<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                                WASHINGTON, D.C.

                                   FORM 10-KSB

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

         For the Fiscal Year Ended December 31, 1997

                         Commission File Number: 0-19471

                          PAN ENVIRONMENTAL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Delaware                                                    91-1632888
-------------------------------                             -------------
(State or other jurisdiction of                             (IRS Employer
incorporation or organization)                              Identification No.)

                            19239 Aurora Avenue North
                            Shoreline, WA 98133-3930
                    ----------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

Registrant's telephone number, including area code: (206) 546-9660
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, 
                                                            $.001 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, 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. [ ] 

There was no revenue for the fiscal year ended December 31, 1997.

As of December 31, 1997, the aggregate number of shares of Common Stock held by
non-affiliates was 752,565 shares. For purposes of this disclosure, shares of
Common Stock held by persons who hold more than 10% of the outstanding shares of
Common Stock and shares held by officers and directors of the registrant have
been excluded because these persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes. Since there was no established market for the registrant's Common
Stock, the registrant cannot estimate the market value for such shares. See Item
5.

As of December 31, 1997, the aggregate number of shares outstanding of the
registrant's Common Stock was 3,188,163.

Documents incorporated by reference:  None.


<PAGE>   2
                                TABLE OF CONTENTS


                                     PART I

<TABLE>
<S>               <C>                                                            <C>
Item 1.           Business                                                        3
Item 2.           Properties                                                     12
Item 3.           Legal Proceedings                                              12
Item 4.           Submission of Matters to a Vote Security Holders               12


                                     PART II

Item 5.           Market for Common Equity and Related Stockholder Matters       13
Item 6.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                      15
Item 7.           Financial Statements                                           18
Item 8.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Matters                                          18


                                    PART III

Item 9.           Directors, Executive Officers, Promoters and Control Persons
                  Compliance with Section 16(a) of the Exchange Act              19
Item 10.          Executive Compensation                                         20
Item 11.          Security Ownership of Certain Beneficial Owners and
                  Management                                                     20
Item 12.          Certain Relationships and Related Transactions                 22
Item 13.          Exhibits                                                       24
</TABLE>


<PAGE>   3
                                     PART I

ITEM 1.           BUSINESS

General

         Until December 31, 1994, PAN Environmental Corporation, a Delaware
corporation (the "Company"), supervised the operations of businesses engaged in
the reclamation, remediation, and recycling of industrial waste materials and
by-products. The Company provided its operating companies with accounting,
planning, budgeting and other administrative services. The Company also provided
technical environmental management support to each of its operating companies.

         Prior to January 2, 1995, the Company had acted as a holding company,
with all daily operations and revenue generation occurring at the operating
subsidiary level. The Company employed two persons and had offices in Seattle,
Washington.

         The Company undertook a comprehensive program of business restructuring
and debt reduction due to the failure of equity financing efforts undertaken in
1994. The Company completed the divestiture of all of its subsidiaries on
January 2, 1995. There were no revenues from the divested companies during
January 1995.

         Advantage Parking Lot Service, Inc. ("Advantage"), a subsidiary engaged
in the manufacture and sale of asphalt-based slurry sealants since 1986, was
sold to its principal officer, Ronald Williams, effective January 2, 1995. Mr.
Williams was the founder and principal shareholder of Advantage prior to its
March 1993 acquisition by the Company. The terms of the agreement with Williams
included a write-off by the Company of $166,000 advanced to Advantage by the
Company and a return to the Company's treasury of 183,722 shares of the
Company's common stock held by Williams. Advantage operated a slurry sealer
manufacturing plant in Fontana, California and in 1993 and 1994 completed a
major plant expansion, subject to a large amount of encumbering debt. When the
Company lost its financing with Credit Lyonnais in 1994, it could not finance
nor bond any of Advantage's projects and therefore the subsidiary became a
burden to the Company. Advantage ceased operations immediately upon being
reacquired by Ronald Williams.

         MRR Construction Services, Inc. ("MRR") performed environmental
construction management and construction activities, as well as soil remediation
activities, throughout Southern California, throughout 1993. When the Company
lost its financing with Credit Lyonnais in 1994, it could not finance nor bond
any of MRR's projects and therefore the subsidiary became a burden to the
Company. MRR was sold to Roaul Wheeler, in exchange for forgiveness of a $50,000
advance owed to MRR by the Company. During 1994, MRR became embroiled in a
significant litigation matter on a project in Cerritos, California. As a result
of this


                                        3


<PAGE>   4
litigation, and a lack of working capital, MRR suspended its operations in the
third quarter of 1994, and had not resumed operations prior to its divestiture
by the Company.

         Northwest Specialties, Inc. ("Northwest") had reclaimed timber and
commodity metals, primarily from obsolete railroad telecommunications and
signaling systems in the Midwest, Rocky Mountain and Eastern regions of the
United States, since 1993. Northwest operated on active and inactive railroad
right-of-ways, extracting utility poles, wire and other metal salvage. The
poles, other timber products, wire and other metals were then sorted, graded,
and processed for resale. Northwest completed approximately 65% of an 800 mile
project in North Dakota for Canadian Pacific Railroad and had several projects
under contract for large regional and short-line railroads. Northwest had
significantly reduced the seasonality of its work during 1994 by expanding its
reclamation activities into regions with less severe winter weather conditions.
Northwest employed nine persons. When the Company lost its financing with Credit
Lyonnais in 1994, it could not finance nor bond any of Northwest's projects and
therefore the subsidiary became a burden to the Company. Northwest was sold back
to Orland Howard in exchange for the forgiveness by Northwest of a contingent
liability to the Company to finance operations of Northwest, estimated to be
approximately $300,000.

         The Company undertook to acquire the stock of Glengarry Investment Fund
Company on September 30, 1994. The Company purported to enter into the
acquisition and issued 1,003,334 shares of Class A Series Preferred Stock on
that date. Subsequent to that date, as a result of investigations undertaken by
the Company, it came to light that the signatory signing on behalf of a 40%
shareholder of Glengarry was not authorized to sign on the shareholder's behalf.
In subsequent negotiations, that shareholder declined to agree to the exchange
of its share holdings in Glengarry for Class A Series Preferred shares of the
Company. As a result of subsequent negotiations, the agreement was amended and
ratified by the remaining shareholders of Glengarry. On March 3, 1995, the
Company thought it had completed the acquisition of a 60% interest in Glengarry
in exchange for 620,000 shares of its Class A Series Preferred stock; however,
Glengarry subsequently voided the acquisition in its entirety, and all Preferred
shares issued were cancelled. Glengarry is a real estate company, organized in
May 1993 to own and develop residential and commercial income properties and
vacant land.


Attempted Acquisition of Oil and Gas Properties

         In November and December 1995, the Company attempted to acquire oil and
gas properties in a business combination agreement with Maximum Resources, Inc.
("Maximum"), a Vancouver Stock Exchange company, and two other companies, NP
Energy Corporation ("NP"), a U. S. over the counter electronic bulletin board
(OTCBB) company, and Polaris Equities, Inc. ("Polaris"), a U. S. private
company.


                                        4


<PAGE>   5
         The business combination agreement would have taken the following form:
each of the above three oil and gas companies would set up a U. S. subsidiary
into which they would vend in selected oil and gas properties. These three
subsidiaries would then be acquired in a reverse takeover transaction wherein
the Company would issue 4,000,000 new restricted Rule 144 common shares each to
Maximum, NP and Polaris in exchange for acquiring one hundred percent (100%) of
the issued and outstanding common shares of their three U. S. subsidiaries.

         Since the Company did not have the necessary funds to do its
accounting, audits, 10-Q's, 10-K's and legal work, Maximum, NP and Polaris
agreed to advance the necessary funds to complete the work. In March and April
1996, Maximum, NP and Polaris defaulted on their obligations to advance the
necessary funds and the proposed business combination agreement was never
consummated.


Settlement Agreement and Cancellation of 1994 Stock Option Plan

         In August 1994, the shareholders of the Company adopted the 1994 Stock
Option Plan, canceling and superseding all prior stock option plans. The Plan
permitted the Compensation and Stock Option Committee to issue options for up to
3,500,000 shares of common stock at various prices for purposes of compensation
for services rendered by officers, employees, directors and consultants to the
Company and its subsidiaries. As of December 31, 1994, the Company had issued
3,102,000 options, including 100,000 at $0.001 per share and 3,002,000 at $0.55
per share. The Plan generally provided for these options to be exercisable for a
period of ten years from the date of grant.

