SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2000
[ ] 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: 000-25367
International Fuel Technology, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0357508
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
7777 Bonhomme, Suite 1920, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
(314) 727-3333
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
Par Value
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 period 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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The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant, based upon the average bid and asked price
of the common stock on September 30, 2000, as reported on the OTC Bulletin
Board, was $7,925,224.
Number of shares of common stock outstanding as of September 30, 2000:
19,817,698
1
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000
Index to Quarterly Report
on Form 10-Q/A
Part I - FINANCIAL INFORMATION Page
Item 1- Financial Statements
Balance Sheets - September 30, 2000 and December 31, 1999 3
Statements of Operations - Three Month and Nine Month
Periods Ended September 30, 2000 and 1999, and From
Inception (April 9, 1996) to September 30, 2000 4
Statement of Stockholders' Deficit - Nine Months
Ended September 30, 2000 5
Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999, and From Inception
(April 9, 1996) to September 30, 2000 6
Notes to Financial Statements 7-11
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-16
Part II - OTHER INFORMATION
Item 3- Quantitative and Qualitative Disclosures About Market Risk 16
Item 6- Exhibits and Reports on Form 8-K 16
2
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, December 31,
ASSETS (Note 2) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
(Unaudited,
as restated)
Current Assets
Cash $ 60,974 $ 26,846
Employee receivable - 468
Note receivable, stockholder - 15,000
Prepaid expenses 23,166 12,719
------------------- -------------------
Total current assets 84,140 55,033
------------------- -------------------
Property and Equipment
Machinery and equipment 15,505 15,505
Accumulated depreciation (4,788) (2,374)
------------------- -------------------
Total property and equipment 10,717 13,131
------------------- -------------------
$ 94,857 $ 68,164
=================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current Liabilities
Accounts payable $ 229,514 $ 110,691
Accounts payable-stockholders - 187,095
Accrued expenses 194,639 3,406
Accrued interest expense 6,279 -
Notes payable to stockholder - 62,500
Notes payable to stockholders, net of discount (Note 3) 75,463 -
------------------- -------------------
Total current liabilities 505,895 363,692
------------------- -------------------
Long-Term Liabilities
Notes payable to stockholder (Note 3) 162,500 -
------------------- -------------------
Total liabilities 668,395 363,692
------------------- -------------------
Commitments and Contingencies
Stockholders' Deficit (Notes 2 and 4)
Common stock, $.01 par value; authorized, 150,000,000,
19,817,698 and 16,818,339 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 198,177 168,184
Discount on common stock (819,923) (816,923)
Additional paid-in capital 18,874,176 14,760,243
Deficit accumulated during the development stage (18,825,968) (14,407,032)
------------------- -------------------
Total stockholders' deficit (573,538) (295,528)
------------------- -------------------
$ 94,857 $ 68,164
=================== ===================
See Notes to Financial Statements.
3
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
From Inception
Three Months Nine Months (April 9, 1996)
Ended Ended Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
- ---------------------------------------------------------------------------------------------------------------------------
(as restated)
Revenues $ - $ - $ - $ - $ -
Cost of Revenues - - - - -
----------------------------------------------------------------------------
Gross Profit - - - - -
----------------------------------------------------------------------------
Operating Expenses:
Advertising and marketing 1,555 5,205 15,368 16,730 39,387
Board meeting expense - - 117,216 - 117,216
Consulting - 45,000 278,632 136,500 7,636,896
Insurance 8,612 - 25,183 - 25,183
Investment advisory fee - - 1,251,413 - 1,251,413
Office 416 5,723 9,221 10,716 64,375
Other 11,817 17,773 32,048 71,063 139,547
Payroll 204,702 116,735 1,219,680 210,378 1,787,238
Professional services 193,499 3,497,403 538,309 3,509,753 4,330,843
Research and development costs - 47,571 1,736 608,383 1,544,813
Rent 2,000 20,917 7,000 49,284 282,961
Stock transfer fees 545 1,006 1,890 8,073 25,517
Telephone 4,496 1,319 6,805 3,704 50,501
Travel 3,387 3,160 20,269 4,004 135,144
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Total operating expenses 431,029 3,761,812 3,524,770 4,628,588 17,431,034
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Net loss from operations 431,029 3,761,812 3,524,770 4,628,588 17,431,034
Interest expense 769,749 42,347 894,166 61,704 1,394,934
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Net loss before income taxes $1,200,778 3,804,159 4,418,936 4,690,292 18,825,968
Provision for income taxes - - - - -
----------------------------------------------------------------------------
Net loss $1,200,778 $3,804,159 $4,418,936 $4,690,292 $18,825,968
============================================================================
Basic and diluted net loss
per common share $ .06 $ .23 $ .25 $ .35
Weighted average common shares outstanding 18,716,339 16,429,900 17,894,524 13,368,538
See Notes to Financial Statements.
