U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Fiscal Year ended May 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _________
Commission file number 0-28318
International Cavitation Technologies, Inc.
--------------------------------------------
(Name of Small Business Issuer in Its Charter)
Colorado 84-0768695
- ------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
12407 S. Memorial Drive
Bixby, Oklahoma 74008
- ------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(918) 369-5950
---------------------------
(Issuer's Telephone Number,
Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: NONE
Securities Registered Under Section 12(g) of the Exchange Act: Common Stock,
$.001 par value
Check whether the issuer: (1) 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 Yes x No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB X
State the issuer's revenues for its most recent fiscal year: $255,669
The aggregate market value of the Common Stock held by non-affiliates of
the issuer as of July 20, 1999 was $995,709.
The number of shares outstanding of the issuer's Common Stock as of August
30, 1999, was 9,545,141.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
1999 Form 10-KSB Annual Report
Table of Contents
Item
Part I
1. Description of Business
2. Description of Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Part II
5. Market for Common Equity and Related Stockholder Matters
6. Management's Discussion and Analysis
7. Financial Statements and Supplementary Data
8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Part III
9.Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act
10. Executive Compensation
11. Security Ownership of Certain Beneficial Owners and Management
12. Certain Relationships and Related Transactions
13. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
International Cavitation Technologies, Inc. (the "Company) through its
wholly owned subsidiary, Ion Collider Technologies, Inc, ("ICT") intends to
commercialize new technologies for environmental remediation and enhancement of
natural resource recovery. It's primary assets consist of four patents, one
pending patent and know-how related to Ion Collider technology. The Ion Collider
is a device/technology that permanently affects the molecular structure of all
organic fluids, gases and liquids. This change in the molecular structure
produces beneficial effects that include:
1. Changes in viscosity
2. Greater volatility
3. Enhanced lubricity
4. Enhanced molecular homogeneity
5. Reduction or elimination of nonhomogenous materials entrained or emulsified
in the medium
6. Enhanced heat exchange properties
7. Greater combustion efficiencies
8. Separation of dissimilar components
Since 1993, the Company was inactive. On September 30, 1998, the Company
acquired all of the outstanding Common Stock and common stock purchase warrants
of ICT in exchange for the issuance by the Company of 8,625,000 shares of its
Common Stock and 3,000,000 common stock purchase warrants. Each warrant is
exercisable to purchase one share of the Company's Common Stock at $1.17 per
share at anytime until June 1, 2008.
Since the September, 1998 acquisition, the Company's activities have
consisted primarily of the development of its Ion Collider technology and the
licensing of the technology to third parties. Effective May 31, 1999, the
Company acquired all of the capital stock of an affiliated entity, Big Blue
Inc., for 50,000 shares of the Company's Common Stock. Prior to its acquisition,
Big Blue performed various environmental remediation and consulting services for
third parties utilizing technology licensed to it by ICT. This licensing
agreement went into effect on January 1, 1999, and called for ICT to receive a
licensing fee equal to 90% of all revenues generated by Big Blue utilizing the
licensed technology and obligated the Company to pay 100% of Big Blue's
operating and administrative expenses incurred in the generation of this
revenue. For the five months ended May 31, 1999, ICT earned $255,153 in revenues
and incurred $159,370 in reimbursed operating and general and administrative
expenses in connection with this licensing agreement.
The Company was incorporated under the laws of the State of Colorado on
August 24, 1936, as Dooley Leasing Company to engage in the mining industry. The
Company changed its name to Yellow Gold of Cripple Creek, Inc. on April 17,
1978. The Company discontinued its mining operations in 1993. The Company
changed its name to International Cavitation Technologies, Inc., following the
September 1998 acquisition of ICT. All share and warrant amounts give effect to
a one for four reverse stock split that was effected by the Company in December,
1998.
OPERATIONS
The Company is in the development stage of utilizing new technologies for
environmental remediation and enhancement of natural resource recovery. The
Company's goal is to oversee 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.
ICT, the Company's wholly-owned subsidiary, entered into a licensing
agreement with Big Blue which went into effect on January 1, 1999, and called
for ICT to receive a licensing fee equal to 90% of all revenues generated by Big
Blue utilizing the licensed technology and obligated ICT to pay 100% of Big
Blue's operating and administrative expenses incurred in the generation of this
revenue. For the five months ended May 31, 1999, ICT earned $255,153 in revenues
and incurred $159,370 in reimbursed operating and general and administrative
expenses in connection with this licensing agreement. This licensing agreement
was terminated on May 31, 1999, the date Big Blue was acquired by ICT.
