-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IHS0RbQaVcZsaZxkt/HSHwNWoDL/tyLtF6sI+VpDEWOjzPT4vZlPD4T0rpiNm19b qlaoWPfCOxVl+647XLzf4A== 0000098618-96-000020.txt : 19960930 0000098618-96-000020.hdr.sgml : 19960930 ACCESSION NUMBER: 0000098618-96-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALANCO ENVIRONMENTAL RESOURCES CORP CENTRAL INDEX KEY: 0000098618 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 860220694 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09347 FILM NUMBER: 96635332 BUSINESS ADDRESS: STREET 1: 151 SOUTH MAIN STREET STREET 2: STE 200 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 8015327776 MAIL ADDRESS: STREET 1: 4110 N SCOTTSDALE ROAD STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85251 FORMER COMPANY: FORMER CONFORMED NAME: ALANCO RESOURCES CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ALANCO LTD DATE OF NAME CHANGE: 19901004 FORMER COMPANY: FORMER CONFORMED NAME: TOMBSTONE MINERAL RESERVES INC DATE OF NAME CHANGE: 19801106 10-K 1 Form 10-K Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1996 Commission file number 0-9347 ALANCO ENVIRONMENTAL RESOURCES CORPORATION (Exact name of registrant as specified in its charter) Arizona 86-0220694 ------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4110 N. Scottsdale Road, Suite 200, Scottsdale, AZ 85251 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's Telephone Number: (602) 874 0448 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE ------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ X ] State the aggregate market value of the voting stock held by non- affiliates of the registrant: $48,757,767 as of September 20, 1996 Indicate the number of shares outstanding of each of the issuer's classes of common stock: 33,566,759 as of September 20, 1996. Documents incorporated by reference: Form S-1 Registration Statement File #333-07739 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Alanco Environmental Resources Corporation is an Arizona corporation which was organized in 1969. Unless otherwise noted, "Company" refers to Alanco Environmental Resources Corporation and its wholly-owned subsidiaries. The Company's operations, primarily through subsidiaries, are diversified and include: (i) air pollution control product manufacturing, industrial agricultural equipment manufacturing, technology design and marketing; (ii) restaurant equipment/food marketing and distribution; (iii) insurance claims adjusting; and (iv) mineral property ownership. RECENT BUSINESS DEVELOPMENTS The Company has had several recent developments in its Fry Guy subsidiary. The national roll-out of its Fry Guy Integrated Finger Food Marketing Program, which was announced in June, 1996, is in full swing. The program is currently operating in 503 Wal-Mart stores across the country. The Company has signed an agreement to deploy its Fry Guy Integrated Finger Food Marketing Program in 60 American Diners March 31, 1997. American Diners, Inc. operates 24-hour diners in 15 states. The Company also reports recent developments in its environmental business. The installation of its proprietary Charged Dry Sorbent Injection ("CDSI") clean air technology at Hangzhou Iron and Steel Company ("Hangzhou"), the largest steel production factory in China's Zheijiang Province, is underway. The contract calls for five CDSI systems at the plant. Installation of the first system is scheduled for completion by October 30, 1996. The Company has received its second installment payment for the system. The contract with Hangzhou was signed following successful installation and environmental compliance testing of the CDSI system at Dezhou Heat and Power Plant in China's Shandong Province. The Company also has a letter of intent and is negotiating contracts with Benxi Boiler Works ("Benxi") and the City of Benxi, China. A senior official of the China Council for the Promotion of International Trade said recently that China plans to spend up to $38.6 billion over the next five years to stem the country's pollution problems. The official targeted several polluting industries in China that have already expressed an interest in the Company's CDSI technology. Senior officials from the Company have been invited for a return visit to China in October, 1996, to meet with senior Chinese government officials and to advance negotiations with potential purchasers of the CDSI technology. Compliance testing for a CDSI installation in the United States is expected to take place before the end of October, 1996. While the CDSI technology has passed rigorous compliance testing in China, the upcoming environmental compliance tests in Arizona represent the first opportunity for the CDSI technology to undergo compliance testing under the United States Environmental Protection Agency standards. DESCRIPTION OF BUSINESS Air Pollution Control Segment The Company's principal air pollution control technology is the CDSI system. The Company acquired the rights to this technology and others in 1989 and has spent the past several years in engineering and testing. A production model of the CDSI is now being marketed. The CDSI system is a patented process that utilizes an electrostatically charged sorbent to remove noxious gases, such as sulfur dioxide, from a hot exhaust gas stream from a stationary air pollution source, such as a factory. The electrostatic charge causes the sorbent particles to be more dispersed and to more readily react with a pollutant molecule in the gas stream. The solid product of this reaction is then later removed from the gas stream. The CDSI system has a significantly lower cost relative to competing technologies with similar levels of efficiency. The CDSI system injects a chemical agent called sorbent, such as lime, sodium carbonate, or ammonia, into the polluted gas stream generated by industrial activity. Sorbents are selected based on the chemical nature of the gas stream and the pollutant to be removed. As the sorbent is injected, it is passed through a corona discharge which imparts an electrostatic charge to the sorbent particles. As a result of this charge, the sorbent particles repel one another, thus providing rapid dispersal of the sorbent into the polluted gas stream. This greater dispersion results in a higher sorbent surface area being exposed to the pollutants in the gas stream for reaction. Once the sorbent has reacted with the pollutant, the resulting larger particles are filtered or otherwise removed from the gas stream. The CDSI system has significant advantages over competing technologies for remediating polluted gas streams. The most common of these competing technologies are wet scrubbers. Wet scrubbers spray a mixture of water and limestone into the polluted gas stream which reacts primarily with sulfur dioxide to produce a sludge composed of gypsum, limestone, and polluted water. This sludge must be disposed of and the water treated before reuse or release. Wet scrubbers are very expensive to build and have very high operating costs. They are subject to corrosion and frequent breakdown. The CDSI system is a dry process making collection and disposal of reaction products a much less costly and simpler procedure. Another significant advantage of the CDSI system is its ability to operate at temperatures above 2000 degrees Fahrenheit. Because many chemical reactions with sorbents occur more rapidly at these high temperatures, CDSI equipment can be used effectively where wet scrubbers cannot. The CDSI system is easily adapted to a wide variety of industrial applications and requires little maintenance. The Company believes the system is particularly well suited to use in power plants, mining and smelting facilities, incinerators, steel mills, and roaster/dryer facilities, such as hot mix asphalt plants. The Company is specifically targeting the roaster/dryer market and the power plant market. There are thousands of these facilities in North America alone, including over 10,000 roaster/dryer facilities. Many of these plants are experiencing problems complying with U.S. Environmental Protection Agency standards, and the CDSI presents a cost effective means of achieving compliance. In tests conducted at a hot mix asphalt plant in Arizona in 1995, the CDSI system achieved 99.9% sulfur dioxide removal. These tests were conducted by an independent testing laboratory. The Company believes that the CDSI system has substantial market potential in this application. The proprietary portions of the CDSI system are fabricated and assembled by the Company's wholly-owned subsidiary, Alanco Environmental Manufacturing Inc. This same facility is capable of producing all the necessary ancillary equipment for a CDSI installation within the United States. Non-proprietary, ancillary equipment required for an installation outside the United States will be contracted to local fabricators. Marketing. The Company markets its air pollution control technology through two separate approaches: (i) to larger scale projects (which incorporate site-specific engineering and some on-site construction); and (ii) to small and medium-sized projects which may require engineering or construction. The Company has identified three potential sources for sales and distribution of its systems: (i) through original equipment manufacturers; (ii) through contract marketing agreements; and (iii) through direct sales force. The Company believes that China and eastern Europe represent the largest potential markets for CDSI technology. There are currently more than 450,000 industrial coal-fired boilers in China, a country which consumes more coal than any other country in the world. Chinese central authorities are expected to release new regulations by year end regarding sulfur dioxide emission rates by industrial concerns. Officials of the Chinese environmental regulations authority have stated they believe the Company's CDSI technology is the best sulfur removing technology for the small to medium size boilers in China, estimated to number in excess of 300,000. In October, 1995, test results from the Dezhou Heat & Power Plant exceeded Chinese compliance standards for sulfur dioxide removal with a removal efficiency for sulfur dioxide of 69.5%. These results were also achieved using a much lower ratio of sorbent to sulfur than employed by traditional dry sorbent injection methods which results in a significant cost savings. This facility is now certified as operating in compliance with Chinese standards. The Company's interests in China are managed by its subsidiary, Alanco Environmental Technology (Beijing) Co., Ltd., a Chinese company ("Alanco Beijing"). The Company also has a marketing agreement with the China National Environment Protection Company, one of the largest environmental companies in China. Alanco Beijing currently has engineering and marketing staff in place, as well as people trained to represent its technology in China. After completion of a one year testing period, Alanco Beijing permanently installed one CDSI unit at the Dezhou Heat & Power Plant. Dezhou Heat and Power is expected to purchase more units in 1996. The Company's CDSI system was one of five environmental technologies listed in Premier Li's "Agenda 21" plan for cleaning up China's environment. The Agenda 21 listing is expected to result in additional sales of CDSI systems such as at Hangzhou and with Benxi. Hangzhou purchased one CDSI unit with ancillary equipment for installation in October, 1996. The total price for this installation is $157,000, and the Company has received 40% of the purchase price of the contract to date. After testing and acceptance of the initial installation, Hangzhou has indicated that it will purchase four additional systems, two of which will be designed for new boilers. The additional systems are expected to be completed early in 1997 at a total price of approximately $600,000. A second letter of intent was signed by the Deputy Mayor of Benxi City on behalf of Benxi. Benxi recently acquired funding in the amount of $100,000,000 for installation of pollution control equipment. Alanco Beijing is currently involved in other negotiations with several companies in the steel, paper, and power production industries. In 1995 the Company signed a letter of intent to form a joint venture to market the CDSI technology in Europe. To date, this joint venture has not been formed. The Company's preferred method of marketing its products overseas is through foreign distributors. The Company is currently negotiating several of these distributorships on a country by country basis. In the United States, the Company sees the highest demand for its CDSI products in the roaster/dryer, power generating, steam boiler, and the metals refining and production industries. The Company has an agreement with Intrade Ltd. to market the Company's technology in the United States in the power generation, steam boiler, and metals refining and production industries. Raw Materials. The Company has numerous sources for materials and parts used to manufacture the CDSI equipment. It does not foresee any difficulty in the availability of needed materials nor any substantial increase in the price of materials. Patents. The Company owns United States Patent No. 4,220,478 titled "Method For Removing Particulate Matter From A Gas Stream And A Method for Producing A Product Using The Removed Particulate Matter" and United States Patent No. 4,290,786 titled "Apparatus For Removing Particulate Matter From A Gas Stream". These are old patents which expire beginning in 1997 and deal primarily with the Environetics Dry Scrubber System ("EDSS") or media bed filter system for the capture of particulate matter. In addition to the aforementioned patents, three new patents were applied for during the year ended June 30, 1994. These patents are as follows: U.S. Patent Application entitled "Apparatus For Removing Particulate Matter And Gases From A Polluted Gas Stream" issued as U.S. Patent No. 5,308,590 on May 3, 1994. U.S. Patent Application entitled "Method For Removing Particulate Matter And Gases From A Polluted Gas Stream" issued as U.S. Patent No. 5,332,562 on July 26, 1994, subsequent to year end. U.S. Patent Application entitled "Hopper System And Electrostatic Gun For Injection Of An Electrostatically Charged Sorbent Into A Polluted Gas Stream" issued as U.S. Patent No. 5,312,598 on May 17, 1994. In addition, management decided to have this patent application filed in several other countries. The Company believes that the rights to and/or ownership of these patents, patents pending, and patent applications are crucial to its future success. The Company has filed for additional patents and will continue to do so as developments warrant. The Company believes no other system offered in this industry segment has such significant operating potential. However, there are many other pollution control devices and systems. Competitive Conditions. In the area of air pollution technology, the Company's competitors include: Wheelabrator; Pure Air; General Electric; Westinghouse; and Mitsubishi Corporation. The Company believes its proprietary technology to be superior to that of its competitors, because of the small space requirements and low maintenance, capital and operating costs associated with the CDSI unit. Two government-funded entities have been working in concert for nearly ten years to reduce sulfur dioxide from coal-fire plants. The technology which is currently being developed by Air and Energy Engineering Laboratory ("AEEL") and Energy and Environmental Research Corporation ("EERC") has been funded by the Department of Energy and may pose a competitive threat to the Company's CDSI system. EERC has developed a "gas re-burning sorbent injection" process for remediation of nitrogen oxide and sulfur dioxides, which can be retrofitted to existing coal-fire combustion equipment at low cost. However, its sulfur dioxide removal rate is only 50% to 60%. AEEL's sulfur dioxide removal technology is called ADVACATE. Reportedly, the process developed by AEEL is able to remove 90% of the sulfur dioxide produced during coal combustion. Its process involves injection of calcium silicant sorbent into the exhaust duct downstream of a boiler, which removes sulfur dioxide without any need for a scrubbing vessel. The technique was successfully tested as early as 1991, and AEEL claims that its technology will cost only half that of conventional wet scrubbers, measured both in terms of capital outlay and operating costs. The above process does not preclude the use of CDSI equipment to inject the advacate sorbent. Research and Development Activities. The Company continues to take every opportunity to enhance the performance capability of its systems through innovative configurations and special chemical sorbents. The Company has expended a total of $132,500 in research and development during the fiscal year ended June 30, 1996. Employees. As of September 1, 1996, the Company had eight individuals whose principal responsibilities were in this business segment. Air Pollution Control and Agricultural Aeration Equipment Manufacturing Segment Alanco Environmental Manufacturing, Inc., ("AEMI") is the Company's wholly-owned subsidiary which operates from its facility in Falls City, Nebraska. AEMI manufactures aeration equipment for the agricultural industry, as well as baghouses and cyclones for that industry and other industrial applications. The product lines are: Reverse Air Filters, Pulse Jet Filters, Cyclonic Collectors, Centrifugal Fans, Pneumatic Conveyors and Ducting. The manufacturing facility can also perform job shop and original equipment manufacturing for other entities. AEMI, as indicated above, also manufactures the CDSI system equipment. AEMI accounted for 67% of consolidated revenues for the year ended June 30, 1996. Marketing. AEMI uses a network of commissioned sales representatives located across the country as its primary marketing and sales force. Personnel at Falls City conduct direct marketing and sales activities, including telephone sales. AEMI also maintains a small office for marketing and sales of its products in Kansas City, MO. Raw Materials. The principal raw materials used in manufacturing are sheet metal and plate steel, welding