United States Securities and Exchange Commission
Washington, D.C. 2054
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the period ended December 31, 1997
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 incorporation (I.R.S. Employer
or organization) Identification No.)
300 Delaware Avenue, Suite 1704
Wilmington, Delaware 19801-1622
(Address of principal executive offices) (Zip Code)
(302) 427-5957
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements, for the past 90 days. Yes X
No ___
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ___ No ___
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practical date
Common Stock, $.01 Par Value - 6,297,155 shares as of
December 31, 1997
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - December 31, 1997 and June 30, 1997
Consolidated statements of operations - Three months ended December
31, 1997 and 1996; six months ended December 31, 1997 and 1996
Consolidated statements of cash flows - Six months ended December 31,
1997 and 1996
Notes to consolidated financial statements - December 31, 1997
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
<PAGE>
PART I. FINANCIAL INFORMATION
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
December 31, June 30,
1997 1997
----------------------------------
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents (Note 2) $ 1,433,994 $ 191,629
Trade accounts receivable 142,584 59,420
Inventory (Note 3) 482,689 482,446
Prepaid expenses 109,678 137,676
----------- -----------
Total current assets 2,168,945 871,171
Equipment and vehicles, net of accumulated
depreciation of $442,883 at December 31, 1997
and $442,105 at June 30, 1997 157,849 153,117
Patents, net 579,148 603,003
----------- -----------
Total assets $ 2,905,942 $ 1,627,291
========= =========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 61,174 $ 87,155
Accrued expenses 254,742 239,827
Provisions for warranties and returns 33,532 16,380
Accrued royalty, due to officer 49,600 40,000
Current portion of royalty agreement 20,172 18,720
Accrued salary, benefits and payroll taxes 23,358 19,419
Current portion of long-term obligations 11,488 14,984
----------- -----------
Total current liabilities 454,066 436,485
Long-term liabilities
Long-term obligations less current portion 35,303 -
Other long-term liabilities 335,896 346,249
----------- -----------
Total long-term liabilities 371,199 346,249
Stockholders' equity:
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 6,297,155 and 5,401,600 shares
respectively 62,972 54,016
Capital in excess of par value 12,693,786 10,837,407
Accumulated deficit (10,527,767) ( 9,903,667)
Cumulative translation adjustment ( 148,314) ( 143,199)
------------ -----------
Total stockholders' equity 2,080,677 844,557
------------ -----------
Total liabilities and stockholders' equity $ 2,905,942 $ 1,627,291
=========== ==========
See accompanying notes
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
- 3 -
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------------ -------------- --------------
Revenues:
Rental income $ 72,272 $ 81,085 $ 156,626 $ 159,767
Service income 35,485 38,013 64,200 66,808
Equipment sales 15,917 151,751 15,917 151,751
Consulting income 23,818 - 23,818 -
--------------- ------------------- ------
Total revenues 147,492 270,849 260,561 378,326
Cost of revenues 196,062 213,957 370,671 395,373
----------- ---------- ---------- ----------
( 48,570) 56,892 ( 110,110) ( 17,047)
- -----------------
Operating expenses:
General and administrative 214,339 162,561 357,630 323,349
Sales and marketing 38,964 52,523 86,653 84,350
Royalty charges 15,000 - 30,000 -
Research and development 25,195 146 36,694 803
---------- ---------- ---------- -----------
293,498 215,230 510,977 408,502
----------- ---------- ---------- ----------
Operating (loss) ( 342,068) ( 158,338) ( 621,087) ( 425,549)
-
Other income (expense):
Interest income 10,897 8,504 24,085 19,035
Interest expense ( 13,466) ( 14,094) ( 27,098) ( 28,331)
----------- ---------- ---------- ----------
( 2,569) ( 5,590) ( 3,013) ( 9,296)
------------ ----------- ----------- ------------
Net (loss) $( 344,637) $( 163,928) $( 624,100) $( 434,845)
========= ========= ======== =========
Net (loss) per share $( 0.06) $( 0.03) $( 0.10) $( 0.08)
============ ============ ============ =============
Weighted average number of
common shares 6,206,795 5,410,500 6,140,832 5,410,500
========= ========= ========= =========
See accompanying notes
- 4 -
</TABLE>
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1997 1996
------------ --------
Operating activities:
