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 December 31, 1996
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
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
incorporation or organization) Identification No.)
300 Delaware Avenue, Suite 1704
Wilmington, Delaware 19801-1622
(Address of principal executive offices) (Zip Code)
(302)427-5957
(Registrant's telephone number, including area code)
Not applicable
(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 - 5,400,000 shares as of December 31, 1996
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - December 31, 1996 and June 30, 1996
Consolidated statements of operations - Three months ended December 31,
1996 and 1995; six months ended December 31, 1996 and 1995
Consolidated statements of cash flows - Six months ended December 31,
1996 and 1995
Notes to consolidated financial statements - December 31, 1996
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
December 31, June 30,
1996 1996
------------- --------
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents (Note 2) $ 662,874 $ 1,173,088
Trade accounts receivable, net of allowance
for doubtful accounts of $43,791 at
June 30, 1996 192,414 80,332
VAT and other receivables 10,903 25,642
Inventory (Note 3) 501,769 464,093
Prepaid expenses 61,267 84,639
------- -------
Total current assets 1,429,227 1,827,794
Equipment and vehicles, net of accumulated
depreciation of $428,723 at December 31, 1996
and $361,212 at June 30, 1996 171,367 192,608
Patents, net 609,380 638,783
-------- -------
Total assets $ 2,209,974 2,659,185
========= =========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 56,205 $ 87,739
Accrued expenses 304,012 316,493
Provisions for warranties and returns 38,116 63,833
Accrued royalty, due to officer 30,400 20,800
Accrued salary, benefits and payroll taxes 19,904 16,509
------- -------
Total current liabilities 448,637 505,374
Other long-term liabilities 373,232 380,900
Stockholders' equity:
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 5,400,000 shares 54,000 54,000
Capital in excess of par value 10,768,973 10,768,973
Accumulated deficit ( 9,334,087) ( 8,899,242)
Cumulative translation adjustment ( 100,781) ( 150,820)
---------- ----------
Total stockholders' equity 1,388,105 1,772,911
---------- ----------
Total liabilities and stockholders' equity $ 2,209,974 $ 2,659,185
========== ==========
See accompanying notes
Note: The balance sheet at June 30, 1996 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.
- 3 -
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ------------ ------------ --------
Revenues:
Rental income $ 81,085 $ 79,564 $ 159,767 $ 173,292
Service income 38,013 52,090 66,808 78,950
Equipment sales 151,751 121,817 151,751 121,817
--------- -------- -------- --------
Total revenues 270,849 253,471 378,326 374,059
Cost of revenues 213,957 111,867 395,373 196,789
-------- -------- -------- --------
56,892 141,604 ( 17,047) 177,270
Operating expenses:
General and administrative 162,561 395,280 323,349 785,505
Sales and marketing 52,523 118,061 84,350 209,195
Research and development 146 1,933 803 3,419
---- ------ ---- ------
215,230 515,274. 408,502 998,119
--------- -------- ------- ---------
Operating (loss) ( 158,338) ( 373,670) ( 425,549) (820,849)
Other income (expense):
Interest income 8,504 25,447 19,035 63,865
Interest expense ( 14,094) ( 14,321) ( 28,331) ( 29,393)
--------- --------- --------- ---------
( 5,590) 11,126 ( 9,296) 34,472
--------- ------- --------- ------
Net (loss) $( 163,928) $( 362,544) $( 434,845) $( 786,377)
========= ========= ========= =========
Net (loss) per share $( 0.03) $( 0.07) $( 0.08) $( 0.15)
========= ========= ========= =========
common shares 5,410,500 5,410,668 5,410,500 5,410,668
========= ========= ========= =========
See accompanying notes
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1996 1995
------------ --------
Operating activities
Net (loss) $( 434,845) $( 786,377)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 41,351 59,631
Amortization 31,465 42,862
Accretion of interest - ( 13,949)
Changes in operating assets and liabilities:
Accounts receivable ( 98,508) ( 136,375)
Other receivables 16,103 14,260
Inventory 37,698 19,086
Prepaid expenses 29,918 ( 3,403)
Other assets - 27,429
Accounts payable and accrued expenses ( 96,703) ( 17,831)
--------- ---------
Net cash used by operating activities ( 473,521) ( 794,667)
Investing activities
Acquisition of equipment ( 32,200) ( 19,850)
Acquisition of patents ( 1,066) ( 9,681)
Proceeds from maturity of investments - 1,300,000
---------- ---------
Net cash provided (used) by investing activities (33,266) 1,270,469
Financing activities
Principal payments under licensing agreement ( 7,669) ( 6,607)
Principal payments on capital leases - ( 11,647)
---------- ---------
Cash used by financing activities ( 7,669) ( 18,254)
Effects of exchange rate differences on cash 4,242 ( 1,603)
--------- ---------
Increase (decrease) in cash and cash equivalents ( 510,214) 455,945
Cash and cash equivalents, beginning of period ------- ---------
Cash and cash equivalents, end of period $ 662,874 $ 1,737,203
======== =========
Interest paid $ 28,331 $ 29,393
======= =======
See accompanying notes
IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 1996
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 six month period ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 1997.
