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, 2000
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
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AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
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(Name of Small Business Issuer in Its Charter)
UTAH 87-0421089
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(State or Other Jurisdiction of IRS Employer Identification
Incorporation or Organization)
6015 LOHMAN FORD ROAD , SUITE #100 LAGO VISTA, TEXAS 78645 .
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(Address of Principal Executive Offices) (Zip Code)
512-267-2221 .
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(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 .
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (.001 PAR VALUE) .
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(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 .
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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, 2000. $57,738
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Aggregate market value of common stock (.001 par value) held by non-affiliates
at March 31, 2000. $ 1,198,919
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Common stock ($.001 par value) shares outstanding at March 31, 2000 4,745,766 .
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Convertible Preferred Stock ($.001 par value) shares outstanding March 31, 2000.
294,584
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This Form 10-KSB document contains 54 pages.
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PART I
ITEM I. DESCRIPTION OF BUSINESS:
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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 6015 Lohman Ford Road,
Lago Vista, Texas 78645. Its telephone number is (512) 267-2221; its fax number
is (512) 267-4261; 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 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 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.
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. 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
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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 oxiouns, in products which time release
nutrients into the soil, in products for soil remediation and in products used
as animal feed supplements.
The Company has developed and is marketing seven new retail products--SWEET
PAWSTM cat litter; LITTER HELPERTM, an odor eliminator for cat litter boxes; PET
MESSTM, an odor neutralizer to counter pet stains; AQUA ROCKSTM, which maintains
ammonia control in fish aquariums; CARPET GENIETM, an odor eliminator for
carpets; PIT STOPTM, an absorbent for cleaning automobile fluid spills; and
AMMONIA DESTROYERTM, an ammonia remover for fresh and salt water fish tanks.
During the fourth quarter, the Company developed both a 6oz and 10oz absorbent
pillow product. The Company continues to produce and market several other
products which use the natural zeolite mineral mined from the Company's claims
targeted at the retail and agricultural consumable products area and the turf
grass industry. These products include MOTHER EARTH CAT LITTER(TM) AND SOIL
ENHANCER, a cat litter product which, when used, can be disposed of into the
soil to enhance it; STALL FRESH(TM), a product to eliminate urine-generated
ammonia odors and wetness caused by livestock; and WHITE BUFFALO(TM), a
multi-purpose home, farm and ranch absorb-all product. The Company is also
seeking contracts and distribution partners into the industrial or bulk sales
markets with the zeolite minerals located on the Company's claims.
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. When mined, the minerals are stored in bulk near the claims
or in the Company's Oregon milling facility. The Company's entire product line
is packaged and stored at the Oregon milling facility until they are shipped to
the distributor or end retailer. The Company maintains a small amount of
inventory at its warehouse 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 has insured the
facility including contents at a value of $1,400,000. 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 both the
Company's bagged and bottled products as well as the production of raw zeolite
material for use in other of the Company's products. Additional milling and
packaging equipment has been purchased that will allow the Company to increase
its current capacity. During the past year, the company leased a filling machine
and a labeling machine to facilitate the production of our bottled products.
In the past, the Company's wholly owned subsidiary, American Absorbents, Inc.,
marketed the Company's products through joint-venture type relationships and
through retail marketing entities. The current management, however, believes
that it must identify and develop relationships with distributors through the
United States to successfully recreate demand for zeolite-based products.
Through the use of distributors, the Company gains the strength of the
distributors' marketing and sales organizations as well as a more cost efficient
distribution channel. Since the
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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 and sales efforts primarily in a 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. This remains a key geographic region for the
Company due to fact that we can more cost effectively deliver our products
throughout the Western U.S. Even though the Company began marketing its
agricultural products in the European marketplace in November 1995, through an
import/export company located in France, management believes that it must
concentrate on the domestic market until sufficient revenues are generated to
support an international marketing plan.
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.
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 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 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.
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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, 2000 and January 31, 1999 was
$345,850 and $262,121, respectively. The Company mined and milled 10,000 tons of
zeolite minerals in December 1997. Approximately 3,250 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 a national distributor,
regional distributors, and direct sales to the customer.. For the fiscal year
ended January 31, 2000, Fragrance Solutions, formerly New Ideas, accounted for
approximately 52% of sales and for the fiscal year ended January 31, 1999, four
customers accounted for 82.6% of the Company's total sales
volume--E.N.S.R./S.A.R.L. (15.8%), Smith's Food and Drug Centers (14.8%), Texas
Environmental Providers, Inc. (23.3%) and Hickory Brands, Inc. (28.7%). At the
present sales levels in the development stage, management does not believe that
the loss of any single customer would have a materially adverse effect on the
Company's business.
BACKLOG:
There was no backlog at January 31, 2000 or January 31, 1999. 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 development 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
competitors of 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 also believes that as sales increase the
Company's operational capacity will improve as operational efficiencies are
identified and put into place. In the foreseeable future, the Company plans to
continue using contract labor for the mining of our zeolite reserves. As
production requirements increase, the Company will evaluate the continued use of
employees versus independent contractors to meet those production demands. It is
management's intent to limit our overhead burden until our sales are sufficient
to warrant additional equipment, facilities, or personnel. Mining and processing
cost estimates recently obtained by the Company indicate that the Company will
again be able to significantly reduce the cost of mining additional zeolite.
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
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material it is unlikely that the Company will find it necessary to lower the
purity of zeolites content in its products within the foreseeable future.
The Company is aware of over thirty other companies in the United States that
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 SWEET PAWSTM 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. Management
does not view the percentage of the 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 SWEET PAWSTM by the Company.
The Company is not aware of any products similar to or which compete with our
AMZORB(TM) 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 that uses
natural zeolites. Again management believes that the Company's product, PIT
STOP(TM), 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 FRESH(TM), 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 FRESH(TM)
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. 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, 2000 and January 31, 1999, 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.
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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.
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, 2000, the Company had eight 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:
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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
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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
To mine our zeolite, the Company removes any overburden with a front-end loader
which is also used to remove the zeolites. The mined zeolite 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 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. After mining is
completed, the property will be reclaimed by leveling and planting natural
grasses.
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
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1992 possessory title for persons holding ten or more claims is maintained by
payment of an annual claim fee of $100 per claim. 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 at 6015 Lohman Ford Road,
Suite 100 Lago Vista, TX 78645 in approximately 1,900 square feet of office
space that is being leased from JAL, Inc. The Company is still awaiting a
revised one-year agreement from JAL, Inc. Monthly rental for such office space
is $900. This lease also requires a $75 per month common area fee and that all
utilities be paid by the Company.
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 $870 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. Subsequent to the
end of fiscal year 2000, the Company obtained a line of credit from Robert and
Judith Bitterli in the amount of $215,000. Mr. Bitterli is the CEO, President,
and Chairman of the Board. This line is secured by a mortgage on the
manufacturing facility in Hines, Oregon.
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 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. This
matter is set for trial in May 2000.
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The Company is also involved in a dispute over the lease of its office space in
Austin, Texas. The building was sold in August, 1999, and the new owner filed a
lawsuit, in state district court, Travis County, Texas, on August 27, 1999
challenging the existing lease and seeking damages. The Company filed an answer
and counterclaim. In addition, the new owner filed an eviction proceeding in
Travis County, Texas, Justice of the Peace Court, locked the Company out of the
premises for a brief period of time and then dropped the eviction proceeding and
ceased the lockout. The Company filed a response and claim for attorney's fees.
The Company and the new owner have conducted two mediations in an effort to
resolve the matter. On January 24, 2000 the Company, Lakeview Holdings, Inc.,
and Austin Young, Inc., reached an settlement which included a payment of
$50,000 to the Company from Lakeview Holdings,, Inc. and $60,000 in debt
forgiveness (applied to the short-term note payable) from Austin Young, Inc. The
Company also received all of the office furniture as part of the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS:
During the fiscal year ended January 31, 2000, the Company solicited the proxies
of its security holders to vote upon the following matters at the annual meeting
of shareholders held on July 28, 1999:
1. To elect four directors;
2. To receive the reports of officers (without taking any action thereon);
3. To authorize the board to evaluate the performance of the present
auditing firm, Orton & Company, located in Salt Lake City, Utah and the
hiring of a local firm as independent certified public accountants for
fiscal year ending January 31, 2000, should the board deem it
appropriate;
4. To ratify and approve transactions with Austin Young, Inc. including
the borrowing of working capital funds, use of assets as collateral and
office/equipment leases;
5. To ratify the compensation for directors who are not employees
6. To transact such other business as may properly come before the
meeting.
