<PAGE>
FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________________ to _____________
Commission File Number 000-06292
AAROW ENVIRONMENTAL GROUP, INC
(Exact name of small business issuer as specified in its charter)
Nevada 73-078886
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
110 West 7th Street, Suite 200, Tulsa, Oklahoma
74119-1108 (Address of principal executive offices)
(918) 583-7700
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) filed all 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
State the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date:
Common Stock, $.001 par value 18,984,546
Title of Class Number of Shares outstanding
at May 19, 2000
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I - Financial Information 3
Item 1. Financial Statements 3
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of Income 4
Unaudited Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Supplemental Information 9
Independent Accountant's Review Report 10
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Part II - Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the caption "Item 2 - Management's Discussion and
Analysis or Plan of Operation" constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
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 "anticipates," "believes," "expects,"
"may," "will," or "should" 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 strategies,
competition, availability of key personnel, increasing operating costs,
unsuccessful advertising and marketing efforts, acceptance of product offerings,
and imposition of or the failure to comply with government regulations, the
ability of the Company to obtain financing for future operations, and other
factors.
2
<PAGE>
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------- ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 5,400 $ 1,248
Accounts Receivable 3,376 3,376
Inventory 13,508 13,508
----------- -----------
TOTAL CURRENT ASSETS $ 22,284 $ 18,132
PROPERTY, PLANT AND EQUIPMENT (net of accumulated
depreciation of $159,232 and $147,992 respectively) 143,401 154,641
----------- -----------
Other Assets
Organization Costs (net of accumulated
amortization of $4,050 and $3,825 respectively) $ 450 $ 675
Noncompete Covenant (net of accumulated
amortization of $7,050 and $6,150 respectively) 10,950 11,850
Intellectual Property (net of accumulated
Amortization of $43,333 and $37,917) 281,667 287,083
----------- -----------
TOTAL OTHER ASSETS $ 293,067 $ 299,608
----------- -----------
TOTAL ASSETS $ 458,752 $ 472,381
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 44,261 $ 61,261
Accrued Interest Payable 40,475 40,475
Accrued Salaries Payable 131,382 131,382
Debentures Payable 75,000 75,000
Judgment Payable 39,782 39,782
Payroll Taxes Payable 120,137 120,137
Sales Tax Payable 12,879 12,879
Short Term Notes 274,724 252,004
Current Portion of Long Term Notes 167,447 167,447
----------- -----------
TOTAL CURRENT LIABILITIES $ 906,087 900,367
LONG TERM LIABILITIES 0 0
----------- -----------
TOTAL LIABILITIES $ 906,087 $ 900,367
Stockholders Equity
Common Stock, $0.001 par value, 30,000,000 shares authorized,
17,398,561 and 10,380,942, respectively, shares issued and outstanding $ 373,615 $ 373,615
Convertible Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, 3,000,000 shares issued and outstanding,
one share convertible for three shares common 3,000 3,000
Paid in Capital 220,557 220,557
Retained Earnings (1,044,507) (1,025,158)
----------- -----------
TOTAL STOCKHOLDERS EQUITY $ (447,335) $ (427,986)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 458,752 $ 472,381
=========== ===========
</TABLE>
See notes to unaudited financial statements.
3
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Sales Income $ 44,994 $ 0
Cost of Sales
Materials $ 10,367 $ 0
Outsource Printing 1,506 0
------------ ------------
Total Cost of Sales $ 11,873 $ 0
------------ ------------
GROSS PROFIT $ 33,121 $ 0
Operating Expenses 50,826 47,359
------------ ------------
INCOME/(LOSS) FROM OPERATIONS $ (17,705) $ (47,359)
Other Income and (Expenses)
Interest Expense $ (1,644) $ (6,090)
Penalties 0 (2,694)
------------ ------------
Total Other Income and (Expenses) $ (1,644) $ (8,784)
------------ ------------
INCOME/(LOSS) BEFORE EXTRAORDINARY ITEMS
AND INCOME TAXES $ (19,349) $ (56,143)
------------ ------------
NET INCOME/(LOSS) $ (19,349) $ (56,143)
============ ============
WEIGHTED AVERAGE number of common stock
and common stock equivalents outstanding 26,398,561 19,380,942
============ ============
NET INCOME per common stock and
common stock equivalents $ (.001) $ (.003)
============ ============
</TABLE>
See notes to unaudited financial statements.
