FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 2007
Commission file number 0-9347
ALANCO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
15575 North 83rd Way, Suite 3, Scottsdale, AZ 85260
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (480) 607-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ___
---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes X No ___
---
The Registrant's revenues for the fiscal year ended June 30, 2007 were
$18,474,100.
State the aggregate market value, based upon the closing bid price of
the Common Stock as quoted on NASDAQ, of the voting stock held by non-affiliates
of the registrant: $28,169,800 as of September 21, 2007.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock: 22,718,000 shares of Class A Common Stock (net of
treasury shares) and no shares of Class B Common Stock as of September 21, 2007.
Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts. From time to time, the Company
may publish or otherwise make available forward-looking statements of this
nature. All such forward-looking statements are based on the expectations of
management when made and are subject to, and are qualified by, risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by those statements. These risks and uncertainties include,
but are not limited to, the following factors, among others, that could affect
the outcome of the Company's forward-looking statements: general economic and
market conditions; reduced demand for information technology equipment;
competitive pricing and difficulty managing product costs; development of new
technologies which make the Company's products obsolete; rapid industry changes;
failure by the Company's suppliers to meet quality or delivery requirements; the
inability to attract, hire and retain key personnel; failure of an acquired
business to further the Company's strategies; the difficulty of integrating an
acquired business; undetected problems in the Company's products; the failure of
the Company's intellectual property to be adequately protected; unforeseen
litigation; unfavorable result of current pending litigation; the ability to
maintain sufficient liquidity in order to support operations; the ability to
maintain satisfactory relationships with lenders and to remain in compliance
with financial loan covenants and other requirements under current banking
agreements; the ability to maintain satisfactory relationships with suppliers;
federal and/or state regulatory and legislative actions; customer preferences
and spending patterns; the ability to implement or adjust to new technologies
and the ability to secure and maintain key contracts and relationships.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Alanco Technologies, Inc. was incorporated in 1969 under the laws of
the State of Arizona. Unless otherwise noted, the "Company" or "Alanco" refers
to Alanco Technologies, Inc. and its wholly owned subsidiaries. Alanco (Nasdaq:
ALAN) is a provider of advanced information technology solutions with the
Company's operations for fiscal year ended June 30, 2007 diversified into three
reporting business segments including: (i) RFID Technology - incorporating
design, production, marketing and distribution of RFID (Radio Frequency
Identification) tracking technology, (ii) Data Storage - incorporating the
manufacturing, marketing and distribution of data storage products and (iii)
Wireless Asset Management - incorporating the design, production, marketing,
distribution and monitoring of wireless asset management products, primarily for
the transportation industry.
The Company acquired its RFID (Radio Frequency Identification) tracking
technology known as the TSI PRISM system in May 2002 through the acquisition of
the operations of Technology Systems International, Inc., a Nevada corporation
("TSIN"). The Company continues to participate in the data storage market
through Excel/Meridian Data, Inc., a manufacturer of Network Attached Storage
("NAS") systems and other storage related products for mid-range organizations.
Arraid, Inc., a manufacturer of proprietary storage products to upgrade older
"legacy" computer systems, previously included in the data storage segment, was
sold during the first of the current fiscal year and appropriately the results
of operations for both fiscal years 2006 and 2007 are reported as discontinued
operations. Net Arraid assets are reported as "Assets Held for Sale" at June 30,
2006.
The June 30, 2006 acquisition of StarTrak Systems, LLC ("StarTrak"), a
Delaware LLC located in Morris Plains, New Jersey, added Wireless Asset
Management, a third reporting business segment described as a provider of
wireless GPS tracking and monitoring services, which are offered on a monthly
subscription basis to various industry segments. The company's primary focus is
currently the refrigerated or "Reefer" segment of the transport industry,
providing the dominant share of all wireless tracking, monitoring and control
services to this market segment.
RECENT BUSINESS DEVELOPMENTS
The Company announced on August 7, 2007 that its subsidiary, StarTrak
Systems, LLC ("StarTrak"), had received a single contract valued in excess of $2
million from a major international container shipping company for GenTrak
monitoring systems hardware and data services.
StarTrak's GenTrak is a GPS-based, wireless monitoring and control
system, initially deployed on marine gensets to monitor the location, operating
condition, fuel levels, etc. of both the gensets and any connected refrigerated
container. A marine genset is a portable generator temporarily connected to a
refrigerated container to provide power during the land-based portion of the
transport cycle. The GenTrak system provides significant operational savings and
quality improvements to global shipping companies in their refrigerated
container operations.
On July 25, 2007, the Company announced the first U.S.A. installation
of its new WiFi compatible, 2.4 gigahertz TSI PRISM RFID inmate tracking
technology at the Marion County Juvenile Detention Center in Indianapolis,
Indiana. The deployment of TSI PRISM's new system was unveiled at a public
demonstration at the Detention Center held on July 20, 2007, attended by Marion
County dignitaries with extensive local and national press coverage.
DESCRIPTION OF BUSINESS
RFID TECHNOLOGY SEGMENT
The Company acquired, in fiscal year 2002, the operations of Technology
Systems International, Inc., a Nevada Corporation ("TSIN"). The technology
consisted of the proprietary TSI PRISM(TM) wireless 915 MHz RFID tracking
capabilities utilized primarily in correctional facilities, security management
and personnel monitoring. The acquisition was effected through a wholly owned
subsidiary, Technology Systems International, Inc., an Arizona corporation, by
the issuance of Alanco Class A Common Stock to purchase TSIN's assets and
assumption of specific liabilities of TSIN. During the fiscal year 2005, the
Company changed the name of Technology Systems International, Inc. to Alanco/TSI
PRISM, Inc. ("ATSI").
In March 2005, Alanco entered into a technology license agreement
("License") with a developer of RFID real-time location services technology
utilizing 2.4 GHz wireless networking standards. The License currently grants to
Alanco a five-year worldwide license for the corrections market, to acquire,
modify or combine the 2.4 GHz technology with Alanco's 915 MHz TSI PRISM
technology. The Company believes the 2.4 GHz technology has certain application
advantages over the 915 MHz technology in international markets and in some
segments of the U.S. corrections market.
Marketing - ATSI markets both its TSI PRISM(TM) 915 MHz and 2.4 GHz
RFID tracking systems in the United States, through the Company's direct sales
representatives and a network of lobbyists. The 2.4 GHz RFID tracking systems is
also marketed internationally through international distributors and business
partnerships. The primary focus of the marketing effort has been directed at the
domestic state and federal correctional facilities and county jail markets.
Internationally, ATSI is providing transmitter technology for a project in the
corrections market in Europe .
Raw Materials - The RFID Technology segment utilizes various domestic
subcontractors for materials and parts used to manufacture its products. Due to
the limited number of system installations, approximately 50% of those purchases
for fiscal year ended June 30, 2007 were made from the licensor of the 2.4 GHz
technology. During fiscal year ended June 30, 2006, no subcontractor accounted
for 10% or more of the business segment's purchases.
The Company anticipates continued concentration of vendor purchases;
however, additional suppliers are readily available at competitive pricing
levels. The Company does not foresee any future significant shortages or
substantial price increases that cannot be recovered from its customers.
Competitive Conditions - We believe the TSI PRISM(TM) system is the
only known wireless RFID continuous real-time tracking technology currently
available to the correctional facilities market. There are other companies
attempting to introduce area location and monitoring technologies in the
correctional facilities market, offering an area or zone detection system.
However, at this time those technologies are not capable of providing continuous
real-time tracking.
Employees - The Company's RFID tracking segment employed sixteen and
eighteen full-time employees as of June 30, 2007 and 2006, respectively.
Seasonality of Business - Location and tracking products have minimal
seasonality. However, many of the products in this segment are marketed to state
and federal government customers that are affected by annual budget schedules
and economic conditions.
Dependence Upon Key Customers - The RFID Technology segment continues
in an early stage of commercial market development in the United States.
Targeted customers operate the majority of the prison facilities in the United
States and include the 50 state governments, numerous county governments and the
federal government. During the twelve months ended June 30, 2006 and 2007,
substantially all revenue was generated from three state governments and a
general contractor. The Company anticipates that as market penetration of its
TSI PRISM(TM) technology accelerates, the Company will have numerous customers.
However, due to the type of product sold by the RFID Technology segment, the
size of each contract may continue to be significant.
Backlog Orders - The Company operates using system order contracts that
it considers to be firm and non-cancelable and extended maintenance contracts
not longer than twelve months. Under this method, the Company had an order
backlog as of June 30, 2007 of approximately $532,000, compared to $560,100 at
June 30, 2006.
Research & Development - The Company estimated that the ATSI operation
spent approximately $700,000 and $200,000 in research and development
expenditures, recorded as selling, general and administrative expense, during
fiscal years 2007 and 2006, respectively.
WIRELESS ASSET MANAGEMENT
The Company's Wireless Asset Management business segment was
established by the acquisition, effective June 30, 2006, of StarTrak Systems,
LLC ("StarTrak"), a privately held Delaware LLC located in Morris Plains, New
Jersey. StarTrak is a leading provider of wireless GPS tracking and monitoring
services which are offered on a monthly subscription basis to various industry
segments. The company's primary focus is currently the refrigerated or "Reefer"
segment of the transport industry. StarTrak provides the dominant share of all
wireless tracking, monitoring and control services to this market segment.
Marketing - StarTrak markets its wireless tracking and wireless
subscription data services in the United States, both through dealers and the
company's direct sales representatives. The primary focus of the marketing
effort has been directed at the domestic refrigerated transport market and the
reefer equipment providers. The company also has limited international sales
opportunities (Australia, Europe) and expects that segment to grow as well.
Raw Materials - The Wireless Asset Management segment utilizes various
domestic subcontractors for materials and parts used to manufacture its
products; and one vendor assembles a significant portion of the segment's
product. One supplier represented approximately 42% of those purchases for
fiscal year ended June 30, 2007.
The Company anticipates the Wireless Asset Management segment will
utilize various domestic subcontractors in the future for materials and parts
used to manufacture its products; however, certain vendors may represent more
than 10% of total purchases. Additional suppliers are generally available at
competitive pricing levels and we anticipate concentration of purchases will
decrease as new products are introduced and volumes increase. The Company does
not foresee any future significant shortages or substantial price increases that
cannot be recovered from its customers.
Competitive Conditions - StarTrak is the only known provider of
wireless tracking and monitoring services that offers a subscription program to
the refrigerated or "Reefer" segment of the transport industry. There are other
companies marketing GPS tracking services to the general transport industry;
however, to our knowledge, none have the capability of providing integration
with the major manufacturers' "Reefer" electronic systems that allows for the
monitoring of various sensor data on a real-time basis.
Employees - The Company's Wireless Asset Management segment employed
thirty nine and thirty five full-time and part-time employees as of June 30,
2007 and 2006, respectively, including three interns at June 30, 2007.
Seasonality of Business - Location and tracking products have minimal
seasonality. However, many of the products in this segment are marketed to
commercial customers that are affected by annual budget schedules and economic
conditions. Further, high asset utilization during the summer months can cause
some seasonal effects on deployment of units.
Dependence Upon Key Customers - The company has numerous end customers,
many of which chose to purchase StarTrak products from two primary OEM
refrigerator equipment suppliers. StarTrak is the only vendor currently
providing the two OEMs with tracking and monitoring products for the
refrigerated or Reefer segment of the transport industry. Additionally, the
company delivered product and provided subscription services under a contract
with a major customer that amounted to 41% of fiscal year 2007 segment revenue.
Backlog Orders - The Company operates using order contracts that it
considers to be firm and non-cancelable. Under this method, the Company had
unfulfilled contracts as of June 30, 2007 and 2006 of approximately $9 and $11
million, respectively.
COMPUTER DATA STORAGE SEGMENT
The Company's Computer Data Storage segment consisted of two separate
units, Arraid, Inc. ("Arraid") and Excel/Meridian Data, Inc. ("Excel") during
fiscal year 2006 and part of fiscal year 2007. During fiscal 2007, the Company
sold Arraid, a Phoenix, Arizona-based manufacturer of legacy computer data
storage products, leaving Excel, a Dallas, Texas-based provider of data storage
networking products and services, as the only unit comprising the Computer Data
Storage Segment at June 30, 2007. Arraid's results of operations are reported in
the current financial Form 10-KSB as discontinued operations for both fiscal
years 2006 and 2007. Arraid assets are reported as "Net Assets Held for Sale" at
June 30, 2006.
Excel is a manufacturer and marketer of data storage networking
products and is recognized as a leading provider of optical storage devices,
such as CD/DVD-ROM servers. Excel also markets a Network Attached Storage
("NAS") product line and other storage products incorporating state-of-the-art
software technology.
Marketing - Excel markets optical storage and NAS products, primarily
in the United States, through national advertising, telemarketing and Company
sales representatives.
Raw Materials - During fiscal year 2007, two suppliers accounted for
more than 10% of material and parts purchases. One supplier accounted for 37.6%
and a second supplier accounted for 17.2% of those purchases. No supplier
provided 10% or more of the Company's data storage material and parts purchases
during fiscal year 2006. The Company anticipates continued concentration of
vendor purchases; however, additional suppliers are available at competitive
pricing levels. The Company does not foresee any future significant shortages or
substantial price increases that cannot be recovered from its customers.
Competitive Conditions - There are numerous competitors in the Computer
Data Storage market, with no company dominating the market. Excel competes with
many established companies in the general storage market and many of these
companies may have substantially greater financial, marketing and technological
resources, larger distribution capabilities, earlier access to customers and
more opportunities to address customers' various information storage
requirements than the Company. The Company also competes with many smaller, less
established companies in specific storage product segments. Some of these
companies may have earlier access to new technologies or products than the
Company. The announcement or introduction of new products and/or implementation
of effective marketing strategies by its competitors may have a materially
adverse effect on the Company's business.
Employees - As of June 30, 2007, the Company's computer data storage
business employed twenty full-time employees, compared to twenty-seven full-time
employees as of June 30, 2006.
Seasonality of Business - Computer data storage products have minimal
seasonality. However, many of the products in this segment are marketed to
business customers, which in some cases can be significantly affected by budget
restraints and economic conditions.
Dependence Upon Key Customers - During fiscal year 2007 one customer
accounted for 17.4% of revenues. No customer accounted for more than 10% of the
Computer Data Storage segment revenues during fiscal year ended June 30, 2006.
Backlog Orders - The Company operates using customer purchase orders
that in some cases may not be considered firm and non-cancelable. Methods of
defining a firm "Backlog Order" are being evaluated, and if the Company utilizes
that information in evaluating sales activity, the information will be reported.
Research & Development - The Company estimates it spent approximately
$150,000 in research and development expenditures, recorded as selling, general
and administrative expense, for both fiscal years 2007 and 2006.
NET ASSETS HELD FOR SALE
Assets classified on the Company's attached balance sheet at June 30,
2006 as "net assets held for sale" consist of net assets of Arraid, Inc., a
subsidiary sold during fiscal 2007, and the remaining Restaurant Equipment
assets, which are being liquidated and are valued at the lower of cost or net
realizable value. Income from the sale of Restaurant Equipment assets are
reported as "other income" for both the current and prior fiscal years.
ITEM 2. PROPERTIES
The Company's corporate office and the ATSI operation are located in an
approximate 9,300 square foot leased facility in Scottsdale, Arizona. The
current lease has been extended on a month to month basis and a new three-year
lease for the same location is expected to be signed in October 2007.
Excel/Meridian Data, Inc. entered into an office/manufacturing space
lease during fiscal year 2001 for 11,328 square feet in Carrollton, Texas. The
five-year lease, scheduled to expire on March 15, 2006 was extended through
April 2009.
StarTrak Systems, LLC, is currently occupying an approximately 5,000
square foot office/manufacturing facility in Morris Plains, New Jersey, under a
lease scheduled to expire on September 30, 2007. The lease has been extended on
a month to month basis allowing StarTrak management to negotiate terms for a new
office/manufacturing facility of approximately 12,000 square feet located near
its current facility in Morris Plains, New Jersey. A new lease is expected to be
signed by the end of October 2007.
ITEM 3. LEGAL PROCEEDINGS
The Company is a plaintiff in litigation initiated by its subsidiary,
StarTrak Systems, LLC, against former employees and others for violation of
certain non-disclosure covenants and for misappropriation of trade secrets. The
actions are more fully described below.
