-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DM1l8XoYclhEweHLKh/D9WcSxEchinv9HxihC86idua5g9DHBV7f5LCGkFjwITUc jfIJ0aoGSOu9pBlOAPnvRQ== 0000914553-98-000010.txt : 19981216 0000914553-98-000010.hdr.sgml : 19981216 ACCESSION NUMBER: 0000914553-98-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ABSORBENTS NATURAL PRODUCTS INC CENTRAL INDEX KEY: 0000914553 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 870421089 STATE OF INCORPORATION: UT FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23356 FILM NUMBER: 98769652 BUSINESS ADDRESS: STREET 1: 3800 HUDSON BEND ROAD STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78734 BUSINESS PHONE: 5122662481 MAIL ADDRESS: STREET 1: 3800 HUDSON BEND RD STREET 2: SUITE 300 CITY: AUSTIN STATE: TX ZIP: 78734 FORMER COMPANY: FORMER CONFORMED NAME: GEO ENVIRONMENTAL RESOURCES INC DATE OF NAME CHANGE: 19940203 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB OMB Approval Expires: Approval Pending OMB Number: xxxx-xxxx Estimated Average Burden Hours Per Response: 1.0 (Mark One) X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 31, 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: October 31, 1998----7,198,718 ($0.001 par value) common shares PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The following interim consolidated financial statements as of October 31, 1998 for the nine months and quarters then ended, are unaudited, but in the opinion of management, 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 ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Financial Statements For the Nine Months and Quarters Ended October 31, 1998 and 1997 (Unaudited) INDEX PART I. FINANCIAL INFORMATION PAGE NUMBERS ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 4 CONSOLIDATED BALANCE SHEETS AT OCTOBER 31, 4-5 1998 AND JANUARY 31, 1998 CONSOLIDATED STATEMENT OF OPERATIONS FOR 6 THE NINE MONTHS AND QUARTERS ENDED OCTOBER 31, 1998 AND 1997 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' 7-10 EQUITY FROM INCEPTION ON FEBRUARY 9, 1984 THROUGH OCTOBER 31, 1998 CONSOLIDATED STATEMENT OF CASH FLOWS FOR 11-12 THE NONE MONTHS AND QUARTERS ENDED OCTOBER 31, 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 22 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
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheets October 31, 1998 and January 31, 1998 (unaudited) ASSETS October 31, January 31, 1998 1998 CURRENT ASSETS Cash $ 32,010 $ 24,642 Accounts receivable 102,076 972 Prepaid expenses 64,583 89,208 Inventory 273,074 242,406 Total Current Assets 471,743 357,228 PROPERTY AND EQUIPMENT 729,699 538,151 OTHER ASSETS Mining claims 5,081,669 5,081,669 Notes receivable 5,000 5,000 Certificates of deposit 15,000 15,000 Business development costs 41,159 - Total Other Assets 5,142,828 5,101,669 $ 6,344,270 $ 5,997,048
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Balance Sheets (Continued) October 31, 1998 and January 31, 1998 (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY October 31, January 31, 1998 1998 CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,670 $ 156,915 Note payable-related party 50,000 179,052 Note payable 17,673 125,000 Total Current Liabilities 69,343 460,967 COMMITMENTS AND CONTINGENCIES (See Notes) STOCKHOLDERS' EQUITY Common stock; authorized 50,000,000 common shares at $0.001 par value; 7,198,718 and 6,210,439 shares issued and outstanding, respectively 7,199 6,211 Capital in excess of par value 9,481,344 8,194,427 Deficit accumulated during the development stage (3,213,616) (2,664,557) Total Stockholders' Equity 6,274,927 5,536,081 $ 6,344,270 $ 5,997,048
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Operations October 31, 1998 and 1997 (unaudited) From Inception Nine Months Nine Months Three Months Three Months (February 9,1997) 10/31/98 10/31/97 10/31/98 10/31/97 to Oct. 31, 1998 REVENUES Net sales $139,079 $45,250 $112,855 $8,796 $426,207 Cost of goods sold 83,354 40,359 64,984 8,804 269,211 Gross Profit 55,725 4,891 47,871 (8) 156,996 EXPENSES General and administrative 561,326 365,941 206,866 128,288 3,246,452 Depreciation 49,940 13,592 26,825 6,198 136,175 and amortization Total expenses 611,266 379,533 233,691 134,486 3,382,627 Other Income/(Expense) Rent 5,917 -0- 1,801 -0- 13,822 Interest 565 -0- 195 -0- 740 Net loss before provision for income taxes (374,642) (183,824) (134,494) (3,211,069) (549,059) Provision for -0- -0- -0- -0- 2,549 income taxes Net loss $ (549,059) $(183,824) $(134,494) $(3,213,618) (374,642) Weighted average loss per share (.08) (.06) (.03) (1.29) (.02) Average shares outstanding 7,198,718 5,968,218 7,198,718 5,968,218 2,490,100
