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, 1996 Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347 ALANCO ENVIRONMENTAL RESOURCES CORPORATION ---------------------------------------------- (formerly known as Alanco 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.) 4110 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85251 ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (602) 874-0448 ----------------- (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 November 4, 1996, there were 33,576,759 shares of common stock outstanding. ALANCO ENVIRONMENTAL RESOURCES CORPORATION INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets September 30, 1996 (unaudited) and June 30, 1996 (audited). . . . . . . . . . . . . . 3 Consolidated Statements of Operations For the three months ended September 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . 4 Consolidated Statements of Shareholders' Equity For the three months ended September 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows For the three months ended September 30, 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 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 10 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND JUNE 30, 1996 Sept 30, 1996 June 30, 1996 ASSETS (unaudited) (audited) -------------- -------------- Current Assets: Cash $ 1,333,327 $ 565,199 Accounts receivable 831,193 648,974 Notes receivable 1,254,507 1,274,647 Inventories (note 2) 838,520 1,281,872 Prepaid expenses and other current assets 218,218 70,682 -------------- -------------- Total current assets 4,475,765 3,841,374 Property, plant and equipment 3,906,182 3,307,258 Costs in excess of book value on acquisition of wholly-owned subsidiaries, net of accumulated amortization of $635,703 and $529,066, 5,762,500 5,869,137 respectively Intangible assets, net of accumulated amortization of $113,149 and $108,119, respectively 191,590 188,808 Assets held for sale 6,855,063 6,855,063 Other assets 1,361,616 1,286,069 -------------- -------------- Total assets $ 22,552,716 $ 21,347,709 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Capital lease obligations, current portion $ 127,826 $ 124,571 Accounts payable and accrued expenses 805,631 685,190 -------------- -------------- Total current liabilities 933,457 809,761 Capital lease obligations 345,181 372,020 Unrealized installment sales 864,553 864,553 Redeemable Class A Preferred Stocks (note 3) 1,535,132 330,468 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; 33,576,759 and 33,209,544 shares issued and outstanding, respectively 52,172,985 51,783,690 Accumulated deficit (33,298,592) (32,812,783) -------------- -------------- Total shareholders' equity 18,874,393 18,970,907 -------------- -------------- Total liabilities & shareholders' equity $ 22,552,716 $ 21,347,709 ============== ============== See notes to consolidated financial statements 3 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended September 30, 1996 and 1995 September 30 ---------------------------- 1996 1995 ------------- ------------- Net sales $ 1,756,871 $ 1,682,112 ------------- ------------- Operating expenses: Direct service and cost of goods sold 946,241 945,604 Selling, general and administrative 1,055,053 954,102 Depreciation and amortization 231,975 226,888 ------------- ------------- Total operating expenses 2,233,269 2,126,594 ------------- ------------- Loss from operations (476,398) (444,482) Other income (expense) (9,411) (13,217) ------------- ------------- Net loss $ (485,809) $ (457,699) ============= ============= Net loss per share $ (0.01) $ (0.02) ============= ============= Weighted average common shares outstanding 33,364,278 30,303,406 ============= ============= See notes to consolidated financial statements 4 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Three Months Ended September 30, 1996 and 1995 Common Stock Accumulated Shares Amount Deficit TOTAL ------------ ----------- -------------- ------------ Balances ,June 30, 1995 29,924,057 $47,885,246 $ (29,284,430) $18,600,816 Common stock issued for: Cash 671,875 806,249 806,249 Services rendered 2,000 2,000 2,000 Net loss (457,699) (457,699) ------------ ----------- -------------- ------------ Balances September 30, 1995 30,597,932 $48,693,495 $ (29,742,129) $18,951,366 ============ =========== ============== ============ Balances, June 30, 1996 33,209,544 $51,783,690 $ (32,812,783) $18,970,907 Common stock issued for: Cash 350,215 368,215 368,215 Shares issued under stock option plans 7,000 13,230 13,230 Satisfaction of debt 10,000 7,850 7,850 Net loss (485,809) (485,809) ------------ ----------- -------------- ------------ Balances September 30, 1996 33,576,759 $52,172,985 $ (33,298,592) $18,874,393 ============ =========== ============== ============ See notes to