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
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 FEBRUARY 28,2001
[ ] 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 February 28,2001, there were
10,094,420 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-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.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 28, 2001 AND MAY 31, 2000
ASSETS
February 28,2001 May 31, 2000
(Unaudited)
---------------- ------------
Current assets:
Cash $ 41,663 $ -
Accounts receivable, net of allowance
for bad debts of $165,002 and $0,
respectively, at February 28, 2001
and May 31, 2000 348,615 240,710
Advances to affiliates - -
Prepaid consulting fees & expenses 33 11,728
Employee advances 9,000 -
Notes receivable - affiliates 60,362 -
Note receivable 60,000 -
---------- ----------
Total current assets 519,673 252,438
---------- ----------
Equipment and patents, at cost:
Equipment 178,517 178,006
Patents 260,627 260,627
---------- ----------
439,144 438,633
Less accumulated depreciation
and amortization (179,484) (148,443)
---------- ----------
259,660 290,190
Deposits and other 59,923 7,900
---------- ----------
$ 839,256 $ 550,528
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ - $ 162
Accounts payable 277,315 185,278
Accounts payable - affiliates 3,563 48,937
Accumulated interest payable 40,541 -
Accrued liabilities 64,292 38,365
Note payable - affiliate 87,500 87,500
Notes payable 847,475 -
---------- ----------
Total current liabilities 1,320,686 360,242
---------- ----------
DEFERRED REVENUES 65,000 265,000
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
10,094,420 and 9,685,753 shares
issued and outstanding at February 28,
2001 and May 31, 2000,
respectively 10,094 9,686
Additional paid-in capital 1,488,747 1,488,550
Accumulated deficit (2,045,271) (1,572,950)
---------- ----------
(546,430) (74,714)
---------- ----------
$ 839,256 $ 550,528
========== ==========
See accompanying notes to consolidated financial statements.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
For the Three Months For the Nine Months
Ended February Ended February
--------------------------- -----------------------
28, 2001 29, 2000 28, 2001 29, 2000
---------- --------- --------- ---------
REVENUES $ 290,855 $ 66,894 $1,064,882 $ 322,487
COSTS ASSOCIATED WITH REVENUES (19,053) 3,663 380,983 90,482
---------- --------- ---------- ----------
GROSS PROFIT (LOSS) 309,908 63,231 683,899 232,005
---------- --------- ---------- ----------
EXPENSES:
General and administrative 610,903 292,601 995,162 970,908
Depreciation and amortization 10,348 10,873 31,042 30,871
---------- --------- ---------- ----------
621,251 303,474 1,026,204 1,001,779
---------- --------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (311,343) (240,243) (342,305) (769,774)
---------- --------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (29,988) (2,187) (130,016) (6,721)
---------- --------- ---------- ----------
(29,988) (2,187) (130,016) (6,721)
---------- --------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (341,331) (242,430) (472,321) (776,495)
INCOME TAX EXPENSE - - - -
---------- --------- ---------- ----------
NET INCOME (LOSS) $ (341,331) $(242,430) $ (472,321) $(776,495)
========== ========= ========== ==========
BASIC EARNINGS (LOSS) PER SHARE $ (0.03) $ (0.03) $ (0.05) $ (0.08)
========== ========= ========== ==========
AVERAGE WEIGHTED BASIC SHARES
OUTSTANDING 9,940,198 9,598,248 9,763,394 9,573,000
========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED FEBRUARY 28, 2001 AND THE YEAR ENDED MAY 31, 2000
Additional
Common Stock Paid-In Accumulated
-----------------------
Shares Amount Capital Deficit
------ ------ ---------- -----------
Balance, May 31, 1999 9,520,138 $ 9,520 $ 1,137,019 $ (781,421)
Issued for cash 83,516 84 236,219
Issued in accordance with
stock option plan 36,000 36 35,964 -
Issued in exchange for debt 11,099 11 44,383 -
Issued in exchange for services 35,000 35 34,965 -
Net loss - - - (791,529)
----------- -------- ---------- ------------
Balance, May 31, 2000 9,685,753 9,686 1,488,550 (1,572,950)
Issuance of stock for cash 408,667 408 197 -
Net loss - - - (472,321)
----------- -------- ---------- -----------
Balance, February 28, 2001 10,094,420 $ 10,094 $ 1,488,747 $ (2,045,271)
=========== ======== ========== ===========
See accompanying notes to consolidated financial statements.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED FEBRUARY 28, 2001
For the Nine Months Ended February 28,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (472,321) $ (776,495)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 31,042 30,871
Changes in operating assets (increase) decrease -
Accounts receivable (107,905) (836,464)
Advances to subsidiaries 11,695 (80,432)
Employee advances (9,000) -
Notes receivable (120,362) -
Changes in liabilities increase (decrease) -
Accounts payable and
accrued expenses 113,131 186,722
Deferred income (200,000) 1,150,000
----------- ------------
Net cash provided by (used in) operating activities (753,720) (325,798)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets (52,026) -
Patent costs - -
Capital Expenditures (511) (18,386)
----------- ------------
Net cash (used in) investing activities (52,537) (18,386)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan borrowing (Repayment) 847,475 (5,264)
Proceeds from sale of common stock 607 258,895
------------ ------------
Net cash provided by financing activities 848,082 353,631
------------ ------------
NET INCREASE (DECREASE) IN CASH 41,825 9,447
CASH, BEGINNING OF THE YEAR (162) 6,942
------------ ------------
CASH, END OF THE PERIOD $ 41,663 $ 16,389
============ ============
See accompanying notes to consolidated financial statements.