Management anticipates that Big Blue will continue to perform environmental
remediation, consulting, and other types of services for third parties utilizing
the Company's patented technologies.
In developing the Ion Collider technology, numerous applications were
conceived. To date, the Company has identified 59 applications for the
technology, each of which has undergone varying levels of testing. Currently,
the most fully developed applications are soil remediation, dredging, water
treatment and enhanced oil recovery.
Soil Remediation
Soil remediation involves the cleansing of brownfields, sands, dirts and
clays contaminated with such toxins as volatile and semi-volatile organic
compounds and various metals. During the last year, ICT has established
substantial name recognition within the industry through the licensing of the
technology to Big Blue. Big Blue has completed projects in several states, with
results exceeding the standards set by such states as Louisiana, Florida and
Oklahoma.
The soil remediation industry is driven by standards set by state and
federal legislation. Historically, regulations have provided the identification
and assessment of contaminated sites. More recently, the industry has trended
towards allocating resources to the actual remediation of the sites. According
to the McIlvaine Company, 1997 revenues for soil clean-up in the U.S. were
approximately $1.9 billion.
Due to the reliability and versatility of the technology, ICT believes it
can favorably compete against other technologies. In addition, contaminated
soils being treated by the Ion Collider undergo a shorter processing time, yet
provide a minimal remaining pollutant concentration. The Company intends to
leverage these and other competitive advantages to capture market share. In
order to maintain the delicate balance between gaining market share and losing
control of the technology, the Company will limit the number of licensing and
partnership agreements upon which it will enter.
Dredging
All of the world's ports, rivers, and harbors have been or will be subject
to dredging at some point in time due to an increased need for contact among
trade partners. Coupled with the advent of deeper draft vessels during the last
80 years, there has been a recurring need for the dredging and maintenance of
these waterways. At the same time, the existence of industrial wastewater
discharges has caused concern about the concentration of contaminants in the
dredged material and its ultimate disposal. ICT's dredged materials/sludge
remediation process addresses these problems by providing a high-volume,
low-cost system for dewatering and decontaminating the material.
Because of its similarities to soil remediation, a similar strategy will be
used to develop and commercialize the Ion Collider in the dredging industry.
However, ICT intends to direct further resources into research and development
of this application through more intense testing via pilot projects. Even during
the developmental stages of this application, the demand for the technology's
low-cost efficiency has already been evidenced by the number of industry
participants who have contacted ICT regarding potential partnerships.
ICT intends to assess the key participants within the dredging industry,
based upon market share, geographical reach, as well as growth potential, in
order to determine both the number and recipients of licenses. Additionally, ICT
will seek partnering arrangements in the form of distribution arrangements,
joint ventures, and/or manufacturing relationships.
Water Treatments
The Ion Collider, in conjunction with traditional filtration systems, can
be individually tailored for a broad range of raw, semi-processed or matrix
liquid waste streams. The Ion Collider treats water in a low-cost,
self-contained, low-maintenance and low-energy manner, and is suited for making
drinking water from ponds, lakes and streams as well as floodwaters. It
effectively removes algae, mud, silt and turbidity, destroying bacteria,
viruses, chlorine, herbicides and toxic chemicals. For industrial applications,
the system effectively removes metals, oils and greases, thereby improving water
quality so that it can be recycled into the water supply or discharged into the
sewer system.
As with other environmental services, the water treatment industry is also
driven by governmental actions. The Natural Resource Commission "estimates the
cost of cleaning up contaminated drinking water sources to be up to $1
trillion." As international standards develop, so too will the demand for
quality water treatment systems such as those provided by the Ion Collider. The
global market for water and wastewater equipment and services in 1994 was
estimated to exceed $160 billion over the next 30 years. Of this amount, $64
billion is attributed to the United States, leaving a potential export market of
$96 billion.
ICT has identified water treatment as an application in which it will
invest significant resources to further develop and apply the technology. The
industry is expected to grow at a rate of 15 percent within the next several
years, during which time ICT will identify key strategic partners in both
drinking water and industrial markets with whom it will form strategic alliances
via licensing or joint-venturing relationships.
