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

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

For the fiscal year ended June 30, 1997 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     (I.R.S. Employer Identification
incorporation)                        No.)


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 A Redeemable Common
Stock Purchase Warrant ("A Warrants")           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)

                                                         1

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months or for 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 17,
1997 - $8,236,000.

Indicate the number of shares  outstanding of each of the registrant's  class of
common stock, as of the latest  practicable  date. At September 15, 1997,  there
were 6,173,433 common shares,  1,200,000  Series A Warrants,  1,200,000 Series B
Warrants and 189,000 Underwriters' Warrants, 771,883 Series C Warrants, 150,000
Consultant's Warrants outstanding.

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


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


                                                         2

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                                                      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 coking and particulate emissions are also reduced.

THE SYSTEM

      The IFT System is self  contained  in a  cube-shaped  metal  cabinet.  The
System's  interior  mechanism  vibrates the surface of a liquid contained inside
the cabinet. The vibrating liquid releases negatively charged Ions that are then
delivered  to the  customer's  equipment  through  a  connection  placed  either
adjacent  to the  boiler's  combustion  chamber  or to the  boiler's  air intake
mechanism.

      The System is available in eight sizes ranging from 15" x 12" x 16" to 43"
x  3  1-5"  x  35".  Such  sizes  are  suitable  for  boilers   generating  from
approximately 1,000 lbs. of steam per hour to approximately 96,000 lbs. of steam
per hour.  Multiple  Systems  are used when  either the boiler has more than one
burner or the boiler's  power  generating  capacity  exceeds the capacity of the
largest IFT System. The System generally requires only a routine servicing every
six months and may be leased or purchased.

      Typical performance results of the System reveal a reduction in

                                                         3

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NOx.  emissions ranging from 6% to 60%, a reduction in CO emissions ranging from
6% to 80%, a reduction in CO2  emissions  ranging from 2 1/2% to 7%, a reduction
in  particulate  emissions  ranging  from  6% to 40%  and a  reduction  in  fuel
consumption  ranging  from 2 1/2% to 7%.  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.


      MARKETING AND SALES

      Performance Trials

      The Company  initially  sought to performance test its System in locations
where a sales 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.

                                                         4

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         Tests were  conducted  at the  Lowenbrau  brewery  by the  German  test
authority  TUV and  showed  that with IFT  System the boiler was able to operate
with less combustion air thereby improving the thermal  efficiency.  A review on
ionization 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 and paper mills and (b) commercial  industrial
heat processors including municipal authorities and universities.

         The Company had found that its technology was often not
readily  understood by power plant managers who therefore  hesitated to test the
IFT  System.  The  Company  devised a four step  approach  to educate  the power
generation community about its technology. First, it employed people experienced
in boiler and burner applications to market the System.  Second, the Company has
marketed the System to large multiple  plant users,  with emphasis on well known
international  companies,  so that such  companies may be used as references for
other  potential  customers and also that such customers will consider using the
IFT System in their other plants.  Third, the Company utilizes the services of a
recognized  authority in flame chemistry to specifically  explain the scientific
principles  behind the System.  Fourth the Company  has  introduced  a reporting
system using sophisticated  statistical  modeling to present the test results to
potential  customers  in a  succinct,  concise  manner.  This  reporting  system
computerizes  data  derived  from  testing  flue gases,  monitors  fuel to steam
performance  and then  presents in graphic form the benefits  offered by the IFT
System to the customer.

      Sales and Rentals

         The Company has adopted two approaches to its sales efforts.  First, it
sells directly to industrial  users with its own employees in the UK and Belgium
supplemented by the use of independent sales agents.  Secondly the Company sells
the System through dealers who are assigned a specific territory and compensated
on a commission basis. This marketing method is generally used in Europe.

                                                         5

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         More  recently  the company  has been  working  with energy  management
companies  who  undertake to operate a  customer's  power or boiler  plant,  the
benefit to these  companies is to reduce their operating costs by reducing their
fuel bills.  Generally  these  organizations  prefer to rent the IFT System,  as
their payback is immediate.

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

      Warranty and Service

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

      Assembly and Suppliers

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

      Research and Development

         The Company's research and development efforts are a continuing process
and are focused  primarily on refining the vibration  technology  that forms the
basis of the IFT System.  To that end, the Company has studied such areas as the
interaction of the charged particles and the combustion process, the delivery of
the charged  particles  to the  combustion  chamber,  the optimum  volume of the
charge,  the optimum  ratio of air to liquid  surface and the impact of pressure
and temperature on delivery of the charge.  The Company's efforts resulted in an
enhancement to the patented  vibration  technology  for which a European  patent
application was filed in January 1994.

         The  Company's  research  and  development  costs  are  written  off 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 in

                                                         6

<PAGE>



1997.

      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 S. 125 per share in December  1991.  Wentworth
has retained a security interest in the patent rights transferred to the Company
pursuant to the Royalty Agreement.

      The Company owns six U.S. Patents, twelve foreign patents and five foreign
patent  applications  covering,  in  the  aggregate,   up  to  twenty  different
countries.  Several of the earlier  "bubble"  technology  patents have  expired.
However, improvement patents covering the "bubble" technology still exist in the
United States and several foreign countries,  and the more important "vibration"
technology  patents,  which  form the basis of the IFT  System,  run to at least
2007. The Company was also granted a patent in Japan.

      While the Company intends to vigorously  enforce its patent rights against
infringement by third parties, no assurance can be

                                                         7

<PAGE>



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.

      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 maybe charged a fee proportional to the amount
of pollution the source creates each year. This provides an incentive

                                                         8

<PAGE>



for the polluter to acquire  technology which will reduce its emissions.  IFT is
attempting to work with customers on an individual basis prior to and during its
process of  negotiating  permits in an attempt to have the System  "accepted" by
such regulatory agencies.

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

      Competition

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

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

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

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

                                                         9

<PAGE>



      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 required
to achieve the final lower NOx level.

      While the Company believes that its System enjoys  significant  advantages
as compared to its competitors' products, many of the Company's competitors have
greater resources,  both financial and otherwise, than the Company and therefore
may be capable of testing, enhancing,  marketing and distributing their products
on  a  wider  basis  than  the  Company.  In  addition,   future   technological
developments  and  novel  approaches  in the flame  combustion  field as well as
enhancements of current technology will, in all likelihood,  create new products
and  services  that  directly  compete  with  the IFT  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  1997,  the
terms  for  renewal  are  currently  being  negotiated.  The base  rent for this
facility is approximately  $6,000 per month for 1995,  approximately  $6,655 per
month for 1996 and approximately $7,375 per month for 1997.

      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  approximately  $3,000 plus
utilities. Such lease is renewed annually.

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



                                                        10

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      Item 3. LEGAL PROCEEDINGS

      Not applicable.


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

      Not applicable.



                                                        11

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                                                      PART II

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

         The Company's common stock,  Class A and Class B Warrants are quoted on
the Nasdaq  SmallCap  Market and Boston Stock Exchange under the symbols "IFTI",
"IFTIW", and "IFTIZ" respectively.

         The 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.


