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, 2000
[ ] 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
<PAGE>
State the issuer's revenues for its most recent fiscal year: $
The aggregate market value of the Common Stock held by non-affiliates of
the issuer has been indeterminable within the last 60 days as there has been no
market for such Common Stock.
The number of shares outstanding of the issuer's Common Stock as of
August , 2000, was 9,650,753.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC.
2000 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) utilizes
technology to perform environmental remediation and to enhance the recovery of
natural resources. The Company also licenses its Ion Collider technology to
third parties. It's primary assets consist of five patents 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. In its simplest form, the Ion Collider exists as a coaxial tube, in
which fluids of gas flow into the inner tube and exits into the outer tube via
perforations. The perforations in the inner tube cause jets of the liquid or gas
to impact the outer tube via perforations. The jets impact a copper catalyst
(lining the interior of the outer tube) while simultaneously reaching a point of
minimal pressure, thereby inducing vaporization of the media. As the bubbles
move toward the area of higher pressure, they collapse and induce areas of
locally high temperatures and pressures. This rapid creation and collapse of
bubbles, or cavitation, coupled with the copper catalyst cause the medium to
undergo thermal, electrical and sonochemical reactions within the device.
Together, these reactions affect the molecular structure of the medium in a
manner that, depending on the original nature of the liquid or gas being
treated, 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
From 1993 to September of 1998, the Company was inactive. On September
30, 1998, the Company acquired all of the outstanding Common Stock and common
stock purchase warrants of Ion Collider Technologies, Inc ("ICT") in exchange
for 8,625,000 shares of the Company's 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 $1.166664 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 technolgy 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., 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,
<PAGE>
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 utilizes the Ion Collider technology 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.
The Company entered into a licensing agreement with Big Blue which went
into effect on January 1, 1999, and called for the Company 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, the Company 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 the Company.
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. 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.
Due to the reliability and versatility of the technology, the Company
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
<PAGE>
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, the Company 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 the Company regarding potential
partnerships.
The Company 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, the Company 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.
The Company 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 the Company 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. In the future, the Company expects to expend
significant resources in further developing and commercializing this
application.
<PAGE>
Other Applications
As the commercialization process further develops for soil remediation
and dredging, and begins for water treatment and enhanced oil recovery
applications, the Company 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 expects to encounter
risks and difficulties frequently faced by early-stage companies
in new and rapidly evolving markets.
- 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 business 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
Since September 1998, the Company's administrative offices have been
located at 12407 S. Memorial Drive, Bixby, Oklahoma 74008.
The Company owns five patents 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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the recently completed fiscal year, the Company did not submit
any matter to a vote of its shareholders.
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 August 25, 2000, the bid price for the Company's
Common Stock was $1.187.
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, 1999 First $1.125 $0.125
Second $1.687 $0.125
Third $7.875 $1.750
Fourth $7.875 $4.000
Fiscal Year Ended May 31, 2000 First $7.000 $4.000
Second $7.000 $4.000
Third $5.250 $3.000
Fourth $4.500 $1.995
</TABLE>
Since its inception the Company has not paid any dividends on its common
stock and does not anticipate that it will pay dividends in the foreseeable
future.
At May 31, 2000, 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 the Company. The Company holds five patents, all of which were
acquired in May, 1999. The Company entered into a licensing agreement with Big
Blue effective January 1, 1999, which called for the Company to receive a
<PAGE>
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, the Company 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 the Company. During the fiscal year ended May 31, 2000, Big Blue
continued to perform remediation services for third parties and to sub license
its technology to various third party licensees.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As of May 31, 2000, the Company had consolidated assets of $858,845.