The Company is also a party to litigation that relates to the
acquisition, in May of 2002, of substantially all the assets of Technology
Systems International, Inc., a Nevada Corporation ("TSIN") and to litigation
arising from an expired property lease between the Company's subsidiary, Arraid,
Inc., and Arraid Property L.L.C., an Arizona limited liability company.
StarTrak Systems Litigation.
On July 12, 2007, the Company's subsidiary, StarTrak Systems, LLC,
commenced a lawsuit against Brian Hester, Satamatics, Ltd., Satamatics, Inc.,
and Farrukh Shahzad in the United States District Court, District of New Jersey,
as case number 07-3203(DRD), for misappropriation of trade secrets, violation of
confidentiality agreements and contempt for violation of a previously issued
court order concerning such trade secrets issued to Brian Hester. Brian Hester
and Farruhk Shahzad are previous employees of StarTrak, and the Company believes
that they have employed and/or are attempting to employ trade secrets of
StarTrak in connection with their association with Satamatics in direct
competition with StarTrak. The Company is seeking injunctive relief and damages
from the defendants.
TSIN Litigation.
On January 30, 2003, a shareholder of TSIN filed a derivative suit
naming as defendants the Company and its wholly owned subsidiary, ATSI. The
venue for this action is the Arizona Superior Court in and for Maricopa County,
Arizona, as case number CV2003-001937. The complaint sets forth various
allegations and seeks damages arising out of the Company's acquisition of
substantially all of the assets of TSIN. This derivative suit was terminated and
the action converted into a direct action by TSIN by stipulation and court order
in July 2003.
TSIN is currently in Chapter 7 bankruptcy. The Chapter 7 Trustee failed
to prosecute the action timely and the state court dismissed the action for lack
of prosecution, but allowed the Trustee to restart the action, which the Trustee
has done as case number CV2006-007398. The Company is seeking its attorney's
fees with respect to the dismissed action, and has appealed the court's order
allowing the Trustee to restart the action.
The parties to the lawsuit have entered into a Settlement Agreement,
which the Company included as an exhibit to a Form 8-K filed on September 21,
2007. In place of the litigation, the Settlement Agreement provides for a
valuation procedure, conducted by an independent third party valuation expert,
to value (i) the assets transferred by TSIN to Alanco and ATSI in connection
with the Acquisition Agreement ("Business Value"), and (ii) the consideration
paid by Alanco to TSIN ("Consideration Value "). If the appraiser determines
that the Consideration Value is within 15% of the Business Value, neither party
shall be entitled to any damages or claims. If the Consideration Value is less
than 85% of the Business Value, Alanco shall pay to TSIN's bankruptcy estate the
full difference in the values, plus interest thereon, plus the sum of
$300,000.00 for attorneys' fees incurred by TSIN in prosecuting the various
related litigation matters. Alanco's payment may be made, at Alanco's option, in
cash or by an equivalent market value of additional Alanco Class A Common Stock
(subject to certain conditions set forth in the Settlement Agreement). If the
Consideration Value is greater than 115% of the Business Value, TSIN shall
immediately pay Alanco the sum of $300,000.00 for Alanco's attorneys' fees and
costs incurred in connection with the various litigation matters. The Settlement
Agreement was approved by the bankruptcy court following a hearing for the same
on September 19, 2007, and the parties are beginning the appraisal process. The
Company anticipates that the appraisal will be accomplished and the matter
resolved over the next few months.
Arraid Litigation.
On July 18, 2003, Arraid Property L.L.C., an Arizona Limited Liability
Company ("Arraid LLC"), filed a complaint in the Arizona Superior Court in and
for Maricopa County, Arizona (case number CV 2003-13999) against the Company and
it's wholly owned subsidiary Arraid, Inc., alleging breach of lease and seeking
substantial monetary damages in excess of $3 million. The suit relates to an
expired lease agreement for property previously leased by Arraid. Following a
trial, the Court found in favor of Arraid LLC against the Company with respect
to certain factual findings resulting in damages owed by the Company in an
amount of approximately $35,000, less than one percent of the amount sought by
the plaintiff. The court determined that the plaintiff was the prevailing party,
and awarded the plaintiff approximately $95,000 in attorney's fees and costs.
The Company's management, in consultation with legal counsel, has determined to
appeal the decision of the court.
The Company may also, from time to time, be involved in litigation
arising from the normal course of business. As of June 30, 2007, there was no
such litigation pending deemed material by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Shareholders during the
fourth quarter of fiscal year ended June 30, 2007.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Alanco's common stock is traded on the Nasdaq Capital Market under the
symbol "ALAN."
The following table sets forth high and low sale prices for each fiscal
quarter for the last two fiscal years. Such quotations represent inter-dealer
prices without retail mark-ups, markdowns, or commissions and, accordingly, may
not represent actual transactions.
Fiscal 2007 Fiscal 2006
------------------------- -------------------------
Quarter Ended High Low High Low
----------------------- ------------------------- -------------------------
September 30 $1.90 $1.15 $2.48 $1.75
December 31 $1.79 $1.12 $1.75 $1.15
March 31 $2.57 $1.28 $1.95 $1.20
June 30 $4.14 $2.02 $2.08 $1.50
As of June 30, 2007 and 2006 Alanco had approximately 1,000 holders of
record of its Class A Common Stock. This does not include beneficial owners
holding shares in street name.
The Company issued a total of 4,961,600 shares of its Class A Common
Stock during fiscal year ended June 30, 2007. Of those shares, 669,900 shares
were issued in connection with exercise of employee stock options and warrants,
275,700 were issued for services, 736,000 were issued pursuant to a private
offering and 3,280,000 were additional shares issued related to the StarTrak
acquisition.
During the fiscal year ended June 30, 2006, the Company issued
4,589,400 shares of its Class A Common Stock. Of those shares, 840,000 shares
were issued in connection with exercise of employee stock options and warrants,
153,400 were issued for services and prepayments, 1,596,000 were issued pursuant
to a private offering and 2,000,000 were issued in the StarTrak acquisition.
Alanco has paid no Common Stock cash dividends and has no current plans
to do so. During fiscal years ended June 30, 2007 and 2006, holders of Series A
Convertible Preferred Stock received "paid-in-kind" dividends of 396,900 shares,
valued at $595,400, and 341,700 shares, valued at $512,500, respectively.
Holders of Series B Convertible Preferred Stock received "paid-in-kind"
dividends during fiscal years ended June 30, 2007 and 2006 of 7,749 shares,
valued at $77,500, and 7,000 shares, valued at $70,200, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" discusses our consolidated financial statements that have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amount of assets
and liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and judgments, including those related
to revenue recognition, valuation allowances for inventory and receivables,
warranty and impairment of long-lived and intangible assets. We base our
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances. The result of these
estimates and judgments form the basis for making conclusions about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The SEC suggests that all registrants list their most "critical
accounting policies" in Management's Discussion and Analysis. A critical
accounting policy is one which is both important to the portrayal of the
Company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Management has identified the critical accounting policies presented below as
those accounting policies that affect its more significant judgments and
estimates in the preparation of its consolidated financial statements. The
Company's Audit Committee has reviewed and approved the critical accounting
policies identified.
These policies include, but are not limited to, the carrying value of
goodwill and other intangible assets, valuation allowance for deferred tax
assets, estimates related to the valuation of inventory and receivables, the
actual net realizable value of net assets held for sale and the ultimate
resolution of the current litigation with TSIN and Arraid L.L.C. that is more
fully discussed in Item 3, Legal Proceedings.
Results of Operations
In accordance with accounting principles generally accepted in the
United States of America, the Company is reporting consolidated revenues for
fiscal years ended June 30, 2007 and 2006 from its Computer Data Storage
segment, RFID Technology segment and Wireless Asset Management segments.
The following table is a summary of the results of operations and other
financial information by major segment:
Wireless
Data RFID Asset
Storage Technology Management Corporate Total
------------ ------------ ------------- ------------ -------------
Fiscal year 2007
Revenue $ 4,432,000 $ 1,065,500 $ 12,976,600 $ - $ 18,474,100
Cost of Goods Sold 3,360,000 735,700 8,505,900 - 12,601,600
------------ ------------ ------------- ------------ -------------
Gross Profit 1,072,000 329,800 4,470,700 - 5,872,500
Selling, General &
Administrative 1,504,600 2,314,600 5,192,200 1,310,800 10,322,200
------------ ------------ ------------- ------------ -------------
Operating Income (Loss) $ (432,600) $(1,984,800) $ (721,500) $(1,310,800) $ (4,449,700)
============ ============ ============= ============ =============
Accounts Receivable $ 327,300 $ 342,400 $ 1,561,300 $ 17,600 $ 2,248,600
============ ============ ============= ============ =============
Inventory $ 859,600 $ 1,279,100 $ 1,669,400 $ - $ 3,808,100
============ ============ ============= ============ =============
Total Assets $ 1,511,300 $ 7,247,400 $ 17,870,900 $ 1,253,300 $ 27,882,900
============ ============ ============= ============ =============
Capital Expenditures $ 38,800 $ 103,100 $ 64,000 $ - $ 205,900
============ ============ ============= ============ =============
Depreciation & Amortization $ 23,600 $ 289,100 $ 644,100 $ 2,700 $ 959,500
============ ============ ============= ============ =============
Fiscal year 2006
Revenue $ 4,813,000 $ 631,500 $ - $ - $ 5,444,500
Cost of Goods Sold 3,412,800 479,900 - - 3,892,700
------------ ------------ ------------- ------------ -------------
Gross Profit 1,400,200 151,600 - - 1,551,800
Selling, General &
Administrative 1,407,400 2,669,600 - 1,553,100 5,630,100
------------ ------------ ------------- ------------ -------------
Operating Income (Loss) $ (7,200) $(2,518,000) $ - $(1,553,100) $ (4,078,300)
============ ============ ============= ============ =============
Accounts Receivable $ 356,100 $ 178,300 $ 919,700 $ 17,300 $ 1,471,400
============ ============ ============= ============ =============
Inventory $ 875,200 $ 940,500 $ 885,900 $ - $ 2,701,600
============ ============ ============= ============ =============
Total Assets $ 1,590,400 $ 7,239,800 $ 17,572,200 $ 1,259,100 $ 27,661,500
============ ============ ============= ============ =============
Capital Expenditures $ 15,800 $ 54,400 $ - $ 600 $ 70,800
============ ============ ============= ============ =============
Depreciation & Amortization $ 21,200 $ 355,600 $ - $ 3,200 $ 380,000
============ ============ ============= ============ =============
Consolidated revenues for fiscal year 2007 were $18,474,100, an
increase of 239% when compared to $5,444,500 revenues for fiscal year 2006. The
increase in revenues resulted primarily from the $12,976,600 of added revenues
reported by the Wireless Asset Management segment, a new segment acquired
effective June 30, 2006.
Revenue for the Data Storage segment decreased to $4,432,000, a
$381,000, or 7.9%, decrease when compared to Data Storage segment revenues of
$4,813,000 reported for fiscal year ended June 30, 2006. The Data Storage
segment revenues for both periods reflect only those revenues for Excel/Meridian
Data, the Company's remaining business in this segment. As a result of adoption
of SAB 108 during the quarter ended March 31, 2007, the Company recorded an
adjustment to increase deferred revenue relative to extended warranty sales. The
Company has previously recognized a portion of its extended warranty revenue in
the period of sale, as opposed to over the term of the warranty coverage. The
one-time adjustment, representing the cumulative effect, decreased net sales by
approximately $150,000 for the year. The practice had occurred over a number of
years and the effect on individual prior reporting periods was deemed to be
immaterial. Without the adjustment, the Data Storage segment would have reported
a decrease of approximately $231,000, or 4.8%. The decrease in Data Storage
segment revenue resulted from a trend towards lower priced storage products,
government redirecting military defense expenditures from computer system
support to the war effort and a general reduction in selling prices of data
storage products.
The RFID Technology segment reported revenues of $1,065,500 for fiscal
year ended June 30, 2007, a 68% increase when compared to $631,500 reported for
the previous year. The improvement in the RFID Technology segment reflects new
system installations resulting from additional sales activity and exposure of
its TSI PRISM tracking and monitoring system. This improvement has been achieved
while maintaining the pricing structure it has utilized over the past few years.
While fiscal 2007 revenue has increased over 2006, it remains at an unacceptable
level that must be significantly increased for the segment to become a viable
business. The Company believes that additional revenues for this segment will be
recognized as the tracking and monitoring technology becomes the accepted method
for modern prison management effectiveness. The Company believes the lack of
significant sales progress for the RFID Technology segment to date is due to an
extraordinarily complex and lengthy bureaucratic procurement process that, in
some cases, takes several years to complete. The sales process for the TSI PRISM
products is protracted because it generally involves four separate phases: 1)
product presentation to a state director of corrections, 2) obtaining the state
director of correction's agreement to position the product among the top
priorities of his budget, 3) competing with other state projects for funding and
4) publishing the RFP (request for proposal) and awarding the contract. RFID
segment customers are currently at various phases in the procurement process and
we believe that TSI PRISM sales will increase significantly in fiscal 2007 as
the funding phase is completed and contracts are awarded.
Customers are also studying various methods to finance the adoption of
RFID technology for their corrections facilities. Based upon meetings the
Company has had with various State governments to discuss federal grants
available to assist in funding the acquisition of the TSI PRISM system and
actions taken to apply for those grants, we believe that numerous State
governments have applied or are considering, in addition to their normal
legislative funding, applying for federal grants under programs such as PREA
(Prison Rape Elimination Act of 2003), grants awarded from programs administered
by the U.S. Department of Justice and grants awarded by the National Institute
of Justice. In addition, potential customers are reviewing available lease
financing options.
The Company's gross profit for fiscal year 2007 was $5,872,500 (31.8%
of sales), an increase of $4,320,700 or 278%, when compared to $1,551,800 (28.5%
of sales) for the prior year. The new Wireless Asset Management segment
accounted for the entire increase reporting gross profit of $4,470,700. The
improvement in gross margins was also the result of the added Wireless Asset
Management segment, which reported a gross margin of 34.5%, significantly higher
than the Company's gross margin in fiscal year 2006 of 28.5% of sales.
The Data Storage segment reported gross profit of $1,072,000, a
decrease of $328,200, or 23.4%, compared to $1,400,200 gross profit reported for
the prior year. Gross margin for fiscal year 2007 for the Data Storage segment
was 24.2%, compared to 29.1% reported in the prior year. Approximately $150,000
of the decrease was due to the one-time accounting adjustment to increase
deferred revenue relative to extended warranty sales discussed above. The
remaining $178,200 decrease in Data Storage gross profit resulted from a
decrease in sales and margin reductions from 29.1% in fiscal year 2006 to 27.5%,
excluding the effect of the accounting adjustment, for the current fiscal year.
The gross margin decrease resulted from changes in product mix and is not deemed
to be a trend. The Data Storage segment is continually reselling new technology
products and integrating those products to meet customer expectations. This
constant product evolution results in continuous changes in product offerings
and consequently gross margins.
The RFID Technology segment reported an increase in gross profit to
$329,800, a $178,200, or 118% increase from the $151,600 reported for the prior
fiscal year. The $178,200 increase was due to both increased revenues and
increases in gross margin to 31% from 24% reported in the prior year. The
significant increase in gross margin for the RFID segment was due to additional
volume improving the coverage of fixed production costs and not due to changes
in pricing strategies. We believe that reported gross margin for fiscal 2006 is
not reflective of the gross margin percentage anticipated under higher sales
levels.
Consolidated selling, general and administrative expense for the year
ended June 30, 2007 increased $4,692,100, or 83.3%, to $10,322,200, compared to
$5,630,100 reported in fiscal 2006. The new Wireless Asset Management segment
accounted for the entire increase, reporting SG&A expense of $5,192,200.
Selling, general and administrative expense for the Data Storage segment
increased by $97,200, or 6.9%, to $1,504,600, compared to $1,407,400 reported
for the prior year. The increase in Data Storage segment selling, general and
administrative costs resulted from increases in sales and administrative costs
related to added sales personnel and enhancing sales support. Selling, general
and administrative expenses for the RFID Technology segment decreased by
$355,000, or 13.3%. Corporate administrative expenses decreased by $242,300, or
15.6%, compared to the prior year primarily due to a decrease in legal expenses
related to TSIN and other litigation previously discussed.
