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, 1998
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 Cusip number 2368E 10 1
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 EachExchange 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, 1998. $55,552
Aggregate market value of common stock (.001 par value) held by non-affiliates
at March 31, 1998. $ 6,867,677
Common stock (.001 par value) shares outstanding at March 31, 1998. 6,766,512
This Form 10-KSB document contains 46 pages.
PART I
ITEM I. DESCRIPTION OF BUSINESS:
ORGANIZATION:
American Absorbents Natural Products, Inc., a Utah corporation, through its
wholly owned subsidiary, American Absorbents, Inc., a Texas corporation,
offers a number of products using volcanically derived minerals known
as zeolites.
The Company's principal executive offices are located at 3800 Hudson Bend
Road, Austin, Texas 78734. Its telephone number is (512) 266-2481;
its fax number is (512) 266-3800; its E-Mailaddress is [email protected];
its web page address is http://www.aanpi.com.
The Company was incorporated in the State of Utah on February 9, 1984, under
the name TPI Land, Inc. and changed its name to Environmental Fuels, Inc.
on September 18, 1990. On May 6, 1991,the Company changed its name to Geo-
Environmental Resources, Inc. The Company effected a one-for-two reverse
split of its outstanding shares on January 17, 1991, and a one-for-ten
reverse split of its outstanding shares on June 30, 1992. Unless otherwise
indicated herein, all references to shares of common stock shall give
effect to these reverse splits.
In August 1990, Austin Young, Inc., a Utah corporation controlled by Terry L.
Young, an officer, director, and controlling shareholder of the Company,
acquired a controlling block of thecommon stock, which currently represents
approximately 47% ownership, and Mr. Young became a director, President and
Chief Executive Officer of the Company.
In September 1990 the Company acquired certain distributorship licenses for
equipment used to convert vehicles to operate on natural gas.
The Company attempted to enter the natural gasvehicle conversion market, but,
after further investigation, determined that the cost of engaging in such
business would be prohibitive given the financial resources of the
Company at such time. Therefore, in April 1991 the Company resold the
distributorship licenses to the original manufacturer of the conversion
equipment and commenced seeking a differentfield of operation.
On October 11, 1990, Geo-Environment Services, Inc. was incorporated by Mr.
Young and others for the purpose of locating, purchasing, and developing
mining properties containing zeolites. Ultimately, this company became the
marketing arm of the zeolite products of the Company. In February 1992, the
shareholders of the Company approved a stock-for-stock acquisition of
Geo-Environment Services, Inc. and issued 701,800 shares of common
stock to the shareholders of Geo-Environment Services, Inc., including
290,000 shares to Mr. Young.
Since 1991, the Company has been actively engaged in acquiring mining
properties containing deposits of zeolite and in test marketing the
products produced from the natural zeolite. At presentthe Company has
one primary source for its zeolite, which source is located on unpatented
mining claims in the HarneyBasin near Burns, Oregon.
On June 5, 1995, the names of Geo-Environmental Resources, Inc. and
Geo-Environment Services, Inc. were changed to American Absorbents
Natural Products, Inc. and American Absorbents, Inc., respectively.
The Company, through AAI, currently markets a number of odor and gas
adsorption products and proposes to expand its marketing efforts
significantly in the future.
OVERVIEW OF THE COMPANY:
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 from other domestic natural zeolite suppliers
who may compete with the Company. These products are used primarily for
odor control, gas orliquid adsorption and the slow release of nutrients
into the soil. The Company does not currently have any material contracts
with its suppliers, but materials used by the company are not limited to
"single source" suppliers.
Zeolite minerals are comprised of aluminum, silicon and other elements which
have a predictable crystalline structure with pore openings of molecular
dimensions. Clinoptilolite is one classification type of more than 40
types of zeolite and is the classification type most used by the Company.
The structure will capture certain substances that vary with the size and
shape of the pores. Zeolites are also chemically active and their
surfaces are able to attract and hold molecules through processes known as
adsorption and absorption. These characteristics also serve to enable
zeolite to function as a catalyst, whereby the rate of chemical reactions
may be altered. More than 40 types of zeolites occur naturally and an even
greater number may be synthetically produced because oftheir higher
adsorption capacities, lack of impurities, and regeneration capabilities.
Although management believes that synthetic zeolite can be currently
produced with the exact properties as the zeolite used by the Company in its
products, the high cost of such synthetically produced zeolite makes it
less desirable in products similar to those marketed by the Company
which require lower costs to be competitive with similar products without
zeolite.
The synthetic development and commercial introduction of zeolite products
began in the early 1950s. A variety of companies have entered the
industry and provide zeolite products used in many diverse agronomic and
horticultural applications. These applications include slow-release
fertilization, zeoponics, soil conditioning, and soil remediation.
In addition, natural zeolites are used in water-filtration systems to
produce clean drinking water, as a food supplement for livestock and
poultry to protect them from toxic substances, as filler incement
and in the collection and disposal of radioactive waste. In general,
the industry offers high quality products and processes designed for
specialty markets.
As the physical properties of zeolites have become more widely known, the
amount of zeolite used has increased. The area in which the Company now
competes is in using natural zeolite in productsthat adsorb liquids or
gases which might otherwise be harmful or obnoxious and in a product which
time releases nutrients into the soil.
The Company currently produces and markets over a dozen 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 Cat Litter and
Soil Enhancer, a cat litter product which, when used, can be disposed of
into the soil as a soil enhancer; Stall Fresh, a product to eliminate
urine-generated ammonia odors and wetness caused by livestock; White
Buffalo, a multi-purpose home, farm and ranch absorb-all product; and
Stinky Pinkys and Shoe Fresh, 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 or in the
Company's Oregon milling facility. The Company's larger packaged
products, such as Mother Earth Cat Litter and Soil Enhancer,
White Buffalo and Stall Fresh, are packaged and stored at the Oregon
milling facility or a production facility in New Mexico until they are
shipped to the distributor or end retailer. The smaller packaged products,
such as the shoe odor and moisture products, Stinky Pinkys and
Shoe Fresh, are packaged and stored at the Company's
facility in Austin, Texas. The Company has previously used mostly
contract labor for each phase of its current mining, milling and
packaging operations.
However, in February, 1998, the Company employed a Vice President of
Production to manage the Oregon milling facility, purchased in
October, 1995, in a distress sale for $65,000 plus an additional
$34,000 for repairs. Production employees have been hired for
milling and packaging operations at this location. The milling,
packaging and storage facility contains 103,125 square feet and
approximately 3,500,000 cubic feet of inventory storage space in Hines,
Oregon. The Company's insurance carrier placed a replacement value of
$2,049,172 on the facility. This facility has been equipped with milling
and packaging equipment purchased from the proceeds of a private
placement completed during the first part of fiscal 1998. The current
configuration of the plant allows for the production of up to 10,000 bags
of cat litter per eight hour shift simultaneosly with the production of raw
zeolite material for use in other of the Company's products including
Stall Fresh, White Buffalo and Sorbs-A-Lot. Additional milling and
packaging equipment has been purchased that will allow the Company to at
least triple its current capacity. Marketing of the Company's products is
performed by the Company's wholly owned subsidiary, American Absorbents,
Inc., through joint-venture type relationships and through retail marketing
entities. Since the commencement of its zeolite products business in
approximately 1991, 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, and since the completion of
the milling and packaging facility, the Company has turned its efforts to
the implementation of full marketing programs in the western portion of the
United States. The Company began marketing its agricultural products
in the European marketplace in November, 1995, through an import/export
company located in France. Upon completion of the test marketing of its
current products, the Company began promoting its products in the
marketplace. The Company's product promotion is being pursued in several
ways, including through participation in trade shows, direct contacts
with distributors, product brokers, large national chains, and
advertisements in trade publications. The Company is also engaged in
public awareness campaigns to inform the general public about the uses
of natural zeolites. Public awareness campaigns include distribution of
videotapes on the Company and its products, promotion of zeolite products
by shareholders, discimination of a book entitled
"101 Fantastic Uses For Zeolites" and limited distribution of research
papers on zeolite uses. Shareholders are encouraged to discuss the
Company's products with friends and relatives as well as request the
products they use from various stores. CNN Headline News and NASA
have broadcast or published information on zeolite uses.
