Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 NOTE: Pursuant to Rule 15d-2 under the
Securities Exchange Act of 1934 this Annual Report contains only
certified financial statements for the fiscal year ended December
31, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _____ to _____
Commission file number 33-82468
AIM GROUP, INC.
---------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 13-3773537
--------------------------------- -------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2001 W. Sample Road, Suite 300
Pompano Beach, Florida 33064
--------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954)972-9339
---------------
The undersigned registrant hereby amends the following item of its Annual
Report on Form 10-KSB for the year ended December 31, 1996, as set forth in
pages attached hereto:
Part I - Item 7 - Financial Statements - name and
signature of independent auditor on
page F-1
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
AIM GROUP, INC.
By:/s/PAUL R. ARENA
----------------------
Paul R. Arena
Chairman of the Board, Chief Executive
Officer and President
Date: April 16, 1997
<PAGE>
Amendment No. 1 to AIM Group, Inc. Annual Report
on Form 10-KSB for the year ended December 31, 1996
----------------------------------------------------
The Annual Report on Form 10-KSB of AIM Group, Inc. (the "Company") for
the year ended December 31, 1996, as filed with the Securities and Exchange
Commission on April 15, 1997, inadvertently did not include the name and
conformed signature of the independent auditor of the Company in the
Independent Auditor's Report set forth as page F-1 of the audited financial
statements filed pursuant to Item 7 of Part II of the Form 10-KSB and attached
thereto. Accordingly, set forth below is the amended Item 7 of the Form 10-KSB
and related financial statements:
PART II
Item 7. Financial Statements
--------------------
The financial statements of the Company and the Report of Independent
Auditors thereon are set forth elsewhere in this report.
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
AIM GROUP, INC. AND SUBSIDIARIES
December 31, 1996 and 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
AIM Group, Inc.
We have audited the accompanying consolidated balance sheet of AIM Group, Inc.
as of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from inception
(March 28, 1994) to December 31, 1994 and the years ended December 31, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AIM Group,
Inc. as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for the periods from inception (March 28, 1994) to December 31,
1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Notes A and B to the
financial statements, the Company has incurred continuing losses from
operations, has insufficient cash flow from operations, has potentially
impaired assets and is dependent on very few customers. These items raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are also discussed in Notes A and
B. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/M.A. CABRERA & COMPANY, P.A.
-------------------------------
M.A. Cabrera & Company, P.A.
Plantation, Florida
March 14, 1997
F-1
<PAGE>
AIM Group and Subsidiaries
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash $ 70,342 $ 260,280
Accounts receivable - trade 504,864 691,457
Accounts receivable - affiliate and other 564 9,760
Inventories 160,770 153,029
Prepaid expenses 18,529 24,576
----------- -----------
Total current assets 755,069 1,139,102
RESOURCE PROPERTY 3,995,373 3,994,868
PROPERTY, PLANT AND EQUIPMENT - Net 557,059 500,416
OTHER ASSETS 46,836 68,228
----------- -----------
$5,354,337 $5,702,614
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 281,454 $ 369,924
Receivable financing liability 324,293 475,215
Current portion of long-term debt 14,960 12,201
Notes payable - -
Accrued expenses 96,111 94,532
----------- -----------
Total current liabilities 716,818 951,872
LONG-TERM DEBT, less current portion 76,073 72,232
CONVERTIBLE NOTES PAYABLE 1,050,000 750,000
STOCKHOLDERS' EQUITY
Preferred stock; 1,000,000 shares authorized;
$1 par value; no shares issued or
outstanding. - -
Common stock; 6,000,000 shares authorized;
$.01 par value; 3,980,053 shares issued
and 3,978,766 outstanding in 1996 and
4,113,465 shares issued and 3,900,053
outstanding in 1995. 39,801 41,135
Additional paid in capital 4,222,809 4,150,259
Common stock held in treasury - 1,287
shares in 1996 and 213,412 shares in 1995 (1,400) (11,575)
Common stock subscription received - 80,000 share - 82,792
Accumulated deficit (749,764) (334,101)
----------- -----------
3,511,446 3,928,510
----------- -----------
$5,354,337 $5,702,614
=========== ===========
</TABLE>
Please refer to Note C for Pro forma information.