         This Plan was cancelled in 1995. Thereafter the Board of Directors
authorized issuance of 720,000 Rule 144 restricted shares to be issued,
effective January 2, 1996, pursuant to a December 5, 1995 Settlement Agreement,
pro rata to the participants in the Stock Option Plan in exchange for the
participants giving up all right, title and interest in any accrued salary,
accrued employee benefits, whether separate or under an employee benefit plan,
accrued commissions or fees, reimbursements, stock options, contracts,
agreements or any other relationship due from or with the Company.


Search for Suitable Acquisitions

         As a result of its divestitures, the Company substantially reduced its
overall debt load and its operating expenses, however it was left with no assets
and no revenue-producing business activities. The Company focused its attention
during 1995, 1996 and 1997 upon the acquisition of a company or companies with
sufficient capital to sustain the acquired operations, so as to improve its
business prospects before returning to the equity markets. During 1995, 1996 and
1997, the Company was unable to locate or consummate any suitable acquisitions.


                                        5


<PAGE>   6
         The Company will continue to seek, investigate, and, if warranted,
acquire an interest in a business opportunity. The Company does not propose to
restrict its search for a business opportunity to any particular industry or
geographical area and may therefore engage in essentially any business in any
industry. Business opportunities available to the Company may be in the form of
companies which have recently commenced operations or with established
operations, which desire to establish a public trading market for their common
stock. Because of rapid technological advances being made in certain industries
and shortages of available capital, management believes that there are numerous
business entities seeking the benefits of a publicly-traded corporation. The
perceived benefits of a publicly-traded corporation may include facilitating or
improving the terms upon which additional equity financing may be sought,
providing liquidity for the needs of principal shareholders, creating a means
for providing incentive stock options or similar benefits to key employees and
other factors.

         The selection of a business opportunity in which to participate is
complex and extremely risky and may be made on management's analysis of the
quality of the other company's management and personnel, the anticipated
acceptability of new products or services, the merit of technological changes,
and numerous other factors which are difficult to analyze through the
application of any objective criteria. Consequently, the Company's potential
success is heavily dependent on the Company's management, which will have
virtually unlimited discretion in searching for and entering into an acquisition
of an interest in a business opportunity. There is no assurance that the Company
will be able to identify and acquire any business opportunity which will
ultimately prove to be beneficial to the Company and its shareholders. It is
anticipated that business opportunities will be available to the Company from
various sources, including its officers and directors, professional advisors
such as attorneys and accountants, securities broker-dealers, venture
capitalists, members of the financial community, and others who may present
unsolicited proposals.

         In implementing a structure for a particular business acquisition, the
Company is likely to become party to a merger or other business reorganization
with another corporation. Generally, when a public company combines with an
existing private company, the transaction is accomplished through a
reorganization in which the companies merge or the shareholders of the public
company ultimately receive a minority interest in the combined companies. As a
result, if a transaction of this nature were consummated, it is likely that the
present management and shareholders of the Company will not be in control of the
Company. In addition, a majority or all of the Company's directors are likely
to, as part of the terms of the acquisition transaction, resign and be replaced
by new directors without a vote of the Company's shareholders. Furthermore, the
board of directors acting without shareholder approval, has authority to issue
any part or all of the authorized but unissued common stock of the Company.

         Consequently, the current business of the Company is to provide a
mechanism to take advantage of business opportunities which management


                                        6


<PAGE>   7
believes may arise from time to time. On occasion, the Company enters into
discussions with the principals of potential opportunity companies. The Company
recently entered into preliminary discussions with an existing private business
involved in providing wholesale services on the Internet. If these discussions
result in an agreement, of which there is no assurance, it is anticipated that
the acquisition would be structured as discussed in the preceding paragraph, and
that the shareholders of the Company would receive a minority interest in the
combined companies.

         THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-KSB CONTAIN FORWARD-LOOKING STATEMENTS WHICH MAY INVOLVE RISKS AND
UNCERTAINTIES OR DEAL WITH POTENTIAL FUTURE CIRCUMSTANCES AND DEVELOPMENTS. THE
COMPANY'S ACTUAL RESULTS OR FUTURE EXPERIENCE MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS OR POTENTIAL DEVELOPMENTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
THE COMPANY HAS ATTEMPTED TO IDENTIFY CERTAIN OF THE FACTORS THAT IT CURRENTLY
BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO DIFFER FROM ITS
CURRENT EXPECTATIONS REGARDING THE RELEVANT MATTER OR SUBJECT AREA. FACTORS THAT
MIGHT CAUSE THIS DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS
DISCUSSED IN THIS BUSINESS SECTION INCLUDING "ADDITIONAL RISK FACTORS AFFECTING
FUTURE PERFORMANCE" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS."


Accounting, Financial Statements and Debt Settlements

         During the last quarter of 1997, the Company worked to complete all
documentation necessary to bring the Company into compliance with SEC
requirements as a reporting company. This included finishing all accounting for
1994, 1995, 1996 and 1997; preparing quarterly financial statements for the
quarters ended March 31, June 30 and September 30, of 1995, 1996 and 1997; and
obtaining certified audits of the yearly financial statements for the years
ended December 31, 1994, 1995, 1996 and 1997. In addition, the Company is
working diligently at completing settlement agreements with creditors of the
Company so that it would be possible to locate and consummate a suitable
acquisition.


Common Share Issuances for Debt Settlements, Services or Financings

         Bristol Media, Ltd. is a dba of TCKTS, L.L.C., a business entity of
which Clifford M. Johnston is a principal. In March 1996 the Company issued an
aggregate total of 180,000 shares of restricted common stock to Clifford M.
Johnston or Bristol Media, Ltd., to be used to negotiate settlements with
various creditors of the Company. Mr. Johnston intends to use the stock to
obtain settlements with judgment creditors Kenneth Williams, Robert Bickel and
John Douthwaite as indicated in the following two paragraphs.


                                        7


<PAGE>   8
         In March 1997 the Company issued 50,000 common shares of restricted
Rule 144 common stock to Clifford M. Johnston for consulting services. Mr.
Johnston intends to use the shares to negotiate settlements with Kenneth
Williams and Robert Bickel, judgment creditors of the Company in the amounts of
$121,809 and $122,709 respectively. Mr. Williams has agreed to settle for 25,000
shares, but Mr. Bickel has not. Negotiations are ongoing.

         In March 1997 the Company issued 130,000 shares of restricted Rule 144
common stock to Bristol Media, Ltd. Bristol intends to use the shares to settle
with John Douthwaite dba MarketArt, a judgment creditor of the Company in the
amount of $8,000. The settlement agreement for this transaction, subject to the
issuance of the shares, was executed on March 26, 1997; however, since the
shares were not issued by September 26, 1997 as agreed, the settlement amount is
now in question. Bristol will continue its negotiations and/or legal efforts.

         In December 1997 the Company issued 160,000 shares of restricted Rule
144 common shares to Stephen M. Roake IRA and to Bristol Media, Ltd. The Company
agreed to issue 60,000 shares to Roake for $15,000 cash and 100,000 shares to
Bristol for consideration of $25,000 consisting of cash paid on behalf of the
Company or for services rendered to the Company. The $40,000 of consideration
was used for legal fees, accounting fees, past audit fees, current audit fees,
transfer agent fees and payment of small cash loans to the Company. This
consideration of $40,000 is expected to be sufficient to enable the Company to
obtain certified audits for 1994, 1995, 1996 and 1997 and to file all 10-K's and
10-Q's from 1994 through December 31, 1997 to bring the Company current with the
SEC in its reporting requirements.

         In January 1996 the Company issued 450,000 shares of restricted Rule
144 common stock in escrow to Douglas Millard, Escrow Agent, for the purpose of
paying off or settling $225,000 of accrued trade debt, accrued taxes payable and
accrued interest. In December of 1997 the Company agreed to use 189,804 shares
of the 450,000 shares for the purpose of settling out $94,902 of accrued
interest owed to Stephen M. Roake IRA, and in preventing the accrual of any
further interest as discussed in Item 3 below.


ADDITIONAL RISK FACTORS AFFECTING FUTURE PERFORMANCE

Absence of Revenue-Producing Operations

         The Company has produced no revenues during the last three fiscal years
and is seeking to acquire an interest in a business opportunity. If a business
combination is consummated, the Company will be subject to all the risks of the
acquired business, which may be a start-up or developmental-stage corporation.
Any purchase of securities of the Company during this stage of its development
must be seen as speculative, along with the placing of funds at a high risk in
an


                                        8


<PAGE>   9
undetermined or start-up venture with all of the unforeseen costs, expenses,
problems and difficulties to which the future business may be subject.