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>
<CAPTION>
YEAR ENDED HIGH BID LOW BID YEAR ENDED HIGH BID LOW BID PRICE
1-31-99 PRICE PRICE 1-31-00 PRICE
<S> <C> <C> <C> <C> <C>
First Quarter $ 2.50 $ 1.31 First Quarter $ 0.75 $ 0.34
Second Quarter $ 2.06 $ 1.44 Second Quarter $ 0.94 $ 0.44
Third Quarter $ 1.56 $ 0.62 Third Quarter $ 0.88 $ 0.50
Fourth Quarter $ 1.06 $ 0.56 Fourth Quarter $ 0.53 $ 0.25
</TABLE>
As of January 31, 2000, there were approximately 430 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
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requests for proxy materials by various proxy services, the Company estimates
that it currently has approximately 900 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, 2000, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had 4,745,766 common stock shares outstanding and
had 10,000,000 shares of Convertible Preferred Stock ($.001 par value)
authorized and 294,584 outstanding. At March 31, 2000, 4,745,766 common stock
shares and 294,584 convertible preferred 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, 2000 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
Management believes it will be able to raise capital to provide for operations
and debt service. However, there can be no assurance that additional financing
will be available at all or, if available, such financing would be obtainable on
terms acceptable to the Company. If adequate financing is not available, the
Company may be required to curtail its operation significantly or to obtain
funds through entering collaborative agreements or other arrangements on less
favorable terms. The failure of the Company to raise capital on acceptable terms
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
Austin Young, Inc., the former 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 to Austin-Young, Inc. was further reduced from $179,052
with proceeds of a private placement by $129,052 in principal to a balance of
$50,000 at January 31, 1999. On July 6, 1999, when the Company purchased
2,800,000 shares from Austin-Young, Inc., the Company had notes due to
Austin-Young, Inc. totaling $130,400 in principal and $2,921 in accrued
interest. The total amount of $133,321 was amortized into a 24-month note at
8.25% with monthly payments due of $6,325. On January 31, 2000, the outstanding
balance on this note was $112,275. Also at January 31, 2000, the Company had
notes payable to Directors John Krings, Richard Waterfield, and Robert Bitterli
for the following amounts respectively: $50,000, $5,000, $60,000. The Company
also had a $5,000 note payable outstanding to a shareholder. The Company has a
$118,800 installment due on July 6, 2000 for the first installment payment on
the note to repurchase the shares from Austin-Young, Inc. The only other
long-term note outstanding is the balance of the note to Austin-Young, Inc. for
$712,800. Revenues to date have provided insufficient funding of working
capital. 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 also allow the Company
to increase gross profit dollars without tying up capital resources.
11
<PAGE>
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. When possible, the Company has supplemented
officer and director benefits through the issuance of restricted common stock.
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. During the fiscal year ended January 31, 2000, the Company raised
operating capital through several private placements. During the first quarter
the Company issued 29,001 shares of common stock in a private placement for
$30,000. The Company also issued 35,000 common shares during the third quarter
for services rendered to the company at a value of $11,480. The Company also
obtained a $150,000 loan from Frost National Bank on September 1, 1999 to
provide funds to continue the operation. Proceeds from this loan were used to
pay off a note to a shareholder in the amount of $50,000. The remaining funds
were used to continue operations. And in December 1999, the company issued
100,000 shares of common stock in a private placement valued at $50,000. In
another private placement, the Company issued 294,584 shares of Convertible
Preferred Stack for a total investment of $140,000 in cash, $12,500 for
professional services, and $142,086 in debt conversion. Also during the most
recent fiscal year, the Company issued 80,514 shares of common stock valued at
$50,507 for Directors fees and stock for compensation to officers.
RESULTS OF OPERATIONS
During the fiscal years ended January 31, 2000 and January 31, 1999, the Company
continued to incur losses that reflect the continued development stage activity
and challenge to bring to market its line of products. However, during fiscal
2000 the losses incurred decreased to $(958,341) down from a loss of $(961,270)
in fiscal year 1999. The Company underwent a series of major changes throughout
the most recent year including the buyout of the majority shareholder and the
departure of the entire management team. As a result of the Company's continued
challenge to generate revenue, the Company remains designated as a development
stage enterprise. In addition to this fiscal year's loss, the Company has
incurred losses in each of its fiscal years ended January 31, 1997, 1998 and
1999. These losses are due to the Company incurring operating expenses during a
time when most of the efforts were expended in product and market development.
In fiscal year 2000, sales decreased form $153,873 in 1999 to $57,738. However,
the gross profit margin increase from 34% to 48%. Several factors that
contributed to the decrease in sales during 2000 include the loss of continuity
as the entire management departed during the second quarter of the year and the
departure of our VP of Sales early into the fourth quarter. Both of these events
further delayed our ability to bring to market our products in line with
industry buying cycles resulting in further delays in ramping up our sales.
In fiscal year 1999 and 2000, the primary increases in operational expenses have
been personnel related. Compensation related expenses increased in 1999 to
nearly $475,000 and up from just under $150, 000 in fiscal year 1998. In fiscal
year 2000, compensation related expenses decrease by approximately $44,000 to
$431,300. These expenses include salary and stock compensation for all officers
and employees. In 1999 the stock portion of these expense were partially
classified as professional fees. This reclassification allows for a better
comparison of year over year performance. Significant increases also occurred in
legal and accounting, and depreciation. Legal and accounting expenses climbed
from $47,950 in 1999 to over $118,300 in 2000. The dramatic increase reflects
the time, energy, and resources expending in 2000 to buyout the majority
shareholder, Austin-Young, Inc. and the legal battles the Company became
embroiled in after Lakeview Holdings, Inc. bought the building in which we
housed our corporate offices. The legal expenses related to that litigation
totaled over $21,000. The Company did settle that dispute and received a
settlement valued at approximately $125,000 including $50,000 in cash, $60,000
in debt
12
<PAGE>
forgiveness, and $15,000 in furniture and fixtures. Depreciation continued to
increase in 2000 as we expensed an entire year of depreciation on the plant and
equipment. Depreciation expense increased $37,800 from $57,388 to $95,204 in
2000. Increases of $10,500, $3,300, and $1,200 were also recorded in interest
expenses, property taxes, and travel. On a positive note, management
successfully decreased professional fees by $31,000 to just over $14,000 in
2000. In 1999, professional fees total over $45,000. Advertising and marketing
expenses decreased from over $33,000 in 1999 to $10,150 in 2000 and insurance
expense (property and casualty, workers compensation, and health) decreased from
$18,180 to $11,375. The decrease in insurance reflects the discontinuing of
health insurance for employees and a substantial saving in workers compensation
premiums due to a reclassification of our risk code. Aggregated, total general
and administrative expenses decreased in 2000 to $891,471, down from $983,873 in
1999. The decrease of $92,402 reflects a decrease of nearly 9% year over year.
During fiscal year 1999, 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 4% 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. 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 to $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.
As in past years, the Company paid $29,500 in August of 1999 to the Bureau of
Land Management for claims maintenance fees. The Company also incurred these
fees in the years ended January 31, 1997, 1998, and 1999.
The Company realizes gross profit margins generally ranging from 20% to 50% 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, 1998, 1999,
2000 and for the period from the inception date on February 9, 1984 to January
31, 2000, the Company had average gross profit margins of 30%, 34%, 48% and 37%
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,
2000 increased to 48% on significantly increased sales in the last one-half of
the year. 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 also 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.
During the fiscal year ended January 31, 1998, the balance of the note to
Austin-Young, Inc. 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. In fiscal 1999, the debt to Austin-Young, Inc. was
further reduced from $179,052 with proceeds of a private placement by $129,052
in principal to a balance of $50,000 at January 31, 1999. On July 6, 1999, when
the Company purchased 2,800,000 shares from Austin-Young, Inc., the Company had
notes due to Austin-Young, Inc. totaling $130,400 in principal and $2.921 in
accrued interest. The total amount of $133,321 was
13
<PAGE>
amortized into a 24-month note at 8.25% with monthly payments due of $6,325. On
January 31, 2000, the outstanding balance on this note was $112,275 Also at
January 31, 2000, the Company had notes payable to Directors John Krings,
Richard Waterfield, and Robert Bitterli the following amounts respectively:
$50,000, $5,000, $60,000. The Company also has a $150,000 note payable due to
Frost National Bank. This note matures September 1, 2000 and has an interest
rate of Prime + 1%. The Company has a $118,800 installment due on July 6, 2000
for the first installment payment on the note to repurchase the shares from
Austin-Young, Inc. The only other long-term note outstanding is the balance of
the note to Austin-Young, Inc. for $712,800.