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
AIM Group and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from inception (March 28, 1994) to December 31, 1996
<CAPTION>
Year ended Year ended Period ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SALES $ 3,092,278 $ 2,399,493 $ -
COST OF GOODS SOLD 2,148,191 1,692,943 -
------------ ------------ ------------
GROSS PROFIT 944,087 706,550 -
EXPENSES
General and administrative 791,826 673,105 12,760
Selling and marketing 270,612 132,532 -
Write-off of investment - abandoned
project 93,396 - -
Interest 131,429 162,505 12,500
Depreciation and amortization 72,487 47,249 -
------------ ------------ ------------
1,359,750 1,015,391 25,260
------------ ------------ ------------
Loss before income taxes (415,663) (308,841) (25,260)
Income taxes - - -
------------ ------------ ------------
NET LOSS $ (415,663) $ (308,841) $ (25,260)
============ ============ ============
Net loss per share $ (0.10) $ (0.08) $ (25.26)
============ ============ ============
Weighted average shares outstanding 3,960,158 3,672,894 1,000
============ ============ ============
</TABLE>
Please refer to Note C for Pro forma information.
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AIM Group and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period from inception (March 28, 1994) to December 31, 1995
Additional
Common Paid-in Treasury Accumulated
Shares Stock Capital Stock Deficit Total
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of 1,000 shares 1,000 $ 10 $ 90 $ 0 $ 0 $ 100
Net loss for the period from inception
to December 31, 1994 0 0 0 0 (25,260) (25,260)
---------- ---------- ----------- ---------- ---------- -----------
Balances - December 31, 1994 1,000 10 90 0 (25,260) (25,160)
Issuance of 3,898,929 shares of
common stock upon merger and
cancellation of original shares issued (1,000) (10) (90) (100)
3,898,929 38,989 4,022,185 (11,575) 0 4,049,599
Issuance of stock during December
1995 relating to the exercise of options
and warrants 214,536 2,146 128,073 0 0 130,219
Net loss for the year 0 0 0 0 (308,841) (308,841)
---------- ---------- ----------- ---------- ---------- -----------
Balances - December 31, 1995 4,113,465 41,135 4,150,258 (11,575) (334,101) 3,845,717
Issuance of 80,000 shares 80,000 800 81,992 0 0 82,792
Purchase of 1,287 shares for treasury 0 0 0 (1,400) 0 (1,400)
Cancellation of 213,412 shares of
treasury stock (213,412) (2,134) (9,441) 11,575 0 0
Net loss for the year 0 0 0 0 (415,663) (415,663)
---------- ---------- ----------- ---------- ---------- -----------
3,980,053 $ 39,801 $4,222,809 $ (1,400) $(749,764) $3,511,446
========== ========== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AIM Group and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from inception (March 28, 1994) to December 31, 1996
<CAPTION>
Year ended Year ended Period ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (415,663) $ (308,841) $ (25,260)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 72,487 47,249 -
Changes in current assets and liabilities:
Decrease (Increase) in accounts receivable 195,789 (341,714) -
(Increase) in inventories (7,741) (79,007) -
Increase (decrease) in receivable (150,922) 475,215 -
Increase (decrease) in accounts payable and
accruals (86,891) 90,693 12,879
Other 9,140 (22,892) (6,380)
------------ ------------ ------------
Net cash (used) by operations (383,801) (139,297) (18,761)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (129,130) (148,751) -
(Increases) decreases in other assets 21,392 (22,564) (440)
Additions to resource property (3,599) (15,522) -
------------ ------------ ------------
Net cash (used) by investing activities (111,337) (186,837) (440)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock - 141,894 100
Stock subscription received - 82,792
Proceeds from convertible note 300,000 750,000 -
Cash balances of merged entities - 92,759 -
Receivables from affiliates eliminated upon
merger - (241,583) -
Reductions of notes payable - (325,000) -
Long-term debt financing 21,070 84,433 -
Repayment of long-term debt (14,470) - -
Purchase of stock for treasury (1,400) - -
Loans received - net - - 250,000
Advances to affiliated company, net of
repayments - - (229,780)
------------ ------------ ------------
Net cash provided by financing activities 305,200 585,295 20,320
------------ ------------ ------------
NET INCREASE IN CASH (189,938) 259,161 1,119
Cash, beginning of period 260,280 1,119 -
------------ ------------ ------------
Cash, end of period $ 70,342 $ 260,280 $ 1,119
============ ============ ============
</TABLE>
F-5
<PAGE>
AIM Group and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the period from inception (March 28, 1994) to December 31, 1996
<CAPTION>
Year ended Year ended Period ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $ 129,395 $ 167,851 -
============ ============ ============
Net cash effects of merger as of March 31, 1995:
Increases in assets and liabilities
Trade accounts receivable $ 129,723
Inventories 74,022
Prepaid expenses 19,417
Property, plant and equipment 398,914
Resource property 3,979,345
Other assets 45,666
Accounts payable (368,500)
Accrued expenses (77,500)
Other (2,764)
-----------
4,198,323
Add cash balances of merged companies 92,759
Less receivables from merged entities -
eliminated in merger (241,583)
-----------
$4,049,499
===========
Value attributed to common stock upon merger $4,046,074
Less cost of treasury stock - assumed in merger (11,575)
-----------
$4,034,499
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented assuming the Company will continue
as a going concern which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
has incurred losses since its inception and there is no guarantee that
the Company will generate sufficient revenues from its proposed products
and operations to generate a profit. The financial statements do not
include any adjustments that might be necessary if the Company is unable
to continue as a going concern. Also see Note B.
