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, 1998
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 - 6,444,955 shares as of March 31, 1998
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1998 and June 30, 1997
Consolidated statements of operations - Three months ended March 31,
1998 and 1997; nine months ended March 31, 1998 and 1997
Consolidated statements of cash flows - Nine months ended March 31,
1998 and 1997
Notes to consolidated financial statements - March 31, 1998
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,
1998 1997
-------------- --------
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $1,139,597 $ 191,629
Trade accounts receivable 120,843 59,420
Stock subscription receivable 308,850 -
Inventory 481,011 482,446
Prepaid expenses 135,807 137,676
----------- -----------
Total current assets 2,186,108 871,171
Equipment and vehicles, net of accumulated
depreciation of $447,799 at March 31, 1998
and $442,105 at June 30, 1997 145,125 153,117
Patents, net 563,059 603,003
----------- -----------
Total assets $2,894,292 $ 1,627,291
========= =========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 109,754 $ 87,155
Accrued expenses 221,885 239,827
Provisions for warranties and returns 25,531 16,380
Accrued royalty, due to officer - 40,000
Current portion of royalty agreement 20,938 18,720
Accrued salary, benefits and payroll taxes 17,070 19,419
Current portion of long-term obligations 11,508 14,984
------------ -----------
Total current liabilities 406,686 436,485
Long-term liabilities
Long-term obligations less current portion 31,739 -
Other long-term liabilities 330,425 346,249
------------ -----------
Total long-term liabilities 362,164 346,249
Stockholders' equity:
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 6,444,955 and 5,401,600 shares
respectively 64,450 54,016
Capital in excess of par value 13,047,553 10,837,407
Accumulated deficit (10,846,457) ( 9,903,667)
Cumulative translation adjustment ( 140,104) ( 143,199)
------------ -----------
Total stockholders' equity 2,125,442 844,557
------------ -----------
Total liabilities and stockholders' equity $ 2,894,292 $ 1,627,291
========== ==========
See accompanying notes
Note: The balance sheet at June 30, 1997 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 Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------------- -------------- ------------ --------
Revenues:
Rental income $ 83,502 $ 71,154 $ 240,128 $ 230,921
Service income 8,546 39,632 72,746 106,440
Equipment sales - 19,328 15,917 171,079
Consulting income 5,148 - 28,966 -
--------- ---------- ---------- -------
Total revenues 97,196 130,114 357,757 508,440
Cost of revenues 160,414 202,709 531,085 598,082
--------- ---------- ---------- ----------
( 63,218) ( 72,595) ( 173,328) ( 89,642)
Operating expenses:
General and administrative 218,457 191,060 606,087 514,409
Sales and marketing 53,875 25,402 140,528 109,752
Research and development ( 1,771) 4,665 34,923 5,468
----------- ---------- ---------- ----------
270,561 221,127 781,538 629,629
--------- ---------- ---------- ----------
Operating (loss) ( 333,779) ( 293,722) ( 954,866) ( 719,271)
Other income (expense):
Interest income 28,383 6,247 52,468 25,282
Interest expense ( 13,294) ( 13,946) ( 40,392) ( 42,277)
---------- ---------- ----------- ----------
15,089 ( 7,699) 12,076 ( 16,995)
--------- ----------- ---------- ----------
Net (loss) $( 318,690) $( 301,421) $( 942,790) $( 736,266)
========== ========= ========= =========
Net (loss) per share $( 0.05) $( 0.06) $( 0.15) $( 0.14)
============= ============ ============= =============
Net (loss) per share -
diluted $( 0.05) $( 0.06) $( 0.15) $( 0.14)
============ ============ ============= =============
Weighted average number of
common shares 6,298,797 5,400,000 6,185,667 5,400,000
========= ========= ========= =========
See accompanying notes
- 4 -
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
1998 1997
------------- --------
Operating activities:
Net (loss) $( 942,790) $( 736,266)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 16,213 59,358
Amortization 47,953 46,700
Changes in operating assets and liabilities:
Accounts receivable ( 60,489) ( 41,979)
Other receivables 618 16,857
Inventory 26,770 43,595
Prepaid expenses 1,787 513
Accounts payable and accrued expenses ( 29,387) ( 60,569)
------------ ----------
Net cash used in operating activities ( 939,325) ( 671,791)
Investing activities
Acquisition of equipment - ( 40,154)