supplies, and various kinds of electrical components, none of which are uncommon to this industry. The Company currently uses several suppliers. Most of the suppliers are located in the Midwest, and none are relied upon as the sole source. In this regard, the Company believes that it has and should maintain an adequate supply of raw materials for the future. Seasonality of Business. The Company's manufactured products are marketed to two separate industries. The agricultural segment, including farms and grain and produce storage, is highly seasonal. The demand for product, such as fans, ducting and fan/heater assemblies, begins to heighten around April and May and normally tapers off around October and November. Working Capital Practices. At June 30, 1996, AEMI's assets were used as security for a note payable to a bank. Subsequently, this note was paid in full. There are no other liens or encumbrances. At year end, the manufacturing segment had a strong quick ratio (cash and accounts receivable divided by current liabilities) of approximately three to one. A strong current position is required to offset the seasonality of the business. In the past this segment was financed through the parent company. However, during the past year, outside financing was not required. Based upon past performance, AEMI should generate needed capital internally. Dependence Upon Key Customers. The Company has recorded sales to over 250 different customers during the year ended June 30, 1996. Of these, one customer, Boone Aeration and Environmental Company, Inc. ("BAEC"), accounted for 24.5% of consolidated revenues generated during the period. Loss of sales to this customer would have a short term effect on the profitability of the operation. However, the Company has assurances from BAEC that it will continue to purchase these products for distribution. This assurance depends upon pricing, quality and availability. Backlog Orders. The Company had orders for approximately $250,000 as of September 13, 1996. The Company believes that all of this will be fulfilled in the coming fiscal year and that no material change should occur. The Company had a backlog of $700,000 for the comparable period last year. Competitive Conditions. AEMI breaks its competition into two separate categories: (i) companies that engineer, market and manufacture aeration equipment in-house; and (ii) companies that specialize in engineering and marketing of aeration equipment only (such as BAEC). AEMI views the competitive threat posed by the former group as more substantial. Only a limited number of agricultural products and dust control equipment manufacturers exist in the United States. However, those competitors currently in existence generate an average sales volume in excess of that of AEMI, and often have substantially more resources. The latter group often enhances, rather than competes with, AEMI because they may submit engineered drawings to AEMI for bids on components. Employees. As of September 1, 1996, the manufacturing segment employed a total of 44 people. Restaurant Equipment/Food Marketing and Distribution Segment Fry Guy Inc. ("Fry Guy") has developed an Integrated Finger Food Marketing ("IFFM") program whereby it supplies a deep fry machine to customers who are required to utilize foods of an affiliated distributor. The Company receives income for all foods sold to the customer utilizing the Company's deep fryer. In general, the Company has targeted organizations with more than 100 retail outlets offering or desiring to offer hot foods. Fry Guy created the IFFM program in conjunction with prominent food suppliers as strategic partners with whom it has agreements. These suppliers include Tyson Foods, the Moore's Division of H.J. Heinz, Cargill, and the Lamb- Weston division of Beatrice Foods. Each strategic partner provides an essential ingredient for the IFFM program. Lamb-Weston, the world's largest supplier of food service french fries, provides the potato products, mainly french fries. Tyson Foods provides the meat products including chicken nuggets and strips. Moore's provides onion rings, french toast, cheese sticks and cheese stuffed jalapeno peppers. Cargill is the supplier of the cooking oil. The fryer, which operates with an air filtering system, eliminates the need for a venting system, which is necessary with conventional restaurant deep fryers. The machine operates, with an automated lowering and raising basket mechanism, on 110 volt electricity as compared to the 220 volts usually required by conventional deep fryers. The machines weigh only 70 pounds and can be operated from a countertop. As a part of its IFFM program, the Company tested its food products in 200 Wal-Mart stores during 1995 and, in April 1996, announced an agreement with Wal-Mart whereby its IFFM program would be utilized in approximately 1,200 existing and all future Wal-Mart snack bars (excluding stores with branded restaurant facilities). The Company intends to pursue other similar distribution agreements. Marketing. In directing its marketing effort, Fry Guy has targeted small food outlets and similar facilities in convenience stores, discount/department stores, shopping malls, bars and other premises with small snack bar facilities that previously were unable to offer hot food items. Fry Guy provides these customers with the Fry Guy fryer without charge or at very nominal monthly cost and receives payment for the program food purchased by the customer. As part of this Integrated Finger Food Marketing program, Fry Guy also provides warranty service and repairs to the fryer, training for the fryer operators, promotional and point of sale materials and a program for the development and introduction of new food products. Under its agreement with Wal-Mart, Fry Guy will place approximately 1,200 fryers in Wal-Mart snack bars nationally. As of September 16, 1996, 503 of these fryers have been installed. The process of delivering fryers to the balance of the approximately 1,200 Wal-Mart snack bars is under way and will be completed by year end. Working Capital Practices. Fry Guy will continue its objective of placing frying machines in profitable locations and will continue to develop its distribution system. Cooperative advertising funds from several major corporations will be used to assure the success of programs with Wal-Mart and other retailers. Fry Guy has received positive responses from various funding sources regarding its future capital requirements. Dependence Upon Key Customers. The focus of the Company's restaurant equipment/food distribution segment has been almost entirely devoted to its relationship with Wal-Mart. Successful operations of Fry Guy are dependent upon the Company's ability to meet its obligations under its agreement with Wal-Mart. Although the Company has a two year commitment with Wal-Mart, a decision by Wal-Mart to cease or reduce its commitment with the Company's IFFM program would have a material adverse affect on its business. Backlog Orders. The Company has an order backlog for the placement of fryers of approximately 800. Competitive Conditions. Fry Guy is aware of only one direct competitor which actively markets a ventless small capacity deep fryer, but does not market food products. Numerous competitors offer equipment which requires venting to the outside. Also, they are unaware of any competitor providing both the sales and distribution of a finger food program. Employees. As of September 1, 1996, Fry Guy has eleven employees. Insurance Claims Adjusting Segment During 1995, the Company completed its acquisition of National Affiliated Adjustment Company ("NAAC"), an independent claims loss adjustment company based in Scottsdale, Arizona. Prior to its acquisition, NAAC and a predecessor had been in operation for more than 10 years and was one of the largest independent claims adjustment firms in Arizona. NAAC is operated by the Company's subsidiary, Unique Systems, Inc., but does business as National Affiliated Adjustment Company. NAAC is a processor of property, casualty, health insurance and workmen's compensation claims. It also provides automobile appraisals for a variety of insurance companies. NAAC accounted for 24% of consolidated operating revenues for the year ended June 30, 1996. Depending on the type of claim, processing of claims generally involves verifying the loss and the existence of coverage for the loss and then assessing the extent of the loss and negotiating a settlement on the loss as appropriate. On health insurance claims this generally entails determining that the procedures to be paid are appropriate for the type of problem and that the cost of the procedure is within guidelines. If all information is determined to be accurate and appropriate, the insurance claims adjuster notifies the insurance payer that it is proper to pay the claim. When necessary, the claims adjuster seeks additional information or recommends rejecting the claim. NAAC is compensated in various ways depending upon the negotiated terms with the client. Typically, compensation is at a flat rate per claim or on time and expenses per claim. NAAC presently has offices in Scottsdale and Tucson, Arizona, Las Vegas, Nevada, and Fort Lauderdale, Florida. Marketing. NAAC will continue to develop its existing claims adjusting locations, three of which were opened during the past year. The Company has a strong client base and believes that concentrating on its existing locations will yield increased profits and produce positive cash flow from this business segment. Seasonality of Business. Any seasonal aspect of this insurance segment is related directly to weather patterns, which vary by location. Severe weather significantly increases property damage which increases the number of claims to be handled. Working Capital Practices. As the number of claims increase, additional working capital is needed to finance the increase in accounts receivable and work in process. This trend reverses in a short time when payments are received from the various insurance carriers. After the loss of a major client during the past year, the parent company was required to inject small amounts of working capital. Projections show this segment will generate required working capital internally during the upcoming year. Dependence Upon Key Customers. In April 1996, the International Association of Entrepreneurs of America ("IAEA"), a major client of NAAC, become insolvent and was placed in receivership by the Tennessee Department of Insurance. In addition, NAAC was named in a lawsuit by the U.S. Department of Labor in an action related to NAAC's servicing of IAEA claims (see Legal Proceedings). NAAC has replaced most of this lost revenue through an intense marketing effort conducted on a nationwide basis. Competitive Conditions. Competition in the insurance claims adjusting industry is extensive and is principally driven by price, timeliness, and quality of service. Employees. As of September 1, 1996, NAAC employs twenty-one individuals. Mining Segment The Company has classified its mineral properties as assets held for sale since it is actively seeking a sale or joint venture agreement for operations of these assets. It currently holds mining properties without any exploration or development activity. The Company has been informed by its consulting geologist that certain of the Company's mining properties lack economic feasibility, based on the extent of exploration to date. The geologist has, however, encouraged the Company to continue exploration efforts until a feasible ore body is proven or a decision is reached to abandon the property. The Company has previously recorded a contingent sale of 56 mining claims located in the Tombstone Mining District, which represents less than 10% of the total appraised value of the mining properties. This contingent sale was recorded as an installment sale contract and any profit is recorded pro-rata based upon the payments received. As of June 30, 1996, the Company has received payments of $55,000 of the total sale price of $1,180,000. The remaining installments are due as set forth in the following table: July 15, 1997 $ 50,000 July 15, 1998 75,000 July 15, 1999 1,000,000 Total $1,125,000 Environmental Disclosure. There are numerous federal and state laws and regulations relating to environmental protection which have direct application to mining, milling and mineralized material processing operations. The more significant of these laws deal with mined land reclamation and waste water discharge from such operations. The principal mining operations, exploration and development of mining properties by the Company has been accomplished underground with a minimum of surface disturbance. Two properties which would require limited environmental and/or surface reclamation are the C.O.D. Mine and the Tombstone Metallurgical Facility. The Tombstone Metallurgical Facility is located on federal lands which are administered by the Bureau of Land Management ("BLM"). The facility was constructed in the 1970's when no permitting was required from the BLM. Since that time, the facility has operated intermittently, and the Company has complied with all regulations as they existed. At present, the facility remains idle. The other property is the C.O.D. Mine, which is also on BLM land and is also presently idle. For a more detailed description of the mining properties, see Item 2. Properties below. Employees. None. ITEM 2. PROPERTIES The Company's corporate office is located in an 11,163 square foot leased facility in Scottsdale, Arizona. Air Pollution Control Services and Mining operations are headquartered at the corporate office. Currently, the Company has subleased 3,883 square feet in this facility. Fry Guy is currently located in a 2,708 square foot leased facility in Las Vegas, Nevada. The Restaurant Equipment Marketing Segment also leases 770 square feet of warehouse space in Las Vegas, Nevada. Two previous locations of 3,472 and 1,609 square feet are being subleased to unrelated parties. NAAC is headquartered in a 2,400 square foot leased facility in Scottsdale, Arizona, and occupies 940 square feet of office space in Las Vegas, Nevada, 1,348 square feet of office space in Tucson, Arizona, and 1,497 square feet of office space in Ft. Lauderdale, Florida. AEMI's operating facility is located at Falls City, Nebraska. This facility is approximately 73,000 square feet under roof and is located on approximately 6.84 acres. The second facility, currently closed, is located at Boone, Iowa. This facility is approximately 53,000 square feet under roof and is located on approximately 9.47 acres. The Company owns these facilities. AEMI also leases a sales office in Kansas City, Missouri. This facility is approximately 297 square feet. Mining Properties At June 30, 1996, the Company owned mineral rights in four unpatented mineral mining and millsite properties in Arizona. The Company's mining properties include the Tombstone Metallurgical Facility and a mill on the site of the C.O.D. Mine. The following table sets forth the Company's major mineral land holdings for the fiscal years ended June 30, 1996 and 1995. MAJOR MINERAL LAND HOLDINGS AT JUNE 30, 1996 AND 1995 Mineral Property Location Acreage Ownership C.O.D. Mine Mohave County, AZ 3,500 100% Mineral Mountain Pinal County, AZ 4,660 100% Cherry Creek Yavapai County, AZ 940 100% Tombstone/STC Claims Cochise County, AZ 9,140 100% Mining/Milling Equipment Location Acreage Ownership C.O.D. Mine Mohave County, AZ 150 100% Tombstone Cochise County, AZ 75 100% The following tables set forth the current appraised value and the adjusted carrying value as of June 30, 1996 and 1995, respectively. MAJOR MINERAL HOLDINGS AT JUNE 30, 1996 Appraised Adjusted Mineral Property Value (1) Value (2) C.O.D. Mine $6,853,021 $5,539,328 Mineral Mountain 243,265 221,520 Cherry Creek 190,686 0 Tombstone/STC Claims 760,037 409,828 Mining/Milling Equipment C.O.D. Mine Included Above 107,831 Tombstone Mill 227,587 296,702 Total Property & Equipment $8,274,596 $6,575,209 MAJOR MINERAL HOLDINGS AT JUNE 30, 1995 Appraised Adjusted Mineral Property Value (3) Value (2) C.O.D. Mine 8,505,445 5,539,328 Mineral Mountain 228,775 221,520 Cherry Creek Claims 680,909 0 Tombstone/STC Claims 712,367 409,828 Mining/Milling Equipment C.O.D. Mine Included Above 107,831 Tombstone Mill 328,487 296,702 Total Property & Equipment $10,455,983 $6,575,209 (1) The fair market value as determined by the appraisal completed for the fiscal year ended June 30, 1996. (2) The adjusted book value after giving consideration to any write-down in certain mineral property values and reflects the lower of historical cost or appraised value. (3) The fair market value as determined by the appraisal completed for the fiscal year ended June 30, 1994. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in several lawsuits. The Company believes that any financial exposure is adequately provided for in its financial statements and that these matters will not have a material adverse effect on the financial condition or operating results of the Company. However, the Company is a defendant in the following lawsuits which could be material in the event of an unfavorable resolution. In April, 1995, the case of Sun Valley Products, Inc. v. Alanco Environmental Services, Inc., et. al was filed in the United States District Court, Southeastern Division, District of North Dakota. Sun Valley Products, Inc., produces roasted sunflower seeds and purchased a bag filter system from the George A. Rolfes Company (which later became Heartland Systems, Inc. ("Heartland")) in 1992. In 1994, the Company purchased the assets of Heartland through AEMI. Installation and service of the bag filter system occurred before and after the time the Company purchased the business assets from Heartland. The complaint alleges breach of contract, breach of warranties, and negligence and seeks in excess of $50,000 in damages, though the plaintiff has not otherwise quantified its damages. The Company believes that the action is subject to the indemnification provisions of its purchase agreement with Rolfes and has entered into a joint defense with Heartland. The Company further believes that there are valid defenses to the action, and it would ultimately prevail if the matter proceeds to trial. The Company and Heartland are pursuing settlement negotiations. On June 21, 1996, the Company was served with a complaint entitled Loveit Baumgardner and Ping Zhang v. Alanco Environmental Resources Corporation, filed in Utah District Court, Salt Lake City, Utah. Ms. Baumgardner was a clerical employee of the Company. Mr. Ping was an employee of the Company whose services were rendered in the People's Republic of China. Ms. Baumgardner and Mr. Ping seek 28,000 and 30,000 shares of the Company's common stock, respectively, which they allege were promised to them by Kevin Jones, the former chief financial officer of the Company. The Company has denied all allegations contained in the Complaint and is vigorously defending against the claims, as well as pursuing counterclaims against Mr. Ping for breach of fiduciary duty, tortious interference with contracts and patent infringement. In April, 1996, the registrant's subsidiary, National Affiliated Adjustment Company, Katherine Meyer, then President of NAAC, and Norman Meyer, President of the Company, were named as Defendants in a civil action filed by the U.S. Department of Labor in U.S. District Court, Nashville, Tennessee. The action also names the International Association of Entrepreneurs of America Benefit Trust, a self-insured employer's workers compensation trust, IAEA, Inc., Stockton Fuller & Co., Inc., and six other individual defendants. The action alleges NAAC received excessive compensation under the Employee Retirement Income Security Act of 1974 (ERISA) and as employees of NAAC, the Meyers benefited indirectly from their compensation. NAAC and its predecessor, Realistic Adjustment Company, served as the claims processing facility for the IAEA Trust. NAAC and the Meyers had no discretionary authority with respect to the Trust assets or decision making and deny any breach of fiduciary duty. The IAEA Trust has been placed into Receivership, and NAAC and the Meyers have fully cooperated with the Receiver and the Department of Labor. NAAC and the Meyers have filed an Answer to the Complaint denying all material allegations and intend to vigorously defend the action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Shareholders during the fourth quarter of the fiscal year ended June 30, 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (1) Market Information: Alanco's common stock is traded on the NASDAQ Small Cap Market under the symbol "ALAN". (2) High and Low Bid Prices: The following table sets forth high and low bid prices for each fiscal quarter for the last two fiscal years. Such quotations represent inter-dealer prices without retail mark-ups, mark-downs, or commissions and, accordingly, may not represent actual transactions. Fiscal 1996 Fiscal 1995 Quarter Ended High Low High Low September 30 2.56 1.75 2.53 1.06 December 31 2.53 1.81 2.22 1.25 March 31 4.88 1.90 1.88 1.16 June 30 3.88 1.97 2.75 1.50 (3) Security Holders: As of September 18, 1996, Alanco had approximately 1,975 holders of record of its Common Stock. This does not include beneficial owners holding shares in street name. (4) Dividend Plans: Alanco has paid no common stock cash dividends and has no current plans to do so. (5) Preferred Stock: (a) Class A, Series I Convertible Preferred Stock. There are 26 Shares of $20,000 par value, Class A, Series I Convertible Preferred Stock issued and outstanding as of September 18, 1996. (b) Class A, Series II Convertible Preferred Stock. There are 110,000 shares of $10 par value, Class A, Series II Convertible Preferred Stock issued and outstanding as of September 18, 1996. The Class A Series II Preferred Stock has a cumulative per share dividend of eighty cents ($0.80) per annum, paid quarterly. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the Company and its subsidiaries can be found in the following table. This information includes information for the Company and its subsidiaries on a consolidated basis and should be read in conjunction with the audited financial statements and accompanying notes.
SELECTED FINANCIAL DATA (Not covered by Report of Independent Certified Public Accountant) Fiscal Year -------------- -------Fiscal Year Ended--- ------------- -Period Ended Ended Selected Income Statement Data June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 May 31, 1992 - ------------------------------ -------------- ------------- ------------- ------------- ------------- ------------ Operating Revenue 4,962,948 3,438,183 1,581,515 10,987 24,500 Net Loss (3,528,353) (4,753,380) (3,839,964) (4,102,173) (112,702) (2,861,797) ============== ============= ============= ============= ============= ============ Net Loss per share of common stock (0.11) (0.20) (0.21) (0.32) (0.02) (0.55) ============== ============= ============= ============= ============= ============ Weighted average number of shares 31,782,296 23,839,969 18,253,730 12,974,995 6,867,840 5,287,487 _________________________________________________ _____________ _____________ _____________ _____________ ____________ Fiscal Year -------------- -------Fiscal Year Ended--- ------------- Period Ended Ended Selected Balance Sheet Data June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 May 31, 1992 - --------------------------- -------------- ------------- ------------- ------------- ------------- ------------ Current Assets 3,841,374 3,338,560 4,283,308 20,208 2,918 262 Current Liabilities 809,761 1,006,740 852,184 632,937 1,926,057 1,885,071 -------------- ------------- ------------- ------------- ------------- ------------ Working Capital (deficit) 3,031,613 2,331,820 3,431,124 (612,729) (1,923,139) (1,884,809) ============== ============= ============= ============= ============= ============ Total Assets 21,389,967 21,215,852 18,281,763 8,432,262 8,682,243 8,686,959 Long Term Debt 372,020 344,129 -- -- -- -- Redeemable Preferred Stock 330,468 295,062 -- -- 750,000 750,000 Common Stock and Other Shareholders' Equity 18,970,907 18,600,816 16,327,796 7,799,325 6,006,186 6,051,888 /TABLE ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of June 30, 1996, the Company's current assets exceeded current liabilities by $3,032,000, a ratio of 4.7 to 1. This improvement over the prior year is the result of an increase in current assets of $503,000 and a decrease in current liabilities of $197,000. The Company will continue to need significant capital for equipment purchases and working capital. Projections indicate a stronger need in the earlier part of the year and less as revenues improve. Subsequent to year end, the Company (i) issued $1,100,000 of Class A preferred stock to enhance the interim cash position and (ii) received a letter of intent to provide financing for equipment purchases for the Fry Guy program. The Company plans continued reductions in overhead expenses wherever possible. Inventories increased by $270,000 since fiscal year end June 30, 1995. The majority of this increase was the build up in restaurant equipment needed to fulfill contracts in place. Much of this equipment will be utilized in the Wal-Mart program which calls for the placement of over 1,200 machines. Deployment of this equipment began in late June, 1996. The restaurant equipment segment (Fry Guy) is anticipating a significant increase in revenues from utilization of this equipment. Cooperative promotional funds from several major corporations are available to assure the success of the program with Wal- Mart and related vendors. The Company is also pursuing additional loan funds to finance the long term equipment needs of the Fry Guy program. The Company believes financing is currently available. The insurance adjustment business completed its expansion in Arizona and Florida during the past year utilizing internal cash supplemented with advances from the parent company. This segment has a strong client base and will continue to grow through its four locations. With no further expansion and reduced overhead planned, positive cash flow and profits are projected for this business segment. During the quarter ended June 30, 1996, the Company received cash deposits for the installation of CDSI equipment in China. Income will be recognized during the quarter ended September 30, 1996. Additional CDSI sales are expected in the upcoming year. The Company will continue to solicit sales through its China corporation and independent agents with worldwide sales capabilities. Potential customers in developing countries have access to funds for the purchase of pollution control equipment through organizations such as the World Bank, Asian Development Bank, U.S. Export-Import Bank, as well as interested highly developed countries, such as Japan and South Korea. This business segment is expected to be profitable and produce positive cash flow. For the past two years the manufacturing business segment has generated the necessary cash flow needed to operate effectively. This business is typically slow during the winter months. Management is planning to take the necessary steps to control costs in relation to revenues generated. At the present time, the assets of this segment are free from any encumbrances and would be available as collateral should the need arise. Results of Operations Fiscal 1996 Compared to Fiscal 1995 Consolidated revenues for fiscal year 1996 were $4,960,000, representing an increase of 44% over fiscal 1995. The insurance segment and restaurant service, consolidated for a full year, accounted for 66% and 29%, respectively, of the increase in revenues. Manufacturing revenues, which increased only slightly, accounted for 67% of consolidated revenue. During 1996, 61% of revenue in the restaurant service segment was generated from the sale of equipment. The Company is currently retaining ownership of the equipment, ultimately leading to a significant increase in gross profit. Regarding the sale of pollution control equipment, the Company has agreements in place, but installation and revenue recognition will not take place until after fiscal year end. See Note 14 of the Consolidated Financial Statements for additional segment information on revenues and results of operations. For the year ended June 30, 1996, consolidated net loss was $3,528,000 compared to a loss of $4,753,000 in the prior year. Fiscal year 1995 included significant write downs of assets reported as other expense. Loss on operations increased by $830,000. Forty-nine percent (49%) of this increase can be attributed directly to higher depreciation and amortization expense. Consolidated selling, general and administrative expense increased by $1,636,000. The following table lists the amount of expense by major categories and percentage of total general and administrative expense for 1996 and 1995. 1996 1996 1995 1995 Category Amount Percentage Amount Percentage Manufacturing $ 884,000 20 $ 655,000 24 Insurance 827,000 19 108,000 4 Restaurant Service 624,000 14 112,000 4 Environmental 522,000 12 301,000 11 Mining 65,000 2 205,000 8 Corporate and Other 1,445,000 33 1,350,000 49 ---------- ----- ---------- ----- $4,367,000 100 $2,731,000 100 The insurance and restaurant service segments, consolidated for a full year, accounted for 44% and 31% of the increase, respectively. The Company increased its marketing efforts of the CDSI pollution control equipment, thus incurring additional costs over fiscal 1995 of $221,000. During fiscal year 1996, corporate expenses increased 7%. Portions of this increase were due to the establishment of a Public/Shareholder Relations Department and the establishment of an information retrieval system for Fry Guy Inc. Fiscal 1995 Compared to Fiscal 1994 Consolidated revenues for the year ended June 30, 1995, were $3,438,000, an increase of $1,857,000 or 117%. The manufacturing operations accounted for 91% of this increase. The balance of the increase was principally due to the new business segments added May 1, 1995: restaurant equipment and supply, and insurance adjusting. For the fiscal year ended June 30, 1995, the Company's net loss increased by $913,000 (24%) over the prior fiscal year. Net losses include the operations of newly added subsidiaries for a two month period only. The consolidated results for fiscal year 1995 include, under the caption of Other Income (Expense), a write down of property of $1,311,000, loss on the sale of a building and furniture of $666,000, and a write down of investment securities of $431,000, compared to similar losses of $841,000 for the prior year. These items are of a singular nature and would not be considered a part of ongoing operations. The above items more than account for the increase in net losses for the year. Loss from operations decreased by $505,000. This decrease is attributable to an increase in manufacturing revenues and a decrease in mining expenditures. Consolidated direct service and cost of sales increased by $1,022,000 from fiscal year 1994 to 1995. Manufacturing cost of goods sold increased by 54% or $925,000. This was the result of reporting a full year's operating history versus the six months that were consolidated the previous year. Resources relating to environmental research and development were more properly reclassed into the marketing and general and administrative category. Consolidated selling, general and administrative costs increased by $103,000 from fiscal year 1994. The net increase in general and administrative expenses was attributed to: (i) the addition of two new business segments, (ii) increased volumes in the manufacturing segment due to its inclusion for a full year, and (iii) a reduction in mining expenses of $275,000 principally due to loss fees paid to the Bureau of Land Management. Product and Environmental Contingencies The Company is not aware of any material product or environmental liabilities. Also refer to the environmental disclosure section of the mining business segment of Item 1. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Consolidated Financial Statements. ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 and 1994 Singer Lewak Greenbaum & Goldstein LLP Certified Public Accountants & Management Consultants REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Alanco Environmental Resources Corporation We have audited the accompanying consolidated balance sheet of Alanco Environmental Resources Corporation (formerly known as Alanco Resources Corporation) and subsidiaries as of June 30, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alanco Environmental Resources Corporation and subsidiaries as of June 30, 1996, and the results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company has incurred operating losses and has had negative cash flows from operations for the last three years. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Singer Lewak Greenbaum, Goldstein LLP Singer Lewak Greenbaum & Goldstein LLP Los Angeles, California September 6, 1996 F1 BILLIE J. ALLRED CERTIFIED PUBLIC ACCOUNTANT Suite J-1 4625 South Ash Avenue Tempe, Arizona 85282 Tel.(602) 820-2092 Fax (602) 820-4584 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders Alanco Environmental Resources Corporation We have audited the accompanying consolidated balance sheet of Alanco Environmental Resources Corporation (formerly known as Alanco Resources Corporation) and subsidiaries as of June 39,1995, and 1994 and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for my opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects the financial position of Alanco Environmental Resources Corporation and subsidiaries as of June 30,1995, and 1994 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the consolidated financial statements, the Company has incurred operating losses and has had negative cash flows from operations for the last two years. These factors raise substantial doubt about the Company's ability to continue as a going concern. Managements' plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Billie J. Allred BILLIE J ALLRED CPA Tempe, Arizona September 28, 1995 F2
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1996 and 1995 ASSETS 1996 1995 --------------- ---------------- Current assets: Cash $ 565,199 $ 607,411 Accounts receivable, net of allowance for doubtful accounts of $11,000 and $25,189, respectively 648,974 480,838 Notes receivable (note 2) 1,274,647 1,051,775 Inventories (note 3) 1,281,872 1,011,701 Prepaid expenses and other current assets 70,682 186,835 --------------- ---------------- Total current assets 3,841,374 3,338,560 Property, plant and equipment, net (note 4) 3,307,258 3,393,308 Mineral properties and related assets (note 5) 6,575,209 Costs in excess of book value on acquisition of wholly-owned subsidiaries, net of accumulated amortization of $529,066 and $102,419, respectively 5,869,137 6,295,784 Intangible assets, net of accumulated amortization of $108,119 and $83,678, respectively 188,808 121,647 Assets held for sale (note 5) 6,855,063 Other assets 1,286,069 1,491,344 --------------- ---------------- $ 21,347,709 $ 21,215,852 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable, shareholders $ 53,685 Capital lease obligations, current portion (note 6) $ 124,571 179,151 Accounts payable and accrued expenses (note 7) 685,190 773,904 --------------- ---------------- Total current liabilities 809,761 1,006,740 Capital lease obligations (note 6) 372,020 344,129 Unrealized installment sales 864,553 969,105 Commitments and contingencies (notes 6 and 13) Redeemable Preferred Stock, $20,000 par value, Class A, Series 1, convertible, non-cumulative, voting; 5,000,000 shares authorized; 26 shares issued and outstanding (note 8) 330,468 295,062 Shareholders' equity (note 9): Preferred Stock, Class B, cumulative, voting; 20,000,000 shares authorized and none issued Common Stock, no par value, 100,000,000 shares authorized; 33,209,544 and 29,924,057 shares issued and outstanding, respectively 51,783,690 47,885,246 Accumulated deficit (32,812,783) (29,284,430) --------------- ---------------- Total shareholders' equity 18,970,907 18,600,816 --------------- ---------------- $ 21,347,709 $ 21,215,852 =============== ================ The accompanying notes are an integral part of these financial statements.
