SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Fee Required)
For the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
for the transition period from to
Commission File Number: 1-13234
IONIC FUEL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1333140
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) No.)
300 Delaware Avenue, #1704, Wilmington, Delaware 19801-1622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 427-5957
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 Boston Stock Exchange
Series A Redeemable Common
Stock Purchase Warrant ("A Warrants") Boston Stock Exchange
Series B Redeemable Common
Stock Purchase Warrant ("B Warrants") Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 twelve (12) months or for such shorter period that the registrant
was required to file such reports, and (2) has been subject to such filing
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requirements for the past ninety (90) days. Yes: x No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value of securities held by non-affiliates as of September 16,
1996 - $9,604,480
Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date. At September 25, 1996, there
were 5,400,000 common shares, 1,200,000 Series A Warrants, 1,200,000
Series B Warrants and 120,000 Underwriters' Warrants outstanding.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security-holders
for fiscal year ended December 24, 1980)
1. Part III incorporates by reference the Company's Proxy Statement to
stockholders for the Annual Meeting to be held November 7, 1996.
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PART I
Item 1. BUSINESS
Introduction
The Company is an environmental technology company engaged in the
design, assembly, marketing, sale and leasing of its patented, proprietary IFT
System ("IFT System" or "System") designed to reduce harmful airborne emissions
from and increase fuel efficiency of heating and power generation systems. The
Company markets the System to various industries in the U.K. and Europe.
The IFT System, which is attached to a customer's heating or power
generation equipment, produces negatively charged particles by passing an air
flow over a body of vibrating liquid and into the combustion chamber or air
intake of the customer's machinery. The charged air supply accelerates the
normal combustion process. As a result of the improved combustion, the amount of
air and fuel supplied to the burner can be reduced while still maintaining a
constant measure of power output. This reduction of air and fuel decreases fuel
consumption as well as the production of NOx, CO2 and CO. A further significant
benefit, is the ability of the IFT System to initially remove and then to
prevent the further formation of "coke" on the combustion and flue side surfaces
of boiler tubes or walls, frequently found when burning heavy fuel oil or coal.
This coking also occurs in refinery and petrochemical crackers and reformers
when burning commercial gas on natural draft fired systems. The resulting
cleaner surfaces, ensure the further advantage of consistent heat transfer from
the flame through to the product, with better thermal efficiency. Plant shutdown
to clean tubes, often necessary when burning oil and coal, is substantially
reduced or completely eliminated. If fuel and air flow cannot be closely
controlled in an existing combustion system or if customer equipment is in need
of repair, the IFT technology may not be effective. Boilers utilizing oil or gas
fuels have provided the best improvements with the IFT system. The Company has
completed testing it's technology at a leading international oil company's
research facility in the UK and their report stating the benefits has been
circulated to all operating facilities. On two large pulverized coal electric
power generating facilities in the United States testing has been terminated
because continuing costs would not be funded by the power plants. Positive
results have been established on traditional coal fired boilers in the U.K.
The System
The IFT System is self contained in a cube-shaped free
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standing metal enclosure. The System's interior mechanism vibrates the surface
of a liquid contained inside the cabinet. The vibrating liquid releases
negatively charged particles that are then delivered to the customer's equipment
through a connection to the boiler's combustion chamber or to the boiler's
combustion air system.
The System is available in eight sizes ranging from 15" x 12" x 16" to
43" x 31.5" x 35". Such sizes are suitable for boilers generating from
approximately 1,000 lbs. of steam per hour to approximately 96,000 lbs. of steam
per hour. Multiple Systems are used when either the boiler has more than one
burner or the boiler's power generating capacity exceeds the capacity of the
largest IFT System. Multiple Systems are currently installed on boilers up to
250,000lbs/hr. The System generally, can be retrofitted while the customer's
boiler is operating and requires only a routine servicing every six months and
may be leased or purchased.
Performance results of the System reveal a reduction in NOx emissions
ranging from 6% to 60%, a reduction in CO2 emissions ranging from 8% to 12%, a
reduction in CO emissions ranging from 6% to 80%, a reduction in particulate
emissions ranging from 6% to 40% and a reduction in fuel consumption ranging
from 21/2% to 11%. The exact performance of the System depends upon the
customer's existing equipment and desired objectives; customers may achieve less
favorable results or no results if their equipment requires repair or if fuel
and air flows cannot be closely controlled.
Marketing and Sales
Performance Trials
The Company initially sought to performance test its System in
locations where a sales or lease contract could result. It also has performance
tested the System in certain locations solely to develop performance test data.
The Company has now phased out uncompensated performance testing because the
Company's data from its numerous sites supports the claims regarding the
benefits offered by the IFT System. The Company has now developed new
application software enabling on site performance to be evaluated in real time
to show the immediate improvements to the customer resulting in reducing the
lead time between performance trials and customer commitment.
The performance trial results obtained at a customer's location, enable
the Company to use such results to confirm the
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price of the IFT System to such customer. In setting the price, the Company
considers the potential fuel savings and emissions reduction to be realized by
that customer from use of the System, thereby enabling a customer to partially,
if not fully, offset the cost of the System.
The Company has also participated in a laboratory test conducted by The
Building Services Research and Information Association ("BSRIA"), an independent
U.K. organization. The BSRIA test was instigated and primarily funded by the
British government to generate data on the emissions of various power generation
systems and ancillary equipment. BSRIA rendered a favorable report on the IFT
System and such report was disseminated to BSRIA's members.
The Company has completed testing it's technology at a leading
international oil company's research facility in the UK and their report stating
the benefits has been circulated to all operating facilities. On two large
pulverized coal electric power generating facilities in the United States
testing has been terminated because continuing costs would not be funded by the
power plants. Postitive results have been established on traditional coal fired
boilers in the U.K.
Marketing
The Company currently markets the IFT System to (a) large scale
commercial power plant and industrial manufacturers such as breweries, oil
refiners, textile plants, chemical plants and paper mills and (b) commercial
industrial heat processors including municipal authorities and universities.
The Company had found that its technology was often not readily
understood by power plant managers who therefore hesitated to test the IFT
System. The Company devised a four step approach to educate the power generation
community about its technology. First, it employed people experienced in boiler
and burner applications to market the System. Second, the Company has marketed
the System to large multiple plant users, with emphasis on well known
international companies, so that such companies may be used as references for
other potential customers and also that such customers will consider using the
IFT System in their other plants. Third, the Company utilizes the services of a
recognized authority in flame chemistry to more specifically explain the
scientific principles behind the System. Fourth, the Company has introduced a
reporting system using sophisticated statistical modeling to present the test
results to potential customers in a succinct, concise manner. This reporting
system computerizes data derived
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from testing flue gases, monitors fuel to steam performance and then presents in
graphic form the benefits offered by the IFT System to the customer.
