U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
OMB Approval Expires: Approval Pending
OMB Number: xxxx-xxxx Estimated Average Burden Hours
Per Response: 1.0
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended October 31, 1997
ransition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to .
Commission file number 0-23356
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
(Name of Small Business Issuer in
Its Charter)
Utah
87-0421089 .
(State or Other Jurisdiction of Incorporation or Organization)
IRS Employer Identification
3800 Hudson Bend Road, Ste. 300, Austin, Texas
78734 .
(Address of Principal Executive Offices)
(Zip Code)
512-266-2481 .
(Issuer's Telephone Number, Including
Area Code)
_____________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No .
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 12, 13 or
15(d) of the Exchange Act after the distribution of securities under a plan
confirmed by a court.
Yes__________ No___________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest
practicable date:
October 31, 1997----5,968,218 ($0.001 par value) common shares
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
For the Nine Months Ended
October 31, 1997 and 1996
(Unaudited)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
October 31, 1997 and January 31, 1997
(unaudited)
ASSETS
<TABLE>
<S> <C> <C> <C>
October 31,
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1997 1997
CURRENT ASSETS
</TABLE>
<TABLE> <S> <C> <C><C>
Cash $ 159,358 $ 1,078
Accounts receivable (Note 1)
Trade 44,706 18,144
Other -0- -0-
Prepaid expenses (Note 1) 64,583 57,208
Inventory (Note 1) 89,970 99,952
Total Current Assets 358,617 176,382
PROPERTY AND EQUIPMENT (Note 7) 302,954 214,598
OTHER ASSETS
Mining claims (Note 8) 5,081,669 5,081,669
Notes receivable (Note 5) 5,000 5,000
Business development costs (Note 1) -0- -0-
Product tradenames (Note 9) -0- -0-
Total Other Assets 5,086,669 5,086,669
$ 5,748,240 $ 5,477,649
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
October 31, 1997 and January 31, 1997
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
October 31,
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1997 1997
CURRENT LIABILITIES
</TABLE>
<TABLE>
<S> <C> <C><C>
Accounts payable and accrued expenses $ 10,625$ 49,119
Current portion of note payable - 202,385 202,385
related party (Note 10)
Note payable (Note 11) 125,000 125,000
Total Current Liabilities 338,010 376,504
LONG-TERM DEBT
Notes payable-related party-less current -0- -0-
portion (Note 10)
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
5,968,218 and 5,017,354 shares issued
and outstanding, respectively 5,969 5,361
Capital in excess of par value 7,953,935 7,270,816
Deficit accumulated during the
development stage (2,549,674) (2,175,032)
Total Stockholders' Equity 5,410,230 5,101,145
$ 5,748,240 $ 5,477,649
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
October 31, 1997 and 1996
(unaudited)
<TABLE>
<S> <C> <C><C> <C><C> <C><C> <C><C>
From Inception
Nine Months Ended Nine Three Months EndedThree Months
Ended(February 9, 1997)
Oct. Months Oct. Oct. 31, 1996 to Oct.
31, 1997 Ended 31, 1997 31, 1997
Oct.
31, 1996
REVENUES
Net sales $ $ $ $ $
45,250 56,147 13,322 284,906
8,796
Cost of goods sold 40,359 39,597 8,804 3,178 193,049
Gross Profit 4,891 16,550 (8) 10,144 91,857
EXPENSES
General and administrative 365,941 289,944 128,288 135,975 2,554,481
Depreciation 13,592 14,342 6,198 3,697 84,603
and amortization
Total expenses 379,533 304,286 134,486 139,672 2,639,084
Net loss before provisionfor income taxes
(374,642) (287,736) (134,494) (129,528) (2,547,227)
Provision for -0- -0- -0- -0- 2,447
income taxes
Net loss $ (287,736)$ (134,494)$ (129,528)$ (2,549,674)
(374,642)
Weighted average $ $ $ $ $
loss per share (.06) (.06) (.03) (1.27)
(.02)
Average shares outstanding5,968,2185,220,6475,968,218 5,040,855 2,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
From Inception on February 9, 1984 to October 31, 1997
(unaudited)
Deficit
Accumulated
Additional
During the
Common Stock Paid-in Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Balance at Inception-February 9, 1984 - $ - $ - $ -
Issuance of common stock for cash 37,500 38 962 -
(Note 3)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Expenses paid by shareholders for the
years ended January 31, 1990 - - 518 -
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the years ended January - - - (1,618)
31, 1990
Balance, January 31, 1990 37,500 $ $ 1,480 $(1,618)
38
Issuance of common stock for services 391,000 391 7,429 -
rendered in August 1990
Issuance of common stock in September
1990 for various 50,000 50 198,890 -
assets from Austin-Young, Inc. (Note 5)
Issuance of common stock for
distribution licenses from Global
Environmental Industries (GEI) for UT 50,000 50 37,070 -
& WA, September
1990 (Note 3)
Contribution from Austin-Young, Inc. - - 13,500 -
Issuance of common stock for services 12,500 12 37,488 -
rendered in October
1990
Net loss for the year ended January - - - (57,756)
31, 1 991
Balance, January 31, 1991 541,000 541$295,857 $(59,374)
Common stock returned in exchange for
common stock of GEI in March 1991 (17,000) (17) (85,423) -
(Note 5)
Repurchase of common stock from
Austin-Young, Inc. in (338,000) (338) (64,682) -
May 1991 (Note 5)
Cancellation of common shares (20,000) (20) 20 -
Issuance of common stock for the
purchase of product from 10,000 10 74,990 -
Steelhead Specialty Minerals in August
1991 (Note 6)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to October 31, 1997
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for the
purchase of mining claims in 13,214 13 184,987 -
October 1991 (Note 8)
Common stock canceled by (20,000) (20) 20 -
officers/directors in January 1992
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Contribution from Austin-Young, Inc. - - 17,000 -
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the year ended January 31, 1992 - - - (93,315)
Balance, January 31, 1992 169,214 $ 169$ 422,769$(152,689)
Issuance of common stock for the
acquisition of Geo- 701,800 702 96,442 -
Environment Services, Inc. in February
1992 (Note 5)
Issuance of common stock for the
purchase of mining claims 243,000 243 4,859,757 -
in March 1992 (Note 5)
Common stock canceled by officers and
directors in June 1992 (32,430) (32) 32 -
(Note 6)
Cancellation of fractional shares
due to reverse stock split (21) - - -
Contribution by Austin-Young, Inc. - - 10,000 -
Issuance of common stock (pursuant to a
repurchase agreement
in May, 1991) to Austin-Young, Inc. for 3,380,000 3,380 61,620 -
