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

[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, 1999 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)

for the transition period from                   to
                               -----------------    ---------------------

Commission File Number: 1-13234
                        -------

                           IONIC FUEL TECHNOLOGY, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                      06-1333140
------------------------------------          -------------------------------
(State or other jurisdiction of No.)          (I.R.S. Employer Identification
                                                       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:

    Title of each class               Name of each exchange on which registered
----------------------------          -----------------------------------------
Common Stock, par value $.01                     Boston Stock Exchange


Series B Redeemable Common
Stock Purchase Warrant ("B Warrants")            Boston Stock Exchange

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

None

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

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<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,
1999 - $2,858,971.

Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date. At September 1999, there
were 11,283,289 common shares, 1,200,000 Series B Warrants and 189,000
Underwriters' Warrants, 771,883 Series C Warrants, 150,000 Consultant's
Warrants, and 270,200.059 Series D 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)

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

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<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 0% 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.

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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

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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, notably British Steel plc.

     The Company will rent or sell the System. In the general industrial market
customers prefer to rent, in the oil and petrochemical industry, the preference
is to purchase.

     Warranty and Service

     The Company provides a one year warranty on parts and labor to purchasers
of the System and thereafter servicing under a service contract. Lessees of the
system receive service without additional charge within the terms of the rental
agreement.

     Assembly and Suppliers

     The IFT System is assembled in the U.K. at the Company's facility in
Laindon, Essex under strict quality control procedures. Although there have been
no sourcing problems, the Company has a policy of dual sourcing where this is
deemed advantageous for cost and continuity of supply. Single sourcing is
currently confined to vibrators and air pumps that are widely produced for use
in other industries and therefore readily available.

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     Research and Development

     The Company's research and development efforts are a continuing process and
are focused primarily on refining the vibration technology that forms the basis
of the IFT System. To that end, the Company has studied such areas as the
interaction of the charged particles and the combustion process, the delivery of
the charged particles to the combustion chamber, the optimum volume of the
charge, the optimum ratio of air to liquid surface and the impact of pressure
and temperature on delivery of the charge. The Company's efforts resulted in an
enhancement to the patented vibration technology for which a European patent
application was filed in January 1994. The company plans to launch an enhanced
IFT System developed to meet the anticipated requirements of the oil industry,
with further developments following discussions with UK utility companies.

     The Company's research and development costs are expensed as incurred.
Employees engaged in engineering and manufacturing also perform R&D functions,
therefore it is unrealistic to isolate these specific costs since they were not
material.

     Patents

     The first U.S. Patent for the Ion generating technology utilized by the IFT
System was issued in 1975 to F.A. Wentworth, Jr. ("Wentworth"). This original
technology employed a "bubble" process whereby the air was "bubbled" through
liquid to release Ions at the surface of the liquid. A subsequent patent was
issued to Wentworth in December 1990 employing a "vibration" process which
substantially enhanced the commercial potential of the technology by increasing
the negative charge. The "vibration" technology involves vibrating the surface
of the water to release the Charged Particles. In January 1994, an additional
patent application was filed in Europe on behalf of the company covering an
enhancement to the vibration technology. This improved "vibration" technology
allows for a more powerful and more consistent negative charge than the initial
Wentworth vibration patent. This improvement has been incorporated into the IFT
System. The Company filed counterpart applications to its latest European patent
application in the United States and several other foreign countries in 1995.

     The Company entered into a Royalty Agreement ("Royalty Agreement") dated
June 2, 1994 (effective as of December 5, 1991) with Wentworth pursuant to which
Wentworth sold all of his interest in the patents relating to the ion generating
technology to the Company. As consideration for the assignment and sale,
Wentworth received a $50,000 initial payment and a $6,000 per month royalty fee
during the life of the patents. In addition, Wentworth purchased 80,000 shares
of the Company's Common Stock at $.125 per share in December 1991. Wentworth has
retained a security interest in the patent rights transferred to the Company
pursuant to the Royalty Agreement.

     The Company owns six U.S. Patents, twelve foreign patents and five foreign
patent applications covering, in the aggregate, up to twenty different
countries. Several of the earlier "bubble" technology patents have expired.
However, improvement patents covering the "bubble" technology still exist in the
United States and several foreign countries, and the more important

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"vibration" technology patents, which form the basis of the IFT System, run to
at least 2007. The Company was also granted a patent in Japan.

     While the Company intends to vigorously enforce its patent rights against
infringement by third parties, no assurance can be given that such rights will
be enforceable or will provide the Company with meaningful protection from
competitors or that any pending patent applications will be allowed. Even if a
competitor's products were to infringe patents owned by the Company, it could be
damaging to the Company to enforce its rights because such action would divert
funds and resources which otherwise could be used in the Company's operations.
No assurance can be given that the Company would be successful in enforcing such
rights, that the Company's products or processes do not infringe the patent or
intellectual property rights of a third party, or that, if the Company is not
successful in a suit involving patents or other intellectual property rights of
a third party, a 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.

