##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-QSB/A

[x]   Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended October 31, 2001

OR

[  ]   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 0-15673

INTERNATIONAL ABSORBENTS INC.(Exact name of registrant as specified in its charter)

|                                                                                                    |  |                                          
|--------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Province of British Columbia, Canada
(State of other jurisdiction of incorporation or organization) |  | None
(IRS Employer Identification Number)

1569 Dempsey Road
North Vancouver, British Columbia
Canada V7K 1S8
(Address of principal executive offices)

(604) 681-6181
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [  ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of December 3, 2001.

|                            |  |               |           | 
|--------------------------- |  | ------------- | --------- | 
|Title of Class              |  | No. of Shares
|                            |  |              
|Common Shares, no par value |  |               | 5,657,194 | 





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##### 



INTERNATIONAL ABSORBENTS INC.
CONSOLIDATED BALANCE SHEETS
(US dollars, in thousands)

|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |           |       | 
|-------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ---------------- | ----- | ---------------- | ----- | --------- | ----- | 
|                     |                                                                                                                                                       |                            |       | As at            |       | As at           
|                     |                                                                                                                                                       |                            |       | October 31, 2001 |       | January 31, 2001
|                     |                                                                                                                                                       |                            |       |                  |       |                 
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       | (audited)
|ASSETS               |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|Current assets:      |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     | Cash                                                                                                                                                  |                            | $     | 3,397            |       |                  | $     | 2,071     |      
|                     | Short term investments                                                                                                                                |                            |       | 203              |       |                  |       | 400       |      
|                     | Accounts receivable, net                                                                                                                              |                            |       | 987              |       |                  |       | 976       |      
|                     | Inventories                                                                                                                                           |                            |       | 618              |       |                  |       | 389       |      
|                     | Prepaid expenses                                                                                                                                      |                            |       | 222              |       |                  |       | 57        |      
|                     | Deferred income tax asset                                                                                                                             |                            |       | 781              |       |                  |       | 661       |      
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       |                            | 6,208 |                  |       |                  | 4,554 |          
|                     | Property, plant and equipment                                                                                                                         |                            |       | 1,332            |       |                  |       | 1,393     |      
|                     | Intangible assets                                                                                                                                     |                            |       | 137              |       |                  |       | 149       |      
|                     | Note receivable from affiliate (note 5)                                                                                                               |                            |       | 465              |       |                  |       |          |      
|                     | Deferred income tax asset                                                                                                                             |                            |       |                 |       |                  |       | 791       |      
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       | $                          | 8,142 |                  |       | $                | 6,887 |          
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|LIABILITIES          |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|Current liabilities: |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     | Accounts payable and accrued liabilities                                                                                                              |                            |       | 705              |       |                  |       | 810       |      
|                     | Income taxes payable                                                                                                                                  |                            |       | 11               |       |                  |       | 13        |      
|                     | Due to related parties                                                                                                                                |                            |       |                 |       |                  |       | 4         |      
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       |                            | 716   |                  |       |                  | 827   |          
|Long term liability: |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     | Deferred income tax liability                                                                                                                         |                            |       | 137              |       |                  |       | 137       |      
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       |                            | 853   |                  |       |                  | 964   |          
|SHAREHOLDERS EQUITY |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|Common stock:        |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     | 100,000,000 common shares authorized, no par value
5,657,194 and 5,618,372 issued and outstanding at
July 31, 2001 and January 31, 2001, respectively |                            |       | 7,040            |       |                  |       | 7,077     |      
|                     | Capital surplus                                                                                                                                       |                            |       | 266              |       |                  |       | 264       |      
|                     | Shareholder loans to acquire stock (note 4)                                                                                                           |                            |       |                 |       |                  |       | (190      | )    
|                     | Deficit                                                                                                                                               |                            |       | (17              | )     |                  |       | (1,228    | )    
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       | Total shareholders equity |       |                  | 7,289 |                  |       |           | 5,923 | 
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          
|                     |                                                                                                                                                       | $                          | 8,142 |                  |       | $                | 6,887 |          
|                     |                                                                                                                                                       |                            |       |                  |       |                  |       |          

2

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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##### 



