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, 1998
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,
1998----6,863,350 ($0.001 par value) common shares.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following interim consolidated financial statements as of April 30, 1998
and for the three months and quarter then ended, are unaudited, but in the
opinion of managment, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual audited financial statements and in conformity with the instructions
provided in Item 310(b) of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete audited financial statements. Such
interim financial statements reflect all adjustments (consisting of normal
recurring adjustments and accruals) which management considered necessary for
a fair presentation of the financial position and the results of operations
for the quarters presented. The results of operations for the quarters
presented are not necessarily indicative of the results to be expected for the
year ending January 31, 1999. The interim consolidated financial statements
should be read in connection with the audited consolidated financial
statements for the year ended January 31, 1998.
AMERICAN ABSORBANT NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
For the Three Months Ended
April 30, 1998 and 1997
(Unaudited)
INDEX
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PART I. FINANCIAL INFORMATION PAGE NUMBERS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 4
CONSOLIDATED BALANCE SHEETS AT APRIL 30, 4-5
1998 AND JANUARY 31, 1998
CONSOLIDATED STATEMENT OF OPERATIONS FOR 6
THE THREE MONTHS AND QUARTERS
ENDED APRIL 30, 1998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' 7-10
EQUITY FROM INCEPTION ON
FEBRUARY 9, 1984 THROUGH APRIL 30, 1998
CONSOLIDATED STATEMENT OF CASH FLOWS FOR 11-12
THE THREE MONTHS ENDED
APRIL 30, 1998 AND 1997
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 18-21
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
April 30, 1998 and January 31, 1998
(unaudited)
ASSETS
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April 30, January 31,
</TABLE> <TABLE> 1998 1998
CURRENT ASSETS
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Cash $ 306,138 $ 24,642
Accounts receivable 8,121 972
Prepaid expenses 81,833 89,208
Inventory 288,426 242,406
Total Current Assets 684,518 357,228
PROPERTY AND EQUIPMENT 726,847 538,151
OTHER ASSETS
Mining claims 5,081,669 5,081,669
Notes receivable 5,000 5,000
Certificates of deposit 15,000 15,000
Total Other Assets 5,101,669 5,101,669
$ 6,513,034 $ 5,997,048
</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)
April 30, 1998 and January 31, 1998
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
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April 30, January 31,
</TABLE> [S] [C] [C][C]
1998 1998
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 22,893 $ 156,915
Note payable-related party 100,000 179,052
Note payable 147,655 125,000
Total Current Liabilities 270,548 460,967
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
6,863,350 and 6,210,439 shares issued
and outstanding, respectively 6,864 6,211
Capital in excess of par value 9,049,975 8,194,427
Deficit accumulated during the
development stage (2,814,353) (2,664,557)
Total Stockholders' Equity 6,242,486 5,536,081
$ 6,513,034 $ 5,997,048
[/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, 1998 and 1997
(unaudited)
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Three Months Three Months From Inception
Ended Ended (February 9, 1997
Apr.30,1998 Apr. 30, 1997 to Apr. 30, 1998
REVENUES
Net sales $ 4,548 $ 31,553 $ 291,676
Costs of goods sold 3,254 27,146 189,111
Gross Profit 1,294 4,407 102,565
EXPENSES
General and administrative 141,558 126,315 2,826,684
Depreciation and amortization 11,865 3,697 98,100
Total expenses 153,423 130,012 2,924,784
Other Income/ (Expense)
Rent 2,148 -0- 10,053
Interest 185 -0- 360
Net Loss before provision
for Income taxes (149,796) (125,605) (2,811,806)
Provision for Income taxes -0- -0- 2,547
Net loss $ (149,796) $ (125,605) $ (2,814,353)
Weighted average loss per share (.02) (1.31) (.02)
Average shares outstanding 6,863,350 5,533,229 2,140,475
</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, 1998
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
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Balance at Inception-
February 9, 1984 - $ - $ - $ -
Issuance of common stock
for cash 37,500 38 962 -
</TABLE>
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Expenses paid by shareholders
for the years ended January
31, 1990 - - 518 -
</TABLE>
<TABLE>
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Net 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 1990 for various
assets from Austin-Young, Inc. 50,000 50 198,890 -
Issuance of common stock for
distribution licenses from Global
Environmental Industries (GEI)
for UT & WA, September 1990 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 (17,000) (17) (85,423) -
Repurchase of common stock from
Austin-Young, Inc. in May 1991 (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 10,000 10 74,990 -
</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 April 30, 1998
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
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Issuance of common stock for the
purchase of mining claims in
October 1991 13,214 13 184,987 -
Common stock canceled by
officers/diretors in January
1992 (20,000) (20) 20 -
</TABLE>
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Contribution from Austin-Young, Inc. - - 17,000 -
</TABLE>
<TABLE>
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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-
Environment Services, Inc.
