U.S. SECRUITIES AND EXCHANGE COMMSSION
Washington, D.C. 20549
Form 10-KSB
X Annual report under section13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997.
Transaction report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _________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 incorporation (IRS Employer
or organization) Identification No.)
1317 S. Turner
Springdale, Arkansas 72764
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (501) 927-1884
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities to be registered under Section12 (g) of the Act:
Common Stock
(Title of class)
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 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and nondisclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. X
Issuer's revenues for its most recent fiscal year was $ 38,279.
The voting stock is not trading or quoted; therefore, the aggregate market value
of the voting stock held by nonaffiliates based upon the average bid and asked
prices is not available or determinable.
The number of outstanding of Common Stock as of July 13, 1998, was 9,318,904
Transitional Small Business Disclosure
Format (Check one):
Yes No X
<PAGE>
TABLE OF CONTENTS
PAGE
Part I -1-
Item 1. Description of Business -1-
General -1-
Background -1-
Reincorporation Merger -1-
RFM Arkansas Acquisition -1-
Business -2-
Marketing -2-
Contractual Arrangements -2-
Competition -2-
Government Regulation -3-
Environmental Matters -3-
Employees. -3-
Item 2. Description of Property -3-
Item 3. Legal Proceedings -4-
Item 4. Submission of Matters to a Vote of Security Holders -4-
Part II -4-
Item 5. Market for Common Equity and Related Stockholders Matters -4-
Item 6. Management's Discussion and Analysis or Plan of Operation -4-
Results of Operations -5-
Liquidity and Capital Resources -6-
Item 7. Financial Statements -7-
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure -7-
Part III -7-
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act -7-
Item 10. Executive Compensation -8-
Compensation of Directors -9-
Stock Option Plan -9-
Officer and Director Liability -10-
Item 11. Security Ownership of Certain Beneficial Owners and Management -10-
Item 12. Certain Relationships and Related Transactions -11-
Item 13. Exhibits and Reports on Form 8-K -11-
(a) Exhibits -11-
(b) Reports on Form 8-K -12-
<PAGE>
Part I
Item 1. Description of Business.
General
Aarow Environmental Group, Inc., a Nevada corporation (the "Company" or
"Aarow Environmental"), though its wholly-owned subsidiary, Rain Forest - Moose,
Ltd., an Arkansas corporation ("RFM Arkansas"), develops, manufactures, markets
and distributes a core of products and services which address specific
environmental issues. These issues are: Soil and Groundwater Remediation with an
emphasis on bioremediation (a form of remediation which utilizes microbial
bacteria to digest harmful contaminants.) Animal Waste Management through the
development of and exclusive marketing of a newly designed processing machine
that will tackle most of the problems associated with animal waste. Fuel and
Fluid Management by treating various fuels and fluids by exposing them to a
compound magnetic field. The Company has a unique configuration that has proven
to be far more effective over conventional methods in the following areas:
emissions reduction, controlling calcium scale build up, and fuel economy.
The executive offices of Aarow Environmental are located at 1317 S. Turner,
Springdale, Arkansas, 72764, and the telephone number of Aarow Environmental is
(501) 927-1884.
Background
Rendezvous Trails of America, Inc. (formerly Holiday Resorts International,
inc.), the former parent of Aarow Environmental, was incorporation in April
1970. Since 1986, RTA became inactive and did not conduct any operations or
activities through 1995.
Reincorporation Merger. Aarow Environmental was incorporate in Nevada on
February 21, 1996, as Rain Forest - Moose, Ltd., a wholly owned subsidiary of
Rendezvous Trails of America, Inc., an Oklahoma corporation formed in June 1970
("RTA"). The name of Company was changed from Rain Forest - Moose, Ltd., to
Aarow Environmental Group, Ltd., on June 13, 1997. 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. Pursuant to the Agreement and Plan of Merger, each
outstanding share of common stock of RTA was converted into one share of Common
Stock, $.001 par value, of Aarow Environmental. Furthermore, on March 5, 1996,
Aarow Environmental split each share of its outstanding Common Stock into two
shares, which effectively resulted in 4,606,234 shares of Common Stock being
issued and outstanding.
RFM Arkansas Acquisition. Pursuant to the Plan of Reorganization and
Agreement of Merger, dated March 5, 1996, RFM Acquisition Corporation of
Oklahoma, Inc., and Oklahoma corporation and wholly-owned subsidiary of Aarow
Environmental ("Acquisition Corporation") merged with and into Rain Forest
- -Moose, Ltd., an Arkansas corporation ("RFM Arkansas " or "Subsidiary"), and as
the surviving corporation, became wholly-owned subsidiary of Aarow Environmental
(the "RFM Arkansas Acquisition"). Under the terms of the plan of Reorganization
and Agreement of Merger, Aarow Environmental issued to the shareholders of RFM
Arkansas 3,012,468 shares of Common Stock and 3,000,000 shares of Series I
Convertible Preferred Stock of Aarow
1
<PAGE>
Environmental in exchange for the issued and outstanding capital stock of RFM
Arkansas. The RFM Arkansas Acquisition was accounted for as a reverse
acquisition or Aarow Environmental by RFM Arkansas. Therefore, the results of
the operations and other historical information of Aarow Environmental presented
in this Report are those of RFM Arkansas. See "Item 12. Certain Relationships
and Related Transactions." Upon consummation of the RFM Arkansas Acquisition,
the directors and officers of RFM Arkansas became the directors and officers of
Aarow Environmental.
Business
The Company's business is centered around a core of products and services
which address specific environmental issues. These issues are:
Soil and Groundwater Remediation with an emphasis on bioremediation (a form
of remediation which utilizes microbial bacteria to digest harmful
contaminants.) Along with this is the Company's Aarozorb products which are
environmentally preferred absorbent products.
