PART I
Item 1. Description of
Business.
Universal Ice
Blast, Inc., (“UIBI” or the "Company") is a Nevada corporation
organized in 1995 for the purpose of developing and marketing ice-blasting
equipment for which it holds patents. The Company's office and warehouse
facility is in Kirkland, Washington, a suburb of Seattle. The Company designs,
assembles and sells its equipment as well as providing ice blasting services
and equipment rental. The Company creates environmentally friendly solutions to
industrial cleaning needs.
The Company was
initially engaged in technology and market research and development. Since
1998, the Company has worked with clients to develop tailored products,
applications and cleaning systems to fulfill customers' needs.
Ice Blast Technology
Ice blasting is
a simple process that uses compressed air and ice crystals. Shot through a hose
and directed with a nozzle, a fine, powerful mist is blasted onto a surface,
acting like a chisel to remove debris. Ice blasting is a non-abrasive, cleaning
process that uses ordinary tap water, compressed air and electricity to create
an environmentally friendly, cost effective method to address a variety of
cleaning needs. Ice blasting technology has advantages over other cleaning
processes important to its markets, including:
Superior
cleanliness;
Reliable,
consistent operation;
Low operating
costs;
Minimal waste;
Non-abrasive;
and
Does not
generate dust.
An ice blast
machine is ready for work within seconds of pushing the start button. Ice
particles are produced continuously at a rate of 200 pounds per hour. Using a
two hose system, ice particles are transported through a low pressure hose to
the blasting nozzle where a second higher pressure hose delivers up to 200 psi
("pounds per square inch") pressure to accelerate the ice particles
towards the target surface. The solid ice particles displace surface
contaminants through the energy from the impact and through the lateral
deformation of the ice particles.
At the heart of
the ice blast technology is the scrub and flush cleaning that takes place when
the ice crystals impact onto a surface. Ice crystals deform to scrub on impact,
and after impact melt into water to flush away debris. Thus, ice blasting has a
scrubbing component that water blasting lacks and it uses significantly less
water than water blasting, which results in less waste to be contained. Ice
blasting creates no dust and utilizes no abrasives in the process, and is
accordingly more gentle and cleaner than sand blasting. Known competitive
disadvantages of ice blasting over other methods are that it is less abrasive
than sand blasting, steel shot, walnut shells, and corn. Ice blasting will not
remove deep rust or hard metal burrs. Because it is less abrasive, ice blasting
is slower than some of the aforementioned processes.
Using the ice
blasting cleaning process reduces waste as compared to other cleaning
processes. Typical water blasting operations use from 1 to 6 gallons per minute
or 60 to 360 gallons per hour. Ice blasting uses not more than 20 gallons per
hour. Further, upon impact, the ice particles explode, turning approximately
half of its solid mass into vapor and the other half into liquid, thus
resulting in even less wastewater to contain.
UIBI holds three patents
(#5,913,711, #6,001,000, and #6,270,394) two of which were issued in 1999 and
one was issued in 2001. These patents
cover the method and equipment for manufacturing, transport, and continuous
delivery of ice particles to a nozzle to do continuous ice blast cleaning work
on various surfaces. The Company has also received notice that a fourth patent,
#6,536,220, was formally issued on March 25, 2003. The Company also has four patent applications pending which cover
various improvements to the methods and apparatus related to ice blast technology.
Future patent applications are anticipated.
Products and Services
The Company's
cleaning products are designed to operate continuously, three shifts a day,
seven days a week. The Company produces equipment models of a stationary design
for use in manufacturing systems. Base sales prices for stationary models range
from approximately $69,000 to $90,000. Prices for integrated cleaning systems
and stations could sell for up to $700,000 depending on, among other things,
the number of required blast nozzles and sophistication of the application. The
Company also produces equipment models of a more portable design for use on job
sites. Base sales prices for stand-alone, portable models approximate $70,000.
The Company
builds and assembles all of its ice blasting equipment. While some components
have been purchased from primarily one source, MAJA Food Technology, most other
parts and accessories used in assembly are available from multiple sources.
Management of the Company believes that sufficient quantities of raw materials,
parts and components utilized in making ice blasting equipment will continue to
be available. No vendor of the Company is considered as the primary vendor and
all components used in the equipment that the Company assembles can be either
acquired from alternative sources or produced in-house.
In addition to
selling its ice blasting equipment, the Company rents its equipment and also
provides cleaning services when requested by customers. The Company intends to
increase the rental income portion of the business. The Company has provided
ice blasting cleaning services, primarily through its wholly-owned subsidiary,
Midwest Ice Blast, Inc. ("Midwest"). Typically, cleaning contracts
are of short duration and the Company sometimes uses subcontracted labor to
perform the work. The primary focus of the Company is not to provide ice blast
cleaning services, but to develop market niches and sales channel partners into
and through which it can rent, lease or sell equipment.
The Company has
primarily marketed its products and services directly to its customers, and has
also developed indirect sales channels through sales agents and distributors
and with other businesses involved in providing industrial and environmental
cleaning services. The Company has a reciprocal marketing agreement with a
company providing environmentally friendly chemical solutions for coating
removal and cleaning to customers in architectural, industrial, automotive and
marine markets, and agreements with distributors in Holland and Australia. The following table provides a listing of
both domestic and foreign organizations with whom the Company has entered into
distributorship and/or exclusive territory agreements:
|
Organization
|
Nature of
Agreement
|
Date
|
Term
|
|
Heydaal B.V.
dba Ice Blast
Benelux
The Netherlands
|
Distributorship covering The Netherlands, Belgium and
Luxemburg
|
8/1/2000
|
5 years
|
|
|
|
|
|
|
Napier Environmental Technologies, Inc.
