U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2002
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-28155
NATURAL SOLUTIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 88-0367024
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Volvo Parkway, Suite 200
Chesapeake, Virginia 23320
(Address of Principal Executive Offices)
(757) 548-4242
(Issuer's Telephone Number, Including Area Code)
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 issuer's classes
of common equity, as of the latest practicable date:
26,743,873 shares of common stock, par value $.001 per share,
outstanding as of February 28, 2002
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
January 31, January 31,
ASSETS 2002 2001 July 31, 2001
- ------------------------------------------------------------ ------------ ------------ -------------
Current Assets:
Cash and Cash Equivalents $ 95,849 $ 317,027 $ 6,161
Trade Accounts Receivable, net 404,835 598,519 72,688
Stock Subscription Receivable - - 490,000
Other Receivables, net 22,156 30,082 36,479
Inventories 214,600 600,310 239,784
Prepaid Expenses 66,830 34,966 34,692
------------ ------------ ------------
Total Current Assets 804,270 1,580,904 879,804
Property and Equipment, at cost 178,616 161,850 233,673
Less Accumulated Depreciation (88,439) (89,556) (110,916)
------------ ------------ ------------
90,177 72,294 122,757
Licensing Agreement, net 170,320 273,223 221,771
------------ ------------ ------------
$ 1,064,767 $ 1,926,421 $ 1,224,332
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade Accounts Payable 1,526,296 946,445 1,165,436
Accrued Expenses 489,645 243,680 387,958
Notes Payable 98,526 102,000 104,974
Other Liabilities - - 150,000
------------ ------------ ------------
Total Current Liabilities 2,114,467 1,292,125 1,808,368
Convertible Debentures to Related Party 1,620,350 1,557,152 1,588,751
Other Liabilities 150,000 - 150,000
Long Term Debt to Related Party 257,000 257,000 257,000
------------ ------------ ------------
Total Liabilities 4,141,817 3,106,277 3,804,119
------------ ------------ ------------
Commitments and Contingent Liabilities
Stockholders' Equity (Deficit):
8% Convertible Preferred Stock, $0.001 par value,
20,000,000 shares authorized, 7,770 issued and
outstanding on January 31, 2002, 7,500 on July 31,
2001, and 6,500 on January 31, 2001 8 7 8
Common Stock, $0.001 par value, 55,000,000 shares
authorized, 26,743,873 issued and outstanding
on January 31, 2002, 24,743,873 on July 31, 2001,
and 20,046,540 on January 31, 2001 26,744 20,047 24,744
Additional Paid-in Capital 14,826,485 14,255,773 14,271,385
Accumulated Deficit (17,930,287) (15,455,683) (16,875,924)
------------ ------------ ------------
Total Stockholders' Equity (Deficit) (3,077,050) (1,179,856) (2,579,787)
------------ ------------ ------------
$ 1,064,767 $ 1,926,421 $ 1,224,332
============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
F-2
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months Ended For the Six Months Ended
January 31 January 31
---------------------------- ----------------------------
Unaudited Unaudited Unaudited Unaudited
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net Sales $ 836,702 $ 1,238,378 $ 983,827 $ 1,591,969
Costs Applicable to Sales 644,830 888,951 796,862 1,063,596
------------ ------------ ------------ ------------
Gross Profit 191,872 349,427 186,965 528,373
Operating Costs and Expenses:
Selling and Administrative Expenses 407,049 488,496 867,352 990,217
------------ ------------ ------------ ------------
(215,177) (139,069) (680,387) (461,844)
Interest and Other Expense, net (42,091) (80,014) (122,010) (279,654)
------------ ------------ ------------ ------------
Losses from Continuing Operations Before Taxes (215,177) (219,083) (802,397) (741,498)
Income Tax Expense - - - -
------------ ------------ ------------ ------------
Losses from Continuing Operations (257,268) (219,083) (802,397) (741,498)
Discontinued Operations:
Loss from Operations of Discontinued Product
Line, Net of Taxes - (124,871) - (241,599)
Loss on Discontinuance of Product Line, including
Provision of $77,629 for Operating Losses
During Phase-Out Period, net of taxes (62,315) - (194,866) -