The Company had $498,601 in shareholders' equity as of May 31, 2000, which
represents an increase of $133,483 since May 31, 1999. This increase in net
worth is attributable to the issuance of 126,615 share of stock for a total
consideration of $424,696 less current year losses of $291,213.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED MAY 31, 2000 AND 1999
General
-------
During the fiscal year ended May 31, 2000, the Company enjoyed substantial
growth in revenues along with a substantial increase in administrative expense
resulting in a loss of $(291,213) as compared with a net loss for the previous
year of $(255,669). An analysis of the components making up this change is as
follows:
Revenues
--------
Revenues increase by 627% from $255,669 in 1999 to $1,860,408 in 2000. This
increase is attributable primarily to the following factors: (1) Licensing fees
income increased from $50,000 during 1999 to $962,500 in 2000 reflecting the
Company's ability to license its technology to third parties (2) land
remediation fees income increased from $254,138 in 1999 to $689,528 in 2000
reflecting increased land remediation activity at the Company level.
Cost of Revenues from Patented Technologies
-------------------------------------------
Cost of revenues from patented technologies increased by 257% from $164,020 in
1999 to $586,413 in 2000 primarily as a result of increased remediation services
performed by the Company. Also included in the cost of revenues from patented
technologies are the cost of certain Ion Colliders which were provided to
licensees as part of the licensing fee.
Organizational and Patent Development Costs
-------------------------------------------
During 1999 the Company incurred $219,738 organizational and patent development
costs. No such costs were incurred in 2000.
<PAGE>
Administrative Expenses
-----------------------
Administrative expenses increased from $94,359 in 1999 to $1,466,138 in 2000.
This increase reflects the Company's increased staffing levels and other
administrative costs associated with obtaining and servicing its new sub
licensees. Also included in administrative expense is $430,000 in bad debts
expense associated with uncollected licensing fees.
Depreciation and Amortization
-----------------------------
Depreciation expense increased from $3,537 in 1999 to $41,218. This increase is
due primarily to recording a full years amortization on patents costs in 2000.
Interest Expense
----------------
Interest expense decreased from $11,419 in 1999 to $7,852 in 2000. This increase
is due primarily to the cost of factoring accounts receivable in 2000.
Management anticipates that it will continue to have a profitable level
of operations during the fiscal year ended May 31, 2001, 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.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<PAGE>
INTERNATIONAL CAVITATION TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY YELLOW GOLD OF CRIPPLE CREEK, INC.)
CONSOLIDATED BALANCE SHEET
MAY 31, 2000
ASSETS
<TABLE>
<S> <C>
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $430,000 $ 507,085
Prepaid expenses 47,170
---------
Total current assets 554,255
---------
Equipment and patents, at cost
Equipment 184,506
Patents 260,627
---------
445,133
Less accumulated depreciation and amortization (148,443)
---------
296,690
-------------
Deposits 7,900
---------
Total assets $ 858,845
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 164
Accounts payable 185,278
Payables to related parties 48,937
Accrued liabilities 38,365
Notes Payable 87,500
---------
Total current liabilities 360,244
---------
Stockholders' equity
Common stock $.001 par value, 50,000,000 shares
authorized, 9,650,753 shares issued and outstanding 9,650
Paid in capital 1,561,585
Retained earnings (deficit) (1,072,634)
---------
498,601
---------
Total liabilities and stockholders' equity $ 858,845
=========
</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, 2000 AND 1999
2000 1999
---------- ----------
Revenues from patent technologies $1,860,408 $ 255,669
Costs and expenses:
Cost of revenues from patent technologies 586,413 164,020
Organizational and patent development cost - 219,738
Administrative expense 1,466,138 94,359
Depreciation and amortization 41,218 3,537
Interest expense 57,852 11,519
---------- ----------
2,151,621 493,173
---------- ----------
Net income (loss) $ (291,213) $ (237,504)
========== ==========
Income (loss) per common share
Basic $ (.03) $ (.04)
========== ==========
