AIM GROUP INC, 10KSB40, 1998-03-31

AIM GROUP INC
10KSB40, 1998-03-31
MINING & QUARRYING OF NONMETALLIC MINERALS (NO FUELS)

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Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-KSB

(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, 1997.

[ ] 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
-------------

Securities registered pursuant to Section 12(b) of the Exchange Act:

Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None

Securities registered pursuant to Section 12(g) of the Exchange Act:

None
----------------
(Title of class)

Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period as the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

<PAGE>

---------------------------------------------------------------------------

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

---------------------------------------------------------------------------

Issuer's revenues for its most recent fiscal year: $2,316,472
----------

State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked price of such stock, as of a specified date
within 60 days.

Aggregate market value as of March 26, 1998 $1,819,672
----------

State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date.

Common Stock, $.01 par value, as of March 26, 1998 3,980,053
---------

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

AIM Group, Inc., (the "Company"), was incorporated on March 28, 1994, in the
state of Delaware for the purpose of effecting the mergers described elsewhere
herein and had no revenues and no operations during the year ended December
31, 1994.

On March 31, 1995 the Company acquired all of the outstanding shares of
HeatShield Technologies, Inc., ("HTI"), and Advanced Industrial Minerals,
Inc., ("AIM"). The plan of merger was approved by the shareholders of the
Company, HTI, and AIM at the respective annual meetings of shareholders held
immediately prior to the merger. The assets and liabilities of AIM were merged
with those of the Company as of March 31, 1995, the effective date of the
merger.

The businesses of the Company are operated through United Minerals Corporation
(Arkansas)("UMC(AR)"), HTI, and United Minerals Corporation
(Arizona)("UMC(AZ)"). UMC(AR), an Arkansas corporation formed in March 1993,
operates a mineral surface modification facility located in Malvern, Arkansas.
HTI, a Florida corporation formed in May 1991, owns a lease interest in a
silica/kaolinite deposit (Klannerite(R)). UMC(AZ), an Arizona corporation
formed in May 1993 and originally called Viva Luz Mining Company, mines
Klannerite(R) as needed.

The Company's major business, principal products, and markets are described as
follows:

UNITED MINERALS CORPORATION ARKANSAS (UMC(AR)) SURFACE
MODIFICATION PLANT

UMC(AR) is the Company's core business and completed its third
full year of operations on December 31, 1997. 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.

<PAGE>

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 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 1997 and treated
approximately 1,900 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; however, expansion to three mixing and
packaging lines, an effective doubling of capacity providing for
treatment of a diverse product mix would be implemented should the
need arise for additional capacity or diversity. Approximately
seven full time employees currently work at the plant.

UNITED MINERALS CORPORATION-ARIZONA - UMC-AZ controls a
hydrothermally altered cristobalite-tridymite-quartz-kaolinite
deposit, trademarked "Klannerite"(R), in Arizona.

KLANNERITE(R) TECHNICAL INFORMATION

Klannerite(R) is the name given to an unusual rock, from a mineral
deposit in northern Arizona, USA, studied by the geologist John
Klanner. The rock has been mined in the past for use as roofing
granules, and the property is known locally as the "Viva Luz"
mine.

GEOLOGY - The Klannerite(R) deposit is a hydrothermally altered
volcanic tuff of Miocene age. The deposit is cut by a NE-SW
trending fault. Hydrothermal fluids moving along the fault have
altered the Klannerite(R) rock in 3 ways:
1) The rock has been partially silicified.
2) The rock has been purified, with most Iron ("Fe"),
Calcium ("Ca"), Potassium ("K"), and Soodium ("Na")
removed by the hydrothermal fluids and redeposited in
the enclosing wall rocks.
3) Feldspathic minerals have been altered to clay
minerals.

The resulting Klannerite(R) rock is white, pure, uniform, porous,
and easily excavated. Three rock units have been mapped: a pure
white rock denominated K1 (GE brightness 87 - 92%); an off color,
breciated rock denominated K2 (GE brightness 82 - 86%), and a
still lower grade pale green rock denominated K3.

Very little work has been done on the K3 unit; it is often
brecciated and stained. Similar hydrothermally altered tuffs are
found in the region, but geologic reconnaissance has shown the
other deposits to be much smaller and often less pure. Other rock
units include tuff country rock and a chalcedony zone.

ORE RESERVES - The mineral deposit outcrops at the surface and
most of the overburden has been removed. Thirteen 6-inch dry
rotary holes were drilled to block out an ore reserve and verify
the quality of the rock. Hole depths ranged from 100 to 240 feet,
and samples were collected, using an air cyclone and splitter,
every 5 feet through the ore zone. Sample evaluation included
visual examination for color and petrography, whole rock chemical
analysis, GE brightness, and tristimulus color analysis. Thirteen

<PAGE>

cross sections were constructed in AutoCad and used to calculate
ore reserves, expressed in short tons (2000 lb):
<TABLE>
<CAPTION>
Ore type Proved, t Probable, t Total, t
<S> <C> <C> <C>
K-1 262,311 78,259 340,570
K-2 478,500 478,500
K-3 890,300 890,300
Total 1,709,370
</TABLE>

ACCESS - The Viva Luz mine can be reached via a 4.5 mile improved
dirt road, suitable for both passenger cars and trailer trucks,
from Interstate route 40, between Kingman, AZ and Needles, CA.
There is an unprotected railroad crossing near the interstate, and
a rail siding with an old loading facility.

KLANNERITE(R) USES - There are current commercial applications for
Klannerite(R). Klannerite(R) has been partially tested for several
potential industrial mineral uses. Other possibilities exist:
PAINT FILLER - A paint chemist has developed optimized premium and
economy latex (water based) paint formulas using Klannerite(R) as
the principal filler. The resulting paints showed superior
flatting, dry hide, and ink stain resistance compared to nephaline
syenite. The Klannerite(R) also imparted a degree of thickening,
which decreased the need for expensive thixotropes in the formula.
220 tons of Klannerite(R), called "9720", have been ground to a
typical paint filler specification.
PLASTIC FILLER - Klannerite(R) has been tested as a filler in
several thermosets and thermoplastics. In thermosets Klannerite(R)
slowed down the set time and increased the viscosity of the
mixture. In thermoplastics Klannerite(R) increased the opacity
compared to other common fillers such as talc, calcium carbonate,
and silica flour.
ELASTOMER FILLER - Very little testing has been done in this area.
However, similar silica materials are commonly used, both
untreated and surface modified, as fillers in elastomers such as
EPDM. POZZOLAN - Calcined Klannerite(R) is an excellent white
pozzolan. Pozzolan materials are used as an aggregate additive in
concrete to increase compressive strength and to stop alkalai
reactivity. Samples of K1 and K2 rock have been tested for
pozzolanic properties by an independent laboratory, using ASTM
C-311 strength activity index. The results were:

<TABLE>
<CAPTION>
Water 7 day 28 day
demand strength strength
<S> <C> <C> <C>
K1 105% 93% 111%
Klannerite

K2 102% 100% 111%
Klannerite
</TABLE>

LIGHT WEIGHT AGGREGATE - Due to its white color and microporosity,
Klannerite(R) rock is a good thermal insulator. The rock has been
used in the past for roofing where it serves to insulate the
structure from heat gain.

<PAGE>

VIVA LUZ MINE

UMC(AZ), a wholly owned subsidiary, holds a mining lease
("Lease"), which expires in March 2004, with New Mexico and
Arizona Land Company, the owner of the mining rights at the Viva
Luz Mine in Mohave County, Arizona. 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 a production royalty of 5% of the gross consideration
obtained for the mineral less transportation costs, subject to a
minimum royalty payment of $5,000 per year.

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.

During 1997, several independent test results performed under American Society
for Testing and Materials ("ASTM") standards concluded that calcined
Klannerite(R) is an excellent pozzolanic material for use in cement to
increase compressive strength and stop alkalai reactivity which causes
unwanted expansion. Discussions with several large cement companies have
provided the supporting facts for a preliminary feasibility study of the
project and conclude that Klannerite(R) can be manufactured into products
which will demonstrate commercial viability of the material.

HEATSHIELD TECHNOLOGIES, INC. (HTI)

HTI is in the development stage with a limited history of
operations.

HTI carried out reserve analysis, surface mining, and processing
of Klannerite(R), at the "Viva Luz Mine" in Mohave County,
Arizona. 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 coating 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,
such as produced by Omega Coatings Pty., Limited of Sydney,
Australia ("OCPL").

In December of 1995, HTI signed a Technology License Agreement
with OCPL. The agreement granted HTI exclusive North America
rights to sell and distribute furnace coatings known as Omega 1
and Omega 2. The Omega 1 coating contains approximately 20% of
Klannerite(R) which was sold to OCPL by HTI.

