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, 1998.
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 (IRS Employer Identification No.)
incorporation or organization)
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 Section 12 (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 $ 26,242.
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 April 21, 1999, was 10,380,942
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 -2-
Business -2-
Marketing -2-
Contractual Arrangements -3-
Competition -3-
Government Regulation -3-
Environmental Matters -3-
Employees. -4-
Item 2. Description of Property -4-
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 -7-8-
Item 10. Executive Compensation -9-
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 -12-
(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 incorporated 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., an 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
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<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 of 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. In the year ended December 31, 1998 the Company
incurred $ 86,770 in research and development costs related to the Animal Waste
Management machine. This cost was incurred as the result of a distributorship
agreement entered into on January 22, 1998 between AWM Investments, LLC. and
Aarow Environmental Group, Inc. This agreement gives Aarow the exclusive
worldwide distribution rights for the AWM machine. The agreement automatically
renews annually on the anniversary date.
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
Aarow Environmental Group, Inc. sells its products without a formal
contract, other than pursuant to a price list. Because Aarow Environmental Group
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.
Aarow Environmental Group, Inc. entered into an exclusive marketing
agreement with AWM Investments, LLC. This is an annually renewing agreement,
beginning January 22, 1998 which gives Aarow exclusive worldwide marketing
rights to sell the Animal Waste Management machine.
2
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Competition
Soil & Groundwater Remediation Competition. Large engineering &
environmental assessment firms are the primary rival 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.
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, the Animal Waste Management machine, 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 the 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. However,
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.
3
<PAGE>
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 3.
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, 1998, 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 April 21, 1999, there were approximately 1,220
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 Aarow Environmental Group, Inc. 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.
Beginning in 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 a
4
<PAGE>
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. See "Item
1. Description of Business-Background-RFM Arkansas Acquisition" and "Item 12.
Certain Relationships and Related Transactions."
Results of Operations
The following table sets forth selected results of operations for the fiscal
year ended December 31, 1998, and December 31, 1997, which are derived from the
audited financial statements of Aarow Environmental Group, Inc. See "Item 1.
Description of Business-Background-RFM Arkansas Acquisition."
<TABLE>
For the Fiscal Year Ended for the Fiscal Year Ended
December 31, 1998 December 31, 1997
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Sales income $ 26,242 100.00% $ 38,279 100.00%
--------- ------- -------- -------
Cost of Sales:
Materials $ 14,418 54.9.0% $ 20,815 54.4%
Freight 0 0.0% 198 0.5%
--------- ---- -------- ------
Total Cost of Sales $ 14,418 54.9% $ 21,013 54.9%
--------- ----- -------- ------
Gross Profit $ 11,824 45.1% $ 17,266 45.1%
--------- ----- -------- ------
Operating Expenses $ 197,119 751.16% $206,652 539.9%
--------- ------- -------- ------
Income or (loss) from operations ($185,295) 706.1% ($189,386) 494.75%
---------- ------ ---------- -------
Other Income and (expense);
Interest Expense ($ 22,179) 84.5% ($ 7,036) 18.4%
Payroll Tax Penalties and Interest ( 7,722) 29.4% ( 6,517) 17.0%
Extraordinary Item 0 0.0% (142,934) 373.4%
--------- ---- --------- ------
Total other income and (expense) ($ 29,901) 113.9% ($156,487) 408.8%
---------- ------ ---------- ------
Net Income or (Loss) ($215,196) 820.0% ($345,873) 903.56
========== ====== ========== ======
WEIGHTED AVERAGE number of
common stock and common stock
equivalents outstanding 19,380,942 18,024,045
========== ==========
NET INCOME (LOSS) per common stock
and common stock equivalents ($ .011) ($ .019)
========== ==========
</TABLE>
Comparison of Fiscal 1998 and 1997
Sales income decreased to $ 26,242 in 1998 from $ 38,279 for 1997, a
decrease of 31.4 percent. The decrease in sales was primarily due to decreased
sale of Peat Moose Absorbent products during 1998 and the Company's
concentration on research and development of the Animal Waste Management
Machine. The decreased sales during 1998 resulted in total costs of sales
decreasing to $ 14,418 in 1998, compared to $ 21,013 for 1997, a decrease of
31.4 percent. The decrease in total cost of sales resulted from a 30.7 percent
decrease in the cost of materials from $ 20,815 in 1997, to $ 14,418, in 1998,
and a 100.0 percent decrease in the cost of freight from $ 198 in 1997 to $ 0 in
1998. Gross profit decreased 31.5 percent from $ 17,266 in 1997 to $ 11,824 in
1998.
