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 NOVEMBER 30, 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.
--------------------------------------------------
(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 November 30, 2000, there
were 9,685,753 shares of the Registrant's Common Stock outstanding.
<PAGE>
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-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. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, 2000 AND MAY 31, 2000
<TABLE>
<CAPTION>
November 30, 2000 May 31, 2000
(Unaudited)
----------------- ------------
ASSETS
Current assets:
Accounts receivable, net of allowance
for bad debts of $21,802 and $ 0
respectively at November 30 and
<S> <C> <C>
May 31, 2000 $ 554,780 $ 240,710
Prepayments and other 3,033 11,728
----------- -----------
Total current assets 557,813 252,438
----------- -----------
Equipment and patents at cost
Equipment 178,006 178,006
Patents 260,627 260,627
----------- -----------
438,633 438,633
Less accumulated depreciation
and amortization (169,137) (148,443)
----------- -----------
269,496 290,190
----------- -----------
Deposits 5,400 7,900
----------- -----------
$ 832,709 $ 550,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 37,621 $ 162
Accounts payable 290,414 185,278
Payables to related parties 28,705 48,937
Accrued liabilities 46,326 38,365
Notes payable 214,450 87,500
----------- -----------
Total current liabilities 617,516 360,242
----------- -----------
DEFERRED REVENUES 65,000 265,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
and 9,687,753 and 9,685,753
issued and outstanding
shares at November 30 and
May 31, 2000, respectively 9,688 9,686
Additional paid-in capital 1,488,748 1,488,550
Retained earnings (deficit) (1,348,243) (1,572,950)
----------- -----------
150,193 (74,714)
----------- -----------
$ 832,709 $ 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 THREE AND SIX MONTHS PERIODS ENDED NOVEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended November 30, Ended November 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 583,589 $ 84,939 $ 938,726 $ 275,593
COSTS ASSOCIATED WITH REVENUES 83,896 56,107 345,927 86,819
---------- ---------- ---------- ----------
GROSS PROFIT (LOSS) 499,693 28,832 592,799 188,774
---------- ---------- ---------- ----------
EXPENSES:
General & administrative 154,553 437,293 293,608 678,307
Depreciation and
amortization 10,347 10,010 20,694 19,998
---------- ---------- ---------- ----------
164,900 447,303 314,302 698,305
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 334,793 (418,471) 278,497 (509,531)
OTHER INCOME (EXPENSE):
Interest expense (3,727) (2,275) (53,790) (4,534)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 331,066 (420,746) 224,707 (514,065)
INCOME TAX EXPENSE - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 331,066 $ (420,746) $ 224,707 $ (514,065)
========== ========== ========== ==========
BASIC EARNINGS(LOSS) PER SHARE $ .03 $ (.04) $ .02 $ (.05)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS)
PER SHARE $ .03 $ (.04) $ .02 $ (.04)
========== ========== ========== ==========
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED NOVEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-In Accumulated
Shares Amount Capital (Deficit) Total
--------- ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1999 9,520,138 $9,520 $1,137,019 $ (781,421) $ 365,188
Issued for cash 30,000 30 124,970 - 125,000
Issued in accordance with
stock option plan 27,000 27 26,973 - 27,000
Issued in exchange for debt 11,099 11 44,383 - 44,394
Net loss (514,065) (514,065)
--------- ------ ---------- ----------- ---------
Balance, November 30, 1999 9,588,237 $9,588 $1,333,345 $(1,295,486) $ 47,447
========= ====== ========== =========== =========
Balance, May 31, 2000 9,685,753 $9,686 $1,488,550 $(1,572,950) (74,714)
Issuance of stock for cash 2,000 2 198 - 200
Net income - - - 224,707 224,707
--------- ------ ---------- ----------- ---------
Balance, November 30, 2000 9,687,753 $9,688 $1,488,748 $(1,348,243) $ 150,193
========= ====== ========== =========== =========
</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 SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
For the Six Months Ended November 30,
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 224,707 $ (514,065)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities -
Depreciation and amortization 20,694 19,998
Changes in operating assets -
(Increase) decrease in accounts
receivable (317,070) 20,723
Decrease in prepayments 11,695 -
Decrease in deposits 2,500 -