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 28, 2001 and February 29, 2000
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements as of
February 28, 2001 and for the three and nine month periods then ended and the
three month and nine periods ended February 29, 2000 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. 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 to continue operations and is currently in default on certain
of its debt obligations. Therefore 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 and
to service its existing debt obligations. 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.
NOTE 3. AQUATERRA JOINT VENTURE
During July 1999, the Company entered into a joint venture agreement with
AquaTerra Technologies, LLC to perform environmental remediation of oil and
water in the state of California. The Company has a 20% interest in this joint
venture and AquaTerra Technologies, LLC has an 80% interest in the joint
venture. The Company sold and received payment from the joint venture for a
$200,000 licensing fee. The Company deferred income recognition at the time the
payment was received, pending commercial application of the licensed
technologies by the joint venture.
During the second quarter of 2001, the joint venture commenced commercial
operations and the Company recognized licensing fee income of $163,555 with the
balance of $36,445 representing the Company's 20% interest in the unamortized
portion of the licensing fees on the joint venture's books remaining in deferred
income at that time. During the third quarter, the Company sold its interest in
this joint venture for $60,000, consisting of a $10,000 cash payment, which was
received subsequent to February 28, 2001 and a one-year note receivable in the
amount of $50,000. This note bears interest at the rate of 6% per annum with
interest to be paid at maturity. This sale resulted in a gain of $90,142 and the
recognition of deferred licensing fee income in the amount of $36,445.
NOTE 4. FINANCING ARRANGEMENT WITH CARMINE FUNDING CORPORATION
During May of 2000, the Company entered into a Master Accounts Receivable
Purchase Agreement. Terms of this agreement call for Carmine Funding Corporation
("Carmine") to purchase certain accounts from the Company for an agreed upon
price. These sales were made with recourse to the Company, therefore, the
underlying receivables sold and the related obligations remain on the Company's
books. As of November 30, 2000, the Company had received $433,228 in sales
proceeds of which Carmine had received payments totaling $144,695 and the
Company was obligated on $446,711 as yet uncollected receivables. This $446,711
is reflected in notes payable on the Company's books at February 28,2001. During
March 2001, Carmine filed suit against the Company for failure to meet certain
recourse provisions of this agreement. The Company has accrued an additional
$77,743 to cover additional fees, which Carmine is entitled to collect on this
loan.
NOTE 5. NEW LICENSING AGREEMENTS
During the nine months ended February 28,2001, 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, with $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
February 28, 2001.
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 $4.40 per ton of treated soil.
NUI Environmental Group, Inc. - This licensing agreement covers the remediation
of dredged materials in the New York/New Jersey area, and throughout 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 February 28, 2001, the Company recognized $36,445 in
licensing fee income.
NOTE 6 - RAI FUNDING, LLC LOAN
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
related to work to be performed in Jacksonville, Florida, certain 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 as extended.
The Company incurred $74,559 in legal fees, origination fees, and commissions
associated with obtaining this loan. As of February 28, 2001, the Company had
not filed a registration statement for its stock and had accrued $11,500 in
penalties associated with this contractual obligation.
