<PAGE>

                     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, 2001
__ Transition report under Section 13 or 15(d) of the Securities Exchange Act
   of 1934 (No fee required)
   For the transition period from ______________ to ________________.

Commission file number    0-23356                Cusip number  2368E 10 1

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
              ----------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

             Utah                                          87-0421089
------------------------------------------------------------------------------
(State or Other Jurisdiction of                    IRS Employer Identification
 Incorporation or Organization)

PO Box 4404                         Lago Vista, Texas           78645
-------------------------------------------------------------------------
    (Address of Principal Executive Offices)                   (Zip Code)


                                  512-657.1906
--------------------------------------------------
 (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

       Title of Each Class            Name of Each Exchange on Which Registered
       -------------------            -----------------------------------------
                      NONE                           NONE

Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK (.001 PAR VALUE)
                       -----------------------------------
                                (Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes        X             No                    .
   --------------------    --------------------

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.

Issuer's revenues for the fiscal year ended January 31, 2000.          $90,734
                                                             -------------------

Aggregate market value of common stock (.001 par value) held by
non-affiliates at March 31, 2001. $ 836,144
                                  ---------

Common stock ($.001 par value) shares outstanding at
March 31, 2001                                                  7,449,758    .
                                                                --------------

Convertible Preferred Stock ($.001 par value) shares
outstanding March 31, 2001.                                        -0-
                                                                ---------------

This Form 10-KSB document contains 51 pages.

<PAGE>

                                     PART I

ITEM I.  DESCRIPTION OF BUSINESS:

ORGANIZATION:

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

As of January 31, 2001, the Company's principal executive offices were
located at 6015 Lohman Ford Road, Lago Vista, Texas 78645. Presently, the
corporate business address is 12859 Snow Mountain Pine Lane, Burns Oregon
97738. Correspondence should be addressed to PO Box 4404 Lago Vista, TX
78645. Its telephone number is (512) 657.1906; its fax number is (512)
267-4796; its E-Mail address is aanpi@aanpi.com; 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 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

                                      2
<PAGE>

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.

Throughout the year ended January 31, 2001, the Company continued 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. Due to initial production costs, the Company postponed
all marketing efforts associated with SWEET PAWS cat litter and AQUA ROCKS,
which maintains ammonia control in fish aquariums. The Company did however
continue its efforts to market LITTER HELPER, an odor eliminator for cat
litter boxes; PET MESS, an odor neutralizer to counter pet stains; CARPET
GENIE, an odor eliminator for carpets; PIT STOP, an absorbent for cleaning
automobile fluid spills; and AMMONIA DESTROYER, an ammonia remover for fresh
and salt water fish tanks. Following up on the order filled in the fourth
quarter of fiscal year 2000, the Company expended a great deal of energy and
resources on the new 6oz and 10oz absorbent pillow line. The Company also
took actions to enter into the water treatment market after the EPA increased
the standards for drinking water. During the second quarter of fiscal year,
the Company field-tested a filter for use my municipal water districts to
reduce both arsenic and fluoride to within the newly stated EPA standards.
The results from the field-testing were not as successful as we had
experienced in laboratory tests completed previously. The cost to continue
product development was too excessive to allow the Company to continue its
efforts. In order to more effectively the Company also concentrated its
efforts on 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. In previous years, the
Company had maintained a small amount of inventory at its warehouse in
Austin, Texas. This facility was sold in the second quarter and the proceeds
used to eliminate the $150,000 note due to Frost Bank as well as meet a small
portion of the Company's cash flow needs. On March 31, 2000, the Company's
Vice President of Production, who managed the Oregon milling facility,
resigned. The Company's Chief Operating Officer, temporarily relocated to our
Oregon facility to oversee production responsibilities. He remained in Oregon
until October of 2000 when the Company's insufficient cash flow necessitated
him relocating and working remotely out of his personal residence. The
Company continued to employ production employees 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.


                                      3

<PAGE>

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 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 Company did ship
products to a distributor during the second quarter who completed packaging
and then delivered the products to Wal-Mart. Unfortunately, this distributor
underwent a reorganization which delayed subsequent orders.

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. The ability of the company to apply and
secure trademarks has been greatly inhibited by its lack of funding. Several
of the

                                      4
<PAGE>

applications have been abandoned due to the inability to retain legal counsel
to adequately address and respond to Trademark Office questions.

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 $313,416 and $345,850, 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. The Company packaged and sold 300 tons of assorted
products during the year ended January 31, 2001.

CUSTOMERS:

The Company's products are currently being sold through a national
distributor, regional distributors, and direct sales to the customer.. For
the fiscal years ended January 31, 2001 and 2000, Fragrance Solutions,
formerly New Ideas, accounted for approximately 63% and 52% of sales
respectively. 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%). Management believes
it must expand its customer base to reduce its reliance upon one significant
customer and to prevent the loss of one customer from having a material
effect on the Company's business.

BACKLOG:

There was no backlog at January 31, 2001 or January 31, 2000. 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 currently has available to it over 30 million tons of zeolites on
the top 60 feet of its permanent permitted claims area in Harney County,
Oregon. The Company is eligible to file for limited mining permits, which
allow for the removal of 5,000 cubic yards (6,750 Tons) of material each 12
month period on each of its other two properties. Prior experience has shown
that these limited mining permits can be obtained in less than 60 days. The
Company does not currently plan to file for such limited mining permits. The
Permanent Plan of Operations Mining Permit for the Harney County, Oregon
claims was approved by the Bureau of Land Management on July 10, 1997. The
Permanent Plan of Operations places no limit on the tonnage of zeolites that
can be mined on the claims specified in the Plan.

In-house reports developed by Anaconda Minerals (former owner of the northern
portion of the Harney Basin Claims), from core data available to them reflect
a thickness up to 300 feet on the northern 4060 acres. These reports reflect
that these 4060 acres contain mostly zeolites exceeding 90% purity. Based on
20 cubic feet per ton of material it is unlikely that the Company will find
it 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 continues to evaluate the cat
litter market and no longer believes this market represents significant sales
opportunities for the Company due to the high cost of entry and significant
costs associated with delivering the product to the market

                                      5
<PAGE>

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. Again management believes that the Company's product,
PIT STOP, can compete favorably with these other products based upon the
performance of our 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
current market pricing of this product.

RESEARCH AND DEVELOPMENT:

The Company has discontinued all research and development programs due to its
lack of funding. The Company currently has identified two markets in which it
believes a zeolite-based product could successfully compete. The Company has
identified the requirements to enter into these markets and in one case held
initial talks with a business partner who has expressed an interest in
assisting the Company complete the necessary research and development. During
the fiscal years ended January 31, 2001 and January 31, 2000, the Company
recorded research and development expenses of $0 and $0, respectively.

REGULATIONS:

Current operations on the Harney Basin Claims are subject to federal and
state reclamation requirements, which means that the Company must reclaim the
mined area after mining to a useful status. Although others presently perform
these mining operations for zeolites on the Harney Basin Claims, such
operations are still subject to existing federal, state, and local laws and
regulations relating to employee health and safety. The Company believes that
the cost of such compliance does not have a material impact upon the cost of
extracting the zeolite. In general, mining and milling operations are subject
to compliance with the regulations promulgated under the federal Mining and
Minerals Policy Act of 1970 and the requirements of the federal Occupational
Safety and Health Administration (OSHA), as well as equivalent state
regulations.

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

ENVIRONMENTAL MATTERS:

The Company's products, being environmental products, have a positive impact
on the environment and are considered environmentally friendly. Compliance in
general with regulations relating to the protection of the environment has
not had, and is not anticipated to have, a material effect upon the capital
expenditures, earnings or competitive position of the Company. Because of the
limited nature of the mining operations in Oregon prior to 1998, the Company
operated under a Total Exemption from Reclamation Requirement. However, the
Company's policy has always been to reclaim all of its mined areas. In early
1996, the Company's independent geologist submitted to the Federal Bureau of
Land Management, the State of Oregon Department of Geology and Minerals
Industries and Harney County, Oregon, officials, a permanent mining permit
application and a reclamation plan which included an environmental assessment
which set forth the plan of operations, assessed the impact of the operations
on the local environment and specified the extent and type of reclamation
which would be accomplished. The Plan of Operations was approved by the
various regulatory commissions and the permanent mining permits were issued
on July 10, 1997. A $15,000 mined land reclamation bond was posted by the
Company at the State of Oregon, Department of Geology and Minerals Industries
to assure compliance with environmental and site reclamation matters pursuant
to the Plan of Reclamation.

