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, 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 January 30, 1998, 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
December 31, 1997 (unaudited) and
June 30, 1997 (audited). . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended December 31,
1997 and 1996 (unaudited). . . . . . . . . . . . . 4
Consolidated Statements of Operations
For the six months ended December 31,
1997 and 1996 (unaudited). . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the six months ended December 31,
1997 and 1996 (unaudited). . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements
(unaudited). . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . 8-9
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
DECEMBER 31, 1997 AND JUNE 30, 1997
<S> <C> <C>
Dec 31, 1997 June 30, 1997
ASSETS (unaudited) (audited)
--------------- --------------
Current Assets:
Cash $ 490,297 $ 526,851
Accounts receivable, net 1,337,508 1,169,290
Notes receivable, current portion 573,952 586,739
Inventories (note 2) 567,987 527,479
Prepaid expenses and other current assets 148,909 273,158
--------------- --------------
Total current assets 3,118,653 3,083,517
Notes receivable, long-term portion 222,991 223,733
Property, plant and equipment, net 5,159,161 5,049,080
Costs in excess of book value on acquisition of
wholly-owned subsidiaries, net 3,812,804 3,967,791
Intangible assets, net 175,217 175,155
Assets held for sale 4,243,000 4,243,000
Other assets 242,307 216,653
--------------- --------------
Total assets $ 16,974,133 $ 16,958,929
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations and notes payable,
current portion $ 1,119,552 $ 890,384
Accounts payable and accrued expenses 803,219 882,920
Net liabilities of discontinued operations 189,418 227,321
--------------- --------------
Total current liabilities 2,112,189 2,000,625
Capital lease obligations and notes payable,
long-term portion 888,433 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 (39,768,494) (39,919,943)
--------------- --------------
Total shareholders' equity 13,973,511 13,822,062
--------------- --------------
Total liabilities & shareholders' equity $ 16,974,133 $ 16,958,929
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1997 and 1996
December 31
<S> <C> <C>
1997 1996
(unaudited) (unaudited)
------------- -------------
Net sales $ 2,613,335 $ 1,592,610
------------- -------------
Operating expenses:
Direct service and cost of goods sold 1,209,965 623,757
Selling, general and administrative 852,400 971,760
Depreciation and amortization 283,078 218,803
------------- -------------
Total operating expenses 2,345,443 1,814,320
------------- -------------
Income (loss) from operations 267,892 (221,710)
Other expense (65,359) (23,617)
------------- -------------
Income (loss) from continuing operations 202,533 (245,327)
Loss from discontinued operations - (105,247)
------------- -------------
Net income (loss) $ 202,533 $ (350,574)
============= =============
Basic earnings (loss) per share
Earnings (loss) from continuing operations 0.01 (0.01)
Earnings (loss) from discontinued operations - -
------------- -------------
Basic earnings (loss) per common share $ 0.01 $ (0.01)
============= =============
Diluted earnings (loss) per share
Earnings (loss) from continuing operations 0.01 (0.01)
Earnings (loss) from discontinued operations - -
------------- -------------
Diluted earnings (loss) per common share $ 0.01 $ (0.01)
============= =============
Weighted average common shares outstanding 35,346,527 33,830,716
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1997 and 1996
December 31
<S> <C> <C>
1997 1996
(unaudited) (unaudited)
-------------- ---------------
Net sales $ 5,219,692 $ 3,096,467
-------------- ---------------
Operating expenses:
Direct service and cost of goods sold 2,504,482 1,451,729
Selling, general and administrative 1,875,518 1,791,446
Depreciation and amortization 558,334 416,159
-------------- ---------------
Total operating expenses 4,938,334 3,659,334
-------------- ---------------
Income (loss) from operations 281,358 (562,867)
Other expense (129,908) (33,029)
-------------- ---------------
Income (loss) from continuing operations 151,450 (595,896)
Loss from discontinued operations - (240,486)
-------------- ---------------
Net income (loss) $ 151,450 $ (836,382)
============== ===============
Basic earnings (loss) per share
Earnings (loss) from continuing operations 0.00 (0.02)
Earnings (loss) from discontinued operations - -
-------------- ---------------
Basic earnings (loss) per common share $ 0.00 $ (0.02)
============== ===============
Diluted earnings (loss) per share
Earnings (loss) from continuing operations 0.00 (0.02)
Earnings (loss) from discontinued operations - -
-------------- ---------------
Diluted earnings (loss) per common share $ 0.00 $ (0.02)
============== ===============
Weighted average common shares outstanding 35,346,527 33,597,497
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1997 and 1996
December 31
<S> <C> <C>
1997 1996
(unaudited) (unaudited)
-------------- ---------------
Cash flows from operating activities:
Net income (loss) from continuing operations $ 151,450 $ (595,896)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 559,234 416,159
Other - 19,828
(Increase) decrease in:
Accounts receivable (168,218) (420,376)
Inventory (40,508) 32,030
Prepaid expenses and other current assets 124,250 (161,895)
Other assets (25,654) (63,176)
Increase (decrease) in:
Accounts payable and accrued expenses (79,702) 116,691
-------------- ---------------
Net cash provided by (used in) continuing operations 520,852 (656,635)
Net cash used in discontinued operations (37,904) (228,304)
-------------- ---------------
Net cash provided by (used in) operating activities 482,948 (884,939)
-------------- ---------------
Cash flows from investing activities:
Purchase of property, plant and equipment (67,053) (352,880)
Other 6,567 (11,880)
-------------- ---------------
Net cash used in investing activities (60,486) (364,760)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing - 300,000
Payments on capital lease obligations (459,016) (120,818)
Proceeds from the sale of common stock - 381,444
Proceeds from the sale of preferred stock - 1,194,750
-------------- ---------------
Net cash provided by (used in) financing activities (459,016) 1,755,376
-------------- ---------------
Net increase (decrease) in cash (36,554) 505,677
Cash, beginning of period 526,851 552,010
-------------- ---------------
Cash, end of period $ 490,297 $ 1,057,687
============== ===============
Supplemental disclosure of non-cash operating,
investing and financing activities:
Capital leases entered into during period: $ 440,375 $ 1,034,650
Issuance of capital stock: - 786,350
</TABLE>
The accompanying notes are an integral part of these financial statements.
