Securities and Exchange Commission
                            Washington, D.C. 20549

                                  FORM 10-KSB

 (MARK ONE)

 [X]     ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934
         NOTE:  Pursuant to Rule 15d-2 under the  Securities  Exchange  Act of
         1934 this Annual Report contains only certified financial  statements
         for the fiscal year ended December 31, 1997.

                                      or

 [ ]     Transition  Report  Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Transition Period From _____ to _____

                        Commission file number 33-82468

                                AIM GROUP, INC.
  ---------------------------------------------------------------------------
             (Exact name of small business issuer in its charter)

                 Delaware                               13-3773537
       ---------------------------------            -------------------
       (State or other jurisdiction of               I.R.S. Employer
       incorporation or organization)               Identification No.)

         2001 W. Sample Road, Suite 300
         Pompano Beach, Florida                             33064
       ---------------------------------            -------------------
        (Address of principal executive offices)        (Zip Code)

Registrant's telephone number, including area code (954)972-9339
                                                   -------------

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

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

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

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

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

                                 Yes [X]   No [ ]


<PAGE>

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

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

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

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

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

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

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

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


<PAGE>

                                    PART I

ITEM 1.     DESCRIPTION OF BUSINESS

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

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

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

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

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

      UMC(AR) is the  Company's  core  business and  completed its third
      full year of  operations  on  December  31,  1997.  It  operates a
      surface  modification  facility,  both as principal  and as a toll
      processor,  for industrial  minerals used as fillers in the rubber
      and plastics  industries.  The plant commenced operations in April
      1994.   Since   inception   UMC(AR)  has  carried  out   leasehold
      improvements and the engineering, procurement, and construction of
      machinery and equipment.  UMC(AR)  purchased the land and building
      in 1995.

      The UMC(AR) Malvern facility has been designed to treat industrial
      fillers  such  as  silica,   clay,   mica,   alumina   trihydrate,
      wollastonite,  magnesium  hydroxide and microspheres with silanes.
      The  treated  products  are  used in the  plastics  and  elastomer
      industries.  Silanes or "organosilicon  chemicals" were recognized
      as superior coupling agents approximately 40 years ago.

      Typical  customers of UMC(AR) are  compounders in the plastics and
      elastomer  industries  seeking to improve the physical  properties
      and the performance of their products.  Through the application of
      small quantities of organosilicon chemicals,  UMC(AR) can, through
      surface    modification,    appreciably   improve   the   physical
      characteristics  of the filler-resin  composites.  Improvements in
      composite  properties that are desired by customers are: (i) lower
      oil absorption, (ii) less moisture ingress or accumulation,  (iii)
      increased  tensile  strength,  and (iv) better  mixing  viscosity.
      Composites  containing  surface  modified  fillers are used in the
      electronics,    communications,    transportation,    construction
      materials, and appliance industries.


<PAGE>

      The use of surface  modified  fillers may require  that  customers
      change  their  formula  or  production  method in order to achieve
      maximum benefit from the modified filler materials. As such, there
      may be a prolonged  interval of business  development during which
      the customer  undertakes  testing and evaluation prior to a change
      in materials  source.  UMC(AR) has supplied samples to a number of
      customers and sample evaluation is ongoing. Additionally,  UMC(AR)
      has successfully  carried out surface treatment of test quantities
      of opacifying materials.

      UMC(AR)  operated  one  shift  per day  during  1997  and  treated
      approximately  1,900 tons of  commercial  products  at the Malvern
      plant.   Management   estimates  that  the  plant's   capacity  is
      approximately  7,000 tons per year.  The plant  currently  has two
      mixing and packaging lines; however, expansion to three mixing and
      packaging lines, an effective  doubling of capacity  providing for
      treatment of a diverse product mix would be implemented should the
      need arise for  additional  capacity or  diversity.  Approximately
      seven full time employees currently work at the plant.


