AMERICAN ABSORBENTS NATURAL PRODUCTS INC, SB-1/A, 1996-10-02

AMERICAN ABSORBENTS NATURAL PRODUCTS INC
SB-1/A, 1996-10-02
MINING & QUARRYING OF NONMETALLIC MINERALS (NO FUELS)

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM SB-1

AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933

American Absorbents Natural Products, Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)

<TABLE>
<S> <C> <C>
Utah 51 87-0421089
---- -- ----------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) No.)
</TABLE>

3800 Hudson Bend Road, Austin, Texas 78734: (512) 266-2481
-------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)

3800 Hudson Bend Road, Austin, Texas 78734
------------------------------------------
(Address of Principal Place of Business

Terry L. Young, Chairman, American Absorbents Natural Products, Inc.
3800 Hudson Bend Road, Austin, Texas 78734: Telephone: (512) 266-2481
----------------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)

Approximate Date of Proposed Sale to the Public: As soon as practicable
after this Registration Statement becomes effective.

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Title of Each Class of Securities to Unit Amount to Proposed Maximum Proposed Maximum Amount of
- ------------------------------------ -------------- ---------------- ---------------- ---------
be Registered be Registered Offering Price Aggregate Offering Registration
------------- -------------- --------------- ------------------ ------------
Price (1) Fee
--------- ---
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Common Stock, $.001 par value, and one
warrant entitling the holder to
purchase one share of common stock 1,150,000 $1.75 per Unit $2,012,500 $694

Shares of Common Stock,$.001 par
value, issuable upon exercise of the
Warrants attached to the units 1,150,000 $3.75 per Share $4,312,500 $1,487
------

TOTAL $2,181
</TABLE>

Disclosure alternative used (check one): Alternative 1 XX Alternative 2 ___
<PAGE> 2
EXACT NAME OF COMPANY AS SET FORTH IN CHARTER:

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.

TYPE OF SECURITIES OFFERED: Units consisting of one share of common stock
($0.001par value) and one redeemable common stock purchase warrant, expiring
twenty four months from the date of this offering, entitling the holder to
purchase one share of common stock for $3.75. The warrant is redeemable by the
Company at a price of $0.05 per warrant prior to its expiration provided that
(1) prior notice of not less than 30 days is given to the holders of the
warrants, and (2) the closing sale price of the common stock as reported on the
National Association of Securities Dealers Automated Quotation system for 20
consecutive trading days, ending on the tenth day prior to the date on which
the Company gives notice of redemption has been at least 10% greater than the
exercise price of the warrant.

THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES SPECIAL RISKS CONCERNING THE
COMPANY AND ITS BUSINESS. (SEE "RISK FACTORS" PG. 8.)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY, NOR HAS THE COMMISSION OR
ANY STATE AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Per Unit Total Underwriting Proceeds
-------------- ------------ --------
Total Minimum Discounts and to
------------- ------------- --
Total Maximum Price to Public Commissions Issuer (1)
------------- --------------- ----------- ----------
<S> <C> <C> <C>
Per Unit $1.75 $0 $1.75
Total maximum units sold: 1,150,000 $2,012,500 $0 $2,012,500
Total minimum units sold: 0 $0 $0 $0
</TABLE>

(1) The proceeds to the issuer are stated before deduction of expenses related
to the preparation of the offering which the Company will pay. These expenses,
as presently estimated, are not expected to exceed $50,000 and include the
Company's legal and accounting fees, transfer agent's fees, filing fees,
exchange listing fees and printing costs.

This offering is made on a "best efforts" basis by the Company's management and
will end on October 31, 1997, unless extended, in which case the offering will
end on April 30, 1998. There are no minimum purchase requirements nor is there
any arrangement whereby the Company is required to place funds in an escrow,
trust or other similar account.

The date of this prospectus is September 30, 1996

"Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state".

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AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
(CROSS REFERENCE SHEET PURSUANT TO RULE 404)
ALTERNATIVE 1

<TABLE>
<CAPTION>
ITEM NUMBER CAPTION HEADING IN PROSPECTUS
- ----------- ------- ---------------------
<S> <C> <C>
Item 1. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages

Item 2. Significant Parties Inside Front Cover Page

Item 3. Relationship With Issuer of Experts Relationship With Issuer of
Named in Registration Statement Experts Named in Registration
Statement

Item 4. Selling Security-Holders Not Applicable

Item 5. Changes in and Disagreements Changes in and Disagreements
With Accountants With Accountants

Item 6. Disclosure of Commission Position on Disclosure of Commission Position
Indemnification For Securities Act on Indemnification For Securities
Liabilities Act Liabilities
</TABLE>

This Space Intentionally Left Blank

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<PAGE> 4
[Inside Front Cover]

The Company is a reporting company under Section 13 or 15(d) of the Exchange
Act. All reports and other information filed by the Company may be inspected
and copied at the public reference facilities of the Commission in Washington,
DC, or copies of reports and other information filed by the Company can be
obtained from the Public Reference Section of the Commission, Washington, DC,
20549 at prescribed rates.

The Company's common stock is listed on the NASDAQ Bulletin Board under the
symbol "AANP" and reports and other information concerning the Company can be
inspected at this National Securities Exchange.

The Company will provide all security-holders with an annual report including
audited financial statements along with the proxy solicitation for the Annual
Meeting of Shareholders. The Company will also provide the security-holders
with quarterly information through a national news release service.

Persons who receive a prospectus may obtain, without charge, directly from the
Company any information that is incorporated by reference within the prospectus
by writing to: David W. Redding, Chief Financial Officer, American Absorbents
Natural Products, Inc., 3800 Hudson Bend Road, Suite #300, Austin, Texas,
78734, and requesting the specific information you are seeking, or by calling
directly to: David W. Redding, Chief Financial Officer at (512) 266-2481.

ITEM 1. SIGNIFICANT PARTIES

(a), (b), (c), (d), (e) The following listing includes the full names and
addresses for the Company's directors, officers, record owners of five percent
or more of any class of the Company's equity securities, beneficial owners of
five percent or more of any class of the Company's equity securities and
affiliates of the Company:

<TABLE>
<S> <C> <C>
Terry L. Young David W. Redding William C. Branch
3800 Hudson Bend Road 3800 Hudson Bend Road 3800 Hudson Bend Road
Austin, Texas 78734 Austin, Texas 78734 Austin, Texas 78734
Chairman/Chief Executive Executive Vice President/Chief Director
Officer/5%+ Beneficial Owner Financial Officer/Director/Chief
Accounting Officer/Assist. Sec.

Kimberly A. Love American Absorbents, Inc. Austin Young, Inc.
3800 Hudson Bend Road 3800 Hudson Bend Road 3800 Hudson Bend Road
Austin, Texas 78734 Austin, Texas 78734 Austin, Texas 78734
Secretary 100% Owned Subsidiary 5%+ Record Owner
</TABLE>

(f) Promoters of the issuer: Not Applicable
(g) Affiliates of the issuer: Not Applicable
(h) Counsel to the issuer with respect to the proposed offering: Not
Applicable
(i) Each underwriter with respect to the proposed offering: Not Applicable
(j) The underwriter's directors: Not Applicable
(k) The underwriter's officers: Not Applicable
(l) The underwriter's general partners: Not Applicable
(m) Counsel to the underwriters: Not Applicable

ITEM 2. APPLICATION OF RULE 262

(a) State whether any of the persons identified in response to Item 1 are
subject to any disqualification provisions set forth in Rule 262.

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<PAGE> 5
No person identified in response to Item 1 is subject to any of the
disqualification provisions set forth in Rule 262.

ITEM 3. AFFILIATE SALES

None of the securities being offered in the proposed offering involves the
resale of securities by affiliates of the issuer.

ITEM 4. JURISDICTION IN WHICH SECURITIES ARE TO BE OFFERED

(a) List the jurisdiction in which the securities are to be offered by
underwriters, dealers or salesmen. None

(b) List the jurisdiction in which the securities are to be offered other than
by underwriters, dealers or salesmen and state the method such securities are
to be offered. New York and Texas. Securities are to be offered by the
Company's officers and directors through existing shareholders and over the
Internet.

ITEM 5. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR

<TABLE>
<CAPTION>
Date # of Shares # of Persons Relationship Consideration
---- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
7-95 18,018 1 Director $33,333.30
7-95 18,018 1 None $33,333.30
7-95 18,018 1 None $33,333.30
7-95 24,000 1 Director $44,400.00
7-95 4,000 1 Director Professional
Services
9-95 16,000 1 Director $29,600.00
10-95 5,446 1 None $10,075.00
10-95 5,405 1 None $10,000.00
10-95 5,000 1 None Professional
Services
11-95 5,405 1 None $10,000.00
12-95 7,500 1 None $13,875.00
12-95 2,500 1 None $ 4,625.00
12-95 5,500 1 Director $10,175.00
12-95 3,500 1 None $ 6,475.00
02-96 26,667 1 Director $35,000.00
04-96 6,667 1 None $10,000.00
04-96 6,000 1 None $ 9,000.00
04-96 500 1 None $ 750.00
04-96 5,000 1 None Professional
Services
04-96 3,000 1 None Professional
Services
</TABLE>

ITEM 6. OTHER PRESENT OR PROPOSED OFFERINGS

At the present time, the Company nor any affiliate is currently offering or
contemplating the offering of any securities in addition to those covered by
this SB-1 Form 1-A registration statement.

ITEM 7. MARKETING ARRANGEMENTS

(a) There are no arrangements known to the issuer or to any person named in
response to Item 1 above or to any selling security-holder in the offering
covered by this SB-1 Form 1-A registration statement for any of the following
purposes:
1. To limit or restrict the sale of other securities of the same class as
those to be offered for the period of distribution;

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2. To stabilize the market for any of the securities to be offered;
3. For withholding commissions, or otherwise to hold each underwriter or
dealer responsible for the distribution of its participation.

(b) There are no underwriters involved in the offering therefore there will be
no confirmation of sales to any accounts over which they might exercise
discretionary authority.

ITEM 8. RELATIONSHIP WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT

The financial statements of the Company included in this prospectus have been
examined by Orton & Company, Certified Public Accountants, Salt Lake City,
Utah. The financial statements examined by the Certified Public Accountants
have been included in reliance upon their audit report. The Company has been
advised by Orton & Company that neither that firm nor any of its partners or
associates has any relationship or connection, financial or otherwise, with the
Company or any affiliate of the Company other than the usual relationship that
exists between independent certified public accountants and clients.

ITEM 9. USE OF A SOLICITATION OF INTEREST DOCUMENT

No written document or broadcast script authorized by Rule 254 was used prior
to the filing of this notification.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

There have been no changes in or disagreements with the independent certified
public accountants relating to accounting and financial disclosure in any of
the two most recent fiscal years of the Company.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES

Utah law expressly authorizes a Utah corporation to indemnify its directors,
officers, employees, fiduciaries, and agents against liabilities arising out of
such persons' conduct as directors, officers, employees, fiduciaries, or agents
if they acted in good faith, and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation, and, in the case of
criminal proceedings, if they had no reasonable cause to believe their conduct
was unlawful. Generally, indemnification for such persons is mandatory if such
person was successful, on the merits or otherwise, in the defense of any such
proceeding, or in the defense of any claim, issue, or matter in the proceeding.
In addition, the corporation may pay for or reimburse the reasonable expenses
incurred by such a person who is a party to a proceeding in advance of final
disposition if such person furnishes to the corporation a written affirmation
of his good faith belief that he has met the requirements for indemnification
and furnishes to the corporation a written undertaking to repay such expenses
if it is ultimately determined that he did not meet the requirements. In order
to provide indemnification or advance expenses, the corporation must determine
that the person meets the requirements for indemnification. Such determination
must be made by a majority of disinterested directors or committee members
present at a meeting; by special legal counsel; or by a majority of the
shareholders holding qualified shares voted at a meeting of the shareholders. A
corporation may also purchase and maintain liability insurance on behalf of
such persons.

Article VI of the Company's Restated Articles of Incorporation provides that
the Company shall indemnify its directors, officers, employees, fiduciaries,
and agents to the full extent permitted by the laws of the State of Utah.
Article V of the Company's Bylaws also provides for the indemnification of such
persons. The Company does not maintain any liability insurance on behalf of
any directors, officers, or other persons affiliated with the Company.

Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to officers
and directors of the Company pursuant to the foregoing provisions, or
otherwise, the Company is aware that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore, unenforceable.

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COVER PAGE SB-1 OFFERING
REGISTRATION FORM (FORM 1-A)

-------------------------------------------------------------------

EXACT NAME OF COMPANY AS SET FORTH IN CHARTER:

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.

MAXIMUM NUMBER OF SECURITIES OFFERED: 1,150,000 units
MINIMUM NUMBER OF SECURITIES OFFERED: 0 units
PRICE PER SECURITY: $1.75 per unit
TOTAL PROCEEDS: IF MAXIMUM SOLD: $2,012,500.00 IF MINIMUM SOLD: $0.00
(SEE QUESTIONS 9 AND 10)

IS A COMMISSIONED SELLING AGENT SELLING THE SECURITIES IN THIS OFFERING? No.
IF YES, WHAT PERCENT IS COMMISSION OF PRICE TO PUBLIC? N/A

IS THERE COMPENSATION TO SELLING AGENTS? No

IS THERE A FINDERS' FEE OR SIMILAR PAYMENT TO ANY PERSON? (SEE QUESTION 22).
No

IS THERE AN ESCROW OF PROCEEDS UNTIL MINIMUM IS OBTAINED? No

IS THIS OFFERING LIMITED TO MEMBERS OF A SPECIAL GROUP, SUCH AS EMPLOYEES OF
THE COMPANY OR INDIVIDUALS? (SEE QUESTION 25). No

IS TRANSFER OF THE SECURITIES RESTRICTED? (SEE QUESTION 25). No

INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE QUESTION NO. 2 FOR THE RISK FACTORS THAT
MANAGEMENT BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS
OFFERING.

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IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE,
THESE AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF
ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE.

THIS COMPANY: ( ) HAS NEVER CONDUCTED OPERATIONS; (X) IS IN THE DEVELOPMENT
STAGE; (X) IS CURRENTLY CONDUCTING OPERATIONS; ( ) HAS SHOWN A PROFIT IN THE
LAST FISCAL YEAR; ( ) OTHER (SPECIFY) (CHECK AT LEAST ONE, AS APPROPRIATE).
THIS OFFERING HAS BEEN REGISTERED FOR OFFER AND SALE IN THE FOLLOWING STATES:
TEXAS, NEW YORK

The Company has spent the time since its entry into the zeolite business
acquiring a significant portion of the known and economically extractable
zeolite properties, developing marketable products, test marketing products to
determine consumer market acceptance and product pricing, designing packaging
for a number of its products, acquiring plant and warehouse facilities and
raising sufficient capital to fund the above activities.

"THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE
MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE
OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING
CIRCULAR OR OTHER SELLING LITERATURE.

THIS OFFERING CIRCULAR CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY
CONCERNING THIS OFFERING, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER
STATEMENTS THAN THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY
UPON ANY INFORMATION NOT EXPRESSLY SET FORTH IN THIS OFFERING CIRCULAR. THIS
OFFERING CIRCULAR, TOGETHER WITH FINANCIAL STATEMENTS AND OTHER ATTACHMENTS,
CONSISTS OF A TOTAL OF 87 PAGES.

THE COMPANY

1) EXACT CORPORATE NAME: American Absorbents Natural Products, Inc.
STATE AND DATE OF INCORPORATION: Utah, February 9, 1984
STREET ADDRESS OF PRINCIPAL OFFICE: 3800 Hudson Bend Road, Suite #300,
Austin, Texas, 78734
COMPANY TELEPHONE NUMBER: 512-266-2481
FISCAL YEAR: January 31
PERSONS TO CONTACT AT COMPANY WITH RESPECT TO OFFERING: Terry L. Young,
Chief Executive Officer or David W. Redding, Chief Financial Officer.

RISK FACTORS

2) LIST IN THE ORDER OF IMPORTANCE THE FACTORS WHICH THE COMPANY
CONSIDERS TO BE THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS OFFERING IN
VIEW OF ALL FACTS AND CIRCUMSTANCES OR WHICH OTHERWISE MAKE THE OFFERING ONE OF
HIGH RISK OR SPECULATIVE (I.E., THOSE FACTORS WHICH CONSTITUTE THE GREATEST
THREAT THAT THE INVESTMENT WILL BE LOST IN WHOLE OR IN PART, OR NOT PROVIDE AN
ADEQUATE RETURN).

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THE PURCHASE OF THE SECURITIES BEING OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. PRIOR TO INVESTING IN THE UNITS OR THE SHARES
OFFERED BY THE SELLING STOCKHOLDERS, A PROSPECTIVE INVESTOR SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISKS AND SPECULATIVE FACTORS AND HOW THEY MAY AFFECT
THE BUSINESS OF THE COMPANY:

1. Operating Losses. The Company is still a development stage
company and has experienced losses from its operations for each of the last
three fiscal years. For each of the fiscal years ended January 31, 1994, 1995,
and 1996, the Company experienced net losses of ($274,862), and ($673,048), and
($365,467), respectively. There is no assurance that the Company will be
profitable in the future. (See "Financial Statements" and "Management's
Discussion and Analysis and Plan of Operation.")

2. Limited Marketing of Zeolites Products. Since 1992 the
Company has been engaged in test marketing a number of products using natural
zeolites. The Company currently has over one dozen zeolite products developed
and test marketed but has not experienced any net operating profits from its
marketing efforts. There is no assurance that the Company will be able to
market such products or develop and market new products on a profitable basis.
A portion of the proceeds of this offering will be applied to the marketing
efforts of the Company. (See "Business of the Company" and "Use of Proceeds.")

3. New Industry; Market Penetration. The concept of marketing
products using natural zeolites to adsorb obnoxious or harmful liquids or gases
is a relatively new one in the United States. There is no assurance that the
national market will accept products made from natural zeolites, or that the
Company will be able to significantly penetrate the existing market of similar
products currently using substances other than natural zeolites. (See
"Business of the Company.")

4. Dependence Upon Others for Zeolite Mining and Processing.
Although a portion of the proceeds of this offering will be used to purchase
crushing and screening equipment for its facility in Oregon, the Company
currently uses contract services of others for mining and processing of
zeolites and uses independent contractors for the production and packaging of
the Company's products. The use of such personnel for these operations may
subject the Company to risks that it will not be able to timely perform its
obligations; subject the Company to unacceptable variations in quality of
product; and subject the Company to shortages and price fluctuations. The
Company believes that it has access to a sufficient number of independent
contractors to enable it to obtain competitive bids for such services and that
competitive pressures upon such entities will result in acceptable services to
the Company. (See "Business of the Company.")

5. Competition. The Company may experience substantial
competition in its efforts to market its existing products and may experience
such competition in the development and marketing of planned new products.
Management has categorized competition into three areas, namely: a) producers
of products similar to those marketed by the Company but not using any natural
zeolites; b) producers of products using natural zeolites mined from the
producer's own reserves; and c) producers of products using zeolites purchased
from an outside source. Particularly with the Company's cat litter product,
Mother Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer, the Company
competes with a number of products, most of which do not use natural zeolites,
and two of which are known to use natural zeolites mined from their own
reserves. The Company is also aware of producers of shoe products targeted to
the same consumers as those products marketed by the Company, namely Shoe
FreshTM and Stinky PinkysTM. Only one of these competing shoe products is
known to use natural zeolites which are purchased from an outside source. Some
of the manufacturers of natural zeolite products, and others producing
non-zeolite products similar to those offered by the Company, have had
extensive experience in the industry. Some of these competitors possess
greater financial, technological, and personnel resources than the Company.
(See "Business of the Company.")

6. Government Regulations. Although mining operations on
properties owned by the Company are currently performed by others on a contract
basis, those operations and the Company are subject to a variety of
governmental regulations, including the need to comply with laws relating to
the reclamation of the land and other

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environmental legislation. Reclamation of the land includes returning the land
to the level of productivity of the pre- mine surface; leaving the mined area
in a condition that will not contribute to environmental degradation either in
the form of air or water borne materials; and leaving the land in a state which
is aesthetically acceptable and safe for the uses intended. Any plan for
reclamation would be required to be approved by government regulators prior to
commencement of principal mining activities. In addition, a portion of the
proceeds of this offering will be used by the Company to establish its own
mining, crushing and screening operations. The Company will bear the costs of
compliance with such laws, which may require significant capital outlays.
Existing, as well as future, legislation and regulation concerning mining
operations could cause additional expense, restrictions and delays in the
Company's operations, the extent of which cannot be predicted. (See "Business
of the Company.")

7. Maintenance of Title to Claims. To maintain possessory title
to each of the unpatented mining claims of the Company, it is necessary to pay
an annual fee of $100 per claim to the Federal Bureau of Land Management. The
Company has paid the annual assessment on its claims through August 1996.
Failure to pay future fees and appropriately file evidence thereof with respect
to any claim could result in the loss of possessory title to such claims. (See
"Properties" and "Use of Proceeds.")

8. No Mining Permits. Presently the Company has an exemption
from the requirements for a reclamation plan and bond for its mining operations
on the Company's Harney Basin Claims because the current mining site is less
than one acre and a total of less than 5,000 cubic yards of mineral has been
removed per year. This grant of exemption expires January 31, 1997.
Management believes that such permit will allow the Company to meet its
projected requirements for zeolites for up to one year. The Company has
retained a geologist to work toward obtaining the permits necessary to allow
more extensive mining. The geologist has filed the initial documents with the
appropriate governing authorities. Such expanded permits will require the
Company to provide a plan of land reclamation or to provide a bond for such
purpose. Although the Company believes that the remote location of the claims
will work in its favor in obtaining such permits, there is no assurance that
the remote location of the claims will work in its favor in obtaining such
permits, there is no assurance that the grant of exemption will be renewed by
the State of Oregon, or, as the Company expands its current mining efforts,
that the Company can receive the necessary permits without unreasonable expense
or delay. In the event that such an expanded permit cannot be obtained by the
Company, management intends to seek a limited mining permit for the Company's
mining claims located near the town of Sheaville, Oregon, and the mining claims
located in Arizona. There is no assurance that such limited mining permits can
be obtained by the Company. (See "Properties" and "Business of the Company.")

9. No Established Public Market. With the exception of
maintaining a minimum bid price of $3.00 per share for 20 consecutive trading
days, the Company believes it meets all the requirements for a listing on the
NASDAQ Small Cap Issues Market System, and, at present, a limited market exists
for the Company's Common Stock on the NASDAQ Bulletin Board. The Company
intends to make application to NASDAQ for listing of the Common Stock on the
Small Cap Issues Market System as soon as the minimum bid price on the Common
Stock reaches $3.00 per share. However, there is no assurance that such
application will be accepted, that the Company will continue to meet the
maintenance requirements of such a listing, or that a regular trading market
for such securities will develop, or if such market is developed, that it will
be sustained. If such securities of the Company are accepted for listing with
NASDAQ but the Company is unable to continue to meet the maintenance
requirements of NASDAQ, or if such securities are not accepted for listing,
they may be designated as "penny stocks" pursuant to the rules under the
Security Exchange Act of 1934, as amended. Such a designation would require
any broker or dealer selling such securities to disclose certain information
concerning the transaction, obtain a written agreement from the purchaser, and
determine that the purchaser is reasonably suitable to purchase such
securities. (See "Market Information.")

10. Dividend Policy. The Company has never paid a cash dividend
on its Common Stock and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. Accordingly, investors who

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anticipate the need for immediate income from their investments by way of
dividends should refrain from purchasing any of the securities offered hereby.
(See "Dividend Policy.")

11. Dependence on Key Personnel. The Company relies heavily upon
the capabilities of Terry L. Young, its Chairman, Chief Executive Officer, and
controlling shareholder. Further, a significant portion of the Company's prior
financing has been derived from Austin-Young, Inc., a corporation controlled by
Mr. Young. The death, disability, or unavailability of Mr. Young, could have a
material adverse impact upon the Company. The Company does not have "key man"
insurance on Mr. Young. (See "Management.")

12. Arbitrary Offering Price. The offering price of the security
units has been arbitrarily determined by the Company and bears no material
relationship to book value, par value, or any other established criterion of
value. (See "Underwriting.")

13. Dilution. Purchasers of the common stock may incur dilution
of their investment in that the net tangible book value per share of the Common
Stock after the offering may be less than the initial public offering price per
common share. Based upon the net tangible book value of the Company at
January 31, 1996, and based upon an assumed offering price of $1.50 per share,
the dilution to investors would be $0.49 per share, or 32.7%, for each share of
Common Stock included in the offering excluding any potential value that may be
attributable to the warrant. (See "Dilution.")

14. Certain Transactions Involving Issuance of Common Shares of
the Company. The Company has granted to Austin-Young, Inc., a company
controlled by Terry L. Young, an officer, director, and controlling shareholder
of the Company, an option to purchase up to 988,000 shares of Common Stock at
$3.00 per share at any time prior to February 1, 1998. In addition,
Austin-Young, Inc. has advanced significant operating capital to the Company
since taking control in 1990. As of September 30, 1996, the Company owed
approximately $182,539 to Austin-Young, Inc. for such advances, which amount is
evidenced by a promissory note bearing interest at 7% per annum and payable in
February 1997. (See "Management" and "Certain Relationships and Related
Transactions.")

15. Market Overhang. The Company currently has approximately
4,400,000 shares of its Common Stock which have not been registered with the
Securities and Exchange Commission or any state securities agency and which are
currently restricted pursuant to Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (including
3,022,543 shares beneficially owned by Terry L. Young). Of these shares,
management believes that approximately 500,000 may be available for resale
pursuant to Rule 144. The sale of some or all of the restricted shares of
Common Stock could have a material negative impact upon the market price of the
Common Stock. (See "Security Ownership of Certain Beneficial Owners and
Management" and "Description of Securities.")

16. Retention of Control by Terry L. Young. Upon completion of
the offering, Mr. Young will control approximately 49.01% of the outstanding
Common Stock which percentage would be reduced to approximately 41.31% if all
existing warrants issued herein are exercised. Accordingly, Mr. Young will
continue to be in a position to control the Company and the provisions of the
Company's Articles of Incorporation make it unlikely that minority stockholders
will be able to meaningfully participate in the governance of the Company.
(See "Security Ownership of Certain Beneficial Owners and Management" and
"Description of Securities.")

17. Lack of Proven or Probable Reserves. The Company has
engaged a zeolite geologist to prepare a geological report on the proven and
probable zeolite reserves and the clinoptilolite and erionite distribution
located on its Harney Basin claims. This report has not been completed.
However, a composite geological report prepared by an independent geologist in
December 1993 indicated, "477,653,873.3 tons of proven reserves and probably
more with additional detailed assessment work" on the southern 2,700 acres of
the Harney Basin Deposit. The geological report also states that in-house
memorandum produced by Anaconda Minerals (former owners of the northern 4,060
acres of the deposit) estimates reserves at approximately one billion tons on
that parcel bringing the

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total reserves to almost 1.5 billion tons. An erratic distribution of
clinoptilolite and erionite on the claims could make it difficult for the
Company to ship products with a consistent quality of clinoptilolite,
particularly as the products contain a high percentage of clinoptilolite.

18. Problems Associated With Selectively Recovering
Clinoptilolite. Erratic distribution of clinoptilolite and erionite on the
Company's Harney Basin claims could make mining of the purer forms of
clinoptilolite more expensive. The erratic distribution could mean the Company
would have to do more exploration and drilling to locate the more pure deposits
of clinoptilolite to maintain the quality of the products offered by the
Company. The Company possesses drill core data on the area of its claims in
Oregon where it has filed for its permanent Plan of Operations that indicate
there is no erionite content.

19. Inclement weather. The local climate does not favor
year-round mining or processing on the property because the winter is extremely
cold and windy during the months of December to February. The rainy season
occurs from October through April and would cause problems in stripping,
crushing, and screening of the zeolites. Also, the weather could have a
material effect on the ability to haul large quantities of the material during
the rainy season if permanent roads were not constructed. The Company does not
plan to construct permanent roads and does not believe its operations will be
restricted since sufficient quantities of zeolite can be mined during good
weather conditions and hauled to the mill facility in Burns, Oregon for
storage.

NOTE: IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS
NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS OFFERING
CIRCULAR POTENTIAL INVESTORS SHOULD KEEP IN MIND OTHER POSSIBLE RISKS THAT
COULD BE IMPORTANT.

BUSINESS AND PROPERTIES

3) WITH RESPECT TO THE BUSINESS OF THE COMPANY AND ITS PROPERTIES:
a) DESCRIBE IN DETAIL WHAT BUSINESS THE COMPANY DOES AND PROPOSES TO
DO, INCLUDING WHAT PRODUCTS OR GOODS ARE OR WILL BE PRODUCED OR SERVICES THAT
ARE OR WILL BE RENDERED.

The Company

American Absorbents Natural Products, Inc. (the Company) markets a number of
products using volcanic minerals known as zeolites which are mined from mining
claims owned by the Company in the State of Oregon or purchased from other
domestic natural zeolites suppliers (who may compete with the Company in the
mining portion of its business). These products are used primarily for odor
control, gas or liquid adsorption, and the slow release of nutrients into the
soil. The Company currently purchases over 75% of its zeolite from domestic
suppliers and will continue to do so until the plant is equipped in Oregon. At
that time, the Company estimates that its zeolite raw material costs will be
reduced from the current level of $85-100 per ton to less than $25 per ton.

The Company currently produces and markets over one dozen products which target
the retail consumable products area and which use the natural zeolites mined
from the Company's claims or purchased from other producers of zeolites. These
products include, among others, Mother Earth KittyKat(TM) Premium Cat Litter
and Soil Enhancer, a cat litter product which, when used, can be disposed of
into the soil as a soil enhancer, and Stall FreshTM, a product to eliminate
urine-generated ammonia odors and wetness caused by livestock.

