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, 1998.

                                      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.)

         Jones Mill Industrial Park
         Highway 270
         P.O. Box 208
         Jones Mill, Arkansas                              72105
       ---------------------------------            -------------------
        (Address of principal executive offices)        (Zip Code)

Registrant's telephone number, including area code (501)844-2600
                                                   -------------

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

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


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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 [ ]

      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: $2,085,398

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

      Aggregate market value as of March 24,1999:                   $3,389,144

      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 24, 1999: 1,360,201 shares.

      Transitional Small Business Disclosure Format:
Yes [ ]   No [X]


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                                    PART I

ITEM 1.     DESCRIPTION OF BUSINESS


      The Company was  incorporated  under  Delaware law on March 24, 1994 for
the purpose of acquiring,  through a merger consummated on March 31, 1995, all
of the  outstanding  shares of capital stock of (i)  HeatShield  Technologies,
Inc. ("HTI"), a corporation formed in May 1991 for research and development to
exploit  industrial  minerals  applications and markets,  and its wholly-owned
subsidiaries United Minerals Corporation  (Arkansas)  ("UMC-Arkansas"),  which
was formed in March 1993 to construct a surface modification plant in Malvern,
Arkansas  that  commenced  operations  in  April  1994,  and  United  Minerals
Corporation  (Arizona)  ("UMC-Arizona"),  which was  formed  in March  1992 to
engage in the surface mining and processing of  Klannerite(R)  at the Viva Luz
Mine  in  Mojave  County,  northern  Arizona;  and  (ii)  Advanced  Industrial
Minerals,  Inc.  ("AIM"),  a  corporation  formed in July 1981 that  owned the
mineral rights to the Viva Luz Mine.

      In August 1998, the Company  relocated its executive  headquarters  from
Pompano Beach,  Florida to Jones Mills,  Arkansas.  References  herein to "AIM
Group" or the "Company" include all of the Company's wholly-owned subsidiaries
unless otherwise indicated.

      Currently,  the Company is primarily engaged in the surface modification
of industrial  fillers at its plant in Malvern,  Arkansas and the ownership of
the rights to develop and market  Klannerite(R)mined from the Viva Luz Mine in
Mojave County,  Arizona.  The Company plans during 1999 to enter into a second
line  of  business,  the  implementation  of a  roll-up  strategy  within  the
Information  Technologies  ("IT")  industry by  acquiring  small,  established
Internet Service Providers ("ISPs") and Business Software Solutions  Providers
("BSSPs") that focus on application  Web site design and development for small
to medium-sized  businesses.  In addition, the Company has acquired a minority
equity  interest  in  Netsurfer,  Inc.,  a private  company  headquartered  in
Atlanta,  Georgia that currently markets a product  utilizing  Internet access
software for sale to ISPs.

      This  report  contains  forward-looking  statements  relating  to future
revenues  and  results  of  operations,   the  Company's  customers,  uses  of
Klannerite(R)  and  the  Company's  plans  to  enter  the  IT  business.  Such
forward-looking  statements  are  identified  by the  use  of  words  such  as


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"believes,"   "intends,"  "expects,"  "may,"  "should,"  "plan,"  "projected,"
"contemplates," "anticipates" or similar words. The forward-looking statements
are  based on the  Company's  beliefs  and  assumptions  based on  information
currently  available to it and involve risks and uncertainties.  Actual future
results  may  differ   significantly   from  the  results   discussed  in  the
forward-looking  statements.  Factors  that  may  cause  such  differences  in
connection  with the  Company's  current  industrial  minerals  and  specialty
materials  business include risks and uncertainties  relating to the Company's
ability  to retain  existing  personnel;  the  Company's  dependence  upon the
economic  conditions  in the  industries  in  which  the  Company's  customers
operate;  the presence of free  silica,  which  possess a potential  risk as a
cancer causing agent, in certain of the Company's products; the ability of the
Company  to  effectively  compete  with  other  companies,  some of which have
substantially  greater  financial and other  resources  than the Company;  the
impact of government  regulations  on the Company's  extraction and processing
activities  and  the  risks  and  hazards  inherent  therein;  the  commercial
viability of  Klannerite(R);  the  material  adverse  effect on the  Company's
results  of  operations  if it were to lose  its  significant  customers;  the
possible  unavailability of supplies;  the possible loss of existing access to
the Viva Luz  Mine;  and the  losses  that  could  result  from the  Company's
exposure to currency fluctuations.  Factors that could cause actual results to
differ  significantly  from  the  results  discussed  in  the  forward-looking
statements  relating to the Company's  proposed  acquisition  and operation of
ISPs and BSSPs include the risks and uncertainties  relating to the absence of
the Company's operating experience in the IT business; the intense competition
in the market for Internet access and related  services;  the rapidly changing
technology in connection  with Internet  access;  the  competition for ISP and
BSSP acquirees and the risks associated with the post-acquisition operation of
acquired  ISPs and  BSSPs;  the  start-up  nature  of ISP and BBSP  acquirees;
questions  as to the  continued  growth and demand for  Internet  access;  the
retention and  acquisition of  subscribers;  dependence on  telecommunications
carriers;  and the  Company's  ability  to  engage  necessary  new  managerial
personnel and to retain the existing personnel of acquired ISPs or BSSPs.


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                  SURFACE MODIFICATION OF INDUSTRIAL FILLERS

GENERAL

      At the Company's surface modification plant that commenced operations on
April 1994 in Malvern,  Arkansas,  approximately  40 miles southwest of Little
Rock,  Arkansas,  the Company processes industrial minerals used as fillers in
the plastics and elastomer or rubber industries.  The purpose of the Company's
surface  modification  of  industrial  fillers is to reinforce and improve the
mechanical, electrical and physical properties of the fillers used in plastic,
rubber and sealant  compounds.  The fillers  treated with  silanes,  which are
coupling  agents,  at  the  Company's  plant  include  clay,  mica,   alumina,
trihydrite,  wollastonite,  magnesium hydroxide and microspheres.  The plant's
surface modification treatments are marketed under the Uni-Kote(R)label.

      The Company serves the filler surface  modification  needs of a customer
either by (i) acquiring the appropriate  industrial  filler itself,  modifying
the  surface  of the filler as called for and then  delivering  the  resulting
finished  product to the customer;  or (ii) acting as a "toll"  processor,  in
which case the customer  delivers the industrial filler to be surface modified
to the  Company.  Delivering  or  "tolling"  industrial  fillers  for  surface
modification is an attractive alternative to many companies, as surface mining
technology  is  complicated  and requires  the use of  chemicals  that involve
environmental and health risks. In addition,  many users need small quantities
of surface modified fillers that do not warrant the construction and operation
of a facility for that purpose.

      The  gross  profit  margin  for the  Company's  toll  processor  surface
modification  business is approximately  80%, as compared to approximately 25%
for the finished  product surface  modification  business.  The toll processor
business is more profitable  because there is a lower cost of sales due to (i)
no cost of  minerals,  (ii) the silane is  purchased  by the  customer in many
cases and (iii) there is no cost of packaging in many cases. The percentage of
the Company's total sales represented by toll processor operations (as opposed
to finished product sales) amounted to 2% in 1997, and 4% in 1998.

      The fillers treated by the Company's surface  modification  facility are
primarily  used in the plastics and rubber  industries.  The customer seeks to
improve  the  filler's  physical  properties  and  performance.   The  surface
modification  process is a heat  retention  and thermal  dynamic  process that


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involves  the  application  of   organosilanes   and  other  coupling  agents.
Enhancements  of the  physical  characteristics  of the filler that can result
from the surface  modification  process include flame  retardation,  lower oil
absorption,  less moisture ingress or accumulation,  increased tensile or tear
strengths and better mixing viscosity.  Composites containing surface modified
fillers are used in the electronics,  transportation,  construction  materials
and appliance industries.  Surface modified fillers can decrease the amount of
resin used in a composite,  providing cost savings,  improved  performance and
enhanced safety for the end user.

      The Company's surface  modification  plant will accept or "toll" bags of
industrial  minerals delivered by truck and mix them in a heated batch process
mixer. The mixing and heating time is  approximately  30 to 40 minutes,  after
which  the  treated  filler  is  loaded  and  bagged  into 50 to  2,500  pound
containers for shipment.

      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. Consequently, there may be a prolonged interval
of business  development  during  which the  customer  undertakes  testing and
evaluation prior to a change in materials source.

PLANT CAPACITY

      The Malvern surface  modification  facility has an estimated capacity of
treating  approximately 7,200 tons of customer filler per year on a two-shift,
five day per week  basis.  During  1997 and 1998,  the  Company  operated on a
one-shift  per day  basis and  treated  approximately  1,900  and 1,600  tons,
respectively,  of customer fillers.  The Company attributes the decline to the
reduction in orders by a major  customer.  The plant  currently has two mixing
and  packaging  lines.  However,  expansion to three mixing and packing  lines
could be implemented  to increase  capacity and permit the treatment of a more
diverse product mix.

CUSTOMERS

      Approximately  87% of the Company's sales of surface modified fillers in
1998 were surface modified alumina trihydrate.  Other minerals modified by the
Company include magnesium hydroxide, microspheres, talc and nepheline syenite.


                                      6

<PAGE>

During 1996,  1997 and 1998,  a  subsidiary  of Laport  P.L.C.  ("Laport"),  a
British  plastics  compounder and the Company's major customer,  accounted for
approximately  83%,  67%,  and  61%,  respectively,  of  the  Company's  sales
revenues.  The loss of that  customer,  to whom  the  Company  sells  finished
products and does not act as a toll processor, would have a materially adverse
effect on the Company.  The Company has no long-term  contractual  arrangement
with that customer and no assurance can be given to the amount of future sales
that may will be made by the Company to that customer.  Of the Company's sales
to a total of 15  customers  in 1998,  sales to the  three  largest  companies
accounted for approximately 89% of total sales in that year.

      Pursuant to a contract  dated March 25,  1997,  and amended on September
13, 1997,  with a  subsidiary  of Martin  Marietta  Materials,  Inc.  ("Martin
Marietta"),  the Company serves as the northern  United States  distributor of
magnesium hydroxide produced by Martin Marietta.  The Company serves as Martin
Marietta's exclusive U.S. agent to surface treat the flame retardant and smoke
suppression  products  with  silane  at  the  Company's  surface  modification
facility.  The Company's  sales pursuant to that contract during 1997 and 1998
amounted to $10,581 and $17,460,  respectively, and the Company estimates that
total  annual  sales  pursuant to the  contract  during 1999 will  increase to
approximately $200,000.

      As in the case of magnesium  hydroxide,  alumina trihydrate serves as an
excellent  flame  retardant  in that it gives off water  molecules  when it is
exposed to heat.

MARKETING AND DISTRIBUTION

      The  Company's  sells  its  surface   modified   fillers  through  sales
representatives  and Company  employees.  The Company currently has 2 contract
sales  representatives,  2 sales related  employees  and 1 distributor  with 9
sales  people.  The Company  advertises  occasionally  in trade  journals  and
magazines.  In  addition,  the  Company  will  from time to time  exhibit  its
products at industry  conferences  and trade  shows.  The Company is dependent
upon its  customers'  inclusion of the  Company's  products in the  customers'
typical plastics and rubber  formulations in order to obtain sales. Due to its
limited  financial  resources,  the Company has not been able to increase  its
research and development  spending to facilitate customer use of its products.
To date,  the Company has provided  over 1,000 samples of its products to over
200  companies.  Management  believes  that due to the long sales  cycle which


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sometimes can last over 3-4 years, many of its earlier efforts to obtain sales
are still pending.

RAW MATERIALS

      The Company  purchases the minerals that are used as functional  fillers
in its surface modification  business from a limited number of suppliers.  The
Company believes that alternative sources of supply on commercially acceptable
terms generally are readily available. However, the loss of an existing source
of supply could result in a disruption  of the  Company's  business that would
adversely affect the Company's results of operations.

      Minerals  purchased and used by the Company as industrial fillers in its
surface  modification   business  include  alumina  trihydrate  and  magnesium
hydroxide, which are excellent flame retardants;  wollastonite,  which is used
in electrical reinforcement,  car bumpers and automobile assemblies; nepheline
syenite,  which is a  strengthening  agent for plastic;  microspheres or glass
bubbles,  which are used for light  weight high  performance  applications  in
aerospace;  and clay and  mica,  which  are used for  filler  applications  in
plastics and rubbers.

      Of the over 300  primary  kinds  of  silanes  that  exist,  the  Company
purchases and uses  approximately 20 of them as coupling agents that are added
to the filler in the surface  modification  process. The Company purchases the
silanes used by it in its surface modification operations from several sources
and believes that readily available alternative sources are available.

COMPETITION

      The  Company's  surface   modification   products  are  sold  in  highly
competitive  markets  which  are  influenced  by  price,  profit  performance,
customer  location,  service  and  general  economic  conditions.  The Company
competes  with  other  mineral  suppliers  and toll  processors  in the filler
surface modification industry. Many of such companies are substantially larger
and more diversified that the Company. The Company estimates that during 1998,
a total of approximately 100,000 tons of surface modified magnesium hydroxide,
alumnia trihydrate,  wollastonite,  calcined kaolin,  silica,  mica, feldspar,
talc,  calcium  carbonate and microspheres were produced in the United States.
Of that amount,  the Company  estimates  that its  shipments of  approximately


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1,600 tons of such surface modified minerals  constituted  approximately 2% of
the U.S. production.  The Company's products tend to apply to the higher value
end of the potential  market. As such, the volumes tend to decrease as opposed
to the  commodity  type  treated  minerals  such as silica,  talc and  calcium
carbonates.

      The Company's relatively small size constitutes a competitive  advantage
in certain  respects.  Many of the  Company's  competing  producers of surface
modified  fillers are large and  vertically  integrated  and  generally do not
engage in the production of small amounts of surface modified fillers that are
custom tailored to the customer's  needs.  The processing of such small orders
serves as a potentially  significant  source of the Company's toll  processing
business.   Furthermore,   manufacturers   of  proprietary   high  performance
composites often prefer not to have a potential  competitor  surface modifying
its materials.

