Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1995
Commission file number 0-9347
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4110 N. Scottsdale Road, Suite 200, Scottsdale AZ 85251
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (602) 874 0448
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $44,209,894 as of September 28, 1995
Indicate the number of shares outstanding of each of the issuer's
classes of common stock: 30,448,279 as of September 28, 1995.
Documents incorporated by reference: NONE<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business.
The Company is an Arizona corporation which was organized in 1969.
In more recent years, the Company has developed and continues to develop
several diversified business segments. As of the date of this report,
the business segments in which the Company operates include: marketing,
designing and manufacture of air pollution control technology;
restaurant equipment marketing; insurance claims adjusting; and mineral
properties ownership.
BUSINESS DEVELOPMENTS DURING THE FISCAL YEAR ENDED JUNE 30, 1995
New Business Segments Acquired
During the past fiscal year, the Company acquired three new
subsidiaries which represent two new market segments for the Company.
The first new segment is the marketing of restaurant equipment and
related food products, specifically the Perfect Fry 686, a light weight,
easy to install and operate food deep frying machine. In May, 1995, the
Company acquired all of the outstanding capital stock of Fry Guy Inc.,
and Chappell Financial, Inc., both Nevada corporations from Amarante
Financial S.A., (Amarante) in exchange for a total of 4,600,000 shares
of the Company's common stock. The shares issued to Amarante are
"restricted securities" as defined by the Securities and Exchange
Commission. Fry Guy Inc., was party to an agreement to pay certain
royalties to Douglas Chappell and John Thomsen, the two individuals who
had originally owned Fry Guy Inc., and Chappell Financial, Inc., and had
obtained the exclusive United States distribution rights to the Perfect
Fry 686. In September, 1995 the Company, and Messrs. Thomsen and
Chappell entered into an Amendment Agreement whereby Messrs. Chappell
and Thomsen consented to the sale of the two corporations by Amarante to
the Company. The Amendment also clarified the scope of the royalty
provisions. The Company pays $107.50 per machine plus a 15% royalty on
the gross profit on sales of the machines plus a royalty of 15% of any
gross rental revenue on rentals of the machines. The Company also pays
a 15% royalty on gross revenue from food sold through Perfect Fry
machines. In July, 1995, the name Chappell Financial, Inc., was changed
to Alanco Financial Services Corporation.
Fry Guy Inc., holds exclusive rights for United States distribution
of the Perfect Fry 686, manufactured by Perfect Fry, Inc., of Alberta
Canada. In May, 1995, Fry Guy Inc., entered into an agreement with Ore-
Ida/Moore's Foods whereby Ore-Ida/Moore's Foods agreed to use its best
efforts to promote the sale of Perfect Fry 686 machines through its food
broker network. Ore-Ida/Moore's agreed to provide broker incentives
such as coupons and Point of Sales promotional materials and Fry Guy
Inc., agreed to pay commissions on machines placed as well as to provide
training and monthly accounting of sales.
In January, 1995, Fry Guy Inc., entered into a business
relationship with Wal-Mart to place Perfect Fry 686 machines in Wal-Mart
store snack bars without cost to the Wal-Mart stores and receive a
royalty on Ore-Ida/Moore's foods sold through the Wal-Mart snack bars.
The Company arranged lease financing for 150 machines and has placed
these machines with Wal-Mart snack bars. As of September 28, 1995
approximately 200 machines have been placed in Wal-Mart snack bars. In
September, 1995, the Company entered into a relationship with Tyson
Foods Incorporated adding twelve (12) additional food items, of which
Wal-Mart has chosen four (4) at this date for use in their snack bars.
The Company and Wal-Mart have revised the informational program to
snack bar managers to require the use of Ore-Ida/Moore's and Tyson Foods
products.
In addition, Fry Guy Inc., has developed a marketing strategy
utilizing independent sales agents which includes a training and support
program. As of September 30, 1995, Fry Guy Inc., has approximately 26
independent sales agents. Alanco Financial Services Corporation, shall
arrange for financing of Perfect Fry 686 machines as a support service
and independent profit center.
Also during May, 1995, the Company acquired 100% of the capital
stock of Unique Systems, Inc., a Nevada corporation doing business as
National Affiliated Adjustment Company, from KD International, Ltd., in
exchange for 1,750,370 shares of the Company's common stock and 26
Shares of $20,000 par value, Class A, Series I Preferred Stock of the
Company. The shares issued to KD International are "restricted
securities" as defined by the Securities and Exchange Commission. The
Preferred Stock votes with the common stock but is non-dividend bearing
with a mandatory redemption five years from issuance. The operational
management of National Affiliated Adjustment Company has been engaged in
the business of insurance claims adjusting for over ten years and as a
result, National Affiliated Adjustment Company is one of the largest
independent claims adjustment firms in Arizona.
BUSINESS DEVELOPMENTS IN THE AIR POLLUTION CONTROL SERVICES SEGMENT
Environmental Business Segment
The Company's principal business development focus for this segment
has been in the People's Republic of China. This has been primarily due
to the potential size of the Chinese market and the lack of a domestic
Chinese pollution control equipment manufacturing industry. The Company
manages operations in this segment of business through Alanco Beijing
Environmental Technology Corporation, a Chinese corporation.
In 1993, an agreement was executed with Dezhou Chemical Machinery
Factory, located in Shandong Province of the Peoples Republic of China,
to manufacture the Company's gravel bed filtration pollution control
technology for applications in China. While this agreement has not been
formally rescinded, during fiscal 1995 the Company chose not to pursue
manufacturing of this system in China.
In September of 1993, the Company executed an agreement with Dezhou
Heater & Power Plant ("Dezhou"), located in Shandong Province, to
purchase an EDSS system. During 1994, the contract was amended to the
purchase of one Charged Dry Sorbent Injection System which was shipped
to Dezhou at the beginning of the 1995 Fiscal Year. The CDSI System was
installed in June, 1995 and is undergoing operational testing.
In December of 1993, the Company entered into a preliminary
agreement with Shougang Steel Corporation, also known as Capital Steel
("Capital"), which allows that corporation to manufacture EDSS units for
its own application and that of its subsidiaries. Under the finalized
agreement, executed in January, 1994, Capital will pay Alanco a royalty
equivalent to three (3) to five (5) percent of the contract selling
price, as mutually agreed to, and Capital will purchase the CDSI unit
directly from the Company. This sale is presently pending approval by
the Chinese government of the overall Capital project. The Company
cannot guarantee that this sale will be completed.
In April of 1994, the Company signed an exclusive license agreement
with Dong-Ah Construction Co., Ltd. ("Dong-Ah") for Korea, non-exclusive
elsewhere, which allows Dong-Ah to manufacture and market the Company's
full range of pollution control equipment. Under the license, Dong-Ah
will pay an exclusivity fee to the Company and a five (5%) percent
royalty on the equipment manufactured for their own use and/or sale. As
of the date of this report, Dong-Ah has not paid the exclusivity fee and
the Company cannot guarantee that this agreement will proceed.
In April 1993 the Company signed an agreement with Intrade Ltd., to
represent the Company and sell its technology to the steel and mining
industries in the area defined as the Pacific Rim and in the United
States. This agreement is currently awaiting successful CDSI tests from
China before Intrade commences performance.
In June 1993, the Company executed a preliminary agreement with the
Beijing Municipal EPA to install two 150 ton per day municipal waste
incineration facilities in the city of Beijing, China. This agreement
has been deemed terminated for lack of funding by the Beijing Municipal
EPA during the fiscal year ended June 30, 1995.
Domestic Business Developments
In April 1993, the Company executed a contract for the sale of an
EDSS unit to Asphalt Paving & Supply Company, Inc., of Prescott Valley,
Arizona. Installation was completed in early 1994. The Company has
performed extensive testing of the EDSS gravel bed filtration system and
despite the Company's expectation that the system could be modified to
achieve compliance, the Company has been able to achieve Arizona
compliance levels but to date has not succeeded in meeting federal
standards. The Company has also successfully met EPA and ADEQ
compliance levels with the CDSI System. The Company is currently
negotiating a remedy to the compliance situation with Asphalt Paving &
Supply Company, Inc. The Company has been paid $105,000 for this
contract and $70,000 remains due and owing.
The Company has used and intends to continue using the Prescott
Valley site for additional research and development of the Charged Dry
Sorbent Injection System for SO2 removal from a gas stream. The CDSI
System has undergone four independent laboratory tests at the Prescott
Valley site and has achieved the desired results of consistently
removing 99.9% of the sulfur dioxide from the polluted gas stream. The
tests were conducted by Energy and Environmental Measurement Corporation
of Tucson, Arizona. The tests also demonstrated the mechanical
reliability of the CDSI system which is ready to be marketed as a retro-
fit device for an existing pollution control systems and as a part of
new systems.
During the fiscal year ended June 30, 1994, the Company formed a
subsidiary known as Alanco Environmental Manufacturing, Inc. ("AEMI").
This wholly-owned subsidiary accepted the manufacturing assets acquired
by the Company from Heartland Systems, Inc. The manufacturing
facilities have been consolidated into one facility at Falls City,
Nebraska. The Company has conducted preliminary engineering and cost
analysis on a major expansion of the Falls City manufacturing facility.
The Company intends to construct a "high bay" addition which will allow
the Company to more easily fabricate larger pieces of equipment and
increase efficiency of the existing facility. The Company is now in the
process of seeking financing and/or Nebraska economic development
assistance for the project.
In June, 1995 the Company wrote off the value of its 177 Cherry
Creek unpatented mining claims for a total amount of $598,166. The
Company has retained ownership of 47 of these claims.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information concerning the industry segments of the
Company can be found in the Notes to Consolidated Financial Statements,
Note 20 captioned Segment Information.
NARRATIVE DESCRIPTION OF BUSINESS
AIR POLLUTION CONTROL SERVICES SEGMENT
The Company's principal air pollution control technology is the
Charged Dry Sorbent Injection (CDSI) System. The CDSI is a patented
process that utilizes an electrostatically charged sorbent to remediate
and remove noxious gases such as sulphur dioxide from a hot exhaust gas
stream from a stationary air pollution generating site such as a
factory. The CDSI System operates at a high degree of efficiency and at
significantly lower cost than competing technology. The Company
acquired the rights to this technology in 1989 and has spent the past
several years in engineering and testing. The Company now has a fully
functional prototype which is ready for manufacturing.
The CDSI System injects an absorbing agent or sorbent, such as lime
or ammonia, into the polluted gas stream generated by an industrial
activity. Different sorbents are best for different pollutants based
upon the chemical nature of the gas stream. Prior to injection the
sorbent stream is subjected to an electrostatic charge which imparts an
negative electronic charge to the sorbent particles. The negatively
charged sorbent particles repel one another, thus providing rapid
dispersal of the sorbent during the injection into the gas stream. This
faster dispersal results in greater sorbent surface area coming in
contact with the gas stream. The negatively charged sorbent attaches to
positively charged pollutants resulting in larger particles which can
then be filtered from the gas stream.
The CDSI System has significant advantages over competing
technology for remediating polluted gas streams. Wet scrubbers, which
spray moisture into the gas stream which attaches to pollutants and then
precipitates out of the gas stream, result in polluted liquids or
sludges which must then be treated. Wet scrubbers also have higher
operating cost and are subject to corrosion. The CDSI System results in
dry collection of pollutants which are more readily collected and
disposed. Another significant advantage of the CDSI System is its
ability to operate at temperatures as high as 2000 degrees Fahrenheit.
Because chemical reactions such as the attachment of the sorbent to the
pollutants occur more rapidly at higher temperatures, the CDSI sorbent
is able to remove more pollutants from the gas stream in less time than
if the gas stream had to be cooled.
The CDSI System is easily adapted to a wide variety of industrial
air pollution remediation systems and requires little maintenance. The
Company believes the system is useable by power plants, mining and
smelting facilities, incinerators, steel mills and dryer/roaster
facilities such as hot mix asphalt plants. The Company is specifically
targeting the dryer/roaster market. There are tens of thousands of
these facilities in North America alone, including over 10,000 hot mix
asphalt plants. Many of these plants are experiencing problems
complying with U.S. Environmental Protection Agency standards and the
CDSI's ability to operate at high temperatures makes the system a cost
effective means of achieving compliance.
Over 12 years, the Company has amassed over 12,500 hours of site
specific slip stream testing and performed a comprehensive analysis of
data compiled. This compilation of data came from tests performed in the
power generating industry, smelting industry, steel manufacturing
industry and recycling industry. Based upon this data, the Company feels
confident that the CDSI unit has a substantial market place that can be
tapped.
The Company, over the years, developed a two-tier marketing
philosophy. The first-tier, or large scale projects, by their nature,
incorporate site specific engineering and massive on site construction
which would entail, among other things, access to extensive engineering
capability as well as construction capability. The Company had reported
and intended to use third parties for this engineering in the United
States, Korea, Asia, United Kingdom and Europe.
The second-tier, or small and medium scale projects, do not require
the same extensive site specific engineering, nor do they require major
construction capability. An example of this market is the hot-mix
asphalt industry. In this industry segment, four or five systems, scaled
to varying sizes, should adequately cover the industry's needs and
marketing could be handled through Original Equipment Manufacturers
("OEM's"), direct sales force or contract marketing arrangements, as
will be the case for this market overseas.
The components being used in the assembly of systems and the
materials and parts used to manufacture the pollution control device are
purchased from original equipment manufacturers and steel fabricating
firms. The Company believes that it can continue to purchase raw
materials and that job-shop sources and the Company's own manufacturing
operation can continue to provide necessary components, supplies and
manufactured products.
Patents: The Company, under the name of its subsidiary,
Environetics, Inc., owns United States Patent No. 4,220,478, titled
"Method For Removing Particulate Matter From A Gas Stream And A Method
For Producing A Product Using The Removed Particulate Matter" and United
States Patent No. 4,290,786 titled "Apparatus For Removing Particulate
Matter From A Gas Stream".
In addition to the aforementioned Patents, three additional patents
were filed for during the year ended June 30, 1994, by individuals in
the Company. These filings were assigned to the Company shortly after
filing with no compensation being paid to the original applicants. These
filings are as follows:
U. S. Patent Application entitled "Apparatus for Removing
Particulate Matter and Gases from A Polluted Gas Stream" issued as U.S.
Patent No. 5,308,590 on May 3, 1994. This application was also filed in
China on September 28, 1993 and with the Patent Treaty Countries
pursuant to the International Patent Treaty on April 18, 1994.
U. S. Patent Application entitled "Method For Removing Particulate
Matter and Gases From A Polluted Gas Stream" issued as U.S. Patent No.
5,332,562 on July 26, 1994, subsequent to year end. This application was
also filed in China on September 28, 1993 and with the Patent Treaty
Countries pursuant to the International Patent Treaty on May 9, 1994.
U. S. Patent Application entitled "Hopper System and Electrostatic
Gun for Injection of an Electrostatically Charged Sorbent into a
Polluted Gas Stream" issued as U.S. Patent No. 5,312,598 on May 17,
1994. This application was also filed in China on September 28, 1993 and
with the Patent Treaty Countries pursuant to the International Patent
Treaty on April 18, 1994. In addition, management decided to have this
patent application filed in several other countries as follows: filed in
Mexico on August 25, 1994; filed in Argentina on August 24, 1994; filed
in Chile on August 25, 1994; filed in Turkey on August 23, 1994 and
filed in India on July 18, 1994. These applications have also been
forwarded for filing in Venezuela and Pakistan.
The Company believes that the rights to and/or ownership of these
patents, patents pending and patent applications are crucial to The
Company's future success. No other system offered in this industry
segment has such significant operating potential. However, there are
many other pollution control devices and systems.
Competitive Conditions: The Company's Air Pollution Control
Services Segment is in competition with such firms as Wheelabrator, Pure
Air, General Electric, Westinghouse, and Mitsubishi Corporation.
However, The Company has a proprietary technology that is significantly
differentiated from providers of wet scrubber, electrostatic
precipitator and fabric filter technologies by its ability to operate at
temperatures above that which other technologies can operate. This
capability plus its modular ability to function as a "standalone" or as
an "enhancer" system gives The Company special ability to compete.
Additionally, the Company's equipment prices and operating costs are
fully competitive.
Research and Development activities: The Company continues to
take every opportunity to enhance the performance capability of its
systems through innovative configurations and special chemical sorbents
and medias. The Company has expended a total of $199,600 in research and
development during the fiscal year ended June 30, 1995.
Employees: As of September 28, 1995, The Company had five
individuals whose principal responsibilities were in this business
segment.
AIR POLLUTION CONTROL EQUIPMENT MANUFACTURING SEGMENT
Alanco Environmental Manufacturing, Inc., (AEMI) is the Company's
wholly owned subsidiary which operates from its facility in Falls City,
Nebraska. AEMI manufactures aeration equipment for the agricultural
industry as well as baghouses and cyclones for that industry and
industrial applications. The product lines, which AEMI has complete
engineered drawings for, are: Reverse Air Filters, Pulse Jet Filters,
Cyclonic Collectors, Centrifugal Fans, Pneumatic Conveyors and Ducting.
The manufacturing facility, located in Falls City, Nebraska, can also
perform job shop and original equipment manufacturing for other
entities. AEMI has a second facility located at Boone, Iowa. This
facility is approximately 53,000 square feet under roof and is located
on approximately 9.47 acres.
Raw Materials: The principal raw materials used in
manufacturing are sheet metal and plate steel, welding supplies,
miscellaneous nuts and bolts and various kinds of electrical components
none of which are uncommon to this industry. The Company currently uses
several different suppliers, most of which are located in the midwest
and none of which are relied upon as the sole source. In this regard,
the Company believes that it has an adequate supply and should maintain
an adequate supply of raw materials for the future.
Seasonality of Business: The Company's manufactured products
are marketed to two separate industries. The agricultural segment,
including farms, specifically grain and produce storage, is highly
seasonal. The demand for product, such as fans, ducting and fan/heater
assemblies begins to heighten around April and May and should taper off
around October and November. However, the industrial applications which
utilize other products manufactured by the Company account for over 65%
of all sales and does not appear to be seasonal.
Working Capital Practices: The Company's manufacturing segment
assets are security for a note payable to American National Bank in the
amount of $34,541 as of June 30, 1995. There are no other liens or
encumbrances. The Company had $810,007 in inventory of raw materials,
parts, components, finished goods and work in process at June 30, 1995.