HTI also signed a Technology Purchase Option Agreement with OCPL.
This agreement provided HTI the exclusive rights to purchase all

<PAGE>

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.

WORKING CAPITAL

The Company had a working capital deficit of $447,297 at December 31, 1997. To
date, the Company has continued to factor a substantial amount of its accounts
receivable. The operations of the Company produced a net loss for the 1997
fiscal year of $482,763.

In August, 1997 the Company obtained a $200,000 loan from the city of Malvern,
AR for the primary purpose of improvements to the production facility in
Malvern. The loan carries a fixed interest rate of 6.0% and has a term of
seven years.

The Company has not undertaken any contracts directly with any level of
government.

DEPENDENCE ON A SIGNIFICANT SINGLE CUSTOMER

During 1997, UMC(AR) continued to be dependent on a major customer, a plastics
compounder, for approximately 66% of its consolidated sales compared to 83%
for 1996. If sales to this customer were lost, UMC(AR) would not be profitable
on a unit basis. Management has made some improvements over 1996 in
diversification of its customer base for surface treated minerals, primarily
within the plastics compounding sector, and expects continued improvement in
this area for 1998.

DEPENDENCE ON A SIGNIFICANT SINGLE SUPPLIER

At the present time, UMC(AR) has relied heavily upon a single supplier for its
raw materials. An interruption of the delivery of these materials in the
future could have an adverse effect on the operations of the UMC(AR) plant.
Other raw materials used or processed by UMC(AR) are available from several
sources.

PATENTS, TRADEMARKS AND CONTRACTS

The Company is not dependent on patents for its principal business activity.
However, management and personnel rely on know-how and trade secrets of the
Company respecting the surface modification and coatings segments of its
business.

The Company's trademarks are: AIM Group(R), the Corporate entity; Uni-Kote(R),
the UMC(AR) marketing label; and Klannerite(R), the rock from UMC(AZ)'s Viva
Luz Mine.

The Company has Employment Contracts with the Manager of its UMC(AR) Malvern
plant, the Product Manager for UMC(AR) located in New Jersey, and with its
Chief Financial Officer in the Corporate Office in Florida. All Contracts are
renewable on an annual basis. In addition, UMC(AR) has agency agreements for
product sales with two individuals and one distributor which are cancelable on
thirty days notice.

<PAGE>

The business of the Company is not of a seasonal nature.

Consistent with its business plan, the Company does not anticipate any
significant increase in the number of employees other than direct labor
associated with increased production activity and the staff necessary to
service the technical sales requests of customers.

COST REDUCTION MEASURES

The Company has implemented a cost reduction plan which includes but is not
limited to the following major items: reduction of significant legal expenses,
elimination of significant administrative overhead, marketing costs, and lower
corporate office lease expenses. The Company will continue to pursue more
advantageous means of financing its operations and seek other efficiencies
that may be available.

OTHER BUSINESS ITEMS

RESEARCH AND DEVELOPMENT

The Company carries out sufficient research and development at its UMC(AR)
facility to develop formulations of silane treatments on minerals to meet
specific service or customer requirements. These expenditures are considered
part of normal plant manufacturing expenses, and not costs to be associated
with fundamental research and development.

HTI has previously expended funds to develop markets for PDC coating and
Klannerite(R) and continues on a limited basis to explore uses for the
Klannerite(R).

Specific expenditures on research and development, and market development
during the previous four years were:

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expenditures $21,255 $49,582 $9,311
R&D, testing,
and Market Dev'l.
</TABLE>

Consistent with its current business plan during 1998, the Company anticipates
to undertake further research and development for Klannerite(R) in pozzolan
applications and ongoing study of surface treatments for industrial minerals.
The Company has budgeted approximately $75,000 during 1998 for these
activities.

COMPETITION AND MARKETS

UMC(AR) competes with other mineral suppliers and custom or toll processors in
the surface modification industry. Many of the mineral producers are of a much

<PAGE>

larger size in both terms of assets and sales, and are more diversified than
UMC(AR). Some mineral producers are well recognized by the industry and others
offer products at significantly lower prices.

Custom or toll processors in the surface modification industry with whom
UMC(AR) competes tend to be smaller and privately owned. Subsequent to year
end, noticeable predatory pricing developed in the surface modification
business. UMC(AR) believes it offers a high quality product at a competitive
price and has a good customer service response that will maintain its
competitive edge with its current customers and other new customers as they
are developed.

UMC(AZ) products will compete with numerous entities in the filler, cement,
and aggregate businesses. These markets are large and diverse respecting the
types of minerals mined and supplied. Producers are active in areas of
research and development. Many of these entities have significantly greater
capital resources and more research and development, marketing personnel, and
facilities than HTI. Some competitors have significant national name
recognition and distribution networks.

Management believes that price competition will be more significant in the
coming years and that the Company will have to compete with other large
mineral processors and producers on the basis of highly specialized products
tailored to customers' specific needs. The Company will do this by providing
customized products and rapid turn-around of orders. Also, larger competitors
often cannot process small custom orders, creating opportunities for toll
processors such as UMC(AR).

The Company continues to expand its technology base and is aware of the need
to create improved formulations that offer a "value added" economic
performance to existing and potential customers.

EMPLOYEES AND CONSULTANTS

Presently, AIM Group and its subsidiary UMC(AR) have a total of 11 employees,
of whom all are full time. The Company intends to hire, under contract,
employees needed to operate its mining, mineral processing, and packaging
facilities as required.

AIM Group may retain one or more consultants to render advice in areas of
strategic planning, plant engineering, project evaluation, and marketing.

ENVIRONMENTAL ISSUES AND GOVERNMENT REGULATION

The mining and manufacturing operations of the Company are subject to laws and
regulations relating to exploration procedures, safety precautions, property
reclamation, employee health and safety, air quality standards, pollution, and
other environmental protection controls adopted by federal, state, and local
governments.

Federal, state, and local environmental regulations may have a material effect
on any future mining operations of UMC(AZ) at the Viva Luz mine.

The Company's UMC(AR) manufacturing facility is also subject to regulation by
the Occupational Safety and Health Administration ("OSHA") and the
Environmental Protection Agency ("EPA") and to regulation under other
regulatory statutes, and may in the future be subject to other federal, state
or local regulations. OSHA or the EPA may promulgate regulations that may
affect the Company's research and product development programs.

<PAGE>

The Company is required to comply with certain environmental rules and
regulations and management believes that it has met or exceeded the
requirements of these rules in the Company's operations. However, the Company
can make no representations that compliance with current regulations will
ensure protection against any future liabilities due to claims by third
parties or changes in the regulations. Should environmental liabilities arise
in the future, the Company could be materially adversely affected as the
resources of AIM Group are used for regaining compliance in order to continue
operations.

The production of materials containing silica is regulated by the EPA and OSHA
as such materials can, potentially, be hazardous if inhaled or otherwise
consumed. These potential hazards exist in two principal areas of the
Company's operations: the Viva Luz Mine site and at the UMC(AR) surface
modification facility. Operations at the Viva Luz mine have been subcontracted
out to third party suppliers as required.

The EPA/OSHA regulations concerning crystalline silica generally deal with
health effects and toxicity/exposure limits, as well as certain safe handling
rules such as specified engineering controls, procedures, and personal
protective equipment such as masks or respirators.

The Company's policy is to engineer its systems in accordance with these rules
and comply with all known safe handling procedures in order to limit exposure.

In all instances the Company believes that it is either in compliance with the
appropriate regulations or the level of operations is such that active
compliance is not required at this time.

The surface modification facility at Malvern, Arkansas has received
authorization to operate its facility under the State Implementation Plan.
Because emissions at the plant are under ten tons per year, the plant does not
need an air quality permit. Active compliance with environmental regulations
(the federal Clean Air Act) is required when the actual emissions from the
facility exceed ten tons per year. The Company anticipates that to reach this
level of operations it would have to install two additional processing lines
(i.e., more than double its existing installed production capacity) and would
have to be operating these four production lines 24 hours a day, five days a
week, 52 weeks a year. The Company does not anticipate reaching this level of
production in a single facility in the foreseeable future.

The impact of future changes to existing regulations or of new regulations
will be evaluated by the Company, and all necessary steps to achieve
compliance will be taken, as any such changes or new regulations come into
effect. In general, increases in emissions of up to 20 tons per year can be
permitted through the Minor Permit Modification process. This level of
increase would exceed the maximum possible level of operations of the existing
facility by a factor of six times. The Company believes the future impact of
any such changes in regulation on the financial condition of the Company to be
minimal.

Certain Company activities are regulated under the Code of Federal Regulations
(CFR) Title No. 40, referencing air standards and under CFR Title No. 29
relating to OSHA regulations for the workplace.

