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, 1999
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 IRS Employer Identification
Jurisdiction of
Incorporation or Organization)
3800 Hudson Bend Road, Suite #300, Austin, Texas 78734.
(Address of Principal Executive Offices) (Zip Code)
512-266-2481.
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE NONE.
Securities registered under Section 12(g) of the Exchange Act:
COMMONSTOCK (.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.
Issuer's revenues for the fiscal year ended January 31, 1999. $163,138
Aggregate market value of common stock (.001 par value) held by non-affiliates
at March 31, 1999. $ 1,800,814
Common stock (.001 par value) shares outstanding at March 31, 1999. 7,420,252.
This Form 10-KSB document contains 55 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-Mail address is [email protected]; its
web page addresses are http://www.aanpi.com and http://www.amzorb.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 the common stock, which currently represents
approximately 42.84% 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 gas vehicle conversion market, but, after further
investigation, determined that the cost of engaging in such business would be
prohibitive given the financial resources of the Company at such time.
Therefore, in April 1991 the Company resold the distributorship licenses to the
original manufacturer of the conversion equipment and commenced seeking a
different field of operation.
On October 11, 1990, Geo-Environment Services, Inc. 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 present the Company has one primary
source for its zeolite, located on unpatented mining claims in the Harney Basin
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 or liquid adsorption, the slow release of nutrients into the
soil and as animal feed supplements. 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 of their 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 in cement and in the collection and
disposal of radioactive waste. In general, the industry offers high quality
products and processes designed for specialty markets. As the physical
properties of zeolites have become more widely known, the amount of zeolite
used has increased. The areas in which the Company now competes are in using
natural zeolite in products that adsorb liquids or gases which might otherwise
be harmful or obnoxious, in products which time release nutrients into the
soil, in products for soil remediation and in products used as animal feed
supplements.
The Company currently produces 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 Littera and Soil Enhancer, a cat litter
product which, when used, can be disposed of into the soil as a soil enhancer;
Stall Fresha, a product to eliminate urine-generated ammonia odors and wetness
caused by livestock; White Buffaloa, a multi-purpose home, farm and ranch
absorb-all product; and Shoe Fresha, 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 Littera and Soil Enhancer, White Buffaloa and Stall
Fresha, 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 odor and moisture
absorbent product, Odor Outlawa, 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 simultaneous production of cat litter as well as the
production of raw zeolite material for use in other of the Company's products
including Stall Fresha, White Buffaloa and Sorbs-A-Lota. Additional milling
and packaging equipment has been purchased that will allow the Company to
increase 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 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 has been or 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, dissemination of a book entitled "101
Fantastic Uses For Zeolites" and limited distribution of research papers 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 products that it has researched, developed and
test marketed. Some of these new products include Mother Eartha Cat Litter
and Soil Enhancer, Stall Fresha, White Buffaloa, Fresh Paka, Sorbs-A-Lota,
Fridge Fresha, Boat Fresha, Amzorba and Cooler Fresha. Some 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 majority of the Company's unpatented placer mining claims are located on
federal land in the Harney Basin, Harney County, Oregon. These 259 claims
cover approximately 7.475 square miles or 6,000 acres. The estimated
proven reserves of in-place zeolite on the southern 40% (approximately 135
claims or 2,700 acres) of the Harney Basin claims is 477,653,873 tons and the
estimated probable reserves is 746,089,789 tons, (based on independent
geologist's reports). The geologist assumed mining of only the top 80 feet of
the deposit. In-house reports of Anaconda (former owner of the northern
portion of the Harney Basin Deposit) geologists placed the estimated reserves
of zeolite mineral located on the northern 4060 acres of the Harney Basin in
excess of 1,000,000,000 tons of 90% pure zeolite. Their assumptions included
mining only the top 100 feet of the deposit. Existing drill hole core data
indicates that the total thickness of the deposit is approximately 300 feet
which would significantly increase the estimated reserves within the deposit.
An independent geological appraisal relating only to the 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.
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.
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 maintained lower inventory levels during the development stage,
but has begun increasing inventory levels with the commencement of full-scale
marketing efforts in the western portion of the United States. The book
value of inventory for the fiscal years ended January 31, 1999 and January 31,
1998 was $262,121 and $242,406, respectively. The Company mined and milled
10,000 tons of zeolite minerals in December 1997. Approximately 4,000 tons
of this material has been milled to various Tyler mesh sizes for use in the
Company's various packaged products.
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. For the fiscal
year ended January 31, 1999, E.N.S.R./S.A.R.L. accounted for approximately 16%
of sales and for the fiscal year ended January 31, 1998, E.N.S.R./S.A.R.L.
accounted for approximately 31% 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. During the fiscal year
ended January 31, 1999 four customers accounted for 82.6% of the Company's
total sales volume BACKLOG:
There was no backlog at January 31, 1999 or January 31, 1998. 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. It is extremely time consuming, costly and difficult to gain
acceptance from the large chain stores that may offer the products developed
by the Company. 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. Many of
these competitors possess financial, technological and personnel resources
substantially greater than those of the Company. The Company believes that it
can compete favorably with many of these companies because of the ability of
the Company to produce its natural zeolites products at relatively low cost
because of the vast amount of easily accessible zeolites located on the
Company's mining claims. Management believes that most competitors will be
burdened with the additional cost of removing from a few to several feet of
soil covering their deposits of zeolites. The Company believes that it has
quantities of zeolites available to it with little or no overburden sufficient
to meet its requirements for the foreseeable future. Management also believes
that because the Company's operations are designed to reduce overhead expenses
and the costs of producing the products through the use of contract labor and
independent contractors, the Company will be able to remain flexible to the
changing nature of products using environmentally safe materials. Early stage
mining and processing cost estimates indicate the Company will be able to
significantly reduce the costs of the products and allow the Company to be more
competitive.
The Company currently has available to it over 30 million tons of zeolites on
the top 60 feet of its permanent permitted claims area in Harney County,
Oregon. The Company is eligible to file for limited mining permits, which
allow for the removal of 5,000 cubic yards (6,750 Tons) of material each 12
month period on each of its other two properties. Prior experience has shown
that these limited mining permits can be obtained in less than 60 days. The
Company does not currently plan to file for such limited mining permits. The
Permanent Plan of Operations Mining Permit for the Harney County, Oregon
claims was approved by the Bureau of Land Management on July 10, 1997.
The Permanent Plan of Operations places no limit on the tonnage of zeolites
that can be mined on the claims specified in the Plan.
In-house reports developed by Anaconda Minerals (former owner of the northern
portion of the Harney Basin Claims), from core data available to them reflect
a thickness up to 300 feet on the northern 4060 acres. These reports reflect
that these 4060 acres contain mostly zeolites exceeding 90% purity. Based on
20 cubic feet per ton of material it is unlikely that the Company will find
it ecessary to lower the purity of zeolites content in its products within the
foreseeable future.
The Company is aware of over thirty other companies in the United States which
are marketing various types of cat litter products. Management is also aware
of three other companies in the nation which market a cat litter product
using natural zeolites of various qualities and in limited areas, only two of
which own zeolites mining claims. Management believes that Mother Eartha Cat
Litter and Soil Enhancer can favorably compete with the cat litters not
using natural zeolites on a price per pound basis with the added benefit of
an environmentally friendly product. Whereas the Company's cat litter product
can be used as a soil enhancer to benefit plants by retaining water in the
soil after it has been used as cat litter, most other cat litter products use
clay which, if mixed with soil, would create a moisture barrier and retard
plant growth. Management does not view the percentage of the Texas or
national cat litter market currently held by the present cat litter products
using natural zeolites to be significant and therefore does not believe that
the sale of such products by such companies will significantly impact sales of
Mother Eartha Cat Litter and Soil Enhancer by the Company.
The Company is not aware of any products similar to or which compete with
Fresh Paka or Amzorba Multi-Purpose Zeolite.
The Company competes with a number of manufacturers of products used to absorb
automotive fluids, chemicals, and other liquid wastes from motor vehicles and
machines. However, management is aware of only one other product which uses
natural zeolites. Again management believes that the Company's product,
Sorbs-a-Lota, can compete favorably with these other products based upon
pricing and performance of the product.
The Company is aware of only one other company, which does not own its own
zeolite deposits, which markets a product similar to Stall Fresha, a product
which eliminates urine-generated odor and wetness caused by livestock.
The competing company markets a similar product made from zeolite minerals
purchased from other producers. Management expects to begin marketing its
Stall Fresha product in markets 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 reserves.