4
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
Deficit
Accumulated
Common Common Discount on Additional During
Stock Stock Common Paid-in Development
Shares Amount Stock Capital Stage Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 16,818,339 $168,184 $(816,923) $14,760,243 $(14,407,032) $ (295,528)
Issuances of common stock for cash and
services (Note 4) 101,800 1,018 - 330,682 - 331,700
Issuances of common stock for compensation
(Note 4) 90,000 900 - 29,388 - 30,288
Issuance of common stock (Note 4) 100,000 1,000 - (1,000) - 0
Issuances of common stock for services (Note 4) 92,559 925 - 277,726 - 278,651
Issuances of common stock for compensation
(Note 4) 200,000 2,000 - 548,000 - 550,000
Issuances of common stock for services (Note 4) 195,000 1,950 - 107,738 - 109,688
Issuance of common stock for services and cash
(Note 4) 390,000 3,900 - 1,141,725 - 1,145,625
Issuance of common stock warrants for notes
payable--stockholders (Note 3) - - - 452,730 - 452,730
Issuance of common stock for services (Note 4) 250,000 2,500 - 216,250 - 218,750
Cancellation of common stock (Note 4) (100,000) (1,000) - 1,000 - 0
Issuance of common stock warrants for notes
payable--stockholders (Note 3) - - - 775,694 - 775,694
Issuance of common stock for warrants
exercised (Note 4) 1,380,000 13,800 - - - 13,800
Issuance of contingently issued common stock
(Note 4) 300,000 3,000 (3,000) - - 0
Accrued stock based compensation (Note 4) - - - 234,000 - 234,000
Net loss - - - - (4,418,936) (4,418,936)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 19,817,698 $198,177 $(819,923) $18,874,176 $(18,825,968) $ (573,538)
====================================================================================================================================
See Notes to Financial Statements
5
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited) From
Nine Months Nine Months Inception
Ended Ended (April 9, 1996)
September 30, September 30, to September 30,
2000 1999 2000
- ------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net loss $(4,418,936) $(4,690,292) $(18,825,968)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,414 1,135 4,788
Stock issued and additional paid in capital
recognized for services and compensation 2,607,257 4,218,750 12,557,733
Interest amortization of discount on notes payable 887,887 - 887,887
Interest expense recognized on conversion of debt - - 355,771
Change in assets and liabilities:
Increase in prepaid expenses (10,447) (14,100) (23,166)
Increase in accounts payable 134,291 108,886 244,982
Increase (decrease) in accounts
payable-stockholders (100,000) - 87,095
Increase in accrued expenses and interest 197,512 52,651 343,738
----------------------------------------------------
Net cash used in operating activities (700,022) (322,970) (4,367,140)
----------------------------------------------------
Cash Flows from Investing Activities
Acquisition of machinery and equipment - - (13,861)
Increase in employee and stockholder receivables - - (15,468)
Cash acquired in connection with the purchase of
United States Fuel Technology, Inc. - - 358
----------------------------------------------------
Net cash used in investing activities - - (28,971)
----------------------------------------------------
Cash Flows from Financing Activities
Increase in amount due to related party - - 26,500
Increase is due to United States Fuel Technology,
Inc. - - 372,503
Proceeds from common stock issued 218,150 396,450 2,801,828
Proceeds from notes payable 516,000 77,354 1,805,425
Payment on notes payable - - (549,171)
----------------------------------------------------
Net cash provided by financing activities 734,150 473,804 4,457,085
----------------------------------------------------
Net increase in cash 34,128 150,834 60,974
Cash, beginning 26,846 68,735 -
----------------------------------------------------
Cash, ending $ 60,974 $ 219,569 $ 60,974
====================================================
Supplemental Cash Flow Information
Interest paid $ - $ - $ 2,100
====================================================
Taxes paid $ - $ - $ -
====================================================
See Notes to Financial Statements
6
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements included herein have been prepared by
International Fuel Technology, Inc. ("IFT"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although IFT
believes that the disclosures are adequate to make the information presented not
misleading.
IFT is filing this amended Form 10-Q/A to reflect the fair value of the equity
instruments issued in connection with a future debt offering as investment
advisory fees expensed in the period of issuance and to present revised December
31, 1999 financial statement information due to the filing of a Form 10-K/A2 for
the nine month period ended December 31, 1999.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in IFT's transitional report on Form 10-K/A2 for the nine
month period ended December 31, 1999. IFT follows the same accounting policies
in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
Common shares that are contingently issued are not included in the calculations
of earnings per share or weighted average shares.