The operating loss for fiscal year ended June 30, 2007 was ($4,449,700), a
$371,400, or 9.1%, increase when compared to the operating loss for the prior
fiscal year of ($4,078,300). The $371,400 increase resulted from increased
operating losses of $425,400 in the Data Storage segment and a $533,200
reduction in operating loss for the RFID Technology segment and an operating
loss of ($721,500) for the Wireless Asset Management segment, offset by a
$242,300 decrease in corporate expenses. The RFID Technology segment decreased
operating losses by $533,200 in fiscal year 2007 compared to the prior year due
to increases in revenue of $434,000 and gross profit of $178,200, while reducing
selling, general and administrative expenses by $355,000, which decreased to
$2,314,600. The Data Storage segment reported an operating loss of ($432,600),
compared to an operating loss of ($7,200) reported in the fiscal year ended June
30, 2006. The $425,400 increase in operating loss was due to a reduction in
gross profit of $328,200 resulting from sales reductions and decreases in gross
margin on sales from 29.1% to 24.2%, while increasing selling, general and
administrative expenses by $97,200 to enhance the sales and marketing effort.
Management believes the key quantitative factors in evaluating the
performance of the Data Storage, the RFID Technology and the Wireless Asset
Management segments are the growth in revenues and operating profits. The RFID
Technology segment has been in development for a number of years and has
reported significant operating losses. The Company believes the RFID Technology
segment's operating results will improve as potential customers complete their
procurement process (that in some cases have continued for several years) and
the tracking and monitoring technology becomes accepted as the standard for
prison management. The Company is continuing its efforts to increase revenues
and gross profit for the Data Storage segment by adding sales personnel and
increasing marketing efforts.
The Wireless Asset Management segment reported sales for fiscal year
2007 of approximately $13 million, a significant increase over the segment's
revenues in prior periods, and is expected to continue its revenue growth in
fiscal year 2008. Although revenues on a quarter to quarter comparison may
fluctuate, management believes that increases in hardware sales and monitoring
revenues will be achieved through new product introductions and increased market
penetration.
The loss from continuing operations for the fiscal year ended June 30,
2007 was ($5,115,600), a $1,030,500 or 25.2%, increase when compared to a loss
of ($4,085,100) for the prior fiscal year. The increase resulted from a $669,500
increase in net interest expense and a $371,400 increase in operating losses
previously discussed, offset slightly by a $10,400 increase in other income.
Fiscal year 2007 interest expense, net of interest income, was $759,800,
compared to net interest expense of $90,300 for the previous year. The increase
in net interest expense reflects increased average borrowing and interest rates
under the Company's line of credit agreement during fiscal 2007 and interest
expense associated with the $4 million term loan acquired in October 2006. Other
income for the current fiscal year was $93,900 compared to $83,500 for fiscal
year ended June 30, 2006. The current year other income includes gains on sale
of "assets held for sale" of $85,100 compared to gains on sale of "assets held
for sale" in the prior year of $84,200 reported for the prior period.
The Company believes that (loss) earnings before net interest income,
income taxes, depreciation and amortization of intangible assets (EBITDA), is an
important measure used by management to measure performance. EBITDA may also be
used by certain investors to compare and analyze our operating results between
accounting periods. However, EBITDA should not be considered in isolation or as
a substitute for net income, cash flows or other financial statement data
prepared in accordance with GAAP, or as a measure of our performance or
liquidity. EBITDA for Alanco's fiscal year 2007 represents a loss of
($4,152,400) compared to a loss of ($4,121,600) for the same period of the prior
year, an increase of less than one percent. EBITDA before stock-based
compensation of ($3,978,500) reflects an improvement of $143,100, or 3.4%, from
the ($4,121,600) reported in the prior period. Reconciliation between EBITDA and
Net Loss Attributable to Common stockholders is presented below:
EBITDA RECONCILIATION TO LOSS FROM CONTINUING OPERATIONS
Fiscal Years Ended
June 30, 2007 June 30, 2006
EBITDA before Stock-based compensation $ (3,978,500) $ (4,121,600)
Stock-based compensation (173,900) None
------------- --------------
EBITDA $ (4,152,400) $ (4,121,600)
Net interest expense (759,800) (90,300)
Depreciation and amortization (959,500) (380,000)
------------- --------------
NET LOSS $ (5,871,700) $ (4,591,900)
============= ==============
Preferred Stock dividends paid in-kind for the year ended June 30, 2007
for both Series A and Series B Convertible Preferred Stock amounted to $672,900,
compared to Preferred Stock dividends of $582,700 for the prior year, an
increase of $90,200, or 15.5%. In fiscal 2007, Series A Preferred shareholders
received in-kind dividends of 396,900 shares valued at $595,400, compared to
341,700 shares valued at $512,500 in the prior year. Series B Preferred
shareholders received 7,800 shares valued at $77,500 compared to 7,000 shares
valued at $70,200 in fiscal year 2006. See Footnote 12 - Shareholders' Equity
for additional discussion of Preferred Stock transactions.
Consolidated net loss attributable to Common stockholders for fiscal
year ended June 30, 2007 was $5,871,700, or ($.34) per share, an increase of
27.9% when compared to a net loss attributable to Common stockholders of
$4,591,900, or ($.39) per share, for the prior year.
Net cash used in operating activities for the fiscal year ended June
30, 2007 was $7,080,700 compared with net cash used in operating activities for
the prior fiscal year of $3,713,500. The increase of $3,367,200, or 90.7%,
resulted primarily from an increase in loss from operations of $1,030,500. See
"Liquidity and Capital Resources" below for management's discussion of
major items affecting the Consolidated Statement of Cash Flow.
Any new Statements of the Financial Accounting Standards affecting the
Company are disclosed in the "Notes to Consolidated Financial Statements."
Liquidity and Capital Resources
The Company's current liabilities exceeded current assets by $219,100
at June 30, 2007, representing a current ratio of .97 to 1. That was a
significant improvement when compared to June 30, 2006 when the Company's
current liabilities exceeded current assets by approximately $7.9 million,
resulting in negative working capital and a current ratio of .43 to 1. The
increase in working capital resulted primarily from shareholder approval of the
issuance of Common Stock to satisfy an approximately $5.7 million obligation
related to the acquisition of StarTrak Systems, LLC completed effective June 30,
2006 and a $4 million term loan completed in September 2006 that raised
additional working capital to fund Company operations.
Consolidated accounts receivable at June 30, 2007 of $2,248,600
reflects an increase of $777,200, or 52.8%, compared to the $1,471,400 reported
at the end of fiscal year 2006. $1,561,300, or 69.4% of the current fiscal year
end consolidated balance, was reported by the Wireless Asset Management segment,
a business segment acquired effective June 30, 2006 by the acquisition of
StarTrak Systems, LLC. The $1,561,300 balance for the Wireless Asset Management
segment represented forty four days' sales.
Receivables for the Data Storage segment decreased by $28,800, or 8.1%,
and RFID Technology segment increased by $164,100, or 92%. The Data Storage
segment accounts receivable balance at June 30, 2007 of $327,300 represented
twenty-seven days' sales in receivables compared to $356,100, or twenty-seven
days, at fiscal year end 2006. Day's sales in receivable for the Data Storage
segment may be significantly affected by the percentage of credit card sales in
a particular period versus a comparable period and therefore a change in
days'sales in receivables is not considered a trend towards faster or slower
receivable collection. Days' sales for the RFID Technology segment are distorted
at June 30, 2007 due to the lack of significant reported system sales for the
year. In addition, $216,000 of receivables at June 30, 2007 represented billing
on an extended maintenance contract recorded as deferred warranty revenue and
$79,000 represented the final billing on a system installation that, per
contract, had extended terms.
Consolidated inventories at June 30, 2007 amounted to $3,808,100
compared to $2,701,600 at the end of the prior fiscal year, an increase of
$1,106,500, or 41%. $1,669,400, or 43.8% of the current fiscal year end
consolidated balance, was reported by the Wireless Asset Management segment,
representing an inventory turn of 5.1. The Data Storage segment accounted for
$859,600, or 22.6% of the consolidated inventory value, representing an
inventory turn of 3.91 compared to 3.9 at June 30, 2006. The RFID Technology
segment inventory accounted for $1,279,100, or 33.6% of the consolidated balance
representing an inventory turn of .83 compared to .67 for the prior year. The
RFID Technology segment inventory levels increased due to a system installation
in process at June 30, 2007 that required certain site specific equipment. The
Data Storage segment inventories decreased slightly and the Wireless Asset
Management segment inventories increased in line with anticipated sales growth.
Net cash provided from investing activities during the current year was
$576,000, compared to net cash used in investing activities of ($753,900) for
the previous year. The $1,329,900 current year increase was due primarily to
cash from sale of assets held for sale of $747,400. In addition, fiscal year
2006 included cash funding of StarTrak prior to the June 2006 acquisition in the
amount of $774,300.
Net cash provided by financing activities during fiscal year ended June
30, 2007 amounted to $5,965,000, compared to $4,885,600 for the prior year.
Significant items for the current year include $3,112,400 in net proceeds from
the sale of Common Stock and $4,090,000 in additional borrowing (primarily the
$4 million term loan). Significant items for fiscal year 2006 include $3,465,100
in net proceeds from the sale of Common Stock and $1,993,500 in additional
borrowing.
The Company had a $1,500,000 line of credit balance under a $2 million
line of credit agreement with a private trust that was last amended effective
June 28, 2007. The secured line of credit is based upon accounts receivable and
inventory values, and is secured by all assets of the Company. The line of
credit has an interest rate of prime plus 3% (11.25% at June 30, 2007). Under
the amended line of credit agreement, the Company must maintain a balance due
under the line of at least $1,500,000 through June 2009. Due to the minimum
borrowing requirement and the July 2009 expiration date, $1.5 million of the
balance due is presented at June 30, 2007 as notes payable, more fully discussed
in Note 7 to the consolidated financial statements.
Considering the Company's working capital position at year end and the
projected cash requirements to fund operations, management estimates that the
year end cash balance of $615,800 and availability under the line of credit
would only be adequate to meet cash requirements for approximately a three-month
period. To address the working capital deficiency, the Company completed an
equity financing to private investors totaling approximately $4.8 million, net
of expenses. Approximately $800,000 was used to repay term debt with the balance
to be used for working capital to fund the Company's anticipated expansion.
Although management cannot assure that future operations will achieve
projections, or that additional debt and/or equity will not be required, we
believe our cash balances at year end, operating projections and the additional
capital raised subsequent to June 30, 2007 will provide adequate capital
resources to maintain operations for the next year. If additional working
capital is required during fiscal 2008 and not obtained through additional
long-term debt, equity capital or operations, it could adversely affect future
operations. Management has historically been successful in obtaining financing
and has demonstrated the ability to implement a number of cost-cutting
initiatives to reduce working capital needs. As previously discussed, the
Company requires and continues to pursue additional capital for growth and
strategic plan implementation. Accordingly, the accompanying consolidated
financial statements have been prepared assuming the Company will continue to
operate and do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern. As a result, the Company's
independent certified public accountants have issued a going concern opinion on
the consolidated financial statements of the Company for the fiscal year ended
June 30, 2007.
Product and Environmental Contingencies
The Company is not aware of any material liabilities, either product or
environmentally related.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements.
Index to Financial Statements
Page
Report of Registered Public Accounting Firm . . . . . . . . . . . . . . . . 14
Consolidated Balance Sheets As of June 30, 2007 and 2006. . . . . . . . . . 15
Consolidated Statements of Operations
For the Years Ended June 30, 2007 and 2006 . . . . . . . . . . . . . . . 16
Consolidated Statement of Changes in
Shareholders' Equity and Preferred Stock
For the Years Ended June 30, 2007 and 2006. . . . . . . . . . . . . . . .17
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2007 and 2006. . . . . . . . . . . . . . . .18
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . .19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Alanco Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Alanco
Technologies, Inc. and Subsidiaries as of June 30, 2007 and 2006, and the
related consolidated statements of operations, changes in shareholders' equity
and preferred stock, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alanco
Technologies, Inc. and Subsidiaries as of June 30, 2007 and 2006, and the
results of its operations, changes in shareholders' equity and preferred stock,
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has incurred significant losses
from operations, anticipates additional losses in the next year, and has
insufficient working capital as of June 30, 2007 to fund the anticipated losses.
