UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the quarterly period ended June 30, 2002

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

For the transition period from ______________ to _______________

Commission file number:

UNIVERSAL ICE BLAST, INC.

(Exact name of small business issuer as specified in its charter)

Nevada 88-0360067

(State or other jurisdiction of (IRS Employer Identification No.)

incorporation or organization)

533 6th Street South, Kirkland, WA 98033

(Address of principal executive offices)

(425) 893-8424

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last

report)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be

filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of

securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of

common equity, as of the latest practicable date: 34,559,986 at July 29, 2002.

<PAGE>

UNIVERSAL ICE BLAST, INC.

FORM 10-QSB

TABLE OF CONTENTS

Part I - Financial Information

Item 1. Consolidated Financial Statements (Unaudited) 1

Item 2. Management's Discussion and Analysis of Financial Condition 10

And Results of Operations

Item 3. Quantitative and Qualitative Disclosure about Market Risk 15

Part II - Other Information

Item 1. Legal Proceedings 15

Item 2. Changes in Securities 15

Item 3. Defaults Upon senior Securities (a)

Item 4. Submission of Matters to a Vote of Security Holders (a)

Item 5. Other Information (a)

Item 6. Exhibits and Reports on Form 8-K 16

Signature Page 16

Index to Exhibits 16

(a) There are no issues requiring disclosure for these items and they have

therefore been omitted

<PAGE>

UNIVERSAL ICE BLAST, INC.

FORM 10-QSB

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSAL ICE BLAST, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>

June 30, December 31,

2002 2001

(Unaudited)

------------------ ------------------

ASSETS

CURRENT ASSETS

Cash and cash equivalents $ 46,195 $ 54,455

Accounts receivable - trade 81,220 347,147

Interest receivable on shareholder notes 37,701 -

Inventory 63,710 322,090

Prepaid expenses and other 8,152 -

------------------ ------------------

Total current assets 236,978 723,692

------------------ ------------------

EQUIPMENT, net 180,898 230,166

OTHER ASSETS 10,525 10,525

------------------ ------------------

$ 428,401 $ 964,383

================== ==================

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts payable $ 340,045 $ 467,982

Notes payable 292,487 123,000

Accrued liabilities 47,572 40,087

Customer deposits 9,700 -

Advances from officers 4,805 62,087

Deferred revenue 189,094 341,327

Current portion of capital lease obligations and

long-term debt 95,609 108,335

------------------ ------------------

Total current liabilities 979,312 1,142,818

------------------ ------------------

LONG-TERM LIABILITIES

Capital lease obligations, net of current portion 31,861 57,109

Long-term debt, net of current portion 127,288 141,964

Deferred gains from sale/leasebacks 22,529 28,895

Deferred officers' compensation 164,705 116,262

------------------ ------------------

Total long-term liabilities 346,383 344,230

------------------ ------------------

STOCKHOLDERS' DEFICIT

Preferred stock, $0.001 par value, 5,000,000 shares

authorized, none issued. - -

Common stock, $0.001 par value, 100,000,000 shares

authorized, 34,239,987 and 33,109,654 shares issued

and outstanding in 2002 and 2001, respectively 34,239 33,109

Additional paid-in capital 4,238,852 4,085,370

Shareholder notes receivable (1,169,650) (1,169,650)

Stock options and warrants 103,654 84,738

Accumulated deficit (4,104,389) (3,556,232)

------------------ ------------------

Total stockholders' deficit (897,294) (522,665)

------------------ ------------------

$ 428,401 $ 964,383

================== ==================

</TABLE>

The accompanying notes are an integral part of these consolidated financial

statements.

