U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
OMB Approval Expires: Approval Pending
OMB Number: xxxx-xxxx Estimated Average Burden Hours Per Response: 1.0
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended January 31, 1997
Transition report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No fee required)
For the transition period from to
Commission file number 0-23356
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
(Name of Small Business Issuer in Its Charter)
Utah 87-0421089
(State or Other Jurisdiction of
Incorporation or Organization) IRS Employer Identification
3800 Hudson Bend Road, Suite #300, Austin, Texas 78734
(Address of Principal Executive Offices) (Zip Code)
512-266-2481
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (.001 par value)
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. XX
Issuer's revenues for the fiscal year ended January 31, 1997. $69,293.00
Aggregate market value of common stock (.001 par value) held by non-affiliates
at March 31, 1997. $1,772,936.00
Common stock (.001 par value) shares outstanding at March 31, 1997. 5,499,300 .
This Form 10-KSB document contains 46 pages.
PART I
ITEM I. DESCRIPTION OF BUSINESS:
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. (the Company) markets a number of
products using a volcanic mineral known as zeolite which is mined from mining
claims owned by the Company in the State of Oregon or purchased as a bulk
commodity in the open market. 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 products which target the retail and
agricultural consumable products area and the turf grass industry and which use
the natural zeolite mineral mined from the Company's claims or purchased as a
bulk commodity in the open market. A partial listing of these products includes
Mother Earth KittyKatTM Premium Cat Litter and Soil Enhancer, a cat litter
product which, when used, can be disposed of into the soil as a soil enhancer;
Stall Fresha, a product to eliminate urine-generated ammonia odors and wetness
caused by livestock; White Buffaloa, a multi-purpose home, farm and ranch
absorb-all product; and Stinky PinkysTM and Shoe FreshTM, products that
eliminate moisture and odor from shoes and boots. The Company has not currently
entered into the industrial or bulk sales markets with the zeolite minerals
located on the Company's claims, but it may enter these markets during the next
fiscal year.
All of the Company's products use the natural zeolite minerals mined from the
Company's unpatented placer mining claims located in the Harney Basin area in
the State of Oregon or purchased as a bulk commodity in the open market. 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 packaged products such as Mother Earth
KittyKata Premium Cat Litter and Soil Enhancer, White Buffaloa and Stall Fresha,
are packaged and stored at this facility until they are shipped to the
distributor or end retailer. The smaller packaged products, such as the shoe
odor and moisture products, Stinky Pinkysa and Shoe Fresha are packaged and
stored at the Company's facility in Austin, Texas. The Company uses mostly
contract labor for each phase of its current mining, milling and packaging
operations. In October, 1995, the Company purchased in a distress sale for
$65,000 plus an additional $15,000 for repairs, a milling, packaging and storage
facility containing 103,125 square feet and approximately 3,500,000 cubic feet
of inventory storage space in Hines, Oregon, near the Company's mining claims in
Oregon. The Company's insurance carrier placed a replacement value of
$2,049,172 on the facility. This facility has not yet been equipped with
milling and packaging equipment. However, the Company raised sufficient cash
through a private placement during the first part of fiscal 1998 to equip the
facility with the necessary milling and packaging equipment and has placed a
purchase order with an equipment supplier to purchase the equipment. The
Company expects the facility to be operable by mid-summer, 1997.
Marketing of the Company's products is performed by the Company's wholly owned
subsidiary, American Absorbents, Inc. and through joint-venture type
relationships. Since the commencement of its zeolite products business in
approximately 1992, the Company has been principally in the product and market
development stage and has focused its marketing efforts primarily in the test
market area. More recently, the Company has begun the implementation of its
Agricultural Marketing Plan which includes a concentrated marketing effort of
Mother Earth KittyKatTM Premium Cat Litter and Soil Enhancer, White BuffaloTM
and Stall FreshTM. The Company began marketing its agricultural products in the
European marketplace in November, 1995, through an import/export company located
in France.
The Company has engaged in product promotion through participation in trade
shows, direct contacts with distributors, product brokers, large national
chains, product promotions to consumers and advertisements in various trade or
other publications. The Company is also engaged in public awareness campaigns
to inform the general public about the uses of natural zeolite minerals.
The Company is also engaged in a continuing product development program
including test marketing and packaging design programs. The Company currently
has available over a dozen products that it has researched, developed and test
marketed. Since there are so many potential uses (estimated at 3,000+) for the
zeolite mineral in consumer products, any future research and development will
be primarily in the area of market research. The Company will be concentrating
its efforts over the next twelve months to marketing existing products but may
introduce new products during that time period.
The majority of 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 or 6,000 acres. The estimated proven reserves
of in-place zeolite on the southern 40% (approximately 135 claims or 2,700
acres) of the Harney Basin claims is 477,653,873 tons and the estimated probable
reserves is 746,089,789 tons, (based on independent geologist's reports). The
geologist assumed mining of only the top 80 feet of the deposit. In-house
reports of Anaconda (former owner of the northern portion of the Harney Basin
Deposit) geologists placed the estimated reserves of zeolite mineral located on
the northern 4060 acres of the Harney Basin in excess of 1,000,000,000 tons of
90% pure zeolite. Their assumptions included mining only the top 100 feet of
the deposit. Existing drill hole core data indicates that the total thickness
of the deposit is approximately 300 feet which would significantly increase the
estimated reserves within the deposit. An independent geological appraisal
relating only to the approximately 400 acres on which the Company has made
application for its Permanent Mining Permit and Plan of Operations placed the
reserves on the top 60 feet of that area at 20-30,000,000 tons and valued at
2.2-3.3 billion dollars. 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 Hines, Oregon, approximately 25 miles from the claims.
From there it may be shipped in bulk to a facility in New Mexico for processing.
After equipping of the Oregon facility with processing equipment, most of the
mining and milling operations will be conducted in Oregon.
The Company also owns 26 unpatented zeolite placer mining claims in Malheur
County, Oregon, near the town of Sheaville on the Oregon/Idaho border as well as
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.
WARRANTIES:
The Company's products are all manufactured from natural zeolite, a natural
mineral mined from the earth. As such, the products do not have specific
warranties relative to the product. The Company does offer a 100% customer
satisfaction guarantee. If, for any reason, a customer is not satisfied with a
particular product's performance, the Company will refund 100% of the purchase
price.
SUPPLIERS:
The Company is the country's largest corporate holder of zeolite reserves which
assures the Company of always having an adequate inventory of the major material
used in its products. Other supplies, primarily packaging materials, used by
the Company in its manufacturing process are readily available from a number of
suppliers. Services used by the Company for its mining, milling, grinding and
processing are also readily available from a number of service providers.