NOTE 7 - 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 an SB 2 registration statement by February 15, 2001
in an effort to insure that all shares purchased under this agreement become
registered free trading shares. The Company is subject to a penalty of $500 per
day for each day after February 15, 2001 if the registration statement is not
filed.
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 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 shares of stock
each six month period during the term of this agreement. Failure to comply with
this provision would result in a penalty of up to $100,000 per six month period.
During January of 2001, the Company was notified that Swartz desired to change
certain terms of this agreement to better comply with federal regulations. No
final agreement could be reached on these changes and the Company has notified
Swartz of its intentions to cease further negotiations on this contract.
NOTE 8 - SUBSEQUENT EVENTS
On April 10, 2001, the Company entered into a licensing agreement with Soil
Savers, Inc.("Soil Savers"). This licensing agreement grants an exclusive
license to Soil Savers to use the Company's licensed technologies within fixed
based facilities in the state of Florida and an non-exclusive license to use the
technology in fix based facilities world wide. The Company is to receive a
licensing fee of $100,000 with $15,000 due by July 10, 2001, and the balance due
within one year. The Company is also to receive royalty payments equal to 12% of
job revenues related to soil remediation and 5% of job revenues relating to
projects relating to water treatment.
NOTE 9 - CONTINGENT LIABILITY
On January 24, 2001, David N. Shroff, William W. Rippetoe, and two of their
affiliated companies, Excalibur Oil Company and Universal Environmental
Technologies, Inc. (the "Other Affiliated Companies") along with the Company,
entered into a Settlement Agreement with Ground Floor Capital, LC and certain of
its affiliated persons and entities (the "GFC Group") that settled a judgment
against Mr. Shroff, Mr. Rippetoe and the Other Affiliated Companies in the
amount of approximately $250,000. Pursuant to the Settlement Agreement, Messrs.
Shroff and Rippetoe and the Other Affiliated Companies agreed to pay the GFC
Group installments of $50,000 commencing with the execution of the Settlement
Agreement and on February 15, 2001, April 15, 2001, June 15, 2001 and ending
with a final payment due September 30, 2001. As of February 28, 2001, $60,000
had been paid to the GFC Group and $40,000 was due and owing the GFC Group. The
Company is contingently liable for these payments.
As part of the Settlement Agreement, certain existing contractual arrangements
between the Company and the GFC Group were amended, including the terms of a
License Agreement granting to the GFC Group a worldwide exclusive license to use
the Company's intellectual property for air conditioning and refrigeration
industries and applications.
The Company has agreed with Messrs. Shroff and Rippetoe to lend them funds to
pay their obligations under the Settlement Agreement to the extent the Company
elects and is able to do so. While any funds are due and owing the Company by
Messrs. Shroff and Rippetoe pursuant to this agreement, each has agreed to
forego the receipt of any salary or other compensation from the Company. As of
February 28, 2001, $60,000 had been loaned to Messrs. Shroff and Rippetoe as
evidenced by a Note which, together with interest at the applicable federal
rate, is due and payable at the maturity date of the note which is February 15,
2005. The Note due the Company is subject to prepayment out of any proceeds
received by Messrs. Shroff and Rippetoe from the sale by them of any stock in
the Company, net of (1) any taxes due from such sale, (2) a monthly living
allowance in lieu of salary from the Company and (3) any application of such
proceeds to the payment of the amounts due under the Settlement Agreement.
Accordingly during the third quarter, Mr. Rippetoe sold 42,500 shares of common
stock of the Company owned by him. The proceeds were used to reduce the above
mentioned indebtedness of Messrs. Shroff and Rippetoe.
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 28, 2001 and its results of
operations for the three and nine-month periods ended February 28, 2001 and
February 29, 2000. The Consolidated Condensed Financial Statements and
accompanying 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 and nine month periods ended February 29,
2000 were restated to defer the recording of licensing fees previously
recognized as income of $470,000 and $1,150,000 respectively. This restatement
is a result of the Company's change in accounting policies 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 FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
During the three months ended February 28, 2001, the Company reported net loss
of $(341,331) compared to a net loss of $(242,430) for the comparable period in
2000. This change is due primarily to the following factors:
Revenues. During the three months ended February 28, 2001, revenues increased by
335% from $66,894 in 2000 to $290,855 in 2001. The following factors contributed
to this increase in revenues (1) Soil remediation income increased by $54,526
from $42,127 in 2000 to $96,653 in 2001, (2) Licensing fees income of $52,570
were recognized in 2001, and (3) Gain on sale of an asset of $90,142 was
recognized in 2001. The increase in soil remediation revenues reflects the
Company's success in commercial application of its technologies.