<PAGE>

UNIVERSAL ICE BLAST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>

Three Months Ended June 30, Six Months Ended June 30,

------------------------------ ------------------------------

2002 2001 2002 2001

-------------- -------------- -------------- --------------

REVENUE

Sales of machines and accessories $ 381,350 $ 7,130 $ 384,944 $ 10,313

Service and rental income 28,575 55,656 71,481 121,120

-------------- -------------- -------------- --------------

Total Revenue 409,925 62,786 456,425 131,433

-------------- -------------- -------------- --------------

COST OF REVENUE

Machines and accessories 365,815 1,114 366,440 1,114

Service and rental 29,558 19,441 65,645 55,160

-------------- -------------- -------------- --------------

Total Cost of Revenue 395,373 20,555 432,085 56,274

-------------- -------------- -------------- --------------

14,552 42,231 24,340 75,159

-------------- -------------- -------------- --------------

OPERATING EXPENSES

General and administrative 220,865 182,793 405,455 307,724

Research and development 50,527 49,757 92,943 95,931

Selling and marketing 48,810 12,794 69,605 26,249

-------------- -------------- -------------- --------------

Total Operating Expenses 320,202 245,344 568,003 429,904

-------------- -------------- -------------- --------------

OPERATING LOSS (305,650) (203,113) (543,663) (354,745)

INTEREST INCOME 19,695 - 38,793 -

INTEREST EXPENSE (19,875) (9,551) (43,287) (19,304)

-------------- -------------- -------------- --------------

NET LOSS $ (305,830) $ (212,664) $ (548,157) $ (374,049)

============== ============== ============== ==============

BASIC AND DILUTED

NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.02)

============== ============== ============== ==============

WEIGHTED AVERAGE SHARES

OUTSTANDING USED IN BASIC AND

DILUTED PER-SHARE CALCULATION 34,166,654 22,250,949 33,687,044 21,761,393

============== ============== ============== ==============

</TABLE>

The accompanying notes are an integral part of these consolidated financial

statements.

<PAGE>

UNIVERSAL ICE BLAST, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

SIX MONTHS ENDED JUNE 30, 2002

(UNAUDITED)

<TABLE>

Stock

Additional Shareholder Options

Common Stock Paid-in Notes and Accumulated

Shares Amount Capital Receivable Warrants Deficit Total

------------ ------------ ------------ ------------ ------------ ------------ ------------

BALANCE, December 31, 2001 33,109,654 $ 33,109 $ 4,085,370 $(1,169,650) $ 84,738 $(3,556,232) $ (522,665)

Common stock issued for cash 853,333 853 127,109 - - - 127,962

Shares and warrants issued

to consultants providing

services to the Company 277,000 277 26,373 - 15,916 - 42,566

Stock options issued as

compensation - - - - 3,000 - 3,000

Net loss - - - - - (548,157) (548,157)

------------ ------------ ------------ ------------ ------------ ------------ ------------

BALANCE, June 30, 2002 34,239,987 $ 34,239 $ 4,238,852 $(1,169,650) $ 103,654 $(4,104,389) $ (897,294)

============ ============ ============ ============ ============ ============ ============

</TABLE>

The accompanying notes are an integral part of these consolidated financial

statements.

<PAGE>

UNIVERSAL ICE BLAST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>

Six Months Ended June 30,

------------------------------

2002 2001

-------------- --------------

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (548,157) $ (374,049)

Adjustments to reconcile net loss to net cash used by

operating activities

Depreciation and amortization 49,856 43,769

Common stock and warrants issued for goods and services 42,566 11,250

Stock options issued as compensation 3,000 -

Amortization of deferred stock-based compensation - 3,000

Amortization of deferred gain on sale/leaseback transactions (6,366) (6,366)

Changes in operating assets and liabilities

Accounts receivable - trade 265,927 8,676

Accounts receivable - related parties - (7,039)

Interest receivable on shareholder notes (37,701) -

Inventory 258,380 (20,630)

Prepaid expenses and other (8,152) (16,598)

Accounts payable (30,981) 68,950

Accrued liabilities 7,485 (8,480)

Due to related parties - (50)

Deferred revenue (152,233) -

Deferred officers' compensation 48,443 48,443

Customer deposits 9,700 -

-------------- --------------

Net cash used in operating activities (98,233) (249,124)

-------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of equipment (588) (22,260)