The financial statements are reported in (USD) in accordance with
generally accepted accounting principles under the jurisdiction of the
United States and there are no material differences with Canadian
generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements contain the accounts of the Company
and its subsidiaries, HeatShield Technologies, Inc. ("HTI"), United
Minerals Corp. of Arkansas ("UMC(AR)"), United Minerals Corp. of Arizona
("UMC(AZ)"), and HST Capital Corporation ("HST"). All subsidiaries are
wholly-owned. All significant intercompany transactions and balances have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash and/or cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories at December 31, 1996
and 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished Goods $ 28,513 $ 49,282
Raw materials 76,421 48,761
Klannerite(R) Ore 48,645 48,645
Spare parts and supplies 7,191 6,341
-------- --------
$160,770 $153,029
======== ========
</TABLE>
F-7
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE A - CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost for financial reporting
purposes and are depreciated utilizing the straight-line method over
their estimated economic lives. Significant additions and betterments are
capitalized. Expenditures for maintenance, repairs and minor renewals are
charged to operations as incurred. The lives utilized for depreciation
are summarized as follows:
<TABLE>
<CAPTION>
Years
<S> <C>
Building 39
Plant equipment 10
Engineering and start up 5
Laboratory equipment 7
Furniture and office equipment 5-7
</TABLE>
TRADEMARKS AND PATENTS
The Company has received the trademark registration for the product name
Klannerite(R) in 1993. The Company was granted a patent on the Photon
Diffusive Coating November 6, 1996. Trademarks and patents will be
amortized over 10 years. The Company's trademarks are: AIM Group(R), the
Corporate entity, Uni-KoteR, the UMC(AR) marketing label; and
Klannerite(R), the rock from UMC (AZ)'s Viva Luz Mine.
DEFERRED START-UP
Deferred start-up costs associated with the surface modification business
in Arkansas are being amortized over sixty months.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are based on the weighted average shares
outstanding during the year. The preferred stock, stock options and
warrants have not been factored into the computation of loss per share
because their effect is anti-dilutive.
MAJOR CUSTOMERS
The Company sold products from its surface modifications facility
representing more the 10% of its revenues for the years ended December
31, 1996 and 1995, to Alpha Gary, Inc. (83%) and (93%) respectively.
F-8
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE A - CONTINUED
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period
NOTE B - GOING CONCERN
As shown in the accompanying financial statements, the Company has recurring
losses from operations. In addition, the Company has not been successful in
the development of its resource property. Consequently, Management believes
that the property may be impaired but is not able to determine the level of
impairment, if any, at this time. Consequently, Management has determined that
a reserve is not appropriate until such time as more information is available
concerning the economic viability of the mineral deposit. Due to the lack of
cash flow the Company was unable to continue to invest in and exploit the
property and there is uncertainty in the potential market for the deposit.
There is no assurance that the resource property will be fully recoverable at
these levels. Although the Company's surface modification business in Arkansas
has been profitable, it is reliant on very few customers. Unless the Company
is successful in diversifying and expanding its customer base, the prospects
for this line of business remains uncertain. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management is seeking alternative sources of private placement equity
financing that would allow the marketing and diversification effort for the
surface modification business as well as the continued research and
development effort for the resource property. There can be no assurance that
the Company will be successful in its efforts to obtain additional financing.
If the Company is not successful 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 C - MERGER
On March 23, 1995, the shareholders of the Company (AIM Group) and Advanced
Industrial Minerals, Inc. (AIM), HeatShield Technologies (HTI) and AIM Funding
Group, L.P. (HFG), approved the amalgamation of the entities into AIM Group
effective March 31, 1995.