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

      KLANNERITE(R) TECHNICAL INFORMATION

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

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

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

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

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


<PAGE>

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

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

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

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

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

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


                                   3

<PAGE>

      VIVA LUZ MINE

      UMC(AZ),   a  wholly  owned  subsidiary,   holds  a  mining  lease
      ("Lease"),  which  expires  in March  2004,  with New  Mexico  and
      Arizona Land  Company,  the owner of the mining rights at the Viva
      Luz Mine in Mohave  County,  Arizona.  The Lease is  subject  to a
      further term in  perpetuity  provided the property is in operation
      and is generating minimum royalties.

      The Lease permits the  exploration  of the property and removal of
      the  mineral  over the  remaining  term.  The Lease  calls for the
      payment of a production  royalty of 5% of the gross  consideration
      obtained for the mineral less transportation  costs,  subject to a
      minimum royalty payment of $5,000 per year.

      The Company's  objective in selling  Klannerite(R) as a filler and
      for other uses is  considered by management to be dependent on the
      ability to develop initial  markets in the Southwest.  The testing
      and marketing for these applications will be performed this year.

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


      HEATSHIELD TECHNOLOGIES, INC. (HTI)

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

      HTI carried out reserve analysis,  surface mining,  and processing
      of  Klannerite(R),  at the  "Viva  Luz  Mine"  in  Mohave  County,
      Arizona.  No mining of  Klannerite(R)  has been  carried out since
      1993.

      Initial indications were that Klannerite(R) would have application
      as an ingredient in PDC coating.  Marketing of the PDC coating was
      initiated in April 1994. Development work concentrated on securing
      test  applications  at steel  mills,  aluminum,  glass,  and other
      industries  operating furnaces and kilns where the characteristics
      of PDC, as exhibited on a laboratory scale, could be exploited. It
      is now apparent to management that the features of PDC coating are
      not  replicable  in full  scale  industrial  applications.  It was
      therefore  decided  to try to enter  the  coatings  market  with a
      product  exhibiting higher resistance to chemical (alkali) attack,
      such as  produced  by Omega  Coatings  Pty.,  Limited  of  Sydney,
      Australia ("OCPL").

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

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


                                   4

<PAGE>

      worldwide  rights to the Omega line of  coatings  licensed by OCPL
      from Refract-a-Gard Pty., Limited, also of Sydney,  Australia, and
      certain  assets of OCPL  pertinent to the Omega coatings and their
      manufacture.

      After  limited  test  marketing  of these  products,  the  Company
      abandoned its exclusive license and has written off $93,396 of its
      investment in license and royalty payments.

WORKING CAPITAL

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

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

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

DEPENDENCE ON A SIGNIFICANT SINGLE CUSTOMER

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

DEPENDENCE ON A SIGNIFICANT SINGLE SUPPLIER

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

PATENTS, TRADEMARKS AND CONTRACTS

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

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

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


                                   5

<PAGE>

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

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

COST REDUCTION MEASURES

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

OTHER BUSINESS ITEMS

RESEARCH AND DEVELOPMENT

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

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

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

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


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

COMPETITION AND MARKETS

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


                                   6

<PAGE>

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

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

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

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

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

EMPLOYEES AND CONSULTANTS

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

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

ENVIRONMENTAL ISSUES AND GOVERNMENT REGULATION

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

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

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


                                   7

<PAGE>

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

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

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

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

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

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

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

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

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

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


                                      8

<PAGE>

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

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

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

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

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

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


ITEM 2.     DESCRIPTION OF PROPERTY

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

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

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

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


                                      9

<PAGE>

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

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

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

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


ITEM 3.     LEGAL PROCEEDINGS

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

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


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

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


                                      10

<PAGE>

                                    PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

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

MARKET PRICES FOR AIM GROUP COMMON STOCK

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


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

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

DESCRIPTION OF THE CAPITAL STOCK OF THE REGISTRANT

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

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

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


                                      11

<PAGE>

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

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

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

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

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

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

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


                                      12

<PAGE>

RESULTS OF OPERATIONS

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

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


YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

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

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

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

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

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

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


                                      13

<PAGE>

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

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

RESOURCE PROPERTY

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

INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS

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

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

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


                                      14

<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL

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

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

ITEM 7.     FINANCIAL STATEMENTS

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

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

There are no disagreements with respect to disclosure.