-------------- --------------

Net cash used in investing activities (588) (22,260)

-------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on capital lease obligations (35,863) (27,782)

Proceeds from long term debt borrowing - 49,500

Proceeds from borrowings on notes payable 148,979 -

Proceeds from issuance of common stock 127,962 248,649

Advances from officers 4,000 -

Payments on advances from officers (61,282) (54,274)

Payments on long-term debt (16,787) (8,279)

Payments of notes payable (76,448) -

-------------- --------------

Net cash provided by financing activities 90,561 207,814

-------------- --------------

DECREASE IN CASH AND CASH EQUIVALENTS (8,260) (63,570)

CASH AND CASH EQUIVALENTS

Beginning of period 54,455 66,413

-------------- --------------

End of period $ 46,195 $ 2,843

============== ==============

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Interest paid $ 38,156 $ 19,036

Income taxes paid $ - $ -

NON-CASH INVESTING AND FINANCING TRANSACTIONS

Conversion of accounts payable to notes payable $ 96,956 $ -

Stock options issued as compensation $ 3,000 $ -

Common stock and warrants issued for goods and services $ 42,566 $ -

</TABLE>

The accompanying notes are an integral part of these consolidated financial

statements

<PAGE>

UNIVERSAL ICE BLAST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2002

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying unaudited financial statements have been prepared in

accordance with accounting principles generally accepted in the United States

of America for interim financial statements and with instructions to Form 10-

QSB pursuant to the rules and regulations of the Securities and Exchange

Commission. Accordingly, they do not include all of the information required by

accounting principles generally accepted in the United States of America for

complete financial statements. The accompanying financial statements should be

read in conjunction with the audited consolidated financial statements of the

Company included in the Company's December 31, 2001 Annual Report on Form 10-

KSB.

In the opinion of management, all adjustments, consisting only of normal

recurring accruals considered necessary for a fair presentation, have been

included. The results of operations for the six-month period ended June 30,

2002 are not necessarily representative of operating results to be expected for

the entire fiscal year.

NOTE 2 - USE OF ESTIMATES

The preparation of financial statements in conformity with accounting

principles generally accepted in the United States of America requires

management to make estimates and assumptions that affect the amounts reported

in the financial statements and accompanying notes. Actual results could differ

from those estimates.

NOTE 3 - FINANCIAL CONDITION, LIQUIDITY AND GOING CONCERN

The Company's consolidated financial statements have been prepared on a

going concern basis, which contemplates the realization of assets and

settlement of liabilities and commitments in the normal course of business for

the foreseeable future. Since inception in 1995, the Company has accumulated

losses aggregating $4,104,000, including a loss of $548,000 for the six-month

period ended June 30, 2002.

The Company had a working capital deficit of $742,000 and a stockholders'

deficit of $897,000 at June 30, 2002. Management's plans for continued

existence include a focus towards sales of ice blast systems and machines and

raising additional capital through the sale of common stock and issuance of

debt. The Company is actively pursuing marketing arrangements for their

products in the precision, environmental and industrial cleaning markets. These

efforts include the arrangement with Ford Motor Company ("Ford") as more fully

described in Note 6. The Company's future success is dependent upon its

ability to achieve profitable operations and generate cash from operating

activities, and upon obtaining additional financing. There is no assurance

that the Company will be able to generate sufficient cash from operations or

through the sale of additional shares of common stock or from additional

borrowings.

During the six months ended June 30, 2002, the Company converted

approximately $97,000 in trade accounts payable to two suppliers to short-term

notes payable bearing interest at annual rates of 12% and 18%. The Company's

ability to obtain additional cash could have a material adverse effect on its

financial position, results of operations and its ability to continue in

existence. The consolidated financial statements do not include any adjustments

that might result from the outcome of this uncertainty.

<PAGE>

UNIVERSAL ICE BLAST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2002

(UNAUDITED)

NOTE 4 - COMMON STOCK

During the six months ended June 30, 2002, the Company issued 853,333

shares of common stock through private placements under Section 4(2) of the

Securities Act in the aggregate amount of $127,962 to five investors, all of

whom were accredited investors and/or existing shareholders of the Company.