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.

                                      6
<PAGE>

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 six full-time employees not including
temporary employees and contract laborers who are employed on an "as needed"
basis. The Company does not anticipate adding any significant number of
employees in the immediate future but will continue to engage contract
laborers on an "as needed" basis. After completion of additional
capitalization, the Company may add additional marketing and administrative
personnel.

ITEM 2.  DESCRIPTION OF PROPERTIES:

MINING PROPERTIES:

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

Anaconda Minerals Company originally filed the northern portions of the
Harney Basin Claims in 1975. Occidental Minerals Company filed claims
covering much of the southern portion in 1979. Drilling and evaluation of the
deposit by both companies continued into the 1980's. Since then several
companies, including PDZ Corporation, Tenneco Specialty Minerals, Steelhead
Specialty Minerals, East West Minerals, Inc. and New Gold, Inc. have had an
interest in part or all of the properties previously held by Anaconda and
Occidental. The Company is in possession of extensive trenching and core
drilling data on the basin, which data were compiled by Occidental and
Anaconda. A composite geological report dated December 14, 1993, and prepared
for the Company from such data by William G. Ellis, an independent geologist,
estimates the early sampling of the area established numerous good-quality
zeolite beds in a 7.5 square mile area with an average of slightly over 70%
total zeolites content, consisting primarily of clinoptilolite, with lesser
amounts of phillipsite, chabazite, mordenite and erionite. The Company
intends to avoid the beds of zeolites containing erionite and concentrate its
mining efforts solely on the beds of zeolites containing no erionite. The
Company's current operations are on the northern 4060 acres of the Harney
Basin claims which previous core data reports indicate has a thickness up to
300 feet of 90% clinoptilolite purity. The zeolites deposits on the Harney
Basin Claims are on or near the surface with little or no overburden, thus
reducing the cost of extraction.

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

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.

                                      7
<PAGE>

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 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 currently located out of the
residence of the Chief Executive Officer. The offices located at 6015 Lohman
Ford Road, Suite 100 Lago Vista, TX 78645 and leased from JAL, Inc. were
vacated February 28, 2001 due to insufficient funding to support this expense.

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. This property was sold to during the year ended
January 31, 2001 resulting in gain on sale of assets of $68,335.

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

                                      8
<PAGE>

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 Chief Executive Officer and Chairman of the
Board. This line is secured by a mortgage on the manufacturing facility in
Hines, Oregon.

Due to insufficient funding, insurance on the Company's plant and equipment
has lapsed.

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.

The following details the results of litigation in which the Company was
involved in during the year ended January 31, 2001.

The Company was 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 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.

During the second quarter, the Company's remaining legal proceeding was
concluded:
               -American Absorbents Natural Products, Inc. v. Calkins

               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. A former independent contractor hired to construct
               the Oregon plant has placed a mechanics lien on the Oregon plant
               for alleged unpaid claims and the Company has sued to remove the
               mechanics liens since the claims are being contested. Calkins
               filed a counter claim seeking damages in addition to his lien. ,
               this case went to trial and the Court found in favor of Calkins.
               The Company paid $18,077 in damages and legal fees on July 10,
               2000 as ordered by the judge in this action. The Company also
               issued 500 shares of common stock to Mr. Calkins as part of the
               judgement.

               Also during the second quarter, the Company reached a settlement
               with David Redding that finalized any unresolved compensation and
               outstanding options issues. The Company issued 21,625 shares of
               common stock to David Redding for services rendered after his
               resignation from the Company and David Redding agreed to return
               100,000 stock options to the Company.

                                      9
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS:

During the fiscal year ended January 31, 2001, the Company did not solicit
the proxies of its security holders to vote upon any matters.

                                    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
         1-31-00            PRICE         PRICE           1-31-01           PRICE         PRICE
       ----------         --------       -------        ----------        --------     -----------
    <S>                   <C>            <C>         <C>                  <C>            <C>
    First Quarter          $ 0.75         $ 0.34     First Quarter         $ 0.44         $ 0.25
    Second Quarter         $ 0.94         $ 0.44     Second Quarter        $ 0.28         $ 0.13
    Third Quarter          $ 0.88         $ 0.50     Third Quarter         $ 1.38         $ 0.16
    Fourth Quarter         $ 0.53         $ 0.25     Fourth Quarter        $ 0.22         $ 0.06
</TABLE>

As of January 31, 2001, there were approximately 422 holders of record (not
including shares held in street names in street accounts) of the common stock
of the Company as reported to the Company by its transfer agent. Based upon
requests for proxy materials by various proxy services, the Company estimates
that it currently has approximately 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, 2001, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had 7,346,930 common stock shares outstanding and
had 10,000,000 shares of Convertible Preferred Stock ($.001 par value)
authorized and -0- outstanding. At March 31, 2001, 7,449,758 common stock
shares and -0- 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, 2001 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 is no longer confident it will be able to raise capital to provide
for operations and debt service. There is no assurance that additional
financing will be available at all or, if available, such financing would be
obtainable on terms acceptable to the Company. As a result of inadequate
funding, the Company reduced its staff to two full-time and one part-time
employees as of February 28, 2001. The Company has curtailed its operation
significantly and is evaluating all possible avenues to obtain funds
including through entering collaborative agreements or other arrangements on
less favorable

                                      10
<PAGE>

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. 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 April 1, 2000, the Company
restructured the note with Austin-Young - Texas to reduce the monthly payment
to $2,500 per month. This was done in conjunction with the settlement of our
lease agreement and the subsequent reduction of this note. The current note
is in default do to our inability to make the scheduled monthly payments. It
is scheduled to mature on March 1, 2002. On January 31, 2001, the outstanding
balance on this note was $41,813. The interest rate on the new loan is 8.25%.
Also at January 31, 2001, the Company had notes payable to Directors John
Krings, Richard Waterfield, Donald Chapman and Robert Bitterli for the
following amounts respectively: $5,000, $5,000, $2,500, and $14,158. The
Company also had a $3,000 note payable outstanding to a shareholder and notes
payable to two officers for $8,204 and $2,545. The Company made the first
$118,800 installment due on July 6, 1999 note to Austin-Young -Texas for the
repurchase of shares from Austin-Young, Inc. In addition to the remaining
balance of $712,800, the Company has an outstanding balance of $210,291 on
the line of credit provided to the Company by Mr. Bitterli and his spouse.
Revenues to date have provided insufficient funding of working capital.

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 of the year
ended January 31, 2000, 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.

During 2001, the Company issued 347,573 shares of stock in exchange for debt
as well as 790,051 shares to directors, officers, and employees for
compensation

                                      11
<PAGE>

RESULTS OF OPERATIONS

During the fiscal years ended January 31, 2001 and January 31, 2000, the
Company continued to incur losses that reflect the continued development
stage activity and challenge to bring to market its line of products. During
fiscal 2001 the losses incurred decreased to $907,111 from a loss of $958,341
in fiscal year 2000. 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.

In fiscal year 2001, sales increased from $57,738 in 2000 to $90,734.
However, the gross profit margin decrease from 34% to 25% due to one-time
charges against inventory for marketing material. The primary factor which
contributed to the increase in sales during 2001 was a $57,000 order received
in the second quarter for our absorbent pillows. The Company operated
throughout fiscal year 2001 without a sales force due to our lack of funding.
The entire management team assumed responsibility for the sales function and
worked to revive our sale efforts by concentrating on separate markets. Both
of the absence of an officer responsible for sales and marketing and the lack
of funding 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.