Enhanced Oil Recovery
The Ion Collider device used in enhanced oil recovery has been developed
over the last ten years. By applying this compact, easy-to-install add-on to the
end of a down-hole pump, production problems associated with paraffin buildup,
scale, corrosion, water and oil emulsion are virtually eliminated. In addition,
testing has shown that the Ion Collider also releases, or separates, the
entrained gases in the oil and releases entrained gas when ionized water is
pumped into a reservoir. In the future, the Company expects to expend
significant resources in further developing and commercializing this
application.
Other Applications
As the commercialization process further develops for soil remediation and
dredging, and begins for water treatment and enhanced oil recovery applications,
ICT will reallocate research and development resources to the remaining
applications. One of the key objectives which management has deemed vital to
ensuring growth and profitability is to introduce and develop at least 1.5
applications each year.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains various "forward-looking
statements" within the meaning of Federal and state securities laws, including
those identified or predicated by the words "believes," "anticipates,"
"expects," "plans," "intends" or similar expressions. Such statements are
subject to a number of uncertainties that could cause the actual results to
differ materially from those projected. Such factors include, but are not
limited to, the following:
- The Company is an early-stage company with a limited operating
history and a history of losses. Management anticipates that it
will obtain a profitable level of operations during the fiscal year
ended May 31, 2000. However, the company expects to encounter risks
and difficulties frequently faced by early-stage companies in new
and rapidly evolving markets, which could jeopardize future
profitability.
- As a result of the Company's limited operating history,
historical financial data for a significant number of periods upon
which to forecast quarterly revenues and results of operations is
not available.
- The Company's model is evolving and unproven.
- The Company's financial results are likely to fluctuate and are
difficult to forecast.
- The loss of the services of key personnel, or the failure to
attract, assimilate and retain other highly qualified personnel in
the future, could seriously harm the Company's business.
- If the protection of the Company's intellectual property rights is
inadequate, its business may be materially adversely affected.
- The Company may require additional funding.
Given these uncertainties, investors are cautioned not to place undue
reliance upon such statements.
ITEM 2. DESCRIPTION OF PROPERTY
Commencing in September, of 1998, the Company's administrative offices have
been located at 12407 S. Memorial Drive, Bixby, Oklahoma 74008.
The Company owns four patents and one pending patent on which it is
currently earning licensing fees. In addition, it owns various trucks and
equipment, which utilize the Company's patented technology to perform various
environmental remediation services on a contract basis for unrelated third
parties.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings are reportable pursuant to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders or the company during
the fourth quarter of the fiscal year ended May 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted Over The Counter, Bulletin Board,
under the symbol "ICTK." At July 20, 1999, the bid price for the Company's
Common Stock was $5.50.
The table below sets forth for the periods indicated the high and low bid
quotations as reported on the Internet. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Quarter High Low
------- ---- ---
<S> <C> <C> <C>
Fiscal Year Ended May 31, 1998 First $0.010 $0.010
Second $0.010 $0.010
Third $0.010 $0.010
Fourth $0.010 $0.010
Fiscal Year Ended May 31, 1999 First $0.125 $0.125
Second $1.687 $0.125
Third $7.875 $1.750
Fourth $7.875 $4.000
</TABLE>
Since its inception the Company has not paid any dividends on its common
stock and the Company does not anticipate that it will pay dividends in the
foreseeable future.
At May 31, 1999, the Company had 1,026 shareholders of record as reported
by the Company's transfer agent. The transfer agent for the Company is OTC Stock
Transfer, Inc., 231 East 2100 South, Salt Lake City, Utah 84115, with a mailing
address of P.O. Box 65665, Salt Lake City, Utah 84165; telephone number (801)
485-5555.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company discontinued operations in 1993 and was inactive until
September 30, 1998, at which time it acquired all of the outstanding stock and
stock warrants of ICT. ICT holds four patents and one pending patent, all of
which were acquired in May, 1999. ICT entered into a licensing agreement with
Big Blue effective January 1, 1999, which called for ICT to receive a licensing
fee equal to 90% of all revenues generated by Big Blue utilizing the licensed
technology and obligated ICT to pay 100% of Big Blue's operating and
administrative expenses incurred in the generation of this revenue. For the five
months ended May 31, 1999, ICT earned $255,153 in revenues and incurred $159,370
in reimbursed operating and general and administrative expenses in connection
with this licensing agreement. This licensing agreement was terminated on May
31, 1999, the date Big Blue was acquired by ICT.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As of May 31, 1999, the Company had consolidated assets of $489,772. The
Company had $365,118 in shareholders' equity as of May 31, 1999, which
represents an increase of $383,809 since May 31, 1998. This increase in net
worth is attributable to (1) the acquisition of all of the outstanding stock of
ICT in a stock for stock transaction (2) the issuance of 218,747 shares of the
Company's Common Stock for $489,682, offset in part by operating losses of
$237,504 incurred in connection with the commencement of operating activities.
