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, 1996.

                                      or

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

                        Commission file number 33-82468

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

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

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

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

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

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

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

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

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

                                 Yes [X]   No [ ]

<PAGE>

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

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

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

  Issuer's revenues for its most recent fiscal year:                $3,092,278
                                                                    ----------

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

 Aggregate market value as of March 25, 1997                        $1,380,430
                                                                    ----------

     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 25, 1997                  3,980,053
                                                                     ----------


<PAGE>

                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS

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

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

The   businesses   of   the   Company   are   United   Minerals    Corporation
(Arkansas)("UMC(AR)"),     HTI,     and    United     Minerals     Corporation
(Arizona)("UMC(AZ)").  UMC(AR), an Arkansas  corporation formed in March 1993,
operates a mineral surface modification facility located in Malvern, Arkansas.
HTI, a Florida  corporation  formed in May 1991,  owns a lease  interest  in a
silica/kaolinite  deposit  (Klannerite(R)).  UMC(AZ),  an Arizona  corporation
formed  in May 1993 and  originally  called  Viva Luz  Mining  Company,  mines
Klannerite(R) as needed. HTI developed and marketed a Klannerite(R) containing
coating for use in furnaces and kilns,  called PDC coating.  HTI also formerly
held the  exclusive  right to market  another high  temperature  Klannerite(R)
containing  refractory  coating  developed by a third party.  This coating was
test marketed under the "Omega" trade name. Details are set out below.

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


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

     UMC(AR) is the Company's  core business and has completed its second full
     year  of   operations  on  December  31,  1996.  It  operates  a  surface
     modification  facility,  both as principal and as a toll  processor,  for
     industrial   minerals   used  as  fillers  in  the  rubber  and  plastics
     industries. The plant commenced operations in April 1994. Since inception
     UMC(AR) has  carried  out  leasehold  improvements  and the  engineering,
     procurement,   and  construction  of  machinery  and  equipment.  UMC(AR)
     purchased the land and building in 1995.

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

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

     The use of surface  modified  fillers may require that  customers  change
     their formula or production  method in order to achieve  maximum  benefit
     from the modified  filler  materials.  As such,  there may be a prolonged
     interval of business  development  during which the  customer  undertakes
     testing and evaluation prior to a change in materials source. UMC(AR) has
     successfully  supplied  samples  to a  number  of  customers  and  sample
     evaluation is ongoing. Additionally, UMC(AR) has successfully carried out
     surface treatment of test quantities of opacifying materials.  Subsequent
     to the year ended December 31, 1996, UMC(AR) received orders for 600 tons
     of an opacifying material and 400 tons of a flame retardant material.


                                       1

<PAGE>

     UMC(AR) operated one shift per day during 1996 and treated  approximately
     2,600  tons of  commercial  products  at the  Malvern  plant.  Management
     estimates that the plant's capacity is approximately 7,000 tons per year.
     The plant  currently  has two mixing and packaging  lines.  Approximately
     seven full time employees currently work at the plant.

     HEATSHIELD TECHNOLOGIES, INC. (HTI)

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

     HTI carried out reserve  analysis,  surface  mining,  and processing of a
     silica/kaolinite  rock,  called  "Klannerite(R)  ", at a mining  property
     locally  referred  to as the "Viva Luz Mine"  located  in Mohave  County,
     Arizona.  Exploitation  of the Viva Luz Mine was formerly  conducted on a
     joint venture basis with AIM. No mining of Klannerite(R) has been carried
     out since 1993.

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

     In December of 1995, HTI signed a Technology License Agreement with Omega
     Coatings  Pty.,  Limited  of  Sydney,  Australia  "OCPL".  The  agreement
     provided  HTI  exclusive  North  America  rights  to sell and  distribute
     furnace  coatings  known as Omega 1 and  Omega  2.  The  Omega 1  coating
     contains a  significant  portion of  Klannerite(R)  which was supplied to
     OCPL by HTI.

     HTI also signed a Technology  Purchase  Option  Agreement with OCPL. This
     agreement  provided HTI the  exclusive  rights to purchase all  worldwide
     rights to the Omega line of coatings licensed by OCPL from Refract-a-Gard
     Pty.,  Limited,  also of Sydney,  Australia,  and certain  assets of OCPL
     pertinent to the Omega coatings and their manufacture.

     After limited test marketing of these products, the Company abandoned its
     exclusive  license  and has  written  off  $93,396 of its  investment  in
     license and royalty payments. Due to a current lack of available research
     and development funds, the Company is no longer pursuing the options with
     respect to Omega  Coatings.  Although the licensing  agreements have been
     cancelled, the  Company  maintains  a dialogue  with OCPL should the need
     arise to renew a working relationship. Both of these products continue to
     be evaluated by potential customers.

     HTI is also  working to develop  Klannerite(R)  for use as an  industrial
     filler.  Initial  tests were  carried out to develop uses for latex based
     paints, oil based paints, and plastics. Test results for oil based paints
     and plastics  have been average to  sub-standard.  Test results for latex
     based paints have been better, with good thixotropy,  flatting, and scrub
     resistance compared to commonly used fillers.  Although development funds
     are  limited,  further  testing and  marketing  efforts  are  underway to
     develop  local  markets in the Phoenix / Las Vegas / Southern  California
     area with small independent paint manufacturers.  Additionally,  new uses
     are under investigation,  including Klannerite(R) as a pozzolan component
     in grouts and white cements, as a microporous light weight insulating low
     temperature aggregate, and as a lightweight roofing aggregate for polymer
     roofing  systems.  To date there have been no  commercial  sales to these
     markets.


     UNITED MINERALS CORPORATION ARIZONA (UMC(AZ))   VIVA LUZ MINE

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


                                       2

<PAGE>

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

     In July 1992,  the Atchison  Topeka and Santa Fe Railway  Company  denied
     public access  across its tracks,  preventing  the Company  access to the
     mine,  unless the Company  posts a flagman  and  spotter at the  crossing
     site. A substantial quantity of processed  Klannerite(R),  sufficient for
     foreseeable sales, is available from the Company's inventory.

     The use of  Klannerite(R)  in the  manufacture  of  refractories  for the
     aluminum industry was tested during the year without success.

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

As reported by the Company in its Form 8-K filed on  February  20,  1997,  the
Company's  former  management in early 1997  considered  the  recognition of a
reserve against the Company's mineral leasehold  interest in the Viva Luz Mine
in view of disappointing results encountered in connection with the testing of
certain commercial applications of Klannerite.  The Company's current Board of
Directors and  management,  which assumed their  positions on March 27, 1997 ,
have  concluded  that  the  recognition  of such a  reserve  in the  Company's
financial  statements  for the year ended December 31, 1996 would be premature
and that  efforts  will be made during the current year to identify and pursue
new economically viable applications for the material other than those pursued
in the past.


Working Capital

The working  capital of the  Company  was  $38,251 at year end.  To date,  the
Company  has  continued  to  factor  a  substantial  amount  of  its  accounts
receivable. During 1996, the Company completed $300,000 of a private placement
of $1,050,000 principal amount of Convertible Notes originally undertaken late
in 1995. This placement  enabled the Company to pay down all outstanding short
term borrowings and  substantially  reduce its factoring of  receivables.  The
operations  of the  Company  produced a net loss for the 1996  fiscal  year of
$415,633 after a write-off of development expenses of $93,396.

As of March 26, 1997 UMC(AR) had outstanding contracts approximating $340,000.

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


Dependence on a Significant Single Customer

During 1996, UMC(AR) continued to be dependent on a major customer, a plastics
compounder,  for approximately  83% of its consolidated  sales compared to 93%
for 1995. If sales to this customer were lost, UMC(AR) would not be profitable
on  a  unit  basis.  Management  has  made  some  improvements  over  1995  in
diversification  of its customer base for surface treated minerals,  primarily
within the plastics  compounding sector, and expects continued  improvement in
this area for 1997.


Dependence on a Significant Single Supplier

UMC(AR) has been  dependent  in the past on a single  major  supplier  for the
majority  of its raw  materials.  If  this  supplier  refused  to  deliver  or
relations with UMC(AR) were severed,  UMC(AR) would be at a disadvantage until
a  replacement  supplier  for the  material  was  located.  There are  several
alternate  suppliers  for the raw  material  and UMC(AR) has  evaluated  their
materials and sent them to customers for further  evaluation.  Management does
not believe  that there would be a  protracted  interruption  of raw  material
supply in the event that the major supplier  refused to continue to supply.  A
time delay may be experienced in the order cycle from any new supplier.

UMC(AR) has to date been able to obtain  adequate  supplies  of  organosilicon
chemicals from third parties at reasonable  terms and prices.  An interruption
of the delivery of these  materials in the future


                                       3

<PAGE>

could have an adverse effect on the operations of the UMC(AR) plant. Other raw
materials used or processed by UMC(AR) are available from several sources.


Patents, Trademarks and Contracts

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

The Company was granted a patent on its Photon  Diffusive  Coating on November
6, 1996.

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

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

The Company is in dispute with two of the former Corporate Secretaries and the
former  Assistant  Corporate  Secretary over  employment  contracts which they
claim are valid.  The  Company  does not  acknowledge  the  validity  of these
purported  contracts and has given notice to the employees of a need to modify
and acknowledge their understanding with the Company.

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

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


Status of Publicly Announced New Product

During 1996, the Company's  management reviewed the results of testing to date
on Klannerite(R)  filler and the potential of the PDC heat reflective  coating
business  and decided  that these were not  developing  in line with  original
expectations.  Due to the extremely  competitive nature of the filler business
and the greater margins  obtainable  from the Company's  other  business,  the
Company  elected  to  concentrate   its  marketing   efforts  on  the  surface
modification business. The use of Klannerite(R) in an insulating fire brick is
still being investigated along with other potential  applications.  During the
first six months of 1996,  the  Company  undertook  a  marketing  and  testing
program for the Omega Coatings.  Due to inconclusive results and lack of funds
available  for research and  development  the Company has  abandoned the Omega
product  line.  In 1996,  the Company  wrote off its  investment  in the Omega
Products.


Cost Reduction Measures - Subsequent Event Effective March 27, 1997

The company has  implemented a cost  reduction  plan which includes but is not
limited to the following major items: reduction of significant legal expenses,
elimination of signifcant  administrative overhead, and lower corporate office
lease expenses.


OTHER BUSINESS ITEMS

Research and Development

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


                                       4

<PAGE>

HTI has  previously  expended  funds to develop  markets  for PDC  coating and
Klannerite(R)  and  continues  on a  limited  basis  to  explore  uses for the
Klannerite(R).  In 1996,  the  Company  carried  out a six month  testing  and
marketing program for Omega Coatings  products through a license  arrangement.
Due to limited funding,  the Company  relinquished its rights to license these
products and wrote-off its investment in Omega of $93,396.