Excluding an extraordinary gain of $52,275, the loss incurred in 2001 was
$959,386 versus a loss of $958,341 in fiscal year 2000. Compensation related
expenses remained in relatively flat in 2001 with $479,722 expensed in 2001
versus $471,456 in 2000. These expenses include salary and stock compensation
for all officers and employees. Legal and accounting expenses decreased in
2001 by $31,934 due to the resolution of all outstanding litigation issues.
Director's compensation decreased $16,816 as a result of board meeting
occurring less frequently. Advertising and marketing expenses also
significantly decreased by $18,910, as we had to curtail most marketing
efforts due to our cashflow shortfall. Insurance expense decreased by $17,087
in 2001 as our workforce decreased in size and as a result our workers
compensation premiums decreased. Plant related expenses also decreased
primarily due to the personnel related expenses. Of the total $51,156
decrease, $46,634 was personnel related. Offsetting these decreases in
operating expenses was the $163,000 increase in professional services. In
order to revitalize our fund raising efforts and to expand our shareholder
base, the Company retained the services of several companies throughout 2001.
Each of these companies were compensated with restricted common stock. The
issuance of restricted stock was a critical component in our negotiations
with these companies as it alleviated the fear that these companies would
receive our stock and quickly sell it on the open market. One company,
Insiderstreet.com, succumbed to the dot com market frenzy and went out of
business prior to meeting the requirements of the agreement. We are
negotiating the return of 100,000 shares of stock due to their failure to
meet contractual covenants. The Company became embroiled in a legal battle
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
forgiveness, and $15,000 in furniture and fixtures. Depreciation expense
remained consistent with charges in 2000. Depreciation expense was $95,160 in
2001 as compared to $95,204 in 2000. An increases of $46,300 was recorded in
2001 as the Company remained reliant upon borrowed funds to sustain its
operations. Aggregated, total general and administrative expenses increased
in 2001 to $1,018,744, up from $891,471 in 2000. The increase of $127,273
reflects a increase of nearly 14% 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

                                      12
<PAGE>

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 2000 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,
1999, 2000 and 2001 for the period from the inception date on February 9,
1984 to January 31, 2001, the Company had average gross profit margins of
34%, 48%, 25% and 35% respectively. With the Oregon milling facility on line
and an increased focus on retail marketing, the gross profit margin for the
fiscal year ended January 31, 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. The reduction in gross margin in 2001 was as a
result charges for labor related to fulfilling an order of Mother Earth Cat
Litter. This order was sold into the Los Angeles market as a close out
product. Labor related expenses exceeded management's forecast resulting in a
negative margin for this order.

The Company has maintained current ratios of 0.35, 0.50, and 2.69
respectively, for the fiscal years ended January 31, 2001, 2000 and 1999. The
lower current ratio for the fiscal year ended January 31, 2001 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.

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.

                                      13
<PAGE>

COSTS
The total cost to the Company of Year 2000 activities has not been and is not
anticipated to be material to its financial position or results of operations
in any given year. The total costs of addressing the Year 2000 issue are
estimated by management to be less than $10,000. These total costs are based
on management's best estimates. There are no guarantees that these estimates
will be achieved and actual results could differ from those estimates. The
Company plans to inventory sufficient quantities of materials from outside
suppliers to be capable of shipping several months of orders should third
parties incur year 2000 problems. The cost of increasing the inventory levels
is estimated at less than $50,000 which will be paid from available cash. Any
costs associated with the year 2000 issue will be expensed as incurred. The
amount expensed to date has been immaterial.

RISKS
The Company utilizes computers and chips in various aspects of its business.
The Company believes that its computers and equipment are in compliance with
the Year 2000 issue. The Company does not expect any material adverse impact
on its operations relative to the Year 2000 issue. The Company is also
exposed to the risk that one or more of its customers, suppliers or vendors
could experience Year 2000 problems that could impact the ability of such
customers to transact business or such suppliers or vendors to provide goods
and services. Although this risk is lessened by the availability of
alternative suppliers, the disruption of certain services, such as utilities,
could, depending upon the extent of the disruption, potentially have a
material adverse impact on the Company's operations.

CONTINGENCY PLANS
The Company is in the process of identifying and developing contingency plans
for any problems that might be experienced by the Company's suppliers,
customers or vendors. This includes identifying alternate suppliers of
inventory materials utilized by the Company in the packaging of its products.

                                      14
<PAGE>

            AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS
                                      AND
                          INDEPENDENT AUDITORS' REPORT

                           JANUARY 31, 2001 AND 2000


                                      15

<PAGE>

To the Board of Directors and Stockholders
   of American Absorbents Natural Products, Inc.

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheets of American
Absorbents Natural Products, Inc. and Subsidiary (a Utah corporation) (a
development stage company) as of January 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years then ended and for the period February 9, 1984 to January 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Absorbents Natural Products, Inc. and Subsidiary as of January 31, 2001 and
2000, 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, 2001 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 substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to those matters also are described in Note 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
May 31, 2001


                                      16

<PAGE>

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           January 31,
                                                                                  ----------------------------
                                                                                      2001             2000
                                                                                  -----------      -----------
<S>                                                                               <C>              <C>
                                     ASSETS
CURRENT ASSETS
   Cash                                                                           $       244      $     9,512
   Accounts receivable                                                                  5,531           31,447
   Prepaid expenses                                                                    17,208           17,208
   Inventory                                                                          313,416          345,851
                                                                                  -----------      -----------
          Total Current Assets                                                        336,399          404,018
                                                                                  -----------      -----------

PROPERTY AND EQUIPMENT                                                                453,898          651,984
                                                                                  -----------      -----------

OTHER ASSETS
   Mining claims                                                                    5,081,569        5,081,569
   Other                                                                                1,725            1,725
   Certificates of Deposits                                                            15,000           15,000
                                                                                  -----------      -----------
          Total Other Assets                                                        5,098,294        5,098,294
                                                                                  -----------      -----------
                                                                                  $ 5,888,591      $ 6,154,296
                                                                                  ===========      ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Charges against future deposits                                                $     2,186      $       -0-
   Accounts payable and accrued expenses                                              375,581          391,938
   Notes payable                                                                      220,000          155,000
   Current portion related party long-term debt                                       365,546          252,397
                                                                                  -----------      -----------
      Total Current Liabilities                                                       963,313          799,335

   RELATED PARTY LONG-TERM DEBT, LESS CURRENT MATURTIES                               594,800          755,884
                                                                                  -----------      -----------
      Total Liabilities                                                             1,558,113        1,555,219
                                                                                  -----------      -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Common stock; authorized 50,000,000 common shares at $0.001 par
     value; 10,236,930 and 7,635,766 shares issued and 7,346,930
     and 4,745,766 shares outstanding, respectively.                                   10,162            7,560
   Preferred stock; authorized 10,000,000 shares at $0.001 par value;
     -0- and 294,584  shares issued and outstanding, respectively.                        -0-              295
   Treasury stock, at cost, 2,890,000 shares in 2000                                 (945,000)        (945,000)
   Capital in excess of par value                                                  10,756,595       10,120,390
   Deficit accumulated during the development stage                                (5,491,279)      (4,584,168)
                                                                                  -----------      -----------

          Total Stockholders' Equity                                                4,330,478        4,599,077
                                                                                  -----------      -----------
                                                                                  $ 5,888,591      $ 6,154,296
                                                                                  ===========      ===========
</TABLE>


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                      17
<PAGE>

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                    For the Years Ended               From  Inception on
                                                                        January 31,                     February 9, 1984
                                                              -------------------------------         Through  January 31,
                                                                2001                  2000                    2001
                                                              ----------           ----------              -----------
<S>                                                           <C>                  <C>                <C>
REVENUE

   Net Sales                                                  $   90,734           $   57,738              $   589,473
   Cost of goods sold                                             67,722               29,782                  384,395
                                                              ----------           ----------              -----------

      Gross Profit                                                23,012               27,956                  205,078
                                                              ----------           ----------              -----------

EXPENSES
   General and administrative                                  1,018,744              891,471                5,579,027
   Depreciation and amortization                                  95,160               95,204                  333,987
                                                              ----------           ----------              -----------

      Total Expenses                                           1,113,904              986,675                5,913,014
                                                              ----------           ----------              -----------

Other Income (Expense)
   Rent                                                            5,220               10,440                   32,092
   Interest                                                          785                1,755                    3,453
   Other                                                          57,166                  -0-                   57,166
   Gain (loss) on sale of assets                                  68,335              (11,817)                  74,318
                                                              ----------           ----------              -----------

      Net Other Income                                           131,506                  378                  167,029
                                                              ----------           ----------              -----------

Net loss before provision for income taxes                      (959,386)            (958,341)              (5,540,907)

Provision for income taxes                                           -0-                  -0-                    2,647
                                                              ----------           ----------              -----------

Net loss before extraordinary gain                              (959,386)            (958,341)              (5,543,554)

Extraordinary gain, net of income taxes                           52,275                  -0-                   52,275
                                                              ----------           ----------              -----------

Net Loss                                                      $ (907,111)          $( 958,341)             $(5,491,279)
                                                              ==========           ==========              ===========

EARNINGS (LOSS) PER SHARE:
  Basic and Diluted earnings (loss) per share
    before extraordinary gain                                 $     (.16)          $     (.17)

