x
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Nevada
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88-0357508
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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7777 Bonhomme, Suite 1920
St. Louis, Missouri
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63105
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(Address of principal executive offices)
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(Zip Code)
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(314) 727-3333
(Registrant’s telephone number, including area code)
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(Check one) Large Accelerated Filer o | Accelerated Filer o | ||
Non-Accelerated Filer o | Smaller Reporting Company x | ||
(Do not check if a smaller reporting company)
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PART I. FINANCIAL INFORMATION |
PAGE NO.
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Item 1. |
Financial Statements
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2
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3
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4
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5
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6
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Item 2. |
11
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Item 4. |
20
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PART II. OTHER INFORMATION | ||
Item 1. |
22
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Item 2. |
22
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Item 5. |
23
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Item 6. |
23
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INTERNATIONAL FUEL TECHNOLOGY, INC.
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||||||||
BALANCE SHEETS
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||||||||
September 30,
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December 31,
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|||||||
2011
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2010
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|||||||
ASSETS
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(Unaudited)
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|||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 533,677 | $ | 751,911 | ||||
Accounts receivable, net
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60,631 | 110,464 | ||||||
Inventory
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80,639 | 112,430 | ||||||
Prepaid expenses and other assets
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19,382 | 39,399 | ||||||
Total Current Assets
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694,329 | 1,014,204 | ||||||
Property and equipment
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||||||||
Machinery, equipment and office furniture
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63,706 | 63,706 | ||||||
Accumulated depreciation
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(63,706 | ) | (62,284 | ) | ||||
Net Property and Equipment
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- | 1,422 | ||||||
Goodwill
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2,211,805 | 2,211,805 | ||||||
Total Assets
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$ | 2,906,134 | $ | 3,227,431 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 274,540 | $ | 183,239 | ||||
Accrued compensation
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133,782 | 17,915 | ||||||
Deferred revenue (Note 7)
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2,998,242 | 2,998,242 | ||||||
Other accrued expenses (Note 5)
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190,000 | 190,000 | ||||||
Total Current Liabilities
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3,596,564 | 3,389,396 | ||||||
Deferred income taxes (Note 8)
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578,999 | 530,000 | ||||||
Total Liabilities
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4,175,563 | 3,919,396 | ||||||
Commitments and contingencies
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||||||||
Stockholders' equity (deficit) (Notes 4 and 5)
Common stock, $0.01 par value; 150,000,000 shares authorized; 112,525,284 and 101,342,284 (net of 1,440,000 shares held in treasury) shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
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1,139,653 | 1,027,823 | ||||||
Treasury stock
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(664,600 | ) | (664,600 | ) | ||||
Discount on common stock
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(819,923 | ) | (819,923 | ) | ||||
Additional paid-in capital
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66,090,777 | 64,990,874 | ||||||
Accumulated deficit
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(67,015,336 | ) | (65,226,139 | ) | ||||
Total Stockholders' Equity (Deficit)
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(1,269,429 | ) | (691,965 | ) | ||||
Total Liabilities and Stockholders' Equity (Deficit)
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$ | 2,906,134 | $ | 3,227,431 | ||||
See Notes to Financial Statements.
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INTERNATIONAL FUEL TECHNOLOGY, INC.