relief of debt in July
1992 (Note 5)
Net loss for the year ended January 31, 1993 - - - (136,304)
Balance, January 31, 1993 4,461,563$ 4,462 5,450,620$(288,993)
Issuance of common stock for services
rendered in June 1993 17,800 18 26,682 -
(Note 6)
Issuance of common stock to
Austin-Young, Inc. in June 1993 12,000 12 35,988 -
(Note 5)
Issuance of common stock for cash 66,667 67 199,936 -
October 1993 (Note 12)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to October 31, 1997
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock as down
payment on building 6,000 6 29,994 -
October 1993 (Note 5)
Issuance of common stock for services
rendered October 1993 17,000 17 50,983 -
(Note 6)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for cash 80,072 80 191,321 -
December 1993 (Note 12)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (310,862)
31, 1994
Balance, January 31, 1994 4,661,102 $ 4,662 $ 6,021,524$ (599,855)
Issuance of common stock for services
rendered February 6,000 6 29,994 -
1994
(Note 6)
Issuance of common stock for services
rendered in June 1994 (Note 6) 41,750 42 175,458 -
Issuance of common stock in a private offering 22,500 22 89,978 -
Issuance of common stock for services
rendered in November 15,000 15 46,235 -
1994 (Note 6)
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (709,048)
31, 1995
Balance, January 31, 1995 4,746,352 $ 4,747 $ 6,399,189$(1,308,903)
Issuance of common stock for services 9,000 9 22,391 -
(Note 6)
Issuance of common stock in a private 214,168 214 394,148 -
offering (Note 12)
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (401,467)
31, 1996
Balance at January 31, 1996 4,969,520 $ 4,970 $ 6,851,728$(1,710,370)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to October 31, 1997
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for cash in
a private offering 130,960 131 156,729 -
(Note 12)
Issuance of common stock for services 259,620 260 262,359 -
(Note 5 & 6)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the year ended January - - - (464,662)
31, 1997
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Balance, January 31, 1997 5,360,100 $ 5,361$ 7,270,816$(2,175,032)
Issuance of common stock for cash in
a private offering 512,000 513 584,287 -
(Note 12), Net of commissions
Issuance of common stock for services 75,287 75 74,520 -
(Note 6)
Issuance of common stock for equipment 20,831 20 24,312 -
Net loss for the nine months ended - - - (374,642)
October 31, 1997
Balance, October 31, 1997 5,968,218 $ 5,969$ 7,953,935$(2,549,674)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C><C> <C><C> <C><C> <C><C>
From Inception(February 9, 1997)
Nine Months Ended Nine Three Months EndedThree Months Ended to Oct.
Oct. Months Oct. Oct. 31, 1996 31, 1997
31, 1997 Ended 31, 1997
Oct.
31, 1996
CASH FLOWS FROM OPERATINGACTIVITIES
Net Loss (374,642)$ (287,736) $ $ $ (2,549,674)
(134,494) (129,528)
Depreciation 13,592 14,342 6,198 3,697 84,603
and amortization
(increase)
decrease in (26,562) (9,417) (6,152) (17,194) (44,706)
receivables
Decrease
(increase) in (7,375) (28,926) (22,125) (57,062) (52,583)
prepaid
expenses
Decrease 9,982 22,065 (375) 9,052 (16,795)
(increase) in inventory
Increase (38,494) 7,323 643 7,494 9,635
(decrease) in payables
Loss from -0- -0- -0- -0- 1,560
disposal of fixed asset
Stock issued 74,595 145,417 12,301 128,667 734,384
for services
Expenses paid -0- -0- -0- -0- 149,018
by shareholder
Net cash
used by operating (348,904) (136,932) (144,004) (54,874) (1,684,558)
activities
CASH FLOWS FROM INVESTINGACTIVITIES
Purchase of (77,616) -0- (6,535) -0- (295,761)
fixed assets
Issue stock -0- -0- (8,970) -0- (8,970)
for equipment
Purchase of -0- -0- -0- -0- (26,958)
product tradenames
Purchase of -0- -0- -0- -0- (5,000)
note receivable
Organization costs -0- -0- -0- -0- (1,524)
Purchase/sale
of mining -0- -0- -0- -0- 7,920
development costs
Purchase of -0- -0- -0- -0- (58,599)
mining claims
Sale of licenses -0- -0- -0- -0- 150,000
Purchase of stock -0- -0- -0- -0- (65,000)
Net cash
used by investing (77,616) -0- (15,505) -0- (303,892)
activities
CASH FLOWS FROM FINANCINGACTIVITIES
Issuance of 584,800 139,875 317,439 52,127 1,755,423
common stock
Issuance of -0- 125,000 -0- 125,000 647,210
notes payable
Principal
payments on -0- (127,520) -0- (122,283) (254,825)
long-term
debt
Net cash
provided by 584,800 137,355 317,439 54,844 2,147,808
financing activities
Net (decrease) $ $ $ 157,930 $ $
increase in cash 158,280 423 (30) 159,358
Cash at beginning $ $ $ $ $
of period 1,078 1,107 1,428 1,560
-0-
Cash at end of period $ $ $ 159,358 $ $
159,358 1,530 1,530 159,358
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<S> <C> <C><C> <C><C> <C><C> <C><C>
From Inception(February 9, 1997)
Nine Months Ended Nine Three Months EndedThree Months Ended to Oct.
Oct. Months Oct. 31, 1997Oct. 31, 1996 31, 1997
31, 1997 Ended
Oct.
31, 1996
SUPPLEMENTAL CASH FLOWINFORMATION:
CASH PAID FOR:
Interest $ $ $ $ $
15,942 15,137 5,136 4,985 77,327
Income Taxes -0- -0- -0- -0- 2,447
NON-CASH TRANSACTIONS:
Stock issued -0- -0- -0- -0- 5,045,000
for mining claims
Stock issued
for down payment -0- -0- -0- -0- 30,000
on building
Stock issued 74,595 145,417 12,301 128,667 734,384
for services
Stock issued
for stock of Geo- -0- -0- -0- -0- 97,144
Environmental
Services, Inc.
Stock issued -0- -0- -0- -0- 75,000
for inventory
Stock issued
for assets of
Austin-Young, -0- -0- -0- -0- 236,060
Inc. and Global
Environmental Industries
Stock issued 24,332 -0- 8,970 -0- 24,332
for mill equipment
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization
American Absorbents Natural Products, Inc. was incorporated on February 9,
1984 under the laws
of the State of Utah and under the name of TPI Land, Inc. as a wholly-owned
subsidiary of TPI,
Inc. On September 14, 1990, the Company changed its name to Environmental
Fuels, Inc. and
began developing its involvement in various phases of the conversion of
vehicles to operating on
compressed natural gas. That developing business was sold on April 23, 1991
(see Note 3).
On May 6, 1991, the Company changed its name to Geo-Environmental Resources,
Inc. and is now
developing its involvement in the distribution of zeolite, a mineral product
which is an absorbent
and has many potential uses such as oil and gas well cleanup, shoe and
refrigerator freshener,
landfill absorption, and other agricultural uses.
On February 6, 1992, the Company acquired the outstanding stock of
Geo-Environment Services,
Inc., a wholly owned subsidiary involved in marketing of the zeolite products.