The components of this inventory are $478,452 in raw materials and
purchased stock items, $104,712 in sub-assemblies which includes labor;
$61,817 of finished product which includes labor and $165,026 of work in
process which also includes labor. Accounts receivable were $350,801,
net of allowance for doubtful accounts, and only $154,235 in accounts
payable. Based upon these facts, the Company feels that this segment of
business is in a very strong working capital position which will not
only meet its current needs, but will meet the future goal of expanding
manufactured goods output by twenty percent in each of the next three
years.
Dependence Upon Limited Number of Customers: The Company has recorded
sales to over 60 different customers during the year ended June 30,
1995. Of these, 10 had purchases which accounted for more than two (2%)
percent of total revenue of which one had total purchases of over ten
(10%) percent of total revenue. This customer is Boone Aeration and
Environmental Company, Inc. ("BAEC") which accounted for 49.43% of all
revenues generated during the period in this segment of business. BAEC
is the entity that the company entered into a non-compete marketing
agreement with to market the agricultural products manufactured by the
Company. Loss of these sales would have a short term effect on the
profitability of the operation, however, the Company has assurances from
BAEC that it will continue to purchase these products for distribution,
which assurance is based upon pricing, quality and availability. In the
unlikely event that BAEC should take its business elsewhere, management
believes that this business could be replaced within a matter of months.
Backlogged Orders: The Company had orders for approximately
$700,000, as of September 28, 1995. Of these orders, $165,026 is work in
process and carried as inventory. The Company believes that all of this
will be fulfilled in the coming fiscal year and that no material change
should occur.
Competitive Conditions: The companies, firms and entities in
this segment fall into two basic categories. Those that engineer, market
and manufacture in house and those that specialize in engineering and
marketing only. Those companies, firms and/or entities that engineer
and market only are not actually competitors, but enhance our business
segment. Many of these entities submit their engineered drawings to AEMI
to have bids for the manufacturing of the components completed by AEMI.
These entities actually represent, in a number of operations, the
majority of the companies involved in this segment of business.
On the other hand, manufacturing companies of agricultural products
and dust control equipment, such as those included in the Company's
current product line, are not numerous. The Company is aware of only a
handful across the United States. However, those few competitors are
doing a dollar volume of business substantially greater than that of the
Company. Some may have more substantial resources and possibly more
current equipment, but based upon the manner of acquisition of this
segment of business, its current cost of manufacturing on an hourly
basis, the commitment to excellence of the employees and the ability to
increase the volume of business in the one facility, the Company is
confident that it can materially compete in this segment on any level of
price, quality, performance and service.
Employees: As of September 28, 1995, the manufacturing segment
employed a total of forty-eight people.
RESTAURANT EQUIPMENT MARKETING SEGMENT
During the fiscal year ended June 30, 1995, the Company entered
into a new business segment of the marketing of restaurant equipment and
related food products, specifically the Perfect Fry 686, a light weight,
easy to install and operate food deep frying machine. Fry Guy Inc.,
holds an exclusive license for the United States distribution of the
Perfect Fry 686 deep-frying machine which was granted by the machine's
manufacturer, Perfect Fry, Inc., a Canadian corporation.
The Perfect Fry 686 machine operates with an air filtering system
which eliminates the need for a venting system necessary with
conventional restaurant deep fryers. The machine operates with an
automated basket lowering and raising mechanism. The Perfect Fry 686
machine operates on 110 volt electricity as compared to the 220 volts
usually required by conventional deep fryers. The Perfect Fry 686
machines weigh only 70 pounds and can be operated from a counter. The
Company believes that the Perfect Fry 686 machine's ability to operate
without vents and on standard electrical current has opened a
substantial niche for placement of the machines in places where a
conventional fryer is not feasible for cost or space considerations.
The Company intends to target small snack bars or similar facilities in
department stores, shopping malls, bars or other facilities which
previously were unable to offer hot food.
The Company is pursuing several different marketing strategies.
The Company has developed a Fry Guy Sales/Rental Program whereby it is
recruiting and training independent agents to market the Perfect Fry 686
machines and Fry Guy foods. The Company also has agreements with Ore-
Ida/Moore's Foods and Tyson Foods to provide specially processed, pre-
packaged foods designed especially for use in the Perfect Fry 686.
These foods include french fries, chicken nuggets, cheese sticks and
cheese filled jalapeno peppers. Under the Ore-Ida/Moore's agreement,
the Ore-Ida/Moore's broker networks are being encouraged to market the
Fry Guy Sales/Rental Program to their customer bases through provision
of discount coupons and coupons redeemable for the packaged foods.
Finally, the Company has an agreement with Wal-Mart stores to place
Perfect Fry 686 machines in Wal-Mart snack bars. The machines initially
placed in Wal-Mart were placed without cost to Wal-Mart in order to
demonstrate the machines potential while the Company is paid for foods
sold using the machines.
Employees: Fry Guy Inc., presently has seven full time
employees and twenty-six independent sales agents as of September 28,
1995.
Backlogged Orders: The Company does not presently have a backlog
of orders for the Perfect Fry Machines which the Company attributes to
not yet having its marketing program fully deployed.
Competition: The Company is aware of only one direct competitor
marketing a ventless, small capacity deep fryer. The Company believes
that it has an advantage over this competitor both in terms of price and
quality of machines. However the Company also considers the much larger
restaurant equipment industry as competition in that this industry
offers any number of different sizes and types of deep fryers. Many of
the companies engaged in this industry are much larger and better funded
than the Company. The Company anticipates that as it achieves market
recognition, additional competitors will be drawn into this market
niche.
INSURANCE CLAIMS ADJUSTING SEGMENT
The Company operates in this segment through its subsidiary, Unique
Systems, Inc., which does business under the name of National Affiliated
Adjustment Company (NAAC). NAAC operates as an independent claims
loss adjustment company which processes property, casualty, health
insurance and workmens' compensation claims and automobile appraisal for
various insurance companies. One client, IAEA Benefit Trust which
refers Workmen's compensation claims to NAAC represented approximately
fifty percent (50%) of NAAC's revenue during the fiscal year ended June
30, 1995.
Depending on the type of claim, processing of claims generally
involves verifying the loss and the existence of coverage for the loss
and then assessing the extent of the loss and negotiating a settlement
on the loss as appropriate. On health insurance claims this generally
entails determining that the procedures to be paid are appropriate for
the type of problem and that cost of the procedure is within guidelines.
If all information is determined to be accurate and appropriate, the
insurance claims adjuster notifies the insurance payor that it is proper
to pay the claim. When necessary, the claims adjuster seeks additional
information or recommends rejecting the claim. NAAC is compensated in
various ways depending upon the negotiated terms with the client.
Typically compensation is on a flat rate per claim or on time and
expenses per claim.
NAAC presently has offices in Phoenix, Arizona and Las Vegas,
Nevada, though the Company intends to open new offices in up to two
additional cities throughout the United States during the Fiscal Year
ending June 30, 1996.
Competition: Competition in the insurance claims adjusting
industry is extensive and is principally driven by price and quality of
service.
Employees: NAAC has over twenty-nine full time employees.
MINING SEGMENT
The Company currently holds its mining properties without any
exploration or development activity.
Environmental Disclosure.
There are numerous federal and state laws and regulations relating
to environmental protection which have direct application to mining,
milling and mineralized material processing operations. The more
significant of these laws deal with mined land reclamation and waste
water discharge from such operations.
The principal mining operations, exploration and development of
mining properties by the Company has been accomplished underground with
a minimum of surface disturbance.
Two properties which would require limited environmental and/or
surface reclamation are the C.O.D. Mine and the Tombstone Metallurgical
Facility.
The Tombstone Metallurgical Facility is located upon federal lands
which are administered by the Bureau of Land Management ("BLM"). The
facility was constructed in the 1970's when no permitting was required
from the BLM. Since that time the facility has operated intermittently
and the Company has complied with all regulations as they existed. At
present, the facility remains idle. The other property is the C.O.D.
Mine which is also on BLM land and is also presently idle.
Employees: The Company employs one individual who performs most
of the work required in this segment of the business and it relies upon
independent contractors for the balance.
ITEM 2. PROPERTIES
The Company's corporate office is located in a 7,280 square foot
leased facility, in Scottsdale, Arizona. Air Pollution Control Services
and Mining operations are headquartered at the corporate office.
The Restaurant Equipment Marketing Segment is located in a 2,257
square foot leased facility in Las Vegas, Nevada. The Restaurant
Equipment Marketing Segment also leases 1,609 square feet of warehouse
space in Las Vegas, Nevada.
The Insurance Claims Adjusting Segment is headquartered in a 6,513
square foot leased facility in Phoenix, Arizona and occupies 1,215
square feet of office space in Las Vegas, Nevada.
The Environmental Manufacturing Segment's main operating facility
is located at Falls City, Nebraska. This facility is approximately
73,000 square feet under roof and is located on approximately 6.84
acres. The second facility is located at Boone, Iowa. This facility is
approximately 53,000 square feet under roof and is located on
approximately 9.47 acres. The Company owns these facilities.
Mining Properties: Management and the Company's Auditors agreed
that an independent appraisal of the Company's mining assets should be
undertaken and reviewed annually to determine the fair market value of
the mining assets and the existence of potential impairments. Based
upon the consistency of the results of the appraisals for the past
several years and Management and the Company's Auditors' review, it was
determined that an appraisal this year would not substantively change
the recorded values.
At June 30, 1995, the Company owned mineral rights in 7 mining or
millsite properties in Arizona. Such rights include unpatented mining
claims and unpatented millsite claims. The Company's mining properties
include the Tombstone Mill and a mill on the site of the C.O.D. Mine.
Table A sets forth the Company's Major Mineral Land Holdings for
the fiscal years ended June 30, 1994 and 1995. Tables B and C set forth
the current appraised value as of June 30, 1994 and the adjusted
carrying value for June 30, 1994 and 1995, respectively.
TABLE A
MAJOR MINERAL LAND HOLDINGS AT JUNE 30, 1995 AND 1994
MINERAL PROPERTY LOCATION ACREAGE OWNERSHIP
C.O.D. Mine Mohave County, AZ 3,500 100%
Mineral Mountain Pinal County, AZ 4,660 100%
Cherry Creek Yavapai County, AZ 940 100%
Tombstone/STC Claims Cochise County, AZ 9,140 100%
MILLS AND REFINERY
C.O.D. Mine Mohave County, AZ 105 100%
Tombstone Cochise County, AZ 75 100%
<PAGE>
TABLE B
MAJOR MINERAL LAND HOLDINGS AT JUNE 30, 1994
MINERAL PROPERTY RECORDED APPRAISED ADJUSTED
COST (1) VALUE (2) VALUE (3)
C.O.D. Mine 5,374,328 8,505,445 5,539,328
Mineral Mountain 221,520 228,775 221,520
Cherry Creek 598,166 680,909 598,166
Tombstone/STC Claims 683,046 712,367 409,828
MINERAL PROPERTY
TOTALS 6,877,060 10,127,496 6,768,842
MILLS AND REFINERY
C.O.D. Mine Included Above
Tombstone Mill 531,373 328,487 328,487
TABLE C
MAJOR MINERAL LAND HOLDINGS AT JUNE 30, 1995
MINERAL PROPERTY RECORDED APPRAISED ADJUSTED
COST (1) VALUE (2) VALUE (3)
C.O.D. Mine 5,374,328 8,505,445 5,539,328
Mineral Mountain 221,520 228,775 221,520
Tombstone/STC Claims 683,046 712,367 409,828
Cherry Creek Claims (4) 598,166 680,909 0
MINERAL PROPERTY
TOTALS 6,877,060 10,127,496 6,170,676
MILLS AND REFINERY
C.O.D. Mine Included Above
Tombstone Mill 328,487 328,487 296,702
(1) Recorded Cost equals the lower of historical cost or the fair
market value as determined by appraisal.
(2) The fair market value as determined by the appraisal completed for
the fiscal year ended June 30, 1994.
(3) The adjusted book value after giving consideration to any write-
down in certain mineral property values and reflects the lower of
historical cost or appraised value.
(4) The value of the Cherry Creek claims was written down to $0 even
though the Company continues to own 47 of these unpatented claims.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits or threatened
lawsuits. The Company believes that any financial exposure is
adequately provided for in its financial statements and that these
matters will not have a material adverse effect on the financial
condition or operating results of the Company. However the Company is
a defendant in the following lawsuits which could be material in the
event of an unfavorable resolution.
In April, 1995 the case of Sun Valley Products, Inc., v. Alanco
Environmental Services, Inc., et.al was filed in the United States
District Court, Southeastern Division, District of North Dakota. Sun
Valley Products, Inc., produces roasted sunflower seeds and purchased a
bag filter system from the George A. Rolfes Company (which later became
Heartland Systems, Inc.["Heartland"]) in 1992. In 1994, the Company
purchased the assets of Heartland through the Company's wholly owned
subsidiary Alanco Environmental Manufacturing, Inc. Installation and
service of the bag filter system straddles the time the Company
purchased the business assets from Heartland. The complaint alleges
breach of contract, breach of warranties and negligence and seeks in
excess of $50,000 in damages though the Plaintiff has not otherwise
quantified its damages. The Company believes that the action is subject
to the indemnification provisions of its purchase agreement with Rolfes
and has entered into a joint defense with Heartland. The Company
further believes that there are valid defenses to the action and it
would ultimately prevail if the matter proceeds to trial. The Company
and Heartland are pursuing settlement negotiations.
In 1995, T&H Construction, Inc., filed a lawsuit against the
Company in Yavipai County, Arizona Superior Court, alleging that the
Company owes it approximately $50,000 on an open account for goods and
services supplied by the Company in connection with its mining
operations. The Company has filed an Answer claiming a set-off for
equipment given to the Plaintiff and other defenses. While the Company
believes that its defenses are meritorious, it also recognizes that
trial of the matter may have an unfavorable outcome and so is pursuing
settlement negotiations.
On January 19, 1994, the BLM issued a Trespass Decision pursuant to
43 CFR 2920.1-2 under the authority of the Federal Land Policy
Management Act of 1976. The decision was based upon the BLM's assertion
that the use for which the Company occupied said millsites was an
unauthorized use and that unauthorized property, non-milling or
refining, was also located there. On February 14, 1994 the Company filed
a Notice of Appeal with all appropriate agencies. An order granting the
stay of the BLM action as requested by the Company was issued on March
29, 1994. The BLM then filed their answer to the Statement of Reasons
filed by the Company. Since this time there has been no action with
regard to this case. The outcome of this matter can not be predicted at
this time, however, based upon the demands contained in the trespass
decision, approximately $30,000, plus administrative costs versus the
cash bond placed by the Company with the BLM, $19,000 and the delay
rental fees already paid, management believes that even an unfavorable
outcome will have little effect on the financial condition of the
Company.
The Company is also a defendant is a lawsuit filed in the Federal
District Court for the District of Nevada by Bernard Lumbert, a resident
of Kingman, Arizona. In the opinion of the Company, Mr. Lumbert is a
habitual, pro se filer of frivolous lawsuits seeking unspecified damages
for violations of federal securities laws. Mr. Lumbert has also sent
absurd and libelous allegations regarding the Company to news media and
securities broker-dealers. In the above case, Mr. Lumbert has filed
numerous motions which have all been denied by the Court and have failed
to comply with the rules of civil procedure. The Company is seeking to
have the case dismissed and obtain sanctions against Mr. Lumbert. The
Company has also filed a civil action in Maricopa County, Arizona
against Mr. Lumbert as a result of his allegations for which Mr. Lumbert
failed to appear upon the judge's order. A civil contempt warrant for
his arrest on this matter is outstanding in Maricopa County, Arizona.
The Company does not believe that there is any likelihood of an
unfavorable outcome in this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Shareholder's during the
fiscal year ended June 30, 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDERS MATTERS.
(1) Market Information: Alanco's common stock is traded on the
NASDAQ Small Cap Market under the symbol "ALAN". Table D shows the high
and low bid prices for each fiscal quarter for the last three fiscal
years. Such quotations represent inter-dealer prices without retail
mark-ups, mark-downs, or commissions and, accordingly, may not represent
actual transactions.
TABLE D
Fiscal 1995 Fiscal 1994 Fiscal 1993
Quarter Ended High Low High Low High Low
September 30 2.53 1.06 6.00 3.63 1.37 0.063
December 31 2.22 1.25 5.81 3.75 1.31 0.97
March 31 1.88 1.16 5.56 3000 1.53 0.88
June 30 2.75 1.50 4.44 2.00 6.06 1.37
(2) Security Holders: As of September 28, 1995 Alanco had
approximately 2,100 holders of record of its common stock. This does
not include beneficial owners holding shares in street name.
(3) Dividend Plans: Alanco has paid no cash dividends and has no
current plans to do so.
(4) Preferred Stock: There are 26 Shares of $20,000 par value, Class
A, Series I Preferred Stock issued and outstanding as of September 28,
1995.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial Data for the Company and its subsidiaries can be
found in Table E. This information includes information for the Company
and it subsidiaries on a consolidated basis and should be read in
conjunction with the audited financial statements and accompanying
notes.
<PAGE>
<TABLE>
<CAPTION>
Table E - Selected Financial Data Not covered by Report of Independent Certified Public Accountant)
Selected Income Statement Data For the Period Ended
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
June 30, June 30, June 30, June 30, May 31, May 31,
1995 1994 1993 1992 1992 1991
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue 3,438,183 1,581,515 10,987 -- 24,500 58,600
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary item (2,431,930) (3,389,293) (4,219,795) (112,702) (2,886,797) (1,180,204)
Extraordinary item (2,321,449) (450,671) 117,622 -- 25,000 2,809
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Loss (4,753,379) (3,839,964) (4,102,173) (112,702) (2,861,797) (1,177,395)
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Loss per common share
Before extraordinary item (0.10) (0.19) (0.33) (0.02) (0.55) (0.27)
Extraordinary item (0.10) (0.02) 0.01 0.00 0.00 0.00
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Loss per share of common stock (0.20) (0.21) (0.32) (0.02) (0.55) (0.27)
Weighted average number of shares 23,839,969 18,253,730 12,974,995 6,867,840 5,287,487 4,311,677
Selected Balance Sheet Data
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
June 30, June 30, June 30, June 30, May 31, May 31,
1995 1994 1993 1992 1992 1991
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Current Assets 3,338,559 4,283,308 20,208 2,918 262 17,251
Current Liabilities 887,036 852,184 632,937 1,926,057 1,885,071 1,486,930
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Working Capital (deficit) 2,451,523 3,431,124 (612,729) (1,923,139) (1,884,809) (1,469,679)
Total Assets 21,215,852 18,281,763 8,432,262 8,682,243 8,686,959 10,085,559
Long Term Debt 463,834 -- -- -- -- 2,108
Redeemable Preferred Stock 295,062 -- -- 750,000 750,000 750,000
Nonredeemable Preferred Stock,
Common Stock and other
Shareholders' Equity 18,600,816 16,327,796 7,799,325 6,006,186 6,051,888 7,846,521
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a)(1) Liquidity and Capital Resources.