      The silane surface  modified fillers produced by the Company are used in
the high volume,  high  performance  end of the plastic  reinforced  composite
business, as opposed to the lower value, low performance end of the business.


BUSINESS STRATEGY AND OPPORTUNITIES

      The Company's goals in the filler surface  modification  business are to
(i) diversify its customer base by developing  additional market  applications
such as filled resin systems and further  development of surface  modification
technology of additional filler  materials;  (ii) expand production by serving
such market applications for new customers;  and (iii) secure upstream sources
of raw materials by consummating supply and distribution  agreements with such
new  customers,  such as the  agreements  entered into during 1997 with Martin
Marietta.  On March 4, 1998 the Company received approval for certification of
Registration to ANSI/ISO/ASQ Q9002-1994 "(ISO-9002 Certification") by American
Certification Corporation. This certification is a rating to the industry that
United  Minerals  Corporation  - Arkansas,  a  wholly-owned  subsidiary of the
Company, conforms with the production of consistent high quality,  value-added
ISO-9002  silane  surface  modified  fillers  and toll  processing  of  custom
products.  Management  believes this ISO-9002  Certification will add customer


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value and create a potential benefit by increased sales revenues.

      New possible  business  opportunities  that have been  identified by the
Company include (i) the  installation of new equipment  costing  approximately
$280,000  to enable  the  Company  to engage  in resin  compounding,  (ii) the
commencement  of  related  toll  services  such as vacuum  drying,  delumping,
repackaging,  precision  classification  and  micron  grinding  and  (iii) the
potential development of silane surface modification  facilities in Europe and
the Far East, where silane surface  modification is not as highly developed as
it is in the United States.

      During 1998, the Company was successful in developing a new treated line
of clay products for wire and cable plastic compounding applications.  Current
marketing efforts are underway to further develop this potential new business.
The Company has received a written  report by an independent  laboratory  that
this new clay product meets or exceeds  standards set in the industry by other
existing products presently selling in the marketplace.


                   PROCESSING AND MARKETING OF KLANNERITE(R)

      The Viva Luz Mine in Mojave County, northern Arizona is approximately 31
miles east of Needles,  California and 43 miles southwest of Kingman, Arizona.
The mine can be reached via a 4.5 mile improved  dirt road,  suitable for both
passenger cars and trailer trucks, from Interstate Route 40 which runs between
Kingman and Needles.  In July 1992,  the Atchison  Topeka and Santa Fe Railway
Company (the "Railway Company"),  whose tracks cross the path from the highway
to the Viv Luz Mine,  denied public access across its tracks to the mine.  Due
to the  remote  location  of the mine  site and  railroad  crossing  liability
issues,  the Railway  Company  requested that access to the mine be limited to
pre-arranged  time  periods  when safety  personnel  can be made  available to
provide  traffic  control for  vehicles  crossing  the tracks.  On a quarterly
basis,  the Company can arrange access with the Railway  Company to cross over
the railroad tracks.  Approximately  one week prior to the date that access to
the mine site is  required,  the Company  telephones  the Railway  Company and
requests the  provision of a flagman and a spotter and advises the railroad of
the days when such two persons are  required.  The Railway  Company  makes the
appropriate  arrangements which allow the Company access to the mine site. The


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Company believes that it possesses a prescriptive easement entitling it to use
the crossing path over the railroad  tracks and that the Railway  Company will
not deny  access to the mine across the  tracks.  However,  should the Railway
Company deny access to the mine across such railroad tracks in the future, the
Company could make  arrangements to use an alternate route to access the mine.
Such  alternate  road is in need of  upgrading  to bring it to a condition  to
permit  use  and  the  Company   estimates  that  such  upgrading  would  cost
approximately  $70,000  and could be  completed  in  approximately  one month.
Therefore,  the Company believes that the additional cost to use the alternate
route would not have a material effect on the Company's financial condition or
operating results.

      New  Mexico  &  Arizona  Land  Company   ("NMAL"),   the  owner  of  the
approximately 80 acre track on which the Viva Luz Mine is located,  originally
leased the property for mining  purposes on March 1, 1984,  (the  "Lease") and
the Lease was  assigned to HTI and certain  affiliates  on October 8, 1991 and
conveyed to UMC  (Arizona)  during 1998.  The Mining  Lease,  which expires in
March 2004, 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
and  calls  for  the  payment  of a  production  royalty  of 5% of  the  total
consideration obtained for the mineral less transportation costs, subject to a
minimum royalty of $5,000 per year.

      The  geology  of  the  Viva  Luz  Mine  is  that  of a  zone  system  of
hydrothermally  altered rocks. The mine is located directly on a natural fault
which acted as the natural  plumbing  system for hot,  corrosive  waters which
eliminated a majority of  impurities,  producing  the  distinctive  and unique
white  rock that is a pure,  uniform,  porous  rock  that has the  trade  name
Klannerite(R).  In the  1950s,  the white  sandy  mineral  was used as roofing
granules because of its insulating capabilities.


ORE RESERVES

      The Viva Luz Mine is a cristobalite,  quartz and Kaolinite  deposit with
proven  and  probable  ore  reserves.  The  deposit is  classified  into three
different  grades,  K1, K2 and K3. Based on the independent ore reserve report
of Rio  Services,  Inc.,  dated  May,  1992,  the  highest  grade of K1 has an
estimated  mineral deposit of  approximately  262,000 short tons (i.e.,  2,000
lbs) of proven  reserves  and 78,000  short tons of probable  reserves,  for a


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total of approximately 340,000 short tons of proven and probable reserves, and
the  two  lower  grades,  K2  and  K3,  have  a  total  estimated  reserve  of
approximately  1,350,000 short tons of probable reserves. The Company believes
K1 may be used  in  connection  with  filler  applications,  K2 may be used in
connection  with  refractory  applications  and K3 may be used as a low  grade
filler. The Company has focused its efforts on the development of applications
for the pure white K1 grade rather than the lower grade,  off color K2 or pale
green K3.

      The term "ore  reserve"  for the  above  purposes  means  that part of a
mineral deposit which could be economically and legally  extracted or produced
at the time of the reserve determination. "Proven reserves" means reserves for
which (i) quantity is computed from dimensions revealed in outcrops, trenches,
workings  or drill  holes,  and grade  and/or  quality are  computed  from the
results of detailed sampling, and (ii) the sites for inspections, sampling and
measurement  are  spaced so  closely  and the  geologic  character  is so well
defined  that size,  shape,  depth and  mineral  content of the  reserves  are
well-established.  "Probable  Reserves"  means reserves for which quantity and
grade and/or  quality are computed from  information  similar to that used for
proven  reserves,  but the sites for inspection,  sampling and measurement are
farther  apart  or  are  otherwise  less  adequately  spaced.  The  degree  of
assurance,  although  lower than that for proven  reserves,  is high enough to
assume continuity between points of observation.

      The mineral  deposit  outcrops at the surface and most of the overburden
has been removed. Thirteen six-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 five feet through the ore zone. Thirteen cross sections were constructed
in AutoCad and used to calculate the above proven ore  reserves.  An estimated
82% of the  mineral  is  recoverable  in the mining  process.  The loss in the
recovery  process was taken into account in calculating  the above ore reserve
data.


KLANNERITE(R) DEVELOPMENTAL ACTIVITIES

      During the 1980s and early  1990s,  the  efforts  of several  industrial
corporations to develop  commercially  viable uses for  Klannerite(R)were  not
successful. In 1992, prior to the acquisition by the Company of HTI and AMI on


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March 31, 1995,  HTI  processed  222.5 tons of K1 which it  considered to be a
trial production run. Of that production, 7.5 tons were distributed as samples
and  2.5  tons  were  sold to  refractory  customers  for use as a  protective
coating.  No further sales of  Klannerite(R)have  been made since 1995. During
1998, a nominal number of samples  aggregating  approximately  200 pounds were
sent to prospective customers.

      In  February  1997,  the  Company's  former  management   announced  its
intention to write-off a portion the approximate $4 million  carrying value of
the Viva Luz Mine lease,  which consisted of the property's  purchase price of
approximately  $3.9 million and pre-paid  royalties.  The announcement  stated
that  management  had  anticipated  that  Klannerite(R)   would  have  greater
potential  commercial  applications  as an  industrial  mineral  filler in the
paint-coatings  and plastics  compounding  industries  and as an energy saving
coating,  but that the Company had  experienced  disappointing  results in its
testing  of those  applications.  The  announcement  further  stated  that the
Company had limited financial resources to pursue the research and development
of commercial applications of the mineral. Following the change in the members
of the Board of Directors and appointment of current management of the Company
in March  1997,  the  Company  announced  in April  1997  that the  previously
proposed write-off was premature and would not be implemented and that efforts
would be made to identify viable commercial applications for the mineral.

      During 1997,  several  independent  tests  performed in accordance  with
American Society for Testing and Materials  Standards  concluded that calcined
Klannerite(R)serves as an excellent pozzolanic material, which is a mixture of
silica  and clay,  for use in cement to  achieve  low  permeability,  increase
compressive   strength   facilitating  early  set-up  time  and  stop  alkalki
reactivity that causes unwanted expansion. The Company has concluded, based on
such  tests and a  preliminary  feasibility  study,  that  Klannerite(R)has  a
commercially viable application as a white pozzolan in the cement industry and
that additional  research and development may result in the  identification of
other commercially viable applications.

      The Company believes that there is demand for higher quality  aggregates
in  cement  in the  United  States,  particularly  in  southwestern  states of
Arizona, New Mexico, Nevada and Southern California,  and that a market exists


                                      13

<PAGE>

for a high performance pozzolan.

      The  Company  plans to  market  the  property  in  combination  with the
construction of a new pozzolan processing facility,  which essentially will be
a grinding  and  crushing  operation,  near the Viva Luz Mine site and expects
that the plant will supply the cement market for Arizona,  New Mexico,  Nevada
and southern California.  The Company estimates that the cost to construct the
new facility  will  approximate  $4 million and that an  additional $1 million
will be required to construct  roads,  extra silos, and office and covered raw
storage for environmental purposes.

      In addition to developing the proposed use of  Klannerite(R)  as a white
pozzolan  for use in cement,  the  Company  plans to  continue  its efforts to
identify other commercially viable industrial mineral  applications as a paint
filler, plastic filler and elastomer filler.


MARKETING

      Pozzolans  are  additives  that improve the  properties of concrete made
from  Portland  cement.  Pozzolans  work by  preventing  detrimental  chemical
reactions  between Portland cement and the aggregate and sand fractions of the
concrete.  The demand for pozzolans is increasing for several reasons: a) many
high  quality  deposits  of  aggregate  have been  exhausted  or removed  from
inventory due to environmental constraints; lower quality aggregates need more
pozzolan to offset their tendency to react with Portland cement;  b) pozzolans
are considered to be environmentally  friendly because many represent a useful
application for waste  materials  (power plant fly ash and blast furnace slag)
and  because  they  partially  replace  Portland  cement,  a major  source  of
greenhouse  gases.  In some  states,  the U.S.  Department  of  Transportation
mandates pozzolan use for these reasons.  The southwest,  where the Klannerite
deposit is located, has some of the worst aggregates in the United States, and
thus a great need for high quality pozzolan.


COMPETITION

      The pozzolan market can be divided into three sectors based on price: a)
low cost pozzolan,  selling for about $35 per ton delivered,  and dominated by


                                      14

<PAGE>

fly ash and blast furnace slag; b) mid priced pozzolan,  selling for about $80
per ton  delivered,  and dominated by calcined  shales and tuffs;  and c) high
priced  pozzolan,  selling  for  about  $160 per ton or more,  delivered,  and
dominated by silica fume and calcined kaolin. The higher priced pozzolans have
better performance characteristics. Klannerite will compete in the $80 per ton
market.  Within this market  segment,  the  relatively  low unit cost prevents
shipping over great distances.  The nearest commercial  calcined shales are in
Kansas (1,357 miles from Phoenix);  the nearest  commercial tuffs are in Idaho
(818 miles from Phoenix).  Neither product is currently sold in the southwest.
Therefore,  the marketing goal for Klannerite is to create a new market in the
southwest for medium priced pozzolan.  Within a reasonable  shipping  distance
incuding Arizona, the Las Vegas area, and southern California, it is estimated
there is a potential  market for medium  priced  pozzolan  beginning  at about
25,000 tons per year and expanding to about 70,000 tons per year in 8 years.


                  PROPOSED INFORMATION TECHNOLOGIES BUSINESS

      The Company  intends to acquire  established  high  technology  oriented
businesses  involved in activities  relating to Internet and business solution
software  services.  During  January,  1999,  the Company  acquired a minority
equity  interest  in  Netsurfer,  Inc.,  a private  company  headquartered  in
Atlanta,  Georgia that currently markets a product  utilizing  Internet access
software for sale to ISPs.

      The Company has executed a letter of intent to acquire one  Internet/new
media  company,  which has developed  and  currently  markets a variety of new
media (Internet,  Intranet, and E-Commerce) products in addition to high-speed
communications   capabilities.   In  unison  with  its  ISP   services,   this
organization  also focuses on access and  connectivity via dedicated lines for
small to mid-sized  businesses.  The utilization of new media  technologies to
support AutoCAD and project  management  software is another specialty of this
organization  and  is  believed  by  the  Company  to  be  unique.   Web  site
development,  site management and web hosting are also integral  components of
this organization.

