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: January 31, 2000
Commission file no.: 0-28155
NATURAL SOLUTIONS CORPORATION
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(Name of small business issuer as specified in its charter)
Nevada 88-0367024
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Volvo Parkway, Suite 200
Chesapeake, Virginia 23320
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(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
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696 Fax: (561) 659-5371
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
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State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: As of January 31, 2000, there are
19,996,540 shares of voting common stock of the registrant issued and
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of January 31, 2000
and 1999, and July 31, 1999..................................................F-2
Consolidated Statements of Operations for the Three
and Six Months Ended January 31, 2000 and 1999...............................F-3
Statements of Consolidated Cash Flows for the Six
Months Ended January 31, 2000 and 1999.......................................F-4
Notes to the Consolidated Financial Statements...............................F-5
NATURAL SOLUTIONS CORPORATION
Consolidated Balance Sheets
(Unaudited) (Unaudited)
January 31, 2000 January 31, 1999 July 31, 1999
----------------- ---------------- ---------------
Current Assets:
Cash and Cash Equivalents $146,596 $65,559 $0
Accounts Receivable - Trade 731,302 642,124 86,339
Other Receivables 187,431 74,643 5,375
Inventories 727,660 405,358 626,872
Prepaid Expenses 102,249 106,693 62,736
Total Current Assets 1,895,238 1,294,377 781,322
Property and Equipment, net 103,453 127,488 112,453
Investment in Affiliate 18,750 110,000 18,750
Licensing Agreement, net 386,118 470,980 419,620
Other 3,686 221,292 3,686
$2,407,245 $2,224,137 $1,335,831
================= ================ ===============
Current Liabilities:
Accounts Payable - Trade 1,106,215 552,839 1,115,754
Accrued Expenses 259,923 13,444 180,856
Note Payable 60,000 - -
Current Portion of Long Term Debt 82,000 82,000 82,000
Current Portion of Related Party Debt - 61,951 124,968
Total Current Liabilities 1,508,138 710,234 1,503,578
Long Term Debt to Related Parties 257,000 195,049 132,032
Convertible Debenture 750,000
Stockholders' Equity:
Preferred Stock, $0.01 par value,
20,000,000 shares authorized, no shares
have been issued or are outstanding - - -
Common Stock, $0.01 par value,
55,000,000 shares authorized,
19,996,540 issued and outstanding 19,997 15,993 15,997
Additional Paid-in Capital 5,935,124 4,907,158 4,939,124
Other Comprehensive Income (121,727) - (121,727)
Accumulated Deficit (5,941,287) (3,604,297) (5,133,173)
Total Stockholders' Equity (107,893) 1,318,854 (299,779)
$2,407,245 $2,224,137 $1,335,831
================= ================ ===============
The accompanying notes are an integral
part of these financial statements.
F-2
NATURAL SOLUTIONS CORPORATION
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Six Months
Ended January 31, Ended January 31,
2000 1999 2000 1999
-------------- ------------- -------------- -------------
Net Sales $939,396 $914,492 $1,132,733 $1,542,799
Costs Applicable to Sales 647,081 551,406 843,524 1,017,823
Gross Profit 292,315 363,086 289,209 524,976
Selling and Administrative Expenses 580,968 717,204 1,065,352 1,266,736
-------------- ------------- -------------- -------------
Losses from Operations (288,653) (354,118) (776,143) (741,760)
Other Expense, net (19,095) - (31,984) -
Net Loss Before Taxes (307,748) (354,118) (808,127) (741,760)
Income Taxes - - - -
Net Loss ($307,748) ($354,118) ($808,127) ($741,760)
============== ============= ============== =============
Weighted Average Common Shares
Outstanding 17,923,733 15,929,306 17,923,733 15,915,827
Loss per Share ($0.02) ($0.02) ($0.05) ($0.05)
============== ============= ============== =============
The accompanying notes are an
integral part of these financial statements.
