U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the quarter ended: April 30, 2001
Commission file no.: 0-28155
NATURAL SOLUTIONS CORPORATION
--------------------------------------------
(Name of small business issuer as specified in its charter)
Nevada 88-0367024
--------------- ----------------
(State or other jurisdiction of (IRS Employer
of incorporation or organization) Identification No.)
100 Volvo Parkway, Suite 200
Chesapeake, Virginia 23320
- -------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (757) 548-4242
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
------------------------ ------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------------
(Title of class)
Copies of Communications Sent to:
Williams Mullen Clark & Dobbins
One Columbus Center, Suite 900
Virginia Beach, Virginia 23462-6762
Tel: (757) 473-5308 Fax: (757) 473-0395
Indicate by Check whether the issuer (1) filed all reports required to be filed
by Section 13 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 the past 90 days.
Yes X No
-- --
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: As of May 31, 2001, there are
20,046,540 shares of voting common stock of the registrant issued and
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets F-2
Condensed Consolidated Statements of Operations F-3
Condensed Consolidated Statements of Cash Flows F-4
Condensed Consolidated Statements of Changes in Stockholders'
Deficit F-5
Notes to Condensed Consolidated Financial Statements F-6
F-1
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited) (Unaudited)
ASSETS April 30, 2001 April 30, 2000 July 31, 2000
-------------------------------------------------------- ---------------- ----------------- ----------------
Current Assets:
Cash and Cash Equivalents $ 342,262 $ 126,252 $ 195,500
Trade Accounts Receivable, net 78,350 110,020 87,554
Other Receivables, net 32,989 223,781 44,138
Inventories 541,288 671,209 510,690
Prepaid Expenses 50,532 21,918 25,306
---------------- ----------------- ----------------
Total Current Assets 1,045,421 1,153,180 863,188
Property and Equipment, at cost 166,226 167,042 153,117
Less Accumulated Depreciation (97,806) (73,481) (73,055)
---------------- ----------------- ----------------
68,420 93,561 80,062
Investment in Affiliate - 18,750 -
Licensing Agreement, net 247,496 364,259 324,675
---------------- ----------------- ----------------
$ 1,361,337 $ 1,629,750 $ 1,267,925
================ ================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade Accounts Payable 675,023 876,317 802,120
Accrued Expenses 283,738 282,875 147,600
Notes Payable 55,000 142,000 102,000
Other Liabilities 150,000 - -
---------------- ----------------- ----------------
Total Current Liabilities 1,163,761 1,301,192 1,051,720
Convertible Debentures to Related Party 1,572,951 750,000 990,553
Other Liabilities 150,000 - -
Long Term Debt to Related Party 257,000 257,000 257,000
Commitments and Contingent Liabilities
Stockholders' Equity (Deficit):
8% Convertible Preferred Stock, $0.001 par value,
20,000,000 shares authorized, 7,000 issued and
outstanding in 2001 and none in 2000 8 - -
Common Stock, $0.001 par value, 55,000,000 shares
authorized, 20,046,540 issued and outstanding
in 2001 and 19,966,540 in 2000 20,047 20,297 20,027
Additional Paid-in Capital 13,776,082 12,789,154 13,415,674
Accumulated Deficit (15,578,512) (13,487,893) (14,467,049)
---------------- ----------------- ----------------
Total Stockholders' Equity (Deficit) (1,782,375) (678,442) (1,031,348)
---------------- ----------------- ----------------
$ 1,361,337 $ 1,629,750 $ 1,267,925
================ ================= ================
See Notes to Condensed Consolidated Financial Statements.
F-2
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months Ended For the Nine Months Ended
April 30 April 30
------------------------------- ---------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
2001 2000 2001 2000
--------------- --------------- ---------------- ----------------
Net Sales $ 384,785 $ 256,037 $ 2,067,520 $ 1,388,770
Costs Applicable to Sales 335,126 318,418 1,578,222 1,161,942
--------------- --------------- ---------------- ----------------
Gross Profit 49,659 (62,381) 489,298 226,828
Operating Costs and Expenses:
Selling and Administrative Expenses 447,543 507,359 1,567,520 1,572,711
--------------- --------------- ---------------- ----------------
Losses from Operations (397,884) (569,740) (1,078,222) (1,345,883)
Other Income (Expense), net (See
note below) 273,110 (20,515) (27,702) (52,499)
--------------- --------------- ---------------- ----------------
Loss Before Taxes (124,774) (590,255) (1,105,924) (1,398,382)
Income Tax Expense - - - -
--------------- --------------- ---------------- ----------------
Net Loss $ (124,774) $ (590,255) $ (1,105,924) $ (1,398,382)
=============== =============== ================ ================
Loss per Share, Basic and Diluted ($0.01) ($0.03) ($0.06) ($0.07)
=============== =============== ================ ================
Weighted Average Common
Shares Outstanding 20,046,540 20,006,540 20,041,540 19,003,207
=============== =============== ================ ================
Note: See Condensed Consolidated Statements of Cash Flows for details of
non-cash charges associated with convertible debentures issued to related
parties.