Prior to its acquisition of ITC in September of 1998, the Company had been
inactive since 1993.
Management anticipates that it will obtain a profitable level of operations
during the fiscal year ended May 31, 2000, by entering into various licensing
agreements for the use of its technology with unrelated third parties and
through soil remediation and other services provided directly to third parties
utilizing the Company's patented technologies.
YEAR 2000 COMPLIANCE
The Company has and will continue to make investments in software systems
and applications to ensure it is Year 2000 compliant. It is not anticipated that
the process of ensuring that the Company is Year 2000 compliant will have a
material impact on the Company's financial condition.
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report
To the Board of Directors and Stockholders of International Cavitation
Technologies, Inc., (formerly Yellow Gold of Cripple Creek, Inc.)
We have audited the accompanying consolidated balance sheet of International
Cavitation Technologies, Inc. as of May 31, 1999, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Cavitation Technologies, Inc. at May 31, 1999, and the results of
its consolidated operations, changes in stockholders' equity and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company and its subsidiaries do not have significant
cash to develop their patents nor have they had significant profitable
operations which raises substantial doubt about their ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Oklahoma City, Oklahoma
August 27, 1999
<PAGE>
Independent Auditors Report
To the Board of Directors and Stockholders of International Cavitation
Technologies, Inc., formerly Yellow Gold of Cripple Creek, Inc:
We have audited the statements of operations, stockholders' equity and cash
flows for the year ended May 31, 1998 for International Cavitation Technologies,
Inc. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, changes in stockholders'
equity and cash flows for the year ended May 31, 1998 of International
Cavitation Technologies, Inc. in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had no operating capital and no operations
through May 31, 1998. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
described in the Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Orton & Company
Certified Public Accountants
Salt Lake City, Utah
August 29, 1998
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
CONSOLIDATED BALANCE SHEET
MAY 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash $ 6,942
Accounts receivable 153,069
Advances to related parties 3,521
-----------
Total current assets 163,532
-----------
Equipment and patents, at cost
Equipment 70,889
Patents, net of accumulated amortization 255,351
-----------
326,240
-----------
Total assets $ 489,772
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,890
Notes Payable 92,764
-----------
Total current liabilities 124,654
-----------
Stockholders' equity
Common stock $.001 par value, 50,000,000 shares
authorized, 9,520,138 shares issued and outstanding 9,520
Paid in capital 1,137,019
Retained earnings (deficit) (781,421)
-----------
365,118
-----------
Total liabilities and stockholders' equity $ 489,772
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Revenues from patent technologies $ 255,669 $ -
------------- ------------
Costs and expenses:
Cost of revenues from patent technologies 164,020 -
Organizational and patent development cost 219,738 -
Administrative expense 97,896 31,084
Interest expense 11,519 -
------------- ------------
493,173 31,084
------------- ------------
Net loss $ (237,504) $ (31,084)
============= ============
Net loss per common share $ (.04) $ (.12)
============= ============
Weighted average shares outstanding 6,460,000 307,125
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (237,504) $ (31,084)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of patent costs 3,537 -
Changes in operating assets and liabilities:
Increase in advances to related parties (2,515) -
Increase in accounts payable 6,310 12,012
Increase in accounts receivable from
acquired subsidiary (370,730) -
-------------- -------------
Net cash (used in) operating activities (600,902) (19,072)
-------------- -------------
Cash Flows from Investing Activities:
Purchases of patents (224,764) -
-------------- -------------
Net cash (used in) investing activities (224,764) -
-------------- -------------
Cash Flows from Financing Activities:
Sale of common stock 739,682 19,072
Increase in notes payable 87,500 -
-------------- -------------
Net cash provided by financing activities 827,182 19,072
-------------- -------------
Net increase in cash 1,516 -
Cash, beginning of year - -
Subsidiary cash acquired 5,426
-------------- -------------
Cash, end of year $ 6,942 $ -