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||||||||||||||||
STATEMENTS OF OPERATIONS
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||||||||||||||||
(Unaudited)
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Three Months Ended
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Nine Months Ended
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||||||||||||||
September 30,
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September 30,
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September 30,
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September 30,
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|||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Revenues
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$ | 59,281 | $ | 5,301 | $ | 167,785 | $ | 229,392 | ||||||||
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||||||||||||||||
Operating expenses:
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||||||||||||||||
Cost of operations (exclusive of depreciation)
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41,396 | 2,451 | 115,466 | 85,775 | ||||||||||||
Selling, general and administrative expense (including non-cash stock-based compensation expense) (Note 4)
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673,815 | 574,146 | 1,792,435 | 1,807,256 | ||||||||||||
Depreciation
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- | 1,148 | 1,422 | 3,446 | ||||||||||||
Total operating expenses
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715,211 | 577,745 | 1,909,323 | 1,896,477 | ||||||||||||
Net loss from operations
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(655,930 | ) | (572,444 | ) | (1,741,538 | ) | (1,667,085 | ) | ||||||||
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Interest income
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237 | 952 | 674 | 9,513 | ||||||||||||
Net loss before income taxes
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(655,693 | ) | (571,492 | ) | (1,740,864 | ) | (1,657,572 | ) | ||||||||
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Income tax provision (Note 8)
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16,333 | 16,334 | 48,333 | 49,000 | ||||||||||||
Net loss
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$ | (672,026 | ) | $ | (587,826 | ) | $ | (1,789,197 | ) | $ | (1,706,572 | ) | ||||
Basic and diluted net loss per common share
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
Weighted-average common shares outstanding,
basic and diluted
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111,144,936 | 102,762,284 | 105,611,456 | 102,743,383 | ||||||||||||
See Notes to Financial Statements.
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Common
Stock Shares
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Common Stock
Amount
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Treasury
Stock
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Discount on
Common Stock
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Additional
Paid-in Capital
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Accumulated
Deficit
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Total
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||||||||||||||||||||||
Balance, December 31, 2010
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102,782,284 | $ | 1,027,823 | $ | (664,600 | ) | $ | (819,923 | ) | $ | 64,990,874 | $ | (65,226,139 | ) | $ | (691,965 | ) | ||||||||||||
Proceeds from issuances of stock (Note 4)
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10,283,000 | 102,830 | - | - | 925,470 | - | 1,028,300 | ||||||||||||||||||||||
Common shares issued for services (Note 4)
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900,000 | 9,000 | - | - | 159,000 | - | 168,000 | ||||||||||||||||||||||
Expense relating to non-cash stock-based compensation (Note 4)
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- | - | - | - | 15,433 | - | 15,433 | ||||||||||||||||||||||
Net loss
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- | - | - | - | - | (1,789,197 | ) | (1,789,197 | ) | ||||||||||||||||||||
Balance, September 30, 2011
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113,965,284 | $ | 1,139,653 | $ | (664,600 | ) | $ | (819,923 | ) | $ | 66,090,777 | $ | (67,015,336 | ) | $ | (1,269,429 | ) |
Nine Months Ended
September 30, |
Nine Months Ended
September 30, |
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Cash flows from operating activities: | ||||||||
Net loss | ||||||||
Adjustments to reconcile net loss to net cash used in | ||||||||
operating activities: | $ | (1,789,197 | ) | $ | (1,706,572 | ) | ||
Bad debt provision
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88,655 | - | ||||||
Depreciation
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1,422 | 3,446 | ||||||
Non-cash stock-based compensation
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183,433 | 220,370 | ||||||
Deferred income tax provision
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48,999 | 49,000 | ||||||
Change in assets and liabilities:
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Accounts receivable, net
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(38,822 | ) | (88,049 | ) | ||||
Accrued interest receivable
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- | 8,052 | ||||||
Inventory
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31,791 | 21,938 | ||||||
Prepaid expenses and other assets
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20,017 | 8,246 | ||||||
Accounts payable
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91,301 | (32,962 | ) | |||||
Accrued compensation
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115,867 | 22,352 | ||||||
Other accrued expenses
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- | (120,000 | ) | |||||
Net cash used in operating activities
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(1,246,534 | ) | (1,614,179 | ) | ||||
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Cash flows from investing activities:
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Redemptions of certificates of deposit
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- | 1,000,000 | ||||||
Net cash provided by investing activities
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- | 1,000,000 | ||||||
Cash flows from financing activities:
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Proceeds from issuance of common stock and warrants
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1,028,300 | - | ||||||
Net cash provided by financing activities
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1,028,300 | - | ||||||
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Net decrease in cash and cash equivalents