Animal Waste Management through the development of and exclusive marketing
of a newly designed processing machine that will tackle most of the problems
associated with animal waste.
Fuel and Fluid Management by treating various fuels and fluids by exposing
them to a compound magnetic field. The Company has a unique configuration that
has proven to be far more effective over conventional methods in the following
areas: emissions reduction, controlling calcium scale build up, and fuel
economy.
Marketing
The Company markets its products directly to consumers through the Company's
marketing personnel.
Contractual Arrangements
RFM Arkansas sells its products without a formal contract, other than
pursuant to a price list. Because RFM Arkansas does not currently have any
long-term contracts, the Company is not dependent to any significant degree upon
any one customer or contractual relationship with a customer, the termination of
which would have a material adverse effect upon the Company.
Competition
Soil & Groundwater Remediation Competition. Large engineering &
environmental assessment firms are the primary rivalry of Aarow within the soil
and groundwater remediation market. These large firms comprise approximately
70-80% of Aarow's competition. The last 20-30% of the competitors comes from
small engineering & environmental assessment firms and construction companies
with the capabilities to expedite large excavation projects, however massive
site excavation is an outdated remediation process well into it's decline.
2
<PAGE>
Aarow's remediation services emphasize in situ treatment. In situ
technologies are predicted to continue gaining market share as site
characterization and analysis revenues, revenues on which our competitors rely,
will begin to decline. Much of the site characterization and analysis methods
will be replaced by actual site cleanups, activities at which Aarow specializes.
Competition in the animal waste management market consists mainly of
composting operations. Out of these operations the ones realizing the greatest
success employ enzymes to accelerate the decomposition process. Composting
methods are time consuming, eliminate only 60 to 70% of the bacteria, have
little effect on nitrate and phosphate levels, and do very little to eliminate
odor. Finally the end product left from this system has a limited use.
Aarowaste systems utilize a combination of ultraviolet light and multiple
chemical processes to eliminate all bacteria, bind up nutrients into release on
demand forms which prevent overloading soil, significantly reduce odors, and
reduce the waste stream up to 95% by removing the water. This entire process,
from start to finish, transpires in a matter of minutes. The end product from
the Aarow waste systems will benefit several markets (feed additives,
fertilizer, etc.) in ways that have never before been possible.
Chemical companies are the largest competitors in the fluid conditioning
industry. Currently chemical injection is the method of choice for treating
calcium scale build up in pipes and heat exchanger systems. Although chemical
treatment is very effective, there is considerable ongoing expense involved.
Over the years there have been several products developed to improve fuel
economy. Of these products, not one has achieved overwhelming success. Therefore
this market continues to be wide open.
In either application the Aarow fuel conditioner presents a solution
involving a one time expense. The unit has no moving parts, requires no
maintenance, and will last for several years.
Government Regulation
The operations of the Company are subject to various federal, state and
local regulations which affect businesses generally, such as taxes, postal
regulations, labor law, and environmental and zoning regulations and ordinances.
Environmental Matters
Environmental standards must be met by the Company when doing Soil and
Groundwater Remediation. When a cleanup site is finished it must be certified by
the appropriate governmental agency.
Employees
Prior to May 12, 1997, the Company had six full-time employees, of which two
were employed in manufacturing, and four were employed in sales, marketing and
administrative positions, none of which were represented by a labor
organization. On May 12, 1997, a new President and Secretary were elected for
the Company and the total number of employees was reduced to 5.
3
<PAGE>
Item 2. Description of Property.
The Company leases executive offices at 1317 S. Turner, Springdale, Arkansas
72764.
Item 3. Legal Proceedings
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 %.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended December 31, 1997, the
Company did not submit any matters to a vote of its shareholders through the
solicitation of proxies or otherwise.
Part II
Item 5. Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock is traded on the over the counter bulletin board
under the symbol of AARO. On July 13, 1998, there were approximately 1,218
holders of the Company's Common Stock.
The Company's dividend policy is to retain its earnings to support the
expansion of its operations. The Board of Directors of the Company does not
intent to pay cash dividends on the Common Stock in the foreseeable future. Any
future cash dividends will depend on future earnings, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board of
Directors. The Company's future earnings and cash flow currently are dependent
principally upon the operating results of RFM Arkansas and such dependency may
continue indefinitely in the future.
Item 6. 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 the Report.
Rendezvous Trails of America, Inc. (formerly Holiday Resorts International,
Inc.); the former parent of Aarow Environmental was incorporation in April 1970.
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 or
liabilities. Pursuant to an Agreement and Plan Merger, dated February 23, 1996,
RTA merged with and into Aarow Environmental as the surviving corporation. See
"Item 1. Description of Business-Background-Reincorpration Merger." 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 reorganization of entities under common
control, which was recorded at historical cost. RFM Arkansas was formed on March
15, 1994. As a result of the RFM Arkansas Acquisition, RFM Arkansas became a
wholly owned subsidiary of Aarow Environmental, which was accounted for as a
reverse acquisition of Aarow Environmental by RFM Arkansas under the purchase
method of accounting. Therefore, the following discussion and analysis of
results of operations discussed below are only those of RFM Arkansas prior to
the RFM Arkansas Acquisition. See "Item 1. Description of
Business-Background-RFM Arkansas Acquisition" and "Item 12. Certain
Relationships and Related Transactions."
4
<PAGE>
Results of Operations
The following table sets forth selected results of operations for the fiscal
year ended December 31, 1997, and December 31, 1996, which are derived from the
audited financial statements of RFM Arkansas. See "Item 1. Description of
Business-Background-RFM Arkansas Acquisition."
