<PAGE>
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 Quarterly Period ended March 31, 2000
[ ] 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: 000-25367
International Fuel Technology, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0357508
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7777 Bonhomme, Suite 1920, St. Louis, Missouri 63105
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 727-3333
--------------
(Registrant's telephone number, including area code)
Blencathia Acquisition Corporation, 1504 R Street, N.W.,
--------------------------------------------------------
Washington, D.C., 20009
-----------------------
(Former name and former address of Registrant)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
Par Value
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 period 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
------ -----
The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant, based upon the average bid and asked price
of the common stock on April 30, 2000, as reported on the OTC Bulletin Board,
was $30,680,070.
Number of shares of common stock outstanding as of April 30, 2000:
17,987,698
Documents Incorporated by Reference: Registrant Form 10-K filed on May 10, 2000
1
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2000
Index to Quarterly Report
on Form 10-Q
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Financial Statements
Balance Sheets - March 31, 2000 and December 31, 1999 3
Statements of Operations - Three Month Periods Ended March
31, 2000 and 1999, and From Inception (April 9, 1996 to March
31, 2000) 4
Statement of Stockholders' Deficit - Three Months Ended March
31, 2000 5
Statements of Cash Flows - Three Months Ended March 31,
2000 and 1999, and From Inception (April 9, 1996 to March 31,
2000) 6-7
Notes to Financial Statements 8-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS (Note 2) 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Current Assets
Cash $ 19,990 26,846
Employee receivable 468 468
Note receivable, stockholder 15,000 15,000
Prepaid expenses 30,088 12,719
Prepaid loan fee (Note 4) 572,813 -
-------------------------------------
Total current assets 638,359 55,033
Machinery and equipment 15,505 15,505
Accumulated depreciation (3,179) (2,374)
-------------------------------------
$ 650,685 68,164
=====================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current Liabilities
Accounts payable $ 766,939 797,786
Accrued expenses 15,549 3,406
Accrued interest expense 1,449 -
Note payable (Note 3) 50,000 -
Notes payable to stockholders 62,500 62,500
-------------------------------------
Total current liabilities 896,437 863,692
-------------------------------------
Commitments and Contingencies
Stockholders' Deficit (Notes 2 and 4)
Common stock, $.01 par value; authorized, 150,000,000,
17,987,698 and 16,818,339 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 179,877 168,184
Discount on common stock (816,923) (816,923)
Additional paid-in capital 17,584,877 14,760,243
Deficit accumulated during the development stage (17,193,583) (14,907,032)
-------------------------------------
(245,752) (795,528)
-------------------------------------
$ 650,685 68,164
=====================================
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months From Inception
Ended (April 9, 1996)
March 31, Through
-------------------------- March 31,
2000 1999 2000
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Cost of Revenues - - -
----------- ----------- -----------
Gross Profit - - -
----------- ----------- -----------
Operating Expenses:
Acquisition expense - - 500,000
Advertising and marketing 10,728 5,671 34,747
Board meeting expense (Note 4) 117,216 - 117,216
Consulting (Note 4) 1,185,724 1,500 8,543,988
Insurance 8,747 - 8,747
Office 3,185 126 58,339
Other 7,037 989 114,536
Payroll (Note 4) 769,511 63,654 1,337,069
Professional services 161,282 3,198 3,953,816
Research and development costs - 328,559 1,543,077
Rent 5,000 28,367 280,961
Stock transfer fees 640 1,086 24,267
Telephone 1,790 1,772 45,486
Travel 14,242 844 129,117
----------- ----------- -----------
Total operating expenses 2,285,102 435,766 16,691,366
----------- ----------- -----------
Net loss from operations 2,285,102 435,766 16,691,366
Interest expense 1,449 19,337 502,217
----------- ----------- -----------
Net loss before income taxes 2,286,551 455,103 $17,193,583
===========
Provision for income taxes - -
----------- -----------
Net loss $ 2,286,551 $ 455,103
=========== ===========
Basic and dilutive net loss
per common share $ .13 $ .04
Weighted average common shares outstanding 17,032,994 12,897,559
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Deficit During
Common Stock Discount on Additional Development
Amount Common Stock Paid-In Capital Stage Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $168,184 $(816,923) $14,760,243 $(14,907,032) $ (795,528)
Issuances of common stock for
services and cash (Note 4) 3,900 - 1,141,725 - 1,145,625
Issuances of common stock for
cash (Note 4) 1,018 - 199,432 - 200,450
Issuance of common stock (Note 4) 1,000 - (1,000) - 0
Issuances of common stock for
services (Note 4) 925 - 277,726 - 278,651
Issuances of common stock for
compensation (Note 4) 2,000 - 548,000 - 550,000
Issuances of common stock for
compensation (Note 4) 900 - 29,388 - 30,288
Issuances of common stock into
escrow (Note 4) 1,950 - 570,863 - 572,813
Accrued stock based compensation
(Note 4) - - 58,500 - 58,500