Net (loss) $( 624,100) $( 434,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 11,042 41,351
Amortization 31,864 31,465
Changes in operating assets and liabilities:
Accounts receivable ( 83,577) ( 98,508)
Other receivables 6,667 16,103
Inventory 10,546 37,698
Prepaid expenses 20,599 29,918
Accounts payable and accrued expenses 22,495 ( 96,703)
---------- ----------
Net cash used by operating activities ( 604,464) ( 473,521)
Investing activities
Acquisition of equipment - ( 32,200)
Acquisition of patents ( 8,009) ( 1,066)
------------ -----------
Net cash used by investing activities ( 8,009) ( 33,266)
Financing activities
Principal payments under licensing agreement ( 8,901) ( 7,669)
Net proceeds from issuance of stock 1,865,335 -
--------- -------
Net cash provided (used) by financing activities 1,856,434 ( 7,669)
Effects of exchange rate differences on cash ( 1,596) 4,242
------------ ----------
Increase (decrease) in cash and cash equivalents 1,242,365 ( 510,214)
Cash and cash equivalents, beginning of period 191,629 1,173,088
----------- ---------
Cash and cash equivalents, end of period $ 1,433,994 $ 662,874
========= ==========
Supplemental Cash Flow Disclosures
Interest paid $ 27,098 $ 28,331
=========== ============
Noncash investing and financing activity:
Acquisition of equipment by incurring
additional indebtedness $ 29,139 $ -
============ =======
See accompanying notes
- 5 -
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 1997
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended December 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended June 30, 1997.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Inventory
Inventory is comprised of the following:
December 31, June 30,
1997 1997
---- ----
Material and supplies $158,468 $161,817
Finished goods 324,221 320,629
------- -------
$482,689 $482,446
======= =======
Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1997 and December 31, 1996
Total revenues decreased to approximately $261,000 during the six month
period ended December 31, 1997 from approximately $378,000 for the six month
period ended December 31, 1996.
The decrease of approximately $136,000 in equipment sales revenues
relates to one purchase in the prior year not repeated in the current year.
An increase in consulting income of approximately $24,000 relates to a data
logging service for a major company. Service income and rental income remained
approximately the same.
Gross profit decreased to a loss of approximately $(110,000) during
the six months ended December 31, 1997 (loss of $(17,000) in 1996) due to the
decline in total revenues. Cost of sales was relatively constant at $371,000
($395,000 for 1996).
General and administrative expenses increased to approximately
$358,000 during the six months ended December 31, 1997 from approximately
$323,000 during the six months ended December 31, 1996. This increase is
primarily due to a change in the method of internal overhead absorption and
increased legal, professional and accounting costs.
Sales and marketing expenses remained approximately the same.
Research and development expenses increased to approximately $37,000 during
the six months ended December 31, 1997 from approximately $1,000 during the
six months ended December 31, 1996 related to upgrading IFT equipment for
hazardous zone locations.
Other expense (net) decreased to approximately $(3,000) of net expense
during the six months ended December 31, 1997 from approximately $(9,000) of net
expenses during the same period in 1996, due to an increase in interest income.
Three Months Ended December 31, 1997 and December 31, 1996
Total revenues decreased to approximately $147,000 during the three
month period ended December 31, 1997 from approximately $271,000 for the three
month period ended December 31, 1996.
The decrease of approximately $136,000 in equipment sales is described above.
Rental income decreased approximately $9,000 due to the mix of rental contracts.
An increase in consulting income of approximately $24,000 relates to the data
logging contract referred to above.
Gross profit decreased to a loss of approximately $(49,000) during the
three months ended December 31, 1997 (profit of $57,000 in 1996) due to the fall
in overall revenue for the quarter.
General and administrative expenses increased to approximately $214,000 during
the three months ended December 31, 1997 from approximately $163,000 during the
three months ended December 31, 1996. This increase is primarily due to
increased accounting and legal expenses during the quarter, together with a
change in the method of fixed cost apportionment.