Pursuant to shareholder approvals and the merger agreement, the Company
completed the purchase of the assets and liabilities of AIM, and the
shareholders of AIM received .426825 shares of AIM Group in exchange for each
common share of AIM held.
F-9
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE C - CONTINUED
HTI was merged with a subsidiary of the Company and the HTI shareholders
received 0.919632 shares of AIM Group in exchange for each common share of HTI
held. The conversion ratio was calculated by giving consideration to the
ownership of HST Capital Corp., a wholly-owned subsidiary of HTI, of 500,000
shares of AIM which were held in escrow. The conversion ratio before giving
consideration to such ownership was 0.808902.
HFG distributed the preferred shares of HTI owned by it to its partners who
then exchanged each preferred share for 1,000 shares of AIM Group.
After the consummation of the merger transactions, AIM Group became the parent
company with 4 operating subsidiaries; HTI, UMC(AR), UMC(AZ) and HST Capital.
As a result of these mergers the former shareholders of the Company and HTI
and the partners of HFG all became shareholders of AIM Group.
At the Corporation's 1996 Annual Meeting of the Shareholders it was approved
to authorize the directors to amend Article Four of the Corporation's Articles
of Incorporation to increase the maximum number of authorized share of Capital
Stock of AIM Group from 7,000,000 to 13,000,000, including an increase in the
number of Common Stock authorized for issuance from 6,000,000 to 12,000,000
for acquisitions, financing, public offerings and or other appropriate
corporate purposes.
AIM Group has 12,000,000 common shares authorized and the merger resulted in
the issuance of 3,898,930 shares of AIM Group stock in exchange for all the
outstanding common stock of AIM and HTI and 1,000 shares of HTI preferred
stock held by HFG. AIM Group received approval on January 3, 1995 for
registration of its shares in the U. S. under the Securities Act of 1933.
The following are the condensed pro forma statements of operations of AIM
Group and Subsidiaries assuming the merger had taken place on January 1, 1994;
the pro forma results of operations for 1995 reflect a full twelve months of
operations.
F-10
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE C - CONTINUED
<TABLE>
STATEMENTS OF OPERATIONS:
<CAPTION>
Year ended December 31,
1995 1994
---- ----
(Pro Forma) (Pro Forma)
----------- -----------
<S> <C> <C>
SALES $2,820,958 $ 406,378
COST OF GOODS SOLD 1,975,680 232,279
----------- -----------
GROSS PROFIT 845,278 174,099
EXPENSES
General and administrative $ 933,871 $ 632,344
Interest 171,785 27,778
Depreciation and amortization 60,140 41,142
----------- -----------
1,165,796 701,264
----------- -----------
Loss before income taxes (320,518) (527,165)
Income taxes - -
----------- -----------
NET LOSS $ (320,518) $ (527,165)
=========== ===========
Net loss per share $ (0.09) $ (0.15)
=========== ===========
Weighted average shares outstanding 3,672,894 3,472,103
=========== ===========
</TABLE>
NOTE D - OPERATIONS/NATURE OF BUSINESS
AIM Group is the parent company that provides centralized management, finance,
long range planning, accounting and administration to three principal
operating entities. These operations are a surface modification facility, a
mining lease, and the manufacture and marketing of specialty high temperature
coatings. The Company has discontinued manufacture of the coatings and did not
actively market these coatings during 1996.
AIM Group shares are listed on the Vancouver Stock Exchange. The Company's
common stock is currently quoted under the symbol AGDU.V.
F-11
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE D - CONTINUED
UNITED MINERALS ARKANSAS (UMC(AR)) SURFACE MODIFICATION PLANT
UMC(AR) is the Company's core business and has completed its second full
year of operations as of December 31, 1996. It operates a surface
modification facility, both as principal and as a toll processor, for
industrial minerals used as fillers in the rubber and plastics
industries. The plant commenced operations in April, 1994. Since
inception UMC(AR) has carried out leasehold improvements and the
engineering, procurement, and construction of machinery and equipment.
UMC(AR) purchased the land and building in 1995.
The UMC(AR) Malvern facility has been designed to treat industrial
fillers such as silica, clay, mica, alumina trihydrate, wollastonite,
magnesium hydroxide and microspheres with silanes. The treated products
are used in the plastics and elastomer industries. Silanes or
"organosilicon chemicals" were recognized as superior coupling agents
approximately 40 years ago.