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     Domestic and international environmental laws and regulations are, and will
continue to be, a principal factor affecting demand for the IFT System. Although
the Company believes there is a trend toward increasing regulation and
enforcement by all levels of government, a decline in enforcement and related
expenditures by businesses subject to such laws and regulations could have a
significant adverse effect on the demand for the IFT system. In addition, there
can be no assurance that the IFT System currently, or as adjusted or enhanced,
will enable others to comply with specified or yet unspecified emissions
standards implemented by any amendments to present laws and regulations or any
future legislation.

     Competition

     While most other pollution control technologies are aimed at reducing
airborne emissions, the Company is not aware of any technology which enhances
combustion efficiency and reduces noxious emissions. The technology used by the
Company's competitors can be divided into three categories: pre-combustion,
combustion and post-combustion.

     Pre-combustion techniques include chemical additives, low NOx burners, and
water/steam injection added to the fuel. Such techniques can achieve reduction
in particulate and NOx emissions but do not result in material fuel savings.

     Combustion techniques include air/fuel control systems, chemical additives
(i.e. urea injection) and flue gas recirculation. These methods reduce NOx
emissions but may result in higher particulate emissions and/or reduced boiler
efficiency. Furthermore, they are generally more expensive to install than the
IFT System.

     Post-combustion systems include precipitators, bag filters and scrubbers.
These systems require large capital expenses often involve high maintenance and
operating costs and do not address fuel efficiency. Some have the added
disadvantage of producing by-products which may present disposal problems.

     The IFT technology is not, by itself, a solution to all emissions problems.
More frequently the technology is complementary to solutions a customer may wish
to utilize. For example, to achieve extremely low NOx emission, ammonia
injection might be selected. IFT could enhance combustion efficiency so that
less NOx is produced and subsequently less ammonia is required to achieve the
final lower NOx level.

     While the Company believes that it's System enjoys significant advantages
as compared to its competitors' products, many of the Company's competitors have
greater resources, both financial and otherwise, than the Company and therefore
may be capable of testing, enhancing, marketing and distributing their products
on a wider basis than the Company. In addition, future technological
developments and novel approaches in the flame combustion field as well as
enhancements of current technology will, in all likelihood, create new products
and services that directly compete with the IFT

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


     Item 2. PROPERTY

     The Company leases approximately 10,000 square feet of space for its
principal executive offices, manufacturing and research and development
facilities in Laindon, Essex, U.K. This lease expires in December 2007, the base
rent for this facility is approximately $7,743 per month for 1998 to December
2000, with the rent to be reviewed for the January 2001 and January 2005
periods.

     The Company maintains one office in New Canaan, Connecticut on a month to
month basis at $105 per month and a sales office in Gent, Belgium pursuant to a
three year lease at $360 per month plus utilities.

     The Company maintains its corporate office in Wilmington, Delaware pursuant
to an annual lease with an annual rental of $3,000 plus utilities. The lease was
renewed in December 1998 on the same terms.

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


Item 3. LEGAL PROCEEDINGS

        Not applicable


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

        Not applicable

                                        9

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                                     PART II

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

     The Company's common stock and Class B Warrants are quoted on the Nasdaq
Bulletin Board and Boston Stock Exchange under symbols "IFTI", "IFTIZ", "IFU"
and "IFUZ" respectively.

     The table set forth below shows, for the period indicated, the high and low
bid quotations on the Nasdaq SmallCap Market for the Company's Securities. These
amounts represent quotation between dealers in securities, and do not include
retail mark-ups, mark-downs or commissions and may not represent actual
transactions.

         The Class A Warrants expired September 30, 1998.

                                                                  Bid
                                                         ---------------------
Period Ended               Type of Security               High            Low
------------               ----------------              ------         ------

September 1997             Common Stock                  3              1 5/8
                           Class A Warrant                 3/32           1/16
                           Class B Warrant                 5/32           1/8

December 1997              Common Stock                  5 9/16         2 3/8
                           Class A Warrant                 9/16           3/32
                           Class B Warrant                 9/16           1/8

March 1998                 Common Stock                  4 1/16         3
                           Class A Warrant                 7/16           9/32
                           Class B Warrant                 3/4            9/32

June 1998                  Common Stock                  3              1 1/4
                           Class A Warrant                 1/8            1/16
                           Class B Warrant                 5/16           3/32

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

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     The company estimates at September 1, 1999, the number of shareholders of
record and in street name of the Company's common stock was approximately 800
and Class B Warrants was 75.

