<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K/A

[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required)

For the fiscal year ended June 30, 2000

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)


300 Delaware Avenue, #1704, Wilmington, Delaware         19801-1622
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code: (302) 427-5957

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01

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 twelve (12) months or for
<PAGE>

such shorter period that the registrant was required to file such reports, and
(2) has been subject to such filing requirements for the past ninety (90) days.
Yes: x No:

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value of securities held by non-affiliates as of September 15,
2000 - $5,076,741.10.

Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date. At September 15, 2000, there
were 21,261,789 common shares, 189,000 Underwriters' Warrants, 150,000
Consultant's Warrants, 270,200.059 Series D Warrants and 100,000 Broker's
Warrants outstanding.

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security-holders
for fiscal year ended December 24, 1980)

1. The date of the Annual Meeting still needs to be determined.

2. Part IV, Item 14, incorporated by reference the following Exhibits: 3.1, 3.2,
4.1, 4.2, 4.3 and 10.1.


                                        2
<PAGE>

                                     PART I

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 cooking 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 31.5" 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 30% and a reduction in particulate 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 CO2 emissions and fuel
consumption. CO2 emission reduction correlates directly with the fuel savings
which the IFT System provides.


                                        3
<PAGE>

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.

         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


                                        4
<PAGE>

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 launched additional products and services
to increase utilization of the company's combustion expertise and contracts were
obtained from several new customers.

         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 without additional charge within the terms of the
purchase agreement and thereafter servicing under a service contract which is
billed separately. 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.


                                        5
<PAGE>

         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 through June 30, 1999. During the year ended June 30, 2000 reduced
payments of up to $3,000 per month were agreed through December 2000. Payments
from January 2001 will be at a rate to be mutually agreed. 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


                                        6
<PAGE>

"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.

During 1999 the company determined that impairment of its intangible assets
existed based on the review of the undiscounted future cash flow of revenue
generated from these patents. As a result, the Company has written off $504,886
of unamortized patents.

         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 license 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 has been accepted by such regulatory
agencies.


                                        7
<PAGE>

         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 its 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


                                        8
<PAGE>

System. There can be no assurance that the Company would not be adversely
affected by such technological change.

The average number of employees (including directors) during the year was as
follows:

<TABLE>
<CAPTION>
                                                      2000             1999
                                                      Number           Number
<S>                                                   <C>              <C>
Sales and administration                              5                5
Technical and service                                 8                8
Manufacturing                                         2                2
                                                      -----            ------
                                                      15               15
                                                      =====            ======
</TABLE>

Geographical analysis of turnover can be found in note 8 of the financial
statements.

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 $7,375 per month to December 2000, with
the rent to be reviewed for the January 2001 and January 2005 periods.

         The Company maintains a sales office in Gent, Belgium pursuant to a
three year lease at $460 per month plus utilities.

         The Company maintains its corporate office in Wilmington, Delaware
pursuant to an annual lease with an annual rental of $3,120 including
utilities.

         The Company believes that its facilities are adequate for its present
and anticipated needs.


Item 3.           LEGAL PROCEEDINGS

                  None


Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None


                                        9
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is quoted on the Nasdaq Bulletin Board under
the symbol "IFTI"

The table set forth below shows, for the period indicated, the high and low bid
quotations on the Nasdaq Bulletin Board 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 expired September 30, 1998.
         The Class B Warrants expired July 30, 2000
         The Class C Warrants expried July 10, 2000

<TABLE>
<CAPTION>
                                                        Bid
Period Ended         Type of Security           High           Low

<S>                 <C>                         <C>            <C>
September 1998      Common Stock                2              .7188
                    Class A Warrant             1/16           1/16
                    Class B Warrant             1/128          1/128

December 1998       Common Stock                1.0625         .3281
                    Class B Warrant             1/128          1/128

March 1999          Common Stock                .5625          .3125
                    Class B Warrant             1/128          1/128

June 1999           Common Stock                .4375          .25
                    Class B Warrant             1/128          1/128

Septenber 1999      Common Stock                .3438          .25
                    Class B Warrant             .0001          .0001

December 1999       Common Stock                0.125          .0625
                    Class B Warrant             .0001          .0001

March 2000          Common Stock                1.1875         .50
                    Class B Warrant             .0001          .0001

June 2000           Common Stock                .2969          .1875
                    Class B Warrant             .0001          .0001
</TABLE>


                                       10
<PAGE>

         The company estimates at September 1, 2000, the number of shareholders
of record and in street name of the Company's common stock was approximately
800.

         The Company has not paid any cash dividends.

Item 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                       Year Ended       Year Ended       Year Ended        Year Ended
                       June 30, 1996    June 30, 1997    June 30, 1998     June 30, 1999
<S>                    <C>              <C>              <C>               <C>
STATEMENT OF
OPERATIONS DATA:

Revenues               $   593,959      $   628,694      $    437,650      $    608,608

Cost of Revenues           537,110          723,327           692,952           897,388

Operating Expenses       1,669,145          882,524         1,106,406         1,638,694
Net Loss                (1,563,667)      (1,004,425)       (1,348,156)       (1,957,441)
Net Loss per
 share                 $      (.29)     $      (.19)     $       (.22)     $       (.26)
Weighted average
 number of               5,400,000        5,401,600         6,251,376         7,651,225
 common shares

Cash Dividend
 per common share             --               --                --                --
BALANCE SHEET:

Total Assets           $ 2,659,185      $ 1,549,619      $  2,427,717      $  1,334,907

Working Capital          1,306,293          434,686         1,323,540           465,717
Long-term
 liabilities               364,773          346,249           393,376           330,626
Total
 liabilities               886,274          705,062           701,111           951,562
 deficit                (8,899,242)      (9,903,667)      (11,251,823)      (13,209,264)
Cumulative
 translation
 adjustment               (150,820)        (143,199)         (133,579)         (167,838)

Stockholders'
 Equity                  1,772,911          844,557         1,726,606           383,345
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
Statement of Operations                                              Year Ended
Data:                                                              June 30, 2000
<S>                                                                <C>
Revenues ............................................              $    621,868
Cost of  Revenues ...................................                   805,115
Operating Expenses ..................................                   907,225
Net (loss) ..........................................                (1,102,359)
Net (loss) per share ................................              $       (.08)
Weighted average number
   of common shares .................................                13,201,851
Cash dividend per common
   share ............................................                         0

Balance Sheet
 Data:

Total assets ........................................              $  1,028,395
Working capital .....................................                    (8,007)
Long-term liabilities ...............................                   303,652
Total liabilities ...................................                 1,198,643
Accumulated deficit .................................               (14,311,623)
Cumulative translation
  adjustment ........................................                  (147,284)
Stockholders' equity ................................                  (170,248)
</TABLE>


                                       12
<PAGE>

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 1999 the company introduced four new services
and products following market investigation with its contractors affording its
combustion expertize to customer problem solving and plant performance
evaluation.

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.

The Company is presently attempting to raise additional capital to fund
operations. If additional capital is not secured within the next three months,
it may be necessary to substantially curtail or cease operations. The Company
will continue to focus its operations primarily on expansion within the European
Community.


                                       13
<PAGE>

Year ended June 30, 2000 and June 30, 1999

         Total revenues increased to approximately $622,000 during the year
ended June 30, 2000 from $609,000 in the fiscal year ended June 30, 1999. The
net increase relates to an increase in rentals to approximately $381,000
($342,000 in 1999) and the addition of $136,000 in engineering consulting
services.