Typical customers of UMC(AR) are compounders in the plastics and
elastomer industries seeking to improve the physical properties and the
performance of their products. Through the application of small
quantities of organosilicon chemicals, UMC(AR) can, through surface
modification, appreciably improve the physical characteristics of the
filler resin composites. Improvements in composite properties that are
desired by customers are: (i) lower oil absorption, (ii) less moisture
ingress or accumulation, (iii) increased tensile strength, and (iv)
better mixing viscosity. Composites containing surface modified fillers
are used in the electronics, communications, transportation, construction
materials, and appliance industries.
The use of surface modified fillers may require that customers change
their formula or production method in order to achieve maximum benefit
from the modified filler materials. As such, there may be a prolonged
interval of business development during which the customer undertakes
testing and evaluation prior to a change in materials source. UMC(AR) has
successfully supplied samples to a number of customers and sample
evaluation is ongoing. Additionally, UMC(AR) has successfully carried out
surface treatment of test quantities of opacifying materials.
UMC(AR) operated one shift per day during 1996 and treated approximately
2,600 tons of commercial products at the Malvern plant. Management
estimates that the plant's capacity is approximately 7,000 tons per year.
The plant currently has two mixing and packaging lines, and effective
doubling of capacity providing for treatment of a diverse product mix, is
under consideration. Approximately seven full time employees currently
work at the plant.
F-12
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE D - CONTINUED
HEATSHIELD TECHNOLOGIES, INC. (HTI)
HTI is in the development stage with a limited history of operations.
HTI carried our reserve analysis, surface mining, and processing of a
silica/kaolinite rock, called "Klannerite(R)", at a mining property
locally referred to as the "Viva Luz Mine" located in Mohave County,
Arizona. Exploitation of the Viva Luz Mine was formerly conducted on a
joint venture basis with AIM. No mining of Klannerite(R) has been carried
out since 1993.
Initial indications were that Klannerite(R) would have application as an
ingredient in PDC coating. Marketing of the PDC coating was initiated in
April, 1994. Development work concentrated on securing test applications
at steel mills, aluminum, glass, and other industries operating furnaces
and kilns where the characteristics of PDC, as exhibited on a laboratory
scale, could be exploited. It is now apparent to management that the
features of PDC are not replicable in full scale industrial applications.
It was therefore decided to try to enter the coatings market with a
product exhibiting higher resistance to chemical (alkali) attack, as with
the Omega line of coatings.
In December of 1995, HTI signed a technology License Agreement with Omega
Coating Pty., Limited of Sydney, Australia (OCPL). The agreement provided
HTI exclusive North American rights to sell and distribute furnace
coatings known as Omega 1 and Omega 2. The Omega 1 coating contains a
significant portion of Klannerite(R) which was supplied to OCPL by HTI.
HTI also signed a Technology Purchase Option Agreement with OCPL. This
agreement provided HTI the exclusive rights to purchase all worldwide
rights to the Omega line of coatings licensed by OCPL from Refract-a-Gard
Pty., Limited, also of Sydney, Australia, and certain assets of OCPL
pertinent to the Omega coatings and their manufacture.
After limited test marketing of these products, the Company abandoned its
exclusive license and has written off $93,396 of its investment in
license and royalty payments. Due to a current lack of available research
and development funds, the Company is no longer pursuing the options with
respect to Omega coatings. Although the licensing agreements have been
canceled, the Company maintains a dialogue with OCPL should the need
arise to renew a working relationship. Both of these products continue to
be evaluated by potential customers.
F-13
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE D - CONTINUED
HTI is also working to develop Klannerite(R) for use as an industrial
filler. Initial tests were carried out to develop uses for latex based
paints, oil based paints, and plastics. Test results for oil based paints
and plastics have been average to substandard. Test results for latex
based paints have been better, with good thixotropy, flatting, and scrub
resistance compared to commonly used fillers. Although development funds
are limited, further testing and marketing efforts are underway to
develop local markets in the Phoenix - Las Vegas - Southern California
area with small independent paint manufacturers. Additionally, new uses
are under investigation, including Klannerite(R) as a pozzolan component
in grouts and white cements, as a microporous light weight insulating low
temperature aggregate, and as a lightweight roofing aggregate for polymer
roofing systems. To date there have been no commercial sales to these
markets.
UNITED MINERALS CORPORATION ARIZONA - VIVA LUZ MINE
UMC(AZ), a wholly owned subsidiary, holds a mining lease (Lease) which
expires March, 2004 with New Mexico and Arizona Land Company, the owner
of the mining rights. The Lease is subject to a further term in
perpetuity provided the property is in operation and is generating
minimum royalties.