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(218,234 | ) | (614,179 | ) | ||||
Cash and cash equivalents, beginning
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751,911 | 1,828,024 | ||||||
Cash and cash equivalents, ending
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$ | 533,677 | $ | 1,213,845 |
Three Months Ended
September 30, 2011
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Three Months Ended
September 30, 2010
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Nine Months Ended
September 30, 2011
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Nine Months Ended
September 30, 2010
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Awards to employees/Directors
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$ | - | $ | - | $ | - | $ | 178,201 | ||||||||
Awards to non-employees
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144,000 | - | 174,448 | 9,000 | ||||||||||||
Stock option modifications
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4,815 | 6,443 | 8,985 | 33,169 | ||||||||||||
Total non-cash stock-based compensation expense
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$ | 148,815 | $ | 6,443 | $ | 183,433 | $ | 220,370 |
·
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mi Technology, United Kingdom;
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·
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Southwest Research Institute, United States;
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·
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Forest Engineering Research Institute of Canada – FERIC;
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·
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Motive Power, United States;
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·
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Gerotek, South Africa;
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·
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Prodrive Ltd, United Kingdom;
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·
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Technological Institute for Development - LacTec, Brazil;
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·
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Technological Research Institute (IPT) of São Paulo, Brazil;
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·
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MTEC, Thailand; and
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·
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Tsinghua University, China.
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BfB Laboratories, Belgium;
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·
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National Institute of Technology – INT, Brazil; and
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·
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Montana State University – Northern, United States.
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·
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railroads;
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·
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stationary power generation operators;
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·
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centrally-fueled truck/bus fleets; and
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·
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marine vessel operators.
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·
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Multisol: We signed a manufacturing, marketing and distribution agreement with Multisol in July 2008 providing Multisol with distribution rights to market and sell IFT’s products in France, Spain, Portugal and Belgium. Multisol is selling our additive formulations to numerous accounts, including prominent fuel additive companies who are re-packaging the formulations for resale into retail markets.
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·
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Unipart Rail: We signed a marketing and distribution agreement with Unipart in June 2011 providing Unipart with the rights to sell IFT’s products to the U.K. rail market. Unipart and IFT have already had numerous joint meetings with prospective end-user accounts.
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·
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Nordmann Rassmann (“Nordmann”): We signed a marketing and distribution agreement with Nordmann in August 2008 providing Nordmann with the right to market and sell IFT’s products in Germany, Austria, Switzerland, Sweden, Norway, Finland, Denmark, Poland, The Czech Republic, Slovakia, Slovenia, Hungary, Serbia, Romania and Bulgaria. Nordmann has introduced our products to numerous customers and made sales of the PerfoLiFTTM BD-Series during the first three quarters of 2011 and during 2010.
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·
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Caldic U.K. (“Caldic”): We signed a marketing and distribution agreement with Caldic in May 2008 providing Caldic with distribution rights to IFT’s products in the United Kingdom. Caldic has introduced our products to numerous end-user customers and is in the process of running field-based demonstration trials with selected end-users.
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·
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Tide Water Oil Co. India Ltd (“Tidewater”): Headquartered in India, Tidewater is a prominent manufacturer and distributor of additives and lubricants to the automotive and industrial markets. Tidewater purchases and then re-packages DiesoLiFTTM 10 for sale into these targeted markets in India: power generation set users; tractor operators; the agricultural industry; and retail distribution markets. Tidewater made several purchases of DiesoLiFTTM 10 in 2010.
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·
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an increase in non-cash stock-based compensation expense ($142,372) primarily due to third quarter 2011 common equity grants to non-employee consultants;
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·
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a decrease in freight expenses ($16,388) associated with the shipment of inventory samples to prospective customers; and
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·
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a decrease in consulting fees ($12,408) primarily due to reduced commercial efforts in India during the third quarter of 2011.