<TABLE>
For the Fiscal Year Ended For the Fiscal Year Ended
December 31, 1997 December 31, 1996
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C>
Sales income $ 38,279 100.00% $404,056 100.00%
--------- ------- -------- -------
Cost of Sales:
Materials $ 20,815 54.4% $113,269 28.0%
Warehouse labor 0 0.0% 49,202 12.2%
Freight 198 0.5% 1,183 0.3%
--------- ------ -------- ------
Total Cost of Sales $ 21,013 54.9% $163,654 40.5%
--------- ------ -------- ------
Gross Profit $ 17,266 45.1% $240,402 59.5%
--------- ------ -------- ------
Operating Expenses $206,652 539.9% $290,044 71.8%
--------- ------ -------- ------
Income or (loss) from operations ($189,386) 494.75% ($49,642) 12.3%
---------- ------- --------- ------
Other Income and (expense);
Interest Income $ 0 0.0% $ 934 0.2%
Interest Expense ( 7,036) 18.4% ( 4,463) 1.1%
Payroll Tax Penalties and Interest ( 6,517) 17.0% ( 16,017) 4.0%
Extraordinary Item ( 142,934) 373.4% ( 33,493) 8.2%
---------- ------ --------- ------
Total other income and (expense) ($156,487) 408.8% ($53,039) 13.1%
---------- ------ --------- ------
Net Income or (Loss) ($345,873) 903.56 ($102,681) 25.4%
========== ====== ========== ======
WEIGHTED AVERAGE number of
common stock and common stock
equivalents outstanding 18,024,045 18,312,622
========== ==========
NET INCOME (LOSS) per common stock
and common stock equivalents ($ .019) ($ .006)
========== ==========
</TABLE>
Comparison of Fiscal 1997 and 1996
Sales income decreased to $ 38,279 in 1997 from $ 404,056 for 1996, a
decrease of 90.5 percent. The decrease in sales was primarily due to decreased
sale of Peat Moose Absorbent products during 1997 which was attributable to
continuing operational problems resulting from the loss of $ 119,282 worth of
finished inventory to a fire on August 8, 1996, and inadequate management in
attempting to deal with the difficulties resulting from the causality. 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 decreased sales during 1997 resulted in total costs of sales
decreasing to $ 21,013 in 1997, compared to $ 163,654 for 1996, a decrease of
87.1%. The decrease in total cost of sales resulted from (i) a 81.6% decrease in
cost of materials from $ 113,269 in 1996, to $ 20,815, in 1997, (ii) a 100%
decrease in warehouse labor cost from $ 49,202 in 1996 to $ 0 in 1997, and (iii)
a 83.3% decrease in the cost of freight from $ 1,183 in 1996 to $ 198 in 1997.
Gross profit decreased 92.8% from $ 240,402 in 1996 to $ 17,266 in 1997.
5
<PAGE>
Operating expenses decreased from $ 290,044 in 1996 to $ 206,652 for 1997, a
28.8% decrease. The decrease in operating expenses was the result of the reduced
operations following the August 8, 1996 causality loss and the disappearance of
the former President of the Company. 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 Company experienced a $ 189,386 loss from operations in 1997 as compared
to a $ 49,642 loss from operations in 1996.
Interest expense increased from $ 4,463 in 1996 to $ 7,036 in 1997, a 57.6 %
increase. Payroll tax penalties and interest decreased to $ 6,517 in 1997 from $
16,017 in 1996, a 59.3% decrease. The Company also experienced extraordinary
losses of $ 20,455 as the result of being required to write off as not
collectable a loan to the former President of the Company, a loss on
repossession of a Company vehicle as a result of the default on a note to
Springdale Bank and Trust and a casualty loss in the amount of $ 119,181 when it
was determined that the insurance company would not pay the claim on the
inventory that was destroyed by fire. Such items combined with a $ 189,386 loss
from operations resulted in the a $ 345,873 loss for 1997 as compared with a
loss of $ 102,681 for 1996.
Quarterly Results of Operations
RFM Arkansas' operations are affected by seasonal trends principally based
upon weather. In RFM Arkansas' 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 are relatively fixed over the
short term, RFM Arkansas' 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 RFM Arkansas. Nevertheless, RFM Arkansas' results of operations for a
particular calendar quarter may not be indicative of the results to be expected
during other quarters.
Income Taxes
Prior to the RFM Arkansas Acquisition, RFM Arkansas, for federal and state
income tax purposes, was taxed as a pass-through entity, and income taxes were
not imposed at RFM Arkansas's level of taxation. Therefore, no provisions for
income taxes have been made.
Liquidity and Capital Resources
Historically, RFM Arkansas has financed its growth from borrowing and
shareholder contributions. Net cash (used) by operating activities totaled $
126,149 in 1997, as compared with net cash provided by operating activities
totaling $ 38,020 in 1996. As of December 31, 1997, the Company had a working
capital deficit of $ 243,178, compared to a working capital deficit of $ 1,984,
at December 31, 1996. The working capital deficit is the result of the
suspension of operations following the August 8, 1996, casualty loss and the
write-off of the note in the amount of $33,493.
6
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During 1996, the Company experienced operating difficulties as a result of
lack of working capital following the August 8, 1996, casualty loss and the
operational decline. The Company also experienced a period of inadequate
management until the election of new management for the Company on May12, 1997.
The new Management for the Company has begun a plan to recapitalize the Company
and to reestablish the relationships with its distributors. 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. 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.
As of December 31, 1197, RFM Arkansas had one loan from Springdale Bank &
Trust Company (the "Bank"), which was secured by inventory and accounts
receivable, bears interest at 10.25 percent per annum. At December 31, 1997, the
outstanding principal balance of this loan was $ 60,000. On February 24, 1997,
Springdale Bank & Trust called a note in the amount of $ 9,372 which was in
default and obtained possession of the collateral which was a 1990 GMC truck. At
December 31, 1996, RFM Arkansas had an equipment loan with Anchor Financial
Corp. secured by office equipment, bear interest at 21 percent per annum, and
requiring monthly principal and interest installment payments of $354 through
June 1997. The outstanding principal amount of this loan at December 31, 1996,
was $1,173. During 1996, it was determined that Dan Pilkington had had
unauthorized loans to himself which resulted in the note receivable write-off in
the amount of $33,493.