F-3
NATURAL SOLUTIONS CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended January 31,
2000 1999
----------------- --------------
Operating Activities:
Net Loss ($808,127) ($741,760)
Non-Cash Expenses Included in Net Loss:
Depreciation and Amortization 42,515 60,360
Bad Debts - 289,481
Product and Services Pruchased for Stock
and Options - 370,463
Adjustments to Reconcile Net Loss to Cash
Provided (Consumed) by Operating Activities:
(Increase) in Accounts Receivable (644,963) (479,951)
(Increase) in Other Receivables (182,056)
(Increase) Decrease in Inventories (100,788) 293,224
(Increase) in Prepaid Expenses (39,513) (9,128)
Increase in Accounts Payable and
Accrued Expenses 69,528 118,366
----------------- --------------
Cash Consumed by Operating Activities (1,663,404) (98,945)
Financing Activities:
Proceeds from Issuance of Note Payable 60,000 -
Proceeds from Issuance of Long Term Debt 750,000 -
Proceeds from Issuance of Common Stock 1,000,000 -
----------------- --------------
Cash Generated by Financing Activities 1,810,000 -
Investing Activities:
Acquisition of Equipment - (16,813)
Advances to Related Parties - (4,943)
Payments Recevied on Advances to Related
Parties - 60,995
----------------- --------------
Cash Provided (Used) in Investing Activities - 39,239
Net Increase (Decrease) in Cash 146,596 (59,706)
Cash and Cash Equivalents - Beginning - 125,265
----------------- --------------
Cash and Cash Equivalents - Ending $146,596 $65,559
================= ==============
The accompanying notes are an
intregal part of these financial statements.
F-4
NATURAL SOLUTIONS CORPORATION
Notes to Interim Financial Statements
Form 10-QSB
January 31, 2000
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 consolidated
financial statements and notes are presented as permitted by Form
10-QSB. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. The
accompanying 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, 1999. The results of
operations for the three-month and six-month periods ended January 31,
2000 are not necessarily indicative of those to be expected for the
entire year.
Note 2. The financial statements as of January 31, 1999 and for the periods
ended January 31, 1999 have been restated to reflect year end
adjustments to provide an additional allowance for doubtful accounts
totaling $259,912, which have been allocated back to the applicable
quarters. The result of this adjustment is to increase the loss per
weighted average common share outstanding by $0.016 for the three
months and six months ended January 31, 1999.
Note 3. On September 15, 1999 the Company signed an unsecured short-term note
payable for $60,000. The note is due in twelve installments of $5,000
plus interest at 7% per annum.
Note 4. On August 11, 1999, the Company borrowed $750,000 from a related party
in the form of a convertible debenture bearing interest at 10% per
annum and maturing on August 11, 2001. Prior to repayment, the
principal and accrued and unpaid interest may be converted into the
Company's common stock at a price of $0.75 per share. The debenture
includes two detachable warrants entitling the holder to purchase up
to three million shares of the Company s common stock at a price of
$0.75 per share. The warrants expire as follows: one million shares on
July 28, 2000 and two million shares on August 9, 2004.
Note 5. On October 31, 1999, the Company sold four million shares of common
stock to a related party for $1 million. As a part of the transaction,
the purchaser acquired, among other rights, the right to name up to
three of seven of the directors of the Company.
F-5
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 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 (TM) . These products are sold
through a network of direct sales representatives and licensed distributors
throughout the United States.
Results of Operations - The Six Months Ended January 2000 Compared to the Six
Months Ended January 1999:
Net sales for the six months ended January 31, 2000 for continuing operations by
the Company were $1,132,733 compared to $1,542,799 for the same period last
year; resulting in a decline of $410,111. The reduction in sales from the prior
year is primarily due to the Company s decision to restructure its sales
organization and reduce its dependence on a limited number of specific
customers. In doing so, the Company established its own sales force, recruited
new distributors, and reduced the size of new and existing distributor
territories. The gross profit for the current period totaled $288,339, or 25% of
sales, compared to $524,976, or 34% for the comparable period in the prior year.
The decline in profit margin is due to increased price competition from former
Ice Ban distributors.
Selling and administrative expenses totaled $1,065,352 compared to $1,266,736
for the same period last year. Increases in personnel costs, advertising, and
travel were more than off-set by a reduction in bad debt expense of $259,912,
resulting in a reduction in expenses in the current period in the amount of
$210,384.
Losses from operations totaled $776,143 compared to losses in the prior year of
$746,760, an increase of $34,383. Other expenses totaled $31,984 bringing the
net loss to $808,127 compared to a net loss of $741,760 for the same period last
year.
While the new management is in the process of implementing a wide-ranging
assessment of each item of cost, marketing and sales efforts, it is too early in
the process to predict the steps management will institute as a result. But
management will seek to increase sales, lower fixed costs as a percentage of
sales and either settle or see through to successful conclusion the
non-productive litigation, which this year has burdened the Company s bottom
line. There can be no assurances that such efforts will be successful.