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 productsthat it has researched,
developed and test marketed. During the first two years the Company
introduced a new product using natural zeolite on the average of every
three months. Some of these new products included Mother Earth Cat Litter
and Soil Enhancer, Stall Fresh, White Buffalo, Fresh Pak,
Sorbs-A-Lot, Fridge Fresh, Boat Fresh and Cooler Fresh.
Many of the sales outlets that participated in the test marketing
programs still carry the products. The Company believes the test
marketing programs were successful and believes that sales will increase
significantly with marketing capital availability, although there are
no assurances when sales will increase. The Company was able to determine
from the test marketing programs that customers will buy the Company's
products at price levels that will generate at least a 25% gross profit
margin to the Company. 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 plans to introduce at least two
new products during that time period. For future products, the Company will
test market each such new product in a limited area until it has
determined market acceptance and pricing. The Company will then design
the final full color packaging for the product and introduce it into retail
stores.
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 or2,700 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 404 acres, on which the Company received its Permanent Mining
Permit and Plan of Operations on July 10, 1997, from the Department of the
Interior, Bureau of Land Management, 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 afront-end loader or dozer before mining and then
hauling the mineral in trucks to be stored and processed in Hines, Oregon,
approximately 25 miles from the claims.
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.
The Company's objective is to establish a mining, milling and packaging
operation for zeolite consumer products and to develop a national market
for the products produced. The Company also expects to achieve long term
capital appreciation of its major assets including large zeolite mineral
reserves through increased marketing efforts of zeolite products.
Although there is no assurance that the endeavors will be successful, the
Company believes it will be successful in its objectives due to the
environmental awareness in the United States, as well as the rest of the
world, and due to the environmental aspects of the zeolite mineral.
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
zeolite minerals 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 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 and those to be test marketed. The Company
does not own, hold or use any patents.
INVENTORY:
The Company has maintained lower inventory levels during the development
stage, but has begun increasing inventory levels with the commencement of
full-scale marketing efforts in the westernportion of the United States.
The book value of inventory for the fiscal years ended January 31, 1998 and
January 31, 1997 was $242,406 and $99,952, respectively.
The Company mined and milled 10,000 tons of zeolite minerals in December,
1997.
CUSTOMERS:
The Company's products are currently being sold through direct sales to the
customer, to retail outlets, through regional marketing companies,
through joint venture relationships and through regional distributors.
Products have been sold in the test marketing programs to over 100
different retailers with approximately 2,000 retail outlets. For the
fiscal year ended January 31, 1998, E.N.S.R./S.A.R.L. accounted for
approximately 31% ofsales and 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, 1998, Thunder Spring Distributors
accounted for 11.4% of sales and Toxxcon International, Inc. accounted for
11.5% 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, 1998 or January 31, 1997. 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.
Other zeolite producers are faced with the additional expense of removing
from a few to several feet of overburden before mining activities can
commence.
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 a large number of other companies in the United States
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 Cat Litter and Soil Enhancer, which can
be recycled as a soil enhancer and fertilizer and moisture absorbent, can
favorably compete with the cat litters not using natural zeolite minerals
on a price per pound basis with the added benefits of an environmentally
friendly, dual-purpose product. The Company's management views the
percentage of the 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 Cat Litter and Soil
Enhancer by the Company.
The Company's shoe products, Shoe Fresh and Stinky Pinkys, compete with a
number of large companies which manufacture similar shoe products, none of
which are believed to use naturalzeolite 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 Pak, an odor and moisture absorbent for gym bags, closets, diaper
pails, gun cases and other small confined areas.
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. Again management believes that the Company's
product, Sorbs-A-Lot, 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 Fresh, a product which eliminates urine-generated ammonia odors and
wetness caused by livestock. 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 Fresh 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 Buffalo home, farm and ranch absorbs all product.
RESEARCH AND DEVELOPMENT:
The Company has been 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 plans to introduce at
least two 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 toward
the marketing phase. The Company has developed its zeolite products
in-house andtest markets each product in a limited number of stores.
During the fiscal years ended January 31, 1998 and January 31, 1997, the
Company recorded research and development expenses of $0 and $0,
respectively.
REGULATIONS:
Current operations on the Harney Basin Claims are subject to federal and state
reclamation requirements, which means that the Company must reclaim the
mined area after mining to a useful status pursuant to regulation
requirements.
Although others presently perform these mining operations for zeolites on the
Harney Basin Claims, such operations are still subject to existing
federal, state, and local laws and regulations relating to employee health
and safety. The Company believes that the cost of such compliance does not
have a material impact upon the cost of extracting the
zeolite. In general, mining and milling operations are subject to compliance
with the regulations promulgated under the federal Mining and Minerals
Policy Act of 1970 and the requirements of the
federal Occupational Safety and Health Administration (OSHA), as well as
equivalent state regulations.
Failure to comply with applicable governmental regulations could result in
enforcement proceedings against the Company by appropriate agencies.
Compliance with existing regulations and those that may come into existence
in the future may have a substantial impact upon the Company's capital
expenditures and could adversely affect its operations.
The Company believes it is in compliance with all applicable laws and
regulations at this time.
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
prior to 1998, the Company has operated under a Total Exemption From
Reclamation Requirements. However, the Company's policy has always been
to reclaim all of its mined areas. In early 1996, the Company's independent
geologist 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 included an environmental assessment which set forth the plan
of operations, assessed the impact of the operations on the local
environment and specified the extent and type of reclamation which would
be accomplished. The Plan ofOperations was approved by the various
regulatory commissions and the permanent mining permits were issued on July
10, 1997. A $15,000 mined land reclamation bond was posted by the
Company at the State of Oregon, Departmentof Geology and Minerals
Industries to assure compliance with environmental and site reclamation
matters pursuant to the Plan of Reclamation.
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. The
Company has no intent to mine areas of the deposit 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 are visible from the wildlife area, the
Company utilizes dust abatement and other measures designed to reduce any
impact on the wildlife area.
EMPLOYEES:
At January 31, 1998, the Company had three full-time employees not including
contract laborers who are employed on an "as needed" basis. In February,
1998, the Company employed a full-time Vice President of Production to
manage the Oregon milling facility and in March, 1998, the facility was
staffed with five additional production workers. The Company does not
anticipate adding any significant number of employees in the immediate
future but will continue to engage contract laborers on an "as needed"
basis. After completion of additional capitalization, the Company does plan
to add a marketing executive, an operations and management information systems
executive and three to four 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 in the center of thesoutheastern quarter of the State of Oregon
and approximately the center of Harney County approximately 25 miles south of
Burns, Oregon, and about 214 miles west of Boise, Idaho (Harney Basin
Claims). The property is crossed by state highway 205 which offers
virtually year- round access. Existing ranch and county roads from the
highway offer access to almost all of the property of interest.