The Company's working capital as of June 30, 1995, was $2,451,520.
A decrease from the prior year of $979,604. This represents a reduction
in the current ratio from 5.0:1 to 3.76:1. The change in working
capital was primarily due to cash used by operations of $1,831,642 and
additions to plant property and equipment of $410,550 offset by the
proceeds from the sale of the corporate office of $603,500.
As a result of entering the restaurant equipment and supply
industry, the Company had 236 Perfect Fry 686 machines, valued at
$724,470 added to property, plant and equipment this fiscal year. Of
these machines, 150 have been placed in Wal-Mart Stores, which were
financed on capitalized leases. The lease balances at fiscal year end
were $523,280 with $463,834 included in long term liabilities. Future
additions of capital equipment in this industry segment may utilize the
availability of lease financing, which management believes is available.
For additional information regarding liquidity and capital
resources please refer to the Notes to Consolidated Financial
Statements, specifically Notes 16, 17, 22, and 23.
(a)(2) Results of Operations
(a)(2) (a) Fiscal 1995 compared to fiscal 1994
Consolidated revenues for the year ended June 30, 1995, were
$3,438,183. An increase of $1,856,668 or 117.4%. The manufacturing
operations accounted for 91% of this increase. The balance of the
increase was principally due to the new business segments added,
restaurant equipment and supply and insurance adjusting. Since the new
business segments were consolidated for a two month period only,
significant increases in revenue are anticipated for the upcoming year
(See Note 25 to the Notes to Consolidated Financial Statements).
For the fiscal year ended June 30, 1995, the Company's net loss
increased by $913,415 (23.79%) over the prior fiscal year. Net losses
include the operations of newly added subsidiaries for a two month
period only. The consolidated results also contain extraordinary losses
of $2,321, 449 for fiscal 1995 compared to extraordinary losses of
$453,080 for the prior year. The extraordinary losses more than account
for the increase in net losses for the year. Losses before
extraordinary items decreased by $954,954. This decrease is attributable
to an increase in manufacturing revenues and a decrease in mining
expenditures.
Table F sets forth a breakdown by segments of the Company's
business, in the form of a comparison of net income (losses):
TABLE F
For the year ended
Category June 30, June 30, Increase %
1995 1994 (Decrease) Change
Environmental ( 162,753) (1,542,165) 1,379,412 89.45
Restaurant 3,972 N/A 3,972 -
Insurance 105,926 N/A 105,926 -
Mining ( 195,446) ( 479,646) 284,200 59.25
Manufacturing 425,278 ( 344,414) 769,692 123.48
G & A & Other ( 4,930,356) (1,473,739) (3,456,617) 134.55
Net Income
(Loss) (4,753,379) (3,839,964) ( 913,415) 23.79
Table G sets forth a breakdown by segments of the Company's
business, in the form of a comparison of operating expenses:
TABLE G
For the year ended
Category June 30, June 30, Increase %
1995 1994 (Decrease) Change
Environmental 269,753 1,647,165 (1,377,412) (83.62)
Restaurant 22,065 N/A 22,065 -
Insurance 74,252 N/A 74,252 -
Mining 205,446 480,646 ( 275,200) (57.26)
Manufacturing 2,644,495 1,719,046 925,449 53.84
G & A 2,711,652 888,642 1,823,010 105.15
Other - 226,560 ( 226,560) (100.00)
Totals 5,927,663 4,962,059 965,604 19.46
The decrease in the amount of operating expenses of the
environmental services is directly related to a reduction in the
required research and development costs and the amount of corporate
overhead allocated to this business segment as a result of entering into
two (2) new segments this year. Operating expenses for the restaurant
equipment and supply and insurance operations were included from May 1,
1995. Direct service in the mining industry decreased by $275,200, most
of which is attributable to a reduction in delay rental fees due the
Bureau of Land Management and a watchman's contract for services at one
of the Company's mine sites. Direct service expenses for the
manufacturing division increased by $925,449 or 54%. This is a result
of a full years operating history versus the six months consolidated the
previous year. The increase in general and administrative expenses can
be attributed to the inclusion of two new business segments, increased
volumes in the manufacturing and the distribution of resources from the
environmental segment direct service.
For the year ended June 30, 1995, the Company had significant items
that were listed as extraordinary. These items are of a singular nature
and would not be considered a part of ongoing operations. Extraordinary
items consisted of a write down of marketable securities of $431,000, a
reevaluation of the Boone, Iowa manufacturing plant of $713,000, a write
off of mining claims of $598,000, and a loss from sale of the corporate
office building of $666,000.
(a)(2) (b) Fiscal 1994 Compared to Fiscal 1993
In fiscal 1994, the Company's net loss decreased by $262,209
(6.39%) over the same period last year. This decrease is attributable to
a substantial decrease in costs in the mining industry which outweighed
the increased costs in the environmental industry.
Table H sets forth a breakdown by segments of the Company's
business, a comparison of net operating losses:
TABLE H
For the year ended
Category
June 30,
1994
June 30,
1993
Increase
(Decrease)
%
change
Environmental
Mining
Manufacturing
G & A & Other
(1,542,165)
(479,646)
(344,414)
(1,473,739)
(237,778)
(2,829,001)
( - )
(1,035,394)
1,304,387
(2,349,355)
344,414
438,345
548.574
83.059
N/A
42.341
Net
Income(Loss)
(3,839,964)
(4,102,173)
(262,209)
6.39
Table I sets forth a breakdown by segments of the Company's
business, a comparison of operating expenses:
TABLE I
For the year ended
Category
June 30,
1994
June 30,
1993
Increase
(Decrease)
%
change
Environmental
Mining
Manufacturing
General and
administrative
Other
1,647,165
480,646
1,719,046
888,642
226,560
237,778
2,832,001
--
800,578
326,141
1,409,387
(2,351,355)
1,719,046
88,064
(99,581)
592.73
83.03
N/A
11.00
30.53
Net Loss
4,962,059
4,196,498
765,561
18.24
The increase in general and administrative expenses is a direct
result of the addition of a segment of business. This has increased
staff.
The increase in operating expenses for the environmental segment of
business is attributable to engineering expenses associated with the new
design, research and development expenditures and marketing.
The decrease in operating expenses for the mining segment of
business is attributable to only one minor write-down taken this year on
the valuation of a property and no acquisition expenses. The total
dollar amount attributed to these items during the year ended June 30,
1993 was $2,700,908. If this was factored out, operating expenses for
the year ended June 30, 1993 would be $131,093 versus $312,435 for the
year ended June 30, 1994.
This is an increase of $181,432, which is mostly attributed to the
rental fees paid to the Bureau of Land Management on the mineral
properties. These fees, recently approved by Congress, were for two
years. One year paid in arrears and one year paid in advance. In coming
years the fee will be paid in advance only.
In miscellaneous operating expenses, the major item was a loss
incurred in the manufacturing segment on the sale of a product line
which the Company would no longer represent. This loss was from the sale
of inventory and is of a non-reoccurring nature.
The Company recorded $1,581,515 in revenues during the year ended
June 30, 1994 of which $1,374,632 was in the recently acquired
manufacturing segment of business, which means revenues from ongoing
business were actually $206,883. These revenues represent an increase of
$195,896 (1,782.98%) over the same period last year. This increase is
composed of the following components: i.) an increase in corporate
revenue of $100,883 (100%) from sublease rentals of office space and
warehouse space; ii.) an increase in environmental revenues of $105,000
(100%) associated with the contract in process at Prescott Valley,
Arizona and iii) a decrease in mining revenues of $2,000 (66.67%).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements.
ITEM 9. DISAGREEMENTS ON ACCOUNTING & FINANCIAL DISCLOSURE: none
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Alanco Environmental Resources Corporation
Scottsdale, Arizona
I have audited the accompanying consolidated balance sheet of
Alanco Environmental Resources Corporation (formerly known as
Alanco Resources Corporation) and subsidiaries as of June 30,
1995 and 1994 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years
ended June 30 1995, 1994 and 1993. These financial statements
are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. I believe that my audits provide a reasonable
basis for my opinion.
In my opinion, consolidated financial statements referred to
above, present fairly, in all material respects the financial
position of Alanco Environmental Resources Corporation and
subsidiaries as of June 30, 1995 and 1994, and the results of
their operations and their cash flows for the years ended June
30, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 11, the Company's consulting geologist
has stated in his report that certain of the company's mining
properties lack economic feasibility based on the extent of
exploration to date. However, the consulting geologist has
also stated that, in his opinion, the Company should continue
its exploration efforts on all properties until an
economically feasible ore body is proved or a decision is
reached to abandon the property.
The realization of the Company's remaining investment in
assets consisting of the mill and refinery, mining equipment,
investments in and advances to partnerships, and investment in
all other mineral properties totaling $6,726,554 at June 30,
1995, depends on the success of the company's efforts to
realize, through continued exploration and development or
sale, estimated recoverable mineral reserves. The financial
statements do not include any additional adjustments that
might result from the outcome of this uncertainty.
As discussed in Note 15, the Company and subsidiaries have
been named as a defendent in several lawsuits. It is not
possible at present for the Company to estimate the amount of
judgments, if any, that might be allocated to the Company or
its subsidiaries. No provision for any liability that may
result has been made in the accompanying financial statements.
As discussed in Note 10, the Company acquired certain patents,
patents pending, and patent application technology for various
pollution control equipment with a total book value of
$121,647 at June 30, 1995. The recoverability of these assets
is dependent upon the success of the Company's marketing
efforts, successful completion of EPA certification and its
ability to obtain sufficient working capital to finance the
production and installation of such pollution control
equipment.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The
company has incurred significant operating losses for the
years ended June 30, 1995, 1994 and 1993. This factor raises
substantial doubt about its ability to continue as a going
concern. The Company's continued existence is dependent upon
its ability to increase revenue in the business segments in
which it operates, and its ability to realize the value of its
investment in mineral properties from either the sale of these
properties or to raise additional cash to place these
properties into operation. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
BILLIE J ALLRED CPA
Tempe, Arizona
September 28, 1995
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995 AND 1994
June 30, June 30,
1995 1994
----------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $607,411 $1,935,915
Accounts receivable (Note 4a) 506,027 387,464
Allowance for doubtful accounts (25,189) (25,600)
Contracts in process (Note 5) 0 0
Notes receivables
Unrelated parties (Note 4b) 144,407 0
Related party (Note 4c) 0 181,722
Other (4d) 907,368 655,773
Inventory of finished and unfinished goods
at lower of costs or market (Note 5) 1,011,701 1,106,764
Marketable securites (Note 6) 148,400
Prepaid expense 38,435 41,270
----------------- -----------------
Total current assets 3,338,560 4,283,308
----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT (at cost)
Corporate office (Note 7a) 0 1,200,000
Manufacturing facilities and property (Note 7b) 1,676,247 2,299,304
Manufacturing equipment (Note 7b) 1,000,427 1,090,076
Restaurant equipment (Note 7c) 724,470 0
Furniture and equipment (Note 7d) 386,600 232,591
Less accumulated depreciation (394,436) (168,204)
----------------- -----------------
3,393,308 4,653,767
----------------- -----------------
OTHER ASSETS
Investment in restricted securities (Note 8) 100,000 580,000
Costs in excess of book value on acquisition of wholly owned
subsidiaries less accumulated amortization of $102,419
at June 30, 1995 (Note 9) 6,295,784 0
Installment sale contract receivable (Note 14) 1,240,000 1,375,000
Patents, patents pending and patent application
technology, less accumulated amortization of
$83,678 at June 30, 1995 and $63,558 at
June 30, 1994 (Note 10) 121,647 122,842
Mineral properties and related assets (Note 11)
Mineral properties, at cost 6,170,676 6,768,842
Mill and refinery, less accumulated depreciation
of $391,994 at June 30, 1995 and $360,209 at
June 30, 1994 296,702 328,487
Other mining equipment, less accumulated
depreciation of $758,783 at June 30, 1995 and
$708,380 at June 30, 1994, 107,831 158,233
Other (Note 12) 151,345 11,283
----------------- -----------------
14,483,985 9,344,687
----------------- -----------------
$21,215,852 $18,281,762
================= =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995 AND 1994
June 30, June 30,
1995 1994
----------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable, shareholders $53,685 $66,685
Notes and contracts payables 2,489 77,949
Current maturities of long-term liabilities 93,987 0
Accrued payroll taxes 141,500 219,000
Accounts payable 416,356 409,927
Accrued salaries, wages and commissions 69,173 0
Accrued expenses 109,845 59,404
Accrued expenses - related parties 0 2,736
Advances from officers and directors 0 16,484
----------------- -----------------
Total current liabilities 887,035 852,185
----------------- -----------------
LONG-TERM LIABILITIES 463,834 0
----------------- -----------------
Total Liabilities 1,350,869 852,185
----------------- -----------------
UNREALIZED INCOME ON INSTALLMENT SALES (Note 14) 969,104 1,101,782
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 15) 0 0
----------------- -----------------
REDEEMABLE PREFERRED STOCK, CLASS A (Note 16)
Preferences established by the Board of Directors 5,000,000
shares authorized at all periods presented, 26 shares, $20,000
par value, non-cumulative, voting issued and outstanding at
June 30, 1995 and none issued and outstanding at June 30, 1994 295,062 0
----------------- -----------------
SHAREHOLDERS' EQUITY (Note 2 and 17)
Preferred stock, Class B, cumulative, voting
authorized 20,000,000 shares and none issued 0 0
Common stock, no par value
100,000,000 shares authorized at all periods
presented, issued and outstanding 29,924,057
at June 30, 1995 and 22,687,487 at June 30, 1994 47,885,245 40,958,845
Common stock subscriptions receivable 0 (100,000)
Accumulated deficit (29,284,429) (24,531,049)
----------------- -----------------
18,600,816 16,327,796
----------------- -----------------
$21,215,852 $18,281,762
================= =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
June 30, June 30, June 30,
1995 1994 1993
---------------- ---------------- ---------------
<S> <C> <C>
REVENUES (Notes 2 and 19)
Related parties $0 $0 $7,987
Environmental services 107,000 105,000 0
Restaurant service 26,037 0 0
Insurance adjusting 180,178 0 0
Mining and mining services 10,000 1,000 3,000
Manufacturing 3,069,773 1,374,632 0
All other 45,195 100,883 0
---------------- ---------------- ---------------
3,438,183 1,581,515 10,987
---------------- ---------------- ---------------
OPERATING EXPENSES (Note 5)
Direct Service
Environmental industry 212,366 1,647,165 237,778
Restaurant equipment and supply industry 22,065 0 0
Insurance adjusting industry 74,252 0 0
Mining industry 205,446 480,646 2,832,001
Manufacturing industry 2,644,495 1,719,046 0
General and administrative 2,769,039 888,642 800,578
Loss on settlement of lawsuit 0 9,000 0
Write-off partnership interests 0 0 318,543
Write-off other investment 0 0 7,598
Write-off receivable as uncollectible 0 217,560 0
---------------- ---------------- ---------------
5,927,663 4,962,059 4,196,498
---------------- ---------------- ---------------
LOSS FROM OPERATIONS (2,489,480) (3,380,544) (4,185,511)
---------------- ---------------- ---------------
OTHER INCOME AND (EXPENSE)
Interest income 62,043 16,874 129
Interest expense (16,831) (20,368) (25,913)
Gain on sale of asset 118,099 2,653 0
Loss on sale of assets (68,262) (2,409)
Other income (expense) (37,500) (5,500) (8,500)
---------------- ---------------- ---------------
57,549 (8,750) (34,284)
---------------- ---------------- ---------------
LOSS BEFORE EXTRAORDINARY ITEMS (2,431,931) (3,389,294) (4,219,795)
---------------- ---------------- ---------------
EXTRAORDINARY ITEMS
Forgiveness of debt 87,974 5,126 117,622
Write-down of investment securities (431,600) 0 0
Sale of building and furniture (666,380) 0 0
Loss on disposal of product line 0 (455,797) 0
Write-down on mineral property (598,166) 0 0
Write-down on manufacturing facility
and related equipment (713,277) 0 0
---------------- ---------------- ---------------
(2,321,449) (450,671) 117,622
---------------- ---------------- ---------------
NET LOSS ($4,753,380) ($3,839,965) ($4,102,173)
================ ================ ===============
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Before extraordinary items ($0.10) ($0.19) ($0.33)
For extraordinary items (0.10) (0.02) 0.01
---------------- ---------------- ---------------
NET LOSS PER SHARE OF COMMON STOCK ($0.20) ($0.21) ($0.32)
================ ================ ===============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Common Stock
--------------------------------- Subscriptions Accumulated
Shares Amount Receivable Deficit TOTAL
-------------- ------------------ --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1992 7,381,755 $23,654,138 ($1,059,039) ($16,588,913) $6,006,186
Issued on subscriptions receivable
(Note 15p) 621,159 250,864 (250,864) 0 0
Collection of subscriptions receivable 0 0 907,343 0 907,343
Issued for the following:
Cash (Note 17a) 1,015,500 411,375 0 0 411,375
Services (Note 17b) 254,000 95,375 0 0 95,375
Purchase mineral property interest (Note 17c) 2,380,000 1,487,492 0 0 1,487,492
Purchase mineral property interest (Note 17i) 235,000 558,125 0 0 558,125
Purchase environmental partnership interest 0
(Note 17d) 340,000 212,500 0 0 212,500
Conversion of debt to equity (Note 17f) 2,799,534 1,468,702 0 0 1,468,702
Conversion of preferred stock (Note 17e) 1,200,000 750,000 0 0 750,000
Option (Note 17h) 5,000 4,400 0 0 4,400
Net loss (4,102,173) (4,102,173)
-------------- ------------------ --------------- ---------------- -----------
Balances, June 30, 1993 16,231,948 28,892,971 (402,560) (20,691,086) 7,799,325
-------------- ------------------ --------------- ---------------- -----------
Collection of subscriptions receivable 0 0 302,560 0 302,560
Issued for the following:
Cash (Note 17j) 4,240,539 7,358,063 0 0 7,358,063
Conversion of debt to equity (Note 17k) 165,000 257,813 0 0 257,813
Acquisition of manufacturing assets (Note 17l) 1,200,000 3,600,000 0 0 3,600,000
Acquisition of corporate building (Note 17m) 650,000 650,000 0 0 650,000
Services (Note 17n) 200,000 200,000 0 0 200,000
Net loss (3,839,964) (3,839,964)
-------------- ------------------ --------------- ---------------- -----------
Balances, June 30, 1994 22,687,487 40,958,847 (100,000) (24,531,050) 16,327,797
-------------- ------------------ --------------- ---------------- -----------
Write off subscription receivable 0 (100,000) 100,000 0 0
Issued for the following:
Cash (Note 17o) 440,600 279,938 0 0 279,938
Services and debt (Note 17p) 395,600 358,591 0 0 358,591
