As filed with the Securities and Exchange Commission on July 5, 1996.
Registration No. 33-_____________
U. S. S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
Washington, D.C. 20549
_________________________
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Arizona 6749 86-0220694
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
_______________
4110 North Scottsdale
Road
Suite 200
Scottsdale, Arizona
85251
(602) 874-0448
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
NORMAN E. MEYER
4110 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85251
(602) 874-0448 (office)
(602) 946-2800 (facsimile)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)<PAGE>
Copies of all communications to:
Dennis Brovarone, Esq. Thomas J. Morgan, Esq.
2530 South Linley Court Chapman and Cutler
Denver, Colorado 80219 2 North Central, Suite 1100
(303) 742-0966 (office) Phoenix, Arizona 85004
(602) 256-4083 (office)
(303) 742-0117 (facsimile) (602) 256-4099 (facsimile)
_______________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Title of Each Class Amount to Proposed Proposed Amount of
of Securities to be be Maximum Maximum Registration
Registered Registered Offering Aggregate Fee
Price Per Offering
Share(1) Price(1)
Common Stock, no 981,625 $2.453 $2,407,926 $830.73
par value shares
___________________________
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
__________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location
in Prospectus of Information Required by Items of Form S-1
Form S-1 Location in Prospectus
Item Number and Heading
1. Forepart of the Registration Facing Page; Cross-Reference
Statement and Outside Front Cover Sheet; Outside Front Cover
Page of Prospectus ................ Page
2. Inside Front and Outside Back Cover Inside Front Cover Page;
Pages of Prospectus ............... Available Information
3. Summary Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Fixed Factors
Charges ...........................
4. Use of Proceeds .................... Use of Proceeds
5. Determination of Offering Price .... Outside Front Cover Page; Plan
of Distribution
6. Dilution ........................... Not Applicable
7. Selling Security Holders ........... Selling Shareholders
8. Plan of Distribution ............... Plan of Distribution
9. Description of Securities to be Outside Front Cover Page;
Registered ...................... Description of Capital Stock
0. Interests of Named Experts and Legal Matters; Experts
Counsel .........................
1. Information With Respect to the
Registrant:
(a) Description of Business ........ Prospectus Summary; Business
(b) Description of Property ........ Business-Property
(c) Legal Proceedings .............. Business-Legal Proceedings
(d) Market Price of and Dividends on Front Cover Page; Dividend
the Registrant's Common Equity Policy; Price Range of Common
and Related Stockholder Matters Stock; Selected Consolidated
Financial Data; Description of
Capital Stock; Shares Eligible
for Future Sale; Available
Information
(e) Financial Statements ........... Consolidated Financial
Statements
(f) Selected Financial Data ........ Selected Consolidated
Financial Data
(g) Supplementary Financial Not Applicable
Information ....................
(h) Management's Discussion and Management's Discussion and
Analysis of Financial Condition Analysis of Financial
and Results of Operations ...... Condition and Results of
Operations
(i) Changes in and Disagreements Change in Company's Certifying
with Accountants on Accounting Accountant
and Financial Disclosure .......
(j) Directors and Executive Officers Management
(k) Executive Compensation ......... Management
(l) Security Ownership of Certain Selling Shareholder; Principal
Beneficial Owners and Management Stockholders
(m) Certain Relationships and Management; Certain
Related Transactions ........... Transactions
2. Disclosure of Commission Position on Management; Plan of
Indemnification for Securities Act Distribution
Liabilities .......................<PAGE>
PROSPECTUS
981,625 Shares
Common Stock
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
____________
The Common Stock (the "Common Stock") is offered hereby by the Selling
Shareholders (as defined herein). See, "SELLING SHAREHOLDERS." The Common
Stock may be offered by the Selling Shareholders from time to time in
transactions in the over-the-counter market, or otherwise at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Common Stock to or
through underwriters, brokers, dealers or agents who may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholders or the purchasers of the Common Stock for whom such underwriters,
brokers, dealers or agents may act. The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders.
The Common Stock is traded on the NASDAQ SmallCap Market under the symbol
"ALAN." As of the close of trading on June 27, 1996, the "bid" and "ask" price
of the Common Stock as quoted by the NASDAQ was $2.41 and $2.50, respectively.
The Selling Shareholders and any underwriters, brokers, dealers or agents
participating in the distribution of the Common Stock may be deemed to by
"underwriters" within the meaning of the Securities Act 1933, as amended (the
"Securities Act"), and any profit on the sale of the Common Stock by the
Selling Shareholders and any commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act.
Underwriters, brokers, dealers or agents effecting transactions in the
Common Stock should confirm the registration thereof under the securities laws
of the state in which such transactions will occur, or the existence of any
exemption from registration.
________________________
See "RISK FACTORS" for certain information which should be carefully considered
before purchasing shares of Common Stock offered hereby.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR<PAGE>
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 27, 1996.<PAGE>
AVAILABLE INFORMATION
Alanco Environmental Resources Corporation (the "Company") is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
This Prospectus relates to Common Stock registered under Registration
Statement No. 33-_____ of which this Prospectus is a part. This Prospectus
does not contain all of the information set forth in such Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement, including the exhibits and schedules thereto.
The Registration Statement can be inspected at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
_______________
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus, and to be a part hereof from the date of filing such
documents. Any statement incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that
the statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any document incorporated by
reference in this Prospectus (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference to such documents).
Requests for such copies should be directed to Charles Goyette, Investor
Relations Director, Alanco Environmental Resources Corporation, 4110 North
Scottsdale Road, Suite 200, Scottsdale, Arizona 85251, (602) 874-0448.
_______________<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY BUSINESS
RISK FACTORS MANAGEMENT
USE OF PROCEEDS CERTAIN TRANSACTIONS
DIVIDEND POLICY PRINCIPAL SHAREHOLDERS
PRICE RANGE OF COMMON STOCK DESCRIPTION OF CAPITAL STOCK
CAPITALIZATION PLAN OF DISTRIBUTION
SELLING SHAREHOLDER CHANGE IN COMPANY'S CERTIFYING
ACCOUNTANT
SELECTED CONSOLIDATED FINANCIAL INDEX TO CONSOLIDATED
STATEMENTS FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
_______________
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company, the Selling Shareholders or any underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any Securities in any jurisdiction where, or to any person whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "RISK FACTORS" and the Company's consolidated financial
statements appearing elsewhere in this Prospectus. Unless the context
otherwise requires, "Company" refers to Alanco Environmental Resources
Corporation and its wholly owned subsidiaries.
The Company
The Company's operations, primarily through subsidiaries, are diversified
and include: (i) air pollution control, product manufacturing, technology
design and marketing; (ii) restaurant equipment/food marketing and
distribution; (iii) insurance claims adjusting; and (iv) mineral property
ownership.
The air pollution control manufacturing segment of the Company's
operations are conducted directly and through its wholly-owned subsidiary,
Alanco Environmental Manufacturing, Inc. ("AEMI"). Through AEMI, the Company
manufactures aeration and dust control equipment primarily used in the
agriculture and grain industry, such as air filters, fans, conveyors and
ducting.<PAGE>
The Company's air pollution control technology operations are conducted
directly and through subsidiaries for its overseas operations. The Company's
principal air pollution control technology is the charged dry sorbent injection
("CDSI") system, a patented process that utilizes an electrostatically charged
sorbent to remediate and remove noxious gases from a hot exhaust gas stream
emitted from stationary sites, such as factories.
In June 1995, the Company entered into a new business with the acquisition
of Fry Guy, Inc. ("Fry Guy"). Fry Guy holds rights for the United States
distribution of the a light weight, ventless, easy to install and operate food
deep fry machine. Fry Guy developed the Integrated Finger Food Marketing
("IFFM") program and has an agreement with Wal-Mart Stores, Inc. to place deep
fry machines in approximately 1,245 existing and all future Wal-Mart store
snack bars, excluding locations containing a branded restaurant franchise. In
addition to the Wal-Mart agreement, the Company is targeting small food outlets
and other snack bar facilities with its IFFM program. Fry Guy also has
agreements with McLane, Ore-Ida/Moore's Foods, Lamb Weston and Tyson Foods to
provide specially processed, pre-packaged foods designed especially for use in
the IFFM program ("Fry Guy Foods"). Under the IFFM program, the Company
supplies deep fry machines to customers who agree to purchase and utilize foods
of suppliers with which the Company has distribution agreements. The Company
receives payment for each case of approved food utilized by the customer.
In May 1995, the Company acquired Unique Systems, Inc. d/b/a National
Affiliated Adjustment Company ("NAAC") which operates as an independent claims
loss adjustment processor in locations nationwide. NAAC processes property,
casualty, health insurance and workmen's compensation claims and automobile
appraisal for various insurance companies.
The Company also holds certain mining properties, but does not currently
engage in any mining or exploration activities related to such properties.
The Company is an Arizona corporation organized in 1969. Its executive
offices are located at 4110 North Scottsdale Road, Suite 200, Scottsdale,
Arizona 85251, and its telephone number is (602) 874-0448.
THE OFFERING
Common Stock offered by the Selling 981,625 shares
Shareholders
Common Stock Outstanding 33,146,690(1)
Nasdaq SmallCap Market Symbol ALAN
____________________
(1) Excludes Common Stock reserved for issuance under certain stock option
plans and outstanding warrants.
All proceeds of the offering will be
Use of Proceeds paid to the Selling Shareholders
Risk Factors This offering involves a high degree
of risk. See, "RISK FACTORS".<PAGE>
Summary Consolidated Financial Information
(In thousands, except per share data)
The following selected financial data is derived from the consolidated
financial statements of the Company, included elsewhere herein, and should be
read in conjunction with such financial statements and related notes thereto.
Results of operations for the nine month periods may not necessarily be
indicative of results to be expected for the full fiscal year or any other
period.<PAGE>
<TABLE>
<CAPTION>
For the Years Ended June 30, 1995, 1994, 1993; Interim
Period Ended June 30, 1992; For the Nine Months
and the Years Ended May 31, 1992 and 1991 Ended March 31,
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31 May 31 June 30 June 30 June 30 June 30
1991 1992 1992 1993 1994 1995 1995 1996
Consolidated
Statements of
Operations Data:
Revenues ........... $59 $25 $- $11 $1,582 $3,438 $2,377 $3,855
Income (losses) from (1,317) (2,885) (111) (4,186) (3,381) (2,489) (1,651) (2,163)
operations .......
Net income (losses) (1,177) (2,862) (112) (4,102) (3,840) (4,753) (2,778) (2,244)
Net income (losses) per ($0.27) ($0.55) ($0.02) ($0.32) ($0.21) ($0.20) ($0.13) ($0.07)
share ............
</TABLE>
As of June 30, As of March 31,
1995 1996
(unaudited)
Consolidated balance sheet data:
Working capital ............. $2,452 $3,998
Total assets ................ 21,216 22,320
Long-term liabilities ....... 464 390
Shareholder's equity ........ 18,601 19,965<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In
addition to the other information in this Prospectus, the following factors
should be considered carefully in evaluating the Company and its business
before purchasing shares of Common Stock offered hereby.
Absence of Profitable Operations
The Company incurred net loses of $4,102,173, $3,839,965 and $4,753,380
for the years ended June 30, 1993, 1994 and 1995, respectively, and of
$2,243,830 for the nine months ended March 31, 1996. The report of the
Company's independent public accountant related to the Company's financial
statements for the years ended June 30, 1994 and 1995 contained a qualification
based upon the Company's ability to continue as a going concern. See the
Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein. Prior losses are a result of several factors including the
expensing of research and development costs related to the Company's air
pollution control technology, incurring of costs associated with the Fry Guy
business plan expansion and expansion of the Company's insurance claims
adjustment segment. Additionally, losses were incurred in the Company's mining
segment. While research and development costs associated with the Company's
air pollution control technology are still incurred, the Company believes that
such technology is poised to commence generating revenues. With respect to the
Fry Guy expansion, the Company believes the IFFM program will also commence to
generate revenues. The Company's insurance claims adjustment segment has been
profitable and the Company believes that the expansion will increase this
segment's profitability. The Company has discontinued all mining operations
and now holds its properties in an inactive status pending location of a
purchaser or joint venture partner to operate the mining activities. While the
Company believes it will be able to achieve its desired level of profitability,
there can be no assurance that profitable operations will be attained or that
additional capital can be obtained if needed. If the Company is unable to
attain profitable operations or raise additional capital as needed, it may be
forced to cease or significantly limit its operations.
Integration of New Business Lines
The Company acquired Alanco Environmental Manufacturing, Inc. ("AEMI"),
its agriculture air pollution control systems manufacturing subsidiary, in 1994
and acquired both Fry Guy, Inc. ("Fry Guy"), its restaurant equipment marketing
subsidiary, and Unique Systems, Inc. d/b/a National Affiliated Adjustment
Company ("NAAC"), its independent claims loss adjustment subsidiary, in 1995.
Additionally, the Company's charged dry sorbent injection ("CDSI") system
technology was released for commercial application in 1995. While such
acquisitions and product development have greatly expanded and diversified the
Company's operations, their assimilation has placed additional demands on
Company management. There can be no assurance that the Company will be
successful in expanding or maintaining its diversified operations or
implementing its business strategies in any of its segments. Even if the
Company successfully implements its business strategies, there can be no
assurance that it will achieve profitability in any or all of its operations.
See, "BUSINESS."
Product and Service Acceptance<PAGE>
The Company believes that its CDSI technology has certain competitive
advantages in that it is the only such technology utilizing an
electrostatically charged sorbent in its process. The Fry Guy IFFM program is,
the Company believes, unique in that it provides a hot food service to snack
bars and other small food outlets. However, the Company may face direct
competition from domestic and foreign manufacturers, distributors and service
providers in all of its business operation segments, particularly its air
pollution control technology and manufacturing and insurance claims adjustment
segments. Such competition may develop alternative or similar products and
services which may meet with greater consumer approval than the Company's or
otherwise render the Company's products or services obsolete. The development
of new products or provision of alternative services by competitors may reduce
the potential market for the Company's products and services and could
adversely affect the Company's operating results. See, "BUSINESS-Competition."
Technology Developments and Market Acceptance
Technology developments occur rapidly in the environmental and pollution
control industry and, while the affects of such developments are uncertain, may
have a material adverse affect on the demand for the Company's pollution
control technology and products. Additionally, the CDSI technology, while
tested successfully, has not been marketed in the United States. Accordingly,
the market acceptance of this technology is unknown. The Company's success in
its air pollution control segment will depend on its ability to penetrate and
retain markets for such technology and the Company's related products. There
can be no assurance that the Company will be able to remain competitive or that
its technology, services or products will not become subject to obsolescence.
Dependence on Key Customers
The focus of the Company's restaurant equipment/food distribution segment
has been almost entirely devoted to its relationship with Wal-Mart Stores, Inc.
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. See, "BUSINESS-Restaurant Equipment and Food."
Competition
The markets in each of the Company's business operation segments are
highly competitive. In each of the market segments the Company serves, the
Company faces intense competition from established competitors, the majority of
which have substantially greater financial, engineering, manufacturing and
marketing resources and greater name recognition than the Company, as well as
long-standing customer relationships. Additionally, new competitors may seek
to enter some or all of the business segments in which the Company operates.
See, "BUSINESS-Competition."
Fluctuations in Quarterly Operating Results
The Company's operating results for a particular quarter have historically
and may in the future vary significantly due to a number of factors.
Consequently, the Company may experience significant fluctuations in its
quarterly revenue, gross profit, operating income and net income. Factors that
may influence the Company's operating results in a given quarter include: (i)
customer demand, market acceptance of products and services of both the Company
and its customers, changes in product mix, and the timing, cancellation or<PAGE>
delay of customer orders; (ii) competition, such as competitive pressures on
prices of the Company's products and services, the introduction or announcement
of new products by competitors, and intellectual property rights of third
parties; (iii) manufacturing and operations, such as fluctuations in
availability and cost of raw materials, production capacity, inventory
obsolescence and inventory management; (iv) fluctuations in foreign currency
exchange rates; (v) new product development, such as increased research,
development and marketing expenses associated with new product introductions
and the Company's ability to introduce new products and technologies on a
timely basis; (vi) sales and marketing, such as concentrations of customers,
discounts that may be granted to certain customers, and product returns and
exchanges; and (vii) the current and potential future dependence on the
Company's existing product lines and services; as well as other factors, such
as levels of expenses relative to revenue levels, personnel changes and
generally prevailing economic conditions. These same factors also could
materially and adversely affect annual results of operations. See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Quarterly Results of Operations."
Need for Additional Capital
Additional capital, in all likelihood, will be required for the Company to
fully expand its operations into all of its target markets. The amount of
additional capital that may be required is dependent upon, among other things,
the expansion of existing financial resources, the availability of other
financing on favorable terms and future operating results. There can be no
assurance that additional capital can be raised as needed or that the Company
can ultimately fulfill its business objectives. See, "USE OF PROCEEDS" and
"MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Manufacturing
The Company manufactures and refurbishes its air pollution control
products at its plant in Falls City, Nebraska. This segment of the Company's
business is labor and capital intensive and subject to many of the risks
inherent in the manufacturing business. Interruption of its manufacturing
activities may occur due to lack of supply of raw materials or containers,
increasing prices of materials and equipment, work stoppages, strikes or other
labor difficulties or changes in government regulations. Any interruption of
manufacturing or refurbishing activities may have a material adverse affect on
the Company.
International Business
The Company's operations with respect to its CDSI technology will, to a
great extent, be devoted to China and Eastern European countries. Sales to
customers outside the United States are subject to risks, including exposure to
currency fluctuations, the imposition of government controls, the need to
comply with a wide variety of foreign and U.S. export laws, political and
economic instability, trade restrictions, changes in tariffs and taxes, longer
payment cycles typically associated with foreign sales, the greater difficulty
of administering business overseas and general economic conditions. In
addition, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States.
Dependence on Key Personnel<PAGE>
The Company's success depends to a significant extent upon certain senior
management and technical personnel. The loss of the services of one or more of
these key persons could have a material adverse effect on the Company. The
Company's future success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, and marketing personnel.
Competition for such personnel is intense and the companies with which the
Company competes are often larger and more established than the Company. There
can be no assurance that the Company will be successful in attracting and
retaining qualified personnel. See, "BUSINESS-Employees" and "MANAGEMENT."
Intellectual Property Rights
Although the Company currently holds numerous United States and foreign
patents and patent applications, there can be no assurance that the Company
will be able to protect its technology or that competitors will not be able to
develop similar technology independently. No assurance can be given that the
claims allowed on any patents held or acquired by the Company will be
sufficiently broad to protect the Company's technologies. In addition, no
assurance can be given that any existing or future patents issued to the
Company will not be challenged, invalidated or circumvented or that the rights
granted thereunder will provide competitive advantages to the Company. In that
event, the Company's results of operations could be adversely affected.
Moreover, the Company may choose to incur significant costs to attempt to
defend its patent rights.
In addition, although the Company believes that its products do not
infringe any valid existing proprietary rights of others, there can be no
assurances that third parties will not assert infringement claims in the
future. There also may be pending patent applications or issued patents of
which the Company is not aware, and which would require the Company to license
or challenge such patents, at significant expense to the Company. There can be
no assurance that any such license would be available on acceptable terms, if
at all, or that the Company would prevail in any such challenge. See,
"BUSINESS-Patents."
Regulations
The Company's air pollution technology is subject to regulations by the
Environmental Protection Agency and various state environmental agencies. All
of the Company's business operations are subject to various laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements. An increase in the minimum
wage rate, employment benefit costs or other costs associated with employees
could adversely affect the Company. Additionally, the Company is subject to
various state and local regulations related to work-place safety, waste
disposal and its sales activities. Failure to comply with regulations could
subject the Company to fines and penalties. Any changes or increase of
regulation to which the activities of the Company may be subject could
adversely affect the Company's operations.
Possible Issuance of Preferred Stock
The Board of Directors has authority to issue up to 5,000,000 shares of
Preferred Stock, Class A and up to 20,000,000 shares of Preferred Stock, Class
B and to fix the rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
shareholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any<PAGE>
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying or preventing a change in control
of the Company. Furthermore, such Preferred Stock may have other rights,
including economic rights senior to the Common Stock, and, as a result, the
issuance thereof could have a material adverse effect on the market value of
the Common Stock. See, "DESCRIPTION OF CAPITAL STOCK."
Shares Eligible for Future Sale
Sales of substantial amounts of shares in the public market following this
offering could adversely affect the market price of the Common Stock. As of
May 15, 1996, the Company had 33,146,690 shares of Common Stock outstanding.
Of these, 27,438,985 shares are generally freely tradable without restriction.
The remainder of the shares are subject to restrictions on trading pursuant to
Rule 144 of the Securities Act but are not subject to any lock-up or other
contractual restrictions. See, "CERTAIN TRANSACTIONS" and "SHARES ELIGIBLE FOR
FUTURE SALE."
Arizona Anti-Takeover Statute
The Arizona Corporate Takeover Act ("Takeover Act") was adopted in 1987.
The policy of the Takeover Act is to prevent unfriendly corporate takeover
attempts by third parties. The Takeover Act prohibits certain types of
transactions, including "green mail," limits voting rights of certain
individuals acquiring shares in the market and regulates certain business
combinations respecting corporate transactions proposed by insiders and as part
of a takeover plan. The Company is subject to the foregoing provisions. These
provisions enhance the possibility that a potential bidder for control of the
Company will be required to act through arm's-length negotiation with respect
to a major transaction, such as a merger, consolidation or purchase of
substantially all of the assets of the Company. Such provisions may also have
the effect of discouraging tender offers or other stock acquisitions, giving
management of the Company power to reject certain transactions which might be
desired by the owners of the majority of the Company's voting securities.