Diluted $ (.03) $ (.03)
========== ==========
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, 2000 AND 1999
2000 1999
---------- ----------
Cash Flows from Operating Activities:
Net loss $(291,213) $ (237,504)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 41,218 3,537
Bad debt expense 442,576 -
Changes in operating assets and
liabilities:
(Increase) Decrease in-
Accounts receivable (777,717) (370,730)
Prepaid expenses (47,570) -
Advances to related parties 3,521 (2,515)
Accrued interest receivable (18,875) -
Increase (Decrease) in-
Accounts payable and accrued expenses 240,855 6,310
--------- ----------
Net cash (used in) operating activities (407,205) (600,902)
--------- ----------
Cash Flows from Investing Activities:
(Purchases) of patents and equipment (11,168) (224,764)
(Increase) in deposits (7,900) -
--------- ----------
Net cash (used in) investing activities (19,068) (224,764)
--------- ----------
Cash Flows from Financing Activities:
Sale of common stock 424,432 739,682
Loan proceeds - 87,500
Loan principal payments (5,265) -
--------- ----------
Net cash provided by financing activities 419,167 827,182
--------- ----------
Net(decrease)increase in cash (7,106) 1,516
Cash, beginning of year 6,942 -
Subsidiary cash acquired 5,426
--------- ----------
Cash (Overdraft), end of year $ (164) $ 6,942
========= ==========
<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, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
Supplemental Disclosure of Cash Flow Information -
<S> <C> <C>
Prepaid consulting fees paid with common stock $ 143,640 $ -
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, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained Total
Shares Amount Capital Deficit Equity
---------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 2,705,500 $ 2,705 $ 522,521 $(543,917) $ (18,691)
Effects of 4:1 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
Issued for cash 83,516 83 236,219 236,302
Issued in accordance with
Stock option plan 36,000 36 143,964 144,000
Issued in exchange for debt 11,099 11 44,383 44,394
Net loss (291,213) (291,213)
---------- ------- ----------- --------- -----------
----------
Balance, May 31, 2000 9,650,753 $ 9,650 $1,561,585 $(1,072,634) $ 498,601
========== ======= ========== ========= ===========
</TABLE>
<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, 2000 and 1999
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 1953, the
Company discontinued all operations and had no significant revenues from any
activity until 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 the issuance, after taking into account the one-for-four reverse
stock split described in Note 6 below, of 8,625,000 shares of its common stock
and 3,000,000 common stock purchase warrants. Each warrant is exercisable to
purchase one share of the Company's common stock for $1.166664 per share anytime
until June 1, 2008. The accompanying financial statements for the fiscal year
ended May 31, 1999 are based on the assumption that the companies were combined
for the full year. Subsequent to this transaction, ITC's former shareholders
owned approximately 93% of the Company's outstanding common stock.
ICT owns five patents for the use of ion collider technology to separate
particles from liquids, for soil remediation, to enhance the recovery of crude
oil, to increase the amount of hydrocarbons recoverable from underground
reservoirs, and for water clarification.
The Company's goal is to oversee the commercial implementation of its various
patented processes. It anticipates that revenues will be generated from
licensing fees, royalties from the use of this technology by third parties, and
for services rendered in the commercial application of these patented
technologies.
Acquisition of Big Blue, Inc.
-----------------------------
Subsequent to the merger mentioned above, the Company acquired Big Blue, Inc.
which was a party to an Asset Purchase Agreement entered into on September 21,
1998 between ICT and various companies and individuals controlled by the now
chief executive officer of the Company. This agreement called for ICT to acquire
for common stock the patents mentioned above, which had certain license and
other conditions previously agreed to by the former owners of the patents, and
in the future assets of companies participating in the sale of the patents to
ICT for $220,000. Effective May 31, 1999, the Company exercised it option and
purchased Big Blue, Inc. and acquired the entire ownership of the patents.
