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>
<CAPTION>
June 30, December 31,
2002 2001
(Unaudited)
------------------ ------------------
<S>
<C>
<C>
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>
<CAPTION>
Three Months Ended June 30,
Six Months Ended June 30,
------------------------------
------------------------------
2002 2001 2002 2001
-------------- -------------- --------------
--------------
<S>
<C>
<C>
<C> <C>
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>
<CAPTION>
Stock
Additional Shareholder Options
Common
Stock Paid-in Notes and
Accumulated
Shares Amount Capital
Receivable Warrants Deficit Total
------------ ------------ ------------ ------------
------------ ------------ ------------
<S> <C> <C> <C>
<C>
<C> <C> <C>
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>
<CAPTION>
Six Months Ended June 30,
------------------------------
2002 2001
-------------- --------------
<S> <C> <C>
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
During the three months ended June 30, 2002, revenues increased by 553% to
$410,000 as compared to the three months ended June 30, 2001. Second quarter
2002 sales of machines and accessories increased to $381,000 from $7,000 during
the comparable three month period of 2001, while service and rental income
decreased 49% to $29,000 during the three months ended June 30, 2001 from
$56,000 during the comparable period of 2001. The increase in machine sales is
due to the recognition of revenue on the Ford gear cleaning system project.
Machine revenue also includes $3,000 in amortization of deferred gains on
sale/leaseback transactions originating in 1999. The decrease in service and
rental income is attributable to fewer service jobs performed during 2002 as
well as the Company's focus on installation and support of the Ford system
during 2002 at the expense of potential rental opportunities.
Gross profit decreased to $15,000 during the three months ended June 30,
2002 as compared to $42,000 during the comparable period of the prior year. As
a percent of sales, gross profit decreased to 4% during the three months ended
June 30, 2002 as compared to 67% during the comparable period of 2001. Gross
profits from sales of machines and accessories increased $10,000 to $15,000
during the three months ended June 30, 2002 compared to the comparable 2001
period. Second quarter 2002 gross profits include the sale of a machine to a
customer in Japan offset by a $3,000 loss on the Ford gear cleaning system.
Gross profits for the comparable 2001 period relate primarily to the sale of
parts and accessories as no machines were sold during that period. Gross
profits from services and rental income decreased to a loss of $1,000 during
the three months ended June 30, 2002 as compared to profits of $36,000 for the
comparable period of 2001. The $37,000 decrease in service and rental gross
profit is the result of decreased volumes, lower rental and service rates
obtained on 2002 work and an increase in depreciation expense on new equipment.
For the three months ended June 30, 2002, general and administrative
expense increased 21% to $221,000 from $183,000 during the comparable period of
2001. Increased payroll costs of $57,000 due, in part, to the appointment of a
Chief Engineer and a Production Engineer as well as increased employee
benefits, were offset by reductions in fees paid to financing and public
relations consultants and decreased SEC compliance expenses.
Research and development expenses increased 1% to $50,000 during the three
months ended June 30, 2002 as compared to $49,000 during the comparable period
of 2001. The $1,000 increase in research and development expenses is the result
of less management and consultant time spent on the Ford project, offset by
increases in patent expense and general research and development.
<PAGE>
UNIVERSAL ICE BLAST, INC.
FORM 10-QSB
Selling and marketing expenses increased $36,000 to $49,000 during the
three months ended June 30, 2002 as compared to $13,000 for the comparable
prior year period. The increase in selling and marketing expenses is
attributable to the hiring of a Vice President of Sales & Marketing in early
2002 as well as the settlement costs associated with a dispute with a former
sales representative.
The Company's operating losses increased by $103,000 to $306,000 for the
three months ended June 30, 2002 from $203,000 for the comparable 2001 period.
The $37,000 decrease in gross profit on service and rental sales, the $38,000
increase in general and administrative costs and the $36,000 increase in
selling and marketing expenses represent the majority of the decline in
profitability. Management anticipates incurring additional future operating
losses through the remainder of 2002.
During the quarter ended June 30, 2002, the Company recorded interest
income in the amount of $19,000 in connection with Shareholder notes receivable
in the aggregate amount of approximately $1,170,000. The Shareholder notes
receivable resulted from the Company's issuance of common stock to officers and
employees during the year ended December 31, 2001. The Company reported no
interest income during the three month period ended June 30, 2001.
Interest expense increased by $11,000 to $20,000 during the three months
ended June 30, 2002 as compared to $9,000 for the comparable three months of
the prior year. This increase is the result of interest on new long-term debt
and notes payable that the Company incurred in late 2001 and in 2002. As a
result of the Company's working capital deficit of $742,000, interim financing
necessary to settle operating liabilities arising from the assembly and
installation of the Ford gear cleaning system as well as to cover other
operating expenses is anticipated to be expensive if adequate equity capital
cannot be raised. Should the Company be required to finance anticipated future
operations with debt as opposed to equity, future interest expense can be
expected to increase significantly.