The Company is also in compliance with the relevant "Right to Know"
regulations and disclosures respecting potential health hazards of its
products and processes on its employees and customers.

The regulations provide for, and the Company and its employees comply with,
the requirements respecting dust extraction and control processes, equipment

<PAGE>

and accouterments, safety clothing, and equipment. Use of this equipment,
principally respiration filters to remove airborne particles, by employees
brings the Company into compliance with existing regulations.

There have been recent changes to the evaluation of the effects of the various
hazards associated with different forms of silica. Specifically, the National
Institute for Occupational Safety and Health ("NIOSH") by definition has
labeled respirable silica as a "known" carcinogen to humans.
These forms of silica occur naturally in Klannerite(R).

As the regulations change to require more stringent limits on allowable silica
exposure, the response by the Company may include installation of additional
dust control equipment to reduce particulate emissions; using improved safety
equipment to reduce personal exposure; and employing any extant technological
solutions in order to meet the new requirements and continue operations.

The impact of any change in regulations would have the same deleterious effect
on the financial performance of AIM Group as it would have on all other
participants in the industry. These effects are not expected to make AIM Group
any more or less competitive or profitable than other corporations in the
industry other than the fact that the effects on AIM Group due to its being a
smaller, newer company with limited financial resources, may be such that it
may experience more difficulty in financing capital or operating expenditures
required by any change to existing regulations, codes, ordinances, and laws.

In addition, each state and local governmental agency may have its own series
of regulations that may differ from or be more stringent than those enacted by
the EPA. Generally, the Company must be prepared to comply with established
mandatory procedures, safety and efficacy standards which apply to its
proposed mining activities and to the manufacture, testing and operation of
its products within the United States. Compliance with such a broad range of
complex regulatory procedures may be time consuming, costly and have a
materially adverse effect on the business of the Company.

The Company is not knowingly in violation of any environmental law, rule or
regulation.

ITEM 2. DESCRIPTION OF PROPERTY

In May 1997, AIM Group decreased the amount of office space leased at its head
office in Broward County, Florida from approximately 3,190 to 1,600 square
feet. The lease expires in November 1998.

UMC(AR) owns a 9,050 square foot industrial building which includes 1,850
square feet of laboratory and office space, situated on a 3.75 acre site. The
facility is located in Malvern, Arkansas, approximately 40 miles southwest of
Little Rock, Arkansas. This property was acquired in October 1995. The Horizon
Bank of Malvern holds a collateral mortgage on the property in the principal
amount of approximately $54,000.

UMC(AZ) leases a mining property known as the Viva Luz Mine, located in Mohave
County, Arizona, situated approximately 43 miles southwest of Kingman,
Arizona. The mineral deposit is a volcanic cristobalite-kaolinite rock which
the Company markets under the trade name Klannerite(R). Cristobalite is a
polymorph, or different crystal form, of common quartz. Cristobalite is less
common than quartz and its physical properties are slightly different.

The mineral body has been previously classified by a geologist under contract
to HTI into three different quality categories, K1, K2, and K3. The highest
grade K1 rock is uniformly white in color, relatively free of impurities, and

<PAGE>

may be suitable for use as a filler. The measured geologic reserves of K1 are
260,000 tons proved and 80,000 tons probable. The Company believes that there
are sufficient reserves of K1 for operations for the foreseeable future. The
two lower grades of mineral, K2 and K3, are less pure, off color, and may not
find ready markets. The measured geologic reserves of K2 and K3 are 1,350,000
tons.

It is estimated that mining and processing losses will be 18%, yielding 82%
recovered product.

<TABLE>
<CAPTION>
Grade of Mineral (tons) Geologic Reserve Recoverable Reserve
<S> <C> <C>
K1 (proven & probable) 340,000 278,800
K2 and K3 1,350,000 1,107,000
</TABLE>

These estimates do not include K1 material which is overlain by K2 and K3
material.

ITEM 3. LEGAL PROCEEDINGS

In September, 1995, the UMC(AR) subsidiary of the Company was named as a
defendent in an action brought in Chancery Court for Davidson County,
Tennessee by Franklin Industrial Minerals (Franklin) of Nashville, TN, a
former supplier, for an unpaid account in the amount of $37,692. The Company
contends the material received by it was not to specification and was
contaminated. The Company has counter sued Franklin for damages arising from
the delivery of the out of specification / contaminated material. In addition,
in April and May 1996, Aristech Chemical Corporation, the Company's customer,
and the ultimate customers Chemtron Systems, Inc. and Insituform respectively,
filed intervenor suits against the Company and Franklin. The Company's
management is of the belief that the suit by Franklin is groundless and that
the intervenor suits will find Franklin to be responsible and the Company will
prevail in its counter suit. The Company has filed a claim with its insurance
carrier. Management is of the opinion that the cost of resolution of the
claims will not have any material adverse effect on the financial condition of
the Company.

Management is unaware of any other than normal course of business legal
proceeding against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1997, no items were submitted to the shareholders
for vote.

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The shares of the Company common stock have traded on the Vancouver Stock
Exchange ("VSE"), Vancouver, B.C., Canada since April, 1995. The price of the
shares are quoted in U.S. dollars and U.S. shareholders can locate the
Company's shares under the trading symbol AGDU.V and for Canadian shareholders
the trading symbol is AGD.U. The Company's common stock is also quoted on the
Over The Counter Bulletin Board ("OTC-BB") in the United States under trading
symbol AIMG.

As of March 24, 1998, there were 377 holders of record of AIM Group Common
Stock.

MARKET PRICES FOR AIM GROUP COMMON STOCK

<TABLE>
The following table sets forth the high and low sales prices per share of AIM
Group Common Stock as reported on the VSE for 1996 and 1995.

<CAPTION>
AIM GROUP INC.
PRICES QUOTED IN US DOLLARS COMMON STOCK
PRICES
-----------------------------------------------------------------------------------------------------
YEARS ENDED, DECEMBER 31, 1997 1996
HIGH LOW HIGH LOW
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $0.58 $0.23 $1.85 $0.85
Second Quarter $0.30 $0.10 $1.20 $0.50
Third Quarter $0.28 $0.23 $0.77 $0.41
Fourth Quarter $0.35 $0.15 $0.58 $0.30
</TABLE>

To date the Company has not paid or declared dividends on AIM Group Common
Stock and does not expect to do so in the foreseeable future.

DESCRIPTION OF THE CAPITAL STOCK OF THE REGISTRANT

AIM Group's authorized capital stock consists of 12,000,000 shares of common
stock, $.01 par value (the " Common Stock"), 3,971,107 shares of which were
outstanding on March 27, 1998, and 1,000,000 shares of preferred stock, $1.00
par value (the "Preferred Stock"), no shares of which are outstanding.

During 1997, the shareholders of the Company approved the 1997 Incentive Stock
Option Plan providing for the issuance of 750,000 common shares of the
Company. Subsequently, the Board of Directors of the Company authorized the
issuance of options for 220,000 shares at an exercise price of $.30 per share
to certain of the Company's directors, officers and employees. The options
expire ten years from the date of grant and have a four year vesting period at
25% per year.

COMMON STOCK. Holders of Common Stock have one vote for each share held, are
not entitled to cumulate their votes for the election of Directors, and do not
have preemptive rights. All shares of Common Stock have equal rights and,

<PAGE>

subject to the rights of the holders of the Preferred Stock, are entitled to
receive such dividends, if any, as may be declared from time to time by the
AIM Group Board out of funds legally available therefore, and to share pro
rata in the net assets of AIM Group available for distribution to holders of
Common Stock upon liquidation.

PREFERRED STOCK. The AIM Group Board may without further action by AIM Group
stockholders, from time to time, direct the issuance of up to one million
shares of Preferred Stock in series and may, at the time of issuance,
determine the rights, preferences, and limitations of each series. The rights
of any such series may include voting and conversion rights which would
adversely affect the voting power of the holders of Common Stock. Satisfaction
of any dividend preferences of outstanding Preferred Stock would reduce the
amount of funds available for the payment of dividends on the Common Stock.
Also, the holders of Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution, or winding-
up of AIM Group before any payment is made to the holders of the Common Stock.
Any such issue of preferred stock in consideration for other than currency is
subject to the prior approval of the VSE.

CONVERTIBLE PROMISSORY NOTES. On April 11, 1997 and May 20, 1997 the Company
executed an Amendment (the "First Amendment") with the three related parties
(see "Related Parties") who are holders of the Company's Series A - 3.5%
Convertible Promissory Notes (the "Notes") having an aggregate face value of
$1,050,000, subject to approval by the Vancouver Stock Exchange which was
received on June 18, 1997. The First Amendment included provisions which: a)
extended the maturity date of the Notes to March 31, 1998; b) increased the
annual interest rate to 10%, effective January 1, 1997; c) changed the
conversion price to $.70 per share; and d) agreed that the Company will not,
without the prior approval of the holders of at least 80% of the principal
amount of Notes outstanding, incur any indebtedness which ranks senior in
priority to payment to the noteholders. The Notes remain unsecured.