      In addition, the Company is negotiating definitive agreements to acquire
two separate  software  sales and  services  companies  focused on  Enterprise
Resource  Planning ("ERP")  business  solution  applications  which consist of


                                      15

<PAGE>

financial,  administrative,   human  resource,  manufacturing,   distribution,
point-of-sale  and inventory  management  software.  The market focus of these
organizations  in their Value  Added  Reseller's  ("VARs")  role is to provide
software to small to middle  sized  companies  whose  revenues  range from $50
million  to  $500  million.   That  software  also  will  support   management
information  systems ("MIS"),  and data base management of sales and marketing
information.  It is  believed  that these  types of  companies  will  generate
recurring  revenues from their hosting services and software  maintenance they
provide to their  customers.  Supporting  these  companies in their ability to
secure   recurring   revenue  is  their   establishment  of  a  solid  service
organization and reputation of specialization in a number of vertical markets.

      Pursuant to rules of the Vancouver  Stock  Exchange to which the Company
is  subject,  the  Company  plans to seek  the  approval  of its  shareholders
relating  to its  proposed  entry into the  Information  Technologies  related
business at the next Annual Meeting of Shareholders.

      Total ISP revenues in the United  States are projected to grow from $3.3
billion in 1996 to $18.3 billion in the year 2000,  according to International
Data  Corporation  ("IDC").  Industry  analysts  have  reported that small and
medium sized  businesses  represent a potential  market of over seven  million
customers in the United States, and use of the Internet by this market segment
is  expected  to grow  substantially  from its  current  low  level of  market
penetration. IDC predicts that dedicated connections to the Internet for small
and medium sized  businesses  will grow from  approximately  90,000 in 1996 to
just fewer than 800,000 in 2000,  representing a 73% compounded  annual growth
rate.  Small and medium sized  businesses  generally  seek an ISP with locally
based  personnel who are readily  available to respond  in-person to technical
issues, who can assist in developing and implementing the customer's effective
use of the  Internet,  and with whom they can establish a stable and long-term
relationship.  In addition,  they are increasingly reliant on enhanced product
offerings  that address  their  specific  business  needs on a  cost-effective
basis,  allowing  them to compete  with larger  companies.  For  example,  IDC
estimates  Web hosting  revenues from small and medium sized  businesses  will
grow  from  $84  million  in 1996 to  over  $3.4  billion  in the  year  2000,
representing 95% of the total Web hosting market.


                                      16

<PAGE>

      The rapid  development  and growth of the  Internet  has  resulted  in a
highly fragmented industry of over 4,000 national and local ISPs in the United
States,  with no  dominant  ISP  serving  the needs of small and medium  sized
businesses.   Independent  regional  and  local  ISPs  successfully   captured
approximately  one-half  of this  market,  despite the  substantially  greater
resources  of the national  providers.  However,  rising costs and  increasing
demands from business  customers have made it more difficult for the small ISP
to meet its customer's demands on a cost-effective basis.


                    ENVIRONMENTAL AND GOVERNMENT REGULATION

      The  mining and  surface  modification  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 imposed by
federal,  state and local governments and regulatory agencies.  In particular,
the Company's surface modification operations are subject to regulation by the
Occupational Safety and Health  Administration  ("OSHA ) and the Environmental
Protection  Agency (the "EPA").  In  particular,  the  production of materials
containing  silica  is  regulated  by  the  EPA  and  OSHA  as  such  material
potentially can be hazardous if inhaled or otherwise consumed. These potential
hazards  arise in  connection  with the  operation  of the  Company's  surface
modification  facility  and  Viva  Luz  Mine  processing.  The  EPA  and  OSHA
regulations  concerning  crystalline silica generally deal with health effects
and toxicity and exposure limits,  as well as certain safe handling rules such
as  specified  engineering   controls,   procedures  and  personal  protective
equipment requirements such as masks or respirators. The Company believes that
it is either in compliance  with the applicable  regulations or that the level
of operations is such that compliance with such regulations is not required.

      The surface modification facility at Malvern,  Arkansas is authorized to
operate under the State  Implementation  Plan.  Because emissions at the plant
are less  than 10 tons per  year,  the  plant is not  required  to have an air
quality  permit.  Compliance  with the U.S. Clean Air Act and the  regulations
thereunder  would be required if emissions from the facility were to exceed 10
tons per year. The surface  modification  facility presently has approximately
one ton of  emissions  per year.  In order to reach the 10-ton per year level,
the Company estimates that it would have to install two additional  processing


                                      17

<PAGE>

lines, which is more than double its existing installed  production  capacity,
and would have to operate four production  lines 24 hours a day, 5 days a week
and 52 weeks a year.  The Company does not  anticipate  reaching this level of
production in the foreseeable future.

      The  Company  is  subject to OSHA's  "Right to Know"  regulations  which
require the Company to disclose  potential  health hazards of its products and
processes to employees and customers. Such regulations require the Company and
its  employees to comply with  requirements  relating to dust  extraction  and
control  processes,  equipment,  safety clothing and use of certain equipment,
particularly respiration filters to remove airborne particles.

      The National  Institute of Occupational  Safety and Health ("NIOSH") has
recently  determined  that  respirable  silica,   which  occurs  naturally  in
Klannerite(R),  is a known  carcinogen  to humans.  The Company  expects  that
proposed  regulations  will require more stringent  limits on allowable silica
exposure and may include the required  installation of additional dust control
equipment to reduce particulate emissions as well as improved safety equipment
to  reduce  personal  exposure  and the  employment  of  extant  technological
solutions.  Many of the cement producers and redi-mix companies which would be
potential  customers  of the  Company  are  currently  using  silica  in their
formulas.   Compliance  with  such  possible  new  regulations  could  have  a
materially adverse impact upon the Company.


                      OCCUPATIONAL HAZARDS AND INSURANCE

      The Company's  extraction and  processing  operations are subject to the
usual  hazards  incident  to  the  extraction  and  processing  of  industrial
minerals,  including  pollution  and other  environmental  hazards  and risks,
periodic interruptions due to inclement or hazardous weather conditions, power
interruption,   critical  equipment  failure,  fires,  unusual  or  unexpected
geological or mining conditions and flooding. These hazards can cause personal
injury and loss of life,  severe  damage to and  destruction  of property  and
equipment,  pollution  or  environmental  damage,  suspension  of  operations,
monetary  loss and  possible  legal  liability.  For  example,  certain of the
Company's  products  contain free  silica,  which has, on the basis of limited


                                      18

<PAGE>

evidence, been determined to pose a potential risk as a cancer causing agent.

      The  Company   maintains   insurance  of  various  types  to  cover  its
operations.  It has an aggregate of $5 million of general liability insurance.
In addition, the Company maintains business interruption and property coverage
which protects  against losses related to the Company's  equipment,  inventory
and earnings.  The Company's  insurance  does not cover every  potential  risk
associated with its mineral processing operations. In particular,  coverage is
not  obtainable  by the Company or other  companies  within the  industry  for
certain types of environmental  hazards, such as pollution or other hazards as
a result of the disposal of waste  products  occurring  from the production of
industrial minerals.  The occurrence of a significant adverse event, the risks
of which are not fully  covered by  insurance,  could have a material  adverse
effect  on the  Company's  financial  condition  and  results  of  operations.
Furthermore,  no  assurance  can be  given  that the  Company  will be able to
maintain adequate insurance in the future at reasonable rates.


                                   EMPLOYEES

      The Company  presently employs 11 full-time  employees,  of whom two are
employed  in the  Company's  headquarters  in  Jones  Mill,  Arkansas,  one is
employed in Coral  Springs,  Florida,  and eight are employed at the Company's
Malvern  surface  modification  facility.  Activities at the Viva Luz Mine are
conducted under contract with a third party.  None of the Company's  employees
are covered by a collective bargaining agreement.

      The Company has employment agreements,  which are renewable on an annual
basis,  with its Chief Operating  Officer,  Chief Financial  Officer,  and the
Manager and Assistant Manager of its Malvern surface modification facility.


ITEM 2.     DESCRIPTION OF PROPERTY

      In August 1998,  the Company  relocated its  executive  offices to 1,000
square feet of space  leased in Jones Mills,  Arkansas at an annual  rental of
$11,500 under a lease expiring on August 31, 1999.


                                      19

<PAGE>

      UMC (Arkansas) owns a 9,050 square foot industrial  building in Malvern,
Arkansas  which  contains the Company's  surface  modification  facility.  The
building  includes  1,850  square feet of  laboratory  and office space and is
situated  on 3.75 acre site.  The  Company  has a  collateral  mortgage on the
property that had a principal balance of approximately $50,000 at December 31,
1998.

      UMC (Arizona)  leases the Viva Luz Mine,  which is located on an 80 acre
site located in Mojave  County,  Arizona,  pursuant to a lease that expires in
March 2004. The lease,  which calls for the payment of a production royalty of
5%  of  the  gross   consideration   obtained  for  the  mineral   mined  less
transportation costs, subject to a minimum royalty payment of $5,000 per year,
provides  for a  further  term in  perpetuity  as long as the  property  is in
operation and is generating minimum royalties.


ITEM 3.     LEGAL PROCEEDINGS

      In September, 1995, the UMC(AR) subsidiary of the Company was named as a
defendant  in an  action  brought  in  Chancery  Court  for  Davidson  County,
Tennessee by Franklin  Industrial Minerals  ("Franklin") of Nashville,  TN. In
addition, in April and May 1996, Aristech Chemical Corporation  ("Aristech") ,
the  Company's   customer,   and  the  ultimate  customers  Chemtron  Systems,
Inc.("Chemtron")  and  several  companies  forming  the  Insituform  group  of
companies  ("Insituform"),  respectively,  filed  intervenor suits against the
Company and Franklin.  In June 1998,  Insituform  assigned its claims  against
Aristech  and  Chemtron to the Company and  Franklin in exchange  for a mutual
release  between the  parties.  The Company and  Franklin now own those claims
which seek approximately  $180,000 plus interest.  The Company's management is
of the belief that the claims by Aristech and Chemtron are groundless and that
the intervenor suits will find Aristech to be responsible and the Company will
prevail in its counter  suit.  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  and  currently  believes  that the total
exposure is less than $25,000.

      Currently,  the  Company  is not a party  to any  other  material  legal
proceeding against the Company.


                                      20

<PAGE>

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

      During  the  fourth  quarter of 1998,  no items  were  submitted  to the
shareholders of the Company for vote.


                                    PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The  Company's  Common  Stock  has been  listed on the  Vancouver  Stock
Exchange ("VSE"),  Vancouver, B.C., Canada since April, 1995 under the trading
symbol  AIG.U and has been quoted  since  March 22, 1999 on the United  States
Over-the-Counter  Bulletin  Board  operated  by the  National  Association  of
Securities Dealers, Inc. under the trading symbol "AIGU."

      The following table sets forth, for the periods indicated,  the high and
low sales  prices per share of the Common  Stock as  reported  on the VSE,  as
adjusted to reflect the reverse  one-for-three  stock split effected on August
21, 1998:

<TABLE>
<CAPTION>
 1997                         HIGH             LOW
 ----
<S>                          <C>             <C>
First Quarter...........     $ 1.74          $  .69
Second Quarter..........        .90             .30
Third Quarter...........        .84             .69
Fourth Quarter..........       1.05             .45

 1998
 ----
First Quarter...........     $ 2.75          $  .90
Second Quarter..........       3.25            1.95
Third Quarter ..........       4.00            3.00
Fourth Quarter..........       3.50            2.50
</TABLE>


      As of March 15, 1999,  there were 354 holders of record of the Company's
Common  Stock.  This  total does not  account  for  holders of shares  through
intermediaries  and brokerage  firms.  The Company has never  declared or paid
dividends  on its Common  Stock and does not plan to do so in the  foreseeable
future.


                                      21

<PAGE>

DESCRIPTION OF THE CAPITAL STOCK OF THE REGISTRANT

COMMON STOCK

      The Company's authorized capital consists of 12,000,000 shares of Common
Stock,  par value $0.01 per share.  The Company has reserved 250,000 shares of
Common  Stock for  issuance  upon the  exercise  of  options  granted or to be
granted  pursuant to the  Company's  1997 Stock  Option  Plan (which  includes
157,669 shares of Common Stock issuable upon the exercise of outstanding stock
options),   500,000  shares  of  Common  Stock  issuable  upon  conversion  of
outstanding  Convertible  Promissory  Notes,  25,000 shares  issuable upon the
exercise of an option  granted to a  consultant  and 150,000  shares of Common
Stock  issuable  upon  conversion  of  the  outstanding  shares  of  Series  A
Convertible Preferred Stock.

      Holders of Common Stock are entitled to one vote for each whole share on
all  matters to be voted  upon by  shareholders,  including  the  election  of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. All shares of Common Stock are equal to each other with
respect to  liquidation  and  dividend  rights.  Holders  of Common  Stock are
entitled to receive  dividends if and when declared by the Company's  Board of
Directors out of funds legally  available  therefor under Delaware law. In the
event of the liquidation of the Company, all assets available for distribution
to the holders of the Common Stock are  distributable  among them according to
their respective  holdings.  Holders of Common Stock have no preemptive rights
to  purchase  any  additional,  unissued  shares of Common  Stock.  All of the
outstanding  shares of Common Stock of the Company are, and those to be issued
pursuant to this offering will be, fully paid and nonassessable.


PREFERRED STOCK

      The Company is authorized  to issue up to 1,000,000  shares of preferred
stock,  par value $0.01 per share. The preferred stock may be issued in one or
more series,  the terms of which may be  determined at the time of issuance by
the  Board of  Directors,  without  further  action by  shareholders,  and may
include  voting rights  (including the right to vote as a series on particular
matters),  preferences  as  to  dividends  and  liquidation,   conversion  and
redemption  rights,  and sinking fund provisions.  The ability of the Board of


                                      22

<PAGE>

Directors to issue preferred stock could also be used as a means for resisting
a change of  control  of the  Company,  and  therefore  can be  considered  an
"anti-takeover"  device. The future issuance of additional shares of preferred
stock could adversely affect the rights of the holders of the Common Stock and
therefore, reduce the value of the Common Stock.