All of the Company's products use the natural zeolites mined from the Company's
unpatented placer mining claims located in the Harney Basin area in the State
of Oregon or purchased from other natural zeolites suppliers. When mined, the
minerals are stored in bulk near the claims and may be shipped by truck as
needed to an independent processing facility in New Mexico for crushing and
screening. The Company's larger volume

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products, such as Mother Earth KittyKat(TM) Premium Cat Litter and Soil
Enhancer and Stall FreshTM, are packaged and stored at this facility until they
are shipped to the distributor or end retailer. The smaller volume products,
such as the shoe odor products, Stinky PinkysTM and SP"s(TM) and Shoe FreshTM,
are packaged and stored at the Company's facility in Austin, Texas. The
Company uses contract labor for each phase of its current mining, milling, and
packaging operations. A portion of the proceeds of this offering will be used
to construct milling, packaging and storage operations in its facility near the
Company's mining claims in Oregon.

Marketing of the Company's products is performed by the Company's wholly owned
subsidiary, American Absorbents, Inc. Since the commencement of its zeolite
products business in approximately 1992, the Company has been principally in
the product development stage and has focused its marketing efforts primarily
in the test market area. Since approximately fall 1993, the Company began
marketing its products and currently sells its products through a number of
retailers in the United States. In November 1995, the Company established a
relationship with a French import company which plans to market some of the
Company's products in the international market. The Company currently ships
Mother Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer, Stall
Fresh(TM), White Buffalo(TM) and Sorbs-A-Lot(TM) to the French company FOB
Houston, Texas under a temporary agreement and expects to negotiate a permanent
agreement with the next 3-4 months. Exports to France have begun and to date,
approximately $61,300 has been invoiced by the Company. The Company's cat
litter product has been approved for distribution through several national
retail chains including Target, The Kroger Company and The Fleming Company, but
the Company has not shipped pursuant to these approvals because of the lack of
adequate capital.

The Company has completed the test marketing of its current products and has
begun promoting its products in the marketplace. The Company's product
promotion is being pursued in several ways, including through participation in
trade shows, direct contacts with distributors, product brokers, large national
chains, and advertisements in trade publications. The Company is also engaged
in public awareness campaigns to inform the general public about the uses of
natural zeolites. Public awareness campaigns include distribution of video
tapes on the Company and its products, promotion of zeolite products by
shareholders, limited distribution of research papers on zeolite uses and by
the Company's independent manufacturer's representatives. More recently, CNN
Headline News and NASA have broadcast or published information on zeolite uses.
Very small amounts have been spent by the Company on advertising awareness
campaigns, but products sales in central Texas increase during awareness
campaigns and promotions.

The Company is also engaged in a continuing product development program,
including test marketing and packaging design programs. During the first two
years the Company introduced a new product using natural zeolites on the
average of every three months. Some of these new products include Mother Earth
KittyKat(TM) Premium Cat Litter and Soil Enhancer, Stall Fresh(TM), White
Buffalo(TM), Fresh Pak(TM), Sorbs-A-Lot(TM), Fridge Fresh(TM), Boat Fresh(TM)
and Cooler Fresh(TM). Many of the sales outlets that participated in the test
marketing programs still carry the products. The Company believes the test
marketing programs were successful and believes that sales will increase
significantly with marketing capital availability. For future products, the
Company will test market each such new product in a limited area until it has
determined market acceptance and pricing. The Company will then design the
full four-color packaging for the product and introduce it into retail stores.

The Company's unpatented placer mining claims are located on federal land in
the Harney Basin, Harney County, Oregon. These 259 claims cover approximately
7.475 square miles. Mining on the claims is open-pit and is performed by
removing any overburden with a front-end loader and then hauling the mineral in
trucks to be stored in Burns, Oregon, approximately 28 miles from the claims.
From there it may be shipped in bulk to a facility in New Mexico for
processing. The limited mining permit for the Harney Basin claims will allow
the Company to remove 6,750 tons of zeolites during the current year and an
additional 6,750 tons at the beginning of the next fiscal year of the limited
permit.

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surface, large tonnage of the material can be mined in a short period of time
and then stockpiled for use as necessary.

The Company has prepaid its mining land leases to the Bureau of Land Management
through August, 1997. Owning its own claims allows the Company more control
over the zeolites that the Company uses in its products.

The Company prepaid consulting fees in October 1993 through the issuance of
17,000 common stock shares valued at $3.00 per share to gain the services of
Rogers Wilson, someone with numerous business contacts and business experience
to serve as an advisory director to the board of directors. These fees are
amortized over a period of three years. Mr. Wilson has experience in founding
and managing several successful businesses and has the ability to relate this
experience to the management of the Company. Many of his business contacts are
influential persons, particularly in the central Texas area.

Principal Products

The Company currently produces and distributes over a dozen products which use
the natural zeolites mined on the Company's claims. These include a cat litter
product called Mother Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer
which can be recycled as a soil enhancer once used as a cat litter; three shoe
fresheners called Shoe FreshTM and SP's(TM) and Stinky PinkysTM ; a
refrigerator freshener called Fridge FreshTM; an odor and moisture adsorbent
for gym bags, closets, diaper pails or other small places called Fresh PakTM; a
product used to adsorb most automotive fluids, chemicals, and liquid waste from
drips, leaks, or spills called Sorbs-a-LotTM; a product to eliminate urine-
generated ammonia odors and wetness caused by livestock called Stall FreshTM;
an agricultural product to act as a slow release mechanism of nutrients into
soil called Soil EnhancerTM; and an ammonia adsorption product for small
animals named Odor OutlawTM.

At present the Company has decided not to be a supplier of raw materials to
various industries using natural zeolites, but rather will concentrate its
efforts on the marketing of consumable retail products developed by the
Company. However, management will remain flexible on this issue if it appears
at some future time that the Company could profitably enter the industrial
market niche.

SEE "BUSINESS OF THE COMPANY" AND "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.

b) DESCRIBE HOW THESE PRODUCTS OR SERVICES ARE TO BE PRODUCED OR
RENDERED AND HOW AND WHEN THE COMPANY INTENDS TO CARRY OUT ITS ACTIVITIES. IF
THE COMPANY PLANS TO OFFER A NEW PRODUCT(S), STATE THE PRESENT STAGE OF
DEVELOPMENT, INCLUDING WHETHER OR NOT A WORKING PROTOTYPE(S) IS IN EXISTENCE.
INDICATE IF COMPLETION OF DEVELOPMENT OF THE PRODUCT WOULD REQUIRE A MATERIAL
AMOUNT OF THE RESOURCES OF THE COMPANY, AND THE ESTIMATED AMOUNT. IF THE
COMPANY IS OR IS EXPECTED TO BE DEPENDENT UPON ONE OR A LIMITED NUMBER OF
SUPPLIERS FOR ESSENTIAL RAW MATERIALS, ENERGY OR OTHER ITEMS, DESCRIBE.
DESCRIBE ANY MAJOR EXISTING SUPPLY CONTRACTS.

Processing and Packaging of Products

Each of the products produced by the Company is composed of natural zeolites.
After the zeolites are mined from the Company's Harney Basin Claims, they are
stored at the Company's storage facility in Burns, Oregon. The zeolites may be
hauled on an independent trucking carrier on an as-needed basis to an
independent milling plant in New Mexico where the Company pays to have it
crushed and screened to the size needed for the Company's particular products.
In some situations it is more advantageous to the Company to purchase zeolites
from other producers because of freight costs. All of the Company's larger
volume products, such as Mother Earth KittyKat(TM) Premium Cat Litter and Soil
Enhancer and Stall FreshTM, are packaged and stored at the same facility until
they are shipped directly to a distributor or retail store. A quantity of
crushed and screened zeolites are also shipped in

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bulk from this plant to the Company's plant in Austin, Texas, where it is
packaged into the smaller volume products such as Stinky PinkysTM and Shoe
FreshTM. The Company uses contract labor on an as-needed basis for the
packaging operation at its Austin, Texas, facility. The Company does not have
any written agreements or binding arrangements for the mining, processing,
hauling or packaging of the products which permits the Company to mine, crush,
screen, and package only such quantities of products which it can actually
distribute. The Company believes that there exist sufficient numbers of
companies which can process, haul, and package the zeolites that the loss of
one of the current companies furnishing such services would not be materially
detrimental to the continued operations of the Company. However, management
intends to use a portion of the proceeds of this offering to increase
inventory levels of products in order to be able to react quickly to
significant orders. The Company plans to increase inventory levels by $150,000
from the proceeds of this offering. In the event that sufficient capital is
not raised from the offering to do this, the Company will seek bank financing
or financing from private placements of its Common Stock. If sufficient
capital is not raised, the Company could have to delay shipments by 30-60 days
to allow for accounts receivable turnover. The Company currently has no
significant orders pending shipment and has been able to ship on order at the
current sales levels. (See "Use of Proceeds.")

(c) DESCRIBE THE INDUSTRY IN WHICH THE COMPANY IS SELLING OR EXPECTS
TO SELL ITS PRODUCTS OR SERVICES, AND, WHERE APPLICABLE, ANY RECOGNIZED TRENDS
WITHIN THAT INDUSTRY. DESCRIBE THAT PART OF THE INDUSTRY AND THE GEOGRAPHIC
AREA IN WHICH THE BUSINESS COMPETES OR WILL COMPETE.

Background Information on Zeolites

Zeolite compounds are comprised of aluminum, silicon and other elements which
have a predictable crystalline structure with pore openings of molecular
dimensions. Clinoptilolite is one classification type of more than 40 types of
zeolite and is the classification type most used by the Company. The structure
will capture certain substances which vary with the size and shape of the
pores. Zeolites are also chemically active and their surfaces are able to
attract and hold molecules through processes known as adsorption and
absorption. These characteristics also serve to enable zeolites to function as
catalysts, whereby the rate of chemical reactions may be altered. More than 40
types of zeolites occur naturally and an even greater number may be
synthetically produced because of their higher adsorption capacities, lack of
impurities, and regeneration capabilities. Although management believes that
synthetic zeolites can be currently produced with the exact properties as the
zeolites used by the Company in its products, the high cost of such
synthetically produced zeolites makes them less desirable in products similar
to those marketed by the Company which require lower costs to be competitive
with similar products without zeolites.

The synthetic development and commercial introduction of zeolite products began
in the early 1950s. A variety of companies have entered the industry and
provide zeolite products used in many diverse agronomic and horticultural
applications. These applications include slow-release fertilization,
zeoponics, soil conditioning, and soil remediation. In addition, natural
zeolites are used in water-filtration systems to produce clean drinking water,
as a food supplement for livestock and poultry to protect them from toxic
substances, as filler in cement, and in the collection and disposal of
radioactive waste. In general, the industry offers high quality products and
processes designed for specialty markets. As the physical properties of
zeolites have become more widely known, the amount of zeolites used has
increased. The domestic use of natural zeolites increased 71% from 1991 to
1992 according to the U.S. Department of the Interior, Bureau of Mines and has
continued to increase since that time within the United States and Europe. The
area in which the Company now competes is in using natural zeolites in products
that adsorb liquids or gases which might otherwise be harmful or obnoxious, and
in a product which time releases nutrients into the soil.

INDICATE WHETHER COMPETITION IS OR IS EXPECTED TO BE BY PRICE,
SERVICE, OR OTHER BASIS. INDICATE (BY ATTACHED TABLE, IF APPROPRIATE) THE
CURRENT OR ANTICIPATED PRICES OR PRICE RANGES FOR THE COMPANY'S PRODUCTS OR
SERVICES, OR THE FORMULA FOR DETERMINING PRICES, AND HOW THESE PRICES COMPARE
WITH THOSE OF COMPETITORS'

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PRODUCTS OR SERVICES, INCLUDING A DESCRIPTION OF ANY VARIATIONS IN THE PRODUCT
OR SERVICE FEATURES. NAME THE PRINCIPAL COMPETITORS THAT THE COMPANY HAS OR
EXPECTS TO HAVE IN ITS AREA OF COMPETITION. INDICATE THE RELATIVE SIZE AND
FINANCIAL AND MARKET STRENGTHS OF THE COMPANY'S COMPETITORS IN THE AREA OF
COMPETITION IN WHICH THE COMPANY IS OR WILL BE OPERATING. STATE WHY THE
COMPANY BELIEVES IT CAN EFFECTIVELY COMPETE WITH THESE AND OTHER COMPANIES IN
ITS AREA OF COMPETITION.

Competition

The Company may experience substantial competition in its efforts to develop
and market its products. It is extremely time consuming, costly, and difficult
to gain acceptance from the large chain stores which may offer the products
developed by the Company. The Company will be competing with manufacturers of
products similar to those marketed by the Company but not containing any
natural zeolites; similar products using zeolites mined from the competitor's
own reserves; similar products using zeolites purchased by the competitor from
third parties and producers of synthetic zeolites which have the same
effectiveness for doing the job as natural zeolites, but which are much more
expensive. Many of these companies possess financial, technological and
personnel resources substantially greater than those of the Company. The
Company believes that it can compete favorably with many of these companies
because of the ability of the Company to produce its natural zeolites products
at relatively low cost because of the vast amount of easily accessible zeolites
located on the Company's mining claims. Management believes that most
competitors will be burdened with the additional cost of removing from a few to
several feet of soil covering their deposits of zeolites. The Company believes
that it has quantities of zeolites available to it with little or no overburden
sufficient to meet its requirements for the foreseeable future. Management
also believes that because the Company's operations are designed to reduce
overhead expenses and the costs of producing the products through the use of
contract labor and independent contractors, the Company will be able to remain
flexible to the changing nature of products using environmentally safe
materials. In addition, funds from this public offering will be used to equip
a processing, packaging, and storage operation in its facility in Burns, Oregon
near the Company's mining claims in Oregon. The Company plans to use $450,000
from the proceeds of this offering to equip the plant. In the event that
sufficient capital is not raised from the offering to do this, the Company may
seek bank financing or financing through private placements of its Common
Stock. If sufficient capital is not raised by these methods, the Company will
continue to buy processing from other domestic suppliers until the gross
profits on sales are sufficient to equip the plant. Early stage mining and
processing cost estimates indicate the Company will be able to significantly
reduce the costs of the products and allow the Company to be more competitive.
(See "Use of Proceeds" and "Properties.")

The Company currently has available to it 13,365,000 pounds of zeolites through
a limited mining permit relative to its Harney Basin, Oregon claims. According
to the State of Oregon, Department of Geology and Minerals Industries, the
Company can renew its limited mining permit issued by them and remove an
additional 13,500,000 pounds of zeolites each 12 month period that the limited
mining permit is renewed. The Company is eligible to file for limited mining
permits, which allow for the removal of 5,000 cubic yards (13,500,000 pounds) of
material each 12 month period on each of its three properties and the Company
may file for limited mining permits on its Sheaville, Oregon and Arizona claims
which will make an additional 27,000,000 pounds of zeolites available to it
each 12 month period. This will assure the Company that it has enough zeolites
available to meet its sales projections until a permanent mining permit can be
obtained. Prior experience has shown that these limited mining permits can be
obtained in less than 60 days. The Company has engaged the services of a
geologist through a contract to file all the necessary applications and
paperwork to obtain a permanent mining permit from the State of Oregon on its
Harney Basin Claims. The paperwork to be filed includes an application and
application fee of $675.00, a Reclamation Plan and the posting of a Performance
Bond relative to the reclamation process. The Company has filed the
preliminary Plan of Operations and Reclamation Plan with the District Office of
the Bureau of Land Management in the county where the mining operations will
occur. Normally, the State of Oregon, Department of Geology and Minerals
Industries can have the Permanent Plan of Operations Mining Permit approved
within 60 days after the District Office of the Bureau of Land Management has
approved the Plan. The

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Permanent Plan of Operations Mining Permit, which the Company believes will be
in place within the next few months, places no limit on the tonnage of zeolites
that can be mined on the claims specified in the Plan. Until the Company has
all permits in place to mine enough zeolites from its claims to meet its needs,
it will continue to acquire any shortfalls from other suppliers of natural
zeolites.

In-house reports developed by Anaconda Minerals (former owner of the northern
portion of the Harney Basin Claims), from core data available to them, reflect
a thickness up to 300 feet on the northern 4060 acres. These reports reflect
that this 4060 acres contains mostly zeolites exceeding 90% purity. The
Company currently holds a limited mining permit which allows for the removal of
5,000 cubic yards of material each 12 month period. The Company has made
application for a permanent mining permit, but there is no assurance as to
when, if ever, it will obtain such permit. Based on 20 cubic feet per ton of
material it is unlikely that the Company will find it necessary to lower the
purity of zeolites content in its products within the foreseeable future.

The Company is aware of approximately thirty-two other companies in the central
Texas area which are marketing various types of cat litter products.
Management is also aware of three other companies in the nation which market a
cat litter product using natural zeolites, only two of which own zeolites
mining claims. Management believes that Mother Earth KittyKat(TM) Premium Cat
Litter and Soil Enhancer can favorably compete with the cat litters not using
natural zeolites on a price per pound basis with the added benefit of an
environmentally friendly product. Whereas the Company's cat litter product can
be used as a soil enhancer to benefit plants by retaining water in the soil
after it has been used as cat litter, most other cat litter products use clay
which, if mixed with soil, would create a moisture barrier and retard plant
growth. Management does not view the percentage of the Texas or national cat
litter market currently held by the present cat litter products using natural
zeolites to be significant and therefore does not believe that the sale of such
products by such companies will significantly impact sales of Mother Earth
KittyKat(TM) Premium Cat Litter and Soil Enhancer by the Company.

The Company's shoe products, Shoe FreshTM and SP's(TM) and Stinky PinkysTM,
compete with a number of large companies which manufacture similar shoe
products, none of which are believed to use natural zeolites from their own
mining claims. Management is aware of a small company currently marketing a
shoe product using natural zeolite; however, such company does not have access
to its own zeolites mining claims. Management believes that it can compete
favorably with these entities based upon pricing of the Company's products with
the advantage of being friendly to the environment.

The Company is not aware of any product similar to or which competes with Fresh
PakTM.

The Company competes with a number of manufacturers of products used to absorb
automotive fluids, chemicals, and other liquid wastes from motor vehicles and
machines. However, management is aware of only one other product which uses
natural zeolites. Again management believes that the Company's product,
Sorbs-a-LotTM, can compete favorably with these other products based upon
pricing and performance of the product.

The Company is aware of only one other company, which does not own its own
zeolite deposits, which markets a product similar to Stall FreshTM.

NOTE: BECAUSE THIS OFFERING CIRCULAR FOCUSES PRIMARILY ON DETAILS
CONCERNING THE COMPANY RATHER THAN THE INDUSTRY IN WHICH THE COMPANY OPERATES
OR WILL OPERATE, POTENTIAL INVESTORS MAY WISH TO CONDUCT THEIR OWN SEPARATE
INVESTIGATION OF THE COMPANY'S INDUSTRY TO OBTAIN BROADER INSIGHT IN ASSESSING
THE COMPANY'S PROSPECTS.

(d) DESCRIBE SPECIFICALLY THE MARKETING STRATEGIES THE COMPANY IS
EMPLOYING OR WILL EMPLOY IN PENETRATING ITS MARKET OR IN DEVELOPING A NEW
MARKET. SET FORTH IN RESPONSE TO QUESTION 4 BELOW THE TIMING AND SIZE OF THE
RESULTS OF THIS EFFORT WHICH WILL BE NECESSARY IN ORDER FOR THE COMPANY TO BE
PROFITABLE. INDICATE HOW AND BY WHOM ITS PRODUCTS OR SERVICES ARE OR WILL BE
MARKETED (SUCH AS BY ADVERTISING, PERSONAL CONTACT BY SALES

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REPRESENTATIVES, ETC.), HOW ITS MARKETING STRUCTURE OPERATES OR WILL OPERATE
AND THE BASIS OF ITS MARKETING APPROACH, INCLUDING ANY MARKET STUDIES. NAME
ANY CUSTOMERS THAT ACCOUNT FOR, OR BASED UPON EXISTING ORDERS WILL ACCOUNT FOR,
A MAJOR PORTION (20% OR MORE) OF THE COMPANY'S SALES. DESCRIBE ANY MAJOR
EXISTING SALES CONTRACTS.

Marketing and Distribution

Marketing of the Company's products is performed by the Company's wholly owned
subsidiary, American Absorbents, Inc. (AAI). Since the commencement of its
zeolite products business in approximately 1992, the Company has been
principally in the product development stage and has focused its marketing
efforts primarily in the test market area. Commencing in fall 1993 the Company
began, on a limited basis, the marketing phase of its business. The Company is
currently beginning the sale of Mother Earth KittyKat(TM) Premium Cat Litter
and Soil Enhancer, Stall Fresh(TM), White Buffalo(TM), 6x40 mesh size bulk, and
- -40 mesh size bulk in the agricultural market in the United States, Shoe
Fresh(TM), Stinky Pinkys(TM), Fridge Fresh(TM), Fresh Pak(TM), Sorbs-A-Lot(TM)
and Mother Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer in retail
markets in the United States and has begun exporting Mother Earth KittyKat(TM)
Premium Cat Litter and Soil Enhancer, Stall Fresh(TM), Sorbs-A-Lot(TM) and
White Buffalo(TM) for sale in the European market.

Management of AAI believes that it has had good market response to the
Company's products. Test marketing of all but two products was successful and
has convinced management that consumers are willing to accept natural zeolite
products. Test marketing was performed by the Company for each of the
products in a limited number of retail outlets by placing a small number of
bags of products in the stores using generic packaging. In each instance the
Company contacted the store to determine whether it had received any
complaints or comments about the products. In each case the products were sold
quickly and no complaints were received, and, in most cases, requests for more
bags were received from customers by the retail outlet. In addition, generic
bags of the cat litter were distributed to cat breeders who responded favorably
to the Company concerning the efficiency of the product. Management believes
that the poor test marketing results of the two products, which were air
filtration systems using natural zeolites, were caused by delays in production
caused by outside manufacturers over which the Company had no control.
Management does not believe that the foregoing test marketing process provides
conclusive independent data, but that it does furnish indications of acceptance
of the products in the limited markets in which they were tested. Management
also believes that the continuing attention of the media and the government on
environmentally safe products will benefit the efforts of the Company to seek
acceptance of its products by the public.

AAI has established a pricing structure for its products which permits sales to
be made either through distributors or directly to retail marketers.
Management of AAI is actively recruiting additional distributors and brokers
for the Company's products through its group of independent manufacturer's
representatives. Management does not believe that the loss of any single or
group of the Company's largest customers would have a materially adverse effect
on the Company's business. However, since the Company is in the beginning of
its marketing phase of operations, and since AAI is actively seeking new and
larger customers, the foregoing information may not remain true in light of
proposed product marketing and distribution over the next twelve months.

Using $350,000 of the funds from this offering, the management of AAI
anticipates a high level of product promotion in the future, primarily through
attendance at trade shows, media advertising and through direct contact with
distributors, product brokers, and large national chains. In the event
sufficient capital is not raised through this offering, the Company may seek
bank financing or financing through the issuance of its Common Stock through
private placements. In the event this is not successful, the growth rate of
the Company could be slowed due to the lack of sufficient advertising, public
awareness and promotion. (See "Use of Proceeds.") AAI also believes that a
critical factor in the promotion of its products is educating the public about
the use and benefits of using natural zeolites products and intends to promote
such information by participating in trade shows and otherwise in disseminating
information about the use of zeolites.

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As the Company's products become more widely distributed throughout the United
States, although there is no assurance when this will happen, if ever, the
Company may lease or acquire regional facilities to package and store finished
products for regional distribution. Management believes that the use of such
facilities would reduce the cost of furnishing the finished products to its
customers. Zeolites mined at the Company's Harney Basin Claims would be
shipped in bulk to the regional warehouses where the Company would contract
with local labor to bag the zeolites into Company product packages. Such
packages would be stored until shipped to distributors or end retailers.
Except for the facility near the Harney Basin Claims and the warehouse facility
in Austin, Texas, the Company has not designated even the general location of
future regional packaging and warehouse facilities, and is not negotiating for
the lease or purchase of such additional facilities.

(e) STATE THE BACKLOG OF WRITTEN FIRM ORDERS FOR PRODUCTS AND/OR
SERVICES AS OF A RECENT DATE (WITHIN THE LAST 90 DAYS) AND COMPARE IT WITH THE
BACKLOG OF A YEAR AGO FROM THAT DATE.
EXPLAIN THE REASON FOR SIGNIFICANT VARIATIONS BETWEEN THE TWO FIGURES,
IF ANY. INDICATE WHAT TYPES AND AMOUNTS OF ORDERS ARE INCLUDED IN THE BACKLOG
FIGURES. STATE THE SIZE OF TYPICAL ORDERS. IF THE COMPANY'S SALES ARE
SEASONAL OR CYCLICAL, EXPLAIN.

Until recently, the Company has been primarily in a test marketing phase.
Accordingly, there was no backlog at January 31, 1996 or January 31, 1995. No
backlog exists at the present time. The Company has maintained sufficient
inventory levels to ship products as they are ordered and plans to maintain
sufficient inventory levels in the future to ship orders as they are received.
Typical orders for the Company's products will be in 22-ton truckload
quantities. The Company does not expect significant seasonal or cyclical
sales. However, sales of products used in livestock stalls and pens may
fluctuate in areas where there is extreme inclement weather during the winter
months.

(f) STATE THE NUMBER OF THE COMPANY'S PRESENT EMPLOYEES AND THE NUMBER
OF EMPLOYEES IT ANTICIPATES IT WILL HAVE WITHIN THE NEXT 12 MONTHS. ALSO,
INDICATE THE NUMBER BY TYPE OF EMPLOYEE (I.E., CLERICAL, OPERATIONS,
ADMINISTRATIVE, ETC.) THE COMPANY WILL USE, WHETHER OR NOT ANY OF THEM ARE
SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS, AND THE EXPIRATION DATE(S) OF ANY
COLLECTIVE BARGAINING AGREEMENT(S). IF THE COMPANY'S EMPLOYEES ARE ON STRIKE,
OR HAVE BEEN IN THE PAST THREE YEARS, OR ARE THREATENING TO STRIKE, DESCRIBE
THE DISPUTE. INDICATE ANY SUPPLEMENTAL BENEFITS OR INCENTIVE ARRANGEMENTS THE
COMPANY HAS OR WILL HAVE WITH ITS EMPLOYEES.

At September 30, 1996, the Company had three full-time employees not including
contract laborers who are employed through independent agencies on an "as
needed" basis and not including independent manufacturer's representatives who
contract with the Company to market the Company's products. The three
full-time employees include two management executives and one
clerical/administrative person. These persons are eligible to receive stock
options (subject to the Board of Directors approval) under the Company's stock
option plan. No stock options have been granted to employees at the present
time. Mr. Young, one of the management executives, does not receive a salary
from the Company, but most likely will upon completion of this offering. The
Company also receives business expertise from its outside director who does not
receive any compensation from the Company, but are eligible to receive common
stock options under the Company's stock option plan. The Company contracts
with independent contractors for the mining, milling and packaging of its
zeolites, thereby eliminating the need for employees for these purposes and
avoiding potential liabilities relative to payroll taxes, injuries and OSHA
regulations. The Company is not aware of any strikes or collective bargaining
agreements relative to any of its contractors.

(g) DESCRIBE GENERALLY THE PRINCIPAL PROPERTIES (SUCH AS REAL ESTATE,
PLANT AND EQUIPMENT, PATENTS, ETC.) THAT THE COMPANY OWNS, INDICATING ALSO WHAT
PROPERTIES IT LEASES AND A SUMMARY OF THE TERMS UNDER THOSE LEASES, INCLUDING
THE AMOUNT OF PAYMENTS, EXPIRATION DATES, AND THE TERMS OF ANY RENEWAL OPTIONS.
INDICATE WHAT PROPERTIES THE COMPANY INTENDS TO ACQUIRE IN THE IMMEDIATE
FUTURE, THE COST OF SUCH ACQUISITIONS AND

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THE SOURCES OF FINANCING IT EXPECTS TO USE IN OBTAINING THESE PROPERTIES,
WHETHER BY PURCHASE, LEASE, OR OTHERWISE.

PROPERTIES

Mining Properties

The Company has located or acquired 259 unpatented placer mining claims located
in the Harney Basin, Harney County, Oregon, covering approximately 7.475 square
miles and situated approximately 28 miles south of Burns, Oregon, and about 214
miles west of Boise, Idaho (the Harney Basin Claims). Also, the Company has
located or acquired 26 unpatented zeolites placer mining claims in Malheur
County, Oregon, near the town of Sheaville (hereinafter the "Sheaville
Claims"). In addition, the Company has purchased 10 unpatented lode zeolite
mining claims situated in Mohave County, Arizona, approximately 60 miles
northwest of Kingman, Arizona, near the town of Dolan Springs, Arizona
(hereinafter the "Arizona Claims"). The initial focus of the Company is on the
Harney Basin Claims and the Company has no present plans to develop the
Sheaville Claims or the Arizona Claims until it has had an opportunity to
complete sampling and mapping activities on the properties. The Company has
not been made aware of any rival claimant's interest in or restrictions imposed
by the Bureau of Land Management that might impair the Company's possessory
interest in the Arizona "lode" claims. The Company has not discussed this
issue with mining counsel.

