COMPANY DATA:
COMPANY CONFORMED NAME: INTERNATIONAL CAVITATION
TECHNOLOGIES, INC.
CENTRAL INDEX KEY: 0000313109
STANDARD INDUSTRIAL CLASSIFICATION: 4953
IRS NUMBER: 84-0768695
STATE OF INCORPORATION: CO
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 10QSB
SEC ACT:
SEC FILE NUMBER: 000-09015
FILM NUMBER:
BUSINESS ADDRESS:
STREET 1: 12407 S MEMORIAL DRIVE
CITY: BIXBY
STATE: OK
ZIP: 74008
BUSINESS PHONE: 918-369-5950
MAIL ADDRESS:
STREET 1: 12407 S MEMORIAL DRIVE
CITY: BIXBY
STATE: OK
ZIP: 74008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 29, 2000
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________
Commission File Number: 0-9015
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
-------------------------------------------------------------
(Exact name of Small Business Issuer as specified in charter)
___COLORADO 84-0768695____________________ (State or
other jurisdiction of (IRS Employer Identification Number)
incorporation)
12407 South Memorial Drive
Bixby, OK 74008
----------------------------------------
(Address of principal executive offices)
(918) 369-5950
------------------------------------------------
(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 [ ]
At February 29, 2000, there were 9,611,320 shares of the Registrant's Common
Stock outstanding.
INDEX
Part I. Financial Information
Item 1.Financial Statements
Consolidated Condensed Balance Sheets
(February 29, 2000 and May 31, 1999)
Consolidated Condensed Unaudited Statements of Operations (Three
months ended February 29, 2000 and February 28, 1999) (Nine
months ended February 29, 2000 and February 28, 1999)
Consolidated Condensed Unaudited Statements of Stockholders'
Equity (February 29, 2000 and May 31, 1999)
Consolidated Condensed Unaudited Statements of Cash Flows
(Nine months ended February 29, 1999 and February 28, 1999)
Notes to Unaudited Condensed Financial Statements
Item 2.Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Part II. Other Information
Item 2.Changes in Securities and Use of Proceeds
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
These financial statements should be read in conjunction with the accompanying
notes, and with the historical financial information of the Company.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 29, 2000 AND MAY 31, 1999
ASSETS
February 29, 2000 May 31, 1999
(Unaudited)
----------------- ------------
Current assets:
Cash $ 16,389 $ 6,942
Accounts receivable 989,533 153,069
Advances to affiliates 83,047 3,521
Employee advances 906 -
---------- --------
Total current assets 1,089,875 163,532
---------- --------
Equipment and patents, at cost:
Equipment, net of accumulated
depreciation 68,607 70,889
Patents, net of accumulated
amortization 245,147 255,351
---------- --------
313,754 326,240
---------- --------
$1,403,629 $489,772
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 150,824 $ 31,890
Accounts payable - affiliate 50,090 -
Accumulated interest payable 17,697 -
Accrued income tax payable 54,400 -
Notes payable - related party 87,500 92,764
---------- --------
Total current liabilities 360,511 124,654
---------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
9,611,320 and 9,520,138 shares
issued and outstanding at
February 29, 2000 and May 31,
1999, respectively 9,611 9,520
Additional paid-in capital 1,495,823 1,137,019
Accumulated deficit (462,316) (781,421)
---------- ----------
1,043,118 365,118
---------- ----------
$1,403,629 $489,772
========== ========
- See accompanying notes to consolidated condensed financial statements -
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
For the Three Months For the Nine Months
Ended February Ended February
-------------------- -------------------
29, 2000 28, 1999 29, 2000 28, 1999
-------- -------- -------- --------
REVENUES $ 516,894 $ 14,400 $1,472,487 $ 14,400
COSTS ASSOCIATED WITH REVENUES (3,663) 91,871 90,482 91,871
---------- --------- --------- -------
GROSS PROFIT (LOSS) 513,231 (77,471) 1,382,005 (77,471)
---------- --------- --------- -------
EXPENSES:
General & administrative 292,601 152,913 970,908 210,716
Depreciation and
amortization 10,873 755 30,871 1,769
---------- --------- --------- -------
303,474 153,668 1,001,779 212,485
---------- --------- --------- -------
INCOME (LOSS) FROM OPERATIONS 209,757 (231,139) 380,226 (289,956)
---------- --------- --------- -------
OTHER INCOME (EXPENSE):
Interest expense (2,187) - (6,721) 516
---------- --------- --------- -------
(2,187) - (6,721) 516