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 BasinClaims 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 Company may seek
limited mining permits and grants of total exemption from reclamation
permits on its Sheaville Claims and Arizona Claims in order to complete
sampling and mapping activities on the properties.
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 to the Bureau of Land Management 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 notaware of any material conflicts with other
parties concerning the claims and believes it has valid possessory right in
those claims.
All mining on the Harney Basin Claims is open-pit strip mining of the surface
mineral. The property will be reclaimed by leveling and planting natural
grasses. To perform the mining operation,the Company removes any
overburden with a front-end loader or dozer prior to mining the zeolite.
The mined material is stockpiled near the mine and then loaded
onto trucks and hauled to Burns/Hines, Oregon (approximately 25 miles) where
it is milled and packaged. The Company is currently using an entity
located in Burns, Oregon, near the claims to perform mining operations.
The local climate does not favor year-round mining or processing on the
property because the winter is extremely cold and windy during the months
of December to February. The rainy season occurs from October through
April and could cause problems in stripping, crushing, and screening of the
zeolite. Also, the weather could have a material effect on the ability to
haul large quantities of the material during the rainy season if permanent
roads were not constructed. The Company does not plan to construct
permanent roads and does not believe its operations will be restricted
since sufficient quantities of zeolite can be mined during good weather
conditions and hauled to the mill facility in Burns/Hines, Oregon
for storage.
OFFICE, WAREHOUSE AND MILLING 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 major stockholder. 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 warehouse containing approximately
4,400 square feet of commercial 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 $900.00 with a
balloon payment of $125,000 due in August, 1998. 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. This facility has been
used for the packaging of the smaller packaged products and storage of
inventory for the test marketing programs. As the Company has reduced
test marketing programs and prepared to move into full marketing from the
Oregon milling facility, the Company's need for this facility has
decreased and the Company
leased approximately 40% of the facility
to a tenant for $880 per month.
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 inHines, Oregon, approximately 25 miles
from its Harney Basin zeolite deposits. This facility has been equipped with
milling and packaging equipment purchased from the proceeds of a
private placement completed during the first part of fiscal 1998.
The current configuration of the plant allows for the production of up to
10,000 bags of cat litter per eight hour shift simultaneosly with the
production of raw zeolite material for use in other of the Company's
products including Stall Fresh, White Buffalo and Sorbs-A- Lot.
Additional milling and packaging equipment has been purchased that will
allow the Company to at least triple its current capacity. The facility
is not subject to any existing mortgages.
Management believes that all its properties and equipment are adequately
insured and in good repair.
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, 1998, the Company solicited the
proxies of its security holders to vote upon the following matters at the
annual meeting of shareholders held on June 11, 1997:
1. Election of three directors
2. Ratification of all acts of the officers and directors for the
fiscal year ended January 31, 1997
3. Ratification and approval of transactions with Austin Young, Inc.
including the borrowing of working
capital funds, use of assets as collateral and
office/equipment leases
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, 1998
All matters voted upon by the shareholders at the annual meeting of
shareholders were approved or passed and a letter
was sent by the Company to all shareholders stating the results of the voting.
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR HIGH BID PRICELOW BID YEAR HIGH BID PRICE LOW BID
ENDED PRICE ENDED PRICE
1-31-97 1-31-98
First Quarter $ 2.37 $ 1.37 First Quarter $ 0.81 $ 0.31
Second Quarter $ 2.37 $ 1.12 Second Quarter $ 0.81 $ 0.44
Third Quarter $ 1.50 $ 0.62 Third Quarter $ 1.37 $ 0.44
Fourth Quarter $ 0.90 $ 0.47 Fourth Quarter $ 1.67 $ 0.56
</TABLE>
As of January 31, 1998, there were approximately 340 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 750
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. There are
no restrictions in effect, in loan documents or elsewhere, that would limit or
restrict the Company's ability to pay
dividends.
At January 31, 1998, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had
6,210,439 common stock shares outstanding. At March 31, 1998, 6,766,512
common stock shares were outstanding.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS 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, 1998 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 AND CAPITAL RESOURCES
Austin Young, Inc., the major stockholder of the Company, has provided,
through loans and equity funding, any
deficiencies to the necessary working capital during the development stage,
but expects funding from private placements
and other offerings will be sufficient for future development costs. Austin
Young, Inc. provided a small portion ($7,000)
of the Company's operating capital during fiscal year 1997 through advances on
behalf of the Company. The Company
owed $202,385 to Austin Young, Inc. at January 31, 1997 and $179,052 at
January 31, 1998. The balance owing to
Austin Young, Inc. was reduced by $23,333 in principal and $14,167 in accrued
interest during the fiscal year ended
January 31, 1998 by the exercise of options by Mr. Young. 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.
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 packaged
products to a minimum. During the development stage, the Company has also
relied on favorable office space and
equipment leases from Austin Young, Inc. to maintain a lower overhead to
conserve its limited resources for product and
market development.
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, 1994, the Company issued 12,000 shares of common stock
to the major stockholder under an
option agreement for $36,000. During the fiscal year ended January 31,
1995, the Company issued 22,500 shares in
a private placement for $90,000 and 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. During the fiscal
year ended January 31, 1998, the Company issued 582,000 shares in private
placements for $815,000, 129,784 shares
for services rendered to the Company and valued at $132,380, 13,555 shares for
equipment valued at $15,250, 25,000
shares through the exercise of an option to a director for $9,375 and 100,000
shares through the exercise of an option
to an officer and director for $37,500 in debt relief.
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 $900 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 or from profits. All accounts payable and accrued
expenses are paid when due or sooner when
discounts are available.
RESULTS OF OPERATIONS
During the fiscal years 1997 and 1998, the Company continued to incur losses
that reflect the development stage activity
and test marketing of its products.
The company has paid $8,115, $0.00 and $0.00 for research and development for
the years 1996, 1997 and 1998,
respectively. The Company paid $91,700, $29,500 and $29,500 to the Bureau of
Land Management for claims
maintenance fees in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. 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.
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. During the fiscal year
ended January 31, 1998 revenues decreased to $47,472 from $69,293 the previous
year, or, 31%, due to lower orders
from the French distributor resulting from milder weather conditions in
France.
The Company realizes gross profit margins generally ranging from 20% to 35%
on its product sales depending on product line and pricing levels. While
still in the test marketing phase, for the fiscal years ended
January 31, 1996, January 31, 1997, January 31, 1998 and for the period from
the inception date on February 9, 1984 to January 31, 1998,
the Company had average gross profit margins of 35%, 30%, 30% and 35%
respectively. 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. 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 15% increase in the gross profit
percent. At current operating expense levels
and with the anticipated product sales mix, the Company estimates its
break-even at approximately $125,000 in sales
per month or $1,500,000 in sales per year.
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 a mining company
to eliminate large capital requirements that would be necessary to acquire
equipment. Milling, packaging, and inventory
arrangements have eliminated the need to spend additional money for capital
equipment during the development stage.
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 and $132,380 of services were acquired for the fiscal year ended January
31, 1998 through the issuance of common
stock. 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. Net general and administrative expenses only
increased by approximately $29,000 during
the fiscal year ended January 31, 1998. The increase was mostly due to
increases in payroll as Terry L. Young was added
to the Company's payroll.
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. During the fiscal year ended
January 31, 1998, the balance of the note decreased to $179,052 due to the
exercise of options through debt relief in the
amount of $37,500 consisting of $23,333 in principal and $14,167 in accrued
interest. The balance of the note is
expected to be paid from earnings and/or capital resources available to the
Company.