------------ ------------ ------------ ------------
Net Loss $ (319,583) $ (343,954) $ (997,263) $ (983,097)
============ ============ ============ ============
Loss per Share, Basic and Diluted, from
Continuing Operations ($0.01) ($0.01) ($0.03) ($0.04)
============ ============ ============ ============
Loss per Share, Basic and Diluted, from
Discontinued Product Line, net of taxes - ($0.01) - ($0.01)
============ ============ ============ ============
Loss per Share, Basic and Diluted, from
Discontinuance of Product Line - - ($0.01) -
============ ============ ============ ============
Loss per Share, Basic and Diluted ($0.01) ($0.02) ($0.04) ($0.05)
============ ============ ============ ============
Weighted Average Common
Shares Outstanding 26,743,873 20,046,540 26,243,873 20,041,540
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
F-3
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended January 31
------------------------------
Unaudited Unaudited
2002 2001
------------- -------------
Operating Activities:
Net Loss $ (997,263) $ (983,097)
Adjustments to Reconcile Net Loss to Cash
Used in Operating Activities:
Depreciation and Amortization 66,096 67,946
Non-Cash Interest Charges 31,599 214,732
Loss on Sale of Fixed Asset 7,937 -
Product and Services Purchased for Stock
and Options - 7,000
Increase in Accounts and Other Receivables (317,824) (496,909)
Decrease (Increase) in Inventories 25,184 (89,620)
Increase in Prepaid Expenses (32,138) (9,659)
Increase in Accounts Payable and
Accrued Expenses 462,545 240,404
Decrease in Other Liabilities (150,000) -
------------- -------------
Cash Used in Operating Activities (903,864) (1,049,203)
------------- -------------
Investing Activities:
Acquisition of Equipment - (8,733)
Proceeds from the Sale of Equipment 10,000 -
------------- -------------
Cash Provided by (Used in) Investing Activities 10,000 (8,733)
------------- -------------
Financing Activities:
Payment of Note Payable (6,448) -
Proceeds from Issuance of Convertible Debentures - 535,000
Proceeds from Issuance of Common Stock 990,000 -
Proceeds from Issuance of Preferred Stock 57,100 650,000
Preferred Stock Dividends Paid (57,100) (5,537)
------------- -------------
Cash Provided by Financing Activities 983,552 1,179,463
------------- -------------
Net Increase in Cash 89,688 121,527
Cash and Cash Equivalents - Beginning of Year 6,161 195,500
------------- -------------
Cash and Cash Equivalents - End of Year $ 95,849 $ 317,027
============= =============
Supplemental Disclosures of Cash Flow Information:
Non-Cash Charges Against Income:
Amortization of Charges to Stock Warrants $ 31,599 $ 31,607
One-Time Charge from Issuance of Convertible Debentures $ - $ 183,125
See Notes to Condensed Consolidated Financial Statements.
F-4
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Deficit
For the Six Months Ended January 31, 2002
(Unaudited)
Par Par Additional
Preferred Value Common Value Paid-in Accumulated
Shares Preferred Shares Common Capital Deficit Totals
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 2001 7,500 $ 8 24,743,873 $ 24,744 $ 14,271,385 $(16,875,924) $ (2,579,787)
============ ============ ============ ============ ============ ============ ============
Stock Issued for Cash - - 2,000,000 2,000 498,000 - 500,000
Preferred Stock Dividends Paid 270 - - - 57,100 (57,100) -
Net Loss January 31, 2002 - - - - - (997,263) (997,263)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance January 31, 2002 7,770 $ 8 26,743,873 $ 26,744 $ 14,826,485 $(17,930,287) $ (3,077,050)
============ ============ ============ ============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
F-5
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 2002
Note 1. The interim financial statements include all adjustments, which, in 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 310(b) 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, 2001, which is
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
July 31, 2001. The balance sheet as of July 31, 2001 was derived from the
audited financial statements as of that date. The results of operations for the
six-months ended January 31, 2002 are not necessarily indicative of those to be
expected for the entire year.
