UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-9015
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
(Exact name of Registrant as specified in charter)
COLORADO 84-0768695
- ------------------------------ -----------------------
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
Address of principal executive offices, including Zip Code:
12407 South Memorial Drive, Bixby, OK 74008
Issuer's telephone number, including area code: (918) 369-5950
Former Address: 57 West 200 South, Suite 310, Salt Lake City, Utah 84101
Indicate by check whether the Issuer (1) has filed all reports required to be
filed by section 13 or 15(d) of the Exchange Act during the past 12 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 90 days.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: At August 31, 1999, there were
9,550,138 shares of the Registrant's Common Stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
With the exception of the May 31, 1999 Balance Sheet, the financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The May 31,
1999 Balance Sheet was audited and was included along with all required footnote
disclosures in the May 31, 1999 Form 10-KSB. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, in the opinion of management, all adjustments necessary to present
fairly the financial position and results of operations for the periods
presented have been made.
These financial statements should be read in conjunction with the accompanying
notes, and with the historical financial information of the Company.
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, 1999 AND MAY 31, 1999
ASSETS
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
(Unaudited)
--------------- ------------
<S> <C> <C>
Current assets:
Cash $ 187,045 $ 6,942
Accounts receivable 272,324 153,069
Advances to affiliates 1,015 3,521
---------- ----------
Total current assets 460,384 163,532
---------- ----------
Equipment and patents at cost
Equipment, net of accumulated
depreciation 65,611 70,889
Patents, net of accumulated
amortization 253,109 255,351
---------- ----------
318,720 326,240
---------- ----------
$ 779,104 $ 489,772
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 51,563 $ 31,890
Accounts payable - affiliate 45,500 -
Notes payable - related party 87,500 92,764
---------- ----------
Total current liabilities 184,563 124,654
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
9,550,138 and 9,520,138
shares issued and outstanding
at August 31, 1999 and May 31,
1999, respectively 9,550 9,520
Additional paid-in capital 1,261,989 1,137,019
Retained earnings (deficit) (676,998) (781,421)
---------- -----------
594,541 365,118
---------- -----------
$ 779,104 $ 489,772
========== ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
For the Three Months
Ended August 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
REVENUES $ 390,654 $ -
COSTS ASSOCIATED WITH REVENUES 30,712 -
--------- --------
GROSS PROFIT (LOSS) 359,942 -
--------- --------
EXPENSES:
General & administrative 243,273 -
Depreciation and
amortization 9,988 -
--------- --------
253,261 -
--------- --------
INCOME (LOSS) FROM OPERATIONS 106,681 -
--------- --------
OTHER INCOME (EXPENSE):
Interest expense (2,259)
--------- --------
(2,259) -
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES 104,422 -
INCOME TAX EXPENSE - -
--------- --------
NET INCOME (LOSS) $ 104,422 $ -
========= ========
BASIC EARNINGS (LOSS) PER SHARE $ .01 $ -
========= ========
DILUTED EARNINGS (LOSS) PER SHARE $ .01 $ -
========= ========
AVERAGE WEIGHTED SHARES
OUTSTANDING 9,535,138 676,375
========= ========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED AUGUST 31, 1999 AND THE YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-In Accumulated
Shares Amount Capital (Deficit)
------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance, May 31, 1998 676,375 $ 676 $ 524,550 $(543,917)
Issuance of stock for 5,750,000
shares of Ion Collider
Technologies, Inc.
