##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-31642
 INTERNATIONAL ABSORBENTS INC.
  Province of British Columbia, Canada
(State or other jurisdiction of incorporation or organization)
    
    None
(IRS Employer Identification Number)
 
 
  þ o
  o þ
  o þ
  Title of Class
Common Shares, no par value
    
    No. of Shares as of August 23, 2005
6,260,568




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESCertification Pursuant to Section 302 of CEOCertification Pursuant to Section 302 of CFOCertification Pursuant to Section 906 of CEOCertification Pursuant to Section 906 of CFO    Table of Contents  
 PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 INTERNATIONAL
ABSORBENTS INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 As at
    
    
    As atJuly 31,
    
    
    January 31,2005
    
    
    2005(unaudited)
    
    
    (audited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,038
    
    
    $
    3,520Restricted cash
    
    
    
    
    
    
    437Short term investments
    
    
    107
    
    
    
    218Accounts receivable, net
    
    
    1,824
    
    
    
    1,523Inventories
    
    
    2,570
    
    
    
    1,408Prepaid expenses
    
    
    140
    
    
    
    161Income tax receivable
    
    
    65
    
    
    
    28Deferred income tax asset
    
    
    40
    
    
    
    40Total current assets
    
    
    6,784
    
    
    
    7,335Property, plant and equipment, net
    
    
    16,371
    
    
    
    15,846Intangible assets, net
    
    
    
    
    
    
    8Other assets, net
    
    
    274
    
    
    
    288Total assets
    
    $
    23,429
    
    
    $
    23,477Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    1,616
    
    
    $
    1,861Related party payable
    
    
    6
    
    
    
    5Current portion of long-term debt
    
    
    333
    
    
    
    329Total current liabilities
    
    
    1,955
    
    
    
    2,195Deferred income tax liability
    
    
    695
    
    
    
    673Long-term debt
    
    
    7,196
    
    
    
    7,263Total liabilities
    
    
    9,846
    
    
    
    10,131Stockholders equity:Common stock, no par value;
100,000,000 shares authorized,
6,260,568 and 6,251,838 issued and outstanding at
    
    
    8,173
    
    
    
    8,154July 31, 2005 and January 31, 2005, respectivelyAdditional paid in capital
    
    
    648
    
    
    
    644Retained earnings
    
    
    4,762
    
    
    
    4,548Total stockholders equity
    
    
    13,583
    
    
    
    13,346Total liabilities and stockholders equity
    
    $
    23,429
    
    
    $
    23,477
 2




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##### Table of Contents



INTERNATIONAL ABSORBENTS INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Six Months Ended
    
    
    Three Months EndedJuly 31,
    
    
    July 31,
    
    
    July 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Sales, net
    
    $
    11,966
    
    
    $
    10,996
    
    
    $
    6,074
    
    
    $
    5,495Cost of goods sold
    
    
    8,280
    
    
    
    6,504
    
    
    
    4,347
    
    
    
    3,3483,686
    
    
    
    4,492
    
    
    
    1,727
    
    
    
    2,147Selling, general and administrative expenses
    
    
    3,229
    
    
    
    2,889
    
    
    
    1,558
    
    
    
    1,526Income from operations
    
    
    457
    
    
    
    1,603
    
    
    
    169
    
    
    
    621Interest expense
    
    
    (161
    )
    
    
    (76
    )
    
    
    (83
    )
    
    
    (38
    )Interest income
    
    
    33
    
    
    
    6
    
    
    
    17
    
    
    
    3Income before provision for income tax
    
    
    329
    
    
    
    1,533
    
    
    
    103
    
    
    
    586Income tax provision
    
    
    (115
    )
    
    
    (484
    )
    
    
    (55
    )
    
    
    (139
    )Net income
    
    $
    214
    
    
    $
    1,049
    
    
    $
    48
    
    
    $
    447Basic earnings per share
    
    $
    .03
    
    
    $
    .18
    
    
    $
    .01
    
    
    $
    .08Fully diluted earnings per share
    
    $
    .03
    
    
    $
    .17
    
    
    $
    .01
    
    
    $
    .07Weighted average number of shares outstanding
(in thousands)Basic
    
    
    6,257
    
    
    