TRADEMARKS AND PATENTS:
The Company markets its products under a number of trademarks and trademark
applications. The Company has applied for federal trademark protection on its
products currently marketed, or to be test marketed, by the Company. The
Company does not own, hold or use any patents.
INVENTORY:
The Company has maintained lower inventory levels during the development stage,
but plans to increase inventory levels when full-scale marketing efforts begin
under the Agricultural Marketing Plan. The book value of inventory for the
fiscal years ended January 31, 1997 and January 31, 1996 was $99,952 and
$109,098, respectively.
CUSTOMERS:
The Company's products are currently being sold through direct sales to the
customer, to retail outlets and through regional distributors. Products have
been sold to over 100 different retailers with approximately 2,000 retail
outlets. For the fiscal year ended January 31, 1997, E.N.S.R./S.A.R.L.
accounted for approximately 58% of sales. For the fiscal year ended January 31,
1996, H.E. Butt Grocery Company accounted for 18.6% of sales, E.N.S.R./S.A.R.L.
accounted for 48.2% of sales and Academy Surplus accounted for 15.9% of sales.
The Company's products are currently being sold, or have been approved for sale,
in several large national retail outlets as well as smaller retail outlets.
Currently, and at the present sales levels in the development stage, 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.
BACKLOG:
The Company has been primarily in a test marketing phase. Accordingly, there
was no backlog at January 31, 1997 or January 31, 1996. The Company has
maintained sufficient inventory levels to ship products when they are ordered
and plans to continue to maintain sufficient inventory levels to fill future
orders.
COMPETITION:
The Company experiences some competition in the developing and marketing of its
products. Management has categorized competition into three areas, namely: 1)
producers of products similar to those marketed by the Company but not using any
natural zeolite mineral; 2) producers of products using natural zeolite minerals
mined from the producer's own reserves; and, 3) producers of products using
zeolite minerals purchased from an outside source. The Company believes that it
can compete favorably with many of these producers because of the ability of the
Company to produce its natural zeolite products at relatively low cost because
of the vast amount of easily accessible zeolite located on the Company's mining
claims. 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 quickly adapt to the changing nature of products using
environmentally safe materials.
The Company is aware of approximately thirty-two other companies in the central
Texas area which are marketing cat litter products, some of which contain small
percentages of zeolites. Management is also aware of three other companies in
the nation which market a cat litter product using natural zeolite minerals, two
of which own small zeolite mining claims. Management believes that Mother Earth
KittyKata Premium Cat Litter and Soil Enhancer can favorably compete with the
cat litters not using natural zeolite minerals on a price per pound basis with
the added benefit of an environmentally friendly, dual-purpose product. The
Company's management views the percentage of the Texas and national cat litter
market currently held by the present cat litter products using natural zeolite
minerals to be insignificant and therefore does not believe that the sale of
such products by such companies will significantly impact sales of Mother Earth
KittyKata Premium Cat Litter and Soil Enhancer by the Company.
The Company's shoe products, Shoe FreshTM and Stinky PinkysTM, compete with a
number of large companies which manufacture similar shoe products, none of which
are believed to use natural zeolite minerals. Management is aware of a small
company currently marketing a shoe product using natural zeolite minerals;
however, such company does not have access to its own zeolite 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 zeolite minerals in part. Again management believes that the Company's
product, Sorbs-A-Lota, 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 markets a product similar
to Stall FreshTM. The competing product is marketed by a company which does not
own its own zeolite deposits and uses natural zeolite minerals purchased from
zeolite suppliers. Management expects to begin marketing its Stall FreshTM
product in areas where the competing product is sold and believes it can
favorably compete with the competitor due to the Company's ownership of its own
zeolite deposits.
The Company is not aware of any other company that produces a product similar to
its multi-purpose White BuffaloTM home, farm and ranch absorbs all product.
RESEARCH AND DEVELOPMENT:
The Company is engaged in continuing market research and development programs.
The Company currently has available over a dozen products that it has
researched, developed and test marketed. Since there are so many potential uses
(estimated at 3,000+) for the zeolite mineral in consumer products, future
research and development will be primarily in the area of market research. The
Company will be concentrating its efforts over the next twelve months to
marketing existing products but may introduce new products during that time
period. During the development stage a large percentage of the Company's
overhead was allocated to research and development but the percentage of
overhead allocated to research and development has declined as the Company has
moved more to the marketing phase. The Company has developed its zeolite
products in-house and test markets each product in a limited number of stores.
During the fiscal years ended January 31, 1997 and January 31, 1996, the Company
recorded research and development expenses of $0 and $8,115, respectively.
ENVIRONMENTAL MATTERS:
The Company's products, being environmental products, have a positive impact on
the environment and are considered environmentally friendly. Compliance in
general with regulations relating to the protection of the environment has not
had, and is not anticipated to have, a material effect upon the capital
expenditures, earnings or competitive position of the Company. Because of the
limited nature of the mining operations in Oregon at this time, the Company
operates under a Total Exemption From Reclamation Requirements. However, the
Company's current policy is to reclaim all of its mined areas. The Company has
received a limited mining permit and grant of total exemption from reclamation
from the Federal Bureau of Land Management for 1997. In anticipation of
expanding its operations the Company has contracted an independent geologist who
has submitted to the Federal Bureau of Land Management, the State of Oregon
Department of Geology and Minerals Industries and Harney County, Oregon,
officials, a permanent mining permit application and 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
accomplished. The 30-day Notice of Public Hearing was filed on April 23, 1997
relative to this application.
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 and the possibility currently exists that the
government will remove the potentially hazardous classification from erionite.
The Company has no intent to mine deposits where 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 species known as the
Malheur Wirelettuce. The Company has released its claims which border on this
area which management believes satisfactorily minimizes 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 will utilize dust abatement and other measures designed to reduce any
impact on the wildlife area.
EMPLOYEES:
At January 31, 1997, the Company had three full-time employees not including
contract laborers who are employed on an "as needed" basis. In the past, the
majority of Mr. Young's salary has been paid by the Company's parent
corporation. The Company does not anticipate adding any significant number of
employees in the immediate future but will continue to employ contract laborers
on an "as needed" basis. After completion of additional capitalization, the
Company does plan to add a marketing executive with national prominence and
possibly two administrative personnel.
