Item 1. BUSINESS
INTRODUCTION
The Company is an environmental technology company engaged in the design, assembly, marketing, sale and leasing of its patented, proprietary IFT System designed to reduce harmful airborne emissions from and increase fuel efficiency of heating and power generation systems. The Company currently markets the System to various industries in the U.K. and Europe.
The IFT System, which is attached to a customer's heating or power generation equipment, produces negatively charged ions ("Ions") by passing an air flow over a body of vibrating liquid and into the combustion chamber or air intake of the customer's machinery. The ionized air supply accelerates the normal combustion process. As a result of the improved combustion, the amount of air and fuel supplied to the burner can be reduced while still maintaining a constant measure of power output. This reduction of air and fuel decreases fuel consumption as well as the production of NOx, CO and CO2 and when burning fuel oil, fireside coking and particulate emissions are also reduced.
THE SYSTEM
The IFT System is self contained in a cube-shaped metal cabinet. The System's interior mechanism vibrates the surface of a liquid contained inside the cabinet. The vibrating liquid releases negatively charged Ions that are then delivered to the customer's equipment through a connection placed either adjacent to the boiler's combustion chamber or to the boiler's air intake.
The System is available in eight sizes ranging from 15" x 12" x 16" to 43" x 3 1-5" x 35". Such sizes are suitable for boilers generating from approximately 1,000 lbs of steam per hour to approximately 96,000 lbs of steam per hour. Multiple systems are used when either the boiler has more than one burner or the boiler's power generating capacity exceeds the capacity of the largest IFT System. The System generally requires only a routine servicing every six months and may be leased or purchased.
Typical performance results of the System reveal a reduction fuel consumption ranging from 2.5% to 7%, a reduction in CO2 emissions ranging from 2.5% to 7%, a reduction in CO emissions ranging from 6% to 80%, a reduction in NOx emissions ranging from 6% to 40%. The exact performance of the System depends upon the customer's existing equipment and desired objectives; customers may achieve less favorable results or no improvement if their equipment requires repair or if fuel and air flows cannot be closely controlled. If NOx and CO emissions have been reduced by the use of other equipment, the System may be used to reduce by the use of other equipment, the System may be used to reduce CO2 emissions and fuel consumption. CO2 emission reduction correlates directly with the fuel savings which the IFT System provides.
MARKETING AND SALES
Performance Trials
The Company initially sought to performance test its System in locations where a sale or lease contract could result. It also has performance tested the System in certain locations solely to develop performance test data. The Company has now phased out uncompensated performance testing because the Company's data from its numerous sites supports the claims regarding the benefits offered by the IFT System. The Company has now developed new application software enabling on site performance to be evaluated in real time to show the immediate improvements to the customer resulting in reducing the lead time between performance trials and customer acceptance of the System.
The performance trial results obtained at a customer's location enable the Company to use such results to confirm the price of the IFT System to such customer. In setting the price, the Company considers the potential fuel savings and emissions reduction to be realized by that customer from use of the System, thereby enabling a customer to offset the cost of the System.
The Company has also participated in a laboratory test conducted by The Building Services Research and Information Association ("BSRIA"), an independent U.K. organization. The BSRIA test was instigated and primarily funded by the British government to generate data on the emissions of various power generation systems and ancillary equipment. BSRIA rendered a favorable report on the IFT System and such report was disseminated to BSRIA's members.
Tests were conducted at the Lowenbrau brewery by the German test authority TUV and showed that with the IFT System the boiler was able to operate with less combustion air thereby improving the thermal efficiency. A review on ionisation processes conducted by Portsmouth University sponsored by the Energy Technical Support Unit, ETSU, reported that fuel savings could be achieved by use of the IFT Technology.
During 1998 the company received further endorsements from BP Energy; BP Chemicals; Degussa AG and Texaco following extensive operation of IFT Systems at their respective sites.