F3
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June 30, 1996, 1995 and 1994 1996 1995 1994 ------------ ----------- ------------ Net sales (note 10) $ 4,962,948 $ 3,438,183 $ 1,581,515 ------------ ----------- ------------ Operating expenses: Direct service and cost of goods sold 3,056,167 2,740,812 1,719,046 Selling, general and administrative 4,366,939 2,731,060 2,627,785 Depreciation and amortization 859,506 455,791 229,457 ------------ ----------- ------------ Total operating expenses 8,282,612 5,927,663 4,576,288 ------------ ----------- ------------ Loss from operations (3,319,664) (2,489,480) (2,994,773) Other income (expense): Interest income 70,216 62,043 16,874 Interest expense (101,763) (16,831) (20,368) Write-down of assets (162,772) (1,743,043) (385,771) Loss on disposal of assets (48,921) (616,543) (455,553) Other, net 34,551 50,474 (373) ------------ ----------- ------------ Total other expenses (208,689) (2,263,900) (845,191) Loss before provision for income taxes (3,528,353) (4,753,380) (3,839,964) Provision for income taxes (note 11) ------------ ----------- ------------ Net loss $ (3,528,353) $(4,753,380) $ (3,839,964) ============ ============ ============ Net loss per share $ (.11) $ (.20) $ (.21) ============ ============ ============ Weighted average common shares outstanding 31,782,296 23,839,969 18,253,730 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
F4
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended June 30, 1996, 1995 and 1994 Common Stock Subscriptions Accumulated Shares Amount Receivable Deficit TOTAL ---------- ------------ ------------ -------------- ------------- Balances, June 30, 1993 16,231,948 $ 28,892,971 $ (402,560) $ (20,691,086) $ 7,799,325 Collection of subscriptions receivable 302,560 302,560 Common stock issued for (note 9): Cash 4,240,539 7,358,063 7,358,063 Conversion of debt to equity 165,000 257,813 257,813 Acquisition of subsidiary in manufacturing industry 1,200,000 3,600,000 3,600,000 Acquisition of corporate building 650,000 650,000 650,000 Services rendered 200,000 200,000 200,000 Net loss (3,839,964) (3,839,964) ---------- ------------ ------------ -------------- ------------- Balances, June 30, 1994 22,687,487 40,958,847 (100,000) (24,531,050) 16,327,797 Write-off of subscription receivable (100,000) 100,000 Common stock issued for (note 9): Cash 440,600 279,938 279,938 Satisfaction of debt 50,000 37,500 37,500 Services rendered 395,600 358,591 358,591 Acquisition of subsidiary in: Restaurant equipment industry 4,600,000 4,600,000 4,600,000 Insurance adjusting industry 1,750,370 1,750,370 1,750,370 Net loss (4,753,380) (4,753,380) ---------- ------------ ------------ -------------- ------------- Balances, June 30, 1995 29,924,057 47,885,246 (29,284,430) 18,600,816 Common stock issued for (note 9): Cash 2,861,333 3,129,988 3,129,988 Shares issued under stock option plans 384,500 704,935 704,935 Intangible assets 18,750 41,016 41,016 Services rendered 20,904 22,505 22,505 Net loss (3,528,353) (3,528,353) ---------- ------------ ------------ -------------- ------------- Balances, June 30, 1996 33,209,544 $ 51,783,690 $ (32,812,783) $ 18,970,907 ========== ============ ============ ============== ------------- The accompanying notes are an integral part of these financial statements.
F5
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 1996, 1995 and 1994 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net loss $(3,528,353) $(4,753,380) $ (3,839,964) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 859,506 455,791 229,457 Loss on disposition of assets 48,921 616,543 455,553 Write-down of assets 162,772 1,743,043 385,771 Stock issued for services rendered and expenses 59,465 358,591 200,000 Imputed interest on preferred stock 35,406 (Increase) decrease in: Accounts receivable (168,136) (118,152) (556,114) Inventory (554,432) 95,063 (620,538) Prepaid expenses and other current assets 88,143 2,835 (24,188) Other assets 163,017 (59,644) 4,231 Increase (decrease) in: Accounts payable and accrued expenses (88,714) 51,700 359,065 Unrealized installment sales (104,552) 165,000 ----------- ------------ ------------ Net cash used in operating activities (3,026,957) (1,607,610) (3,241,727) ----------- ------------ ------------ Cash flows from investing activities: Advance for notes receivable (770,387) (214,208) (837,495) Collection of notes receivable 427,001 Purchase of property, plant and equipment (293,155) (391,625) (1,391,801) Proceeds from disposition of assets 22,385 623,954 Purchase of mineral properties (165,000) Purchase of intangible assets (50,586) (18,925) (63,754) ----------- ------------ ------------ Net cash used in investing activities (664,742) (804) (2,458,050) ----------- ------------ ------------ Cash flows from financing activities: Repayments on notes payable, shareholders (53,685) Proceeds from issuance of note payable 210,000 Advances from borrowings 38,265 Repayments on borrowings (24,299) (25,959) Repayments on capital lease obligations (94,791) Stock subscriptions collected 85,000 Proceeds from the sale of stock 3,797,963 279,938 7,358,063 Other (13,995) (93,860) ----------- ------------ ------------ Net cash provided by financing activities 3,649,487 279,909 7,533,244 ----------- ------------ ------------ Net (decrease) increase in cash (42,212) (1,328,505) 1,833,467 Cash, beginning of year 607,411 1,935,916 102,449 ----------- ------------ ------------ Cash, end of year $ 565,199 $ 607,411 $ 1,935,916 =========== ============ ============
F6 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Line of Business Alanco Environmental Resources Corporation and subsidiaries' (the Company) business activities for the past several years have emphasized diversification. The Company has expended substantial time and resources on the development of its pollution control devices, the Environetics Dry Scrubber System (EDDS) and the Charged Dry Sorbent Injection System (CDSI), and the acquisition of operating subsidiaries in three different business segments. These business segments include: i) manufacturing for the agricultural and dust control industry; acquisition was effective on January 1, 1994; ii) wholesale equipment supplier to the food service industry; acquisition was effective May 1, 1995; and iii) insurance adjusting, a service-oriented business segment; acquisition was effective May 1, 1995. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Alanco Environmental Resources Corporation and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Going Concern and Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. As shown in the consolidated financial statements, the Company has incurred operating losses and has had negative cash flows from operations for the last three years. These factors raise substantial doubt about the Company's ability to continue as a going concern. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to continue to raise capital and generate positive cash flows from operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. F7 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Management plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence: - continue its objective of increasing revenues, streamlining operations, controlling costs and developing profitability and stability in each business segment, and raising additional capital as needed (see note 12); - downsize office space in certain locations, sublease excess space and reduce personnel as necessary; - obtain financing for purchase of restaurant machinery to facilitate the implementation of the Wal-Mart distribution system, and aggressively market its distribution system to other major retail food outlets; - take advantage of the prior marketing groundwork and product identification completed for CDSI pollution control equipment, and continue to solicit sales through its distribution channels in China; - sell or enter into a joint venture agreement with regards to its mineral properties. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including cash, marketable securities, accounts receivable, notes receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for capital lease obligations also approximate fair value because current interest rates and terms offered to the Company for similar lease agreements are substantially the same. Reclassifications Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. Such reclassifications had no effect on reported net losses or shareholders' equity. F8 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, Plant and Equipment Property, plant and equipment, including amounts for capitalized leases, are stated at cost. Depreciation is computed using the straight-line method over the useful lives of the assets as follows: Buildings 32 years Machinery and equipment 5-7 years Furniture and other equipment 5-7 years Betterments, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in income. Mineral Properties and Related Assets (Assets Held For Sale) Mineral properties and related assets are carried at the lower of historical cost or appraised value. Costs in Excess of Book Value on Acquisition of Wholly-Owned Subsidiaries and Intangible Assets The Company continually monitors its costs in excess of book value on acquisition of wholly-owned subsidiaries (which is amortized over 15 years) and its other intangible assets to determine whether any impairment of these assets has occurred. In making such determination with respect to costs in excess of book value on acquisition of wholly-owned subsidiaries, the Company evaluates the performance, on an undiscounted cash flow basis, of the underlying assets or group of assets which gave rise to such amounts. With respect to other intangibles, which include patents, the Company bases its determination on the performance, on an undiscounted basis, of the related products. Revenue Recognition Substantially all revenues are recognized when finished products are shipped or services have been rendered with appropriate provision for uncollectible accounts. Concentrations of Credit Risks The Company sells products (primarily in the United States and China) and services (primarily in the United States) and extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. Income Taxes The Company uses the liability method of accounting for income taxes pursuant to Statement of Financial Accounting Standards (SFAS), No. 109, "Accounting for Income Taxes." F9 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net Loss Per Share Net loss per share has been calculated based on net losses for the periods divided by the weighted average number of shares of common stock outstanding during the periods presented. Supplemental Cash Flow Information The Company paid no income taxes, and interest of $66,357, $16,831 and $20,368 for the years ended June 30, 1996, 1995 and 1994, respectively. For the non-cash investing and financing activity, see footnotes 6 and 9. NOTE 2 - NOTES RECEIVABLE 1996 1995 Note receivable, six monthly installments ----------- ------------ of $75,000 with balance due December 31, 1995 (A) $ 495,000 $ 870,000 Notes receivable, quarterly interest payments at prime plus 2%, principal due June 26, 1997 (B) 620,238 Notes receivable - trade 100,403 Notes receivable - other 59,006 181,775 $ 1,274,647 $ 1,051,775 =========== =========== (A) During the year ended June 30, 1995, the Company sold 86% of its 70% interest in Phoenix Medical Management, Inc. (PMM) to Amarante Financial S.A., an unrelated third party, for $870,000. Currently, a balloon payment of $495,000 is past due. Negotiations are under way to cure the default. This note receivable is collateralized by 60% of PMM's common stock. (B) As part of the Company's acquisition of its 70% interest in PMM's common stock, the Company agreed to indemnify certain unrelated third parties against losses on their continuing guarantees on leased facilities and equipment. As a result of these guarantees, the Company has loaned PMM $620,238. PMM's accounts receivable are collateral for this loan. Also, the Company's current President and CEO is the ex-CEO of PMM, and PMM's current President and CEO is an ex-officer and director of the Company. F10 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 3 - INVENTORIES At June 30, inventories consist of: 1996 1995 ----------- ----------- Purchased machine and parts $ 532,746 $ 180,149 Finished goods 229,231 166,529 Work-in-process 171,204 186,571 Raw material 348,691 478,452 ----------- ----------- $ 1,281,872 $1,011,701 =========== =========== NOTE 4 - PROPERTY, PLANT AND EQUIPMENT At June 30, property, plant and equipment consist of: 1996 1995 ---------- ----------- Land $ 60,231 $ 106,431 Buildings 1,330,338 1,569,816 Machinery and equipment 2,044,716 1,727,689 Furniture and office equipment 609,939 383,808 ---------- ----------- 4,045,224 3,787,744 Less accumulated depreciation 737,966 394,436 ---------- ----------- $3,307,258 $3,393,308 ========== =========== NOTE 5 - MINERAL PROPERTIES AND RELATED ASSETS (ASSETS HELD FOR SALE) At June 30, 1996 and 1995, mineral properties and related assets consist of: Mineral properties $6,170,676 Mill and refinery 688,696 Other mining equipment 866,614 ----------- 7,725,986 Less accumulated depreciation 1,150,777 ----------- $6,575,209 =========== As of June 30, 1996, the Company was actively soliciting the sale of or a joint venture agreement for the operations of these assets. Accordingly, the Company has classified these mineral properties as assets held for sale. F11 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 5 - MINERAL PROPERTIES AND RELATED ASSETS (ASSETS HELD FOR SALE) (continued) For the year ended June 30, 1996, the Company retained an independent geologist (Geologist) to appraise the mineral properties. A majority of the mining properties are undeveloped claims which generally do not have a readily demonstrated market value because they lack sufficient exploration of an ore body to determine the recoverability of the amount and grade of the potential ore body. The appraiser assigned a value to these properties based upon the accumulated monies expended on the claims as of June 30, 1996. Further, the appraiser indicated that these properties lack economical feasibility based upon the exploration and development to date. However, he stated further that there existed considerable evidence as to the potential of these mineral properties and recommended that the Company increase exploration and development efforts on these properties until an economically feasible ore body is proved or a decision is reached to abandon the property. The minority of the mining properties had past mining activity which gave evidence of an ore grade and recoverability. The Geologist performed a net present value analysis of the ore grade and recoverability. The net present value analysis resulted in the current market value exceeding the historical cost for these mining properties that have had past mining. Also, for the year ended June 30, 1996, the Company classified a building and land with a net book value of $279,854 as an asset held for sale. NOTE 6 - LEASE COMMITMENTS The Company leases certain facilities and equipment under non-cancelable operating lease agreements that expire through 2001. The Company also leases certain machinery, and office and computer equipment under non-cancelable capital lease arrangements. Future minimum lease payments under non-cancelable capital and operating leases with initial or remaining terms of one year or more at June 30, 1996 are as follows: Year ending Operating Capital June 30, Leases Leases ------------ ------------ --------- 1997 $ 432,000 $ 185,300 1998 342,000 180,049 1999 67,000 176,378 2000 23,000 101,119 2001 15,000 - $ 879,000 $ 642,846 =========== Less amount representing interest 146,255 -------- 496,591 Less current portion 124,571 Long-term portion $ 372,020 ======== F12 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 6 - LEASE COMMITMENTS (continued) At June 30, leased capital assets included in property, plant and equipment consist of: 1996 1995 --------- --------- Machinery and equipment $ 540,000 $ 540,000 Furniture and equipment 68,103 - --------- --------- 608,103 540,000 Accumulated depreciation 119,000 28,000 --------- --------- $ 489,103 $ 512,000 ========= ========= The Company entered into capital lease obligations of $68,103 and $540,000 in 1996 and 1995, respectively. NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES At June 30, accounts payable and accrued expenses consist of: 1996 1995 --------- ---------- Accounts payable $ 285,670 $ 416,356 Payroll and related accrual 144,057 210,673 Other accrued expense 255,463 146,875 --------- ---------- $ 685,190 $ 773,904 ========= ========== NOTE 8 - REDEEMABLE PREFERRED STOCK During the year ended June 30, 1995, the Company issued 26 shares of $20,000 par value