The Company has maintained current ratios of 0.50, 2.69, and 0.77 respectively,
for the fiscal years ended January 31, 2000, 1999 and 1998. The lower current
ratio for the fiscal year ended January 31, 2000 is reflective of the increase
in short-term debt the Company has had to take on to continue operations and the
increase in accounts payable and accrued expenses. Also included in the current
liabilities is the $118,800 payment due in July 2000 to Austin-Young, Inc. for
the purchase, by the Company, of 2,800,000 shares of common stock from
Austin-Young, Inc. For the year ended January 31, 1999, the reduction of the
note to the major shareholder and the repayment of a $125,000 bank loan relating
to a warehouse facility in Austin, Texas caused the current ratio to increase
from 0.77 in 1998 to 2.69 in 1999.
INFLATION
The Company does not expect inflation to have any material effect on its
revenues, costs or overall operation.
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.
14
<PAGE>
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.
15
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
JANUARY 31, 2000 AND 1999
16
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
17
<PAGE>
To the Board of Directors and Stockholders
of American Absorbents Natural Products, Inc
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of American
Absorbents Natural Products, Inc. and Subsidiary (a Utah corporation) (a
development stage company) as of January 31, 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended and for the period February 9, 1984 to January 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated balance sheet, statement of
operations, retained earnings and cash flows of American Absorbents Natural
Products, Inc. and Subsidiary, for the year ended January 31, 1999 were audited
by other auditors whose report dated February 26, 1999, included an explanatory
paragraph describing conditions that raised substantial doubt about the
Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Absorbents
Natural Products, Inc. and subsidiary as of January 31, 2000, and the results of
its operations and its cash flows for the year then ended and for the period
February 9, 1984 to January 31, 2000 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. These conditions raise questions about the Company's ability
to continue as a going concern. Management's plans in regard to those matters
also are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Sprouse & Winn, L.L.P.
Austin, Texas
March 24, 2000
18
<PAGE>
------
ORTON & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
------
50 West Broadway, Suite 1130, Salt Lake City, Utah 84101 . (801) 537-7044, fax.
(801) 363-0615
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of American Absorbents Natural Products, Inc.
We have audited the accompanying consolidated balance sheet of American
Absorbents Natural Products, Inc. and subsidiary (a Utah corporation) (a
development stage company) as of January 31, 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Absorbents
Natural Products, Inc. and subsidiary as of January 31, 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 questions 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/ Orton & Company
Orton & Company
Salt Lake City, Utah
February 26, 1999
MEMBERS: American Institute of Certified Public Accountants, Utah Association
of Certified Public Accountants, Division for CPA Firms - SEC Practice Section
19
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 AND 1999
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash $ 9,512 $ 4,966
Accounts receivable
Trade 31,447 53,005
Other -0- 730
Prepaid expenses 17,208 17,208
Inventory 345,851 262,121
-------------- -------------
Total Current Assets 404,018 338,030
-------------- -------------
PROPERTY AND EQUIPMENT 651,984 749,844
-------------- -------------
OTHER ASSETS
Mining claims 5,081,569 5,081,569
Notes receivable -0- 5,000
Other 1,725 -0-
Certificates of Deposits 15,000 15,000
-------------- -------------
Total Other Assets 5,098,294 5,101,569
-------------- -------------
$6,154,296 $6,189,443
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 391,938 $ 61,394
Notes payable 155,000 14,281
Current portion related party long-term debt 252,397 50,000
-------------- -------------
Total Current Liabilities 799,335 125,675
RELATED PARTY LONG-TERM DEBT, LESS CURRENT MATURITIES 755,884 -0-
-------------- -------------
Total Liabilities 1,555,219 125,675
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000 common shares at $0.001 par
value; 7,635,766 and 7,391,251 shares issued and 4,745,766 and
7,391,251 outstanding, respectively 7,560 7,392
Preferred stock; authorized 10,000,000 shares at $0.001 par value;
294,584 shares issued and outstanding 295 -0-
Treasury stock, at cost, 2,890,000 shares in 2000 (945,000) -0-
Capital in excess of par value 10,120,390 9,682,203
Deficit accumulated during the development stage (4,584,168) (3,625,827)
-------------- -------------
Total Stockholders' Equity 4,599,077 6,063,768
-------------- -------------
$6,154,296 $6,189,443
============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
20
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
For the Years Ended on February 9,
January 31 1984 Through
----------------------------- January 31,
2000 1999 2000
---------- ---------- -------------
<S> <C> <C> <C>
REVENUE
Net Sales $ 57,738 $ 153,873 $ 498,739
Cost of goods sold 29,782 101,034 316,673
------------ ------------ -------------
Gross Profit 27,956 52,839 182,066
------------ ------------ -------------
EXPENSES
General and administrative 891,471 983,686 4,560,283
Depreciation and amortization 95,204 57,388 238,827
------------ ------------ -------------
Total Expenses 986,675 1,041,074 4,799,110
------------ ------------ -------------
Other Income (Expense)
Rent 10,440 8,527 26,872
Interest 1,755 738 2,668
Gain (loss) on sale of assets (11,817) 17,800 5,983
------------ ------------ -------------
Net Other Income 378 27,065 35,523
------------ ------------ -------------
Net loss before provision for income taxes (958,341) (961,170) (4,581,521)
Provision for income taxes 100 2,647
------------ ------------ -------------
-0-
NET LOSS $ (958,341) $(961,270) $(4,584,168)
============ ============ =============
LOSS PER SHARE:
Basic $ (.17) $ (.14)
============ ============
Weighted average shares outstanding - basic 5,748,521 6,933,958
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
21
<PAGE>
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, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Preferred Stock Treasury Paid-in Development
Shares Amount Shares Amount Stock Amount Capital Stage
--------- ------- ------- -------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception February 9, 1984 -0- $ -0- -0- $ -0- $ -0- $ -0- $ -0-
Issuance of common stock for cash 37,500 38 -0- -0- -0- 962 -0-
Expenses paid by shareholders for
the years ended January 31, 1990 -0- -0- -0- -0- -0- 518 -0-
Net loss from inception to
January 31, 1990 -0- -0- -0- -0- -0- -0- (1,618)
--------- ------ ------ ----- ----- --------- ----------
Balance at January 31, 1990 37,500 38 -0- -0- -0- 1,480 (1,618)
Issuance of common stock for services
rendered in August 1990 391,000 391 -0- -0- -0- 7,429 -0-
Issuance of common stock in September
1990 for various assets from
Austin-Young, Inc. 50,000 50 -0- -0- -0- 198,890 -0-
Issuance of common stock for
distribution licenses from
Global Environmental Industries
(GEI) for UT & WA, September
1990 50,000 50 -0- -0- -0- 37,070 -0-
Contribution from Austin-Young, Inc. -0- -0- -0- -0- -0- 13,500 -0-
Issuance of common stock for services
rendered in October 1990 12,500 12 -0- -0- -0- 37,488 -0-
Net loss for the year ended
January 31, 1991 -0- -0- -0- -0- -0- -0- (57,756)
--------- ------ ------ ----- ----- --------- ----------
Balance at January 31, 1991 541,000 541 -0- -0- -0- 295,857 (59,374)
Common stock returned in exchange
for commonstock of GEI in
March 1991 (17,000) 17 -0- -0- -0- (85,423) -0-
Repurchase of common stock from
Austin-Young, Inc. in May 1991 (338,000) (338) -0- -0- -0- (64,682) -0-
Cancellation of common shares (20,000) (20) -0- -0- -0- 20 -0-
Issuance of common stock for the
purchase of product from Steelhead
Specialty Mineral in August 1991 10,000 10 -0- -0- -0- 74,990 -0-
Issuance of common stock for the
purchase of mining claims in
October 1991 13,214 13 -0- -0- -0- 184,987 -0-
Common stock canceled by
officers/directors in
January 1992 (20,000) (20) -0- -0- -0- 20 -0-
Contribution from Austin -0- -0- -0- -0- -0- 17,000 -0-
Net loss for the year ended
January 31, 1992 -0- -0- -0- -0- -0- 20 (93,315)
-------- ------ ------ ----- ----- -------- ---------
Balance at January 31, 1992 169,214 169 -0- -0- -0- 422,769 (152,689)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Preferred Stock Treasury Paid-in Development
Shares Amount Shares Amount Stock Amount Capital Stage
-------- ------- ------- -------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for the acquisition
of Geo-Environment Services, Inc. in
February 1992 701,800 702 -0- -0- -0- 96,442 -0-
Issuance of common stock for the purchase of
mining claims in March 1992 243,000 243 -0- -0- -0- 4,859,757 -0-
Common stock canceled by officers and
directors in June 1992 (32,430) (32) -0- -0- -0- 32 -0-
Cancellation of fractional shares due to
reverse stock split (21) -0- -0- -0- -0- -0- -0-
Contribution by Austin-Young, Inc. -0- -0- -0- -0- -0- 10,000 -0-
Issuance of common stock (pursuant to a
repurchase agreement in May, 1991) to
Austin-Young, Inc. for relief of debt in
July 1992 3,380,000 3,380 -0- -0- -0- 61,620 -0-
Net loss for the year ended
January 31, 1993 -0- -0- -0- -0- -0- -0- (136,304)
--------- ------- ----- ----- ----- -------- --------
Balance at January 31, 1993 4,461,563 4,462 -0- -0- -0- 5,450,620 (288,993)
Issuance of common stock for services
rendered in June 1993 17,800 18 -0- -0- -0- 26,682 -0-
Issuance of common stock Austin-Young, Inc.