Marketing
The Company currently markets the IFT System to (a) large scale commercial power plant and industrial manufacturers such as breweries, oil refiners, textile plants, chemical plants, vehicle manufactures, and paper mills and (b) commercial industrial heat processors including municipal authorities and universities.
The Company had found that its technology was often not readily understood by power plant managers who therefore hesitated to test the IFT System. The Company devised a four step
approach to educate the power generation community about its technology. First, it employed people experienced in boiler and burner applications to market the System. Second, the Company has marketed the System to large multiple plant users, with emphasis on well known international companies, so that such companies may be used as references for other potential customers and also that such customers will consider using the IFT System in their other plants. Third, the Company utilizes the services of a recognized authority in flame chemistry to specifically explain the scientific principles behind the System. Fourth, the Company has introduced a reporting system using sophisticated statistical modeling to present the test results to potential customers in a succinct, concise manner. This reporting system computerizes data derived from testing flue gases, monitors fuel to steam performance and then presents in graphic form the benefits offered by the IFT System to the customer.
Sales and Rentals
The Company has adopted two approaches to its sales efforts. First, it sells directly to industrial users with its own employees in the UK and Belgium supplemented by the use of independent sales agents. Secondly, the Company sells the System though dealers who are assigned a specific territory and compensated on a commission basis. This marketing method is generally used in Europe.
During the year the Company signed agreements with Cockerill Mechanical Industries, a division of Cockerill Sambre, Belgium and BP Energy, the energy management division of BP PLC. CMI is the market leader in boiler servicing in Belgium BP Energy has 70 customers in the United Kingdom.
The Company will rent or sell the System. In the general industrial market customers prefer to rent, in the oil and petrochemical industry the preference is to purchase.
Warranty and Service
The Company provides a one year warranty on parts and labor to purchasers of the System and thereafter servicing under a service contract. Lessees of the system receive service without additional charge within the terms of the rental agreement.
Assembly and Suppliers
The IFT System is assembled in the U.K. at the Company's facility in Laindon, Essex under strict quality control procedures. Although there have been no sourcing problems, the Company has a policy of dual sourcing where this is deemed advantageous for cost and continuity of supply. Single sourcing is currently confined to vibrators and air pumps that are widely produced for use in other industries and therefore readily available.
Research and Development
The Company's research and development efforts are a continuing process and are focused primarily on refining the vibration technology that forms the basis of the IFT System. To that end, the Company has studied such areas as the interaction of the charged particles and the combustion process, the delivery of the charged particles to the combustion chamber, the optimum volume of the charge, the optimum ratio of air to liquid surface and the impact of pressure and temperature on delivery of the charge. The Company's efforts resulted in an enhancement to the patented vibration technology for which a European patent application was filed in January 1994. The company plans to launch an enhanced IFT System in 1999 developed to meet the anticipated requirements of the oil industry, with further developments later in the year following discussions with UK utility companies.
The Company's research and development costs increased to $46,248 during the year ended June 30, 1998 from $3,973 in the year ended June 30, 1997 and $17,532 during the year ended June 30, 1996. This increase is due to new models under development, research and development costs are written off as incurred.
Patents
The first U.S. Patent for the Ion generating technology utilized by the IFT System was issued in 1975 to F.A. Wentworth, Jr. ("Wentworth"). This original technology employed a "bubble" process whereby the air was "bubbled" through liquid to release Ions at the surface of the liquid. A subsequent patent was issued to Wentworth in December 1990 employing a "vibration" process which substantially enhanced the commercial potential of the technology by increasing the negative charge. The "vibration" technology involves vibrating the surface of the water to release the Charged Particles. In January 1994, an additional patent application was filed in Europe on behalf of the company covering an enhancement to the vibration technology. This improved "vibration" technology allows for a more powerful and more consistent negative charge than the initial Wentworth vibration patent. This improvement has been incorporated into the IFT System. The Company filed counterpart applications to its latest European patent application in the United States and several other foreign countries in 1995.