Note 2. In accordance with a settlement agreement dated February 16, 2001, on
August 3, 2001, M.G. Robertson consummated the purchase of 3,925,000 shares of
Common Stock for $375,000 in a private transaction.
Note 3. On September 12, 2001, the Company sold 2,000,000 shares of common stock
in a private sale for $500,000. The subscription agreement called for payments
of $300,000 on or before October 10, 2001 and $200,000 on or before January 10,
2002. The $300,000 payment was received on October 5, 2001 and the $200,000
payment was received on December 3, 2001.
Note 4. On August 1, 2001 the Company signed an employment agreement with Lowell
W. Morse, to act as President of the Company. Among others, the terms of the
agreement provide for a salary of $240,000 per year, and stock options for
2,000,000 shares of the Company's common stock, which vest over the first two
years of his employment. The grant of these options was made under the Company's
2001 Employee Stock Option Plan. The 2001 Employee Stock Option Plan was
approved by a vote of the shareholders at the annual meeting of the
shareholders, which was held on December 11, 2001.
In January 2002, the Company entered into an agreement with Cenco Refining
Company ("Cenco"), which is owned by Cenco, Inc. M.G. Robertson, who is the
Company's Chairman of the Board and the beneficial owner of 65.19% of the
Company's common stock, is trustee of the trust that owns the majority interest
in Cenco, Inc. This agreement permits the President of the Company to provide
certain management services to Cenco in exchange for a management fee of $19,800
per month that is paid directly to the Company. Either party may terminate the
agreement at any time. The President of the Company receives no additional
compensation for his services to Cenco. The Company does not believe that Mr.
Morse's services to Cenco will affect his ability to perform his duties as
President of the Company and otherwise fulfill his obligations under his
employment agreement.
Note 5. On July 17, 2001, the Company discontinued its dust control and road
stabilization business to focus its resources on distribution of its Ice Ban(R)
products. The Company determined that the investment required to develop product
demand and a nationwide sales, distribution, and support network for its
Roadbind products required more resources than were available to the Company at
the time.
In accordance with the discontinuance plan, the Company terminated all of its
sales staff associated with the Roadbind product line, began efforts to
liquidate all remaining Roadbind products, sell the equipment associated with
the products, and terminate any contracts associated with the Roadbind product
line. During the three months and six months ended January 31, 2002, the Company
determined that the net realizable value of the remaining inventory and two
remaining application trucks was below the estimates made at the end of the
fiscal year ended July 31, 2001. For the three months ended January 31, 2002,
the losses associated with the discontinuance plan totaled $62,315 and include
an additional inventory valuation adjustment of $45,000 and a change in estimate
of $17,315 for operating losses during the discontinuance period. For the six
months ended January 31, 2002, these losses totaled $194,866 and include
additional losses of $122,629 and
F-6
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
January 31, 2002
$17,410 for inventory and application trucks, respectively. Also, $54,827 was
recorded for a change in estimate for operating losses during the phase-out
period.
For the three-month and six-month periods ended January 31, 2001, the operating
results for the Roadbind product line are summarized as follows:
Three Months Six Months
------------------------------
Sales $ 14,186 $ 94,400
------------------------------
Gross Profit (Loss) (56,823) (87,047)
Sales, Marketing, and Other Expenses 68,048 154,552
------------------------------
Net Loss $ (124,871) $ (241,599)
==============================
Note 6. The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations.