      SERIES A CONVERTIBLE PREFERRED STOCK

      On December 30,  1998,  the Company  consummated  the sale of a total of
150,000 shares of Series A Convertible  Preferred  Stock,  par value $1.00 per
share (the "Series A Convertible  Preferred  Stock"),  at a price of $2.50 per
share in a private  offering  effected  pursuant to Rule 506 of  Regulation  D
under the Securities  Act of 1933.  The following  summarizes the terms of the
Series A Convertible Preferred Stock:

            CONVERSION.  Each share of Series A Convertible Preferred Stock is
convertible   into  one  share  of  Common   Stock,   subject  to  a  possible
anti-dilutive  adjustment.  The  Series A  Preferred  Stock is  subject to the
mandatory conversion provision discussed below.

            REDEMPTION.  In the event the Company  consummates  the sale of at
least $2,100,000 of Common Stock in connection with this offering on or before
June 30, 1999, the Company will, within 30 days after the consummation of such
sale, offer to redeem the Series A Preferred Stock on the following terms. The
redemption  price for each 100 shares of Series A Convertible  Preferred Stock
will  consist of (i) the  payment of $250.00 (or $2.50 per share) and (ii) the
issuance of a number of shares of Common  Stock equal to the greater of (a) 50
shares of Common  Stock or (b) the number of shares of Common  Stock  having a
market value, based on the average closing sale prices of the shares of Common
Stock on the Vancouver  Stock  Exchange for the prior 10  consecutive  trading
days, equal to $125.00.  The prior approval of the VSE will be required in the
event the total number of shares of Common Stock  issuable in connection  with
such  redemption  were  to  exceed  100,000.  The  holders  of  the  Series  A
Convertible  Preferred Stock will have the right to reject any such redemption
offer.

            MANDATORY  CONVERSION.  If the Company makes the  above-referenced
redemption  offer  and such  offer is  rejected  by a holder  of the  Series A
Convertible  Preferred  Stock,  the Company will  thereafter have the right to
require such holder to convert such  holder's  shares of Series A  Convertible


                                      23

<PAGE>

Preferred  Stock into Common  Stock at the  conversion  price in the event the
closing  sale  prices  of the  Common  Stock on the VSE for a period of any 10
consecutive trading days are equal to or in excess of $6.00 per share.

            VOTING RIGHTS.  The holders of the Series A Convertible  Preferred
Stock will be  entitled to vote on an  as-converted  basis with the holders of
the  Common  Stock on all  matters to be voted  upon the  stockholders  of the
Company,  and will also be entitled to vote separately as a class if necessary
and to the extent provided by law.

            DIVIDENDS. The holders of the Series A Convertible Preferred Stock
will be entitled to receive  cash  dividends  only when and if declared by the
Company's Board of Directors.  Unless  declared by the Board of Directors,  no
dividends  will accrue or accumulate  with respect to the Series A Convertible
Preferred Stock.

            LIQUIDATION   PREFERENCE.   In  the  event  of  any   liquidation,
dissolution  or  winding  up of the  Company,  the  holders  of the  Series  A
Convertible  Preferred Stock will be entitled to receive, in preference to the
holders of Common  Stock,  and amount equal to $2.50 per share,  plus declared
but unpaid dividends,  if any. A merger or sale of all or substantially all of
the assets of the Company will be deemed to be a liquidation  or winding up of
the Company for purposes of such liquidation.


                                      24

<PAGE>

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 Advanced
Industrial  Minerals,  Inc.  and  HeatShield   Technologies,   Inc.  (and  its
subsidiaries) effective March 31, 1995.

RESULTS OF OPERATIONS

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


<TABLE>
<CAPTION>
Period Ended Dec. 31,              1998      % OF SALES            1997      % OF SALES
                                   ----      ----------            ----      ----------
<S>                            <C>              <C>            <C>              <C>  
Net Sales                      $ 2,085,398      100.0          $ 2,316,472      100.0
Cost of Sales                    1,546,904       74.2            1,795,780       77.5
Gross Profit                       538,494       25.8              520,692       22.5
General and Admin. Expense         503,816       24.2              575.973       24.9
Selling and Mktg. Expense          109,016        5.2              157,781        6.8
Interest Expense                   204,009        9.8              189,872        8.2
Depreciation and Amort.             73,259        3.5               79,829        3.4
Total Operating Expenses           890,100       42.7            1,003,455       43.3

Net Loss                          (351,606)     (16.9)            (482,763)     (20.8)
Imputed Non-cash PfdStkDiv         (67,500)                              0
Loss Avail. to Com. Shares        (419,106)                       (482,763)
Loss Per Share                       $0.32                           $0.37

Weighted Avg. Shares Out.        1,325,016                       1,319,414
</TABLE>


YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

      Sales for 1998  decreased  $231,074,  or 10%, to $2,085,398  compared to
$2,316,472 for 1997. The gross margin in 1998 increased  $17,802,  or 3.4%, to
$538,494 compared to $520,692 for 1997. The sales decreases reflected a slight
decline in sales from the  Company's  largest  customer  along with  continued
pricing pressures in the industry.  The gross margin improvement is due mainly
to cost reductions obtained from major material suppliers.


                                      25

<PAGE>

      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 3.6% of 1998
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 1998 to $612,832,  or
29.4% of  sales,  compared  to  $733,754,  or 31.7% of sales,  for  1997.  The
decrease of $120,922  is due to  continuing  cost  reduction  and  containment
efforts primarily in personnel and head office related expenses.

      Interest charges for 1998 increased to $204,009,  or 9.8% of sales, from
$189,872,  or 8.2% of sales, for the comparable  period in 1997. This increase
was due to additional financing required for working capital. Depreciation and
amortization  declined  slightly to $73,259 in 1998 from $79,829 for the prior
year. The decrease is due to less capital spending and certain assets becoming
fully depreciated in 1998.

      The Net Loss in 1998 was $351,606, or 16.9% of sales, which represents a
loss of $0.32 per share,  compared  with a net loss of  $482,763,  or 20.8% of
sales,  which  represented  a loss of $ 0.37 per share,  based on the weighted
average number of shares outstanding during the respective periods. (The $0.32
per share loss takes into  consideration an "Imputed Non-Cash  Preferred Stock
Dividend" of $67,500.) The net loss for 1998 includes approximately $55,000 in
non-recurring  expenses  relating  to a  proposed  acquisition  that  was  not
consummated  during 1998.  Approximately  $36,000 of this amount was for legal
expenses  with the  balance,  $19,000,  for travel and various  organizational
expenses.


RESOURCE PROPERTY

      During 1998,  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.


                                      26

<PAGE>

      The Company  has  generated a Marketing  and  Feasibility  Report  dated
January  1999,  on the  basis of which  the  current  Board of  Directors  and
management  believe  that  sufficient  evidence  exists in order to enable the
Company to negotiate the sale of the Company's  interest in the Viva Luz Mine.
In  addition,  the Company has  received  favorable  indications  from several
possible  purchasers,  end-users and/or strategic  partners  including but not
limited to a number of west coast cement  producers  and the State of Arizona,
Department of Transportation.


INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS

      The  Company  made no  provision  for  income  taxes for the year  ended
December  31,  1998,  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 9 in the Financial Statements.

      As of December 31, 1998,  the Company's  NOLs  aggregated  approximately
$3,151,000,  expiring  through the year 2012.  These NOLs arose primarily from
the  operations  of the  Company in the prior two years 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


                                      27

<PAGE>

ownership  may  result in the  Company  paying  income  taxes in excess of the
amount payable in the absence of the ownership change.


LIQUIDITY AND SOURCES OF CAPITAL 

      As of December 31, 1998,  the Company had a working  capital  deficit of
$343,572.  This  compares  with a working  capital  deficit of  $447,297 as of
December 31 of the previous  year. The working  capital  deficit was funded by
cash  flow  from the  operations  of the  United  Minerals  Corporation  (UMC)
subsidiary and short term loan and equity financing.  Management believes that
additional  working  capital  financing will be required to meet the Company's
needs  for the  coming  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 1999. The company did renew its new factoring  agreement during
1998 while keeping its factoring costs constant during the year.

      The  Company has  outstanding  $1,050,000  principal  amount of Series A
Convertible  Promissory  Notes  (the  "Convertible   Promissory  Notes").  The
Convertible  Promissory  Notes,  which  are  held  by  three  holders  and are
unsecured,  bear  interest at a rate of 10% per year,  mature on June 30, 1999
and are convertible at a price of $2.10 per share. Pursuant to the Convertible
Promissory  Notes,  as amended on November 13, 1998, the  Noteholders  will be
required  to convert  their  Convertible  Promissory  Notes if (i) the Company
completes  the sale of $2,100,000  in an equity  offering,  (ii) the Company's
Common Stock on the Vancouver Stock Exchange (the "VSE") averages in excess of
$4.50 per share for a 90-day period,  and (iii) the Company's  Common Stock on
the VSE  maintains  an  average  trading  volume of 6,000  shares for the same
90-day period.


                                      28

<PAGE>

      On December  30,  1998,  the Company  consummated  the private sale of a
total of  150,000  shares of its  Series A  Convertible  Preferred  Stock (the
"Series A  Preferred  Stock")  at a price of $2.50 per  share.  Each  share of
Series A Preferred Stock is convertible into one share of the Company's Common
Stock, subject to possible anti-dilutive  adjustment.  As described below, the
Company plans to conduct a private  offering of Common Stock during the second
quarter of 1999.  In the event the  Company  consummates  the sale of at least
$2.1 million of Common  Stock in  connection  with that  offering on or before
June 30, 1999, the Company will, within 30 days after the consummation of such
sale, offer to redeem the Series A Preferred Stock on the following terms. The
redemption  price for each 100 shares of Series A Preferred Stock will consist
of (i) the payment of $250.00 (or $2.50 per share) and (ii) the  issuance of a
number  of shares of Common  Stock  equal to the  greater  of (a) 50 shares of
Common  Stock or (b) the  number of shares  of  Common  Stock  having a market
value,  based on the average  closing  sale prices of the shares of the Common
Stock on the VSE for the prior ten consecutive trading days, equal to $125.00.
The prior  approval of the VSE will be required in the event the total  number
of shares of Common Stock issuable in connection with such redemption  exceeds
100,000  shares.  The  holders of the Series A  Preferred  Stock will have the
right to reject any such redemption offer.

      If the  Company  makes the  above-referenced  redemption  offer and such
offer is  rejected by a holder of the Series A  Preferred  Stock,  the Company
will thereafter have the right to require such holder to convert such holder's
shares of Series A Preferred  Stock into Common Stock at the conversion  price
in the event the  closing  sale  prices of the  Common  Stock on the VSE for a
period of any ten consecutive  trading days are equal to or in excess of $6.00
per share.  The  holders of the Series A  Preferred  Stock will be entitled to
vote on an as-converted basis with the holders of the Common Stock and will be
entitled to receive cash  dividends only when and if declared by the Company's
Board of Directors.  Of the $375,000 total proceeds of the private offering of
Series A Preferred  Stock,  the Company  used  approximately  $80,000 to repay
certain  short-term  indebtedness  on  December  31,  1998.  Of the  remaining
proceeds,  approximately  $204,000 was used on January 21, 1999 to acquire the
minority equity interest in another company described below and the balance of
approximately  $91,000  was used in January  1999 to reduce  current  accounts
payable to vendors and for other working capital purposes.


                                      29

<PAGE>

PROPOSED ENTRY INTO INFORMATION TECHNOLOGIES BUSINESS

      The Company  intends to acquire  established  high  technology  oriented
businesses  involved in activities  relating to Internet and business solution
software services. On January 21, 1999, the Company acquired a minority equity
interest in  Netsurfer,  Inc.,  a private  company  headquartered  in Atlanta,
Georgia that currently markets products utilizing Internet access software for
sale to ISPs.  The  Company's  payment of $204,000 to purchase  such  minority
equity interest was derived from the proceeds of the  above-described  private
offering  of  Series  A  Preferred   Stock  effected  on  December  31,  1998.
Furthermore,  the Company is  currently  engaged in  discussions  to acquire a
company  that has  developed  and  currently  markets a variety  of  Internet,
intranet and  e-commerce  products as well as two additional  companies  which
provide   software   solutions  that  focus  on  applications   for  small  to
medium-sized  businesses.  The Company  intends to finance such three proposed
acquisitions through the issuance of additional shares of Common Stock and the
payment of cash raised from a proposed private offering of between 600,000 and
1,500,000  shares of Common Stock that the Company plans to conduct during the
second quarter of 1999.

      The Company cannot make any  representations  at this time as to whether
or on what  terms it will be able to  pursue  its entry  into the  Information
Technologies business through the above-described  proposed acquisitions.  The
Company's  entry into that  business  will be subject to its  ability to enter
into and consummate  agreements  with such  companies,  to raise the necessary
equity financing associated with such acquisitions and to obtain the approvals
of its shareholders and the VSE of its proposed entry into such new business.


YEAR 2000 ISSUE

      The Company is in the process of  developing a formal  program to ensure
that all significant computer systems are substantially Year 2000 compliant by
the year ending  December 31, 1999. When completed the program will encompass:
(1)  identification of all information  technology  systems ("IT Systems") and
non-information  technology  systems ("Non-IT Systems") that are not Year 2000
compliant;  (2) repair or replacement of the identified non-compliant systems,


                                      30

<PAGE>

and (3) testing of the repaired or replaced systems.

      Efforts  to date on the  program  have  been  mainly  in  review  of the
Company's  accounting and financial  reporting  systems.  The primary computer
software applications in this area are vendor supplied and the Company will be
contacting  these  vendors  over the next  three  months to  obtain  how these
vendors will be Year 2000 on such applications.  For example, when appropriate
software  updates will be sent to address any Year 2000 issues.  Other efforts
on the Year 2000 issue have included the  establishment  of a committee by the
Board of Directors to carry out the Year 2000 program.

      There has been  correspondence  with some key  suppliers  and  customers
regarding  each  other's  plans to  handle  key Year 2000  issues  and this is
continuing.