                                      15

<PAGE>

                                   PART III

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

DIRECTORS OF THE REGISTRANT

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

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

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

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

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

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


                                      16

<PAGE>

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

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

COMPENSATION OF DIRECTORS OF AIM GROUP INC.

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


EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

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


                                      17

<PAGE>

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

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

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


                                      18

<PAGE>

ITEM 10.    EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS OF AIM GROUP

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

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

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

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

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

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

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

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


                                      19

<PAGE>

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


                                      20

<PAGE>

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

<TABLE>
<CAPTION>
                             OPTION GRANTS TABLE

                              Individual Grants

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

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

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

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

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

EXERCISE OF WARRANTS AND OPTIONS

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


                                      21

<PAGE>

ITEM 11.    SHARE OWNERSHIP

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

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

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

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

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

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

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


                                      22

<PAGE>

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


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

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

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

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

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

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


                                      23

<PAGE>

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

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

<TABLE>
<CAPTION>
Exhibit No.            Document

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

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

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

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

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

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

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

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

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


                                      24

<PAGE>

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

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

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

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

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

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

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

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

     27                - Financial Data Schedule
</TABLE>


                                      25

<PAGE>

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


                                      26

<PAGE>

                           FINANCIAL STATEMENTS AND
                         INDEPENDENT AUDITORS' REPORT

                       AIM GROUP, INC. AND SUBSIDIARIES

                          December 31, 1997 and 1996


<PAGE>

INDEPENDENT AUDITOR'S REPORT


Board of Directors
AIM Group, Inc.


We have audited the  accompanying  consolidated  balance  sheets of AIM Group,
Inc. as of December 31, 1997 and 1996 and the related consolidated  statements
of  operations,  stockholders'  equity  and cash  flows  for the  years  ended
December  31,  1997,  1996  and  1995.  These  financial  statements  are  the
responsibility of the Company's  management.  Our responsibility is to express
an opinion on these financial statements based on our audit.

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

In our  opinion,  the  consolidated  financial  statements  referred  to above
present fairly, in all material respects, the financial position of AIM Group,
Inc. as of December  31, 1997 and 1996 and the results of its  operations  and
its cash  flows  for the  years  ended  December  31,  1997,  1996 and 1995 in
conformity with generally accepted accounting principles.

The accompanying  financial statements have been prepared assuming the Company
will  continue  as a  going  concern.  As  discussed  in  Notes A and B to the
financial  statements,   the  Company  has  incurred  continuing  losses  from
operations,  has  insufficient  cash flow  from  operations,  has  substantial
non-earning  assets and is dependent on very few customers.  These items raise
substantial   doubt  about  its  ability  to  continue  as  a  going  concern.
Management's  plans  regarding those matters are also discussed in Notes A and
B. The financial  statements do not include any adjustments  that might result
from the outcome of these uncertainties.


Plantation, Florida
March 13, 1998


                                     F-1

<PAGE>

                          AIM Group and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                         "December 31, 1997 and 1996"

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

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

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

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

                     LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

COMMITMENTS                                                                     -              -

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

The accompanying notes are an integral part of these statements.


                                      F-2
<PAGE>

                          AIM Group and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

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

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

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


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

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

The accompanying notes are an integral part of these statements.