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

<TABLE>
<CAPTION>
                                            1996        1995       1994       1993

<S>                                         <C>         <C>        <C>        <C>    
Expenditures                                $49,582     $9,311     $42,866    $77,677
R&D, testing, and Market Dev'l.
</TABLE>

Consistent with its business plan, the Company does not anticipate undertaking
any significant research and development for the remainder of 1997 or in 1998,
other than in the normal course of business to determine the concentrations of
silane chemicals to be used for surface modification production.


Competition and Markets

UMC(AR) competes with other mineral suppliers and custom or toll processors in
the surface modification industry. Many of the mineral producers are of a much
larger size in both terms of assets and sales,  and are more  diversified than
UMC(AR). Some mineral producers are well recognized by the industry and others
offer products at significantly lower prices.

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

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

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

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


Employees and Consultants

Presently,  AIM Group and its subsidiary UMC(AR) have a total of 12 employees,
of whom a total  of 11 are full  time.  The  Company  intends  to hire,  under
contract,  employees  needed to operate its mining,  mineral  processing,  and
packaging  facilities  as  required.  The  Company  does  not  anticipate  any
significant  increase  in the  number of  employees  other than  direct  labor
associated with increased production activity at its UMC(AR) facility.

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


                                       5

<PAGE>

Environmental Issues and Government Regulation

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

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

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

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

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

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

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

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

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

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

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

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


                                       6

<PAGE>

The  regulations  provide for, and the Company and its employees  comply with,
the requirements  respecting dust extraction and control processes,  equipment
and  accouterments,  safety  clothing,  and equipment.  Use of this equipment,
principally  respiration  filters to remove airborne  particles,  by employees
brings the Company into compliance with existing regulations.

There have been recent  proposals to change the  evaluation  of the effects of
the various hazards  associated  with different forms of silica.  Specifically
there  is  a  proposal  to  define  inhaled  cristobalite,   and  quartz  from
occupational  sources as carcinogenic  to humans.  These forms of silica occur
naturally in Klannerite(R).

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

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

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

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


                                       7

<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

In September  1996,  AIM Group  decreased the amount of office space leased at
its head office in Broward County,  Florida from approximately  5,000 to 3,190
square feet. The Company anticipates  sub-leasing 1,590 square feet which will
effectively  reduce the office  space  leased by the company to  approximately
1,600 square feet. As of March 28, 1997, the Company was in negotiation with a
potential tenant to sublet this space. However, there is no guarantee that the
Company will find a suitable sub-tenant. The lease expires in November 1999.

UMC(AR) owns a 9,050 square foot  industrial  building  which  includes  1,850
square feet of laboratory and office space,  situated on a 3.75 acre site. The
facility is located in Malvern, Arkansas,  approximately 40 miles southwest of
Little Rock, Arkansas. This property was acquired in October,1995. The Horizon
Bank of Malvern  holds a collateral  mortgage on the property in the principal
amount of approximately $60,300.

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

The mineral body has been previously  classified by a geologist under contract
to HTI into three different  quality  categories,  K1, K2, and K3. The highest
grade K1 rock is uniformly white in color, relatively free of impurities,  and
may be suitable for use as a filler.  The measured geologic reserves of K1 are
260,000 tons proved and 80,000 tons probable.  The Company believes that there
are sufficient  reserves of K1 for operations for the foreseeable  future. The
two lower grades of mineral,  K2 and K3, are less pure, off color, and may not
find ready markets.  The measured geologic reserves of K2 and K3 are 1,350,000
tons.

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

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

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


ITEM 3.  LEGAL PROCEEDINGS

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

     On January 31, 1997,  Bernard  Kossar,  a former director of the company,
initiated  an action  against  the  Company in the  Circuit  Court of the 17th
District,  Broward County, Florida, for repayment of $300,000 principal amount
of a Series A  unsecured  Convertible  Promissory  Note  issued  to him by the
Company  which  became due on December 31,  1996,  plus  accrued  interest and
costs. The Company has entered into an agreement with Mr. Kossar amending that
note to extend its  maturity to March 31, 1998,  increase the annual  interest
rate to 10% and decrease the conversion  price to $.70 per share.  The Company
expects that the lawsuit  against the Company will be withdrawn by Mr.  Kossar
during April, 1997.


                                       8

<PAGE>

As  reported  by the  Company  in its  Form  8-K  filed  on  March  28,  1997,
shareholders of the Company owning 55.28% of the Company's  outstanding shares
of Common Stock delivered signed copies of a shareholders' consent calling for
a change  in  members  of the Board of  Directors  of the  Company.  Following
delivery  of the  consents to the  Company on March 27,  1997,  certain of the
newly-elected  members  of the  Board of  Directors  of the  Company  filed an
application with the Court of Chancery of Delaware  pursuant to Section 225 of
the Delaware General  Corporation Law seeking to confirm the validity of their
election to the Board of Directors  pursuant to the  consents.  It is expected
that the former  directors  of the  Company  will not  contest the Section 225
proceeding.

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


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

During the fourth quarter of 1996, no items were submitted to the shareholders
for vote.

On March 27, 1997,  shareholders of the Company owning 2,200,200 shares of the
Company's  common  stock,  (the  "Common  Stock")  representing  55.28% of the
Company's  outstanding  shares of Common Stock,  delivered  signed copies of a
shareholders'  consent (the "Consents") calling for a change in the members of
the Board of Directors of the Company,  effective immediately,  to serve until
their  successors  are duly elected at an Annual  Meeting of the  Shareholders
expected to be held later this year. The Delaware General Corporation Law (the
"Delaware  Law") provides that Directors may be removed and/or elected without
a shareholders'  meeting,  without prior notice and without a vote, if written
consents  setting forth the action taken are signed by the holders of at least
a majority  of the  outstanding  shares and are  delivered  to the  Company in
accordance with Section 228 of the Delaware Law.


PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The shares of the  Company  common  stock have traded on the  Vancouver  Stock
Exchange ("VSE"),  Vancouver,  B.C., Canada since April, 1995. The Company has
been  granted  Senior  Listing  status by the VSE. The price of the shares are
quoted in U.S.  dollars and U.S.  shareholders can locate the Company's shares
under the trading  symbol  AGDU.V and for  Canadian  shareholders  the trading
symbol is AGD.U.

As of March 24,  1997,  there were 379  holders of record of AIM Group  Common
Stock.


                                       9

<PAGE>

MARKET PRICES FOR AIM GROUP COMMON STOCK

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


<CAPTION>
                                                  AIM GROUP INC.
 PRICES QUOTED IN US DOLLARS                       COMMON STOCK
                                                     PRICES
 -----------------------------------------------------------------------------------------------------
         YEARS ENDED, DECEMBER 31,                      1996                          1995
                                                 HIGH           LOW            HIGH           LOW
 -----------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>          <C>            <C>
   First Quarter                                $1.85          $0.85        not listed     not listed
   Second Quarter                               $1.20          $0.50          $1.10          $1.05
   Third Quarter                                $0.77          $0.41          $1.10          $0.87
   Fourth Quarter                               $0.58          $0.30          $1.20          $0.87
 -----------------------------------------------------------------------------------------------------
</TABLE>

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

AIM  Group,  Inc.  is a Delaware  corporation,  organized  for the  purpose of
consolidating   the  businesses  of  HeatShield   Technologies   and  Advanced
Industrial  Minerals.  The latter was formerly  listed on the Vancouver  Stock
Exchange  (VSE) from  December  13, 1993 until the time of the merger with AIM
Group on March 31, 1995, and up to the merger traded under the symbol ADI. The
predecessor  company,  PDC Industrial  Coatings  Inc.,  traded stock under the
symbol PDC.


DESCRIPTION OF THE CAPITAL STOCK OF THE REGISTRANT

AIM Group's  authorized  capital stock consists of 12,000,000 shares of common
stock,  $.01 par value (the " Common Stock"),  3,980,053  shares of which were
outstanding on March 25, 1997, and 1,000,000 shares of preferred stock,  $1.00
par value (the "Preferred Stock"), no shares of which are outstanding.

At the Company's 1996 Annual  Meeting held on July 10, 1996, the  Shareholders
approved a resolution  authorizing  the directors to amend Article Four of the
Company's  Certificate  of  Incorporation  to increase  the maximum  number of
authorized  shares of Capital Stock of AIM Group from 7,000,000 to 13,000,000.
This  authorization  called for an  increase in the number of shares of Common
Stock  authorized for issuance from  6,000,000 to  12,000,000,  to be used for
acquisitions,  financing,  public  offerings  or other  appropriate  corporate
purposes.

COMMON STOCK.  Holders of Common Stock have one vote for each share held,  are
not entitled to cumulate their votes for the election of Directors, and do not
have  preemptive  rights.  All shares of Common  Stock have equal  rights and,
subject to the rights of the holders of the Preferred  Stock,  are entitled to
receive such  dividends,  if any, as may be declared  from time to time by the
AIM Group Board out of funds  legally  available  therefore,  and to share pro
rata in the net assets of AIM Group  available for  distribution to holders of
Common Stock upon liquidation.

PREFERRED  STOCK.  The AIM Group Board may without further action by AIM Group
stockholders,  from time to time,  direct the  issuance  of up to one  million
(1,000,000)  shares  of  Preferred  Stock in  series  and may,  at the time of
issuance,  determine the rights, preferences,  and limitations of each series.
The rights of any such series may include voting and  conversion  rights which
would  adversely  affect the  voting  power of the  holders  of Common  Stock.
Satisfaction of any dividend preferences of outstanding  Preferred Stock would
reduce the amount of funds  available  for the  payment  of  dividends  on the
Common Stock.  Also, the holders of Preferred Stock would normally be entitled
to receive a preference payment in the event of any liquidation,  dissolution,
or  winding-up  of AIM Group  before any payment is made to the holders of the
Common Stock.  Any such issue of preferred  stock in  consideration  for other
than currency is subject to the prior approval of the VSE.

CONVERTIBLE  PROMISSORY  NOTES The Company  announced  on October 18, 1995 the
private  placement of Series A  Convertible  Promissory  Notes (the  "Notes"),
carrying a 3 1/2%


                                      10

<PAGE>

annual  interest rate, and a maturity date of December 31, 1996, and having an
aggregate  face value of  $1,050,000,  subject to the  approval of the VSE. In
February 1996, the Company  completed the private placement with three related
party investors (see Related Parties) and received the necessary approval from
the  Vancouver  Stock  Exchange.  The Notes  carried a three  year  conversion
feature  at the option of the  holders to convert  the face value of the notes
into  common  shares of the  Company  at a price of $1.10 if  converted  on or
before December 31, 1996;  $1.35 on or before  December 31, 1997;  $1.60 on or
before  December  31, 1998.  In  addition,  the Company had the right to force
conversion of the notes into common  shares upon  completion of an offering of
at least  1,500,000  common shares at a minimum price of $1.50 per share.  The
Company used the proceeds  from the Notes to repay other  indebtedness  of the
Company  which had become due during the  period.  The  balance of the private
placement proceeds was used for working capital purposes.