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 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. 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 declined
as the Company moved more toward the marketing phase. The Company has
developed its zeolite products in-house and test markets each product in a
limited number of stores. During the fiscal years ended January 31, 1999 and
January 31, 1998, 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. 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
operated under a Total Exemption From Reclamation Requirement. 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 of Operations 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, Department of 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 originally classified erionite as a potentially hazardous
mineral that may be harmful to animals and humans. However, no conclusive
research was ever completed by the government and the Company believes that
erionite may no longer be included on the potentially hazardous material
list. Management believes that the zeolite deposits containing erionite can
easily be detected and avoided. The Company has no present intent to mine any
deposit in which erionite is present.
South of the Harney Basin Claims is a small area known as the South Narrows
Area of Critical Environmental Concern containing an endangered plant species
known as the Malheur Wirelettuce. The Company has released its claims which
border on this area which management believes will satisfactorily minimize any
impact on the habitat for this endangered plant species.
The Harney Basin Claims are generally surrounded by, and on the East Side
adjoin, the Malheur Wildlife Area. To the extent that mining operations may
be visible from the wildlife area, the Company may be required to impose dust
abatement or other measures designed to reduce any impact on the wildlife
area. Management does not believe that compliance with such measures would
have a material effect upon any proposed mining operations on the claims.
EMPLOYEES:
At January 31, 1999, the Company had twelve full-time employees not including
temporary employees and contract laborers who are employed on an "as needed"
basis. 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 may add additional marketing and administrative
personnel.
ITEM 2. DESCRIPTION OF PROPERTIES:
MINING PROPERTIES:
The Company has located or acquired, and controls 259 unpatented placer mining
claims located in the Harney Basin, Harney County, Oregon, covering
approximately 7.475 square miles and situated approximately 28 miles south of
Burns, Oregon, and about 214 miles west of Boise, Idaho (the Harney Basin
Claims). Also, the Company has located or acquired 26 unpatented zeolites
placer mining claims in Malheur County, Oregon, near the town of Sheaville
(hereinafter the "Sheaville Claims"). In addition, the Company has purchased
10 unpatented lode zeolite mining claims situated in Mohave County, Arizona,
approximately 60 miles northwest of Kingman, Arizona, near the town of Dolan
Springs, Arizona (hereinafter the "Arizona Claims"). The initial focus of the
Company is on the Harney Basin Claims and the Company has no present plans to
develop the Sheaville Claims or the Arizona Claims until it has had an
opportunity to complete sampling and mapping activities on the properties.
The Company has not been made aware of any rival claimant's interest in or
restrictions imposed by the Bureau of Land Management that might impair the
Company's possessory interest in the Arizona "lode" claims. The Company has
not discussed this issue with mining counsel.
Anaconda Minerals Company originally filed the northern portions of the Harney
Basin Claims in 1975. Occidental Minerals Company filed claims covering much
of the southern portion in 1979. Drilling and evaluation of the deposit by
both companies continued into the 1980's. Since then several companies,
including PDZ Corporation, Tenneco Specialty Minerals, Steelhead Specialty
Minerals, East West Minerals, Inc. and New Gold, Inc. have had an interest in
part or all of the properties previously held by Anaconda and Occidental. The
Company is in possession of extensive trenching and core drilling data on the
basin, which data were compiled by Occidental and Anaconda. A composite
geological report dated December 14, 1993, and prepared for the Company from
such data by William G. Ellis, an independent geologist, estimates the
early sampling of the area established numerous good-quality zeolite beds in a
7.5 square mile area with an average of slightly over 70% total zeolites
content, consisting primarily of clinoptilolite, with lesser amounts of
phillipsite, chabazite, mordenite and erionite. The Company intends to avoid
the beds of zeolites containing erionite and concentrate its mining efforts
solely on the beds of zeolites containing no erionite. The Company's current
operations are on the northern 4060 acres of the Harney Basin claims which
previous core data reports indicate has a thickness up to 300 feet of 90%
clinoptilolite purity. The zeolites deposits on the Harney Basin Claims are
on or near the surface with little or no overburden, thus reducing the cost of
extraction.
The Company does not believe there will be any problems involved with
selectively recovering high purity clinoptilolite material for use in its
products since in-house reports indicate the northern 4060 acres of the Harney
Basin contain in excess of 880,000,000 tons of 90% pure zeolites
After minning is completed, the property will be reclaimed by leveling and
planting natural grasses. To perform this operation, the Company removes
any overburden with a front-end loader which is also used to remove the
zeolites. This material is then loaded onto trucks and hauled to Burns/Hines,
Oregon (approximately 28 miles) where it is stored prior to processing. The
Company is aware of a number of entities providing contract mining and milling
services believed sufficiently experienced to conduct the Company's mining and
milling operations. The Company is currently using an entity located in
Burns, Oregon, near the claims to perform mining operations.
The Company will continue to hire a mining contractor in Burns, Oregon to mine
the zeolite with no negative impact to the Company's operations. It is also
anticipated that the milling facility will be used to package a significant
portion of the zeolites for shipment directly to its customers. Bulk zeolites
would continue to be shipped to the Company's facility in Austin, Texas for
packaging and shipment.
The Harney Basin Claims lie in the center of the southeastern quarter of the
State of Oregon and approximately the center of Harney County. The property
is crossed by state highway 205, which offers virtual year-round access.
Existing ranch and county roads from the highway offer access to almost all of
the property of interest; however, sustained mining operations may require the
construction of more permanent facilities. The Company has no present
intention to commence mining operations of the magnitude that would require
larger permanent facilities.
The local climate does not favor year-round mining or processing on the
property because the winter is extremely cold and windy during the months of
December to February. The rainy season occurs from October through April and
could cause problems in stripping, crushing, and screening of the zeolites.
Also, the weather could have a material effect on the ability to haul large
quantities of the material during the rainy season if permanent roads are not
constructed. The Company does not plan to construct permanent roads and does
not believe its operations will be restricted since sufficient quantities of
zeolite can me mined during good weather conditions and hauled to the mill
facility in Burns/Hines, Oregon for storage.
The owner of an unpatented mining claim holds possessory title to the claim.
Possessory title is not legal title in the usual sense of the term, nor does
it arise out of any instrument or grant by the United States or out of any
action taken by any officer or agency of the state or federal governments.
Only when a claim is patented is there any affirmative government grant
under which legal title vests in the usual concept of property ownership.
Possessory title arises as a matter of law out of the performance by the
locator of the claim of certain acts of location, including the staking
of claim boundaries and the making of certain record filings in compliance
with the requirements of federal and state laws. The validity of an
unpatented mining claim cannot be conclusively determined by an inspection of
public records. It is dependent upon the legal availability of the lands at
the time the location is made and the validity of the mineral discovery within
the boundaries of each claim, in compliance with federal, state and local laws
relative to location procedures. Prior to 1992 possessory title was
maintained against subsequent location by the annual performance of labor or
improvements on or for the benefit of each mining claim. The Company believes
all past assessment work requirements relating to the Company's claims were
adequately performed. Since 1992 possessory title for persons holding ten or
more claims is maintained by payment of an annual claim fee of $100. The
Company believes it has met the requirements for holding possessory title to the
claims. The Company believes the unpatented mining claims it holds have been
located in compliance with the applicable state and federal mining laws and
generally accepted standards in the mining industry. The Company is not aware
at the present time of any material conflicts with other parties concerning
the claims and believes it has valid possessory right in those claims.
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. Because said facility lacks permanent heating and air conditioning,
it is limited for use during the months of extreme cold or heat. 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 in Hines, 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 simultaneous production of several
product lines. Additional milling and packaging equipment has been purchased
that will allow the Company to increase 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. The Company does, from time to time, get involved in litigation
in the carrying out of its operations.
On or about May 25, 1998, the Company received service on a lawsuit (Cause No.
9804737) that was filed in the 126th Judicial District Court of Travis County,
Texas by Mr. Charles R. Walden, Jr. (former President of the Company).
Named as defendants in the lawsuit were American Absorbents Natural Products,
Inc. and Terry L. Young. Prior to receiving service on the lawsuit, the
Company had filed a lawsuit against Mr. Walden seeking the return and
cancellation of 200,000 common shares he had been sold at a reduced rate
pursuant to a 30 month note by Austin Young, Inc. in return for future
services to the Company to get the Company beyond the development stage. Mr.
Walden's services to the Company was terminated for cause within 60 days of
the transaction. Subsequent to the sale by note of the shares to Mr. Walden
by Austin Young, Inc., the Company purchased the note from Austin Young, Inc.
