United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended March 31, 1999
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or
|_| Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From ___________ to _____________
Commission file number 1-13234
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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 |_|
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by the court. Yes |_| No _|
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practical date
Common Stock, $.01 Par Value - 6,444,955 shares as of March 31, 1999
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1999 and June 30, 1998
Consolidated statements of operations - Three months ended March 31, 1999
and 1998; nine months ended March 31, 1999 and 1998
Consolidated statements of cash flows - Nine months ended March 31, 1999
and 1998
Notes to consolidated financial statements - March 31, 1999
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,
1999 1998
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Assets (Unaudited) (Audited)
Current assets
Cash and cash equivalents (Note 2) $ 689,526 $ 1,082,872
Trade accounts receivable 289,171 66,839
Inventory (Note 3) 407,887 348,496
Prepaid expenses 91,302 133,068
------------ ------------
Total current assets 1,477,886 1,631,275
Equipment and vehicles, net of
accumulated depreciation of
$505,444 at March 31, 1999
and $480,174 at June 30, 1998 226,818 245,551
Patents, net 518,151 550,891
------------ ------------
Total assets $ 2,222,855 $ 2,427,717
============ ============
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 196,766 $ 87,324
Accrued expenses 210,906 115,920
Provisions for warranties and returns 170,591 20,272
Accrued royalty, due to officer 19,200 4,800
Current portion of royalty agreement 24,003 21,464
Accrued salary, benefits and
payroll taxes 22,466 19,834
Current portion of capital
lease obligations 35,653 38,121
------------ ------------
Total current liabilities 679,585 307,735
Long-term liabilities
Long-term obligations less current
portion 41,077 68,362
Other long-term liabilities 306,680 325,014
------------ ------------
Total long-term liabilities 347,757 393,376
Stockholders' equity
Common stock, $.01 par value:
20,000,000 shares authorized;
issued and outstanding
6,444,955 shares 64,450 64,450
Capital in excess of par value 13,047,558 13,047,558
Common stock subscribed 648,439 --
Accumulated deficit (12,412,330) (11,251,823)
Accumulated other comprehensive income (152,604) (133,579)
------------ ------------
Total stockholders' equity 1,195,513 1,726,606
------------ ------------
Total liabilities and stockholders'
equity $ 2,222,855 $ 2,427,717
============ ============
See accompanying notes
Note: The balance sheet at June 30, 1998 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.
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues
Sales $ 137,407 $ (2,487) $ 197,914 $ 81,146
Rental 88,335 99,683 253,013 276,611
----------- ----------- ----------- -----------
Total revenues 225,742 97,196 450,927 357,757
Cost of revenues
Sales 192,551 48,682 291,680 157,432
Rental 126,242 111,732 428,316 373,653
----------- ----------- ----------- -----------
Total cost of revenues 318,793 160,414 719,996 531,085
----------- ----------- ----------- -----------
(93,051) (63,218) (269,069) (173,328)
Operating expenses
General and
administrative 203,559 218,457 631,513 606,087
Sales and marketing 57,925 53,875 223,790 140,528
Research and development 2,160 (1,771) 15,203 34,923
----------- ----------- ----------- -----------
263,644 270,561 870,506 781,538
----------- ----------- ----------- -----------
Operating (loss) (356,695) (333,779) (1,139,575) (954,866)
Other income (expense)
Interest income 2,010 28,383 17,272 52,468
Interest expense 12,536 (13,294) (38,204) (40,392)
----------- ----------- ----------- -----------
(10,526) 15,089 (20,932) 12,076
----------- ----------- ----------- -----------
Net (loss) $ (367,221) $ (318,690) $(1,160,507) $ (942,790)
=========== =========== =========== ===========
Net (loss) per share $ (0.06) $ (0.05) $ (0.18) $ (0.15)
=========== =========== =========== ===========
Weighted average number
of common shares 6,444,955 6,298,797 6,444,955 6,185,667
=========== =========== =========== ===========
See accompanying notes
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
1999 1998
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Operating activities
Net (loss) $(1,160,507) $ (942,790)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 50,329 16,213
Amortization 49,862 47,953
Changes in operating assets
and liabilities:
Accounts receivable (229,775) (60,489)
Other receivables 19,904 618
Inventory 58,347 26,770