INTERNATIONAL ABSORBENTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(US dollars, in thousands)

|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |       | 
|------------------------------------------------------------ | -------------------------- | - | ---------------- | ----- | ---------------- | - | ---------------- | ----- | ---------------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                             |                            |   | 9 Months Ended   |       | 3 Months Ended  
|                                                             |                            |   |                  |       |                 
|                                                             |                            |   | October 31, 2001 |       | October 31, 2000 |   | October 31, 2001 |       | October 31, 2000
|                                                             |                            |   |                  |       |                  |   |                  |       |                 
|Sales revenues                                               |                            | $ | 9,209            |       |                  | $ | 7,009            |       |                  | $ | 3,472 |       |  | $ | 2,772 |      
|Cost of goods sold                                           |                            |   | 4,925            |       |                  |   | 3,844            |       |                  |   | 1,686 |       |  |   | 1,486 |      
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|                                                             |                            |   | 4,284            |       |                  |   | 3,165            |       |                  |   | 1,786 |       |  |   | 1,286 |      
|Corporate and administrative expenses:                       |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|                                                             | Marketing and sales        |   |                  | 1,265 |                  |   |                  | 1,100 |                  |   |       | 529   |  |   |       | 450   | 
|                                                             | General and administrative |   |                  | 1,221 |                  |   |                  | 830   |                  |   |       | 390   |  |   |       | 252   | 
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|                                                             |                            |   | 2,486            |       |                  |   | 1,930            |       |                  |   | 919   |       |  |   | 702   |      
|Net income from operations                                   |                            |   | 1,798            |       |                  |   | 1,235            |       |                  |   | 867   |       |  |   | 585   |      
|Interest income                                              |                            |   | 109              |       |                  |   | 74               |       |                  |   | 31    |       |  |   | 31    |      
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|Net income before income taxes                               |                            |   | 1,907            |       |                  |   | 1,309            |       |                  |   | 898   |       |  |   | 616   |      
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|Income tax provision                                         |                            |   | (24              | )     |                  |   | (18              | )     |                  |   | (14   | )     |  |   | (8    | )    
|Deferred income tax recovery (provision)                     |                            |   | (672             | )     |                  |   | (428             | )     |                  |   | (312  | )     |  |   | (201  | )    
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|Net income for the period                                    |                            | $ | 1,211            |       |                  | $ | 863              |       |                  | $ | 572   |       |  | $ | 407   |      
|                                                             |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|Basic earnings per share                                     |                            | $ | 0.21             |       |                  | $ | 0.16             |       |                  | $ | 0.10  |       |  | $ | 0.07  |      
|Fully diluted                                                |                            | $ | 0.21             |       |                  | $ | 0.15             |       |                  | $ | 0.10  |       |  | $ | 0.07  |      
|Weighted average number of shares
outstanding (in thousands) |                            |   |                  |       |                  |   |                  |       |                  |   |       |       |  |   |       |      
|                                                             | Basic                      |   |                  | 5,636 |                  |   |                  | 5,541 |                  |   |       | 5,667 |  |   |       | 5,594 | 
|                                                             | Diluted                    |   |                  | 5,712 |                  |   |                  | 5,616 |                  |   |       | 5,717 |  |   |       | 5,766 | 

INTERNATIONAL ABSORBENTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(US dollars, in thousands)

|                                               |  |                  |       |                 |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | --------------- |  | - | ----- | -
|                                               |  | 9 Months Ended  
|                                               |  |                 
|                                               |  | October 31, 2001 |       | October31, 2000
|                                               |  |                  |       |                
|Cash flows from operating activities           |  | $                | 1,944 |                 |  | $ | 1,216 |  
|Cash flows from investing activities           |  |                  | (570  | )               |  |   | (493  | )
|Cash flows from financing activities           |  |                  | 155   |                 |  |   | 400   |  
|                                               |  |                  |       |                 |  |   |       |  
|Net change in cash                             |  | $                | 1,529 |                 |  | $ | 1,123 |  
|Cash and cash equivalents, beginning of period |  | $                | 2,071 |                 |  | $ | 1,324 |  
|                                               |  |                  |       |                 |  |   |       |  
|Cash and cash equivalents, end of period       |  | $                | 3,600 |                 |  | $ | 2,447 |  
|                                               |  |                  |       |                 |  |   |       |  

3

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(US dollars, in thousands, except where otherwise noted)

1.   Significant Accounting Policies

Basis of consolidation and presentation

The consolidated financial statements include the accounts of International
Absorbents Inc. (IABI) and its wholly-owned subsidiaries Absorption Corp
(Absorption), a Nevada company doing business in Washington State, and Total
Absorb Inc. (TAI), a British Columbia company.