See Notes to Condensed Consolidated Financial Statements.
F-3
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended
April 30
----------------------------------
(Unaudited) (Unaudited)
2001 2000
---------------- ----------------
Operating Activities:
Net Loss $ (1,105,924) $ (1,398,382)
Adjustments to Reconcile Net Loss to Cash
Used in Operating Activities:
Depreciation and Amortization 101,930 88,896
Non-Cash Interest Charges 230,525 -
Preferred Stock to be Issued 70,310 -
Forfeiture of Stock Rights (650,000) -
Product and Services Purchased for Stock
and Options 7,000 -
(Increase) Decrease in Accounts and Other Receivables 20,353 (186,441)
Increase in Inventories (30,598) (44,337)
(Increase) Decrease in Prepaid Expenses (25,226) 40,818
Increase (Decrease) in Accounts Payable and
Accrued Expenses 9,039 (206,802)
Increase in Other Liabilities 300,000 -
Gain on Settlement of Notes Payable (47,000) -
--------------- ---------------
Cash Used in Operating Activities (1,119,592) (1,706,248)
--------------- ---------------
Investing Activities:
Acquisition of Equipment (13,109) -
--------------- ---------------
Cash Used in Investing Activities (13,109) -
--------------- ---------------
Financing Activities:
Proceeds from Issuance of Note Payable - 60,000
Proceeds from Issuance of Convertible Debentures 535,000 750,000
Proceeds from Issuance of Common Stock - 1,022,500
Proceeds from Issuance of Preferred Stock 750,000 -
Preferred Stock Dividends Paid (5,537) -
--------------- ---------------
Cash Provided by Financing Activities 1,279,463 1,832,500
--------------- ---------------
Net Increase in Cash 146,762 126,252
Cash and Cash Equivalents - Beginning of Year 195,500 -
--------------- ---------------
Cash and Cash Equivalents - End of Period $ 342,262 $ 126,252
=============== ===============
Supplemental disclosures of cash flow information: Non-cash charges
against income:
Amortization of charges to stock warrants $ 47,399 $ -
One-time charge from issuance of convertible debentures $ 183,126 $ -
See Notes to Condensed Consolidated Financial Statements.
F-4
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Nine Months Ended April 30, 2001
(Unaudited)
Par Par Additional
Preferred Value Common Value Paid-in Accumulated
Shares Preferred Shares Common Capital Deficit Totals
------------ ------------ ------------- ----------- --------------- ---------------- ---------------
Balance, July 31, 2000 - $ - 20,026,540 $ 20,027 $ 13,415,674 $ (14,467,049) $ (1,031,348)
============ ============ ============= =========== =============== ================ ===============
Stock Issued for Services - - 20,000 20 6,980 - 7,000
Discount on Convertible
Debentures - - - - 183,126 - 183,126
Preferred Stock Issued 7,000 7 - - 749,993 - 750,000
Forfeiture of Stock Rights - - - - (650,000) - (650,000)
Preferred Stock to be Issued 500 1 - - 70,310 - 70,310
Preferred Stock Dividends Paid - - - - - (5,539) (5,539)
Net and Comprehensive Loss - - - - - (1,105,924) (1,105,924)
------------ ------------ ------------- ----------- --------------- ---------------- ---------------
Balance, April 30, 2001 7,500 $ 8 20,046,540 $ 20,047 $ 13,776,082 $ (15,578,512) $ (1,782,375)
============ ============ ============= =========== =============== ================ ===============
See Notes to Condensed Consolidated Financial Statements.
F-5
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2001
Note 1. The interim financial statements include all adjustments, which, in the
the opinion of management, are necessary in order to make the financial
statements not misleading. The unaudited condensed consolidated financial
statements and notes are prepared in accordance with Rule 3-10B of Regulation
S-B. Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The accompanying condensed consolidated
financial statements and notes should be read in conjunction with the audited
financial statements and notes of the Company for the year ended July 31, 2000.
The balance sheet as of July 31, 2000 was derived from the audited financial
statements as of that date. The results of operations for the nine-months ended
April 30, 2001 are not necessarily indicative of those to be expected for the
entire year.