ITEM 2. DESCRIPTION OF PROPERTIES:
Mining Properties
The Company controls 259 unpatented placer mining claims located in the Harney
Basin, Harney County, Oregon, covering approximately 7.475 square miles and
situated approximately 25 miles south of Burns, Oregon, and about 214 miles west
of Boise, Idaho (Harney Basin Claims). Also, the Company controls 26 unpatented
zeolite placer mining claims in Malheur County, Oregon, near the town of
Sheaville (Sheaville Claims). In addition, the Company controls 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
(Arizona Claims). The Company's initial focus is on the Harney Basin Claims
because there is more geological data available from previous owners on these
claims and the zeolite deposits are on or near the surface with little or no
overburden, thus reducing the cost of extraction.
The owner of an unpatented mining claim holds possessory title to the claim.
Possessory title is not legal title in the usual sense of that 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 $100.00 per 20 acre claim site. The Company believes it has met these
requirements. 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
of any material conflicts with other parties concerning the claims and believes
it has valid possessory right in those claims.
Office And Warehouse Facilities
The Company's principal executive offices are located in approximately 4,300
square feet of office space which is being leased from Austin-Young, Inc., the
Company's parent corporation. Such space is being furnished by Austin-Young,
Inc. pursuant to a 5-year lease agreement dated July, 1996. Monthly rental for
such office space is $1,900. Such lease also includes the use of the office
furniture and equipment located at such facility.
In October, 1993, the Company acquired, a building containing approximately
4,400 square feet of commercial warehouse space located in Austin, Texas. 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. Said mortgage is payable in monthly
interest only payments of approximately $750.00 with a balloon payment of
$125,000 due in September, 1997. Because said facility lacks permanent heating
and air conditioning, it is limited for use during the months of extreme cold or
heat. The Company plans to improve this facility to facilitate year-round use.
In October, 1995, the Company completed the acquisition of a milling facility
containing 103,125 square feet and approximately 3,500,000 cu. ft. of
production, packaging and storage space in Hines, Oregon, approximately 25 miles
from its Harney Basin zeolite deposits. The facility is already equipped with a
70-ton overhead crane. The Company has completed a private placement that will
be used, in part, to equip this facility with crushing, milling, drying,
screening, packaging and storage equipment. The facility is not subject to any
existing mortgages.
ITEM 3. LEGAL PROCEEDINGS:
Neither the Company, any of its properties, nor its subsidiary is a party to any
material pending legal proceeding or government action, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS:
During the fiscal year ended January 31, 1997, the Company solicited the proxies
of its security holders to vote upon the following matters at the annual meeting
of shareholders held on June 5, 1996:
1. Election of five directors
2. Ratification of all acts of the officers and directors for the
fiscal year ended January 31, 1996
3. Ratification and approval of the borrowing of working capital funds
from Austin-Young, Inc.
4. Ratification of the appointment of Orton and Company, Certified
Public Accountants to serve as independent auditors of the Company for the
fiscal years ended January 31, 1996 and 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
The common stock of the Company is traded on the over-the-counter market on
NASDAQ's Bulletin Board. There currently exists a limited trading market for
the common stock; however, management of the Company does not believe that a
highly established market exists for the common stock. The following table sets
forth the high and low bid quotations for the common stock as reported to the
Company by market makers for the common stock. These quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Quarter High Low
Year ended First $2.00 $0.75
January 31, Second $2.12 $1.12
1996 Third $2.12 $1.50
Fourth $2.25 $1.50
Year ended First $2.37 $1.37
January 31, Second $2.37 $1.12
1997 Third $1.50 $0.62
Fourth $0.90 $0.47
As of January 31, 1997, there were approximately 227 holders of record (not
including shares held in street names in street accounts) of the common stock of
the Company as reported to the Company by its transfer agent. Based upon
requests for proxy materials by various proxy services, the Company estimates
that it currently has approximately 500 shareholders.
No cash dividends have been declared or paid as yet on the common stock and the
Board of Directors of the Company has not yet decided on a dividend policy.
Whether dividends will be paid will be determined by the Board of Directors of
the Company and will necessarily depend on the Company's earnings, financial
condition, capital requirements and other factors. The Board of Directors has
no current plans to declare any dividends in the foreseeable future.
At January 31, 1997, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had 5,360,100 common stock shares outstanding. At
March 31, 1997, 5,499,300 common stock shares were outstanding.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS:
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 through January 31, 1997 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 major stockholder 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
Austin-Young, Inc. at January 31, 1996. The balance owing to Austin-Young, Inc.
increased to 202,385 at January 31, 1997 due to the rolling of accrued interest
into the note and $7,000 of advances made to the Company. 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 1995, 1996 and 1997, the Company has incurred losses
that reflect the development stage activity of researching and test marketing
its products. The company has paid $140,739, $8,115 and $0.00 for research and
development for the years 1995, 1996 and 1997, respectively. The Company paid
$91,700 to the Bureau of Land Management in the fiscal year ended January 31,
1996 and $29,500 in the fiscal year ended January 31, 1997. In the future,
approximately $29,500 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 January 31,
1996, and January 31, 1997, were $182,539 and $202,385, respectively. When
possible, the Company has issued stock for the acquisition of assets or services
to reduce the need for additional operating capital from the major stockholder,
additional shareholders or gross profits from its limited marketing efforts. A
large part of the Company's zeolite mineral deposits were acquired by stock
issuance 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 the major stockholder 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. These services included 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). 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 artwork and packaging design services rendered to the Company
and valued at $22,400. During the fiscal year ended January 31, 1997, the
Company issued 130,960 shares in private placements for $156,860 and issued
259,620 shares for services rendered to the Company and valued at $262,219.
Net General and Administrative Expenses increased by approximately $75,000
during the fiscal year ended January 31, 1997, from $393,000 to $468,000. Of
this increase in general and administrative expenses, legal and accounting
expenses increased by $9,700, interest expense by $2,400, rent expense by
$13,000, repairs and maintenance by $1,200, miscellaneous expense by $2,200 and
professional services by $190,000. Professional services included shares of
stock that were issued to officers and directors as compensation for their
services. Decreases to the general and administrative accounts include zeolite
lease expense ($52,500), printing, postage and office expenses ($11,100), travel
and entertainment ($7,700), advertising ($5,700), business promotion ($2,950),
contract labor ($4,000), insurance ($4,000), salaries and wages ($27,000),
property taxes ($700), and payroll taxes $1,200). Other accounts accounted for
the remaining difference.
