<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, 1995

                         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, 1995.

As of December 31, 1995, the aggregate number of shares of Common Stock held by
non-affiliates was 868,865 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, 1995, the aggregate number of shares outstanding of the
registrant's Common Stock was 1,126,809.

Documents incorporated by reference:  None.


<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                     PART I
<S>               <C>                                                            <C>
Item 1.           Business                                                        3
Item 2.           Properties                                                     10
Item 3.           Legal Proceedings                                              10
Item 4.           Submission of Matters to a Vote Security Holders               11


                                     PART II

Item 5.           Market of the Registrant's Common Equity and Related
                  Stockholder Matters                                            12
Item 6.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                            13
Item 7.           Financial Statements                                           13
Item 8.           Changes in and disagreements with Accountants on
                  Accounting and Financial Matters                               13


                                    PART III

Item 9.           Directors, Executive Officers, Promoters and Control Persons
                  Compliance with Section 16(a) of the Exchange Act              15
Item 10.          Executive Compensation                                         16
Item 11.          Security Ownership of Certain Beneficial Owners and
                  Management                                                     16
Item 12.          Certain Relationships and Related Transactions                 17
Item 13.          Exhibits                                                       18
</TABLE>


                                        2

<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

General

         PAN Environmental Corporation, a Delaware corporation (the "Company"),
up until December 31, 1994, 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.

         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 in
January 1995 and undertook the acquisition of Glengarry Investment Fund Company
with real estate holdings, which it thought it had completed in November 1994,
but which ultimately never was concluded.

Divestiture of Subsidiaries

         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.



                                        3

<PAGE>   4

MRR was sold to Roaul Wheeler, in exchange for forgiveness of a $50,000 advance
owed by the Company to MRR. During 1994, MRR became embroiled in significant
litigation on a project in Cerritos, California. As a result of this 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 the past year 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.

Attempted Acquisition of Glengarry Investment Fund Company

         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

                                        4

<PAGE>   5

         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.

         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 agreement was never
consummated.

Adoption 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
permits the Compensation and Stock Option Committee to issue options for up to
3,500,000 shares of the 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.

Settlement Agreement and Cancellation of 1994 Stock Option Plan

         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.


Financing Plans

                                        5

<PAGE>   6

         As a result of its divestitures, the Company has substantially reduced
its overall debt load and its operating expenses, a primary impediment to any
financing activities. The Company has focused its attention during 1995 upon the
acquisition of a company or companies which have sufficient capital for their
current operations, so as to improve its business prospects before returning
actively to the equity markets. During 1995, the Company was unable to locate or
consummate any suitable acquisitions.

         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



                                        6

<PAGE>   7

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 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."

ADDITIONAL RISK FACTORS AFFECTING FUTURE PERFORMANCE

Absence of Revenue-Producing Operations

         The Company has produced no revenues during the last fiscal year 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 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



                                        7

<PAGE>   8

         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
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

                                        8

<PAGE>   9

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 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

                                        9

<PAGE>   10

         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.


ITEM 2.           PROPERTIES

         The Company had no assets nor any property.


ITEM 3.           LEGAL PROCEEDINGS

         Kenneth Williams and Robert Bickel, claiming to be consultants to the
Company, sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default judgments of
$121,809 and $122,709 respectively. The Company will seek to have such judgments
vacated or set aside.

         The Company has been notified of a threatened legal proceeding against
the company in the amount of $53,000 for non-payment of rent and legal fees and
expenses to its former landlord, which was also its legal counsel. No litigation
was started during 1995.

         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 is attempting to work out
a settlement of this matter.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

                                       10

<PAGE>   11

         No matters were submitted to the shareholders during 1995.

                                       11

<PAGE>   12

                                     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 1994 and 1995. 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, 1995 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                    1994             10.125            0.188
         Apr-Jun                    1994             11.250            1.500
         Jul-Sep                    1994              3.531            0.375
         Oct-Dec                    1994              0.563            0.125
         Jan-Mar                    1995              0.313            0.188
         Apr-Jun                    1995              0.313            0.125
         Jul-Sep                    1995              0.281            0.125
         Oct-Dec                    1995              0.125            0.094
</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



                                       12

<PAGE>   13

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.


