<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 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)
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 July 31, 2000, as reported on the OTC Bulletin Board, was
$8,083,728.
Number of shares of common stock outstanding as of July 31, 2000:
18,537,698
1
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
Index to Quarterly Report
on Form 10-Q/A2
Part I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Balance Sheets - June 30, 2000 and December 31, 1999 3
Statements of Operations - Three Month and Six Month
Periods Ended June 30, 2000 and 1999, and From
Inception (April 9, 1996) to June 30, 2000 4
Statement of Stockholders' Equity (Deficit) - Six
Months Ended June 30, 2000 5
Statements of Cash Flows - Six Months Ended June 30,
2000 and 1999, and From Inception (April 9, 1996)
to June 30, 2000 6
Notes to Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Part II - OTHER INFORMATION
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 17
Item 4 - Submissions of Matters to a Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 17
2
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS (Note 2) 2000 1999
-----------------------------------------------------------------------------------------
(Unaudited
as restated)
<S> <C> <C>
Current Assets
Cash $ 7,743 $ 26,846
Employee receivable - 468
Note receivable, stockholder - 15,000
Discount on notes payable to stockholders, net (Note 3) 332,135 -
Prepaid expenses 38,909 12,719
------------ ------------
Total current assets 378,787 55,033
------------ ------------
Property and Equipment
Machinery and equipment 15,505 15,505
Accumulated depreciation (3,983) (2,374)
------------ ------------
Total property and equipment 11,522 13,131
------------ ------------
$ 390,309 $ 68,164
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 266,745 $ 110,691
Accounts payable-stockholders - 187,095
Accrued expenses 102,246 3,406
Accrued interest expense 3,822 -
Notes payable to stockholder - 62,500
Notes payable to stockholders (Note 3) 105,000 -
------------ ------------
Total current liabilities 477,813 363,692
------------ ------------
Long-Term Liabilities
Notes payable to stockholder (Note 3) 162,500 -
------------ ------------
Commitments and Contingencies
Stockholders' Deficit (Notes 2 and 4)
Common stock, $.01 par value; authorized, 150,000,000,
18,537,698 and 16,818,339 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 185,377 168,184
Discount on common stock (819,923) (816,923)
Additional paid-in capital 18,009,732 14,760,243
Deficit accumulated during the development stage (17,625,190) (14,407,032)
------------ ------------
Total stockholders' deficit (250,004) (295,528)
------------ ------------
$ 390,309 $ 68,164
============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
Three Months Six Months (April 9, 1996)
Ended Ended Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(as restated) (as restated) (as restated)
Revenues $ - $ $ $ $ -
Cost of Revenues - - - - -
----------- ----------- ----------- ----------- -----------
Gross Profit - - - - -
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Advertising and marketing 3,085 5,854 13,813 11,525 37,832
Board meeting expense (Note 4) - - 117,216 - 117,216
Consulting (Note 4) 103,383 90,000 278,632 91,500 7,636,896
Insurance 7,824 - 16,571 - 16,571
Investment advisory fee 109,688 - 1,251,413 - 1,251,413
Office 5,620 4,867 8,805 4,993 63,959
Other 13,194 52,301 20,231 53,290 127,730
Payroll (Note 4) 245,467 29,989 1,014,978 93,643 1,582,536
Professional services 183,528 9,152 344,810 12,350 4,137,344
Research and development costs 1,736 232,253 1,736 560,812 1,544,813
Rent - - 5,000 28,367 280,961
Stock transfer fees 705 5,981 1,345 7,067 24,972
Telephone 519 613 2,309 2,385 46,005
Travel 2,640 - 16,882 844 131,757
----------- ----------- ----------- ----------- -----------
Total operating expenses 677,389 431,010 3,093,741 866,776 17,000,005
----------- ----------- ----------- ----------- -----------
Net loss from operations 677,389 431,010 3,093,741 866,776 17,000,005
Interest expense 122,968 20 124,417 19,357 625,185
----------- ----------- ----------- ----------- -----------
Net loss before income taxes 800,357 431,030 3,218,158 886,133 17,625,190
Provision for income taxes - - - - -
----------- ----------- ----------- ----------- -----------
Net loss $ 800,357 $ 431,030 $ 3,218,158 $ 886,133 $17,625,190
=========== =========== =========== =========== ===========
Basic and diluted net loss
per common share $ .04 $ .03 $ .18 $ .07
Weighted average common shares outstanding 17,879,918 12,897,559 17,488,199 12,897,559
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common Discount on Additional During
Stock Stock Common Paid-in Development
Shares Amount Stock Capital Stage Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 16,818,339 $168,184 $(816,923) $14,760,243 $(14,407,032) $ (295,528)
Issuances of common stock for cash and
services (Note 4) 101,800 1,018 - 330,682 - 331,700
Issuances of common stock for compensation
(Note 4) 90,000 900 - 29,388 - 30,288
Issuance of common stock (Note 4) 100,000 1,000 - (1,000) - 0
Issuances of common stock for services (Note 4) 92,559 925 - 277,726 - 278,651