These provisions could also be deemed to benefit incumbent management to the
extent that they deter such offers by persons who would wish to make changes in
management or exercise control over management. The Board of Directors of the
Company does not presently know any third party that plans to make an offer to
acquire the Company through a tender offer, merger or purchase of all or
substantially all of the assets of the Company. See, "DESCRIPTION OF CAPITAL
STOCK-Arizona Anti-Takeover Statute."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares
by the Selling Shareholders.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not intend to pay any cash dividends on its Common Stock in the
foreseeable future. Payment of dividends in the future, if any, will depend on
the earnings and capital requirements of the Company, the Company's and its
subsidiaries' debt facilities and other factors the Board of Directors<PAGE>
considers appropriate. The Company currently intends to retain its earnings,
if any, to support the growth and development of its business.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the NASDAQ SmallCap Market under
the symbol "ALAN." The following table sets forth high and low bid prices for
each fiscal quarter for the last three fiscal years. Such quotations represent
inter-dealer prices without retail mark-ups, mark-downs, or commissions and,
accordingly, may not represent actual transactions.
FISCAL 1996 FISCAL 1995 FISCAL 1994
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
September 30 2.56 1.75 2.53 1.06 6.00 3.63
December 31 2.53 1.81 2.22 1.25 5.81 3.75
March 31 4.88 1.90 1.88 1.16 5.56 3.00
June 30 N/A N/A 2.75 1.50 4.44 2.00
As of June 27, 1996 Alanco had approximately 2,000 holders of record of
its Common Stock. This does not include beneficial owners holding shares in
street name.
CAPITALIZATION
The following table sets forth in capitalization of the Company at March
31, 1996.
March 31, 1996
(in thousands)
Long-term obligations $ 390
Shareholders' equity:
Redeemable preferred stock, Class A
(500,000 shares authorized, 26 shares,
$20,000 par value outstanding) 322
Common stock, no par value (100,000,000
shares authorized, 32,946,802 51,493
outstanding)
Accumulated deficit (31,528)
Total capitalization $ 22,321
SELLING SHAREHOLDERS
The shareholders ("Selling Shareholders") whose Common Stock is subject to
this offering are set forth below:<PAGE>
Name Shares
D. Harrison Gentry 200,000
Gary J. Dalton 40,000
Maria Pastrana 140,625
Keith Denner 250,000
Norman E. Meyer 105,500
John E. Haggar 50,000
Dean A. Douglas 50,000
Larry G. Nelson 25,500
Paul Hederi 40,000
Grover Brockbank 40,000
James Jones 40,000
-----------
981,625
D. Harrison Gentry served as the President and Chief Operating Officer of
the Company from January 1994 to October 1994 and as the President and Chief
Executive Officer of the Company from October 1994 to December 1994. As a
provision of his severance agreement with the Company, Mr. Gentry was granted
options to purchase 200,000 shares of Common Stock at an amount equal to fifty
percent of the market price of the Common Stock at the close of the business
day preceding the exercise of the option. Mr. Gentry exercised his option to
acquire 100,000 shares on March 29, 1996 and for the remaining 100,000 shares
on April 3, 1996 for a total cash payment of $293,750.
Gary J. Dalton served as the President of AEMI from December 1993 to April
1995. The 40,000 shares of Common Stock held by Mr. Dalton which are subject
to this offering were acquired as a bonus to Mr. Dalton during his tenure as
President of the AEMI.
Maria Pastrana acquired 140,625 shares of common stock via a private
placement offered by the Company. The shares were acquired at a total price of
$168,750 during August and September of 1995. Maria Pastrana has no
affiliation with the Company.
Keith Denner acquired 250,000 shares by private placement offering made by
the Company between July and December of 1995. Total price paid for the shares
was $300,000. Mr. Denner has no affiliation with the Company.
Norman E. Meyer has served as President and Chief Executive Officer of the
Company since April 1995 and as its Chairman of the Board since December of
1995. Mr. Meyer has been a Director of the Company since December of 1994.
The 105,500 shares subject to this offering are the only shares held by Mr.
Meyer.<PAGE>
Mr. John E. Haggar has served as the Company's Treasurer since June of
1995 and as its Chief Financial Officer since February of 1996. The 50,000
shares subject to this offering are the only shares of the Company owned by Mr.
Haggar.
Dean A. Douglas has served as a Vice President of the Company since May of
1995 and as its Executive Vice President and Chief Operating Officer since
February of 1996. In addition to the 50,000 shares subject to this offering,
Mr. Douglas owns an additional 550 shares of the Company's common stock.
Larry G. Nelson served as a Director of the Company from May of 1995 until
December of 1995 and as the President and Chief Executive Officer of the
Company's wholly owned subsidiary, Alanco Financial Services, from July of 1995
until present. The 25,500 shares subject to this offering are the only shares
owned by Mr. Nelson.
Paul Hederi was an employee of the Company from September of 1993 until
May of 1995. The shares were received by Mr. Hederi in March of 1995 as an
employee bonus.
Mr. Grover Brockbank was an employee of the Company from August of 1993
until June of 1995. The shares were received by Mr. Brockbank in March of 1995
as an employee bonus.
James Jones was an employee of the Company from February of 1991 until
December of 1994 and also from May of 1995 until June of 1996. Mr. Jones
currently serves as a Consultant to the Company effective June 15, 1996. The
shares were received by Mr. Jones in April of 1995 as an employee bonus.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of earnings for the years ended June 30, 1993,
1994 and 1995 and the consolidated balance sheet as of June 30, 1993, 1994 and
1995 have been audited by Billie J. Allred, CPA, independent public accountant,
and are included elsewhere in this Prospectus. The consolidated statement of
earnings for the month ended June 30, 1992 and consolidated balance sheet as of
June 30, 1992 were also audited by Billie J. Allred, CPA, and the consolidated
statements of earnings for the years ended May 31, 1991 and 1992 and the
consolidated balance sheet as of May 31, 1991 and 1992 have been audited by
Dennis, Schmich & Co., Ltd., CPA, but are not included herein. The
consolidated financial statements as of and for the nine months ended March 31,
1995 and 1996 are unaudited. In the opinion of management, the unaudited
information for the nine months periods has been prepared on a basis consistent
with the audited information and includes all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the information set
forth therein. The selected consolidated financial data presented below
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and with the Company's
Consolidated Financial Statements, appearing elsewhere in this Prospectus.
Results of operations for the nine month periods may not necessarily be
indicative of results to be expected for the full fiscal year or any other
period.<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations Data (in thousands except per share data) :
For the Years Ended June 30, 1995, 1994 and 1993; For the Nine
Interim Period Ended June 30, 1992; Months
And the Years Ended May 31, 1992 and 1991 Ended March 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31 May 31 June 30 June 30 June 30 June 30
1991 1992 1992 1993 1994 1995 1995 1996
REVENUES:
Related parties $38 $- $- $8 $- $- $- $-
Environmental services - - - - 105 107 107 -
Restaurant service - - - - - 26 - 401
Insurance adjusting - - - - - 180 - 981
Mining and mining services 18 25 - 3 1 10 - -
Manufacturing - - - - 1,375 3,070 2,226 2,454
All other 3 - - - 101 45 43 19
Total revenues 59 25 - 11 1,582 3,438 2,377 3,855
OPERATING EXPENSES:
Direct Service
Environmental industry 47 163 47 238 1,647 212 195 301
Restaurant equipment and
supply industry - - - - - 22 - 281
Insurance adjusting industry - - - - - 74 - 431
Mining industry 194 1,943 9 2,832 481 205 111 49
Manufacturing industry - - - - 1,719 2,644 1,947 1,689
General and administrative 1,046 722 55 801 889 2,769 1,775 3,268
Loss on settlement of lawsuit 58 - - - 9 - - -
Write-off partnership interests - - - 319 - - - -
Write-off other investment 32 33 - 8 - - - -
Write-off receivable as
uncollectible - 49 - - 218 - - -
Total operating expenses 1,377 2,910 111 4,197 4,962 5,928 4,028 6,019
LOSS FROM OPERATIONS (1,317) (2,885) (111) (4,186) (3,381) (2,489) (1,651) (2,163)
OTHER INCOME AND (EXPENSE):
Interest income - - - - 17 62 58 36
Interest expense (15) (22) (1) (26) (20) (17) (4) (77)
Gain on sale of asset - 20 - - 3 118 - -
Loss on sale of assets - - - - (2) (68) - -
Minority in interest 129 - - - - - - -
Other income (expense) 23 - - (9) (6) (38) 58 (11)
Loss on sale of security - - - - - - - (28)
Total other income (expense) 137 (2) (1) (34) (9) 58 112 (80)
LOSS BEFORE EXTRAORDINARY ITEM
(1,180) (2,887) (112) (4,220) (3,389) (2,432) (1,539) (2,244)
EXTRAORDINARY ITEM
Forgiveness of debt 3 25 - 118 5 88 - -
Write-down of investment
securities - - - - - (432) - -
Sale of building and furniture - - - - - (666) (526) -
Loss on disposal of product - - - - (456) - - -
line
Write-down on mineral property - - - - - (598) - -
Write-down on manufacturing
facility and related equipment - - - - - (713) (713) -
Total extraordinary item 3 25 - 118 (451) (2,321) (1,239) -
NET LOSS ($1,177) ($2,862) ($112) ($4,102) ($3,840) ($4,753) (2,778) (2,244)
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK
Before extraordinary items ($0.27) ($0.55) ($0.02) ($0.33) ($0.19) ($0.10) ($0.07) ($0.07)
For Extraordinary items - - - 0.01 (0.02) (0.10) ($0.06) -
NET LOSS PER SHARE OF COMMON ($0.27) ($0.55) ($0.02) ($0.32) ($0.21) ($0.20) ($0.13) ($0.07)
STOCK
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data (in thousands):
<S> <C> <C> <C> <C> <C> <C> <C>
May 31 May 31 June 30 June 30 June June 30 As of
1991 1992 1992 1993 30 1995 March 31
1994 1996
Consolidated Balance Sheet
Data:
Working capital .. ($1,469) ($1,885) ($1,923) ($513) $3,431 $2,452 $3,998
Total assets ..... 10,086 8,107 8,682 8,432 18,282 21,216 22,321
Long-term obligations, less
current maturities 2 - - - - 464 390
Shareholders' equity 7,847 5,472 6,006 7,799 16,328 18,601 19,965
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain statement of earnings data
for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION> Nine Months
Fiscal Year Ended June 30, Ended March 31,
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
REVENUES:
Related parties 63 - - - -
Environmental services - 7 3 5 -
Restaurant service - - 1 - 10
Insurance adjusting - - 5 - 25
Mining and mining services 27 - - - -
Manufacturing - 86 90 94 64
All other - 7 1 1 1
Total Revenues 100 100 100 100 100
OPERATING EXPENSES:
Direct Service
Environmental industry 104 6 8 8
Restaurant equipment and supply - 1 - 7
industry
Insurance adjusting industry - 2 - 11
Mining industry 30 6 5 1
Manufacturing industry 108 77 82 43
General and administrative 56 81 75 85
Loss on settlement of lawsuit 1 - - -
Write-off partnership interests - - - -
Write-off other investment - - - -
Write-off receivable as 14 - - -
uncollectible
Total operating expenses 313 172 169 156
LOSS FROM OPERATIONS N/A (214) (72) (69) (56)
OTHER INCOME AND (EXPENSE):
Interest income 1 2 2 1
Interest expense (1) - - (2)
Gain on sale of asset - 3 - -
Loss on sale of assets - (2) - -
Other income (expense) - (1) 2 (1)
Total other income (expense) - 2 4 (2)
LOSS BEFORE EXTRAORDINARY ITEM N/A (214) (71) (65) (58)
EXTRAORDINARY ITEM
Forgiveness of debt - 3 - -
Write-down of investment securities - (13) - -
Sale of building and furniture - (19) (22) -
Loss on disposal of product line (28) - - -
Write-down on mineral property - (17) - -
Write-down on manufacturing
facility - (21) (30) -
and related equipment
Total extraordinary item (28) (68) (52) -
NET LOSS N/A (242) (138) (117) (58)
</TABLE>
<PAGE>
Nine Months Ended March 31, 1996 Compared with March 31, 1995. Revenues
for the nine months ended March 31, 1996 increased to $ 3,855,256 or 62% over
comparable revenues of $ 2,376,819 for the period ended March 31, 1995. The
insurance adjusting and restaurant equipment business segments accounted for
66% and 27% of the increase respectively. These businesses were acquired May
1, 1995 and were therefore not part of prior period consolidated revenues or
expenses. Sales in the manufacturing segment, representing 64% of total
revenues, increased 10% or $227,098 over the prior period. A change in the
focus toward the production of industrial equipment enhanced sales growth.
Cost of sales and direct service costs increased by $ 489,382. Direct
costs associated with the insurance and equipment business segments acquired
May 1, 1995 were $ 711,563. This amount was offset by efficiencies gained in
the manufacturing segment where direct costs were reduced by $ 267,176 in spite
of increased sales. General and administrative expense increased by $
1,107,747 over the prior period. The insurance adjusting and restaurant
equipment businesses accounted for 51% and 38% of the increase, respectively.
Loss from operations increased by $ 512,118 from the comparable period.
On a consolidated basis, additional depreciation and amortization represented
77% of the increase in the operating loss.
Fiscal 1995 Compared with Fiscal 1994. Consolidated revenues for the year
ended June 30, 1995, were $3,438,183. An increase of $1,856,668 or 117.4%.
The manufacturing operations accounted for 91% of this increase. The balance
of the increase was principally due to the new business segments added,
restaurant equipment and supply and insurance adjusting. Since the new
business segments were consolidated for a two month period only, significant
increases in revenue are anticipated for the upcoming year (See Note 25 to the
Notes to Consolidated Financial Statements).
For the fiscal year ended June 30, 1995, the Company's net loss increased
by $913,415 (23.79%) over the prior fiscal year. Net losses include the
operations of newly added subsidiaries for a two month period only. The
consolidated results also contain extraordinary losses of $2,321,449 for fiscal
1995 compared to extraordinary losses of $453,080 for the prior year. The
extraordinary losses more than account for the increase in net losses for the
year. Losses before extraordinary items decreased by $954,954. This decrease
is attributable to an increase in manufacturing revenues and a decrease in
mining expenditures.
The following table sets forth a breakdown by segments of the Company's
business, in the form of a comparison of net operating income (losses). G & A &
Other also includes extraordinary items.
INCOME (LOSS) BY BUSINESS SEGMENT
FOR THE YEAR ENDED
CATEGORY JUNE 30, 1995 JUNE 30, 1994 INCREASE % CHANGE
(DECREASE)
Environmental (105,366) (1,542,165) 1,436,799 93.17
Restaurant 3,972 N/A 3,972 --
Insurance 105,926 N/A 105,926 --
Mining (195,446) (479,646) 284,200 59.25
Manufacturing 425,278 (344,414) 769,692 123.48
G & A & Other (4,987,743) (1,473,739) (3,514,004) 138.44
Net Income (4,753,379) (3,839,964) (913,415) 23.79
(Loss)<PAGE>
The following table sets forth a breakdown by segments of the Company's
business, in the form of a comparison of operating expenses:
OPERATING EXPENSES BY BUSINESS SEGMENT
FOR THE YEAR ENDED
INCREASE
CATEGORY JUNE 30, 1995 JUNE 30, 1994 (DECREASE) % CHANGE
Environmental 212,366 1,647,165 (1,434,799) (87.11)
Restaurant 22,065 N/A 22,065 --
Insurance 74,252 N/A 74,252 --
Mining 205,446 480,646 (275,200) (57.26)
Manufacturing 2,644,495 1,719,046 925,449 53.84
G & A 2,769,039 888,642 1,880,397 211.60
Other -- 226,560 (226,560) (100.00)
Totals 5,927,663 4,962,059 965,604 19.46
The decrease in the amount of operating expenses of the environmental
services is directly related to a reduction in the required research and
development costs and the amount of corporate overhead allocated to this
business segment as a result of entering into two (2) new segments this year.
Operating expenses for the restaurant equipment and supply and insurance
operations were included from May 1, 1995. Direct service in the mining
industry decreased by $275,200, most of which is attributable to a reduction in
delay rental fees due the Bureau of Land Management and a watchman's contract
for services at one of the Company's mine sites. Direct service expenses for
the manufacturing division increased by $925,449 or 54%. This is a result of a
full years operating history versus the six months consolidated the previous
year. The increase in general and administrative expenses can be attributed to
the inclusion of two new business segments, increased volumes in the
manufacturing and the distribution of resources from the environmental segment
direct service.
For the year ended June 30, 1995, the Company had significant items that
were listed as extraordinary. These items are of a singular nature and would
not be considered a part of ongoing operations. Extraordinary items consisted
of a write down of marketable securities of $431,000, a reevaluation of the
Boone, Iowa manufacturing plant of $713,000, a write off of mining claims of
$598,000, and a loss from sale of the corporate office building of $666,000.
Fiscal 1994 Compared with Fiscal 1993. In fiscal 1994, the Company's net
loss decreased by $262,209 (6.39%) over the same period last year. This
decrease is attributable to a substantial decrease in costs in the mining
industry which outweighed the increased costs in the environmental industry.
The following table sets forth a breakdown by segments of the Company's
business, a comparison of net operating losses. G & A & Other also includes
extraordinary items.
INCOME (LOSS) BY BUSINESS SEGMENT
FOR THE YEAR ENDED
INCREASE
CATEGORY JUNE 30, 1994 JUNE 30, 1993 (DECREASE) % CHANGE
Environmental (1,542,165) (237,778) 1,304,387 548.57
Mining (479,646) (2,829,001) (2,349,355) 483.059<PAGE>
Manufacturing (344,414) (--) 344,414 N/A
G & A & Other (1,473,739) (1,035,394) 438,345 42.341
Net Income (3,839,964) (4,102,173) (262,209) 6.39
(Loss)
The following table sets forth a breakdown by segments of the Company's
business, a comparison of operating expenses:
OPERATING EXPENSES BY BUSINESS SEGMENT
FOR THE YEAR ENDED
INCREASE
CATEGORY JUNE 30, 1994 JUNE 30, 1993 (DECREASE) % CHANGE
Environmental 1,647,165 237,778 1,409,387 592.73
Mining 480,646 2,832,001 (2,351,355) 83.03
Manufacturing 1,719,046 -- 1,719,046 N/A
G & A 888,642 800,578 88,064 11.00
Other 226,560 326,141 (99,581) 30.53
Net Loss 4,962,059 4,196,498 765,561 18.24
The increase in general and administrative expenses is a direct result of
the addition of a segment of business. This has increased staff.
The increase in operating expenses for the environmental segment of
business is attributable to engineering expenses associated with the new
design, research and development expenditures and marketing.
The decrease in operating expenses for the mining segment of business is
attributable to only one minor write-down taken this year on the valuation of a
property and no acquisition expenses. The total dollar amount attributed to
these items during the year ended June 30, 1993 was $2,700,908. If this was
factored out, operating expenses for the year ended June 30, 1993 would be
$131,093 versus $312,435 for the year ended June 30, 1994.
This is an increase of $181,432, which is mostly attributed to the rental
fees paid to the Bureau of Land Management on the mineral properties. These
fees, recently approved by Congress, were for two years. One year paid in
arrears and one year paid in advance. In coming years the fee will be paid in
advance only.
In miscellaneous operating expenses, the major item was a loss incurred in
the manufacturing segment on the sale of a product line which the Company would
no longer represent. This loss was from the sale of inventory and is of a non-
reoccurring nature.
The Company recorded $1,581,515 in revenues during the year ended June 30,
1994 of which $1,374,632 was in the recently acquired manufacturing segment of
business, which means revenues from ongoing business were actually $206,883.
These revenues represent an increase of $195,896 (1,782.98%) over the same
period last year. This increase is composed of the following components: i.) an
increase in corporate revenue of $100,883 (100%) from sublease rentals of
office space and warehouse space; ii.) an increase in environmental revenues of
$105,000 (100%) associated with the contract in process at Prescott Valley,
Arizona and iii) a decrease in mining revenues of $2,000 (66.67%).<PAGE>
Quarterly Results of Operations (in thousands)
The following table presents certain unaudited consolidated
quarterly financial information for the eight quarters ended March 31,
1996. In the opinion of the Company's management, this information
has been prepared on the same basis as Consolidated Financial
Statements appearing elsewhere in this Prospectus and including all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results set forth herein.
Results of operations for any previous quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Fiscal
1994 Fiscal 1995 Fiscal 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
REVENUES:
Related parties - - - - - - - -
Environmental services - - 107 - - - - -
Restaurant service - - - - 26 173 141 87
Insurance adjusting - - - - 180 295 311 375
Mining and mining services - - - - 10 - - -
Manufacturing 809 869 644 713 843 1,209 742 504
All other 76 16 13 14 3 5 5 8
Total revenues 885 885 764 727 1,062 1,682 1,199 974
OPERATING EXPENSES:
Direct Service
Environmental industry 577 27 89 56 40 55 115 131
Restaurant equipment and
supply industry - - - - 22 132 86 62
Insurance adjusting industry - - - - 74 111 133 187
Mining industry 237 106 44 6 49 55 19 16
Manufacturing industry 966 700 689 593 662 741 489 460
General and administrative 289 546 504 667 1,053 1,033 1,030 1,164
Write-off receivable as 217 - - - - - - -
uncollectible
Total operating expenses 2,286 1,379 1,326 1,322 1,900 2,127 1,872 2,020
LOSS FROM OPERATIONS (1,401) (494) (562) (595) (838) (445) (673) (1,046)
OTHER INCOME AND (EXPENSE):
Interest income 17 34 21 4 3 4 12 -
Interest expense (14) (1) (2) (2) (12) (27) (28) -
Gain on sale of asset - 11 - 1 106 - - -
Loss on sale of assets - - - (5) (63) - (28) -
Other income (expense) (3) - (38) - (38) 10 (21) (2)
Total other income (expense) - 44 (19) (2) 34 (13) (65) (2)
LOSS BEFORE EXTRAORDINARY ITEM (1,401) (450) (581) (597) (804) (458) (738) (1,048)
EXTRAORDINARY ITEM
Forgiveness of debt 5 - 88 - - - - -
Write-down of investment - - - - (432) - - -
securities
Sale of building and furniture - - (350) - (316) - - -
Loss on disposal of product line (456) - - - - - - -
Write-down on mineral property - - - - (598) - - -
Write-down on manufacturing
facility - - (672) (27) (14) - - -
and related equipment
Total extraordinary item (451) - (934) (27) (1,360) - - -
NET LOSS (1,852) (450) (1,515) (624) (2,164) (458) (738) (1,048)
</TABLE>
<PAGE>
Liquidity and Capital Resources
As of March 31, 1996, the Company's current assets exceeded current
liabilities by $3,998,148, a ratio of six to one. The available cash of
$1,360,524 represents 29% of total current assets. The cash balance increased
by $ 753,113 from the last fiscal year end of June 30, 1995. This increase was
accomplished through the issuance of common stock. Regarding note 4(d) to the
Consolidated Financial Statements, the company has collected $375,000 of the
original amount due of $870,000. This receivable is currently in default.