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

         The consolidated results of operations for the year ending December 31,
1995 reflect an operating loss of $851,180 as compared to a loss of $574,811 for
the year ending December 31, 1994. Included in the $851,180 loss were the losses
recorded due to the divestiture of the three subsidiary companies in the amount
of $324,563. Also included in the $851,180 loss was the default by the Company
in a share repurchase agreement with a stockholder of the Company resulting in a
default judgment in the amount of $200,909. In addition, Kenneth Williams and
Robert Bickel sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default judgments
against the Company in the amounts of $121,809 and $122,709 respectively, which
is also included in the $851,180 loss.


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Attached hereto and incorporated herein by this reference are
consolidated audited financial statements for the year ending December 31, 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 chose not 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.


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<PAGE>   14

         Registrant has no disagreements and has never had any disagreements
with Mr. Dunne or any other auditor about how to treat any aspect of any audit
or financial statement.

         William L. Butcher, CPA, P. O. Box 1035, Lynnwood, Washington 98046-
1035, has been retained recently as auditor for the corporation for 1994 and
succeeding years.

                                       14

<PAGE>   15

                                    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 were as follows:

<TABLE>
<CAPTION>
Name                     Age     Position
----                     ---     --------
<S>                      <C>                                                    
Jerry Cornwell           58      President, Chief Executive Officer and Director
Roaul L. Wheeler         68      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.

         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, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that Ronald E. Williams
failed to file 1 monthly report covering 1 transaction on Form 4, but did report
the transactions on his 1997 year end report on Form 5.


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<PAGE>   16

ITEM 10. EXECUTIVE COMPENSATION

         No executive officer's salary and bonus exceeded $10,000 during any of
the company's last three fiscal years.


Stock Options

         The Chief Executive Officer was granted options for 540,909 shares at
$0.55 per share during the year ended December 31, 1994. The incoming President
and Chief Executive Officer (formerly Chief Operating Officer) was granted
options for 340,909 shares exercisable at $0.55 per share during the year ended
December 31, 1994. Four corporate directors received options to acquire a total
of 734,731 shares at $0.55 per share during the year ended December 31, 1994. Of
those, 219,060 were canceled as a result of the agreement divesting Advantage.
In addition, the Company has granted options on 150,000 shares at $0.55 per
share to former employees. All of the above stock options expire in August 2004.
All such stock options were cancelled in 1995 pursuant to the December 5, 1995
Settlement Agreement.

         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 principals of PAN 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.


Executive Compensation Agreement

         The Company had no obligations under any executive compensation
agreements as of December 31, 1995.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of December 31, 1995, 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.


                                       16

<PAGE>   17

<TABLE>
<CAPTION>
Name and Address                     Amount / Nature         Percent
of Beneficial Owner                  of Ownership (1)        of Class
-------------------                  ------------            --------
<S>                                     <C>                    <C>
Jerry Cornwell                         -0-                    -0-
14424 SE 78th Way
Newcastle, WA  98059

Orland L. Howard                     145,055                 12.87%
P. O. Box 206A
Rochert, MN  56578

Roaul L. Wheeler                     112,889                 10.02%
P. O. Box 1423
Chino, CA  91708

Stephen M. Roake IRA                 166,666                 14.79%
10650 Riviera Place NW
Seattle, WA  98125

All officers and directors
as a group  (10)                     112,889                 10.02%
</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.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Effective January 2, 1995, Advantage was divested to a Director of the
Company, pursuant to a divestiture agreement between the Company and Mr. Ronald
Williams. The agreement provided for, among other things, the exchange of all
Mr. Williams' interest in common shares of the company totaling 183,722 shares.

         Effective January 2, 1995, MRR was divested to a Director of the
Company, pursuant to an agreement between the Company and Mr. Roaul Wheeler. The
agreement provided for, among other things, the exchange of all the Company's
interest in common shares of MRR in exchange for forgiveness of a debt by the
Company to MRR in the amount of $50,000.



                                       17

<PAGE>   18

         Effective January 2, 1995 Northwest was divested to a Director of the
Company pursuant to an agreement between the Company and Mr. Orland Howard. The
agreement provided for, among other things, the exchange of all the Company's
interest in common shares of Northwest in exchange for forgiveness of a
contingent liability to finance operations of Northwest.


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 the pages 19 and 20.

(2)      Audited Financial Statements for the years ended December 31, 1995,
         December 31, 1994, and December 31, 1993 (Eleven Months).



                                       18

<PAGE>   19

                                  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.

2.4               Divestiture Agreement between Pan Environmental Corporation and
                  Advantage Parking Lot Service, Inc.

2.5               Divestiture Agreement between Pan Environmental Corporation and
                  MRR Construction Services, Inc.