At a meeting of the Board of Directors held on July 23, 1996, the Directors of
the Company passed a resolution  ratifying a previous  agreement with the Note
holders at the time the Notes were  issued,  that the Company  would not issue
any debt which ranked senior in priority to the Notes, without the majority of
the Note holders consent.

The Notes, having an outstanding  principal balance of $1,050,000,  matured on
December 31, 1996. The cash flow from operations was not sufficient to pay off
the Notes.  The Company is engaged in  negotiations  with the three holders of
the Notes to amend the Notes to extend the final  maturity to March 31,  1998,
increase the interest rate to 10% per annum and change the conversion  rate to
$.70 per share. Two of the holders,  who own $750,000  principal amount of the
Notes, have agreed to such amended terms, contingent upon the agreement of the
third holder, who owns $300,000 principal amount of the Notes, to such amended
terms. The Notes will remain unsecured.


                                      11

<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 had minimal operations until it merged
with Advanced Industrial Minerals, Inc. and HeatShield Technologies, Inc. (and
its subsidiaries) effective March 31, 1995. The Actual results for the Company
include  operations  from  this  date.  Prior  thereto,  the  Company  had  no
operations, therefore the results are not directly comparable.

See  Pro-Forma  for all  inclusive  reporting  of the results on a  comparable
basis.  The Pro Forma results include those results from  subsequently  merged
entities as if the merger had been concluded as of January 1, 1994.


RESULTS OF OPERATIONS - ACTUAL

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

<CAPTION>
                                                       Actual                           Actual

Period ended December 31,                       1996         % of sales          1995         % of sales
                                                -----------------------          -----------------------
<S>                                         <C>                 <C>          <C>                 <C>
Net Sales                                   $ 3,092,278         100.0        $ 2,399,493         100.0
Cost of Goods Sold                            2,148,191          69.4          1,692,943          70.6
Gross Margin                                    944,087          30.6            706,550          29.4
Selling & Marketing                             270,612           8.8            132,532           5.5
Administration                                  791,826          25.5            673,105          28.1
Interest                                        131,429           4.3            162,505           6.8
Depreciation                                     72,487           2.3             47,249           2.0
Total G & A                                   1,266,354          40.9          1,015,391          42.3
Earnings (Loss) from Operations                (322,267)        (10.4)          (308,841)         (2.9)
Write off Investment                             93,396           3.0                  -           n/a
Total Earnings (Loss) before Taxes             (415,663)        (13.4)          (308,841)        (12.9)
</TABLE>


Actual  net sales for the year were  $3,092,278  with a gross  margin of 30.6%
compared with  $2,399,493  and 29.4% the previous  year.  The first quarter of
operations for 1995 was prior to the  consummation of the merger and therefore
could not be included for the actual operations results reported for the year.
(See pro forma results for  operations  for all inclusive  results,  as if the
merger had taken place January 1, 1995).

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 3.7% of sales were
made as a toll  processor of  customers'  materials.  A small portion of sales
were production size samples for customers' evaluation.

Selling and Marketing expenses for 1996 increased to $270,612 or 8.8% of sales
compared to $132,532 or 5.5% of sales for 1995.  The increase is  attributable
to expansion of technical sales and marketing efforts. Administration expenses
for 1996 were $791,826 and represent  25.6% of sales compared with $673,105 or
28.1% of sales for the prior year.  Management  attributes this improvement to
reduction  of head  office  costs of the merged  entity and the non  recurring
expenses associated with the mergers which were included in 1995.

Interest expenses were $131,429 and $162,505 for 1996 and 1995,  respectively.
This  represents for 1996 a decrease to 4.3% of sales,  from 6.8% of sales for
the prior year,  which is a reflection  of the  decreased  use of factoring of
receivables to provide working capital.

Net Loss from operations of $322,267, at 10.4% of sales,  represents a loss of
$ 0.081 per share,  compared with $308,841, or $ 0.084 per share, based on the
weighted average number of shares outstanding  during the respective  periods.
Due to the  discontinuance  of  the  Omega  licensing  agreement  the  Company
recognized  a  loss  of  $93,396  or $  0.024  per  share,  for  write  off of
investment.  This loss coupled with the net loss from operations resulted in a
total loss of $ 415,633 which was 0.105 per share or 13.4% of sales. There was
no comparable extraordinary loss in 1995.


                                      12

<PAGE>

Resource Property

The current Board of Directors  believes it would be premature at this time to
effect a  write-down  of any  portion of the  Company's  resource  property in
Arizona.  An  effort  will  be  made  to  determine  new  economically  viable
applications for the material other than those pursued in the past.

If by the end of this calendar fiscal year the Company has not been successful
in  establishing  realistic  market  potential  for  Klannerite(R),   then  an
independent  professional  will be retained to evaluate the  possibility of an
adjustment in the value of this resource that the Company now maintains on its
balance sheet.

PRO-FORMA RESULTS

UMC(AR)  was not a  subsidiary  of the Company  the entire  prior year,  hence
comparison of full year 1996 with 1995 results is not  completely  meaningful.
Reference is made to Note "B" of the Notes to the Financial  Statements of the
Company.

On a  Pro-forma  basis the results for the Company are shown as if the mergers
had occurred  effective  January 1, 1994, and therefore include a full year in
1995 for comparison purposes.


RESULTS OF OPERATIONS - PRO FORMA

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

<CAPTION>
                                         Actual (12 Months)           Pro-Forma (12 Months)
Period ended December 31,             1996         % of sales        1995         % of sales
                                      -----------------------        -----------------------
<S>                                  <C>             <C>            <C>             <C>  
Net Sales                            $ 3,092,278     100.0          $ 2,820,958     100.0
Cost of Goods Sold                     2,148,191      69.5            1,975,680      70.6
Gross Margin                             944,087      30.5              845,278      30.0
Selling & Administration               1,062,438      33.1              933,871      33.1
Interest                                 131,429       4.3              171,785       6.1
Depreciation                              72,487       2.3               60,140       2.1
Total G & A                            1,266,354      40.9            1,165,796      41.3
Earnings (Loss) without                 (322,267)    (10.4)            (320,518)     (4.4)

Write off Investment                      93,396       3.0                    -       n/a
Earnings before Taxes                   (415,633)    (13.4)            (320,518)    (11.4)
</TABLE>

Sales for 1996 increased  9.6% to $3,092,278  compared to $2,820,958 for 1995.
The gross margin in 1996 increased .5% to 30.5% compared to 30.0% for 1995.

Selling and  administration  expenses increased in 1996 to $1,062,438 or 33.1%
of sales  compared  to $933,871  or 33.1% of sales for 1995.  The  increase of
$128,567 is due to increased technical sales and marketing costs for 1996.

Interest  charges for 1996 decreased to $131,428 or 4.3% from $171,785 or 6.1%
of sales for the comparable  period in 1995. The decrease is  attributable  to
decrease in factoring of receivables  during 1996.  Depreciation  increased to
$72,487  from  $60,140 for the prior year.  The increase is due to the capital
purchase for UMC(AR) plant during early 1996.

For the year the  Company  produced a net loss from  operations  of  $322,267,
approximating  -10.4% of sales.  This  represents a loss of  $0.081per  share,
based on the number of shares  outstanding  during the year. For 1995, the Net
Loss of $320,518  represented a loss of $0.087 per share, based on the average
number of shares  outstanding  as if the mergers had taken place as of January
1, 1995.

The Company incurred  significant  legal fees and related costs in association
with the resolution of employment disputes, litigation over defective products
received from a supplier,  and the inability to resolve  issues  regarding the
Company's $1,050,000  liability of Convertible Notes outstanding.  These costs
were fully  absorbed  within the year and henceforth the results of operations
should show increased efficiency without a recurrence of these expenses.


                                      13

<PAGE>

INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS

The Company made no provision for Income Taxes for the year ended December 31,
1996,  having  generated an operating  loss for the year and  recognizing  tax
benefits from the utilization of Net Operating Loss  Carryforwards  (NOLs) for
book purposes.  For a more complete  discussion on income taxes and NOLs refer
to Note N to the Financial Statements.

As  of  December  31,  1996,  the  Company's  NOLs  aggregated   approximately
$2,317,600,  expiring 2005 through 2011.  These NOLs arose  primarily from the
operations  of the Company in the prior year and those of  acquired  companies
merged as of March 31, 1995.  Similarly no provision was made for Income Taxes
in the  corresponding  period 1995.  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.  Use of NOLs to reduce future  taxable income may subject the Company
to an alternative minimum tax.

Section 302 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, 1995 acquisition and merger of the corporations,  as more
fully described herein,  and the ownership changes that occurred in connection
therewith,  the  limitation on the  utilization of the NOLs imposed by section
382 of the Code will apply. Under the limitation,  the amount of the Company's
taxable  income that each year can be offset by NOLs  attributable  to periods
before the  ownership  change cannot exceed the product of (i) the fair market
value of the stock of the Company  immediately  prior to the ownership  change
and (ii) the long term  tax-exempt  rate prescribed by the IRS. The limitation
imposed by the change in  ownership  may result in the Company  paying  income
taxes in excess of the amount payable in the absence of the ownership change.


LIQUIDITY AND SOURCES OF CAPITAL

The operating cash flow deficit was funded by cash flow from the operations of
the United  Minerals  Corporation  (UMC)  subsidiary and Private  Placement of
$300,000 of the $1,050,000 issuance of Convertible  Promissory Notes completed
in February of 1996. Such Notes matured on December 31, 1996 and were not paid
off by the Company due to the unavailability of cash flow from operations. The
Company  is  engaged in  negotiations  with the three  holders of the Notes to
amend the Notes to extend the final  maturity to March 31, 1998,  increase the
interest  rate to 10% per annum and  change  the  conversion  rate to $.70 per
share.  Two of the holders,  who own $750,000  principal  amount of the Notes,
have agreed to such amended terms,  contingent upon the agreement of the third
holder,  who owns  $300,000  principal  amount of the Notes,  to such  amended
terms.

Management believes that additional working capital financing will be required
to meet the Company's  needs for the coming year. As of December 31, 1996, the
Company had working capital of $38,251.  This compares with working capital of
$187,230 as of December 31 of the previous year.  Management  anticipates that
if sales do not  increase the Company will need  additional  funding  sometime
this year. The Company has applied to a local Arkansas bank for an increase in
its capital loan, secured against its land,  building,  and fixed assets in an
amount approximating $90,000.