Note 2 -- Ability to Continue as a Going Concern
IFT's financial statements are presented on the going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. IFT has incurred significant losses since
inception and has limited funds with which to operate. Management is in the
process of executing a strategy based upon developing pollution emission control
technologies that also offer enhanced engine performance with respect to greater
fuel economy. The Company already has one technology in development, and is
seeking to add other technologies through acquisitions. Management anticipates
receiving necessary regulatory and commercial acceptance for its existing
technology and acquired technologies within the next twelve months. Immediately
thereafter, the Company expects to begin licensing its products and or selling
them directly to the commercial marketplace, with the Company eventually
generating a level of revenues sufficient to meet IFT's working capital
requirements. Management believes that approximately $5 million of additional
working capital will be required in the next 24 months to meet all of its
existing and contemplated working capital needs. At this time Management does
not have an estimate of the amount of revenue necessary to attain positive cash
flow after funding its anticipated working capital needs. In February 2000, IFT
entered into a convertible debenture purchase agreement to raise $3,000,000
through the sale of convertible debentures, which was reduced to $1,500,000 by
the Company in June 2000. Subsequent to September 30, 2000, IFT canceled this
agreement, and on October 13, 2000 executed a term sheet for a Convertible
Preferred Stock financing, which has a one-year commitment amount of $3 million,
with an option at the Company's control for an additional $3 million in
financing after the completion of the one-year commitment. Such financing is
contingent upon IFT's ability to register the shares of common stock underlying
the convertible preferred stock with the Securities and Exchange Commission
(SEC). The Company has already filed a registration statement with the SEC for
the original convertible debenture financing, which it will re-structure and use
for the convertible preferred structure. There can be no assurance that the
registration will be granted effectiveness by the SEC, in which case IFT would
be required to seek alternative sources of financing. IFT's continued existence
is dependent upon its ability to resolve its liquidity shortfall principally by
obtaining this additional financing or raising equity capital. IFT must continue
to operate on a limited cash flow
7
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
based upon the cash it has on its balance sheet and its ability to generate
limited funding on a short-term basis. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of IFT to continue as a going concern.
Note 3 - Note Payable to Stockholders
In March 2000 ONKAR Corporation, Ltd. ("ONKAR"), a stockholder of IFT, advanced
IFT $50,000 which is due in March 2005 and has an annual interest rate of 6%. In
April 2000 ONKAR advanced IFT $50,000 which is due in April 2005 and has an
annual interest rate of 6%. In addition, IFT has note payable to ONKAR for
$62,500 which is due in November 2004 at an annual interest rate of 6%.
During the three-month period ended June 30, 2000 IFT received advances from
stockholders totaling $105,000. The advances are expected to be repaid in the
three-month period ending March 31, 2001. In addition to the repayment of
principal each stockholder received a warrant to purchase from IFT up to 25,000
shares of common stock at $.01 per share for each $5,000 in principal advanced
to IFT. The value of the warrants, $452,730, based on the market value of IFT's
common stock on the day(s) the advances were received has been recorded as a
discount on the notes payable to stockholders and as an addition to additional
paid in capital.
During the three-month period ended September 30, 2000 IFT received advances
from stockholders totaling $311,000. The advances are expected to be repaid in
the three-month period ending March 31, 2001. In addition to the repayment of
principal each stockholder received a warrant to purchase from IFT up to 25,000
shares of common stock at $.01 per share for each $5,000 in principal advanced
to IFT. The value of the warrants, $775,694, based on the market value of IFT's
common stock on the day(s) the advances were received has been recorded as a
discount on the notes payable to stockholders and as an addition to additional
paid in capital. During the three month and nine month periods ended September
30, 2000, $767,292 and $887,887, respectively, was amortized against the
discount on notes payable to stockholders and recognized as interest expense.
Note 4 - Stockholders' Deficit
On April 26, 1999 IFT offered all stockholders of record on March 31, 1999 the
right to purchase 900 common shares at $.50 per share. During January 2000 IFT
issued 1,800 shares and received proceeds of $450 as a result of this offering
which expired May 28, 1999. The $450 for the other 900 shares was received
during the nine month period ended December 31, 1999.
During January 2000 IFT issued 100,000 shares of common stock in a private
placement for $200,000 to a company whose sole owner is a director of IFT. The
market value of the shares on the date of issuance was $331,250. The $131,250 of
market value in excess of the cash amount received has been recorded as
consulting expense during the three month period ended March 31, 2000.
On July 13, 1999 IFT entered into employment agreements with its Chief Executive
Officer and Chief Operating Officer which expired on January 31, 2000. Under the
terms of these agreements, these officers each received up to a total of 60,000
and 30,000 shares of IFT's stock, respectively, payable at the end of the term
of the agreements. The 90,000 shares earned under these employment agreements
were issued on January 31, 2000.