The northern portions of the Harney Basin Claims were originally filed by
Anaconda Minerals Company in 1975. Claims covering much of the southern
portion were filed in 1979 by Occidental Minerals Company. Drilling and
evaluation of the deposit by both companies continued into the 1980s. Since
then several companies, including PDZ Corporation, Tenneco Specialty Minerals,
Steelhead Specialty Minerals, East West Minerals, Inc. and New Gold, Inc. have
had an interest in part or all of the properties previously held by Anaconda
and Occidental. The Company is in possession of extensive trenching and core
drilling data on the basin, which data were compiled by Occidental and
Anaconda. A composite geological report dated December 14, 1993, and prepared
for the Company from such data by William G. Ellis, an independent geologist,
estimates the early sampling of the area established numerous good-quality
zeolite beds in a 7.5 square mile area with an average of slightly over 70%
total zeolites content, consisting primarily of clinoptilolite, with lesser
amounts of phillipsite, chabazite, mordenite and erionite. The Company
intends to avoid the beds of zeolites containing erionite and concentrate its
mining efforts solely on the beds of zeolites containing no erionite. The
zeolites were laid down in beds at various time periods during the formation
of the deposit. The Company's current products are made from clinoptilolite.
Erionite and clinoptilolite are two classification types of more than 40
different classification types of natural zeolite minerals. When viewed under
a microscope, the Erionite type of zeolite has a fibrous consistency which has
caused it to be classified as a "potentially hazardous material". However, no
significant testing has been conducted by the government to make further
determinations. Sampling of materials taken from current operations indicates
a higher percentage of clinoptilolite purity. The Company's current operations
are on the northern 4060 acres of the Harney Basin claims which previous core
data reports indicate has a thickness up to 300 feet of 90% clinoptilolite
purity. Other areas of the Harney Basin contain less pure (40%-80%) zeolites
content. The northern portion of the claims is so extensive that the Company
does not see a need to mine the less pure deposits in the foreseeable future.
The zeolites deposits on the Harney Basin Claims are on or near the surface
with little or no overburden, thus reducing the cost of extraction.

The Company does not believe there will be any problems involved with
selectively recovering high purity clinoptilolite material for use in its
products since in-house reports indicate the northern 4060 acres of the Harney
Basin contain in excess of 880,000,000 tons of 90% pure zeolites

All current mining on the Harney Basin Claims is open-pit strip mining of five
to ten feet of the surface mineral. The property is then reclaimed by leveling
and planting natural grasses. To perform this operation, the Company removes
any overburden with a front-end loader which is also used to remove the
zeolites. This material is then

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loaded onto trucks and hauled to Burns, Oregon (approximately 28 miles) where
it is stored. As the material is needed, it may be shipped in bulk to the New
Mexico facility where it is crushed and screened. Such mining and milling
operations are currently provided on a contract basis. The Company is aware of
a number of entities providing contract mining and milling services believed
sufficiently experienced to conduct the Company's mining and milling
operations. The Company is currently using an entity located in Burns, Oregon,
near the claims to perform mining operations.

From the funds raised in this offering, the Company intends to purchase and
operate $250,000 worth of its own mining equipment and to equip its own
crushing and screening plant which was acquired in October 1995. Mining
equipment would consist of front-end loaders to extract the mineral from the
ground and dump trucks to haul it to the plant for crushing and screening. If
sufficient capital is not raised to purchase the mining equipment, the Company
will continue to hire a mining contractor in Burns, Oregon to mine the zeolite
with no negative impact to the Company's operations. It is also anticipated
that the facility will be used to package a significant portion of the zeolites
for shipment directly to its customers. Bulk zeolites would continue to be
shipped to the Company's facility in Austin, Texas for packaging and shipment.

The Harney Basin Claims lie in the center of the southeastern quarter of the
State of Oregon and approximately the center of Harney County. The property is
crossed by state highway 205, which offers virtual year-round access. Existing
ranch and county roads from the highway offer access to almost all of the
property of interest; however, sustained mining operations may require the
construction of more permanent facilities. The Company has no present
intention to commence mining operations of the magnitude which would require
larger permanent facilities.

The local climate does not favor year-round mining or processing on the
property because the winter is extremely cold and windy during the months of
December to February. The rainy season occurs from October through April and
would cause problems in stripping, crushing, and screening of the zeolites.
Also, the weather could have a material effect on the ability to haul large
quantities of the material during the rainy season if permanent roads were not
constructed. The Company does not plan to construct permanent roads and does
not believe its operations will be restricted since sufficient quantities of
zeolite can me mined during good weather conditions and hauled to the mill
facility in Burns, Oregon for storage.

The owner of an unpatented mining claim holds possessory title to the claim.
Possessory title is not legal title in the usual sense of the term, nor does it
arise out of any instrument or grant by the United States or out of any action
taken by any officer or agency of the state or federal governments. Only when
a claim is patented is there any affirmative government grant under which legal
title vests in the usual concept of property ownership. Possessory title
arises as a matter of law out of the performance by the locator of the claim of
certain acts of location, including the staking of claim boundaries and the
making of certain record filings in compliance with the requirements of federal
and state laws. The validity of an unpatented mining claim cannot be
conclusively determined by an inspection of public records. It is dependent
upon the legal availability of the lands at the time the location is made and
the validity of the mineral discovery within the boundaries of each claim, in
compliance with federal, state and local laws relative to location procedures.
Prior to 1992 possessory title was maintained against subsequent location by
the annual performance of labor or improvements on or for the benefit of each
mining claim. The Company believes all past assessment work requirements
relating to the Company's claims were adequately performed. Since 1992
possessory title for persons holding ten or more claims is maintained by
payment of an annual claim fee of $100. The Company believes it has met the
requirements for holding possessory title to the claims located on land owned
by the Department of the Interior, Bureau of Land Management.

The Company believes the unpatented mining claims it holds have been located in
compliance with the applicable state and federal mining laws and generally
accepted standards in the mining industry. The Company is not aware at the
present time of any material conflicts with other parties concerning the claims
and believes it has valid possessory right in those claims.

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Office and Warehouse Facilities

The Company's principal executive offices are located in approximately 4,300
square feet of office space which is being furnished by Austin-Young, Inc.
Such space was being furnished by Austin-Young, Inc. pursuant to a lease which
expired December 31, 1995. The Company continues to lease the space on a
month-to-month basis. Monthly rental for such office space is $500 per month.
Such lease also includes the use of the office furniture and equipment located
at such facility. Management believes that the lease terms and rates paid by
the Company are no less favorable than those paid by unrelated third parties.
(See "Certain Relationships and Related Transactions.")

The Company acquired a building containing approximately 4,500 square feet of
commercial warehouse space located in Austin, Texas, in September 1993. This
space is used by the Company to package and store its inventory of smaller
sized products. The facility is owned subject to an existing mortgage in the
principal amount of approximately $125,000 as of September 30, 1996. Said
principal amount is payable in monthly interest only payments of approximately
$900 with a balloon payment of $125,000 due in October, 1997 which the Company
plans to pay from the proceeds of this offering. If sufficient funds are not
raised from this offering, the Company will seek bank financing using the
property as collateral. Because said facility lacks permanent heating and air
conditioning, it is limited for use during the months of extreme cold or heat.
$25,000 of the proceeds of this offering will be used to add heating and air
conditioning equipment to the building and to remodel approximately 1,000
square feet to be used as office and showroom space for operations personnel;
executive management will remain at the present facility furnished by
Austin-Young, Inc. In October 1995, the Company acquired a production plant
containing 3,500,000 cu. ft. of production, packaging and storage space in
Burns, Oregon, approximately 28 miles from its Harney Basin zeolites deposits.
$450,000 of this offering will be used to equip this facility with crushing,
milling, drying, screening, packaging and storage equipment. The facility is
already equipped with a 70-ton overhead crane for easy movement of equipment
and inventory throughout the facility. (See "Use of Proceeds" and "Certain
Relationships and Related Transactions.")

(h) INDICATE THE EXTENT TO WHICH THE COMPANY'S OPERATIONS DEPEND OR
ARE EXPECTED TO DEPEND UPON PATENTS, COPYRIGHTS, TRADE SECRETS, KNOW-HOW OR
OTHER PROPRIETARY INFORMATION AND THE STEPS UNDERTAKEN TO SECURE AND PROTECT
THIS INTELLECTUAL PROPERTY, INCLUDING ANY USE OF CONFIDENTIALITY AGREEMENTS,
COVENANTS-NOT-TO-COMPETE AND THE LIKE. SUMMARIZE THE PRINCIPAL TERMS AND
EXPIRATION DATES OF ANY SIGNIFICANT LICENSE AGREEMENTS. INDICATE THE AMOUNTS
EXPENDED BY THE COMPANY FOR RESEARCH AND DEVELOPMENT DURING THE LAST FISCAL
YEAR, THE AMOUNT EXPECTED TO BE SPENT THIS YEAR, AND WHAT PERCENTAGE OF
REVENUES RESEARCH AND DEVELOPMENT EXPENDITURES WERE FOR THE LAST FISCAL YEAR.

Trademarks

The Company markets its products under a number of trademarks. The Company has
applied for federal trademark protection on its products currently marketed by
the Company. Trademark registrations have been issued on Odor Outlaw(R) (Reg.
No. 1,869,150) and Stinky Pinkys(R) (Reg. No. 1,909,695). Other trademark
applications are still pending before the trademark and patents commission.
The Company does not own, hold, or use any patents. Independent manufacturer's
representatives are required to sign contract agreements relative to
confidentially, marketing of other zeolites products and competition upon
severance of the relationship between themselves and the Company.

Product Development

The Company has been engaged in continuing product development, including a
test marketing and packaging design program. The Company spent approximately
$8,115, $140,379 and $81,370 in the years ended January 31, 1996, 1995 and
1994, respectively, for this program. The

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Company develops its zeolite products in-house. The Company test markets each
product in a limited number of stores in generic packaging prior to producing
final packaging. No expense was allocated to product development in the last
fiscal year since amounts were immaterial as the management concentrated its
efforts on the formulation of marketing programs for its existing products.
During the first two years the Company introduced a new product on the average
of every three months and at the present time has eight products that are ready
for marketing in final packaging and five other products that can be marketed
in generic packaging. The Company determined product marketability and pricing
levels from the test marketing programs.

(i) IF THE COMPANY'S BUSINESS, PRODUCTS, OR PROPERTIES ARE SUBJECT TO
MATERIAL REGULATION (INCLUDING ENVIRONMENTAL REGULATION) BY FEDERAL, STATE, OR
LOCAL GOVERNMENTAL AGENCIES, INDICATE THE NATURE AND EXTENT OF REGULATION AND
ITS EFFECTS OR POTENTIAL EFFECTS UPON THE COMPANY.

Regulation

Current operations on the Harney Basin Claims are not subject to federal or
state reclamation requirements because of the limited nature of the operations.
The Company has been granted an exemption from the requirements for a
reclamation plan and a bond for its operations in the Harney Basin pursuant to
ORS 517.750(15)(a) which states that the mining site is less than one acre and
a total of less than 5,000 cubic yards of mineral have been or will be removed
per year. Although these mining operations for zeolites on the Harney Basin
Claims are presently performed by others, such operations are still subject to
existing federal, state, and local laws and regulations relating to employee
health and safety. The Company believes that the cost of such compliance does
not have a material impact upon the cost of extracting the zeolites. In
addition, the companies with which the Company has contracted to crush, screen,
and package the zeolites are subject to similar safety and health regulations.
In general, mining and milling operations are subject to compliance with the
regulations promulgated under the federal Mining and Minerals Policy Act of
1970 and the requirements of the federal Occupational Safety and Health
Administration (OSHA), as well as equivalent state regulations.

The Company believes that it will be able to meet its sales objectives for up
to one year under the limited mining permit currently used in connection with
the Oregon claims. In order to expand its present mining operations, the
Company has retained a geologist to file an application for permanent mining
permits from the federal Bureau of Land Management, the State of Oregon, and
other regulatory bodies. Federal law requires that prior to expanding its
operations, the Company must submit a reclamation plan which includes an
environmental assessment or an environmental impact statement which sets forth
the plan of operation, assesses the impact of the operations on the local
environment, and specifies the extent and type of reclamation which will be
required. Such plan will also require the posting of a bond by the Company.
No assurance can be given that a mining permit will be approved or issued.
Compliance with such requirements may be costly and could delay expansion of
the Company's operations. The Company has begun work on obtaining an expanded
mining permit, and management estimates that such permit will be approved
within the next few months. In the event that such an expanded permit cannot be
obtained by the Company, management intends to seek limited mining permits for
the Company's mining claims located near the town of Sheaville, Oregon, and the
mining claims located in Arizona. There is no assurance that such limited
mining permits can be obtained by the Company. Failure of the Company to
obtain limited or permanent mining permits to mine zeolites from claims that it
owns could result in the Company not being able to take advantage of a
competitive edge that might be gained from more extensive mining from its own
claims.

Failure to comply with applicable governmental regulations could result in
enforcement proceedings against the Company by appropriate agencies.
Compliance with existing regulations and those that may come into existence in
the future may have a substantial impact upon the Company's capital
expenditures and could adversely affect its operations. The Company believes
it is in compliance with all applicable laws and regulations at this time.

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Environmental Concerns

On portions of the Harney Basin Claims the Company has discovered small
quantities of erionite in the zeolite deposits. The federal Environmental
Protection Agency has classified erionite as a potentially hazardous mineral
which may be harmful to animals and humans. However, no conclusive research
has been completed by the government. Management believes that the zeolite
deposits containing erionite can easily be detected and avoided. The Company
has no present intent to mine any deposits in which erionite is present.

South of the Harney Basin Claims is a small area known as the South Narrows
Area of Critical Environmental Concern containing an endangered plant species
known as the Malheur Wirelettuce. The Company has released its claims which
border on this area which management believes will satisfactorily minimize any
impact on the habitat for this endangered plant species.

The Harney Basin Claims are generally surrounded by, and on the east side
adjoin, the Malheur Wildlife Area. To the extent that mining operations may be
visible from the wildlife area, the Company may be required to impose dust
abatement or other measures designed to reduce any impact on the wildlife area.
Management does not believe that compliance with such measures would have a
material effect upon any proposed mining operations on the claims.

(j) STATE THE NAMES OF ANY SUBSIDIARIES OF THE COMPANY, THEIR BUSINESS
PURPOSES, AND OWNERSHIP, AND INDICATE WHICH ARE INCLUDED IN THE FINANCIAL
STATEMENTS ATTACHED HERETO. IF NOT INCLUDED, OR IF INCLUDED BUT NOT
CONSOLIDATED, PLEASE EXPLAIN.

American Absorbents, Inc. is a 100% owned subsidiary of American Absorbents
Natural Products, Inc. and is included in the consolidated financial statements
of American Absorbents Natural Products, Inc. American Absorbents, Inc. is the
marketing division of American Absorbents Natural Products, Inc.

(k) SUMMARIZE THE MATERIAL EVENTS IN THE DEVELOPMENT OF THE COMPANY
(INCLUDING ANY MATERIAL MERGERS OR ACQUISITIONS) DURING THE PAST FIVE YEARS, OR
FOR WHATEVER LESSER PERIOD THE COMPANY HAS BEEN IN EXISTENCE. DISCUSS ANY
PENDING OR ANTICIPATED MERGERS, ACQUISITIONS, SPIN-OFFS, OR RECAPITALIZATION.
IF THE COMPANY HAS RECENTLY UNDERGONE A STOCK SPLIT, STOCK DIVIDEND, OR
RECAPITALIZATION IN ANTICIPATION OF THIS OFFERING, DESCRIBE (AND ADJUST
HISTORICAL PER SHARE FIGURES ELSEWHERE IN THIS OFFERING CIRCULAR ACCORDINGLY).

The Company

American Absorbents Natural Products, Inc. markets a number of products using
volcanic minerals known as zeolites which are mined from mining claims owned by
the Company in the State of Oregon or purchased from other natural zeolites
suppliers (who may compete with the Company in the mining portion of its
business). These products are used primarily for odor control, gas or liquid
adsorption, and the slow release of nutrients into the soil.

The Company currently produces and markets over one dozen products which target
the retail consumable products area and which use the natural zeolites mined
from the Company's claims or purchased from other producers of zeolite. These
products include Mother Earth KittyKat(TM) Premium Cat Litter and Soil
Enhancer, a cat litter product which, when used, can be disposed of into the
soil as a soil enhancer, and Stall FreshTM, a product to eliminate
urine-generated ammonia odors and wetness caused by livestock.

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independent processing facility in New Mexico for crushing and screening. The
Company's larger volume products, such as Mother Earth KittyKat(TM) Premium Cat
Litter and Soil Enhancer and Stall FreshTM, are packaged and stored at this
facility until they are shipped to the distributor or end retailer. The
smaller volume products, such as the shoe odor products, Stinky PinkysTM and
SP's(TM) and Shoe FreshTM, are packaged and stored at the Company's facility in
Austin, Texas. The Company uses contract labor for each phase of its current
mining, milling, and packaging operations. A portion of the proceeds of this
offering will be used to equip the milling, packaging and storage facility near
the Company's mining claims in Oregon.

Marketing of the Company's products is performed by the Company's wholly owned
subsidiary, American Absorbents, Inc. Since the commencement of its zeolites
products business in approximately 1992, the Company has been principally in
the product development stage and has focused its marketing efforts primarily
in the test market area. Since approximately Fall 1993 the Company began
limited marketing of its products and currently sells its products to a number
of retailers in the United States. In December 1995, the Company began
exporting some of its products for distribution in the European market through
a French import company.

The Company has completed the test marketing of its current products and is
currently engaged in promoting its products in the marketplace. The Company's
product promotion is being pursued in several ways, including through
participation in trade shows, direct contacts with distributors, product
brokers, large national chains, and advertisements in trade publications. The
Company is also engaged in public awareness campaigns to inform the general
public about the uses of natural zeolites.

The Company's unpatented placer mining claims are located on federal land
mostly in the Harney Basin, Harney County, Oregon. These 259 claims cover
approximately 7.475 square miles. Mining on the claims is open-pit and is
performed by removing any overburden with a front-end loader and then hauling
the mineral in trucks to be stored in Burns, Oregon, approximately 28 miles
from the claims. From there it may be shipped in bulk to a facility in New
Mexico for processing or zeolites may be purchased from other producers when
freight costs are more advantageous to the Company.

The Company does not believe that weather conditions will impose any
significant restrictions on its mining operations since it will not be
necessary to mine year-round. Since the zeolites are generally located at or
near the surface, large tonnage of the material can be mined in a short period
of time and then stockpiled for use as necessary.

The Company has prepaid its mining land leases to the Bureau of Land Management
through August, 1997. The leases allow the Company, by selectively mining its
own leases, more control over the quality (purity) and absorption rates of the
zeolites that the Company uses in its products.

In October 1993, the Company prepaid consulting fees through the issuance of
common stock to gain the services of Rogers Wilson, someone with numerous
business contacts and business experience to serve as an advisory director to
the board of directors. These fees are amortized over a period of three years
(See, "The Company, Page 14).

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BUSINESS OF THE COMPANY

General

American Absorbents Natural Products, Inc., a Utah corporation, through its
wholly owned subsidiary, American Absorbents, Inc., a Texas corporation, offers
a number of products using volcanically derived minerals known as zeolites.

The Company's principal executive offices are located at 3800 Hudson Bend Road,
Austin, Texas 78734. Its telephone number is (512) 266-2481.

The Company was incorporated in The State of Utah on February 9, 1984, under
the name TPI Land, Inc. and changed its name to Environmental Fuels, Inc. on
September 18, 1990. On May 6, 1991, the Company changed its name to Geo-
Environmental Resources, Inc. The Company effected a one-for-two reverse split
of its outstanding shares on January 17, 1991, and a one-for-ten reverse split
of its outstanding shares on June 30, 1992. Unless otherwise indicated herein,
all references to shares of Common Stock shall give effect to these reverse
splits.

In August 1990, Austin-Young, Inc., a Utah corporation controlled by Terry L.
Young, an officer, director, and controlling shareholder of the Company,
acquired a controlling block of the Common Stock, which currently represents
approximately 59.96% ownership (3,022,543 shares with a basis of $5,360,703) of
the Common Stock, and Mr. Young became a director, President and Chief
Executive Officer of the Company. (See "Management" and "Security Ownership of
Certain Beneficial Owners and Management.")

In September 1990 the Company acquired certain distributorship licenses for
equipment used to convert vehicles to operate on natural gas. The Company
attempted to enter the natural gas vehicle conversion market, but, after
further investigation, determined that the cost of engaging in such business
would be prohibitive given the financial resources of the Company at such time.
Therefore, in April 1991 the Company resold the distributorship licenses to the
original manufacturer of the conversion equipment and commenced seeking a
different field of operation.

On October 11, 1990, Geo-Environment Services, Inc. ("Services") was
incorporated by Mr. Young and others for the purpose of locating, purchasing,
and developing mining properties containing zeolites. Ultimately, this company
became the marketing arm of the zeolites products of the Company. In February
1992, the shareholders of the Company approved a stock-for-stock acquisition of
Services and issued 701,800 shares of Common Stock to the shareholders of
Services, including 290,000 shares to Mr. Young. (See "Certain Relationships
and Related Transactions.")

Since 1991, the Company has been actively engaged in acquiring mining
properties containing deposits of zeolites and in test marketing the products
produced from the natural zeolites. At present the Company has one primary
source for its zeolites, which source is located on unpatented mining claims in
the Harney Basin (the "Harney Basin Claims) near Burns, Oregon. (See
"Properties.") The Company, through AAI, currently markets a number of odor
and gas adsorption products and proposes to expand its marketing efforts
significantly in the future. (See Note 8 on Page 65)

On June 5, 1995, the names of Geo-Environmental Resources, Inc. and
Geo-Environment Services, Inc. were changed to American Absorbents Natural
Products, Inc. and American Absorbents, Inc., respectively.

SEE "BUSINESS OF THE COMPANY" AND "RISK FACTORS" FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS.

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4(a) IF THE COMPANY WAS NOT PROFITABLE DURING ITS LAST FISCAL YEAR,
LIST BELOW IN CHRONOLOGICAL ORDER THE EVENTS WHICH IN MANAGEMENT'S' OPINION
MUST OR SHOULD OCCUR OR THE MILESTONES WHICH IN MANAGEMENT'S OPINION THE
COMPANY MUST OR SHOULD REACH IN ORDER FOR THE COMPANY TO BECOME PROFITABLE, AND
INDICATE THE EXPECTED MANNER OF OCCURRENCE OR THE EXPECTED METHOD BY WHICH THE
COMPANY WILL ACHIEVE THE MILESTONES.

HISTORICAL

1. In 1989 and 1990 the Company conducted a broad review of the potential for
a zeolite consumer products industry within the United States. An
international review concluded that a market for zeolite consumer products did
exist in other countries. A domestic review indicated that the industry did
not exist in the United States because the majority of zeolite reserves were
owned by various oil and mineral companies that used the minerals in their
processes but were not products oriented companies. Changes in these
companies' processes eliminated their need for natural zeolite minerals.

2. In 1990 the Company determined that there was a vast potential for zeolite
consumer products within the United States and set out to acquire enough of the
known zeolite properties to give the Company a major influence within a
developing industry.

3. By the end of 1992, the Company had acquired enough zeolite properties to
make it what management believes to be the largest corporate holder of zeolite
properties in the United States.

4. In 1993 the Company acquired a facility in Austin, Texas to develop and
package new products.

5. The Company began test marketing its products to determine market
acceptance and pricing levels. Once these two items were determined, the
Company developed attractive packaging for the products.

6. Throughout 1993, 1994 and 1995, the Company continued its research and
development and test marketing of products and acquired a 3,500,000 cu. ft.
milling, packaging and storage facility near its Harney Basin, Oregon mining
claims.

7. All of the above items were financed through various private placements of
the Company's common stock in order to get the Company into the position of
being ready to move forward with equipping its Oregon facility and to implement
a full marketing program for the developed products.

FUTURE

1. The Company has begun it agricultural marketing program on a limited basis
from available capital.

2. The Company needs to raise $700,000 through a public stock offering to
equip its own production facility near its mining claims in Oregon to eliminate
any dependence on outside contractors and to assure quality products.

3. The Company needs to raise $300,000 for personnel, product promotions and
advertising to fully implement its agricultural marketing program.

4. The Company needs to raise $100,000 to expand export sales in the
agricultural marketing program.

5. The Company needs to raise $150,000 to continue its research and
development of new products.

6. As capital is available the Company will expand its marketing programs
outside the agricultural area. The Company anticipates selling a number of its
existing as well as new products through a direct sales organization.

27
<PAGE> 28
7. The proceeds of this public stock offering should allow the Company to
accomplish all of the above items within the next 12 months.

(b) STATE THE PROBABLE CONSEQUENCES TO THE COMPANY OF DELAYS IN
ACHIEVING EACH OF THE EVENTS OR MILESTONES WITHIN THE ABOVE TIME SCHEDULE, AND
PARTICULARLY THE EFFECT OF ANY DELAYS UPON THE COMPANY'S LIQUIDITY IN VIEW OF
THE COMPANY'S THEN ANTICIPATED LEVEL OF OPERATING COSTS (SEE QUESTIONS 11 AND
12).

The ability of the Company to expand its operations and marketing within the
next 12 months would be greatly reduced in the event that this public stock
offering is not successfully completed. However, the Company's management
believes that it will be able to continue to raise enough capital through
private placements of its common stock to keep the Company moving forward. The
rate of expansion would need to be adjusted according to the amount of capital
available. Because of the Company's vast zeolite deposit holdings, the
management does not believe that a slow down in the expansion rate would
significantly hamper the Company's competitive advantage in the long term.

With the Company's current level of overhead at less than $350,000 per year and
with the Company's projected average gross profit margins of 30% once full
marketing programs are implemented, the Company only requires approximately
$1,000,000 per year in revenues to reach its break-even point.

NOTE: AFTER REVIEWING THE NATURE AND TIMING OF EACH EVENT OR
MILESTONE, POTENTIAL INVESTORS SHOULD REFLECT UPON WHETHER ACHIEVEMENT OF EACH
WITHIN THE ESTIMATED TIME FRAME IS REALISTIC AND SHOULD ASSESS THE CONSEQUENCES
OF DELAYS OR FAILURE OF ACHIEVEMENT IN MAKING AN INVESTMENT DECISION.

OFFERING PRICE FACTORS

IF THE SECURITIES OFFERED ARE COMMON STOCK OR ARE EXERCISABLE FOR OR
CONVERTIBLE INTO COMMON STOCK, THE FOLLOWING FACTORS MAY BE RELEVANT TO THE
PRICE AT WHICH THE SECURITIES ARE BEING OFFERED.
5) WHAT WERE NET, AFTER TAX EARNINGS FOR THE LAST FISCAL YEAR? (IF
LOSSES, SHOW IN PARENTHESES.)

($401,367) or ($0.08)per share

6) IF THE COMPANY HAD PROFITS, SHOW OFFERING PRICE AS A MULTIPLE OF
EARNINGS. ADJUST TO REFLECT FOR ANY STOCK SPLITS OR RECAPITALIZATION, AND USE
CONVERSION OR EXERCISE PRICE IN LIEU OF OFFERING PRICE, IF APPLICABLE.

The information requested by Item 6 is not applicable since the Company did not
have any profits.

7a) WHAT IS THE NET TANGIBLE BOOK VALUE OF THE COMPANY? (IF DEFICIT,
SHOW IN PARENTHESIS.) FOR THIS PURPOSE, NET TANGIBLE BOOK VALUE MEANS TOTAL
ASSETS (EXCLUSIVE OF COPYRIGHTS, PATENTS, GOODWILL, RESEARCH, AND DEVELOPMENT
COSTS AND SIMILAR INTANGIBLE ITEMS) MINUS TOTAL LIABILITIES.
IF THE NET TANGIBLE BOOK VALUE PER SHARE IS SUBSTANTIALLY LESS THAN
THIS OFFERING (OR EXERCISE OR CONVERSION) PRICE PER SHARE, EXPLAIN THE REASONS
FOR THE VARIATION.

Net tangible book value: $5,146,328 or $1.04 per share. The net tangible book
value of the company is substantially less than that implied by the offering
price per share. Accounting principles require that assets be recorded on the
Company's books of account at the lesser of cost or fair market value. The
cost of the Company's most significant assets (its zeolites mining claims) is
approximately $5,082,000. Since acquiring these mining claims, the Company has
engaged an independent geologist to prepare an appraisal of the value of the
Company's claims based on the tonnage of zeolites present on the mining claims
derived from drill core data originally obtained by Anaconda Minerals and
Occidental Minerals. The appraisal has been completed on the southern

28
<PAGE> 29
portion of the Harney Basin zeolite deposits which placed the gross tonnage at
over 880,000,000 tons with almost 500,000,000 of that being recoverable and
valued at a minimum of $2.00 per ton in the ground. Further estimates place
the total gross tonnage in 100% of the Harney Basin at approximately
2,000,000,000 tons. The Company estimates that its profits on the tonnage once
it has been mined and processed range from approximately $25.00 per ton to in
excess of $100.00 per ton depending on the product which is packaged for sale.
This geological appraisal of the Harney Basin would imply an unrecordable
valuation ranging from $200.00-400.00 per share. The Company has yet to
produce enough sales volumes so that the stock market has begun to attribute
any of this value to the selling price of its common stock.

b) STATE THE DATES ON WHICH THE COMPANY SOLD OR OTHERWISE ISSUED
SECURITIES DURING THE LAST 12 MONTHS, THE AMOUNT OF SUCH SECURITIES SOLD, THE
NUMBER OF PERSONS TO WHOM THEY WERE SOLD, ANY RELATIONSHIP OF SUCH PERSONS TO
THE COMPANY AT THE TIME OF SALE, THE PRICE AT WHICH THEY WERE SOLD, AND, IF NOT
SOLD FOR CASH, A CONCISE DESCRIPTION OF THE CONSIDERATION. (EXCLUDE BANK
DEBT.)