On March 24, 1998 the Company executed an Amendment (the "Second Amendment")
with the three Related parties who are holders of the Notes having an
aggregate face value of $1,050,000, subject to approval by the Vancouver Stock
Exchange. The Second Amendment includes provisions which: a) extend the
maturity date of the Notes to December 31, 1998; b) maintain the annual
interest rate at 10%; c) maintain the conversion price at $.70 per share; and
d) provide that the noteholders may not convert their notes prior to August 1,
1998. If the Company is successful in closing a proposed equity offering in
mid-1998, there will be a mandatory conversion if the closing bid price of the
Company's common stock on the Vancouver Stock Exchange averages in excess of
$1.50 for a ninety day period after the closing. In addition, the noteholders
have agreed to be bound by certain provisions restricting the sale of any
shares issued upon conversion. The Notes remain unsecured.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

This discussion should be read in conjunction with the information contained
in the Financial Statements and Notes thereto of the Company that are
presented elsewhere in this Report.

Incorporated in March 1994, the Company's predecessor had minimal operations
until it merged with AIM and HTI (and its subsidiaries) effective March 31,
1995.

<PAGE>

RESULTS OF OPERATIONS

<TABLE>
The following table sets forth for the periods indicated the percentage of net
sales of certain items included in the Company's Statement of Operations:

<CAPTION>
Period ended December 31, 1997 % of sales 1996 % of sales
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net Sales $ 2,316,472 100.0 $ 3,092,278 100.0
Cost of Goods Sold 1,795,780 77.5 2,148,191 69.4
Gross Margin 520,692 22.5 944,087 30.6
Selling & Marketing 157,781 6.8 270,612 8.8
Administration 575,973 24.9 791,826 25.5
Interest 189,872 8.2 131,429 4.3
Depreciation 79,829 3.4 72,487 2.3
Total G & A 1,003,455 43.3 1,266,354 40.9
Earnings (Loss) from Operations (482,763) (20.8) (322,267) (10.4)
Write off Investment 93,396 3.0
Total Earnings (Loss) before Taxes (482,763) (20.8) (415,663) (13.4)
</TABLE>

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

Sales for 1997 decreased 25.1% to $2,316,472 compared to $3,092,276 for 1996.
The gross margin in 1997 decreased 8.0% to 22.5% compared to 30.5% for 1996.
The decreases reflected a decline in sales from the company's largest customer
along with continued pricing pressures in the industry.

The Company's core business products are sold to customers for use as fillers
in resin matrices. The majority of sales were of surface modified minerals
sold to the plastics compounding industry; approximately 2.1% of 1997 sales
were made as a toll processor of customers' materials. A small portion of
sales were production size samples for customers' evaluation.

Selling and administration expenses decreased in 1997 to $733,754 or 31.7% of
sales compared to $1,062,438 or 33.1% of sales for 1996. The decrease of
$328,684 is due to significant cost reduction and containment efforts in these
areas primarily in personnel and head office expenses.

Selling and Marketing expenses for 1997 decreased to $157,781 or 6.8% of sales
compared to $270,612 or 8.8% of sales for 1996. The decrease is attributable
to on-going cost reduction efforts. Administration expenses for 1997 were
$575,973 and represent 24.9% of sales compared with $791,826 or 25.5% of sales
for the prior year. Management attributes this improvement to continued
reduction of executive office costs.

Interest charges for 1997 increased to $189,872 or 8.2% from $131,429 or 4.3%
of sales for the comparable period in 1996. The increase is primarily
attributable to the large interest rate increase on the $ 1,050,000 in
convertible notes from 3.5% in 1996 to 10.0% in 1997. Depreciation increased
to $79,829 from $72,487 for the prior year. The increase is due to a
significant plant improvement project started in 1997 to gain greater
efficiencies in production capabilities.

Net Loss from operations of $482,763 at 20.8% of sales, represents a loss of $
0.122 per share, compared with $322,267 at 10.4% of sales, or $ 0.081 per
share, based on the weighted average number of shares outstanding during the
respective periods. Further, in 1996 due to the discontinuance of the Omega

<PAGE>

licensing agreement the Company recognized a loss of $93,396 or $0.024, per
share, for write-off of that investment. This loss coupled with the net loss
from operations, resulted in a total loss of $415,633, which was $0.105 per
share or 13.4% of sales.

The Company incurred significant non-recurring legal fees and related costs
during 1997 in association with the resolution of employment disputes, the
inability to resolve issues regarding the Company's $1,050,000 liability of
Convertible Notes outstanding, and the legal actions filed in Delaware to
cause an effective change in management. These costs were fully absorbed 1997
and henceforth the results of operations in the future should show increased
efficiency without a recurrence of these expenses.

RESOURCE PROPERTY

During 1997, several independent test results performed under American Society
for Testing and Materials ("ASTM") concluded that calcined Klannerite(R) is an
excellent pozzolanic material for use in cement to increase compressive
strength and stop alkalai reactivity which causes unwanted expansion.
Discussions are ongoing with several large cement companies concerning the
feasibility that Klannerite(R) can be manufactured into products with
commercial viability.

INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS

The Company made no provision for Income Taxes for the year ended December 31,
1997, having generated an operating loss for the year and recognizing tax
benefits from the utilization of Net Operating Loss Carryforwards (NOLs) for
book purposes. For a more complete discussion on income taxes and NOLs refer
to Note N in the Financial Statements.

As of December 31, 1997, the Company's NOLs aggregated approximately
$2,800,363, expiring through the year 2011. These NOLs arose primarily from
the operations of the Company in the prior year and those of acquired
companies merged as of March 31, 1995. Similarly no provision was made for
Income Taxes in the corresponding period 1996. Except as more fully discussed
below and subject to the limitations of the Internal Revenue Code of 1986 as
amended ("Code"), these NOLs should be available to offset future Income of
the Company, subject to the limitations described below. Use of NOLs to reduce
future taxable income may subject the Company to an alternative minimum tax.

Section 382 of the Code limits the amount of a corporation's taxable income
that can be offset by NOLs arising prior to an "ownership change". An
ownership change occurs when, for example, shares comprising more than 50% of
a corporation's stock are sold to different or new public shareholders. As a
result of the March 31, 1995 acquisition and merger of the corporations, and
the ownership changes that occurred in connection therewith, the limitation on
the utilization of the NOLs imposed by Section 382 of the Code will apply.
Under the limitation, the amount of the Company's taxable income that each
year can be offset by NOLs attributable to periods before the ownership change
cannot exceed the product of (i) the fair market value of the stock of the
Company immediately prior to the ownership change and (ii) the long term
tax-exempt rate prescribed by the IRS. The limitation imposed by the change in
ownership may result in the Company paying income taxes in excess of the
amount payable in the absence of the ownership change.

<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL

The operating cash flow deficit was funded by cash flow from the operations of
the United Minerals Corporation (UMC) subsidiary and short term loan
financing. Management believes that additional working capital financing will
be required to meet the Company's needs for the coming year. As of December
31, 1997, the Company had a working capital deficit of $447,297. This compares
with working capital of $38,251 as of December 31 of the previous year.
Management anticipates that if sales do not increase the Company will need
additional funding sometime this year.

To increase available cash for purchases and payroll during the early stages
of development the Company entered into, and has continued, its factoring
arrangement which provides for cash advances against invoices to customers,
during the period for which such invoices are outstanding. Customer payments
are then applied directly to advances. This factoring, while not increasing
working capital, has provided for liquidity of receivables. The Company
intends to reduce its reliance on factoring as a source of working capital
during the coming year. The company did enter into a new factoring agreement
during 1997 that did reduce factoring costs by approximately 30%.

ITEM 7. FINANCIAL STATEMENTS

The Financial Statements of the Company and the report of the Independent
Auditors thereon are set forth elsewhere in this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There are no disagreements with respect to disclosure.

<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT

DIRECTORS OF THE REGISTRANT

<TABLE>
The following is a list of the Directors of the Registrant, their ages and
their principal occupations, as of March 27, 1998.

<S> <C> <C>
Paul R. Arena* 39 Chairman, Director, Chief Executive Officer,
and President of AIM Group and subsidiaries
and the founder of the Companies.

James L. Austin 47 Presently the President of Austin Trading
Company. For the past 26 years, Mr. Austin has
been engaged in various positions within the
paper industry. He also serves as the sales
coordinator and minority owner of a large
paper de- inking facility. From October of
1989 to September 1994, Mr. Austin served as
the President of MoDoCell Inc. which operates
paper processing mills throughout North
America and is the a subsidiary of MoDo Inc.
of Sweden, one of the world's largest paper
processors. Prior to MoDoCell Inc., Mr. Austin
held such positions as North American Sales
Manager for Georgia-Pacific, sales manager for
Willamette Industries, Gottesman-Central
National, Brown Company and was an
International Market Research Associate for
Schering-Plough Corporation.

