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 . . . . . . . . . . . . . . . . . . . . December 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
(602) 607-1010
(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
---- -----
As of January 31, 1997, there were 34,623,401 shares of common stock
outstanding.<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1996 (unaudited) and
June 30, 1996 (audited). . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended December 31,
1996 and 1995 (unaudited). . . . . . . . . . . . . 4
Consolidated Statements of Operations
For the six months ended December 31,
1996 and 1995 (unaudited). . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the six months ended December 31,
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 . . . . . . . . . . . . . . . . . . . . 9-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 11
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
Dec 31, 1996 June 30, 1996
ASSETS (unaudited) (audited)
-------------- --------------
<S> <C> <C>
Current Assets:
Cash $ 1,065,163 $ 565,199
Accounts receivable 1,031,943 648,974
Notes receivable (note 4) 1,276,394 1,274,647
Inventories (note 2) 852,654 1,281,872
Prepaid expenses and other current assets 347,085 70,682
-------------- --------------
Total current assets 4,573,239 3,841,374
Property, plant and equipment 4,686,028 3,307,258
Costs in excess of book value on acquisition of
wholly-owned subsidiaries, net of accumulated
amortization of $742,066 and $529,066, 5,655,863 5,869,137
respectively
Intangible assets, net of accumulated amortization
of $118,179 and $108,119, respectively 188,881 188,808
Assets held for sale 6,855,063 6,855,063
Other assets 1,438,843 1,286,069
-------------- --------------
Total assets $ 23,397,917 $ 21,347,709
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities - long term obligations $ 655,620 $ 124,571
Accounts payable and accrued expenses 708,293 685,190
-------------- --------------
Total current liabilities 1,363,913 809,761
Long term obligations 1,096,584 372,020
Unrealized installment sales 864,553 864,553
Redeemable Class A Preferred Stocks (note 3) 770,548 330,468
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; 34,508,875 and 33,209,544
shares issued and outstanding, respectively 52,951,484 51,783,690
Accumulated deficit (33,649,165) (32,812,783)
-------------- --------------
Total shareholders' equity 19,302,319 18,970,907
-------------- --------------
Total liabilities & shareholders' equity $ 23,397,917 $ 21,347,709
============== ==============
See notes to consolidated financial statements
</TABLE>
3<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1996 and 1995
December 31
1996 1995
-------------- -------------
<S> <C> <C>
Net sales $ 1,678,577 $ 1,199,059
-------------- -------------
Operating expenses:
Direct service and cost of goods sold 671,645 804,205
Selling, general and administrative 1,064,079 840,639
Depreciation and amortization 256,310 226,887
-------------- -------------
Total operating expenses 1,992,034 1,871,731
-------------- -------------
Loss from operations (313,457) (672,672)
Other income (expense) (23,617) (64,872)
-------------- -------------
Net loss (337,074) (737,544)
-------------- -------------
Dividends on preferred stock (note 3) 13,500 -
Net loss available for common shareholders $ (350,574) $ (737,544)
============== =============
Net loss per common share $ (0.01) $ (0.02)
============== =============
Weighted average common shares outstanding 33,830,716 31,308,113
============== =============
See notes to consolidated financial statements
</TABLE>
4<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1996 and 1995
December 31
1996 1995
-------------- -------------
<S> <C> <C>
Net sales $ 3,435,448 $ 2,881,171
-------------- -------------
Operating expenses:
Direct service and cost of goods sold 1,617,885 1,748,978
Selling, general and administrative 2,119,131 1,789,308
Depreciation and amortization 488,285 460,039
-------------- -------------
Total operating expenses 4,225,301 3,998,325
Loss from operations (789,853) (1,117,154)
Other income (expense) (33,029) (78,089)
-------------- -------------
Net loss (822,882) (1,195,243)
-------------- -------------
Dividends on preferred stock (note 3) 13,500 -
Net loss available for common shareholders $ (836,382) $ (1,195,243)
============== =============
Net loss per common share $ (0.02) $ (0.04)
============== =============
Weighted average common shares outstanding 33,597,497 30,806,371
============== =============
See notes to consolidated financial statements
</TABLE>
5<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1996 and 1995
December 31
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (822,882) $ (1,195,243)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 488,285 460,039
Other 22,530 63,281
(Increase) decrease in:
Accounts receivable (382,109) (141,321)
Inventory 54,616 (445,226)
Prepaid expenses and other current assets (158,215) (54,951)
Other assets (63,467) -
Increase (decrease) in:
Accounts payable and accrued expenses 63,307 (147,924)
-------------- --------------
Net cash provided by (used in) operating
activities (797,935) (1,461,345)
-------------- --------------
Cash flows from investing activities:
Notes receivable (1,747) 375,000
Purchase of property, plant and equipment (446,527) (314,775)
