United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|x| Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended December 31, 1998
or
|_| Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Transition Period From __________ to _________
Commission file number 1-13234
Ionic Fuel Technology, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1333140
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 Delaware Avenue, Suite 1704
Wilmington, Delaware 19801-1622
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(302) 427-5957
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements, for the past 90 days. Yes |X| No |_|
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes |_| No |_|
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date
Common Stock, $.01 Par Value - 6,444,955 shares as of December 31, 1998
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - December 31, 1998 and June 30, 1998
Consolidated statements of operations - Three months ended December 31,
1998 and 1997; six months ended December 31, 1998 and 1997
Consolidated statements of cash flows - Six months ended December 31,
1998 and 1997
Notes to consolidated financial statements - December 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1998 1998
------------ ------------
Assets (Unaudited) (Audited)
Current assets
Cash and cash equivalents (Note 2) $ 296,067 $ 1,082,872
Trade accounts receivable 115,015 66,839
Inventory (Note 3) 427,666 348,496
Prepaid expenses 86,963 133,068
------------ ------------
Total current assets 925,711 1,631,275
Equipment and vehicles, net of accumulated
depreciation of $511,204 at December 31, 1998
and $480,174 at June 30, 1998 241,377 245,551
Patents, net 534,867 550,891
------------ ------------
Total assets $ 1,701,955 $ 2,427,717
============ ============
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 68,006 $ 87,324
Accrued expenses 192,734 115,920
Provisions for warranties and returns 51,391 20,272
Accrued royalty, due to officer 14,400 4,800
Current portion of royalty agreement 23,125 21,464
Accrued salary, benefits and payroll taxes 21,025 19,834
Current portion of capital lease obligations 38,806 38,121
------------ ------------
Total current liabilities 409,487 307,735
Long-term liabilities
Long-term obligations less current portion 50,199 68,362
Other long-term liabilities 313,021 325,014
------------ ------------
Total long-term liabilities 363,220 393,376
Stockholders' equity
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 6,444,955 shares 64,450 64,450
Capital in excess of par value 13,047,558 13,047,558
Accumulated deficit (12,045,109) (11,251,823)
Cumulative translation adjustment (137,651) (133,579)
------------ ------------
Total stockholders' equity 929,248 1,726,606
------------ ------------
Total liabilities and stockholders' equity $ 1,701,955 $ 2,427,717
============ ============
See accompanying notes
Note: The balance sheet at June 30, 1998 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>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales $ 3,023 $ 64,496 $ 60,507 $ 83,633
Rental 86,270 82,996 164,678 176,928
----------- ----------- ----------- -----------
Total revenues 89,293 147,492 225,185 260,561
Cost of revenues
Sales 44,870 57,963 99,129 108,750
Rental 138,092 138,099 302,074 261,921
----------- ----------- ----------- -----------
Total cost of revenues 182,962 196,062 401,203 370,671
----------- ----------- ----------- -----------
(93,669) (48,570) (176,018) (110,110)
Operating expenses
General and administrative 232,346 229,339 427,954 387,630
Sales and marketing 85,996 38,964 165,865 86,653
Research and development 2,414 25,195 13,043 36,694
----------- ----------- ----------- -----------
320,756 293,498 606,862 510,977
----------- ----------- ----------- -----------
Operating (loss) (414,425) (342,068) (782,880) (621,087)
Other income (expense)
Interest income 5,948 10,897 15,262 24,085
Interest expense (12,738) (13,466) (25,668) (27,098)
----------- ----------- ----------- -----------
(6,790) (2,569) (10,406) (3,013)
----------- ----------- ----------- -----------
Net (loss) $ (421,215) $ (344,637) $ (793,286) $ (624,100)
=========== =========== =========== ===========
Net (loss) per share $ (0.07) $ (0.06) $ (0.12) $ (0.10)
=========== =========== =========== ===========
Weighted average number of
common shares 6,444,955 6,196,295 6,444,955 6,130,332
=========== =========== =========== ===========
</TABLE>
See accompanying notes
-4-
<PAGE>
IONIC FUEL TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
1998 1997
----------- -----------
Operating activities
Net (loss) $ (793,286) $ (624,100)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 35,573 11,042
Amortization 33,146 31,864
Changes in operating assets and liabilities:
Accounts receivable (48,400) (83,577)
Other receivables 10,145 6,667
Inventory 45,058 10,546
Prepaid expenses 35,661 20,599
Accounts payable and accrued expenses 16,936 22,495
----------- -----------
Net cash used by operating activities (665,167) (604,464)
Investing activities
Acquisition of equipment (74,194) --
Acquisition of patents (17,122) (8,009)
----------- -----------
Cash used by investing activities (91,316) (8,009)
Financing activities
Principal payments on capital leases (17,191) --
Principal payments under licensing agreement (10,332) (8,901)
Net proceeds from issuance of stock -- 1,865,335
----------- -----------
Net cash provided (used) by financing activities (27,523) 1,856,434
Effects of exchange rate differences on cash (2,799) (1,596)
----------- -----------
Increase (decrease) in cash and cash equivalents (786,805) 1,242,365
Cash and cash equivalents, beginning of period 1,082,872 191,629
----------- -----------
Cash and cash equivalents, end of period $ 296,067 $ 1,433,994
=========== ===========
Interest paid $ 25,668 $ 27,098
=========== ===========
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, 1998
1. 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, 1998 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 1999. 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, 1998.
2. Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
3. Inventory
Inventory is comprised of the following:
December 31, June 30,
1998 1998
---- ----
Material and supplies $167,419 $149,367
Finished goods 260,247 199,129
-------- --------
$427,666 $348,496
======== ========
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, 1998 and December 31, 1997
Total revenues decreased to approximately $225,000 during the six month
period ended December 31, 1998 from approximately $261,000 for the six month
period ended December 31, 1997.