8
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
At December 31, 1999, IFT owed one of its stockholders approximately $87,000 for
legal services performed. In February 2000, the stockholder agreed to accept
27,559 shares of IFT's stock in lieu of cash for the amounts due to him. The
value of the shares issued, $99,901, was based upon the market value price of
the common shares on February 9, 2000.
Effective January 14, 2000 IFT adopted a Consultant and Employee Stock
Compensation Plan. This plan provides that the Board of Directors may award
shares of IFT's stock to officers, directors, consultants and employees as
compensation for services. The maximum number of shares of common stock, which
may be awarded under this plan, is 500,000 shares. During March 2000 IFT issued
a total of 65,000 shares of common stock to five directors as reimbursement for
directors' expenses. The value of these shares, reflected in these financial
statements as payroll expenses for Jonathan Burst and William J. Lindenmayer in
the amount of $55,000 and as board meeting and travel expenses in the amount of
$117,216 and $6,534, respectively, for the remaining directors, has been
calculated based on the trading price of IFT's stock at February 23, 2000.
During January 2000, IFT entered into an employment agreement with Jonathan R.
Burst to serve as Chief Executive Officer of IFT until December 31, 2000 at a
base annual salary of $180,000. In addition, Mr. Burst is to receive 6,000
shares of common stock each month. During January 2000, IFT entered into an
employment agreement with William J. Lindenmayer to serve as Chief Operating
Officer of IFT until December 31, 2000 at a base annual salary of $125,000. In
addition, Mr. Lindenmayer is to receive 3,000 shares of common stock each month.
The shares are earned ratably on a monthly basis. The stock based compensation
earned through September 30, 2000, reflected in these financial statements as
payroll expense and as additional paid in capital, has been calculated based on
the trading price of IFT's stock at February 1, 2000 in the amount of $234,000.
As of September 30, 2000 the 72,000 common shares related to these employment
agreements have not been issued. It is expected they will be issued by December
31, 2000.
On February 23, 2000 the Board of Directors granted Jonathan Burst 100,000
shares of IFT's common stock for his appointment as Chief Executive Officer. The
value of these shares, reflected in these financial statements as payroll
expense, has been calculated based on the trading price of IFT's stock at
February 23, 2000. On February 23, 2000 the Board of Directors awarded an
initial grant of 100,000 shares of IFT's common stock to William Lindenmayer for
his appointment as President and Chief Operating Officer. The value of these
shares, reflected in these financial statements as payroll expense, has been
calculated based on the trading price of IFT's stock at February 23, 2000. The
total charged to payroll expense for these transactions was $550,000.
On February 9, 2000 IFT issued 100,000 common shares related to a consulting
agreement in effect at that time. On May 8, 2000 the consulting agreement was
amended and the 100,000 common shares were recalled and canceled. The 100,000
common shares are outstanding as of June 30, 2000 and the par value of these
shares is reflected in these financial statements as a deduction from additional
paid in capital.
During February 2000 IFT issued 195,000 shares of common stock and placed them
in escrow in accordance with the convertible debenture purchase agreement
entered into in February 2000. The shares were to be released from escrow and
issued to the purchasers of the convertible debenture in the event of an uncured
default by IFT prior to the closing of the convertible debenture purchase
agreement. The 195,000 shares of common stock were released to the purchasers of
the convertible debenture purchase agreement in conjunction with an amendment to
the convertible debenture purchase agreement dated June 16, 2000, and were
recorded as an investment advisory fee of $109,688 based on the trading price of
IFT's stock.
9
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
On March 28, 2000 a warrant for 390,000 shares of common stock was exercised by
GEM Global Yield Fund Limited at a cost of $.01 per share. The value over par
value of these shares, reflected in these financial statements as an investment
advisory fee, has been calculated based on the trading price of IFT's stock at
March 28, 2000 in the amount of $1,141,725.
On June 19, 2000 IFT issued 250,000 common shares to a director of the company
for consulting services. The value of the shares, $218,750, was recorded to
consulting expense and was based on the trading price of IFT's stock.
On July 28, 2000 IFT canceled 100,000 common shares previously issued in
connection with the acquisition of Blencathia.
During the three month period ended September 30, 2000 IFT issued 1,380,000
common shares due to the exercise of warrants issued in connection with the
stockholder notes discussed in Note 3.