These conditions raise substantial doubt as to the ability of the Company to
continue as a going concern. These consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Semple, Marchal & Cooper LLP
Certified Public Accountants
Phoenix, Arizona
September 28, 2007
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
2007 2006
---------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 615,800 $ 1,155,500
Accounts receivable, net 2,248,600 1,471,400
Notes receivable, current 29,600 31,600
Inventories, net 3,808,100 2,701,600
Costs and est. earnings in excess of billing 122,000 -
Prepaid expenses and other current assets 382,800 551,000
---------------- ---------------
Total current assets 7,206,900 5,911,100
---------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, NET 250,700 201,100
---------------- ---------------
OTHER ASSETS
Goodwill 17,931,700 17,875,100
Other intangible assets, net 2,066,200 2,881,200
Net assets held for sale - 755,500
Other assets 427,400 37,500
---------------- ---------------
Total other assets 20,425,300 21,549,300
---------------- ---------------
TOTAL ASSETS $ 27,882,900 $ 27,661,500
================ ===============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,155,500 $ 5,043,200
Credit Line - 1,000,000
Billings in excess of cost and est. earnings
on uncompleted contracts - 43,500
Notes payable, current 2,485,900 875,300
Deferred stock payment, StarTrak - 5,715,400
Customer advances - 1,001,100
Deferred revenue, current 784,600 126,000
---------------- ---------------
Total Current Liabilities 7,426,000 13,804,500
---------------- ---------------
LONG TERM LIABILITIES
Notes payable, long term 4,814,100 2,679,100
Deferred Revenue, long term 129,300 -
---------------- ---------------
TOTAL LIABILITIES 12,369,400 16,483,600
---------------- ---------------
Preferred Stock - Series B Convertible -
500,000 shares authorized, 82,800 and 75,000
issued and outstanding, respectively 815,000 737,500
---------------- ---------------
SHAREHOLDERS' EQUITY
Preferred Stock - Series A Convertible
5,000,000 shares authorized, 3,759,800
and 3,122,900 shares issued and
outstanding, respectively 4,930,100 3,925,200
Common Stock
Class A - 75,000,000 shares authorized,
20,423,100 and 15,461,500 shares
outstanding, respectively 87,970,200 78,845,300
Class B - 25,000,000 shares authorized
and 0 shares outstanding - -
Treasury Stock, at cost
200,000 shares at June 30, 2007 and 2006 (375,100) (375,100)
Accumulated deficit (77,826,700) (71,955,000)
---------------- ---------------
Total shareholders' equity 14,698,500 10,440,400
---------------- ---------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 27,882,900 $ 27,661,500
================ ===============
See accompanying notes to the consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30,
2007 2006
--------------- --------------
NET SALES $ 18,474,100 $ 5,444,500
Cost of goods sold 12,601,600 3,892,700
--------------- --------------
GROSS PROFIT 5,872,500 1,551,800
Selling, general and administrative expense 9,188,900 5,250,100
Amortization of stock- based compensation 173,800 -
Depreciation and amortization 959,500 380,000
--------------- --------------
OPERATING LOSS (4,449,700) (4,078,300)
OTHER INCOME & EXPENSES
Interest expense, net (759,800) (90,300)
Other income, net 93,900 83,500
--------------- --------------
LOSS FROM CONTINUING OPERATIONS (5,115,600) (4,085,100)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (83,200) 75,900
Preferred stock dividend - in kind (672,900) (582,700)
--------------- --------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (5,871,700) $ (4,591,900)
=============== ==============
NET LOSS PER SHARE - BASIC AND DILUTED
Continuing operations $ (0.30) $ (0.35)
Discontinued operations - -
Preferred stock dividends (0.04) (0.05)
--------------- --------------
Net loss attributable to common stockholders (0.34) (0.39)
=============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,286,500 11,642,000
=============== ==============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY & PREFERRED STOCK
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
SERIES A
COMMON STOCK PREFERRED STOCK TREASURY STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
-------------------------- ------------------------- -------------------- ------------- ------------
Balances, June 30, 2005 10,872,100 $ 71,714,600 2,781,200 $ 3,412,700 200,000 $(375,100) $(67,363,100) $ 7,389,100
Options, warrants exercised 840,000 1,235,000 - - - - - 1,235,000
Shares & warrants issued
for services 63,400 110,400 - - - - - 110,400
Shares issued for prepaid
services 90,000 135,000 - - - - - 135,000
Private Offerings, Net 1,596,000 2,274,100 - - - - - 2,274,100
Acquisition of StarTrak 2,000,000 3,485,000 - - - - - 3,485,000
Stock adjustment - (64,700) - - - - - (64,700)
Preferred Dividend,
Series A, paid in kind - - 341,700 512,500 - - (512,500) -
Preferred Dividend,
Series B, paid in kind - - - - - - (70,200) (70,200)
NASDAQ listing of additional
shares - (44,100) - - - - - (44,100)
Net Loss - - - - - - (4,009,200) (4,009,200)
------------ ------------- ------------ ------------ --------- ---------- ------------- ------------
Balances, June 30, 2006 15,461,500 $ 78,845,300 3,122,900 $ 3,925,200 200,000 $(375,100) $(71,955,000) $10,440,400
Options, warrants exercised 669,900 1,216,600 - - - - - 1,216,600
Shares issued for services 8,900 17,500 - - - - - 17,500
Shares & warrants issued
for loan fees 210,000 408,300 - - - - - 408,300
Private Offerings, Net 736,000 1,519,900 240,000 409,500 - - - 1,929,400
Additional shares issued
StarTrak Acq. 3,280,000 5,715,400 - - - - - 5,715,400
Conversion of note payable
to equity 56,800 107,000 - - - - - 107,000
Value of stock based
compensation - 173,800 - - - - - 173,800
Preferred Dividend,
Series A, paid in kind - - 396,900 595,400 - - (595,400) -
Preferred Dividend,
Series B, paid in kind - - - - - - (77,500) (77,500)
NASDAQ listing of additional
shares - (33,600) - - - - - 33,600)
Net loss - - - - - - (5,198,800) (5,198,800)
------------ ------------- ------------ ------------ --------- ---------- ------------- ------------
Balances, June 30, 2007 20,423,100 $ 87,970,200 3,759,800 $ 4,930,100 200,000 $(375,100) $(77,826,700) $14,698,500
============ ============= ============ ============ ========= ========== ============= ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR FISCAL YEARS ENDED JUNE 30,
2007 2006
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(5,115,600) $(4,085,100)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 973,800 383,100
Stock and warrants issued for services 17,500 51,100
Stock-based compensation 173,800 -
Income from assets held for sale (85,100) (30,000)
(Loss) income from discontinued operations (83,200) 75,900
Loss on disposal of asset 1,600 22,600
Changes in:
Accounts receivable, net (777,200) 250,300
Inventories, net (710,700) (355,500)
Prepaid expenses and other current assets 3,600 (125,600)
Accounts payable and accrued expenses (887,700) 103,300
Deferred revenue 787,900 (53,900)
Billings and estimated earnings in excess
of costs/costs and estimated earnings in
excess of billings on uncompleted contracts (165,500) 39,300
Customer advances (1,001,100) -
Other assets (212,800) 11,000
----------------------------
Net cash used in continuing operations (7,080,700) (3,713,500)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash from assets held for sale -Fry Guy 95,800 101,900
Net cash forfeited in sale (2,600) -
Net cash from assets held for sale - Arraid 747,400 -
Collection of notes receivable 2,000 56,400
Purchase of property, plant and equipment (205,900) (70,800)
Goodwill, acquisition (56,600) (67,100)
Cash funding of StarTrak prior to acquisition - (774,300)
Patent renewal and other (4,100) -
----------------------------
Net cash provided by (used in) investing activities 576,000 (753,900)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) advances on line of credit (500,000) -
Advances on borrowings 4,090,000 1,993,500
Repayment on borrowings (737,400) (573,000)
Net Proceeds from sale of Common Stock 3,112,400 3,465,100
----------------------------
Net cash provided by financing activities 5,965,000 4,885,600
----------------------------
NET INCREASE (DECREASE) IN CASH (539,700) 418,200
CASH AND CASH EQUIVALENTS, beginning of period 1,155,500 737,300
----------------------------
CASH AND CASH EQUIVALENTS, end of period $ 615,800 $ 1,155,500
============================
See accompanying notes in the consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR FISCAL YEARS ENDED JUNE 30,
2007 2006
------------ ------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Net cash paid during the period for interest $ 480,200 $ 90,300
============ ============
Non-cash activities:
Value of stock & warrants issued for services and prepayments $ 17,500 $ 245,500
============ ============
Value of shares issued - StarTrak Deferred Stock Payment $ 5,715,400 $ -
============ ============
Value of stock and warrants issued for loan fees $ 408,300 $ -
============ ============
Value of shares issued in payment of notes payable $ 107,000 $ 107,000
============ ============
Stock issued for StarTrak acquisition $ - $ 3,485,000
============ ============
Purchase of goodwill that is accrued at year-end $ - $ 67,100
============ ============
StarTrak liabilities assumed in excess of assets acquired $ - $ 5,425,800
============ ============
Net value of equipment written off during the period $ 1,600 $ 22,700
============ ============
Preferred Stock issued, in kind $ 672,900 $ 582,700
============ ============
See accompanying notes in the consolidated financial statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Alanco Technologies, Inc. was incorporated in
Arizona in 1969.
Alanco Technologies, Inc. and subsidiaries (the "Company") business
operations for the past several years have predominantly emphasized a
plan to strategically position the Company as a provider of information
technology specializing in tracking and monitoring. The Company initiated
its strategic direction in fiscal year 2002 when it acquired wireless
tracking RFID (Radio Frequency Identification) technology designed to be
used in the corrections market, through its acquisition of the operations
of Technology Systems International, Inc., a Nevada corporation ("TSIN");
and again in fiscal year 2006 when the Company expanded its footprint in
wireless tracking and data services into wireless asset management for
the refrigerated or "Reefer" market through the acquisition, effective
June 30, 2006, of StarTrak Systems, LLC, a provider of GPS tracking and
wireless data services for the Reefer segment of the transport industry.
In fiscal year 2007, the Company had continuing operations in the RFID
Technology, Computer Data Storage and Wireless Asset Management business
segments. The StarTrak acquisition, effective June 30, 2006, created the
Company's new Wireless Asset Management segment, whose segment operating
results are included for the first time in the consolidated operating
results for fiscal 2007.
Principles of Consolidation - The consolidated financial statements for
the years ended June 30, 2007 and 2006 include the accounts of Alanco
Technologies, Inc. and its wholly-owned subsidiaries, Alanco/TSI PRISM,
Inc., Arraid, Excel, Fry Guy Inc. and StarTrak Systems, LLC
(collectively, the "Company"). All subsidiaries are Arizona corporations,
except Fry Guy Inc., which is a Nevada corporation and StarTrak Systems,
LLC, which is a Delaware LLC. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Accounts Receivable Trade - The Company provides for potentially
uncollectible accounts receivable by use of the allowance method. An
allowance is provided based upon a review of the individual accounts
outstanding and the Company's prior history of uncollectible accounts.
Provision for uncollectible accounts receivable amounted to approximately
$102,200 and $71,600 at June 30, 2007 and 2006, respectively. The Company
does not typically require collateral or accrue interest or fees on past
due amounts.
Inventories - Inventories consist of materials and parts,
work-in-process, and finished goods. Inventories are stated at the lower
of cost or market. Cost is calculated using the average-cost method for
the Data Storage segment and first-in, first-out ("FIFO") for the RFID
Technology and the Wireless Asset Management segments.
Property, Plant and Equipment - Property, plant and equipment are stated
at cost. Depreciation is computed over the estimated useful lives of the
assets using the straight-line method, generally over a 3 to 10-year
period. Leasehold improvements are amortized on the straight-line method
over the lesser of the lease term or the useful life. Expenditures for
ordinary maintenance and repairs are charged to expense as incurred.
Betterments are capitalized as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the
account and any gain or loss is reflected in the statement of operations.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The carrying amounts of accounts
receivable, notes receivable, accounts payable, accrued liabilities, and
notes payable approximate fair value based upon their short-term
duration.
Goodwill and Other Intangible Assets - In June 2001, the Financial
Accounting Standards Board issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
requires the use of the purchase method of accounting for all business
combinations initiated after June 30, 2001. It also provides guidance on
purchase accounting related to the recognition of intangible assets. SFAS
No. 142 requires that goodwill and identifiable acquired intangible
assets with indefinite useful lives shall no longer be amortized, but
tested for impairment annually and whenever events or circumstances occur
indicating that goodwill might be impaired. SFAS No. 142 also requires
the amortization of identifiable assets with finite useful lives.
Identifiable acquired intangible assets, which are subject to
amortization, are to be tested for impairment in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The Company elected to adopt the provisions of SFAS No. 142 as of July 1,
2001, and at that time identified its reporting units (components) to be
two separate units (Arraid and Excel), which made up the Company's Data
Storage segment (until September 2007 when Arraid was sold). In May of
2002 the Company added its ATSI unit (the RFID Technology segment) and,
effective June 30, 2006, it added its StarTrak unit (the Wireless Asset
Management segment). The Company determines the carrying value of each
reporting unit by assigning assets and liabilities, including the
existing goodwill and intangible assets, to the reporting units. Upon
adoption of SFAS No. 142, amortization of goodwill recorded for business
combinations consummated prior to June 30, 2001 ceased, and intangible
assets acquired prior to June 30, 2001 that did not meet the criteria for
recognition apart from goodwill under SFAS No. 141 were reclassified to
goodwill. In connection with the adoption of SFAS No. 142, the Company
was required to perform a transitional goodwill impairment assessment.
The annual goodwill impairment assessment involves estimating the fair
value of the reporting unit and comparing it with the carrying amount. If
the carrying amount of the reporting unit exceeds its fair value,
additional steps are followed to recognize a potential impairment loss.
Calculating the fair value of the reporting units requires significant
estimates and assumptions by management. The Company estimates the fair
value of its reporting units by applying third-party market value
indicators to the reporting unit's projected earnings before interest,
taxes, depreciation and amortization. The Company completed its
impairment tests with no adjustment to the carrying value of its goodwill
as of June 30, 2007.
Intangible assets consist of goodwill, the excess of purchase price over
fair value of net assets acquired in connection with the acquisitions of
its wholly owned subsidiaries, and other intangible assets, including
cost of licenses, patents, developed software, etc. Prior to fiscal year
2002, goodwill was being amortized over 15 years. Commencing in year
2002, the Company adopted SFAS 142 and ceased amortizing goodwill
balances over a specific period pursuant to SFAS 142. However, per
Company policy, goodwill balances are reviewed at least annually to
determine appropriateness of valuation and presentation based upon
anticipated cash flows. See Impairment of Intangibles and Other
Long-lived assets below for additional discussion of valuation for
Intangible Assets.
The following is a summary of Goodwill, net:
RFID Data
Technology Storage StarTrak Total
--------------------------------------- --------------
Balance as of June 30, 2005 $ 5,076,700 $ 279,600 $ - $ 5,356,300
Goodwill related to acquisition - - 12,518,800 12,518,800
------------ ----------- ------------- -------------
Balance as of June 30, 2006 5,076,700 279,600 12,518,800 17,875,100
Goodwill related to acquisition - - 56,600 56,600
------------ ----------- ------------- -------------
Balance as of June 30, 2007 $ 5,076,700 $ 279,600 $ 12,575,400 $ 17,931,700
============ =========== ============= =============
The Company completed the acquisition of StarTrak effective June 30,
2006. The purchase price, considering the 5 million Class A Common Shares
issued at closing (valued at $3,485,000), 8.2 million Class A shares
issued upon shareholder approval (valued at $5,715,400 on June 30, 2006),
StarTrak net liabilities assumed of $5,425,800 and the related costs of
the acquisition of $434,500, was valued at $15,060,800. The Company
engaged an independent consultant for valuation services related to SFAS
141 required disclosures of the allocation of the purchase price paid to
the assets acquired and liabilities assumed by balance sheet caption and
recorded the acquisition, effective June 30, 2006, in compliance with the
independent consultant's recommendations. See Footnote 14 - StarTrak
Acquisition for information relative to the transaction.
Other intangible assets consist of the following:
Amortization Gross Net Other
Period Carrying Accumulated Intangible
(in years) Value Amortization Assets
------------- ------------- -------------- ------------
Other Intangible Assets
Patents license 3 $ 51,900 $ (51,900) $ -
Manufacturing license 6 500,000 (340,300) 159,700
Technology and Software
Development 5-6 1,842,000 (490,000) 1,352,000
Customer Base and Backlog Various 1,300,000 - 1,300,000
Technology license 5 90,000 (20,500) 69,500
------------- -------------- ------------
As of June 30, 2006 $ 3,783,900 $ (902,700) $ 2,881,200
============= ============== ============
Patents license 3 $ 55,900 $ (52,600) $ 3,300
Manufacturing license 6 500,000 (423,600) 76,400
Technology and Software
Development 5-6 1,842,000 (807,000) 1,035,000
Customer Base and Backlog Various 1,300,000 (400,000) 900,000
Technology license 5 90,000 (38,500) 51,500
------------- -------------- ------------
As of June 30, 2007 $ 3,787,900 $ (1,721,700) $ 2,066,200
============= ============== ============
The amortization expenses for aggregate other intangible assets for the
fiscal years ended June 30, 2007 and 2006 were $819,000 and $221,500,
respectively.
The following table summarizes the estimated annual future amortization
charges related to the other intangible assets as of June 30, 2007:
June 30th Amount
2008 $ 503,000
2009 427,000
2010 347,200
2011 332,000
2012 332,000
2013 125,000
----------
$2,066,200
==========
Net Assets Held For Sale - At June 30, 2006, "net assets held for sale"
consisted of the net assets of Arraid, Inc., a subsidiary previously
reported in the Data Storage segment that was sold during the first
quarter of fiscal year 2007 and the remaining restaurant equipment
assets. "Net assets held for sale" at June 30, 2006 are valued at the
lower of cost or market.
Income Taxes - The Company accounts for income taxes under the asset and
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement basis and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Use of Estimates - The preparation of the Company's financial statements
in conformity with accounting principles generally accepted in the United
States of America requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from those
estimates.
The Company makes significant assumptions concerning the realizability of
its goodwill and other intangible assets, warranty reserves, percentage
of completion method of accounting, deferred tax assets, investments and
assets held for sale. Due to the uncertainties inherent in the estimation
process and the significance of these items, it is at least reasonably
possible that the estimates in connection with these items could be
further materially revised within the next year.
Impairment of Long-Lived Assets - The Company performs an assessment for
impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. If the net
carrying value of the asset exceeds estimated future net cash flows, then
impairment is recognized to reduce the carrying value to the estimated
fair value. No impairment to Long-Lived Assets was recorded during fiscal
years ended June 30, 2007 or 2006.
Revenue Recognition - The Company recognizes revenue, net of anticipated
returns, at the time products are shipped to customers, or at the time
service is provided. Revenues from material long-term contracts that
extend over a reporting period are recognized on the
percentage-of-completion method for individual contracts, commencing when
significant costs are incurred and adequate estimates are verified for
substantial portions of the contract to where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized
in the ratio that costs incurred bear to total estimated costs. Changes
in job performance, estimated profitability and final contract
settlements would result in revisions to costs and income, and are
recognized in the period in which the revisions are determined.
Contract costs include all direct materials, subcontracts, labor costs
and those direct and indirect costs related to contract performance.
General and administrative costs are charged to expense as incurred. At
the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is accrued.
Loss Per Share - The loss per share ("EPS") is presented in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. Basic EPS is calculated by dividing the
income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
Basic and diluted EPS were the same for fiscal 2007 and 2006, as the
Company had losses from operations and therefore the effect of all
potential common stock equivalents is antidilutive (reduces loss per
share). Stock options representing 5,543,800 shares of Class A Common
Stock were outstanding at year-end with exercise prices ranging between
$0.92 and $5.87. The weighted average exercise price for all outstanding
options was $1.97. Stock warrants representing 3,098,300 Class A Common
Shares were outstanding at year-end with exercise prices ranging between
$1.25 and $5.00. The weighted average exercise price was $2.19.
