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, 1996
Commission file number 0-9347
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4110 N. Scottsdale Road, Suite 200, Scottsdale, AZ 85251
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(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
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(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
amendments to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: $48,757,767 as of September 20, 1996
Indicate the number of shares outstanding of each of the issuer's classes
of common stock: 33,566,759 as of September 20, 1996.
Documents incorporated by reference: Form S-1 Registration Statement
File #333-07739<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Alanco Environmental Resources Corporation is an Arizona corporation which
was organized in 1969. Unless otherwise noted, "Company" refers to Alanco
Environmental Resources Corporation and its wholly-owned subsidiaries. The
Company's operations, primarily through subsidiaries, are diversified and
include: (i) air pollution control product manufacturing, industrial
agricultural equipment manufacturing, technology design and marketing; (ii)
restaurant equipment/food marketing and distribution; (iii) insurance claims
adjusting; and (iv) mineral property ownership.
RECENT BUSINESS DEVELOPMENTS
The Company has had several recent developments in its Fry Guy subsidiary.
The national roll-out of its Fry Guy Integrated Finger Food Marketing Program,
which was announced in June, 1996, is in full swing. The program is currently
operating in 503 Wal-Mart stores across the country. The Company has signed an
agreement to deploy its Fry Guy Integrated Finger Food Marketing Program in 60
American Diners March 31, 1997. American Diners, Inc. operates 24-hour diners
in 15 states.
The Company also reports recent developments in its environmental
business. The installation of its proprietary Charged Dry Sorbent Injection
("CDSI") clean air technology at Hangzhou Iron and Steel Company ("Hangzhou"),
the largest steel production factory in China's Zheijiang Province, is
underway. The contract calls for five CDSI systems at the plant. Installation
of the first system is scheduled for completion by October 30, 1996. The
Company has received its second installment payment for the system. The
contract with Hangzhou was signed following successful installation and
environmental compliance testing of the CDSI system at Dezhou Heat and Power
Plant in China's Shandong Province. The Company also has a letter of intent
and is negotiating contracts with Benxi Boiler Works ("Benxi") and the City of
Benxi, China.
A senior official of the China Council for the Promotion of International
Trade said recently that China plans to spend up to $38.6 billion over the next
five years to stem the country's pollution problems. The official targeted
several polluting industries in China that have already expressed an interest
in the Company's CDSI technology. Senior officials from the Company have been
invited for a return visit to China in October, 1996, to meet with senior
Chinese government officials and to advance negotiations with potential
purchasers of the CDSI technology.
Compliance testing for a CDSI installation in the United States is
expected to take place before the end of October, 1996. While the CDSI
technology has passed rigorous compliance testing in China, the upcoming
environmental compliance tests in Arizona represent the first opportunity for
the CDSI technology to undergo compliance testing under the United States
Environmental Protection Agency standards.
DESCRIPTION OF BUSINESS
Air Pollution Control Segment
The Company's principal air pollution control technology is the CDSI
system. The Company acquired the rights to this technology and others in 1989
and has spent the past several years in engineering and testing. A production
model of the CDSI is now being marketed. The CDSI system is a patented process<PAGE>
that utilizes an electrostatically charged sorbent to remove noxious gases,
such as sulfur dioxide, from a hot exhaust gas stream from a stationary air
pollution source, such as a factory. The electrostatic charge causes the
sorbent particles to be more dispersed and to more readily react with a
pollutant molecule in the gas stream. The solid product of this reaction is
then later removed from the gas stream. The CDSI system has a significantly
lower cost relative to competing technologies with similar levels of
efficiency.
The CDSI system injects a chemical agent called sorbent, such as lime,
sodium carbonate, or ammonia, into the polluted gas stream generated by
industrial activity. Sorbents are selected based on the chemical nature of the
gas stream and the pollutant to be removed. As the sorbent is injected, it is
passed through a corona discharge which imparts an electrostatic charge to the
sorbent particles. As a result of this charge, the sorbent particles repel one
another, thus providing rapid dispersal of the sorbent into the polluted gas
stream. This greater dispersion results in a higher sorbent surface area being
exposed to the pollutants in the gas stream for reaction. Once the sorbent has
reacted with the pollutant, the resulting larger particles are filtered or
otherwise removed from the gas stream.
The CDSI system has significant advantages over competing technologies for
remediating polluted gas streams. The most common of these competing
technologies are wet scrubbers. Wet scrubbers spray a mixture of water and
limestone into the polluted gas stream which reacts primarily with sulfur
dioxide to produce a sludge composed of gypsum, limestone, and polluted water.
This sludge must be disposed of and the water treated before reuse or release.
Wet scrubbers are very expensive to build and have very high operating costs.
They are subject to corrosion and frequent breakdown. The CDSI system is a dry
process making collection and disposal of reaction products a much less costly
and simpler procedure. Another significant advantage of the CDSI system is its
ability to operate at temperatures above 2000 degrees Fahrenheit. Because many
chemical reactions with sorbents occur more rapidly at these high temperatures,
CDSI equipment can be used effectively where wet scrubbers cannot.
The CDSI system is easily adapted to a wide variety of industrial
applications and requires little maintenance. The Company believes the system
is particularly well suited to use in power plants, mining and smelting
facilities, incinerators, steel mills, and roaster/dryer facilities, such as
hot mix asphalt plants. The Company is specifically targeting the
roaster/dryer market and the power plant market. There are thousands of these
facilities in North America alone, including over 10,000 roaster/dryer
facilities. Many of these plants are experiencing problems complying with U.S.
Environmental Protection Agency standards, and the CDSI presents a cost
effective means of achieving compliance. In tests conducted at a hot mix
asphalt plant in Arizona in 1995, the CDSI system achieved 99.9% sulfur dioxide
removal. These tests were conducted by an independent testing laboratory. The
Company believes that the CDSI system has substantial market potential in this
application.
The proprietary portions of the CDSI system are fabricated and assembled
by the Company's wholly-owned subsidiary, Alanco Environmental Manufacturing
Inc. This same facility is capable of producing all the necessary ancillary
equipment for a CDSI installation within the United States. Non-proprietary,
ancillary equipment required for an installation outside the United States will
be contracted to local fabricators.
Marketing. The Company markets its air pollution control technology
through two separate approaches: (i) to larger scale projects (which
incorporate site-specific engineering and some on-site construction); and (ii)
to small and medium-sized projects which may require engineering or
construction. The Company has identified three potential sources for sales and
distribution of its systems: (i) through original equipment manufacturers; (ii)
through contract marketing agreements; and (iii) through direct sales force.<PAGE>
The Company believes that China and eastern Europe represent the largest
potential markets for CDSI technology. There are currently more than 450,000
industrial coal-fired boilers in China, a country which consumes more coal than
any other country in the world. Chinese central authorities are expected to
release new regulations by year end regarding sulfur dioxide emission rates by
industrial concerns. Officials of the Chinese environmental regulations
authority have stated they believe the Company's CDSI technology is the best
sulfur removing technology for the small to medium size boilers in China,
estimated to number in excess of 300,000.
In October, 1995, test results from the Dezhou Heat & Power Plant exceeded
Chinese compliance standards for sulfur dioxide removal with a removal
efficiency for sulfur dioxide of 69.5%. These results were also achieved using
a much lower ratio of sorbent to sulfur than employed by traditional dry
sorbent injection methods which results in a significant cost savings. This
facility is now certified as operating in compliance with Chinese standards.
The Company's interests in China are managed by its subsidiary, Alanco
Environmental Technology (Beijing) Co., Ltd., a Chinese company ("Alanco
Beijing"). The Company also has a marketing agreement with the China National
Environment Protection Company, one of the largest environmental companies in
China. Alanco Beijing currently has engineering and marketing staff in place,
as well as people trained to represent its technology in China.
After completion of a one year testing period, Alanco Beijing permanently
installed one CDSI unit at the Dezhou Heat & Power Plant. Dezhou Heat and
Power is expected to purchase more units in 1996. The Company's CDSI system
was one of five environmental technologies listed in Premier Li's "Agenda 21"
plan for cleaning up China's environment. The Agenda 21 listing is expected to
result in additional sales of CDSI systems such as at Hangzhou and with Benxi.
Hangzhou purchased one CDSI unit with ancillary equipment for installation
in October, 1996. The total price for this installation is $157,000, and the
Company has received 40% of the purchase price of the contract to date. After
testing and acceptance of the initial installation, Hangzhou has indicated that
it will purchase four additional systems, two of which will be designed for new
boilers. The additional systems are expected to be completed early in 1997 at
a total price of approximately $600,000. A second letter of intent was signed
by the Deputy Mayor of Benxi City on behalf of Benxi. Benxi recently acquired
funding in the amount of $100,000,000 for installation of pollution control
equipment. Alanco Beijing is currently involved in other negotiations with
several companies in the steel, paper, and power production industries.
In 1995 the Company signed a letter of intent to form a joint venture to
market the CDSI technology in Europe. To date, this joint venture has not been
formed. The Company's preferred method of marketing its products overseas is
through foreign distributors. The Company is currently negotiating several of
these distributorships on a country by country basis.
In the United States, the Company sees the highest demand for its CDSI
products in the roaster/dryer, power generating, steam boiler, and the metals
refining and production industries. The Company has an agreement with Intrade
Ltd. to market the Company's technology in the United States in the power
generation, steam boiler, and metals refining and production industries.
Raw Materials. The Company has numerous sources for materials and parts
used to manufacture the CDSI equipment. It does not foresee any difficulty in
the availability of needed materials nor any substantial increase in the price
of materials.
Patents. The Company 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<PAGE>
Gas Stream". These are old patents which expire beginning in 1997 and deal
primarily with the Environetics Dry Scrubber System ("EDSS") or media bed
filter system for the capture of particulate matter.
In addition to the aforementioned patents, three new patents were applied
for during the year ended June 30, 1994. These patents 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.
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.
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. In addition,
management decided to have this patent application filed in several other
countries.
The Company believes that the rights to and/or ownership of these
patents, patents pending, and patent applications are crucial to its future
success. The Company has filed for additional patents and will continue to do
so as developments warrant. The Company believes 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. In the area of air pollution technology, the
Company's competitors include: Wheelabrator; Pure Air; General Electric;
Westinghouse; and Mitsubishi Corporation. The Company believes its proprietary
technology to be superior to that of its competitors, because of the small
space requirements and low maintenance, capital and operating costs associated
with the CDSI unit.
Two government-funded entities have been working in concert for nearly ten
years to reduce sulfur dioxide from coal-fire plants. The technology which is
currently being developed by Air and Energy Engineering Laboratory ("AEEL") and
Energy and Environmental Research Corporation ("EERC") has been funded by the
Department of Energy and may pose a competitive threat to the Company's CDSI
system. EERC has developed a "gas re-burning sorbent injection" process for
remediation of nitrogen oxide and sulfur dioxides, which can be retrofitted to
existing coal-fire combustion equipment at low cost. However, its sulfur
dioxide removal rate is only 50% to 60%.
AEEL's sulfur dioxide removal technology is called ADVACATE. Reportedly,
the process developed by AEEL is able to remove 90% of the sulfur dioxide
produced during coal combustion. Its process involves injection of calcium
silicant sorbent into the exhaust duct downstream of a boiler, which removes
sulfur dioxide without any need for a scrubbing vessel. The technique was
successfully tested as early as 1991, and AEEL claims that its technology will
cost only half that of conventional wet scrubbers, measured both in terms of
capital outlay and operating costs. The above process does not preclude the
use of CDSI equipment to inject the advacate sorbent.
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. The Company has
expended a total of $132,500 in research and development during the fiscal year
ended June 30, 1996.
Employees. As of September 1, 1996, the Company had eight individuals
whose principal responsibilities were in this business segment.<PAGE>
Air Pollution Control and Agricultural Aeration 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 other industrial
applications. The product lines are: Reverse Air Filters, Pulse Jet Filters,
Cyclonic Collectors, Centrifugal Fans, Pneumatic Conveyors and Ducting. The
manufacturing facility can also perform job shop and original equipment
manufacturing for other entities. AEMI, as indicated above, also manufactures
the CDSI system equipment. AEMI accounted for 67% of consolidated revenues for
the year ended June 30, 1996.
Marketing. AEMI uses a network of commissioned sales representatives
located across the country as its primary marketing and sales force. Personnel
at Falls City conduct direct marketing and sales activities, including
telephone sales. AEMI also maintains a small office for marketing and sales
of its products in Kansas City, MO.
Raw Materials. The principal raw materials used in manufacturing are
sheet metal and plate steel, welding supplies, and various kinds of electrical
components, none of which are uncommon to this industry. The Company currently
uses several suppliers. Most of the suppliers are located in the Midwest, and
none are relied upon as the sole source. In this regard, the Company believes
that it has 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 and
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 normally tapers off around October and November.
Working Capital Practices. At June 30, 1996, AEMI's assets were used as
security for a note payable to a bank. Subsequently, this note was paid in
full. There are no other liens or encumbrances. At year end, the
manufacturing segment had a strong quick ratio (cash and accounts receivable
divided by current liabilities) of approximately three to one. A strong
current position is required to offset the seasonality of the business. In the
past this segment was financed through the parent company. However, during the
past year, outside financing was not required. Based upon past performance,
AEMI should generate needed capital internally.
Dependence Upon Key Customers. The Company has recorded sales to over 250
different customers during the year ended June 30, 1996. Of these, one
customer, Boone Aeration and Environmental Company, Inc. ("BAEC"), accounted
for 24.5% of consolidated revenues generated during the period. Loss of sales
to this customer 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. This assurance depends upon
pricing, quality and availability.
Backlog Orders. The Company had orders for approximately $250,000 as of
September 13, 1996. The Company believes that all of this will be fulfilled in
the coming fiscal year and that no material change should occur. The Company
had a backlog of $700,000 for the comparable period last year.
