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, 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
---- ----
As of October 17, 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
September 30, 1997 (unaudited) and
June 30, 1997 (audited) . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended September 30,
1997 and 1996 (unaudited) . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
For the three months ended September 30,
1997 and 1996 (unaudited) . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 8
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997
Sept 30, 1997 June 30, 1997
ASSETS (unaudited) (audited)
-------------- --------------
Current Assets:
Cash $ 527,845 $ 526,851
Accounts receivable 1,412,220 1,169,290
Notes receivable 585,756 586,739
Inventories (note 2) 512,858 527,479
Prepaid expenses and other current assets 212,693 273,158
-------------- --------------
Total current assets 3,251,372 3,083,517
Notes receivable, long-term portion 223,245 223,733
Property, plant and equipment 5,052,793 5,049,080
Costs in excess of book value on acquisition of
wholly-owned subsidiaries 3,890,298 3,967,791
Intangible assets 169,666 175,155
Assets held for sale 4,243,000 4,243,000
Other assets 220,735 216,653
-------------- --------------
Total assets $ 17,051,109 $ 16,958,929
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease and notes payable, $ 980,978 $ 890,384
current portion
Accounts payable and accrued expenses 1,122,747 882,920
Net liabilities of discontinued operations 189,418 227,321
-------------- --------------
Total current liabilities 2,293,143 2,000,625
Capital lease and notes payable, long-term 986,987 1,136,242
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; 35,346,527 shares issued and
outstanding 53,742,005 53,742,005
Accumulated deficit (39,971,026) (39,919,943)
-------------- --------------
Total shareholders' equity 13,770,979 13,822,062
-------------- --------------
Total liabilities & shareholders' equity $ 17,051,109 $ 16,958,929
============== ==============
The accompanying notes are an integral part of these financial statements.
3<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1997 and 1996
September 30
1997 1996
------------ ------------
Net sales $ 2,606,357 $ 1,503,857
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Operating expenses:
Direct service and cost of goods sold 1,294,517 827,972
Selling, general and administrative 1,023,118 819,686
Depreciation and amortization 275,256 197,356
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Total operating expenses 2,592,891 1,845,014
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Income (Loss) from operations 13,466 (341,157)
Other income (expense) (64,549) (9,412)
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Loss from continuing operations (51,083) (350,569)
Loss from discontinued operations - (135,240)
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Net loss $ (51,083) $ (485,809)
============ ============
Net loss per share
Loss from continuing operations - (0.01)
Loss from discontinued operations - -
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Net loss per common share $ - $ (0.01)
============ ============
Weighted average common shares outstanding 35,346,527 33,364,278
============ ============
The accompanying notes are an integral part of these financial statements.
4<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1997 and 1996
September 30
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss from continuing operations $ (51,083) $ (350,569)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 275,256 197,356
Other - 17,765
(Increase) decrease in:
Accounts receivable (242,930) (160,835)
Inventory 14,621 111,680
Prepaid expenses and other current assets 60,465 (150,223)
Other assets (4,082) (75,406)
Increase (decrease) in:
Accounts payable and accrued expenses 239,827 157,617
----------- -----------
Net cash provided by (used in) continuing operations 292,074 (252,615)
Net cash used in discontinued operations (37,903) (142,800)
----------- -----------
Net cash provided by (used in) operating activities 254,171 (395,415)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (42,026) (391,775)
Other 3,510 12,327
----------- -----------
Net cash used in investing activities (38,516) (379,448)
----------- -----------
Cash flows from financing activities:
Payments on obligations (214,661) (26,839)
Proceeds from the sale of common stock - 381,444
Proceeds from the sale of preferred stock - 1,194,750
----------- -----------
Net cash provided by financing activities (214,661) 1,549,355
----------- -----------
Net increase in cash 994 774,492
Cash, beginning of period 526,851 552,010
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Cash, end of period $ 527,845 $1,326,502
=========== ===========
Supplemental disclosure of non-cash operating,
investing and financing activities:
Capital leases entered into during period: $ 156,000 -
Issuance of capital stock: - $ 7,850
The accompanying notes are an integral part of these financial statements.
5<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED SEPTEMBER 30, 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, 1997, 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 statements of cash flows as
of September 30, 1997, and for all periods presented. The results of
operations for the three months ending September 30, 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 September 30, 1997, and June 30, 1997, is
listed below:
September 30, 1997 June 30, 1997
------------------ ----------------
Finished goods $ 339,727 $ 238,828
Work-in-process 2,944 10,919
Raw material 170,187 277,732
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$ 512,858 $ 527,479
========= =========
6<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. Liquidity and Capital Resources
As of September 30, 1997, the Company's current assets exceeded current
liabilities by $958,000, or a ratio of 1.4 to 1 compared to $1,083,000 or a
ratio of 1.5 to 1 as of June 30, 1997. This ratio reflects the increase in the
current maturities of capitalized leases which have a short term maturity. The
Company will own the equipment at the end of the lease for a very nominal cost.
The Company will continue to use available lease financing for the acquisition
of equipment. Positive net cash provided from continuing operations was
$292,000 for the quarter versus a negative $253,000 for the comparable quarter
ended September 30, 1996. The Company has established a line of credit to
supplement the improving cash flow.
2. Results of Operations - Three months ended 9/30/97 versus 9/30/96
Consolidated revenue for the quarter ended September 30, 1997, was
$2,606,000 compared to $1,504,000 for the quarter ended September 30, 1996.
This represents an increase through additional sales volume of $1,102,000 or
73%. Revenue from the food service segment increased by 243% and accounted for
76% of the revenue growth. Manufacturing revenues improved by $311,000, which
depicts the positive results from the continued shift from agricultural
products to the commercial market.
Direct service and cost of goods sold increased by 56% or $467,000. The
food service segment represented 58% of the increase and was related to the
expansion of the Fry Guy program. Cost of goods sold from the manufacturing
segment increased by 29% and is directly related to the increase in sales.
Selling, general and administrative expenses grew by $203,000 or 25% over
the quarter ended September 30, 1996. The expense increase was due to
additional marketing efforts in the food service and manufacturing segments.
This increase was offset by reduced expenses of the parent operations, which
were $80,000 lower than the comparable period.
Income from operations for the current quarter was $13,000 compared to an
operating loss of $341,000 for the quarter ended September 30, 1996. Loss from
continuing operations was $51,000 for the quarter compared to a loss of
$351,000 for the comparable quarter.
7<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On October 8, 1997, Unique Systems, Inc., d/b/a National Affiliated
Adjustment Company, filed a voluntary petition under Chapter 7 of the United
States Bankruptcy Code in Phoenix, Arizona. National Affiliated had
discontinued business as of June 30, 1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
8<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: October 17, 1997
9<PAGE>
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