Issuances of common stock for compensation
(Note 4) 200,000 2,000 - 548,000 - 550,000
Issuances of common stock for services (Note 4) 195,000 1,950 - 107,738 - 109,688
Issuance of common stock for services and cash
(Note 4) 390,000 3,900 - 1,141,725 - 1,145,625
Issuance of common stock warrants for notes
payable (Note 3) - 452,730 452,730
Issuance of common stock for services (Note 4) 250,000 2,500 - 216,250 - 218,750
Issuance of contingently issued common stock
(Note 4) 300,000 3,000 (3,000) - - 0
Accrued stock based compensation (Note 4) - - - 146,250 - 146,250
Net loss (as restated) - - - - (3,218,158) (3,218,158)
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 (as restated) 18,537,698 $185,377 $(819,923) $18,009,732 $(17,625,190) $ (250,004)
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
5
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months Inception
Ended Ended (April 9, 1996)
June 30, June 30, to June 30,
2000 1999 2000
-----------------------------------------------------------------------------------------------------------
(as restated) (as restated)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(3,218,158) $(886,133) $(17,625,190)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,609 690 3,983
Stock issued and additional paid in capital
recognized for services and compensation 2,519,507 - 12,469,983
Interest amortization of discount on notes payable 120,898 - 120,898
Interest expense recognized on conversion of debt - - 355,771
Change in assets and liabilities:
Increase in prepaid expenses (26,190) (6,280) (38,909)
Increase in accounts payable 171,522 340,250 282,213
Increase (decrease) in accounts payable-
stockholders (100,000) - 87,095
Increase in accrued expenses and interest 102,662 8,954 248,806
----------------------------------------------------
Net cash used in operating activities (428,453) (542,538) (4,095,571)
----------------------------------------------------
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 investing activities - - (28,971)
----------------------------------------------------
Cash Flows from Financing Activities
Increase in amount due to related party - - 26,500
Increase in due to United States Fuel Technology,
Inc. - - 372,503
Proceeds from common stock issued 204,350 396,450 2,768,028
Proceeds from notes payable 205,000 77,354 1,494,425
Payment on notes payable - - (549,171)
----------------------------------------------------
Net cash provided by financing activities 409,350 473,804 4,132,205
----------------------------------------------------
Net increase (decrease) in cash (19,103) (68,738) 7,743
Cash, beginning 26,846 68,735 -
----------------------------------------------------
Cash, ending $ 7,743 $ - $ 7,743
====================================================
Supplemental Cash Flow Information
Interest paid $ - $ - $ 2,100
====================================================
Taxes paid $ - $ - $ -
====================================================
</TABLE>
See Notes to Financial Statements
6
<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 ("SEC").
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.
IFT is filing this amended Form 10-Q/A2 to reflect the fair value of the equity
instruments issued in connection with a future debt offering as investment
advisory fees expensed in the period of issuance and to present revised December
31, 1999 financial statement information due to the filing of a Form 10-K/A2 for
the nine month period ended December 31, 1999.
In the opinion of management, the information furnished in these financial
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 audited financial statements and notes thereto
included in IFT's transitional report for the period ended December 31, 1999 as
filed with the SEC on Form 10-K/A2 (Commission File No. 000-25367). IFT follows
the same accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
Common shares that are contingently issued are not included in the calculations
of earnings per share or weighted average shares.
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 $1.5 million of additional capital will be required
through the end of this fiscal year. 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. This agreement was amended in June
2000 to raise $1,500,000 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
additionally issued 195,000 shares of common stock to the proposed purchasers of
the convertible debentures in conjunction with an amendment to the convertible
debenture purchase agreement dated June 16, 2000. (See Footnote 4).
7
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Such financing is contingent upon IFT's ability to register the shares of common
stock underlying the warrants and debentures with 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 alternative sources of financing. IFT's
continued existence is dependent upon its ability to resolve its liquidity
shortfall principally by obtaining this additional financing or raising
equity capital. IFT must continue to operate on limited cash flow based upon the
cash it has on its balance sheet and its ability to generate limited funding on
a short-term basis. 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.