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.

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.
</TABLE>



                                       19

<PAGE>   20

<TABLE>
<S>               <C>             
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.

10.3              The December 7, 1995 Settlement and Option Agreement with
                  Stephen M. Roake IRA, a shareholder of the Company.

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

27                Financial Data Schedule

</TABLE>



                                       20

<PAGE>   21


                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K Report for the Year ended December 31, 1995, 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


/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



                                       21

<PAGE>   22


                          PAN ENVIRONMENTAL CORPORATION


                              FINANCIAL STATEMENTS




                               FOR THE YEARS ENDED
           DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993

<PAGE>   23

                                    CONTENTS

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


Statement of Financial Position at
December 31, 1995, December 31, 1994,
and December 31, 1993 (Eleven Months)                                          2-3


Statement of Operations for the Years Ended
December 31, 1995, December 31, 1994,
and December 31, 1993 (Eleven Months)                                           4


Statement of Changes in Stockholders' Equity the Years Ended 
December 31, 1995, December 31, 1994, and December 31, 1993
(Eleven Months)                                                                 5


Statement of Cash Flows for the Years Ended
December 31, 1995, December 31, 1994, and
December 31, 1993 (Eleven Months)                                               6


Notes to Consolidated Financial Statements                                     7-9
</TABLE>



<PAGE>   24

                   [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, 1995,
December 31, 1994 and December 31, 1993. 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, 1995,
December 31, 1994, and December 31, 1993 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 7 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
--------------------------------------
WILLIAM L. BUTCHER, CPA P.S.
Everett, Washington
January 6, 1998



<PAGE>   25


                          PAN ENVIRONMENTAL CORPORATION
                       STATEMENT OF FINANCIAL POSITION AT
           DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993


                                     ASSETS

<TABLE>
<CAPTION>

                                          December 31    December 31   December 31
                                             1995           1994          1993
                                          -----------    -----------    -------
<S>                                            <C>      <C>             <C> 
CURRENT ASSETS
  Cash                                         $-0-     $     682      $     -0-
  Accounts receivable, net of allowance
    for doubtful accounts of $34,353 and
    $25,808, respectively                       -0-       244,917        198,121
  Inventory                                     -0-         8,149         15,499
  Employee advances                             -0-        23,577            350
  Notes receivable                              -0-           200            -0-
  Deferred and prepaid expenses                 -0-        15,011         10,032
                                               ----     ---------      ---------

         Total current assets                   -0-       292,536        224,002

PROPERTY, PLANT AND EQUIPMENT
  Land                                          -0-       110,499        110,499
  Plant and equipment                           -0-       916,913        774,302
  Less accumulated depreciation                 -0-      (499,093)      (486,897)
                                               ----     ---------      ---------

         Net property, plant and equipment      -0-       528,319        397,904

OTHER ASSETS
  Loan fees, net of accumulated
    amortization                                -0-         3,621          4,457
  Deposits                                      -0-         7,996          8,381
  Deferred interest on lease                    -0-         5,980            -0-
                                               ----     ---------      ---------

         Total other assets                     -0-       (17,597)        12,838
                                               ----     ---------      ---------

TOTAL ASSETS                                   $-0-     $ 838,452      $ 634,744
                                               ====     =========      =========
</TABLE>


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


                                       -2-

<PAGE>   26

                          PAN ENVIRONMENTAL CORPORATION
                       STATEMENT OF FINANCIAL POSITION AT
           DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                               December 31    December 31       December 31
                                                                  1995           1994              1993
                                                               -----------    -----------       -----------
<S>                                                           <C>              <C>              <C>        
CURRENT LIABILITIES
  Accounts payable (Note 6)                                   $   505,752      $   838,383      $   382,884
  Bank overdraft                                                      -0-           11,677           65,924
  Accrued wages                                                    58,000          243,118           96,335
  Accrued interest                                                    -0-           10,783              748
  Taxes payable                                                    10,092          153,944           80,689
  Judgment payable (Note 6)                                       200,909              -0-              -0-
  Equipment contracts payable                                         -0-              -0-            3,629
  Loans from officer (Note 4)                                      84,218          180,470           30,707
  Notes payable (Note 5)                                           17,800           30,000           34,162
  Current portion of
    long-term debt                                                    -0-           77,590           34,790
  Suspense                                                            -0-            1,771              -0-
                                                              -----------      -----------      -----------