In August, 1996, the Company paid off a note payable of approximately $125,000
on the warehouse 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 0.77, 0.47 and 1.10,
respectively, for the fiscal years ended January 31,
1998, 1997and 1996. The lower current ratio for the fiscal years ended
January 31, 1998 and 1997, results from the
classification as short term debt of the note payable 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 and/or capital resources available
to the Company.
INFLATION
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 for 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 any
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 is using quality, less
expensive plastic packaging for its Stall Fresh product and may pursue
plastic packaging for other products as well.
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 $1,500,000
per year) at which the gross profits attained will sustain and 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 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 Cat Litter and Soil Enhancer,
White Buffalo, Stall Fresh, Stinky Pinkys and Shoe Fresh as well as eight
other products. The Company is also
working the conceptual framework of various other products using the zeolite
minerals present in its existing product
line. This includes the impregnation of zeolites with pesticides, herbicides
and fertilizers for use in fields, pastures and
gardens as well as chemicals to help eradicate fire ants. The Company is also
planning the introduction of at least two
new products during the next fiscal year.
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 Company completed a private placement offering in the
early part of fiscal 1998 that was
sufficient to equip this facility with crushing, milling, drying, screening,
packaging and storage equipment. The
construction of the milling facility equipment has been completed and the
plant has begun operating. The Company has
purchased additional milling equipment that will at least triple the milling
facility's capacity when installed. If the
Company is successful in completing a public stock offering, the Company
expects to spend approximately $400,000
for additional equipment; $55,000 on warehouse facilities in Texas; $600,000
for market development of its product line
and marketing programs; $250,000 for inventory; $50,000 for repairs and
maintenance, and $650,000 for general and
administrative, working capital and contingency operations.
ITEM 7. FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
ORTON & COMPANY
CERTIFIED PUBLIC ACCOUNTANTSA PROFESSIONAL CORPORATION
</TABLE>
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 and Stockholders
of American Absorbents Natural Products, Inc
We have audited the accompanying balance sheet of American Absorbents Natural
Products, Inc. and subsidiary ( a Utah
corporation) ( a development stage company) as of January 31, 1998 and 1997,
and the related statements of income,
retained earnings, and cash flows for the years then ended and for the period
February 9, 1984 to January 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan
and perform the audit 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
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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial
position of American Absorbents Natural Products, Inc. as of January 31, 1998
and 1997, and the results of its
operations and its cash flows for the years then ended and for the period
February 9, 1984 to January 31, 1998 in
conformity with generally accepted accounting principles.
Orton & Company
Salt Lake City, Utah
March 7, 1998
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
January 31, 1998 and 1997
INDEPENDENT AUDITOR=S REPORT
To the Board of Directors and Stockholders
of American Absorbents Natural Products, Inc
We have audited the accompanying consolidated balance sheet of American
Absorbents Natural
Products, Inc. and subsidiary ( a Utah corporation) ( a development stage
company) as of January 31,
1998 and 1997, and the related consolidated statements of income, retained
earnings, and cash flows
for the years then ended and for the period February 9, 1984 to January 31,
1998. These consolidated
financial statements are the responsibility of the Company=s management. Our
responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit 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 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 audit provides
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, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended
and for the period February 9, 1984 to January 31, 1998 in conformity with
generally accepted
accounting principles.
Salt Lake City, Utah
May 7, 1998
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
January 31, 1998 and 1997
ASSETS
<TABLE>
<S> <C> <C> <C>
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1998 1997
CURRENT ASSETS
</TABLE>
<TABLE>
<S> <C> <C><C>
Cash $ $
24,642 1,078
Accounts receivable (Note 1) 972 18,144
Prepaid expenses (Note 1) 89,208 57,208
Inventory (Note 1) 242,406 99,952
Total Current Assets 357,228 176,382
PROPERTY AND EQUIPMENT (Note 7) 538,151 214,598
OTHER ASSETS
Mining claims (Note 8) 5,081,669 5,081,669
Notes receivable (Note 5) 5,000 5,000
Certificates of Deposits (Note 15) 15,000 -
Total Other Assets 5,101,669 5,086,669
$ 5,997,048$ 5,477,649
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
January 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1998 1997
CURRENT LIABILITIES
</TABLE>
<TABLE>
<S> <C> <C><C>
Accounts payable and accrued expenses $ 156,915$ 49,119
Note payable - related party (Note 9) 179,052 202,385
Note payable (Note 10) 125,000 125,000
Total Current Liabilities 460,967 376,504
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
6,210,439 and 5,360,100 shares issued
and outstanding, respectively
6,211 5,361
Capital in excess of par value 8,194,427 7,270,816
Deficit accumulated during the
delopment stage (2,664,557) (2,175,032)
Total Stockholders' Equity 5,536,081 5,101,145
$ 5,997,048$ 5,477,649
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<S> <C><C><C> <C><C>
From InceptionOn February 9, 1984
Through
January 31,
For the Years Ended
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
1998 1997 1998
REVENUE
Net Sales $ 47,472$ 69,293$ 287,128
Cost of goods sold 33,167 48,716 185,857
Gross Profit 14,305 20,577 101,271
EXPENSES
General and administrative 496,586 467,524 2,685,126
Depreciation and amortization 15,224 17,615 86,235
Total Expenses 511,810 485,139 2,771,361
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
Other Income/ (Expense)
Rent (Note 17) 7,905 - 7,905
Interest 175 - 175
Net loss before provision for (489,425) (464,562) (2,662,010)
income taxes
Provision for income taxes (Note 4) 100 100 2,547
NET LOSS $ (489,525)$ (464,662)$ (2,664,557)
WEIGHTED AVERAGE LOSS PER SHARE $ $ $
(.09) (.09) (1.29)
AVERAGE SHARES OUTSTANDING 5,731,102 5,172,860 2,062,475
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
From Inception on February 9, 1984 to January
31, 1998
Deficit
Accumulated
Additional
During the
Common Stock Paid-in
Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Balance at Inception-February 9, 1984 - $ - $ - $ -
Issuance of common stock for cash 37,500 38 962 -
(Note 3)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Expenses paid by shareholders for the
years ended January 31, 1990 - - 518 -
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the years ended January - - - (1,618)
31, 1990
Balance, January 31, 1990 37,500 38 1,480 (1,618)
Issuance of common stock for services 391,000 391 7,429 -
rendered in August 1990
Issuance of common stock in September
1990 for various 50,000 50 198,890 -
assets from Austin-Young, Inc. (Note 5)
Issuance of common stock for
distribution licenses from Global
Environmental Industries (GEI) for UT 50,000 50 37,070 -
& WA, September
1990 (Note 3)
Contribution from Austin-Young, Inc. - - 13,500 -
Issuance of common stock for services 12,500 12 37,488 -
rendered in October
1990
Net loss for the year ended January - - - (57,756)
31, 1991
Balance, January 31, 1991 541,000 541 295,857 (59,374)
Common stock returned in exchange for
common stock of GEI in March 1991 (17,000) (17) (85,423) -
(Note 5)
Repurchase of common stock from
Austin-Young, Inc. in (338,000) (338) (64,682) -
May 1991 (Note 5)
Cancellation of common shares (20,000) (20) 20 -
Issuance of common stock for the
purchase of product from 10,000 10 74,990 -
Steelhead Specialty Minerals in August