Although negotiations are underway, there are no assurances that the Company
will be successful in these negotiations. Inventories increased by $561,944
since fiscal year end June 30, 1995. The majority of this increase or $438,470
was the build up in restaurant equipment needed to begin planned growth in this
business segment. Deployment of this equipment is anticipated to begin during
the last quarter of this fiscal year. In addition, the Company is actively
pursuing, from several sources, the required outside equipment financing needed
to complete its planned objectives. Although there are no guarantees, the
Company believes funds are available considering the vendor agreements now in
place and the value of unsecured equipment currently on hand.
The insurance adjustment segment has completed its planned expansion in
Arizona and Florida using internal funds. During the quarter ended March 31,
1996, the Company discontinued doing business with a major client that
represented approximately 34% of its current revenue. It is anticipated this
revenue will be replaced and surpassed as growth from the new locations
develop. In the interim, any cash required to finance this growth will be
funded through existing cash reserves. The amount involved is not anticipated
to be significant. The Company is expecting to generate revenue from the sale
of pollution control equipment in China and Europe during the quarter ended
September 30, 1996. The costs associated with this revenue have been expensed
or are being carried in inventory. World wide concerns over air quality have
increased both overall product demand and the availability of sources to
finance overseas sales of the Company's pollution control technology.
The manufacturing business segment has the necessary cash reserves to
operate effectively as it enters its most active business season. Management
expects the manufacturing segment to have a very positive cash flow for the
next six months and internally generate its own cash requirements for
operations. If expansion of the manufacturing facilities is required,
management has determined construction funds are available for this purpose.
BUSINESS
General
The Company was organized in 1969 as an owner and operator of mining
interests and a purveyor of mining-related services. In 1989, the Company
embarked on a course of diversification with its acquisition of certain
proprietary rights and clean-air technology developed by the Newberry Energy
Company, which poised the Company for entry into the business of manufacturing
and marketing of air pollution control technology. In 1994, the Company
acquired the George A. Rolfes Company, a developer of dust control systems for
agricultural grain storage, further expanding the Company's environmental
services. In 1995, the Company entered two additional business segments: (i)
wholesale food and equipment supply and distribution, with its acquisition of
Fry Guy, Inc. ("Fry Guy"), a distributor of an innovative deep fryer and
related line of pre-packaged foods; and (ii) insurance claims adjusting, with<PAGE>
its acquisition of Unique Systems, Inc. d/b/a National Affiliated Adjustment
Company ("NAAC").
Air Pollution Control Technology
The Company's principal air pollution control technology is the charged
dry sorbent injection ("CDSI") system. The CDSI system is a patented process
that utilizes an electrostatically charged sorbent to remediate and remove
noxious gases such as sulfur dioxide from a hot exhaust gas stream from a
stationary air pollution generating site, such as a factory. The electronic
charge causes the sorbent molecule to more readily attach to a pollutant in a
gas stream which then precipitates out of the gas stream. The CDSI system
operates at a high degree of efficiency and at significantly lower cost than
competing technology. The Company acquired the rights to this technology in
1989 and has spent the past several years in engineering and testing. The
Company now has a fully functional prototype which is currently being marketed.
The CDSI system injects a chemical agent or sorbent, such as lime or
ammonia, into the polluted gas stream generated by an industrial activity.
Different sorbents are best for different pollutants based upon the chemical
nature of the gas stream. Prior to injection, the sorbent stream is subjected
to an electrostatic charge which imparts a negative electronic charge to the
sorbent particles. The negatively charged sorbent particles repel one another,
thus providing rapid dispersal of the sorbent during the injection into the gas
stream. This faster dispersal results in greater sorbent surface area coming
in contact with the gas stream. The negatively charged sorbent attaches to
positively charged pollutants resulting in larger particles which can then be
filtered from the gas stream.
The CDSI system has significant advantages over competing technology for
remediating polluted gas streams. Wet scrubbers, which spray moisture into the
gas stream which attaches to pollutants and then precipitates out of the gas
stream, result in polluted liquids or sludges which must then be treated. Wet
scrubbers also have higher operating cost and are subject to corrosion. The
CDSI system results in dry collection of pollutants which are more readily
collected and disposed. Another significant advantage of the CDSI system is
its ability to operate at temperatures as high as 2000 degrees Fahrenheit.
Because chemical reactions such as the sorbent with the pollutants occur more
rapidly at higher temperatures, the CDSI-treated sorbent is able to remove more
pollutants from the gas stream in less time than if the gas stream had to be
cooled.
The CDSI system is easily adapted to a wide variety of industrial air
pollution remediation systems and requires little maintenance. The Company
believes the system is useable by power plants, mining and smelting facilities,
incinerators, steel mills and dryer/roaster facilities such as hot mix asphalt
plants. The Company is specifically targeting the dryer/roaster market. There
are thousands of these facilities in North America alone, including over 10,000
hot mix asphalt plants. Many of these plants are experiencing problems
complying with U.S. Environmental Protection Agency standards and the CDSI
system's ability to operate at high temperatures makes the system a cost
effective means of achieving compliance.
Over several years, the Company and its predecessor have amassed over
12,500 hours of site specific slip stream testing and performed a comprehensive
analysis of data compiled. This compilation of data came from tests performed
in the power generating industry, smelting industry, steel manufacturing
industry and recycling industry. In ongoing tests conducted in an asphalt<PAGE>
plant in Arizona, CDSI technology achieved consistent levels of 99.9% sulfur
dioxide removal. That number was based on independent certified tests
conducted by the Environmental Measurement Corporation of Arizona. Based upon
this data, the Company feels confident that the CDSI system has a substantial
market potential.
The CDSI System is fabricated and assembled by the Company's wholly owned
subsidiary, Alanco Environmental Manufacturing, Inc., in Falls City, Nebraska.
The same facility is capable of producing all necessary ancillary equipment for
a CDSI installation.
Air Pollution Control Manufacturing
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, which AEMI has complete engineered drawings for, are: Reverse
Air Filters, Pulse Jet Filters, Cyclonic Collectors, Centrifugal Fans,
Pneumatic Conveyors and Ducting. The manufacturing facility can also perform
job shop and original equipment manufacturing for other entities. AEMI, as
indicated above, also manufactures the CDSI system equipment.
The principal raw materials used in manufacturing are sheet metal and
plate steel, welding supplies, miscellaneous nuts and bolts and various kinds
of electrical components none of which are uncommon to this industry. The
Company currently uses several different suppliers, most of which are located
in the midwest and none of which are relied upon as the sole source. In this
regard, the Company believes that it has an adequate supply and should maintain
an adequate supply of raw materials for the future.
The Company's manufactured products are marketed to two separate
industries. The agricultural segment, including farms, specifically grain and
produce storage, is highly seasonal. The demand for product, such as fans,
ducting and fan/heater assemblies begins to heighten around April and May and
should taper off around October and November. However, the industrial
applications which utilize other products manufactured by the Company account
for over 65% of all sales and is not seasonal.
The Company's manufacturing segment assets are security for a note payable
to American National Bank in the amount of $25,746 as of March 31, 1996. There
are no other liens or encumbrances on such assets. The Company had $815,162 in
inventory of raw materials, parts, components, finished goods and work in
process at March 31, 1996. The components of this inventory are $457,165 in raw
materials and purchased stock items, $165,771 in sub-assemblies which includes
labor; $85,331 of finished product which includes labor and $106,894 of work in
process which also includes labor. Accounts receivable were $275,638, net of
allowance for doubtful accounts, and only $116,447 in accounts payable. Based
upon these facts, the Company feels that this segment of business is in a very
strong working capital position.
Restaurant Equipment and Food
Fry Guy has developed an Integrated Finger Food Marketing ("IFFM") program
whereby it supplies a deep fry machine to customers which are required to
utilize foods of an affiliated distributor. The Company receives a payment for<PAGE>
all foods sold to the customer utilizing the Company's deep fryer. 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, the Lamb-Weston
Division of Beatrice Foods and Cargill. 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 a
cheese stuffed jalapeno peppers. Cargill is the supplier of the cooking oil.
Fry Guy holds a license for the United States distribution of the a deep-
frying machine which operates with an air filtering system which eliminates the
need for a venting system necessary with conventional restaurant deep fryers.
The machine operates with an automated basket lowering and raising mechanism 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 counter.
As a part of its IFFM program, the Company tested its food products in 200
Wal-Mart stores in 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.
Insurance Claims Adjusting
During 1995, the Company completed its acquisition of the National
Affiliated Adjustment Company ("NAAC"), an independent claims loss adjustment
company based in Scottsdale, Arizona. Prior to its acquisition, NAAC had been
in operation for more than 10 years and is one of the largest independent claim
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.
Depending on the type of claim, processing of claims generally involves
verifying the loss and the existence of coverage for the loss and then
assessing the extent of the loss and negotiating a settlement on the loss as
appropriate. On health insurance claims this generally entails determining
that the procedures to be paid are appropriate for the type of problem and that
cost of the procedure is within guidelines. If all information is determined
to be accurate and appropriate, the insurance claims adjuster notifies the
insurance 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 on 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.
Mining<PAGE>
The Company owns mineral rights in seven unpatented gold mining and
millsite properties in Arizona. The Company has been informed by its
consulting geologist (who has reported to the Company for eight years) 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 been
considering a variety of options with respect to its mining interests,
including the development of joint ventures to exploit its mining properties or
sale of the properties. At the present time, however, the Company believes
that is unlikely that the book value of the property would be realized in the
event of a sale.
The following tables set forth the Company's major mineral land holdings
for the fiscal years ended June 30, 1994 and 1995, the current appraised value
as of June 30, 1994 and the adjusted carrying value for June 30, 1994 and 1995,
respectively.
MAJOR MINERAL LAND HOLDINGS
MINERAL PROPERTY LOCATION ACREAGE OWNERSHIP
C.O.D. Mine Mohave County, AZ 3,500 100%
Mineral Mountain Pinal County, AZ 4,660 100%
Cherry Creek Yavapai County, AZ 940 100%
Tombstone/STC Claims Cochise County, AZ 9,140 100%
MILLS AND REFINERY
C.O.D. Mine Mohave County, AZ 105 100%
Tombstone Cochise County, AZ 75 100%
AS OF JUNE 30, 1994:
RECORDED APPRAISED ADJUSTED
MINERAL PROPERTY COST(1) VALUE(2) VALUE(3)
C.O.D. Mine 5,374,328 8,505,445 5,539,328
Mineral Mountain 221,520 228,775 221,520
Cherry Creek 598,166 680,909 598,166
Tombstone/STC Claims 683,046 712,367 409,828
MINERAL PROPERTY
TOTALS 6,877,060 10,127,496 6,768,842
MILLS AND REFINERY
C.O.D. Mine Included Above
Tombstone Mill 531,373 328,487 328,487
AS OF JUNE 30, 1995:
RECORDED APPRAISED ADJUSTED
MINERAL PROPERTY COST(1) VALUE(2) VALUE(3)
C.O.D. Mine 5,374,328 8,505,445 5,539,328
Mineral Mountain 221,520 228,775 221,520
Tombstone/STC Claims 683,046 712,367 409,828
Cherry Creek Claims(4) 598,166 680,909 0
MINERAL PROPERTY
TOTALS 6,877,060 10,127,496 6,170,676
MILLS AND REFINERY
C.O.D. Mine Included Above
Tombstone Mill 328,487 328,487 296,702
____________________
(1) Recorded Cost equals the lower of historical cost or the fair market value
as determined by appraisal.<PAGE>
(2) The fair market value as determined by the appraisal completed for the
fiscal year ended June 30, 1994.
(3) The adjusted book value after giving consideration to any write- down in
certain mineral property values and reflects the lower of historical cost or
appraised value.
(4) The value of the Cherry Creek claims was written down to $0 even though
the Company continues to own 47 of these unpatented claims.
Management and the Company's auditors agreed that an independent appraisal
of the Company's mining assets should be undertaken and reviewed annually to
determine the fair market value of the mining assets and the existence of
potential impairments. Based upon the consistency of the results of the
appraisals for the past several years and management and the Company's
auditors' review, it was determined that an appraisal at June 30, 1995 would
not substantively change the recorded values. The company is reviewing the
necessity of having a current appraisal performed.
The principal mining operations, exploration and development of mining
properties by the Company has been accomplished underground with a minimum of
surface disturbance. Two properties which would require limited environmental
and/or surface reclamation are the C.O.D. Mine and the Tombstone Metallurgical
Facility. The Tombstone Metallurgical Facility is located upon federal lands
which are administered by the Bureau of Land Management ("BLM"). The facility
was constructed in the 1970's when no permitting was required from the BLM.
Since that time the facility has operated intermittently and the Company has
complied with all regulations as they existed. At present, the facility remains
idle. The other property is the C.O.D. Mine which is also on BLM land and is
also presently idle.
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 Gas Stream."
In addition to the aforementioned patents, three additional patents were
filed for during the year ended June 30, 1994, by individuals in the Company.
These filings were assigned to the Company shortly after filing with no
compensation being paid to the original applicants. These filings are as
follows:
U.S. Patent Application entitled "Apparatus for Removing Particulate
Matter and Gases from A Polluted Gas Stream" issued as U.S. Patent No.
5,308,590 on May 3, 1994. This application was also filed in China on
September 28, 1993 and with the Patent Treaty Countries pursuant to the
International Patent Treaty on April 18, 1994.
U.S. Patent Application entitled "Method For Removing Particulate
Matter and Gases From A Polluted Gas Stream" issued as U.S. Patent No.
5,332,562 on July 26, 1994, subsequent to year end. This application was
also filed in China on September 28, 1993 and with the Patent Treaty
Countries pursuant to the International Patent Treaty on May 9, 1994.
U.S. Patent Application entitled "Hopper System and Electrostatic Gun
for Injection of an Electrostatically Charged Sorbent into a Polluted Gas<PAGE>
Stream" issued as U.S. Patent No. 5,312,598 on May 17, 1994. This
application was also filed in China on September 28, 1993 and with the
Patent Treaty Countries pursuant to the International Patent Treaty on
April 18, 1994. In addition, management decided to have this patent
application filed in several other countries as follows: filed in Mexico
on August 25, 1994; filed in Argentina on August 24, 1994; filed in Chile
on August 25, 1994; filed in Turkey on August 23, 1994 and filed in India
on July 18, 1994. These applications have also been forwarded for filing
in Venezuela and Pakistan.
The Company believes that the rights to and/or ownership of these patents,
patents pending and patent applications are crucial to The Company's future
success. No other system offered in this industry segment has such significant
operating potential. However, there are many other pollution control devices
and systems.
Sales, Marketing and Major Customers
Air Pollution Control Technology. The Company markets its air pollution
control technology through two separate approaches: (i) to larger scale
projects (which incorporates site-specific engineering and some on-site
construction); and (ii) to small and medium-sized projects which may require
engineering or construction. The Company intends to use third-party
contractors for engineering and construction in order to meet the needs of the
large-scale projects. Small and medium-sized projects will be marketed with
four or five system options, of varying sizes. The Company has identified
three potential sources for sales and distribution of its systems: (i) through
original equipment manufacturers; (ii) through direct sales force; and (iii)
through contract marketing agreements.
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, which consumes more coal than any other
country in the world. Chinese central authorities are expected to release new
regulations in 1996 regarding 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 of 1995, tests results from the Dezhou Heat & Power Plant
exceeded Chinese compliance standards for sulfur dioxide removal with a removal
efficiency for sulphur dioxide of 69.5%. Results were achieved using a much
lower ratio of sorbent to sulfur than employed by traditional dry sorbent
injection methods which resulted in a significant cost savings.
The Company's interests in China are managed by its subsidiary, Alanco
Environmental Technology (Beijing) Co., Ltd., a Chinese entity ("Alanco
China"). The Company also has a marketing agreement with the China National
Environment Protection Company, one of the largest environmental companies in
China. The Company 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 China 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 process
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<PAGE>
result in additional sales of CDSI systems such as at Hangzhou Iron and Steel
Company ("Hangzhou") and with Benxi Boiler Works ("Benxi").
Hangzhou purchased one CDSI unit with ancillary equipment for installation
in September of 1996. The total price for this installation is $155,000 and
the Company has received 30% of that purchase price to date. After testing and
acceptance of the initial installation, Hangzou has indicated that it will
purchase four additional systems, two of which will be designed for new
boilers. Total installation is expected to be completed early in 1997 at a
total per unit cost of approximately $150,000. A second letter of intent was
signed by the Deputy Mayor of Benxi City on behalf of the Benxi Boiler Works.
Benxi recently acquired funding in the amount $100,000,000 for installation of
pollution control equipment, representing a potential market of 60 to 180 CDSI
units. The Deputy Mayor of Benxi has also requested that Alanco China provide
it with other technologies, such as cyclones, bag houses and the patented EDSS.
Alanco China is currently involved in other negotiations with Shougang Steel
Corporation of Beijing - the second largest steel plant in China and the fourth
largest in Asia - and an industrial concern in Guangzhou, Guangdog province.
The Company recently signed an agreement with Intrade Ltd. which is expected to
sell the Company's technology to steel and mining industries in the United
States under a royalties arrangement.
The Company has signed a letter of intent to form a joint venture to
market CDSI technology in Europe. The joint venture will provide
administration and pay the expenses of marketing, engineering and site
installations of CDSI units throughout the European Economic Community and in
the Eastern European countries. The joint venture will purchase three CDSI
units for demonstration and marketing purposes pursuant to its agreement with
the Company. The Company is in the process of negotiating similar arrangements
with potential representatives in Pacific Rim countries and in Latin America.
In the United States, the Company sees the highest demand for its CDSI
products in the dryer/roaster, power generating, smelting, steel manufacturing,
recycling and remediation industries. The Company believes that strong demand
for its CDSI technology may emanate from the eastern portions of the United
States. Many coal mines in that region have been closed because the low
quality of the coal (i.e., sulfur content) violates United States environmental
standards. CDSI technology may allow such coal mines to continue to produce
East coast coal for industrial purposes.
Air Pollution Equipment Manufacturing. The Company has recorded sales to
over 250 different customers during the nine months ended March 31, 1996. Of
these, 10 had purchases which accounted for more than two percent of total
revenue of which one had total purchases of over ten percent of total revenue.
This customer is Boone Aeration and Environmental Company, Inc. ("BAEC") which
accounted for 44% of all revenues generated during the period in this segment
of business. The Company cancelled a non-compete marketing agreement with BAEC
to market the agricultural products manufactured by the Company. Loss of these
sales would have a short term effect on the profitability of the operation,
however, the Company has assurances from BAEC that it will continue to purchase
these products for distribution, which assurance is based upon pricing, quality
and availability. In the unlikely event that BAEC should take its business
elsewhere, management believes that this business could be replaced within a
matter of months.
The Company had orders for approximately $249,000, as of March 31, 1996.
Of these orders, $106,894 is work in process and carried as inventory. The<PAGE>
Company believes that all of this will be fulfilled in the coming fiscal year
and that no material change should occur.
Restaurant and Food. 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 food cooked in the fryer. As
part of this Integrated Finger Food Marketing ("IFFM") 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 of new food products.
Under an agreement with Wal-Mart Stores, Inc., Fry Guy will place
approximately 1,245 fryers in Wal-Mart snack bars nationally. To date, 247 of
these fryers have been installed. Under the terms of the agreement, Wal-Mart
pays Fry Guy for each case of food and oil delivered to its distributor. The
process of delivering fryers to the balance of the 1,245 Wal-Mart snack bars is
under way and should be completed by year end.
Fry Guy is also actively seeking joint venture partners. In such a joint
venture, the partner would provide access to the retail and user network,
account servicing capability and cold storage and distribution facilities. Fry
Guy would provide the frying unit for a nominal monthly charge to the user,
service and repair, training, promotional and point of sale materials and new
food products as they become available.
Insurance Claims Adjusting. NAAC operates as an independent claims loss
adjustment company which processes property, casualty, health insurance and
workmens' compensation claims and automobile appraisal for various insurance
companies. For the fiscal year ending June 30, 1996, NAAC had 85 insurance
company customers throughout the year. In April 1996, IAEA became insolvent
and was placed in receivership by the Tennessee Department of Insurance. IAEA
provided approximately 50 percent of NAAC's sales revenue. 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 is in the
process of replacing this lost revenue through an intense marketing effort
conducted on a nationwide basis.
Competition
Air Pollution Control Technology. In the area of air pollution
technology, the Company's competitors include: Pulsatron Technology Limited;
Wheelabrator; Pure Air; General Electric; Westinghouse; and Mitsubishi
Corporation. The Company believes its proprietary technology to be superior to
that of competitors, because of the small space requirements and low
maintenance, capital and operating costs associated with CDSI units. Pulsatron
Technology Limited, initially a Russian corporation, is perceived by the
Company as its biggest competitive threat.
