UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB

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

For the quarterly period ended April 30, 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 June 11, 2001.

|                            |  |               |           | 
|--------------------------- |  | ------------- | --------- | 
|Title of Class              |  | No. of Shares
|Common Shares, no par value |  |               | 5,619,497 | 





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

|                     |  |                                                  |       |                |       |                  |       |   |        |  
|-------------------- |  | ------------------------------------------------ | ----- | -------------- | ----- | ---------------- | ----- | - | ------ | -
|                     |  |                                                  |       | As at          |       | As at           
|                     |  |                                                  |       | April 30, 2001 |       | January 31, 2001
|                     |  |                                                  |       |                |       |                 
|ASSETS              
|                    
|                    
|                    
|                    
|Current assets:     
|                    
|                    
|                    
|                    
|                     |  | Cash                                             |       | $              | 2,590 |                  |       | $ | 2,071  |  
|                    
|                    
|                    
|                    
|                     |  | Short term investments                           |       |                | 100   |                  |       |   | 400    |  
|                    
|                    
|                    
|                    
|                     |  | Accounts receivable                              |       |                | 1,107 |                  |       |   | 976    |  
|                    
|                    
|                    
|                    
|                     |  | Inventories                                      |       |                | 548   |                  |       |   | 389    |  
|                    
|                    
|                    
|                    
|                     |  | Prepaid expenses                                 |       |                | 105   |                  |       |   | 57     |  
|                    
|                    
|                    
|                    
|                     |  | Due from related parties                         |       |                | 2     |                 
|                    
|                    
|                    
|                    
|                     |  | Deferred income tax asset                        |       |                | 523   |                  |       |   | 661    |  
|                     |  |                                                  |       |                |       |                  |       |  
|                     |  | $                                                | 4,975 |                |       | $                | 4,554 |  
|                    
|                    
|                    
|                    
|                     |  | Property, plant, and equipment                   |       |                | 1,346 |                  |       |   | 1,393  |  
|                    
|                    
|                    
|                    
|                     |  | Intangible assets                                |       |                | 140   |                  |       |   | 149    |  
|                    
|                    
|                    
|                    
|                     |  | Deferred income tax asset                        |       |                | 792   |                  |       |   | 791    |  
|                     |  |                                                  |       |                |       |                  |       |  
|                     |  | $                                                | 7,253 |                |       | $                | 6,887 |  
|                     |  |                                                  |       |                |       |                  |       |  
|LIABILITIES         
|                    
|                    
|                    
|                    
|Current liabilities:
|                    
|                    
|                    
|                    
|                     |  | Accounts payable and accrued liabilities         |       | $              | 874   |                  |       | $ | 810    |  
|                    
|                    
|                    
|                    
|                     |  | Income taxes payable                             |       |                | 18    |                  |       |   | 13     |  
|                    
|                    
|                    
|                    
|                     |  | Due to related parties                           |       |                |       |                  |       |   | 4      |  
|                     |  |                                                  |       |                |       |                  |       |  
|                     |  | $                                                | 892   |                |       | $                | 827   |  
|                    
|                    
|                    
|                    
|                     |  | Deferred income tax liability                    |       |                | 137   |                  |       |   | 137    |  
|                     |  |                                                  |       |                |       |                  |       |  
|                     |  | $                                                | 1,029 |                |       | $                | 964   |  
|                    
|                    
|                    
|                    
|SHAREHOLDERS EQUITY
|                    
|                    
|                    
|                    
|                     |  | Capital stock:                                  
|                    
|                    
|                    
|                    
|                     |  | Authorized                                      
|                    
|                    
|                    
|                    
|                     |  | 100,000,000 common shares without par      value
|                    
|                    
|                    
|                    
|                     |  | Issued and outstanding                          
|                    
|                    
|                    
|                    
|                     |  | 5,619,497                                        |       | $              | 7,068 |                  |       | $ | 7,077  |  
|                    
|                    
|                    
|                    
|                     |  | Other capital accounts                           |       |                | 115   |                  |       |   | 74     |  
|                    
|                    
|                    
|                    
|                     |  | Deficit                                          |       |                | (959  | )                |       |   | (1,228 | )
|                     |  |                                                  |       |                |       |                  |       |  
|                     |  | $                                                | 7,253 |                |       | $                | 6,887 |  
|                     |  |                                                  |       |                |       |                  |       |  