         Total current liabilities                                876,771        1,545,965          729,868
                                                              -----------      -----------      -----------

LONG-TERM DEBT, Net of current
  portion                                                             -0-          145,214          182,792
                                                              -----------      -----------      -----------

STOCKHOLDERS' EQUITY
  Common stock, $.001 par value;
    50,000,000 shares authorized; 3,789,427 shares issued
    and outstanding at
    December 31, 1993, 1,263,142 issued and outstanding
    at December 31, 1994,
    and 1,126,809 issued and outstanding
    at December 31, 1995                                            1,127            1,263            3,790
  Additional paid-in capital                                      485,019          642,497          639,970
  Accumulated deficit                                          (1,362,917)      (1,496,487)        (921,676)

         Total stockholders' equity                              (876,771)        (852,727)        (277,916)
                                                              -----------      -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $-0-      $   838,452      $   634,744
                                                              ===========      ===========      ===========
</TABLE>


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


                                        -3-

<PAGE>   27

                          PAN ENVIRONMENTAL CORPORATION
                   STATEMENT OF OPERATIONS FOR THE YEARS ENDED
   DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993 (Eleven Months)


<TABLE>
<CAPTION>
                                      December 31    December 31      December 31
                                         1995            1994             1993
                                      -----------    -------------    -----------
<S>                                   <C>            <C>              <C>        
REVENUE                               $       -0-     $  1,163,120      $ 904,007

COST OF SALES                                 -0-          996,392        786,501
                                      -----------      -----------      ---------

GROSS PROFIT (LOSS)                           -0-          166,728        117,506
                                      -----------      -----------      ---------

OPERATING EXPENSES
  Salaries and wages                      (68,152)         185,514        249,348
  Professional fees                       142,969           63,626         59,333
  Depreciation and amortization               -0-           42,428         37,589
  Dues and subscriptions                    2,950              -0-            -0-
  Interest                                 (6,959)          46,357         51,968
  Travel                                    3,007          119,442         74,832
  Bad debts                                   -0-           83,374         25,360
  Bank charges                               (200)             -0-            -0-
  Insurance                                   -0-           26,109         20,757
  Taxes and licenses                          -0-           39,343         35,941
  Rent                                      6,586           39,724         23,456
  Repairs and maintenance                     -0-           18,969         29,795
  Utilities                                   489           62,132         36,943
  Office                                      -0-           19,029         16,269
  Postage and delivery                        501              -0-            -0-
  Consulting commissions                      -0-           23,383         20,064
  Miscellaneous                               -0-            2,539          2,339
                                      -----------      -----------      ---------

         Total operating expenses          81,191          771,969        683,994
                                      -----------      -----------      ---------

(LOSS) FROM OPERATIONS                    (81,191)        (605,241)      (566,488)
                                      -----------      -----------      ---------

OTHER INCOME
  Recovery of bad debts                       -0-              -0-        106,009
  Forgiveness of accrued interest             -0-              -0-         16,011
  Gain on sale of equipment                   -0-           30,354          8,493
  Interest income                             -0-               76          3,679
  Miscellaneous income                        -0-              -0-         16,692
                                      -----------      -----------      ---------

         Total other income                   -0-           30,430        150,884
                                      -----------      -----------      ---------

OTHER EXPENSE (Note 6)                    769,989              -0-            -0-

PROVISION FOR INCOME TAX

NET INCOME (LOSS)                     $  (851,180)     $  (574,811)     $(415,604)
                                      ===========      ===========      =========

NET INCOME (LOSS) PER SHARE           $     (.653)     $     (.455)     $   (.096)
                                      ===========      ===========      =========
</TABLE>

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


                                       -4-

<PAGE>   28

                          PAN ENVIRONMENTAL CORPORATION
        STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED
   DECEMBER 31, 1995, DECEMBER 31, 1994 and DECEMBER 31, 1993 (Eleven Months)



<TABLE>
<CAPTION>
                                         Common Stock           Additional
                                   -------------------------     Paid-In         Accum.
                                    Shares          Amount       Capital         Deficit       Totals
                                    ------          ------       -------         -------       ------

<S>                                <C>               <C>         <C>            <C>           <C>      
Balances at January 31, 1993       2,124,627         2,125       487,365        (898,569)     (409,079)


Corporate Reorganization
of three private companies
into a common public parent
company                            2,650,000         2,650      (340,520)        392,497        54,627

Additional capital cash
contributions by shareholders                                     70,000                        70,000

