U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
TRANSITION 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 (I.R.S. Employer Identification No.)
incorporation or organization)
1505 W. Walnut
Rogers, Arkansas 72756
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(501) 621-0044
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and has
been subject to such filing requirements for the past 90 days. Yes No X
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
Applicable only to corporate issuers
The number of outstanding of Common Stock as of November 16, was 11,195,942
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
Index to Quarterly Report on Form 10-QSB
Part I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
as of September 30, 1999 and December 31, 1998 3
Unaudited Consolidated Statements of Income for the
Three Months and Nine Months
Ended September 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Supplemental Information 10
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
2
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<CAPTION>
Part I - Financial Statements
Item 1. Financial Statements
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
SEPTERMBER 30, 1999 AND DECEMBER 31, 1998
September December
Assets 30, 1999 31, 1998
------------- --------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 19 $ 526
Accounts Receivable 1,222 1,222
Inventory 35,520 35,520
------------- --------------
TOTAL CURRENT ASSETS $ 36,761 $ 37,268
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $ 137,218 and $ 103,031 respectively) 165,415 199,602
Other Assets
Organization Costs (net of accumulated
amortization of $ 3,600 and $ 2,925 respectively) $ 900 $ 1,575
Noncompete Covenant (net of accumulated
amortization of $ 5,250 and $ 2,550 respectively) 12,750 15,450
Intellectual Property (net of accumulated
Amortization of $ 32,500 and $ 16,250) 292,500 308,750
------------- --------------
TOTAL OTHER ASSETS $ 306,150 $ 325,775
------------- --------------
TOTAL ASSETS $ 508,326 $ 562,645
============= ==============
Liabilities and Stockholders Equity
Current Liabilities:
Accounts Payable $ 41,174 $ 42,576
Payroll Taxes Payable 120,137 103,496
Accrued Interest Payable 36,497 24,229
Judgment Payable 18,370 18,370
Sales Tax Payable 12,879 12,879
Short Term Notes 252,004 204,686
Accrued Salaries Payable 19,276 0
Current Portion of Long Term Notes 67,219 67,013
------------- --------------
TOTAL CURRENT LIABILITIES $ 567,556 $ 473,249
LONG TERM LIABILITIES 125,647 131,126
------------- --------------
TOTAL LIABILITIES $ 693,203 $ 604,375
Stockholders Equity
Common Stock, $ 0.001 par value, 30,000,000 shares authorized, $ 374,390 $ 373,615
11,195,942 shares issued and outstanding
Convertible Preferred Stock, $0.001 par value, 5,000,000 shares 3,000 3,000
authorized, 3,000,000 shares issued and outstanding,
one share convertible for three shares common
Paid in Capital 219,782 220,557
Retained Earnings ( 782,049) ( 638,902)
------------- --------------
TOTAL STOCKHOLDERS EQUITY ($ 184,877) ($ 41,730)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 508,326 $ 562,645
============= ==============
</TABLE>
3
See notes to unaudited financial statements.
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<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 30, 1999, the Three Months Ended
September 30, 1998, the Nine Months Ended September 30, 1999 and the
Nine Months Ended September 30, 1998
Three Months Three Months Nine Months Nine Months
9-30-99 9-30-98 9-30-99 9-30-98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales Income $ 34,051 $ 24,599 $ 125,062 $ 122,363
Cost of Sales
Materials 3,462 13,856 20,431 43,979
------------ ------------ ------------ ------------
Total Cost of Sales $ 3,462 $ 13,856 $ 20,431 $ 43,979
------------ ------------ ------------ ------------
GROSS PROFIT $ 30,589 $ 10,743 $ 104,631 $ 78,384
Operating Expenses 43,151 115,604 220,115 281,528
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS ($ 12,562) ($ 104,861) ($ 115,484) ($ 203,144)
Other Income and (Expenses)
Interest Expense ($ 3,105) ($ 13,969) ($ 21,846) ($ 26,967)
Penalties ( 0) ( 1,701) ( 5,817) ( 5,098)
------------ ------------ ------------ ------------
Total Other Income and (Expenses) ($ 3,105) ($ 15,670) ($ 27,663) ($ 32,065)
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($ 15,667) ($ 120,531) ($ 143,147) ($ 235,209)
============ ============ ============ ============
WEIGHTED AVERAGE number of common stock
and common stock equivalents outstanding 20,195,942 20,780,942 20,195,942 20,780,942
============ ============ ============ ============
NET INCOME (LOSS) per common stock and
common stock equivalents ($ .000) ($ .006) ($ .007) ($ .011)
============ ============ ============ ============
</TABLE>
4
See notes to unaudited financial statements.