Operating expenses decreased from $ 206,652 in 1997 to $ 197,119 for 1998, a
4.6 percent decrease. The decrease in operating expenses was the result of
extensive research and development on the Animal Waste Management machine.
5
<PAGE>
The Company experienced a $ 185,295 loss from operations in 1998 as
compared to a $ 189,386 loss from operations in 1997.
Interest expense increased from $ 7,036 in 1997 to $ 22,179 in 1997, a 315.2
percent increase. Payroll tax penalties and interest increased to $ 7,722 in
1998 from $ 6,517 in 1997, an 18.5 percent increase. Such items combined with a
$ 185,295 loss from operations resulted in a $ 215,196 loss for 1998 as compared
with a loss of $ 345,873 for 1997.
Quarterly Results of Operations
Aarow Environmental Group, Inc.'s operations are affected by seasonal trends
principally based upon weather. In 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, Aarow Environmental Group, Inc. 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 Aarow Environmental Group, Inc.
Nevertheless, Aarow Environmental Group, Inc.'s 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, Aarow Environmental Group, Inc., for
federal and state income tax purposes, was taxed as a pass-through entity, and
income taxes were not imposed at Aarow Environmental Group, Inc.'s level of
taxation. After the RFM Arkansas acquisition, Aarow Environmental Group, Inc.
has produced continuing losses.
Therefore, no provisions for income taxes have been made.
Liquidity and Capital Resources
Historically, Aarow Environmental Group, Inc. has financed its growth from
borrowing and shareholder contributions. Net cash used by operating activities
totaled $ 182,351 in 1998, as compared with net cash used by operating
activities totaling $ 126,149 in 1997. As of December 31, 1998, the Company had
a working capital deficit of $ 419,523, compared to a working capital deficit of
$ 243,178, at December 31, 1997. The working capital deficit is the result of
the extensive time spent in the research and development of the Animal Waste
Management machine.
During 1997, the Company 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. Also, as disclosed earlier,
the Company has entered into an exclusive distribution agreement to distribute
the Animal Waste Machine and during 1998 spent a total of $ 86,770 in research
and development of this machine. 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.
6
<PAGE>
As of December 31, 1998, Aarow Environmental Group, Inc. 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,
1998, the outstanding principal balance of this loan was $ 60,000. This note has
an original due date of June 21, 1997 and at December 31, 1998 the Company was
in default. On February 16, 1999 this note was renewed at 10 percent per annum
with monthly payments of $ 500 interest only. The new note matures February 16,
2000.
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 Aarow Environmental Group, Inc. 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> <C> <C>
Lloyd W. Phillips(1) 53 President, Chief Executive President, Chief Executive
Officer, and Chairman Officer, and Chairman
of the Board of the Board
Jeff Martin(2) 37 Executive Vice President Executive Vice President
and Director and Director
Stan Sisemore(2) 51 Vice President Vice President
and Director and Director
Mitch Villines 49 Secretary and Director Secretary and Director
</TABLE>
- ----------------------------
(1) As holder of all of the outstanding Series I Convertible Preferred Stock,
Mr. Phillips in combination with Mr. Sisemore and Mr. Martin hold
approximately 55.7 percent of the outstanding voting rights of the
shareholders of the Company. Therefore, Mr. Phillips, Mr. Martin and Mr.
Sisemore 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.
The executive officers of the Company and RFM Arkansas devote their
full-time to the Company's business.
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The following is a brief description of the business background of the
executive officers and directors of the Aarow Environmental Group, Inc.
Lloyd Phillips was elected as Chairman of the Board, President and Chief
Executive Officer on March 31, 1999. Mr. Phillips has served as the Secretary
and a director since 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.
Jeff Martin is Executive Vice President and a Director of the Company serves
as a member of the Stock Option Committee. Prior to becoming employed with the
Company 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.
Stan Sisemore was Chariman of the Board, President, Chief Executive Office,
and a Director of the Company from May 12, 1997 to March 31, 1999. Currently Mr.