                                                                  Bid
      Period Ended          Type of Security                    High   Low

      September 1995                Common Stock                1 3/16   11/32
                                    Class A Warrant             5/32      3/32
                                    Class B Warrant             3/32     3/32

      December 1995                 Common Stock                7/16     1/4
                                    Class A Warrant             3/32     1/64
                                    Class B Warrant             3/32     1/64

      March 1996                    Common Stock                1 1/8    1/4
                                    Class A Warrant             3/16     3/32
                                    Class B Warrant             5/32     3/32

      June 1996                     Common Stock               2 25/32    5/8
                                    Class A Warrant            9/32       5/32
                                    Class B Warrant            7/32       1/8


      September 1996                Common Stock               2 3/4      1
                                    Class A Warrant            1/4        3/32
                                    Class B Warrant            1/4        3/16

      December 1996                 Common Stock               21/2       1
                                    Class A Warrant            1/8        3/32
                                    Class B Warrant            3/16       3/32

      March 1997                    Common Stock               2 3/4     1 5/32
                                    Class A Warrant             3/16     1/16
                                    Class B Warrant             3/16     3/32

      June 1997                     Common Stock               3 13/16   2 1/8
                                    Class A Warrant            1/8        1/16
                                    Class B Warrant            7/32       1/8


                                                        12

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         At  September  19,  1997 the  number of  shareholders  of record and in
street  name of the  Company's  common  stock and Class A  Warrants  and Class B
Warrants  were 99, 28 and 29,  respectively.  The  Company has not paid any cash
dividends.
      Item 6.  SELECTED FINANCIAL DATA


      Statement of                                            Six Months
       Operations               Year Ended                      Ended
       Data:                 December 31, 1992              June 30,1993(1)

      Revenues....           $ 22,751                            $17,025
      Cost of
       Revenues...            131,793                            121,828
      Operating
       Expenses...          1,485,644                            999,771
      Net (loss)..         (1,573,706)                        (1,101,056)
      Net (loss) per
       share......           $   (.44)                           $   (.27)
      Weighted average
       number of common
       shares.....          3,546,668                          3,957,540
      Cash dividend
       per common share..
      Balance Sheet
          Data:           December 31, 1992                  June 30, 1993 (1)
                         -----------------                  -------------    

      Total assets..        $2,063,110                         $3,965,244
      Working capital.         765,500                           2,670,427
      Long-term
       liabilities.            437,464                            437,108
      Total
       liabilities.            806,732                            758,335
      Accumulated
       deficit.....         (1,579,788)                        (2,680,844)
      Cumulative
       translation
       adjustment...          (148,467)                          (166,806)

      Stockholders'
       equity......          1,256,378                          3,206,909




                                                        13

<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>





                                    Year Ended       Year Ended                 Year Ended                Year Ended
                                    June 30, 1994             June 30, 1995             June 30, 1996              June 30, 1997

      Statement of
      Operations Data:

      Revenues                              $1,190,291        $ 476,161         $ 593,959                 $628,694

      Cost of Revenues                        445,355           344,868           537,110                  723,327

      Operating Expenses                    2,631,912         2,974,998          1,669,145                 882,524
      Net Loss                            (1,928,987)    (2,725,744)            (1,563,667)               1,004,425
      Net Loss per
       share                                $    (.46)   $      (.51)            $    (.29)                 $   (.19)
      Weighted average
       number of                             4,210,668      5,318,445                            5,410,500                 5,412,100
       common shares

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

      Total Assets                           $2,601,471      $4,463,543          $2,659,185                        $1,627,291

      Working Capital                           636,096       2,687,338           1,306,293                           434,686
      Long-term
       liabilities                              422,521         394,625             364,773                           346,249
      Total
       liabilities                            1,318,560       1,106,581             886,274                           782,734
      Accumulated
       deficit                               (4,609,831)     (7,335,575)         (8,899,242)                       (9,903,667)
      Cumulative
       translation
       adjustment                              (161,817)       (130,436)           (150,820)                         (143,199)

      Stockholders'
       Equity                                 1,282,911       3,356,962           1,772,911                           844,557

</TABLE>


                                                              14

<PAGE>



      Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

      Overview

         The Company  commenced  operations in late December 1991.  During 1992,
the  Company's  primary focus was  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. 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 in Fiscal '98.  Likewise  initial
installations  have been completed at sites with British Petroleum and Amoco. An
average size refinery or  petrochemical  plant could utilize IFT  technology and
equipment   valued  at   approximately   $1,000,000.   With  this  large  market
opportunity,  fiscal '98  revenues  are  estimated to be higher than in the past
year  providing  positive  cash flow and net income.  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.



<PAGE>

      Year ended June 30, 1997 and June 30, 1996


                                                        15





         Total  revenues  increased to  approximately  $629,000  during the year
ended June 30, 1997 from  $594,000 in the fiscal year ended June 30,  1996.  The
net increase  relates to a decrease in rental income to  approximately  $307,000
($347,000  in 1996),  an  increase  in system  sales to  approximately  $171,000
($123,000 in 1996) and an increase in service income to  approximately  $151,000
($124,000  in 1996).  The  decrease  in rental  income is due to  rentals  being
converted  to sales  during the year.  The increase in system sales is primarily
attributable  to UK  activity  in 1997  where  larger  companies  may  prefer to
purchase  the IFT System  rather than rent,  however,  system  sales occur on an
irregular basis. The increase in service income reflects increased  installation
fees in 1997.

         There was a gross loss of  approximately  $95,000 during the year ended
June 30,  1997  compared  to a profit of $57,000  during the year ended June 30,
1996. The gross loss related primarily to field engineering and service costs of
approximately  $269,000 in 1997 which in the previous year were classified,  for
nine months, in general and administrative expenses. Total field engineering and
service  costs were  $716,000 in 1996 and  $443,000 in 1997.  The  reduction  of
$273,000  was from staff  reductions  in the United  States and  Belgium and the
transfer of support activities to England.  Other items in cost of goods sold in
aggregate,  were reduced $83,000 for the year ended June 30, 1997. The different
classification  relates  to the  maturing  of the  Company's  technology  from a
development state requiring extensive  engineering support to complete the sales
process to a mature product.  The Company has  discontinued  free or conditional
testing and all trial installations are paid for by the customer.

         General and administrative expenses decreased to approximately $657,000
during the year ended June 30, 1997 from  approximately  $1,230,000  in the year
ending June 30, 1996, a reduction of  $573,000.  Field  engineering  and service
costs of $541,000 which represents nine months of charges in the year ended June
30, 1996 are no longer classified as general and administrative as stated above.
Other items in aggregate were reduced $32,000.

         Sales and  marketing  expenses  decreased  to $161,000  during the year
ended June 30, 1997 from  approximately  $362,000 during the year ended June 30,
1996. The decrease of $201,000 is primarily due to the  termination of sales and
marketing  arrangements  in Eastern Europe and Germany and the  substitution  of
geographic coverage by existing sales staff and top management.


                                                        16

<PAGE>



         Other income was a loss of approximately  $27,000 during the year ended
June 30, 1997 from a profit of $49,000  during the year ended June 30,  1995,  a
decrease  of  $75,000  primarily  due to the use of funds in  operations  of the
Company and reduced interest income.