Pulsatron utilizes pulse coronas and direct current discharges in a
chamber through which the flu gas passes called "pulsetec" chamber. Pulsatron
claims that its technology is superior to products produced by competitors
because of the minimal amount of electricity required in its process, which
greatly reduces operating costs. A patent for Pulsatron's technology is<PAGE>
pending in the United States, and its Russian patent has already been issued.
Pulsatron's technology is scheduled for beta site testing through the
Department of Energy during 1996.
In addition to the above, two government-funded entities have been working
in concert for nearly ten years to reduce sulfur dioxide emissions from coal-
fire plants. The technology which is currently being developed by the Air and
Energy Engineering Laboratory ("AEEL") and the 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
substantially below that of the Company: 50% to 60% versus 70% to 95%.
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.
Air Pollution Control Equipment Manufacturing. 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 Boone Aeration
and Environmental Company). 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 in existence generate a dollar value of
business 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.
Restaurant and Food. 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. Fry Guy attributes its lack of competition to three factors: (i) the
ability to operate its fryer without the added expense of ventilation; (ii) the
ability to operate its fryer using standard electrical current; and (iii) the
ability to place the unit at no or minimal cost and offer the integrated food
package for use in the fryer. The Company believes these factors make Fry
Guy's products more appealing.
Insurance Claims Adjusting. Competition in the insurance claims adjusting
industry is extensive and is principally driven by price and quality of
service.
Property
The Company's corporate office is located in a 7,280 square foot leased
facility, in Scottsdale, Arizona. Air Pollution Control Services and Mining
operations are headquartered at the corporate office.
Fry Guy is located in a 2,708 square foot leased facility in Las Vegas,
Nevada. The Restaurant Equipment Marketing Segment also leases 770 square feet<PAGE>
of warehouse space in Las Vegas, Nevada.
NAAC is headquartered in a 6,513 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 main operating facility is located at Falls City, Nebraska. This
facility is approximately 73,000 square feet under roof and is located on
approximately 6.84 acres. The second facility is located at Boone, Iowa. This
facility is approximately 53,000 square feet under roof and is located on
approximately 9.47 acres. The Company owns these facilities.
The Company mining properties are described above. See "Mining" above.
Legal Proceedings
The Company is a defendant in several lawsuits or threatened lawsuits.
The Company believes that any financial exposure is adequately provided for in
its financial statements and that these matters will not have a material
adverse effect on the financial condition or operating results of the Company.
However the Company is a defendant in the following lawsuits which could be
material in the event of an unfavorable resolution.
In April, 1995 the case of Sun Valley Products, Inc., v. Alanco
Environmental Services, Inc., et. al was filed in the United States District
Court, Southeastern Division, District of North Dakota. Sun Valley Products,
Inc., produces roasted sunflower seeds and purchased a bag filter system from
the George A. Rolfes Company (which later became Heartland Systems,
Inc.("Heartland")) in 1992. In 1994, the Company purchased the assets of
Heartland through 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.
In 1995, T&H Construction, Inc., filed a lawsuit against the Company in
Yavapai County, Arizona Superior Court, alleging that the Company owes it
approximately $50,000 on an open account for goods and services supplied by the
Company in connection with its mining operations. The Company has filed an
Answer claiming a set-off for equipment given to the Plaintiff and other
defenses. While the Company believes that its defenses are meritorious, it
also recognizes that trial of the matter may have an unfavorable outcome and so
is pursuing settlement negotiations.
On January 19, 1994, the BLM issued a Trespass Decision pursuant to 43 CFR
2920.1-2 under the authority of the Federal Land Policy Management Act of 1976.
The decision was based upon the BLM's assertion that the use for which the
Company occupied the millsites was an unauthorized use and that unauthorized
property, non-milling or refining, was also located there. On February 14, 1994
the Company filed a Notice of Appeal with all appropriate agencies. An order
granting the stay of the BLM action as requested by the Company was issued on<PAGE>
March 29, 1994. The BLM then filed their answer to the Statement of Reasons
filed by the Company. Since this time there has been no action with regard to
this case. The outcome of this matter can not be predicted at this time,
however, based upon the demands contained in the trespass decision,
approximately $30,000, plus administrative costs versus the cash bond placed by
the Company with the BLM, $19,000 and the delay rental fees already paid,
management believes that even an unfavorable outcome will have little effect on
the financial condition of the Company.
The Company was a defendant is a lawsuit filed in the Federal District
Court for the District of Nevada by Bernard Lumbert, a resident of Kingman,
Arizona. In the opinion of the Company, Mr. Lumbert is a habitual, pro se
filer of frivolous lawsuits seeking unspecified damages for violations of
federal securities laws. Mr. Lumbert has also sent absurd and libelous
allegations regarding the Company to news media and securities broker-dealers.
In the above case, Mr. Lumbert has filed numerous motions which have all been
denied by the Court and have failed to comply with the rules of civil
procedure. Mr. Lumbert was sanctioned and fined for filing frivolous motions
and failed to pay the fine which resulted in the suit being dismissed. The
Company has filed a civil action in Maricopa County, Arizona against Mr.
Lumbert as a result of his allegations for which Mr. Lumbert failed to appear
upon the judge's order. Mr. Lumbert was arrested and incarcerated on this
matter and was subsequently released on the condition he cease and desist from
these actions.
On June 21, 1996 the registrant 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 registrant during February, 1994.
Mr. Ping was an employee of the registrant 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 registrant's common stock, respectively, which they allege
were promised to them by Kevin Jones, the former chief financial officer of the
registrant. The registrant intends to deny all allegations contained in the
Complaint and vigorously defend against the claims as well as pursue
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 registrant, 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, IAEA, Inc., Stockton Fuller & Co., Inc., and six other individual
defendants. The action alleges breach of fiduciary duty under the Employee
Retirement Income Security Act of 1974 (ERISA) by the Defendants in the
operation of the IAEA Trust, a self-insured employer's workers compensation
trust. NAAC and its predecessor, Realistic Adjustment Company, served as the
third party administrator 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 are fully cooperating with the Receiver
and the Department of Labor. NAAC and the Meyers intend to vigorously defend
this action.
Employees<PAGE>
At June 27, 1996, the Company had 90 full time employees. None of the
Company's employees is represented by a labor union and the Company has never
experienced a work stoppage or strike. The Company considers its employee
relations to be good.
MANAGEMENT
Executive Officers, Directors and Key Employees
The executive officers, directors and key employees of the Company and
their ages as of June 27, 1996, are as follows:
Name Age Position with Alanco
Norman E. Meyer 51 Chairman/C.E.O./President/
Director
Dean A. Douglas 49 Executive Vice President
Chief Operating Officer
John E. Haggar 53 Chief Financial Officer
Treasurer
Cynthia L. Castellano 33 Corporate Secretary
Harold S. Carpenter 61 Director
Dennis Schlegel 45 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 was elected Chairman of the Board in December 1995.
Mr. Meyer has over twenty-eight years of experience in the insurance industry,
and for the last fifteen years he has held executive positions of increasing
operational responsibility. 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<PAGE>
a "fiduciary" under ERISA to include non-controlling consultants is
unwarranted. Mr. Meyer believes there is a high probability of dismissal of
the action against him if the matter goes to trial.
Dean 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
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
1, 1995, Treasurer since July 1995, and Chief Financial Officer since February
1996. From December 1, 1994, until June 1, 1995, Mr. Haggar was Chief
Financial Officer of Universal Management Services, Inc. Previously, Mr.
Haggar was a sole practitioner engaged in providing accounting services to the
general public in Washington state. Mr. Haggar holds a Bachelor of Science in
Business from the University of Minnesota. He is a member of the American
Institute of Certified Public Accountants. Since January 1995, Mr. Haggar has
also been 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, AZ. 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<PAGE>
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.
Committees: Meetings of the Board
The Company has an Audit Committee and a Compensation/Administration
Committee. Currently, Messrs. Carpenter and Schlegel comprise the Audit
Committee and Mr. Schlegel comprises the Compensation/Audit Committee. The
Audit Committee serves as a liaison between the Board and the Company's
auditor. The Compensation/Administration Committee recommends to the Board the
compensation of executive officers and serves as the Administration Committee
for the Company's Stock Option Plan. The Compensation/Administration Committee
met three times during the fiscal year ended June 30, 1996, and the Audit
Committee met one time during the fiscal year ended June 30, 1996. The Company
also had an Executive Committee composed of Dean Hough, Kevin Jones, D.R.
Ellenbecker and Norman E. Meyer. The Executive Committee was disbanded in
July, 1995.
The Company's Board of Directors held twelve (12) meetings during the
fiscal year ended June 30, 1996, at which times a quorum of the then Directors
were present or consented to the actions taken at such meetings.
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
was issued 858 shares of common stock, and Mr. Steven Davis was issued 746
shares of common stock. In addition, from August 1995 through December 1995,
Dr. 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 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.
Limitation of Liability and Indemnification Matters
The Company's Articles of Incorporation and Bylaws provide for
indemnification by the Company of its directors, officers, employees and agents
to the fullest extent permitted by Arizona law. The applicable section of the
Arizona corporate code, A.R.S. 10-202(B)(1), limits or eliminates the
liability of a director of a corporation for money damages for any action taken
or not taken as a director in all instances except: (i) instances where a
director receives financial benefits to which he is not entitled; (ii) any
intentional infliction of harm on the corporation or its shareholders; (iii)<PAGE>
the making of unlawful distributions; and (iv) intentional violations of
criminal law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, employees and agents of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Except for the Department of Labor civil action described in Legal
Proceedings above, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company. The Company is not aware
of any threatened litigation or proceeding which may result in a claim for
indemnification.
Executive Compensation
Summary Compensation Table
The following table shows for the fiscal year ending June 30, 1995, 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
Other Securities
Name and Annual Underlying All Other
Principal Fiscal Annual Compensation Compen- Options Compen-
Position Year Salary Bonus sation (#shares) sation
Norman E. Meyer (1) 1995 $0 - - - -
President, Chief 1996 $81,250 - - 150,000 -
Executive Officer
Dean Hough (2) 1995 $48,000 - - 300,000 -
President, Chief
Executive Officer
Harrison Gentry (3) 1995 $110,126 - - 200,000 -
President, Chief
Executive Officer
Richard Steinke(4) 1995 $34,000 - - - -
Chief Executive
Officer
(1) Mr. Meyer is presently serving without an employment contract.
(2) Mr. Hough served as President and Chief Executive Officer from December
1994 to April 1995 and pursuant to the agreement whereby he stepped down
in favor of Mr. Meyer. Mr. Hough is to receive $8,000 per month plus
options to purchase 20,000 shares of common stock at $1.00 per share per
month until December 1996.
(3) Mr. Gentry served as President/Chief Operating Officer from January 1994
to October 1994 and as President/Chief Executive Officer from October 1994<PAGE>
to December 1994.
(4) Mr. Steinke served as Chief Executive Officer from July 1994 to October
1994.<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1996 to each of the Named Executive Officers. No
stock appreciation rights ("SARs") have been granted by the Company.
Individual Grants
Percent of
Number of Total Potential Realizable
Securities Options Exer- Assumed Annual Rates
Underlying Granted to cise of Stock Price
Options Employees Price Appreciation for
Granted (1) in Fiscal ($/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 $26,000 $57,500 -
Dean Douglas 50,000 5.19 $0.10 5/27/1996 - - $89,500
Dean Douglas 50,000 5.19 $1.89 12/16/2000 $26,000 $57,500 -
John Haggar 50,000 5.19 $0.10 5/27/1996 - - $89,500
John Haggar 50,000 5.19 $1.89 12/16/2000 $26,000 $57,500 -
Cynthia Castellano 12,500 1.30 $2.09 12/16/2000 $ 6,000 $14,375 -
(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 $.10 per
restricted share for fiscal year ending 1996 and $1.89 per share for the
Incentive Stock Option Plan, which shares when acquired were not
restricted.
(4) Calculated based on given interest rate for the five year life of the
option. The column headed 0% shows the gain upon exercise of Directors
and Officers Options at market price on the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values
The following table sets forth the number and value of the
unexercised options held by each of the Named Executive Officers
at June 27, 1996. None of the Named Executive Officers who hold
unexercised options exercised options in the fiscal year ended
June 30, 1996.<PAGE>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Acquired Value FY-End (#) FY-End ($)
Name on Exercise (#) Realized ($) Exercisable Exercisable
Norman Meyer 20,000 $41,750 50,000 (1) $30,500 (1)
20,000 (2)
20,000 (3)
20,000 (4)
20,000 (5)
Dean Douglas 10,000 $17,900 50,000 (1) $30,500 (1)
10,000 (6)
10,000 (7)
10,000 (8)
10,000 (9)
John Haggar 10,000 $17,900 50,000 (1) $30,500 (1)
10,000 (10)
10,000 (11)
10,000 (12)
10,000 (13)
Cynthia Castellano 5,000 $22,188 7,500 (1) $18,750 (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 & Executive Compensation
Mr. Meyer, President & 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 $6,400 per month in compensation under the terms of an
agreement effective until April 24, 1998. Mr. Haggar, the Company's Chief
Financial Officer, receives $6,000 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.
CERTAIN TRANSACTIONS
Since the beginning of the most recent fiscal year there have been no
related party transactions responsive to this item.<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 31, 1996 with respect
to the number of shares of the Company's Common Stock beneficially owned by
individual directors, by all directors and officers of the Company as a group
and by persons who are known to the Company as beneficially owning more than 5%
of the outstanding shares of the Company's Common Stock:
PRINCIPAL STOCKHOLDERS
NAME AND ADDRESS SHARES % OF SHARES
OUTSTANDING
- ----------------------------- ---------- ---------------
Lyons Capital Partners, L.P.,
4365 Executive Drive, Suite 740
San Diego, CA 92121 7,684,170 23.1%
Dennis Schlegel 204,445 (1) 0.62%
Harold S. Carpenter 827,649 (2) 2.50%
Norman E. Meyer 105,500 0.32%
Dean A. Douglas 50,550 0.15%
John E. Haggar 50,000 0.15%
Officers and Directors as a
Group (6 individuals) 1,238,144 3.74%
______________________________________________________________________________
(1) Includes 153,440 shares indirect ownership.
(2) Includes 442,169 shares indirect ownership.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 5,000,000 shares of
Preferred Stock, Class A, of which 26 shares, $20,000 par value, have been
issued, 20,000,000 shares of Preferred Stock, Class B, none of which has been
issued, and 100,000,000 shares of Common Stock, of which 33,146,690 shares are
currently issued and outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders generally, including the election of<PAGE>
directors. Subject to the rights of holders of any Preferred Stock
outstanding, holders of Common Stock are entitled to receive such dividends as
are declared by the Board of Directors out of funds legally available therefor,
and in the event of liquidation, dissolution or winding upon of the Company,
the holders of Common Stock are entitled to share ratably in any assets
remaining after payment of the Company's liabilities. Holders of Common Stock
do not have preemptive or other subscription rights. The Common Stock
currently outstanding is, and the shares of Common Stock offered by the Company
hereby will be, when issued, validly issued, fully paid and non-assessable.
Preferred Stock, Class A
The Preferred Stock, Class A, may be issued from time to time in one or
more series, and the Board of Directors, without further approval of the
shareholders, is authorized to fix the dividend rights and terms, redemption
rights and terms, liquidation preferences, conversion rights and terms, special
series voting rights and sinking fund provisions applicable to each such series
of Preferred Stock, Class A. If the Company issues a series of Preferred
Stock, Class A in the future that has special voting rights or preferences over
the Common Stock with respect to the payment of dividends and upon the
Company's liquidation, dissolution or winding up, the rights of the holders of
the Common Stock may be adversely affected. The issuance of shares of
Preferred Stock, Class A could be utilized, under certain circumstances, in an
attempt to prevent an acquisition of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. At June 27, 1996,
there were 26 issued and outstanding shares of Preferred Stock, Class A, Series
1.
Preferred Stock, Redeemable Preferred Stock, Class B
The Preferred Stock, Class B may be issued from time to time in one or
more series, and the Board of Directors, without further approval of the
shareholders, is authorized to fix the dividend rights and terms, redemption
rights and terms, liquidation preferences, special series voting rights and
sinking fund provisions applicable to each such series of Preferred Stock,
Class B. If the Company issues a series of Preferred Stock, Class B in the
future that has special voting rights or preferences over the Common Stock with
respect to the payment of dividends and upon the Company's liquidation,
dissolution or winding up, the rights of the holders of the Common Stock may be
adversely affected. The issuance of shares of Preferred Stock, Class B could
be utilized, under certain circumstances, in an attempt to prevent an
acquisition of the Company and may adversely affect the voting and other rights
of the holders of Common Stock.
Warrants
The Company has issued 1,366,381 warrants on the purchase of the
Corporation's common stock. Of these, 1,304,166 warrants were issued for the
purchase of unregistered common stock for a price of $3.00 per share and
expiring in 1998. The Company has also issued warrants for the purchase of
62,215 unregistered shares of common stock at a price of $1.00 per share with a
warrant expiration date of July 29, 1996. All of these warrants were issued in
conjunction with the Company's 1995 private placement of unregistered common
stock.
Arizona Anti-Takeover Statute<PAGE>
The Arizona Corporate Takeover Act was adopted in 1987. The policy of the
Act is to prevent unfriendly corporate takeover attempts by third parties.
Article I of the Act deals with, among other things, the prohibition of "green
mail." Article II deals with limitation on voting rights of certain
individuals acquiring shares in the market, and Article III regulates certain
business combinations respecting corporate transactions proposed by insiders
and as part of a takeover plan. Arizona corporations may elect to not be
governed by Articles II and III of the Act and by doing so may elect to not be
subject to the considerable restrictions on a possible tender offer or other
takeovers. The Company has not specifically rejected the foregoing provisions
and therefore is subject to them.
Transfer Agent
The transfer agent for the Common Stock is American Securities Transfer
and Trust.
Shares Eligible for Future Sale
The Company has outstanding an aggregate of 33,146,690 shares of Common
Stock. Of these shares, 27,438,985 shares are freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company as that term is defined under
the Securities Act.
The remaining 5,707,705 shares held by existing shareholders of the
Company are "restricted" securities within the meaning of Rule 144 under the
Securities Act and are eligible for sale subject to the provisions of Rule 144.
Of such shares, 1,197,660 shares of Common Stock have been held for more than
three years by shareholders who are not affiliates of the Company and are
eligible for sale in the public market in reliance on Rule 144(k) under the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect, a
person (or persons whose shares are aggregated), including an affiliate, may
sell an amount of restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of two years prior to such sale,
such that, within any three-month period, such person's sales do not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(331,467 shares), or the average weekly trading volume in the Common Stock in
the Nasdaq National Market during the four calendar weeks preceding the date on
which notice of such sale is filed under Rule 144(h) of the Securities Act, or
if no such notice is required, the date of receipt of the order to execute the
transaction. In addition, under Rule 144(k), a shareholder who is not deemed
an affiliate, and has not been an affiliate for at least three months prior to
the sale, is entitled to sell restricted securities which were last purchased
from the issuer or an affiliate of the issuer a minimum of at least three years
prior to such sale under Rule 144 without complying with the foregoing
requirements. In calculating the two- and three-year holding periods described
above, a holder of restricted securities can include the holding period of a
prior owner who was not an affiliate.
At March 31, 1996, options to purchase a total of 1,047,500 shares of
Common Stock were outstanding, of which options to purchase a total of 987,500
shares were immediately exercisable. An additional 1,512,500 shares of Common
Stock will be available for future stock option grants under the Company's
stock option plans.<PAGE>
PLAN OF DISTRIBUTION
Selling Shareholders may sell or distribute his Common Stock in
transactions through such underwriters, brokers, dealers or agents from time to
time or through privately negotiated transactions, including in distributions
to shareholders or partners or other persons affiliated with the Selling
Shareholders.
The distribution of the Common Stock may be effected from time to time in
one or more transactions (which may involve crosses or block transactions) (i)
in the over-the-counter market, (ii) in transactions otherwise than in the
over-the-counter market or (iii) through the writing of options on the Common
Stock (whether such options are listed on an options exchange or otherwise).
Any of such transactions may be effected at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices. If the Selling Shareholders effects such
transactions by selling Common Stock to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or commissions from purchasers of Common Stock for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents might be in excess of those
customary in the types of transactions involved). The Selling Shareholders and
any brokers, dealers or agents that participate in the distribution of the
Common Stock might be deemed to be underwriters, and any profit on the sale of
the Common Stock by them and any discounts, concessions or commissions received
by any such underwriters, brokers, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. Selling
Shareholders may pledge his Common Stock from time to time in connection with
such Shareholders' financing arrangements. To the extent any such pledgees
exercise their rights to foreclose on any such pledge, and sell the underlying
Common Stock, such pledgees may be deemed underwriters with respect to such
Common Stock and sales by them may be effected under this Prospectus. The
Company will not receive any of the proceeds from the sale of any of the Common
Stock by the Selling Shareholders.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the Common Stock may
not simultaneously engage in market making activities with respect to the
Common Stock for a period, depending upon certain circumstances, of either two
days or nine days prior to the commencement of such distribution. In addition,
and without limiting the foregoing, the Selling Shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of any of the
Common Stock by the Selling Shareholders.
Under the securities laws of certain states, the Common Stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless the Common
Stock have been registered or qualify for sale in such state or an exemption
from registration or qualification is available and is complied with.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dennis Brovarone, Esq., Denver, Colorado.<PAGE>
EXPERTS
The consolidated financial statements and schedules of the Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Billie J. Allred, independent public accountant, as indicated
in his reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
CHANGE IN COMPANY'S CERTIFYING ACCOUNTANT
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 statement 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.
