SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities and Exchange Act of 1934
For the quarter ended . . . . . . . . . . . . . . . . . . . .September 30, 1996
Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
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(formerly known as Alanco Resources Corporation)
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4110 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85251
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(Address of principal executive offices) (Zip Code)
(602) 874-0448
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
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As of November 4, 1996, there were 33,576,759 shares of common stock
outstanding.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1996 (unaudited) and
June 30, 1996 (audited). . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended September 30,
1996 and 1995 (unaudited). . . . . . . . . . . . . 4
Consolidated Statements of Shareholders' Equity
For the three months ended September 30,
1996 and 1995 (unaudited). . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the three months ended September 30,
1996 and 1995 (unaudited). . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements
(unaudited). . . . . . . . . . . . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
Sept 30, 1996 June 30, 1996
ASSETS (unaudited) (audited)
-------------- --------------
Current Assets:
Cash $ 1,333,327 $ 565,199
Accounts receivable 831,193 648,974
Notes receivable 1,254,507 1,274,647
Inventories (note 2) 838,520 1,281,872
Prepaid expenses and other current assets 218,218 70,682
-------------- --------------
Total current assets 4,475,765 3,841,374
Property, plant and equipment 3,906,182 3,307,258
Costs in excess of book value on acquisition of
wholly-owned subsidiaries, net of accumulated
amortization of $635,703 and $529,066, 5,762,500 5,869,137
respectively
Intangible assets, net of accumulated amortization
of $113,149 and $108,119, respectively 191,590 188,808
Assets held for sale 6,855,063 6,855,063
Other assets 1,361,616 1,286,069
-------------- --------------
Total assets $ 22,552,716 $ 21,347,709
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations, current portion $ 127,826 $ 124,571
Accounts payable and accrued expenses 805,631 685,190
-------------- --------------
Total current liabilities 933,457 809,761
Capital lease obligations 345,181 372,020
Unrealized installment sales 864,553 864,553
Redeemable Class A Preferred Stocks (note 3) 1,535,132 330,468
Shareholders' equity
Preferred Stock, Class B, cumulative voting;
20,000,000 shares authorized and none issued
Common Stock, no par value, 100,000,000 shares
authorized; 33,576,759 and 33,209,544
shares issued and outstanding, respectively 52,172,985 51,783,690
Accumulated deficit (33,298,592) (32,812,783)
-------------- --------------
Total shareholders' equity 18,874,393 18,970,907
-------------- --------------
Total liabilities & shareholders' equity $ 22,552,716 $ 21,347,709
============== ==============
See notes to consolidated financial statements
3<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1996 and 1995
September 30
----------------------------
1996 1995
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Net sales $ 1,756,871 $ 1,682,112
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Operating expenses:
Direct service and cost of goods sold 946,241 945,604
Selling, general and administrative 1,055,053 954,102
Depreciation and amortization 231,975 226,888
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Total operating expenses 2,233,269 2,126,594
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Loss from operations (476,398) (444,482)
Other income (expense) (9,411) (13,217)
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Net loss $ (485,809) $ (457,699)
============= =============
Net loss per share $ (0.01) $ (0.02)
============= =============
Weighted average common shares outstanding 33,364,278 30,303,406
============= =============
See notes to consolidated financial statements
4<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended September 30, 1996 and 1995
Common Stock Accumulated
Shares Amount Deficit TOTAL
------------ ----------- -------------- ------------
Balances ,June 30, 1995 29,924,057 $47,885,246 $ (29,284,430) $18,600,816
Common stock issued for:
Cash 671,875 806,249 806,249
Services rendered 2,000 2,000 2,000
Net loss (457,699) (457,699)
------------ ----------- -------------- ------------
Balances September 30, 1995 30,597,932 $48,693,495 $ (29,742,129) $18,951,366
============ =========== ============== ============
Balances, June 30, 1996 33,209,544 $51,783,690 $ (32,812,783) $18,970,907
Common stock issued for:
Cash 350,215 368,215 368,215
Shares issued under stock
option plans 7,000 13,230 13,230
Satisfaction of debt 10,000 7,850 7,850
Net loss (485,809) (485,809)
------------ ----------- -------------- ------------
Balances September 30, 1996 33,576,759 $52,172,985 $ (33,298,592) $18,874,393
============ =========== ============== ============
See notes to consolidated financial statements
5<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1996 and 1995
September 30
1996 1995
------------ -----------
Cash flows from operating activities:
Net loss $ (485,809) $ (457,699)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 231,975 226,887
Other 17,764 1,555
(Increase) decrease in:
Accounts receivable (182,219) (359,760)
Inventory 116,021 (161,950)
Prepaid expenses and other current assets (147,660) 13,586
Other assets (75,547) -
Increase (decrease) in:
Accounts payable and accrued expenses 123,696 (23,482)
------------ -----------
Net cash provided by (used in) operating
activities (401,779) (760,863)
------------ -----------
Cash flows from investing activities:
Notes receivable 20,140 248,964
Purchase of property, plant and equipment (391,775) (197,318)
Other (7,813) 14,868
------------ -----------
Net cash used in investing activities (379,448) 66,514
------------ -----------
Cash flows from financing activities:
Payments on obligations (26,839) (12,522)
Proceeds from the sale of common stock 381,444 806,249
Proceeds from the sale of preferred stock 1,194,750 -
------------ -----------
Net cash provided by financing activities 1,549,355 793,727
------------ -----------
Net increase in cash 768,128 99,378
Cash, beginning of period 565,199 607,411
------------ -----------
Cash, end of period $ 1,333,327 $ 706,789
============ ===========
See Notes to consolidated financial statements
6<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1996
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for
interim financial information and in accordance with the instructions to Form
10-Q. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with Generally Accepted
Accounting Principles have been condensed or omitted. These interim
consolidated financial statements should be read in conjunction with the
Company's June 30, 1996, Annual Report on Form 10-K. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments consisting of normal recurring accruals necessary to present fairly
the financial position, results of operations, changes in shareholders' equity
and statements of cash flows as of September 30, 1996, and for all periods
presented. The results of operations for the period ending September 30, 1996,
are not necessarily indicative of the operating results to be expected for an
entire year.