Changes in operating liabilities -
Increase in accounts payable
and accrued expenses 92,866 79,871
Increase (decrease) in deferred
income (200,000) 200,000
-------------- --------------
Net cash used in
operating activities (164,608) (193,473)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - (9,147)
Patent costs - (1,739)
-------------- --------------
Net cash used in
investing activities - (10,886)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing from
related parties 126,949 -
Proceeds from sale of common stock 200 277,395
Loan principal payments - (5,264)
-------------- --------------
Net cash provided by
financing activities 127,149 272,131
-------------- --------------
NET INCREASE (DECREASE) IN CASH (37,459) 67,772
CASH, BEGINNING OF THE YEAR (162) 6,942
-------------- --------------
CASH, END OF THE YEAR (37,621) $ 74,714
================ ==============
SUPPLEMENTAL INFORMATION
Interest paid $ 53,790 $ -
============== ==============
</TABLE>
- See accompanying notes to consolidated condensed financial statements -
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 30, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements as of
November 30, 2000 and for the three and six-month periods then ended and the
three month and six-month periods ended November 30, 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 six-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. 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 necessary to generate revenues and fulfill obligations. 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. (See Note 5)
NOTE 3. NEW LICENSING AGREEMENTS
During the six months ended November 30, 2000, the Company entered into three
new sublicensing agreements as follows:
Scandinavian Cavitation Technologies, Inc. - This licensing agreement covers the
use of the Company's 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 November 30, 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, said licensing fee having been signifcantly reduced due to the
substantial sums expended by licensee for approval of the technology in
Louisiana. 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. The licensing fee has
not been recorded for financial reporting purposes as of November 30, 2000.
<PAGE>
NUI Environmental Group, Inc. - This licensing agreement covers the remediation
of dredged materials in the New York/New Jersey area, and through out the world
on a project-by-project basis. The licensee paid a $100,000 licensing fee. The
Company is also entitled to a royalty fee of 12% of gross sales or a minimum
royalty fee of $51,000 per quarter.
The Company does not recognize licensing fees received as income until such time
as the licensee utilizes the licensed technology on a commercial basis. During
the three months ended November 30, 2000, the Company recognized $300,000 in
licensing fee income. This represents $100,000 in licensing fees received from
NUI Environmental Group, Inc. and $200,000 from Aqua Terra Technologies, LLC.
NOTE 4 -EARNINGS (LOSS) PER SHARE
A reconciliation of the components of basic and diluted net income (loss) per
common share is presented in the table below:
<TABLE>
<CAPTION>
For The Three Months Ended November 30,
2000 1999
------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic:
Income (loss)
attributable
<S> <C> <C> <C> <C> <C> <C>
to common stock $331,066 9,686,753 $.03 $(420,746) 9,584,381 $(.04)
==== =====
Effect of Dilutive
Securities:
Warrants outstanding - 169,355 - 2,268,158
-------- -------- --------- ---------
Diluted:
Income (loss)
attributable to
common stock after
assumed dilutions $331,066 9,856,108 $.03 $(420,746) 11,852,539 $(.04)
======== ========= ==== ========= ========== =====
</TABLE>
<TABLE>
<CAPTION>
For The Six Months Ended November 30,
2000 1999
------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic:
Income (loss)
attributable to
<S> <C> <C> <C> <C> <C> <C>
common stock $224,707 9,686,253 $.02 $(514,065) 9,560,779 $(.05)
==== =====
Effect of Dilutive
Securities:
Warrants outstanding - 456,522 - 2,268,158
-------- --------- --------- ----------
Diluted:
Income (loss)
attributable to
common stock after
assumed dilutions $224,707 10,142,775 $.02 $(514,065) 11,828,937 $(.04)
======== ========== ==== ========== ========== =====
</TABLE>
<PAGE>
Common stock equivalents not included in the calculation of diluted earnings per
share for the three and six-month periods ended November 30, 2000 consist of
45,000 warrants issued to an individual. This potential common stock was not
considered in the calculations due to its anti-dilutive effect during the
periods presented.