During the same period, under Section 4(2) of the Securities Act the Company

issued 277,000 shares of common stock and 100,000 warrants to four investors

for goods and services having a fair market value of $42,566. All common

shares issued above are restricted subject to Rule 144.

NOTE 5 - STOCK OPTIONS AND WARRANTS

The Company has a stock option plan under which employees, consultants and

others may be awarded incentive or non-statutory stock options. The plan

authorizes the grant of options for the purchase of up to 6 million shares of

common stock. At December 31, 2001 options outstanding, all of which were non-

statutory, totaled 1,021,175. New options to purchase 650,000 shares of stock

were granted to employees at prices from $0.20 to $0.25 during the six months

ended June 30, 2002. Of the options granted, 350,000 vested immediately, with

the balance vesting over four years. Based on the intrinsic value method,

150,000 of the vesting options included a compensation element in the amount of

$3,000. During the three months ended June 30, 2002, employees forfeited

200,000 of the issued but unvested options.

NOTE 6 - CONTRACT WITH THE FORD MOTOR COMPANY

During 2001 the Company designed, assembled, and installed a precision

gear cleaning ice blast system under the terms of a purchase order from Ford

Motor Company. The purchase order is for a price of approximately $341,000 with

commitments for an additional three similar systems. In June 2002, Ford

notified the Company that Ford has accepted the system and that orders for more

systems will be forthcoming. Management believes the delivery of these systems

could occur in 2002 or 2003. During the six months ended June 30, 2002, Ford

paid all amounts due to the Company under the terms of the initial purchase

order.

As a result of Ford's acceptance of the gear cleaning system, the Company

recognized approximately $341,000 in revenue during the quarter ended June 30,

2002. Costs associated with the system, also recognized during the three

months ended June 30, 2002, were approximately $344,000 resulting in a loss of

approximately $3,000. Because of the initial design costs associated with this

project, the foregoing results were in line with management's expectations.

However, management expects that future systems will provide the Company with

margins that will secure the profitability of the Company in the long term.

NOTE 7 - FOREIGN OPERATIONS

During the six month period ended June 30, 2002, the Company reached an

agreement in principle to acquire certain assets of its Dutch distributor. The

Company is in the process of forming a Dutch subsidiary in order to consummate

the transaction. Terms are still being negotiated and no definitive agreements

have been signed. The Company expects to finalize the formation of its Dutch

subsidiary and the acquisition of these assets during the second half of fiscal

2002.

<PAGE>

UNIVERSAL ICE BLAST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2002

(UNAUDITED)

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Certain vendors of the Company have threatened to bring legal action for

payment of overdue amounts. One suit has been filed, however the Company has

agreed to a payment plan with the vendor. In addition, the Company has agreed

to a settlement with a former sales representative who was attempting to

collect disputed commissions. All reasonable amounts relating to these past

due and disputed liabilities have been accrued in the accompanying financial

statements.

In June 2002, the Company issued a promissory note in the amount of

$25,000 to a major supplier. The note bears interest at an annual rate of 12%

and is payable on demand with 90 days' written notice. Terms of the note

include a provision whereby the supplier may convert its outstanding payable

from the Company to common stock at a price not to exceed $0.15 per share.

Accounts payable to the supplier are approximately $60,000 at June 30, 2002.

The conversion right expires in two years. In addition, the note terms call

for the Company and the supplier to enter into a separate and fully executed

manufacturing rights licensing agreement. Terms under negotiation are

discussed in Note 9.

NOTE 9 - SUBSEQUENT EVENTS

Subsequent to June 30, 2002, the Company issued 319,999 shares of common

stock through private placements under Section 4(2) of the Securities Act in

the aggregate amount of $47,970 to five investors, all of whom were accredited

investors and/or existing shareholders of the Company.