The Company sought to have these shares canceled for the benefit of all
shareholders for failure on Mr. Walden's part to perform the required services
and failure to pay the note when due in August, 1997. The Company did not
expect this litigation to have any material impact on the Company, its
management or its operations. This matter was settled in arbitration in early
1999 by Mr. Walden's return to the Company of 50,000 of the common shares for
a $15,000 payment by the Company to Mr. Walden and the Company's forgiveness
of the note in exchange for return of an additional 40,000 shares to the
Company. Mr. Walden is only allowed to sell 4,000 shares of his remaining
shares each 30-day period.
On or about July 6, 1998, the Company filed a Complaint For Declaratory Relief
(Case No. 98-07-145-CV) in the Circuit Court of the State of Oregon for the
County of Harney against David Calkins seeking removal of a Claim of
Lien Upon Chattels. Mr. Calkins was contracted by the Company to install
milling equipment for the Company in its Oregon Milling Facility. Mr. Calkins
alleged that he was not completely paid for the installation and filed a Claim
of Lien Upon Chattels (No. 980681) in the amount of $10,806.37. The Company
alleges that, after deducting items that were completed without the Company's
approval and for the personal benefit of Mr. Calkins and after paying
directly to Service Providers items that were billed to the Company by Mr.
Calkins, the contract fees were all paid to Mr. Calkins. The Company's
management does not expect this litigation to have any material impact on the
Company, its management or its operations.
The Company is currently investigating certain allegations of improprieties
involving former officers of the Company. The Company does not believe that
the improprieties even if true would have a materially adverse impact on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS:
During the fiscal year ended January 31, 1999, the Company solicited the
proxies of its security holders to vote upon the following matters at the
annual meeting of shareholders held on July 8, 1998:
1. Election of four directors
2. Ratification of all acts of the officers and directors for the
fiscal year ended January 31, 1998
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, 1999
All matters voted upon by the shareholders at the annual meeting of
shareholders were approved or passed and the results of the voting were made
available to all shareholders.
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
NASD's Electronic Bulletin Board under the symbol "AANP". 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
1-31-98 1-31-99
First Quarter $ 0.81 $ 0.31 First Quarter $ 2.50 $ 1.31
Second Quarter $ 0.81 $ 0.44 Second Quarter $ 2.06 $ 1.44
Third Quarter $ 1.37 $ 0.44 Third Quarter $ 1.56 $ 0.62
Fourth Quarter $ 1.67 $ 0.56 Fourth Quarter $ 1.06 $ 0.56
</TABLE>
As of January 31, 1999, there were approximately 401 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 1,000 shareholders.
No cash dividends have been declared or paid as yet on the common stock.
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, 1999, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had 7,391,251 common stock shares outstanding. At
March 31, 1999, 7,420,252 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, 1999 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 management 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. In fiscal 1999, the debt was further reduced from
proceeds of a private placement by $129,052 in principal to a balance of
$50,000 at January 31, 1999. Revenues to date have provided insignificant
funding of working. Increasing revenues in the future from additional
marketing programs are expected to generate gross profits that will
enhance the liquidity. Private labeling of other companies' products in the
future will allow the Company to increase gross profit dollars without tying up
capital resources.
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 principal 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. When possible, the Company has supplemented
officer and director benefits through the issuance of restricted common stock.
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. During the year ended
January 31, 1999 the Company raised $1,219,639 (net of commissions of $53,428)
through the sale of 963,269 restricted common shares. Additional milling
equipment to increase the capacity of the Oregon milling facility and
valued at $121,554 was acquired through the issuance of 82,063 restricted
common shares. Another 135,480 restricted common shares were issued for
professional services rendered to the Company and valued at $147,764.
In August 1996, the Company utilized CD's owned by Austin Young, Inc. to
secure a $125,000 bank debt. Austin Young, Inc. did not receive any
compensation for the use of its CD's as collateral. This debt which included
interest only payments to the bank in the approximate amount of $900 per
month was incurred to pay off an existing mortgage on the Austin, Texas
warehouse facility. The Company repaid the principal of the bank debt in
fiscal 1999 from proceeds of a private stock offering. Accounts payable and
accrued expenses are generally 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. During fiscal 1999 the losses incurred increased mostly due to
additional management personnel employed as marketing programs were implemented,
additional production personnel as the Oregon milling facility was brought on
line and increased expenses associated with marketing programs and production.
The company incurred no expenses relative to research and development during
the fiscal years 1997, 1998 and 1999. The Company paid $29,500 each year to
the Bureau of Land Management for claims maintenance fees in the fiscal
years ended January 31, 1997, 1998 and 1999. The Company incurs a $29,500
expense each year in August to the Bureau of Land Management 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, 1997, 1998 and 1999. 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 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. During the fiscal year ended January 31, 1999 sales
increased to $153,873, or 224% over the previous year as the milling
facility was brought into production in the Spring 1998 and marketing
executive were employed to increase retail marketing efforts. The Company
began to realize sales through its joint venture relationship with Texas
Environmental Providers, Inc., a company which uses impregnated zeolite to
revitalize the soils on golf course greens areas.
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,
1997, 1998 and for the period from the inception date on February 9, 1984 to
January 31, 1999, the Company had average gross profit margins of 35%, 30%,
30% and 35% respectively. With the Oregon milling facility on line and
an increased focus on retail marketing, the gross profit margin for the fiscal
year ended January 31, 1999 increased to 34.3% on significantly increased
sales in the last one-half of the year. 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 product 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.
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 was
acquired during the fiscal year ended January 31, 1997 and $132,380 of
services was 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. During the year the Company's Oregon milling facility
was completed and placed into production. Sales increased to $153,873 from
$47,472 the prior year, or 224% as the milling facility opened and marketing
personnel were added to the payroll to begin new marketing activities.
Better cost control over materials used in the Company's products increased
the gross profit percentage by approximately 14% from 30% to 34.3%.
Depreciation and amortization expense increased by 276% from $15,224
to $57,388 as depreciation on the mill commenced. The Company suffered an
increase of 98% in general and administrative expense from $496,585 in fiscal
1998 to $983,873 in fiscal 1999. A large portion of the increase is
attributable to extra expense associated with the production facility,
marketing personnel and marketing expense. Salary and payroll expenses
increased by $202,000 with the addition of production employees and management
salary increases. Additional marketing personnel also contributed to the
increase. Advertising, postage and printing expenses increased by
approximately $126,000 due to increased promotion levels with the
introduction of new marketing programs. Insurance expense increased by $28,200
due to the increased valuation of the Oregon milling facility and the
addition of health and hospitalization insurance to certain employees as a
benefit. Interest expense decreased by $13,700 during the current fiscal year
due to the repayment of approximately $250,000 of bank debt and debt owed
to the major shareholder. Travel expenses decreased by $8,150 and outside
service expense decreased by $3,100 due to more personnel on the payroll.
Professional services increased by $92,500 due to executive benefits awarded
in the form of restricted common stock and charged to professional services.
Legal expenses increased by $46,950 due to legal fees incurred in the Charles
Walden and David Calkins lawsuits as well as legal fees incurred relating to
private stock offerings.
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. During the year ended January 31, 1999 the note
was reduced from proceeds from a private placement by $129,052 in principal
to a balance of $50,000. 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. During fiscal 1999 this note was repaid from proceeds
from a private placement.
The Company has maintained current ratios of 2.69, 0.77, 0.47 and
respectively, for the fiscal years ended January 31, 1999, 1998 and 1997.
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. The reduction of
this note to the major shareholder and the repayment of a $125,000 bank loan
relating to a warehouse facility in Austin, Texas caused the increase in the
current ratio for the year ended January 31, 1999.
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 Fresha and Amzorba Multi-purpose products 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 until a public stock offering can be completed or revenues
reach the level (approximately $2,000,000 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. Since November 1995, the Company has been
shipping some of its agricultural products to E.N.S.R./S.A.R.L., an import
company located in France. The Company has been developing a joint venture
relationship with Texas Environmental Providers, Inc. to provide zeolite for
golf course greens improvements.
The Company has completed design and packaging for products such as Mother
Earth Cat Littera and Soil Enhancer, White Buffaloa, Stall Fresha, and Amzorba
Multi-purpose zeolite as well as several 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 zeolite with pesticides, herbicides and fertilizers for use in fields,
pastures and gardens as well as chemicals to help eradicate fire ants. The
Company is in negotiations with and has completed negotiations with third-
party companies to develop private label products for them.