<TABLE>
<CAPTION>
Date # of Shares # of Persons Relationship Consideration
- ---- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
7-95 18,018 1 Director $33,333.30
7-95 18,018 1 None $33,333.30
7-95 18,018 1 None $33,333.30
7-95 24,000 1 Director $44,400.00
7-95 4,000 1 Director Professional
Services
9-95 16,000 1 Director $29,600.00
10-95 5,446 1 None $10,075.00
10-95 5,405 1 None $10,000.00
10-95 5,000 1 None Professional
Services
11-95 5,405 1 None $10,000.00
12-95 7,500 1 None $13,875.00
12-95 2,500 1 None $ 4,625.00
12-95 5,500 1 Director $10,175.00
12-95 3,500 1 None $ 6,475.00
02-96 26,667 1 Director $35,000.00
04-96 6,667 1 None $10,000.00
04-96 6,000 1 None $ 9,000.00
04-96 500 1 None $ 750.00
04-96 5,000 1 None Professional
Services
04-96 3,000 1 None Professional
Services
</TABLE>

8a) WHAT PERCENTAGE OF THE OUTSTANDING SHARES OF THE COMPANY WILL THE
INVESTORS IN THIS OFFERING HAVE? ASSUME EXERCISE OF OUTSTANDING OPTIONS,
WARRANTS OR RIGHTS AND CONVERSION OF CONVERTIBLE SECURITIES, IF THE RESPECTIVE
EXERCISE OR CONVERSION PRICES ARE AT OR LESS THAN THE OFFERING PRICE. ALSO
ASSUME EXERCISE OF ANY OPTIONS, WARRANTS, OR RIGHTS AND CONVERSIONS OF ANY
CONVERTIBLE SECURITIES OFFERED IN THIS OFFERING.

<TABLE>
<S> <C>
Shares Outstanding 5,040,855
Offering Shares 1,150,000
---------
Total Outstanding 6,190,855
</TABLE>

If the Maximum is Sold, % of Offering to Total Outstanding Shares 18.58%

The following table shows the percentage of ownership the investors in this
offering will have if all the warrants that are attached to the units are
exercised even though these securities are offered at a price in excess of the
offering price per common share in this offering:

29
<PAGE> 30
<TABLE>
<S> <C>
Shares Outstanding 5,040,855
Convertible Options 988,000
Offering Shares 1,150,000
Offering Warrants 1,150,000
---------

Total Outstanding 8,328,855
</TABLE>

If the Maximum is Sold, % of Offering to Total Outstanding Shares 27.61%

b) WHAT POST-OFFERING VALUE IS MANAGEMENT IMPLICITLY ATTRIBUTING TO
THE ENTIRE COMPANY BY ESTABLISHING THE PRICE PER SECURITY SET FORTH ON THE
COVER PAGE (OR EXERCISE OR CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED?)
(TOTAL OUTSTANDING SHARES AFTER OFFERING TIMES OFFERING PRICE, OR EXERCISE OR
CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED.) (FOR ABOVE PURPOSES, ASSUME
OUTSTANDING OPTIONS ARE EXERCISED IN DETERMINING "SHARES" IF THE EXERCISE
PRICES ARE AT OR LESS THAN THE OFFERING PRICE. ALL CONVERTIBLE SECURITIES,
INCLUDING OUTSTANDING CONVERTIBLE SECURITIES, SHALL BE ASSUMED CONVERTED AND
ANY OPTIONS, WARRANTS, OR RIGHTS IN THIS OFFERING SHALL BE ASSUMED EXERCISED.)

Total post-offering value implicitly attributed to the entire Company by
establishing the price per security at $1.75: $14,575,496.

*THESE VALUES ASSUME THAT THE COMPANY'S CAPITAL STRUCTURE WOULD BE
CHANGED TO REFLECT ANY CONVERSIONS OF OUTSTANDING CONVERTIBLE SECURITIES AND
ANY USE OF OUTSTANDING SECURITIES AS PAYMENT IN THE EXERCISE OF OUTSTANDING
OPTIONS, WARRANTS, OR RIGHTS INCLUDED IN THE CALCULATION. THE TYPE AND AMOUNT
OF CONVERTIBLE OR OTHER SECURITIES THUS ELIMINATED WOULD BE: 988,000 options
convertible into common stock plus 1,150,000 warrants convertible into common
stock herein. THESE VALUES ALSO ASSUME AN INCREASE IN CASH IN THE COMPANY BY
THE AMOUNT OF ANY CASH PAYMENTS THAT WOULD BE MADE UPON CASH EXERCISE OF
OPTIONS, WARRANTS, OR RIGHTS INCLUDED IN THE CALCULATIONS. THE AMOUNT OF SUCH
CASH WOULD BE $7,276,500.

NOTE: AFTER REVIEWING THE ABOVE, POTENTIAL INVESTORS SHOULD CONSIDER
WHETHER OR NOT THE OFFERING PRICE (OR EXERCISE OR CONVERSION PRICE, IF
APPLICABLE) FOR THE SECURITIES IS APPROPRIATE AT THE PRESENT STAGE OF THE
COMPANY'S DEVELOPMENT. USE OF PROCEEDS

9a) THE FOLLOWING TABLE SETS FORTH THE USE OF THE PROCEEDS FROM THIS
OFFERING: B) IF THERE IS NO MINIMUM AMOUNT OF PROCEEDS THAT MUST BE RAISED
BEFORE THE COMPANY MAY USE THE PROCEEDS OF THE OFFERING, DESCRIBE THE ORDER OF
PRIORITY IN WHICH THE PROCEEDS SET FORTH ABOVE IN THE COLUMN "IF MAXIMUM SOLD"
WILL BE USED.

<TABLE>
<CAPTION>
IF MINIMUM SOLD IF MAXIMUM SOLD
--------------- ---------------

Amount (Percent) Amount (Percent)
---------------- ----------------
<S> <C> <C>
Total Proceeds $ 0 (0%) $2,012,500 (100%)

Less: Offering expenses, commissions and finders fees 0 (N/A) 0 (0%)
Legal and accounting 20,000 (N/A) 20,000 (0.99%)
Copying and advertising 3,000 (N/A) 3,000 (0.15%)
Transfer agent's fees 2,000 (N/A) 2,000 (0.10%)
Filing fees 10,000 (N/A) 10,000 (0.50%)
Printing costs 5,000 (N/A) 5,000 (0.25%)
Exchange listing fee 0 (N/A) 10,000 (0.50%)
</TABLE>

30
<PAGE> 31

<TABLE>
<S> <C> <C>
Net proceeds from offering 0 (N/A) 1,962,500 (97.51%)

Use of net proceeds

Marketing and promotional expense 0 (N/A) 200,000 ( 9.94%)
Working capital and reserve for contingencies 0 (N/A) 412,500 (20.50%)
Inventory buildup 0 (N/A) 150,000 ( 7.45%)
Existing products packaging design 0 (N/A) 150,000 ( 7.45%)
Oregon facility upgrades 0 (N/A) 50,000 ( 2.49%)
Crushing, milling, screening and bagging equip. 0 (N/A) 400,000 (19.88%)
Mining equipment 0 (N/A) 250,000 (12.42%)
Austin warehouse mortgage payoff 0 (N/A) 125,000 ( 6.21%)
Remodel Austin warehouse 0 (N/A) 25,000 ( 1.24%)
New product development 0 (N/A) 150,000 ( 7.45%)
1997 mining claim maintenance fees 0 (N/A) 50,000 ( 2.49%)

Total use of net proceeds 0 (N/A) $1,962,500 (100%)
</TABLE>

There is no minimum amount of proceeds that must be raised before the Company
may use the proceeds. The order of priority for the use of proceeds is set out
in the following table:

<TABLE>
<S> <C>
1997 mining claims $ 50,000
Austin warehouse mortgage payoff 125,000
Marketing and promotional expense 200,000
Working capital 300,000
Existing products packaging design 150,000
Oregon facility upgrades 50,000
Mining equipment 250,000
Crushing, milling, screening, drying and bagging equipment 400,000
Inventory buildup 150,000
New product development 150,000
Remodel Austin warehouse 25,000
Contingencies 112,500
------------

Total $ 1,962,500
</TABLE>

The Company may directly exchange some of the securities offered herein for
some of the equipment, upgrades, inventory and other items listed under "Use of
Proceeds" above based upon the fair market value of the equipment. Each use
category listed above would be adjusted accordingly for any exchanges that are
completed.

NOTE: AFTER REVIEWING THE PORTION OF THE OFFERING ALLOCATED TO THE
PAYMENT OF OFFERING EXPENSES, AND TO THE IMMEDIATE PAYMENT TO MANAGEMENT AND
PROMOTERS OF ANY FEES, REIMBURSEMENTS, PAST SALARIES OR SIMILAR PAYMENTS, A
POTENTIAL INVESTOR SHOULD CONSIDER WHETHER THE REMAINING PORTION OF HIS
INVESTMENT, WHICH WOULD BE THAT PART AVAILABLE FOR FUTURE DEVELOPMENT OF THE
COMPANY'S BUSINESS AND OPERATIONS, WOULD BE ADEQUATE.

10a) IF MATERIAL AMOUNTS OF FUNDS FROM SOURCES OTHER THAN THIS
OFFERING ARE TO BE USED IN CONJUNCTION WITH THE PROCEEDS FROM THIS OFFERING,
STATE THE AMOUNTS AND SOURCES OF SUCH OTHER FUNDS, AND WHETHER FUNDS ARE FIRM
OR CONTINGENT. IF CONTINGENT, EXPLAIN.

The information requested by Item 10a is not applicable since there are to be
no funds from sources other than this offering to be used in conjunction with
the proceeds from this offering.

31
<PAGE> 32
b) IF ANY MATERIAL PART OF THE PROCEEDS IS TO BE USED TO DISCHARGE
INDEBTEDNESS, DESCRIBE THE TERMS OF SUCH INDEBTEDNESS, INCLUDING INTEREST
RATES. IF THE INDEBTEDNESS TO BE DISCHARGED WAS INCURRED WITHIN THE CURRENT OR
PREVIOUS FISCAL YEAR, DESCRIBE THE USE OF PROCEEDS OF SUCH INDEBTEDNESS.

Approximately $125,000 of the proceeds from this offering are to be used to pay
off an existing mortgage on the Austin warehouse facility. This mortgage was
incurred in August, 1996 bears interest only payments for twelve months and has
a balloon payment due in October 1997.

c) IF ANY MATERIAL AMOUNT OF PROCEEDS IS TO BE USED TO ACQUIRE
ASSETS, OTHER THAN IN THE ORDINARY COURSE OF BUSINESS, BRIEFLY DESCRIBE AND
STATE THE COST OF THE ASSETS AND OTHER MATERIAL TERMS OF THE ACQUISITIONS. IF
THE ASSETS ARE TO BE ACQUIRED FROM OFFICERS, DIRECTORS, EMPLOYEES, OR PRINCIPAL
STOCKHOLDERS OF THE COMPANY OR THEIR ASSOCIATES, GIVE THE NAMES OF THE PERSON
FROM WHOM THE ASSETS ARE TO BE ACQUIRED AND SET FORTH THE COST TO THE COMPANY,
THE METHOD FOLLOWED IN DETERMINING THE COST, AND ANY PROFIT TO SUCH PERSONS.

The Company plans to use approximately $250,000 of the proceeds of this
offering to acquire mining equipment which will include a bull bulldozer
equipped with a ripper blade, front end loaders and trucks for hauling the
minerals. The Company has not entered into any agreements for the purchase of
this equipment but has investigated the used equipment market and believes that
good used equipment can be obtained within the above capital guidelines.

The Company also plans to use approximately $400,000 of the proceeds of this
offering to equip its Oregon facility with crushing, milling, screening, drying
and bagging equipment. Again, the Company has not entered into any agreement
for the purchase of this equipment but has investigated the used equipment
market and believes that good used equipment can be obtained within the above
capital guidelines. The acquisition costs of this equipment include the
transportation and installation of the equipment at the Oregon facility.

None of this equipment will be purchased from officers, directors or other
persons or entities that are affiliated with the Company.

d) IF ANY AMOUNT OF THE PROCEEDS IS TO BE USED TO REIMBURSE ANY
OFFICER, DIRECTOR, EMPLOYEE, OR STOCKHOLDER FOR SERVICES ALREADY RENDERED,
ASSETS PREVIOUSLY TRANSFERRED, OR MONEYS LOANED OR ADVANCED, OR OTHERWISE
EXPLAIN.

The information requested by Item 10d is not applicable

11) INDICATE WHETHER THE COMPANY IS HAVING OR ANTICIPATES HAVING WITH
IN THE NEXT 12 MONTHS ANY CASH FLOW OR LIQUIDITY PROBLEMS AND WHETHER OR NOT IT
IS IN DEFAULT OR IN BREACH OF ANY NOTE, LOAN, LEASE, OR OTHER INDEBTEDNESS OR
FINANCING ARRANGEMENT REQUIRING THE COMPANY TO MAKE PAYMENTS. INDICATE IF A
SIGNIFICANT AMOUNT OF THE COMPANY'S TRADE PAYABLES HAVE NOT BEEN PAID WITHIN THE
STATED TRADE TERM. STATE WHETHER THE COMPANY IS SUBJECT TO ANY UNSATISFIED
JUDGMENTS, LIENS, OR SETTLEMENT OBLIGATIONS AND THE AMOUNTS THEREOF. INDICATE
THE COMPANY'S PLANS TO RESOLVE ANY SUCH PROBLEMS.

The Company does not anticipate having any cash flow or liquidity problems
within the next 12 months. The Company's monthly overhead has been kept to
minimum levels and the management has always been able to raise sufficient
equity capital through private placements or through advances from the majority
shareholder in the Company to keep the Company operating at minimum levels. In
some cases, services performed for the Company by consultants and contractors
have been paid through the issuance of equity.

The rate of the Company's expansion is necessarily dependent on the amount of
equity capital the Company has available to it.

32
<PAGE> 33
The Company is not in default or in breach on any note, loan, lease or other
indebtedness or financing arrangement requiring the Company to make payments.
The Company pays its trade payable within the stated trade terms of the
payables. The Company is not subject to any judgments, liens or settlement
obligations.

12) INDICATE WHETHER PROCEEDS FROM THIS OFFERING WILL SATISFY THE
COMPANY'S CASH REQUIREMENTS FOR THE NEXT 12 MONTHS, AND WHETHER IT WILL BE
NECESSARY TO RAISE ADDITIONAL FUNDS. STATE THE SOURCE OF ADDITIONAL FUNDS, IF
KNOWN.

The maximum proceeds from this offering are sufficient to satisfy the Company's
cash requirements for development of its mining and milling operations in
Oregon and for the implementation and expansion of its agricultural marketing
program over the next 12 months. It will not be necessary for the Company to
raise additional funds during that time period. The Company expects that the
proceeds of this offering will be sufficient to allow the Company to exceed its
break-even point. Management expects that the rate of growth in the zeolite
consumer products market will be such that the Company will be required to
raise additional equity between 2 and 3 years from now in order to keep pace
with the market. The Company expects to raise such additional expansion equity
through a secondary public stock offering or through the exercise of the
warrants issued herein. Since this offering is made on a "best efforts" basis,
there is no assurance that the maximum proceeds, or any proceeds whatsoever,
will be raised.

CAPITALIZATION

13) INDICATE THE CAPITALIZATION OF THE COMPANY AS OF THE MOST RECENT
BALANCE SHEET DATE (ADJUSTED TO REFLECT ANY SUBSEQUENT STOCK SPLITS, STOCK
DIVIDENDS, RECAPITALIZATION OR REFINANCINGS) AND AS ADJUSTED TO REFLECT THE
SALE OF THE MINIMUM AND MAXIMUM AMOUNT OF SECURITIES IN THIS OFFERING AND THE
USE OF THE NET PROCEEDS THEREFROM.

<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
------------------

AS ADJUSTED
-----------

AS OF 7-31-96 MINIMUM MAXIMUM
------------- ------- -------
<S> <C> <C> <C>
Debt:

Short-term debt (average interest rate: 6 percent...... $ 122,283 $ 122,283 $ 0
Long-term debt (average interest rate: 7 percent....... $ 182,539 $ 182,539 $ 182,539
------------ ----------- -----------
Total debt.......................................... $ 304,822 $ 304,822 $ 182,539

Stockholders equity (deficit):

Preferred stock-- par or stated value (by class of
preferred in order of preference).................... $ 0 $ 0 $ 0
Common Stock--par or stated value....................... $ 5,040 $ 5,040 $ 6,190
Additional paid-in capital.............................. $ 6,818,158 $ 6,818,158 $ 8,829,508
Retained earnings (deficit)............................. $ (1,804,085) $(1,804,085) $(1,804,085)
------------ ----------- -----------
Total stockholders equity (deficit)................. $ 5,019,113 $ 5,019,113 $ 7,031,613

Total $ 5,323,935 $ 5,323,935 $ 7,214,152
capitalization..........................................
</TABLE>

33
<PAGE> 34
Number of preferred shares authorized to be outstanding:

<TABLE>
<CAPTION>
NUMBER OF CLASS OF PREFERRED PAR VALUE SHARES AUTHORIZED PER SHARE
- ---------------------------- --------------------------- ---------
<S> <C> <C>
0 0 0
</TABLE>

NUMBER OF COMMON SHARES AUTHORIZED: 50,000,000 SHARES. PAR OR STATED VALUE PER
SHARE, IF ANY: $0.001. NUMBER OF COMMON SHARES RESERVED TO MEET CONVERSION
REQUIREMENTS OR FOR THE ISSUANCE UPON EXERCISE OF OPTIONS, WARRANTS, OR RIGHTS:
1,988,000 SHARES.

DESCRIPTION OF SECURITIES

14) THE SECURITIES BEING OFFERED HEREBY ARE: ( ) COMMON STOCK; ( )
PREFERRED OR PREFERENCE STOCK; ( ) NOTES OR DEBENTURES; (X) UNITS OF TWO OR
MORE TYPES OF SECURITIES COMPOSED OF: one share of common stock ($0.001 par
value) and one redeemable common stock purchase warrant exercisable at $3.75
(see Cover Page).; ( ) OTHER.

15) THESE SECURITIES HAVE: (YES OR NO) (No) CUMULATIVE VOTING
RIGHTS; (No) OTHER SPECIAL VOTING RIGHTS; (No) PREEMPTIVE RIGHTS TO PURCHASE IN
NEW ISSUES OF SHARES; (No) PREFERENCE AS TO DIVIDENDS OR INTEREST; (No)
PREFERENCE UPON LIQUIDATION; (No) OTHER SPECIAL RIGHTS OR PREFERENCES
(SPECIFY).

16) ARE THE SECURITIES CONVERTIBLE? IF SO, STATE CONVERSION OR
FORMULA. DATE WHEN CONVERSION BECOMES EFFECTIVE: The common stock portion of
the units offered are not convertible since they are common stock. The
redeemable common stock purchase warrants portion of the units offered is
convertible into one share of common stock at a price of $3.75 and is
exercisable beginning immediately after the offering and continuing for a
period of twenty four months from the date of this offering, subject to
redemption by the Company.

17a) IF SECURITIES ARE NOTES OR OTHER TYPES OF DEBT SECURITIES: 1)
WHAT IS THE INTEREST RATE; 2) WHAT IS THE MATURITY DATE? IF SERIAL MATURITY
DATES, DESCRIBE; 3) IS THERE A MANDATORY SINKING FUND? DESCRIBE; 4) IS
THERE A TRUST INDENTURE? NAME, ADDRESS AND TELEPHONE NUMBER OF TRUSTEE; 5)
ARE THE SECURITIES CALLABLE OR SUBJECT TO REDEMPTION? DESCRIBE, INCLUDING
REDEMPTION PRICES; 6) ARE THE SECURITIES COLLATERALIZED BY REAL OR PERSONAL
PROPERTY?; 7) IF THESE SECURITIES ARE SUBORDINATED IN RIGHT OF PAYMENT OF
INTEREST OR PRINCIPAL, EXPLAIN THE TERMS OF SUCH SUBORDINATION.
HOW MUCH CURRENTLY OUTSTANDING INDEBTEDNESS OF THE COMPANY IS SENIOR
TO THE SECURITIES IN RIGHT OF PAYMENT OF INTEREST OR PRINCIPAL?
HOW MUCH INDEBTEDNESS SHARES IN RIGHT OF PAYMENT ON AN EQUIVALENT
(PAREI PASSU)_ BASIS?
HOW MUCH INDEBTEDNESS IS JUNIOR (SUBORDINATED) TO THE SECURITIES?

The securities offered herein are not in the form of notes or other types of
debt securities therefore the information requested in Item 17a is not
applicable.

(b) IF NOTES OR OTHER TYPES OF DEBT SECURITIES ARE BEING OFFERED AND
THE COMPANY HAD EARNINGS DURING ITS LAST FISCAL YEAR, SHOW THE RATIO OF
EARNINGS TO FIXED CHARGES ON AN ACTUAL AND PRO FORMA BASIS FOR THAT FISCAL
YEAR. "EARNINGS" MEANS PRE-TAX INCOME FROM CONTINUING OPERATIONS PLUS FIXED
CHARGES AND CAPITALIZED INTEREST. "FIXED CHARGES" MEANS INTEREST (INCLUDING
CAPITALIZED INTEREST), AMORTIZATION OF DEBT DISCOUNT, PREMIUM AND EXPENSE,
PREFERRED STOCK DIVIDEND REQUIREMENTS OF MAJORITY OWNED SUBSIDIARY, AND SUCH
PORTION OF RENTAL EXPENSE AS CAN BE DEMONSTRATED TO BE REPRESENTATIVE OF THE
INTEREST FACTOR IN THE PARTICULAR CASE. THE PRO FORMA RATIO OF EARNINGS TO
FIXED CHARGES SHOULD INCLUDE INCREMENTAL INTEREST EXPENSE AS A RESULT OF THE
OFFERING OF THE NOTES OR OTHER DEBT SECURITIES.

34
<PAGE> 35
The securities offered herein are not in the form of notes or other types of
debt securities therefore the information requested in Item 17b is not
applicable.

NOTE: CARE SHOULD BE EXERCISED IN INTERPRETING THE SIGNIFICANCE OF
THE RATIO OF EARNINGS TO FIXED CHARGES AS A MEASURE OF THE "COVERAGE" OF DEBT
SERVICE, AS THE EXISTENCE OF EARNINGS DOES NOT NECESSARILY MEAN THAT THE
COMPANY'S LIQUIDITY AT ANY GIVEN TIME WILL PERMIT PAYMENT OF DEBT SERVICE
REQUIREMENTS TO BE TIMELY MADE SEE QUESTION NOS. 11 AND 12. SEE ALSO THE
FINANCIAL STATEMENTS AND ESPECIALLY THE STATEMENT OF CASH FLOWS.

18) IF SECURITIES ARE PREFERENCE OR PREFERRED STOCK, ARE UNPAID
DIVIDENDS CUMULATIVE? ARE SECURITIES CALLABLE?

The securities offered herein are not Preference or Preferred stock therefore
the information requested in Item 18 is not applicable.

NOTE: ATTACH TO THIS OFFERING CIRCULAR COPIES OR A SUMMARY OF THE
CHARTER, BYLAW, OR CONTRACTUAL PROVISION OR DOCUMENT THAT GIVES RISE TO THE
RIGHTS OF HOLDERS OF PREFERRED OR PREFERENCE STOCK, NOTES, OR OTHER SECURITIES
BEING OFFERED.

19) IF SECURITIES ARE CAPITAL STOCK OF ANY TYPE, INDICATE
RESTRICTIONS ON DIVIDENDS UNDER LOAN OR OTHER FINANCING ARRANGEMENTS OR
OTHERWISE.

The Company has no loan or other financing arrangements outstanding that place
any restrictions on the declaration of dividends on its common stock.

20) CURRENT AMOUNT OF ASSETS AVAILABLE FOR PAYMENT OF DIVIDENDS IF
DEFICIT MUST BE FIRST MADE UP. (SHOW DEFICIT IN PARENTHESIS).

The Company has no restrictions that require the Company to make up deficits
before dividends may be paid on its common stock. No dividends on the common
stock of the Company have been declared to date and the Company does not
anticipate declaring of dividends during the growth stage.

PLAN OF DISTRIBUTION

21) THE SELLING AGENTS (THAT IS, THE PERSONS SELLING THE SECURITIES
AS AGENT FOR THE COMPANY FOR A COMMISSION OR OTHER COMPENSATION) IN THIS
OFFERING ARE: (NAME, ADDRESS, TELEPHONE NUMBER).

There are no persons selling the securities as agent for the Company for a
commission or other compensation therefore the information requested by Item 21
is not applicable.

22) DESCRIBE ANY COMPENSATION TO SELLING AGENTS OR FINDERS, INCLUDING
CASH, SECURITIES, CONTRACTS OR OTHER CONSIDERATION, IN ADDITION TO THE CASH
COMMISSION SET FORTH AS A PERCENT OF THE OFFERING PRICE ON THE COVER PAGE OF
THIS OFFERING CIRCULAR. ALSO INDICATE WHETHER THE COMPANY WILL INDEMNIFY THE
SELLING AGENTS OR FINDERS AGAINST LIABILITIES UNDER THE SECURITIES LAWS.
("FINDERS" ARE PERSONS WHO FOR COMPENSATION ACT AS INTERMEDIARIES IN OBTAINING
SELLING AGENTS OR OTHERWISE MAKING INTRODUCTIONS IN FURTHERANCE OF THIS
OFFERING.)

The selling agents, which includes the Company's officers and directors, for
this offering will receive no direct compensation for their services. They
are, however, eligible to receive stock options under the Company's stock
option plan for officers and directors, but the Company does not plan to grant
options to them specifically for their selling efforts in this offering.

35
<PAGE> 36
The Company will indemnify the selling agents against liabilities under the
securities laws in all cases where reasonable prudence has been exercised by
the selling agents.

No finders fees are being paid pursuant to the Offering of the securities
herein.

23) DESCRIBE ANY MATERIAL RELATIONSHIPS BETWEEN ANY OF THE SELLING
AGENTS OR FINDERS AND THE COMPANY OR ITS MANAGEMENT.

There are no finders involved in this Offering of securities. The only
relationship that exists between the Company, its officers and directors and
those persons acting as selling agents is the normal relationship that exists
between a Company and its officers and directors.

NOTE: AFTER REVIEWING THE AMOUNT OF COMPENSATION TO THE SELLING
AGENTS OR FINDERS FOR SELLING THE SECURITIES, AND THE NATURE OF ANY
RELATIONSHIP BETWEEN THE SELLING AGENTS OR FINDERS AND THE COMPANY, A POTENTIAL
INVESTOR SHOULD ASSESS THE EXTENT TO WHICH IT MAY BE INAPPROPRIATE TO RELY UPON
ANY RECOMMENDATION BY THE SELLING AGENTS OR FINDERS TO BUY THE SECURITIES.

24) IF THIS OFFERING IS NOT BEING MADE THROUGH SELLING AGENTS, THE
NAMES OF PERSONS AT THE COMPANY THROUGH WHICH THIS OFFERING IS BEING MADE:
(NAME, ADDRESS, TELEPHONE NUMBER).

This Offering is being made through the following Company officers and
directors:

Terry L. Young
David W. Redding
William C. Branch

whose addresses and telephone numbers are as follows:

3800 Hudson Bend Road, Suite #300
Austin, Texas 78734
Telephone # 512-266-2481

25) IF THIS OFFERING IS LIMITED TO A SPECIAL GROUP, SUCH AS EMPLOYEES
OF THE COMPANY, OR IS LIMITED TO A CERTAIN NUMBER OF INDIVIDUALS (AS REQUIRED
TO QUALIFY UNDER SUBCHAPTER 8 OF THE INTERNAL REVENUE CODE) OR IS SUBJECT TO
ANY OTHER LIMITATIONS, DESCRIBE THE LIMITATIONS AND ANY RESTRICTIONS ON RESALE
THAT APPLY. WILL THE CERTIFICATE BEAR A LEGEND NOTIFYING HOLDERS OF SUCH
RESTRICTIONS?

This Offering of common stock is not being limited to a special group, such as
employees of the Company nor is it limited to a certain number of individuals
(as required to qualify under Subchapter 8 of the Internal Revenue Code) nor is
it subject to any other limitations that would require the stock certificates
to bear a legend notifying holders of specific limitations or restrictions.

26a) NAME, ADDRESS, AND TELEPHONE NUMBER OF INDEPENDENT BANK OR
SAVINGS AND LOAN ASSOCIATION OR OTHER SIMILAR DEPOSITORY INSTITUTION ACTING AS
ESCROW AGENT IF PROCEEDS ARE ESCROWED UNTIL MINIMUM PROCEEDS ARE RAISED.

There is no minimum amount of proceeds to be raised before the Company will be
allowed use of the proceeds, therefore the information requested by Item 26a is
not applicable.

36
<PAGE> 37
b) DATE AT WHICH FUNDS WILL BE RETURNED BY ESCROW AGENT IF MINIMUM
PROCEEDS ARE NOT RAISED. WILL INTEREST ON PROCEEDS DURING ESCROW PERIOD BE
PAID TO INVESTORS?

There is no minimum amount of proceeds to be raised before the Company will be
allowed use of the proceeds and no escrow agent has been set up, therefore the
information requested in Item 26b is not applicable.

27) EXPLAIN THE NATURE OF ANY RESALE RESTRICTIONS ON PRESENTLY
OUTSTANDING SHARES, AND WHEN THOSE RESTRICTIONS WILL TERMINATE, IF THIS CAN BE
DETERMINED.

Common shares held by all officers and directors of the Company are restricted
from resale except in accordance with Rule 144 as promulgated by the Securities
& Exchange Commission. All Common shares held by Austin Young, Inc. and Terry
L. Young are subject to resale pursuant to Rule 144. Shares issued under
certain exemptions from registration during the prior two years are restricted
from resale pursuant to Rule 144 until a two year holding period has been
satisfied by the holder. The number of common shares issued pursuant to
exemption from registration by the Company during the prior two years is less
than 500,000 shares.