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Equity From Inception on February 9, 1984 to October 31, 1998 (unaudited) Deficit Accumulated Additional During the Common Stock Paid-in Development Shares Amount Capital Stage Balance at Inception- February 9, 1984 - $ - $ - $ - Issuance of common stock for cash 37,500 38 962 - Expenses paid by shareholders for the years ended January 31, 1990 - - 518 - 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, 1 991 Balance, January 31, 1991 541,000 541 $295,857 $(59,374) Common stock returned in exchange for common stock of GEI in March 1991 (17,000) (17) (85,423) - 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
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Equity (Continued) From Inception on February 9, 1984 to October 31, 1998 (unaudited) Deficit Accumulated Additional During the Common Stock Paid-in Development Shares Amount Capital Stage 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 Contribution from Austin-Young, Inc. - - 17,000 - Net loss for the year ended January 31, 1992 - - - (93,315) Balance, January 31, 1992 169,214 $ 169 $ 422,769 $(152,689) Issuance of common stock for 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] The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Equity (Continued) From Inception on February 9, 1984 to October 31, 1998 (unaudited) Deficit Accumulated Additional During the Common Stock Paid-in Development Shares Amount Capital Stage 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
Issuance of common stock for cash 80,072 80 191,321 - December 1993
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)
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Consolidated Statements of Stockholders' Equity (Continued) From Inception on February 9, 1984 to October 31, 1998 (unaudited) Deficit Accumulated Additional During the Common Stock Paid-in Development Shares Amount Capital Stage Issuance of common stock for cash in a private 130,960 131 156,729 - offering Issuance of common stock for services 259,620 260 262,359 -
Net loss for the year ended January - - - (464,662) 31, 1997
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 13,555 13 15,236 - of equipment Issuance of common stock for cash pursuant to a stock option 25,000 25 9,350 - plan Issuance of common stock for partial redemption of a note 100,000 100 37,400 - pursuant to a stock option plan Net loss for the year ended January - - - (489,525) 31, 1998 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 660,983 661 937,243 - (Net of commissions of $53,290) Issuance of common stock for the 81,763 81 120,872 - purchase of equipment Issuance of common stock for services 3,500 4 5,246 - Issuance of make-up shares in a 46,672 47 47 - private offering amendment Issuance of common stock for the 300 - 600 - purchase of equipment Issuance of common stock for services 49,285 49 63,080 - Issuance of common stock for cash in 145,776 146 159,829 - a private offering Net loss for the nine months ended - - - (549,059) October 31, 1998 Balance, October 31, 1998 7,198,718 $ 7,199$ 9,781,344$(3,213,616)
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 From Inception (February 9, 1997) Nine Months Nine Months Three Months Three Months To Oct. 31, 10/31/98 10/31/97 10/31/98 10/31/97 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss (549,059) (374,642) (183,824) (134,494) (3,213,616) Depreciation 49,940 13,592 26,825 6,198 136,175 and amortization (increase) decrease in (101,104) (26,562) (92,671) (6,152) (102,076) receivables Decrease (increase) in 24,625 (7,375) (22,129) (22,125) (64,583) prepaid expenses Decrease (60,668) 9,982 57,680 (375) (273,074) (increase) in inventory Increase (155,245) (38,494) 107 643 1,670 (decrease) in payables Loss from -0- -0- -0- -0- 1,560 disposal of fixed asset Stock issued 68,379 74,595 24,201 12,301 860,080 for services Expenses paid -0- -0- -0- -0- 149,018 by shareholder Net cash used by operating (693,132) (348,904) (189,811) (144,004) (2,504,846) activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of (330,422) (77,616) (125,632) (15,505) (782,713) fixed assets Purchase -0- -0- -0- -0- (15,000) certificates of deposit Purchase of -0- -0- -0- -0- (26,958) product tradenames Purchase of -0- -0- -0- -0- (5,000) note receivable Organization costs -0- -0- -0- -0- (1,524) Sale-mining -0- -0- -0- -0- 7,920 development costs Business (45,259) -0- -0- -0- (45,259) development costs Purchase of -0- -0- -0- -0- (58,599) mining claims Sale of licenses -0- -0- -0- -0- 150,000 Purchase of stock -0- -0- -0- -0- (65,000) Net cash used by investing (375,681) (77,616) (125,632) (15,505) (842,133) activities CASH FLOWS FROM FINANCING ACTIVITIES Issuance of 1,287,905 584,800 276,124 317,439 3,198,328 common stock Issuance of 24,655 -0- -0- -0- 671,865 notes payable Principal payments on (236,379) -0- (1,027) -0- (491,204) long-term debt Net cash provided by 1,076,181 584,800 275,097 317,439 3,378,989 financing activities Net (decrease) (40,346) 157,930 7,368 158,280 32,010 Cash at beginning 72,356 24,642 1,078 1,428 -0- Cash at end of period 32,010 159,358 32,010 159,358 32,010