NOTE 5 - SUBSEQUENT EVENTS
BANK FINANCING - On December 12, 2000, the Company borrowed $540,000 from RAI
Funding, LLC. This loan bears interest at 4% over prime and is collateralized
by the NUI Environmental Group, Inc. contract, accounts receivable and contract
rights relating to a purchase order for services to be performed in
Jacksonville, Florida, all accounts receivable and contract rights related to
work to be performed for the U.S. Navy in Key West Florida, all of the Company's
patents, and the personal guarantees of two of the Company's officers. The loan
matures on December 10, 2001 and is payable in monthly principal installments of
$17,000 through June 11, 2001 and $50,000 per month thereafter until maturity.
In connection with this loan, the Company issued warrants to purchase 200,000
shares of common stock at $1.00 per share, subject to certain price adjustments.
The Company is obligated to register stock sufficient to make shares issued
pursuant to these warrants free trading and is subject to a penalty of $500 per
day if a registration statement is not filed by January 26, 2001. The Company
incurred $74,559 in legal fees, origination fees, and commissions associated
with obtaining this loan.
SWARTZ AGREEMENT - On December 8, 2000 the Company entered into an investment
agreement with Swartz Private Equity, LLC ("Swartz") whereby Swartz agreed to
purchase from the Company, from time to time as determined by specific formulas
in the agreement, shares of the Company's common stock and accompanying warrants
for a maximum aggregate offering amount of $20,000,000.
Amounts of shares to be purchased by Swartz on a monthly basis are the lesser of
(1) 1,500,000 shares, (2) 15% of the sum of the aggregate daily reported trading
volumes, excluding trades of 20,000 or more for the past 20 trading days (3) the
number of shares which at the purchase price equals $2,000,000 (4) or 9.9% of
the number of shares previously outstanding on a fully diluted basis. The
Company is obligated to file a registration statement each month in an effort to
insure that all shares purchased under this agreement become registered free
trading shares.
The per share price which Swartz has agreed to pay is the lesser of (1) the
market price per share minus $.10 or (2) 91% of the market price per share.
As additional consideration, the Company agreed to issue from time to time
warrants to Swartz to purchase up to 2,800,000 shares of common stock. Warrants
will be issued on a monthly basis equal to 10% of the number of shares sold to
Swartz that month. The warrants will have an initial exercise price equal to the
market price on the date of issuance but would be subject to a semi-annual reset
provision.
The Company is obligated to sell Swartz a minimum of $1,000,000 of shares each
six-month period during the term of this agreement, except for the first
six-month period, where the minimum is $500,000. Failure to comply with this
provision would result in a penalty of up to $100,000 per six-month period,
except for the first six-month period, where the penalty is up to $50,000.
During the first six-month period, any sotck, at the Company's election.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's financial position as of November 30, 2000 and its results of
operations for the three and six-month periods ended November 30, 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 2000 annual report on Form
10-KSB.
The financial statements for the three and six-month periods ended November 30,
1999 were restated to defer the recording of licensing fees previously
recognized as income of $480,000 and $680,000 respectively. This restatement is
a result of the Company's change in accounting policies (effective May 31, 2000)
to defer the recognition of licensing fee income until such time as the licensee
utilizes the technology on a commercial basis.
COMPARISION OF THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
During the three months ended November 30, 2000, the Company reported net income
of $331,066 compared to a net loss of $(420,746) for the comparable period in
1999. This change is due primarily to the following factors:
Revenues. During the three months ended November 30, 2000, revenues increased by
587% from $84,939 in 1999 to $583,589 in 2000. The following factors contributed
to this increase in revenues (1) Soil remediation income increased by $336,000
from $6,664 in 1999 to $342,664 in 2000 and (2) Licensing fees income of
$200,000 were recognized in 2000. The increase in soil remediation revenues
reflects the Company's success in commercial application of its technologies.
The $200,000 in licensing fees recognized as income during the current quarter
was actually received during the fiscal year ended May 31, 2000 but was deferred
until such time as Aqua Terra Technologies, LLC, the licensee, began commercial
operations utilizing the licensed technologies.
Cost Associated with Revenues. During the three months ended November 30, 2000,
the Company incurred $83,896 in costs associated with revenues as compared to
$56,107 for the comparable period in 1999. This increase is due primarily to an
increase in soil remediation activities.
General and Administrative Expenses. General and administrative expenses
decreased by 65% from $437,293 in 1999 to $154,553 during the comparable three
month period in 2000. This decrease was due to management's efforts to reduce
the Company's general and administrative costs, primarily by significantly
reducing certain personnel costs.