<PAGE>
After August 31, 1998, the Company agreed with Big Blue, Inc. to share in 90% of
the net income generated by Big Blue, Inc. in connection with the use of this
technology. This arrangement allowed the Company to develop its technology
through the use of its patents and terminated the development stage of the
Company. Big Blue sustained a loss in its operations up to the time of its
acquisition by the Company which was treated as a purchase transaction for
accounting purposes. Losses sustained by Big Blue prior to the date of
acquisition by the Company are not reflected in the reported operations of the
Company.
During the fiscal year ended May 31, 2000, the Company performed environmental
remediation services and granted licenses to third parties.
NOTE 2. ACCOUNTING POLICIES
Consolidation Policies
----------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, ICT and Big Blue, Inc. Intercompany
transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There were no cash equivalents at May 31, 2000.
Accounts Receivable
-------------------
Accounts receivable represents amounts due for licensing fees granted,
environmental remediation services performed, and consulting services rendered.
An allowance for bad debts of $430,000 has been established for the year ended
May 31, 2000. For financial reporting purposes, receivables that do not bear
interest and are due in excess of 30 days from the billing date are discounted
to reflect the imputed interest.
Big Blue, from time to time, sells accounts receivable on a non-recourse basis
to a funding corporation. The excess of the recorded values of the accounts
receivable sold over funds received upon their sale has been recorded in the
accompanying statement of operations as interest expense. No receivables were
sold during the year ended May 31, 1999.
Equipment and Patents
---------------------
Equipment consists primarily of items used by Big Blue in its employment of the
patented technology. These items are recorded at cost and are being amortized
over seven years. The cost of the patents acquired is recorded at predecessor
cost for common shares issued in the acquisition, and the additional cash cost
to purchase the patents for $220,000. Costs incurred in applying for and
recording patents are capitalized to patent cost as they are incurred.
Amortization is recorded over the remaining patent life of approximately fifteen
years.
INCOME TAXES
-------------
Due to the change in ownership which occurred in connection with the acquisition
of ICT, the Company can no longer utilize any of its net operating loss
carryforwards of approximately $186,000 at May 31, 1998. Nor can the Company
utilize any of its net operation loss carryforwards from Big Blue, Inc. of
approximately $151,000 which Big Blue incurred prior to its acquisition by the
Company on May 31, 1999. As of May 31, 2000 the Company has usable net operating
loss carryforwards of approximately $150,000. No deferred tax assets have been
<PAGE>
recorded for financial reporting purposes as the utilization of these loss
carryforwards is dependant on future profitable operations.
Earnings (Loss) per Share
-------------------------
Earnings (loss) per share computation are calculated on the weighted-average of
common shares and common share equivalents outstanding during the year. Common
stock warrants and options are considered to be common stock equivalents and are
used to calculate earnings per common and common equivalent except when they are
anti-dilutive.
Use of Estimates in Financial Statements
----------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. In these financial statements, assets,
liabilities and earnings involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
3. JOINT VENTURES AND SUB-LICENSING AGREEMENTS
Aqua Terra Technologies
-----------------------
During August of 1999, 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, Big Blue granted ATT a non-exclusive license
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 ATT, and ATT paid Big Blue
a one-time licensing fee of $200,000. As further consideration for the license,
ATT will pay Big Blue 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 sludge treated and $0.005 per gallon of liquids treated, unless otherwise
agreed to in writing. BBI will be allocated 20% of ATT's profit or loss.
Scandinavian Cavitation Technologies AB
---------------------------------------
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
of soil remediated. 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 May 31, 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, Big Blue also
entered into a joint venture agreement whereby by, among other things, Big Blue
is to receive a 20% interest in SCT in exchange for the contribution of 3 ion
collider units.
<PAGE>
Hot Spot Technologies
---------------------
On November 29, 1999, Big Blue entered into two non-exclusive sub-licensing
agreements with Hot Spot Technologies, Inc. ("Hot Spot"). Each agreement is for
a period of five years and calls for up front licensing fees totaling $450,000
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 of soil remediated.
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 of water
remediated.