The Company has provided Mr. Allred with a copy of the disclosure
contained herein and has requested that Mr. Allred provide the Company with a
letter addressed to the Securities and Exchange Commission stating whether he
agrees with the disclosure. Mr. Allred has provided such a letter which is
incorporated as an Exhibit to the Registration Statement of which this
Prospectus is a part.<PAGE>
PART II
INFORMATION NOTE REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The costs of issuance and distribution which will be borne by the Selling
Shareholders are estimated as follows:
SEC Registration Fee ........................ $831
Blue Sky Fees and Expenses .................. 10,000
Accounting Fees and Expenses ................ 5,000
Legal Fees and Expenses ..................... 30,000
Printing and Engraving ...................... 2,500
Miscellaneous ............................... 2,500
TOTAL .................................. $50,831
ITEM 14. Indemnification of Directors and Officers.
A.R.S. 10-202(B)(1) limits or eliminates the liability of a director of a
corporation for money damages for any action taken or not taken as a director
in all instances except: (i) instances where a director receives financial
benefits to which he is not entitled; (ii) any intentional infliction of harm
on the corporation or its shareholders; (iii) the making of unlawful
distributions; and (iv) intentional violations of criminal law.
The Company's Articles of Incorporation and Bylaws, a copy of which are
incorporated as Exhibits 3.1 and 3.2 to this Registration Statement, provide
for indemnification of directors, officers, employees or agents of the Company
to the full extent permitted by the above-mentioned section of the Act.
ITEM 15. Recent Sales of Unregistered Securities.
From July 1, 1995
a). Issued 2,608,333 shares in exchange for cash in the amount of
$3,131,000. The transactions were part of a private placement authorized by
management.
b). Issued 64,400 shares in exchange for satisfaction of debts in the
amount of $104,750. The transactions occurred on two separate occasions during
the year.
The first transaction occurred during July 1995. The Company issued
51,600 shares in exchange for satisfaction of debt totaling $96,750 or $1.88
per share. The low bid for that month was $1.81, and the high bid was $2.56.
The second transaction occurred during January 1996. The Company<PAGE>
issued 12,800 shares in settlement of a lawsuit. The value of these shares
under the settlement was $8,000.
c). Issued 26,104 shares to several individuals, all of whom are related
parties. These services were valued, by mutual agreement, in the amount of
$29,000, and shares were issued at no less than 50% of the current market price
of the shares on the dates involved.
d). Issued 225,000 shares to several officers as part of the Directors
and Officers Stock Option Plan. The amount paid for these shares was $22,500.
e). Issued 200,000 shares to former related party in exchange for
$293,750 in cash upon exercise of an option granted in settlement of a
cancelled employment agreement. The settlement is valued at no less that 50%
of the current market price of shares on the dates the shares were issued under
the agreement.
f). Issued 18,750 shares for services provided by unrelated third
parties. These services were valued, by mutual agreement, in the amount of
$41,016, and shares were issued at no less than 50% of the current market price
of the shares on the date of the agreement.
g). Issued 60,000 shares of stock in exchange for $60,000 in cash. The
shares were issued for settlement of a contract dispute related to marketing
the Company's products in Europe.<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
Number
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
5.1 Opinion of Dennis Brovarone, Esq.
10.1 Material Contracts.
16.1 Letter of Billie J. Allred, CPA re: Change of Certifying Accountant
21.1 Subsidiaries of the Registrant.
23.1 Consent of Dennis Brovarone, Esq. (included in Exhibit 5.1).
23.2 Consent of Billie J. Allred, CPA.
(b) Financial Statement Schedules
All other Schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or notes
thereto.<PAGE>
ITEM 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under "Item 14-
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(C) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (b)(i)(A) and (b)(i)(B) of this section
do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registration pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered<PAGE>
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(iv) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statement required by 210.3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (b)(iv) and other information
necessary to ensure that all other information in the prospectus is at
least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on
Form F-3, a post-effective amendment need not be filed to include
financial statement and information required by Section 10(a)(3) of the
Act or 210.3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND
SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants....................................
Consolidated Balance Sheet, June 30, 1994 and 1995
and March 31, 1996 (unaudited).........................................
Consolidated Statement of Operations for the years ended
June 30, 1993, 1994 and 1995 and the
nine months ended March 31, 1995 and 1996 (unaudited)..................
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1993, 1994 and 1995
and the nine months ended March 31, 1996 (unaudited)...................
Consolidated Statements of Cash Flows
for the years ended June 30, 1993, 1994 and 1995
and the nine months ended March 31, 1995 and 1996......................
Notes to Consolidated Financial Statements..................................<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Alanco Environmental Resources Corporation
Scottsdale, Arizona
I have audited the accompanying consolidated balance sheet of Alanco
Environmental Resources Corporation (formerly known as Alanco Resources
Corporation) and subsidiaries as of June 30, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30 1995, 1994 and 1993. These financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, 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
ended June 30, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 11, the Company's consulting geologist has stated in
his report that certain of the company's mining properties lack economic
feasibility based on the extent of exploration to date. However, the
consulting geologist has also stated that, in his opinion, the Company should
continue its exploration efforts on all properties until an economically
feasible ore body is proved or a decision is reached to abandon the property.
The realization of the Company's remaining investment in assets consisting
of the mill and refinery, mining equipment, investments in and advances to
partnerships, and investment in all other mineral properties totaling
$6,726,554 at June 30, 1995, depends on the success of the company's efforts to
realize, through continued exploration and development or sale, estimated
recoverable mineral reserves. The financial statements do not include any
additional adjustments that might result from the outcome of this uncertainty.
As discussed in Note 15, the Company and subsidiaries have been named as a
defendant in several lawsuits. It is not possible at present for the Company
to estimate the amount of judgments, if any, that might be allocated to the
Company or its subsidiaries. No provision for any liability that may result
has been made in the accompanying financial statements.
As discussed in Note 10, the Company acquired certain patents, patents
pending, and patent application technology for various pollution control
equipment with a total book value of $121,647 at June 30, 1995. The
recoverability of these assets is dependent upon the success of the Company's
marketing efforts, successful completion of EPA certification and its ability
to obtain sufficient working capital to finance the production and installation
of such pollution control equipment.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The company has incurred significant
operating losses for the years ended June 30, 1995, 1994 and 1993. This factor<PAGE>
raises substantial doubt about its ability to continue as a going concern. The
Company's continued existence is dependent upon its ability to increase revenue
in the business segments in which it operates, and its ability to realize the
value of its investment in mineral properties from either the sale of these
properties or to raise additional cash to place these properties into
operation. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Billie J Allred CPA
Tempe, Arizona
September 28, 1995<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1994 AND 1995
AND MARCH 31, 1996
<S> <C> <C> <C>
ASSETS JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1996
(unaudited)
CURRENT ASSETS:
Cash $1,935,915 $607,411 $1,360,524
Accounts receivable (Note 4a) 387,464 506,027 631,869
Allowance for doubtful accounts (25,600) (25,189) -
Contracts in process (Note 5) - - -
Notes receivables
Unrelated parties (Note 4b) - 144,407 244,406
Related party (Note 4c) 181,722 - 310,000
Other (4d) 655,773 907,368 527,132
Inventory of finished and unfinished
goods at lower of costs or market 1,106,764 1,011,701 1,573,645
(Note 5)
Marketable securities (Note 6) - 148,400 -
Prepaid expense 41,270 38,435 107,210
Total current assets 4,283,308 3,338,560 4,754,786
PROPERTY, PLANT AND EQUIPMENT (AT
COST):
Corporate office (Note 7a) 1,200,000 - -
Manufacturing facilities and 2,299,304 1,676,247 1,690,569
property (Note 7b)
Manufacturing equipment (Note 7b) 1,090,076 1,000,427 1,008,281
Restaurant equipment (Note 7c) - 724,470 846,970
Furniture and equipment (Note 7d) 232,591 386,600 546,343
Less accumulated depreciation (168,204) (394,436) (651,164)
Total property, plant and equipment 4,653,767 3,393,308 3,440,999
OTHER ASSETS:
Investment in restricted securities 580,000 100,000 100,000
(Note 8)
Costs in excess of book value on
acquisition of wholly owned
subsidiaries less accumulated - 6,295,784 5,975,774
amortization of $102,419 at June
30, 1995 and $422,430 at March 31,
1996 (Note 9)
Installment sale contract receivable 1,375,000 1,240,000 1,225,000
(Note 14)
Patents, patents pending and patent
application technology, less
accumulated amortization of 122,842 121,647 194,618
$63,558 at June 30, 1994, $83,678
at June 30, 1995 and $98,769 at
March 31, 1996 (Note 10)
Mineral properties and related
assets (Note 11)
Mineral Properties, at cost 6,768,842 6,170,676 6,170,676
Mill and refinery, less
accumulated depreciation of 328,487 296,702 280,809
$360,209 at June 30, 1994,
$391,994 at June 30, 1995 and
$407,886 at March 31, 1996
Other mining equipment, less
accumulated depreciation of 158,233 107,831 82,629
$708,380 at June 30, 1994,
$758,783 at June 30, 1995 and
$783,984 at March 31, 1996
Other (Note 12) 11,283 151,345 95,469
Total other assets 9,344,687 14,483,985 14,124,976
TOTAL ASSETS: $18,281,762 $21,215,852 $22,320,762<PAGE>
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1996
CURRENT LIABILITIES (unaudited)
Notes payable, shareholders $66,685 $53,685 $45,082
Notes and contracts payable 77,949 2,489 -
Current maturities of long- - 93,987 94,642
term liabilities
Accrued payroll taxes 219,000 141,500 93,292
Accounts payable 409,927 416,356 345,496
Accrued salaries, wages and - 69,173 103,015
commissions
Accrued expenses 59,404 109,845 75,112
Accrued expenses - related 2,736 - -
parties
Advance from officers and 16,484 - -
directors
Total current liabilities 852,185 887,035 756,638
LONG-TERM LIABILITIES - 463,834 390,013
Total Liabilities 852,185 1,350,869 1,146,651
UNREALIZED INCOME ON INSTALLMENT 1,101,782 969,104 887,587
SALES (NOTE 14)
COMMITMENTS AND CONTINGENCIES - - -
(NOTE 15)
REDEEMABLE PREFERRED STOCK, CLASS
A (NOTE 16)
Preferences established by the
Board of Directors 5,000,000
shares authorized at all
periods presented, 26
shares, $20,000 per value,
non-cumulative, voting - 295,062 321,618
issued and outstanding at
March 31, 1996 and June 30,
1995 and none issued and
outstanding at June 30, 1994
SHAREHOLDERS' EQUITY (NOTE 2 AND
17
Preferred stock, Class B,
cumulative, voting - - -
20,000,000 shares authorized
and none issued
Common stock, no par value
100,000,000 shares
authorized at all periods
presented, issued and 40,958,845 47,885,245 51,493,165
outstanding 29,924,057 at
June 30, 1995 and 22,687,487
at June 30, 1994
Common stock subscriptions (100,000) - -
receivable
Accumulated deficit (24,531,049) (29,284,429) (31,528,259)
Total shareholders' equity 16,327,796 18,600,816 19,964,906
TOTAL LIABILITIES AND $18,281,762 $21,215,852 $22,320,762
SHAREHOLDERS' EQUITY
/TABLE
<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995
AND THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996
<S> <C> <C> <C> <C> <C>
JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1995 March 31, 1996
(unaudited)
REVENUES (Notes 2
and 19)
Related parties $7,987 $- $- $- $-
Environmental - 105,000 107,000 107,000 -
services
Restaurant service - - 26,037 - 401,331
Insurance - - 180,178 - 981,125
adjusting
Mining and mining 3,000 1,000 10,000 - -
services
Manufacturing - 1,374,632 3,069,773 2,226,505 2,453,603
All other - 100,883 45,195 43,313 19,197
Total Revenues 10,987 1,581,515 3,438,183 2,376,819 3,855,256
OPERATING EXPENSES
(Note 5)
Direct Service
Environmental 237,778 1,647,165 212,366 1,168,298 301,293
industry
Restaurant
equipment and - - 22,065 - 280,480
supply
industry
Insurance - - 74,252 - 431,233
adjusting
industry
Mining industry 2,832,001 480,646 205,446 178,812 49,127
Manufacturing - 1,719,046 2,644,495 2,486,514 1,688,663
industry
General and 800,578 888,642 2,769,039 194,445 3,267,827
administrative
Loss on settlement - 9,000 - 37,500 -
of lawsuit
Write-off 318,543 - - - -
partnership
interests
Write-off other 7,598 - - - -
investment
Write-off
receivable as - 217,560 - - -
uncollectible
Total operating 4,196,498 4,962,059 5,927,663 4,065,569 6,018,623
expenses
LOSS FROM OPERATIONS (4,185,511) (3,380,544) (2,489,480) (1,688,750) (2,163,368)
OTHER INCOME AND
(EXPENSE)
Interest income 129 16,874 62,043 58,473 35,834
Interest expense (25,913) (20,368) (16,831) (4,424) (77,022)
Gain on sale of - 2,653 118,099 - -
asset
Loss on disposal - - - - (28,010)
of security
Loss on sale of - (2,409) (68,262) - -
assets
Other income (8,500) (5,500) (37,500) 95,485 (11,265)
(expense)
Total income and (34,284) (8,750) 57,549 149,534 (80,462)
(expense)
</TABLE>
See notes to consolidated financial statements.<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1995 March 31, 1996
(unaudited)
LOSS BEFORE
EXTRAORDINARY ITEM (4,219,795) (3,389,294) (2,431,931) (1,539,216) (2,243,830)
EXTRAORDINARY ITEM
Forgiveness of 117,622 5,126 87,974 - -
debt
Write-down of
investment - - (431,600) - -
securities
Sale of building - - (666,380) (526,091) -
and furniture
Loss on disposal - (455,797) - - -
of product line
Write-down on - - (598,166) - -
mineral
property
Write-down on
manufacturing
facility and - - (713,277) (713,277) -
related
equipment
Total extraordinary 117,622 (450,671) (2,321,449) (1,239,368) -
item
NET LOSS ($4,102,173) ($3,839,965) ($4,753,380) ($2,778,584) ($2,243,830)
NET INCOME (LOSS)
PER SHARE OF
COMMON STOCK
Before ($0.33) ($0.19) ($0.10) ($0.07) ($0.07)
extraordinary
items
For Extraordinary 0.01 (0.02) (0.10) (0.06) -
items
NET LOSS PER SHARE
OF COMMON STOCK ($0.32) ($0.21) ($0.20) ($0.13) ($0.07)
Weighted average
number of shares 22,793,759 31,334,310
outstanding during
period
</TABLE>
See notes to consolidated financial statements.<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED MARCH 31, 1996
<S> <C> <C> <C> <C> <C>
COMMON STOCK
SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
Balances, June 30, 1992 7,381,755 $23,654,138 ($1,059,039) ($16,588,913) $6,006,186
Issued on subscriptions
receivable (Note 15p) 621,159 250,864 (250,864) - -
Collection of subscriptions - - 907,343 - 907,343
receivable
Issued for the following:
Cash (Note 17a) 1,015,500 411,375 - - 411,375
Services (Note 17b) 254,000 95,375 - - 95,375
Purchase mineral property
interest (Note 17c) 2,380,000 1,487,492 - - 1,487,492
Purchase mineral property
interest (Note 17i) 235,000 558,125 - - 558,125
Purchase environmental
partnership interest (Note 340,000 212,500 - - 212,500
17d)
Conversion of debt to equity
(Note 17f) 2,799,534 1,468,702 - - 1,468,702
Conversion of preferred
stock 1,200,000 750,000 - - 750,000
(Note 17e)
Option (Note 17h) 5,000 4,400 - - 4,400
Net loss (4,102,173) (4,102,173)
Balances, June 30, 1993 16,231,948 28,892,971 (402,560) (20,691,086) 7,799,325
Collection of subscriptions - - 302,560 - 302,560
receivable
Issued for the following:
Cash (Note 17j) 4,240,539 7,358,063 - - 7,358,063
Conversion of debt to equity
(Note 17k) 165,000 257,813 - - 257,813
Acquisition of manufacturing
assets Note 17l) 1,200,000 3,600,000 - - 3,600,000
Acquisition of corporate
building (Note 17m) 650,000 650,000 - - 650,000
Services (Note 17n) 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 subscription - (100,000) 100,000 - -
Issued for the following:
Cash (Note 17o) 440,600 279,938 - - 279,938
Services and debt (Note 17p) 395,600 358,591 - - 358,591
Satisfaction of debt (Note 50,000 37,500 - - 37,500
17q)
Acquisition of subsidiary -
in:
Restaurant equipment
industry (Note 17s) 4,600,000 4,600,000 - - 4,600,000
Insurance adjusting
industry (Note 17r) 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 - (29,284,429) 18,600,816
Issued for the following: -
Cash 2,668,333 3,189,988 - - 3,189,988
Stock options 319,500 365,416 - - 365,416
Services 3,362 3,500 - - 3,500
Settlement of dispute 12,800 8,000 - - 8,000
Acquisition of intellectual
property 18,750 41,015 - - 41,015
Net loss - - - (2,243,830) (2,243,830)
Balances, March 31, 1996 $32,946,802 $51,493,165 $- ($31,528,259) $19,964,906
</TABLE>
See notes to consolidated financial statements.<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
AND THE NINE MONTHS ENDED MARCH 31, 1995 AND 1996
<S> <C> <C> <C> <C> <C>
JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1995 MARCH 31, 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss ($4,102,173) ($3,839,964) ($4,753,380) ($2,778,584) ($2,243,830)
Adjustments to reconcile net
loss to net cash (used in)
operating activities:
Depreciation 101,006 213,892 365,023 271,008 340,872
Amortization 15,674 15,565 90,768 11,674 335,102
Loss on sale of assets - 2,409 68,262 884 51,322
Gain on sale of assets - (2,653) (118,099) (7,678) (12,357)
Loss on settlement of lawsuit - 9,000 - - -
Other expense - 5,500 37,500 37,500 71,387
Extraordinary items, net (117,622) 450,671 2,321,449 1,239,368 -
Stock issued for services and 95,375 200,000 353,591 125,000 42,191
expenses
Stock issued for mineral
property interest 2,045,617 - - - -
acquisition
Stock issued for acquisitions
of asphalt partnership 212,500 - - - -
interest
Stock issued for option 4,400 - - - -
Write-off partnership 318,543 - - - -
interests
Write-off other investment 7,598 - - - -
Write-off uncollectible - 217,560 - - -
receivables
Write-down mineral property - 168,211 - - -
valuation
Forgiveness of debt - - - (87,974) -
Imputed interest preferred - - - - 26,556
stock
(Increase) Decrease in -
assets:
Prepaid expenses (17,082) (24,188) 2,835 11,014 (68,775)
Accounts receivable - (581,714) (118,563) (2,881) (151,031)
Allowance for doubtful - 25,600 411 - -
accounts
Notes receivables - (837,495) (214,208) 62,799 5,236
Inventory - (620,538) 95,063 184,398 (561,944)
Increase (Decrease) in -
Liabilities:
Accounts payable (8,022) 242,469 6,429 (102,600) (70,860)
Billing in excess of costs (86,934) (30,000) - - -
Deferred income - 195,000 - - -
Notes payable - - 2,489 - (8,603)
Advances from officers and 540,035 (63,859) (16,484) (13,484) -
directors
Accrued liabilities and other (125,376) 116,596 45,271 (94,967) (51,589)
Total adjustments 2,985,712 (317,974) 2,921,737 1,634,061 (52,493)
Net cash (used in) operating (1,116,461) (4,157,938) (1,831,643) (1,144,523) (2,296,323)
activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to property, plant
and equipment
Corporate office - ($600,000) - - -
Manufacturing facility - (458,283) (49,718) (91,915) (14,322)
Manufacturing equipment - (217,267) (92,804) - (87,346)
Restaurant equipment - - (184,470) - (122,500)
Furniture and equipment (3,572) (116,251) (64,633) (20,685) (159,743)
Additions to patent value (13,690) (63,754) (18,925) (18,925) (47,047)
Additions to mineral property (58,214) (165,000) - - -
Investment in PPM - - - (365,220) -
Installment sales receivable - - - 10,000 15,000
Advances on notes receivable - - - - (410,000)
Proceeds from sale of
property, plant and - - 623,954 8,909 13,970
equipment (Note 7a)
Proceeds from sale of - - - - 120,390
securities
Adjustment to installment - - - - (70,000)
sale
Collection on receivable- - - - - 375,000
other
Deposits and accrued interest - (5,143) (4,170) (15,456) (7,513)
Net cash provided by (used in)
investing activities (75,476) (1,625,698) 209,234 (493,242) (394,111)
</TABLE>
See notes to consolidated financial statements.<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 MARCH 31, 1995 MARCH 31, 1996
CASH FLOWS FROM FINANCING
ACTIVITIES
Stock options exercised - - - - 326,725
Proceeds from borrowings - - 38,265 39,220 -
Payments on borrowings (26,500) (25,959) (24,299) (14,908) (73,166)
Stock subscriptions collected 907,243 85,000 - - -
Proceeds from sale of stock 411,375 7,558,062 279,938 35,938 3,189,988
Net cash provided by financing 1,292,218 7,617,103 293,904 60,250 3,443,547
activities
(DECREASE) INCREASE IN CASH 100,281 1,833,467 (1,328,505) (1,577,565) 753,113
CASH AT BEGINNING OF PERIOD 2,168 102,449 1,935,916 1,935,915 607,411
CASH AT END OF PERIOD $102,449 $1,935,916 $607,411 $358,350 $1,360,524
Supplemental disclosure of non-
cash
operating, investing and
financing activities:
Conversion of the following
liabilities
to equity:
Notes payable, shareholders $8,019 $- $- $- $-
Current maturities of
notes and 91,291 - - - -
contracts payable
Services - - 5,000 5,000 42,191
Accrued expenses - related 238,414 - - - -
parties
Accrued expenses 91,314 - - - -
Advances from officers and 859,664 257,813 - - -
directors
Long-term liabilities - - - - -
Cumulative dividends on
preferred stock 180,000 - - - -
Class "A" preferred stock 750,000 - - - -
Issuance of capital stock -
for:
Acquisition of - 3,600,000 - - -
manufacturing assets
Corporate office - 600,000 - - -
Furniture and fixtures - 50,000 113,387 - -
Stock subscriptions - 85,000 - - -
receivable
Restaurant equipment - - 540,000 - -
Acquisition of - - - - 41,015
intellectual property
Settlement of dispute - - - 37,500 8,000
Costs on acquisition of
subsidiaries in excess - - 6,465,346 - -
of book value
Cumulative dividend accrued on
Class A Preferred Stock - - - - -
</TABLE>
See notes to consolidated financial statements.<PAGE>
NOTE 1. BUSINESS ACTIVITY
Alanco's business activity for the past several years, has
emphasized diversification. Alanco (the "Company") has expended
substantial time and resources on development of its majority-
controlled subsidiary's pollution control device EDSS
(Environetics Dry Scrubber System), the CDSI (Charged Dry Sorbent
Injection System) and the acquisition of operating subsidiaries
in three different business segments.
