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 QUARTERLY PERIOD ENDED MARCH 31, 2002
----------------
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: 000-25367
---------
INTERNATIONAL FUEL TECHNOLOGY, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0357508
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7777 BONHOMME, SUITE 1920, ST. LOUIS, MISSOURI 63105
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 727- 3333
---------------
(Registrant's telephone number)
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
----------------- ------------------
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 May 1, 2002, as reported on the OTC Bulletin Board, was
$15,797,897.
Number of shares of common stock outstanding as of May 1, 2002: 56,421,061
1
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1- Financial Statements
Balance Sheets - March 31, 2002 and December 31, 2001 3
Statements of Operations - Three Month Periods Ended March 31, 2002
and 2001. 4
Statement of Stockholders' Equity - Three Months Ended March 31, 2002 5
Statements of Cash Flows - Three Months Ended March 31,
2002 and 2001. 6
Notes to Financial Statements 7 - 10
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 13
Item 3- Quantitative and Qualitative Disclosures About Market Risk 13
Part II - OTHER INFORMATION
Item 6- Exhibits and Reports on Form 8-K 14
2
INTERNATIONAL FUEL TECHNOLOGY, INC.
BALANCE SHEETS
March 31 December 31,
ASSETS (NOTE 2) 2002 2001
-------------------------------------------------------------------------------------------------------------
(Unaudited)
Current Assets
Cash $ 50,402 $ 33,168
Accounts Receivable 5,323 --
Inventory 4,058 --
Prepaid Expenses 15,250 15,250
Notes Receivable 65,559 80,000
------------ ------------
TOTAL CURRENT ASSETS 140,592 128,418
------------ ------------
Property and Equipment
Machinery and equipment 26,881 26,881
Accumulated depreciation (7,540) (5,824)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 19,341 21,057
------------ ------------
Purchased Patents & Technology, Net (Note 3) 2,066,668 2,166,668
Goodwill, Net (Note 3) 2,211,805 2,211,805
------------ ------------
TOTAL ASSETS $ 4,438,406 $ 4,527,948
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 140,762 $ 252,779
Accrued expenses 353,904 342,030
Accrued interest 20,188 17,750
------------ ------------
TOTAL CURRENT LIABILITIES 514,854 612,559
------------ ------------
Long-Term Liabilities
Notes payable to stockholder 162,500 162,500
Convertible debentures (net of discount) (Note 4) 114,511 95,924
------------ ------------
TOTAL LIABILITIES 791,865 870,983
------------ ------------
Commitments and Contingencies
Stockholders' Equity (Notes 4 and 5) Common stock, $.01 par value;
authorized, 150,000,000, 56,331,063 and 55,119,612 shares issued and
outstanding at March 31, 2002 and December 31, 2001, respectively 563,311 551,196
Discount on common stock (819,923) (819,923)
Additional paid-in capital 33,642,220 32,595,070
Accumulated deficit (29,739,067) (28,669,378)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,646,541 3,656,965
------------ ------------
$ 4,438,406 $ 4,527,948
============ ============
See Notes to Financial Statements.