on September 30, 1998 8,625,000 8,625 275,499 -
Issuance of stock for payable 43,038 43 18,647
Issuance of stock for cash 125,725 126 470,866
Issuance in connection with
acquisition of Big Blue, Inc. 50,000 50 (152,543)
Net loss - - - (237,504)
--------- ------ ---------- ----------
Balance, May 31, 1999 9,520,138 $9,520 $1,137,019 $(781,421)
Issuance of stock for cash 30,000 30 124,970
Net income 104,423
--------- ------ ---------- -----------
Balance, August 31, 1999 9,550,138 $9,550 $1,261,989 $(676,998)
========= ====== ========== ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
For the Three Months Ended August 31,
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ 104,423 $ -
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities -
Depreciation and amortization 9,988 -
Changes in operating assets -
Increase in accounts receivable (116,749) -
Changes in operating liabilities -
Increase in accounts payable
and accrued expenses 19,674 -
---------------- ----------------
Net cash provided by (used in)
operating activities 17,336 -
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (730) -
Patent costs (1,739) -
---------------- ----------------
Net cash used in
investing activities (2,469) -
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing from
related parties 45,500 -
Proceeds from sale of common stock 125,000 -
Loan principal payments (5,264) -
---------------- ----------------
Net cash provided by
financing activities 165,236 -
---------------- ----------------
NET INCREASE IN CASH 180,103 -
CASH, BEGINNING OF THE YEAR 6,942 -
---------------- ----------------
CASH, END OF THE YEAR $ 187,045 $ -
================ ================
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 1999 and 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements as of
August 31, 1999 and 1998 and for the three months then ended have been prepared
in accordance with instructions to Form 10QSB and, accordingly, do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Also included is the May 31, 1999,
balance sheet which has previously been reported on in the Company's Form 10KSB
for the fiscal year ended May 31, 1999. In the opinion of management, all
adjustments considered necessary for fair presentation have been included. The
results for the three month period are not necessarily indicative of results for
the full year. For further information see Management's Discussion and Analysis
of Financial Condition and Operating Results.
NOTE 2 - SIGNIFICANT EVENTS
Organization
- ------------
International Cavitation Technologies, Inc. (the "Company") was incorporated as
Yellow Gold Of Cripple Creek, Inc. (Yellow Gold) under the laws of the State of
Colorado on August 24, 1936. The Company was involved in various mining
activities over the years, none of which proved successful. During the year
1953, the Company discontinued all operations and had no significant revenues
from any activity prior to September 1998 and was classified as a development
stage company. For the period during the development stage of the Company from
August 1953 through August 31, 1998, the Company had accumulated losses of
$543,917.
On December 2, 1998, the shareholders voted to change the Company's name to
International Cavitation Technologies, Inc. from Yellow Gold Of Cripple Creek,
Inc.
Acquisition of Ion Collider Technologies, Ltd.
- ----------------------------------------------
On September 30, 1998, the Company acquired all of the outstanding common stock
and common stock purchase warrants of Ion Collider Technologies, Ltd. ("ICT"), a
Colorado corporation, in a business combination accounted for as a pooling of
interests. ICT became a wholly owned subsidiary of the Company through the
exchange for 8,625,000 shares of its common stock and 3,000,000 common stock
purchase warrants, after taking into account the one-for-four reverse stock
split described in Note 5 below. Each warrant is exercisable to purchase one
share of the Company's common stock for $1.17 per share anytime until June 1,
2008. The accompanying financial statements for fiscal year ending May 31, 1999
are based on the assumption that the companies were combined for the full year,
and financial statements of prior years have been restated to give effect to the
combination.
ICT owns four patents and one pending patent related to the use of ion collider
technology to separate particles from liquid, enhance the recovery of crude oil,
increase the amount of hydrocarbons recoverable from underground reservoirs,
clarify water, and other applications to be developed.
The Company's goal is to oversee the commercial implementation of its various
patented processes. It anticipates that revenues will be generated from
licensing fees, royalties from the use of this technology by third parties, and
for services rendered in the commercial application of these patented
technologies.
Subsequent to the merger mentioned above, the Company acquired Big Blue, Inc.
which was a party to an Asset Purchase Agreement entered into on September 21,
1998 between ICT and various companies and individuals which were shareholders
in the Company on the acquisition date. This agreement called for ICT to acquire
for common stock the patents mentioned above, which had certain license and
other conditions previously agreed to by the former owners of the patents, and
in the future assets of companies participating in the sale of the patents to
ICT for $220,000. Effective May 31, 1999 the Company exercised its option and
purchased Big Blue, Inc. and certain licensing agreements related to the
patents.
Joint Venture and Sub-License Agreements
- ----------------------------------------
During August of 1999, Big Blue, Inc. ("BBI") entered into a five year Joint
Venture Agreement ("Agreement") with Aqua Terra, L.L.C. ("AT"), a California
limited liability company, forming a California Joint Venture known as Aqua
Terra Technologies ("ATT"). The purpose of this agreement was to form a joint
venture to which a sub-license could be granted from BBI to the joint venture
for rights BBI holds under a license agreement with the Company for certain
proprietary and patented technologies relating to environmental remediation.