     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, 1995    June 30, 1996   June 30, 1997   June 30, 1998
                    -------------    -------------   -------------   -------------
<S>                  <C>             <C>             <C>             <C>
Statement of
Operations Data:

Revenues             $    476,161    $    593,959    $    628,694    $    437,650

Cost of Revenues          344,868         537,110         723,327         692,952

Operating Expenses      2,974,998       1,669,145         882,524       1,106,406
Net Loss               (2,725,744)     (1,563,667)     (1,004,425)     (1,348,156)
Net Loss per
 share               $       (.51)   $       (.29)   $       (.19)   $       (.22)
Weighted average
 number of              5,318,445       5,400,000       5,401,600       6,251,376
 common shares

Cash Dividend
 per common share            --              --              --              --
Balance Sheet:

Total Assets         $  4,463,543    $  2,659,185    $  1,549,619    $  2,427,717

Working Capital         2,687,338       1,306,293         434,686       1,323,540
Long-term
 liabilities              394,625         364,773         346,249         393,376
Total
 liabilities            1,106,581         886,274         705,062         701,111
Accumulated
 deficit               (7,335,575)     (8,899,242)     (9,903,667)    (11,251,823)
Cumulative
 translation
 adjustment              (130,436)       (150,820)       (143,199)       (133,579)

Stockholders'
 Equity                 3,356,962       1,772,911         844,557       1,726,606
</TABLE>

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                                                      Year Ended
Statement of Operations Data:                        June 30, 1999
-----------------------------                        -------------
Revenues......................................      $    608,608
Cost of  Revenues.............................           897,388
Operating Expenses............................         1,638,694
Net (loss)....................................        (1,927,474)
Net (loss) per share..........................      $       (.26)
Weighted average number
   of common shares...........................         7,651,225
Cash dividend per common
   share......................................                 0

Balance Sheet
 Data:

Total assets..................................      $  1,334,907
Working capital...............................           465,717
Long-term liabilities.........................           330,626
Total liabilities.............................           951,562
Accumulated deficit...........................       (13,209,264)
Cumulative translation
  adjustment..................................          (167,838)
Stockholders' equity..........................           383,345

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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 a few weeks, operations
will be substantially curtailed or ceased. The Company will continue to focus
its operations primarily on expansion within the European Community.

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<PAGE>

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 a increase in system sales to approximately $266,000.
($89,000 in 1998).

     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.

     The Company has determined that impairment of its intangible assets exists
based on a review of undiscounted future cash flow of revenue generated from
these patents. As a result, the Company has written off $505,000 of unamortized
patents in 1999.

     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 an increase in marketing promotion,
recruitment costs and an additional sales person.

     Other income (expense) net was approximately ($30,000) net expense 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.

Year ended June 30, 1998 and June 30, 1997

     Total revenues decreased to approximately $438,000 during the year ended
June 30, 1998 from $629,000 in the fiscal year ended June 30, 1997. The net
decrease relates to a decrease in system sales to approximately $89,000
($261,000 in 1997), a decrease in rental income to approximately $349,000
($368,000 in 1997). The decrease in system sales relates to one purchase in the
prior year not repeated in the current year. The decrease in rental income
relates to the phasing out of those leases which fell below an acceptable
monthly income.


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<PAGE>



     There was a gross loss of approximately $255,000 during the year ended June
30, 1998 compared to a loss of approximately $95,000 during the year ended June
30, 1997. The increased gross loss related primarily to the decline in revenues
being greater than the decline in cost of sales, which are primarily fixed. Cost
of sales decreased approximately $30,000 to $693,000 ($723,000 for fiscal 1997)
whereas revenues decreased by approximately $191,000.

     General and administrative expenses increased to approximately $793,000
during the year ended June 30, 1998 from approximately $657,000 in the year
ended June 30, 1997, an increase of $136,000. This increase is primarily due to:
an increase of approximately $42,000 in stock market related expenses,
specifically public relation fees and stock registration fees; an increase of
approximately $18,000 in legal and professional fees and an increase of general
and administrative expenses that had been allocated to cost of sales in 1997 but
not in 1998, due to the reduction in manufacturing activities.

     Sales and marketing expenses increased to $217,000 during the year ended
June 30, 1998 from approximately $161,000 during the year ended June 30, 1997.
The increase of $56,000 is primarily due to additional marketing consulting and
staff costs.

     Other income was approximately $14,000 during the year ended June 30, 1998
compared to expense of $27,000 during the year ended June 30, 1997, an increase
of $41,000, primarily due to an increase in interest income as a result of
capital issued during fiscal 1998.

Liquidity and Capital Resources

     Since inception, the Company's funding requirements have been met through
the initial public offering of equity securities totaling approximately $4.8
million, the private placement of equity securities totaling approximately $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.

     Net cash used in operations was approximately $1.2 million, $1.2 million
and $900,000 for the years ended June 30, 1999, 1998 and 1997, respectively. The
principal use of cash was to fund operating losses incurred by the company in
developing the IFT system and sales, marketing and promotional activities.
Working capital was approximately $466,000, $1.3 million and $435,000 at June
30, 1999, 1998 and 1997, respectively. Fluctuations in working capital have been
primarily due to fluctuations in cash, decreases in accounts payable and other
accruals.

