10-Q 1 a2049469z10-q.txt 10-Q United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended MARCH 31, 2001 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 - 22,518,796 shares, 189,000 Underwriters' warrants, 150,000 Consultant's Warrants, 270,200.059 Series D Warrants and 100,000 Broker's Warrants outstanding as of March 31, 2001. IONIC FUEL TECHNOLOGY, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets - March 31, 2001 and June 30, 2000 Consolidated statements of operations - Three months ended March 31, 2001 and 2000; nine months ended March 31, 2001 and 2000 Consolidated statements of cash flows - Nine months ended March 31, 2001 and 2000 Notes to consolidated financial statements - March 31, 2001 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

SEE ACCOMPANYING NOTES NOTE: THE BALANCE SHEET AT JUNE 30, 2000 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)

SEE ACCOMPANYING NOTES - 4 - IONIC FUEL TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SEE ACCOMPANYING NOTES - 5 - IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2001 1. GOING CONCERN Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses, and its operations have not produced positive cash flow. As such, this condition raises substantial doubt about the Company's ability to continue as a going concern. During the past period, the principal use of the Company's cash has been to fund its operating losses. The Company has been utilizing approximately $70,000 per month to fund operations. In the three month period, the Company raised $130,500 to assist in the funding of operations, through a shareholder's loan. The Company also intends to raise additional capital in the form of a 6% Debenture note with detachable warrants - please see note 2 below. The Company considers that this additional funding, together with positive cash flows which are expected to be generated from trading operations in the next twelve months, will be sufficient to meet the Company's capital requirements, although no assurances can be given and the Company may need to raise additional capital to fund operations or, if this capital is not secured, it may be necessary to substantially curtail or cease operations. 2. SUBSEQUENT EVENTS The Company, at the date of issue of this report, has received signed agreements, in the form of a 6% Debenture note with detachable warrants, for the provision of $115,000, of which $100,000 is a shareholder's loan - see note 1 above. In addition the Company has received commitments for the provision of a further $385,000 of funding to the Company also in the form of a 6% Debenture note with detachable warrants. 3. 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, 2001 are not necessarily indicative of the results that may be expected for the year ending June 30, 2001. 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, 2000. 4. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. 5. INVENTORY Inventory is comprised of the following: MARCH 31 JUNE 30 2001 2000 --------------- ---------- Material and supplies $121,812 $131,609 Finished goods 190,135 201,863 ------- ------- $311,947 $333,472 ======= ======= Included in finished goods inventory are units, at customer sites, on a short-term trial basis. - 6 - IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2001 (Continued) 6. COMPREHENSIVE INCOME The Company's comprehensive income is as follows:

7. EARNINGS PER SHARE

During the nine month period ended March 31, 2001, the Company issued 139,000 share options to employees and 150,000 to a financial public relations firm in lieu of a $30,000 fee for services carried out in the period to April 30, 2001. All were at a fair market value of $0.20. At March 31, 2001 the total number of options outstanding was 795,500. No share options have been included in the calculation of earnings per share as their effect is anti-dilutive. 8. SEGMENT REPORTING The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information in 1998, which changes the way the Company reports information about its operating segments. All prior year's information has been restated to conform with the current year presentation. The Company has two segments, determined geographically and is made up of the operations of the United States and Europe. The European segment makes up a majority of the Company's operations, as it is engaged in the design and assembly of its patented IFT system. -7- IONIC FUEL TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2001 (Continued) 8. SEGMENT REPORTING (CONTINUED) Segment Reporting of the Company is as follows:

- 8 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking statements made in this report 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 developments, risks in product development and market acceptance of and demand for the Company's products, risks associated with foreign sales and other risks detailed in the Company's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS Nine Months Ended March 31, 2001 and March 31, 2000 During the period the Company successfully completed trial demonstrations of both the IFT technology and the MIS (Management Information System) to Dalkia, a worldwide leader in energy and heating systems management. As a result of these trials an agreement was concluded on February 21, 2001 (the Company reported the agreement in a Form 8-K filed on March 16, 2001). The agreement gives the Company an opportunity to significantly increase its activities in France for the rental of IFT Systems and the sale of MIS to Dalkia's selected sites. The additional working capital currently being raised will enable the Company to produce the required IFT systems and to increase both its sales and technical staff. New IFT rentals were received from Janssen Pharmaceutical NV a division of Johnson & Johnson, Ford Motor Company Genk, Interbrew Leuven and Agfa Gavaert NV. Engineering service revenues reached approximately $499,000 during the period compared with nil revenues for the same period of fiscal 2000. This new engineering activity is focused on advising and implementing energy reduction and environmental programs for the customer, utilizing the combined experience that the Company's personnel have obtained over a wide range of combustion and environmental processes. Engineering contracts were received from customers in England, Belgium, France, Germany, Italy and Spain. Considerable success has been achieved in the can manufacturing industry where the Company has developed and installed, in an internal bake oven, a new synthetic conveyor system replacing the existing high energy absorbing metal conveyor. The Company expects further orders following this success at the end of this summer's canning season. The Company's first MIS system was purchased and installed at Interbrew's, Leuven boiler house. Total revenues increased by $277,000 to approximately $786,000 during the nine months period from approximately $509,000 for the same nine months period of fiscal 2000. The increase is the result of the successful introduction of engineering services which generated revenues of approximately $499,000. Gross profit increased by $210,000 to a profit of approximately $131,000 during the nine month period, from a loss of $79,000 in the same nine month period of fiscal 2000, due to the gross profit produced by engineering services and decreases in service department and manufacturing costs. General and administrative expenses increased by $46,000 to approximately $519,000 during the nine month period, from approximately $473,000 during the same nine month period of fiscal 2000. The increase in general and administrative expenses is principally attributed to the costs involved in demonstrating the IFT Technology and concluding the agreement with DALKIA. Sales and marketing expenses increased to approximately $334,000 during the nine months period from approximately $220,000 for the same nine month period of fiscal 2000. - 9 - This increase of approximately $114,000 is due to additional sales cost associated with promoting new products and increased travel costs to develop new contracts in continental Europe. This is partially offset by a decrease in staff, promotional and vehicle expenses. Other expenses (net) decreased to approximately $24,000 during the nine month period, from approximately $29,000 of net expenses during the same nine month period of fiscal 2000, due to a loss on the sale of a vehicle in the prior year. Three Months Ended March 31, 2001 and March 31, 2000 During the period new IFT rental orders were received from Citrique Belgium and Dow Chemicals and a new installation order was received from the Ford Motor Company's Saarlouis plant. The revenues from these new customers will be reflected in the following quarter. The Company is currently in the process of installing both IFT Systems and the MIS programs at five Dalkia sites in France. Meetings are ongoing with Dalkia regional management to identify further sites. As discussed above, engineering services installed the first of a new conveyor system for a leading European can company during the period that has significant energy and environmental advantages over the system it replaced. Discussions are being held to identify other sites where this system can be installed. Total revenues increased to approximately $237,000 during the current three month period, from approximately $217,000 for the same three month period of fiscal 2000. The increase of approximately $20,000 in revenues related to engineering services revenues of $148,000. Gross profit increased by $64,000 to a profit of approximately $45,000 during the current three months period, from a loss of $19,000 in the same period of fiscal 2000, due to the gross profit produced by engineering services and decreases in service department and manufacturing costs. General and administrative expenses increased to approximately $163,000 during the current three month period, from approximately $152,000 during the same period of fiscal 2000. The increase of approximately $11,000 in general and administrative expense related to an increase in personnel costs compared with the previous year. Sales and marketing expenses rose to approximately $162,000 for the period, from approximately $68,000 for the same three months of fiscal 2000. This increase of $94,000 relates to additional costs associated with promoting new products and increased travel costs developing new contracts in continental Europe. This is partially offset by a decrease in staff, promotional and vehicle expenses. LIQUIDITY AND SOURCES OF CAPITAL Net cash used by operations was approximately $655,000 for the nine months ended March 31, 2001 and approximately $617,000 for the nine months ended March 31, 2000. Cash was utilized in all departments (i.e. sales, marketing and administration in the United Kingdom and Europe). Working capital (deficit) was approximately $(181,200) at March 31, 2001 and approximately $(8,000) at June 30, 2000. Working capital has been utilized primarily to fund operations. In September 2000, the Company accepted subscriptions for 2,000,000 shares of common stock at $0.10. As a result, the Company raised approximately $200,000. In December 2000, the Company accepted subscriptions for 1,257,007 shares of common stock at a price of $0.12. As a result, the Company raised approximately $150,000. In the three month period, the Company raised $130,500 to assist in the funding of operations, through a shareholder's loan. The Company also intends to raise additional capital in the form of a 6% Debenture note with detachable warrants ( please see Note 2 above). The Company considers that this additional funding, together with positive cash flows which are expected to be generated from trading operations in the next twelve months, will be sufficient to meet the Company's capital requirements, although no assurances can be given. - 10 - CURRENCY FLUCTUATION Currency fluctuations were insignificant to the Company's operations for the nine months ended March 31, 2001 and 2000. 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 Euro, 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. The principal revenues are generated in pounds sterling, which for the nine months ended March 31, 2001 have been translated to dollars at a rate of $1.44/(pound)1. For the same period last year the conversion rate was $1.6/(pound)1. The fluctuation in the exchange rate should be considered when comparing the revenue for each period. INFLATION Inflation has not had a significant impact on the results of the Company's operations for the nine months ended March 31, 2001 and 2000. - 11 - 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 filed one report on Form 8-k during the nine months ended March 31, 2001. - 12 - 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 14, 2001 /S/ ANTHONY J.S. GARNER ------------------------ ---------------------------------- President and Chief Executive Officer (Name and Title) - 13 -

IONIC FUEL TECHNOLOGY INC 10-Q