      Year ended June 30, 1996 and June 30, 1995

         Total  revenues  increased to  approximately  $594,000  during the year
ended June 30,  1996.  The increase  relates to an increase in rental  income to
approximately  $347,000  ($277,000  in 1995),  an  increase  in system  sales to
approximately  $123,000  ($81,000 in 1995) and an increase in service  income to
approximately  $124,000 ($118,000 in 1995). The increase in rental income is due
to trials being  converted to normal  rentals  during the year.  The increase in
system  sales is  primarily  attributable  to UK activity  in 1996 where  larger
companies may prefer to purchase the IFT system  rather than rent.  System sales
occur on an  irregular  basis.  The  increase  in service  income  reflects  the
increased sales and rentals in 1996.

         Gross profit decreased to  approximately  $57,000 during the year ended
June 30, 1996 from  $131,000  during the year ended June 30, 1995.  The decrease
related  to  field   engineering,   installation   and  other   field  costs  of
approximately  $176,000 incurred during the final quarter of the year ended June
30, 1996 which had been  classified  as cost of revenues;  in previous  periods,
these costs have been classified as sales and marketing expenses.  The different
classification   relates  to  the  maturing  of  the  Company's  system  from  a
development state requiring extensive  engineering support to complete the sales
process to a mature  product.  In  January,  the  Company  discontinued  free or
conditional testing and by the fourth quarter all previously free tests had been
completed.

         General  and   administrative   expenses   decreased  to  approximately
$1,230,000  during the year ended June 30,  1996 from  approximately  $1,855,000
during the year ended June 30,  1995,  a decrease  of  $625,000  due to internal
staff and other cost  reductions  implemented in May 1995. A total one-time cost
of $198,000 was incurred in May 1995, related to the personnel reductions.

         Sales and marketing expenses decreased to approximately $362,000 during
the year ended June 30, 1996 from  approximately  $853,000 during the year ended
June 30, 1995. The decrease of $491,000 is due to cost reductions implemented in
May 1995, and continuing through 1996, as well as approximately $176,000 of

                                                        17

<PAGE>



engineering and other technical costs incurred in the fourth quarter of the year
ended June 30, 1996,  which were included in cost of revenues.  These  technical
costs were included in sales and marketing  expenses  during the year ended June
30, 1995 and the first  three  quarters  of the year ended June 30,  1996.  This
change  is a result of the  change in  responsibilities  of  certain  employee's
caused by the maturing of the Company's  system from a developmental  state to a
mature product.

         Other income decreased to  approximately  $49,000 during the year ended
June 30, 1996 from approximately $118,000 during the year ended June 30, 1995, a
decrease  of  $69,000  primarily  due to the use of funds in  operations  of the
Company.


      Liquidity and Capital Resources

         Since  inception,  the  Company's  funding  requirements  have been met
through the initial public offering of equity securities totaling  approximately
$4.8 million, the private placement of equity securities totaling  approximately
$6 million, and revenue generated from operations.  On July 14, 1997 the Company
sold an additional 771,833 common shares with gross proceeds of $1,736,624.

         Net cash used in operations was approximately  $900,000,  $1.3 million,
and $2.6 million for the years ended June 30, 1997, 1996 and 1995. 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  $435,000,  $1.3 million,  and $2.7 million at June 30, 1997,
1996 and 1995, respectively. Fluctuations in working capital have been primarily
due to increases in accounts  receivable  and  inventory  offset by increases in
accounts payable and other accruals.

         The Company  liquidated its U.S. Treasury  investments  during the year
ended June 30, 1996. The Company's primary investing  activity in the year ended
June 30, 1995 involved the  acquisition and sale of U.S.  Treasury  obligations.
Capital  expenditures  amounted to  approximately  $29,000 and  $100,000  during
fiscal  years "97 and "95,  respectively.  There  were no  capital  expenditures
during the year ended June 30, 1996.  Capital  expenditures were associated with
the purchase of equipment used in manufacturing as well as expenditures incurred
to  produce  rental  equipment.  The  Company  has no  plans  for a  significant
investment in capital

                                                        18

<PAGE>



equipment in fiscal 1998.

      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
Royalty Agreement, the Company pays an executive officer/director of the Company
a royalty override of $5,000 per month.

         On  July  14,  1997,  the  Company  issued  771,833  units,  each  unit
consisting of one share of common stock, par value $.01 per share and one Series
C, Common Stock purchase warrant. As a result, the Company raised $1,571,960 net
of discounts, commissions and offering costs of $164,664.

         The Company believes that the proceeds from the above offering together
with  anticipated  funds from  operations,  will satisfy the  Company's  working
capital  requirements and capital  expenditures through fiscal 1998. The Company
intends  to focus its  operations  primarily  on  continued  expansion  with the
European Community.

         Currency Fluctuation

         The Company's  revenues are invoiced  primarily in Pounds  Sterling and
also  currencies of other  European  countries  (Belgium,  Austria and Germany).
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, '97 and '96, currency fluctuations were not significant and were not an
influence on Company  revenues  and  expenses.  Currently,  the Company does not
enter into derivative contracts to hedge currency risks.

         During the year ended June 30, 1997,  the average rate of exchange used
to translate revenues and expenses  denominated in Pounds Sterling has increased
from  approximately  $1.55 U.S. dollars to 1 Pound to  approximately  $1.65 U.S.
dollars to 1 Pound.

      Inflation

         The  Company  does not believe  that  inflation  has had a  significant
impact on the results of its operations since inception.



                                                        19

<PAGE>



      Forward-Looking Statements

         Forward-looking statements made in this Annual Report are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking  statements involve risks
and uncertainties  including without limitation risks in technology development,
risks in  product  development  and  market  acceptance  of and  demand  for the
Company's  products,  risks associated with 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.



                                                        20

<PAGE>



   
      Impact of Year 2000

         The Year 2000 Issue is the result of computer  programs  being  written
using two digits rather than four to define the  applicable  year.  Any computer
programs that have time or date sensitive  software may recognize a date defined
as "00" as being the Year 1900  rather  than the Year  2000.  This  could  cause
system failure,  miscalculations or other disruptions of operations,  including,
among other things an inability to process transactions,  obtain supplies or raw
materials from vendors or otherwise engage in normal business activities.

         The  Company  has  reviewed  the  impact  of the Year  2000 on both the
hardware and software applications affecting the Company's operations.  Based on
such  review,  management  does not  expect  the cost of any  required  software
changes to have a material  impact on the Company's  operations and such changes
can be  implemented  prior to the Year 2000 in the  normal  course of  business.
Management cannot predict the impact of the Year 2000 on its vendors business or
whether such impact will have a material effect on the Company's operations.
    


      Item 8. 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


                                                        21

<PAGE>



   
                                                        PART III

      Item 10.  Directors and Officers of the Registrant


      Douglas F. Johnston ............................. CFO/Chairman

      Anthony J.S. Garner ................... President/CEO/Director

      Paul C. O'Neill............................ Treasurer/Director

      Frank J. Hollendoner ................................ Director

      Henry W. Sullivan ................................... Director


      Name, Age and Principal Occupation

         Douglas F. Johnston,  67, is a co-founder of the Company and has served
as Chairman and Chief  Financial and  Accounting  Officer since its inception in
December 1991 and as President and Chief Executive Officer since inception until
January  1994.  From July 1990 until  April  1991,  Mr.  Johnston  was a private
investor. From April 1991 until December 1991, Mr. Johnston, in conjunction with
Messrs.  O'Neill and  Garner,  performed a due  diligence  investigation  on the
Wentworth  technology  underlying  the IFT System  ("Wentworth  Technology")  to
determine  whether  to enter  into the  business.  Such  investigation  included
reviewing  the  scientific  literature  regarding  the  effect  of Ions on flame
chemistry, reviewing the legal status of Wentworth's patents, testing prototypes
of certain devices built by Wentworth, examining Wentworth's test procedures and
data and studying the feasibility of commercializing  the Wentworth  technology.
From  September  1988 until July 1990,  Mr.  Johnston  was  President  and Chief
Executive  Officer and  Director  of  Sudbury,  Inc.,  a  manufacturing  company
principally  serving the automotive industry with OEM parts. Mr. Johnston has an
S.B.  in  Industrial  Administration  from Yale  University  and an M.B.A.  from
Harvard Business School.