Effective October 27, 1999, IFT merged with and into Blencathia Acquisition
Corporation ("Blencathia"). Blencathia had 300,000 shares outstanding at the
time of the merger, which it redeemed and canceled, in exchange for 300,000
shares of Blencathia's common stock, IFT will issue shares of its restricted
common stock. These shares are expected to be sold in an amount sufficient to
provide the former shareholders of Blencathia with proceeds of $500,000, the
negotiated cost of the acquisition.
On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. The 300,000 shares of common stock are
included in the statement of stockholders' deficit for the nine months ended
September 30, 2000 but are not included in earnings per share and weighted
average share calculations for the nine month period ended September 30, 2000.
They will be included when the shares are sold to provide payment to the
shareholders of Blencathia. The shareholders of Blencathia have represented to
the management of IFT that the 300,000 shares will be sold only with IFT's
approval. If the shares are sold and $500,000 is not generated additional shares
may need to be issued to the shareholders of Blencathia. Based on the September
30, 2000 market price, $.50, of IFT's common stock, a total of 1,000,000 shares
would need to be issued to generate the $500,000 proceeds.
Note 5 - Subsequent Events
During October 2000 IFT issued 550,000 common shares due to the exercise of
warrants issued in connection with advances received from stockholders.
During October 2000 IFT issued 1,235,000 common shares due to the grant of stock
awards to directors and officers.
Note 6 - Supplemental Disclosures of Cash Flow Information
Supplemental non-cash investing and financing activities were as follows:
Nine months ended September 30, 2000
- ------------------------------------
During the nine month period ended September 30, 2000, IFT issued 27,559 shares
of common stock as a $87,095 payment on accounts payable-stockholder.
During the nine month period ended September 30, 2000, IFT reduced a note
receivable-stockholder by $15,000 and an employee receivable by $468 as a
payment on an account payable.
Nine months ended September 30, 1999
- ------------------------------------
None
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q/A contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward looking statements are based largely on IFT's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond IFT's control, including, but not limited to, economic,
competitive and other factors affecting IFT's operations, markets, products and
services, expansion strategies and other factors discussed elsewhere in this
report and the documents filed by IFT with the Securities and Exchange
Commission. Actual results could differ materially from these forward-looking
statements. In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this report will in fact prove
accurate. IFT does not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances.
Overview
IFT was incorporated under the laws of the State of Nevada in April 1996, to
develop and commercialize a proprietary scientific process, "Performance
Enhanced Emissions Reduced" ("PEER"), that reformulates various refined fuels,
including #2 diesel fuel, home heating oil, #6 (Bunker) fuel, jet engine fuel
and gasoline to improve combustion efficiency and reduce the amounts of harmful
exhaust emissions from internal combustion engines. The resulting reprocessed
fuels are known as PEERFUEL. IFT is a development stage company, has had no
revenues to date and has raised capital for initial development through the
issuance of its securities and promissory notes.
Three Months Ended September 30, 2000 and Nine Months Ended September 30, 2000
Compared to the Three Months Ended September 30, 1999 and the Nine Months Ended
September 1999
Total operating expenses from development stage operations were $431,029 for the
three months ended September 30, 2000 as compared to the development stage
operating expenses of $3,761,812 for the three month period ended September 30,
1999. This represents a decrease of $3,330,783 from the prior period. Total
operating expenses from development stage operations were $3,524,770 for the
nine months period ended September 30, 2000, as compared to the development
stage operating expenses of $4,628,588 for the nine month period ended September
30, 1999. This represents a decrease of $1,103,818, or 23.8%, from the prior
period.
Board meeting expense for the nine months ended September 30, 2000 were $117,216
representing an Increase of $117,216 over the corresponding period of 1999. On
February 23, 2000 the Board of Directors adopted the Director's Stock
Compensation Plan, which provides for an annual award of 10,000 shares of IFT's
common stock to IFT's Board members as reimbursement for their attendance at the
Board meetings and an additional 1,000 shares of IFT's common stock for any
three-telephone conference call Board meetings attended. During March 2000,
45,000 shares of IFT's common stock were issued to three, non-employee, Board
members, calculated based on the trading price of IFT's stock at February 23,
2000 which was $2.75 per share, and are reflected in these financial statements
as Board meeting expense of $117,216 and travel expense of $6,534.
Consulting expense during the three months ended September 30, 2000 was zero
representing a decrease of $45,000 for the same period in 1999. Consulting
expenses during the nine months ended September 30, 2000 were $278,632 as
compared to $136,500 for the same period in 1999. This represents an increase of
$142,132, or 104.1%, over the corresponding period for 1999. IFT sold 100,000
common shares to a company whose sole director is a director of IFT for
$200,000. The market value on the day of issuance for those 100,000 common
shares was $331,250. The $131,250 in market value in excess of the cash amount
received is reflected in these financial statements as consulting expense and
additional paid in capital. The remaining amount of the increase is due to
consultants used in the operations of IFT and in the development of a market for
IFT's common stock. Pursuant to a
11
consulting agreement dated June 5, 2000, IFT issued 250,000 shares of restricted
common stock to a company whose sole director is a director of IFT. The market
value on the day of the agreement was $218,750. The $218,750 in market value is
reflected in these financial statements as consulting expense and additional
paid in capital. In addition, consulting expenses were reduced by $110,367 due
to the elimination of a related party account payable that had previously been
recorded to consulting expense.