Competitive Conditions. AEMI breaks its competition into two separate
categories: (i) companies that engineer, market and manufacture aeration
equipment in-house; and (ii) companies that specialize in engineering and
marketing of aeration equipment only (such as BAEC). AEMI views the
competitive threat posed by the former group as more substantial. Only a
limited number of agricultural products and dust control equipment
manufacturers exist in the United States. However, those competitors currently<PAGE>
in existence generate an average sales volume in excess of that of AEMI, and
often have substantially more resources. The latter group often enhances,
rather than competes with, AEMI because they may submit engineered drawings to
AEMI for bids on components.
Employees. As of September 1, 1996, the manufacturing segment employed a
total of 44 people.
Restaurant Equipment/Food Marketing and Distribution Segment
Fry Guy Inc. ("Fry Guy") has developed an Integrated Finger Food Marketing
("IFFM") program whereby it supplies a deep fry machine to customers who are
required to utilize foods of an affiliated distributor. The Company receives
income for all foods sold to the customer utilizing the Company's deep fryer.
In general, the Company has targeted organizations with more than 100 retail
outlets offering or desiring to offer hot foods.
Fry Guy created the IFFM program in conjunction with prominent food
suppliers as strategic partners with whom it has agreements. These suppliers
include Tyson Foods, the Moore's Division of H.J. Heinz, Cargill, and the Lamb-
Weston division of Beatrice Foods. Each strategic partner provides an
essential ingredient for the IFFM program. Lamb-Weston, the world's largest
supplier of food service french fries, provides the potato products, mainly
french fries. Tyson Foods provides the meat products including chicken nuggets
and strips. Moore's provides onion rings, french toast, cheese sticks and
cheese stuffed jalapeno peppers. Cargill is the supplier of the cooking oil.
The fryer, which operates with an air filtering system, eliminates the
need for a venting system, which is necessary with conventional restaurant deep
fryers. The machine operates, with an automated lowering and raising basket
mechanism, on 110 volt electricity as compared to the 220 volts usually
required by conventional deep fryers. The machines weigh only 70 pounds and
can be operated from a countertop.
As a part of its IFFM program, the Company tested its food products in 200
Wal-Mart stores during 1995 and, in April 1996, announced an agreement with
Wal-Mart whereby its IFFM program would be utilized in approximately 1,200
existing and all future Wal-Mart snack bars (excluding stores with branded
restaurant facilities). The Company intends to pursue other similar
distribution agreements.
Marketing. In directing its marketing effort, Fry Guy has targeted small
food outlets and similar facilities in convenience stores, discount/department
stores, shopping malls, bars and other premises with small snack bar facilities
that previously were unable to offer hot food items. Fry Guy provides these
customers with the Fry Guy fryer without charge or at very nominal monthly cost
and receives payment for the program food purchased by the customer. As part
of this Integrated Finger Food Marketing program, Fry Guy also provides
warranty service and repairs to the fryer, training for the fryer operators,
promotional and point of sale materials and a program for the development and
introduction of new food products.
Under its agreement with Wal-Mart, Fry Guy will place approximately 1,200
fryers in Wal-Mart snack bars nationally. As of September 16, 1996, 503 of
these fryers have been installed. The process of delivering fryers to the
balance of the approximately 1,200 Wal-Mart snack bars is under way and will be
completed by year end.
Working Capital Practices. Fry Guy will continue its objective of placing
frying machines in profitable locations and will continue to develop its
distribution system. Cooperative advertising funds from several major
corporations will be used to assure the success of programs with Wal-Mart and
other retailers. Fry Guy has received positive responses from various funding<PAGE>
sources regarding its future capital requirements.
Dependence Upon Key Customers. The focus of the Company's restaurant
equipment/food distribution segment has been almost entirely devoted to its
relationship with Wal-Mart. Successful operations of Fry Guy are dependent
upon the Company's ability to meet its obligations under its agreement with
Wal-Mart. Although the Company has a two year commitment with Wal-Mart, a
decision by Wal-Mart to cease or reduce its commitment with the Company's IFFM
program would have a material adverse affect on its business.
Backlog Orders. The Company has an order backlog for the placement of
fryers of approximately 800.
Competitive Conditions. Fry Guy is aware of only one direct competitor
which actively markets a ventless small capacity deep fryer, but does not
market food products. Numerous competitors offer equipment which requires
venting to the outside. Also, they are unaware of any competitor providing
both the sales and distribution of a finger food program.
Employees. As of September 1, 1996, Fry Guy has eleven employees.
Insurance Claims Adjusting Segment
During 1995, the Company completed its acquisition of National Affiliated
Adjustment Company ("NAAC"), an independent claims loss adjustment company
based in Scottsdale, Arizona. Prior to its acquisition, NAAC and a predecessor
had been in operation for more than 10 years and was one of the largest
independent claims adjustment firms in Arizona. NAAC is operated by the
Company's subsidiary, Unique Systems, Inc., but does business as National
Affiliated Adjustment Company. NAAC is a processor of property, casualty,
health insurance and workmen's compensation claims. It also provides
automobile appraisals for a variety of insurance companies. NAAC accounted for
24% of consolidated operating revenues for the year ended June 30, 1996.
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
the cost of the procedure is within guidelines. If all information is
determined to be accurate and appropriate, the insurance claims adjuster
notifies the insurance payer 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 at a flat rate
per claim or on time and expenses per claim. NAAC presently has offices in
Scottsdale and Tucson, Arizona, Las Vegas, Nevada, and Fort Lauderdale,
Florida.
Marketing. NAAC will continue to develop its existing claims adjusting
locations, three of which were opened during the past year. The Company has a
strong client base and believes that concentrating on its existing locations
will yield increased profits and produce positive cash flow from this business
segment.
Seasonality of Business. Any seasonal aspect of this insurance segment is
related directly to weather patterns, which vary by location. Severe weather
significantly increases property damage which increases the number of claims to
be handled.
Working Capital Practices. As the number of claims increase, additional
working capital is needed to finance the increase in accounts receivable and
work in process. This trend reverses in a short time when payments are<PAGE>
received from the various insurance carriers. After the loss of a major client
during the past year, the parent company was required to inject small amounts
of working capital. Projections show this segment will generate required
working capital internally during the upcoming year.
Dependence Upon Key Customers. In April 1996, the International
Association of Entrepreneurs of America ("IAEA"), a major client of NAAC,
become insolvent and was placed in receivership by the Tennessee Department of
Insurance. In addition, NAAC was named in a lawsuit by the U.S. Department of
Labor in an action related to NAAC's servicing of IAEA claims (see Legal
Proceedings). NAAC has replaced most of this lost revenue through an intense
marketing effort conducted on a nationwide basis.
Competitive Conditions. Competition in the insurance claims adjusting
industry is extensive and is principally driven by price, timeliness, and
quality of service.
Employees. As of September 1, 1996, NAAC employs twenty-one individuals.
Mining Segment
The Company has classified its mineral properties as assets held for sale
since it is actively seeking a sale or joint venture agreement for operations
of these assets. It currently holds mining properties without any exploration
or development activity. The Company has been informed by its consulting
geologist that certain of the Company's mining properties lack economic
feasibility, based on the extent of exploration to date. The geologist has,
however, encouraged the Company to continue exploration efforts until a
feasible ore body is proven or a decision is reached to abandon the property.
The Company has previously recorded a contingent sale of 56 mining claims
located in the Tombstone Mining District, which represents less than 10% of the
total appraised value of the mining properties. This contingent sale was
recorded as an installment sale contract and any profit is recorded pro-rata
based upon the payments received. As of June 30, 1996, the Company has
received payments of $55,000 of the total sale price of $1,180,000. The
remaining installments are due as set forth in the following table:
July 15, 1997 $ 50,000
July 15, 1998 75,000
July 15, 1999 1,000,000
Total $1,125,000
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 on 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.
For a more detailed description of the mining properties, see Item 2.
Properties below.<PAGE>
Employees. None.
ITEM 2. PROPERTIES
The Company's corporate office is located in an 11,163 square foot leased
facility in Scottsdale, Arizona. Air Pollution Control Services and Mining
operations are headquartered at the corporate office. Currently, the Company
has subleased 3,883 square feet in this facility.
Fry Guy is currently located in a 2,708 square foot leased facility in Las
Vegas, Nevada. The Restaurant Equipment Marketing Segment also leases 770
square feet of warehouse space in Las Vegas, Nevada. Two previous locations of
3,472 and 1,609 square feet are being subleased to unrelated parties.
NAAC is headquartered in a 2,400 square foot leased facility in
Scottsdale, Arizona, and occupies 940 square feet of office space in Las Vegas,
Nevada, 1,348 square feet of office space in Tucson, Arizona, and 1,497 square
feet of office space in Ft. Lauderdale, Florida.
AEMI's 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, currently closed, 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.
AEMI also leases a sales office in Kansas City, Missouri. This facility is
approximately 297 square feet.
Mining Properties
At June 30, 1996, the Company owned mineral rights in four unpatented
mineral mining and millsite properties in Arizona. The Company's mining
properties include the Tombstone Metallurgical Facility and a mill on the site
of the C.O.D. Mine.
The following table sets forth the Company's major mineral land holdings
for the fiscal years ended June 30, 1996 and 1995.
MAJOR MINERAL LAND HOLDINGS AT JUNE 30, 1996 AND 1995
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%
Mining/Milling Equipment Location Acreage Ownership
C.O.D. Mine Mohave County, AZ 150 100%
Tombstone Cochise County, AZ 75 100%<PAGE>
The following tables set forth the current appraised value and the
adjusted carrying value as of June 30, 1996 and 1995, respectively.
MAJOR MINERAL HOLDINGS AT JUNE 30, 1996
Appraised Adjusted
Mineral Property Value (1) Value (2)
C.O.D. Mine $6,853,021 $5,539,328
Mineral Mountain 243,265 221,520
Cherry Creek 190,686 0
Tombstone/STC Claims 760,037 409,828
Mining/Milling Equipment
C.O.D. Mine Included Above 107,831
Tombstone Mill 227,587 296,702
Total Property & Equipment $8,274,596 $6,575,209
MAJOR MINERAL HOLDINGS AT JUNE 30, 1995
Appraised Adjusted
Mineral Property Value (3) Value (2)
C.O.D. Mine 8,505,445 5,539,328
Mineral Mountain 228,775 221,520
Cherry Creek Claims 680,909 0
Tombstone/STC Claims 712,367 409,828
Mining/Milling Equipment
C.O.D. Mine Included Above 107,831
Tombstone Mill 328,487 296,702
Total Property & Equipment $10,455,983 $6,575,209
(1) The fair market value as determined by the appraisal completed for the
fiscal year ended June 30, 1996.
(2) 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.
(3) The fair market value as determined by the appraisal completed for the
fiscal year ended June 30, 1994.<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several 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 AEMI. Installation and service of the bag filter system occurred
before and after 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.
On June 21, 1996, the Company was served with a complaint entitled Loveit
Baumgardner and Ping Zhang v. Alanco Environmental Resources Corporation, filed
in Utah District Court, Salt Lake City, Utah. Ms. Baumgardner was a clerical
employee of the Company. Mr. Ping was an employee of the Company whose
services were rendered in the People's Republic of China. Ms. Baumgardner and
Mr. Ping seek 28,000 and 30,000 shares of the Company's common stock,
respectively, which they allege were promised to them by Kevin Jones, the
former chief financial officer of the Company. The Company has denied all
allegations contained in the Complaint and is vigorously defending against the
claims, as well as pursuing counterclaims against Mr. Ping for breach of
fiduciary duty, tortious interference with contracts and patent infringement.
In April, 1996, the registrant's subsidiary, National Affiliated
Adjustment Company, Katherine Meyer, then President of NAAC, and Norman Meyer,
President of the Company, were named as Defendants in a civil action filed by
the U.S. Department of Labor in U.S. District Court, Nashville, Tennessee. The
action also names the International Association of Entrepreneurs of America
Benefit Trust, a self-insured employer's workers compensation trust, IAEA,
Inc., Stockton Fuller & Co., Inc., and six other individual defendants. The
action alleges NAAC received excessive compensation under the Employee
Retirement Income Security Act of 1974 (ERISA) and as employees of NAAC, the
Meyers benefited indirectly from their compensation. NAAC and its predecessor,
Realistic Adjustment Company, served as the claims processing facility for the
IAEA Trust. NAAC and the Meyers had no discretionary authority with respect to
the Trust assets or decision making and deny any breach of fiduciary duty. The
IAEA Trust has been placed into Receivership, and NAAC and the Meyers have
fully cooperated with the Receiver and the Department of Labor. NAAC and the
Meyers have filed an Answer to the Complaint denying all material allegations
and intend to vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Shareholders during the fourth
quarter of the fiscal year ended June 30, 1996.<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(1) Market Information: Alanco's common stock is traded on the NASDAQ
Small Cap Market under the symbol "ALAN".
(2) High and Low Bid Prices: The following table sets forth high and low
bid prices for each fiscal quarter for the last two fiscal years. Such
quotations represent inter-dealer prices without retail mark-ups, mark-downs,
or commissions and, accordingly, may not represent actual transactions.
Fiscal 1996 Fiscal 1995
Quarter Ended High Low High Low
September 30 2.56 1.75 2.53 1.06
December 31 2.53 1.81 2.22 1.25
March 31 4.88 1.90 1.88 1.16
June 30 3.88 1.97 2.75 1.50
(3) Security Holders: As of September 18, 1996, Alanco had approximately
1,975 holders of record of its Common Stock. This does not include beneficial
owners holding shares in street name.
(4) Dividend Plans: Alanco has paid no common stock cash dividends and
has no current plans to do so.
(5) Preferred Stock:
(a) Class A, Series I Convertible Preferred Stock.