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, 1996.
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:
December 31, June 30,
1996 1996
------------ --------
Material and supplies $163,048 $152,721
Finished goods 338,721 311,372
------- -------
$501,769 $464,093
======= =======
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1996 and December 31, 1995
Total revenues increased to approximately $378,000 during the six month
period ended December 31, 1996 from approximately $374,000 for the six month
period ended December 31, 1995.
The increase of approximately $30,000 in equipment sales revenues
relates to new orders and also to existing rental customers converting to
purchase with a corresponding reduction of approximately $14,000 in rental
revenues. A decrease of approximately $12,000 in service income relates to
reduced test fees. Certain customers prefer to purchase following the initial
rental period generally ranging from 6 to 12 months and the company does not
discount the purchase price when this conversion occurs.
Gross profit decreased to a loss of approximately $(17,000) during the
six month ended December 31, 1996 (profit of $177,000 in 1995) due to the
revised classification of field engineering, installation and other field costs
as cost of sales effective April 1, 1996. Similar costs incurred in prior
periods are included in general and administrative expenses because extensive
engineering support was required to complete the sales process. This change is a
result of the change in responsibilities of certain employees caused by the
maturing of the Company's system.
General and administrative expenses decreased to approximately
$323,000 during the six months ended December 31, 1996 from approximately
$786,000 during the six months ended December 31, 1995. This decrease is
primarily due to continued tight control of expenses commensurate with business
requirements and the revised classification described in the prior paragraph.
Sales and marketing expenses decreased to approximately $84,000 during
the six months ended December 31, 1996, from approximately $209,000 during the
six months ended December 31, 1995, a decrease of $125,000 principally due to
reduced sales commissions.
Other income (net) decreased to approximately $(9,000) of net expense
during the six months ended December 31, 1996 from approximately $34,000 of net
income during the same period in 1995, due to a decrease in interest income.
Three Months Ended December 31, 1996 and December 31, 1995
Total revenues increased to approximately $271,000 during the three month
period ended December 31, 1996 from approximately $253,000 for the three month
period ended December 31, 1995.
The increase of approximately $30,000 in equipment sales is due to new
customers and some existing customers converting to purchase from rental.
There was a small net increase in rental revenues of $2,000 after conversion
of prior rentals to sales.
Gross profit decreased to approximately $57,000 during the three months
ended December 31, 1996 ($142,000 in 1995) due to the revised classification of
costs referred to above.
General and administrative expenses decreased to approximately $163,000
during the three months ended December 31, 1996 from approximately $395,000
during the three months ended December 31, 1995. This decrease is primarily
due to cost controls and the revised classifications described on
the preceding page.
Sales and marketing expenses decreased to approximately $53,000 during
the three months ended December 31, 1996, from approximately $118,000 during the
three months ended December 31, 1995, a decrease of $65,000 principally due to
reduced sales commissions.
Other income (net) decreased to approximately $(6,000) of net expense
during the three months ended December 31, 1996 from approximately $11,000 of
net income during the same period in 1995, due to a decrease in interest income.
Liquidity and Sources of Capital
Net cash used by operations was approximately $474,000 for the six
months ended December 31, 1996 and approximately $795,000 for the six months
ended December 31, 1995. 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 $1 million at December 31, 1996
and approximately $1.3 million at June 30, 1996. Working capital has been
utilized to fund operations.
Currency Fluctuation
Currency fluctuations were insignificant to the Company's operations for
the six months ended December 31, 1996 and 1995. 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 six months ended December 31, 1996 and 1995.
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 six months ended
December 31, 1996.
EXHIBIT 1
IONIC FUEL TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
Three Months Ended, Six Months Ended,
December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ---------
Net loss $( 163,928)$( 362,544) $( 434,845) $(786,377)
Average common shares
outstanding 5,400,000 5,400,000 5,400,000 5,400,000
Incremental shares issuable
pursuant to SAB Topic 4D 10,500 10,668 10,500 10,668
------- ------- ------- -------
Total shares 5,410,500 5,410,668 5,410,500 5,410,668
========= ========= ========= =========
Net loss per common share $( 0.03) $( 0.07) $( 0.08) $( 0.15)
========= ======== ========= =========
- 10 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ionic Fuel Technology, Inc.
(Registrant)
Date: February 3, 1997 Douglas Johnston, Chairman and
Chief Financial Officer
(Name and Title)