consolidated financial statements 5 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended September 30, 1996 and 1995 September 30 1996 1995 ------------ ----------- Cash flows from operating activities: Net loss $ (485,809) $ (457,699) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 231,975 226,887 Other 17,764 1,555 (Increase) decrease in: Accounts receivable (182,219) (359,760) Inventory 116,021 (161,950) Prepaid expenses and other current assets (147,660) 13,586 Other assets (75,547) - Increase (decrease) in: Accounts payable and accrued expenses 123,696 (23,482) ------------ ----------- Net cash provided by (used in) operating activities (401,779) (760,863) ------------ ----------- Cash flows from investing activities: Notes receivable 20,140 248,964 Purchase of property, plant and equipment (391,775) (197,318) Other (7,813) 14,868 ------------ ----------- Net cash used in investing activities (379,448) 66,514 ------------ ----------- Cash flows from financing activities: Payments on obligations (26,839) (12,522) Proceeds from the sale of common stock 381,444 806,249 Proceeds from the sale of preferred stock 1,194,750 - ------------ ----------- Net cash provided by financing activities 1,549,355 793,727 ------------ ----------- Net increase in cash 768,128 99,378 Cash, beginning of period 565,199 607,411 ------------ ----------- Cash, end of period $ 1,333,327 $ 706,789 ============ =========== See Notes to consolidated financial statements 6 ALANCO ENVIRONMENTAL RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THREE MONTHS ENDED SEPTEMBER 30, 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, changes in shareholders' equity and statements of cash flows as of September 30, 1996, and for all periods presented. The results of operations for the period ending September 30, 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 September 30, 1996, and June 30, 1996, is listed below: September 30, 1996 June 30, 1996 ------------------ -------------- Finished goods $ 397,506 $ 761,977 Work-in-process 85,563 171,204 Raw material 355,451 348,691 ------------------ -------------- $ 838,520 $ 1,281,872 ================== ============== 7 Note 3 - Redeemable Preferred Stock The following is a listing of Redeemable Preferred Stock outstanding: September 30, 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 $ 340,382 $ 330,468 Redeemable Preferred Stock, $10 par value, Class A, Series 2, convertible, voting; 110,000 shares authorized, issued and outstanding 973,500 - Redeemable Preferred Stock, $10 par value, Class A, Series 3, convertible, voting; 25,000 shares authorized, issued and outstanding 221,250 - ------------------- -------------- Total $ 1,535,132 $ 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. 8 Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1. Liquidity and Capital Resources As of September 30, 1996, the Company's current assets exceeded current liabilities by $3,542,000, a ratio of 4.8 to 1. The available cash of $1,333,000 represented 30% of total current assets. Cash flow from operating activities improved by $359,000 for the three months ending September 30, 1996, over the comparable period ending September 30, 1995. The Company continues to expand the Fry Guy Integrated Food System, which was financed in the interim through the sale of equity securities. A significant portion of these expenditures will be recouped through current debt funding sources. The consolidated cash balance for the quarter increased by $768,000. An agreement is in place to fund current capital expenditures required by the food service segment, Fry Guy Inc. Alternate forms of non-equity financing are being reviewed to assure that needed funds are available for planned future growth. The Company believes it has adequate cash and capital available to fund its consolidated operations for the coming year. 2. Results of Operations - Three months ended 9/30/96 versus 9/30/95 Revenues for the quarter ended September 30, 1996, were $1,757,000, an increase of 4.5% over the comparable period in 1995. Revenues from the manufacturing and insurance segments were down 13% and 14%, respectively. These decreases were offset by revenues in the food service segment, which increased by 101%. Revenues in the pollution control segment were $100,000 during the current quarter, while no sales were reported for this segment in the comparable period in 1995. Consolidated operating expenses for the quarter ended September 30, 1996, increased by 5% 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 $486,000 or $.01 per share. This compares to a net loss of $458,000 or $.02 a share for the three months ended September 30, 1995. 9 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 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: 11/8/96 -------------- 11