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, 1998
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, 1998, there were 5,050,683 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, 1998 (unaudited) and
June 30, 1998 (audited) . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended September 30,
1998 and 1997 (unaudited) . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
For the three months ended September 30,
1998 and 1997 (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>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND JUNE 30, 1998
<S> <C> <C>
Sept 30, 1998 June 30, 1998
ASSETS (unaudited) (audited)
------------- --------------
Current Assets:
Cash $ 1,060,216 $ 1,116,857
Accounts receivable 1,408,151 1,192,547
Notes receivable 348,845 349,212
Inventories (note 2) 530,369 540,371
Prepaid expenses and other current assets 136,442 64,544
Cost & estimated earnings in excess of billing on
uncompleted projects -0- 105,070
------------- --------------
Total current assets 3,484,023 3,368,601
Property, plant and equipment, net 3,244,245 3,380,124
Intangible assets 219,795 223,381
Other assets 226,558 243,303
Net assets of discontinued operations held for sale 2,443,000 2,443,000
------------- --------------
Total assets $ 9,617,621 $ 9,658,409
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease and notes payable, current portion $ 1,021,527 $ 1,306,672
Accounts payable and accrued expenses 713,323 600,798
Billings in excess of costs and est earnings 309,498 173,248
------------- --------------
Total current liabilities 2,044,348 2,080,718
Capital lease and notes payable, long-term 254,888 410,671
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; 5,050,683 shares issued and
outstanding 53,742,005 53,742,005
Accumulated deficit 46,423,620 46,574,985
------------- --------------
Total shareholders' equity 7,318,385 7,167,020
------------- --------------
Total liabilities & shareholders' equity $ 9,617,621 $ 9,658,409
============= ==============
</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 September 30, 1998 and 1997
September 30
<S> <C> <C>
1998 1997
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Net sales $ 2,325,600 $ 2,606,357
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Operating expenses:
Direct service and cost of goods sold 1,101,536 1,294,517
Selling, general and administrative 880,662 1,023,118
Depreciation and amortization 154,956 275,256
------------- -------------
Total operating expenses 2,137,154 2,592,891
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Income (Loss) from operations 188,446 13,466
Gain/loss from disposal of asset 7,588 15
Interest expense net of interest income (44,669) (64,564)
------------- -------------
Net income/loss $ 151,365 $ (51,083)
============= =============
Net income/loss per share
Net income/loss per common share $ 0.03 $ (0.01)
============= =============
Weighted average common shares outstanding 5,050,683 5,049,504
============= =============
</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 CASH FLOWS
For the Three Months Ended September 30, 1998 and 1997
September 30
<C> <C>
1998 1997
------------- ------------
Cash flows from operating activities:
Net gain/loss from continuing operations $ 151,365 $ (51,083)
Adjustments to reconcile net gain/loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 154,955 275,256
(Increase) decrease in:
Accounts receivable (215,604) (242,930)
Cost & est earnings in excess of billing 105,070
Inventory 10,002 14,621
Prepaid expenses and other current assets (71,898) 60,465
Other assets 16,744 (4,082)
Increase (decrease) in:
Accounts payable and accrued expenses 112,526 239,827
Billings in excess of costs and est earnings 136,250
------------- ------------
Net cash provided by (used in) continuing operations 399,410 292,074
Net cash used in discontinued operations (37,903)
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Net cash provided by (used in) operating activities 399,410 254,171
------------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,997) (42,026)
Other (6,126) 3,510
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Net cash used in investing activities (15,123) (38,516)
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Cash flows from financing activities:
Payments on obligations, net (440,928) (214,661)
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Net cash provided by financing activities (440,928) (214,661)
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Net increase in cash (56,641) 994
Cash, beginning of period 1,116,857 526,851
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Cash, end of period $ 1,060,216 $ 527,845
============= ============
Supplemental disclosure of non-cash operating,
investing and financing activities:
Capital leases entered into during period: -0- $ 156,000
Issuance of capital stock: -0- -0-
</TABLE>
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, 1998
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, 1998, 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, 1998, and for all periods presented. The results of
operations for the three months ending September 30, 1998, 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, 1998, and June 30, 1998, is
listed below:
September 30, 1998 June 30, 1998
------------------- ----------------
Finished goods $ 184,297 $ 226,116
Work-in-process 13,138 24,835
Raw material 332,934 289,420
----------- -----------
$ 530,369 $ 540,371
=========== ===========
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, 1998, the Company's current assets exceeded current
liabilities by $1,440,000, or a ratio of 1.7 to 1 compared to $1,288,000 or a
ratio of 1.6 to 1 as of June 30, 1998. The increase in the current ratio
resulted from an increase in accounts receivable and prepaid expenses, without
a corresponding increase in accounts payable. Cash provided from continuing
operations was $399,000 for the quarter versus $254,000 for the comparable
quarter ended September 30, 1997.
During fiscal year 1998, Wal-Mart, which accounted for approximately 45%
of the Company's consolidated revenue, terminated its contract with the Fry Guy
food service operations and is returning over 1,500 fryers to the Company.
Although there has been continued Fry Guy sales to Wal-Mart through the first
1999 fiscal quarter, the Company anticipates the Wal-mart revenues to cease in
the second quarter. Wal-Mart elected to purchase new fryer equipment for its
stores and self-manage its food program.
To respond to the contract loss, the Company is revitalizing its sales
program to replace declining revenues and is attempting to reduce operating
expenses. The loss of the Wal-Mart account is projected to result in a
shortfall in working capital and impair the ability of the company to meet its
short-term capital lease obligations. The Company believes this working
capital shortfall will be resolved by additional borrowing, placement of the
fryers in new locations, and the sale or lease of the fryer units.
2. Results of Operations - Three months ended 9/30/98 versus 9/30/97
Consolidated revenue for the quarter ended September 30, 1998, was
$2,326,000 compared to $2,606,000 for the quarter ended September 30, 1997.
This represents a decrease of $280,000 or 10.7%. The decrease in food service
revenue accounted for $255,000 of the decrease with the balance resulting from
a revenue decrease in the Company's pollution control segment.
Net income increased to $151,000, or $.03 per share, compared to a loss of
($51,000), or ($.01) per share, for the comparable quarter ended September 30,
1997. Income from operations was $188,000 compared to $13,000 for the
comparable quarter in the prior fiscal year. The increase in income resulted
from a decrease in selling, general and administrative expenses,and a decrease
in depreciation and amortization expense related primarily to the Wal-Mart
contract.
Direct service and cost of goods sold decreased by $193,000 or 14.9%,
compared to the first quarter of last year. Selling, general and
administrative expenses for the quarter decreased by $142,000 or 13.9% compared
to the quarter ended September 30, 1997. The decrease in direct service and
cost of goods sold related to a corresponding decrease in net sales. The
decrease in selling, general and administrative expenses was due to reduced
sales commissions and a planned overall reduction in overhead expenses.
7<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On October 13, 1998 the case of Norman E. Meyer v. Alanco
Environmental Resources Corporation was settled.
Item 6. EXHIBITS
(A) (27) Financial Data Schedule
(B) Reports on Form 8-K
None
(C) Reports on Form S-8: 1 filed 10/22/98
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 Carlson
-----------------------
John Carlson
Chief Financial Officer
Date: November 12, 1998
9<PAGE>
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