UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
[X] OF 1934
For the quarterly period ended September 30, 2001
[_] 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 (IRS Employer Identification No.)
of 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 [X] 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: 32,220,195 at October 29, 2001.
Universal Ice Blast, Inc.
Form 10-QSB
Table of Contents
Part I. Item 1. Consolidated Financial Statements (Unaudited).............. 1
Notes to Consolidated Financial Statements......................... 4
Item 2. Management's Discussion and Analysis...................... 9
Part II. Other Information.................................................. 15
Signature Page..................................................... 16
UNIVERSAL ICE BLAST, INC.
CONSOLIDATED BALANCE SHEETS
Sept. 30, 2001 December 31,
(Unaudited) 2000
----------- -----------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 3,899 $ 66,413
Accounts receivable - trade 11,376 39,465
Accounts receivable - related parties -- 28,492
Inventory 34,842 10,943
Prepaid expenses and other 8,173 --
Advances to officers 21,185 --
Interest receivable from shareholders 1,508 --
----------- -----------
Total current assets 80,983 145,313
EQUIPMENT, net 214,334 211,941
OTHER ASSETS 9,377 7,225
----------- -----------
Total assets $ 304,694 $ 364,479
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 192,535 $ 113,916
Accrued liabilities 47,880 53,949
Due to related parties -- 15,658
Advances from officers 60,411 124,601
Current portion of capital lease obligations and long-term debt 90,020 72,655
----------- -----------
Total current liabilities 390,846 380,779
----------- -----------
LONG-TERM LIABILITIES
Capital lease obligations, net of current portion 75,125 101,755
Long-term debt, net of current portion 108,292 80,518
Deferred gains from sale/leasebacks 32,078 41,627
Deferred officers' compensation 188,926 116,262
----------- -----------
Total long-term liabilities 404,421 340,162
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock -- --
Common stock 24,897 20,842
Additional paid-in capital 2,824,072 2,219,907
Shareholder notes receivable (141,550) --
Deferred stock-based compensation -- (4,489)
Accumulated deficit (3,197,992) (2,592,722)
----------- -----------
Total stockholders' deficit (490,573) (356,462)
----------- -----------
$ 304,694 $ 364,479
=========== ===========
The notes to the financial statements are
an integral part of these financial statements.
1
UNIVERSAL ICE BLAST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
------------------------ ------------------------
REVENUE
Sales of machines and accessories $ 42,073 $ 14,349 $ 52,386 $ 142,043
Service and rental income 44,560 54,023 165,680 93,874
---------- ---------- ---------- ----------
86,633 68,372 218,066 235,917
---------- ---------- ---------- ----------
COST OF REVENUE
Machines and accessories 21,695 14,888 22,809 95,897
Service and rental 47,018 41,542 102,178 92,601
---------- ---------- ---------- ----------
68,713 56,430 124,987 188,498
---------- ---------- ---------- ----------
GROSS PROFIT 17,920 11,942 93,079 47,419
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and administrative 136,879 141,973 444,603 419,480
Research and development 91,036 45,283 186,967 117,702
Selling and marketing 8,056 11,705 34,305 59,861
---------- ---------- ---------- ----------
235,971 198,961 665,875 597,043
---------- ---------- ---------- ----------
OPERATING LOSS (218,051) (187,019) (572,796) (549,624)
INTEREST INCOME 1,734 - 1,734 -
INTEREST EXPENSE (14,903) (8,958) (34,208) (29,316)
---------- ---------- ---------- ----------
NET LOSS $ (231,220) $ (195,977) $ (605,270) $ (578,940)
========== ========== ========== ==========
BASIC AND DILUTED NET LOSS PER SHARE $(0.01) $(0.01) $ (0.03) $ (0.03)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING USED IN
BASIC AND DILUTED PER-SHARE CALCULATION 24,019,684 20,215,851 22,514,157 19,243,081
========== ========== ========== ==========
The notes to the financial statements are an integral part
of these financial statements.
