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: October 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
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: As of October 31, 2000, 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
Notes to the Condensed Consolidated Financial Statements F-5
F-1
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Balance Sheets
ASSETS
(Unaudited) (Unaudited)
October 31 2000 October 31 1999 July 31, 2000
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Current Assets:
Cash and Cash Equivalents $ 487,834 $ 9,136 $ 195,500
Trade Accounts Receivable, net
Other Receivables, net
Inventories
Prepaid Expenses
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Total Current Assets 1,420,524 996,465 863,188
Property and Equipment at cost 156,350 166,434 153,117
Less Accumulated Depreciation (81,305) (58,483) (73,055)
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75,045 107,951 80,062
Investment in Affiliate - 18,750 -
Licensing Agreement, net
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$ 1,794,518 $ 1,531,143 $ 1,267,925
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Trade Accounts Payable
Accrued Expenses
Notes Payable
Current Portion of Long Term Debt to Related Party
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Total Current Liabilities 1,271,461 1,453,684 1,051,720
Long Term Debt to Related Party 257,000 132,032 257,000
Convertible Debentures to Related Party 1,441,352
Commitments and Contingent Liabilities
Stockholders' Deficit:
Preferred Stock Subscriptions - -
Common Stock, $0.001 par value, 55,000,000 shares
authorized, 20,046,540 issued and outstanding
in 2000 and 19,966,540 in 1999
Additional Paid-in Capital 13,585,780 13,415,674
Accumulated Other Comprehensive Loss - -
Accumulated Deficit (15,231,121) (12,495,274) (14,467,049)
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Total Stockholders' Deficit (1,175,295) (804,573) (1,031,348)
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$ 1,794,518 $ 1,531,143 $ 1,267,925
========================================================
See Notes to Condensed Consolidated Financial Statements.
F-2
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Operations
or the Three Months Ended October
F 31
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------------------------------------
(Unaudited) (Unaudited)
2000 1999
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Net Sales $ 446,799 $ 193,337
Costs Applicable to Sales
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Gross Profit 90,706 (748)
Operating Costs and Expenses:
Selling and Administrative Expenses
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Losses from Operations (543,280) (489,120)
Other Expense, net
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Loss Before Taxes (764,079) (502,009)
Income Tax Expense - -
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Net Loss (764,079) (502,009)
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Loss per Share, Basic and Diluted ($0.04) ($0.03)
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Weighted Average Common
Shares Outstanding 20,036,540 15,996,540
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See Notes to Condensed Consolidated Financial Statements.
F-3
NATURAL SOLUTIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
or the Three Months Ended October
F 31
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------------------------------------
(Unaudited) (Unaudited)
2000 1999
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Operating Activities:
Net Loss $ (764,079) $ (502,009)
Adjustments to Reconcile Net Loss to Cash
Used in Operating Activities:
Depreciation and Amortization
Non-Cash Interest Charges
Product and Services Purchased for Stock
and Options
Increase in Accounts and Other Receivables
Increase in Inventories
(Increase) Decrease in Prepaid Expenses
Increase (Decrease) in Accounts Payable and
Accrued Expenses
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Cash Used in Operating Activities (589,432) (740,864)
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Investing Activities:
Acquisition of Equipment (3,234) -
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Cash Used in Investing Activities (3,234) -
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Financing Activities:
Proceeds from Issuance of Convertible Debentures 435,000 750,000
Proceeds from Preferred Stock Subscriptions
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Cash Provided by Financing Activities 885,000 750,000
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Net Increase in Cash 292,334 9,136
Cash and Cash Equivalents - Beginning of Year 195,500 -
------------------------------------
Cash and Cash Equivalents - End of Period $ 487,834 $ 9,136
====================================
See Notes to Condensed Consolidated Financial Statements.
F-4
NATURAL SOLUTIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
October 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
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 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 three-months ended October 31, 2000 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 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. As a result of this transaction, the Company recorded a one time
non-cash interest charge of $163,125 in the quarter ended October 31, 2000. In
addition, interest charges on all convertible debentures issued to Dr. Robertson
totaled $39,407.