Item 7. Financial Statements
The response to this Item is set forth herein in a separate section of this
Report, beginning on page F-2
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements of the type required to be reported under
this Item between management of the Company and its independent accountant
during 1997 and 1996.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Person; Compliance
with Section 16(a) of the Exchange Act.
The following table sets forth-certain information with respect to each
executive officer and director of Rain Forest and RFM Arkansas. Directors are
generally elected at the annual shareholders' meeting and hold office until the
next annual shareholders' meeting and until their successors are elected and
qualified. Executive officers are elected by the Board of Directors and serve at
its discretion. The Bylaws of the Company authorize the Board of Directors to be
constituted of not less than one and such number as the Board of Directors may
from time to time determine by resolution or election. The Board currently
consists of three members.
<TABLE>
Name Age Position with Aarow Position with RFM
- ---- --- Environmental ------------------
--------------------------
<S> <C>
Stan Sisemore 50 President, Chief Executive President, Chief Executive
Officer, and Chairman Officer, and Chairman
of the Board of the Board
Jeff Martin(1)(2) 36 Executive Vice President Executive Vice President
and Director and Director
Lloyd Phillips(1) 52 Secretary and Director Secretary and Director
</TABLE>
- -------------------------
(1) As holders of 1/3 each of the outstanding Series I Convertible Preferred
Stock, Mr. Sisemore, Mr. Martin, and Mr. Phillips combined hold
approximately 58 percent of the outstanding voting rights of the
shareholders of the Company. Therefore, Mr. Sisemore, Mr. Martin and Mr.
Phillips acting in unison may be able to elect all members of the Board of
Directors of the Company. See"Item 11. Security Ownership of Certain
Beneficial Owners and Management."
(2) Member of the Stock Option Committee. See"-Stock Option Plan,"below.
7
<PAGE>
The executive officers of the Company and RFM Arkansas devote their
full-time to the Company's business.
The following is a brief description of the business background of the
executive officers and directors of the Rain Forest and RFM Arkansas.
Stan Sisemore has been Chairman of the Board, President and Chief Executive
Officer, and a Director of the Company and RFM Arkansas since May 12, 1997. Mr.
Sisemore also serves as a member of the Stock Option Committee. From April 1995,
Mr. Sisemore served as marketing director of the Company and will continue to
also function in that capacity. From April 1991 until April 1995, Mr. Sisemore
served as Executive Vice President of Magnadyne Industries, Inc., a company
holding over 25 patents related to Magnetic D.C. Motor technology and Magnetic
Energy. He is also a stockholder in Magnadyne. Mr. Sisemore has been involved in
marketing and manufacturing for twenty years and has been involved in product
development for the past ten years. During his employment with the Company he
has been involved in the development of the absorbent program for the Company.
Jeff Martin is Executive Vice President and a Director of the Company and
RFM Arkansas serves as a member of the Stock Option Committee. Prior to becoming
employed with the Company and RFM Arkansas in September 1994, Mr. Martin was
employed by First Brands Corporation as operations manager of packaging plant
operations. His responsibilities included safety, quality and production
coordinator and as Industrial Engineer at Wire Mold Corporation where he was
responsible for product enhancement. Mr. Martin received an Associate of Arts
Degree in 1993 from Mississippi County Community College and attended the
University of Arkansas with studies focused on engineering.
Lloyd Phillips was elected as Secretary and a Director of the Company on May
12, 1997. Prior to his employment with the Company Mr. Phillips was president of
a large manufactured homes company and has been involved in the management and
development of the poultry and egg industry for the past eighteen years. Mr.
Phillips also has a broad background in sales and marketing.
During 1996 and until his removal in March 1997, Dan Pilkington held the
positions of Chairman of the Board, President and Chief Executive Officer of the
Company and of RFM Arkansas.
Item 10. Executive Compensation
The following table sets forth-certain information with respect to the total
cash compensation, paid or accrued, of the President of the Company and RFM
Arkansas and each of the executive officers that received compensation in excess
of $100,000 during 1997. Because Rendezvous Trails of America, Inc. (the former
parent of Aarow Environmental) was inactive during 1993 through 1996, its
President and other executive officers were not paid any executive compensation
nor was any accrued during such years. Furthermore, because the Company and RFM
Arkansas were, inactive during much of 1997, the President and other executive
officers of RFM Arkansas were not paid any executive compensation nor was any
accrued during 1997.
8
<PAGE>
<TABLE>
Annual Compensation
-------------------
All Other
Name and Principal Position Year(1) Salary(2) Bonus(3) Compensation
- --------------------------- -------- --------- -------- ------------
<S> <C> <C>
Stanley L. Sisemore 1997 $ 23,000 $ 0 $ 0
President and Chief Executive Officer 1996 $ 0 $ 0 $ 0
of RFM Arkansas
Jeff Martin 1997 $ 26,000 $ 0 $ 0
Executive Vice President 1996 $ 0 $ 0 $ 0
and Director
Lloyd Phillips 1997 $ 23,000 $ 0 $ 0
Secretary and Director 1996 $ 0 $ 0 $ 0
</TABLE>
- -------------------------------
(1) The executive officers, including the President, were not paid any
executive compensation during 1993 or 1994 nor was any accrued during such
year.
(2) Dollar value of base salary (both cash and non-cash) earned during the
year.
(3) Dollar value of bonus (both cash and non-cash) earned during the year.
Compensation of Directors
The directors of Aarow Environmental and RFM Arkansas are employees of Aarow
Environmental and are nor currently compensated for attending meetings of
directors and committees of the Board of Directors, but are reimbursed
out-of-pocket expenses.