The transaction was
accounted for at historical cost in a manner similar to that in pooling of
interest accounting for
business combinations.
In June 1995, the Company changed its name to American Absorbents Natural
Products, Inc. and
the name of its subsidiary to American Absorbents, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of American
Absorbents Natural
Products, Inc. and its subsidiary American Absorbents, Inc. Collectively,
these entities are referred
to as the Company. All significant intercompany transactions and accounts
have been eliminated.
Method of Accounting
The Company recognized income and expenses according to the accrual method of
accounting.
Expenses are recognized when performance is substantially complete and income
is recognized
when earned. Earnings (loss) per share are computed based on the weighted
average method.
Stock options currently outstanding were not used in calculating earnings per
share since the effect
would be antidilutive. The fiscal year of the Company ends January 31 of each
year. The financial
statements reflect activity from inception, February 9, 1984.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt
instruments with a maturity of three months or less to be cash equivalents.
Nonmonetary Transactions
Nonmonetary transactions are transactions for which no cash was exchanged and
for which shares
of common stock were exchanged for assets. These transactions are recorded at
fair market value
as determined by the board of directors.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (FIFO method) or market, and
consist of finished goods
and packaging materials.
Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts.
This amount was
determined to be $0 and $0 at October 31, 1997 and 1996 after writing off all
accounts determined
to be uncollectible.
Prepaid Expenses
Prepaid expenses at October 31, 1997 and 1996 consist of the following:
<TABLE>
<S> <C> <C><C>
1997 1996
Prepaid mining land lease $ $ 24,584
24,583
Prepaid fees 40,000 40,000
$ 64,583 $ 64,584
</TABLE>
Business Development Costs
Business Development costs mainly consist of video production cost for a
business promotional
video and product packaging design. These costs are amortized over the
estimated useful life of
the cost, which is 5 years, The costs and accumulated amortization at October
31, 1997 are as
follows:
<TABLE>
<S> <C>
Business development costs $ 3,026
Accumulated amortization (3,026)
-
</TABLE>
Mining Claims
Mining claims are stated at the lower of cost or market, whichever is lower.
Any costs incurred for the betterment or to increase the expected efficiency
of the operations related
to the extraction from the Company mining claims are capitalized and charged
off to operations
over the expected economic life of the claims.
The Company has adopted SFAS statement #121 which requires a review of any
potential for the
impairment of value of any long-lived assets. It is the policy of the Company
to annually review
the future economic benefit of all long- lived assets and to charge off to
operations any potential
impairment of value of long-lived assets when applicable.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 2 - DEVELOPMENT STAGE ENTERPRISE
The Company, per FASB Statement No. 7, is properly accounted for and reported
is a
development stage enterprise. Substantially all of the Company's efforts
since its formation have
been devoted to establishing its new business. No significant revenue has
been earned as of the
balance sheet date. Operations have been devoted to raising capital,
purchasing zeolite property
and establishing a marketing plan.
Continuation of the development effort is contingent upon the Company raising
sufficient capital
from shareholders or other sources. It is management's' intent to raise
capital and further develop
the marketing of its zeolite products. (See Note 15)
NOTE 3 - COMMON STOCK AND STOCKHOLDERS' EQUITY
During the periods shown, the Company had a one-for-two reverse stock split
and a one-for-ten
reverse stock split. The financial statements have been retroactively
restated to reflect the stock
splits.
Stock of the Company has been issued for cash, license agreements, mining
claims, compensation
for services, and in exchange for other stock.
On February 10, 1984, the Company issued 37,500 shares of its stock to TPI,
Inc. for $1,000 cash.
On June 30, 1984, TPI, Inc. distributed the 37,500 shares to its stockholders
in a partial liquidating
dividend.
In August and September 1990, control of the Company was acquired by
Austin-Young, Inc. and
shares of stock were issued to Austin-Young, Inc. and to some of its officers
and directors (see
Note 5).
In September 1990, the Company acquired four license agreements to distribute
the products of
Natural Gas Resources, Inc., (NGRI) a wholly-owned subsidiary of
Global Environmental
Industries, Inc. NGRI was engaged in the business of licensing the operations
of compressed
natural gas conversion centers and natural gas refueling stations. NGRI had
certain patented
products used in the conversion of vehicles from gasoline and diesel to the
use of natural gas.
Under these license agreements, the Company acquired the right to distribute
the products of NGRI
in San Antonio, Texas (metropolitan area); Burnet County, Texas; state of
Utah; and the state of
Washington. On April 23, 1991, the Company sold the license agreements along
with stock of
Global Environmental Industries, Inc. and Natural Gas Industries, Inc. for
$150,000. All assets
were sold at book value and no gain or loss was recognized on the sale.
In August of 1991 the Company issued 10,000 shares of stock at $7.50 per share
for the rights to
two zeolite products of Steelhead Specialty Mineral, Inc. (see Note 9).
In October 1991 the Company issued 13,214 shares of stock at $14 per share for
mining claims
in Harney County, Oregon and in March 1992, issued 243,000 shares at $20 per
share for
additional zeolite mining claims in the same area (see Note 8).
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 3 - COMMON STOCK AND STOCKHOLDERS' EQUITY (Continued)
In February 1992 the Company issued 701,800 shares at $0.14 per share for all
the outstanding
stock of American Absorbents, Inc. (AAI) which became a wholly owned
subsidiary. AAI had,
prior to being acquired, purchased zeolite mining claims in Mohave County,
Arizona (see Note 5).
NOTE 4 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for
Income Taxes" in the fiscal year ended January 31, 1996 and has applied the
provisions of the
statement on a retroactive basis to the previous fiscal year which resulted in
no significant
adjustment.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" requires an
assset and liability approach for financial accounting and reporting for income
tax purposes. This
statement recognizes (a) the amount of taxes payable or refundable for the
current year and (b)
deferred tax liabilities and assets for future tax consequences of events that
have been recognized
in the financial statements or tax returns.
Deferred income taxes result from temporary differences
in the recognition of accounting
transactions for tax and financial reporting purposes. There were no
temporary differences at
January 31, 1997 and earlier years, accordingly, no deferred tax liabilities
have been recognized
for all years.
The Company had cumulative net operating loss carryforwards of approximately
$2,550,000 at
October 31, 1997 and $1,935,000 at October 31, 1996. No effect has been shown
in the financial
statements for the net operating loss carryforwards as the likelihood of
future tax benefit from such
net operating loss carryforwards is not presently determinable. Accordingly,
the potential tax
benefits of the net operating loss carryforwards, estimated based upon current
tax rates at October
31, 1997 and at October 31, 1996 have been offset by valuation reserves.