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

2



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INTERNATIONAL ABSORBENTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars, in thousands)

|                                                                |  |   |                |   |                |   |       |   | 
|--------------------------------------------------------------- |  | - | -------------- | - | -------------- | - | ----- | - | 
|                                                                |  |   | 3 Months Ended
|                                                                |  |   |               
|                                                                |  |   | April 30, 2001 |   | April 30, 2000
|                                                                |  |   |                |   |               
|Sales revenues                                                  |  | $ | 2,541          |   |                | $ | 2,178 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Cost of goods sold                                              |  |   | 1,529          |   |                |   | 1,196 |  
|                                                                |  |   |                |   |                |   |       |  
|                                                                |  |   | 1,012          |   |                |   | 982   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Corporate and administrative expenses:                         
|                                                               
|                                                               
|                                                               
|                                                               
|Marketing and sales                                             |  |   | 310            |   |                |   | 326   |  
|                                                               
|                                                               
|                                                               
|                                                               
|General and administrative                                      |  |   | 334            |   |                |   | 282   |  
|                                                                |  |   |                |   |                |   |       |  
|                                                                |  |   | 644            |   |                |   | 608   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income before undernoted item                               |  |   | 369            |   |                |   | 374   |  
|                                                               
|                                                               
|                                                               
|                                                               
|Interest income                                                 |  |   | 42             |   |                |   | 18    |  
|                                                                |  |   |                |   |                |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income before income taxes                                  |  |   | 411            |   |                |   | 392   |  
|                                                                |  |   |                |   |                |   |       |  
|Income tax provision                                            |  |   | (5             | ) |                |   | (10   | )
|                                                               
|                                                               
|                                                               
|                                                               
|Deferred income tax recovery (provision)                        |  |   | (138           | ) |                |   | (107  | )
|                                                                |  |   |                |   |                |   |       |  
|Net income for the period                                       |  |   | 268            |   |                |   | 275   |  
|                                                                |  |   |                |   |                |   |       |  
|Basic Earnings per share                                        |  |   | 0.05           |   |                |   | 0.05  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Fully diluted                                                   |  |   | 0.05           |   |                |   | 0.05  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Weighted average number of shares    outstanding (in thousands)
|                                                               
|                                                               
|                                                               
|                                                               
|Basic                                                           |  |   | 5,625          |   |                |   | 5,447 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Diluted                                                         |  |   | 5,655          |   |                |   | 5,474 |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Subsequent Event (Note 4)                                      

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

3



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

|                                               |  |                |       |                |  |   |       |  
|---------------------------------------------- |  | -------------- | ----- | -------------- |  | - | ----- | -
|                                               |  | 3 Months Ended
|                                               |  |               
|                                               |  | April 30, 2001 |       | April 30, 2000
|                                               |  |                |       |               
|Cash flows from operating activities           |  | $              | 483   |                |  | $ | 122   |  
|                                              
|                                              
|                                              
|                                              
|Cash flows used in investing activities        |  |                | 35    |                |  |   | (96   | )
|                                              
|                                              
|                                              
|                                              
|Cash flows used in financing activities        |  |                | 1     |                |  |   | 372   |  
|                                               |  |                |       |                |  |   |       |  
|Net change in cash                             |  | $              | 519   |                |  | $ | 398   |  
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |  | $              | 2,071 |                |  | $ | 1,324 |  
|                                               |  |                |       |                |  |   |       |  
|Cash and cash equivalents, end of period       |  | $              | 2,590 |                |  | $ | 1,722 |  
|                                               |  |                |       |                |  |   |       |  

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

4



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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. All significant intercompany transactions and balances have been
eliminated on consolidation. The accompanying interim condensed consolidated
financial statements of the Company do not include all notes in annual
financial statements and therefore should be read in conjunction with the
Companys annual financial statements. The accompanying financial statements
include all normal recurring adjustments, which, in the opinion of management,
are necessary to present fairly the Companys financial position at April 30,
2001 and January 31, 2001, and its results of operations and cash flows for the
three months ended April 30, 2001 and three months ended April 30, 2000.

