United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the period ended MARCH 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period From to
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Commission file number 1-13234
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IONIC FUEL TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1333140
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 DELAWARE AVENUE, SUITE 1704
WILMINGTON, DELAWARE 19801-1622
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(Address of principal executive offices) (Zip Code)
(302) 427-5957
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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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
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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 - 22,518,796 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 March 31, 2001.
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 2001 and June 30, 2000
Consolidated statements of operations - Three months ended March 31,
2001 and 2000; nine months ended March 31, 2001 and 2000
Consolidated statements of cash flows - Nine months ended March 31,
2001 and 2000
Notes to consolidated financial statements - March 31, 2001
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
MARCH 31, JUNE 30,
2001 2000
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(UNAUDITED) (AUDITED)
ASSETS
Current assets
Cash and cash equivalents (Note 4) $ 16,387 $ 231,202
Trade accounts receivable 245,297 264,362
Inventory (Note 5) 311,947 333,472
Prepaid expenses 86,583 58,048
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Total current assets 660,214 887,084
Equipment and vehicles, net of accumulated
depreciation of $361,395 at March 31, 2001
and $361,097 at June 30, 2000 136,981 141,311
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TOTAL ASSETS $ 797,195 $ 1,028,395
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 98,958 $ 217,587
Current portion of long term debt 35,905 -
Accounts payable 216,160 266,050
Accrued expenses 175,053 91,676
Provisions for warranties and returns 99,303 134,066
Provisions for refurbishment and inventory 142,238 103,714
Accrued royalty 27,200 27,200
Current portion of royalty agreement 12,600 18,900
Accrued salary, benefits and payroll taxes 21,227 28,360
Current portion of capital lease obligations 12,770 7,538
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Total current liabilities 841,414 895,091
Long-term liabilities
Long-term debt, less current portion 68,234 -
Long-term capital lease obligations, less current portion 36,860 4,427
Long-term royalty agreement obligations, less current portion 295,971 299,125
Long-term note payable to shareholder 130,500 -
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Total long-term liabilities 531,565 303,552
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Stockholders' equity Common stock, $.01 par value:
50,000,000 shares authorized; issued and
outstanding 22,518,796 shares at March 31, 2001 and
15,951,789 shares at June 30, 2000 225,188 159,518
Common stock subscribed - 33,100
Capital in excess of par value 14,414,312 14,096,041
Accumulated deficit (15,058,896) (14,311,623)
Cumulative translation adjustment (156,388) (147,284)
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Total stockholders' equity (575,784) (170,248)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 797,195 $ 1,028,395
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SEE ACCOMPANYING NOTES
NOTE: THE BALANCE SHEET AT JUNE 30, 2000 HAS BEEN DERIVED FROM THE
AUDITED 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.
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IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2001 2000 2001 2000
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Revenues
Sales $ 6,387 $ 118,533 $ 43,283 $ 238,428
Rental 82,239 98,702 243,352 270,604
Engineering services 148,933 - 499,478 -
-------------- ------------- ------------- ------------
Total revenues 237,559 217,235 786,113 509,032
Cost of revenues
Sales 15,578 83,042 22,824 187,544
Rental 68,820 152,916 325,355 400,214
Engineering services 108,498 - 307,021 -
-------------- ------------- ------------- ------------
Total cost of revenues 192,896 235,958 655,200 587,758
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44,663 (18,723) 130,913 (78,726)
Operating expenses
General and administrative 162,861 152,362 518,890 473,303
Sales and marketing 161,769 67,929 334,804 218,452
Research and development - - - 132
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324,630 220,291 853,694 691,887
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Operating (loss) (279,967) (239,014) (722,781) (770,613)
Other income (expense)
Interest income (adjustment) - (259) 2,100 1,792
Interest expense (9,034) (1,950) (26,592) (10,051)
Loss on sale of vehicle - (21,094) - (21,094)
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(9,034) (23,303) (24,492) (29,353)
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Net (loss) $ (289,001) $ (262,317) $ (747,273) $ (799,966)
============= ============ ============= ============