To increase  available  cash for purchases and payroll during the early stages
of development  the Company  entered into,  and has  continued,  its factoring
arrangement  which provides for cash advances  against  invoices to customers,
during the period for which such invoices are outstanding.  Customer  payments
are then applied  directly to advances.  This factoring,  while not increasing
working  capital,  has provided  for  liquidity  of  receivables.  The Company
intends to reduce its  reliance on  factoring  as a source of working  capital
during the coming year. Further, a new factoring agreement is in place that is
expected to reduce the current costs from factoring when needed by 30% to 40%.


ITEM 7.  FINANCIAL STATEMENTS

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


                                      14
<PAGE>

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

There are no disagreements with respect to disclosure.


                                      15

<PAGE>

                                   PART III

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

DIRECTORS OF THE REGISTRANT

<TABLE>
The  following is a list of the  Directors of the  Registrant,  their ages and
their principal occupations, as of March 28, 1997.

<S>                       <C>   <C>
Paul R. Arena*            38    Chairman,  Director,  Chief Executive Officer,
                                and  President  of AIM Group and  subsidiaries
                                and the founder of the Companies.

James L. Austin           46    Presently  the  President  of  Austin  Trading
                                Company. For the past 25 years, Mr. Austin has
                                been engaged in various  positions  within the
                                paper  industry.  He also  serves as the sales
                                coordinator  and  minority  owner  of a  large
                                paper de-inking facility. From October of 1989
                                to September  1994,  Mr.  Austin served as the
                                President  of  MoDoCell  Inc.  which  operates
                                paper   processing   mills   throughout  North
                                America and is the a  subsidiary  of MoDo Inc.
                                of Sweden,  one of the world's  largest  paper
                                processors. Prior to MoDoCell Inc., Mr. Austin
                                held such  positions as North  American  Sales
                                Manager for Georgia-Pacific, sales manager for
                                Willamette    Industries,    Gottesman-Central
                                National,    Brown    Company   and   was   an
                                International  Market  Research  Associate for
                                Schering-Plough Corporation.

Dr. A. L. (Al) Braswell   67    Presently  the  President  and  owner of Vista
                                Pacifica  Enterprises,  Inc.,  an  operator of
                                several health care  facilities in California.
                                For the past 34 years,  Dr.  Braswell has been
                                engaged   in   various   levels   of   health,
                                education,  and social assistance  activities.
                                Dr.  Braswell is also a real estate  developer
                                of  residential,   commercial  and  industrial
                                properties.

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

E. W. (Sandy) Purcell     44    Presently a Vice  President for the investment
                                banking  firm of  Houlihan,  Lokey,  Howard  &
                                Zukin. Previously, he was a Vice President and
                                Senior Associate with Valuemetrics,  Inc. from
                                October 1989 to January 1997. From May 1987 to
                                August  of  1989,   Mr.  Purcell  was  a  Vice
                                President/Partner  of  Southern   Frieghtways,
                                Inc. Prior thereto, from January 1986 to April
                                1987 he was a Manager,  National  Products for
                                General Electric Credit Corporation. From July
                                1978  to  January  1986,  Mr.  Purcell  was an
                                Assistant   Vice   President  and  Manager  of
                                National    Vendor    Sales   for    Equilease
                                Corporation.

                                Mr.   Purcell   obtained   an  MBA   from  the
                                University  of Chicago in 1989 and  received a
                                BS from the University of Florida in 1973.

Joseph L. Ranzini         66    Presently  Chairman of University Bank (NASDAQ
                                Traded),  and Chairman and  President  BIDCO a
                                Rural   Development  Bank  for  the  State  of
                                Michigan. Private law practice for over twenty
                                years;   Municipal   Judge   in  New   Jersey;
                                commercial   and   residential   real   estate
                                developer,   and  Business   Owner.   Formerly
                                administrative  assistant to the Vice Chairman
                                of the Board for Johnson & Johnson Company.


                                      16
<PAGE>

<FN>
* Denotes executive  officer;  for biography see section Executive Officers of
  the Registrant below.
</FN>
</TABLE>

Mr. Paul Arena and Mr. James Austin  withdrew  their names from  nomination at
the Company's 1996 Annual Meeting. Mr. Michael McManus resigned from the Board
of  Directors  of AIM Group,  Inc. in September  1996.  On March 27, 1997,  D.
Michael Hartley was removed as Chairman and Chief Executive  Officer.  On that
same day, John W.  Johnston was removed as a Director,  and Mr. Paul Arena and
Mr. James Austin were  reappointed as Directors by a majority of the Company's
shareholders.  Mr.  Kossar  resigned from the Board of Directors of AIM Group,
Inc. on April 2, 1997.


COMPENSATION OF DIRECTORS OF AIM GROUP INC.

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


EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
The following is a list of the  Executive  Officers of the  Registrant,  their
ages and their positions and offices as of March 28, 1997.

<CAPTION>
    Name                 Age    Office
<S>                       <C>   <C>
Paul R. Arena             38    Chairman,  Director,  Chief Executive Officer,
                                and  President  of AIM Group and  subsidiaries
                                and the founder of the Companies. From June of
                                1990 to August of 1991,  Mr.  Arena  served as
                                Vice  President  of Finance  and a Director of
                                Saftron,  Inc. of Miami,  FL. From February of
                                1988 to January of 1990,  he was a Senior Vice
                                President and partner of Gulfstream  Financial
                                Associates,  a subsidiary of the Kemper Group.
                                Previous  to  this  (April  of 1986 to June of
                                1988),  he was  the  President  of  the  Arena
                                Venture Group, a Boca Raton firm which engaged
                                in  aircraft  leasing  operations.  Concurrent
                                with this,  from March of 1987 to  February of
                                1988,  Mr.  Arena was also  employed as a Vice
                                President by Interstate  Securities,  and from
                                March  of  1985 to  February  of 1987 he was a
                                Vice President for Drexel Burnham Lambert.

 Leigh S. Zoloto          42    Chief Financial Officer,  Corporate  Secretary
                                and   Treasurer   of   AIM   Group   and   its
                                subsidiaries.  Mr. Zoloto has been employed by
                                the Company as Director of Finance  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.,  now a
                                subsidiary of W.R. Grace & Co.

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

John W. Johnston          55    Vice President Sales and Marketing, AIM Group.
                                Formerly Chief Operating Officer and Secretary
                                of AIM Group since April  1995,  formerly  COO
                                for HeatShield  since July 1994.  President of
                                Eastco Capital  Management  from 1984 to April
                                1994.  From  1988  to  1991,   Executive  Vice
                                President  of Memry  Corp.  From 1982 to 1984,
                                Executive   Vice  President  and  Director  of
                                Billiton Metals & Ores.

Robert E. Needham         56    Vice  President  of  Engineering  and  Product
                                Development    for   AIM    Group    and   its
                                subsidiaries.  Mr.  Needham has worked for the
                                Company  and  its   subsidiaries   in  various
                                capacities  since  January 1993.  Mr.  Needham
                                received his Masters Degree in Geology in 1970
                                from  the  University  of  Georgia,   and  his
                                Masters Degree in Mining  Engineering from the
                                University of Nevada, Makay School of Mines in
                                1973.  Mr. Needham brings to AIM Group over 25
                                years  experience  in  the  areas  of  project


                                      17

<PAGE>

                                engineering,  evaluation  and  development  of
                                minerals related projects.

                                Mr.  Needham's  past  background  involved the
                                design and  construction,  along with  project
                                management,  of  multi-hundred  million dollar
                                mineral  projects in South  America.  His past
                                employers  include Western Mining, BP Minerals
                                (British  Petroleum),  Rio Tinto Zinc, Brascan
                                and Citicorp.
</TABLE>

Mr. Paul Arena, former Vice President Business Development, resigned effective
August 15, 1996. He was reappointed  Chief Executive  Officer and President by
the current Board of Directors  effective  March 27, 1997. Ms. Jenni Yachelson
was not reappointed by the Board to serve as Assistant Secretary. On March 27,
1997, D. Michael Hartley was removed as Chairman and Chief Executive  Officer.
On that same day,  John W.  Johnston  was removed as a  Director,  and Iain J.
Richmond was  terminated  as President.  On April 1 1997,  Shawn P. Durand was
terminated from his positions with the Company.

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


                                      18

<PAGE>


ITEM 10.   EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS OF AIM GROUP

The following table sets forth  information for the fiscal year ended December
31, 1996 concerning the compensation paid or awarded to Executive  Officers of
AIM  Group.  No long term  compensation  was paid nor is payable to any of the
executive officers or directors.


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

<S>                          <C>      <C>          <C>           <C>          <C>         <C>        <C>         <C>
 D. Michael Hartley*         1996     $10,560          $0          $0         None        N/A        None        None
 Chairman & CEO              1995      $6,350          $0          $0         None        N/A        None        None


 Iain J. Richmond**          1996     $82,025          $0          $0         None        N/A        None        None
 President                   1995     $57,400      $4,725          $0         None        N/A        None        None


 Paul R. Arena+              1996     $96,000          $0          $0         None        N/A        None        None
 Vice President -            1995     $81,000      $9,150          $0         None        N/A        None        None
 Business Development


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


 Shawn P. Durand
 Vice President -            1996     $75,700          $0          $0         None        N/A        None        None
 Administration,
 Corporate Secretary &       1995     $69,000      $5,337          $0         None        N/A        None        None
 Treasurer


 Jenni Yachelson#            1996     $37,574          $0          $0         None        N/A        None        None
 Asst. Corp. Secretary       1995     $34,269      $3,050          $0         None        N/A        None        None
 ------------------------------------------------------------------------------------------------------------------------
<FN>
*    Pursuant to such  agreement,  AIM Group paid Mr. Hartley $400 per day for
     the time devoted to the business of the Company and its committees.
**   Includes compensation paid under a former consulting  arrangement at $400
     per day.
+    Mr. Arena resigned effective August 15,1996, and was elected Director and
     reappointed Officer on March 27, 1997.
#    Ms. Yachelson was Asst. Secretary to July 22, 1996.
</FN>
</TABLE>


                                      19

<PAGE>

ITEM 11.   SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL STOCKHOLDERS

The  following  table  sets forth  certain  information  as of March 28,  1997
regarding each person known by AIM Group to own  beneficially  more than 5% of
the AIM Group Common Stock  outstanding  and all Officers and Directors of AIM
Group as a group.

The share holdings as of March 28, 1997 of the Directors of AIM Group, and the
named  executive  officers are set forth below under  "Officers & Directors of
AIM Group".  Except as  indicated in the  footnotes to the table,  all of such
shares of AIM Group  Common  Stock are owned with sole  voting and  investment
power.