Note 2. On August 31, 2000, M.G. Robertson (Dr. Robertson) invested $435,000 in
the form of a convertible debenture bearing interest at 10%, maturing on
September 1, 2005, and secured by the assets of the Company. The principal
amount and unpaid accrued interest may be converted into common stock of the
Company at a rate of $0.25 per common share at anytime prior to repayment. As a
result of this transaction, the Company recorded a non-recurring non-cash
interest charge of $163,125 in August 2000.
Note 3. On November 9, 2000, Dr. Robertson invested $100,000 in the form of a
a convertible debenture bearing interest at 10%, maturing on November 10, 2005,
and secured by the assets of the Company. The principal amount and unpaid
accrued interest may be converted into common stock of the Company at a rate of
$0.25 per common share at anytime prior to repayment. As a result of this
transaction, the Company recorded a non-recurring non-cash interest charge of
$20,000 in November 2000. In addition, interest charges accrued on all
convertible debentures issued to Dr. Robertson totaled $86,673 and $31,250
during the six-months ended January 31, 2001 and 2000, respectively. No interest
payments have been made on the convertible debentures since inception.
Note 4. On October 1, 2000 and December 15, 2000, the Company issued stock
options to employees of the Company under the 1999 Employee Stock Option Plan.
These options represented 770,000 shares of the Company's common stock and had
exercise prices of $0.35 per share, which was at least equal to the fair market
value of the shares on the date of the grant.
Note 5. On January 18, 2001 the Company issued stock options to one of the
directors of the Company under the 1999 Employee Stock Option Plan. These
options represented 100,000 shares of the Company's common stock and had
exercise prices of $0.34 per share, which was at least equal to the fair market
value of the shares on the date of the grant.
Note 6. In May of 2000, the Company began seeking to raise a total of $3,135,000
in debt and equity to finance its current operational plans and expand its
sales, marketing, and distribution networks. Dr. Robertson has invested
$1,135,000 of these funds through convertible debentures, including those
discussed in notes 2 and 3 above, and the Company is seeking the remaining funds
from qualified investors through an exempt offering of 8% cumulative convertible
preferred stock. The preferred stock is being offered to accredited investors in
minimum amounts of $50,000 and is convertible into common stock of the Company.
As of April 30, 2001 $750,000, representing 7,000 shares of preferred stock,
were issued and outstanding. Dividends of $5,537 were paid as of January 1,
2001. As of April 30, 2001, the cumulative and unpaid dividends amounted to
$17,501. The offering remains open and the ultimate outcome of the offering has
not been determined.
F-6
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
April 30, 2001
Note 7. In February 2001, the Company reached settlement agreements resolving
four longstanding lawsuits centering on disputed transactions as well as
shareholder and employee claims against the Company and its former management.
[See Part II, Item 1. Legal Proceedings; See also, Part II, Item 5. Other
Information] The settlements involved a dismissal with prejudice of all claims
and counterclaims in the lawsuits.
As a part of one of the settlement agreements, the Company reversed certain
previously recorded liabilities of $54,245 and reversed the accrual of $650,000
in compensation for rights to the Company's common stock forfeited by one of the
parties to the lawsuits. The terms also provide that the Company will issue 500
shares of its convertible preferred stock, and make payments of $150,000 upon
completion of all terms of settlement agreements, and make a final payment of
$150,000 eighteen (18) months thereafter. Certain terms of the settlement
agreements have not been completed and accordingly, the Company has not yet
issued the aforementioned preferred stock or made the first settlement payment.
The net result of the settlements had a non-recurring positive (non-cash)
earnings impact of $333,935 in the third quarter of the current fiscal year.
As a part of the settlements, Dr. Robertson will acquire 3,925,000 previously
issued shares of the Company's common stock and 520,000 shares of the Company's
common stock will be cancelled. These transactions have not yet been completed.
The closing of the transactions remain subject to a number of conditions.
Note 8. Other income totaled $273,110 in the current quarter compared to an
expense of ($20,515) in the same quarter in the prior year. For the nine months
ended April 30, other income (expense) totaled an expense of ($27,702) in the
current year compared to an expense of ($52,499) in the same period in the prior
year. The current nine-month income is a result of the positive earnings
adjustment associated with the settlement agreements discussed above. This was
largely offset by non-cash interest charges of $230,525 required by recent
changes in the Emerging Issues Task Force (EITF) interpretation of the
accounting treatment for convertible debentures in addition to interest accruals
associated with that debt, and other items, which totaled $132,635.
The recent changes in the EITF interpretation of the accounting treatment for
convertible debentures with detachable warrants have had a significant impact on
the reported earnings of the Company. In total, these changes in accounting
treatment have resulted in $497,388 in non-cash charges to the Company in the
current and prior fiscal years. In addition, the Company will be required to
amortize an additional $312,047 in non-cash charges over the next four and
one-quarter years.
