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, 1999
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, Suite 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,
1999----7,420,252 ($0.001 par value) common shares
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following interim consolidated financial statements as of April 30, 1999
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, 2000.
The interim consolidated financial statements should be read in connection
with the audited consolidated financial statements for the year ended
January 31, 1999.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
For the Three Months Ended
April 30, 1999 and 1998
(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
1999 and January 31, 1999
Consolidated Statement of Operations for 6
the three months and quarter
ended April 30, 1999
Consolidated Statements of Stockholders' 7-10
Equity from inception on
February 9, 1984 through April 30, 1999
Consolidated Statement of Cash Flows for 11-12
the three months ended
April 30, 1999 and 1998 and from inception
to April 30, 1999
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 21
Item 4. Submission of Matters to a Vote of
Security-Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
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AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
April 30, 1999 and January 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS April 30, 1999 January 31, 1999
Cash $64,149 $ 4,966
Accounts Recievable
Trade 48,859 53,005
Other 730 730
PrePaid expenses 9,833 17,208
Inventory 294,859 262,121
Total Current Assets 418,430 338,030
Property and Equipment 702,018 749,844
OTHER ASSETS
Mining Claims 5,081,569 5,081,569
Notes Receivable 5,000
Certificates of Deposit 15,000 15,000
Total Other Assets 5,096,569 5,101,569
TOTAL ASSETS 6,217,017 6,189,443
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
April 30, 1999 and January 31, 1999
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES April 30, 1999 January 31, 1999
Accounts payable and accrued expenses $ 109,208 $ 61,394
Notes Payable Shareholders 230,400 50,000
Note Payable 868 14,281
Total Current liabilities 340,548 125,675
COMMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS EQUITY
Common stock; authorized 50,000,000 common
shares at $0.001 par value; 7,420,252 and
7,391,251 shares issued and outstanding,
respectively 7,420 7,392
Capital in excess of Par Value 9,712,174 9,682,203
Deficit accumulated during the
development stage (3,823,125) (3,625,827)
Treasury stock (cost of 90,000
shares held by the comapny) (20,000)
Total Stockholders' Equity 5,876,469 6,063,768
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 6,217,017 6,189,443
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
April 30, 1999 and 1998
(unaudited)
From Inception
Three Months Ended (February 9, 1984)
April 30, 1999 April 30, 1998 to April 30, 1999
REVENUES
Net Sales $ 10,140 $ 4,548 $ 451,141
Cost of Good sold 7,098 3,254 293,989
Gross Profit 3,042 1,294 157,152
EXPENSES
General and
administrative 179,278 141,558 3,848,090
Depreciation and
amortization 23,845 11,865 167,468
Other Income (Expense)
Rent 2,610 2,148 19,042
Interest 173 185 1,086
Gain on sale of assets 17,800
Net Loss before provision
fro income taxes (197,298) (149,796) (3,820,478)
Provision for income
taxes 0 0 2,647
Net Loss $ (197,298) $ (149,796) $ (3,823,125)
Weighted average
loss per share $ (0.03) $ (0.02)
Average shares
outstanding 7,362,858 6,863,350
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, 1999
(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 -
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Expenses paid by shareholders for the
years ended January 31, 1990 - - 518 -
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Net loss for the years ended January - - - (1,618)
31, 1990
Balance, January 31, 1990 37,500 $ $ 1,480 $(1,618)
38
Issuance of common stock for services 391,000 391 7,429 -
rendered in August 1990
Issuance of common stock in September
1990 for various 50,000 50 198,890 -
assets from Austin-Young, Inc.