1991 (Note 6)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to January 31, 1998
Deficit
Accumulated
Additional
During the
Common Stock Paid-in
Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for the
purchase of mining claims in 13,214 13 184,987 -
October 1991 (Note 8)
Common stock canceled by (20,000) (20) 20 -
officers/directors in January 1992
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Contribution from Austin-Young, Inc. - - 17,000 -
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the year ended January 31, 1992 - - - (93,315)
Balance, January 31, 1992 169,214 169 422,769 (152,689)
Issuance of common stock for the
acquisition of Geo- 701,800 702 96,442 -
Environment Services, Inc. in February
1992 (Note 5)
Issuance of common stock for the
purchase of mining claims 243,000 243 4,859,757 -
in March 1992 (Note 5)
Common stock canceled by officers and
directors in June 1992 (32,430) (32) 32 -
(Note 6)
Cancellation of fractional shares due (21) - - -
to reverse stock split
Contribution by Austin-Young, Inc. - - 10,000 -
Issuance of common stock (pursuant to a
repurchase agreement
in May, 1991) to Austin-Young, Inc. for 3,380,000 3,380 61,620 -
relief of debt in July
1992 (Note 5)
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 17,800 18 26,682 -
(Note 6)
Issuance of common stock to
Austin-Young, Inc. in June 1993 12,000 12 35,988 -
(Note 5)
Issuance of common stock for cash 66,667 67 199,936 -
October 1993 (Note 11)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to January 31, 1998
Deficit
Accumulated
Additional
During the
Common Stock Paid-in
Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock as down
payment on building 6,000 6 29,994 -
October 1993 (Note 5)
Issuance of common stock for services
rendered October 1993 17,000 17 50,983 -
(Note 6)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for cash 80,072 80 191,321 -
December 1993 (Note 11)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (310,862)
31, 1994
Balance, January 31, 1994 4,661,102 4,662 6,021,524 (599,855)
Issuance of common stock for services
rendered February 6,000 6 29,994 -
1994
(Note 6)
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 15,000 15 46,235 -
1994 (Note 6)
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (709,048)
31, 1995
Balance, January 31, 1995 4,746,352 4,747 6,399,189(1,308,903)
Issuance of common stock for services 9,000 9 22,391 -
(Note 6)
Issuance of common stock in a private 214,168 214 394,148 -
offering (Note 11)
Contribution by Austin-Young, Inc. - - 36,000 -
Net loss for the year ended January - - - (401,467)
31, 1996
Balance at January 31, 1996 4,969,520 4,970 6,851,728(1,710,370)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
From Inception on February 9, 1984 to January 31, 1998
Deficit
Accumulated
Additional
During the
Common Stock Paid-in
Development
Shares Amount Capital
Stage
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Issuance of common stock for cash
in a private offering 130,960 131 156,729 -
(Note 11)
Issuance of common stock for 259,620 260 262,359 -
services (Note 5 & 6)
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Net loss for the year ended - - - (464,662)
January 31, 1997
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C> <C><C>
Balance, January 31, 1997 5,360,100 5,3617,270,816 (2,175,032)
Issuance of common stock for cash
in a private offering 582,000 582 729,843 -
(Note 11) (net of commissions
of $84,575)
Issuance of common stock for 129,784 130 131,782 -
services (Note 6)
Issuance of common stock for
purchase of equipment 13,555 13 15,236 -
(Note 6)
Issuance of common stock for cash
pursuant to a stock 25,000 25 9,350 -
option plan (Note 16)
Issuance of common stock for
partial redemption of a 100,000 100 37,400 -
note pursuant to a stock option
plan (Note 16)
Net loss for the year ended - - - (489,525)
January 31, 1998
Balance, January 31, 1998 6,210,439 $ 6,211$8,194,427 $(2,664,557)
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<S> <C><C><C> <C><C>
From Inception On
February 9,
For the Years Ended 1984 ThroughJanuary 31,
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
1998 1997 1998
Cash Flows From Operating
ActivitiesNet loss
Depreciation and
amortization $(489,525) 15,224 $ (464,662) 17,615 $(2,664,557) 86,235
(Increase) decrease
in receivablesDecrease
(increase) in 17,172 (10,002) (972)
prepaid expenses (32,000) (21,550) (77,208)
Decrease (increase)
in inventoryIncrease
(decrease) in payablesLoss
from disposal of fixed
assetStock issued for
services (142,454) 9,146 (169,231)
Expenses paid by shareholder 121,963 36,059 170,092
- 1,560 1,560
131,912 262,619 791,701
- - 149,018
Net Cash Used by Operating Activities (377,708) (169,215) (1,713,362)
Cash Flows From Investing ActivitiesPurchase of fixed assets
Purchase of product tradenames (323,528) - (550,643)
Purchase of note receivable - - (26,958)
Purchase of certificates of depositOrganization costs - (5,000) (5,000)
Purchase/sale of mining (15,000) - (1,524)
development costs - - (15,000)
Purchase of mining claims - - 7,920
Sale of licenses - - (58,599)
Purchase of stock - - 150,000
- - (65,000)
-
Net Cash Used by Investing Activities (338,528) (5,000) (564,804)
Cash Flows From Financing ActivitiesIssuance of common stock
Issuance of notes payable 739,800 156,860 1,910,423
Principal payments on - 144,846 647,210
long-term debt - (127,520) (254,825)
Net Cash Provided by 739,800 174,186 2,302,808
Financing Activities
Net (Decrease) Increase In Cash 23,564 (29) 24,642
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
Cash at Beginning of Period 1,078 1,107 -
Cash at End of Period $ 24,642$ 1,078$ 24,642
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<S> <C><C><C> <C><C>
From Inception On
February 9,
For the Years Ended 1984 ThroughJanuary 31,
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
1998 1997 1998
Supplemental cash flow information:
Cash Paid For:
Interest $ $ $
Income Taxes 8,974 18,834 25,359
100 100 2,447
Non-Cash Transactions:
Stock issued for mining claims $ 5,045,000 30,000
Stock issued for down payment on
buildingStock issued for services 791,701
Stock issued for stock of Geo-Environment
Services, Inc. - -
Stock issued for Inventory 131,912 262,619 97,144
Stock issued for assets from - - 75,000
Austin-Young, Inc. and - -
Global Environmental Industries 236,060
Stock issued for purchase of equipment
Stock issued for partial - - 15,249
redemption of note 15,249 37,500 - 37,500
-
</TABLE>
The accompanying notes are an integral part of these financial statements
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
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 tooperating 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 whichis 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 wasaccounted 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 ofaccounting.
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 statements 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, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (FIFO method) or market, and
consist of the following:
<TABLE>
<S> <C> <C>
Finished Goods $ 18,415
Packaging Products 70,658
Raw Materials 153,333
$
242,406
</TABLE>
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, 1998
and 1997.
Prepaid Expenses
Prepaid expenses at January 31, 1998 and 1997 consist of the following:
<TABLE>
<S> <C> <C><C>
1998 1997
Prepaid mining land lease $ $ 17,208
17,208
Prepaid fees and commissions 52,000 40,000
Prepaid Purchases 20,000 -
$ 89,208$ 57,208
</TABLE>
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 offto 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
he policy of the Company to annually review the future economic benefit of all
long- lived assets and to charge off to operationsany potential impairment of
value of long-lived assets when applicable.
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 ofthe balance sheet date.
Operations have been devoted to raising capital, purchasing zeolite
property and establishing a marketing plan. The Company is currently
installing a plant in Oregon and expects to begin full
operation during 1998.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
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 naturalgas
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 EnvironmentalIndustries, 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 forthe 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 ining claims in Harney County, Oregon and in March 1992, issued
243,000 shares at $20 per share for additional zeolite mining claims in the
same area (see Note 8).