Prepaid expenses 18,596 1,787
Accounts payable and accrued
expenses 303,397 (29,387)
----------- -----------
Net cash used by operating activities (889,847) (939,325)
Investing activities
Acquisition of equipment (87,517) --
Acquisition of patents (17,122) (8,009)
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Cash used by investing activities (104,639) (8,009)
Financing activities
Principal payments on capital leases (26,913) (4,032)
Principal payments under
licensing agreement (15,795) (13,607)
Net proceeds from issuance of
stock subscriptions 648,439 1,911,732
----------- -----------
Net cash provided by financing
activities 605,731 1,894,093
Effects of exchange rate
differences on cash (4,591) 1,209
----------- -----------
Increase (decrease) in cash
and cash equivalents (393,346) 947,968
Cash and cash equivalents,
beginning of period 1,082,872 191,629
----------- -----------
Cash and cash equivalents,
end of period $ 689,526 $ 1,139,597
=========== ===========
Interest paid $ 38,204 $ 40,392
=========== ===========
Noncash investing and financing
activities:
Acquisition of equipment by
incurring additional indebtedness $ -- $ 29,139
=========== ===========
Issuance of 147,800 shares of common
stock-receipt of subscription
receivable $ -- $ 308,850
=========== ===========
See accompanying notes
IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1999
1. 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, 1999 are not necessarily
indicative of the results that may be expected for the year ending June
30, 1999. 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, 1998.
2. Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
3. Inventory
Inventory is comprised of the following:
March 31, June 30,
1999 1998
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Material and supplies $159,609 $149,367
Finished goods 248,278 199,129
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$407,887 $348,496
======== ========
Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
4. Comprehensive Income
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". Comprehensive income generally represents all
changes in stockholders' equity except those resulting from investments or
contributions by stockholders. The Company has reclassified information
for the prior period to conform with the standard. The adoption of this
Statement had no impact on the Company's net income or shareholders'
equity.
The Company's comprehensive income is as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
--------- --------- ----------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net (loss) $(367,221) $(318,690) $(1,160,507) $(942,790)
Foreign currency translation
adjustment (14,953) 8,210 (19,025) 3,095
--------- --------- ----------- ---------
Total comprehensive (loss) $(382,174) $(310,480) $(1,179,532) $(939,695)
========= ========= =========== =========
IONIC FUEL TECHNOLOGY, INC.
4. Comprehensive Income (continued)
The component of accumulated other comprehensive income is:
March 31, June 30,
1999 1998
--------- ---------
(Unaudited) (Audited)
Foreign currency translation adjustment $(152,604) $(133,579)
--------- ---------
Accumulated other comprehensive income $(152,604) $(133,579)
========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended March 31, 1999 and March 31, 1998
Total revenues increased to approximately $451,000 during the nine month
period ended March 31, 1999 from approximately $358,000 for the nine month
period ended March 31, 1998.
The increase of approximately $93,000 in revenues related to an increase
in sales revenue.
Gross profit decreased to a loss of approximately $269,000 during the nine
months ended March 31, 1999 (loss of $173,000 in 1998) due to an increase in
service department personnel.
General and administrative expenses increased to approximately $632,000
during the nine months ended March 31, 1999 from approximately $606,000 during
the nine months ended March 31, 1998.
The increase of approximately $26,000 in general and administrative
expenses related to an increase in financial public relations expenses, legal
expenses, and vehicle and travel expense.
Sales and marketing expenses increased to approximately $224,000 during
the nine months ended March 31, 1999 from approximately $141,000 during the nine
months ended March 31, 1998, an increase of $83,000 principally due to an
increase in marketing promotion, recruitment costs and an additional sales
person.
Research and development decreased to approximately $15,000 during the
nine months ended March 31, 1999 from approximately $35,000 during the nine
months ended March 31, 1998 principally due to a decrease in expenses related to
a design project nearing completion.
