U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY --- PERIOD ENDED JUNE 30, 1997.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FORM ____ TO ____.
Commission file number: 0-6292
AAROW ENVIRONMENTAL GROUP, INC.
(Name of small business issuer in its charter)
Nevada 73-1491593
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
1317 South Turner
Springdale, Arkansas 72764
(Address of principal executive offices) (Zip Code)
(501) 466-7138
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and has
been subject to such filing requirements for the past 90 days. Yes No X
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No .
Applicable only to corporate issuers
The number of outstanding of Common Stock as of June 30, 1997, was 9,312,622.
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
Index to Quarterly Report on Form 10-QSB
Part I - FINANCIAL INFORMATION Page
Item 1. Financial Statements ....................................... 3
Consolidated Balance Sheets
As of June 30 1997, and June 30, 1996 .............. 3
Consolidated Statements of Income
For the Six Months Ended June30, 1997 and 1996 ..... 4
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996 .... 5
Notes to Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation . 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 14
Item 2. Changes in Securities...................................... 14
Item 3. Defaults Upon Senior Securities ........................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....... 14
Item 5. Other Information ......................................... 14
Item 6. Exhibits and Reports on Form 8-K .......................... 14
Signatures................................................................... 15
Financial Data SchedulE...................................................... 17
2
<PAGE>
Part I - Financial Statements
Item 1. Financial Statements
AAROW ENVIRONMENTAL GROUP, INC.
BALANCE SHEET
As of June 30, 1997 and December 31, 1996
<TABLE>
<S> <C> <C>
June December
Assets 30, 1997 31, 1996
---------------- ---------------
Current Assets:
Cash and Cash Equivalents $ 9,646 $ 2,147
Accounts Receivable 2,197 0
Inventory 24,788 31,625
Insurance Claim 119,182 119,182
---------------- ---------------
TOTAL CURRENT ASSETS $ 155,813 $ 152,954
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $ 23,730 and $ 11,639 respectively) 9,927 46,005
Other Assets
Organization Costs (net of accumulated amortization of
$ 1,575 and $ 2,025 respectively) 2,475 2,925
---------------- ---------------
TOTAL ASSETS $ 168,215 $ 201,884
================ ===============
Liabilities and Stockholders Equity
Current Liabilities:
Accounts Payable $ 18,336 $ 20,309
Payroll Taxes Payable 70,804 67,005
Accrued Interest Payable 3,800 733
Current Portion of Long Term Notes 65,673 66,891
---------------- ---------------
TOTAL CURRENT LIABILITIES $ 158,613 $ 154,938
LONG TERM LIABILITIES 0 3,654
---------------- ---------------
TOTAL LIABILITIES $ 158,613 $ 158,592
Stockholders Equity
Common Stock, $ 0.001 par value, 30,000,000 shares $ 7,619 $ 7,619
authorized, 9,312,622 shares issued and outstanding
Convertible Preferred Stock, $0.001 par value, 5,000,000 shares 3,000 3,000
authorized, 3,000,000 shares issued and outstanding,
one share convertible for three shares common
Paid in Capital 99,881 99,881
Retained Earnings ( 100,898) ( 67,208)
----------------- ----------------
TOTAL STOCKHOLDERS EQUITY $ 9,602 $ 43,292
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 168,215 $ 201,884
================ ===============
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
3
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF INCOME
For the Three Months Ended June 30, 1997, the Three Months Ended June 30, 1996,
the Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
<TABLE>
<S> <C> <C> <C> <C>
Three Months Three Months Six Months Six Months
6-30-97 6-30-96 6-30-97 6-30-96
----------- ------------ ----------- -----------
Sales Income $ 21,197 $ 135,485 $ 28,290 $ 337,992
Cost of Sales
Materials $ 7,762 $ 18,371 $ 9,549 $ 47,066
Warehouse Labor 0 9,841 0 22,322
Freight 0 222 0 1,183
----------- ----------- ----------- -----------
Total Cost of Sales $ 7,762 $ 28,434 $ 9,549 $ 70,571
----------- ----------- ----------- -----------
GROSS PROFIT $ 13,435 $ 107,051 $ 18,741 $ 267,421
Operating Expenses 14,171 70,291 23,993 163,638