Sales and Rentals
The Company has adopted two approaches to its sales efforts. First, it
sells directly to industrial users with its own employees in the UK and Belgium
supplemented by the use of independent sales agents. Secondly, the Company sells
the System through dealers who are assigned a specific territory and compensated
on a commission basis. This marketing method is generally used in Europe.
The Company will rent or sell the System. In the U.K. and Belgium, most
orders consist of rental agreements while in Austria, Hungary, Czech Republic
and Slovakia, most orders consist of outright sales plus an installation fee and
a maintenance agreement.
Warranty and Service
The Company provides a one year warranty on parts and labor to
purchasers of the System and thereafter servicing under a service contract.
Lessees of the system receive service without additional charge within the terms
of the rental agreement.
Assembly and Suppliers
The IFT System is assembled in the U.K. at the Company's facility in
Laindon, Essex under strict quality control procedures. Although there have been
no sourcing problems, the Company has a policy of dual sourcing where this is
deemed advantageous for cost and continuity of supply. Single sourcing is
currently confined to vibrators and air pumps that are widely produced for use
in other industries and therefore readily available.
Research and Development
The Company's research and development efforts are focused primarily on
refining the vibration technology that forms the basis of the IFT System. To
that end, the Company has studied such areas as the interaction of the charged
particles and the combustion process, the delivery of the charged particles to
the combustion chamber, the optimum volume of the charge, the optimum ratio of
air to liquid surface and the impact of pressure and temperature on delivery of
the charge. The Company's efforts resulted in an enhancement to the patented
vibration technology for which a European patent application was filed in
January 1994.
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The Company's research and development costs are written off as
incurred. Employees engaged in engineering and manufacturing also perform R & D
functions, therefore it is unrealistic to isolate these specific costs since
they were not material in 1996.
Patents
The first U.S. Patent for the Ion generating technology utilized by the
IFT System was issued in 1975 to F.A. Wentworth, Jr. ("Wentworth"). This
original technology employed a "bubble" process whereby the air was "bubbled"
through liquid to release Ions at the surface of the liquid. A subsequent patent
was issued to Wentworth in December 1990 employing a "vibration" process which
substantially enhanced the commercial potential of the technology by increasing
the negative charge. The "vibration" technology involves vibrating the surface
of the water to release the Charged Particles. In January 1994, an additional
patent application was filed in Europe on behalf of the Company covering an
enhancement to the "vibration" technology. This improved "vibration" technology
allows for a more powerful and more consistent negative charge than the initial
Wentworth vibration patent. This improvement has been incorporated into the IFT
System. The Company filed counterpart applications to its latest European patent
application in the United States and several other foreign countries in 1995.
The Company entered into a Royalty Agreement ("Royalty Agreement")
dated June 2, 1994 (effective as of December 5, 1991) with Wentworth pursuant to
which Wentworth sold all of his interest in the patents relating to the ion
generating technology to the Company. As consideration for the assignment and
sale, Wentworth received a $50,000 initial payment and a $6,000 per month
royalty fee during the life of the patents. In addition, Wentworth purchased
80,000 shares of the Company's Common Stock at $.125 per share in December 1991.
Additionally, in December 1991, Messrs. Johnston and O'Neill, executive
officers, directors and principal stockholders of the Company, granted to
Wentworth from their stock holdings options to purchase in the aggregate 22,400
shares of the Company's Common Stock at an exercise price of $3.125 per share.
Wentworth has retained a security interest in the patent rights transferred to
the Company pursuant to the Royalty Agreement.
The Company owns six U.S. Patents, twelve foreign patents and five
foreign patent applications covering, in the aggregate, up to twenty different
countries. Several of the earlier "bubble" technology patents have expired.
However, improvement patents covering the "bubble" technology still exist in the
United States and several foreign countries, and the more important "vibration"
technology patents, which form the basis of the IFT System, run to
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at least 2007. The Company was granted a patent in Japan during
the year.
While the Company intends to vigorously enforce its patent rights
against infringement by third parties, no assurance can be given that such
rights will be enforceable or will provide the Company with meaningful
protection from competitors or that any pending patent applications will be
allowed. Even if a competitor's products were to infringe patents owned by the
Company, it could be damaging to the Company to enforce its rights because such
action would divert funds and resources which otherwise could be used in the
Company's operations. No assurance can be given that the Company would be
successful in enforcing such rights, that the Company's products or processes do
not infringe the patent or intellectual property rights of a third party, or
that, if the Company is not successful in a suit involving patents or other
intellectual property rights of a third party, a license for such technology
from such third party would be available on commercially reasonable terms, if at
all.
Regulations
Concern over environmental pollution has led to legislation introducing
tougher and tighter controls on emissions. NOx, for example, is now understood
to be a key element in the formation of ground level ozone, widely recognized as
a hazard to health and a precursor to urban smog. The problem for industry is to
reduce NOx levels as is currently demanded while not increasing emissions of the
equally undesirable carbon monoxide or reducing power generation capacity.
According to available statistics, approximately 55% of the 20 million tons of
annual NOx production comes from utilities, industrial boilers and furnaces; the
balance is from motor vehicles.
The Federal Clean Air Act, initially adopted in 1970 and extensively
amended in 1990 and European Community regulations require compliance with
specified air quality standards and empower government to establish and enforce
limits on the emission of various pollutants from specific types of industrial
facilities. In the USA, the states have primary responsibility for implementing
these standards, and, in some cases, have adopted standards more stringent than
those established by Federal regulation.
In general, emitters of pollution are required to obtain permits issued
by the appropriate environmental agency. A typical permit would set forth the
amount of pollutants that the "source" may emit, mandatory emission control
device description and
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installation deadlines plus monitoring/reporting requirements. Pollution sources
maybe charged a fee proportional to the amount of pollution the source creates
each year. This provides an incentive for the polluter to acquire technology
which will reduce its emissions. IFT is attempting to work with customers on an
individual basis prior to and during its process of negotiating permits in an
attempt to have the System "accepted" by such regulatory agencies.
Domestic and international environmental laws and regulations are, and
will continue to be, a principal factor affecting demand for the IFT System.