<TABLE>
<CAPTION>
          Name                          Shares of AIM         Percent
                                     Group Common Stock      of Class
                                     Beneficially Owned
 -------------------------------- ------------------------ ---------------
<S>                               <C>                      <C>
 Paul R. Arena (3)
 5910 NW 63rd. Place                       779,575(2)          18.59%*
 Parkland, Florida, 33067                  565,289             14.20%**
 -------------------------------- ------------------------ ---------------
 Loeb Investors Co. 118
 61, Broadway, Suite 2450                  245,542              6.17%**
 New York, NY 10006
 -------------------------------- ------------------------ ---------------
 Berol Family Trust
 c/o Trainer Wortham & Co.                 297,000              7.46%**
 845 Third Ave., 6th. Fl.
 New York, NY, 10022
 -------------------------------- ------------------------ ---------------
 Dr. Audrey L. Braswell, Jr.
 36453 Woodbriar Drive                     296,422              7.44%**
 Yucaipa, California  92399
 -------------------------------- ------------------------ ---------------
 Dr. James E. Ehrlich
 299 Jackson Street                        275,656              6.92%**
 Denver, Colorado  80206
 -------------------------------- ------------------------ ---------------
 Bernard R. Kossar
 3100 S. Ocean Blvd., PH #705N             453,571(1)(2)       10.23%*
 Palm Beach, FL 33480
 -------------------------------- ------------------------ ---------------
 Joseph L. Ranzini
 209 E. Portage Ave.                       214,286(2)           5.11%*
 Sault Ste. Marie, MI 49783
 -------------------------------- ------------------------ ---------------
 Shawn P. Durand
 1584 NE 32nd St.                          256,865(2)           6.06*
 Oakland Park, FL 33334
 -------------------------------- ------------------------ ---------------
<FN>
*    Percentage  calculation assumes the conversion of promissory notes by the
     individual.
**   Percentage calculation without conversion of promissory notes.
</FN>
</TABLE>


                                      20

<PAGE>

Officers and Directors of AIM Group
<TABLE>
<CAPTION>
          Name                          Shares of AIM         Percent
                                     Group Common Stock      of Class
                                     Beneficially Owned
 -------------------------------- ------------------------ ---------------
<S>                               <C>                      <C>
 Paul R. Arena (3)
 5910 NW 63rd. Place                       779,575(2)          18.59%*
 Parkland, Florida, 33067                  565,289             14.2%**
 -------------------------------- ------------------------ ---------------
 James L. Austin (4)
 9 Green Acre Lane                          45,836                +%*
 Westport, CT 06880
 -------------------------------- ------------------------ ---------------
 Dr. Audrey L. Braswell, Jr.
 36453 Woodbriar Drive                     296,422              5.41%*
 Yucaipa, California  92399
 -------------------------------- ------------------------ ---------------
 John W. Johnston
 902 SW 34th. Ave.                          64,374              1.17%*
 Boynton Beach, FL, 33435
 -------------------------------- ------------------------ ---------------
 Robert E. Needham
 1201 S. Hillcrest Court, #303              76,008              1.4%*
 Hollywood, FL 33021
 -------------------------------- ------------------------ ---------------
 Ernest W. Purcell
 170 Tall Trees Drive                            0                +%
 Barington, IL 60010
 -------------------------------- ------------------------ ---------------
 Joseph L. Ranzini
 209 E. Portage Ave.                       214,286(2)           5.11%*
 Sault Ste. Marie, MI 49783
 -------------------------------- ------------------------ ---------------
 Leigh S. Zoloto
 5241 NW 109th Lane                              0                +%
 Coral Springs, FL 33076
 -------------------------------- ------------------------ ---------------
 All Directors and Officers as a         1,476,501(2)          29.86%*
 group (8 persons)                       1,262,215             31.71%**

 -------------------------------- ------------------------ ---------------
<FN>

*    Percentage  calculation assumes the conversion of promissory notes by the
     individual.
**   Percentage calculation without conversion of promissory notes.
+    Percentage less than one (1.0%) percent
(1)  Includes 25,000 incentive options
(2)  Includes  shares  entitled  to  be  received   through  the  exercise  of
     conversion rights.  Such shares are deemed to be owned and outstanding by
     such person  individually,  and by all Directors and officers as a group,
     for purposes of calculating the number of shares owned and the percentage
     of class for each such named person and the group,  but are not deemed to
     be  outstanding  for  purposes of such  calculations  for any other named
     person.
(3)  Director to July 10, 1996;  Officer to August 15, 1996;  elected Director
     and reappointed Officer March 27, 1997.
(4)  Director to July 10, 1996; and elected as Director March 27, 1997.
(5)  The  Company  has  entered  into  agreements  with  the  holders  of  its
     Convertible  Promissory  Notes  amending the Notes to extend the maturity
     date to March 31,  1998,  increase the annual  interest  rate to 10%, and
     decrease the conversion  price to $ 0.70 per share. The table below shows
     the shareholdings per note holder.
</FN>
</TABLE>

SHAREHOLDINGS WITH CONVERSION OF THE CONVERTIBLE NOTES AT $0.70

<TABLE>
<CAPTION>
          Name                          Shares of AIM         Percent
                                     Group Common Stock      of Class
                                     Beneficially Owned(5)
 -------------------------------- ------------------------ ---------------
<S>                               <C>                      <C>
 Northern Federal Minerals, LLC            642,857             13.91%
 -------------------------------- ------------------------ ---------------
 Bernard R. Kossar                         453,571             10.23%
 -------------------------------- ------------------------ ---------------
 LDD Capital, LLC                          428,571              9.71%
 -------------------------------- ------------------------ ---------------
</TABLE>


Advisory Board of AIM Group

The Company is in the process of reconstructing the Advisory Board.


                                      21

<PAGE>

Exercise of Warrants and Options

During  the year  ended  December  31,  1996,  no  warrants  or  options  were
exercised.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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

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

LDD  CAPITAL,  LLC  Shawn P.  Durand, a former  officer of the  Company,  is a
principal in LDD Capital, LLC, a Minnesota limited liability  corporation.  On
February 2, 1996, LDD Capital,  LLC purchased $300,000 principal amount of the
Company's Series A Convertible Promissory Notes.

The Series A Convertible Promissory Notes originally bore interest at the rate
of three and a half (3.5%) percent per annum,  payable  quarterly and were due
for payment on December 31, 1996. At his option,  the holder could convert the
face value of the notes  into  common  shares of the  Company at a price of US
$1.10 per share for the first twelve months, and at a price of $1.35 per share
for  the   subsequent   year.  In  addition  the  Company  had  the  right  to
automatically  convert  the notes into  common  shares  upon  completion  of a
minimum US $1.5 million of additional equity offering at a minimum share price
of US $1.50 per share. However, the Company was unable to complete the minimum
offering  of US $1.5  million  and the notes  have not been  converted  by the
holders.

The Company received approval for the issuance of these convertible notes from
the Vancouver Stock Exchange on February 19, 1996, and the transactions closed
on February 20, 1996.

The Notes, having an outstanding  principal balance of $1,050,000,  matured on
December 31, 1996. The cash flow from operations was not sufficient to pay off
the Notes.  The Company is engaged in  negotiations  with the three holders of
the Notes to extend the final  maturity  to March 31, 1998 from  December  31,
1996,  increase  the interest  rate to 10% per annum from 3.5% per annum,  and
change the  conversion  rate to $.70 per share from $1.10 per share.  Northern
Federal  Minerals,  LLC and Bernard  Kossar have agreed to the amended  terms,
contingent upon the agreement of LDD Capital,  LLC to such amended terms.  The
Convertible  Notes  will  remain  unsecured  by  the  Company's  assets.  This
transaction is subject to the approval of the Vancouver Stock Exchange.


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

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

<TABLE>
<CAPTION>
Exhibit No.            Document

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

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


                                      22

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

     10(e)             - Form of  Series A  Convertible  Promissory  Note,  as
                         issued by AIM  Group,  Inc.  on  November  13,  1995,
                         December  20,  1995 and  February  2,  1996.  ( Filed
                         herewith ).)

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

     21                - Subsidiaries of the Registrant


                                      23

<PAGE>

     27                - Financial Data Schedule
</TABLE>


(b).   Reports on Form 8K. The Registrant did not file any Current  Reports on
       Form 8-K during the quarter  ended  December 31,  1996.  Forms 8-K were
       filed on February 7, February 20, and March 28, 1997.


                                      24

<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.

<TABLE>
<S>                                                     <C>
                                                            AIM GROUP, INC.
                                                        ----------------------
                                                              Registrant

Dated:  April 10, 1997                               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 capabilities and
on the dates indicated.

Dated:  April 10, 1997                               By    /s/PAUL R. ARENA
                                                        ----------------------
                                                             Paul R. Arena
                                                        Chairman of the Board,
                                              Chief Executive Officer, President and Director
                                                      (Principal Executive Officer)


Dated:  April 10, 1997                               By   /s/LEIGH S. ZOLOTO
                                                        ----------------------
                                                            Leigh S. Zoloto
                                             Chief Executive Officer, Secretary, and Treasurer
                                                     (Principal Financial Officer)

Dated:  April 10, 1997                               By   /s/JAMES L. AUSTIN
                                                        ----------------------
                                                            James L. Austin
                                                               Director

Dated:  April 10, 1997                               By    /s/A.L. BRASWELL
                                                        ----------------------
                                                            A.L. Braswell
                                                              Director

Dated:  April 10, 1997                               By    /s/E.W. PURCELL
                                                        ----------------------
                                                            E.W. Purcell
                                                              Director

Dated:  April 10, 1997                               By    /s/JOSEPH RANZINI
                                                        ----------------------
                                                            Joseph Ranzini
                                                              Director
</TABLE>


<PAGE>

                           FINANCIAL STATEMENTS AND
                         INDEPENDENT AUDITORS' REPORT

                       AIM GROUP, INC. AND SUBSIDIARIES

                          December 31, 1996 and 1995


<PAGE>

                         INDEPENDENT AUDITOR'S REPORT


Board of Directors
AIM Group, Inc.


We have audited the accompanying consolidated balance sheet of AIM Group, Inc.
as of December 31, 1996 and 1995 and the related  consolidated  statements  of
operations,  stockholders' equity and cash flows for the period from inception
(March 28,  1994) to December  31, 1994 and the years ended  December 31, 1995
and 1996. These financial  statements are the  responsibility of the Company's
management.  Our  responsibility  is to express an opinion on these  financial
statements based on our audit.

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

In our  opinion,  the  consolidated  financial  statements  referred  to above
present fairly, in all material respects, the financial position of AIM Group,
Inc. as of December  31, 1996 and 1995 and the results of its  operations  and
its cash flows for the periods from inception (March 28, 1994) to December 31,
1996 in conformity with generally accepted accounting principles.