in June 1993 12,000 12 -0- -0- -0- 35,988 -0-
Issuance of common stock for cash
October 1993 66,667 67 -0- -0- -0- 199,936 -0-
Issuance of common stock as down payment
on building October 1993 6,000 6 -0- -0- -0- 29,994 -0-
Issuance of common stock for services
rendered October 1993 17,000 17 -0- -0- -0- 50,983 -0-
Issuance of common stock for cash December
1993 80,072 80 -0- -0- -0- 191,321 -0-
Contribution by Austin-Young, Inc. -0- -0- -0- -0- -0- 36,000 -0-
Net loss for the year ended
January 31, 1994 -0- -0- -0- -0- -0- -0- (310,862)
--------- ------- ----- ----- ----- -------- --------
Balance at January 31, 1994 4,661,102 4,662 -0- -0- -0- 6,021,524 (599,855)
Issuance of common stock for services
rendered February 1994 6,000 6 -0- -0- -0- 29,994 -0-
Issuance of common stock for services
rendered in June 1994 41,750 42 -0- -0- -0- 175,458 -0-
Issuance of common stock in a
private offering 22,500 22 -0- -0- -0- 89,978 -0-
Issuance of common stock for services
rendered in November 1994 15,000 15 -0- -0- -0- 46,235 -0-
Contribution by Austin-Young, Inc. -0- -0- -0- -0- -0- 36,000 -0-
Net loss for the year ended
January 31, 1995 -0- -0- -0- -0- -0- -0- (709,048)
--------- ------- ----- ----- ----- -------- --------
Balance at January 31, 1995 4,746,352 4,747 -0- -0- -0- 6,399,189 (1,308,903)
Issuance of common stock for services 9,000 9 -0- -0- -0- 22,391 -0-
Issuance of common stock in a private
offering 214,168 -0- -0- -0- -0- 394,148 -0-
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Preferred Stock Treasury Paid-in Development
Shares Amount Shares Amount Stock Amount Capital Stage
---------- ------- -------- ------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Contribution by Austin-Young, Inc. -0- -0- -0- -0- -0- 36,000 -0-
Net loss for the year ended
January 31, 1996 -0- -0- -0- -0- -0- -0- (401,467)
---------- ------- -------- ------ --------- ----------- -----------
Balance at January 31, 1996 4,969,520 4,970 -0- -0- -0- 6,851,728 (1,710,370)
Issuance of common stock for cash in a
private offering 130,960 131 -0- -0- -0- 156,729 -0-
Issuance of common stock for services 259,620 260 -0- -0- -0- 262,359 -0-
Net loss for the year ended
January 31, 1997 -0- -0- -0- -0- -0- -0- (464,662)
---------- ------- -------- ------ --------- ----------- -----------
Balance at January 31, 1997 5,360,100 5,361 -0- -0- -0- 7,270,816 (2,175,032)
Issuance of common stock for cash in a
private offering (net of commissions
of $84,575) 582,000 582 -0- -0- -0- 729,843 -0-
Issuance of common stock for services 129,784 130 -0- -0- -0- 131,782 -0-
Issuance of common stock for purchase of
equipment 13,555 13 -0- -0- -0- 15,236 -0-
Issuance of common stock for cash pursuant
to a stock option plan 25,000 25 -0- -0- -0- 9,350 -0-
Issuance of common stock for partial
redemption of a note pursuant to a stock
option plan 100,000 100 -0- -0- -0- 37,400 -0-
Net loss for the year ended
January 31, 1998 -0- -0- -0- -0- -0- -0- (489,525)
---------- ------- -------- ------ --------- ----------- -----------
Balance at January 31, 1998 6,210,439 6,211 -0- -0- -0- 8,194,427 (2,664,557)
Issuance of common stock in a private
placement offering (net of commissions
of $53,428) 963,269 963 -0- -0- -0- 1,218,676 -0-
Issuance of common stock for services 135,480 136 -0- -0- -0- 147,628 -0-
Issuance of common stock for purchase of
equipment 82,063 82 -0- -0- -0- 121,472 -0-
Net loss for the year ended
January 31, 1999 -0- -0- -0- -0- -0- -0- (961,270)
---------- ------- -------- ------ --------- ----------- -----------
Balance at January 31, 1999 7,391,251 7,392 -0- -0- -0- 9,682,203 (3,625,827)
Issuance of common stock in a private
placement offering 129,001 78 -0- -0- -0- 79,921 -0-
Issuance of common stock for services 115,514 90 -0- -0- -0- 65,547 -0-
Issuance of preferred stock to redeem debt -0- -0- 142,084 142 -0- 140,372 -0-
Issuance of preferred stock in a private
offering -0- -0- 152,500 153 -0- 152,347 -0-
Reacquire common stock for note payable (2,520,000) -0- -0- -0- (831,600) -0- -0-
Reacquire common stock in settlement
of note receivable (50,000) -0- -0- -0- (5,000) -0- -0-
Repurchase common stock (320,000) -0- -0- -0- (108,400) -0- -0-
Net loss for the year ended
January 31, 2000 -0- -0- -0- -0- -0- -0- (958,341)
---------- ------- -------- ------ --------- ----------- -----------
Balance at January 31, 2000 4,745,766 $ 7,560 294,584 $ 295 $(945,000) $10,120,390 $(4,584,168)
========== ======= ======== ====== ========= =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
24
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception on
FOR THE YEARS ENDED JANUARY 31, February 9, 1984
------------------------------- Through January 31,
2000 1999 2000
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(958,341) $(961,270) $(4,584,168)
Depreciation and amortization 95,204 57,388 238,827
(Increase) decrease in receivables 22,288 (52,763) (31,447)
(Increase) decrease in prepaid expenses -0- 72,000 (5,208)
(Increase) decrease in inventory (83,730) (19,715) (272,676)
Increase (decrease) in payables 279,950 (95,521) 354,521
Loss from disposal of fixed assets 11,817 -0- 13,377
Stock issued for services 66,150 147,764 1,005,615
Expenses paid by shareholder -0- -0- 149,018
--------- --------- -----------
Net Cash Used by Operating Activities (566,662) (852,117) (3,132,141)
Cash Flows From Investing Activities
Purchase of fixed assets (23,441) (147,427) (721,511)
Purchase of product tradenames (1,725) -0- (28,683)
Purchase of note receivable -0- -0- (5,000)
Purchase of certificates of deposit -0- -0- (1,524)
Organization costs -0- -0- (15,000)
Purchase/sale of mining -0- -0- 7,920
Development costs -0- -0- (58,599)
Purchase of mining claims -0- -0- 150,000
Sale of licenses -0- -0- (65,000)
Net Cash Used by Investing Activities (25,166) (147,427) (737,397)
--------- --------- -----------
Cash Flows From Financing Activities
Issuance of common stock 79,999 1,219,639 3,210,061
Issuance of preferred stock 152,500 -0- 152,500
Issuance of notes payable 555,821 -0- 1,203,031
Purchase of treasury stock (108,400) -0- (108,400)
Principal payments on debt (83,546) (239,771) (578,142)
--------- --------- -----------
Net Cash Provided by Financing Activities 596,374 979,868 3,879,050
--------- --------- -----------
Net (Decrease) Increase In Cash 4,546 (19,676) 9,512
Cash at Beginning of Period 4,966 24,642 -0-
--------- --------- -----------
Cash at End of Period $ 9,512 $ 4,966 $ 9,512
========= ========= ===========
</TABLE>
25
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
From Inception on
FOR THE YEARS ENDED JANUARY 31, February 9, 1984
------------------------------- Through January 31,
2000 1999 2000
Supplemental cash flow information:
Cash Paid For:
<S> <C> <C> <C>
Interest $ 13,238 $ 7,461 $ 46,058
Income Taxes $ -0- $ 100 $ 2,547
Non-Cash Transactions:
Stock issued for mining claims $ -0- $ -0- $5,045,000
Stock issued for down payment on building $ -0- $ -0- $ 30,000
Stock issued for services $ 66,150 $ 147,764 $1,005,615
Stock issued for stock of Geo-Environment Services, Inc. $ -0- $ -0- $ 97,144
Stock issued for Inventory $ -0- $ -0- $ 75,000
Stock issued for assets from Austin-Young, Inc. and
Global Environmental Industries $ -0- $ -0- $ 236,060
Stock issued for purchase of equipment $ -0- $ 121,554 $ 136,803
Stock issued for partial redemption of note $ -0- $ -0- $ 37,500
Treasury stock repurchased in exchange for debt $831,600 $ -0- $ 831,600
Treasury stock repurchased in settlement of note $ 5,000 $ -0- $ 5,000
receivable
Debt assumed by buyer of fixed asset disposition $ 14,281 $ -0- $ 14,281
Preferred stock issued as redemption of debt $142,084 $ -0- $ 142,084
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
26
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
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.