Net loss - - - (2,286,551) (2,286,551)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $179,877 $(816,923) $17,584,877 $(17,193,583) $ (245,752)
===========================================================================================================================
</TABLE>
See Notes to Financial Statements
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited) From
Three Months Three Months Inception
Ended Ended (April 9, 1996)
March 31, March 31, to March 31,
2000 1999 2000
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(2,286,551) $(455,103) $(17,193,583)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 804 325 3,178
Stock issued and additional paid in capital
recognized for services and compensation 2,059,165 - 12,009,641
Interest expense recognized on conversion of debt - - 355,771
Change in assets and liabilities:
(Increase) decrease in prepaid expenses (17,369) (6,250) (30,088)
Increase (decrease) in accounts payable (30,847) 233,208 766,939
Increase (decrease) in accrued expenses 13,592 87,420 159,818
-----------------------------------------------
Net cash used in operating activities (261,206) (140,400) (3,928,324)
-----------------------------------------------
Cash Flows from Investing Activities
Acquisition of machinery and equipment - - (13,861)
Increase in employee and stockholder receivables - - (15,468)
Cash acquired in connection with the purchase of
United States Fuel Technology, Inc. - - 358
-----------------------------------------------
Net cash (used in) provided by investing activities - - (28,971)
-----------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in amount due to related party - - 26,500
Increase in due to United States Fuel Technology,
Inc. - - 372,503
Proceeds from common stock issued 204,350 - 2,788,028
Proceeds from notes payable 50,000 72,153 1,339,425
Payment on notes payable - - (549,171)
-----------------------------------------------
Net cash provided by financing activities 254,350 72,153 3,977,285
-----------------------------------------------
Net increase (decrease) in cash (6,856) (68,247) 19,990
Cash, beginning 26,846 68,735 -
-----------------------------------------------
Cash, ending $ 19,990 $ 488 19,990
===============================================
Supplemental Cash Flow Information Interest paid $ - $ - 2,100
===============================================
Taxes paid $ - $ - -
===============================================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Non Cash Disclosure of Cash Flow Information
- --------------------------------------------
For the three month period ended March 31, 2000, IFT issued 195,000 shares of
common stock and placed them in escrow pursuant to a convertible debenture
purchase agreement. The value of the shares, $572,813, is recorded as a prepaid
loan fee.
7
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements included herein have been prepared by
International Fuel Technology, Inc. ("IFT"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although IFT
believes that the disclosures are adequate to make the information presented
not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in IFT's transitional report on Form 10-K for the nine
month period ended December 31, 1999. IFT follows the same accounting
policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
Primary earnings per share are based upon the weighted average number of
common shares outstanding during each period.
Note 2 -- Ability to Continue as a Going Concern
IFT's financial statements are presented on the going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. IFT has incurred significant losses since
inception and has limited funds with which to operate. Management anticipates
receiving diploma certification in 2000 from the California Air Resources
Board that its PEERDIESEL(R) product reduces polluting emissions from internal
combustion engines. Shortly thereafter, IFT expects to begin licensing its
product which management believes will generate sufficient revenue to continue
the IFT's operations. However, there is no assurance that IFT will receive
diploma certification or be able to generate sufficient revenue through the
licensing of its product to provide sufficient working capital. Management
believes approximately $3 million of additional capital will be required over
the next two years. Management does not have an estimate of the amount of
revenue necessary to attain positive cash flow. In February 2000, IFT entered
into a convertible debenture purchase agreement to raise $3,000,000 through
the sale of convertible debentures. In connection with the convertible
debenture purchase agreement IFT issued a warrant to purchase 390,000 shares
of common stock. (See Footnote 4) IFT is additionally required to issue
195,000 shares of common stock to place in escrow pending the sale of the
convertible debentures. (See Footnote 4) Such financing is contingent upon
IFT's ability to register the shares of common stock underlying the warrants
and debentures with the Securities and Exchange Commission (the "SEC"). There
can be no assurance that the registration will be granted effectiveness by the
SEC, in which case IFT would be required to seek alternate sources of
financing. IFT's continued existence is dependent upon its ability to resolve
its liquidity shortfall principally by obtaining this additional debt
financing or raising equity capital. IFT must continue to operate on limited
cash flow generated internally. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of IFT to continue as a going concern.
