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 April 30, 1997
Transition 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: April 30, 1997----
5,533,229 ($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 Three Months Ended
April 30, 1997 and 1996
(Unaudited)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
April 30, 1997 and 1996
(unaudited)
ASSETS
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
<S> <C>
CURRENT ASSETS
Cash $ 56,041 $ 1,078
Accounts receivable (Note 1)
Trade 52,765 18,144
Other -0- -0-
Prepaid expenses (Note 1) 49,833 57,208
Inventory (Note 1) 89,851 99,952
Total Current Assets 248,490 176,382
PROPERTY AND EQUIPMENT (Note 7) 210,901 214,598
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
$ 5,546,060 $ 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)
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 34,790 $ 49,119
Current portion of note payable - related 202,385 202,385
party (Note 10)
Note payable (Note 11) 125,000 125,000
Total Current Liabilities 362,175 376,504
LONG-TERM DEBT
Notes payable-related party-less current portion -0- -0-
(Note 10)
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
5,533,229 and 5,360,100 shares issued
and outstanding, respectively 5,534 5,361
Capital in excess of par value 7,478,988 7,720,816
Deficit accumulated during the
development stage
(2,300,637) (2,175,032)
Total Stockholders' Equity 5,183,885 5,101,145
$ 5,546,060 $ 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
April 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
From
Inception
On
For the Three Months February
Ended 9, 1984
April 30, Through
April 30,
1997 1996 1997
<S> <C>
REVENUE
Net Sales $ 31,553 $ 31,303 $ 271,209
Cost of goods sold 27,146 26,377 179,836
Gross Profit 4,407 4,926 91,373
EXPENSES
General and administrative 126,315 83,485 2,314,855
Depreciation and amortization 3,697 5,322 74,708
Total Expenses 130,012 88,807 2,389,563
Net loss before provision for (125,605) (83,881) (2,298,190)
income taxes
Provision for income taxes -0- -0- 2,447
NET LOSS $ (125,605) $ (83,881) $(2,300,637)
WEIGHTED AVERAGE LOSS
PER SHARE $ (.02) $ (.02) $ (1.28)
AVERAGE SHARES OUTSTANDING 5,533,229 5,017,354 1,801,500
</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 April 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumu-
lated
During
Additional Develop
Common Stock Paid-in ment
Shares Amount Capital Stage
<C> <S>
Balance at inception-February 9, 1984 - $ - $ - $ -
Issuance of common stock for cash (Note 3) 37,500 38 962 -
Expenses paid by shareholders for the
years ended January 31, 1990 - - 518 -
Loss for the years ended January 31, 1990 - - - (1,618)
Balance, January 31, 1990 37,500 38 1,480 (1,618)
Issuance of common stock for
services rendered in August 1990 391,000 391 7,429 -
Issuance of common stock in September
for various assets from
Austin-Young, Inc. (Note 5) 50,000 50 198,890 -
Issuance of common stock for distribution
expenses from Global Environmental Industries
(GEI) for UT & WA, September 1990 (Note 3) 50,000 50 37,070 -
Contribution from Austin-Young, Inc. - - 13,500 -
Issuance of common stock for
services rendered in October 1990 12,500 12 37,488 -
Net loss for the year ended January 31, 1991 - - - (57,756)
Balance, January 31, 1991 541,000 $ 541 $ 295,857$(59,374)
Common stock returned in exchange for
common stock of GEI in March 1991 (Note 5) (17,000) (17) (85,423) -
Purchase of common stock from
Austin-Young, Inc. in May 1991 (Note 5) (338,000) (338) (64,682) -
Cancellation of common shares (20,000) (20) 20
Issuance of common stock for the
purchase of product from Steelhead
Specialty Minerals in August 1991 (Note 6) 10,000 10 74,990 -
Issuance of common stock for the
purchase of mining claims in
October 1991 (Note 8) 13,214 13 184,987 -
Common stock canceled by officers/
directors in January 1992 (20,000) (20) 20 -
Contribution from Austin-Young, Inc. - - 17,000 -
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
acquisition of Geo- Environment
Services, Inc. in February 1992 (Note 5) 701,800 702 96,442 -
Issuance of common stock for
purchase of mining claims
in March 1992 (Note 5) 243,000 243 4,859,757 -
Common stock canceled by officers
and directors in June 1992 (Note 6) (32,430) (32) 32 -
Cancellation of fractional shares
due to reverse stock split (21) - - -
Contribution by Austin-Young, Inc. - - 10,000 -
Issuance of common stock (pursuant to