Delta, BC Canada
|
Reciprocal Marketing Agreement allowing for cross
promotion of products
|
2/23/2001
|
Unlimited
|
The
distributorship agreement requires minimum purchases of ice blast equipment
from the Company, which if not met will put the distributor in default of the
agreement and allows the Company to seek other parties to distribute its
products in those areas for which the distributor initially had exclusivity.
However, no new distributor agreements were signed in 2002. The Napier
agreement is subject to cancellation by either party upon 30 days written
notice.
The agreement with Heydaal,
B.V., generated revenues of $70,000 in 2000. The agreement with Napier
Environmental Technologies, Inc. has yet to generate revenue for the Company.
The Company is
the sole worldwide provider of crystalline ice blasting equipment. Management
is unaware of any other companies who are engaged in, developing, or marketing
similar technology.
Markets
The Company directs the current
sales efforts for its cleaning equipment and services in the three markets of
Precision Cleaning, Industrial Cleaning and Environmental Cleaning.
Precision Cleaning is cleaning to a
defined tolerance, typically in a repetitive production setting where quality
controls are closely measured and monitored.
It usually involves removing surface contaminants from cast or machined
mechanical parts, electronic components, or highly purified materials. It can also involve light
"deburring" (removal of "burrs" created by cutting tools on
machined soft metal - aluminum -
parts). Ice blast technology is currently being used to clean and deburr
electric motor armatures, transmission components and gears, engine and other
cast parts for Japanese and American auto manufacturers.
During 2001 the
Company designed, assembled, and delivered a precision gear cleaning ice blast
system under the terms of a purchase order from Ford Motor Company
(“Ford”). The purchase order was for a
price of approximately $341,000 with commitments for additional similar
systems. The machine was installed in
January 2002 and became operational in March 2002. In June 2002, Ford notified the Company that Ford has accepted
and approved the gear-cleaning system as Implementation Ready. 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, UIBI recognized approximately $341,000 in revenue during the
year ended December 31, 2002. Costs
associated with the system, also recognized during the year ended December 31,
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, the
Company expects that future systems will provide UIBI with margins that will
secure the profitability of the Company in the long term.
In July 2002 the
Company was informed that Ford’s Sharonville, Ohio plant would buy two
additional gear-cleaning systems in 2002. The Company is currently in
discussions with Ford on the status of these purchase orders. In the third quarter of 2002, the gear
cleaning system was required to undergo further operational efficiency testing
before additional equipment would be purchased from the Company. The tests were conducted as a part of Ford’s
Six Sigma quality control process. UIBI
was able to obtain the necessary data to take corrective actions on its
equipment in December 2002 and January 2003.
As of February 2003, these tests produced results that substantially
surpassed Ford’s tolerance requirements.
Industrial Cleaning includes, among
other applications, manufacturing equipment cleaning, maintenance and
refurbishing, glass and fiberglass plant cleaning, and plastic mold and dunnage
cleaning. In addition to the advantages
of reduced waste, superior cleaning, and dustless and chemical-free processes,
ice blasting can reduce or eliminate the use of volatile organic compounds.
Industrial
cleaning applications are not always confined to manufacturing plants. The
Company has also demonstrated the effectiveness of ice blast equipment for the
cleaning of locks and pump stations in the waterways of Holland, which resulted
in an equipment sale to its Netherlands distributor during 2000. In the second quarter of 2002, the Company
shipped an ice blast machine from its rental fleet to its Netherlands
distributor to assist in the development of the European rental market. In February 2003, an additional four rental
machines were shipped to Holland to support a large asbestos abatement job for
Dow Chemical. The Company sees this as
an important investment required in order to satisfy European rental demand.
In March 2002,
the Company was recognized for its technology innovation by the Construction
Innovation Forum and was a finalist for the Forum’s prestigious NOVA Award.
Environmental Cleaning projects utilizing ice blasting have
included lead-based paint abatement and removal, and asbestos abatement and
removal. The Company has invested three years in technology validation efforts
to position its ice blast technology as a new, cost-effective and
environmentally superior process. The Company has proven that the technology is
effective for the removal of lead-based paint from cement and brick buildings,
steel structures inside buildings and from steel overpass bridges.
As a result of
work performed on a lead-based paint abatement pilot project, the Company's ice
blast technology was nominated by the New York State Department of
Transportation (NY DOT) for the 2000 Civil Engineering Research Foundation
Award for Innovation. The pilot project consisted of demonstrating the
effectiveness of ice blast in removing lead-based paint on two New York State
bridges. The Company has been informed that the ice blast technology has still
been specified for nine bridges which the Company understands will be bid upon
in 2003. The Company's only involvement will consist of renting ice blast
equipment to the winning bidder at $2.00 per square foot and resulting revenue
will be dependent upon the bridges selected and the square feet involved.