The Lease permits the exploration of the property and removal of the
mineral over the remaining term. The Lease calls for the payment of
production royalty of 5% of the gross consideration obtained for the
mineral less transportation costs, subject to minimum royalty payment of
$5,000 per year.
In July, 1992, the Atchison Topeka and Santa Fe Railway Company denied
public access across its tracks, preventing the company access to the
mine, unless the company posts a flagman and spotter at the crossing
site. A substantial quantity of processed KlanneriteR, sufficient for
foreseeable sales, is available from the Company's inventory.
The use of Klannerite(R) in the manufacture of refractories for the
aluminum industry was tested during the year without success.
The Company's objective in selling Klannerite(R) as a filler and for
other uses is considered by management to be dependent on the ability to
develop initial markets in the Southwest. The testing and marketing for
these applications will be performed this year.
NOTE E - ACCOUNTS RECEIVABLE
As of December 31, 1996 the Corporation had net accounts receivable from trade
sales of $170,810 compared to $216,242 as at December 31, 1995. This results
from outstanding accounts receivable in the amount of $495,103 as shown in the
current asset section less $324,293 in receivables factored as stated in the
liability section.
F-14
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE F - PROPERTY AND EQUIPMENT
Property plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Plant $108,000 $108,000
Building improvements 98,442 63,165
Plant and lab equipment 306,781 282,084
Engineering costs 66,412 42,423
Vehicles 37,044 14,318
Furniture and Equipment 93,920 78,591
--------- ---------
710,599 588,581
Less accumulated depreciation (163,540) (98,165)
--------- ---------
547,059 $490,416
Land 10,000 10,000
--------- ---------
$557,059 $500,416
========= =========
</TABLE>
NOTE G - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Patents and Trademarks $ 28,392 $ 24,249
Unamortized portion of deferred start up costs 15,197 21,828
Deferred costs associated with proposed
new venture - 16,006
Deposits and other 3,247 6,145
---------- ----------
$ 46,836 $ 68,228
========== ==========
</TABLE>
NOTE H - RESOURCE PROPERTY
The Company's resource property, located in Arizona, consists of mineral
leases and deposits. This property was valued based on appraisal as part of
the merger described in Note C. The following describes the property and
related reserves of rock containing crystobalite, quartz and kaolinite.
F-15
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE H - CONTINUED
MINERAL LEASE - VIVA LUZ DEPOSIT
The Viva Luz Mine, located in Mohave County in Arizona, is a
crystobalite, quartz and kaolinite deposit with proven drilled reserves.
The deposit has been classified into three different grades. The whitest
grade is denoted as K1, the off white grade is denoted as K2 and the
third, lowest grade as K3.
The following is a table showing the grade and applicable estimated tons
of the material deposit: Grade Tons K1 (proven and probable) 340,000 K2
and K3 1,350,000 Total Tons 1,690,000
The average estimated process recovery of the material is 82%, and the
recovery loss has not been reflected in the tonnage shown above.
The carrying value of the resource property including the prepaid
royalties is as follows:
<TABLE>
<S> <C>
Resource property purchase price $3,935,798
Pre-paid royalties 59,575
-----------
Resource property $3,995,373
-----------
</TABLE>
OTHER MINERAL PROPERTY
The company has discontinued its annual payment to maintain 14 small
unpatented mining claims. The Company is evaluating the benefits of
restaking three claims adjacent to its resource property.
MINERAL MINED, PRODUCED AND SOLD IN 1992, 1993, 1994, 1995 AND 1996
In 1992 the 222.5 tons of K1 processed during the year 1992 was
considered to be a trial production run. 7.5 tons of the 222.5 tons
produced was distributed as samples and 2.5 tons were sold. During 1996 a
nominal number of samples aggregating approximately 250 pounds were sent
to prospective customers with no positive response. The remaining 212.5
tons are being held in inventory.
F-16
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE H - CONTINUED
No sales of Klannerite(R) have been reported for 1994, 1995 or 1996.
NOTE I - LONG-TERM DEBT
<TABLE>
The following is a summary of long-term debt at December 31, 1996 and 1995:
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage payable, secured by Arkansas
manufacturing facility, payable in monthly
installments of approximately $900 including
interest at 10.25%. $ 60,309 $ 66,956
Equipment loans payable, secured by vehicle
and equipment, payable in monthly installments
of approximately $1,061 including interest
at 10.2 % to 14.2%. 30,724 17,476
---------- ----------
91,033 84,432
Less amounts due within one year 14,960 12,201
---------- ----------
$ 76,073 $ 72,232
========== ==========
</TABLE>
<TABLE>
Maturities of long-term debt over the next five years are as follows:
<CAPTION>
Year ended
December 31,
-----------------
<S> <C>
1997 $ 14,960
1998 59,799
1999 7,678
2000 8,596
---------
$ 91,033
=========
</TABLE>
The Company also has a factoring arrangement for its receivables arising from
its sale of products from its Arkansas toll facility. The factor has a
security interest in all factored accounts receivable. The total interest and
factoring costs for 1996 and 1995 were $85,741 and $111,785 respectively.