Note 3 - Note Payable to Stockholders
In March 2000 ONKAR Corporation, Ltd. ("ONKAR"), a stockholder of IFT, advanced
IFT $50,000 which is due in March 2005 and has an annual interest rate of 6%. In
April 2000 ONKAR advanced IFT $50,000 which is due in April 2005 and has an
annual interest rate of 6%. In addition, IFT has note payable to ONKAR for
$62,500 which is due in November 2004 at an annual interest rate of 6%.
During the three month period ended June 30, 2000 IFT received advances from
stockholders totaling $105,000. The advances are expected to be repaid in the
three month period ending September 30, 2000. In addition to the repayment of
principal each stockholder received a warrant to purchase from IFT up to
25,000 shares of common stock at $.01 per share for each $5,000 in principal
advanced to IFT. The value of the warrants, $452,730, based on the market value
of IFT's common stock on the day(s) the advances were received has been recorded
as a discount on the notes payable to stockholders and as an addition to
additional paid in capital. During the three month and six month periods ended
June 30, 2000, $120,595 was amortized against the discount on notes payable to
stockholders and recognized as interest expense.
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 the other 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. The
market value of the shares on the date of issuance was $331,250. The $131,250
of market value in excess of the cash amount received has been recorded as
consulting expense during the three month period ended March 31, 2000.
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 $87,000 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.
8
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
On February 9, 2000 IFT issued 100,000 common shares related to the Blencathia
merger agreement. IFT determined that these shares were issued to the incorrect
parties and the number of shares issued were incorrect. On May 8, 2000, IFT
agreed to the return of these shares to be canceled with these shareholders. The
shares were outstanding as of June 30, 2000 and the par value of these shares is
reflected in these financial statements as a deduction from additional paid in
capital. See Note 5 for subsequent cancellation.
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.
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 these transactions was $550,000.
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 shares were to be released from escrow and
issued to the purchasers of the convertible debenture in the event of an uncured
default by IFT prior to the closing of the convertible debenture purchase
agreement. The 195,000 shares of common stock were released to the purchasers of
the convertible debenture purchase agreement in conjunction with an amendment to
the convertible debenture purchase agreement dated June 16, 2000, and were
recorded as an investment advisory fee of $109,688 based on the trading price
of IFT's stock.
On March 28, 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 over par
value of these shares, reflected in these financial statements as an investment
advisory fee, has been calculated based on the trading price of IFT's stock
at March 28, 2000 in the amount of $1,141,725.
9
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
On June 19, 2000 IFT issued 250,000 common shares to a director of the company
for consulting services. The value of the shares, $218,750, was recorded to
consulting expense and was based on the trading price of IFT's stock.
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 President and Chief
Operating Officer of IFT until December 31, 2000 at a base annual salary of
$180,000. 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 June 30, 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 $146,250.
Effective October 27, 1999, IFT merged with and into Blencathia Acquisition
Corporation ("Blencathia"). Blencathia had 300,000 shares outstanding at the
time of the merger, which it redeemed and canceled. In exchange for 300,000
shares of Blencathia's common stock, IFT will issue shares of its restricted
common stock. These shares are expected to be sold in an amount sufficient to
provide the former shareholders of Blencathia with proceeds of $500,000, the
negotiated cost of the acquisition.
On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. The 300,000 shares of common stock are
included in the statement of stockholders' deficit for the six months ended June
30, 2000 but are not included in earnings per share and weighted average share
calculations for the three month and six month periods ended June 30, 2000. They
will be included when the shares are sold to provide payment to the shareholders
of Blencathia. The shareholders of Blencathia have represented to the management
of IFT that the 300,000 shares will be sold only with IFT's approval. If the
shares are sold and $500,000 is not generated additional shares may need to be
issued to the shareholders of Blencathia. Based on the June 30, 2000 market
price, $.51, of IFT's common stock, a total of 980,392 shares would need to be
issued to generate the $500,000 proceeds.
Note 5 -- Subsequent Events
During July 2000 IFT canceled 100,000 common shares that had previously been
issued as discussed in Note 4.
On July 26, 2000 IFT issued 100,000 common shares due to the exercise of a
warrant issued in connection with advances received from stockholders.
On August 9, 2000 IFT issued 25,000 common shares due to the exercise of a
warrant issued in connection with advances received from stockholders.