  Basic and Diluted extraordinary gain on debt
    restructuring                                             $      .01           $      .00
                                                              ----------           ----------

  Basic and Diluted earnings (loss) per share                 $     (.15)          $     (.17)
                                                              ==========           ==========

Weighted averages shares outstanding - basic                   5,911,366            5,748,521

Weighted average shares outstanding - diluted                  5,911,366            5,748,521
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                      18
<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, 2001

<TABLE>
<CAPTION>



                                                         Common Stock            Preferred Stock          Treasury
                                                    ---------------------       ----------------        ------------
                                                    Shares         Amount       Shares     Amount       Stock Amount
                                                    ------         ------       ------     ------       ------------
<S>                                                 <C>            <C>          <C>       <C>           <C>
Balance at Inception February 9, 1984                    -0-       $ -0-         -0-      $ -0-          $ -0-

Issuance of common stock for cash                     37,500          38         -0-        -0-            -0-

Expenses paid by shareholders for the years
  ended January 31, 1990                                 -0-         -0-         -0-        -0-            -0-

Net loss from inception  to  January 31, 1990            -0-         -0-         -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---
Balance at January 31, 1990                           37,500          38         -0-        -0-            -0-

Issuance of common stock for services rendered
  in August 1990                                     391,000         391         -0-        -0-            -0-

Issuance of common stock in September 1990 for
  various assets from Austin-Young, Inc.              50,000          50         -0-        -0-            -0-

Issuance of common stock for distribution
  licenses from Global Environmental
  Industries (GEI) for UT & WA, September
  1990                                                50,000          50         -0-        -0-            -0-

Contribution from Austin-Young, Inc.                     -0-         -0-         -0-        -0-            -0-

Issuance of common stock for services rendered
  in October 1990                                     12,500          12         -0-        -0-            -0-

Net loss for the year ended January 31, 1991             -0-         -0-         -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---
Balance at January 31, 1991                          541,000         541         -0-        -0-            -0-

Common stock returned in exchange for common
  stock of GEI in March 1991                         (17,000)        (17)        -0-        -0-            -0-

Repurchase of common stock from Austin-Young,
  Inc. in May 1991                                  (338,000)       (338)        -0-        -0-            -0-

Cancellation of common shares                        (20,000)        (20)        -0-        -0-            -0-

Issuance of common stock for the purchase of
  product from Steelhead Specialty Mineral in
  August 1991                                         10,000          10         -0-        -0-            -0-

Issuance of common stock for the purchase of
  mining claims in October 1991                       13,214          13         -0-        -0-            -0-

Common stock canceled by officers/directors in
  January 1992                                       (20,000)        (20)        -0-        -0-            -0-

Contribution from Austin                                 -0-         -0-         -0-        -0-            -0-

Net loss for the year ended January 31, 1992             -0-         -0-         -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---

Balance at January 31, 1992                          169,214         169         -0-        -0-            -0-



                                                                            Deficit
                                                                          Accumulated
                                                           Additional     During the
                                                             Paid-in      Development
                                                             Capital         Stage
                                                           ----------     -----------
<S>                                                        <C>            <C>
Balance at Inception February 9, 1984                       $   -0-       $    -0-

Issuance of common stock for cash                               962            -0-

Expenses paid by shareholders for the years
  ended January 31, 1990                                        518            -0-

Net loss from inception  to  January 31, 1990                   -0-         (1,618)
                                                            -------       --------
Balance at January 31, 1990                                   1,480         (1,618)

Issuance of common stock for services rendered
  in August 1990                                              7,429            -0-

Issuance of common stock in September 1990 for
  various assets from Austin-Young, Inc.                    198,890            -0-

Issuance of common stock for distribution
  licenses from Global Environmental
  Industries (GEI) for UT & WA, September
  1990                                                       37,070            -0-

Contribution from Austin-Young, Inc.                         13,500            -0-

Issuance of common stock for services rendered
  in October 1990                                            37,488            -0-

Net loss for the year ended January 31, 1991                    -0-        (57,756)
                                                            -------       --------
Balance at January 31, 1991                                 295,857        (59,374)

Common stock returned in exchange for common
  stock of GEI in March 1991                                (85,423)           -0-

Repurchase of common stock from Austin-Young,
  Inc. in May 1991                                          (64,682)           -0-

Cancellation of common shares                                    20            -0-

Issuance of common stock for the purchase of
  product from Steelhead Specialty Mineral in
  August 1991                                                74,990            -0-

Issuance of common stock for the purchase of
  mining claims in October 1991                             184,987            -0-

Common stock canceled by officers/directors in
  January 1992                                                   20            -0-

Contribution from Austin                                     17,000            -0-

Net loss for the year ended January 31, 1992                    -0-        (93,315)
                                                            -------       --------

Balance at January 31, 1992                                 422,769       (152,689)

</TABLE>



                         SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                      19

<PAGE>

<TABLE>
<CAPTION>
                                                         Common Stock            Preferred Stock          Treasury
                                                    Shares         Amount       Shares     Amount       Stock Amount
                                                    ------         ------       ------     ------       ------------
<S>                                                 <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-

Issuance of common stock for the purchase of
  mining claims in March 1992                       243,000          243          -0-        -0-            -0-

Common stock canceled by officers and directors
  in June 1992                                      (32,430)         (32)         -0-        -0-            -0-

Cancellation of fractional shares due to
  reverse stock split                                   (21)         -0-          -0-        -0-            -0-

Contribution by Austin-Young, Inc.                       -0-         -0-          -0-        -0-            -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-

Net loss for the year ended January 31, 1993             -0-         -0-          -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---

Balance at January 31, 1993                        4,461,563       4,462          -0-        -0-            -0-

Issuance of common stock for services rendered
  in June 1993                                        17,800          18          -0-        -0-            -0-

Issuance of common stock Austin-Young, Inc. in
  June 1993                                           12,000          12          -0-        -0-            -0-

Issuance of common stock for cash October 1993        66,667          67          -0-        -0-            -0-

Issuance of common stock as down payment on
  building October 1993                                6,000           6          -0-        -0-            -0-

Issuance of common stock for services rendered
  October 1993                                        17,000          17          -0-        -0-            -0-

Issuance of common stock for cash December 1993       80,072          80          -0-        -0-            -0-

Contribution by Austin-Young, Inc.                       -0-         -0-          -0-        -0-            -0-

Net loss for the year ended January 31, 1994             -0-         -0-          -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---
Balance at January 31, 1994                        4,661,102       4,662          -0-        -0-            -0-

Issuance of common stock for services rendered
  February 1994                                        6,000           6          -0-        -0-            -0-

Issuance of common stock for services rendered
  in June 1994                                        41,750          42          -0-        -0-            -0-

Issuance of common stock in a private offering        22,500          22          -0-        -0-            -0-

Issuance of common stock for services rendered
  in November 1994                                    15,000          15          -0-        -0-            -0-

Contribution by Austin-Young, Inc.                       -0-         -0-          -0-        -0-            -0-

Net loss for the year ended January 31, 1995             -0-         -0-          -0-        -0-            -0-
                                                     -------       -----         ---        ---            ---
Balance at January 31, 1995                        4,746,352       4,747          -0-        -0-            -0-

Issuance of common stock for services                  9,000           9          -0-        -0-            -0-

Issuance of common stock in a private
  offering                                           214,168         214          -0-        -0-            -0-




                                                                       Deficit
                                                                     Accumulated
                                                      Additional     During the
                                                        Paid-in      Development
                                                        Capital         Stage
                                                      ----------     -----------
<S>                                                   <C>            <C>
Issuance of common stock for the acquisition of
  Geo-Environment Services, Inc. in February
  1992                                                    96,442            -0-

Issuance of common stock for the purchase of
  mining claims in March 1992                          4,859,757            -0-

Common stock canceled by officers and directors
  in June 1992                                                32            -0-

Cancellation of fractional shares due to
  reverse stock split                                        -0-            -0-

Contribution by Austin-Young, Inc.                        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                                               61,620            -0-

Net loss for the year ended January 31, 1993                 -0-       (136,304)
                                                       ---------       --------
Balance at January 31, 1993                            5,450,620       (288,993)

Issuance of common stock for services rendered
  in June 1993                                            26,682            -0-

Issuance of common stock Austin-Young, Inc. in
  June 1993                                               35,988            -0-

