U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-KSB

OMB Approval                Expires:  Approval Pending
OMB Number: xxxx-xxxx       Estimated Average Burden Hours Per Response: 1.0

(Mark One)

X Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934
(Fee required) For the fiscal year ended JANUARY 31, 2000

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

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

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

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

6015 LOHMAN FORD ROAD , SUITE #100     LAGO VISTA, TEXAS         78645         .
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(Address of Principal Executive Offices)                         (Zip Code)

                                 512-267-2221                                  .
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                (Issuer's Telephone Number, Including Area Code)

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

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED

             NONE                                        NONE                  .
--------------------------------------------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:

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

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.

Yes      X             No            .
   --------------        ------------

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

Issuer's revenues for the fiscal year ended January 31, 2000.  $57,738
                                                             ----------

Aggregate market value of common stock (.001 par value) held by non-affiliates
at March 31, 2000. $ 1,198,919
                   -----------

Common stock ($.001 par value) shares outstanding at March 31, 2000  4,745,766 .
                                                                    -----------
Convertible Preferred Stock ($.001 par value) shares outstanding March 31, 2000.
294,584
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This Form 10-KSB document contains 54 pages.

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                                     PART I

ITEM I.  DESCRIPTION OF BUSINESS:
--------------------------------


ORGANIZATION:

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

The Company's principal executive offices are located at 6015 Lohman Ford Road,
Lago Vista, Texas 78645. Its telephone number is (512) 267-2221; its fax number
is (512) 267-4261; its E-Mail address is 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

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vary with the size and shape of the pores. Zeolites are also chemically active
and their surfaces are able to attract and hold molecules through processes
known as ADSORPTION and ABSORPTION. These characteristics also serve to enable
zeolite to function as a catalyst, whereby the rate of chemical reactions may be
altered. More than 40 types of zeolites occur naturally and an even greater
number may be synthetically produced because of their higher adsorption
capacities, lack of impurities, and regeneration capabilities. Although
management believes that synthetic zeolite can be currently produced with the
exact properties as the zeolite used by the Company in its products, the high
cost of such synthetically produced zeolite makes it less desirable in products
similar to those marketed by the Company which require lower costs to be
competitive with similar products without zeolite.

The synthetic development and commercial introduction of zeolite products began
in the early 1950s. A variety of companies have entered the industry and provide
zeolite products used in many diverse agronomic and horticultural applications.
These applications include slow-release fertilization, zeoponics, soil
conditioning, and soil remediation. In addition, natural zeolites are used in
water-filtration systems to produce clean drinking water, as a food supplement
for livestock and poultry to protect them from toxic substances, as filler in
cement and in the collection and disposal of radioactive waste. In general, the
industry offers high quality products and processes designed for specialty
markets. As the physical properties of zeolites have become more widely known,
the amount of zeolite used has increased. The areas in which the Company now
competes are in using natural zeolite in products that adsorb liquids or gases
which might otherwise be harmful or oxiouns, in products which time release
nutrients into the soil, in products for soil remediation and in products used
as animal feed supplements.

The Company has developed and is marketing seven new retail products--SWEET
PAWSTM cat litter; LITTER HELPERTM, an odor eliminator for cat litter boxes; PET
MESSTM, an odor neutralizer to counter pet stains; AQUA ROCKSTM, which maintains
ammonia control in fish aquariums; CARPET GENIETM, an odor eliminator for
carpets; PIT STOPTM, an absorbent for cleaning automobile fluid spills; and
AMMONIA DESTROYERTM, an ammonia remover for fresh and salt water fish tanks.
During the fourth quarter, the Company developed both a 6oz and 10oz absorbent
pillow product. The Company continues to produce and market several other
products which use the natural zeolite mineral mined from the Company's claims
targeted at the retail and agricultural consumable products area and the turf
grass industry. These products include MOTHER EARTH CAT LITTER(TM) AND SOIL
ENHANCER, a cat litter product which, when used, can be disposed of into the
soil to enhance it; STALL FRESH(TM), a product to eliminate urine-generated
ammonia odors and wetness caused by livestock; and WHITE BUFFALO(TM), a
multi-purpose home, farm and ranch absorb-all product. The Company is also
seeking contracts and distribution partners into the industrial or bulk sales
markets with the zeolite minerals located on the Company's claims.

All of the Company's products use the natural zeolite minerals mined from the
Company's unpatented placer mining claims located in the Harney Basin area in
the State of Oregon. When mined, the minerals are stored in bulk near the claims
or in the Company's Oregon milling facility. The Company's entire product line
is packaged and stored at the Oregon milling facility until they are shipped to
the distributor or end retailer. The Company maintains a small amount of
inventory at its warehouse in Austin, Texas. The Company has previously used
mostly contract labor for each phase of its current mining, milling and
packaging operations. However, in February, 1998, the Company employed a Vice
President of Production to manage the Oregon milling facility, purchased in
October, 1995, in a distress sale for $65,000 plus an additional $34,000 for
repairs. Production employees have been hired for milling and packaging
operations at this location. The milling, packaging and storage facility
contains 103,125 square feet and approximately 3,500,000 cubic feet of inventory
storage space in Hines, Oregon. The Company's insurance carrier has insured the
facility including contents at a value of $1,400,000. This facility has been
equipped with milling and packaging equipment purchased from the proceeds of a
private placement completed during the first part of fiscal 1998. The current
configuration of the plant allows for the simultaneous production of both the
Company's bagged and bottled products as well as the production of raw zeolite
material for use in other of the Company's products. Additional milling and
packaging equipment has been purchased that will allow the Company to increase
its current capacity. During the past year, the company leased a filling machine
and a labeling machine to facilitate the production of our bottled products.

In the past, the Company's wholly owned subsidiary, American Absorbents, Inc.,
marketed the Company's products through joint-venture type relationships and
through retail marketing entities. The current management, however, believes
that it must identify and develop relationships with distributors through the
United States to successfully recreate demand for zeolite-based products.
Through the use of distributors, the Company gains the strength of the
distributors' marketing and sales organizations as well as a more cost efficient
distribution channel. Since the

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commencement of its zeolite products business in approximately 1991, the Company
has been principally in the product and market development stage and has focused
its marketing and sales efforts primarily in a test market area. More recently,
and since the completion of the milling and packaging facility, the Company has
turned its efforts to the implementation of marketing programs in the western
portion of the United States. This remains a key geographic region for the
Company due to fact that we can more cost effectively deliver our products
throughout the Western U.S. Even though the Company began marketing its
agricultural products in the European marketplace in November 1995, through an
import/export company located in France, management believes that it must
concentrate on the domestic market until sufficient revenues are generated to
support an international marketing plan.

The majority of the Company's unpatented placer mining claims are located on
federal land in the Harney Basin, Harney County, Oregon. These 259 claims cover
approximately 7.475 square miles or 6,000 acres. The estimated proven reserves
of in-place zeolite on the southern 40% (approximately 135 claims or 2,700
acres) of the Harney Basin claims is 477,653,873 tons and the estimated probable
reserves is 746,089,789 tons, (based on independent geologist's reports). The
geologist assumed mining of only the top 80 feet of the deposit. In-house
reports of Anaconda (former owner of the northern portion of the Harney Basin
Deposit) geologists placed the estimated reserves of zeolite mineral located on
the northern 4060 acres of the Harney Basin in excess of 1,000,000,000 tons of
90% pure zeolite. Their assumptions included mining only the top 100 feet of the
deposit. Existing drill hole core data indicates that the total thickness of the
deposit is approximately 300 feet, which would significantly increase the
estimated reserves within the deposit.

The Company also owns 26 unpatented zeolite placer mining claims in Malheur
County, Oregon, near the town of Sheaville on the Oregon/Idaho border as well as
10 unpatented lode zeolite mining claims situated in Mohave County, Arizona,
approximately 60 miles northwest of Kingman, Arizona, near the town of Dolan
Springs, Arizona.

The Company's objective is to establish a mining, milling and packaging
operation for zeolite consumer products and to develop a national market for the
products produced. The Company also expects to achieve long term capital
appreciation of its major assets including large zeolite mineral reserves
through increased marketing efforts of zeolite products. Although there is no
assurance that the endeavors will be successful, the Company believes it will be
successful in its objectives due to the environmental awareness in the United
States, as well as the rest of the world, and due to the environmental aspects
of the zeolite mineral.

WARRANTIES:

The Company's products are all manufactured from natural zeolite, a natural
mineral mined from the earth. As such, the products do not have specific
warranties relative to the product.

SUPPLIERS:

The Company is the country's largest corporate holder of zeolite reserves, which
assures the Company of having an adequate inventory of the zeolite minerals used
in its products. Other supplies, primarily packaging materials, used by the
Company in its manufacturing process are readily available from a number of
suppliers. Services used by the Company for mining are also readily available
from a number of service providers.

TRADEMARKS AND PATENTS:

The Company markets its products under a number of trademarks and trademark
applications. The Company has applied for federal trademark protection on its
products currently marketed and those to be test marketed. The Company does not
own, hold or use any patents.

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INVENTORY:

The Company maintained lower inventory levels during the development stage, but
has begun increasing inventory levels with the commencement of full-scale
marketing efforts in the western portion of the United States. The book value of
inventory for the fiscal years ended January 31, 2000 and January 31, 1999 was
$345,850 and $262,121, respectively. The Company mined and milled 10,000 tons of
zeolite minerals in December 1997. Approximately 3,250 tons of this material has
been milled to various Tyler mesh sizes for use in the Company's various
packaged products.

CUSTOMERS:

The Company's products are currently being sold through a national distributor,
regional distributors, and direct sales to the customer.. For the fiscal year
ended January 31, 2000, Fragrance Solutions, formerly New Ideas, accounted for
approximately 52% of sales and for the fiscal year ended January 31, 1999, four
customers accounted for 82.6% of the Company's total sales
volume--E.N.S.R./S.A.R.L. (15.8%), Smith's Food and Drug Centers (14.8%), Texas
Environmental Providers, Inc. (23.3%) and Hickory Brands, Inc. (28.7%). At the
present sales levels in the development stage, management does not believe that
the loss of any single customer would have a materially adverse effect on the
Company's business.

BACKLOG:

There was no backlog at January 31, 2000 or January 31, 1999. The Company has
maintained sufficient inventory levels to ship products when they are ordered
and plans to continue to maintain sufficient inventory levels to fill future
orders.

COMPETITION:

The Company experiences some competition in the development and marketing of its
products. It is extremely time consuming, costly and difficult to gain
acceptance from the large chain stores that may offer the products developed by
competitors of the Company. Management has categorized competition into three
areas, namely: 1) producers of products similar to those marketed by the Company
but not using any natural zeolite mineral; 2) producers of products using
natural zeolite minerals mined from the producer's own reserves; and, 3)
producers of products using zeolite minerals purchased from an outside source.
Many of these competitors possess financial, technological and personnel
resources substantially greater than those of the Company. The Company believes
that it can compete favorably with many of these companies because of the
ability of the Company to produce its natural zeolites products at relatively
low cost because of the vast amount of easily accessible zeolites located on the
Company's mining claims. Management also believes that as sales increase the
Company's operational capacity will improve as operational efficiencies are
identified and put into place. In the foreseeable future, the Company plans to
continue using contract labor for the mining of our zeolite reserves. As
production requirements increase, the Company will evaluate the continued use of
employees versus independent contractors to meet those production demands. It is
management's intent to limit our overhead burden until our sales are sufficient
to warrant additional equipment, facilities, or personnel. Mining and processing
cost estimates recently obtained by the Company indicate that the Company will
again be able to significantly reduce the cost of mining additional zeolite.

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

In-house reports developed by Anaconda Minerals (former owner of the northern
portion of the Harney Basin Claims), from core data available to them reflect a
thickness up to 300 feet on the northern 4060 acres. These reports reflect that
these 4060 acres contain mostly zeolites exceeding 90% purity. Based on 20 cubic
feet per ton of

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material it is unlikely that the Company will find it necessary to lower the
purity of zeolites content in its products within the foreseeable future.

The Company is aware of over thirty other companies in the United States that
are marketing various types of cat litter products. Management is also aware of
three other companies in the nation which market a cat litter product using
natural zeolites of various qualities and in limited areas, only two of which
own zeolites mining claims. Management believes that SWEET PAWSTM can favorably
compete with the cat litters not using natural zeolites on a price per pound
basis with the added benefit of an environmentally friendly product. Management
does not view the percentage of the cat litter market currently held by the
present cat litter products using natural zeolites to be significant and
therefore does not believe that the sale of such products by such companies will
significantly impact sales of SWEET PAWSTM by the Company.

The Company is not aware of any products similar to or which compete with our
AMZORB(TM) Multi-Purpose Zeolite.

The Company competes with a number of manufacturers of products used to absorb
automotive fluids, chemicals, and other liquid wastes from motor vehicles and
machines. However, management is aware of only one other product that uses
natural zeolites. Again management believes that the Company's product, PIT
STOP(TM), can compete favorably with these other products based upon pricing and
performance of the product.

The Company is aware of only one other company, which does not own its own
zeolite deposits, which markets a product similar to STALL FRESH(TM), a product
which eliminates urine-generated odor and wetness caused by livestock. The
competing company markets a similar product made from zeolite minerals purchased
from other producers. Management expects to begin marketing its STALL FRESH(TM)
product in markets where the competing product is sold and believes it can
favorably compete with the competitor due to the Company's ownership of its own
zeolite reserves.

RESEARCH AND DEVELOPMENT:

The Company has been engaged in continuing market research and development
programs. The Company currently has available over a dozen products that it has
researched, developed and test marketed. Since there are so many potential uses
for the zeolite mineral in consumer products, any future research and
development will be primarily in the area of market research. The Company will
be concentrating its efforts over the next twelve months to marketing existing
products. The Company has developed its zeolite products in-house and test
markets each product in a limited number of stores. During the fiscal years
ended January 31, 2000 and January 31, 1999, the Company recorded research and
development expenses of $0 and $0, respectively.

REGULATIONS:

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

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

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ENVIRONMENTAL MATTERS:

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

South of the Harney Basin Claims is a small area known as the South Narrows Area
of Critical Environmental Concern containing an endangered plant species known
as the Malheur Wirelettuce. The Company has released its claims which border on
this area which management believes will satisfactorily minimize any impact on
the habitat for this endangered plant species.

The Harney Basin Claims are generally surrounded by, and on the East Side
adjoin, the Malheur Wildlife Area. To the extent that mining operations may be
visible from the wildlife area, the Company may be required to impose dust
abatement or other measures designed to reduce any impact on the wildlife area.
Management does not believe that compliance with such measures would have a
material effect upon any proposed mining operations on the claims.