Note 6 -- Supplemental Disclosures of Cash Flow Information
Supplemental non-cash investing and financing activities were as follows:
Six months ended June 30, 2000
------------------------------
During the six month period ended June 30, 2000, IFT reduced a note
receivable-stockholder by $15,000 and an employee receivable by $468 as a
payment on an account payable-stockholder.
During the six month period ended June 30, 2000, IFT issued 27,559 shares of
common stock as a $87,095 payment on accounts payable-stockholder.
Six months ended June 30, 1999
------------------------------
None
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/A2 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 June 30, 2000 and Six Months Ended June 30, 2000 Compared
to the Three Months Ended June 30, 1999 and Six Months Ended June 30, 1999
Total operating expenses from development stage operations were $677,389 for the
three months ended June 30, 2000, as compared to the development stage operating
expenses of $431,010 for the three month period ended June 30, 1999. This
represents an increase of $246,379, or 57.2%, from the prior period. Total
operating expenses from development state operations were $3,093,741 for the six
months ended June 30, 2000, as compared to the development stage operating
expenses of $866,776 for the six month period ended June 30, 1999. This
represents an increase of $2,226,965 increase from the prior period. Increased
development stage operating expenses in the current six month period compared to
the prior six month period are a result of increased payroll expenses of
$921,335, consulting fees of $187,132, board meeting expenses of $117,216,
investment advisory fees of $1,251,413 and professional services expenses of
$332,460 partially offset by decreased research and development costs of
$559,076.
Board meeting expense for the six months ended June 30, 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-telephone 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 June 30, 2000 were $103,383
as compared to $90,000 for the same period in 1999. This represents an
increase of $13,383, or 14.9%, from the corresponding period for 1999.
Consulting expenses during the six months ended June 30, 2000 were $278,632 as
compared to $91,500 for the same period in 1999. This represents an increase
of
11
<PAGE>
$187,132 from the corresponding period in 1999. IFT sold 100,000 common
shares to a company whose sole director is a director of IFT for $200,000.
The market value on the day of issuance for these 100,000 common shares was
$331,250. The $131,250 in market value in excess of the cash amount received
is reflected in these financial statements as consulting expense and
additional paid in capital. The remaining amount of the increase is due to
consultants used in the operations of IFT and in the development of a market
for IFT's common stock. Pursuant to a consulting agreement dated June 5,
2000, IFT issued 250,000 shares of restricted common stock to a company whose
sole director is a director of IFT. The market value on the day of the
agreement was $218,750. The $218,750 in market value is reflected in these
financial statements as consulting expense and additional paid in capital. In
addition, consulting expenses were reduced by $110,367 due to the elimination of
a related party account payable that had previously been recorded to consulting
expenses.
Investment advisory fee expense for the three months ended June 30, 2000 was
$109,688 representing a $109,688 increase over the corresponding period for
1999. Investment advisory fee expense for the six months ended June 30, 2000 was
$1,251,413 representing a $1,251,413 increase over the corresponding period for
1999. On March 28, 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 over par value of these shares, reflected in these financial statements as
an investment advisory fee, has been calculated based on the trading price of
IFT's stock at March 28, 2000 in the amount of $1,141,725. 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 shares were to be released from escrow and issued to the
purchasers of the convertible debenture in the event of an uncured default by
IFT prior to the closing of the convertible debenture purchase agreement. The
195,000 shares of common stock were released to the purchasers of the
convertible debenture purchase agreement in conjunction with an amendment to the
convertible debenture purchase agreement dated June 16, 2000, and were recorded
as an investment advisory fee of $109,688 based on the trading price of IFT's
stock.
Payroll expenses during the three months ended June 30, 2000 were $245,467 as
compared to $29,989 for the same period in 1999. This represents an increase
of $215,478 from the corresponding period of 1999. Payroll expenses during
the six months ended June 30, 2000 were $1,014,978 compared to $93,643 for the
same period in 1999. This represents an increase of $921,335 from the
corresponding of 1999. The increase was primarily due to the Board of
Director's granting a bonus of 100,000 shares of IFT's common stock paid to
each of IFT's President/COO and to its Chief Executive Officer on February 23,
2000, and these shares have been reflected in these financial statements as
payroll expense of $550,000. 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 $180,000, 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 45,000 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. During the three month period ended March 31,
2000, payroll expense from common stock issued totaled $341,500 for the Chief
Executive Officer and $322,000 for the President/COO. During the six month
period ended June 30. 2000, payroll expense from common stock issued totaled
$400,000 for the Chief Executive Officer and $351,250 for the President/COO.