These unaudited interim condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States and include the accounts of the Company and its wholly owned
subsidiaries. The Company changed its reporting from Canadian generally
accepted accounting principles to United States generally accepted accounting
principles affective January 31, 2001. The consolidated results of operations
for the three and nine months ended October 31, 2000 have been recast to record
the deferred income tax provision in accordance with Statement of financial
Accounting Standards No.109. The recast periods and the current periods
presented are now comparable. All significant inter-company transactions and
balances have been eliminated on consolidation. Our accompanying interim
condensed consolidated financial statements do not include all notes normally
included in annual financial statements and therefore should be read in
conjunction with our annual financial statements. The accompanying financial
statements include all normal recurring adjustments, which, in the opinion of
management, are necessary to present fairly International Absorbents financial
position at October 31, 2001, its results of operations for the three and nine
months ended October 31, 2001 and 2000 and statement of changes in cash flows
for the nine months ended October 31, 2001 and 2000.

The Company adopted SFAS No. 141 on July 1, 2001, as required by the new
statement. The Company does not expect the adoption of SFAS No. 141 to have a
material impact on its financial position or its results of operations. The
Company will adopt SFAS No. 142 on July 1, 2002, as required by the new
Statement. IABI does not expect the adoption of SFAS No. 142 to have a
material impact on its financial position or its results of operations.

SFAS No. 143
The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, in
June 2001. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. While the Company is currently evaluating
the impact the adoption of SFAS No. 143 will have on its financial position and
results of operations, it does not expect the impact to be material.

SFAS No. 144
The FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets, in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No.121 and is effective
for fiscal years beginning after December 15, 2001. While the Company is
currently evaluating the impact the adoption of SFAS No. 144 will have on its
financial position and results of operations, it does not expect the impact to
be material.

2.   Share Capital

Common Shares

|                                            |  |  |           |  |  |   |       |  | 
|------------------------------------------- |  |  | --------- |  |  | - | ----- |  | 
|Common shares outstanding, January 31, 2001 |  |  | 5,618,372 |  |  | $ | 7,077 | 

4

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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##### 



Common Shares  (Continued)

|                                            |                              |  |           |        |  |   |       |     |  
|------------------------------------------- | ---------------------------- |  | --------- | ------ |  | - | ----- | --- | -
|                                            | Exercise of options          |  |           | 93,868 |  |   |       | 75  |  
|                                            | Retirement of treasury stock |  |           |        |  |   |       | (10 | )
|Repurchase and retirement of stock          |                              |  | (55,046   | )      |  |   | (102  | )  
|                                            |                              |  |           |        |  |   |       |    
|Common shares outstanding, October 31, 2001 |                              |  | 5,657,194 |        |  | $ | 7,040 |    
|                                            |                              |  |           |        |  |   |       |    

During September 2001, IABI repurchased 55,046 common shares at an average
share price of $1.86 per share and retired the shares under the Securities and
Exchange Commissions temporary rule change for stock buy backs.

Stock Options

|                                            |                            |  |         |          |   |   |               |               | 
|------------------------------------------- | -------------------------- |  | ------- | -------- | - | - | ------------- | ------------- | 
|Stock options outstanding, January 31, 2001 |                            |  | 445,011 |          |   | $ | 0.80 to $4.00 |              
|                                            | Retired through repurchase |  |         | (35,648  | ) |   | $             | 0.80          | 
|                                            | Expired                    |  |         | (101,145 | ) |   | $             | 0.80 to $4.00 | 
|                                            | Exercised                  |  |         | (93,868  | ) |   | $             | 0.80          | 
|                                            |                            |  |         |          |   |   |               |              
|Stock options outstanding, October 31, 2001 |                            |  | 214,350 |          |   | $ | 1.36 to $2.16 |              
|                                            |                            |  |         |          |   |   |               |              

Stock options outstanding at October 31, 2001 are due to expire from October 1,
2002 to September 30, 2005. Pursuant to the vesting terms of the option
agreements, all outstanding stock options were eligible for exercise at October
31, 2001.