                                      F-3

<PAGE>

                          AIM Group and Subsidiaries

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
                                                                          Additional
                                                             Common        Paid-in        Treasury     Accumulated
                                              Shares         Stock         Capital         Stock         Deficit         Total
                                           ------------   ------------   ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
Balances - December 31, 1994                     1,000    $        10    $        90    $         -    $   (25,260)   $   (25,160)

Issuance of 3,898,929 shares of
common stock upon merger and
cancellation of original shares issued          (1,000)           (10)           (90)                                        (100)
                                             3,898,929         38,989      4,022,185        (11,575)             -      4,049,599

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

Net loss for the year                                -              -              -              -       (308,841)      (308,841)
                                           ------------   ------------   ------------   ------------   ------------   ------------
Balances - December 31, 1995                 4,113,465         41,135      4,150,258        (11,575)      (334,101)     3,845,717

Issuance of 80,000 shares                       80,000            800         81,992              -             -          82,792

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

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

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

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

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

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


The accompanying notes are an integral part of these statements.


                                      F-4

<PAGE>

                          AIM Group and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

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


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

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

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of stock                                           -               -         141,894
  Stock subscription received                                           -               -          82,792
  Proceeds from convertible note                                        -         300,000         750,000
  Cash balances of merged entities                                      -               -          92,759
  Receivables from affiliates eliminated upon merger                    -               -        (241,583)
  Reductions of notes payable                                           -               -        (325,000)
  Long-term debt financing                                              -          21,070          84,433
  Repayment of long-term debt                                      (8,749)        (14,470)              -
  Purchase of stock for treasury - net                             (5,476)         (1,400)              -
  Loans received - net                                                  -               -               -
  Advances to affiliated company, net of repayments                     -               -               -
                                                               -----------     -----------     -----------
    Net cash provided (used)  by financing activities             (14,225)        305,200         585,295
                                                               -----------     -----------     -----------

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

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


                                      F-5

<PAGE>

                          AIM Group and Subsidiaries

               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

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


<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                      -----------    -----------    -----------
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
<S>                                                                   <C>            <C>            <C>
  Interest paid                                                       $  172,968     $  129,395        167,851
                                                                      ===========    ===========    ===========

Net cash effects of merger as of March 31, 1995:
  Increases in assets and liabilities
    Trade accounts receivable                                                                       $  129,723
    Inventories                                                                                         74,022
    Prepaid expenses                                                                                    19,417
    Property, plant and equipment                                                                      398,914
    Resource property                                                                                3,979,345
    Other assets                                                                                        45,666
    Accounts payable                                                                                  (368,500)
    Accrued expenses                                                                                   (77,500)
    Other                                                                                               (2,764)
                                                                                                    -----------
                                                                                                     4,198,323

Add cash balances of merged companies                                                                   92,759
Less receivables from merged entities - eliminated in merger                                          (241,583)
                                                                                                    -----------

                                                                                                    $4,049,499
                                                                                                    ===========

Value attributed to common stock upon merger                                                        $4,046,074
Less cost of treasury stock - assumed in merger                                                        (11,575)
                                                                                                    -----------
                                                                                                    $4,034,499
                                                                                                    ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-6

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BASIS OF PRESENTATION

      The  financial  statements  are  presented  assuming  the  Company  will
      continue as a going concern which contemplates the realization of assets
      and  satisfaction  of liabilities in the normal course of business.  The
      Company  has  incurred  losses  since  its  inception  and  there  is no
      guarantee  that the Company will generate  sufficient  revenues from its
      proposed  products and  operations  to generate a profit.  The financial
      statements do not include any adjustments that might be necessary if the
      Company is unable to continue as a going concern. Also see Note B.

      The financial  statements  are reported in (U.S.  Dollars) in accordance
      with generally accepted accounting  principles under the jurisdiction of
      the United  States and there are no material  differences  with Canadian
      generally accepted accounting principles.