At June 30, 2007, there were 3,759,800 shares of Series A Convertible
Preferred Stock and 82,800 shares of Series B Convertible Preferred Stock
outstanding. The Series A Convertible Preferred shares are convertible
into Class A Common shares at a ratio of 1.2 shares of common stock for
each share of Series A Preferred. The Series B Convertible Preferred
shares are convertible into Class A Common shares at a ratio of 5.2
shares of common stock for each share of Series B Preferred. If the
preferred shares had been converted into common shares at June 30, 2007,
there would have been an additional 4,942,300 Class A Common shares
outstanding.
Stock Options Plans - The Company has stock-based compensation plans
and effective July 1, 2006, the Company adopted the fair value
recognition provisions of Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the
modified prospective transition method and therefore have not restated
results for prior periods. Under this transition method, stock-based
compensation expense for the year ended June 30, 2007 includes
compensation expense for all stock-based compensation awards granted
during the quarter, or granted in a prior quarter if not fully vested as
of July 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation"
("SFAS 123"). Stock-based compensation expense for all stock-based
compensation awards granted after July, 2006 is based on the grant date
fair value estimated in accordance with the provisions of SFAS 123R. The
value of the compensation cost is amortized on a straight-line basis over
the requisite service periods of the award (the option vesting term).
The Company estimates fair value using the Black-Scholes valuation
model. Assumptions used to estimate compensation expense are determined
as follows:
o Expected term is determined using a weighted average of the
contractual term and vesting period of the award;
o Expected volatility of award grants made under the Company's plans
is measured using the historical daily changes in the market price
of the Company's common stock over the expected term of the award;
o Risk-free interest rate is to approximate the implied yield on
zero-coupon U.S. Treasury bonds with a remaining maturity equal to
the expected term of the awards; and,
o Forfeitures are based on the history of cancellations of awards
granted by the Company and management's analysis of potential
forfeitures.
Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APBO 25").
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB
107") regarding the SEC's interpretation of SFAS 123R and the valuation
of share-based payments for public companies. The Company has applied the
provisions of SAB 107 in their adoption of SFAS 123R. See Footnote 2 for
additional discussion on stock compensation.
The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value recognition provisions of
SFAS 123 to options granted under the stock option plans for the year
ended June 30, 2006. For purposes of pro forma disclosures, the value of
the options granted during the period is estimated using the
Black-Scholes option-pricing formula and expensed in the period of grant
whether or not the options were vested. The following pro forma
information sets forth the net loss and net loss per share assuming that
the Company had used the SFAS 123 fair value method in accounting for
stock options during the year ended June 30, 2006.
Fiscal Year Ended
June 30, 2006
Net loss, as reported $ (4,591,900)
Add: Stock-based employee compensation
expense included in reported income -
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods, net of
related tax effects (1,881,900)
---------------
Pro Forma net loss $ (6,473,800)
---------------
Net loss per common share, basic and
diluted
As reported $ (0.13)
---------------
Pro forma $ (0.15)
---------------
Weighted Average Shares Outstanding
Basic and Diluted 11,642,400
---------------
The fair value for these options was estimated as of the date of grant
using a Black-Scholes option-pricing model with the following weighted
average assumptions for all options granted.
Year Ended June 30,
2006
------------------
Volatility 27%
Risk free interest 4.5%
Expected dividends none
Expected term in years 5-10
Stock Split -The Company announced on October 16, 2006 that the Board of
Directors had elected to effect a 2 for 5 reverse stock split effective
October 16, 2006, when the Company's common stock began trading on a post
split-adjusted basis under the interim trading symbol "ALAND" for a
period of 20 days, after which the Company's trading symbol returned to
"ALAN." The Company had previously received authority from its
shareholders to effect a reverse split at a ratio within a specified
range, if and as determined by the Board of Directors, in order to
maintain its Nasdaq listing.
As a result of the reverse split, each five shares of the Company's Class
A Common Stock outstanding at the time of the reverse split was
automatically changed into two shares of common stock, and the total
number of common shares outstanding was reduced from approximately 38.7
million shares to approximately 15.5 million shares post-split. No
fractional shares were issued in connection with the reverse stock split.
Upon surrender of their stock certificates, shareholders have received,
or will receive, cash in lieu of the fractional shares to which they
would otherwise be entitled. All per share amounts and outstanding
shares, including all common stock equivalents (stock options, warrants
and convertible securities) have been restated in the Condensed
Consolidated Financial Statements, the Notes to the Condensed
Consolidated Financial Statements and the loss per share for all periods
presented to reflect the reverse stock split.
Concentrations of Credit Risks and Significant Customers - The Company
sells products and extends credit based on an evaluation of the
customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.
All three business segments of the Company utilize various domestic
suppliers for purchases of materials and parts used to manufacture its
products. During fiscal year ended June 30, 2007, due to the advantage of
volume manufacturing, one domestic supplier for the RFID Technology
segment accounted for 50% and one domestic supplier for the Wireless
Asset Management segment accounted for approximately 42% of those
purchases. Two suppliers accounted for more than 10% of material and
parts purchases for the Data Storage segment in fiscal 2007. One supplier
accounted for 37.6% and a second supplier accounted for 17.2% of those
purchases. No supplier for the RFID Technology or Data Storage segments
accounted for 10% or more of those purchases during fiscal year ended
June 30, 2006.
The Company anticipates that due to the advantages of volume
manufacturing, a concentration of vendor purchases may occur in the RFID
Technology segment; however, additional suppliers are readily available
at competitive pricing levels. The Company does not foresee any future
significant shortages or substantial price increases that cannot be
recovered from its customers.
One Data Storage customer accounted for 17.4% of segment sales in fiscal
year 2007 and no Data Storage customer accounted for more than 10% of the
segment sales in fiscal year 2006. Four state governments accounted for
substantially all of the RFID Technology segment's revenues for fiscal
year 2007 and 2006; and one customer accounted for 41% of segment sales
in the Wireless Asset Management segment in fiscal 2007. Sales
concentrations in all three business segments are the result of large
contracts received during the year. Sales concentrations may continue,
however, large contract customers generally change from year to year.
The largest accounts receivable balance in the Data Storage segment
represented 4.1% and 15.6% of consolidated accounts receivable (28.4% and
41.6% of Data Storage receivables) at June 30, 2007 and 2006,
respectively. The largest accounts receivable balance in the RFID
Technology segment at June 30, 2007 represented 9.6% of consolidated
accounts receivable (63.1% of RFID receivables) compared to 6.93% (56.7%
of RFID receivables) at June 30, 2006. The largest accounts receivable in
the Wireless Asset Management segment amounted to 23.3% and 17.1% of the
consolidated receivables and 33.5% and 32.6% of the Wireless Asset
Management segment receivables at June 30, 2007 and 2006, respectively.
Segment Information - SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," defines operating segments as
components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
The Company had identified RFID Technology and Data Storage as the
continuing operating segments of the Company for fiscal year 2006. The
acquisition of StarTrak Systems, LLC, effective June 30, 2006, added an
additional reporting segment for fiscal year 2007 reporting periods that
is referred to as Wireless Asset Management. See Note 14 for further
information related to the Company's operating segments.
Recent Accounting Pronouncements - In June 2006, the Financial Accounting
Standards Board (FASB) issued a standard that addresses accounting for
income taxes: FIN 48, Accounting for Uncertainty in Income Taxes. Among
other things, FIN 48 requires applying an audit sustainability standard
of "more likely than not" related to the recognition and de-recognition
of tax positions. The new guidance will be effective for us in fiscal
2008. We are currently evaluating the requirements of FIN 48 and the
impact this interpretation may have on our consolidated financial
statements.
The SEC issued Staff Accounting Bulletin (SAB) 108 " Considering the
Effects of Prior Year Misstatements in Current Year Financial
Statements," in September 2006, which provides interpretive guidance on
how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial
statements. There is currently diversity in practice, with the two
commonly used methods to quantify misstatements being the "rollover"
method (which primarily focuses on the income statement impact of
misstatements) and the "iron curtain" method (which focuses on the
balance sheet impact). SAB 108 requires registrants to use a dual
approach whereby both of these methods are considered in evaluating the
materiality of financial statement errors. Prior materiality assessments
will need to be reconsidered using both the rollover and iron curtain
methods. The Company is currently evaluating the impact of adopting SAB
108, but we do not expect this Statement to have a material impact on our
consolidated financial statements.
In September 2006, the FASB issued SFAS 157, which establishes how
companies should measure fair value when they are required to use a fair
value measure for recognition or disclosure purposes under GAAP. This
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those
years. The provisions of SFAS 157 are effective for the Company in July
2008. The Company is currently evaluating the impact of this Statement on
our consolidated financial statements, but we do not expect SFAS 157 to
have a material effect.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities". SFAS No. 159 permits
entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured
at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions.
SFAS No. 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS
No. 159 is effective for fiscal years beginning after November 15, 2007.
The Company has not yet determined whether it will elect the fair value
option for any of its financial instruments.
2. STOCK-BASED COMPENSATION
The Company has several employee stock option and officer and director
stock option plans that have been approved by the shareholders of the
Company. The plans require that options be granted at a price not less
than market on date of grant.
The Company uses the Black-Scholes option pricing model to estimate fair
value of stock-based awards with the following assumptions for prior
awards of options:
Awards Prior to
July 1, 2006
Dividend yield 0%
Expected volatility 27%-80%
Weighted-average volatility 43.1%
Risk-free interest rate 3%-4 1/2%
Expected life of options (in years) 5-10
Weighted average grant-date fair value $0.61
Assumptions for awards of options granted during the year ended June 30,
2007 were:
Awards Granted
Year Ended
June 30, 2007
Dividend yield 0%
Expected volatility 80%
Weighted-average volatility 80%
Risk-free interest rate 4 1/2%
Expected life of options (in years) 3.2 - 3.4
Weighted average grant-date fair value $0.67
The following table summarizes the Company's stock option activity during
fiscal 2007:
Weighted Average
Weighted Average Remaining Aggregate Aggregate
Exercise Price Contractual Fair Intrinsic
Shares Per Share Term (1) Value Value(2)
Outstanding July 1, 2006 5,721,000 $1.98 5.82 $3,597,300 -
Granted 278,000 $1.47 - $185,300 -
Exercised (300,000) $1.08 - ($188,900) -
Forfeited or expired (155,200) $3.05 - ($97,600) -
----------- ---------------- ---------------- ------------- -----------
Outstanding June 30, 2007 5,543,800 $1.97 4.95 $3,496,100 $2,656,700
=========== ================ ================ ============= ===========
Exercisable June 30, 2007 4,602,400 $2.02 5.13 $2,987,500 $2,052,000
=========== ================ ================ ============= ===========
(1) Remaining contractual term presented in years.
(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the
underlying awards and the closing price of the Company's common stock as of June 30, 2007, for
those awards that have an exercise price currently below the closing price as of June 30, 2007
of $2.37.
3. LIQUIDITY AND GOING CONCERN
The Company incurred significant losses and negative cash flows from
operations during fiscal year ended June 30, 2007 and in prior fiscal
years, and anticipates additional losses and negative cash flows in early
fiscal year 2007. These factors, as well as the uncertain conditions that
the Company faces regarding its ability to secure significant contracts
for the TSI PRISM installations, creates an uncertainty about the
Company's ability to finance its operations and remain a going concern.
Although management cannot assure that future operations will be
profitable or that additional debt and/or equity capital will be raised,
management believes cash balances at June 30, 2007 of approximately
$615,800, availability under the Company line of credit agreement of
$500,000 and the approximately $4.8 million of additional equity capital
raised subsequent to the end of fiscal 2007 through the sale of stock
will provide adequate capital resources to maintain the Company's net
cash requirements for the next year. However, if additional working
capital is required and not obtained through long-term debt, equity
capital or operations, it could adversely affect future operations.
Management has historically been successful in obtaining financing and
has demonstrated the ability to implement a number of cost-cutting
initiatives to reduce working capital needs. The Company requires and
continues to pursue additional capital for growth and strategic plan
implementation. Accordingly, the accompanying consolidated financial
statements have been prepared assuming the Company will continue to
operate and do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
4. NOTES RECEIVABLE
Notes receivable at June 30, 2007 and 2006 consisted of the following:
2007 2006
----------- -----------
TSIN Board of Directors $ 29,600 $ 29,600
Notes receivable - other - 2,000
----------- -----------
29,600 31,600
Less - allowance for uncollectible - -
----------- -----------
Net notes receivable $ 29,600 $ 31,600
=========== ===========
At June 30, 2007 and 2006, Notes - "TSIN Board of Directors" consisted of
notes receivable related to advances made to TSIN in fiscal year 2005 to
assist the newly elected TSIN board of directors in obtaining legal
representation. The new board required legal representation since the
previous board was attempting to stop the new board from assuming their
responsibilities. The notes incur interest at 9% (which is on non-accrual
status) and are due on demand. During fiscal 2006, the Company received
payments on the notes of approximately $50,000. At June 30, 2007, the
TSIN Board of Directors had filed for reimbursement from TSIN under the
Directors indemnification provisions of the Articles of Incorporation,
Bylaws of TSIN and corporate laws of the State of Nevada. The new board
is awaiting payment so the funds received can be used to repay the notes.
The Company expects the balance to be paid during fiscal 2008.
5. INVENTORIES
Inventories consist of the following at June 30:
2007 2006
------------ ------------
Raw materials and purchased parts $ 4,160,400 $ 2,915,600
Work-in-progress 6,400 -
Finished goods 70,900 101,000
------------ ------------
4,237,700 3,016,600
Less reserves for obsolescence (429,600) (315,000)
------------ ------------
$ 3,808,100 $ 2,701,600
============ ============
6. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consist of the following at June 30:
2007 2006
------------ ------------
Machinery and equipment $ 263,500 $ 274,800
Furniture and office equipment 608,000 401,100
Marketing site equipment 50,000 50,000
Leasehold improvement 9,700 9,700
------------ ------------
931,200 735,600
Less accumulated depreciation (680,500) (534,500)
------------ ------------
Net book value $ 250,700 $ 201,100
============ ============
Related depreciation expense for the years ended June 30, 2007 and 2006,
was $154,700 and $158,600, respectively.
7. LINE OF CREDIT AND NOTES PAYABLE
At June 30, 2007, the Company has a $1,500,000 outstanding balance,
presented as Notes payable, under a $2.0 million line of credit
Agreement. The Agreement is with a private trust, initially
entered into in June 2002, for an initial credit line of $1.3 million.
The Agreement has been amended various times since June 2002 with the
last amendment effective June 28, 2007. Under the current amended
agreement, which expires on July 1, 2009, the Company must maintain a
minimum outstanding balance under the line of $1.5 million and pay
interest on the outstanding balance at a rate of prime plus 3% (11.25% at
June 30, 2007). Under the Agreement, the lender has the unilateral right
to reduce the line of credit Agreement to $1.5 million, at which time the
minimum outstanding balance under the Agreement reduces from $1.5 million
to $1.0 million. At June 30, 2007 the Company had $500,000 available
under the line of credit Agreement. At June 30, 2006, the Company was
fully drawn under the line of credit agreement. Interest payments made
under the Agreement amount to $186,500 and $89,500 in fiscal years ended
June 30, 2007 and 2006, respectively.
Notes payable at June 30, 2007 and 2006 consist of the following:
2007 2006
----------------------------
Notes payable - TSI Acquisition $ 314,100 $ 314,100
Notes payable - Credit Line 1,500,000 1,000,000
Notes payable - StarTrak Acquisition 1,485,900 1,733,300
Notes payable - Comvest Capital 4,000,000 -
Notes payable - Other - 507,000
----------------------------
Notes payable 7,300,000 3,554,400
Less current portion (2,485,900) (875,300)
----------------------------
Notes payable - long term $ 4,814,100 $ 2,679,100
============================
The Notes payable - TSI Acquisition primarily represent payables assumed
as an obligation under the TSI acquisition agreement. The balance at June
30, 2007 and 2006 is payable to TSIN upon ATSI achieving a net profit of
$1 million in any twelve-month period ending on June 30th. The Notes
payable - TSI Acquisition balance of $314,100 at June 30, 2007 and 2006
has been reduced by approximately $10,500 for costs incurred and paid by
the Company that had been indemnified by TSIN in the acquisition
agreement.