On October 1, 2001, IABI offered to buy back 62% of the outstanding options
from each option holder for $0.92 per option. This amount was determined by
taking 95% of the average daily closing price for the 5 days prior to September
11, 2001, which was $1.72, minus the exercise price of the option. In exchange
for the $0.92 per option, the option holder agreed to the cancellation of the
option. The cost of the 35,648 cancelled options was $32,796. The offer
expired for the repurchase of these options on October 1, 2001.

Warrants

During October 2001, 12,500 outstanding warrants with an exercise price of
$0.80 were purchased from the warrant holder and cancelled, for $0.75 each
resulting in a $7,375 expense. There are no outstanding warrants at October
31, 2001.

3.   Segmented Information

The Company is involved primarily in the development, manufacture, distribution
and sale of absorbent products. Its assets are located and its operations are
primarily conducted in the United States.

The Company defines its business segments based upon the market in which its
customers sell products. The Company operates principally in two business
segments, the animal care industry and the industrial cleanup industry.

Management of the Company evaluates these segments based upon the operating
income before depreciation and amortization generated by each segment.
Depreciation and amortization are managed on a consolidated basis and as such
are not allocated to individual segments. There are no intersegment
transactions or significant differences between segment accounting and
corporate accounting basis.

Business Segment Data  Nine Months Ended October 31, 2001

|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | --- |  |  | - | ----- | -
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 8,210 |            |  | $            | 999 |  |  | $ | 9,209 |  
|Operating costs and expenses                          |  |             | 6,395 |            |  |              | 845 |  |  |   | 7,240 |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Operating income before depreciation and
amortization |  |             | 1,815 |            |  |              | 154 |  |  |   | 1,969 |  
|Depreciation and amortization  corporate             |  |             |       |            |  |              |     |  |  |   | (171  | )

5

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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##### 



|                        |  |             |    |            |  |              |    |  |  |   |       | 
|----------------------- |  | ----------- | -- | ---------- |  | ------------ | -- |  |  | - | ----- | 
|                        |  | Animal Care |    | Industrial |  | Consolidated
|                        |  |             |    |            |  |             
|Interest income         |  |             |    |            |  |              |    |  |  |   | 109   | 
|                        |  |             |    |            |  |              |    |  |  |   |       | 
|Net income before taxes |  |             |    |            |  |              |    |  |  | $ | 1,907 | 
|                        |  |             |    |            |  |              |    |  |  |   |       | 
|Capital Expenditures    |  | $           | 81 |            |  | $            | 10 |  |  | $ | 91    | 

Business Segment Data  Nine Months Ended October 31, 2000

|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | ----- |  |  | - | ----- | -
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 6,003 |            |  | $            | 1,006 |  |  | $ | 7,009 |  
|Operating costs and expenses                          |  |             | 4,724 |            |  |              | 927   |  |  |   | 5,651 |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Operating income before depreciation and
amortization |  |             | 1,279 |            |  |              | 79    |  |  |   | 1,358 |  
|Depreciation and amortization  corporate             |  |             |       |            |  |              |       |  |  |   | (123  | )
|Interest income                                       |  |             |       |            |  |              |       |  |  |   | 74    |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Net income before taxes                               |  |             |       |            |  |              |       |  |  | $ | 1,309 |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Capital expenditures                                  |  | $           | 294   |            |  | $            | 47    |  |  | $ | 341   |  

Business Segment Data  Three Months Ended October 31, 2001

|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | --- |  |  | - | ----- | -
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 3,147 |            |  | $            | 325 |  |  | $ | 3,472 |  
|Operating costs and expenses                          |  |             | 2,350 |            |  |              | 200 |  |  |   | 2,550 |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Operating income before depreciation
and amortization |  |             | 797   |            |  |              | 125 |  |  |   | 922   |  
|Depreciation & amortization  corporate               |  |             |       |            |  |              |     |  |  |   | (55   | )
|Interest income                                       |  |             |       |            |  |              |     |  |  |   | 31    |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Net income before taxes                               |  |             |       |            |  |              |     |  |  | $ | 898   |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Capital expenditures                                  |  | $           | 55    |            |  | $            | 7   |  |  | $ | 62    |  