EMPLOYEES:

At January 31, 2000, the Company had eight full-time employees not including
temporary employees and contract laborers who are employed on an "as needed"
basis. The Company does not anticipate adding any significant number of
employees in the immediate future but will continue to engage contract laborers
on an "as needed" basis. After completion of additional capitalization, the
Company may add additional marketing and administrative personnel.

ITEM 2.  DESCRIPTION OF PROPERTIES:
----------------------------------

MINING PROPERTIES:

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

Anaconda Minerals Company originally filed the northern portions of the Harney
Basin Claims in 1975. Occidental Minerals Company filed claims covering much of
the southern portion in 1979. Drilling and evaluation of the

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

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

To mine our zeolite, the Company removes any overburden with a front-end loader
which is also used to remove the zeolites. The mined zeolite is then loaded onto
trucks and hauled to Burns/Hines, Oregon (approximately 28 miles) where it is
stored prior to processing. The Company is aware of a number of entities
providing contract mining and milling services sufficiently experienced to
conduct the Company's mining and milling operations. The Company is currently
using an entity located in Burns, Oregon, near the claims to perform mining
operations.

The Company will continue to hire a mining contractor in Burns, Oregon to mine
the zeolite with no negative impact to the Company's operations. It is also
anticipated that the milling facility will be used to package a significant
portion of the zeolites for shipment directly to its customers. After mining is
completed, the property will be reclaimed by leveling and planting natural
grasses.

The Harney Basin Claims lie in the center of the southeastern quarter of the
State of Oregon and approximately the center of Harney County. The property is
crossed by state highway 205, which offers virtual year-round access. Existing
ranch and county roads from the highway offer access to almost all of the
property of interest; however, sustained mining operations may require the
construction of more permanent facilities. The Company has no present intention
to commence mining operations of the magnitude that would require larger
permanent facilities.

The local climate does not favor year-round mining or processing on the property
because the winter is extremely cold and windy during the months of December to
February. The rainy season occurs from October through April and could cause
problems in stripping, crushing, and screening of the zeolites. Also, the
weather could have a material effect on the ability to haul large quantities of
the material during the rainy season if permanent roads are not constructed. The
Company does not plan to construct permanent roads and does not believe its
operations will be restricted since sufficient quantities of zeolite can me
mined during good weather conditions and hauled to the mill facility in
Burns/Hines, Oregon for storage.

The owner of an unpatented mining claim holds possessory title to the claim.
Possessory title is not legal title in the usual sense of the term, nor does it
arise out of any instrument or grant by the United States or out of any action
taken by any officer or agency of the state or federal governments. Only when a
claim is patented is there any affirmative government grant under which legal
title vests in the usual concept of property ownership. Possessory title arises
as a matter of law out of the performance by the locator of the claim of certain
acts of location, including the staking of claim boundaries and the making of
certain record filings in compliance with the requirements of federal and state
laws. The validity of an unpatented mining claim cannot be conclusively
determined by an inspection of public records. It is dependent upon the legal
availability of the lands at the time the location is made and the validity of
the mineral discovery within the boundaries of each claim, in compliance with
federal, state and local laws relative to location procedures. Prior to 1992
possessory title was maintained against subsequent location by the annual
performance of labor or improvements on or for the benefit of each mining claim.
The Company believes all past assessment work requirements relating to the
Company's claims were adequately performed. Since

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1992 possessory title for persons holding ten or more claims is maintained by
payment of an annual claim fee of $100 per claim. The Company believes it has
met the requirements for holding possessory title to the claims. The Company
believes the unpatented mining claims it holds have been located in compliance
with the applicable state and federal mining laws and generally accepted
standards in the mining industry. The Company is not aware at the present time
of any material conflicts with other parties concerning the claims and believes
it has valid possessory right in those claims.

OFFICE, WAREHOUSE AND MILLING FACILITIES:

The Company's principal executive offices are located at 6015 Lohman Ford Road,
Suite 100 Lago Vista, TX 78645 in approximately 1,900 square feet of office
space that is being leased from JAL, Inc. The Company is still awaiting a
revised one-year agreement from JAL, Inc. Monthly rental for such office space
is $900. This lease also requires a $75 per month common area fee and that all
utilities be paid by the Company.

In October, 1993, the Company acquired a warehouse containing approximately
4,400 square feet of commercial space located in Austin, Texas. This space is
used by the Company to package and store its inventory of smaller sized
products. Because said facility lacks permanent heating and air conditioning, it
is limited for use during the months of extreme cold or heat. This facility has
been used for the packaging of the smaller packaged products and storage of
inventory for the test marketing programs. As the Company has reduced test
marketing programs and prepared to move into full marketing from the Oregon
milling facility, the Company's need for this facility has decreased and the
Company leased approximately 40% of the facility to a tenant for $870 per month.

In October, 1995, the Company completed the acquisition of a milling facility
containing 103,125 square feet and approximately 3,500,000 cu. ft. of
production, packaging and storage space in Hines, Oregon, approximately 25 miles
from its Harney Basin zeolite deposits. This facility has been equipped with
milling and packaging equipment purchased from the proceeds of a private
placement completed during the first part of fiscal 1998. The current
configuration of the plant allows for the simultaneous production of several
product lines. Additional milling and packaging equipment has been purchased
that will allow the Company to increase its current capacity. Subsequent to the
end of fiscal year 2000, the Company obtained a line of credit from Robert and
Judith Bitterli in the amount of $215,000. Mr. Bitterli is the CEO, President,
and Chairman of the Board. This line is secured by a mortgage on the
manufacturing facility in Hines, Oregon.

Management believes that all its properties and equipment are adequately insured
and in good repair.

ITEM 3.  LEGAL PROCEEDINGS:

Neither the Company, any of its properties, nor its subsidiary is a party to any
material pending legal proceeding or government action, including any material
bankruptcy, receivership, or similar proceedings. Management of the Company does
not believe that there are any material proceedings to which any director,
officer or affiliate of the Company or its subsidiary, any owner of record,
beneficially, of more than 5 percent of the common stock of the Company, or any
associate of any such director, officer or affiliate of the Company, or security
holder is a party adverse to the Company or its subsidiary or has a material
interest adverse to the Company or its subsidiary. The Company does, from time
to time, get involved in litigation in the carrying out of its operations.

On or about July 6, 1998, the Company filed a Complaint For Declaratory Relief
(Case No. 98-07-145-CV) in the Circuit Court of the State of Oregon for the
County of Harney against David Calkins seeking removal of a Claim of Lien Upon
Chattels. Mr. Calkins was contracted by the Company to install milling equipment
for the Company in its Oregon Milling Facility. Mr. Calkins alleged that he was
not completely paid for the installation and filed a Claim of Lien Upon Chattels
(No. 980681) in the amount of $10,806.37. The Company alleges that, after
deducting items that were completed without the Company's approval and for the
personal benefit of Mr. Calkins and after paying directly to Service Providers
items that were billed to the Company by Mr. Calkins, the contract fees were all
paid to Mr. Calkins. The Company's management does not expect this litigation to
have any material impact on the Company, its management or its operations. This
matter is set for trial in May 2000.

                                       9
<PAGE>

The Company is also involved in a dispute over the lease of its office space in
Austin, Texas. The building was sold in August, 1999, and the new owner filed a
lawsuit, in state district court, Travis County, Texas, on August 27, 1999
challenging the existing lease and seeking damages. The Company filed an answer
and counterclaim. In addition, the new owner filed an eviction proceeding in
Travis County, Texas, Justice of the Peace Court, locked the Company out of the
premises for a brief period of time and then dropped the eviction proceeding and
ceased the lockout. The Company filed a response and claim for attorney's fees.
The Company and the new owner have conducted two mediations in an effort to
resolve the matter. On January 24, 2000 the Company, Lakeview Holdings, Inc.,
and Austin Young, Inc., reached an settlement which included a payment of
$50,000 to the Company from Lakeview Holdings,, Inc. and $60,000 in debt
forgiveness (applied to the short-term note payable) from Austin Young, Inc. The
Company also received all of the office furniture as part of the settlement.

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

During the fiscal year ended January 31, 2000, the Company solicited the proxies
of its security holders to vote upon the following matters at the annual meeting
of shareholders held on July 28, 1999:

      1. To elect four directors;
      2. To receive the reports of officers (without taking any action thereon);

      3. To authorize the board to evaluate the performance of the present
         auditing firm, Orton & Company, located in Salt Lake City, Utah and the
         hiring of a local firm as independent certified public accountants for
         fiscal year ending January 31, 2000, should the board deem it
         appropriate;
      4. To ratify and approve transactions with Austin Young, Inc. including
         the borrowing of working capital funds, use of assets as collateral and
         office/equipment leases;
      5. To ratify the compensation for directors who are not employees
      6. To transact such other business as may properly come before the
         meeting.

All matters voted upon by the shareholders at the annual meeting of shareholders
were approved or passed and the results of the voting were made available to all
shareholders.

                                     PART II

ITEM 5.  MARKET FOR  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:

The common stock of the Company is traded on the over-the-counter market on
NASD's Electronic Bulletin Board under the symbol "AANP". There currently exists
a limited trading market for the common stock; however, management of the
Company does not believe that a highly established market exists for the common
stock. The following table sets forth the high and low bid quotations for the
common stock as reported to the Company by market makers for the common stock.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
       YEAR ENDED         HIGH BID       LOW BID                   YEAR ENDED        HIGH BID     LOW BID PRICE
         1-31-99            PRICE         PRICE                      1-31-00           PRICE

<S>                        <C>            <C>                   <C>                   <C>            <C>
    First Quarter          $ 2.50         $ 1.31                First Quarter         $ 0.75         $ 0.34
    Second Quarter         $ 2.06         $ 1.44                Second Quarter        $ 0.94         $ 0.44
    Third Quarter          $ 1.56         $ 0.62                Third Quarter         $ 0.88         $ 0.50
    Fourth Quarter         $ 1.06         $ 0.56                Fourth Quarter        $ 0.53         $ 0.25
</TABLE>

As of January 31, 2000, there were approximately 430 holders of record (not
including shares held in street names in street accounts) of the common stock of
the Company as reported to the Company by its transfer agent. Based upon

                                       10
<PAGE>


requests for proxy materials by various proxy services, the Company estimates
that it currently has approximately 900 shareholders.

No cash dividends have been declared or paid as yet on the common stock. Whether
dividends will be paid will be determined by the Board of Directors of the
Company and will necessarily depend on the Company's earnings, financial
condition, capital requirements and other factors. The Board of Directors has no
current plans to declare any dividends in the foreseeable future. There are no
restrictions in effect, in loan documents or elsewhere, that would limit or
restrict the Company's ability to pay dividends.

At January 31, 2000, the Company had 50,000,000 shares of common ($.001 par
value) stock authorized and had 4,745,766 common stock shares outstanding and
had 10,000,000 shares of Convertible Preferred Stock ($.001 par value)
authorized and 294,584 outstanding. At March 31, 2000, 4,745,766 common stock
shares and 294,584 convertible preferred shares were outstanding.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:

The Company, per FASB statement No. 7, is properly accounted for and reported as
a development stage enterprise. The Company's efforts since entering its current
business have been devoted primarily to Company capitalization, acquisition of
mining properties, packaging and milling facility acquisitions and product and
market development.

The Company has realized limited sales in each of its fiscal years ended January
31, 1992 through January 31, 2000 from limited test marketing programs for its
products while in the development stage. During the development stage the
Company has developed over a dozen products and test marketed these products in
various parts of the country.

LIQUIDITY AND CAPITAL RESOURCES

Management believes it will be able to raise capital to provide for operations
and debt service. However, there can be no assurance that additional financing
will be available at all or, if available, such financing would be obtainable on
terms acceptable to the Company. If adequate financing is not available, the
Company may be required to curtail its operation significantly or to obtain
funds through entering collaborative agreements or other arrangements on less
favorable terms. The failure of the Company to raise capital on acceptable terms
would have a material adverse effect on the Company's business, financial
condition, and results of operations.

Austin Young, Inc., the former major stockholder of the Company, has provided,
through loans and equity funding, any deficiencies to the necessary working
capital during the development stage, but management expects funding from
private placements and other offerings will be sufficient for future development
costs. Austin Young, Inc. provided a small portion ($7,000) of the Company's
operating capital during fiscal year 1997 through advances on behalf of the
Company. The Company owed $202,385 to Austin Young, Inc. at January 31, 1997 and
$179,052 at January 31, 1998. The balance owing to Austin Young, Inc. was
reduced by $23,333 in principal and $14,167 in accrued interest during the
fiscal year ended January 31, 1998 by the exercise of options by Mr. Young. In
fiscal 1999, the debt to Austin-Young, Inc. was further reduced from $179,052
with proceeds of a private placement by $129,052 in principal to a balance of
$50,000 at January 31, 1999. On July 6, 1999, when the Company purchased
2,800,000 shares from Austin-Young, Inc., the Company had notes due to
Austin-Young, Inc. totaling $130,400 in principal and $2,921 in accrued
interest. The total amount of $133,321 was amortized into a 24-month note at
8.25% with monthly payments due of $6,325. On January 31, 2000, the outstanding
balance on this note was $112,275. Also at January 31, 2000, the Company had
notes payable to Directors John Krings, Richard Waterfield, and Robert Bitterli
for the following amounts respectively: $50,000, $5,000, $60,000. The Company
also had a $5,000 note payable outstanding to a shareholder. The Company has a
$118,800 installment due on July 6, 2000 for the first installment payment on
the note to repurchase the shares from Austin-Young, Inc. The only other
long-term note outstanding is the balance of the note to Austin-Young, Inc. for
$712,800. Revenues to date have provided insufficient funding of working
capital. Increasing revenues in the future from additional marketing programs
are expected to generate gross profits that will enhance the liquidity. Private
labeling of other companies' products in the future will also allow the Company
to increase gross profit dollars without tying up capital resources.

                                       11
<PAGE>


When possible, the Company has issued stock for the acquisition of assets or
services to reduce the need for additional operating capital from the major
stockholder, additional shareholders or gross profits from its limited marketing
efforts. A large part of the Company's zeolite mineral deposits were acquired by
stock issuance which is expected to play an integral part of maintaining a
competitive edge by keeping supply costs of the principal ingredient of its
packaged products to a minimum. When possible, the Company has supplemented
officer and director benefits through the issuance of restricted common stock.