NOTE 5 - RELATED PARTY TRANSACTIONS
The majority of the outstanding shares of the Company are owned by
Austin-Young, Inc., a Utah
corporation that has its primary office in Austin, Texas. Some individuals
are officers and
directors in both Austin-Young, Inc. and the Company. During the periods
shown, there were
several transactions involving the majority shareholder and the Company's
officers and
directors, as follows:
August 10, 1990 - Common investment shares of 250,000 were issued
to Austin-Young,
nc. and 1,000 shares were issued to two officers and directors of
the Company for
services rendered.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
August 13, 1990 - Common investment shares of 100,000 were
issued to Terry Young,
president of the Company, for serving as president. Such shares were
subsequently sold to Austin-
Young, Inc.
August 13, 1990 - Common investment shares of 5,000 were issued to
Susan Young for
bookkeeping services. Susan Young was the wife of Terry Young
at the time of issuance.
August 17, 1990 - An option was given to Austin-Young, Inc. to purchase an
additional 2,000,000
shares (pre-split)(100,000 shares post-split) of stock at the price of one
cent per share. Also, an
option plan was approved which provides that the board of directors is
authorized to issue up to
1,000,000 shares (pre-split) (50,000 shares post-split) to current and future
employees at a price
of one cent per share. None of these options were exercised. These options
were later rescinded
by the board of directors in July 1993.
August 17, 1990 - Common investment shares of 12,500 were issued to an officer
and director for
services.
September 3, 1990 - 50,000 shares were issued at $3.98 per share to
Austin-Young, Inc. in
exchange for distributorship license agreements, stock in Global Environmental
Industries, Inc. and
Natural Gas Industries, Inc., and cash. The assets acquired in the
transaction were recorded at
historical cost. The Company subsequently transferred 178,000 shares of
Global stock back to the
original transferor in exchange for 17,000 shares of Company stock. The
remaining 200,000
shares of Global stock were sold as part of the transaction which occurred on
April 23, 1991 (see
Note 3).
May 13,1991 - 3,380,000 shares of common stock were purchased for $65,000 cash
from Austin-
Young, Inc. and canceled. The Company agreed that Austin-Young, Inc. had the
right to
repurchase these shares for the same price at any time up to June 1, 1993 (see
July, 1992 comment
below).
February 1992 - the Company issued 701,800 shares of common stock
at $0.14 per
share to the
shareholders of Geo Environment Services, Inc., (now AAI) for their stock.
Officers of the
corporation were major shareholders of AAI.
July 1992 - 3,380,000 shares of common stock were issued at $0.02 per share to
Austin -Young,
Inc. for debt relief of $65,000.
February 1, 1993 - the Company issued to Austin-Young, Inc. an option to
purchase up to
1,000,000 shares (12,000 exercised to date for $36,000) of common stock at a
price of $3 per
share. This option was voluntarily returned to the Company for cancellation
on June 17, 1997.
July 27, 1993 - the Company issued an option to the employees, officers and
directors to purchase
up to a maximum of 250,000 shares of common stock at a price of $3 per share.
This option was
canceled on June 5, 1995.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
October 8, 1993 - 6,000 shares of stock were issued at $5 per share to Susan
Young as down
payment on the purchase of a building.
During 1994, Austin-Young, Inc. issued several promissory notes to the Company
to cover cash
shortages. Total promissory notes issued was $61,424. (See Note 10)
In June 1995, the Company adopted a 1995 stock option plan for the employees,
officers and
directors to purchase up to 1,000,000 shares of common stock at market price.
The options expire
in seven years from the date of offer.
The Company is leasing its office space from a related party pursuant to a 60
month lease
agreement dated July 30, 1996 on a month to month basis at $1,900 per month.
During 1996, Austin-Young, Inc. issued $38,000 in promissory notes to cover
cash shortages.
$5,000 was paid back during the year.
For the years 1990 to 1996, The Company's major stockholder, Austin-Young,
Inc. provided
compensation to one of the Company's officers and directors while working on
projects related to
Company business. The compensation is shown as an expense to the
Company and capital
contribution.
For 1997, the Company issued 128,869 shares of common stock in lieu of cash to
its officers and
directors for services performed. The stock was valued at $128,869, or $1 per
share, the trading
value of the stock at the time of issuance.
In 1997, the Company was required to pay a balloon payment due on its
warehouse in September,
1996. Instead of finding long term funding through a mortgage company,
Austin-Young, Inc., the
majority shareholder provided $125,000 in certificates of deposit for
collateral on a one year note
of $125,000 provided by a local bank to pay the balloon payment. The note is
due in September,
1997 (See Note 11).
In 1997, the Company issued 16,751 shares of stock to Austin-Young, Inc. for
rent for the use of
office space. Total rent for fiscal year 1997 was $13,000. The office space
is rented pursuant to
a 60 month lease agreement.
In 1997, the Company contracted with American Crisis Publishing (a wholly
owned subsidiary of
Austin-Young, Inc.) to provide $40,000 (40,000 shares of common stock) of
future "mail out"
services for company literature and future advertising promotions. American
Crisis Publishing
specializes in "the creation and preparation of booklets and mailouts for the
dissemination of
information to the public." The services have not yet been performed and are
classified as a prepaid
expense.
In 1997, the Company purchased for $5,000 from Austin-Young, Inc. a $20,000
note receivable
from a former officer and director for the purchase of common stock.
The note was
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
discounted due to the poor probability of collection. The Company
intends to make a demand
for payment on the note or cancel the shares that were issued under the note.
In January, 1997,
the Board of Directors approved a compensation package for David Redding,
President, at
$7,000 per month, $3,500 cash and $3,500 in stock until
the Company could compensate
entirely with cash.
In future years, when the Company operations become more fully developed,
the compensation
will increase in proportion to the time and expertise given by the
officer/director and will be
paid directly from company funds.
During the quarter ended October 31, 1997, the Company paid $5,700 to Austin
Young, Inc.
for rent on the office space and equipment used by the Company.
NOTE 6 - NONMONETARY TRANSACTIONS
Nonmonetary transactions consist of the transactions detailed in Note 5 above
and the transfer
of common investment shares to individuals and corporations for services
and distributorship
license agreements, as follows:
September 24, 1990 - 50,000 shares of common stock were issued at $0.74 per
share to two
corporations for distributorship license agreements.
October 25, 1990 - 12,500 shares of common stock were issued at $3 per share
to individuals
for services.
August 1991 - 10,000 shares of stock were issued at $7.50 per share for
trademarks and
patents for two zeolite products.
October 1991 - 13,214 shares of stock were issued at $14 per share for zeolite
mining claims
(see Note 8).
January, 1992 - 20,000 shares of common stock were returned to the treasury
and canceled.
February 1992 - 701,800 shares were issued at $0.14 per share for 100% of the
shares of Geo-
Environment Services, Inc. (see Note 5).
March 1992 - 243,000 shares were issued at $20 per share for zeolite mining
claims (see Note
8).
June 1992 - 32,430 shares were canceled by officers and directors.
June 1993 - 17,800 shares were issued at $1.50 per share for services
performed.
October 1993 - 6,000 shares were issued at $5 per share for down payment on
plant facility.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 6 - NONMONETARY TRANSACTIONS (Continued)
October 1993 - 17,000 shares were issued at $3 per share for
advisory services.