The Company realizes gross profit margins generally ranging from 20% to 60% on
its product sales depending on product line and pricing levels. For the fiscal
years ended January 31, 1996, January 31, 1997 and for the period from the
inception date on February 9, 1984 to January 31, 1997, the Company had average
gross profit margins of 35%, 30% and 36%, respectively. 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 $125,000 in bank debt outstanding. This bank debt is secured by
an equivalent amount of CD's that are owned by Austin-Young, Inc., the major
stockholder of the Company. Austin-Young, Inc. does not receive any
compensation for the use of its CD's as collateral. The debt includes interest
only payments to the bank in the approximate amount of $750 per month. This
bank debt was incurred to pay off an existing mortgage on the Austin, Texas
warehouse facility. The Company intends to pay the principal amount of the bank
debt from proceeds of a public or private stock offering. All accounts payable
and accrued expenses are paid when due or sooner when discounts are available.
RESULTS OF OPERATIONS
Because the Company is a development stage enterprise, it has incurred losses in
each of its fiscal years ended January 31, 1995, 1996 and 1997. 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 to $20,323. 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. During the fiscal year ended January 31, 1997 revenues increased to
$69,293, or 166% over the previous year, as the Company began to realize
revenues from the agricultural marketing programs in the United States and
France. 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 30% and 35%, respectively, for the
fiscal years ended January 31, 1997 and 1996. 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. Gross profit
margins have averaged 36% for the period from inception on February 9, 1984
through January 31, 1997. Profit margins should increase and then stabilize once
production and marketing costs become reasonable with higher production levels
and higher sales volume. Bringing the Oregon milling facility into production
should also decrease costs, thereby allowing the Company to increase gross
profit margins or reduce selling prices to facilitate increasing market share on
each of the products sold by the Company. 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.
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 in past years.
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 has contracted 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 $262,000 of services were acquired during the fiscal
year ended January 31, 1997 through the issuance of common stock. In addition,
another $157,000 of common stock was issued in private placements to cover
other overhead expenses.
The Company's note payable to its major stockholder increased by approximately
$65,000 during the fiscal year ended January 31, 1995, and by another $46,000
during the fiscal year ended January 31, 1996 as the Company borrowed funds to
help cover overhead expenses and accrued rent expenses owing to Austin Young,
Inc. During the fiscal year ended January 31, 1997, the note payable to the
major stockholder increased by only $20,000 mostly due to accrued interest that
was rolled into the note plus approximately $7,000 of advances made to the
Company. The balance of the note is expected to be paid from future earnings of
the Company.
In August, 1996, the Company paid off a note payable of approximately $125,000
on the warehouse/plant facility in Austin, Texas from the proceeds of a bank
loan that was secured by using CD's owned by the Company's major stockholder.
The Company has maintained current ratios of 0.47, 1.10 and 1.84, respectively,
for the fiscal years ended January 31, 1997, 1996 and 1995. The lower current
ratio for the fiscal year ended January 31, 1997, results from the
classification as short term debt of $202,385 owing to Austin-Young, Inc., the
major stockholder of the Company. This debt may or may not be paid during the
next fiscal year, depending upon profits of the Company.
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 FreshTM product.
PLAN OF OPERATIONS
Management believes that it can continue to fund its operations through private
placements or funds received from the major stockholder 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 the United
States and in France. 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 began shipping some of its agricultural products to
E.N.S.R./S.A.R.L., an import company located in France.
The Company has completed design and packaging for products such as Mother Earth
KittyKatTM Premium Cat Litter and Soil Enhancer, White Buffaloa, Stall Fresha,
Stinky PinkysTM and Shoe Fresha 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.
In October, 1995, the Company purchased a production plant containing 103,125
sq. ft. and approximately 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.
The Company has completed an equity offering that will be used, in part, to
equip this facility with crushing, milling, drying, screening, packaging and
storage equipment. The Company expects the Oregon milling facility to be in
production by mid-summer, 1997. If the Company is successful in its efforts to
complete a public stock offering currently being reviewed by the Securities and
Exchange Commission, 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.
ITEM 7. FINANCIAL STATEMENTS:
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
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, lnc. (a Utah Corporation) and subsidiary (a-
development stage company) as of January 31, 1997 and 1996 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years ended January 31, 1997 and 1996 and for the period from inception on
February 9, 1984 through January 31, 1997. 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 as of January 31, 1997 and 1996 and the
results of their operations and their cash flows for the years ended January
31, 1997 and 1996 and for the period from inception on February 9, 1984 through
January 31, 1997 in conformity with generally accepted accounting principles.
Orton & Company
Salt Lake City, Utah
February 14, 1997
MEMBERS: American Institute of Certified Public Accountants, Utah Association of
Certified Public Accountants, Division for CPA Firms - SEC Practice Section
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
January 31, 1997 and 1996
CONTENTS
Independent Auditors'
Report......................................................................12
Consolidated Balance Sheets
............................................................................15
Consolidated Statements of Operations
.........................................................__________________ 17
Consolidated Statements of Stockholders' Equity
............................................... 18
Consolidated Statements of Cash Flows
............................................................. 22
Notes to the Consolidated Financial Statements
................................................. 24
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
January 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
CURRENT ASSETS
<S> <C>
Cash $ 1,078 $ 1,107
Accounts receivable (Note 1)
Trade 18,144 7,562
Other - 580
Prepaid expenses (Note 1) 57,208 35,658
Inventory (Note 1) 99,952 109,098
Total Current Assets 176,382 154,005
PROPERTY AND EQUIPMENT (Note 7)
OTHER ASSETS
Mining claims (Note 8) 5,081,669 5,081,669
Notes receivable (Note 5) 5,000 -
Business development costs (Note 1) - 750
Product tradenames (Note 9) - 2,500
Total Other Assets 5,086,669 5,084,919
$ 5,477,649 $ 5,469,447
</TABLE>
(Continued)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
January 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
CURRENT LIABILITIES
<S> <C>
Accounts payable and accrued expenses $ 49,119 $ 13,060
Current portion of note payable -
related party (Note 10) 202,385 -
Note payable (Note 11) 125,000 127,520
Total Current Liabilities 376,504 140,580
LONG-TERM DEBT
Notes payable-related party-less
current portion (Note 10) - 182,539
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
5,360,100 and 4,969,520 shares issued
and outstanding, respectively 5,361 4,970
Capital in excess of par value 7,270,816 6,851,728
Deficit accumulated during the