Class A, Series 1, Convertible, Voting Preferred Stock to K.D. International, S.A. as part of the acquisition price paid for the insurance adjusting company, Unique Systems, Inc., D.B.A. National Affiliated Adjustment Company (NAAC). The stock is redeemable five years from the date of issuance at the stated par value. Based upon future redemption, the Company has determined the present value of the future payments by imputing a 12% discount factor. The Company will reduce future earnings with the annual imputed interest through the date of redemption. Subsequent to the acquisition of NAAC, the Chief Executive Officer of NAAC who is the wife of the Company's CEO and President, acquired these shares in an unrelated transaction. F13 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 9 - SHAREHOLDERS' EQUITY During the year ended June 30, 1996, the Company completed the following common stock transactions of previously unissued common shares: - Issued to four directors for services performed 1,000, 1,000, 858 and 746 shares, respectively, at values ranging from $1.00 to $.82 per share for an aggregate value of $6,000. - Issued to an unaffiliated company for the rights to manufacture a machine 18,750 shares at a contract price of $41,016. - Issued for a legal judgment 12,800 shares for an aggregate value of $8,000. - Issued to two employees, of a subsidiary, for services performed 4,000 and 500 shares, respectively, for an aggregate value of $8,505. During the year ended June 30, 1995, the Company completed the following common stock transactions of previously unissued common shares: - Issued 1,750,370 shares to an unrelated third party in exchange for the purchase of a company in the insurance adjusting industry. - Issued 4,600,000 shares to an unrelated third party in exchange for the purchase of a company in the wholesale food equipment supply industry. - Issued 79,100 shares for services provided by unrelated third parties. These services were valued at $85,341. - Issued 316,500 shares to several individuals and companies, all of whom are related parties, for services. - Issued 50,000 shares to an unrelated party to obtain a judgment against a third-party defendant who had refused to return a certificate placed in escrow. The Company valued the shares issued at $37,500. The transaction under which the certificate had been placed in escrow, for the benefit of the third-party defendant, had been canceled pursuant to mutually agreed-upon terms, and the third-party defendant failed to return the certificate in a timely manner. The Company began legal proceedings against the party and, based upon multiple jurisdictional issues, management believed the issuance of the shares under this transaction would result in more expedient results. The certificate which was placed in escrow has been returned as a result of this transaction. During the year ended June 30, 1994, the Company completed the following common stock transactions of previously unissued common shares: - Issued 165,000 shares to a related party, River Capital Corporation (River), in exchange for the satisfaction of debt totaling $257,813. During the fiscal year 1994, River loaned the Company $210,000 which the Company acknowledged by executing a promissory note in River's favor. Later in the year, River elected to exchange this note, plus interest and other obligations due River from the Company, into equity. F14 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 9 - SHAREHOLDERS' EQUITY (continued) - Issued 1,200,000 shares to an unrelated third party in exchange for assets in the manufacturing industry. The shares issued hereunder represented approximately 75% of the acquisition price paid. - Issued 650,000 shares to an unrelated third party as partial payment for the acquisition of the building then utilized by the Company as its corporate office. The shares issued hereunder represented approximately 50% of the acquisition price paid. - Issued 200,000 shares to an unrelated third party as payment for services rendered in marketing the Company's technology in Europe and for establishing, staffing and maintaining an office for the Company. Warrants For the year ended June 30, 1996, the Company had a private placement offering for its common stock. In accordance with the private placement, the Company has outstanding warrants to purchase 1,366,381 shares of common stock at $3 per share for an aggregate value of $4,099,143. The warrants may be exercised through January 1999. Stock Option Plans In August 1995, the Company adopted the Alanco Environmental Resources Corporation 1995 Stock Option Plan (ISO) which expires in 2005. Under the ISO, 1,000,000 shares of common stock have been reserved for issuance. The options issued may be either incentive or non-statutory stock options. Each key employee or non-employee director of the Company, or of any of its wholly- owned subsidiaries, shall be eligible to be granted an option under the ISO. The maximum number of shares for which an option or options may be granted under the ISO to any one key employee shall be 100,000. Incentive stock options must be issued at a price not less than 100% of the fair market value of the common stock upon the grant date. Each option must be granted within five years from August 1995. Each option granted shall have an exercise period no greater than five years from the grant date. In August 1995, the Company adopted the Alanco Environmental Resources Corporation 1995 Directors and Officers Stock Option Plan (Plan) which expires in 2005. Under the Plan, 1,000,000 shares of common stock have been reserved for issuance. The options issued are non-statutory stock options. Each director or officer of the Company shall be eligible to be granted an option under the Plan. The maximum number of shares for which an option or options may be granted under the Plan to any eligible participant shall be 100,000. The per-share option price for the stock subject to each option shall be $.10 per share or such other prices as the Company's Board of Directors may determine. Each option must be granted within five years from August 1995. The exercise period shall be determined by the Company's Board of Directors, but in no instance shall such period exceed six months from the grant date. Ownership of the total number of shares exercised shall vest with the officer or director at 20% immediately upon exercise of the option, and 20% on each annual anniversary following the date of the exercised option for a period of four years. In the event that the association with the Company, in the case of a Director, or the employment by the Company, in the case of an officer, is voluntarily terminated by the officer or Director, all shares of the stock for which ownership has not become vested in the officer or Director shall be subject to repurchase by the Company at a price of $.10 per share. F15 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 9 - SHAREHOLDERS' EQUITY (continued) Stock Option Plans (continued) 1995 1995 Incentive Directors and Stock Officers Stock Plan Option Plan ---------- -------------- Shares under option: Granted 737,500 225,000 Exercised 159,500 225,000 Canceled 18,000 ---------- -------------- Outstanding at June 30, 1996 560,000 ========== ============== Options available to grant at June 30, 1996 280,500 775,000 ========== ============== Average option price per share at June 30, 1996 $ 1.85 $ .10 ========== ============== Average price of options exercised for year ended June 30, 1996 $ 1.85 $ .10 ========== ============== In 1996 the Company recognized compensation expense of $36,960 related to stock options exercised pursuant to the Plan. NOTE 10 - SALES Major Customers During the year ended June 30, 1996, the Company did business with one customer whose sales comprised 25% of sales. During the year ended June 30, 1995, the Company did business with two customers whose sales comprised 49% and 12% of net sales, respectively. During the year ended June 30, 1994, the Company did business with two customers whose sales comprised 17% and 16% of net sales, respectively. NOTE 11 - INCOME TAXES For the year ended June 30, 1996, the Company has not provided a provision for income taxes due to the net operating losses. The Company has approximately $13,200,000 in net operating loss carryforwards that expire beginning in 1997. The Company has deferred tax assets that consist principally of net operating loss carryforwards. A full valuation allowance has been established against the Company's deferred tax assets. F16 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 12 - SUBSEQUENT EVENTS (unaudited) During September 1996, the Company received $1,100,000 from the issuance of 110,000 shares of $10 par value, Class A, Series II Convertible Preferred Stock. The Preferred Stock has a cumulative per share dividend of eighty cents ($0.80) per annum, paid quarterly. NOTE 13 - COMMITMENTS AND CONTINGENCIES Legal Proceedings The Company is subject to legal proceedings which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or cash flows of the Company. NOTE 14 - SEGMENT INFORMATION The Company operates primarily in four industry segments: development and marketing of pollution control devices (corporate and other), manufacturing for agricultural and dust control industry, wholesale equipment supplier to the food service industry, and insurance adjusting. The following table is a summary of results by major segments: June 30, 1996 1995 1994 ------------ ------------ ------------- Revenues: Corporate and other $ $ 162,195 $ 206,883 Insurance 1193,838 180,178 Manufacturing 3,306,437 3,069,773 1,374,632 Restaurant service 462,673 26,037 ------------ ------------ ------------- $ 4,962,948 $ 3,438,183 $ 1,581,515 ============ ============ ============= Net income (loss): Corporate and other $ (2,573,258) $(3,535,915) $ (3,495,550) Insurance (317,074) (24,697) Manufacturing 12,842 (1,051,222) (344,414) Restaurant service (650,863) (141,546) ------------ ------------ ------------- $ (3,528,353) $(4,753,380) $ (3,839,964) ============ ============ ============= Depreciation and amortization: Corporate and other $ 388,333 $ 190,221 $ 115,010 Insurance 136,060 22,337 Manufacturing 227,246 225,149 114,447 Restaurant service 107,867 18,084 ------------ ------------ ------------- $ 859,506 $ 455,791 $ 229,457 ============ ============ ============= F17 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 1996, 1995 and 1994 NOTE 14 - SEGMENT INFORMATION (continued) June 30, 1996 1995 ------------ ------------- Identifiable assets: Corporate and other $ 14,232,523 $ 14,269,797 Insurance 1,779,900 1,959,616 Manufacturing 3,786,344 4,072,456 Restaurant service 1,591,200 913,983 ------------ ------------- $ 21,389,967 $ 21,215,852 ============ ============= Property, plant and equipment additions: Corporate and other $ 169,460 $ 63,144 Insurance 31,029 1,489 Manufacturing 97,475 142,522 Restaurant service 328,915 184,470 ------------ ------------- $ 626,879 $ 391,625 ============ ============= NOTE 15 - UNAUDITED QUARTERLY FINANCIAL DATA 1996 First Second Third Fourth Quarter Quarter Quarter Quarter ------------ ------------ ----------- ----------- Net sales $ 1,682,112 $ 2,881,171 $ 974,085 $ 574,420 Loss from operations (444,482) (1,117,154) (1,046,214) (711,814) Net loss (457,699) (1,195,243) (1,048,588) (826,823) Loss per share (.02) (.04) (.03) (.02) Weighted average common shares outstanding 30,303,406 30,806,371 32,403,029 33,138,224 1995 First Second Third Fourth Quarter Quarter Quarter Quarter ------------ ------------ ----------- ----------- Net sales $ 885,269 $ 1,649,652 $ 727,166 $ 176,096 Loss from operations (494,168) (1,056,209) (595,042) (344,061) Net loss (449,618) (1,964,405) (814,179) (1,525,178) Loss per share (.02) (.09) (.04) (.06) Weighted average common shares outstanding 22,728,704 22,739,006 22,845,687 27,046,479 F18 Singer Lewak Greenbaum & Goldstein LLP Certified Public Accountants & Management Consultants REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Alanco Environmental Resources Corporation Our report on the consolidated financial statements of Alanco Environmental Resources Corporation and subsidiaries is included on page F1 of the Annual Report on Form 10-K. In connection with our audit of such financial statements as of June 30, 1996 and for the year then ended, we have also audited the related financial statement schedule listed in the index on page F21 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/Singer Lewak Greenbaum & Goldstein LLP Singer Lewak Greenbaum & Goldstein LLP Los Angeles, California September 6, 1996 F19 BILLIE J. ALLRED CERTIFIED PUBLIC ACCOUNTANT Suite J-1 4625 South Ash Avenue Tempe, Arizona 85282 Tel.(602) 820-2092 Fax (602) 820-4584 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders Alanco Environmental Resources Corporation Our report on the consolidated financial statements of Alanco Environmental Resources Corporation and subsidiaries is included on page F2 of the Annual Report on Form 10-K. In connection with our audit of such financial statements as of June 30, 1995 and 1994 and for the years then ended, we have also audited the related financial statement schedule listed in the index on page F21 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be include therin. /s/Billie J. Allred BILLIE J. ALLRED CPA Tempe, Arizona September 28, 1996 F20
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES Column A Column B Column C Column D Column E - ------------------------------------ ------------ ------------- ---------- ---------- ---------- Additions Additions Balance at Charged to Charged to Balance Beginning of Costs and Other at End of Description Period Expenses Accounts Deductions Period - ------------------------------------ ------------ ---------- ---------- ---------- ---------- Allowance deducted from asset to which it applies: Allowance for doubtful accounts Year ended: June 30, 1996 $ 25,189 $ 11,000 $ - $ 25,189 $11,000 June 30, 1995 25,600 25,189 - 25,600 25,189 June 30, 1994 25,600 - - 25,600 Allowance for notes receivable Year ended June 30, 1996 - 39,000 - - 39,000 Allowance for obsolete inventory Year ended June 30, 1996 - 100,000 - - 100,000
F21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 16, 1996, Billie J. Allred, the Company's Certifying Accountant for the past two fiscal years, declined to stand for re-election as auditor. Singer Lewak Greenbaum & Goldstein LLP, Certified Public Accountants, were engaged to serve as the Company's new auditors. The selection of Singer Lewak Greenbaum & Goldstein LLP, was approved by the Audit Committee of the Company's Board of Directors. Mr. Allred's report on the financial statements for the fiscal years ended June 30, 1995 and 1994 contained a qualification based upon the Company's ability to continue as a going concern. Except for this qualification, Mr. Allred's reports have not contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. Nor has there been any disagreement with Mr. Allred on any matter of principles or practices, financial statement disclosure or auditing scope or procedure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of the Company and their ages are as follows: Name Age Position with Alanco - ---------------------- ----- ----------------------------- Norman E. Meyer 51 C.E.O./President/Director Dean A. Douglas 49 Executive Vice President Chief Operating Officer John E. Haggar 54 Chief Financial Officer Treasurer Cynthia L. Castellano 34 Corporate Secretary Harold S. Carpenter 62 Director Dennis Schlegel 46 Chairman of the Board Director Charles Clay Miller 55 Director The Directors serve until their successors are elected by the shareholders. Vacancies on the Board of Directors may be filled by appointment of the majority of the continuing directors. The executive officers serve at the discretion of the Board of Directors. Norman E. Meyer. Mr. Meyer joined the Company's Board of Directors in December 1994, was appointed President and Chief Executive Officer of the Company in April 1995, and served as Chairman of the Board from December 1995 to September 1996. Mr. Meyer has over twenty-eight years of experience in the insurance industry, and for the last fifteen years he has held executive positions of increasing operational responsibility. From December 1994 until October 1995, Mr. Meyer served as Chief Executive Officer and a Director of Phoenix Medical Management, Inc., a Phoenix based out-patient rehabilitation/surgery facility. Beginning in 1984 and until December 1994, Mr. Meyer served in various positions including Chief Operating Officer, Director and Chairman of the Board of Realistic Adjustment Company, Inc., a Phoenix, Arizona, based insurance claims adjusting company. From January 1995 to May 1995 Mr. Meyer also served as Vice President of Operations, and remains a Director and Chairman