      At this point,  the Company has  established a formal plan with detailed
action  items  and  targeted   completion  times  which  are  presently  being
addressed.  During this time  communication with software vendors and business
partners  will be on-going  along with  further  effort in the  implementation
phase of the  program.  The  implementation  costs of this  program  have been
assessed  and the Company  estimates  that the exposure to the Company will be
less than $10,000.

      The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company is into the final testing part
of the program the risks from  potential  Year 2000  failures  cannot be fully
assessed.  Due to this  situation,  the Company  cannot begin any  contingency
plans.  Such plans will be developed as any  potential  Year 2000 failures are
identified in the final testing stages.


ITEM 7.     FINANCIAL STATEMENTS

      The Financial Statements of the Company and the report of Moore Stephens
Frost thereon are set forth elsewhere in this report.


                                      31

<PAGE>

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

      Not  applicable.   (Information  relating  to  the  resignation  of  the
Company's  former  independent  accounting firm in June 1998 and engagement of
the Company's new independent  accounting firm in September 1998 was set forth
in Forms 8-K filed by the Company on July 23, 1998 and September 25, 1998.)


                                      32

<PAGE>

                                   PART III


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


DIRECTORS AND OFFICERS

      The following table sets forth  information  regarding the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
 Name                           Age                 Position
 ----                           ---                 --------

<S>                             <C>       <C>
Paul R. Arena                   40        Chairman of the Board, President and
                                          Chief Executive Officer

Theodore L. Lamb                51        Director and Chief Operating Officer

Leigh S. Zoloto                 44        Chief Financial Officer, Secretary and Treasurer

James L. Austin                 51        Director

Dr. Audrey L. Braswell          68        Director

Ernest W. Purcell               46        Director
</TABLE>


      PAUL R. ARENA has been Chairman of the Board,  Chief  Executive  Officer
and President of AIM Group since March 27, 1997. He previously  served as Vice
President-Business  development  of the Company from  September 1995 to August
1996 and from May 1991 to August  1995 held the  positions  he has  presently,
with the  exception of President  from May 1995 to August 1996.  He has been a
director of the Company since 1994. Prior thereto he held the positions he has
presently with one of the Company's  subsidiaries since May of 1991. From June
of 1990 to August of 1991, Mr. Arena served as Vice President of Finance and a
Director of Saftron,  Inc. of Miami, Florida. From February of 1988 to January
of 1990, he was a Senior Vice  President  and partner of Gulfstream  Financial
Associates, Inc. a subsidiary of the Kemper Group.


                                      33

<PAGE>

      THEODORE L. LAMB has been the Chief Operating  Officer and a director of
the Company since  February,  1999.  Prior thereto,  he had been a Senior Vice
President of the Interealty Corporation (a combined subsidiary of: NewsHolding
Corporation,  Cox  Corporation,  Tribune Company,  Knight-Ridder  Corporation,
Advance  Publications)  from May,  1992  until  August,  1998 where he managed
divisional  operations  as well as  creating  new  Internet  initiatives  on a
national and North  American  scale.  He began working  within the new venture
initiatives of the IBM  Corporation in January,  1982 where he managed various
marketing  and sales  organizations  dealing  with the Smart  Buildings/Shared
Tenant   Services   industry   where  network   design  and   management   and
telecommunications  services were provided.  Previously,  he worked within the
banking industry from August, 1971 to October, 1981.

      LEIGH  S.  ZOLOTO  has  been  Chief  Financial  Officer,  Secretary  and
Treasurer of the Company 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 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.

      JAMES L. AUSTIN has been the President of Empire State  Newsprint  since
February 1997.  For the past 27 years,  Mr. Austin has been engaged in various
positions  within the paper industry.  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 a subsidiary of MoDo Inc. of
Sweden, one of the world's largest paper processors. He has been a director of
the Company since March 27, 1997.

      DR.  AUDREY  L.  BRASWELL  has been  the  President  and  owner of Vista
Pacifica  Enterprises,  Inc., an operator of several health care facilities in
California,  since 1974. 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.  He has been a director of the Company since March 27,
1997.

      ERNEST W. PURCELL has been a Vice President for the  investment  banking
firm of Houlihan,  Lokey, Howard & Zukin since February 1997.  Previously,  he


                                      34

<PAGE>

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 Freightways,  Inc. He has been a director of the
Company since March 27, 1997.


ADVISORY BOARD

      The Company has had an Advisory  Board,  which  furnishes  advice to the
Company in  connection  with its proposed  program of acquiring  and operating
information  technology companies,  since February,  1999. The following table
sets forth information regarding the current member of the Advisory Board. The
Company intends to appoint  additional  members to the Advisory Board later in
the year.


<TABLE>
<CAPTION>
      Name                    Age                       Principal Occupation
      ----                    ---                       --------------------
<S>                           <C>          <C>
Dr. Donald Ratajczak          55           Director, Economic Forecasting Center, College of
                                           Business Administration, Georgia State University
</TABLE>


      DR.  DONALD  RATAJCZAK  has  occupied  the  position  of Director of the
Economic Forecasting Center, College of Business Administration, Georgia State
University since 1973. Prior thereto he was Director of Research,  Director of
Forecasting  Models and  Associate  Director  University  of California at Los
Angeles  ("UCLA")  Forecasting  Project during 1973,  1969-1970 and 1969-1973,
respectively.  Dr. Ratajczak was also Assistant  Professor,  at UCLA, Graduate
School  of  Management,  from  1969 to  1973.  From  1966 to  1968,  he was an
Instructor at Massachusetts  Institute of Technology and from 1966 to 1967, he
was an  Economist,  Office  of  Postmaster  General  of the  United  States in
Washington,  D.C.  Dr.  Ratajczak  graduated  in 1972  with a Ph.D  degree  in
Economics from Massachusetts Institute of Technology.


                                      35

<PAGE>

ITEM 10.    EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

      The following table sets forth  information  concerning the compensation
paid or awarded to current  executive  officers of the Company  during each of
the years ended December 31, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
                                           Annual Compensation                       Long Term Compensation
                                    ----------------------------------  ------------------------------------------------
                                                                                  Awards                 Payouts
                                                                         ------------------------  ---------------------
                                                                                      Securities
                                                               Other      Restricted  Underlying                 All
                                                               Annual       Stock      Options/      LTIP       Other
 Name and                             Salary        Bonus   Compensation   Award(s)       SARs      Payouts  Compensation
 Principal Position          Year       ($)          ($)         ($)          (S)         (#)         ($)        ($)
                             (b)        (c)          (d)         (e)          (f)         (g)         (h)        (i)
 ------------------------------------------------------------------------------------------------------------------------
<S>                          <C>      <C>          <C>           <C>          <C>         <C>        <C>         <C>
Paul R. Arena                1998     $118,000     $8,000        $0           None        N/A        None        None
Chairman, CEO &              1997      $97,200         $0        $0           None        N/A        None        None
President(1)                 1996      $96,000         $0        $0           None        N/A        None        None

Leigh S. Zoloto              1998      $86,380     $6,250        $0           None        N/A        None        None
Chief Financial              1997      $75,250         $0        $0           None        N/A        None        None
Officer                      1996      $68,000         $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 the  exception of
            President from May 1995 to August 1995.
      (2)   Mr. Lamb was  appointed  Chief  Operating  Officer on February 15,
            1999 and was not paid any compensation during 1998.
</FN>
</TABLE>

      The  following  Options  Grants Table sets forth,  for each of the above
named executive officers,  information  regarding individual grants of options
granted in 1998 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.


                                      36

<PAGE>

<TABLE>
<CAPTION>
                              Option Grants Table
                              -------------------
                              (Individual Grants)

                    Number of Shares   % of Total Options Granted   Exercise
                   Underlying Options    To Directors, Officers,      Price       Expiration
 Name                 Granted(#)(1)    Employees in Fiscal Year(2)  ($/SH)(3)        Date
 ----              ------------------  ---------------------------  ---------     ----------
<S>                      <C>                      <C>                  <C>          <C>
Paul R. Arena            30,000                   31.25%               3.00         12/27/08
Leigh S. Zoloto          15,000                   15.62%               3.00         12/27/08

<FN>
      (1)   The options are incentive  stock  options  granted on December 28,
            1998  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  96,000  shares  granted  to all
            directors, officers and employees.

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


EXERCISE OF WARRANTS AND OPTIONS

      During  September,  1998,  Leigh Zoloto  exercised an option to purchase
3,333  shares of Common Stock at an exercise  price of $0.90 per share.  Under
the terms of the options,  a portion of the exercised  shares were used to pay
for the options exercised.  Under these terms, 857 shares at a market value of
$3.50 per share were used to purchase  the shares  resulting  in 2,476  shares
being issued.


EMPLOYMENT AGREEMENTS

      The Company has employment agreements,  which are renewable on an annual
basis,  with its Chief Operating  Officer,  Chief Financial  Officer,  and the
Manager and Assistant Manager of its Malvern surface modification facility.


DIRECTORS

      Directors are not compensated for their services as directors;  however,
they  are  reimbursed  for all  reasonable  expenses  incurred  in  connection
therewith.


                                      37

<PAGE>

KEY MAN INSURANCE

      During  January  1999,  a 10 year level term life  insurance  policy was
issued by The  Travelers  Companies in the amount of $1,000,000 on the life of
the  Company's  Chief  Executive  Officer.  This  policy is paid yearly at the
option of the  Company and inures 75% to the benefit of the Company and 25% to
the insured's estate.


1997 STOCK OPTION PLAN

      In September 1997, the Company's  shareholders  approved the adoption of
the Company's 1997 Stock Option Plan (the "Plan"),  which is  administered  by
the Company's Board of Directors,  and authorized a total of 250,000 shares of
Common Stock for issuance thereunder. The purpose of the Plan is to enable the
Company to  attract  and  retain  competent  personnel  by  offering  them the
opportunity  to acquire an equity  interest in the  Company.  Options  granted
under the Plan may either be incentive  stock options ("ISO") that satisfy the
requirements  of Section 422 of the  Internal  Revenue  Code or  non-statutory
options ("NSOs") which are not intended to satisfy such requirements.

      The total shares  issued to officers  and  directors of the Company as a
result of options  granted under the Plan,  together with all shares issued to
officers and directors under other compensation  arrangements,  may not exceed
10% of the Company's issued and outstanding shares during any one-year period.
The number of shares  issued to any one officer of director as a result of the
exercise of options  under the Plan,  together with all other shares issued to
such person under other  compensation  arrangements,  may not exceed 5% of the
Company's issued and outstanding shares during any one-year period.

      The exercise price per share under any option granted under the Plan may
not be less than 100% of the fair market value of the Common Stock on the date
of grant,  or in the case of ISOs, less than 110% of such fair market value if
the option is granted to a person who holds 10% or more of the voting power of
Common Stock. Fair market value will be as determined as provided by the Plan;
provided,  that if the Common Stock is listed on the Vancouver Stock Exchange,
its fair market value shall be not less than the average  closing market price
of the Common Stock on the  Vancouver  Stock  Exchange for the 10 trading days


                                      38

<PAGE>

immediately  preceding the day on which the Vancouver Stock Exchange  receives
notice regarding the granting of such options, with market price being defined
for this  purpose as the  average  closing  price of the  Company's  shares as
traded on the Vancouver  Stock  Exchange  during this 10-day  period,  or such
other price as may be agreed to by the Company and  accepted by the  Vancouver
Stock Exchange. The aggregate fair market value of the Common Stock subject to
an ISO, as determined  upon a grant,  which is  exercisable by an optionee for
the first time during any calendar year,  cannot exceed  $100,000.  The number
and kind of shares subject to an option,  and the option  exercises price, may
be  adjusted  in  certain  circumstances  to prevent  dilution.  The method of
payment  of an option  exercise  price will be as  determined  by the Board of
Directors and set forth in the individual stock option agreement.

      If an optionee  ceases to be an employee or director  for cause,  his or
her options lapse. If for any reason other than death or termination for cause
an  optionee  ceases  to be an  employee  or  director  of  the  Company,  any
unexercised  portion of the option as of the date of termination of employment
or director service may be exercised for 30 days thereafter. Upon the death of
an optionee while employed by the Company or serving on its Board,  his or her
legal  representative  or a legatee may, within twelve months after the death,
exercise  any  unexercised  portion  of  the  option  as of  the  time  of the
optionee's death. Options are not transferable or assignable otherwise than by
will or the laws of descent and  distribution,  and during his or her lifetime
may only be exercised by the optionee.


                                      39

<PAGE>

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table sets forth  certain  information,  as of March 15,
1999,  concerning  the beneficial  ownership of the Company's  Common Stock by
each shareholder  known by the Company to be the beneficial owner of more than
5% of the  Company's  outstanding  shares  of  Common  Stock,  by  each of the
directors,  and by all directors  and  executive  officers of the Company as a
group:


<TABLE>
<CAPTION>
                                          Number of                    Percent of
                                          Shares of                   Common Stock
                                       Common Stock(1)               Outstanding(1)
                                       ---------------               --------------
<S>                                       <C>                            <C>   
Dr. Audrey L. Braswell(2)..........       325,405                        21.59%
Paul R. Arena(3)...................       257,074                        17.89%
Northern Federal
Minerals, LLC(4)...................       142,867                         9.50%
Bernard R. Kossar(5)...............       142,867                         9.50%
Dr. James E. Ehrlich...............        91,886                         6.76%
Loeb Investors Co. 118(6)..........        81,848                         6.02%
Theodore L. Lamb(7)................        33,333                         2.46%
Ernest W. Purcell(8)...............         7,500                           *
James L. Austin(9).................         6,112                           *
Leigh S. Zoloto(10)................         2,476                           *
All officers and
directors as a group
(6 persons)(11)....................     1,091,368                        57.76%
 --------------------
*  Less than 1.0%
<FN>

      (1)   A person is deemed to be the beneficial owner of Common Stock that
            can be acquired by such person within 60 days upon the exercise of
            options  and  convertible  securities.   Each  beneficial  owner's
            percentage  ownership is  determined  by assuming that options and
            convertible  securities held by such person (but not those held by
            any other  person) and which are  exercisable  within 60 days have
            been exercised.  Unless otherwise noted, the Company believes that
            all  persons  named in the table have sole  voting and  investment
            power  with  respect to all  shares of Common  Stock  beneficially
            owned by them.