purchase agreement in May, 1991)
to Austin-Young, Inc. for relief of
debt in July 1992 (Note 5) 3,380,000 3,380 61,620 -
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 (Note 6) 17,800 18 26,682 -
Issuance of common stock to Austin-
Young, Inc. in June 1993 (Note 5) 12,000 12 35,988 -
Issuance of common stock for cash
October 1993 (Note 12) 66,667 67 199,936 -
Issuance of common stock as down payment
on building October 1993 (Note 5) 6,000 6 29,994 -
Issuance of common stock for services
rendered October 1993 (Note 6) 17,000 17 50,983 -
Issuance of common stock for cash
December 1993 (Note 12) 80,072 80 191,321 -
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended
January 31, 1994 - - - (310,862)
Balance, January 31, 1994 4,661,102 4,662 6,021,524(599,855)
Issuance of common stock for services
rendered February 1994 (Note 6) 6,000 6 29,994 -
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 1994 (Note 6) 15,000 15 46,235 -
Contribution by Austin-Young, Inc. 36,000
Net loss for the year ended January 31, 1995 - - - (709,048)
Balance, January 31, 1995 4,746,352 4,7476,399,189(1,308,903)
Issuance of common stock
for services (Note 6) 9,000 9 22,391
Issuance of common stock in
a private offering (Note 12) 214,168 214 394,148
Contribution by Austin-Young, Inc. 36,000
Net loss for the year ended
January 31, 1996 - - - (401,467)
Balance at January 31, 1996 4,969,520 4,9706,851,728(1,710,370)
Issuance of common stock for cash
in a private offering (Note 12) 130,960 131 156,729 -
Issuance of common stock for
services (Note 5 & 6) 259,620 260 262,359 -
Net loss for the year ended
January 31, 1997 - - - (464,662)
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 (Note 1) 144,000 144 179,856 -
Issuance of common stock
for services (Note 6) 29,129 29 28,316 -
Net loss for the three months
ended April 30, 1997 - - - (125,605)
Balance, April 30, 1997 5,533,229 5,534 7,478,988 (2,300,637)
</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>
<CAPTION>
From
Inception
For the Three Months On February
Ended 9, 1984
April 30, Through
April 30,
1997 1996 1997
<S> <C>
Cash Flows From Operating
Activities
Net loss $(125,605) $ (83,881) $ (2,300,637)
Depreciation and amortization 3,697 5,323 74,708
(increase) decrease in
receivables (34,621) 1,408 (52,765)
Decrease (increase) in
prepaid expenses 7,375 14,068 (49,833)
Decrease (increase) in
inventory 10,101 13,025 (5,666)
Increase (decrease) in
payables (14,329) (6,366) 34,790
Loss from disposal of fixed
asset - - 1,560
Stock issued for services 28,345 16,000 688,134
Expenses paid by shareholder - - 149,018
Net Cash Used by Operating (125,037) (40,423) (1,460,691)
Activities
Cash Flows From Investing
Activities
Purchase of fixed assets - - (227,115)
Purchase of product - -
tradenames - - (26,958)
Purchase of note receivable (5,000)
Organization costs - - (1,524)
Purchase/sale of mining - -
development costs - - 7,920
Purchase of mining claims - - (58,599)
Sale of licenses - - 150,000
Purchase of stock - - (65,000)
Net Cash Used by Investing - - (226,276)
Activities
Cash Flows From Financing
Activities
Issuance of common stock 180,000 54,750 1,350,623
Issuance of notes payable - - 647,210
Principal payments on long-
term debt - (2,600) (254,825)
Net Cash Provided by 180,000 52,150 1,743,008
Financing Activities
Net (Decrease) Increase In 54,963 11,727 56,041
Cash
Cash at Beginning of Period 1,078 1,107 -
Cash at End of Period $ 56,041 $ 12,834 $ 56,041
</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>
<CAPTION>
From
Inception
For the Three Months On
Ended February
April 30, 9, 1984
Through
April 30,
1997 1996 1997
<S> <C>
Supplemental cash flow
information:
Cash Paid For:
Interest $ 4,920 $ 5,095 $ 66,305
Income Taxes - - 2,347
Non-Cash Transactions:
Stock issued for mining
claims $ - $ - $5,045,000
Stock issued for down payment
on building $ - $ - $ 30,000
Stock issued for services $ 28,345 $ 16,000 $ 688,134
Stock issued for stock of Geo-
Environment Services, Inc. $ - $ - $ 97,144
Stock issued for Inventory $ - $ - $ 75,000
Stock issued for assets from
Austin-Young, Inc. and
Global Environmental
Industries $ - $ - $ 236,060
</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
April 30, 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
April 30, 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 April 30, 1997 and 1996
after writing off all accounts determined to be uncollectible.
