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, 2000
[ ]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.
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(Exact name of Registrant as specified in charter)
COLORADO 84-0768695
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12407 South Memorial Drive, Bixby, OK 74008
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Address of principal executive offices, including Zip Code
(918) 369-5950
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Issuer's telephone number, including area code
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, 2000, there were
9,685,753 shares of the Registrant's Common Stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
With the exception of the May 31, 2000 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,
2000 Balance Sheet was audited and was included along with all required footnote
disclosures in the May 31, 2000 Form 10-K. 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. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, 2000 AND MAY 31, 2000
<TABLE>
<CAPTION>
August 31, 2000 May 31, 2000
(Unaudited)
--------------- ------------
ASSETS
Current assets:
<S> <C> <C>
Accounts receivable $ 378,110 $ 240,710
Prepaid expenses 2,979 11,728
----------- ------------
Total current assets 381,089 252,438
----------- ------------
Equipment and patents at cost
Equipment 178,006 178,006
Patents 260,627 260,627
----------- -----------
438,633 438,633
Less accumulated depreciation
and amortization (158,789) (148,443)
----------- -----------
279,844 290,190
----------- -----------
Deposits 7,900 7,900
----------- -----------
$ 668,833 $ 550,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 20,154 $ 162
Accounts payable 294,488 185,278
Payables to related parties 64,410 48,937
Accrued liabilities 42,303 38,365
Notes payable 163,550 87,500
----------- -----------
Total current liabilities 584,905 360,242
----------- -----------
DEFERRED REVENUES 265,000 265,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
9,685,753 shares issued and
outstanding at August 31, 2000
and May 31, 2000 9,686 9,686
Additional paid-in capital 1,488,550 1,488,550
Retained earnings (deficit) (1,679,308) (1,572,950)
---------- ----------
(181,072) (74,714)
---------- ----------
$ 668,833 $ 550,528
========== ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
For the Three Months
Ended August 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES $ 355,034 $ 190,654
COSTS ASSOCIATED WITH REVENUES 262,031 30,712
---------- ----------
GROSS PROFIT (LOSS) 93,003 159,942
---------- ----------
EXPENSES:
General & administrative 139,054 243,273
Depreciation and
amortization 10,347 9,988
---------- ----------
149,401 253,261
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INCOME (LOSS) FROM OPERATIONS (56,398) (93,319)
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OTHER INCOME (EXPENSE):
Interest expense (49,960) (2,259)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (106,358) (95,578)
INCOME TAX EXPENSE - -
---------- ----------
NET INCOME (LOSS) $ (106,358) $ (95,578)
========== ==========
BASIC EARNINGS(LOSS) PER SHARE $ (.01) $ (.01)
========== ==========
DILUTED EARNINGS (LOSS) PER SHARE $ (.01) $ (.01)
========== ==========
AVERAGE WEIGHTED SHARES
OUTSTANDING 9,685,753 9,535,138
========== ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED AUGUST 31, 2000 AND THE YEAR ENDED MAY 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Accumulated Total
Shares Amount Capital (Deficit) Equity
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1999 9,520,138 $9,520 $1,137,019 $(781,421) $ 365,118
Issued for cash 83,516 84 236,219 236,303
Issued in accordance
with stock option
plan 36,000 36 35,964 36,000
Issued in exchange
for debt 11,099 11 44,383 44,394
Issued in exchange
for services 35,000 35 34,965 35,000
Net (loss) (791,529) (791,529)
--------- ------ ---------- ----------- ---------
Balance, May 31, 2000 9,685,753 $9,686 $1,488,550 $(1,572,950) $ (74,714)
Net (loss) (106,358) (106,358)
--------- ------ ---------- ---------- ---------
Balance, August 31, 2000 9,685,753 $9,686 $1,488,550 $(1,679,308) (181,072)
========= ====== ========== ========== =========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
For the Three Months
Ended August 31,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(106,358) $ 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 - 10,347
(Increase)in accounts receivable (137,400) (116,749)
Decrease in prepayments 8,749 -
Changes in operating liabilities -
Increase in accounts payable
and accrued expenses 128,620 19,674
--------- ----------
Net cash provided by (used in)
operating activities (96,042) 17,336
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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
Other 76,050 -
Proceeds from sale of common stock - 125,000
Loan principal payments - (5,264)
--------- ----------
Net cash provided by
financing activities 76,050 165,236
---------- ----------
NET INCREASE (DECREASE) IN CASH (19,992) 180,103
CASH, BEGINNING OF THE YEAR (162) 6,942
--------- ----------
CASH, END OF THE YEAR (20,154) $ 187,045
========= ==========
SUPPLEMENTAL INFORMATION
Interest paid $ 47,876 $ -
========= ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements as of
August 31, 2000 and for the three months then ended and the three months ended
August 31, 1999 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, 2000, balance sheet which has previously been
reported on in the Company's Form 10KSB for the fiscal year ended May 31, 2000.