Issuance of common stock for cash October 1993           199,936            -0-

Issuance of common stock as down payment on
  building October 1993                                   29,994            -0-

Issuance of common stock for services rendered
  October 1993                                            50,983            -0-

Issuance of common stock for cash December 1993          191,321            -0-

Contribution by Austin-Young, Inc.                        36,000            -0-

Net loss for the year ended January 31, 1994                 -0-       (310,862)
                                                       ---------       --------
Balance at January 31, 1994                            6,021,524       (599,855)

Issuance of common stock for services rendered
  February 1994                                           29,994            -0-

Issuance of common stock for services rendered
  in June 1994                                           175,458            -0-

Issuance of common stock in a private offering            89,978            -0-

Issuance of common stock for services rendered
  in November 1994                                        46,235            -0-

Contribution by Austin-Young, Inc.                        36,000            -0-

Net loss for the year ended January 31, 1995                 -0-       (709,048)
                                                       ---------       --------
Balance at January 31, 1995                            6,399,189     (1,308,903)

Issuance of common stock for services                     22,391             -0-

Issuance of common stock in a private
  offering                                               394,148             -0-

</TABLE>

                         SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                      20
<PAGE>

<TABLE>
<CAPTION>
                                                         Common Stock            Preferred Stock          Treasury
                                                    ---------------------       -----------------       ------------
                                                    Shares         Amount       Shares     Amount       Stock Amount
                                                    ------         ------       ------     ------       ------------
<S>                                              <C>           <C>          <C>         <C>           <C>

Contribution by Austin-Young, Inc.                       -0-         -0-          -0-        -0-           -0-

Net loss for the year ended January 31, 1996             -0-         -0-          -0-        -0-           -0-
                                                  ----------      ------      -------       ----     ---------
Balance at January 31, 1996                        4,969,520       4,970          -0-        -0-           -0-

Issuance of common stock for cash in a
  private offering                                   130,960         131          -0-        -0-           -0-

Issuance of common stock for services                259,620         260          -0-        -0-           -0-

Net loss for the year ended January 31, 1997             -0-         -0-          -0-        -0-           -0-
                                                  ----------      ------      -------       ----     ---------
Balance at January 31, 1997                        5,360,100       5,361          -0-        -0-           -0-

Issuance of common stock for cash in a private
  offering (net of commissions of $84,575)            582,00         582          -0-        -0-           -0-

Issuance of common stock for services                129,784         130          -0-        -0-           -0-

Issuance of common stock for purchase of
  equipment                                           13,555          13          -0-        -0-           -0-

Issuance of common stock for cash pursuant to a
  stock option plan                                   25,000          25          -0-        -0-           -0-

Issuance of common stock for partial redemption
  of a note pursuant to a stock option plan          100,000         100          -0-        -0-           -0-

Net loss for the year ended January 31, 1998             -0-         -0-          -0-        -0-           -0-
                                                  ----------      ------      -------       ----     ---------
Balance at January 31, 1998                        6,210,439       6,211          -0-        -0-           -0-

Issuance of common stock in a private placement
  offering (net of commissions of $53,428)           963,269         963          -0-        -0-           -0-

Issuance of common stock for services                135,480         136          -0-        -0-           -0-

Issuance of common stock for purchase of
  equipment                                           82,063          82          -0-        -0-           -0-

Net loss for the year ended January 31, 1999             -0-         -0-          -0-        -0-           -0-
                                                  ----------      ------      -------       ----     ---------
Balance at  January 31, 1999                       7,391,251       7,392          -0-        -0-           -0-

Issuance of common stock in a private placement
  offering                                           129,001          78          -0-        -0-           -0-

Issuance of common stock for services                115,514          90          -0-        -0-           -0-

Issuance of preferred stock to redeem debt               -0-         -0-      142,084        142           -0-

Issuance of preferred stock in a private
  offering                                               -0-         -0-      152,500        153           -0-

Reacquire common stock for note payable           (2,520,000)        -0-          -0-        -0-      (831,600)

Reacquire common stock in settlement of note
   receivable                                        (50,000)        -0-          -0-        -0-        (5,000)

Repurchase common stock                             (320,000)        -0-          -0-        -0-      (108,400)

Net loss for the year ended January 31, 2000             -0-         -0-          -0-        -0-           -0-
                                                  ----------      ------      -------       ----     ---------
Balance at January 31, 2000                        4,745,766      $7,560      294,584       $295     $(945,000)

                                                                             Deficit
                                                                           Accumulated
                                                    Additional             During the
                                                     Paid-in               Development
                                                     Capital                  Stage
                                                   ------------           -------------
<S>                                             <C>                 <C>
Contribution by Austin-Young, Inc.                    36,000                     -0-

Net loss for the year ended January 31, 1996             -0-                (401,467)
                                                 -----------             -----------
Balance at January 31, 1996                        6,851,728              (1,710,370)

Issuance of common stock for cash in a
  private offering                                   156,729                     -0-

Issuance of common stock for services                262,359                     -0-

Net loss for the year ended January 31, 1997             -0-                (464,662)
                                                 -----------             -----------
Balance at January 31, 1997                        7,270,816              (2,175,032)

Issuance of common stock for cash in a private
  offering (net of commissions of $84,575)           729,843                     -0-

Issuance of common stock for services                131,782                     -0-

Issuance of common stock for purchase of
  equipment                                           15,236                     -0-

Issuance of common stock for cash pursuant to a
  stock option plan                                    9,350                     -0-

Issuance of common stock for partial redemption
  of a note pursuant to a stock option plan           37,400                     -0-

Net loss for the year ended January 31, 1998             -0-                (489,525)
                                                 -----------             -----------
Balance at January 31, 1998                        8,194,427              (2,664,557)

Issuance of common stock in a private placement
  offering (net of commissions of $53,428)         1,218,676                     -0-

Issuance of common stock for services                147,628                     -0-

Issuance of common stock for purchase of
  equipment                                          121,472                     -0-

Net loss for the year ended January 31, 1999            -0-                 (961,270)
                                                -----------              -----------
Balance at  January 31, 1999                      9,682,203               (3,625,827)

Issuance of common stock in a private placement
  offering                                           79.921                     -0-

Issuance of common stock for services                65,547                     -0-

Issuance of preferred stock to redeem debt          140,372                     -0-

Issuance of preferred stock in a private
  offering                                          152,347                     -0-

Reacquire common stock for note payable                 -0-                     -0-

Reacquire common stock in settlement of note
   receivable                                           -0-                     -0-

Repurchase common stock                                 -0-                     -0-

Net loss for the year ended January 31, 2000            -0-                (958,341)
                                                -----------             -----------
Balance at January 31, 2000                     $10,120,390             $(4,584,168)

</TABLE>

                         SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                         Common Stock            Preferred Stock          Treasury
                                                    ---------------------       -----------------       ------------
                                                    Shares         Amount       Shares     Amount       Stock Amount
                                                    ------         ------       ------     ------       ------------
<S>                                                <C>           <C>         <C>          <C>           <C>

Issuance of common stock for debt and interest       347,573       $ 348     $     -0-     $  -0-       $     -0-

Issuance of common stock for compensation            790,051         790           -0-        -0-             -0-

Issuance of common stock for services              1,007,124       1,007           -0-        -0-             -0-

Conversion of preferred stock to common stock        441,880         442      (294,584)      (295)            -0-

Issuance of common stock for dividend on
  preferred stock                                     14,536          15           -0-        -0-             -0-

Net loss for the year ended January 31, 2001             -0-         -0-           -0-        -0-             -0-
                                                   ---------     -------     ---------     ------       ---------
Balance at January 31, 2001                        7,346,930     $10,162     $     -0-     $  -0-       $(945,000)
                                                   =========     =======     =========     ======       =========


                                                                             Deficit
                                                                           Accumulated
                                                    Additional             During the
                                                     Paid-in               Development
                                                     Capital                  Stage
                                                   ------------           -------------
<S>                                               <C>                    <C>
Issuance of common stock for debt and interest      $   111,351             $       -0-

Issuance of common stock for compensation               234,866                     -0-

Issuance of common stock for services                   280,411                     -0-

Conversion of preferred stock to common stock              (147)                    -0-

Issuance of common stock for dividend on
  preferred stock                                         9,724                     -0-

Net loss for the year ended January 31, 2001                -0-                (907,111)
                                                    -----------             -----------
Balance at January 31, 2001                         $10,756,595             $(5,491,279)
                                                    ===========             ===========
</TABLE>