============== =============
Supplemental Disclosure of Cash Flow Information -
Patents acquired for issuance of common stock $ 34,124 $ -
============== =============
Acquisition of net assets of subsidiary:
Cash 5,426 -
Accounts receivable 153,069 -
Employee advances 1,006 -
Equipment, net of depreciation 70,888 -
Accounts payable to related parties (370,730) -
Other accounts payable (6,888) -
Notes payable (5,264) -
-------------- -------------
$ (152,493) $ -
============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Retained Total
Shares Amount Capital Deficit Equity
------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1997 490,000 $ 490 $ 505,664 $(512,833) $ (6,679)
Issued for debt relief at $.0045 per
share 2,015,500 2,015 7,057 - 9,072
Issued pursuant to stock option plan
at $.05 per share 200,000 200 9,800 - 10,000
Net loss - - - (31,084) (31,084)
------------- ---------- ------------ ----------- -----------
Balance, May 31, 1998 2,705,500 $ 2,705 $ 522,521 $(543,917) $ (18,691)
Effects of 1:4 reverse stock split on
December 2, 1998 (2,029,125) (2,029) 2,029 - -
Issued in exchange for 100% of
acquired subsidiary's outstanding
stock 8,625,000 8,625 275,499 - 284,124
Issued for cash, $.01 per share 8,000 8 72 - 80
Issued in exchange for payable due
at $.44 per share 43,038 43 18,647 - 18,690
Issued in exchange for payable due
at $4 per share 75,620 76 302,416 - 302,492
Issued in exchange for subsidiaries'
payables due at $4 per share 42,105 42 168,378 - 168,420
Issued in connection with purchase
of subsidiary at $0 per share 50,000 50 (50) - -
To reflect deficit net worth of
acquired subsidiary - - (152,493) - (152,493)
Net loss - - - (237,504) (237,504)
------------- ---------- ------------ ----------- -----------
Balance, May 31, 1999 9,520,138 $ 9,520 $ 1,137,019 $(781,421) $ 365,118
============= ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1999 and 1998
NOTE 1. 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 May 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 the issuance, after taking into account the one-for-four reverse
stock split described in Note 5 below, of 8,625,000 shares of its common stock
and 3,000,000 common stock purchase warrants. Each warrant is exercisable to
purchase one share of the Company's common stock for $1.17 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, and
water clarification, 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 it option and
purchased Big Blue, Inc. and certain licensing agreements related to the
patents.
Effective January 1, 1999, ICT entered into a licensing agreement with Big Blue
which called for ICT to receive licensing fees equal to 90% of all revenues
generated by Big Blue utilizing the licensed technology and obligating the
Company to pay 100% of Bug Blue's operating and administrative expenses incurred
in the generation of this revenue. For the five months ended May 31, 1999, ICT
earned $255,153 in revenues and incurred $159,370 in reimbursed operating and
general and administrative expenses in connection with this licensing agreement.
Big Blue was treated as a purchase transaction for accounting purposes and the
losses sustained by Big Blue prior to its acquisition are not reflected in the
reported operations of the Company.
NOTE 2. 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 consists of items used by Big Blue, Inc. operation of the patent
technology and is depreciated over seven years.
INCOME TAXES
- -------------
Due to the change in ownership, which occurred in connection with the
acquisition of ICT, the Company can no longer utilize any of its net operating
loss carryforwards of approximately $186,000 at May 31, 1998. Nor can the
Company utilize any of its net operation loss carryforwards from Big Blue, Inc.
of approximately $151,000 at May 31, 1999. Operating losses for the year ended
May 31, 1999, will reduce future income taxes payable but a tax deferred asset
has not been recorded since its realization is not assured at this stage of the
Company operations.
Earnings (Loss) per Share
- -------------------------
Earnings (loss) per share computation are calculated on the weighted-average of
common shares and common share equivalents outstanding during the year. Common
stock warrants and options are considered to be common stock equivalents and are
used to calculate earnings per common and common equivalent except when they are
anti-dilutive.
Use of Estimates in Financial Statements
- ----------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. In these financial statements, assets,
liabilities and earnings involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
NOTE 3. 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 and have not had significant operations. 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.