As additional royalty consideration, under the agreement, Big Blue is entitled
to a fee equal to 20% of Hot Spot's annual net revenues.
The $450,000 initial licensing fees are to be paid $20,000 at closing, which
monies were collected during the year ended May 31, 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 these licensing
fees totaled $430,000 at May 31, 2000, and bear interest at the rate of 6% per
annum. The entire amount of the licensing fee has been recognized as income in
the accompanying statement of operations for the year ended May 31, 2000.
GoodEarth Recycling Corporation
-------------------------------
On February 25, 2000, the Company entered into a sub-license agreement with
GoodEarth Recycling Corporation ("GER"), a Georgia corporation. This exclusive
sub-licensing agreement has a term of up to 10 years and covers the eastern
one-half of Tennessee, the eastern one-half of Alabama, and all of Georgia.
Additionally, the agreement calls for a licensing fee of $100,000 and a royalty
fee of 12% of gross job revenues. $15,000 of this sub-licensing fee was
collected and recognized as revenue during the fiscal year ended May 31, 2000.
The balance due of $85,000 is to be paid solely from project revenues at the
rate of $5 per ton of soil processed.
Northeast Engineers and Consultants, Inc.
-----------------------------------------
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
$275,000 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. This licensing fee is to be paid in full on or before February 28,
2001. For financial reporting purposes, this licensing fee receivable was
discounted by $27,500 to reflect imputed interest. This discount is being
amortized to interest income over the twelve months ended February 28, 2001.
Ground Floor Capital, L.C.
--------------------------
On March 21, 2000, the Company entered into a licensing agreement with Ground
Floor Capital, L.C. ("GFC"), with principal offices located in Naples, Florida.
This five-year licensing agreement grants exclusive world-wide rights for use of
the Company's patented technologies in the fields of air conditioning
compressors, refrigerant gases, and air conditioning fuel applications. The
<PAGE>
agreement calls for royalty payments equal to 15% of all gross revenues
generated by GFC's use of the licensed technology and contains options for
five-year extensions.
Richard K. Ruldolph
-------------------
On January 31, 2000, the Company entered into a licensing agreement with Richard
K. Rudulph located in Naples, Florida. This agreement has a five-year term and
covers the territory of Kuwait. In addition, the agreement calls for royalty
payments equal to 5% of all gross revenues generated by Ruldolph's use of the
licensed technology and contains options for five-year extensions.
NOTE 4. GOING CONCERN
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the liquidation of liabilities in the
normal course of business. However, the Company and its subsidiaries do not have
significant cash. The Company's ability to continue as a going concern is
dependent upon its ability to develop a market for its technology and to obtain
adequate financing in the interim to cover its operating expenses. All of these
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments related
to the recoverability and classification of recorded assets, or the amount and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. Management is in the process of attempting to
raise additional capital and believes that there is a substantial market for the
Company's technology.
NOTE 5. RELATED PARTY TRANSACTIONS
During the year ended May 31, 2000, certain officers and shareholders advanced
cash to the Company in order to fund operations. Amounts advanced to the Company
but not repaid as of May 31, 2000, are included in the accompanying balance
sheet as accounts payable - related parties. During that same time period, Big
Blue sold chemicals and colliders to a joint venture in which it has a 20%
ownership interest. These sales totaled approximately $82,000.
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.
During the first quarter fiscal year 1999, a stockholder forgave a payable in
the amount of $16,396.
<PAGE>
NOTE 6. REVERSE STOCK SPLIT
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 7. WARRANTS AND STOCK OPTIONS
Stock Warrants
--------------
As of May 31, 2000, after the one-for-four stock split discussed in Note 6,
3,045,000 stock warrants remain unexercised. The terms of these warrants to
purchase common stock are described below:
<TABLE>
<CAPTION>
Number Conversion Price Expiration
------ ---------------- ----------
<S> <C> <C> <C>
3,000,000 $1.17 per share June 2008
45,000 $4.00 per share June 2003
</TABLE>
Stock Options
-------------
The Company maintains a non-qualified stock option plan (the "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 has set aside 125,000 shares (after taking into
consideration the previously discussed reverse stock split) for such a plan. The
price of the options are to be determined by the Board of Directors and are set
to expire five years from the Plan's adoption.