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<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
STATEMENTS OF CASH FLOWS
For Nine Months Ended September 30, 1999 and the
Nine Months Ended September 30, 1998
Nine Months Nine Months
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 143,147) ($ 235,209)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 34,187 32,680
Amortization 19,625 12,519
(Increase) decrease in:
Accounts Receivable ( 0) ( 566)
Inventory 0 ( 827)
Increase (decrease) in:
Bank Overdraft ( 0) ( 1,588)
Accounts Payable ( 1,402) 3,863
Payroll Taxes Payable 16,641 ( 8,360)
Sales Taxes Payable 0 8,511
Accrued Salaries Payable 19,276 0
Accrued Interest Payable 12,268 10,654
-------------- --------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES ($ 42,552) ($ 178,323)
NET CASH USED BY INVESTING ACTIVITIES
Equipment Purchases $ 0 ($ 43,402)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Long-Term $ 0 $ 7,978
Short-Term 47,319 162,984
Debt Reduction
Long-Term ( 5,274) ( 23,027)
Proceeds from Sale of Common Stock 32,665
Stockholder/Partner's Cash Contribution 41,253
-------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 42,045 $ 221,853
-------------- --------------
NET INCREASE IN CASH ($ 507) $ 128
CASH AT BEGINNING OF THE PEROID 526 19
-------------- --------------
CASH AT END OF PERIOD $ 19 $ 147
============== ==============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 21,846 $ 26,967
============== ==============
</TABLE>
5
See notes to unaudited financial statements.
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
STATEMENT OF SIGNIFICANT ACCOUNTING ASSUMPTIONS
BASIS OF ACCOUNTING
The financial statements of Aarow Environmental Group, Inc. (the "Company") at
September 30, 1999, have been prepared on the accrual basis of accounting. Using
this method, revenue and expenses are recognized when occurred.
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments which are, in the
opinion of management, necessary for a fair presentation. An independent
accountant has not audited these financial statements.
The preparation of financial statements during interim periods requires
management to make numerous estimates and assumptions that impact the reported
amounts of assets, liabilities, revenues and expenses. Estimates and assumptions
are reviewed periodically and the effect of revisions is reflected in the
results of operations of the interim periods in which changes are determined to
be necessary.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate. The
financial statement results for interim periods are not necessarily indicative
of financial results for the full year. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the annual report on form 10-KSB for the year ended December 31,
1998, and the unaudited restated consolidated financial statements and notes
thereto included in the Company's Amended Form 8-K (dated September 2, 1999,
filed November 16, 1999) for the six months ended June 30, 1999, June 30, 1998
and December 31, 1998. The financial data for the interim periods presented may
not necessarily reflect the results to be expected for the full year.
On September 2, 1999, Aarow acquired all of the issued and outstanding shares of
Utica Publishing Corporation pursuant to the terms of a written Agreement for
Stock Purchase dated September 2, 1999. Each share of Utica common stock was
converted into 1.4 shares of Aarow common stock. Aarow issued approximately 1.4
million shares in exchange for all of the outstanding shares of Utica. The
transaction was accounted for as a purchase.