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·
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a decrease in consulting fees ($45,821) due to a reduction in scope effective August 2010 for certain commercial activities in North and South America and in India during the third quarter of 2011;
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·
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a decrease in non-cash stock-based compensation expense ($36,937) primarily related to the certain option grants made to employees during 2009 that had no further expense recognition upon their June 30, 2010 vesting (approximately $178,000 of expense recorded during the first two quarters of 2010), partially offset by common equity grants to non-employee consultants during 2011; and
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·
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an increase in bad debt expense ($88,655) related to product previously sold to a distributor for which we have not yet collected payment.
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1.
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Significant under-performance relative to expected historical or projected future operating results;
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2.
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Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
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3.
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Significant negative industry or economic trends;
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4.
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Significant decline in our stock price for a sustained period; and
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5.
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Our market capitalization relative to net book value.
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Date
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No. of Restricted Shares
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No. of
Warrants1
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Aggregate Purchase Price
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|||||||||
July 18, 2011
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2,500,000 | 625,000 | $ | 250,000 | ||||||||
July 19, 2011
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2,591,000 | 647,750 | $ | 259,100 | ||||||||
July 20, 2011
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44,000 | 11,000 | $ | 4,400 | ||||||||
July 21, 2011
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15,000 | 3,750 | $ | 1,500 | ||||||||
July 22, 2011
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2,500,000 | 625,000 | $ | 250,000 | ||||||||
July 26, 2011
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73,000 | 18,250 | $ | 7,300 | ||||||||
July 29, 2011
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2,500,000 | 625,000 | $ | 250,000 | ||||||||
August 4, 2011
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60,000 | 15,000 | $ | 6,000 |
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1
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Represents warrants to purchase the indicated number of shares of our common stock at an exercise price of $0.25 per share. The warrants were immediately exercisable and expire on July 31, 2016.
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101.INS
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XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
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INTERNATIONAL FUEL TECHNOLOGY, INC.
(Registrant)
|
||||
By: | /s/ Jonathan R. Burst | Date: | November 14, 2011 | |
Jonathan R. Burst | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
By: | /s/ Stuart D. Beath | Date: | November 14, 2011 | |
Stuart D. Beath | ||||
Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) | ||||
1.
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I have reviewed this quarterly report on Form 10-Q of International Fuel Technology, Inc.;
|
2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
November 14, 2011 | By: | /s/ Jonathan R. Burst | |||
Jonathan R. Burst | |||||
Chief Executive Officer |
1.
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I have reviewed this quarterly report on Form 10-Q of International Fuel Technology, Inc.;
|
2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
November 14, 2011 | By: | /s/ Stuart D. Beath | |||
Stuart D. Beath | |||||
Chief Financial Officer |
November 14, 2011 | By: | /s/ Jonathan R. Burst | |||
Jonathan R. Burst | |||||
Chief Executive Officer |
November 14, 2011 | By: | /s/ Stuart D. Beath | |||
Stuart D. Beath | |||||
Chief Financial Officer |
BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Balance Sheets | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, shares issued | 112,525,284 | 101,342,284 |
Common stock, shares outstanding | 112,525,284 | 101,342,284 |
Treasury stock, shares | 1,440,000 | 1,440,000 |
STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Statements Of Operations | ||||
Revenues | $ 59,281 | $ 5,301 | $ 167,785 | $ 229,392 |
Operating expenses: | ||||
Cost of operations (exclusive of depreciation) | 41,396 | 2,451 | 115,466 | 85,775 |
Selling, general and administrative expense (including non-cash stock-based compensation expense) (Note 4) | 673,815 | 574,146 | 1,792,435 | 1,807,256 |
Depreciation | 1,148 | 1,422 | 3,446 | |