- 7 -
<PAGE>
Sales and marketing expenses decreased to approximately $39,000 during
the three months ended December 31, 1997, from approximately $53,000 during the
three months ended December 31, 1996, a decrease of $14,000 principally due to
the decline in sales commissions.
Research and development expenses increased to approximately $25,000
during the three months ended December 31, 1997 from less than $1,000 during the
three months ended December 31, 1996 due to continuing development of both a
Zone 1 and multi-tiered IFT unit.
Other expense (net) decreased to approximately $(3,000) of net expense
during the three months ended December 31, 1997 from approximately $(6,000) of
net expense during the same period in 1996, due to an increase in interest
income.
Liquidity and Sources of Capital
Net cash used by operations was approximately $600,000 for the six
months ended December 31, 1997 and approximately $475,000 for the six months
ended December 31, 1996. Cash was utilized in all departments, i.e. sales,
marketing, administration and ongoing product enhancement in the United Kingdom
and Europe. Working capital was approximately $1.7 million at December 31, 1997
and approximately $450,000 at June 30, 1996. Working capital has been utilized
to fund operations.
On July 14, 1997, the Company issued 771,833 units, each unit
consisting of one share of common stock, par value $.01 per share and one
Series C, Common Stock purchase warrant. As a result, the Company raised
$1,552,116 net of discounts, commissions and offering costs of $184,508.
During the three months ended December 31, 1997, 26,000 options and
97,722 warrants were exercised. As a result the Company raised $313,219.
Currency Fluctuation
Currency fluctuations were insignificant to the Company's operations
for the six months ended December 31, 1997 and 1996. The Company operates in
the United States and United Kingdom (Pound Sterling); sales and rentals may
also be denominated in other currencies, such as the French Franc, the Belgian
Franc, the Dutch Guilder and the German Mark. Changes in the exchange rates
of these currencies could affect the Company's operations and cash flows.
Currently, the Company does not enter into any
derivative contracts to hedge these risks.
Inflation
Inflation has not had a significant impact on the results of the
Company's operations for the six months ended December 31, 1997 and 1996.
- 8 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (Not applicable)
Item 2. Changes in Securities (Not applicable)
Item 3. Defaults upon Senior Securities (Not applicable)
Item 4. Submission of Matters to a Vote of Security Holders
(Not applicable)
Item 5. Other information (Not applicable)
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(1) Statement re: computation of earnings per share
The Company did not file any reports on Form 8-k during the six months ended
December 31, 1997.
- 9 -
<PAGE>
EXHIBIT I
IONIC FUEL TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended,
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Net loss $( 344,637) $( 163,928) $( 624,100) $( 434,845)
---------
Average common shares
outstanding 6,196,295 5,400,000 6,130,332 5,400,000
Incremental shares issuable
pursuant to SAB Topic 4D 10,500 10,500 10,500 10,500
------------- ----------- ----------- ------------
Total shares 6,206,795 5,410,500 6,140,832 5,410,500
========= ========= ========= =========
Net loss per common share $( 0.06) $( 0.03) $( 0.10) $( 0.08)
============= ============ ============ =============
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ionic Fuel Technology, Inc.
(Registrant)
Date: February 12, 1998 Douglas Johnston
Chairman and Chief Fiancial Officer
(Name and Title)
Date: Feburuary 12, 1998 Anthony Garner
President, Chief Executive Officer and
Director
(Name and Title)
- 11 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Company's 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> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,433,994
<SECURITIES> 0
<RECEIVABLES> 142,584
<ALLOWANCES> 0
<INVENTORY> 482,689
<CURRENT-ASSETS> 2,168,945
<PP&E> 600,732
<DEPRECIATION> 442,883
<TOTAL-ASSETS> 2,905,942
<CURRENT-LIABILITIES> 454,066
<BONDS> 0
0
0
<COMMON> 62,972
<OTHER-SE> 2,017,705
<TOTAL-LIABILITY-AND-EQUITY> 2,905,942
<SALES> 15,917
<TOTAL-REVENUES> 147,492
<CGS> 196,062
<TOTAL-COSTS> 293,498
<OTHER-EXPENSES> (10,897)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,466
<INCOME-PRETAX> (344,637)
<INCOME-TAX> 0
<INCOME-CONTINUING> (344,637)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (344,637)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