During the year ended May 31, 1999, 8,000 shares were optioned and exercised at
$.01 per share for cash.
During September and December of 1999, a total of 36,000 shares were optioned
and exercised at $.01 per share for cash. These transactions were valued at
$144,000 with $143,640 treated as prepaid consulting fees which are being
amortized over twelve months. As of May 31, 2000, the Company had remaining
unamortized consulting fees of $47,170.
<PAGE>
NOTE 8. EARNINGS (LOSS) PER SHARE
A reconciliation of the components of basic and diluted net income (loss) per
common share is presented in the table below:
<TABLE>
<CAPTION>
For the Year Ended May 31, 1999
---------------------------------
Income Shares Per Share
-------- --------- ---------
Basic:
<S> <C> <C> <C>
Income (loss) attributable to common stock $(291,213) 9,572,765 $ (.03)
=======
Effect of Dilutive Securities:
Warrants outstanding - 1,793,814
-------- ----------
Diluted:
Income (loss) attributable to common stock
after assumed dilutions $(291,213) 11,366,579 $ (.03)
======== ========== =======
</TABLE>
For the Year Ended May 31, 2000
---------------------------------
Income Shares Per Share
--------- --------- ---------
Basic:
Income (loss) attributable to common stock $(237,504) 6,460,000 $ (.04)
=======
Effect of Dilutive Securities:
Warrants outstanding - 660,000
--------- ---------
Diluted:
Income (loss) attributable to common stock
after assumed dilutions $(237,504) 7,120,000 $ (.03)
========= ========= =======
Common stock equivalents not included in the calculation of diluted earnings per
share above consists of 45,000 warrants issued to an individual. This potential
common stock was not considered in the calculation due to its anti-dilutive
effect during the periods presented.
NOTE 9. LEASE COMMITMENTS
Big Blue is leasing three automobiles under non-cancelable operating leases
having remaining terms in excess of one year as of May 31, 2000. Required
payments for each of the next five years and in the aggregate are:
<TABLE>
Fiscal year ended May 31,
<S> <C>
2001 $ 26,639
2002 15,415
2003 6,902
--------
Total payments $ 48,956
========
</TABLE>
<PAGE>
NOTE 10. NOTES PAYABLE
Notes payable consist of the following callable notes at May 31, 2000:
<TABLE>
<S> <C>
10% Note due by Company to Market Media $ 50,000
10% Note payable to McKinley Capital
This note has a call to be paid should the ICT
obtain financing of $250,000 37,500
---------
$ 87,500
=========
</TABLE>
NOTE 11. INCOME TAXES
At May 31, 2000, the Company had certain timing differences which gave rise to a
net deferred tax asset, all of which was reserved by a valuation allowance. The
components of that net deferred tax asset were as follows:
<TABLE>
<S> <C>
Net operating loss carryforward $193,286
Less valuation allowance (193,286)
--------
Net deferred tax asset $ -
========
</TABLE>
<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.
<PAGE>
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 25, 2000, 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 Chief September 1998
Executive officer
Monroe A. Ashworth III 58 President
William W. Rippetoe 52 Director, Secretary
and Treasurer September 1998
William C DiAngelo Director
</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. The Company has
no audit or compensation committees.
Set forth below is certain biographical information regarding the
Company's current executive officers and directors:
DAVID N. SHROFF, the Company's chief executive officer and director, 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. and
served in this capacity until February 2000 when he was promoted to chief
executive officer. 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.