These business segments include:
i) manufacturing for the agricultural and dust
control industry, which acquisition was effective
on December 16, 1993,
ii) wholesale equipment supplier to the food service
industry, effective May 1, 1995 and
iii) insurance adjusting a service oriented business
segment, effective May 1, 1995.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PRINCIPLES OF CONSOLIDATION
a. Principles of consolidation. The consolidated
financial statements include the accounts of the Company, its
wholly-owned subsidiaries, and the accounts of the 70.60% owned
subsidiary Environetics, Inc. ("Environetics"). All significant
intercompany transactions have been eliminated. Results of
operations of subsidiaries acquired during the current fiscal
year are consolidated from the date of acquisition.
b. Property, plant and equipment. Property, plant and
equipment, including amounts for capitalized leases, are stated
at cost. Depreciation is computed using the straight-line method
over the useful lives of the assets as set forth in table 1:
Mill, Refinery and Mining Equipment 18-22 years
Buildings 32 years
Furniture, Equipment and Other Assets 5-7 years
TABLE 1 - USEFUL LIFE
The costs of improvements, which substantially extend the useful
life of a particular asset, are capitalized. Repair and
maintenance costs are charged to expense.
c. Service income recognition. Insurance claim adjustment
income is recognized on an accrual basis as earned.<PAGE>
d. Net loss per share. Net loss per share has been
calculated based on net losses for the periods divided by the
weighted average number of shares of common stock outstanding
during the periods presented. The weighted average number of
shares of common stock outstanding for the periods presented are
as set forth in Table 2.
Year ended June 30, 1995 23,839,969
Year ended June 30, 1994 18,253,730
Year ended June 30, 1993 12,974,995
TABLE 2 - WEIGHTED AVERAGE NUMBER OF SHARES
e. Amortization of patents and patents pending and patent
application technology. Amortization of the patents, patents
pending and patent application technology is being recorded on a
straight-line basis from the date of acquisition, by the Company,
or the date of issuance over the initial life of the patent which
is seventeen years.
f. Financial Accounting Standards No. 109. During the
year ending June 30, 1995, the Company adopted FASB Statement
109, on accounting for income taxes. Under the new rules, assets
and liabilities acquired in prior years' purchase business
combinations must be adjusted from net-of-tax amounts to pre-tax
amounts. The Company has not generated profits to date and
therefore is not subject to income taxes which would require
adjusting income from continuing operations. The effect of
adopting this standard does not have a material effect upon the
financial statements.
NOTE 3. RELATED PARTY TRANSACTIONS (SEE NOTES 4, 16, AND
17).
During the year ended June 30, 1994, River Capital
Corporation loaned the Company $210,000 which the Company
acknowledged by executing a promissory note in River's favor.
Later in the year, River elected to exchange this note, plus
interest and other obligations due River into equity totaling
$257,813. River received 165,000 shares of common stock which
represent 0.73% of the shares outstanding at June 30, 1994.
For other related party transactions refer to Note 17 items
e, f, k, o, and p.
NOTE 4. ACCOUNTS AND NOTES RECEIVABLE
(a) Accounts receivable, at June 30, 1995 represent
$350,802 due from the sale of manufactured products, $83,428
insurance adjusting revenues, $11,317 in wholesale food service
sales, $10,000 in the environmental sales and miscellaneous
receivables of $25,291.<PAGE>
Accounts receivable, at June 30, 1994, represent $6,000 due
from the sale of assets and $381,464 due from sales of
manufactured products. A $25,600 allowance for doubtful accounts
was made to reflect the uncertain collectability for amounts due
for the installation of a dust control system.
(b) Notes receivable at June 30, 1995, represents $100,000
due from an unrelated third party for an advance on marketing
expenses in Europe, $34,320 due from Water Chef, an unrelated
third party, for the purchase of office furniture and accrued
rent under a sub-lease and a miscellaneous receivable of $10,086.
(c) Receivable Related Party consists of a note due from D.
Harrison Gentry, former COO and president, in the amount of
$181,722. This receivable was represented by a non-interest
bearing note for a period of ninety (90) days with interest at
the rate of 7.25%. During the year ended June 30, 1995, the
Company and Mr. Gentry reached a mutual cancellation of his
employment agreement which provides for the forgiveness of this
note over a three year period. The Company recorded one-third of
this note as salary expense with the balance recorded in other
assets (See Note 12).
(d) During the year ended June 30, 1995, the Company agreed
to advance an additional $350,000 to Phoenix Medical Management
(PMM) and forgive the note receivable and plus accrued interest
of approximately $516,000 in exchange for 70% of the outstanding
shares of PMM. Subsequently, the Company sold 86% of this
interest (60%) to Amarante Financial S.A., an unrelated third
party. The terms of sale provide for total payments of $870,000
beginning July 15, 1995 at the rate of $75,000 per month with a
balloon payment of $495,000 due on December 15, 1995. Subsequent
to June 30, 1995, the Company has received, in a timely manner,
the July, August and September payments which total $225,000.
Receivables Other at June 30, 1994 included $500,000 from
Phoenix Medical Management (PMM); $100,000 due from an unrelated
third party for an advance on marketing expenses in Europe;
$50,000 due from an unrelated third party on the sale of
furniture, office equipment and telephone line rental from the
Company's manufacturing business; $5,000 due from Dryer Master;
and $773 due from Kansas State Unemployment. During the year
ended June 30, 1994, the Company received $50,000 on the sale of
furniture, $5,000 due from Dryer Master and $773 due from the
Kansas State Unemployment.
NOTE 5. INVENTORY OF FINISHED AND UNFINISHED GOODS
As of June 30, 1995, the Company had $1,011,701 in
inventory. The Components of this inventory are $478,452 in raw
materials and purchased stock items; $104,712 in sub-assemblies;
$241,966 of finished product and $186,571 of work in process. All
inventory items are in the manufacturing industry segment of the<PAGE>
Company's business except for $180,149 of finished product which
is Perfect Fry 686 machines held for sale in the restaurant
equipment and supply industry and $21,545 of work in process
which is in the insurance adjusting industry.
During the year ended June 30, 1994, Alanco acquired
$1,417,300 of inventory of raw materials, finished and unfinished
goods with the purchase of the manufacturing assets. The
Company disposed of one product line which the prior owner had
marketed. As part of the disposal, the Company recorded a loss on
sale of assets of $455,797.
As of June 30, 1994, the Company had $1,106,764 in inventory
of raw materials, parts, components, finished goods and work in
process. The components of this inventory are $643,801 in raw
materials and purchased stock items, $164,305 in sub-assemblies;
$143,797 of finished product and $154,861 of work in process.
NOTE 6. MARKETABLE SECURITIES
The Company owns 500,000 shares of Princeton Electronic
Products, Inc., a publicly traded corporation ("Princeton"),
which were acquired in February of 1992. The Company has recorded
these shares on its books at the current listed market price of
$0.30 per share the lower cost or market for a total of $148,400
(See Note 8).
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
(a) On May 16, 1994 the Company purchased the land,
building and office furnishings at 151 South Main, Salt Lake
City, Utah for cash in the amount of $600,000 and 650,000 shares
of stock valued at $650,000. The total purchase price was
allocated as follows: $200,000 for land, $1,000,000 for the
building and $50,000 for office furnishings.
During the year ended June 30, 1995, the Company relocated
its' office to Scottsdale, Arizona and sold the Salt Lake City
office building and furnishings. The sales price was $650,000 in
cash which was allocated to the current depreciated value of the
furnishings, with the balance to the land and building. As a
result of the sale and associated costs therein, the Company
recorded a net loss on the transaction of $666,380 which has been
recorded as an extraordinary loss.
(b) On January 3, 1994 the Company purchased land,
buildings, manufacturing equipment, and inventory for cash in the
amount of $1,168,648 and 1,200,000 shares of common stock valued
at a total of $3,600,000. The purchase price was allocated
$2,267,348 to manufacturing facility and property; $1,102,000 to
manufacturing equipment; and $1,417,300 to inventory.<PAGE>
The company has spent an additional $31,956 to remodel
existing facilities.
During the year ended June 30, 1995, management placed the
Boone, Iowa manufacturing facility for sale. The Company received
an appraisal on the property which indicated a market value of
$320,000 based upon the properties location, condition and
closure. As a result of this appraisal, the Company has recorded
a write down of $672,775 in the value of this manufacturing
facility which has been recorded as an extraordinary item.
(c) During the year ended June 30, 1995, the Company
acquired an operating subsidiary Fry Guy, Inc., a Nevada
corporation (See Note 21). As part of that acquisition, the
Company acquired wholesale food equipment with a value of
$724,470, which represents 236 deep frying machines. 162 of these
machines were installed under agreement in Wal-Mart stores. The
remaining 74 are demonstration units of which 61 units are used
for sales promotions by Ore-Ida's national distributor system.
(d) During the year ended June 30, 1995, the company
purchased furniture and equipment totaling $64,633 for cash and
acquired additional furniture and equipment totaling $113,387 for
stock.
During the year ended June 30, 1994, the company purchased
$37,664 of computer, telephone and video equipment, $9,457 of
testing equipment for the pollution control device, $60,280 for
corporate vehicles and $55,455 in miscellaneous office furniture
and equipment. The Company sold assets with a cost of $38,497
and accumulated depreciation of $30,438 for $6,000 and recorded a
loss on disposal of assets of $2,058.
NOTE 8. INVESTMENT IN RESTRICTED SECURITIES
During the year ended June 30, 1995, and subsequent to the
actions referred to in Note 4d, the Company sold 16% of its
remaining interest in PMM to Dixie National Corporation, a NASDAQ
listed public company, for 200,000 shares of their common
stock. These securities were issued and acquired pursuant to
exemptions available under the Securities Act of 1934, as
amended, and carry a restrictive legend on the face of the
certificate. This restriction limits the resale of these
securities until such time as they are either registered with the
Securities and Exchange Commission or an exemption from
registration is available to the Company.
The Company carries these shares on its books at the current
listed market price as quoted on the NASDAQ system and recorded a
gain on the exchange of shares totaling $100,000.<PAGE>
NOTE 9. COSTS IN EXCESS OF BOOK VALUE OF SUBSIDIARIES
ACQUIRED
During the year ended June 30, 1995, the Company acquired
three operating subsidiaries in two different business segments.
These subsidiaries are Fry Guy, Inc. and Chappell Financial,
Inc., which currently operate in the restaurant equipment and
supply industry and Unique Systems, Inc. D.B.A. National
Affiliated Adjustment Company, Inc. which is in the insurance
adjusting industry. Management, after reviewing the positive
potential of these subsidiaries in their respective businesses,
acquired all three companies. Based upon the negotiated price,
which was all stock (See note 17r and 17s), costs in excess of
book value have been recorded. These costs will be amortized on a
straight line basis over a period of fifteen years.
NOTE 10. PATENTS, PATENTS PENDING AND PATENT APPLICATION
TECHNOLOGY
The Company maintains certain patents, which were acquired
during prior years, at a cost of $108,956. These patents are
being amortized over their respective historical lives and as of
June 30, 1995 the Company has recorded accumulated amortization
of these patents totaling $79,123.
During the past two fiscal years, the Company expended the
sum of $77,444 on the processing of new patent applications,
which as of June 30, 1994 resulted in three new patents. These
patents are being amortized over their respective historical
lives and as of June 30, 1995 the Company has recorded
accumulated amortization of these patents totaling $4,556.
During the year ended June 30, 1995, the Company expended
$18,925 on two new patents.
The Company believes that the rights to and/or ownership of
these patents, patents pending and patent applications are
crucial to the Company's future success. All of these patents are
associated in the industrial air pollution control industry and
management believes that no other system offered in this industry
segment has such significant potential operating cost savings.
NOTE 11. ASSETS IN THE MINING INDUSTRY
For eight consecutive years, beginning in 1986, the Company
had retained a geological consultant to review the mineral
properties and determine their fair market value. Based upon the
results of the appraisals received from the independent
geologists, management and independent accountants are of the
opinion that there would be no significant change in the
valuation of the mining properties and mutually agreed to forgo<PAGE>
an appraisal this year, relying on appraised values at June 30,
1994.
During the year ended June 30, 1994, the independent
geologist appraised the Company's mineral property holdings at
$10,455,983. This appraised value exceeds the historical
acquisition and development cost. Since the Company's mill and
refinery, located near Tombstone, Arizona, had sustained
substantial degradation, its value was reduced by $168,211. The
Company abandoned and wrote-off one mineral property as of June
30, 1995, with a book value of $598,166 and another as of June
30, 1994 with a book value of $31,570.
The consulting geologist indicated that certain of the
Company's mineral properties lack economic feasibility based upon
the exploration and development to date. However, he stated
further, in his opinion, there existed considerable evidence as
to the potential of these mineral properties and recommended that
the Company increase its exploration and development efforts on
these properties until an economically feasible ore body is
proven or a decision is reached to abandon the property.
During any continued exploration and development of these
mineral properties, additional information will be collected
which may lead the Company to believe that the properties lack
economical operating values. If any of the information collected
in the future leads the Company to believe that a property lacks
sufficient mineral values to operate, then the Company may record
additional write downs.
Following the Shareholder's Meeting held on June 18, 1992,
the Board of Directors elected a new President and Chief
Executive Officer. Based upon his recommendation and that of the
independent consultants, management has adopted the following
policy with regard to its mineral property holdings and related
assets:
i) The Company will pursue a single joint venture
partner capable of implementing or assisting the Company in
implementing a mine plan as developed for the mineral
property known as the C.O.D. Mine. With respect to the joint
venture partner, part of any agreement would include the
necessity for them to acquire the majority of the Company's
mineral property holdings.
ii) Pursue a sale or partnership arrangement for the
mill and refinery located near Tombstone, Arizona.
During the year ended June 30, 1994, the Company completed
the purchase of the COD Mining claims, In prior years the Company
was obligated to pay minimum royalty payments of $9,600 through
May 31, 1995 when a balloon payment became due. In the fiscal
year 1993, the Company acquired full ownership under the option
terms of the underlying lease by making payments of $65,000 on<PAGE>
August 31, 1993, $70,000 on January 31, 1994 and $30,000 on April
30, 1994. The amounts paid have been added to the cost basis of
the property.
Table 3 sets forth the value of the Company's mineral
properties and mining related assets.
MINERAL RELATED ASSETS
DESCRIPTION: JUNE 30, 1995 JUNE 30, 1994
Mineral Properties $6,170,676 $6,768,842
Mill and Refinery 688,696 688,696
Accumulated (391,994) (360,209)
depreciation
Mining Equipment 866,614 866,614
Accumulated (758,783) (708,380)
depreciation
$6,575,209 $7,255,562
TABLE 3 - MINERAL RELATED ASSETS
In recent years, government regulations relating to mining
environmental issues have changed mining operations practices by
requiring permitting. During the year ended June 30, 1993, the
BLM elected to question the right of the Company to continue
operations at the Tombstone millsite based upon the current
permits in place and a Notice of Trespass was issued with
instructions to discontinue ore processing. During the same
period, the State of Arizona, Department of Environmental Quality
("ADEQ") questioned the validity of the Company's Notice of
Disposal ("NOD"), which granted the right to discharge water
utilized in the milling operations. Subsequent to 1993, the NOD
was declared void and ADEQ is requiring the Company to apply for
an Aquifer Protection Permit, which permit would grant the same
rights as the NOD.
The Company has every intention of complying with all
federal and state laws, rules and regulation relating to mining
and millsite operations. A consultant specializing in mining and
milling operations has been retained by the Company to work with
the applicable federal and state agencies in developing a program
for compliance or compromise acceptable to all parties.
At present, the Tombstone millsite remains idle pending
resolution of the compliance issues. The Company does not believe
that additional write-downs of the facility and associated
millsites are required at this time.
NOTE 12 OTHER ASSETS<PAGE>
At June 30, 1995, other assets consisted of deposits for
rent and utilities in the amount of $22,266, organizational
expenses of $2,304, net of accumulated amortization, and $126,775
due from a former officer and director which will be forgiven
over the next two years (See Note 4c).
At June 30, 1994, other assets consisted of deposits for
rent and utilities in the amount of $9,458 and $1,825 of interest
receivable.
NOTE 13 LONG-TERM LIABILITIES
At June 30, 1995, the Company has a 3 year note payable due
American National Bank in Nebraska and capitalized equipment
leases of $514,080 due Dixie National Life Insurance Company of
Mississippi. The debts relate to the acquisition of manufacturing
equipment and wholesale food service equipment, respectively. See
Table 4 for a schedule of long-term liability maturities:
Year ending June 30, 1996 $ 93,987
Year ending June 30, 1997 108,244
Year ending June 30, 1998 124,651
Year ending June 30, 1999 129,494
Year ending June 30, 2000 92,245
Total $548,621
TABLE 4 - SCHEDULE OF LONG-TERM LIABILITIES
NOTE 14 UNREALIZED INCOME ON INSTALLMENT SALES CONTRACTS
During the year ended June 30, 1994, the Company completed a
sale of 56 mining claims located in the Tombstone Mining
District. The terms of the sale provide for payments to be made
by the purchaser as set forth in Table 5:
July 15, 1995 $ 15,000
July 15, 1996 30,000
July 15, 1997 50,000
July 15, 1998 75,000
July 15, 1999 1,000,000
Total $1,170,000
TABLE 5 - SCHEDULE OF PAYMENTS
The unrealized income on this installment sale is $899,104
after deducting the cost of mining claims of $270,896. Income and
related costs will be reported during the years of the
installment contract 1995 through 1999, on a pro-rata basis as<PAGE>
installment payments are received. All payments due on the sale
are current.
In addition, $70,000 of unrealized income has been recorded
by the Company resulting from the sale of a pollution control
device. As the pollution control device is being used on a test
basis, there is some uncertainty as to when payment will be
received. Therefore, income from the sale has been deferred.
NOTE 15 COMMITMENTS AND CONTINGENCIES
(a) Terra Oil Corp., a subsidiary of the Company, was named
as a defendant in a lawsuit filed in U.S. District Court in
California. The plaintiffs in the litigation charged violation
of security laws, fraud, negligence and misrepresentation against
ten (10) separate defendants. Such actions by the defendants
purportedly occurred between 1979 and 1980 which was prior to the
acquisition of Terra Oil Corporation by the Company. On January
21, 1988, a joint and several judgment was entered in the United
States District Court, Eastern District of California, against
seven (7) of the defendants, including Terra Oil Corporation, for
a total of $245,515, which includes compensatory damages, pre-
judgment interest and punitive damages. Terra Oil Corporation has
no substantial remaining assets against which the judgment can be
enforced and to what extent the Company can be held liable for
all or any portion of this liability is not known.
(b) The Company, through subsidiaries, has acted as general
partner in several limited partnerships. As the Company exerts
significant control over operations of these partnerships the
investments have been accounted for on the equity method. As
general partner, the Company could be subject to unlimited
liability for the obligations and actions of the partnerships.
(c) As part of the negotiated acquisition of 70% of the
outstanding stock of PMM (See Note 4d) the Company agreed to
indemnify certain unrelated third parties against loss on their
continuing guarantees on leased facilities and equipment valued
at $1,159,826 and on a note payable to a prior PMM shareholder,
which note is due and payable no later than December 31, 1995 in
the principal amount of $100,000. As part of the Company's sale
of the majority of its interest to Amarante, Amarante indemnified
the Company against loss from these commitments and assumed the
commitments under the contract sale agreement. There can be no
assurance that, should a default occur, the unrelated third
party's would not seek all remedies under the law and that,
should Amarante be unable to perform, the Company would not be
held liable.
(d) In April, 1995 the case of Sun Valley Products, Inc.,
v. Alanco Environmental Services, Inc., et al was filed in the
United States District Court, Southeastern Division, District of
North Dakota. Sun Valley Products, Inc., produces roasted<PAGE>
sunflower seeds and purchased a bag filter system from the George
A. Rolfes Company in 1992. The Rolfes company was from whom the
Company purchased Alanco Environmental Services, Inc., in 1994.
Installation and service of the bag filter system straddles the
time the company purchased the business. The complaint alleges
breach of contract, breach of warranties and negligence and seeks
in excess of $50,000 in damages though the Plaintiff has not
otherwise quantified its damages. The Company believes that the
action is subject to the indemnification provisions of its
purchase agreement with Rolfes and has entered into a joint
defense with the Rolfes Company. The Company further believes
that there are valid defenses to the action and would ultimately
prevail if the matter proceeds to trial. The Company and the
Rolfes Company are pursuing settlement negotiations.
(e) In 1995, T&H Construction, Inc., filed a lawsuit
against the Company in Yavapai County, Arizona Superior court,
alleging that the Company owes it approximately $50,000 on an
open account for goods and services supplied by the Company in
connection with its mining operations. The company has filed an
Answer claiming a set-off for equipment given to the Plaintiff
and other defenses. While the Company believes that its defenses
are meritorious, it also recognizes that trial of the matter may
have an unfavorable outcome and so is pursuing settlement
negotiations.