4
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ (19,349) $ (56,143)
------------ ------------
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 11,240 984
Amortization 6,541 562
(Increase) decrease in:
Accounts Receivable 0 0
Inventory 0 0
Increase (decrease) in:
Bank Overdraft 0 3,500
Accounts Payable (17,000) 9,294
Payroll Taxes Payable 0 12,113
Accrued Salaries Payable 0 19,276
Accrued Interest Payable 0 6,091
------------ ------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $ (18,568) $ (4,323)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (0) (0)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings
Short-Term 22,720 4,323
------------ ------------
NET INCREASE/(DECREASE) IN CASH $ 4,152 $ 0
CASH AT BEGINNING OF PERIOD 1,248 0
------------ ------------
CASH AT END PERIOD $ 5,400 $ 0
============ ============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 1,644 $ 6,090
</TABLE>
See notes to unaudited financial statements.
5
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
STATEMENT OF SIGNIFICANT ACCOUNTING ASSUMPTIONS
BASIS OF ACCOUNTING
The financial statements of Aarow Environmental Group, Inc. (the "Company") at
March 31, 2000, 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.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate.
However, these financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the annual report on
form 10-KSB for the year ended December 31, 1999. The financial data for the
interim periods presented may not necessarily reflect the results to be expected
for the full year.
INVENTORY
Inventory is carried at the lower of cost or market and consists of raw
materials and ready to sell products.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at acquisition cost. Depreciation is
computed using accelerated methods by charging against earnings amounts
sufficient to amortize the cost of the related assets over their estimated
useful lives.
INCOME TAXES
For income tax reporting and financial statement reporting at March 31, 2000,
the Company is using depreciation methods that are the same and therefore there
is no accrual for deferred income taxes at this time. However, because of
various elections available at the time of filing the income tax returns, there
may be future differences between income tax depreciation expense and financial
statement depreciation expense giving rise to accrual of deferred income taxes
Note 1: Property, Plant and Equipment
All assets are recorded at original cost. Depreciation is calculated using
accelerated methods, lives are five years for office equipment, seven years for
manufacturing equipment and furniture, and 10 years for Leasehold Improvements.
6
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Note 2: Noncompete Covenant
On July 29, 1998 the Company entered into an agreement with Evergreen
BioServices, Inc. whereby Evergreen granted the Company 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 the Company and Evergreen agrees not to compete with the Company.
Evergreen will supply the engineering and technical support and will be
responsible to accept or reject all proposals concerning remediation through the
Company. This agreement began on July 29, 1998 and remains in effect for ten
years at which time the Company may renew one time for an additional ten years
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
2000 1999
----------- -----------
<S> <C> <C>
Noncompete Covenant $ 18,000 $ 18,000
Accumulated Amortization (7,050) (6,150)
----------- -----------
Net Noncompete Covenant $ 10,950 $ 11,850
=========== ===========
</TABLE>
Note 3: Judgment Payable
On October 2, 1998 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, 1998 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 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.
One of the shareholders who is also a Director and Officer loaned the Company
$2,230. This is an unsecured non-interest demand note.
Note 5: The Company's Long-Term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
2000 1999
----------- -----------
<S> <C> <C>
Springdale Bank & Trust, 10.0%, Monthly Int. Only $ 60,000 $ 60,000
Maturity Date Feb. 16, 2000
Secured by Inventory and A/R
Regions Bank, 9.43%, Monthly Int. Only 57,447 57,447
Maturity Date 2-20-2001
Secured by Automobile and Equipment
Regions Bank, 9.514%, Monthly Int. Only 50,000 50,000
Maturity Date 2-20-2001
Secured by Real Estate and Demand Deposits
Current Portion of Long Term debt (167,447) (167,447)
----------- -----------
LONG TERM DEBT, LESS CURRENT PORTION $ 0 $ 0
=========== ===========
</TABLE>
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Note 6: Stockholders' Equity
Common Stock: At March 31, 2000 there were 30,000,000 shares authorized,
17,398,561 issued and outstanding at $0.001 per share par value. At December 31,
1999 there were 30,000,000 shares authorized, 16,385,457 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, 1999
until September 15, 2002 one share of the Company's common stock at the initial
exercise price of $ 0.50 per share. The common stock warrants are redeemable by
the Company upon thirty days written notice to the holder, at $ 0.001 per
warrant, conditioned upon the price of the common stock of the Company closing
for fourteen consecutive business days above $ 2.00 per share.