Note 3. 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.
Note 4. On October 1, 2000 the Company issued stock options to all employees of
the Company under the 1999 Employee Stock Option Plan. These options represented
760,000 shares of the Company's common stock and had exercise prices of $0.35
per share, which was equal to the fair market value of the shares on the date of
the grant.
Note 5. In May of 2000 the Company began seeking to raise a total of $3,100,000
in debt and equity to finance its current operational plans and expand its
sales, marketing, and distribution networks. Dr. Robertson has invested
$1,100,000 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% convertible preferred
stock. The preferred stock is being offered to accredited investors in minimum
lots of 500 shares at $100 per share and is convertible into common stock of the
Company at 200 common shares to one share of preferred stock. As of October 31,
2000 $450,000 of preferred stock subscriptions had been received. Another
$100,000 was received in early November 2000 and preferred stock shares were
issued on November 15, 2000 for the full amount of the subscriptions totaling
$550,000. The offering remains open and the ultimate outcome of the offering has
not been determined.
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 Three Months Ended October 31, 2000 Compared to the
Three Months Ended October 31, 1999:
Net sales for the three months ended October 31, 2000 for continuing operations
by the Company were $446,799 compared to $193,337 for the same period last year;
resulting in an increase of $253,462 or 131%. The increase in sales is primarily
due to early buy promotional selling of Ice Ban(R) to new and existing
customers. This early snow season selling more than offset the negative effect
on sales from the reduction of Roadbind(TM) sales. The reduction in Roadbind(TM)
sales is a result of the departure of certain managers from the Company. The
Company continues its efforts to replace and expand its sales force, recruiting
new distributors, and 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 (loss) for the current period
totaled $90,706 or 20% of sales, compared to ($748), or (0.4%) for the
comparable period in the prior year. The increase in profit margin is largely
due to increased sales volume to cover fixed storage and rail car leases.
Selling and administrative expenses totaled $633,986 compared to $488,372 for
the same period last year. Payroll increased by $62,305 as a result of
increasing the direct sales force from four to ten for the same period last
year. The increase in professional fees, resulting from significantly higher
fees from the new auditing firm, totaled $42,302. Other expense variations from
rent, travel, recruiting costs, and others resulted in the remaining net
increase of $41,007. As the Company continues to expand its marketing, sales,
and distribution efforts, advertising, payroll, and travel expenses are expected
to increase. Although management continues its efforts to resolve all legal
disputes, it is expected that legal fees will remain high, until these disputes
are resolved. [See Part II, Item 1. Legal Proceedings] In addition, the Company
is making efforts to reduce professional fees associated with audit and tax
services.
Losses from operations totaled $543,280 compared to losses in the prior year of
$489,120, an increase of $54,160.
Other expenses totaled $220,799 in the current year compared to $12,889 in 1999.
This increase is due largely to the non-cash interest charges of $178,997
required by recent changes in the required accounting treatment for convertible
debentures and regular interest accruals on that debt, which totaled $45,728.
This brings the net loss to $764,079 compared to a net loss of $502,009 for the
same period last year.
The recent changes in the regulatory interpretation of the accounting treatment
for convertible debentures have had a significant impact on the reported
earnings of the Company. In total, these changes in accounting treatment have
resulted in $445,758 in non-cash charges to the Company. In addition, the
Company will be required to amortize an additional $290,208 in non-cash charges
over the next four and one-half years. Although the Company understands that
this is the required accounting treatment for such transactions, the Company
believes that the revised accounting treatment has had a unfortunate effect on
the reported financial results of the Company. In total, these non-cash charges
exceed 24% 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.
While management is continuing the process of assessing each cost item as well
as the marketing and sales efforts, it is too early in the process to predict
the final steps management will institute as a result. However, management has
increased and will continue to 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 has continued to burden the Company's
bottom line. There can be no assurances that such efforts will be successful.