NOTE: EQUITY INVESTORS SHOULD BE AWARE THAT UNLESS THE COMPANY IS
ABLE TO COMPLETE A FURTHER PUBLIC OFFERING OR THE COMPANY IS ABLE TO BE SOLD
FOR CASH OR MERGED WITH A PUBLIC COMPANY THAT THEIR INVESTMENT IN THE COMPANY
MAY BE ILLIQUID INDEFINITELY.

There currently exists a limited public market for the shares of the Company
that trades on the NASD Bulletin Board under the symbol AANP.

DIVIDENDS, DISTRIBUTIONS, AND REDEMPTIONS

28) IF THE COMPANY HAS WITHIN THE LAST FIVE YEARS PAID DIVIDENDS,
MADE DISTRIBUTIONS UPON ITS STOCK OR REDEEMED ANY SECURITIES, EXPLAIN HOW MUCH
AND WHEN.

No dividends or other distributions have been made on the securities of the
Company during the past five years.

On May 13, 1991, 3,380,000 common investment shares were purchased, based on
shareholder approval on May 6, 1991, for $65,000.00 from Austin Young, Inc. and
canceled. The Company agreed that Austin Young, Inc. had the right to
repurchase these shares for the same price at any time up to June 1, 1993,
without giving effect to any forward or reverse stock splits. In July 1992,
Austin Young, Inc. exercised its right to repurchase these shares under the
agreement of May 13, 1991. The Company was relieved of $65,000.00 of debt
owing to Austin Young, Inc. and 3,380,000 common shares were issued to Austin
Young, Inc. This transaction was re-affirmed by the shareholders on December
8, 1993, with Austin Young, Inc. and Terry L. Young abstaining from the vote.

OFFICERS AND KEY PERSONNEL OF THE COMPANY

29) CHIEF EXECUTIVE OFFICER: TITLE, NAME, AGE, OFFICE STREET
ADDRESS, AGE, TELEPHONE NUMBER; NAMES OF EMPLOYERS, TITLES, AND DATES OF
POSITIONS HELD DURING PAST FIVE YEARS WITH AN INDICATION OF JOB
RESPONSIBILITIES; EDUCATION (DEGREES, SCHOOLS, AND DATES). ALSO A DIRECTOR OF
THE COMPANY? INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS
THAN FULL TIME.

Terry L. Young, (3800 Hudson Bend Road, Austin, Texas 78734, Telephone
#512-266-2481) became a director of the Company in 1990. He has served as
Chairman of the Board of Directors of the Company from 1991 to present. Mr.
Young has also served as President of the Company from August 1990 until May
1991, and from June 1992 until December 1993. Mr. Young has been the Chief
Executive Officer of the Company since 1990. He is also President and a
director of Austin Young, Inc., the parent of the Company, and is Chairman and
Chief Executive Officer of American Absorbents, Inc., the wholly owned
subsidiary of the Company. He served in the United

37
<PAGE> 38
States Military from 1968 to 1971 when he received an honorable discharge. Mr.
Young received an associate degree in business from San Antonio College in 1967
and attended the University of Texas at Austin for two years. Age 50.

30) CHIEF OPERATING OFFICER: TITLE, NAME, AGE, OFFICE STREET
ADDRESS, TELEPHONE NUMBER; NAMES OF EMPLOYERS, TITLES, AND DATES OF POSITIONS
HELD DURING PAST FIVE YEARS WITH AN INDICATION OF JOB RESPONSIBILITIES;
EDUCATION (DEGREES, SCHOOLS, AND DATES). ALSO A DIRECTOR OF THE COMPANY?
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL TIME.

Terry L. Young and David W. Redding fill the responsibilities of this position.
See comments in Item 29 above and Item 31 below.

31) CHIEF FINANCIAL OFFICER: TITLE, NAME, AGE, OFFICE STREET
ADDRESS, TELEPHONE NUMBER; NAMES OF EMPLOYERS, TITLES, AND DATES OF POSITIONS
HELD DURING PAST FIVE YEARS WITH AN INDICATION OF JOB RESPONSIBILITIES;
EDUCATION (DEGREES, SCHOOLS, AND DATES). ALSO A DIRECTOR OF THE COMPANY?
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL TIME.

David W. Redding, (3800 Hudson Bend Road, Austin, Texas 78734, Telephone
#512-266-2481) became a director of the Company in 1993. He has served as
Chief Financial Officer, Executive Vice President and Treasurer of the Company
since November 1993. He has also served as Assistant Secretary of the Company
since December, 1994. Mr. Redding is also Chief Financial Officer, Treasurer,
Secretary and a Director of American Absorbents, Inc., the wholly owned
subsidiary of the Company. From May 1988 until November 1993, he was
self-employed providing tax, management and financial services. From November
1978 until May 1988 he was Chief Financial Officer, Executive Vice President,
Secretary, Director and a member of the Executive Committee of ASK Corporation,
a publicly held, NASDAQ listed company engaged in manufacturing and marketing
of alternative energy equipment in the emerging solar energy industry. He was
nominated for and accepted for inclusion in Who's Who Worldwide in Business in
1993. He received a bachelors degree in business and accounting from the
University of Texas at Austin in 1974. Age 48.

32) OTHER KEY PERSONNEL: TITLE, NAME, AGE, OFFICE STREET ADDRESS,
TELEPHONE NUMBER; NAMES OF EMPLOYERS, TITLES, AND DATES OF POSITIONS HELD
DURING PAST FIVE YEARS WITH AN INDICATION OF JOB RESPONSIBILITIES; EDUCATION
(DEGREES, SCHOOLS, AND DATES). ALSO A DIRECTOR OF THE COMPANY? INDICATE
AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL TIME.

Randall R. Reneau, (Rt. 2, Box 48, Bertram, Texas 78605, Telephone
#512-258-8969) is retained on an "as needed" basis by the Company as a
geological consultant. Mr. Reneau is currently working on the filing of the
Company's permanent plan of operations for the Company's mining claims in
Oregon. He began is career as an exploration geologist with Continental Oil
Company (Conoco). In 1977, He joined John S. Wold Company in Casper, Wyoming
serving as regional, district and finally Chief Geologist. In 1980, Mr. Reneau
became an independent geologist and formed Reneau Exploration & Development
Company which engaged in oil and mineral exploration for the next ten years.
During that time period he also served as President of the mineral division of
Intex, Inc., a publicly traded Texas company. In 1984, he founded
Intersources, Inc. and served as its President until 1987. Through his
companies, Mr. Reneau was under contract to Western Mining Company of Australia
and served as senior project geologist for Western's diamond and gold
exploration in Liberia, West Africa. Mr. Reneau served as President of
American Absorbents Natural Products, Inc. from approximately 1990 until 1992
and was instrumental in obtaining many of the Company's current mining claims.
He has published a number of articles on mining and mineral occurrences. He
received a degree in Geology in 1973 from Central Washington University and a
masters degree in Geological Engineering from Kennedy West University in 1995.
Age 46.

38
<PAGE> 39
Independent Manufacturer's Representatives: The Company contracts with a
number of independent manufacturer's representatives for the marketing of its
products in the agricultural marketplace. These independent manufacturer's
representatives come from an array of different company backgrounds in the
marketing field. The Company plans to continue the development of the market
for its agricultural products throughout the United States with an expanded
marketing group of independent manufacturer's representatives.

DIRECTORS OF THE COMPANY

33) NUMBER OF DIRECTORS: 3. IF DIRECTORS ARE NOT ELECTED ANNUALLY,
OR ARE ELECTED UNDER A VOTING TRUST OR OTHER ARRANGEMENT, EXPLAIN.

Directors are elected annually at the annual meeting of shareholders to serve
for the next year and until their successor is nominated and elected or
appointed in the event of resignation. Current directors may be nominated for
re- election at each annual meeting of shareholders.

34) INFORMATION CONCERNING OUTSIDE OR OTHER DIRECTORS (I.E., THOSE
NOT DESCRIBED ABOVE): NAME, AGE, OFFICE STREET ADDRESS, TELEPHONE NUMBER;
NAMES OF EMPLOYERS, TITLES, AND DATES OF POSITIONS HELD DURING PAST FIVE YEARS
WITH AN INDICATION OF JOB RESPONSIBILITIES; EDUCATION (DEGREES, SCHOOLS, AND
DATES). ALSO A DIRECTOR OF THE COMPANY? INDICATE AMOUNT OF TIME TO BE SPENT ON
COMPANY MATTERS IF LESS THAN FULL TIME.

William C. Branch, (3800 Hudson Bend Road, Austin, Texas 78734, Telephone
#512-266-2481) was President and Chief Executive Officer of Charles P. Davis
Hardware, Inc. from 1978 until 1982 when the business was sold to Handyman,
Inc. in San Diego, California. Following a period of retirement, he became the
Chairman of the Board and President of Branch International, Inc., operating
Branch Travel and has served in that capacity from 1985 until present. Mr.
Branch attended and received an AA degree from Marion Military Institute,
Marion, Alabama, in 1973. He received a B.S. degree in International Business
from The American College, Leysin, Switzerland, in 1977. After that, he
pursued graduate studies in International Business at the International
Business Institute in Switzerland. Mr. Branch became a director of the Company
in June 1995 and spends less than 10% of his time involved with Company
business. Age 43.

35a) HAVE ANY OF THE OFFICERS OR DIRECTORS EVER WORKED FOR OR MANAGED
A COMPANY (INCLUDING A SEPARATE SUBSIDIARY OR DIVISION OF A LARGER ENTERPRISE)
IN THE SAME BUSINESS AS THE COMPANY? EXPLAIN.

None of the Officers or Directors have ever worked for or managed a company in
the same business as the Company. The marketing of consumer products utilizing
zeolites is a new industry in the United States and the Company's management is
pioneering this industry in the United States.

b) IF ANY OF THE OFFICERS, DIRECTORS, OR OTHER KEY PERSONNEL HAVE
EVER WORKED FOR OR MANAGED A COMPANY IN THE SAME BUSINESS OR INDUSTRY AS THE
COMPANY OR IN A RELATED BUSINESS OR INDUSTRY, DESCRIBE WHAT PRECAUTIONS, IF ANY
(INCLUDING OBTAINING OF RELEASES OR CONSENTS FROM PRIOR EMPLOYERS), HAVE BEEN
TAKEN TO PRECLUDE CLAIMS BY PRIOR EMPLOYERS FOR CONVERSION OR THEFT OF TRADE
SECRETS, KNOW-HOW, OR OTHER PROPRIETARY INFORMATION.

The information requested in Item 35b is not applicable based upon the
information provided in Item 35a above.

c) IF THE COMPANY HAS NEVER CONDUCTED OPERATIONS OR IS OTHERWISE IN
THE DEVELOPMENT STAGE, INDICATE WHETHER ANY OF THE OFFICERS OR DIRECTORS HAS
EVER MANAGED ANY OTHER COMPANY IN THE START-UP OR DEVELOPMENT STAGE AND
DESCRIBE THE CIRCUMSTANCES, INCLUDING RELEVANT DATES.

Terry L. Young has been involved in the start up and development of a number of
companies from 1970 until the present time. These companies have been involved
in real estate marketing, management and development, oil

39
<PAGE> 40
and gas exploration, gold mining, communications, publishing and mineral
industry development. (See "Chief Executive Officer" above)

David W. Redding was instrumental in the development of and the Initial Public
Offering of a company involved in the alternative energy field from 1978 until
1988. The company ultimately became the largest in its industry type in the
United States. (See "Chief Financial Officer" above)

William C. Branch was involved in the continuing development of a company
involved in the hardware distribution industry from 1978 until 1982 when it was
sold to a national hardware distribution company. From 1985 until present he
has been involved in the development of an international travel agency. (See
"Outside Directors" above)

d) IF ANY OF THE COMPANY'S KEY PERSONNEL ARE NOT EMPLOYEES BUT ARE
CONSULTANTS OR OTHER INDEPENDENT CONTRACTORS, STATE THE DETAILS OF THEIR
ENGAGEMENT BY THE COMPANY.

Randall R. Reneau is an independent consulting geologist. The Company engages
his services on an "as needed" basis for geological work. Mr. Reneau is
currently engaged by the Company to prepare and file its permanent plan of
operations for its mining claims in the Harney Basin in Oregon. Mr. Reneau is
being re-imbursed for his monthly expenses and is being paid for his services
through the issuance of registered common stock to be issued pursuant to an S-8
Registration Statement to be filed with the Securities & Exchange Commission.

The independent manufacturer's representatives are contracted by the Company as
it expands its agricultural marketing into new areas. Independent
manufacturer's representatives are compensated pursuant to terms of an
independent manufacturer's representative agreement which generally compensates
them based upon the level of development in their assigned territory.

e) IF THE COMPANY HAS KEY MAN LIFE INSURANCE POLICIES ON ANY OF ITS
OFFICERS, DIRECTORS, OR KEY PERSONNEL, EXPLAIN, INCLUDING THE NAMES OF THE
PERSONS INSURED, THE AMOUNT OF INSURANCE, WHETHER THE INSURANCE PROCEEDS ARE
PAYABLE TO THE COMPANY, AND WHETHER THERE ARE ARRANGEMENTS THAT REQUIRE THE
PROCEEDS TO BE USED TO REDEEM SECURITIES OR PAY BENEFITS TO THE ESTATE OF THE
INSURED PERSON OR A SURVIVING SPOUSE.

The Company currently carries no "key man" life insurance policies on any of
its Officers, Directors or other key personnel.

36) IF A PETITION UNDER THE BANKRUPTCY ACT OR ANY STATE INSOLVENCY
LAWS WAS FILED BY OR AGAINST THE COMPANY OR ITS OFFICERS, DIRECTORS, OR OTHER
KEY PERSONNEL, OR A RECEIVER, FISCAL AGENT, OR SIMILAR OFFICER WAS APPOINTED BY
A COURT FOR THE BUSINESS OR PROPERTY OF ANY SUCH PERSONS, OR ANY PARTNERSHIP IN
WHICH ANY OF SUCH PERSONS WAS A GENERAL PARTNER AT OR WITHIN THE PAST FIVE
YEARS, OR ANY CORPORATION OR BUSINESS ASSOCIATION OF WHICH ANY SUCH PERSON WAS
AN EXECUTIVE OFFICER AT OR WITHIN THE PAST FIVE YEARS, SET FORTH BELOW THE NAME
OF SUCH PERSONS, AND THE NATURE AND DATE OF SUCH ACTIONS.

In 1982, Mr. Redding purchased, as a limited partner with no management
control, approximately a 2% interest in a tax shelter investment program. The
tax shelter investment program was ultimately audited by the Internal Revenue
Service and after numerous and lengthy appeals, by the general partner of the
program, through the Tax Court system, a portion of the tax shelter investment
program was disallowed, resulting in additional taxes, penalties and interest
to the individual limited partners who had participated in the program. In
1995, Mr. Redding sought and was granted relief from liability for these
additional taxes, penalties and interest through a specific code section of the
United States Bankruptcy Code.

NOTE: AFTER REVIEWING THE INFORMATION CONCERNING THE BACKGROUND OF
THE COMPANY'S OFFICERS, DIRECTORS, AND OTHER KEY PERSONNEL, POTENTIAL INVESTORS
SHOULD CONSIDER WHETHER OR NOT THESE PERSONS HAVE ADEQUATE

40
<PAGE> 41
BACKGROUND AND EXPERIENCE TO DEVELOP AND OPERATE THIS COMPANY AND TO MAKE IT
SUCCESSFUL. IN THIS REGARD, THE EXPERIENCE AND ABILITY OF MANAGEMENT ARE OFTEN
CONSIDERED THE MOST SIGNIFICANT FACTORS IN THE SUCCESS OF A BUSINESS.

PRINCIPAL STOCKHOLDERS

37) PRINCIPAL OWNERS OF THE COMPANY (THOSE WHO BENEFICIALLY OWN
DIRECTLY OR INDIRECTLY 10% OR MORE OF THE COMMON AND PREFERRED STOCK PRESENTLY
OUTSTANDING) STARTING WITH THE LARGEST COMMON STOCKHOLDER. INCLUDE SEPARATELY
ALL COMMON STOCK ISSUABLE UPON CONVERSION OF CONVERTIBLE SECURITIES
(IDENTIFYING THEM BY ASTERISK) AND SHOW AVERAGE PRICE PER SHARE AS IF
CONVERSION HAS OCCURRED. INDICATE BY FOOTNOTE IF THE PRICE PAID WAS FOR A
CONSIDERATION OTHER THAN CASH AND THE NATURE OF ANY SUCH CONSIDERATION.

<TABLE>
<CAPTION>
CLASS OF SHARES AVERAGE NUMBER OF PERCENT NUMBER OF SHARES HELD PERCENT
--------------- ------- --------- ------- --------------------- -------
COMMON STOCK AND PRICE OR SHARES NOW OF AFTER OFFERING IF ALL OF
---------------- -------- ---------- --- --------------------- --
COMMON STOCK OPTIONS BASIS PER HELD TOTAL SECURITIES SOLD TOTAL
-------------------- --------- ---- ----- --------------- -----
SHARE
-----
<S> <C> <C> <C> <C> <C>
Name:
Austin Young, Inc. $1.77 3,022,543 59.96% 3,022,543 48.82%
$3.00 988,000* 19.60% 988,000* 15.96%
Office Street Address:
3800 Hudson Bend Road
Austin, Texas 78734

Telephone No.:
(512)266-2481

Principal Occupation:
Majority Stockholder

Name:
Terry L. Young $1.77 3,022,543 59.96% 3,022,543 48.82%
$3.00 988,000* 19.60% 988,000* 15.96%
Office Street Address:
3800 Hudson Bend Road
Austin, Texas 78734

Telephone No.:
(512)266-2481

Principal Occupation:
Chief Executive Officer
</TABLE>

NOTE: Terry L. Young is listed above only as beneficial owner of the
same shares that are owned in the name of Austin Young, Inc., a company which
Mr. Young controls. The total combined number of shares and options controlled
by Austin Young, Inc. and Mr. Young is 3,022,354 and 988,000, respectively.

1) The total number of shares of common stock outstanding as of July
31, 1996, was 5,040,855. As of such date, Austin Young, Inc. had the right to
acquire 988,000 shares of common stock through the exercise of an option
granted to it by the Company. Such shares, which are not currently outstanding
but which are subject to such

41
<PAGE> 42
option, are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares of common stock owned by Austin Young, Inc.,
Terry L. Young and the executive officers and directors as a group, but shall
not be deemed outstanding for the purpose of computing the percentage of the
common stock owned by any other person.

2) Austin Young, Inc. is controlled by Terry L. Young, a director,
officer and controlling shareholder of the Company. Of the shares set forth
above, 47,000 are held in brokerage accounts in the name of Austin Young, Inc.

3) Of the shares set forth above for Terry L. Young, 2,955,918 are
owned of record by Austin Young, Inc., a corporation controlled by Mr. Young;
988,000 represent options granted to Austin Young, Inc.; 47,000 are held in
brokerage accounts in the name of Austin Young, Inc.; 16,125 are held in
brokerage accounts in the name of Mr. Young; 1,000 shares are pending transfer
to Donald L. Gillespie; and, 3,500 are owned of record by the spouse of Mr.
Young.

** Mr. Young and Austin Young currently have no plans to exercise the option
that it holds for 988,000 shares. If said option is not exercised by Mr. Young
and Austin Young, Inc., the percentage of ownership would decline from 66.52%
to 59.96% relative to the currently outstanding shares. Further, the ownership
percentage would decline to 48.82% after the issuance of the common shares
pursuant to this offering. The percentage of ownership would further decline
to 41.17% if all warrants issued herein are exercised at some point in the
future and before their expiration.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Unexercised in-the-Money
Acquired Options/SARs Options/SARs
on Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Terry L. Young,
CEO -0- -0- 988,000 E -0-
</TABLE>

38) NUMBER OF SHARES BENEFICIALLY OWNED BY OFFICERS AND DIRECTORS AS A
GROUP: BEFORE OFFERING: 3,347,387 shares plus 988,000 options to purchase (see
** at Item 37) SHARES (71.91% OF TOTAL OUTSTANDING). AFTER OFFERING: A)
ASSUMING MINIMUM SECURITIES SOLD: 3,347,387 SHARES plus 988,000 options to
purchase (see ** at Item 37). (71.91% OF TOTAL OUTSTANDING); B) ASSUMING
MAXIMUM SECURITIES SOLD: 3,347,387 shares plus 988,000 options to purchase
SHARES (52.05% OF TOTAL OUTSTANDING). (ASSUMES ALL OPTIONS EXERCISED AND ALL
CONVERTIBLE SECURITIES CONVERTED.)

MANAGEMENT RELATIONSHIPS, TRANSACTIONS, AND REMUNERATION

39a) IF ANY OF THE OFFICERS, DIRECTORS, KEY PERSONNEL, OR PRINCIPAL
STOCKHOLDERS ARE RELATED BY BLOOD OR MARRIAGE, PLEASE DESCRIBE.

None of the Company's Officers, Directors, key personnel or principal
stockholders are related by blood or marriage.

42
<PAGE> 43
b) IF THE COMPANY HAS MADE LOANS TO OR IS DOING BUSINESS WITH ANY OF
ITS OFFICERS, DIRECTORS, KEY PERSONNEL, OR 10% STOCKHOLDERS, OR ANY OF THEIR
RELATIVES (OR ANY ENTITY CONTROLLED DIRECTLY OR INDIRECTLY BY ANY SUCH PERSONS)
WITHIN THE LAST TWO YEARS, OR PROPOSES TO DO SO WITHIN THE FUTURE, EXPLAIN.
(THIS INCLUDES SALES OR LEASE OF GOODS, PROPERTY, OR SERVICES TO OR FROM THE
COMPANY, EMPLOYMENT OR STOCK PURCHASE CONTRACTS, ETC.) STATE THE PRINCIPAL
TERMS OF ANY SIGNIFICANT LOANS, AGREEMENTS, LEASES, FINANCING, OR OTHER
ARRANGEMENTS.

Austin Young, Inc. furnishes, at minimal cost to the Company, the office space
and certain equipment currently used by the Company. Austin Young, Inc. also
pays the salary of Terry L. Young, who devotes a significant amount of time and
effort to the business of the Company.

Austin Young, Inc. has advanced working capital funds to the Company during the
previous two years and at the present time, the Company is indebted to Austin
Young, Inc. in the approximate amount of $182,539.

Until February 1, 1998, Austin Young has the right to purchase up to 988,000
common shares of the Company at a price of $3.00 per common share pursuant to
an option agreement.

c) IF ANY OF THE COMPANY'S OFFICERS, DIRECTORS, KEY PERSONNEL, OR 10%
STOCKHOLDERS HAS GUARANTEED OR CO-SIGNED ANY OF THE COMPANY'S BANK DEBT OR
OTHER OBLIGATIONS, INCLUDING ANY INDEBTEDNESS TO BE RETIRED FROM THE PROCEEDS
OF THIS OFFERING, EXPLAIN AND STATE THE AMOUNTS INVOLVED.

The information requested by Item 39c is not applicable.

40a) LIST ALL REMUNERATION BY THE COMPANY TO OFFICERS, DIRECTORS, AND
KEY PERSONNEL FOR THE LAST FISCAL YEAR.

The following table sets forth the aggregate executive compensation paid by the
Company for services to the Company as to officers, directors and key personnel
of the Company, and as to the aggregate of all officers and directors as a
group for the last fiscal year:

<TABLE>
<CAPTION>
CASH OTHER
---- -----
<S> <C> <C>
Chief executive officer $ 36,000 $ 0
Chief operating officer N/A N/A
Chief accounting officer $ 36,500 $ 0

Key personnel $ 0 $ 0

Others $ 0 $ 0

Total $ 72,500 $ 0

Directors as a group (3 persons) $ 0 $ 0
</TABLE>

1) Excludes the value of personal use of Company office facilities
and certain other personal benefits. The value of such personal benefits
cannot be specifically or precisely ascertained without unreasonable effort.
After reasonable inquiry, however, the Company believes that the aggregate
annual amount of such personal benefits does not exceed $50,000 per person or
10% of the total annual salary and bonus for the named executive officer or
directors as a group.

2) In 1993, 1,000,000 options were issued to Austin Young, Inc., a
company controlled by Mr. Young, and are exercisable at $3.00 per share at any
time prior to February 1, 1998. The exercise price represents the market price

43
<PAGE> 44
of the common stock on February 1, 1993, the date of grant. The options
represent all of the outstanding options granted by the Company. On June 16,
1993, Austin Young, Inc. exercised its option to acquire 12,000 shares. The
market price of the common stock on such date was $4.00 per share. No options
have been exercised since that date. (See "Certain Relationships and Related
Transactions.")

Neither the Company nor its wholly owned subsidiary has a written employment
contract with any of its officers. All of the officers, with the exception of
Mr. Young, are paid a salary by the Company.

Under Utah law the Company is entitled to pay compensation to its directors,
unless the articles or bylaws provide otherwise. The Company has not adopted a
policy of compensating its directors, and neither the Articles of
Incorporation, as amended, nor the current bylaws prohibit such payments. The
Company may implement a compensation plan or a stock option plan to compensate
its directors at some point in the future.

b) IF REMUNERATION IS EXPECTED TO CHANGE OR HAS BEEN UNPAID IN PRIOR
YEARS, EXPLAIN.

In order to facilitate the cash flow during the development stage of the
Company, salaries paid to the Officers have been held to minimum levels with
Terry L. Young drawing no salary from the Company. Upon completion of the
offering, Mr. Redding's salary will be increased to a minimum level of $75,000
per annum and Mr. Young will begin drawing a salary with a minimum level of
$75,000 per annum. The Company will also add two administrative personnel to
relieve this workload from the management so that they can concentrate all of
their efforts on the growth and expansion of the Company's marketing efforts.
A professional marketing executive will also be added at an estimated $60,000
per annum.

c) IF ANY EMPLOYMENT AGREEMENTS EXIST OR ARE CONTEMPLATED, DESCRIBE.

The information requested by Item 40c is not applicable.

41a) NUMBER OF SHARES SUBJECT TO ISSUANCE UNDER PRESENTLY OUTSTANDING
STOCK PURCHASE AGREEMENTS, STOCK OPTIONS, WARRANTS OR RIGHTS: 988,000 SHARES
(11.86% OF TOTAL SHARE TO BE OUTSTANDING AFTER THE COMPLETION OF THE OFFERING
IF ALL SECURITIES SOLD, ASSUMING EXERCISE OF OPTIONS AND CONVERSION OF
CONVERTIBLE SECURITIES). INDICATE WHICH HAVE BEEN APPROVED BY SHAREHOLDERS.
STATE THE EXPIRATION DATES, EXERCISE PRICES, AND OTHER BASIC TERMS FOR THESE
SECURITIES.

All 988,000 of the outstanding options to purchase securities have been
approved by the shareholders of the Company. These securities, exercisable at
$3.00 per common share expire February 1, 1998.

b) NUMBER OF COMMON SHARES SUBJECT TO ISSUANCE UNDER EXISTING STOCK
PURCHASE OR OPTION PLANS BUT NOT YET COVERED BY OUTSTANDING PURCHASE
AGREEMENTS, OPTIONS, OR WARRANTS: 1,000,000 SHARES.

c) DESCRIBE THE EXTENT TO WHICH FUTURE STOCK PURCHASE AGREEMENTS,
STOCK OPTIONS, WARRANTS, OR RIGHTS MUST BE APPROVED BY SHAREHOLDERS.

The stock options that may be granted pursuant to Item 41b above are not
subject to shareholder approval since the stock option plan under which the
options will be granted has been approved by the shareholders. Stock options
to be issued pursuant to the stock option plan are at the discretion of the
Company's board of directors and are to be issued at the closing bid price of
the Company's common stock on the date of grant.

42) IF THE BUSINESS IS HIGHLY DEPENDENT ON THE SERVICES OF CERTAIN
KEY PERSONNEL, DESCRIBE ANY ARRANGEMENTS TO ASSURE THAT THESE PERSONS WILL
REMAIN WITH THE COMPANY AND NOT COMPETE UPON ANY TERMINATION.

44
<PAGE> 45
The nature and scope of the Company's holdings of zeolite properties within the
United States would make it difficult for any key personnel leaving the Company
to compete directly with the Company on any broad scope.

The Company's key personnel's equity positions in the Company's common stock
and eligibility to participate in the Company's stock option plan should be
sufficient enough to retain key personnel.

The independent manufacturer's representatives have a clause within their
contracts which prohibits competition with the Company while they are under
contract with the Company and for specified periods of time upon termination of
their contracts with the Company.

NOTE: AFTER REVIEWING THE ABOVE, POTENTIAL INVESTORS SHOULD CONSIDER
WHETHER OR NOT THE COMPENSATION TO MANAGEMENT AND OTHER KEY PERSONNEL DIRECTLY
OR INDIRECTLY, IS REASONABLE IN VIEW OF THE PRESENT STAGE OF THE COMPANY'S
DEVELOPMENT.

LITIGATION

43) DESCRIBE ANY PAST, PENDING, OR THREATENED LITIGATION OR
ADMINISTRATIVE ACTION WHICH HAS HAD OR MAY HAVE A MATERIAL EFFECT ON THE
COMPANY'S BUSINESS, FINANCIAL CONDITION, OR OPERATIONS, INCLUDING ANY
LITIGATION OR ACTION INVOLVING THE COMPANY'S OFFICERS, DIRECTORS, OR OTHER KEY
PERSONNEL. STATE THE NAMES OF THE PRINCIPAL PARTIES, THE NATURE AND CURRENT
STATUS OF THE MATTERS, AND AMOUNTS INVOLVED. GIVE AN EVALUATION BY MANAGEMENT
OR COUNSEL, TO THE EXTENT FEASIBLE, OF THE MERITS OF THE PROCEEDINGS OR
LITIGATION AND THE POTENTIAL IMPACT ON THE COMPANY'S BUSINESS, FINANCIAL
CONDITION, OR OPERATIONS.