Although the Company believes there is a trend toward increasing regulation and
enforcement by all levels of government, a decline in enforcement and related
expenditures by businesses subject to such laws and regulations could have a
significant adverse effect on the demand for the IFT System. In addition, there
can be no assurance that the IFT System currently, or as adjusted or enhanced,
will enable others to comply with specified or yet unspecified emissions
standards implemented by any amendments to present laws and regulations or any
future legislation.
Competition
While most other pollution control technologies are aimed at reducing
airborne emissions, the Company is not aware of any technology which enhances
combustion efficiency to reduce both noxious emissions and fuel consumption. The
technology used by the Company's competitors can be divided into three
categories:
pre-combustion, combustion and post-combustion.
Pre-combustion techniques include chemical additives, low NOx burners,
and water/steam injection added to the fuel. Such techniques can achieve
reduction in particulate and NOx emissions but do not result in material fuel
savings.
Combustion techniques include air/fuel control systems, chemical
additives (i.e. urea injection) and flue gas recirculation. These methods reduce
NOx emissions but may result in higher particulate emissions and/or reduced
boiler efficiency. Furthermore, they are generally more expensive to install
than the IFT System.
Post-combustion systems include precipitators, bag filters and
scrubbers. These systems require large capital expenses often involve high
maintenance and operating costs and do not address fuel efficiency. Some have
the added disadvantage of producing by-products which may present disposal
problems.
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The IFT technology is not, by itself, a solution to all emissions
problems. More frequently the technology is complimentary to solutions a
customer may wish to utilize. For example, to achieve extremely low NOx
emission, ammonia injection might be selected. IFT could enhance combustion
efficiency so that less NOx is produced and subsequently less ammonia required
to achieve the final lower NOx level.
While the Company believes that its System enjoys significant
advantages as compared to its competitors' products, many of the Company's
competitors have greater resources, both financial and otherwise, than the
Company and therefore may be capable of testing, enhancing, marketing and
distributing their products on a wider basis than the Company. In addition,
future technological developments and novel approaches in the flame combustion
field as well as enhancements of current technology will, in all likelihood,
create new products and services that directly compete with the IFT System.
There can be no assurance that the Company would not be adversely affected by
such technological change.
Employees
As of September 1, 1996, the Company employed 13 persons on a full-time
basis, four in administrative and finance, three in sales and marketing, six in
manufacturing and field engineering. Most employees fill in on assignments
outside their primary responsibilities as needed. The Company believes that its
relations with its employees are satisfactory.
Item 2. PROPERTY
The Company leases approximately 10,000 square feet of space for its
principal executive offices, manufacturing and research and development
facilities in Laindon, Essex, U.K. This lease expires in December 1997. The base
rent for this facility is approximately $6,000 per month for 1995, approximately
$6,655 per month for 1996 and approximately $7,375 per month for 1997.
The Company maintains one office in New Canaan, Connecticut on a month
to month basis at $105 per month and a sales office in Gent, Belgium pursuant to
a three year lease at $360 per month plus utilities.
The Company's corporate office is in Wilmington, Delaware pursuant to
an annual lease of $2,766 or $225 per month plus utilities. The lease expires in
December 1996.
The Company believes that its facilities are adequate for its
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present and anticipated needs.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, Class A and Class B Warrants are quoted on
the Nasdaq SmallCap Market under the symbols "IFTI", "IFTIW, AND "IFTIZ"
respectively.
The table set forth below shows, for the period indicated, the high and
low bid quotations on the Nasdaq SmallCap Market for the Company's Securities.
These amounts represent quotation between dealers in securities, and do not
include retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
Bid
Period Ended Type of Security High Low
December 1994 Common Stock 3 3/8 2 1/4
Class A Warrant 1/2 3/8
Class B Warrant 7/16 3/8
March 1995 Common Stock 2 7/8 1 1/16
Class A Warrant 1/2 1/4
Class B Warrant 3/8 3/16
June 1995 Common Stock 1 5/16 7/16
Class A Warrant 1/4 1/8
Class B Warrant 3/16 3/32
Bid
Period Ended Type of Security High Low
September 1995 Common Stock 1 3/16 11/32
Class A Warrant 5/32 3/32
Class B Warrant 3/32 3/32
December 1995 Common Stock 7/16 1/4
Class A Warrant 3/32 1/64
Class B Warrant 3/32 1/64
March 1996 Common Stock 1 1/8 1/4
Class A Warrant 3/16 3/32
Class B Warrant 5/32 3/32
June 1996 Common Stock 2 25/32 5/8
Class A Warrant 9/32 5/32
Class B Warrant 7/32 1/8
At September 25, 1996 the number of shareholders of record of the
Company's common stock and Class A Warrants and Class B Warrants were 69, 25 and
25, respectively.
The Company has not paid any cash dividends.
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Listing of Common Stock on Nasdaq SmallCap Market under symbol IFTI and
on Boston Stock Exchange.
Listing of Class A and Class B warrants will be discontinued on the
Boston Stock Exchange.
Item 6. SELECTED FINANCIAL DATA
Statement of Six Months
Operations Year Ended Ended
Data: December 31, 1992 June 30,1993(1)
Revenues.... $ 22,751 $17,025
Cost of
Revenues... 131,793 121,828
Operating
Expenses... 1,485,644 999,771
Net (loss).. (1,573,706) (1,101,056)
Net (loss) per
share...... $ (.44) $ (. 27)
Weighted average
number of common
shares..... 3,546,668 3,957,540
Cash dividend
per common share..
Balance Sheet
Data: December 31, 1992 June 30, 1993 (1)
----------------- -------------
Total assets.. $2,063,110 $3,965,244
Working capital. 765,500 2,670,427
Long-term
liabilities. 437,464 437,108
Total
liabilities. 806,732 758,335
Accumulated
deficit..... (1,579,788) (2,680,844)
Cumulative
translation
adjustment... (148,467) (166,806)
Stockholders'
equity...... 1,256,378 3,206,909
(1) During 1993, the Company changed its fiscal year end to June 30, 1993.