As a result of
the Residential Lead-Based Paint Hazard Reduction Act of 1992, lead-based paint
abatement is considered to be a potentially significant market opportunity for
the Company. According to the feature article in the August 1998 issue of the
Journal of Protective Coatings and Linings, during the years 1993 through 1996,
approximately $1 billion was spent on lead-based paint abatement of various
U.S. Department of Transportation ("DOT") bridges, at an average cost
of $250,000 per bridge, and future DOT spending for lead-based paint abatement
is projected to be over $40 billion. Additional opportunities exist for wall
and ceiling surface cleaning in HUD Housing for removal of lead-based paint
contamination. Other lead-based paint markets such as commercial and industrial
buildings, schools and universities, municipal and state buildings also exist
and represent other potential sale and rental opportunities.
Nuclear
decontamination is a segment of the environmental industry that is taking on
added importance for UIBI. The Company
built and delivered two special purpose ice blast machines in the last half of
2002 to customers with nuclear decontamination operations, Bruce Power LP and
Ontario Power Generation, Inc.
Management considers this to be a significant and growing market.
While the
Environmental Cleaning market continues to be considered important, the Company
has focused most of its recent efforts in the Precision Cleaning market.
The following
table reflects revenues derived from each of the three market segments
described above including the percentage of the total for the years ending
December 31, 2002, and 2001.
|
|
|
2002
|
|
|
|
2001
|
|
|
|
Market Segment
|
|
Revenues
|
|
Percentage
|
|
Revenues
|
|
Percentage
|
|
Precision Cleaning
|
|
$ 392,943
|
|
56%
|
|
$ 105,396
|
|
36%
|
|
Industrial Cleaning
|
|
81,927
|
|
12%
|
|
107,488
|
|
37%
|
|
Environmental Cleaning
|
|
222,308
|
|
32%
|
|
77,931
|
|
27%
|
|
|
|
$ 697,178
|
|
100%
|
|
$ 290,815
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
The revenues and percentage mix
reflected above should not be considered representative of future revenues and
may vary dramatically dependent upon future contracts for ice blasting
machines, rentals and services.
The following table is a listing of
customers who have accounted for 10% or more of total revenues during 2002 and
2001:
|
Customer
|
|
2002
|
|
2001
|
|
Ford Motor Company
|
|
$ 355,070
|
|
$ 54,700
|
|
Bruce Power L.P.
|
|
$ 89,350
|
|
$ -
|
|
Ontario Power Generation, Inc.
|
|
$ 87,985
|
|
$ -
|
|
Ice Blast California, Inc.
|
|
$ 34,400
|
|
$
44,500
|
|
Yadzani Enterprises, Inc.
|
|
$ -
|
|
$
33,900
|
Competition
Competition for
the Company's products and services comes from high-pressure water blast, dry
ice blast, soda blast, sand, glass bead and other abrasive blasting, manual
labor and chemicals. The Company's ice blast technology has advantages over
other blasting techniques in that no special blasting material must be
purchased and cleaned up. Primary competitive advantages are waste minimization
as compared to other techniques, low airborne contaminants, improved
environmental and worker health compliance, continuous operation reliability
and simple field implementation. Known competitive disadvantages of ice blasting
over other methods are that it is less abrasive than sand blasting, steel shot,
walnut shells, and corn. Ice blasting will not remove deep rust or hard metal
burrs. Because it is less abrasive, ice blasting is slower than some of the
aforementioned processes.
Many or most of
the Company's competitors are larger, more established businesses, which have,
in many cases, long-standing relationships with their customers, substantial
name recognition and greater financial resources. Further, as with most new
technology, ice blasting has an early adopter hurdle to overcome as there is an
inherent resistance to change that provide older methodologies a competitive
advantage.
Government Regulation
While marketing
opportunities are created as a result of numerous governmental and
environmental regulations, the Company has determined that it complies with all
such regulations, as a manufacturer, including OSHA requirements. Where the
Company either sells or leases equipment to contractors in the lead based paint
or asbestos abatement market, such sales or leases of equipment are not subject
to the many regulations that are applicable to the contractors.
Further, the
Company is not aware of any proposed governmental regulations which would
impact or limit the Company's continued sale or lease of its equipment within
the hazardous abatement industry nor are there any known costs and effects of
compliance with existing environmental laws.
Research and Development Expenditures
The Company has
expended approximately $224,000 and $300,000 for research and development
activities during the years ended December 31, 2002 and 2001, respectively.
Costs incurred consist primarily of salaries and related costs, and parts,
materials and supplies directly involved in the research and development of new
technology and are expensed as incurred. There are no material research and
development activities that are borne directly by the Company's customers.
Employees
As of March 6,
2003, the Company had nine employees, all of whom are full-time. None of the
employees have employment agreements and none are represented by a collective
bargaining agreement.
Item 2. Description
of Property.
The Company
leases its facilities and does not own any real property. Since January 2000,
the Company has leased its offices and warehouse facility, which together
approximate 5,000 square feet, in Kirkland, Washington. The facilities were
sub-leased through April 2001 and are now subject to a five-year lease
agreement directly with the property owner providing for monthly rentals of
approximately $4,400 and for the Company to pay operating costs, taxes,
insurance and utilities estimated to be approximately $1,100 per month. The
Company leases no other facilities. Company management believes these leased
facilities are adequate for its reasonable foreseeable needs.
Item 3. Legal
Proceedings.
On October 21,
2002, a lawsuit was brought against Universal Ice Blast, Inc. by Systems
Interface, Inc. (“Systems Interface”) one of its vendors, in the King County,
Washington Superior Court. Systems
Interface sought judgment for amounts payable by the Company for goods and
services the plaintiff provided to the Company in 2001. A judgment was entered against the Company
in the amount of $75,454. UIBI has
entered into an agreement with the plaintiff under which the judgment is to be
paid in monthly installments. So long
as the Company makes payments on the obligation as agreed, Systems Interface
has agreed not to undertake efforts to enforce the judgment.