3
INTERNATIONAL FUEL TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months
Ended
March 31,
2002 2001
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 5,323 $
Cost of Revenues 2,547 --
------------ ------------
Gross Profit 2,776 --
------------ ------------
Operating Expenses:
Amortization & Depreciation 101,716 --
Consulting 394,863 5,980
Insurance 2,633 8,500
Office and Other 60,643 28,951
Payroll 347,779 1,236,083
Professional services 69,638 145,792
Research and development costs 13,476 51,941
------------ ------------
Total operating expenses 990,748 1,477,247
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Net loss from operations 987,972 1,477,247
Other (income) expense:
Interest income (13,374) --
Interest expense 95,091 25,039
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Total other expense, net 81,717 25,039
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Net loss $ 1,069,689 $ 1,502,286
============ ============
Basic and diluted net loss
Per common share $ .02 $ .06
Weighted average common shares
outstanding 47,223,346 24,422,973
See Notes to Financial Statements
4
INTEINTERNATIONAL FUEL TECHNOLOGY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
Common Common Discount on
Stock Stock Common Accumulated
Shares Amount APIC Stock Deficit Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2002 55,119,612 551,196 32,595,070 (819,923) (28,669,378) 3,656,965
Proceeds from the issuance of common stock 850,000 8,500 191,500 - - 200,000
Stock-based compensation - - 150,000 - - 150,000
Issuances of stock for compensation 125,000 1,250 (1,250) - - -
Issuances of stock for services - - 40,000 - - 40,000
Cancellation of Interfacial escrow shares (500,000) (5,000) 5,000 - - -
Issuances of stock for convertible debentures 736,451 7,365 217,635 - - 225,000
Discount on issuances of convertible debt - - 87,054 - - 87,054
Accrued stock based compensation - - 58,752 - - 58,272
Accrued stock based services - - 298,459 - - 298,459
Net loss - - - - (1,069,689) (1,069,689)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 56,331,063 563,311 33,642,220 (819,923) (29,739,067) 3,646,541
==================================================================================================================================
5
INTERNATIONAL FUEL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $(1,069,689) $(1,502,286)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation/Amortization 101,716 667
Stock issued and additional paid in capital
recognized for services and compensation 547,211 1,125,313
Interest expense recognized - discount on debt 85,641 4,424
Interest expense recognized - conversion of debt -- 6,666
Loss on disposal of machinery and equipment -- 2,887
Change in assets and liabilities:
Increase in accounts receivable (5,323) --
Increase in inventory (4,058) --
Increase in prepaid expenses -- (25,964)
(Decrease)/Increase in accounts payable (112,017) 49,941
Increase in accrued expenses 11,874 23,077
Increase in accrued interest 2,438 3,948
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES: (442,207) (311,327)
----------- -----------
Cash Flows from Investing Activities
Acquisition of machinery and equipment -- (1,642)
Proceeds from repayments of Notes Receivable 14,441 --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: 14,441 (1,642)
----------- -----------
Cash Flows from Financing Activities
Proceeds from common stock issued 200,000 --
Proceeds from convertible debentures 245,000 250,000
Payment on notes payable -- (2,500)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 445,000 247,500
----------- -----------
NET INCREASE (DECREASE) IN CASH 17,234 (65,469)
Cash, beginning 33,168 128,204
----------- -----------
Cash, ending $ 50,402 $ 62,735
=========== ===========
Schedule of non-cash investing and financing activities
Discount on issuance of convertible debt 87,054 186,917
Conversion of debt to common stock 225,000 17,041
See Notes to Financial Statements
6
INTERNATIONAL FUEL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Now that the Company is selling products, the Company is no longer in the
development stage. 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.
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 annual report on Form 10-K
for the twelve month period ended December 31, 2001. IFT follows the same
accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
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 previously had 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. IFT already has several
technologies in development, and may seek to add other technologies through
acquisitions. Management anticipates receiving necessary regulatory and
commercial acceptance for its acquired technologies within the next twelve
months. IFT has begun selling products directly to the commercial
marketplace and expects to eventually generate a level of revenues
sufficient to meet IFT's working capital requirements. While management
cannot make any assurance as to the accuracy of our projections of future
capital needs, it is anticipated that a total of approximately $1,550,000
over the remainder of the current fiscal year will be necessary in order to
enable us to meet our current capital needs. Management believes the
proceeds from financing will be used as follows: $200,000 for commercial
fleet testing programs, $300,000 for professional fees, $550,000 for salary
expenses and $500,000 working capital for administrative and other capital
needs, including investigation of future acquisitions, if any.