Issuance of common stock for
distribution licenses from Global
Environmental Industries (GEI) for UT 50,000 50 37,070 -
& WA, September
1990
Contribution from Austin-Young, Inc. - - 13,500 -
Issuance of common stock for services 12,500 12 37,488 -
rendered in October 1990
Net loss for the year ended January - - - (57,756)
31, 1991
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 (338,000) (338) (64,682) -
May 1991
Cancellation of common shares (20,000) (20) 20 -
Issuance of common stock for the
purchase of product from 10,000 10 74,990 -
Steelhead Specialty Minerals in August
1991
</TABLE>
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, 1999
(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 13,214 13 184,987 -
October 1991
Common stock canceled by (20,000) (20) 20 -
officers/directors in January 1992
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Contribution from Austin-Young, Inc. - - 17,000 -
</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$(152,689)
Issuance of common stock for the
acquisition of Geo- 701,800 702 96,442 -
Environment Services, Inc. in February
1992
Issuance of common stock for the
purchase of mining claims 243,000 243 4,859,757 -
in March 1992
Common stock canceled by officers and
directors in (32,430) (32) 32 -
June 1992
Cancellation of fractional shares
due to reverse stock split (21) - - -
Contribution by Austin-Young, Inc. - - 10,000 -
Issuance of common stock (pursuant to a
repurchase agreement
in May, 1991) to Austin-Young, Inc. for 3,380,000 3,380 61,620 -
relief of debt in July
1992
Net loss for the year ended January 31, 1993 - - - (136,304)
Balance, January 31, 1993 4,461,563$ 4,462 5,450,620$(288,993)
Issuance of common stock for services
rendered in 17,800 18 26,682 -
June 1993
Issuance of common stock to
Austin-Young, Inc. in 12,000 12 35,988 -
June 1993
Issuance of common stock for cash 66,667 67 199,936 -
October 1993
</TABLE>
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, 1999
(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 6,000 6 29,994 -
October 1993
Issuance of common stock for services
rendered in 17,000 17 50,983 -
October 1993
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Issuance of common stock for cash 80,072 80 191,321 -
December 1993
</TABLE>
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Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (310,862)
31, 1994
Balance, January 31, 1994 4,661,102 $ 4,662 $ 6,021,524$ (599,855)
Issuance of common stock for services
rendered February 6,000 6 29,994 -
1994
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 15,000 15 46,235 -
1994
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (709,048)
31, 1995
Balance, January 31, 1995 4,746,352 $ 4,747 $ 6,399,189$(1,308,903)
Issuance of common stock for services 9,000 9 22,391 -
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 - - - (401,467)
31, 1996
Balance at January 31, 1996 4,969,520 $ 4,970 $ 6,851,728$(1,710,370)
</TABLE>
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, 1999
(unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid in Development
Shares Amount Capital Stage
Balance at Januaru 31,1996
(from prior page) 4,969,520 4,970 6,851,728 (1,710,370)
Issuance of common stock for
cash in private offering 130,960 131 156,729
Issuance of common
stock for services 259,620 260 262,359
Net Loss for the year
ended January 31, 1997 (464,662)
Balance January 31,1997 5,360 5,361 7,270,816 (2,175,032)
Issuance of common stock
for cash in private offering 582,000 582 729,843
Issaunce 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
pursuant to stock
option plan 25,000 25 9,350
Issuance of common stock
for partial redemtion 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 963,269 963 1,218,676
Issuance fo common stock
for services 135,480 136 147,628
Issuance of common stock
for purchase of equipment 82,063 82 121,472
Net loss for the year ended
January 31, 1999 (961,270)
Balance January 31,1999 7,391,251 7,392 9,682,203 (3,625,827)
Issuance of common
stock for cash in a
private offering 29,001 28 29,971
Net loss foe the three
months ended April 30, 1999 (197,298)
Balance April 30,1999 7,420,252 7,420 9,712,174 (3,823,125)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
From Inception
Three Months ended (Fenruary 9, 1984)
April 30, 1999 April 30, 1998 to April 30, 1999
Cash flows from
operating activities
Net Loss $ (197,302) $ (149,796) $3,823,125)
Deprciation and
Amortization 20,513 11,865 164,136
(Increase) decreas in
receivables 9,146 (7,149) (44,589)
Decrease (increase) in
prepaid expenses 7,375 (7,535) 2,167
Increase (decrease in
payables 1,560
Stock issued for services 5,250 939,465
Epenses paid by shareholder 149,018
Unlocated difference in prior
numbers 14,910
Net cash used by
operating activiies (162,274) (312,497) (2,727,753)
Cash flows from investing activities
Purchase of fixed assets (1,250) (79,514) (699,320)
Purchase of certificates of deposit (15,000)
Purchase of product tradenames (26,958)
Purchase of note receivable (5,000)
Organizations costs (1,524)
Purchase/sale of mining development costs 7,920
Purchase of mining claims (58,599)
Sales of licenses & other assets 28,562 178,562
Purchase of stock 20,000 (85,000)
net cash used by investing
activities 7,312 (79,514) (704,919)
Cash flows from financing activities
Issuance of comon stock 30,000 729,904 3,160,062
Issuance of notes payable 184,145 24,655 831,355
Prinicpal payments on
long-term debt (81,052) (494,596)
Net cash provided by financing
activities 214,145 673,507 3,496,821
Net (decrease) increase in cash 59,182 281,496 64,149
Cash at begining of period 4,966 26,642 n/a
Cash at end of period $ 64,149 $ 306,138 $ 64,149
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
From Inception
Three Months ended (February 9, 1984)
April 30, 1999 April 30, 1998 to April 30, 1999
Supplemental cash floe information
Cash paid for:
Interest $ 1,810 $ 4,623 $ 34,630
Income taxes 2,547
Non-cash transaction:
Stock issued for mining
claims 5,045,000
Stock issued for down
payment on building 30,000
Stock issued for services 5,250 939,465
Stock issued for stock of
Geo-environmental Services, Inc. 97,144
Stock issued for inventory 75,000
Stock issued for assets of
Austin-Young, Inc. and
Global Environmental Industries 236,060
Stock issued for purchase of equipment 136,803
Stock issued for partial redemtion of note 37,500
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1999
(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 o f 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 debtinstruments 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, 1999
(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, 1999 and
1998 after writing off all accounts determined to be uncollectible.