in February 1992 701,800 702 96,442 -
Issuance of common stock for the
purchase of mining claims
in March 1992 243,000 243 4,859,757 -
Common stock canceled by officers
and directors in June 1992 (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 a rpurchase agreement
in May, 1991) to Austin-Young, Inc.
for relief of debt in July 1992 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 17,800 18 26,682 -
Issuance of common stock to
Austin-Young, Inc. in
June 1993 12,000 12 35,988 -
Issuance of common stock for
cash October 1993 66,667 67 199,936 -
</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 April 30, 1998
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
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Issuance of common stock
as down payment on building
October 199 6,000 6 29,994 -
Issuance of common stock for
services rendered in
October 1993 17,000 17 50,983 -
</TABLE>
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Issuance of common stock for
cash December 1993 80,072 80 191,321 -
</TABLE>
<TABLE>
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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 6,000 6 29,994 -
Issuance of common stock
for services rendered in
June 1994 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 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 $4,747 $ 6,399,189 $(1,308,903)
Issuance of common stock
for services 9,000 9 22,391 -
Issuance of common stock in
a private offering 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 $4,970 $ 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 April 30, 1998
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
<TABLE>
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Issuance of common stock for
cash in a private offering 130,960 131 156,729 -
Issuance of common stock for
services 259,620 260 262,359 -
</TABLE>
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Net loss for the year ended
January 31, 1997 - - - (464,662)
</TABLE>
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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 582,000 582 729,843 -
(Net of commissions of $84,575)
Issuance of common stock for
services 129,784 130 131,782 -
Issuance of common stock for
purchase of equipment 13,555 13 15,236 -
Issuance of common stock for cash
pursuant to a stock option plan 25,000 25 9,350 -
Issuance of common stock for partial
redemption of a note pursuant to
a stock option plan 100,000 100 37,400 -
Net loss for the year ended
January 31, 1998 - - - (489,525)
Balance, January 31, 1998 6,210,439 $6,211 $ 8,194,427 $(2,664,557)
Issuance of common stock for cash
in a private offering 520,976 521 729,383 -
(Net of commissions of $51,290)
Issuance of common stock for the
purchase of equipment 81,763 81 120,872 -
Issuance of common stock for services 3,500 4 5,246 -
Issuance of make-up shares in a
private offering amendment 46,672 47 47 -
Net loss for the three months
ended April 30, 1998 - - - (149,796)
Balance, April 30, 1998 6,863,350 $ 6,864 $9,049,975 $(2,814,353)
</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>
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From Inception
(February 9,
1997)
Three Months Three Months to Apr.30, 1998
Apr. 30, 1998 Apr. 30, 1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Loss $ (149,796) $ (125,605) $ (2,814,353)
Depreciation and
amortization 11,865 3,697 98,100
(increase) decrease in
receivables (7,149) (34,621) (8,121)
Decrease (increase) in
prepaid expenses (7,375) 7,375 (68,972)
Decrease (increase)in
inventory (46,020) 10,101 (46,020)
Increase (decrease) in
payables (134,022) (14,329) (134,022)
Loss from disposal of fixed
asset -0- -0- 1,560
Stock issued for services 5,250 28,345 796,951
Expenses paid by shareholder -0- -0- 149,018
Net Cash used by operating
activities (312,497) (125,037) (2,025,859)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase offixed asssets (79,514) -0- (630,157)
Purchase Certificates of
Deposit -0- -0- (15,000)
Purchase of product tradenames -0- -0- (26,958)
Purchase of note receivable -0- -0- (5,000)
Organization costs -0- -0- (1,524)
Purchase/sale of mining
develpment costs -0- -0- 7,920
Purchase of mining claims -0- -0- (58,599)
Sale of licenses -0- -0- 150,000
Purchase of stock -0- -0- (65,000)
Net cash used by investing
activities (79,514) -0- (644,318)
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock 729,904 180,000 2,640,327
Issuance of notes payable 24,655 -0- 671,865
Principal payments on
long term debt (81,052) -0- (335,877)
Net cash provided by
financing activies 673,507 180,000 2,976,315
Net (decrease)increase in
cash $ 281,496 $ 54,963 $ 306,138
Cash at beginning of period $ 24,642 1,078 -0-
Cash at end of period $ 306,138 $ 56,041 $ 306,158