    5,867
    
    
    
    6,261
    
    
    
    5,931Diluted
    
    
    6,351
    
    
    
    6,162
    
    
    
    6,346
    
    
    
    6,172
 3




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##### Table of Contents



INTERNATIONAL
ABSORBENTS INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJuly 31,
    
    
    July 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)Cash flows from operating activitiesNet income
    
    $
    214
    
    
    $
    1,049Adjustments to reconcile net income to net cash
from operating activitiesDepreciation and amortization
    
    
    638
    
    
    
    322Stock-based compensation
    
    
    4
    
    
    
    46Tax benefit from exercise of stock options
    
    
    
    
    
    
    8Deferred tax
    
    
    22
    
    
    
    175Changes in operating assets and liabilitiesAccounts receivable
    
    
    (301
    )
    
    
    14Inventory
    
    
    (1,162
    )
    
    
    (81
    )Prepaid expenses
    
    
    21
    
    
    
    (10
    )Accounts payable and accrued liabilities
    
    
    (278
    )
    
    
    390Income tax receivable/payable
    
    
    (37
    )
    
    
    122Due to related party
    
    
    1
    
    
    
    1Net cash flows from operating activities
    
    
    (878
    )
    
    
    2,036Cash flows from investing activitiesPurchase of short-term investments
    
    
    (109
    )
    
    
    (4
    )Proceeds from short-term investments
    
    
    220
    
    
    
    Purchase of property, plant and equipment
    
    
    (1,108
    )
    
    
    (3,881
    )Proceeds from restricted cash
    
    
    437
    
    
    
    432Net cash flows from investing activities
    
    
    (560
    )
    
    
    (3,453
    )Cash flows from financing activitiesProceeds from long-term debt
    
    
    
    
    
    
    1,779Repayment of long-term debt
    
    
    (63
    )
    
    
    (60
    )Proceeds from exercise of stock options
    
    
    19
    
    
    
    391Net cash flows from financing activities
    
    
    (44
    )
    
    
    2,110Net change in cash
    
    
    (1,482
    )
    
    
    693Cash and cash equivalents, beginning of period
    
    
    3,520
    
    
    
    1,453Cash and cash equivalents, end of period
    
    $
    2,038
    
    
    $
    2,146Supplemental Cash flow InformationCash paid for interest
    
    $
    71
    
    
    $
    92Cash paid for income taxes
    
    $
    130
    
    
    $
    150Non-cash investing activitiesChange in property, plant and equipment and accounts
payable for purchase of plant and equipment
    
    $
    33
    
    
    $
    (430
    )
 4




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Significant Accounting Policies
 Basis of consolidation and presentation
   Use of estimates
  New Accounting Pronouncements:
   Stock-based employee compensation
   5




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Six months ended
    
    
    Three months endedJuly 31,
    
    
    July 31,
    
    
    July 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    214
    
    
    $
    1,049
    
    
    $
    48
    
    
    $
    447Stock based compensation recognized
under APB No. 25, net of related tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation expense calculated in accordance
with SFAS 123, net of related tax effects
    
    
    (127
    )
    
    
    (326
    )
    
    
    (43
    )
    
    
    (198
    )Pro forma net income
    
    $
    87
    
    
    $
    723
    
    
    $
    5
    
    
    $
    249Basic earnings per shareAs reported
    
    $
    0.03
    
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.08Pro forma
    
    $
    0.01
    
    
    $
    0.12
    
    
    $
    0.00
    
    
    $
    0.04Diluted earnings per shareAs reported
    
    $
    0.03
    
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.07Pro forma
    
    $
    0.01
    
    
    $
    0.12
    
    
    $
    0.00
    
    
    $
    0.04
  2006
    
    
    2005a) risk free interest rate
    
    
    3.70
    %
    
    
    2.37
    %b) expected volatility
    
    
    126.1
    %
    
    
    108.3
    %c) expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %d) estimated average life (in
years)
    
    
    7.00
    
    
    