Satisfaction of debt (Note 17q) 50,000 37,500 0 0 37,500
Acquisition of subsidiary in: 0
Restaurant equipment industry (Note 17s) 4,600,000 4,600,000 0 0 4,600,000
Insurance adjusting industry (Note 17r) 1,750,370 1,750,370 0 0 1,750,370
Net loss (4,753,380) (4,753,380)
-------------- ------------------ --------------- ---------------- -----------
Balances, June 30, 1995 29,924,057 47,885,246 0 29,284,429 18,600,816
============== ================== =============== ================ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
June 30, June 30, June 30,
1995 1994 1993
---------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($4,753,380) ($3,839,964) ($4,102,173)
---------------- ----------------- ----------------
Adjustments to reconcile net loss
to net cash (used in) operating
activities:
Depreciation 365,023 213,892 101,006
Amortization 90,768 15,565 15,674
Loss on sale of assets 68,262 2,409 0
Gain on sale of assets (118,099) (2,653) 0
Loss on settlement of lawsuit 0 9,000 0
Other expense 37,500 5,500 0
Extraordinary items, net 2,321,449 450,671 (117,622)
Stock issued for services and expenses 353,591 200,000 95,375
Stock issued for mineral property interest
acquisition 0 0 2,045,617
Stock issued for acquisitions of asphalt
partnership interest 0 0 212,500
Stock issued for option 0 0 4,400
Write-off partnership interests 0 0 318,543
Write-off other investment 0 0 7,598
Write-off uncollectible receivables 0 217,560 0
Write-down mineral property valuation 0 168,211 0
(Increase) Decrease in assets:
Prepaid expenses 2,835 (24,188) (17,082)
Accounts receivable (118,563) (581,714) 0
Allowance for doubtful accounts 411 25,600 0
Notes receivable (214,208) (837,495) 0
Inventory 95,063 (620,538) 0
Increase (Decrease) in liabilities:
Accounts payable 6,429 242,469 (8,022)
Billing in excess of costs 0 (30,000) (86,934)
Deferred income 0 195,000 0
Note payable 2,489 0 0
Advances from officers and directors (16,484) (83,859) 540,035
Accrued liabilities and other 45,271 116,596 (125,376)
---------------- ----------------- ----------------
Total adjustments 2,921,737 (317,974) 2,985,712
---------------- ----------------- ----------------
Net cash (used in) operating activities ($1,831,643) ($4,157,938) ($1,116,461)
---------------- ----------------- ----------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
June 30, June 30, June 30,
1995 1994 1993
---------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Corporate office $0.00 ($600,000) $0.00
Manufacturing facility (49,718) (458,283) 0
Manufacturing equipment (92,804) (217,267) 0
Restaurant equipment (184,470) 0 0
Furniture and equipment (64,633) (116,251) (3,572)
Additions to patent value (18,925) (63,754) (13,690)
Additions to mineral property 0 (165,000) (58,214)
Proceeds from sale of property, plant and
equipment (Note 7a) 623,954 0 0
Deposits paid (4,170) (5,143) 0
Net cash provided by (used in)
investing activities 209,234 (1,625,698) (75,476)
---------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 38,265 0 0
Payments on borrowings (24,299) (25,959) (26,500)
Stock subscriptions collected 0 85,000 907,343
Proceeds from sale of stock 279,938 7,558,062 411,375
---------------- ----------------- ----------------
Net cash provided by financing activities 293,904 7,617,103 1,292,218
---------------- ----------------- ----------------
(DECREASE) INCREASE IN CASH (1,328,505) 1,833,467 100,281
CASH AT BEGINNING OF PERIOD 1,935,916 102,449 2,168
---------------- ----------------- ----------------
CASH AT END OF PERIOD $607,411 $1,935,916 $102,449
================ ================= ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
June 30, June 30, June 30,
1995 1994 1993
---------------- ----------------- ----------------
<S> <C> <C> <C>
Supplemental disclosure of non-cash operating,
investing and financing activities:
Conversion of the following liabilities
to equity:
Notes payable, shareholders $0.00 $0.00 $8,019
Current maturities of notes and
contracts payable 0 0 91,291
Services 5,000 0 0
Accrued expenses - related parties 0 0 238,414
Accrued expenses 0 0 91,314
Advances from officers and directors 0 257,813 859,664
Long-term liabilities 0 0 0
Cumulative dividends on preferred stock 0 0 180,000
Class "A" preferred stock 0 0 750,000
Issuance of capital stock for:
Acquisition of manufacturing assets 0 3,600,000 0
Corporate office 0 600,000 0
Furniture and fixtures 113,387 50,000 0
Stock subscriptions receivable 0 85,000 0
Restaurant equipment 540,000 0 0
Costs on acquisition of subsidiaries in 0 0 0
excess of book value 6,465,346 0 0
Cumulative dividend accrued on Class A
Preferred stock 0.00 0.00 0.00
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTE 1 BUSINESS ACTIVITY
Alanco's business activity for the past several years, has
emphasized diversification. Alanco (the "Company") has
expended substantial time and resources on development of its
majority-controlled subsidiary's pollution control device EDSS
(Environetics Dry Scrubber System), the CDSI (Charged Dry
Sorbent Injection System) and the acquisition of operating
subsidiaries in three different business segments.
These business segments include:
i) manufacturing for the agricultural and dust control
industry, which acquisition was effective on
January 1, 1994,
ii) wholesale equipment supplier to the food service
industry, effective May 1, 1995 and
iii) insurance adjusting a service oriented business
segment, effective May 1, 1995.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PRINCIPLES OF CONSOLIDATION
a. Principles of consolidation
The consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries, and the accounts
of the 70.60% owned subsidiary Environetics, Inc.
("Environetics"). All significant intercompany transactions
have been eliminated. Results of operations of subsidiaries
acquired during the current fiscal year are consolidated from
the date of acquisition.
b. Property, plant and equipment
Property, plant and equipment, including amounts for capita-
lized leases, are stated at cost. Depreciation is computed
using the straight-line method over the useful lives of the
assets as set forth in table 1:
Mill, Refinery and Mining Equipment 18-22 years
Buildings 32 years
Furniture, Equipment and Other Assets 5-7 years
Table 1 - Useful life
The costs of improvements, which substantially extend the
useful life of a particular asset, are capitalized. Repair and
maintenance costs are charged to expense.
c. Service income recognition
Insurance claim adjustment income is recognized on an accrual
basis as earned.
d. Net loss per share
Net loss per share has been calculated based on net losses for
the periods divided by the weighted average number of shares
of common stock outstanding during the periods presented. The
weighted average number of shares of common stock outstanding
for the periods presented are as set forth in Table 2.
Year ended June 30, 1995 23,839,969
Year ended June 30, 1994 18,253,730
Year ended June 30, 1993 12,974,995
Table 2 - Weighted average number of shares
e. Amortization of patents and patents pending and patent
application technology
Amortization of the patents, patents pending and patent
application technology is being recorded on a straight-line
basis from the date of acquisition, by the Company, or the
date of issuance over the initial life of the patent which is
seventeen years.
f. Financial Accounting Standards No. 109
During the year ending June 30, 1995, the Company adopted FASB
Statement 109, on accounting for income taxes. Under the new
rules, assets and liabilities acquired in prior years'
purchase business combinations must be adjusted from net-of-
tax amounts to pre-
tax amounts. The Company has not generated
profits to date and therefore is not subject to income taxes
which would require adjusting income from continuing
operations. The effect of adopting this standard does not
have a material effect upon the financial statements.
<PAGE>
NOTE 3 RELATED PARTY TRANSACTIONS (SEE NOTES 4, 16, and 17)
During the year ended June 30, 1994, River Capital Corporation
loaned the Company $210,000 which the Company acknowledged by
executing a promissory note in River's favor. Later in the
year, River elected to exchange this note, plus interest and
other obligations due River into equity totaling $257,813.
River received 165,000 shares of common stock which represent
0.73% of the shares outstanding at June 30, 1994.
For other related party transactions refer to Note 17 items
e,f,k,o, and p.
NOTE 4 ACCOUNTS AND NOTES RECEIVABLE
(a) Accounts receivable, at June 30, 1995 represent $350,802
due from the sale of manufactured products, $83,428
insurance adjusting revenues, $11,317 in wholesale food
service sales, $10,000 in the environmental sales and
miscellaneous receivables of $25,291.
Accounts receivable, at June 30, 1994, represent $6,000
due from the sale of assets and $381,464 due from sales
of manufactured products. A $25,600 allowance for
doubtful accounts was made to reflect the uncertain
collectibility for amounts due for the installation of a
dust control system.
(b) Notes receivable at June 30, 1995, represents $100,000
due from an unrelated third party for an advance on
marketing expenses in Europe, $34,320 due from Water
Chef, an unrelated third party, for the purchase of
office furniture and accrued rent under a sub-lease and
a miscellaneous receivable of $10,086.
(c) Receivable Related Party consists of a note due from D.
Harrison Gentry, former COO and president, in the amount
of $181,722. This receivable was represented by a non-
interest bearing note for a period of ninety (90) days
with interest at the rate of 7.25%. During the year ended
June 30, 1995, the Company
and Mr. Gentry reached a mutual cancellation of his
employment agreement which provides for the forgiveness
of this note over a three year period. The Company
recorded one-third of this note as salary expense with
the balance recorded in other assets (See Note 12).
(d) During the year ended June 30, 1995, the Company agreed
to advance an additional $350,000 to Phoenix Medical
Management (PMM) and forgive the note receivable and plus
accrued interest of approximately $516,000 in exchange
for 70% of the outstanding shares of PMM. Subsequently,
the Company sold 86% of this interest (60%) to Amarante
Financial S.A., an unrelated third party. The terms of
sale provide for total payments of $870,000 beginning
July 15, 1995 at the rate of $75,000 per month with a
balloon payment of $495,000 due on December 15, 1995.
Subsequent to June 30, 1995, the Company has received, in
a timely manner, the July, August and September payments
which total $225,000.
Receivables Other at June 30, 1994 included $500,000 from
Phoenix Medical Management (PMM); $100,000 due from an
unrelated third party for an advance on marketing
expenses in Europe; $50,000 due from an unrelated third
party on the sale of furniture, office equipment and
telephone line rental from the Company's manufacturing
business; $5,000 due from Dryer Master; and $773 due from
Kansas State Unemployment. During the year ended June 30,
1994, the Company received $50,000 on the sale of
furniture, $5,000 due from Dryer Master and $773 due from
the Kansas State Unemployment.
NOTE 5 INVENTORY OF FINISHED AND UNFINISHED GOODS
As of June 30, 1995, the Company had $1,011,701 in inventory.
The Components of this inventory are $478,452 in raw materials
and purchased stock items; $104,712 in sub-assemblies; $241,966
of finished product and $186,571 of work in process. All
inventory items are in the manufacturing industry segment of the
Company's business except for $180,149 of finished product which
is Perfect Fry 686 machines held for sale in the restaurant
equipment and supply industry and $21,545 of work in process
which is in the insurance adjusting industry.
During the year ended June 30, 1994, Alanco acquired $1,417,300
of inventory of raw materials, finished and unfinished goods
with the purchase of the manufacturing assets. The Company
disposed of one product line which the prior owner had marketed.
As part of the disposal, the Company recorded a loss on sale of
assets of $455,797.
As of June 30, 1994, the Company had $1,106,764 in inventory of
raw materials, parts, components, finished goods and work in
process. The components of this inventory are $643,801 in raw
materials and purchased stock items, $164,305 in sub-assemblies;
$143,797 of finished product and $154,861 of work in process.
NOTE 6 MARKETABLE SECURITIES
The Company owns 500,000 shares of Princeton Electronic
Products, Inc., a publicly traded corporation ("Princeton"),
which were acquired in February of 1992. The Company has
recorded these shares on its books at the current listed market
price of $0.30 per share the lower cost or market for a total
of $148,400 (See Note 8).
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
(a) On May 16, 1994 the Company purchased the land, building
and office furnishings at 151 South Main, Salt Lake City,
Utah for cash in the amount of $600,000 and 650,000 shares
of stock valued at $650,000. The total purchase price was
allocated as follows: $200,000 for land, $1,000,000 for the
building and $50,000 for office furnishings.
During the year ended June 30, 1995, the Company relocated
its' office to Scottsdale, Arizona and sold the Salt Lake
City office building and furnishings. The sales price was
$650,000 in cash which was allocated to the current
depreciated value of the furnishings, with the balance to
the land and building. As a result of the sale and
associated costs therein, the Company recorded a net loss
on the transaction of $666,380 which has been recorded as
an extraordinary loss.
(b) On January 3, 1994 the Company purchased land, buildings,
manufacturing equipment, and inventory for cash in the
amount of $1,168,648 and 1,200,000 shares of common stock
valued at a total of $3,600,000. The purchase price was
allocated $2,267,348 to manufacturing facility and
property; $1,102,000 to manufacturing equipment; and
$1,417,300 to inventory.
The company has spent an additional $31,956 to remodel
existing facilities.
During the year ended June 30, 1995, management placed the
Boone, Iowa manufacturing facility for sale. The Company
received an appraisal on the property which indicated a
market value of $320,000 based upon the properties
location, condition and closure. As a result of this
appraisal, the Company has recorded a write down of
$672,775 in the value of this manufacturing facility which
has been recorded as an extraordinary item.
(c) During the year ended June 30, 1995, the Company acquired
an operating subsidiary Fry Guy, Inc., a Nevada corporation
(See Note 21). As part of that acquisition, the Company
acquired wholesale food equipment with a value of $724,470,
which represents 236 deep frying machines. 162 of these
machines were installed under agreement in Wal-Mart stores.
The remaining 74 are demonstration units of which 61 units
are used for sales promotions by Ore-Ida's national
distributor system.
(d) During the year ended June 30, 1995, the company purchased
furniture and equipment totaling $64,633 for cash and
acquired additional furniture and equipment totaling
$113,387 for stock.
During the year ended June 30, 1994, the company purchased
$37,664 of computer, telephone and video equipment, $9,457
of testing equipment for the pollution control device,
$60,280 for corporate vehicles and $55,455 in miscellaneous
office furniture and equipment. The Company sold assets
with a cost of $38,497 and accumulated depreciation of
$30,438 for $6,000 and recorded a loss on disposal of
assets of $2,058.
NOTE 8 INVESTMENT IN RESTRICTED SECURITIES
During the year ended June 30, 1995, and subsequent to the
actions referred to in Note 4d, the Company sold 16% of its
remaining interest in PMM to Dixie National Corporation, a
NASDAQ listed public company, for 200,000 shares of their
common stock. These securities were issued and acquired pursuant
to exemptions available under
the Securities Act of 1934, as amended, and carry a restrictive
legend on the face of the certificate. This restriction limits
the resale of these securities until such time as they are
either registered with the Securities and Exchange Commission or
an exemption from registration is available to the Company.
The Company carries these shares on its books at the current
listed market price as quoted on the NASDAQ system and recorded
a gain on the exchange of shares totaling $100,000.
NOTE 9 COSTS IN EXCESS OF BOOK VALUE OF SUBSIDIARIES ACQUIRED
During the year ended June 30, 1995, the Company acquired three
operating subsidiaries in two different business segments. These
subsidiaries are Fry Guy, Inc. and Chappell Financial, Inc.,
which currently operate in the restaurant equipment and supply
industry and Unique Systems, Inc. D.B.A. National Affiliated
Adjustment Company, Inc. which is in the insurance adjusting
industry. Management, after reviewing the positive potential of
these subsidiaries in their respective businesses, acquired all
three companies. Based upon the negotiated price, which was all
stock (See note 17r and 17s), costs in excess of book value have
been recorded. These costs will be amortized on a straight line
basis over a period of fifteen years.
NOTE 10 PATENTS, PATENTS PENDING AND PATENT APPLICATION
TECHNOLOGY
The Company maintains certain patents, which were acquired
during prior years, at a cost of $108,956. These patents are
being amortized over their respective historical lives and as of
June 30, 1995 the Company has recorded accumulated amortization
of these patents totaling $79,123.
During the past two fiscal years, the Company expended the sum
of $77,444 on the processing of new patent applications, which
as of June 30, 1994 resulted in three new patents. These patents
are being amortized over their respective historical lives and
as of June 30, 1995 the Company has recorded accumulated
amortization of these patents totaling $4,556.
During the year ended June 30, 1995, the Company expended
$18,925 on two new patents.
The Company believes that the rights to and/or ownership of
these patents, patents pending and patent applications are
crucial to the Company's future success. All of these patents
are associated in the industrial air pollution control industry
and management believes that no other system offered in this
industry segment has such significant potential operating cost
savings.
NOTE 11 ASSETS IN THE MINING INDUSTRY
For eight consecutive years, beginning in 1986, the Company had
retained a geological consultant to review the mineral
properties and determine their fair market value. Based upon the
results of the appraisals received from the independent
geologists, management and independent accountants are of the
opinion that there would be no significant change in the
valuation of the mining properties and mutually agreed to forgo
an appraisal this year, relying on appraised values at June 30,
1994.
During the year ended June 30, 1994, the independent geologist
appraised the Company's mineral property holdings at
$10,455,983. This appraised value exceeds the historical
acquisition and development cost. Since the Company's mill and
refinery, located near Tombstone, Arizona, had sustained
substantial degradation, its value was reduced by $168,211. The
Company abandoned and wrote-off one mineral property as of June
30, 1995, with a book value of $598,166 and another as of June
30, 1994 with a book value of $31,570.
The consulting geologist indicated that certain of the Company's
mineral properties lack economic feasibility based upon the
exploration and development to date. However, he stated further,
in his opinion, there existed considerable evidence as to the
potential of these mineral properties and recommended that the
Company increase its exploration and development efforts on
these properties until an economically feasible ore body is
proven or a decision is reached to abandon the property.
During any continued exploration and development of these
mineral properties, additional information will be collected
which may lead the Company to believe that the properties lack
economical operating values. If any of the information collected
in the future leads the Company to believe that a property lacks
sufficient mineral values to operate, then the Company may
record additional write downs.