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


Plantation, Florida
March 14, 1997


                                     F-1

<PAGE>

                          AIM Group and Subsidiaries

<TABLE>
                          CONSOLIDATED BALANCE SHEETS

                          December 31, 1996 and 1995

<CAPTION>
                                                      1996         1995
                                                   -----------  -----------
CURRENT ASSETS
<S>                                                <C>          <C>      
  Cash                                             $   70,342   $  260,280
  Accounts receivable - trade                         504,864      691,457
  Accounts receivable - affiliate and other               564        9,760
  Inventories                                         160,770      153,029
  Prepaid expenses                                     18,529       24,576
                                                   -----------  -----------
          Total current assets                        755,069    1,139,102

 RESOURCE PROPERTY                                  3,995,373    3,994,868

 PROPERTY, PLANT AND EQUIPMENT - Net                  557,059      500,416

 OTHER ASSETS                                          46,836       68,228
                                                   -----------  -----------
                                                   $5,354,337   $5,702,614
                                                   ===========  ===========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                 $  281,454   $  369,924
  Receivable financing liability                      324,293      475,215
  Current portion of long-term debt                    14,960       12,201
  Notes payable                                             -            -
  Accrued expenses                                     96,111       94,532
                                                   -----------  -----------
         Total current liabilities                    716,818      951,872

LONG-TERM DEBT, less current portion                   76,073       72,232

CONVERTIBLE NOTES PAYABLE                           1,050,000      750,000

STOCKHOLDERS' EQUITY
  Preferred stock; 1,000,000 shares authorized;
    $1 par value; no shares issued or
    outstanding.                                            -            -

  Common stock; 6,000,000 shares authorized;
    $.01 par value; 3,980,053 shares issued
    and 3,978,766 outstanding in 1996 and
    4,113,465 shares issued and 3,900,053
    outstanding in 1995.                               39,801       41,135
  Additional paid in capital                        4,222,809    4,150,259
  Common stock held in treasury - 1,287
    shares in 1996 and 213,412 shares in 1995          (1,400)     (11,575)
  Common stock subscription received - 80,000 share         -       82,792
  Accumulated deficit                                (749,764)    (334,101)
                                                   -----------  -----------
                                                    3,511,446    3,928,510
                                                   -----------  -----------
                                                   $5,354,337   $5,702,614
                                                   ===========  ===========
</TABLE>


Please refer to Note C for Pro forma information.

The accompanying notes are an integral part of these statements.


                                      F-2

<PAGE>

                          AIM Group and Subsidiaries

<TABLE>
                     CONSOLIDATED STATEMENTS OF OPERATIONS

      For the period from inception (March 28, 1994) to December 31, 1996


<CAPTION>
                                        Year ended    Year ended    Period ended
                                        December 31,  December 31,  December 31,
                                           1996          1995          1994
                                        ------------  ------------  ------------
<S>                                     <C>           <C>           <C>
SALES                                   $ 3,092,278   $ 2,399,493 $           -

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

EXPENSES
  General and administrative                791,826       673,105        12,760
  Selling and marketing                     270,612       132,532             -
  Write-off of investment - abandoned
   project                                   93,396             -             -
  Interest                                  131,429       162,505        12,500
  Depreciation and amortization              72,487        47,249             -
                                        ------------  ------------  ------------
                                          1,359,750     1,015,391        25,260
                                        ------------  ------------  ------------
       Loss before income taxes            (415,663)     (308,841)      (25,260)

Income taxes                                      -             -             -
                                        ------------  ------------  ------------
       NET LOSS                         $  (415,663)  $  (308,841)  $   (25,260)
                                        ============  ============  ============


Net loss per share                      $     (0.10)  $     (0.08)  $    (25.26)
                                        ============  ============  ============

Weighted average shares outstanding       3,960,158     3,672,894         1,000
                                        ============  ============  ============
</TABLE>


Please refer to Note C for Pro forma information.

The accompanying notes are an integral part of these statements.


                                      F-3

<PAGE>
                          AIM Group and Subsidiaries

<TABLE>
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

      For the period from inception (March 28, 1994) to December 31, 1995


                                                                       Additional
                                                            Common       Paid-in       Treasury     Accumulated
                                              Shares        Stock        Capital        Stock        Deficit        Total
                                            ----------    ----------   -----------    ----------    ----------   -----------
<S>                                         <C>           <C>          <C>            <C>           <C>          <C>
Sale of 1,000 shares                            1,000     $      10    $       90     $       0     $       0    $      100

Net loss for the period from inception
  to December 31, 1994                              0             0             0             0       (25,260)      (25,260)
                                            ----------    ----------   -----------    ----------    ----------   -----------
Balances - December 31, 1994                    1,000            10            90             0       (25,260)      (25,160)

Issuance of 3,898,929 shares of
common stock upon merger and
cancellation of original shares issued         (1,000)          (10)          (90)                                     (100)
                                            3,898,929        38,989     4,022,185       (11,575)            0     4,049,599

Issuance of stock during December
1995 relating to the exercise of options
and warrants                                  214,536         2,146       128,073             0             0       130,219

Net loss for the year                               0             0             0             0      (308,841)     (308,841)
                                            ----------    ----------   -----------    ----------    ----------   -----------
Balances - December 31, 1995                4,113,465        41,135     4,150,258       (11,575)     (334,101)    3,845,717

Issuance of 80,000 shares                      80,000           800        81,992             0             0        82,792

Purchase of 1,287 shares for treasury               0             0             0        (1,400)            0        (1,400)

Cancellation of 213,412 shares of
  treasury stock                             (213,412)       (2,134)       (9,441)       11,575             0             0

Net loss for the year                               0             0             0             0      (415,663)     (415,663)
                                            ----------    ----------   -----------    ----------    ----------   -----------
                                            3,980,053     $  39,801    $4,222,809     $  (1,400)    $(749,764)   $3,511,446
                                            ==========    ==========   ===========    ==========    ==========   ===========
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-4

<PAGE>

                          AIM Group and Subsidiaries

<TABLE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

      For the period from inception (March 28, 1994) to December 31, 1996

<CAPTION>
                                                  Year ended    Year ended    Period ended
                                                  December 31,  December 31,  December 31,
                                                     1996          1995          1994
                                                  ------------  ------------  ------------
<S>                                               <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET LOSS                                        $  (415,663)  $  (308,841)   $  (25,260)
  Adjustments to reconcile net loss to net cash
   provided (used) by operating activities:
    Depreciation and amortization                      72,487        47,249             -
    Changes in current assets and liabilities:
      Decrease (Increase) in accounts receivable      195,789      (341,714)            -
      (Increase) in inventories                        (7,741)      (79,007)            -
      Increase (decrease) in receivable              (150,922)      475,215             -
      Increase (decrease) in accounts payable and
       accruals                                       (86,891)       90,693        12,879
      Other                                             9,140       (22,892)       (6,380)
                                                  ------------  ------------  ------------
       Net cash (used) by operations                 (383,801)     (139,297)      (18,761)
                                                  ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment         (129,130)     (148,751)            -
  (Increases) decreases in other assets                21,392       (22,564)         (440)
  Additions to resource property                       (3,599)      (15,522)            -
                                                  ------------  ------------  ------------
       Net cash (used) by investing activities       (111,337)     (186,837)         (440)
                                                  ------------  ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of stock                               -       141,894           100
  Stock subscription received                               -        82,792
  Proceeds from convertible note                      300,000       750,000             -
  Cash balances of merged entities                          -        92,759             -
  Receivables from affiliates eliminated upon
   merger                                                   -      (241,583)            -
  Reductions of notes payable                               -      (325,000)            -
  Long-term debt financing                             21,070        84,433             -
  Repayment of long-term debt                         (14,470)            -             -
  Purchase of stock for treasury                       (1,400)            -             -
  Loans received - net                                      -             -       250,000
  Advances to affiliated company, net of 
   repayments                                               -             -      (229,780)
                                                  ------------  ------------  ------------
       Net cash provided by financing activities      305,200       585,295        20,320
                                                  ------------  ------------  ------------

       NET INCREASE IN CASH                          (189,938)      259,161         1,119

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


                                      F-5

<PAGE>

                          AIM Group and Subsidiaries

<TABLE>
               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

      For the period from inception (March 28, 1994) to December 31, 1996


<CAPTION>
                                                  Year ended    Year ended    Period ended
                                                  December 31,  December 31,  December 31,
                                                     1996          1995          1994
                                                  ------------  ------------  ------------
<S>                                               <C>           <C>           <C>
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:

  Interest paid                                   $   129,395   $   167,851             -
                                                  ============  ============  ============

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

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

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

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


The accompanying notes are an integral part of these statements.


                                      F-6

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

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

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

     PRINCIPLES OF CONSOLIDATION

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

     CASH AND CASH EQUIVALENTS

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

     INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is determined
     using the first-in,  first-out  method.  Inventories at December 31, 1996
     and 1995 consist of:

<TABLE>
<CAPTION>
                                           1996               1995
                                           ----               ----
<S>                                      <C>               <C>     
     Finished Goods                      $ 28,513          $ 49,282
     Raw materials                         76,421            48,761
     Klannerite(R) Ore                     48,645            48,645
     Spare parts and supplies               7,191             6,341
                                         --------          --------
                                         $160,770          $153,029
                                         ========          ========
</TABLE>


                                      F-7

<PAGE>


                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE A - CONTINUED

     PROPERTY AND EQUIPMENT

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

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

     TRADEMARKS AND PATENTS

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

     DEFERRED START-UP

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

     EARNINGS (LOSS) PER SHARE

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

     MAJOR CUSTOMERS

     The  Company  sold  products  from  its  surface  modifications  facility
     representing  more the 10% of its revenues  for the years ended  December
     31, 1996 and 1995, to Alpha Gary, Inc. (83%) and (93%) respectively.


                                      F-8

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE A - CONTINUED

     ESTIMATES

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


NOTE B - GOING CONCERN

As shown in the accompanying  financial statements,  the Company has recurring
losses from  operations.  In addition,  the Company has not been successful in
the development of its resource property.  Consequently,  Management  believes
that the property  may be impaired  but is not able to determine  the level of
impairment, if any, at this time. Consequently, Management has determined that
a reserve is not appropriate  until such time as more information is available
concerning the economic  viability of the mineral deposit.  Due to the lack of
cash flow the  Company  was unable to  continue  to invest in and  exploit the
property and there is  uncertainty  in the  potential  market for the deposit.
There is no assurance that the resource  property will be fully recoverable at
these levels. Although the Company's surface modification business in Arkansas
has been profitable,  it is reliant on very few customers.  Unless the Company
is successful in  diversifying  and expanding its customer base, the prospects
for this line of business remains  uncertain.  These factors raise substantial
doubt about the Company's ability to continue as a going concern.

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


NOTE C - MERGER

On March 23, 1995,  the  shareholders  of the Company (AIM Group) and Advanced
Industrial Minerals, Inc. (AIM), HeatShield Technologies (HTI) and AIM Funding
Group,  L.P. (HFG),  approved the  amalgamation of the entities into AIM Group
effective March 31, 1995.