    4.40
 Other stock-based compensation
  6




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##### Table of Contents



2. Share Capital
 Common Shares
 Shares
    
    
    CapitalCommon shares outstanding, January 31, 2005
    
    
    6,252
    
    
    $
    8,154Common shares outstanding, July 31, 2005
    
    
    6,261
    
    
    $
    8,173
 Options
  3. Segmented Information
    Business
Segment Data  Six Months Ended July 31, 2005
 Animal(US dollars, in thousands)
    
    Care
    
    
    Industrial
    
    
    ConsolidatedRevenues
    
    $
    11,361
    
    
    $
    605
    
    
    $
    11,966Operating cost and expenses
    
    
    10,211
    
    
    
    660
    
    
    
    10,871Operating income (loss) before depreciation
and amortization
    
    
    1,150
    
    
    
    (55
    )
    
    
    1,095Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    (638
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (161
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    33Net income before taxes
    
    
    
    
    
    
    
    
    
    $
    329
 7




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##### Table of Contents



Business Segment Data  Six Months Ended July 31, 2004
 Animal(US dollars, in thousands)
    
    Care
    
    
    Industrial
    
    
    ConsolidatedRevenues
    
    $
    10,314
    
    
    $
    682
    
    
    $
    10,996Operating cost and expenses
    
    
    8,336
    
    
    
    735
    
    
    
    9,071Operating income (loss) before
depreciation
and amortization
    
    
    1,978
    
    
    
    (53
    )
    
    
    1,925Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    (322
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (76
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    6Net income before taxes
    
    
    
    
    
    
    
    
    
    $
    1,533
 Business
Segment Data  Three Months Ended July 31, 2005
 Animal(US dollars, in thousands)
    
    Care
    
    
    Industrial
    
    
    ConsolidatedRevenues
    
    $
    5,813
    
    
    $
    261
    
    
    $
    6,074Operating cost and expenses
    
    
    5,293
    
    
    
    286
    
    
    
    5,579Operating income (loss) before depreciation
and amortization
    
    
    520
    
    
    
    (25
    )
    
    
    495Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    (326
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (83
    )Interest income
    
    
    
    
    
    
    
    
    
    
    17Net income before taxes
    
    
    
    
    
    
    
    
    
    $
    103
 Business
Segment Data  Three Months Ended July 31, 2004
 Animal(US dollars, in thousands)
    
    Care
    
    
    Industrial
    
    
    ConsolidatedRevenues
    
    $
    5,154
    
    
    $
    341
    
    
    $
    5,495Operating cost and expenses
    
    
    4,358
    
    
    
    352
    
    
    
    4,710Operating income (loss) before depreciation
and amortization
    
    
    796
    
    
    
    (11
    )
    
    
    785Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    (164
    )Interest Expense
    
    
    
    
    
    
    
    
    
    
    (38
    )Interest Income
    
    
    
    
    
    
    
    
    
    
    3Net income before taxes
    
    
    
    
    
    
    
    
    
    $
    586
 8




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##### Table of Contents



4. Inventories components
 July 31,
    
    
    January 31,(US dollars, in thousands)
    
    2005
    
    
    2005Raw materials and supplies
    
    $
    1,446
    
    
    $
    831Finished goods
    
    
    1,124
    
    
    
    577$
    2,570
    
    
    $
    1,408
 5. Property, Plant and Equipment
 July 31,
    
    
    January 31,(US dollars, in thousands)
    
    2005
    
    
    2005Property, plant and equipmentLand
    
    $
    1,547
    
    
    $
    1,547Buildings
    
    
    8,444
    
    
    
    8,420Leashold improvements
    
    
    630
    
    
    
    629Equipment
    
    
    9,588
    
    
    
    8,470$
    20,209
    
    
    $
    19,066Less: Accumulated depreciation
    
    
    (3,838
    )
    
    
    (3,220
    )$
    16,371
    
    
    $
    15,846
 6. Credit arrangements
  7. Long-term debt
   9




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8. Earnings per share
 For the six months endedJuly 31, 2005Net Income
    
    
    Shares
    
    
    Per share(numerator
    
    
    (denominator)
    
    
    amountBasic earnings per shareNet income available to stockholders
    
    $
    214,000
    
    
    
    6,257,063
    
    
    $
    0.03Effect of dilutive securitiesStock options to purchase common stock
    
    
    
    
    