2
UNIVERSAL ICE BLAST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(605,270) $(578,940)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization 68,694 61,796
Common stock issued for goods and services 23,370 44,925
Amortization of deferred stock-based compensation 4,489 18,413
Amortization of deferred gain on sale/leaseback transactions (9,549) (9,548)
Changes in operating assets and liabilities
Accounts receivable - trade 28,089 (32,695)
Accounts receivable - related parties (7,039) 13,822
Inventory (23,899) 10,009
Prepaid expenses and other (10,325) (1,429)
Interest receivable from shareholders (1,508) --
Accounts payable 78,619 68,996
Accrued liabilities (6,069) 11,444
Due to related parties (50) 1,609
Deferred officers' compensation 72,664 72,660
Customer deposits -- (30,000)
--------- ---------
Net cash used in operating activities (387,784) (348,938)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (22,565) (4,372)
--------- ---------
Net cash used in investing activities (22,565) (4,372)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt borrowing 49,500 --
Payments on capital lease obligations (45,801) (38,919)
Payments on long-term debt (13,789) --
Proceeds from issuance of common stock 443,300 415,801
Advances from officers 13,950 96,006
Payments on advances from officers (99,325) (68,855)
Payments of notes payable -- (51,000)
--------- ---------
Net cash provided by financing activities 347,835 353,033
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (62,514) (277)
CASH AND CASH EQUIVALENTS
Beginning of period 66,413 3,161
--------- ---------
End of period $ 3,899 $ 2,884
========= =========
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Full recourse notes issued to officer and employees upon
exercise of vested stock options $ 141,550 $ --
========= =========
Acquisition of equipment from related party in exchange for assumption
of capital lease obligation and settlement of indebtedness $ 48,522 $ --
========= =========
Common stock issued in settlement of notes payable $ -- $ 42,000
========= =========
CASH PAID FOR INTEREST $ 30,603 $ 32,005
========= =========
The notes to the financial statements are
an integral part of these financial statements.
3
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation of Unaudited Interim Financial Information
The accompanying unaudited, condensed financial statements and related
notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to such rules and regulations. The accompanying
financial statements should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto for the year ended
December 31, 2000, included in the Company's Registration Statement on Form
10-SB as amended.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented. The results of
operations for the fiscal 2001 interim periods may not be 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 reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 3 - Going Concern
The accompanying consolidated, interim financial statements and related
notes have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business for the foreseeable future. However, our independent
auditors in their report accompanying our audited consolidated financial
statements for 2000 stated that we have a working capital deficit and have
suffered recurring losses from operations which raise substantial doubt about
our ability to continue as a going concern. Since its inception in 1995, the
Company has accumulated losses aggregating $3,197,992 including a loss of
$605,270 for the nine-month period ended September 30, 2001. The ability of the
Company to continue as a going concern is dependent upon achieving profitable
operations and upon obtaining additional financing of working capital. No
assurances can be given that the Company will be successful in raising
sufficient additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will achieve
positive cash flow. If the Company is unable to obtain adequate additional
financing and ultimately achieve positive cash flow, management will be required
to sharply curtail the Company's operating expenses. These financial statements
do not include any adjustments to the specific amounts and classifications of
assets and liabilities, which might be necessary should the Company be unable to
continue in business.
4
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed based upon net earnings
(loss) divided by the weighted average number of common shares outstanding
during each period. Diluted earnings (loss) per common share is computed based
upon net earnings (loss) divided by the weighted average number of common shares
outstanding during each period adjusted for the effect of dilutive potential
common shares calculated using the treasury stock method. The basic and diluted
earnings (loss) per common share are the same since the Company had a net loss
for all periods reported and the inclusion of outstanding stock options would be
anti-dilutive.
Note 5 - Inventory
The Company values its raw materials and parts, work-in-progress and
finished good inventories at the lower of cost or market, first-in first-out
basis. At September 30, 2001 inventory consisted of $13,956 in raw materials and
parts and $20,886 of work-in-progress.
Note 6 - Common Stock
During the nine months ended September 30, 2001 the Company issued
2,950,002 shares of common stock through private placements under Section 4(2)
of the Securities Act in the aggregate amount of $442,350 to 32 investors, all
of who 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 155,800 shares of common stock to 2 investors for goods and services
having a fair market value of $23,370. Also during the third quarter, the
Company issued 950,000 shares of common stock, in exchange for $950 in cash and
$141,550 of full recourse notes receivable, to an Officer and other Employees of
the Company upon exercise of fully vested stock options. All common shares
issued above are restricted subject to Rule 144.