of the Board, of Travel Services of America, a Branson, Missouri, travel agency. From 1992 to 1994, Mr. Meyer served as a consultant to the United Labor Council Local 615 Welfare Fund, wherein Mr. Meyer advised the Council on claims processing. The Union, the Welfare Fund Trustees, the Welfare Fund insurance underwriters and Mr. Meyer were named as defendants in a 1992 civil action filed by the U.S. Department of Labor which alleged breach of fiduciary duty by the defendants in the operation of the Welfare Fund under the Employee Retirement Income Security Act of 1974 (ERISA). Mr. Meyer filed an Answer denying all allegations based upon the fact that Mr. Meyer did not control or serve in the operation of the Welfare Fund and that the Department of Labor's extension of the definition of a "fiduciary" under ERISA to include non-controlling consultants is unwarranted. Mr. Meyer has entered into a disposition agreement with the Department of Labor and dismissal of the action as to Mr. Meyer is anticipated as a result thereof. Dean A. Douglas. Mr. Douglas joined the Company in May 1995 as Vice President of Operations and also served as Secretary from June 1995 until February 1996, whereupon he became Executive Vice President and Chief Operating Officer of the Company. Mr. Douglas has overall operations responsibility for the Company and its subsidiaries. From February 1995 to May 1995 Mr. Douglas was Vice President, Chief Operating Officer for Travel Services of America, Inc. Of Branson, Missouri, and continues to serve as director. Mr. Douglas is also a Vice President, Secretary-Treasurer of Branson's Center, Inc., of Branson, Missouri. From December 1994 to May 1995, Mr. Douglas served as Vice President and Chief Operating Officer for Universal Management Services, Inc., a Phoenix, Arizona, based corporate management consulting company. From May 1992 to January 1993, Mr. Douglas was the Chief Engineer for the Company. Since May 1990, Mr. Douglas has been an officer, director and principal shareholder of Joint Development Systems-America, Inc., doing marketing, general business consulting and record producing for Rex Allen, Jr. Mr. Douglas holds a B.S. degree in Geology from Southern Illinois University, a Master of Science degree from the University of Arizona, and a Master of Business Administration from the University of Denver. John E. Haggar. Mr. Haggar has been an employee of the Company since June 1995, Treasurer since July 1995, and Chief Financial Officer since February 1996. From December 1994, until June 1995, Mr. Haggar was Chief Financial Officer of Universal Management Services, Inc. Previously, Mr. Haggar was a sole practitioner engaged in providing accounting services to the general public in the state of Washington. Mr. Haggar holds a Bachelor of Science in Business from the University of Minnesota. He is a member of the American Institute of Certified Public Accountants. From January 1995 to July 1996, Mr. Haggar was a director of Dixie National Corporation, a publicly owned company whose stock is traded on the NASDAQ System. Cynthia L. Castellano. Ms. Castellano joined the Company in June 1995 as Manager of Administration. Ms. Castellano was appointed Assistant Secretary in December 1995 and then Secretary in February 1996. From January to June, 1995, Ms. Castellano was Manager of Administration for Universal Management Services, Inc. From 1992 through 1994, Ms. Castellano was Administrative Manager for a general contractor in Tempe, Arizona. Ms. Castellano graduated from the University of Phoenix with a Bachelor of Science degree in Business Administration. Harold S. Carpenter. Mr. Carpenter is presently the President of Superiorgas Co., Des Moines, Iowa, which is engaged in the business of trading and brokering bulk refined petroleum products with gross sales of approximately $500 million per year. He is also the General Partner of Superiorgas L.P., an investment company affiliated with Superiorgas Co. Mr. Carpenter founded these companies in 1984 and 1980, respectively. Mr. Carpenter is also the President of Carpenter Investment Company, Des Moines, Iowa, which is a real estate investment company holding properties primarily in central Iowa. From 1970 until 1994, Mr. Carpenter was the Chairman of the George A. Rolfes Company of Boone, Iowa, which manufactured air pollution control equipment. Mr. Carpenter is currently a member of the Board of Directors of the Allied Group, Inc., a publicly owned insurance company headquartered in Des Moines, Iowa. Mr. Carpenter graduated from the University of Iowa in 1958 with a Bachelors of Science and Commerce degree. Dennis Schlegel. Since 1987, Mr. Schlegel has been an independent investor in small and start-up companies as well as a consultant to small and start-up businesses in the areas of corporate management and financing. Prior to this, Mr. Schlegel owned and operated Schlegel Investment Co. in Des Moines, Iowa, and Schlegel Ranch Company, in Iowa and Washington, both of which were engaged in land development. Mr. Schlegel attended one year at Drake University until he withdrew to devote his full time to business pursuits. Mr. Schlegel was elected Chairman of the Board in September 1996. Charles Clay Miller. Charles Clay Miller, an environmental engineer, has a professional background of more than 25 years of management, operations, research, design, and construction in the environmental industry, in both government and private industry, as well as first hand experience in the development and implementation of environmental standards in regulatory environments. Most recently, Miller was Director of the Escambia County, Florida, Solid Waste Department, with management of a $9 million annual budget. Miller also served as Director of the Air and Land Quality Division of the Iowa Department of Environmental Quality. During this period Iowa became the first state in the nation to obtain federal approval for its primary and secondary Air Quality State Implementation Plans according to the Clean Air Act Amendments of 1977. Mr. Miller holds B.S. Degrees in Mathematics and Mechanical Engineering, as well as a Master of Science Degree in Environmental Engineering and Planning. He has completed course work for a Ph. D. in Civil Engineering at the University of Missouri, Rolla. Mr. Miller was named to the Board on September 9, 1996. Compensation of Directors Directors are entitled to receive reimbursement for all out-of-pocket expenses incurred for attendance at Board of Directors meetings. In addition, all Directors not otherwise employed or compensated by the Company are entitled to receive $500 in cash, in common stock at the market price per share, or in health insurance benefits. Pursuant to these director fees, Mr. Bradley Gordon, a former director, was issued 858 shares of common stock, and Mr. Steven Davis, a former director, was issued 746 shares of common stock. In addition, from August 1995 through December 1995, Dr. James Ricketts received a fee of $3,000 per month for being Chairman of the Board. On October 12, 1995, Mr. Meyer was awarded options to acquire 100,000 shares of stock; and on September 27, 1995, Mr. Larry Nelson, a former director, was awarded options to acquire 25,000 shares of stock, both pursuant to the Company's Directors and Officers Stock Option Plan at an exercise price of $0.10 per share. Messrs. Meyer and Nelson in their capacities as Key Employees have also been granted options to acquire an additional 50,000 shares each under the Company's Incentive Stock Option Plan. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table shows for the fiscal year ending June 30, 1996, the compensation awarded or paid by the Company to its Chief Executive Officer and any of the executive officers of the Company whose total salary and bonus exceeded $100,000 during such year (The "Named Executive Officers"): Long Term Compensation Awards Restricted Securities Name and Stock Underlying All Other Principal Fiscal Annual Compensation Awards Options Compen- Position Year Salary Bonus ($) (#shares) sation - ----------------- ------ ------------------- --------------------- ---------- Norman E. Meyer 1995 $ 0 - - - - President, Chief 1996 $ 81,250 - $209,000 150,000 - Executive Officer No other executive officer earned more than $100,000 during the current fiscal year. Option Grants in Last Fiscal Year The following table sets forth each grant of stock options made during the fiscal year ended June 30, 1996, to each of the Named Executive Officers. No stock appreciation rights ("SARs") have been granted by the Company. Individual Grants Percent of Number of Total Potential Realizable Securities Options Exer- Assumed Annual Rates Underlying Granted to cise of Stock Price Options Employees Price Appreciation for Granted(1) in Fiscal ($/Sh) Expiration Option Term (4) Name (#) Year (2) (3) Date 5% 10% 0% - ------------- --------- ---------- ------ ----------- ------- ------- -------- Norman Meyer 100,000 10.39 $0.10 5/27/1996 - - $209,000 Norman Meyer 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 - Dean Douglas 50,000 5.19 $0.10 5/27/1996 - - $89,500 Dean Douglas 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 - John Haggar 50,000 5.19 $0.10 5/27/1996 - - $89,500 John Haggar 50,000 5.19 $1.89 12/16/2000 $26,100 $57,700 - Cynthia Castellano12,500 1.30 $2.09 12/16/2000 $7,200 $15,900 - (1) Options for common shares only, granted through 1995 Incentive Stock Option Plan and the 1995 Directors and Officers Stock Option Plan. (2) Options to purchase 737,500 shares and 225,000 shares were granted to employees under the Company's 1995 Incentive Stock Option Plan and the 1995 Directors and Officers Stock Option Plan. (3) Exercise price for Directors and Officers Stock Options was $0.10 per restricted share for fiscal year ending 1996 and $1.89 or $2.09 per share for the Incentive Stock Option Plan, which shares when acquired were not restricted. (4) Calculated based on given interest rate for the five year life of the option. The column headed 0% shows the potential gain (assuming no restrictions) upon exercise of Directors and Officers Options at market price on the date of grant. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option/Values The following table sets forth the number and value of the unexercised options held by each of the Named Executive Officers at June 30, 1996. All of the Named Executive Officers who hold unexercised options exercised options in the fiscal year ended June 30, 1996. Value of Number of Unexercised Unexercised In-the-Money Options at Options at Shares Acquired Value FY-End (#) FY-End ($) Name On Exercise(#) Realized($) Exercisable Exercisable - ---------------- --------------- ----------- ------------- ----------- Norman Meyer 20,000 $60,400 50,000 (1) $22,500 (1) 20,000 (2) 20,000 (3) 20,000 (4) 20,000 (5) Dean Douglas 10,000 $20,000 50,000 (1) $22,500 (1) 10,000 (6) 10,000 (7) 10,000 (8) 10,000 (9) John Haggar 10,000 $22,100 50,000 (1) $22,500 (1) 10,000 (10) 10,000 (11) 10,000 (12) 10,000 (13) Cynthia Castellano 5,000 $ 9,550 7,500 (1) $ 3,375 (1) (1) as of 6/30/96 (2) vests on 4/24/97 (3) vests on 4/24/98 (4) vests on 4/24/99 (5) vests on 4/24/2000 (6) vests on 3/14/97 (7) vests on 3/14/98 (8) vests on 3/14/99 (9) vests on 3/14/2000 (10) vests on 1/29/97 (11) vests on 1/29/98 (12) vests on 1/29/99 (13) vests on 1/29/2000 Employment Agreements and Executive Compensation Mr. Meyer, President and Chief Executive Officer, serves without an employment contract. Mr. Douglas, the Company's Executive Vice President and Chief Operating Officer, has an employment agreement with the Company whereby he receives $8,000 per month in regular compensation and a $400 per month car allowance under the terms of an agreement effective until April 24, 1998. Mr. Haggar, the Company's Chief Financial Officer, receives $8,000 per month in compensation under the terms of an employment agreement valid through April 24, 1998. Terrence D. Montford also has an employment agreement with the Company's subsidiary, Fry Guy Inc., as its Executive Vice President. Under the terms of this agreement, Mr. Montford receives $8,000 per month in regular compensation, the use of a Company automobile, and options to purchase 60,000 shares of the Company stock at $2.00 per share. As part of his compensation, Mr. Montford also receives a sum equal to 2 percent of the net income before taxes earned by Fry Guy, Inc., during any fiscal year for the term of the agreement. Mr. Montford's employment agreement with the Company expires on January 24, 1999. Incentive Stock Option Plan On December 16, 1995, the Shareholders approved the Company's 1995 Incentive Stock Option Plan (the Plan). The purpose of the Plan is to advance the business and development of the Company and its shareholders by affording to the key employees of the Company the opportunity to acquire a propriety interest in the Company by the grant of Options to acquire shares of the Company's common stock. The Options granted are "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, for certain key employees. The Plan is administered by an Administrative Committee whom shall serve a one year term. Until February 17, 1996, the Administrative Committee was composed of James Ricketts, Kevin Jones and Peter Van Oosterhout, who are the Board's Employment Compensation Committee. The Plan was approved by the Board of Directors on September 28, 1995, subject to Shareholder approval, and shall terminate on September 28, 2005. Subject to anti-dilution provisions, the Plan may issue Options to acquire up to 1,000,000 shares to Key Employees. The maximum number of shares subject to Options granted to any one Key Employee shall not exceed 100,000 shares. The exercise price for Options shall be set by the Administrative Committee but shall not be for less than the fair market value of the shares on the date the Option is granted. The period in which Options can be exercised shall be set by the Administrative Committee not to exceed five years from the date of Grant. The Plan may be terminated, modified or amended by the Board of directors upon the recommendation of the Administrative Committee. The issuance of options pursuant to this Plan is not expected to be a taxable event for recipient until such time that the recipient elects to exercise the option whereupon the recipient is expected to recognize income to the extent the market price of the shares exceeds the exercise price of the option on the date of exercise. All Key Employees of the Company and its subsidiaries are eligible to participate in the Incentive Stock Options. A Key Employee is defined in the Plan as a Company employee who in the judgement of the Administrative Committee has the ability to positively affect the profitability and economic well-being of the Company. Part time employees, independent contractors, consultants and advisors performing bona fide services to the Company shall be considered employees for purposes of participation in the Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) The following table sets forth persons known to the Company as beneficially owning more than five percent (5%) of the outstanding shares of the Registrant. % of Shares Name and Address Shares Outstanding - -------------------------------- ----------- ------------- Lyons Capital Partners, L.P. 4365 Executive Drive, Suite 740 San Diego, CA 92121 7,684,170 23.10% (b) The following table sets forth the number of shares of the Company's Common Stock beneficially owned as of June 30, 1996, by individual directors and executive officers and by all directors and executive officers of the Company as a group. % of Shares Name and Address Shares Outstanding - ---------------------------- ------------- ------------ Dennis Schlegel 204,445 (1) 0.62% Harold S. Carpenter 642,086 (2) 1.93% Norman E. Meyer 105,500 0.32% Dean A. Douglas 50,550 0.15% John E. Haggar 50,000 0.15% Charles Clay Miller 9,000 0.03% Officers and Directors as a Group (6 individuals) 1,061,581 3.20% (1) Includes 153,440 shares indirect ownership (2) Includes 256,606 shares indirect ownership ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since the beginning of the most recent fiscal year there have been no related party transactions responsive to this item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. Exhibits (3)(i) Articles of Incorporation Incorporated by reference: Form S-1 Registration File # 333-07739 effective August 13, 1996 (3)(ii) By-Laws of Corporation (21) Subsidiaries of Registrant (27) Financial Data Schedule B. Schedule (II) Valuation and Qualifying Accounts C. Reports on Form 8-K Report dated April 16, 1996, change in registrant's certifying accountant. For additional information regarding change in registrant's certifying accountant, please refer to Item 9, Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Report dated June 11, 1996, resignation of two of registrant's directors. On May 30, 1996, Steven Davis and Bradley Gordon resigned their positions as Directors of the Registrant effective immediately. Mr. Davis and Mr. Gordon each stated that their resignations were due to the increasing demand for their time and attention arising from their positions as Chief Executive Officers of rapidly growing public companies. Mr. Davis and Mr. Gordon expressed no disagreements with the remaining Board of Directors of the Registrant or Management. Exhibits or schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is given in the financial statements, including the notes thereto. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Alanco Environmental Resources Corporation /s/Dennis Schlegel Date: 9/26/96 ----------------------------- ---------------- Dennis Schlegel, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE /s/Norman E. Meyer Chief Executive Officer 9/26/96 - -------------------------- Director and President ---------------- Norman E. Meyer /s/Harold S. Carpenter 9/26/96 - -------------------------- Director ---------------- Harold S. Carpenter /s/Charles Clay Miller 9/26/96 - -------------------------- Director ---------------- Charles Clay Miller /s/John E. Haggar 9/26/96 - -------------------------- Chief Financial Officer ---------------- John E. Haggar and Treasurer EX-3.2 2 EXHIBIT 3.2 BYLAWS OF THE REGISTRANT By-Laws of Alanco Environmental Resources Corporation I. CORPORATION ARTICLES 1.01 - References Thereto. Any reference herein made to the Corporation's Articles will be deemed to refer to its Articles of Incorporation and all Amendments thereto as at any given time on file with the Arizona Corporation Commission, together with any and all certificates theretofore filed by the Corporation with the Arizona Corporation Commission pursuant to applicable law. 1.02 - Seniority Thereof. The Articles will in all respects be considered senior and superior to these By-Laws, with any inconsistency to be resolved in favor of the Articles, and with these By-Laws to be deemed automatically amended from time to time to eliminate any such inconsistency which may then exist. II. STOCKHOLDERS MEETINGS 2.01 - Annual Meetings. Each annual meeting of the stockholders is to be held on the date determined in accordance with the Corporation's Articles of Incorporation, at a time of day and place as determined by the Board of Directors, or in the absence of action by the Board, as set forth in the notice given, or waiver signed, with respect to such meeting pursuant to Section 2.03 below. If any such annual meeting is for any reason not held on the date determined as aforesaid, a special meeting may thereafter be called and held in lieu thereof, and the same proceedings (including the election of Directors) may be conducted thereat as at a regular meeting. Any Director elected at any annual meeting or special meeting in lieu of an annual meeting, will continue in office until the election of his/her successor, subject to his/her earlier resignation pursuant to Section 6.01 below. - 1 - By-Laws of Alanco Environmental Resources Corporation 2.02 - Special Meetings. Special meetings of the stockholders may be held whenever and wherever called for by the Chairman of the Board, the President or the Board of Directors, or by the written demand of the holders of 10% of all issued and outstanding shares of the stock, regardless of class. The business which may be conducted at any such special meeting will be confined to the purposes, stated in the notice thereof, and to such additional matters as the Chairman of such meeting may rule to be germane to such purposes. 2.03 - Notices. At least twenty (20) days (inclusive of the date of meeting) before the date of any meeting of the stockholders and at the direction of the person or persons calling the meeting, the Secretary of the Corporation will cause a written notice setting forth the time, place and general purposes of the meeting to be deposited in the mail, with postage prepaid, addressed to each stockholder of record at his last address as it then, or on the applicable record date, appears on the Corporation's records. Any stockholder may waive call or notice of any annual, or special meeting (and any adjournment thereof) at any time before, during which or after it is held. Attendance of a stockholder at any such meeting in person or by proxy will automatically evidence his/her waiver of call and notice of such meeting ( and any adjournment thereof) unless he/she or his/her proxy is attending the meeting for the express purpose of objecting to the transaction of business thereat because it has not been properly called or noticed. No call or notice of a meeting of the stockholders will be necessary if each of them waives the same in writing or by attendance as aforesaid. 2.04 - Registered Stockholders. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders (and at any adjournment thereof), or stockholders entitled to express written consent to corporate action without a meeting, or in order to make a determination of stockholders for any other lawful action, the Board of Directors may fix in advance a record date which shall not be more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any such other action. If no record date is fixed for determining stockholders entitled to notice of or to vote at a meeting of stockholders, the record date shall be at four o'clock in the afternoon on the day before the day on which notice is given, or, if notice is waived, at the commencement of the meeting. If no record date is fixed for determining shareholders entitled to express written consent to corporate action without meeting, the record dated shall be the time of the day on which the first written consent is served upon an Officer or Director of the Corporation. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting and further provided that the adjournment or adjournments of any such meeting do not exceed sixty (60) days in the aggregate. - 2 - By-Laws of Alanco Environmental Resources Corporation 2.05 - Voting Record. The Officer or Agent having charge of the stock transfer books for shares of the Corporation shall make a complete record of the stockholders entitled to vote at a meeting of the stockholders (and at any adjournment thereof), arranged in alphabetical order, with the address of and the number of shares held by each. Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting for the purposes thereof. 2.06 - Proxies. At all meetings of the stockholders (and at any adjournment thereof), any stockholder entitled to vote thereat, may vote by proxy, executed in writing by the stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. The burden of proving the validity of any proxy undated, irrevocable, or otherwise contested at any such meeting of the stockholders will rest with the person seeking to exercise the same. A telegram, facsimile or cablegram appearing to have been transmitted by a stockholder or by his duly authorized attorney-in-fact may be accepted as a sufficiently written and executed proxy. - 3 - By-Laws of Alanco Environmental Resources Corporation 2.07 - Voting. Except for the election of Directors (which will be governed by cumulative voting pursuant to applicable law) and except as may otherwise be required by the Corporation's Articles, Section 2.08 below, or by applicable statutes, each issued and outstanding share of the Corporation's capital stock (specifically excluding shares held in the treasury of the Corporation) represented at any meeting of the stockholders, in person or by proxy, given pursuant to Section 2.06 above, will be entitled to one vote. Unless otherwise required by the Corporation's Articles or by applicable statutes, any question submitted to the stockholders will be resolved by a majority of the votes cast thereon provided that such votes constitute a majority and the quorum is then present. The voting will be by ballot on any question as to which a ballot vote is demanded, prior to the time the voting begins, by any person entitled to vote on such question; otherwise, a voice vote will suffice. No ballot or change of vote will be accepted after the polls have been declared closed following the ending of the announced time for voting. 2.08 - Voting of Shares by Certain Holders. Shares of the Corporation held by another corporation may be voted by such corporation's officer, agent or proxy as its by-laws may prescribe, or in absence of such by-law provision, by any other person designated by resolution of its Board of Directors, and such officer, agent or other person so designated may vote such corporation's shares in this Corporation in person or by proxy appointed by him. Shares held by an administrator, executor, guardian or conservator may be voted by such representative, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee, other than a trustee in bankruptcy, may be voted by such representative, either in person or by proxy, but no such trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver, trustee in bankruptcy, or assignee for the benefit of creditors may be voted by such representative, either in person or by proxy. Shares held by or under the control of such a receiver or trustee may be voted by such receiver or trustee, either in person or by proxy, without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver or trustee was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. If shares stand in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by community property or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (1) If only one votes, his act binds; (2) If more than one votes, the act of the majority so voting binds all; and (3) If more than one votes, but the vote is evenly split on any particular matter, each fraction may vote the shares in question proportionally. - 4 - By-Laws of Alanco Environmental Resources Corporation Shares standing in the name of a married woman but not also standing in the name of her husband with such a designation of mutual relationship on the certificate, may be voted and all rights incident thereto may be exercised in the same manner as if she were unmarried. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the elections of Directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor counted for quorum purposes. Nothing in this Section shall be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. Shares standing in the name of a broker-dealer or similar institution for beneficial owners to whom the broker-dealer distributed notice of the stockholder's meeting and proxy information shall be voted as instructed by the beneficial owners thereof. The foregoing notwithstanding, such shares may be counted as present for purposes of determining the presence of a quorum as stated below. In addition, the Corporation shall rely solely upon the proxy information returned by such broker-dealers regardless of all other proxies purported to be signed by said beneficial owner or requests to vote such shares in person. 2.09 - Quorum. At any meeting of the stockholders, the presence in person or by proxy of the holders of a majority of all issued and outstanding shares of the Corporation, (including shares registered in the name of a broker-dealer or similar institution for beneficial owners to whom the broker-dealer distributed notice of the stockholder's meeting and proxy information regardless of whether such beneficial owners have returned proxies or otherwise instructed the broker-dealer as to voting their shares), which would then be entitled to vote, will constitute a quorum of the stockholders for all purposes. In the absence of a quorum, any meeting may be adjourned, from time to time, but any such adjournment shall not exceed sixty (60) days in the aggregate, by its Chairman until a quorum is formed. At any such adjourned meeting, at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal or temporary absence of enough stockholders which leaves less than a quorum present. 2.10 - Election Inspectors. The Board of Directors, in advance of any meeting of the stockholders, may appoint an election inspector(s) to act at such meeting (and at any adjournment thereof). If an election inspector(s) is/are not so appointed, the Chairman of the meeting may, or upon request of any person entitled to vote at the meeting will, make such appointment. If any person appointed as an inspector fails to appear or to act, a substitute may be appointed by the Chairman of the meeting. If appointed, the election inspector(s) (acting through a majority) will determine the number of shares outstanding, the authenticity, validity and effect of proxies and the number of shares represented at the meeting in person and by proxy; they will receive and count votes, ballots and consents and announce the results thereof; they will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, they will perform such acts as may be proper to conduct elections and voting with complete fairness to all stockholders. No such election inspector(s) need be a stockholder of the Corporation. - 5 - By-Laws of Alanco Environmental Resources 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 informal, or question and answer portions thereof). 2.12 - Stockholder Approval or Ratification. The Board of Directors may submit any contract or act for approval or ratification of the stockholders, either at a duly constituted meeting of the stockholders (the notice of which either includes mention of the proposed submittal or is waived pursuant to Section 2.03). If any contract or act so submitted is approved or ratified by a majority of the votes cast thereon at such meeting or by such unanimous written consent, the same will be valid and binding upon the Corporation as the act of its stockholders pursuant to Section 2.07. 2.13 - Informalities and Irregularities. All informalities or irregularities in any call or notice of a meeting of the stockholders or in the areas of credentials, proxies, quorums, voting and similar matters, will be deemed waived if no objection is made at the meeting. III. BOARD OF DIRECTORS 3.01 - Membership. The Board of Directors will be comprised of not less than five (5) nor more than nine (9) members, except when the total number of stockholders of the Corporation is less than three (3) then the number of Directors may be equal to the number of stockholders. Directors of the Corporation need not be stockholders. The Board of Directors will have the power and authority to decrease or increase its membership, provided the same falls within the aforesaid limits and to fill any vacancies up to the maximum number of Directors allowed, - 6 - By-Laws of Alanco Environmental Resources Corporation whether or not such vacancies were created by a resigned Director or a vacant position. The election of the members of the Board of Directors, so slated for election as set forth above, will take place at each regularly scheduled annual meeting of the stockholders, but such election may be held at any other meeting of the stockholders. 3.02 - Regular Meetings. A regular annual meeting of the Board of Directors is to be held immediately after each annual meeting of the stockholders at the place at which such stockholders meeting was held. Regular meetings, other than the annual ones, may be held at regular intervals at such places and at such times as the Board of Directors may provide. 3.03 - Special Meetings. Special meetings of the Board of Directors may be held whenever and wherever (if within the continental United States) called for by the Chairman of the Board, the President or the number of Directors which would be required to constitute a quorum. 3.04 - Notices. No notice need be given of regular meetings of the Board of Directors. Written notice of the time and place (but not necessarily the purpose or all of the purposes) of any special meeting will be given to each Director in person or via mail, facsimile or telegram addressed to him at his latest address or telephone number appearing on the Corporation's records. Notice to any Director of any such special meeting will be deemed given sufficiently in advance when, if given by mail, the same is deposited in the United States mail, with first class or air mail, postage prepaid, at least four days before the meeting date, or if personally delivered or given by facsimile or telegram, the same is handed to the Director, or the facsimile or telegram is sent at least 48 hours prior to the convening of the meeting. Any Director may waive call or notice of any meeting (and any adjournment thereof) at any time before, during which or after it is held. Attendance of a Director at any meeting will automatically evidence his waiver of call and notice of such meeting (and any adjournment thereof) unless he is attending the meeting for the express purpose of objecting to the transaction of business thereat because it has not been properly called or noticed. No call or notice of a meeting of Directors will be necessary if each of them waives the same in writing or by attendance as aforesaid. Any meeting, once properly called and noticed (or as to which call and notice have been waived as aforesaid) and at which a quorum is formed, may be adjourned to another time and place by a majority of those in attendance. 