NOTE 4. RELATED PARTY TRANSACTIONS
During the year ended May 31, 1998, but prior to its acquisition of ICT, an
officer advanced $9,217 for working capital to pay for ongoing professional fees
to keep the Company current in its annual and quarterly filings. Of the $9,217,
$9,072 of the debt was assigned to another officer/director, who exchanged the
debt for 503,875 shares of stock. During the first quarter fiscal year 1999, a
stockholder forgave a payable in the amount of $16,346.
On September 30, 1998, ICT's shareholders entered into an agreement with Yellow
Gold whereby Yellow Gold acquired all 5,750,000 shares of ICT's outstanding
common stock and all of its common stock warrants outstanding in exchange for
8,625,000 shares of common stock in Yellow Gold and 3,000,000 common stock
purchase warrants.
Subsequent to this transaction, ICT's former shareholders owned approximately
93% of Yellow Gold's outstanding common stock.
On September 21, 1998, the ICT entered into an asset purchase agreement with Big
Blue, Inc., Universal Environmental Technologies, Inc., Excalibur Oil
Corporation, and Soil Savers, Inc. (the "Seller's). The Seller's are affiliated
by common ownership with the Company. On December 18, 1998, this agreement was
amended and resulted in the acquisition of Big Blue by the Company and a final
determination of the consideration to be paid by ICT for the patents.
NOTE 5. 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 6. NON-QUALIFIED STOCK OPTION PLAN
During the fiscal year ended May 31, 1998, the Company adopted a Non-Qualifying
Stock Option Plan to provide the Company with ongoing legal and professional
expertise in its regulatory filing requirements and ongoing negotiations for
viable business and merger opportunities. The Company set aside 125,000 shares
(after taking into consideration the reverse stock split taken on December 2,
1998) for such a plan. The price of the options are to be determined by the
Board of Directors and are set to expire in five years.
During the fiscal year ended May 31, 1998, 50,000 shares were optioned and
exercised at $.05 per share for services rendered.
During the quarter ending February 28, 1999, 8,000 share were optioned and
exercised at $.01 per share for cash.
Stock Warrants outstanding
As of September 30, 1998, after the four-for-one reverse stock merger, 3,045,000
stock warrants remained unexercised. The terms of these warrants to purchase
common stock shares remain valid until June 2008.
<TABLE>
<CAPTION>
Conversion Price
-----------------------
<S> <C> <C>
GJM Trading 660,000 $ 1.17 per share
Summer Breeze 1,590,000 1.17 per share
McKinley-Nemelka 450,000 1.17 per share
Donna Sandberg 300,000 1.17 per share
</TABLE>
The term of the following warrants to purchase common stock shares remain valid
until June 2003.
<TABLE>
<CAPTION>
Conversion Price
-----------------------
<S> <C> <C>
Patrick Gephart 45,000 4.00 per share
</TABLE>
NOTE 7. LEASE COMMITMENTS
Big Blue is leasing three automobiles and these vehicles are under
non-cancellable operating leases having remaining terms in excess of one year as
of May 31, 1999. Rentals for each of the next five years and in the aggregate
are:
<TABLE>
<CAPTION>
Fiscal year ended May 31,
<S> <C>
2000 17,230
2001 13,848
2002 7,529
2003 7,530
---------
Total future minimum
rental payments $ 46,137
</TABLE>
NOTE 8. NOTES PAYABLE
The following notes are all due prior to May 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
6% Note payable to G.C. Broach
payable by Big Blue and secured by
equipment due September 10, 1999 $ 5,264
10% Note due by Company to Market Media 50,000
10% Note payable to McKinley Capital
orginally due 60 days from September 1, 1998
but extended for another ten months. This
note has a call to be paid should the ICT
obtain financing of $250,000 37,500
---------
$ 92,764
==========
</TABLE>
NOTE 9. CONVERSION OF DEBT TO COMMON STOCK
The board of directors approved on August 29, 1999, the issuance of 117,725
shares of common stock at a conversion price of $4.00 per share for certain debt
incurred prior to May 31, 1999, with related parties who are stockholders. The
conversion of debt to equity was recorded as of May 31, 1999, because it was the
party's intent to do so when the cash advances were made.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In August 1999, the Company engaged Hogan & Slovacek, a Professional
corporation, Certified Public Accountants as independent auditors of the
Company. Because of the change of control of the Company and the location of new
management to the State of Oklahoma, the board of directors decided not to
retain Orton & Company, the prior independent auditors, to audit the financial
statements of the Company for the fiscal year covered by this report. The
decision not to re-engage Orton & Company did not involve a dispute with the
Company over accounting policies or practices. The report of Orton & Company on