         Anthony J.S. Garner,  58, has served as a director and President of the
Company and also as  Chairman  and Chief  Executive  Officer of IFT,  Ltd.,  the
Company's  U.K.  subsidiary,  since the  Company's  inception  and as CEO of the
Company since May 15, 1996.  From  December 1990 until October 1991,  Mr. Garner
was a private investor.  From October 1991 to December 1991 Mr. Garner performed
a due diligence  investigation  on the Wentworth  Technology in conjunction with
Messrs. Johnston and O'Neill, as set forth in Mr.
    

                                                        22

<PAGE>



   
Johnston's biography. From June 1988 until December 1990, Mr.
Garner was Chief Executive Officer and managing director of Sigma
Corp. Ltd., a manufacturer of custom gauges for the aerospace
industry. He served as Chief Executive Officer of Winchmore PLC, a
distributor of commercial boilers and air conditioners. Mr. Garner
has the U.K. equivalent of a B.S. in Mechanical Engineering.


         Paul C.  O'Neill,  72, is a co-founder of the Company and has served as
Treasurer and Director of the Company since the Company's inception.  From April
1991 until December 1991, Mr. O'Neill was a private investor and performed a due
diligence  investigation on the Wentworth Technology in conjunction with Messrs.
Johnston and Garner,  as set forth in Mr.  Johnston's  biography.  From May 1978
until April 1991, Mr. O'Neill served as Chairman of Ovington Securities Ltd., an
investment firm located in London, England.

         Frank J. Hollendoner, 52, was named to the Company's Board of
Directors in January, 1997. Mr. Hollendoner also currently serves
as Chairman of three European companies: Doughty Hanson & Co., a
money management concern; Independent Care Group, a firm that
develops, owns and operates private hospitals in Britain and Norden
Pac Industries A.B., a Swedish packaging equipment company. From
1986-1994, Mr. Hollendoner was a principal and a managing director
of Ovington Securities Ltd.  Since 1994, Mr. Hollendoner has been
a private investor.  Mr. Hollendoner holds a BA in Economics from
Georgetown University and an MBA from Stanford University School of
Business.

         Henry W. Sullivan, 57, was named to the Company's Board of
Directors in August, 1997. Since 1991 Mr. Sullivan has been the
President and a Director of GAIA Technologies, Inc., a company
engaged in the chemical business. He was also the Vice Chairman and
a Director of Huntsman Chemical Corporation, the nation's largest
private chemical company from 1983 to 1991. Mr. Sullivan holds a
B.S. degree in Chemical Engineering from Cooper Union and a Masters
degree and Ph.D in Engineering from New York University.

         During fiscal 1997 the Board of Directors  held four meetings and acted
twice by unanimous written consent.

         The Company has two committees of the Board,  an audit  committee and a
compensation  committee,  both of which are  comprised  of a majority of outside
directors.

         No directors received cash compensation for serving as directors during
the  fiscal  year  ended  June 30,  1997.  It is  anticipated  that no  existing
directors will receive cash
    

                                                        23

<PAGE>



   
compensation for serving in such capacity during the fiscal year ending June 30,
1998.  Messrs.  Hollendoner and Sullivan have each received  options to purchase
14,000  shares of Common Stock in  accordance  with the  Company's  Stock Option
Plan.
    



                                                        24

<PAGE>



   
      Item 11.  Executive Compensation

         The  following  table  sets  forth the cash and cash  equivalents  paid
during the fiscal  years  ended June 30,  1995,  1996 and 1997 to the  Company's
Chief  Executive  Officer  during  the last  fiscal  year.  No other  officer is
compensated at a rate in excess of $100,000 per year.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                         SUMMARY COMPENSATION TABLE
    


           Name and             Year                      Annual Compensation                                        long-term
   Principal Position                                                                                               Compensation
                                                                                                                   Awards Payouts
                                         Salary        Bonus          Other       Restricted     Options/
                                          ($)            ($)            ($)       Stock          SARS      LTIP             All
                                                                                  Awards                                   OTHER

                                        ------------------ ---------------
      Anthony J.S.            1997        76,950
      Garner/CEO              1996        72,900
                              1995        70,000

</TABLE>

   
      Mr. Garner is currently being compensated at the rate of $99,000
per year.
    



                                                         25

<PAGE>



   
      Item 12.  Security Ownership of Certain Beneficial Owners and
Management



                  On February 28, 1998,  there were  6,297,155  shares of Common
Stock  outstanding.  The following  table sets forth as of February 28, 1998 the
number of shares of Common Stock of the Company and the percentage of that class
owned  beneficially,  within the  meaning of Rule  13d-3  promulgated  under the
Securities Exchange Act of 1934, as amended, and the percentage of the Company's
voting power owned by (i) all the directors of the Company who are stockholders;
(ii) all stockholders  known by the Company to own more than five percent of the
Company's  Common Stock;  and (iii) all  directors and officers as a group.  All
shares set forth in the  following  table are entitled to one vote per share and
the named beneficial owner has sole voting and investment power.





                                Amount and

                                Nature of          Percent of

                               Beneficial         Outstanding Shares

      Name and Address          Ownership(1)      of Common Stock



      Douglas F. Johnston......   932,000                 14.80%

      114 Forest Street

      New Canaan, CT 06840





      Paul C. O'Neill .........   464,000                  7.37%

      95 Eaton Square

      London SW 1W 9DD

      England



      Anthony J.S. Garner .....  330,000 (2)               5.24%

      96 Thorpe Hall Ave

      Thorpe Bay, Essex SSl 3AS

      England



      Frank J. Hollendoner ...... 20,000                    *

      c/o Independent Care
    

                                                         26

<PAGE>



   
      26 Eccleston Square

      London, England SWIW 1NS





      Henry W. Sullivan ........16,000 (3)                   *

      10814 Jaycee Lane

      Houston, TX 77024



      Donald M. Kleban ......... 335,400(4)                 5.22%

      2 Sutton Place South

      New York, NY 10022



      Ira Sochet ...............319,203(5)                  5.07%

      9350 S. Dixie Highway

      Suite 1260

      Miami, FL 33156





      All Officers and Directors

       as a Group (5 persons) ..  1,602,000(2)(3)             25.44%



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

      * Less than 1%



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



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

                                                         27

<PAGE>





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







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



      (4)         Includes 202,400 shares of Common Stock (45,000 of which
                  are subject to a purchase option exercisable at $8.25 per
                  share until July 28, 1999 ("Option")), 53,000 Series A
                  Warrants to purchase 26,500 shares of Common Stock,
                  113,000 Series B Warrants to purchase 56,500 shares of
                  Common Stock, and 50,000 Private Warrants to purchase
                  50,000 shares of Common Stock.  25,000 of the Private
                  Warrants entitle the holder to purchase 25,000 shares of
                  Common Stock at $2.25 per share and the remaining 25,000
                  Private Warrants entitle the holder to purchase 25,000
                  shares of Common Stock at $3.50 per share, each until
                  March 15, 2001.  Certain of the foregoing information is
                  reported in a Schedule 13D filed by Kleban with the
                  Company dated as of May 7, 1997.