Certain other
vendors of the Company have threatened to bring legal action for payment of
overdue amounts. Two suits have been filed, both of which were settled
subsequent to December 31, 2002 for the amount of the liability recorded by the
Company at December 31, 2002. The Company is working to resolve all other
issues. All reasonable amounts relating
to these past due and disputed liabilities have been accrued in the Company’s
December 31, 2002 financial statements.
Item 4. Submission of
Matters to a Vote of Security Holders.
No matters were submitted during
the fourth quarter of 2002 to a vote of the Company’s shareholders.
PART II
Item 5. Market for
Common Equity and Related Stockholder Matters.
(a) Market information. The Company's
Common Stock (ticker symbol "UIBI") were reported by the NASD
Over-the-Counter Bulletin Board ("OTC/BB") from January 1998 until
May 2000, when its shares were no longer reported due to the Company not being
in compliance with the NASD's new eligibility rule. The new rule, as amended,
requires companies to maintain full-reporting status with the Securities and
Exchange Commission. From May 2000 to September 2001, the Company's Common
Stock was reported on the National Quotation Bureau's electronic pink sheets.
Since September 2001 the Company’s Common Stock has once again been listed on
the OTC/BB.
The following
table presents the high and low sales information of the Company's Common Stock
as reported on the electronic pink sheets prior to September 2001 and on the
electronic bulletin board thereafter.
|
Quarter ended
|
High
|
Low
|
|
March 31, 2001............................................................................................ .
|
$0.23
|
$0.07
|
|
June 30, 2001................................................................................................ .
|
$0.26
|
$0.18
|
|
September 30, 2001..................................................................................... .
|
$0.51
|
$0.13
|
|
December 31, 2001...................................................................................... .
|
$0.45
|
$0.19
|
|
March 31, 2002............................................................................................ .
|
$0.35
|
$0.14
|
|
June 30, 2002................................................................................................ .
|
$0.25
|
$0.14
|
|
September 30, 2002..................................................................................... .
|
$0.28
|
$0.09
|
|
December 31, 2002...................................................................................... .
|
$0.23
|
$0.11
|
(b) Holders. At December 31, 2002, there
were approximately 270 holders of record of the Company's Common Stock.
(c) Dividends. The Company has never
paid dividends on its Common Stock in the past and currently does not
anticipate paying any dividends on its Common Stock in the foreseeable future,
but rather, intends to reinvest earnings, if any, in its business.
(d) Recent Sales of Unregistered Securities
2000
Transactions--
Pursuant to
Regulation S, Rule 901 of the Securities Act, the Company issued 2,357,750
shares of its Common Stock for a total of $388,163 in cash to 30 investors, all
of whom were non-US citizens residing outside of the US.
Under Section
4(2) of the Securities Act, the Company issued 664,000 shares of its Common
Stock for a total of $99,600 in cash to 12 investors, all of whom were
accredited investors and/or prior shareholders of the Company.
Under Section
4(2) of the Securities Act, the Company issued 509,160 shares of its Common
Stock for services rendered and having a fair market value in the amount of
$74,135 to 12 investors. These services consisted of assisting with investor
relations, raising the Corporate profile, Advisory Board consultation, employee
severance packages, inducement for equipment leasing, and manufacturing work
performed for European clients.
Under Section
4(2) of the Securities Act, the Company issued 293,334 shares of its Common
Stock in retirement of indebtedness having a fair market value in the aggregate
amount of $42,000 to 3 investors. The retired indebtedness originally arose in
the ordinary course of business.
2001
Transactions--
Pursuant to
Regulation S, Rule 901 of the Securities Act, the Company issued 1,399,666
shares of its Common Stock for a total of $219,000 in cash to four investors,
all of whom were non-US citizens residing outside of the US.
Under Section
4(2) of the Securities Act, the Company issued 2,771,835 shares of its Common
Stock for a total of $436,950 in cash to 28 investors, all of whom were
accredited investors and/or prior shareholders of the Company.
Under Section
4(2) of the Securities Act, the Company issued 7,850,000 shares of its Common
Stock to officers and employees in exchange for cash of $950, reduction of
advances from officers of $6,900 and full recourse, collateralized loans of
$1,169,650. The loans bear interest at
the rate of 6.5% and are collateralized by a pledge of the shares of the
Company’s Common Stock issued to the officers and employees.
Under Section
4(2) of the Securities Act, the Company issued 246,260 shares of its Common
Stock for services rendered and having a fair market value in the amount of
$44,280 to 3 investors. These services consisted of technical consulting, assistance
with investor relations and manufacturing work.
2002
Transactions--
Pursuant to
Regulation S, Rule 901 of the Securities Act, the Company issued 2,580,500
shares of its Common Stock for a total of $265,701 in cash to 35 investors, all
of whom were non-US citizens residing outside of the US.
Under Section
4(2) of the Securities Act, the Company issued 2,110,666 shares of its Common
Stock for a total of $246,994 in cash to 20 investors, all of whom were
accredited investors and/or prior shareholders of the Company.
Under Section
4(2) of the Securities Act, the Company issued 6,160,437 shares of its Common
Stock for services rendered and having a fair market value in the amount of
$892,914 to 28 investors. These services consisted of technical consulting,
assistance with investor relations and manufacturing work.