         There was a gross loss of approximately $183,000 during the year ended
June 30, 2000 compared to a loss of approximately $289,000 during the year ended
June 30, 1999. The decreased gross loss related primarily to the decrease in
cost of revenues. These decreased approximately $92,000 to $805,000 ($897,000
for fiscal 1999) whereas revenues increased by approximately $13,000. During the
year the Company launched additional products and services to increase
utilization of the company's combustion expertise and contracts were obtained
from several new customers.

         General and administrative expenses decreased to approximately $648,000
during the year ended June 30, 2000 from approximately $684,000 in the year
ended June 30, 1999, a decrease of $36,000. This decrease is primarily due to
tighter cost control and a reduction in royalty expenses, elimination of
amortization of patent costs written off at June 30, 1999 and reduced financial
public relations expenses.

         Sales and marketing expenses decreased to $249,000 during the year
ended June 30, 2000 from approximately $305,000 during the year ended June 30,
1999. The decrease of $56,000 is primarily due to decrease in marketing and
promotion.

Royalty expense decreased to $10,000 during the year ended June 30, 2000 from
approximately $60,000 during the year ended June 30, 1999. The decrease of
$50,000 is due to the cessation of certain royalty payments and accruals.

Other income (expense) net was approximately $12,000 net expense during the year
ended June 30, 2000 compared to expense of $30,000 during the year ended June
30, 1999, a decrease of $18,000, primarily due to a decrease in interest income
net of a decrease in interest expense and the loss on disposal of equipment.

Year ended June 30, 1999 and June 30, 1998

         Total revenues increased to approximately $609,000 during the year
ended June 30, 1999 from $438,000 in the fiscal year ended June 30, 1998. The
net increase relates to an increase in system sales to approximately $266,000
($89,000 in 1998).


                                       14
<PAGE>

         There was a gross loss of approximately $289,000 during the year ended
June 30, 1999 compared to a loss of approximately $255,000 during the year ended
June 30, 1998. The increased gross loss related primarily to the increase in
cost of revenues. These increased approximately $204,000 to $897,000 ($693,000
for fiscal 1998) whereas revenues increased by approximately $171,000.

         General and administrative expenses decreased to approximately $684,000
during the year ended June 30, 1999 from approximately $729,000 in the year
ended June 30, 1998, a decrease of $44,000. This decrease is primarily due to
tighter cost control and a reduction in stock market related expenses.

         Sales and marketing expenses increased to $305,000 during the year
ended June 30, 1999 from approximately $217,000 during the year ended June 30,
1998. The increase of $88,000 is primarily due to additional marketing
promotion, recruitment costs and an additional sales person.

Other income (expense) net was approximately ($30,000) during the year ended
June 30,1999 compared to income of $14,000 during the year ended June 30, 1998,
a decrease of $44,000, primarily due to a decrease in interest income.

Going Concern

Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses,
and its operations have not produced a positive cash flow. As such, this
condition raises substantial doubt about the Company's ability to continue as a
going concern.

During the past year, the principal use of the Company's cash has been to fund
its operating losses. The Company has been utilizing approximately $67,000 per
month to fund operations. The Company has raised additional capital through the
sale of common shares to fund operations. If additional capital is not secured
within the next three months, it may be necessary to substantially curtail or
cease operations. In June 2000 an additional $200,000 was accepted as
subscriptions for 2,000,000 shares of common stock. The acceptance of the
$200,000 had the affect of turning the stockholders' equity from a deficit at
year end to positive equity. The Company intends to raise additional capital
through the sale of common shares subsequent to September 30, 2000.

Liquidity and Capital Resources

The Company is presently attempting to raise additional capital to fund
operations. If additional capital is not secured within the next three months,
it will be necessary to substantially curtail or cease operations. The Company
will continue to focus its operations primarily on expansion within the European
Community.

         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
$7 million, and revenue generated from operations. On April 1, 1999 the Company
sold an additional 4,838,334 common shares with net proceeds of $648,439 and on
February 1, 2000 sold an additional 4,668,500 common shares with net proceeds
of$283,425. In June 2000, the company accepted subscriptions for 3,310,000 of
common shares netting proceeds $294,787. Commitments to subscribe for a further
2,000,000 of common shares were received and cash of $200,000 was received after
the year end.

         Net cash used in operations was approximately $800,000, $1.2 million
and $1.2 million for the years ended June 30, 2000, 1999, and 1998,
respectively. The principal use of cash was to fund operating losses incurred by
the company in developing (?) engineering services, sales, marketing and
promotional activities. Working capital was approximately $225,000 $466,000 and
$1.3 million at June 30, 2000, 1999, and 1998, respectively. Fluctuations in
working capital have been primarily due to fluctuations in cash, accounts
payable and other accruals.

         Capital expenditures amounted to approximately $16,000, $134,000, and
$88,000 during fiscal years 2000, 1999, and 1998, respectively. 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 to the inventor. The amount of the payment is
determined each year by agreement between the Company and the inventor.


                                       15
<PAGE>

         During the year ended June 30, 2000 the average  rate of exchange  used
to translate revenues and expenses denominated in Pounds Sterling has decreased
to approximately 1.59 U.S. dollars to 1 Pound Sterling, compared with 1.65 US
dollars to 1 Pound Sterling for the year ended June 30, 1999.

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


                                       16
<PAGE>

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.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Based on its current and
planned future activities relative to derivative instruments, the Company
believes that the adoption of SFAS No. 133 will not have a significant effect on
its financial statements.

On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB 101"),
Revenue Recognition in Financial Statements. SAB 101 summarizes some of the
SEC's interpretations of the application of generally accepted accounting
principles to revenue recognition. Revenue recognition under SAB 101 was
initially effective for the Company's first quarter 2000 financial statements.
However, SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101
until no later than the fourth fiscal quarter 2000. Changes resulting from SAB
101 require that a cumulative effect of such changes for 1999 and prior years be
recorded as an adjustment to net income on January 1, 2000 plus adjust the
statement of operations for the three months ended in the quarter of adoption.
Although the Company is still in the process of reviewing SAB 101, it believes
that its revenue recognition practices are in substantial compliance with SAB
101 and that adoption of its provisions would not be material to its annual or
quarterly results of operations.

In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation No.
44"), an interpretation of APB Opinion No. 25, Accounting for Certain
Transactions involving Stock Compensation. Interpretation No. 44 is effective
after July 1, 2000, but certain conclusions in Interpretation No. 44 cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that Interpretation No. 44 covers events occurring during the
period after December 15, 1998, or January 12, 2000, but before the effective
date of July 1, 2000, the effects of applying Interpretation No. 44 are
recognized on a prospective basis from July 1, 2000. The Company believes that
adoption will not have a significant impact on the Company.


Item 7A. MARKET RISK DISCLOSURES

Currency Fluctuation

         The Company's revenues are invoiced primarily in Pounds Sterling and
also currencies of other European countries (Belgium, the Netherlands and
Germany). With the introduction of the European common currency, the euro, the
Company also expects to invoice revenues in this currency for those sales to
countries 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, 2000, 1999, and 1998, 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, 2000 the average  rate of exchange  used
to translate revenues and expenses denominated in Pounds Sterling has decreased
to approximately 1.59 U.S. dollars to 1 Pound Sterling, compared with 1.65 US
dollars to 1 Pound Sterling for the year ended June 30, 1999.

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.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

Not applicable


                                       17
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

         Listed below are the Company's directors whose terms expire at the next
annual meeting of shareholders.