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased by 3%
from $10,010 during 1999 to $10,347 during the comparable period in 2000. This
increase is due primarily to the addition of equipment subsequent to November of
1999.
Interest Expense. Interest expense went from $2,275 in 1999 to $3,727 for the
comparable three-month period in 2000. This increase is due primarily to the
cost of factoring accounts receivable. No accounts receivable had been sold to
factors in 1999.
COMPARISION OF THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
During the six months ended November 30, 2000, the Company reported net income
of $224,707 compared to a net loss of $514,065 for the comparable period in
1999. This change is due primarily to the following factors:
Revenues. During the six months ended November 30, 2000, revenues increased by
241% from $275,593 in 1999 to $938,726 in 2000. The following factors
contributed to this increase in revenues (1) Soil remediation income increased
by $228,854 from $159,844 in 1999 to $388,698 in 2000 and (2) Licensing fees
income of $300,000 were recognized in 2000. The increase in soil remediation
revenues reflects the Company's success in commercial application of its
technologies. Previously deferred licensing fees of $200,000 were recognized as
income during 2000. These fees were actually received during the fiscal year
ended May 31, 2000 but were deferred until such time as Aqua Terra Technologies,
LLC, the licensee, began commercial operations utilizing the licensed
technologies. The remaining $100,000 in licensing fee revenues was received
during the current year.
Cost Associated with Revenues. During the six months ended November 30, 2000,
the Company incurred $345,927 in costs associated with revenues as compared to
$86,819 for the comparable period in 1999. This increase is due primarily to an
increase in soil remediation activities. Included in 2000 is $140,722 in costs
associated with two projects in which the Company generated no revenues. These
projects were undertaken on a contingency fee basis based on soil samples
provided by customers. These soil samples proved to not be representative of the
soil to be remediated and contained significant amounts of types of pollutants
not easily removed by the Company's patented technologies. The Company was
progressing on remediation solutions for these types of contaminants but ceased
operations due to lack of sufficient funds for research and development. With
sufficient funds the Company plans to continue conducting research and
development to determine which additional types of contaminants the Company's
technology can economically remediate.
General and Administrative Expenses. General and administrative expenses
decreased by 57% from $678,307 in 1999 to $293,608 during the comparable
six-month period in 2000. This decrease was due to management's efforts to
reduce the Company's general and administrative costs, primarily by
significantly reducing certain personnel costs.
Depreciation and Amortization. Depreciation and amortization increased by 3%
from $19,998 during 1999 to $20,694 during the comparable period in 2000. This
increase is due primarily to the addition of equipment subsequent to November of
1999.
Interest Expense. Interest expense went from $4,534 in 1999 to $53,790 for the
comparable six-month period 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-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.
At November 30, 2000, the Company had a working capital deficit of $(59,703) and
a net worth of $150,193, which is a significant improvement over its $(107,804)
working capital deficit, and negative net worth of $(74,714) at May 31, 2000.
The Company and its subsidiaries had a cash overdraft of $37,621 at November 30,
2000. 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.
Although the Company achieved a profitable level of operations during the three
months ended November 30, 2000, its survival is dependent on the Company's
ability to continue to sell licensing agreements, to raise additional capital,
to enter into profitable soil and water remediation contracts, and to earn
royalties from the use of its patented technologies.
Subsequent to November 30, 2000, the Company was able to obtain a working
capital loan in the amount of $540,000. Proceeds from this loan will be used
to pay past due accounts payable and to fund current operations.
Subsequent to November 30, 2000, the Company also entered into an investment
agreement with Swartz Private Equity, LLC which the Company believes will
ultimately result in the sale of additional common stock and thus the raising of
additional working capital.
<PAGE>
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 six months ended November 30, 2000
was $164,608. Contributing to this use of funds in operations was a $317,070
increase in accounts receivable. This increase in accounts receivable is
attributed to increased billings for soil remediation activities, which
management believes are collectible.
Investing Activities
No funds were used for investing activities during the six months ended
November 30, 2000.
Financing Activities
The Company received $126,949 in loans from related parties and $200 in capital
stock contributions during the six months ended November 30, 2000.
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: January 16, 2001 /s/David N. Shroff
--------------------------------------------
David N. Shroff, Chairman and
Chief Executive Officer