February 1994 - 6,000 shares were issued at $5 per shares for legal services.
June 1994 - 25,750 shares were issued at $4 per shares for services rendered.
June 1994 - 11,000 shares were issued at $5 per share for services rendered.
June 1994 - 5,000 shares were issued at $3.50 per share for services rendered.
November 1994 - 10,000 shares were issued at $3.50 per share for services
rendered. November
1994 - 5,000 shares were issued at $2.25 per share for services rendered.
During 1995 - 9,000 shares were issued at an average price of $2.49 per share
for services
rendered.
During 1997, 259,620 shares (185,620 related party) were issued at an average
price of $1.01 per
share for various services rendered.
During the quarter ended October 31, 1997, 12,948 shares were issued at an
average price of $0.95
per share for various services rendered.
During the quarter ended July 31, 1997, 250,000 options from the 1995 Stock
Option Plan were
granted to officers and directors at the closing bid price of $0.375 per
option on the date of grant.
All nonmonetary transactions, with related parties and non related parties,
transacted with stock
of the Company were measured either at the estimated fair value of the stock
being issued (stock
market quotations) or fair value of goods or services being rendered,
whichever was more readily
measurable.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
October 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1997 1996
Plant $ $ 244,978
244,978
Machinery and equipment 112,529 12,382
Accumulated depreciation (54,553) (37,929)
$ 302,954$ 219,431
</TABLE>
Machinery and equipment is depreciated on the straight-line method over the
estimated useful lives
of five (5) years. Plant is being depreciated over the estimated useful life
of 20 years.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 7 - PROPERTY AND EQUIPMENT (Continued)
Depreciation expense is $6,197 and $3,697 for the quarters
ended October 31, 1997 and 1996
respectively. Amortization expense is $0 and $0 for the
quarters ended October 31, 1997 and
1996 respectively.
The Company has agreements with various vendors to do the mining and milling
of its zeolite
mineral and products; this has resulted in minimal investment in
machinery and equipment.
In October, 1995, the Company purchased from a defunct logging operation, a
103,125 square
foot building containing approximately 3,500,000 cubic feet of milling,
packaging and
inventory storage space for a cash price of $65,000. The building is to be
used to house the
Company's zeolite milling operations in Oregon. The Company has
completed approximately
$10,000 worth of repairs that needed to be made to the building. Farmers
Group Insurance,
which insures the building, has determined that the replacement value of the
building is
$2,049,172.
During the quarter ended July 31, 1997, the Company completed the acquisition
of milling
equipment and began the installation of the equipment in its facility in
Hines/Burns, Oregon.
NOTE 8 - MINING CLAIMS
The Company has purchased several zeolite mining claims in three different
regions in the western
United States. All purchases were acquired through stock issuance and are
described below.
In April 1991 (before acquisition by Geo-Environmental Resources) (now
American Absorbents
Natural Products, Inc.), the Company's subsidiary issued 440,000 shares of its
stock for mining
claims containing zeolite in the Mohave County, Arizona region, and the stock
given was
originally valued at $.50 per share. Thus the mining claims were originally
valued at $220,000.
Since the value of the mining claims was not readily determined the mining
claims were written
down to a nominal value.
In October 1991 the Company acquired twenty zeolite mining claims in Harney
County, Oregon.
The value of the claims was agreed to be $185,000 by the seller and purchaser
and 13,214
(132,143 pre-split) shares of common stock were issued. The stock was quoted
on the market at
$1.40 per share, thus determining the number of shares to be
issued for the claims.
In December 1991, the Company acquired an additional 203 zeolite mining claims
in the Harney
County, Oregon region. A geological study was conducted and reserves were
estimated at over
477,600,000 tons. The value per ton was also estimated based on mining costs
and market value
of other companies in the industry. The reserves were then discounted
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 8 - MINING CLAIMS (Continued)
99 1/2% and a value was determined to be approximately $4,800,000. Stock was
then issued at
market price to equal the value given to the claims.
On July 10, 1997, the Company was granted, by the Department of the Interior
Bureau of Land
Management, its Permanent Mining Permit and Plan of Operations approval to
mine its Harney
County, Oregon zeolite properties.
To date no depletion has been taken on any of these claims. Depletion of
these assets will begin
once material mining operations on these claims begins.
NOTE 9 PRODUCT TRADENAMES
In August of 1991 the Company purchased for common stock, notes payable and
cash, the
nventory and the trade names for two shoe products. The inventory was valued
at $115,000 and
the remainder of the purchase price of $25,000 was attributed to the
tradenames of the
products. The tradenames are amortized on the straight-line method over a
five (5) year period.
NOTE 1 0 - RELATED PARTY NOTES PAYABLE
The notes payable-related party consist of advances
from Austin-Young, Inc., a major
shareholder of the Company. The balances are as follows:
<TABLE>
<S> <C>
October 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1997 1996
Notes payable -
Austin-Young, bearing
interest at 7% and payable
in 1997. Unsecured. $ $ 182,539
-
Notes payable -
Austin-Young, bearing
interest at 7% and payable
on demand.
Unsecured. 202,385 -
Less current portion (202,385) -
Totals $ $ 182,539
-
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 11- NOTES PAYABLE
Notes Payable consist of the following:
<TABLE>
<S> <C><C>
October 31,
</TABLE>
<TABLE>
<S> <C><C> <C><C>
1997 1996
Note payable to a bank,
bearing interest
at Prime + 3%, due August,
1998. Secured
by $125,000 CD's (see Note 5) $ 125,000$ 125,000
Totals $ 125,000$ 125,000
</TABLE>
NOTE 12 - PRIVATE PLACEMENT OF COMMON STOCK
During October 1993, the Company issued 66,667 shares of restricted common
stock in a private
placement. The shares sold for $3 per share and carried an option to purchase
additional shares
within 120 days.
During December 1993, the Company issued 38,170 and 41,902 shares of
restricted common
stock in a private placement at $3 and $1.84 per share, respectively. The
shares issued
wereunder an option agreement as part of the private placement that occurred
during October
1993.
On July 5, 1994, 22,500 shares of common stock were issued at $4 per share in
a Regulation
D private stock offering.
In 1996, the Company issued 214,168 shares of common
stock in a Regulation D private
placement for total consideration of $394,362.
In 1997, the Company issued 130,960 shares of
common stock in a Regulation D private
placement for total consideration of $156,860.
During the quarter ended October 31, 1997, 320,400 shares of common stock were
issued in a
private placement for total consideration of $388,000.
NOTE 13 - RESEARCH AND DEVELOPMENT
The Company expenses all research and development costs as incurred. The
Company is
accounted for as a development stage enterprise, and a portion of expenses
incurred since
inception have been directly related to research and development. The
research and development
expenses incurred for the years ended January 31, 1997 and 1996 respectively
are as follows:
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 13 - RESEARCH AND DEVELOPMENT (Continued)
<TABLE>
<S> <C> <C><C>
1997 1996
Labor and wages $ - $
8,115
Materials and supplies - -
Rent allocation - -
$ - $ 8,115
</TABLE>
Research and development of the Company primarily relate to product and
package design and
market research.