development stage (2,175,032 ) (1,710,370 )
Total Stockholders' Equity 5,101,145 5,146,328
$ 5,477,649 $ 5,469,447
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception
on February 9,
1984 Through
For the years ended January 31,
January 31, 1997
1997 1996
<S> <C>
Net Sales $ 69,293 $ 26,070 $ 239,656
Cost of goods sold 48,716 16,950 152,690
Gross Profit 20,577 9,120 86,966
EXPENSES
General and administrative 467,524 392,835 2,188,540
Depreciation and
amortization 17,615 17,652 71,011
Total Expenses 485,139 410,487 2,259,551
Net loss before provision
for income taxes (464,562 ) (401,367) (2,172,585)
Provision for income taxes 100 100 2,447
NET LOSS $ (464,662 ) $ (401,467) $ (2,175,032)
WEIGHTED AVERAGE
LOSS PER SHARE $ (.09 ) $ (.08 )$ (1.22)
AVERAGE SHARES
OUTSTANDING 5,172,860 4,914,777 1,780,273
</TABLE>
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, 1997
<TABLE>
<CAPTION>
Deficit
Accumu-
lated
During
Additional Develop
Common Stock Paid-in ment
Shares Amount Capital Stage
<C> <S>
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 -
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
for various assets from
Austin-Young, Inc. (Note 5) 50,000 50 198,890 -
Issuance of common stock for distribution
expenses 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) -
Purchase 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 -
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. - - 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
acquisition of Geo- Environment
Services, Inc. in February 1992 (Note 5) 701,800 702 96,442 -
Issuance of common stock for
purchase of mining claims
in March 1992 (Note 5) 243,000 243 4,859,757 -
Common stock canceled by officers
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
purchase 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 -
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)
Issuance of common stock for cash
in a private offering (Note 12) 130,960 131 156,729 -
Issuance of common stock for
services (Note 5 & 6) 259,620 260 262,359 -
Net loss for the year ended
January 31, 1997 - - -
(464,662)
Balance, January 31, 1997 5,360,100 $
5,361$7,270,816$(2,175,032)
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
February 9,
For the Years Ended 1984 through
January 31, January 31,
1997 1996 1997
<S> <C>
Cash Flows From Operating Activities
Net loss $ (464,662) $ (401,467) $(2,175,032)
Depreciation and amortization 17,615 17,652 71,011
(Increase) decrease in receivables (10,002) 3,457 (18,144)
Decrease (increase) in prepaid expenses (21,550) 15,904 (45,208)
Decrease (increase) in inventory 9,146 (10,417) (26,777)
Increase (decrease) in payables 36,059 (47,889) 48,129
Loss from disposal of fixed asset 1,560 - 1,560
Stock issued for services 262,619 22,400 659,789
Expenses paid by shareholder - 36,000 149,018
Net Cash Used by Operating
Activities (169,215) (364,360) (1,335,654)
Cash Flows From Investing Activities
Purchase of fixed assets - (67,505) (227,115)
Purchase of product tradenames - - (26,958)
Purchase of note receivable (5,000) - (5,000)
Organization costs - - (1,524)
Purchase/sale of mining - - -
development costs - - 7,920
Purchase of mining claims - - (58,599)
Sale of licenses - - 150,000
Purchase of stock (65,000)
Net Cash Used by Investing
Activities (5,000 ) (67,505) (226,276)
Cash Flows From Financing Activities
Issuance of common stock 156,860 394,362 1,170,623
Issuance of notes payable 144,846 46,423 647,210
Principal payments on long-term debt (127,520 ) (10,020) (254,825)
Net Cash Provided by Financing
Activities 174,186 430,765 1,563,008
Net (Decrease) Increase in Cash (29 ) (1,100) 1,078
Cash at Beginning of Period 1,107 2,207 -
Cash at End of Period $ 1,078 $ 1,107 $ 1,078
Supplemental cash flow information:
Cash Paid For:
Interest $ 8,688 $ 18,834 $ 61,385
Income Taxes 100 100 2,347
Non-Cash Transactions:
Stock issued for mining claims $ - $ - $ 5,045,000
Stock issued for down
payment on building $ - $ - $ 30,000
Stock issued for services $ 262,619 $ 22,400 $ 659,789
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>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
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 June 1995, 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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
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.
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,
1997 and 1996 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 and 1997 consist of the following:
1996 1997
Prepaid mining land lease $ 22,908 $ 17,208
Prepaid fees 12,750 40,000
$ 36,658 $ 57,208
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 asset, which is 5 years,
The costs and accumulated amortization at January 31, 1997 are as
follows:
Business development costs $ 3,026
Accumulated amortization (3,026)
$ -
Mining Claims
Mining claims are stated at the lower of cost or market, whichever is
lower.
Any costs incurred for the betterment or to increase the expected
efficiency of the operations related to the extraction from the Company
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
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. (See Note 15)
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 was
engaged in the business of licensing the operations of compressed natural
gas conversion centers and natural gas refueling stations. NGRI had
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).
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
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, 1997 and
earlier years, accordingly, no deferred tax liabilities have been
recognized for all years.
The Company had cumulative net operating loss carryforwards of
approximately $2,160,000 at January 31, 1997 and $1,700,000 at January
31, 1996. 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 $734,400 at
January 31, 1997 and $578,000 at January 31, 1996 have been offset by
valuation reserves of the same amount. The net change in deferred tax
asset and offsetting valuation reserve amounted to $156,400 for 1997 and
$136,000 for 1996.
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,
AMERICAN ABSORBENT NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
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 is 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 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 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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
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 seven years from the
date of offer.
The Company is leasing its office space from a related party pursuant to
a 60 month lease agreement dated July 30, 1996 on a month to month basis
at $1,900 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 officers and
directors while working on projects related to Company business. The
compensation is shown as an expense to the Company and capital
contribution. Total compensation paid was $36,000 for 1994, 1995 and
1996.
For 1997, the Company issued 128,869 shares of common stock in lieu of
cash to its officers and directors for services performed. The stock was
valued at $128,869, or $1 per share, the trading value of the stock at
the time of issuance.
In 1997, the Company was required to pay a balloon payment due on its
warehouse in September, 1996. Instead of finding long term funding
through a mortgage company, Austin-Young, Inc., the majority shareholder
provided $125,000 in certificates of deposit for collateral on a one year
note of $125,000 provided by a local bank to pay the balloon payment.
The note is due in September, 1997 (See Note 11).
In 1997, the Company issued 16,751 shares of stock to Austin-Young, Inc.
for rent for the use of office space. Total rent for fiscal year 1997
was $13,000. The office space is rented pursuant to a 60 month lease
agreement. (See Note 18)
In 1997, the Company contracted with American Crisis Publishing (a wholly
owned subsidiary of Austin-Young, Inc.) to provided $40,000 (40,000
shares of common stock) of future _mail out_ services for company
literature and future advertising promotions. American Crisis Publishing
specializes in _the creation and preparation of booklets and mailouts for
the dissemination of information to the public_. The services have not
yet been performed and is classified as a prepaid expense.