Other income (expense) net decreased to approximately $21,000 of net
expense during the nine months ended March 31, 1999 from approximately $12,000
of net income during the same period in 1998, due to a decrease in interest
income.
Three Months Ended March 31, 1999 and March 31, 1998
Total revenues increased to approximately $226,000 during the three month
period ended March 31, 1999 from approximately $97,000 for the three month
period ended March 31, 1998.
The increase of approximately $129,000 in revenues related to an increase
in sales revenue.
Gross profit decreased to a loss of approximately $93,000 during the three
months ended March 31, 1999 (loss of $63,000 in 1998) due to an increase in cost
of sales revenues.
General and administrative expenses decreased to approximately $204,000
during the three months ended March 31, 1999 from approximately $218,000 during
the three months ended March 31, 1998.
The decrease of approximately $14,000 in general and administrative
expenses related to a decrease in stock market related expenses and financial
public relations expenses.
Sales and marketing expenses remained approximately the same.
Research and development expenses increased to approximately $2,000 during
the three months ended March 31, 1999 from approximately $(1,800) during the
three months ended March 31, 1998, which was the result of a reversal in accrued
costs during the three months ended March 31, 1998.
Other income (expense) net decreased to approximately $11,000 net expense
during the three months ended March 31, 1999 from approximately $15,000 of net
income during the same period in 1998, due to a decrease in interest income.
Liquidity and Sources of Capital
Net cash used by operations was approximately $890,000 for the nine months
ended March 31, 1999 and approximately $939,000 for the nine months ended March
31, 1998. Cash was utilized in all departments, i.e. sales, marketing,
administration and ongoing product enhancement in the United Kingdom and Europe.
Working capital was approximately $800,000 at March 31, 1999 and approximately
$1.3 million at June 30, 1998. Working capital has been utilized to fund
operations.
On April 1, 1999, the Company accepted subscriptions for 4,838,334 shares
of common stock, par value $.01. As a result, the Company raised $648,439 net of
related costs of $77,311.
Currency Fluctuation
Currency fluctuations were insignificant to the Company's operations for
the nine months ended March 31, 1999 and 1998. 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 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.
Inflation
Inflation has not had a significant impact on the results of the Company's
operations for the nine months ended March 31, 1999 and 1998.
Year 2000 Readiness
The Corporation has taken action to understand the nature and extent of
the work required to make its computer-based systems that interface with
vendors, customers and others ready for the Year 2000. The Corporation has begun
to update hardware and software utilizing internal resources. Much of the
Corporation's software currently in use is Year 2000 compliant, and accordingly,
Year 2000 issues are not expected to have a material impact on the Corporation's
future financial condition. As of March 31, 1999, the Corporation has expensed
approximately $5,000 on costs associated with Year 2000 issues, and the
Corporation expects to incur additional expenses of approximately $20,000 in
1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (Not applicable)
Item 2. Changes in Securities (Not applicable)
Item 3. Defaults upon Senior Securities (Not applicable)
Item 4. Submission of Matters to a Vote of Security Holders (Not applicable)
Item 5. Other information (Not applicable)
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(1) Statement re: computation of earnings per share
The Company did not file any reports on Form 8-k during the nine months ended
March 31, 1999.
EXHIBIT I
IONIC FUEL TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
Three Months Ended Nine Months Ended,
March 31, March 31,
1999 1998 1999 1998
----------- ---------- ----------- -----------
Net loss $ (367,221) $ (318,690) $(1,160,507) $ (942,790)
=========== ========== =========== ===========
Average common shares
outstanding 6,444,955 6,298,797 6,444,955 6,185,667
=========== ========== =========== ===========
Net loss per common
share $ (0.06) $ (0.05) $ (0.18) $ (0.15)
============ ========== =========== ===========
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.
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(Registrant)
Date May 14, 1999 /s/ Douglas F. Johnston
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Chairman and Chief Financial Officer
Date May 14,1999 /s/ Anthony J.S. Garner
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President, Chief Executive Officer
and Director