For the Six Months Ended January 31, 2002
-------------------------------------------
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ------------
Net Loss from Continuing Operations $ (802,397)
Plus: Preferred Stock Dividends (57,100)
------------
Loss Per Share, Basic and Diluted, from
Continuing Operations Available to Common
Shareholders (859,497) 26,243,873 $ (0.03)
============
Loss Per Share, Basic and Diluted, from
Discontinuance of Product Line Available to
Common Shareholders (194,866) 26,243,873 $ (0.01)
------------ ============
Loss per Share, Basic and Diluted $ (1,054,363) 26,243,873 $ (0.04)
============ ============
Exercisable options, warrants, and convertible securities to acquire 14,774,910
shares of common stock were outstanding at January 31, 2002, but were not
included in the computation of diluted earnings per share as their effect was
anti-dilutive to the reported loss per basic common share.
For the Six Months Ended January 31, 2001
-------------------------------------------
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ------------
Net Loss from Continuing Operations $ (741,498)
Plus: Preferred Stock Dividends (5,537)
------------
Loss Per Share, Basic and Diluted, from
Continuing Operations Available to Common
Shareholders (747,035) 20,041,540 $ (0.04)
============
Loss Per Share, Basic and Diluted, from
Discontinued Product Line Available to
Common Shareholders (241,599) 20,041,540 $ (0.01)
------------ ============
Loss per Share, Basic and Diluted $ (988,634) 20,041,540 $ (0.05)
============ ============
Exercisable options, warrants, and convertible securities to acquire 12,594,910
shares of common stock were outstanding at January 31, 2001, but were not
included in the computation of diluted earnings per share as their effect was
anti-dilutive to the reported loss per basic common share.
F-7
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
January 31, 2002
Note 8. As of January 31, 2002, M.G. Robertson, the Company's Chairman of the
Board, held convertible debentures issued by the Company in the aggregate amount
of $1,885,000. Interest accrues on this amount at 10% per year. Such interest
payments are due in arrears, semi-annually. The interest may be paid in cash or
common stock, at the Company's election. To date, the Company has not paid any
interest on the convertible debentures held by Dr. Robertson. At January 31,
2002, there was a total of $352,227 of accrued interest due on these debentures.
Dr. Robertson has not yet demanded payment.
Note 9. Contingencies and Legal Matters include the following:
Sears Oil Company alleges fraudulent misrepresentation and inducement regarding
the Toth patent. The plaintiff amended their complaint to allege patent
infringement of the Toth patent. Plaintiffs seek damages of $400,000,
unspecified consequential damages, plus dissolution of a New York LLC in which
both parties are principals. The Company has filed counterclaims alleging breach
of fiduciary duty, breach of a confidentiality agreement by Sears Oil Company
and others acting in concert with Sears Oil Company. No trial has been scheduled
as of the date of the issuance of these financial statements. Management is
uncertain of the outcome in this case and unable to estimate the amount or range
of potential loss, if any.
Minnesota Corn Processors seeks $143,555 in damages for product allegedly
delivered to the Company, which is included in trade payables as of July 31,
2001. The Company disputes this claim, and has filed a counterclaim, seeking
damages for MCP's breach of a Supply Agreement and Sublicense Agreement.
Terrabind International, Inc. alleges malicious prosecution and abuse of process
with respect to the Company's previous lawsuit against Terrabind. The Company
disputes this claim and is vigorously defending itself. The outcome is uncertain
and the amount or range of loss, if any, is not available.
Note 10. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred losses since
its inception, August 14, 1996, and has aggregate operating losses of
$17,930,287 through January 31, 2002. As a result of these continued losses, the
Company has been unable to generate sufficient cash flow from its operating
activities to support current operations.
The Company believes that increased sales are necessary in order to achieve
adequate short-term and long-term liquidity and solvency. The Company's ability
to generate sufficient future cash flows from its operating activities in order
to sustain future operations cannot be determined at this time. The Company has
primarily funded its operations through the sale of its common stock and
preferred stock, and the issuance of debt. There can be no assurance that the
Company will be able to continue to do so in the future and, if so, that such
funding will provide sufficient capital on terms favorable to the Company.
Management's plan to overcome these problems include the following:
1. The Company is seeking to raise $1,250,000 of additional capital through the
sale of stock in the Company or the issuance of debt.