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                       22
<PAGE>

                        AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                      AND SUBSIDIARY
                                (A DEVELOPMENT STAGE COMPANY)

                          CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                   For the Years Ended                    From Inception on
                                                                        January 31,                        February 9, 1984
                                                         ----------------------------------------         Through January 31,
                                                               2001                     2000                     2001
                                                         -----------------       ----------------        ---------------------
<S>                                                      <C>                     <C>                     <C>
Cash Flows From Operating Activities
   Net loss                                                     $(907,111)             $(958,341)           $(5,491,279)
   Extraordinary gain on debt restructuring                       (52,275)                   -0-                (52,275)
   Depreciation and amortization                                   95,160                 95,204                333,987
   (Increase) decrease in receivables                              25,916                 22,288                 (5,531)
   (Increase) decrease in prepaid expenses                             -0-                   -0-                 (5,208)
   (Increase) decrease in inventory                                32,435                (83,730)              (240,241)
   Increase (decrease) in payables                                (14,171)               279,950                340,350
   Gain from disposal of fixed assets                             (68,335)                11,817                (54,958)
   Stock issued for interest on debt                                4,199                    -0-                  4,199
   Stock for dividend on preferred stock                            9,739                    -0-                  9,739
   Stock issued for services                                      517,074                 66,150              1,522,689
   Expenses paid by shareholder                                       -0-                    -0-                149,018
                                                              -----------             ----------           ------------
       Net Cash Used by Operating Activities                     (357,369)              (566,662)            (3,489,510)
                                                              -----------             ----------           ------------

Cash Flows From Investing Activities
   Purchase of fixed assets                                       (18,739)               (23,441)              (740,250)
   Proceeds from sale of fixed assets                             190,000                    -0-                190,000
   Purchase of product tradenames                                     -0-                 (1,725)               (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 Provided (Used) by Investing                      171,261                (25,166)              (566,136)
                                                              -----------             ----------           ------------
Activities

Cash Flows From Financing Activities
   Issuance of common stock                                           -0-                 79,999              3,210,061
   Issuance of preferred stock                                        -0-                152,500                152,500
   Issuance of notes payable                                      484,200                555,821               1,687,231
   Purchase of treasury stock                                         -0-               (108,400)              (108,400)
   Principal payments on debt                                    (307,360)               (83,546)              (885,502)
                                                              -----------             ----------           ------------

       Net Cash Provided by Financing Activities                  176,840                596,374              4,055,890
                                                              -----------             ----------           ------------

Net (Decrease) Increase In Cash                                    (9,268)                 4,546                    244

Cash at Beginning of Period                                         9,512                  4,966                    -0-
                                                              -----------             ----------           ------------

Cash at End of Period                                           $     244              $   9,512            $       244
                                                            =============             ==========           =============

</TABLE>



              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                       23
<PAGE>


                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)

<TABLE>
<CAPTION>

                                                                         For the Years Ended             From Inception on
                                                                            January 31,                   February 9, 1984
                                                                   ----------------------------------    Through January 31,
                                                                         2001                2000              2001
                                                                   -----------------  ----------------   -------------------
<S>                                                                <C>                <C>                <C>
Supplemental cash flow information:

Cash Paid For:
   Interest                                                         $     37,307          $  13,238         $     83,365
   Income Taxes                                                     $        -0-          $     -0-         $      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 and compensation                       $    517,074           $ 66,150         $  1,522,689
   Stock issued for debt                                            $    107,500           $    -0-         $    107,500
   Stock issued for interest on debt                                $      4,199           $    -0-         $      4,199
   Stock issued for dividends on preferred stock                    $      9,739           $    -0-         $      9,739
   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              $        -0-
      Global Environmental Industries                                                      $    -0-         $    236,060
   Stock issued for purchase of equipment                           $        -0-           $    -0-         $    136,803
   Stock issued for partial redemption of note                      $        -0-           $    -0-         $     37,500

   Treasury stock repurchased in exchange for debt                  $        -0-           $831,600         $    831,600
   Treasury stock repurchased in settlement of note                 $        -0-           $  5,000         $      5,000
      receivable
   Debt assumed by buyer of fixed asset disposition                 $        -0-           $ 14,281         $     14,281
   Preferred stock issued as redemption of debt                     $        -0-           $142,084         $    142,084

</TABLE>



              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS


                                       24
<PAGE>

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE YEARS ENDED JANUARY 31, 2001 AND 2000



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.


                                      25

<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, 2001 AND 2000

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, services, or repayment of debt. 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:

<TABLE>
<CAPTION>
                                                  2001             2000
                                                --------         --------
         <S>                                    <C>              <C>
         Finished goods                         $ 65,852         $ 72,787
         Packaging products                      148,634          174,134
         Raw materials                            98,930           98,930
                                                --------         --------
                                                $313,416         $345,851
                                                ========         ========
</TABLE>

ACCOUNTS RECEIVABLE

         Accounts receivables are shown net of the allowance for doubtful
         accounts. This amount was determined to be $-0- at January 31, 2001 and
         2000, respectively.


                                      26

<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, 2001 AND 2000

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $626,914, an accumulated
         deficit of $5,491,279 as of January 31, 2001, and a net loss for the
         year then ended of $907,111. Accordingly, its ability to continue as a
         going concern is dependent on obtaining capital and financing for its
         planned principal operations. The Company has entered into negotiations
         to be acquired by another company. 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 August 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.

         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, 2001 and
         earlier years, and accordingly, no deferred tax liabilities have been
         recognized for all years.


                                      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, 2001 AND 2000

NOTE 3: INCOME TAXES (CONTINUED)

The Company had cumulative net operating loss carryforwards of approximately
$3,900,000 at January 31, 2001 and $3,000,000 at January 31, 2000. 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 $1,365,000 at January 31, 2001 and $1,050,000 at January
31, 2000 have been offset by valuation reserves of the same amount. The net
change in deferred tax asset and offsetting valuation reserve amounted to
$315,000 for 2001 and $281,000 for 2000.

The net operating losses begin to expire in the year 2016.

NOTE 4: RELATED PARTY TRANSACTIONS

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

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

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

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

August 17, 1990 - An option was given to Austin-Young, Inc. to purchase an
additional 2,000,000 shares (pre-split)(100,000 shares post-split) of stock
at the price of one cent per share. Also, an option plan was approved which
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.


                                      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, 2001 AND 2000

NOTE 4: RELATED PARTY TRANSACTIONS (CONTINUED)

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

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.

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.


                                      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, 2001 AND 2000

NOTE 4: RELATED PARTY TRANSACTIONS (CONTINUED)

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. The lease was terminated by both
parties early in fiscal year 2001.

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.

The Company has various notes payable with directors, officers and employees
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. During 2001, the Company received
proceeds of $264,200 and made payments of $272,168 on these notes. Included
in payments made is $107,500 that was converted to common stock.


                                      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, 2001 AND 2000

NOTE 4: RELATED PARTY TRANSACTIONS (CONTINUED)

During 2001, the Company issued 347,573 shares of stock in exchange for debt
at an average price of $0.32.

During 2001, the Company issued $790,051 shares to directors, officers, and
empoyees for compensation at an average price of $0.30.


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.

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.


                                      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, 2001 AND 2000

NOTE 5: NONMONETARY TRANSACTIONS (CONTINUED)

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.

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.

During 2001, the Company issued 347,573 shares of stock in exchange for debt
at an average price of $0.32.

During 2001, 1,007,124 shares were issued to vendors for services rendered at
an average price of $0.28.

During 2001, the Company issued 790,051 shares to Directors, Officers and
employees for compensation at an average cost of $.30.

During 2001, the Company converted all outstanding preferred stock to common
stock. Each share of preferred stock was converted into one and one half
shares of common stock.

During 2001, the Company issued 14,356 shares of common stock in payment of
cumulative dividend on preferred stock.


                                      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, 2001 AND 2000

NOTE 5: NONMONETARY TRANSACTIONS (CONTINUED)

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:

<TABLE>
<CAPTION>
                                        January 31                January 31
                                           2001                      2000
                                         ---------                 --------
<S>                                     <C>                       <C>
Plant                                    $ 105,946                 $287,781
Machinery and equipment                    534,601                  515,853
Mining site improvements                    52,715                   53,696
Accumulated depreciation                 (239,364)                 (205,346)
                                         --------                  --------
                                         $ 453,898                 $651,984
                                         =========                 ========
</TABLE>

Machinery and equipment (including computer equipment and vehicles) is
depreciated on the straight-line method over the estimated useful lives of
three to seven years. Plant is being depreciated (straight line) over the
estimated useful life of 20 years. Site improvements are being depreciated
(straight line) over an estimated useful life of ten years. Depreciation
expense is $95,160 and $95,204 for the years January 31, 2001 and 2000,
respectively.