Investment advisory fee expense during the nine months ended September 30, 2000
was $1,251,413 representing an increase of $1,251,413 over the corresponding
period of 1999. IFT entered into a Convertible Debenture Purchase Agreement
dated February 25, 2000 with GEM Global Yield Fund Limited ("GEM"). In addition
to the convertible debentures, GEM, one of the investors in the convertible
debentures, received a warrant to purchase 390,000 shares of common stock as
part of its fee for arranging the convertible debenture financing. On March 28,
2000 a warrant for 390,000 shares of common stock was exercised by GEM at a cost
of $.01 per share. The value over par value of these shares reflected in these
financial statements, has been recorded as an investment advisory fee, and has
been calculated based on the trading price of IFT's stock at March 28, 2000
which was $2.9375. During February 2000 IFT issued 195,000 shares of common
stock and placed them in escrow in accordance with the convertible debenture
purchase agreement entered into in February 2000. The shares were to be released
from escrow and issued to the purchasers of the convertible debenture in the
event of an uncured default by IFT prior to the closing of the convertible
debenture purchase agreement. The 195,000 shares of common stock were released
to the purchasers of the convertible debenture purchase agreement in conjunction
with an amendment to the convertible debenture purchase agreement dated June 16,
2000, and were recorded as an investment advisory fee of $109,688 based on the
trading price of IFT's stock. The term of GEM's commitment period expired August
24, 2000.
Payroll expenses during the three months ended September 30, 2000 were $204,702
as compared to $116,735 for the same period in 1999. This represents an increase
of $87,967, or 75.4%, for the corresponding period of 1999. Payroll expenses
during the nine months ended September 30, 2000 were $1,219,680 compared to
$210,378 for the same period in 1999. This represents an increase of $1,009,302
from the corresponding period in 1999. The increase was primarily due to the
Board of Director's granting a bonus of 100,000 shares of IFT's common stock
paid to each of IFT's President/COO and to its Chief Executive Officer on
February 23, 2000, and these shares have been reflected in these financial
statements as payroll expense of $550,000. Additionally, on February 23, 2000
the Board of Directors adopted the Director's Stock Compensation Plan, which
provided for an annual award of 10,000 shares of IFT's common stock to Board
members as reimbursement for their attendance at the Board meetings. The
President/COO and the Chief Executive Officer were awarded 10,000 shares of
IFT's common stock as Board members, and these shares have been reflected in
these financial statements as payroll expense of $55,000. The stock-award shares
value was calculated based on the trading price of IFT's stock at February 23,
2000 which was $2.75 per share. Additionally, on January 31, 2000 IFT extended
the employment agreements with its President/COO and Chief Executive Office
through December 31, 2000. Under these agreements, the President/COO will
receive an annual base salary of $180,000, 3,000 shares of IFT's common stock
per month and a bonus award as deemed appropriate by the Board of Directors of
IFT. The Chief Executive Officer will receive an annual base salary of $180,000,
6,000 shares of IFT's common stock per month and a bonus award as deemed
appropriate by the Board of Directors of IFT. The employment agreement shares in
the amount of 72,000 are reflected in these financial statements as payroll
expense and additional paid in capital, and the shares value was calculated
based on the trading price of IFT's stock at February 1, 2000 which was $3.23
per share. During the nine month period ended September 30, 2000, payroll
expense from common stock issued totaled $458,500 for the Chief Executive
Officer and $380,500 for the President/COO. During the nine month period ended
September 30, 2000, payroll expense from payroll accruals pursuant to the
employment agreement with the President/COO and the Chief Executive Officer
totaled $162,787. During the nine month period ended September 30, 2000, payroll
tax expense from payroll accruals pursuant to the employment agreements with the
President/COO and the Chief Executive Officer totaled $13,224.