      PRINCIPLES OF CONSOLIDATION

      The  consolidated  financial  statements  contain  the  accounts  of the
      Company and its  subsidiaries,  HeatShield  Technologies,  Inc. ("HTI"),
      United Minerals Corp. of Arkansas ("UMC(AR)"),  United Minerals Corp. of
      Arizona   ("UMC(AZ)"),   and  HST  Capital  Corporation   ("HST").   All
      subsidiaries are wholly-owned. All significant intercompany transactions
      and balances have been eliminated in consolidation.

      CASH AND CASH EQUIVALENTS

      For purposes of the statement of cash flows,  the Company  considers all
      highly liquid debt  instruments  purchased with an original  maturity of
      three months or less to be cash and/or cash equivalents.

      INVENTORIES

      Inventories  are  stated  at the  lower  of  cost  or  market.  Cost  is
      determined using the first-in, first-out method. Inventories at December
      31, 1997 and 1996 consist of:

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


                                     F-7

<PAGE>

                        AIM Group, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995


NOTE A - CONTINUED

      PROPERTY AND EQUIPMENT

      Property  and  equipment  are recorded at cost for  financial  reporting
      purposes and are  depreciated  utilizing the  straight-line  method over
      their estimated  economic lives.  Significant  additions and betterments
      are  capitalized.   Expenditures  for  maintenance,  repairs  and  minor
      renewals are charged to operations as incurred.  The lives  utilized for
      depreciation are summarized as follows:

<TABLE>
<CAPTION>
                                                         Years
<S>                                                      <C>
            Building                                      39
            Plant equipment                               10
            Engineering and start up                       5
            Laboratory equipment                           7
            Furniture and office equipment               5-7
</TABLE>

      TRADEMARKS AND PATENTS

      The Company has received the trademark registration for the product name
      Klannerite(R)  in 1993.  The  Company was granted a patent on the Photon
      Diffusive  Coating  November 6, 1996.  Trademarks  and  patents  will be
      amortized over 10 years. The Company's  trademarks are: AIM GroupR,  the
      Corporate   entity   Uni-KoteR,   the  UMC(AR)   marketing   label;  and
      Klannerite(R), the rock from UMC (AZ)'s Viva Luz Mine.

      DEFERRED START-UP

      Deferred  start-up  costs  associated  with  the  surface   modification
      business in Arkansas are being amortized over sixty months.

      EARNINGS (LOSS) PER SHARE

      Earnings  (loss)  per  share are based on the  weighted  average  shares
      outstanding  during the year.  The  preferred  stock,  stock options and
      warrants have not been factored into the  computation  of loss per share
      because their effect is anti-dilutive.

      MAJOR CUSTOMERS

      The  Company  sold  products  from its  surface  modifications  facility
      representing  more than 10% of its revenues for the years ended December
      31,  1997 and 1996,  to a single  customer  in the amount of 67% and 83%
      respectively.  In  addition,  the sales to the three  largest  customers
      accounted for 92% of total sales in 1997.


                                     F-8

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE A - CONTINUED

      Estimates

      The  preparation  of financial  statements in conformity  with generally
      accepted accounting principles requires management to make estimates and
      assumptions  that affect the reported  amounts of assets and liabilities
      and disclosure of contingent  assets and  liabilities at the date of the
      financial  statements and the reported  amounts of revenues and expenses
      during the reporting period.

NOTE B - GOING CONCERN

As shown in the accompanying  financial statements,  the Company has recurring
losses from  operations.  In addition,  the Company has not been successful in
the  development  of its resource  property.  Due to the lack of cash flow the
Company was unable to continue to invest in and exploit the property and there
is uncertainty in the potential market for the deposit.  There is no assurance
that  the  resource  property  will be  fully  recoverable  at  these  levels.
Management believes that alternative  applications have been identified and it
is the recommendation of the Board of Directors that further  investigation of
these alternatives is warranted.  Although the Company's surface  modification
business in Arkansas has been profitable, it is reliant on very few customers.
Unless the Company is  successful in  diversifying  and expanding its customer
base, the prospects for this line of business remains uncertain. These factors
raise  substantial  doubt about the  Company's  ability to continue as a going
concern.