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Year Ended Year Ended Year Ended
June 30, 1994 June 30, 1995 June 30, 1996
Statement of
Operations Data:
Revenues $1,190,291 $ 476,161 $ 593,959
Cost of Revenues 445,355 344,868 537,110
Operating Expenses 2,631,912 2,974,998 1,669,145
Net Loss (1,928,987) (2,725,744) (1,563,667)
Net Loss per
share $ (.46) $ (.51) $ (.29)
Weighted average
number of 4,210,668 5,318,445 5,410,500
common shares
Cash Dividend
per common share --- --- ---
Balance Sheet:
Total Assets $2,601,471 $4,463,543 $2,659,185
Working Capital 636,096 2,687,338 1,322,420
Long-term
liabilities 422,521 394,625 380,900
Total
liabilities 1,318,560 1,106,581 886,274
Accumulated
deficit (4,609,831) (7,335,575) (8,899,242)
Cumulative
translation
adjustment (161,817) (130,436) (150,820)
Stockholders'
Equity 1,282,911 3,356,962 1,772,911
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company commenced operations in late December 1991. During 1992, the
Company's primary focus was completing the design and testing of the IFT System.
In 1993, the first production equipment was made available and a customer
testing program was commenced. Simultaneously, the Company stepped-up its
marketing and promotional activities.
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In 1993, the Company changed its year end to June 30. During Fiscal 1994
the Company increased its staffing levels and acquired the Vapormid business
from EcoLab, BVBA, a distributor of the Company's earlier "bubble technology".
On July 18, 1994 the Company's Initial Public Offering was completed
generating net proceeds of $4,768,414. In conjunction with the public offering,
the Company increased its operational and marketing activities in an effort to
achieve cash flow break even by fiscal year end. This objective was not
accomplished in part because of long lead times experienced between initial
sales presentations and invoicing, together with a lack of positive test data
on
three very large pulverized coal facilities. Therefore a sharp reduction in
expenses, including staff cuts, was implemented in May which reduced annual
costs by approximately $1,200,000 during fiscal 1996. During the year a leading
international oil company completed testing the IFT System in its
central
research facility with positive results and recommendations to its operating
units to utilize the technology. As a consequence the Company is in active
negotiations with three leading oil companies covering six locations with
receipt of the first contract imminent. An average size refinery or
petrochemical plant could utilize IFT technology and equipment valued at
approximately $1,000,000. With this large market opportunity, fiscal '97
revenues are estimated to be sharply higher than in the past year providing
positive cash flow and net income. The additional volume of business can be
accommodated within the existing capacity of the Company allowing for increases
in material purchases. The attainment of positive cash flow remains the
Company's primary financial objective and the immediate focus of operations will
be the European Community where the IFT technology has achieved market
recognition.
Year ended June 30, 1996 and June 30, 1995
Total revenues increased to approximately $594,000 during the year ended
June 30, 1996. The increase relates to an increase in rental income to
approximately $347,000 ($277,000 in 1995), an increase in system sales to
approximately $123,000 ($81,000 in 1995) and an increase in service income to
approximately $124,000 ($118,000 in 1995). The increase in rental income is due
to trials being converted to normal rentals during the year. The increase in
system sales is primarily attributable to UK activity in 1996 where larger
companies may prefer to purchase the IFT system rather than rent. System sales
occur on an irregular basis. The increase in service income reflects the
increased sales and rentals in 1996.
Gross profit decreased to approximately $57,000 during the year ended
June 30, 1996 from $131,000 during the year ended June 30,
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1995. The decrease related to field engineering, installation and other field
costs of approximately $176,000 incurred during the final quarter of the year
ended June 30, 1996 which had been classified as cost of revenues; in previous
periods, these costs have been classified as sales and marketing expenses. The
different classification relates to the maturing of the Company's system from a
development state requiring extensive engineering support to complete the sales
process to a mature product. In January, the Company discontinued free or
conditional testing and by the fourth quarter all previously free tests had been
completed.
General and administrative expenses decreased to approximately
$1,230,000 during the year ended June 30, 1996 from approximately $1,855,000
during the year ended June 30, 1995, a decrease of $625,000 due to internal
staff and other cost reductions implemented in May 1995. A total one-time cost
of $198,000 was incurred in May 1995, related to the personnel reductions.
Sales and marketing expenses decreased to approximately $362,000 during
the year ended June 30, 1996 from approximately $853,000 during the year ended
June 30, 1995. The decrease of $491,000 is due to cost reductions implemented in
May 1995, and continuing through 1996, as well as approximately $176,000 of
engineering and other technical costs incurred in the fourth quarter of the
year ended June 30, 1996 which were included in cost of revenues.These technical
costs were included in sales and marketing expenses during the year ended June
30, 1995 and the first three quarters of the year ended June 30, 1996. This
change is a result of the change in responsibilities of certain employee's
caused by the maturing of the Company's system from a developmental state to a
mature product.
Other income decreased to approximately $49,000 during the year ended
June 30, 1996 from approximately $118,000 during the year ended June 30, 1995, a
decrease of $69,000 primarily due to the use of funds in operations of the
Company.
Year ended June 30, 1995 and June 30, 1994
Total revenues decreased to approximately $476,000 during the year
ended June 30, 1995 from approximately $1,190,000 during the year ended June 30,
1994. The decrease related to a decrease in System sales to approximately
$81,000 ($852,000 in 1994), net of an increase in rental income to approximately
$277,000 ($220,000 in 1994). The decrease in System sales is primarily
attributable to activity in 1994 in former "eastern bloc" countries where sales
are preferable over rentals. System sales, particularly in these former "eastern
bloc" countries, occur on an irregular basis. The increase in rental income
relates to the increase in the number of Systems leased at June 30, 1995 versus
June 30, 1994.
Gross profit decreased to approximately $131,000 during the
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year ended June 30, 1995 from $745,000 during the year ended June 30, 1994. This
decrease related primarily to the decrease in System sales; the irregular
occurrence of System sales will cause significant fluctuations in gross profit
until the rental revenue base is significantly higher.
General and administrative expenses increased to approximately
$1,855,000 during the year ended June 30, 1995, from approximately $1,610,000
during the year ended June 30, 1994, an increase of $245,000 due to the
Company's expanded European and United States operations. A total cost of
$198,000 was incurred in the fourth quarter as a result of an internal staff
reduction in May 1995, which reduced total personnel from 28 to 18 and
eliminated other costs such as advertising and promotion. These savings are
projected to reduce expenses by approximately $1,000,000 in 1996.
Sales and marketing expenses decreased to approximately $853,000 during
the year ended June 30, 1995, from approximately $936,000 during the year ended
June 30, 1994. The decrease of $83,000 is principally due to reduced commission
expense related to lower system sales, partially offset by increased marketing
costs in the United States.