The Company entered into a Royalty Agreement ("Royalty Agreement") dated June 2, 1994 (effective as of December 5, 1991) with Wentworth pursuant to which Wentworth sold all of his interest in the patents relating to the ion generating technology to the Company. As consideration for the assignment and sale, Wentworth received a $50,000 initial payment and a $6,000 per month royalty fee during the life of the patents. In addition, Wentworth purchased 80,000 shares of the Company's Common Stock at $.125 per share in December 1991. Wentworth has retained a security interest in the patent rights transferred to the Company pursuant to the Royalty Agreement.
The Company owns six U.S. Patents, twelve foreign patents and five foreign patent applications covering, in the aggregate, up to twenty different countries. Several of the earlier "bubble" technology patents have expired. However, improvement patents covering the "bubble" technology still exist in the United States and several foreign countries, and the more important
"vibration" technology patents, which form the basis of the IFT System, run to at least 2007. The Company was also granted a patent in Japan.
While the Company intends to vigorously enforce its patent rights against infringement by third parties, no assurance can be given that such rights will be enforceable or will provide the Company with meaningful protection from competitors or that any pending patent applications will be allowed. Even if a competitor's products were to infringe patents owned by the Company, it could be damaging to the Company to enforce its rights because such action would divert funds and resources which otherwise could be used in the Company's operations. No assurance can be given that the Company would be successful in enforcing such rights, that the Company's products or processes do not infringe the patent or intellectual property rights of a third party, or that, if the Company is not successful in a suit involving patents or other intellectual property rights of a third party, a licence for such technology from such third party would be available on commercially reasonable terms, if at all.
Regulations
Concern over environmental pollution has led to legislation introducing tougher and tighter controls on emissions. NOx, for example, is now understood to be a key element in the formation of ground level ozone, widely recognized as a hazard to health and a precursor to urban smog. The problem for industry is to reduce NOx levels as is currently demanded while not increasing emissions of the equally undesirable carbon monoxide or reducing power generation capacity. According to available statistics, approximately 55% of the 20 million tons of annual NOx production comes from utilities, industrial boilers and furnaces, the balance is from motor vehicles. More recently emphasis has been placed on reductions of Carbon Dioxide (CO2), often referred to as "Greenhouse gas" and International programs are being established to achieve reductions of this particular gas.
The Federal Clean Air Act, initially adopted in 1970 and extensively amended in 1990 and European Community regulations require compliance with specified air quality standards and empower government to establish and enforce limits on the emission of various pollutants from specific types of industrial facilities. In the USA, the states have primary responsibility for implementing these standards, and, in some cases, have adopted standards more stringent than those established by Federal regulation.
In general, emitters of pollution are required to obtain permits issued by the appropriate environmental agency. A typical permit would set forth the amount of pollutants that the "source" may emit, mandatory emission control device description and installation deadlines plus monitoring/reporting requirements. Pollution sources may be charged a fee proportional to the amount of pollution the source creates each year. This provides an incentive for the polluter to acquire technology which will reduce its emissions. IFT is working with customers on an individual basis prior to and during its process of negotiating permits where the System "accepted" by such regulatory agencies.
Domestic and international environmental laws and regulations are, and will continue to be, a principal factor affecting demand for the IFT System. Although the Company believes there is a trend toward increasing regulation and enforcement by all levels of government, a decline in enforcement and related expenditures by businesses subject to such laws and regulations could have a significant adverse effect on the demand for the IFT system. In addition, there can be no assurance that the IFT System currently, or as adjusted or enhanced, will enable others to comply with specified or yet unspecified emissions standards implemented by any amendments to present laws and regulations or any future legislation.
Competition
While most other pollution control technologies are aimed at reducing airborne emissions, the Company is not aware of any technology which enhances combustion efficiency and reduces noxious emissions. The technology used by the Company's competitors can be divided into three categories: pre-combustion, combustion and post-combustion.