In February 1992 the Company issued 701,800 shares at $0.14 per share for all
the outstanding stock of American Absorbents, Inc. (AAI) which became a wholly
owned subsidiary. AAI had, 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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 4 - INCOME TAXES (continued)
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, 1998 and earlier years, and
accordingly, no deferred tax liabilities have been recognized for all years.
The Company had cumulative net operating loss carryforwards of approximately
$1,300,000 atJanuary 31, 1998 and $820,000 at January 31, 1997.
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 $440,000
at January 31, 1998 and $278,000 at January 31, 1997 have been offset by
valuation reserves of the same amount. The net change in deferred tax asset
and offsetting valuation reserve amounted to $162,000 for 1998 and
$156,000 for 1997.
The net operating losses begin to expire in the year 2016.
NOTE 5 - RELATED PARTY TRANSACTIONS
The majority of the outstanding shares of the Company are owned by
Austin-Young,Inc., a Utah
corporation that has its primary office in Austin, Texas. Some individuals
are officers and directors
in both Austin-Young, Inc. and the Company. During the periods shown, there
were several transactions involving the majority shareholder and the Company's
officers and directors, as follows:
August 10, 1990 - Common investment shares of 250,000
were issued to Austin-Young,Inc. and 1,000 shares were
issued to two officers and directors of the Company for services
rendered.
August 13, 1990 - Common investment shares of 100,000 were
issued to Terry Young, president of the Company, for serving as
president. Such shares were subsequently sold to Austin-
Young, Inc.
August 13, 1990 - Common investment shares of 5,000 were issued to
Susan Young for bookkeeping services. Susan Young was the wife of
Terry Young at the time of issuance.
AMERICAN ABSORBENT NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
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 centper 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 shareto 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. These options were cancelledin 1997.
July 27, 1993 - the Company issued an option to the employees, officers
and directors to purchase up to a maximum of 250,000 shares of common stock
at a price of $3 per share. This option was canceled on June 5, 1995.
October 8, 1993 - 6,000 shares of stock were issued at $5 per share to
Susan Young as down payment on the purchase of a building.
During 1994, Austin-Young, Inc. issued several promissory notes to the
Company to cover cash shortages. Total promissory notes issued was $61,424.
(See Note 10)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
In June 1995, the Company adopted a 1995 stock option plan for the
employees,officers and directors to purchase up to 1,000,000 shares of
common stock at market price.
The options expirein 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.
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 was
due in September,1997 (See Note 10), but has been extended to 1998.
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.
In 1998, the Company paid cash for use of office space. Total rent paid in
1998 was $22,800.
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 at January 31, 1998.
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 the note. In 1998, the
Company filed suit to cancel the shares.
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
1998, the cash compensation increased to $5,000 per month withan equal
reduction in stock compensation.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
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 shares for legal services.
June 1994 - 25,750 shares were issued at $4 per shares for services rendered.
June 1994 - 11,000 shares were issued at $5 per share for services rendered.
June 1994 - 5,000 shares were issued at $3.50 per share for services rendered.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 6 - NONMONETARY TRANSACTIONS (Continued)
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.
In 1998, 129,784 shares (82,449 related party) were issued at an average price
of$1.02 per share for services rendered.
In 1998, 13,555 shares were issued at an average price of $1.125 for the
purchase of equipment.
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>
<S> <C>
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1998 1997
Plant $ 279,327$ 244,978
Machinery and equipment 263,510 10,582
Mining site improvements 51,500 -
Accumulated depreciation (56,186) (40,962)
$ 538,151$ 214,598
</TABLE>
Machinery and equipment is depreciated on the straight-line method over the
estimated useful lives of five to seven years. Plant is being depreciated
over the estimated useful life of 20 years.
Depreciation expense is $15,224 and $14,365 for the years January 31, 1998 and
1997respectively.
In the past, the Company had agreements with various vendors to do the mining
and milling of its zeolite mineral and products; this has resulted in minimal
investment in machinery and equipment.
During 1997-1998, the Company has began construction of a new milling
and packaging plant inBurns, Oregon. The plant will be operational during
1998.
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 7 - PROPERT AND EQUIPMENT (Continued)
The Company has completed approximately $34,000 worth of repairs that
needed to be made to the building and has installed approximately $250,000 of
mining and milling equipment.
NOTE 8 - MINING CLAIMS
The Company has purchased several zeolite mining claims in three
different regions in the western United States. All purchases were acquired
through stock issuance 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 pre-split) 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 an 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 - 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>
<S> <C>
January31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1998 1997
Notes payable -
Austin-young, bearing
interest at 7% and payable
on demand.
Unsecured. $ 179,052$ 202,385
</TABLE>
AMERICAN A BSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 10- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<S> <C><C>
January 31,
</TABLE>
<TABLE>
<S> <C><C> <C><C>
1998 1997
Note payable to a bank,
bearing interest
at 8.5%, due August,
1998. Secured
by $125,000 CD's (see $ 125,000$ 125,000
Note 5)
Total interest expense for
1998 was $23,141.
</TABLE>
NOTE 11 - 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 Regulation D private stock offering.
In 1996, the Company issued 214,168 shares of common stock in a
Regulation D private placement for total consideration of $394,362.
In 1997, the Company issued 130,960 shares of common stock in a
Regulation D private placement for total consideration of $156,860.
In 1998, the Company issued 582,000 shares at an average price of
$1.40 in three separate private placements. One private placement was with a
foreign customer that purchased 80,000 shares for $100,000.
The first private placement was sold in blocks of 4,000 shares
(minimum investment) at $1.25 per share with a royalty that pays from the gross
tonage of production from the zeolite claims in Oregon, once under production.
The royalty pays $3 per ton per minimum investment on 6,000 tons of zeolite
mined and sold. Total royalties paid per minimum investment will be $18,000.
The second private placement was sold in blocks of 4,000 shares
(minimum investment) at $2.50per share with a similar royalty that pays $2.00
per ton per minimum investment. Total royalties paid per minimum investment
will be $20,000 (10,000 tons).
The Company sold 432,000 shares under the first private placement
($540,000) and 70,000 shares under the second private placement ($175,000).
The second private placement is ongoing while the first private placement has
been closed.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
The royalty will be paid simultaneously ($5.00 per ton) to the shareholders
proportionately once the zeolite has been mined and sold. The company may
increase the amount of the royalty payment to any holder of the royalty
right above the specified dollar per ton royalty, but in no event will the
total royalty payment exceed the maximum per investment. The increase in the
royalty amount paid would only decrease the time limit in which the holder of a
royalty right 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 12 - ECONOMIC DEPENDENCY
During the current fiscal year, the Company has developed an overseas
customer that provided 31% of the years sales volume. Two other customers
had 11% each of sales volume.
NOTE 13 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principlesrequires 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 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following listing of the estimated fair value of financial
instruments is madein accordance withthe 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, 1998 and 1997 are as follows:
<TABLE>
<S> <C>
January 31, 1998 January 31, 1997
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C><C>
Carrying Amounts Fair Carrying Amounts Fair
Values Values
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C><C>
Cash and Cash Equivalents$ 24,642$ 24,642$ 1,107$ 1,107
Notes Payable IncludingCurrent Maturities
304,052 304,052 327,385 327,385
</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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1998 and 1997
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Notes Payable
The fair values of notes payable are estimated using discounted cash
flow analyses based on the Company's incremental borrowing rate as the discount
rate.