Sisemore is serving in the capacity of Vice President and Director. Mr. Sisemore
also serves as a member of the Stock Option Committee. 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.
Mitch Villines is the Secretary and a Director. He has served in this
capacity since March 31, 1999. Mr. Villines has been involved in the management
and development of the poultry and egg industry for the past twenty-five years.
During 1996 and until his removal in March 1997, Dan Pilkington, the former
president, held the positions of Chairman of the Board, President and Chief
Executive Officer of the Company.
8
<PAGE>
<TABLE>
<CAPTION>
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 each of
the executive officers that received compensation in excess of $100,000 during
1998. 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
Annual Compensation
-------------------
All Other
Name and Principal Position Year(1) Salary(2) Bonus(3) Compensation
- --------------------------- -------- --------- -------- -------------
<S> <C> <C> <C> <C>
Stanley L. Sisemore 1998 $ 21,000 $ 0 $ 0
Vice President and Director 1997 $ 23,000 $ 0 $ 0
Lloyd W. Phillips 1998 $ 13,000 $ 0 $ 0
President and Director 1997 $ 23,000 $ 0 $ 0
Jeff Martin 1998 $ 16,000 $ 0 $ 0
Executive Vice President 1997 $ 26,000 $ 0 $ 0
and Director
Mitch Villines 1998 $ 3,000 $ 0 $ 0
Secretary and Director 1997 $ 0 $ 0 $ 0
</TABLE>
- ---------------------------
(1) The executive officers, including the President, were not paid any
executive compensation during 1996 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.
9
<PAGE>
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 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
April 21, 1999, 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.
10
<PAGE>
<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> <C> <C>
Name and Address of Beneficial Owner
Stanley L. Sisemore(1) 0 0.0% 1,440,000 7.4%
Jeff Martin 0 0.0% 250,000 1.3%
Lloyd W. Phillips 3,000,000 100.0% 9,100,000 47.0%
Executive Officers and Directors as a group
(three persons)(1) 3,000,000 100.0% 10,790,000 55.7%
</TABLE>
- -----------------------
(1) With respect to the Common Stock, includes 9,000,000 shares issuable upon
conversion of the Series I Convertible Preferred Stock.
Item 12. Certain Relationships and Related Transactions
Set forth below is a description of transactions entered into between Aarow
Environmental 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.
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, 1997, 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, 1997, 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.*
11
<PAGE>
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.*
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
- -------------------------------------
o 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 1998.
12
<PAGE>
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/ Lloyd W. Phillips
--------------------------------
Lloyd W. Phillips, President
Date:
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.
Name Title Date
---- ----- ----
/s/ Lloyd W. Phillips Chief Executive Officer, President and
----------------- Chairman of the Board
Lloyd W. Phillips
/s/ Jeff Martin Executive Vice President
----------------- and Director
Jeff Martin
/s/ Stan Sisemore Vice President
----------------- and Director
Stan Sisemore
/s/ Mitch Villines Secretary
-----------------
Mitch Villines and Director
13
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AAROW ENVIRONMENTAL GROUP, INC.