(f) On January 19, 1994, the BLM issued a Trespass Decision
pursuant to 43 CFR 2920.1-2 under the authority of the Federal
Land Policy Management Act of 1976. The decision was based upon
the BLM's assertion that the use for which the company occupied
said millsites was an unauthorized use and that unauthorized
property, non-milling or refining, was also located there. On
February 14, 1994 the Company filed a Notice of Appeal with all
appropriate agencies. An order granting the stay of the BLM
action as requested by the Company was issued on March 29, 1994.
The BLM then filed their answer to the Statement of Reasons filed
by the Company. Since this time there has been no action with
regard to this case. The outcome of this matter can not be
predicted at this time, however, based upon the demands contained
in the trespass decision, approximately $30,000, plus
administrative costs versus the cash bond of $19,000 placed by
the Company with the BLM, and the delay rental fees already paid,
management believes that even an unfavorable outcome will have
little effect on the financial condition of the Company.
(g) The Company is also a defendant in a lawsuit filed in
the Federal District Court for the District of Nevada by Bernard
Lumbert, a resident of Kingman, Arizona. In the opinion of the
Company, Mr. Lumbert is a habitual pro se filer of frivolous
lawsuits seeking unspecified damages for violations of federal
securities laws. Mr. Lumbert has also sent absurd and libelous
allegations regarding the company to news media and securities
broker-dealers. In the above case, Mr. Lumbert has filed
numerous motions which have all been denied by the Court and have<PAGE>
failed to comply with the rules of civil procedure. The Company
is seeking to have the case dismissed and obtain sanctions
against Mr. Lumbert. The Company has also filed a civil action
in Maricopa County, Arizona against Mr. Lumbert as a result of
his allegations for which Mr. Lumbert failed to appear upon the
judge's order. A civil contempt warrant for his arrest on this
matter is outstanding in Maricopa county, Arizona. The Company
does not believe that there is any likelihood of an unfavorable
outcome in this matter.
NOTE 16 REDEEMABLE PREFERRED STOCK
During the year ended June 30, 1995, the Company issued 26
shares of $20,000 par value Class "A" Voting Preferred Stock to
K.D. International, S.A. as part of the acquisition price paid
for Unique Systems, Inc., D.B.A. National Affiliated Adjustment
Company (NAAC). The certificates are redeemable five years from
the date of issuance at the stated par value. Based upon future
redemption, the Company has determined the present value of the
future payments by imputing a 12% discount factor. The Company
will reduce future earnings or, in the case of continuing losses,
charge shareholders' equity with the annual imputed interest
value through the date of maturity.
Subsequent to the acquisition of NAAC, Katherine Meyer,
Chief Executive Officer of NAAC and the wife of Norman Meyer, the
Company's CEO and President acquired these shares in an unrelated
transaction.
NOTE 17 COMMON STOCK TRANSACTIONS
Management has financed portions of operations, paid off
debt and other liabilities and acquired assets in exchange for
shares of the Company's common stock over the past several years.
Five primary factors were considered by the Board of Directors in
making a decision as to the price of shares of common stock to be
issued for any purpose. These factors are:
i. Current market price
ii. Current and past operating history
iii. Discount factors on the issuance of investment
shares which would have to be held until
registered or an exemption from registration was
applicable and for which a market may not exist in
the future
iv. What investors were willing to pay
v. Current book price<PAGE>
The general rule followed by the Company is to use a per
share price equivalent to one-half of the market price depending
upon the total number of shares to be issued. If the total number
of shares to be issued is considered substantial, an additional
discount factor may apply. All prices as quoted herein range from
the low bid to high bid per share as listed on the NASDAQ monthly
summary.
During the year ended June 30, 1993, the Company
completed the following stock transactions represented by
the issuance of previously unissued common shares:
(a) Issued 1,015,500 shares in exchange for cash in
the amount of $411,375. The transactions involved were
authorized by management on two separate occasions during
the year ended June 30, 1993 and once during the year ended
May 31, 1992.
(b) Issued 254,000 shares for services, valued at
$95,375. The transactions were recorded at an average value
of $0.38 per share. The low bid, at the time that these
shares were issued ranged from $0.63 to $0.94 per share.
(c) Issued 2,380,000 shares to acquire the minority
interest positions held in the mineral properties known as
the C.O.D. Mine Group and Mineral Mountain and the interests
held in the Tombstone Metallurgical Facility. The shares
involved in the transaction were valued at $0.63 per share
or $1,487,492. The low bid that month was $0.94 and the high
bid was $1.25 per share.
(d) Issued 340,000 shares to acquire the Limited
Partnership interests held in Asphalt Environmental Services
Limited Partnership. Authorized in June 1992, the
transaction was valued at $0.63 per share or $212,500. The
low bid that month was $0.94 and the high bid was $1.25 per
share.
(e) Issued 1,200,000 shares to River Capital
Corporation to convert its preferred stock position into
equity. The transaction occurred in July 1992 and was valued
at $750,000, $0.63 per share. The low bid that month was
$0.81 and the high bid was $0.97 per share (see Notes 3a and
14).
(f) Issued 2,799,534 shares in exchange for
satisfaction of debts in the amount of $1,468,702. The
transactions occurred on two separate occasions during the
year.
The first transaction occurred in August 1992. The
Company issued 1,550,646 shares in exchange for the
satisfaction of debt totaling $969,147, or $0.63 per share,
and included related parties. The related parties received a<PAGE>
total of 1,254,522 shares for debt aggregating a total of
$784,076. The low bid that month was $0.75 and the high bid
was $0.81 per share.
The second transaction occurred in March 1993. The
Company issued 1,248,888 shares in exchange for the
satisfaction of debt in the amount of $499,555, or $0.40 per
share, and included related parties. The related parties
received a total of 1,073,888 shares for debt aggregating a
total of $429,555. The low bid that month was $1.00 and the
high bid was $1.53 per share.
(g) Entered into a subscriptions receivable
transaction of $250,864 in exchange for 621,159 shares of
common stock. One transaction was for 24,000 shares at a
price of $0.50 per share. A second transaction was completed
at a negotiated price per share of $0.40. The low bid that
month was $1.00 and the high bid was $1.53 per share. At
year end June 30, 1993 the Company had received $72,000 of
the subscription receivable. Subsequent to year end, the
Company has received an additional $165,000 on the
subscription receivable.
(h) Issued 5,000 shares to an unrelated third party as
a 30 day option fee to review the acquisition of an
insurance company. Management decided, after evaluating the
assets of the insurance company, not to pursue its
acquisition and the value placed upon the shares was 50% of
the then current market price for the Company's common
stock.
(i) Issued 235,000 shares to acquire the Limited
Partnership interests held in West Tombstone Development
Limited Partnership. Authorized in August 1993, the
transaction was valued at $558,125, or $2.38 per share. The
value placed upon the transaction was 50% of the current
market price for the Company's common stock at the date of
the transaction.
During the year ended June 30, 1994, the Company
completed the following stock transactions represented by
the issuance of previously unissued common shares:
(j) Issued 2,000,000 shares to unrelated third parties
in Europe under Regulation "S" at a price of $2.00 per share
for a total of $4,000,000. At the time this transaction was
approved by the Board of Directors, the trading price of the
Company's Common Stock ranged from a low of 3.63 to a high
of 4.50.
Issued 2,188,189 shares to unrelated third parties in
Europe under Regulation "S" in exchange for $3,259,531. The
shares issued hereunder were issued at a time when the<PAGE>
Company's Common Stock ranged from a low of 1.75 to a high
of 4.00.
Issued 52,350 shares to unrelated third parties in
exchange for cash of $98,531. The transaction was approved
by the Board of Directors in March 1994 at a price
equivalent to 50% of the market price for the Company's
Common Stock. At the time this transaction occurred the
common stock ranged from a low 3.50 to a high of 4.00.
(k) Issued 165,000 shares to a related party, River
Capital Corporation in exchange for the satisfaction of debt
totaling $257,813. During the fiscal year 1994, River
Capital Corporation loaned the Company $210,000 which the
Company acknowledged by executing a promissory note in
River's favor. Later in the year, River elected to exchange
this note, plus interest and other obligations due River
from the Company into equity. At the time this transaction
occurred the common stock ranged from a low 2.63 to a high
of 3.50.
(l) Issued 1,200,000 shares, to an unrelated third
party in exchange for assets in the manufacturing industry
(See Note 7b). The shares issued hereunder represented
approximately 75% of the acquisition price paid. At the time
this transaction occurred the common stock ranged from a low
4.63 to a high of 5.63. The price paid under this
transaction was by mutual agreement of the parties involved.
(m) Issued 650,000 shares, to an unrelated third party
as partial payment for the acquisition of the building then
utilized by the Company as its Corporate Office. The shares
issued hereunder represented approximately 50% of the
acquisition price paid. At the time this transaction
occurred the common stock ranged from a low 1.75 to a high
of 2.38. The price paid under this transaction was by mutual
agreement of the parties involved.
(n) Issued 200,000 shares to an unrelated third party
as payment for services rendered in marketing the Company's
technology in Europe and for establishing, staffing and
maintaining an office for the Company. At the time this
transaction occurred, the common stock ranged from a low
1.75 to a high of 2.38. The price paid under this
transaction was by mutual agreement of the parties involved.
During the year ended June 30, 1995, the Company
completed the following stock transactions represented by
the issuance of previously unissued common shares:
(o) Issued 50,200 shares to unrelated third parties
for cash totaling $35,938. At the time this transaction
occurred the common stock ranged from a low 1.06 to a high<PAGE>
of 2.53. The price paid under this transaction was by mutual
agreement of the parties involved.
Issued 390,400 shares to River Capital Corporation, a
related party, in exchange for $244,000 in cash. This
transaction was an exercise of an warrant granted to River
in 1990. Subsequent to its issuance, the strike price of the
warrants exercise was amended to $0.625 per share taking
into account the 5 for 1 reverse split which occurred in
1992.
(p) Issued 79,100 shares for services provided by
unrelated third parties. These services were valued, by
mutual agreement, in the amount of $85,341 and, shares were
issued at no less than 50% of the current market price of
the shares on the date of the agreement.
Issued 316,500 shares to several individuals and
companies, all of whom are related parties, for services.
These services were valued at $273,250 and shares were
issued at no less than 50% of the current market price of
the shares on the date of the agreement.
(q) Issued 50,000 shares to an unrelated party to
obtain a judgment against a third party defendant who had
refused to return a certificate placed in escrow. The
Company valued the shares issued at a cost of $37,500. The
transaction under which the certificate had been placed in
escrow, for the benefit of the third party defendant, had
been canceled pursuant to mutually agreed upon terms and the
third party defendant failed to return the certificate in a
timely manner. The Company began legal proceedings against
the party and based upon multiple jurisdictional issues,
management believed the issuance of the shares under this
transaction would result in more expedient results. The
certificate which was placed in escrow has been returned as
a result of this transaction.
(r) Issued 1,750,370 shares, to an unrelated third
party in exchange for assets and a business opportunity in
the insurance adjusting industry. At the time this
transaction occurred the share bid price was $2.00 per
share. That portion of the purchase price paid was valued at
50% of the current market or $1,750,370. The majority of
the purchase price is recorded on the books of the Company
as Costs in Excess of Equity on Acquisition of a wholly-
owned Subsidiary (See Note 9). The price paid under this
transaction was by mutual agreement of the parties involved.
(s) Issued 4,600,000 shares, to an unrelated third
party in exchange for assets and a business opportunity in
the wholesale food equipment supply industry. At the time
this transaction occurred, the share bid price was $2.00 per
share. The purchase price paid was valued at 50% of the<PAGE>
current market or $4,600,000. The majority of the purchase
price is recorded on the books of the Company as Costs in
Excess of Equity on Acquisition of wholly-owned Subsidiary
(See Note 9). The price paid under this transaction was by
mutual agreement of the parties involved.
NOTE 18 INCOME TAXES
As of June 30, 1995 and 1994, no income taxes payable have
been recorded because of prior net operating loss carryforwards
in the amount of $12,855,319. Consolidated Federal and State
corporate income tax returns have been filed through May 31,
1994.
NOTE 19 SALES TO MAJOR CUSTOMERS AND MAJOR COMPONENTS OF
REVENUES
During the year ended June 30, 1995, manufacturing revenues
were $3,069,773. Sales in excess of 10% of gross revenue were
made to two companies. Boone Aeration and Environmental
Corporation accounted for $1,501,917 (49.4%) and Tarmac equipment
accounted for $355,498 (11.7%).
Consolidated revenues include $180,178 in insurance
adjusting revenue from May 1, 1995, the date of acquisition. If
this segment had been included for a 12 month period, the Company
would have received revenue in excess of 10% from two companies.
During the year ended June 30, 1994, the major portion of
revenue was received from the following sources:
$1,374,632 from manufacturing revenue. Two entities
accounted for an excess of 10% of the total revenue. Boone
Aeration and Environmental accounted for $228,719 (16.63%)
and Todd & Sargent accounted for $219,138 (15.94%).
$105,000 from Asphalt Paving & Supply Company, Inc. for
the purchase of an EDSS unit.
$1,000 from an unrelated third party for services
performed in the mining segment of business.
$33,270 in sub-lease income for office space.
$67,613 in miscellaneous corporate income.
During the year ended June 30, 1993, the major portion of
revenue was received from the following sources:
$3,000 on the lease of the Tombstone Mill and Refinery.
$5,411 on two separate sub-leases of office space.<PAGE>
NOTE 20 LEASES
The company relocated its corporate office to Scottsdale,
Arizona in April 1995 and currently leases 7,280 square feet of
office space. Additional office and warehouse space of 9,985
square feet is leased by subsidiaries in Scottsdale, Arizona and
Las Vegas, Nevada. The company is obligated under various office
equipment and furniture leases. All leases in this note are
considered operating leases.
Rental expense for the periods presented can be found in
Table 6 and sub-lease rentals received are set forth in Table 7:
Year ended June 30, 1995 $100,572
Year ended June 30, 1994 105,780
Year ended June 30, 1993 82,892
TABLE 6 - RENTAL EXPENSE
Year ended June 30, 1995 $29,695
Year ended June 30, 1994 33,270
Year ended June 30, 1993 7,987
TABLE 7 - SUBLEASE RENTS RECEIVED
Rental expense for 1995 decreased slightly due to relocating
corporate offices and the addition of new business segments in
Arizona and Nevada. Rents attributable to new operations were
consolidated from May 1, 1995, the date of acquisition.
The increase in rental expense for the year ended June 30,
1994 and 1993 was attributed to increased operating expenses of
the corporate offices.
During 1995, the company capitalized leases for the
acquisition of $540,000 of wholesale food equipment (See Note
7c).
Future minimum commitments under leasing arrangements are
set forth in Table 8:
CAPITAL LEASES OPERATING LEASES
Year ending June 30:
1996 $ 86,131 $353,599
1997 96,761 352,130
1998 11,938 200,832
1999 129,494 -
2000 92,245 -
TABLE 8 - FUTURE MINIMUM COMMITMENTS<PAGE>
NOTE 21 DESCRIPTION OF RECENTLY ACQUIRED SUBSIDIARIES
During the past fiscal year, the Company acquired three new
subsidiaries which represent two new market segments for the
Company (See notes 17(r) and 17(s)).
The first new segment is the marketing of restaurant
equipment, specifically the Perfect Fryer 686, a light weight,
easy to install and operate food deep frying machine.
The Company's analysis of the feasibility and potential
profitability to be generated by distributing the Perfect Fry 686
machine was enhanced by the unique features of the unit. This
counter top unit is totally portable, UL approved, operates on
110 volt power and requires no additional venting. In addition,
the cost of the closest competitive machine is significantly
higher. The Company expects to derive profits from the sale and
rental of machines and food commissions. See Note 25 -
Forecasted financial information.
The second segment acquired was in the insurance adjusting
industry and is doing business as National Affiliated Adjustment
Company (NAAC). The operational management of NAAC have been
engaged in the business of insurance claims adjusting for over
ten years and as a result, NAAC is one of the largest independent
claims adjustment firms in Arizona. NAAC operates as an
independent claims loss adjustment company which processes
property, casualty, health insurance and workmen's compensation
claims and automobile appraisal for various insurance companies.
Depending on the type of claim, processing of claims
generally involves verifying the loss and the existence of
coverage for the loss and then assessing the extent of the loss
and negotiating a settlement as appropriate.
NAAC presently operated from a corporate office located in
Scottsdale, Arizona, though the Company intends to open new
offices in key locations during the coming fiscal year. Through
the utilization of headquarters staff, significant savings in the
new locations can be achieved and the quality of work maintained
at a high level. The company has currently reported operating
losses, however cash flow is positive and will be used to finance
the planned expansion (See note 25).
NOTE 22 MANAGEMENT'S PLANS FOR FUTURE OPERATIONS
As shown in the accompanying financial statements, current
assets exceed current liabilities by $2,451,523 as compared to
last year's $3,431,124, a decrease of $979,601 (28.5%). This
decrease is attributed to cash utilized in operations. Even
though the current assets decreased, this is the second
consecutive year that current assets exceeded current liabilities
which indicates the Company has made significant progress in<PAGE>
strengthening its working capital position. However, the Company
has incurred significant losses from operations in the past three
periods reported of $4,753,379, $3,839,964, and $4,102,173. The
Company's future operations are dependent upon management's'
ability to increase revenues in its manufacturing and
environmental business segments, its ability to realize the
potential revenue streams anticipated from the two newly acquired
business segments, or its ability to realize the value of its
investment in its mineral properties. Since the Company's current
working capital condition has improved and there is considerable
interest by investors in the two newly acquired business
segments, as well as the pollution control technology, management
believes that it has adequate capital or the ability to acquire
adequate capital to sustain its current operations.
Recent tests were conducted on a hot-mix asphalt plant,
located at Prescott Valley, Arizona, utilizing the Company's
patented CDSI technology in conjunction with the Company's
patented Moving Media Bed Filtration System (MMBF). The system
failed to meet federal requirements for particulate removal, but
exceeded state requirements. The independent lab, utilized for
sampling and monitoring the testing on the CDSI technology,
indicated SO2 removal efficiencies exceeded regulatory
requirements. Testing is ongoing to prove the CDSI as a retro-fit
device to work in conjunction with other particle capture
technologies. Because of the information gained this year,
management is confident that before the end of the coming fiscal
year sales of the CDSI technology will occur and both revenue and
profits will be generated in this business segment.
Management has also made significant improvements in its
manufacturing subsidiary. During the year ended June 30, 1995,
operational costs have been reduced and management has
implemented a uniform pricing policy, a practice not previously
used. As a result of these efforts management anticipates that
this business will be profitable in the coming fiscal year. This
assumption is supported by unaudited results from the first two
months of operations in the fiscal year 1996 wherein net income
was $214,900 on $806,500 in total revenues.
In the recently acquired insurance adjusting segment,
management is moving forward on opening satellite offices. Prior
to acquisition of this business opportunity, management reviewed
the plans for expansion of the previous owner which included,
among other things, the establishment of a central processing
office at its corporate office in Scottsdale, Arizona. Since this
was already accomplished, management of the Company felt that the
opening of satellite offices would increase revenues
substantially without a commensurate rise in operating costs,
thus bringing a quicker return on the investment. In accordance
with this philosophy, the Company has established a satellite
office in Las Vegas, Nevada and is looking to opening two more
offices this year. With the opening of the Nevada office,<PAGE>
management believes overall operations will show a net profit by
the end of the second quarter of the fiscal year 1996.
In the recently acquired restaurant equipment and food
supply industry segment (See Notes 21 and 25), management has
been moving forward with the establishment of an Area
Distribution Center Program (ADC). The ADC program calls for the
sale of up to 221 geographical distribution centers, based upon
population. Each ADC is required to purchase inventory at
wholesale prices and utilize the inventory for fulfillment of
orders in their geographic boundary. This change, along with the
established relationship with Wal-Mart and Ore-Ida, leads
management to believe that net income will be realized this
coming fiscal year. Subsequent to year end, the Company has
contracted with one ADC prior to the ADC program being ready for
sale.
Management believes that, based upon the progress made in
the respective industry segments described herein, future
operations will soon be profitable and that sufficient working
capital will be available to the Company.
NOTE 23 SUBSEQUENT EVENTS
Subsequent to June 30, 1995, the Company sold 522,222 shares
of it's common stock to unrelated individuals for $705,000 cash.
The negotiated placement price was $1.35 per share. The average
low bid price for the quarter ended June 30, 1995, was $1.50.
In August 1995, the Company entered into a relationship with
Tyson Food Service, which added twelve different food items for
use in the Perfect Fryer 686 machine. A surcharge will be paid
to Fry Guy Inc. based upon the usage of these products. The
Company believes that these products will enhance the value of
the machines placed in the Wal-Mart snack bars.
Subsequent to June 30, 1995, the Company successfully tested
it's Charged Dry Sorbent Injection Systems (CDSI) for SO2
removal. The test was conducted in Prescott, Arizona and has
achieved the desired results of consistently removing 99.9% of
this sulphur-dioxide from the polluted gas stream. The Company
is also expecting favorable results from a similar test in China.