Stock Option Plan
The company established the Rain Forest - Moose, Ltd. 1996 Stock Option Plan
(the "Stock Option Plan" or the "Plan") in February 1996. The plan provides for
the issuance of incentive stock options ("ISO Options") with or without stock
appreciation rights ("SARs") and nonincentive stock option ("NSO Options") with
or without SARs to employees and consultants of the Company, including employees
who also serve as directors of the Company. The total number of shares of Common
Stock authorized and reserved for issuance under the Plan is 2,500,000. Options
have not been granted under the Plan as of the date of this Report.
The Stock Option Committee, which is currently comprised of Messrs. Sisemore
and Martin, administers and interprets the Plan and has authority to grant
options to all eligible and determine the types of options, with or without
SARs, granted, the terms, restrictions and conditions of the options at the time
of grant, and whether SARs, if granted, are exercisable at the time of exercise
of the Option to which the SAR is attached.
The option price of the Common Stock is determined by the Stock Option
Committee, provided such price may not be less than the fair market value of the
shares on the date of grant of the option. The fair market value of a share of
the Common Stock is determined by averaging the closing high bid and low asked
quotations for such share on the date of grant of the option or, if not quoted,
by the Stock Option Committee. Upon the exercise of an option, the option price
must be paid in full, in cash or with an SAR. Subject to the Stock Option
Committee's approval, upon exercise of an option with an SAR attached, a
participant may receive cash, shares of Common Stock or a combination of both in
an amount or having a fair market value equal to the excess of the fair market
value, on the date of exercise, of the shares for which the option and SAR are
exercised over the option exercise price.
Options granted under the Plan may not be exercised until six months after
the date of the grant and
9
<PAGE>
rights under an SAR may not be exercised until six months after the SAR is
attached to an option, if not attached at the time of the grant of the option,
except in the event of death or disability of the participant. ISO Options and
any SARs are exercisable only by participants while actively employed as an
employee or a consultant by Rain Forest or a subsidiary of Rain Forest, except
in the case of death, retirement or disability. Options may be exercised at any
time within three months after the participant's retirement or within one year
after the participant's disability or death, but not beyond the expiration date
of the option. No option may be granted after December 28, 2005. Options are not
transferable except by will or by the laws of descent and distribution.
Officer and Director Liability
The Certificate and Bylaws of Aarow Environmental provide that the Company
shall indemnify its directors and officers to the full extent permitted by the
Nevada General Corporation Law. Under such provisions, any director or officer,
who in his capacity as such, is made, a party to any suit or proceeding, may be
indemnified if the Board of Directors determines such director or officer acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the Company. The Certificate and Bylaws of the Company and
the Nevada General Corporation Law further provide that such indemnification is
not exclusive of any other rights to which such individuals may be entitled
under the Certificate, the Bylaws, an agreement, vote of shareholders or
disinterested directors or otherwise. Insofar as indemnification for liabilities
arising under the Act may be permitted to directors and officers of Aarow
Environmental has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table presents certain information as to the beneficial
ownership of the Common Stock and Series I Convertible Preferred Stock as of
July 9, 1998, of (i) each person who is known to Aarow Environmental to be the
beneficial owner of more than five percent thereof, (ii) each current director
and executive officer of Aarow Environmental, and (iii) all current executive
officers and directors as a group together with their percentage holdings of the
outstanding shares. All persons listed have sole voting and investment power
with respect to their share unless otherwise indicated, and there is no family
relationship between the executive officers and directors of Aarow
Environmental.
<TABLE>
Series I Convertible
Preferred Stock Common Stock
---------------------------- -------------------------
Shares Percent of Shares Percent of
Beneficially Share Beneficially Share
Owned Outstanding Owned Ownership
----- ------------ ----- =========
<S> <C> <C>
Name and Address of Beneficial Owner
- ------------------------------------
Stanley L. Sisemore(1) 1,000,000 33.3% 4,440,000 24.24%
Jeff Martin 1,000,000 33.3% 3,250,000 17.74%
Lloyd W. Phillips 1,000,000 33.3% 3,100,000 16.90%
Executive Officers and Directors as a group
(three persons)(1 3,000,000 100.0% 10,790,000 58.88%
</TABLE>
- ----------------------------
(1) With respect to the Common Stock, includes 9,000,000 shares issuable upon
conversion of the Series I Convertible Preferred Stock.
10
<PAGE>
Item 12. Certain Relationships and Related Transactions
Set forth below is a description of transactions entered into between Aarow
Environmental and RFM Arkansas and certain of its officers, directors, and
shareholders during the last two years. Certain of these transactions will
continue in effect and may result in conflicts of interest between the Company
and such individuals. Although these persons have fiduciary duties to the
Company and its shareholders, there can be no assurance that conflicts of
interest will always be resolved in favor of the Company.
Pursuant to a Plan of Reorganization and Agreement of Merger, dated February
23, 1996, Dan Pilkington and Jeff Martin exchanged their shares of the capital
stock of RFM Arkansas for 1,597,468 and 250,000 shares of Common Stock,
respectively, and Mr. Pilkington also received 3,000,000 shares of Series I
Convertible Preferred Stock. See " Item 1. Description of
Business-Background-RFM Arkansas Acquisition." The Series I Convertible
Preferred Stock is convertible into 9,000,000 shares of Common Stock of Rain
Forest. In connection with RFM Arkansas Acquisition and the transactions related
thereto, an independent determination of fairness and reasonableness of the
terms of the transactions was not obtained; however, the transactions were
negotiated on an arms'-length basis by the respective parties and are believed
to have been fair by respective parties and management of Rain Forest.
From time to time Dan Pilkington, the former President and Chairman of the
Board, has made loans to RFM Arkansas in the form of due on demand loan, which
bear interest at the rate of 7.5 percent per annum. At December 31, 1994 and
1995, the aggregate outstanding principal amounts of such loans were $32,171 and
$17,319, respectively. At December 31, 1996, these loans had been discharged in
connection with the resolution of unauthorized loans from the Company to Mr.