      (5)         Consists  of 319,203  shares of Common  Stock.  The  foregoing
                  information  is as reported in a Schedule  13D filed by Sochet
                  with the Company dated as of January 23, 1998.



      Item 13.  Certain Relationships and Related Transactions.



      The  Company is  obligated  to pay  Douglas  F.  Johnston,  the  Company's
Chairman,   a  $60,000  per  year  royalty  for  the  duration  of  the  patents
contemplated by the Royalty Agreement, one of which lasts until 2007.
    

                                                         28

<PAGE>



   
         Pursuant to a written agreement, the Company has engaged Perrin, Holden
and Davenport Capital Corp.  ("PHD") as an investment  banking advisor for a two
(2) year term expiring  March 15, 1999.  In  consideration  for  providing  such
advising  services,  the Company has  granted PHD  Warrants to purchase  150,000
shares of Common Stock  expiring on March 15, 2001,  75,000 of such Warrants are
exercisable at $2.25 per share and the remaining 75,000 Warrants are exercisable
at $3.50 per share.  Donald M. Kleban,  a 5% shareholder  of the Company,  and a
managing  director of PHD,  was granted  Warrants to purchase  50,000  shares of
Common Stock expiring March 15, 2001, 25,000 of such Warrants are exercisable at
$2.25 per share and the remaining 25,000 are exercisable at $3.50 per share. The
Company  will also  reimburse  PHD for its  out-of-pocket  expenses  incurred in
providing services to the Company.



         The  Company's  general  counsel is McLaughlin & Stern,  LLP.  David W.
Sass, the Company's  Secretary,  is a partner of such firm, to which the Company
paid legal fees of $2,000 during the year ended June 30, 1997.
    



                                                         29

<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 Sheet - June 30, 1997 and 1996        F-2



      Consolidated Statement of Operations - Years Ended         F-3

      June 30, 1997, 1996 and 1995



      Consolidated Statement of Stockholders' Equity -           F-4

      Years Ended June 30, 1997, 1996 and 1995



      Consolidated Statement of Cash Flows - Years Ended         F-5
   June 30, 1997, 1996 and 1995



      Notes to Consolidated Financial Statements                 F-6



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



         Schedule II - Valuation and Qualifying Accounts



         All other  schedules  for  which  provision  is made in the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related  instructions or are  inapplicable and therefore have
been omitted.



      (3)         Exhibits



                                                         30

<PAGE>



         3.1      Certificate of Incorporation

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



         3.2      By-Laws

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



         4.1      Specimen Certificate of Common Stock

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



         4.2      Specimen Certificate of A Warrant

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



         4.3      Specimen Certificate of B Warrant

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



         10.1     Stock Option Plan

                  Incorporated  by  reference to the filing of such Exhibit with
                  Registrants  Annual  Report on Form 10-K for the  fiscal  year
                  ended June 30, 1996.



        27        Financial Data Schedule



      B.   Reports on Form 8-K



              Form 8-K dated July 10, 1997 electronically filed and
accepted on July 15, 1997; Accession No. 0001012118-97-000095.
Reference Item 5. Other Events: On July 10, 1997, the Registrant
concluded a private placement of Units pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended.



                                                         31

<PAGE>



              Form 8-K dated July 24, 1997 electronically filed and
accepted on July 24, 1997; Accession No. 0001012118-97-000105. Item
5, Other Events: Extending the expiration date of the Class A
Warrants.





                                                         32

<PAGE>



                                                 Report of Independent Auditors







      To the Board of Directors and Stockholders

      Ionic Fuel Technology, Inc.





      We have audited the accompanying  consolidated balance sheet of Ionic Fuel
Technology,  Inc.  as of June 30, 1997 and 1996,  and the  related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period  ended June 30,  1997.  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, 1997 and 1996,  and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended June 30, 1997, 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,
present fairly in all material respects, the information set forth therein.







                                                    /s/ Ernst & Young LLP



   
      Stamford, Connecticut
    

      September 5, 1997
                                       

                                                            F-1

<PAGE>


<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
 


                                                   Ionic Fuel Technology, Inc.



                                                   Consolidated Balance Sheet






                                                                                       June 30
                                                                            1997                         1996
      Assets
      Current assets:
         Cash and cash equivalents (Note 1)                            $    191,629                  $1,173,088
         Trade accounts receivable (net of allowances of $0 and              59,420                      80,332
                  $43,791, respectively)
         VAT and other receivables                                           -                           25,642
         Inventory (Note 2)                                                 482,446                     464,093
         Prepaid expenses                                                   137,676                      84,639
      Total current assets                                                  871,171                   1,827,794

   Equipment and vehicles, net (Notes 1 and 3)                              153,117                     192,608

   Patents, net (Notes 1 and 4)                                             603,003                     638,783
      Total  assets                                                     $ 1,627,291                 $2,659,185

      Liabilities and stockholders' equity Current liabilities:
         Accounts payable                                             $      87,155               $      87,739
         Accrued expenses                                                   239,827                     316,493
         Provisions for warranties and returns                               16,380                      63,833
         Accrued royalty - due to officer (Note 4)                           40,000                      20,800
         Current portion of royalty agreement (Note 4)                       18,720                      16,127
         Accrued salary, benefits and payroll taxes                          19,419                      16,509
         Current portion of capital lease obligations (Note 5)               14,984                      -
      Total current liabilities                                             436,485                     521,501


      Other long-term liabilities (Note 4)                                  346,249                     364,773

      Stockholders' equity (Notes 7 and 10): Common stock, $.01 par value:
         20,000,000  shares  authorized;  issued and  outstanding  5,401,600 and
         5,400,000 shares, respectively (Note 7)
                                                                             54,016                      54,000
         Capital in excess of par value                                      10,837,407                  10,768,973
         Accumulated deficit                                                 (9,903,667)                 (8,899,242)
         Cumulative translation adjustment (Note 1)                            (143,199)                   (150,820)
      Total stockholders' equity                                                844,557                     1,772,911
      Total liabilities and stockholders' equity                            $ 1,627,291                 $ 2,659,185
                                                                        =========================== ============================


      See accompanying notes.

</TABLE>

                                                            F-2

<PAGE>



<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



                                                   Ionic Fuel Technology, Inc.