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 installation of the milling facility equipment was completed
in Spring 1998. The Company has purchased additional milling equipment that
will increase the milling facility's capacity when installed.
YEAR 2000 ISSUES
The Year 2000 (Y2K) issue is the result of computer programs and chips used in
computerized systems and equipment being written to recognize two digits
rather than four digits to define the applicable year. Any computer systems
or equipment utilizing chips that are not year 2000 compliant may recognize a
date using "00" as the year 1900 rather than the year 2000. If not addressed
and corrected, the direct result could be a system failure or miscalculations
causing disruption of operations, including, among other things, a temporary
inability to process customers transactions, order merchandise or engage in
similar normal business activities.
The Securities and Exchange Commission ("SEC") has asked public companies to
disclose four general types of information related to Year 2000 Preparedness:
the Company's state of readiness, costs, risks and contingency plans. Sec SEC
Release No. 33-7558 (July 29, 1998). Accordingly, the Company has included the
following discussion in this report, in addition to the Year 2000 disclosures
previously filed with the SEC.
STATE OF READINESS
All equipment and computer systems currently utilized by the Company in-house
are year 2000 compliant. Most vendors used by the Company for packaging
materials used in packaging its products are large companies and the Company
expects that these companies will be year 2000 compliant. However, the
Company has not received written notification from all vendors affirming their
year 2000 compliance. Therefore, there can be no assurance that the systems
of other companies with which the Company does business will be year 2000
compliant. None of the Company's systems interface directly with any third-
party vendors. None of the Company's products are subject to year 2000
compliance so the Company does not expect to incur any liability in this
area. The failure on the part of merchandise vendors, or other companies with
whom the Company transacts business, to be year 2000 compliant on a timely
basis may have an adverse impact on the operations of the Company.
COSTS
The total cost to the Company of Year 2000 activities has not been and is not
anticipated to be material to its financial position or results of operations
in any given year. The total costs of addressing the Year 2000 issue are
estimated by management to be less than $10,000. These total costs are based on
management's best estimates. There are no guarantees that these estimates
will be achieved and actual results could differ from those estimates. The
Company plans to inventory sufficient quantities of materials from outside
suppliers to be capable of shipping several months of orders should third
parties incur year 2000 problems. The cost of increasing the inventory levels
is estimated at less than $50,000 which will be paid from available cash. Any
costs associated with the year 2000 issue will be expensed as incurred. The
amount expensed to date has been immaterial.
RISKS
The Company utilizes computers and chips in various aspects of its business.
The Company believes that its computers and equipment are in compliance with
the Year 2000 issue. The Company does not expect any material adverse
impact on its operations relative to the Year 2000 issue. The Company is also
exposed to the risk that one or more of its customers, suppliers or vendors
could experience Year 2000 problems that could impact the ability of such
customers to transact business or such suppliers or vendors to provide goods
and services. Although this risk is lessened by the availability of
alternative suppliers, the disruption of certain services, such as utilities,
could, depending upon the extent of the disruption, potentially have a material
adverse impact on the Company's operations.
CONTINGENCY PLANS
The Company is in the process of identifying and developing contingency plans
for any problems that might be experienced by the Company's suppliers,
customers or vendors. This includes identifying alternate suppliers of
inventory materials utilized by the Company in the packaging of its products.
ITEM 7. FINANCIAL STATEMENTS:
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of American Absorbents Natural Products, Inc
We have audited the accompanying consolidated balance sheets of American
Absorbents Natural Products, Inc. ( A Utah corporation) and subsidiary ( a
development stage company) as of January 31, 1999 and 1998, 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, 1999.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Absorbents Natural Products, Inc. and subsidiary as of January 31, 1999 and
1998, 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, 1999 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has incurred net losses since its inception and has
experienced liquidity problems. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to those matters also are described in Note 19.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
S/S Orton & Company
Salt Lake City, Utah
February 26, 1999
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
January 31, 1999 and 1998
CONTENTS
Independent Auditors' Report ............................ 17
Consolidated Balance Sheets .................................... 20
Consolidated Statements of Operations ........................... 22
Consolidated Statements of Stockholders' Equity ............... 23
Consolidated Statements of Cash Flows ........................... 27
Notes to the Consolidated Financial Statements .................. 29
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
January 31, 1999 and 1998
ASSETS
<TABLE>
<S> <C> <C> <C>
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1999 1998
CURRENT ASSETS
</TABLE>
<TABLE> <S> <C> <C><C>
Cash $ 4,966 $ 24,642
Accounts receivable (Note 1)
Trade 53,005 972
Other 730 -
Prepaid expenses (Note 1) 17,208 89,208
Inventory (Note 1) 262,121 242,406
Total Current Assets 338,030 357,228
PROPERTY AND EQUIPMENT (Note 7) 749,844 538,151
OTHER ASSETS
Mining claims (Note 8) 5,081,569 5,081,669
Notes receivable (Note 5) 5,000 5,000
Certificates of Deposits (Note 15) 15,000 15,000
Total Other Assets 5,101,569 5,101,669
$ 6,189,443 $ 5,997,048
</TABLE>
(continued)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
January 31, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C>
1999 1998
CURRENT LIABILITIES
</TABLE>
<TABLE>
<S> <C> <C><C>
Accounts payable and accrued expenses $61,394 156,915
Note payable - related party (Note 9) 50,000 179,052
Note payable (Note 10) 14,281 125,000
Total Current Liabilities 125,675 460,967
COMMITMENTS AND CONTINGENCIES (Note 11 and 18)
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000
common shares at $0.001 par value;
7,391,251 and 6,210,439 shares issued
and outstanding, respectively
7,392 6,211
Capital in excess of par value 9,682,203 8,194,427
Deficit accumulated during the
development stage (3,625,827) (2,664,557)
Total Stockholders' Equity 6,063,768 5,536,081
</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
Inception On
February 9,
1984 Through
January 31,
For the Years Ended
January 31,
</TABLE>
[S] [C] [C][C] [C][C]
1999 1998 1999
REVENUE
Net Sales $ 153,873 $ 47,472 $ 441,001
Cost of goods sold 101,034 33,167 286,891
Gross Profit 52,839 14,305 154,110
EXPENSES
General and administrative 983,686 496,586 3,668,812
Depreciation and amortization 57,388 15,224 143,623
Total Expenses 1,041,074 511,810 3,812,435
Net Loss from Operations (988,235) (497,505) (3,658,325)
[/TABLE]
<TABLE>
<S> <C> <C><C> <C><C>
Other Income/ (Expense)
Rent (Note 17) 8,527 7,905 16,432
Interest 738 175 913
Gain on sale of assets 17,800 - 17,800
Net loss before provision for (961,170) (489,425) (3,623,180)
income taxes
Provision for income taxes (Note 4) 100 100 2,647
NET LOSS $ (961,270)$ (489,525)$ (3,625,827)
WEIGHTED AVERAGE LOSS PER SHARE $ $
(.14) (.09)
WEIGHTED AVERAGE SHARES OUTSTANDING 6,933,958 5,731,102
</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, 1999
Deficit
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value 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 50,000 50 37,070 -
Environmental Industries (GEI) for UT
& 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>
(continued)
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, 1999
Deficit
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value 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 6)
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>
(continued)
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, 1999
Deficit
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value 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 17,000 17 50,983 -
1993
(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 41,750 42 175,458 -
June 1994 (Note 6)
Issuance of common stock in a private offering 22,500 22 89,978 -
Issuance of common stock for services
rendered in 15,000 15 46,235 -
November
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>
(continued)
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, 1999
Deficit
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value 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 5 and 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)
Issuance of common stock in a
private placement 963,269 963 1,218,676 -
offering (Note 11) (net of
commissions of $53,428)
Issuance of common stock for 135,480 136 147,628 -
services (Note 5)
Issuance of common stock for
purchase of equipment 82,063 82 121,472 -
(Note 6)
Net loss for the year ended - - - (961,270)
January 31, 1999
Balance, January 31, 1999 7,391,251 $ $9,682,203 $(3,625,827)
7,392
</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 Through
January 31,
January 31,
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
1999 1998 1999
Cash Flows From Operating Activities
Net loss (961,270) 57,388 (489,525
Depreciation and amortization 57,388 15,224 143,623
(Increase) decrease in receivables (52,763) 17,172 (53,735)
Decrease (increase) in prepaid
expenses 72,000 (32,000) (5,208)
Decrease (increase) in inventory (19,715) (142,454) (188,946)
Increase (decrease) in payables (95,521) 121,963 74,571
Loss from disposal of fixed asset - - 1,560
Stock issued for services 147,764 131,912 939,465
Expenses paid by shareholder - - 149,018
Net Cash Used by Operating Activities (852,117) (377,708) (2,565,479)
Cash Flows From Investing ActivitiesPurchase of fixed assets
Purchase of product tradenames (147,427) (323,528) (698,070)
Purchase of note receivable - - (26,958)
Purchase of certificates of deposit
Organization costs - - (5,000)
Purchase/sale of mining - (15,000) (15,000)
development costs - - (1,524)
Purchase of mining claims - - 7,920
Sale of licenses - - (58,599)
Purchase of stock - - 150,000
- - (65,000)
Net Cash Used by Investing Activities (147,427) (338,528) (712,231)
Cash Flows From Financing ActivitiesIssuance of common stock
Issuance of notes payable 1,219,639 739,800 3,130,062
Principal payments on debt - - 647,210
(239,771) - (494,596)
Net Cash Provided by 979,868 739,800 3,282,676
Financing Activities
Net (Decrease) Increase In Cash (19,676) 23,564 4,966
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
Cash at Beginning of Period 24,642 1,078 -
Cash at End of Period $ 4,966 24,642 4,966
</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 Through
January 31, January 31,
</TABLE>
<TABLE>
<S> <C> <C><C> <C><C>
1999 1998 1999
Supplemental cash flow information:
Cash Paid For:
Interest
Income Taxes 7,461 8,974 32,820
100 100 2,547
Non-Cash Transactions:
Stock issued for mining claims - - 5,045,000
Stock issued for down payment on building - - 30,000
Stock issued for services 147,764 131,912 939,465
Stock issued for stock of
Geo-Environment Services, Inc. - - 97,144
Stock issued for Inventory - - 75,000
Stock issued for assets from
Austin-Young, Inc. and
Global Environmental Industries - - 236,060
Stock issued for purchase of equipment 121.554 15,249 136,803
Stock issued for partial
redemption of note - 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, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization
American Absorbents Natural Products, Inc. was incorporated on February 9,
1984 under the laws of the State of Utah and under the name of TPI Land, Inc.