Total operating expenses | 715,211 | 577,745 | 1,909,323 | 1,896,477 |
Net loss from operations | (655,930) | (572,444) | (1,741,538) | (1,667,085) |
Interest income | 237 | 952 | 674 | 9,513 |
Net loss before income taxes | (655,693) | (571,492) | (1,740,864) | (1,657,572) |
Income tax provision (Note 8) | 16,333 | 16,334 | 48,333 | 49,000 |
Net loss | $ (672,026) | $ (587,826) | $ (1,789,197) | $ (1,706,572) |
Basic and diluted net loss per common share | $ (0.01) | $ (0.01) | $ (0.02) | $ (0.02) |
Weighted-average common shares outstanding, basic and diluted | 111,144,936 | 102,762,284 | 105,611,456 | 102,743,383 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 11, 2011 | |
Document And Entity Information | ||
Entity Registrant Name | INTERNATIONAL FUEL TECHNOLOGY INC | |
Entity Central Index Key | 0001078723 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2011 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 112,525,284 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2011 |
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Equity Commitment and Related Party Transactions | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Equity Commitment And Related Party Transactions | |
Equity Commitment and Related Party Transactions | Note 6 - Equity Commitment and Related Party Transactions
Effective December 11, 2007, we received an investment commitment from Rex Carr, a Director of IFT and a holder of over 5% of our common stock. Pursuant to the terms of the commitment, Mr. Carr has agreed to invest up to an aggregate of $1,000,000 in IFT, at such time or times as we may request, in the form of a purchase or purchases of restricted common stock of IFT. IFT may elect to draw from the commitment at one time or from time to time; provided, however, that the aggregate of such draws may not exceed $1,000,000. If and when we elect to utilize available commitment funds, we will issue to Mr. Carr that number of shares of restricted common stock of IFT equal to the value of the investment then provided to IFT. The number of shares to be issued will be calculated based on the closing price of our common stock as quoted on The OTC Bulletin Board on the date of the sale. There is no stipulation regarding the duration of this commitment. The total amount available under this commitment is $1,000,000 as of September 30, 2011.
On June 30, 2011, Jonathan R. Burst, our Board chairman and chief executive officer, loaned us $50,000. In exchange for the receipt by us of $50,000, we delivered to Mr. Burst a promissory note in favor of Mr. Burst in the principal amount of $50,000. The promissory note was to be repaid at the earlier of (i) receipt of proceeds from an equity capital raise that was expected to be ongoing during the second and third quarters of 2011, or (ii) August 1, 2011. Pursuant to the terms of the promissory note, the note would not bear interest unless both parties agreed at a future date that the note should begin accruing interest. We repaid the loan in full on July 25, 2011, upon our receipt of equity funding, and the promissory note was canceled.
|
Ability to Continue as a Going Concern | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Ability To Continue As Going Concern | |
Ability to Continue as a Going Concern | Note 2. Ability to Continue as a Going Concern
Our 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. We have incurred significant losses since inception and currently have and previously from time to time have had limited funds with which to operate. Management is in the process of executing a strategy based upon marketing technologies that offer enhanced engine performance and greater fuel economy along with pollution control benefits. We have several technologies in the commercialization phase and in development. We have received necessary regulatory and commercial acceptance for our products currently in the commercialization phase. During the first quarter of 2002, we began selling our products directly to the commercial marketplace. We expect to increase our sales to the marketplace, eventually generating a level of revenues sufficient to meet our cash flow and earnings requirements. While we cannot make any assurances as to the accuracy of our projections of future capital needs, we believe that based on our recent equity raise efforts (cash proceeds of $1,028,300 received during the third quarter of 2011), projected sales for 2011 and 2012 and a remaining equity commitment of $1,000,000 (entered into with a related party Board member and significant shareholder of IFT during 2008), we have adequate cash and cash equivalents balances and commitments to fund operations through at least June 2012. If we are unable to meet our projections and generate positive and sustainable operating cash flows by this time, we may need to raise additional capital to fund our future operations.
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. |
Income Taxes | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Income Taxes | |
Income Taxes | Note 8 – Income Taxes
We file income tax returns in various federal, state and local jurisdictions. At September 30, 2011, and December 31, 2010, we had potential federal and state income tax benefits from net operating loss carry-forwards, which expire in various years beginning in 2012 and ending in 2030. Net operating loss carry-forwards available to us for Federal tax purposes are approximately $42 million as of September 30, 2011.