Prepaid Expenses
Prepaid expenses at April 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Prepaid mining land lease $ 9,833 $ 13,090
Prepaid fees 40,000 8,500
$ 49,833 $ 21,590
</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 April 30, 1997 are as follows:
Business development costs $ 3,026
Accumulated amortization (3,026)
-
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
April 30, 1997 and 1996
(unaudited)
NOTE 2 - DEVELOPMENT STAGE ENTERPRISE
The Company, per FASB Statement No. 7, is properly accounted for and
reported as 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
April 30, 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 asset 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 $2,286,000 at April 30, 1997 and $1,650,000 at April 30,
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 April 30, 1997
and at April 30, 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, Inc. 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
April 30, 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 of common stock at a price of $3 per
share. This option expires on February 1, 1998, and there have been
12,000 shares exercised to date at a price of $36,000.
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
April 30, 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
April 30, 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 April 30, 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
April 30, 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 April 30, 1997, 29,129 shares (15,686 related
party) were issued at an average price of $0.97 per share for various
services rendered.
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>
<CAPTION>
April 30,
1997 1996
<S> <C>
Plant $ 244,978 $ 244,978
Machinery and equipment 10,582 12,382
Accumulated depreciation (44,659) (30,534)
$ 210,901 $ 226,826
</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. Depreciation expense is
$3,697 and $3,697 for the quarters ended April 30, 1997 and 1996
respectively. Amortization expense is $0 and $1,625 for the quarters
ended April 30, 1997 and 1996 respectively.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
(unaudited)
NOTE 7 - PROPERTY AND EQUIPMENT (Continued)
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.
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
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.
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 inventory 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
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
(unaudited)
NOTE 9 - PRODUCT TRADENAMES (Continued)
products. The tradenames are being 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>
<CAPTION>
April 30,
1997 1996
<S> <C>
Notes payable - Austin-
Young, bearing interest at 7% interest
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>
NOTE 11- NOTES PAYABLE
Notes Payable consist of the following:
April 30,
1997 1996
<TABLE>
<CAPTION>
<S> <C>
Note payable to an unrelated
corporation, bearing interest at 6%,
amortized over 30 years, balloon
payment due September 1996.
Secured by warranty deed. $ - $ 124,920
Note payable to a bank,
bearing interest at 7.34%, due
September, 1997. Secured
by $125,000 CD's (see Note 5) 125,000 -
$ 125,000 $ 124,920
</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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
(unaudited)
NOTE 12 - PRIVATE PLACEMENT OF COMMON STOCK (Continued)
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 April 30, 1997, 144,000 shares of common stock
were issued in a private placement for total consideration of $180,000.
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
(unaudited)
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 relative 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.
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 April 30, 1997 and 1996 are as follows:
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
(unaudited)
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
April 30, 1997 April 30, 1996
Carrying Fair Carrying Fair
Amounts Values Amounts Values
<S> <C>
Cash and Cash $ 5,000 $ -0- $ -0- $ -0-
Equivalents
Notes Payable Including
Current Maturities 327,385 327,385 307,459 307,459
</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 or 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 and 1996
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 $182,539, respectively, for the quarters
ended April 30, 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 quarter ended April 30, 1997,
the Company issued 144,000 shares in a private placement for $180,000 and issued
29,129 shares for services rendered to the Company and valued at $28,345.