as a wholly-owned subsidiary of TPI, Inc. On September 14, 1990, the Company
changed its name to Environmental Fuels, Inc. and began developing its
involvement in various phases of the conversion of vehicles to operating on
compressed natural gas. That developing business was sold on April 23, 1991
(see Note 3).
On May 6, 1991, the Company changed its name to Geo-Environmental
Resources, Inc. and began its involvement in the distribution of zeolite, a
mineral product which is an absorbent and has many potential uses such as oil
and gas well cleanup, shoe and refrigerator freshener, landfill absorption,
and other agricultural uses.
On February 6, 1992, the Company acquired the outstanding stock of
Geo-Environment Services, Inc., now a wholly owned subsidiary involved in
marketing of the zeolite products. The transaction was accounted for at
historical cost in a manner similar to that in pooling of interest
accounting for business combinations.
In June 1995, the Company changed its name to American Absorbents Natural
Products,Inc. and the name of its subsidiary to American Absorbents, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of American
Absorbents Natural Products, Inc. and its subsidiary American Absorbents, Inc.
Collectively, these entities are referred to as the Company. All significant
intercompany transactions and accounts have been eliminated.
Method of Accounting
The Company recognizes income and expenses according to the accrual
method of accounting. Expenses are recognized when performance is
substantially complete and income is recognized when earned. Earnings (loss)
per share are computed based on the weighted average method.
Stock options currently outstanding were not used in calculating earnings
per share since the effect would be antidilutive. The fiscal year of the
Company ends January 31 of each year. The financial statements reflect
activity from inception, February 9, 1984.
Cash and Cash Equivalents
For purposes of the 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 forwhich 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, 1999 and 1998
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><C>
1999 1998
Finished Goods $ 52,484 $ 18,415
Packaging Products 72,657 70,658
Raw Materials 136,980 153,333
$ 262,121 $ 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, 1999 and 1998.
Prepaid Expenses
Prepaid expenses at January 31, 1999 and 1998 consist of the following:
<TABLE>
<S> <C> <C><C>
1999 1998
Prepaid mining land lease $ 17,208 17,208
Prepaid fees and commissions - 52,000
Prepaid Purchases - 20,000
$ 17,208 89,208
</TABLE>
Mining Claims
Mining claims are stated at the lower of cost or market.
Any costs incurred for the betterment of or to increase the expected
efficiency of the operations related to the extraction from the Company
mining claims are capitalized and charged off to operations over the expected
economic life of the claims.
The Company has adopted SFAS statement #121 which requires a review of any
potential for theimpairment of value of any long-lived assets. It is the
policy of the Company to annually review the future economic benefit of all
long- lived assets and to charge off to operations any potential impairment
of value of long-lived assets when applicable.
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 sinceits formation have been devoted to establishing its new
business. No significant revenue has been earned as of the balance sheet
date. Operations have been devoted to raising capital, purchasing
zeolite property and establishing a marketing plan. The Company completed its
plant in Oregon and began operation during 1999.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
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-tenreverse stock split. The financial statements have been
retroactively restated to reflect the stock splits.
Stock of the Company has been issued for cash, license agreements, mining
claims, compensation for services, and in exchange for other stock.
On February 10, 1984, the Company issued 37,500 shares of its stock to TPI,
Inc. for $1,000 cash. On June 30, 1984, TPI, Inc. distributed the 37,500
shares to its stockholders in a partial liquidating dividend.
In August and September 1990, control of the Company was acquired by
Austin-Young, Inc. and shares of stock were issued to Austin-Young, Inc. and
to some of its officers and directors (see Note 5).
In September 1990, the Company acquired four license agreements to
distribute the products of Natural Gas Resources, Inc., (NGRI) a wholly-owned
subsidiary of Global Environmental Industries, Inc. NGRI was engaged in the
business of licensing the operations of compressed natural gas conversion
centers and natural gas refueling stations. NGRI had certain patented
products used in the conversion of vehicles from gasoline and diesel to the
use of natural gas.
Under these license agreements, the Company acquired the right to distribute
the products of NGRI in San Antonio, Texas (metropolitan area); Burnet County,
Texas; state of Utah; and the state of Washington. On April 23, 1991, the
Company sold the license agreements along with stock of Global Environmental
Industries, Inc. and Natural Gas Industries, Inc. for $150,000. All assets
were sold at book value and no gain or loss was recognized on the sale.
In August of 1991 the Company issued 10,000 shares of stock at $7.50 per
share for the rights to two zeolite products of Steelhead Specialty Mineral,
Inc. (see Note 6).
In October 1991 the Company issued 13,214 shares of stock at $14 per
share for mining claims in Harney County, Oregon and in March 1992, issued
243,000 shares at $20 per share for additional zeolite mining claims in the
same area (see Note 6 and 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 and 8).
NOTE 4 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting forIncome 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 years 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, 1999 and 1998
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 atJanuary 31, 1999 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 at January 31, 1998 and $2,200,000 at January 31,
1999. 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 $769,000 at January
31, 1999 and $440,000 at January 31, 1998 have been offset by valuation
reserves of the same amount. The net change in deferred tax asset and
offsetting valuation reserve amounted to $329,000 for 1999 and $162,000 for
1998.
The net operating losses begin to expire in the year 2016.
NOTE 5 - RELATED PARTY TRANSACTIONS
The major portion (42%) 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, 1999 and 1998
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 ofone cent per share.
Also, an option plan was approved which provided that the board of
directors was 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 was set to expire on February 1, 1998. 12,000 shares were
exercised at a price of $36,000. These options were cancelled by Austin
Young in 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 9)
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
In June 1995, the Company adopted a 1995 stock option plan for the
employees, officers and directors to purchase up to 1,000,000 shares of common
stock at market price. The options expire seven years from the date of offer.
The Company is leasing its office space from a related party pursuant to
a 60 monthlease 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 was extended to 1998. The note was
paid offin early 1999.
In 1997, the Company issued 16,751 shares of stock to Austin-Young, Inc.
for rent for the use of office space. The office space is rented pursuant
to a 60 month lease agreement. In 1999, the Company paid cash for use of
office space. Total rent paid in 1999 was $22,800.
In 1997, the Company contracted with American Crisis Publishing (a wholly
owned subsidiary of Austin-Young, Inc.) to provide $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."