There are 26 Shares of $20,000 par value, Class A, Series I
Convertible Preferred Stock issued and outstanding as of
September 18, 1996.
(b) Class A, Series II Convertible Preferred Stock.
There are 110,000 shares of $10 par value, Class A, Series II
Convertible Preferred Stock issued and outstanding as of
September 18, 1996. The Class A Series II Preferred Stock has
a cumulative per share dividend of eighty cents ($0.80) per
annum, paid quarterly.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company and its subsidiaries can be found
in the following table. This information includes information for the Company
and its subsidiaries on a consolidated basis and should be read in conjunction
with the audited financial statements and accompanying notes.<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (Not covered by Report of Independent Certified Public Accountant)
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year
-------------- -------Fiscal Year Ended--- ------------- -Period Ended Ended
Selected Income Statement Data June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 May 31, 1992
- ------------------------------ -------------- ------------- ------------- ------------- ------------- ------------
Operating Revenue 4,962,948 3,438,183 1,581,515 10,987 24,500
Net Loss (3,528,353) (4,753,380) (3,839,964) (4,102,173) (112,702) (2,861,797)
============== ============= ============= ============= ============= ============
Net Loss per share of common stock (0.11) (0.20) (0.21) (0.32) (0.02) (0.55)
============== ============= ============= ============= ============= ============
Weighted average number of shares 31,782,296 23,839,969 18,253,730 12,974,995 6,867,840 5,287,487
_________________________________________________ _____________ _____________ _____________ _____________ ____________
Fiscal Year
-------------- -------Fiscal Year Ended--- ------------- Period Ended Ended
Selected Balance Sheet Data June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 May 31, 1992
- --------------------------- -------------- ------------- ------------- ------------- ------------- ------------
Current Assets 3,841,374 3,338,560 4,283,308 20,208 2,918 262
Current Liabilities 809,761 1,006,740 852,184 632,937 1,926,057 1,885,071
-------------- ------------- ------------- ------------- ------------- ------------
Working Capital (deficit) 3,031,613 2,331,820 3,431,124 (612,729) (1,923,139) (1,884,809)
============== ============= ============= ============= ============= ============
Total Assets 21,389,967 21,215,852 18,281,763 8,432,262 8,682,243 8,686,959
Long Term Debt 372,020 344,129 -- -- -- --
Redeemable Preferred Stock 330,468 295,062 -- -- 750,000 750,000
Common Stock and Other
Shareholders' Equity 18,970,907 18,600,816 16,327,796 7,799,325 6,006,186 6,051,888
/TABLE
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of June 30, 1996, the Company's current assets exceeded current
liabilities by $3,032,000, a ratio of 4.7 to 1. This improvement over the
prior year is the result of an increase in current assets of $503,000 and a
decrease in current liabilities of $197,000. The Company will continue to need
significant capital for equipment purchases and working capital. Projections
indicate a stronger need in the earlier part of the year and less as revenues
improve. Subsequent to year end, the Company (i) issued $1,100,000 of Class A
preferred stock to enhance the interim cash position and (ii) received a letter
of intent to provide financing for equipment purchases for the Fry Guy program.
The Company plans continued reductions in overhead expenses wherever possible.
Inventories increased by $270,000 since fiscal year end June 30, 1995.
The majority of this increase was the build up in restaurant equipment needed
to fulfill contracts in place. Much of this equipment will be utilized in the
Wal-Mart program which calls for the placement of over 1,200 machines.
Deployment of this equipment began in late June, 1996. The restaurant
equipment segment (Fry Guy) is anticipating a significant increase in revenues
from utilization of this equipment. Cooperative promotional funds from several
major corporations are available to assure the success of the program with Wal-
Mart and related vendors. The Company is also pursuing additional loan funds
to finance the long term equipment needs of the Fry Guy program. The Company
believes financing is currently available.
The insurance adjustment business completed its expansion in Arizona and
Florida during the past year utilizing internal cash supplemented with advances
from the parent company. This segment has a strong client base and will
continue to grow through its four locations. With no further expansion and
reduced overhead planned, positive cash flow and profits are projected for this
business segment.
During the quarter ended June 30, 1996, the Company received cash deposits
for the installation of CDSI equipment in China. Income will be recognized
during the quarter ended September 30, 1996. Additional CDSI sales are
expected in the upcoming year. The Company will continue to solicit sales
through its China corporation and independent agents with worldwide sales
capabilities. Potential customers in developing countries have access to funds
for the purchase of pollution control equipment through organizations such as
the World Bank, Asian Development Bank, U.S. Export-Import Bank, as well as
interested highly developed countries, such as Japan and South Korea. This
business segment is expected to be profitable and produce positive cash flow.
For the past two years the manufacturing business segment has generated
the necessary cash flow needed to operate effectively. This business is
typically slow during the winter months. Management is planning to take the
necessary steps to control costs in relation to revenues generated. At the
present time, the assets of this segment are free from any encumbrances and
would be available as collateral should the need arise.
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Consolidated revenues for fiscal year 1996 were $4,960,000, representing
an increase of 44% over fiscal 1995. The insurance segment and restaurant
service, consolidated for a full year, accounted for 66% and 29%, respectively,
of the increase in revenues. Manufacturing revenues, which increased only
slightly, accounted for 67% of consolidated revenue.
During 1996, 61% of revenue in the restaurant service segment was<PAGE>
generated from the sale of equipment. The Company is currently retaining
ownership of the equipment, ultimately leading to a significant increase in
gross profit. Regarding the sale of pollution control equipment, the Company
has agreements in place, but installation and revenue recognition will not take
place until after fiscal year end. See Note 14 of the Consolidated Financial
Statements for additional segment information on revenues and results of
operations.
For the year ended June 30, 1996, consolidated net loss was $3,528,000
compared to a loss of $4,753,000 in the prior year. Fiscal year 1995 included
significant write downs of assets reported as other expense. Loss on
operations increased by $830,000. Forty-nine percent (49%) of this increase
can be attributed directly to higher depreciation and amortization expense.
Consolidated selling, general and administrative expense increased by
$1,636,000. The following table lists the amount of expense by major
categories and percentage of total general and administrative expense for 1996
and 1995.
1996 1996 1995 1995
Category Amount Percentage Amount Percentage
Manufacturing $ 884,000 20 $ 655,000 24
Insurance 827,000 19 108,000 4
Restaurant Service 624,000 14 112,000 4
Environmental 522,000 12 301,000 11
Mining 65,000 2 205,000 8
Corporate and Other 1,445,000 33 1,350,000 49
---------- ----- ---------- -----
$4,367,000 100 $2,731,000 100
The insurance and restaurant service segments, consolidated for a full
year, accounted for 44% and 31% of the increase, respectively. The Company
increased its marketing efforts of the CDSI pollution control equipment, thus
incurring additional costs over fiscal 1995 of $221,000. During fiscal year
1996, corporate expenses increased 7%. Portions of this increase were due
to the establishment of a Public/Shareholder Relations Department and the
establishment of an information retrieval system for Fry Guy Inc.
Fiscal 1995 Compared to Fiscal 1994
Consolidated revenues for the year ended June 30, 1995, were $3,438,000,
an increase of $1,857,000 or 117%. The manufacturing operations accounted for
91% of this increase. The balance of the increase was principally due to the
new business segments added May 1, 1995: restaurant equipment and supply, and
insurance adjusting.
For the fiscal year ended June 30, 1995, the Company's net loss increased
by $913,000 (24%) over the prior fiscal year. Net losses include the
operations of newly added subsidiaries for a two month period only. The
consolidated results for fiscal year 1995 include, under the caption of Other
Income (Expense), a write down of property of $1,311,000, loss on the sale of a
building and furniture of $666,000, and a write down of investment securities
of $431,000, compared to similar losses of $841,000 for the prior year. These
items are of a singular nature and would not be considered a part of ongoing
operations. The above items more than account for the increase in net losses
for the year. Loss from operations decreased by $505,000. This decrease is
attributable to an increase in manufacturing revenues and a decrease in mining
expenditures.
Consolidated direct service and cost of sales increased by $1,022,000 from
fiscal year 1994 to 1995. Manufacturing cost of goods sold increased by 54% or
$925,000. This was the result of reporting a full year's operating history<PAGE>
versus the six months that were consolidated the previous year. Resources
relating to environmental research and development were more properly reclassed
into the marketing and general and administrative category.
Consolidated selling, general and administrative costs increased by
$103,000 from fiscal year 1994. The net increase in general and administrative
expenses was attributed to: (i) the addition of two new business segments, (ii)
increased volumes in the manufacturing segment due to its inclusion for a full
year, and (iii) a reduction in mining expenses of $275,000 principally due to
loss fees paid to the Bureau of Land Management.
Product and Environmental Contingencies
The Company is not aware of any material product or environmental
liabilities. Also refer to the environmental disclosure section of the mining
business segment of Item 1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1996, 1995 and 1994<PAGE>
Singer Lewak Greenbaum & Goldstein LLP
Certified Public Accountants & Management Consultants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Alanco Environmental Resources Corporation
We have audited the accompanying consolidated balance sheet of Alanco
Environmental Resources Corporation (formerly known as Alanco Resources
Corporation) and subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alanco
Environmental Resources Corporation and subsidiaries as of June 30, 1996, and
the results of their operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the
consolidated financial statements, the Company has incurred operating losses
and has had negative cash flows from operations for the last three years.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Singer Lewak Greenbaum, Goldstein LLP
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
September 6, 1996
F1<PAGE>
BILLIE J. ALLRED
CERTIFIED PUBLIC ACCOUNTANT
Suite J-1
4625 South Ash Avenue
Tempe, Arizona 85282
Tel.(602) 820-2092
Fax (602) 820-4584
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Alanco Environmental Resources Corporation
We have audited the accompanying consolidated balance sheet of Alanco
Environmental Resources Corporation (formerly known as Alanco Resources
Corporation) and subsidiaries as of June 39,1995, and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for my opinion.