No Assurance of Acquisition or of Profitability

         There can be no assurance that the Company will be able to acquire or
enter into a business opportunity, or, if a business acquisition is consummated,
that the business can be operated profitably or develop into a successful
business. Profitability will depend on many factors, including the success of
the Company's marketing program, the control of expense levels and the success
of the Company's business activities.


Dependence upon Inexperienced, Part-time Management

         The Company's management has had limited experience in seeking,
investigating or acquiring interests in business opportunities. The selection of
a business opportunity in which to participate is complex and extremely risky
and will be made on management's analysis of the quality of the other company's
management and personnel, the anticipated acceptability of new products or
services, the merit of technological changes, and numerous other factors which
are difficult to analyze through the application of any objective criteria. The
Company's potential success and its shareholders are dependent on the Company's
management, which will have virtually unlimited discretion in searching for and
entering into an acquisition of an interest in a business opportunity.
Additionally, the directors of the Company may be involved in other business
activities which compete for their time, and will devote only such time as they
deem necessary to manage the business of the Company.


Lack of Opportunity for Shareholders to Evaluate Details of Acquisition

         The proposed business acquisition transaction is expected to be
accomplished through a reorganization in which the companies merge or the
shareholders of the Company ultimately receive a minority interest in the
combined companies. The board of directors acting without shareholder approval,
has authority to issue any part or all of the authorized but unissued common
stock of the Company. As a result, shareholders will be unable to evaluate for
themselves the economic merit of the investments that the Company may make.


Loss of Control of Company by Shareholders

         The Company may elect to acquire an interest in a business opportunity
through a business reorganization involving the issuance by the Company of
additional shares of common stock. Although shareholder approval would be


                                        9


<PAGE>   10
required to authorize additional shares, the board of directors, acting without
shareholder approval has authority to issue any part or all of the authorized
but unissued stock of the Company. It is likely that shares representing a
majority of the issued and outstanding common stock of the Company will be
issued to the shareholders of the business to be acquired. If issued, the
percentage of ownership of the Company by present shareholders will be reduced,
and existing shareholders will not be in control of the Company.


Lack of Continuity of Management

         A majority or all of the Company's officers and directors are likely
to, as part of the terms of the acquisition transaction, resign and be replaced
by new directors without a vote of the Company's shareholders. Accordingly,
shareholders will be relying not only on the present management of the Company,
but also on the successors who may be designated and appointed by present
management.


Impracticality of Exhaustive Investigation

         The lack of Company funds and of full-time management will likely make
it impracticable to conduct a complete and exhaustive investigation and analysis
of a business opportunity before the Company has committed its resources.
Management's decisions will likely be made without detailed feasibility studies,
independent analyses, and market surveys, which would be desirable if the
Company had funds available.


Lack of Diversification

         The limited resources of the Company make it unlikely that the Company
will be able to acquire an interest in more than one business opportunity.
Accordingly, the Company will be subject to the risks associated with lack of
diversification. Shareholders in the Company should understand that the success
or failure of any business opportunity acquired by the Company will have a
substantial effect on the Company.


Financial Statement Reporting Requirements

         The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act") and is required to file
certain information about significant acquisitions, including audited financial
statements for the company acquired for one or two year periods, depending on
the size of the acquisition. Consequently, acquisition prospects that are unable
to obtain the required audited financial information may not be appropriate for
the Company as


                                       10


<PAGE>   11
long as the Company is subject to the Exchange Act, and management will be
limited in its selection of a business opportunity.


Possible Need for Future Financing

         Even if a business combination or acquisition is successfully
completed, there can be no assurance that the working capital of the Company, if
any, will be sufficient to successfully implement the Company's business plan or
meet its financing requirements. In addition, the Company may experience rapid
growth after commencing its new operations and may require additional funds to
expand its operations or enlarge its organization. There can be no assurance
that additional financing will be available when needed or on terms favorable to
the Company. Subsequent financing may further reduce the percentage of ownership
of the Company held by present shareholders.


No Present Market for Securities

         There is presently a limited market for the Company's securities.
Although the Company intends, if possible, to establish a more active trading
market on the NASD Electronic Bulletin Board, there can be no assurance that an
active trading market for the Company's securities will be developed or
maintained, or that shares of the Company's common stock may be resold at any
price.


Risk of Possible Internet Business and Technological Obsolescence

         The Company recently entered into preliminary discussions with an
existing private business involved in providing wholesale services on the
Internet. If these discussions result in an agreement, of which there is no
assurance, the Company could enter an emerging market subject to rapid
technological change. The Internet is rapidly evolving and is characterized by
an increasing number of market entrants who have introduced or developed
products and services for communication and commerce. As is typical in the case
of a new and rapidly evolving industry, demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty. The industry is young and has few proven products. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use, access, and quality of service) remain
unresolved and may impact the growth of Internet use. There can be no assurance
that commerce and communication over the Internet will become widespread, or
that any business acquired by the Company related to Internet traffic will
succeed.

         For example, the Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone or timely development of complementary


                                       11


<PAGE>   12
products, such as high speed modems. There can be no assurance that the
infrastructure or complementary products necessary to make the Internet a viable
commercial marketplace will be developed, or if developed, that the Internet
will become a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, any proposed Internet business will be unlikely
to succeed.


ITEM 2.           PROPERTIES

         The Company had no assets nor any property, other than the shares
issued to settle out previous option-holders of PAN and the shares issued in
escrow to settle out debt.

         Since May 1996, the Company has utilized office space at the offices of
Valhalla Financial Group, L.L.C. Valhalla was previously at 6912-220th Street
SW, Mountlake Terrace, Washington 98043, and since September 1997 is located at
19239 Aurora Avenue North, Shoreline, Washington 98133. To date, the Company has
used this space free of charge and anticipates that it will continue to do so in
the foreseeable future, or until a business acquisition is consummated.


ITEM 3.           LEGAL PROCEEDINGS

         A shareholder of the Company sued the Company in March 1995 for a
default of the company's share repurchase agreement and obtained a default
judgment against the Company of $200,909. The Company, through Valhalla
Financial Group, L.L.C., has worked out a settlement of this matter for $225,000
through a proposed sale of the 150,000 shares owned by the shareholder which
underlie the share repurchase agreement. Under the terms of the settlement
agreement and extension thereof, the proceeds of the proposed sale must be
received by the shareholder by December 31, 1998 for the judgment to be
satisfied. At the end of 1997, the Company agreed to use 189,804 shares of the
450,000 shares issued to Douglas Millard, Escrow Agent, for the purpose of
settling out $94,902 of accrued interest owed to Stephen M. Roake IRA, and in
preventing the accrual of any further interest.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

         No matters were submitted to the shareholders during 1997.


                                       12


<PAGE>   13
                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

         There is no established trading market for shares of the company's
Common Stock. Although the Company's Common Stock is quoted on the OTC Bulletin
Board from time to time, such quotations are limited, sporadic and often
volatile. Accordingly, shareholders may find it difficult to dispose of, or to
obtain accurate quotations as to the price of the Common Stock. In addition, the
Common Stock is subject to "penny stock" rules that impose restrictive sales
practice and market making requirements on broker-dealers who sell and/or make a
market in the Common Stock. This may affect the willingness of broker-dealers to
sell and/or make a market in the Common Stock as well as the ability of
shareholders to sell the Common Stock in the secondary market. The following
table sets forth the quarterly high and low bid prices for the Company's Common
Stock during 1996 and 1997. Quotations set forth below reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions. As of December 31, 1997 there were approximately 325
holders of record of the Company's Common Stock.


<TABLE>
<CAPTION>
Quarter                    Year             High              Low
-------                    ----             ----              ---
<S>                        <C>              <C>               <C> 
Jan-Mar                    1996             .125              .125
Apr-Jun                    1996             .130              .125
Jul-Sep                    1996             .063              .063
Oct-Dec                    1996             .125              .063
Jan-Mar                    1997             .125              .125
Apr-Jun                    1997             .313              .125
Jul-Sep                    1997             .313              .063
Oct-Dec                    1997             .270              .094
</TABLE>


Dividends

         No dividends on Common Stock of the Company have been paid and no such
payment is anticipated in the foreseeable future.