---------- --------- --------- -------
INCOME (LOSS) BEFORE INCOME TAXES 207,570 (231,139) 373,505 (289,440)
INCOME TAX EXPENSE 54,400 - 54,400 -
---------- --------- --------- -------
NET INCOME (LOSS) $ 153,170 $(231,139) $ 319,105 $(289,440)
========== ========= ========= =======
BASIC EARNINGS LOSS) PER SHARE $ .02 $ (.02) $ .03 $ (.05)
========== ========= ========= =======
DILUTED EARNINGS (LOSS) PER SHARE $ .01 $ (.02) $ .02 $ (.03)
========== ========= ========= =======
AVERAGE WEIGHTED BASIC SHARES
OUTSTANDING 9,598,248 9,308,605 9,573,000 5,470,451
========== ========= ========= =========
AVERAGE DILUTED SHARES
OUTSTANDING 12,643,248 12,353,605 12,618,000 8,515,451
========== ========== ========== =========
- See accompanying notes to consolidated condensed financial statements -
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED FEBRUARY 29, 2000 AND THE YEAR ENDED MAY 31, 1999
Common Stock Additional
--------------- Paid-In Accumulated
Shares Amount Capital (Deficit)
------- ------ ---------- -----------
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 -
Issuance of stock due to exercise
of stock option plan 27,000 27 107,973 -
Issuance of stock for payable 11,099 11 44,384 -
Issuance of stock due to
exercise of stock option plan 9,000 9 35,991 -
Issuance of stock for cash 3,333 3 9,997 -
Issuance of stock for cash 1,000 1 2,999 -
Issuance of stock for cash 1,000 1 2,999 -
Issuance of stock for cash 2,000 2 2,998 -
Issuance of stock for cash 500 1 1,499 -
Issuance of stock for cash 6,250 6 24,994 -
Net income 319,105
--------- ------ ---------- -----------
Balance, February 29, 2000 9,611,320 $9,611 $1,495,823 $(462,316)
========= ====== ========== ==========
- See accompanying notes to consolidated condensed financial statements -
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
For the Nine Months Ended February
29, 2000 28, 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 319,105 $ (289,440)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities -
Depreciation and amortization 30,871 1,769
Changes in operating assets -
Decrease in accounts receivable (836,464) (98,744)
Decrease in advances to related parties (80,432) (1,500)
Increase in construction in progress - (29,311)
Changes in operating liabilities -
Increase (decrease) in accounts
payable and accrued expenses 208,622 3,709
Increase in deferred revenue - 98,744
---------------- ----------------
Net cash provided by (used in)
operating activities (358,298) (314,773)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase option deposit - (327,004)
Capital expenditures (18,386) -
Patent costs - (38,889)
---------------- ----------------
Net cash used in
investing activities (18,386) (365,893)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of)
borrowing from related parties 27,236 380,664
Proceeds from sale of common stock 358,895 302,825
---------------- ----------------
Net cash provided by
financing activities 386,131 683,489
---------------- ----------------
NET INCREASE IN CASH 9,447 2,823
CASH, BEGINNING OF THE YEAR 6,942 -
---------------- ----------------
CASH, END OF THE PERIOD $ 16,389 $ 2,823
================ ================
- See accompanying notes to consolidated condensed financial statements -
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements should be
read in conjunction with the Company's financial statements for the twelve
months ended May 31, 1999 contained in the Company's Annual Report on Form
10-KSB. The financial statements included herein as of February 29, 2000 and for
the three and nine month periods then ended have been prepared by the Company,
without an audit, pursuant to generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, all adjustments considered necessary for fair presentation have
been included. The results for the three and nine month periods are not
necessarily indicative of results for the full year. The May 31, 1999 condensed
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
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. ("Big Blue") 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"). Pursuant to the Agreement, BBI granted the
joint venture a non-exclusive sub-license agreement in the State of California
to use the Company's patent rights and technology for environmental remediation
and hydrocarbon enhancement purposes. Upon execution of the Agreement,
AT contributed $300,000 in cash to the joint venture, and the joint venture 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.