Other (9,203) (23,884)
-------------- --------------
Net cash used in investing activities (457,477) 36,341
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 300,000 -
Payments on obligations (120,818) (57,773)
Proceeds from the sale of common stock 381,444 2,470,000
Proceeds from the sale of preferred stock 1,194,750 -
-------------- --------------
Net cash provided by financing activities 1,755,376 2,412,227
-------------- --------------
Net increase in cash 499,964 987,223
Cash, beginning of period 565,199 607,411
-------------- --------------
Cash, end of period $ 1,065,163 $ 1,594,634
============== ==============
Supplemental disclosure of non-cash operating,
investing and financing activities:
Capital leases entered into during period: $ 1,034,650 $ -
Issuance of capital stock:
Other $ 11,850 $ 6,700
For conversion of preferred stock 774,500 -
See Notes to consolidated financial statements
</TABLE>
6<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED DECEMBER 31, 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 and cash flows as of December 31,
1996, and for all periods presented. The results of operations for the six
months ending December 31, 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 December 31, 1996, and June 30, 1996, is
listed below:
December 31, 1996 June 30, 1996
Finished goods $ 365,558 $ 761,977
Work-in-process 130,862 171,204
Raw material 356,234 348,691
--------- ------------
$ 852,654 $ 1,281,872
========= ============
7<PAGE>
Note 3 - Redeemable Preferred Stock
The following is a listing of Redeemable Preferred Stock outstanding:
December 31, 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 $ 350,300 $ 330,468
Redeemable Preferred Stock, $10 par value,
Class A, Series 2, convertible,
voting; 110,000 shares authorized and
issued and 35,000 shares outstanding 309,749 -
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 $ 770,548 $ 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.
Note 4 - Subsequent Events
During January, 1997, the Company received $495,000 from Amarante
Financial S.A. relating to the Company's sale of 86% of its 70% interest in
Phoenix Medical Management, Inc. The $495,000 was the balloon payment due from
the sale and had been in default since December, 1995.
8<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. Liquidity and Capital Resources
As of December 31, 1996, the Company's current assets exceeded current
liabilities by $3,209,000, a ratio of 3.4 to 1. Consolidated cash increased
during the six months ended December 31, 1996 by $500,000 to $1,065,000, which
represented 23% of current assets. Cash flow from operating activities
improved by $663,000 for the six months ended December 31, 1996. Subsequent to
December 31, 1996, $495,000 was collected on an outstanding receivable. Refer
to Note 4.
The Company entered into capital lease obligations of $1,035,000 which
were used entirely for expansion of the Fry Guy Integrated Food System. 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. The Company is not
anticipating significant capital needs in the other business segments. As of
December 31, 1996, the Company maintained a ratio of 9% debt to 91% equity.
The Company continues to actively seek opportunities to maximize the value
of its mining assets. Currently, payments received from a contingent sale are
adequate to cover expenses relating to the mining properties. 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 12/31/96 versus 12/31/95
Consolidated revenues for the quarter ended December 31, 1996 were
$1,679,000, an increase of 40% over the comparable period in 1995. Revenues
from the manufacturing and insurance segments were down 16% and 72%,
respectively. These decreases were offset by revenues in the food service
segment, which increased by 542%. The pollution control segment reported sales
of $56,000 during the current quarter.
Consolidated operating expenses for the quarter ended December 31, 1996
increased by 6% 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 $337,000 or $.01
per share. This compares to a net loss of $738,000 or $.02 a share for the
three months ended December 31, 1995.
(b.) Six months ended 12/31/96 versus 12/31/95
Revenues for the six months ended December 31, 1996 were $3,435,000, an
increase of 19% over the comparable period in 1995. Revenues from the
manufacturing and insurance segments were down 14% and 44%, respectively.
These decreases were offset by revenues in the food service segment, which
increased by 300%. Revenues in the pollution control segment were $150,000
during the current six months. There were no sales reported for this segment
in the comparable period in 1995.
Consolidated operating expenses for the six months ended December 31, 1996
increased by 6% over the prior comparable period. The increase can be
principally attributed to additional marketing efforts and increased personnel
in the food service segment offset by an improved gross profit margin in that
9<PAGE>
segment. The consolidated loss for the current six months was $823,000 or $.02
per share. This compares to a net loss of $1,195,000 or $.04 a share for the
six months ended December 31, 1995.
10<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
11<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: February 4, 1997
12<PAGE>
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