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 . . . . . . . . . . . . . . . . . . . . . .March 31, 1997
Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
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(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.)
15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
(602) 607-1010
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(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 May 7, 1997, there were 35,346,527 shares of common stock
outstanding.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997 (unaudited) and
June 30, 1996 (audited). . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended March 31,
1997 and 1996 (unaudited). . . . . . . . . . . . . 4
Consolidated Statements of Operations
For the nine months ended March 31,
1997 and 1996 (unaudited). . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the nine months ended March 31,
1997 and 1996 (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>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
<S> <C> <C>
March 31,1997 June 30,1996
ASSETS (unaudited) (audited)
--------------- --------------
Current assets:
Cash $ 522,272 $ 565,199
Accounts receivable 1,451,662 648,974
Notes receivable 782,686 1,274,647
Inventories (note 2) 694,906 1,281,872
Prepaid expenses and other current assets 367,054 70,682
--------------- --------------
Total current assets 3,818,580 3,841,374
Property, plant and equipment 4,840,397 3,307,258
Costs in excess of book value on acquisition of
wholly-owned subsidiaries, net of accumulated
amortization of $848,976 and $529,066, 5,549,226 5,869,137
respectively
Intangible assets, net of accumulated amortization
of $123,490 and $108,119, respectively 204,462 188,808
Assets held for sale 6,855,063 6,855,063
Other assets 1,469,456 1,286,069
--------------- --------------
Total assets $ 22,737,184 $ 21,347,709
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities - long term obligations $ 707,438 $ 124,571
Accounts payable and accrued expenses 921,613 685,190
--------------- --------------
Total current liabilities 1,629,051 809,761
Long term obligations 1,053,497 372,020
Unrealized installment sales 864,553 864,553
Redeemable Class A Preferred Stocks (note 3) 110,499 330,468
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; 35,194,979 and 33,209,544
shares issued and outstanding, respectively 53,626,506 51,783,690
Accumulated deficit (34,546,922) (32,812,783)
--------------- --------------
Total shareholders' equity 19,079,584 18,970,907
--------------- --------------
Total liabilities & shareholders' equity $ 22,737,184 $ 21,347,709
=============== ==============
</TABLE>
See notes to consolidated financial statements
3<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
March 31
<S> <C> <C>
1997 1996
------------- -------------
Net sales $ 1,791,181 $ 974,085
------------- -------------
Operating expenses:
Direct service and cost of goods sold 1,118,131 670,910
Selling, general and administrative 1,240,796 1,132,952
Depreciation and amortization 287,518 216,437
------------- -------------
Total operating expenses 2,646,445 2,020,299
------------- -------------
Loss from operations (855,264) (1,046,214)
Other income (expense) (38,391) (2,374)
------------- -------------
Net loss (893,655) (1,048,588)
------------- -------------
Dividends on preferred stock (note 3) 4,100 -
Net loss applicable to common shareholders $ (897,755) $ (1,048,588)
============= =============
Net loss per common share $ (0.03) $ (0.03)
============= =============
Weighted average common shares outstanding 34,765,533 32,403,029
============= =============
</TABLE>
See notes to consolidated financial statements
4<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended March 31, 1997 and 1996
March 31
<S> <C> <C>
1997 1996
------------- -------------
Net sales $ 5,226,629 $ 3,855,256
------------- -------------
Operating expenses:
Direct service and cost of goods sold 2,736,016 2,286,440
Selling, general and administrative 3,359,928 3,056,077
Depreciation and amortization 775,803 676,107
------------- -------------
Total operating expenses 6,871,747 6,018,624
------------- -------------
Loss from operations (1,645,118) (2,163,368)
Other income (expense) (71,420) (80,463)
------------- -------------
Net loss (1,716,538) (2,243,831)
------------- -------------
Dividends on preferred stock (note 3) 17,600 -
Net loss applicable to common shareholders $ (1,734,138) $ (2,243,831)
============= =============
Net loss per common share $ (0.05) $ (0.07)
============= =============
Weighted average common shares outstanding 33,982,095 31,334,310
============= =============
</TABLE>
See notes to consolidated financial statements
5<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1997 and 1996
<S> <C> <C>
March 31
1997 1996
-------------- --------------
Cash flows from operating activities:
Net loss $ (1,716,538) $ (2,243,830)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 775,803 675,974
Other 38,215 179,099
(Increase) decrease in:
Accounts receivable (802,688) (151,031)
Inventory 154,739 (561,944)
Prepaid expenses and other current assets (98,184) (63,539)
Other assets (83,563) (7,513)
Increase (decrease) in:
Accounts payable and accrued expenses 285,874 (131,052)
-------------- --------------
Net cash used in operating activities (1,446,342) (2,303,836)
-------------- --------------
Cash flows from investing activities:
Notes receivable - (410,000)
Purchase of property, plant and equipment (647,554) (383,911)
Additions to intangible value (31,025) (47,047)
Proceeds from sale of securities - 120,390
Collection of receivables 495,000 375,000
Other (724) (41,030)
-------------- --------------
Net cash used in investing activities (184,303) (386,598)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 300,000 -
Payments on obligations (275,876) (73,166)
Dividends paid (12,600) -
Proceeds from the sale of common stock 381,444 3,516,713