Before merging with Aarow, both Aarow and Utica had December 31 fiscal year
ends. Restated Aarow financial information for fiscal 1998 and earlier years was
computed by adding financial information for corresponding quarters of Utica's
fiscal year. Thus, the unaudited consolidated statements of income for the three
and nine month periods ended September 30, 1999 and 1998 were derived by
combining the results of operations of Aarow for the three and nine months ended
September 30, 1999 and 1998, respectively, with the results of operations of
Utica for the three and nine months ended September 30, 1999 and 1998,
respectively. Combining the financial position of Aarow at December 31, 1998
with the financial position of Utica at December 31, 1998 derived the unaudited
consolidated balance sheet at December 31, 1998. The unaudited consolidated
statement of cash flows for the nine months ended September 30, 1998 was derived
by combining the cash flows of Aarow for the nine months ended September 30,
1998 with the cash flows of Utica for the nine months ended September 30, 1998.
INVENTORY
Inventory is carried at the lower of cost or market and consists of raw
materials and ready to sell products.
6
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at acquisition cost. Depreciation is
computed using accelerated methods by charging against earnings amounts
sufficient to amortize the cost of the related assets over their estimated
useful lives.
INCOME TAXES
For income tax reporting and financial statement reporting at September 30,
1999, the Company is using depreciation methods that are the same and therefore
there is no accrual for deferred income taxes at this time. However, because of
various elections available at the time of filing the income tax returns, there
may be future differences between income tax depreciation expense and financial
statement depreciation expense giving rise to accrual of deferred income taxes
Note 1: Property, Plant and Equipment
All assets are recorded at original cost. Depreciation is calculated using
accelerated methods, lives are five years for office equipment, seven years for
manufacturing equipment and furniture, and 10 years for Leasehold Improvements.
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
Sept. 30, Dec. 31,
1999 1998
----------- -----------
Noncompete Covenant $ 18,000 $ 18,000
Accumulated Amortization ( 5,250) ( 2,550)
----------- -----------
Net Noncompete Covenant $ 12,750 $ 15,450
=========== ===========
Note 3: Amortization of Intellectual Property
Intellectual property consists of two magazines acquired from a major
stockholder in exchange for common stock. The intellectual property was recorded
at market value at time of acquisition from the stockholder, which was less than
the stockholder's cost. The two magazines are La Cronica, a bilingual monthly
magazine (ISSN 1091-1928) and Arkansas Chronicle, an electronically distributed
daily newsmagazine (ISN 1091-XXXX). La Cronica has published continuously since
January, 1996. Arkansas Chronicle has functioned as a local wire service since
January, 1996. In April, 1998, work commenced, by the partners of Arkansas
Chronicle/Copies Plus partnership, on developing and expanding Arkansas
Chronicle and La Cronica as paid subscription, Internet electronic publications.
The intellectual property is amortized using the straight-line method over 40
years.
Sept. 30, Dec. 31,
1999 1998
----------- -----------
Intellectual Property $ 325,000 $ 325,000
Accumulated Amortization ( 32,500) ( 16,250)
----------- -----------
Net Intellectual Property $ 292,500 $ 308,750
=========== ===========
7
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AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
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.
One of the shareholders who is also a Director loaned the Company $ 2,230. This
is an unsecured non interest demand note.