<TABLE>
<CAPTION>
                        POSITION WITH
NAME                    THE COMPANY                      AGE      DIRECTOR SINCE
----                    -----------                      ---      --------------
<S>                     <C>                              <C>          <C>
Anthony J.S. Garner     Director, CEO, CFO, President    60           1991

Frank J. Hollendoner    Director                         53           1997

Henry W. Sullivan       Director                         59           1997
</TABLE>

         All members of the Board of Directors serve for a one (1) year term or
until their successors shall have been appointed.

         Set forth below is a brief background of the executive officer and
directors of the Company.

NAME, AGE AND PRINCIPAL OCCUPATION

    ANTHONY J.S. GARNER, 60, has served as a Director and as President of the
Company, and as Chairman and Chief Executive Officer of IFT, Ltd. since both
companies' inceptions. Upon the resignation of Douglas F. Johnston on December
1, 1999, Mr. Garner assumed the additional positions of Chairman, Chief
Executive Officer and Chief Financial Officer of the Company. From October 1991
to December 1991 Mr. Garner performed a due diligence investigation on the
Wentworth Technology underlying the IFT System (the "Wentworth Technology") in
conjunction with Mr. Johnston and Paul C. O'Neill, to determine whether to enter
into the business. From December 1990 until October 1991, Mr. Garner was a
private investor. From June 1988 until December 1990, Mr. Garner was Chief
Executive Officer and managing director of Sigma Corp. Ltd., a manufacturer of
custom gauges for the aerospace industry. He also served as Chief Executive
Officer of Winchmore PLC, a distributor of commercial boilers and air
conditioners. Mr. Garner has the U.K. equivalent of a B.S. in Mechanical
Engineering.

    FRANK J. HOLLENDONER, 53, has served as a Director since January, 1997. Mr.
Hollendoner also currently serves as Chairman of three European companies:
Doughty Hanson & Co., a money management concern; Independent Care Group, a firm
that develops, owns and operates private hospitals in Britain; and Norden Pac
Industries A.B., a Swedish packaging equipment company. From 1986 to 1994, Mr.
Hollendoner was a principal and a managing director of Ovington Securities Ltd.
Mr. Hollendoner holds a BA in Economics from Georgetown University and an MBA
from Stanford University School of Business.

    HENRY W. SULLIVAN, 59, has served as a Director since August, 1997. Since
1991 Mr. Sullivan has been the President and a Director of GAIA Technologies,
Inc., a company engaged in the chemical business. He was also the Vice Chairman
and a Director of Huntsman Chemical Corporation, the nation's largest private
chemical company, from 1983 to 1991. Mr. Sullivan
<PAGE>

holds a B.S. degree in Chemical Engineering from Cooper Union and a Masters
degree and Ph.D in Engineering from New York University.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent shareholders also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.

         Based solely upon a review of the copies of such forms furnished to the
Company, the absence of a Form 3 or Form 5 or written representations that no
Forms 5 were required, the Company believes that, during fiscal year 2000, its
officers, directors and greater than ten percent beneficial owners complied with
all applicable Section 16(a) filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>
                                                                                       SECURITIES
                                                                        RESTRICTED     UNDERLYING     ALL OTHER
NAME AND                               FISCAL     SALARY     BONUS     STOCK AWARDS     OPTIONS      COMPENSATION
PRINCIPAL POSITION                      YEAR       ($)        ($)          ($)            (#)            ($)
------------------                    --------   --------   --------   ------------   ------------   ------------
                                                   ANNUAL COMPENSATION                 LONG-TERM
                                                                                      COMPENSATION
<S>                                     <C>       <C>       <C>        <C>            <C>            <C>
ANTHONY J.S. GARNER................     2000      90,600       --           --            --              --
 CEO, CFO, President                    1999      90,600       --           --            --              --
                                        1998      90,600       --           --            --              --
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

         No options were granted to the executive officer in the fiscal year
2000.

OPTIONS EXERCISED AND YEAR-END OPTION HOLDINGS

         None.

DIRECTOR COMPENSATION

         Messrs. Hollendoner and Sullivan were granted stock options of 25,000
each during the fiscal year 2000.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.

         The executive officer is not currently serving under an employment
contract with the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The current members of the Board's Compensation Committee are Messrs.
Sullivan and Hollendoner, neither of whom is an employee of the Company.
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The following table sets forth certain information as of May 26, 2000
(the "TABLE DATE") with respect to the beneficial ownership of the Company's
Common Stock by (i) each person the Company believes beneficially holds more
than 5% of the outstanding shares of Common Stock; (ii) each director; (iii)
Executive Officer and (iv) all directors and executive officers as a group. On
the Table Date, 15,924,988 shares of Common Stock were issued and outstanding.
Unless otherwise indicated, all persons named as beneficial owners of Common
Stock have sole voting power and sole investment power with respect to the
shares indicated as beneficially owned.

        SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
                                            AMOUNT AND
                                             NATURE OF         PERCENT OF
                                            BENEFICIAL     OUTSTANDING SHARES
NAME AND ADDRESS                           OWNERSHIP (1)    OF COMMON STOCK
----------------                           -------------   ------------------
<S>                                          <C>                   <C>
Douglas F. Johnston......................    1,033,800             6.5%
114 Forest Street
New Canaan, CT 06840

Anthony J.S. Garner......................      567,000(2)          3.6%
96 Thorpe Hall Ave
Thorpe Bay, Essex SSl 3AS
England

Frank J. Hollendoner.....................      770,000             4.8%
c/o Independent Care
26 Eccleston Square
London, England SWIV INS

Henry W. Sullivan........................       16,000(3)            *
10814 Jaycee Lane
Houston, TX 77024

All Officers and Directors
as a Group (3 persons)...................    1,353,000             8.5%
</TABLE>

---------------------

*   Less than 1%

(l) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934 and generally includes voting or investment
power with respect to securities. Shares of Common Stock issuable upon the
exercise of options, warrants and convertible notes currently exercisable or
convertible within sixty days are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but are not
deemed outstanding for computing the percentage of ownership of any other
person.

Unless otherwise indicated, the Company believes that all persons named in the
table have sole investment and voting power with respect to the shares of Common
Stock beneficially owned by them.

(2) Includes immediately exercisable options to purchase 160,000 shares at
$1.875 per share granted to Mr. Garner by Mr. Johnston and Paul C. O'Neill from
their personal holdings. Also includes 170,000 shares of Common Stock held by
Brutus Investments Ltd., an investment company owned by Brutus Trust. Mr. Garner
is neither an officer nor director of Brutus Investments, Ltd. nor a settlor,
trustee or currently a beneficiary of Brutus Trust. To the extent he or any
member of his family may become a beneficiary of Brutus Trust in the future, Mr.
Garner disclaims any beneficial interest in such shares.