DEVELOPMENT STAGE ENTERPRISE
The Company, per FASB Statement No. 7, is properly accounted
for and reported as a development stage enterprise.
Substantially all of the Company's efforts since its
formation have been devoted to establishing its new
business. No significant revenue has been earned as of the
balance sheet date. Operations have been devoted to raising
capital, purchasing zeolite property and establishing a
marketing plan.
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.
27
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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,
preferred stock and convertible debt were not used in
calculating earnings per share since the effect would
be antidilutive. The fiscal year of the Company ends
January 31 of each year. The financial statements
reflect activity from inception, February 9, 1984.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments
with a maturity of three months or less to be cash
equivalents.
NONMONETARY TRANSACTIONS
Nonmonetary transactions are transactions for which
no cash was exchanged and for which shares of common
stock were exchanged for assets. These transactions
are recorded at fair market value as determined by
the board of directors.
INVENTORIES
Inventories are stated at the lower of cost (FIFO
method) or market, and consist of the following:
2000 1999
-------- --------
Finished goods $72,787 $52,484
Packaging products 174,134 72,657
Raw materials 98,930 136,980
-------- --------
$345,851 $262,121
======== ========
ACCOUNTS RECEIVABLE
Accounts receivables are shown net of the allowance
for doubtful accounts. This amount was determined to
be $0 and $0 at January 31, 2000 and 1999.
28
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect reported amounts of assets and
liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements
and revenues and expenses during the reporting
period. In these financial statements, assets,
liabilities and earnings involve extensive reliance
on management's estimates. Actual results could
differ from those estimates.
NOTE 2: GOING CONCERN
The accompanying financial statements have been
prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of
liabilities in the normal course of business. The
Company has a working capital deficiency of $395,317,
an accumulated deficit of $4,584,168 as of January
31, 2000, and a net loss for the year then ended of
$958,341. Accordingly, its ability to continue as a
going concern is dependent on obtaining capital and
financing for its planned principal operations. The
Company plans to secure financing for its acquisition
strategy through the sale of its common stock and
issuance of debt. However, there is no assurance that
they will be successful in their efforts to raise
capital or secure other financing. These factors
among others may indicate that the Company will be
unable to continue as a going concern for a
reasonable period of time.
NOTE 3: INCOME TAXES
The Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" in
the fiscal year ended January 31, 1996 and has
applied the provisions of the statement on a
retroactive basis to the previous fiscal years which
resulted in no significant adjustment.
29
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 3: INCOME TAXES (Continued)
Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" requires an asset and liability
approach for financial accounting and reporting for income tax
purposes. This statement recognizes (a) the amount of taxes
payable or refundable for the current year and (b) deferred
tax liabilities and assets for future tax consequences of
events that have been recognized in the financial statements
or tax returns.
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial
reporting purposes. There were no temporary differences at
January 31, 2000 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 $3,000,000 at January 31, 2000 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
$1,050,000 at January 31, 2000 and $769,000 at January 31,
1999 have been offset by valuation reserves of the same
amount. The net change in deferred tax asset and offsetting
valuation reserve amounted to $281,000 for 2000 and $329,000
for 1999.
The net operating losses begin to expire in the year 2016.
NOTE 4: 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.
30
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 4: RELATED PARTY TRANSACTIONS (Continued)
August 17, 1990 - An option was given to Austin-Young, Inc. to
purchase an additional 2,000,000 shares (pre-split)(100,000
shares post-split) of stock at the price of one 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.
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.
February 1992 - the Company issued 701,800 shares of common
stock at $0.14 per share to the shareholders of Geo
Environment Services, Inc., (now AAI) for their stock.
Officers of the corporation were major shareholders of AAI.
July 1992 - 3,380,000 shares of common stock were issued at
$0.02 per share to Austin -Young, Inc. for debt relief of
$65,000.
February 1, 1993 - the Company issued to Austin-Young, Inc. an
option to purchase up to 1,000,000 shares of common stock at a
price of $3 per share. This option 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.
31
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 4: RELATED PARTY TRANSACTIONS (Continued)
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.
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 month lease agreement dated July 30, 1996 on
a month to month basis at $1,900 per month.
During 1996, Austin-Young, Inc. issued $38,000 in promissory
notes to cover cash shortages. $5,000 was paid back during the
year.
For the years 1990 to 1996, The Company's major stockholder,
Austin-Young, Inc. provided compensation to one of the
Company's officers and directors while working on projects
related to Company business. The compensation is shown as an
expense to the Company and capital contribution.
For 1997, the Company issued 128,869 shares of common stock in
lieu of cash to its officers and directors for services
performed. The stock was valued at $128,869, or $1 per share,
the trading value of the stock at the time of issuance.
In 1997, the Company was required to pay a balloon payment due
on its warehouse in September, 1996. Instead of finding long
term funding through a mortgage company, Austin-Young, Inc.,
the majority shareholder provided $125,000 in certificates of
deposit for collateral on a one year note of $125,000 provided
by a local bank to pay the balloon payment. The note was due
in September, 1997, but was extended to 1998. The note was
paid off in 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.
32
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 4: RELATED PARTY TRANSACTIONS (Continued)
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.
In 1999, 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
average trading value of the stock during the year, for
services rendered.
In 2000, the Company issued 115,514 shares for services
rendered, of which 115,514 were issued to company officers,
directors and employees at an average cost of $.57.
Included in Note 8 are notes payable to Directors of the
Company. During 2000, the Company received proceeds of
$240,821 and made payments of $63,546 on these notes. Included
in payments made is $30,000 that was converted to preferred
stock.
NOTE 5: NONMONETARY TRANSACTIONS
Nonmonetary transactions consist of the transactions detailed
in Note 4 above and the transfer of common investment shares
to individuals and corporations for services and
distributorship license agreements, as follows:
September 24, 1990 - 50,000 shares of common stock were issued
at $0.74 per share to two corporations for distributorship
license agreements.
October 25, 1990 - 12,500 shares of common stock were issued
at $3 per share to individuals for services.
August 1991 - 10,000 shares of stock were issued at $7.50 per
share for trademarks and patents for two zeolite products.
33
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 5: NONMONETARY TRANSACTIONS (Continued)
October 1991 - 13,214 shares of stock were issued at $14 per
share for zeolite mining claims. 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.
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.
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 price of $1.02 per share for services rendered.
In 1998 - 13,555 shares were issued at an average price of
$1.125 for the purchase of equipment.
In 1999 - 82,063 shares were issued at an average price of
$1.48 for the purchase of equipment.
In 2000, the Company disposed of a fixed asset. The purchaser
assumed the remaining debt of $14,821 on the disposed asset.
In 2000, 142,084 shares of preferred stock were issued at an
average price of $0.99 in exchange for debt.
34
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 5: NONMONETARY TRANSACTIONS (Continued)
In 2000, 115,514 shares of common stock were issued to
Directors or Officers for services rendered at an average cost
of $0.57.
In 2000, the Company reacquired 2,520,000 shares of common
stock from Austin-Young, Inc. in exchange for a note payable.
In 2000, the Company reacquired common stock in settlement of
a $5,000 note receivable.
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 6: PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JANUARY 31,
2000 1999
-------- --------
Plant $287,781 $324,592
Machinery and equipment 515,853 486,011
Mining site improvements 53,696 52,715
Accumulated depreciation (205,346) (113,474)
-------- --------
$651,984 $749,844
======== ========
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 $95,204 and $57,388 for the years January 31, 2000
and 1999, respectively.
The Company has adopted SFAS No. 121, which requires a review
of any potential for the impairment of value of any long-lived
assets. It is the policy of the Company to annually review the
future economic benefit of all long- lived assets and to
charge off to operations any potential impairment of value of
long-lived assets when applicable.
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 Bums,
Oregon. The plant became operational during 1999.
35
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 7: MINING CLAIMS
The Company has purchased several zeolite mining claims in
three different regions in the western United States. All
purchases were acquired through stock issuance and are
described below.
In April 1991 (before acquisition by Geo-Environmental
Resources) (now American Absorbents Natural Products, Inc.),
the Company's subsidiary issued 440,000 shares of its stock
for mining claims containing zeolite in the Mohave County,
Arizona region, and the stock given was originally valued at
$.50 per share. Thus, the mining claims were originally valued
at $220,000. Since the value of the mining claims was not
readily determined the mining claims were written down to a
nominal value.