</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)
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Three Months Three Months From Inception
Ended Ended (February 9, 1997)
Apr 30, 1998 Apr. 30, 1997 to Apr 30, 1998
SUPPLEMENTAL CASH FLOW
INFORMATION:
CASH PAID FOR:
Interest 4,623 4,920 70,928
Income Taxes -0- -0- 2,447
NON-CASH TRANSACTIONS:
Stock issued for mining
claims -0- -0- 5,045,000
Stock issued for down payment
on building -0- -0- 30,000
Stock issued for services 5,250 28,345 693,384
Stock issued for stock of Geo-
Environmental Services, Inc. -0- -0- 97,144
Stock issued for inventory -0- -0- 75,000
Stock issued for assets of
Austin-Young,Inc., and Global
Environmental Indsutries -0- -0- 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, 1998
(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.
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, 1998
(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, 1998 and 1997 after
writing off all accounts determined to be uncollectible.
Prepaid Expenses
Prepaid expenses at April 30, 1998 consist of the following:
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1998
Prepaid mining land lease $ 9,833
Prepaid purchases 20,000
Prepaid fees 52,000
$ 81,833
</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.
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1998
(unaudited)
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.
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).
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.
NOTE 4 - 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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1998
(unaudited)
NOTE 4 - MINING CLAIMS (Continued)
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.
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 5 - NOTES PAYABLE
During the quarter ended April 30, 1998, the note payable to the major
shareholder was reduced by $79,052 thereby reducing annual interest expense
by $5,544.
NOTE 6 - PRIVATE PLACEMENT OF COMMON STOCK
During the quarter ended April 30, 1998, 520,976 shares of common stock
were issued in a private placement for $730,000 cash which was net of
brokerage commissions. Another 81,763 common shares were issued for the
purchase of equipment valued at $121,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company has sold two private placements that include a royalty
payment. The first private placement sold includes a $3 per ton per minimum
investment on 6,000 tons of zeolite mined and sold. Total royalties paid per
minimum investment will be $18,000. The second private placement sold
includes a $2 per ton per minimum investment on 10,000 tons of zeolite mined
and sold. Total royalties paid per minimum investment will be $20,000. The
royalties will be paid simultaneously ($5 per ton) to the shareholders
proportionately once the zeolite has been mined and sold. The Company may
increase the amount of the royalty payment to any holder of the royalty right
above the specified dollar per ton royalty, but in no event will the total
royalty payment exceed the maximum per investment. The increase in the
royalty amount paid would only decrease the time limit in which the holder of
a royalty right would receive the total royalty amount. Royalty payments will
be made quarterly after the Company has made its quarterly financial statement
filing with the Securities and Exchange Commission and determined the total
tonnage that has been mined, milled and sold during the quarter.
NOTE 8 - 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 9 - SUBSEQUENT EVENT
On or about May 25, 1998, after the end of the quarter ended April 30,
1998, and prior to the filing of the Form 10-QSB for the period ended April 30,
1998, the Company received service on a lawsuit (Cause No. 9804737) that was
filed in the 126th Judicial District Court of Travis County, Texas by Mr.
Charles R. Walden, Jr. (former President of the Company). Named as defendants
in the lawsuit were American Absorbents Natural Products, Inc. and Terry
L. Young. Prior to receiving service on the lawsuit, the Company had filed a
lawsuit against Mr. Walden seeking the return and cancellation of 200,000
common shares he had been sold at a reduced rate pursuant to a 30 month note
by Austin Young, Inc. in return for future services to the Company to get
the Company beyond the development stage. Mr. Walden's services to the Company
terminated for cause within 60 days of the transaction and more than 3 years
prior to the Company moving beyond the development stage. Subsequent to the
sale by note of the shares to Mr. Walden by Austin Young, Inc., the Company
purchased the note from Austin Young. The Company seeks to have these
shares canceled for the benefit of all shareholders for failure on Mr.