(3) Includes 2,000 shares of Common Stock and immediately exercisable options to
purchase 14,000 shares of Common Stock at $1.75 per share.
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant to written agreement, as of September 1, 1999, the Company
terminated the accrual and payment to Douglas F. Johnston, who resigned as a
director of the Company on December 1, 1999, of any royalties, including but not
limited to that certain "over ride royalty of $5,000 per month on the Wentworth
license" referred to in the Minutes of the First Meeting of the Board of
Directors of the Company dated January 21, 1992.
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement

Schedules and Reports on Form 8-K

                                                                        Page
A.  (1)  Financial Statements

Report of Independent Auditors                                           F-1

Consolidated Balance Sheets - June 30, 2000 and 1999                     F-2

Consolidated Statements of Operations - Years Ended                      F-3
June 30, 2000, 1999, and 1998

Consolidated Statements of Stockholders' Equity -                        F-4
Years Ended June 30, 2000, 1999, and 1998

Consolidated Statements of Cash Flows - Years Ended                      F-5
June 30, 2000, 1999 and 1998

Notes to Consolidated Financial Statements                               F-6
<PAGE>

The following consolidated financial statement schedule of Ionic Fuel
Technology, Inc. is included in Item 14(d):

         Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                      ADDITIONS/DEDUCTIONS
                                                    ------------------------
                                        BALANCE AT   CHARGED TO   WRIT-OFFS   BALANCE AT
                                       BEGINNING OF  COSTS AND     NET OF      END OF
Description                               PERIOD     EXPENSES    RECOVERIES    PERIOD
                                       -------------------------------------------------
<S>                                       <C>         <C>           <C>        <C>
For the year ended June 30, 1998
   Allowance for doubtful accounts            --       1,714         1,714          --
   Inventory reserve                      94,962         710        12,332      83,340

For the year ended June 30, 1999
   Allowance for doubtful accounts            --          --            --          --
   Inventory reserve                      83,340      14,310         2,683      94,967

For the year ended June 30,2000
         Allowance for doubtful debts         --          --            --          --
         Inventory reserve                94,967      13,452         4,705     103,714
</TABLE>

      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.
<PAGE>

(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 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.

      27   Financial Data Schedule

B.       Reports on form 8-K

Form 8-K dated 19 July 1999 electronically filed and accepted on 26 July 1999
Accession No. 0001005477-99-003249. Reference Item 5 Other Events: On July 19
1999 The registrant extended the expiration date on the Class B Warrants from
July 28 1999 to July 30 2000.

Form 8-K dated 9 May 2000 electronically filed and accepted on 9 May 2000
Accession No. 0000912057-00-022480. Reference Item 4 Change in Registrant's
Certifying Accountant: On 8 may 2000 the registrant recommended the engagement
of BDO Seidman LLP as auditors.

Form 8-K/A dated 8 May 2000 electronically filed and accepted on 11 May 2000
Accession number 0000912057-00-023264. This form amended the form mentioned
above and recommended the appointment of BDO Stoy Hayward as auditors.
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2000 AND 1999
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                                    CONTENTS

                                  JUNE 30, 2000


                                                                           PAGE

Accountant's report                                                         F-2


Consolidated balance sheets                                                 F-3


Consolidated statements of operations                                       F-4


Consolidated statements of stockholders' equity                             F-5


Consolidated statements of cash flows                                       F-6


Notes to consolidated financial statements                                  F-7
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Ionic Fuel Technology, Inc.

We have audited the accompanying consolidated balance sheet of Ionic Fuel
Technology, Inc. as of June 30, 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ionic Fuel
Technology, Inc. at June 30, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended June
30, 1999, in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that Ionic
Fuel Technology, Inc. will continue as a going concern. As more fully described
in Note 1, Ionic Fuel Technology, Inc. has incurred recurring operating losses
and its operations have not produced a positive cash flow. This condition raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


                                                       /s/ Ernst & Young LLP

Stamford, Connecticut
September 8, 1999


                                      F-2
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                 JUNE 30
                                                                           2000            1999
                                                                       ----------------------------
<S>                                                                    <C>             <C>
ASSETS
Current assets
    Cash and cash equivalents (Note 1)                                 $    231,202    $    312,277
    Trade accounts receivable                                               264,362         344,986
    Inventory (Note 2)                                                      333,472         363,264
    Prepaid expenses                                                         58,048          66,126
                                                                       ------------    ------------

Total current assets                                                        887,084       1,086,653

Equipment and vehicles, net (Notes 1 and 3)                                 141,311         248,254
                                                                       ------------    ------------

TOTAL ASSETS                                                           $  1,028,395    $  1,334,907
                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
    Bank overdraft                                                     $    217,587    $         --
    Accounts payable                                                        266,050         141,853
    Accrued expenses                                                        195,390         211,627
    Provisions for warranties and returns                                   134,066         159,939
    Accrued royalty, due to former officer (Note 4)                          27,200          24,000
    Current portion of royalty agreement (Note 4)                            18,900          24,915
    Accrued salary, benefits and payroll taxes                               28,360          23,166
    Current portion of capital lease obligations (Note 5)                     7,538          35,436
                                                                       ------------    ------------

Total current liabilities                                                   895,091         620,936

Long-term liabilities (Notes 4 and 5)
    Long-term obligations less current portion                                4,427          30,527
    Other long-term liabilities                                             299,125         300,099
                                                                       ------------    ------------

Total long-term liabilities                                                 303,552         330,626

Commitments and contingencies (Note 5)

Stockholders' equity (Note 7) Common stock, $.01 par value:
      20,000,000 shares authorized; issued and outstanding
      15,951,789 shares and 11,283,289 shares, respectively (Note 7)        159,518         112,833
      Common stock subscribed                                                33,100              --
    Capital in excess of par value                                       14,096,041      13,647,614
    Accumulated deficit                                                 (14,311,623)    (13,209,264)
    Cumulative foreign currency exchange adjustment (Note 1)               (147,284)       (167,838)
                                                                       ------------    ------------

Total stockholders' (deficit) equity (Note 7)                              (170,248)        383,345
                                                                       ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  1,028,395    $  1,334,907
                                                                       ============    ============
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.


                                      F-3
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30
                                                        2000            1999          1998
                                                    ------------------------------------------
<S>                                                 <C>             <C>            <C>
Revenues (Note 1)
    Sales                                           $    104,483    $   266,351    $    88,870
    Rental                                               380,943        342,257        348,780
    Engineering consultancy                              136,442             --             --
                                                    ------------    -----------    -----------


Total revenues                                           621,868        608,608        437,650

Cost of revenues
    Sales                                                218,320        310,526        205,484
    Rental                                               532,037        586,862        487,468
    Engineering consultancy                               54,758             --             --
                                                    ------------    -----------    -----------


Total cost of revenues                                   805,115        897,388        692,952
                                                    ------------    -----------    -----------
                                                        (183,247)      (288,780)      (255,302)

Operating expenses:
    General and administrative                           648,252        684,463        728,535
    Amortization and write-off of patents                     --        571,581         64,155
    Sales and marketing                                  248,973        305,006        217,468
    Royalty charges                                       10,000         60,000         60,000
    Research and development                                  --         17,644         36,248
                                                    ------------    -----------    -----------
                                                         907,225      1,638,694      1,106,406
                                                    ------------    -----------    -----------
Loss from operations                                  (1,090,472)    (1,927,474)    (1,361,708)

Other income (expense):
    Interest income                                        3,866         20,578         67,060
    Interest expense                                     (14,011)       (50,545)       (53,508)
    Loss on disposal equipment                            (1,742)            --             --
                                                    ------------    -----------    -----------
                                                         (11,887)       (29,967)        13,552
                                                    ------------    -----------    -----------
Net loss                                            $ (1,102,359)   $(1,957,441)   $(1,348,156)
                                                    ============    ===========    ===========

Net loss per share - basic and diluted (Note 1)     $       (.08)   $     (0.26)   $     (0.22)
                                                    ============    ===========    ===========

Weighted average number of common shares (Note 1)     13,201,851      7,651,225      6,251,376
                                                    ============    ===========    ===========
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.


