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, 1999
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)
(480) 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 April 30, 1999, there were 4,927,483 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, 1999 (unaudited) and
June 30, 1998 (audited). . . . . . . . . . . . . . 3
Consolidated Statements of Operations
For the three months ended March 31,
1999 and 1998 (unaudited). . . . . . . . . . . . . 4
Consolidated Statements of Operations
For the nine months ended March 31,
1999 and 1998 (unaudited). . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the nine months ended March 31,
1999 and 1998 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2<PAGE>
<TABLE>
<CAPTION>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND JUNE 30, 1998
Mar 31, 1999 June 30, 1998
ASSETS (unaudited) (audited)
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<S> <C> <C>
Current Assets:
Cash $ 899,202 $ 1,116,857
Accounts receivable, net 1,078,146 1,192,547
Notes receivable, current portion 100,600 349,212
Inventories 1,968,104 540,371
Prepaid expenses and other current assets 94,692 64,544
billings on uncompleted projects - 105,070
-------------- --------------
Total current assets 4,140,744 3,368,601
Property, plant and equipment, net 1,740,924 3,380,124
Intangible assets, net 208,245 223,381
Assets held for sale 2,443,000 2,443,000
Other assets 190,986 243,303
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Total assets $ 8,723,899 $ 9,658,409
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations and notes payable,
current portion $ 594,604 $ 1,306,672
Accounts payable and accrued expenses 576,785 600,798
Billings in excess of cost and est earnings 219,846 173,248
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Total current liabilities 1,391,235 2,080,718
Capital lease obligations and notes payable,
long-term portion 70,168 410,671
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; 4,927,483 shares and 5,050,683
issued and outstanding on March 31, 1999 and
June 30, 1998 respectively. 53,744,637 53,742,005
Accumulated deficit (46,361,953) (46,574,985)
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7,382,684 7,167,020
Less treasury stock @ cost (120,188) -
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Total shareholders' equity 7,262,496 7,167,020
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Total liabilities & shareholders' equity $ 8,723,899 $ 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 March 31, 1999 and 1998
March 31
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1999 1998
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<S> <C> <C>
Net sales $ 1,600,464 $ 2,731,892
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Operating expenses:
Direct service and cost of goods sold 957,991 1,198,435
Selling, general and administrative 537,419 866,554
Depreciation and amortization 89,036 288,066
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Total operating expenses 1,584,446 2,353,055
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Income from operations 16,018 378,837
Interest expense - net of interest income (17,920) (69,548)
Other income 17,012 -
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Net income $ 15,110 $ 309,289
============= =============
Basic earnings per share
Earnings per common share $ 0.00 $ 0.06
============= =============
Diluted earnings per common share $ 0.00 $ 0.06
============= =============
Weighted average common shares and equivalents
outstanding during period
-Basic 5,037,846 5,049,504
-Diluted 5,779,707 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 OPERATIONS
For the Nine Months Ended March 31, 1999 and 1998
March 31
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1999 1998
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<S> <C> <C>
Net sales $ 5,763,631 $ 7,951,584
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Operating expenses:
Direct service and cost of goods sold 2,965,846 3,702,917
Selling, general and administrative 2,139,761 2,742,073
Depreciation and amortization 379,366 846,400
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Total operating expenses 5,484,973 7,291,390
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Income from operations 278,658 660,194
Interest expense - net of interest income (90,226) (200,154)
Other income 24,600 697
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Net income $ 213,032 $ 460,737
============= =============
Basic earnings per share
Earnings per share $ 0.04 $ 0.09
Diluted earnings per share $ 0.04 $ 0.09
Weighted average common shares and equivalent
outstanding during period
-Basic 5,046,404 5,049,504
-Diluted 5,512,791 5,049,504
</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 Nine Months Ended March 31, 1999 and 1998
March 31
--------------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 213,032 $ 460,737
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 379,366 846,400
(Increase) decrease in:
Accounts receivable and notes receivable 363,013 (510,385)
Cost & est earnings in excess of billing 105,070 -
Inventory(see supplemental disclosure below)* (82,483) (24,441)
Prepaid expenses and other current assets (30,147) 124,433
Other assets 41,517 (29,938)
Increase (decrease) in:
Accounts payable and accrued expenses (24,013) 86,864
Billings in excess of costs and est earnings 46,598 -
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Net cash provided by continuing operations 1,011,953 953,670
Net cash used in discontinued operations - (127,903)
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Net cash provided by operating activities 1,011,953 825,767
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Cash flows from investing activities:
Purchase of property, plant and equipment (60,960) (87,662)
Other 1,479 19,396
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Net cash used in investing activities (59,481) (68,266)
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Cash flows from financing activities:
Payments on capital lease obligations (1,052,571) (722,534)
Proceeds from the sale of common stock 2,632 -
Purchase of treasury stock (120,188) -
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Net cash used in financing activities (1,170,127) (722,534)
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Net increase (decrease) in cash (217,655) 34,967
Cash, beginning of period 1,116,857 526,851
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Cash, end of period $ 899,202 $ 561,818
============= ==============
Supplemental disclosure:
Capital leases entered into during period: $ - $ 537,875
</TABLE>
*In December of 1998, certain fryer equipment was reclassified to inventory as
a result of the Company's decision to sell the fryers in the ordinary course of
business. The amount transferred amounted to $1,345,250, net of $1,097,987 of
accumulated depreciation. As of March 31, 1999, $1,318,827 remained in
inventory. See Management's analysis of Liquidity and Capital Resources.