Pursuant  to  shareholder  approvals  and the merger  agreement,  the  Company
completed  the  purchase  of the  assets  and  liabilities  of  AIM,  and  the
shareholders of AIM received  .426825 shares of AIM Group in exchange for each
common share of AIM held.


                                      F-9

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE C - CONTINUED

HTI was merged  with a  subsidiary  of the  Company  and the HTI  shareholders
received 0.919632 shares of AIM Group in exchange for each common share of HTI
held.  The  conversion  ratio was  calculated by giving  consideration  to the
ownership of HST Capital Corp.,  a wholly-owned  subsidiary of HTI, of 500,000
shares of AIM which were held in escrow.  The  conversion  ratio before giving
consideration to such ownership was 0.808902.

HFG  distributed  the preferred  shares of HTI owned by it to its partners who
then exchanged each preferred share for 1,000 shares of AIM Group.

After the consummation of the merger transactions, AIM Group became the parent
company with 4 operating subsidiaries;  HTI, UMC(AR), UMC(AZ) and HST Capital.
As a result of these  mergers the former  shareholders  of the Company and HTI
and the partners of HFG all became shareholders of AIM Group.

At the  Corporation's  1996 Annual Meeting of the Shareholders it was approved
to authorize the directors to amend Article Four of the Corporation's Articles
of Incorporation to increase the maximum number of authorized share of Capital
Stock of AIM Group from 7,000,000 to 13,000,000,  including an increase in the
number of Common Stock  authorized  for issuance from  6,000,000 to 12,000,000
for  acquisitions,  financing,  public  offerings  and  or  other  appropriate
corporate purposes.

AIM Group has 12,000,000  common shares  authorized and the merger resulted in
the  issuance of  3,898,930  shares of AIM Group stock in exchange for all the
outstanding  common  stock of AIM and HTI and 1,000  shares  of HTI  preferred
stock  held by HFG.  AIM  Group  received  approval  on  January  3,  1995 for
registration of its shares in the U. S. under the Securities Act of 1933.

The  following  are the  condensed  pro forma  statements of operations of AIM
Group and Subsidiaries assuming the merger had taken place on January 1, 1994;
the pro forma results of  operations  for 1995 reflect a full twelve months of
operations.


                                     F-10

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE C - CONTINUED

<TABLE>
STATEMENTS OF OPERATIONS:
<CAPTION>
                                                      Year ended December 31,
                                                   1995                     1994
                                                   ----                     ----
                                                (Pro Forma)              (Pro Forma)
                                                -----------              -----------
<S>                                             <C>                      <C>       
SALES                                           $2,820,958               $  406,378
COST OF GOODS SOLD                               1,975,680                  232,279
                                                -----------              -----------
         GROSS PROFIT                              845,278                  174,099

EXPENSES
         General and administrative             $  933,871               $  632,344
         Interest                                  171,785                   27,778
         Depreciation and amortization              60,140                   41,142
                                                -----------              -----------
                                                 1,165,796                  701,264
                                                -----------              -----------
         Loss before income taxes                 (320,518)                (527,165)
Income taxes                                          -                        -
                                                -----------              -----------
         NET LOSS                               $ (320,518)              $ (527,165)
                                                ===========              ===========

Net loss per share                              $    (0.09)              $    (0.15)
                                                ===========              ===========


Weighted average shares outstanding              3,672,894                3,472,103
                                                ===========              ===========
</TABLE>



NOTE D - OPERATIONS/NATURE OF BUSINESS

AIM Group is the parent company that provides centralized management, finance,
long  range  planning,   accounting  and  administration  to  three  principal
operating entities.  These operations are a surface  modification  facility, a
mining lease,  and the manufacture and marketing of specialty high temperature
coatings. The Company has discontinued manufacture of the coatings and did not
actively market these coatings during 1996.

AIM Group shares are listed on the  Vancouver  Stock  Exchange.  The Company's
common stock is currently quoted under the symbol AGDU.V.


                                     F-11

<PAGE>

AIM Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE D - CONTINUED

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

     UMC(AR) is the Company's  core business and has completed its second full
     year of  operations  as of  December  31,  1996.  It  operates  a surface
     modification  facility,  both as principal and as a toll  processor,  for
     industrial   minerals   used  as  fillers  in  the  rubber  and  plastics
     industries.   The  plant  commenced  operations  in  April,  1994.  Since
     inception  UMC(AR)  has  carried  out  leasehold   improvements  and  the
     engineering,  procurement,  and  construction of machinery and equipment.
     UMC(AR) purchased the land and building in 1995.

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

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

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

     UMC(AR) operated one shift per day during 1996 and treated  approximately
     2,600  tons of  commercial  products  at the  Malvern  plant.  Management
     estimates that the plant's capacity is approximately 7,000 tons per year.
     The plant  currently  has two mixing and packaging  lines,  and effective
     doubling of capacity providing for treatment of a diverse product mix, is
     under  consideration.  Approximately  seven full time employees currently
     work at the plant.


                                     F-12

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE D - CONTINUED

     HEATSHIELD TECHNOLOGIES, INC. (HTI)

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

     HTI carried our reserve  analysis,  surface  mining,  and processing of a
     silica/kaolinite  rock,  called  "Klannerite(R)",  at a  mining  property
     locally  referred  to as the "Viva Luz Mine"  located  in Mohave  County,
     Arizona.  Exploitation  of the Viva Luz Mine was formerly  conducted on a
     joint venture basis with AIM. No mining of Klannerite(R) has been carried
     out since 1993.

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

     In December of 1995, HTI signed a technology License Agreement with Omega
     Coating Pty., Limited of Sydney, Australia (OCPL). The agreement provided
     HTI  exclusive  North  American  rights  to sell and  distribute  furnace
     coatings  known as Omega 1 and Omega 2. The Omega 1  coating  contains  a
     significant portion of Klannerite(R) which was supplied to OCPL by HTI.

     HTI also signed a Technology  Purchase  Option  Agreement with OCPL. This
     agreement  provided HTI the  exclusive  rights to purchase all  worldwide
     rights to the Omega line of coatings licensed by OCPL from Refract-a-Gard
     Pty.,  Limited,  also of Sydney,  Australia,  and certain  assets of OCPL
     pertinent to the Omega coatings and their manufacture.

     After limited test marketing of these products, the Company abandoned its
     exclusive  license  and has  written  off  $93,396 of its  investment  in
     license and royalty payments. Due to a current lack of available research
     and development funds, the Company is no longer pursuing the options with
     respect to Omega  coatings.  Although the licensing  agreements have been
     canceled,  the  Company  maintains  a dialogue  with OCPL should the need
     arise to renew a working relationship. Both of these products continue to
     be evaluated by potential customers.


                                     F-13

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE D - CONTINUED

     HTI is also  working to develop  Klannerite(R)  for use as an  industrial
     filler.  Initial  tests were  carried out to develop uses for latex based
     paints, oil based paints, and plastics. Test results for oil based paints
     and  plastics  have been average to  substandard.  Test results for latex
     based paints have been better, with good thixotropy,  flatting, and scrub
     resistance compared to commonly used fillers.  Although development funds
     are  limited,  further  testing and  marketing  efforts  are  underway to
     develop  local  markets in the Phoenix - Las Vegas - Southern  California
     area with small independent paint manufacturers.  Additionally,  new uses
     are under investigation,  including Klannerite(R) as a pozzolan component
     in grouts and white cements, as a microporous light weight insulating low
     temperature aggregate, and as a lightweight roofing aggregate for polymer
     roofing  systems.  To date there have been no  commercial  sales to these
     markets.

     UNITED MINERALS CORPORATION ARIZONA - VIVA LUZ MINE

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

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

     In July,  1992, the Atchison  Topeka and Santa Fe Railway  Company denied
     public access  across its tracks,  preventing  the company  access to the
     mine,  unless the company  posts a flagman  and  spotter at the  crossing
     site. A substantial  quantity of processed  KlanneriteR,  sufficient  for
     foreseeable sales, is available from the Company's inventory.

     The use of  Klannerite(R)  in the  manufacture  of  refractories  for the
     aluminum industry was tested during the year without success.

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


NOTE E - ACCOUNTS RECEIVABLE

As of December 31, 1996 the Corporation had net accounts receivable from trade
sales of $170,810  compared to $216,242 as at December 31, 1995.  This results
from outstanding accounts receivable in the amount of $495,103 as shown in the
current asset section less $324,293 in  receivables  factored as stated in the
liability section.


                                     F-14

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE F - PROPERTY AND EQUIPMENT

Property plant and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                           1996               1995
                                           ----               ----
<S>                                      <C>                <C>

     Plant                               $108,000           $108,000
         Building improvements             98,442             63,165
         Plant and lab equipment          306,781            282,084
         Engineering costs                 66,412             42,423
         Vehicles                          37,044             14,318
         Furniture and Equipment           93,920             78,591
                                         ---------          ---------
                                          710,599            588,581
         Less accumulated depreciation   (163,540)           (98,165)
                                         ---------          ---------
                                          547,059           $490,416
         Land                              10,000             10,000
                                         ---------          ---------
                                         $557,059           $500,416
                                         =========          =========
</TABLE>


NOTE G - OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                                             1996               1995
                                                             ----               ----
<S>                                                       <C>                <C>

         Patents and Trademarks                           $  28,392          $  24,249
         Unamortized portion of deferred start up costs      15,197             21,828
         Deferred costs associated with proposed
           new venture                                         -                16,006
         Deposits and other                                   3,247              6,145
                                                          ----------         ----------
                                                          $  46,836          $  68,228
                                                          ==========         ==========
</TABLE>


NOTE H - RESOURCE PROPERTY

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


                                     F-15

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE H - CONTINUED

     MINERAL LEASE - VIVA LUZ DEPOSIT

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


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

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

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

<TABLE>
<S>                                                   <C>       
     Resource property purchase price                 $3,935,798
     Pre-paid royalties                                   59,575
                                                      -----------
                  Resource property                   $3,995,373
                                                      -----------
</TABLE>


     OTHER MINERAL PROPERTY

     The  company  has  discontinued  its annual  payment to maintain 14 small
     unpatented  mining  claims.  The Company is  evaluating  the  benefits of
     restaking three claims adjacent to its resource property.

     MINERAL MINED, PRODUCED AND SOLD IN 1992, 1993, 1994, 1995 AND 1996

     In  1992  the  222.5  tons of K1  processed  during  the  year  1992  was
     considered  to be a trial  production  run.  7.5 tons of the  222.5  tons
     produced was distributed as samples and 2.5 tons were sold. During 1996 a
     nominal number of samples aggregating  approximately 250 pounds were sent
     to prospective  customers with no positive response.  The remaining 212.5
     tons are being  held in  inventory.


