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 MARCH 31, 1998.
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.
(Formerly RAIN FOREST-MOOSE, LTD.)
(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) 927-1884
(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
As of July 20, 1998 the number of shares of outstanding of Registered Class A
Common Stock, which is the class registered under the Securities Exchange Act of
1934, was 9,318,904.
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<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
Index to Quarterly Report on Form 10-QSB
Part I - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997 3
Unaudited Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Supplemental Information 9
Item 2. Management's Discussion and Analysis or Plan of Operation 10
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
</TABLE>
2
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Part I - Financial Statements
Item 1. Financial Statements
<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
March December
Assets 31, 1998 31, 1997
------------- --------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 0 $ 0
Accounts Receivable 0 1,043
Inventory 30,043 33,668
------------- --------------
TOTAL CURRENT ASSETS $ 30,043 $ 34,711
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $ 10,985 and $ 10,001 respectively) 11,111 12,095
Other Assets
Organization Costs (net of accumulated
amortization of $ 2,587 and $ 2,475 respectively) $ 1,913 $ 2,025
Noncompete Covenant (net of accumulated
amortization of $ 1,200 and $ 750 respectively) 16,800 17,250
------------- --------------
TOTAL OTHER ASSETS $ 18,713 $ 19,275
------------- --------------
TOTAL ASSETS $ 59,867 $ 66,081
============= ==============
Liabilities and Stockholders Equity
Current Liabilities:
Bank Overdraft $ 130 $ 2,316
Accounts Payable 32,254 26,538
Payroll Taxes Payable 114,221 107,965
Accrued Interest Payable 13,485 7,700
Judgment Payable 18,370 18,370
Short Term Notes 57,230 55,000
Current Portion of Long Term Notes 60,000 60,000
------------- --------------
TOTAL CURRENT LIABILITIES $ 295,690 $ 277,889
LONG TERM LIABILITIES 0 0
------------- --------------
TOTAL LIABILITIES $ 295,690 $ 277,889
Stockholders Equity
Common Stock, $ 0.001 par value, 30,000,000 shares authorized, $ 9,244 $ 9,024
9,243,987 shares issued and outstanding
Convertible Preferred Stock, $0.001 par value, 5,000,000 shares 3,000 3,000
authorized, 3,000,000 shares issued and outstanding,
one share convertible for three shares common
Paid in Capital 201,229 189,249
Accumulated Deficit ( 449,296) ( 413,081)
-------------- ---------------
TOTAL STOCKHOLDERS EQUITY ($ 235,823) ($ 211,808)
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 59,867 $ 66,081
============= ==============
</TABLE>
See notes to unaudited financial statements.
3
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<TABLE>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
March March
31, 1998 31, 1997
------------- -----------
<S> <C> <C>
Sales Income $ 8,163 $ 7,094
Cost of Sales
Materials 5,566 1,788
------------- --------------
GROSS PROFIT $ 2,597 $ 5,306
Operating Expenses 30,744 9,890
------------- --------------
INCOME/(LOSS) FROM OPERATIONS ($ 28,147) ($ 4,584)
Other Income and (Expenses)
Interest Expense ($ 5,785) ($ 1,538)
Penalties ( 2,283) ( 1,549)
-------------- ---------------
Total Other Income and (Expenses) ($ 8,068) ($ 3,087)
-------------- ---------------
INCOME BEFORE EXTRAORDINARY ITEMS
AND INCOME TAXES ($ 36,215) ($ 7,671)
Extraordinary Item-Loss on Repossession $ 0 ( 3,298)
Income Taxes 0 0
------------- --------------
NET INCOME ($ 36,215) ($ 10,969)
============== ===============
WEIGHTED AVERAGE number of common stock
and common stock equivalents outstanding 18,243,987 16,618,702
============= ==============
NET INCOME per common stock and
common stock equivalents ($ .002) ($ .001)
============== ==============
</TABLE>
See notes to unaudited financial statements.