2. The Company is exploring opportunities to establish relationships with other
companies with the goal to provide year-round product sales and increased
sales of existing products.
3. The Company has developed a series of upgraded Ice Ban(R)products, which
better meet the performance and environmental standards, developed in the
industry. As a result, the Company has added certain new customers, which
may increase sales in the next winter season.
4. The Company has refined its strategic plan addressing marketing, sales,
product quality, and operational issues and is in the process of
implementing each of the elements of that plan.
F-8
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements (Continued)
January 31, 2002
5. The Company is also continuing to streamline its central organization and
eliminating unnecessary overhead costs.
These uncertainties and the uncertainties associated with the unresolved
litigation matters raise substantial doubt about the Company's ability to
continue as a going concern and, therefore, about its ability to realize its
assets and discharge its liabilities in the normal course of business. The
financial statements do not include any adjustments and classification of
liabilities that may be necessary if the entity is unable to continue as a going
concern.
F-9
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,
including reliance on winter weather conditions, increased competition from
other products and product resellers; the Company's ability to maintain and
increase its distributor network; the Company's ability to acquire sufficient
raw materials to meet customer demands; changes in environmental regulations;
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 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 products in the
United States. The products are marketed under the protected trade names of Ice
Ban(R). These products are sold through a network of direct sales
representatives and licensed distributors throughout the United States.
Until July 17, 2001, the Company also marketed a product under the trade name RB
ULTRA(TM) in the U.S. RB ULTRA(TM) is a biodegradable, environmentally friendly,
non-toxic, non-corrosive dust control and road stabilization product for use in
the maintenance of unpaved roads. The Company discontinued this product after it
determined that the investment required to develop product demand and a
nationwide sales, distribution, and support network for this product required
more resources than were available to the Company at the time.
In fiscal year 2002, the Company began efforts to locate businesses with
year-round products for sale and distribution through the Company's network of
customers and distributors. The Company will actively seek out, research, and
consider acquisition of such companies and products that complement the existing
products and customer needs. The Company has also revised its Ice Ban(R) sales
and marketing strategy for future winter seasons to decrease its reliance on a
direct sales force and instead to emphasize distributor sales almost
exclusively. There can be no assurance that the Company will locate or
successfully negotiate terms with any such businesses or that such new products
will result in significant increases in sales.
Results of Operations - The Three-Months Ended January 31, 2002 Compared to the
Three-Months Ended January 31, 2001:
Net sales from continuing operations for the three-months ended January 31, 2002
were $836,702, compared to $1,238,378 for the same period last year; resulting
in an decrease of $401,676 or 33%. The Company believes that the decrease in
sales is largely due an abnormally mild winter throughout the United States and
a carryover of customer and distributor inventories from last winter. Discounted
sales of the previous generation of Ice Ban products also had a negative impact
on sales, which resulted from the introduction of
the next generation of Ice Ban products.
The Company has increased its government bid activities, added new customers,
and modified its distributor network in an effort to increase sales. Although
there can be no assurances, management believes that the continued
implementation of its sales and marketing plans, further promotion of the
enhanced Ice Ban products, and a return to normal winter weather conditions may
result in higher net sales for fiscal years 2003 and beyond.
The Company is also seeking additional products and services to expand its sales
base beyond the existing products lines.
The gross profit for the current period totaled $191,872 (23% of net sales),
compared to $349,427 (28% of net sales) for the comparable period in the prior
year, a decrease of $157,555. The dollar decrease in gross margin is largely due
to decreased sales volume and margins, which cover fixed storage and rail car
leases recorded as cost of sales.
Selling and administrative expenses totaled $407,049, compared to $488,496 for
the same period last year; a reduction of $81,447. The most significant items
effecting the reduction of these expenses is the $25,012 reduction of sales and
distributor commissions, resulting from the decline in sales. A variety of other
expense variations further contributed to these savings. As the Company attempts
to expand its marketing, sales, and distribution efforts, advertising, payroll,
and travel expenses are expected to increase.