                                      40

<PAGE>

      (2)   Includes  142,867 shares into which $300,000  principal  amount of
            Convertible Promissory Notes owned by him are convertible,  14,000
            shares into which shares of Series A Convertible  Preferred  Stock
            owned by him are  convertible and 4,167 shares subject to options.
            Does not include 12,500 shares subject to options not  exercisable
            within 60 days.

      (3)   Includes  71,429 shares into which  $150,000  principal  amount of
            Convertible Promissory Notes owned by him are convertible, 142,867
            shares  into  which  $300,000   principal  amount  of  Convertible
            Promissory Notes owned by Northern Federal Minerals LLC (33.33% of
            the outstanding capital stock of which are owned by Mr. Arena) are
            convertible and 5,833 shares subject to options.  Does not include
            47,501 shares subject to options not exercisable within 60 days.

      (4)   Northern Federal Minerals LLC is a limited  liability  corporation
            of which  33.33% is owned by Paul R.  Arena.  The  214,296  shares
            underlying  the  Convertible  Promissory  Note  owned by  Northern
            Federal   Minerals  LLC  is  reported   above  as  142,867  shares
            beneficially  owned by Northern  Federal  Minerals  LLC and 71,429
            shares  beneficially  owned by Mr.  Arena.  The address of Federal
            Minerals LLC is 959 Maiden Lane, Ann Arbor, MI 48105.

      (5)   Consists  of  shares  into  which  $300,000  principal  amount  of
            Convertible Promissory Notes owned by him are convertible.

      (6)   Loeb  Investors  Co. 118 is a  partnership  owned by Loeb Partners
            Corporation,  an investment firm located at 61 Broadway, New York,
            New York 10006.

      (7)   Does not include 33,333 shares subject to options not  exercisable
            within 60 days.

      (8)   Includes 4,167 shares subject to options.  Does not include 12,500
            shares subject to options not exercisable within 60 days.

      (9)   Includes 4,167 shares subject to options.  Does not include 12,500
            shares subject to options not exercisable within 60 days.


                                      41

<PAGE>

      (10)  Does not include 25,000 shares subject to options not  exercisable
            within 60 days.

      (11)  Includes a total  214,296  shares  into which  $450,000  principal
            amount of Convertible  Promissory Notes are convertible and 18,334
            shares subject to options. Does not include 139,335 shares subject
            to options not exercisable within 60 days.
</FN>
</TABLE>


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      On April 11,  1997 and May 20, 1997 the  Company  executed an  Amendment
(the "First  Amendment")  to its Note  Agreements  relating to the  $1,050,000
principal amount of the Company's outstanding Series A Convertible  Promissory
Notes  (the  "Convertible   Promissory  Notes")  issued  to  Northern  Federal
Minerals, LLC, a Michigan limited liability company of which Paul R. Arena (an
officer and director of the Company) is a principal and 33.3% equity  interest
holder, Bernard R. Kossar (a former director of the Company) and Dr. Audrey L.
Braswell (a director of the Company).  The First Amendment included provisions
which:  a) extended the maturity date of the Convertible  Promissory  Notes to
March 31, 1998; b) increased the annual interest rate to 10% effective January
1, 1997;  c) changed the  conversion  price to $2.10 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 Convertible Promissory Notes outstanding,
incur any  indebtedness  which  ranks  senior in  priority  to  payment to the
Noteholders.

      On March  24,  1998 the  Company  executed  an  Amendment  (the  "Second
Amendment")  with the above three  parties who are holders of the  Convertible
Promissory  Notes. The Second Amendment  includes  provisions which: a) extend
the maturity date of the Convertible Promissory Notes to December 31, 1998; b)
maintain the annual interest rate at 10%; and c) maintain the conversion price
at $2.10 per share. In addition,  the  Noteholders  have agreed to be bound by
certain provisions  restricting the sale of any shares issued upon conversion.
The Convertible Promissory Notes remain unsecured.


                                      42

<PAGE>

      On November 30, 1998, the Company announced that an additional Amendment
(the "Third  Amendment") was executed with the above three parties.  The Third
Amendment extends the maturity of the Convertible Promissory Notes to June 30,
1999 and includes provisions  requiring the conversion of the Notes if (i) the
Company  completes  a minimum  of  $2,000,000  of equity  financing;  (ii) the
Company's  Common Stock on the VSE averages in excess of $4.50 per share for a
90-day  period;  and (iii) the Company's  Common Stock on the VSE maintains an
average daily trading volume of 6,000 shares for the same 90-day period.

      During  April  1998,  the  Company  entered  into  an  agreement  for  a
Promissory Note in the amount of $150,000 with Dr. Braswell, a director of the
Company.  The loan was approved by the Board on March 31, 1998 and consists of
an  unsecured  note  with  annual  interest,  payable  monthly,  of 8.5%.  The
principal balance is due in May 1999. Interest expense on this note was $7,842
for the year ended December 31, 1998.


                                      43

<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>

      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. (Incorporated herein
                         by  reference  to  Exhibit  3(c) to the  Registrant's
                         Annual  Report  on Form  10-KSB  for the  year  ended
                         December 31, 1997.)

      3(d)             Certificate    of   Amendment   to    Certificate    of
                         Incorporation  of the  Registrant.  (Incorporated  by
                         reference to Exhibit 3 to the Registrant's  Quarterly
                         Report on Form 10-QSB for the quarter ended September
                         30, 1998.)

      3(e)             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).)

      4(c)             Certificate of  Designation,  Preferences and Rights of
                         Preferred Stock relating to the Registrant's Series A
                         Convertible   Preferred   Stock.   (Incorporated   by
                         reference  to Exhibit 4 to the  Registrant's  Current
                         Report on Form 8-K filed on January 5, 1999.)

      10(a)            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).)


                                      44

<PAGE>

      10(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).)

      10(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).)

      10(d)            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(e)            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(f)            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(g)            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(h)            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(i)            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.)


                                      45

<PAGE>

      10(j)            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(g)  to  the
                         Registrant's  Annual  Report on Form  10-KSB  for the
                         year ended December 31, 1997.)

      10(k)            1997 Stock Option Plan of the Registrant.

      10(l)            Form of letter agreement  amending Series A Convertible
                         Promissory  Note,  as entered into by the  Registrant
                         with each of the holders of the Series A  Convertible
                         Promissory Notes on March 24, 1998.

      10(m)            Form of letter agreement  amending Series A Convertible
                         Promissory  Note,  as entered into by the  Registrant
                         with each of the holders of the Series A  Convertible
                         Promissory Notes on November 13, 1998.

      10(n)            Promissory  Note for $150,000  owed by United  Minerals
                         Corporation to Audrey L. Braswell.

      10(o)            Employment  Agreement,  effective  February  15,  1999,
                         between AIM Group, Inc. and Theodore L. Lamb.

      10(p)            Stock  Option  Agreement,   dated  November  24,  1998,
                         between the Registrant and R. Jerry Falkner.

      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>


(b).        REPORTS  ON FORM  8-K.  The  Registrant  did not file any  Current
               Reports on Form 8-K during the quarter ended December 31, 1998.
               The Registrant filed a Current Report on Form 8-K on January 5,
               1999  reporting  the  issuance  of  150,000  shares of Series A
               Convertible Preferred Stock on December 30, 1998.


                                      46

<PAGE>

                                  SIGNATURES

      In  accordance  with  Section  13 or  15(d)  of the  Exchange  Act,  the
registrant  caused this report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                                  AIM GROUP, INC.
                                                  Registrant

Dated: March 26, 1999                         By: /s/PAUL R. ARENA
                                                  ----------------
                                                  Paul R. Arena
                                                  Chairman of the Board,
                                                  Chief Executive Officer
                                                  and President

      In  accordance  with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


Dated:  March 26, 1999                        By: /s/PAUL R. ARENA
                                                  ----------------
                                                  Paul R. Arena
                                                  Chairman of the Board
                                                  Chief Executive Officer
                                                  President and Director
                                                 (Principal Executive Officer)

Dated:  March 26, 1999                        By: /s/LEIGH S. ZOLOTO
                                                  ------------------
                                                  Leigh S. Zoloto
                                                  Chief Financial Officer
                                                  Secretary and Treasurer
                                                 (Principal Financial Officer)

Dated:  March 26, 1999                        By: /s/JAMES L. AUSTIN
                                                  ------------------
                                                  James L. Austin
                                                  Director

Dated:  March 26, 1999                        By: /s/A.L. BRASWELL
                                                  ----------------
                                                  A.L. Braswell
                                                  Director

Dated:  March 26, 1999                        By: /s/E.W. PURCELL
                                                  ---------------
                                                  E.W. Purcell
                                                  Director

Dated:  March 26, 1999                        By: /s/THEODORE L. LAMB
                                                  -------------------
                                                  Theodore L. Lamb
                                                  Director


                                      47

<PAGE>

                                 AIM GROUP, INC.
                                AND SUBSIDIARIES

                           DECEMBER 31, 1998 AND 1997
                                       AND
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                        CONSOLIDATED FINANCIAL STATEMENTS

                                      WITH

                          INDEPENDENT AUDITOR'S REPORT


<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


Board of Directors and Shareholders
AIM Group, Inc. and Subsidiaries

      We have  audited  the  accompanying  consolidated  balance  sheet of AIM
Group,  Inc.  and  Subsidiaries  as of  December  31,  1998  and  the  related
consolidated statements of operations, stockholders' equity and cash flows for
the  year  then  ended.  These  consolidated   financial  statements  are  the
responsibility of the Company's  management.  Our responsibility is to express
an opinion on these consolidated  financial statements based on our audit. The
consolidated  financial  statements of AIM Group,  Inc. and Subsidiaries as of
December 31, 1997,  and for each of the two years in the period ended December
31, 1997,  were audited by other auditors whose report,  dated March 13, 1998,
included  an  explanatory  paragraph  referring  to the  Company's  ability to
continue as a going concern.

      We conducted our audit in accordance  with generally  accepted  auditing
standards.  Those  standards  require  that we plan and  perform  the audit to
obtain   reasonable   assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on
a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in  the
consolidated  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
that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to in the
first  paragraph  present  fairly,  in all material  respects,  the  financial
position of AIM Group,  Inc. and  Subsidiaries as of December 31, 1998 and the
results  of their  operations  and their cash flows for the year then ended in
conformity with generally accepted accounting principles.


                                                  Moore Stephens Frost
                                                  Certified Public Accountants

Little Rock, Arkansas
February 19, 1999


<PAGE>

                               AIM GROUP, INC.                               2
                               AND SUBSIDIARIES

                          Consolidated Balance Sheet

                          December 31, 1998 and 1997


<TABLE>
<CAPTION>
                            Assets                        1998                 1997
                            ------                    ------------         ------------
<S>                                                   <C>                  <C>
Current assets
  Cash and cash equivalents                           $   324,841          $     9,898
  Accounts receivable                                      67,473               91,391
  Inventories                                             135,198              202,155
  Prepaid expenses                                          7,752                6,967
                                                      ------------         ------------
Total current assets                                      535,264              310,411

Resource property                                       4,005,373            4,000,373

Property, plant & equipment
  Land                                                     10,000               10,000
  Plant                                                   108,000              108,000
  Building improvements                                   264,715              177,328
  Plant and lab equipment                                 314,006              310,233
  Engineering equipment                                    66,412               66,412
  Vehicles                                                 14,318               37,044
  Furniture and fixtures                                  100,379              100,379
                                                          877,830              809,396
  Less accumulated depreciation                           293,740              236,685
Net property, plant and equipment                         584,090              572,711

Other assets                                               29,917               40,511
                                                      ------------         ------------
Total assets                                          $ 5,154,644          $ 4,924,006
                                                      ============         ============
</TABLE>

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


<PAGE>

                               AIM GROUP, INC.                               3
                               AND SUBSIDIARIES

                          Consolidated Balance Sheet

                          December 31, 1998 and 1997


<TABLE>
<CAPTION>
         Liabilities and Stockholders' Equity             1998                 1997
         ------------------------------------         ------------         ------------
<S>                                                   <C>                  <C>
Current liabilities
  Note payable                                        $   150,000          $         -
  Accounts payable                                        621,511              630,692
  Accrued expenses                                         73,048               46,062
  Current portion of long-term debt                        34,277               80,954
                                                      ------------         ------------
Total current liabilities                                 878,836              757,708

Long-term debt less current maturities                    179,207               93,091

Convertible debentures                                  1,050,000            1,050,000

Stockholders' equity
  Preferred stock, $1 par value; 1,000,000
    authorized, 150,000 issued and outstanding            150,000                    -
  Common stock, $.01 par value; 12,000,000
    authorized, 1,330,018 issued in 1998 and
    1,326,685 in 1997                                      13,300               13,267
  Additional paid in capital                            4,544,810            4,249,343
  Retained earnings (deficit)                          (1,651,633)          (1,232,527)
                                                        3,056,477            3,030,083
  Treasury stock, 3,150 common shares, at cost             (9,876)              (6,876)
Total stockholders' equity                              3,046,601            3,023,207
                                                      ------------         ------------
Total liabilities and stockholders' equity            $ 5,154,644          $ 4,924,006
                                                      ============         ============
</TABLE>

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


<PAGE>

                               AIM GROUP, INC.                               4
                               AND SUBSIDIARIES

                     Colsolidated Statement of Operations

             For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                          1998             1997            1996
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Sales                                                  $ 2,085,398     $ 2,316,472     $ 3,092,278

Cost of sales                                            1,546,904       1,795,780       2,148,191
                                                       ------------    ------------    ------------
Gross profit                                               538,494         520,692         944,087