Acquisition of patents ( 8,009) ( 5,041)
------------- -----------
Net cash used in investing activities ( 8,009) ( 45,195)
Financing activities
Principal payments under capital lease ( 4,032) -
Principal payments under licensing agreement ( 13,607) ( 11,723)
Net proceeds from issuance of stock 1,911,732 -
--------- -------
Net cash provided by (used in) financing activities 1,894,093 ( 11,723)
Effects of exchange rate differences on cash 1,209 127
----------- ----------
Increase (decrease) in cash and cash equivalents 947,968 ( 728,582)
Cash and cash equivalents, beginning of period 191,629 1,173,088
----------- ---------
Cash and cash equivalents, end of period $ 1,139,597 $ 444,506
========= ==========
Supplemental Cash Flow Disclosures
Interest paid $ 40,392 $ 42,277
=========== ============
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
- 5 -
IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
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, 1998 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998. 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, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("Statement
128"). Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. The Company's net
loss per share calculated under the basic earnings per share method is the
same as under the primary earnings per share method. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. As a result of having incurred losses, all dilutive securities have
been omitted from the calculation of diluted net loss per share since their
inclusion would be anti-dilutive. Therefore basic and diluted net loss per
share are the same for all periods.
Effective February 3, 1998 the SEC issued Staff Accounting Bulletin No. 98
to effect consistency with provisions of accounting standards recently
adopted by the FASB. As a result the weighted average common share amounts
for prior periods have been restated to remove incremental shares previously
issuable pursuant to SAB Topic 4D. Such change did not affect the net loss
for common share amounts for those years presented.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Inventory
Inventory is comprised of the following:
March 31, June 30,
1998 1997
---- ----
Material and supplies $156,750 $161,817
Finished goods 324,261 320,629
------- -------
$481,011 $482,446
======= =======
Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
Long-term obligations
Long-term obligations as of March 31, 1998 consist of a 10% chattel note
payable over 36 months that began in December 31, 1997, plus various capital
leases.
- 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended March 31, 1998 and March 31, 1997
Total revenues decreased to approximately $358,000 during the nine
month period ended March 31, 1998 from approximately $508,000 for the nine month
period ended March 31, 1997.
The decrease of approximately $155,000 in equipment sales revenues
relates to one purchase in the prior year not repeated in the current year. An
increase in consulting income of approximately $29,000 relates to a data logging
service for a major company. The decrease of approximately $34,000 in service
income relates to the reduction in installation and test fees. Rental income
remained approximately the same.
Gross profit (loss) decreased to a loss of approximately $(173,000)
during the nine months ended March 31, 1998 compared to a loss of $(90,000) in
1997 due to the decline in total revenues being greater than the decline in cost
of sales, which are primarily fixed. Cost of sales decreased approximately
$67,000 to $531,000 ($598,000 for 1997), whereas revenues decreased by
approximately $151,000.
General and administrative expenses increased to approximately $606,000
during the nine months ended March 31, 1998 from approximately $514,000 during
the nine months ended March 31, 1997. This increase is primarily due to: an
increase of approximately $32,000 in stock market related expenses, specifically
public relation fees and stock registration fees; an increase of approximately
$8,000 in legal and professional fees and an increase of general and
administrative expenses that had been allocated to cost of sales in 1997 but not
in 1998, due to the reduction in manufacturing activities.
Sales and marketing expenses increased to approximately $141,000 during
the nine months ended March 31, 1998 from approximately $110,000 during the nine
months ended March 31, 1997 primarily due to additional consulting costs.