3.05 - Quorum. A quorum for the transaction of business at any meeting or adjourned meeting of the Board of Directors will consist of majority of those then in office. 3.06 - Voting. Any question submitted to any meeting or adjourned meeting of the Board of Directors will be resolved by a majority of the votes cast thereon; in case of an equality of votes, the Chairman of the meeting will have a second or - 7 - By-Laws of Alanco Environmental Resources Corporation deciding vote. 3.07 - Executive Committee. The Board of Directors may, by resolution adopted by a majority of the whole Board, name two or more of its members as an Executive Committee. Such Executive Committee will have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation while the Board is not in session, subject to such limitations as may be included in Board's resolution; provided, however, that such Executive Committee shall not have the authority of the Board of Directors in reference to the following matters: (1) the submission to stockholders of any action that requires the authorization or approval under applicable law; (2) the filling of vacancies on the Board of Directors or in any committee of the Board of Directors; (3) the amendment or repeal of the bylaws, or the adoption of new bylaws; and (4) the fixing of compensation of Directors for serving on the Board or on any Committee of the Board of Directors. A majority of those named to the Executive Committee will constitute a quorum and the Committee may at any time act by the written consent of a quorum thereof, although not formally convened. 3.08 - Other Committees. The Board of Directors shall by resolution adopted by a majority of the whole Board, appoint a Compensation/Administration Committee, an Audit Committee and other standing or temporary Committees from its membership and vest such Committees with such powers as the Board may include in its resolution; provided, however, that such Committees shall be restricted in their authority as specifically set forth with respect to the Executive Committee in Section 3.07 above. A majority of those named to any such Committees will constitute a quorum and the Committee may at any time act by the written consent of a quorum thereof, although not formally convened. 3.09 - Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors, or of any Committee, at which action is taken on any corporate matter will be presumed to have assented to the action taken unless his dissent is entered in the minutes of the meeting or unless he files his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or forwards such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent will not be available to a Director who voted in favor of the action. 3.10 - Compensation. By resolution of the Board of Directors, each Director may be paid his expenses, if any, for the attendance at each meeting of the Board of Directors or of any Committee, and may be paid a fixed sum for attendance at each such meeting or a stated salary as a Director or Committee member. If a Director also serves the Corporation in another capacity, on a full time basis, and is compensated therefor, then that Director shall not be entitled to receive compensation for attendance at meetings, but shall still be entitled to expenses for such attendance. 3.11 - Action by Directors Without a Meeting. - 8 - By-Laws of Alanco Environmental Resources Corporation Any action required or permitted to be taken at a meeting of the Board of Directors or of a Committee of the Corporation may be taken without a meeting if all Directors or Committee members, as the case may be, consent thereto in writing. Such consent shall have the same effect as a unanimous vote of the Directors or Committee members of the Corporation. 3.12 - Meetings by Conference Telephone. Any member of the Board of Directors or of a Committee of the Corporation may participate in any meeting thereof by means of a conference telephone or similar communication equipment whereby all members participating in such meeting can hear one another. Such participation shall constitute attendance in person, unless otherwise stated as provided in Section 3.04. IV. OFFICERS - GENERAL 4.01 - Election of Chief Executive Officer. The Board of Directors will elect the Chief Executive Officer of the Corporation who shall also be the Chairman of the Board of Directors or the President. Such election will regularly take place at each annual meeting of the Board of Directors, but maybe held at any other meeting of the Board of Directors. A person elected to the office of Chief Executive Officer will continue to hold this office until the election of his successor, subject to action earlier taken pursuant to Sections 4.04 or 6.01. 4.02 - Appointment of Additional Officers. The Chief Executive Officer will select and the Board of Directors shall appoint the Officers set forth in Section 5. In addition to the Officers contemplated in Section 5, the Chief Executive Officer may select and the Board of Directors shall appoint other corporate Officers (as, for example, one or more Assistant Secretaries) having such authority to perform such duties as may be prescribed from time to time by the Chief Executive Officer, by the President or in the case of Assistant Officers, by his/her or their superior Officers (which, in the foregoing example, would be the Secretary). Each of such Assistant Officers will be vested with all of the powers and charged with all of the duties (including those herein specifically set forth) of his superior officer in the event of such superior officer's absence or disability. 4.03 - Bonds and Other Requirements. The Board of Directors may require any Officer to give bond to the Corporation (with sufficient surety, and conditioned for the faithful performance of the duties of his/her office) and to comply with such other conditions as may from time to time be required of him/her by the Board. 4.04 - Removal or Delegations. The Chief Executive Officer may at his sole discretion remove any Officer of the Corporation at any time and with or without cause. In addition, provided that two-thirds (2/3) of the whole membership thereof concurs therein, the Board of Directors may at any time, with or without cause and whenever in its judgment the best interests of the Corporation will be served thereby, remove any Officer, including the Chief Executive Officer, or Agent of the Corporation and declare his Office vacant or temporarily delegate his/her powers and duties to any other Officer or to any Director. Such removal or - 9 - By-Laws of Alanco Environmental Resources Corporation delegation shall be without prejudice to the contract rights, if any, of the person so removed or whose powers and duties have been delegated. Election or appointment of an Officer or Agent shall not of itself create contract rights 4.05 - Salaries. The Compensation of the Chief Executive Officer shall be determined and set by the Compensation/Administration Committee. All other Officer salaries shall from time to time be fixed by the Chief Executive Officer. No Officer will be prevented from receiving a salary by reason of the fact that he/she is also a Director of the Corporation. V. SPECIFIC OFFICERS 5.01 - Chairman of the Board. The Board of Directors may elect a Chairman to serve as a Non-Executive Officer of the Corporation.. The Chairman will preside at all meetings of the Board of Directors and be vested with such other powers and duties as the Board may from time to time delegate to him. 5.02 - Chief Officers. The Board of Directors shall elect a Chief Executive Officer who shall also be a Director of the Corporation. The Corporation may also have a Chief Financial Officer who shall also be the Treasurer of the Corporation. The Corporation may also have a Chief Operating Officer who shall also be either the Executive Vice President or President of the Corporation. The Chief Executive Officer shall be the presiding officer over all business affairs of the Corporation, subject only to the direction of the Board of Directors. 5.03 - President. The President, in the absence of the Chief Executive Officer, will supervise the business and affairs of the Corporation and the performance by all of its other Officers of their respective duties, subject to the control of the Board of Directors. Except as may otherwise be specifically provided in a resolution of the Board of Directors, the President will be a proper Officer to sign on behalf of the Corporation any deed, bill of sale, assignment, option, mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to service of process or otherwise), agreement, indenture or other instrument of any significant importance to the Corporation. The President may represent the Corporation at any meeting of the stockholders of any other Corporation in which this Corporation then holds shares, and may vote this Corporation's shares in such other corporation in person or by proxy appointed by him, provided that the Board of Directors may from time to time confer the foregoing authority upon any other person or persons. The President may designate any Vice President to perform any acts, on behalf of the Corporation, in his place. - 10 - By-Laws of Alanco Environmental Resources Corporation 5.04 - Vice Presidents. One or more Vice Presidents may be selected by the Chief Executive Officer each of whom will be vested with all of the powers and charged with all of the duties (including those herein before specifically set forth) of the President in the event of his absence or disability. Each Vice President will perform such other duties as may from time to time be delegated or assigned to him/her by the Board of Directors, Chief Executive Officer, the President or the Executive Vice President, in that order. 5.05 - Secretary. The Secretary will keep the minutes of meetings of the stockholders, Board of Directors and any Committee, and all unanimous written consents of the stockholders, Board of Directors and any Committee of the Corporation, see that all notices are duly given in accordance with the provisions of these By-Laws or as required by applicable law, be custodian of the Corporate Seal and Corporate Records, and, in general, perform all duties incident to the office. Except as may otherwise be specifically provided in a resolution of the Board of Directors, the Secretary and each Assistant Secretary will be a proper officer to take charge of the Corporation's stock transfer books, and to compile the voting record pursuant to Section 3.06, and to impress the Corporation's Seal on any instrument signed by a duly authorized or empowered Officer, and to attest to the same. 5.06 - Treasurer. The Treasurer, absent the election of a Chief Financial Officer, shall serve as the Chief Financial Officer and will maintain the financial records of the Corporation and supervise all Corporate reporting with any and all government agencies. The Treasurer will keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and will cause all money and other valuable effects to be deposited in the name and to the credit of the Corporation in such depositories, subject to withdrawal in such manner as may be designated by the Board of Directors and the Chief Executive Officer. The Treasurer will render to the President and to the Directors (at the regular meetings of the Board or whenever they may require), an account of all his/her transactions, as Treasurer, and of the financial condition of the Corporation. - 11 - By-Laws of Alanco Environmental Resources Corporation 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 - 12 - By-Laws of Alanco Environmental Resources Corporation share on the part of any other person, whether or not it has notice thereof, except as may expressly be provided by applicable law. 8.04 - Transfers. Transfers of shares of the Corporation may be made on the stock transfer books of the Corporation only at the direction of the person named in the certificate therefor (or by his duly authorized attorney-in-fact) and upon the surrender of such certificate. 8.05 - Lost Certificates. In the event of the loss, theft or destruction of any certificate representing shares of the Corporation or of any predecessor corporation, the Corporation may issue (or, in the case of any such shares as to which a transfer agent and/or registrar have been appointed, may direct and issue) a new certificate, and cause the same to be delivered to the owner of the shares represented thereby, provided that the owner shall have submitted such evidence showing the circumstances of the alleged loss, theft or destruction, and his/her ownership of the certificate, as the Corporation considers satisfactory, together with any other facts which the Corporation considers pertinent, and further provided that a bond shall have been provided in form and amount satisfactory to the Corporation (and to its transfer agent and/or registrar, if applicable), unless the shares represented by the certificate lost, stolen or destroyed have at the time of the issuance of the new certificate a market value of $500 or less (as determined by the Corporation on the basis of such information as it may select), in which case the requirements of a bond may be waived. The Corporation may act through its President, any Vice President, its Secretary or its Treasurer for any purpose of this Section 8.05. IX. DIVIDENDS 9.01 - Dividends. Subject to such restrictions or requirements as may be imposed by applicable law or the Corporation's Articles or as may otherwise be binding upon the Corporation, the Board of Directors may from time to time declare and the Corporation may pay dividends on shares of the Corporation outstanding on the dates of record fixed by the Board, to be paid in cash, in property, in shares of the Corporation or in shares of other corporations owned by the Corporation on or as of such payment or distribution dates as the Board may prescribe. X. INDEMNIFICATION 10.01 - Indemnification. Subject to the provisions of Arizona Corporate Law, as amended from time to time, the Corporation does hereby indemnify and hold harmless the Directors and Officers of the Corporation for the performance or failure to perform, as the case may be, any act, which act is not wilfully and/or grossly negligent and which was performed in the best interests of the Corporation at the time said act occurred. This indemnification shall not limit the Corporation's ability provide additional indemnification, under Law, when and if adjudicated. - 13 - By-Laws of Alanco Environmental Resources Corporation XI. AMENDMENTS 11.01 - Amendments to By-Laws. The By-Laws may be altered, amended, supplemented, repealed or temporarily or permanently suspended, in whole or in part, or new By-Laws may be adopted, at any duly constituted meeting of the stockholders or the Board of Directors (the notice of which meeting either includes mention of the proposed action relative to the By-Laws or is waived pursuant to Section 2.03 or Section 3.04, whichever is applicable) or, alternatively, by unanimous written consent to corporate action without a meeting of the stockholders or the Board of Directors pursuant to Section 3.11. if, however, any such action arises as a matter of necessity at any such meeting and is otherwise proper, no notice thereof will be required. The foregoing By-Laws were adopted by the Board of Directors of the Corporation at a meeting held on the 23rd day of May, 1995. /s/Cynthia L. Castellano ---------------------------- Secretary of the Corporation (Seal) ATTEST: - ---------------------- Chairman of the Board - 14 - EX-21 3 EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT NAME STATE OF INCORPORATION - ---------------------------------------------- -------------------------- Alanco Environmental Services, Inc. Nevada Alanco Environmental Manufacturing, Inc. Nebraska Alanco Financial Services Corp. Nevada Alanco Environmental Technology People's Republic of China (Beijing) Co. Ltd. Fry Guy Inc. Nevada Unique Systems, Inc. dba National Affiliated Adjustment Company Nevada EX-27 4
5 YEAR JUN-30-1996 JUN-30-1996 565,199 0 1,973,621 50,000 1,281,872 3,841,374 4,045,224 737,966 21,347,709 809,761 372,020 330,468 0 51,783,690 (32,812,783) 21,347,709 3,743,542 4,962,948 2,507,803 8,282,612 246,244 50,000 101,763 (3,528,353) 0 (3,528,353) 0 0 0 (3,528,353) (.11) (.11)
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