On January 3, 2001 IFT entered into a Securities Purchase Agreement with
IIG Equity Opportunities Fund Ltd. ("IIG Fund"), which has a one-year
commitment amount of $3 million, with an option at our control for an
additional $3 million in financing after the completion of the one-year
commitment. On March 1, 2001, IFT completed registration of the common
shares required by the January 3, 2001 Securities Purchase Agreement (the
"Agreement"). The Agreement provides for IFT to sell up to $250,000 in
convertible debentures to the IIG Fund every thirty days. On March 2, 2001
IFT initiated the first convertible debenture purchase and on March 7, 2001
received $200,000 and on March 22, 2001 received $50,000. On April 6, 2001,
IFT initiated the second convertible debenture purchase and on April 24,
2001 received $225,000. During May 2001 IFT received notification that due
to regulatory issues relating to the structure of the transactions
contemplated by the Securities Purchase Agreement, 18,163,872 shares
issuable upon possible future conversion of debentures not yet issued and
750,000 shares issuable upon possible future exercise of not yet issued
warrants will never be issued. Due to the inability to sell additional
convertible debentures after April 2001, IFT entered into a new Securities
Purchase Agreement with IIG on July 10, 2001 that provides for the sale of
common stock and has a one-year commitment amount of $3 million, with an
option at our control for an additional $3 million in financing after the
completion of the one-year commitment. A registration statement for the
common
7
INTERNATIONAL FUEL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
stock to be issued in connection with this agreement was filed on July 12,
2001 and declared effective by the SEC on July 23, 2001. As of March 31,
2002, IFT has borrowed a total of $1,675,000 under the financing agreement.
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 - ACQUISITION
On May 25, 2001 IFT issued 12,500,001 common shares to the shareholders of
Interfacial Technology Ltd. ("Interfacial") to acquire all of Interfacial's
outstanding common stock. Interfacial is a development stage company formed
in May 2000 which has since its inception focused its efforts to develop
proprietary fuels and fuel additive formulations that will improve fuel
economy, enhance lubricity and lower harmful engine emissions, while
decreasing reliance on petroleum-based fuels. IFT acquired Interfacial
because it believed their technology could be more expeditiously and cost
effectively brought to market than its previously acquired PEERFUEL(TM)
technology. The purchase price of approximately $6,750,000 was determined
based on the market price of IFT's common stock on the date the acquisition
was announced. Stock certificates for an additional 8,500,002 common shares
were placed in an escrow account subject to a performance escrow agreement
that provides for the release of the stock certificates to the Interfacial
shareholders based on the achievement of certain revenue levels by IFT
within two years following May 25, 2001. In January 2002, the Company and
the former shareholders of Interfacial agreed to reduce the additional
shares subject to the performance escrow by 500,000 shares. Revenues equal
to, or more than, $3,500,000 for the one year period ending May 24, 2002,
or revenues equal to, or more than, $10,000,000 for the two year period
ending May 24, 2003 will result in a portion, as determined by a formula in
the performance escrow agreement, of the stock certificates for the
8,000,002 common being released to the Interfacial shareholders. The shares
placed in the escrow account will not be included in the computation of
basic and diluted loss per share until they are released to the former
Interfacial shareholders. In connection with the closing of this
transaction three of the Interfacial shareholders have been appointed to
IFT's board of directors. In addition, IFT entered into consulting
agreements with four of the Interfacial shareholders on May 25, 2001.
The acquisition has been accounted for using the purchase method of
accounting, and the assets have been recorded at fair value. Results of
operations have been included as of the effective date of the transaction.
The purchase price of $6,750,001 was initially allocated to intangible
assets and goodwill, and was being amortized over a 15-year life. During
the fourth quarter, a valuation of the acquisition was completed. Based on
this valuation, the Company re-assessed the allocation of the purchase
price and the lives of the respective intangible assets acquired,
allocating $2,400,001 to purchased technology, $1,900,000 to in-process
research and development, and $2,450,000 to goodwill. After completion of
the valuation report, the estimated lives of purchased technology and
goodwill were changed to six years. In-process research and development
related to ongoing testing and optimization efforts for which the
underlying technology has not yet achieved market readiness and had no
alternative future use. At the date of acquisition, Interfacial's efforts
focused on fine-tuning its additive technology for aqueous blends and
tailoring it to existing applications, in order to optimize the
emission-reducing characteristics while preserving engine efficiency, and
there existed uncertainties regarding the successful development of the
technology. The amount allocated to in-process research and development was
calculated in the valuation using the discounted cash flow method based on
a useful life of six years, and the entire value of $1,900,000 was charged
to research and development expense during 2001. As of December 31, 2001,
the Company had completed development of this technology and was shifting
its focus to commercialization.