5
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Stock Option Plan
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, 2000 options outstanding, all of which were
non-statutory, totaled 2,897,709. In the quarter ended September 30, 2001,
Messer's Clarke and Visaisouk forfeited 2,000,000 and surrendered 400,000 fully
vested stock options having exercise prices of $0.001 and $0.35 respectively
(see Note 13). Also during the third quarter of 2001, Employees of the Company
surrendered 125,000 and 100,000 fully vested stock options having exercise
prices of $0.15 and $0.35 respectively in exchange for new fully vested options
having an exercise price of $0.15.
Additionally, during the quarter ended September 30, 2001, the Company
authorized and granted an additional 725,000 stock options to an Officer and
other Employees. All 950,000 options granted were concurrently exercised on the
date of the grant (see Note 6). Also during the third quarter of 2001 the
Company granted 90,000 fully vested, stock options to three existing
shareholders as incentives for additional stock purchases. Issuance of all such
options were non-statutory in nature, issued at the market price of the stock on
the date of the grant (which ranged from $0.15 to $0.25), and had terms ranging
from 2 - 5 years. As of September 30, 2001 outstanding stock options totaled
362,709.
Note 8 - Shareholder Notes Receivable
The Board of Directors has approved and the Company has made loans to an Officer
and Employees to assist them in purchasing the Company's common stock through
exercise of fully vested, non-qualified stock options. These loans bear interest
at the rate of 6.5%, are full recourse, and are collateralized by a pledge of
the shares of the Company's common stock subscribed to and acquired pursuant to
exercise of the options. In connection with these notes, the Company has
retained as collateral, a security interest in 950,000 of common stock issued.
The principal is repayable five years from the date of the loans, with interest
only payments required annually on or before December 31.
The Shareholder notes receivable of $141,550 are reflected on the accompanying
consolidated balance sheet as a reduction in stockholders' equity.
6
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Related Party Transactions
In July of 2001, the Company acquired an MX90 ice blast machine from a
related party, Ice Blast Service Company (IBSC), in exchange for the assumption
of a capital lease in the amount of $28,599 and by deemed settlements of a
$35,531 receivable from IBSC and a $15,608 payable to Ice Blast West, Inc.
(IBW). The purchase price was below what an unrelated third party would have
been charged.
Note 10 - Segment Information
The Company operates in one segment. At September 30, 2001 all identifiable
assets were located within the United States. 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 nine months ended
September 30, were as follows:
2001 2000
-------- --------
Net Sales
United States..... $205,825 $130,604
The Netherlands... -- 46,000
Australia......... 5,521 54,818
Japan............. 6,719 4,495
-------- --------
$218,065 $235,917
======== ========
Note 11 - Contract with the Ford Motor Company
In July of 2001 the Company received its first purchase order from the Ford
Motor Company for a precision cleaning, ice blast system to be installed in the
production line of Ford's Sharonville, Ohio transmission gear facility. The
purchase order is for the design, manufacture, and installation of one ice blast
cleaning station for a price of $227,000 with commitments for an additional
eight similar systems. Ford's commitments will be automatically triggered upon
Ford's acceptance of the first system, which is required within 90 days of
installation. The Company commenced manufacture of the system in August, and
will pre-test it at the Company's Kirkland, Washington facility for at least 20
days prior to shipment and installation at Ford during late December 2001. The
Company expects that no revenue from the Ford system will be reported before the
first quarter of 2002 with the exception of $54,700 of engineering design fees,
that are in addition to the price of the system and which have been billed in
October 2001.
7
UNIVERSAL ICE BLAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12 - Management's Plans
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. As a consequence, the Company
is continuing to seek convertible debt and/or equity financing as well as the
placement of a credit facility to fund the Company's immediate liquidity needs.
During the quarter ended September 30, 2001, the Company raised working capital
of $194,650 and has subsequently raised an additional $84,500 through the sale
of its common stock to accredited investors. Additionally, in October the
Company borrowed $49,500 on a five-year note secured by equipment. Management is
currently negotiating with various individuals and organizations in order to
obtain the working capital necessary to meet existing and future obligations and
commitments, however there can be no assurance that the Company will be able to
raise additional capital on satisfactory terms or at all.