Liquidity and Capital Resources:
In the six months ended January 31, 2000, operating activities consumed
$1,603,404 in cash as compared to $98,945 of cash consumed in the comparable
period in 1999. This increase in cash consumed from fiscal year 1999 to 2000 is
largely due to increases in receivables, inventories, and prepaid expenses
associated with the timing of sales, which occurred later in the current year
winter selling season compared to the same period last year. In addition, cash
consumed by operations in the prior year was reduced by the payment of stock and
options to purchase product and services totaling $370,463. That practice was
discontinued in the current year.
The Company has recorded an infusion of $1,750,000 from financing activities
since the end of its fiscal year. The infusion of funds took place in two
separate transactions with a related party. The first was a $750,000 convertible
debenture bearing interest at 10% per annum and maturing on August 11, 2001.
Prior to repayment, the principal and accrued and unpaid interest may be
converted into the Company s common stock at a price of $0.75 per share. The
debenture includes two detachable warrants entitling the holder to purchase up
to three million shares of the Company s common stock at a price of $0.75 per
share. The warrants expire as follows: one million shares on July 28, 2000 and
two million shares on August 9, 2004. As a part of the transaction a director
and significant shareholder has agreed to vote his shares consistent with the
desires of this investor. The remaining capital was raised through the sale of
four million shares of common stock to a related party for $1 million. As a part
of the transaction, the purchaser acquired, among other rights, the right to
name up to three of seven of the directors of the Company.
The Company believes that it will probably be 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
further expansion of the Roadbind sales force to the eastern half of the United
States. Currently, sales volumes of the dust suppressant and road stabilization
products do not produce sufficient profits to support the expansion planned for
the remainder of the current fiscal year.
The Company also believes that increased sales are necessary in order to achieve
adequate liquidity and solvency in the short-term as well as the long-term.
Impact of the Year 2000 Issue:
The Year 2000 Issue is the result of potential problems with computer systems or
any equipment with computer chips that use dates where the date has been stored
as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock or date
recording mechanism including date sensitive software which uses only two digits
to represent the year, may have recognize the date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
To date, the Company has not experienced any noticeable Year 2000 difficulties.
The Company intends to continue to monitor its Year 2000 compliance and to
correct any noncompliance as it is discovered.
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. Johnson has filed an arbitration proceeding and the
Company has responded with an answer and defenses. The Company expects that this
matter will be arbitrated sometime in June, 2000.
2. Dianne Johnson and Johnson Family vs. Ice Ban America, IBAC Corporation, Case
No. 99-8228, United States District Court, Southern District of Florida. This
lawsuit was filed on March 26, 1999. It is a lawsuit for securities fraud by the
Johnson family seeking damages for breach of various security regulations and
laws due to alleged violations by Natural Solutions Corporation and IBAC, Inc.
Natural Solutions Corporation has successfully filed two Motions to Dismiss. The
Johnson family is filing a second amended complaint. Natural Solutions and IBAC
filed a counterclaim to rescind the sale of the founders stock. The stock owned
by the Johnson family is founders stock for which the Johnson family paid
approximately $4,000 to Natural Solutions Corporation and $6,000 to IBAC.
Recently Natural Solutions Corporation and IBAC have filed a substantial
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.
3. Dianne Johnson and the Johnson Family vs. Natural Solutions Corporation, Ice
Ban USA, Inc. and George Janke, 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., (New York) to the Company, which sale
occurred in the summer of 1997, based upon alleged fraudulent misrepresentations
surrounding the ownership of the so-called Toth patent. The Company has filed an
answer, affirmative defenses, and a counterclaim similar to the counterclaim in
item #2. Discovery is proceeding, but the case is not set for trial.
4. Natural Solutions Corporation and Ice Ban USA, Inc. vs. Sears Oil, Sears
Petroleum, 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 Ice Ban USA
for tortious interference with the Company s rights to the so- called Toth
patent acquired by Mr. George Janke from the Hungarian inventors. This action
also claims breach of fiduciary duty, breach of a confidentiality agreement by
Sears and others acting in concert with 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 vs. Natural Solutions Corporation, Ice Ban USA, George
Janke ,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 Toth patent and fraudulent
inducement into a certain contract for the distribution of product in New
England based upon misrepresentations regarding ownership of the Toth patent.
The Plaintiff amended their Complaint to allege patent infringement of the Toth
patent. In October 1999 Sears Oil and Sears Petroleum sought a temporary
restraining order that SeaCo, LLC was the exclusive distributor for Ice Ban
products in the New England States. The Judge denied the Plaintiff s request for
a TRO and Sears withdrew its claim for injunctive relief. Natural Solutions will
answer the complaint and file a counterclaim in the next twenty days. The case
is not set for trial.