Notes payable - StarTrak Acquisition represent notes assumed in the
acquisition and include a $1.5 million non-interest bearing note payable
to Tenix Holding, Inc. (a prior investor in StarTrak) due December 31,
2007 that has been discounted (at 12%) to $1,455,000 at June 30, 2007
($1,365,000 at June 30, 2006) due to the non-interest bearing nature of
the note, and $30,900 and $368,300 of notes due on demand at June 30,
2007 and 2006, respectively, that bear interest at 7%.
The Company completed a $4 million term loan financing on September 28,
2006 with ComVest Capital LLC, to be used to repay short-term notes and
provide working capital to fund operations. Provisions for the four-year
loan include interest only payments for the first year with the loan
balance amortized over the remaining three-year period. The loan bears
interest at prime plus two and one-half percent per annum (10.75% at June
30, 2007), matures in September 2010 and is secured by the Company
assets. Closing fees and expenses related to the transaction paid in
cash, common stock and warrants amounted to $656,500. The costs will be
amortized over the term of the loan.
Notes payable - Other at June 30, 2006 includes a $257,000 non-interest
bearing note due to an investment banker involved in the StarTrak
acquisition ($150,000 of which was paid August 31, 2006 and $107,000 due
by January 31, 2007 that was paid in stock) and a $250,000 demand note
bearing interest at 12% and due to the Company's Chief Executive Officer.
Minimum future payments under outstanding notes payable at June 30, 2007
are as follows:
Year Ended Minimum
June 30, Payments
---------- -------------
2008 $ 2,485,900
2009 2,833,300
2010 1,333,400
2011 333,300
-------------
$ 6,985,900
Contingent payments 314,100
-------------
$ 7,300,000
=============
8. CONTRACTS IN PROGRESS
The Company had one fixed price contract in progress at June 30, 2007 and
one fixed price contract in progress at June 30, 2006, within the RFID
Technology segment, for the installation of a TSI PRISM system. Costs in
excess of Billings at June 30, 2007 and Billings in excess of costs and
estimated earnings as of June 30, 2006 consist of the following:
June 30, 2007 June 30, 2006
------------- -------------
Costs incurred on uncompleted contract $ 242,100 $ 97,100
Gross profit earned to date 161,900 19,900
------------- -------------
Revenues earned to date 404,000 117,000
Less: billings to date (282,000) (160,500)
------------- -------------
Costs and estimated earnings/(billings) in
excess of billings/(costs) and estimated
earnings. $ 122,000 $ (43,500)
============= =============
9. INCOME TAXES
A reconciliation of anticipated statutory rates is as follows:
2007 2006
------------ -------------
Statutory rate 34.0% 34.0%
State income taxes, net of Federal
income tax benefit 5.0% 5.0%
Increase (reduction) in valuation
allowance related to net operating
loss carry-forwards and change in
temporary differences -39.0% -39.0%
------------ ------------
0.0% 0.0%
============ ============
The components of the net deferred tax asset (liability) recognized as of
June 30, 2007 and 2006 are as follows:
2007 2006
------------- --------------
Deferred tax assets (liabilities):
Net operating loss and capital
loss carryforwards $ 16,526,000 $ 14,498,000
Property, plant and equipment 24,000 22,000
Other timing differences 26,000 23,000
Less: Valuation allowance (16,576,000) (14,543,000)
------------- --------------
Net deferred tax $ -- $ --
============= ==============
A valuation allowance is recognized if it is more likely than not that
some or all of the deferred income tax assets will not be realized. A
valuation allowance is used to offset the related income tax assets due
to uncertainties of realizing the benefits of certain net operating loss
and tax credits. The valuation allowance reflects a 100% reserve for all
years reported above. At June 30, 2007, the Company had net operating
loss and capital loss carryforwards for Federal tax purposes of
approximately $42,374,000. The loss carryforwards, unless utilized, will
expire from 2008 through 2026.
10. RELATED PARTY TRANSACTIONS
At June 30, 2007, the Company had a line of credit agreement with a trust
controlled by Donald E. Anderson, a member of the Company's Board of
Directors. In addition, at June 30, 2006 the Company also had a demand
note payable to Mr. Robert Kauffman, CEO of the Company, in the amount of
$250,000. See Note 7 for additional discussion of both the line of credit
agreement and the note due to Mr. Kauffman.
The Company decided during the first quarter of fiscal 2007 to sell
Arraid, Inc., a subsidiary previously reported in the Data Storage
segment, to refocus assets on its tracking and monitoring operations.
Arraid was sold on September 28, 2006 to Mr. Donald E. Anderson, a member
of the Company's Board of Directors, for cash of approximately $465,000,
resulting in a gain on sale, net of expenses, of approximately $17,500.
Arraid's pretax operating loss for fiscal 2007 (through sale date)
amounted to ($83,200) on sales of $33,800. Pretax operating income for
the year ended June 30, 2006 amounted to $75,900 on sales of $1,215,100.
Operating results for both periods are presented as (loss) income from
discontinued operations. The Company's consolidated balance sheet at
June 30, 2006 presents Arraid net assets of $723,300, net of $23,000
of current liabilities, as "net assets held for sale."
During 2006, as more fully described in Note 12, Shareholders' Equity,
the Company raised approximately $2.3 million in private offerings to
accredited investors, with twenty-two percent being attributable to
insiders.
11. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain facilities under non-cancelable
operating lease agreements that expire through fiscal year 2009. Future
minimum payments under non-cancelable operating leases at June 30, 2007
are as follows:
Year Ended Operating
June 30, Leases
---------- -------------
2008 $ 145,700
2009 96,700
2010 -
2011 -
2012 -
-------------
$ 242,400
=============
Rent expense related to these operating leases totaled approximately
$362,700 and $293,000 for the years ended June 30, 2007 and 2006,
respectively.
Legal Proceedings - The Company is a plaintiff in litigation initiated by
its subsidiary, StarTrak Systems, LLC, against former employees and
others for violation of certain non-disclosure covenants and for
misappropriation of trade secrets. The actions are more fully described
below. The Company is also a party to litigation that relates to the
acquisition, in May of 2002, of substantially all the assets of
Technology Systems International, Inc., a Nevada Corporation ("TSIN") and
to litigation arising from an expired property lease between the
Company's subsidiary, Arraid, Inc., and Arraid Property L.L.C., an
Arizona limited liability company.
StarTrak Systems Litigation - On July 12, 2007, the Company's subsidiary,
StarTrak Systems, LLC, commenced a lawsuit against Brian Hester,
Satamatics, Ltd,, Satamatics, Inc., and Farrukh Shahzad in the United
States District Court, District of New Jersey, as case number
07-3203(DRD), for misappropriation of trade secrets, violation of
confidentiality agreements and contempt for violation of a previously
issued court order concerning such trade secrets issued to Brian Hester.
Brian Hester and Farruhk Shahzad are previous employees of StarTrak, and
the Company believes that they have employed and/or are attempting to
employ trade secrets of StarTrak in connection with their association
with Satamatics in direct competition with StarTrak. The Company is
seeking injunctive relief and damages from the defendants.
TSIN Litigation - On January 30, 2003, a shareholder of TSIN filed a
derivative suit naming as defendants the Company and its wholly owned
subsidiary, ATSI. The venue for this action is the Arizona Superior Court
in and for Maricopa County, Arizona, as case number CV2003-001937. The
complaint sets forth various allegations and seeks damages arising out of
the Company's acquisition of substantially all of the assets of TSIN.
This derivative suit was terminated and the action converted into a
direct action by TSIN by stipulation and court order in July 2003.
TSIN is currently in Chapter 7 bankruptcy. The Chapter 7 Trustee failed
to prosecute the action timely and the state court dismissed the action
for lack of prosecution, but allowed the Trustee to restart the action,
which the Trustee has done as case number CV2006-007398. The Company is
seeking its attorney's fees with respect to the dismissed action, and has
appealed the court's order allowing the Trustee to restart the action.
The parties to the lawsuit have entered into a Settlement Agreement,
which was attached as an exhibit to Form 8- K filed on September 21,
2007. In place of the litigation, the Settlement Agreement provides for a
valuation procedure, conducted by an independent third party valuation
expert, to value (i) the assets transferred by TSIN to Alanco and TSIA in
connection with the Acquisition Agreement ("Business Value"), and (ii)
the consideration paid by Alanco to TSIN ("Consideration Value "). If the
appraiser determines that the Consideration Value is within 15% of the
Business Value, neither party shall be entitled to any damages or claims.
If the Consideration Value is less than 85% of the Business Value, Alanco
shall pay to TSIN's bankruptcy estate the full difference in the
values, plus interest thereon, plus the sum of $300,000.00 for attorneys'
fees incurred by TSIN in prosecuting the various related litigation
matters. Alanco's payment may be made, at Alanco's option, in cash or by
an equivalent market value of additional Alanco Class A Common Stock
(subject to certain conditions set forth in the Settlement Agreement). If
the Consideration Value is greater than 115% of the Business Value, TSIN
shall immediately pay Alanco the sum of $300,000.00 for Alanco's
attorneys' fees and costs incurred in connection with the various
litigation matters. The Settlement Agreement was approved by the
bankruptcy court following a hearing for the same on September 19, 2007,
and the parties are beginning the appraisal process. The Company
anticipates that the appraisal will be accomplished and the matter
resolved over the next few months. No accrual for potential payments
under the agreement has been made at June 30, 2007, as the Company
believes the third party valuation expert will conclude that the
Consideration Value paid will equal or exceed the Business Value.
Arraid Litigation - On July 18, 2003, Arraid Property L.L.C., an Arizona
Limited Liability Company ("Arraid LLC"), filed a complaint in the
Arizona Superior Court in and for Maricopa County, Arizona (case number
CV 2003-13999) against the Company and its wholly owned subsidiary,
Arraid, Inc., alleging breach of lease and seeking substantial monetary
damages in excess of $3 million. The suit relates to an expired lease
agreement for property previously leased by Arraid. Following a trial,
the Court found in favor of Arraid LLC against the Company with respect
to certain factual findings resulting in damages owed by the Company in
an amount of approximately $35,000, less than one percent of the amount
sought by the plaintiff. The court determined that the plaintiff was the
prevailing party, and awarded the plaintiff approximately $95,000 in
attorney's fees and costs. The Company's management, in consultation with
legal counsel, has determined to appeal the decision of the court and
all anticipated costs have been accrued.
The Company may also, from time to time, be involved in litigation
arising from the normal course of business. As of June 30, 2007, there
was no such litigation pending deemed material by the Company.
12. SHAREHOLDERS' EQUITY
Preferred Shares - During the fourth quarter of the fiscal year ended
2003, the Company allocated 5,000,000 of the 25,000,000 authorized shares
of the Company's Preferred Stock to be known as Series A Convertible
Preferred Stock ("Series A") and issued 2,248,400 Series A Preferred
shares and warrants to purchase a total of 899,400 shares of the
Company's Class A Common Stock at $1.25 per share ("Warrant") to
accredited investors in a transaction valued at $2,833,000. In July 2003,
an additional 261,000 Series A shares, plus applicable warrants, valued
at $328,900 were issued to complete the private offering. In April 2004,
one of the holders of the Series A shares elected to convert 168,000
preferred shares into 201,600 shares of Class A Common Stock.
The Company completed in July 2006 an offering of 240,000 units
consisting of one share of Series A Preferred Stock and a warrant to
purchase 1.2 shares of the Company's Class A Common Stock at a strike
price of $1.50 per share. The units were sold for $1.71 each and
generated $409,500, net of expenses. 180,000 units were purchased by
directors and officers of the Company including 60,000 units each
purchased by Robert R. Kauffman, director and CEO, Harold S. Carpenter,
director, and Donald E. Anderson, director. The remaining 60,000 units
were sold to non-related accredited third parties.
Holders of Series A Preferred Stock are entitled to receive, when
declared by the Board of Directors, out of funds and assets of the
Company legally available therefore, an annual dividend of 12% per annum,
paid in kind semi-annually, based upon a per share value of $1.50 for
purposes of such dividend payment ($0.18 per share). Dividends shall
accrue and be cumulative from the date of issue. The Company issued
396,900 shares and 341,700 shares representing "in kind" dividends to the
holders of Series A shares in fiscal 2007 and 2006 respectively, with
corresponding values of approximately $595,400 and $512,500. Each Series
A share is convertible by the holder at any time into 1.2 shares of the
Company's Class A Common Stock. The Company may redeem the Series A
Preferred Shares for $1.50 per share, provided the Common stock achieves
a trading value in excess of $5.00 for twenty consecutive trading days
and meets minimum daily trading volume requirements. At June 30, 2007 and
2006, there were 3,759,800 and 3,122,900 shares of Series A Convertible
Preferred Stock outstanding, respectively.
During fiscal 2002, the Company allocated 500,000 of the authorized
shares of the Company's Preferred Stock to be known as Series B
Convertible Preferred Stock ("Series B"), and in a transaction with an
accredited investor, the Company issued 50,000 shares of Series B at
$10.00 per share and 200,000 warrants to purchase Common Stock at an
exercise price of $2.50 per share for a value received of $500,000
($487,300 net of related expenses). The preferred shares are each
convertible into 5.2 shares of Common Stock. Holders of shares of the
Company's Series B Preferred Stock shall be entitled to receive, when
declared by the Board of Directors, out of funds and assets of the
Company legally available therefore, an annual dividend of 10% per annum
based upon a per share value of $10 for purposes of such dividend
payment. Dividends shall accrue, be cumulative from the date of issue and
may be paid "in kind." Dividends on Series B Preferred Shares paid
"in-kind" during 2007 and 2006 amounted to 7,800 and 7,000 Preferred
Shares with values of approximately $77,500 and $70,200, respectively. At
June 30, 2007 and 2006, there were 82,800 and 75,000 shares of Series B
Convertible Preferred Stock outstanding, respectively.
Both the Series A and Series B are characterized as "restricted
securities" under federal securities laws as they were acquired from the
Company in a transaction not involving a public offering and that under
such laws and applicable regulations such shares may be resold without
registration under the Securities Act of 1933, as amended, only in
certain limited circumstances.
Common Shares - The authorized capital stock of the Company consists of
75,000,000 shares of Class A Common Stock (reduced from the previously
authorized 100,000,000 shares), each entitled to one vote per share, and
25,000,000 shares of Class B Common Stock, each entitled to one-one
hundredth (1/100th) of one vote per share. No Class B Common Stock has
been issued and none was outstanding at June 30, 2007 and 2006.
The Company's annual meeting of shareholders was held on January 30,
2007. Proposals voted upon and approved included Proposal #5 - "Approval
of Issuance of Class A Common Stock as Payment in Lieu of Cash Related to
Obligations Incurred in Connection with the Company's Acquisition of
StarTrak Systems, LLC," resulting in the Company issuing, in January
2007, 3,280,000 shares of Class A Common Stock in payment of $5,715,400
in "Deferred stock payment, StarTrak" and 56,800 shares issued for
payment of $107,000 notes payable acquired in the acquisition. The
acquisition of StarTrak Systems, LLC, which became effective June 30,
2006, is more fully discussed in Footnote 14, below.
In addition to the 3,280,000 common shares issued in payment of the
"Deferred stock payment" and the 56,800 common shares issued in payment
of a note payable (discussed above), the Company issued during fiscal
year 2007 a total of 1,624,800 shares of Class A Common Stock Of those
shares, 736,000 were issued in connection with private offerings
resulting in proceeds, net of costs, of $1,519,900, 669,900 were issue in
connection with the exercise of employee stock options and warrants
resulting in proceeds of $1,216,600, 8,900 shares, valued at $17,500,
were issued to outside vendors as payment for services rendered and
210,000 shares, valued at $267,200, were issued as financing costs in
conjunction with a $4 million term loan. In addition, five-year warrants
to purchase 283,500 shares at $1.80 per share (valued at $119,300) were
granted in connection with the $4 million term loan and a three-year
warrant to purchase 20,000 shares at $2.25 per share (valued at $21,800)
was granted in consideration for an amendment to the Company's line of
credit agreement. Nasdaq listing fees, associated with listing the
additional shares in fiscal year 2007, amounted to $33,600.