F-7
Item 2. Management's Discussion and Analysis
Forward Looking Statements:
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), expansion
and growth of the Company's business and operations, and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results or developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
general economic market and business conditions; the business opportunities (or
lack thereof) that may be presented to and pursued by the Company; changes in
laws or regulation; and other factors, most of which are beyond the control of
the Company. Consequently, all of the forward-looking statements made in this
Form 10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Overview:
The Company was formed to exploit in the United States certain patents, rights
to patents, and other proprietary products covered under a licensing agreement
to market agricultural and timber co-products such as road de-icing and
anti-icing, dust suppressant and road stabilization products. The products are
marketed under the protected trade names of Ice Ban(R) and Roadbind(R). These
products are sold through a network of direct sales representatives and licensed
distributors throughout the United States.
Results of Operations - The Three Months Ended April 30, 2001 Compared to the
Three Months Ended April 30, 2000:
Net sales for the three months ended April 30, 2001 were $384,785, compared to
$256,037 for the same period last year; resulting in an increase of $128,748 or
50%. Sales growth over the prior year occurred in each month of the quarter. The
increase in sales is largely due to winter storms in February and March 2001, in
addition to growth in Roadbind(R) sales in March and April 2001. The growth in
Roadbind(R) sales is primarily attributed to the Company's expanded sales force
in Mid-Atlantic and Southeast states.
The gross profit for the current period totaled $49,659 (13% of sales), compared
to a loss of ($62,381) (-24% of sales) for the comparable period in the prior
year, an improvement of $112,040. The dollar increase in gross margin is largely
due to increased sales volume and margins, which cover fixed storage and rail
car leases.
Selling and administrative expenses totaled $447,543, compared to $507,359 for
the same period last year; a reduction of $59,816. The most significant items
effecting the reduction of these expenses is the recovery of bad debt totaling
$70,614, compared to a recovery of $20,000 in the same quarter in the prior
year. Each of these recovery amounts resulted from the settlement of certain
legal disputes. Other significant expense reductions included legal fees and
insurance expense. A variety of small expense reductions further contributed to
these savings. These expense reductions were partially offset by an increase in
payroll costs of $60,775 associated with the growth of the sales and distributor
network. As the Company continues to expand its marketing, sales, and
distribution efforts, advertising, payroll, and travel expenses are expected to
increase.
In February 2001, the Company settled certain legal disputes, discussed below
[See Part II, Item 1. Legal Proceedings]. This settlement is expected to further
contribute to a reduction of legal fees. Although management continues its
efforts to resolve all legal disputes, it is expected that legal fees will
remain higher than normal until all of the disputes are resolved.
Losses from operations totaled $397,884, compared to losses in the prior year of
$569,740, an improvement of $171,856 or 30%.
Other income totaled $273,110 in the current year compared to an expense of
($20,515) in the same quarter of the prior year. This improvement is primarily
due to a positive earnings adjustment of $333,935, which resulted from the
settlement of certain legal disputes. [See Part I, Item 1. Condensed
Consolidated Financial Statements, Note 7. and Part II, Item 1. Legal
Proceedings] This gain was partially offset by non-cash interest charges of
$15,800 required by recent changes in the regulatory interpretation of the
accounting treatment for convertible debentures and normal interest accruals
associated with that debt of $45,025.
Net loss for the three-months ended April 30, 2001 was $124,774, compared to
$590,255 for the same period ended April 30, 2000, an improvement of $465,481 or
79%.
Results of Operations - The Nine Months Ended April 30, 2001 Compared to the
Nine Months Ended April 30, 2000:
Net sales for the nine months ended April 30, 2001 were $2,067,520, compared to
$1,388,770 for the same period last year; resulting in an increase of $678,750
or 49%. Sales growth over the prior year occurred in each of the first nine
months of fiscal year 2001. In addition, the net sales through April 30, 2001
exceed the total sales for the entire previous fiscal year by $454,919 or 28%.
Net sales for the first nine months of each year since inception are as follows:
Apl-01 Apl-00 Apl-99 Apl-98 Jul-97 (1)
------ ------ ------ ------ ----------
Net Sales $2,067,520 $1,388,770 $1,744,101 $1,389,904 $ 500,048
(1) First-half sales are not available for the period from inception to April
30, 1997. Accordingly, full year sales are presented for comparison.