                                      F-4
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                     COMMON STOCK          SUBSCRIPTION                                   ACCUMULATED
                                     ------------         ---------------     CAPITAL IN              OTHER COMPREHENSIVE
                                               PAR                   PAR      EXCESS OF    ACCUMULATED      (LOSS)
                                    SHARES     VALUE      SHARES    VALUE     PAR VALUE      DEFICIT     INCOME (LOSS)     TOTAL
                                    ------     -----      ------    -----     ---------      -------      -----------      -----
<S>                                <C>        <C>         <C>      <C>       <C>          <C>              <C>          <C>
Balance at June 30, 1997           5,401,600  $  54,016       -    $  -      $10,837,407  $  (9,903,667)   $(143,199)   $   844,557
   Net loss                             -         -           -       -             -        (1,348,156)       -         (1,348,156)
   Foreign currency exchange
   adjustment                           -         -           -       -             -              -           9,620          9,620
                                                                                                                        -----------
   Comprehensive loss                   -         -           -       -             -              -           -         (1,338,536)
   Exercise of stock options and
     warrants                        148,722      1,487       -       -          367,981           -           -            369,468
   Sale of stock                     894,633      8,947       -       -        1,842,170           -           -          1,851,117
                                  ----------   --------  ---------  -------  -----------   ------------    ---------    -----------

Balance at June 30, 1998           6,444,955     64,450       -    $  -       13,047,558    (11,251,823)    (133,579)     1,726,606
   Net loss                             -         -           -       -             -        (1,957,441)       -         (1,957,441)
   Foreign currency exchange
     adjustment                         -         -           -       -             -              -         (34,259)       (34,259)
                                                                                                                        -----------
   Comprehensive loss                   -         -           -       -             -              -           -         (1,991,700)
   Sale of stock                   4,838,334     48,383       -       -          600,056           -           -            648,439
                                  ----------   --------  ---------  -------  -----------   ------------    ---------    -----------

Balance at June 30, 1999          11,283,289   $112,833       -    $  -       13,647,614   $(13,209,264)   $(167,838)   $   383,345
   Net loss                             -         -           -       -             -        (1,102,359)       -         (1,102,359)
   Foreign currency exchange
     adjustment                         -         -           -       -             -              -          20,554         20,554
                                                                                                                        -----------
   Comprehensive loss                   -         -           -       -             -              -           -         (1,081,805)
   Sale of stock                   4,668,500     46,685       -       -          186,740           -           -            233,425
   Common stock subscribed              -         -      3,310,000   33,100      261,687           -           -            294,787
                                  ----------   --------  ---------  -------  -----------   ------------    ---------    -----------

Balance at June 30, 2000          15,951,789   $159,518  3,310,000  $33,100  $14,096,041   $(14,311,623)   $(147,284)   $  (170,248)
                                  ==========   ========  =========  =======  ===========   ============    =========    ===========
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.


                                      F-5
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30
                                                         2000           1999           1998
                                                      -----------------------------------------
<S>                                                   <C>            <C>            <C>
OPERATING ACTIVITIES
    Net loss                                          $(1,102,359)   $(1,957,441)   $(1,348,156)
    Adjustments to reconcile net loss to net cash
      used by operating activities:
       Depreciation                                        66,927         69,005         80,899
       Amortization                                            --         66,695         64,155
       Write-off of patents                                    --        504,886             --
       Loss on disposal of equipment                        1,742             --             --
       Noncash compensation to officer                     21,003             --             --
       Changes in operating assets and liabilities:
          Accounts receivable                              67,889       (293,230)        (7,178)
          Other receivables                                    --         19,757        (13,203)
          Inventory                                        14,249         94,092        152,547
          Prepaid expenses                                  5,179         42,549         25,247
          Other assets                                         --             --         (6,882)
          Accounts payable and accrued expenses           117,715        255,698       (100,674)
                                                      -----------    -----------    -----------

Net cash used by operating activities                    (807,655)    (1,197,989)    (1,153,245)

INVESTING ACTIVITIES
    Acquisition of patents                                     --        (20,690)       (12,043)
    Acquisition of equipment                              (16,306)      (133,511)       (88,084)
                                                      -----------    -----------    -----------
    Net cash used in investing activities                 (16,306)      (154,201)      (100,127)

FINANCING ACTIVITIES
    Principal payments on capital leases                  (27,990)       (36,036)       (11,232)
    Principal payments under licensing agreement           (6,989)       (21,464)       (18,393)
    Bank overdraft                                        217,587             --             --
    Net proceeds from issuance of stock                   233,425        648,439      2,166,085
    Net proceeds from common stock subscribed             294,787             --             --
                                                      -----------    -----------    -----------
    Net cash provided by financing activities             710,820        590,939      2,136,460
                                                      -----------    -----------    -----------

    Effects of exchange rate differences on cash           32,066         (9,344)         8,155
                                                      -----------    -----------    -----------

    (Decrease) increase in cash                           (81,075)      (770,595)       891,243
    Cash, beginning of year                               312,277      1,082,872        191,629
                                                      -----------    -----------    -----------
    Cash, end of year                                 $   231,202    $   312,277    $ 1,082,872
                                                      ===========    ===========    ===========

    INTEREST PAID                                     $    14,011    $    50,545    $    53,508
                                                      ===========    ===========    ===========

NONCASH INVESTING AND FINANCING ACTIVITIES:
    Debt assumed by purchaser of vehicle              $    25,970    $        --    $        --
                                                      ===========    ===========    ===========
</TABLE>

SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.


                                      F-6
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN

Ionic Fuel Technology, Inc. ("Company") has incurred recurring operating losses,
and its operations have not produced a positive cash flow. As such, this
condition raises substantial doubt about the Company's ability to continue as a
going concern.

During the past year, the principal use of the Company's cash has been to fund
its operating losses. The Company has been utilizing approximately $67,000 per
month to fund operations. The Company has raised additional capital through the
sale of common shares to fund operations. If additional capital is not secured
within the next three months, it may be necessary to substantially curtail or
cease operations. In June 2000 an additional $200,000 was accepted as
subscriptions for 2,000,000 shares of common stock. The acceptance of the
$200,000 had the affect of turning the stockholders' equity from a deficit at
year end to positive equity. The Company intends to raise additional capital
through the sale of common shares subsequent to September 30, 2000.

BASIS OF PRESENTATION

The Company, a Delaware corporation formed on December 10, 1991, manufactures
ion generating equipment for sale or lease to entities in various industries, in
Europe, to reduce airborne emissions and fuel consumption. The Company also
provides related engineering consulting services.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Ionic Fuel Technology USA, Inc. ("IFT, USA"), a
company incorporated in the U.S. and Ionic Fuel Technology Ltd. ("IFT Ltd."), a
company incorporated in the United Kingdom. All significant intercompany
accounts and transactions have been eliminated in consolidation.

CONCENTRATION OF CREDIT RISK

At June 30, 1999, the Company maintained cash balances of approximately $219,000
at a bank in excess of the insurance limits ($100,000) of the Federal Deposit
Insurance Corporation.

The Company performs periodic evaluations of its customers financial condition
and generally does not require collateral.

CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.

INVENTORY

Inventory is valued at the lower of cost, determined by the first-in, first-out
method, or net realizable value.


                                      F-7
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EQUIPMENT AND VEHICLES

Equipment and vehicles are stated at cost less accumulated depreciation and
amortization provided on the straight-line basis over the estimated useful lives
of the assets, which range from three to ten years. Equipment under lease to
third parties is depreciated over the life of the lease, generally five years.

INTANGIBLE ASSETS

During 1999 the Company determined that impairment of its intangible assets
existed based on the review of the undiscounted future cash flow of revenue
generated from these patents. As a result, the Company has written off $504,886
of unamortized patents.