Six months ended June 30, 2002 compared to six months ended June 30, 2001
During the six months ended June 30, 2002, revenues increased by 247% to
$456,000 as compared to the six months ended June 30, 2001. Sales of machines
and accessories during the six months ended June 30, 2002 increased to $385,000
from $10,000 during the comparable six month period of 2001, while service and
rental income decreased 41% to $71,000 during the six months ended June 30,
2001 from $121,000 during the comparable period of 2001. The increase in
machine sales is due to the recognition of revenue on the Ford gear cleaning
system project. Machine revenue also includes $6,000 in amortization of
deferred gains on sale/leaseback transactions originating in 1999. In
addition, during the six months ended June 30, 2002, orders were received and
assembly initiated on two machines for customers other than Ford. The Company
has invoiced customers for approximately $185,000 on these orders but all
revenue has been deferred until the machines are complete, shipped and accepted
by the customers. The decrease in service and rental income is attributable to
fewer service jobs performed during 2002 as well as the Company's focus on
installation and support of the Ford system during 2002 at the expense of
potential rental opportunities.
<PAGE>
UNIVERSAL ICE BLAST, INC.
FORM 10-QSB
Gross profit decreased to $24,000 during the six months ended June 30,
2002 as compared to $75,000 during the comparable period of the prior year. As
a percent of sales, gross profit decreased to 5% during the six months ended
June 30, 2002 as compared to 89% during the comparable period of 2001. Gross
profits from sales of machines and accessories increased $9,000 to $18,000
during the six months ended June 30, 2002 compared to the comparable 2001
period. Gross profits in 2002 include the sale of a machine to a customer in
Japan offset by a $2,000 loss on the Ford gear cleaning system. Gross profits
for the comparable 2001 period relate primarily to the sale of parts and
accessories as no machines were sold during that period. Gross profits from
services and rental income decreased to $6,000 during the six months ended June
30, 2002 as compared to $66,000 for the comparable period of 2001. The $60,000
decrease in service and rental gross profit is the result of decreased volumes,
lower rental and service rates obtained on 2002 work and an increase in
depreciation expense on new equipment.
For the six months ended June 30, 2002, general and administrative expense
increased 32% to $405,000 from $307,000 during the comparable period of 2001.
Payroll costs increased approximately $91,000 due, in part, to the appointment
of a Chief Engineer and a Production Engineer as well as increased employee
benefits. Facilities rent increased $11,000 while fees paid to financing and
public relations consultants increased $13,000. Offsetting these increases
were reductions of $27,000 in accounting and SEC compliance costs.
Research and development expenses decreased 3% to $93,000 during the six
months ended June 30, 2002 as compared to $96,000 during the comparable period
of 2001. The $3,000 decrease in research and development expenses is the result
of less management and consultant time spent on the Ford project, offset by
increases in patent expense and general research and development.
Selling and marketing expenses increased $43,000 to $69,000 during the six
months ended June 30, 2002 as compared to $26,000 for the comparable prior year
period. The increase in selling and marketing expenses is attributable to the
hiring of a Vice President of Sales & Marketing in early 2002 as well as the
settlement costs associated with a dispute with a former sales representative.
The Company's operating losses increased by $189,000 to $544,000 for the
six months ended June 30, 2002 from $355,000 for the comparable 2001 period.
The $60,000 decrease in gross profit on service and rental sales, the $98,000
increase in general and administrative expenses and the $43,000 increase in
selling and marketing expenses accounted for the increase in operating losses.
Management anticipates incurring additional future operating losses through the
remainder of 2002.
During the six months ended June 30, 2002, the Company recorded interest
income in the amount of $38,000 in connection with Shareholder notes receivable
in the aggregate amount of approximately $1,170,000. The Shareholder notes
receivable resulted from the Company's issuance of common stock to officers and
employees during the year ended December 31, 2001. The Company reported no
interest income during the six month period ended June 30, 2001.
<PAGE>
UNIVERSAL ICE BLAST, INC.
FORM 10-QSB
Interest expense increased by $24,000 to $43,000 during the six months
ended June 30, 2002 as compared to $19,000 for the comparable six months of the
prior year. This increase is the result of interest on new long-term debt and
notes payable that the Company incurred in late 2001 and in 2002. As a result
of the Company's working capital deficit of $742,000, interim financing
necessary to settle operating liabilities arising from the assembly and
installation of the Ford gear cleaning system as well as to cover other
operating expenses is anticipated to be expensive if adequate equity capital
cannot be raised. Should the Company be required to finance anticipated future
operations with debt as opposed to equity, future interest expense can be
expected to increase significantly.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, the Company had cash and cash equivalents of $46,000.