Dr. A.L. (Al) Braswell 68 Presently the President and owner of Vista
Pacifica Enterprises, Inc., an operator of
several health care facilities in California.
For the past 35 years, Dr. Braswell has been
engaged in various levels of health,
education, and social assistance activities.
Dr. Braswell is also a real estate developer
of residential, commercial and industrial
properties.

Dr. Braswell obtained a PhD from Oregon State
University in 1963, recieved a MS from Oregon
State University in 1959, a MA from Los
Angeles State College in 1954, and a BS from
Bethany Nazarene College in 1949.

E.W. (Sandy) Purcell 45 Presently a Vice President for the investment
banking firm of Houlihan, Lokey, Howard &
Zukin. Previously, he was a Vice President and
Senior Associate with Valuemetrics, Inc. from
October 1989 to January 1997. From May 1987 to
August of 1989, Mr. Purcell was a Vice
President/Partner of Southern Frieghtways,
Inc. Prior thereto, from January 1986 to April

<PAGE>

1987 he was a Manager, National Products for
General Electric Credit Corporation. From July
1978 to January 1986, Mr. Purcell was an
Assistant Vice President and Manager of
National Vendor Sales for Equilease
Corporation.

Mr. Purcell obtained an MBA from the
University of Chicago in 1989 and received a
BS from the University of Florida in 1973.
<FN>
* Denotes executive officer; for biography see "Executive Officers of the
Registrant" below.
</FN>
</TABLE>

COMPENSATION OF DIRECTORS OF AIM GROUP INC.

Except as set forth below, AIM Group does not pay any compensation to its
Directors for their services as Directors. AIM Group pays a salary to Paul R.
Arena, as Chief Executive Officer and President of the Company. See "Executive
Compensation".

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
The following is a list of the Executive Officers of the Registrant, their
ages and their positions and offices as of March 27, 1998.

<CAPTION>
Name Age Office
<S> <C> <C>
Paul R. Arena 39 Chairman, Director, Chief Executive Officer,
and President of AIM Group and subsidiaries
since March 27, 1997; previously served as
Vice President-Business Development from
September 1995 to August 1996 and from May
1991 to August 1995 held the positions he has
presently, with exception of President from
May 1995 to August 1995. From June of 1990 to
August of 1991, Mr. Arena served as Vice
President of Finance and a Director of
Saftron, Inc. of Miami, FL. From February of
1988 to January of 1990, he was a Senior Vice
President and partner of Gulfstream Financial
Associates, a subsidiary of the Kemper Group.
Previous to this (April of 1986 to June of
1988), he was the President of the Arena
Venture Group, a Boca Raton firm which engaged
in aircraft leasing operations. Concurrent
with this, from March of 1987 to February of
1988, Mr. Arena was also employed as a Vice
President by Interstate Securities, and from
March of 1985 to February of 1987 he was a
Vice President for Drexel Burnham Lambert.

Leigh S. Zoloto 43 Chief Financial Officer, Corporate Secretary
and Treasurer of AIM Group and its
subsidiaries since June 1996. Prior thereto,
he was the Controller and Director of
Information Systems for a subsidiary of
Westinghouse Electric Corporation from
November 1988 to May 1996. From August 1986 to

<PAGE>

July of 1988 he was a Financial Systems
Consultant for Cullinet Software, Inc.
Previously, he was the Regional Controller
from September 1981 to March of 1986 for
National Medical Care, Inc., which was a
subsidiary of W.R. Grace & Co.

Mr. Zoloto obtained an MBA from the University
of Connecticut in 1981 and received a BS in
Accounting from SUNY at Buffalo in 1976.
</TABLE>

There is no family relationship between any of the Executive Officers.

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS OF AIM GROUP

The following table sets forth information for the fiscal year ended December
31, 1997 concerning the compensation paid or awarded to Executive Officers of
AIM Group. No long-term compensation was paid nor is payable to any of the
executive officers or directors.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
---------------------------------- ------------------------------------------------
Awards Payouts
------------------------ ---------------------
Securities
Other Under-
Annual Restricted lying All Other
Compen- Stock Options/ LTIP Compen-
Name and Year Salary Bonus sation Award(s) SARs Payouts sation
Principal Position ($) ($) ($) (S) (#) ($) ($)
(b) (c) (d) (e) (f) (g) (h) (i)
------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul R. Arena 1997 $97,200 $0 $0 None N/A None None
Chairman, CEO & 1996 $96,000 $0 $0 None N/A None None
President (1) 1995 $81,000 $9,150 $0 None N/A None None

Leigh S. Zoloto 1997 $75,250 $0 $0 None N/A None None
Chief Financial Officer 1996 $68,000 $0 $0 None N/A None None

John W. Johnston* 1997 $60,000 $0 $0 None N/A None None
Vice President - 1996 $80,000 $0 $0 None N/A None None
Marketing (2) 1995 $77,999 $2,918 $0 None N/A None None

D. Michael Hartley* 1997 $0 $0 None N/A None None
Chairman & CEO (3) 1996 $10,560 $0 $0 None N/A None None
1995 $6,350 $0 $0 None N/A None None

<FN>
(1) Mr. Arena was appointed Chairman, CEO and President on March 27, 1997.
He previously served as Vice President-Business Development from
September 1995 to August 1996. From May 1991 to August 1995 he held the
positions he has presently, with exception of President from May 1995 to
August 1995.

(2) Mr. Johnston served as Vice President-Marketing from May 1994 to August
1997, on which date his employment terminated.

<PAGE>

(3) Mr. Hartley served as Chairman and CEO from September 1995 to March 27,
1997, on which date his employment terminated.
</FN>
</TABLE>

<PAGE>

The following Options Grants Table sets forth, for each of the named executive
officers, information regarding individual grants of options granted in 1997
and their potential realizable value. Information regarding individual option
grants includes the number of options granted, the percentage of total grants
to employees represented by each grant, the per-share exercise price and the
expiration date. The table does not set forth information regarding options
granted in 1997.

<TABLE>
<CAPTION>
OPTION GRANTS TABLE

Individual Grants

Number of Shares % of Total Options
Underlying Options Granted to Directors, Exercise
Granted Officers, Employees Price Expiration
NAME (#)(1) In Fiscal Year(2) ($/SH)(3) Date
<S> <C> <C> <C> <C>
Paul R. Arena 70,000 31.82% $0.30 9/30/07

Leigh S. Zoloto 40,000 18.18% $0.30 9/30/07

<FN>
(1) The options are non-qualified stock options granted on October 1, 1997
under the Company's 1997 Stock Option Plan that become exercisable
cumulatively as to 25%, 50%, 75% and 100% after the first, second, third
and fourth anniversaries, respectively, after the date of grant.

(2) Based on options for a total of 220,000 shares granted to all directors,
officers and employees.

(3) The exercise price is equal to the fair market value on the date of
grant of the option.
</FN>
</TABLE>

EXERCISE OF WARRANTS AND OPTIONS

During the year ended December 31, 1997, no warrants or options were
exercised.

<PAGE>

ITEM 11. SHARE OWNERSHIP

The following table sets forth certain information, as of March 27, 1998,
concerning the beneficial ownership of the Company's Common Stock by
shareholders known by the Company to be the beneficial owner of more than 5%
of the Company's outstanding shares of Common Stock or Series A - Convertible
Notes, by each of the directors, and by all directors and executive officers
of the Company as a group:

<TABLE>
<CAPTION>
Common Stock Series A - Convertible Note Percent
------------------------------------------------------------ of
Shares Shares Total
Beneficially Percent of Beneficially Percent of Voting
Owned Outstanding Owned Outstanding Power
---------------------------- ------------------------- -------
<S> <C> <C> <C> <C> <C>
Paul R. Arena................... 742,625(1)(2) 18.70 214,285(3) 5.12 23.82
Dr. Audrey L. Braswell.......... 513,114(2) 12.92 428,600 9.74 22.66
Northern Federal Minerals, LLC.. 428,600(3) 9.74 9.74
Bernard R. Kossar............... 428,600 9.74 9.74
Dr. James E. Ehrlich............ 275,656 6.94 6.94
Loeb Investors Co. 118.......... 245,542(4) 6.18 6.18
Dr. Andrew Higgins.............. 202,411 5.10 5.10
James L. Austin................. 45,836 1.16 1.16
Leigh S. Zoloto................. 40,000 1.01 1.01
Ernest W. Purcell............... 30,000 .76 .76

All officers and 1,371,575(1)(2) 34.54 642,885(3) 13.93 48.47
directors as a group
(5 persons)

<FN>
(1) Individual shares investment and voting powers for a total of 140,000
shares over certain of his shares and shares of other family members
with his father in-law. The other directors have sole investment and
voting power over their shares.