Patents were carried at acquisition cost, less accumulated amortization provided
on the straight-line basis over the estimated useful lives which originally
ranged from five to fifteen years. Amortization expense (which included the
write-offs of the patents) for these intangible assets amounted to $571,581, and
$64,155 for the years ended June 30, 1999, and 1998, respectively. Accumulated
amortization amounted to $984,004 at June 30, 1999.

INCOME TAXES

The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS 109, the effect upon deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized.

FAIR VALUE

Cash and cash equivalents, accounts receivable, accounts payable and capital
lease obligations and other long-term liabilities: The carrying amounts reported
in the balance sheet for cash and cash equivalents, accounts receivable,
accounts payable and capital lease obligations and other long-term liabilities
approximate their fair value.

STOCK COMPENSATION

The Company applies the recognition and measurement provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" in accounting for stock options issued to employees.


                                      F-8
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNING PER SHARE

The Company follows SFAS No. 128, "Earnings per Share," which requires
presentation of basic earnings per share and diluted earnings per share by all
entities that have publicly traded common stock or potential common stock
(options, warrants, convertible securities or contingent stock arrangements).
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share gives effect to total dilutive potential
common shares outstanding during the period. Assumed exercise of options and
warrants has not been included in the calculation of diluted earnings per share
since the effect would be anti-dilutive. Accordingly, basic and diluted net loss
per share do not differ for any period presented.

FOREIGN CURRENCIES

Adjustments resulting from the translation of the financial statements of the
Company's foreign subsidiary are excluded from the determination of income
(loss) and are accumulated in a separate component of stockholders' equity.

REVENUE RECOGNITION

Sales are recognized upon shipment of the equipment and are recorded net of an
allowance for returns. Rental income under operating leases is recognized on a
straight-line basis over the lease term. The equipment leased is owned by the
Company and, accordingly, the Company bears all repairs and maintenance costs
incurred. The lease term is generally five years with an option for renewal.
Engineering consultancy revenues are recognized as services are performed.

WARRANTY COSTS

Estimated warranty costs are provided for when the product is sold.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Based on its current and
planned future activities relative to derivative instruments, the Company
believes that the adoption of SFAS No. 133 will not have a significant effect on
its financial statements.


                                      F-9
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

On December 3, 1999, the SEC issued Staff Accounting Bulletin 101 ("SAB 101"),
Revenue Recognition in Financial Statements. SAB 101 summarizes some of the
SEC's interpretations of the application of generally accepted accounting
principles to revenue recognition. Revenue recognition under SAB 101 was
initially effective for the Company's first quarter 2000 financial statements.
However, SAB 101B, which was released June 26, 2000, delayed adoption of SAB 101
until no later than the fourth fiscal quarter 2000. Changes resulting from SAB
101 require that a cumulative effect of such changes for 1999 and prior years be
recorded as an adjustment to net income on January 1, 2000 plus adjust the
statement of operations for the three months ended in the quarter of adoption.
Although the Company is still in the process of reviewing SAB 101, it believes
that its revenue recognition practices are in substantial compliance with SAB
101 and that adoption of its provisions would not be material to its annual or
quarterly results of operations.

In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation No.
44"), an interpretation of APB Opinion No. 25, Accounting for Certain
Transactions involving Stock Compensation. Interpretation No. 44 is effective
after July 1, 2000, but certain conclusions in Interpretation No. 44 cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that Interpretation No. 44 covers events occurring during the
period after December 15, 1998, or January 12, 2000, but before the effective
date of July 1, 2000, the effects of applying Interpretation No. 44 are
recognized on a prospective basis from July 1, 2000. The Company believes that
adoption will not have a significant impact on the Company.

USE OF ESTIMATES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and as such, include amounts based on
judgments and estimates made by management, which may differ from actual
results.

2. INVENTORY

Inventory is comprised of the following:

<TABLE>
<CAPTION>
                                                   JUNE 30
                                             2000              1999
                                      -----------------------------------
<S>                                         <C>               <C>
Material and supplies                       $131,609          $151,540
Finished goods                               201,863           211,724
                                      ===================================
                                            $333,472          $363,264
                                      ===================================
</TABLE>

Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.


                                     F-10
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3. EQUIPMENT AND VEHICLES

Equipment and vehicles are comprised of the following:

<TABLE>
<CAPTION>
                                                     JUNE 30
                                              2000              1999
                                        ------------------------------------
<S>                                        <C>                <C>
Equipment                                  $ 324,441          $457,621
Vehicles                                      40,099           118,174
                                        ------------------------------------
                                             364,540           575,795
Accumulated depreciation                    (297,201)         (436,459)
                                        ------------------------------------
                                              67,339           139,336
                                        ------------------------------------

Equipment under capital lease                137,868           180,789
Accumulated depreciation                     (63,896)          (71,871)
                                        ------------------------------------
                                              73,972           108,918
                                        ------------------------------------
                                           $ 141,311          $248,254
                                        ====================================
</TABLE>

Depreciation expense, relating to the leased equipment, amounted to $28,215,
$27,101 and $29,129 for the years ended June 30, 2000, 1999 and 1998,
respectively.

4. ROYALTY AGREEMENT

Under an agreement effective as of December 1991, the Company purchased certain
patents and inventions for $50,000 and agreed to make payments of $6,000 per
month over the remaining life of the patents (initially 15 years). During the
year ended June 30, 2000, reduced payments of up to $3,000 per month were agreed
through December 2000. Payments from January 2001 will be at a rate to be
mutually determined. The Company has valued these patent rights ($428,698) based
upon the present value of the future minimum royalty payments using an interest
rate of 15% per annum. In the absence of an agreement for reduced payment terms
beyond December 2000, the liability has not been changed from that originally
calculated. The remaining balance of this obligation, less amounts currently due
($18,900), is included in other long-term liabilities and has the following
maturities:

<TABLE>
<CAPTION>
                     Year ending June 30:
<S>                                                               <C>
                             2002                                 $ 33,989
                             2003                                   39,472
                             2004                                   45,789
                             2005                                   53,156
                          Thereafter                               126,719
                                                                  --------
                                                                  $299,125
                                                                  ========
</TABLE>

If certain annual profitability levels are achieved, an additional royalty of
$24,000 per annum will be payable. The Company has not yet been required to pay
this additional royalty. In conjunction with this agreement, the Company granted
the inventor a security interest in the patents and inventions during the
royalty period.


                                     F-11
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4.  ROYALTY AGREEMENT (CONTINUED)

The Company's former Chairman, Douglas F. Johnston, was to receive an override
royalty of $5,000 per month until the last of the patents expired in 2007.
Following the resignation of Mr. Johnston during the year, this royalty
agreement was cancelled as of September 1, 1999. This expense amounted to
$10,000, $60,000, and $60,000 for the years ended June 30, 2000, 1999, and 1998,
respectively. Commencing in 1995, $1,600 per month of this override royalty was
deferred resulting in an accrued royalty expense of $27,200 and $24,000 at June
30, 2000 and 1999, respectively.

5. COMMITMENTS AND CONTINGENCIES

LEASES

The Company is the lessee of vehicles under capital leases which expire in 2001.
The Company leases its facility under a noncancelable operating lease expiring
in 2007. The future minimum lease payments under operating and capital leases as
of June 30, 2000 are as follows:

<TABLE>
<CAPTION>
                                        Operating leases   Capital leases
                                        ----------------------------------
<S>                                         <C>               <C>
Year ending June 30:
   2001                                     $  137,657        $   7,538
   2002                                        108,441            3,127
   2003                                         96,467            1,300
   2004                                         91,080                -
   2005                                         88,500                -
   Thereafter                                  221,250                -
                                        ----------------------------------
Total minimum lease payments                $  743,395        $  11,965
                                        ==================================
</TABLE>

The cost of assets under capital leases amounted to $40,099 and $65,698 at June
30, 2000 and 1999.