Note 13 - Subsequent Events
During October of 2001, the Company issued a total 6,900,000 shares of its
common stock, at $0.15 per share, equally to Messer's Clarke and Visaisouk both
of whom are Officers and Directors, as well as accredited investors, in exchange
for $6,900 in cash and $1,028,100 of full recourse notes receivable. The
shareholder notes will be reflected in the consolidated balance sheet at
year-end as a reduction in stockholders' equity. The amount of compensation, if
any, has not yet been determined and is subject to future analysis, giving
consideration to different restrictions regarding affiliates (Officers) as
compared to other shareholders, imperfect trading of the Company's common stock
while on the Pink Sheets, and various other factors. Any compensation so
determined will be reported in the fourth quarter of the year ending 2001.
8
Item 2. Management's Discussion and Analysis
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 further subject to certain risks
and uncertainties, such as the impact of competition and pricing, changing
market conditions, general economic conditions, and other risks as more fully
disclosed as Risk Factors in the Company's Registration Statement on Form 10-SB
as amended. 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 and
as services and rental income. Services and rental income includes primarily
engineering services and income from the renting of equipment to customers who
have not yet purchased Company equipment or only have a limited use of such
equipment. Typically, the Company performs setup and training services at
customer locations and receives rental income for equipment use and fees for
time incurred. The Company has experienced growth in the rental aspect of its
business. As the cost of monthly rental is significantly less than the purchase
price of a machine, rental "sales" have a much lower customer-pricing hurdle to
overcome and accordingly are closed with a relatively higher frequency. Further,
follow-on "sales" of 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 and
cleaning applications), environmental cleaning (lead based paint or asbestos
removal and abatement), and industrial cleaning (marine, aircraft, and general
equipment 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 and consultants 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.
Company History
Since its inception in 1995, the Company has been primarily engaged in
technology and market research for the Company's products on specific
applications and development of machines tailored for those applications. In
addition to sales of machines and sales of cleaning services and machine
rentals, the Company has also been involved with development and installation of
cleaning stations in automotive and other factory assembly line applications,
which require "precision cleaning" within defined tolerances and other quality
assurance measures. In this regard, the Company has submitted several proposals
to two of the major US automotive manufacturers for factory cleaning systems, or
stations. The proposed systems, while centered on the Company's ice blast
technology, also include other "assembly line" or "conveyor belt" components and
housings, which the Company will outsource.
In July of 2001 the Company received its first purchase order from Ford
Motor Company and has been advised that upon successful implementation and
acceptance of the first system, orders for eight additional systems from Ford
can be expected. The Company is extremely confident that this first machine will
stand up to the rigors of the production line at the Ford factory. Further, the
Company has been given to
9
understand that its blast technology will become a new standard by which Ford
cleans gears used in transmissions.
The Company has commenced manufacture of the system and expects to begin
pre-testing it in late November prior to shipment and installation at Ford in
late December 2001. With the exception of $55,000 for engineering design, billed
in October of 2001, the Company anticipates that no revenue resulting from the
system itself will be reported until the first quarter of 2002. Each system has
an approximate sales price of $227,000.
The success of achieving approval from Ford has had both a short and long
term impact on the Company. In the short term an additional burden has been
placed on both the Company's liquidity and Engineering staff. The estimated
additional cash required for the initial order is approximately $350,000 which
includes materials, consulting design engineers, and direct labor. Through the
end of the third quarter expenditures related to the Ford system totaled
$107,000 and outstanding non-invoiced purchase orders totaled $119,000. Of these
amounts, $95,000 is related to R&D with the balance related to the physical
system. The Company does not expect to achieve its projected margins on the
first 3 ice blast systems because of the initial design costs associated with
the project. However, Management fully expects that future systems will provide
the Company with margins that will secure the profitability of the Company in
the long term.
The Company has also recently submitted a proposal for the rental of four
ice blast machines to be used for asbestos abatement of a 1.5 million square
foot building. The project is expected to take five months and if the proposal
is accepted will generate $136,000 of rental income.
Results of Operations
The following discussion and analysis of operations for the nine months
ended September 30, 2001 and 2000 and the three months ended September 31, 2001
and 2000 is based on the Company's unaudited, internally prepared, consolidated
and condensed interim financial statements. In the opinion of the Management,
all adjustments necessary for fair representation have been included.