All significant intercompany balances, transactions and stock holdings
have been eliminated from the accompanying interim financial statements.
Note 2 - Inventories
Inventories have been recorded at the lower of cost or market. The
composition of inventories as of September 30, 1996, and June 30, 1996, is
listed below:
September 30, 1996 June 30, 1996
------------------ --------------
Finished goods $ 397,506 $ 761,977
Work-in-process 85,563 171,204
Raw material 355,451 348,691
------------------ --------------
$ 838,520 $ 1,281,872
================== ==============
7<PAGE>
Note 3 - Redeemable Preferred Stock
The following is a listing of Redeemable Preferred Stock outstanding:
September 30, 1996 June 30, 1996
------------------- --------------
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 $ 340,382 $ 330,468
Redeemable Preferred Stock, $10 par value,
Class A, Series 2, convertible,
voting; 110,000 shares authorized,
issued and outstanding 973,500 -
Redeemable Preferred Stock, $10 par value,
Class A, Series 3, convertible,
voting; 25,000 shares authorized,
issued and outstanding 221,250 -
------------------- --------------
Total $ 1,535,132 $ 330,468
=================== ==============
The Class A, Series 2 and Series 3 Preferred Stock have a cumulative per
share dividend of eighty ($0.80) per annum, paid quarterly.
8<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. Liquidity and Capital Resources
As of September 30, 1996, the Company's current assets exceeded current
liabilities by $3,542,000, a ratio of 4.8 to 1. The available cash of
$1,333,000 represented 30% of total current assets. Cash flow from operating
activities improved by $359,000 for the three months ending September 30, 1996,
over the comparable period ending September 30, 1995. The Company continues to
expand the Fry Guy Integrated Food System, which was financed in the interim
through the sale of equity securities. A significant portion of these
expenditures will be recouped through current debt funding sources. The
consolidated cash balance for the quarter increased by $768,000.
An agreement is in place to fund current capital expenditures required by
the food service segment, Fry Guy Inc. Alternate forms of non-equity financing
are being reviewed to assure that needed funds are available for planned future
growth. The Company believes it has adequate cash and capital available to
fund its consolidated operations for the coming year.
2. Results of Operations - Three months ended 9/30/96 versus 9/30/95
Revenues for the quarter ended September 30, 1996, were $1,757,000, an
increase of 4.5% over the comparable period in 1995. Revenues from the
manufacturing and insurance segments were down 13% and 14%, respectively.
These decreases were offset by revenues in the food service segment, which
increased by 101%. Revenues in the pollution control segment were $100,000
during the current quarter, while no sales were reported for this segment in
the comparable period in 1995.
Consolidated operating expenses for the quarter ended September 30, 1996,
increased by 5% over the prior comparable period. The increase can be
principally attributed to additional marketing efforts to place food service
equipment and to attract new customers in the manufacturing, insurance and
environmental business segments. The Company has taken steps to reduce office
overhead, as well as initiated other cost saving measures, to lower operating
expenses. The consolidated loss for the current quarter was $486,000 or $.01
per share. This compares to a net loss of $458,000 or $.02 a share for the
three months ended September 30, 1995.
9<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
10<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALANCO ENVIRONMENTAL
RESOURCES CORPORATION
(Registrant)
/s/John E. Haggar
-------------------------
John E. Haggar
Chief Financial Officer
Date: 11/8/96
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11<PAGE>
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