NOTE 24 SEGMENT INFORMATION
Corporate and other income or (loss) includes interest
income, interest expense, equity in loss of unconsolidated
subsidiary and partnerships, gain on exchange of stock, recovery
of bad debts and extraordinary items. Segment information for
revenue; income (loss) from operations; identifiable assets;
depreciation/amortization and valuation adjustments; and<PAGE>
property, plant and equipment additions can be found in Tables 9
through 13 respectively:
FOR THE PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
Corporate and other $ 45,195 $ 100,883 $ 7,987
Environmental 107,000 105,000 -
Control
Insurance 180,178 - -
Manufacturing 3,069,773 1,374,632 -
Mining and Mining
Services 10,000 1,000 3,000
Restaurant 26,037 - -
Total $3,438,183 $1,581,515 $10,987
TABLE 9 - REVENUE
FOR THE PERIOD ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
Corporate and $(2,267,426) $(1,473,739) $(1,305,394)
other
Environmental (261,316) (1,542,165) (237,778)
Control
Insurance (24,697) - -
Manufacturing (1,051,222) (344,414) -
Mining and Mining
Service (802,669) (479,646) (2,829,001)
Restaurant (141,546) - -
Total $(4,753,379) $(3,839,964) $(4,102,173)
TABLE 10 - INCOME(LOSS) FROM OPERATIONS
Corporate and $ 6,307,212 $ 4,817,509 $ 735,958
other
Environmental 216,677 122,875 74,653
Control
Insurance 1,959,616 - -
Manufacturing 4,072,456 4,905,816 -
Mining and Mining
Service 7,745,908 8,435,562 7,621,651
Restaurant 913,983 - -
Total $21,215,852 $18,281,763 $8,432,262
TABLE 11 - IDENTIFIABLE ASSETS
Corporate and $ 516,534 $ 44,511 $ 11,347
other
Environmental 23,404 - -
<PAGE>
Control
Insurance 22,337 - -
Manufacturing 938,121 114,447 -
Mining and Mining
Services 680,354 257,870 89,659
Restaurant 18,084 - -
Total $2,198,834 $416,828 $101,006
TABLE 12 - DEPRECIATION, AMORTIZATION, AND VALUATION ADJUSTMENTS
Corporate and $ 43,920 $1,366,251 $3,572
other
Environmental 19,224 - -
Control
Insurance 1,489 - -
Manufacturing 142,522 3,389,380 -
Mining and Mining
Services - - -
Restaurant 184,470 - -
Total $391,625 $4,755,631 $3,572
TABLE 13 - PROPERTY, PLANT AND EQUIPMENT ADDITIONS<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, County of
Maricopa, Arizona, on June 27, 1996, 1996.
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
By /s/Norman E. Meyer
------------------------------
Chairman of the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/Norman E. Meyer
- --------------------------------- Chairman of the Board 6/27/96
Norman E. Meyer and Director, Chief
Executive Officer and
President
/s/Dennis Schlegel
- --------------------------------- Director 6/27/96
Dennis Schlegel
/s/Harold S. Carpenter
- --------------------------------- Director 6/27/96
Harold S. Carpenter
/s/John E. Haggar
- --------------------------------- Chief Financial 6/27/96
John E. Haggar Officer and Treasurer<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF THE REGISTRANT
ARTICLES OF INCORPORATION
OF
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
ARTICLE I (6/10/69)
The names, residences and post office addresses of the incorporators are:
Kenneth R. Snapp
3144 West Marlette
Phoenix, Arizona
Richard C. Jones
3643 West Maryland
Phoenix, Arizona
Charles T. Henderson
3311 West Camelback
Phoenix, Arizona
Charles W. Freesh
2618 East Elm Street
Phoenix, Arizona
Ira B. Hall
5230 West Glendale Avenue
Glendale, Arizona
ARTICLE II (7/6/92)
The name of the Corporation shall be ALANCO ENVIRONMENTAL RESOURCES
CORPORATION.
ARTICLE III (6/10/69)
The Corporation's head office and principal place of business shall be in
Maricopa County, Arizona, but other offices and places for conducting business,
both within and without the State of Arizona may be established from time to
time by the Board of Directors, where all meetings of the stockholders and
directors may be held and all business of the Corporation may be transacted.
ARTICLE IV (6/10/69)
The general nature of the business proposed to be transacted by the
Corporation is as follows:
(a) To engage in and carry on the business of mining, locating,
processing, buying, selling, trade, lease, import, export,
distribute, option, license and deal in, whether, wholesale or
retail, products, articles, mines, mining claims, ore, of every
class, kind and description.
(b) To borrow money for its corporate purposes, and to issue to, the
company's note or notes therefor in series, or otherwise; to execute
and issue bonds, debentures, or other obligations in series or<PAGE>
otherwise; to issue or cause to be issued, certificates or other
negotiable or transferrable instruments; and to mortgage or pledge
any or all of the assets of the Corporation as security for the
performance of the covenants of any such notes, bonds, debentures,
certificates or other instruments.
c) To loan money, with or without security, and with or without
interest; to purchase, hold, acquire and dispose of bills, notes,
trade acceptances, conditional sale contracts and commercial papers
of every kind, and to endorse, sell, discount, rediscount and to
guarantee payment of the same, and, as surety, endorser, guarantor,
or otherwise, to undertake, assume and guarantee liabilities,
obligations, indebtedness and contracts with respect to which the
Corporation may have any interest, direct or indirect.
(d) To increase or decrease the amounts of its capital stock and to
acquire by purchase, redemption or otherwise, or dispose of by sale,
or otherwise, the capital stock, bonds, debentures or obligations of
this Corporation.
(e) To purchase or acquire from any of its directors or
stockholders, any properties, interest, shares of stock or other
assets which the Board of Directors may deem it desirable to acquire,
and to pay for the same in stock of the Corporation, or by notes,
debentures, bonds, or other obligations of the Corporation, or by
cash or transfer of property of the Corporation.
(f) To enter, make, and perform contracts of every kind for any
lawful purpose, without restrictions as to character or amount, with
any person, firm association, trust or corporation.
(g) To purchase, lease or otherwise acquire, in whole or in part,
the business, goodwill, rights, franchises and property of every kind
and to take over the whole or any part of the assets and liabilities
of any person, firm, association, trust or corporation, or other
entity, engaged in any business whatsoever.
(h) In general, to do all and everything either within or without
the State of Arizona; suitable or proper for the accomplishment of
any of the purposes or for the attainment of any of the objects
hereinbefore enumerated either alone or in association with other
corporations, firms and individuals as principals, agents, brokers,
contractors, trustees, or otherwise, as fully and to the same extent
as a natural person might or could do, so far as the same are not
contrary to any applicable laws of the United States or the State of
Arizona.
ARTICLE V (7/6/92)
The capital stock of the Corporation shall consist of the following:
1) One Hundred Million (100,000,000) shares of no par value Common
Stock;
2) Five Million (5,000,000) shares of Class A Cumulative Convertible
Preferred Shares;
3) Twenty Million (20,000,000) shares of Class B Cumulative Preferred
shares.
All such stock shall be paid in from time to time upon such conditions as<PAGE>
may be determined by the Board of Directors. The stock may be issued in
payment for real or personal property, services, or any other right or things
of value for the use and purpose of the Corporation, and all such stock, when
so issued, shall become and be fully paid as though paid for in cash, the Board
of Directors to be the sole judges, in the absence of fraud, of the value of
any property or rights acquired in exchange for capital stock, and all such
stock when issued shall be deemed fully paid and non-assessable.
All of the above stock shall be entitled to one vote per share, provided,
however, that in the case of the election of directors of the Corporation,
every shareholder shall be entitled to cumulate their votes and give one (1)
candidate for election as a director a number of votes equal to the number of
directors to be elected, multiplied by the number of votes to which their
shares are entitled, or distribute their votes on the same principle among as
many candidates as said shareholder deems fit.
Subject to the terms and provisions of this Article, the Board of
Directors is authorized to provide from time to time for the issuance of shares
of any class of Preferred Stock in series and to fix from time to time before
issuance, or if after issuance upon the mutual written consent of all the
designated series shareholders of the series for which said amended
designation, preferences and/or privileges is sought, the designation,
preferences and privileges of the shares of each series of Preferred Stock and
the restrictions or qualifications thereof, including, without limiting the
generality of the foregoing, the following:
(a) The series designation and authorized number of shares;
(b) The dividend rate, the date or dates on which such dividends
will be payable, and the extent to which such dividends may be
cumulative;
(c) The amount or amounts to be received by the holders in the event
of voluntary or involuntary dissolution or liquidation of the
Corporation;
(d) The price or prices at which shares may be redeemed and any
terms, conditions and limitations upon such redemption;
(e) Any sinking fund provisions for redemption or purchase of shares
of each series; and
(f) The terms and conditions, if any, on which shares may be
converted at the election of the holders thereof into shares of other
capital stock, or of other series of Preferred Stock, or other debt
securities of the Corporation.
Each series of Preferred Stock, in preference to the Common Stock, will be
entitled to dividends, from funds or other assets legally available therefor,
at such rates, payable at such time and cumulative to such extent as may be
fixed by the Board of Directors pursuant to the authority herein conferred upon
it. In the event of dissolution or liquidation of the Corporation, voluntary
or involuntary, the holders of the Preferred Stock, in preference to the Common
Stock, will be entitled to receive such amount or amounts as may be fixed by
the Board of Directors pursuant to the authority herein conferred upon it.
Each series of Preferred Stock may be subject to redemption in whole or in
part at such price or prices and on such terms, conditions and limitations, as
may be fixed by the Board of Directors pursuant to the authority herein
conferred upon it, of such series. If less than all of the shares of any
series of the Preferred Stock are to be redeemed, they will be selected in such<PAGE>
manner as the Board of Directors shall then determine. Nothing herein
contained is to limit any right of the Corporation to purchase or otherwise
acquire any shares of any series of the Preferred Stock. Any shares of the
Preferred Stock redeemed or otherwise acquired by the Corporation and which
revert to the status of authorized and unissued shares shall be undesignated as
to series, and may thereafter, in the discretion of the Board of Directors and
to the extent permitted by law, be sold or reissued from time to time as part
of another series or (unless prohibited by the terms of such series as fixed by
the Board of Directors) of the same series, subject to the terms and conditions
therein set forth.
Notice of the intention of the Corporation to redeem shares of any series
of the Preferred Stock shall be mailed at least thirty (30) days before the
date of redemption to each holder of record of shares to be redeemed at his or
her last known post office address as shown by the records of the Corporation.
At any time after such notice has been mailed as aforesaid, the Corporation may
deposit (separately as to the series) the aggregate redemption price payable
with respect to the shares to be redeemed (or the portion thereof not already
paid in the redemption of such shares) with any bank or trust company in the
United States named in the notice of redemption. Such deposits are to be
payable in amounts as aforesaid to the respective orders of the holders of
record of the shares to be redeemed on endorsement (if required) and surrender
of their certificates, thereupon such holders will cease to be shareholders
with respect to said shares and, from and after the making of such deposit,
such holders will have no interest or claim against the Corporation with
respect to said shares, but will be entitled only to receive from such bank or
trust company, without interest, the moneys so deposited with it.
Dividends may be paid upon the Common Stock only when dividends have been
paid, or funds have been set apart for the payment of dividends, on the
Preferred Stock from the date after which dividends on the Preferred Stock
became cumulative to the beginning of the then current dividend period, but
whenever there shall have been paid, or funds shall have been set apart for the
payment of, all such dividends upon the Preferred Stock, then dividends upon
the Common Stock may be declared for payment then or thereafter out of
remaining funds or other assets legally available for such payments. After the
payment of the designated dividends, and amounts payable upon dissolution or
liquidation, if any, to which the shares of the Preferred Stock are expressly
entitled in preference to the Common Stock in accordance with the provisions
herein set forth, the Common Stock is to receive all further such dividends and
amounts.
Neither a consolidation, merger or amalgamation of this Corporation with
or into any other corporation or corporations, nor the sale, lease or
conveyance of all or part of its assets shall be deemed a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of any provision herein.
ARTICLE VI (1/18/88)
The time of commencement of this Corporation shall be the date of the
issuance to it of a certificate of incorporation by the Arizona Corporation
Commission, and the Corporation shall have a perpetual life.
ARTICLE VII (3/12/82)
The business and affairs of this Corporation shall be conducted by a Board
of Directors of not less than five (5) and no more than (9) members. The
directors need not be shareholders. The Board of Directors shall have the
power to increase or decrease the Board within the limits above provided. The
Board of Directors may also fill any vacancies which may occur in the Board of<PAGE>
Directors resulting from an increase in the Board of Directors or otherwise,
pending the next annual meeting of the stockholders.
The Board of Directors shall be elected at the regular annual meetings of
the stockholders at Phoenix, Arizona, on the second Monday of January of each
year.
The Board of Directors shall each year upon their election organize into a
Board of Directors and elect a President and/or Chief Executive Officer, one or
more Vice Presidents, a Secretary and a Treasurer, any two (2) or which
offices, except the offices of the President and/or Chief Executive Officer and
Vice President, or President and/or Chief Executive Officer and Secretary, may
be held by the same persons. All officers shall serve for one (1) year or
until their successors are elected and qualified.
The Board of Directors of this Corporation shall have power without any
action on the part of the stockholders to make, alter, amend or repeal By-Laws
of the Corporation.
ARTICLE VIII (6/10/69)
The highest amount of indebtedness which the Corporation shall subject
itself to at any time, will be subject to the Arizona Revised Statutes 10-173.
ARTICLE IX (6/10/69)
With the consent or ratification in writing, or pursuant to the vote of
the holders of a majority in interest of the capital stock issued and
outstanding, the Board of Directors shall have the power and authority to
lease, sell, assign, transfer, convey or otherwise dispose of the entire
property of the Corporation, irrespective of the effect thereof upon the
continuance of the business of the Corporation and the exercise of its
franchise; but the Corporation shall not be dissolved, except as provided by
the laws of the State of Arizona.
ARTICLE X (6/10/69)
The Corporation may indemnify any and all of its directors and officers or
former directors and officers, against expenses incurred by them, including
legal fees, judgments or penalties rendered or levied against any such person
in a legal action brought against any such person for acts or omissions alleged
to have been committed by such person while acting in the scope of his
employment or agency as a director or officer of the Corporation as provided in
the Arizona Revises Statutes 10-198.
ARTICLE XI (6/10/69)
No contract or other transaction between the Corporation or other
corporation, whether or not a majority of the shares of capital stock of such
other corporation is owned by the Corporation, and no act of the Corporation
shall, in any way, be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested in, or are
directors or officers of such other corporation; any director individually or
any firm of which such director may be a member, may be appointed to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
Corporation, provided that the fact that he or such firm is so interested shall
be disclosed or shall have been known to the Board of Directors, or a majority
thereof; and any director of the Corporation, who is also a director or officer
of such other corporation, or who is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
of the Corporation which shall authorize such contract or transaction, with<PAGE>
like force and effect as if he were not such director or officer of such other
corporation or not so interested.
ARTICLE XII (6/10/69)
The private property of the officers, directors and stockholders of the
Corporation shall be exempt from all corporate debts of any kind whatsoever.
ARTICLE XIII (6/10/69)
This Corporation does hereby appoint James P. Cunningham whose address as
17 Luhrs Arcade, Phoenix, Arizona 85003, who has been a bona fide resident of
Arizona for at least three years, its lawful agent in and for the State of
Arizona, for an on behalf of said Corporation, to accept and acknowledge
service of, and upon whom may be served, all necessary process or processes in
any action, suit or proceeding that may be had or brought against said
Corporation in any of the courts of the said State of Arizona, such service of
process or notice, or the acceptance thereof by said agent endorsed thereon to
have the same force and effect as if served upon the President and Secretary of
the Corporation. The foregoing appointment may be revoked at any time by the
filing of an appointment of a successor agent.
ARTICLE XIV (1/18/88)
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; Provided, however, that this article shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty or
loyalty to the Corporation or its shareholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for authorizing the unlawful payment of a dividend or
other distribution on the Corporation's capital stock or the unlawful purchase
of its capital stock; (iv) a violation of Arizona Revised Statutes ss10-41
(conflict of interest); or (v) for any transaction from which the director
derived an improper personal benefit. This article shall not eliminate or
limit the liability of a director for any act or omission occurring prior to
the date on which this article becomes effective.<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.<PAGE>
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.
2.05 - 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<PAGE>
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.<PAGE>
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.
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<PAGE>
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.
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, 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.
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<PAGE>
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 <PAGE>
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,
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.<PAGE>
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
deciding vote.<PAGE>
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.<PAGE>
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.
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.<PAGE>
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
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.<PAGE>
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.
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.<PAGE>
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.<PAGE>
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
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<PAGE>
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.
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<PAGE>
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:
/s/Norman E. Meyer
- -----------------------
Chairman of the Board
Amended 8/15/95
Amended 9/27/95
Amended 2/17/96
Amended 3/13/96<PAGE>
EXHIBIT 5.1
OPINION OF DENNIS BROVARONE, ESQ.
DENNIS BROVARONE
2530 South Linley Court
Denver, Colorado 80219
ph: 303 742 0966 / fx-mdm: 303 742 0117
July 2, 1996
Board of Directors
Alanco Environmental Resources Corporation
4110 N. Scottsdale, Road, Suite 200
Scottsdale, AZ 85251
Re: Registration Statement on Form S-1
Gentlemen:
As counsel for Alanco Environmental Resources Corporation, an Arizona
corporation (the "Company") you have requested my opinion as to the legality of
the securities covered by the proposed Registration Statement of the Company
filed with the U.S. Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Commission" and the "Act"). The
proposed offering is for up to 861,625 Shares of the Company's common stock
offered by the Selling Shareholders identified therein. This opinion is to be
filed as an Exhibit to the Form S-1 Registration Statement filed with the
Commission.
In connection with rendering my opinion as set forth below, I have
reviewed and examined originals or copies identified to my satisfaction of the
following:
(1) Articles of Incorporation of the Company as amended and as filed with
the Secretary of State of the State of Arizona.
(2) Minute book containing the written deliberations and resolutions of
the Board of Directors and Shareholders of the Company.
(3) Stock book of the Company evidencing issuances of Shares of the
common stock of the Company prior to the date hereof.
(4) The Registration Statement and the Prospectus contained within the
Registration Statement.<PAGE>
Board of Directors
Alanco Environmental Resources Corporation
July 2, 1996
Page 2
(5) The other exhibits to the Registration Statement as filed with the
Commission.
I have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as I have deemed necessary or
appropriate under the circumstances.
Based upon the foregoing and in reliance thereon, it is my opinion that
the securities proposed to be sold by the Selling Shareholders pursuant to the
public offering, are and will, upon the purchase, receipt of full payment, and
delivery in accordance with the terms of the offering described in such
Registration Statement and Prospectus, be duly and validly authorized, legally
issued, fully paid and non-assessable.
Furthermore, please be advised that I hereby consent to being named in the
Registration Statement as having advised Alanco Environmental Resources, as to
the legality of its securities proposed to be sold.
Very truly yours,
/s/Dennis Brovarone
-------------------------------
Dennis Brovarone<PAGE>
EXHIBIT 10.1
LIST OF MATERIAL CONTRACTS
1. The Fry Guy/Wal-Mart Contract
2. The China National Environmental Protection Company Contract with Alanco
China
3. The Installment Sale Contract between Excellon and Alanco, subsequently
assumed by Kennecott for the purchase of a portion of the Company's mining
claim holdings in Tombstone, Arizona.<PAGE>
EXHIBIT 16.1
LETTER OF BILLIE J. ALLRED, CPA re: CHANGE OF CERTIFYING ACCOUNTANT
BILLIE J. ALLRED
CERTIFIED PUBLIC ACCOUNTANT
4625 South Ash Avenue, Suite J-1
Tempe, Arizona 85282
Tel. (602) 820-2092/ Fax (602) 820-4584
July 1, 1996
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
RE: Alanco Environmental Resources Corporation/(Commission File Number 0-9347)
I agree with the statements made in paragraph 1 through 3 under item 4 in the
Form 8-K report of Alanco Environmental Resources Corporation dated April
16,1996 and as amended on June 26, 1996.
My report on the financial statements for the fiscal years ended June 30, 1995
and 1994 contained a qualification based upon the Registrant's ability to
continue as a going concern. Except for this qualification, the 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. There
has been nodisagreement with the Registrant on any matter of principles or
practices, financial statement disclosure or auditing scope or procedure. I
have not advised the registrant that the internal controls necessary for the
registrant to develop reliable financial statements do not exist. Nor have I
advised the Registrant that information has come to my attention that has led
me to no longer be able to rely on management's representations, or that has
made me unwilling to be associated with the financial statements prepared by
management. I have not advised the registrant of the need to expand
significantly the scope of my audit, or that information has come to my
attention that if further investigated may materially impact the fairness or
reliability of either: a previously issued audit report or the underlying
financial statements; or the financial statements issued or to be issued
covering the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including information that may
prevent me from rendering an unqualified audit report on those financial
statements), or cause me to be unwilling to rely on management's
representations or be associated with the registrant's financial statements.
Nor have I advised the registrant that information has come to my attention
that I have concluded materially impacts the fairness or reliability of either
(i) a previously issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering the fiscal
period(s) subsequent to the date of the most recent financial statements
covered by an audit report (including information that, unless resolved to my
satisfaction, would prevent it from rendering an unqualified audit report on
those financial statements). Nor have I advised the registrant of any other
reportable event.
/s/ Billie J. Allred
- ----------------------------------------
Billie J. Allred CPA
cc: John Haggar<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Alanco Environmental Services, Inc.
4110 N. Scottsdale Road
Scottsdale, AZ
Alanco Environmental Manufacturing, Inc.
Hwy 73 South
Falls City, NE
Fry Guy, Inc.
6275 Harrison Drive
Las Vegas, NV
Alanco Financial Services Corporation
4110 N. Scottsdale Road
Scottsdale, AZ
Unique Systems, Inc.
d.b.a. National Affiliated Adjustment Company
5333 Arville
Las Vegas, NV
Alanco Environmental Technology Corporation (Beijing)
No. 14 Zhan Lan Guan Rd.
Beijing, P.R. China<PAGE>
EXHIBIT 23.1
CONSENT OF DENNIS BROVARONE, ESQ.
Included in Exhibit 5.1<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDANT PUBLIC ACCOUNTANT
BILLIE J. ALLRED, CPA
The undersigned hereby consents to the use of his reports (and to all
reference to his firm) included in or made part of this registration statement
on Form S-1.
/s/Billie J. Allred
-------------------------------
Billie J. Allred, CPA
Phoenix, Arizona
June 27, 1996<PAGE>