Under Section
4(2) of the Securities Act, the Company issued 344,381 shares of its Common
Stock to two lenders in exchange for conversion of notes payable of $35,000 and
accrued interest of $2,771.
(e) Securities Authorized For Issuance Under
Equity Compensation Plans The table
containing the Equity Compensation Plan Information is included in Item 11 of
this Form 10-KSB.
Item 6. Management’s
Discussion and Analysis or Plan of Operation.
Cautionary Statement--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 events, and 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.
Overview
The Company
reports its revenues as sales of machines and accessories, or product sales,
and as services and rental income. Services and rental income includes primarily
cleaning services and income from the renting of equipment to customers who
have not yet purchased Company equipment. Typically, the Company performs
services at customer locations and receives rental income for equipment use and
fees for time incurred. As the cost of monthly rental is significantly less
than the purchase price of a machine, rentals have a much lower customer
pricing hurdle to overcome and accordingly may be closed with a relatively
higher frequency. Further, follow-on rentals are similarly more common and
provide the basis for expectation of future revenues from the same customers.
The Company has customers in industries including precision cleaning
(automotive deburring applications), environmental cleaning (lead paint or
asbestos removal), and industrial cleaning (marine cleaning), which are located
in various locations throughout the United States (including New York, Ohio,
Hawaii and Washington) and the world (including Canada, Holland, Japan and
Australia).
The Company
reports its costs and expenses as cost of revenues, research and development,
selling and marketing, and general and administrative. Research and development
costs consist primarily of compensation and related costs of personnel engaged
in product design and enhancements and patent related costs. Selling and
marketing costs relate to product sales and promotion and costs associated with
responding to requests for proposals, including on-site demonstrations. General
and administrative costs are comprised primarily of compensation and related
expenses, occupancy and professional, legal, and accounting fees.
During 2001 the
Company designed, assembled, and delivered a precision gear cleaning ice blast
system under the terms of a purchase order from Ford Motor Company (“Ford”). The purchase order was for a price of
approximately $341,000 with commitments for additional similar systems. The machine was installed in January 2002
and became operational in March 2002.
In June 2002, Ford notified the Company that Ford has accepted and
approved the gear-cleaning system as Implementation Ready. 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, UIBI recognized approximately $341,000 in revenue during the
yeas ended December 31, 2002. Costs
associated with the system, also recognized during the year ended December 31,
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, the
Company expects that future systems will provide UIBI with margins that will
secure the profitability of the Company in the long term.
In July 2002 the
Company was informed that Ford’s Sharonville, Ohio plant would buy two
additional gear-cleaning systems in 2002. The Company is currently in
discussions with Ford on the status of these purchase orders. In the third quarter of 2002, the gear cleaning
system was required to undergo further operational efficiency testing before
additional equipment would be purchased from the Company. The tests were conducted as a part of Ford’s
Six Sigma quality control process. UIBI
was able to obtain the necessary data to take corrective actions on its
equipment in December 2002 and January 2003.
As of February 2003, these tests produced results that substantially
surpassed Ford’s tolerance requirements.
Results of Operations
Year
ended December 31, 2002 compared to year ended December 31, 2001
During the year
ended December 31, 2002, revenues increased by 140% to $697,000 as compared to
the year ended December 31, 2001. Sales of machines and accessories during the
year ended December 31, 2002 increased to $558,000 from $59,000 during
2001. Service and rental income
decreased 40% to $139,000 during the year ended December 31, 2002 from $231,000
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 $13,000 in
amortization of deferred gains on sale/leaseback transactions originating in
1999. In addition, during the year
ended December 31, 2002, orders were received and assembly completed on three
machines for customers other than Ford.
The Company has recognized revenue of approximately $171,000 on these
orders. 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
increased to $151,000 during the year ended December 31, 2002 as compared to
$134,000 during the prior year. As a percent of sales, gross profit decreased
to 22% during the year ended December 31, 2002 as compared to 46% during 2001.
Gross profits from sales of machines and accessories increased $95,000 to
$130,000 during the year ended December 31, 2002 compared to 2001. Gross profits in 2002 include the sale of
three machines to customers in Canada and 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 one ice blast machine along with the sale of
miscellaneous parts and accessories.
Gross profits from services and rental income decreased to $21,000
during the year ended December 31, 2002 as compared to $99,000 for the
comparable period of 2001. The $78,000 decrease in service and rental gross
profit is the result of decreased volumes, lower rental and service rates
obtained on 2002 work and approximately $76,000 in depreciation expense that
the Company incurs regardless of whether or not any sales are made.
For the year
ended December 31, 2002, general and administrative expense increased 150% to
approximately $1.8 million from $714,000 during the comparable period of 2001.
The Company issued approximately 6.2 million shares and warrants to consultants
with a fair value of approximately $931,000 during the year ended December 31,
2002. The shares and warrants were
issued in exchange for advertising, media relations and publicity services
provided by the consultants. Payroll costs increased approximately $140,000
due, in part, to the appointment of a Chief Engineer and a Production Engineer
and the accrual of officer and employee bonuses. The Company approved the payment of employee and officer bonuses
of approximately $73,000 during the year ended December 31, 2002. These bonuses were approved in order to
allow the employees and officers to settle amounts due to Universal Ice Blast
for interest on shareholder notes payable to the Company for the year ended
December 31, 2002. Travel costs
increased approximately $46,000, while legal fees increased approximately
$35,000 due primarily to the costs associated with the formation of the
Company’s inactive Dutch subsidiary.