Following the Shareholder's Meeting held on June 18, 1992, the
Board of Directors elected a new President and Chief Executive
Officer. Based upon his recommendation and that of the
independent consultants, management has adopted the following
policy with regard to its mineral property holdings and related
assets:
I.) The Company will pursue a single joint venture
partner capable of implementing or assisting the
Company in implementing a mine plan as developed
for the mineral property known as the C.O.D.
Mine. With respect to the joint venture partner,
part of any agreement would include the necessity
for them to acquire the majority of the Company's
mineral property holdings.
ii.) Pursue a sale or partnership arrangement for the
mill and refinery located near Tombstone,
Arizona.
During the year ended June 30, 1994, the Company completed the
purchase of the COD Mining claims, In prior years the Company
was obligated to pay minimum royalty payments of $9,600 through
May 31, 1995 when a balloon payment became due. In the fiscal
year 1993, the Company acquired full ownership under the option
terms of the underlying lease by making payments of $65,000 on
August 31, 1993, $70,000 on January 31, 1994 and $30,000 on
April 30, 1994. The amounts paid have been added to the cost
basis of the property.
Table 3 sets forth the value of the Company's mineral properties
and mining related assets.
Mineral Related Assets
Description: June 30, 1995 June 30, 1994
Mineral Properties $ 6,170,676 $ 6,768,842
Mill and Refinery 688,696 688,696
Accumulated depreciation (391,994) (360,209)
Mining Equipment 866,614 866,614
Accumulated depreciation (758,783) (708,380)
$ 6,575,209 $ 7,255,5
Table 3 - Mineral related assets
In recent years, government regulations relating to mining
environmental issues have changed mining operations practices by
requiring permitting. During the year ended June 30, 1993, the
BLM elected to question the right of the Company to continue
operations at the Tombstone millsite based upon the current
permits in place and a Notice of Trespass was issued with
instructions to discontinue ore processing. During the same
period, the State of Arizona, Department of Environmental
Quality ("ADEQ") questioned the validity of the Company's
Notice of Disposal ("NOD"), which granted the right to discharge
water utilized in the milling operations. Subsequent to 1993,
the NOD was declared void and ADEQ is requiring the Company to
apply for an Aquifer Protection Permit, which permit would grant
the same rights as the NOD.
The Company has every intention of complying with all federal
and state laws, rules and regulation relating to mining and
millsite operations. A consultant specializing in mining and
milling operations has been retained by the Company to work with
the applicable federal and state agencies in developing a
program for compliance or compromise acceptable to all parties.
At present, the Tombstone millsite remains idle pending
resolution of the compliance issues. The Company does not
believe that additional write-downs of the facility and
associated millsites are required at this time.
NOTE 12 OTHER ASSETS
At June 30, 1995, other assets consisted of deposits for rent
and utilities in the amount of $22,266, organizational expenses
of $2,304, net of accumulated amortization, and $126,775 due
from a former officer and director which will be forgiven over
the next two years (See Note 4c).
At June 30, 1994, other assets consisted of deposits for rent
and utilities in the amount of $9,458 and $1,825 of interest
receivable.
NOTE 13 LONG-TERM LIABILITIES
At June 30, 1995, the Company has a 3 year note payable due
American National Bank in Nebraska and capitalized equipment
leases of $514,080 due Dixie National Life Insurance Company of
Mississippi. The debts relate to the acquisition of
manufacturing equipment and wholesale food service equipment,
respectively. See Table 4 for a schedule of long-term liability
maturities:
Year ending June 30, 1996 $ 93,987
Year ending June 30, 1997 108,244
Year ending June 30, 1998 124,651
Year ending June 30, 1999 129,494
Year ending June 30, 2000 92,245
Total $ 548,6
Table 4 - Schedule of long-term liabilities
NOTE 14 UNREALIZED INCOME ON INSTALLMENT SALES CONTRACTS
During the year ended June 30, 1994, the Company completed a
sale of 56 mining claims located in the Tombstone Mining
District. The terms of the sale provide for payments to be made
by the purchaser as set forth in Table 5:
July 15, 1995 $ 15,000
July 15, 1996 30,000
July 15, 1997 50,000
July 15, 1998 75,000
July 15, 1999 $ 1,000,000
Total $ 1,170,000
Table 5 - Schedule of payments
The unrealized income on this installment sale is $899,104 after
deducting the cost of mining claims of $270,896. Income and
related costs will be reported during the years of the
installment contract 1995 through 1999, on a pro-rata basis as
installment payments are received. All payments due on the sale
are current.
In addition, $70,000 of unrealized income has been recorded by
the Company resulting from the sale of a pollution control
device. As the pollution control device is being used on a test
basis, there is some uncertainty as to when payment will be
received. Therefore, income from the sale has been deferred.
NOTE 15 COMMITMENTS AND CONTINGENCIES
(a) Terra Oil Corp., a subsidiary of the Company, was named
as a defendant in a lawsuit filed in U.S. District Court
in California. The plaintiffs in the litigation charged
violation of security laws, fraud, negligence and
misrepresentation against ten (10) separate defendants.
Such actions by the defendants purportedly occurred
between 1979 and 1980 which was prior to the acquisition
of Terra Oil Corporation by the Company. On January 21,
1988, a joint and several judgment was entered in the
United States District Court, Eastern District of
California, against seven (7) of the defendants,
including Terra Oil Corporation, for a total of $245,515,
which includes compensatory damages, pre-judgment
interest and punitive damages. Terra Oil Corporation has
no substantial remaining assets against which the
judgment can be enforced and to what extent the Company
can be held liable for all or any portion of this
liability is not known.
(b) The Company, through subsidiaries, has acted as general
partner in several limited partnerships. As the Company
exerts significant control over operations of these
partnerships the investments have been accounted for on
the equity method. As general partner, the Company could
be subject to unlimited liability for the obligations and
actions of the partnerships.
(c) As part of the negotiated acquisition of 70% of the
outstanding stock of PMM (See Note 4d) the Company agreed
to indemnify certain unrelated third parties against loss
on their continuing guarantees on leased facilities and
equipment valued at $1,159,826 and on a note payable to
a prior PMM shareholder, which note is due and payable no
later than December 31, 1995 in the principal amount of
$100,000. As part of the Company's sale of the majority
of its interest to Amarante, Amarante indemnified the
Company against loss from these commitments and assumed
the commitments under the contract sale agreement. There
can be no assurance that, should a default occur, the
unrelated third party's would not seek all remedies under
the law and that, should Amarante be unable to perform,
the Company would not be held liable.
(d) In April, 1995 the case of Sun Valley Products, Inc., v.
Alanco Environmental Services, Inc., et al was filed in
the United States District Court, Southeastern Division,
District of North Dakota. Sun Valley Products, Inc.,
produces roasted sunflower seeds and purchased a bag
filter system from the George A. Rolfes Company in 1992.
The Rolfes company was from whom the Company purchased
Alanco Environmental Services, Inc., in 1994.
Installation and service of the bag filter system
straddles the time the company purchased the business.
The complaint alleges breach of contract, breach of
warranties and negligence and seeks in excess of $50,000
in damages though the Plaintiff has not otherwise
quantified its damages. The Company believes that the
action is subject to the indemnification provisions of
its purchase agreement with Rolfes and has entered into
a joint defense with the Rolfes Company. The Company
further believes that there are valid defenses to the
action and would ultimately prevail if the matter
proceeds to trial. The Company and the Rolfes Company
are pursuing settlement negotiations.
(e) In 1995, T&H Construction, Inc., filed a lawsuit against
the Company in Yavapai County, Arizona Superior court,
alleging that the Company owes it approximately $50,000
on an open account for goods and services supplied by the
Company in connection with its mining operations. The
company has filed an Answer claiming a set-off for
equipment given to the Plaintiff and other defenses.
While the Company believes that its defenses are
meritorious, it also recognizes that trial of the matter
may have an unfavorable outcome and so is pursuing
settlement negotiations.
(f) On January 19, 1994, the BLM issued a Trespass Decision
pursuant to 43 CFR 2920.1-2 under the authority of the
Federal Land Policy Management Act of 1976. The decision
was based upon the BLM's assertion that the use for which
the company occupied said millsites was an unauthorized
use and that unauthorized property, non-milling or
refining, was also located there. On February 14, 1994
the Company filed a Notice of Appeal with all appropriate
agencies. An order granting the stay of the BLM action
as requested by the Company was issued on March 29, 1994.
The BLM then filed their answer tot he Statement of
Reasons filed by the Company. Since this time there has
been no action with regard to this case. The outcome of
this matter can not be predicted at this time, however,
based upon the demands contained in the trespass
decision, approximately $30,000, plus administrative
costs versus the cash bond of $19,000 placed by the
Company with the BLM, and the delay rental fees already
paid, management believes that even an unfavorable
outcome will have little effect on the financial
condition of the Company.
(g) The Company is also a defendant in a lawsuit filed in the
Federal District Court for the District of Nevada by
Bernard Lumbert, a resident of Kingman, Arizona. In the
opinion of the Company, Mr. Lumbert is a habitual pro se
filer of frivolous lawsuits seeking unspecified damages
for violations of federal securities laws. Mr. Lumbert
has also sent absurd and libelous allegations regarding
the company to news media and securities broker-dealers.
In the above case, Mr. Lumbert has filed numerous motions
which have all been denied by the Court and have failed
to comply with the rules of civil procedure. The Company
is seeking to have the case dismissed and obtain
sanctions against Mr. Lumbert. The Company has also
filed a civil action in Maricopa County, Arizona against
Mr. Lumbert as a result of his allegations for which Mr.
Lumbert failed to appear upon the judge's order. A civil
contempt warrant for his arrest on this matter is
outstanding in Maricopa county, Arizona. The Company
does not believe that there is any likelihood of an
unfavorable outcome in this matter.
NOTE 16 REDEEMABLE PREFERRED STOCK
During the year ended June 30, 1995, the Company issued 26
shares of $20,000 par value Class "A" Voting Preferred Stock to
K.D. International, S.A. as part of the acquisition price paid
for Unique Systems, Inc., D.B.A. National Affiliated Adjustment
Company (NAAC). The certificates are redeemable five years from
the date of issuance at the stated par value. Based upon future
redemption, the Company has determined the present value of the
future payments by imputing a 12% discount factor. The Company
will reduce future earnings or, in the case of continuing
losses, charge shareholders' equity with the annual imputed
interest value through the date of maturity.
Subsequent to the acquisition of NAAC, Katherine Meyer, Chief
Executive Officer of NAAC and the wife of Norman Meyer, the
Company's CEO and President acquired these shares in an
unrelated transaction.
NOTE 17 COMMON STOCK TRANSACTIONS
Management has financed portions of operations, paid off debt
and other liabilities and acquired assets in exchange for shares
of the Company's common stock over the past several years. Five
primary factors were considered by the Board of Directors in
making a decision as to the price of shares of common stock to
be issued for any purpose. These factors are:
i. Current market price
ii. Current and past operating history
iii. Discount factors on the issuance of
investment shares which would have to be
held until registered or an exemption
from registration was applicable and for
which a market may not exist in the
future
iv. What investors were willing to pay
v. Current book price
The general rule followed by the Company is to use a per share
price equivalent to one-half of the market price depending upon
the total number of shares to be issued. If the total number of
shares to be issued is considered substantial, an additional
discount factor may apply. All prices as quoted herein range
from the low bid to high bid per share as listed on the NASDAQ
monthly summary.
During the year ended June 30, 1993, the Company completed the
following stock transactions represented by the issuance of
previously unissued common shares:
(a) Issued 1,015,500 shares in exchange for cash in the amount
of $411,375. The transactions involved were authorized by
management on two separate occasions during the year ended
June 30, 1993 and once during the year ended May 31, 1992.
(b) Issued 254,000 shares for services, valued at $95,375. The
transactions were recorded at an average value of $0.38 per
share. The low bid, at the time that these shares were
issued ranged from $0.63 to $0.94 per share.
(c) Issued 2,380,000 shares to acquire the minority interest
positions held in the mineral properties known as the
C.O.D. Mine Group and Mineral Mountain and the interests
held in the Tombstone Metallurgical Facility. The shares
involved in the transaction were valued at $0.63 per share
or $1,487,492. The low bid that month was $0.94 and the
high bid was $1.25 per share.
(d) Issued 340,000 shares to acquire the Limited Partnership
interests held in Asphalt Environmental Services Limited
Partnership. Authorized in June 1992, the transaction was
valued at $0.63 per share or $212,500. The low bid that
month was $0.94 and the high bid was $1.25 per share.
(e) Issued 1,200,000 shares to River Capital Corporation to
convert its preferred stock position into equity. The
transaction occurred in July 1992 and was valued at
$750,000, $0.63 per share. The low bid that month was $0.81
and the high bid was $0.97 per share (see Notes 3a and 14).
(f) Issued 2,799,534 shares in exchange for satisfaction of
debts in the amount of $1,468,702. The transactions
occurred on two separate occasions during the year.
The first transaction occurred in August 1992. The Company
issued 1,550,646 shares in exchange for the satisfaction of
debt totaling $969,147, or $0.63 per share, and included
related parties. The related parties received a total of
1,254,522 shares for debt aggregating a total of $784,076.
The low bid that month was $0.75 and the high bid was $0.81
per share.
The second transaction occurred in March 1993. The Company
issued 1,248,888 shares in exchange for the satisfaction of
debt in the amount of $499,555, or $0.40 per share, and
included related parties. The related parties received a
total of 1,073,888 shares for debt aggregating a total of
$429,555. The low bid that month was $1.00 and the high bid
was $1.53 per share.
(g) Entered into a subscriptions receivable transaction of
$250,864 in exchange for 621,159 shares of common stock.
One transaction was for 24,000 shares at a price of $0.50
per share. A second transaction was completed at a
negotiated price per share of $0.40. The low bid that month
was $1.00 and the high bid was $1.53 per share. At year end
June 30, 1993 the Company had received $72,000 of the
subscription receivable. Subsequent to year end, the
Company has received an additional $165,000 on the
subscription receivable.
(h) Issued 5,000 shares to an unrelated third party as a 30 day
option fee to review the acquisition of an insurance
company. Management decided, after evaluating the assets of
the insurance company, not to pursue its acquisition and
the value placed upon the shares was 50% of the then
current market price for the Company's common stock.
(i) Issued 235,000 shares to acquire the Limited Partnership
interests held in West Tombstone Development Limited
Partnership. Authorized in August 1993, the transaction was
valued at $558,125, or $2.38 per share. The value placed
upon the transaction was 50% of the current market price
for the Company's common stock at the date of the
transaction.
During the year ended June 30, 1994, the Company completed the
following stock transactions represented by the issuance of
previously unissued common shares:
(j) Issued 2,000,000 shares to unrelated third parties in
Europe under Regulation "S" at a price of $2.00 per share
for a total of $4,000,000. At the time this transaction was
approved by the Board of Directors, the trading price of
the Company's Common Stock ranged from a low of 3.63 to a
high of 4.50.
Issued 2,188,189 shares to unrelated third parties in
Europe under Regulation "S" in exchange for $3,259,531. The
shares issued hereunder were issued at a time when the
Company's Common Stock ranged from a low of 1.75 to a high
of 4.00.
Issued 52,350 shares to unrelated third parties in exchange
for cash of $98,531. The transaction was approved by the
Board of Directors in March 1994 at a price equivalent to
50% of the market price for the Company's Common Stock. At
the time this transaction occurred the common stock ranged
from a low 3.50 to a high of 4.00.
(k) Issued 165,000 shares to a related party, River Capital
Corporation in exchange for the satisfaction of debt
totaling $257,813. During the fiscal year 1994, River
Capital Corporation loaned the Company $210,000 which the
Company acknowledged by executing a promissory note in
River's favor. Later in the year, River elected to exchange
this note, plus interest and other obligations due River
from the Company into equity. At the time this transaction
occurred the common stock ranged from a low 2.63 to a high
of 3.50.
(l) Issued 1,200,000 shares, to an unrelated third party in
exchange for assets in the manufacturing industry (See Note
7b). The shares issued hereunder represented approximately
75% of the acquisition price paid. At the time this
transaction occurred the common stock ranged from a low
4.63 to a high of 5.63. The price paid under this
transaction was by mutual agreement of the parties
involved.
(m) Issued 650,000 shares, to an unrelated third party as
partial payment for the acquisition of the building then
utilized by the Company as its Corporate Office. The shares
issued hereunder represented approximately 50% of the
acquisition price paid. At the time this transaction
occurred the common stock ranged from a low 1.75 to a high
of 2.38. The price paid under this transaction was by
mutual agreement of the parties involved.
(n) Issued 200,000 shares to an unrelated third party as
payment for services rendered in marketing the Company's
technology in Europe and for establishing, staffing and
maintaining an office for the Company. At the time this
transaction occurred, the common stock ranged from a low
1.75 to a high of 2.38. The price paid under this
transaction was by mutual agreement of the parties
involved.
During the year ended June 30, 1995, the Company completed the
following stock transactions represented by the issuance of
previously unissued common shares:
(o) Issued 50,200 shares to unrelated third parties for cash
totaling $35,938. At the time this transaction occurred the
common stock ranged from a low 1.06 to a high of 2.53. The
price paid under this transaction was by mutual agreement
of the parties involved.
Issued 390,400 shares to River Capital Corporation, a
related party, in exchange for $244,000 in cash. This
transaction was an exercise of an warrant granted to River
in 1990. Subsequent to its issuance, the strike price of
the warrants exercise was amended to $0.625 per share
taking into account the 5 for 1 reverse split which
occurred in 1992.
(p) Issued 79,100 shares for services provided by unrelated
third parties. These services were valued, by mutual
agreement, in the amount of $85,341 and, shares were issued
at no less than 50% of the current market price of the
shares on the date of the agreement.
Issued 316,500 shares to several individuals and companies,
all of whom are related parties, for services. These
services were valued at $273,250 and shares were issued at
no less than 50% of the current market price of the shares
on the date of the agreement.
(q) Issued 50,000 shares to an unrelated party to obtain a
judgment against a third party defendant who had refused to
return a certificate placed in escrow. The Company valued
the shares issued at a cost of $37,500. The transaction
under which the certificate had been placed in escrow, for
the benefit of the third party defendant, had been canceled
pursuant to mutually agreed upon terms and the third party
defendant failed to return the certificate in a timely
manner. The Company began legal proceedings against the
party and based upon multiple jurisdictional issues,
management believed the issuance of the shares under this
transaction would result in more expedient results. The
certificate which was placed in escrow has been returned as
a result of this transaction.