Pre-combustion techniques include chemical additives, low NOx burners, and water/steam injection added to the fuel. Such techniques can achieve reduction in particulate and NOx emissions but do not result in material fuel savings.
Combustion techniques include air/fuel control systems, chemical additives (i.e. urea injection) and flue gas recirculation. These methods reduce NOx emissions but may result in higher particulate emissions and/or reduced boiler efficiency. Furthermore, they are generally more expensive to install than the IFT System.
Post-combustion systems include precipitators, bag filters and scrubbers. These systems require large capital expenses often involve high maintenance and operating costs and do not address fuel efficiency. Some have the added disadvantage of producing by-products which may present disposal problems.
The IFT technology is not, by itself, a solution to all emissions problems. More frequently the technology is complementary to solutions a customer may wish to utilize. For example, to achieve extremely low NOx emission, ammonia injection might be selected. IFT could enhance combustion efficiency so that less NOx is produced and subsequently less ammonia is required to achieve the final lower NOx level.
While the Company believes that it's System enjoys significant advantages as compared to its competitors' products, many of the Company's competitors have greater resources, both financial and otherwise, than the Company and therefore may be capable of testing, enhancing, marketing and distributing their products on a wider basis than the Company. In addition, future technological developments and novel approaches in the flame combustion field as well as enhancements of current technology will, in all likelihood, create new products and services that directly compete with the IFT
System. There can be no assurance that the Company would not be adversely affected by such technological change.
Item 2.
Item 2. PROPERTY
The Company leases approximately 10,000 square feet of space for its principal executive offices, manufacturing and research and development facilities in Laindon, Essex, U.K. This lease expires in December 2007, the base rent for this facility is approximately $7,743 per month for 1998 to December 2000, with the rent to be reviewed for the January 2001 and January 2005 periods.
The Company maintains one office in New Canaan, Connecticut on a month to month basis at $105 per month and a sales office in Gent, Belgium pursuant to a three year lease at $360 per month plus utilities.
The Company maintains its corporate office in Wilmington, Delaware pursuant to an annual lease with an annual rental of $3,000 plus utilities. The lease was renewed in December 1997 on the same terms.
The Company believes that its facilities are adequate for its present and anticipated needs.
Item 3.
Item 3. LEGAL PROCEEDINGS
Not applicable
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The Company's common stock, Class A and Class B Warrants are quoted on the Nasdaq SmallCap Market and Boston Stock Exchange under the symbols "IFTI", "IFTIW", and "IFTIZ" respectively. The Company is not currently in compliance with all NASDAQ listing requirements.
The table set forth below shows, for the period indicated, the high and low bid quotations on the Nasdaq SmallCap Market for the Company's Securities. These amounts represent quotation between dealers in securities, and do not include retail mark-ups, mark-downs or commissions and may not represent actual transactions.
The Class A Warrants expire September 30, 1998. Bid Period Ended Type of Security High Low
September 1996 Common Stock 2 3/4 1 Class A Warrant 1/4 3/32 Class B Warrant 1/4 3/16
December 1996 Common Stock 21/2 1 Class A Warrant 1/8 3/32 Class B Warrant 3/16 3/32
March 1997 Common Stock 2 3/4 1 5/32 Class A Warrant 3/16 1/16 Class B Warrant 3/16 3/32
June 1997 Common Stock 3 13/16 2 1/8 Class A Warrant 1/8 1/16 Class B Warrant 7/32 1/8
September 1997 Common Stock 3 1 5/8 Class A Warrant 3/32 1/16 Class B Warrant 5/32 1/8
December 1997 Common Stock 5 9/16 2 3/8 Class A Warrant 9/16 3/32 Class B Warrant 9/16 1/8
March 1998 Common Stock 4 1/16 3 Class A Warrant 7/16 9/32 Class B Warrant 3/4 9/32
June 1998 Common Stock 3 1 1/4 Class A Warrant 1/8 1/16 Class B Warrant 5/16 3/32
At September 16, 1998 the number of shareholders of record and in street name of the Company's common stock and Class A Warrants and Class B Warrants were 99, 28 and 29, respectively.