Other income increased to approximately $118,000 during the year ended
June 30, 1995 due to additional interest earned on the proceeds of the July 28,
1994 public offering.
Liquidity and Capital Resources
Since inception, the Company's funding requirements have been met
through the initial public offering of equity securities totaling approximately
$4.8 million, the private placement of equity securities totaling approximately
$6 million, revenue generated from equipment sales of approximately $1,056,000,
service and rental income of approximately $1,244,000 and interest earnings
totaling approximately $386,000. Cash on hand at June 30, 1996 was approximately
$1,173,000. All short term U.S. Treasury investments have been liquidated by
June 30, 1996.
Net cash used by operations was approximately $1.3 million, $2.7 million
and $1.7 million for the years ended June 30, 1996, 1995 and 1994. The principal
use of cash was to fund operating losses incurred by the Company in developing
the IFT System and sales, marketing and promotional activities. Working capital
was approximately $1.3 million, $2.7 million and $636,000 at June 30, 1996,
1995, and 1994, respectively. Fluctuations in working capital have been
primarily due to increases in accounts receivable and inventory offset by
increases in accounts payable and other
17
accruals as well as $4,768,000 of new equity capital raised in July
1994.
The Company liquidated its U.S. Treasury investments during the year
ended June 30, 1996. The Company's primary investing activity in the year ended
June 30, 1995 involved the acquisition and sale of U.S. Treasury obligations.
During the year ended June 30, 1994, the Company's primary investing activities
included an acquisition of an operating business and capital expenditures for
equipment for the Company. The Vapormid business was acquired in August of 1993
for approximately $150,000. As part of the acquisition, the Company acquired an
established customer base, the continued use of the Vapormid product and various
ongoing customer contracts relating to equipment rentals and maintenance
agreements. There were no capital expenditures during the year ended June 30,
1996; capital expenditures amounted to approximately $100,000 and $151,000
during fiscal years '95 and '94, respectively. Capital expenditures were
associated with the purchase of equipment used in manufacturing as well as
expenditures incurred to produce rental equipment. The Company has no plans for
a significant investment in capital equipment in the next year.
Under an Assignment and Royalty Agreement with the inventor of the
technology utilized by the Company's System ("Royalty Agreement"), the Company
is required to make payments of $6,000 per month to the inventor over the
remaining life of patents relating to the technology. In conjunction with the
Royalty Agreement, the Company pays an executive officer/director of the Company
a royalty override of $5,000 per month.
On July 28, 1994 the Company registered with the Securities and Exchange
Commission and issued 1,200,000 units, each unit consisting of one share of
common stock, par value $.01 per share, one Series A, and one Series B
Redeemable Common Stock purchase warrant. As a result, the Company raised
$4,768,414 net of discounts, commissions and offering costs of $1,231,586.
The Company believes that the remaining proceeds from the Offering of
$1,173,000, together with anticipated funds from operations, will satisfy the
Company's working capital requirements and capital expenditures through fiscal
1997. The Company intends to focus its operations on continued expansion within
the European Community.
Currency Fluctuation
The Company's revenues are invoiced primarily in Pounds Sterling and
also currencies of other European countries (Belgium,
18
Austria and Germany). Changes in exchange rates of these currencies relative to
the U.S. dollar could affect the Company's operations and cash flow. During the
fiscal years ended June 30, '96 and '95, currency fluctuations were not
significant and were not an influence on Company revenues and expenses.
Currently, the Company does not enter into derivative contracts to hedge
currency risks.
During the year ended June 30, 1996, the average rate of exchange used
to translate revenues and expenses denominated in Pounds Sterling has decreased
from approximately $1.58 U.S. dollars to 1 Pound to approximately $1.55 U.S.
dollars to 1 Pound.
Inflation
The Company does not believe that inflation has had a significant impact
on the results of its operations since inception.
Forward-looking statements made in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties including without limitation risks in technology development,
risks in product development and market acceptance of and demand for the
Company's products, risks associated with competition and competitive pricing
pressures, risks associated with foreign sales and other risks detailed in the
Company's filings with the Securities and Exchange Commission.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and the financial statement schedules
set forth in Item 14 of this annual report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
19
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Page
A. (1) Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheet - June 30, 1996 and 1995 F-2
Consolidated Statement of Operations - Years Ended F-3
June 30, 1996, 1995 and 1994
Consolidated Statement of Stockholders' Equity - F-4
Years Ended June 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows - Years Ended F-6
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements F-7
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(3) Exhibits
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Specimen Certificate of Common Stock
4.2 Specimen Certificate of A Warrant
4.3 Specimen Certificate of B Warrant
10.1 Stock Option Plan
B. Reports on Form 8-K
Not Applicable
20
Report of Independent Auditors
To the Board of Directors and Stockholders
Ionic Fuel Technology, Inc.
We have audited the accompanying consolidated balance sheet of Ionic Fuel
Technology, Inc. at June
30, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material
respects, the consolidated financial position of Ionic Fuel Technology, Inc. at
June 30, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
September 6, 1996
F-1
Ionic Fuel Technology, Inc.
Consolidated Balance Sheet
June 30
1996 1995
Assets
Current assets:
Cash and cash equivalents (Note 1) $1,173,088 $ 1,281,258
Short-term investments (Note 1) - 1,286,051
Trade accounts receivable (net of
allowances of $43,791
and $45,004) 80,332 197,902
VAT and other receivables 25,642 17,554
Inventory (Note 2) 464,093 466,941
Prepaid expenses 84,639 149,588
Total current assets 1,827,794 3,399,294
Equipment and vehicles, net (Notes 1 and 3) 192,608 312,683
Patents, net (Notes 1 and 4) 638,783 679,811
Rental maintenance contracts, net of
accumulated amortization of
$113,233 (Note 1) - 24,584
Total assets $2,659,185 $ 4,463,543
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 87,739 $ 120,127
Accrued expenses 316,493 373,203
Provisions for warranties and returns 63,833 145,650
Accrued royalty - due to officer (Note 4) 20,800 1,600
Accrued salary, benefits and payroll taxes 16,509 56,262
Current portion of capital lease
obligations (Note 5) - 15,114
Total current liabilities 505,374 711,956
Other long-term liabilities (Note 4) 380,900 394,625
Stockholders' equity:
Common stock, $.01 par value:
20,000,000 shares authorized; issued
and outstanding 5,400,000
shares (Note 7) 54,000 54,000
Capital in excess of par value 10,768,973 10,768,973
Accumulated deficit (8,899,242) (7,335,575)
Cumulative translation
adjustment (Note 1) (150,820) (130,436)
Total stockholders' equity 1,772,911 3,356,962
Total liabilities and stockholders' equity $ 2,659,185 $ 4,463,543
See accompanying notes.