The value of employee stock-based compensation recognized for the year
ended June 30, 2007 amounted to $173,800. The Company initiated the
expensing of stock-based compensation on July 1, 2006. See Note 1 -
Nature of Operations and Significant Accounting Policies and Note 2 -
Stock-Based Compensation for additional discussion of the Company's
policies related to employee stock-based compensation.
During fiscal year 2006, the Company issued a total of 4,589,400 shares
of Class A Common Stock. The issued shares were comprised of 840,000
shares issued in connection with the exercise of employee stock options
and warrants, resulting in proceeds of $1,235,000; 153,400 shares issued
to outside vendors as payment for services rendered valued at $245,400;
1,596,000 shares issued in connection with private offerings; and
2,000,000 shares in June 2006 in connection with the Company's
acquisition of StarTrak Systems, LLC.
The 2006 private offerings included the January 2006 sale to an
institutional investor of 600,000 units consisting of one share of Class
A Common Stock together with a 3-year warrant to purchase one-half share
of the Company's Common Stock at a price of $2.12 per share ("Unit") for
a unit sale price of $1.50. The Company received $830,000, net of
commission, from the offering. The Company granted additional warrants to
purchase 21,000 shares of its Common Stock on terms identical to those
granted in the private offering as commissions related to the offering.
In addition, in April 2006 the Company completed the sale, in a private
offering to a trust beneficially owned by a Director of the Company, of
328,000 units for $500,200. The units consisted of one share of Class A
Common Stock, together with a warrant to purchase one share at a price of
$1.62 per share. In June 2006, the Company completed two additional
private offerings, the first to three institutional investors for a total
of 334,000 units consisting of one share of Class A Common Stock together
with a 3-year warrant to purchase one-half share of the Company's Common
Stock at a price of $2.12 per share ("Unit"), for a unit sale price of
$1.50. The Company received $479,000, net of commissions, from the
offering. The second June 2006 offering consisted of 334,000 units to an
institutional investor, each unit composed of one share of Class A Common
Stock together with a 3-year warrant to purchase one-half share of the
Company's Common Stock at a price of $2.12 per share ("Unit"), for a unit
sale price of $1.50. The Company received $464,900, net of commissions,
from the offering. The Company also granted warrants to purchase 11,700
shares of Common Stock on terms identical to those granted in the private
offering as commissions related to the offering. Nasdaq listing fees paid
during fiscal year 2006 amounted to $44,100.
Effective June 30, 2006, the Company acquired StarTrak Systems, LLC, a
Delaware limited liability company ("StarTrak"). The transaction was
structured as a merger between a newly formed subsidiary of the Company
and StarTrak, resulting in the Company owning all of the post-transaction
membership interests in StarTrak and the previous StarTrak members
receiving 2,000,000 shares of the Company's Class A common stock and the
right to receive in the future either cash or additional shares of the
Company's Class A common stock. The 2,000,000 initial shares issued to
the StarTrak members were valued at $3,485,000. Potential additional
shares to be issued to the StarTrak members was presented for approval as
a proposal to the Alanco's shareholders at the 2006 Annual Shareholders
Meeting held on January 30, 2007.
Warrants - As of June 30, 2007, the Company had 3,098,300 warrants
outstanding with a weighted average exercise price of $2.19. The life of
the outstanding warrants extends from September 2007 through April 2016.
The following is a table of activity related to all warrants.
Weighted
Number of Average
Shares Exercise Price $
------------- ----------------
WARRANTS OUTSTANDING, June 30, 2005 2,002,000 $ 2.73
Granted 1,734,700 1.85
Exercised (740,000) 1.53
Canceled/Expired (120,000) 1.75
------------- ----------------
WARRANTS OUTSTANDING, June 30, 2006 2,876,700 $ 2.73
Granted 591,500 1.67
Exercised (369,900) 2.44
Canceled/Expired - -
------------- ----------------
WARRANTS OUTSTANDING, June 30, 2007 3,098,300 $ 2.19
============= ================
Details relative to the 3,098,300 outstanding warrants at fiscal 2007
year end are outlined below.
Outstanding Warrants
Date Number Exercise Date Purpose of
of Grant of Shares Price $ of Expiration Issuance
--------------------------------------------------------------------------
9/4/2002 10,000 $2.50 9/4/2007 (1)
10/31/2003 20,000 $1.50 10/31/2008 (2)
4/18/2004 280,000 $5.00 8/2/2009 (3)
3/22/2005 30,000 $2.25 3/22/2010 (2)
3/23/2005 200,000 $2.50 3/23/2010 (1)
6/29/2005 342,000 $2.37 6/29/2010 (4)
8/31/2005 188,000 $2.50 11/15/2007 (5)
11/16/2005 460,000 $1.25 11/16/2008 (4)
1/16/2006 308,400 $2.12 1/16/2009 (6)
4/26/2006 328,000 $1.62 4/25/2016 (7)
6/2/2006 167,000 $2.12 6/2/2009 (8)
6/15/2006 173,400 $2.12 6/15/2009 (8)
7/14/2006 72,000 $1.50 7/14/2011 (9)
7/14/2006 216,000 $1.50 1/30/2012 (9)
9/28/2006 283,500 $1.80 9/30/2011 (10)
6/25/2007 20,000 $2.25 6/25/2010 (2)
----------
Total Warrants
Outstanding @ 6/30/2007 3,098,300
==========
(1) Issued in outside services rendered
(2) Issued in consideration for line of credit agreement
(3) Issued in connection with April 2004 private offering
(4) Issued in consideration for exercise of expiring warrants above market
price
(5) Issued in connection with August 2005 private offering
(6) Issued in connection with January 2006 private offering
(7) Issued in connection with Aprilt 2006 private offering
(8) Issued in connection with June 2006 private offering
(9) Issued in connection with sale of Series A Preferred Stock
(10) Issued in connection with September 2006 term loan financing
Warrants exercised in fiscal 2007 and 2006, were 369,900 and 740,000,
respectively. Exercise of these warrants generated approximately $902,500
in fiscal 2007 and $1,135,000 in fiscal 2006.
Stock Options - As of June 30, 2007, the Company had a total of 5,543,800
stock options outstanding with a weighted average exercise price of
$1.97. Of these options, 4,602,400 are exercisable at 2007 fiscal year
end. The tables below, as well as the narrative following, provide
further information regarding the Company's stock options.
The following is a table of activity of all options:
Weighted
Number of Average
Shares Exercise Price $
------------- ----------------
OPTIONS OUTSTANDING, June 30, 2005 3,122,600 $ 2.10
Granted 3,048,000 1.88
Exercised (100,000) 1.00
Canceled/Expired (349,600) 2.23
------------- ---------------
OPTIONS OUTSTANDING, June 30, 2006 5,721,000 $ 1.98
Granted 278,000 1.47
Exercised (300,000) 1.08
Canceled/Expired (155,200) 3.05
------------- ---------------
OPTIONS OUTSTANDING, June 30, 2007 5,543,800 $ 1.97
============= ===============
For all options granted during fiscal years 2007 and 2006, the option
price was not less than the market price, as defined in the stock option
plans, of the Company's Common Stock on the grant date. At June 30, 2007,
options for 4,602,400 shares were exercisable and options for the
remaining shares become exercisable within the next four years. If not
previously exercised, options outstanding at June 30, 2007 will expire as
follows:
Calendar Year Number of Weighted Average
of Expiration Shares Exercise Price $
--------------- ------------- -------------------
2008 248,000 $ 1.08
2009 254,000 2.55
2010 128,000 4.28
2011 2,520,800 1.84
2012 618,000 2.38
2013 303,000 1.02
2014 714,000 2.27
2015 738,000 1.88
2016 20,000 1.60
------------- -------------------
5,543,800 $ 1.97
============= ===================
Additional information about outstanding options to purchase the
Company's Common Stock as of June 30, 2007 is as follows:
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted Avg. Weighted Weighted
Number Remaining Average Number Average
Exercise of Contractual Exercise of Exercise
Price Shares Life (in years) Price Shares Price
------------ ------------ ------------------------- --------- ------------
$0.92-$1.15 564,000 4.46 $1.02 564,000 $1.02
$1.25-$1.37 293,000 4.4 $1.34 95,000 $1.28
$1.75-$1.87 2,436,800 4.26 $1.82 1,693,400 $1.82
$2.00-$2.25 1,202,000 7.44 $2.15 1,202,000 $2.15
$2.50-$2.87 918,000 4.18 $2.54 918,000 $2.54
$3.75-$5.87 130,000 3.53 $4.51 130,000 $4.51
----------- ---------
Totals 5,543,800 4,602,400
=========== =========
The Company Stock Option Plans are administered by the
Compensation/Administration Committee, currently comprised of two
independent members of the Company's Board of Directors. Company stock
options are issued to employees at an exercise price not less than the
fair market value, as determined under the option plan, on the date of
grant and must be granted within 10 years from the effective date of the
Plan, with the term of the option not exceeding 10 years. Under the
Employee Incentive Stock Option Plans, incentive and non-qualified stock
options may be granted, with the incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as
amended. Unless otherwise established by the Committee, the standard
vesting schedule for the incentive stock options issued currently is 10%
vested immediately upon grant, 15% vested after twelve months from date
of grant, 25% after two years from the date of grant, 25% after three
years, and 25% after four years. All of the options have been or will be
registered on Form S-8 filings. See Footnotes 1 and 2 for a discussion of
the applicable accounting treatment of stock-based compensation for
fiscal years 2007 and 2006.
Alanco Stock Option Summary (1)
as of 6/30/07
Balance Exercise
Plan Authorized Issued Exercised Cancelled Outstanding to Issue Price Range (5)
-------------------------------------------------------------------------------------------------------------
Misc (2) N/A 1,468,000 322,000 446,000 700,000 0 $1.07 - $2.50
1998 (3) 300,000 641,800 77,000 346,800 218,000 5,000 $1.25 - $2.87
1998 D&O (4) 300,000 300,000 162,000 0 138,000 0 $1.25 - $4.37
1999 (3) 600,000 1,582,500 210,000 1,000,500 372,000 18,000 $0.92 - $5.87
1999 D&O (4) 200,000 258,000 0 60,000 198,000 2,000 $1.87 - $5.00
2000 (3) 400,000 765,000 121,700 402,300 241,000 37,300 $0.92 - $3.75
2000 D&O (4) 200,000 196,000 48,000 0 148,000 4,000 $0.92 - $2.50
2002 (3) 600,000 698,000 0 114,000 584,000 16,000 $1.82 - $2.50
2002 D&O (4) 200,000 200,000 16,000 0 184,000 0 $1.87- $2.50
2004 (3) 800,000 1,020,000 0 228,000 792,000 8,000 $1.15- $2.50
2004 D&O (4) 400,000 396,000 0 0 396,000 4,000 $1.15- $2.02
2005 (3) 1,200,000 1,192,000 0 19,200 1,172,800 27,200 $1.37- $2.50
2005 D&O (4) 400,000 400,000 0 0 400,000 0 $1.37- $1.82
2006 (3) 3,000,000 0 0 0 0 3,000,000 N/A
2006 D&O (4) 1,000,000 0 0 0 0 1,000,000 N/A
----------------------------------------------------------------------------
Totals 9,600,000 9,117,300 956,700 2,616,800 5,543,800 4,121,500
============================================================================
(1) Only includes plans with options currently outstanding or having a balance available to issue.
(2) Options issued to officers and other employees outside of any plan as an inducement
at time of employment.
(3) Employee Incentive Stock Option Plan
(4) Directors and Officers Stock Option Plan
(5) Range of exercise prices for outstanding options only.
13. RETIREMENT PLAN
The Company provides a 401(k) retirement plan for its employees.
Employees are eligible to participate in the plan on the first of the
month following 90 days of continuous employment. Employee salary
deferral rates are not restricted by the Company, however, IRS limits and
limitations imposed by discrimination tests may affect the allowed salary
deferral rate. The Company matches 25% of the amount deferred by
employees, matching up to 4% of an employee's annual compensation. The
Company's matching contributions totaled $19,400 and $17,000 for the
years ended June 30, 2007 and 2006, respectively.
14. STARTRAK ACQUISITION
Alanco entered into an Agreement and Plan of Reorganization (the
"Transaction") in June 2006 to acquire 100% of StarTrak Systems, LLC
("StarTrak"), a Delaware LLC, located in Morris Plains, New Jersey.
StarTrak, a leading provider of tracking and wireless subscription data
services to the transportation industry, specifically focuses upon the
refrigerated or "Reefer" segment of the transport industry providing the
dominant share of all wireless tracking, monitoring and control services
to this market segment. The transaction closed effective June 30, 2006.
The all-stock Transaction was effected by the issuance of 2 million
Alanco Class A Common shares at closing, effective June 30, 2006, and the
issuance on January 30, 2007 following shareholder approval of 3,280,000
additional shares. In addition, the sellers could potentially earn up to
an additional $8 million (a maximum of $4 million each year) based upon
StarTrak operations achieving certain financial targets in fiscal years
2007 and 2008 ("Earn-out"). The value of the Earn-out for fiscal year
2007 was calculated as two hundred percent of StarTrak gross profit in
excess of $6 million. Gross profit for fiscal year 2007 was less than the
minimum of $6 million and therefore no earn-out was paid. For fiscal year
2008, the Earn-out is calculated as two hundred percent of gross profit
in excess of $8 million. Upon shareholder approval, the Earn-out may be
paid in shares of Alanco Class A Common stock valued at market,
determined as a ten-day average closing price immediately prior to
issuance.
The annual Alanco shareholders' meeting was held on January 30, 2007, at
which the shareholders approved various proposals related to the
acquisition including the issuance of the 3,280,000 common shares
required by the Agreement, as well as authorization of the issuance of
common shares as payment of any potential Earn-out obligation under the
Agreement.
A summary of the amounts of the assets and liabilities acquired in the
StarTrak acquisition are as follows:
Current Assets
Accounts receivable $ 919,700
Inventory 885,900
Prepaid expense 33,500
------------
Total current assets $ 1,839,100
Property and Equipment 42,300
Other Assets - deposits 4,500
------------
Total Assets $ 1,885,900
============
Current Liabilities
Accounts payable $ 3,683,300
Notes payable 368,300
Customer advances 1,001,100
Deferred revenues 119,700
Due to Alanco 774,300 (a)
------------
Total current liabilities 5,946,700
Long-Term debt 1,365,000
------------
Total Liabilities 7,311,700
------------
Liabilities assumed in excess of
assets acquired $ 5,425,800
============
(a) Amounts classified as "Due to Alanco" at the time of the
acquisition consisted of operating advances made to StarTrak prior to
the acquisition.
The value of the Transaction, considering the 2 million Class A Common
Shares issued at closing (valued at $3,485,000), 3,280,000 Class A Common
shares issued upon shareholder approval (valued at $5,715,400 on June 30,
2006), StarTrak net liabilities assumed of $5,425,800 and the related
costs of the acquisition of $434,500, was valued at $15,060,700. In
accordance with the provisions of SFAS 141, Business Combinations, the
transaction must be recorded using the purchase method of accounting,
which requires the allocation of the purchase price to the fair value of
the assets acquired and the liabilities assumed by balance sheet
classifications. The Company engaged the services of an independent
consultant for valuation services related to FASB 141 and determined that
the appropriate value of intangible assets acquired in this transaction
is $2,485,300, resulting in total goodwill at June 30, 2007 from this
transaction of $12,575,400. If additional payments are made pursuant to
the Earn-out provisions of the merger agreement, or if the value of the
3,280,000 shares issued upon shareholder approval is valued differently
than valued at closing, the purchase price and related goodwill value may
be adjusted.