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 NINE MONTHS ENDED MARCH 31, 1999
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 as of March 31, 1999, and the results of operations and
cash flows for the periods ended March 31, 1999. The results of operations for
the nine months ending March 31, 1999, 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, 1999, and June 30, 1998, is listed
below:
March 31, 1999 June 30, 1998
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Finished goods $1,503,409 $226,116
Work-in-process 11,185 24,835
Raw material 453,510 289,420
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$1,968,104 $540,371
============== =============
In December of 1998, certain fryer equipment was reclassified to inventory as a
result of the Company's decision to sell the fryers in the ordinary course of
business. The amount transferred amounted to $1,345,250, net of $1,097,987 of
accumulated depreciation. As of March 31, 1999, $1,318,827 remained in
inventory. See Management's Discussion of Liquidity and Capital Resources.
7<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATION
Liquidity and Capital Resources
As of March 31, 1999, the Company's current assets exceeded current
liabilities by $2,749,509, or a ratio of 3.0 to 1, compared to $1,288,883, a
ratio of 1.6 to 1, as of June 30, 1998. The significant increase in the
current ratio was primarily a result of the reclassification of fryer units
from Property, Plant and Equipment to Inventory due to the Company's decision
to market the units. (See discussion below concerning termination of the Wal-
Mart contract.) Without the transfer of equipment to inventory, the ratio
would have increased to 2.0. Net cash decreased $217,655 over the first nine
months of the year, compared to a gain of $34,967 for the prior year.
Capital lease obligations were reduced a total of $1,052,571 during the
first nine months, compared with a net reduction of $722,534 the prior year.
One lease was restructured resulting in a $27,000 gain.
During fiscal year 1998, Wal-Mart notified the Company of their intent to
terminate its contract with the Fry Guy subsidiary, and began a self-managed
food program. More than 1,500 fryers have been returned to the Company by Wal-
Mart. Nearly all of these machines have been cleaned, refurbished and prepared
for resale. The Company continues to expand its sales distribution network to
resell the refurbished fryers.
2. Results of Operations
(a.) Three months ended 3/31/99 versus 3/31/98
Consolidated revenue for the quarter ended March 31, 1999 was $1,600,464,
a decrease of 41.4% from the same period last year. This was primarily a
result of the termination of the Wal-Mart contract. Net income decreased to
$15,110 from $309,289 for the same period last year.
Direct service and COGS declined 20%, to $982,168 this quarter from
$1,198,435 for the comparable quarter last year. General and administrative
expense also decreased, to $513,242 from $866,554 last year, or a 41% decrease.
Depreciation and amortization expenses decreased to $89,036 for the
quarter ending March 31, 1999, compared to $288,066 for the comparable quarter
last year, a 69% decrease. This is a result of the reclassification of Fry Guy
equipment from a depreciable asset to inventory held for resale.
Net interest expense decreased to $17,920 from $69,548 in the comparable
quarter last year. The decrease is a result of the payoff of capitalized
leases.
During the quarter, a $173,500 contract was signed between Alanco China
and Beijing Electric Power in China. Work has already begun on this project,
and completion is projected by the end of calendar 1999.
8<PAGE>
(b.) Nine months ended 3/31/99 versus 3/31/98
Consolidated revenues for the nine months ended March 31, 1999 was
$5,763,631, a 27.5% decrease from the $7,951,584 of the comparable period last
year. The decrease resulted from the decrease in Fry Guy revenue due to the
termination of the Wal-Mart contract offset by an increase of 12% in the
pollution control segment.
Consolidated net income for the period was $213,032, or $.04 per share,
compared to $460,737, or $.09, for the same period last year. This decrease in
sales resulted from the decrease in sales partially mitigated by a 25% decrease
in operating and overhead expenses, as well as the increase in earnings in the
pollution control segment.