Independent Auditors Report F-2
Balance Sheet, December 31,1998 and 1997 F-3
Statements of Income and Retained Earnings for the Twelve Months
Ended December 31, 1998 and the Twelve Months Ended December 31, 1997 F-5
Statements of Cash Flows for the Twelve Months Ended December 31, 1998
and the Twelve Months Ended December 31, 1997 F-6
Notes to Financial Statements F-7
Supplemental Information F-11
<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, 1998 and December 31, 1997 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, 1998 and December 31, 1997 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
April 21, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
BALANCE SHEET
As of December 31, 1998 and December 31, 1997
Dec. 31, Dec. 31,
Assets 1998 1997
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 0 $ 0
Accounts Receivable 0 1,043
Inventory 32,400 33,668
--------------- ---------------
Total Current Assets $ 32,400 $ 34,711
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $ 13,937 and $ 10,001 respectively) 8,159 12,095
Other Assets
Organization Costs (net of accumulated
amortization of $ 2,925 and $ 2,475 respectively) $ 1,575 $ 2,025
Noncompete Covenant (net of accumulated
amortization of $ 2,550 and $ 750 respectively) 15,450 17,250
--------------- ---------------
TOTAL OTHER ASSETS $ 17,025 $ 19,275
--------------- ---------------
TOTAL ASSETS $ 57,584 $ 66,081
=============== ===============
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
F-3
<PAGE>
<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
BALANCE SHEET
As of December 31, 1998 and December 31, 1997
Dec. 31, Dec. 31,
Liabilities and Stockholders Equity 1998 1997
--------------- ---------------
<S> <C> <C>
Current Liabilities:
Bank Overdraft $ 0 $ 2,316
Accounts Payable 41,142 26,538
Payroll Taxes Payable 103,496 107,965
Accrued Interest Payable 24,229 7,700
Judgment Payable 18,370 18,370
Short Term Notes 204,686 55,000
Current Portion of Long Term Notes 60,000 60,000
--------------- ---------------
TOTAL CURRENT LIABILITIES $ 451,923 $ 277,889
LONG TERM LIABILITIES 0 0
--------------- ---------------
TOTAL LIABILITIES $ 451,923 $ 277,889
Stockholders Equity
Common Stock at Dec. 31, 1997, $ 0.001 par value, 30,000,000 shares $ 10,381 $ 9,024
authorized, 10,380,942 shares issued and outstanding
Convertible Preferred Stock, $0.001 par value, 5,000,000 shares 3,000 3,000
authorized, 3,000,000 shares issued and outstanding,
one share convertible for three shares common
Paid in Capital 220,557 189,249
Retained Earnings ( 628,277) ( 413,081)
---------------- ----------------
TOTAL STOCKHOLDERS EQUITY ($ 394,339) ($ 211,808)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 57,584 $ 66,081
================ ================
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
F-4
<PAGE>
<TABLE>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Twelve Months Ended December 31, 1998 and
the Twelve Months Ended December 31, 1997
Dec. 31 Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Sales Income $ 26,242 $ 38,279
Cost of Sales
Materials $ 14,418 $ 20,815
Freight 0 198
--------------- ---------------
Total Cost of Sales $ 14,418 $ 21,013
--------------- ---------------
GROSS PROFIT $ 11,824 $ 17,266
Operating Expenses 197,119 206,652
--------------- ---------------
GAIN OR (LOSS) FROM OPERATIONS ($ 185,295) ($ 189,386)
Other Income and (Expenses)
Interest Expense ($ 22,179) ($ 7,036)
Payroll Tax Penalties and Interest ( 7,722) ( 6,517)
---------------- ----------------
Total Other Income and (Expense) ($ 29,901) ($ 13,553)
---------------- ----------------
INCOME OR (LOSS) BEFORE
EXTRAORDINARY ITEM ($ 215,196) ($ 202,939)
Extraordinary Items
Note Receivable $ 0 ($ 20,455)
Loss on Repossession 0 ( 3,298)
Casualty Loss 0 ( 119,181)
--------------- ----------------
Total Extraordinary Items $ 0 ($ 142,934)
--------------- ----------------
NET INCOME OR (LOSS) ($ 215,196) ($ 345,873)
Retained Earnings at Beginning of Year ( 413,081) ( 67,208)
---------------- ----------------
RETAINED EARNINGS AT END OF YEAR ($ 628,277) ($ 413,081)
================ ================
</TABLE>
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, 1998 and
the Twelve Months Ended December 31, 1997
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) ($ 215,196) ($ 345,873)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 3,936 3,383
Amortization 2,250 1,650
Extraordinary Items 0 23,753
(Increase) decrease in:
Accounts Receivable 1,043 ( 1,043)
Inventory 1,268 ( 2,042)
Insurance Claim 0 119,181
Increase (decrease) in:
Bank Overdraft ( 2,316) 2,316
Accounts Payable 14,604 6,229
Payroll Taxes Payable ( 4,469) 40,960
Accrued Interest Payable 16,529 6,967
Judgment Payable 0 18,370
--------------- ---------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES ($ 182,351) ($ 126,149)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment $ 0 ($ 4,887)
Noncompete Covenant 0 ( 18,000)
--------------- ----------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES $ 0 ($ 22,887)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Long-Term $ 0 $ 0
Short-Term 167,458 59,500
Debt Reduction
Long-Term ( 15,045)
Short-Term ( 17,772)
Sale of Stock 32,665 102,434
--------------- ---------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES $ 182,351 $ 146,889
--------------- ---------------
NET INCREASE (DECREASE) IN CASH $ 0 ($ 2,147)
CASH AT BEGINNING OF YEAR 0 2,147
--------------- ---------------
CASH AT END OF YEAR $ 0 $ 0
=============== ===============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 22,179 $ 7,036
</TABLE>
SEE ACCOUNTANTS REPORT AND NOTES
F-6
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1998 and
the Twelve Months Ended December 31, 1997
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, 1998 and
the Twelve Months Ended December 31, 1997
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.