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS ($ 736) $ 36,760 ($ 5,252) $ 103,783
Other Income and (Expenses)
Interest Income $ 0 $ 180 $ 0 $ 180
Interest Expense ( 1,530) ( 367) ( 3,136) ( 2,134)
Penalties ( 0) ( 0) ( 1,549) ( 0
------------ ------------ ------------ -----------
Total Other Income and (Expenses) ($ 1,530) ($ 187) ($ 4,685) ($ 1,954)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND INCOME TAXES ($ 2,266) $ 36,573 ($ 9,937) $ 101,829
Extraordinary Items and Income Taxes
Extraordinary Item-Note Receivable ($ 20,455) ($ 0) ($ 20,455) ($ 0)
Extraordinary Item- Loss on Repossession ( 0) ( 0) ( 3,298) ( 0)
Income Taxes ( 0) ( 11,540) ( 0) ( 35,376)
------------ ------------ ------------ ------------
Total Extraordinary Items and Income Taxes ($ 20,455) ($ 11,540) ($ 23,753) ($ 35,376)
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($ 22,721) $ 25,033 ($ 33,690) $ 66,453
============ =========== ============ ===========
WEIGHTED AVERAGE number of common stock
and common stock equivalents outstanding 16,618,702 16,618,702 16,618,702 16,618,702
=========== =========== =========== ===========
NET INCOME (LOSS) per common stock and
common stock equivalents ($ .001) $ .002 ($ .002) $ .004
============ ========== ============ ===========
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
4
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF CASH FLOWS
For Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
<TABLE>
<S> <C> <C>
Six Months Six Months
June 30, 1997 June 30, 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 33,690) $ 66,453
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 2,952 6,785
Amortization 450 450
Extraordinary Items 23,753 0
(Increase) decrease in:
Accounts Receivable ( 2,197) ( 14,773)
Prepaid Expenses 0 658
Inventory 6,837 ( 38,609)
Increase (decrease) in:
Bank Overdraft 0 ( 2,151)
Accounts Payable ( 1,973) ( 15,603)
Payroll Taxes Payable 3,799 12,936
Sales Taxes Payable 0 ( 31)
Accrued Interest Payable 3,068 ( 1,001)
Accrued Income Taxes 0 35,376
---------------- ---------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $ 2,999 $ 50,490
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment $ 0 ($ 1,052)
Note Receivable Stockholder 0 ( 30,775)
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES $ 0 ($ 31,827)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Long-Term $ 0 $ 70,000
Short-Term 4,500 0
Debt Reduction
Long-Term 0 ( 68,744)
---------------- ----------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 4,500 $ 1,256
---------------- ---------------
NET INCREASE IN CASH $ 7,499 $ 19,919
CASH AT BEGINNING OF THE PEROID 2,147 3,008
---------------- ---------------
CASH AT END OF PERIOD $ 9,646 $ 22,927
================ ===============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 1,530 $ 2,134
================ ===============
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
5
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended June 30, 1997, the Three Months Ended June 30, 1996,
the Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
STATEMENT OF SIGNIFICANT ACCOUNTING ASSUMPTIONS
BASIS OF ACCOUNTING
- ---------------------
The financial statements of Aarow Environmental Group, Inc. at June 30, 1997,
have been prepared on the accrual basis of accounting. Using this method,
revenue and expenses are recognized when occurred.
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments which are, in the
opinion of management, necessary for a fair presentation. These financial
statements have not been audited by an independent accountant.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate.
However, these financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the annual report on
form 10-KSB for the year ended December 31, 1996. The financial data for the
interim periods presented may not necessarily reflect the results to be expected
for the full year.
INVENTORY
- ---------
Inventory is carried at the lower of cost or market and consists of raw
materials and ready to sell products.
PROPERTY AND EQUIPMENT
- ----------------------
Property and Equipment are recorded at acquisition cost. Depreciation is
computed using accelerated methods by charging against earnings amounts
sufficient to amortize the cost of the related assets over their estimated
useful lives.