Pilkington.
U.S. Equipment & Services, Inc. which is wholly owned by Monica Pilkington
who is a former executive officer of Aarow Environmental and RFM Arkansas and
the wife of Mr. Pilkington, made an unsecured loan to RFM Arkansas, which bears
interest at the rate of 7.5 percent per annum. At December 31, 1994 and 1995,
the outstanding principal amount of such loan was $17,362 and $8,409,
respectively. At December 31, 1996, these loans had been discharged in
connection with the resolution of unauthorized loans from the Company to Mr.
Pilkington.
Item 13. Exhibits and Reports on form 8-K
2.1 Agreement and Plan of Merger between Rendezvous Trails of America,
Inc., Rain Forest - Moose, Ltd., dated February 23, 1996. *
2.2 Plan of Reorganization and Agreement of Merger among Rain Forest -
Moose, Ltd., a Nevada corporation, RFM Acquisition Corporation of
Oklahoma, Inc., Rain Forest - Moose, Ltd., and Arkansas corporation,
Dan Pilkington, Jeff Martin, Stan Sisemore, Jim Anderson and Bill
Hooten, dated March 5, 1196*
3.1 Articles of Incorporation of Rain Forest - Moose, Ltd., a Nevada
corporation.*
3.2 Bylaws of Rain Forest - Moose, Ltd. *
4.1 Form of Certificate of Common Stock of Rain Forest - Moose, Ltd.*
4.2 Agreement and Plan of Merger among Rendezvous Trails of America, Inc.,
and Rain Forest - Moose, Ltd., dated February 23, 1996 filed as
Exhibit 2.1 hereto.*
4.3 Plan of Reorganization and Agreement of Merger among Rain Forest -
Moose, Ltd., a Nevada corporation, RFM Acquisition Corporation of
Oklahoma, Inc., Rain Forest - Moose, Ltd., an Arkansas corporation,
Dan Pilkington, Jeff Martin, Stan Sisemore, Jim Anderson and Bill
Hooten, dated March 5, 1996, filed as Exhibit 2.2 hereto.*
11
<PAGE>
4.4 Certificate of the Powers Designation, Rights and Preferences for the
Series I Convertible Preferred Stock of Rain Forest - Moose, Ltd.,
dated March 5, 1996.*
4.5 Registration Rights Agreement between Rain Forest - Moose, Ltd. and
Dan Pilkington, dated March 5, 1996.*
4.6 Rain Forest - Moose, Ltd. 1996 Stock Option Plan, adopted February 21,
1996.*
10.1 Agreement and Plan of Merger between Rendezvous Trails of America,
Inc. and Rain Forest - Moose, Ltd., dated February 23, 1996, filed as
Exhibit 2.1 hereto.*
10.2 Plan of Reorganization and Agreement of Merger among Rain Forest -
Moose, Ltd., a Nevada corporation, RFM Acquisition Corporation of
Oklahoma, Inc., Rain Forest - Moose, Ltd., an Arkansas corporation,
Dan Pilkington, Jeff Martin, Stan Sisemore and Bill Hooten, dated
January 19, 1996, filed as Exhibit 2.2 hereto.*
21.1 Subsidiary of Registrant.*
27 Financial Data Schedule
- --------------------------------------------
* Incorporated by reference to Form 10-KSB dated March 8, 1996
((b) Reports on Form 8-K
There were no reports on Form 8-K filed with the Commission during the
last quarter of 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of 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 13, 1998
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
Name Title Date
---- ---- ----
<S> <C>
Stanley L. Sisemore Chief Executive Officer, President and
Chairman of the Board July 13, 1998
Jeff Martin Executive Vice President
and Director July 13, 1998
Lloyd W. Phillips Secretary July 13, 1998
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
AAROW ENVIRONMENTAL GROUP, INC.
<S> <C>
Independent Auditors Report F-2
Balance Sheet, December 31,1997 and 1996 F-3
Statements of Income and Retained Earnings for the Twelve Months
Ended December 31, 1997 and the Twelve Months Ended December 31, 1996 F-5
Statements of Cash Flows for the Twelve Months Ended December 31, 1997
and the Twelve Months Ended December 31, 1996 F-6
Notes to Financial Statements F-7
Supplemental Information F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors
and Stockholders of
Aarow Environmental Group, Inc.