6<PAGE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED DECEMBER 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, 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 cash flows as of December 31,
1997, and for all periods presented. The results of operations for the six
months ending December 31, 1997, are not necessarily indicative of the
operating results to be expected for an entire year.
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," for the three and six month periods ended December 31,
1997. Comparable periods for the prior year have been restated to conform with
the new computation. This pronouncement modifies the disclosures and
computation methodologies required by Accounting Principles Board Opinion No.
15, "Earnings Per Share," for Net Income Per Share such that two amounts must
be disclosed. The first is Basic Earnings (Loss) Per Share, which is computed
by dividing income available to common shareholders by the weighted average
number of common shares available. The second is Diluted Earnings (Loss) Per
Share. This computation is similar to that for Basic Earnings Per Share except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive.
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, 1997, and June 30, 1997, is
listed below:
December 31, 1997 June 30, 1997
----------------- -------------
Finished goods $ 208,050 $ 238,828
Work-in-process 26,287 10,919
Raw material 333,650 277,732
---------- ------------
$ 567,987 $ 527,479
========== ============
7<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1. Liquidity and Capital Resources
As of December 31, 1997, the Company's current assets exceeded current
liabilities by $1,006,000, a ratio of 1.5 to 1. During the current six months,
increased revenues, especially in the food service, caused an increase of
$168,000 in accounts receivable. An increase of $112,000 in current
liabilities resulted mainly from additional fry machine leases and long-term
liabilities becoming current. The conversion of long-term liabilities to
current results from the relative short length of the fry machine leases.
Property, plant and equipment, other than fry machine leases, have remained
relatively level since the beginning of the fiscal year. A larger backlog in
the manufacturing division, compared to December 31, 1996, warranted an
increase in raw material purchases during the current quarter resulting in an
increase in accounts payable. Cash generated from continuing operations was
$521,000 for the six months ended December 31, 1997 compared to a cash usage of
$657,000 for the six months ended December 31, 1996.
2. Results of Operations
(a.) Three months ended 12/31/97 versus 12/31/96
Consolidated net sales for the quarter ended December 31, 1997 were
$2,613,000, an increase of 64% over the comparable period in 1996. Sales from
the food service and the manufacturing divisions increased 66% and 47%,
respectively, in the current period compared to the comparable period last
year. The food service segment benefited from holiday season shopping and
accounted for over $600,000 of the current quarter sales increase over the
comparable quarter last year. Whereas, the manufacturing division had more
commercial jobs than the same period last year and is continuing its efforts to
shift away from the seasonal agricultural business.
Consolidated operating expenses for the quarter ended December 31, 1997
were $2,345,000, an increase of 29% over the prior comparable period. Direct
service expenses were higher during the current quarter due to increased sales
in the food service and manufacturing divisions and costs related to
installation of pollution control equipment in China. These expenses were
partially offset by a decrease in general and administrative expenses resulting
from cost containment measures. Consolidated income from continuing operations
for the current quarter was $203,000 compared to a loss of $245,000 for the
quarter ended December 31, 1996.
(b.) Six months ended 12/31/97 versus 12/31/96
Consolidated sales for the six months ended December 31, 1997 were
$5,220,000 compared to $3,096,000 or a 69% increase over the prior comparable
period. Sales from the food service division increased 115% compared with the
same period last year due to additional fry machines being placed with both
Wal-Mart and independent distributors. Manufacturing sales increased 36% due
to the Company's successful efforts in maintaining a stronger backlog of orders
than in the comparable period last year.
8<PAGE>
Consolidated operating expenses for the six months ended December 31, 1997
were $4,938,000, an increase of 35% over the prior comparable period. This
increase is the result of an increase of 73% in direct service expense, which
was primarily due to the food service's higher sales and increased marketing
costs related to independent distributors. Selling, general and administrative
costs increased 5% compared to the same period last year.
Consolidated income from continuing operations was $151,000 for the
current six months. This compares to a loss of $596,000 for the six months
ended December 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/ Joseph T. Connelly
-------------------------
Joseph T. Connelly
Chief Financial Officer
Date: February 11, 1998
11<PAGE>
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<ALLOWANCES> 27765
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