In October 1991 the Company acquired twenty zeolite mining
claims in Harney County, Oregon. The value of the claims was
agreed to be $185,000 by the seller and purchaser and 13,214
(132,143 pre-split) shares of common stock were issued. The
stock was quoted on the market at $1.40 per share, thus
determining the number of shares to be issued for the claims.
In December 1991, the Company acquired an additional 203
zeolite mining claims 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 2000 and 1999, $-0- and $100 of depletion was taken
on the claims, respectively.
NOTE 8: NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
<S> <C> <C>
A note with a bank, bearing interest at 9.5%, revolving line of credit,
$25,000 secured by personal guarantee of a Company officer. $ -0- $ 14,281
A note with an individual. The original value of the note is $5,000. The
note has an interest rate of 8.50% and is due on demand. The note may 5,000 -0-
also be converted to common stock of the Company.
A note with a bank secured by a building. The note has an interest rate
of 9.25% with monthly payments of interest. The note matures on September 150,000 -0-
2, 2000. -------- --------
TOTAL $155,000 $ 14,281
======== ========
</TABLE>
36
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 9: RELATED PARTY NOTES PAYABLE
Notes payable - related party consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-----------
2000 1999
---- ----
<S> <C> <C>
A note with a former director of the Company. The note has an interest
rate of 7.00% and 8.50% as of January 31, 1999 and 2000, respectively, 112,275 $50,000
with monthly payments of principal and interest of $6,325. The note
matures in July 2001.
A note with a director secured by a building. The original value of the
note was $5,000. The note has an interest rate of 8.50% and is due on 5,000 -0-
March 16, 2000.
A note with a director secured by a building. The original value of the
note was $50,000. The note has an interest rate of 8.50% and is due on $50,000 -0-
March 15, 2000.
A note with an officer of the Company. The original value of
the note was. The note has an interest rate of 5% $45,000 -0-
and was due on August 2, 1999. The note may also be converted
to preferred stock of the Company.
A note with an officer of the Company. The original value of
the note was $15,000. The note has an interest rate of
8.50% and is due on demand.
A note with a former officer and director of the Company secured by
2,800,000 shares of common stock of the Company. The original value of
the note was $924,000. The note has annual principal and interest
payments of $118,800. The note matures in July 2006. 781,006 -0-
--------- ------
Total 1,008,281 50,000
Less curent marurities (252,397) (50,000)
--------- ------
Related party long-term debt, less current maturities $ 755,884 $ -0-
========= ======
</TABLE>
NOTE 10: PRIVATE PLACEMENT OF COMMON STOCK
During October 1993, the Company issued 66,667 shares of
restricted common stock in a private placement. The shares
sold for $3 per share and carried an option to purchase
additional shares within 120 days.
During December 1993, the Company issued 38,170 and 41,902
shares of restricted common stock in a private placement at $3
and $1.84 per share, respectively. The shares issued were
under an option agreement as part of the private placement
that occurred during October 1993.
37
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 10: PRIVATE PLACEMENT OF COMMON STOCK (Continued)
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 private placement for total consideration of
$156,860.
In 1998, the Company issued 582,000 shares at an average price
of $1.40 in three separate private placements. One private
placement was with a foreign customer that purchased 80,000
shares for $ 100,000.
The first private placement was sold in blocks of 4,000 shares
(minimum investment) at $1.25 per share with a royalty that
pays from the gross tonage of production from the zeolite
claims in Oregon, once under production. The royalty pays $3
per ton per minimum investment on 6,000 tons of zeolite mined
and sold. Total royalties paid per minimum investment will be
$18,000.
The second private placement was sold in blocks of 4,000
shares (minimum investment) at $2.50 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.
In 1999, 963,269 shares were issued in a Regulation D private
placement at an average price of $1.27.
In 2000, 129,001 shares of common stock were issued in a
private placement at an average price of $.62 per share. In
addition, the Company issued 152,500 shares of preferred stock
in a private placement at an average price of $1.00 per share.
38
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 11: ECONOMIC DEPENDENCY
In fiscal year 1999, the Company had developed four customers
that provided approximately 82.6% of the years sales volume.
In fiscal year 2000, the Company had one customer that
provided 52% of the years sales volume.
NOTE 12: 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, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
January 31, 2000 January 31, 1999
----------------------- ------------------
Carrying Carrying
Amount Fair Values Amount Fair Values
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Cash $ 9,512 $ 9,512 $ 1,531 $ 1,531
Accounts receivable $ 31,447 $ 31,447 $53,735 $53,735
Notes payable including $1,163,281 $1,163,281 $64,281 $64,281
current maturities
</TABLE>
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments:
Cash
The carrying amounts reported on the balance sheet for cash
and cash equivalents approximate their fair value.
ACCOUNTS RECEIVABLE
The carrying amounts reported on the balance sheet for
accounts receivable are reported at net realizable 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.
39
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 13: CERTIFICATES OF DEPOSITS
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 14: STOCK OPTIONS
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 $0.375 (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 $0.375 for total consideration of $46,875
($9,375 cash and $37,500 in relief of debt). No options were
exercised in 2000 or 1999.
NOTE 15: LEASE ON OFFICE SPACE
During 1999 and 2000, the Company has leased out a portion of
its warehouse in Austin, Texas to another individual for $880
per month. The lease is month to month.
The Company leases certain equipment under non-cancelable
operating leases. Rent expense for the year ended January 31,
2000 amounted to $1,021.
Future minimum rentals are as follows:
2001 $4,932
2002 4,932
2003 4,932
2004 4,932
2005 3,699
---- -------
Total $23,427
=======
40
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 16: COMMITMENTS AND CONTINGENCIES
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.
During 2000, 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
lien 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. During 2000, 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 17: SUBSEQUENT EVENT
Subsequent to year-end, various notes payable due to Company
and totaling $105,000 were converted to 330,906 shares of
common stock at an average price of $0.33 per share.
In addition, accrued wages totaling $28,000 due to an officer
of the Company at January 31, 2000, were converted to 84,849
shares of stock at an average price of $.33 per share.
Subsequent to year end the Company obtained a line of credit
in the amount of $215,000 from a director of the Company.
On January 24, 2000, the Company reached a settlement with
Lakeview Holdings, Inc., owner of office building, which
included a payment of $50,000 to the Company, $60,000 debt
forgiveness on a short term note payable to Austin-Young, Inc.
and all of the office furniture.
41
<PAGE>
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>
<CAPTION>
SERVED AS DIRECTOR
NAME POSITIONS WITH THE COMPANY AGE OR OFFICER SINCE
---- -------------------------- --- ----------------
<S> <C> <C> <C>
Robert L. Bitterli Chairman of the Board, Chief 43 1999
Executive Officer, Director
(May 99)
Richard A. Waterfield Director (March 1, 1999) 60 1999
Don Chapman Director (May 1999) 63 1999
John Krings Director (May 1999) 70 1999
David Stein Director (September 1999) 37 1999
Patrick Cassidy Director (September 1999) 62 1999
Dr. Jan Krason Director (February 2000) 68 2000
James W. Haake Chief Operating Officer 50 1999
David C. Scott Chief Financial Officer 36 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
as Chairman of the Board of Directors and as a Director on April 30, 1999.
David W. Redding resigned 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.
Donald L. Gillespie resigned as Chief Financial Officer effective August 31,
1999.
42
<PAGE>
Robert L. Bitterli was elected as Acting Interim President on April 5, 1999 and
Chief Executive Officer, President and Director effective May 12, 1999.
Robert L. Bitterli was elected as Chairman of the Board effective July 28, 1999.
Donald R. Chapman was elected a Director in May 1999.
Nicholas N. Wentworth was elected Chairman of the Board of Directors in May
1999.
Nicholas N. Wentworth resigned as Chairman of the Board effective July 28, 1999.
John Krings was elected a director in July 1999.
David Stein was elected as a director in September 1999.
Patrick Cassidy was elected a director in September 1999.
James W. Haake was appointed Chief Operating Officer effective June 1, 1999.
Deborah Smetzer was appointed Secretary effective October 1999.
David Scott was appointed Chief Financial Officer September 1, 1999.
Aaron Thomas resigned as VP of Sales in November 1999.
Dr. Jan Krason was elected a director in February 2000.
James Toney resigned as VP of Plant Operations effective March 31, 2000.
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 43.
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 60.
43
<PAGE>
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.
THE HONORABLE JOHN KRINGS has served as Director of the Company since July 1999.