Management is seeking alternative sources of equity financing that would allow
the marketing and diversification effort for the surface modification business
as well as the  continued  research  and  development  effort for the resource
property. There can be no assurance that the Company will be successful in its
efforts to obtain  additional  financing.  If the Company is not successful in
its efforts,  it may be necessary  to undertake  such other  actions as may be
appropriate to preserve asset value.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

NOTE C - OPERATIONS/NATURE OF BUSINESS

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

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


                                     F-9

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE C - CONTINUED

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

      UMC(AR) is the Company's  core business and has completed its third full
      year of  operations  as of  December  31,  1997.  It  operates a surface
      modification  facility,  both as principal and as a toll processor,  for
      industrial   minerals  used  as  fillers  in  the  rubber  and  plastics
      industries.   The  plant  commenced  operations  in  April  1994.  Since
      inception  UMC(AR)  has  carried  out  leasehold  improvements  and  the
      engineering,  procurement,  and construction of machinery and equipment.
      UMC(AR) purchased the land and building in 1995.

      The UMC(AR)  Malvern  facility  has been  designed  to treat  industrial
      fillers such as silica,  clay, mica, alumina  trihydrate,  wollastonite,
      magnesium hydroxide and microspheres with silanes.  The treated products
      are  used  in  the  plastics  and  elastomer   industries.   Silanes  or
      "organosilicon  chemicals" were  recognized as superior  coupling agents
      approximately 40 years ago.

      Typical  customers  of  UMC(AR)  are  compounders  in the  plastics  and
      elastomer  industries  seeking to improve the  physical  mechanical  and
      electrical properties and the performance of their products. Through the
      application of small quantities of organosilicon chemicals, UMC(AR) can,
      through   surface   modification,   appreciably   improve  the  physical
      characteristics   of  the  filler  resin  composites.   Improvements  in
      composite  properties  that are desired by customers  are: (i) lower oil
      absorption, (ii) less moisture ingress or accumulation,  (iii) increased
      tensile  strength,   and  (iv)  better  mixing   viscosity.   Composites
      containing  surface  modified  fillers  are  used  in  the  electronics,
      communications,  transportation,  construction materials,  and appliance
      industries.

      The use of surface  modified  fillers may require that customers  change
      their formula or production  method in order to achieve  maximum benefit
      from the modified filler  materials.  As such,  there may be a prolonged
      interval of business  development  during which the customer  undertakes
      testing and evaluation  prior to a change in materials  source.  UMC(AR)
      has  successfully  supplied  samples to a number of customers and sample
      evaluation is ongoing.  Additionally,  UMC(AR) has successfully  carried
      out surface treatment of test quantities of opacifying materials.

      UMC(AR) operated one shift per day during 1997 and treated approximately
      1,900 tons of  commercial  products  at the  Malvern  plant.  Management
      estimates  that the  plant's  capacity is  approximately  7,000 tons per
      year.  The plant  currently  has two mixing  and  packaging  lines,  and
      effective  doubling of capacity  providing  for  treatment  of a diverse
      product  mix,  is under  consideration.  Approximately  seven  full time
      employees currently work at the plant.


                                     F-10

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE C - CONTINUED

      HEATSHIELD TECHNOLOGIES, INC. (HTI)

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

      HTI carried our reserve  analysis,  surface mining,  and processing of a
      silica/kaolinite  rock,  called  "Klannerite(R)",  at a mining  property
      locally  referred  to as the "Viva Luz Mine"  located in Mohave  County,
      Arizona.