8
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3 -- Note Payable
During March 2000 IFT received an advance of $50,000 from ONKAR Corporation,
Ltd., a stockholder of IFT. It is expected this advance will be repaid during
the year ended December 31, 2000, with interest paid at an appropriate market
rate.
Note 4 -- Stockholders' Deficit
On April 26, 1999 IFT offered all stockholders of record on March 31, 1999 the
right to purchase 900 common shares at $.50 per share. During January 2000
IFT issued 1,800 shares and received proceeds of $450 as a result of this
offering which expired May 28, 1999. The $450 for 900 shares was received
during the nine month period ended December 31, 1999.
During January 2000 IFT issued 100,000 shares of common stock in a private
placement for $200,000 to a company whose sole owner is a director of IFT.
On July 13, 1999 IFT entered into employment agreements with its Chief
Executive Officer and Chief Operating Officer which expire January 31, 2000
with options to extend until July 31, 2000. Under the terms of these
agreements, these officers will each receive base pay of $1,000 per month plus
up to a total of 60,000 and 30,000 shares of IFT's stock, respectively,
payable at the end of the initial term of the agreements. The shares are
earned ratably on a monthly basis. The 90,000 shares earned under these
employment agreements were issued on January 31, 2000.
At December 31, 1999, IFT owed one of its stockholders approximately $89,000
for legal services performed. In February 2000, the stockholder agreed to
accept 27,559 shares of IFT's stock in lieu of cash for the amounts due to
him. The value of the shares issued, $99,901, was based upon the market value
price of the common shares on February 9, 2000.
Effective January 14, 2000 IFT adopted a Consultant and Employee Stock
Compensation Plan. This plan provides that the Board of Directors may award
shares of IFT's stock to officers, directors, consultants and employees as
compensation for services. The maximum number of shares of common stock, which
may be awarded under this plan, is 500,000 shares. During March 2000 IFT
issued a total of 65,000 shares of common stock to five directors as
reimbursement for directors' expenses. The value of these shares, reflected in
these financial statements as payroll expenses for Jonathan Burst and William
J. Lindenmayer in the amount of $55,000 and as board meeting and travel
expenses in the amount of $117,216 and $6,534, respectively, for the remaining
directors, has been calculated based on the trading price of IFT's stock at
February 23, 2000.
During January 2000, IFT entered into an employment agreement with Jonathan R.
Burst to serve as Chief Executive Officer of IFT until December 31, 2000 at a
base annual salary of $180,000. In addition, Mr. Burst is to receive 6,000
shares of common stock each month. During January 2000, IFT entered into an
employment agreement with William J. Lindenmayer to serve as Chief Operating
Officer of IFT until December 31, 2000 at a base annual salary of $125,000.
In addition, Mr. Lindenmayer is to receive 3,000 shares of common stock each
month. The shares are earned ratably on a monthly basis. The stock based
compensation earned through March 31, 2000, reflected in these financial
statements as payroll expense and as additional paid in capital, has been
calculated based on the trading price of IFT's stock at February 1, 2000 in
the amount of $58,500.
On February 23, 2000 the Board of Directors granted Jonathan Burst 100,000
shares of IFT's common stock for his appointment as Chief Executive Officer.
The value of these shares, reflected in these financial statements as payroll
expense, has been calculated based on the trading price of IFT's stock at
February 23, 2000. On February 23, 2000 the Board of Directors awarded an
initial grant of 100,000 shares of IFT's common stock to William Lindenmayer
for his appointment as President and Chief Operating Officer. The value of
these shares, reflected in these financial statements as payroll expense, has
been calculated based on the trading price of IFT's stock at February 23,
2000. The total charged to payroll expense for the transactions was $550,000.
During February 2000 a warrant for 390,000 shares of common stock was
exercised by GEM Global Yield Fund Limited at a cost of $.01 per share. The
value of these shares, reflected in these financial
9
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
statements as consulting expense, has been calculated based on the trading
price of IFT's stock at February 18, 2000 in the amount of $1,145,625.