Neither the Company, any of its properties, nor its subsidiary is a party to
any material pending legal proceeding or government actions, including any
material bankruptcy, receivership, or similar proceedings. Management of the
Company does not believe that there are any material proceedings to which any
director, officer or affiliate of the Company or its subsidiary, any owner of
record, beneficially, of more than 5 percent of the common stock of the
Company, or any associate of any such director, officer, or affiliate of the
Company, or security holder is a party adverse to the Company or its subsidiary
or has a material interest adverse to the Company or its Subsidiary.

FEDERAL TAX ASPECTS

44) IF THE COMPANY IS AN S CORPORATION UNDER THE INTERNAL REVENUE
CODE OF 1986, AND IT IS ANTICIPATED THAT ANY SIGNIFICANT TAX BENEFITS WILL BE
AVAILABLE TO INVESTORS IN THIS OFFERING, INDICATE THE NATURE AND AMOUNT OF SUCH
ANTICIPATED TAX BENEFITS AND THE MATERIAL RISKS FOR THEIR DISALLOWANCE. ALSO,
STATE THE NAME, ADDRESS, AND TELEPHONE NUMBER OF ANY TAX ADVISOR THAT HAS
PASSED UPON THESE TAX BENEFITS. ATTACH ANY OPINION OR DESCRIPTION OF THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES BY THE TAX ADVISOR. NAME OF
TAX ADVISOR, ADDRESS, TELEPHONE NUMBER.

The information requested by Item 44 is not applicable since the Company is
not, nor has it ever been, classified as an S Corporation.

NOTE: POTENTIAL INVESTORS ARE ENCOURAGED TO HAVE THEIR OWN PERSONAL
TAX CONSULTANT CONTACT THE TAX ADVISOR TO REVIEW DETAILS OF THE TAX BENEFITS
AND THE EXTENT THAT THE BENEFITS WOULD BE AVAILABLE AND ADVANTAGEOUS TO THE
PARTICULAR INVESTOR.

45
<PAGE> 46
MISCELLANEOUS FACTORS

45) DESCRIBE ANY OTHER MATERIAL FACTORS, EITHER ADVERSE OR FAVORABLE,
THAT WILL OR COULD AFFECT THE COMPANY OR ITS BUSINESS (FOR EXAMPLE, DISCUSS ANY
DEFAULTS UNDER MAJOR CONTRACTS, ANY BREACH OF BYLAW PROVISIONS, ETC.) OR WHICH
ARE NECESSARY TO MAKE ANY OTHER INFORMATION IN THIS OFFERING CIRCULAR NOT
MISLEADING OR INCOMPLETE.

Known zeolite deposits occur only in limited areas of the United States with
the most significant occurrences being located in the northwestern United
States. The Company's management believes that the Company is the world's
largest corporate holder of zeolite reserves, controlling what is believes to
be in excess of 70% of all the zeolite reserves in the United States. Based on
certain geological reports and geological studies the Company may control in
excess of 90% of the zeolite reserves in the United States.

Management of the Company believes that the United States represents the
largest and easiest to address market for its agricultural products. However,
the Company has recently begun exports to the European marketplace. With the
higher costs of competing products in the European marketplace, management
believes its agricultural products will be competitive in the European
marketplace. Export sales to the European markets may contribute significant
revenues to the Company. However, there is no assurance when, or if, this will
ever occur.

FINANCIAL STATEMENTS

46) ATTACH REVIEWED OR AUDITED FINANCIAL STATEMENTS FOR THE LAST
FISCAL YEAR AND UNAUDITIED FINANCIAL STATEMENTS FOR ANY INTERIM PERIODS
THEREAFTER. IF SINCE THE BEGINNING OF THE LAST FISCAL YEAR THE COMPANY HAS
ACQUIRED ANOTHER BUSINESS THE ASSETS OR NET INCOME OF WHICH WERE IN EXCESS OF
20% OF THOSE FOR THE COMPANY, SHOW PRO FORMA COMBINED FINANCIAL STATEMENTS AS
IF THE ACQUISITION HAD OCCURRED AT THE BEGINNING OF THE COMPANY'S LAST FISCAL
YEAR.

THE COMPANY DOES HEREBY AGREE TO PROVIDE INVESTORS IN THIS OFFERING FOR FIVE
YEARS (OR SUCH LONGER PERIOD AS REQUIRED BY LAW) HEREAFTER ANNUAL FINANCIAL
REPORTS CONTAINING A BALANCE SHEET AS OF THE END OF THE COMPANY'S FISCAL YEAR
AND A STATEMENT OF INCOME FOR SAID FISCAL YEAR, ALL PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND ACCOMPANIED BY AN INDEPENDENT
ACCOUNTANT'S REPORT. IF THE COMPANY HAS MORE THAN 100 SECURITY HOLDERS AT THE
END OF THE FISCAL YEAR, THE FINANCIAL STATEMENTS SHALL BE AUDITED.

46
<PAGE> 47
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
American Absorbents Natural Products, Inc.
and Subsidiary
(a development stage company)

We have audited the accompanying consolidated balance sheets of American
Absorbents Natural Products, Inc.(a Utah Corporation) and Subsidiary (a
development stage company) as of January 31, 1996 and 1995 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years ended January 31, 1996, 1995 and 1994 and for the period from
inception on February 9, 1984 through January 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Absorbents
Natural Products, Inc. and Subsidiary (a development stage company) as of
January 31, 1996 and 1995 and the results of their operations and their cash
flows for the years ended January 31, 1996, 1995 and 1994 and for the period
from inception on February 9, 1984 through January 31, 1996 in conformity with
generally accepted accounting principles.

Orton & Company
Salt Lake City, Utah
February 24, 1996

47
<PAGE> 48

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)

Consolidated Financial Statements

January 31, 1996 and 1995

48
<PAGE> 49

C O N T E N T S

<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 47

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 50

Consolidated Statements of Operations . . . . . . . . . . . . . . . . . 52

Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . 53

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . 56

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . 58
</TABLE>

49
<PAGE> 50
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
January 31, 1996 and 1995

<TABLE>
<CAPTION>
ASSETS

January 31,
-----------------------------

1996 1995
------------- -----------
<S> <C>
CURRENT ASSETS

Cash $ 1,107 $2,207

Accounts receivable (Note 1)
Trade 7,562 1,623
Other 580 9,976

Prepaid expenses (Note 1) 35,658 38,812

Inventory (Note 1) 109,098 98,681
------------- -----------

Total Current Assets 154,005 151,299
------------- -----------

PROPERTY AND EQUIPMENT (Note 7)

Plant (net) 223,916 168,750

Machinery and equipment (net) 6,607 6,314
------------- -----------

Total Property and Equipment 230,523 175,064
------------- -----------

OTHER ASSETS

Mining claims (Note 8) 5,081,669 5,081,669
Prepaid expenses (Note 1) -- 12,750
Business development costs (Note 1) 750 1,356
Product tradenames (Note 9) 2,500 7,500
------------- -----------

Total Other Assets 5,084,919 5,103,275
------------- -----------
TOTAL ASSETS $ 5,469,447 $ 5,429,638
============= ===========
</TABLE>

50
<PAGE> 51
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
January 31, 1996 and 1995

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
January 31,
-----------------------------

1996 1995
------------- -----------
<S> <C> <C>
CURRENT LIABILITIES

Accounts payable and accrued expenses $ 13,060 $ 60,949
Current portion of note payable - related party
(Note 10) -- 45,372
Current portion of note payable (Note 11) 127,520 10,020
------------- -----------

Total Current Liabilities 140,580 116,341
------------- -----------

LONG-TERM DEBT

Notes payable-related party-less current portion (Note 10) 182,539 90,745
Notes payable - less current portion (Note 11) -- 127,519
------------- -----------

Total Long-term Debt 182,539 218,264
------------- -----------

TOTAL LIABILITIES 323,119 334,605
------------- -----------

STOCKHOLDERS' EQUITY

Common stock; authorized 50,000,000
common shares at $0.001 par value;
4,969,520 and 4,746,352 shares issued
and outstanding, respectively 4,970 4,747
Capital in excess of par value 6,851,728 6,399,189
Deficit accumulated during the
development stage (1,710,370) (1,308,903)
------------- -----------

Total Stockholders' Equity 5,146,328 5,095,033
------------- -----------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,469,447 $ 5,429,638
============= ===========
</TABLE>

51
<PAGE> 52
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception
On February 9,
For the Years Ended 1984 Through
January 31, January 31,
-----------------------------------------------
1996 1995 1994 1996
-------------- ------------ -------------- -----------
<S> <C> <C> <C>
REVENUE

Net Sales $ 26,070 $ 69,467 $ 20,323 $ 170,363
Cost of goods sold 16,950 45,153 8,437 103,974
-------------- ------------ -------------- -----------
Gross Profit (Note 1) 9,120 24,314 11,886 66,389
-------------- ------------ -------------- -----------

EXPENSES

General and administrative 392,835 714,403 314,208 1,721,016
Depreciation and
amortization 17,652 18,859 8,395 53,396
-------------- ------------ -------------- -----------

Total Expenses 410,487 773,262 322,603 1,774,412
-------------- ------------ -------------- -----------

Net loss before provision
for income taxes (401,36) (708,948) (310,717) (1,708,023)

Provision for income taxes 100 100 145 2,347
-------------- ------------ -------------- -----------

NET LOSS $ (401,467) $ (709,048) $ (310,862) $(1,710,370)
============== ============= ============== ============

WEIGHTED AVERAGE
LOSS PER SHARE $ (.08) $ (.15) $ (.07) $ (1.14)
============== ============= ============== ===========

AVERAGE SHARES
OUTSTANDING 4,914,777 4,711,409 4,517,298 1,497,558
============== ============= ============== ===========
</TABLE>

52
<PAGE> 53
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
From Inception on February 9, 1984 to January 31, 1996

Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid-in Development
Shares Amount Capital Stage
----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Balance at inception-February 9, 1984 - $ - $ - $ -

Issuance of common stock for cash (Note 3) 37,500 38 962 -

Expenses paid by shareholders for the
years ended January 31, 1990 - - 518 -

Net loss for the years ended January 31, 1990 - - - (1,618)
---------------------------------------------------
Balance, January 31, 1990 37,500 38 1,480 (1,618)

Issuance of common stock for
services rendered in August 1990 391,000 391 7,429 -

Issuance of common stock in September
1990 for various assets from
Austin-Young, Inc. (Note 5) 50,000 50 198,890 -

Issuance of common stock for distribution
licenses from Global Environmental Industries
(GEI) for UT & WA, September 1990 (Note 3) 50,000 50 37,070 -

Contribution from Austin-Young, Inc. - - 13,500 -

Issuance of common stock for
services rendered in October 1990 12,500 12 37,488 -

Net loss for the year ended January 31, 1991 - - - (57,756)
---------------------------------------------------
Balance, January 31, 1991 541,000 $ 541 $ 295,857 $ (59,374)

Common stock returned in exchange for
common stock of GEI in March 1991 (Note 5) (17,000) (17) (85,423) -

Repurchase of common stock from
Austin-Young, Inc. in May 1991 (Note 5) (338,000) (338) (64,682) -

Cancellation of common shares (20,000) (20) 20

Issuance of common stock for the
purchase of product from Steelhead
Specialty Minerals in August 1991 (Note 6) 10,000 10 74,990 -
</TABLE>

53
<PAGE> 54

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to January 31, 1996
<TABLE>
<CAPTION>

Deficit
Accumulated
Common Stock Additional During the
--------------------------- Paid-in Development
Shares Amount Capital Stage
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Issuance of common stock for the
purchase of mining claims in
October 1991 (Note 8) 13,214 13 184,987 -

Common stock cancelled by officers/
directors in January 1992 (20,000) (20) 20 -

Contribution from Austin-Young, Inc. - - 17,000 -

Net loss for the year ended January 31, 1992 - - - (93,315)
------------------------------------------------------------

Balance, January 31, 1992 169,214 $ 169 $ 422,769 $ (152,689)

Issuance of common stock for
the acquisition of Geo- Environment
Services, Inc. in February 1992 (Note 5) 701,800 702 96,442 -

Issuance of common stock for
the purchase of mining claims
in March 1992 (Note 5) 243,000 243 4,859,757 -

Common stock cancelled by officer
and directors in June 1992 (Note 6) (32,430) (32) 32 -

Cancellation of fractional shares
due to reverse stock split (21) - -
-

Contribution by Austin-Young, Inc. 10,000

Issuance of common stock (pursuant to
a repurchase agreement in May, 1991)
to Austin-Young, Inc. for relief of
debt in July 1992 (Note 5) 3,380,000 3,380 61,620 -

Net loss for the year ended January 31, 1993 - - - (136,304)
------------------------------------------------------------

Balance, January 31, 1993 4,461,563 4,462 5,450,620 (288,993)

Issuance of common stock for
services rendered in June 1993 (Note 6) 17,800 18 26,682 -

Issuance of common stock to Austin-
Young, Inc. in June 1993 (Note 5) 12,000 12 35,988 -

Issuance of common stock for cash
October 1993 (Note 12) 66,667 67 199,936 -
</TABLE>

54
<PAGE> 55

Deficit
Accumulated
Common Stock Additional During the
---------------------- Paid-in Development
Shares Amount Capital Stage
------------ -------- -------------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock as down payment
on building October 1993 (Note 5) 6,000 6 29,994 -

Issuance of common stock for services
rendered October 1993 (Note 6) 17,000 17 50,983 -

Issuance of common stock for cash
December 1993 (Note 12) 80,072 80 191,321 -

Contribution by Austin-Young, Inc. 36,000

Net loss for the year ended
January 31, 1994 - - (310,862)
------------ -------- -------------- -----------
Balance, January 31, 1994 4,661,102 $ 4,662 $ 6,021,524 $ (599,855)

Issuance of common stock for services
rendered February 1994 (Note 6) 6,000 6 29,994 -

Issuance of common stock for services
rendered in June 1994 (Note 6) 41,750 42 175,458 -

Issuance of common stock in a private
offering 22,500 22 89,978 -

Issuance of common stock for services
rendered in November 1994 (Note 6) 15,000 15 46,235 -

Contribution by Austin-Young, Inc. 36,000

Net loss for the year ended January 31, 1995 - - - (709,048)
------------ -------- -------------- -----------
Balance, January 31, 1995 4,746,352 $ 4,747 $ 6,399,189 $(1,308,903)

Issuance of common stock
for services (Note 6) 9,000 9 22,391

Issuance of common stock in
a private offering (Note 12) 214,168 214 394,148

Contribution by Austin-Young, Inc. 36,000

Net loss for the year ended
January 31, 1996 - - - (401,467)
------------ -------- -------------- -----------
Balance at January 31, 1996 4,969,520 $ 4,970 $ 6,851,728 $(1,710,370)
============ ======== ============== ===========
</TABLE>

55
<PAGE> 56
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
From
Inception on
For the Years Ended February 9,
January 31, 1984 Through
-------------------------------------------------- January 31,
1996 1995 1994 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (401,467) $ (709,048) $ (340,862) $ (1,710,370)
Depreciation and amortization 17,652 18,859 8,395 53,396
(Increase) decrease in receivables 3,457 (11,599) 5,565 (8,142)
Decrease (increase) in prepaid expenses 15,904 52,136 (91,698) (23,658)
Decrease (increase) in inventory (10,417) 25,051 (13,681) (35,923)
Increase (decrease) in payables (47,889) (2,151) 41,187 12,070
Decrease (increase) in deferred
offering costs - 56,180 (56,180) -
Stock issued for services 22,400 251,750 77,700 397,170
Expenses paid by shareholder 36,000 36,000 36,000 149,018
-------------- -------------- -------------- -------------

Net Cash Used by Operating
Activities (364,360) (282,822) (303,574) (1,116,439)
-------------- -------------- -------------- -------------

Cash Flows From Investing Activities
Purchase of fixed assets (67,505) (6,908) (150,000) (227,115)
Purchase of product tradenames - - (1,958) (26,958)

Organization costs - - (1,526)

Purchase/sale of mining - - -

development costs - - 8,320 7,920

Purchase of mining claims - - (260) (58,599)

Sale of licenses - - 150,000

Purchase of stock - - - (65,000)
-------------- -------------- -------------- -------------

Net Cash Used by Investing
Activities (67,505) (6,908) (143,898) (221,276)
-------------- -------------- -------------- -------------

Cash Flows From Financing Activities
Issuance of common stock 394,362 90,000 427,401 1,013,763
Issuance of notes payable 46,423 67,440 233,150 502,364
Principal payments on long-term
debt (10,020) (8,673) (71,612) (127,305)
-------------- -------------- -------------- -------------

Net Cash Provided by Financing
Activities 430,765 148,767 588,939 1,388,822
-------------- -------------- -------------- -------------

Net (Decrease) Increase in Cash (1,100) (140,963) 141,467 1,107

Cash at Beginning of Period 2,207 143,170 1,703 -
-------------- -------------- -------------- -------------

Cash at End of Period $ 1,107 $ 2,207 $ 143,170 $ 1,107
============== ============== ============== =============
</TABLE>

56
<PAGE> 57
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)

<TABLE>
<CAPTION> From
Inception on
February 9,
For the Years Ended 1984 Through
January 31, January 31,
-------------------------------------------------- --------------
1996 1995 1994 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Supplemental cash flow information:

Cash Paid For:
Interest $ 18,834 $ 18,859 $ 12,262 $ 52,697
Income Taxes 100 100 145 2,347

Non-Cash Transactions:
Stock issued for mining claims $ - $ - $ - $5,045,000
Stock issued for down
payment on building $ - $ - $ 30,000 $ 30,000
Stock issued for services $ 22,400 $ 251,750 $ 77,700 $ 397,170
Stock issued for stock of
Geo-Environment Services, Inc. $ - $ - $ - $ 97,144
Stock issued for Inventory $ - $ - $ - $ 75,000
Stock issued for assets from
Austin-Young, Inc. and
Global Environmental Industries $ - $ - $ - $ 236,060
</TABLE>

57
<PAGE> 58
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Organization
American Absorbents Natural Products, Inc. was incorporated on February
9, 1984 under the laws of the State of Utah and under the name of TPI Land,
Inc. as a wholly-owned subsidiary of TPI, Inc. On September 14, 1990, the
Company changed its name to Environmental Fuels, Inc. and began developing its
involvement in various phases of the conversion of vehicles to operating on
compressed natural gas. That developing business was sold on April 23, 1991
(see Note 3).

On May 6, 1991, the Company changed its name to Geo-Environmental
Resources, Inc. and is now developing its involvement in the distribution of
zeolite, a mineral product which is an absorbent and has many potential uses
such as oil and gas well cleanup, shoe and refrigerator freshener, landfill
absorption, and other agricultural uses.

On February 6, 1992, the Company acquired the outstanding stock of
Geo-Environment Services, Inc., a wholly owned subsidiary involved in marketing
of the zeolite products. The transaction was accounted for at historical cost
in a manner similar to that in pooling of interest accounting for business
combinations.

In 1996, the Company changed its name to American Absorbents Natural
Products, Inc. and the name of its subsidiary to American Absorbents, Inc.

Principles of Consolidation
The consolidated financial statements include the accounts of American
Absorbents Natural Products, Inc. and its subsidiary American Absorbents, Inc.
Collectively, these entities are referred to as the Company. All significant
intercompany transactions and accounts have been eliminated.

Method of Accounting
The Company recognized income and expenses according to the accrual
method of accounting. Expenses are recognized when performance is
substantially complete and income is recognized when earned. Earnings (loss)
per share are computed based on the weighted average method. Stock options
currently outstanding were not used in calculating earnings per share since the
effect would be antidilutive. The fiscal year of the Company ends January
31 of each year. The financial statements reflect activity from inception,
February 9, 1984.

Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.

Nonmonetary Transactions
Nonmonetary transactions are transactions for which no cash was
exchanged and for which shares of common stock were exchanged for assets.
These transactions are recorded at fair market value as determined by the board
of directors.

58
<PAGE> 59

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories
Inventories are stated at the lower of cost (FIFO method) or market,
and consist of finished goods and packaging materials. In 1995, the Company
wrote off $42,702 of obsolete inventory and has included this amount as part of
cost of goods sold.

Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts. This amount was determined to be $0 and $0 at January 31, 1996 and
1995 after writing off all accounts determined to be uncollectible. Other
accounts receivable consists of $580 in employee receivables.

Prepaid Expenses
Prepaid expenses at January 31, 1996 consist of the following:

<TABLE>
<S> <C>
Prepaid mining land lease $ 22,908
Prepaid consulting fees 12,750
-------------
$ 35,658
=============
</TABLE>

Business Development Costs
Business Development costs mainly consist of video production cost for a
business promotional video and product packaging design. These costs are
amortized over the estimated useful life of the cost, which is 5 years, The
costs and accumulated amortization at January 31, 1996 are as follows:

<TABLE>
<S> <C>
Business development costs $ 3,026
Accumulated amortization (2,276)
----------

$ 750
==========
</TABLE>

Mining Claims
Mining claims are stated at the lower of cost or market, whichever is
lower.

Any costs incurred for the betterment or increase the expected
efficiency of expectations related to the extraction from the Company's mining
claims are capitalized and charged off to operations over the expected economic
life of the claims.

The Company has adopted SFAS statement #121 which requires a review of
any potential for the impairment of value of any long-lived assets. It is the
policy of the Company to annually review the future economic benefit of all
long-lived assets and to charge off to operations any potential impairment of
value of long-lived assets when applicable.

59
<PAGE> 60
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 2 - DEVELOPMENT STAGE ENTERPRISE

The Company, per FASB Statement No. 7, is properly accounted for and
reported as a development stage enterprise. Substantially all of the Company's
efforts since its formation have been devoted to establishing its new business.
No significant revenue has been earned as of the balance sheet date.
Operations have been devoted to raising capital, purchasing zeolite property
and establishing a marketing plan.

Continuation of the development effort is contingent upon the Company
raising sufficient capital from shareholders or other sources. It is
managements' intent to raise capital and further develop the marketing of its
zeolite products.

NOTE 3 - COMMON STOCK AND STOCKHOLDERS' EQUITY

During the periods shown, the Company had a one-for-two reverse stock
split and a one for ten reverse stock split. The financial statements have
been retroactively restated to reflect the stock splits.

Stock of the Company has been issued for cash, license agreements,
mining claims, compensation for services, and in exchange for other stock.

On February 10, 1984, the Company issued 37,500 shares of its stock to
TPI, Inc. for $1,000 cash. On June 30, 1984, TPI, Inc. distributed the 37,500
shares to its stockholders in a partial liquidating dividend.

In August and September 1990, control of the Company was acquired by
Austin-Young, Inc. and shares of stock were issued to Austin-Young, Inc. and to
some of its officers and directors (see Note 5).

In September 1990, the Company acquired four license agreements to
distribute the products of Natural Gas Resources, Inc., (NGRI) a wholly-owned
subsidiary of Global Environmental Industries, Inc. NGRI is engaged in the
business of licensing the operations of compressed natural gas conversion
centers and natural gas refueling stations. NGRI has certain patented products
used in the conversion of vehicles from gasoline and diesel to the use of
natural gas. Under these license agreements, the Company acquired the right to
distribute the products of NGRI in San Antonio, Texas (metropolitan area);
Burnet County, Texas; state of Utah; and the state of Washington. On April 23,
1991, the Company sold the license agreements along with stock of Global
Environmental Industries, Inc. and Natural Gas Industries, Inc. for $150,000.
All assets were sold at book value and no gain or loss was recognized on the
sale.

In August of 1991 the Company issued 10,000 shares of stock at $7.50 per
share for the rights to two zeolite products of Steelhead Specialty Mineral,
Inc. (see Note 9).

In October 1991 the Company issued 13,214 shares of stock at $14 per
share for mining claims in Harney County, Oregon and in March 1992, issued
243,000 shares at $20 per share for additional zeolite mining claims in the
same area (see Note 8).

60
<PAGE> 61
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 3- COMMON STOCK AND STOCKHOLDERS' EQUITY (Continued)

In February 1992 the Company issued 701,800 shares at $0.14 per share
for all the outstanding stock of American Absorbents, Inc. (AAI) which became a
wholly owned subsidiary. AAI had, prior to being acquired, purchased zeolite
mining claims in Mohave County, Arizona (see Note 5).

NOTE 4 - INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" in the fiscal year ended January 31, 1996 and has
applied the provisions of the statement on a retroactive basis to the previous
fiscal year which resulted in no significant adjustment.

Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" requires an asset and liability approach for financial accounting
and reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in the financial statements or tax returns.

Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. There were no temporary differences at January 31, 1996 and earlier
years, accordingly, no deferred tax liabilities have been recognized for all
years.

The Company had cumulative net operating loss carryforwards of
approximately $1,700,000 at January 31, 1996 and $1,300,000 at January 31,
1995. No effect has been shown in the financial statements for the net
operating loss carryforwards as the likelihood of future tax benefit from such
net operating loss carryforwards is not presently determinable. Accordingly,
the potential tax benefits of the net operating loss carryforwards, estimated
based upon current tax rates of $578,000 at January 31, 1996 and $442,000 at
January 31, 1995 have been offset by valuation reserves of the same amount.
The net change in deferred tax asset and offsetting valuation reserve amounted
to $136,000 for 1996 and $241,000 for 1995.

NOTE 5 - RELATED PARTY TRANSACTIONS

The majority of the outstanding shares of the Company are owned by
Austin-Young, Inc., a Utah corporation that has its primary office in Austin,
Texas. Some individuals are officers and directors in both Austin-Young, Inc.
and the Company. During the periods shown, there were several transactions
involving the majority shareholder and the Company's officers and directors, as
follows:

August 10, 1990 - Common investment shares of 250,000 were issued to
Austin-Young, Inc. and 1,000 shares were issued to two officers and directors
of the Company for services rendered.

August 13, 1990 - Common investment shares of 100,000 were issued to
Terry Young, president of the Company, for serving as president. Such shares
were subsequently sold to Austin-Young, Inc.

61
<PAGE> 62
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 5- RELATED PARTY TRANSACTIONS (Continued)

August 13, 1990 - Common investment shares of 5,000 were issued to Susan
Young for bookkeeping services. Susan Young was the wife of Terry Young at the
time of issuance.

August 17, 1990 - An option was given to Austin-Young, Inc. to purchase
an additional 2,000,000 shares (pre- split)(100,000 shares post-split) of stock
at the price of one cent per share. Also, an option plan was approved which
provides that the board of directors are authorized to issue up to 1,000,000
shares (pre-split) (50,000 shares post- split) to current and future employees
at a price of one cent per share. None of these options were exercised. These
options were later rescinded by the board of directors in July 1993.

August 17, 1990 - Common investment shares of 12,500 were issued to an
officer and director for services.

September 3, 1990 - 50,000 shares were issued at $3.98 per share to
Austin-Young, Inc. in exchange for distributorship license agreements, stock in
Global Environmental Industries, Inc. and Natural Gas Industries, Inc., and
cash. The assets acquired in the transaction were recorded at historical cost.
The Company subsequently transferred 178,000 shares of Global stock back to the
original transferor in exchange for 17,000 shares of Company stock. The
remaining 200,000 shares of Global stock were sold as part of the transaction
which occurred on April 23, 1991 (see Note 3).

May 13, 1991 - 3,380,000 shares of common stock were purchased for
$65,000 cash from Austin-Young, Inc. and cancelled. The Company agreed that
Austin-Young, Inc. had the right to repurchase these shares for the same price
at any time up to June 1, 1993 (see July, 1992 comment below).

February 1992 - the Company issued 701,800 shares of common stock at
$0.14 per share to the shareholders of Geo Environment Services, Inc., (now
AAI) for their stock. Officers of the corporation were major shareholders of
AAI.

July 1992 - 3,380,000 shares of common stock were issued at $0.02 per
share to Austin -Young, Inc. for debt relief of $65,000.

February 1, 1993 - the Company issued to Austin-Young, Inc. an option to
purchase up to 1,000,000 shares of common stock at a price of $3 per share.
This option expires on February 1, 1998, and there have been 12,000 shares
exercised to date at a price of $36,000.

July 27, 1993 - the Company issued an option to the employees, officers
and directors to purchase up to a maximum of 250,000 shares of common stock at
a price of $3 per share. This option was cancelled on June 5, 1995.

October 8, 1993 - 6,000 shares of stock were issued at $5 per share to
Susan Young as down payment on the purchase of a building.

During 1994, Austin-Young, Inc. issued several promissory notes to the
Company to cover cash shortages. Total promissory notes issued was $61,424.
(See Note 10)

62
<PAGE> 63
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 5- RELATED PARTY TRANSACTIONS (Continued)

In June 1995, the Company adopted a 1995 stock option plan for the
employees, officers and directors to purchase up to 1,000,000 shares of common
stock at market price. The options expire in five years from the date of
offer.

The Company is leasing its office space from a related party on a month
to month basis at $500 per month.

During 1996, Austin-Young, Inc. issued $38,000 in promissory notes to
cover cash shortages. $5,000 was paid back during the year.

For the years 1990 to 1996, The Company's major stockholder,
Austin-Young, Inc. provided compensation to one of the Company's officer and
director while working on projects related to Company business. The
compensation is shown as an expense to the Company and capital contribution.

In future years, when the Company operations become more fully
developed, the compensation will increase in proportion to the time and
expertise given by the officer/director and will be paid directly from company
funds.

NOTE 6 - NONMONETARY TRANSACTIONS

Nonmonetary transactions consist of the transactions detailed in Note 5
above and the transfer of common investment shares to individuals and
corporations for services and distributorship license agreements, as follows:

September 24, 1990 - 50,000 shares of common stock were issued at $0.74
per share to two corporations for distributorship license agreements.