Direct service and COGS decreased 20% to $2,965,846 from $3,702,917 for
the comparable nine months last year. General and administrative expenses
decreased 22% to $2,139,761 for the current nine months, from $2,742,073 last
year.
Depreciation and amortization expenses decreased to $379,366, or 55%, from
$846,400 for the same time period last year, due to the reclassification of Fry
Guy equipment.
Net interest expense decreased 55% to $90,226, from $200,154 last year.
The decrease is a result of the payoff of capitalized leases.
3. Year 2000 Issue
The Company has consulted with an outside Management Information Systems
analyst and determined that all computer systems currently in use by the
Company are either in compliance with the Year 2000 issue or can be made to
comply with minor modifications. The estimate for modification required for
the Year 2000 issue is well under $10,000. An upgrade to the Company's
accounting package has been purchased as well as several upgrades to the
manufacturing segment's in-house systems, to allow for 4 digit dates.
The Company does not anticipate significant problems with any of its
suppliers of data necessary for the Company's operations. The potential risk
to the Company concerning the Year 2000 issue appears to be problems that
customers may incur and the effect on their ability to pay the Company for
services and products. The Company does not have a formal contingency plan to
resolve this issue. However, due to the Company's diverse customer base,
management anticipates the problems should be limited in scope.
4. Subsequent Event
On April 30, 1999 the Company announced that it has signed a Letter of
Intent to acquire ASI Communications,Inc., a Tempe, Arizona company that
operates in three telecommunications areas, and had 1998 sales of approximately
$5.6 million. See Exhibit (c) attached.
9<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
(c) Press release dated April 30, 1999 titled _Alanco Letter of Intent To
Acquire ASI Communications, Inc._
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 A. Carlson
________________________
John A. Carlson
Chief Financial Officer
Date: 11 May 1999
10
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 899202
<SECURITIES> 0
<RECEIVABLES> 1780138
<ALLOWANCES> 701992
<INVENTORY> 1968104
<CURRENT-ASSETS> 4140744
<PP&E> 2996907
<DEPRECIATION> 1255983
<TOTAL-ASSETS> 8723899
<CURRENT-LIABILITIES> 1391235
<BONDS> 70168
0
0
<COMMON> 53744637
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<TOTAL-LIABILITY-AND-EQUITY> 8723899
<SALES> 5763631
<TOTAL-REVENUES> 5763631
<CGS> 2965846
<TOTAL-COSTS> 5484973
<OTHER-EXPENSES> (46301)
<LOSS-PROVISION> 30904
<INTEREST-EXPENSE> 136527
<INCOME-PRETAX> 213032
<INCOME-TAX> 0
<INCOME-CONTINUING> 213032
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<NET-INCOME> 213032
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
ALANCO ENVIRONMENTAL RESOURCES CORPORATION
FOR IMMEDIATE RELEASE
CONTACT: Alanco Environmental Resources Corporation
(602) 607-1010
ALANCO LETTER OF INTENT TO ACQUIRE ASI COMMUNICATIONS, INC.
Combined companies to focus on growth of ASI's internet and IP
telephony business segments.
(Scottsdale, AZ _ April 30, 1999) _ ALANCO ENVIRONMENTAL
RESOURCES CORPORATION (NASDAQ:ALAN) announced today that it has
signed a Letter of Intent to acquire ASI Communications, Inc.
(ASI), a Tempe, Arizona company with 1998 sales of approximately
$5.6 million, and operating in three telecommunications-related
business segments: internet access services, IP telephony
(telecommunications utilizing internet technologies), and
security alarm monitoring. The proposed acquisition will be a
stock exchange transaction, with ASI shareholders owning
approximately 45% of Alanco's outstanding stock at the close.
The combined company's strategic objective will be to accelerate
growth of the ASI internet business segments _ internet access
services, and IP telephony. A supporting plan will be to divest
non-strategic business assets and redeploy this capital into the
high growth potential internet businesses. It is anticipated
that, upon completion, the name of the company will be changed to
reflect the new strategic focus.
Robert R. Kauffman will continue as Chairman and Chief Executive
Officer. Kay C. Zahn, currently President of ASI Communications,
Inc., will be appointed President of the new company. The
proposed transaction will require approval of both Alanco and ASI
shareholders.
Alanco Environmental Resources Corporation is an Arizona
corporation headquartered in Scottsdale, Arizona, primarily
engaged in environmental products businesses. Alanco is traded
on the NASDAQ stock market under the symbol ALAN.
THIS PRESS RELEASE CONTAINS STATEMENTS THAT MAY BE CONSIDERED
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING
STATEMENTS ARE INHERENTLY UNCERTAIN, AND THE ACTUAL RESULTS MAY
DIFFER FROM MANAGEMENT'S EXPECTATIONS.
# # #<PAGE>