8
INTERNATIONAL FUEL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Goodwill amortization was $238,195 through December 31, 2001, at which time
amortization ceased with the implementation of SFAS 142. The remaining book
value of $2,211,805 will be periodically tested for impairment.
Amortization of purchased technology amounted to $233,333 during the year
ended December 31, 2001, and $100,000 during the three months ended March
31, 2002. Amortization of purchased technology is expected to equal
$400,000 per annum through May 25, 2007, subject to periodic impairment
tests.
The 8,000,002 common shares placed in the escrow account will be valued as
an addition to the purchase price if and when the shares are released to
the Interfacial shareholders in accordance with the performance escrow
agreement at the appropriate price of IFT's common stock at that date. The
8,000,002 common shares are currently recorded at par value, or $80,000, as
common stock and a reduction of additional paid-in capital.
The summarized unaudited pro forma results of operations set forth below
for the three months ended March 31, 2002 and 2001 assume the acquisition
occurred as of the beginning of 2001.
The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if the acquisition had been
completed at the beginning of 2001, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
Three Months Ended
March 31,
2002 2001
-----------------------
Revenues $5,323 $0
Net loss $1,069,689 $3,625,924
Net loss per common share:
Basic and diluted $.02 $.10
NOTE 4 - CONVERTIBLE DEBENTURES
On March 31, 2002, IFT had outstanding convertible debentures of $175,000
less the related discount for the beneficial conversion feature of the
debenture of $60,489. The debentures bear interest at a rate of 6% per
annum commencing on the date of issuance, are convertible upon issuance,
and will mature on December 31, 2003.
The convertible debentures are immediately convertible at the option of the
holder into the number of shares of our common stock equal to the principal
amount of the debentures to be converted, including all accrued interest,
divided by the conversion price in effect on the conversion date. The
conversion price is calculated at 80% of the average of the two lowest
closing bid prices for the ten trading days immediately subsequent to the
convertible debenture issuance date.
During the three months ended March 31, 2002, IFT has issued 736,451 shares
of common stock upon the conversion of $225,000 worth of convertible
debentures owned by IIG. An additional $87,054 had been recorded as a
discount on the convertible debenture and added to additional
paid-in-capital, relating to the beneficial conversion feature.
9
INTERNATIONAL FUEL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)
During January 2002, the Company sold 600,000 restricted shares of common
stock at a price of $.25 per share to a Director. The Company recorded
payroll expense of $150,000 relating to the excess of the trading price of
IFT's stock over the proceeds.
During January 2002, 500,000 restricted common shares of the Company were
removed from the Interfacial Technologies' escrow account. The shares were
removed because Interfacial failed to pay liabilities it had incurred prior
to being bought by the Company.
During January 2002, the Company issued 125,000 shares of common stock to a
Director. These shares had been accrued as payroll expense and additional
paid in capital as of December 31, 2001.
During February 2002, the Company sold 250,000 restricted shares of common
stock at a price of $.20 per share to a consultant. The Company recorded
consulting expense of $40,000 relating to the excess of the trading price
of IFT's stock over the proceeds.
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 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
International Fuel Technology and its subsidiary is comprised largely of
the operations and assets that were previously the business of Interfacial,
a company located in Manchester, England. IFT completed the acquisition of
Interfacial on May 25, 2001.