During the fiscal year ended January 31, 1998 the Company issued 582,000 shares
in private placements for $815,000, 129,784 shares for services rendered to the
Company and valued at $132,380, 13,555 shares for equipment valued at $15,250,
25,000 shares through the exercise of an option to a director for $9,375 and
100,000 shares through the exercise of an option to an officer and director for
$37,500 in debt relief. During the year ended January 31, 1999 the Company
raised $1,219,639 (net of commissions of $53,428) through the sale of 963,269
restricted common shares. Additional milling equipment to increase the capacity
of the Oregon milling facility and valued at $121,554 was acquired through the
issuance of 82,063 restricted common shares. Another 135,480 restricted common
shares were issued for professional services rendered to the Company and valued
at $147,764. During the fiscal year ended January 31, 2000, the Company raised
operating capital through several private placements. During the first quarter
the Company issued 29,001 shares of common stock in a private placement for
$30,000. The Company also issued 35,000 common shares during the third quarter
for services rendered to the company at a value of $11,480. The Company also
obtained a $150,000 loan from Frost National Bank on September 1, 1999 to
provide funds to continue the operation. Proceeds from this loan were used to
pay off a note to a shareholder in the amount of $50,000. The remaining funds
were used to continue operations. And in December 1999, the company issued
100,000 shares of common stock in a private placement valued at $50,000. In
another private placement, the Company issued 294,584 shares of Convertible
Preferred Stack for a total investment of $140,000 in cash, $12,500 for
professional services, and $142,086 in debt conversion. Also during the most
recent fiscal year, the Company issued 80,514 shares of common stock valued at
$50,507 for Directors fees and stock for compensation to officers.

RESULTS OF OPERATIONS

During the fiscal years ended January 31, 2000 and January 31, 1999, the Company
continued to incur losses that reflect the continued development stage activity
and challenge to bring to market its line of products. However, during fiscal
2000 the losses incurred decreased to $(958,341) down from a loss of $(961,270)
in fiscal year 1999. The Company underwent a series of major changes throughout
the most recent year including the buyout of the majority shareholder and the
departure of the entire management team. As a result of the Company's continued
challenge to generate revenue, the Company remains designated as a development
stage enterprise. In addition to this fiscal year's loss, the Company has
incurred losses in each of its fiscal years ended January 31, 1997, 1998 and
1999. These losses are due to the Company incurring operating expenses during a
time when most of the efforts were expended in product and market development.

In fiscal year 2000, sales decreased form $153,873 in 1999 to $57,738. However,
the gross profit margin increase from 34% to 48%. Several factors that
contributed to the decrease in sales during 2000 include the loss of continuity
as the entire management departed during the second quarter of the year and the
departure of our VP of Sales early into the fourth quarter. Both of these events
further delayed our ability to bring to market our products in line with
industry buying cycles resulting in further delays in ramping up our sales.

In fiscal year 1999 and 2000, the primary increases in operational expenses have
been personnel related. Compensation related expenses increased in 1999 to
nearly $475,000 and up from just under $150, 000 in fiscal year 1998. In fiscal
year 2000, compensation related expenses decrease by approximately $44,000 to
$431,300. These expenses include salary and stock compensation for all officers
and employees. In 1999 the stock portion of these expense were partially
classified as professional fees. This reclassification allows for a better
comparison of year over year performance. Significant increases also occurred in
legal and accounting, and depreciation. Legal and accounting expenses climbed
from $47,950 in 1999 to over $118,300 in 2000. The dramatic increase reflects
the time, energy, and resources expending in 2000 to buyout the majority
shareholder, Austin-Young, Inc. and the legal battles the Company became
embroiled in after Lakeview Holdings, Inc. bought the building in which we
housed our corporate offices. The legal expenses related to that litigation
totaled over $21,000. The Company did settle that dispute and received a
settlement valued at approximately $125,000 including $50,000 in cash, $60,000
in debt

                                       12
<PAGE>

forgiveness, and $15,000 in furniture and fixtures. Depreciation continued to
increase in 2000 as we expensed an entire year of depreciation on the plant and
equipment. Depreciation expense increased $37,800 from $57,388 to $95,204 in
2000. Increases of $10,500, $3,300, and $1,200 were also recorded in interest
expenses, property taxes, and travel. On a positive note, management
successfully decreased professional fees by $31,000 to just over $14,000 in
2000. In 1999, professional fees total over $45,000. Advertising and marketing
expenses decreased from over $33,000 in 1999 to $10,150 in 2000 and insurance
expense (property and casualty, workers compensation, and health) decreased from
$18,180 to $11,375. The decrease in insurance reflects the discontinuing of
health insurance for employees and a substantial saving in workers compensation
premiums due to a reclassification of our risk code. Aggregated, total general
and administrative expenses decreased in 2000 to $891,471, down from $983,873 in
1999. The decrease of $92,402 reflects a decrease of nearly 9% year over year.

During fiscal year 1999, the Company's Oregon milling facility was completed and
placed into production. Sales increased to $153,873 from $47,472 the prior year,
or 224% as the milling facility opened and marketing personnel were added to the
payroll to begin new marketing activities. Better cost control over materials
used in the Company's products increased the gross profit percentage by
approximately 4% from 30% to 34.3%. Depreciation and amortization expense
increased by 276% from $15,224 to $57,388 as depreciation on the mill commenced.
The Company suffered an increase of 98% in general and administrative expense
from $496,585 in fiscal 1998 to $983,873 in fiscal 1999. A large portion of the
increase is attributable to extra expense associated with the production
facility, marketing personnel and marketing expense. Salary and payroll expenses
increased by $202,000 with the addition of production employees and management
salary increases. Additional marketing personnel also contributed to the
increase. Insurance expense increased by $28,200 due to the increased valuation
of the Oregon milling facility and the addition of health and hospitalization
insurance to certain employees as a benefit. Interest expense decreased by
$13,700 during the current fiscal year due to the repayment of approximately
$250,000 of bank debt and debt owed to the major shareholder. Travel expenses
decreased by $8,150 and outside service expense decreased by $3,100 due to more
personnel on the payroll. Professional services increased by $92,500 due to
executive benefits awarded in the form of restricted common stock and charged to
professional services. Legal expenses increased to $46,950 due to legal fees
incurred in the Charles Walden and David Calkins lawsuits as well as legal fees
incurred relating to private stock offerings.

As in past years, the Company paid $29,500 in August of 1999 to the Bureau of
Land Management for claims maintenance fees. The Company also incurred these
fees in the years ended January 31, 1997, 1998, and 1999.

The Company realizes gross profit margins generally ranging from 20% to 50% on
its product sales depending on product line and pricing levels. While still in
the test marketing phase, for the fiscal years ended January 31, 1998, 1999,
2000 and for the period from the inception date on February 9, 1984 to January
31, 2000, the Company had average gross profit margins of 30%, 34%, 48% and 37%
respectively. With the Oregon milling facility on line and an increased focus on
retail marketing, the gross profit margin for the fiscal year ended January 31,
2000 increased to 48% on significantly increased sales in the last one-half of
the year. Profit margins should increase and then stabilize once production and
marketing costs become reasonable with higher production levels and higher sales
volume. Bringing the Oregon milling facility into production should also
decrease product costs, thereby allowing the Company to increase gross profit
margins or reduce selling prices to facilitate increasing market share on each
of the products sold by the Company.

Ownership of its own zeolite deposits should also allow the Company to better
control its cost of sales since zeolite is the major raw material used in its
products. The Company also has negotiated mining arrangements with a mining
company to eliminate large capital requirements that would be necessary to
acquire equipment. Milling, packaging, and inventory arrangements have
eliminated the need to spend additional money for capital equipment during the
development stage.

During the fiscal year ended January 31, 1998, the balance of the note to
Austin-Young, Inc. decreased to $179,052 due to the exercise of options through
debt relief in the amount of $37,500 consisting of $23,333 in principal and
$14,167 in accrued interest. In fiscal 1999, the debt to Austin-Young, Inc. was
further reduced from $179,052 with proceeds of a private placement by $129,052
in principal to a balance of $50,000 at January 31, 1999. On July 6, 1999, when
the Company purchased 2,800,000 shares from Austin-Young, Inc., the Company had
notes due to Austin-Young, Inc. totaling $130,400 in principal and $2.921 in
accrued interest. The total amount of $133,321 was

                                       13
<PAGE>


amortized into a 24-month note at 8.25% with monthly payments due of $6,325. On
January 31, 2000, the outstanding balance on this note was $112,275 Also at
January 31, 2000, the Company had notes payable to Directors John Krings,
Richard Waterfield, and Robert Bitterli the following amounts respectively:
$50,000, $5,000, $60,000. The Company also has a $150,000 note payable due to
Frost National Bank. This note matures September 1, 2000 and has an interest
rate of Prime + 1%. The Company has a $118,800 installment due on July 6, 2000
for the first installment payment on the note to repurchase the shares from
Austin-Young, Inc. The only other long-term note outstanding is the balance of
the note to Austin-Young, Inc. for $712,800.

The Company has maintained current ratios of 0.50, 2.69, and 0.77 respectively,
for the fiscal years ended January 31, 2000, 1999 and 1998. The lower current
ratio for the fiscal year ended January 31, 2000 is reflective of the increase
in short-term debt the Company has had to take on to continue operations and the
increase in accounts payable and accrued expenses. Also included in the current
liabilities is the $118,800 payment due in July 2000 to Austin-Young, Inc. for
the purchase, by the Company, of 2,800,000 shares of common stock from
Austin-Young, Inc. For the year ended January 31, 1999, the reduction of the
note to the major shareholder and the repayment of a $125,000 bank loan relating
to a warehouse facility in Austin, Texas caused the current ratio to increase
from 0.77 in 1998 to 2.69 in 1999.

INFLATION

The Company does not expect inflation to have any material effect on its
revenues, costs or overall operation.

YEAR 2000 ISSUES

The Year 2000 (Y2K) issue is the result of computer programs and chips used in
computerized systems and equipment being written to recognize two digits rather
than four digits to define the applicable year. Any computer systems or
equipment utilizing chips that are not year 2000 compliant may recognize a date
using "00" as the year 1900 rather than the year 2000. If not addressed and
corrected, the direct result could be a system failure or miscalculations
causing disruption of operations, including, among other things, a temporary
inability to process customers transactions, order merchandise or engage in
similar normal business activities.

The Securities and Exchange Commission ("SEC") has asked public companies to
disclose four general types of information related to Year 2000 Preparedness:
the Company's state of readiness, costs, risks and contingency plans. Sec SEC
Release No. 33-7558 (July 29, 1998). Accordingly, the Company has included the
following discussion in this report, in addition to the Year 2000 disclosures
previously filed with the SEC.

     STATE OF READINESS

All equipment and computer systems currently utilized by the Company in-house
are year 2000 compliant. Most vendors used by the Company for packaging
materials used in packaging its products are large companies and the Company
expects that these companies will be year 2000 compliant. However, the Company
has not received written notification from all vendors affirming their year 2000
compliance. Therefore, there can be no assurance that the systems of other
companies with which the Company does business will be year 2000 compliant. None
of the Company's systems interface directly with any third-party vendors. None
of the Company's products are subject to year 2000 compliance so the Company
does not expect to incur any liability in this area. The failure on the part of
merchandise vendors, or other companies with whom the Company transacts
business, to be year 2000 compliant on a timely basis may have an adverse impact
on the operations of the Company.

     COSTS

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

                                       14
<PAGE>


     RISKS

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

     CONTINGENCY PLANS

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

                                       15
<PAGE>


            AMERICAN ABSORBENTS NATURAL PRODUCTS, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT

                            JANUARY 31, 2000 AND 1999

                                       16
<PAGE>



                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.

                                 AND SUBSIDIARY

                                TABLE OF CONTENTS

INDEPENDENT AUDITORS' REPORT

FINANCIAL STATEMENTS

   Consolidated Balance Sheets

   Consolidated Statements of Operations

   Consolidated Statements of Stockholders' Equity

   Consolidated Statements of Cash Flows

   Notes to Financial Statements

                                       17
<PAGE>


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

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheet of American
Absorbents Natural Products, Inc. and Subsidiary (a Utah corporation) (a
development stage company) as of January 31, 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended and for the period February 9, 1984 to January 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated balance sheet, statement of
operations, retained earnings and cash flows of American Absorbents Natural
Products, Inc. and Subsidiary, for the year ended January 31, 1999 were audited
by other auditors whose report dated February 26, 1999, included an explanatory
paragraph describing conditions that raised substantial doubt about the
Company's ability to continue as a going concern.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Absorbents
Natural Products, Inc. and subsidiary as of January 31, 2000, and the results of
its operations and its cash flows for the year then ended and for the period
February 9, 1984 to January 31, 2000 in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception and has experienced
liquidity problems. These conditions raise questions about the Company's ability
to continue as a going concern. Management's plans in regard to those matters
also are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Sprouse & Winn, L.L.P.
Austin, Texas
March 24, 2000

                                       18
<PAGE>


                                     ------
                                 ORTON & COMPANY
                          CERTIFIED PUBLIC ACCOUNTANTS
                           A PROFESSIONAL CORPORATION

                                     ------

 50 West Broadway, Suite 1130, Salt Lake City, Utah 84101 . (801) 537-7044, fax.
 (801) 363-0615

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of American
Absorbents Natural Products, Inc. and subsidiary (a Utah corporation) (a
development stage company) as of January 31, 1999 and 1998, and the related
consolidated statements of income, retained earnings, and cash flows for the
years then ended and for the period February 9, 1984 to January 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Absorbents
Natural Products, Inc. and subsidiary as of January 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended and for
the period February 9, 1984 to January 31, 1999 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception and has experienced
liquidity problems. Those conditions raise questions about the Company's ability
to continue as a going concern. Management's plans in regard to those matters
also are described in Note 19. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Orton & Company

Orton & Company
Salt Lake City, Utah
February 26, 1999

  MEMBERS: American Institute of Certified Public Accountants, Utah Association
 of Certified Public Accountants, Division for CPA Firms - SEC Practice Section

                                       19
<PAGE>


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

                           CONSOLIDATED BALANCE SHEETS

                            JANUARY 31, 2000 AND 1999


                                     ASSETS

<TABLE>
<CAPTION>
CURRENT ASSETS
<S>                                                                             <C>             <C>
   Cash                                                                         $  9,512        $  4,966
   Accounts receivable
     Trade                                                                        31,447          53,005
     Other                                                                           -0-             730
   Prepaid expenses                                                               17,208          17,208
   Inventory                                                                     345,851         262,121
                                                                          --------------   -------------

          Total Current Assets                                                   404,018         338,030
                                                                          --------------   -------------

PROPERTY AND EQUIPMENT                                                           651,984         749,844
                                                                          --------------   -------------

OTHER ASSETS

   Mining claims                                                               5,081,569       5,081,569
   Notes receivable                                                                  -0-           5,000
   Other                                                                           1,725            -0-
   Certificates of Deposits                                                       15,000          15,000
                                                                          --------------   -------------
           Total Other Assets                                                  5,098,294       5,101,569
                                                                          --------------   -------------

                                                                              $6,154,296      $6,189,443
                                                                          ==============   =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                       $ 391,938        $ 61,394
   Notes payable                                                                 155,000          14,281
   Current portion related party long-term debt                                  252,397          50,000
                                                                          --------------   -------------