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) From Inception (February 9, 1984) to Nine Months Nine Month Three Months Three Months Oct. 31, 1998 10/31/98 10/31/97 10/31/98 10/31/97 SUPPLEMENTAL CASH FLOWINFORMATION: CASH PAID FOR: Interest 7,750 15,942 1,350 5,136 33,109 Income Taxes -0- -0- -0- -0- 2,447 NON-CASH TRANSACTIONS: Stock issued -0- -0- -0- -0- 5,045,000 for mining claims Stock issued for down payment -0- -0- -0- 30,000 on building Stock issued 63,101 74,595 24,201 12,301 854,802 for services Stock issued for stock of Geo- -0- -0- -0- 97,144 Environmental Services, Inc. Stock issued -0- -0- -0- 75,000 for inventory Stock issued for assets of Austin-Young, -0- -0- -0- 236,060 Inc. and Global Environmental Industries Stock issued 121,600 24,332 -0- 8,970 136,849 for mill equipment Stock issued for partial -0- -0- -0- -0- 37,500 redemption of note
The accompanying notes are an integral part of these financial statements AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements October 31, 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 refrigeratorfreshener, landfill absorption, and other agricultural uses. On February 6, 1992, the Company acquired the outstanding stock of Geo- Environment Services, Inc., a wholly owned subsidiary involved in marketing of the zeolite products. The transaction was accounted for at historical cost in a manner similar to that in pooling of interest accounting for business combinations. In June 1995, the Company changed its name to American Absorbents Natural Products, Inc. and the name of its subsidiary to American Absorbents, Inc. Principles of Consolidation The consolidated financial statements include the accounts of American Absorbents Natural Products, Inc. and its subsidiary American Absorbents, Inc. Collectively, these entities are referred to as the Company. All significant intercompany transactions and accounts have been eliminated. Method of Accounting The Company recognized income and expenses according to the accrual method of accounting. Expenses are recognized when performance is substantially complete and income is recognized when earned. Earnings (loss) per share are computed based on the weighted average method. Stock options currently outstanding were not used in calculating earnings per share since the effect would be antidilutive. The fiscal year of the Company ends January 31 of each year. The financial statements reflect activity from inception, February 9, 1984. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Nonmonetary Transactions Nonmonetary transactions are transactions for which no cash was exchanged and for which shares of common stock were exchanged for assets. These transactions are recorded at fair market value as determined by the board of directors. AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements October 31, 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 October 31, 1998 and 1997 after writing off all accounts determined to be uncollectible. Prepaid Expenses Prepaid expenses at October 31, 1998 consist of the following: Prepaid mining land lease $ 24,583 Prepaid fees 40,000 $ 64,583
Business Development Costs Business development costs of $41,159 at October 31, 1998 consists of slotting fees. 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 October 31, 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, equipment 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. In October, 1998, these rights and inventory were sold to Hickory Brands, Inc. for a total of $63,000 with the Company retaining a 5% royalty on future sales for 10 years. 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. AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements October 31, 1998 (unaudited) 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. 