     Capital expenditures amounted to approximately $134,000, $88,000 and
$29,000 during fiscal years 1999, 1998 and 1997, 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 of $6,000 per month to the inventor over the
remaining life of patents relating to the technology. In conjunction with the
Royalty Agreement, the Company pays an executive officer/director of the Company
a royalty override of $5,000 per month.


                                       15

<PAGE>


     The Company is presently attempting to raise additional capital to fund
operating losses. There can be no assurance that the Company will obtain such
capital. Indeed, the Company's inability to achieve profitability or positive
cash flow together with the general trend of weakness in the price of the
Company's stock make it substantially uncertain whether the Company will be
successful in raising additional capital. There is a material possibility that
operations will be curtailed or terminated if the Company fails to obtain such
capital. The Company will continue to focus its operations primarily on
expansion within the European Community.


Currency Fluctuation

     The Company's revenues are invoiced primarily in Pounds Sterling and also
currencies of other European countries (Belgium, 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, 1999, 1998 and 1997, currency fluctuations were not significant and
were not an influence on the Company's revenues and expenses. Currently, the
Company does not enter into derivative contracts to hedge currency risks.

     During the year ended June 30, 1999 the average rate of exchange used to
translate revenues and expenses denominated in Pounds Sterling has remained at
approximately 1.65 U.S. dollars to 1 Pound Sterling, consistent with the year
ended June 30, 1998.

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.

Year 2000 Readiness

     The Company has taken action to understand the nature and extent of the
work required to make its computer systems that interface with vendors,
customers and others ready for the Year 2000. The Company is in the process of
replacing, validating and testing its hardware and software utilizing internal
and external resources. Much of the Company's software currently in use is Year
2000 compliant, its hardware is being systematically replaced and accordingly,
Year 2000 issues are not expected to have a material impact on the Company's
future financial condition. As of June 30, 1999, the Company has expensed
approximately $13,000 on costs associated with Year 2000 issues, and the Company
expects to incur additional expenses of approximately $28,000 in 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 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, 1999 and 1998                     F-2

Consolidated Statements of Operations - Years Ended                      F-3
June 30, 1999, 1998 and 1997

Consolidated Statements of Stockholders' Equity -                        F-4
Years Ended June 30, 1999, 1998 and 1997

Consolidated Statements of Cash Flows - Years Ended                      F-5
June 30, 1999, 1998 and 1997

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          Write-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, 1997
   Allowance for doubtful accounts                    $43,791          $     510             $44,301           $     --
   Inventory reserve                                   57,315             37,647                  --             94,962

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
</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 April 7, 1999 electronically filed and accepted on April 12,
1999 Accession No. 0001005477-99-001713. Reference Item 5. Other Events: On
April 1, 1999, the Registrant concluded a private placement of common stock.



<PAGE>


                         Report of Independent Auditors



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


We have audited the accompanying consolidated balance sheets of Ionic Fuel
Technology, Inc. as of June 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits 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 audits provide 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, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole
presents fairly in all material respects, the information set forth therein.

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-1

<PAGE>


                           Ionic Fuel Technology, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                             June 30
                                                                     1999                1998
                                                                  ------------       -----------
<S>                                                               <C>                <C>
Assets
Current assets:
   Cash and cash equivalents (Note 1)                             $    312,277       $  1,082,872
   Trade accounts receivable                                           344,986             66,839
   Inventory (Note 2)                                                  363,264            348,496
   Prepaid expenses                                                     66,126            133,068
                                                                  ------------       ------------
Total current assets                                                 1,086,653          1,631,275

Equipment and vehicles, net (Notes 1 and 3)                            248,254            245,551

Patents, net (Notes 1 and 4)                                              --              550,891
                                                                  ------------       ------------
Total assets                                                      $  1,334,907       $  2,427,717
                                                                  ============       ============

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                               $    141,853       $     87,324
   Accrued expenses                                                    211,627            115,920
   Provisions for warranties and returns                               159,939             20,272
   Accrued royalty - due to officer (Note 4)                            24,000              4,800
   Current portion of royalty agreement (Note 4)                        24,915             21,464
   Accrued salary, benefits and payroll taxes                           23,166             19,834
   Current portion of capital lease obligations (Note 5)                35,436             38,121
                                                                  ------------       ------------
Total current liabilities                                              620,936            307,735

Long-term liabilities (Notes 4 and 5):
   Long-term obligations less current portion                           30,527             68,362
   Other long-term liabilities                                         300,099            325,014
                                                                  ------------       ------------
Total long-term liabilities                                            330,626            393,376

Commitments and contingencies (Note 5)

Stockholders' equity (Note 7): Common stock, $.01 par value:
     20,000,000 shares authorized; issued and outstanding
     11,283,289 shares and 6,444,955 shares,
     respectively (Note 7)                                             112,833             64,450
   Capital in excess of par value                                   13,647,614         13,047,558
   Accumulated deficit                                             (13,209,264)       (11,251,823)
   Cumulative translation adjustment (Note 1)                         (167,838)          (133,579)
                                                                  ------------       ------------
Total stockholders' equity                                             383,345          1,726,606
                                                                  ------------       ------------
Total liabilities and stockholders' equity                        $  1,334,907       $  2,427,717
                                                                  ============       ============
</TABLE>


See accompanying notes.