Of the $292,000 in notes payable at June 30, 2002, approximately $92,000

was collateralized by accounts receivable from Ford. As discussed in Note 6,

Ford has paid the Company all amounts due under the initial purchase order.

The Company is negotiating revised repayment terms with its lenders, including

the possible conversion of the amounts due into equity.

Under the terms of the Promissory Note discussed in Note 8, the Company is

in discussions with a major supplier for the supplier to become the Company's

manufacturing partner. No agreement has been signed. Terms being negotiated

include the supplier's financing of material purchases in order to provide the

working capital to build future equipment for Ford and other customers.

Subsequent to June 30, 2002, the Company agreed to issue to a consultant

options to acquire approximately 133,000 shares of the Company's common stock.

The consultant may pay a nominal cash acquisition price of $0.01 per share,

with the difference between the market price and the acquisition price of the

stock attributable to services rendered.

<PAGE>

UNIVERSAL ICE BLAST, INC.

FORM 10-QSB

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with

the Company's interim consolidated financial statements included elsewhere in

this Quarterly Report on Form 10-QSB (the "Quarterly Report") and with the

Company's consolidated annual financial statements and management's discussion

and analysis included in the Company's December 31, 2001 Annual Report on Form

10-KSB (the "Annual Report").

Certain forward-looking statements contained herein regarding the

Company's business and prospects are based upon numerous assumptions about

future conditions, which may ultimately prove to be inaccurate and actual

results may materially differ from anticipated results described in such

statements. The Company's ability to achieve such results is subject to certain

risks and uncertainties, such as the impact of competition and pricing,

changing market conditions, general economic conditions, the Company's history

of losses and need for additional capital and other risks. Forward-looking

statements are identified by words such as "believe", "anticipate", "expect",

"intend", "plan", "will", "may", "confident" and other similar expressions. Any

forward-looking statements contained herein represent the Company's judgment as

of the date hereof. The Company disclaims, however, any intent or obligation to

update such forward-looking statements. As a result, the reader is cautioned

not to place undue reliance on any forward-looking statements contained herein.

CRITICAL ACCOUNTING POLICIES

The Company's financial statements and accompanying notes are prepared in

accordance with accounting principles generally accepted in the United States

of America. Preparing financial statements requires management to make

estimates and assumptions that affect the reported amounts of assets,

liabilities, revenue, and expenses. These estimates and assumptions are

affected by management's application of accounting policies. Critical

accounting policies for Universal Ice Blast include revenue recognition,

accounting for research and development costs, and accounting for stock

compensation expense, as well as the preparation of the financial statements on

a going concern basis.

Revenue Recognition - Revenue from the sale of stand alone Ice Blast machines

and accessories to end users and distributors are shipped FOB shipping point at

which time the title passes and revenue is recognized. Where customers require

installation services and operational acceptance, shipment is FOB destination

and revenue is recognized upon acceptance by the customer. Revenue from

services is recognized as the services are provided. Revenue from the rental of

Ice Blast machines is recognized over the rental period based on the terms of

the rental agreements.

Research and Development Costs - Research and development costs are charged to

expense as incurred. These costs primarily consist of salaries, development

materials, supplies and related costs of personnel directly involved in the

research and development of new technology.

<PAGE>

UNIVERSAL ICE BLAST, INC.

FORM 10-QSB

Stock-Based Compensation - The Company applies Accounting Principles Board

Opinion No. 25, "Accounting for Stock Options Issued to Employees," and related

interpretations including Financial Accounting Standards Board Interpretation

No. 44, "Accounting for Certain Transactions Involving Stock Compensation."

The Company accounts for stock-based compensation to employees using the

intrinsic value method, whereby compensation cost is recognized when the

exercise price at the date of grant is less than the fair market value of the

Company's common stock. The Company discloses the proforma effect of

compensation cost based on the fair value method for determining compensation

cost. The value of stock-based compensation awarded to non-employees is

determined using the fair value method. Compensation cost is recognized over

the service or vesting period.

RESULTS OF OPERATIONS

Three months ended June 30, 2002 compared to three months ended June 30, 2001