(2) Holding includes the following shares which may be acquired upon the
exercise of exercisable options outstanding under the Company's 1997
Incentive Stock Option Plan: Paul R. Arena - 70,000 shares; Leigh S.
Zoloto - 40,000 shares; Dr. Audrey L. Braswell - 20,000 shares; James L.
Austin - 20,000 shares; and Ernest W. Purcell - 20,000 shares; and all
officers and directors as a group own 170,000 shares.

(3) Northern Federal Minerals, LLC is a partnership which is owned 33.33% by
Paul R. Arena. The 66.66% of beneficial ownership is owned equally by
Joseph L. Ranzini and Stephen L. Ranzini and is reported as 428,600
shares, with the other 214,285 shares of beneficial ownership being
reported to Mr. Arena.

(4) Loeb Investors Co. 118 is a partnership owned by Loeb Partners
Corporation, an investment firm located at 61 Broadway, New York, NY
10006
</FN>
</TABLE>

<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The following transactions with the Company are identified as transactions
with related parties.

NORTHERN FEDERAL MINERALS, LLC Paul R. Arena, a Director and Officer of the
Company, is a principal in this Michigan limited liability corporation. On
November 13, 1995, Northern Federal Minerals, LLC purchased $450,000 principal
amount of the Company's Series A Convertible Promissory Notes.

BERNARD R. KOSSAR On December 20, 1995, Mr. Kossar purchased $300,000
principal amount of the Company's Series A Convertible Promissory Notes.

DR. AUDREY L. BRASWELL Dr. Braswell, a Director of the Company. On May 20,
1997, Dr. Braswell purchased $300,000 principal amount of the Company's Series
A Convertible Promissory Notes.

On April 11, 1997 and May 20, 1997 the Company executed an Amendment (the
"First Amendment") with the three related parties (see "Related Parties") who
are holders of the Company's Series A - 3.5% Convertible Promissory Notes (the
"Notes") having an aggregate face value of $1,050,000, subject to approval by
the Vancouver Stock Exchange which was received on June 18, 1997. The First
Amendment included provisions which: a) extended the maturity date of the
Notes to March 31, 1998; b) increased the annual interest rate to 10%,
effective January 1, 1997; c) changed the conversion price to $.70 per share;
and d) agreed that the Company will not, without the prior approval of the
holders of at least 80% of the principal amount of Notes outstanding, incur
any indebtedness which ranks senior in priority to payment to the noteholders.
The Notes remain unsecured.

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a.). EXHIBITS. The following exhibits are filed herewith or
incorporated by reference:

<TABLE>
<CAPTION>
Exhibit No. Document

<S> <C>
2 - Agreement and Plan of Merger dated as of August 3,
1994, by and among Heatshield, AIM, AIM Group, Inc.,
Merger Sub-H and L. P. (Incorporated herein by
reference to Exhibit 2 to to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468).)

2(b) - Amendment No. 1 dated as of November 14, 1994, to the
Agreement and Plan of Merger dated as of August 3,
1994 by and among Heatshield, AIM, AIM Group, Inc.,
Heatshield Acquisition and Heatshield Funding Group.
(Incorporated herein by reference to Exhibit 2(b) to
the Registrant's Registration Statement on Form S-4
(FIle No. 33-82468).)

2(c) - Amendment No. 2 dated as of November 30, 1994, to the
Agreement and Plan of Merger dated as of August 3,
1994 by and among Heatshield, AIM, AIM Group, Inc.,
Heatshield Acquisition and Heatshield Funding Group.
(Incorporated herein by reference to Exhibit 2(c) to
the Registrant's Registration Statement on Form S-4
(File No. 33-82468).)

3(a) - Certificate of Incorporation of AIM Group, Inc.
(Incorporated herein by reference to Exhibit 3(a) to
the Registrant's Registration Statement on Form S-4 (
File No. 33-82468)

3(b) - Certificate of Amendment to Certificate of
Incorporation of AIM Group, Inc. (Incorporated herein
by reference to Exhibit 3(b) to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468).)

3(c) - Certificate of Amendment to Certificate of
Incorporation of AIM Group, Inc. (Filed herewith)

3(d) - By-Laws of AIM Group, Inc. (Incorporated herein by
reference to Exhibit 3(c) to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468 ).)

4(a) - Form of AIM Group, Inc. Warrant Certificate
(Incorporated herein by reference to Exhibit 4(b) to
the Registrant's Registration Statement on Form S-4
(File No.3382468).)

4(b) - Form of AIM, Inc. Option Certificate. (Incorporated
herein by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-4 (File
No. 33-82468).)

<PAGE>

10(a) - AIM Group, Inc. 1994 Stock Option Plan. (Incorporated
herein by reference to Exhibit 4(a) to the
Registrant's Registration Statement on Form S-4 (File
No. 33-82468).)

10(b) - Kaolinite Mining Lease and Agreement, dated March 1,
1984, between Eterna-Tec Corp. as lessee and New
Mexico and Arizona Land Company as Lessor.
(Incorporated herein by reference to Exhibit 10(a) to
the Registrant's Registration Statement on Form S-4
(File No. 33-82468).)

10(c) - Assignment Agreement, dated October 26, 1989, by and
between Eterna-Tec Corp. and AIM pursuant to which
Eterna-Tec assigned to AIM Group, Inc. the Kaolinite
Lease. (Incorporated herein by reference to Exhibit
10(b) to the Registrant's Registration Statement on
Form S-4 (File No. 33-82468).)

10(d) - Lease Agreement, dated October 17, 1994, by and
between Merrick Venture Capital, Inc. and AIM Group,
Inc. (Incorporated herein by reference to Exhibit
10(pp) to the Registrant's Registration Statement on
Form S-4. (File No. 33-82468).)

10(e) - Form of Series A Convertible Promissory Note, as
issued by AIM Group, Inc. on November 13, 1995,
December 20, 1995 and February 2, 1996. (Incorporated
herein by reference to Exhibit 10(e) of the
Registrant's Form 10-KSB for the year ended December
31, 1996.)

10(f) - Form of letter agreement amending Series A
Convertible Promissory Note, as entered into by AIM
Group, Inc. and each of the holders of the Series A
Convertible Promissory Notes on April 10,1997.
(Incorporated herein by reference to Exhibit 10(f) of
the Registrants Form 10-KSB for the year ended
December 31, 1996.)

10(g) - Form of letter agreement amending Series A
Convertible Promissory Note, as entered into by AIM
Group, Inc. and each of the holders of the Series A
Convertible Promissory Notes on April 10,1997. (Filed
herewith)

21 - Subsidiaries of the Registrant (Incorporated herein
by reference to Exhibit 21 of the Registrant's Form
10-KSB for the year ended December 31, 1996.)

27 - Financial Data Schedule
</TABLE>

<PAGE>

(b). REPORTS ON FORM 8K. The Registrant did not file any Current Reports on
Form 8-K during the quarter ended December 31, 1997.

<PAGE>

FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT

AIM GROUP, INC. AND SUBSIDIARIES

December 31, 1997 and 1996

<PAGE>

INDEPENDENT AUDITOR'S REPORT

Board of Directors
AIM Group, Inc.

We have audited the accompanying consolidated balance sheets of AIM Group,
Inc. as of December 31, 1997 and 1996 and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended
December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and the results of its operations and
its cash flows for the years ended December 31, 1997, 1996 and 1995 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 substantial
non-earning 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.