Operating expense
  General and administrative                               503,816         575,973         791,826
  Selling and marketing                                    109,016         157,781         270,612
  Write-off of investment - abandoned project                    -               -          93,396
  Interest                                                 204,009         189,872         131,429
  Depreciation and amoritzation                             73,259          79,829          72,487
                                                       ------------    ------------    ------------
Total operating expenses                                   890,100       1,003,455       1,359,750
                                                       ------------    ------------    ------------
Loss from operations before income taxes                  (351,606)       (482,763)       (415,663)

Income taxes                                                     -               -               -
                                                       ------------    ------------    ------------
Net loss                                               $  (351,606)    $  (482,763)    $  (415,663)
                                                       ============    ============    ============
Basic and diluted earnings per share
  Net loss available to common shareholders            $  (351,606)    $  (482,763)    $  (415,663)
  Imputed non-cash preferred stock dividend                (67,500          )    -               -
  Loss available to common shares                      $  (419,106)    $  (482,763)    $  (415,663)
                                                       ============    ============    ============
  Weighted average common shares outstanding             1,325,016       1,319,414       1,320,053
                                                       ============    ============    ============
Basic and diluted earnings per common share            $     (0.32)    $     (0.37)    $     (0.31)
</TABLE>

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


<PAGE>

                               AIM GROUP, INC.                               5
                               AND SUBSIDIARIES

                Consolidated Statement of Stockholders' Equity

             For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                    Preferred   Common   Preferred   Common     Additional     Retained    Treasury
                                      Shares    Shares     Stock     Stock    paid-in capital   Deficit      Stock       Total
                                     -------  ---------  ---------  ---------  ------------  ------------  ---------  -----------
<S>                                  <C>      <C>         <C>       <C>        <C>           <C>           <C>        <C>
Balances at January 1, 1996                -  1,371,155   $      -  $ 13,711   $ 4,177,682   $  (334,101)  $(11,575)  $3,845,717

Issuance of 26,667 shares of common
   stock                                   -     26,667          -       267        82,525             -          -       82,792

Purchase of 429 shares of common
  stock                                    -          -          -         -             -             -     (1,400)      (1,400)

Cancellation of 71,137 shares of
  treasury stock                           -    (71,137)         -      (711)      (10,864)            -     11,575            -

Net loss                                   -          -          -         -             -      (415,663)         -     (415,663)
                                     -------  ---------  ---------  ---------  ------------  ------------  ---------  -----------
Balance at December 31, 1996               -  1,326,685          -    13,267     4,249,343      (749,764)    (1,400)   3,511,446

Purchase of 26,363 shares of common
  stock                                    -          -          -         -             -             -    (30,476)     (30,476)

Sale of 23,810 shares of common
  stock                                    -          -          -         -             -             -     25,000       25,000

Net loss                                   -          -          -         -             -      (482,763)         -     (482,763)
                                     -------  ---------  ---------  ---------  ------------  ------------  ---------  -----------
Balance at December 31, 1997               -  1,326,685          -    13,267     4,249,343    (1,232,527)    (6,876)   3,023,207

Issuance of 150,000 shares of
  preferred stock                    150,000          -    150,000         -       225,000             -          -      375,000

Exercise of stock option for 3,333
  shares of common stock and
  repurchase of 857 shares of
  treasury stock                           -      3,333          -        33         2,967             -     (3,000)           -

Imputed non-cash dividend on
  preferred stock                          -          -          -         -        67,500       (67,500)         -            -

Net loss                                   -          -          -         -             -      (351,606)         -     (351,606)
                                     -------  ---------  ---------  ---------  ------------  ------------  ---------  -----------

Balance at December 31, 1998         150,000  1,330,018   $150,000  $ 13,300   $ 4,544,810   $(1,651,633)  $ (9,876)  $3,046,601
                                     =======  =========  =========  =========  ============  ============  =========  ===========
</TABLE>

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


<PAGE>

                               AIM GROUP, INC.                               6
                               AND SUBSIDIARIES

                     Consolidated Statement of Cash Flows

             For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                    1998            1997            1996
                                                                ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>
Cash flows from operating activities
  Net loss                                                      $ (351,606)     $ (482,763)     $ (415,663)
  Adjustments to reconcile net loss to net cash
    provided by operating activities
    Depreciation                                                    64,668          79,829          72,487
    Amortization expense                                             8,591           6,683           6,683
    Loss from sale of property, plant & equipment                    4,113               -               -
    Changes in assets and liabilities:
      Accounts receivable                                           23,918          89,744          44,867
      Inventories                                                   66,957         (41,385)         (7,741)
      Other current assets                                            (785)         11,562           9,140
      Other assets                                                   2,003            (358)         14,709
      Accounts payable                                              (9,181)        349,238         (60,551)
      Accrued expenses                                              26,986         (50,049)        (26,340)
                                                                ------------    ------------    ------------
Net cash used by operations                                       (164,336)        (37,499)       (362,409)
                                                                ------------    ------------    ------------
Cash flows from investing activities
  Purchases of property, plant and equipment                       (91,160)        (95,481)       (129,130)
  Proceeds from sale of property, plant and equipment               11,000               -               -
  Increase in resource property                                     (5,000)         (5,000)         (3,599)
                                                                ------------    ------------    ------------
Net cash used by investing activities                              (85,160)       (100,481)       (132,729)
                                                                ------------    ------------    ------------
Cash flows from financing activities
  Borrowings from note payable                                     150,000               -               -
  Proceeds from issuance of long-term debt                         161,489          96,152          21,070
  Repayments of long-term debt                                    (122,050)        (13,140)        (14,470)
  Proceeds from issuance of convertible debentures                       -               -         300,000
  Purchase of common stock to be held in treasury stock                  -          (5,476)         (1,400)
  Proceeds from issuance of convertible preferred stock            375,000               -               -
                                                                ------------    ------------    ------------
Net cash flows provided (used) by financing activities             564,439          77,536         305,200
                                                                ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents               314,943         (60,444)       (189,938)

Cash and cash equivalents - beginning of year                        9,898          70,342         260,280
                                                                ------------    ------------    ------------
Cash and cash equivalents - end of year                         $  324,841      $    9,898      $   70,342
                                                                ============    ============    ============
Supplemental disclosure of cash flow information

  Interest paid                                                 $  197,953      $  172,968      $  129,395
  Income taxes paid                                             $        -      $        -      $        -
</TABLE>

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


<PAGE>

                               AIM GROUP, INC.                               7
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      a.    PRINCIPLES  OF   CONSOLIDATION   -  The   consolidated   financial
            statements of AIM Group,  Inc. and  Subsidiaries  ("the  Company")
            contain the  accounts of AIM Group,  Inc.  ("the  Parent") and its
            wholly-owned  subsidiaries,  United  Minerals  Corp.  of  Arkansas
            ("UMCAR"), United Minerals Corp. of Arizona ("UMCAZ"),  Heatshield
            Technologies,  Inc.  ("HTI") and HST Capital  Corp.  ("HST").  All
            significant  intercompany  accounts  and  transactions  have  been
            eliminated.

                  The  consolidated  financial  statements  are stated in U.S.
            Dollars  in  accordance   with   generally   accepted   accounting
            principles in the United States. There are no material differences
            with Canadian generally accepted accounting principles.

      b.    BUSINESS  ACTIVITY - The Parent provides  centralized  management,
            finance, long range planning, accounting and administration to two
            principal  operating  entities.  These  operations  are a  surface
            modification facility (UMCAR) and a mining lease (UMCAZ).

                  The Parent is listed on the  Vancouver  Stock  Exchange  and
            Over the Counter - Bulletin Board.  The Company's  common stock is
            currently quoted under the symbols AIG.U and AIGU, respectively.

                  UMCAR is the Company's core business.  It operates a surface
            modification facility,  both as principal and as a toll processor,
            in the rubber and plastics industries. The plant has been designed
            to   treat    industrial    fillers    such   as    clay,    mica,
            alumina-trihydrate,     wolastonite,    magnesium-hydroxide    and
            mircospheres  with silanes.  The treated  products are used in the
            plastic and elastomer industries.

                  UMCAZ holds a mining  lease  ("the  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,  a  hydrothermally  altered
            cristobalite-triymite-quartz-kaolinite     deposit,    trademarked
            Klannerite(R)in  Arizona, 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  cost,
            subject to minimum royalty payments of $5,000 per year.

                  HTI was set up to carryout reserve analysis,  surface mining
            and processing of Klannerite(R).  HST was established as a holding
            company. Neither of these companies are active at this time.

      c.    CASH AND  CASH  EQUIVALENTS  - For  purposes  of the  consolidated
            statement of cash flows,  the Company  considers all highly liquid
            instruments purchased with an original maturity of three months or
            less to be cash equivalents.

      d.    INVENTORIES  -  Inventories  are  valued  at  the  lower  of  cost
            (first-in, first-out method) or market.


<PAGE>

                               AIM GROUP, INC.                               8
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

      e.    RESOURCE  PROPERTY - Resource  property  consists  of the  mineral
            lease and  deposits  located in Arizona.  The  property was valued
            based on  appraisal as part of a merger,  which  occurred in March
            1995.

      f.    PROPERTY,  PLANT AND EQUIPMENT - Property, plant and equipment are
            stated  at  cost.   Depreciation  is  provided  primarily  by  the
            straight-line  method  over  the  estimated  useful  lives  of the
            various assets. The estimated useful lives of property,  plant and
            equipment for purposes of computing depreciation are as follows:

                  Buildings                                39 years
                  Plant equipment                          10 years
                  Engineering equipment                     5 years
                  Laboratory equipment                      7 years
                  Furniture and office equipment          5-7 years

      g.    TRADEMARKS  AND  PATENTS  - The  Company  received  the  trademark
            registration  for  the  product  name  Klannerite(R)in  1993.  The
            Company  was granted a patent on the Photon  Diffusive  Coating in
            November  1996.  The Company's  trademarks  are AIM Group(R),  the
            corporate  entity  Uni-Kote(R),  the UMCAR  marketing  label;  and
            Klannerite(R), the rock from UMCAZ operations.

      h.    INCOME  TAXES - The  Company  utilizes  the  liability  method  of
            accounting  for  income  taxes.   The  liability  method  provides
            deferred taxes on the balance sheet for the temporary  differences
            between financial  statement and income tax return basis of assets
            and  liabilities  as of the fiscal year end date at the  presently
            enacted tax rates.

      i.    EARNINGS  PER SHARE - Earnings  per share is based on the weighted
            average number of shares and share equivalents  outstanding during
            each year.

      j.    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  at  December  31,  1998 and 1997 and
            revenues  and  expenses  for each of the three years in the period
            ended December 31, 1998. The actual outcome of the estimates could
            differ  from  those  estimates  made  in  the  preparation  of the
            financial statements.

      k.    STOCK  OPTIONS  -  The  Company  adopted  Statement  of  Financial
            Accounting Standards No. 123 for footnote disclosure purposes only
            and  will  continue  to  apply  the  intrinsic   value  method  of
            Accounting   Principles   Board  Opinion  No.  125  for  financial
            reporting purposes.


<PAGE>

                               AIM GROUP, INC.                               9
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


2.    CONCENTRATION OF CREDIT RISK

            The   Company's   financial   instruments   that  are  exposed  to
      concentrations  of  credit  risk  consist  primarily  of  cash  held  in
      financial  institutions  in excess of  balances  insured by the  Federal
      Deposit  Insurance  Corporation  and  accounts  receivable  due  to  the
      majority of the Company sales being made to a few customers.

            The Company  maintains  its cash in bank deposit  accounts at high
      credit  quality  financial  institutions.  The balances,  at times,  may
      exceed federally insured limits.

            During the year ended December 31, 1998,  approximately 89% of its
      surface modification sales were to three customers,  with 61% being to a
      single customer and 14% from each of the other two customers. During the
      years  ended  December  31,  1997 and 1996,  approximately  67% and 83%,
      respectively,  of its  surface  modification  sales  were  with a single
      customer.  At December 31, 1998 and 1997, these customers  accounted for
      less than 10% of the accounts receivable balance.


3.    INVENTORIES

            Inventories consist of:

<TABLE>
<CAPTION>
                                           1998              1997
                                           ----              ----
<S>                                      <C>               <C>     
                  Raw materials          $ 78,043          $141,926
                  Klannerite(R)            48,645            48,645
                  Supplies                  8,510            11,584
                                         --------          --------
                                         $135,198          $202,155
                                         ========          ========
</TABLE>


4.    RESOURCE PROPERTY

            Resource Property consists of approximately 340,000 tons of K1 and
      1,350,000  tons of K2/K3  deposits at  December  31,  1998.  The average
      estimated process recovery of the deposit is 82%.

            During  1992,  the  Company  processed  222.5 tons of K1. This was
      considered a trial production run.  Approximately  7.5 tons of the 222.5
      tons produced was distributed as samples and approximately 2.5 tons were
      sold. The remaining 212.5 tons are being held in inventory.


<PAGE>

                               AIM GROUP, INC.                              10
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


4.    RESOURCE PROPERTY (CONT.)

            The carrying value of the resource property  including the prepaid
      royalties is as follows:

<TABLE>
<CAPTION>
                                                          1998           1997
                                                          ----           ----
<S>                                                   <C>            <C>        
            Resource property purchase price          $ 3,935,798    $ 3,935,798
            Pre-paid royalties                             69,575         64,575
                                                      -----------    -----------
                                                      $ 4,005,373    $ 4,000,373
</TABLE>

            No sales of  Klannerite(R)  have been reported for the years ended
      December 31, 1998, 1997 and 1996.

            The Company  continues to develop this property for commercial use
      and  has  submitted  product  for  approval  to  the  State  of  Arizona
      Department of  Transportation.  The Company plans to market the property
      based on its availability to produce product for the concrete  materials
      industry.  Based upon the current  evaluation of this proposed  project,
      the  Company  believes  that the  property  has a fair value equal to or
      greater  than  its  carrying  amount.  However,  there is  currently  no
      production and there is no assurance the value can be realized.