Other expense totaled $42,091 in the current year, as compared to $80,014 in the
same three-months of the prior year. This improvement is primarily due to
non-cash interest charges of $35,799 in the prior year, which resulted from
changes in the required accounting treatment for convertible debentures. The
non-cash charges for these items totaled $15,799 in the current year. Other
interest accruals associated with long-term debt totaled $26,292 in the current
period and $44,215 in the prior year.
Losses from continuing operations for the three-months ended January 31, 2002
were $257,268, as compared to $219,083 for the same period ended January 31,
2001, an increase of $38,185 or 17%.
In July 2001, the Company discontinued its efforts to market Roadbind dust
control and soil stabilization products. During the previous two years, the
Company incurred losses from Roadbind operations and discontinuance of the
product line of $780,519 and $325,638 in fiscal years ended July 31, 2001 and
2000, respectively. In the three-months ended January 31, 2002, the Company
recorded additional losses on discontinuance of the product line totaling
$62,315. These losses include an additional inventory valuation adjustment of
$45,000 and a change in estimate of $17,315 for operating losses during the
discontinuance period. In the three-month period ended January 31, 2001, the
Company lost $124,871 from Roadbind operations.
The Company had a net loss of $319,583 for three-months ended January 31, 2002,
compared to a net loss of $343,954 for the quarter ended January 31, 2001, an
improvement of 24,371.
Results of Operations - The Six-Months Ended January 31, 2002 Compared to the
Six-Months Ended January 31, 2001:
Net sales from continuing operations for the six-months ended January 31, 2002
were $983,827, compared to $1,591,969 for the same period last year; resulting
in an decrease of $608,142 or 38%. The Company believes that the decrease in
sales is largely due an abnormally mild winter throughout the United States and
a carryover of customer and distributor inventories from last winter. Discounted
sales of the previous generation of Ice Ban products also had a negative impact
on sales, which resulted from the introduction of the next generation of Ice Ban
products.
The Company has increased its government bid activities, added new customers,
and modified its distributor network in an effort to increase sales. Although
there can be no assurances, management believes that the continued
implementation of the its sales and marketing plans, further promotion of the
enhanced Ice Ban products, and a return to normal winter weather conditions may
result in higher net sales for fiscal years 2003 and beyond.
The Company is also seeking additional products and services to expand its sales
base beyond the existing
products lines.
The gross profit for the current period totaled $186,965 (19% of net sales),
compared to $528,373 (33% of net sales) for the comparable period in the prior
year, a decrease of $341,408. The dollar decrease in gross margin is largely due
to decreased sales volume and margins, which cover fixed storage and rail car
leases recorded as cost of sales.
Selling and administrative expenses totaled $867,352, compared to $990,217 for
the same period last year; a reduction of $122,865. The most significant items
effecting the reduction of these expenses is the $67,655 reduction of legal
fees, due to the settlements of several legal disputes in fiscal year 2001.
Professional fees also declined by $35,501, which was primarily the result of a
change in auditors. A variety of small expense variations further contributed to
these savings. As the Company continues to expand its marketing, sales, and
distribution efforts, advertising, payroll, and travel expenses are expected to
increase.
Other expense totaled $122,010 in the current year, as compared to $279,654 in
the same six-months of the prior year. This improvement is primarily due to
non-cash interest charges of $214,732 in the prior year, which resulted from
changes in the required accounting treatment for convertible debentures. The
non-cash charges for these items totaled $31,599 in the current year. Other
interest accruals associated with long-term debt totaled $90,411 in the current
period and $64,922 in the prior year.
Losses from continuing operations for the six-months ended January 31, 2002 were
$802,397, as compared to $741,498 for the same period ended January 31, 2001, an
increase of $60,899 or 8%.