INCOME TAXES
- ------------
For income tax reporting and financial statement reporting at June 30, 1997, the
Company is using depreciation methods that are the same and therefore there is
no accrual for deferred income taxes at this time. However, because of various
elections available at the time of filing the income tax returns, there may be
future differences between income tax depreciation expense and financial
statement depreciation expense giving rise to accrual of deferred income taxes
NOTE-1: INSURANCE CLAIM
- -----------------------
On August 8, 1996 a fire destroyed $ 119,282 worth of finished inventory. This
inventory was insured by Loyds of London for cost less a $ 100 deductible. The
company has submitted a claim for payment and expects payment from the insurer
for the full insured amount.
6
SEE ACCOUNTANTS REPORT
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended June 30, 1997, the Three Months Ended June 30, 1996,
the Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
NOTE-2: PROPERTY , PLANT AND EQUIPMENT
- ---------------------------------------
All assets are recorded at original cost. Depreciation is calculated using
accelerated methods, lives are five years for office equipment, seven years for
manufacturing equipment and furniture, and 10 years for Leasehold Improvements.
NOTE-3: THE COMPANY'S LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
- ----------------------------------------------------------------
<TABLE>
<S> <C> <C>
June Dec.
30, 1997 31, 1996
---------------- ------------
Anchor Financial, 21 % interest, $ 354.39 per month $ 1,173 $ 1,173
Maturity Date: 6-30-1997
Secured by computer printers and a copier
Springdale Bank & Trust, 10.25%, $ 534.58 per month 0 9,372
Maturity Date: 5-10-98
Secured by 90 GMC truck
Springdale Bank & Trust, 10.25%, Monthly Int. Only Payment 60,000 60,000
Maturity Date 4-26-96
Secured by Inventory and A/R
Miscellaneous Short Term Loan 4,500 0
Payable on demand
Secured by Common Stock
Current Portion of long-term debt ( 65,673) ( 66,891)
----------------- ----------------
Long-term debt, less current portion $ 0 $ 3,654
================= ===============
The following is a summary of principal maturities of debt:
June 30, 1998 $ 65,673
</TABLE>
NOTE-4 RELATED PARTY TRANSACTIONS AND EXTRAORDINARY ITEMS
On February 24, 1997 Springdale Bank and Trust, a note holder, called a note in
the amount of $ 9,372 that was in default. Springdale Bank and Trust obtained
possession of the collateral which was a 90 GMC truck.
At December 31, 1996 Dan Pilkington was the president of the company. As
president, Mr. Pilkington made various assets available to himself which totaled
a book value of $ 20,455. The removal of these assets was originally recorded as
a note receivable from officer. It has been determined that this receivable is
not collectable and is being recognized as an extraordinary item on the June 30,
1997 income statement.
NOTE-5 MANAGEMENT CHANGE
- ------------------------
On May 12, 1997 a new president, officers, and board of directors were elected.
SEE ACCOUNTANTS REPORT
7
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended June 30, 1997, the Three Months Ended June 30, 1996,
the Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
NOTE-6: GOING CONCERN
- ---------------------
As shown in the accompanying financial statements, the company has incurred a
loss for the period ended June 30, 1997 and has a deficit in working capital.
Due to inadequate management in previous quarters there has been a reduction in
the number of distributors for the company's product resulting in a
corresponding drop in overall sales. As discussed in Note-5 the existing
president at March 31, 1997 was removed and new officers were elected. The new
management has begun a plan to recapitalize the company and to reestablish the
relationship with the distributors. There can be no assurance that the company
will be successful in its efforts to implement this plan. If the company is
unsuccessful in its efforts, it may be necessary to undertake such other actions
as may be appropriate to preserve asset value. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE-7 EARNINGS PER COMMON SHARE
- --------------------------------
Earnings per common share were computed using the weighted average number of
common shares outstanding after adding the dilutive effect of the conversion of
the preferred stock.