Additionally, the following discussion and analysis should be read in
conjunction with the Company's audited consolidated financial statements and
related notes, included in the Company's Form 10-SB Registration Statement, as
amended, for the years ended December 31, 2000 and 1999.
Three months ended September 30, 2001 compared to three months ended September
30, 2000
During the three months ended September 30, 2001, revenues increased by 28%
to $87,000 as compared to the three months ended September 30, 2000. Third
quarter 2001 sales of machines and accessories increased 200% to $42,000 from
$14,000 during the comparable three month period of 2000, while service and
rental income decreased 17% to $45,000 during the three months ended September
30, 2001 from $54,000 during the comparable period of 2000. The reason for the
increase in machine and accessories is primarily the result of the sale of an
older model A-210 machine during the three months ended September 30, 2001,
whereas the Company recorded no machine sales during the comparable period of
2000. The decrease in service and rental income is attributable to two large
service jobs performed during 2000 as well as the Company's focus on design and
construction of the Ford system during 2001at the expense of potential rental
opportunities.
Gross profit increased to $18,000 during the three months ended September
30, 2001 as compared to $12,000 during the comparable period of the prior year.
As a percent of sales, gross profit increased to 21% during the three months
ended September 30, 2001 as compared to 18% during the comparable period of
2000. Gross profits from sales of machines and accessories increased to $20,000
during the first three months of 2001 from a negative $1,000 during the three
months ended September 30, 2000, due primarily to no machine sales during the
three months ended September 30, 2000. Gross profits from services and rental
income resulted in a loss of $2,000 during the three months ended September 30,
2001 as compared to a profit of $12,000 for the comparable period of 2000. The
$14,000 decrease in service and rental gross
10
profit is the result of a combination of a reduction of revenue as explained
above accompanied by increased depreciation and labor during the third quarter
of 2001.
For the three months ended September 30, 2001, general and administrative
expense decreased 4% to $137,000 from $142,000 during the comparable period of
2000. The $5,000 decrease is primarily the result of a $14,000 decrease in
professional fees offset by an increase of $5,000 in payroll related expenses
and an increase of $4,000 in general office expenses.
Research and development expenses increased 102% to $91,000 during the
three months ended September 30, 2001 as compared to $45,000 during the
comparable period of 2000. The $46,000 increase in research and development
expenses is the result of increases of $21,000 in patent related costs and
$32,000 in engineering consulting costs. These increases were offset by
reductions of $3,000 in experimental parts and $4,000 in labor expenses. Of the
total, Ford related R&D totaled $59,000 during the quarter ended September 30,
2001. The Company expects to incur additional R&D costs in connection with the
Ford project throughout the manufacturing process, as new engineering and
operational issues arise. The actual amount of such costs, while expected to be
significant, cannot be determined at this time. All costs of engineering
consulting and prototype development related to the Ford project are being
expensed as research and development costs.
Selling and marketing expenses decreased $4,000 to $8,000 during the three
months ended September 30, 2001 as compared to $12,000 for the comparable prior
year period. The reduction in selling and marketing expenses is attributable to
reduced travel and related costs as the Company's management focused more on
development of the Ford project during 2001 and less on developing machine sales
to other market segments.
Although gross profit increased $6,000 during the three months ended
September 30, 2001 as compared to the comparable three months of the prior year,
increased operating expenses of $37,000, largely related to the Ford project,
resulted in a increased operating loss of $31,000 during 2001 as compared to
2000. Management anticipates incurring additional future operating losses
through the remainder of 2001.
During the quarter ended September 30, 2001, the Company recorded interest
income in the amount of $1,700 in connection with Shareholder notes receivable
in the aggregate amount of $141,550 and Advances to officers in the amount of
$21,000. The Shareholder notes receivable resulted from the Company's issuance
of common stock to an Officer and Employees as fully described in Notes 6, 7,
and 8 of the accompanying unaudited financial statements. The Company reported
no interest income during 2000.
Interest expense increased by 67% to $15,000 during the three months ended
September 30, 2001 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 which
the company incurred in late 2000 and early 2001. As a result of the Company's
working capital deficit of $292,000, interim financing necessary to complete the
manufacture of the first Ford precision 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.