In 1997, the Company purchased for $5,000 from Austin-Young, Inc. a
$20,000 note receivable from a former officer and director for the
purchase of common stock. The note was discounted due to the poor
probability of collection. The Company intends to make a demand for
payment on the note or cancel the shares that were issued under
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
the note.
In January, 1997, the Board of Directors approved a compensation package
for David Redding, President, at $7,000 per month, $3,500 cash and $3,500
in stock until the Company could compensate entirely with cash.
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 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 claims (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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 6 - NONMONETARY TRANSACTIONS (Continued)
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.
During 1997, 259,620 shares (185,620 related party) were issued at an
average price of $1.01 per share for various 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,
1997 1996
<S> <C>
Plant $ 244,978 $ 244,978
Machinery and equipment 10,582 12,382
Accumulated depreciation (40,962) (26,837)
$ 214,598 $ 230,523
</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
$14,365 and $12,047 for the years January 31, 1997, 1996 respectively.
Amortization expense is $3,250, $5,605 for the years ended January 31,
1997 and 1996 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.
In October, 1995, the Company purchased from a defunct logging operation,
a 103,125 square foot building containing approximately 3,500,000 cubic
feet of milling, packaging and inventory storage space for a cash price
of $65,000. The building is to be used to house the Company's zeolite
milling operations in Oregon. The Company has completed approximately
$10,000 worth of repairs that needed to be made to the building. Farmers
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 7 - PROPERTY AND EQUIPMENT (Continued)
Group Insurance, which insures the building, has determined that the
replacement value of the building is $2,049,172.
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 are described 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 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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
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,
1997 1996
<S> <C>
Notes payable - Austin-Young, bearing
interest at 7% interest and payable
in 1997. Unsecured. $ - $ 182,539
Notes payable - Austin-young, bearing
interest at 7% and payable on demand.
Unsecured. 202,385 -
Less current portion (202,385) -
Totals $ - $ 182,539
</TABLE>
NOTE 11- NOTES PAYABLE
Notes Payable consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to an unrelated corporation, Janaury 31,
bearing interest at 6%, amortized over 30 1997 1996
years, balloon payment due September
1996. Secured by warranty deed. $ - $ 127,520
Note payable to a bank, bearing interest
at 7.34%, due September, 1997. Secured
by $125,000 CD=s (see Note 5) 125,000 -
$ 125,000 $ 127,520
</TABLE>
Total interest expense for 1997 was $21,535.
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 12 - PRIVATE PLACEMENT OF COMMON STOCK (Continued)
In 1996, the Company issued 214,168 shares of common stock in a
regulation D private placement for total consideration of $394,362.
In 1997, the Company issued 130,960 shares of common stock in a
regulation D private placement for total consideration of $156,860.
NOTE 13 - 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, 1997 and 1996 respectively are
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Labor and wages $ - $ 8,115
Materials and supplies - -
Rent allocation - -
$ - $ 8,115
</TABLE>
Research and development of the Company primarily relate to product and
package design and market research.
NOTE 14 - ECONOMIC DEPENDENCY
During the current fiscal year, the Company has developed an overseas
customer that provided 58% of the years sales volume.
NOTE 15 - SUBSEQUENT EVENTS
In January, 1997, the Company authorized a private placement of up to
$500,000 to be used to purchase milling equipment to be used in the
milling plant in Oregon, to begin mining and milling operations,
increase inventories and for working capital. During the first quarter
of the 1998 fiscal year, the Company raised approximately $204,000 and
began the purchasing process for the milling equipment. This portion
of the private placement was sold in Units consisting of 4,800 shares
of restricted common stock and a $3.00 per ton royalty on 6,000 tons of
zeolite mineral as it is mined, milled and sold. The Company has
expanded the total amount of capital to be raised up to $500,000 and
has engaged Northstar Securities to sell the remaining $300,000 of the
private placement to accredited investors only. Each purchaser will
receive their pro-rata share of the royalty payment based upon the
number of Units purchased relative to the total number of Units sold.
The royalty payments will be paid from the first tonnages of zeolite
mineral mined and sold by the Company. The Company may increase the
amount of the royalty payment above the $3.00 amount per ton, but in no
event will the total royalty payment to any holder of Units exceed
$18,000.00 per Unit held. The increase in the royalty amount paid
would only decrease the time limit in which the
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 15 - SUBSEQUENT EVENTS (Continued)
holder of a Unit would receive the total royalty amount. Royalty
payments will be made quarterly after the Company has made its
quarterly financial statement filings with the Securities and Exchange
Commission and determined the total tonnage that has been mined, milled
and sold during the reporting quarter.
NOTE 16 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities and
earnings involve extensive reliance on management's estimates. Actual
results could differ from those estimates.
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, _Disclosure
about Fair Value of Financial Instruments_. The carrying amounts and
fair value of the Company's financial instruments at January 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
January 31,1 997 January 31, 1996
Carrying Fair Carrying Fair
Amounts Values Amounts Values
<S> <C>
Cash and cash equivalents $ - $ - $ - $ -
Notes receivable 5,000 - - -
Notes payable including current
maturities 327,385 327,385 310,059 310,059
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and Cash Equivalents
The carrying amounts reported on the balance sheet for cash and cash
equivalents approximate their fair value.
Notes Receivable
The fair values of notes receivable are based upon the interest rate
the Company would receive on market rates available for savings and
investment.
Notes Payable
The fair values of notes payable are estimated using discounted cash
flow analyses based on the Company's incremental borrowing rate at the
discount rate.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1997 and 1996
NOTE 18 - LEASE OBLIGATION
The Company leases space from its parent company, Austin-Young, Inc.
pursuant to a 60 month lease beginning July 30, 1996 at $1,900 per
month.
Minimum lease obligations for future years is as follows:
1998 $ 22,800
1999 22,800
2000 22,800
2001 22,800
2002 11,400
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE:
There were no changes in or disagreements with the independent certified public
accountants relating to accounting and financial disclosure in any of the three
most recent fiscal years of the Company.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT:
SERVED AS
POSITIONS WITH DIRECTOR OR
NAME THE COMPANY AGE OFFICER SINCE
Terry L. Young Chairman of the Board, 50 1990
Chief Executive Officer,
Director
David W.
Redding President, Chief Financial 48 1993
Officer, Assistant Secretary,
Treasurer, Director
Kimberly
A. Love Secretary 34 1995
William
C. Branch Director 44 1995
Terry L. Young 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 to 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 major stockholder 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 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.
David W. Redding became a director of the Company in 1993. He has served as
President of the Company since February 1997. 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.
William C. Branch became a director of the Company in June 1995. He 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 BS 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 spends less than 10% of his time involved with Company business. Age
44.