Net earnings per share

Net earnings per share computations are in accordance with SFAS No. 128,
Earnings Per Share. Basic net earnings per share is computed using the
weighted average number of common shares outstanding. Diluted net earnings per
share is computed using the weighted average number of shares and potentially
dilutive shares outstanding. Stock options and warrants that are anti-dilutive
are not included in diluted net earnings per share.

2.    Share Capital

Common Shares

|                                            |                                            |  |           |         |        |   |       |     |  
|------------------------------------------- | ------------------------------------------ |  | --------- | ------- | ------ | - | ----- | --- | -
|                                            |                                            |  | Shares    |         | Amount
|                                            |                                            |  |           |         |       
|Common shares outstanding, January 31, 2000 |                                            |  | 5,192,875 |         |        | $ | 6,622 |    
|                                           
|                                           
|                                           
|                                           
|                                            | Exercise of options                        |  |           | 32,562  |        |   |       | 25  |  
|                                           
|                                           
|                                           
|                                           
|                                            | Exercise of warrants                       |  |           | 183,935 |        |   |       | 215 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Loan to related parties for share purchase |  |           | 215,000 |        |   |       | 215 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Reciprocal shareholdings                   |  |           | (6,000  | )     
|                                            |                                            |  |           |         |        |   |       |    
|Common shares outstanding, January 31, 2001 |                                            |  | 5,618,372 |         |        | $ | 7,077 |    
|                                            |                                            |  |           |         |        |   |       |    
|                                            | Exercise of options                        |  |           | 1,125   |        |   |       | 1   |  
|                                           
|                                           
|                                           
|                                           
|                                            | Retirement of reciprocal holdings          |  |           |         |        |   |       | (10 | )
|                                            |                                            |  |           |         |        |   |       |    
|Common shares outstanding, April 30, 2001   |                                            |  | 5,619,497 |         |        | $ | 7,068 |    
|                                            |                                            |  |           |         |        |   |       |    

Share transactions (excluding exercise of options and warrants) during the
period ending April 30, 2001 and the year ending January 31, 2001

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

5



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Stock Options

|                                            |  |  |                   |   |          |   |               |  | 
|------------------------------------------- |  |  | ----------------- | - | -------- | - | ------------- |  | 
|                                            |  |  | Number of         |   | Exercise
|                                            |  |  | Underlying Shares |   | Prices  
|                                            |  |  |                   |   |         
|Stock options outstanding, January 31, 2000 |  |  | 420,350           |   |          | $ | 0.80 to $4.00 | 
|                                            |  |  |                   |   |          |   |               | 
|Granted                                     |  |  | 64,348            |   |          | $ | 1.84          | 
|                                           
|                                           
|                                           
|                                           
|Exercised                                   |  |  | (32,562           | ) |          | $ | 0.80          | 
|                                           
|                                           
|                                           
|                                           
|Surrendered or expired                      |  |  | (7,125            | ) |          | $ | 0.80 to $2.16 | 
|                                            |  |  |                   |   |          |   |               | 
|Stock options outstanding, January 31, 2001 |  |  | 445,011           |   |          | $ | 0.80 to $4.00 | 
|                                           
|                                           
|                                           
|                                           
|Exercised                                   |  |  | (1,125            | ) |          | $ | 0.80          | 
|                                            |  |  |                   |   |          |   |               | 
|                                           
|                                           
|                                           
|                                           
|Stock options outstanding, April 30, 2001   |  |  | 443,886           |   |          | $ | 0.80 to $4.00 | 
|                                            |  |  |                   |   |          |   |               | 

Stock options outstanding at April 30, 2001 are due to expire from October 1,
2001 to September 30, 2005. Pursuant to the vesting terms of the option
agreements, stock options to purchase 443,886 common shares were eligible for
exercise at April 30, 2001 (at January 31, 2001  435,011).