Note 6: The company's Long Term debt consists of the following:
Sept. 30, Dec. 31,
1999 1998
----------- -----------
Springdale Bank & Trust, 10.25%, Monthly Int. Only $ 60,000 $ 60,000
Maturity Date 6-21-97
Secured by Inventory and A/R
Farm Credit Services of Western Arkansas 119,185 121,634
Interest 9.2%, $ 1,196.38 per month,
Maturity Date: June 1, 2015
Secured by substantially all assets of the Company
And guaranteed by a major stockholder
First National Bank of Rogers, AR 4,270 6,190
Interest 9.5%, $ 255.66 per month
Maturity Date: March 18, 2001
Secured by Equipment
First National Bank of Rogers, AR 9,411 10,029
Interest 10.0%, $ 150.00 per month
Maturity Date: August 10, 2003
Secured by a Cannon Laser Copier Model 320
First National Bank of Rogers, AR 0 286
Interest 10.0%, $ 161.32 per month
Maturity Date: Feb. 1, 1999
Secured by a Cannon Color Laser Copier 500
Current Portion of Long Term debt ( 67,219) ( 67,013)
----------- -----------
Long Term debt, less current portion $ 125,647 $ 131,126
=========== ===========
8
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AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
Note 6: The company's Long Term debt consists of the following:-continued
The following is a summary of principal maturities of long term debt during the
next five years:
2000 $ 67,219
2001 7,559
2002 6,735
2003 5,756
2004 and thereafter 105,597
Note 7: Stockholders' Equity
Common Stock: At September 30, 1999 there were 30,000,000 shares authorized,
11,195,942 issued and outstanding at $ 0.001 per share par value. At December
31, 1998 there were 30,000,000 shares authorized, 11,780,942 issued and
outstanding at $ 0.001 per share par value this has been restated from previous
reporting to include the additional 1.4 millions share issued in the merger with
Utica Publishing Corporation. 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 September 30, 1999 and December 31, 1998 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 8: Going Concern
As shown in the accompanying financial statements, the Company has incurred a
loss for the period ended September 30, 1999 and has a deficit in working
capital. Management has a continuing plan to recapitalize the Company,
reestablish the relationship with the distributors and develop 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.
NOTE 9: Earnings Per Share of Common Stock
Earnings per common share were computed using the weighted average number of
common shares outstanding after adding the dilutive effect of the conversion of
the preferred stock.
9
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<TABLE>
<CAPTION>
AAROW ENVIRONMENTAL GROUP, INC.
SUPPLEMENTAL INFORMATION TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SUPPLEMENTAL INFORMATION
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Operating Expenses
Accounting $ 5,000 $ 2,888 $ 9,700 $ 18,085
Advertising 0 1,660 763 1,724
Amortization 7,667 5,978 19,625 12,519
Auto & Truck 84 4,842 6,425 8,960
Bank Charges 309 79 2,355 8,005
Contract Labor 9,125 6,974 47,710 23,698
Commissions 0 3,757 842 7,442
Credit Card Fees 94 26 297 157
Donations 0 68 0 82
Depreciation 13,055 16,966 34,187 32,680
Dues & Subscriptions 0 0 0 65
Equipment Rental 0 0 0 224
Insurance 0 929 1,577 2,244
Legal Fees 0 466 1,560 5,358
Miscellaneous 1,411 4,498 1,640 6,447
Office Expense 0 2,818 1,209 4,327
Office Salaries 0 35,466 35,000 69,241
Payroll Tax Expense 0 2,713 2,678 5,297
Postage 52 723 52 1,137
Professional Fees 0 673 822 2,375
Rent 2,400 9,222 11,414 25,681
Repairs 45 382 735 2,193
Small Equipment 713 180 713 1,208
Supplies 0 1,338 3,200 1,703
Taxes & Licenses 0 27 1,319 765
Telephone 3,196 9,024 18,752 20,112
Travel 0 3,406 16,465 18,053
Unemployment Taxes 0 501 1,075 1,746
---------- --------- ---------- ---------
TOTAL OPERATING EXPENSES $ 43,151 $ 115,604 $ 220,115 $ 281,528
========== ========= ========== =========
</TABLE>
10
See notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto appearing
elsewhere in this Report.
Rendezvous Trails of America, Inc. (formerly Holiday Resorts
International, Inc.) ("RTA"), the former parent of Aarow Environmental (formerly
Rain Forest - Moose, Ltd.), was incorporated in April 1970. The name of the
Company was changed from Rain Forest - Moose, Ltd., to Aarow Environmental
Group, Inc., on June 13, 1997. Since 1986, RTA became inactive and did not
conduct any operations or activities through 1995 and, as of December 31, 1995,
did not have any assets. Pursuant to an Agreement and Plan of Merger, dated
February 23, 1996, RTA merged with and into Aarow Environmental as the surviving
corporation. The merger of RTA with and into Aarow Environmental effectively
changed the state of domicile of RTA to Nevada as a result of Aarow
Environmental being the surviving corporation and was accounted for as a
reorganization of entities under common control which was recorded at historical
cost. Rain Forest - Moose, Ltd., an Arkansas corporation ("RFM Arkansas"), was
formed on March 15, 1994. Pursuant to a Plan of Reorganization and Agreement of
Merger, dated March 5, 1996, RFM Arkansas merged with a wholly-owned subsidiary
of the Company, and as the surviving corporation, RFM Arkansas became a
wholly-owned subsidiary of the Company which was accounted for as a reverse
acquisition of the Company by RFM Arkansas under the purchase method of
accounting (the "RFM Arkansas Acquisition").