Prepaid Expenses
Prepaid expenses consist of the following:
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. The Company completed its plant
in Oregon and began operation in 1999.
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, 1999
(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, 1999
(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, 1999, the note payable to the major
shareholder increased by $80,400. Two shareholders also loaned the company
$50,000 each, and these notes are secured by the Company's warehouse in
Austin, Texas.
NOTE 6 - PRIVATE PLACEMENT OF COMMON STOCK
During the quarter ended April 30, 1999, 29,001 shares of common stock
were issued in a private placement for $30,000.
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
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
April 30, 1999
(unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
At April 30, 1999, the Company was involved in one legal proceeding:
-American Absorbents Natural Products, Inc. v. Calkins
A former independent contractor hired to construct the Oregon plant
has placed a mechanics lien on the Oregon plant for alleged unpaid
claims and the Company has sued to remove the mechanics liens since
the claims are being contested. Calkins has filed a counter claim
seeking damages in addition to his lien. The case is in initial
stages and an outcome cannot be determined at this time.
During the quarter ended April 30, 1999, the Company settled these
legal matters:
-McLean v. American Absorbents Natural Products, Inc.
A former employee was seeking workers compensation coverage for
alleged injuries sustained on the job at the Oregon plant. During the
quarter, all administrative hearings were completed and the Company
was found not to be liable.
-American Absorbents Natural Products, Inc. V. Charles Walden
During the quarter, the Company settled the employee stock purchase
case in arbitration by Mr. Walden's return to the Company of 90,000
of the common shares, a $15,000 payment by the Company to Mr. Walden
and the Company's forgiveness of the stock purchase note. Mr.
Walden was allowed to keep the remaining 110,000 shares. The 90,000
shares are reported on the balance sheet as treasury stock.
The Company is currently investigating certain allegations of
improprieties involving former officers of the Company. The Company does not
believe that the improprieties even if true would have a materially adverse
impact on the Company.
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.
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, 1999 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 AND FINANCIAL CONDITION
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 1998 through advances on behalf of the
Company. The Company owed $100,000 to Austin Young, Inc. at April 30, 1998
and $130,400 at April 30, 1999, plus accrued interest. During the quarter,
two shareholders loaned the company $50,000 each, and the loans are secured
by the warehouse in Austin, Texas. The loans are interest only and
are payable on April 30, 2000. All or part of the loans may be converted into
securities if the Company sells securities in a private placement.
Revenues to date have provided insufficient funding of working capital. 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 and conserve its
limited resources.
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 years ended January 31, 1997,
1998 and 1999. 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 year ended January 31, 1999 the Company
raised $1,219,639 (net of commissions of $53,428) through the sale of 963,269
restricted common shares. Additional milling equipment to increase the
capacity of the Oregon milling facility and valued at $121,554 was acquired
through the issuance of 82,063 restricted common shares. Another 135,480
restricted common shares were issued for professional services rendered to
the Company and valued at $147,764. 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. During the three months
ended April 30, 1999, the Company issued 29,001 shares of common stock in a
private placement for $30,000.
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, 1997,
January 31, 1998, January 31, 1999 and for the period from the inception date
on February 9, 1984 to January 31, 1999, the Company had average gross profit
margins of 30%, 30%, 34% and 34% 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.
For the period from the inception date on February 9, 1984 to April 30, 1999,
the Company had an average gross profit margin of 34%. For the three months
ended April 30, 1999 and 1998, the Company realized gross profit margins of
30% and 28%, respectively on revenues of $10,140 and $4,548, respectively.
At April 30, 1998, the Company had $125,000 in bank debt outstanding relative
to its Austin, Texas warehouse facility. This debt was paid off by the
Company subsequent to the end of the quarter ended April 30, 1998. At April
30, 1999, the Company had $100,000 in debt outstanding to two shareholders
relative to its Austin, Texas warehouse facility. 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, 1997, 1998 and 1998 and for the
quarters ended April 30, 1998 and April 30, 1999. 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. During the fiscal year ended January 31, 1999,
sales increased to $153,873. Revenues for the quarter ended April 30, 1999
increased to $10,140 from $4,548 for the same quarter of the previous year.