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. (See Note 18 for ultimate disposition of the lawsuit).
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
In 1998, the Company issued 135,480 shares for services rendered, of which
118,527 was issued to company officers, directors and employees at an average
cost of $1.03, the averagetrading value of the stock during the year, for
services rendered.
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 icense 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, 1999 and 1998
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.
In 1995 - 9,000 shares were issued at an average price of $2.49 per share
for services rendered.
In 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
priceof $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.
In 1999 - 82,063 shares were issued at an average price of $1.48 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>
1999 1998
Plant $ 324,592 279,327
Machinery and equipment 486,011 263,510
Mining site improvements 52,715 51,500
Accumulated depreciation (113,474) (56,186)
$ 749,844$ 538,151
</TABLE>
Machinery and equipment (including computer equipment and vehicles) is
depreciated on the straight-line method over the estimated useful lives of
three to seven years. Plant is being depreciated (straight line) over the
estimated useful life of 20 years. Site improvements are being depreciated
(straight line) over an estimated useful life of ten years. Depreciation
expense is $57,388 and $15,224 for the years January 31, 1999 and 1998
respectively.
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
began construction of a new milling and packaging plant in Burns, Oregon. The
plant became operational during 1999.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
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 forthe claims.
In December 1991, the Company acquired an additional 203 zeolite mining
claims in the Harney County, Oregon region. A geological study was conducted
and reserves were estimated at over 477,600,000 tons. The value per ton was
also estimated based on mining costs and market value of other companies in
the industry. The reserves were then discounted 99 1/2% and a value was
determined to be approximately $4,800,000. Stock was then issued at market
price to equal the value given to the claims. In 1999, $100 of depletion has
been taken on the claims.
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>
1999 1998
Notes payable -
Austin-young, bearing
Interest at 7% and payable
on demand.
Unsecured. $ 50,000 $ 179,052
</TABLE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 10- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<S> <C><C>
January 31,
</TABLE>
<TABLE>
<S> <C><C> <C><C>
1999 1998
Note payable to a bank,
bearing interest
at 8.5%, due August,
1998. Secured by $125,000 CD's
(see Note 5) $- $ 125,000
Note payable to a bank,
bearing interest
At 9.5%, revolving line
of credit, $25,000
Secured by personal
guarantee of a
Company officer 14,281 -
$ 14,281 125,000
</TABLE>
Total interest expense for 1998 was $23,141, and $9,462 for 1999.
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 sharesissued were under an option agreement as part of the
private placement that occurred during October 1993.
On July 5, 1994, 22,500 shares of common stock were issued at $4 per
share in a Regulation D private stock offering.
In 1996, the Company issued 214,168 shares of common stock in a
Regulation D private placement for total consideration of $394,362.
In 1997, the Company issued 130,960 shares of common stock in a
Regulation D privateplacement 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.
In 1999, 963,269 shares were issued in a Regulation D private placement
at an average price of $1.27.
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.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 11 - PRIVATE PLACEMENT OF COMMON STOCK (continued)
The second private placement was sold in blocks of 4,000 shares (minimum
investment) at $2.50 per 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 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 four customers
that provided approximately 82.6% of the years sales volume.
NOTE 13 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. In these financial
statements, assets, liabilities and earnings involve extensive reliance on
management's estimates. Actual results could differ from those estimates.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following listing of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments". The carrying amounts
and fair value of the Company's financial instruments at January 31, 1999 and
1998 are as follows:
<TABLE>
<S> <C>
January 31, 1999 January 31, 1998
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C> <C>
Carrying Fair Carrying Fair
Amounts Values Amounts Values
</TABLE>
<TABLE>
<S> <C><C> <C><C> <C><C> <C> <C>
Cash and Cash $ 1,531$ 1,531$ 24,642$ 24,642
Equivalents
Notes Payable Including
Current Maturities
64,281 64,281 304,052 304,052
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported on the balance sheet for cash and cash
equivalents approximate their fair value.
Notes 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 a 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 is directly deposited to the Company's operating account.
NOTE 16
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 1998, 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). No options were exercised as of
the audit report.
NOTE 17
The Company has leased out a portion of its warehouse in Austin, Texas to
anotherindividual for $880 per month. The lease is month to month.
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
January 31, 1999 and 1998
NOTE 18 At January 31, 1999, the Company was involved in several legal cases
as follows:
-McLean V. American Absorbents Natural Products, Inc.
A former employee is seeking workers compensation coverage for
alleged injuries sustained on the job at the Oregon Plant. After the year
end, all administrative hearings were complete and the Company was found
not to be liable.
-American Absorbents Natural Products, Inc. V. Calkins
A former independent contractor hired to construct the Oregon plant
placed a mechanics lien on the Oregon plant for alleged unpaid claims and the
Company has sued to remove the mechanics liens since the claims are being
contested. Calkins filed a counter claim seeking damages in addition to his
lien. The case is in initial stages and an outcome cannot be determined at
this time.
-American Absorbents Natural Products, Inc. V. Charles Walden
The Company filed suit against a former officer of the Company seeking
cancellation of 200,000 shares of stock issued for non-payment. Mr.
Walden counter sued for his ownership of the stock and other damages.
Subsequent to the year end, the Company settled the case by paying $15,000 for
return of 40,000 shares and canceling another 50,000 shares for settlement of
the $20,000 original note that was signed for purchase of the 200,000 shares.
Mr. Walden was allowed to keep the remaining 110,000 shares.
NOTE 19
The Company has suffered significant losses over the last couple of
years. Also, subsequent to year end, the Company has had significant turnover
of senior management. The Company has hired a chief executive officer, a
chief operating officer and a chief financial officer. The Company is
directing all of its efforts in this transition period to obtaining large
sales contracts, tightening cost controls and improving its financial position
and the overall management of the Company. The board of directors is being
expanded to include persons with significant sales management and/or
financial management backgrounds, and the board is currently seeking funding
to continue and expand its operations. These factors leave substantial doubt
about the Company's ability to continue as a going concern unless
significant funding is arranged to complete this transition. The financial
statements do not include any adjustments that might result from this
uncertainty.
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 52 1990
Board, Chief
Executive Officer,
Director
David W. Redding President, Chief 50 1993
Operating Officer,
CFO (resigned
3-1-1999), Assistant
Secretary,
Treasurer, Director
William C. Branch Director 46 1995
Nicholas N. WentworthDirector/Chairman of 64 1998/1999
the Board
(elected May 10,
1999)
James R. Toney Vice President of Production 50 1998
Kimberly A. Love Corporate Secretary 36 1995
Daniel F. Creedon Vice President of Marketing 39 1998
Mark W. Martich Vice President of 51 1998
Advertising and
Communications
Donald L. GillespieDirector (March 49 1999
1999), Chief
Financial Officer
(March 1, 1999)
Richard A. WaterfieldDirector (March 1, 1999) 59 1999
Robert L. BitterliChief Executive 42 1999
Officer, President,
Director (May 1999)
James W. Haake Chief Operating 49 1999
Officer
Don Chapman Director (May 1999) 63 1999
</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. The
Company believes that there may have been Directors or Officers who may have
been delinquent in filings required under Section 16(a) of the Securities
Exchange Act of 1934.
William C. Branch's resigned as a member of the Board of Directors effective
February 26, 1999.
Terry L. Young resigned as Chief Executive Officer effective March 1, 1999 and
his term as Chairman of the Board of Directors and as a Director on April
30, 1999.
David W. Redding was terminated as President, Chief Operating Officer,
Assistant Secretary, and Treasurer effective May 12, 1999. He resigned his
position as Chief Financial Officer effective March 1, 1999.
Donald L. Gillespie and Richard A. Waterfield were elected to the Board of
Directors of the Company in March 1999.
Robert L. Bitterli was elected as Acting Interim President on April 5, 1999
and Chief Executive Officer, President and Director effective May 12, 1999.
Donald R. Chapman was elected a Director in May 1999.
James W. Haake was appointed Chief Operating Officer effective June 1, 1999.
Nicholas N. Wentworth was elected Chairman of the Board of Directors in May
1999.
TERRY L. YOUNG served as a director of the Company from 1990 to April 1999.