the Company's financial statements for the years ended May 31, 1998 and 1997,
contained an explanatory paragraph as the Company's ability to "continue
development stage operations." Except for such "going concern" limitation, the
report of Orton & Company did not contain an adverse opinion or disclaimer of
opinion, nor was it modified as to uncertainty, audit scope, or accounting
principals. In connection with the audits of the Company's financial statements
for each of the three years ended May 31, 1998, there were no disagreements with
Orton & Company on any matters of accounting principles and practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Orton & Company would have caused such firm to make
reference to the matter in their report.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
GENERAL
The following table sets forth as of August 23, 1999, the name, age, and
positions of the executive officers and directors of the Company and the term of
office of such directors:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) DIRECTOR SINCE
---- --- ----------- --------------
<S> <C> <C> <C>
David N. Shroff 51 Director and President September 1998
Gary J. McAdam 48 Director and Vice-
President September 1998
William W. Rippetoe 52 Director, Secretary
and Treasurer September 1998
</TABLE>
Each of the directors is elected to hold office until the next annual
meeting of the shareholders or until removed. Annual meetings of the
shareholders are to be held on the third Tuesday of September.
Set forth below is certain biographical information regarding the Company's
current executive officers and directors:
DAVID N. SHROFF, the Company's president, received a Bachelor of Science
Degree from Oklahoma State University in engineering and fluid design. He first
worked as an engineer for Gulf Oil Corporation and was later senior manager and
assistant to the vice-president of Cities Service Pipeline. Later, while serving
as vice president of Dalco Petroleum Company, he participated in taking the
Company public through a reverse merger. In 1982, Mr. Shroff founded and managed
CAM Energy Corporation, which evaluated and acquired various oil and gas
properties in Texas, Oklahoma, and New Mexico. He has since served as an
executive at Penn Pacific Corporation, a public oil and gas exploration company,
and Tierra Environmental Corporation before co-founding Big Blue, Inc. in 1994.
From 1994 to September 1998, Mr. Shroff served as chairman of the board and
vice-president of Big Blue, Inc. In September of 1998, Mr. Shroff was elected
president of International Cavitation Technologies, Inc. Mr. Shroff is
co-inventor of the Ion Collider technology utilized by the Company and is
responsible for the day-to-day operations of the Company including the design
and manufacture of various types of ion colliders and the implementation of the
technology in various business applications.
GARY J. MCADAM, the Company's vice-president, received a Bachelor of Arts
degree from the University of Denver. He has served as president of Growth
Ventures Inc. ("GVI") since 1979. Since 1986, he has worked directly with
private companies desiring to become public companies as well as with existing
public companies. While President of GVI, Mr. McAdam also served as president of
Creative Business Concepts, Inc. ("CBC") from 1993 until December of 1996 and as
president of Fortune Seekers, Inc. from 1997 to date. Both companies worked in
the financial markets in the areas of investments and capital procurement, and
CBC also was involved with mergers, acquisitions and financial relations.
WILLIAM W. RIPPETOE, the Company's secretary and treasurer, received a
Bachelor of Science degree from Western New Mexico University and a Master's
degree in Science Education from New Mexico State University. Mr. Rippetoe has
been involved in the remediation industry for the past ten years. In 1991, Mr.
Rippetoe founded and served as Vice-President of Dichlor Chemical Company, where
he was charged with research, development, and deployment of innovative
chemicals and biotechnologies as well as the remediation of contaminated soils
and water. From 1992 to 1994, Mr. Rippetoe served as president of Tierra
Environmental Corporation. Mr. Rippetoe co-founded Big Blue, Inc. and served as
its president from 1994 to September of 1998. In September of 1998, Mr. Rippetoe
became Secretary and Treasurer of International Cavitation Technologies, Inc.
Mr. Rippetoe is co-inventor of the Ion Collider technology utilized by the
Company and is responsible for the development and application of the technology
to the environmental services an oil business.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth summary information regarding the
compensation paid to Mr. Shroff, who functions as Chief Executive Officer.
Information as to compensation of other executive offers is not presented
because no person's combined compensation exceeded $100,000 during the reporting
periods.