Mr. Krings is currently the president of Krings, Corporation. Krings Corporation
provides consulting services for the defense industry, National Aeronautics and
Space Agency, and the Federal Aviation Agency. Prior to serving as President of
Krings Corporation, Mr. Krings served as Assistant Secretary of Defense. The
President appointed Mr. Krings as the first Director, Operational Test and
Evaluation (DOT&E)), Department of Defense (DOD), at the level of Assistant
Secretary of Defense. As such, he worked directly for the Secretary of Defenses
and Congress. Mr. Krings also served on the Defense Resource Board and Defense
Acquisition Board. He evaluated and reported independently to the Congress and
the Secretary of Defense in regard to the effectiveness and suitability of all
major weapon systems as a prerequisite to military systems entering full
production. Mr. Krings has thirty years experience in aerospace design,
engineering, testing, marketing and management with McDonnell Douglas
Corporation. He was responsible for all of McDonnell Douglas Corporation Navy
and Marine Corps programs. Mr. Krings served in the Air Force and Air National
Guard as fighter pilot, test pilot, and nuclear weapons expert. Mr. Krings holds
a B.S. degree in Chemistry and Physics. Age 70.
DR. PATRICK CASSIDY has served as director of the Company since September 1999.
Following his education at the University of Illinois, Iowa and Arizona and two
years in industry, Dr. Patrick Cassidy began as a group leader for Chemistry and
Materials at Tracor in Austin in 1966. In this contract research and development
endeavor he developed programs with NASA and the US Navy which became the
foundation for a new company, Texas Research Institutes (TRI) of which he was a
co-founder and which developed into a $12 million research and development
enterprise. In 1971 Dr. Cassidy joined the Chemistry Department at Southwest
Texas State University (SWT) where he began the Polymer Research Group (PRG)
which grew into the largest polymer synthesis group in the southwest United
States. That effort has resulted in over $7,000,000 in grants and contracts
coming to SWT. Dr. Cassidy also initiated in 1993 the Institute for
Environmental and Industrial Science (IEIS) at SWT, an entity which serves
regional industries using university resources, all the while creating
educational opportunities for students and research fellows. His technical
publications number over 140 including one book and ten chapters in other books
and encyclopedias. Oral papers total over 160 and eight patents have issued
under his direction. Invited lectures have been international in scope including
India, France, Holland, Mexico, Germany and Japan and have been given at about
50 locations. Dr. Cassidy has been active professionally as well serving in
local and national capacities for the American Chemical Society as a referee for
several journals as a proposal referee and as an advisory board member for
another university and an international journal. Age 62.
DAVID STEIN has served as director of the Company since September 1999. Mr.
Stein has served as Vice President and Managing Partner of Budget Leasing, Inc.
dba Roger Beasley Porsche-Saab-Volvo since May 1995. Concurrent with his current
position and ownership, Mr. Stein has served as an Area Director for the Texas
Automobile Dealers Association, served on a National Communication Vision Team
for Saab Cars, USA. He has served as a Director for the National Advertising for
Volvo Car Corporation and won the Dealer of Excellence Award from Volvo Car
Corporation in 1995, 1996, 1997, and 1998. Mr. Stein is also currently a member
of the prestigious National 20 Group that analyze policy, practice and
procedures for car dealers in the United States. Mr. Stein had previously served
as Finance Director and General Manager for Bill Munday, Inc. from October 1991
to March 1994. Mr. Stein was owner/operator of Volvo Center Bamberg in Bamberg
Germany from 1987 to 1991. David served as a loan officer and repossession
manager for Finance Center Federal Credit Union in Bamberg Germany. He also
served on active duty in the US Army from 1981 to 1985 detached to the 10th
Group Special Forces in Bad Tolz and US Border Patrol with the 2/2 ACR in Hof,
Germany. Age 37.
DR. JAN KRASON has served as director since February 2000. For the past 26 year,
Dr. Krason has served a s President and CEO of Geoexplorers International, Inc.
an international renowned consulting corporation. As a professional consultant,
Dr. Krason has served over forty clients, mostly mining and petroleum companies,
government agencies, and various international and domestic financial
institutions. Dr. Krason's forty years of experience include all aspects of
exploration for economically viable mineral petroleum deposits to include
project
44
<PAGE>
management, geologic and special mapping, practically oriented research and
assessment of mineral and petroleum resources. His broad fields of professional
specialization and expertise include research on sediment-hosted and
volcanogenic gold, other precious and base metals specifically regarding their
relationships to hydrocarbons. He has extensive knowledge in basin analysis,
determination of formation, stability, and resources assessment of gas hydrates,
and conventional-type hydrocarbon deposits (particularly in the offshore
environment). Dr. Krason's consulting, projects, and lecturing have taken him to
over 60 countries including Canada, Mexico, Central and South America, Africa,
Australia, and Eastern and Central Europe to include the Newly Independent
States of the former Soviet Union. Dr. Krason has authored and co-authored over
100 scientific publications. Age 68
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
50.
DAVID C. SCOTT served as Chief Financial Officer of the Company since September
1, 1999. Prior to joining the Company, Mr. Scott served as Chief Financial
Officer for several banks and bank holding companies in Kentucky. His
responsibilities included all aspects of financial management to include the
day-to-day operations of the bank's accounting system; preparing reports to
management, shareholders, FDIC, Federal Reserve, and Kentucky banking
regulators; preparing and monitoring operational and technology budgets;
coordinating and conducting audit activities and holding company debt
management; developing operational policies; supervising all customer service
operations; and strategic planning Prior to his banking experience, Mr. Scott
served for nearly seven years in the US Army as a finance officer. While
serving on active duty, he was responsible for the payroll management function
for the 23,500 soldiers of the 101st Airborne Division (Air Assault),
reestablishing the worldwide quality assurance program for finance and
accounting units, and served as a disbursing officer while stationed in West
Germany. Age 36.
ITEM 10. EXECUTIVE COMPENSATION:
The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1998, 1999 and 2000, as to each officer of
the Company whose aggregate remuneration exceeds $100,000, and as to the
aggregate remuneration of all officers as a group:
<TABLE>
<CAPTION>
- ----------------------- ------- --------------------------------------- ------------------------------------ -----------------
ANNUAL COMPENSATION (1) LONG-TERM COMPENSATION
- ----------------------- ------- --------------------------------------- ------------------------------------ -----------------
AWARDS PAYOUTS
- ----------------------- ------- --------------------------------------- ------------------------------------ -----------------
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL STOCK AWARDS OPTIONS/ LTIP ALL OTHER
POSITIONS SALARY BONUS COMPENSATION ($) SAR'S PAYOUTS COMPENSATION
YEAR ($) ($) ($) (#) ($) ($)
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Bitterli,
CEO 2000 9,500 -0- -0- 8,200 -0- -0- -0-
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
All Officers as a 1998 143,400 -0- -0- 46,325 -0- -0- -0-
Group (3 persons)
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
(6 persons) 1999 251,438 -0- -0- 84,998 -0- -0- -0-
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
(8 persons) 2000 180,571 -0- -0- 27,980 -0- -0- -0-
- ----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
</TABLE>
1) Excludes the value of personal use of Company office facilities and certain
other personal benefits. The value of such personal benefits cannot be
specifically or precisely ascertained without unreasonable effort. After
reasonable inquiry, however, the Company believes that the aggregate annual
amount of such personal benefits does not exceed $50,000 per person or 10% of
the total annual salary and bonus for the named executive officer.
45
<PAGE>
The Company does not have any pension, retirement, deferred compensation or
similar plan for its officers, directors or employees.
Currently, directors do not receive any cash compensation for serving in their
roles as directors of the Company. The six outside directors, Richard
Waterfield, Don Chapman, John Krings, David Stein, Patrick Cassidy, and Jan
Krason each receive 500 shares of restricted common stock for each board meeting
attended. Former Directors Nicholas Wentworth and Donald Gillespie also received
shares for their service as a director. The fair market value of the common
stock is determined by the average of the closing price of the stock for the
preceding month.