Kimberly A. Love has served as secretary of the Company since October 1995.
From September 1992 until October 1995, she was the owner of Harvest Company, a
company specializing in the harvesting and selling of timber to companies such
as Champion Corporation, Louisiana Pacific and Kirby Industries. From July 1990
until September 1992, Ms. Love worked for Baker Oil Tools in Houston, Texas as a
departmental specialist, where she assisted in budget analysis and planning for
the manufacturing department. She also has experience as a market manager for
F.M.I. and B.D.S. in California, marketing new products for companies such as
R.J. Reynolds and other consumer products marketing companies in various
industries. She attended Southwest Texas State University, San Marcos, Texas
for two years. Age 34.
ITEM 10. EXECUTIVE COMPENSATION:
The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1994, 1995, 1996 and 1997, as to each officer
of the Company whose aggregate remuneration exceeds $100,000, and as to the
aggregate remuneration of all officers as a group:
Annual Compensation Long-Term
(1) Compensation
Awards
Payouts
Restri
Name and Other cted Option LTIP All
Principal Ye Sala Bonu Annual Stock s/ Payo Other
Positions ar ry s Compensa Awards SAR's uts Compensa
tion tion
Terry L.
Young, 19 -0- -0- -0- 1,000, -0- -0-
CEO 94 $1,8 000
00
19
95 -0- $5,0 -0- -0- -0- -0- -0-
00
19
96 -0- -0- -0- -0- -0- -0- -0-
19
97 -0- $7,0 -0- 59,473 -0- -0- -0-
00
All
Officers as 19 $34, $1,8 -0- -0- -0- -0- -0-
a 94 390 00
Group (4
persons)
19 $85, $5,0
(4 persons) 95 500 00 -0- -0- -0- -0- -0-
19 $44, $1,0
(3 persons) 96 714 00 -0- -0- -0- -0- -0-
19 $64, $7,0
(3 persons) 97 800 00 -0- 112,20 -0- -0- -0-
2
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 $50,000 per person or 10% of
the total annual salary and bonus for the named executive officer.
The Company does not have any pension, retirement, deferred compensation or
similar plan for its officers, directors or employees. It does have an
incentive stock option plan for its officers, directors, employees and other
persons who perform substantial services for or on behalf of the Company. The
1995 Stock Option Plan provides for the granting of options on a maximum of
1,000,000 shares of the Company's common stock (which number is subject to
adjustments in the event of stock dividends, stock splits and other similar
events). The 1995 Stock Option Plan is administered by the Board of Directors ,
or, at its option, a duly authorized committee of the Board. Options may be
granted at the market bid price of the common stock at the time of issuance and
can be exercised by the payment of cash or, at the discretion of the Board of
Directors, in shares of common stock of the Company. The term of any option
granted may extend for seven years from the date of grant. No options have been
granted under the 1995 Stock Option Plan.
Currently, directors do not receive any compensation for serving in their roles
as directors of the Company.
There were no options granted and/or exercised during the fiscal year ended
January 31, 1997.
The following table sets forth the aggregated option/SAR exercises in the last
fiscal year and the fiscal year-end option/SAR values:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Value of
Unexercise
Shares Number of d
Acquired d in-the-
on Value Options/SA Money
Exercise Realized Rs Options/SA
Name (#) ($) at FY-End Rs
(#) at FY-End
Exercisabl ($)
e/ Exercisabl
Unexercisa e/
ble Unexercisa
ble
Terry L.
Young, CEO -0- -0- 988,000 E -0-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT:
The following table sets forth certain information furnished by the following
persons concerning the common stock ownership as of March 31, 1997, of (i) each
person who is known to the Company to be the beneficial owner of more than 5
percent of the common stock; (ii) all directors and executive officers; (iii)
directors and executive officers of the Company as a group:
Name and Address Number of Common Stock Percent of
Shares Subject
of Beneficial of Common to Options or Class
Owner Stock Warrants
Austin Young, 988,000 62.55**
Inc. 3,069,789
3800 Hudson Bend
Rd.
Austin, TX.
78734
Terry L. Young 988,000 62.55
3,069,789
3800 Hudson Bend
Rd.
Austin, TX.
78734
David W. Redding -0- 4.53
248,931
3800 Hudson Bend
Rd.
Austin, TX.
78734
Kimberly A. Love -0- 0.15
8,423
3800 Hudson Bend
Rd.
Austin, TX,
78734
William C. -0- 2.65
Branch 145,944
3800 Hudson Bend
Rd.
Austin, TX.
78734
Officers and 68.77
Directors 3,473,087 988,000
as a group (6
Persons)
1) Unless otherwise indicated, the second column reflects amounts as to which
the beneficial listed in the first column has sole voting power and sole
investment power.
2) The total number of shares of common stock outstanding as of March 31,
1997, was 5,499,300. 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 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.
3) Austin Young, Inc. is approximately 90% controlled by Terry L. Young, its
Chairman and CEO. Mr. Young is a director, officer and 55.82% controlling
shareholder of the Company through his control position in Austin Young, Inc.
Of the shares set forth above, 47,000 are held in brokerage accounts in the name
of Austin Young, Inc.
4) Of the shares set forth above for Terry L. Young, 2,923,091 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.; 75,598 are held in brokerage
accounts in the name of Mr. Young; 3,500 are owned of record by the spouse of
Mr. Young, and, 20,600 are owned of record by the children of Mr. Young.
5) Of the shares set forth above for David W. Redding, 248,431 are held in the
name of David W. Redding and 500 are owned of record by the spouse of Mr.
Redding.
6) Of the shares set forth above for William C. Branch, 119,471 are owned of
record by Mr. Branch, 7,500 are owned of record by Mr. Branch as custodian for
the Charles P. Davis Trust and 26,423 are held of record by Mr. Branch as
custodian for family members.
** Mr. Young and Austin Young, Inc. 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 beneficial ownership would
decline from 62.55% to 55.82% relative to the currently outstanding shares and
the percentage of beneficial ownership of the officers and directors as a group
would decline from 68.77% to 63.16% relative to the currently outstanding
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Austin-Young, Inc. is the major stockholder of the Company, beneficially owning
3,069,789 shares, or approximately 55.82% of the common stock at March 31, 1997,
excluding options granted to Austin-Young, Inc. to purchase an additional
988,000 shares of common stock. Austin-Young, Inc. is controlled by Terry L.