The current year increase is due to numerous factors including a) an early-buy
program offered to major customers in August of 2000, b) repeated winter storms
in November and December 2000 followed by extended winter weather throughout the
United States, and c) the efforts of the Company's expanded sales and
distribution network. This resulted in a 37% increase in quantities shipped and
a 6.5% increase in the average selling price of Ice Ban(R) and Roadbind(R)
products.
The Company continues its efforts to expand its direct sales force and recruit
new distributors, while reducing the size of new and existing distributor
territories. The Company believes that continued implementation of these and
other sales and marketing plans will result in higher net sales in the remainder
of fiscal year 2001 and beyond.
The gross profit for the current nine-month period totaled $489,298 or 24% of
sales, compared to $226,828 or 16% for the comparable period in the prior year.
The increase in gross margin is largely due to increased sales volume and
margins, which cover fixed storage and rail car leases.
Selling and administrative expenses totaled $1,567,520, compared to $1,572,711
for the same nine-month period last year; a decrease of $5,191. The most
significant expense variances included an increase in personnel costs of
$136,755 resulting from the planned expansion of the direct sales force,
increased sales commissions, and the addition of a product engineer. This
increase was offset by a reduction in legal fees of $82,717 and the effect of an
increase in bad debt recoveries of $47,304. As the Company continues to expand
its marketing, sales, and distribution efforts, expenses for advertising,
payroll, and travel are expected to increase.
In February 2001, the Company settled certain legal disputes, discussed below
[See Part II, Item 1. Legal Proceedings]. This settlement is expected to further
contribute to a reduction of legal fees. Although management continues its
efforts to resolve all legal disputes, it is expected that legal fees will
remain higher than normal, until all of the disputes are resolved.
Nine-month losses from operations totaled $1,078,222, compared to losses in the
prior year of $1,345,883, an improvement of $267,661 or 20%.
Other expenses of $27,702 in the current year compared to an expense of $52,499
in the same nine-month period of the prior year. This improvement is primarily
due to the following items, which largely offset one another; a) a gain of
$333,935, which resulted from the settlement of certain legal disputes [See Part
I, Item 1. Condensed Consolidated Financial Statements, Note 7. and Part II,
Item 1. Legal Proceedings], b) Non-cash interest charges of $230,525 required by
recent changes in the regulatory interpretation of the accounting treatment for
convertible debentures, and c) the interest accruals associated with that debt,
which totaled $132,635.
This brings the net loss to $1,105,924 compared to a net loss of $1,398,382 for
the same nine-month period last year, an improvement of $292,458. Cash used in
operations also improved by $586,686 (34%) as discussed below.
The recent changes in the EITF interpretation of the accounting treatment for
convertible debentures with detachable warrants have had a significant impact on
the reported earnings of the Company. In total, these changes in accounting
treatment have resulted in $497,388 in non-cash charges to the Company in the
current and prior fiscal years. In addition, the Company will be required to
amortize an additional $312,047 in non-cash charges over the next four and
one-quarter years. Although this is the required accounting treatment for such
transactions, the Company believes that the revised accounting treatment has had
an unfortunate effect on the reported financial results of the Company. In
total, these non-cash charges exceed 42% of the associated investment in the
Company. Fortunately, these charges are recorded as non-operating expenses.
Also, they do not affect the cash available to the Company.
Management continuously assesses each cost item and is expanding the marketing
and sales efforts, resulting in ongoing improvements in operations. However,
management has increased and will continue to seek to increase sales, lower
fixed costs as a percentage of sales, and continue to settle or see through to
successful conclusion the non-productive litigation, which has burdened the
Company's bottom line. There can be no assurances that such efforts will be
successful.
Liquidity and Capital Resources:
In the nine-months ended April 30, 2001, operating activities used $1,119,592 in
cash, compared to $1,706,248 of cash used in the comparable period in 2000, an
improvement of $586,686 or 34%. This reduction in cash used is primarily due to
the following: a) improved earnings ($292,458), more timely customer billing and
collections ($206,794), and stabilization of accounts payable and accrued
expense balances ($215,841). In addition, accrued interest obligations on
convertible debentures have been deferred by the holder since their inception. A
number of other small items combined to partially offset these cash saving
items.
The Company recorded an infusion of $1,285,000 from financing activities in the
first nine-months of the current fiscal year. The following paragraphs describe
each of the transactions.
On August 31, 2000, Dr. M.G. Robertson (Dr. Robertson) invested an additional
$435,000 in the form of a convertible debenture bearing interest at 10%,
maturing on September 1, 2005, and secured by the assets of the Company. The
principal amount and unpaid accrued interest may be converted into common stock
of the Company at a rate of $0.25 per common share at anytime prior to
repayment.