Results of Operations
The following table sets forth selected results of operations for the
three months and nine months ended September 30, 1999 and 1998 which are derived
from the unaudited consolidated financial statements of the Company. The results
of operations for the periods presented are not necessarily indicative of the
Company's future operations.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
-------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Income $ 34,051 100.0 % $ 24,599 100.0 % $ 125,062 100.0 % $ 122,363 100.0 %
Cost of Sales
Materials 3,462 10.2 % 13,856 56.3 % 20,431 16.3 % 43,979 35.9 %
--------- --------- --------- --------- --------- --------- --------- ---------
Gross Profit $ 30,589 89.8 % $ 10,743 43.7 % $ 104,631 83.7 % $ 78,384 64.1 %
Operating Expenses 43,151 126.7 % 115,604 470.0 % 220,115 176.0 % 281,582 230.1 %
--------- --------- --------- --------- --------- --------- --------- ---------
Income or (Loss) from Operations ($ 12,562) 36.9 % ($ 104,861) 426.3 % ($ 115,484) 92.3 % ($ 203,198) 166.0%
Other Income and (Expenses)
Interest Expense ($ 3,105) 9.1 % ($ 13,969) 56.8 % ($ 21,846) 17.5 % ($ 26,967) 22.0 %
Penalties ( 0) 0.0 % ( 1,701) 6.9 % ( 5,817) 4.7 % ( 5,098) 4.2 %
--------- --------- --------- --------- --------- --------- --------- ---------
Total Other Income and (Expense) ($ 3,105) 9.1 % ($ 15,670) 63.7 % ($27,663) 22.2 % ($ 32,065) 26.2 %
Net Income or (Loss) ($ 15,667) 46.0 % ($ 120,531) 490.0% ($143,147) 114.5 % ($ 235,263) 192.2%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
Comparison of the Nine Months Ended September 30, 1999 and 1998
Sales income increased to $ 125,062 in the nine months ended September
30, 1999 (the "1999 Nine Month Period") from $ 122,363 for the nine months ended
September 30, 1998 (the "1998 Nine Month Period"), an increase of $2,699 (an
increase of 2.2 percent). The increase is all attributable to Utica operations,
and is due to expansion of Utica's printing capabilities and in a small part to
increased advertising revenues of its' weekly magazine, La Jornada de Arkansas.
The cost of sales decreased to $ 20,431 for the 1999 Nine Month Period from $
43,979 for the 1998 Nine Month Period, a decrease of $ 23,548 (a decrease of
53.5 percent). The decrease is attributable to lower paper cost and a change in
suppliers.
Gross profit increased to $ 104,631 in the 1999 Nine Month Period, from
$ 78,384 during the 1998 Nine Month Period. As a percent of sales income, gross
profit increased to 83.7 percent during the 1999 Nine Month Period from 64.1
percent during the 1998 Nine Month Period, which was attributable to the
decreased cost of materials as a percent of sale, the cost of materials as a
percent of sales income decreased from 35.9 percent during the 1998 Nine Month
Period to 16.3 percent during the 1999 Nine Month Period.