Plantation, Florida
March 13, 1998

F-1

<PAGE>

AIM Group and Subsidiaries

CONSOLIDATED BALANCE SHEETS

"December 31, 1997 and 1996"

<TABLE>
<CAPTION>
1997 1996
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash $ 9,898 $ 70,342
Accounts receivable - trade 368,832 504,864
Accounts receivable - affiliate and other - 564
Inventories 202,155 160,770
Prepaid expenses 6,967 18,529
----------- -----------
Total current assets 587,852 755,069

RESOURCE PROPERTY 4,000,373 3,995,373

PROPERTY, PLANT AND EQUIPMENT - Net 572,711 557,059

OTHER ASSETS 40,511 46,836
----------- -----------
$5,201,447 $5,354,337
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 630,692 $ 281,454
Receivable financing liability 277,441 324,293
Current portion of long-term debt 80,954 14,960
Accrued expenses 46,062 96,111
----------- -----------
Total current liabilities 1,035,149 716,818

LONG-TERM DEBT, less current portion 93,091 76,073

CONVERTIBLE NOTES PAYABLE 1,050,000 1,050,000

COMMITMENTS - -

STOCKHOLDERS' EQUITY
Preferred stock; 1,000,000 shares authorized; $1 par value;
no shares issued or outstanding. - -
Common stock; 12,000,000 shares authorized; $.01 par value;
3,980,053 shares issued and 3,971,107 outstanding in 1997
and 3,978,766 in 1996. 39,801 39,801
Additional paid in capital 4,222,809 4,222,809
Common stock held in treasury - 8,946 shares in 1997 and
1,287 shares in 1996 (6,876) (1,400)
Accumulated deficit (1,232,527) (749,764)
----------- -----------
3,023,207 3,511,446
----------- -----------
$5,201,447 $5,354,337
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-2
<PAGE>

AIM Group and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

"For the years ended December 31, 1997 , 1996 and 1995"

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
SALES $2,316,472 $3,092,278 $2,399,493

COST OF GOODS SOLD 1,795,780 2,148,191 1,692,943
----------- ----------- -----------
GROSS PROFIT 520,692 944,087 706,550

EXPENSES
General and administrative 575,973 791,826 673,105
Selling and marketing 157,781 270,612 132,532
Write-off of investment - abandoned project - 93,396 -
Interest 189,872 131,429 162,505
Depreciation and amortization 79,829 72,487 47,249
----------- ----------- -----------
1,003,455 1,359,750 1,015,391
----------- ----------- -----------
Loss before income taxes (482,763) (415,663) (308,841)

Income taxes - - -
----------- ----------- -----------
NET LOSS $ (482,763) $ (415,663) $ (308,841)
=========== =========== ===========

Net loss per share $ (0.12) $ (0.10) $ (0.08)
=========== =========== ===========

Weighted average shares outstanding 3,958,243 3,960,158 3,672,894
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3

<PAGE>

AIM Group and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

"For the years ended December 31, 1997 , 1996 and 1995"

<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury Accumulated
Shares Stock Capital Stock Deficit Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1994 1,000 $ 10 $ 90 $ - $ (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) - 4,049,599

Issuance of stock during December
1995 relating to the exercise of options
and warrants 214,536 2,146 128,073 - - 130,219

Net loss for the year - - - - (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 - - 82,792

Purchase of 1,287 shares for treasury - - - (1,400) - (1,400)

Cancellation of 213,412 shares of
treasury stock (213,412) (2,134) (9,441) 11,575 - -

Net loss for the year - - - - (415,663) (415,663)
------------ ------------ ------------ ------------ ------------ ------------
Balances - December 31, 1996 3,980,053 39,801 4,222,809 (1,400) (749,764) 3,511,446

Purchase of 79,088 shares for treasury - - - (30,476) - (30,476)

Sale of 71,429 shares held in treasury - - - 25,000 - 25,000

Net loss for the year - - - - (482,763) (482,763)
------------ ------------ ------------ ------------ ------------ ------------
Balances - December 31, 1997 3,980,053 $ 39,801 $ 4,222,809 $ (6,876) $(1,232,527) $ 3,023,207
============ ============ ============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-4

<PAGE>

AIM Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

"For the years ended December 31, 1997 , 1996 and 1995"

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
NET LOSS $ (482,763) $ (415,663) $ (308,841)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 79,829 72,487 47,249
Changes in current assets and liabilities:
Decrease (Increase) in accounts receivable 136,596 195,789 (341,714)
(Increase) in inventories (41,385) (7,741) (79,007)
Increase (decrease) in receivable financing liability (46,852) (150,922) 475,215
Increase in short term loan 96,152 - -
Increase (decrease) in accounts payable
and accruals 299,189 (86,891) 90,693
Other 7,171 9,140 (22,892)
----------- ----------- -----------
Net cash provided (used) by operations 47,937 (383,801) (139,297)
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (95,481) (129,130) (148,751)
(Increases) decreases in other assets 6,325 21,392 (22,564)
Additions to resource property (5,000) (3,599) (15,522)
----------- ----------- -----------
Net cash (used) by investing activities (94,156) (111,337) (186,837)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock - - 141,894
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 (8,749) (14,470) -
Purchase of stock for treasury - net (5,476) (1,400) -
Loans received - net - - -
Advances to affiliated company, net of repayments - - -
----------- ----------- -----------
Net cash provided (used) by financing activities (14,225) 305,200 585,295
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH (60,444) (189,938) 259,161

Cash, beginning of period 70,342 260,280 1,119
----------- ----------- -----------
Cash, end of period $ 9,898 $ 70,342 $ 260,280
=========== =========== ===========
</TABLE>

F-5

<PAGE>

AIM Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

"For the years ended December 31, 1997 , 1996 and 1995"

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
<S> <C> <C> <C>
Interest paid $ 172,968 $ 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

December 31, 1997, 1996 and 1995

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 (U.S. Dollars) 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, 1997 and 1996 consist of:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished Goods $ - $ 28,513
Raw materials 141,926 76,421
Klannerite(R) Ore 48,645 48,645
Spare parts and supplies 11,584 7,191
-------- --------
$202,155 $160,770
======== ========
</TABLE>

F-7

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

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 GroupR, 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 than 10% of its revenues for the years ended December
31, 1997 and 1996, to a single customer in the amount of 67% and 83%
respectively. In addition, the sales to the three largest customers
accounted for 92% of total sales in 1997.

F-8

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

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. 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.
Management believes that alternative applications have been identified and it
is the recommendation of the Board of Directors that further investigation of
these alternatives is warranted. 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 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 - OPERATIONS/NATURE OF BUSINESS

AIM Group is the parent company that provides centralized management, finance,
long range planning, accounting and administration to two principal operating
entities. These operations are a surface modification facility and a mining
lease. The Company has discontinued manufacture of the coatings and did not
actively market these coatings during 1997.

AIM Group shares are listed on the Vancouver Stock Exchange and Over the
Counter - Bulletin Board (OTC-BB). The Company's common stock is currently
quoted under the symbols AGDU.V and AIMG, respectively.

F-9

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE C - CONTINUED

UNITED MINERALS ARKANSAS (UMC(AR)) SURFACE MODIFICATION PLANT

UMC(AR) is the Company's core business and has completed its third full
year of operations as of December 31, 1997. 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 mechanical and
electrical 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 1997 and treated approximately
1,900 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-10

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE C - 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.

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.

The Company has achieved its objective of identifying alternative
applications for "Klannerite(R)". Written, qualified and independent
reports have been generated under acceptable American Society for
Testing and Materials ("ASTM") standards and verified that calcined
"Klannerite(R)" is an excellent white pozzolan. Pozzolan materials are
used as an aggregate additive in concrete to increase compressive
strength in concrete and to stop alkali reactivity. Further testing and
marketing of pozzolan applications will be performed this year.

To date there have been no commercial sales to these markets.

F-11

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE D - PROPERTY AND EQUIPMENT

Property plant and equipment is summarized as follows:

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Plant $108,000 $108,000
Building improvements 177,328 98,442
Plant and lab equipment 310,233 306,781
Engineering costs 66,412 66,412
Vehicles 37,044 37,044
Furniture and Equipment 100,379 93,920
--------- ---------
799,396 710,599
Less accumulated depreciation (236,685) (163,540)
--------- ---------
562,711 547,059
Land 10,000 10,000
--------- ---------
$572,711 $557,059
========= =========
</TABLE>

NOTE E - OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Patents and Trademarks $ 28,392 $ 28,392
Unamortized portion of deferred start up costs 8,566 15,197
Deposits and other 3,553 3,247
--------- ---------
$ 40,511 $ 46,836
========= =========
</TABLE>

NOTE F - 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 which occurred March 31, 1995. The following describes the property
and related reserves of rock containing crystobalite, quartz and kaolinite.

F-12

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE F - 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.

<TABLE>
<CAPTION>
The following is a table showing the grade and applicable estimated tons
of the material deposit:
Grade Tons
<S> <C>
K1 (proven and probable) 340,000
K2 and K3 1,350,000
Total Tons 1,690,000
</TABLE>

The average estimated process recovery of the material is 82%, and the
recovery loss has not been reflected in the tonnage shown above.

<TABLE>
<CAPTION>
The carrying value of the resource property including the prepaid
royalties is as follows:
<S> <C>
Resource property purchase price $3,935,798
Pre-paid royalties 64,575
----------
Resource property $4,000,373
==========
</TABLE>

MINERAL MINED, PRODUCED AND SOLD IN 1992 THROUGH 1997

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 1997
a nominal number of samples aggregating approximately 250 pounds were
sent to prospective customers from whom the Company received a positive
response. The remaining 212.5 tons are being held in inventory.

No sales of Klannerite(R) have been reported for 1995, 1996 or 1997.