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 July 31, 1998, the note payable to the major shareholder was reduced by $50,000 thereby reducing relevant annual interest expense to $3,500. NOTE 6 - PRIVATE PLACEMENT OF COMMON STOCK During the quarter ended October 31, 1998, 145,776 shares of common stock were issued in a private placement for $159,975 cash which was net of brokerage commissions. Another 27,364 common shares were issued to officers for services valued at $24,201. AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY (A Development Stage Company) Notes to the Consolidated Financial Statements October 31, 1998 (unaudited) NOTE 7 - COMMITMENTS AND CONTINGENCIES The Company has sold three private placements that include a royalty payment. One 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. Two private placements sold include 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 - YEAR 2000 ISSUES All equipment and computer systems utilized by the Company in-house are Year 2000 (Y2K) compliant. Most vendors used by the Company for packaging materials used in packaging its products are large companies and the Company expects that these companies will be Y2K compliant, although the Company has received no written notification of this. Since the Company is in the developing stage, it does not need to maintain large inventories of these materials in order to fill orders. However, the Company plans to inventory sufficient quantities of these materials to be capable of shipping several months of orders should third parties incur Y2K problems. The cost of increasing the inventory levels is estimated at less than $50,000 which will be paid from available cash. 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, 1998 from limited test marketing programs for its products while in the development stage. During the development stage the Company has developed over a dozen products and test marketed these products in various parts of the country. LIQUIDITY Austin Young, Inc., the major stockholder of the Company, 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 October 31, 1997 and $50,000 at October 31, 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. The note was further reduced by $50,000 during the quarter ended July 31, 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 $29,500 to the Bureau of Land Management in the fiscal year ended January 31, 1997 and $29,500 in the fiscal year ended January 31, 1998. 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. 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 nine months ended October 31, 1997, the Company issued 512,000 shares in a private placement for $584,800 and issued 71,287 shares for services rendered to the Company and valued at $74,595. During the nine months ended October 31, 1998, the Company issued 853,431 shares in a private placement for $1,097,973, 52,785 shares for services rendered to the Company and valued at $68,379 and issued 82,063 shares for equipment valued at $121,553. 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 $2,000,000 in sales per year. For the period from the inception date on February 9, 1984 to October 31, 1998, the Company had an average gross profit margin of 37%. For the nine months ended October 31, 1998 and 1997, the Company realized gross profit margins of 40% and 11%, respectively on revenues of $139,079 and $45,250, respectively. At October 31, 1998, the Company had $17,673 in bank debt outstanding relative to transportation equipment. 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 nine months ended October 31, 1997 and October 31, 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. 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 nine months ended October 31, 1998 increased to $139,079 from $45,250 for the same period of the previous year as the management focused on beginning cat litter marketing programs and made arrangements for the sale of its shoe products lines. 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. General and administrative expenses have increased steadily since January 31, 1991, as the Company developed more roducts 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. 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 increasedby 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 $195,000 during the nine months ended October 31, 1998 as compared to the same period of the previous year mostly due to payroll increases relating to the employment of the Vice President of Production and employees for the Oregon milling facility and increased fees and costs associated with bringing the Oregon facility into production and additional marketing personnel. Depreciation expenses increased by approximately $36,348 during this same time period due to increased epreciation expense relative to the new milling equipment and amortization of business development costs associated entering the cat litter marketplace. In May 1998, the Company paid off a note payable of approximately $125,000 on the warehouse/plant facility in Austin, Texas. 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 nine months ended October 31, 1998 and 1997 were 6.80 and 1.06, respectively. The improved current ratio results from the payment ofapproximately $277,000 of current bank debt. 