Recent Sales of Unregistered Securities; Use of Proceeds from Sales of
Unregistered Securities

1995

         On November 1, 1995, the Company sold 28,000 shares of its Common Stock
for aggregate cash consideration of $7,000. The issuance of these shares


                                       13


<PAGE>   14
was deemed exempt from the registration provision of the Securities Act in
reliance upon Section 4(2) of the Securities Act, as a transaction by an issuer
not involving a public offering.

         On December 1, 1995 the Company issued 22,000 shares of its Common
Stock for services rendered at a deemed value of $11,000 to Valhalla Financial
Group, L.L.C. The services rendered were for consulting fees incident to the
Company's proposed acquisition of oil and gas properties. The issuance of these
shares was deemed exempt from the registration provision of the Securities Act
in reliance upon Section 4(2) of the Securities Act, as a transaction by an
issuer not involving a public offering.

1996

         On January 2, 1996, the Company issued 116,000 shares of its Common
Stock for services rendered at a deemed value of $58,000 to Jerry Cornwell. The
services rendered were for past services rendered to the Company as CEO of the
Company. The issuance of these shares was deemed exempt from the registration
provision of the Securities Act in reliance upon Section 4(2) of the Securities
Act, as a transaction by an issuer not involving a public offering.

         On January 2, 1996, the Company issued 168,436 shares of its Common
Stock for consideration of $84,218 to Jerry Cornwell. The stock was issued to
settle out a cash loan by Jerry Cornwell to the Company in 1993 and 1994 which
was used for working capital. The issuance of these shares was deemed exempt
from the registration provision of the Securities Act in reliance upon Section
4(2) of the Securities Act, as a transaction by an issuer not involving a public
offering.

         On January 2, 1996, the Company issued 155,600 shares of its Common
Stock for an aggregate cash consideration of $77,800 to Bristol Ltd. The stock
was issued to settle out a cash loan to the Company in 1993 in the amount of
$17,800 and for services rendered to the Company in the amount of $60,000 for
consulting fees incident to the corporate reorganization in early 1993. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.

         On January 2, 1996, the Company issued 450,000 shares of its Common
Stock into escrow for debt settlement at a deemed value of $225,000 to Douglas
Millard, Escrow Agent. The shares were issued for the purpose of settling out
accrued trade debt, accrued taxes payable and $94,902 of accrued interest. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.

         On February 2, 1996, the Company issued 31,318 shares of its Common
Stock for services rendered to the Company at a deemed value of $15,659 to


                                       14


<PAGE>   15
Valhalla Financial Group, L.L.C. The stock was issued for services rendered to
the Company incident to a proposed acquisition of oil and gas properties. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.

1997

         On February 25, 1997, the Company issued 50,000 shares of its Common
Stock for debt settlement at a deemed value of $25,000 to Clifford M. Johnston.
The stock was issued for purposes of settling out judgments against the Company
obtained by Robert Bickel in the amount of $122,709 and by Ronald Williams in
the amount of $121,809. The issuance of these shares was deemed exempt from the
registration provision of the Securities Act in reliance upon Section 4(2) of
the Securities Act, as a transaction by an issuer not involving a public
offering.

         On March 26, 1997, the Company issued 130,000 shares of its Common
Stock for debt settlement of a judgment against the Company to Bristol Media,
Ltd. The stock was issued for purposes of settling out a judgment against the
Company obtained by John Douthwaite in the amount of $8,000. The issuance of
these shares was deemed exempt from the registration provision of the Securities
Act in reliance upon Section 4(2) of the Securities Act, as a transaction by an
issuer not involving a public offering.

         On December 11, 1997, the Company 160,000 shares of its Common Stock
for an aggregate consideration of $40,000 to Stephen M. Roake IRA (60,000
shares) and to Bristol Media, Ltd (100,000 shares). The consideration of $40,000
was used for legal fees, accounting fees, past audit fees, current audit fees,
transfer agent fees and payment of small cash loans to the Company. The issuance
of these shares was deemed exempt from the registration provision of the
Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.


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

         The Company has produced no revenues during the last three fiscal years
and is seeking to acquire an interest in a business opportunity. If a business
combination is consummated, the Company will be subject to all the risks of the
acquired business, which may be a start-up or developmental-stage corporation.
If a business acquisition is consummated, there can be no assurance that the
business can be operated profitably or develop into a successful business.
Profitability will depend on many factors, including the success of the
Company's marketing program the control of expense levels and the success of the
Company's business activities. The Company may incur substantial operating
losses after the proposed business acquisition. The Company's ability to
continue its operations is


                                       15


<PAGE>   16
also dependent upon the availability of additional capital.  See "Liquidity and
Capital Resources".

         The results of operations for the year ending December 31, 1997 reflect
an operating loss of $118,062, compared to a loss of $117,695 for the year
ending December 31, 1996. Included in the $118,062 loss were the $70,611 in
losses recorded due to shares issued for consulting fees incident to the
Williams and Bickel settlements, to shares issued incident to the Douthwaite
settlement, to legal and accounting expenses incident to certified audits and
preparation of 10-K's and 10-Q's, increased expenses due to the correction of
accounts payable amounts, and $47,451 in accrued interest on the $200,909
default judgment obtained against the Company for a default in a share
repurchase agreement with a shareholder of the Company.

         Included in the $117,695 loss for December 31, 1996 were the $61,541 in
losses recorded due to expenses for services rendered incident to attempts to
acquire oil and gas properties in late 1995 and early 1996 and $47,451 in
accrued interest on the $200,909 default judgment obtained against the Company
for a default in a share repurchase agreement with a shareholder of the Company.

         The accumulated deficit at December 31, 1997 was $1,598,674, compared
to $1,480,612 at December 31, 1996. The Company sponsored no research and
development during fiscal 1997, 1996 or 1995. The rate of inflation as measured
by changes in the consumer price index had no effect on the revenues or net
earnings of the Company in its two most recent fiscal years.

         There was no provision for federal income tax for the years ended
December 31, 1997, 1996, 1995 or 1994 as the Company incurred net operating
losses.


Liquidity and Capital Resources; Plan of Operation

         As of December 31, 1997, the Company had no cash reserves or cash
equivalents. During the last two fiscal years, the Company has financed itself
through the issuance of common stock and through capital contributions from
certain shareholders. At December 31, 1997, the Company had no current assets
and current liabilities of $762,851, resulting in a working capital deficiency
of $762,851. This can be compared to no current assets and current liabilities
of $718,788 at December 31, 1996, and a working capital deficiency of $718,788.

         Current liabilities include judgments payable totaling $453,427. See
"Legal Proceedings" and Notes to Financial Statements.

         In light of the Company's significant working capital deficiency, the
Company's independent auditor included an explanatory paragraph in his audit
opinion with respect to the Company's 1997 financial statements which indicated
substantial doubt about the Company's ability to continue as a going concern.
Due


                                       16


<PAGE>   17
to the plans of the Company to acquire a business entity having sufficient
assets and cash flow to enable the Company to be self-sufficient and to raise
additional working capital through equity financing, the financial statements
were prepared on the assumption that the Company would continue its operations
as a going concern, rather than based on the assumption of liquidation. The
factors leading to, and the existence of, the explanatory paragraph may
materially adversely affect the Company's ability to acquire a business entity
or obtain financing.

         The Company is attempting to settle with certain of its creditors
through the issuance of common stock. However, the Company's ability to satisfy
its debt obligations and settle with judgment creditors may ultimately depend
upon the future operating performance of an acquired business entity, the
performance of which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
There is no assurance that the Company's operating cash flow will be sufficient
in the near term to meet its operating expenses or to service debt requirements
as they become due. Furthermore, there can be no assurance that the Company will
be able to acquire a business entity having sufficient assets and cash flow to
enable the Company to be self-sufficient.

         If the Company is unable to settle with its creditors or service its
indebtedness, or acquire a solvent business entity, it will be forced to adopt
an alternative strategy that may include actions such as restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all, and the implementation of any of these alternative strategies
could have a negative impact on the Company's operations, financial condition,
and capital structure, and may be dilutive to existing stockholders.

         The Company has no bank line or credit arrangements. Subsequent to a
business acquisition, if any, the Company's losses may continue. There can be no
assurance that the Company will ever achieve profitability. Whether or not a
business acquisition is completed, it is likely that the Company will require
additional capital to fund its operations. If equity financing is attempted,
there can be no assurance that additional financing will be available when
needed or on terms favorable to the Company.

         If a business acquisition is consummated, the Company's actual working
capital needs will then depend upon numerous factors, including the extent and
timing of acceptance of the Company's products in the market, the Company's
operating results, the progress of the Company's research and development
activities, the cost of increasing the Company's sales and marketing activities,
the status of competitive products, and the continued availability of working
capital and equity financing, none of which can be predicted at this point in
time.