    
    94,105Diluted earnings per sharesNet income available to stockholders
    
    $
    214,000
    
    
    
    6,351,168
    
    
    $
    0.03
 For the six months endedJuly 31, 2004Net Income
    
    
    Shares
    
    
    Per share(numerator
    
    
    (denominator)
    
    
    amountBasic earnings per shareNet income available to stockholders
    
    $
    1,048,885
    
    
    
    5,866,925
    
    
    $
    0.18Effect of dilutive securitiesWarrants to purchase common stock
    
    
    
    
    
    
    399Stock options to purchase common stock
    
    
    
    
    
    
    294,791Diluted earnings per sharesNet income available to stockholders
    
    $
    1,048,885
    
    
    
    6,162,115
    
    
    $
    0.17
 For the three months endedJuly 31, 2005Net Income
    
    
    Shares
    
    
    Per share(numerator
    
    
    (denominator)
    
    
    amountBasic earnings per shareNet income available to stockholders
    
    $
    48,000
    
    
    
    6,260,527
    
    
    $
    0.01Effect of dilutive securitiesStock options to purchase common stock
    
    
    
    
    
    
    85,311Diluted earnings per sharesNet income available to stockholders
    
    $
    48,000
    
    
    
    6,345,838
    
    
    $
    0.01
 For the three months endedJuly 31, 2004Net Income
    
    
    Shares
    
    
    Per share(numerator
    
    
    (denominator)
    
    
    amountBasic earnings per shareNet income available to stockholders
    
    $
    447,000
    
    
    
    5,931,424
    
    
    $
    0.08Effect of dilutive securitiesStock options to purchase common stock
    
    
    
    
    
    
    240,883Diluted earnings per sharesNet income available to stockholders
    
    $
    447,000
    
    
    
    6,172,307
    
    
    $
    0.07
 9. Subsequent event
  10




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
  Care FRESH ® Care FRESH ® Care FRESH ®
 Care FRESH ® Colors Care FRESH ® Colors Care FRESH ® Ultra
  RESULTS OF OPERATIONS
  Three
    
    
    
    
    
    
    Threemonths
    
    
    
    
    
    
    monthsended
    
    
    
    
    
    
    endedJuly 31,
    
    
    Percent
    
    
    July 31,
    
    
    Percent
    
    
    Percentage2005
    
    
    of Sales
    
    
    2004
    
    
    of Sales
    
    
    ChangeSales
    
    
    6,074
    
    
    
    100
    %
    
    
    5,495
    
    
    
    100
    %
    
    
    11
    %Cost of Goods Sold
    
    
    4,347
    
    
    
    72
    %
    
    
    3,348
    
    
    
    61
    %
    
    
    30
    %Gross Profit
    
    
    1,727
    
    
    
    28
    %
    
    
    2,147
    
    
    
    39
    %
    
    
    -20
    %Selling,
administrative, &
general expenses
    
    
    1,558
    
    
    
    26
    %
    
    
    1,526
    
    
    
    28
    %
    
    
    2
    %
 11




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##### Table of Contents



Three
    
    
    
    
    
    
    Threemonths
    
    
    
    
    
    
    monthsended
    
    
    
    
    
    
    endedJuly 31,
    
    
    Percent
    
    
    July 31,
    
    
    Percent
    
    
    Percentage2005
    
    
    of Sales
    
    
    2004
    
    
    of Sales
    
    
    ChangeIncome from operations
    
    
    169
    
    
    
    3
    %
    
    
    621
    
    
    
    11
    %
    
    
    -73
    %Interest Income
    
    
    17
    
    
    
    0
    %
    
    
    3
    
    
    
    0
    %
    
    
    467
    %Interest Expense
    
    
    (83
    )
    
    
    -1
    %
    
    
    (38
    )
    
    
    -1
    %
    
    
    118
    %Income before
provision for income
tax
    
    
    89
    
    
    
    1
    %
    
    
    586
    
    
    
    11
    %
    
    
    -85
    %Income tax
    
    
    (55
    )
    
    
    -1
    %
    
    
    (139
    )
    
    
    -3
    %
    
    
    -60
    %Net Income
    
    
    48
    
    
    