Net (loss) per share $ (0.01) $ (0.02) $ (0.04) $ (0.07)
============= ============ ============= ============
Weighted average number of
common shares 22,518,796 14,361,421 20,873,581 12,301,871
============= ============ ============= ============
SEE ACCOMPANYING NOTES
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IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31
2001 2000
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OPERATING ACTIVITIES
Net (loss) $(747,273) $(799,966)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 35,831 53,011
Loss on disposal of vehicle 11,507 21,904
(Increase) decrease in
Accounts receivable 7,954 49,185
Other receivables (8,534) -
Inventory 14,346 215
Prepaid expenses (22,999) (26,690)
Increase in:
Accounts payable and accrued expenses 53,640 84,877
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Net cash used by operating activities (655,528) (617,464)
INVESTING ACTIVITIES
Acquisition of equipment (10,285) (11,936)
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Cash used by investing activities (10,285) (11,936)
FINANCING ACTIVITIES
Note payable to shareholder 130,500 -
Reduction of bank overdraft (118,629) 233,425
Principal payments on capital leases (1,819) (24,343)
Principal payments under licensing agreement (9,450) (4,949)
Proceeds from long term debt 105,917 -
Proceeds from sale of stock 349,841 -
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Net cash provided by financing activities 456,360 204,133
Effects of exchange rate differences on cash (5,362) 8,884
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Increase (decrease) in cash and cash equivalents (214,815) (416,383)
Cash and cash equivalents, beginning of period 231,202 312,277
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Cash and cash equivalents, end of period $ 16,387 $ (104,106)
======== ===========
Interest paid $ 26,592 $ 10,051
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Noncash investing and financing activity:
Acquisition of vehicles with capital leases $ 51,706 $ 25,970
========= ========
SEE ACCOMPANYING NOTES
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IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
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. The Company has been utilizing approximately
$70,000 per month to fund operations. In the three month period, the Company
raised $130,500 to assist in the funding of operations, through a
shareholder's loan. The Company also intends to raise additional capital in
the form of a 6% Debenture note with detachable warrants - please see note 2
below. The Company considers that this additional funding, together with
positive cash flows which are expected to be generated from trading
operations in the next twelve months, will be sufficient to meet the
Company's capital requirements, although no assurances can be given and the
Company may need to raise additional capital to fund operations or, if this
capital is not secured, it may be necessary to substantially curtail or
cease operations.
2. SUBSEQUENT EVENTS
The Company, at the date of issue of this report, has received signed
agreements, in the form of a 6% Debenture note with detachable warrants, for
the provision of $115,000, of which $100,000 is a shareholder's loan - see
note 1 above. In addition the Company has received commitments for the
provision of a further $385,000 of funding to the Company also in the form
of a 6% Debenture note with detachable warrants.
3. 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 nine month period ended March 31, 2001 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.
4. CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
5. INVENTORY
Inventory is comprised of the following:
MARCH 31 JUNE 30
2001 2000
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Material and supplies $121,812 $131,609
Finished goods 190,135 201,863
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$311,947 $333,472
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Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
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IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
(Continued)
6. COMPREHENSIVE INCOME
The Company's comprehensive income is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2001 2000 2001 2000
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net loss $(289,001) $(262,317) $(747,273) $(799,966)
Foreign currency translation
Adjustment 474 (9,090) (9,104) 6,827
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Total comprehensive loss $(287,527) $(271,407) $(756,377) $(793,139)
========= ========= ========= =========
7. EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2001 2000 2001 2000
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net (loss) $(289,001) $(262,317) $(747,273) $(799,966)
Net (loss) per share $ (0.01) $ (0.02) $ (0.04) $ (0.07)
Weighted average number 22,518,796 14,361,421 20,873,581 12,301,871
Common shares
During the nine month period ended March 31, 2001, 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 March 31, 2001 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.
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.