         The inability to locate a business acquisition or obtain financing
would have a material adverse effect on the Company's operations. The Company
could be


                                       17


<PAGE>   18
required to suspend its operations or sell additional securities on terms that
are highly dilutive to current investors in the Company.


ITEM 7.           FINANCIAL STATEMENTS

         Attached hereto and incorporated herein by this reference are audited
financial statements for the fiscal years ending December 31, 1997, 1996 and
1995.


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

         Terrence J. Dunne, CPA, Suite 900 Washington Trust Building, West 717
Sprague, Spokane, Washington 99204 retained in 1993 as auditor of this
corporation resigned and declined to continue as the Company's auditor for 1994
and succeeding years. The former accountant's report for the fiscal year ended
December 31, 1993 contained a qualification in which the auditor expressed
uncertainty about the Company's ability to continue as a going concern.

         There were no reportable disagreements with the former accountant on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.

         The resignation of Mr. Dunne and appointment of William L. Butcher,
CPA, P. O. Box 1035, Lynnwood, Washington 98046-1035, as auditor for the
corporation for 1994 and succeeding years effective November 1997 was approved
by the Board of Directors.


                                       18


<PAGE>   19
                                    PART III

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

Directors, Executive Officers, Promoters and Control Persons

         The directors and executive officers of the Company as of December 31,
1997 were as follows:


<TABLE>
<CAPTION>
Name                                Age     Position
----                                ---     --------
<S>                                 <C>     <C>
Jerry Cornwell                      59      President, Chief Executive Officer and Director
Roaul L. Wheeler                    70      Secretary, Treasurer and Director
</TABLE>


         Officers are appointed by and serve at the pleasure of the Board of
Directors. There are no family relationships between any director or officer of
the Company, nor are there any arrangements or understandings between any
director or officer and any other person pursuant to which such director or
officer was elected to serve. The named officers and directors devote only such
time as may be necessary to the company's business and affairs.

         Jerry Cornwell was President and Chief Executive Officer of the Company
from January 1993 until March 15, 1995 when Dennis Brewer was appointed
President and Chief Executive Officer. Mr. Cornwell reassumed his position as
President and Chief Executive Officer on June 19, 1995 when Dennis Brewer
resigned. For the prior ten years, he was principal of Corn-Mill Enterprises, a
business investment advisory firm. Mr. Cornwell was previously President and
Chief Executive Officer of J. A. Cornwell, Inc., a land reclamation and
irrigation development firm, from 1975 to 1983.

         Roaul L. Wheeler has served as Director and Secretary of the Company
since March 1994. Mr. Wheeler also assumed the duties of Treasurer in February
1995 upon the resignation of Ronald E. Williams. Previously, Mr. Wheeler served
as Vice President of Phoenix Construction Services, Inc., a privately held
construction management firm operating in Southern California. Prior to that,
Mr. Wheeler was an asphalt sealing and paving contractor for more than twenty
years.


Compliance with Section 16(a) of the Exchange Act

         Based solely on review of the copies of the forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that Clifford M. Johnston
failed to file 2 monthly reports covering 3 transactions on Form 4, but did
report the


                                       19


<PAGE>   20
transactions on his 1997 year end report on Form 5; and that Jerry Cornwell
failed to file 2 monthly reports covering 2 transactions but did report the
transactions on his 1997 year end report on Form 5.


ITEM 10.          EXECUTIVE COMPENSATION

         During fiscal year ended December 31, 1997, Jerry Cornwell was issued
116,000 restricted Rule 144 common shares authorized on January 2, 1996 at a
stated value of $0.50 per share for $58,000 in past services rendered. No other
executive officer's salary and bonus exceeded $10,000 during any of the
company's last three fiscal years.

         There were no cash bonus, deferred compensation plans, or stock option
plans in effect at December 31, 1997. The Company does not maintain or
contribute to any pension or retirement plan in which the directors or executive
officers of the Company are participants or are entitled to receive benefits,
but the Board of Directors may recommend one or more programs for adoption in
the future. No stock options were issued by the Company in 1997.

         Directors received no cash compensation for serving on the Board of
Directors or its committees during the year ended December 31, 1997.

         The Company had no obligations under any executive compensation
agreements as of December 31, 1997.

                           Summary Compensation Table


<TABLE>
<CAPTION>
Name and                                                      Option           Other
Principle Position         Year             Salary            Grants           Compensation
------------------         ----             ------            ------           ------------
<S>                        <C>              <C>               <C>              <C>
Jerry Cornwell             1997               -0-              -0-                -0-
President, CEO             1996               -0-              -0-             $58,000
                           1995               -0-              -0-                -0-
</TABLE>


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of December 31, 1997, the beneficial
ownership of Common Stock of all directors of the Company, all directors and
officers of the Company as a group, and each person who is known to the Company
to own beneficially more than 5% of the Company's Common Stock.


                                       20


<PAGE>   21
<TABLE>
<CAPTION>
Name and Address                                     Amount / Nature                    Percent
of Beneficial Owner                                  of Ownership (1)                   of Class
-------------------                                  ------------                       --------
<S>                                                  <C>                                <C>   
Jerry Cornwell (2)                                    1,131,613                         35.49%
14424 SE 78th Way
Newcastle, WA  98059

Orland L. Howard                                        204,255                          6.41%
P. O. Box 206A
Rochert, MN  56578

Roaul L. Wheeler                                        149,746                          4.70%
P. O. Box 1423
Chino, CA  91708

Stephen M. Roake IRA                                    226,666                          7.11%
10650 Riviera Place NW
Seattle, WA  98125

Douglas Millard, Escrow Agent                           450,000                         14.11%
for debt settlement
3818 South Court Street
Seattle, WA  98144

Clifford M. Johnston (3)                                413,318                         12.97%
19111 3rd Avenue NW
Shoreline, WA  98133

All officers and directors
as a group                                            1,281,359                         40.19%
</TABLE>


(1) Pursuant to applicable rules of the Securities and Exchange Commission,
"beneficial ownership" as used in this table means the sole or shared power to
vote shares (voting power) or the sole or shared power to dispose of shares
(investment power). Unless otherwise indicated, the named individual has sole
voting and investment power with respect to the shares shown as beneficially
owned. In addition, a person is deemed the beneficial owner of those securities
not outstanding which are subject to options, warrants, rights or conversion
privileges if that person has the right to acquire beneficial ownership within
sixty days.

(2) Because of his sole or shared investment power over the Company's common
stock beneficially owned by the corporation and limited liability company, Jerry
Cornwell is deemed beneficial owner of the 295,096 shares owned by XXX
Enterprises Corp. and 385,600 shares owned by Bristol Media, Ltd.


                                       21


<PAGE>   22
(3) Because of his shared investment power over the Company's common stock
beneficially owned by the limited liability companies, Clifford M. Johnston is
deemed beneficial owner of the 133,318 shares owned by Valhalla Financial Group,
L.L.C. and 230,000 shares owned by Bristol Media, Ltd.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company issued 50,000 common shares of restricted Rule 144 common
stock to Clifford M. Johnston for consulting services. Mr. Johnston intends to
use the shares to negotiate settlements with Kenneth Williams and Robert Bickel,
judgment creditors of the Company in the amounts of $121,809 and $122,709
respectively. Mr. Williams has agreed to settle for 25,000 shares, but Mr.
Bickel has not. Negotiations are ongoing.

         The Company has issued 130,000 shares of restricted Rule 144 common
stock to Bristol Media, Ltd. Bristol intends to use the shares to settle out
John Douthwaite dba MarketArt, a judgment creditor of the Company in the amount
of $8,000. The settlement agreement for this transaction, subject to the
issuance of the shares, was executed on March 26, 1997; however, since the
shares were not issued by September 26, 1997 as agreed, the settlement amount is
now in question. Bristol will continue its negotiations and/or legal efforts.

         The Company has issued 160,000 shares of restricted Rule 144 common
shares to Stephen M. Roake IRA and to Bristol Media, Ltd. The Company agreed to
issue 60,000 shares to Roake for $15,000 cash and 100,000 to Bristol for
consideration of $25,000 consisting of cash paid on behalf of the Company or for
services rendered to the Company. The consideration of $40,000 was used for
legal fees, accounting fees, past audit fees, current audit fees, transfer agent
fees and payment of small cash loans to the Company. The consideration of
$40,000 is sufficient to enable the Company to obtain certified audits for 1994,
1995, 1996 and 1997 and to file all 10-K's and 10-Q's from 1994 through December
31, 1997 to bring the Company completely current with the SEC in its reporting
requirements. The Company will then seek an appropriate merger partner.