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 over the last
several years. In the year ended January 31, 999, general and administrative
expense increased to $983,873 from $496,585 in fiscal 1998. A large portion of
the increase is attributable to extra expense associated with the production
facility, marketing personnel and marketing expense. Salary and payroll
expenses increased by $202,000 with the addition of production employees and
management salary increases. Additional marketing personnel also contributed
to the increase. Advertising, postage and printing expenses increased by
approximately $126,000 due to increased promotion levels with the introduction
of new marketing programs. Insurance expense increased by $28,200 due to the
increased valuation of the Oregon willing facility and the addition of health
and hospitalization insurance to certain employees as a benefit. Interest
expense decreased by $13,700 during the current fiscal year due to the
repayment of approximately $250,000 of bank debt and debt owed to the major
shareholder. Travel expenses decreased by $8,150 and outside service expense
decreased by $3,100 due to more personnel on the payroll. Professional
services increased by $92,500 due to executive benefits awarded in the form of
restricted common stock and charged to professional services. Legal expenses
increased by $46,950 due to legal fees incurred in the Charles Walden and
David Calkins lawsuits as well as legal fees incurred relating to private
stock offerings.
Net General and Administrative Expenses increased by approximately $38,000
during the quarter ended April 30, 1999 as compared to the same quarter of
the previous year mostly due to increases in number of personnel, salary
increases, legal fees, and health insurance and worker compensation costs.
Depreciation expense increased by approximately $12,000 during this period
from depreciating 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. During the fiscal year ended January 31, 1998, the
balance of the note decreased to $179,052 due to the exercise of options
through debt relief in the amount of $37,500 consisting of $23,333 in
principal and $14,167 in accrued interest. During the year ended January 31,
1999, the note was reduced by $129,052 in principal to a balance of $50,000.
During the three months ended April 30, 1999, the Company borrowed $80,400
from the major shareholder, and $100,000 from two other shareholders for
working capital.
The Company has maintained current ratios of 2.69, 0.77, and 0.47,
respectively, for the fiscal years ended January 31, 1999, 1998 and 1997. 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, 1999 and 1998
were 1.22 and 2.53.
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 Fresha product and may pursue plastic packaging for
other products as well.
PLAN OF OPERATIONS
Although the Company had turnover of two senior management persons, the
Company has hired a chief executive officer, a chief operating officer and a
chief financial officer. The Company is now directing its efforts to
obtaininglarge sales contracts, tightening cost controls and improving its
financial position and the overall management of the Company. The board of
directors is being expanded to include persons with significant sales
management and/or financial management backgrounds, and the board is currently
seeking funding to continue and expand its operations.Management believes that
it can continue to fund its operations through external financing until
revenues reach the level at which the gross profits attained will sustain and
finance the operations.
Management has begun a marketing campaign 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. 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. The Company
continues to ship some of its agricultural products to E.N.S.R./S.A.R.L., an
import company located in France.
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, 1999 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, 1999, 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 7
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended April 30, 1999, 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, 1999, 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, 1999, 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, 1999, 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, 1999 and
January 31, 1999-------------------- 4-5
Consolidated Statements of Operations - Three months
ended April 30, 1999 and 1998--------------------------- 6
Consolidated Statements of Stockholders' Equity
(Deficit) - period ended April 30, 1999------------------ 7-10
Consolidated Statements of Cash Flows - Three months
ended April 30,1998 and 1998---------------------------- 11-12
Notes to Consolidated Financial
Statements------------------------------------------------ 13-17
(3) The following exhibits for the three months and quarters ended
April 30, 1999 and 1998, 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, 1999.
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: _____________________________________________
Robert L. Bitterli, President and Chief Executive Officer
Date: June 15, 1999
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
__________________________ President, Chief Executive June 15, 1999
Robert L. Bitterli Officer and Director
__________________________ Chief Financial Officer, June 15, 1999
Donald L. Gillespie 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 9, 1984)
Three Months Ended Three Months Ended to Apr. 30, 1998
Apr. 30, 1999 Apr. 30, 1999
Primary and Fully Diluted:
Average Shares Outstanding 7,362,858 6,863,650 N/A
Net Loss $ (197,298)$ (149,796)$ (2,814,353)
Earnings (Loss) $ $ N/A
Per Share (.03) (.02)
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 21 - SUBSIDIARY OF THE REGISTRANT
Name
Jurisdiction of Incorporation
American Absorbents, Inc. Texas
The corporation listed is a wholly owned subsidiary of the Registrant, and is
included in the consolidated financial statements.
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