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IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
(Continued)
8. SEGMENT REPORTING (CONTINUED)
Segment Reporting of the Company is as follows:
UNITED STATES EUROPE TOTAL
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THREE MONTHS ENDED MARCH 31, 2001
Revenues:
Sales $ - $ 6,387 $ 6,387
Rentals - 82,239 82,239
Engineering services - 148,933 148,933
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Total revenue $ - $ 237,559 $ 237,559
=========== ========== =========
Segment loss $ (31,540) $ (257,461) $ (289,001)
THREE MONTHS ENDED MARCH 31, 2000
Revenues:
Sales $ - $ 118,533 $ 118,533
Rentals - 98,702 98,702
Engineering services $ - - -
----------- ---------- ----------
Total revenue $ - $ 217,235 $ 217,235
=========== ========== =========
Segment loss $ (38,940) $ (223,377) $(262,317)
NINE MONTHS ENDED MARCH 31, 2001
Revenues:
Sales $ - $ 43,283 $ 43,283
Rentals - 243,352 243,352
Engineering services - 499,478 499,478
----------- ---------- ----------
Total revenue $ - $ 786,113 $ 786,113
Segment loss $ (147,434) $ (599,840) $ (747,273)
NINE MONTHS ENDED MARCH 31, 2000
Revenues:
Sales $ - $ 238,428 $ 238,428
Rentals - 270,604 270,604
Engineering services - - -
----------- ---------- ----------
Total revenue $ - $ 509,032 $ 509,032
=========== ========== =========
Segment loss $ (113,853) $ (686,113) $ (799,966)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements made in this 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 developments,
risks in product development and market acceptance of and demand for the
Company's products, risks associated with foreign sales and other risks detailed
in the Company's filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Nine Months Ended March 31, 2001 and March 31, 2000
During the period the Company successfully completed trial
demonstrations of both the IFT technology and the MIS (Management Information
System) to Dalkia, a worldwide leader in energy and heating systems management.
As a result of these trials an agreement was concluded on February 21, 2001 (the
Company reported the agreement in a Form 8-K filed on March 16, 2001). The
agreement gives the Company an opportunity to significantly increase its
activities in France for the rental of IFT Systems and the sale of MIS to
Dalkia's selected sites. The additional working capital currently being raised
will enable the Company to produce the required IFT systems and to increase both
its sales and technical staff.
New IFT rentals were received from Janssen Pharmaceutical NV a division
of Johnson & Johnson, Ford Motor Company Genk, Interbrew Leuven and Agfa Gavaert
NV.
Engineering service revenues reached approximately $499,000 during the
period compared with nil revenues for the same period of fiscal 2000. This new
engineering activity is focused on advising and implementing energy reduction
and environmental programs for the customer, utilizing the combined experience
that the Company's personnel have obtained over a wide range of combustion and
environmental processes.
Engineering contracts were received from customers in England, Belgium,
France, Germany, Italy and Spain. Considerable success has been achieved in the
can manufacturing industry where the Company has developed and installed, in an
internal bake oven, a new synthetic conveyor system replacing the existing high
energy absorbing metal conveyor. The Company expects further orders following
this success at the end of this summer's canning season. The Company's first MIS
system was purchased and installed at Interbrew's, Leuven boiler house.
Total revenues increased by $277,000 to approximately $786,000 during
the nine months period from approximately $509,000 for the same nine months
period of fiscal 2000. The increase is the result of the successful introduction
of engineering services which generated revenues of approximately $499,000.
Gross profit increased by $210,000 to a profit of approximately
$131,000 during the nine month period, from a loss of $79,000 in the same nine
month period of fiscal 2000, due to the gross profit produced by engineering
services and decreases in service department and manufacturing costs.
General and administrative expenses increased by $46,000 to
approximately $519,000 during the nine month period, from approximately $473,000
during the same nine month period of fiscal 2000. The increase in general and
administrative expenses is principally attributed to the costs involved in
demonstrating the IFT Technology and concluding the agreement with DALKIA.