IFT, through the Interfacial subsidiary, has developed a family of fuel
blends that have been created through the use of proprietary fuel
additives. IFT is now in the process of patenting the fuel additives and
resulting fuel blends as part of its efforts to commercialize these fuel
blends. The individual fuel blends incorporating the IFT additive
formulations include base fuel with additive only, base fuel with kerosene,
base fuel with biodiesel, base fuel with ethanol, and base fuel with an
urea/water solution. The Company seeks to commercialize these fuel blends
on a global basis through the use of strategic partnerships with a variety
of targeted companies including fuel refiners, distributors of fuel
additives, OEM's, and other companies. IFT began selling its products
during the first quarter of 2002 and is no longer a development stage
company and has raised capital for initial development through the issuance
of its securities and debt instruments.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2001
Total operating expenses were $990,748 for the three months ended March 31,
2002, as compared to the operating expenses of $1,477,247 for the three
month period ended March 31, 2001. This represents a $486,499 decrease from
the prior period. Decreased operating expenses in the current period
compared to the prior period are a result of decreased stock-based
compensation to employees and Directors, offset by an increase of
stock-based services by consultants.
Amortization and depreciation expenses for the three months ended March 31,
2002 were $101,716 representing an increase of $101,716 from the
corresponding period in 2001. This increase is attributable primarily to
the amortization of technology which was acquired in May of 2001.
Consulting expenses during the three months ended March 31, 2002 were
$394,863 representing an increase of $388,883 from the corresponding period
for 2001. The increase is attributable to the stock-based compensation
agreements of May 2001 with Interfacial employees.
Insurance expense during the three months ended March 31, 2002 was $2,633
which represents a decrease of $5,867 from the corresponding period for
2001.
Office and other expenses during the three months ended March 31, 2002 was
$60,643 which represents an increase of $31,692 compared to the same
quarter in 2001. The increase is primarily attributable to increased travel
and rent expenses.
11
Payroll expenses during the three months ended March 31, 2002 were $347,799
representing a decrease of $888,304 from the corresponding period of 2001.
The decrease was primarily due to the Board of Director's granting a bonus
of 1,000,000 shares of IFT's common stock payable to each of IFT's
President/COO and to its Chief Executive Officer on February 23, 2001, and
these shares have been reflected in the financial statements for the three
month period ended March 31, 2001, as payroll expense of $875,000. Also,
stock awards totaling 425,000 restricted shares of IFT's common stock were
granted to the three non-employee directors of IFT and a stock award
totaling 50,000 restricted shares of IFT's common stock was granted to one
employee on February 23, 2001. The 475,000 restricted shares have been
reflected in the statement of operations as payroll expense of $207,812 for
the three months ended March 31, 2001. The February 23, 2001 restricted
stock award shares value was calculated based on the closing trading price
of IFT's stock on February 23, 2001, which was $.4375 per share. On January
1, 2002 IFT entered into employment agreements with its Chief Executive
Officer, Chief Operating Officer, and Chief Technology Officer through
December 31, 2003. Under these agreements, the Chief Executive Officer will
receive an annual base salary of $250,000, the Chief Operating Officer will
receive an annual base salary of $150,000, and the Chief Technology Officer
will receive an annual base salary of $150,000, and each will receive a
bonus award as deemed appropriate by the Board of Directors of IFT.
Professional services during the three months ended March 31, 2002 were
$69,638 representing a decrease of $76,154 from the corresponding period
for 2001. The decrease is primarily due to a reduction in accounting fees
in 2002.
Research and development costs during the three months ended March 31, 2002
were $13,476 representing a decrease of $38,465 from the corresponding
period for 2001. The decrease is primarily due to the company reaching the
end of its development stage.
Interest expense for the three months ended March 31, 2002 was $95,091
representing an increase of $70,052 over the corresponding period for 2001.
The increase is primarily due to $85,641 in interest expense recognized in
connection with the issuance of convertible debentures.
The net loss for the three months ended March 31, 2002 was $1,069,689 as
compared to the net loss of $1,502,286 for the three months ended March 31,
2001. This represents a $432,597 decrease from the prior period, primarily
due to a decrease in payroll expenses offset by increased consulting
expenses as described above. The basic and dilutive net loss per common
share for the three months ended March 31, 2002 was $.02 as compared to the
basic and dilutive net loss per common share of $.06 for the three months
ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
A critical component of management's operating plan impacting the continued
existence of IFT is the ability to obtain additional capital through
additional debt and/or equity financing. Management does not anticipate IFT
will generate a positive internal cash flow until such time as IFT can
generate revenues from license fees from our products, which may take the
next few years to realize. If IFT cannot obtain the necessary capital to
pursue our business plan, IFT may have to cease or significantly curtail
its operations. This would materially impact our ability to continue as a
going concern. Additionally, if IFT's stock price falls below its current
level, additional shares may need to be issued upon the conversion of IFT's
convertible debentures, which will dilute the existing shareholders. The
independent auditor's reports included with the December 31, 2001 financial
statements in Form 10-K indicate there is a substantial doubt that IFT can
continue as a going concern.