On November 29, 1999, Big Blue, the Company's wholly-owned subsidiary entered
into two non-exclusive licensing agreements with Hot Spot Techonologies, Inc.
("Hot Spot"). Each agreement is for a period of five years and calls for up
front licensing fees totaling $500,000 and royalty payments as detailed below:
Soil remediation - The greater of 12% of gross revenues derived from the
use of the licensed technology less direct labor, equipment rentals, and
chemicals associated with the job, or $3.50 per ton.
Water remediation - The greater of 12% of gross revenues derived from
the use of the licensed technology less direct labor, equipment rentals,
and chemicals associated with the job, or $.005 per gallon.
As additional royalty consideration, Big Blue is entitled to a fee equal to
20% of Hot Spot's annual net revenues.
The $500,000 initial licensing fee is to be paid $20,000 at closing, which
monies have been collected and are included in cash at February 29, 2000, with
the balance to be paid on a monthly basis in an amount equal to 10% of gross
revenues less direct labor, equipment rentals, and chemicals associated with the
revenues. Any unpaid balance would be due on November 29, 2000. The unpaid
portion of this licensing fee would bear interest at the rate of 6% per annum.
Big Blue has the right to approve each project in advance. This agreement
restricts Hot Spot from performing services in any area covered by an exclusive
licensing agreement.
On February 25, 2000, Big Blue entered into a license agreement with
Scandinavian Cavitation Technologies AB ("SCT"), with principal offices located
in Helsingborg, Sweden. This licensing agreement grants the exclusive use of the
Company's patented technologies for the remediation of hydrocarbon contaminated
soil and water in Sweden, Finland, Norway and Denmark for a period of up to 10
years to SCT in exchange for a licensing fee of $200,000. This licensing fee is
to be paid $50,000 on or before April 15, 2000, $50,000 within seven days after
SCT has reached the standards required by its first customer, and the balance of
$100,000 shall be paid solely from project revenues at the rate of $5.00 per
ton. In addition, Big Blue is to receive royalty fees equal to 12% of SCT's
gross revenues with a guaranteed minimum royalty fee of $3.50 per ton on treated
soil and $.005 per gallon on treated water. For financial reporting purposes,
only $50,000 of this licensing fee was recognized as licensing fee income as of
February 29, 2000, as all the events test has not yet been met on the balance of
this license fee.
In addition to the above described licensing agreement with SCT, the Company
also entered into a joint venture agreement whereby by, among other things, the
Company is to receive a 20% interest in the SCT in exchange for the contribution
of 3 ion collider units.
On February 25, 2000, Big Blue entered into a sub-license agreement with
GoodEarth Recycling Corporation ("GER"), a Georgia corporation. This
sub-licensing agreement covers the eastern one-half of Georgia and all of
Alabama and is non-transferable, non-assignable, and non-exclusive and covers a
period of up to 10 years. This agreement calls for a licensing fee of $100,000
and a royalty fee of 12% of gross job revenues.
On February 29, 2000, Big Blue entered into a sub-license agreement with
Northeast Engineers and Consultants, Inc. ("NE&C"), a Rhode Island corporation.