Sales and marketing expenses increased to approximately $334,000 during
the nine months period from approximately $220,000 for the same nine month
period of fiscal 2000.
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This increase of approximately $114,000 is due to additional sales cost
associated with promoting new products and increased travel costs to develop new
contracts in continental Europe. This is partially offset by a decrease in
staff, promotional and vehicle expenses.
Other expenses (net) decreased to approximately $24,000 during the nine
month period, from approximately $29,000 of net expenses during the same nine
month period of fiscal 2000, due to a loss on the sale of a vehicle in the prior
year.
Three Months Ended March 31, 2001 and March 31, 2000
During the period new IFT rental orders were received from Citrique
Belgium and Dow Chemicals and a new installation order was received from the
Ford Motor Company's Saarlouis plant. The revenues from these new customers will
be reflected in the following quarter. The Company is currently in the process
of installing both IFT Systems and the MIS programs at five Dalkia sites in
France. Meetings are ongoing with Dalkia regional management to identify further
sites.
As discussed above, engineering services installed the first of a new
conveyor system for a leading European can company during the period that has
significant energy and environmental advantages over the system it replaced.
Discussions are being held to identify other sites where this system can be
installed.
Total revenues increased to approximately $237,000 during the current
three month period, from approximately $217,000 for the same three month period
of fiscal 2000. The increase of approximately $20,000 in revenues related to
engineering services revenues of $148,000.
Gross profit increased by $64,000 to a profit of approximately $45,000
during the current three months period, from a loss of $19,000 in the same
period of fiscal 2000, due to the gross profit produced by engineering services
and decreases in service department and manufacturing costs.
General and administrative expenses increased to approximately $163,000
during the current three month period, from approximately $152,000 during the
same period of fiscal 2000. The increase of approximately $11,000 in general and
administrative expense related to an increase in personnel costs compared with
the previous year.
Sales and marketing expenses rose to approximately $162,000 for the
period, from approximately $68,000 for the same three months of fiscal 2000.
This increase of $94,000 relates to additional costs associated with promoting
new products and increased travel costs developing new contracts in continental
Europe. This is partially offset by a decrease in staff, promotional and vehicle
expenses.
LIQUIDITY AND SOURCES OF CAPITAL
Net cash used by operations was approximately $655,000 for the nine
months ended March 31, 2001 and approximately $617,000 for the nine months ended
March 31, 2000. Cash was utilized in all departments (i.e. sales, marketing and
administration in the United Kingdom and Europe). Working capital (deficit) was
approximately $(181,200) at March 31, 2001 and approximately $(8,000) at June
30, 2000. Working capital has been utilized primarily to fund operations.
In September 2000, the Company accepted subscriptions for 2,000,000
shares of common stock at $0.10. As a result, the Company raised approximately
$200,000. In December 2000, the Company accepted subscriptions for 1,257,007
shares of common stock at a price of $0.12. As a result, the Company raised
approximately $150,000. In the three month period, the Company raised $130,500
to assist in the funding of operations, through a shareholder's loan. The
Company also intends to raise additional capital in the form of a 6% Debenture
note with detachable warrants ( please see Note 2 above). The Company considers
that this additional funding, together with positive cash flows which are
expected to be generated from trading operations in the next twelve months, will
be sufficient to meet the Company's capital requirements, although no assurances
can be given.
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CURRENCY FLUCTUATION
Currency fluctuations were insignificant to the Company's operations
for the nine months ended March 31, 2001 and 2000. 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.
The principal revenues are generated in pounds sterling, which for the
nine months ended March 31, 2001 have been translated to dollars at a rate of
$1.44/(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 nine months ended March 31, 2001 and 2000.
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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+
+ Previously Filed
The Company filed one report on Form 8-k during the nine months ended March 31,
2001.
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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 MAY 16, 2001 /S/ ANTHONY J.S. GARNER
------------------------ ----------------------------------
President and Chief Executive Officer
(Name and Title)
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