In our opinion, the 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
then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has incurred operating losses and has had
negative cash flows from operations for the last two years. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Managements' plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/Billie J. Allred
BILLIE J ALLRED CPA
Tempe, Arizona
September 28, 1995
F2<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
<S> <C> <C>
ASSETS
1996 1995
--------------- ----------------
Current assets:
Cash $ 565,199 $ 607,411
Accounts receivable, net of allowance for doubtful
accounts of $11,000 and $25,189, respectively 648,974 480,838
Notes receivable (note 2) 1,274,647 1,051,775
Inventories (note 3) 1,281,872 1,011,701
Prepaid expenses and other current assets 70,682 186,835
--------------- ----------------
Total current assets 3,841,374 3,338,560
Property, plant and equipment, net (note 4) 3,307,258 3,393,308
Mineral properties and related assets (note 5) 6,575,209
Costs in excess of book value on acquisition
of wholly-owned subsidiaries, net of
accumulated amortization of $529,066 and
$102,419, respectively 5,869,137 6,295,784
Intangible assets, net of accumulated amortization of
$108,119 and $83,678, respectively 188,808 121,647
Assets held for sale (note 5) 6,855,063
Other assets 1,286,069 1,491,344
--------------- ----------------
$ 21,347,709 $ 21,215,852
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, shareholders $ 53,685
Capital lease obligations, current portion (note 6) $ 124,571 179,151
Accounts payable and accrued expenses (note 7) 685,190 773,904
--------------- ----------------
Total current liabilities 809,761 1,006,740
Capital lease obligations (note 6) 372,020 344,129
Unrealized installment sales 864,553 969,105
Commitments and contingencies (notes 6 and 13)
Redeemable Preferred Stock, $20,000 par value, Class A, Series 1,
convertible, non-cumulative, voting; 5,000,000 shares
authorized; 26 shares issued and outstanding (note 8) 330,468 295,062
Shareholders' equity (note 9):
Preferred Stock, Class B, cumulative, voting;
20,000,000 shares authorized and none issued
Common Stock, no par value, 100,000,000 shares
authorized; 33,209,544 and 29,924,057 shares
issued and outstanding, respectively 51,783,690 47,885,246
Accumulated deficit (32,812,783) (29,284,430)
--------------- ----------------
Total shareholders' equity 18,970,907 18,600,816
--------------- ----------------
$ 21,347,709 $ 21,215,852
=============== ================
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F3<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 1996, 1995 and 1994
<S> <C> <C> <C>
1996 1995 1994
------------ ----------- ------------
Net sales (note 10) $ 4,962,948 $ 3,438,183 $ 1,581,515
------------ ----------- ------------
Operating expenses:
Direct service and cost of goods sold 3,056,167 2,740,812 1,719,046
Selling, general and administrative 4,366,939 2,731,060 2,627,785
Depreciation and amortization 859,506 455,791 229,457
------------ ----------- ------------
Total operating expenses 8,282,612 5,927,663 4,576,288
------------ ----------- ------------
Loss from operations (3,319,664) (2,489,480) (2,994,773)
Other income (expense):
Interest income 70,216 62,043 16,874
Interest expense (101,763) (16,831) (20,368)
Write-down of assets (162,772) (1,743,043) (385,771)
Loss on disposal of assets (48,921) (616,543) (455,553)
Other, net 34,551 50,474 (373)
------------ ----------- ------------
Total other expenses (208,689) (2,263,900) (845,191)
Loss before provision for income taxes (3,528,353) (4,753,380) (3,839,964)
Provision for income taxes (note 11)
------------ ----------- ------------
Net loss $ (3,528,353) $(4,753,380) $ (3,839,964)
============ ============ ============
Net loss per share $ (.11) $ (.20) $ (.21)
============ ============ ============
Weighted average common shares outstanding 31,782,296 23,839,969 18,253,730
============ ============ ============
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F4<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1996, 1995 and 1994
<S> <C> <C> <C> <C>
Common Stock Subscriptions Accumulated
Shares Amount Receivable Deficit TOTAL
---------- ------------ ------------ -------------- -------------
Balances, June 30, 1993 16,231,948 $ 28,892,971 $ (402,560) $ (20,691,086) $ 7,799,325
Collection of subscriptions receivable 302,560 302,560
Common stock issued for (note 9):
Cash 4,240,539 7,358,063 7,358,063
Conversion of debt to equity 165,000 257,813 257,813
Acquisition of subsidiary in
manufacturing industry 1,200,000 3,600,000 3,600,000
Acquisition of corporate building 650,000 650,000 650,000
Services rendered 200,000 200,000 200,000
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 of subscription receivable (100,000) 100,000
Common stock issued for (note 9):
Cash 440,600 279,938 279,938
Satisfaction of debt 50,000 37,500 37,500
Services rendered 395,600 358,591 358,591
Acquisition of subsidiary in:
Restaurant equipment industry 4,600,000 4,600,000 4,600,000
Insurance adjusting industry 1,750,370 1,750,370 1,750,370
Net loss (4,753,380) (4,753,380)
---------- ------------ ------------ -------------- -------------
Balances, June 30, 1995 29,924,057 47,885,246 (29,284,430) 18,600,816
Common stock issued for (note 9):
Cash 2,861,333 3,129,988 3,129,988
Shares issued under stock
option plans 384,500 704,935 704,935
Intangible assets 18,750 41,016 41,016
Services rendered 20,904 22,505 22,505
Net loss (3,528,353) (3,528,353)
---------- ------------ ------------ -------------- -------------
Balances, June 30, 1996 33,209,544 $ 51,783,690 $ (32,812,783) $ 18,970,907
========== ============ ============ ============== -------------
<CAPTION>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F5<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 1996, 1995 and 1994
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net loss $(3,528,353) $(4,753,380) $ (3,839,964)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 859,506 455,791 229,457
Loss on disposition of assets 48,921 616,543 455,553
Write-down of assets 162,772 1,743,043 385,771
Stock issued for services rendered and expenses 59,465 358,591 200,000
Imputed interest on preferred stock 35,406
(Increase) decrease in:
Accounts receivable (168,136) (118,152) (556,114)
Inventory (554,432) 95,063 (620,538)
Prepaid expenses and other current assets 88,143 2,835 (24,188)
Other assets 163,017 (59,644) 4,231
Increase (decrease) in:
Accounts payable and accrued expenses (88,714) 51,700 359,065
Unrealized installment sales (104,552) 165,000
----------- ------------ ------------
Net cash used in operating activities (3,026,957) (1,607,610) (3,241,727)
----------- ------------ ------------
Cash flows from investing activities:
Advance for notes receivable (770,387) (214,208) (837,495)
Collection of notes receivable 427,001
Purchase of property, plant and equipment (293,155) (391,625) (1,391,801)
Proceeds from disposition of assets 22,385 623,954
Purchase of mineral properties (165,000)
Purchase of intangible assets (50,586) (18,925) (63,754)
----------- ------------ ------------
Net cash used in investing activities (664,742) (804) (2,458,050)
----------- ------------ ------------
Cash flows from financing activities:
Repayments on notes payable, shareholders (53,685)
Proceeds from issuance of note payable 210,000
Advances from borrowings 38,265
Repayments on borrowings (24,299) (25,959)
Repayments on capital lease obligations (94,791)
Stock subscriptions collected 85,000
Proceeds from the sale of stock 3,797,963 279,938 7,358,063
Other (13,995) (93,860)
----------- ------------ ------------
Net cash provided by financing activities 3,649,487 279,909 7,533,244
----------- ------------ ------------
Net (decrease) increase in cash (42,212) (1,328,505) 1,833,467
Cash, beginning of year 607,411 1,935,916 102,449
----------- ------------ ------------
Cash, end of year $ 565,199 $ 607,411 $ 1,935,916
=========== ============ ============
</TABLE>
F6<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Alanco Environmental Resources Corporation and subsidiaries' (the
Company) business activities for the past several years have emphasized
diversification. The Company has expended substantial time and
resources on the development of its pollution control devices, the
Environetics Dry Scrubber System (EDDS) and the Charged Dry Sorbent
Injection System (CDSI), and the acquisition of operating subsidiaries
in three different business segments.
These business segments include:
i) manufacturing for the agricultural and dust control industry;
acquisition was effective on January 1, 1994;
ii) wholesale equipment supplier to the food service industry;
acquisition was effective May 1, 1995; and
iii) insurance adjusting, a service-oriented business segment;
acquisition was effective May 1, 1995.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Alanco Environmental Resources Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions have been
eliminated.
Going Concern and Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. As shown in the
consolidated financial statements, the Company has incurred operating losses
and has had negative cash flows from operations for the last three years.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheets is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to continue
to raise capital and generate positive cash flows from operations. The
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue its existence.
F7<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Management plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in existence:
- continue its objective of increasing revenues, streamlining operations,
controlling costs and developing profitability and stability in each
business segment, and raising additional capital as needed (see
note 12);
- downsize office space in certain locations, sublease excess space and
reduce personnel as necessary;
- obtain financing for purchase of restaurant machinery to facilitate the
implementation of the Wal-Mart distribution system, and aggressively
market its distribution system to other major retail food outlets;
- take advantage of the prior marketing groundwork and product
identification completed for CDSI pollution control equipment, and
continue to solicit sales through its distribution channels in China;
- sell or enter into a joint venture agreement with regards to its mineral
properties.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, marketable securities, accounts
receivable, notes receivable, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities. The
amounts shown for capital lease obligations also approximate fair value
because current interest rates and terms offered to the Company for similar
lease agreements are substantially the same.
Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
1996 presentation. Such reclassifications had no effect on reported net
losses or shareholders' equity.
F8<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, Plant and Equipment
Property, plant and equipment, including amounts for capitalized leases, are
stated at cost. Depreciation is computed using the straight-line method
over the useful lives of the assets as follows:
Buildings 32 years
Machinery and equipment 5-7 years
Furniture and other equipment 5-7 years
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to
assets retired are removed from the accounts and the gain or loss on
disposition is recognized in income.
Mineral Properties and Related Assets (Assets Held For Sale)
Mineral properties and related assets are carried at the lower of historical
cost or appraised value.
Costs in Excess of Book Value on Acquisition of Wholly-Owned Subsidiaries
and Intangible Assets
The Company continually monitors its costs in excess of book value on
acquisition of wholly-owned subsidiaries (which is amortized over 15 years)
and its other intangible assets to determine whether any impairment of these
assets has occurred. In making such determination with respect to costs in
excess of book value on acquisition of wholly-owned subsidiaries, the
Company evaluates the performance, on an undiscounted cash flow basis, of
the underlying assets or group of assets which gave rise to such amounts.
With respect to other intangibles, which include patents, the Company bases
its determination on the performance, on an undiscounted basis, of the
related products.
Revenue Recognition
Substantially all revenues are recognized when finished products are shipped
or services have been rendered with appropriate provision for uncollectible
accounts.
Concentrations of Credit Risks
The Company sells products (primarily in the United States and China) and
services (primarily in the United States) and extends credit based on an
evaluation of the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables is principally
dependent on each customer's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for anticipated losses.
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards (SFAS), No. 109,
"Accounting for Income Taxes."
F9<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Supplemental Cash Flow Information
The Company paid no income taxes, and interest of $66,357, $16,831 and
$20,368 for the years ended June 30, 1996, 1995 and 1994, respectively.
For the non-cash investing and financing activity, see footnotes 6 and 9.
NOTE 2 - NOTES RECEIVABLE
1996 1995
Note receivable, six monthly installments ----------- ------------
of $75,000 with balance due
December 31, 1995 (A) $ 495,000 $ 870,000
Notes receivable, quarterly interest payments
at prime plus 2%, principal due
June 26, 1997 (B) 620,238
Notes receivable - trade 100,403
Notes receivable - other 59,006 181,775
$ 1,274,647 $ 1,051,775
=========== ===========
(A) During the year ended June 30, 1995, the Company sold 86% of its 70%
interest in Phoenix Medical Management, Inc. (PMM) to Amarante
Financial S.A., an unrelated third party, for $870,000. Currently, a
balloon payment of $495,000 is past due. Negotiations are under way to
cure the default. This note receivable is collateralized by 60% of
PMM's common stock.
(B) As part of the Company's acquisition of its 70% interest in PMM's
common stock, the Company agreed to indemnify certain unrelated third
parties against losses on their continuing guarantees on leased
facilities and equipment. As a result of these guarantees, the Company
has loaned PMM $620,238. PMM's accounts receivable are collateral for
this loan. Also, the Company's current President and CEO is the ex-CEO
of PMM, and PMM's current President and CEO is an ex-officer and
director of the Company.
F10<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 3 - INVENTORIES
At June 30, inventories consist of:
1996 1995
----------- -----------
Purchased machine and parts $ 532,746 $ 180,149
Finished goods 229,231 166,529
Work-in-process 171,204 186,571
Raw material 348,691 478,452
----------- -----------
$ 1,281,872 $1,011,701
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
At June 30, property, plant and equipment consist of:
1996 1995
---------- -----------
Land $ 60,231 $ 106,431
Buildings 1,330,338 1,569,816
Machinery and equipment 2,044,716 1,727,689
Furniture and office equipment 609,939 383,808
---------- -----------
4,045,224 3,787,744
Less accumulated depreciation 737,966 394,436
---------- -----------
$3,307,258 $3,393,308
========== ===========
NOTE 5 - MINERAL PROPERTIES AND RELATED ASSETS (ASSETS HELD FOR SALE)
At June 30, 1996 and 1995, mineral properties and related assets consist of:
Mineral properties $6,170,676
Mill and refinery 688,696
Other mining equipment 866,614
-----------
7,725,986
Less accumulated depreciation 1,150,777
-----------
$6,575,209
===========
As of June 30, 1996, the Company was actively soliciting the sale of or a
joint venture agreement for the operations of these assets. Accordingly, the
Company has classified these mineral properties as assets held for sale.
F11<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 5 - MINERAL PROPERTIES AND RELATED ASSETS (ASSETS HELD FOR SALE)
(continued)
For the year ended June 30, 1996, the Company retained an independent
geologist (Geologist) to appraise the mineral properties. A majority of the
mining properties are undeveloped claims which generally do not have a readily
demonstrated market value because they lack sufficient exploration of an ore
body to determine the recoverability of the amount and grade of the potential
ore body. The appraiser assigned a value to these properties based upon the
accumulated monies expended on the claims as of June 30, 1996. Further, the
appraiser indicated that these properties lack economical feasibility based
upon the exploration and development to date. However, he stated further that
there existed considerable evidence as to the potential of these mineral
properties and recommended that the Company increase exploration and
development efforts on these properties until an economically feasible ore
body is proved or a decision is reached to abandon the property. The minority
of the mining properties had past mining activity which gave evidence of an
ore grade and recoverability. The Geologist performed a net present value
analysis of the ore grade and recoverability. The net present value analysis
resulted in the current market value exceeding the historical cost for these
mining properties that have had past mining.
Also, for the year ended June 30, 1996, the Company classified a building and
land with a net book value of $279,854 as an asset held for sale.
NOTE 6 - LEASE COMMITMENTS
The Company leases certain facilities and equipment under non-cancelable
operating lease agreements that expire through 2001. The Company also leases
certain machinery, and office and computer equipment under non-cancelable
capital lease arrangements.
Future minimum lease payments under non-cancelable capital and operating
leases with initial or remaining terms of one year or more at June 30, 1996
are as follows:
Year ending Operating Capital
June 30, Leases Leases
------------ ------------ ---------
1997 $ 432,000 $ 185,300
1998 342,000 180,049
1999 67,000 176,378
2000 23,000 101,119
2001 15,000 -
$ 879,000 $ 642,846
===========
Less amount representing interest 146,255
--------
496,591
Less current portion 124,571
Long-term portion $ 372,020
========
F12<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 6 - LEASE COMMITMENTS (continued)
At June 30, leased capital assets included in property, plant and equipment
consist of:
1996 1995
--------- ---------
Machinery and equipment $ 540,000 $ 540,000
Furniture and equipment 68,103 -
--------- ---------
608,103 540,000
Accumulated depreciation 119,000 28,000
--------- ---------
$ 489,103 $ 512,000
========= =========
The Company entered into capital lease obligations of $68,103 and $540,000 in
1996 and 1995, respectively.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At June 30, accounts payable and accrued expenses consist of:
1996 1995
--------- ----------
Accounts payable $ 285,670 $ 416,356
Payroll and related accrual 144,057 210,673
Other accrued expense 255,463 146,875
--------- ----------
$ 685,190 $ 773,904
========= ==========
NOTE 8 - REDEEMABLE PREFERRED STOCK
During the year ended June 30, 1995, the Company issued 26 shares of $20,000
par value Class A, Series 1, Convertible, Voting Preferred Stock to K.D.
International, S.A. as part of the acquisition price paid for the insurance
adjusting company, Unique Systems, Inc., D.B.A. National Affiliated Adjustment
Company (NAAC). The stock is 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 with the annual imputed
interest through the date of redemption.
Subsequent to the acquisition of NAAC, the Chief Executive Officer of NAAC who
is the wife of the Company's CEO and President, acquired these shares in an
unrelated transaction.
F13<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 9 - SHAREHOLDERS' EQUITY
During the year ended June 30, 1996, the Company completed the following
common stock transactions of previously unissued common shares:
- Issued to four directors for services performed 1,000, 1,000, 858 and
746 shares, respectively, at values ranging from $1.00 to $.82 per share
for an aggregate value of $6,000.
- Issued to an unaffiliated company for the rights to manufacture a
machine 18,750 shares at a contract price of $41,016.