SEE ACCOUNTANTS REPORT
8
<PAGE>
SUPPLEMENTAL INFORMATION
9
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended June 30, 1997, the Three Months Ended June 30, 1996,
the Six Months Ended June 30, 1997 and the Six Months Ended June 30, 1996
<TABLE>
<S> <C> <C> <C> <C>
Three Months Three Months Six Months Six Months
6-30-97 6-30-96 6-30-97 6-30-96
---------- ----------- ---------- -----------
Operating Expenses
Accounting $ 260 $ 1,500 1,460 $ 3,650
Advertising 0 100 0 100
Amortization 225 225 450 450
Auto & Truck 0 5,746 1,642 8,778
Bank Charges 0 6 116 56
Credit Card Fees 0 104 0 138
Contributions 0 500 0 500
Depreciation 792 3,393 2,952 6,785
Dues & Subscriptions 0 220 0 220
Entertainment 0 0 0 0
Equipment Rental 0 0 0 0
Insurance 0 2,727 222 5,327
Management Expense 0 758 0 851
Miscellaneous 60 0 60 18
Office Expense 2,956 1,083 3,500 5,679
Office Salaries 6,000 8,502 6,000 17,047
Other Salaries 0 7,800 0 15,303
Payroll Tax Expense 459 1,999 459 4,182
Postage 0 0 0 1,664
Rent 0 6,723 1,062 13,344
Repairs 0 45 0 285
Sales Commission 0 2,000 0 18,371
Supplies 880 817 880 1,465
Taxes & Licenses 0 45 0 130
Telephone 453 6,303 453 16,286
Travel 1,840 17,857 4,491 40,412
Unemployment Taxes 246 1,154 246 1,154
Utilities 0 684 0 1,443
---------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES $ 14,171 $ 70,291 $ 23,992 $ 163,638
=========== =========== =========== ===========
</TABLE>
SEE ACCOUNTANTS REPORT
10
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Report.
Rendezvous Trails of America, Inc. (formerly Holiday Resorts
International, Inc.) ("RTA"), the former parent of Aarow Environmental (formerly
Rain Forest - Moose, Ltd.), was incorporated in April 1970. The name of the
Company was changed from Rain Forest - Moose, Ltd., to Aarow Environmental
Group, Inc., on June 13, 1997. Since 1986, RTA became inactive and did not
conduct any operations or activities through 1995 and, as of December 31, 1995,
did not have any assets. Pursuant to an Agreement and Plan of Merger, dated
February 23, 1996, RTA merged with and into Aarow Environmental as the surviving
corporation. The merger of RTA with and into Aarow Environmental effectively
changed the state of domicile of RTA to Nevada as a result of Aarow
Environmental being the surviving corporation and was accounted for as a
reorganization of entities under common control which was recorded at historical
cost. Rain Forest - Moose, Ltd., an Arkansas corporation ("RFM Arkansas"), was
formed on March 15, 1994. Pursuant to a Plan of Reorganization and Agreement of
Merger, dated March 5, 1996, RFM Arkansas merged with a wholly-owned subsidiary
of the Company, and as the surviving corporation, RFM Arkansas became a
wholly-owned subsidiary of the Company which was accounted for as a reverse
acquisition of the Company by RFM Arkansas under the purchase method of
accounting (the "RFM Arkansas Acquisition"). Therefore, the following discussion
and analysis of results of operations discussed below are only those of RFM
Arkansas prior to the RFM Arkansas Acquisition.
Results of Operations
The following table sets forth selected results of operations for (i)
the three months ended June 30, 1996 and 1997, which are derived from the
unaudited financial statements of the Company and (ii) for the six months ended
June 30, 1996 and 1997, which are derived from the unaudited financial
statements of the Company. The results of operations for the periods presented
are not necessarily indicative of the Company's future operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
1996 1997 1996 1997
---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent
Sales income................... $135,485 100.0% $ 21,197 100.0% $ 337,992 100.0% $ 28,290 100.0%
-------- ----- -------- ----- --------- ----- -------- -----
Cost of sales:
Materials.................... 18,371 13.6% 7,762 36.6% 47,066 13.9% 9,549 33.8%
Warehouse labor.............. 9,841 7.3% 0 % 22,322 6.6% 0 %
Freight...................... 222 .2% 0 1,183 .4% 0 %
------- ----- ------- ----- --------- ----- -------- ------
Total Cost of Sales........ 28,434 21% 7,762 36.6% 70,571 20.9% 9,549 33.8%
-------- ----- ------ ----- ------ ----- -------- ------
Gross profit................... 107,051 79% 13,435 63.4% 276,421 81.8% 18,741 66.2%
-------- ----- ------ ----- --------- ----- -------- ------
Operating expenses............. 70,291 51.9% 14,171 69.6% 163,638 48.4% 23,993 84.8%
-------- ----- ------ ---- --------- ----- --------- ------