On November 9, 2000, Dr. Robertson invested an additional $100,000 in the form
of a convertible debenture bearing interest at 10%, maturing on November 10,
2005, and secured by the assets of the Company. The principal amount and unpaid
accrued interest may be converted into common stock of the Company at a rate of
$0.25 per common share at anytime prior to repayment.
In May of 2000, the Company began seeking to raise a total of $3,135,000 in debt
and equity to finance its current operational plans and expand its sales,
marketing, and distribution networks. Dr. Robertson has invested $1,135,000 of
these funds through convertible debentures, including those discussed in the
paragraphs immediately above. As of April 30, 2001, 7,000 shares of preferred
stock were issued and outstanding, which were sold for a total of $750,000.
Dividends of $5,537 were paid as of January 1, 2001. As of April 30, 2001, the
preferred stock had earned and unpaid dividends of $17,501. The ultimate outcome
of the offering has not been determined.
The Company believes that it is necessary to raise additional debt or equity
capital, in order to meet its short-term liquidity and solvency needs over the
next twelve months, and maintain operations and support the continued expansion
of the marketing, sales, and distribution efforts throughout the United States.
Currently, sales volumes do not produce sufficient profits to support the
expansion planned for the next twelve (12) months.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
1. Jeffrey Johnson vs. Natural Solutions, Case No. CL-99-3185, in the
Circuit Court in and for Palm Beach County, Florida. This was a lawsuit by Mr.
Johnson filed on March 26, 1999, seeking to enforce his employment agreement.
The employment agreement called for arbitration and the Company successfully
moved to have the case arbitrated. Mr. Johnson has filed an arbitration
proceeding and the Company has responded with an answer and defenses. In
February 2001, in conjunction with several other parties, the Company
participated in a settlement agreement releasing all parties to the legal
proceedings discussed in this item and in items 2 and 3 below. The terms of the
settlement agreements are confidential. However, the settlements of these
disputes resulted in a combined non-recurring accounting gain of $333,935 in the
third quarter of the current fiscal year. [See Part II, Item 5. Other
Information]
2. Dianne Johnson et al. vs. Ice Ban America, et al., Case No. 99-8228, in
the United States District Court, Southern District of Florida. This lawsuit was
filed on March 26, 1999. It was a lawsuit by the Johnson family claiming
securities fraud seeking damages for breach of various security regulations and
laws due to alleged violations by the Company and IBAC, Corporation (IBAC). The
Company successfully filed two Motions to Dismiss. The Company and IBAC filed a
counterclaim to rescind the sale of the founders stock in July 1999. The stock
owned by the Johnson family is founders stock for which the Johnson family paid
approximately $4,000 to the Company and $6,000 to IBAC. The Company and IBAC
also filed a counterclaim, alleging breach of fiduciary duty, breach of
securities acts, RICO, fraud, etc. against the Johnson family arising out of the
actions of Warren D. Johnson, Jr., and the Johnson family in selling restricted
founders shares of stock in private sales before the restrictions were lifted.
Initial discovery has been done in this case. On July 5, 2000, the plaintiffs
voluntarily dismissed the action against the Company. In February 2001, in
conjunction with several other parties, the Company participated in a settlement
agreement releasing all parties to the legal proceedings discussed in this item
and in items 1 above and 3 below. The terms of the settlement agreements are
confidential. However, the settlements of these disputes resulted in a combined
non-recurring accounting gain of $333,935 in the third quarter of the current
fiscal year. [See Part II, Item 5. Other Information]
3. Dianne Johnson et al. vs. Natural Solutions Corporation, et al., Case No.
99-5305, in the Circuit Court in and for Palm Beach County. This is a lawsuit by
the Johnson family seeking to rescind the sale of Ice Ban, Inc. to the Company,
which sale occurred in the summer of 1997, based upon alleged fraudulent
misrepresentations surrounding the ownership of patent no. 4,676,918, the
so-called Vinasz patent. The Company has filed an answer, affirmative defenses,
and a counterclaim similar to the counterclaim in item #2, immediately above. In
February 2001, in conjunction with several other parties, the Company
participated in a settlement agreement releasing all parties to the legal
proceedings discussed in this item and in items 1 and 2 above. The terms of the
settlement agreements are confidential. However, the settlements of these
disputes resulted in a combined non-recurring accounting gain of $333,935 in the
third quarter of the current fiscal year. [See Part II, Item 5. Other
Information]
4. Natural Solutions Corporation et al. vs. Sears Oil, et al., Case No.
99-3344, in the Circuit Court in and for Palm Beach County. This is a lawsuit
filed on April 6, 1999, by the Company and IBUSA for breach of contract and for
a declaratory judgement against the named Hungarian inventions of the so-called
"Vinasz" patent, and tortious interference with the Company's rights to the
so-called Vinasz patent acquired by Mr. Janke from the Hungarian inventors. This
action also
claims breach of fiduciary duty, and breach of a confidentiality agreement by
Howard Sears. Service has been obtained on most of the Defendants, and motions
to dismiss, motions for lack of personal jurisdiction, and motions to transfer
to New York are scheduled. Some limited discovery on jurisdiction has been
undertaken in this case.