The terms of the Agreement require BBI to issue the joint venture a
non-exclusive sub-license agreement in the State of California for the use of
the patent rights and technology. Upon execution of the Agreement, AT was
required to contribute $300,000 in cash to the joint venture, and upon receipt
of that initial capital, ATT paid BBI a one-time Sub-licensing fee of $200,000.
As further consideration for the Sub-license, ATT will pay BBI a royalty equal
to 12% of net job revenues, but in no event will the royalty be less than $3.50
per ton of soils treated, $5.00 per ton of sludges treated and $0.005 per gallon
of liquids treated, unless otherwise agreed to in writing. BBI will be allocated
20% of the joint venture profit or loss.
NOTE 3. ACCOUNTING POLICIES
Consolidation Policies
- ----------------------
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries, ICT and Big Blue, Inc.
Intercompany transactions and balances have been eliminated in consolidation.
Equipment and Patents
- ---------------------
The cost of the patents acquired is recorded at predecessor cost for common
shares issued in the acquisition, and the additional cash cost to purchase
certain licensing agreements related to the patents for $220,000. Amortization
is recorded over the remaining patent life of approximately sixteen years.
Equipment is depreciated over seven years.
Earnings (Loss) per Share
- -------------------------
Earnings (loss) per share computations are calculated on the weighted-average of
common shares and common share equivalents outstanding during the year. Common
stock warrants and options are considered to be common stock equivalents and are
used to calculate earnings per common and common equivalent except when they are
anti-dilutive.
Use of Estimates in Financial Statements
- ----------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and revenues and
expenses during the reporting period. In these financial statements, assets,
liabilities and earnings involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
NOTE 4 - REVERSE STOCK SPLIT
On October 6, 1997, the shareholders of the Company approved a reverse stock
split of one-for-forty shares. On December 2, 1998, the shareholders of the
Company approved a reverse stock split of one-for-four shares. The financial
statements have been adjusted to reflect these reverse stock splits.
NOTE 5 - NON-QUALIFIED STOCK OPTION PLAN
During the fiscal year ended May 31, 1998, the Company adopted a Non-Qualifying
Stock Option Plan to provide the Company with ongoing legal and professional
expertise in its regulatory filing requirements and ongoing negotiations for
viable business and merger opportunities. The Company set aside 125,000 shares
(after taking into consideration the reverse stock split taken on December 2,
1998) for such a plan. The price of the options are to be determined by the
Board of Directors and are set to expire in five years.
During the fiscal year ended May 31, 1998, 50,000 shares were optioned and
exercised at $.05 per share for services rendered.
During the quarter ending February 28, 1999, 8,000 share were optioned and
exercised at $.01 per share for cash.
NOTE 6 - LEASE COMMITMENTS
Big Blue is leasing three automobiles and these vehicles are under
non-cancellable operating leases having remaining terms in excess of one year as
of August 31, 1999. Rentals for each of the next five years and in the aggregate
are:
<TABLE>
<CAPTION>
Fiscal year ended May 31,
<S> <C>
2000 17,230
2001 13,848
2002 7,529
2003 7,530
2004 -
--------
Total future minimum
rental payments $ 46,137
========
</TABLE>
NOTE 7 - NOTES PAYABLE
The following notes are all due prior to May 31, 2000:
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
---------- ---------
<S> <C> <C>
6% Note payable to G.C. Broach
payable by Big Blue and secured by
equipment due September 10, 1999 $ - $ 5,264
10% Note due by Company to Market Media 50,000 50,000
This note has a call to be paid
should the Company obtain financing
of $250,000.
10% Note payable to McKinley Capital
originally due 60 days from September 1,
1998 but extended for another ten months.
This note has a call to be paid should ICT
obtain financing of $250,000 37,500 37,500
--------- ---------
$ 87,500 $ 92,764
========= =========
</TABLE>
NOTE 8 - INDEPENDENT APPRAISAL ON PATENTS
On October 13, 1999, the Company obtained an appraisal from an independent
certified public accounting firm accredited in business valuations by the
American Institute of Certified Public Accountants on the estimated fair value
of the Company. In their opinion, the Company, through the use of its patented
technologies, had a fair market value in excess of $10,000,000 as of October 13,
1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Prior to September of 1998, the Company was in the development stage.