NOTE 14 - ECONOMIC DEPENDENCY
During the fiscal year ended January 31, 1997, the Company had an overseas
customer that
provided 58% of the years sales volume.
NOTE 15 - SUBSEQUENT EVENTS
In January, 1997, the Company authorized a private placement of up to $500,000
to be used to
purchase milling equipment to be used in the milling plant in Oregon, to begin
mining and milling
operations, increase inventories and for working capital. During the first
quarter of the 1998
fiscal year, the Company raised approximately $180,000 and began the
purchasing process for
the milling equipment. This portion of the private placement was sold in Units
consisting of 4,800 shares of restricted common stock and a $3.00 per ton
royalty on 6,000
tons of zeolite mineral as it is mined, milled and sold. The Company has
expanded the total
amount of capital to be raised up to $500,000 and has engaged Northstar
Securities to sell the
remaining $320,000 of the private placement to accredited investors only.
Each purchaser will
receive their pro-rata share of the royalty payment based upon the number of
Units purchased
elative to the total number of Units sold. The royalty payments will be paid
from the first
tonnage of zeolite mineral mined and sold by the Company. The Company may
increase the
amount of the royalty payment above the $3.00 amount per ton, but in no event
will the total
royalty payment to any holder of Units exceed $18,000.00 per Unit held. The
increase in the
royalty amount paid would only decrease the time limit in which the holder of
a Unit would
receive the total royalty amount. Royalty payments will be made quarterly
after the Company
has made its quarterly financial statement filings with the Securities and
Exchange Commission
and determined the total tonnage that has been mined, milled and sold during
the reporting
quarter.
In June, 1997, the Company signed an agreement to purchase equipment to begin
equipping the
mill at its location in Oregon.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
October 31, 1997 and 1996
(unaudited)
NOTE 15 - SUBSEQUENT EVENTS (Continued)
The Company authorized an additional private placement in the amount of
$1,500,000 to be
used for inventory increases and marketing expenses relating to the engagement
of Bill Frye
and Associates to introduce the Company's products into the retail markets.
NOTE 16 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting
principles requires management to make estimates and assumptions that affect
reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial
statements and revenues and expenses during the reporting period. In these
financial statements,
assets, liabilities and earnings involve extensive reliance on management's
estimates. Actual
results could differ from those estimates.
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following listing of the estimated fair value of financial instruments is
made in accordance
with the requirements of SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments". The carrying amounts and fair value of the Company's financial
instruments at
October 31, 1997 and 1996 are as follows:
<TABLE>
<S> <C>
October 31, 1997 October 31, 1996
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C><C>
CarryingAmountsFairCarryingAmountsFair
Values Values
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C><C>
Cash and Cash Equivalents$ 5,000$ -0-$ -0-$ -0-
Notes Payable IncludingCurrent Maturities
327,385 327,385 307,539 307,539
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value
disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported on the balance sheet for cash and cash
equivalents approximate
their fair value.
Notes Receivable
The fair value of notes receivable are based upon the interest rate the
Company would receive
on market rates available for savings and investment.
Notes Payable
The fair values of notes payable are estimated using discounted cash flow
analyses based on the
Company's incremental borrowing rate as the discount rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS.
The Company, per FASB statement No. 7, is properly accounted for and reported
as a development stage enterprise.
The Company's efforts since entering its current business have been devoted
primarily to Company capitalization,
acquisition of mining properties, packaging and milling facility acquisitions
and product and market development.
The Company has realized limited sales in each of its fiscal years ended
January 31, 1992 through January 31, 1997
from limited test marketing programs for its products while in the development
stage. During the development stage
the Company has developed over a dozen products and test marketed these
products in various parts of the country.
LIQUIDITY
Austin-Young, Inc., the major stockholder of the Company, provided a portion
of the Company's operating capital
during fiscal years 1993, 1994, 1995, 1996 and 1997 through loans and equity
funding and the Company owed
approximately $182,539 to Austin-Young, Inc. at January 31, 1996. The balance
owing to Austin-Young, Inc.
increased to 202,385 at January 31, 1997 due to the rolling of accrued
interest into the note and $7,000 of advances
made to the Company. Balances owed to Austin-Young, Inc. were $202,385 and
$202,385, respectively, for the nine
months ended October 31, 1997 and 1996. Revenues to date have provided
insignificant funding of working capital
because of the development stage status of the company and the limited test
marketing programs.
During the fiscal years 1995, 1996 and 1997, the Company incurred losses that
reflect the development stage activity
of researching and test marketing its products. The company has paid
$140,739, $8,115 and $0.00 for research and
development for the years 1995, 1996 and 1997, respectively. The Company paid
$91,700 to the Bureau of Land
Management in the fiscal year ended January 31, 1996 and $29,500 in the fiscal
year ended January 31, 1997. In the
future, approximately $29,500 will be due to the Bureau of Land Management in
August of each year to satisfy claim
maintenance fees on existing claims. Austin-Young, Inc. has provided, through
loans and equity funding, any
deficiencies to the necessary funding during the development stage, but
expects funding from private placements and
other offerings will be sufficient for future development costs. When
possible, the Company has issued stock for the
acquisition of assets or services to reduce the need for additional operating
capital from the major stockholder,
additional shareholders or gross profits from its limited marketing efforts.
A large part of the Company's zeolite
mineral deposits were acquired by stock issuance which is expected to play an
integral part of maintaining a
competitive edge by keeping supply costs of the principle ingredient of its
products to a minimum. During the
development stage, the Company has also relied on the time and talents of
Austin-Young, Inc. personnel and office
space and equipment to maintain a lower overhead to conserve its limited
resources for product and market
development.
During the fiscal year ended January 31, 1996, the Company issued 214,168
shares in a private placement for $394,362
and issued 9,000 shares for artwork and packaging design services rendered to
the Company and valued at $22,400.
During the fiscal year ended January 31, 1997, the Company issued 130,960
shares in private placements for $156,860
and issued 259,620 shares for services rendered to the Company and valued at
$262,219. During the nine months
ended October 31, 1997, the Company issued 512,000 shares in a private
placement for $584,800 and issued 75,287
shares for services rendered to the Company and valued at $74,595. During
the nine months ended October 31, 1996,
the Company issued 113,960 shares in a private placement for $139,875 and
issued 137,167 shares for services
rendered to the Company and valued at $145,417.
Net General and Administrative Expenses increased by approximately $75,000
during the fiscal year ended January
31, 1997, from $393,000 to $468,000. Of this increase in general and
administrative expenses, legal and accounting
expenses increased by $9,700, interest expense by $2,400, rent expense by
$13,000, repairs and maintenance by $1,200,
miscellaneous expense by $2,200 and professional services by $190,000.