4
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<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
March March
31, 1998 31, 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ($ 36,215) ($ 10,969)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 984 2,160
Amortization 562 225
Extraordinary Item-Loss on Repossession 0 3,298
(Increase) decrease in:
Accounts Receivable 1,043 0
Prepaid Expenses 0 0
Inventory 3,625 87
Increase (decrease) in:
Bank Overdraft ( 2,186) 0
Accounts Payable 5,716 0
Payroll Taxes Payable 6,256 1,550
Sales Taxes Payable 0 0
Accrued Interest Payable 5,785 1,537
Judgment Payable 0 0
------------- -------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES ($ 14,430) ($ 2,112)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment ($ 0) ($ 0)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Long-Term $ 0 $ 0
Short-Term 2,230 0
Debt Reduction
Long-Term 0 ( 19,899)
Short-Term 0 0
Sale of Stock 12,200 0
------------- ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES $ 14,430 ($ 19,899)
------------- ------------
NET INCREASE/(DECREASE) IN CASH $ 0 ($ 2,112)
CASH AT BEGINNING OF PERIOD 0 2,147
------------- -------------
CASH AT END PERIOD $ 0 $ 35
============= =============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 5,785 $ 1,538
</TABLE>
See notes to unaudited financial statements.
5
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
STATEMENT OF SIGNIFICANT ACCOUNTING ASSUMPTIONS
BASIS OF ACCOUNTING
The financial statements of Aarow Environmental Group, Inc. (the "Company") at
March 31, 1998, 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, 1997. 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 March 31, 1998,
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: 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.
6
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<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Note 2: Noncompete Covenant
On July 29, 1997 the Company entered into an agreement with Evergreen
BioServices, Inc. whereby Evergreen grants Aarow the right to use Evergreen's
name and reputation to exclusively market remediation throughout the U.S. and
Mexican markets. Additionally, Evergreen agrees to work exclusively through
Aarow and Evergreen agrees not to compete with Aarow. Evergreen will supply the
engineering and technical support and will be responsible to accept or reject
all proposals concerning remediation through Aarow. This agreement begins on
July 29, 1997 and remains in effect for ten years at which time Aarow can renew
one time for an additional ten years
March 31, Dec. 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Noncompete Covenant $ 18,000 $ 18,000
Accumulated Amortization ( 1,200) ( 750)
----------------- ----------------
Net Noncompete Covenant $ 16,800 $ 17,250
================ ================
Note 3: Judgment Payable
On October 2, 1997 a judgment was entered in the Washington County Court,
Fayetteville, AR, against the Company. This judgment is in the amount of $
18,370 and accrues interest at the rate of 10 %.
Note 4: Short-Term Notes
On September 15, 1997 the Company issued a series of short term notes in the
amount of $ 5,000 each for a total of $ 55,000. Each note accrues interest at
the rate of 8 % and is a single pay note due September 15, 1998. In addition
20,000 shares of common stock and 100,000 common stock warrants were issued to
each note holder. In case of default the note agreements call for the issuance
of an additional 40,000 shares of common stock to each note holder.
One of the shareholders who is also a Director and Officer loaned the Company
$2,230. This is an unsecured non interest demand note.
Note 5: The company's Long Term debt consists of the following:
March. 31, Dec. 31,
1998 1997
---------------- ----------------
Springdale Bank & Trust, 10.25%, Monthly Int. Only $ 60,000 $ 60,000
Maturity Date 6-21-97
Secured by Inventory and A/R
Current Portion of Long Term debt ( 60,000) ( 60,000)
----------------- ----------------
Long Term debt, less current portion $ 0 $ 0
================ ================
The following is a summary of principal maturities of long term debt during the
next five years:
1998 60,000 60,000
</TABLE>
7
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Note 6: Stockholders' Equity
Common Stock: At March 31, 1998 there were 30,000,000 shares authorized,
9,318,904 issued and outstanding at $ 0.001 per share par value. At December 31,
1997 there were 30,000,000 shares authorized, 9,024,045 issued and outstanding
at $ 0.001 per share par value. The Company trades it's stock on the over the
counter bulletin board using the stock symbol of AARO.
Stock Warrants: There are 1,100,000 common stock warrants issued. Each common
stock warrant permits the holder to purchase at any time from September 15, 1997
until September 15, 2002 one share of the Company's common stock at the initial
exercise price of $ 0.50 per share. The common stock warrants are redeemable by
the Company upon thirty days written notice to the holder, at $ 0.001 per
warrant, conditioned upon the price of the common stock of the Company closing
for fourteen consecutive business days above $ 2.00 per share.
Convertible Preferred Stock: At March 31, 1998 and December 31, 1997 there were
5,000,000 shares authorized, 3,000,000 shares issued and outstanding. Each share
has a $ 0.001 par value and is convertible for three shares of common stock.