During the six month period ended June 30, 2000, payroll expense from payroll
accruals pursuant to the employment agreements with the President/COO and
Chief Executive Officer totaled $86,633. During the six month period ended
June 30, 2000, payroll tax expense from payroll accruals pursuant to the
employment agreements with the President/COO and Chief Executive Officer
totaled $7,159.
Professional services during the three months ended June 30, 2000 were
$183,528 as compared to $9,152 for the same period in 1999. This represents
an increase of $174,376 over the corresponding period for 1999. Professional
services during the six months ended June 30, 2000 were $344,810 as compared
to $12,350 for the same period in 1999. This represents an increase of
$332,460 over the corresponding period for 1999. The increase is primarily
due to the increased expenses for legal and accounting services, SEC Edgar
filings, research professionals, and the use of a temporary employment service.
Research and development costs during the three months ended June 30, 2000
were $1,736 as compared to $232,253 for the same period in 1999. This
represents a decrease of $230,517, or 99.3% from the corresponding period for
1999. Research and development costs during the six months ended June 30,
2000 were $1,736 as compared to $560,812 for the same period in 1999. This
represents a decrease of $559,076, or 99.7%, from the corresponding period for
1999. The decrease is primarily due to the reduction of the purchase of
testing supplies, rental equipment and decreased testing and laboratory fees.
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Interest expense for the three months ended June 30, 2000 was $122,968 as
compared to $20 for the same period in 1999. This represents an increase of
$122,948 over the corresponding period for 1999. Interest expense for the six
months ended June 30, 2000 was $124,417 as compared to $19,357 for the same
period in 1999. This represents an increase of $105,060 over the
corresponding period for 1999. The increase is primarily due to the amortization
of discounts on notes payable in connection with IFT's issuance of common stock
warrants to stockholders for advances received. The amount amortized during the
three and six month periods was $120,595. During the three and six month periods
ended June 30, 2000 IFT received advances from stockholders totaling $105,000.
The advances are expected to be repaid in the three month period ending
September 30, 2000. In addition to the repayment of principal each stockholder
received a warrant to purchase from IFT up to 25,000 shares of common stock at
$.01 per share for each $5,000 in principal advanced to IFT. The value of the
warrants, $452,730, based on the market value of IFT's common stock on the
day(s) the advances were received has been recorded as a discount on the notes
payable to stockholders to be amortized as interest expense over the expected
repayment period of the advance.
The net loss for the three months ended June 30, 2000 was $800,357 as compared
to the net loss of $431,030 for the three months ended June 30, 1999. This
represents an increase of $369,327, or 85.7% from the prior period. The net
loss per common share for the three months ended June 30, 2000 was $.04 as
compared to the net loss per common share of $.03 for the three months ended
June 30, 1999. The net loss for the six months ended June 30, 2000 was
$3,218,158 as compared to the net loss of $886,133 for the six months ended
June 30, 1999. This represents an increase of $2,332,025 from the prior
period. The net loss per common share for the six months ended June 30, 2000
was $.18 as compared to the net loss per common share of $.07 for the six
months ended June 30, 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 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
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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
$12,469,983 since inception in April 1996, and for the six month period ended
June 30, 2000, totaled $2,519,507. 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 six month period
ended June 30, 2000. Most of these funds have been raised through private
placement transactions. Finally, since IFT's inception, financing totaling
$1,494,425 was raised privately through notes payable to various sources, of
which $549,171 was repaid, $677,754 was converted to common stock, and
$267,500 is recorded as a liability on the June 30, 2000, balance sheet. For
the six months ended June 30, 2000 proceeds from notes payable to stockholders
totaled $205,000.
The cash used in operating activities is $428,453 for the six months ended
June 30, 2000 as compared to cash used in operating activities of $542,539 for
the six months ended June 30, 1999. The primary use of the additional cash in
operations compared to the prior year was for accounts payable. The cash
provided by financing activities was $409,350 for the six months ended June
30, 2000 as compared to $473,804 provided by financing activities for the six
months ended June 30, 1999. Net cash decreased by $19,103 for the six months
ended June 30, 2000 as compared to net cash decreasing by $68,735 for the six
months ended June 30, 1999.
Working capital at June 30, 2000 was ($99,026) as compared to ($308,659) at
December 31, 1999. The primary increase in working capital is due to the
issuance of warrants to stockholders for advances received during the six month
period ended June 30, 2000.