Research and development expenses increased to approximately $35,000 during the
nine months ended March 31, 1998 from approximately $5,000 during the nine
months ended March 31, 1997 related to upgrading IFT equipment for hazardous
zone locations.
Other income (expense) net increased to approximately $12,000 of net
income during the nine months ended March 31, 1998 from approximately $(17,000)
of net expenses during the same period in 1997, due to an increase in interest
income.
Three Months Ended March 31, 1998 and March 31, 1997
Total revenues decreased to approximately $97,000 during the three
month period ended March 31, 1998 from approximately $130,000 for the three
month period ended March 31, 1997.
The decrease of approximately $19,000 in equipment sales is described
above. Rental income increased approximately $12,000 due to the mix of rental
contracts. An increase in consulting income of approximately $5,000 relates to
the data logging contract referred to above. Service income decreased
approximately $31,000 due to the reduction in installation and test fees.
Gross profit (loss) decreased to a loss of approximately $(63,000)
during the three months ended March 31, 1998 compared to a loss of ($73,000) in
1997 due to the fall in overall cost of revenues for the quarter.
General and administrative expenses increased to approximately $218,000
during the three months ended March 31, 1998 from approximately $191,000 during
the three months ended March 31, 1997. This increase is primarily due to general
and administrative expenses that had been allocated to cost of sales in 1997 but
not in 1998, due to the reduction in manufacturing activities.
- 7 -
Sales and marketing expenses increased to approximately $54,000 during
the three months ended March 31, 1998, from approximately $25,000 during the
three months ended March 31, 1997, an increase of $29,000 principally due to
additional consulting costs.
Research and development expenses decreased to approximately $(1,800)
because of a reversal in accrued costs during the three months ended March 31,
1998 from approximately $5,000 during the three months ended March 31, 1997 and
is in line with the development program to upgrade the IFT equipment to
hazardous zone locations.
Other income (expense) net increased to approximately $15,000 of net
income during the three months ended March 31, 1998 from approximately $(8,000)
of net expense during the same period in 1997, due to an increase in interest
income.
Liquidity and Sources of Capital
Net cash used in operations was approximately $939,000 for the nine
months ended March 31, 1998 and approximately $672,000 for the nine months ended
March 31, 1997. 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 $1.8 million at March 31, 1998 and
approximately $435,000 at June 30, 1997.
Working capital has been utilized to fund operations.
On July 14, 1997, the Company issued 771,833 units, each unit
consisting of one share of common stock, par value $.01 per share and one Series
C, Common Stock purchase warrant. As a result, the Company raised $1,552,116 net
of discounts, commissions and offering costs of $184,508.
During the nine months ended March 31, 1998, 26,000 options and 97,722
warrants were exercised. As a result the Company raised $313,219. The Company
also issued 147,800 shares of common stock, par value $.01 on March 31, 1998 for
a net amount of $355,250, which includes accrued royalties due to an officer
which were exchanged for common stock at a value of $2.50 per share. As of March
31, 1998, the amount receivable on this issuance was $308,850.
Currency Fluctuation
Currency fluctuations were insignificant to the Company's operations
for the nine months ended March 31, 1998 and 1997. 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, 1998 and 1997.
- 8 -
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, 1998.
- 9 -
EXHIBIT I
IONIC FUEL TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
Three Months Ended Nine Months Ended,
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
Net loss $( 318,690) $( 301,421) $( 942,790) $( 736,266)
========== ========= ========= =========
Average common shares
outstanding 6,298,797 5,400,000 6,185,667 5,400,000
========= ========= ========= =========
Net loss per common share $( 0.05) $( 0.06) $( 0.15) $( 0.14)
============ ============= ============ ============
Net loss per common share-diluted $( 0.05) $( 0.06) $( 0.15) $( 0.14)
============ ============= ============ ============
- 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: May 15, 1998 Douglas Johnston
Chairman and Chief Financial Officer
Date: May 15, 1998 Anthony Garner
President, Chief Executive Officer
and Director