      Total Current Liabilities                                                  799,335         125,675

   RELATED PARTY LONG-TERM DEBT, LESS CURRENT MATURITIES                         755,884            -0-
                                                                          --------------   -------------


      Total Liabilities                                                        1,555,219         125,675
                                                                          --------------   -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Common stock; authorized 50,000,000 common shares at $0.001 par
      value; 7,635,766 and 7,391,251 shares issued and 4,745,766 and
      7,391,251 outstanding, respectively                                          7,560           7,392
   Preferred stock; authorized 10,000,000 shares at $0.001 par value;
      294,584 shares issued and outstanding                                          295            -0-
   Treasury stock, at cost, 2,890,000 shares in 2000                            (945,000)           -0-
   Capital in excess of par value                                             10,120,390       9,682,203
   Deficit accumulated during the development stage                           (4,584,168)     (3,625,827)
                                                                          --------------   -------------

          Total Stockholders' Equity                                           4,599,077       6,063,768
                                                                          --------------   -------------

                                                                              $6,154,296      $6,189,443
                                                                          ==============   =============
</TABLE>


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                       20
<PAGE>

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

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                                     From  Inception
                                                                         For the Years Ended          on February 9,
                                                                            January 31                 1984 Through
                                                                   -----------------------------        January  31,
                                                                      2000               1999              2000
                                                                   ----------        ----------        -------------
<S>                                                                 <C>               <C>                   <C>
REVENUE
   Net Sales                                                        $ 57,738          $ 153,873             $ 498,739
   Cost of goods sold                                                 29,782            101,034               316,673
                                                                ------------       ------------         -------------
      Gross Profit                                                    27,956             52,839               182,066
                                                                ------------       ------------         -------------

EXPENSES
   General and administrative                                        891,471            983,686             4,560,283
   Depreciation and amortization                                      95,204             57,388               238,827
                                                                ------------       ------------         -------------

      Total Expenses                                                 986,675          1,041,074             4,799,110
                                                                ------------       ------------         -------------

Other Income (Expense)
   Rent                                                               10,440              8,527                26,872
   Interest                                                            1,755                738                 2,668
   Gain (loss) on sale of assets                                     (11,817)            17,800                 5,983
                                                                ------------       ------------         -------------

      Net Other Income                                                   378             27,065               35,523
                                                                ------------       ------------         -------------

Net loss before provision for income taxes                          (958,341)          (961,170)           (4,581,521)

Provision for income taxes                                                                  100                 2,647
                                                                ------------       ------------         -------------
                                                                         -0-

NET LOSS                                                          $ (958,341)         $(961,270)          $(4,584,168)
                                                                ============       ============         =============

LOSS PER SHARE:
  Basic                                                             $   (.17)          $   (.14)
                                                                ============       ============

Weighted average shares outstanding - basic                        5,748,521          6,933,958
                                                                ============       ============
</TABLE>


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                       21
<PAGE>


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

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

             FROM INCEPTION ON FEBRUARY 9, 1984 TO JANUARY 31, 2000


<TABLE>
<CAPTION>
                                                                                                                           Deficit
                                                                                                                         Accumulated
                                                                                                          Additional      During the
                                                Common Stock          Preferred Stock        Treasury       Paid-in      Development
                                             Shares       Amount     Shares      Amount    Stock Amount     Capital         Stage
                                             ---------    -------    -------    --------  --------------   ----------    -----------
<S>                                         <C>           <C>           <C>      <C>         <C>         <C>              <C>
Balance at Inception February 9, 1984           -0-       $ -0-         -0-       $ -0-       $   -0-    $       -0-       $    -0-

Issuance of common stock for cash            37,500          38         -0-         -0-           -0-            962            -0-

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

Net loss from inception  to
  January 31, 1990                              -0-         -0-         -0-         -0-           -0-            -0-         (1,618)
                                           ---------      ------      ------       -----         -----       ---------    ----------
Balance at January 31, 1990                  37,500          38         -0-         -0-           -0-          1,480         (1,618)

Issuance of common stock for services
  rendered in August 1990                   391,000         391         -0-         -0-           -0-          7,429            -0-
Issuance of common stock in September
    1990 for various assets from
    Austin-Young, Inc.                       50,000          50         -0-         -0-           -0-        198,890            -0-

Issuance of common stock for
  distribution licenses from
  Global Environmental Industries
  (GEI) for UT    & WA, September
  1990                                       50,000          50         -0-         -0-           -0-         37,070            -0-

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

Issuance of common stock for services
 rendered in October 1990                    12,500          12         -0-         -0-           -0-         37,488            -0-

Net loss for the year ended
January 31, 1991                                -0-         -0-         -0-         -0-           -0-            -0-        (57,756)
                                           ---------      ------      ------       -----         -----     ---------      ----------

Balance at January 31, 1991                 541,000         541         -0-         -0-           -0-        295,857        (59,374)

Common stock returned in exchange
   for commonstock of GEI in
   March 1991                               (17,000)         17         -0-         -0-           -0-        (85,423)           -0-

Repurchase of common stock from
   Austin-Young, Inc. in May 1991          (338,000)       (338)        -0-         -0-           -0-        (64,682)           -0-

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

Issuance of common stock for the
purchase of product from Steelhead
Specialty Mineral in August 1991             10,000          10         -0-         -0-           -0-         74,990            -0-


Issuance of common stock for the
  purchase of mining claims in
  October 1991                               13,214          13         -0-         -0-           -0-        184,987            -0-

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

Contribution from Austin                        -0-         -0-         -0-         -0-           -0-         17,000            -0-

Net loss for the year ended
   January 31, 1992                             -0-         -0-         -0-         -0-           -0-             20        (93,315)
                                           --------       ------      ------       -----         -----      --------       ---------

Balance at January 31, 1992                 169,214         169         -0-         -0-           -0-        422,769       (152,689)
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                                                            Additional    During the
                                                  Common Stock          Preferred Stock        Treasury       Paid-in    Development
                                               Shares      Amount      Shares      Amount    Stock Amount     Capital       Stage
                                              --------    -------     -------     --------  --------------   ----------  -----------
<S>                                            <C>            <C>          <C>         <C>        <C>           <C>             <C>
Issuance of common stock for the acquisition
of Geo-Environment Services, Inc. in
February 1992                                  701,800        702         -0-         -0-        -0-            96,442         -0-

Issuance of common stock for the purchase of
  mining claims in March 1992                  243,000        243         -0-         -0-        -0-         4,859,757         -0-
Common stock canceled by officers and
directors in June 1992                         (32,430)       (32)        -0-         -0-        -0-                32         -0-

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

Contribution by Austin-Young, Inc.                 -0-        -0-         -0-         -0-        -0-            10,000         -0-

Issuance of common stock (pursuant to a
repurchase    agreement in May, 1991) to
Austin-Young, Inc. for  relief of debt in
July 1992                                    3,380,000      3,380         -0-         -0-        -0-            61,620         -0-

Net loss for the year ended
  January 31, 1993                                 -0-        -0-         -0-         -0-        -0-               -0-    (136,304)
                                             ---------    -------       -----       -----      -----          --------    --------

 Balance at January 31, 1993                 4,461,563      4,462         -0-         -0-        -0-         5,450,620    (288,993)

Issuance of common stock for services
  rendered in June 1993                         17,800         18         -0-         -0-        -0-            26,682         -0-

Issuance of common stock Austin-Young, Inc.
in June 1993                                    12,000         12         -0-         -0-        -0-            35,988         -0-

Issuance of common stock for cash
October 1993                                    66,667         67         -0-         -0-        -0-           199,936         -0-

Issuance of common stock as down payment
   on building October 1993                      6,000          6         -0-         -0-        -0-            29,994         -0-

Issuance of common stock for services
   rendered October 1993                        17,000         17         -0-         -0-        -0-            50,983         -0-

Issuance of common stock for cash December
1993                                            80,072         80         -0-         -0-        -0-           191,321         -0-

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

Net loss for the year ended
  January 31, 1994                                 -0-        -0-         -0-         -0-        -0-               -0-    (310,862)
                                             ---------    -------       -----       -----      -----          --------    --------

Balance at January 31, 1994                  4,661,102      4,662         -0-         -0-        -0-         6,021,524    (599,855)

Issuance of common stock for services
   rendered February 1994                        6,000          6         -0-         -0-        -0-            29,994         -0-

Issuance of common stock for services
  rendered in June 1994                         41,750         42         -0-         -0-        -0-           175,458         -0-

Issuance of common stock in a
  private offering                              22,500         22         -0-         -0-        -0-            89,978         -0-

Issuance of common stock for services
  rendered in November 1994                     15,000         15         -0-         -0-        -0-            46,235         -0-

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

Net loss for the year ended
  January 31, 1995                                 -0-        -0-         -0-         -0-        -0-               -0-    (709,048)
                                             ---------    -------       -----       -----      -----          --------    --------

Balance at January 31, 1995                  4,746,352      4,747         -0-         -0-        -0-         6,399,189  (1,308,903)

Issuance of common stock for services            9,000          9         -0-         -0-        -0-            22,391         -0-

Issuance of common stock in a private
offering                                       214,168        -0-         -0-         -0-        -0-           394,148         -0-
</TABLE>

                                       23
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                                                            Additional    During the
                                                  Common Stock          Preferred Stock        Treasury       Paid-in    Development
                                               Shares      Amount      Shares      Amount    Stock Amount     Capital       Stage
                                            ----------    -------    --------      ------  --------------- ------------ -----------
<S>                                          <C>          <C>           <C>         <C>        <C>          <C>         <C>
Contribution by Austin-Young, Inc.                 -0-        -0-         -0-         -0-        -0-           36,000          -0-

Net loss for the year ended
  January 31, 1996                                 -0-        -0-         -0-         -0-        -0-              -0-     (401,467)
                                            ----------    -------    --------      ------  ---------      -----------  -----------

Balance at January 31, 1996                  4,969,520      4,970         -0-         -0-        -0-        6,851,728   (1,710,370)

Issuance of common stock for cash in a
private offering                               130,960        131         -0-         -0-        -0-          156,729          -0-

Issuance of common stock for services          259,620        260         -0-         -0-        -0-          262,359          -0-

Net loss for the year ended
  January 31, 1997                                 -0-        -0-         -0-         -0-        -0-              -0-     (464,662)
                                            ----------    -------    --------      ------  ---------      -----------  -----------

Balance at January 31, 1997                  5,360,100      5,361         -0-         -0-        -0-        7,270,816   (2,175,032)

Issuance of common stock for cash in a
   private offering (net of commissions
   of $84,575)                                 582,000        582         -0-         -0-        -0-          729,843          -0-

Issuance of common stock for services          129,784        130         -0-         -0-        -0-          131,782          -0-

Issuance of common stock for purchase of
equipment                                       13,555         13         -0-         -0-        -0-           15,236          -0-

Issuance of common stock for cash pursuant
  to a stock option plan                        25,000         25         -0-         -0-        -0-            9,350          -0-

Issuance of common stock for partial
  redemption of a note pursuant to a stock
  option plan                                  100,000        100         -0-         -0-        -0-           37,400          -0-

Net loss for the year ended
  January 31, 1998                                 -0-        -0-         -0-         -0-        -0-              -0-     (489,525)
                                            ----------    -------    --------      ------  ---------      -----------  -----------

Balance at January 31, 1998                  6,210,439      6,211         -0-         -0-        -0-        8,194,427   (2,664,557)

Issuance of common stock in a private
   placement offering (net of commissions
   of $53,428)                                 963,269        963         -0-         -0-        -0-        1,218,676          -0-

Issuance of common stock for services          135,480        136         -0-         -0-        -0-          147,628          -0-

Issuance of common stock for purchase of
 equipment                                      82,063         82         -0-         -0-        -0-          121,472          -0-

Net loss for the year ended
  January 31, 1999                                 -0-        -0-         -0-         -0-        -0-              -0-     (961,270)
                                            ----------    -------    --------      ------  ---------      -----------  -----------

Balance at  January 31, 1999                 7,391,251      7,392         -0-         -0-        -0-        9,682,203   (3,625,827)

Issuance of common stock in a private
  placement offering                            129,001         78         -0-         -0-        -0-           79,921          -0-

Issuance of common stock for services          115,514         90         -0-         -0-        -0-           65,547          -0-

Issuance of preferred stock to redeem debt         -0-        -0-     142,084         142        -0-          140,372          -0-

Issuance of preferred stock in a private
offering                                           -0-        -0-     152,500         153        -0-          152,347          -0-

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

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

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

Net loss for the year ended
  January 31, 2000                                 -0-        -0-         -0-         -0-        -0-              -0-    (958,341)
                                            ----------    -------    --------      ------  ---------      -----------  -----------
Balance at January 31, 2000                  4,745,766    $ 7,560     294,584      $  295  $(945,000)     $10,120,390  $(4,584,168)
                                            ==========    =======    ========      ======  =========      ===========  ===========
</TABLE>
              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                       24
<PAGE>

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                    From Inception on
                                                               FOR THE YEARS ENDED JANUARY 31,       February 9, 1984
                                                               -------------------------------      Through January 31,
                                                                   2000                1999                 2000
<S>                                                             <C>                 <C>                  <C>
Cash Flows From Operating Activities
   Net loss                                                     $(958,341)          $(961,270)           $(4,584,168)
   Depreciation and amortization                                   95,204              57,388                238,827
   (Increase) decrease in receivables                              22,288             (52,763)               (31,447)
   (Increase) decrease in prepaid expenses                            -0-              72,000                 (5,208)
   (Increase) decrease in inventory                               (83,730)            (19,715)              (272,676)
   Increase (decrease) in payables                                279,950             (95,521)               354,521
   Loss from disposal of fixed assets                              11,817                 -0-                 13,377
   Stock issued for services                                       66,150             147,764              1,005,615
   Expenses paid by shareholder                                       -0-                 -0-                149,018
                                                                ---------           ---------            -----------
       Net Cash Used by Operating Activities                     (566,662)           (852,117)            (3,132,141)


Cash Flows From Investing Activities
   Purchase of fixed assets                                       (23,441)           (147,427)              (721,511)
   Purchase of product tradenames                                  (1,725)                -0-                (28,683)
   Purchase of note receivable                                        -0-                 -0-                 (5,000)
   Purchase of certificates of deposit                                -0-                 -0-                 (1,524)
   Organization costs                                                 -0-                 -0-                (15,000)
   Purchase/sale of mining                                            -0-                 -0-                  7,920
   Development costs                                                  -0-                 -0-                (58,599)
   Purchase of mining claims                                          -0-                 -0-                150,000
   Sale of licenses                                                   -0-                 -0-                (65,000)

       Net Cash Used by Investing Activities                      (25,166)           (147,427)              (737,397)
                                                                ---------           ---------            -----------