In July 2001, the Company discontinued its efforts to market Roadbind dust
control and soil stabilization products. During the previous two years, the
Company incurred losses from Roadbind operations and discontinuance of the
product line of $780,519 and $325,638 in fiscal years ended July 31, 2001 and
2000, respectively. In the current year, the Company recorded additional losses
on discontinuance of the product line totaling $194,866. These losses include
additional valuation adjustments of $122,629 and $17,410, respectively, for
inventory and application trucks, plus a change in estimate of $54,827 for
operating losses during the discontinuance period. In the prior year, the
Company lost $241,599 from Roadbind operations.
The Company had a net loss of $997,263 for six-months ended January 31, 2002,
compared to a net loss of $983,097 for the quarter ended January 31, 2001.
Liquidity and Capital Resources:
In the six-months ended January 31, 2002, operating activities consumed
$903,864, compared to $1,049,203 consumed in the comparable period in 2001, a
decrease of $145,339 or 14%. This decrease in cash consumed is primarily due to
an increase in accounts payable and accrued expenses of $462,545, compared to an
increase of $240,404 in the prior year. A variety of smaller items also
contributed to the decrease in cash consumed by operating activities. This was
partially offset by the payment of $150,000 for legal settlement obligations.
The Company recorded an infusion of $990,000 from financing activities in the
first six-months of the current fiscal year. The following paragraphs describe
each of the transactions.
On July 25, 2001, Dr. Robertson invested $500,000 through the sale of 5,208,333
shares of Company common stock. At the end of the fiscal year ended July 31,
2001, the Company had received $10,000 of this subscription. The remaining
$490,000 was received during the six-months ended January 31, 2002.
On September 12, 2001, the Company sold 2,000,000 shares of common stock in a
private sale for $500,000. The subscription agreement called for payments of
$300,000 on or before October 10, 2001 and $200,000 on or before January 10,
2002. The $300,000 payment was received on October 5, 2001 and the $200,000
payment was received on December 3, 2001.
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 while maintaining operations and supporting 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 remainder
of the current fiscal year. The Company continues to seek an additional
$1,250,000 in debt and equity to finance its current operational plans and
expand its sales, marketing, and distribution networks. The Company is seeking
other qualified investors to fund this amount. In addition, the Company is
exploring opportunities to establish relationships with other companies with the
goal to provide year-round product sales opportunities and growth of the
Company's existing product sales.
The Company believes that an additional $1,250,000 in funding will be sufficient
to achieve operating profits and fuel its growth for the foreseeable future.
There can be no assurance, however, that the Company will secure such additional
financing. There also can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. If issuing equity
securities raises additional funds, such securities may result in further
dilution to the existing stockholders.
The Company also believes that increased sales are necessary in order to achieve
adequate short-term and long-term liquidity and solvency. The plan of operations
for the next twelve months anticipates that Ice Ban(R) will provide the dominant
share of revenue. However, due to the significant amount of fixed storage costs,
increased sales volumes are expected to result in a decline in the cost of
product sold as a percent of net sales.
The failure of the Company to address these liquidity and solvency issues may
have a material adverse effect on the Company's ability to realize its assets
and discharge its liabilities in the normal course of business.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Except as set forth below, please see the disclosures provided in Item 3 of the
Annual Report on Form 10-KSB for the fiscal year ended July 31, 2001 for a
description of the Company's pending legal proceedings.
1. Natural Solutions Corporation et al. vs. Howard Sears, et al., Case No.
99-3344, in the Circuit Court in and for Palm Beach County. This lawsuit was
filed on April 6, 1999 by the Company and IBUSA for breach of contract and for a
declaratory judgement against the named Hungarian inventors 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. The
Company and IBUSA seek damages in an unspecified amount. Some limited discovery
on jurisdiction has been undertaken in this case. The Company has filed an
Amended Complaint and the Defendants' have filed a motion to dismiss such
Amended Complaint, which will be heard in March 2002.
2. 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(R) products in the New
England states. The Court 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 1. above. The case is not set for trial, which is not
expected to occur until July 2002 at the earliest.