         In 1996, the Company issued 450,000 shares of restricted Rule 144
common stock in escrow to Douglas Millard, Escrow Agent, for the purpose of
paying off or settling $225,000 of accrued trade debt, accrued taxes payable and
accrued interest. At the end of 1997, the Company agreed to use 189,804 shares
of the 450,000 shares for the purpose of settling out $94,902 of accrued
interest owed to Stephen M. Roake IRA, and in preventing the accrual of any
further interest as shown in Item 3 above.


                                       22


<PAGE>   23
ITEM 13.          EXHIBITS

The following documents are filed as part of this report:

(1)      Exhibits.

         The exhibits required to be filed by this report are listed in the
         Exhibit Index on pages 24 and 25.


(2)      Audited Financial Statements for the years ended December 31, 1997,
         December 31, 1996, and December 31, 1995.


                                       23


<PAGE>   24
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
Number            Description
------            -----------
<S>               <C>
2.1               Plan of Reorganization and Merger of Aster Development Enterprises
                  Ltd. into PAN Environmental Services, Inc.  Reference is made to
                  Exhibit 1 of the Company's 8-K filed on March 25,1993 which is
                  incorporated herein by reference.

2.2               Plan of Reorganization between PAN Environmental Services,
                  Inc. and Northwest Specialties, Inc., a Minnesota corporation,
                  Advantage parking Lot Service, Inc., a California corporation,
                  and MRR Construction Services, Inc., a California corporation.
                  Reference is made to Exhibit 2 of the Company's 8-K filed on
                  March 25, 1993 which is incorporated herein by reference.

2.3               Divestiture Agreement between Pan Environmental Corporation and
                  Northwest Specialties, Inc.  Reference is made to Exhibit 2.3 of the
                  Company's 10-K for the year ended December 31, 1995 which is
                  incorporated herein by reference.

2.4               Divestiture Agreement between Pan Environmental Corporation and
                  Advantage Parking Lot Service, Inc.  Reference is made to Exhibit 2.4
                  of the Company's 10-K for the year ended December 31, 1995 which
                  is incorporated herein by reference.

2.5               Divestiture Agreement between Pan Environmental Corporation and
                  MRR Construction Services, Inc.  Reference is made to Exhibit 2.5 of
                  the Company's 10-K for the year ended December 31, 1995 which is
                  incorporated herein by reference.

3.1               Articles of Incorporation of Aster Development Enterprises.
                  Reference is made to Exhibit 3.1 of the Company's January 31,
                  1993 10-K which is incorporated herein by reference.

3.2               Articles of Incorporation of Pan Environmental Services, Inc.
                  Reference is made to Exhibit 3.2 of the Company's January 31,
                  1993 10-K and to Exhibit 3.1 of the Company's December 31,
                  1993 10-K which are incorporated herein by reference.

3.3               Fiscal year change from January 31, 1993 to December 31, 1993.
                  Reference is made to the Company's form 8-K filed March 2, 1994
                  which is incorporated herein by reference.
</TABLE>


                                       24


<PAGE>   25
<TABLE>
<CAPTION>
Exhibit
Number            Description
------            -----------
<S>               <C>
3.4               Restated Certificate of Incorporation of P.A.N. Environmental
                  Services Corporation changing name to PAN Environmental
                  Corporation filed with the State of Delaware on February 22,
                  1994. Reference is made to Exhibit 3.2 of the Company's Form
                  8-K filed March 2, 1994 which is incorporated herein by
                  reference.

3.5               Bylaws of P.A.N. Environmental Services Corporation. Reference
                  is made to Exhibit 3.2 of the Company's January 31, 1993 10-K
                  and to Exhibit 3.2 of the Company's December 31, 1993 10-K
                  which are incorporated herein by reference.

3.6               Amended and Restated Bylaws of PAN Environmental Corporation.
                  Reference is made to Exhibit 3.4 of the Company's Form 8-K
                  filed March 2, 1994 which is incorporated herein by reference.

10.1              The 1994 Employee Benefit Stock Plan.  Reference is made to Exhibit
                  10.1 of the Company's December 31, 1994 10-K which is
                  incorporated herein by reference.

10.2              The December 7, 1995 Settlement Agreement.  Reference is made to
                  Exhibit 10.2 of the Company's December 31, 1995 10-K which is
                  incorporated herein by reference.

10.3              The December 7, 1995 Settlement and Option Agreement with
                  Stephen M. Roake IRA, a shareholder of the Company.  Reference is
                  made to Exhibit 10.3 of the Company's December 31, 1995 10-K
                  which is incorporated herein by reference.

10.4              December 1, 1997 Extension of Settlement and Option Agreement
                  dated December 7, 1995 and Addendum to Agreements dated
                  December 7, 1995 and December 1, 1997 with Stephen M. Roake
                  IRA.

10.5              February 25, 1997 Settlement Agreement with Kenneth J. Williams.

10.6              March 26, 1997 Settlement Agreement with John Douthwaite.

16.1              Consent of previous auditor, Terrence J. Dunne, CPA.

27                Financial Data Schedule
</TABLE>


                                       25


<PAGE>   26
                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K Report for the Year ended December 31, 1997, has been signed
below by the following persons on behalf of the Registrant and in the capacity
and on the date indicated.

December 31, 1997

                          PAN ENVIRONMENTAL CORPORATION
                             A DELAWARE CORPORATION


                                       by



<TABLE>
<S>                                      <C>
/s/ Jerry Cornwell                       /s/ Jerry Cornwell
--------------------------------         -------------------------------
Jerry Cornwell                           Jerry Cornwell
Agent on behalf of the Company           President, CEO


/s/ Roaul L. Wheeler                     /s/ Jerry Cornwell
--------------------------------         ------------------------------
Roaul L. Wheeler                         Jerry Cornwell, Director
Secretary/Treasurer
                                         /s/ Roaul L. Wheeler
                                         -------------------------------
                                         Roaul L. Wheeler, Director
</TABLE>


                                       26




<PAGE>   27
                         PAN ENVIRONMENTAL CORPORATION


                              FINANCIAL STATEMENTS





























                              FOR THE YEARS ENDED
          DECEMBER 31, 1997, DECEMBER 31, 1996, AND DECEMBER 31, 1995
<PAGE>   28
                                    CONTENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>                                                                      <C>
Independent Auditor's Report                                               1

Statement of Financial Position at
December 31, 1997, December 31, 1996,
and December 31, 1995                                                      2

Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996,
and December 31, 1995                                                      3

Statement of Changes in Stockholders'
Equity for the Years Ended December 31, 1997,
December 31, 1996, and December 31, 1995                                   4

Statement of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996, and
December 31, 1995                                                          6

Notes to Consolidated Financial Statements                                 7-9
</TABLE>
<PAGE>   29
                   [WILLIAM L. BUTCHER, CPA P.S. LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT


To The Board of Directors of
PAN Environmental Corporation



I have audited the accompanying consolidated statement of financial position of
PAN Environmental Corporation (formerly known as Aster Development Enterprises,
Ltd.) and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995.  These financial statements are the
responsibility of the Company's management.  My responsibility is to express an
opinion on these financial statements based on my audit.

I have conducted my audit in accordance with generally accepted auditing
standards.  Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.

In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PAN
Environmental Corporation and the consolidated results of operations, changes
in stockholders' equity and cash flows for the years ended December 31, 1997,
December 31, 1996, and December 31, 1995 and in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern.  As is shown in the
consolidated financial statements, the Company has incurred continued operating
losses and has a working capital deficiency.  These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are described in note 5 to the
financial statements.  The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.