Conversion of loan payable
to capital                                                        82,340                        82,340

Common stock issued for cash
at $1 per share                      339,800           340       339,460                       339,800

Common stock returned from
shareholders of subsidiaries      (1,325,000)       (1,325)        1,325

Net (loss) for the year
ended December 31, 1993                                                         (415,604)     (415,604)
                                  ----------      --------      --------      ----------      --------

Balances at December 31, 1993      3,789,427         3,790       639,970        (921,676)     (277,916)


Reverse stock split of one
for three on June 8, 1994         (2,526,285)       (2,527)        2,527

Net (loss) for the year
ended December 31, 1994                                                         (574,811)     (574,811)

                                  ----------      --------      --------      ----------      --------
Balances at December 31, 1994      1,263,142         1,263       642,497      (1,496,487)     (852,727)


Divestiture of three sub-
sidiaries 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)
                                                                              ----------      --------

</TABLE>



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


                                       -5-

<PAGE>   29

                          PAN ENVIRONMENTAL CORPORATION
                   STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
   DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993 (Eleven Months)


<TABLE>
<CAPTION>
                                                     December 31    December 31    December 31
                                                        1995           1994           1993
                                                    -----------    -----------     -----------
<S>                                                 <C>              <C>            <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss)                                        $  (851,180)     $(574,811)     $(415,604)
  Add (deduct) items not requiring use of cash
      Depreciation and amortization                    (499,093)        12,196         60,325
      Forgiveness of accrued interest                       -0-            -0-        (16,011)
      Gain on sale of equipment                             -0-            -0-         (1,493)
      Forgiveness of debt                                   -0-            -0-            -0-
      Bad debts--employee advances                          -0-            -0-            -0-
    (Increase) decrease in accounts receivable          244,917        (46,796)      (193,413)
    (Increase) decrease in inventories                    8,149          7,350         (5,173)
    (Increase) in advances to employees                  23,577        (23,227)          (350)
    (Increase) in deferred and prepaid expenses          15,011         (4,979)       (10,032)
    Increase (decrease) in accounts payable            (332,631)       455,499        180,264
    (Decrease) in customer deposits                         -0-            -0-            -0-
    Increase in taxes payable, accrued wages,
      and accrued interest                             (339,753)       230,073        120,557
                                                    -----------      ---------      ---------

           Net cash provided (used) from
           operating activities                      (1,731,003)        55,305       (280,930)
                                                    -----------      ---------      ---------


CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of plant and equipment                     1,027,412       (142,611)      (124,035)
  Increase in other assets                                9,601         (5,144)           -0-
  Increase in notes receivable                              200           (200)           -0-
  Increase in deposits                                    7,996            385         (5,103)
  Divestiture of subsidiaries                           809,322            -0-            -0-
                                                    -----------      ---------      ---------

           Net cash used from
           investing activities                       1,854,531       (147,570)      (129,138)
                                                    -----------      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from the sale of common stock                   (136)           -0-        339,800
  Capital contribution from shareholders                 17,950            -0-         70,000
  Loans from officers                                   (96,252)       149,763            -0-
  Proceeds from loans and notes payable                     -0-          5,222         34,868
  Judgment payable                                      200,909            -0-            -0-
  Payments on loans and notes payable                  (235,004)        (7,791)       (41,127)
                                                    -----------      ---------      ---------

           Net cash provided (used) from
           financing activities                        (112,533)       147,194        403,541
                                                    -----------      ---------      ---------

NET (DECREASE) IN CASH                                   10,995         54,929         (6,527)

CASH BALANCE AT BEGINNING OF YEAR                       (10,995)       (65,924)       (59,397)
                                                    -----------      ---------      ---------

CASH BALANCE AT END OF YEAR                                $-0-      $ (10,995)     $ (65,924)
                                                    ===========      =========      =========

SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES
  Issuance of common stock for services                    $-0-           $-0-           $-0-
                                                    ===========      =========      =========
  Conversion of loan payable to capital                    $-0-           $-0-      $  82,340
                                                    ===========      =========      =========

INTEREST PAID IN CASH                                      $-0-           $-0-      $  67,231
                                                    ===========      =========      =========
</TABLE>


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

                                       -6-

<PAGE>   30

                          PAN ENVIRONMENTAL CORPORATION
                   NOTES TO CONSOLIDATED 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
         Specialities, 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/super-intendent. 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>   31

                          PAN ENVIRONMENTAL CORPORATION
                   NOTES TO CONSOLIDATED 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.