Cash Flows From Financing Activities
   Issuance of common stock                                        79,999           1,219,639              3,210,061
   Issuance of preferred stock                                    152,500                 -0-                152,500
   Issuance of notes payable                                      555,821                 -0-              1,203,031
   Purchase of treasury stock                                    (108,400)                -0-               (108,400)
   Principal payments on debt                                     (83,546)           (239,771)              (578,142)
                                                                ---------           ---------            -----------

       Net Cash Provided by Financing Activities                  596,374             979,868              3,879,050
                                                                ---------           ---------            -----------

Net (Decrease) Increase In Cash                                     4,546             (19,676)                 9,512

Cash at Beginning of Period                                         4,966              24,642                    -0-
                                                                ---------           ---------            -----------

Cash at End of Period                                           $   9,512           $   4,966            $     9,512
                                                                =========           =========            ===========
</TABLE>

                                       25
<PAGE>

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Continued)

<TABLE>
<CAPTION>
                                                                                                      From Inception on
                                                                  FOR THE YEARS ENDED JANUARY 31,     February 9, 1984
                                                                  -------------------------------     Through January 31,
                                                                      2000              1999               2000

Supplemental cash flow information:

Cash Paid For:
<S>                                                                  <C>             <C>                  <C>
   Interest                                                          $ 13,238        $   7,461            $   46,058
   Income Taxes                                                      $    -0-        $     100            $    2,547
Non-Cash Transactions:
   Stock issued for mining claims                                    $    -0-        $     -0-            $5,045,000
   Stock issued for down payment on building                         $    -0-        $     -0-            $   30,000
   Stock issued for services                                         $ 66,150        $ 147,764            $1,005,615
   Stock issued for stock of Geo-Environment Services, Inc.          $    -0-        $     -0-            $   97,144
   Stock issued for Inventory                                        $    -0-        $     -0-            $   75,000
   Stock issued for assets from Austin-Young, Inc. and
     Global Environmental Industries                                 $    -0-        $     -0-            $  236,060
   Stock issued for purchase of equipment                            $    -0-        $ 121,554            $  136,803
   Stock issued for partial redemption of note                       $    -0-        $     -0-            $   37,500
   Treasury stock repurchased in exchange for debt                   $831,600        $     -0-            $  831,600
   Treasury stock repurchased in settlement of note                  $  5,000        $     -0-            $    5,000
     receivable
   Debt assumed by buyer of fixed asset disposition                  $ 14,281        $     -0-            $   14,281
   Preferred stock issued as redemption of debt                      $142,084        $     -0-            $  142,084
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS

                                       26
<PAGE>


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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999

          NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          BUSINESS ORGANIZATION

                    American Absorbents Natural Products, Inc. was incorporated
                    on February 9, 1984 under the laws of the State of Utah and
                    under the name of TPI Land, Inc. as a wholly-owned
                    subsidiary of TPI, Inc. On September 14, 1990, the Company
                    changed its name to Environmental Fuels, Inc. and began
                    developing its involvement in various phases of the
                    conversion of vehicles to operating on compressed natural
                    gas. That developing; business was sold on April 23, 1991
                    (see Note 3).

                    On May 6, 1991, the Company changed its name to
                    Geo-Environmental Resources, Inc. and began its involvement
                    in the distribution of zeolite, a mineral product which is
                    an absorbent and has many potential uses such as oil and gas
                    well cleanup, shoe and refrigerator freshener, landfill
                    absorption, and other agricultural uses.

                    On February 6, 1992, the Company acquired the outstanding
                    stock of Geo-Environment Services, Inc., now a wholly owned
                    subsidiary involved in marketing of the zeolite products.
                    The transaction was accounted for at historical cost in a
                    manner similar to that in pooling of interest accounting for
                    business combinations.

                    In June  1995,  the  Company  changed  its name to  American
                    Absorbents  Natural  Products,  Inc.  and  the  name  of its
                    subsidiary to American Absorbents, Inc.


          DEVELOPMENT STAGE ENTERPRISE

                    The Company, per FASB Statement No. 7, is properly accounted
                    for and reported as a development stage enterprise.
                    Substantially all of the Company's efforts since its
                    formation have been devoted to establishing its new
                    business. No significant revenue has been earned as of the
                    balance sheet date. Operations have been devoted to raising
                    capital, purchasing zeolite property and establishing a
                    marketing plan.

          PRINCIPLES OF CONSOLIDATION

                    The consolidated  financial  statements include the accounts
                    of  American  Absorbents  Natural  Products,  Inc.  and  its
                    subsidiary American  Absorbents,  Inc.  Collectively,  these
                    entities  are referred to as the  Company.  All  significant
                    intercompany transactions and accounts have been eliminated.


                                       27
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                           (Continued)

                  METHOD OF ACCOUNTING

                           The Company recognizes income and expenses according
                           to the accrual method of accounting. Expenses are
                           recognized when performance is substantially complete
                           and income is recognized when earned. Earnings (loss)
                           per share are computed based on the weighted average
                           method. Stock options currently outstanding,
                           preferred stock and convertible debt were not used in
                           calculating earnings per share since the effect would
                           be antidilutive. The fiscal year of the Company ends
                           January 31 of each year. The financial statements
                           reflect activity from inception, February 9, 1984.

                  CASH AND CASH EQUIVALENTS

                           For purposes of the statements of cash flows, the
                           Company considers all highly liquid debt instruments
                           with a maturity of three months or less to be cash
                           equivalents.

                  NONMONETARY TRANSACTIONS

                           Nonmonetary transactions are transactions for which
                           no cash was exchanged and for which shares of common
                           stock were exchanged for assets. These transactions
                           are recorded at fair market value as determined by
                           the board of directors.

                  INVENTORIES

                           Inventories are stated at the lower of cost (FIFO
                           method) or market, and consist of the following:

                                                      2000             1999
                                                    --------         --------
                               Finished goods        $72,787          $52,484
                               Packaging products    174,134           72,657
                               Raw materials          98,930          136,980
                                                    --------         --------
                                                    $345,851         $262,121
                                                    ========         ========

                  ACCOUNTS RECEIVABLE

                           Accounts receivables are shown net of the allowance
                           for doubtful accounts. This amount was determined to
                           be $0 and $0 at January 31, 2000 and 1999.


                                       28
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                           (Continued)


                  MINING CLAIMS

                           Mining claims are stated at the lower of cost or
                           market.

                           Any costs incurred for the betterment of or to
                           increase the expected efficiency of the operations
                           related to the extraction from the Company mining
                           claims are capitalized and charged off to operations
                           over the expected economic life of the claims.

                  ESTIMATES

                           The preparation of financial statements in conformity
                           with generally accepted accounting principles
                           requires management to make estimates and assumptions
                           that affect reported amounts of assets and
                           liabilities, disclosure of contingent assets and
                           liabilities at the date of the financial statements
                           and revenues and expenses during the reporting
                           period. In these financial statements, assets,
                           liabilities and earnings involve extensive reliance
                           on management's estimates. Actual results could
                           differ from those estimates.

                  NOTE 2:  GOING CONCERN

                           The accompanying financial statements have been
                           prepared on a going concern basis, which contemplates
                           the realization of assets and the satisfaction of
                           liabilities in the normal course of business. The
                           Company has a working capital deficiency of $395,317,
                           an accumulated deficit of $4,584,168 as of January
                           31, 2000, and a net loss for the year then ended of
                           $958,341. Accordingly, its ability to continue as a
                           going concern is dependent on obtaining capital and
                           financing for its planned principal operations. The
                           Company plans to secure financing for its acquisition
                           strategy through the sale of its common stock and
                           issuance of debt. However, there is no assurance that
                           they will be successful in their efforts to raise
                           capital or secure other financing. These factors
                           among others may indicate that the Company will be
                           unable to continue as a going concern for a
                           reasonable period of time.

                  NOTE 3:  INCOME TAXES

                           The Company adopted Statement of Financial Accounting
                           Standards No. 109 "Accounting for Income Taxes" in
                           the fiscal year ended January 31, 1996 and has
                           applied the provisions of the statement on a
                           retroactive basis to the previous fiscal years which
                           resulted in no significant adjustment.


                                       29
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999


                  NOTE 3:  INCOME TAXES (Continued)

                  Statement of Financial Accounting Standards No. 109
                  "Accounting for Income Taxes" requires an asset and liability
                  approach for financial accounting and reporting for income tax
                  purposes. This statement recognizes (a) the amount of taxes
                  payable or refundable for the current year and (b) deferred
                  tax liabilities and assets for future tax consequences of
                  events that have been recognized in the financial statements
                  or tax returns.

                  Deferred income taxes result from temporary differences in the
                  recognition of accounting transactions for tax and financial
                  reporting purposes. There were no temporary differences at
                  January 31, 2000 and earlier years, and accordingly, no
                  deferred tax liabilities have been recognized for all years.

                  The Company had cumulative net operating loss carryforwards of
                  approximately $3,000,000 at January 31, 2000 and $2,200,000 at
                  January 31, 1999. No effect has been shown in the financial
                  statements for the net operating loss carryforwards as the
                  likelihood of future tax benefit from such net operating loss
                  carryforwards is not presently determinable. Accordingly, the
                  potential tax benefits of the net operating loss
                  carryforwards, estimated based upon current tax rates of
                  $1,050,000 at January 31, 2000 and $769,000 at January 31,
                  1999 have been offset by valuation reserves of the same
                  amount. The net change in deferred tax asset and offsetting
                  valuation reserve amounted to $281,000 for 2000 and $329,000
                  for 1999.

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

                  NOTE 4:  RELATED PARTY TRANSACTIONS

                  The major portion (42%) of the outstanding shares of the
                  Company are owned by Austin-Young, Inc., a Utah corporation
                  that has its primary office in Austin, Texas. Some individuals
                  are officers and directors in both Austin-Young, Inc. and the
                  Company. During the periods shown, there were several
                  transactions involving the majority shareholder and the
                  Company's officers and directors, as follows:

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

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

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


                                       30
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 4:  RELATED PARTY TRANSACTIONS (Continued)

                  August 17, 1990 - An option was given to Austin-Young, Inc. to
                  purchase an additional 2,000,000 shares (pre-split)(100,000
                  shares post-split) of stock at the price of one cent per
                  share. Also, an option plan was approved which provided that
                  the board of directors was authorized to issue up to 1,000,000
                  shares (pre-split) (50,000 shares post-split) to current and
                  future employees at a price of one cent per share. None of
                  these options were exercised. These options were later
                  rescinded by the board of directors in July 1993.

                  August 17, 1990 - Common investment shares of 12,500 were
                  issued to an officer and director for services.

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

                  May 13, 1991 - 3,380,000 shares of common stock were purchased
                  for $65,000 cash from Austin-Young, Inc. and canceled. The
                  Company agreed that Austin-Young, Inc. had the right to
                  repurchase these shares for the same price at any time up to
                  June 1, 1993.

                  February 1992 - the Company issued 701,800 shares of common
                  stock at $0.14 per share to the shareholders of Geo
                  Environment Services, Inc., (now AAI) for their stock.
                  Officers of the corporation were major shareholders of AAI.

                  July 1992 - 3,380,000 shares of common stock were issued at
                  $0.02 per share to Austin -Young, Inc. for debt relief of
                  $65,000.

                  February 1, 1993 - the Company issued to Austin-Young, Inc. an
                  option to purchase up to 1,000,000 shares of common stock at a
                  price of $3 per share. This option was set to expire on
                  February 1, 1998. 12,000 shares were exercised at a price of
                  $36,000. These options were cancelled by Austin-Young in 1997.


                                       31
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 4:  RELATED PARTY TRANSACTIONS (Continued)

                  July 27, 1993 - the Company issued an option to the employees,
                  officers and directors to purchase up to a maximum of 250,000
                  shares of common stock at a price of $3 per share. This option
                  was canceled on June 5, 1995.

                  October 8, 1993 - 6,000 shares of stock were issued at $5 per
                  share to Susan Young as down payment on the purchase of a
                  building.

                  During 1994, Austin-Young, Inc. issued several promissory
                  notes to the Company to cover cash shortages. Total promissory
                  notes issued was $61,424.

                  In June 1995, the Company adopted a 1995 stock option plan for
                  the employees, officers and directors to purchase up to
                  1,000,000 shares of common stock at market price. The options
                  expire seven years from the date of offer.

                  The Company is leasing its office space from a related party
                  pursuant to a 60 month lease agreement dated July 30, 1996 on
                  a month to month basis at $1,900 per month.

                  During 1996, Austin-Young, Inc. issued $38,000 in promissory
                  notes to cover cash shortages. $5,000 was paid back during the
                  year.

                  For the years 1990 to 1996, The Company's major stockholder,
                  Austin-Young, Inc. provided compensation to one of the
                  Company's officers and directors while working on projects
                  related to Company business. The compensation is shown as an
                  expense to the Company and capital contribution.

                  For 1997, the Company issued 128,869 shares of common stock in
                  lieu of cash to its officers and directors for services
                  performed. The stock was valued at $128,869, or $1 per share,
                  the trading value of the stock at the time of issuance.

                  In 1997, the Company was required to pay a balloon payment due
                  on its warehouse in September, 1996. Instead of finding long
                  term funding through a mortgage company, Austin-Young, Inc.,
                  the majority shareholder provided $125,000 in certificates of
                  deposit for collateral on a one year note of $125,000 provided
                  by a local bank to pay the balloon payment. The note was due
                  in September, 1997, but was extended to 1998. The note was
                  paid off in early 1999.

                  In 1997, the Company issued 16,751 shares of stock to
                  Austin-Young, Inc. for rent for the use of office space. The
                  office space is rented pursuant to a 60 month lease agreement.
                  In 1999, the Company paid cash for use of office space. Total
                  rent paid in 1999 was $22,800.


                                       32
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 4:  RELATED PARTY TRANSACTIONS (Continued)


                  In 1997, the Company contracted with American Crisis
                  Publishing (a wholly owned subsidiary of Austin-Young, Inc.)
                  to provide $40,000 (40,000 shares of common stock) of future
                  "mail out" services for company literature and future
                  advertising promotions. American Crisis Publishing specializes
                  in "the creation and preparation of booklets and mailouts for
                  the dissemination of information to the public."

                  In 1997, the Company purchased for $5,000 from Austin-Young,
                  Inc. a $20,000 note receivable from a former officer and
                  director for the purchase of common stock. The note was
                  discounted due to the poor probability of collection. The
                  Company intends to make a demand for payment on the note or
                  cancel the shares that were issued under the note. In 1998,
                  the Company filed suit to cancel the shares.

                  In 1999, the Company issued 135,480 shares for services
                  rendered, of which 118,527 was issued to company officers,
                  directors and employees at an average cost of $1.03, the
                  average trading value of the stock during the year, for
                  services rendered.