Warrants

|                                                         |  |  |                   |   |          |   |               |  | 
|-------------------------------------------------------- |  |  | ----------------- | - | -------- | - | ------------- |  | 
|                                                         |  |  | Number of         |   | Exercise
|                                                         |  |  | Underlying Shares |   | Prices  
|                                                         |  |  |                   |   |         
|Warrants outstanding, January 31, 2000                   |  |  | 420,997           |   |          | $ | 0.40 to $1.00 | 
|                                                         |  |  |                   |   |          |   |               | 
|Exercised                                                |  |  | (398,936          | ) |          | $ | 1.00          | 
|                                                        
|                                                        
|                                                        
|                                                        
|Surrendered or expired                                   |  |  | (9,561            | ) |          | $ | 0.40 to $1.00 | 
|                                                         |  |  |                   |   |          |   |               | 
|Warrants outstanding January 31, 2001 and April 30, 2001 |  |  | 12,500            |   |          | $ | 0.80          | 
|                                                         |  |  |                   |   |          |   |               | 

Warrants outstanding at April 30, 2001 are due to expire December 7, 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 its 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.

Quarter Ended April 30, 2001 Business Segment Data

|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | ----- |  |  | - | ----- | -
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 2,243 |            |  | $            | 298   |  |  | $ | 2,541 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Operating costs and expenses                          |  |             | 1,846 |            |  |              | 276   |  |  |   | 2,122 |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Operating income before
depreciation and amortization |  |             | 397   |            |  |              | 22    |  |  |   | 419   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation and amortization                         |  |             |       |            |  |              |       |  |  |   | (50   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Interest income                                       |  |             |       |            |  |              |       |  |  |   | 42    |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Net income before taxes                               |  |             |       |            |  |              |       |  |  | $ | 411   |  
|                                                      |  |             |       |            |  |              |       |  |  |   |       |  
|Assets                                                |  | $           | 5,607 |            |  | $            | 1,646 |  |  | $ | 7,253 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Capital Expenditures                                  |  | $           | 3     |            |  | $            | 0     |  |  | $ | 3     |  

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

6



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Quarter ended April 30, 2000 Business Segment Data

|                                                      |  |             |       |            |  |              |     |  |  |  |  |   |       |   |  | 
|----------------------------------------------------- |  | ----------- | ----- | ---------- |  | ------------ | --- |  |  |  |  | - | ----- | - |  | 
|                                                      |  | Animal Care |       | Industrial |  | Consolidated
|                                                      |  |             |       |            |  |             
|Revenues                                              |  | $           | 1,837 |            |  | $            | 341 |  |  |  |  | $ | 2,178 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Operating costs and expenses                          |  |             | 1,474 |            |  |              | 293 |  |  |  |  |   | 1,767 |  
|                                                      |  |             |       |            |  |              |     |  |  |  |  |   |       |  
|Operating income before
depreciation and amortization |  |             | 378   |            |  |              | 51  |  |  |  |  |   | 411   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation & amortization                           |  |             |       |            |  |              |     |  |  |  |  |   | (37   | )
|                                                     
|                                                     
|                                                     
|                                                     
|Interest income                                       |  |             |       |            |  |              |     |  |  |  |  |   | 18    |  
|                                                      |  |             |       |            |  |              |     |  |  |  |  |   |       |  
|Net income before taxes                               |  |             |       |            |  |              |     |  |  |  |  | $ | 392   |  
|                                                      |  |             |       |            |  |              |     |  |  |  |  |   |       |  
|Capital expenditures                                  |  | $           | 38    |            |  | $            | 7   |  |  |  |  | $ | 45    |  

Year ended January 31, 2001

|       |  |             |       |            |  |              |       |  |  |  |  |   |       |  |  | 
|------ |  | ----------- | ----- | ---------- |  | ------------ | ----- |  |  |  |  | - | ----- |  |  | 
|       |  | Animal Care |       | Industrial |  | Consolidated
|       |  |             |       |            |  |             
|Assets |  | $           | 5,510 |            |  | $            | 1,337 |  |  |  |  | $ | 6,887 | 

4.    Subsequent Event

Subsequent to April 30, 2001, International Absorbents Inc. entered into an
agreement with a company whose directors include IABIs Chairman, President and
Chief Executive Officer. Under the agreement, IABI provided a secured loan of $190,000
to this company and has the option to acquire an equity interest as stipulated
in the agreement.