Cost Associated with Revenues. During the three months ended February 28, 2001,
the Company incurred a credit of $(19,053) in costs associated with revenues as
compared to $3,663 for the comparable period in 2000. This decrease is due to
the reclassification of labor costs, which were incorrectly charged to the cost
of jobs rather than to general and administrative expenses.
General and Administrative Expenses. General and administrative expenses
increased by 109% from $292,601 in 2000 to $610,903 during the comparable three
month period in 2001. This increase was due primarily to the reclassification of
labor costs to general administrative expenses, which were previously allocated
to job costs.
Depreciation and Amortization. Depreciation and amortization decreased by 5%
from $10,873 during 2000 to $10,348 during the comparable period in 2001.
Interest Expense. Interest expense increased from $2,187 in 2000 to $29,988 for
the comparable three-month period in 2001. This increase is due primarily to the
cost of factoring accounts receivable. No accounts receivable had been sold to
factors during the three month period ended February 29, 2000.
COMPARISION OF THE NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
During the nine months ended February 28, 2001, the Company reported a net loss
of $(472,321) compared to a net loss of $(776,495) for the comparable period in
2000. This change is due primarily to the following factors:
Revenues. During the nine months ended February 28, 2001, revenues increased by
230% from $322,487 in 2000 to $1,064,882 in 2001. The following factors
contributed to this increase in revenues (1) Soil remediation income increased
by 82% from $199,399 in 2000 to $362,351 in 2001 and (2) Licensing fees income
of $316,125 were recognized in 2001, and (3) Collider sales of $159,000 were
recognized in 2001. The increase in soil remediation revenues reflects the
Company's success in commercial application of its technologies. $163,555 in
licensing fees recognized as income during 2000 was actual received during the
fiscal year ended May 31, 2000 but was deferred until such time as AquaTerra
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 nine months ended February 28, 2001,
the Company incurred $380,983 in costs associated with revenues as compared to
$90,482 for the comparable period in 2000. This increase is due primarily to an
increase in soil remediation activities. Included in 2001 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 contaminates but ceased
operations due to lack of sufficient funds for research and development.
General and Administrative Expenses. General and administrative expenses
increased by 3% from $970,908 in 2000 to $995,162 during the comparable nine
month period in 2001. This increase was due primarily to the recognition of bad
debts expense of $108,475 during the nine months ended February 28, 2001 offset
in part by management's efforts to reduce the Company's general and
administrative costs.
Depreciation and Amortization. Depreciation and amortization increased by 1%
from $30,871 during 2000 to $31,042 during the comparable period in 2001.
Interest Expense. Interest expense went from $6,721 in 2000 to $130,016 for the
comparable nine-month period in 2001. This increase is due primarily to the cost
of factoring accounts receivable. No accounts receivable had been sold to
factors during the nine months ended February 29, 2000.
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 February 28, 2001 the Company had a working capital deficit of $(772,013) and
a deficit net worth of $(546,430) compared with a $(107,804) working capital
deficit and negative net worth of $(74,714) at May 31, 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.
The Company's survival is dependent 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.
During December 2000, the Company was able to obtain a working capital loan in
the amount of $540,000. The proceeds from this loan was used to pay past due
accounts payable and to fund current operations.
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 nine months ended February 28,
2001 was $(753,720) as compared to $(325,798) net cash used in operations for
the nine months ended February 29, 2000. This use of cash in operations is due
part to a $136,905 increase in accounts receivable offset in part by a $130,167
increase in accounts payable.
Investing Activities
Net cash used in investing activities was $(52,026) for the nine months ended
February 28, 2001 as compared to $(18,386) for the comparable period in 2000.
Financing Activities
Net cash flow provided by financing activities was $848,082 for the nine months
ended February 28, 2001 as compared to $353,631 for the comparable period in
2000. This increase is attributable primarily to increase borrowing.
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: April 23, 2001 /s/ David Shroff, Chairman
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David Shroff, Chairman