Note-1: 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, 1998 Cost Depr. Expense
------------- ------------- -------------
Office Equipment $ 16,079 $ 10,448 $ 3,076
Equipment 6,017 3,489 860
------------- ------------- -------------
Total $ 22,096 $ 13,937 $ 3,936
============= ============= =============
Accum. Depr.
December 31, 1997 Cost Depr. Expense
------------- ------------- -------------
Office Equipment $ 16,079 $ 7,372 $ 2,523
Equipment 6,017 2,629 860
------------- ------------- -------------
Total $ 22,096 $ 10,001 $ 3,383
============= ============= =============
The autos are pledged as collateral to Springdale Bank and Trust of Springdale,
AR.
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
Dec. 31, Dec. 31,
1998 1997
----------------- -----------------
Noncompete Covenant $ 18,000 $ 18,000
Accumulated Amortization ( 2,550) ( 750)
----------------- -----------------
Net Noncompete Covenant $ 15,450 $ 17,250
================ =================
SEE ACCOUNTANTS REPORT
F-8
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1998 and
the Twelve Months Ended December 31, 1997
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 originally 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 originally due September
15, 1998. These notes were increased and extended to September 15, 1999. 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.
Note-5: The company's Long Term debt consists of the following:
<TABLE>
Dec. 31, Dec. 31,
1998 1997
----------- ------------
<S> <C> <C>
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
=========== ============
</TABLE>
At December 31, 1998 the Company was in default on this note, however, on
February 16, 1999 this note was renewed at 10 percent per annum with monthly
payments of $ 500 interest only. The new note matures February 16, 2000.
Note-6: Stockholders' Equity
Common Stock: At December 31, 1998 there were 30,000,000 shares authorized,
10,380,942 issued and outstanding at $ 0.001 per share par value. At December
31, 1997 there were 30,000,000 shares authorized, 9,024,045 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.
SEE ACCOUNTANTS REPORT
F-9
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1998 and
the Twelve Months Ended December 31, 1997
Convertible Preferred Stock: At December 31, 1998 and 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
sizable loss for the year ended December 31, 1998 and has a deficit in working
capital. Management has begun a plan to recapitalize the Company and to market
new products. 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-10
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 1998 and
the Twelve Months Ended December 31, 1997
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
Operating Expenses
Accounting 22,111 $ 18,416
Advertising 1,839 400
Amortization 2,250 1,650
Auto & Truck 6,214 5,688
Bank Charges 3,029 81
Depreciation 3,936 3,383
Dues & Subscriptions 65 0
Equipment Rental 224 0
Insurance 0 222
Legal Expense 7,507 8,960
Miscellaneous 7,422 0
Office Expense 5,953 13,048
Office Salaries 10,610 99,567
Payroll Tax Expense 5,585 7,617
Postage 832 22
Rent 13,500 9,091
Research and Development 86,770 0
Supplies 1,703 9,882
Taxes & Licenses 351 0
Telephone 13,235 16,506
Travel 2,237 10,341
Unemployment Taxes 1,746 1,778
--------------- ---------------
$ 197,119 $ 206,652
SEE ACCOUNTANTS REPORT
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000047968
<NAME> Arrow Environmental Group, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 32,400
<CURRENT-ASSETS> 32,400
<PP&E> 22,096
<DEPRECIATION> 13,937
<TOTAL-ASSETS> 57,584
<CURRENT-LIABILITIES> 451,923
<BONDS> 0
0
3,000
<COMMON> 10,381
<OTHER-SE> 220,557
<TOTAL-LIABILITY-AND-EQUITY> 57,584
<SALES> 26,242
<TOTAL-REVENUES> 26,242
<CGS> 14,418
<TOTAL-COSTS> 14,418
<OTHER-EXPENSES> 204,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,179
<INCOME-PRETAX> (215,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (215,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (215,196)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.11)
</TABLE>