A significant portion of the Company's operating loss relates to charges
for non-cash operating expenses such as amortization and depreciation,
employee stock-based compensation, consulting services fees paid in the
Company's common stock and interest expense related to conversion features
of the Company debt. The Company has offset its capital needs since
inception primarily through the issuance of common stock to its employees
and consultants as
12
compensation for services rendered, which totaled $547,211 for the three
month period ended March 31, 2002. For the three months ended March 31,
2002 proceeds from notes payable totaled $245,000 with $0 repaid and
$225,000 converted to common stock. During the three months ended March 31,
2002, the Company received $200,000 in proceeds from the sale of common
stock to Directors and consultants.
The Company has not made significant cash investments in property and
equipment or in the acquisition of companies or technologies. During the
period ended December 31, 2001, the Company acquired Interfacial
Technologies, Ltd., a UK company in exchange for 12,500,001 shares of the
common stock.
The cash used in operating activities was $442,207 for the three months
ended March 31, 2002 as compared to cash used in operating activities of
$311,327 for the three months ended March 31, 2001. Cash used in operations
for the three months ended March 31, 2002 increased primarily because the
Company paid down over $100,000 of accounts payable for the period ended
March 31, 2002. In addition, the Company allowed accounts payable to
increase by almost $50,000 for the period ended March 31, 2001. The cash
provided by investing activities was $14,441 for the three months ended
March 31, 2002 as compared to ($1,642) used in investing activities for the
three months ended March 31, 2001. Cash provided by investing activities
for the three months ended March 31, 2002 increased primarily due to the
proceeds from repayments of Notes Receivable. The cash provided by
financing activities was $445,000 for the three months ended March 31, 2002
as compared to $247,500 provided by financing activities for the three
months ended March 31, 2001. Cash provided by financing activities for the
three months ended March 31, 2002 related to the issuance of convertible
debentures and the sale of common stock. Net cash increased by $17,234 for
the three months ended March 31, 2002 as compared to net cash decreasing by
$65,469 for the three months ended March 31, 2001.
Working capital at March 31, 2002 was ($374,262) as compared to ($484,141)
at December 31, 2001.
IFT's main source of capital is a Securities Purchase Agreement with IIG
dated July 10, 2001 that provides for the sale of convertible debentures
and has a one-year commitment amount of $3 million, with an option at our
control for an additional $3 million in financing after the completion of
the one-year commitment. As of March 31, 2002, IFT has borrowed a total of
$1,675,000 under the financing agreement.
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 $1.55 million over the remainder of the 2002 fiscal year will
be necessary in order to enable us to meet our current capital needs. We
expect to obtain this financing through our convertible-debenture agreement
with IIG. Management believes the proceeds from its convertible debenture
financing will be used as follows: $200,000 for commercial fleet testing
programs, $300,000 for professional fees, $550,000 for salary expenses and
$500,000 working capital for administrative and other capital needs,
including investigation of future acquisitions, if any.
SUBSEQUENT EVENTS
None
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. At March 31,
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2002 IFT has debt totaling 35% of total liabilities at fixed interest rates
and fluctuations in the interest rate could have a material impact on the
underlying fair value.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
None
(b) Reports on Form 8-K
None
All other items of this report are inapplicable.
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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: May 15, 2002
------------------------------------ ------------
William J. Lindenmayer
Chief Operating Officer
By: /s/ Michael F. Obertop Date May 15, 2002
------------------------------------ ------------
Michael F. Obertop
Chief Financial Officer
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