Effective October 27, 1999, IFT merged with and into Blencathia Acquisition
Corporation. Blencathia had 300,000 shares outstanding at the time of merger,
which it redeemed and canceled. In exchange for 300,000 shares of Blencathia's
common stock, IFT will issue Blencathia shares of its restricted common shares.
These restricted common shares are expected to be sold in an amount sufficient
to provide the former shareholders of Blencathia with proceeds of $500,000.
On May 8, 2000 IFT issued 300,000 common shares that were contingently issued
per the Blencathia merger agreement. The 300,000 shares of common stock are
included in the statement of stockholders' deficit for the six months ended June
30, 2000 but are not included in earnings per share and weighted average share
calculations for the three month and six month periods ended June 30, 2000. They
will be included when the shares are sold to provide payment to the shareholders
of Blencathia. The shareholders of Blencathia have represented to the management
of IFT that the 300,000 shares will be sold only with IFT's approval. If the
shares are sold and $500,000 is not generated additional shares may need to be
issued to the shareholders of Blencathia. Based on the June 30, 2000 market
price, $.51, of IFT's common stock a total of 980,392 shares would need to be
issued.
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 $1.5 million over the next year will be necessary in order to
enable us to meet our capital needs. We believe the $1.5 million will be used
as follows: $600,000 for specific testing as part of required regulatory
procedures as set by the Air Resources Board of California ("CARB"), $150,000
for commercial fleet testing programs, $188,000 for initial sales and
marketing efforts, and $562,000 for salary and related administrative expenses
(rent, telephone, etc.). The budget includes officers deferring a portion of
their salary for over the next twelve months. In February 2000, IFT entered
into a convertible debenture purchase agreement to raise $3,000,000 through
the sale of convertible debentures. During June 2000 this agreement was
amended to raise $1,500,000 through the sale of convertible debentures. In
connection with the convertible debenture purchase agreement IFT issued a
warrant for the purchase 390,000 shares of common stock at $.01 per common
share. This warrant was exercised on March 28,2000. IFT additionally issued
195,000 shares of common stock to the purchasers of the convertible debenture
purchase agreement in conjunction with an amendment to the convertible
debenture purchase agreement dated June 16, 2000. 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 alternative sources of financing. IFT's continued existence is dependent
upon its ability to resolve its liquidity shortfall principally by obtaining
this additional financing or raising equity capital. IFT must continue to
operate on a limited cash flow based upon the cash it has on its balance sheet
and its ability to generate limited funding on a short-term basis.
During the three month period ended June 30, 2000 IFT received advances from
stockholders totaling $105,000. The advances are expected to be repaid in the
three month period ending September 30, 2000. In addition to the repayment of
principal each stockholder received a warrant to purchase from IFT up to 25,000
shares of common stock at $.01 per share for each $5,000 in principal advanced
to IFT. The value of the warrants, $452,730, based on the market value of IFT's
common stock on the day(s) the advances were received has been recorded as a
discount on the notes payable to stockholders and as an addition to additional
paid in capital.
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Subsequent Events
During July 2000 IFT canceled 100,000 common shares that had previously been
issued in connection with a the Blencathia merger agreement.
During July 2000 IFT issued 100,000 common shares due to the exercise of a
warrant issued in connection with advances received from stockholders.
On August 9, 2000 IFT issued 25,000 common shares due to the exercise of a
warrant issued in connection with advances received from stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, operations of IFT may be exposed to
fluctuations in interest rates. These fluctuations can vary the costs of
financing, investing and operating transactions. Because the Company had
minimum debt there is no material impact on earnings of fluctuations in
interest.
Item 4. Submission of Matters to a Vote of Security Holders
On June 16, 2000 IFT submitted two matters to a vote of security holders at an
annual meeting. The election of five directors for the ensuring year and the
approval of BDO Seidman, LLP as independent accountants for the year 2000 were
voted on by the required quorum. The five directors recommended by IFT
management were elected to serve for the ensuing year with 9,071,735 votes for,
and 123,395 votes withheld and BDO Seidman, LLP was approved as independent
accountants for the year 2000 with 9,114,619 votes for, 74,563 votes against and
5,948 votes abstained.
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
None
All other items of this report are inapplicable.
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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: December 22, 2000
------------------------------- ----------------------
William J. Lindenmayer
President
By: /s/ Steven D. Walters Date: December 22, 2000
------------------------------- ----------------------
Steven D. Walters
Chief Financial Officer
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