Note 7: Going Concern
As shown in the accompanying financial statements, the Company has incurred a
loss for the period ended March 31, 1998 and has a deficit in working capital.
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 Share of Common Stock
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.
8
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AAROW ENVIRONMENTAL GROUP, INC.
SUPPLEMENTAL INFORMATION TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
SUPPLEMENTAL INFORMATION
March March
31, 1998 31, 1997
------------- --------------
Operating Expenses
Accounting $ 4,514 $ 1,200
Amortization 562 225
Auto & Truck 500 1,642
Bank Charges 20 116
Credit Card Fees 0 69
Depreciation 984 2,160
Equipment Rental 92 0
Insurance 0 222
Legal Fees 1,494 0
Management Expense 0 0
Miscellaneous 0 544
Office Expense 800 0
Office Salaries 10,618 0
Payroll Tax Expense 1,248 0
Postage 414 0
Rent 3,000 1,062
Supplies 230 0
Telephone 3,668 0
Travel 2,600 2,650
------------- --------------
$ 30,744 $ 9,890
============= ==============
See notes to unaudited financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
unaudited consolidated 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").
Results of Operations
The following table sets forth selected results of operations for the
three months ended March 31, 1998 and 1997, and the twelve months ended December
31, 1997 and 1996 which are derived from the unaudited consolidated financial
statements of the Company. The results of operations for the periods presented
are not necessarily indicative of the Company's future operations.
<TABLE>
Three Months Ended March 31, For the Year Ended
------------------------------------- -------------------------------------
1998 1997 1997 1996
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Amount Percent Amount Percent Amount Percent Amount Percent
Sales Income $ 8,163 100.0% $ 7,094 100.0% $ 38,279 100.0% $ 404,056 100.0
-------- ------ --------- ------- --------- ------- --------- -----
Cost of Sales:
Materials $ 5,566 68.2% $ 1,788 25.2% $ 20,815 54.4% $ 113,269 28.0%
Warehouse Labor 0 0.0 0 0.0 0 0.0 49,202 12.2
Freight 0 0.0 0 0.0 198 0.5 1,183 0.3
-------- ------ --------- ------- --------- ------- --------- -----
Total Cost of Sales $ 5,566 68.2% $ 1,788 25.2% $ 21,013 54.9% $ 163,654 40.5%
-------- ------ --------- ------- --------- ------- --------- ------
Gross Profit $ 2,597 31.8% $ 5,306 74.8% $ 17,266 45.1% $ 240,402 59.5%
Operating Expenses 30,744 376.6% 9,890 139.4% 206,652 539.9% 290,044 71.8%
-------- ------ --------- ------- --------- ------- --------- ------
Income or (Loss) from Operations $(28,147) 344.8% $( 4,584) 64.6% $(189,386) 494.8% $( 49,642) 12.3%
--------- ------ ---------- ------- ---------- ------- ---------- ------
Other Income and (Expenses)
Interest Income $ 0 0.0% $ 0 0.0% $ 0 0.0% $ 934 0.2%
Interest Expense ( 5,785) 70.9 ( 1,538) 21.7 ( 7,036) 18.4 ( 4,463) 1.1
Penalties ( 2,283) 28.0 ( 1,549) 21.8 ( 6,517) 17.0 ( 16,017) 4.0
--------- ------ ---------- ------- ---------- ------- ---------- -----
Total Other Income and (Expense) $( 8,068) 98.9% $( 3,087) 43.5% $( 13,553) 35.4% $( 19,546) 4.9%
Income (Loss) before extraordinary
Items $(36,215) 443.7% $( 7,671) 108.1% $(202,939) 530.2% $( 69,188) 17.2%
Extraordinary Items
Loss on Note Receivable $ 0 0.0% $ 0 0.0% $( 20,455) 53.4% $( 33,493) 8.2%
Loss on Repossession ( 0) 0.0 ( 3,298) 46.5 ( 3,298) 8.6 ( 0) 0.0
Casualty Loss ( 0) 0.0 ( 0) 0.0 ( 119,181) 311.4 ( 0) 0.0
--------- ------ ---------- ------- ---------- ------- ---------- -----
Total Extraordinary Item $( 0) 0.0% $( 3,298) 46.5% $(142,934) 373.4% $( 33,493) 8.2%
--------- ------- ---------- ------- ---------- ------ ---------- -----
Net Income or (Loss) $(36,215) 443.7% $( 10,969) 154.6% $(345,873) 903.6% $(102,681) 25.4%
========= ====== ========== ======= ========== ======= ========== ======
</TABLE>
10
<PAGE>
Sales income increased to $ 8,163 in the three months ended March 31,
1998 (the "1998 Three Month Period") from $ 7,094 for the three months ended
March 31, 1997 (the "1997 Three Month Period"), an increase of $ 1,069 (an
increase of 15.0 percent). The increase in sales income was due to the
replacement of the management that existed in the 1997 Three Month Period.