                                      F-2

<PAGE>


                           Ionic Fuel Technology, Inc.

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>

                                                                    Year ended June 30
                                                         1999             1998             1997
                                                     -----------       -----------       -----------
<S>                                                  <C>              <C>                <C>
Revenues (Note 1):
   Sales                                             $   266,351       $    88,870       $   260,679
   Rentals                                               342,257           348,780           368,015
                                                     -----------       -----------       -----------
Total revenues                                           608,608           437,650           628,694

Cost of revenues
   Sales                                                 310,526           205,484           184,063
   Rentals                                               586,862           487,468           539,264
                                                     -----------       -----------       -----------
Total cost of revenues                                   897,388           692,952           723,327
                                                     -----------       -----------       -----------
                                                        (288,780)         (255,302)          (94,633)

Operating expenses:
   General and administrative                            684,463           728,535           594,472
   Amortization and write-off of patents                 571,581            64,155            62,661
   Sales and marketing                                   305,006           217,468           161,418
   Royalty charges                                        60,000            60,000            60,000
   Research and development                               17,644            36,248             3,973
                                                     -----------       -----------       -----------
                                                       1,638,694         1,106,406           882,524
                                                     -----------       -----------       -----------
Loss from operations                                  (1,927,474)       (1,361,708)         (977,157)

Other income (expense):
   Interest income                                        20,578            67,060            28,801
   Interest expense                                      (50,545)          (53,508)          (56,069)
                                                     -----------       -----------       -----------
                                                         (29,967)           13,552           (27,268)
                                                     -----------       -----------       -----------

Net loss                                             $(1,957,441)      $(1,348,156)      $(1,004,425)
                                                     ===========       ===========       ===========

Net loss per share - basic and diluted (Note 1)      $     (0.26)      $     (0.22)      $     (0.19)
                                                     ===========       ===========       ===========

Weighted average number of common shares
   (Note 1)                                            7,651,225         6,251,376         5,401,600
                                                     ===========       ===========       ===========
</TABLE>

See accompanying notes.

                                      F-3

<PAGE>


                           Ionic Fuel Technology, Inc.

                 Consolidated Statements of Stockholders' Equity



<TABLE>
<CAPTION>
                                           -----------------------------
                                                   Common Stock                                         Accumulated
                                           -----------------------------  Capital in                       Other
                                                             Par          Excess of    Accumulated      Comprehensive
                                             Shares         Value         Par Value      Deficit        Income (Loss)      Total
                                           ----------------------------------------------------------------------------------------
<S>                                         <C>           <C>            <C>            <C>                <C>          <C>
Balance at June 30, 1996                    5,400,000     $  54,000      $10,768,973    $ (8,899,242)      $(150,820)   $ 1,772,911
     Net loss                                                                             (1,004,425)                    (1,004,425)
     Translation adjustment                                                                                    7,621          7,621
                                                                                                                        -----------
     Comprehensive loss                                                                                                    (996,804)
     Issuance of compensatory stock
       options and warrants                                                   68,000                                         68,000
     Exercise of stock options                  1,600            16              434                                            450
                                            ---------     ---------      -----------    ------------       ---------    -----------
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)
     Translation 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)
     Translation adjustment                                                                                  (34,259)       (34,259)
                                                                                                                        -----------
     Comprehensive loss                                                                                                  (1,991,700)
     Exercise of stock options and
       warrants
     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
                                           ==========      ========      ===========    ============       =========    ===========
</TABLE>


See accompanying notes.

                                      F-4

<PAGE>

                           Ionic Fuel Technology, Inc.

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

                                                                      Year ended June 30
                                                            1999              1998              1997
                                                         -----------       -----------       -----------
<S>                                                      <C>               <C>               <C>
Operating activities
Net loss                                                 $(1,957,441)      $(1,348,156)      $(1,004,425)
Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
     Depreciation                                             69,005            80,899            66,241
     Amortization                                             66,695            64,155            62,661
     Write-off of patents                                    504,886              --                --
     Non cash compensation                                      --                --              16,000
     Changes in operating assets and liabilities:
       Accounts receivable                                  (293,230)           (7,178)           26,128
       Other receivables                                      19,757           (13,203)            8,674
       Inventory                                              94,092           152,547           121,136
       Prepaid expenses                                       42,549            25,247            19,211
       Other assets                                             --              (6,882)            2,195
       Accounts payable and accrued expenses                 255,698          (100,674)         (208,793)
                                                         -----------       -----------       -----------
Net cash used in operating activities                     (1,197,989)       (1,153,245)         (890,972)