         The statements of operations, changes in stockholders' equity and cash
         flows for the eleven month period ended December 31, 1993 and the year
         ended December 31, 1994 included the financial statements of PAN
         Environmental Corporation, Advantage Parking Lot Services, Inc.,
         Northwest Specialities, Inc., and MRR Construction Services, Inc. The
         statement of financial position at December 31, 1993 and December 31,
         1994 included the balance sheets of PAN Environmental Corporation,
         Northwest Specialties, Inc., MRR Construction Services, Inc. and
         Advantage Parking Lot Service, Inc. The financial statements at
         December 31, 1995 include only the financial statements of PAN
         Environmental Corporation with no subsidiaries.


NOTE 2 -  SIGNIFICANT ACCOUNTING POLICIES

         Inventories were recorded at the lower of cost or market on a first-in,
         first out basis.

         Plant and equipment items were recorded at cost and were depreciated on
         a straight-line basis over their estimated useful lives.

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


NOTE 3 -  LOANS FROM OFFICERS

         An officer of the Company has loaned the Company various amounts on a
         short-term demand basis, which had a balance due of $84,218 as of March
         31, 1995


NOTE 4 -  NOTES PAYABLE

         The Company owed a balance of $17,800 to Bristol Ltd., an investor in
         the Company.


NOTE 5 -  LONG-TERM DEBT

         The Company had a long-term contract payable for the construction of a
         batch plant for the production of various asphalt slurries. The
         original balance of the contract payable was $31,620 and monthly
         payments were $510.



                                       -8-

<PAGE>   32

                          PAN ENVIRONMENTAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 -  LONG-TERM DEBT - continued

         On March 27, 1989, Advantage Parking Lot Services, Inc. borrowed
         $300,000 from Frontier Bank in La Palma, California, under a Small
         Business Administration guaranty. The loan required a monthly payment
         of $4,524 including interest at two and three-fourths percent above the
         low New York prime rate as published in the Money Rate Section of the
         West Coast Edition of the Wall Street Journal. The loan was scheduled
         to be paid in full in March 1999 and was collateralized by a first lien
         on land and improvements owned by the Company and located at 14388
         Santa Ana Avenue, Fontana, California, plus all equipment, furniture
         and fixtures, accounts receivable and inventory.


NOTE 6 - OTHER EXPENSE

         The Company incurred other expenses 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
         the amount of $200,909. In addition, Kenneth Williams and Robert Bickel
         sued MRR, a former subsidiary of the Company, and the Company for
         alleged consulting fees owed for 1993 and 1994 and obtained default
         judgments against the Company in the amounts of $121,809 and $122,709
         respectively.


NOTE 7 -  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.


NOTE 8 - SALES OF STOCK

         The Company issued 28,000 shares for $7,000 in cash contributions and
         22,000 shares for $11,000 in services rendered to the Company.


NOTE 9 -  STOCK OPTION PLAN

         Three corporate officers have options to acquire a total of 1,325,000
         shares of common stock at $2.00 per share. In addition, the Company has
         allocated and plans to issue common stock options to employees totaling
         250,000 shares and exercisable at $1.00 per share. All of the above
         stock options expired on December 31, 1994 and were not exercised.

         The Company has existing agreements to issue 2,350,000 shares of common
         stock to corporate officers, directors and corporate consultants for
         services provided and to other parties who made capital contributions.
         The agreements provide for the issuance of these shares upon receipt by
         the Company of aggregate equity financing in the amount of $4,000,000
         or more. The agreements provide for the issuance of shares as follows:

<TABLE>
<S>                                                           <C>    
                  Corporate officers and directors              750,000
                  Corporate consultants for services            500,000
                  Other parties for capital contributions     1,100,000

                  Total                                       2,350,000
</TABLE>

         All capital contributions were made prior to the March 4, 1993 plan of
         reorganization. All shares issued under these agreements are subject to
         Rule 144 of the Securities and Exchange Commission with respect to the
         holding period by the shareholder along with other restrictions.



                                       -9-

<PAGE>   33

                          PAN ENVIRONMENTAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - SUBSEQUENT EVENTS

         All agreements and stock options in Note 8 above were cancelled
         pursuant to a Settlement Agreement entered into in December 1995.

         Pan divested itself of all three subsidiaries in January 1995 pursuant
         to various agreements with the principals of those companies, and will
         seek new acquisitions together with equity financing.



                                      -10-