F-17
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE J - CONVERTIBLE NOTES PAYABLE
On November 15, 1995 the Company announced a private placement in the form of
Convertible Promissory Notes, having an aggregate face value of $1,050,000,
with three related party placees (see "Related Parties") and subject to
approval by the Vancouver Stock Exchange. The notes carry a three year
conversion feature at the option of the holders to convert the face value of
the notes into common shares of the Company at a price of $1.10 if converted
on or before December 31, 1996; $1.35 on or before December 31, 1997; $1.60 on
or before December 31, 1998. In addition, the Company has the right to convert
the notes into common shares upon completion of an offering of 1,500,000
common shares at a minimum price of $1.50 per share.
As of December 31, 1995 the Company received $1,050,000 in subscriptions and
the placees had advanced $750,000 in proceeds towards the private placement.
On February 16, 1996 the Company received the approval from the Vancouver
Stock Exchange and on February 20, 1996 closed the private placement with all
proceeds received. The Stockholders approved the private placement at the
annual meeting of shareholders held July 10, 1996.
At a meeting of the Board of Directors held on July 23, 1996 the Directors of
the Corporation passed a resolution confirming that the Corporation would not
issue any debt which ranks senior in priority to the Convertible Notes without
the consent of the Convertible Note holders.
The Notes, having an outstanding principal balance of $1,050,000 matured on
December 31, 1996. The cash flow from operations was not sufficient to pay off
the Notes. The Corporation is negotiating with the holders of the Notes, each
of which are related parties, to amend the Notes to extend the final maturity
to March 31, 1998, to increase the interest rate to 10% per annum and to
change the conversion rate to $.70 per share. The convertible notes will
remain unsecured to the Company's assets.
NOTE K - STOCK OPTIONS AND WARRANTS
The Company had various non-qualified incentive stock options and warrants
that had been issued to employees, directors and investors. Most of these
options and warrants were issued prior to the merger and were converted to
Company options and warrants as a result of the merger. The following is a
summary of activity during 1996 and 1995:
F-18
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE K - CONTINUED
<TABLE>
<CAPTION>
Number of Price Per
Shares Share
----------- -----------
<S> <C> <C>
INCENTIVE STOCK OPTIONS:
Balances outstanding on merger date:
Expiring:
December 31, 1995 154,037 $.54 - $1.63
April 14, 1996 110,190 $1.34
May 8, 1998 7,909 $.54
----------
Balance - March 31, 1995 272,136
Exercised for the period ended
December 31, 1995 (91,962) $.54
Issued July 10, 1996 25,000 $1.15
Expired on December 31, 1996* (62,075) $1.63
Expired on December 31, 1996* (110,190) $1.34
Canceled December 31, 1996 (7,909) $.54
----------
Balance - December 31, 1996 -
==========
Comprised of options expiring:
December 31, 1997 25,000 $1.15
==========
WARRANTS:
Balances outstanding on merger date:
Expiring
December 31, 1995 409,575 $.01 - $2.00
Exercised for the period ended
December 31, 1995 (122,573) $.01 - $1.22
Expired on December 31, 1996*
(see note below) (287,002) $1.50 - $2.00
----------
Balance outstanding at December 31, 1996 -
==========
<FN>
On July 10, 1996 the Company issued to Bernard Kossar, a newly appointed
director, 25,000 of incentive stock options exercisable at $1.15 through
December 31, 1997. In addition, the Company canceled 7,909 options granted to
a former employee. There were no options or warrants exercised during 1996 and
all options and warrants extended December 31, 1996 expired.
* The Company's Board of Directors approved an extension of the expiration
dates for 445,586 options and warrants set to expire on December 31, 1995 and
April 14, 1996 to December 31, 1996. On May 17, 1996 the Vancouver Stock
Exchange approved the extension of these options and warrants subject to
Shareholder approval. The extension of the options and warrants were approved
by the Shareholders at the Annual Meeting of the Shareholders held on July 10,
1996.