Professional services included shares of stock
that were issued to officers and directors as compensation for their services.
Decreases to the general and
administrative accounts include zeolite lease expense ($52,500), printing,
postage and office expenses ($11,100), travel
and entertainment ($7,700), advertising ($5,700), business promotion ($2,950),
contract labor ($4,000), insurance
($4,000), salaries and wages ($27,000), property taxes ($700), and payroll
taxes $1,200). Other accounts accounted
for the remaining difference. Net General and Administrative Expenses
increased by approximately $76,000 from
$290,000 for the nine months ended October 31, 1996 to $366,000 for the nine
months ended October 31, 1997. This
included increases to advertising and promotion ($19,275), legal and
accounting ($4,575), interest ($805), meals and
entertainment ($2,150), telephone ($4,400), rent ($9,800), repairs and
maintenance ($18,410), salaries and wages
($49,300), payroll taxes ($3,600), travel ($15,225), equipment rental
($1,270), public company expenses ($2,500),
insurance ($3,475), commissions ($7,200), dues and publications ($475) and
decreases to contract labor ($14,700),
professional services ($48,975), depreciation and amortization ($750),
postage ($450) and mining leases ($5,700).
Other small accounts made up the difference.
For the fiscal years ended January 31, 1996, January 31, 1997 and for the
period from the inception date on February
9, 1984 to January 31, 1997, the Company had average gross profit margins of
35%, 30% and 36%, respectively. For
the nine months ended October 31, 1997 and 1996, the Company realized gross
profit margins of 11% and 29%,
respectively on revenues of $45,250 and $56,147, respectively. At current
operating expense levels and with the
anticipated product sales mix, the Company estimates its break-even at
approximately $125,000 in sales per month.
The Company has $125,000 in bank debt outstanding. This bank debt is secured
by an equivalent amount of CD's
that are owned by Austin-Young, Inc., the major stockholder of the Company.
Austin-Young, Inc. does not receive
any compensation for the use of its CD's as collateral. The debt includes
interest only payments to the bank in the
approximate amount of $850 per month. This bank debt was incurred to pay off
an existing mortgage on the Austin,
Texas warehouse facility. The Company intends to pay the principal amount of
the bank debt from proceeds of a
public or private stock offering. All accounts payable and accrued expenses
are paid when due or sooner when
discounts are available.
RESULTS OF OPERATIONS
Because the Company is a development stage enterprise, it has incurred losses
in each of its fiscal years ended January
31, 1995, 1996 and 1997. This is due to the Company incurring operating
expenses during a time when most of the
efforts were expended in product and market development and other areas not
directly related to marketing while
positioning the Company to implement various marketing programs.
In fiscal 1992, the Company began test marketing products that it had
developed and/or to which it had acquired the
rights from other companies. Revenues increased from $11,388 in 1992 to
$43,115 in 1993 due to test marketing of
existing products in limited market areas. During the fiscal year ended
January 31, 1994, the Company concentrated
on attractive packaging of its products, Company capitalization and
distribution networks, with less emphasis on
product research as it prepared to implement various marketing programs for
its products. Sales for the fiscal year
indicated no growth over the previous year and, in fact, showed a decline in
sales to $20,323. Sales for the fiscal year
ended January 31, 1995, increased to $69,467, or 242% over the previous year,
as the Company expanded the test
marketing of products into more outlets. During the fiscal year ended January
31, 1996, sales declined to $26,070 as
the Company's management concentrated on the revamping of existing marketing
structures in retail outlets, the design
of a marketing program to market agricultural products through feed dealers,
the development of the conceptual
framework for marketing the smaller packaged products through a direct sales
organization, the development of a
relationship with an import company in France to market products in France and
the acquisition of a milling facility
in Oregon. During the fiscal year ended January 31, 1997 revenues increased
to $69,293, or 166% over the previous
year, as the Company began to realize revenues from the agricultural marketing
programs in the United States and
France. Even in the test marketing programs, the Company has maintained gross
profit margins of 30% and 35%,
respectively, for the fiscal years ended January 31, 1997 and 1996. The
gross profit margin for the fiscal year ended
January 31, 1995, was negative primarily due to a write-off of obsolete and
excess inventory in the amount of $42,702
and to product promotions that involved free product to new customers in
introductory offers. Gross profit margins have
averaged 32% for the period from inception on February 9, 1984 through October
31, 1997. Profit margins should
increase and then stabilize once production and marketing costs become
reasonable with higher production levels and
higher sales volume. Bringing the Oregon milling facility into production
should also decrease costs, thereby allowing
the Company to increase gross profit margins or reduce selling prices to
facilitate increasing market share on each of
the products sold by the Company. Quantity discounts on bag purchases for
certain of the Company's products could
result in up to a 30% increase in the gross profit percent.
Ownership of its own zeolite deposits should allow the Company to better
control its cost of sales since zeolite is the
major raw material used in its products. The Company also has negotiated
mining arrangements with mining
companies to eliminate large capital requirements that would be necessary to
acquire equipment. Also, milling,
packaging, and inventory arrangements have eliminated the need to spend
additional money for capital equipment
necessary for these processes in past years.
General and administrative expenses have increased steadily since January 31,
1991, as the Company developed more
products and added personnel to test market products. Depreciation and
amortization expenses since inception have
remained low because the Company has contracted many of its needs that would
otherwise require capital expenditures.
A significant portion (approximately $251,000) of the Company's January 31,
1995 operating expenses relating to
consulting services were funded through the issuance of common stock pursuant
to S-8 Registration Statements.
Approximately $22,400 of the operating expenses for the fiscal year ended
January 31, 1996, were funded through S-8
Registration Statements. Approximately $262,000 of services were acquired
during the fiscal year ended January 31,
1997 through the issuance of common stock. In addition, another $157,000 of
common stock was issued in private
placements to cover other overhead expenses. During the nine months ended
October 31, 1997, 75,287 shares of stock
at an average price of $1.00 per share were issued for services provided to
the Company. Another $584,800 was
provided through the issuance of 512,000 shares, the proceeds of which were
used to cover overhead and purchase
milling equipment to begin equipping the Oregon mill facility. An additional
20,831 shares valued at an average price
of $1.17 per share were issued as part of the purchase price of milling
equipment during the nine months ended
October 31, 1997.
The Company's note payable to its major stockholder increased by approximately
$65,000 during the fiscal year ended
January 31, 1995, and by another $46,000 during the fiscal year ended January
31, 1996 as the Company borrowed
funds to help cover overhead expenses and accrued rent expenses owing to
Austin Young, Inc. During the fiscal year
ended January 31, 1997, the note payable to the major stockholder increased by
only $20,000 mostly due to accrued
interest that was rolled into the note plus approximately $7,000 of advances
made to the Company. The balance of
the note is expected to be paid from future earnings of the Company.
In August, 1996, the Company paid off a note payable of approximately $125,000
on the warehouse/plant facility in
Austin, Texas from the proceeds of a bank loan that was secured by using CD's
owned by the Company's major
stockholder.