Business Segment Data  Three Months Ended October 31, 2000

|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | --- |  |  | - | ----- | -
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 2,445 |            |  | $            | 327 |  |  | $ | 2,772 |  
|Operating costs and expenses                          |  |             | 1,855 |            |  |              | 287 |  |  |   | 2,142 |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Operating income before depreciation
and amortization |  |             | 590   |            |  |              | 40  |  |  |   | 630   |  
|Depreciation & amortization  corporate               |  |             |       |            |  |              |     |  |  |   | (45   | )
|Interest income                                       |  |             |       |            |  |              |     |  |  |   | 31    |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Net income before taxes                               |  |             |       |            |  |              |     |  |  | $ | 616   |  
|                                                      |  |             |       |            |  |              |     |  |  |   |       |  
|Capital expenditures                                  |  | $           | 128   |            |  | $            | 5   |  |  | $ | 133   |  

Assets

|                    |  |             |       |            |  |              |       |  |  |   |       | 
|------------------- |  | ----------- | ----- | ---------- |  | ------------ | ----- |  |  | - | ----- | 
|                    |  | Animal Care |       | Industrial |  | Consolidated
|                    |  |             |       |            |  |             
|At October 31, 2001 |  | $           | 6,772 |            |  | $            | 1,370 |  |  | $ | 8,142 | 
|At January 31, 2001 |  | $           | 5,510 |            |  | $            | 1,377 |  |  | $ | 6,887 | 

4.   Related Party Transactions

6

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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##### 



During fiscal year 2001, we made loans totaling $215,000 to officers and
directors of IABI for the purpose exercising warrants. These notes accumulated
interest at the non-compounding rate of 12% annually and were due on demand.
The principle balance and accrued interest outstanding were paid in full at
October 31, 2001.

5.   Receivable From Affiliate

On May 31, 2001, International Absorbents Inc. entered into an agreement with
an affiliated corporation whose main purpose is to provide Internet
connectivity via satellite to primary markets throughout Central and South
America. International Absorbents chairman is a director of the affiliated
corporation, however he has abstained from voting on board actions regarding
this investment.

Initially, IABI provided partially secured funds designated for certain
expenditures. As of October 31, 2001, IABI had advanced $465,000 and has
recorded accrued interest of $18,000 related to these advances. Until December
15, 2001 and subject to approval of the Board of Directors, IABI has the option
to convert the outstanding advances, and commit to additional advances. If IABI
advances an aggregate amount of $1,500,000, the conversion of such advances
will represent a 60% ownership interest in the affiliated company.

At October 31, 2001, IABI has not committed to further advances under the
agreement and continues to record the advances as a long-term receivable.
Should IABI agree to convert the advances to equity in the affiliated
corporation, the advances would represent an 18.6% ownership interest in the
affiliate. Further advances would increase the ownership interest and require
IABI to account for the investment under the equity method of accounting. Under
the equity method IABI would be required to record its share of the affiliated
companys losses in future periods. At October 31, 2001, had IABIs note
receivable from affiliate been accounted from by use of the equity method since
its initial investment on May 31, 2001, losses of approximately $83,000 would
have been recorded by IABI.

6.   Deferred Taxes

Deferred income tax assets relate to non-capital tax loss carry forwards. At
October 31, 2001, $781,000 of deferred income tax assets are expected to be
utilized in the next 12 months. Deferred tax liabilities relate primarily to
temporary property and equipment depreciation differences.

MANAGEMENTS DISCUSSION & ANALYSIS

RESULTS OF OPERATIONS

Sales

Our net sales for the nine-month period ending October 31, 2001 were
$9,209,000, which was a 31% increase over the $7,009,000 total for the previous
year. Net sales for the quarter ended October 31, 2001 were $3,472,000
compared to the quarter ended October 31, 2000 total of $2,772,000. This was
an increase of 25%. These increases were achieved primarily through an
increase in sales of the Animal Care divisions flagship product, CareFRESH®
small animal bedding. Also, there were additional increases among the other
Animal Care product lines. Sales to both regional distributors and direct
buying accounts increased due to customer recognition of the products superior
performance, Company-sponsored promotional activity and increased customer
support. The rate of future sales growth will be determined by continued
growth of the Companys CareFRESH®small animal bedding, increased distribution
of products that were introduced by the Company over the past two years, and
the introduction of several new ancillary small animal products. A study of
our customer base indicates that in some cases sales are slowing down due to
national economic conditions. Presently the pet specialty retail sales slow
down is approximately 5% to 10% on the West Coast of the U.S. and approximately
10% on the East Coast. As economic conditions change, these percentages could
also change.