Operating expenses decreased to $ 220,115 (176.0 percent of sales
income) in the 1999 Nine Month Period from $ 281,582 (230.1 percent of sales
income) in the 1998 Nine Month Period, which was principally due to the decrease
in office salaries from $ 69,241 during the 1998 Nine Month Period to $ 35,000
during the 1999 Nine Month Period, a decrease of 49.5 percent. Also, accounting
expenses decreased from $ 18,085 in the 1998 Nine Month Period to $ 9,700 in the
1999 Nine Month Period a decrease of 46.4 percent. The accounting expense
decreased because during the 1998 Nine Month Period extra accounting work was
performed. Bank charges decreased from $ 8,005 in the 1998 Nine Month Period to
$ 2,355 in the 1999 Nine Month Period a decrease of 239.9 percent. Rent expense
decreased from $ 25,681 in the 1998 Nine Month Period to $ 11,414 in the 1999
Nine Month Period a decrease of 55.6 percent.
The Company experienced a loss from operations of $ 115,484 during the
1999 Nine Month Period compared to a loss from operations of $ 203,198 in the
1998 Nine Month Period. The loss from operations in the 1999 Nine Month Period
was 92.3 percent of sales income and 166 percent of sales income in the 1998
Nine Month Period.
During the 1999 Nine Month Period the Company was engaged in the
development of the sales and marketing plan for an animal waste processor unit
for which the Company has secured exclusive worldwide marketing rights. The
Aarowaste processor, as it is called, is completed and ready for market. The
company is actively pursuing sales of the Aarowaste processor, development of
other animal waste processing and marketing projects, and expanding of its'
Utica publishing and printing operations.
A net loss was sustained during the 1999 Nine Month Period of $ 143,147 compared
to a loss of $ 235,263 during the 1998 Nine Month Period. During the 1998 Nine
Month Period, the Company issued 1,356,897 shares of common stock in the amount
of $ 32,665, which was accounted for as a source of cash from financing
activities. During the 1999 Nine Month Period there were no such issues of
stock.
Quarterly Results of Operations
During the third quarter of 1999, the company consolidated its
management in preparation for commencing its' marketing efforts of its'
bioremediation projects and accelerating its' marketing efforts for the
Aarowaste processing system. The company continued to seek the best equipment
components for its' overall processing system and identified locations for
placement of the system. The company expects its' first sales of the system to
be in the fourth quarter of 1999 or the first quarter of 2000.
12
<PAGE>
Income Taxes
For income tax reporting and financial statement reporting at September
30, 1999 and 1998, the Company is using depreciation methods that are the same
and therefore there is no accrual for deferred income taxes at this time.
However, because of various elections available at the time of filing the income
tax returns, there may be future differences between income tax depreciation
expense and financial statement expense giving rise to accrual of deferred
income tax.
Because of continuing losses the Company has not incurred any income
tax expense.
Liquidity and Capital Resources
The Company incurred a loss for the nine months ended September 30,
1999 and had a deficit in working capital of $ 530,795. Under new management,
the Company began a plan to recapitalize the Company and to reestablish the
relationships with its former distributors and channels of product distribution.
However, there can be no assurance that future cash flows from operations and
availability of credit from vendors will be sufficient to implement management's
business plan or that the Company will be successful in its efforts to implement
such plan. If the Company is unsuccessful in its efforts, it may be necessary to
undertake such other actions as may be appropriate to preserve asset value.
Due to the Company's relatively short operating history under new
management, its lack of substantial equity, its working capital deficit and
volume of sales, traditional bank lending facilities are not currently
available. Historically, the Company financed its growth from borrowings and
shareholder contributions and depended in part upon credit terms from its
various vendors as a source of financing. Arrangements with such vendors have
generally been informal, without specific agreements as to terms and payments.
The availability of credit from vendors, or the terms of any such credit, cannot
be assured. Because future cash flows and the availability of vendor credit or
other financing are subject to a number of variables, there can be no assurance
that the Company's cash flows and capital resources will be sufficient to enable
the Company to service its outstanding debt and liabilities or to maintain
currently planned levels of sales and product distribution.
Net cash used by operating activities totaled $ 42,552 in the 1999 Nine
Month Period, while net cash used by operating activities totaled $ 178,323 in
the 1998 Nine Month Period. The new management for the Company began a plan to
augment the capital of the Company and to resume full operations. However, there
is no assurance that the Company will be successful in its efforts to implement
its capital augmentation plan and the resumption of full business operations,
including the reestablishment of its former channels of product distribution.