During the quarter ended April 30, 1996, the Company issued 39,834 shares in a
private placement for $54,750 and issued 8,000 shares for services rendered to
the Company and valued at $16,000.
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 $43,000 from $83,485 for the quarter ended April 30, 1996 to
$126,315 for the quarter ended April 30, 1997. This included increases to
advertising and promotion ($3,100), legal and accounting ($6,600), insurance
($1,250), rent ($5,700), repairs and maintenance ($15,300), salaries and wages
($20,200), payroll taxes ($2,025) and travel ($2,600) and decreases to contract
labor ($11,425), depreciation and amortization ($1,625) and professional
services ($2,750).
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 quarters ended April 30, 1997 and 1996, the Company realized gross profit
margins of 14% and 16%, respectively on revenues of $31,553 and $31,303,
respectively. At current operating expense levels and with the anticipated
product sales mix, the Company estimates its break-even at approximately
$100,000 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 $750 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 34% for the period from inception on February 9, 1984 through April 30,
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 quarter ended April 30, 1997, 29,129 shares
of stock at an average price of $0.97 per share were issued for services
provided to the Company. Another $180,000 was provided through the issuance of
144,000 shares, the proceeds of which were used to cover overhead and purchase
milling equipment to begin equipping the Oregon mill facility.
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.
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 anticipated 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 Fresha 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 $100,000
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.
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. Several distributors have been signed to distribute the
products and discussions are being held with others and are in different stages
of completion which usually requires extensive testing and approval by each of
the wholesale or retail outlets. 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
KittyKata Premium Cat Litter and Soil Enhancer, White Buffaloa, Stall Fresha,
Stinky Pinkysa and Shoe Fresha 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 by mid-summer, 1997. If the Company is successful in its efforts to
complete a public stock offering currently being reviewed by the Securities and
Exchange Commission, the Company expects to spend approximately $400,000 for
milling equipment; $155,000 on warehouse facilities in Texas; $500,000 for
market development of its product line and marketing programs; $150,000 for
inventory; $50,000 for repairs and maintenance, and $750,000 for general and
administrative, working capital and contingency operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
During the quarter ended April 30, 1996, 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 April 30, 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 April 30, 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 April 30, 1997, no matters were submitted to a vote of
security-holders through the solicitation of proxies at a Meeting of
Shareholders or otherwise.
Item 5. Other Information.
During the quarter ended April 30, 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 - April 30, 1997 and 1996................. 3,4
Consolidated Statements of Operations - Quarters ended April 30, 1997
and 1996 ............................................................ 5
Consolidated Statements of Stockholders' Equity
(Deficit) - period ended April 30, 1997.............................. 6,7,8,9
Consolidated Statements of Cash Flows - Quarters ended April 30, 1997
and 1996............................................................ 10,11
Notes to Consolidated Financial Statements.......................... 12-24
(3) The following exhibits for the quarters ended April 30, 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 April 30,
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: June 9, 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 June 9, 1997
Terry L. Young Officer and Director
President, Chief Financial Officer, June 9, 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>
<CAPTION>
From
Inception on
February 9,
1984 Through
For the Three Months Ended April 30, April 30,
1997 1996 1997
<S> <C>
Primary and Fully
Diluted:
Average Shares
Outstanding 5,533,229 5,017,354 1,801,500
Net Loss $ (125,605) $ (83,881) $ (2,300,637)
Earnings (Loss)
Per share $ (0.02) $ (0.02) $ (1.28)
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1997
<CASH> 1,078
<SECURITIES> 0
<RECEIVABLES> 18,144
<ALLOWANCES> 0
<INVENTORY> 99,952
<CURRENT-ASSETS> 176,382
<PP&E> 214,598
<DEPRECIATION> 17,615
<TOTAL-ASSETS> 5,477,649
<CURRENT-LIABILITIES> 376,504
<BONDS> 0
0
0
<COMMON> 7,276,177
<OTHER-SE> (2,175,032)
<TOTAL-LIABILITY-AND-EQUITY> 5,477,649
<SALES> 69,293
<TOTAL-REVENUES> 69,293
<CGS> 48,716
<TOTAL-COSTS> 485,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,535
<INCOME-PRETAX> (464,562)
<INCOME-TAX> 100
<INCOME-CONTINUING> (464,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (464,662)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