Income or (loss) from operations 36,760 27.1% ( 736) 3.5% 103,783 30.7% ( 5,252) 18.6%
------ ----- ------ ---- --------- ---- --------- ------
Other income and (expense):
Interest income.............. 180 .1% 0 % 180 .1% 0 %
Interest expense............. ( 367) .3% ( 1,530) 7.2% (2,134) .6% (3,136) 11.1%
Penalties 0 % 0 % 0 % (1,549) 5.5%
Loss on Note Receivable 0 % (20,455) 96.5% 0 % (20,455) 72.3%
Loss on Repossession......... 0 % % 0 % (3,298 11.7%
------ ----- ------- ---- --------- ---- ------- -----
Total other income
and (expense)........... ( 187) .1% (21,985) 103.7% (1,954) .6% ( 28,438 100.5%
-------- ----- ------- ----- --------- ----- -------- -----
Income (Loss) before income taxes 61,033 45% ( 22,721) 107.2% 101,829 30.1% ( 33,690) 119.1%
Income tax expense............. ( 11,540) % 0 % (35,376) 10.5% 0 %
------- ------ -------- ----- --------- ---- -------- ------
Net Income or (loss)........... $ 25,033 18.5% $ (22,721) 107.2% $ 66,453 19.7% $ ( 33,690) 119.1%
======== ====== ======== ===== ========= ==== ========== ======
</TABLE>
11
<PAGE>
Comparison of the Three Months and Six Month Periods ended June 30,
1996 and 1997.
Sales income decreased to $28,290 in the six months ended June 30, 1997
(the "1997 Interim Period") from $337,992 for the six months ended June 30, 1996
(the "1996 Interim Period"). The decrease in revenues was due decreased sales of
Peat Moose Absorbent products during the 1997 Interim Period as compared to the
1996 Interim Period. The decrease in sales volume was attributable to continuing
operational problems resulting from the loss of $119,282 worth of finished
inventory to fire on August 8, 1996, and inadequate management in attempting to
deal with the difficulties resulting from the causality loss. Because of the
very low level of activity during the 1997 Interim Period cost of sales
decreased to $9,549, with no costs being incurred for warehouse labor or
freight. Gross profit declined to $18,741 in the 1997 Interim Period to compared
to $276,421 in the 1996 Interim Period, and as a percent of sales income
decreased to from 81.8 percent in the 1996 Interim Period to 66.2 percent in the
1997 Interim Period.
Operating expenses decreased to $23,993 in the 1997 Interim Period from
$163,783 in the 1996 Interim Period, but increased as a percent of sales income
from 48.8 percent in the 1996 Interim Period to 84.8 percent in the 1997 Interim
Period. The actual decrease in operating expenses and increase as a percentage
of sales was the result of cost cutting measures taken to preserve asset value
during the period of only nominal sales activity following the August 8, 1996,
casualty loss.
The Company experienced a $5,252 loss from operations in the 1997
Interim Period, compared to income from operations of $103,783 in the 1996
Interim Period. The loss from operations in the 1997 Interim Period was 18.6
percent of sales income. The Company also experienced a loss on the repossession
of a 1990 GMC truck as a result of the Company's default on a note to Springdale
Bank and Trust and an extraordinary loss in the amount of $20,455, as a result
of the loss of corporate assets, treated for financial purposes as an
uncollectible note receivable.
Net income before income taxes was $101,829 in the 1996 Interim Period
(which represented 30.1 percent of income from sales). For the 1997 Interim
Period a loss of $33,690 was incurred which represented 119.1 percent of sales.
Net income after income taxes was $66,453 in the 1996 Interim Period (which
represented 19.7 percent of income from sales
Quarterly Results of Operations
The Company's operations are affected by seasonal trends principally
based upon weather conditions affecting the oil and gas and transportation
industries. In the Company's experience, sales volume tends to be higher in the
second, third and fourth calendar quarters and lower in the first quarter.
Because the general and administrative expenses associated with maintaining and
adding to the Company's manufacturing work force are relatively fixed over the
short term, the Company's margins tend to increase in periods of higher sales
volume and decrease in periods of lower sales volume. These effects are not
always apparent because of the impact and timing of factors which are beyond the
control of the Company. Nevertheless, the Company's results of operations for a
particular calendar quarter may not be indicative of the results to be expected
during other quarters.