    1
    %
    
    
    447
    
    
    
    8
    %
    
    
    -89
    %
  Six months
    
    
    
    
    
    
    Six monthsended
    
    
    
    
    
    
    endedJuly 31,
    
    
    Percent
    
    
    July 31,
    
    
    Percent
    
    
    Percentage2005
    
    
    of Sales
    
    
    2004
    
    
    of Sales
    
    
    ChangeSales
    
    
    11,966
    
    
    
    100
    %
    
    
    10,996
    
    
    
    100
    %
    
    
    9
    %Cost of Goods Sold
    
    
    8,280
    
    
    
    69
    %
    
    
    6,504
    
    
    
    59
    %
    
    
    27
    %Gross Profit
    
    
    3,686
    
    
    
    31
    %
    
    
    4,492
    
    
    
    41
    %
    
    
    -18
    %Selling,
administrative, &
general expenses
    
    
    3,229
    
    
    
    27
    %
    
    
    2,889
    
    
    
    26
    %
    
    
    12
    %Income from operations
    
    
    457
    
    
    
    4
    %
    
    
    1,603
    
    
    
    15
    %
    
    
    -71
    %Interest Income
    
    
    33
    
    
    
    0
    %
    
    
    6
    
    
    
    0
    %
    
    
    450
    %Interest Expense
    
    
    (161
    )
    
    
    -1
    %
    
    
    (76
    )
    
    
    -1
    %
    
    
    112
    %Income before
provision for income
tax
    
    
    329
    
    
    
    3
    %
    
    
    1,533
    
    
    
    14
    %
    
    
    -79
    %Income tax
    
    
    (115
    )
    
    
    -1
    %
    
    
    (484
    )
    
    
    -4
    %
    
    
    -76
    %Net Income
    
    
    214
    
    
    
    2
    %
    
    
    1,049
    
    
    
    10
    %
    
    
    -80
    %
 Revenues
 Care FRESH ® Care FRESH ® Ultra Care FRESH ® Ultra.
 Care FRESH ® Care FRESH ® Care FRESH ® Care FRESH Ultra.
 12




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##### Table of Contents



Gross Profit
 Care FRESH ® Colors
  Selling, General and Administrative Expenses
    Interest Expense
  13




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##### Table of Contents



Income Tax
  Net Income
   LIQUIDITY AND CAPITAL RESOURCES
   As of July 31,
    
    
    As of January2005
    
    
    31, 2005Financial ConditionTotal Assets
    
    $
    23,429
    
    
    $
    23,477Total Liabilities
    
    
    9,846
    
    
    
    10,131Total Equity
    
    $
    13,583
    
    
    $
    13,346Debt/equity ratio
    
    
    0.72
    
    
    
    0.76Assets/debt ratio
    
    
    2.38
    
    
    
    2.32Working CapitalCurrent assets
    
    $
    6,784
    
    
    $
    7,335Current liabilities
    
    $
    1,955
    
    
    $
    2,195Current ratio
    
    
    3.47
    
    
    
    3.34
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As of July 31,
    
    
    As of January2005
    
    
    31, 2005Cash PositionCash, restricted cash & short term investments
    
    $
    2,145
    
    
    $
    4,175Cash generated from (utilized in) operations
    
    
    ($878
    )
    
    $
    3,693
    ** for the entire year ended January 31, 2005
 Financial Condition
    Working Capital
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Cash Position
    Cash Used in Operations
  Financing and Investing Activities
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Environmental Matters
  Critical Accounting Policies
 Introduction
   Inventory
  Accounts Receivable and Allowance for Doubtful Accounts
  Property, plant and equipment
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##### Table of Contents



Revenue recognition
  Income tax
  Use of estimates
  Impairment of long lived assets
  Off-Balance Sheet Arrangements
   RISK FACTORS
 The following risk factors and other information included in this Quarterly Report should be
carefully considered. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. If any of the following risks occur, our business,
financial condition, operating results and cash flows could be materially adversely affected.
 We are still building our market presence and are subject to substantial competition that could
inhibit our ability to succeed as planned.
  We may be adversely affected by trends in the retail industry.
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We depend on a few customers for a significant portion of our business .
   Competition in our industries may hinder our ability to execute our business strategy, achieve
profitability, or maintain relationships with existing customers.
  