(r) Issued 1,750,370 shares, to an unrelated third party in
exchange for assets and a business opportunity in the
insurance adjusting industry. At the time this transaction
occurred the share bid price was $2.00 per share. That
portion of the purchase price paid was valued at 50% of the
current market or $1,750,370. The majority of the purchase
price is recorded on the books of the Company as Costs in
Excess of Equity on Acquisition of a wholly-owned
Subsidiary (See Note 9). The price paid under this
transaction was by mutual agreement of the parties
involved.
(s) Issued 4,600,000 shares, to an unrelated third party in
exchange for assets and a business opportunity in the
wholesale food equipment supply industry. At the time this
transaction occurred, the share bid price was $2.00 per
share. The purchase price paid was valued at 50% of the
current market or $4,600,000. The majority of the purchase
price is recorded on the books of the Company as Costs in
Excess of Equity on Acquisition of wholly-owned Subsidiary
(See Note 9). The price paid under this transaction was by
mutual agreement of the parties involved.
NOTE 18 INCOME TAXES
As of June 30, 1995 and 1994, no income taxes payable have been
recorded because of prior net operating loss carryforwards in
the amount of $12,855,319. Consolidated Federal and State
corporate income tax returns have been filed through May 31,
1994.
NOTE 19 SALES TO MAJOR CUSTOMERS AND MAJOR COMPONENTS OF
REVENUES
During the year ended June 30, 1995, manufacturing revenues were
$3,069,773. Sales in excess of 10% of gross revenue were made to
two companies. Boone Aeration and Environmental Corporation
accounted for $1,501,917 (49.4%) and Tarmac equipment accounted
for $355,498 (11.7%).
Consolidated revenues include $180,178 in insurance adjusting
revenue from May 1, 1995, the date of acquisition. If this
segment had been included for a 12 month period, the Company
would have received revenue in excess of 10% from two companies.
During the year ended June 30, 1994, the major portion of
revenue was received from the following sources:
$1,374,632 from manufacturing revenue. Two entities
accounted for an excess of 10% of the total revenue. Boone
Aeration and Environmental accounted for $228,719 (16.63%)
and Todd & Sargent accounted for $219,138 (15.94%).
$105,000 from Asphalt Paving & Supply Company, Inc. for the
purchase of an EDSS unit.
$1,000 from an unrelated third party for services performed
in the mining segment of business.
$33,270 in sub-lease income for office space.
$67,613 in miscellaneous corporate income.
During the year ended June 30, 1993, the major portion of
revenue was received from the following sources:
$3,000 on the lease of the Tombstone Mill and Refinery.
$5,411 on two separate sub-leases of office space.
NOTE 20 LEASES
The company relocated its corporate office to Scottsdale,
Arizona in April 1995 and currently leases 7,280 square feet of
office space. Additional office and warehouse space of 9,985
square feet is leased by subsidiaries in Scottsdale, Arizona and
Las Vegas, Nevada. The company is obligated under various
office equipment and furniture leases. All leases in this note
are considered operating leases.
Rental expense for the periods presented can be found in Table
6 and sub-lease rentals received are set forth in Table 7:
Year ended June 30, 1995 $ 100,572
Year ended June 30, 1994 105,780
Year ended June 30, 1993 82,892
Table 6 - Rental expense
Year ended June 30, 1995 $ 29,695
Year ended June 30, 1994 33,270
Year ended June 30, 1993 7,987
Table 7 - Sublease rents received
Rental expense for 1995 decreased slightly due to relocating
corporate offices and the addition of new business segments in
Arizona and Nevada. Rents attributable to new operations were
consolidated from May 1, 1995, the date of acquisition.
The increase in rental expense for the year ended June 30, 1994
and 1993 was attributed to increased operating expenses of the
corporate offices.
During 1995, the company capitalized leases for the acquisition
of $540,000 of wholesale food equipment (See Note 7c).
Future minimum commitments under leasing arrangements are set
forth in Table 8:
Capital leases Operating
leases
Year ending June 30:
1996 $ 86,131 $ 353,599
1997 96,761 352,130
1998 111,938 200,832
1999 129,494 -
2000 92,245 -
Table 8 - Future minimum commitments
NOTE 21 DESCRIPTION OF RECENTLY ACQUIRED SUBSIDIARIES
During the past fiscal year, the Company acquired three new
subsidiaries which represent two new market segments for the
Company (See notes 17(r) and 17(s).
The first new segment is the marketing of restaurant equipment,
specifically the Perfect Fryer 686, a light weight, easy to
install and operate food deep frying machine.
The Company's analysis of the feasibility and potential
profitability to be generated by distributing the Perfect Fry
686 machine was enhanced by the unique features of the unit.
This counter top unit is totally portable, UL approved, operates
on 110 volt power and requires no additional venting. In
addition, the cost of the closest competitive machine is
significantly higher. The Company expects to derive profits
from the sale and rental of machines and food commissions. See
Note 25 - Forecasted financial information.
The second segment acquired was in the insurance adjusting
industry and is doing business as National Affiliated Adjustment
Company (NAAC). The operational management of NAAC have been
engaged in the business of insurance claims adjusting for over
ten years and as a result, NAAC is one of the largest
independent claims adjustment firms in Arizona. NAAC operates
as an independent claims loss adjustment company which processes
property, casualty, health insurance and workmens' compensation
claims and automobile appraisal for various insurance companies.
Depending on the type of claim, processing of claims generally
involves verifying the loss and the existence of coverage for
the loss and then assessing the extent of the loss and
negotiating a settlement as appropriate.
NAAC presently operated from a corporate office located in
Scottsdale, Arizona, though the Company intends to open new
offices in key locations during the coming fiscal year. Through
the utilization of headquarters staff, significant savings in
the new locations can be achieved and the quality of work
maintained at a high level. The company has currently reported
operating losses, however cash flow is positive and will be used
to finance the planned expansion (See note 25).
NOTE 22 MANAGEMENTS' PLANS FOR FUTURE OPERATIONS
As shown in the accompanying financial statements, current
assets exceed current liabilities by $2,451,523 as compared to
last year's $3,431,124, a decrease of $979,601 (28.5%). This
decrease is attributed to cash utilized in operations. Even
though the current assets decreased, this is the second
consecutive year that current assets exceeded current
liabilities which indicates the Company has made significant
progress in strengthening its working capital position.
However, the Company has incurred significant losses from
operations in the past three periods reported of $4,753,379,
$3,839,964, and $4,102,173. The Company's future operations are
dependent upon managements' ability to increase revenues in its
manufacturing and environmental business segments, its ability
to realize the potential revenue streams anticipated from the
two newly acquired business segments, or its ability to realize
the value of its investment in its mineral properties. Since the
Company's current working capital condition has improved and
there is considerable interest by investors in the two newly
acquired business segments, as well as the pollution control
technology, management believes that it has adequate capital or
the ability to acquire adequate capital to sustain its current
operations.
Recent tests were conducted on a hot-mix asphalt plant, located
at Prescott Valley, Arizona, utilizing the Company's patented
CDSI technology in conjunction with the Company's patented
Moving Media Bed Filtration System (MMBF). The system failed to
meet federal requirements for particulate removal, but exceeded
state requirements. The independent lab, utilized for sampling
and monitoring the testing on the CDSI technology, indicated SO2
removal efficiencies exceeded regulatory requirements. Testing
is ongoing to prove the CDSI as a retro-fit device to work in
conjunction with other particle capture technologies. Because of
the information gained this year, management is confident that
before the end of the coming fiscal year sales of the CDSI
technology will occur and both revenue and profits will be
generated in this business segment.
Management has also made significant improvements in its
manufacturing subsidiary. During the year ended June 30, 1995,
operational costs have been reduced and management has
implemented a uniform pricing policy, a practice not previously
used. As a result of these efforts management anticipates that
this business will be profitable in the coming fiscal year. This
assumption is supported by unaudited results from the first two
months of operations in the fiscal year 1996 wherein net income
was $214,900 on $806,500 in total revenues.
In the recently acquired insurance adjusting segment, management
is moving forward on opening satellite offices. Prior to
acquisition of this business opportunity, management reviewed
the plans for expansion of the previous owner which included,
among other things, the establishment of a central processing
office at its corporate office in Scottsdale, Arizona. Since
this was already accomplished, management of the Company felt
that the opening of satellite offices would increase revenues
substantially without a commensurate rise in operating costs,
thus bringing a quicker return on the investment. In accordance
with this philosophy, the Company has established a satellite
office in Las Vegas, Nevada and is looking to opening two more
offices this year. With the opening of the Nevada office,
management believes overall operations will show a net profit by
the end of the second quarter of the fiscal year 1996.
In the recently acquired restaurant equipment and food supply
industry segment (See Notes 21 and 25), management has been
moving forward with the establishment of an Area Distribution
Center Program (ADC). The ADC program calls for the sale of up
to 221 geographical distribution centers, based upon population.
Each ADC is required to purchase inventory at wholesale prices
and utilize the inventory for fulfillment of orders in their
geographic boundary. This change, along with the established
relationship with Wal-Mart and Ore-Ida, leads management to
believe that net income will be realized this coming fiscal
year. Subsequent to year end, the Company has contracted with
one ADC prior to the ADC program being ready for sale.
Management believes that, based upon the progress made in the
respective industry segments described herein, future operations
will soon be profitable and that sufficient working capital will
be available to the Company.
NOTE 23 SUBSEQUENT EVENTS
Subsequent to June 30, 1995, the Company sold 522,222 shares of
it's common stock to unrelated individuals for $705,000 cash.
The negotiated placement price was $1.35 per share. The average
low bid price for the quarter ended June 30, 1995, was $1.50.
In August 1995, the Company entered into a relationship with
Tyson Food Service, which added twelve different food items for
use in the Perfect Fryer 686 machine. A surcharge will be paid
to Fry Guy Inc. based upon the usage of these products. The
Company believes that these products will enhance the value of
the machines placed in the Wal-Mart snack bars.
Subsequent to June 30, 1995, the Company successfully tested
it's Charged Dry Sorbent Injection Systems (CDSI) for SO2
removal. The test was conducted in Prescott, Arizona and has
achieved the desired results of consistently removing 99.9% of
this sulphur-dioxide from the polluted gas stream. The
Company is also expecting favorable results from a similar
test in China.
NOTE 24 SEGMENT INFORMATION
Corporate and other income or (loss) includes interest income,
interest expense, equity in loss of unconsolidated subsidiary
and partnerships, gain on exchange of stock, recovery of bad
debts and extraordinary items. Segment information for revenue;
income (loss) from operations; identifiable assets;
depreciation/amortization and valuation adjustments; and
property, plant and equipment additions can be found in Tables
9 through 13 respectively:
For the Period Ended
June 30, 1995 June 30, 1994 June 30,1993
Corporate and other $ 45,195 $ 100,883 $
7,987
Environmental Control 107,000 105,000 -
Insurance 180,178 - -
Manufacturing 3,069,773 1,374,632 -
Mining and Mining Services 10,000 1,000
3,000
Restaurant 26,037 - -
_______________________________________
Total $3,438,183 $ 1,581,515 $
10,987
Table 9 - Revenue
Corporate and other $(2,267,426) $ (1,473,739) $
(1,305,394)
Environmental Control ( 261,316) (1,542,165) (
237,778)
Insurance ( 24,697) - -
Manufacturing (1,051,222) ( 344,414) -
Mining and Mining Service(802,669) ( 479,646)
(2,829,001) Restaurant ( 141,546) - -
_______________________________________
Total $(4,753,379) $(3,839,964)
$(4,102,173)
Table 10 - Income(loss) from operations
Corporate and other $ 6,307,212 $ 4,817,509 $ 735,958
Environmental Control 216,677 122,875 74,653
Insurance 1,959,616 - -
Manufacturing 4,072,456 4,905,816 -
Mining and Mining Service7,745,908 8,435,562 7,621,651
Restaurant 913,983 - -
Total $21,215,852 $18,281,763 $ 8,432,262
Table 11 - Identifiable assets
Corporate and other $ 516,534 $ 44,511 $
11,347
Environmental Control 23,404 - -
Insurance 22,337 - -
Manufacturing 938,121 114,447 -
Mining and Mining Services 680,354 257,870 89,659
Restaurant 18,084 - -
Total $2,198,834 416,82 $ 101,006
Table 12 - Depreciation, amortization, and valuation adjustments
For the Period Ended
June 30, 1995 June 30, 1994 June 30,
1993
Corporate and other $ 43,920 $ 1,366,251 $
3,572
Environmental Control 19,224 - -
Insurance 1,489 - -
Manufacturing 142,522 3,389,380 -
Mining and Mining Services - - -
Restaurant 184,470 - -
_______________________________________
Total $ 391,625 $ 4,755,631 $
3,572
Table 13 - Property, plant and equipment additions
NOTE 25 PRO FORMA FINANCIAL INFORMATION ON ASSET ACQUISITION
During the year ended June 30, 1995, the Company entered into
two new business segments as a result of assets acquired (See
Note 7, 9, 13, 16, 17r, 17s, 19, 20, 21 and 22). These
acquisitions were unrelated, and finalized effective May 1,
1995. Due to the two month short period of consolidation,
management believes that the consolidation of income and balance
sheet presentation for the fiscal year ended June 30, 1995 could
be misleading. In order to more clearly state the effect of
these acquisitions, the Company has prepared a Pro forma Balance
Sheet and Statement of Operations on the acquisition of assets
in the Insurance Adjusting Industry and a Forecasted Balance
Sheet and Statement of Operations on the assets acquired in the
Restaurant equipment and supply Industry, as well as a combined
Balance Sheet and Statement of Operations. These have been
prepared for the period ended June 30, 1995 as though the
acquisition had occurred at the beginning of the fiscal year.
Certain assumptions, which are presented herein, should be read
in conjunction with the pro forma and forecasted financial
statements.
Insurance Adjusting Industry
Prior historical data on operations was available and this
information is setforth in Table 14 captioned "Insurance
Adjusting Industry". For the period July to December 1994,
information was acquired from the prior owner as well as January
to April 1995 and represent actual operations. The only changes
made in these operational figures are the addition of
amortization and an increase in depreciation for the period from
July to December 1994.
The addition of amortization was included to show the effect on
operations as if the Company had owned the operation for the
entire period. The increase in depreciation was included to show
the effect of the acquisition of additional claims processing
equipment and software, which was added during the first part of
the calendar year 1995, to allow the Arizona based operation to
increase its claims processing capacity and allow it to also act
as a central operations center for expansion into several other
states.
The period of May 1995 through June 1995 represent the actual
results of operations since the acquisition of the assets.
July to January May to
December to April June
1994 1995 1995 Year
Revenues 705,302 470,702 180,178 1,356,182
Cost of goods sold (473,249) (207,839) (74,252) (755,340)
Gross Profit 232,053 262,863 105,926 600,842
General and Administ 197,322 252,033 108,420 557,775
Net Operating Income 34,731 10,830 (2,494) 43,067
Net Income (Loss) (31,181) (31,646) (24,831) (87,658)
Table 14 - Insurance adjusting industry
The Consolidated Statement of Operations, captioned "Pro forma
on Acquisition of Insurance Adjusting Industry Assets Only" (See
Table 15) was prepared by considering the following factors.
1) Adjusting the insurance adjusting revenue of $180,178 to
the yearly projection set forth in Table 14 of $1,356,182.
2) Adjusting the Insurance adjusting direct service costs of
$74,252 with the yearly projection for cost of goods sold
set forth in Table 14 of $755,340.
3) Increasing general and administrative expense by $557,743,
which is the difference of general and
administrative expenses, including depreciation and
amortization, for the year as compared with the two months
of operations already included on a consolidated basis.
The effect of these changes is an increase in operating loss of
$62,827 which represents the loss as set forth in Table 14.
The Consolidated Balance Sheet, captioned "Pro forma on
Acquisition of Insurance Adjusting Industry Assets Only" (See
Table 16) was prepared by considering the following factors:
1) Increasing the accumulated deficit by $62,827, as noted
above.
2) Increasing accumulated depreciation by $16,106 the
difference between the projected amount setforth in Table
14 and the two months already consolidated;
3) Increasing accumulated amortization, in "Other Assets", by
$92,282 the difference between the projected amount setforth
in Table 14 and the two months already consolidated.
The changes indicated above resulted in a net increase in the
cash position of the Company of $45,561. There was no
significant change in loss per share calculations which utilized
the weighted average number of shares as set forth in Note 2.
Restaurant Equipment and Supply Industry
Operations acquired in this industry segment were in the start-
up phase. Considerable work had been accomplished in
establishing key alliances for placement of the Perfect Fry 686
counter top deep frying machine as well as distribution of food
products for use therein. As with most start-up operations,
costs were significantly higher and revenues significantly lower
than management projections in the coming year of operations.
Since the use of historical operating data in the preparation of
pro forma information would be misleading, management has
elected to forecast future operations from available
information.
The restaurant equipment and supply industry business segment
involves the sale or placement of the counter top deep frying
machine at retail outlets. Income is generated either through
the sale of the machine, financing of the machine with rental
income from the machines placement or from royalties received on
food produced in the machines. The Company has contracts with
two nationally known food suppliers who pay the Company an
override of approximately $0.05 per order. The operation is
conducted in a subsidiary known as Fry Guy, Inc. utilizing a
machine to be marketed under a private Fry Guy label.
Based upon negotiations to date, the Company anticipates the
placement of 500 additional machines in the snack bars at Wal-
Mart stores over the next year. National sales volumes through
the Ore-Ida broker network are projected at 300 machines. The
Company anticipates sales of 964 machines through a national
Area Distribution Center network program that it has
established. 650 machines are allocated to a joint venture
program that will share revenue. An additional 600 machines
are anticipated to be placed through direct selling efforts and
a second joint venture program which is being negotiated.
Anticipated revenues are $6,735,680 from machine sales, $857,279
in food revenue, $120,300 from the sale of replacement filters
and $192,042 from the joint venture shared revenue for total
forecasted revenue of $7,905,301. Costs of Goods Sold is
forecasted at $5,261,362 for a net revenue of $2,643,939.
General and administrative expenses, including depreciation,
excluding amortization is forecasted at $907,295 for net pre-tax
income of $1,736,643. Over one year of complete ownership, the
amortization of goodwill on the acquisition of this business
opportunity would be $306,327 for an adjusted net pre-tax income
of $1,430,316.