Nine months ended September 30, 2001 compared to nine months ended September 30,
2000
Revenues decreased $18,000, or 8%, during the nine months ended September
30, 2001 as compared to the nine months of the prior year. Sales of machines and
accessories decreased 63% to $52,000 during the nine months ended September 30,
2001 from $142,000 during the comparable period of 2000, and revenues from
services and rental income increased 77% to $166,000 during the nine months
ended September 30, 2001 from $94,000 during the comparable period of 2000. The
decline in machines and accessories revenue of $90,000 is the result of one
discounted older model machine being sold during the nine months ended September
30, 2001, whereas the comparable period of 2000 included 2 full price new
11
machine sales. The increase of $72,000 in service and rental income during the
nine months ended September 30, 2001 over the comparable period of 2000 is
primarily the result of the Company's continuing effort to promote and increase
the rental and/or lease of its ice blast equipment. As part of rental and
service income for the nine months ended September 30, 2001, the Company
recorded $15,000 of revenue in connection with engineering services for the
conceptual design of a precision, ice blast cleaning system for the General
Motors, Saginaw Metal Casting Operations Plant. Management remains confident
that a future order(s) will be forthcoming.
Gross profit increased 98% to $93,000 during the nine months ended
September 30, 2001 as compared to $47,000 during the comparable period of the
prior year. As a percent of sales, gross profit increased to 43% during the nine
months ended September 30, 2001 as compared to 20% during the comparable period
of 2000. Gross profits from sales of machines and accessories declined to
$29,000 during the first nine months of 2001 from $46,000 during the nine months
ended September 30, 2000, due primarily to fewer machine sales during the nine
months ended September 30, 2001. Gross profits from services and rental income
increased to $64,000 (39% of sales) during the nine months ended September 30,
2001 as compared to $1,000 (1% of sales) for the comparable period of 2000. The
principal reason for the increase in service and rental income is the result of
two rental/lease contracts of extended duration during the nine months ended
September 30, 2001. These two contracts accounted for $71,000 or 43% of total
service and rental income and required considerably less attention and expense
than single month rentals, which comprised the majority of rental income during
the nine months ended September 30, 2000. Additionally, the Company provided
engineering services to General Motors that resulted in revenue of $15,000
during the nine months ended September 30, 2001, and no engineering services
were billed during the comparable period of 2000. During October of 2001, the
Company invoiced $55,000 to Ford for engineering design services related to the
precision cleaning system being manufactured. The $55,000 of revenue will be
recognized in the fourth quarter of 2001.
During the nine months ended September 30, 2001, general and administrative
expenses increased 6% to $445,000 as compared to $419,000 during the comparable
period of 2000. The $26,000 increase in cost was comprised of a $16,000 increase
in payroll related expense, a $4,000 increase in professional fees, and a
$17,000 increase in public and shareholder relations expenses. These increases
were offset by a reduction of $11,000 in various general office expenses.
Research and development expenses increased 58% to $187,000 during the nine
months ended September 30, 2001 as compared to $118,000 during the comparable
period of 2000. The $69,000 increase in research and development expenses is
primarily the result of costs associated with the design and prototype,
precision cleaning system being developed for Ford. R&D costs related to the
Ford project totaled $81,000 during the first nine months of 2001. Of that
total, $49,000 was for consulting engineering, $23,000 was for labor and the
$9,000 balance was for experimental parts and related supplies. In addition to
increases related to the Ford project during the first three quarters of 2001,
the Company also incurred an increase of $21,000 in expenses associated with
filing and perfecting new patents. The Company expects to incur additional R&D
costs in connection with the Ford project throughout the actual manufacturing
process. The actual amount of such costs, while expected to be significant,
cannot be determined at this time. All costs of engineering consulting and
prototype development related to the Ford project is being expensed as research
and development costs.
In connection with the planned increase in business activity and to reduce
future expenses of consulting engineers, the Company recently hired Mr. Mark
Maier P.E. as Senior Engineering Manager. Mr. Maier brings over twenty years of
diversified machine design experience, covering mobile equipment and specialized
automated machines to the Company and will be responsible for all the
engineering functions of UIBI, as well as the ongoing program to expand,
establish and protect the company's current technology with future patents.