During February 2000 IFT issued 195,000 shares of common stock and placed them
in escrow in accordance with the convertible debenture purchase agreement
entered into in February 2000. The value of these shares, reflected in these
financial statements as a prepaid loan fee, has been calculated based on the
trading price of IFT's stock at February 18, 2000 in the amount of $572,813.
On February 9, 2000 IFT issued 100,000 common shares related to a consulting
agreement in effect at that time. Subsequent to March 31, 2000 the consulting
agreement has been amended and the 100,000 common shares were recalled and
canceled. The 100,000 common shares are outstanding as of March 31, 2000 and
the par value of these shares is reflected in these financial statements as a
deduction from additional paid in capital.
Note 5 -- Related Party Transactions
At March 31, 2000, IFT was owed $15,000 by one of its stockholders for a short
term advance with interest at 6%. The amount was due December 31, 1999. The
amount has not been paid pending resolution of amounts included in accounts
payable to this stockholder. In addition, the $10,000 rent for the months of
February and March has not been recorded or paid pending resolution of these
amounts. The total amount due to this stockholder included in accounts
payable at March 31, 2000 was $100,000. As of May 5, 2000 IFT is no longer
occupying the office space previously rented from this stockholder.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward looking statements are based largely on IFT's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond IFT's control, including, but not limited to, economic,
competitive and other factors affecting IFT's operations, markets, products
and services, expansion strategies and other factors discussed elsewhere in
this report and the documents filed by IFT with the Securities and Exchange
Commission. Actual results could differ materially from these forward-looking
statements. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this report will
in fact prove accurate. IFT does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
Overview
IFT was incorporated under the laws of the State of Nevada in April 1996, to
develop and commercialize a proprietary scientific process, "Performance
Enhanced Emissions Reduced" ("PEER"), that reformulates various refined fuels,
including #2 diesel fuel, home heating oil, #6 (Bunker) fuel, jet engine fuel
and gasoline to improve combustion efficiency and reduce the amounts of
harmful exhaust emissions from internal combustion engines. The resulting
reprocessed fuels are known as PEERFUEL. IFT is a development stage company,
has had no revenues to date and has raised capital for initial development
through the issuance of its securities and promissory notes.
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999
Total operating expenses from development stage operations were $2,285,102 for
the three months ended March 31, 2000, as compared to the development stage
operating expenses of $435,766 for the three month period ended March 31,
1999. This represents a 424.4% increase from the prior period. Increased
development stage operating expenses in the current period compared to the
prior period are a result of increased payroll expenses, consultant fees,
advertising and marketing expenses, board meeting expenses, travel expenses,
and other expenses related to product development.
Board meeting expense for the three months ended March 31, 2000 were $117,216
representing an increase of $117,216 over the corresponding period of 1999.
On February 23, 2000 the Board of Directors adopted the Director's Stock
Compensation Plan, which provides for an annual award of 10,000 shares of
IFT's common stock to IFT's Board members as reimbursement for their
attendance at the Board meetings and an additional 1,000 shares of IFT's
common stock for any three-telehpone conference call Board meetings attended.
During March 2000, 45,000 shares of IFT's common stock were issued to three,
non-employee, Board members, calculated based on the trading price of IFT's
stock at February 23, 2000 which was $2.75 per share, and are reflected in
these financial statements as Board meeting expense of $117,216 and travel
expense $6,534.
Consulting expenses during the three months ended March 31, 2000 were
$1,185,724 representing an increase of $1,184,224 from the corresponding
period for 1999. This represents an increase of 78,948.3% from the prior
period. IFT entered into a convertible debenture purchase agreement with GEM
Global Yield Fund Limited ("GEM") to raise $3 million through the sale of
convertible debentures. During February 2000 GEM exercised a warrant for
390,000 shares of common stock in connection with the convertible debenture
purchase agreement. The 390,000 shares are reflected in
11
<PAGE>
these financial statements as consulting expense and additional paid in
capital, calculated based on the trading price of IFT's stock at February 18,
2000 which was $2.93 per share.