MONROE ASHWORTH III, the Company's president received a Bachelors in Mathematics
and Physics from the University of Texas. He has over 35 years of experience in
the oil and gas engineering, explorations, and production industry, with 25
years of management at both the division and corporate levels. Mr. Ashworth's
worked for The Superior Oil Company and its successor Mobil Oil Corporation from
1968 to 1985 duing which his responsibilities included strategic planning,
research and development, budgets and finance, acquisitions, land management,
exploration and production of both oil and natural gas, as well as supply and
transportation. From 1985 to 1989,
<PAGE>
Mr. Monroe worked for Meridian Oil Inc. where he served as corporate land
manager and the exploration coordinator. From 1989 to 2000, Mr. Ashworth has
served as vice president for exploration and development of Falcon Seaboard. In
February of 2000, Mr. Ashworth was elected president of International Cavitation
Technologies, Inc. replacing Mr. Dave Shroff who assumed the position of chief
executive officers at that time.
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 business.
MR WILLIAM C D'ANGELO, is a director and consultant to the Company. He has over
twenty years of intensive experience in the management of environmental,
engineering, industrial services and construction businesses. Having formed five
start-up environmental companies, all of which have grown successfully, he has
had extensive hands-on experience in operations, finance, sales and marketing,
and environmental program management. Mr. D'Angelo's prior experience in
operations includes founding and serving as President of Kaselaan & D'Angelo
Associates, a nationally renowned environmental and consulting conglomerate.
Additional experience includes the development, financing, design and
construction management of a $25 million hazardous waste treatment facility
utilizing thermal treatment technology. International experience includes the
development of environmental projects in Europe, Mexico, South America and the
Middle East. Mr. D'Angelo was appointed by President George Bush in 1992 to the
Leadership Committee of the Business Industry Council, and in 1990 was appointed
by New Jersey Governor James Florio to the Department of Environmental
Protection and Energy, Clean Air Council. Additionally, Mr. D'Angelo has
identified, actively participated or led over a dozen mergers and acquisitions
in the environmental services and technology fields. His responsibilities
includedboth public and private market transactions concerning operating
capital, asset finance, mezzanine and long-term debt. In his twenty year
environmental career, Mr. D'Angelo has successfully utilized new technologies to
rapidly grow environmental service businesses.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth summary information regarding the
compensation paid to its executive officers. Information as to compensation of
other executive officers is not presented because no person's combined
compensation exceeded $100,000 during the reporting periods.
<PAGE>
SUMMARY OF COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Current Year ended Consulting
Principal Position May 31, Fees Salary Total
----------------------- ---------- ---------- ------ --------
<S> <C> <C> <C> <C>
David N. Shroff, 2000 $ 101,323 $12,000 $113,323
Chief Executive Officer 1999 $ 59,000 - 59,000
1998 $ - - -
William Rippetoe 2000 $ 102,525 $12,000 $114,525
Secretary Treasurer 1999
1998
</TABLE>
<PAGE>
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,
2000, 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 28.31%
10103 South Urbana
Tulsa, Oklahoma 74137
David N. Shroff 0 0%
Monroe A. Ashworth III 20,000 0.20%
39 N. Royal Fern Dr.
The Woodlands, Texas 77380
Gary J. McAdam (2) 975,000 10.11%
14 Red Tail Drive
Highlands Ranch, Colorado 80126
Carrie S. Shroff (3) 1,800,000 18.66%
545 South Sandusky Avenue
Tulsa, Oklahoma 74112
David N. Nemelka 1,575,000 16.33%
2662 Stonebury Loop Road
Springville, Utah 84663
Executive Officers and 2,751,475 28.51%
Directors as a Group
(3 Person)
</TABLE>
<PAGE>
(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 $286,124 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
<PAGE>
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: September 13, 2000 By /s/ David N. Shroff
----------------------------------------
Chief Executive Officer
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: September 13, 2000 /s/ David N. Shroff
----------------------------------------
Director and Principal Financial and
Accounting Officer