In the past, the Company had agreements with various vendors to do the mining
and milling of its zeolite mineral and products; this has resulted in minimal
investment in machinery and equipment. During 1997-1998, the Company began
construction of a new milling and packaging plant in Bums, Oregon. The plant
became operational during 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.


                                      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 2001

NOTE 7: MINING CLAIMS (CONTINUED)

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
                                                                          2001          2000
                                                                        --------      --------
<S>                                                                     <C>           <C>
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 also be converted to common stock
of the Company.                                                         $    -0-      $  5,000


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 2, 2000.                                       -0-       150,000

An unsecured note with a coproration.                                    220,000           -0-
                                                                        --------      --------

Total                                                                   $220,000      $155,000
                                                                        ========      ========
</TABLE>


                                      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, 2001 AND 2000

NOTE 9: RELATED PARTY NOTES PAYABLE

Notes payable - related party consist of the following:

<TABLE>
<CAPTION>
                                                                              January 31
                                                                          2001          2000
                                                                        --------      --------
<S>                                                                     <C>           <C>
A note with a former director of the Company. The original
value of the note was $112,275. The note has an interest rate
of 8.25% and 8.50% as of January 31, 2001 and 2000, respectively,
with monthly payments of principal and interest of $2,500 and
$6,325, respectively. The note matures in March 2002.                   $ 41,813      $112,275

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 March 16, 2000.                                                    -0-         5,000

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 March 15, 2000.                                                       -0-        50,000

A note with an officer of the Company.  The original value of the
note was $50,000.  The note has an interest rate of 5% and matures
on August 2, 1999. The note may be converted to preferred stock of
the Company.                                                                 -0-        45,000

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.                                                                   -0-        15,000

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.                    667,833       781,006

A note with a director of the Company.  The note has an interest
rate of 10.00%, and is due on February 17, 2001.                           5,000           -0-

A line of credit of $215,000, with an officer of the Company.
The note has an interest rate of 10.0% and is due on March 31,
2001. The note has monthly payments of principal and interest
of $2,500 with a balloon payment on all unpaid principal and
interest at maturity. The line of credit is secured by the
warehouse in Oregon.                                                     210,292           -0-

A note with an officer of the Company.  The note has an interst
rate of 10.0%, and matures on January 7, 2001.                             8,205           -0-

A note with an employee.  The note has an interest rate of 10.0%,
and matures on Janurary 8, 2001.                                           2,545           -0-

A note with a director of the Company.  The note has an interst
rate of 10.0%, and matures on January 8, 2001.                             2,500           -0-

A note with a director of the Company. The note has an interst
rate of 10.0%, and matures on January 11, 2001.                            2,500           -0-
</TABLE>


                                      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, 2001 AND 2000

NOTE 9: RELATED PARTY NOTES PAYABLE (CONTINUED)

<TABLE>
<CAPTION>

<S>                                                                     <C>         <C>
A note with a director of the Company.  The note has an interest
rate of 10% and matures on January 7, 2001.                                8,250           -0-

A note with a director of the Company.  The note has an interest
rate of 10% and matures on March 3, 2001.                                  5,908           -0-

A note with a director of the Company.  The note has an interst
rate of 10.0%, and matures on January 14, 2001.                            2,500           -0-

A note with a director of the Company.  The note has an interst
rate of 10.0%, and matures on January 11, 2001.                            3,000           -0-
                                                                        --------    ----------
Total                                                                    960,346     1,008,281
Less curent marurities                                                  (366,346)     (252,397)
                                                                        --------    ----------
Related party long-term debt, less current maturities                   $594,000    $  755,884
                                                                        ========    ==========
</TABLE>

Future maturities of related party long-term debt are as folows:

<TABLE>
<CAPTION>
               <S>                         <C>
               2002                        $366,346
               2003                         118,800
               2004                         118,800
               2005                         118,800
               2006                         118,800
               Thereafter                   118,800
                                           --------
                     Total                 $960,346
                                           ========
</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. 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.


                                      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, 2001 AND 2000

NOTE 10: PRIVATE PLACEMENT OF COMMON STOCK (CONTINUED)

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.


                                      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, 2001 AND 2000

NOTE 11: EARNINGS PER SHARE

A reconciliation of basic and diluted earnings (loss) per share is as follows:

<TABLE>
<CAPTION>
                                                                     YEARS ENDED JANUARY 31,
                                                               ----------------------------------
                                                                   2001                 2000
                                                               -------------        -------------
     <S>                                                       <C>                  <C>
     NUMERATOR:                                                Basic/Diluted        Basic/Diluted
        Net income (loss)  before extraordinary
          gain                                                  $ (959,386)          $ (958,341)
        Extraordinary gain on settlement with
          equipment lessors                                         52,275                 0.00
                                                                ----------           ----------
        Net income (loss) available to common
          stockholders                                          $ (907,111)          $ (958,341)
                                                                ==========           ==========
     DENOMINATOR:
        Weighted average shares outstanding                      5,911,366            5,748,521
        Effect of dilutive securities:
              Preferred stock                                         0.00                 0.00
                                                                ----------           ----------
         Weighted average shares outstanding                     5,911,366            5,748,521
                                                                ==========           ==========

     Earnings (loss) per share before
       extraordinary item                                       $     (.16)          $     (.17)
     Extraordinary gain on debt restructuring                          .01                  .00
                                                                ----------           ----------
     Earnings (loss) per share                                  $     (.15)          $     (.17)
                                                                ==========           ==========
</TABLE>


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, 2001 are as follows:

<TABLE>
<CAPTION>
                                          JANUARY 31, 2001           JANUARY 31, 2000
                                      ------------------------   ------------------------
                                        Carrying   Fair Values     Carrying   Fair Values
                                         Amount         ------      Amount         ------
                                         ------                     ------
<S>                                   <C>          <C>           <C>          <C>
Cash                                  $      244   $      244      $  9,512     $  9,512
Accounts receivable                   $    5,531   $    5,531      $ 31,447     $ 31,447
Notes payable including                                                       $1,163,281
  current maturities                  $1,180,346   $1,180,346    $1,163,281
</TABLE>

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:


                                      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, 2001 AND 2000

NOTE 12: FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

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.


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 2001 or 2000.


NOTE 15: LEASE ON OFFICE SPACE

During 2000 and 2001, 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, 2001 amounted to $26,161.

Future minimum rentals are as follows:

<TABLE>
<CAPTION>
               <S>                          <C>
               2002                          $7,248
               2003                           5,511
               2004                           4,932
               2005                           3,699
                                            -------
                  Total                     $21,390
                                            =======
</TABLE>


                                      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, 2001 AND 2000

NOTE 16: EXTRAORDINARY GAIN

During the year ended January 31, 2001, the Company was able to negotiate the
reduction of a note payable by $52,275, resulting in an extraordinary gain of
$52,275.


NOTE 17: SUBSEQUENT EVENT

Subsequent to year end, the Board of Directors elected to close the Austin
office and permanently lay off certain employees.

Subsequent to year end the Company entered into negotiations to be acquired
by a another company.

Subsequent to year end the Board of Directors authorized the borrowing of
$200,000, of which $100,000 will be guaranteed by the Company. The interest
rate on the note is the prime interest rate plus two percent, and the note is
due on demand, or if no demand is made on April 30, 2002.


                                      40

<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
                                         POSITIONS WITH THE                            DIRECTOR OR
      NAME                                    COMPANY                         AGE     OFFICER SINCE
      ----                               ------------------                   ---     -------------
      <S>                           <C>                                       <C>     <C>
      Robert L. Bitterli            Chairman of the Board, Chief              44          1999
                                    Executive Officer, Director
                                    (May 99)

      Richard A. Waterfield         Director (March 1, 1999)                  61          1999

      Don Chapman                   Director (May 1999)                       64          1999

      John Krings                   Director (May 1999)                       71          1999

      Gerald Clay                   Director (October 2000)                   58          1999

      Patrick Cassidy               Director (September 1999)                 63          1999

      Dr. Jan Krason                Director (February 2000)                  69          2000

      James W. Haake                Chief Operating Officer                   51          1999

      David C. Scott                Chief Financial Officer                   37          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.