Convertible Preferred Stock: At March 31, 2000 and December 31, 1999 there were
5,000,000 shares authorized, 3,000,000 shares issued and outstanding. Each share
has a $ 0.001 par value and is convertible for three shares of common stock.
Note 7: Going Concern
As shown in the accompanying financial statements, the Company has incurred a
loss for the period ended March 31, 2000 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.
Note 8: Earnings Per Share of Common Stock
Earnings per common share were computed using the weighted average number of
common shares outstanding after adding the dilutive effect of the conversion of
the preferred stock.
8
<PAGE>
AAROW ENVIRONMENTAL GROUP, INC.
SUPPLEMENTAL INFORMATION TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
MARCH MARCH
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Operating Expenses
Accounting $ 3,000 $ 1,500
Advertising 247 615
Amortization 6,541 562
Contract Labor 12,252 0
Depreciation 11,240 984
Insurance 177 0
Miscellaneous 5,152 0
Office Expense 0 975
Office Salaries 0 26,000
Payroll Tax Expense 0 2,695
Postage 90 0
Rent 3,660 2,750
Repairs and Maintenance 2,168 0
Taxes and Permits 856 0
Telephone 0 8,286
Travel 0 2,992
Utilities 5,443 0
---------- ----------
$ 50,826 $ 47,359
========== ==========
</TABLE>
See notes to unaudited financial statements.
9
<PAGE>
To the Board of Directors
Aarow Environmental Group, Inc.
Rogers, AR
I have reviewed the accompanying balance sheet of Aarow Environmental
Group, Inc. (a public corporation) as of March 31, 2000 and the related
statements of income and retained earnings, and cash flows for the
three months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these
financial statements is the representation of the management of Aarow
Environmental Group, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that
should be made to the accompanying financial statements in order for
them to be in conformity with generally accepted accounting principles.
James E. Childress
May 18, 2000
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We at Aarow Environmental are considered a development stage enterprise
company. Effective May 1, 2000, Global Wireless Technologies, Inc. merged with
and became our wholly-owned subsidiary. Global Wireless is also a development
stage enterprise company focused on the development and providing of nationwide
wireless communication services and mobile data solutions for business and
individual subscribers. We, through Global Wireless, will offer comprehensive
and flexible wireless data solutions that permit subscribers to access via
wireless cellular communication devices their email, corporate intranets,
personal Web pages and the Internet anytime on a nationwide basis. The
subscribers efficiently and reliably will be enabled to access public Web sites
from all our supported devices. Each subscriber will be able to access a
personal menu of popular Web sites which enable the subscriber to access a wide
variety of Internet content, such as business and financial data, news, sports,
travel, entertainment, personal contact and other information. Our subscribers
will also be able to conduct e-commerce transactions, such as shopping,
reservations and stock trading, to the extent permitted by their mobile device
of choice.
On September 2, 1999, we acquired Utica Publishing Corporation. Utica
operates a general commercial printing and copying business and publishes two
Spanish language magazines in Northwest Arkansas.
We also develop, manufacture, market and distribute a core of products
and services which address specific environmental issues. These products and
services are focused on soil and groundwater remediation with 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, and the manufacture and
marketing of organic fertilizer.