7

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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Gross Profits

Gross profits on net sales for the first nine months of fiscal year 2002
were $4,284,000, a gross margin of 47%. In the first nine months of fiscal
year 2001 gross profits were $3,165,000, or 45%. During the third quarter of
the current fiscal year our gross profits were $1,786,000 (51%), versus
$1,286,000 (46%) for the third quarter of the previous year. During the third
quarter of the year, energy costs continued to decrease to levels of the
previous year. We had an increase in the delivered cost of our short fiber
raw material due to the closing of the Georgia Pacific West pulp plant in
Bellingham, Washington. Even though some basic production costs increased,
gross margins (gross profit divided by net sales) improved because of
production efficiencies that resulted from new equipment that was installed in
the previous fiscal year. Currently, energy rates are returning to historically
lower levels. If this trend continues, it will combine with new production
efficiencies to allow gross margins to remain at current levels. The
Bellingham production facility will remain profitable even if there is a
minimal reduction in gross margin. New products will be introduced during the
remainder of fiscal 2002, which will have lower gross margins than existing
products.

Other Expenses and Income

In the first nine months of fiscal year 2002, we spent $1,265,000 on
marketing and sales expenses compared to $1,100,000 in the same period last
year, resulting in a 15% increase. During the third quarter ended October 31,
2001, our marketing and sales expenses increased 18% to $529,000, as compared
to $450,000 in the same quarter ending October 31, 2000. In fiscal 2002, there
continues to be a significant investment in launching new products. There is
also an on-going investment in marketing programs for existing products. Over
the remainder of the year, considerable investments will continue to be made in
marketing, advertising and promoting newly launched products.

General and administrative expenses were $1,221,000 for the first nine
months of fiscal year 2002. In the first nine months of 2001 expenses were
$830,000, a 47% increase. Comparing the third quarter of fiscal 2001 to 2002,
expenses increased by 55% from $252,000 to $390,000. As sales increase, basic
operating and administrative functions have been expanded to support the
growth. The rate of increase is expected to be maintained as new
infrastructure is put in place to handle our growth.

As cash is accumulated and invested in short-term cash equivalents,
International Absorbents interest income has increased. In the first nine
months of fiscal 2002, $109,000 in interest income was earned as compared to
$74,000 in the same period the previous year. Comparing third quarter 2002 to
third quarter 2001, interest income remained at $31,000 due to a sharp decrease
in short-term certificate of deposit rates. Until a significant capital
investment is made, this income will continue to grow at a rate dependent on
short-term interest rates.

Net Income

Our net income before taxes increased by 46% to $1,907,000 for the nine
months ended October 31, 2001 over $1,309,000 in the same period last year.
During the third quarter of fiscal year 2002 we had a net income before taxes
of $898,000, versus $616,000 for the third quarter of fiscal 2001, resulting in
a 46% increase. In the first nine months of 2002, we recognized income tax
provisions of $696,000 compared with income tax provisions of $446,000 in the
first nine months of 2001. Profits after taxes increased by 40% from $863,000
after the first nine months of fiscal 2001 to $1,211,000 after the first nine
months of fiscal 2002. During the third quarter, profits after taxes increased
to $572,000 as compared to $407,000 for the same quarter in the previous year.
The increase for the quarter was 41%. The amount of the deferred income tax
provision is determined by generally accepted accounting principles, not
management. Net income before taxes increased as a result of higher sales
revenues, an improved gross margin and ongoing controls to maintain general and
administrative expenses at a level which will allow improved profits. These
cost controls will remain in place for the remainder of the year. Marketing and
sales will see the largest non-capital investment during 2002. During the
final quarter of fiscal year 2002, we may have to account for our note
receivable from affiliate using the equity accounting method. See Financing
and Investing Activities below for a further discussion of this potential
expense.