The Company has not paid any cash dividends.
Item 6.
Item 6. SELECTED FINANCIAL DATA
Statement of Operations Year Ended Data: June 30, 1998
Revenues......................... $ 437,650 Cost of Revenues............ 692,952 Operating Expenses.......... 1,106,406 Net (loss)......................... (1,348,156) Net (loss) per share.......... $ (0.22) Weighted average number of common shares......... 6,251,376 Cash dividend per common share............................... --
Balance Sheet Data:
Total assets.............................. $ 2,427,717 Working capital....................... 1,323,540 Long-term liabilities................. 393,376 Total liabilities......................... 701,111 Accumulated deficit................. (11,251,823) Cumulative translation adjustment............................. (133,579) Stockholders' equity................ 1,726,606
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company commenced operations in late December 1991. During 1992, the Company's primary focus was on completing the design and testing of the IFT System. In 1993, the first production equipment was made available and a customer testing program was commenced. Simultaneously, the Company stepped-up its marketing and promotional activities.
In 1993, the Company changed its year end to June 30. During fiscal 1994 the Company increased its staffing levels and acquired the Vapormid business from EcoLab, BVBA, a distributor of the Company's earlier, "bubble technology".
On July 18, 1994 the Company's Initial Public Offering was completed generating net proceeds of $4,768,414. In conjunction with the public offering, the Company increased its operational and marketing activities in an effort to achieve cash flow break even by fiscal year end. This objective was not accomplished in part because of long lead times experienced between initial sales presentations and invoicing, together with a lack of positive test data on three very large pulverized coal facilities. Therefore a sharp reduction in expenses, including staff cuts, was implemented in May which reduced annual costs by approximately $1,200,000 during fiscal 1996.
In early 1996, a leading international oil company completed testing the IFT System in its central research facility with positive results and recommendations to its operating units to utilize the technology. As a consequence, the Company has installed an IFT System on a large Texaco boiler with follow on orders expected. Likewise initial installations have been completed at sites with British Petroleum and Degussa. An average size refinery or petrochemical plant could utilize IFT technology and equipment valued at approximately $1,000,000. During 1998 marketing and alliance agreements were reached with CMI Servicing, a unit of the Cockerill Sambre Group, one of Belgium's largest companies and with BP Energy a unit of BP PLC. In addition Land Rover, a unit of BMW and Degussa were added as new customers.
The additional volume of business can be accommodated within the existing capacity of the Company allowing for increases in material purchases. The attainment of positive cash flow remains the Company's primary financial objective and the immediate focus of operations will be the European community where the IFT technology has achieved market recognition.
Year ended June 30, 1998 and June 30, 1997
Total revenues decreased to approximately $438,000 during the year ended June 30, 1998 from $629,000 in the fiscal year ended June 30, 1997. The net decrease relates to a decrease in system sales to approximately $89,000 ($261,000 in 1997), a decrease in rental income to approximately $349,000 ($368,000 in 1997). The decrease in system sales relates to one purchase in the prior year not repeated in the current year. The decrease in rental income relates to the phasing out of those leases which fell below an acceptable monthly income.
There was a gross loss of approximately $255,000 during the year ended June 30, 1998 compared to a loss of approximately $95,000 during the year ended June 30, 1997. The increased gross loss related primarily to the decline in revenues being greater than the decline in cost of sales, which are primarily fixed. Cost of sales decreased approximately $30,000 to $693,000 ($723,000 for fiscal 1997) whereas revenues decreased by approximately $191,000.
General and administrative expenses increased to approximately $793,000 during the year ended June 30, 1998 from approximately $657,000 in the year ended June 30, 1997, an increase of $136,000. This increase is primarily due to: an increase of approximately $42,000 in stock market related expenses, specifically public relation fees and stock registration fees; an increase of approximately $18,000 in legal and professional fees and an increase of general and administrative expenses that had been allocated to cost of sales in 1997 but not in 1998, due to the reduction in manufacturing activities.