/s/ WILLIAM L. BUTCHER, CPA P.S.
    -----------------------------
    William L. Butcher, CPA P.S.
    Everett, Washington
    January 6, 1998
    


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


<PAGE>   30
                         PAN ENVIRONMENTAL CORPORATION
                       STATEMENT OF FINANCIAL POSITION AT
          DECEMBER 31, 1997, DECEMBER 31, 1996, and DECEMBER 31, 1995
------------------------------------------------------------------------------

                                     ASSETS

<TABLE>
<CAPTION>
                                                 DECEMBER 31    DECEMBER 31    DECEMBER 31 
                                                     1997           1996           1995
                                                 ------------   ------------   ------------
<S>                                              <C>            <C>            <C>
CURRENT ASSETS
                                                 -----------    -----------    -----------
      Total current assets                               -0-            -0-            -0-

OTHER ASSETS
  Settlement agreement - principals                  360,000        360,000            -0-
  Escrowed shares for debt, Millard account          225,000        225,000            -0-
                                                 -----------    -----------    -----------
      Total other assets                             585,000        585,000            -0-
                                                 -----------    -----------    -----------
TOTAL ASSETS                                     $   585,000    $   585,000    $       -0-
                                                 ===========    ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable (Note 4)                      $   448,245    $   451,633    $   505,752
  Accrued wages                                          -0-            -0-         58,000
  Taxes payable                                       18,795         18,795         10,092
  Judgment payable (Note 3)                          200,909        200,909        200,909
  Accrued judgment interest (Note 3)                  94,902         47,451            -0-
  Loans from officer                                     -0-            -0-         84,218
  Notes payable                                          -0-            -0-         17,800
                                                 -----------    -----------    -----------
      Total current liabilities                      762,851        718,788        876,771
                                                 -----------    -----------    -----------

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value;
    50,000,000 shares authorized;
    1,126,809 shares issued and
    outstanding at December 31, 1995,
    2,848,163 issued and outstanding
    at December 31, 1996, and
    3,188,163 issued and outstanding
    at December 31, 1997                               3,188          2,848          1,127
  Additional paid-in capital                       1,417,635      1,343,976        485,019
  Accumulated deficit                             (1,598,674)    (1,480,612)    (1,362,917)
                                                  ----------     ----------     ----------
      Total stockholders' equity                    (177,851)      (133,788)      (876,771)
                                                  ----------     ----------     ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $  585,000     $  585,000     $      -0-
                                                  ==========     ==========     ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                     - 2 -
<PAGE>   31
<TABLE>
<CAPTION>
                         PAN ENVIRONMENTAL CORPORATION
                   STATEMENT OF OPERATIONS FOR THE YEAS ENDED
          DECEMBER 31, 1997, DECEMBER 31, 1996, AND DECEMBER 31, 1995

                             DECEMBER 31           DECEMBER 31                  DECEMBER 31
                                1997                  1996                         1995
                             ----------            -----------                 -----------
<S>                          <C>                   <C>                         <C>
REVENUE                       $     -0-             $     -0-                   $      -0-

COST OF SALES                       -0-                   -0-                          -0-
                             ----------            ----------                  -----------
GROSS PROFIT (LOSS)                 -0-                   -0-                          -0-
                             ----------            ----------                  -----------
OPERATING EXPENSES
  Salaries and wages                -0-                   -0-                      (68,152)
  Professional fees              58,690                61,541                      149,152
  Dues and subscriptions            -0-                   -0-                        2,950
  Interest                       47,451                47,451                       (6,959)
  Travel                            -0-                   -0-                        3,007
  Bank charges                      -0-                   -0-                         (200)
  Taxes and licenses             10,918                 8,703                          -0-
  Rent                              -0-                   -0-                        6,586
  Utilities                         -0-                   -0-                          489
  Office                          3,238                   -0-                          -0-
  Postage and delivery              154                   -0-                          501
                             ----------            ----------                  -----------

    Total operating expenses    120,451               117,695                       81,191
                             ----------            ----------                  -----------
(LOSS) FROM OPERATIONS         (120,451)             (117,695)                     (81,191)
                             ----------            ----------                  -----------
OTHER EXPENSE (Note 3)              -0-                   -0-                     (769,989)
OTHER INCOME                      2,389                   -0-                          -0-
PROVISION FOR INCOME TAX
NET INCOME (LOSS)             $(118,062)            $(117,695)                   $(851,180)
                             ==========            ==========                  ===========

NET INCOME (LOSS) PER SHARE   $   (.037)            $   (.041)                   $   (.653)
                             ==========            ==========                  ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                     - 3 -
<PAGE>   32
                         PAN ENVIRONMENTAL CORPORATION
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
           DECEMBER 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                       Common Stock      Additional 
                                    ------------------    Paid-In      Accumulated
                                      Shares    Amount    Capital        Deficit      Totals
                                    ---------   ------   ----------    -----------   --------
<S>                                 <C>
Balances at December 31, 1994       1,263,142   1,263       642,497    (1,496,487)   (852,727)
Divestiture of three subsidiaries                                                              
  on January 2, 1995                 (186,433)   (186)     (175,428)      984,750     809,136
Common stock issued for cash at
  $0.25 per share                      28,000      28         6,972                     7,000
Common stock issued for services
  at $0.50 per share                   22,000      22        10,978                    11,000
Net (loss) for the year ended
  December 31, 1995                                                      (851,180)   (851,180)
                                    ---------   -----     ---------    ----------    --------
Balances at December 31, 1995       1,126,809   1,127       485,019    (1,362,917)   (876,771)

Common stock issued at $0.50 per                                                               
  share for services                  116,000     116        57,884                    58,000
Common stock issued at $0.50 per
  share for services                   31,318      31        15,629                    15,660
Common stock issued at $0.50 per
  shares in settlement of             
  promissory note representing a
  cash loan                           168,436     168        84,050                    84,218
Common stock issued at $0.50 per
  share for: settlement of a
  $17,800 promissory note
  representing a cash loan, and
  $60,000 for services                155,600     156        77,644                    77,800
Common stock issued at $0.50 per
  share into escrow for settling
  the Company's debt                  450,000     450       224,550                   225,000
Common stock issued at $0.50 per
  share for: 80,000 shares for
  services, 720,000 shares for
  settlement with Company 
  principals and affiliates           800,000     800       339,200                   400,000

Net (loss) for the period ended
  December 31, 1996                                                      (117,695)   (117,695)
                                    ---------   -----     ---------    ----------    --------
Balances at December 31, 1996       2,848,163   2,848     1,343,976    (1,480,612)   (133,788)

Common stock issued at $0.50 per
  share to C.M. Johnston for
  consulting services
  re: Williams and Bickel              50,000      50        24,950                    25,000
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                     - 4 -
<PAGE>   33
                         PAN ENVIRONMENTAL CORPORATION
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
            MARCH 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                       Common Stock      Additional 
                                    ------------------    Paid-In      Accumulated
                                      Shares    Amount    Capital        Deficit      Totals
                                    ---------   ------   ----------    -----------   --------
<S>                                 <C>
Common stock issued to Bristol
  Media, Ltd. re: Douthwaite
  settlement                          130,000     130         8,870                     9,000
Common stock issued to
  Stephen M. Roake IRA for
  payment of accounting, audit
  and transfer agent fees              60,000      60        14,940                    15,000
Common stock issued to Bristol
  Media, Ltd. for payment of
  accounts payable, audit and
  legal                               100,000     100        24,900                    25,000
Net (loss for the period ended
  September 30, 1997)                                                    (118,062)   (118,062)
                                    ---------   -----     ---------    ----------    --------
Balances at December 31, 1997       3,188,163   3,188     1,417,635    (1,598,674)   (177,851)
</TABLE>




   The accompanying notes are an integral part of these financial statements.

                                     - 5 -



<PAGE>   34
                          PAN ENVIRONMENTAL CORPORATION
                  STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
           DECEMBER 31, 1997, DECEMBER 31, 1996, and DECEMBER 31, 1995
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                        December 31       December 31      December 31
                                                                           1997              1996              1995
                                                                        -----------       -----------      -----------
<S>                                                                     <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss)                                                            $(118,062)        $(117,695)        $ (851,180)
  Add (deduct) items not requiring use of cash
    Depreciation and amortization                                              -0-               -0-          (499,093)
    (Increase) decrease in accounts receivable                                 -0-               -0-           244,917
    (Increase) decrease in inventories                                         -0-               -0-             8,149
    (Increase) in advances to employees                                        -0-               -0-            23,577
    (Increase) in deferred and prepaid expenses                                -0-               -0-            15,011
    Increase (decrease) in accounts payable                                (3,388)          (54,119)          (332,631)
    Increase in taxes payable, accrued wages, and accrued interest         47,451            (1,846)          (339,753)
                                                                        ---------         ---------         ----------
          Net cash provided (used) from operating activities              (73,999)         (173,660)         1,731,003 
                                                                        ---------         ---------         ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of plant and equipment                                              -0-               -0-         1,027,412
  Increase in other assets                                                     -0-          585,000             (9,601)
  Increase in notes receivable                                                 -0-               -0-               200
  Increase in deposits                                                         -0-               -0-             7,996
  Divestiture of subsidiaries                                                  -0-               -0-           809,322
                                                                        ---------         ---------         ----------
          Net cash used from investing activities                              -0-          585,000          1,854,531
                                                                        ---------         ---------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from the sale of common stock                                      340             1,721               (136)
  Capital contribution from shareholders                                   73,659           858,957             17,950
  Loans from officers                                                          -0-          (84,218)           (96,252)
  Proceeds from loans and notes payable                                        -0-               -0-                -0-
  Judgment payable                                                             -0-               -0-           209,004
  Payments on loans and notes payable                                          -0-          (17,800)          (235,004)
                                                                        ---------         ---------         ----------
          Net cash provided (used) from financing activities               73,999           758,060           (112,533)      
                                                                        ---------         ---------         ----------
NET (DECREASE) IN CASH                                                         -0-               -0-            10,995