He served as Chairman of the Board of Directors of the Company from 1991 to
April 1999. Mr. Young has also served as President of the Company from
August 1990 until May 1991, and from June 1992 until December 1993. Mr. Young
was the Chief Executive Officer of the Company from 1990 to March 1999. He
is also President and a director of Austin Young, Inc., and was Chairman and
Chief Executive Officer of American Absorbents, Inc., the wholly owned
subsidiary of the Company. Beginning in the early 1970's, Mr. Young became
involved in real estate development and continues to be involved now. He
has also been involved in corporate development and has worked in the
development of several companies. He served in the United States Military
from 1968 to 1971 when he received an honorable discharge. Mr. Young
received an associate degree in business from San Antonio College in 1967 and
attended the University of Texas at Austin for two years. Age 52.
DAVID W. REDDING has served as a director of the Company from November 1993.
He served as Chief Financial Officer, Executive Vice President and Treasurer
of the Company from November 1993 to March 1999. He also served as Assistant
Secretary of the Company from December 1994 to May 1999, President of the
Company from January 1997 to May 1999 and Chief Operating Officer of the
Company from March 1999 to May 1999. Mr. Redding was 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 bachelor's degree in business and
accounting from the University of Texas at Austin in 1974. Age 50.
WILLIAM C. BRANCH served as a director of the Company from 1995 to February
1999. 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 he
Chairman of the Board and President of Branch International, Inc., operating
Branch Travel and has served in that capacity from 1985 until present. Mr.
Branch attended and received an AA degree from Marion Military Institute,
Marion, Alabama, in 1973. He received a B.S. degree in International Business
from the American College, Leysin, Switzerland, in 1977. After that, he
pursued graduate studies in International Business at the International
Business Institute in Switzerland. Mr. Branch became a director of the
Company in June 1995 and spends less than 10% of his time involved with Company
business. Age 46. Mr. Branch resigned from the board, February 26, 1999.
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 36.
NICHOLAS N. WENTWORTH has served as a director of the Company since January
1998 and as Chairman of the Board since May 1999. 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. Mr. Wentworth spends less than 10% of his time involved with
Company business. Age 64.
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 50.
DAN CREEDON has served as Vice President of Marketing of the Company since
July 1998. Prior to his employment by the Company, he was an Account
Executive from 1996 to 1998 with Marketing Specialists Company in San
Antonio, Texas, a national company that specializes in brokering consumer
products into the grocery and retail business. He was responsible for the
accounts of 18 large manufacturers. From 1990 to 1995, Mr. Creedon was a
Specialty Markets Sales Representative for M & M / Mars, Inc. of Hackettstown,
New Jersey where he managed 13 million dollars in direct and indirect sales
and was directly charged with "pioneering" new product distribution in non-
traditional outlets. From 1989 to 1990 he was a Distribution Center
Supervisor for HEB Grocery Company in San Antonio, Texas where he was
responsible for warehouse operations, customer service and related issues for
over 200 HEB grocery stores. Other responsibilities and experiences have
included promotional activities to maximize marketing development funds for
represented manufacturers, business interviews, new item presentations and post
analysis of multiple product categories through the use of scan data and
product category databases. Mr. Creedon received an associates degree in
engineering from Cape Cod Community College in West Barnstable, Massachusetts
in 1987 and a bachelor's degree in industrial management from the University
of Massachusetts at Lowell in 1988. Age 39.
MARK W. MARTICH has served as Vice President of Advertising and Communications
since October 1998. He became involved in the radio communications and
broadcasting industry in the early 1970's, first as an on-the-air talent,
progressing into station management of both single and multiple station
operations, across Texas and Oklahoma. Mr. Martich has continued to be
involved in corporate development relating to advertising, marketing and
communications. He attended the University of North Texas and also received
an associates degree in communication from Elkins Institute in Dallas, Texas.
He served in the United States Army from 1968 to 1970 where he completed
a tour in the Republic of Vietnam, was highly decorated and honorably
discharged. Age 51.
DONALD L. GILLESPIE has served as a director of the Company since March 1999.
He had previously served as a director of the Company from 1993 to 1995, as
the Controller of the Company from August 1990 until March 1993 and the Chief
Financial Officer of the Company from March 1993 until November 1993. Mr.
Gillespie has been the Controller of Austin Young, Inc. since 1988. He has
also been the President of American Crisis Publishing, Inc., a wholly owned
subsidiary of Austin Young, Inc. since 1988. He has again served as the
Chief Financial Officer of the Company since March 1999. Mr. Gillespie
received a bachelor of business administration degree in accounting and
finance from the University of Texas at Austin in 1973. He was a certified
public accountant licensed by the State of Texas from 1975 until July 24,
1997. Age 49.
RICHARD A. WATERFIELD has served as a director of the Company since March
1999. He has been the owner of Database Marketing, a high tech marketing
company, since February 1997 and the owner of Waterworks Productions
since October 1992. Mr. Waterfield has been a loan consultant and lobbyist
with Waterfield and Associates since October 1991. He was elected as a
representative to the Texas State Legislature for District 88 and served two
terms from 1986 to 1991. During that time he was voted Outstanding Freshman
Legislator. He served on the Human Services Agriculture Committee and as a
member of the Congressional Oil and Gas Advisory Committee. From 1984 to
1991, Mr. Waterfield was the owner of Washita Investments, a commodities
trading firm. He was a part owner in Canadian Feed-yard working in commercial
cattle feeding operations, commodity trading and risk management from 1975 to
1984. Mr. Waterfield has served on the Canadian City Council, the Canadian
School Board and on the board of directors of First State Bank of Canadian,
Texas. He attended Oklahoma State University majoring in business and animal
science. Age 59.
DONALD R. CHAPMAN has served as a director of the Company since May 1999.
From 1962 to the present, Mr. Chapman has been involved in real estate
investments including purchase and sale of properties, financing of
properties, construction of properties and sub-division development. Since
1970, he has been self-employed through the ownership of his own automobile
sales and financing company, Don Chapman Motor Sales. From 1960 to 1970,
Mr. Chapman was employed in auto sales and financing by Republic Finance
Company. From 1959 to 1960, he was in auto sales for Armstrong-Johnson Ford
in Austin, Texas. Mr. Chapman attended the University of Texas at Austin
from 1954 to 1959. Age 63.
ROBERT L. BITTERLI served as a director of the Company from June 1995 until
June 1996 and became a director of the Company again in May 1999. He also
became Chief Executive Officer and President of the Company in May 1999.
Mr. Bitterli founded and served as President of Windfall Corporation, a
management consulting firm, specializing in corporations seeking and working
with government contracts. He also served as President of Security First Group
Benefits Corporation, one of the Trilon Financial group of companies (the 12th
largest financial organization in the world), providing marketing, sales,
communication and administrative services to employers for both qualified and
non-qualified pension and retirement plans. He served as Vice President of
Security First Group, a company providing investments and investment advisory
services and as General Partner of the Diversified Securities Network, a
company specializing in the sales of securities and limited partnerships. Mr.
Bitterli was with Security First Group for twelve years. He also owns J&B
Properties, a residential property investment and management company, and a
majority interest in Devin Lane Publishing, a publisher of thriller fiction.
He served with honor in the United States Army in an enlisted and commissioned
capacity. He holds a B.S. degree in Psychology from Campbell University in
Bueise Creek, North Carolina and an M.A. in Business Administration and
Personnel Management, both from Webster University in St. Louis, Missouri.
Age 42.
JAMES W. HAAKE served as the Chief Operating Officer of the Company since June
1999. The following jobs and services have given Mr. Haake over twenty years
of hands-on experience in fulfillment and distribution services, software
development, project and materials management, international logistics,
operations management, inventory and financial control, mobility, channel
sales allocation and leadership. In 1996, Mr. Haake became the Distribution
Center Manager for Softbank Service Group. During 1995 and 1996, he was a
Project Manager for GTE-TSI. During 1994, Mr. Haake was a District Manager
for Optimum Home Delivery. From 1991 to 1993, he was a Channel Sales Manager
for CompuADD Computer Corporation. Mr. Haake held various officer positions
as a member of the United States Army in several countries throughout the
world from 1971 to 1991. From 1968 to 1971, he was a Journey Lineman with
Florida Power & Light. Mr. Haake holds B.A. degrees in Sociology and
Psychology, both from St. Martins College and a M.S. degree in Logistics
Management from Florida Institute of Technology. He has also attended the
Logistics Executive Management College. Age 49.