Sales and marketing expenses increased to $217,000 during the year ended June 30, 1998 from approximately $161,000 during the year ended June 30, 1997. The increase of $56,000 is primarily due to additional marketing consulting and staff costs.
Other income was approximately $14,000 during the year ended June 30, 1998 compared to expense of $27,000 during the year ended June 30, 1997, an increase of $41,000, primarily due to an increase in interest income as a result of capital issued during fiscal 1998.
Year ended June 30, 1997 and June 30, 1996
Total revenues increased to approximately $629,000 during the year ended June 30, 1997 from $594,000 in the fiscal year ended June 30, 1996. The net increase relates to a decrease in rental/service income to approximately $368, 000 ($404,000 in 1996), an increase in system sales to approximately $261, 000 ($190,000 in 1996). The decrease in rental income is due to rentals being convened to sales during the year. The increase in system sales is primarily attributable to UK activity in 1997 where larger companies may prefer to purchase the IFT System rather than rent, however system sales occur on an irregular basis.
There was a gross loss of approximately $95,000 during the year ended June 30, 1997 compared to a profit of $57,000 during the year ended June 30, 1996. The gross loss related primarily to field engineering and service costs of approximately $269,000 in 1997 which in the previous year were classified, for nine months, in general and administrative expenses. Total field engineering and service costs were $716,000 in 1996 and $443,000 in 1997. The reduction of $273,000 was from staff reductions in the United States and Belgium and the transfer of support activities to England. Other items in cost of goods sold in the aggregate, were reduced $83,000 for the year ended June 30, 1997. The different classification relates to the maturing of the company's technology from a development state requiring extensive engineering support to complete the sales process to a mature product. The Company has discontinued free or conditional testing and all trial installations are paid for by the customer.
General and administrative expenses decreased to approximately $657,000 during the year ended June 30, 1997 from approximately $1,230,000 in the year ended June 30, 1996, a reduction of $573,000. Field engineering and service costs of $541,000, which represents nine months of charges in the year ended June 30, 1996, are no longer classified as general and administrative as stated above. Other items in the aggregate were reduced $32,000.
Sales and marketing expenses decreased to $161,000 during the year ended June 30, 1997 from approximately $362,000 during the year ended June 30, 199 6. The decrease of $201 ,000 is primarily due to the termination of sales and marketing arrangements in Eastern Europe and Germany and the substitution of geographic coverage by existing sales staff and top management.
Other expense of approximately $27,000 during the year ended June 30, 1997 decreased from income of $49,000 during the year ended June 30, 1996, a decrease of $76,000 primarily due to the use of funds in operations of the Company and reduced interest income.
Liquidity and Capital Resources
Since inception, the Company's funding requirements have been met through the initial public offering of equity securities totaling approximately $4.8 million, the private placement of equity securities totaling approximately $6 million, and revenue generated from operations. On July 14, 1997 the Company sold an additional 771,833 common shares with net proceeds of $1,552,116 and on March 31, 1998 the Company sold an additional 147,800 shares of common stock with gross proceeds of $300,750.
Net cash used in operations was approximately $1.2 million, $900,000 and $1.3 million for the years ended June 30, 1998, 1997 and 1996, respectively. The principal use of cash was to fund operating losses incurred by the company in developing the IFT system and sales, marketing and promotional activities. Working capital was approximately $1.3 million, $435,000 and $1.3 million at June 30, 1998, 1997 and 1996, respectively. Fluctuations in working capital have been primarily due to fluctuations in cash, decreases in accounts payable and other accruals.
The Company liquidated its U.S. Treasury investments during the year ended June 30, 1996. Capital expenditures amounted to approximately $88,000 and $29,000 during fiscal years 1998 and 1997, respectively. There were no capital expenditures during the year ended June 30, 1996. Capital expenditures were associated with the purchase of equipment used in manufacturing as well as expenditures incurred to produce rental equipment.