CASH BALANCE AT BEGINNING OF YEAR                                              -0-               -0-           (10,995)
                                                                        ---------         ---------         ----------
CASH BALANCE AT END OF YEAR                                                    -0-               -0-        $       -0-
                                                                        =========         =========         ==========
</TABLE>



   The accompanying notes are an integral part of these financial statements.
                                        
                                     - 6 -
<PAGE>   35
                         PAN ENVIRONMENTAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------


NOTE 1 -  ORGANIZATION AND BASIS OF ACCOUNTING
          ------------------------------------

       The Company was organized as Jilly Bear & Company, Inc., under the laws
       of the State of Delaware on February 13, 1986, for the primary purpose of
       merchandising a line of plush soft sculpture teddy bears, penguins, ducks
       and related motif items. The Company closed its retail store, liquidated
       its remaining inventory and ceased operations in March, 1988. On June 30,
       1991, Nutec Transmission, Ltd., and Jilly Bear merged into a resulting
       Texas corporation. Aster Development Enterprises, Ltd., was organized as
       a private Texas corporation on August 6, 1992. Following the rescission
       of the merger between Nutec and Jilly Bear on June 1, 1992, Aster
       Development became the successor of Jilly Bear and the vehicle for the
       continued corporate existence in Delaware of the former Jilly Bear.
       Aster Development had been inactive from June 1, 1992, until March, 1993.

       On March 4, 1993, the name of the Company was changed from Aster
       Development Enterprises, Ltd. to PAN Environmental Corporation and the
       Company acquired all of the outstanding common stock of Northwest
       Specialties, Inc., a Minnesota corporation; Advantage Parking Lot
       Service, Inc., a California corporation; and MRR construction Services,
       Inc., a California corporation. The Company issued a total of 2,650,000
       shares of common stock for the acquisition of these three corporations
       in a reorganization accounted for as a reverse acquisition, whereby the
       shareholders of a privately owned corporation or corporations obtained
       controlling ownership interest in a previously inactive or dormant
       public "shell" corporation. On October 11, 1993, the directors of PAN
       Environmental Corporation and its three affiliated companies agreed to
       reduce by 50% the number of shares of common stock which was originally
       issued for the acquisition. The net result of the shares of common stock
       issued in the business combination was 1,325,000 shares. PAN
       Environmental Corporation changed its fiscal year from January 31st to
       December 31st and reincorporated in the State of Delaware.

       PAN Environmental Corporation (PAN) was in the business of acquiring and
       supervising the operations of businesses engaged in the reclamation,
       remediation and recycling of industrial waste materials and by-products.
       PAN provided its affiliated operating companies with financing and
       management services including accounting, planning, budgeting, computer
       information systems, human resources management, contract bonding and
       liability insurance. The Company also provided technical environmental
       management support to its operating companies. PAN's principal offices
       are in Shoreline, Washington.

       Advantage Parking Lot Service, Inc. (incorporated in the State of
       California on February 19, 1986) was engaged in the manufacturing and
       sale of asphalt-based slurry sealants. Advantage applied the slurry
       sealants to asphalt surfaces, primarily parking lots.  Advantage also
       had a tank cleaning operation which decontaminated portable commercial
       lubricant tanks. The slurry-sealer manufacturing plant is located in
       Fontana, California. Advantage had ten employees.

       Northwest Specialties, Inc. (incorporated in 1993) reclaimed timber
       (poles, ties, etc.) and commodity metals, primarily from obsolete
       railroad telecommunications and signaling systems. The company operated
       in the Midwest and Rocky Mountain regions of the United States, and
       worked on active and inactive railroad right-of-ways. The poles, other
       wood products, and wiring were then sorted, graded and processed for
       resale.

       MRR Construction Services, Inc. (incorporated in 1992, but inactive
       until 1993) performed environmental construction management and related
       construction activities, as well as soil remediation, in Southern
       California. The Company employed its president and a project
       manager/superintendent. The majority of the contract work was performed
       by subcontractors. Daily administrative support work was provided by
       personnel at Advantage Parking Lot Services, Inc.


                                     - 7 -


              
<PAGE>   36
                         PAN ENVIRONMENTAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

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

NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING - continued

     Pan divested itself of its three subsidiaries, Advantage Parking Lot
     Service, Inc., Northwest Specialties, Inc. and MRR Construction Services,
     Inc., effective January 2, 1995.

     In November and December 1995, the Company attempted to acquire oil and gas
     properties in a business combination agreement with Maximum Resources,
     Inc., a Vancouver Stock Exchange company, and two other companies, NP
     Energy Corporation, a U.S. over the counter electronic bulletin board
     (OTCBB) company, and Polaris Equities, Inc., a U. S. private company.

     The form of business combination agreement would have taken the following
     form: each of the above three oil and gas companies would set up a U. S.
     subsidiary into which they would vend in selected oil and gas properties.
     These three subsidiaries would then be acquired in a reverse takeover
     transaction wherein the Company would issue 4,000,000 new restricted Rule
     144 common shares each to Maximum, NP and Polaris in exchange for acquiring
     one hundred percent (100%) of the issued and outstanding common shares of
     their three U. S. subsidiaries.

     Since the Company did not have the necessary funds to do its accounting,
     audits, 10-Q's, 10-K's and legal work, Maximum, NP and Polaris agreed to
     advance the necessary funds to complete the work. In March and April 1996,
     Maximum, NP and Polaris defaulted on their obligations to advance the
     necessary funds and the proposed business combination agreements were never
     consummated.


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     Earning (loss) per share were calculated on the number of shares
     outstanding at the end of the year.

NOTE 3 - OTHER EXPENSE

     The Company incurred other expenses in 1995 as a result of recording losses
     due to the divestiture of its three subsidiary companies in the amount of
     $324,563. The Company also defaulted in a share repurchase agreement with a
     stockholder of the Company, resulting in a default judgment in 1995 in the
     amount of $200,909. The judgment bears interest at the rate of 25% per
     annum on $161,250 (principal portion) and 18% per annum on $39,659
     (interest, attorney fee and costs portion). In addition, Kenneth Williams
     and Robert Bickel sued MRR, a former subsidiary of the Company, and the
     Company in 1995 for alleged consulting fees owned for 1993 and 1994 and
     obtained default judgments against the Company in the amounts of $121,809
     and $122,709 respectively.

NOTE 4 - ISSUANCE/SALES OF STOCK

     The Company issued 50,000 shares of restricted Rule 144 common stock at
     $0.50 per share to Clifford M. Johnston for consulting services rendered in
     connection with the Kenneth Williams and Robert Bickel default judgments in
     Note 3 above.

     The Company issued 130,000 shares of restricted Rule 144 common stock to
     Bristol Media, Ltd. for the purpose of settling out the $9,000 judgment
     from John Douthwaite for printing expense.

     The Company issued 60,000 shares of restricted Rule 144 common stock to
     Stephen M. Roake IRA for payment of $15,000 in accounts payable, accounting
     fees and audit fees.

     The Company issued 100,000 shares of restricted Rule 144 common stock to
     Bristol Media, Ltd. for payment of $25,000 in accounting fees, audit fees,
     and legal fees.

                                     - 8 -
<PAGE>   37
                         PAN ENVIRONMENTAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

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

NOTE 5 - GOING CONCERN

     Because of a deficiency in working capital and significant operating
     losses, there is doubt about the ability of the Company to continue in
     existence unless additional working capital is obtained. The Company
     currently has plans to raise sufficient working capital through equity
     financing and through the acquisition of companies having sufficient assets
     and cash flow to enable the Company to be self-sufficient and profitable.


   The accompanying notes are an integral part of these financial statements.

                                     - 9 -