A valuation allowance must be established for a deferred income tax asset if it is more likely than not that a tax benefit may not be realized from the asset in the future. We have established a valuation allowance to the extent of our deferred income tax asset since it is not yet certain that absorption of the asset through future earnings will occur. The basis difference created from our goodwill has an indefinite life and is not treated as an offset when establishing our valuation allowance. As a result, we have recorded a deferred tax liability that increases by approximately $16,000 from the non-cash deferred income tax expense recorded each quarter.
No uncertain tax positions have been identified through September 30, 2011. If we did identify any uncertain tax positions, any accrued interest related to unrecognized tax expenses and penalties would be recorded in income tax expense.
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Deferred Revenue | 9 Months Ended |
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Sep. 30, 2011 | |
Deferred Revenue [Abstract] | |
Deferred Revenue | Note 7 – Deferred Revenue
On February 26, 2009, we received the first purchase order pursuant to a Memorandum of Understanding (“MOU”) with Libya Oil Holdings Limited, Tamoil, Libya Africa Investment Portfolio and Vision Oil Services Ltd (“VOS”). Pursuant to the MOU, VOS paid for the purchase of 600 metric tons of DiesoLiFTTM 10 at a price of 6,000 Euros (approximately $7,600) per metric ton from IFT. We received cash proceeds of approximately $3 million from VOS in February 2009, net of the related selling expenses, for this purchase order and would expect a net cash margin of approximately $1.5 million if the product is ever manufactured and delivered. We will recognize gross revenues of approximately $4.5 million if the product is ever delivered. No such revenues have been recorded and we have had no communication with VOS in over two years and believe they have ceased all activities on behalf of IFT. It is our belief that we will never deliver this product, nor will we be requested to do so. Nonetheless, the financial statements continue to reflect this deferred revenue pending a more formal resolution or expiration of relevant statutes of limitations. |
New Accounting Pronouncements | 9 Months Ended |
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Sep. 30, 2011 | |
New Accounting Pronouncements | |
New Accounting Pronouncements | Note 3 – New Accounting Pronouncements
New Accounting Pronouncements Adopted
There have been no accounting pronouncements adopted during fiscal year 2011 that had a material impact on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
ASC 350 – In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” to simplify how entities test goodwill for impairment. This guidance permits an entity to assess qualitative factors to determine whether it is more likely than not (defined as more than fifty percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the current two-step goodwill impairment test. The two-step goodwill impairment test is only required if the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This guidance is efective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011, with earlier adoption permitted. The adoption of this guidance will not have a material effect on our financial position, results of operations or cash flows.
ASC 820—In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” which generally represents clarifications of Topic 820, “Fair Value Measurements”, but also includes certain instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). This ASU is effective prospectively for interim and annual periods beginning after December 15, 2011 with earlier application not permitted. We do not expect that the adoption of this guidance will have a material effect on our financial position, results of operations or cash flows.
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Stock-based Compensation |
Note 4 Equity and Stock-based Compensation
Non-cash stock-based compensation expense recorded in the three and nine months ended September 30, 2011 and September 30, 2010 is as follows:
Employee and Director awards
No stock options were granted to employees during the first three quarters of 2011 or the second and third quarters of 2010. 31,200 options previously granted to an employee expired during the second quarter of 2011. 78,000 options previously granted to an employee expired during the third quarter of 2011.
During the first quarter of 2010, 250,000 employee options were granted. Assumptions used to determine the average fair value of these awards ($0.06 per option) included an expected term of 3.83 years, a volatility rate of 88% and a risk free interest rate of 1.86%.
In addition, during the first quarter of 2010, we modified the terms of 156,000 options that were previously granted and fully-vested to an employee. The modification of terms for these options extended the expiration date, changed the vesting periods and reduced the exercise price to $0.48 from $1.68. The excess of the fair value of the modified awards immediately after the modification over the fair value of the original awards immediately before the modification will result in $15,422 of non-cash stock-based compensation expense through December 31, 2011. We have recorded $14,759 of such expense through September 30, 2011.