- Issued for a legal judgment 12,800 shares for an aggregate value of
$8,000.
- Issued to two employees, of a subsidiary, for services performed 4,000
and 500 shares, respectively, for an aggregate value of $8,505.
During the year ended June 30, 1995, the Company completed the following
common stock transactions of previously unissued common shares:
- Issued 1,750,370 shares to an unrelated third party in exchange for the
purchase of a company in the insurance adjusting industry.
- Issued 4,600,000 shares to an unrelated third party in exchange for the
purchase of a company in the wholesale food equipment supply industry.
- Issued 79,100 shares for services provided by unrelated third parties.
These services were valued at $85,341.
- Issued 316,500 shares to several individuals and companies, all of whom
are related parties, for services.
- 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 $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.
During the year ended June 30, 1994, the Company completed the following
common stock transactions of previously unissued common shares:
- Issued 165,000 shares to a related party, River Capital Corporation
(River), in exchange for the satisfaction of debt totaling $257,813.
During the fiscal year 1994, River 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.
F14<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 9 - SHAREHOLDERS' EQUITY (continued)
- Issued 1,200,000 shares to an unrelated third party in exchange for
assets in the manufacturing industry. The shares issued hereunder
represented approximately 75% of the acquisition price paid.
- 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.
- 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.
Warrants
For the year ended June 30, 1996, the Company had a private placement offering
for its common stock. In accordance with the private placement, the Company
has outstanding warrants to purchase 1,366,381 shares of common stock at $3
per share for an aggregate value of $4,099,143. The warrants may be exercised
through January 1999.
Stock Option Plans
In August 1995, the Company adopted the Alanco Environmental Resources
Corporation 1995 Stock Option Plan (ISO) which expires in 2005. Under the
ISO, 1,000,000 shares of common stock have been reserved for issuance. The
options issued may be either incentive or non-statutory stock options. Each
key employee or non-employee director of the Company, or of any of its wholly-
owned subsidiaries, shall be eligible to be granted an option under the ISO.
The maximum number of shares for which an option or options may be granted
under the ISO to any one key employee shall be 100,000. Incentive stock
options must be issued at a price not less than 100% of the fair market value
of the common stock upon the grant date. Each option must be granted within
five years from August 1995. Each option granted shall have an exercise
period no greater than five years from the grant date.
In August 1995, the Company adopted the Alanco Environmental Resources
Corporation 1995 Directors and Officers Stock Option Plan (Plan) which expires
in 2005. Under the Plan, 1,000,000 shares of common stock have been reserved
for issuance. The options issued are non-statutory stock options. Each
director or officer of the Company shall be eligible to be granted an option
under the Plan. The maximum number of shares for which an option or options
may be granted under the Plan to any eligible participant shall be 100,000.
The per-share option price for the stock subject to each option shall be $.10
per share or such other prices as the Company's Board of Directors may
determine. Each option must be granted within five years from August 1995.
The exercise period shall be determined by the Company's Board of Directors,
but in no instance shall such period exceed six months from the grant date.
Ownership of the total number of shares exercised shall vest with the officer
or director at 20% immediately upon exercise of the option, and 20% on each
annual anniversary following the date of the exercised option for a period of
four years. In the event that the association with the Company, in the case
of a Director, or the employment by the Company, in the case of an officer, is
voluntarily terminated by the officer or Director, all shares of the stock for
which ownership has not become vested in the officer or Director shall be
subject to repurchase by the Company at a price of $.10 per share.
F15<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 9 - SHAREHOLDERS' EQUITY (continued)
Stock Option Plans (continued)
1995 1995
Incentive Directors and
Stock Officers Stock
Plan Option Plan
---------- --------------
Shares under option:
Granted 737,500 225,000
Exercised 159,500 225,000
Canceled 18,000
---------- --------------
Outstanding at June 30, 1996 560,000
========== ==============
Options available to grant
at June 30, 1996 280,500 775,000
========== ==============
Average option price per share
at June 30, 1996 $ 1.85 $ .10
========== ==============
Average price of options exercised
for year ended June 30, 1996 $ 1.85 $ .10
========== ==============
In 1996 the Company recognized compensation expense of $36,960 related to
stock options exercised pursuant to the Plan.
NOTE 10 - SALES
Major Customers
During the year ended June 30, 1996, the Company did business with one
customer whose sales comprised 25% of sales. During the year ended June 30,
1995, the Company did business with two customers whose sales comprised 49%
and 12% of net sales, respectively. During the year ended June 30, 1994, the
Company did business with two customers whose sales comprised 17% and 16% of
net sales, respectively.
NOTE 11 - INCOME TAXES
For the year ended June 30, 1996, the Company has not provided a provision for
income taxes due to the net operating losses. The Company has approximately
$13,200,000 in net operating loss carryforwards that expire beginning in 1997.
The Company has deferred tax assets that consist principally of net operating
loss carryforwards. A full valuation allowance has been established against
the Company's deferred tax assets.
F16<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 12 - SUBSEQUENT EVENTS (unaudited)
During September 1996, the Company received $1,100,000 from the issuance of
110,000 shares of $10 par value, Class A, Series II Convertible Preferred
Stock. The Preferred Stock has a cumulative per share dividend of eighty
cents ($0.80) per annum, paid quarterly.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to legal proceedings which arise in the ordinary course
of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.
NOTE 14 - SEGMENT INFORMATION
The Company operates primarily in four industry segments: development and
marketing of pollution control devices (corporate and other), manufacturing
for agricultural and dust control industry, wholesale equipment supplier to
the food service industry, and insurance adjusting.
The following table is a summary of results by major segments:
June 30,
1996 1995 1994
------------ ------------ -------------
Revenues:
Corporate and other $ $ 162,195 $ 206,883
Insurance 1193,838 180,178
Manufacturing 3,306,437 3,069,773 1,374,632
Restaurant service 462,673 26,037
------------ ------------ -------------
$ 4,962,948 $ 3,438,183 $ 1,581,515
============ ============ =============
Net income (loss):
Corporate and other $ (2,573,258) $(3,535,915) $ (3,495,550)
Insurance (317,074) (24,697)
Manufacturing 12,842 (1,051,222) (344,414)
Restaurant service (650,863) (141,546)
------------ ------------ -------------
$ (3,528,353) $(4,753,380) $ (3,839,964)
============ ============ =============
Depreciation and amortization:
Corporate and other $ 388,333 $ 190,221 $ 115,010
Insurance 136,060 22,337
Manufacturing 227,246 225,149 114,447
Restaurant service 107,867 18,084
------------ ------------ -------------
$ 859,506 $ 455,791 $ 229,457
============ ============ =============
F17<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1996, 1995 and 1994
NOTE 14 - SEGMENT INFORMATION (continued)
June 30,
1996 1995
------------ -------------
Identifiable assets:
Corporate and other $ 14,232,523 $ 14,269,797
Insurance 1,779,900 1,959,616
Manufacturing 3,786,344 4,072,456
Restaurant service 1,591,200 913,983
------------ -------------
$ 21,389,967 $ 21,215,852
============ =============
Property, plant and equipment additions:
Corporate and other $ 169,460 $ 63,144
Insurance 31,029 1,489
Manufacturing 97,475 142,522
Restaurant service 328,915 184,470
------------ -------------
$ 626,879 $ 391,625
============ =============
NOTE 15 - UNAUDITED QUARTERLY FINANCIAL DATA
1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -----------
Net sales $ 1,682,112 $ 2,881,171 $ 974,085 $ 574,420
Loss from operations (444,482) (1,117,154) (1,046,214) (711,814)
Net loss (457,699) (1,195,243) (1,048,588) (826,823)
Loss per share (.02) (.04) (.03) (.02)
Weighted average common
shares outstanding 30,303,406 30,806,371 32,403,029 33,138,224
1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -----------
Net sales $ 885,269 $ 1,649,652 $ 727,166 $ 176,096
Loss from operations (494,168) (1,056,209) (595,042) (344,061)
Net loss (449,618) (1,964,405) (814,179) (1,525,178)
Loss per share (.02) (.09) (.04) (.06)
Weighted average common
shares outstanding 22,728,704 22,739,006 22,845,687 27,046,479
F18<PAGE>
Singer Lewak Greenbaum & Goldstein LLP
Certified Public Accountants & Management Consultants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Alanco Environmental Resources Corporation
Our report on the consolidated financial statements of Alanco Environmental
Resources Corporation and subsidiaries is included on page F1 of the Annual
Report on Form 10-K. In connection with our audit of such financial statements
as of June 30, 1996 and for the year then ended, we have also audited the
related financial statement schedule listed in the index on page F21 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/Singer Lewak Greenbaum & Goldstein LLP
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
September 6, 1996
F19<PAGE>
BILLIE J. ALLRED
CERTIFIED PUBLIC ACCOUNTANT
Suite J-1
4625 South Ash Avenue
Tempe, Arizona 85282
Tel.(602) 820-2092
Fax (602) 820-4584
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Alanco Environmental Resources Corporation
Our report on the consolidated financial statements of Alanco Environmental
Resources Corporation and subsidiaries is included on page F2 of the Annual
Report on Form 10-K. In connection with our audit of such financial statements
as of June 30, 1995 and 1994 and for the years then ended, we have also audited
the related financial statement schedule listed in the index on page F21 of
this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
include therin.
/s/Billie J. Allred
BILLIE J. ALLRED CPA
Tempe, Arizona
September 28, 1996
F20<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- ------------------------------------ ------------ ------------- ---------- ---------- ----------
Additions Additions
Balance at Charged to Charged to Balance
Beginning of Costs and Other at End of
Description Period Expenses Accounts Deductions Period
- ------------------------------------ ------------ ---------- ---------- ---------- ----------
Allowance deducted from
asset to which it applies:
Allowance for doubtful accounts
Year ended:
June 30, 1996 $ 25,189 $ 11,000 $ - $ 25,189 $11,000
June 30, 1995 25,600 25,189 - 25,600 25,189
June 30, 1994 25,600 - - 25,600
Allowance for notes receivable
Year ended June 30, 1996 - 39,000 - - 39,000
Allowance for obsolete inventory
Year ended June 30, 1996 - 100,000 - - 100,000
</TABLE>
F21<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 16, 1996, Billie J. Allred, the Company's Certifying Accountant
for the past two fiscal years, declined to stand for re-election as auditor.
Singer Lewak Greenbaum & Goldstein LLP, Certified Public Accountants, were
engaged to serve as the Company's new auditors. The selection of Singer Lewak
Greenbaum & Goldstein LLP, was approved by the Audit Committee of the Company's
Board of Directors.
Mr. Allred's report on the financial statements for the fiscal years ended
June 30, 1995 and 1994 contained a qualification based upon the Company's
ability to continue as a going concern. Except for this qualification, Mr.
Allred's reports have not contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. Nor has there been any disagreement with Mr. Allred on
any matter of principles or practices, financial statement disclosure or
auditing scope or procedure. <PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and their ages are as
follows:
Name Age Position with Alanco
- ---------------------- ----- -----------------------------
Norman E. Meyer 51 C.E.O./President/Director
Dean A. Douglas 49 Executive Vice President
Chief Operating Officer
John E. Haggar 54 Chief Financial Officer
Treasurer
Cynthia L. Castellano 34 Corporate Secretary
Harold S. Carpenter 62 Director
Dennis Schlegel 46 Chairman of the Board
Director
Charles Clay Miller 55 Director
The Directors serve until their successors are elected by the
shareholders. Vacancies on the Board of Directors may be filled by appointment
of the majority of the continuing directors. The executive officers serve at
the discretion of the Board of Directors.
Norman E. Meyer. Mr. Meyer joined the Company's Board of Directors in
December 1994, was appointed President and Chief Executive Officer of the
Company in April 1995, and served as Chairman of the Board from December 1995
to September 1996. 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. From December 1994 until
October 1995, Mr. Meyer served as Chief Executive Officer and a Director of
Phoenix Medical Management, Inc., a Phoenix based out-patient
rehabilitation/surgery 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 a consultant
to the United Labor Council Local 615 Welfare Fund, wherein Mr. Meyer advised
the Council 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 has entered into a
disposition agreement with the Department of Labor and dismissal of the action
as to Mr. Meyer is anticipated as a result thereof.
Dean A. Douglas. Mr. Douglas joined the Company in May 1995 as Vice
President of Operations and also served as Secretary from June 1995 until
February 1996, whereupon he became Executive Vice President and Chief Operating
Officer of the Company. Mr. Douglas has overall operations responsibility for<PAGE>
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, a
Master of Science degree from the University of Arizona, and a Master of
Business Administration from the University of Denver.
John E. Haggar. Mr. Haggar has been an employee of the Company since June
1995, Treasurer since July 1995, and Chief Financial Officer since February
1996. From December 1994, until June 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 the state of Washington. 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. From January 1995 to July 1996, Mr.
Haggar was a director of Dixie National Corporation, a publicly owned company
whose stock is traded on the NASDAQ System.
Cynthia L. Castellano. Ms. Castellano joined the Company in June 1995 as
Manager of Administration. Ms. Castellano was appointed Assistant Secretary in
December 1995 and then Secretary in February 1996. From January to June, 1995,
Ms. Castellano was Manager of Administration for Universal Management Services,
Inc. From 1992 through 1994, Ms. Castellano was Administrative Manager for a
general contractor in Tempe, Arizona. Ms. Castellano graduated from the
University of Phoenix with a Bachelor of Science degree in Business
Administration.