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

7



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MANAGEMENTS DISCUSSION & ANALYSIS

RESULTS OF OPERATIONS

Sales

International Absorbents net sales for the quarter ended April 30, 2001
were $2,541,000 compared to the quarter ended April 30, 2000 total of
$2,178,000. This 17% increase was achieved primarily through an increase in
sales of the Animal Care divisions flag ship product, CareFRESH
small animal bedding. 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 at which sales grow will be determined by the markets
acceptance of a price increase that was put into effect over the first three
months of the year, 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.

Gross Profits

Gross profits on net sales for the first quarter of fiscal year 2002 were
$1,012,000, a gross margin of 40%. In the first quarter of 2001 they were
$982,000, or 45%. During the first quarter of the year there was some
abatement to the West Coast energy crisis. This resulted in natural gas prices
which were substantially lower than those rates which were paid at the height
of the crisis during the fourth quarter of the previous fiscal year, yet still
much higher than prices in the first quarter of fiscal year 2001. In addition
to energy price increases, 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 gross profits increased, gross
margins (gross profit divided by net sales) decreased, because new production
efficiencies were offset by the aforementioned cost increases. Due to energy
prices having recently increased to levels which energy pricing experts had
predicted would not be reached for another five to ten years, it is unknown how
this factor will effect gross profit. Over the next year, annual energy
contract rates are predicted to return to levels that are double those of a
year ago. That, in combination with new production efficiencies, will allow
gross margins to remain at current levels. There will continue to be downward
pressure on gross margins as a result of the recent closing of the Georgia
Pacific pulp plant in Bellingham. After the resulting reduction in gross
margin, the Bellingham production facility will remain profitable. New
products will be introduced during fiscal 2002, which will have lower gross
margins than existing products.

Other Expenses and Income

In the first quarter of fiscal year 2002, International Absorbents spent
$310,000 on marketing and sales expenses as compared to $326,000 in the same
quarter last year, resulting in a 5% decrease. 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 rest
of the year, significant investments will continue to be made in marketing
recently launched products. At the same time, development of sales and
marketing programs for new products will continue.

General and administrative expenses were $334,000. In the first quarter
of 2001 they were $282,000. This was an 18% increase. As sales increase,
basic operating and administrative functions have been expanded to support the
growth, which will continue with expected sales growth. The rate of increase
is expected to be maintained at a level below the rate sales growth. As cash
is accumulated and invested in short term cash equivalents, International
Absorbents interest income has increased. In the first quarter of fiscal
2002, $42,000 in interest income was accumulated as compared to $18,000 in the
same period the previous year. Until a significant capital investment is made,
this income will continue to grow. The rate of its growth is dependent on short
term interest rates.

Net Income

International Absorbents net income before taxes increased by 5% to
$411,000 in the period ending April 30, 2001 over $392,000 in the same period
last year. In the first quarter of 2002, the company recognized a tax provision
of $143,000 compared with a tax provision of $117,000 in the first quarter of
2001 representing a 29% increase. This resulted in a decrease in net income,
after taxes and the deferred income tax provision, from $275,000 in the first
quarter 2001 to $268,000 in the first quarter of 2000, a 3% decrease. The amount of

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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the deferred income tax provision is determined by
generally accepted accounting principles and not management. Net income
before taxes increased as a result of increased sales revenues and continued
controls on general and administrative expenses, as steps have been taken to
maintain expenses at a level which will allow improved profits. These cost
controls will remain in place as sales grow. Marketing and sales will see the
largest non-capital investment during 2002. While there will be an increase in
net income before taxes and tax related items, it will not be significant due
to investments that will be made in the introduction of new products.