                  In 2000, the Company issued 115,514 shares for services
                  rendered, of which 115,514 were issued to company officers,
                  directors and employees at an average cost of $.57.

                  Included in Note 8 are notes payable to Directors of the
                  Company. During 2000, the Company received proceeds of
                  $240,821 and made payments of $63,546 on these notes. Included
                  in payments made is $30,000 that was converted to preferred
                  stock.

                  NOTE 5:  NONMONETARY TRANSACTIONS

                  Nonmonetary transactions consist of the transactions detailed
                  in Note 4 above and the transfer of common investment shares
                  to individuals and corporations for services and
                  distributorship license agreements, as follows:

                  September 24, 1990 - 50,000 shares of common stock were issued
                  at $0.74 per share to two corporations for distributorship
                  license agreements.

                  October 25, 1990 - 12,500 shares of common stock were issued
                  at $3 per share to individuals for services.

                  August 1991 - 10,000 shares of stock were issued at $7.50 per
                  share for trademarks and patents for two zeolite products.


                                       33
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999


                  NOTE 5:  NONMONETARY TRANSACTIONS (Continued)

                  October 1991 - 13,214 shares of stock were issued at $14 per
                  share for zeolite mining claims. January, 1992 - 20,000 shares
                  of common stock were returned to the treasury and canceled.

                  February 1992 - 701,800 shares were issued at $0.14 per share
                  for 100% of the shares of Geo-Environment Services, Inc.

                  March 1992 - 243,000 shares were issued at $20 per share for
                  zeolite mining claims (see Note 8).

                  June 1992 - 32,430 shares were canceled by officers and
                  directors.

                  June 1993 - 17,800 shares were issued at $1.50 per share for
                  services performed.

                  October 1993 - 6,000 shares were issued at $5 per share for
                  down payment on plant facility.

                  October 1993 - 17,000 shares were issued at $3 per share for
                  advisory services.

                  February 1994 - 6,000 shares were issued at $5 per shares for
                  legal services.

                  June 1994 - 25,750 shares were issued at $4 per shares for
                  services rendered.

                  June 1994 - 11,000 shares were issued at $5 per share for
                  services rendered.

                  June 1994 - 5,000 shares were issued at $3.50 per share for
                  services rendered.

                  November 1994 - 10,000 shares were issued at $3.50 per share
                  for services rendered.

                  November 1994 - 5,000 shares were issued at $2.25 per share
                  for services rendered.

                  In 1995 - 9,000 shares were issued at an average price of
                  $2.49 per share for services rendered.

                  In 1997 - 259,620 shares (185,620 related party) were issued
                  at an average price of $1.01 per share for various services
                  rendered.

                  In 1998 - 129,784 shares (82,449 related party) were issued at
                  an average price of $1.02 per share for services rendered.

                  In 1998 - 13,555 shares were issued at an average price of
                  $1.125 for the purchase of equipment.

                  In 1999 - 82,063 shares were issued at an average price of
                  $1.48 for the purchase of equipment.

                  In 2000, the Company disposed of a fixed asset. The purchaser
                  assumed the remaining debt of $14,821 on the disposed asset.

                  In 2000, 142,084 shares of preferred stock were issued at an
                  average price of $0.99 in exchange for debt.


                                       34
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 5:  NONMONETARY TRANSACTIONS (Continued)

                  In 2000, 115,514 shares of common stock were issued to
                  Directors or Officers for services rendered at an average cost
                  of $0.57.

                  In 2000, the Company reacquired 2,520,000 shares of common
                  stock from Austin-Young, Inc. in exchange for a note payable.

                  In 2000, the Company reacquired common stock in settlement of
                  a $5,000 note receivable.

                  All nonmonetary transactions, with related parties and non
                  related parties, transacted with stock of the Company were
                  measured either at the estimated fair value of the stock being
                  issued (stock market quotations) or fair value of goods or
                  services being rendered, whichever was more readily
                  measurable.

                  NOTE 6:  PROPERTY AND EQUIPMENT

                  Property and equipment consists of the following:

                                                           JANUARY 31,

                                                       2000             1999
                                                     --------         --------
                  Plant                              $287,781         $324,592
                  Machinery and equipment             515,853          486,011
                  Mining site improvements             53,696           52,715
                  Accumulated depreciation           (205,346)        (113,474)
                                                     --------         --------
                                                     $651,984         $749,844
                                                     ========         ========

                  Machinery and equipment (including computer equipment and
                  vehicles) is depreciated on the straight-line method over the
                  estimated useful lives of three to seven years. Plant is being
                  depreciated (straight line) over the estimated useful life of
                  20 years. Site improvements are being depreciated (straight
                  line) over an estimated useful life of ten years. Depreciation
                  expense is $95,204 and $57,388 for the years January 31, 2000
                  and 1999, respectively.

                  The Company has adopted SFAS No. 121, which requires a review
                  of any potential for the impairment of value of any long-lived
                  assets. It is the policy of the Company to annually review the
                  future economic benefit of all long- lived assets and to
                  charge off to operations any potential impairment of value of
                  long-lived assets when applicable.

                  In the past, the Company had agreements with various vendors
                  to do the mining and milling of its zeolite mineral and
                  products; this has resulted in minimal investment in machinery
                  and equipment. During 1997-1998, the Company began
                  construction of a new milling and packaging plant in Bums,
                  Oregon. The plant became operational during 1999.


                                       35
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 7:  MINING CLAIMS

                  The Company has purchased several zeolite mining claims in
                  three different regions in the western United States. All
                  purchases were acquired through stock issuance and are
                  described below.

                  In April 1991 (before acquisition by Geo-Environmental
                  Resources) (now American Absorbents Natural Products, Inc.),
                  the Company's subsidiary issued 440,000 shares of its stock
                  for mining claims containing zeolite in the Mohave County,
                  Arizona region, and the stock given was originally valued at
                  $.50 per share. Thus, the mining claims were originally valued
                  at $220,000. Since the value of the mining claims was not
                  readily determined the mining claims were written down to a
                  nominal value.

                  In October 1991 the Company acquired twenty zeolite mining
                  claims in Harney County, Oregon. The value of the claims was
                  agreed to be $185,000 by the seller and purchaser and 13,214
                  (132,143 pre-split) shares of common stock were issued. The
                  stock was quoted on the market at $1.40 per share, thus
                  determining the number of shares to be issued for the claims.

                  In December 1991, the Company acquired an additional 203
                  zeolite mining claims in the Harney County, Oregon region. A
                  geological study was conducted and reserves were estimated at
                  over 477,600,000 tons. The value per ton was also estimated
                  based on mining costs and market value of other companies in
                  the industry. The reserves were then discounted 99 1/2% and a
                  value was determined to be approximately $4,800,000. Stock was
                  then issued at market price to equal the value given to the
                  claims. In 2000 and 1999, $-0- and $100 of depletion was taken
                  on the claims, respectively.

                  NOTE 8:   NOTES PAYABLE

                  Notes payable consist of the following:
<TABLE>
<CAPTION>

                                                                                                           JANUARY 31,
                                                                                                      2000         1999
                  <S>                                                                              <C>           <C>
                  A note with a bank, bearing interest at 9.5%, revolving line of credit,
                  $25,000 secured by personal guarantee of a Company officer.                      $    -0-      $ 14,281

                  A note with an individual.  The original value of the note is $5,000.  The
                  note has an interest rate of 8.50% and is due on demand.  The note may              5,000           -0-
                  also be converted to common stock of the Company.

                  A note with a bank secured by a building.   The note has an interest rate
                  of 9.25% with monthly payments of interest.  The note matures on September        150,000           -0-
                  2, 2000.                                                                         --------      --------


                  TOTAL                                                                            $155,000      $ 14,281
                                                                                                   ========      ========
</TABLE>

                                       36
<PAGE>


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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999


                  NOTE 9:  RELATED PARTY NOTES PAYABLE

                  Notes payable - related party consist of the following:

<TABLE>
<CAPTION>
                                                                                                         JANUARY 31,
                                                                                                         -----------
                                                                                                      2000         1999
                                                                                                      ----         ----
                  <S>                                                                               <C>             <C>
                  A note with a former director of the Company.  The note has an interest
                  rate of 7.00% and 8.50% as of January 31, 1999 and 2000, respectively,            112,275         $50,000
                  with monthly payments of principal and interest of $6,325.  The note
                  matures in July 2001.

                  A note with a director secured by a building.  The original value of the
                  note was $5,000.  The note has an interest rate of 8.50% and is due on              5,000           -0-
                  March 16, 2000.

                  A note with a director secured by a building.  The original value of the
                  note was $50,000.  The note has an interest rate of 8.50% and is due on           $50,000           -0-
                  March 15, 2000.

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

                  A note with an officer of the Company. The original value of
                  the note was $15,000. The note has an interest rate of
                  8.50% and is due on demand.

                  A note with a former officer and director of the Company secured by
                  2,800,000 shares of common stock of the Company.  The original value of
                  the note was $924,000.  The note has annual principal and interest
                  payments of $118,800.  The note matures in July 2006.                             781,006          -0-
                                                                                                  ---------       ------
                  Total                                                                           1,008,281       50,000
                  Less curent marurities                                                           (252,397)     (50,000)
                                                                                                  ---------       ------
                  Related party long-term debt, less current maturities                           $ 755,884       $  -0-
                                                                                                  =========       ======
</TABLE>


                  NOTE 10:  PRIVATE PLACEMENT OF COMMON STOCK

                  During October 1993, the Company issued 66,667 shares of
                  restricted common stock in a private placement. The shares
                  sold for $3 per share and carried an option to purchase
                  additional shares within 120 days.

                  During December 1993, the Company issued 38,170 and 41,902
                  shares of restricted common stock in a private placement at $3
                  and $1.84 per share, respectively. The shares issued were
                  under an option agreement as part of the private placement
                  that occurred during October 1993.


                                       37
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999

                  NOTE 10: PRIVATE PLACEMENT OF COMMON STOCK (Continued)

                  On July 5, 1994, 22,500 shares of common stock were issued at
                  $4 per share in a Regulation D private stock offering

                  In 1996, the Company issued 214,168 shares of common stock in
                  a Regulation D private placement for total consideration of
                  $394,362.

                  In 1997, the Company issued 130,960 shares of common stock in
                  a Regulation D private placement for total consideration of
                  $156,860.

                  In 1998, the Company issued 582,000 shares at an average price
                  of $1.40 in three separate private placements. One private
                  placement was with a foreign customer that purchased 80,000
                  shares for $ 100,000.

                  The first private placement was sold in blocks of 4,000 shares
                  (minimum investment) at $1.25 per share with a royalty that
                  pays from the gross tonage of production from the zeolite
                  claims in Oregon, once under production. The royalty pays $3
                  per ton per minimum investment on 6,000 tons of zeolite mined
                  and sold. Total royalties paid per minimum investment will be
                  $18,000.

                  The second private placement was sold in blocks of 4,000
                  shares (minimum investment) at $2.50 per share with a similar
                  royalty that pays $2.00 per ton per minimum investment. Total
                  royalties paid per minimum investment will be $20,000 (10,000
                  tons).

                  The Company sold 432,000 shares under the first private
                  placement ($540,000) and 70,000 shares under the second
                  private placement ($175,000).

                  The royalty will be paid simultaneously ($5.00 per ton) to the
                  shareholders proportionately once the zeolite has been mined
                  and sold. The company may increase the amount of the royalty
                  payment to any holder of the royalty right above the specified
                  dollar per ton royalty, but in no event will the total royalty
                  payment exceed the maximum per investment. The increase in the
                  royalty amount paid would only decrease the time limit in
                  which the holder of a royalty right would receive the total
                  royalty amount. Royalty payments will be made quarterly after
                  the Company has made its quarterly financial statement filings
                  with the Securities and Exchange Commission and determined the
                  total tonnage that has been mined, milled and sold during the
                  reporting quarter.

                  In 1999, 963,269 shares were issued in a Regulation D private
                  placement at an average price of $1.27.

                  In 2000, 129,001 shares of common stock were issued in a
                  private placement at an average price of $.62 per share. In
                  addition, the Company issued 152,500 shares of preferred stock
                  in a private placement at an average price of $1.00 per share.


                                       38
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999

                  NOTE 11: ECONOMIC DEPENDENCY

                  In fiscal year 1999, the Company had developed four customers
                  that provided approximately 82.6% of the years sales volume.
                  In fiscal year 2000, the Company had one customer that
                  provided 52% of the years sales volume.

                  NOTE 12: FAIR VALUES OF FINANCIAL INSTRUMENTS

                  The following listing of the estimated fair value of financial
                  instruments is made in accordance with the requirements of
                  SFAS No. 107, "Disclosure About Fair Value of Financial
                  Instruments". The carrying amounts and fair value of the
                  Company's financial instruments at January 31, 2000 and 1999
                  are as follows:

<TABLE>
<CAPTION>
                                                                   January 31, 2000              January 31, 1999
                                                               -----------------------         ------------------
                                                             Carrying                        Carrying
                                                              Amount      Fair Values         Amount   Fair Values
                                                             --------     -----------        --------  -----------
                   <S>                                      <C>             <C>              <C>            <C>
                   Cash                                     $    9,512      $    9,512       $ 1,531        $ 1,531
                   Accounts receivable                      $   31,447      $   31,447       $53,735        $53,735
                   Notes payable including                  $1,163,281      $1,163,281       $64,281        $64,281
                    current maturities
</TABLE>

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

                  Cash

                  The carrying amounts reported on the balance sheet for cash
                  and cash equivalents approximate their fair value.

                  ACCOUNTS RECEIVABLE

                  The carrying amounts reported on the balance sheet for
                  accounts receivable are reported at net realizable value.

                  Notes Payable

                  The fair values of notes payable are estimated using
                  discounted cash flow analyses based on the Company's
                  incremental borrowing rate as the discount rate.


                                       39
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999



                  NOTE 13: CERTIFICATES OF DEPOSITS

                  During 1998, the Company was required to place a $15,000 bond
                  to insure the reclamation of any mining done on the mining
                  claims in Oregon. The Company has placed $15,000 in
                  certificates of deposits as a pledge against any reclamation
                  work that has to be done after mining operations have ceased.
                  The mining operations will continue for some time and the
                  certificates will not be useable as working capital for a
                  number of years. The interest earned on the certificates is
                  directly deposited to the Company's operating account.

                  NOTE 14: STOCK OPTIONS

                  The Company approved a stock option plan to the officers and
                  directors of the Company. A total of 250,000 options to
                  purchase 250,000 shares were offered at a price of $0.375 (the
                  market price at the time of offering). The options expire on
                  June 17, 2004. During 1998, 125,000 options were exercised at
                  the option price of $0.375 for total consideration of $46,875
                  ($9,375 cash and $37,500 in relief of debt). No options were
                  exercised in 2000 or 1999.