Research and
development expenses decreased 25% to $224,000 during the year ended December
31, 2002 as compared to $300,000 during the comparable period of 2001. The
$76,000 decrease in research and development expenses is the result of less
management and consultant time spent on the Ford project, as well as reduced
patent expenses.
Selling and
marketing expenses increased $90,000 to $142,000 during the year ended December
31, 2002 as compared to $52,000 for the comparable prior year period. The increase in selling and marketing
expenses reflects the Company’s recent commitment to broadening its marketing
focus and is attributable to the hiring of a Vice President of Sales &
Marketing in early 2002 as well as the additional sales commissions incurred in
order to settle a dispute with a former sales representative.
The Company’s
operating losses increased by $1,067,000 to $1,998,000 for the year ended
December 31, 2002 from $931,000 for the comparable 2001 period. The $1,070,000 increase in general and
administrative costs and the $90,000 increase in selling and marketing expenses
represent the majority of the increased losses.
During the year
ended December 31, 2002, the Company recorded interest income in the amount of
$76,000 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 approximately $20,000 in interest
income during the year ended December 31, 2001, essentially all of which
related to interest on shareholder notes.
Interest expense
increased by $29,000 to $81,000 during the year ended December 31, 2002 as
compared to $52,000 for 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 $845,000,
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.
The Company
continues to record a valuation allowance for the full amount of its deferred
income tax asset, which would otherwise be recorded for tax benefits relating
to operating losses, as realization of tax deferred assets cannot be determined
to be more likely than not.
Year
ended December 31, 2001 compared to year ended December 31, 2000
Revenues
decreased $148,000, or 34%, to $291,000 during the year ended December 31, 2001
as compared to $439,000 for the prior year. Sales of machines and accessories
decreased 78% to $59,000 in 2001 from $268,000 in 2000, while revenues from
services and rental income increased 36% to $231,000 in 2001 from $171,000 in
2000. The Company sold one machine in 2001 as compared to four in 2000. The
sales decline relates primarily to the concentration of resources on the Ford
Motor Company cleaning system. Revenue
from this project was deferred until final approval from the customer was
obtained. As a result, no revenue has
been included in 2001 apart from $55,000 in engineering fees, which is included
in service and rental income. Revenue from machine sales includes $13,000 from
the amortization of deferred gains on sale and leaseback transactions. Service revenues were $108,000 during 2001
compared to $27,000 during 2000, and rental revenue was $123,000 during 2001
compared to $144,000 during 2000. The increase in service revenue relates
principally to the $55,000 in engineering fees from the Ford contract discussed
above.
Gross profit
decreased less than 1% to $134,000 during the year ended December 31, 2001 as
compared to $135,000 during the prior year. As a percent of sales, gross profit
increased to 46% during 2001 from 31% in 2000. Gross profits from sales of
machines and accessories decreased to $35,000 or 59% of related sales during
2001 from $103,000 in 2000 or 38% of sales. Concentration on the Ford project
reduced sales of machines and accessories which had the effect of reducing
lower margin sales. Gross profits from services and rental income increased to
$99,000 in 2001, or 42% of related sales, from $32,000 in 2000, or 19% of sales
primarily as a result of the Ford engineering fees and a new rental contract
entered into in early 2001.
General and
administrative expenses increased 19% to $714,000 during the year ended
December 31, 2001 as compared to $598,000 during 2000. Employee wages increased
$34,000, however this was offset by a reduction in officers’ deferred
compensation expense of $18,000.
Recruiting costs declined $12,000 and expenses associated with the
Company’s advisory board decreased $27,000.
The costs of SEC filing and reporting increased $21,000 while stock
promotion expenses increased $22,000.
Compensation expense on stock options granted to non-employees increased
$85,000 in 2001.
Research and
development expenses increased 107% to $300,000 during the year ended December
31, 2001 as compared to $145,000 during 2000, primarily due to increased
engineering consulting expenses associated with the development and design of
Ford Motor Company projects.
Selling and
marketing expenses declined 30% to $52,000 during the year ended December 31,
2001 as compared to $75,000 in the prior year due primarily to decreases in
commissions paid, publicity costs, and general marketing expenses.
Operating losses
were $931,000 during the year ended December 31, 2001 as compared to $682,000
during the prior year. With gross profit remaining relatively constant, the
majority of the $249,000 increase in losses relates to the increase of $155,000
in research and development costs, which were primarily related to the Ford
project, and the increase of $85,000 in compensation expense on stock options
granted to non-employees.
Other expense
decreased to $32,000 of net expense during the year ended December 31, 2001
from net expense of $41,000 during 2000. Additions to long-term debt increased
interest expense by approximately $12,000, however, this was more than offset
by approximately $20,000 in interest income from loans made by the Company to
officers and employees to assist them in purchasing the Company's Common Stock.
Financial Condition,
Liquidity and Capital Resources
As of December 31, 2002, the
Company had cash and cash equivalents of $4,000. During the year ended December
31, 2002, operating activities used cash of $463,000 as compared to $676,000
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, such as the issuance of stock in
exchange for goods and services. The
Company used cash of $600 for capital expenditures during the year ended December
31, 2002 as compared to $112,000 for 2001. The Company has no significant
commitments for future purchases of capital assets.