Results of Operations
The following table sets forth selected results of operations for the
three months ended March 31, 2000 and 1999. The selected results of operations
are derived from our unaudited condensed consolidated financial statements
presented above. The three months ended March 31, 2000 includes the operations
of Utica Publishing which was acquired in September 1999, while the results of
operations for the three months ended March 31, 1999 occurred prior to the
acquisition of Utica Publishing. Therefore, the three months ended March 31,
2000 is not comparable to the three months ended March 31, 1999 due to the
purchase accounting adjustments associated with the acquisition of Utica
Publishing and the inclusion of the operating results of Utica Publishing during
the three months ended March 31, 2000. The results of operations for the periods
presented are not necessarily indicative of our future operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED
----------------------------------------- -------------------------------------------
2000 1999 1999 1998
------------------ ------------------- ------------------ --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Income $ 44,994 100.00% $ 0 0.00% $ 133,688 100.00% $ 138,116 100.00%
-------- ------- --------- ------- --------- ------- --------- -------
Cost of Sales:
Materials $ 10,367 23.04% $ 0 0.00% $ 29,970 22.4% $ 42,038 30.4%
Outside Printing 1,506 3.35% 0 0.00% 572 0.4% 3,323 2.4%
-------- ------- --------- ------- --------- ------- --------- -------
Total Cost of Sales $ 11,873 26.39% $ 0 0.00% $ 30,542 22.8% $ 45,361 32.8%
-------- ------- --------- ------- --------- ------- --------- -------
Gross Profit $ 33,121 73.61% $ 0 0.00% $ 103,146 77.2% $ 92,755 67.2%
Operating Expenses 50,826 112.96% 47,359 0.00% 467,114 349.4% 329,327 238.4%
-------- ------- --------- ------- --------- ------- --------- -------
Income or (Loss) from Operations $(17,705) 39.35% $ (47,359) 0.00% $(363,968) 272.2% $(236,572) 171.2%
-------- ------- --------- ------- --------- ------- --------- -------
Other Income and (Expenses)
Interest Expense $( 1,644) 3.65% $ (6,090) 0.00% $ (16,508) 12.3% $( 36,561) 26.5%
Penalties (0) 0.0% (2,694) 0.00% (5,817) 4.4% (7,722) 5.6%
Interest Income 0 0.0% 0 0.00% 37 0.0% 0 0.0%
-------- ------- --------- ------- --------- ------- --------- -------
Total Other Income and
(Expense) $( 1,644) 3.65% $ (8,784) 0.00% $ (22,288) 16.7% $ (44,283) 32.1%
-------- ------- --------- ------- --------- ------- --------- -------
Net Income or (Loss) $(19,349) 43.0% $ (56,143) 0.00% $(386,256) 288.9% $(280,855) 203.3%
======== ======= ========= ======= ========= ======= ========= =======
</TABLE>
11
<PAGE>
Comparison of the Three-Month Periods Ended March 31, 2000 and1999
During the three months ended March 31, 2000 (the "First Quarter
2000"), we had sales income of $44,994, while during the three months ended
March 31, 1999 (the "First Quarter 1999") we did not have any sales income. This
increase in sales income was attributable to the September 1999 acquisition of
and the results of operations of Utica Publishing. The cost of sales during the
First Quarter 2000 was $11,873, which constituted 26.4% of sales income. Cost of
sales was comprised of $10,367 for materials (representing 23% of sales income)
and outside printing of $1,506 (representing 3.4% of sales income). From our
sales income we realized gross profit of $33,121 (representing 73.6% of sales
income). We did not have any gross profit during the First Quarter 1999 because
of our failure to produce any sales income and, accordingly, we did not incur
any cost of sales.
Operating expenses increased $3,467 (a 7.3% increase) from $47,359 in
the First Quarter 1999 to $50,826 in the First Quarter 2000. Operating expenses
were 113% of sales income, which resulted in a loss from operations of $17,705
during the First Quarter 2000. In comparison, during the First Quarter 1999, we
incurred a loss from operations of $47,359. The increase in operating expenses
was the result of increased payroll due to the adoption of the deferred
compensation plan related to the acquisition of Utica Publishing in September
1999.
Interest expense decreased from $6,090 in the First Quarter 1999 to
$1,644 in the First Quarter 2000, a decrease of $4,446 (a 73% decrease). During
the First Quarter 2000 we did not have any payroll tax penalties, while during
the First Quarter 1999 we incurred payroll tax penalties of $2,694.
During the First Quarter 2000, we incurred a net loss of $19,349,
compared to a net loss of $56,143 during the First Quarter 1999.