5. Sears Oil Company ("SEACO") vs. Natural Solutions Corporation, et al.,
Case No. 99-CV-704-DNH. This is an action filed on January 25, 1999, in New York
State Court, but removed to the United States District Court for the Northern
District of New York. This action alleges fraudulent misrepresentations based
upon the ownership of the Vinasz patent and fraudulent inducement with respect
to a certain contract for the distribution of product in New England, based upon
misrepresentations regarding ownership of the Vinasz patent. The Plaintiff
amended its Complaint to allege patent infringement of the Vinasz patent. In
October 1999 Sears Oil and Sears Petroleum sought a temporary restraining order
that SEACO was the exclusive distributor for ICE BAN products in the New England
States. The Judge denied the Plaintiff's request for a temporary restraining
order and Sears withdrew its claim for injunctive relief. The Company has
answered the complaint and filed a counterclaim similar to the claims brought in
item 4. above. The case is not set for trial, which will not occur until July
2002 at the earliest.
6. Ice Ban America, Inc. vs. Innovative Municipal Products, Inc. ("IMUS"),
Case No. 99-00710, in the Supreme Court of Oneida County, State of New York.
This lawsuit was filed on March 24, 1999, by the Company to recover two hundred
fifty-thousand dollars ($250,000), plus accrued interest, owed to it by its New
York distributor, IMUS. IMUS filed affirmative defenses and counterclaims based
upon the alleged misrepresentation regarding the Vinasz patent. The Company
answered and filed affirmative defenses to the counterclaim. On February 2,
2001, the parties to this lawsuit reached a settlement agreement and all
litigation between the parties has been dismissed. To date, the Company has
realized a gain of $70,000 plus interest and is expected to realize an
additional gain of $60,000 associated with this settlement during the fourth
quarter of the current fiscal year. [See Part II, Item 5. Other Information]
7. Natural Solutions Corporation v. Terrabind International, Inc., Richard
Jurgenson, Joseph Kroll, Richard Weinert: This case was filed by the Company on
May 15, 2000 in the Circuit Court of Palm Beach County, Florida, seeking damages
and injunctive relief against three former corporate officers or executives, who
formed Terrabind International, Inc. The lawsuit claims that the three officers
or executives breached their fiduciary duties to the Company by usurping certain
corporate opportunities, both in prospective sales and potential patent
applications, in the Company's Roadbind America subsidiary. The action seeks
damages and injunctive relief to prevent usurpation of other corporate
opportunities and inventions developed by the Company. The defendants have filed
a counterclaim and third party claim naming the President, Chief Financial
Officer, the attorney representing the Company, and the Company itself; and
alleging among other things, defamation, civil theft, and claims for
compensation. The court dismissed the counterclaims and the deadline for the
defendants to refile the counterclaims has expired. Discovery is proceeding, and
the case is set for trial in July 2001.
Item 2. Changes in Securities and Use of Proceeds
On November 15, 2000, the Company issued 5,500 shares of 8% convertible
preferred stock under the terms of an offering, exempt from registration under
Rule 506 of Regulation D, to accredited investors. The total investment in the
Company was $550,000 and the preferred stock may be converted at a rate of 200
shares of common stock to one (1) share of preferred stock at
anytime by the shareholder and after ten (10) years from issuance by the
Company, if not previously converted by the shareholder.
On January 15, 2001, the Company issued 1,000 shares of 8% convertible preferred
stock under the terms of an offering, exempt from registration under Rule 506 of
Regulation D, to accredited investors. The total investment in the Company was
$100,000 and the preferred stock may be converted at a rate of 200 shares of
common stock to one (1) share of preferred stock at anytime by the shareholder
and after ten (10) years from issuance by the Company, if not previously
converted by the shareholder.