                                              Consolidated Statement of Operations



                                                                              Year ended June 30

                                                              1997                       1996                      1995

      Revenues (Note 1):
         Equipment sales                                $  171,079                  $    122,671           $      80,788
         Service income                                    150,755                       124,084                 118,035
         Rental income                                     306,860                       347,204                 277,338
      Total revenue                                        628,694                       593,959                 476,161


      Cost of revenues                                     723,327                       537,110                 344,868
                                                           (94,633)                       56,849                  131,293

      Operating expenses:
         General and administrative                        657,133                     1,229,969               1,854,880
         Sales and marketing                               161,418                       361,644                 853,093
         Restructuring charges (Note 9)                    -                             -                       198,006
         Royalty charges                                    60,000                        60,000                  60,000
         Research and development                            3,973                        17,532                   9,019
                                                           882,524                     1,669,145               2,974,998
                                                     ------------------------------------------------------------------------
      Loss from operations                                (977,157)                   (1,612,296)             (2,843,705)

      Other income (expense):
         Interest income                                    28,801                       106,905                 161,787
         Miscellaneous income                              -                             -                        16,145
         Interest expense                                  (56,069)                      (58,276)                (59,971)
                                                           (27,268)                       48,629                 117,961
                                                     --------------------------------------------------------------------------


      Net (loss)                                       $(1,004,425)                  $(1,563,667)             $(2,725,744)



      Net (loss) per share (Note 1)                   $     (0.19)                   $    (0.29)              $    (0.51)
                                                     ====================================================== ==================


   Weighted average number of common
         shares
                                                           5,412,100                     5,410,500               5,318,445
         (Note 1)
                                                     =========================================================================






      See accompanying notes.
</TABLE>


                                                            F-3

<PAGE>


<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                   Ionic Fuel Technology, Inc.



                                         Consolidated Statement of Stockholders' Equity


                                                              Common Stock                Capital in
                                              --------------------------------------
                                                    Shares               Par              Excess of Par
                                                                        Value                 Value

   Balance at June 30, 1994                         4,200,000           $42,000           $  6,012,559
       Issuance of common stock                     1,200,000            12,000              4,756,414
       Net loss
       Translation adjustment
                                              ------------------- -------------------------------------------
   Balance at June 30, 1995                         5,400,000            54,000             10,768,973
       Net loss
       Translation adjustment
   Balance at June 30, 1996                         5,400,000            54,000             10,768,973
       Net loss
       Issuance of compensatory
         stock options and warrants
                                                                                                68,000
       Exercise of stock options                       1,600                 16                           434
       Translation adjustment
                                              ------------------- -------------------------------------------
   Balance at June 30, 1997                         5,401,600           $54,016            $10,837,407
                                              =================== ===========================================






      See accompanying notes.


                                                            F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



                                                   Ionic Fuel Technology, Inc.



                                         Consolidated Statement of Stockholders' Equity


                                                                            Cumulative
                                                   Accumulated              Translation
                                                  Deficit                 Adjustment
                                                                                                      Total

   Balance at June 30, 1994                     $(4,609,831)             $(161,817)              $ 1,282,911
       Issuance of common stock                                                                    4,768,414
       Net loss                                  (2,725,744)                                       (2,725,744)
       Translation adjustment                                               31,381                     31,381
                                          ------------------------ ----------------------- ---------------------
   Balance at June 30, 1995                     (7,335,575)              (130,436)                 3,356,962
       Net loss                                 (1,563,667)                                       (1,563,667)
       Translation adjustment                                             (20,384)                   (20,384)
   Balance at June 30, 1996                     (8,899,242)              (150,820)                 1,772,911
       Net loss                                 (1,004,425)                                       (1,004,425)
       Issuance of compensatory
       stock options and 
       warrants                                                                                       68,000
                                                                                                


       Exercise of stock options                                                                         450
       Translation adjustment                                               7,621                      7,621
                                          ------------------------ ----------------------- ---------------------
   Balance at June 30, 1997                     $(9,903,667)            $(143,199)               $   844,557
                                          ======================== ======================= =====================






      See accompanying notes.


                                                            F-5
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                   Ionic Fuel Technology, Inc.

                                              Consolidated Statement of Cash Flows

                                                                                           Year ended June 30

                                                                          1997                    1996                     1995
                                                              ----------------------- ---------------------- --------------------

   Operating activities
   Net (loss)                                                       $(1,004,425)            $(1,563,667)           $(2,725,744)
   Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
       Depreciation                                                      66,241                 111,316                 67,763
       Amortization                                                      62,661                  85,653                 79,414
       Non cash compensation                                             16,000                  -                      -
       Changes in operating assets and liabilities:
       Accounts receivable                                               26,128                  112,352                (77,870)
       Other receivables                                                  8,674                    2,311                  5,039
       Inventory                                                         43,464                   (9,058)               (89,498)
       Prepaid expenses                                                  19,211                   61,750                (62,966)
       Deferred charges                                                      -                       -                  327,614
       Other assets                                                       2,195                   33,374                 (6,267)
       Accounts payable and accrued expenses                           (131,121)                (174,440)              (165,866)
   Net cash used in operating activities                               (890,972)              (1,340,409)            (2,648,381)

   Investing activities
   Acquisition of investments                                            -                       -                   (6,063,303)
   Acquisition of patents and license                                  (25,885)                 (18,703)                (38,219)
   Acquisition of equipment                                            (29,239)                 -                      (100,283)
      Accretion of interest                                             -                       (13,949)               (122,161)
   Proceeds from maturity of investments                                -                     1,300,000               4,899,413
   Net cash (used in) provided by investing                           (55,124)                1,267,348              (1,424,553)
         activities

   Financing activities
   Principal payments on capital leases                                -                       (14,707)               (30,911)
   Principal payments under licensing agreement                      (15,931)                  (13,725)               (11,824)
   Net proceeds from issuance of stock                                   450                     -                  4,768,414
   Net cash (used in) provided by financing                          (15,481)                  (28,432)             4,725,679
         activities
                                                              ----------------------- ---------------------- ------------------

   Effects of exchange rate differences on cash                     (19,882)                    (6,677)                9,810
                                                              ----------------------- ---------------------- --------------------

   (Decrease) increase in cash                                      (981,459)               (108,170)              662,555
   Cash, beginning of year                                         1,173,088               1,281,258               618,703
   Cash, end of year                                            $    191,629            $  1,173,088           $ 1,281,258
                                                              ======================= ====================== ====================

   Interest paid                                               $      56,069           $       58,276         $      59,971
                                                              ======================= ====================== ====================






      See accompanying notes.


</TABLE>
                                                            F-6

<PAGE>


                                                  Ionic Fuel Technology, Inc.

                                    Notes to Consolidated Financial Statements



      1. Summary of Significant Accounting Policies



      Basis of Presentation



      Ionic Fuel Technology,  Inc. ("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,  1997 and  1996,  the  Company  maintained  cash  balances  of
approximately  $69,000 and  $980,000,  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.



      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.










                                                                 F-7

<PAGE>



                                             Ionic Fuel Technology, Inc.

                         Notes to Consolidated Financial Statements (continued)


      1. Summary of Significant Accounting Policies (continued)

      Intangible Assets

   
      Patents are carried at acquisition  cost , less  accumulated  amortization
provided  on the  straight-line  basis over the  estimated  useful  lives of the
assets  which range from five to fifteen  years.  Amortization  expense of these
intangible  assets amounted to $62,661,  $61,732 and $59,410 for the years ended
June 30, 1997, 1996 and 1995, respectively. Accumulated amortization amounted to
$322,272  and  $259,611 at June 30, 1997 and 1996,  respectively.  The  carrying
value of the patents are  reviewed by  management  on a periodic  basis and when
facts  and  circumstances  suggest  the value may be  impaired.  If this  review
indicates that the carrying amounts will not be recoverable, as determined based
on the undiscounted cash flows of revenues generated as a result of such patents
over the  remaining  amortization  period,  management  will reduce the carrying
amount by the estimated shortfall in cash flows.
    