                  NOTE 15: LEASE ON OFFICE SPACE

                  During 1999 and 2000, the Company has leased out a portion of
                  its warehouse in Austin, Texas to another individual for $880
                  per month. The lease is month to month.

                  The Company leases certain equipment under non-cancelable
                  operating leases. Rent expense for the year ended January 31,
                  2000 amounted to $1,021.

                  Future minimum rentals are as follows:

                             2001                     $4,932
                             2002                      4,932
                             2003                      4,932
                             2004                      4,932
                             2005                      3,699
                             ----                    -------
                             Total                   $23,427
                                                     =======


                                       40
<PAGE>

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

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

                  FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999

                  NOTE 16: COMMITMENTS AND CONTINGENCIES

                  At January 31, 1999, the Company was involved in several legal
                  cases as follows:

                           -McLean V. American Absorbents Natural Products, Inc.

                  A former employee is seeking workers compensation coverage for
                  alleged injuries sustained on the job at the Oregon Plant.
                  During 2000, all administrative hearings were complete and the
                  Company was found not to be liable.

                           -American Absorbents Natural Products, Inc. V.
                           Calkins

                  A former independent contractor hired to construct the Oregon
                  plant placed a mechanics lien on the Oregon plant for alleged
                  unpaid claims and the Company has sued to remove the mechanics
                  lien since the claims are being contested. Calkins filed a
                  counter claim seeking damages in addition to his lien. The
                  case is in initial stages and an outcome cannot be determined
                  at this time.

                           -American Absorbents Natural Products, Inc. V.
                           Charles Walden

                  The Company filed suit against a former officer of the Company
                  seeking cancellation of 200,000 shares of stock issued for
                  non-payment. Mr. Walden counter sued for his ownership of the
                  stock and other damages. During 2000, the Company settled the
                  case by paying $15,000 for return of 40,000 shares and
                  canceling another 50,000 shares for settlement of the $20,000
                  original note that was signed for purchase of the 200,000
                  shares. Mr. Walden was allowed to keep the remaining 110,000
                  shares.

                  NOTE 17: SUBSEQUENT EVENT

                  Subsequent to year-end, various notes payable due to Company
                  and totaling $105,000 were converted to 330,906 shares of
                  common stock at an average price of $0.33 per share.

                  In addition, accrued wages totaling $28,000 due to an officer
                  of the Company at January 31, 2000, were converted to 84,849
                  shares of stock at an average price of $.33 per share.

                  Subsequent to year end the Company obtained a line of credit
                  in the amount of $215,000 from a director of the Company.

                  On January 24, 2000, the Company reached a settlement with
                  Lakeview Holdings, Inc., owner of office building, which
                  included a payment of $50,000 to the Company, $60,000 debt
                  forgiveness on a short term note payable to Austin-Young, Inc.
                  and all of the office furniture.


                                       41
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE:

There were no changes in or disagreements with the independent certified public
accountants relating to accounting principles or practices, financial statement
disclosure or auditing scope or procedure in any of the three most recent fiscal
years of the Company.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:

<TABLE>
<CAPTION>
                                                                                           SERVED AS DIRECTOR
      NAME                               POSITIONS WITH THE COMPANY               AGE       OR OFFICER SINCE
      ----                               --------------------------               ---       ----------------
      <S>                                <C>                                       <C>             <C>
      Robert L. Bitterli                 Chairman of the Board, Chief              43              1999
                                         Executive Officer, Director
                                         (May 99)

      Richard A. Waterfield              Director (March 1, 1999)                  60              1999

      Don Chapman                        Director (May 1999)                       63              1999

      John Krings                        Director (May 1999)                       70              1999

      David Stein                        Director (September 1999)                 37              1999

      Patrick Cassidy                    Director (September 1999)                 62              1999

      Dr. Jan Krason                     Director (February 2000)                  68              2000

      James W. Haake                     Chief Operating Officer                   50              1999

      David C. Scott                     Chief Financial Officer                   36              1999
</TABLE>

Directors and officers are elected annually on the date of the annual meeting of
shareholders to serve until the earlier of the next annual shareholders' meeting
date or the date on which their services to the Company cease. The Company
believes that there may have been Directors or Officers who may have been
delinquent in filings required under Section 16(a) of the Securities Exchange
Act of 1934.

William C. Branch's resigned as a member of the Board of Directors effective
February 26, 1999.

Terry L. Young resigned as Chief Executive Officer effective March 1, 1999 and
as Chairman of the Board of Directors and as a Director on April 30, 1999.

David W. Redding resigned as President, Chief Operating Officer, Assistant
Secretary, and Treasurer effective May 12, 1999. He resigned his position as
Chief Financial Officer effective March 1, 1999.

Donald L. Gillespie and Richard A. Waterfield were elected to the Board of
Directors of the Company in March 1999.

Donald L. Gillespie resigned as Chief Financial Officer effective August 31,
1999.


                                       42
<PAGE>

Robert L. Bitterli was elected as Acting Interim President on April 5, 1999 and
Chief Executive Officer, President and Director effective May 12, 1999.

Robert L. Bitterli was elected as Chairman of the Board effective July 28, 1999.

Donald R. Chapman was elected a Director in May 1999.

Nicholas N. Wentworth was elected Chairman of the Board of Directors in May
1999.

Nicholas N. Wentworth resigned as Chairman of the Board effective July 28, 1999.

John Krings was elected a director in July 1999.

David Stein was elected as a director in September 1999.

Patrick Cassidy was elected a director in September 1999.

James W. Haake was appointed Chief Operating Officer effective June 1, 1999.

Deborah Smetzer was appointed Secretary effective October 1999.

David Scott was appointed Chief Financial Officer September 1, 1999.

Aaron Thomas resigned as VP of Sales in November 1999.

Dr. Jan Krason was elected a director in February 2000.

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

ROBERT L. BITTERLI served as a director of the Company from June 1995 until June
1996 and became a director of the Company again in May 1999. He also became
Chief Executive Officer and President of the Company in May 1999. Mr. Bitterli
founded and served as President of Windfall Corporation, a management consulting
firm, specializing in corporations seeking and working with government
contracts. He also served as President of Security First Group Benefits
Corporation, one of the Trilon Financial group of companies (the 12th largest
financial organization in the world), providing marketing, sales, communication
and administrative services to employers for both qualified and non-qualified
pension and retirement plans. He served as Vice President of Security First
Group, a company providing investments and investment advisory services and as
General Partner of the Diversified Securities Network, a company specializing in
the sales of securities and limited partnerships. Mr. Bitterli was with Security
First Group for twelve years. He also owns J&B Properties, a residential
property investment and management company, and a majority interest in Devin
Lane Publishing, a publisher of thriller fiction. He served with honor in the
United States Army in an enlisted and commissioned capacity. He holds a B.S.
degree in Psychology from Campbell University in Bueise Creek, North Carolina
and an M.A. in Business Administration and Personnel Management, both from
Webster University in St. Louis, Missouri. Age 43.

RICHARD A. WATERFIELD has served as a director of the Company since March 1999.
He has been the owner of Database Marketing, a high tech marketing company,
since February 1997 and the owner of Waterworks Productions since October 1992.
Mr. Waterfield has been a loan consultant and lobbyist with Waterfield and
Associates since October 1991. He was elected as a representative to the Texas
State Legislature for District 88 and served two terms from 1986 to 1991. During
that time he was voted Outstanding Freshman Legislator. He served on the Human
Services Agriculture Committee and as a member of the Congressional Oil and Gas
Advisory Committee. From 1984 to 1991, Mr. Waterfield was the owner of Washita
Investments, a commodities trading firm. He was a part owner in Canadian
Feed-yard working in commercial cattle feeding operations, commodity trading and
risk management from 1975 to 1984. Mr. Waterfield has served on the Canadian
City Council, the Canadian School Board and on the board of directors of First
State Bank of Canadian, Texas. He attended Oklahoma State University majoring in
business and animal science. Age 60.


                                       43
<PAGE>

DONALD R. CHAPMAN has served as a director of the Company since May 1999. From
1962 to the present, Mr. Chapman has been involved in real estate investments
including purchase and sale of properties, financing of properties, construction
of properties and sub-division development. Since 1970, he has been
self-employed through the ownership of his own automobile sales and financing
company, Don Chapman Motor Sales. From 1960 to 1970, Mr. Chapman was employed in
auto sales and financing by Republic Finance Company. From 1959 to 1960, he was
in auto sales for Armstrong-Johnson Ford in Austin, Texas. Mr. Chapman attended
the University of Texas at Austin from 1954 to 1959. Age 63.

THE HONORABLE JOHN KRINGS has served as Director of the Company since July 1999.
Mr. Krings is currently the president of Krings, Corporation. Krings Corporation
provides consulting services for the defense industry, National Aeronautics and
Space Agency, and the Federal Aviation Agency. Prior to serving as President of
Krings Corporation, Mr. Krings served as Assistant Secretary of Defense. The
President appointed Mr. Krings as the first Director, Operational Test and
Evaluation (DOT&E)), Department of Defense (DOD), at the level of Assistant
Secretary of Defense. As such, he worked directly for the Secretary of Defenses
and Congress. Mr. Krings also served on the Defense Resource Board and Defense
Acquisition Board. He evaluated and reported independently to the Congress and
the Secretary of Defense in regard to the effectiveness and suitability of all
major weapon systems as a prerequisite to military systems entering full
production. Mr. Krings has thirty years experience in aerospace design,
engineering, testing, marketing and management with McDonnell Douglas
Corporation. He was responsible for all of McDonnell Douglas Corporation Navy
and Marine Corps programs. Mr. Krings served in the Air Force and Air National
Guard as fighter pilot, test pilot, and nuclear weapons expert. Mr. Krings holds
a B.S. degree in Chemistry and Physics. Age 70.

DR. PATRICK CASSIDY has served as director of the Company since September 1999.
Following his education at the University of Illinois, Iowa and Arizona and two
years in industry, Dr. Patrick Cassidy began as a group leader for Chemistry and
Materials at Tracor in Austin in 1966. In this contract research and development
endeavor he developed programs with NASA and the US Navy which became the
foundation for a new company, Texas Research Institutes (TRI) of which he was a
co-founder and which developed into a $12 million research and development
enterprise. In 1971 Dr. Cassidy joined the Chemistry Department at Southwest
Texas State University (SWT) where he began the Polymer Research Group (PRG)
which grew into the largest polymer synthesis group in the southwest United
States. That effort has resulted in over $7,000,000 in grants and contracts
coming to SWT. Dr. Cassidy also initiated in 1993 the Institute for
Environmental and Industrial Science (IEIS) at SWT, an entity which serves
regional industries using university resources, all the while creating
educational opportunities for students and research fellows. His technical
publications number over 140 including one book and ten chapters in other books
and encyclopedias. Oral papers total over 160 and eight patents have issued
under his direction. Invited lectures have been international in scope including
India, France, Holland, Mexico, Germany and Japan and have been given at about
50 locations. Dr. Cassidy has been active professionally as well serving in
local and national capacities for the American Chemical Society as a referee for
several journals as a proposal referee and as an advisory board member for
another university and an international journal. Age 62.

DAVID STEIN has served as director of the Company since September 1999. Mr.
Stein has served as Vice President and Managing Partner of Budget Leasing, Inc.
dba Roger Beasley Porsche-Saab-Volvo since May 1995. Concurrent with his current
position and ownership, Mr. Stein has served as an Area Director for the Texas
Automobile Dealers Association, served on a National Communication Vision Team
for Saab Cars, USA. He has served as a Director for the National Advertising for
Volvo Car Corporation and won the Dealer of Excellence Award from Volvo Car
Corporation in 1995, 1996, 1997, and 1998. Mr. Stein is also currently a member
of the prestigious National 20 Group that analyze policy, practice and
procedures for car dealers in the United States. Mr. Stein had previously served
as Finance Director and General Manager for Bill Munday, Inc. from October 1991
to March 1994. Mr. Stein was owner/operator of Volvo Center Bamberg in Bamberg
Germany from 1987 to 1991. David served as a loan officer and repossession
manager for Finance Center Federal Credit Union in Bamberg Germany. He also
served on active duty in the US Army from 1981 to 1985 detached to the 10th
Group Special Forces in Bad Tolz and US Border Patrol with the 2/2 ACR in Hof,
Germany. Age 37.

DR. JAN KRASON has served as director since February 2000. For the past 26 year,
Dr. Krason has served a s President and CEO of Geoexplorers International, Inc.
an international renowned consulting corporation. As a professional consultant,
Dr. Krason has served over forty clients, mostly mining and petroleum companies,
government agencies, and various international and domestic financial
institutions. Dr. Krason's forty years of experience include all aspects of
exploration for economically viable mineral petroleum deposits to include
project


                                       44
<PAGE>
management, geologic and special mapping, practically oriented research and
assessment of mineral and petroleum resources. His broad fields of professional
specialization and expertise include research on sediment-hosted and
volcanogenic gold, other precious and base metals specifically regarding their
relationships to hydrocarbons. He has extensive knowledge in basin analysis,
determination of formation, stability, and resources assessment of gas hydrates,
and conventional-type hydrocarbon deposits (particularly in the offshore
environment). Dr. Krason's consulting, projects, and lecturing have taken him to
over 60 countries including Canada, Mexico, Central and South America, Africa,
Australia, and Eastern and Central Europe to include the Newly Independent
States of the former Soviet Union. Dr. Krason has authored and co-authored over
100 scientific publications. Age 68

JAMES W. HAAKE served as the Chief Operating Officer of the Company since June
1999. The following jobs and services have given Mr. Haake over twenty years of
hands-on experience in fulfillment and distribution services, software
development, project and materials management, international logistics,
operations management, inventory and financial control, mobility, channel sales
allocation and leadership. In 1996, Mr. Haake became the Distribution Center
Manager for Softbank Service Group. During 1995 and 1996, he was a Project
Manager for GTE-TSI. During 1994, Mr. Haake was a District Manager for Optimum
Home Delivery. From 1991 to 1993, he was a Channel Sales Manager for CompuADD
Computer Corporation. Mr. Haake held various officer positions as a member of
the United States Army in several countries throughout the world from 1971 to
1991. From 1968 to 1971, he was a Journey Lineman with Florida Power & Light.
Mr. Haake holds B.A. degrees in Sociology and Psychology, both from St. Martins
College and a M.S. degree in Logistics Management from Florida Institute of
Technology. He has also attended the Logistics Executive Management College. Age
50.