During the first quarter of 1997, the former president of the Company
disappeared and in March 1997, new officers and directors were appointed and
installed to manage the Company. The new management has focused on replacement
of distributors lost by the previous management. The cost of sales increased to
$ 5,566 for the 1998 Three Month Period from $ 1,788 for the 1997 Three Month
Period, an increase of $ 3,778 (an increase of 311.3 percent). The increase in
the cost of materials is mainly due to the Company paying outside contractors to
process and bag the product. Until this time the product was produced by the
Company under the direction of the former manager.
Gross profit declined to $ 2,597 in the 1998 Three Month Period, from $
5,306 during the 1997 Three Month Period. As a percent of sales income, gross
profit decreased to 31.8 percent during the 1998 Three Month Period from 74.8
percent during the 1997 Three Month Period, which was attributable to the
increased cost of materials as a percent of sale, the cost of materials as a
percent of sales income increased from 25.2 percent during the 1997 Three Month
Period to 68.2 percent during the 1997 Three Month Period. Since the casualty
loss in August 1996, the Company has been required to obtain its peat-moss
absorbent materials from third-party providers which has resulted in increased
costs of materials, while during the 1997 Interim Period these materials were
sold from the small amount of remaining inventory.
Operating expenses increased to $ 30,744 (376.6 percent of sales
income) in the 1998 Three Month Period from $ 9,890 (139.4 percent of sales
income) in the 1997 Three Month Period, which was principally due to the
increase in office salaries from $ 0 during the 1997 Three Month Period to
$10,618 during the 1998 Three Month Period, an increase of $ 10,618. Also,
accounting expenses increased from $ 1,200 in the 1997 Three Month Period to
$4,514 in the 1998 Three Month Period an increase of 276.2 percent. Legal
expenses increased from $ 0 in the 1997 Three Month Period to $ 1,494 in the
1998 Three Month Period. These two expenses increased because current management
chose to improve the financial statement preparation and general record keeping
of the company. Telephone expenses increased to $ 3,668 in the 1998 Three Month
Period from $ 2,650 in the 1997 Three Month Period, an increase of 38.4 percent.
This increase was attributable to the resumption of business activities in the
1998 Three Month Period, while during the 1997 Three Month Period the Company's
business activities were curtailed due to the August 1996 casualty loss and the
disappearance of the Company president. The new management has focused on
replacement of distributors lost by the previous management. The operating
expenses incurred during the 1997 Three Month Period were incurred in an attempt
to preserve asset value, both tangible and intangible, and to reestablish
channels of product distribution and sales following the August 1996 casualty
loss and former management's inabilities or absence.
The Company experienced a loss from operations of $ 28,147 during the
1998 Three Month Period compared to a loss from operations of $ 4,584 in the
1997 Three Month Period. The loss from operations in the 1998 Three Month Period
was 344.8 percent of sales income and 64.6 percent of sales income in the 1997
Three Month Period.
During the 1998 Three Month Period the Company was engaged in the
development of the sales and marketing plan for an animal waste processor unit
for which the Company has secured exclusive worldwide marketing rights. The
Aarowaste processor, as it is called, is expected to be completed and ready for
market in mid 1998. The Company expects to sell in excess of 30 machines during
1998.
During the 1997 Three Month Period, the Company incurred a loss on the
repossession of a Company vehicle as a result of the default on a note to
Springdale Bank and Trust
11
<PAGE>
A net loss was sustained during the 1998 Three Month Period of $ 36,215
compared to a loss of $ 10,969 during the 1997 Three Month Period. During the
1998 Three Month Period, the Company issued 219,942 shares of common stock in
the amount of $ 12,200, which was accounted for as a source of cash from
financing activities.