    
    maintain our relationships with key retailers;
    
    continually develop innovative new products that appeal to consumers;
    
    maintain strict quality standards; and
    
    deliver products on a reliable basis at competitive prices.
  Any increase in the costs, or decreases in the supply, of the raw materials necessary for our
business could have an adverse effect on our financial condition.
  We have significant indebtedness.
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If we fail to maintain an effective system of internal and disclosure controls, we may not be able
to accurately report our financial results or prevent fraud. As a result, current and potential
shareholders could lose confidence in our financial reporting, which would harm our business and
the trading price of our securities.
  Our business is subject to many regulations and noncompliance is costly .
  If we need to raise additional capital for our operating plan, our business would be harmed if we
were unable to do so on acceptable terms.
  The indentures governing our bonds and bank debt financing includes financial covenants that
restrict certain of our activities and impose certain financial tests that we must meet in order to
be in compliance with their terms.
  The loss of key senior management personnel could negatively affect our business.
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We cannot be certain that our product innovations and marketing successes will continue.
  The inability to successfully obtain or protect our patents could harm our competitive advantage .
  The products that we manufacture could expose us to product liability claims.
  The price for our common stocks may continue to be volatile.
  The liquidity of our stock depends in part on our continued listing with the American Stock
Exchange.
  As a result of our principal executive offices being located in Canada, and a majority of our
directors and certain of our officers residing in Canada, investors may find it difficult to
enforce, within the United States, any judgments obtained against our company or our directors or
officers.
  FORWARD-LOOKING STATEMENTS
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ITEM 4. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    A proposal to decrease the authorized number of directors to five (5) from seven (7) was
approved by the following vote: For   4,603,799; Against   343,404; Withheld   2,715;
Not Voted   368,721.2.
    
    The election of the following directors, who will serve until their successors are elected
and qualified, or their earlier death or resignation:
 Number of SharesFor
    
    WithheldJohn J. Sutherland
    
    
    5,805,811
    
    
    
    35,655Lionel G. Dodd
    
    
    5,801,811
    
    
    
    39,665Daniel J. Whittle
    
    
    5,802,045
    
    
    
    39,431
  3.
    
    The selection of Moss Adams, LLP to continue as the auditors for International Absorbents,
Inc., was ratified by the following vote: For   5,804,061; Against  18,290; Withheld 
19,125.
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 a) Exhibits
 ExhibitNumber
    
    Exhibit Description3.1
    
    Altered Memorandum of Company (Amended) (incorporated by reference to Exhibit 3.1 to the
Companys Form 10-KSB filed on April 3, 2003).3.2
    
    Articles of the Company (incorporated by reference to the exhibits to the Companys
registration statement filed on February 24, 1992, as amended (No. 33-45020)).31.1
    
    Certification of Gordon Ellis, President and Chief Executive Officer of International
Absorbents Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of David Thompson, Chief Financial Officer of International Absorbents Inc.,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of Gordon Ellis, President and Chief Executive Officer of International
Absorbents Inc., pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of David Thompson, Chief Financial Officer of International Absorbents Inc.,
pursuant to 18 U.S.C. Section 1350.
 b) Reports on Form 8-K
 1)
    
    A Form 8-K was filed on June 29, 2005 announcing a filing of the consolidated financial
statements for the fiscal years ended January 31, 2004 and 2005 had been made with the British
Columbia Securities Commission incorporating a revised accompanying note to reflect that Moss
Adams LLP, the Companys independent registered public accounting firm, became a member of the
Canadian Public Accountability Board in May 2005 as required by the Canadian Securities
Administrator National Instrument 52-108 (Auditors Oversight).
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SIGNATURES
  INTERNATIONAL ABSORBENTS INC.(Registrant)Date:
    
    September 9, 2005
    
    
    
    /s/ GORDON L. ELLISGordon L. EllisPresident & Chief Executive Officer(Principal Executive Officer)Date:
    
    September 9, 2005
    
    
    
    /s/ DAVID H. THOMPSONDavid H. ThompsonSecretary and Chief Financial Officer(Principal Financial Officer)
 24