5.    NOTE PAYABLE

            Note  payable   consists  of  an  unsecured   note  payable  to  a
      stockholder with interest due monthly at 8.5%. The principal  balance is
      due in May 1999.  Interest  expense on this note was $7,842 for the year
      ended December 31, 1998.


6.    LONG-TERM DEBT

            Long-term debt consists of:

<TABLE>
<CAPTION>
                                                                    1998             1997
                                                                    ----             ----
<S>                                                              <C>                <C>
      Revolving note payable to a bank, payable
        in monthly installments of $2,972, including
        interest at 6%, through August 2004, secured
        by equipment and a second real estate mortgage.          $ 158,457          $ 96,152

      Mortgage payable to a bank, payable
        in monthly installments of $837, including
        interest at 9.75%, through September 2000,
        remaining balance due October 2000, secured
        by real estate.                                             49,877            54,546
</TABLE>


<PAGE>

                               AIM GROUP, INC.                              11
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


6.    LONG-TERM DEBT (CONT.)

<TABLE>
<CAPTION>
                                                                    1998             1997
                                                                    ----             ----
<S>                                                              <C>                <C>
      Note payable to a finance company, payable in
        monthly installments of $311, including interest
        at 14.21%, through August 2000, secured by
        equipment.                                               $   5,150          $   7,888

      Note payable to a finance company, payable in
        monthly installments of $750, including interest
        at 9.5%, through April 2001, secured by
        equipment.  Balance repaid during 1998.                          -             15,459
                                                                 ---------          ---------
                                                                   213,484            174,045

      Less current maturities                                       34,277             80,954
                                                                 ---------          ---------
      Long-term debt, less current maturities                    $ 179,207          $  93,091
                                                                 =========          =========
</TABLE>

            Following  are  aggregate  maturities  of  long-term  debt  as  of
      December 31, 1998:

<TABLE>
<S>                 <C>                 <C>     
                       1999             $ 34,277
                       2000               73,660
                       2001               28,939
                       2002               30,724
                       2003               32,619
                    Thereafter            13,265
                                        --------
                                        $213,484
                                        ========
</TABLE>

            The Company also has a factoring  arrangement  for its receivables
      arising from its sale of products from its Arkansas facility. The factor
      has a security interest in all factored accounts  receivable.  Factoring
      cost  included in interest  expense was $68,065,  $71,183 and $85,741 in
      1998, 1997 and 1996, respectively.

7.    CONVERTIBLE DEBENTURES

            During April and May 1997, the Company executed an Amendment ("the
      First  Amendment")  with three  related  parties  who are holders of the
      Company's  Series A convertible  notes  payable ("the Notes")  having an
      aggregate face value of $1,050,000, which were approved by the Vancouver


<PAGE>

                               AIM GROUP, INC.                              12
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


7.    CONVERTABLE DEBENTURES (CONT.)

      Stock Exchange 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 $2.10 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  the  Notes
      outstanding,  incur any  indebtedness  which ranks senior in priority to
      payment to the Note holders. The Notes remain unsecured.

            During March 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, which were approved by the
      Vancouver  Stock  Exchange.  The second  Amendment  included  provisions
      which: (a) extended the maturity date of the Notes to December 31, 1998;
      (b)  maintain  the  annual  interest  rate  at  10%,  (c)  maintain  the
      conversion  price at $2.10 per  share;  and (d)  provides  that the Note
      holders  could not  convert  their  Notes  prior to August 1,  1998.  In
      addition,  the Note  holders  agreed to be bound by  certain  provisions
      restricting  the sale of any shares  issued upon  conversion.  The Notes
      remain unsecured.

            During  December  1998,  the Company  executed an Amendment  ("the
      Third  Amendment") with the three related parties who are holders of the
      Notes having an aggregate face value of  $1,050,000,  which was approved
      by  the  Vancouver  Stock  Exchange.  The  third  Amendment  includes  a
      provision to extend the maturity date of the Notes to June 30, 1999. The
      Notes remain unsecured.

            The following related individuals and affiliated concerns acquired
      the Notes:

                  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 Notes.

                  Bernard R. Kossar,  who is a stockholder of the Company,  on
                  December 20, 1995 purchased $300,000 principal amount of the
                  Notes.

                  Dr. Audrey L. Braswell, who is a director or the Company, on
                  May 20,  1997  purchased  $300,000  principal  amount of the
                  Notes.

            Interest  expense on the Notes was $105,000,  $105,000 and $36,750
      for the years ended December 31, 1998, 1997 and 1996, respectively.


<PAGE>

                               AIM GROUP, INC.                              13
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


8.    PREFERRED STOCK

            The  150,000  shares  of  preferred  stock  issued  in 1998  has a
      liquidating  preference of $2.50 per share for a total of $375,000.  The
      preferred  stock is only  entitled to dividends as declared by the Board
      of Directors and no dividends  shall accrue or accumulate on this stock.
      The preferred  shares are convertible into one share of common stock, as
      adjusted for any future stock  dividends,  stock splits or reverse stock
      splits.

            The conversion  feature of the preferred  stock is $2.50 per share
      which is less than the current market for the common stock. This results
      in a  beneficial  conversion  amount  which  is  treated  as an  imputed
      non-cash   preferred  stock  dividend  in  the  accompanying   financial
      statements.


9.    INCOME TAXES

            The Company has net  operating  loss  carryforwards  available  to
      offset  future  taxable  income  of  approximately  $3,151,000  expiring
      through  the year  2012.  Due to the merger in 1995,  the net  operating
      losses are subject to certain limitations,  computed on an annual basis.
      These loss  carryforwards  are the only temporary  difference that would
      give rise to  deferred  income  taxes.  Due to the  Company's  continued
      losses and the restricted use of some of the carryforwards,  a valuation
      allowance  has been  recorded  to offset  all income  tax  benefits  and
      deferred tax assets.

            Total gross deferred tax assets and gross deferred  liabilities at
      December 31, 1998 and 1997 are as follows:

<TABLE>
<S>                                                 <C>                <C>
            Gross deferred tax liabilities          $        -         $        -

            Gross deferred tax asset                 1,206,518          1,072,120
            Less valuation allowance                 1,206,518          1,072,120
                                                    ----------         ----------
              Net deferred tax asset                         -                  -
                                                    ----------         ----------
            Net deferred taxes                      $        -         $        -
                                                    ==========         ==========
</TABLE>


10.   STOCK SPLIT

            On August 21, 1998,  the Company  executed a 1 for 3 reverse stock
      split of the common shares  outstanding  resulting in a reduction in the
      common shares  outstanding  from 3,980,053 to 1,326,685.  All applicable
      share  and per  share  data in  these  financial  statements  have  been
      restated to give effect to this reverse stock split.


<PAGE>

                               AIM GROUP, INC.                              14
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


11.   STOCK OPTIONS AND WARRANTS

            During 1997,  the Company  established  the 1997  Incentive  Stock
      Option Plan  providing for the issuance of an aggregate of up to 250,000
      common  shares of the Company for  employees,  officers  and  directors.
      Subsequently  in 1997,  the  Board of  Directors  approved  the grant of
      options to purchase 73,335 shares of the Company's  common stock at $.90
      per share to certain  directors,  officer  and  employees.  The  options
      expire  ten years  from the date of grant and have a  four-year  vesting
      period at 25% per year.

            During November 1998, the Board of Directors approved the grant of
      options to purchase 25,000 shares of the Company's common stock at $2.50
      per share to a consultant.  During December 1998, the Board of Directors
      approved the grant of options to purchase 96,000 shares of the Company's
      common  stock at $3.00  per share to  certain  directors,  officers  and
      employees under the same terms as the 1997 options above.

            Following  is a summary  of the status of the  options  during the
      years ending December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                                                   Number           Exercise
                                                  of Shares          Price
                                                  ---------         --------
<S>                                               <C>               <C>
Options granted during 1997 and
  outstanding at December 31, 1997                 73,335           $ 0.90
Options granted during 1998                       121,000             2.90
Options exercised during 1998                      (3,333)            0.90
Forfeitures during 1998                            (8,333)            0.90
                                                  --------
Options outstanding at December 31, 1998          182,669           $ 2.22
                                                  ========          =======
Options exercisable
    - December 31, 1997                                 -           $ 0.90
    - December 31, 1998                            12,918             0.90

Weighted average fair value of options
  granted during year ended
    - December 31, 1997                                             $ 0.33
    - December 31, 1998                                               1.25
</TABLE>


<PAGE>

                               AIM GROUP, INC.                              15
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


11.   STOCK OPTIONS AND WARRANTS (CONT.)

            During 1998,  options were exercised for 3,333 shares at $0.90 per
      share. Under the terms of the options, a portion of the exercised shares
      can be used to pay for the options  exercised.  Under these  terms,  857
      shares at a market  value of $3.50 per share were used to  purchase  the
      shares  resulting  in 2,476 shares  being  issued.  This is treated as a
      non-cash transaction in the accompanying  consolidated statement of cash
      flows.

            As of December 31, 1998,  outstanding  options are  summarized  as
      follows within ranges of the exercise price:

<TABLE>
<CAPTION>
                                                   Exercise Price
                                                   --------------
                                        $0.90       $2.50 - 3.00
                                      Per Share      Per Share         Total
                                      ----------     ----------     ----------
<S>                                   <C>            <C>            <C>    
Option shares outstanding                 61,669        121,000        182,669
Weighted average
  exercise price                      $     0.90     $     2.90     $     2.22
Weighted average
  remaining contractual life          105 months     107 months     107 months
Option shares exercisable                 12,918              -         12,918
Weighted average
  exercise price                      $     0.90     $     2.90     $     0.90
</TABLE>

            The Company has accounted for all of the options under  Accounting
      Principles Board (APB) Opinion No. 25. No compensation  expense has been
      recognized  for the options  under this  method.  Statement of Financial
      Accounting   Standards   (SFAS)  No.  123  "Accounting  for  Stock-Based
      Compensation"  provides for fair value  accounting for all stock options
      based on  various  factors at the date the  grants  were  made.  Expense
      related to these  options  would have been $6,994 and $1,504  during the
      years  ended  December  31,  1998 and 1997,  respectively,  based on the
      vesting  schedule of the various  options,  had the Company adopted SFAS
      No. 123. The following is pro forma net income and earnings per share as
      if the options had been accounted from under FASB No. 123:

<TABLE>
<CAPTION>
                                1998               1997                1996
                                ----               ----                ----
<S>                         <C>                 <C>                 <C>
Net income (loss)
  - As reported             $(351,606)          $(482,763)          $(415,663)
  - Pro forma                (358,600)           (484,267)           (415,663)
Earnings per share
  - As reported                 (0.32)              (0.37)              (0.31)
  - Pro forma                   (0.32)              (0.37)              (0.31)
</TABLE>


<PAGE>

                               AIM GROUP, INC.                              16
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


11.   STOCK OPTIONS AND WARRANTS (CONT.)

            The  fair   value  of  the  grants   was   determined   using  the
      Black-Scholes model. The significant  assumptions used in this valuation
      were as follows:

<TABLE>
<S>                                    <C>      
      Risk-free interest rate          4.61% to 6.09%
      Expected life                    5 to 10 years
      Expected volatility                    30%
      Expected dividend rate               $ 0.00
</TABLE>


12.   CONTINGENCIES

            The Company is involved in a lawsuit, which occurred in the normal
      course of  business.  Management  intends  to  vigorously  defend  these
      actions and  believes no material  losses will occur and  believes  that
      exposure on this matter is limited to $25,000.


13.   RENT EXPENSES

            The Company rents certain  office space and equipment  under month
      to month rent  agreements.  Rent expense under these  agreements was not
      significant  for the  years  ended  December  31,  1998,  1997 and 1996,
      respectively.


14.   MANAGEMENT'S PLANS

            The Company has  incurred  recurring  losses  from  operations  as
      indicated in the consolidated  financial  statements.  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 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.  Based on studies  performed
      during  1998,  management  believes  that there is a service and product
      market and the product can be sold at a profit. In addition, the surface
      modification  business  located in  Arkansas  is heavily  reliant on few
      customers.   Unless  the  Company  is  successful  in  diversifying  and
      expanding  its customer  base,  the  prospects for this line of business
      remains uncertain.


<PAGE>

                               AIM GROUP, INC.                              17
                               AND SUBSIDIARIES

                Notes to the Consolidated Financial Statements

                       December 31, 1998, 1997 and 1996


14. MANAGEMENT'S PLANS (CONT.)

            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 of the  resource  property.  Management  has entered into letters of
     intent or is negotiating  definitive  purchase  agreements to acquire three
     entities in the information technology business, but these acquisitions are
     dependent  upon the execution of definitive  agreements  and the successful
     private  placement  of equity  financing.  However,  if these  efforts  are
     successful,  management  intends  to  direct  the  Company  into  this  new
     business, which it believes would be profitable.  There can be no assurance
     that the Company will be successful in its efforts to complete the proposed
     acquisitions, complete the equity financing or 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
     if the Company is not successful in these efforts.


15.  RECLASSIFICATION

            The Company's  factoring  arrangement meets the criteria set forth
      in Statement of Financial Standards No. 125 (SFAS 125),  "Accounting for
      transfers  and  servicing  of  Financial  Assets and  Extinguishment  of
      Liabilities." Accordingly, the Company has treated the factored accounts
      receivable  as a sale.  As a  result  of  applying  SFAS  125,  the 1997
      receivable  financing  liability of $277,441 has been offset against the
      accounts  receivable  balance  of  $368,832,  to  comply  with  the 1998
      presentation.


16.  SUBSEQUENT EVENTS

            Subsequent to December 31, 1998, the Company  entered an agreement
      to  purchase  2,200  shares   (approximately  3%  equity  ownership)  of
      convertible preferred stock of a software technology company which sells
      to internet service providers.  In addition,  the Company has received a
      purchase  warrant for 1,100 shares of additional  convertible  preferred
      stock  which  would  enable the  Company to  increase  its total  equity
      ownership to approximately 4.5%.