F-13

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE G - LONG-TERM DEBT

The following is a summary of long-term debt at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Mortgage payable, secured by Arkansas
manufacturing facility, payable in
monthly installments of approximately
$900 including interest at 10.25%. $ 54,546 $ 60,309

Loan payable - City of Malvern,
Arkansas Revolving Loan Fund secured by
equipment and second mortgage on real
estate; payable in monthly installments
of $2,921.72 including interest at 6%. 96,152 -

Equipment loans payable, secured by
vehicle and equipment, payable in
monthly installments of approximately
$1,061 including interest at 10.2 % to
14.2%. 23,347 30,724
--------- ---------
174,045 91,033
Less amounts due within one year 80,954 14,960
--------- ---------
$ 93,091 $ 76,073
========= =========
</TABLE>

Maturities of long-term debt over the next five years are as follows:

<TABLE>
<CAPTION>
Year ended
December 31,
<S> <C>
1998 $ 80,954
1999 31,861
2000 34,271
2001 26,959
---------
$174,095
=========
</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 1997 and 1996 were $71,183 and $85,741, respectively.

F-14

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE H - CONVERTIBLE NOTES PAYABLE

On April 11, 1997 and May 20, 1997 the Company executed an Amendment (the
"First Amendment") with three related parties (see "Related Parties") who are
note holders of the Company's Series A - 3.5% Convertible Promissory Notes
(the "Notes") having an aggregate face value of $1,050,000 subject to approval
of the Vancouver Stock Exchange which was received on June 18, 1997. The first
Amendment included provisions which: a) extended the maturity date of the
notes to March 31, 1998; b) increased the annual interest rate to 10%,
effective January 1, 1997; c) changed the conversion price to $.70 per share;
and d) agreed that the Company will not, without the prior approval of the
holders of at least 80% of the principal amount of Notes outstanding, incur
any indebtedness which ranks senior in priority to payment to the note
holders. The Notes remain unsecured.

On March 23, 1998, the Company executed an Amendment (the "Second Amendment")
with the three related parties who are note holders of the Notes having an
aggregate face value of $1,050,000 subject to approval by the Vancouver Stock
Exchange. The Second Amendment includes provisions which: a) extends the
maturity date of the Notes to December 31, 1998; b) maintain the annual
interest rate at 10%; c) maintain the conversion price at $.70 per share; and
d) provides that the note holders may not convert their notes prior to August
1, 1998. If the Company is successful in closing a proposed equity offering in
mid-1998, there will be a mandatory conversion if the closing bid price of the
Company's common stock on the Vancouver Stock Exchange averages in excess of
$1.50 for a ninety day period after the closing. In addition, the note holders
have agreed to be bound by certain provisions restricting the sale of any
shares issued upon conversion. The Notes remain unsecured.

NOTE I - 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. All of these options
and warrants have expired. There were no exercises of options or warrants
during 1996 and 1997.

In 1997, the Company established a new non-statutory stock option plan for
employees, officers and directors. During 1997, the Board of Directors
approved the issuance of options to purchase 220,000 shares of the Company's
stock at $.30 per share to certain directors, officers and employees. The
options expire ten years from the date of grant and have a four year vesting
period at 25% per year.

F-15

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

NOTE J - LEASE COMMITMENTS

The Company's corporate headquarters are leased pursuant to an operating lease
expiring October 31, 1998. Future lease payments at December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ --------
<S> <C>
1998 $ 17,333
========
</TABLE>

NOTE K - 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 a private placement in the
form of 3 year convertible 3 1/2% Promissory Notes ("Convertible Notes")
having a face value of $1,050,000 subject to the approval of the
Vancouver Stock Exchange. (See Note H). The following related
individuals and affiliated concerns acquired the Convertible Notes as
follows:

NORTHERN FEDERAL MINERALS LLC Paul R. Arena, an officer and director of
the Company is a principal in this Michigan limited liability
corporation. On November 13, 1995 Northern Federal Minerals LLC
purchased $450,000 principal amount of the Convertible Promissory Notes.

BERNARD R. KOSSAR Mr. Kossar, on December 20, 1995 purchased $300,000
principal amount of the Convertible Promissory Notes.

DR. AUDREY L. BRASSWELL A director of the Company, on May 20, 1997
purchased $300,000 principal amount of Convertible Promissory Notes
issued by the Corporation.

NOTE M - INCOME TAXES - NET OPERATING LOSSES

The Company has net operating loss carryforwards available to offset future
taxable income approximating $2,800,000 expiring through the year 2011. Due to
the merger described in Note B, the net operating losses are subject to
certain limitations, computed on an annual basis.

F-16

EXHIBIT 10(g)

AIM GROUP, INC.
2001 West Sample Road, Suite 300
Pompano Beach, FL 33064

March 24, 1998

[Name of Noteholder]

Re: Second Amendment to Series A 3.5% Convertible
Note Of Aim Group, Inc.
-----------------------------------------------

Dear [Name]:

This letter agreement provides for an amendment to the Series A 3.5%
Convertible Note (the "Note") issued to you by AIM Group, Inc. (the "Company")
in the principal amount of [$__________] on December 20, 1995, as amended on
[__________]. The Board of Directors of the Company has approved the changes
in the terms of the Note set forth below and, upon acceptance by you in the
space set forth below, the Note will be deemed to be amended to give effect to
such changes, subject to the approval of the Vancouver Stock Exchange. Defined
terms set forth below have the same meaning as prescribed in the Note unless
the context otherwise requires.

The Note is amended as follows:

1. MATURITY. The Maturity Date of the Note is extended to be December 31,
1998.

2. INTEREST RATE. The annual interest rate of the Note will remain at 10%,
payable quarterly in arrears at the beginning of each calendar quarter.

3. THE CONVERSION PRICE. The conversion provisions of the Note will remain
at a Conversion Price of $.70 per share, convertible with the same terms of
the Note as amended.

4. TIME OF CONVERSION. Noteholders may not convert their notes prior to
August 1, 1998. After the closing of the Company's proposed equity offering in
the minimum amount of $2,000,000 in mid-1998, there will be a mandatory
conversion if the closing bid price of the Company's common stock on the
Vancouver Stock Exchange averages in excess of $1.50 for a ninety (90) day
period.

5. LOCK-UP. The Noteholders agree that they will not sell any shares
received upon conversion of the Notes for 240 days following the closing of a
contemplated underwritten best efforts public offering, provided, however,
that the Noteholders may sell up to 300,000 common shares in accordance with
the attached Schedule A, during the period from 120 days to 240 days after the

<PAGE>

closing. Management (other than Northern Federal Minerals LLC (Arena) and Dr.
Braswell, which may sell on the same basis as the other Noteholders),
including any officers, directors or ten percent (10%) shareholders, will not
sell any shares until 330 days after the closing of the offering. All parties
agree that any sale of shares are subject to the appropriate Rule 144 and 145
restrictions, if any.

6. EFFECT OF AMENDMENT. Except as amended hereby, and by the amendment of
[___________], the Note will remain in full force and effect.

Sincerely yours,

AIM GROUP, INC.

By:_________________________
Paul R. Arena
Chairman of the Board and
Chief Executive Officer

Accepted on this

_______ day of March, 1998

[Name of Noteholder]

By:_________________________

<PAGE>

SCHEDULE "A"

Of the Second Amendment to the:

Series A 3.5% Convertible
Note of AIM Group, Inc.

<TABLE>
<CAPTION>
Noteholder Principal Amount Shares Cv @ $.70 (*)
- ---------- ---------------- ---------------- ---
<S> <C> <C> <C>
Dr. Audrey L. Braswell $300,000 428,571 85,714

Bernard R. Kossar $300,000 428,571 85,714

Northern Federal Minerals, LLC $450,000 642,857 128,571

<FN>
(*) Number of pro-rata allowable shares that can be sold by noteholder
during the period as described in Paragraph 5 of the Second Amendment.
</FN>
</TABLE>

<ARTICLE> 5
<CIK> 0000928032
<NAME> AIM GROUP, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,898
<SECURITIES> 0
<RECEIVABLES> 368,832
<ALLOWANCES> 0
<INVENTORY> 202,155
<CURRENT-ASSETS> 587,852
<PP&E> 799,396
<DEPRECIATION> 236,685
<TOTAL-ASSETS> 5,201,447
<CURRENT-LIABILITIES> 1,035,149
<BONDS> 1,143,091
0
0
<COMMON> 39,801
<OTHER-SE> 2,983,406
<TOTAL-LIABILITY-AND-EQUITY> 5,201,447
<SALES> 2,316,472
<TOTAL-REVENUES> 2,316,472
<CGS> 1,795,780
<TOTAL-COSTS> 1,795,780
<OTHER-EXPENSES> 813,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,872
<INCOME-PRETAX> (482,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (482,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (482,763)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0

</TABLE>