F-2
Ionic Fuel Technology, Inc.
Consolidated Statement of Operations
Year ended June 30
1996 1995 1994
Revenues (Note 1):
Equipment sales $ 122,671 $ 80,788 $ 851,785
Service income 124,084 118,035 118,404
Rental income 347,204 277,338 220,102
Total revenue 593,959 476,161 1,190,291
Cost of revenues 537,110 344,868 445,355
56,849 131,293 744,936
Operating expenses:
General and
administrative 1,229,969 1,854,880 1,609,930
Sales and marketing 361,644 853,093 935,778
Restructuring charges
(Note 9) - 198,006 -
Royalty charges 60,000 60,000 60,000
Research and development 17,532 9,019 26,204
1,669,145 2,974,998 2,631,912
-------------------- ---------------- --------------
Loss from operations (1,612,296) (2,843,705) (1,886,976)
Other income (expense):
Interest income 106,905 161,787 18,591
Miscellaneous income - 16,145 11,155
Interest expense (58,276) (59,971) (71,757)
48,629 117,961 (42,011)
-------------------- ---------------- -------------
Net (loss) $(1,563,667) $(2,725,744) $ (1,928,987)
Net (loss) per
share (Note 1) $ (0.29) $ (0.51) $ (0.46)
==================== ==================== ===================
Weighted average
number of common shares
(Note 1) 5,410,500 5,318,445 4,210,668
See accompanying notes.
F-3
Ionic Fuel Technology, Inc.
Consolidated Statement of Stockholders' Equity
Common Stock Capital in
-------------------------------
Par Excess of
Shares Value Par Value
Balance at June 30, 1993 4,200,000 $42,000 $ 6,012,559
Net loss
Translation adjustment
Balance at June 30, 1994 4,200,000 42,000 6,012,559
Issuance of common stock 1,200,000 12,000 4,756,414
Net loss
Translation adjustment
---------------- -------------- -----------------
Balance at June 30, 1995 5,400,000 54,000 10,768,973
Net loss
Translation adjustment
---------------- -------------- -----------------
Balance at June 30, 1996 5,400,000 $54,000 $10,768,973
================ ============== =================
See accompanying notes.
F-4
Ionic Fuel Technology, Inc.
Consolidated Statement of Stockholders' Equity (continued)
Cumulative
Accumulated Translation
Deficit Adjustment Total
Balance at June 30, 1993 $(2,680,844) $(166,806) $ 3,206,909
Net loss (1,928,987) (1,928,987)
Translation adjustment 4,989 4,989
Balance at June 30, 1994 (4,609,831) (161,817) 1,282,911
Issuance of common stock 4,768,414
Net loss (2,725,744) (2,725,744)
Translation adjustment 31,381 31,381
-------------- ---------------- ------------------
Balance at June 30, 1995 (7,335,575) (130,436) 3,356,962
Net loss (1,563,667) (1,563,667)
Translation adjustment (20,384) (20,384)
-------------- ---------------- ------------------
Balance at June 30, 1996 $(8,899,242) $(150,820) $ 1,772,911
================ ================ ==================
See accompanying notes.
F-5
Consolidated Statement of Cash Flows
Year ended June 30
1996 1995 1994
-------- -------------------- -------------------
Operating activities
Net (loss) $(1,563,667) $(2,725,744) $(1,928,987)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation 111,316 67,763 116,834
Amortization 85,653 79,414 144,314
Provision for bad debts - - 43,565
Changes in operating
assets and liabilities:
Accounts receivable 112,352 (77,870) (143,863)
Other receivables 2,311 5,039 44,347
Inventory (9,058) (89,498) (172,103)
Prepaid expenses 61,750 (62,966) (24,112)
Deferred charges - 327,614 (327,614)
Other assets 33,374 (6,267) (2,384)
Accounts payable
and accrued expenses (174,440) (165,866) 543,783
Net cash used in operating
activities (1,340,409) (2,648,381) (1,706,220)
Investing activities
Acquisition of investments - (6,063,303) (27,005)
Acquisition of patents and
license (18,703) (38,219) (151,424)
Acquisition of equipment - (100,283) (143,373)
Accretion of interest (13,949) (122,161) -
Proceeds from maturity of
investments 1,300,000 4,899,413 -
Net cash provided
by (used in) investing
activities 1,267,348 (1,424,553) (321,802)
Financing activities
Principal payments on
capital leases (14,707) (30,911) (15,766)
Principal payments
under licensing agreement (13,725) (11,824) (9,220)
Net proceeds from issuance
of stock - 4,768,414 -
Net cash (used in) provided
by financing activities (28,432) 4,725,679 (24,986)
-------------------- -------------------- -------------------
Effects of exchange rate
differences on cash (6,677) 9,810 (5,927)
-------------------- -------------------- -------------------
(Decrease) increase
in cash (108,170) 662,555 (2,058,935)
Cash, beginning of year 1,281,258 618,703 2,677,638
Cash, end of year $ 1,173,088 $ 1,281,258 $ 618,703
Interest paid $ 58,276 $ 59,971 $ 66,505
See accompanying notes.
F-6
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
Ionic Fuel Technology, Inc. ( "Company"), a Delaware corporation formed on
December 10, 1991,
manufactures ion generating equipment for sale or lease to entities in various
industries, in the United
Kingdom and Europe, to reduce airborne emissions and fuel consumption.
The consolidated financial statements include the accounts of the Company and
its wholly-owned
subsidiaries, Ionic Fuel Technology USA, Inc. ("IFT, USA"), a company
incorporated in the U.S. and
Ionic Fuel Technology, Ltd. ("IFT, Ltd."), a company incorporated in the
United Kingdom. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Concentration of Credit Risk
At June 30, 1996 and 1995, the Company maintained cash balances of
approximately $980,000 and
$1,167,000, respectively, at a bank in excess of the insurance limits
($100,000) of the Federal Deposit
Insurance Corporation.
The Company performs periodic evaluations of its customers financial condition
and generally does not
require collateral.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when
purchased to be cash equivalents.