The following discussion is intended to assist in an understanding of the
Company's financial position as of August 31, 1999 and its results of operations
for the three months ended August 31, 1999 and 1998. The Consolidated Condensed
Financial Statements and Notes included in this report contain additional
information and should be referred to in conjunction with this discussion. It is
presumed that the readers have read or have access to International Cavitation
Technologies, Inc.'s, Inc.'s 1998 annual report on Form 10-KSB.
COMPARISON OF THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
During the three months ended August 31, 1999, the Company reported net income
of $104,423. The Company had no activity during the comparable period in 1998.
This increase is due primarily to the following factors:
Revenues. During the three months ended August 31, 1999, the Company generated
$390,654 in revenues, $200,000 of which was licensing fee income, $153,180 of
which was land remediation fee income, and $37,474 of which was consulting fee
income. The licensing fee was earned in conjunction with its joint venture
agreement with Aqua Terra, L.L.C. No revenues were earned during the
corresponding period in 1998.
Cost Associated with Revenues. During the three months ended August 31, 1999,
the Company incurred $30,712 in costs associated with its land remediation
revenues. No costs associated with revenues were incurred during the comparable
period in 1998.
General and Administrative Expenses. The Company incurred general and
administrative expenses totaling $243,273 during the three months ended August
31, 1999. The Company incurred no general and administrative expenses during the
comparable period in 1998. This increase is a result of conducting operating
activities during 1999.
Depreciation and Amortization. Depreciation and amortization totaled $9,988 for
the three months period ended August 31, 1999. There was no depreciation or
amortization expense during the comparable period of 1998 as the Company had no
depreciable assets at that time.
Interest Expense. The Company incurred $2,259 in interest expense during the
three month period ended August 31, 1999. The Company incurred no interest
expense during the comparable period in 1998. This increase in interest expense
is a result of borrowing incurred subsequent to August 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
This form 10-QSB includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All
statements, other than statements of historical facts, included in this Form
10-QSB that address activities, events or developments that International
Cavitation Technologies, Inc. (the "Company"), a Colorado corporation formerly
named "Yellow Gold Of Crippled Creek, Inc.", expects or anticipates will or may
occur in the future, including such things as estimated future net expenditures
(including the amount and the nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Company's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate to the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties;
general economic, market or business conditions; the opportunities (or lack
thereof) that may be presented to and pursued by the Company; competitive
actions by other companies; changes in laws or regulations; and other factors,
many of which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this Form 10-QSB are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized, or even if realized,
that they will have the expected consequences to or effects on the Company or
its business or operations.
The Company became profitable during the three months ended August 31, 1999, and
anticipates that it will continue to be profitable for the remainder of the
fiscal year ending May 31, 2000. Continued profitability is dependent on the
Company's ability to continue to sell licensing agreements and to earn royalties
from the use of its patented technologies. As of August 31, 1999, the Company
anticipates that its current resources will be sufficient to finance the
Company's currently anticipated needs for operating and capital expenditures.
The Company's working capital requirements will depend upon numerous factors,
including: progress of the Company's licensing agreements; the licensee's
ability to generate additional projects utilizing the Company's technology; the
licensee's ability to generate net income from these projects; timing and cost
of obtaining regulatory approvals; and collaborative arrangements with other
organizations.
Net cash provided by operating activities for the three months ended August 31,
1999 was $17,336. There were no operating activities during the comparable
period of 1998.
Investing Activities
Net cash used in investing activities was $2,469 for the three months ended
August 31, 1999, as compared to no activity during the same period in 1998.
Financing Activities
Net cash flow provided by financing activities was $165,236 for the three months
ended August 31, 1999 as compared to no activity during the same period in 1998.
This increase was due to the issuance of stock for $125,000 and loans from
affiliates of $45,500, offset in part by loan repayments of $5,264.
PART II OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
International Cavitation Technologies, Inc.
Date: August ____, 1999 /s/ David N. Shroff, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 187,045
<SECURITIES> 0
<RECEIVABLES> 273,339
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 460,384
<PP&E> 318,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 779,104
<CURRENT-LIABILITIES> 97,063
<BONDS> 0
0
0
<COMMON> 9,550
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 779,104
<SALES> 390,654
<TOTAL-REVENUES> 390,654
<CGS> 30,712
<TOTAL-COSTS> 30,712
<OTHER-EXPENSES> 243,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,259
<INCOME-PRETAX> 104,423
<INCOME-TAX> 0
<INCOME-CONTINUING> 104,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,423
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