Research and development costs during the three months ended March 31, 2000
were $0 representing a decrease of $328,559 from the corresponding period for
1999. This represents a decrease of 100% from the prior period. The decrease
is primarily due to the reduction of the purchase of testing supplies, rental
equipment and decreased testing and laboratory fees.
Payroll expenses during the three months ended March 31, 2000 were $769,511
representing an increase of $705,857 from the corresponding period of 1999.
This represents a 1,108.9% increase from the prior period. The increase was
primarily due to the Board of Director's adoption of a Stock Incentive Plan on
February 23, 2000 that consisted of an initial stock award of 100,000 shares
of IFT's common stock paid to each of IFT's President/COO and to its Chief
Executive Officer. Additionally, on February 23, 2000 the Board of Directors
adopted the Director's Stock Compensation Plan, which provided for an annual
award of 10,000 shares of IFT's common stock to Board members as reimbursement
for their attendance at the Board meetings. The President/COO and the Chief
Executive Officer were awarded 10,000 shares of IFT's common stock as Board
members, and these shares have been reflected in these financial statements as
payroll expense of $55,000. The stock-award shares value was calculated based
on the trading price of IFT's stock at February 23, 2000 which was $2.75 per
share. Additionally, on January 31, 2000 IFT extended the employment
agreements with its President/COO and Chief Executive Officer through December
31, 2000. Under these agreements, the President/COO will receive an annual
base salary of $180,000, 3,000 shares of IFT's common stock per month and a
bonus award as deemed appropriate by the Board of Directors of IFT. The Chief
Executive Officer will receive an annual base salary of $180,0000, 6,000
shares of IFT's common stock per month and a bonus award as deemed appropriate
by the Board of Directors of IFT. The employment agreement shares in the
amount of 9,000 are reflected in these financial statements as payroll expense
and additional paid in capital, and the shares value was calculated based on
the trading price of IFT's stock at February 1, 2000 which was $3.25 per
share.
Professional services during the three months ended March 31, 2000 were
$161,282 representing an increase of $158,084 over the corresponding period
for 1999. This represents a 4,943.2% increase from the corresponding period
for 1999. The increase is primarily due to the increased expenses for legal,
accounting, SEC Edgar filings, research professionals, and the use of a
temporary employment service
Interest expense for the three months ended March 31, 2000 was $1,449
representing a decrease of $17,888 over the corresponding period for 1999.
This represents a decrease of 92.5% from the prior period. The decrease is
primarily due to IFT's agreement entered into with certain promissory note
holders on November 1, 1999 to issue 423,537 shares of its common stock by
December 31, 1999 in exchange for the balance of the promissory notes due in
the amount of $704,255 and interest on the notes due in the amount of $142,820
at $2.00 per share. The exchange shares were issued on December 31, 1999 that
reduced interest expense for the three months period ending March 31, 2000.
The net loss for the three months ended March 31, 2000 was $2,286,551 as
compared to the net loss of $455,103 for the three months ended March 31,
1999. This represents a 402.4% increase from the prior period. The net loss
per common share for the three months ended March 31, 2000 was $.13 as
compared to the net loss per common share of $.04 for the three months ended
March 31, 1999.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for years beginning after June 15, 2000
and requires
12
<PAGE>
comparative information for all fiscal quarters of fiscal years beginning
after June 15, 2000. IFT does not expect the adoption of this statement to
have significant impact on its results of operations, financial position or
cash flows.
Year 2000 Matters
The "Year 2000" problem refers to the potential for computational errors or
system malfunctions by computer hardware or software that fail to properly
recognize dates beginning with January 1, 2000, or which fail to recognize
2000 as a leap year. In anticipation of this problem, we implemented a Year
2000 readiness program intended to identify, evaluate and address our Year
2000 exposure.
At the time that this report was prepared, we had not experienced any material
Year 2000 problems with our internal systems and were not aware of any such
problems experienced by our vendors and other service providers. As a result,
no material adverse impact of the Year 2000 problem on our business and
operations was expected at the time of this report, based upon the information
available to us. Although we believe that it is unlikely at the time of this
report, there can be no assurance that any Year 2000 problems will not result
in material cost to us or have a material, adverse impact on our business,
financial condition or results of operations.