Rent expense for operating leases amounted to $153,972, $148,071, and $143,873
for the years ended June 30, 2000, 1999 and 1998, respectively.

The future minimum lease payments receivable under noncancelable operating
leases as of June 30, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                  Operating
                                                                   leases
                                                                --------------
<S>                                                                <C>
Year ending June 30:
   2001                                                            $195,185
   2002                                                              77,430
                                                                --------------
Total minimum lease payments receivable                            $272,615
                                                                ==============
</TABLE>

LONG-TERM OBLIGATIONS

Long-term obligations as of June 30, 2000, consist of various capital leases
amounting to $11,965, which $4,427 is classified as long-term.


                                     F-12
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6. INCOME TAXES

At June 30, 2000, the Company has available operating loss carryforwards for
United States federal income tax purposes of $2,983,681 which are available to
offset future U.S. taxable income. The losses expire in varying amounts from
2007 through 2015 and are subject to limitations on utilization resulting from
prior changes in the ownership of the Company. The Company's subsidiary has
unused operating loss carryforwards, with no expiration date, for United Kingdom
income tax purposes, of $9,799,692 at June 30, 2000.

Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                        JUNE 30
                                                                 2000              1999
                                                         -------------------------------------
<S>                                                           <C>               <C>
Deferred tax assets:
   Benefit of net operating loss carryforwards - U.S.         $1,014,452        $1,122,881
   Benefit of net operating loss carryforwards - U.K.          1,959,938         1,962,904
   Depreciation in excess of capital allowances                     -                8,700
   Other                                                          15,806            28,209
                                                         -------------------------------------
Total deferred tax assets                                      2,990,196         3,122,694
Deferred tax liabilities:
   Capital allowances in excess of depreciation                  (19,587)            -
Valuation allowance                                           (2,970,609)       (3,122,694)
                                                         =====================================
Total net deferred tax assets (liabilities)                   $     -           $    -
                                                         =====================================
</TABLE>

7. STOCKHOLDERS' EQUITY

On July 28, 1994, the Company issued 1,200,000 units, each unit consisting of
one share of common stock, par value $0.01 per share, one Series A redeemable
common stock purchase warrant and one Series B redeemable common stock purchase
warrant. Two Series A Warrants entitle the holder to purchase one share of
Common Stock for $6.50 until September 30, 1998. Two Series B Warrants entitle
the holder to purchase one share of Common Stock for $7.50 until July 28, 1999
which was subsequently extended to July 30, 2000. Each Series of Redeemable
Warrants is redeemable at a price of $0.01 per two Redeemable Warrants, upon not
less than 30 days prior written notice, if the last sale price of the Common
Stock has been at least $9.50 with respect to the Series A Warrants and $10.50
with respect to the Series B Warrants for the 20 consecutive trading days ending
on the third day prior to the notice of redemption. As a result of the offering,
the Company raised $4,768,414, net of discounts, commissions and offering
expenses of $1,231,586. Subsequent to year end the Series B Warrants expired
unexercised.

On July 14, 1997, the Company completed a private offering of its common stock
and Series C Warrants at a price of $2.25 per unit. The Company issued 771,833
units. Each unit is comprised of one share of common stock, par value $0.01 per
share and one warrant to purchase one share of common stock at a price of $2.95,
expiring July 10, 2000. The Company granted 77,183 Series C Warrants to their
broker in exchange for the services provided. The Company received total
proceeds of $1,552,116, net of offering expenses of $184,508. In December 1997,
97,722 of the Series C warrants were exercised. Subsequent to year end the
Series C Warrants expired unexercised.

On March 31, 1998 the Company completed an offering of 147,800 shares of common
stock, par value $0.01 per share, at a price of $2.50 per share. Concurrent with
the offering, 25,000 warrants issued in April 1997 to a financial consultant
(see discussion below) were exercised at a price of $2.25. Also, a
founder/officer of the Company who received an override royalty (see Note 4),
received 21,800 shares in consideration of $54,500 of accrued royalties owed to
him by the Company. The Company raised $300,750 net of offering expenses of
$8,000 and the accrued royalty liability of $54,500.


                                     F-13
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)

On April 1, 1999 the Company completed an offering of 4,838,334 shares of common
stock, par value $0.01 per share, at a price of $0.15 per share. The Company
raised $648,439 net of related costs of $77,311 and issued 270,200.059 warrants
to placement agents .

On February 1, 2000 the Company completed an offering of 4,668,500 shares of
common stock, par value $0.01 per share, at a price of $0.05 per share. The
company raised $233,425.

During June 2000 the Company accepted subscriptions for 3,310,000 shares of
common stock, par value $0.01, at a price of $0.10 per share. The Company raised
a $294,787 net of related costs of $36,213 and net of the issue of 100,000
warrants to a placement agent for assistance in the offering. An additional
$200,000 was accepted after June 30, 2000 as subscriptions for 2,000,000 shares
of common stock. The acceptance of the $200,000 had the affect of turning
stockholders' equity from a deficit at year end to positive equity.

The Company, in July 2000, increased the number of authorized common shares to
50,000,000.

STOCK OPTIONS

The Company's 1992 Stock Option Plan, as amended, (the "Plan"), provides for the
granting of qualified or nonqualified options to acquire up to 450,000 common
shares by certain key employees of the Company or its subsidiary. Options
granted under the Plan are issued at the fair market value at the date of
issuance and have a contractual life of ten years. The Plan was amended in 1999
to increase the number of shares available under the 1992 Stock Option Plan
by500,000 shares, for a total of 950,000. Options granted to directors are
exercisable immediately. As of June 30, 2000, 130,000 director options were
granted and exercisable. All non-director options are exercisable one year after
the date of grant at a rate of 20% per annum, on a cumulative basis. Options may
be granted through November 30, 2002, although the Plan may be terminated at any
time.

Pro forma information regarding net income and net loss per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to June
30, 1995 under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for the years ended June
30, 2000, 1999, and 1998, respectively; risk-free interest rates of 5.9%, 4.5%,
and 5.8%; volatility factors of the expected market price of the Company's
common stock of 46%, 128%, and 93% and a weighted-average expected life for the
options of 5 years and no anticipated dividends for all periods.

The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
and warrants are amortized to expense over the vesting periods. The Company's
pro forma net loss would have been approximately $1,172,455, $1,988,914, and
$1,396,993 and pro forma net loss per share would have been $(0.09), $(0.26),
and $(0.22) for the years ended June 30, 2000, 1999, and 1998, respectively.


                                     F-14
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. STOCKHOLDERS' EQUITY (CONTINUED)

The following presents a summary of the Company's stock option activity and
related information:

<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                                        AVERAGE
                                          NUMBER      OPTION PRICE   EXERCISE PRICE
                                        OF SHARES       PER SHARE      PER SHARE
                                      ---------------------------------------------
<S>                                      <C>           <C>               <C>
Options outstanding at June 30, 1997      330,400                         $2.50
   Granted                                 96,000      $1.75-$4.00        $3.44
   Exercised                              (26,000)     $ .28-$1.34        $ .96
   Canceled                               (18,000)     $ .28-$1.06        $ .79
                                      ---------------

Options outstanding at June 30, 1998      382,400                         $2.92
   Granted                                100,000      $ .37-$ .70        $ .54
   Exercised                                    -           -                 -
   Canceled                               (10,000)        $1.75           $1.75
                                      ---------------

Options outstanding at June 30, 1999      472,400                         $2.44
   Granted                                 50,000         $ .50           $ .50
   Exercised                                    -              -
   Canceled                               (15,900)     $ .28-$4.00        $2.50
                                      ---------------
Options outstanding at June 30, 2000      506,500
                                      ===============
</TABLE>

At June 30, 2000, options for 443,500 shares were available for future grants
and 373,400 options were exercisable.