The following table sets forth the aggregated option/SAR exercises in the last
fiscal year and the fiscal year-end option/SAR values:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ---------------------------- ------------------- -------------------- ------------------- ---------------------------
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------- ------------------- -------------------- ------------------- ---------------------------
<S> <C> <C> <C> <C>
David W. Redding -0- -0- 100,000 E 0/0
- ---------------------------- ------------------- -------------------- ------------------- ---------------------------
</TABLE>
The exercisable options listed in the above table were granted to the David
Redding 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, 2000, 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>
<CAPTION>
- ------------------------------------------ ---------------------------- -------------------------- ---------------
NAME AND ADDRESS NUMBER OF SHARES COMMON STOCK SUBJECT PERCENT OF
OF BENEFICIAL OWNER OF COMMON STOCK TO OPTIONS OR WARRANTS CLASS
- ------------------------------------------ ---------------------------- -------------------------- ---------------
<S> <C> <C> <C>
Robert L. Bitterli 273,334 -0- 4.04
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
Patrick Cassidy 2,176 -0- 0.00
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
Donald Chapman 20,587 -0- 0.28
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
Dr. Jan Krason 100,000 -0- 1.35
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------ ---------------------------- -------------------------- ---------------
NAME AND ADDRESS NUMBER OF SHARES COMMON STOCK SUBJECT PERCENT OF
OF BENEFICIAL OWNER OF COMMON STOCK TO OPTIONS OR WARRANTS CLASS
- ------------------------------------------ ---------------------------- -------------------------- ---------------
<S> <C> <C> <C>
David Stein 926 -0- 0.00
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
Richard Waterfield 7,995 -0- 0.01
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
James W. Haake 50,500 -0- 1.04
3800 Hudson Bend Rd.
Austin, TX 78734
- ------------------------------------------ ---------------------------- -------------------------- ---------------
David C. Scott 21,000 -0- 0.51
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ------------------------------------------ ---------------------------- -------------------------- ---------------
Officers and Directors 489,826 -0- 10.32
as a Group (9 Persons)
- ------------------------------------------ ---------------------------- -------------------------- ---------------
</TABLE>
1) Unless otherwise indicated, the second column reflects amounts as to which
the beneficial listed in the first column has sole voting power and sole
investment power.
2) The total number of shares of common stock outstanding as of March 31,
2000, was 4,745,766. 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) Of the shares set forth above for Robert L. Bitterli ,266,834 shares are
held in the name of Mr. Bitterli and 6,500 are in his wife's brokerage
account.
4) Of the shares set forth above for Patrick Cassidy, all 2,176 are held in
the name of Mr. Cassidy.
5) Of the shares set forth above for Donald Chapman, 16,468 are held in his
brokerage account, 3,819 are held n the name of Donald Chapman, and 300 are
held in brokerage accounts with Mr. Chapman as custodian.
6) Of the shares set forth above for Dr. Jan Krason, all 100,000 shares are
held in the name of Dr. Krason.
7) Of the shares set forth above for John Krings, 13,308 are held in the name
of Mr. Krings.
8) Of the shares set forth above for David Stein, 926 are held in the name of
Mr. Stein.
9) Of the shares set forth above for Richard Waterfield, 5,995 are held in the
name of Mr. Waterfield and 2,000 are held in Mr. Waterfield's brokerage
account.
10) Of the shares set forth above for James Haake, all shares are held in the
name of Mr. Haake.
11) Of the shares set forth above for David C. Scott, 11,000 shares are held in
the name of Mr. Scott, and 10,000 are held in Mr. Scott's brokerage
account.
47
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------- ---------------------------- -------------------------- --------------
NAME AND ADDRESS NUMBER OF SHARES PREFERRED STOCK SUBJECT PERCENT OF
OF BENEFICIAL OWNER OF CONVERTIBLE PREFERRED TO OPTIONS OR WARRANTS CLASS
STOCK
- ----------------------------------------- ---------------------------- -------------------------- --------------
<S> <C> <C> <C>
Robert L. Bitterli -0- -0- -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
Patrick Cassidy -0- -0- -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
Donald Chapman 10,047 -0- 3.41
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
Dr. Jan Krason -0- -0- -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
John Krings 30,000 -0- 10.18
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
David Stein 20,000 -0- 0.00
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
Richard Waterfield 15,047 -0- 5.11
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
James W. Haake 30,000 -0- 10.18
3800 Hudson Bend Rd.
Austin, TX 78734
- ----------------------------------------- ---------------------------- -------------------------- --------------
David C. Scott -0- -0- -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
- ----------------------------------------- ---------------------------- -------------------------- --------------
Officers and Directors 105,094 -0- 35.68
as a Group (9 Persons)
- ----------------------------------------- ---------------------------- -------------------------- --------------
</TABLE>
1) Unless otherwise indicated, the second column reflects amounts as to which
the beneficial listed in the first column has sole voting power and sole
investment power.
2) The total number of shares of preferred stock outstanding as of March 31,
2000, was 294,584.
3) Of the shares set forth above for Donald Chapman, 10,047 shares are held
in the name of Mr. Chapman.
4) Of the shares set forth above for John Krings, all 30,000 are held in the
name of Krings, Inc. Defined Benefit Pension Plan.
48
<PAGE>
5) Of the shares set forth above for David Stein, all 20,000 are held jointly
in Mr. Stein's and Ms. Kerwick's names.
6) Of the shares set forth above for Richard Waterfield, all 15,047 shares are
held in the name of Mr. Waterfield.
7) Of the shares set forth above for James W. Haake, 30,000 are held in the
name of Mr. Haake.
SECURITY OWNERSHIP OF NEWLY ELECTED OFFICERS AND DIRECTORS:
The following table sets forth the security ownership on the day proceeding the
date of election for each of the newly elected officers and directors elected to
their positions subsequent to March 31, 2000: NONE
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
As of January 31, 2000, Mr. Robert L. Bitterli had loans outstanding to the
company totaling $60,000. Mr. Bitterli is the CEO, President and Chairman of the
Board of Directors. As of March 31, 2000, Mr. Bitterli had loans outstanding to
the Company totaling $145,000. $45,000 was advanced to the Company at an
interest rate of 8.25% and was approved to be converted to equity in the form of
common stock at $0.33 per share at the March 13, 2000 regularly scheduled board
of directors meeting.. The remaining $100,000 was the amount outstanding on the
$215,000 line of credit Mr. and Mrs. Bitterli made available to the Company
February 29, 2000. This line of credit is secured by a first mortgage on the
real estate and manufacturing facility located in Hines, Oregon. The terms of
this line of credit include a $2,500 monthly payment to be applied to the
accrued interest and the outstanding principal balance. The interest rate on the
line of credit is 10%.
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............................... 16
Financial Statements:
Consolidated Balance Sheets - January 31, 2000 and 1999..... 20
Consolidated Statements of Operations - Years ended
January 31, 2000, and 1998.................................. 21
Consolidated Statements of Stockholders' Equity (Deficit) -
From inception on February 9, 1984 to January 31, 2000...... 22
Consolidated Statements of Cash Flows - Years ended
January 31, 2000 and 1998 and from inception on
February 9, 1984 to January 31, 2000....................... 25
Notes to Consolidated Financial Statements................... 27
(2) There are no financial schedules for the years ended January 31, 2000
and 1999, 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, 2000 and 1999,
and from inception on February 9, 1984 to January 31, 2000 are
submitted herewith:
Exhibit 11 - Computation of Per Share Earnings (Loss)........ 52
49
<PAGE>
Exhibit 21 - Subsidiary of the Registrant................... 53
Exhibit 23 - Consent of Experts and Counsel................. 54
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 two reports filed on Form 8-K during the period covered by this
report.
50
<PAGE>
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/ Robert L Bitterli
--------------------------------------
Robert L. Bitterli, Chairman of the Board
Date: April 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in their
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Bitterli Chairman of the Board, Chief April 27, 2000
- ------------------------------ Executive Officer, and
Robert L. Bitterli President
/s/ Patrick Cassidy April 27, 2000
- -----------------------------
Patrick Cassidy Director
/s/ David Stein
- -----------------------------
David Stein Director April 27, 2000
/s/ John Krings
- -----------------------------
John Krings Director April 27, 2000
/s/ Donald Chapman
- -----------------------------
Donald R. Chapman Director April 27, 2000
/s/ Richard Waterfield
- -----------------------------
Richard Waterfield Director April 27, 2000
/s/ David C. Scott
- -----------------------------
David C. Scott Chief Financial Officer, April 27, 2000
Principal Accounting Officer
51
<PAGE>
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
FROM INCEPTION ON
FEBRUARY 9, 1984
FOR THE YEARS ENDED JANUARY 31, THROUGH JANUARY 31,
------------------------------- -------------------
Primary: 2000 1999 2000
---- ---- ----
<S> <C> <C>
Average Shares Outstanding 5,748,521 6,933,958 N/A
Net Loss $ (958,341) $ (961,170) $ (4,584,168)
Earnings (Loss) Per Share $ (0.17) $ (0.14) N/A
</TABLE>
52
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 21 - SUBSIDIARY OF THE REGISTRANT
NAME JURISDICTION OF INCORPORATION
-------------------------------- ----------------------------------------
American Absorbents, Inc. Texas
The corporation listed is a wholly owned subsidiary of the Registrant, and is
included in the consolidated financial statements.
53
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
EXHIBIT 23 - CONSENT OF EXPERTS AND COUNSEL
ACCOUNTANT'S CONSENT
We hereby consent to the use of our audit report of American Absorbents Natural
Products, Inc. and subsidiary dated March 24, 2000 for the year ended January
31, 1999 in the Form 10-KSB Annual Report.
/s/ Orton & Company
Orton & Company
April 28, 2000
Salt Lake City, Utah
54