This sub-licensing agreement covers Rhode Island, Connecticut, Massachusetts,
Vermont, New Hampshire, and Maine. This agreement calls for a licensing fee of
$300,000 and royalty payments equal to 12% of gross job revenues with a minimum
royalty fee of $4.00 per ton on soils treated and $.005 per gallon on water
treated.
Appointment of New President
Effective March 1, 2000, Monroe Ashworth assumed responsibilities as the
Companys President, replacing Dave Shroff who assumed the newly formed position
of Chief Executive Office of the Company.
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-Qualified
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 fiscal year ended May 31, 1999, 8,000 shares were optioned and
exercised at $.01 per share for cash.
During the quarter ending November 30, 1999, 27,000 shares were optioned and
exercised at $0.01 per share for cash.
NOTE 6 - LEASE COMMITMENTS
Big Blue is leasing three automobiles and these vehicles are under
non-cancelable operating leases having remaining terms in excess of one year as
of February 29, 2000. Rentals for each of the next five years and in the
aggregate are:
Fiscal year ended May 31,
2000 4,308
2001 13,848
2002 7,529
2003 7,530
2004 -
--------
Total future minimum
rental payments $ 33,215
========
NOTE 7 - NOTES PAYABLE
The following notes are all due prior to May 31, 2000:
February 29, May 31,
2000 1999
------------ --------
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
======== ========
NOTE 8 - INDEPENDENT APPRAISAL
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.
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 February 29, 2000 and its results of
operations for the nine months ended February 29, 2000 and February 28, 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 the Company's annual report on Form 10-KSB for the fiscal year ended May 31,
1999.
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
During the three months ended February 29, 2000, the Company reported net income
of $153,170 as compared with a net loss of $231,139 for the comparable three
month period ended February 28, 1999. This increase is due primarily to the
following factors:
Revenues. During the three months ended February 29, 2000, the Company generated
$516,894 in revenues, $450,000 of which was licensing fee income. During the
comparable period of 1999, the Company had only $14,400 in revenues.
Cost Associated with Revenues. During the three months ended February 29, 2000,
the Company incurred ($3,663) in costs associated with its land remediation
revenues as compared to $91,871 for the comparable period in 1999. During 1999,
the Company was in the start up phase of its land remediation operations and
incurred significant start up costs. During the comparable period in 2000, the
Company changed its emphasis to have licensees perform most remediation work for
which the Company earns a royalty in addition to its initial licensing fee.
General and Administrative Expenses. The Company incurred general and
administrative expenses totaling $292,601 during the three months ended February
29, 2000 as compared to $152,913 for the comparable period of the prior year.
This increase is a result of the Company's increased efforts at selling licenses
to third party operators and in servicing these licensing agreements.
Depreciation and Amortization. Depreciation and amortization totaled $10,873 for
the three month period ended February 29, 2000 as compared to $750 for the
comparable period in 1999. This increase of $10,123 was due primarily to the
amortization of patent costs which were incurred subsequent to January 28, 1999.
In addition, the Company continues to add equipment used by licensees through
which the Company will earn royalty fees.
Interest Expense. The Company incurred $2,187 in interest expense during the
three month period ended February 29, 2000. The Company incurred no interest
expense during the comparable period in 1999. This increase in interest expense
is a result of borrowing incurred subsequent to February 29, 2000.
Income Taxes. The Company incurred $54,400 in income tax expense for the three
months ended February 29, 2000. The Company had no income tax expense during
the comparable period in 1999 as it incurred a loss in the prior year. This
income tax provision has been reduced by the effects of the Company's utilizable
net operating loss carryforward of approximately $237,000.
COMPARISON OF THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
During there nine months ended February 29, 2000, the Company reported net
income of $319,105 as compared with a net loss of $289,956 for the comparable
nine month period ended February 28, 1999. This increase is due primarily to the
following factors:
Revenues. During the nine months ended February 29, 2000, the Company generated
$1,472,487 in revenues consisting of $1,150,000 in licensing fees, $199,399 in
land remediation fees, 86,306 in consulting fees, and $36,782 in chemical sales.