12
Professional services during the three months ended September 30, 2000 were
$193,499 as compared to $3,497,403 for the same period in 1999. This represents
a decrease of $3,303,904 over the corresponding period for 1999. Professional
services during the nine months ended September 30, 2000 were $538,309 as
compared to $3,509,753 for the same period in 1999. This represents a decrease
of $2,971,444 over the corresponding period for 1999. On July 1, 1999, IFT
entered into an agreement with Onkar Corporation, Ltd. to issue 1,500,000 shares
of common stock in exchange for various services including introduction to
brokers, dealers and potential investors and for facilitating the writing of a
minimum of three research reports on IFT. IFT received $750,000 for these
shares. The $3,468,750 difference between the value of the shares using the
market price at the date of the agreement and the $750,000 of proceeds received
from the agreement were reflected in the statements of operations for the nine
month period ended September 30, 1999 as professional services expense.
Research and development costs during the three months ended September 30, 2000
were zero as compared to $47,571 for the same period in 1999. Research and
development costs during the nine months ended September 30, 2000 were $1,736 as
compared to $608,383 for the same period in 1999. This represents a decrease of
$606,647 from the corresponding period for 1999. The decrease is primarily due
to the reduction of the purchase of testing supplies of $11,047 and decreased
testing and laboratory fees of $854,187.
Interest expense during the three months ended September 30, 2000 was $769,749
as compared to $42,347 for the same period in 1999. This represents an increase
of $727,402 over the corresponding period for 1999. Interest expense for the
nine months ended September 30, 2000 was $894,166 as compared to $61,704 for the
same period in 1999. This represents an increase of $832,462 over the
corresponding period for 1999. The increase is primarily due to the amortization
of discounts on notes payable in connection with IFT's issuance of common stock
warrants to stockholders for advances received. The amount amortized during the
nine month period was $887,887. During the nine-month period ended September 30,
2000 IFT received advances from stockholders totaling $416,000. The advances are
expected to be repaid in the three-month period ending March 31, 2001. In
addition to the repayment of principal each stockholder received a warrant to
purchase from IFT up to 25,000 shares of common stock at $.01 per share for each
$5,000 in principal advanced to IFT. The value of the warrants, $1,228,424,
based on the market value of IFT's common stock on the day(s) the advances were
received has been recorded as a discount on the notes payable to stockholders to
be amortized as interest expense over the expected repayment period of the
advance. The increase is lessened due to an agreement entered into with certain
promissory note holders on November 1, 1999 to issue 423,537 shares of its
common stock by December 31, 1999 in exchange for the balance of the promissory
notes due in the amount of $704,254 and interest on the notes due in the amount
of $142,820 at $2.00 per share.
The net loss for the three months ended September 30, 2000 was $1,200,778 as
compared to the net loss of $3,804,159 for the three months ended September 30,
1999. This represents a decrease of $2,603,381, or 68.4%, from the prior period.
The net loss per common share for the three months ended September 30, 2000 was
$.06 as compared to the net loss per common share of $.23 for the three months
ended September 30, 1999. The net loss for the nine months ended September 30,
2000 was $4,418,936 as compared to the net loss of $4,690,292 for the nine
months ended September 30, 1999. This represents a decrease of $271,356, or
5.8%, from the prior period. The net loss per common share for the nine months
ended September 30, 2000 was $.25 as compared to the net loss per common share
of $.35 for the nine months ended September 30, 1999.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for years beginning after June 15, 2000
and requires comparative information for all fiscal quarters of fiscal years
beginning after June 15, 2000. IFT does not expect the adoption of this
statement to have significant impact on its results of operations, financial
position or cash flows.
13
Liquidity and Capital Resources
A critical component of IFT's operating plan impacting the continued existence
of IFT is the ability to obtain additional capital through additional debt
and/or equity financing. We do not anticipate IFT will generate a positive
internal cash flow until such time as IFT can generate revenues from license
fees from its PEERFUEL process and/or direct sales of its PEERFUEL products,
either or both of which may take the next few years to realize. In the event we
cannot obtain the necessary capital to pursue our strategic plan, IFT may have
to cease or significantly curtail its operations. This would materially impact
our ability to continue as a going concern.
We have met our capital needs since inception primarily through the issuance of
common stock as compensation for services rendered, which have totaled
$12,557,733 since inception in April 1996, and for the nine month period ended
September 30, 2000, totaled $2,607,257. In addition to these amounts, we have
raised $2,801,828 in cash from the issuance of common stock since the IFT's
inception, with $218,150 of this total raised during the nine-month period ended
September 30, 2000. Most of these funds have been raised through private
placement transactions. Finally, since IFT's inception, financing totaling
$1,805,425 was raised privately through notes payable to various sources, of
which $549,171 was repaid, $677,754 was converted to common stock, and $578,500
is recorded as a liability on the September 30, 2000, balance sheet. For the
nine months ended September 30, 2000 proceeds from notes payable to stockholders
totaled $516,000.