ITEM 10. EXECUTIVE COMPENSATION:
The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1997, 1998 and 1999, as to each officer
of the Company whose aggregate remuneration exceeds $100,000, and as to the
aggregate remuneration of all officers as a group:
<TABLE>
<S> <C> <C> <C> <C>
ANNUAL COMPENSATION (1)LONG-TERM COMPENSATION
AWARDS
PAYOUTS
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESTRICTED STOCK
NAME AND OTHER ANNUALCOMPENSATION ($)AWARDSOPTIONS/ SAR'S LTIPALL OTHER
PRINCIPAL SALARY($)BONUS($) ($) (#) PAYOUTS ($)COMPENSATION ($)
POSITIONS YEAR
Terry L. Young,CEO
1997 -0- 7,000 -0- 56,500 -0- -0- -0-
1998 60,000 -0- -0- 7,188 100,000 -0- -0-
1999 63,000 -0- -0- 27,746 -0- -0- -0-
All
Officers 1997 64,8007,000 -0- 106,592 -0- -0- -0-
as a
Group (3 persons)
1998 143,400 -0- -0- 46,325 225,000 -0- -0-
(3 persons)
1999 251,438 -0- -0- 84,998 -0- -0- -0-
(6 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. 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. No options were granted pursuant to the 1995 Stock
Option Plan to Officers and Directors during the fiscal year ended January 31,
1999.
Currently, directors do not receive any cash compensation for serving in their
roles as directors of the Company. The four directors, Terry L. Young,
David W. Redding, William C. Branch and Nicholas N. Wentworth each received
5,000 shares of restricted common stock for their services on the board of
directors. The fair market value of the common stock was $0.75 per share.
The following table sets forth the aggregated option/SAR exercises in the last
fiscal year and the fiscal year-end option/SAR values:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<S> <C> <C> <C> <C>
NUMBER OF VALUE OF
SHARES UNEXERCISEDOPTIONS/
SARSAT FY-END
(#)EXERCISABLE/UNEXERCISABLE UNEXERCISED
ACQUIRED IN-THE-MONEY
ON VALUE OPTIONS/SARS
EXERCISE REALIZED AT FY-END ($)
NAME (#) ($) EXERCISABLE/
UNEXERCISABLE
David W. Redding -0- -0- 100,000 E* 0/0
Kimberly A. Love -0- -0- 25,000 E 0/0
</TABLE>
The exercisable options listed in the above table were granted to the officer
listed on June 17, 1997. *Mr. Redding's 100,000 options are currently under
dispute.
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, 1999, 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 STOCK COMMON STOCK
OF BENEFICIAL OWNER SUBJECT PERCENT OF CLASS
TO OPTIONS OR
WARRANTS
Austin Young, Inc. 3,179,118 -0- 42.84
3800 Hudson Bend Rd.
Austin, TX 78734
Terry L. Young 3,179,118 -0- 42.84
3800 Hudson Bend Rd.
Austin, TX 78734
David W. Redding 232,559 100,000* 4.42
3800 Hudson Bend Rd.
Austin, TX 78734
William C. Branch 232,662 -0- 3.14
3800 Hudson Bend Rd.
Austin, TX 78734
Nicholas N. Wentworth 43,335 -0- 0.58
3800 Hudson Bend Rd.
Austin, TX 78734
James R. Toney 27,081 -0- 0.36
3800 Hudson Bend Rd.
Austin, TX 78734
Kimberly A. Love -0- 25,000 0.34
3800 Hudson Bend Rd.
Austin, TX 78734
Daniel F. Creedon 41,170 -0- 0.55
3800 Hudson Bend Road.
Austin, TX 78734
Mark W. Martich 100 -0- 0.00
3800 Hudson Bend Rd.
Austin, TX 78734
Richard A. Waterfield -0- -0- 0.00
3800 Hudson Bend Rd.
Austin, TX 78734
Donald L. Gillespie 62,600 -0- 0.84
3800 Hudson Bend Rd.
Austin, TX 78734
Officers and Directors 3,714,211 125,000* 52.27
as a Group (10 Persons)
* Mr. Redding's
100,000 options are
currently under dispute.
</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,
1999, was 7,420,252. 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, officer's or group'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 was a director, officer and 42.84% 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, 2,910,292 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.;
113,894 are held in the name of Mr. Young; 80,918 are held in the name of
Terry L. Young and Austin Young, Inc.; 2,800 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 held in brokerage accounts
of record by the children of Mr. Young.
5) Of the shares set forth above for David W. Redding, 205,059 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.
7) Of the shares set forth above for Donald L. Gillespie, 62,500 are held in
the name of Mr. Gillespie and 100 are owned of record by the spouse of Mr.
Gillespie.
8) Of the shares set forth above for Daniel F. Creedon, 16,898 are held in the
name of Mr. Creedon and 24,242 are held in a brokerage account for the
benefit of Mr. Creedon.
9) Of the shares set forth above for Nicholas N. Wentworth, 10,000 are held in
the name of Mr. Wentworth and 33,335 are held in a brokerage account for the
benefit of Mr. Wentworth.
SECURITY OWNERSHIP OF NEWLY ELECTED OFFICERS AND DIRECTORS:
The following table sets forth the security ownership on the day preceding
the date of election for each of the
newly elected officers and directors elected to their positions subsequent to
March 31, 1999:
<TABLE>
<S> <C> <C> <C>
NAME AND ADDRESS NUMBER OF SHARESOF COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER SUBJECT PERCENT OF CLASS
TO OPTIONS OR
WARRANTS
Robert L. Bitterli 226,800 -0- 3.05%
3800 Hudson Bend Rd.
Austin, TX 78734
James W. Haake 17,500 -0- 0.24%
3800 Hudson Bend Rd.
Austin, TX 78734
Donald R. Chapman 17,468 -0- 0.24%
3800 Hudson Bend Rd.
Austin, TX 78734
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Austin Young, Inc. is the major stockholder of the Company, beneficially
owning 3,179,118 shares, or approximately 42.84% of the common stock at March
31, 1999, 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 booklets. 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, 1999, the Company owed approximately
$50,000 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.
previously 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. This note was
repaid during fiscal 1999.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 10-K:
Page
(a) (1) The following financial statements are
included in Part II, Item 7:
Report of Independent Auditors.......................... 17
Financial Statements:
Consolidated Balance Sheets - January 31, 1999 and 1998... 20
Consolidated Statements of Operations - Years ended
January 31, 1999, and 1998................................ 22
Consolidated Statements of Stockholders' Equity
(Deficit) - From inception on February 9, 1984
to January 31, 1999 ............................... 23
Consolidated Statements of Cash Flows - Years ended
January 31, 1999 and 1998 and from inception on
February 9,1984 to January 31, 1999......... 27
Notes to Consolidated Financial Statements.............. 29
(2) There are no financial schedules for the years
ended January 31, 1999 and 1998,
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, 1999 and
1998, and from inception on February 9, 1984 to January
31, 1999 are submitted herewith:
Exhibit 11 - Computation of Per Share Earnings
(Loss)........................................ 53
Exhibit 21 - Subsidiary of the
Registrant.......................................... 54
Exhibit 23 - Consent of Experts and
Counsel............................................ 55
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/____________________________________________
Nicholas N. Wentworth, Chairman of the Board
Date: June 11, 1999
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
Chairman of the Board June 15, 1999
Nicholas N. Wentworth
Chief Executive June 15, 1999
Officer, President
Robert L. Bitterli and Director
David W. Redding Director June 15, 1999
Donald R. Chapman Director June 15, 1999
Richard Waterfield Director June 15, 1999
Donald Gillespie Chief Financial June 15, 1999
Officer, Principal
Accounting Officer
and Director
</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: 1999 1998 1999
Average Shares Outstanding 6,933,958 5,731,102 N/A
Net Loss $ (961,170) $ (489,525) $ (3,625,827)
Earnings (Loss) $ (0.14) $ (0.09) N/A
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 February 26, 1999 for the year ended January 31,
1999 in the 10-KSB Annual Report.
S/S Orton & Company
Orton & Company
June 11, 1999
Salt Lake City, Utah
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 4,966
<SECURITIES> 0
<RECEIVABLES> 53,735
<ALLOWANCES> 0
<INVENTORY> 262,121
<CURRENT-ASSETS> 338,030
<PP&E> 863,318
<DEPRECIATION> 113,474
<TOTAL-ASSETS> 6189443
<CURRENT-LIABILITIES> 125,675
<BONDS> 0
0
0
<COMMON> 968,9595
<OTHER-SE> (3625827)
<TOTAL-LIABILITY-AND-EQUITY> 6189443
<SALES> 153873
<TOTAL-REVENUES> 153873
<CGS> 101034
<TOTAL-COSTS> 1041074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (961170)
<INCOME-TAX> 100
<INCOME-CONTINUING> (961270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (961270)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