Walden's part to perform the required services and failure to pay the note when
due in August, 1997. The Company's management does not expect this litigation
to have any material impact on the Company, its management or its operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS
OF OPERATIONS 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.
During the quarter ended April 30, 1998, the Company's milling plant in
Burns/Hines, Oregon was completed and placed into production processing the
10,000 tons of zeolite minerals that were mined from the Company's claims in
Oregon in December, 1997.
LIQUIDITY
Austin Young, Inc., the major stockholder of the Company, has provided,
through loans and equity funding, any deficiencies to the necessary working
capital during the development stage, but expects funding from private
placements and other offerings will be sufficient for future development
costs. Austin Young, Inc. provided a small portion ($7,000) of the Company's
operating capital during fiscal year 1997 through advances on behalf of the
Company. The Company owed $202,385 to Austin Young, Inc. at April 30, 1997
and $100,000 at April 30, 1998. The balance owing to Austin Young, Inc. was
reduced by $23,333 in principal and $14,167 in accrued interest during
the fiscal year ended January 31, 1998 by the exercise of options by Mr.
Young and by $79,052 during the quarter ended April 30, 1998. 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.
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 packaged products to a minimum. During the development
stage, the Company has also relied on favorable office space and equipment
leases from Austin Young, Inc. to maintain a lower overhead to conserve its
limited resources for product and market development.
During the development stage the Company has paid for almost everything as it
was acquired including the build up in inventory levels. As a result, and
now that the milling facility is in production, the future cash flow of the
Company will benefit as the inventory is converted into sales with the
implementation of the marketing efforts.
During the development stage the Company incurred losses that reflect the
development stage activity of researching and test marketing its products. 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.
As the Company moves into the marketing phase, its need for the warehouse
space in Austin, Texas has diminished somewhat and the Company has leased a
portion of the warehouse to a tenant for approximately $900 per month with
the Company continuing to use the remainder of the space.
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 fiscal
year ended January 31, 1998, the Company issued 582,000 shares in private
placements for $815,000, 129,784 shares for services rendered to the Company
and valued at $132,380, 13,555 shares for equipment valued at $15,250,
25,000 shares through the exercise of an option to a director for $9,375 and
100,000 shares through the exercise of an option to an officer and director
for $37,500 in debt relief. During the three months 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 three months ended April 30, 1998, the Company issued 520,976
shares in a private placement for $730,204, 3,500 shares for services rendered
to the Company and valued at $5,250 and issued 81,763 shares for equipment
valued at $121,000.
The Company realizes gross profit margins generally ranging from 20% to 35% on
its product sales depending on product line and pricing levels. While still
in the test marketing phase, for the fiscal years ended January 31, 1996,
January 31, 1997, January 31, 1998 and for the period from the inception date
on February 9, 1984 to January 31, 1998, the Company had average gross profit
margins of 35%, 30%, 30% and 35% respectively. 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 15% increase in the gross profit percent.
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 or $1,500,000 in sales per year. For the period from the inception
date on February 9, 1984 to April 30, 1998, the Company had an average gross
profit margin of 35%. For the three months ended April 30, 1998 and 1997, the
Company realized gross profit margins of 28% and 14%, respectively on
revenues of $4,548 and $33,553, 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.
At April 30, 1998, the Company had $125,000 in bank debt outstanding relative
to its Austin, Texas warehouse facility. This bank debt was 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 included
interest only payments to the bank in the approximate amount of $900 per month.
This bank debt was incurred to pay off an existing mortgage on the Austin, Texas
warehouse facility. This debt was paid off by the Company subsequent to the
end of the quarter ended April 30, 1998. 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, 1996, 1997 and 1998 and for
the quarters ended April 30, 1997 and April 30, 1998. 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. During the fiscal year ended
January 31, 1998 revenues decreased to $47,472 from $69,293 the previous year,
or, 31%, due to lower orders from the French distributor resulting from milder
weather conditions in France. Revenues for the quarter ended April 30, 1998
decreased to $4,548 from $31,553 for the same quarter of the previous year
as the management focused on getting the Oregon production facility into
production and the employment of personnel to operate the plant.