Proceeds from the sale of preferred stock 1,194,750 -
-------------- --------------
Net cash provided by financing activities 1,587,718 3,443,547
-------------- --------------
Net increase (decrease) in cash (42,927) 753,113
Cash, beginning of period 565,199 607,411
-------------- --------------
Cash, end of period $ 522,272 $ 1,360,524
============== ==============
Supplemental disclosure of non-cash operating,
investing and financing activities:
Capital leases entered into during period: $ 1,198,464 $ -
Issuance of capital stock:
Other $ 25,450 $ 91,206
For conversion of preferred stock 1,440,922 -
</TABLE>
See notes to consolidated financial statements
6<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE MONTHS ENDED MARCH 31, 1997
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 and cash flows as of March 31,
1997, and for all periods presented. The results of operations for the nine
months ending March 31, 1997, 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 March 31, 1997, and June 30, 1996, is listed
below:
March 31, 1997 June 30, 1996
-------------- --------------
Finished goods $313,225 $ 761,977
Work-in-process 34,741 171,204
Raw material 346,940 348,691
-------------- --------------
$694,906 $ 1,281,872
============== ==============
7<PAGE>
Note 3 - Redeemable Preferred Stock
The following is a listing of Redeemable Preferred Stock:
March 31, 1997 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 0 shares
outstanding $ - $ 330,468
Redeemable Preferred Stock, $10 par value,
Class A, Series 2, convertible,
voting; 110,000 shares authorized and
issued and 0 shares outstanding - -
Redeemable Preferred Stock, $10 par value,
Class A, Series 3, convertible,
voting; 25,000 shares authorized and
issued and 12,500 shares outstanding 110,499 -
------------ ----------
Total $ 110,499 $ 330,468
============ ==========
The Class A, Series 2 and Series 3 Preferred Stock have a cumulative per
share dividend of eighty cents ($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 March 31, 1997, the Company's current assets exceeded current
liabilities by $2,190,000, a ratio of 2.3 to 1. Consolidated cash decreased
during the nine months ended March 31, 1997 by $43,000 to $522,000. For the
nine months ended March 31, 1997, cash flow from operating activities improved
by $858,000 over the comparable prior period.
The Company will continue to use available lease financing to fund growth
in the Fry Guy operations. As the program matures, internally generated cash
could be used to a larger degree to satisfy capital requirements. Alternative
forms of financing are being reviewed to assure capital is available for
planned growth. The Company is not anticipating significant capital needs in
the other business segments. Also, the Company is in the process of divesting
itself of business segments that do not fit into overall corporate strategy.
The Company believes it has adequate cash and capital available to fund
consolidated operations for the coming year.
2. Results of Operations
(a.) Three months ended 3/31/97 versus 3/31/96
Consolidated revenues for the quarter ended March 31, 1997 were
$1,791,000, an increase of 84% over the comparable period in 1996. Revenues
from the insurance segment were down 87%. This decrease was offset by revenues
in the food service and manufacturing segments, which increased by 749% and
98%, respectively.
Consolidated operating expenses for the quarter ended March 31, 1997
increased by 31% over the prior comparable period. The increase can be
principally attributed to increased cost of goods sold and direct services due
to higher sales in the food and manufacturing segments. This was offset by
lower costs in the insurance segment. Promotion of the Fry Guy Inc. food
system and development of the infrastructure to accommodate the projected
increase in sales volume added to the general and administrative expense, which
increased 8% over the comparable quarter. The consolidated loss for the
current quarter was $894,000 or $.026 per share. This compares to a net loss
of $1,049,000 or $.032 a share for the three months ended March 31, 1996.
(b.) Nine months ended 3/31/97 versus 3/31/96
Revenues for the nine months ended March 31, 1997 were $5,227,000, an
increase of 36% over the comparable period in 1996. Revenues in the food
service and manufacturing segments increased by 397% and 9%, respectively.
Revenues from the insurance segment were down 61%.
Consolidated operating expenses for the nine months ended March 31, 1997
increased by 14% over the prior comparable period. Sixty-six percent of the
increase is directly related to additional cost of goods sold and direct
service expenses associated with sales increases. The balance of the increase
can be attributed to additional promotional efforts and sales commissions. The
consolidated loss for the current nine months was $1,717,000 or $.051 per
share. This compares to a net loss of $2,244,000 or $.072 a share for the nine
months ended March 31, 1996.
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: May 13, 1997
11<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 522272
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<RECEIVABLES> 2280013
<ALLOWANCES> 45665
<INVENTORY> 694906
<CURRENT-ASSETS> 3818580
<PP&E> 6006588
<DEPRECIATION> 1166191
<TOTAL-ASSETS> 22737184
<CURRENT-LIABILITIES> 1629051
<BONDS> 1053497
110499
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<COMMON> 53626506
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<TOTAL-LIABILITY-AND-EQUITY> 22734184
<SALES> 4815952
<TOTAL-REVENUES> 5313835
<CGS> 2522618
<TOTAL-COSTS> 6871747
<OTHER-EXPENSES> 21758
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<INTEREST-EXPENSE> 154468
<INCOME-PRETAX> (1734138)
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<INCOME-CONTINUING> (1734138)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1734138)
<EPS-PRIMARY> (.05)
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</TABLE>