NOTE 15 During 1998, the Company was required to place a $15,000
bond to insure the reclamation of any mining done on the mining claims in
Oregon. The Company has placed $15,000 in certificates of deposits as
pledge against any reclamation work that has to be done after
mining operations have ceased. The mining operations will continue for some
time and the certificates will not be useable as working capital for a number
of years. The interest earned on the certificates are directly deposited
to the Company's account.
NOTE 16 During the year, the Company approved a stock option plan to
the officers and directors of the Company. A total of 250,000 options to
purchase 250,000 shares were offered at a price of $.375 (the market price
at the time of offering). The options expire on June 17, 2004. During the
year,125,000 options were exercised at the option price of $.375 for total
consideration of $46,875 ($9,375 cash and $37,500 in relief of debt).
NOTE 17 The Company has leased out a portion of its warehouse in
Austin, Texas to another individual for $880 per month. The lease is month to
month.
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 principles or practices,
financial statement disclosure or auditing scope or procedure 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:
<TABLE>
<S> <C> <C> <C>
SERVED AS
POSITIONS WITH THE DIRECTOR OR
NAME COMPANY AGE OFFICER SINCE
Terry L. Young Chairman of the 51 1990
Board, Chief
Executive Officer, Director
David W. Redding President, Chief 49 1993
Financial Officer,
Assistant Secretary, Treasurer,Director
William C. Branch Director 45 1995
Nicholas N. WentworthDirector 63 1998
James R. Toney Vice President of Production 49 1998
Kimberly A. Love Corporate Secretary 35 1995
</TABLE>
Directors and officers are elected annually on the date of the annual meeting
of shareholders to serve until the earlier
of the next annual shareholders' meeting date or the date on which their
services to the Company cease.
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. Beginning in the early 1970's
he became involved in real estate development and continues to be involved
now. Mr. Young has also been involved
in corporate development and has worked in the development of several
companies. 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
51.
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 National
Market 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 and
International Who's Who of Professionals in 1997. He received a bachelors
degree in business and accounting from the
University of Texas at Austin in 1974. Age 49.
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 45.
Nicholas N. Wentworth has served as a director of the Company since January
1998. Mr. Wentworth was president of
Investment Advisors Incorporated, a Houston, Texas based investment counseling
firm with individual and institutional
clients before retiring in 1996 after 28 years with the firm. He held various
management positions with the firm
including president of a no-load mutual fund specializing in small to medium
sized capitalization companies, economist
and chief investment officer of fixed income. He is a Chartered Financial
Analyst and a Chartered Investment Counselor
and is a past president of the Houston Society of Financial Analysts. Prior
to joining Investment Advisors Incorporated
he work for Underwood, Neuhaus and Company providing institutional research
and portfolio management for non-
discretionary accounts managed by the firm. Early in his career, Mr.
Wentworth worked in the corporate offices of Gulf
Oil Corporation as a member of the crude oil and product supply department,
for Texas Eastern Transmission
Corporation as a member of the treasurer's staff working with investment
bankers in long and short term borrowings
and for Funds Incorporated as their analyst in energy and regulated
industries. He served in the United States Army
Finance Corps and holds a Bachelor's and Master's degree in Business
Administration from Babson College in
Wellesley, Massachusetts. Age 63.
James R. Toney has served as Vice President of Production of the Company since
February 1998. Mr. Toney served as
the maintenance and operations superintendent of the ore preparation plant and
the milling operations for Calaveras
Asbestos, Ltd. from April, 1976 to December, 1990, when the operations were
acquired by Sanifill, Inc. After the
acquisition by Sanifill, Inc. he served as the operations manager for
California Asbestos Monofill, a subsidiary of Sanifill,
Inc. until February, 1998. Mr. Toney served three years in the United States
Marine Corps from 1967 to 1970 when he
received an honorable discharge. He attended Diablo Valley College and
Columbia College in California. Age 49.
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 35.
ITEM 10. EXECUTIVE COMPENSATION:
The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1996,
1997 and 1998, as to each officer of the Company whose aggregate remuneration
exceeds $100,000, and as to the
aggregate remuneration of all officers as a group:
<TABLE>
<S> <C> <C> <C> <C>
ANNUAL COMPENSATION (1)LONG-TERM COMPENSATION
AWARDS
PAYOUTS
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESTRICTED STOCKAWARDS
NAME AND OTHER ANNUALCOMPENSATION ($) ($)OPTIONS/ SAR'S LTIPALL OTHER
PRINCIPAL SALARY($)BONUS($) (#) PAYOUTS ($)COMPENSATION ($)
POSITIONS YEAR
Terry L. Young,CEO
1996 -0- -0- -0- -0- -0- -0- -0-
1997 -0- 7,000 -0- 56,500 -0- -0- -0-
1998 60,000 -0- -0- 7,188 100,000 -0- -0-
All
Officers 1996 44,7141,000 -0- -0- -0- -0- -0-
as a
Group (3 persons)
1997 64,8007,000 -0- 106,592 -0- -0- -0-
(3 persons)
1998 143,400 -0- -0- 46,325 225,000 -0- -0-
(3 persons)
</TABLE>
1) Excludes the value of personal use of Company office facilities and
certain other personal benefits. The value of such
personal benefits cannot be specifically or precisely ascertained without
unreasonable effort. After reasonable inquiry,
however, the Company believes that the aggregate annual amount of such
personal benefits does not exceed $50,000 per
person or 10% of the total annual salary and bonus for the named executive
officer.
The Company does not have any pension, retirement, deferred compensation or
similar plan for its officers, directors
or employees. It does have an incentive stock option plan for its officers,
directors, employees and other persons who
perform substantial services for or on behalf of the Company. The 1995 Stock
Option Plan provides for the granting of
options on a maximum of 1,000,000 shares of the Company's common stock (which
number is subject to adjustments
in the event of stock dividends, stock splits and other similar events). The
1995 Stock Option Plan is administered by
the Board of Directors , or, at its option, a duly authorized committee of the
Board. Options may be granted at the
market bid price of the common stock at the time of issuance and can be
exercised by the payment of cash, surrender of
shares of common stock of the Company equivalent to the option exercise price
or through a reduction in the number
of shares received pursuant to the option exercise equivalent to the amount of
the option exercise price. The term of any
option granted may extend for seven years from the date of grant. On June 17,
1997 the following options were granted
pursuant to the 1995 Stock Option Plan to Officers and Directors at the
closing bid price of the common stock:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<S> <C> <C> <C> <C>
PERCENT OF TOTALOPTIONS/SARS
GRANTED TO
OPTIONS/SARS GRANTEDEMPLOYEES INEXERCISE ORBASE PRICE
(#) FISCAL YEAR ($/SH)
NAME EXPIRATION DATE
Terry L. 100,000 40 0.375 June 17, 2004
Young, CEO
David W. Redding 100,000 40 0.375 June 17, 2004
William C. Branch 25,000 10 0.375 June 17, 2004
Kimberly A. Love 25,000 10 0.375 June 17, 2004
</TABLE>
Currently, directors do not receive any cash compensation for serving in their
roles as directors of the Company.