Investing activities
Acquisition of patents                                       (20,690)          (12,043)          (25,885)
Acquisition of equipment                                    (133,511)          (88,084)          (29,239)
Accretion of interest                                           --                --                --
Proceeds from maturity of investments                           --                --                --
                                                         -----------       -----------       -----------
Net cash used in investing activities                       (154,201)         (100,127)          (55,124)

Financing activities
Principal payments on capital leases                         (36,036)          (11,232)             --
Principal payments under licensing agreement                 (21,464)          (18,393)          (15,931)
Net proceeds from issuance of stock                          648,439         2,166,085               450
                                                         -----------       -----------       -----------
Net cash provided by (used in) financing activities          590,939         2,136,460           (15,481)
                                                         -----------       -----------       -----------

Effects of exchange rate differences on cash                  (9,344)            8,155           (19,882)
                                                         -----------       -----------       -----------

Increase (decrease) in cash                                 (770,595)          891,243          (981,459)
Cash, beginning of year                                    1,082,872           191,629         1,173,088
                                                         -----------       -----------       -----------
Cash, end of year                                        $   312,277       $ 1,082,872       $   191,629
                                                         ===========       ===========       ===========

Interest paid                                            $    50,545       $    53,508       $    56,069
                                                         ===========       ===========       ===========

</TABLE>


See accompanying notes.

                                      F-5
<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 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 $100,000 per
month to fund operations. The Company is presently attempting to raise
additional capital to fund operations. If additional capital is not secured
within the next few weeks, it will be necessary to substantially curtail or
cease operations.

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
the United Kingdom and Europe, to reduce airborne emissions and fuel
consumption.

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 and 1998, the Company maintained cash balances of approximately
$219,000 and $1,080,000, respectively, 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-6
<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

The Company has determined that impairment of its intangible assets exists 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 the acquisition cost, less accumulated amortization
provided on the straight-line basis over the estimated useful lives which ranged
from five to fifteen years. Amortization expense (which included the write-offs
of the patents) for these intangible assets amounted to $571,581, $64,155 and
$62,661 for the years ended June 30, 1999, 1998 and 1997, respectively.
Accumulated amortization amounted to $948,004 and $376,423 at June 30, 1999 and
1998, respectively.

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.

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.



                                      F-7
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)

Per Share Data

In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128 "Earnings per Share" ("Statement 128"). Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. The Company's net loss per share calculated under the basic earnings
per share method is the same as under the primary earnings per share method.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. As a result of having incurred losses, all dilutive
securities have been omitted from the calculation of diluted net loss per share
since their inclusion would be anti-dilutive. Therefore, basic and diluted net
loss per share are the same for all periods. Given this set of facts, the net
loss per share amounts as previously reported did not require restatement.

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.

Warranty Costs

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

New Accounting Pronouncements

In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general purpose financial statements. The statement is effective for fiscal
years beginning after December 15, 1997. The rules require companies to (A)
display items of other comprehensive income either below the total for net
income, in a separate statement of comprehensive income, or in a statement of
changes in equity, and (B) disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. Reclassification of
financial statements for earlier periods provided for comparative purpose is
required. The Company has adopted the provisions of SFAS No. 130, effective July
1, 1998.



                                      F-8
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)

In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise Related Information" (SFAS No. 131), establishes standards for the
way that public business enterprises need to disclose certain information about
reportable operating segments in annual financial statements and requires that
those companies report selected information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial reports issues to
stockholders. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company has adopted the provisions of SFAS No. 131
effective July 1, 1998. All prior years have been restated to conform with the
current year presentation.

There was no impact on the Company's consolidated results of operations,
financial position or cash flow as a result of the adoption of these statements.

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:
                                                June 30
                                           1999          1998
                                      ----------------------------


          Material and supplies          $151,540      $149,367
          Finished goods                  211,724       199,129
                                      ----------------------------
                                         $363,264      $348,496
                                      ============================

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


                                      F-9
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



3. Equipment and Vehicles

Equipment and vehicles are comprised of the following:
                                                June 30
                                          1999             1998
                                       ----------------------------

      Equipment                          $ 457,621       $501,465
      Vehicles                             118,174        114,992
                                       ----------------------------
                                           575,795        616,457
      Accumulated depreciation            (436,459)      (403,648)
                                       ----------------------------
                                           139,336        212,809
                                       ----------------------------

      Equipment under capital lease        180,789        109,268
      Accumulated depreciation             (71,871)       (76,526)
                                       ----------------------------
                                           108,918         32,742
                                       ----------------------------
                                          $248,254       $245,551
                                       ============================

Depreciation expense, relating to the leased equipment, amounted to
$27,101, $29,129 and $15,247 for the years ended June 30, 1999, 1998 and 1997,
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). 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. The
remaining balance of this obligation, less amounts currently due ($24,915), is
included in other long-term liabilities and has the following maturities:

            Year ending June 30:
               2001                                     $  29,281
               2002                                        33,989
               2003                                        39,472
               2004                                        45,789
               Thereafter                                 151,568
                                                       -----------
                                                         $300,099
                                                       ===========

If certain annual profitability levels are achieved, an additional royalty of
$24,000 per annum will be payable. In conjunction with this agreement, the
Company granted the inventor a security interest in the patents and inventions
during the royalty period.