On March 22, 2001, the Company issued 500 shares of 8% convertible preferred
stock under the terms of an offering, exempt from registration under Rule 506 of
Regulation D, to an accredited investor. The total investment in the Company was
$100,000 and the preferred stock may be converted at a rate of 100 shares of
common stock to one (1) share of preferred stock at anytime by the shareholder
and after ten (10) years from issuance by the Company, if not previously
converted by the shareholder.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
1) In February 2001, the Company reached a settlement agreement with IMUS,
resolving the case entitled Ice Ban America, Inc. vs. Innovative Municipal
Products, Inc., Case no. 99-00710, in the Supreme Court of Oneida county, State
of New York. The settlement resulted in a dismissal of all claims and counter
claims. [See Part II, Item 1. Legal Proceedings. No. 6] To date, the Company has
realized a gain of $70,000 plus interest and is expected to realize an
additional gain of $60,000 associated with this settlement during the fourth
quarter of the current fiscal year.
2) In February 2001, the Company reached settlement agreements resolving four
longstanding lawsuits. These lawsuits were as follows: (1) Jeffrey Johnson vs.
Natural Solutions, Case No. CL-99-3185, in the Circuit Court in and for Palm
Beach County, Florida; (2) Dianne Johnson et al. vs. Ice Ban America, et al.,
Case No. 99-8228, in the United States District Court, Southern District of
Florida; (3) Dianne Johnson et al. vs. Natural Solutions Corporation, et al.,
Case No. 99-5305, in the Circuit Court in and for Palm Beach County, and (4)
Pratt vs. Ice Ban America, Inc., Case No. 99-25479, in the Supreme Court of New
York for the County of Orleans. [See Part II, Item 1. Legal Proceedings. Nos. 1,
2, and 3]
As a part of one of the settlement agreements, the Company reversed certain
previously recorded liabilities of $54,245 and reversed the accrual of $650,000
in compensation for rights to the Company's common stock forfeited by one of the
parties to the lawsuits. The terms also provide that the Company will issue 500
shares of its convertible preferred stock, and make payments of $150,000 upon
completion of all terms of settlement agreements and $150,000 eighteen (18)
months thereafter. Dr. Robertson has guaranteed the latter installment. Certain
terms of the settlement agreements have not been completed and, accordingly, the
Company has not yet issued the aforementioned preferred stock or made the
initial settlement payment. The net result of the settlements had a
non-recurring positive (non-cash) earnings impact of $333,935 in the third
quarter of the current fiscal year.
The settlements involved a dismissal with prejudice of all claims and
counterclaims in the lawsuits. As a part of the settlements, six Turks and
Caicos companies referenced in footnote (5) to the table of share ownership set
forth in the Company's Proxy Statement filed on November 7, 2000 (Medical
College Fund, Windmills Plantation Fund, Hawks Nest Plantation fund, Reed
International Fund, Inc., Marlin Preservation Fund, and Ryder Securities Ltd.)
have agreed to transfer a total of 3,925,000 shares of the Company's common
stock to the Trustee in the case entitled Kapila, Trustee vs. Warren Douglas
Johnson, Jr., et al., Case No. 92-33339-BKC-SHF (US Bankruptcy Court, Southern
District of Florida). Dr. Robertson has agreed to purchase those shares from the
Trustee. Dr. Robertson has acquired a right of first refusal, and the Company
has a follow on right of first refusal in one million three hundred thousand
shares of the Company's stock still held by members of the Johnson family. Two
other Turks and Caicos companies (Harvard Fund, Ltd., and Merchants Trust Fund),
holding a total of 520,000 shares of the Company's common stock, have agreed to
relinquish all claims of ownership to such shares, and the Company will cancel
those shares on its books.
The settlement of the litigation and the closing of the transactions remain
subject to a number of conditions.
3) Natural Solutions Corporation entered into an exclusive supply agreement
("Agreement") on May 4, 2001, that is dated as of April 6, 2001, with Penford
Products Company, which will provide a series of products from their Cedar
Rapids, Iowa production facility. The Company amended this Agreement in a
Product Specification Addendum on May 4, 2001 that is dated as of April 23,
2001. The products covered by the Agreement and Addendum will be purchased by
Natural Solutions Corporation for inclusion in the Company's anti-icing,
deicing, dust suppression, and soil stabilization product lines.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation S-B, as
described in the following index of exhibits, are incorporated herein by
reference, as follows:
Exhibit No. Description
- ----------- ---------------------------------------------------------------
10.31(1) Supply Agreement with Penford Products Company
10.32(1) Product Specification Addendum
- --------------------------------------
(1) Filed under the same exhibit number to the Registrants Form 8-K.
(b) No other Reports on Form 8-K were filed during the quarter ended April
30, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Natural Solutions Corporation (Registrant)
Date: May 31, 2001 By: /s/ Jimmy W. Foshee, President
--------------------------------------
Jimmy W. Foshee, President
By: /s/ Michael D. Klansek, Treasurer
--------------------------------------
Michael D. Klansek, Treasurer
and Chief Financial Officer