October 25, 1990 - 12,500 shares of common stock were issued at $3 per
share to individuals for services.

August 1991 - 10,000 shares of stock were issued at $7.50 per share for
trademarks and patents for two zeolite products.

October 1991 - 13,214 shares of stock were issued at $14 per share for
zeolite mining claims (see Note 8).

January, 1992 - 20,000 shares of common stock were returned to the
treasury and cancelled.

February 1992 - 701,800 shares were issued at $0.14 per share for 100%
of the shares of Geo-Environment Services, Inc (see Note 5).

63
<PAGE> 64
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 6- NONMONETARY TRANSACTIONS (Continued)

March 1992 - 243,000 shares were issued at $20 per share for zeolite
mining claims (see Note 8).

June 1992 - 32,430 shares were cancelled by officers and directors.

June 1993 - 17,800 shares were issued at $1.50 per share for services
performed.

October 1993 - 6,000 shares were issued at $5 per share for down payment
on plant facility.

October 1993 - 17,000 shares were issued at $3 per share for advisory
services.

February 1994 - 6,000 shares were issued at $5 per share for legal
services.

June 1994 - 25,750 shares were issued at $4 per shares for services
rendered.

June 1994 - 11,000 shares were issued at $5 per share for services
rendered.

June 1994 - 5,000 shares were issued at $3.50 per share for services
rendered.

November 1994 - 10,000 shares were issued at $3.50 per share for
services rendered.

November 1994 - 5,000 shares were issued at $2.25 per share for services
rendered.

During 1995 - 9,000 shares were issued at an average price of $2.49 per
share for services rendered.

All nonmonetary transactions, with related parties and non related
parties, transacted with stock of the Company were measured either at the
estimated fair value of the stock being issued (stock market quotations) or
fair value of goods or services being rendered, whichever was more readily
measurable.

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Plant $ 244,978 $ 180,000
Machinery and equipment 12,382 9,854
Accumulated depreciation (26,837) (14,790)
-------------- --------------
$ 230,523 $ 175,064
============== ==============
</TABLE>

Machinery and equipment is depreciated on the straight-line method over
the estimated useful lives of five (5) years. Plant is being depreciated over
the estimated useful life of 20 years. Depreciation expense is

64
<PAGE> 65
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 7- PROPERTY AND EQUIPMENT (Continued)

$12,047, $11,540 and $2,790 for the years January 31, 1996, 1995 and 1994
respectively. Amortization expense is $5,605, $7,319 and $5,605 for the years
ended January 31, 1996, 1995 and 1994, respectively.

The Company has agreements with various vendors to do the mining
and milling of its zeolite mineral and products; this has resulted in minimal
investment in machinery and equipment.

During 1996, the Company purchased a building near Burns, Oregon
that will act as a processing and storage facility for its Oregon zeolite
deposits.

NOTE 8 - MINING CLAIMS

The Company has purchased several zeolite mining claims in three
different regions in the western United States. All purchases were acquired
through stock issuances and adescribed below.

In April 1991 (before acquisition by Geo-Environmental Resources)
(now American Absorbents Natural Products, Inc.), the Company's subsidiary
issued 440,000 shares of its stock for mining claims containing zeolite in the
Mohave County, Arizona region, and the stock given was originally valued at
$.50 per share. Thus the mining claims were originally valued at $220,000.
Since the value of the mining claims was not readily determined the mining
claims were written down to a nominal value.

In October 1991 the Company acquired twenty zeolite mining claims
in Harney County, Oregon. The value of the claims was agreed to be $185,000 by
the seller and purchaser and 13,214 (132,143 presplit) shares of common stock
were issued. The stock was quoted on the market at $1.40 per share, thus
determining the number of shares to be issued for the claims.

In December 1991, the Company acquired an additional 203 zeolite
mining claims in the Harney County, Oregon region. A geological study was
conducted and reserves were estimated at over 477,600,000 tons. The value per
ton was also estimated based on mining costs and market value of other
companies in the industry. The reserves were then discounted 99 1/2% and a
value was determined to be approximately $4,800,000.

Stock was then issued at market price to equal the value given to
the claims.

To date no depletion has been taken on any of these claims.
Depletion of these assets will begin once material mining operations on these
claims begins.

NOTE 9 - PRODUCT TRADENAMES

In August of 1991 the Company purchased for common stock, notes
payable and cash, the inventory and the trade names for two shoe products. The
inventory was valued at $115,000 and the remainder

65
<PAGE> 66
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 9- PRODUCT TRADENAMES (Continued)

of the purchase price of $25,000 was attributed to the tradenames of the
products. The tradenames are being amortized on the straight-line method over
a five (5) year period.

NOTE 10 - RELATED PARTY NOTES PAYABLE

The notes payable-related party consist of advances from
Austin-Young, Inc., a major shareholder of the Company. The balances are as
follows:

<TABLE>
<CAPTION>
January 31,
------------------------
1996 1995
------------ --------
<S> <C> <C>
Notes payable - Austin-Young, bearing
interest at 7% interest and payable
in 1997. Unsecured. $ 182,539 $ 136,117

Less current portion - (45,372)
---------- ----------

Totals $ 182,539 $ 90,745
========== ==========
</TABLE>

Austin-Young, Inc. negotiated a principle payable over 3 years in
1995 but later renegotiated the note to payment in 1997.

NOTE 11- LONG TERM NOTES PAYABLE

<TABLE>
<CAPTION>
January 31,
-----------------------------
Notes Payable consist of the following: 1996 1995
--------------- ------------
<S> <C> <C>
Note payable to an unrelated corporation, $ 127,519 $ 137,539
bearing interest at 6%, amortized over 30 (127,519) (10,020)
years, balloon payment due September --------------- -----------
1996. Secured by warranty deed.
Less current portion - $ - $ 127,519
=============== ===========

</TABLE>

66
<PAGE> 67
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 12 - PRIVATE PLACEMENT OF COMMON STOCK

During October 1993, the Company issued 66,667 shares of restricted
common stock in a private placement. The shares sold for $3 per share and
carried an option to purchase additional shares within 120 days.

During December 1993, the Company issued 38,170 and 41,902 shares of
restricted common stock in a private placement at $3 and $1.84 per share,
respectively. The shares issued were under an option agreement as part of the
private placement that occurred during October 1993.

On July 5, 1994, 22,500 shares of common stock were issued at $4 per
share in a regulation D private stock offering.

In 1996, the Company issued 214,168 shares of common stock in a
regulation D private placement for total consideration of $394,362.

NOTE 13 - PRIOR PERIOD ADJUSTMENT

In 1995 and 1994, the Company restated the results of operations due to
the correction of an accounting error. The effect of the change in 1994 was an
increase in the net loss from $(254,452) to $(274,862). The effect of the
change in 1995 decreased the net loss from $(679,613) to $(673,048).

The effect on earnings per share was $(.0045) and $.0014 for 1994 and
1995, respectively.

NOTE 14 - RESEARCH AND DEVELOPMENT

The Company expenses all research and development costs as incurred.
The Company is accounted for as a development stage enterprise, and a portion
of expenses incurred since inception have been directly related to research and
development. The research and development expenses incurred for the years
ended January 31, 1996, 1995 and 1994 respectively are as follows:

<TABLE>
<CAPTION>
For the years ended
January 31,
-----------
1996 1995 1994
-------- ----------- ---------
<S> <C> <C> <C>
Labor and wages $ 8,115 $ 122,821 $ 55,658
Materials and supplies - 12,731 15,050
Rent allocation - 5,187 10,452
-------- ----------- ---------

$ 8,115 $ 140,739 $ 81,370
======== =========== =========
</TABLE>

67
<PAGE> 68
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1996 and 1995

NOTE 14- RESEARCH AND DEVELOPMENT (Continued)

Research and development of the Company primarily relate to product and
package design and market research.

NOTE 15 - ECONOMIC DEPENDENCY

During the current fiscal year, the Company has developed an overseas
customer that provided 48% of the years sales volume.

68
<PAGE> 69
ORTON & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION

50 WEST BROADWAY, SUITE 1130, SALT LAKE CITY, UTAH 84101 * (801)537-7044,
FAX (801)363-0615

ACCOUNTANTS' CONSENT

We hereby consent to the use of our audit report of American Absorbents Natural
Products, Inc. dated February 24, 1996 for the years ended January 31, 1996 and
1995 in the Form SB-1 filing for American Absorbents Natural Products, Inc.

/s/ Orton & Company
- --------------------------------

August 13, 1996
Salt Lake City, Utah

69
<PAGE> 70

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)

Consolidated Financial Statements

For the Six Months Ended

July 31, 1996 and 1995

(Unaudited)

70
<PAGE> 71
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1996 and 1995
(unaudited)

ASSETS

<TABLE>
<CAPTION>
July 31,
----------------------------
1996 1995
CURRENT ASSETS ----------- -------------
<S> <C> <C>
Cash $ 1,560 $ 121,047
Accounts receivable (Note 1)
Trade 365 16,486
Other -0- 236
Prepaid expenses (Note 1) 7,522 19,326
Inventory (Note 1) 96,085 104,378
----------- -------------
Total Current Assets 105,532 261,473
----------- -------------

PROPERTY AND EQUIPMENT (Note 7)

Plant (net) 217,792 169,250
Machinery and equipment (net) 5,337 6,845
----------- -------------

Total Property and Equipment 223,129 176,095
----------- -------------

OTHER ASSETS

Mining claims (Note 8) 5,081,669 5,089,219
Prepaid expenses (Note 1) -0- 4,250
Business development costs (Note 1) -0- 1,053
Product tradenames (Note 9) -0- 6,125
----------- -------------
Total Other Assets 5,081,669 5,100,647
----------- -------------

TOTAL ASSETS 5,410,330 5,538,215
=========== =============
</TABLE>

The accompanying notes are an integral part of these financial statements.

71
<PAGE> 72
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
July 31, 1996 and 1995
(unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
July 31,
-----------------------------------
1996 1995
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES

Accounts payable and accrued expenses $ 12,889 $ 25,223
Current portion of note payable - related party (Note 10) -0- -0-
Notes payable - current portion (Note 11) 122,283 5,644
------------- --------------
Total Current Liabilities 135,172 30,867
------------- --------------

LONG-TERM DEBT

Notes payable-related party (Note 10) 182,539 159,101
Notes payable -0- 132,604
Notes payable - less current portion (Note 11) -0- (5,644)
------------- --------------
Total Long-term Debt 182,539 286,061
------------- --------------
TOTAL LIABILITIES 317,711 316,928
------------- --------------

STOCKHOLDERS' EQUITY

Common stock; authorized 50,000,000 common shares at $0.001 par
value; 5,040,855 and 4,831,210 shares issued and outstanding,
respectively 5,040 4,914
Capital in excess of par value 6,891,664 6,679,366
Deficit accumulated during the development stage (1,804,085) (1,462,993)
------------- --------------
Total Stockholders' Equity 5,092,619 5,221,287
------------- --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,410,330 5,538,215
============= ==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

72
<PAGE> 73
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
July 31, 1996 and 1995
(unaudited)

From Inception
For the Six Months Ended On February 9,
July 31, 1984 Through
------------------------------------------- July 31,
1996 1995 1994 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE

Net Sales $ 42,825 $ 11,963 $ 48,417 $ 213,188
Cost of goods sold 36,419 13,743 40,324 226,499
------------- ------------- ------------- ------------
Gross Profit (Note 1) 6,406 (1,780) 8,093 (13,311)
------------- ------------- ------------- ------------

EXPENSES

General and administrative 153,969 207,610 241,263 1,650,879
Depreciation and amortization 10,645 7,448 8,422 64,041
------------- ------------- ------------- ------------
Total Expenses 164,614 215,058 249,685 1,714,920
------------- ------------- ------------- ------------
Net loss before provision for income taxes (158,208) (216,838) (241,592) (1,728,231)

Provision for income taxes -0- -0- -0- -0-

NET LOSS $ (158,208) $ (216,838) $ (241,592) $ (1,728,231)
============= ============= ============= ============

WEIGHTED AVERAGE LOSS PER SHARE $ (.03) $ (.04) $ (.05) $ (1.12)
============= ============= ============= ============

AVERAGE SHARES OUTSTANDING 5,040,855 4,831,210 4,702,352 1,535,000
============= ============= ============= ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

73
<PAGE> 74
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
From Inception on February 9, 1984 to July 31, 1996
(unaudited)

<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
---------------------- Paid-in Development
Shares Amount Capital Stage
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Balance at inception -- $ -- $ -- $ --

Issuance of common stock for cash (Note 3) 37,500 38 962 --

Expenses paid by shareholders for the years ended January 31,
1990 -- -- 518 --

Net loss for the years ended January 31, 1990 -- -- -- (1,618)
-------- --------- --------- --------
Balance, January 31, 1990 37,500 38 1,480 (1,618)

Issuance of common stock for services rendered in August 1990
391,000 391 7,429 --

Issuance of common stock in September 1990 for various assets
from Austin-Young, Inc. (Note 5) 50,000 50 198,890 --

Issuance of common stock for distribution licenses from Global
Environmental Industries (GEI) for UT & WA, September 1990
(Note 3) 50,000 50 37,070 --

Contribution from Austin-Young, Inc. -- -- 3,500 --

Issuance of common stock for services rendered on October 1990
12,500 12 37,488 --

Net loss for the year ended January 31, 1991 -- -- -- (47,756)
-------- --------- --------- --------
Balance, January 31, 1991 541,000 $ 541 $ 285,857 $(49,374)
-------- --------- --------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

74
<PAGE> 75
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to July 31, 1996
(unaudited)

<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------ Paid-in Development
Shares Amount Capital Stage
--------- --------- ------------ ----------
<S> <C> <C> <C>
Balance, January 31, 1991 541,000 $ 541 $ 285,857 $ (49,374)

Common stock returned in exchange for common stock of GEI in
March 1991 (Note 5) (17,000) (17) (85,423) -

Repurchase of common stock from Austin-Young, Inc. in May 1991
(Note 5) (385,000) (358) (64,662) -

Issuance of common stock for the purchase of product from
Steelhead Specialty Minerals in August 1991 (Note 6) 10,000 10 74,990 -

Issuance of common stock for the purchase of mining claims in
October 1991 (Note 8) 13,214 13 184,987 -

Common stock canceled by officers/directors in January 1992 (20,000) (20) 20 -

Contribution from Austin-Young, Inc. - - 7,000 -

Net loss for the year ended January 31, 1992 - - - (83,315)
--------- --------- ------------ ----------

Balance, January 31, 1992 169,214 $ 169 $ 402,769 $ (132,689)
--------- --------- ------------ ----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

75
<PAGE> 76
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to July 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------------ ---------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, January 31, 1992 169,214 $ 169 $ 402,769 $ (132,689)

Issuance of common stock for the acquisition of Geo-
Environment Services, Inc. in February 1992 (Note 5) 701,800 702 96,442 --

Issuance of common stock for the purchase of mining claims in
March 1992 (Note 5) 243,000 243 4,859,757 --

Common stock canceled by officer and directors in June 1992
(Note 6) (32,430) (32) 32 --

Cancellation of fractional shares due to reverse stock split (21) -- -- --

Issuance of common stock (pursuant to a repurchase agreement
in May, 1991) to Austin-Young, Inc. for relief of debt in
July 1992 (Note 5) 3,380,000 3,380 61,620 --

Net loss for the year ended January 31, 1993 -- -- -- (126,304)
------------ ---------- -------------- ------------

Balance, January 31, 1993 4,461,563 4,462 5,420,620 (258,993)

Issuance of common stock for services rendered in June 1993
(Note 6) 17,800 18 26,682 --

Issuance of common stock to Austin-Young, Inc. in June 1993
(Note 5) 12,000 12 35,988 --

Issuance of common stock for cash October 1993 (Note 12) 66,667 67 199,936 --

Issuance of common stock as down payment on building October
1993 (Note 5) 6,000 6 29,994 --

Issuance of common stock for services rendered October 1993
(Note 6) 17,000 17 50,983 --

Issuance of common stock for cash December 1993 (Note 12) 80,072 80 191,321 --

Net loss for the year ended January 31, 1994 -- -- -- (274,862)
------------ ---------- -------------- ------------
Balance, January 31, 1994 4,661,102 $ 4,662 $ 5,955,524 $ (533,855)
------------ ---------- -------------- ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

76
<PAGE> 77
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to July 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------------ ---------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, January 31, 1994 4,661,102 $ 4,662 $ 5,955,524 $ (533,855)

Issuance of common stock for services rendered February 1994
(Note 6) 6,000 6 29,994 --

Issuance of common stock for services rendered in June 1994
(Note 6) 41,750 42 175,458 --

Issuance of common stock in a private offering 22,500 22 89,978 --

Issuance of common stock for services rendered in November 1994
(Note 6) 15,000 15 46,235 --

Net loss for the year ended January 31, 1995 -- -- -- (673,048)
--------- ------- ----------- -----------
Balance, January 31, 1995 4,746,352 $ 4,747 $ 6,297,189 $(1,206,903)
--------- ------- ----------- -----------
Issuance of common stock for services (Note 6) 9,000 9 22,391 --

Issuance of common stock in private offering (Note 12) 214,168 214 394,148 --

Net Loss for the year ended January 31, 1996 -- -- -- (365,467)

--------- ------- ----------- -----------
Balance at January 31, 1996 4,969,520 $ 4,970 $ 6,713,728 $(1,572,370)
--------- ------- ----------- -----------

Issuance of common stock in a private offering 39,834 40 54,710 --

Issuance of common stock for services--April, 1996 8,000 8 15,992 --

Issuance of common stock in a private offering 23,001 22 32,978 --

Issuance of common stock for services--July, 1996 500 -- 750 --

Net loss for the six months ended July 31, 1996 -- -- -- (158,208)
--------- ------- ----------- -----------

Balance, July 31, 1996 5,040,855 5,040 6,818,158 1,730,578
--------- ------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

77
<PAGE> 78
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
From Inception On
For the Years Ended February 9, 1984
January 31, Through January
---------------------------------------------------- 31,
1996 1995 1994 1996
---------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (365,467) $ (673,048) $ (275,162) $ (1,570,023)
Depreciation and amortization 17,652 18,859 8,395 53,396
(Increase) decrease in receivables 3,457 (11,599) 5,565 (8,142)
Decrease (increase) in prepaid expenses 15,904 52,136 (91,698) (19,989)
Decrease (increase) in inventory (10,417) 25,051 (13,682) (109,098)
(Increase) decrease in payables (47,889) (2,151) 41,487 13,060
Decrease (increase) in prepaid deferred
offering cost -- 56,180 (56,180) --
Stock issued for services 22,400 251,750 77,700 439,500
---------------- --------------- --------------- ---------------------

Net Cash used by Operating Activities (364,360) (282,822) (303,575) (1,201,296)
---------------- --------------- --------------- ---------------------

Cash Flows From Investing Activities
Cash received in acquisition of subsidiary -- -- -- 13,105
Purchase of fixed assets (67,505) (6,908) (180,000) (257,113)
Purchase of product tradenames -- -- (1,960) (26,960)
Organization costs -- -- -- (1,526)
Purchase/sale of mining development cost -- -- 8,321 --
Purchase of mining claims -- -- (261) (26,642)
Sale of licenses -- -- -- 150,000
---------------- --------------- --------------- ---------------------

Net Cash Used by Investing Activities (67,505) (6,908) (173,900) (149,136)
---------------- --------------- --------------- ---------------------

Cash Flows From Financing Activities
Issuance of common stock 394,362 90,000 457,404 1,047,496
Issuance of notes payable 46,423 67,440 233,150 527,348
Principle payments on long-term debt (10,020) (8,673) (71,612) (223,305)
---------------- --------------- --------------- ---------------------

Net Cash Provided by Financing Activities 430,765 148,767 618,942 1,351,539
---------------- --------------- --------------- ---------------------

Net (Decrease) Increase in Cash (1,100) (140,963) 141,467 1,107

Cash at Beginning of Period 2,207 143,170 1,703 --
---------------- --------------- --------------- ---------------------

Cash at End of Period $ 1,107 $ 2,207 $ 143,170 $ 1,107
================ =============== =============== =====================
</TABLE>

The accompanying notes are an integral part of these financial statements.

78
<PAGE> 79
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)

<TABLE>
<CAPTION>
From Inception
For the Years Ended On February 9,
January 31, 1984 Through
----------------------------------------------------- January 31,
1996 1995 1994 1996
---------------- ---------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Supplemental cash flow information:

Cash Paid For:
Interest $ 18,834 $ 18,859 $ 12,262 $ 52,697
Income Taxes 100 100 145 2,347
Non-Cash Transactions:
Stock issued for mining claims $ - $ - $ - $ 5,045,000
Stock issued for down payment on building $ - $ - $ 30,000 $ 30,000
Stock issued for services $ 22,400 $ 251,750 $ 77,700 $ 439,500
</TABLE>

The accompanying notes are an integral part of these financial statements.

79
<PAGE> 80
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Organization
American Absorbents Natural Products, Inc. was incorporated on
February 9, 1984 under the laws of the State of Utah and under the
name of TPI Land, Inc. as a wholly-owned subsidiary of TPI, Inc. On
September 14, 1990, the Company changed its name to Environmental
Fuels, Inc. and began developing its involvement in various phases of
the conversion of vehicles to operating on compressed natural gas.
That developing business was sold on April 23, 1991 (see Note 3).

On May 6, 1991, the Company changed its name to Geo-Environmental
Resources, Inc. and is now developing its involvement in the
distribution of zeolite, a mineral product which is an absorbent and
has many potential uses such as oil and gas well cleanup, shoe and
refrigerator freshener, landfill absorption, and other agricultural
uses.

On February 6, 1992, the Company acquired the outstanding stock of
Geo-Environment Services, Inc., a wholly owned subsidiary involved in
marketing of the zeolite products. The transaction was accounted for
under the purchase method of accounting for business combinations. In
accordance with the FASB technical bulletin 85-5, historical costs
were used to record the acquired assets and liabilities.

In 1996, the Company changed its name to American Absorbent Natural
Products, Inc. and the name of its subsidiary to American Absorbents,
Inc.

Principles of Consolidation
The consolidated financial statements include the accounts of American
Absorbents Natural Products, Inc. and it subsidiary American
Absorbents, Inc. Collectively, these entities are referred to as the
Company. All significant intercompany transactions and accounts have
been eliminated.

Method of Accounting
The Company recognized income and expenses according to the accrual
method of accounting. Expenses are recognized when performance is
substantially complete and income is recognized when earned. Earnings
(loss) per share are computed based on the weighted average method.
The fiscal year of the Company ends January 31 of each year. The
financial statements reflect activity from inception, February 9,
1984.

Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less
to be cash equivalents.

80
<PAGE> 81

AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Nonmonetary Transactions
Nonmonetary transactions are transactions for which no cash was
exchanged and for which shares of common stock were exchanged for
assets. These transactions are recorded at fair market value as
determined by the board of directors.

Inventories
Inventories are stated at the lower cost or market, and consist of
finished goods. In 1995, the Company wrote off $42,702 of obsolete
inventory and has included this amount as part of cost of goods sold.

Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts. This amount was determined to be $0 and $0 at July 31, 1996
and 1995 after writing off all accounts determined to be
uncollectible.

Prepaid Expenses
Prepaid expenses at July 31, 1996 consist of the following:

<TABLE>
<S> <C>
Prepaid mining land lease $ 3,272
Prepaid consulting fees 4,250
------------
$ 7,522
============
</TABLE>

Business Development Cost
Business Development cost mainly consist of video production cost for
a business promotional video and product packaging design. These
costs are amortized over the estimated useful life of the cost, which
is 5 years. The costs and accumulated amortization at July 31, 1996
are as follows:

<TABLE>
<S> <C>
Business development costs $ 3,026
Accumulated amortization (3,026)
-----------
$ -0-
===========
</TABLE>

NOTE 2 - DEVELOPMENT STAGE ENTERPRISE

The Company, per FASB Statement No. 7, is properly accounted for and
reported as a development stage enterprise. Substantially all of the
Company's efforts since its formation have been devoted to
establishing its new business. No significant revenue has been earned
as of the balance sheet date. Operations have been devoted to raising
capital, purchasing zeolite property and establishing a marketing
plan.

81
<PAGE> 82
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 2- DEVELOPMENT STAGE ENTERPRISE (Continued)

NOTE 3 - COMMON STOCK AND STOCKHOLDERS' EQUITY

During the periods shown, the Company had a one-for-two reverse stock
spit and a one for ten reverse stock split. The financial statements
have been retroactively restated to reflect the stock splits.

Stock of the Company has been issued for cash, license agreements,
mining claims, compensation for services, and in exchange for other
stock.

On February 10, 1984, the Company issued 37,500 shares of its stock to
TPI, Inc. for $1,000 cash. On June 30, 1984, TPI, Inc. distributed
the 37,500 shares to its stockholders in a partial liquidating
dividend.

In August and September 1990, control of the Company was acquired by
Austin-Young, Inc. and shares of stock were issued to Austin-Young,
Inc. and to some of its officers and directors (see Note 5).

In September 1990, the Company acquired four license agreements to
distribute the products of Natural Gas Resources, Inc., (NGRI) a
wholly-owned subsidiary of Global Environmental Industries, Inc. NGRI
is engaged in the business of licensing the operations of compressed
natural gas conversion centers and natural gas refueling stations.
NGRI has certain patented products used in the conversion of vehicles
from gasoline and diesel to the use of natural gas. Under these
license agreements, the Company acquired the right to distribute the
products of NGRI in San Antonio, Texas (metropolitan area); Burnet
County, Texas; state of Utah; and the state of Washington. On April
23, 1991, the Company sold the license agreements along with stock of
Global Environmental Industries, Inc. and Natural Gas Industries, Inc.
for $150,000.

In August of 1991 the Company issued 10,000 shares of stock at $7.50
per share for the rights to two zeolite products of Steelhead
Specialty Mineral, Inc. (see Note 9).

In October 1991 the Company issued 13,214 shares of stock at $14 per
share for mining claims in Harney County, Oregon and in March 1992,
issued 243,000 shares at $20 per share for additional zeolite mining
claims in the same area (see Note 8).

In February 1992 the Company Issued 701,800 shares at $0.14 per share
for all the outstanding stock of American Absorbents, Inc. (AAI) which
became a wholly owned subsidiary. AAI had,

82
<PAGE> 83
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 3- COMMON STOCK AND STOCKHOLDERS' EQUITY (Continued)
prior to being acquired, purchased zeolite mining claims in Mohave
County, Arizona (see Note 5).

NOTE 4 - INCOME TAXES

No federal income tax liabilities have been accrued due to the
recurring net operating losses of the Company.

As of July 31, 1996 the Company has accumulated net operating losses
of approximately $1,800,000. These losses can be used to offset
future earnings but will expire beginning in the year 1999.

NOTE 5 - RELATED PARTY TRANSACTIONS

The majority of the outstanding shares of the Company are owned by
Austin-Young, Inc., a Utah corporation that has its primary office in
Austin, Texas. Some individuals are officers and directors in both
Austin-Young, Inc. and the Company. During the periods shown, there
were several transactions involving the majority shareholder and the
Company's officers and directors, as follows:

August 10, 1990 - Common investment shares of 250,000 were issued to
Austin-Young, Inc. and 1,000 shares were issued to two officers and
directors of the Company for services rendered.

August 13, 1990 - Common investment shares of 100,000 were issued to
Terry Young, president of the Company, for serving as president. Such
shares were subsequently sold to Austin-Young, Inc.

August 13, 1990 - Common investment shares of 5,000 were issued to
Susan Young for bookkeeping services. Susan Young was the wife of
Terry Young at the time of issuance.

August 17, 1990 - An option was given to Austin-Young, Inc. to
purchase an additional 2,000,000 shares (pre- split) (100,000 shares
post-split) of stock at the price of one cent per share. Also, an
option plan was approved which provides that the board of directors
are authorized to issue up to 1,000,000 shares (pre-split) (50,000
shares post-split) to current and future employees at a price of one
cent per share. None of these options were exercised. These options
were later rescinded by the board of directors in July 1993.

August 17, 1990 - Common investment shares of 12,500 were issued to an
officer and director for services.

83
<PAGE> 84
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 5- RELATED PARTY TRANSACTIONS (Continued)

September 3, 1990 - 50,000 shares were issued at $3.98 per share to
Austin-Young, Inc. in exchange for distributorship license agreements,
stock in Global Environmental Industries, Inc. and Natural Gas
Industries, Inc., and cash. The assets acquired in the transaction were
recorded at historical cost. The Company subsequently transferred
178,000 shares of Global stock back to the original transferor in
exchange for 17,000 shares of Company stock. The remaining 200,000
shares of Global stock were sold as part of the transaction which
occurred on April 23, 1991 (see Note 3).

May 13, 1991 - Common investment shares of 3,380,000 were purchased for
$65,000 cash from Austin-Young, Inc. and canceled. The Company agreed
that Austin-Young, Inc. had the right to repurchase these shares for the
same price at any time up to June 1, 1993 (see July, 1992 comment
below).

February 1992 - the Company issued 701,800 shares of common stock at
$0.14 per share to the shareholders of Geo Environment Services, Inc.,
(now AAI) for their stock. Officers of the corporation were major
shareholders of AAI.

July 1992 - 3,380,000 shares of common stock were issued at $0.02 per
share to (repurchased by) Austin-Young, Inc. for debt relief of $65,000.

February 1, 1993 - the Company issued to Austin-Young, Inc. an option to
purchase up to 1,000,000 shares of common stock at a price of $3 per
share. This option expires on February 1, 1998, and there have been
12,000 shares exercised to date at a price of $36,000.