3. Terrabind International, Inc., et al. v. Natural Solutions Corporation, et
al., Case No. 01-89700 in the United States District Court for the Southern
District of Florida. This case was filed on November 7, 2001 by Terrabind and
certain former officers and managers of the Company against the Company and one
former officer and one current officer of the Company. The suit seeks
unspecified compensatory and punitive damages. It alleged securities fraud for
activities of the Company between 1996 and 1999, malicious prosecution and abuse
of process with respect to the Company's previous lawsuit against the
plaintiffs. The Court dismissed this case sua sponte on February 5, 2002.
4. Terrabind International, Inc., et al. v. Natural Solutions Corporation, et
al., Case Number CA 02-02141AB, in the Circuit Court in and for Palm Beach
County. Upon dismissal of the case described in item 3, above, the plaintiffs
commenced an action on February 19, 2002, alleging malicious prosecution and
abuse of process with respect to the Company's previous lawsuit against the
plaintiffs. The suit seeks unspecified compensatory and punitive damages. The
Company will vigorously defend this lawsuit. The Company has filed a motion to
dismiss. No hearing has been set on that motion.
5. Natural Solutions Corporation v. Terrabind International, Inc., et al. in
the Circuit Court of Palm Beach County, Florida. This case was filed by the
Company on May 15, 2000, seeking damages and injunctive relief against three
former corporate officers or executives who formed Terrabind International, Inc.
A description of this lawsuit is included in the Form 10-KSB. The Company
dismissed its claim, without prejudice. The defendants have filed a motion
seeking recovery of their attorneys' fees, which the Company is contesting. The
motion will be heard in May 2002.
Item 2. Changes in Securities and Use of Proceeds
On September 12, 2001, the Company sold 2,000,000 shares of common stock in a
private sale for $500,000. The subscription agreement called for payments of
$300,000 on or before October 10, 2001 and $200,000 on or before January 10,
2002. The $300,000 payment was received on October 5, 2001 and the $200,000
payment was received on December 3, 2001. The Company relied upon the exemption
from registration provided by ss.4(2) of the Securities Act of 1933.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of the shareholders held on December 11, 2001, the
shareholders of the Company voted to approve the following:
The 2001 Employee Stock Option Plan; 15,757,439 votes were cast on this
resolution. 15,531,909 votes were cast in favor of the resolution. 107,137 were
cast against the resolution. 118,393 votes abstained on the resolution.
Accordingly, the resolution was adopted.
Election of two Class II Directors as follows: J. Carter Beese, Jr., receiving
14,793,281 votes for and 117,508 votes withheld, and Daniel C. Sellers,
receiving 14,791,281 votes for and 119,508 votes withheld. Class I Directors
whose terms will expire at the 2002 annual meeting of the shareholders include
Dr. M.G. Robertson, J. Nelson Happy, and Lowell W. Morse. Class III Director
whose term will expire at the 2003 annual meeting of the shareholders include
Robert E. Freer, Jr.
Item 5. Other Information
In January 2002, the Company entered into an agreement with Cenco Refining
Company ("Cenco"), which is owned by Cenco, Inc. M.G. Robertson, who is the
Company's Chairman of the Board and the beneficial owner of 65.19% of the
Company's common stock, is trustee of the trust that owns the majority interest
in Cenco, Inc. This agreement permits the President of the Company to provide
certain management services to Cenco in exchange for a management fee of $19,800
per month that is paid directly to the Company. Either party may terminate the
agreement at any time. The President of the Company receives no additional
compensation for his services to Cenco. The Company does not believe that Mr.
Morse's services to Cenco will affect his ability to perform his duties as
President of the Company and otherwise fulfill his obligations under his
employment agreement.
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
- ----------- ------------------------------------------------------------------
None
(b) Reports on Form 8-K
None
SIGNATURES
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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: March 18, 2002 By: /s/ Lowell W. Morse
--------------------------------------
Lowell W. Morse, President
By: /s/ Michael D. Klansek
--------------------------------------
Michael D. Klansek, Treasurer
and Chief Financial Officer