Springdale, AR
I have audited the accompanying balance sheets of Aarow Environmental Group,
Inc. (a public corporation) as of December 31, 1997 and December 31, 1996 and
the related statements of income and retained earnings, cash flows, and
supplemental information for the years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Aarow Environmental Group, Inc. as
of December 31, 1997 and December 31, 1996 and the results of its operations and
its cash flows for the years then ended 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 discussed in Note-11 to the
financial statements, the Company's significant operating loss, working capital
deficit, and prior lack of adequate management raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Springdale, AR
May 28, 1998
F-2
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
BALANCE SHEET
As of December 31, 1997 and December 31, 1996
Dec. 31, Dec. 31,
Assets 1997 1996
-------- --------
Current Assets:
Cash and Cash Equivalents $ 0 $ 2,147
Accounts Receivable 1,043 0
Inventory 33,668 31,626
Insurance Claim 0 119,182
-------- --------
TOTAL CURRENT ASSETS $ 34,711 $152,954
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $ 10,001 and $ 23,730 respectively) 12,095 46,005
Other Assets
Organization Costs (net of accumulated
amortization of $ 2,475 and $ 1,575 respectively) $ 2,025 $ 2,925
Noncompete Covenant (net of accumulated
amortization of $ 750) 17,250 0
-------- --------
TOTAL OTHER ASSETS $ 19,275 $ 2,925
-------- --------
TOTAL ASSETS $ 66,081 $201,884
======== ========
SEE ACCOUNTANTS REPORT AND NOTES
F-3
<PAGE>
<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
BALANCE SHEET
As of December 31, 1997 and December 31, 1996
Dec. 31, Dec. 31,
Liabilities and Stockholders Equity 1997 1996
--------- ---------
<S> <C>
Current Liabilities:
Bank Overdraft $ 2,316 $ 0
Accounts Payable 26,538 20,309
Payroll Taxes Payable 107,965 67,005
Accrued Interest Payable 7,700 733
Judgment Payable 18,370 0
Short Term Notes 55,000 0
Current Portion of Long Term Notes 60,000 66,891
--------- ---------
TOTAL CURRENT LIABILITIES $ 277,889 $ 154,938
LONG TERM LIABILITIES 0 3,654
--------- ---------
TOTAL LIABILITIES $ 277,889 $ 158,592
Stockholders Equity
Common Stock at Dec. 31, 1997, $ 0.001 par value, 30,000,000 shares $ 9,024 $ 7,619
authorized, 9,024,045 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 189,249 99,881
Retained Earnings (413,081) (67,208)
--------- ---------
TOTAL STOCKHOLDERS EQUITY $(211,808) $ 43,292
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 66,081 $ 201,884
========= =========
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
F-4
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Dec. 31 Dec. 31,
1997 1996
--------- ---------
Sales Income $ 38,279 $ 404,056
Cost of Sales
Materials $ 20,815 $ 113,269
Warehouse Labor 0 49,202
Freight 198 1,183
--------- ---------
Total Cost of Sales $ 21,013 $ 163,654
--------- ---------
GROSS PROFIT $ 17,266 $ 240,402
Operating Expenses 206,652 290,044
--------- ---------
GAIN OR (LOSS) FROM OPERATIONS $(189,386) $ (49,642)
Other Income and (Expenses)
Interest Income $ 0 $ 934
Interest Expense (7,036) (4,463)
Payroll Tax Penalties and Interest (6,517) (16,017)
--------- ---------
Total Other Income and (Expense) $ (13,553) $ (19,546)
--------- ---------
INCOME OR (LOSS) BEFORE
EXTRAORDINARY ITEM $(202,939) $ (69,188)
Extraordinary Items
Note Receivable $ (20,455) $ (33,493)
Loss on Repossession (3,298) 0
Casualty Loss (119,181) 0
--------- ---------
Total Extraordinary Items $(142,934) $ (33,493)
--------- ---------
NET INCOME OR (LOSS) $(345,873) $(102,681)
Retained Earnings at Beginning of Year (67,208) 35,473
--------- ---------
RETAINED EARNINGS AT END OF YEAR $(413,081) $ (67,208)
========= =========
SEE ACCOUNTANTS REPORT AND NOTES
F-5
<PAGE>
<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Dec. 31, Dec. 31,
1997 1996
---------- ----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) $(345,873) $(102,681)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 3,383 12,572
Amortization 1,650 900
Extraordinary Items 23,753 33,493
(Increase) decrease in:
Accounts Receivable (1,043) 50,227
Employee Receivable 0 1,972
Prepaid Expenses 0 822
Inventory (2,042) 123,272
Insurance Claim 119,181 (119,182)
Increase (decrease) in:
Bank Overdraft 2,316 (2,151)
Accounts Payable 6,229 4,706
Payroll Taxes Payable 40,960 34,681
Sales Taxes Payable 0 (31)
Accrued Interest Payable 6,967 (580)
Judgment Payable 18,370 0
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $(126,149) $ 38,020
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment $ (4,887) $ (1,052)
Noncompete Covenant (18,000) 0
Extraordinary Item-Note Receivable (0) (33,493)
--------- ---------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES $ (22,887) $ (34,545)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Long-Term $ 0 $ 0
Short-Term 59,500 0
Debt Reduction
Long-Term (15,045) (4,336)
Sale of Stock 102,434
---------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES $ 146,889 $ (4,336)
--------- ---------
NET INCREASE (DECREASE) IN CASH $ (2,147) $ (861)
CASH AT BEGINNING OF YEAR 2,147 3,008
--------- ---------
CASH AT END OF YEAR $ 0 $ 2,147
========= =========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 7,036 $ 4,463
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
F-6
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
STATEMENT OF SIGNIFICANT ACCOUNTING ASSUMPTIONS
Nature of Business
The Company's business is centered around a core of products and services which
address specific environmental issues. These issues are:
Soil and Groundwater Remediation with an emphasis on bioremediation (a form of
remediation which utilizes microbial bacteria to digest harmful contaminants.)
Along with this is the Company's Aarozorb products which are environmentally
preferred absorbent products.
Animal Waste Management through the development of and exclusive marketing of a
newly designed processing machine that will tackle most of the problems
associated with animal waste.
Fuel and Fluid Management by treating various fuels and fluids by exposing them
to a compound magnetic field. The Company has a unique configuration that has
proven to be far more effective over conventional methods in the following
areas: emissions reduction, controlling calcium scale build up, and fuel
economy.
The Company trades it's stock on the over the counter bulletin board using the
stock symbol of AARO.
Name Change
On May 12, 1997 the Company formally changed it's name from Rain Forest Moose,
Ltd. to Aarow Environmental Group, Inc.
Basis of Accounting
The financial statements of Aarow Environmental Group, Inc., a public
corporation, have been prepared on the accrual basis of accounting. Using this
method, revenue and expenses are recognized when incurred.
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 straight line methods by charging against earnings amounts
sufficient to amortize the cost of the related assets over their estimated
useful lives.
SEE ACCOUNTANTS REPORT
F-7
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Income Taxes
For income tax reporting and financial statement reporting 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.
Corporate Charter
On December 31, 1997 the Company's Charter giving it authority to operate in the
State of Arkansas was in a revoked status. This Charter has been reinstated and
the Company was in good standing on the date of issuance of this audit report.