During the six months ended June 30, 2002, operating activities used cash of
$98,000 as compared to $249,000 during 2001. Cash used by operating activities
resulted primarily from the Company's net loss reduced by working capital
movements, particularly liquidation of balances related to the Ford contract,
as well as depreciation, amortization and other non-cash charges. The Company
used cash of $600 for capital expenditures during the six months ended June 30,
2002 as compared to $22,000 for 2001. The Company has no significant
commitments for future purchases of capital assets.
Financing activities provided cash of $90,000 during the six months ended
June 30, 2002 as compared to $208,000 during 2001. Cash has been provided
primarily from sale of Company Common Stock and, during 2002, the issuance of
notes payable to lenders. Sales of common stock provided $128,000 and $248,000
during 2002 and 2001, respectively. Proceeds from the issuance of notes payable
were $149,000 in the first six months of 2002 and zero during the comparable
2001 period. Repayments on the notes were $76,000 in 2002. Payments on capital
lease obligations used cash of $36,000 and $28,000 during 2002 and 2001. Long-
term debt repayments were $17,000 in 2002 as compared to $8,000 in 2001. The
Company borrows and repays, on a revolving basis, cash advances from its two
Founders and Officers. Repayment of such advances totaled $61,000 and $54,000
in 2002 and 2001, respectively.
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 rental and sale of ice blast machines and
away from services. 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 as more fully
described in Note 6.
In order to preserve liquidity, the Company's two founders and officers
have been paid no cash compensation during the six months ended June 30, 2002.
Instead, during the first half of 2002, as in prior periods, these officers
have sold portions of their personal holdings of the Company's common stock.
During the six months ended June 30, 2002, such sales collectively totaled
170,000 shares for the two officers.
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 additional borrowings.
<PAGE>
UNIVERSAL ICE BLAST, INC.
FORM 10-QSB
The current expansion of the Company's business demands that significant
financial resources be raised to fund capital expenditures, working capital
needs, debt service and the cash flow deficits expected to be generated over
the next three to six months by operating losses. Current cash balances and the
realization of accounts receivable will not be sufficient to fund the Company's
current business plan beyond the next two months. Consequently, the Company
is currently seeking convertible debt and/or additional equity financing as
well as the placement of a credit facility, in the aggregate amount of at least
$250,000, to fund the Company's immediate liquidity needs. Management is
currently negotiating with existing shareholders as well as other individuals
and organizations in order to obtain the working capital necessary to meet both
current and future obligations and commitments. To further supplement these
activities, the Company has engaged two investment-banking firms to assist in
securing funding, with an objective of raising at least $2 million.
Management is confident that these efforts will produce financing to further
the growth of the Company. Nevertheless, there can be no assurance that the
Company will be able to raise additional capital on satisfactory terms or at
all. In the event that the Company is unable to obtain such additional capital
or to obtain it on acceptable terms or in sufficient amounts, the impact
thereof would have a material adverse effect on the Company's business,
operating results and financial condition as well as its ability to service
debt requirements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As disclosed in an explanatory paragraph in the Report of Independent
Accountants on the Company's December 31, 2001 consolidated financial
statements included in the Annual Report, the foregoing liquidity and financial
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that it does not have any material exposure to
interest or commodity risks. The Company does not own any derivative
instruments and does not engage in any hedging transactions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. CHANGES IN SECURITIES
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.
<PAGE>
UNIVERSAL ICE BLAST, INC.
FORM 10-QSB
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
(a) Exhibits - None.
(b) Reports on Form 8K. - On April 8, 2002 the Company filed a report on Form
8-K disclosing that Moss Adams, LLP had declined to stand for re-appointment as
the Company's independent accountants. This report also disclosed the fact
that the Company had appointed Williams & Webster, P.S. as its independent
accountants.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
UNIVERSAL ICE BLAST, INC.
By: /S/ RORY CLARKE
-----------------------------------
RORY CLARKE
CHIEF EXECUTIVE OFFICER
INDEX TO EXHIBITS
(99) OTHER EXHIBITS
99.1 Certification by Rory Clarke pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
<PAGE>
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Rory Clarke, the Chief Executive Officer of Universal Ice Blast, Inc., state
that:
To the best of my knowledge, based upon a review of this quarterly report on
Form 10-QSB of Universal Ice Blast, Inc. for the quarterly period ended June
30, 2002, and except as corrected or supplemented in a subsequent report:
* this quarterly report of Universal Ice Blast, Inc. on Form 10-QSB
for the quarterly period ended June 30, 2002 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
* the information contained in this quarterly report on Form 10-QSB of
Universal Ice Blast, Inc. for the quarterly period ended June 30, 2002
fairly presents, in all material respects, the financial condition and
results of operations of Universal Ice Blast, Inc. for such period.
By: /S/ RORY CLARKE
-----------------------------------
RORY CLARKE
CHIEF EXECUTIVE OFFICER
August 6, 2002