                                     F-16

<PAGE>


                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE H - CONTINUED

     No sales of Klannerite(R) have been reported for 1994, 1995 or 1996.


NOTE I - LONG-TERM DEBT

<TABLE>
The following is a summary of long-term debt at December 31, 1996 and 1995:

<CAPTION>
                                                                           1996                    1995
                                                                       ------------            ------------
<S>                                                                    <C>                     <C>
         Mortgage payable, secured by Arkansas
          manufacturing facility, payable in monthly
          installments of approximately $900 including
          interest at 10.25%.                                          $  60,309               $  66,956

         Equipment loans payable, secured by vehicle
          and equipment, payable in monthly installments
          of approximately $1,061 including interest
          at 10.2 % to 14.2%.                                             30,724                  17,476
                                                                       ----------              ----------
                                                                          91,033                  84,432
         Less amounts due within one year                                 14,960                  12,201
                                                                       ----------              ----------
                                                                       $  76,073               $  72,232
                                                                       ==========              ==========
</TABLE>


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

<CAPTION>
          Year ended
         December 31,
      -----------------
<S>                                                                     <C>     
            1997                                                        $ 14,960
            1998                                                          59,799
            1999                                                           7,678
            2000                                                           8,596
                                                                        ---------
                                                                        $ 91,033
                                                                        =========
</TABLE>


The Company also has a factoring  arrangement for its receivables arising from
its sale of  products  from its  Arkansas  toll  facility.  The  factor  has a
security interest in all factored accounts receivable.  The total interest and
factoring costs for 1996 and 1995 were $85,741 and $111,785 respectively.


                                     F-17

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE J - CONVERTIBLE NOTES PAYABLE

On November 15, 1995 the Company  announced a private placement in the form of
Convertible  Promissory  Notes,  having an aggregate face value of $1,050,000,
with three  related  party  placees  (see  "Related  Parties")  and subject to
approval  by the  Vancouver  Stock  Exchange.  The  notes  carry a three  year
conversion  feature at the option of the  holders to convert the face value of
the notes into common  shares of the Company at a price of $1.10 if  converted
on or before December 31, 1996; $1.35 on or before December 31, 1997; $1.60 on
or before December 31, 1998. In addition, the Company has the right to convert
the notes into common  shares  upon  completion  of an  offering of  1,500,000
common shares at a minimum price of $1.50 per share.

As of December 31, 1995 the Company received  $1,050,000 in subscriptions  and
the placees had advanced  $750,000 in proceeds towards the private  placement.
On February  16, 1996 the Company  received the  approval  from the  Vancouver
Stock Exchange and on February 20, 1996 closed the private  placement with all
proceeds  received.  The  Stockholders  approved the private  placement at the
annual meeting of shareholders held July 10, 1996.

At a meeting of the Board of Directors  held on July 23, 1996 the Directors of
the Corporation passed a resolution  confirming that the Corporation would not
issue any debt which ranks senior in priority to the Convertible Notes without
the consent of the Convertible Note holders.

The Notes,  having an outstanding  principal balance of $1,050,000  matured on
December 31, 1996. The cash flow from operations was not sufficient to pay off
the Notes. The Corporation is negotiating with the holders of the Notes,  each
of which are related parties,  to amend the Notes to extend the final maturity
to March 31,  1998,  to  increase  the  interest  rate to 10% per annum and to
change the  conversion  rate to $.70 per  share.  The  convertible  notes will
remain unsecured to the Company's assets.


NOTE K - STOCK OPTIONS AND WARRANTS

The Company had various  non-qualified  incentive  stock  options and warrants
that had been issued to  employees,  directors  and  investors.  Most of these
options and  warrants  were issued  prior to the merger and were  converted to
Company  options and  warrants as a result of the merger.  The  following is a
summary of activity during 1996 and 1995:


                                     F-18

<PAGE>

                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE K - CONTINUED
<TABLE>
<CAPTION>
                                                                       Number of                 Price Per
                                                                        Shares                     Share
                                                                      -----------               -----------
<S>                                                                   <C>                     <C>
INCENTIVE STOCK OPTIONS:
         Balances outstanding on merger date:
                  Expiring:
                  December 31, 1995                                     154,037                $.54 - $1.63
                  April 14, 1996                                        110,190                    $1.34
                  May 8, 1998                                             7,909                     $.54
                                                                      ----------
                  Balance - March 31, 1995                              272,136
         Exercised for the period ended
           December 31, 1995                                            (91,962)                    $.54
         Issued July 10, 1996                                            25,000                    $1.15
         Expired on December 31, 1996*                                  (62,075)                   $1.63
         Expired on December 31, 1996*                                 (110,190)                   $1.34
         Canceled December 31, 1996                                      (7,909)                    $.54
                                                                      ----------
                  Balance - December 31, 1996                              -
                                                                      ==========

                  Comprised of options expiring:
                  December 31, 1997                                      25,000                    $1.15
                                                                      ==========

WARRANTS:
         Balances outstanding on merger date:
                  Expiring
                  December 31, 1995                                     409,575                $.01 - $2.00

         Exercised for the period ended
           December 31, 1995                                           (122,573)               $.01 - $1.22

         Expired on December 31, 1996*
           (see note below)                                            (287,002)              $1.50 - $2.00
                                                                      ----------
         Balance outstanding at December 31, 1996                          -
                                                                      ==========
<FN>

On July 10,  1996 the  Company  issued to Bernard  Kossar,  a newly  appointed
director,  25,000 of incentive  stock  options  exercisable  at $1.15  through
December 31, 1997. In addition,  the Company canceled 7,909 options granted to
a former employee. There were no options or warrants exercised during 1996 and
all options and warrants extended December 31, 1996 expired.

* The  Company's  Board of Directors  approved an  extension of the expiration
dates for 445,586  options and warrants set to expire on December 31, 1995 and
April 14, 1996 to December  31,  1996.  On May 17,  1996 the  Vancouver  Stock
Exchange  approved  the  extension of these  options and  warrants  subject to
Shareholder approval.  The extension of the options and warrants were approved
by the Shareholders at the Annual Meeting of the Shareholders held on July 10,
1996.
</FN>
</TABLE>


                                     F-19

<PAGE>


                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE L - LEASE COMMITMENTS

The Company's corporate headquarters are leased pursuant to an operating lease
expiring October 31, 1998. Currently, there is a contingent contract to sublet
some space that would reduce the lease  obligations by  approximately  $18,000
per year. Future lease payments at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
          Year ended
         December 31,                                     Amount
      -----------------
<S>                                                       <C>     
            1997                                          $ 42,549
            1998                                            36,632
                                                          ---------
                                                          $ 79,181
                                                          =========
</TABLE>


NOTE M - WRITE OFF INVESTMENT - ABANDON PROJECT

During the year due to lack of funding and slow response from the market place
the Company  discontinued  its exclusive  license and royalty  agreement  with
Omega Coatings Pty. Limited of Sydney, Australia. The licensing rights for the
Omega  products  were  acquired in late 1995.  The  Company  wrote off $93,396
invested in the Omega project.


NOTE N - RELATED PARTY TRANSACTIONS

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

     PRIVATE PLACEMENT OF CONVERTIBLE 3 1/2% PROMISSORY NOTES

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

     NORTHERN  FEDERAL  MINERALS LLC    Paul R. Arena, an officer and director
     of the  Corporation,  is a principal in this Michigan  limited  liability
     corporation.  Joseph L.  Ranizini,  a director of the  Corporation,  is a
     related  party to Northern  Federal  Minerals,  LLC. On November 13, 1995
     Northern  Federal  Minerals  LLC  subscribed  for $450,000 of the private
     placement  of  $1,050,000  convertible  promissory  notes  issued  by the
     Corporation.

     BERNARD R. KOSSAR    Mr. Kossar, on December 20, 1995, purchased $300,000
     of the private  placement  of  $1,050,000  convertible  promissory  notes
     issued by the Corporation.

     LDD CAPITAL LLC     Shawn P. Durand, a former officer of the Corporation,
     is a  principal  in  LDD  Capital  LLC,  a  Minnesota  limited  liability
     corporation,  which corporation on February 2, 1996 purchased $300,000 of
     the private placement of $1,050,000  convertible  promissory notes issued
     by the Corporation.


                                     F-20

<PAGE>


                       AIM Group, Inc. and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     For the Periods from Inception (March 28, 1994) to December 31, 1996


NOTE N - CONTINUED

     The Corporation  received  approval for the issuance of these convertible
     notes from the  Vancouver  Stock  Exchange on  February  19, 1996 and the
     transactions closed on February 20, 1996.

     CONSULTING FEES

     During the period the Corporation paid the following fees for services to
     directors and advisors and other insiders not considered employees.

     D. M. Hartley a director,  elected  Chairman and Chief Executive  Officer
     (CEO) of the  Corporation in August,  1995 was  compensated on a per diem
     basis of $400 per day.  Mr.  Hartley was paid $6,350 in  connection  with
     services  rendered  as the CEO  during  1995 and  $10,560  in 1996;  Iain
     Richmond has served as President of the Corporation since April, 1995 and
     was paid $400 per day on a per diem basis.  Mr. Richmond was paid $62,125
     for services rendered during 1995 and $66,000 in 1996;  Michael McManus a
     director was paid  consulting  fees in the amount of $12,500 during 1995;
     Mr.  Wright an  advisory  board  member was paid  consulting  fees in the
     amount of $25,000  during 1995.  No  compensation  was paid to either Mr.
     McManus or Mr. Wright for 1996.

     EXERCISE OF INCENTIVE OPTIONS AND WARRANTS

     No incentive options and warrants were exercised during 1996. During 1995
     the following incentive options and warrants were exercised.

     In  September  Paul R. Arena,  a director  and officer  exercised  60,242
     incentive  stock  options at a price of $.54 each;  Shawn P.  Durand,  an
     officer exercised 17,926 incentive stock options at a price of $.54 each;
     Jenni Yachelson, an officer exercised 13,794 incentive stock options at a
     price  of $.54  each;  D. M.  Hartley,  Chairman  and CEO  exercised  552
     warrants at a price of $.54 each; Joseph Wright, an advisory board member
     exercised  32,000  warrants at a price of $1.22 each;  Michael  McManus a
     director  exercised  10,245  warrants at a price of $1.22 each;  E. Avery
     Williams,  an advisory board member  exercised 920 warrants at a price of
     $.54 each; Lewis Foy an advisory board member exercised 184 warrants at a
     price of $.54 each.

NOTE O - INCOME TAXES - NET OPERATING LOSSES

The Companies have net operating loss carryforwards available to offset future
taxable income approximating $2,317,600 expiring through the year 2010. Due to
the merger described in Note B the net operating losses are subject to certain
limitations, computed on an annual basis.


                                     F-21