Currency

Approximately 5% of International Absorbents sales during the first three
quarters of the fiscal year were to foreign customers. Of the foreign sales,
46% were to Canadian customers. Over the past three years, the value of the
Canadian dollar, compared to other global currencies, has been stable in
relation to the value of the U.S. dollar. Sales in the first half of fiscal
year 2002 were not significant enough to be

8

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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adversely affected by fluctuations in the value of the U.S. dollar. This trend
is expected to continue through fiscal year 2002.

Inflation

During the most recent quarter inflation was not a major factor effecting
our operations. It is impossible to project how the war on terrorism will
affect economic conditions, consumer spending, and inflation.

Environmental Matters

International Absorbents, and its wholly owned subsidiary Absorption Corp,
is committed to being an environmentally friendly company and to producing
products which benefit the quality of the environment. Hazardous wastes are
not produced, treated or stored at any company owned or operated facilities.
State, federal and local laws all have authority over production activities.
International Absorbents, and its wholly owned subsidiary Absorption Corp,
believes it is currently in compliance with these laws and expect to remain so
through fiscal 2002.

Risk Factors

Except for the historical information contained herein, certain matters
discussed in this report are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties, including but not limited to, changing economic conditions,
governmental policies affecting operations and costs, market competitive
challenges, product acceptance and performance, customer service requirements,
raw material, labor and utility costs and inflationary
pressures.

Economic downturns or recessionary conditions in markets served by
International Absorbents can adversely affect the demand for International
Absorbents products.

LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

At the end of the first nine months of fiscal year 2002, International
Absorbents capital structure was comprised of $716,000 in short-term
liabilities, $137,000 of deferred tax liability and $7,289,000 of stockholders
equity. The ratio of total assets to total liabilities was 9.55:1 compared to
7.14:1 at January 1, 2001. Our total debt has decreased by $111,000 during the
first nine months of fiscal 2002. Total stockholders equity has increased by
$1,366,000 to $7,289,000 in the first nine months of 2002. The increase was
primarily due to net income for the period and from an increase in other
capital accounts.

As fiscal year 2002 progresses, International Absorbents capital
structure is expected to continue to improve. As growth opportunities are
sought, working capital may be reduced or debt may be incurred to fund capital
expansion.

Cash Generated from Operations

The cash flow generated from operations of International Absorbents
increased to $1,944,000 during the first nine months of fiscal year 2002 from
$1,216,000 at the end of the same period in 2001. This was substantially due
to increases in our sales and profits. During the remainder of fiscal 2002,
cash generated from operations will be invested in short-term instruments.

Working Capital

Our working capital position, net of current deferred tax assets at
October 31, 2001, was $4,711,000, as compared to $3,066,000 at the end of
Fiscal 2001. The current ratio (current assets to current liabilities), net of
current deferred tax assets, improved to 7.58:1 compared to 4.71:1 at the end
of fiscal 2001. Cash generated from operations resulted in an increase in
working capital.

As 2002 continues, we expect working capital will grow but not as fast as
in recent history. We also anticipate that enough cash and cash equivalents
will be generated throughout 2002 to meet all short-term working capital needs.

9

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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Financing and Investing Activities

During the first nine months of fiscal year 2002, we used $570,000 in cash
for investing activities and generated $155,000 of cash from financing
activities. This is compared to $493,000 being used for investing and $400,000
received from financing in the first nine months of 2001.

As of October 31, 2001 we have invested $465,000 in an affiliated company
which provides Internet connectivity via satellite. Currently this investment
is in the form of a loan, but can be exchanged for a majority equity position.
The objective of this agreement is to supply financing for the affiliate to
establish market acceptance of the technology. Evaluation of the future
viability of the affiliate is on-going, including a major demonstration to
qualified customers which will be completed during the fourth quarter of the
current fiscal year. Third party investment opportunities are being pursued to
provide additional capital to fund long-term growth. The potential exercise of
our option to convert will be reviewed when there is proven acceptance of the
business model in the target markets. It is anticipated that we will continue
to increase our investment through the early part of fiscal year 2003 while we
evaluate ways in which we can maximize the potential return from this
investment while minimizing exposure and financial risk.