Under an Assignment and Royalty Agreement with the inventor of the Technology utilized by the Company's System ("Royalty Agreement"), the Company is required to make payments of $6,000 per month to the inventor over the remaining life of patents relating to the technology. In conjunction with the Royalty Agreement, the Company pays an executive officer/director of the Company a royalty override of $5,000 per month.
The Company believes that the proceeds from the above offerings together with anticipated funds from operations, will satisfy the company's working capital requirements and capital expenditures through fiscal 1999. The Company intends to focus its operations primarily on continued expansion within the European Community.
Currency Fluctuation
The Company's revenues are invoiced primarily in Pounds Sterling and also currencies of other European countries (Belgium, Austria and Germany). With the recent introduction of the European common currency, the euro, the Company also expects to invoice revenues in this currency for those sales to States within Europe who have joined the European Monetary System. Revenues invoiced to customers within the United Kingdom will continue to be in Pounds Sterling. Changes in exchange rates of these currencies relative to the U.S. dollar could affect the Company's operations and cash flow. During the fiscal years ended June 30, 1998 and 1997, currency fluctuations were not significant and were not an influence on the Company's revenues and expenses. Currently, the Company does not enter into derivative contracts to hedge currency risks.
During the year ended June 30, 1998 the average rate of exchange used to translate revenues and expenses denominated in Pounds Sterling has remained at approximately 1.65 U.S. dollars to 1 Pound Sterling, consistent with the year ended June 30, 1997.
Inflation
The Company does not believe that inflation has had a significant impact on the results of its operations since inception.
Forward-Looking Statements
Forward-looking statements made in this Annual Report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties including without limitation risks in technology development, risks in product development and market acceptance of and demand for the
Company's products, risks associated with the competition and competitive pricing pressures, risks associated with foreign sales and other risks detailed in the Company's filings with the Securities and Exchange Commission.
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs that have time or date sensitive software may recognize a date defined as "0(Y' as being the Year 1900 rather than the Year 2000. This could cause system failure, miscalculations or other disruptions of operations, including, among other things an inability to process transactions, obtain supplies or raw materials from vendors or otherwise engage in normal business activities.
The Company has reviewed the impact of the Year 2000 on both the hardware and software applications affecting the Company's operations. Based on such review. management does not expect the cost of any required software changes to have a material impact on the Company's operations and such changes can be implemented prior to the Year 2000 in the normal course of business. Management cannot predict the impact of the Year 2000 on its vendors business or whether such impact will have a material effect on the Company's operations.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and the financial statement schedule set forth in Item 14 of this annual report.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART IV
Item 14.
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
Page A. (1) Financial Statements
Report of Independent Auditors
Consolidated Balance Sheet - June 30, 1998 and 1997
Consolidated Statement of Operations - Years Ended June 30, 1998, 1997 and 1996
Consolidated Statement of Stockholders' Equity - Years Ended June 30, 1998, 1997 and 1996
Consolidated Statement of Cash Flows - Years Ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Ionic Fuel Technology, Inc. is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(3) Exhibits
3.1 Certificate of Incorporation Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
3.2 By-Laws Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
4.1 Specimen Certificate of Common Stock Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
4.2 Specimen Certificate of A Warrant Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
4.3 Specimen Certificate of B Warrant Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
10.1 Stock Option Plan Incorporated by reference to the filing of such Exhibit with Registrants Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
B. Reports on Form 8-K
Form 8-K dated July 10, 1997 electronically filed and accepted on July 15, 1997; Accession No. 0001012118-97-000095. Reference Item 5. Other Events: On July 10, 1997, the Registrant concluded a private placement of Units pursuant to Regulation S promulgated under the Securities Act of 1933, as amended.
Form 8-K dated July 24, 1997 electronically filed and accepted on July 24, 1997; Accession No. 0001012118-97-000105. Item 5, Other Events: Extending the expiration date of the Class A Warrants.