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