</FN>
</TABLE>
F-19
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE L - LEASE COMMITMENTS
The Company's corporate headquarters are leased pursuant to an operating lease
expiring October 31, 1998. Currently, there is a contingent contract to sublet
some space that would reduce the lease obligations by approximately $18,000
per year. Future lease payments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Amount
-----------------
<S> <C>
1997 $ 42,549
1998 36,632
---------
$ 79,181
=========
</TABLE>
NOTE M - WRITE OFF INVESTMENT - ABANDON PROJECT
During the year due to lack of funding and slow response from the market place
the Company discontinued its exclusive license and royalty agreement with
Omega Coatings Pty. Limited of Sydney, Australia. The licensing rights for the
Omega products were acquired in late 1995. The Company wrote off $93,396
invested in the Omega project.
NOTE N - RELATED PARTY TRANSACTIONS
The following transactions with the Corporation are identified as transactions
with related parties.
PRIVATE PLACEMENT OF CONVERTIBLE 3 1/2% PROMISSORY NOTES
The Company announced on November 15, 1995 under a prospectus exemption a
private placement in the form of 3 year convertible 3 1/2% Promissory
Notes having a face value of $1,050,000 subject to the approval of the
Vancouver Stock Exchange. (See Note J). The following related individuals
and affiliated concerns have subscribed to the private placement as
follows:
NORTHERN FEDERAL MINERALS LLC Paul R. Arena, an officer and director
of the Corporation, is a principal in this Michigan limited liability
corporation. Joseph L. Ranizini, a director of the Corporation, is a
related party to Northern Federal Minerals, LLC. On November 13, 1995
Northern Federal Minerals LLC subscribed for $450,000 of the private
placement of $1,050,000 convertible promissory notes issued by the
Corporation.
BERNARD R. KOSSAR Mr. Kossar, on December 20, 1995, purchased $300,000
of the private placement of $1,050,000 convertible promissory notes
issued by the Corporation.
LDD CAPITAL LLC Shawn P. Durand, a former officer of the Corporation,
is a principal in LDD Capital LLC, a Minnesota limited liability
corporation, which corporation on February 2, 1996 purchased $300,000 of
the private placement of $1,050,000 convertible promissory notes issued
by the Corporation.
F-20
<PAGE>
AIM Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods from Inception (March 28, 1994) to December 31, 1996
NOTE N - CONTINUED
The Corporation received approval for the issuance of these convertible
notes from the Vancouver Stock Exchange on February 19, 1996 and the
transactions closed on February 20, 1996.
CONSULTING FEES
During the period the Corporation paid the following fees for services to
directors and advisors and other insiders not considered employees.
D. M. Hartley a director, elected Chairman and Chief Executive Officer
(CEO) of the Corporation in August, 1995 was compensated on a per diem
basis of $400 per day. Mr. Hartley was paid $6,350 in connection with
services rendered as the CEO during 1995 and $10,560 in 1996; Iain
Richmond has served as President of the Corporation since April, 1995 and
was paid $400 per day on a per diem basis. Mr. Richmond was paid $62,125
for services rendered during 1995 and $66,000 in 1996; Michael McManus a
director was paid consulting fees in the amount of $12,500 during 1995;
Mr. Wright an advisory board member was paid consulting fees in the
amount of $25,000 during 1995. No compensation was paid to either Mr.
McManus or Mr. Wright for 1996.
EXERCISE OF INCENTIVE OPTIONS AND WARRANTS
No incentive options and warrants were exercised during 1996. During 1995
the following incentive options and warrants were exercised.
In September Paul R. Arena, a director and officer exercised 60,242
incentive stock options at a price of $.54 each; Shawn P. Durand, an
officer exercised 17,926 incentive stock options at a price of $.54 each;
Jenni Yachelson, an officer exercised 13,794 incentive stock options at a
price of $.54 each; D. M. Hartley, Chairman and CEO exercised 552
warrants at a price of $.54 each; Joseph Wright, an advisory board member
exercised 32,000 warrants at a price of $1.22 each; Michael McManus a
director exercised 10,245 warrants at a price of $1.22 each; E. Avery
Williams, an advisory board member exercised 920 warrants at a price of
$.54 each; Lewis Foy an advisory board member exercised 184 warrants at a
price of $.54 each.
NOTE O - INCOME TAXES - NET OPERATING LOSSES
The Companies have net operating loss carryforwards available to offset future
taxable income approximating $2,317,600 expiring through the year 2010. Due to
the merger described in Note B the net operating losses are subject to certain
limitations, computed on an annual basis.
F-21