Harold S. Carpenter. Mr. Carpenter is presently the President of
Superiorgas Co., Des Moines, Iowa, which is engaged in the business of trading
and brokering bulk refined petroleum products with gross sales of approximately
$500 million per year. He is also the General Partner of Superiorgas L.P., an
investment company affiliated with Superiorgas Co. Mr. Carpenter founded these
companies in 1984 and 1980, respectively. Mr. Carpenter is also the President
of Carpenter Investment Company, Des Moines, Iowa, which is a real estate
investment company holding properties primarily in central Iowa. From 1970
until 1994, Mr. Carpenter was the Chairman of the George A. Rolfes Company of
Boone, Iowa, which manufactured air pollution control equipment. Mr. Carpenter
is currently a member of the Board of Directors of the Allied Group, Inc., a
publicly owned insurance company headquartered in Des Moines, Iowa. Mr.
Carpenter graduated from the University of Iowa in 1958 with a Bachelors of
Science and Commerce degree.
Dennis Schlegel. Since 1987, Mr. Schlegel has been an independent
investor in small and start-up companies as well as a consultant to small and
start-up businesses in the areas of corporate management and financing. Prior
to this, Mr. Schlegel owned and operated Schlegel Investment Co. in Des Moines,
Iowa, and Schlegel Ranch Company, in Iowa and Washington, both of which were
engaged in land development. Mr. Schlegel attended one year at Drake
University until he withdrew to devote his full time to business pursuits.
Mr. Schlegel was elected Chairman of the Board in September 1996.
Charles Clay Miller. Charles Clay Miller, an environmental engineer, has
a professional background of more than 25 years of management, operations,
research, design, and construction in the environmental industry, in both
government and private industry, as well as first hand experience in the
development and implementation of environmental standards in regulatory<PAGE>
environments. Most recently, Miller was Director of the Escambia County,
Florida, Solid Waste Department, with management of a $9 million annual budget.
Miller also served as Director of the Air and Land Quality Division of the Iowa
Department of Environmental Quality. During this period Iowa became the first
state in the nation to obtain federal approval for its primary and secondary
Air Quality State Implementation Plans according to the Clean Air Act
Amendments of 1977. Mr. Miller holds B.S. Degrees in Mathematics and
Mechanical Engineering, as well as a Master of Science Degree in Environmental
Engineering and Planning. He has completed course work for a Ph. D. in Civil
Engineering at the University of Missouri, Rolla. Mr. Miller was named to the
Board on September 9, 1996.
Compensation of Directors
Directors are entitled to receive reimbursement for all out-of-pocket
expenses incurred for attendance at Board of Directors meetings. In addition,
all Directors not otherwise employed or compensated by the Company are entitled
to receive $500 in cash, in common stock at the market price per share, or in
health insurance benefits. Pursuant to these director fees, Mr. Bradley
Gordon, a former director, was issued 858 shares of common stock, and Mr.
Steven Davis, a former director, was issued 746 shares of common stock. In
addition, from August 1995 through December 1995, Dr. James Ricketts received a
fee of $3,000 per month for being Chairman of the Board. On October 12, 1995,
Mr. Meyer was awarded options to acquire 100,000 shares of stock; and on
September 27, 1995, Mr. Larry Nelson, a former director, was awarded options to
acquire 25,000 shares of stock, both pursuant to the Company's Directors and
Officers Stock Option Plan at an exercise price of $0.10 per share. Messrs.
Meyer and Nelson in their capacities as Key Employees have also been granted
options to acquire an additional 50,000 shares each under the Company's
Incentive Stock Option Plan.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows for the fiscal year ending June 30, 1996, the
compensation awarded or paid by the Company to its Chief Executive Officer and
any of the executive officers of the Company whose total salary and bonus
exceeded $100,000 during such year (The "Named Executive Officers"):
Long Term Compensation
Awards
Restricted Securities
Name and Stock Underlying All Other
Principal Fiscal Annual Compensation Awards Options Compen-
Position Year Salary Bonus ($) (#shares) sation
- ----------------- ------ ------------------- --------------------- ----------
Norman E. Meyer 1995 $ 0 - - - -
President, Chief 1996 $ 81,250 - $209,000 150,000 -
Executive Officer
No other executive officer earned more than $100,000 during the current
fiscal year.<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1996, to each of the Named Executive Officers. No
stock appreciation rights ("SARs") have been granted by the Company.
Individual Grants
Percent of
Number of Total Potential Realizable
Securities Options Exer- Assumed Annual Rates
Underlying Granted to cise of Stock Price
Options Employees Price Appreciation for
Granted(1) in Fiscal ($/Sh) Expiration Option Term (4)
Name (#) Year (2) (3) Date 5% 10% 0%
- ------------- --------- ---------- ------ ----------- ------- ------- --------
Norman Meyer 100,000 10.39 $0.10 5/27/1996 - - $209,000
Norman Meyer 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 -
Dean Douglas 50,000 5.19 $0.10 5/27/1996 - - $89,500
Dean Douglas 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 -
John Haggar 50,000 5.19 $0.10 5/27/1996 - - $89,500
John Haggar 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 -
Cynthia Castellano12,500 1.30 $2.09 12/16/2000 $7,200 $15,900 -
(1) Options for common shares only, granted through 1995 Incentive Stock
Option Plan and the 1995 Directors and Officers Stock Option Plan.
(2) Options to purchase 737,500 shares and 225,000 shares were granted to
employees under the Company's 1995 Incentive Stock Option Plan and the
1995 Directors and Officers Stock Option Plan.
(3) Exercise price for Directors and Officers Stock Options was $0.10 per
restricted share for fiscal year ending 1996 and $1.89 or $2.09 per share
for the Incentive Stock Option Plan, which shares when acquired were not
restricted.
(4) Calculated based on given interest rate for the five year life of the
option. The column headed 0% shows the potential gain (assuming no
restrictions) upon exercise of Directors and Officers Options at
market price on the date of grant.<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values
The following table sets forth the number and value of the unexercised
options held by each of the Named Executive Officers at June 30, 1996. All of
the Named Executive Officers who hold unexercised options exercised options in
the fiscal year ended June 30, 1996.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Acquired Value FY-End (#) FY-End ($)
Name On Exercise(#) Realized($) Exercisable Exercisable
- ---------------- --------------- ----------- ------------- -----------
Norman Meyer 20,000 $60,400 50,000 (1) $22,500 (1)
20,000 (2)
20,000 (3)
20,000 (4)
20,000 (5)
Dean Douglas 10,000 $20,000 50,000 (1) $22,500 (1)
10,000 (6)
10,000 (7)
10,000 (8)
10,000 (9)
John Haggar 10,000 $22,100 50,000 (1) $22,500 (1)
10,000 (10)
10,000 (11)
10,000 (12)
10,000 (13)
Cynthia Castellano 5,000 $ 9,550 7,500 (1) $ 3,375 (1)
(1) as of 6/30/96
(2) vests on 4/24/97
(3) vests on 4/24/98
(4) vests on 4/24/99
(5) vests on 4/24/2000
(6) vests on 3/14/97
(7) vests on 3/14/98
(8) vests on 3/14/99
(9) vests on 3/14/2000
(10) vests on 1/29/97
(11) vests on 1/29/98
(12) vests on 1/29/99
(13) vests on 1/29/2000
Employment Agreements and Executive Compensation
Mr. Meyer, President and Chief Executive Officer, serves without an
employment contract. Mr. Douglas, the Company's Executive Vice President and
Chief Operating Officer, has an employment agreement with the Company whereby
he receives $8,000 per month in regular compensation and a $400 per month car
allowance under the terms of an agreement effective until April 24, 1998. Mr.
Haggar, the Company's Chief Financial Officer, receives $8,000 per month in
compensation under the terms of an employment agreement valid through April 24,
1998.
Terrence D. Montford also has an employment agreement with the Company's
subsidiary, Fry Guy Inc., as its Executive Vice President. Under the terms of
this agreement, Mr. Montford receives $8,000 per month in regular compensation,
the use of a Company automobile, and options to purchase 60,000 shares of the
Company stock at $2.00 per share. As part of his compensation, Mr. Montford
also receives a sum equal to 2 percent of the net income before taxes earned by<PAGE>
Fry Guy, Inc., during any fiscal year for the term of the agreement. Mr.
Montford's employment agreement with the Company expires on January 24, 1999.
Incentive Stock Option Plan
On December 16, 1995, the Shareholders approved the Company's 1995
Incentive Stock Option Plan (the Plan). The purpose of the Plan is to advance
the business and development of the Company and its shareholders by affording
to the key employees of the Company the opportunity to acquire a propriety
interest in the Company by the grant of Options to acquire shares of the
Company's common stock. The Options granted are "Incentive Stock Options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, for certain key employees. The Plan is administered by an
Administrative Committee whom shall serve a one year term. Until February 17,
1996, the Administrative Committee was composed of James Ricketts, Kevin Jones
and Peter Van Oosterhout, who are the Board's Employment Compensation
Committee. The Plan was approved by the Board of Directors on September 28,
1995, subject to Shareholder approval, and shall terminate on September 28,
2005. Subject to anti-dilution provisions, the Plan may issue Options to
acquire up to 1,000,000 shares to Key Employees. The maximum number of shares
subject to Options granted to any one Key Employee shall not exceed 100,000
shares. The exercise price for Options shall be set by the Administrative
Committee but shall not be for less than the fair market value of the shares on
the date the Option is granted. The period in which Options can be exercised
shall be set by the Administrative Committee not to exceed five years from the
date of Grant. The Plan may be terminated, modified or amended by the Board of
directors upon the recommendation of the Administrative Committee. The
issuance of options pursuant to this Plan is not expected to be a taxable event
for recipient until such time that the recipient elects to exercise the option
whereupon the recipient is expected to recognize income to the extent the
market price of the shares exceeds the exercise price of the option on the date
of exercise. All Key Employees of the Company and its subsidiaries are
eligible to participate in the Incentive Stock Options. A Key Employee is
defined in the Plan as a Company employee who in the judgement of the
Administrative Committee has the ability to positively affect the profitability
and economic well-being of the Company. Part time employees, independent
contractors, consultants and advisors performing bona fide services to the
Company shall be considered employees for purposes of participation in the
Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth persons known to the Company as
beneficially owning more than five percent (5%) of the outstanding shares of
the Registrant.
% of Shares
Name and Address Shares Outstanding
- -------------------------------- ----------- -------------
Lyons Capital Partners, L.P.
4365 Executive Drive, Suite 740
San Diego, CA 92121 7,684,170 23.10%<PAGE>
(b) The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of June 30, 1996, by individual directors
and executive officers and by all directors and executive officers of the
Company as a group.
% of Shares
Name and Address Shares Outstanding
- ---------------------------- ------------- ------------
Dennis Schlegel 204,445 (1) 0.62%
Harold S. Carpenter 642,086 (2) 1.93%
Norman E. Meyer 105,500 0.32%
Dean A. Douglas 50,550 0.15%
John E. Haggar 50,000 0.15%
Charles Clay Miller 9,000 0.03%
Officers and Directors as a
Group (6 individuals) 1,061,581 3.20%
(1) Includes 153,440 shares indirect ownership
(2) Includes 256,606 shares indirect ownership
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the most recent fiscal year there have been no
related party transactions responsive to this item.<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. Exhibits
(3)(i) Articles of Incorporation
Incorporated by reference: Form S-1 Registration File # 333-07739
effective August 13, 1996
(3)(ii) By-Laws of Corporation
(21) Subsidiaries of Registrant
(27) Financial Data Schedule
B. Schedule
(II) Valuation and Qualifying Accounts
C. Reports on Form 8-K
Report dated April 16, 1996, change in registrant's certifying
accountant. For additional information regarding change in registrant's
certifying accountant, please refer to Item 9, Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.
Report dated June 11, 1996, resignation of two of registrant's
directors. On May 30, 1996, Steven Davis and Bradley Gordon resigned
their positions as Directors of the Registrant effective immediately. Mr.
Davis and Mr. Gordon each stated that their resignations were due to the
increasing demand for their time and attention arising from their
positions as Chief Executive Officers of rapidly growing public companies.
Mr. Davis and Mr. Gordon expressed no disagreements with the remaining
Board of Directors of the Registrant or Management.
Exhibits or 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>
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
/s/Dennis Schlegel
Date: 9/26/96 -----------------------------
---------------- Dennis Schlegel, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
/s/Norman E. Meyer Chief Executive Officer 9/26/96
- -------------------------- Director and President ----------------
Norman E. Meyer
/s/Harold S. Carpenter 9/26/96
- -------------------------- Director ----------------
Harold S. Carpenter
/s/Charles Clay Miller 9/26/96
- -------------------------- Director ----------------
Charles Clay Miller
/s/John E. Haggar 9/26/96
- -------------------------- Chief Financial Officer ----------------
John E. Haggar and Treasurer<PAGE>
EXHIBIT 3.2 BYLAWS OF THE REGISTRANT
By-Laws
of
Alanco Environmental Resources Corporation
I. CORPORATION ARTICLES
1.01 - References Thereto.
Any reference herein made to the Corporation's Articles will be deemed to
refer to its Articles of Incorporation and all Amendments thereto as at any
given time on file with the Arizona Corporation Commission, together with any
and all certificates theretofore filed by the Corporation with the Arizona
Corporation Commission pursuant to applicable law.
1.02 - Seniority Thereof.
The Articles will in all respects be considered senior and superior to
these By-Laws, with any inconsistency to be resolved in favor of the Articles,
and with these By-Laws to be deemed automatically amended from time to time to
eliminate any such inconsistency which may then exist.
II. STOCKHOLDERS MEETINGS
2.01 - Annual Meetings.
Each annual meeting of the stockholders is to be held on the date
determined in accordance with the Corporation's Articles of Incorporation, at a
time of day and place as determined by the Board of Directors, or in the
absence of action by the Board, as set forth in the notice given, or waiver
signed, with respect to such meeting pursuant to Section 2.03 below. If any
such annual meeting is for any reason not held on the date determined as
aforesaid, a special meeting may thereafter be called and held in lieu thereof,
and the same proceedings (including the election of Directors) may be conducted
thereat as at a regular meeting. Any Director elected at any annual meeting or
special meeting in lieu of an annual meeting, will continue in office until the
election of his/her successor, subject to his/her earlier resignation pursuant
to Section 6.01 below.