6. Ice Ban America, Inc. vs. Innovative Municipal Products, Inc., Case No.
99-00710, State Court of New York. This lawsuit was filed on March 24, 1999, by
Natural Solutions Corporation to recover two hundred fifty-thousand dollars
($250,000) owed to it by its New York distributor, Innovative Municipal
Products. Innovative has filed affirmative defenses and counterclaims based upon
the misrepresentation regarding the Toth patent. Natural Solutions has answered
and filed affirmative defenses to the counterclaim. Discovery is ongoing in this
case, and it has not been set for trial.
Item 2. Changes in Securities and Use of Proceeds
On August 11, 1999, the Company borrowed $750,000 from a related party in the
form of a convertible debenture bearing interest at 10% per annum and maturing
on August 11, 2001. Prior to repayment, the principal and accrued and unpaid
interest may be converted into the Company s common stock at a price of $0.75
per share. The debenture includes two detachable warrants entitling the holder
to purchase up to three million shares of the Company s common stock at a price
of $0.75 per share. The warrants expire as follows: one million shares on July
28, 2000 and two million shares on August 9, 2004. These funds were primarily
used to fund the operations of the Company.
On October 31, 1999, the Company sold four million shares of common stock to a
related party for $1 million. As a part of the transaction, the purchaser
acquired, among other rights, the right to name up to three of seven of the
directors of the Company.
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 10, 1999, the
shareholders of the Company voted to approve the following:
The 1999 Non-statutory Stock Option Plan for non-employee members of the Board
of Directors, key personnel, consultants, or independent contractors; 11,100,821
votes were cast on this resolution. 10,254,518 votes were cast in favor of the
resolution. 823,081 were cast against the resolution. 23,122 votes abstained on
the resolution. Accordingly, the resolution was adopted.
The 1999 Incentive Option Plan for employees, and key personnel who render
services which contribute to the success of the growth of the Company;
11,100,821 votes were cast on this resolution. 10,254,518 votes were cast in
favor of the resolution. 823,081 were cast against the resolution. 23,122 votes
abstained on the resolution. Accordingly, the resolution was adopted.
PriceWaterhouse Coopers or another nationally recognized accounting firm, or as
an alternative, Durland and Company of Palm Beach to serve as the independent
public accountants of Natural Solutions Corporation for its fiscal year ending
July 31, 2000; 13,594,01 votes were cast on this resolution. 12,844,448 votes
were cast in favor of the resolution. 4,810 were cast against the resolution.
744,923 votes abstained on the resolution. Accordingly, the resolution was
adopted.
Election of three Class I Directors as follows: Dr. M.G. Robertson, receiving
13,550,224 votes for and 43,857 votes withheld, Dr. J. Nelson Happy, receiving
13,546,016 votes for and 48,065 votes withheld, and Lowell Morse receiving
13,554,934 votes for and 39,147 votes withheld. Class II Directors whose initial
terms will expire at the 2001 annual meeting of the shareholders include Richard
Jurgenson, Hon. J. Carter Beese, Jr. and George A. Janke. Class III Directors
whose initial terms will expire at the 2000 annual meeting of the shareholders
include William Dannhausen and Robert E. Freer, Jr. Subsequent to the annual
meeting of the shareholders Richard Jurgenson and William Dannhausen resigned
their positions as Directors of the Company. There have been no replacement
Directors nominated at this date.
Item 5. Other Information
On March 17th, 2000, Joseph S. Kroll, voluntarily resigned his position with the
Company as Vice President and Chief Operating Officer. His duties have been
assigned to the President, Jim W. Foshee, and Chief Financial Officer, Michael
D. Klansek, among others. The Company believes there will be no material impact
to its operations as a result of Mr. Kroll's resignation.
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
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4.1* Stock Purchase Agreement dated October 31, 1999
10.24* Office Lease dated January 10, 2000
27* Financial Data Schedule
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* Filed herewith
(b) No Reports on Form 8-K were filed during the quarter ended January 31, 2000
SIGNATURES
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In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Natural Solutions Corporation (Registrant)
Date: March 23, 2000 By: /s/ Jimmy W. Foshee
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Jimmy W. Foshee, President
By: /s/ Michael D. Klansek
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Michael D. Klansek, Treasurer
and Chief Financial Officer