The following table summarizes information concerning outstanding and
exercisable options, as of June 30, 2000:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                                            OPTIONS EXERCISABLE
-------------------------------------------------------------------------------------------------------------------------------
                                             WEIGHTED-AVERAGE
                                                 REMAINING
  RANGE OF EXERCISE                          CONTRACTUAL LIFE     WEIGHTED-AVERAGE                          WEIGHTED-AVERAGE
       PRICES          NUMBER OUTSTANDING       (IN YEARS)         EXERCISE PRICE     NUMBER EXERCISABLE     EXERCISE PRICE
-------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                   <C>                  <C>                <C>                    <C>
    $0.01 - $1.00             186,000               8.20                 $0.51              103,200                $0.57
    $1.01 - $2.00              96,000               6.64                 $1.65               83,200                $1.74
    $2.01 - $3.00              54,000               6.25                 $2.99               54,000                $2.99
    $3.01 - $4.00             112,500               7.13                 $4.00               75,000                $4.00
    $4.01 - $5.00              58,000               3.12                 $4.74               58,000                $4.74
-------------------------------------------------------------------------------------------------------------------------------
                              506,500               6.88                 $2.25              373,400                $2.52
===============================================================================================================================
</TABLE>

The weighted-average fair value of options granted during the years ended June
30, 2000, 1999, and 1998 was $0.28, $0.47 and $2.56, respectively.


                                     F-15
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. STOCKHOLDERS' EQUITY (CONTINUED)

In April 1997, the Company issued 150,000 options to a financial public
relations firm in lieu of a $20,000 fee required under a written contract for
annual services commencing January 1, 1997. The options were divided into thirds
and are exercisable at $2, $3 and $4 a share, respectively. They are exercisable
immediately and expire on December 31, 2002. For each of the years ended June
30, 1999, 1998, and 1997, the Company has recognized compensation expense for
the fair value of these options of $10,000.

WARRANTS

In April 1997, the Company issued 150,000 warrants to a financial consultant in
lieu of present and future compensation for services. Each warrant entitles the
holder to purchase one share of Common Stock. The exercise price of 75,000 of
the warrants is $2.25 per warrant and the exercise price of the remaining 75,000
warrants is $3.50 per warrant. The warrants were exercisable immediately and
expire on March 15, 2001. The fair value of the warrants, $48,000 was based on
contract value of the services to be provided. Compensation expense of $18,000,
$24,000 and $6,000 was recognized for the years ended June 30, 1999, 1998, and
1997, respectively. As noted above, 25,000 warrants were exercised at a price of
$2.25 per warrant as part of the March 1998 offering.


                                     F-16
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. SEGMENT REPORTING

The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information in 1998, which changes the way the Company reports
information about its operating segments. All prior year's information has been
restated to conform with the current year presentation.

The Company has two segments, determined geographically and is made up of the
operations of the United States and Europe. The European segment makes up a
majority of the Company's operations, as it is engaged in the design and
assembly of its patented IFT system.

Segment Reporting of the Company are as follows:

<TABLE>
<CAPTION>
                                                             ADJUSTMENTS AND
                                UNITED STATES     EUROPE       ELIMINATIONS      TOTAL
                                ----------------------------------------------------------
<S>                             <C>             <C>            <C>             <C>
2000
Revenues:
   Sales                        $         --    $   104,483    $         --    $   104,483
   Rental                                 --        380,943              --        380,943
   Engineering consultancy                --        136,442              --        136,442
                                ----------------------------------------------------------
Total revenue                   $         --    $   621,868    $         --    $   621,868
                                ==========================================================

Segment loss                    $   (149,852)   $  (952,507)             --    $(1,102,359)
Depreciation and amortization             --        (66,927)             --        (66,927)
Interest income                        3,351            515              --          3,866
Interest expense                     (14,011)            --              --        (14,011)
Total assets                      12,078,431      1,555,243    $(12,605,279)     1,028,395

1999
Revenues:
   Sales                        $         --    $   266,351    $         --    $   266,351
   Rental                                 --        342,257              --        342,257
                                ----------------------------------------------------------
Total revenue                   $         --    $   608,608    $         --    $   608,608
                                ==========================================================

Segment loss                    $   (861,025)   $(1,096,416)   $         --    $(1,957,441)
Depreciation and amortization        (66,695)       (69,005)             --       (135,700)
Interest income                       17,543          3,035              --         20,578
Interest expense                     (50,545)            --              --        (50,545)
Total assets                      11,616,135      1,788,285     (12,069,513)     1,334,907

1998
Revenues:
   Sales                        $         --    $    88,870    $         --    $    88,870
   Rental                                 --        348,780              --        348,780
                                ----------------------------------------------------------
Total revenue                   $         --    $   437,650    $         --    $   437,650
                                ==========================================================

Segment loss                    $   (360,328)   $  (987,828)   $         --    $(1,348,156)
Depreciation and amortization        (64,155)       (80,899)             --       (145,054)
Interest income                       61,369          5,691              --         67,060
Interest expense                     (53,508)            --              --        (53,508)
Total assets                      11,852,985      1,524,899     (10,950,167)     2,427,717
</TABLE>

Adjustments and eliminations represent the elimination, on consolidation, of
intra-group balances and investments.


                                     F-17
<PAGE>

                           IONIC FUEL TECHNOLOGY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8. SEGMENT REPORTING (CONTINUED)

    Revenues analyzed geographically are as follows:

<TABLE>
<CAPTION>
                                        2000           1999          1998
                                   ---------------------------------------------
<S>                                   <C>            <C>           <C>
    United Kingdom                    $551,526       $518,458      $381,751
    Belgium/Netherlands                 70,342         90,150        55,899
                                   =============================================
                                      $621,868       $608,608      $437,650
                                   =============================================
</TABLE>


                                     F-18
<PAGE>

SIGNATURES


Pursuant to the requirements of Section 13 or 15(b) 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.

Dated: November 3, 2000

                                            IONIC FUEL TECHNOLOGY, INC.


                                            By:
                                                Anthony J.S. Garner

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the date indicated.

Name                    Titles                                Date


Anthony J.S. Garner     Chairman, Chief Executive and         November 3, 2000
                        Financial Officer & Director


Frank J. Hollendoner    Director                              November 3, 2000


Henry W. Sullivan       Director                              November 3, 2000
<PAGE>

AUDIT REPORT


REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders
Ionic Fuel Technology, Inc.


We have audited the accompanying consolidated balance sheet of Ionic Fuel
Technology, Inc as of June 30, 2000 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended June 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ionic
Fuel Technology, Inc at June 30, 2000, and the consolidated results of its
operations and its cash flows for the year ended June 30, 2000, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that Ionic
Fuel Technology, Inc will continue as a going concern. As more fully described
in Note 1, Ionic Fuel Technology, Inc has incurred recurring operating losses
and its operations have not produced a positive cash flow. This condition raises
substantial doubt about the company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



BDO Stoy Hayward

27 September 2000