This compares to $14,400 in total revenues for the comparable period in 1999.
Costs Associated with Revenues. During the nine months ended February 29, 2000,
the Company incurred $90,482 in costs associated with revenues as compared with
$91,871 for the comparable period in 1999. During 1999, the Company was in the
start up phase of its land remediation operations and incurred significant start
up costs. During the comparable period in 2000, the Company changed its emphasis
to having licensees perform most remediation work for which the Company earns a
royalty in addition to its initial licensing fees.
General and Administrative Expenses. The Company incurred general and
administrative expenses totaling $970,908 during the nine months ended February
29, 2000 as compared to $210,716 during the comparable period in 1999. This 360%
increase is a result of the Company's increased efforts at selling licenses to
third party operators and in servicing these licensing agreements.
Depreciation and Amortization. Depreciation and amortization expense totaled
$30,871 during the nine months ended February 29, 2000 as compared to $1,769 for
the comparable period in 1999. This increase of $29,102 was due primarily to the
amortization of patent costs which were incurred subsequent to February 28,
1999. In addition, the Company continues to add equipment used by licensees
through which the Company anticipates earning royalty fees.
Interest Expense. The company incurred $6,721 in interest expense during the
nine months ended February 29, 2000 as compared with no interest expense during
the comparable period in 1999. This increase is a result of borrowing incurred
subsequent to February 28, 1999.
Income Taxes. The Company incurred $54,400 in income tax expense for the nine
months ended February 29, 2000. The Company had no income tax expense for the
comparable period in 1999 as it had incurred a loss during that period. This
income tax provision has been reduced by the effects of the Company's utilizable
net operating loss carryforward of approximately $237,000.
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 the Company expects or
anticipates will or may occur in the future, including such things as estimated
future net expenditures (including the amount and nature thereof), business
strategy and measures to implement this 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 and
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 of operations.
The Company was profitable during the nine months ended February 29, 2000, and
anticipates that it will continue to be profitable for the remainder of the
fiscal year ended May 31, 2000. Continued profitability is dependent on the
Company's ability to continue to sell licensing agreements and to earn royalties
for the use of its patented technologies. As of February 29, 2000, although the
Company anticipates its current resources will be sufficient to finance the
Company's continuing operations at its current level of operations, it is
seeking and anticipates obtaining additional debt financing which will allow it
to more rapidly expand its operations. The Company is currently negotiating and
expects to receive a $2,500,000 loan, $1,500,000 of which will be used to
acquire land and build a new corporate headquarters with the balance of
$1,000,000 to be available for working capital on an as needed basis.
The Company's working capital requirements will depend upon numerous factors,
including; the number of licensing agreements sold; the licensees ability to
generate projects utilizing the their licensed technologies and their ability to
pay royalty fees once these projects are generated; and the Company's
administrative costs associated with the servicing of these licensing
agreements.
Cash Flows from Operating Activities
Net cash used in operations for the nine months ended February 29, 2000 was
$358,298. This use of cash in operations is attributable primarily to an
$916,896 increase in accounts receivable offset in part by a $208,622 increase
in accounts payable.
Cash Flows from Investing Activities
Net cash used in investing activities during the nine months ended February 29,
2000 was $18,386 consisting of equipment purchases.
Cash Flow From Financing Activities
Net cash provided by financing activates during the nine months ended February
29, 2000 was $386,131 consisting of $358,895 proceeds from the sale of stock and
$27,236 in loan proceeds from related parties.
PART II OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended February 29, 2000, the Company sold 9,000 shares of its
common stock in exercise of a stock option by a consultant. This transaction was
valued at $36,000 of which $90 was received in cash and the balance was treated
as consulting fees. In addition 14,083 shares were sold for $45,504 cash. The
cash proceeds were used for working capital purposes.
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: April 19, 2000 /s/ Dave Shroff, Chairman and
Chief Executive Officer