The decrease of approximately $36,000 in revenues related primarily to a
decrease in sales revenue.
Gross profit decreased to a loss of approximately $176,000 during the six
months ended December 31, 1998 (loss of $110,000 in 1997) due to an increase in
service department personnel.
General and administrative expenses increased to approximately $428,000
during the six months ended December 31, 1998 from approximately $388,000 during
the six months ended December 31, 1997.
The increase of approximately $40,000 in general and administrative
expenses related to an increase in financial public relations expenses, legal
expenses, and vehicle and travel expense.
Sales and marketing expenses increased to approximately $166,000 during
the six months ended December 31, 1998 from approximately $87,000 during the six
months ended December 31, 1997, an increase of $79,000 principally due to an
increase in marketing promotion, recruitment costs and an additional sales
person.
Research and development decreased to approximately $13,000 during the six
months ended December 31, 1998 from approximately $37,000 during the six months
ended December 31, 1997 principally due to a decrease in expenses related to a
design project nearing completion.
Other expense (net) increased to approximately $(10,000) during the six
months ended December 31, 1998 from approximately $(3,000) of net expenses
during the same period in 1997, due to a decrease in interest income.
Three Months Ended December 31, 1998 and December 31, 1997
Total revenues decreased to approximately $89,000 during the three month
period ended December 31, 1998 from approximately $147,000 for the three month
period ended December 31, 1997.
The decrease of approximately $58,000 in revenues related to a decrease in
sales revenue.
Gross profit decreased to a loss of approximately $94,000 during the three
months ended December 31, 1998 (loss of $49,000 in 1997) due to a decrease in
sales revenue.
General and administrative expenses remained approximately the same.
-7-
<PAGE>
Sales and marketing expenses increased to approximately $86,000 during the
three months ended December 31, 1998 from approximately $39,000 during the three
months ended December 31, 1997, an increase of $47,000 principally due to an
increase in marketing promotion and recruitment costs.
Research and development expenses decreased to approximately $2,000 during
the three months ended December 31, 1998 from approximately $25,000 during the
three months ended December 31, 1997 due to a decrease in expenses related to a
design project nearing completion.
Other expense (net) increased to approximately $7,000 during the three
months ended December 31, 1998 from approximately $3,000 of net expense during
the same period in 1997, due to a decrease in interest income.
Liquidity and Sources of Capital
Net cash used by operations was approximately $670,000 for the six months
ended December 31, 1998 and approximately $600,000 for the six months ended
December 31, 1997. Cash was utilized in all departments, i.e. sales, marketing,
administration and ongoing product enhancement in the United Kingdom and Europe.
Working capital was approximately $520,000 at December 31, 1998 and
approximately $1.3 million at June 30, 1998. Working capital has been utilized
to fund operations. The Company intends to raise additional equity capital
during the third fiscal quarter in order to fund continuing working capital
requirements. If additional capital is not raised, operations will be curtailed.
Currency Fluctuation
Currency fluctuations were insignificant to the Company's operations for
the six months ended December 31, 1998 and 1997. The Company operates in the
United States and United Kingdom (Pound Sterling); sales and rentals may also be
denominated in other currencies, such as the French Franc, the Belgian Franc,
the Dutch Guilder and the German Mark. Changes in the exchange rates of these
currencies could affect the Company's operations and cash flows. Currently, the
Company does not enter into any derivative contracts to hedge these risks.
Inflation
Inflation has not had a significant impact on the results of the Company's
operations for the six months ended December 31, 1998 and 1997.
Year 2000 Readiness
The Corporation has taken action to understand the nature and extent of
the work required to make its computer-based systems that interface with
vendors, customers and others ready for the Year 2000. The Corporation has begun
to update hardware and software utilizing internal resources. Much of the
Corporation's software currently in use is Year 2000 compliant, and accordingly,
Year 2000 issues are not expected to have a material impact on the Corporation's
future financial condition. As of December 31, 1998, the Corporation has
expensed approximately $3,000 on costs associated with Year 2000 issues, and the
Corporation expects to incur additional expenses of approximately $21,000 in
1999.
-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:
(11) 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, 1998.
-9-
<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 10, 1999 /s/ Douglas F. Johnson
------------------------------------
Chairman and Chief Financial Officer
Date: February 10, 1999 /s/ Anthony J.S. Garner
------------------------------------
President, Chief Executive Officer
and Director
-10-
EXHIBIT 11
IONIC FUEL TECHNOLOGY, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended,
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (421,215) $ (344,637) $ (793,286) $ (624,100)
Average common shares
outstanding 6,444,955 6,196,295 6,444,955 6,130,332
----------- ----------- ----------- -----------
Net loss per common share $ (0.07) $ (0.06) $ (0.12) $ (0.10)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 707,439
<SECURITIES> 0
<RECEIVABLES> 118,986
<ALLOWANCES> 0
<INVENTORY> 445,063
<CURRENT-ASSETS> 1,371,904
<PP&E> 743,759
<DEPRECIATION> 500,659
<TOTAL-ASSETS> 2,166,586
<CURRENT-LIABILITIES> 426,757
<BONDS> 0
0
0
<COMMON> 64,450
<OTHER-SE> 1,296,246
<TOTAL-LIABILITY-AND-EQUITY> 2,166,586
<SALES> 57,484
<TOTAL-REVENUES> 135,892
<CGS> 218,241
<TOTAL-COSTS> 286,106
<OTHER-EXPENSES> (9,314)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,930
<INCOME-PRETAX> (372,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> (372,071)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (372,071)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