- 1 -<PAGE>
By-Laws
of
Alanco Environmental Resources Corporation
2.02 - Special Meetings.
Special meetings of the stockholders may be held whenever and wherever
called for by the Chairman of the Board, the President or the Board of
Directors, or by the written demand of the holders of 10% of all issued and
outstanding shares of the stock, regardless of class. The business which may be
conducted at any such special meeting will be confined to the purposes, stated
in the notice thereof, and to such additional matters as the Chairman of such
meeting may rule to be germane to such purposes.
2.03 - Notices.
At least twenty (20) days (inclusive of the date of meeting) before the
date of any meeting of the stockholders and at the direction of the person or
persons calling the meeting, the Secretary of the Corporation will cause a
written notice setting forth the time, place and general purposes of the
meeting to be deposited in the mail, with postage prepaid, addressed to each
stockholder of record at his last address as it then, or on the applicable
record date, appears on the Corporation's records. Any stockholder may waive
call or notice of any annual, or special meeting (and any adjournment thereof)
at any time before, during which or after it is held. Attendance of a
stockholder at any such meeting in person or by proxy will automatically
evidence his/her waiver of call and notice of such meeting ( and any
adjournment thereof) unless he/she or his/her proxy is attending the meeting
for the express purpose of objecting to the transaction of business thereat
because it has not been properly called or noticed. No call or notice of a
meeting of the stockholders will be necessary if each of them waives the same
in writing or by attendance as aforesaid.
2.04 - Registered Stockholders.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders (and at any adjournment thereof), or
stockholders entitled to express written consent to corporate action without a
meeting, or in order to make a determination of stockholders for any other
lawful action, the Board of Directors may fix in advance a record date which
shall not be more than sixty (60) days before the date of such meeting, nor
more than sixty (60) days prior to any such other action.
If no record date is fixed for determining stockholders entitled to notice
of or to vote at a meeting of stockholders, the record date shall be at four
o'clock in the afternoon on the day before the day on which notice is given,
or, if notice is waived, at the commencement of the meeting. If no record date
is fixed for determining shareholders entitled to express written consent to
corporate action without meeting, the record dated shall be the time of the day
on which the first written consent is served upon an Officer or Director of the
Corporation.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting and further provided that the adjournment or adjournments
of any such meeting do not exceed sixty (60) days in the aggregate.
- 2 -<PAGE>
By-Laws
of
Alanco Environmental Resources Corporation
2.05 - Voting Record.
The Officer or Agent having charge of the stock transfer books for shares
of the Corporation shall make a complete record of the stockholders entitled to
vote at a meeting of the stockholders (and at any adjournment thereof),
arranged in alphabetical order, with the address of and the number of shares
held by each. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
during the whole time of the meeting for the purposes thereof.
2.06 - Proxies.
At all meetings of the stockholders (and at any adjournment thereof), any
stockholder entitled to vote thereat, may vote by proxy, executed in writing by
the stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. The burden of proving the validity of any proxy undated,
irrevocable, or otherwise contested at any such meeting of the stockholders
will rest with the person seeking to exercise the same. A telegram, facsimile
or cablegram appearing to have been transmitted by a stockholder or by his duly
authorized attorney-in-fact may be accepted as a sufficiently written and
executed proxy.
- 3 -<PAGE>
By-Laws
of
Alanco Environmental Resources Corporation
2.07 - Voting.
Except for the election of Directors (which will be governed by cumulative
voting pursuant to applicable law) and except as may otherwise be required by
the Corporation's Articles, Section 2.08 below, or by applicable statutes, each
issued and outstanding share of the Corporation's capital stock (specifically
excluding shares held in the treasury of the Corporation) represented at any
meeting of the stockholders, in person or by proxy, given pursuant to Section
2.06 above, will be entitled to one vote. Unless otherwise required by the
Corporation's Articles or by applicable statutes, any question submitted to the
stockholders will be resolved by a majority of the votes cast thereon provided
that such votes constitute a majority and the quorum is then present. The
voting will be by ballot on any question as to which a ballot vote is demanded,
prior to the time the voting begins, by any person entitled to vote on such
question; otherwise, a voice vote will suffice. No ballot or change of vote
will be accepted after the polls have been declared closed following the ending
of the announced time for voting.
2.08 - Voting of Shares by Certain Holders.
Shares of the Corporation held by another corporation may be voted by such
corporation's officer, agent or proxy as its by-laws may prescribe, or in
absence of such by-law provision, by any other person designated by resolution
of its Board of Directors, and such officer, agent or other person so
designated may vote such corporation's shares in this Corporation in person or
by proxy appointed by him.
Shares held by an administrator, executor, guardian or conservator may be
voted by such representative, either in person or by proxy, without a transfer
of such shares into his name. Shares standing in the name of a trustee, other
than a trustee in bankruptcy, may be voted by such representative, either in
person or by proxy, but no such trustee shall be entitled to vote shares held
by him without a transfer of such shares into his name.
Shares standing in the name of a receiver, trustee in bankruptcy, or
assignee for the benefit of creditors may be voted by such representative,
either in person or by proxy. Shares held by or under the control of such a
receiver or trustee may be voted by such receiver or trustee, either in person
or by proxy, without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver or
trustee was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
If shares stand in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by
community property or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Corporation is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(1) If only one votes, his act binds; (2) If more than one votes, the act of
the majority so voting binds all; and (3) If more than one votes, but the vote
is evenly split on any particular matter, each fraction may vote the shares in
question proportionally.
- 4 -<PAGE>
By-Laws
of
Alanco Environmental Resources Corporation
Shares standing in the name of a married woman but not also standing in
the name of her husband with such a designation of mutual relationship on the
certificate, may be voted and all rights incident thereto may be exercised in
the same manner as if she were unmarried.
Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the elections of
Directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor counted for quorum purposes.
Nothing in this Section shall be construed as limiting the right of the
Corporation to vote its own stock held by it in a fiduciary capacity.
Shares standing in the name of a broker-dealer or similar institution for
beneficial owners to whom the broker-dealer distributed notice of the
stockholder's meeting and proxy information shall be voted as instructed by the
beneficial owners thereof. The foregoing notwithstanding, such shares may be
counted as present for purposes of determining the presence of a quorum as
stated below. In addition, the Corporation shall rely solely upon the proxy
information returned by such broker-dealers regardless of all other proxies
purported to be signed by said beneficial owner or requests to vote such shares
in person.
2.09 - Quorum.
At any meeting of the stockholders, the presence in person or by proxy of
the holders of a majority of all issued and outstanding shares of the
Corporation, (including shares registered in the name of a broker-dealer or
similar institution for beneficial owners to whom the broker-dealer distributed
notice of the stockholder's meeting and proxy information regardless of whether
such beneficial owners have returned proxies or otherwise instructed the
broker-dealer as to voting their shares), which would then be entitled to vote,
will constitute a quorum of the stockholders for all purposes. In the absence
of a quorum, any meeting may be adjourned, from time to time, but any such
adjournment shall not exceed sixty (60) days in the aggregate, by its Chairman
until a quorum is formed. At any such adjourned meeting, at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal or temporary absence of enough stockholders which leaves less
than a quorum present.
2.10 - Election Inspectors.
The Board of Directors, in advance of any meeting of the stockholders, may
appoint an election inspector(s) to act at such meeting (and at any adjournment
thereof). If an election inspector(s) is/are not so appointed, the Chairman of
the meeting may, or upon request of any person entitled to vote at the meeting
will, make such appointment. If any person appointed as an inspector fails to
appear or to act, a substitute may be appointed by the Chairman of the meeting.
If appointed, the election inspector(s) (acting through a majority) will
determine the number of shares outstanding, the authenticity, validity and
effect of proxies and the number of shares represented at the meeting in person
and by proxy; they will receive and count votes, ballots and consents and
announce the results thereof; they will hear and determine all challenges and
questions pertaining to proxies and voting; and, in general, they will perform
such acts as may be proper to conduct elections and voting with complete
fairness to all stockholders. No such election inspector(s) need be a
stockholder of the Corporation.
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2.11 - Organization and Conduct of Meetings.
Stockholders meetings will be called to order and thereafter chaired by
the Chairman of the Board of Directors if there is one or, if not, or if the
Chairman of the Board is absent or so requests, then by the Vice-Chairman or if
both the Chairman of the Board and the Vice-Chairman are unavailable, then by
the President or if Chairman of the Board, Vice-Chairman and President are all
unavailable, then by such other officer of the Corporation or such stockholder
as may be appointed by the Board of Directors. The Corporation's Secretary will
act as Secretary of each meeting of the Stockholders; in his absence the
Chairman of the meeting may appoint any person (whether a stockholder or not)
to act as Secretary thereat. After calling a meeting to order, the Chairman
thereof may require the registration of all stockholders intending to vote in
person, and the filing of all proxies, with the election inspector(s), if one
or more have been appointed (or, if not, with the secretary of the meeting).
After the announced time for such filing of proxies has ended, no further
proxies or changes, substitutions or revocations of proxies will be accepted.
If Directors are to be elected, a tabulation of the proxies so filed will, if
any person entitled to vote in such election so requests, be announced at the
meeting (or adjournment thereof) prior to the closing of the election polls.
Absent a showing of bad faith on his part, the Chairman of a meeting will,
among other things, have absolute authority to fix the period of time allowed
for the registration of stockholders and the filing of proxies, to determine
the order of business to be conducted at such meeting and to establish
reasonable rules for expediting the business of the meeting (including any
informal, or question and answer portions thereof).
2.12 - Stockholder Approval or Ratification.
The Board of Directors may submit any contract or act for approval or
ratification of the stockholders, either at a duly constituted meeting of the
stockholders (the notice of which either includes mention of the proposed
submittal or is waived pursuant to Section 2.03). If any contract or act so
submitted is approved or ratified by a majority of the votes cast thereon at
such meeting or by such unanimous written consent, the same will be valid and
binding upon the Corporation as the act of its stockholders pursuant to Section
2.07.
2.13 - Informalities and Irregularities.
All informalities or irregularities in any call or notice of a meeting of
the stockholders or in the areas of credentials, proxies, quorums, voting and
similar matters, will be deemed waived if no objection is made at the meeting.
III. BOARD OF DIRECTORS
3.01 - Membership.
The Board of Directors will be comprised of not less than five (5) nor
more than nine (9) members, except when the total number of stockholders of the
Corporation is less than three (3) then the number of Directors may be equal to
the number of stockholders. Directors of the Corporation need not be
stockholders.
The Board of Directors will have the power and authority to decrease or
increase its membership, provided the same falls within the aforesaid limits
and to fill any vacancies up to the maximum number of Directors allowed,
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whether or not such vacancies were created by a resigned Director or a vacant
position.
The election of the members of the Board of Directors, so slated for
election as set forth above, will take place at each regularly scheduled annual
meeting of the stockholders, but such election may be held at any other meeting
of the stockholders.
3.02 - Regular Meetings.
A regular annual meeting of the Board of Directors is to be held
immediately after each annual meeting of the stockholders at the place at which
such stockholders meeting was held. Regular meetings, other than the annual
ones, may be held at regular intervals at such places and at such times as the
Board of Directors may provide.
3.03 - Special Meetings.
Special meetings of the Board of Directors may be held whenever and
wherever (if within the continental United States) called for by the Chairman
of the Board, the President or the number of Directors which would be required
to constitute a quorum.
3.04 - Notices.
No notice need be given of regular meetings of the Board of Directors.
Written notice of the time and place (but not necessarily the purpose or all of
the purposes) of any special meeting will be given to each Director in person
or via mail, facsimile or telegram addressed to him at his latest address or
telephone number appearing on the Corporation's records. Notice to any Director
of any such special meeting will be deemed given sufficiently in advance when,
if given by mail, the same is deposited in the United States mail, with first
class or air mail, postage prepaid, at least four days before the meeting date,
or if personally delivered or given by facsimile or telegram, the same is
handed to the Director, or the facsimile or telegram is sent at least 48 hours
prior to the convening of the meeting. Any Director may waive call or notice of
any meeting (and any adjournment thereof) at any time before, during which or
after it is held. Attendance of a Director at any meeting will automatically
evidence his waiver of call and notice of such meeting (and any adjournment
thereof) unless he is attending the meeting for the express purpose of
objecting to the transaction of business thereat because it has not been
properly called or noticed. No call or notice of a meeting of Directors will be
necessary if each of them waives the same in writing or by attendance as
aforesaid. Any meeting, once properly called and noticed (or as to which call
and notice have been waived as aforesaid) and at which a quorum is formed, may
be adjourned to another time and place by a majority of those in attendance.
3.05 - Quorum.
A quorum for the transaction of business at any meeting or adjourned
meeting of the Board of Directors will consist of majority of those then in
office.
3.06 - Voting.
Any question submitted to any meeting or adjourned meeting of the Board of
Directors will be resolved by a majority of the votes cast thereon; in case of
an equality of votes, the Chairman of the meeting will have a second or
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deciding vote.
3.07 - Executive Committee.
The Board of Directors may, by resolution adopted by a majority of the
whole Board, name two or more of its members as an Executive Committee. Such
Executive Committee will have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation
while the Board is not in session, subject to such limitations as may be
included in Board's resolution; provided, however, that such Executive
Committee shall not have the authority of the Board of Directors in reference
to the following matters: (1) the submission to stockholders of any action
that requires the authorization or approval under applicable law; (2) the
filling of vacancies on the Board of Directors or in any committee of the Board
of Directors; (3) the amendment or repeal of the bylaws, or the adoption of new
bylaws; and (4) the fixing of compensation of Directors for serving on the
Board or on any Committee of the Board of Directors. A majority of those named
to the Executive Committee will constitute a quorum and the Committee may at
any time act by the written consent of a quorum thereof, although not formally
convened.