Financing
activities provided cash of $413,000 during the year ended December 31, 2002 as
compared to $777,000 during 2001. Cash has been provided primarily from sale of
Company Common Stock and the issuance of notes payable to lenders. Sales of
Common Stock provided $513,000 and $656,000 during 2002 and 2001, respectively.
Proceeds from the issuance of notes payable were $148,000 in 2002 and $123,000
during the comparable 2001 period. The Company received no financing through
long term debt during 2002 as compared to $137,000 in 2001 Repayments on notes payable were $109,000
in 2002. Payments on capital lease obligations used cash of $64,000 in both
2002 and 2001. Long-term debt repayments were $38,000 in 2002 as compared to
$21,000 in 2001. The Company borrows
and repays, on a revolving basis, cash advances from its two founders and
officers. Repayment of such advances totaled $49,000 and $200,000 in 2002 and
2001, respectively.
The Company had
a working capital deficit of $845,000 and a stockholders’ deficit of $1,039,000
at December 31, 2002. Management's plans for continued existence include a
greater focus towards rental and sale of ice blast machines and less emphasis
on service revenues. 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 previously.
In order to preserve
liquidity, the Company’s two founders and officers have been paid no cash
compensation during the year ended December 31, 2002. Instead, during 2002, as in prior periods, these officers have sold
portions of their personal holdings of the Company’s Common Stock. During the year ended December 31, 2002,
such sales collectively totaled 598,800 shares for the two officers.
The Company is aware of the
consequences of continuing negative cash flows and the impact this has on its
ability to raise cash in the capital market. On November 13, 2002, UIBI entered
into a Common Stock Purchase Agreement with Fusion Capital Fund II, LLC,
pursuant to which Fusion Capital has agreed to purchase, on each trading day,
$10,000 of the Company’s Common Stock up to an aggregate, under certain
conditions, of $6.0 million. The agreement requires that the Company file a
registration covering the shares to be sold before UIBI is able to receive
funds from the sale to Fusion Capital of its Common Stock. In addition, the Company has traditionally
raised equity from its shareholders and is continuing to do so. Notwithstanding
these financing strategies, the Company is aware that it may be unable to
fulfill certain conditions required by financing agreements, and management is
aware that there are challenging market conditions that could deteriorate in
the near term, including the prospect that Ford may not fulfill its obligation
on the previously discussed purchase orders.
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 by operating losses. In the event that the Company is not able to
raise funds as described above, 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. As stated in the foregoing paragraph,
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 Company’s 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, 2002 consolidated financial statements, the foregoing liquidity and
financial conditions raise substantial doubt about the Company's ability to
continue as a going concern.
The Company’s cash balance as
of December 31, 2002 of $4,000 is not sufficient to fund its current
liabilities and planned expenditures for operations through 2003. Consequently,
the Company’s ability to execute its plans for 2003, is dependent on its
ability to obtain funding other than from operations.
Management of the Company
expects that it could require up to $3.5 million in equity and short term
working capital loans over the next three years to fully implement its business
plan, which includes significant marketing efforts, the continued development
of the technologies, expansion of management resources, support of day-to-day
operations and the pursuit of commercialization efforts. The Company believes that the ice blast
technology has achieved a critical economic valuation that allows market
segments to be served through licensing arrangements. This license strategy has the objective of reducing the working
capital requirements of marketing, distribution and manufacture, and providing
the Company with regular ongoing cash flows from licensing revenues.
In the past, the Company has been successful raising money to fund
its operations through the sale of equity securities. However, the Company
cannot provide assurances that the additional capital it may need to finance
its future operations will be available on acceptable terms, if at all. If the
Company is unable to secure financing on acceptable terms, it may be forced to
modify its business plan. In addition, the Company cannot provide assurances
that it will be able to realize revenues from its technologies or that it will
achieve profitability.
Item 7. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
|
Independent
Auditor’s Report........................................................................................................................... .
|
16
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets at December 31, 2002 and 2001...................................................................... .
|
17
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2002 and 2001..................... .
|
18
|
|
|
|
|
|
|
|
Consolidated
Statement of Stockholders’ Deficit for the years ended December 31, 2002 and
2001...... .
|
19
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2002 and 2001.................... .
|
20-21
|
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements................................................................................................... .
|
22-34
|
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION
AND DESCRIPTION OF BUSINESS
Universal Ice
Blast, Inc. (“the Company"), a Nevada corporation, was incorporated on
December 28, 1995. The Company's office is located in Kirkland, Washington.
The Company has developed a
line of machines that utilize ice (plain H\\2\\O) as a blast cleaning/stripping
medium. The Company's patented Ice Blast technology has a wide range of
potential applications in precision cleaning, industrial cleaning and
environmental cleaning.
The Company
rents ice-blasting equipment and performs ice-blasting services for customers
throughout the United States. The Company markets and sells ice-blasting
equipment throughout Asia, Australia, Europe and North America.
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of the Company is presented to
assist in understanding the Company’s financial statements. The financial statements and notes are
representations of the Company’s management, which is responsible for their
integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in the
United States of America and have been consistently applied in the preparation
of the financial statements. Critical
accounting policies include revenue recognition, accounting for research and
development costs, and accounting for stock compensation expense, as well as
preparation of the financial statements on a going concern basis.
Principles of Consolidation
The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary Midwest Ice Blast, Inc. All
significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation
of the 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.
Revenue Recognition
Revenue from the
sale of stand alone Ice Blast machines and accessories to end users and
distributors is recognized at the time goods are shipped or when title passes.
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.