Selling and marketing expenses decreased $26,000 to $34,000 during the nine
months ended September 30, 2001 as compared to $60,000 for the comparable prior
year period. The reduction in selling and marketing expenses is attributable to
reduced travel and related costs as the Company's management focused more on
development of the Ford project during the first nine months of 2001 and less on
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developing machine sales to other market segments. With the receipt of its first
purchase order from Ford, followed by subsequent orders for similar precision
cleaning systems, management anticipates that it will be able to expend more
time and resources on developing machine sales in other market segments. The
Company previously reported that the Company's President, Mr. Sam Visaisouk,
Ph.D., would be relocating to Detroit, Michigan. This is no longer the case and
Mr. Visaisouk will continue his duties from the home office, making numerous
business trips to the Detroit area to further promote the Company's ice blast
technology throughout the U.S. automotive industry. As the result of Mr.
Visaisouk's most recent trip to the Ford transmission plant in Sharonville,
Ohio, the Company has been asked by Ford to submit a proposal for deburring
transmission cases using ice blast technology.
While gross profit increased $46,000 during the nine months ended September
30, 2001 as compared to the comparable nine months of the prior year, increased
operating expenses of $69,000 resulted in an increased operating loss of $23,000
during 2001 as compared to 2000. Management anticipates incurring additional
future operating losses through the remainder of 2001.
During the quarter ended September 30, 2001, the Board of Directors
authorized the Company to make loans to an Officer and employees in order to
assist them in exercising non-qualified stock options as more fully described in
Note 8 to the accompanying unaudited financial statements. In connection with
these loans, the Company has accrued interest income of $1,500 during the third
quarter of 2001. Quarterly interest on the notes is $2,300 and must be paid by
the borrowers annually on December 31.
Interest expense increased by $5,000 to $34,000 during the nine months
ended September 30, 2001 due primarily to increased long- term debt incurred in
late 2000 and early 2001. As a result of the Company's working capital deficit
of $292,000, interim financing necessary to complete the manufacture of the
first Ford precision 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 such deferred assets
cannot be determined to be more likely than not.
Financial Condition, Liquidity and Capital Resources
As of September 30, 2001, the Company had a working capital deficit of
$310,000. 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. Additionally, the Company has incurred net losses since inception,
including net losses of $723,000, $761,000 and $605,000 during 2000, 1999 and
the nine months ended September 30, 2001 respectively, and anticipates reporting
net losses in the future, at least through 2001. The Company has historically
funded its operations and business development primarily through the sale of
unregistered shares of its Common Stock. However, the Company is subject to the
risks and challenges associated with other companies at a similar stage of
development, including dependence on key individuals, successful development and
marketing of its products and services, competition from alternative products
and services and larger companies with greater financial and other resources,
and raising of sufficient funds to further develop the Company's products,
markets and business. While the Company has raised sufficient working capital in
the past, market conditions are ever changing, and there can be no assurance
that the Company will be able to obtain additional financing.
Consequently, the Company continues to seek convertible debt and/or
additional equity financing as well as the placement of a credit facility, in
the aggregate amount of at least $500,000, to fund the Company's immediate
liquidity needs including the initial Ford project. During the quarter ended
September 30, 2001, the Company raised working capital of $195,000 and in
October has subsequently
13
raised an additional $85,000 through the sale of its common stock to accredited
investors. Additionally, in October the Company borrowed $49,500 on a five-year
note secured by equipment.
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. However,
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.
As disclosed in Note 3 to the unaudited consolidated financial statements
for the nine months ended September 30, 2001, the foregoing liquidity and
financial conditions raise substantial doubt about the Company's ability to
continue as a going concern.
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PART II -- OTHER INFORMATION
Item 1. Not applicable
Item 2. See Note 6 - Common Stock, in notes to financial statements
See Note 7 - Stock Option Plan, in notes to financial statements
See Note 8 - Shareholder Notes Receivable, in notes to financial
statements
See Note 13 - Subsequent Events
Item 3. Not applicable
Item 4. None
Item 5. See Note 11 - Contract with the Ford Motor Company, in notes to
financial Statements
See Note 13 - Subsequent Events
Item 6. None
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Signatures
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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.
Ernie Dantini Jr. CPA, CFO
----------------------------------------
(Registrant)
Date November 12, 2001 /s/ Ernie Dantini Jr. CPA, CFO
----------------------------- ----------------------------------------
(Signature)*
Date
----------------------------- ----------------------------------------
(Signature)*
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* Print the name and title of each signing officer under his signatures.
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