Liquidity and Capital Resources:
In the three months ended October 31, 2000, operating activities used $589,432
in cash as compared to $740,864 of cash used in the comparable period in 1999.
This reduction in cash used from fiscal year 1999 to 2000 is largely due to
increases in accounts payable associated with the increase in sales, compared to
the same period last year. In addition, accrued expenses increased due to unpaid
interest charges on convertible debentures issued since August 1999. Finally,
cash used by operations in the current year was further reduced by the non-cash
interest charges of $178,997 resulting from differences in the conversion price
of the convertible debentures and the market price of the Company's common stock
on the effective date of each debenture.
The Company recorded an infusion of $885,000 from financing activities from the
end of its fiscal year to October 31, 2000. Another $100,000 was raised in
November 2000. The infusion of funds took place in three separate 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 $3,100,000 in debt
and equity to finance its current operational plans and expand its sales,
marketing, and distribution networks. Including the convertible debentures
referenced above, Dr. Robertson has invested $1,100,000 of these funds, and the
Company is seeking the remaining funds from qualified investors through an
exempt offering of 8% convertible preferred stock. The preferred stock is being
offered to accredited investors in minimum lots of 500 shares at $100 per share
and is convertible into common stock of the Company at 200 common shares to one
share of preferred stock. As of October 31, 2000, $450,000 of preferred stock
subscriptions had been received. Another $100,000 was received in early November
2000 and preferred stock shares were issued on November 15, 2000 for the full
amount of the subscriptions totaling $550,000. The offering remains open and 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 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.
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. The arbitration
proceeding has commenced hearing, but is currently in recess.
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 NSC and IBAC, Inc. NSC successfully filed two
Motions to Dismiss. NSC 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 NSC and $6,000
to IBAC. NSC 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.
The Company's counterclaims remain active in this proceeding.
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 IBNY 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.
Discovery is proceeding, and the case is set for trial in February 2001.
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 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, 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, 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. NSC has answered the
complaint and filed a counterclaim similar to the claims brought in item 4.
above. The case is not set for trial.
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 NSC to recover two hundred
fifty-thousand dollars ($250,000), plus accrued interest, owed to it by its New
York distributor, IMUS. IMUS has filed affirmative defenses and counterclaims
based upon the alleged misrepresentation regarding the Vinasz patent. NSC has
answered and filed affirmative defenses to the counterclaim. Discovery is
ongoing in this case, and it has not been set for trial, although the Company
has filed a certificate that it is ready to proceed to trial.
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 Company has filed a petition to dismiss the counter claims
against the President and Chief Financial Officer. Discovery is proceeding, and
the case is not yet set for trial.
Item 2. Changes in Securities and Use of Proceeds
On October 1, 2000 the Company issued stock options to all employees of the
Company under the 1999 Employee Stock Option Plan. These options represented an
aggregate of 760,000 shares of the Company's common stock and had exercise
prices of $0.35 per share, which was equal to the fair market value of the
shares on the date of the grant.
On October 19, 2000 the Company issued stock options to two directors of the
Company under the 1999 Employee Stock Option Plan. These options represented an
aggregate of 100,000 shares of the Company's common stock and had exercise
prices of $0.35 per share, which was equal to the fair market value of the
shares on the date of the grant.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
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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10.29(1) Convertible Debenture Issued August 31, 2000
10.30(1) Convertible Debenture Issued November 9, 2000
10.31 (2) Consulting Agreement with James Dale Davidson
27(2) Financial Data Schedule
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(1) Filed under the same exhibit number to the Registrants Form 8K.
(2) Filed herewith
(b) No other Reports on Form 8-K were filed during the quarter ended October 31,
2000
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: December 12, 2000 By: /s/ Jimmy W. Foshee
Jimmy W. Foshee, President
By: /s/ Michael D. Klansek
Michael D. Klansek, Treasurer
and Chief Financial Office