Utica Buyout Spears Aarow

Acquisition of publishing company could help waste manager clean up

After three years of losing money, Aarow Environmental Group Inc. of Springdale may finally be on target with the planned July acquisition of Utica Publishing Corp. of Rogers.

In keeping with Securities and Exchange Commission quiet period regulations, Aarow’s officers wouldn’t say much for this story. But it’s clear the addition of all outstanding shares of Utica, which produces and distributes three niche publications in Northwest and western Arkansas, could help the environmental waste management company find its mark.

Aarow, traded over the counter as AARO, is an environmental consulting and remediation company that uses a combination of technologies to characterize and clean up a wide variety of contaminants. In layman’s terms, Aarow specializes in cleaning up contaminated sites like oil spills or lagoons filled with poultry and hog waste.

It spent $86,770 in 1998 for research and development of its new animal waste management machine known as the Aarow Processor. The company believes the machine so efficiently separates solid and liquid waste that it could revolutionize the industry.

Animal waste cleanups in particular have been a national hot button lately, due largely to the political attention given pfiesteria bloom outbreaks in New England. Toxins from the Chesapeake Bay-area blooms, which lead to fish deaths and human health problems, have been circumstantially linked to the increase in confined animal operations like cattle and chicken farms.

The problem hits home even harder in Northwest Arkansas where poultry industry giants like Tyson Foods Inc., Simmons Foods Inc. and George’s Inc. have made the area the nation’s No. 1 producer of broilers. That also means Northwest Arkansas is the nation’s No. 1 producer of poultry waste.

Tommy Daniel, a professor of soil and water quality with the University of Arkansas in Fayetteville, says attempts to efficiently convert animal waste in mass have either been cost-prohibitive or not been widely successful. He says there’s enormous financial potential for the first company that perfects the process.

“It would like be inventing the mousetrap,” Daniel says. “It’s out there waiting to happen, and the individual who’s able to do that successfully would be right up there with Bill Gates.”

Doing homework

Aarow’s stock reached 75 cents a share in July of 1998, but has only traded between 9 cents and 12 cents since then. Aarow’s marginal performance is the result of losing $189,386 in 1997, $185,295 in 1998 and showing a loss of $47,359 for the first quarter of 1999.

Stan Sisemore, company vice president and a member of the board of directors, says those numbers reflect costs incurred for research and development. In particular, a great deal of research has been required for the Aarow Processor.

The technology, for which Aarow owns the worldwide marketing and distribution rights, utilizes an ultraviolet light process that kills bacteria as contaminated water travels through a series of tanks. Solid waste is separated and falls to the bottom while the liquids stay on top. The solids are then pumped out for processing whether into bags for shipping or into a truck for spreading.

“We have been developing technologies that we’re now ready to run with,” Sisemore says. “We found Utica recently, and they had the publishing capabilities and the niche publications that fit our marketing perfectly. One thing we wanted to do was publish an environmental newsletter, and possibly some other publications.

“Having a publishing company is an ideal way to do that.”

Acquiring Utica would give Aarow an in-house vehicle for publishing and marketing a planned environmental monthly magazine to agri-based businesses nationwide. At the same time, Utica stands to benefit from Aarow’s contacts in the poultry and hog industries, which employ a large number of Hispanics, who in turn are the target audience of two of the publishing company’s magazines.

Utica prints La Chronica, a bilingual news and entertainment magazine with a monthly circulation of 4,500, and La Jornada, a Spanish language news and entertainment magazine with a weekly circulation of 2,500. The company also produces Arkansas Chronicle, an online monthly news magazine.

Sam Yates, a Rogers native, is president of Utica. His company had recently filed an initial public offering but later determined a merger might be the best route for it to grow. Aarow, which employs four people, just came along at the right time.

Sisemore says the acquisition of Utica and its 11 employees will broaden his company’s balance sheet and asset base by nearly $875,000. He said in a press release that the deal “represents a significant step in Utica and Aarow’s strategy of expanding existing operations in contiguous areas.”

A loose moose

Little is known about Aarow, both because the company has done little and because it’s changed names more often than The Artist formerly known as the pop singer Prince.

Started as Holiday Resorts International Inc., the company was incorporated in April of 1980 as Rendezvous Trails of America Inc. From 1986 to 1995, the Nevada-chartered company did not conduct any operations or activities and had virtually no assets.

Rain Forest Moose Ltd., an Arkansas corporation, was formed in March of 1994. In February 1996, RTA merged with Aarow Environmental. In March of 1996, a reverse acquisition made Rain Forest Moose a wholly-owned subsidiary of the company. In 1998, the entire company’s name was changed to Aarow.

“The original company started out as a resort, vacation and travel company,” Sisemore says. “Then it was taken over by Rain Forest Moose. I came in at that point to do a marketing consulting project for the company. In about a year and a half, I accumulated some money that was owed to me and when the company could not pay me, I took stock for collateral for the debt.”

Sisemore, a native of Huntsville, has 1.4 million shares or 7.4 percent of the company’s common stock. Aarow president and board member Lloyd W. Phillips has 3 million shares (100 percent) of preferred stock and 9.1 million shares (47 percent) of common stock. Jeff Martin, executive vice-president and board member, has 250,000 shares (1.3 percent). There are around 1,200 overall stockholders.

For the last several years, Aarow’s stockholders have funded the development of remediation techniques including the Aarow processor.

Shot in the dark

While it’s yet unclear if Aarow will be able to separate itself from industry competitors, the acquisition of Utica is imminent once the necessary funding is put in place. Additional financing was required to help restructure Utica’s current loans and to bridge the companies.

Traditional banking opportunities have not been available to Aarow for financing because banks traditionally don’t lend to small, start up companies without personal guarantees. As a public company, Aarow is not in position to give personal guarantees.

Sisemore does assert, however, that the opportunity for the group to develop together is a “unique” one. He also says Utica will allow Aarow to develop “a strong, vertically integrated presence in this strategically important market.”

The company’s registered immediate goals include developing, manufacturing, marketing and distributing products and services that aide in soil and ground water remediation, animal waste management and fuel and fluid management.

And Sisemore says the launching of print and Internet publications will enable Aarow to reach an overlooked niche.

“That’s the people who raise the chickens and broilers and the brokers who sell the process poultry,” Sisemore says. “We feel the time is right for Aarow to begin capitalizing on years of R&D. Utica’s assets will be an important element in our being able to market our knowledge of formats, including the Internet, with tremendous efficiency.”