Short-term Investments
Effective July 1, 1994 the Company adopted Statement of Financial Accounting
Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
statement addresses the
accounting and reporting for investments in debt and equity securities that
have readily determinable fair
values.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability
to hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost. The amortized
cost of debt securities classified as held-to-maturity is adjusted for
amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income from investments.
Interest and dividends are included in interest income from investments.
Realized gains and losses on
dispositions are based on the net proceeds and the adjusted book value of the
securities sold, using the
specific identification method. The realized gains and losses flow through the
Company's statement of income.
At June 30, 1996, the Investment Securities portfolio had been liquidated.
F-7
Notes to Consolidated Financial Statements
(continued)
1. Summary of Significant Accounting Policies (continued)
Inventory
Inventory is valued at the lower of cost, determined by the first-in, first-ou
method, or net realizable
value.
Equipment and Vehicles
Equipment and vehicles are stated at cost less accumulated depreciation and
amortization provided on
the straight-line basis over the estimated useful lives of the assets, which
range from three to ten years.
Equipment under lease to third parties is depreciated over the life of the
lease, generally five years.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards
(SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to
be Disposed of". The Company will adopt SFAS No. 121 in the year ended
June 30, 1997, and is not
expected to have a material impact.
Intangible Assets
Patents are carried at cost, less accumulated amortization provided on the
straight-line basis over the
estimated useful lives of the assets which range from five to fifteen years.
Amortization expense of these
intangible assets amounted to $61,732, $59,410 and $56,892 for the years ended
June 30, 1996, 1995
and 1994, respectively. Accumulated amortization amounted to $259,611 and
$197,879 at June 30, 1996
and 1995, respectively.
The value of rental and maintenance contracts acquired has been amortized over
the lives of the
contracts, which range from one to four years. The original lives of all
contracts purchased expired in
1996. This amortization expense amounted to $23,921, $20,004 and $87,422
for the years ended June
30, 1996, 1995 and 1994, respectively.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS 109, the
effect upon deferred taxes of a change in tax rates is recognized in income
in the period that includes
the enactment date.
Fair Value
Cash and cash equivalents, accounts receivable and accounts payable: The
carrying amounts reported
in the balance sheet for cash and cash equivalents, accounts receivable and
accounts payable approximate
their fair value.
F-8
Notes to Consolidated Financial Statements
(continued)
1. Summary of Significant Accounting Policies (continued)
Stock Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees". Under the Company's
current plan,
options may be granted at no less than the fair market value on the date of
grant and therefore, no
compensation expense is recognized for the stock options granted. In the year
ended June 30, 1997, the
Company intends to adopt the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation".
Per Share Data
Net loss per share of common stock is computed using the treasury stock method
based on the weighted
average number of shares of common stock and dilutive common equivalent shares
outstanding during
the period.
Foreign Currencies
Adjustments resulting from the translation of the financial statements of the
Company's foreign
subsidiary are excluded from the determination of income (loss) and are
accumulated in a separate
component of stockholders' equity.
Revenue Recognition
Rental income under operating leases is recognized on a straight-line basis
over the lease term. The
equipment leased is owned by the Company and, accordingly, the Company bears
all repairs and
maintenance costs incurred. The lease term is generally five years with an
option for renewal. Equipment
sales are recognized upon shipment of the equipment and are recorded net of
an allowance for returns.
Warranty Costs
Estimated warranty costs are provided for when the product is sold.
Field Engineering Costs
Cost of revenues reflects approximately $176,000 of field engineering,
installation, and other field costs
incurred in the fourth quarter of the year ended June 30, 1996. Similar costs
incurred in prior periods
are included in sales and marketing expenses because extensive engineering
support was required to
complete the sales process. This change is a result of the change in
responsibilities of certain employee's
caused by the maturing of the Company's system from a developmental state to
a mature product.
Reclassification
Certain amounts from the year ended June 30, 1995 have been reclassified to
conform to the presentation
at and for the year ended June 30, 1996.
F-9
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The consolidated financial statements have been prepared in accordance with
generally accepted
accounting principles and as such, include amounts based on judgments and
estimates made by
management, which may differ from actual results.
2. Inventory
Inventory is comprised of the following:
June 30
1996 1995
Material and supplies $152,721 $123,977
Finished goods 311,372 342,964
$464,093 $466,941
================== =================
Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
3. Equipment and Vehicles
Equipment and vehicles are comprised of the following:
June 30
1996 1995
Equipment $ 404,994 $ 403,068
Vehicles 22,754 23,717
427,748 426,785
Accumulated depreciation (321,242) (237,269)
106,506 189,516
------------------- -----------------
Equipment under lease 126,072 148,510
Accumulated depreciation (39,970) (25,343)
86,102 123,167
------------------- -----------------
$ 192,608 $ 312,683
=================== =================
Amortization expense included in depreciation expense, relating to the leased
equipment, amounted to
$20,898, $18,208 and $28,622 for the years ended June 30, 1996, 1995 and 1994,
respectively.
F-10
Notes to Consolidated Financial Statements
(continued)
4. Royalty Agreement
Under an agreement effective as of December, 1991 the Company purchased certain
patents and
inventions for $50,000 and agreed to make payments of $6,000 per month over
the remaining life of the
patents (initially 15 years). The Company has valued these patent rights
($428,698) based upon the
present value of the future minimum royalty payments. The remaining balance of
this obligation, less
amounts currently due, is included in other long-term obligations. If certain
annual profitability levels
are achieved, an additional royalty of $24,000 per annum will be payable. In
conjunction with this
agreement, the Company granted the inventor a security interest in the patents
and inventions during the
royalty period.
A founder/officer of the Company receives an override royalty of $5,000 per
month. This expense
amounted to $60,000, for the years ended June 30, 1996, 1995 and 1994. During
1995, $1,600 per month
of this override royalty was deferred resulting in an accrued royalty expense
of $20,800 and $1,600 at
June 30, 1996 and 1995, respectively.
5. Leases
The Company was the lessee of vehicles under capital leases which expired in
1996. The Company leases
its facility under a noncancelable operating lease expiring in 1997. The future
minimum lease payments
under the operating lease as of June 30, 1996 are as follows:
Operating
lease
Year ending June 30:
1997 $150,064
1998 91,302
1999 8,547
2000 2,848
--------------
Total minimum lease payments $252,761
==============
The cost of assets under capital leases amounted to $42,964 at June 30, 1995.
Accumulated amortization
relating to the leased equipment, amounted to $33,011 at June 30, 1995.