James Toney resigned as VP of Plant Operations effective March 31, 2000.

David Scott was appointed President May 1, 2000.

David Stein resigned as director in June 2000.

Gerald C. Clay was elected to the Board of Directors in October 2000.

Mr. James Haake's employment with the Company was terminated effective
February 28, 2001 due to ongoing cash flow issues.

Ms. Deborah Smetzer's employment with the Company was terminated effective
February 28, 2001 due to ongoing cash flow issues.


                                      41

<PAGE>

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 44.

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 61.

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 64.

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 71.

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


                                      42

<PAGE>

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 63.

GERALD C. CLAY has had a lifelong career as a corporate business executive,
entrepreneur and consultant. He worked in sales management for Beatrice Foods
and Uncle Ben's, a subsidiary of Mars, Inc., before joining Star-Kist Foods,
a subsidiary of H. J. Heinz Company, as General Manager of International
Business Development. In this capacity he managed existing profit centers,
identified, negotiated and recommended acquisitions and joint ventures,
directed research and implemented marketing programs, and managed export
sales in Europe, South America, and Asia. He later served as the
President/CEO of Star-Kist Canada, Inc., an autonomous profit center with
$50MM in annual sales. Mr. Clay has also owned three specialty and organic
food companies. Most recently, he has utilized his corporate and
entrepreneurial background as a business consultant specializing in
turn-arounds, acquisitions, joint ventures, and development. Mr. Clay
attended the University of Cincinnati and received an honorable discharge
from the United States Army. Age 57.

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 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 69

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 51.

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 37.


                                      43

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION:

The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1999, 2000 and 2001, 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
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
NAME AND PRINCIPAL                                     OTHER ANNUAL     RESTRICTED    OPTIONS/    LTIP           ALL OTHER
POSITIONS                        SALARY     BONUS      COMPENSATION    STOCK AWARDS    SAR'S      PAYOUTS      COMPENSATION
                        YEAR       ($)       ($)           ($)             ($)          (#)         ($)            ($)
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
<S>                     <C>      <C>        <C>        <C>             <C>           <C>         <C>           <C>
Robert L. Bitterli,      2001    57,848      -0-           -0-            58,750        -0-         -0-            -0-
CEO
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
Robert L. Bitterli, CEO  2000     9,500      -0-           -0-            8,200         -0-         -0-            -0-
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
All Officers as a       2001     151,111    25,000         -0-           138,750        -0-         -0-            -0-
Group  (3 persons)
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
       (8 persons)      2000     180,571     -0-           -0-            27,980        -0-         -0-            -0-
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
       (6 persons)      1999     251,438     -0-           -0-            84,998        -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.

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, Gerald Clay, Patrick Cassidy, and Jan
Krason each receive $500 worth of restricted common for each board meeting
attended. The fair market value of the common stock is determined by the
average of the closing price of the stock for the month in which the meeting
was held.

The following table sets forth the aggregated option/SAR exercises in the
last fiscal year and the fiscal year-end option/SAR values:

In a settlement reached with David Redding on May 19, 2000, David Redding
surrendered the 100,000 options he was issued as part of the stock option
plan of 1997.

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, 2001, 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                                   941,406                       -0-                 12.64
PO Box 4404
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------

                                      44
<PAGE>

------------------------------------------ ---------------------------- -------------------------- ---------------
Patrick Cassidy                                      10,922                        -0-                  0.15
PO Box 4404
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
Donald Chapman                                       76,399                        -0-                  1.03
PO Box 4404
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
Dr. Jan Krason                                       374,536                       -0-                  5.03
PO Box 4404
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
John Krings                                          225,742                       -0-                  3.03
PO Box 4404
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
Gerald C. Clay                                       47,867                        -0-                  0.64
4240 Exultant Drive
Rancho Palos Verde, CA 90276
------------------------------------------ ---------------------------- -------------------------- ---------------
Richard Waterfield                                   58,851                        -0-                  0.79
PO Box 4404
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
James W. Haake                                       220,843                       -0-                  2.96
3022 Starmount Drive
Valrico, FL 33594
------------------------------------------ ---------------------------- -------------------------- ---------------
David C. Scott                                       140,167                       -0-                  1.88
PO Box 4404
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Officers and Directors                              2,096,723                      -0-                 28.15
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 7,449,758. 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 3,000 are in his wife's brokerage
     account.

4)   Of the shares set forth above for Patrick Cassidy, all are held in the name
     of Mr. Cassidy.

5)   Of the shares set forth above for Donald Chapman, 76,099 are held in the
     name of Donald Chapman, and 300 are held in brokerage accounts with Mr.
     Chapman as custodian.


                                      45

<PAGE>

6)   Of the shares set forth above for Dr. Jan Krason, all 124,536 shares are
     held in the name of Jan Krason and 250,000 are held in Geoexplorers
     International name, his company.

7)   Of the shares set forth above for John Krings, 179,424 are held in the name
     of Mr. Krings and 46, 318 are held in his company's name Krings, Inc..

8)   Of the shares set forth above for Gerald Clay all are held in his name.

9)   Of the shares set forth above for Richard Waterfield, all are held in the
     name of Mr. Waterfield.

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, 130,167 shares are held
     in the name of Mr. Scott, and 10,000 are held in Mr. Scott's brokerage
     account.


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, 2001: NONE



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

As of January 31, 2001, Mr. Robert L. Bitterli had loans outstanding to the
company totaling $224,449. Mr. Bitterli is the CEO and Chairman of the Board
of Directors. As of March 31, 2001, Mr. Bitterli had loans outstanding to the
Company totaling $231,230. The $210, 293 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%. The remaining $20,937 is the combination of
several notes for unreimbursed business expenses which Mr. Bitterli has paid
on behalf of the Company.


ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 10-K:

<TABLE>
<CAPTION>

                                                                                                             Page
<S>                                                                                                          <C>
(a)   (1)   The following financial statements are included in Part II, Item 7:

                   Report of Independent Auditors............................................................  14

                   Financial Statements:

                        Consolidated Balance Sheets - January 31, 2001 and 2000..............................  17

                        Consolidated Statements of Operations - Years ended January 31, 2001, and 2000.......  18

                        Consolidated Statements of Stockholders' Equity (Deficit) - From inception
                              on February 9, 1984 to January 31, 2001........................................  19

                        Consolidated Statements of Cash Flows - Years ended January 31, 2001
                              and 2000 and from inception on February 9,1984 to January 31, 2001.............  23

                        Notes to Consolidated Financial Statements...........................................  25

      (2)   There are no financial schedules for the years ended January 31, 2001 and 2000,
                  submitted herewith.  Registrant is exempted from filing such schedules because of its


                                      46

<PAGE>

                  Form SB-2 Registration Statement filing.

      (3)   The following exhibits for the years ended January 31, 2001 and 2000, and from
                  inception on February 9, 1984 to January 31, 2001 are submitted herewith:

                          Exhibit 11 - Computation of Per Share Earnings (Loss)..............................  49

                          Exhibit 21 - Subsidiary of the Registrant..........................................  50
</TABLE>

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 one report filed on Form 8-K during the period covered by this
report.


                                      47

<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:  June 12, 2001



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and
in their capacities and on the dates indicated.


<TABLE>
<CAPTION>
               SIGNATURE                                          TITLE                             DATE
<S>                                                <C>                                          <C>
/s/ Robert L. Bitterli                             Chairman of the Board, Chief                 June 12, 2001
----------------------------------------           Executive Officer
Robert L. Bitterli


/s/ Patrick Cassidy                                                                             June 12, 2001
----------------------------------------
Patrick Cassidy                                    Director


/s/ Jan Krason                                                                                  June 12, 2001
----------------------------------------
Jan Krason                                         Director


/s/ Gerald C. Clay
----------------------------------------
Gerald C. Clay                                     Director                                     June 12, 2001


/s/ John Krings
----------------------------------------
John Krings                                        Director                                     June 12, 2001


/s/ Donald Chapman
----------------------------------------
Donald R. Chapman                                  Director                                     June 12, 2001


/s/ Richard Waterfield
----------------------------------------
Richard Waterfield                                 Director                                     June 12, 2001


/s/ David C. Scott
----------------------------------------
David C. Scott                                     Chief Financial Officer, Principal           June 12, 2001
                                                   Accounting Officer
</TABLE>


                                      48