Liquidity and Capital Resources
Historically, we have financed our growth from borrowing and
shareholder contributions. Net cash used by operating activities totaled $18,568
in the First Quarter 2000, compared with net cash used by operating activities
totaling $4,323 in the First Quarter 1999. Cash flows from financing activities
from new short-term borrowings was $22,720 during the First Quarter 2000,
compared to $4,323 during the First Quarter 1999. During the First Quarter 2000
we had a net cash increase of $4,152 to cash and cash equivalents of $5,400 at
March 31, 2000. As of March 31, 2000, we had a $883,803 working capital deficit,
compared a working capital deficit of $807,235 at December 31, 1999.
We have a liability for employment taxes, including penalties and
interest, of $55,046.30 plus interest from February 18, 2000.
Under our exclusive distribution agreement, we expended a total of
$86,770 in research and development of the Animal Waste Machine in 1998. There
is no assurance that our efforts will be successful in implementing our plan for
recapitalization and the resumption of full operations. If we are unsuccessful
in our efforts, it may be necessary to undertake such other actions as may be
appropriate to preserve this asset value.
During 1999 we restructured our management in conjunction with its
acquisition of Utica Publishing. During 1999 we issued $75,000 of secured
debenture loans to finance continuing operations and sought additional loan
financing. During 1999 and the First Quarter 2000 our efforts were concentrated
on operation of Utica Publishing and commencing our organic fertilizer sales.
We have been in default in the payment of 11 promissory notes in the
aggregate principal amount of $55,000 since September 15, 1999. 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 addition, we are obligated to issue
an additional 440,000 shares of our common stock (40,000 shares per note) as a
result of the payment default.
As of December 31, 1998, we had a loan from Springdale Bank & Trust
Company, which was secured by inventory and accounts receivable, bearing
interest at 10.25% per annum. At December 31, 1998, the outstanding principal
balance of this loan was $60,000. This note became due on June 21, 1997 and at
December 31, 1998 we
12
<PAGE>
were in default. On February 16, 1999 this note was renewed at 10% per annum
with monthly payments of $500 interest only. The new note matured February
16, 2000 and is currently in default.
In the near term we expect to offer and sell additional equity
securities for the purpose of payment of current liabilities and development of
our wireless communications networks and marketing of the related products and
services. However, there is no assurance that this anticipated capital resource
will develop or that we will be successful in any offering of our equity
securities. We do not have any financing arrangements with lending institutions.
Additionally, our loan repayment history adversely affects our near term ability
to establish financing arrangements with traditional lending institutions.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 5. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits--
Exhibit 27 Financial Data Schedule
Reports on Form 8-K--
None
13
<PAGE>
SIGNATURES
In accordance with the requirements 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)
Date: May 19, 2000 By /s/ RONALD L. BAKER
-------------------------------------
Ronald L. Baker, President
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-2000 JAN-01-1999
<PERIOD-END> DEC-31-1999 MAR-31-2000 MAR-31-1999
<CASH> 1,248 5,400 0
<SECURITIES> 0 0 0
<RECEIVABLES> 3,376 3,376 0
<ALLOWANCES> 0 0 0
<INVENTORY> 13,508 13,508 0
<CURRENT-ASSETS> 18,132 22,284 0
<PP&E> 302,633 302,633 0
<DEPRECIATION> 147,992 159,232 0
<TOTAL-ASSETS> 472,381 458,752 0
<CURRENT-LIABILITIES> 900,367 906,087 0
<BONDS> 0 0 0
0 0 0
3,000 3,000 0
<COMMON> 373,615 373,615 0
<OTHER-SE> (794,601) (823,950) 0
<TOTAL-LIABILITY-AND-EQUITY> 472,381 458,752 0
<SALES> 0 44,994 0
<TOTAL-REVENUES> 0 44,994 0
<CGS> 0 11,873 0
<TOTAL-COSTS> 0 50,826 47,359
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 1,644 6,090
<INCOME-PRETAX> 0 (19,349) (56,143)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 (19,349) (56,143)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 (19,349) (56,143)
<EPS-BASIC> 0 (.001) (.005)
<EPS-DILUTED> 0 (.001) (.003)
</TABLE>