DAVID C. SCOTT served as Chief Financial Officer of the Company since September
1, 1999. Prior to joining the Company, Mr. Scott served as Chief Financial
Officer for several banks and bank holding companies in Kentucky. His
responsibilities included all aspects of financial management to include the
day-to-day operations of the bank's accounting system; preparing reports to
management, shareholders, FDIC, Federal Reserve, and Kentucky banking
regulators; preparing and monitoring operational and technology budgets;
coordinating and conducting audit activities and holding company debt
management; developing operational policies; supervising all customer service
operations; and strategic planning Prior to his banking experience, Mr. Scott
served for nearly seven years in the US Army as a finance officer. While
serving on active duty, he was responsible for the payroll management function
for the 23,500 soldiers of the 101st Airborne Division (Air Assault),
reestablishing the worldwide quality assurance program for finance and
accounting units, and served as a disbursing officer while stationed in West
Germany. Age 36.

ITEM 10.  EXECUTIVE COMPENSATION:

The following table sets forth the aggregate remuneration paid or accrued for
the fiscal years ended January 31, 1998, 1999 and 2000, as to each officer of
the Company whose aggregate remuneration exceeds $100,000, and as to the
aggregate remuneration of all officers as a group:

<TABLE>
<CAPTION>
----------------------- ------- --------------------------------------- ------------------------------------ -----------------
                                       ANNUAL COMPENSATION (1)                LONG-TERM COMPENSATION
----------------------- ------- --------------------------------------- ------------------------------------ -----------------
                                                                                AWARDS              PAYOUTS
----------------------- ------- --------------------------------------- ------------------------------------ -----------------

----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
                                                                        RESTRICTED
NAME AND PRINCIPAL                                     OTHER ANNUAL    STOCK AWARDS  OPTIONS/    LTIP           ALL OTHER
POSITIONS                        SALARY     BONUS      COMPENSATION        ($)         SAR'S      PAYOUTS      COMPENSATION
                        YEAR       ($)       ($)           ($)                          (#)         ($)            ($)
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
<S>                      <C>      <C>         <C>           <C>           <C>            <C>         <C>            <C>
Robert L. Bitterli,
CEO                     2000       9,500     -0-           -0-             8,200        -0-         -0-            -0-
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
All Officers as a       1998     143,400     -0-           -0-            46,325        -0-         -0-            -0-
Group  (3 persons)
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
           (6 persons)  1999     251,438     -0-           -0-            84,998        -0-         -0-            -0-
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
           (8 persons)  2000     180,571     -0-           -0-            27,980        -0-         -0-            -0-
----------------------- ------- ---------- --------- ----------------- ------------- ----------- ----------- -----------------
</TABLE>

1) Excludes the value of personal use of Company office facilities and certain
other personal benefits. The value of such personal benefits cannot be
specifically or precisely ascertained without unreasonable effort. After
reasonable inquiry, however, the Company believes that the aggregate annual
amount of such personal benefits does not exceed $50,000 per person or 10% of
the total annual salary and bonus for the named executive officer.

                                       45
<PAGE>

The Company does not have any pension, retirement, deferred compensation or
similar plan for its officers, directors or employees.

Currently, directors do not receive any cash compensation for serving in their
roles as directors of the Company. The six outside directors, Richard
Waterfield, Don Chapman, John Krings, David Stein, Patrick Cassidy, and Jan
Krason each receive 500 shares of restricted common stock for each board meeting
attended. Former Directors Nicholas Wentworth and Donald Gillespie also received
shares for their service as a director. The fair market value of the common
stock is determined by the average of the closing price of the stock for the
preceding month.

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

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND

                            FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
---------------------------- ------------------- -------------------- ------------------- ---------------------------
                                                                          NUMBER OF          VALUE OF UNEXERCISED
                                   SHARES                                UNEXERCISED             IN-THE-MONEY
                                  ACQUIRED                               OPTIONS/SARS            OPTIONS/SARS
                                     ON                 VALUE           AT FY-END (#)           AT FY-END ($)
                                  EXERCISE            REALIZED           EXERCISABLE/            EXERCISABLE/
           NAME                     (#)                  ($)            UNEXERCISABLE           UNEXERCISABLE
---------------------------- ------------------- -------------------- ------------------- ---------------------------
<S>                                  <C>                  <C>             <C>                        <C>
David W. Redding                    -0-                  -0-              100,000 E                  0/0
---------------------------- ------------------- -------------------- ------------------- ---------------------------
</TABLE>

The exercisable options listed in the above table were granted to the David
Redding on June 17, 1997. Mr. Redding's 100,000 options are currently under
dispute.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
------------------------------------------------------------------------

The following table sets forth certain information furnished by the following
persons concerning the common stock ownership as of March 31, 2000, of (i) each
person who is known to the Company to be the beneficial owner of more than 5
percent of the common stock; (ii) all directors and executive officers; (iii)
directors and executive officers of the Company as a group:

<TABLE>
<CAPTION>
------------------------------------------ ---------------------------- -------------------------- ---------------
            NAME AND ADDRESS                    NUMBER OF SHARES          COMMON STOCK SUBJECT       PERCENT OF
           OF BENEFICIAL OWNER                   OF COMMON STOCK         TO OPTIONS OR WARRANTS        CLASS
------------------------------------------ ---------------------------- -------------------------- ---------------
<S>                                                  <C>                            <C>                <C>
Robert L. Bitterli                                   273,334                       -0-                  4.04
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Patrick Cassidy                                        2,176                       -0-                  0.00
 6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Donald Chapman                                        20,587                       -0-                  0.28
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Dr. Jan Krason                                       100,000                       -0-                  1.35
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645

------------------------------------------ ---------------------------- -------------------------- ---------------
</TABLE>


                                       46
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------ ---------------------------- -------------------------- ---------------
            NAME AND ADDRESS                    NUMBER OF SHARES          COMMON STOCK SUBJECT       PERCENT OF
           OF BENEFICIAL OWNER                   OF COMMON STOCK         TO OPTIONS OR WARRANTS        CLASS
------------------------------------------ ---------------------------- -------------------------- ---------------
<S>                                                    <C>                          <C>                 <C>
David Stein                                             926                        -0-                  0.00
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Richard Waterfield                                    7,995                        -0-                  0.01
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
James W. Haake                                       50,500                        -0-                  1.04
3800 Hudson Bend Rd.
Austin, TX 78734
------------------------------------------ ---------------------------- -------------------------- ---------------
David C. Scott                                       21,000                        -0-                  0.51
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
------------------------------------------ ---------------------------- -------------------------- ---------------
Officers and Directors                              489,826                        -0-                 10.32
as a Group (9 Persons)
------------------------------------------ ---------------------------- -------------------------- ---------------
</TABLE>

1)   Unless otherwise indicated, the second column reflects amounts as to which
     the beneficial listed in the first column has sole voting power and sole
     investment power.

2)   The total number of shares of common stock outstanding as of March 31,
     2000, was 4,745,766. Option shares to each named director or officer, which
     are not currently outstanding but which are subject to option exercise, are
     deemed to be outstanding for the purpose of computing that director's,
     officer's or group's percentage of ownership of outstanding shares of
     common stock, but are not deemed to be outstanding for computing the
     percentage of common stock owned by any other person.

3)   Of the shares set forth above for Robert L. Bitterli ,266,834 shares are
     held in the name of Mr. Bitterli and 6,500 are in his wife's brokerage
     account.

4)   Of the shares set forth above for Patrick Cassidy, all 2,176 are held in
     the name of Mr. Cassidy.

5)   Of the shares set forth above for Donald Chapman, 16,468 are held in his
     brokerage account, 3,819 are held n the name of Donald Chapman, and 300 are
     held in brokerage accounts with Mr. Chapman as custodian.

6)   Of the shares set forth above for Dr. Jan Krason, all 100,000 shares are
     held in the name of Dr. Krason.

7)   Of the shares set forth above for John Krings, 13,308 are held in the name
     of Mr. Krings.

8)   Of the shares set forth above for David Stein, 926 are held in the name of
     Mr. Stein.

9)   Of the shares set forth above for Richard Waterfield, 5,995 are held in the
     name of Mr. Waterfield and 2,000 are held in Mr. Waterfield's brokerage
     account.

10)  Of the shares set forth above for James Haake, all shares are held in the
     name of Mr. Haake.

11)  Of the shares set forth above for David C. Scott, 11,000 shares are held in
     the name of Mr. Scott, and 10,000 are held in Mr. Scott's brokerage
     account.


                                       47
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------- ---------------------------- -------------------------- --------------
            NAME AND ADDRESS                   NUMBER OF SHARES         PREFERRED STOCK SUBJECT    PERCENT OF
          OF BENEFICIAL OWNER              OF CONVERTIBLE PREFERRED     TO OPTIONS OR WARRANTS        CLASS
                                                   STOCK
----------------------------------------- ---------------------------- -------------------------- --------------
<S>                                                 <C>                            <C>                <C>
Robert L. Bitterli                                    -0-                         -0-                  -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
Patrick Cassidy                                       -0-                         -0-                  -0-
 6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
Donald Chapman                                      10,047                        -0-                 3.41
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
Dr. Jan Krason                                        -0-                         -0-                  -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
John Krings                                         30,000                        -0-                10.18
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
David Stein                                         20,000                        -0-                 0.00
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
Richard Waterfield                                  15,047                        -0-                 5.11
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
James W. Haake                                      30,000                        -0-                10.18
3800 Hudson Bend Rd.
Austin, TX 78734
----------------------------------------- ---------------------------- -------------------------- --------------
David C. Scott                                        -0-                         -0-                  -0-
6015 Lohman Ford Road, Suite 100
Lago Vista, TX 78645
----------------------------------------- ---------------------------- -------------------------- --------------
Officers and Directors                             105,094                        -0-                35.68
as a Group (9 Persons)
----------------------------------------- ---------------------------- -------------------------- --------------
</TABLE>

1)   Unless otherwise indicated, the second column reflects amounts as to which
     the beneficial listed in the first column has sole voting power and sole
     investment power.

2)   The total number of shares of preferred stock outstanding as of March 31,
     2000, was 294,584.

3)   Of the shares set forth above for Donald Chapman, 10,047 shares are held
     in the name of Mr. Chapman.

4)   Of the shares set forth above for John Krings, all 30,000 are held in the
     name of Krings, Inc. Defined Benefit Pension Plan.


                                       48
<PAGE>

5)   Of the shares set forth above for David Stein, all 20,000 are held jointly
     in Mr. Stein's and Ms. Kerwick's names.

6)   Of the shares set forth above for Richard Waterfield, all 15,047 shares are
     held in the name of Mr. Waterfield.

7)   Of the shares set forth above for James W. Haake, 30,000 are held in the
     name of Mr. Haake.


SECURITY OWNERSHIP OF NEWLY ELECTED OFFICERS AND DIRECTORS:

The following table sets forth the security ownership on the day proceeding the
date of election for each of the newly elected officers and directors elected to
their positions subsequent to March 31, 2000: NONE

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

As of January 31, 2000, Mr. Robert L. Bitterli had loans outstanding to the
company totaling $60,000. Mr. Bitterli is the CEO, President and Chairman of the
Board of Directors. As of March 31, 2000, Mr. Bitterli had loans outstanding to
the Company totaling $145,000. $45,000 was advanced to the Company at an
interest rate of 8.25% and was approved to be converted to equity in the form of
common stock at $0.33 per share at the March 13, 2000 regularly scheduled board
of directors meeting.. The remaining $100,000 was the amount outstanding on the
$215,000 line of credit Mr. and Mrs. Bitterli made available to the Company
February 29, 2000. This line of credit is secured by a first mortgage on the
real estate and manufacturing facility located in Hines, Oregon. The terms of
this line of credit include a $2,500 monthly payment to be applied to the
accrued interest and the outstanding principal balance. The interest rate on the
line of credit is 10%.

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

                                                                            Page

(a) (1) The following financial statements are included in Part II, Item 7:

        Report of Independent Auditors...............................       16

        Financial Statements:

           Consolidated  Balance  Sheets - January 31, 2000 and 1999.....   20

           Consolidated Statements of Operations - Years ended
             January 31, 2000, and 1998..................................   21

           Consolidated Statements of Stockholders' Equity (Deficit) -
             From inception on February 9, 1984 to January 31, 2000......   22

           Consolidated Statements of Cash Flows - Years ended
              January 31, 2000 and 1998 and from inception on
              February 9, 1984 to January 31, 2000.......................   25

           Notes  to Consolidated Financial Statements...................   27

     (2)  There are no financial schedules for the years ended January 31, 2000
          and 1999, submitted herewith. Registrant is exempted from filing such
          schedules because of its Form SB-2 Registration Statement filing.

     (3)  The following exhibits for the years ended January 31, 2000 and 1999,
          and from inception on February 9, 1984 to January 31, 2000 are
          submitted herewith:

           Exhibit 11 - Computation of Per Share Earnings (Loss)........   52


                                       49
<PAGE>

           Exhibit  21 - Subsidiary of the Registrant...................  53

           Exhibit  23 - Consent of Experts and Counsel.................  54

All other exhibits are omitted since the required information is included in the
financial statements or notes thereto, or since the required information is
either not present or not present in sufficient amount.

(b) There were two reports filed on Form 8-K during the period covered by this
report.


                                       50
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.

                                   By: /s/ Robert L  Bitterli
                                       --------------------------------------
                                     Robert L.  Bitterli,  Chairman of the Board

Date:  April 27, 2000

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

        Signature                   Title                             Date
        ---------                   -----                             ----

/s/ Robert L. Bitterli           Chairman of the Board, Chief    April 27, 2000
------------------------------   Executive Officer, and
Robert L. Bitterli               President

/s/ Patrick Cassidy                                              April 27, 2000
-----------------------------
Patrick Cassidy                  Director

/s/ David Stein

-----------------------------
David Stein                      Director                        April 27, 2000


/s/ John Krings

-----------------------------
John Krings                      Director                        April 27, 2000


/s/ Donald Chapman

-----------------------------
Donald R. Chapman                Director                        April 27, 2000


/s/ Richard Waterfield

-----------------------------
Richard Waterfield               Director                        April 27, 2000


/s/ David C. Scott

-----------------------------
David C. Scott                  Chief Financial Officer,         April 27, 2000
                                Principal Accounting Officer


                                       51
<PAGE>

                   AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
       EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)



<TABLE>
<CAPTION>

                                                                                      FROM INCEPTION ON
                                                                                      FEBRUARY 9, 1984
                                          FOR THE YEARS ENDED JANUARY 31,              THROUGH JANUARY 31,
                                          -------------------------------             -------------------
    Primary:                               2000                      1999                    2000
                                           ----                      ----                    ----
<S>                                     <C>                        <C>
    Average Shares Outstanding          5,748,521                  6,933,958                 N/A

    Net Loss                           $ (958,341)                $ (961,170)           $ (4,584,168)

    Earnings (Loss) Per Share          $    (0.17)                $    (0.14)                N/A
</TABLE>


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