      The value of rental and maintenance  contracts acquired was amortized over
the lives of the  contracts,  which ranged from one to four years.  The original
lives of all contracts  purchased  expired in 1996.  This  amortization  expense
amounted  to $23,921  and  $20,004  for the years  ended June 30, 1996 and 1995,
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 and accounts payable:  The
carrying  amounts  reported in the balance sheet for cash and cash  equivalents,
accounts receivable and accounts payable approximate their fair value.

      Stock Compensation

      The Company accounts for stock option grants in accordance with Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees". Under the Company's current plan, options may be granted at not less
than the fair market value on the date of grant and therefore,  no  compensation
expense is recognized for the stock options granted.  In the year ended June 30,
1997, the Company adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation".

      Per Share Data

      Net loss per share of common stock is computed  using the  treasury  stock
method  based on the  weighted  average  number of  shares  of common  stock and
dilutive common equivalent shares outstanding during the period.

                                       F-8

<PAGE>



                               Ionic Fuel Technology, Inc.

                    Notes to Consolidated Financial Statements (continued)



      1. Summary of Significant Accounting Policies (continued)



      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



      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.  Equipment  sales
are  recognized  upon  shipment  of the  equipment  and are  recorded  net of an
allowance for returns.



      Warranty Costs



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



      Field Engineering Costs



      Cost of revenues  reflects  approximately  $176,000 of field  engineering,
installation,  and other field costs  incurred in the fourth quarter of the year
ended June 30, 1996. Similar costs incurred prior to these periods were included
in sales and  marketing  expenses  because  extensive  engineering  support  was
required to complete the sales  process.  This change was a result of the change
in  responsibilities  of  certain  employee's  caused  by  the  maturing  of the
Company's system from a developmental state to a mature product.



      Reclassification



      Certain  amounts  at year ended June 30,  1996 have been  reclassified  to
conform to the presentation at the year ended June 30, 1997.



      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.




                                                                 F-9

<PAGE>



                             Ionic Fuel Technology, Inc.

                    Notes to Consolidated Financial Statements (continued)



      1. Summary of Significant Accounting Policies (continued)



      Accounting Pronouncements



      In February 1997, the Financial  Accounting  Standards Board (FASB) issued
SFAS No. 128  "Earnings  per Share"  which the Company  will adopt for it second
quarter  ending  December 31, 1997.  SFAS No. 128 requires the Company to change
the  method it  currently  uses to  compute  earnings  per  share  and  requires
restatement  of all prior  periods.  Under the new  requirements,  the  dilutive
effect of stock options are excluded from computing  "basic"  earnings per share
and  remain  in the  diluted  computation.  The  impact  of SFAS No.  128 is not
expected to be material.

      2. Inventory



      Inventory is comprised of the following:


                                                       June 30

                                                1997                 1996


      Material and supplies                 $161,817           $152,721
      Finished goods                         320,629            311,372
                                            $482,446           $464,093
                                      ================== =======================


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



      3. Equipment and Vehicles

      Equipment and vehicles are comprised of the following:


                                                      June 30

                                               1997                     1996

      Equipment                            $ 440,540           $ 404,994
      Vehicles                                35,015              22,754
                                             475,555             427,748
      Accumulated

      depreciation                         (394,708)            (321,242)
                                             80,847              106,506
                                     ------------------- -----------------------

      Equipment under lease                119,667               126,072
      Accumulated
       depreciation                        (47,397)            (39,970)
                                            72,270              86,102
                                     ------------------- -----------------------
                                         $ 153,117           $ 192,608
                                     =================== ======================


      Amortization  expense  included in depreciation  expense,  relating to the
leased equipment,  amounted to $15,247,  $20,898 and $18,208 for the years ended
June 30, 1997, 1996 and 1995, respectively.




                                                                 F-10

<PAGE>



                                 Ionic Fuel Technology, Inc.
                       Notes to Consolidated Financial Statements (continued)


      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,  is
included in other long-term obligations and has the following maturities:
    

   
      Year ending June 30:

         1998                                  $18,720

         1999                                   21,733

         2000                                   25,246

         2001                                   29,281

         2002                                   33,989

      thereafter                              $236,000

                                              $364,969
    

       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,  1997,  1996 and 1995.
Commencing  in 1995,  $1,600 per month of this  override  royalty  was  deferred
resulting in an accrued  royalty expense of $40,000 and $20,800 at June 30, 1997
and 1996, respectively.
    

      5. Leases

      The Company  leases its facility  under a  noncancelable  operating  lease
expiring in 1997. The future minimum lease payments under  operating and capital
leases as of June 30, 1997 are as follows:


                                              Operating               Capital
                                              leases                  leases
      Year ending June 30:
         1998                               $102,723                  $  2,491
         1999                                  9,130                     2,913
         2000                                  3,043                     3,146
         2001                                    -                       3,399
         2002                                    -                       3,039
                                        ------------------------- --------------
      Total minimum lease payments           $114,896                  $14,988
                                      ========================= ================

      The cost of assets under  capital  leases  amounted to $15,247 at June 30,
1997. There was no cost of assets under capital leases at June 30, 1996.

                                     F-11

<PAGE>

                                    Ionic Fuel Technology, Inc.
                         Notes to Consolidated Financial Statements (continued)

      Rent  expense  amounted to  $166,118,  $135,720 and $102,439 for the years
ended June 30, 1997, 1996 and 1995, respectively.



      The future minimum lease payments receivable under noncancelable operating
leases as of June 30, 1997 are as follows:




                                                     Operating
                                                     leases
      Year ending June 30:
         1998                                         $134,223
         1999                                           66,871
         2000                                            4,926
                                                 -------------------------
      Total minimum lease payments receivable          $206,020
                                                =========================


      6. Income Taxes



      At June 30, 1997, the Company has available  operating loss  carryforwards
for United States federal income tax purposes of $2,045,157  which are available
to offset future taxable income, if any, through the indicated years:  $6,082 in
2006,  $54,766 in 2007,  $95,812 in 2008,  $600,574  in 2009,  $615,511 in 2010,
$380,431  in 2011 and  $291,981  in 2012.  The amount and timing  upon which the
Company may realize  future tax benefits from its net operating loss is affected
by prior  changes in ownership  of the Company.  The  Company's  subsidiary  has
unused operating loss carryforwards, with no expiration date, for United Kingdom
income tax purposes,  of  $7,728,104  at June 30, 1997.  The statutory tax rates
during the year ended June 30, 1997 are 34% and 24% in the U.S. and U.K.  During
the years ended June 30, 1996 and 1995 the  statutory tax rates were 34% and 25%
in the U.S. and U.K., respectively.



      Significant   components  of  the   Company's   deferred  tax  assets  and
liabilities are as follows:
                                                               June 30
                                                           1997           1996
                                                        ---------     ----------

      Deferred tax liabilities:
      Total deferred tax liabilities                 $   16,904           $  -
      Deferred tax assets:
         Benefit of net operating loss carryforwards -  695,353         598,180
         U.S.
         Benefit of net operating loss carryforwards -
         U.K.
                                                      1,854,745       1,636,330
         Other                                           41,477          58,899
      Total deferred tax assets                       2,591,575       2,293,409
      Valuation allowance                            (2,574,671)     (2,293,409)
      Net deferred tax assets                            16,904           -
      Total net deferred tax assets (liabilities)   $     -       $       -
                                          ======================= ==============





                                                                F-12

<PAGE>





                                           Ionic Fuel Technology, Inc.