The Company's Chairman, Douglas F. Johnston, receives an override royalty of
$5,000 per month until the last of the patents expires in 2007. This expense
amounted to $60,000 for each of the years ended June 30, 1999, 1998 and 1997.
Commencing in 1995, $1,600 per month of this override royalty was deferred
resulting in an accrued royalty expense of $24,000 and $4,800 at June 30, 1999
and 1998, respectively (see Note 7).


                                      F-10
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



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, 1999 are as follows:

                                            Operating leases  Capital leases
                                            ----------------------------------
        Year ending June 30:
           2000                                 $  146,501        $  34,599
           2001                                    113,746           26,314
           2002                                     92,630            3,377
           2003                                     92,630            1,408
           2004                                     92,630                -
           Thereafter                              301,047                -
                                            ----------------------------------
        Total minimum lease payments            $  839,184        $  65,698
                                            ==================================

The cost of assets under capital leases amounted to $65,698 and $106,484 at June
30, 1999 and 1998.

Rent expense for operating leases amounted to $148,071, $143,873 and
$166,118 for the years ended June 30, 1999, 1998 and 1997, respectively.

The future minimum lease payments receivable under noncancelable operating
leases as of June 30, 1999 are as follows:

                                                            Operating
                                                             leases
                                                           ----------
          Year ending June 30:
             2000                                           $192,502
             2001                                             20,459
                                                           ----------
          Total minimum lease payments receivable           $212,961
                                                           ==========

Long-Term Obligations

Long-term obligations as of June 30, 1999, consist of a 10% chattel note payable
over 36 months that began in December 1997, plus various capital leases
amounting to $65,963 which $30,527 is classified as long-term.

In addition, the discounted present value of the inventors future royalty
payments is $300,099 payable at a rate of $6,000 per month.



                                      F-11
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



6. Income Taxes

At June 30, 1999, the Company has available operating loss carryforwards for
United States federal income tax purposes of $3,302,591 which are available to
offset future U.S. taxable income. The losses expire in varying amounts from
2007 through 2014 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 $9,347,162 at June 30, 1999.

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

<TABLE>
<CAPTION>
                                                                      June 30
                                                                1999            1998
                                                             ---------------------------
<S>                                                          <C>            <C>
Deferred tax assets:
   Benefit of net operating loss carryforwards - U.S.        $ 1,122,881    $   827,680
   Benefit of net operating loss carryforwards - U.K.          1,962,904      1,839,210
   Depreciation in excess of capital allowances                    8,700         31,658
   Other                                                          28,209         15,608
                                                             ---------------------------
Total deferred tax assets                                      3,122,694      2,714,156
Valuation allowance                                           (3,122,694)    (2,714,156)
                                                             ===========================
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.

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.

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 receives 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-12
<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 issue 270,200.059 warrants
to brokers.

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. The Plan was
amended in 1999, which stated that the 1992 Stock Option Plan be increased by
500,000 shares, increasing the total of common shares to 950,000. Options
granted to directors are exercisable immediately. As of June 30, 1999, 80,000
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, 1999, 1998 and 1997, respectively; risk-free interest rates of 4.5%, 5.8%
and 6.7%; volatility factors of the expected market price of the Company's
common stock of 128%, 93% and 129% and a weighted-average expected life for the
options of 5, 5 and 10 years and no anticipated dividends.

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 $1,988,914, $1,396,993,
$1,010,203 and pro forma net loss per share would have been $(0.26), $(0.22) and
$(0.19) for the years ended June 30, 1999, 1998 and 1997, respectively.

In accordance with the provisions of SFAS No. 123, the pro forma disclosures
include only the effect of stock options granted in the years ended June 30,
1999, 1998 and 1997. These pro forma effects may not be representative of the
effects of SFAS No. 123 on future years because of the fact that options vest
over several years and new grants generally are made each year.



                                      F-13
<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>             <C>
Options outstanding at June 30, 1996                  126,000                           $2.49

   Granted                                            206,000     $1.06-$4.00           $2.49
   Exercised                                           (1,600)        $.28              $ .28
   Canceled                                                 -
                                                    ----------
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
                                                    ==========
</TABLE>

At June 30, 1999, options for 477,600 shares were available for future grants
and 328,000 options were exercisable.