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 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.
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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 the issuance, after taking into account the one-for-four reverse
stock split described in Note 5 below, of 8,625,000 shares of its common stock
and 3,000,000 common stock purchase warrants. Each warrant is exercisable to
purchase one share of the Company's common stock for $1.166664 per share anytime
until June 1, 2008. The accompanying financial statements for the fiscal year
ended May 31, 1999 are based on the assumption that the companies were combined
for the full year. Subsequent to this transaction, ITC's former shareholders
owned approximately 93% of the Company's outstanding common stock.
ICT owns five patents to the use of ion collider technology to separate
particles from liquids, for soil remediation, to enhance the recovery of crude
oil, to increase the amount of hydrocarbons recoverable from underground
reservoirs, and for water clarification.
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.
<PAGE>
Acquisition of Big Blue, Inc.
-----------------------------
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 controlled by the now
chief executive officer of the Company. 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 it option and
purchased Big Blue, Inc. and acquired the entire ownership of the patents.
After August 31, 1998, the Company agreed with Big Blue, Inc. to share in 90% of
the net income generated by Big Blue, Inc. in connection with the use of this
technology. This arrangement allowed the Company to develop its technology
through the use of its patents and terminated the development stage of the
Company. Big Blue sustained a loss in its operations up to the time of its
acquisition by the Company which was treated as a purchase transaction for
accounting purposes. Losses sustained by Big Blue prior to the date of
acquisition by the Company are not reflected in the reported operations of the
Company.
During the fiscal year ended May 31, 2000, the Company performed environmental
remediation services and granted licenses to third parties.
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.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There were no cash equivalents at May 31, 2000.
Accounts Receivable
-------------------
Accounts receivable represents amounts due for licensing fees granted,
environmental remediation services performed, and consulting services rendered.
Management considers all accounts receivable outstanding at May 31, 2000, to be
fully collectible; accordingly, no allowance for doubtful accounts is required.
For financial reporting purposes, receivables that do not bear interest and are
due in excess of 30 days from the billing date are discounted to reflect the
imputed interest.
Big Blue, from time to time, sells accounts receivable on a non recourse basis
to a funding corporation. The excess of the recorded values of the accounts
receivable sold over funds received upon their sale has been recorded in the
accompanying statement of operations as interest expense. No receivables were
sold during the year ended May 31, 1999.
<PAGE>
Equipment and Patents
---------------------
Equipment consists primarily of items used by Big Blue in its employment of the
patented technology. These items are recorded at cost and are being amortized
over seven years. 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 the patents for $220,000. Costs incurred in applying for and
recording patents are capitalized to patent cost as they are incurred.
Amortization is recorded over the remaining patent life of approximately fifteen
years.
INCOME TAXES
-------------
Due to the change in ownership which occurred in connection with the acquisition
of ICT, the Company can no longer utilize any of its net operating loss
carryforwards of approximately $186,000 at May 31, 1998. Nor can the Company
utilize any of its net operation loss carryforwards from Big Blue, Inc. of
approximately $151,000 which Big Blue incurred prior to its acquisition by the
Company on May 31, 1999. As of May 31, 2000 the Company has usable net operating
loss carryforwards of approximately $989,800. No deferred tax assets have been
recorded for financial reporting purposes as the utilization of these loss
carryforwards is dependant on future profitable operations.
Earnings (Loss) per Share
-------------------------
Earnings (loss) per share computation 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. GOING CONCERN
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the liquidation of liabilities in the
normal course of business. However, the Company and its subsidiaries do not have
significant cash. The Company's ability to continue as a going concern is
dependent upon its ability to develop a market for its technology and to obtain
adequate financing in the interim to cover its operating expenses. All of these
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments related
to the recoverability and classification of recorded assets, or the amount and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. Management is in the process of attempting to
raise additional capital and believes that there is a substantial market for the
Company's technology.