No options were granted to Directors for Director-related services in the first three quarters of 2011 or 2010.
Non-employee awards
The value of options and warrants issued to non-employees upon the date of issuance is expensed over the related service periods. For non-employee options that are not subject to a performance criterion, we recompute the value of the unvested options each quarter-end and adjust the related compensation expense for the new value. That new value is based on various assumptions using end-of-quarter information. For non-employee options subject to a performance criterion, of which we had 5,200 options outstanding as of September 30, 2011, expense is recognized when it becomes probable that the performance criterion will be met.
During the second quarter of 2011, we issued 100,000 options to non-employee consultants for services. Assumptions used to determine the average fair value of these awards ($0.06 per option) included an expected term of 5 years, a volatility rate of 93% and a risk free interest rate of 2.28%.
No stock options were granted to non-employee consultants for services during the first quarter of 2011, the third quarter of 2011, or the first three quarters of 2010.
However, during the first quarter of 2010, we modified the terms of 416,000 options that were previously granted and fully-vested to a non-employee. The modification of terms for these options extended the expiration date, changed the vesting periods and reduced the exercise price to $0.48 from $1.81. The excess of the fair value of the modified awards immediately after the modification over the fair value of the original awards immediately before the modification will result in $44,215 of non-cash stock-based compensation expense through December 31, 2011. We have recorded $42,213 of such expense through September 30, 2011.
During the first quarter of 2011, a total of 104,000 stock options previously granted to non-employee consultants for services expired. These options had vested before expiration.
During the third quarter of 2010, a total of 104,000 stock options previously granted to non-employee consultants for services expired. These options had vested before expiration.
During the second quarter of 2010, a total of 7,592,000 stock options previously granted to non-employee consultants for services expired. 4,680,000 of these options had vested before expiration. The remaining 2,912,000 options expired prior to vesting as certain vesting triggering events were not achieved.
Other
During the third quarter of 2011, we received proceeds of $1,028,300 for the sale of 10,283,000 restricted shares of our common stock to a small group of accredited investors. In connection with this equity raise, we issued warrants to purchase an additional 2,570,750 shares of our common stock at a price of $0.25 per share. The warrants became immediately exercisable upon issuance and expire on July 31, 2016.
During the third quarter of 2011, we issued a total of 750,000 shares of our common stock to a non-employee for consulting services and recorded $144,000 of non-cash stock-based compensation expense.
During the second quarter of 2011, we issued 150,000 shares of our common stock to a non-employee for consulting services and recorded $24,000 of non-cash stock-based compensation expense.
During the second quarter of 2010, we issued 30,000 shares of our common stock to non-employees for services and recorded $9,000 of non-cash stock-based compensation expense.
No shares of our common stock were sold or issued to employees for services during the first three quarters of 2011. No shares of our common stock were sold or issued to non-employees for services during the first or third quarters of 2010.
During the second and third quarters of 2010, 225,758 and 930,714 of warrants related to a 2005 equity issuance expired, respectively.
No stock options were exercised during the first three quarters of 2011 or 2010. |
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Blencathia Merger | 9 Months Ended |
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Sep. 30, 2011 | |
Blencathia Merger | |
Blencathia Merger | Note 5 – Blencathia Merger
Effective October 27, 1999, we merged with Blencathia Acquisition Corporation (“Blencathia”). Blencathia was a public shell company with immaterial assets and liabilities and 312,000 shares outstanding at the time of the merger, which it redeemed and cancelled upon the merger. In exchange, we issued 312,000 of our common shares to the prior Blencathia owner with the contractual understanding that such shares were to be sold by that owner to achieve gross cash proceeds of $500,000. Any excess proceeds were to be returned to us and any deficiency was to be made up by us issuing additional shares or paying the difference in cash. As we believed that we controlled the ultimate timing of the sale of these 312,000 shares by the prior Blencathia owner, we did not consider these shares as issued or outstanding for purposes of computing earnings per share.