Currency

Approximately 5% of International Absorbents sales were to foreign
customers. Of the foreign sales, 42% were to Canadian customers. Over the
past three years, the value of the Canadian dollar, compared to other global
currencies, has been very stable in relation to the value of the U.S. dollar.
Sales in the first quarter of fiscal year 2002 were not significant enough to
be adversely affected by changes in the value of the U.S. dollar. This trend
is expected to continue through fiscal year 2002.

Inflation

Inflationary pressures on costs, especially energy costs, are greater than
they were during the same quarter of the previous fiscal year. There appears
to be some mitigation to these pressures; but because the price increases in
the energy sector were so far beyond historical measures, there is no way to
accurately predict what they will be in the future.

Environmental Matters

International Absorbents 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 jurisdiction over
production activities. International Absorbents is currently in compliance
with these laws and expects to remain so through fiscal 2002.

Risk Factors

Except for the historical information contained herein, certain of the
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 quarter of fiscal year 2002, International
Absorbents capital structure comprised $892,000 of short-term liabilities,
$137,000 of deferred tax liability, and $6,224,000 of stockholders equity.
The ratio of total assets to total liabilities was 7.05:1 compared to
7.14:1 at
January 1, 2001. Total debt increased by $65,000. The increase was a direct
result of increased purchases which was indirectly related to increased sales.
Total stockholders equity increased by $301,000 to $6,224,000 in the first
quarter of 2002. The increase was primarily due to net income for the period
and from an increase in other capital accounts. The change in other capital
relates to the repayment of loans made to related parties for purchase of
shares.

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

Cash Generated from Operations

The cash flow generated from operations of International Absorbents
increased to $483,000 during the first quarter of fiscal year 2002 from
$122,000 at the end of the same period in 2001. This was substantially due

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

9



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to $300,000 that had been invested in short-term (3 month to
6 month) bank certificates of deposits that have matured into cash accounts.
During the balance of fiscal 2002 this level of cash being generated from
operations is expected to continue at lower rates as cash is once again
invested for the short term.

Working Capital

International Absorbents working capital position at quarter end, April
30, 2001, was $3,560,616, as compared to $3,066,000 at the end of Fiscal 2001.
The current ratio (current assets to current liabilities) improved to
5.0:1 in
comparison to 4.71:1 at the end of fiscal 2001. Cash generated from operations
resulted in an increase in working capital.

As 2002 continues, working capital will grow, but is not expected to grow
as fast as in recent history, because there are not as many warrants and
options approaching their expiration dates. There is expected to be enough
cash and equivalents throughout 2002 to meet all short-term working capital
needs.

Financing and Investing Activities

During the first quarter of fiscal year 2002, International Absorbents
received $35,000 in cash from investing activities and received $1,000 from
financing activities. This is compared to $372,000 received from financing and
$96,000 being used for investing in first quarter 2001. New manufacturing and
production opportunities are continuously being sought. Because not all of
these opportunities have been completely defined, management cannot predict the
timing of when they will have an effect on our financial statements.

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, 24,000 common
shares were purchased at a total cost of $10,000. In December of 2000, the
program was suspended until the extent of the effect on the company of the West
Coast energy crisis could be fully evaluated. It was determined to be prudent
that cash reserves be held until the crisis passed and energy costs stabilized.
Management has not yet determined when the program will be resumed.

Stock Performance

The market price of International Absorbents common stock ranged from
$2.32 to $1.20 in the first quarter of fiscal year 2002. Market capitalization
(calculated as period end share price multiplied by ending issued and
outstanding common shares) at quarter end, April 30, 2001, was $11,239,000 in
comparison to $15,311,503 at quarter end April 30, 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, general and
administrative expenses, marketing expenses, liquidity and capital resources,
and cash flow, 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.

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

10



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PART II OTHER INFORMATION

5.    Other information

Directors as at April 30, 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.

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: 6/12/2000 |  | /s/ Gordon L. Ellis                        
|                |  |                                            
|                |  | Gordon L. Ellis                            
|                |  | President & CEO                            

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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