Young, the Chief Executive Officer, Chairman and controlling shareholder of the
Company. Austin-Young, Inc. is a publicly held Texas corporation which operates
as a real estate developer principally in the Austin, Texas, area. It also owns
a publishing company, American Crisis Publishing, Inc., which publishes drug and
alcohol abuse literature, educational books and magazines for ages 5 through
adult, and coloring books for children ages one through four. Mr. Young owns
approximately 90% and the public shareholders own approximately 10% of the
outstanding common stock of Austin-Young, Inc. Mr. Young beneficially owns
3,069,789 or approximately 55.82% of the outstanding stock of the Company at
March 31, 1997, which amount includes the shares beneficially owned by Austin-
Young, Inc. as described above.
In October 1993 the Company purchased the Austin, Texas, packaging and warehouse
facility from Cassidy Consolidated Properties, Inc., a corporation controlled by
the former spouse of Terry L. Young. The purchase price of the building was
$180,000, paid with 6,000 shares of common stock and a promissory note in the
amount of $150,000 payable in installments of $1,500 per month. The note was
paid off in August, 1996. The building was acquired by the seller in 1992 for
$150,000.
In February 1992 the Company issued stock to the shareholders of American
Absorbents, Inc. in return for all the outstanding shares of such company.
Terry L. Young received 290,000, or approximately 41% of the shares of common
stock issued in such transaction. In addition, Tina B. Morris (former director)
received 5,000 shares and Donald L. Gillespie (former director) received 5,000
shares in the transaction. Mr. Young received 200,000 of the 290,000 shares for
services rendered in founding the subsidiary of the Company; the remaining
shares were also issued for services rendered to the Company.
On May 13, 1991, 3,380,000 (pre-one-for-ten reverse split) shares were purchased
by the Company from Austin-Young, Inc. for $65,000 and canceled. The Company
agreed that Austin-Young, Inc. would have the right to repurchase the same
number of shares without dilution by any reverse stock splits for $65,000 at any
time up to June 1, 1993. On July 15, 1992, the Company issued 3,380,000 (post
reverse split) shares to Austin-Young, Inc. for debt relief of $65,000.
In February 1993 the Company issued to Austin-Young, Inc. a five-year option to
purchase up to 1,000,000 shares of common stock at an exercise price of $3.00
per share. On June 16, 1993, Austin-Young, Inc. exercised its option to
purchase 12,000 shares. These options expire on February 1, 1998, and Austin-
Young, Inc. does not plan to exercise any additional options.
Austin-Young, Inc. furnishes to the Company the office space and some equipment
currently used by the Company pursuant to a 5-year lease dated July, 1996, for a
monthly lease rate of $1,900. Austin-Young, Inc., in past years, also has paid
the majority of the salary of Mr. Young, an officer of the Company who devotes a
significant amount of time and effort to the business of the Company.
Austin-Young, Inc. has advanced funds to the Company from time to time for
operating expenses. At January 31, 1997, the Company owed approximately
$202,385 in principal to Austin Young, Inc., which amount was evidenced by a
promissory note bearing interest at 7% per annum and due on demand. In
addition, Austin Young, Inc. has pledged approximately $125,000 in CD's against
a $125,000 note payable to a bank on the Austin warehouse facility.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K:
(a) (1) The following financial statements re included in Part II, Item 7:
Page
Report of Independent Auditors 12
Financial Statements:
Consolidated Balance Sheets - January 31, 1996 and 1997 15,16
Consolidated Statements of Operations - Years ended January
31,1 996 and 1997 17
Consolidated Statements of Stockholders' Equity (Deficit) - From
inception on February 9, 1984 to January 31, 1997 18-21
Consolidated Statements of Cash Flows - Years ended January
31, 1996 and 1997 and from inception on February 9, 1984 to
January 31, 1997 22-23
Notes to Consolidated Financial Statements 24-36
(2)
submitted herewith. Registrant is exempted from filing such schedules
because of its Form SB-2 Registration Statement filing.
(3)
and from inception on February 9, 1984 to January 31, 1997 are submitted
herewith.
Exhibit 11 - Computation of Per Share Earnings (Loss) 44
Exhibit 21 - Subsidiary of the Registrant 45
Exhibit 23 - Consent of Experts and Counsel 46
All other exhibits are omitted since the required information is included in
the financial statements or notes thereto, or since the required information
is either not present or not present in sufficient amount.
(b) There wer no reports filed on Form 8-K during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN ABSORBENTS NATURAL PRODUCTS , INC.
By:
Terry L. Young, Chairman of the Board
and Chief Executive Officer
Date: May 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in their
capacities and on the dates indicated.
Signature Title Date
__________________________ Chairman, Chief Executive May 27, 1997
Terry L. Young Officer and Director
__________________________ President, Chief Financial May 27, 1997
David W. Redding Officer, Principal Accounting
Officer, Assistant Secretary,
Treasurer and Director
__________________ Director May 27, 1997
William C. Branch
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
From
Inception on
February 9,
1984 Through
For the Years Ended January 31, January 31,
1997 1996 1997
<TABLE>
<CAPTION>
<S> <C>
Primary and Fully Diluted:
Average Shares Outstanding 5,172,860 4,914,777 1,780,273
Net Loss $ (464,662) $ (401,467) $(2,175,032)
Earnings (Loss) Per Share $ (0.09) $ (0.08) $ (1.22)
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 21 - SUBSIDIARY OF THE REGISTRANT
Name Jurisdiction of Incorporation
American Absorbents, Inc. Texas
The corporation listed is a wholly owned subsidiary of the Registrant, and is
included in the consolidated financial statements.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 23 - CONSENT OF EXPERTS AND COUNSEL
ACCOUNTANT'S CONSENT
We hereby consent to the use of our audit report of American Absorbents Natural
Products, Inc. and Subsidiary dated February 14, 1997 for the years ended
January 31, 1997 and 1996 in the Form 10-KSB Annual Report for American
Absorbents Natural Products, Inc. and Subsidiary.
Orton & Company
May 27, 1997
Salt Lake City, Utah
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 1,078
<SECURITIES> 0
<RECEIVABLES> 18,144
<ALLOWANCES> 0
<INVENTORY> 99,952
<CURRENT-ASSETS> 176,382
<PP&E> 214,598
<DEPRECIATION> 17,615
<TOTAL-ASSETS> 5,477,649
<CURRENT-LIABILITIES> 376,504
<BONDS> 0
0
0
<COMMON> 7,276,177
<OTHER-SE> (2,175,032)
<TOTAL-LIABILITY-AND-EQUITY> 5,477,649
<SALES> 69,293
<TOTAL-REVENUES> 69,293
<CGS> 48,716
<TOTAL-COSTS> 485,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,535
<INCOME-PRETAX> (464,562)
<INCOME-TAX> 100
<INCOME-CONTINUING> (464,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (464,662)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