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION TABLE
Name and Current Year ended Consulting
Principal Position May 31, Fees
- ------------------ ------------ -----------
<S> <C> <C>
David N. Shroff, 1999 $59,000
President 1998 $ -0-
1997 $ -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information furnished by current
management concerning the ownership of Common Stock of the Company as of May 31,
1999, of (i) each person who is known to the Company to be the beneficial owner
of more than 5 percent of the Common Stock; (ii) all directors and executive
officers; and (iii) directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
of Beneficial Owner Ownership(1) Percent of Class
- ------------------- ----------------- ----------------
<S> <C> <C>
William W. Rippetoe 2,731,475 28.86%
10103 South Urbana
Tulsa, Oklahoma 74137
David N. Shroff -0- -0-%
6673 E.46th Place
Tulsa, OK 74145
Gary J. McAdam (2) 975,000 10.20%
14 Red Tail Drive
Highlands Ranch, Colorado 80126
Carrie S. Shroff (3) 1,800,000 19.02%
545 South Sandusky Avenue
Tulsa, Oklahoma 74112
David N. Nemelka 1,575,000 16.64%
2662 Stonebury Loop Road
Springville, Utah 84663
Executive Officers and 3,706,475 38.90%
Directors as a Group
(3 Person)
</TABLE>
(1) Unless otherwise indicated, this column reflects amounts as to which
the beneficial owner has sole voting power and sole investment power. (2)
Represents indirect ownership through Summer Breeze LLC (315,000 shares) and GJM
Trading Partners, LTD (660,000 shares) both of which are controlled by Gary J.
McAdam. (3) Carrie S. Shroff has voting control of CAM2D2 Corporation which
owns 1,800,000 shares of stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 1, 1999, Ion Collider Technologies, Inc. ("ICT") a
wholly-owned subsidiary of the Company entered into a licensing agreement with
Big Blue, Inc. ("Big Blue"), a company affiliated by common ownership. This
licensing agreement calls for Big Blue to pay licensing fees equal to 90% of the
revenues generated from the use of this technology. In addition, the Company has
agreed to pay 100% of Big Blue's operating and general and administrative
expenses. During the five months ended May 31, 1999, the Company earned $255,153
in licensing fee income and paid $159,370 of Big Blue operating and
administrative expenses.
Effective May 31, 1999, the Company acquired all of the outstanding stock
of Big Blue, Inc. in exchange for 50,000 shares of the Company's Common Stock.
In accordance with generally accepted accounting principles, this acquisition
was recorded at the predecessor's cost. Since Big Blue, Inc. had a deficit net
worth of $152,493 as of May 31, 1999, it was necessary to reduce the Company's
additional paid-in capital by this balance in consolidation. No value was
assigned to the 50,000 shares of the Company's Common Stock issued in connection
with this acquisition.
During the fiscal year ended May 31, 1999, Universal Environmental
Technologies, Inc. ("UET"), a company affiliated by common ownership, loaned the
Company and its subsidiaries $357,347 all of which was converted to 89,337
shares of Common Stock subsequent to year end. In additional Growth Ventures,
Inc. (a company affiliated by common ownership) loaned ICT $86,000 which was
converted to 21,500 shares of the Company's common stock subsequent to year end,
The May 31, 1999 financial statements reflect the effect of this conversion as
of that date.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
International Cavitation Technologies, Inc.
Date: August 30, 1999 By /s/ David N. Shroff, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacitates and on
the dates indicated.
Date: August 30, 1999 /s/ William W. Rippetoe, Director and
Principal Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 6,942
<SECURITIES> 0
<RECEIVABLES> 153,069
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 163,532
<PP&E> 70,889
<DEPRECIATION> 0
<TOTAL-ASSETS> 489,772
<CURRENT-LIABILITIES> 124,654
<BONDS> 0
0
0
<COMMON> 9,520
<OTHER-SE> 355,598
<TOTAL-LIABILITY-AND-EQUITY> 489,772
<SALES> 0
<TOTAL-REVENUES> 255,669
<CGS> 0
<TOTAL-COSTS> 383,758
<OTHER-EXPENSES> 97,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,519
<INCOME-PRETAX> (237,504)
<INCOME-TAX> 0
<INCOME-CONTINUING> (237,504)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237,504)
<EPS-BASIC> (0.040)
<EPS-DILUTED> (0.040)
</TABLE>