3.08 - Other Committees.
The Board of Directors shall by resolution adopted by a majority of the
whole Board, appoint a Compensation/Administration Committee, an Audit
Committee and other standing or temporary Committees from its membership and
vest such Committees with such powers as the Board may include in its
resolution; provided, however, that such Committees shall be restricted in
their authority as specifically set forth with respect to the Executive
Committee in Section 3.07 above. A majority of those named to any such
Committees will constitute a quorum and the Committee may at any time act by
the written consent of a quorum thereof, although not formally convened.
3.09 - Presumption of Assent.
A Director of the Corporation who is present at a meeting of the Board of
Directors, or of any Committee, at which action is taken on any corporate
matter will be presumed to have assented to the action taken unless his dissent
is entered in the minutes of the meeting or unless he files his written dissent
to such action with the person acting as Secretary of the meeting before the
adjournment thereof or forwards such dissent by registered or certified mail to
the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent will not be available to a Director who voted
in favor of the action.
3.10 - Compensation.
By resolution of the Board of Directors, each Director may be paid his
expenses, if any, for the attendance at each meeting of the Board of Directors
or of any Committee, and may be paid a fixed sum for attendance at each such
meeting or a stated salary as a Director or Committee member. If a Director
also serves the Corporation in another capacity, on a full time basis, and is
compensated therefor, then that Director shall not be entitled to receive
compensation for attendance at meetings, but shall still be entitled to
expenses for such attendance.
3.11 - Action by Directors Without a Meeting.
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Any action required or permitted to be taken at a meeting of the Board of
Directors or of a Committee of the Corporation may be taken without a meeting
if all Directors or Committee members, as the case may be, consent thereto in
writing. Such consent shall have the same effect as a unanimous vote of the
Directors or Committee members of the Corporation.
3.12 - Meetings by Conference Telephone.
Any member of the Board of Directors or of a Committee of the Corporation
may participate in any meeting thereof by means of a conference telephone or
similar communication equipment whereby all members participating in such
meeting can hear one another. Such participation shall constitute attendance in
person, unless otherwise stated as provided in Section 3.04.
IV. OFFICERS - GENERAL
4.01 - Election of Chief Executive Officer.
The Board of Directors will elect the Chief Executive Officer of the
Corporation who shall also be the Chairman of the Board of Directors or the
President. Such election will regularly take place at each annual meeting of
the Board of Directors, but maybe held at any other meeting of the Board of
Directors. A person elected to the office of Chief Executive Officer will
continue to hold this office until the election of his successor, subject to
action earlier taken pursuant to Sections 4.04 or 6.01.
4.02 - Appointment of Additional Officers.
The Chief Executive Officer will select and the Board of Directors shall
appoint the Officers set forth in Section 5. In addition to the Officers
contemplated in Section 5, the Chief Executive Officer may select and the Board
of Directors shall appoint other corporate Officers (as, for example, one or
more Assistant Secretaries) having such authority to perform such duties as may
be prescribed from time to time by the Chief Executive Officer, by the
President or in the case of Assistant Officers, by his/her or their superior
Officers (which, in the foregoing example, would be the Secretary). Each of
such Assistant Officers will be vested with all of the powers and charged with
all of the duties (including those herein specifically set forth) of his
superior officer in the event of such superior officer's absence or disability.
4.03 - Bonds and Other Requirements.
The Board of Directors may require any Officer to give bond to the
Corporation (with sufficient surety, and conditioned for the faithful
performance of the duties of his/her office) and to comply with such other
conditions as may from time to time be required of him/her by the Board.
4.04 - Removal or Delegations.
The Chief Executive Officer may at his sole discretion remove any Officer
of the Corporation at any time and with or without cause. In addition,
provided that two-thirds (2/3) of the whole membership thereof concurs therein,
the Board of Directors may at any time, with or without cause and whenever in
its judgment the best interests of the Corporation will be served thereby,
remove any Officer, including the Chief Executive Officer, or Agent of the
Corporation and declare his Office vacant or temporarily delegate his/her
powers and duties to any other Officer or to any Director. Such removal or
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delegation shall be without prejudice to the contract rights, if any, of the
person so removed or whose powers and duties have been delegated. Election or
appointment of an Officer or Agent shall not of itself create contract rights
4.05 - Salaries.
The Compensation of the Chief Executive Officer shall be determined and
set by the Compensation/Administration Committee. All other Officer salaries
shall from time to time be fixed by the Chief Executive Officer. No Officer
will be prevented from receiving a salary by reason of the fact that he/she is
also a Director of the Corporation.
V. SPECIFIC OFFICERS
5.01 - Chairman of the Board.
The Board of Directors may elect a Chairman to serve as a Non-Executive
Officer of the Corporation.. The Chairman will preside at all meetings of the
Board of Directors and be vested with such other powers and duties as the Board
may from time to time delegate to him.
5.02 - Chief Officers.
The Board of Directors shall elect a Chief Executive Officer who shall
also be a Director of the Corporation. The Corporation may also have a Chief
Financial Officer who shall also be the Treasurer of the Corporation. The
Corporation may also have a Chief Operating Officer who shall also be either
the Executive Vice President or President of the Corporation. The Chief
Executive Officer shall be the presiding officer over all business affairs of
the Corporation, subject only to the direction of the Board of Directors.
5.03 - President.
The President, in the absence of the Chief Executive Officer, will
supervise the business and affairs of the Corporation and the performance by
all of its other Officers of their respective duties, subject to the control of
the Board of Directors. Except as may otherwise be specifically provided in a
resolution of the Board of Directors, the President will be a proper Officer to
sign on behalf of the Corporation any deed, bill of sale, assignment, option,
mortgage, pledge, note, bond, evidence of indebtedness, application, consent
(to service of process or otherwise), agreement, indenture or other instrument
of any significant importance to the Corporation. The President may represent
the Corporation at any meeting of the stockholders of any other Corporation in
which this Corporation then holds shares, and may vote this Corporation's
shares in such other corporation in person or by proxy appointed by him,
provided that the Board of Directors may from time to time confer the foregoing
authority upon any other person or persons. The President may designate any
Vice President to perform any acts, on behalf of the Corporation, in his place.
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5.04 - Vice Presidents.
One or more Vice Presidents may be selected by the Chief Executive Officer
each of whom will be vested with all of the powers and charged with all of the
duties (including those herein before specifically set forth) of the President
in the event of his absence or disability. Each Vice President will perform
such other duties as may from time to time be delegated or assigned to him/her
by the Board of Directors, Chief Executive Officer, the President or the
Executive Vice President, in that order.
5.05 - Secretary.
The Secretary will keep the minutes of meetings of the stockholders, Board
of Directors and any Committee, and all unanimous written consents of the
stockholders, Board of Directors and any Committee of the Corporation, see that
all notices are duly given in accordance with the provisions of these By-Laws
or as required by applicable law, be custodian of the Corporate Seal and
Corporate Records, and, in general, perform all duties incident to the office.
Except as may otherwise be specifically provided in a resolution of the Board
of Directors, the Secretary and each Assistant Secretary will be a proper
officer to take charge of the Corporation's stock transfer books, and to
compile the voting record pursuant to Section 3.06, and to impress the
Corporation's Seal on any instrument signed by a duly authorized or empowered
Officer, and to attest to the same.
5.06 - Treasurer.
The Treasurer, absent the election of a Chief Financial Officer, shall
serve as the Chief Financial Officer and will maintain the financial records of
the Corporation and supervise all Corporate reporting with any and all
government agencies. The Treasurer will keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and will
cause all money and other valuable effects to be deposited in the name and to
the credit of the Corporation in such depositories, subject to withdrawal in
such manner as may be designated by the Board of Directors and the Chief
Executive Officer. The Treasurer will render to the President and to the
Directors (at the regular meetings of the Board or whenever they may require),
an account of all his/her transactions, as Treasurer, and of the financial
condition of the Corporation.
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VI RESIGNATIONS AND VACANCIES
6.01 - Resignations.
Any Director, Committee member or Officer may resign from his office at
any time by written notice delivered or addressed to the Corporation at its
known place of business. Any such resignation will be effective upon its
receipt by the Corporation unless some later time is therein fixed; and then
from that time, the acceptance of a resignation will not be required to make it
effective.
6.02 - Vacancies.
If the office of any Director or Committee member becomes vacant by reason
of his/her death, resignation, disqualification, removal or otherwise, the
Board of Directors may choose a successor to hold office for the unexpired
term.
VII. SEAL
7.01 - Form Thereof.
The Board of Directors may, if required by applicable Law, provide for a
Seal of the Corporation which will have inscribed thereon the name of the
Corporation, the state and year of its incorporation.
VIII. CERTIFICATES REPRESENTING SHARES
8.01 - Form Thereof.
Each certificate representing shares of the Corporation will be in such
form as may from time to time be approved by the Board of Directors, will be
consecutively numbered and will exhibit such information as may be required by
applicable law.
8.02 - Signatures and Seal Thereon.
All certificates issued for shares of the Corporation (whether new,
reissued or transferred) will bear the signatures of the President or a Vice
President, and of the Secretary or an Assistant Secretary, and the impression
of the Corporation's Corporate Seal, if any. The signatures of such Officers
of the Corporation, and the impression of its Corporate Seal, may be in
facsimile form on any certificates which are manually countersigned by an
independent transfer agent and/or registered by a registrar duly appointed by
the Corporation and other than the Corporation itself or one of its employees.
If a supply of unissued certificates bearing the facsimile signature of a
person remains when that person ceases to hold the office, the unissued
certificates may continue to be issued and delivered by the Corporation's
transfer agent and/or registrar thereafter, the same as though such person had
continued to hold the office indicated on such certificate.
8.03 - Ownership.
The Corporation will be entitled to treat the registered owner of any
share as the absolute owner thereof and, accordingly, will not be bound to
recognize any beneficial, equitable or other claim to, or interest in, such
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share on the part of any other person, whether or not it has notice thereof,
except as may expressly be provided by applicable law.
8.04 - Transfers.
Transfers of shares of the Corporation may be made on the stock transfer
books of the Corporation only at the direction of the person named in the
certificate therefor (or by his duly authorized attorney-in-fact) and upon the
surrender of such certificate.
8.05 - Lost Certificates.
In the event of the loss, theft or destruction of any certificate
representing shares of the Corporation or of any predecessor corporation, the
Corporation may issue (or, in the case of any such shares as to which a
transfer agent and/or registrar have been appointed, may direct and issue) a
new certificate, and cause the same to be delivered to the owner of the shares
represented thereby, provided that the owner shall have submitted such evidence
showing the circumstances of the alleged loss, theft or destruction, and
his/her ownership of the certificate, as the Corporation considers
satisfactory, together with any other facts which the Corporation considers
pertinent, and further provided that a bond shall have been provided in form
and amount satisfactory to the Corporation (and to its transfer agent and/or
registrar, if applicable), unless the shares represented by the certificate
lost, stolen or destroyed have at the time of the issuance of the new
certificate a market value of $500 or less (as determined by the Corporation on
the basis of such information as it may select), in which case the requirements
of a bond may be waived. The Corporation may act through its President, any
Vice President, its Secretary or its Treasurer for any purpose of this Section
8.05.
IX. DIVIDENDS
9.01 - Dividends.
Subject to such restrictions or requirements as may be imposed by
applicable law or the Corporation's Articles or as may otherwise be binding
upon the Corporation, the Board of Directors may from time to time declare and
the Corporation may pay dividends on shares of the Corporation outstanding on
the dates of record fixed by the Board, to be paid in cash, in property, in
shares of the Corporation or in shares of other corporations owned by the
Corporation on or as of such payment or distribution dates as the Board may
prescribe.
X. INDEMNIFICATION
10.01 - Indemnification.
Subject to the provisions of Arizona Corporate Law, as amended from time
to time, the Corporation does hereby indemnify and hold harmless the Directors
and Officers of the Corporation for the performance or failure to perform, as
the case may be, any act, which act is not wilfully and/or grossly negligent
and which was performed in the best interests of the Corporation at the time
said act occurred. This indemnification shall not limit the Corporation's
ability provide additional indemnification, under Law, when and if adjudicated.
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XI. AMENDMENTS
11.01 - Amendments to By-Laws.
The By-Laws may be altered, amended, supplemented, repealed or temporarily
or permanently suspended, in whole or in part, or new By-Laws may be adopted,
at any duly constituted meeting of the stockholders or the Board of Directors
(the notice of which meeting either includes mention of the proposed action
relative to the By-Laws or is waived pursuant to Section 2.03 or Section 3.04,
whichever is applicable) or, alternatively, by unanimous written consent to
corporate action without a meeting of the stockholders or the Board of
Directors pursuant to Section 3.11. if, however, any such action arises as a
matter of necessity at any such meeting and is otherwise proper, no notice
thereof will be required.
The foregoing By-Laws were adopted by the Board of Directors of the
Corporation at a meeting held on the 23rd day of May, 1995.
/s/Cynthia L. Castellano
----------------------------
Secretary of the Corporation
(Seal)
ATTEST:
- ----------------------
Chairman of the Board
- 14 -<PAGE>
EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
- ---------------------------------------------- --------------------------
Alanco Environmental Services, Inc. Nevada
Alanco Environmental Manufacturing, Inc. Nebraska
Alanco Financial Services Corp. Nevada
Alanco Environmental Technology People's Republic of China
(Beijing) Co. Ltd.
Fry Guy Inc. Nevada
Unique Systems, Inc.
dba National Affiliated Adjustment Company Nevada<PAGE>
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