Liquidity and Capital Resources
A critical component of IFT's operating plan impacting the continued existence
of IFT is the ability to obtain additional capital through additional debt
and/or equity financing. We do not anticipate IFT will generate a positive
internal cash flow until such time as IFT can generate revenues from license
fees from its PEERFUEL process and/or direct sales of its PEERFUEL products,
either or both of which may take the next few years to realize. In the event
we cannot obtain the necessary capital to pursue our strategic plan, IFT may
have to cease or significantly curtail its operations. This would materially
impact our ability to continue as a going concern.
We have met our capital needs since inception primarily through the issuance
of common stock as compensation for services rendered, which have totaled
$12,009,641 since inception in April 1996, and for the three month period
ended March 31, 2000, totaled $2,059,165. In addition to these amounts, we
have raised $2,788,028 in cash from the issuance of common stock since the
IFT's inception, with $204,350 of this total raised during the three month
period ended March 31, 2000. Most of these funds have been raised through
private placement transactions. Finally, since IFT's inception, financing
totaling $1,081,425 was raised privately through notes payable to various
sources, of which $291,171 was repaid, $677,754 was converted to common stock,
and $112,500 is recorded as a liability on the March 31, 2000, balance sheet.
For the three months ended March 31, 2000 proceeds from notes payable totaled
$50,000.
The cash used in operating activities for the three months ended March 31,
2000 was $261,206 as compared to $140,400 used in operating activities for the
three months ended March 31, 1999. The cash provided by financing activities
was $254,350 for the three months ended March 31, 2000 as compared to $72,153
provided by financing activities for the three months ended March 31, 1999.
Net cash decreased by $6,856 for the three months ended March 31, 2000 as
compared to net cash decreasing by $68,247 for the three months ended March
31, 1999.
While management can not make any assurance as to the accuracy of our
projections of future capital needs, it is anticipated that a total of
approximately $3 million over the next two-year period will be necessary in
order to enable us to meet our capital needs. We believe the $3 million will
be used as follows: $1.2 million for specific testing as part of required
regulatory procedures as set by the Air Resources Board of California
("CARB"), $300,000 for commercial fleet testing programs, $300,000 for initial
sales and marketing efforts, and $1.2 million for salary and related
administrative expenses (rent, telephone, etc.). In February 2000, IFT
entered into a convertible debenture purchase agreement to raise $3,000,000
through the sale of convertible debentures. In connection with the
convertible debenture purchase agreement IFT issued a warrant to purchase
390,000 shares
13
<PAGE>
of common stock. IFT is additionally required to issue 195,000 shares of
common stock to place in escrow pending the sale of the convertible
debentures. Such financing is contingent upon IFT's ability to register the
shares of common stock underlying the warrants and debentures with the
Securities and Exchange Commission (the "SEC"). There can be no assurance that
the registration will be granted effectiveness by the SEC, in which case IFT
would be required to seek alternate sources of financing.
14
<PAGE>
Item 6. Exhibits and Reports of Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
. IFT filed a report on Form 8-K dated January 12, 2000 filing IFT
audited financial statements for March 31, 1999, unaudited
financial statements as of September 30, 1999 and Pro forma
condensed financial statements for the six months ended September
30, 1999 and 1998 as exhibits to the Blencathia merger agreement
. IFT filed a report on Form 8-K dated February 10, 2000 reporting
that their client-auditor relationship with McGladrey & Pullen, LLP
had ceased
. IFT filed a report on Form 8-K dated March 9, 2000 reporting that
they had engaged the services of BDO Seidman, LLP as their new
independent auditors
All other items of this report are inapplicable.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNATIONAL FUEL TECHNOLOGY, INC.
(Registrant)
By: /s/ William J. Lindenmayer Date: May 15, 2000
--------------------------- ---------------
William J. Lindenmayer
President
By: /s/ Patty Foltz Date: May 15, 2000
--------------------------- ---------------
Patty Foltz
Secretary/Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
International Fuel Technology, Inc. March 31, 2000 Form 10-Q and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 19990
<SECURITIES> 0
<RECEIVABLES> 15468
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<CURRENT-ASSETS> 602901
<PP&E> 15505
<DEPRECIATION> (3179)
<TOTAL-ASSETS> 650685
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0
0
<COMMON> 179877
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