During the 1999 Nine Month Period, net cash flows provided by financing
activities totaled $ 42,045, while, in comparison net cash flows provided by
financing activities totaled $ 221,853 during the 1998 Nine Month Period. During
the 1999 Nine Month Period, the Company had no investing activities compared to
$ 43,402 during the 1998 Nine Month Period.
Currently cash flows from operations are not sufficient to service its
obligations under the various financing arrangements and maintain operations of
the Company. Management of the Company has developed a plan to augment its
capitalization in order to resume full manufacturing and marketing operations.
However, there is no assurance that the Company will be successful in its
efforts to implement its plan for additional capitalization and the resumption
of full business operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Report constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or other
variations thereon, or by discussions of strategies that involve risks and
uncertainties. The actual results of the Company or industry results may be
materially different from any future results expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include general economic and business conditions; the ability of the
Company to implement its business plan and strategy; industry changes; changes
in customer preferences; product competition; availability of key personnel;
increasing operating costs; unsuccessful advertising and promotional efforts;
changes in brand awareness and preferences; acceptance of new product offerings;
and changes in, or the failure to comply with, government regulations
(especially environmental protection laws and regulations); the ability of the
Company to obtain vendor credit or other financing; and other factors.
13
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the period
covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger between Rendezvous Trails of
America, Inc. and Rain Forest - Moose, Ltd., dated
February 23, 1996.*
2.1.1 Agreement for Stock Purchase dated September 2, 1999 between
Aarow Environmental Group, Inc. and Utica Publishing
Corporation.***
2.2 Certificate and Articles of Merger of Rendezvous Trails of
America, Inc. with and into Rain Forest - Moose, Ltd.*
2.3 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten,
dated March 5, 1996.**
2.4 Certificate of Merger of RFM Acquisition Corporation of
Oklahoma, Inc. with and into Rain Forest - Moose, Ltd.**
4.1 Agreement and Plan of Merger between Rendezvous Trails of
America, Inc. and Rain Forest - Moose, Ltd., dated
February 23, 1996.*
4.2 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten,
dated March 5, 1996**.
14
<PAGE>
4.2 Certificate of the Powers Designation, Rights and Preferences
for the Series I Convertible Preferred Stock of Rain Forest -
Moose, Ltd., dated March 5, 1996.**
4.3 Registration Rights Agreement between Rain Forest - Moose,
Ltd. and Dan Pilkington, dated March 5, 1996.**
10.1 Plan of Reorganization and Agreement of Merger between Rain
Forest - Moose, Ltd., a Nevada corporation, RFM Acquisition
Corporation of Oklahoma, Inc., an Oklahoma corporation, Rain
Forest - Moose, Ltd., an Arkansas corporation, Dan Pilkington,
Jeff Martin, Stan Sisemore, Jim Anderson and Bill Hooten,
dated March 5, 1996.**
10.2 Registration Rights Agreement between Rain Forest - Moose,
Ltd. and Dan Pilkington, dated March 5, 1996.**
27 Financial Data Schedule.
---------
* Incorporated by reference to Form 8-K, dated March 5, 1996, filed with the
Commission on March 20, 1996.
** Incorporated by reference to Form 8-K, dated March 7, 1996, filed with the
Commission on March 22, 1996.
*** Incorporated by reference to Form 8-K, dated September 2, 1999, filed with
the Commission on September 15, 1999 and amended by Form 8-KA on
November 16, 1999.
(b) Reports on Form 8-K
The company filed a Form 8-K on September 15, 1999 reporting its'
acquisition of Utica Publishing Corporation by a stock purchase. That
Form 8-K is incorporated by reference herein.
SIGNATURES
In accordance with the Exchange Act, the Registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
AAROW ENVIRONMENTAL GROUP, INC.,
(Registrant)
By: /s/ D. Frederick Shefte
------------------------------
D. Frederick Shefte, President
Date: November 19, 1998
15
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