                   Notes to Consolidated Financial Statements (continued)



      7. Stockholders' Equity



      Effective  March 28, 1994, an amendment and  restatement  of the Company's
Restated  Certificate of Incorporation was approved by the Board of Directors of
the Company  providing  for an increase in the  authorized  common  stock of the
Company to 20,000,000 shares.

   
      On July 28, 1994, the Company issued 1,200,000 units, each unit consisting
of one share of common stock,  par value $.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,  which  rights been  extended for a year until July 28,
1998. Two Series B Warrants entitle the holder,  to purchase one share of Common
Stock for $7.50  until July 28,  1999.  Each  Series of  Redeemable  Warrants is
redeemable  at the  Company's  option  at a  price  of $.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 costs of $1,231,586.
    



      Stock Options



      The Company's 1992 Stock Option Plan, as amended,  (the "Plan"),  provides
for the granting of qualified or  nonqualified  options to acquire up to 450,000
common shares by certain key employees of the Company or its subsidiary. Options
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, 1997 and 1996, respectively;  risk-free
interest rates of 6.7% and 6.0%; volatility factors of the expected market price
of the Company's common stock of 129% and 164% and a  weighted-average  expected
life for the options of 10.0 years in both years.


      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  $1,010,203  and
$1,563,937  and pro forma net loss per share would have been $(0.19) and $(0.29)
for the years ended June 30, 1997 and 1996, respectively.


                                   F-13

<PAGE>



           Ionic Fuel Technology, Inc.

           Notes to Consolidated Financial Statements (continued)



      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, 1996 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.
    

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

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                                                Weighted-
                                                                                                              average
                                                                 Number                Option price       exercise price
                                                                                     per share               per share
                                                                of shares

   Options outstanding at June 30, 1994                     198,000                 $2.81-$5.00              $4.51
         Granted                                            28,000                  $2.13                    $2.13
         Exercised                                             --
         Canceled                                           (136,000)               $2.81-$4.69              $4.47
   Options outstanding at June 30, 1995                     90,000                  $2.13-$5.00              $3.18
         Granted                                            36,000                         $.28              $  .28
         Exercised                                              --
         Canceled                                               --
                                                      -----------------------
   Options outstanding at June 30, 1996                     126,000                 $  .28-$5.00             $2.35
         Granted                                            206,000                    $1.06-$4.00           $3.31
         Exercised                                          (1,600)                 $  .28                   $  .28
         Canceled                                              --
   Options outstanding at June 30, 1997                     330,400                 $  .28-$5.00             $2.96
                                                      =======================


      At June 30, 1997,  options for 119,600  shares were  available  for future
grants and 212,000 options were exercisable.




</TABLE>
                               F-14                                 

<PAGE>



                                Ionic Fuel Technology, Inc.

                   Notes to Consolidated Financial Statements (continued)



   
      The following  table  summarizes  information  concerning  outstanding and
exercisable options,  excluding the 150,000 options issued to a public relations
firm, as of January 30, 1997.
    

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                        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




      $0.01-$1.00            34,400             8.57                 $0.28                      5,600               $0.28

      $1.01-$2.00            56,000             9.53                 $1.13                          0               $0.00

      $2.01-$3.00          32,000               7.31                 $2.22                     15,200               $2.31

      $4.01-$5.00          58,000               6.29                 $4.74                     41,200               $4.74
      ---------------------------------------------------------------------------------------------------------

                          180,400               7.91                 $2.32                     62,000               $3.74
</TABLE>


      The weighted-average  fair value of options granted during the years ended
June 30, 1997 and 1996 was $1.10 and $0.09, respectively.



      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 the year ended June 30, 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  in 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 $6,000 was recognized for the year ended June 30, 1997.




                                   F-15

<PAGE>



                                              Ionic Fuel Technology, Inc.

                     Notes to Consolidated Financial Statements (continued)



      8. Results of Foreign Operations



   
      Geographic operations of the Company are as follows:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                          Adjustments

                                                                                                 and

                                                       United States              Europe    Eliminations         Consolidated

      Year ended June 30, 1997

      Total revenue                                                     $601,408         $  27,286            $628,694

      Loss from operations                  $(263,664)                  (709,309)            (4,184)          (977,157)

      Other income (expense), net                                                                               (27,268)

      Net (loss)                                                                                           (1,004,425)

      Identifiable assets                   10,039,427                    904,452       (9,316,588)         1,627,291

      Year ended June 30, 1996

      Total revenue                                                        593,959                            593,959

      Loss from operations                  (449,066)                  (1,197,933)            34,703      (1,612,296)

      Other income (expense), net                                                                               48,629

      Net (loss)                                                                                          (1,563,667)

      Identifiable assets                   10,266,606                 1,001,869        (8,609,290)       2,659,185

      Year ended June 30, 1995

      Total revenue                                                        477,783            (1,622)         476,161

      Loss from operations                  (761,325)                  (2,082,380)                        (2,843,705)

      Other income (expense), net                                                                             117,961

      Net (loss)                                                                                          (2,725,744)

      Identifiable assets                   10,560,001                 1,315,409        (7,411,867)        4,463,543
    

</TABLE>
                                            F-16


<PAGE>



                                                  Ionic Fuel Technology, Inc.

                     Notes to Consolidated Financial Statements (continued)



      9. Restructuring Charges

      During 1995, IFT Ltd.  undertook a fundamental  restructuring,  leading to
the  termination  of over half of its  workforce.  Other costs  relating to this
restructuring  included inventory write downs and early termination  payments on
certain motor vehicle leases.


      10. Subsequent Event

     On July 14,  1997,  the Company  completed  a private  offering of 771,833
shares of its common  stock and Series C Warrants  at a price of $2.25 per unit.
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  71,183 Series C Warrants to their
broker in  exchange  for the  services  provided.  The  Company  received  total
proceeds of $1,736,624 which, net of offering expenses of $165,965, will be used
for general working capital.




                                      F-17

<PAGE>



                                          Ionic Fuel Technology, Inc.


                           Schedule II-Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>









                                                                                    Additions/Deductions
                                                                       ----------------------------------------

                                                            Balance             Charged               Write-
                                                      at Beginning         to Costs and         Offs Net of
                                                        of Period            Expenses            Recoveries             Balance
                                                                                                                      at End of
                      Description                                                                                      Period
                                                   ------------------- -------------------- -------------------- -------------------

   For the year ended June 30, 1995
     Allowance for doubtful accounts                     $43,565                                                       $45,004

   For the year ended June 30, 1996
         Allowance for doubtful                          $45,004                                                       $43,791
                  accounts

   For the year ended June 30, 1997
         Allowance for doubtful                          $43,791                                                       $
                  accounts                                                                                       -





</TABLE>
                                                                

<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: April 1, 1998



                                            IONIC FUEL TECHNOLOGY, INC.



                                            By:

                                              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





      Douglas F. Johnston    Chairman & Chief Financial       April 1, 1998
                             Officer



      Anthony J.S. Garner    President, Chief Executive       April 1, 1998
                             Officer and Director



      Paul C. O'Neill        Treasurer and Director           April 1, 1998




      Frank J. Hollendoner   Director                         April 1, 1998



      Henry W. Sullivan       Director                         April 1, 1998