark. Changes in the exchange rates of these currencies could affect the Company's operations and cash flows. Currently, the Company does not enter into any derivative contracts to hedge these risks. However, the principal revenues are generated in sterling which for the 6 months ended December 31, 2000 have been translated to dollars at a rate of $1.5/(pound)1. For the same period last year the conversion rate was $1.6/(pound)1. The fluctuation in the exchange rate should be considered when comparing the revenue for each period. INFLATION Inflation has not had a significant impact on the results of the Company's operations for the six months ended December 31, 2000 and 1999. - 10 - PART II. OTHER INFORMATION Item 1. Legal Proceedings (Not applicable) Item 2. Changes in Securities (Not applicable) Item 3. Defaults upon Senior Securities (Not applicable) Item 4. Submission of Matters to a Vote of Security Holders (Not applicable) Item 5. Other information (Not applicable) Item 6. Exhibits and Reports on Form 8-K The following exhibits are included herein: (1) Statement re: computation of earnings per share The Company did not file any reports on Form 8-k during the six months ended December 31, 2000. - 11 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ionic Fuel Technology, Inc. ------------------------------- (Registrant) Date February 8, 2001 /s/ Anthony J.S. Garner ------------------------------- ------------------------------- Anthony J.S. Garner C.E.O. and C.F.O - 12 -

THREE MONTHS ENDED SEPTEMBER 30 2000 1999 --------------------------------- Net loss $ (254,576) $ (342,630) Average common shares outstanding 18,516,463 11,283,289 ---------- ---------- Net loss per common share $ (.01) $ (.03) ============ ============

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