The Company has maintained current ratios of 0.47, 1.10 and 1.84,
respectively, for the fiscal years ended January 31,
1997, 1996 and 1995. The lower current ratio for the fiscal year ended
January 31, 1997, results from the classification
as short term debt of $202,385 owing to Austin-Young, Inc., the major
stockholder of the Company. This debt may
or may not be paid during the next fiscal year, depending upon profits of the
Company. Current ratios for the nine
months ended October 31, 1997 and 1996 were 1.06 and 1.17, respectively.
The Company does not expect inflation to have any material effect on its
revenues, costs or overall operation. Since
the Company owns its own zeolite deposits that are the main raw material used
in its products, inflation would
generally give the Company a competitive edge over companies that do not own
their own deposits. The Company
expects that any increased paper costs for the packaging used in its products
can be off-set by price increases without
losing any competitive edges since all other competitors will face the same
price increases. The Company has begun
using quality, less expensive plastic packaging for its Stall Fresh product.
PLAN OF OPERATIONS
Management believes that it can continue to fund its operations through
private placements or funds received from the
major stockholder until a public stock offering can be completed or revenues
reach the level (approximately $125,000
per month) at which the gross profits attained will finance the operations.
The Company will have to raise a more
significant amount of equity in order to expand its operations at a more rapid
rate. The Company has signed an
engagement letter with an investment firm that has begun raising an additional
$1,500,000 of which the Company will
net approximately $1,250,000. The proceeds will be used to increase inventory
levels, advertising and promotion and
working capital.
Management has begun a limited marketing campaign, based on available capital,
of its agricultural related products
in certain market areas of the United States and in France. The Company
continues to sell some of its smaller
packaged products through several of the retail outlets that participated in
the test marketing program for the products.
In November, 1995, the Company began shipping some of its agricultural
products to E.N.S.R./S.A.R.L., an import
company located in France.
The Company has completed design and packaging for products such as Mother
Earth KittyKat Premium Cat Litter
and Soil Enhancer, White Buffalo, Stall Fresh, Stinky Pinkys and Shoe
Fresh as well as eight other products.
The Company is also working the conceptual framework of various other products
using the zeolite materials present
in its existing product line. This includes the impregnation of zeolites with
pesticides, herbicides and fertilizers for
use in fields, pastures and gardens as well as chemicals to help eradicate
fire ants.
In October, 1995, the Company purchased a production plant containing 103,125
sq. ft. and approximately 3,500,000
cu. ft. of production, packaging and storage space near its zeolite
properties in Oregon. The facility is not subject to
any existing mortgages. The facility is already equipped with a 70-ton crane.
The Company has completed an equity
offering that will be used, in part, to equip this facility with crushing,
milling, drying, screening, packaging and storage
equipment. The Company expects the Oregon milling facility to be in
production during the last quarter of 1997. The
Company's Permanent Mining Permit and Plan of Operations has been approved and
granted by the Department of
the Interior Bureau of Land Management and the construction of the milling
equipment has begun.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the quarter ended October 31, 1997, there were no material pending or
threatened legal proceedings
against the Company or its directors, officers, affiliates and owners of
record or beneficially of more than five
percent of any class of voting securities of the Company nor was there any
associate of any such director, officer,
affiliate or security-holder who is a party in any action that is adverse to
the Company or its subsidiary.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended October 31, 1997, there were no material
modifications to instruments defining the rights
of the holders of any class of registered securities nor were the rights
evidenced by any class of registered securities
materially limited or qualified by the issuance or modification of any other
class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the quarter ended October 31, 1997, there was no material default in
the payment of principal, interest,
sinking or purchase fund installments, or any other material default not cured
within 30 days, with respect to any
indebtedness of the Company exceeding five percent of the total assets of the
Company, nor was there any material
arrearage in the payment of dividends with respect to any class of preferred
stock of the Company which is
registered or which ranks prior to any class of registered securities, or with
respect to any class of preferred stock of
any significant subsidiary of the Company ( The Company currently has no
dividend policy or preferred stock
outstanding).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
During the quarter ended October 31, 1997, no matters were submitted to a vote
of security-holders through the
solicitation of proxies at a Meeting of Shareholders:
ITEM 5. OTHER INFORMATION.
During the quarter ended October 31, 1997, there was no information not
previously reported on Form 8-K to
include under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Page
(a) (1) The following financial statements are included in Part I, Item 1:
Consolidated Balance Sheets - October 31, 1997 and
January 31, 1997-------------------- 3-4
Consolidated Statements of Operations - Nine months and quarters
ended October 31, 1997 and
1996---------------------------------------------------------------- 5
Consolidated Statements of Stockholders' Equity
(Deficit) - period ended
October 31,
1997-------------------------------------------------------- 6-9
Consolidated Statements of Cash Flows - Nine months and quarters
ended October 31, 1997 and
1996--------------------------------------------------------------- 10-11
Notes to Consolidated Financial
Statements----------------------------------------------- 12-24
(3) The following exhibits for the Nine months and quarters ended
October 31, 1997
and 1996, are submitted herewith:
Exhibit 11 - Computation of Per Share Earnings
(Loss)------------------------------- 31
Exhibit 21 - Subsidiary of the
Registrant------------------------------------------------- 32
All other exhibits are omitted since the required information is included in
the financial statements or notes
thereto, or since the required information is either not present, not present
in sufficient amount or is not applicable.
(b) No reports were filed on Form 8-K during the quarter ended October
31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN
ABSORBENTS NATURAL PRODUCTS, INC.
By: _____________________________________________
Terry L. Young, Chairman of the Board
and Chief Executive Officer
Date: November 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following
persons on behalf of the Company and in their
capacities and on the dates indicated.
Signature Title
Date
__________________________ Chairman, Chief Executive
November 14, 1997
Terry L. Young Officer and Director
__________________________ President, Chief Financial
Officer, November 14, 1997
David W. Redding Treasurer, Principal Accounting
Officer
and Director
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<S> <C> <C><C> <C><C> <C><C> <C><C>
From Inception
Nine Months Ended Nine Three Months EndedThree Months
Ended(February 9, 1997)
Oct. Months Oct. Oct. 31, 1996 to Oct.
31, 1997 Ended 31, 1997 31, 1997
Oct.
31, 1996
Primary and
Fully Diluted:
Average Shares Outstanding5,968,2185,220,6475,968,218 5,220,647 2,000,000
Net Loss $ $ (287,736)$ (134,494)$ (129,528)$ (2,549,674)
(374,642)
Earnings (Loss) $ $ $ $ $
Per Share (.06) (.06) (.03) (1.27)
(.02)
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 21 - SUBSIDIARY OF THE REGISTRANT
Name
Jurisdiction of Incorporation
American Absorbents, Inc.
Texas
The corporation listed is a wholly owned subsidiary of the Registrant, and is
included in the consolidated financial
statements.