There was no cost of assets
under capital leases at June 30, 1996.
Rent expense amounted to $135,720, $102,439 and $117,366 for the years ended
June 30, 1996, 1995
and 1994, respectively.
The future minimum lease payments receivable under noncancelable operating
leases as of June 30, 1996
are as follows:
Operating
leases
Year ending June 30:
1997 $141,241
1998 113,911
1999 57,832
2000 6,435
--------------
Total minimum lease payments receivable $319,419
==============
F-11
Notes to Consolidated Financial Statements
(continued)
6. Income Taxes
At June 30, 1996, the Company has available operating loss carryforwards for
United States Federal
income tax purposes of $1,759,354 which are available to offset future taxable
income, if any, through
the indicated years: $6,082 in 2006, $54,766 in 2007, $95,812 in 2008, $600,574
in 2009, $615,511 in
2010 and $386,609 in 2011. The amount and timing upon which the Company may
realize future tax
benefits from its net operating loss is affected by prior changes in ownership
of the Company. The
Company's subsidiary has an unused operating loss carryforward,
with no expiration date, for United
Kingdom income tax purposes of $6,545,318 at June 30, 1996. The statutory tax
rates during the years
ended June 30, 1996, 1995 and 1994 are 34% and 25% in the U.S. and U.K.,
respectively.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
June 30
1996 1995
Deferred tax liabilities:
Total deferred tax liabilities $ $
- -
Deferred tax assets:
Benefit of net operating loss
carryforwards - U.S. 598,180 483,477
Benefit of net operating loss
carryforwards - U.K. 1,636,330 1,334,346
Other 58,899 98,114
Total deferred tax assets 2,293,409 1,915,937
Valuation allowance for
deferred tax assets (2,293,409) (1,915,937)
Net deferred tax assets - -
Total net deferred tax
assets (liabilities) $ - $ -
==================== ===================
7. Stockholders' Equity
Effective March 28, 1994, an amendment and restatement of the Company's
Restated Certificate of
Incorporation was approved by the Board of Directors of the Company providing
for an increase in the
authorized common stock of the Company to 20,000,000 shares. The Board also
approved a 1.6 for 1
stock split of the Company's then outstanding common stock. All share and per
share data were
retroactively adjusted in 1994 to reflect these actions.
In December 1991, the Company raised approximately $2,985,000, net of offering
costs of $145,000,
through the issuance of 2,640,000 shares of common stock at a price of $.125
per share (including
2,128,000 shares of common stock to its founders in exchange for certain
patent rights) and 896,000
shares at a price of $3.125 per share.
In March 1993, the Company raised approximately $3,070,000, net of
offering costs of $250,000,
through the issuance of 664,000 shares of common stock at $5.00 per share.
F-12
Notes to Consolidated Financial Statements
(continued)
7. Stockholders' Equity (continued)
On July 28, 1994, the Company issued 1,200,000 units, each unit consisting
of one share of common
stock, par value $.01 per share, one Series A redeemable common stock purchase
warrant and one Series
B redeemable common stock purchase warrant. Two Series A Warrants entitle the
holder, to purchase
one share of Common Stock for $6.50 until July 28, 1997. Two Series B Warrants
entitle the holder,
to purchase one share of Common Stock for $7.50 until July 28, 1999. Each
Series of Redeemable
Warrants is redeemable at a price of $.01 per two Redeemable Warrants at any
time after July 1995,
upon not less than 30 days prior written notice, if the last sale price of the
Common Stock has been at
least $9.50 with respect to the Series A Warrants and $10.50 with respect to
the Series B Warrants for
the 20 consecutive trading days ending on the third day prior to the notice of
redemption. As a result
of the offering, the Company raised $4,768,414, net of discounts, commissions
and offering costs of
$1,231,586.
Stock Options
The Company's 1992 Stock Option Plan, as amended, (the "Plan"), provides for
the granting of qualified
or nonqualified options to acquire up to 450,000 common shares by certain key
employees of the
Company or its subsidiary. Under the Plan, the options granted may not be at
a price of less than 100%
of the fair market value of the common stock at the date of grant as determined
by the Company's Board
of Directors. Options are exercisable one year after the date of grant at
a rate of 20% per annum, on a
cumulative basis. Options may be granted through November 30, 2002, althoug
the Plan may be
terminated at any time.
Option
Number price
of shares per share
Options outstanding at June 30, 1993 87,200 $2.81
Granted 194,000 $2.81-$5.00
Exercised -
Canceled (83,200) $2.81-$5.00
Options outstanding at June 30, 1994 198,000
Granted 28,000 $2.13
Exercised -
Canceled (136,000) $2.81-$4.69
----------------
Options outstanding at June 30, 1995 90,000 $2.13-$5.00
Granted 36,000 $.28
Exercised -
Canceled -
Options outstanding at June 30, 1996 128,000 $ .28-$5.00
At June 30, 1996, options for 332,000 shares were available for future
grants and 47,200 options were
exercisable.
F-13
Notes to Consolidated Financial Statements (continued)
8. Results of Foreign Operations
Total assets and liabilities and results of operations for IFT, Ltd. were as
follows:
June 30
1996 1995
Total assets $ 1,001,869 $ 1,315,409
======================== =====================
Total liabilities $ 543,080 $ 692,803
======================== =====================
Revenues $ 593,959 $ 477,783
======================== =====================
Loss from operations $(1,197,933) $(2,060,986)
======================== =====================
9. Restructuring Charges
During 1995, IFT Ltd. undertook a fundamental restructuring, leading to the
termination of over half of
its workforce. Other costs relating to this restructuring included inventory
writedowns and early
termination payments on certain motor vehicle leases.
F-14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) 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.
Dated: September 25, 1996
IONIC FUEL TECHNOLOGY, INC.
By: /s/ Douglas F. Johnston
Douglas F. Johnston
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
NAME TITLES DATE
/S/ DOUGLAS F. JOHNSTON
DOUGLAS F. JOHNSTON CHAIRMAN & CHIEF FINANCIAL SEPTEMBER 25, 1996
ACCOUNTING OFFICER
/S/ ANTHONGY J.S. GARNER
ANTHONY J.S. GARNER EXECUTIVE VICE PRESIDENT- SEPTEMBER 25, 1996
OPERATIONS AND DIRECTOR
/S/ PAUL C. O'NEILL
PAUL C. O'NEILL TREASURER AND DIRECTOR SEPTEMBER 25, 1996