The Consolidated Statement of Operations, captioned "Forecast on
Acquisition of Restaurant equipment and supply Industry Assets
Only" (See Table 17) presents the information above in the
following manner:
1) Adjusting the restaurant equipment and supply revenue of
$26,037 to the forecasted revenue of $7,905,301, a net
change of $7,879,264.
2) Adjusting the restaurant equipment and supply direct costs
of $22,065 to the forecasted cost of goods sold of
$5,261,362, a net change of $5,239,297.
3) Increasing total general and administrative expense by
$1,026,954, the difference of general and administrative
expenses, including depreciation and amortization, for the
forecasted year, as compared with the two months of
operations already included on a consolidated basis.
4) Decrease interest expense by $10,563.
The effect of these changes is a decrease in operating loss of
$1,623,576 which represents forecasted revenue from operations
in this industry segment.
The Consolidated Balance Sheet, captioned "Forecast on
Acquisition of Restaurant equipment and supply Industry Assets
Only" (See Table 18) was prepared by considering the following
factors:
1) Decreasing the accumulated deficit by $1,623,576.
2) Increasing Property, Plant and Equipment - Wholesale food
equipment by $762,875 for forecasted additions
during the year.
3) Increasing accumulated depreciation by $169,791 for the
additions to wholesale food equipment as forenoted.
4) Increasing accumulated amortization, in "Other Assets", by $254,664 the
difference between the forecasted
yearly number and the two months already consolidated.
5) Increasing current liabilities by $261,910 which represents
the current portion of forecasted long-term
equipment leases to be entered into.
6) Increasing long-term liabilities by $261,910
which represents the forecasted long-term portion
of lease contracts to be entered into.
These changes result in a forecasted net increase in the cash
position of the Company of $2,048,032. The effect of this
forecast is substantial. A significant increase in cash would
result and the net loss per share of common stock would decrease
from $0.10 per share to $0.03 per share, utilizing the weighted
average number of shares as set forth in Note 2. There is also
a substantial increase in Shareholders Equity resulting in the
change to operating loss of $1,623,576.
In addition to the aforementioned Balance Sheets and Income
Statements, the Company has included a Combined Balance Sheet
and Income Statement which are included herein as Table 19 and
20.
The assumptions made herein and resulting presentations are
based upon estimates. Management has taken care in their
preparation, but no assurance can be given that future years
results will agree with those presented herein.
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma Financial Information on Asset Acquisition, continued
CONSOLIDATED STATEMENTS OF OPERATIONS
Pro forma Changes Actual
June 30, 1995 June 30, 1995 June 30, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Environmental services $ 107,000 $ -- $ 107,000
Restaurant equipment and supply 26,037 -- 26,037
Insurance adjusting 1,356,182 1,176,004 180,178
Mining and mining services 10,000 -- 10,000
Manufacturing 3,069,773 -- 3,069,773
All other 45,195 -- 45,195
---------------- ---------------- ----------------
4,614,187 1,176,004 3,438,183
---------------- ---------------- ----------------
OPERATING EXPENSES
Direct Service
Environmental industry 212,366 -- 212,366
Restaurant equipment and supply industry 22,065 -- 22,065
Insurance adjusting industry 755,340 681,088 74,252
Mining industry 205,446 -- 205,446
Manufacturing industry 2,644,495 -- 2,644,495
General and administrative 3,326,782 557,743 2,769,039
---------------- ---------------- ----------------
7,166,493 1,238,831 5,927,662
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (2,552,306) (62,827) (2,489,479)
OTHER INCOME AND (EXPENSE)
Interest income 62,043 -- 62,043
Interest expense (16,831) -- (16,831)
Other income (expense) 12,337 -- 12,337
---------------- ---------------- ----------------
57,549 0 57,549
---------------- ---------------- ----------------
LOSS BEFORE EXTRAORDINARY ITEM (2,494,757) (62,827) (2,431,930)
EXTRAORDINARY ITEM (2,321,449) -- (2,321,449)
---------------- ---------------- ----------------
NET LOSS $ (4,816,206) $ (62,827) $ (4,753,379)
================ ================ ================
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK
Before extraordinary item $ (0.10) $ 0.00 $ (0.10)
for extraordinary item (0.10) 0.00 (0.10)
---------------- ---------------- ----------------
NET LOSS PER SHARE OF COMMON STOCK $ (0.20) $ 0.00 $ (0.20)
================ ================ ================
Table 15 - Pro forma on Acquisition of
Insurance Adjusting Industry Assets Only
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma financial information on asset acquisition, continued
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Pro forma Changes Actual
June 30, June 30, June 30,
ASSETS 1995 1995 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 652,972 $ 45,561 $ 607,411
Accounts receivable 506,027 -- 506,027
Allowance for doubtful accounts (25,189) -- (25,189)
Notes receivables 1,051,775 -- 1,051,775
Inventory of finished and unfinished goods 1,011,701 -- 1,011,701
Marketable Securities 148,400 -- 148,400
Prepaid expense 38,435 -- 38,435
-------------- -------------- --------------
Total current assets 3,384,120 45,561 3,338,559
-------------- -------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Manufacturing Facilities and property 1,676,247 -- 1,676,247
Manufacturing equipment 1,000,427 -- 1,000,427
Restaurant equipment 724,470 -- 724,470
Furniture and equipment 386,600 -- 386,600
Less accumulated depreciation (410,542) (16,106) (394,436)
-------------- -------------- --------------
3,377,202 (16,106) 3,393,309
-------------- -------------- --------------
OTHER ASSETS 14,516,702 (92,282) 14,608,984
-------------- -------------- --------------
$ 21,278,025 $ (62,827) $ 21,340,852
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES 887,036 -- 887,036
-------------- -------------- --------------
LONG-TERM LIABILITIES 463,834 -- 463,834
-------------- -------------- --------------
TOTAL LIABILITIES 1,350,870 0 1,350,870
-------------- -------------- --------------
DEFERRED INCOME ON INSTALLMENT SALES 1,094,104 -- 1,094,104
-------------- -------------- --------------
REDEEMABLE PREFERRED STOCK, CLASS A 295,062 -- 295,062
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Common stock, no par value 47,885,245 -- 47,885,245
Common stock subscriptions receivable -- -- --
Accumulated defecit (29,347,256) (62,827) (29,284,429)
-------------- -------------- --------------
18,537,989 (62,827) 18,600,816
-------------- -------------- --------------
$ 21,278,025 $ (62,827) $ 21,340,852
============== ============== ==============
Table 16 - Pro forma on Acquisition of
Insurance Adjusting Industry Assets Only
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma Financial Information on Asset Acquisition, continued
FORECASTED CONSOLIDATED STATEMENTS OF OPERATIONS
Forecast Changes Actual
June 30, 1995 June 30, 1995 June 30, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Environmental services $ 107,000 $ -- $ 107,000
Restaurant equipment and supply 7,905,301 7,879,264 26,037
Insurance adjusting 180,178 -- 180,178
Mining and mining services 10,000 -- 10,000
Manufacturing 3,069,773 -- 3,069,773
All other 45,195 -- 45,195
---------------- ---------------- ----------------
11,317,447 7,879,264 3,438,183
---------------- ---------------- ----------------
OPERATING EXPENSES
Direct Service
Environmental industry 212,366 -- 212,366
Restaurant equipment and supply industry 5,261,362 5,239,297 22,065
Insurance adjusting industry 74,252 -- 74,252
Mining industry 205,446 -- 205,446
Manufacturing industry 2,644,495 -- 2,644,495
General and administrative 3,795,993 1,026,954 2,769,039
---------------- ---------------- ----------------
12,193,913 6,266,251 5,927,662
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (876,466) 1,613,013 (2,489,479)
OTHER INCOME AND (EXPENSE)
Interest income 62,043 -- 62,043
Interest expense (6,268) 10,563 (16,831)
Other income (expense) 12,337 -- 12,337
---------------- ---------------- ----------------
68,112 10,563 57,549
---------------- ---------------- ----------------
LOSS BEFORE EXTRAORDINARY ITEM (808,354) 1,623,576 (2,431,930)
---------------- ---------------- ----------------
EXTRAORDINARY ITEM (2,321,449) -- (2,321,449)
---------------- ---------------- ----------------
NET LOSS $ (3,129,803) $ 1,623,576 $ (4,753,379)
================ ================ ================
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK
Before extraordinary item $ (0.03) $ (0.07) $ (0.10)
for extraordinary item (0.10) 0.00 (0.10)
---------------- ---------------- ----------------
NET LOSS PER SHARE OF COMMON STOCK $ (0.13) $ (0.07) $ (0.20)
================ ================ ================
Table 17 - Forecast on Acquisition of
Restaurant Equipment and Supply Industry
Assets Only
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma financial information on asset acquisition, continued
FORECASTED CONDENSED CONSOLIDATED BALANCE SHEET
Forecast Changes Actual
June 30, June 30, June 30,
ASSETS 1995 1995 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 2,655,442 $ 2,048,032 $ 607,411
Accounts receivable 506,027 -- 506,027
Allowance for doubtful accounts (25,189) -- (25,189)
Notes receivables 1,051,775 -- 1,051,775
Inventory of finished and unfinished goods 1,011,701 -- 1,011,701
Marketable Securities 148,400 -- 148,400
Prepaid expense 38,435 -- 38,435
-------------- -------------- --------------
Total current assets 5,386,591 2,048,032 3,338,559
-------------- -------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Manufacturing Facilities and property 1,676,247 -- 1,676,247
Manufacturing equipment 1,000,427 -- 1,000,427
Restaurant equipment 724,470 762,875 724,470
Furniture and equipment 386,600 -- 386,600
Less accumulated depreciation (564,227) (169,791) (394,436)
-------------- -------------- --------------
3,223,518 593,084 3,393,309
-------------- -------------- --------------
OTHER ASSETS 14,354,320 (254,664) 14,608,984
-------------- -------------- --------------
$ 22,964,428 $ 2,386,451 $ 21,340,852
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES 887,036 261,910 887,036
-------------- -------------- --------------
LONG-TERM LIABILITIES 463,834 261,910 463,834
-------------- -------------- --------------
TOTAL LIABILITIES 1,350,870 523,820 1,350,870
-------------- -------------- --------------
DEFERRED INCOME ON INSTALLMENT SALES 1,094,104 -- 1,094,104
-------------- -------------- --------------
REDEEMABLE PREFERRED STOCK, CLASS A 295,062 -- 295,062
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Common stock, no par value 47,885,245 -- 47,885,245
Common stock subscriptions receivable -- -- --
Accumulated defecit (27,660,853) 1,623,576 (29,284,429)
-------------- -------------- --------------
20,224,392 1,623,576 18,600,816
-------------- -------------- --------------
$ 22,964,428 $ 2,147,396 $ 21,340,852
============== ============== ==============
Table 18 - Forecast on Acquisition of
Restaurant Equipment and Supply Industry
Assets Only
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma Financial Information on Asset Acquisition, continued
PRO FORMA AND FORECASTED CONSOLIDATED STATEMENTS
Pro forma and
Forecasted Changes Actual
June 30, 1995 June 30, 1995 June 30, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Environmental services $ 107,000 $ -- $ 107,000
Restaurant equipment and supply 7,905,301 7,879,264 26,037
Insurance adjusting 1,356,182 1,176,004 180,178
Mining and mining services 10,000 -- 10,000
Manufacturing 3,069,773 -- 3,069,773
All other 45,195 -- 45,195
---------------- ---------------- ----------------
12,493,451 9,055,268 3,438,183
---------------- ---------------- ----------------
OPERATING EXPENSES
Direct Service
Environmental industry 212,366 -- 212,366
Restaurant equipment and supply industry 5,261,362 5,239,297 22,065
Insurance adjusting industry 755,340 681,088 74,252
Mining industry 205,446 -- 205,446
Manufacturing industry 2,644,495 -- 2,644,495
General and administrative 4,353,736 1,584,697 2,769,039
---------------- ---------------- ----------------
13,432,744 7,505,082 5,927,662
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (939,293) 1,550,186 (2,489,479)
---------------- ---------------- ----------------
OTHER INCOME AND (EXPENSE)
Interest income 62,043 -- 62,043
Interest expense (6,268) 10,563 (16,831)
Other income (expense) 12,337 -- 12,337
---------------- ---------------- ----------------
68,112 10,563 57,549
---------------- ---------------- ----------------
LOSS BEFORE EXTRAORDINARY ITEM (871,181) 1,560,749 (2,431,930)
---------------- ---------------- ----------------
EXTRAORDINARY ITEM (2,321,449) -- (2,321,449)
---------------- ---------------- ----------------
NET LOSS $ (3,192,630) $ 1,560,749 $ (4,753,379)
================ ================ ================
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK
Before extraordinary item $ (0.03) $ 0.07 $ (0.10)
for extraordinary item (0.10) 0.00 (0.10)
---------------- ---------------- ----------------
NET LOSS PER SHARE OF COMMON STOCK $ (0.03) $ 0.07 $ 0.20
================ ================ ================
Table 19 - Pro forma on Acquisition of
Insurance Adjusting Industry Assets and
Forecast on Acquisition of Restaurant
Equipment and Supply Industry Assets
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Note 25 - Pro forma financial information on asset acquisition, continued
PRO FORMA AND FORECASTED CONDENSED CONSOLIDATED BALANCE SHEET
Pro forma and
Forecasted Changes Actual
June 30, June 30, June 30,
ASSETS 1995 1995 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 2,701,003 $ 2,093,593 $ 607,411
Accounts receivable 506,027 -- 506,027
Allowance for doubtful accounts (25,189) -- (25,189)
Notes receivables 1,051,775 -- 1,051,775
Inventory of finished and unfinished goods 1,011,701 -- 1,011,701
Marketable Securities 148,400 -- 148,400
Prepaid expense 38,435 -- 38,435
-------------- -------------- --------------
Total current assets 5,432,152 2,093,593 3,338,559
-------------- -------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Manufacturing Facilities and property 1,676,247 -- 1,676,247
Manufacturing equipment 1,000,427 -- 1,000,427
Restaurant equipment 724,470 762,875 724,470
Furniture and equipment 386,600 -- 386,600
Less accumulated depreciation (580,333) (185,897) (394,436)
-------------- -------------- --------------
3,207,412 576,978 3,393,309
-------------- -------------- --------------
OTHER ASSETS 14,262,038 (346,946) 14,608,984
-------------- -------------- --------------
$ 22,901,601 $ 2,323,624 $ 21,340,852
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES 887,036 261,910 887,036
-------------- -------------- --------------
LONG-TERM LIABILITIES 463,834 261,910 463,834
-------------- -------------- --------------
TOTAL LIABILITIES 1,350,870 523,820 1,350,870
-------------- -------------- --------------
DEFERRED INCOME ON INSTALLMENT SALES 1,094,104 -- 1,094,104
-------------- -------------- --------------
REDEEMABLE PREFERRED STOCK, CLASS A 295,062 -- 295,062
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Common stock, no par value 47,885,245 -- 47,885,245
Common stock subscriptions receivable -- -- --
Accumulated defecit (27,723,680) 1,560,749 (29,284,429)
-------------- -------------- --------------
20,161,565 1,560,749 18,600,816
-------------- -------------- --------------
$ 22,901,601 $ 2,084,569 $ 21,340,852
============== ============== ==============
Table 20 - Pro forma on Acquisition of
Insurance Adjusting Industry Assets and
Forecast on Acquisition of Restaurant
Equipment and Supply Industry Assets
</TABLE>
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below in Table J are the names, ages, positions of
Alanco's directors and officers.
TABLE J
Name Age Position with Alanco
Dr. James G. Ricketts 57 Chairman of the Board and
Director
Norman E. Meyer 50 Chief Executive Officer,
President and Director
Dean Hough 54 General Executive Officer
and Director
Kevin L. Jones 39 Chief Financial Officer
and Director
Peter D. Van Oosterhout 63 Director
Larry G. Nelson 36 Director
Dean A. Douglas 48 Vice President and
Secretary
John E. Haggar 53 Treasurer
The Directors serve until their successors are elected by the
Shareholders. Vacancies on the Board of Directors are filled by
appointment of the majority of the continuing Directors. The
Executive Officers serve at the discretion of the Board of
Directors.
Business Experience
Dr. James G. Ricketts: Appointed to the Board of Directors of
the Company in April of 1990. Dr. Ricketts is currently Chairman
and CEO of Technology Systems International, Inc., a corporation
which he founded to develop a prison population tracking and
management technology as well as acting as an Independent
Consultant to corrections agencies located throughout the United
States. Prior to this, Dr. Ricketts served as Director of the
Arizona Department of Corrections; Executive Director of the
Colorado Department of Corrections; Deputy Secretary to the
Florida Department of Corrections as well as numerous other
positions in the corrections field. Dr. Ricketts received his
Ph.D. from Ohio State University in 1971 in the field of
Sociology (Humanities and Human Services). Since January, 1995,
Dr. Ricketts has served as Director of Dixie National
Corporation, a publicly held company traded on the NASDAQ
System.
Norman E. Meyer: Mr. Meyer joined the Company's Board of
Directors in December, 1994 and was appointed President and
Chief Executive Officer of the Company in April, 1995. Mr.
Meyer has over twenty-eight years of experience in the insurance
industry and for the last fifteen years he has held executive
positions of increasing operational responsibility. Since
December, 1994, Mr. Meyer has served as Chief Executive Officer
and a director of Phoenix Medical Management, Inc., a Phoenix
based out-patient, rehabilitation/Surgical facility. Beginning
in 1984 and until December 1994, Mr. Meyer served in various
positions including Chief Operating Officer, Director and
Chairman of the Board of Realistic Adjustment Company, Inc., a
Phoenix, Arizona based insurance claims adjusting company. From
January, 1995 to May, 1995 Mr. Meyer also served as Vice
President of Operations, and remains a Director and Chairman of
the Board of Travel Services of America, a Branson, Missouri
travel agency. From 1992 to 1994, Mr. Meyer served as
consultant to the United Labor Counsel Local 615 Welfare Fund
wherein Mr. Meyer advised the Counsel on claims processing. The
Union, the Welfare Fund Trustees, the Welfare Fund Insurance
Underwriters and Mr. Meyer were named as Defendants in a 1992
civil action filed by the U.S. Department of Labor which alleged
breach of fiduciary duty by the Defendants in the operation of
the Welfare Fund under the Employee Retirement Income Security
Act of 1974(ERISA). Mr. Meyer filed an Answer denying all
allegations based upon the fact that Mr. Meyer did not control
or serve in the operation of the Welfare Fund and that the
Department of Labor's extension of the definition of a
"fiduciary" under ERISA to include non-controlling consultants
is unwarranted. Mr. Meyer believes there is a high probability
of dismissal of the action against him if the matter goes to
trial.