The cash used in operating activities is $700,022 for the nine months ended
September 30, 2000 as compared to cash used in operating activities of $322,970
for the nine months ended September 30, 1999. The primary use of the additional
cash in operations compared to the prior year was for accounts payable. The cash
provided by financing activities was $734,150 for the nine months ended
September 30, 2000 as compared to $473,804 provided by financing activities for
the nine months ended September 30, 1999. Net cash increased by $34,128 for the
nine months ended September 30, 2000 as compared to net cash increasing by
$150,834 for the nine months ended September 30, 1999.
Working capital at September 30, 2000 was ($421,753) as compared to ($308,659)
at December 31, 1999. The primary decrease in working capital is due to the
increase of notes payable during the nine month period ended September 30, 2000
and the issuance of warrants to stockholders for advances received during the
nine month period ended September 30, 2000.
Effective October 27, 1999, IFT merged with and into Blencathia Acquisition
Corporation. Blencathia had 300,000 shares outstanding at the time of
merger, which it redeemed and canceled. In exchange for 300,000 shares of
Blencathia's common stock, IFT will issue Blencathia shares of its restricted
common stock. These restricted common shares are expected to be sold in an
amount sufficient to provide the former shareholders of Blencathia with proceeds
of $500,000.
On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. The 300,000 shares of common stock are
included in the statement of stockholders' deficit for the nine months ended
September 30, 2000 but are not included in earnings per share and weighted
average share calculations for the nine month period ended September 30, 2000.
They will be included when the shares are sold to provide payment to the
shareholders of Blencathia. The shareholders of Blencathia have represented to
the management of IFT that the 300,000 shares will be sold only with IFT's
approval. If the shares are sold and $500,000 is not generated additional shares
may need to be issued to the shareholders of Blencathia. Based on the September
30, 2000 market price, $.50, of IFT's common stock, a total of 1,000,000 shares
would need to be issued to generate the $500,000 proceeds.
While management can not make any assurance as to the accuracy of our
projections of future capital needs, it is anticipated that a total of
approximately $5 million over the next two years will be necessary in order to
enable us to meet our capital needs. The budget includes officers deferring a
portion of their salary for over the next twelve months. In February 2000, IFT
entered into a convertible debenture purchase agreement to raise $3,000,000
through the sale of convertible debentures. During June 2000 this agreement was
amended to raise $1,500,000 through the sale of convertible debentures. In
connection with the convertible debenture purchase agreement IFT issued a
warrant for the purchase 390,000 shares of common stock at $.01 per common
share. This warrant was exercised on March 28, 2000. IFT additionally issued
195,000 shares of common stock to the purchasers of the convertible debenture
purchase agreement in conjunction with an amendment to the convertible debenture
purchase agreement dated June 16, 2000. Subsequent to September 30, 2000, IFT
canceled this agreement, and on October 13, 2000 executed a term sheet for a
Convertible Preferred Stock financing, which has a one-year commitment amount of
$3 million, with an option at the Company's control for an additional $3 million
in year two. Such financing is contingent upon IFT's ability to register the
shares of common stock underlying the convertible preferred stock with the
Securities and Exchange Commission ("SEC"). The Company has already filed a
registration statement with the SEC for the original convertible debenture
financing, which it will re-structure and use for the convertible preferred
structure. There can be no assurance that the registration will be granted
effectiveness by the SEC, in which case IFT would be required to seek
alternative sources of
14
financing. IFT's continued existence is dependent upon its ability to resolve
its liquidity shortfall principally by obtaining this additional financing or
raising equity capital.
During the three-month and nine month periods ended September 30, 2000 IFT
received advances from stockholders totaling $311,000 and $416,000,
respectively. The advances are expected to be repaid in the three-month period
ending March 31, 2001. In addition to the repayment of principal each
stockholder will receive a warrant to purchase from IFT up to 25,000 shares of
common stock at $.01 per share for each $5,000 in principal advanced to IFT.
Subsequent Events
During October 2000 IFT issued 550,000 common shares due to the exercise of a
warrant issued in connection with advances received from stockholders.
During October 2000 IFT issued 1,235,000 common shares due to the grant of stock
awards to directors and officers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, operations of IFT may be exposed to
fluctuations in interest rates. These fluctuations can vary the costs of
financing, investing and operating transactions. Because the Company had minimum
debt there is no material impact on earnings of fluctuations in interest.
Item 6. Exhibits and Reports of Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
All other items of this report are inapplicable.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNATIONAL FUEL TECHNOLOGY, INC.
(Registrant)
By: /s/ William J. Lindenmayer Date: December 22, 2000
--------------------------- -------------------
William J. Lindenmayer
President
By: /s/ Steven D. Walters Date: December 22, 2000
--------------------------- -------------------
Steven D. Walters
Chief Financial Officer
16