The following table summarizes information concerning outstanding and
exercisable options, excluding the 150,000 options issued to a financial public
relations firm, as of June 30, 1999:

<TABLE>
<CAPTION>
                              Options Outstanding                                   Options Exercisable
---------------------------------------------------------------------------------------------------------------------
                                            Weighted-
                                             Average
                                            Remaining            Weighted-                               Weighted-
      Range of          Number          Contractual Life     Average Exercise      Number          Average Exercise
  Exercise Price      Outstanding           (in years)             Price         Exercisable              Price
---------------------------------------------------------------------------------------------------------------------
<S>                   <C>                   <C>                  <C>               <C>                   <C>
  $0.01 - $1.00       142,400               7.06                 $0.50             74,800                $0.61
  $1.01 - $2.00        46,000               6.74                 $1.27             26,800                $1.42
  $2.01 - $3.00         4,000               5.00                 $2.81              4,000                $2.81
  $3.01 - $4.00        72,000               8.50                 $4.00             14,400                $4.00
  $4.01 - $5.00        58,000               5.00                 $4.74             58,000                $4.74
---------------------------------------------------------------------------------------------------------------------
                      322,400               7.94                 $2.18            178,000                $2.40
=====================================================================================================================
</TABLE>

The weighted-average fair value of options granted during the years ended
June 30, 1999, 1998 and 1997 was $0.47, $2.56 and $1.10, respectively.




                                      F-14
<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-15
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



8. Segment Reporting

The Company adopted SFAS No. 131, Disclosures About Segments of and 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 are made up of
the operations of the U.S. and the U.K. The U.K. segment makes up a majority of
the Company's operations, as it is engaged in the design and assembly of it's
patented IFT system.

Segment Reporting of the Company are as follows:

<TABLE>
<CAPTION>
                                                                 Adjustments
                                                                     and
                            United States        U.K             Eliminations         Total
                           ---------------------------------------------------------------------
<S>                        <C>                <C>                <C>                <C>
1999
----
Revenues:
   Sales                   $       --         $    266,351       $       --         $    266,351
   Rental                          --              342,257               --              342,257
                           ---------------------------------------------------------------------
Total revenue              $       --         $    608,608       $       --         $    608,608
                           =====================================================================

Segment profit/(loss)      $   (861,025)      $ (1,096,416)      $       --         $ (1,957,441)
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 profit/(loss)      $   (360,328)      $   (987,828)      $       --         $ (1,348,156)
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

1997
----
Revenues:
   Sales                   $       --         $    260,679       $       --         $    260,679
   Rental                          --              368,015               --              368,015
                           ---------------------------------------------------------------------
Total revenue              $       --         $    628,694       $       --         $    628,694
                           =====================================================================

Segment profit/(loss)      $   (295,114)      $   (705,127)      $     (4,184)      $ (1,004,425)
Interest income                  24,619              4,182               --               28,801
Interest expense                (56,069)              --                 --              (56,069)
Total assets                 10,039,427            826,780         (9,316,588)         1,549,619
</TABLE>



                                      F-16
<PAGE>

                           Ionic Fuel Technology, Inc.

             Notes to Consolidated Financial Statements (continued)



9. Year 2000 (unaudited)

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.

To date the Company has fully completed its assessment of all systems that could
be significantly affected by the Year 2000 Issue. The Company has begun to
update its hardware and software applications utilizing internal resources. A
majority of the Company's software is currently Year 2000 compliant, and the
Company expects that the Year 2000 issue will not have a material impact on the
Company's future financial or operational position. However, these expectations
are subject to uncertainties. These include, but are not limited to the ability
to assess suppliers and customers readiness, failure to identify all susceptible
systems and the availability and the cost of personnel necessary to remediate
any unforeseen problems.

As of June 30, 1999, the Company has expensed $13,000 on costs associated with
Year 2000 Issues, and is expecting to incur additional expenses in the amount of
$28,000. The Company believes that 80% of the remaining procedures are complete,
and does not foresee any problems in completing the remaining 20% in a timely
manner. The Company also does not foresee any problems with its vendors, as the
Company typically buys in small quantities, and they believe that their
inventory levels are adequate for any unforeseen situations / occurrences.


                                      F-17
<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:  September 28, 1999

                                            IONIC FUEL TECHNOLOGY, INC.


                                            By: /s/ Douglas F. Johnston
                                                ----------------------------
                                                Douglas F. Johnston

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

/s/ Douglas F. Johnston      Chairman & Chief Financial       September 28, 1999
--------------------------     Officer
Douglas F. Johnston


/s/ Anthony J.S. Garner      President, Chief Executive       September 28, 1999
--------------------------     Officer and Director
Anthony J.S. Garner

/s/ Frank J. Hollendoner     Director                         September 28, 1999
--------------------------
Frank J. Hollendoner

/s/ Henry W. Sullivan        Director                         September 28, 1999
--------------------------
Henry W. Sullivan