<PAGE>
NOTE 5. NEW LICENSING AGREEMENTS
During the three months ended August 31, 2000, the Company entered into three
new sublicensing agreements as follows:
Scandinavian Cavitation Technologies, Inc. - This licensing agreement covers the
use of the Companies patented technology in Germany. The licensee has agreed to
pay a $300,000 licensing fee, $150,000 to be paid or before July 15, 2001, and
the remaining balance to be paid on or before July 15, 2002. The Company also is
entitled to a royalty of 12% of gross sales with a minimum royalty of $3.50 per
ton of treated soil and $.005 per gallon of treated water. The licensing fee has
not been recorded for financial reporting purposes as of August 31, 2000.
Calvin Ishmael Contractors, LLC - This licensing agreement covers the state of
Louisiana. The licensee has agreed to pay a $30,000 licensing fee on or before
July 15, 2001. The Company is also entitled to a royalty of 12% of gross sales
with a minimum royalty of $4.50 per ton of treated soil.
NUI Environmental Group, Inc. - This licensing agreement, dated July 31, 2000,
covers the remediation of contaminated soils and dredged materials in the New
York / New Jersey area, Hungary, and throughout the world on a project by
project basis. The Company is entitled to a royalty of $100,000 on the effective
date and a defined 12% of gross sales or a minimum royalty fee of $51,000 per
quarter.
<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, 2000 and its results of operations
for the three months ended August 31, 2000 and 1999. 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 2000 annual report on Form 10-KSB.
The financial statements for the three months ended August 31, 1999 were
restated to defer the recording of licensing fees collected in the amount of
$200,000.
COMPARISION OF THE THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
During the three months ended August 31, 2000, the Company reported a net loss
of $(106,358) compared to a net loss of $(95,578) for the comparable period in
1999. This change is due primarily to the following factors:
Revenues. During the three months ended August 31, 2000, revenues increased by
86% from $190,654 in 1999 to $355,034 in 2000. This increase was due primarily
to the recognition of $134,000 in royalty income in 2000. Although the
Company collected $200,000 in licensing fees during the three months ended
August 31, 1999, none was recognized as income as the licensees had not yet
commenced commercial operations utilizing the licensed technologies.
Cost Associated with Revenues. During the three months ended August 31, 2000,
the Company incurred $262,031 in costs associated with its land remediation
revenues as compared to $30,712 for the comparable period in 1999. This increase
is due primarily to increased expenses from explansion of business operations.
General and Administrative Expenses. General and administrative expenses
decreased by 43% from $243,273 in 1999 to $139,054 during the comparable three
month period in 2000. This decrease was due primarily to managements efforts to
reduce the Company's general and administrative costs.
Depreciation and Amortization. Depreciation and amortization increased by 4%
from $9,988 during 1999 to $10,347 during the comparable period in 2000. This
increase is due primarily to the addition of equipment subsequent to August 31,
1999.
Interest Expense. Interest expense went from $2,259 in 1999 to $49,960 in 2000.
This increase is due primarily to the cost of factoring accounts receivable. No
accounts receivable had been sold to factors in 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
This form 10-Q 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-Q 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-Q 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.
At August 31, 2000 the Company had a working capital deficit of $(203,816) and a
deficit net worth of $(181,072). The Company and its subsidiaries do not have
significant cash. The Company's ability to continue as a going concern is
dependent upon its ability to develop a market for its technology and to obtain
adequate financing in the interim to cover its operating expenses. All of these
factors raise substantial doubt about the Company's ability to continue as a
going concern.
Achieving sufficient working capital and a profitable level of operations is
dependant on the Company's ability to continue to sell licensing agreements, to
enter into profitable soil and water remediation contracts, and to earn
royalties from the use of its patented technologies. Management is currently
negotiating terms on certain licensing agreements which, management believes
will provide cash for current operations. Also management anticipates earning
royalty fees from certain licensees within a short period of time.
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 used in operating activities for the three months ended August 31, 2000
was $96,042. There were no operating activities during the comparable period of
1998. The Company borrowed $76,050 during the period.
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 2000.
<PAGE>
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 2000.
The 1999 activity 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: October 19, 2000 /s/ David N. Shroff
----------------------------------------------
David N. Shroff, Chairman and CEO