Income Taxes
For income tax reporting and financial statement reporting at June 30,
1997, and June 30, 1996, the Company is using depreciation methods that are the
same and therefore there is no accrual for deferred income taxes at this time.
However, because of various elections available at the time of filing the income
tax returns, there may be future differences between income tax depreciation
expense and financial statement expense giving rise to accrual of deferred
income tax.
12
<PAGE>
Liquidity and Capital Resources
Historically, the Company financed its growth from borrowings and
shareholder contributions. Net cash provided by operating activities totaled
$50,490 in the 1996 Interim Period, while net cash provided by operating
activities totaled $2,999 in the 1997 Interim Period. As of June 30, 1997, the
Company had a working capital deficit in of $2,800. During the 1997 Interim
Period the Company continued to experience operating difficulties as a result of
lack of working capital following the August 8, 1996, casualty loss and the
resulting operational decline. The Company also continued to experience
inadequate management until the election of new management for the Company on
May 12, 1997. The new Management for the Company has begun a plan to
recapitalize the Company. There is no assurance that the Company will be
successful in its efforts to implement its plan for recapitalization and the
resumption of full operations.
As of December 31, 1996, RFM Arkansas had two long-term loans from
Springdale Bank & Trust Company (the "Bank"), which were secured by certain a
vehicle and inventory and accounts receivable, bear interest at 10.5 percent per
annum, and required monthly principal and interest installment payments of $535
through May 1998 and monthly interest payments. At December 31, 1996, the
outstanding principal balance of these loans were $9,372 and $30,000,
respectively. On February 24, 1997, Springdale Bank and Trust called the note in
the amount of $9,372 which was in default and obtained possession of the
collateral which was a 1990 GMC truck. The Company also has an equipment loan
with Anchor Financial Corp. secured by office equipment, bears interest at 21
percent per annum, and requiring monthly principal and interest installment
payments of $354. The outstanding principal amount of this loan at March, 31,
1997, was $1,173.
Currently cash flows from operations are not sufficient to service its
obligations under the various financing arrangements and maintain operations of
the Company. Management of the Company has developed a plan to recapitalize in
order to resume full manufacturing and marketing operations. However, there is
no assurance that the Company will be successful in its efforts to implement its
plan for recapitalization and the resumption of full operations.
13
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the period
covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger between Rendezvous Trails of
America, Inc. and Rain Forest - Moose, Ltd., dated February 23,
1996.*
2.2 Certificate and Articles of Merger of Rendezvous Trails of
America, Inc. with and into Rain Forest - Moose, Ltd.*
2.3 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten, dated
March 5, 1996.**
2.4 Certificate of Merger of RFM Acquisition Corporation of Oklahoma,
Inc. with and into Rain Forest - Moose, Ltd.**
4.1 Agreement and Plan of Merger between Rendezvous Trails of
America, Inc. and Rain Forest - Moose, Ltd., dated February 23,
1996.*
4.2 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten, dated
March 5, 1996**.
4.2 Certificate of the Powers Designation, Rights and Preferences for
the Series I Convertible Preferred Stock of Rain Forest - Moose,
Ltd., dated March 5, 1996.**
14
<PAGE>
4.3 Registration Rights Agreement between Rain Forest - Moose, Ltd.
and Dan Pilkington, dated March 5, 1996.**
10.1 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten, dated
March 5, 1996.**
10.2 Registration Rights Agreement between Rain Forest - Moose, Ltd.
and Dan Pilkington, dated March 5, 1996.**
27 Financial Data Schedule.
---------------
* Incorporated by reference to Form 8-K, dated March 5, 1996, filed
with the Commission on March 20, 1996.
** Incorporated by reference to Form 8-K, dated March 7, 1996, filed
with the Commission on March 22, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
In accordance with the Exchange Act, the Registrant caused this amended
report to be signed on its behalf by the undersigned, thereunto duly authorized.
AAROW ENVIRONMENTAL GROUP, INC.,
(Registrant)
By: /S/STANLEY L. SISEMORE
---------------------------
Stanley L. Sisemore, President
Date: August 25,1997
15
<PAGE>
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