In 2006, we learned that the prior Blencathia owner had, in fact, sold the 312,000 shares for aggregate proceeds of approximately $150,000, without our consent. Accordingly, in the fourth quarter of 2006, we recorded $500,000 of general expenses (representing the cost of the 1999 merger) and the deemed issuance of approximately $150,000 of common stock. The remaining $350,000 obligation was reflected as a current accrued expense. We are in negotiations with the prior Blencathia owner to resolve this obligation and may ultimately settle the obligation with either cash or equity securities with a lower market value. Beginning in 2006, the 312,000 shares have been reflected as outstanding for earnings per share computations. Since the second half of 2009, we have made payments totaling $160,000 to the prior Blencathia owner, reducing the related current accrued expense balance to $190,000 as of September 30, 2011. |
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) (USD $) | Common Stock | Treasury Stock | Discount on Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
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Balance Begining at Dec. 31, 2010 | $ 1,027,823 | $ (664,600) | $ (819,923) | $ 64,990,874 | $ (65,226,139) | $ (691,965) |
Balance Begining, Shares at Dec. 31, 2010 | 102,782,284 | |||||
Proceeds from issuances of stock (Note 4) | 102,830 | 925,470 | 1,028,300 | |||
Proceeds from issuances of stock (Note 4), shares | 10,283,000 | |||||
Common shares issued for services | 9,000 | 159,000 | 168,000 | |||
Common shares issued for services, shares | 900,000 | |||||
Expense relating to non-cash stock-based compensation (Note 4) | 15,433 | 15,433 | ||||
Net loss | (1,789,197) | (1,789,197) | ||||
Balance Ending at Sep. 30, 2011 | $ 1,139,653 | $ (664,600) | $ (819,923) | $ 66,090,777 | $ (67,015,336) | $ (1,269,429) |
Balance Ending, Shares at Sep. 30, 2011 | 113,965,284 |
Basis of Presentation | 9 Months Ended |
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Sep. 30, 2011 | |
Basis Of Presentation | |
Basis of Presentation | Note 1 – Basis of Presentation
International Fuel Technology, Inc. ("IFT") is a company that was incorporated under the laws of the State of Nevada on April 9, 1996. We have developed a family of fuel additive product formulations. These unique fuel blends have been created to improve fuel economy, enhance lubricity (reducing engine wear and tear) and lower harmful engine emissions, while decreasing reliance on petroleum-based fuels through the use of more efficient, alternative and renewable fuels.
We began transitioning from a development stage technology company to a commercial entity during 2002 and have been increasing our product marketing and sales efforts since. We are now focused on continuing to develop the body of evidence of the efficacy of our products applicable to a wide range of markets and industries within these markets through additional industry specific laboratory testing and customer field-based demonstration trials. In addition, we are continuing to strengthen our distributor and customer contact base. Marketing and sales efforts, in conjunction with the additional industry specific testing, will complete our transition to a commercial enterprise.
The interim financial statements included herein have been prepared by 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 U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. Interim results are not necessarily indicative of results for a full year. We suggest that these financial statements be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2010 (the “2010 10-K”). We follow the same accounting policies in preparation of interim reports as we do in our annual reports. We have evaluated subsequent events through November 14, 2011, the date these financial statements were issued.
Basic earnings per share are based upon the weighted-average number of common shares outstanding for the period. Diluted earnings per share are based upon the weighted-average number of common and potentially dilutive common shares outstanding for the period. Pursuant to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification subtopic (“ASC”) No. 260-10, Earnings per Share, no adjustment is made for diluted earnings per share purposes since we are reporting a net loss, and common stock equivalents would have an anti-dilutive effect. As of September 30, 2011 and September 30, 2010, 24,036,470 and 21,548,920 shares, respectively, of common stock equivalents were excluded from the computation of diluted net loss per share since their effect would be anti-dilutive. |