      UNITED MINERALS CORPORATION ARIZONA - VIVA LUZ MINE

      UMC(AZ),  a wholly owned subsidiary,  holds a mining lease (Lease) which
      expires March, 2004 with New Mexico and Arizona Land Company,  the owner
      of the  mining  rights.  The  Lease  is  subject  to a  further  term in
      perpetuity  provided  the  property is in  operation  and is  generating
      minimum royalties.

      The Lease  permits the  exploration  of the  property and removal of the
      mineral  over the  remaining  term.  The Lease  calls for the payment of
      production  royalty of 5% of the gross  consideration  obtained  for the
      mineral less transportation costs, subject to minimum royalty payment of
      $5,000 per year.

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

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


                                     F-11

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE D - PROPERTY AND EQUIPMENT

Property plant and equipment is summarized as follows:

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

NOTE E - OTHER ASSETS

Other assets consist of the following:

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

NOTE F - RESOURCE PROPERTY

The  Company's  resource  property,  located in  Arizona,  consists of mineral
leases and  deposits.  This  property was valued based on appraisal as part of
the merger which occurred March 31, 1995. The following describes the property
and related reserves of rock containing crystobalite, quartz and kaolinite.


                                     F-12

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE F - CONTINUED

      MINERAL LEASE - VIVA LUZ DEPOSIT

      The  Viva  Luz  Mine,  located  in  Mohave  County  in  Arizona,   is  a
      crystobalite, quartz and kaolinite deposit with proven drilled reserves.
      The deposit has been classified into three different grades. The whitest
      grade is  denoted  as K1,  the off white  grade is denoted as K2 and the
      third, lowest grade as K3.

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

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

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

      MINERAL MINED, PRODUCED AND SOLD IN 1992 THROUGH 1997

      In 1992  the  222.5  tons of K1  processed  during  the  year  1992  was
      considered  to be a trial  production  run.  7.5 tons of the 222.5  tons
      produced was distributed as samples and 2.5 tons were sold.  During 1997
      a nominal number of samples  aggregating  approximately  250 pounds were
      sent to prospective  customers from whom the Company received a positive
      response. The remaining 212.5 tons are being held in inventory.

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


                                     F-13

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE G - LONG-TERM DEBT

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

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

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

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

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

<TABLE>
<CAPTION>
       Year ended
      December 31,
<S>                                                        <C>
      1998                                                 $ 80,954
      1999                                                   31,861
      2000                                                   34,271
      2001                                                   26,959
                                                           ---------
                                                           $174,095
                                                           =========
</TABLE>

The Company also has a factoring  arrangement for its receivables arising from
its sale of  products  from its  Arkansas  toll  facility.  The  factor  has a
security interest in all factored accounts receivable.  The total interest and
factoring costs for 1997 and 1996 were $71,183 and $85,741, respectively.


                                     F-14

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE H - CONVERTIBLE NOTES PAYABLE

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

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

NOTE I - STOCK OPTIONS AND WARRANTS

The Company had various  non-qualified  incentive  stock  options and warrants
that had been issued to  employees,  directors  and  investors.  Most of these
options and  warrants  were issued  prior to the merger and were  converted to
Company  options and warrants as a result of the merger.  All of these options
and  warrants  have  expired.  There were no  exercises of options or warrants
during 1996 and 1997.

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


                                     F-15

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1996 and 1995


NOTE J - LEASE COMMITMENTS

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

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

NOTE K - RELATED PARTY TRANSACTIONS

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

      PRIVATE PLACEMENT OF CONVERTIBLE 3 1/2% PROMISSORY NOTES

      The Company  announced on November  15, 1995 a private  placement in the
      form of 3 year convertible 3 1/2% Promissory Notes ("Convertible Notes")
      having  a face  value  of  $1,050,000  subject  to the  approval  of the
      Vancouver   Stock  Exchange.   (See  Note  H).  The  following   related
      individuals and affiliated  concerns  acquired the Convertible  Notes as
      follows:

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

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

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

NOTE M - INCOME TAXES - NET OPERATING LOSSES

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


                                     F-16