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 costs for the packaging materials 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 $2,000,000 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 current fiscal year, the Company began cat litter shipments to Drug Emporium in the northwestern United States, Smith's Food and Drug Centers in a nine state region and Randall's, Albertson's, Tom Thumb and Fleming Companies in the Texas and Louisiana markets. The Company has completed design and packaging for products such as Mother Earth Cat Litter and Soil Enhancer, White Buffalo, Amzorb and Stall 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 planning the introduction of a lawn and garden 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. YEAR 2000 ISSUES All equipment and computer systems utilized by the Company in-house are Year 2000 (Y2K) compliant. Most vendors used by the Company for packaging materials used in packaging its products are large companies and the Company expects that these companies will be Y2K compliant, although the Company has received no written notification of this. Since the Company is in the developing stage, it does not need to maintain large inventories of these materials in order to fill orders. However, the Company plans to inventory sufficient quantities of these materials to be capable of shipping several months of orders should third parties incur Y2K problems. The cost of increasing the inventory levels is estimated at less than $50,000 which will be paid from available cash. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. During the quarter ended October 31, 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. On or about May 25, 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. On or about July 6, 1998, the Company filed a Complaint For Declaratory Relief (Case No. 98-07-145-CV) in the Circuit Court of the State of Oregon for the County of Harney against David Calkins seeking the removal of a Claim of Lien Upon Chattels. Mr. Calkins was contracted by the Company to install milling equipment for the Company in its Oregon Milling Facility. Mr. Calkins alleged that he was not completely paid for the installation and filed a Claim of Lien Upon Chattels (No. 980681) in the amount of $10,806.37. The Company alleges that, after deducting items that were completed without the Company's approval and for the personal benefit of Mr. Calkins and after paying directly to Service Providers items that were billed to the Company by Mr. Calkins, the contract fees were all paid to Mr. Calkins. The Company's management does not expect this litigation to have any material impact on the Company, its management or its operations. ITEM 2. CHANGES IN SECURITIES. During the quarter ended October 31, 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 October 31, 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 October 31, 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 October 31, 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 - October 31, 1998 and January 31, 1998---------------- 4-5 Consolidated Statements of Operations - Nine months and quarters ended October 31, 1998 and 1997----------- 6 Consolidated Statements of Stockholders' Equity (Deficit) - period ended October 31, 1998--------- ---------- 7-10 Consolidated Statements of Cash Flows - Nine months and quarters ended October 31, 1998 and 1997-- ---------- 11-12 Notes to Consolidated Financial Statements-- ---------- 13-17 (3) The following exhibits for the nine months and quarters ended October 31, 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 October 31, 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: December 9, 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 December 9, 1998 Terry L. Young Officer and Director President, Chief Financial Officer, December 9, 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) From Inception Nine Months Nine Months Three Months Three Months (February 9, Ended Ended Ended Ended 1984) 10/31/98 10/31/97 10/31/98 10/31/97 TO 10/31/98 Primary and Fully Diluted: Average Shares Outstanding 7,198,718 5,968,218 7,198,718 5,968,218 2,490,100 Net Loss (549,059) (183,824) (134,494) (3,213,618) (374,642) Earnings (Loss) Per Share (.08) (.06) (.03) (1.29) (.02)
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. EX-27 2
5 9-MOS JAN-31-1999 OCT-31-1998 32,010 0 102,076 0 273,074 471,743 729,699 0 6,344,270 69,343 0 0 0 9,481,344 (3,206,417) 6,344,270 139,079 139,079 83,354 611,266 0 (549,059) 0 (549,059) 0 (549,059) 0 0 0 (549,059) (.08) (.08)
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