Management Change On May 12, 1997 a new president, officers, and board of
directors were elected.
Note-1: Insurance Claim
On August 8, 1996 a fire destroyed $ 119,282 worth of finished inventory. This
inventory was insured by Lloyds of London for cost less a $ 100 deductible. The
Company and legal representatives at December 31, 1996 were of the opinion that
this claim would be paid in 1997, However, during the year 1997, it was decided
that the claim would not be paid and an extraordinary item, casualty loss has
been recorded.
Note-2: Property , Plant and Equipment
All assets are recorded at original cost. Depreciation is calculated using the
straight line method, lives are five years for office equipment, seven years for
manufacturing equipment and furniture. A schedule of assets is as follows:
Accum. Depr.
December 31, 1997 Cost Depr. Expense
------------- ------------- -------------
Office Equipment $ 16,079 $ 7,372 $ 2,524
Equipment 6,017 2,629 860
------------- ------------- -------------
Total $ 22,096 $ 10,001 $ 3,384
============= ============= =============
Accum. Depr.
December 31, 1996 Cost Depr. Expense
------------- ------------- -------------
Auto $ 42,639 $ 13,563 $ 7,750
Office Equipment 14,139 5,953 2,888
Equipment 8,061 3,030 1,444
Leasehold Improvements 4,896 1,184 490
------------- ------------- -------------
Total $ 69,735 $ 23,730 $ 12,572
============= ============= =============
The autos are pledged as collateral to Springdale Bank and Trust of Springdale,
AR.
SEE ACCOUNTANTS REPORT
F-8
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Note-3: 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
Dec. 31, Dec. 31,
1997 1996
----------- -----------
Noncompete Covenant $ 18,000 $ 0
Accumulated Amortization (750) (0)
----------- ----------
Net Noncompete Covenant $ 17,250 $ 0
========== ==========
Note-4: 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-5: 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.
SEE ACCOUNTANTS REPORT
F-9
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Note-6: The company's Long Term debt consists of the following:
Dec. 31, Dec. 31,
1997 1996
--------- ----------
Anchor Financial, 21 % interest, $ 354.39 per month $ 0 $ 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 60,000 60,000
Maturity Date 6-21-97
Secured by Inventory and A/R
Current Portion of Long Term debt (60,000) (66,891)
---------- ----------
Long Term debt, less current portion $ 0 $ 3,654
========= =========
The following is a summary of principal maturities of long term debt during the
next five years:
1997 $ 0 $ 66,891
1998 60,000 3,654
Note-7: Stockholders' Equity
Common Stock: At December 31, 1997 there were 30,000,000 shares authorized,
9,024,045 issued and outstanding at $ 0.001 per share par value. At December 31,
1996 there were 30,000,000 shares authorized, 9,312,622 shares 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 December 31, 1997 and 1996 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.
SEE ACCOUNTANTS REPORT
F-10
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Note-8: Related Party Transactions and Extraordinary Item-Note Receivable
At December 31, 1996 Dan Pilkington was the president of the Company. As
president, Mr. Pilkington made various unauthorized loans to himself which
totaled $ 33,493. These transactions were 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 December 31,
1996 income statement.
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 collateral which was a 90 GMC truck.
Note-10: Casualty Loss See note-1 insurance claim.
Note-11: Going Concern
As shown in the accompanying financial statements, the Company has incurred a
sizable loss for the year ended December 31, 1997 and has a deficit in working
capital. Due to inadequate prior management there has been a reduction in the
number of distributors for the Company's product resulting in a corresponding
drop in overall sales. As disclosed in the statement of significant accounting
assumptions the existing president at December 31, 1996 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.
SEE ACCOUNTANTS REPORT
F-11
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1997 and
the Twelve Months Ended December 31, 1996
Dec. 31, Dec. 31,
1997 1996
---------- ----------
Operating Expenses
Accounting $ 18,416 $ 21,371
Advertising 400 100
Amortization 1,650 900
Auto & Truck 5,688 11,391
Bank Charges 81 98
Contributions 0 500
Contract Labor 0 20,094
Depreciation 3,383 12,572
Dues & Subscriptions 0 641
Entertainment 0 0
Equipment Rental 0 171
Insurance 222 9,316
Legal Expense 8,960 0
Management Expense 0 1,345
Miscellaneous 0 739
Office Expense 13,048 7,307
Office Salaries 99,567 31,435
Payroll Tax Expense 7,617 8,166
Postage 22 1,664
Rent 9,091 25,483
Repairs 0 285
Sales Commission 0 26,103
Supplies 9,882 22,453
Taxes & Licenses 0 189
Telephone 16,506 24,026
Travel 10,341 59,499
Unemployment Taxes 1,778 1,776
Utilities 0 2,420
---------- -----------
$ 206,652 $ 290,044
SEE ACCOUNTANTS REPORT
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000047968
<NAME> Arrow Enviornmental Group, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,043
<ALLOWANCES> 0
<INVENTORY> 33,668
<CURRENT-ASSETS> 34,711
<PP&E> 12,095
<DEPRECIATION> 10,001
<TOTAL-ASSETS> 66,081
<CURRENT-LIABILITIES> 277,889
<BONDS> 0
0
3,000
<COMMON> 9,024
<OTHER-SE> (223,832)
<TOTAL-LIABILITY-AND-EQUITY> 66,081
<SALES> 38,279
<TOTAL-REVENUES> 38,279
<CGS> 20,815
<TOTAL-COSTS> 21,013
<OTHER-EXPENSES> 206,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,036
<INCOME-PRETAX> (202,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (202,939)
<DISCONTINUED> 0
<EXTRAORDINARY> (142,934)
<CHANGES> 0
<NET-INCOME> (345,873)
<EPS-PRIMARY> (.038)
<EPS-DILUTED> (.019)
</TABLE>