The Company's operations are affected by seasonal trends principally
based upon weather conditions. Also, for the 1998 Three Month Period sales were
slow due to the time devoted to the Aarowaste processor and continued slow
recovery from the difficulties created by the prior management. 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. The Company expects to show
significantly larger sales beginning in the third quarter with the placement of
the first Aarowaste processor. Because the general and administrative expenses
associated with maintaining and adding to the Company's manufacturing and
product distribution 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. There can be no assurance that such results will be achieved.
Income Taxes
For income tax reporting and financial statement reporting at March 31,
1998 and 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 expense giving rise to accrual of deferred income tax.
Because of continuing losses the Company has not incurred any income
tax expense.
Liquidity and Capital Resources
The Company incurred a loss for the three months ended March 31, 1998
and had a deficit in working capital of $ 265,647. Due to inadequate management
in the last calendar quarter of 1996 and the first calendar quarter of 1997,
there was a reduction in the number of distributors and channels of distribution
for the Company's products which resulted in a substantial reduction in product
sales. On March 31, 1997, the former President of the Company was removed and
new officers and directors were elected. Under new management, the Company begun
a plan to recapitalize the Company and to reestablish the relationships with its
form distributors and channels of product distribution. However, there can be no
assurance that future cash flows from operations and availability of credit from
vendors will be sufficient to implement management's business plan or that the
Company will be successful in its efforts to implement such 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.
Due to the Company's relatively short operating history under new
management, its lack of substantial equity, its working capital deficit and
volume of sales, traditional bank lending facilities are not currently
available. Historically, the Company financed its growth from borrowings and
shareholder contributions and depended in part upon credit terms from its
various vendors as a source of financing. Arrangements with such vendors have
generally been informal, without specific agreements as to terms and payments.
The availability of credit from vendors, or the terms of any such credit, cannot
be assured. Because future cash flows and the availability of vendor credit or
other financing are subject to a number of variables, there can be no assurance
that the Company's cash flows and capital resources will be sufficient to enable
the Company to service its outstanding debt and liabilities or to maintain
currently planned levels of sales and product distribution.
12
<PAGE>
Net cash used by operating activities totaled $ 14,430 in the 1998
Three Month Period, while net cash used by operating activities totaled $ 2,112
in the 1997 Three Month Period. During the 1997 Three Month Period the Company
experienced operating difficulties as a result of lack of working capital
following the August 8, 1996, casualty loss and the resulting operational
decline and inactivity of the Company during the first calendar quarter of 1997.
The Company also experienced inadequate management until the election of new
management for the Company in March 1997. The new management for the Company
begun a plan to augment the capital of the Company and to resume full
operations. However, there is no assurance that the Company will be successful
in its efforts to implement its capital augmentation plan and the resumption of
full business operations, including the reestablishment of its former channels
of product distribution. During the 1998 Three Month Period, net cash flows
provided by financing activities totaled $ 14,430, while, in comparison net cash
flows used by financing activities totaled $ 19,899 during the 1997 Three Month
Period. During the 1998 and 1997 Three Month Periods, the Company had no
investing activities.
On February 24, 1997, Springdale Bank and Trust called a note in the
amount of $9,372 which was in default and obtained possession of the collateral,
a company vehicle. The Company also had an equipment loan with Anchor Financial
Corp. secured by office equipment, bearing interest at 21 percent per annum, and
requiring monthly principal and interest installment payments of $354, which was
paid in full at September 30, 1997.
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 augment its
capitalization 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 additional capitalization and the resumption
of full business operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Report constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or other
variations thereon, or by discussions of strategies that involve risks and
uncertainties. The actual results of the Company or industry results may be
materially different from any future results expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include general economic and business conditions; the ability of the
Company to implement its business plan and strategy; industry changes; changes
in customer preferences; product competition; availability of key personnel;
increasing operating costs; unsuccessful advertising and promotional efforts;
changes in brand awareness and preferences; acceptance of new product offerings;
and changes in, or the failure to comply with, government regulations
(especially environmental protection laws and regulations); the ability of the
Company to obtain vendor credit or other financing; and other factors. The
Company undertakes no obligation to publicly release the result of any revisions
to any such forward-looking statements that may be made to reflect events or
circumstances after the date here of or to reflect the occurrence of
unanticipated events.
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.**
4.3 Registration Rights Agreement between Rain Forest - Moose, Ltd.
and Dan Pilkington, dated March 5, 1996.**
14
<PAGE>
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 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: July 20, 1998
15
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