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
<TABLE>
<S> <C> <C> <C> <C>
NUMBER OF VALUE OF
SHARES UNEXERCISEDOPTIONS/SARSAT FY-END
(#)EXERCISABLE/UNEXERCISABLE UNEXERCISED
ACQUIRED IN-THE-MONEY
ON VALUE OPTIONS/SARS
EXERCISE REALIZED AT FY-END ($)
NAME (#) ($) EXERCISABLE/
UNEXERCISABLE
Terry L. 100,000 75,000 -0- -0-
Young, CEO
David W. Redding -0- -0- 100,000 E 112,500
William C. Branch 25,000 21,875 -0- -0-
Kimberly A. Love -0- -0- 25,000 E 28,125
</TABLE>
On June 17, 1997, Austin Young, Inc. returned to the Company for cancellation,
an option it held to purchase 988,000
shares of common stock. On January 21, 1998, when the bid price on the common
stock in the public market was
$1.125, Terry L. Young exercised the option he held to purchase 100,000 shares
of common stock by reducing the
amount of the note payable from the Company to Austin Young, Inc. by $37,500
and on January 23, 1998, when the bid
price on the common stock in the public market was $1.25, William C. Branch
exercised the option he held to purchase
25,000 shares of common stock by issuing a check to the Company for $9,375.
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, 1998, 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:
<TABLE>
<S> <C> <C> <C>
NAME AND ADDRESS NUMBER OF SHARESOF COMMON
STOCKCOMMON STOCK SUBJECT TO OPTIONS OR
OF BENEFICIAL OWNER WARRANTS PERCENT OF CLASS
Austin Young, Inc. 3,182,403 -0- 47.03
3800 Hudson Bend Rd.
Austin, TX 78734
Terry L. Young 3,182,403 -0- 47.03
3800 Hudson Bend Rd.
Austin, TX 78734
David W. Redding 272,620 100,000 5.43
3800 Hudson Bend Rd.
Austin, TX 78734
William C. Branch 232,662 -0- 3.44
3800 Hudson Bend Rd.
Austin, TX 78734
Nicholas N. Wentworth 5,000 -0- 0.07
3800 Hudson Bend Rd.
Austin, TX 78734
James R. Toney 6,500 -0- 0.10
3800 Hudson Bend Rd.
Austin, TX 78734
Kimberly A. Love 15,026 25,000 0.59
3800 Hudson Bend Rd.
Austin, TX 78734
Officers and Directors 3,714,211 125,000 55.71
as a Group (6 Persons)
</TABLE>
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,
1998, was 6,766,512. Option shares to
each named director or officer, which are not currently outstanding but which
are subject to option exercise, are deemed
to be outstanding for the purpose of computing that director's or officer's
percentage of ownership of outstanding shares
of common stock, but are not deemed to be outstanding for computing the
percentage of 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 47.03% 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, 2,922,091 are owned of
record by Austin Young, Inc., a corporation
controlled by Mr. Young; 47,000 are held in brokerage accounts in the name
of Austin Young, Inc.; 85,598 are held
in the name of Mr. Young; 100,000 are held in the name of Terry L. Young and
Austin Young, Inc.; 3,500 are owned
of record by the spouse of Mr. Young; 4,214 are held in the name of Kim E.
Coleman as custodian for Gretchen
Coleman, and, 20,000 are owned of record by the children of Mr. Young.
5) Of the shares set forth above for David W. Redding, 235,313 are held in
the name of David W. Redding; 27,000
are held in the name of David W. Redding for the benefit of family members,
and, 500 are owned of record by the spouse
of Mr. Redding.
6) Of the shares set forth above for William C. Branch, 177,189 are owned of
record by Mr. Branch, 29,000 are owned
of record by Mr. Branch as custodian for the Charles P. Davis Trust and 26,473
are held of record by Mr. Branch as
custodian for family members.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Austin Young, Inc. is the major stockholder of the Company, beneficially
owning 3,182,403 shares, or approximately
47.03% of the common stock at March 31, 1998, which amount includes the shares
beneficially owned by Austin Young,
Inc. as described above. 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.
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. On June 17, 1997, Austin Young, Inc. returned the
remaining 988,000 options to the Company
for cancellation.
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. has advanced funds to the Company from time to time for
operating expenses. At January 31, 1998,
the Company owed approximately $179,052 in principal to Austin Young, Inc.,
which amount was evidenced by a
promissory note bearing interest at 7% per annum and due on demand. The note
payable to Austin Young, Inc. was
reduced by $37,500 on January 21, 1998, when Mr. Young exercised an option he
held to acquire 100,000 shares of
common stock at $0.375 per share. In addition, Austin Young, Inc. has pledged
$125,000 in CD's against a $125,000
note payable to a bank relative to the Austin warehouse facility. Austin
Young, Inc. receives no compensation for the
use of its CD's as collateral on the note.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K:
Page
(a) (1) The following financial statements are included in Part II, Item 7:
Report of Independent
Auditors.............................................................. 12
Financial Statements:
Consolidated Balance Sheets - January 31, 1998 and
1997................................... 17
Consolidated Statements of Operations - Years ended
January 31, 1998,
and
1997........................................................ 19
Consolidated Statements of Stockholders' Equity
(Deficit) - From inception
on February 9, 1984 to January 31,
1998........................................................ 20
Consolidated Statements of Cash Flows - Years ended
January 31, 1998
and 1997 and from inception on February 9,1984
to January 31, 1998......... 24
Notes to Consolidated Financial
Statements......................................................... 26
(2) There are no financial schedules for the years ended January 31,
1998 and 1997,
submitted herewith. Registrant is exempted from filing such
schedules because of its
Form SB-2 Registration Statement filing.
(3) The following exhibits for the years ended January 31, 1998 and
1997, and from
inception on February 9, 1984 to January 31, 1998 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 were 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:
__________s/Terry L. Young____________________________
Terry L. Young, Chairman of the Board
and Chief Executive Officer
Date: May 13, 1998
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.
<TABLE>
<S> <C> <C> <C>
SIGNATURE TITLE DATE
s/Terry L. Young Chairman, Chief May 13, 1998
Executive Officer
Terry L. Young and Director
s/David W. ReddingPresident, Chief May 13, 1998
Financial Officer,
David W. Redding Principal Accounting Officer,
Assistant Secretary,
Treasurer and
Director
s/William Director May 13, 1998
C. Branch
William C. Branch
Director May 13, 1998
s/Nicholas N. Wentworth
Nicholas N. Wentworth
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<S> <C>
From Inception on
February 9,1984 Through January
31,
For the Years Ended January 31,
</TABLE>
<TABLE>
<S> <C> <C> <C>
Primary and Fully Diluted: 1998 1997 1998
Average Shares Outstanding 5,731,102 5,172,860 2,062,475
Net Loss $ (489,525) $ (464,662) $ (2,664,557)
Earnings (Loss) $ (0.09) $ (0.09) $ (1.29)
Per Share
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 21 - SUBSIDIARY OF THE REGISTRANT
<TABLE>
<S> <C> <C>
NAME JURISDICTION OF INCORPORATION
American Absorbents, Inc. Texas
</TABLE>
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. dated March 7, 1998
for the year ended January 31, 1998 in the 10-KSB Annual Report.
Orton & Company
May 8, 1998
Salt Lake City, Utah
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 24,642
<SECURITIES> 0
<RECEIVABLES> 972
<ALLOWANCES> 0
<INVENTORY> 242,406
<CURRENT-ASSETS> 357,228
<PP&E> 594,337
<DEPRECIATION> 561,186
<TOTAL-ASSETS> 5,997,048
<CURRENT-LIABILITIES> 460,967
<BONDS> 0
0
0
<COMMON> 8,200,638
<OTHER-SE> (2,664,557)
<TOTAL-LIABILITY-AND-EQUITY> 5,997,048
<SALES> 47,472
<TOTAL-REVENUES> 47,472
<CGS> 33,167
<TOTAL-COSTS> 511,810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (489,425)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (489,425)
<INCOME-TAX> 100
<INCOME-CONTINUING> (489,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (489,525)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