July 27, 1993 - the Company issued an option to the employees, officers
and directors to purchase up to a maximum of 250,000 shares of common
stock at a price of $3 per share. This option was canceled on June 5,
1995.

October 8, 1993 - 6,000 shares of stock were issued at $5 per share to
Susan Young as down payment on the purchase of a building.

During 1994, Austin-Young, Inc. issued several promissory notes to the
Company to cover cash shortages. Total promissory notes issued was
$61,424 (see Note 10).

In June 1995, the Company adopted a 1995 stock option plan for the
employees, officers and directors to purchase up to 1,000,000 shares of
common stock at market price. The options expire in five years from the
date of offer.

The Company is leasing its office space from a related party on a month
to month basis at $500 per month.

84
<PAGE> 85
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 5- RELATED PARTY TRANSACTIONS (Continued)

During 1996, Austin-Young, Inc. issued $38,000 in promissory notes to
cover cash shortages. $5,000 was paid back during the year.

NOTE 6 - NONMONETARY TRANSACTIONS

Nonmonetary transactions consist of the transactions detailed in Note
5 above and the transfer of common investment shares to individuals
and corporations for services and distributorship license agreements,
as follows:

September 24, 1990 - Common investment shares of 50,000 were issued at
$0.74 per share to two corporations for distributorship license
agreements.

October 25, 1990 - Common investment shares of 12,500 at $3 per share
were issued to individuals for services.

August 1991 - 10,000 shares of stock were issued at $7.50 per share
for trademarks and patents for two zeolite products.

October 1991 - 13,214 shares of stock were issued at $14 per share for
zeolite mining claims (see Note 8).

January 1992 - Common investment shares of 20,000 were returned to the
treasury and canceled.

February 1992 - 701,800 shares were issued at $0.14 per share for 100%
of the shares of Geo-Environment Services, Inc. (see Note 5).

March 1992 - 243,000 shares were issued at $20 per share for zeolite
mining clams (see Note 8).

June 1992 - 32,430 shares were canceled by officers and directors.

June 1993 - 17,800 shares were issued at $1.50 per share for services
performed.

October 1993 - 6,000 shares were issued at $5 per share for down
payment on plant facility.

October 1993 - 17,000 shares were issued at $3 per share for advisory
services.

February 1994 - 6,000 shares were issued at $5 per share for legal
services.

June 1994 - 25,750 shares were issued at $4 per share for services
rendered.

85
<PAGE> 86
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 6- NONMONETARY TRANSACTIONS (Continued)

June 1994 - 11,000 shares were issued at $5 per share for services
rendered.

June 1994 - 5,000 shares were issued at $3.50 per share for services
rendered. November 1994 - 10,000 shares were issued at $3.50 per
share for services rendered.

November 1994 - 5,000 shares were issued at $2.25 per share for
services rendered.

During 1995 - 9,000 shares were issued at an average price of $2.49
per share for services rendered.

During 1996 - 8,500 shares were issued at an average price of $1.97
per share for services rendered.

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
July 31,
-----------------------------
1996 1995
---------- -----------
<S> <C> <C>
Plant $ 244,978 $ 185,000
Machinery and equipment 12,382 11,655
Accumulated depreciation (34,231) (20,650)
---------- -----------
$ 223,129 $ 176,095
========== ===========
</TABLE>

Machinery and equipment is depreciated on the straight-line method
over the estimated useful lives of five (5) years. Depreciation
expense is $3,697 and $2,885 for the quarters ended July 31, 1996 and
1995, respectively.

The Company has agreements with various vendors to do the mining and
milling of its zeolite mineral and products; this has resulted in
minimal investment in machinery and equipment.

During 1996, the Company purchased a building near Burns, Oregon that
will act as a processing and storage facility for its Oregon zeolite
deposits.

NOTE 8 - MINING CLAIMS

The Company has purchased several zeolite mining claims in three
different regions in the western United States. All purchases were
acquired through stock issuance's and are described below.

86
<PAGE> 87
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 8- MINING CLAIMS (Continued)

In April 1991 (before acquisition by Geo-Environmental Resources) (now
American Absorbents Natural Products, Inc.), the Company's subsidiary
issued 440,000 shares of its stock for mining claims containing
zeolite in the Mohave County, Arizona region, and the stock given was
originally valued at $.50 per share. Thus the mining claims were
originally valued at $220,000. Since the value of the mining claims
was not readily determined the mining claims were written down to a
value of $20,000.

In October 1991 the Company acquired twenty zeolite mining claims in
Harney County, Oregon. The value of the claims was agreed to be
$185,000 by the seller and purchaser and 13,214 shares of common stock
were issued. The stock was quoted on the market at $1.40 per share,
thus determining the number of shares to be issued for the claims.

In December 1991, the Company acquired an additional 203 zeolite
mining claims in the Harney County, Oregon region. A geological study
was conducted and reserves were estimated at over 477,600,000 tons.
The value per ton was also estimated based on mining costs and market
value of the other companies in the industry. The reserves were then
discounted 99% and a value was determined to be approximately
$4,800,000. Stock was then issued at market price to equal the value
given to the claims.

To date no depletion has been taken on any of these claims. Depletion
of these assets will begin once mining operations on these claims
begin.

NOTE 9 - PRODUCT TRADENAMES

In August of 1991 the Company purchased for common stock, notes
payable and cash, the inventory and the tradenames for two shoe
products. The inventory was valued at $115,000 and the remainder of
the purchase price of $25,000 was attributed to the tradenames of the
products. The tradenames are being amortized on the straight-line
method over a five (5) year period.

NOTE 10 - RELATED PARTY NOTES PAYABLE

The notes payable-related party consist of advances from Austin-Young,
Inc., a major shareholder of the Company. The balances are as
follows:

87
<PAGE> 88
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
July 31, 1996 and 1995
(unaudited)

NOTE 11- RELATED PARTY NOTES PAYABLE (Continued)

<TABLE>
<CAPTION>
July 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Notes payable - Austin-Young, Inc., bearing interest
at 7% interest and payable on demand. Unsecured $ 182,539 $ 159,101

Less current portion -- -0-
----------- -----------
Totals $ 182,539 $ 159,101
=========== ===========
</TABLE>

Austin-Young, Inc. negotiated a principle payable over 3 years in 1995
but later renegotiated the note to payment in 1997. It is not
anticipated that the Company will be required to pay the note in the
next year, therefore it has been classed as a long term note
obligation NOTE 11 - LONG TERM NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
July 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Notes payable to corporation, bearing interest at 6%, $ 122,283 $ 132,604
amortized over 30 years, balloon payment due
September 1996. Secured by warranty deed $(122,283) (5,644)
--------- -----------
Less current portion
Totals $ -- $ 126,960
========= ===========
</TABLE>

NOTE 12 - PRIVATE PLACEMENT OF COMMON STOCK

During October 1993, the Company issued 66,667 shares of restricted
common stock in a private placement. The shares sold for $3 per share
and carried an option to purchase additional shares within 120 days.

During December 1993, the Company issued 38,170 and 41,902 shares of
restricted common stock in a private placement at $3 and $1.84 per
share, respectively. The shares issued were under an option agreement
as part of the private placement that occurred during October 1993.

On July 5, 1994, 22,500 shares of common stock were issued at $4 per
share in a regulation D private stock offering.

In 1996, the Company issued 214,168 shares of common stock in a
regulation private placement for total consideration of $394,362.

88
<PAGE> 89
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statments
July 31, 1996 and 1995
(unaudited)

NOTE 12- PRIVATE PLACEMENT OF COMMON STOCK (Continued)

During the first six months of the current fiscal year, the Company
has issued 23,001 shares of common stock in a regulation private
placement for total consideration of $33,000.

89
<PAGE> 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR PERIOD ENDING
7-31-96.

The Company, per FASB statement No.7, is properly accounted for and reported as
a development stage enterprise. The Company's efforts since entering its
current business have been devoted primarily to Company capitalization,
acquisition of mining properties, packaging and milling facility acquisitions
and product and market development.

The Company has realized limited sales in each of its fiscal years ended
January 31, 1992, January 31, 1993, January 31, 1994, January 31, 1995 and
January 31, 1996 from limited test marketing programs for its products while in
the development stage. During the development stage the Company has developed
over a dozen products and test marketed these products in various parts of the
country.

LIQUIDITY

Austin-Young, Inc., the parent corporation of the Company, provided a portion
of the Company's operating capital during fiscal years 1993, 1994, 1995 and
1996 through loans and equity funding and the Company owed approximately
$182,539 to the parent company at July 31, 1996. Revenues to date have
provided insignificant funding of working capital because of the development
stage status of the company and the limited test marketing programs.

During the fiscal years 1994, 1995 and 1996, the Company has incurred losses
that reflect the development stage activity of researching and test marketing
its products. The company has paid $81,370, $140,739 and $8,115 for research
and development for the years 1994, 1995 and 1996, respectively. The Company
paid $76,500 to the Bureau of Land Management in August 1993 on its mining
claims and $91,700 in the fiscal year ended January 31, 1996. In the future,
approximately $37,400 will be due to the Bureau of Land Management in August of
each year to satisfy claim maintenance fees on existing claims. Austin-Young,
Inc. has provided, through loans and equity funding, any deficiencies to the
necessary funding during the development stage, but expects funding from
private placements and other offerings will be sufficient for future
development costs. Total net funds loaned to the Company from Austin-Young,
Inc. as of July 31, 1996 and 1995, were $182,539 and $159,101 respectively.
When possible, the Company has issued stock for the acquisition of assets or
services to reduce the need for additional operating capital from it parent
corporation, additional shareholders or gross profits from its limited
marketing efforts. A large part of the Company's zeolite mineral deposits were
acquired by stock issuances which is expected to play an integral part of
maintaining a competitive edge by keeping supply costs of the principle
ingredient of its products to a minimum. During the development stage, the
Company has also relied on the time and talents of Austin-Young, Inc. personnel
and office space and equipment to maintain a lower overhead to conserve its
limited resources for product and market development.

During the fiscal year ended January 31, 1994, the Company issued 12,000 shares
of common stock to its parent corporation under an option agreement for
$36,000. During October 1993, the Company issued 66,667 shares of common stock
to a group of private investors for $200,000 in a private offering. The
offering also granted a 90-day option to these investors to take additional
shares and on December 17, 1993, the investors exercised their options in the
amount of 80,072 shares for $191,400. During the fiscal year ended January 31,
1995, the Company issued 22,500 shares in a private placement for $90,000.
During that same time period the Company also issued a total of 62,750 shares
for services rendered to the Company and valued at $251,735. During the fiscal
year ended January 31, 1996, the Company issued 214,168 shares in a private
placement for $394,362 and issued 9,000 shares for services rendered to the
Company and valued at $22,400. During the quarter ended April 30, 1996, the
Company issued 39,834 shares in a private placement for $54,750 and issued
8,000 shares for services rendered

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and valued at $16,000. During the quarter ended July 31, 1996, the Company
issued 23,001 shares in a private placement for $33,000 and issued 500 shares
for services rendered and valued at $750.

The Company realizes gross profit margins generally ranging from 20% to 60% on
its product sales depending on product line and pricing levels. At current
operating expense levels and with the anticipated product sales mix, the
Company estimates its break-even at approximately $100,000 in sales per month
or just over $1,000,000 in sales per year.

The Company has no bank debt outstanding. All accounts payable and accrued
expenses are paid when due or sooner when discounts are available. In addition
to monthly operating expenses the Company has a monthly mortgage payment of
$1,500 due to a corporation on a warehouse/plant it purchased. The mortgage
has a balloon payment due in September 1996. The Company intends to pay the
mortgage from proceeds of a public or private stock offering or through a bank
mortgage on the facility. During the Quarters ended July 31, 1996 and 1995,
the Company recorded losses of $74,327 and $119,624, respectively.

RESULTS OF OPERATIONS

Because the Company is a development stage enterprise, it has incurred losses
in each of its fiscal years ended January 31, 1994, 1995 and 1996. This is due
to the Company incurring operating expenses during a time when most of the
efforts were expended in product and market development and other areas not
directly related to marketing while positioning the Company to implement
various marketing programs.

In fiscal 1992, the Company began test marketing products that it had developed
and/or to which it had acquired the rights from other companies. Revenues
increased from $11,388 in 1992 to $43,115 in 1993 due to test marketing of
existing products in limited market areas. During the fiscal year ended
January 31, 1994, the Company concentrated on attractive packaging of its
products, Company capitalization and distribution networks, with less emphasis
on product research as it prepared to implement various marketing programs for
its products. Sales for the fiscal year indicated no growth over the previous
year and, in fact, showed a decline in sales. Sales for the fiscal year ended
January 31, 1995, increased to $69,467, or 242% over the previous year, as the
Company expanded the test marketing of products into more outlets. During the
fiscal year ended January 31, 1996, sales declined to $26,070 as the Company's
management concentrated on the revamping of existing marketing structures in
retail outlets, the design of a marketing program to market agricultural
products through feed dealers, the development of the conceptional framework
for marketing the smaller packaged products through a direct sales
organization, the development of a relationship with an import company in
France to market products in France and the acquisition of a milling facility
in Oregon. The Company expects revenues to increase in the new year. The
Company's products are priced at various levels to generate gross profit
margins of 20% to 60%. Even in the test marketing programs, the Company has
maintained gross profit margins of 58%, 42% and 26%, respectively, for the
fiscal years ended January 31, 1994, 1993 and 1992. The gross profit margin
for the fiscal year ended January 31, 1995, was negative primarily due to a
write-off of obsolete and excess inventory in the amount of $42,702 and to
product promotions that involved free product to new customers in introductory
offers. The gross profit margin for the fiscal year ended January 31, 1996 was
negative due to free product promotions. Profit margins should increase and
then stabilize once production and marketing costs become reasonable with
higher production levels and higher sales volume. Quantity discounts on bag
purchases for certain of the Company's products could result in up to a 30%
increase in the gross profit percent. Profit margins will increase
significantly once the Company's milling facility in Oregon has been equipped
and the Company begins to mine and

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process zeolites from its own properties. Gross profit margins for the six
months ended July 31, 1996 and 1995 were 15% and 0%, respectively, on revenues
of $42,825 and $11,963, respectively.

Ownership of its own zeolite deposits should allow the Company to better
control its cost of sales since zeolite is the major raw material used in its
products. The Company also has negotiated mining arrangements with mining
companies to eliminate large capital requirements that would be necessary to
acquire equipment. Also, milling, packaging, and inventory arrangements have
eliminated the need to spend additional money for capital equipment necessary
for these processes. The Company does plan to equip a milling facility that it
purchased in October, 1995, from proceeds of a private or public stock offering
to be made by the Company during the current fiscal year.

General and administrative expenses have increased steadily since January 31,
1991, as the Company developed more products and added personnel to test market
products. Depreciation and amortization expenses since inception have
remained low because the Company contracts many of its needs that would
otherwise require capital expenditures. A significant portion (approximately
$251,000) of the Company's January 31, 1995 operating expenses relating to
consulting services were funded through the issuance of common stock pursuant
to S-8 Registration Statements. Approximately $22,400 of the operating
expenses for the fiscal year ended January 31, 1996, were funded through S-8
Registration Statements. Approximately $16,000 of the operating expenses for
the quarter ended April 30, 1996 were funded through S- 8 Registration
Statements while approximately $750 of such expenses were funded in this manner
during the quarter ended July 31, 1996.

The Company's note payable to its parent company increased by approximately
$65,000 during the fiscal year ended January 31, 1995, and by another $46,000
during the current fiscal year as the Company borrowed funds to help cover
overhead expenses and accrued rent expenses owing to Austin Young, Inc. The
balance of the note is expected to be paid from future earnings of the Company
or from proceeds from a stock offering.

In September 1993, the Company acquired a warehouse/plant facility in Austin,
Texas, that it had previously leased. The note on this facility has a balloon
payment due in September 1996. This note is expected to be paid off from
future public or private stock offerings by the Company or from the proceeds of
a bank mortgage.

The Company has maintained current ratios of 1.10, 1.30 and 3.80, respectively,
for the fiscal years ended January 31, 1996, 1995 and 1994. The current ratio
for the fiscal year ended January 31, 1996, would have been 11.79 except for
the reclassification to short term notes payable of a balloon payment due on a
warehouse facility. The company expects to pay the mortgage off from proceeds
of an equity offering or refinance the mortgage with long term debt. The
current ratio for the six months ended July 31, 1996 and 1995 were 0.78 and
8.47, respectively. The lower current ratio for the current period results
from the the reclassification of a long term note payable on the Company's
warehouse facility to current notes payable.

The Company does not expect inflation to have any material effect on its
revenues, costs or overall operation. Since the Company owns its own zeolite
deposits that are the main raw material used in its products, inflation would
generally give the Company a competitive edge over companies that do not own
their own deposits. The Company expects that anticipated increased paper costs
for the packaging used in its products can be off-set by price increases
without losing any competitive edges since all other competitors will face the
same price increases. The Company has begun using quality, less expensive
plastic packaging for its Stall Fresh(TM) product.

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PLAN OF OPERATIONS

Management believes that it can continue to fund its operations through private
placements or funds received from the parent company until a public stock
offering can be completed or revenues reach the level (approximately $1,000,000
per year) at which the gross profits attained will finance the operations. The
Company will have to raise a more significant amount of equity in order to
expand its operations at a more rapid rate.

Management has begun a limited marketing campaign, based on available capital,
of its agricultural related products in certain market areas of Texas,
Oklahoma, Ohio, New York, Virginia and West Virginia. Several distributors
have been signed to distribute the products and discussions are being held with
others and are in different stages of completion which usually requires
extensive testing and approval by each of the wholesale or retail outlets. The
Company continues to sell some of its smaller packaged products through several
of the retail outlets that participated in the test marketing program for the
products. In November, 1995, the Company signed a temporary agreement with
E.N.S.R./S.A.R.L., an import company located in France, to export the
agricultural products for distribution primarily in France. The Company
expects to sign a permanent agreement with this company within the next few
months that may expand the distribution to other European countries.

The Company has completed design and packaging for products such as Mother
Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer, White Buffalo(TM),
Stall Fresh(TM), Stinky Pinkys(TM) and Shoe Fresh(TM) as well as eight other
products. The Company is also working the conceptual framework of various
other products using the zeolite materials present in its existing product
line. This includes the impregnation of zeolites with pesticides, herbicides
and fertilizers for use in fields, pastures and gardens as well as chemicals to
help eradicate fire ants.

The Company has purchased a production plant containing 3,500,000 cu. ft. of
production, packaging and storage space near its zeolite properties in Oregon.
The facility is not subject to any existing mortgages. The facility is already
equipped with a 70-ton crane for easy movement of inventory and equipment
within the facility. The Company plans an equity offering that will be used,
in part, to equip this facility with crushing, milling, drying, screening,
packaging and storage equipment. If the Company is successful in its efforts
and a public stock offering is completed, the Company expects to spend
approximately $400,000 for milling equipment; $155,000 on warehouse facilities
in Texas; $500,000 for market development of its product line and marketing
programs; $150,000 for inventory; $50,000 for repairs and maintenance, and
$750,000 for general and administrative, working capital and contingency
operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS

47) IF THE COMPANY'S FINANCIAL STATEMENTS SHOW LOSSES FROM OPERATIONS,
EXPLAIN THE CAUSES UNDERLYING THESE LOSSES AND WHAT STEPS THE COMPANY HAS TAKEN
OR IS TAKING TO ADDRESS THESE CAUSES.

RESULTS OF OPERATIONS

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In fiscal 1992, the Company began test marketing products that it had developed
and/or to which it had acquired the rights from other companies. Revenues
increased from $11,388 in 1992 to $43,115 in 1993 due to test marketing of
existing products in limited market areas. During the fiscal year ended
January 31, 1994, the Company concentrated on attractive packaging of its
products, Company capitalization and distribution networks, with less emphasis
on product research as it prepared to implement various marketing programs for
its products. Sales for the fiscal year indicated no growth over the previous
year and, in fact, showed a decline in sales. Sales for the fiscal year ended
January 31, 1995, increased to $69,467, or 242% over the previous year, as the
Company expanded the test marketing of products into more outlets. During the
fiscal year ended January 31, 1996, sales declined to $26,070 as the Company's
management concentrated on the revamping of existing marketing structures in
retail outlets, the design of a marketing program to market agricultural
products through feed dealers, the development of the conceptual framework for
marketing the smaller packaged products through a direct sales organization,
the development of a relationship with an import company in France to market
products in France and the acquisition of a milling facility in Oregon. The
Company expects revenues to increase in the new year. The Company's products
are priced at various levels to generate gross profit margins of 20% to 60%.
Even in the test marketing programs, the Company has maintained gross profit
margins of 58%, 42% and 26%, respectively, for the fiscal years ended January
31, 1994, 1993 and 1992. The gross profit margin for the fiscal year ended
January 31, 1995, was 35%. The gross profit margin for the fiscal year ended
January 31, 1996 was 35%. Profit margins should increase and then stabilize
once production and marketing costs become reasonable with higher production
levels and higher sales volume. Quantity discounts on bag purchases for
certain of the Company's products could result in up to a 30% increase in the
gross profit percent. Profit margins will increase significantly once the
Company's milling facility in Oregon has been equipped and the Company begins
to mine and process zeolites from its own properties.

General and administrative expenses have increased steadily since January 31,
1991, as the Company developed more products and added personnel to test market
products. Depreciation and amortization expenses since inception have
remained low because the Company contracts many of its needs that would
otherwise require capital expenditures. A significant portion (approximately
$251,000) of the Company's January 31, 1995 operating expenses relating to
consulting services for legal work on securities issues and trademark defense
($72,500), market development and promotion ($140,000) and geological work on
the Company's Oregon mining claims ($38,500) were funded through the issuance
of common stock pursuant to S-8 Registration Statements. Approximately $22,400
of the operating expenses relating to artwork and packaging design for the
fiscal year ended January 31, 1996, were funded through S-8 Registration
Statements.

The $400,000 increase in general and administrative expenses from $314,000 in
1994 to $714,000 in 1995 resulted from additional accounting and auditing
expense of $6,500 for Securities and Exchange Commission work, legal expense
increases of $90,000 for Securities and Exchange Commission work and trademark
defense, professional services increases of $170,000 for geological and market
development and payroll increases of $1400,000 for additional executives and
staff. During 1995, bad debt expense decreased by $7,500, contract labor by
$47,000 and meals and entertainment by $6,000. The $321,000

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decrease in general and administrative expenses from $714,000 in 1995 to
$392,000 in 1996 results primarily from decreases in professional services
expenses of $157,000, payroll expenses of $50,700 and legal expenses of
$96,500. During 1996, there were minor and immaterial increases in other
general and administrative accounts.

PLAN OF OPERATIONS

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The Company has completed design and packaging for products such as Mother
Earth KittyKat(TM) Premium Cat Litter and Soil Enhancer, White Buffalo(TM),
Stall Fresh(TM), Stinky Pinkys(TM) and Shoe Fresh(TM) as well as eight other
products. The Company is also working the conceptual framework of various
other products using the zeolite materials present in its existing product
line. This includes the impregnation of zeolites with pesticides, herbicides
and fertilizers for use in fields, pastures and gardens as well as chemicals to
help eradicate fire ants.

Other than the $121,000 balloon payment due on the Company's Austin, Texas
warehouse facility on September 15, 1996, the Company has not entered into any
material capital expenditure commitments on its newly acquired plant facility,
or otherwise. The Company will need to raise approximately $300,000 through
private placements or a public offering during the next 12 months to sustain
operations at the present level or approximately $2,000,000 to implement all
the planned mining, milling, packaging and marketing efforts.

48) DESCRIBE ANY TRENDS IN THE COMPANY'S HISTORICAL OPERATING
RESULTS. INDICATE ANY CHANGES NOW OCCURRING IN THE UNDERLYING ECONOMICS OF THE
INDUSTRY OR THE COMPANY'S BUSINESS WHICH, IN THE OPINION OF MANAGEMENT, WILL
HAVE A SIGNIFICANT IMPACT (EITHER FAVORABLE OR ADVERSE) UPON THE COMPANY'S
RESULTS OF OPERATIONS WITHIN THE NEXT 12 MONTHS, AND GIVE A ROUGH ESTIMATE OF
THE PROBABLE EXTENT OF THE IMPACT, IF POSSIBLE.

The Company has not had significant enough marketing operations to develop any
trends in its historical operating results. The Company has been in a
development stage and positioning itself to market its products in the national
and international marketplace. The Company is now positioned to begin the
marketing programs described within this Offering Circular. The Company is
depending on the proceeds of this public offering to expand its marketing
programs at the rate and to the extent that it believes are possible.

The Company is "pioneering" a new industry within the United States for
consumer products utilizing zeolites. All of the products the Company is
producing or plans to produce are environmentally safe products and many of
them enhance the cleanness of the environment. With the environmental
awareness in the United States, as well as other countries, today, the
Company's products should be very marketable.

49) IF THE COMPANY SELLS A PRODUCT OR PRODUCTS AND HAS HAD
SIGNIFICANT SALES DURING ITS LAST FISCAL YEAR, STATE THE EXISTING GROSS MARGIN
(NET SALES LESS COST OF SUCH SALES AS PRESENTED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES) AS A PERCENTAGE OF SALES FOR THE LAST FISCAL
YEAR: INSIGNIFICANT SALES, NEGLIGIBLE GROSS PROFIT %. WHAT IS THE ANTICIPATED
GROSS MARGIN FOR NEXT YEAR OF OPERATIONS? APPROXIMATELY 25-30%. IF THIS IS
EXPECTED TO CHANGE, EXPLAIN. ALSO, IF REASONABLY

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CURRENT GROSS MARGIN FIGURES ARE AVAILABLE FOR THE INDUSTRY, INDICATE THESE
FIGURES AND THE SOURCE OR SOURCES FROM WHICH THEY ARE OBTAINED.

The Company, per FASB Statement No. 7, is properly accounted for and reported
as a development stage enterprise. Substantially all of the Company's efforts
since its formation have been devoted to establishing its new business. No
significant revenues have been earned . Operations have been devoted to
raising capital, purchasing zeolite properties, product and market research and
development, test marketing of products, acquiring plant facilities, packaging
designs and developing and establishing a marketing plan.

In the fiscal year ended January 31, 1995, the Company wrote off excess
inventory and various promotional programs that involved "buy one get one free"
offers. During the fiscal year ended January 31, 1996, the gross profit margin
was 35%.

The Company has currently priced its individual products to yield gross profit
percentages ranging from 25% on some of its agricultural products to in excess
of 50% on some of its smaller packaged products.

50) FOREIGN SALES AS A PERCENT OF TOTAL SALES FOR LAST FISCAL YEAR:
48.2%. DOMESTIC GOVERNMENT SALES AS A PERCENT OF TOTAL DOMESTIC SALES FOR LAST
FISCAL YEAR: 0.0%. EXPLAIN THE NATURE OF THESE SALES, INCLUDING ANY
ANTICIPATED CHANGES.

The Company had no domestic government sales during the previous fiscal year.
However, the Company does expect changes within the foreign sales and domestic
government sales areas during the next fiscal year and continuing into future
years.

The Company has recently begun export sales of its agricultural products to an
import company/distributor in France. Management of this French company is
expected to visit the Company in the Fall of 1996 to negotiate a permanent
agreement for importing the Company's agricultural products for distribution in
France. Management believes that this potential agreement may be expanded to
include other areas of Europe or that other importers and distributors may be
available for distribution of the Company's agricultural products in other
European countries with similar economic and environmental conditions as
France.

The Company has had research performed by an independent research facility
relative to the use of zeolites, in place of sand and gravel, in the water
traps and filtration systems that are used in the highway departments of
various states to trap oil and other contaminants to the environment that run
off the highway systems during rainy weather conditions. The Company is also
planning research that involves the use of zeolites as a salt substitute to use
on highways during icy road conditions. Salt, which is currently used in most
icy road conditions, deteriorates automobiles and road beds as well as being
harmful to the growth of grasses along highway medians and drainage ditches
when it is washed into these areas. Zeolites may eliminate these problems.

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[Outside Back Cover]

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS . . . . . . . . . . . . . . . 6
INDEMNIFICATION OF OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
BUSINESS AND PROPERTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . 12
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Principal Products . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Processing and Packaging of Products . . . . . . . . . . . . . . . . . 14
Background Information on Zeolites . . . . . . . . . . . . . . . . . . 15
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . . . 18
Mining Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Office and Warehouse Facilities . . . . . . . . . . . . . . . . . . . 22
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Product Development . . . . . . . . . . . . . . . . . . . . . . . . . 22
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Environmental Concerns . . . . . . . . . . . . . . . . . . . . . . . . 24
General Company Information . . . . . . . . . . . . . . . . . . . . . 26
OFFERING FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 34
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
OFFICERS AND KEY PERSONNEL OF THE COMPANY . . . . . . . . . . . . . . . . . 37
DIRECTORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 39
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION . . . . . . . . . . 42
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 43
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FEDERAL TAX ASPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
MISCELLANEOUS FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS . . . . . 93
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 93
Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 95
</TABLE>

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SIGNATURES

The issuer has duly caused this offering statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Austin, State of
Texas, on September 30, 1996.

-------------------------------------------
American Absorbents Natural Products, Inc.

By /s/ Terry L. Young
-----------------------------------------
Terry L. Young, CEO and Chairman

This offering statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Terry L. Young Chairman, Chief Executive September 30, 1996
------------------------ Officer and Director
Terry L. Young

/s/ David W. Redding Chief Financial Officer, September 30, 1996
------------------------ Executive Vice President,
David W. Redding Assistant Secretary, Treasurer,
Principal Accounting Officer and
Director

/s/ William C. Branch Director September 30, 1996
------------------------
William C. Branch
</TABLE>

The above signatures include the Chief Executive Officer, the Chief Financial
Officer and a majority of the members of the Registrant's Board of Directors.