If we agree to convert the advances to equity in the affiliated
corporation, the current advance rate remains the same, at the fiscal year end
we will have more than 20% ownership interest in the affiliate. This would
require us to account for the investment under the equity method of accounting.
Under the equity method we would record our share of the affiliated companys
losses. At October 31, 2001, had IABIs note receivable from affiliate been
converted to equity and accounted for by use of the equity method since its
initial investment on May 31, 2001, losses of approximately $83,000 would have
been recorded.

New manufacturing and production opportunities are continuously being
sought. During the remainder of the current fiscal year, we will be using cash
for investing activities.

Share Repurchase Plans

On October 24, 2000, the Board of Directors authorized a program to
purchase up to 1 million shares of International Absorbents common stock from
the open market. During the fourth quarter of fiscal 2001, 6,000 common shares
were purchased at a total cost of $10,000. In December of 2000, the program
was suspended until the effects of the West Coast energy price increases on the
companys operations could be fully evaluated. We determined that to be
prudent, cash reserves should be held until the higher energy costs stabilized.
This program was renewed in September of 2001 when the SEC relaxed repurchase
rules due to market changes resulting from the September 11 incident. Under
these new rules, we purchased 55,046 shares for $102,000. We will continue to
watch for opportunities to repurchase stock.

Stock Performance

The market price of International Absorbents common stock ranged from
$2.00 to $1.51 in the third quarter of fiscal year 2002. Market capitalization
(calculated as period end share price multiplied by ending share price issued
and outstanding common shares) at quarter end (October 31, 2001) was
$10,182,949 compared to $11,893,065 at quarter end October 31, 2000.

Forward-looking Statements

Statements made in the preceding Managements Discussion and Analysis referring
to the Companys outlook, future sales revenue, gross profits, other expenses,
net income, currency, inflation, environmental matters, risk factors, financial
condition, cash generated from operations, working capital, financing and
investing activities, share repurchase plans and stock performance that state
the Company managements intentions, hopes, beliefs, expectations, or
predictions of the future, are forward-looking statements. It is important to
note that the Companys actual results could differ materially from those
projected in such forward-looking statements. Additional information
concerning factors that could cause actual results to differ materially from
those in the forward-looking statements is contained from time to time in the
Companys SEC filings, including but limited to the Companys report on forms
10-KSB, 10-QSB and the Companys proxy statement to shareholders. Copies of
these filings may be obtained by contacting the Company or the SEC.

10

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.



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PART II  OTHER INFORMATION



|   |                  
|-- | -----------------
|5. | Other information



| |                                  
| | ---------------------------------
| | Directors as at October 31, 2001:



| |                        
| | -----------------------
| | Gordon L. Ellis        
|
| | Stephen H. Silbernagel 
|
| | John J. Sutherland, Jr.
|
| | Douglas E. Ellis       
|
| | Shawn M. Dooley        



|   |                                 
|-- | --------------------------------
|6. | Exhibits and Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | On April 9, 2001 a report on Form 8-K was filed with the Securities and
Exchange Commission announcing the 1 for 4 reverse split of International
Absorbents, Inc.s common shares.                                                                                                                                                                                                                                                                                                                                     
|
| | On July 3, 2001, a report on Form 8-K was filed naming MossAdams LLP as
International Absorbents, Inc.s (IABI) auditors to replace of
PricewaterhouseCoopers, LLP (PWC). An amended report on Form 8-K was
filed on July 12, 2001 with PWCs response to IABIs filing on the change
of auditors. PWCs response agreed with IABIs announcement that the
change was a result of moving accounting functions to the United States
and not a result of adverse opinions or disagreements between the
registrant and PWC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|      |  |            |  |                                            
|----- |  | ---------- |  | -------------------------------------------
|      |  |            |  | INTERNATIONAL ABSORBENTS, INC.
(Registrant)
|     
|Date: |  | 12/12/2001 |  | /s/ Gordon L. Ellis                        
|      |  |            | 
|      |  |            |  | Gordon L. Ellis
President & CEO            

11

Unaudited (all amounts in U.S. dollars except where otherwise noted). The accompanying notes are an integral part of these consolidated financial statements.