Accounts Receivable
Management
provides for an allowance for uncollectible accounts. At December 31, 2002 and
2001, all accounts were fully collectible and therefore no allowance was
considered necessary.
Inventory
The Company
values its raw materials, work-in-process and finished goods inventories at the
lower of cost or market, on a first in first out basis.
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial
Instruments
The Company's
financial instruments, including cash, cash equivalents, and accounts and notes
payable are carried at cost, which approximates their fair value because of the
short-term maturity of these instruments. Long-term obligations are carried at
cost, which approximates fair value due to the proximity of the implicit rates
of these financial instruments and the prevailing market rates for similar
instruments. Fair value of advances to/from officers and deferred compensation
cannot be reasonably estimated.
Equipment
Equipment is
stated at cost. The Company provides depreciation on the cost of its equipment
using straight-line methods over estimated useful lives of three to five years.
Expenditures for repairs and maintenance are charged to expense as incurred.
Research and Development Costs
Research and
development costs are charged to expense as incurred. These costs primarily
consist of salaries, development materials, consultant fees, supplies and
related costs of personnel directly involved in the research and development of
new technology.
Cash and Cash Equivalents
The Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Advertising
The Company
expenses advertising costs as incurred. Advertising expense charged to
operations was $2,371 and $3,533 for the years ended December 31, 2002 and
2001, respectively.
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.
Risk Concentrations
Financial
instruments that potentially subject the Company to a concentration of credit
risk consist of accounts receivable and cash in excess of federally insured
limits. The Company maintains cash with a major financial institution and is
considered subject to minimal risk. The Company's sales and service revenues
are derived from customers throughout the world. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Historically, the Company has not incurred any significant credit related
losses.
As further
discussed in Note 3, a significant portion of the Company’s recent operations
have involved the design, manufacture and installation of a precision gear
cleaning system for the Ford Motor Company (“Ford”). Approximately 51% and 19% of the Company’s 2002 and 2001
revenues, respectively, related to work performed for Ford.
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Computation of Net Loss per
Share
Basic earnings
per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common
equivalent shares consist of the incremental common shares issuable upon the
exercise of stock options, and warrants and have been excluded from the diluted
net loss per share calculations, as their effect is anti-dilutive.
Shares omitted
from the computation of net loss per share due to their anti-dilutive effect
approximated 1,663,000 and 1,021,000 for the years ended December 31, 2002 and
2001, respectively.
A summary of the shares used to
compute net loss per share is as follows:
|
|
Year Ended December
31,
|
|
|
2002
|
|
2001
|
|
Weighted average common shares used to compute
|
|
|
|
|
Basic net loss per share
|
35,825,664
|
|
24,064,191
|
|
|
|
|
|
|
Effect of dilutive securities
|
-
|
|
-
|
|
Weighted average common shares used to compute
|
|
|
|
|
diluted net loss per share
|
35,825,664
|
|
24,064,191
|
Segment Information
Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments
of an Enterprise and Related Information," establishes annual and interim
reporting standards for an enterprise’s operating segments and related disclosures
about its products, services, geographic areas and major customers. The Company has determined that it operates
in one segment.
The Company
attributes sales to customers in individual foreign countries based on the
location where the product was shipped. Net sales by geographic area for the
years ended December 31, were as follows:
|
|
2002
|
|
2001
|
|
Net sales
|
|
|
|
|
United States
|
$
484,633
|
|
$
283,891
|
|
Canada
|
177,335
|
|
-
|
|
Japan
|
35,210
|
|
1,402
|
|
Australia
|
-
|
|
5,522
|
|
|
$
697,178
|
|
$
290,815
|
Impairment of Long-lived
Assets
The Company
evaluates its long-lived assets for financial impairment and continues to
evaluate them as events or changes in circumstances indicate that the carrying
value of such assets may not be fully recoverable. The carrying value of long-lived assets is considered impaired
when the anticipated undiscounted cash flows from an asset are less than its
carrying value. In that event, a loss
is recognized for the amount by which the carrying value exceeds the fair value
of the long-lived asset. The Company
has not recognized any impairment losses.
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Financing Costs
Direct costs
associated with obtaining capital stock are recorded as a reduction of
proceeds. Direct costs associated with
obtaining debt financing are deferred and charged to interest expense using the
effective interest rate method over the debt term. Direct costs of obtaining commitments for financing are deferred
and charged to expense over the commitment term.
Accounting Pronouncements
In August, 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 143
(SFAS 143) "Accounting for Asset Retirement Obligations" which
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. Statement No. 143 is effective for fiscal
years beginning after June 15, 2002.
The Company does not expect SFAS 143 to have a material impact on its
financial condition and results of operations.
In August 2001, the FASB issued Statement No.
144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). SFAS 144 supersedes Statement 121, "Accounting
for the Impairment of Long-Lived assets and Long-Lived Assets to Be Disposed
Of" and the accounting and reporting provisions of Accounting Principals
Board Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" for the disposal of a
segment of a business. Goodwill is
excluded from the scope of Statement No. 144.
Additionally, Statement No. 144 utilizes a probability-weighted cash
flow estimation approach and establishes a "primary-asset" approach
to determine the cash flow estimation period for a group of assets. Statement No. 144 is effective for fiscal
years beginning after December 15, 2001.
The Company does not expect SFAS 144 to have a material impact on its
financial condition and results of operations.
In April 2002, the FASB issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS 145). This Statement rescinds FASB Statement No.
4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of
that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are