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 and $132,380 of services were
acquired for the fiscal year ended January 31, 1998 through the issuance of
common stock. 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 only increased by approximately $29,000
during the fiscal year ended January 31, 1998. The increase was mostly due
to increases in payroll as Terry L. Young was added to the Company's payroll.
Net General and Administrative Expenses increased by approximately $15,000
during the quarter ended April 30, 1998 as compared to the same quarter of the
previous year mostly due to payroll increases relating to the employment of the
Vice President of Production for the Oregon milling facility. Depreciation
expenses increased by approximately $8,000 during this same time period due to
increased depreciation expense relative to the new milling equipment.
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.
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 paid this new loan in May, 1998. The Company has maintained current
ratios of 0.77, 0.47 and 1.10, respectively, for the fiscal years ended January
31, 1998, 1997 and 1996. The lower current ratio for the fiscal years ended
January 31, 1998 and 1997, results from the classification as short term debt
of $ 179, 052 and $202,385, respectively, owing to Austin-Young, Inc., the major
stockholder of the Company. Current ratios for the three months ended April
30, 1998 and 1997 were 2.53 and 0.67, respectively.
INFLATION
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 for 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 is using quality, less expensive plastic
packaging for its Stall Fresh product and may pursue plastic packaging for
other products as well.
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
$1,500,000 per year) at which the gross profits attained will sustain and
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 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. During
the quarter ended April 30, 1998, the Company began shipments to Drug Emporium
in the northwestern United States and subsequent to the end of the quarter,
began shipments to Smith's Food and Drug Centers in a four state region.
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 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
minerals 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. The
Company is also planning the introduction of at least two new products
including a lawn and garden product and a multi-purpose product during the
next fiscal year.
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 Company completed a private placement
offering in the early part of fiscal 1998 that was sufficient to equip this
facility with crushing, milling, drying, screening, packaging and storage
equipment. The construction of the milling facility equipment was completed
during the quarter ended April 30, 1998 and the plant has begun operating.
The Company has purchased additional milling equipment that will at least
triple the milling facility's capacity when installed.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the quarter ended April 30, 1998, 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.
(SEE NOTE 9 -SUBSEQUENT EVENT)
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended April 30, 1998, 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, 1998, 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, 1998, 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 April 30, 1998, 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.
Pages
(a) (1) The following financial statements are included in Part I, Item 1:
Consolidated Balance Sheets - April 30, 1998 and January 31, 1998 4-5
Consolidated Statements of Operations - Three months ended April 30,
1998 and 199 6
Consolidated Statements of Stockholders' Equity Deficit) - period ended
April 30, 1998 7-10
Consolidated Statements of Cash Flows - Three months ended April 30,
1998 and 1997 11-12
Notes to Consolidated Financial Statements 13-17
(3) The following exhibits for the three months and quarters ended
April 30, 1998 and 1997, are submitted herewith:
Exhibit 11 - Computation of Per Share Earnings (Loss) 24
Exhibit 21 - Subsidiary of the Registrant 25
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,
1998.
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 12, 1998
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 12, 1998
Terry L. Young Officer and Director
__________________________ President, Chief Financial Officer,June 12, 1998
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>
From Inception (February
Three Three 9, 1997)
Months Ended Months EndedApr. 30, 1997 to Apr.
Apr. 30, 1998 30, 1998
Primary and Fully Diluted:
Average Shares Outstanding 6,863,350 5,533,229 2,140,475
Net Loss $ (149,796)$ (125,605)$ (2,814,353)
Earnings (Loss) $ $ $
Per Share (.02) (.02) (1.31)
</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-31-1998
<PERIOD-END> APR-30-1998
<CASH> 306,138
<SECURITIES> 0
<RECEIVABLES> 8,121
<ALLOWANCES> 0
<INVENTORY> 288,426
<CURRENT-ASSETS> 684,518
<PP&E> 794,898
<DEPRECIATION> 68,051
<TOTAL-ASSETS> 6,513,034
<CURRENT-LIABILITIES> 270,548
<BONDS> 0
0
0
<COMMON> 9,056,839
<OTHER-SE> (2,814,356)
<TOTAL-LIABILITY-AND-EQUITY> 6,513,034
<SALES> 4,548
<TOTAL-REVENUES> 4,548
<CGS> 3,254
<TOTAL-COSTS> 153,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (149,796)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (149,796)
<INCOME-TAX> 0
<INCOME-CONTINUING> (149,796)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,796)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
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