Dean Hough: Mr. Hough has been with the Company as a Director
since December, 1994. He has been conducting a marketing and
general management consulting business based in Las Vegas,
Nevada under the name of Executive Leasing since 1990. Since
1988, Mr. Hough has also been a director of Infinite Research,
Inc., a development stage company headquartered in Las Vegas,
Nevada. Infinite Research, Inc., is a publicly held company
which is traded on the NASD Bulletin Board. From 1962 to 1989,
Mr. Hough held various management positions with Xerox
Corporation including National Sales Manager, Vice President
Marketing, Vice President Field Operations and Vice President
Quality. Mr. Hough holds a Bachelors Degree in Business from
the University of Minnesota and is a graduate of the Executive
Management Development Program at the Harvard School of
Business.
Kevin L. Jones: Elected to the position of Secretary - Treasurer
and Chief Financial Officer in June of 1992. Mr. Jones served as
President of AERC from August of 1985 up to June of 1992. Mr.
Jones was elected to the Board of Directors in December, 1987.
Mr. Jones has been employed by the Company since 1979 and has
served in various capacities. Other public reporting companies
that Mr. Jones serves are: Secretary and Director of the
Company's majority-owned subsidiary Environetics, Inc.
Peter D. Van Oosterhout: A Director of the Company since 1983,
Mr. Van Oosterhout is President of River Capital Corporation, of
Cleveland, Ohio, a Small Business Investment Corporation, since
1982. Prior to River Capital Corporation, Mr. Van Oosterhout was
President of Clarion Capital (Cleveland, Ohio) from 1973 to
1982.
Larry G. Nelson Mr. Nelson joined the Company's Board of
Directors in April, 1995. Since July, 1995, Mr. Nelson has
served as President of the Company's subsidiary, Alanco
Financial Services Corporation. Since November, 1993, Mr.
Nelson has served as President and as a director of Phoenix
Medical Management, Inc., a Phoenix based out-patient,
rehabilitation/Surgical facility. From June, 1991 to October,
1993, Mr. Nelson was the Chief Financial Officer for the Gary
Hall Eye Surgery Institute, P.C. one of the largest regional
ophthalmic surgical institutes in the United States. From
September, 1990 to May, 1991, Mr. Nelson was a Litigation
Consultant for Coopers & Lybrand. Mr. Nelson holds a Bachelor
of Science Degree in Accountancy from San Diego State University
and is a Certified Public Accountant licensed in Colorado and
Arizona. Mr. Nelson has five years of public accounting, audit
and litigation experience and over ten years of diversified,
senior level financial management and corporate operations
experience.
Dean A. Douglas Mr. Douglas joined the Company in May, 1995 as
Vice President and became Secretary in June, 1995. Mr. Douglas
has overall operations responsibility for the Company and its
subsidiaries. From February, 1995 to May, 1995, Mr. Douglas was
Vice President, Chief Operating Officer for Travel Services of
America, Inc., of Branson, Missouri and continues to serve as
director. Mr. Douglas is also a Vice President, Secretary-
Treasurer of Branson's Center, Inc., of Branson, Missouri. From
December, 1994 to May, 1995, Mr. Douglas served as Vice
President and Chief Operating Officer for Universal Management
Services, Inc., a Phoenix, Arizona based corporate management
consulting company.
From May, 1992 to January, 1993, Mr. Douglas was the Chief
Engineer for the Company. Since May, 1990, Mr. Douglas has been
an officer, director
and principal shareholder of Joint Development Systems-America,
Inc., doing marketing, general business consulting and record
producing for Rex Allen, Jr. Mr. Douglas holds a B.S. degree in
Geology from Southern Illinois University, an M.S. degree in
Geoscience from the University of Arizona and a Masters of
Business Administration from the University of Denver.
John E. Haggar: Mr. Haggar has been an employee of the Company
since June 1, 1995, and Treasurer since July, 1995. From
December 1, 1994, until June 1, 1995, Mr. Haggar was Chief
Financial Officer of Universal Management Services, Inc.
Previously, Mr. Haggar was a sole practitioner engaged in
providing accounting services to the general public in
Washington State. Mr. Haggar holds a Bachelor of Science in
Business from the University of Minnesota. He is a member of
the American Institute of Certified Public Accountants. Since
January, 1995, Mr. Haggar has also a director of Dixie National
Corporation, a publicly owned company whose stock is traded on
the NASDAQ System.
Compensation of Directors
Directors are entitled to receive $500 in cash, common stock
at $1 per share or in health insurance benefits for each Board
Meeting attended, plus expenses. In May, 1995 the Board of
Directors reduced the prior Directors Fees of $1,500 to the
present $500. Pursuant to these directors fees, during the
fiscal year ended June 30, 1995, Mr. Ricketts was issued 9,500
shares of common stock, Mr. Van Oosterhout was issued 5,000
shares of common stock, Mr. Meyer was issued 5,000 shares of
common stock and Mr. Nelson was issued 500 shares of common
stock. In addition, since August, 1995, Mr. Ricketts has
received a fee of $3,000 per month for being Chairman of the
Board.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Table K sets forth the compensation paid by the Company to the
top three executive officers whose compensation exceeded
$60,000, which represents all of the executive officers of the
Company.
TABLE K
Name of Individual Capacities Served Cash
Compensation
Norman E. Meyer (1) President, CEO $0
Dean Hough (2) President, CEO $48,000
Harrison Gentry (3) President, CEO $110,126
Richard Steinke (4) CEO $34,000
Kevin L. Jones (5) Chief Financial Officer $58,500
Dean A Douglas (6) V-P, Secretary $ 8,000
John E. Haggar (7) Treasurer $ 6,000
(1) Mr. Meyer is presently serving without an employment
contract and has not been awarded any stock or other non-cash compensation.
(2) Mr. Hough served as President and CEO from December, 1994
to April, 1995 and pursuant to the agreement whereby he
stepped down in favor of Mr. Meyer, Mr. Hough is to
receive $8,000 per month plus options to purchase 20,000
shares of common stock at $1.00 per share each month
until December, 1996.
(3) Mr. Gentry served as President/COO from January, 1994 and
as President/CEO from October, 1994 to December, 1994.
(4) Mr. Steinke served as CEO from July, 1994 to October,
1994.
(5) Mr. Jones has an oral employment contract to receive
$6,000 per month and has not been awarded any stock or other
non-cash compensation.
(6) Mr. Douglas has an oral employment contract to receive
$6,000 per month and has not been awarded any stock or
other non-cash compensation.
(7) Mr. Haggar has an oral employment contract to receive
$6,000 per month and has not been awarded any stock or
other non-cash compensation.
The Company has no formal incentive bonus plans in place at
this time. In August, 1995 the Board approved an Incentive Stock
Option Plan and a Directors Stock Option Plan which will be
submitted to the shareholders for approval at the next meeting
of shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) The following persons in Table L are known to the Company as
beneficially own more than five percent (5%) of the outstanding
shares of Registrant:
TABLE L
% of Shares
Name and Address Shares Outstanding
Lyons Capital Partners, L.P.,
4365 Executive Drive, Suite 740
San Diego, California 92121, 6,051,220 19.9%
(b) Security Ownership of Management
Common Stock Beneficially Owned as of June 30, 1995
TABLE M
Name of Individual Number of Shares Percent of Class
Peter Van Oosterhout (1) 895,349 2.90%
James Ricketts 10,500 0.03%
Norman E. Meyer 5,500 0.02%
Kevin L. Jones(2) 1,000,143 3.28%
Dean Hough (3) 380,620 1.25%
Officers and Directors
as a Group
(8 individuals) 2,292,112 7.52%
(1) Includes 890,349 shares in the name of River Capital
Corporation of which Mr. Van Oosterhout is President.
Mr. Van Oosterhout disclaims any beneficial ownership of
the above shares.
(2) Includes 541,000 shares held by Arjon Enterprises, Inc.,
a trust of which Mr. Jones is a beneficiary. Mr. Jones
disclaims beneficial ownership of these shares.
(3) Includes 200,000 shares which may be acquired upon the
exercise of options held by Executive Leasing, Inc., the
nominee of Dean Hough.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others:
(b) Certain Relationships:
The Company entered into the following transactions with
entities in which certain of the Company's officers and
directors may have a direct or indirect interest.
In June, 1995, the Company issued 390,400 shares of its common
stock to River Capital Corporation upon the exercise of a common
stock purchase warrant issued to River Capital in 1990. The
Company received proceeds of $244,000 from the exercise of the
warrant. Peter Van Oosterhout, a director of the Company is
also the sole officer and director of River Capital Corporation.
In December, 1994, the Company exchanged a Note Receivable in
the principal amount of $850,000 from Phoenix Medical
Management, Inc.(PMM), for seventy percent (70%) of the
outstanding common stock of PMM. Norman E. Meyer, a director of
the Company and its President and Chief Executive Officer and
Larry Nelson a director of the Company and executive officer of
Alanco Financial Services Corp., were and remain officers and
directors of PMM. In addition, Mr. Nelson owns approximately
12% of the outstanding common stock of PMM.
In May, 1995, the Company acquired 100% of the capital stock
of Unique Systems, Inc., doing business as National Affiliated
Adjustment Company (NAAC) from KD International, Ltd., in
exchange for 1,750,370 shares of the Company's common stock and
26 Shares of the Company's $20,000 par value, Class A, Series I
Voting Preferred Stock. Subsequent to the Company's acquisition
and in an unrelated transaction, Katherine Meyer, the wife of
Norman E. Meyer, a director of the Company and its President and
Chief Executive Officer, acquired the Class A, Series I Voting
Preferred Stock. Mrs. Meyer is the Chief Executive Officer and
President of NAAC.
(c) Indebtedness of Management: None
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Included in Part II of this Report:
Report of Billie J. Allred, Independent Certified Public
Accountant for the year ended June 30, 1995, 1994 and
1993
Consolidated Balance Sheet as of June 30, 1995 and 1994
Consolidated Statements of Operations for the years ended
June 30, 1995, 1994, and 1993
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
Report of Billie J. Allred, Independent Certified Public
Accountant on the financial statement schedules for
the years ended June 30, 1995, 1994 and 1993
Schedule V - Property, Plant and Equipment
VI - Accumulated Depreciation and Amortization
of Property, Plant and Equipment
VIII - Valuation and Qualifying Accounts
Schedules other than those mentioned above are omitted
because the conditions requiring their filing do not exist or
because the required information is given in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
OF FINANCIAL STATEMENT SCHEDULES
Board of Directors
Alanco Environmental Resources Corporation
Scottsdale, Arizona
I have audited in accordance with generally accepted auditing
standards, the financial statements of Alanco Environmental
Resources Corporation's (formerly known as Alanco Resources
Corporation) as of June 30, 1995, 1994 and 1993 included in this
form 10-K, and have issued my report thereon dated September 28,
1995. My audits were made for the purpose of forming an opinion
on those statements taken as a whole. The schedules listed in
the accompanying index are the responsibility of the Company's
management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of
the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in my opinion, fairly state in
all material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.
BILLIE J ALLRED CPA
Tempe, Arizona
September 28, 1995
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
Property, Plant and Equipment Schedule V
Column A Column B Column C Column D Column E Column F
- -------------------------- ----------- ----------- ------------ ----------- -----------
Balance at Balance at
Beginning Additions Retirements Other End of
Description of Period in Period at Cost Changes Period
- -------------------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1995
Furniture and equipment $ 232,591 $ 64,633 $ (131,085) $ 220,461 $ 386,600
Manufacturing equipment 1,090,076 92,804 (21,080) (161,373) 1,000,427
Manufacturing Facilities 2,299,304 49,718 (347) (672,428) 1,676,247
Restaurant equipment -- 184,470 -- 540,000 724,470
Corporate office 1,200,000 -- (1,200,000) -- 0
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 4,821,971 391,625 (1,352,512) (73,340) 3,787,744
- -------------------------- ----------- ----------- ------------ ----------- -----------
Year Ended June 30, 1994
Furniture and equipment 108,232 166,251 $ 41,892 -- 232,591
Manufacturing equipment -- 1,090,076 -- -- 1,090,076
Manufacturing Facilities -- 2,299,304 -- -- 2,299,304
Corporate office -- 1,200,000 -- -- 1,200,000
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 108,232 4,755,631 41,892 -- 4,821,971
- -------------------------- ----------- ----------- ------------ ----------- -----------
Year Ended June 30, 1993
Furniture and equipment 104,660 3,572 -- -- 108,232
Manufacturing equipment -- -- -- -- --
Manufacturing Facilities -- -- -- -- --
Corporate office -- -- -- -- --
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 104,660 3,572 -- -- 108,232
- -------------------------- ----------- ----------- ------------ ----------- -----------
Mining Operations
Year Ended June 30, 1995
Mining Equipment $ 866,614 $ -- $ -- $ -- $ 866,614
Mill and Refinery 688,696 -- -- -- 688,696
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 1,555,310 -- -- -- 1,555,310
- -------------------------- ----------- ----------- ------------ ----------- -----------
Year Ended June 30, 1994
Mining Equipment 866,614 -- -- -- 866,614
Mill and Refinery 864,907 -- (8,000) (168,211) 688,696
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 1,731,521 -- (8,000) (168,211) 1,555,310
- -------------------------- ----------- ----------- ------------ ----------- -----------
Year Ended June 30, 1993
Mining Equipment 866,614 -- -- -- 866,614
Mill and Refinery 866,886 -- -- (1,979) 864,907
- -------------------------- ----------- ----------- ------------ ----------- -----------
Total 1,733,500 -- -- (1,979) 1,731,521
- -------------------------- ----------- ----------- ------------ ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIE
Accumulated Depreciation and Amortizat Schedule VI
of Property, Plant and Equipment
Column A Column B Column C Column D Column E Column F
- -------------------------- ----------- ---------- ----------- ---------- -----------
Balance at Balance at
Beginning Additions Retirements Other End of
Description of Period in Period at Cost Changes Period
- -------------------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1995
Furniture and equipment $ 53,757 $ 56,742 $ (42,292) $ 19,727 $ 87,934
Manufacturing equipment 81,601 140,527 (4,527) (15,227) 202,374
Manufacturing facilities 32,846 58,522 -- (18,060) 73,308
Restaurant equipment -- 17,963 -- 12,857 30,820
Corporate office -- 9,081 (9,081) -- --
- -------------------------- ----------- ---------- ----------- ---------- -----------
Total 168,204 282,835 (55,900) (703) 394,436
- -------------------------- ----------- ---------- ----------- ---------- -----------
Year Ended June 30, 1994
Furniture and equipment 78,694 9,787 34,724 -- 53,757
Manufacturing equipment -- 81,601 -- -- 81,601
Manufacturing facilities -- 32,846 -- -- 32,846
Corporate office -- -- -- -- --
- -------------------------- ----------- ---------- ----------- ---------- -----------
Total 78,694 124,233 34,724 -- 168,204
- -------------------------- ----------- ---------- ----------- ---------- -----------
Year Ended June 30, 1993
Furniture and equipment 67,348 11,346 -- -- 78,694
Manufacturing equipment -- -- -- -- --
Manufacturing facilities -- -- -- -- --
Corporate office -- -- -- -- --
- -------------------------- ----------- ---------- ----------- ---------- -----------
Total 67,348 11,346 -- -- 78,694
- -------------------------- ----------- ---------- ----------- ---------- -----------
Mining Operations
Mining Operations
Year Ended June 30, 1995
Mining equipment $ 708,380 $ 50,403 $ -- $ -- $ 758,783
Mill and refinery 360,209 31,785 -- -- 391,994
- -------------------------- ----------- ---------- ----------- ---------- -----------
1,068,589 82,188 -- -- 1,150,777
- -------------------------- ----------- ---------- ----------- ---------- -----------
Year Ended June 30, 1994
Mining equipment 653,396 54,984 -- -- 708,380
Mill and refinery 333,534 34,675 8,000 -- 360,209
- -------------------------- ----------- ---------- ----------- ---------- -----------
986,930 89,659 8,000 -- 1,068,589
- -------------------------- ----------- ---------- ----------- ---------- -----------
Year Ended June 30, 1993
Mining equipment 598,411 54,985 -- -- 653,396
Mill and refinery 298,859 34,675 -- -- 333,534
- -------------------------- ----------- ---------- ----------- ---------- -----------
897,270 89,660 -- -- 986,930
- -------------------------- ----------- ---------- ----------- ---------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
Valuation And Qualifying Accounts Schedule VIII
Column A Column B Column C Column D Column E
- ----------------------------- ----------- ----------- ----------- ---------- -----------
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts Deductions Period
- ----------------------------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance deducted from asset
to which it applies:
Allowance for doubtful
accounts
Year Ended June 30, 1995 25,600 25,189 -- 25,600 25,189
Year Ended June 30, 1994 -- 25,600 -- -- 25,600
Year Ended June 30, 1993 -- -- -- -- --
</TABLE>
<PAGE>
(b) Reports on Form 8-K
Report dated October 11, 1994, on resignation of Richard A.
Steinke from positions of Chairman of the Board and Chief
Executive Officer and election of D. Harrison Gentry as
Chief Executive Officer and Peter Van Oosterhout as
Chairman of the Board.
Report dated December 15, 1994, on the appointment of
Norman E. Meyer, Evert Eggink and Dean Hough as Directors
and the removal of D. Harrison Gentry from the positions of
President, Chief Executive Officer, Chief Operating
Officer and Director.
(c) Exhibits
EXHIBIT (21) SUBSIDIARIES
NAME STATE OF
INCORPORATION
Alanco Environmental Services, Inc. Nevada
Alanco Environmental Manufacturing, Inc. Nebraska
Alanco Financial Services Corp. Nevada
Alanco Beijing Environmental Technology Corp. Peoples Republic
of China
Fry Guy Inc. Nevada
Unique Systems, Inc.
dba National Affiliated Adjustment Company Nevada
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Alanco Environmental
Resources Corporation
JAMES G. RICKETTS
James G. Ricketts, Chairman
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
NAME TITLE DATE
NORMAN E. MEYER Chief Executive Officer 9/28/95
Norman E. Meyer Director and President
KEVIN L. JONES Chief Financial Officer 9/28/95
Kevin L. Jones Director
DEAN HOUGH General Executive Officer 9/28/95
Dean Hough Director
PETER VAN OOSTERHOUT Director 9/28/95
Peter Van Oosterhout
LARRY G. NELSON Director 9/28/95
Larry G. Nelson