15. SEGMENT REPORTING
The following table is a summary of the results of operations and other
financial information by major segment:
Wireless
Data RFID Asset
Storage Technology Management Corporate Total
------------ ------------ ------------- ------------ -------------
Fiscal year 2007
Revenue $ 4,432,000 $ 1,065,500 $ 12,976,600 $ - $ 18,474,100
Cost of Goods Sold 3,360,000 735,700 8,505,900 - 12,601,600
------------ ------------ ------------- ------------ -------------
Gross Profit 1,072,000 329,800 4,470,700 - 5,872,500
Selling, General &
Administrative 1,504,600 2,314,600 5,192,200 1,310,800 10,322,200
------------ ------------ ------------- ------------ -------------
Operating Income (Loss) $ (432,600) $(1,984,800) $ (721,500) $(1,310,800) $ (4,449,700)
============ ============ ============= ============ =============
Accounts Receivable $ 327,300 $ 342,400 $ 1,561,300 $ 17,600 $ 2,248,600
============ ============ ============= ============ =============
Inventory $ 859,600 $ 1,279,100 $ 1,669,400 $ - $ 3,808,100
============ ============ ============= ============ =============
Total Assets $ 1,511,300 $ 7,247,400 $ 17,870,900 $ 1,253,300 $ 27,882,900
============ ============ ============= ============ =============
Capital Expenditures $ 38,800 $ 103,100 $ 64,000 $ - $ 205,900
============ ============ ============= ============ =============
Depreciation & Amortization $ 23,600 $ 289,100 $ 644,100 $ 2,700 $ 959,500
============ ============ ============= ============ =============
Fiscal year 2006
Revenue $ 4,813,000 $ 631,500 $ - $ - $ 5,444,500
Cost of Goods Sold 3,412,800 479,900 - - 3,892,700
------------ ------------ ------------- ------------ -------------
Gross Profit 1,400,200 151,600 - - 1,551,800
Selling, General &
Administrative 1,407,400 2,669,600 - 1,553,100 5,630,100
------------ ------------ ------------- ------------ -------------
Operating Income (Loss) $ (7,200) $(2,518,000) $ - $(1,553,100) $ (4,078,300)
============ ============ ============= ============ =============
Accounts Receivable $ 356,100 $ 178,300 $ 919,700 $ 17,300 $ 1,471,400
============ ============ ============= ============ =============
Inventory $ 875,200 $ 940,500 $ 885,900 $ - $ 2,701,600
============ ============ ============= ============ =============
Total Assets $ 1,590,400 $ 7,239,800 $ 17,572,200 $ 1,259,100 $ 27,661,500
============ ============ ============= ============ =============
Capital Expenditures $ 15,800 $ 54,400 $ - $ 600 $ 70,800
============ ============ ============= ============ =============
Depreciation & Amortization $ 21,200 $ 355,600 $ - $ 3,200 $ 380,000
============ ============ ============= ============ =============
16. SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth certain unaudited selected consolidated
financial information for each of the four quarters in fiscal 2007 and
2006. In management's opinion, this unaudited consolidated quarterly
selected information has been prepared on the same basis as the audited
consolidated financial statements and includes all necessary adjustments,
consisting only of normal recurring adjustments that management considers
necessary for a fair presentation when read in conjunction with the
consolidated financial statements and notes thereto. The Company believes
these comparisons of consolidated quarterly selected financial data are not
necessarily indicative of future performance.
Quarterly earnings per share may not total to the fiscal year earnings per
share due to the weighted average number of shares outstanding at the end
of each period reported.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2007
Net Sales $ 5,134,900 $ 5,591,100 $ 4,422,800 $ 3,325,300
Cost of sales 3,336,400 3,734,100 3,106,200 2,424,900
--------------- ---------------- ---------------- ---------------
Gross profit 1,798,500 1,857,000 1,316,600 900,400
--------------- ---------------- ---------------- ---------------
Loss from Continuing Operations (872,900) (404,900) (1,252,200) (1,919,700)
--------------- ---------------- ---------------- ---------------
Net loss* (1,234,900) (659,600) (1,782,500) (2,194,700)
=============== ================ ================ ===============
Loss per share - basic & diluted $ (0.08) $ (0.04) $ (0.10) $ (0.13)
--------------- ---------------- ---------------- ---------------
Weighted Average Shares 15,675,000 15,680,700 17,968,600 17,286,500
=============== ================ ================ ===============
2006
Net Sales $ 1,369,100 $ 1,501,300 $ 988,000 $ 1,586,100
Cost of sales 979,300 1,062,400 716,100 1,134,900
--------------- ---------------- ---------------- ---------------
Gross profit 389,800 438,900 271,900 451,200
--------------- ---------------- ---------------- ---------------
Loss from Continuing Operations (1,021,400) (952,700) (1,167,100) (937,100)
--------------- ---------------- ---------------- ---------------
Net loss* (1,330,000) (1,059,100) (1,273,600) (929,200)
=============== ================ ================ ===============
Loss per share - basic & diluted $ (0.12) $ (0.09) $ (0.11) $ (0.07)
--------------- ---------------- ---------------- ---------------
Weighted Average Shares 10,766,160 11,307,720 12,044,760 12,455,480
=============== ================ ================ ===============
*Attributable to Common Shareholders
17. SUBSEQUENT EVENTS
The Company announced on August 22, 2007 that it had completed an equity
financing to private investors totaling approximately $4.8 million, net of
expenses. Under the transaction, the Company issued 2,454,000 Class A
Common Shares and granted three-year warrants to purchase 981,600 common
shares at a price of $3.00 per share. Approximately $800,000 of the
financing proceeds was used to repay long-term debt, with the balance to be
utilized for working capital to fund the Company's anticipated expansion.
On July 26, 2007, the Company executed an amendment to its Loan Agreement
with Comvest Capital LLC in anticipation of an equity financing to raise
additional working capital that modified the required prepayment of the
loan in the event the Company raises funds through the issuance of equity.
The amendment reduced the required prepayment of the loan to 17.5% of the
net equity raised.
On September 19, 2007, the U.S. Bankruptcy Court, having jurisdiction over
the bankruptcy case of Technology Systems International, Inc. ("TSIN"),
approved a Settlement and Mutual Release Agreement between the Company and
TSIN with respect to the lawsuit initiated by TSIN concerning the purchase
by the Company of the assets of TSIN effective June of 2002. The
agreement provides for resolution of the lawsuit based upon a valuation
of the TSIN assets acquired to be performed by an independent appraiser.
The Company believes the valuation will show that the Company paid not
less than fair value for the TSIN assets.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE: NONE
ITEM 8A. CONTROL AND PROCEDURES
An evaluation as of the end of the period covered by this report was
carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that those disclosure controls and
procedures were effective in providing reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Commission's rules and
forms. In addition, there has been no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) that occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
The Company also maintains a system of internal controls to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (1) Pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the issuer; (2) Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made only in accordance with authorizations
of management and directors of the issuer; and (3) Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the issuer's assets that could have a material effect on the
financial statements.
It should be noted that any system of controls, however well designed
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Officers and Directors
The officers and directors of the Company are:
Year
Name Age Position First Director
Harold S. Carpenter 73 Director 1995
James T. Hecker 50 Director 1997
Robert R. Kauffman 67 Director/C.O.B./C.E.O. 1998
Thomas C. LaVoy 47 Director 1998
John A. Carlson 60 Director/E.V.P./C.F.O. 1999
Donald E. Anderson 73 Director 2002
Timothy P. Slifkin 52 Director/C.E.O. - StarTrak 2006
Robert R. Kauffman: Mr. Kauffman was appointed as Chief Executive Officer and
Chairman of the Board effective July 1, 1998. Mr. Kauffman was formerly
President and Chief Executive Officer of NASDAQ-listed Photocomm, Inc., from
1988 until 1997 (since renamed Kyocera Solar, Inc.). Photocomm was the nation's
largest publicly owned manufacturer and marketer of wireless solar electric
power systems with annual revenues in excess of $35 million. Prior to Photocomm,
Mr. Kauffman was a senior executive of the Atlantic Richfield Company (ARCO)
whose varied responsibilities included Senior Vice President of ARCO Solar,
Inc., President of ARCO Plastics Company and Vice President of ARCO Chemical
Company. Mr. Kauffman earned an M.B.A. in Finance at the Wharton School of the
University of Pennsylvania, and holds a B.S. in Chemical Engineering from
Lafayette College, Easton, Pennsylvania.
John A. Carlson: Mr. Carlson, Executive Vice President and Chief Financial
Officer of Alanco Technologies, Inc., joined the Company in September 1998 as
Senior Vice President/Chief Financial Officer. Mr. Carlson started his career
with Price Waterhouse & Co. in Chicago, Illinois. He has over twenty-five years
of public and private financial and operational management experience, including
over twelve years as Chief Financial Officer of a Fortune 1000 printing and
publishing company. He earned his Bachelor of Science degree in Business
Administration at the University of South Dakota, and is a Certified Public
Accountant.
Donald E. Anderson: Donald E. Anderson is President and owner of Programmed
Land, Inc., a Minnesota and Scottsdale, Arizona, based company. Programmed Land
is a diversified holding company engaged in real estate, including ownership,
development, marketing and management of properties. He is also majority owner
of a company involved in the automotive industry. From 1988 until 1997, Mr.
Anderson was Chairman of the Board of NASDAQ-listed Photocomm, Inc., a company
involved in the solar electric business. Since 1983, Mr. Anderson has also been
President of Pine Summit Bible Camp, a non-profit organization that operates a
year-round youth camp in Prescott, Arizona. Mr. Anderson has a B.A. degree in
accounting.
Harold S. Carpenter: Mr. Carpenter is the former President of Superiorgas Co.,
Des Moines, Iowa, which is engaged in the business of trading and brokering bulk
refined petroleum products with gross sales of approximately $500 million per
year. He is also the General Partner of Superiorgas L.P., an investment company
affiliated with Superiorgas Co. Mr. Carpenter founded these companies in 1984
and 1980, respectively. Mr. Carpenter is also the President of Carpenter
Investment Company, Des Moines, Iowa, which is a real estate investment company
holding properties primarily in central Iowa. From 1970 until 1994, Mr.
Carpenter was the Chairman of the George A. Rolfes Company of Boone, Iowa, which
manufactured air pollution control equipment. Mr. Carpenter graduated from the
University of Iowa in 1958 with a Bachelor of Science and Commerce degree.
James T. Hecker: Mr. Hecker is both an Attorney and a Certified Public
Accountant. Since 1987 Mr. Hecker has been Vice President, Treasurer and General
Counsel of Rhino Capital Incorporated, Evergreen, Colorado, a private capital
management company which manages a $60 million portfolio. He also served, since
1992, as a trustee of an $11 million charitable trust. From 1984 to 1987, Mr.
Hecker was the Controller of Northern Pump Company, Minneapolis, Minnesota, a
multi-state operating oil and gas company with more than 300 properties, with
responsibility of all accounting and reporting functions. Prior to that, from
1981 to 1984, Mr. Hecker was Audit Supervisor of Total Petroleum, Inc., Denver,
responsible for all phases of internal audit and development of audit and
systems controls. Mr. Hecker received a J.D. degree from the University of
Denver in 1992, and a B.B.A. degree in Accounting and International Finance from
the University of Wisconsin in 1979. He is a member in good standing of the
Colorado and the American Bar Associations, the Colorado Society of CPAs, and
the American Institute of CPAs.
Thomas C. LaVoy: Thomas C. LaVoy has served as Chief Financial Officer of
SuperShuttle International, Inc., since July 1997 and as Secretary since March
1998. From September 1987 to February 1997, Mr. LaVoy served as Chief Financial
Officer of NASDAQ-listed Photocomm, Inc. Mr. LaVoy was a Certified Public
Accountant with the firm of KPMG Peat Marwick from 1980 to 1983. Mr. LaVoy has a
Bachelor of Science degree in Accounting from St. Cloud University, Minnesota,
and is a Certified Public Accountant.
Timothy P. Slifkin: Timothy P. Slifkin, President and Chief Executive Officer of
the Company's subsidiary, StarTrak Systems, LLC, is directly responsible for
development of StarTrak's wireless product line and for leading the North
American rail industry's acceptance of the technology for damage prevention,
refrigeration transport, and asset management applications. Mr. Slifkin has been
developing remote monitoring systems since founding Elexor Associates in 1986,
and in developing and deploying wireless systems (satellite and terrestrial)
since 1992. He has several patents issued or pending on related technology.
Prior to founding StarTrak, Mr. Slifkin was employed with Hewlett Packard,
Johannson Microwave, American Microsystems, and Jet Propulsion Laboratories. He
holds a Bachelors Degree in Engineering.
Non-Director Significant Employees
The following table provides information regarding key officers for the
Company's primary subsidiaries.
Name Age Position Year Appointed
to Position
------------------------------------------------------------------------------
Greg M. Oester 58 President 2002
Alanco/TSI PRISM, Inc.
Thomas A. Robinson 46 Executive Vice President 2006
StarTrak Systems, LLC
Greg M. Oester: Mr. Oester started his employment as President of Alanco/TSI
PRISM, Inc. (formerly Technology Systems International, Inc.) in 2000. He
practiced international business law for 12 years and founded a firm in Los
Angeles, CA. He co-founded North American Enterprises, Inc. in 1989 and engaged
in sales & marketing of European specialty products in the U.S.A. Mr. Oester
conducted seminars on foreign investment in the U.S.A. throughout Asia. He was
admitted to practice before the U.S. Customs Court, the Court of International
Trade and numerous State and Federal venues. Mr. Oester holds Bachelor of Arts
degrees in Political Science and Economics from the University of Arizona and
also a Juris Doctor Degree from the University of Laverne.
Thomas A. Robinson: Mr. Robinson, Executive Vice President of StarTrak Systems,
LLC, has been responsible for major program deliveries at StarTrak since 1999.
He is intimately involved in the systems development, network completion,
customer commitments, and deployments for all major products of StarTrak. Prior
to joining StarTrak, Mr. Robinson was employed by Varlen Corporation (acquired
by Amsted Industries in 1999) where he was responsible for mergers and
acquisitions. Prior to Varlen, he was a Program Manager at Hughes Aircraft. Mr.
Robinson holds Bachelors and Masters Degrees in Engineering from Case Western
Reserve University and an MBA from Wharton.
Audit/Corporate Governance Committee
The Audit/Corporate Governance Committee of the Board of Directors is currently
comprised of three independent directors, and operates under a written charter
adopted by the Board. The Audit/Corporate Governance Committee Charter was
included as Exhibit A in the Company's Definitive Proxy Statement filed with the
SEC on October 18, 2004. The members of the Audit/Corporate Governance Committee
are Harold S. Carpenter, a CEO with over 30 years senior management experience,
James T. Hecker, an attorney and CPA, and Thomas C. LaVoy, a CPA. All three
individuals are experienced in reading and understanding financial statements,
and, in fact, are deemed to be financial experts as defined by audit committee
requirements.
The Audit/Corporate Governance Committee is directly responsible for the
appointment, compensation, retention and oversight of the work of the
independent auditor engaged for the purpose of preparing an audit report or
performing other audit, review or attest services for the Company. The auditor
reports directly to the Audit/Corporate Governance Committee. The
Audit/Corporate Governance Committee has established "whistleblower" procedures
for the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters, including procedures for the
confidential anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
Authority to engage independent counsel and other advisors has been given to the
Audit/Corporate Governance Committee as it determines is necessary to carry out
its duties. The Company provides appropriate funding for the Audit/Corporate
Governance Committee to compensate the outside auditors and any lawyers and
advisors it employs and to fund ordinary administrative expenses of the
Audit/Corporate Governance Committee that are necessary in carrying out its
duties.
The Audit/Corporate Governance Committee provides general oversight of the
Company's financial reporting and disclosure practices, system of internal
controls, and the Company's processes for monitoring compliance by the Company
with Company policies. The Audit/Corporate Governance Committee reviews with the
Company's independent auditors the scope of the audit for the year, the results
of the audit when completed, and the independent auditor's fee for services
performed. The Audit/Corporate Governance Committee also recommends independent
auditors to the Board of Directors and reviews with management various matters
related to its internal accounting controls. During the last fiscal year, there
were three meetings of the Audit/Corporate Governance Committee.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States) and issuing a report thereon. The
Audit/Corporate Governance Committee is responsible for overseeing and
monitoring the quality of the Company's accounting and auditing practices.
The members of the Audit/Corporate Governance Committee are not professionally
engaged in the practice of auditing or accounting and may not be experts in the
fields of accounting or auditing, or in determining auditor independence.
Members of the Audit/Corporate Governance Committee rely, without independent
verification, on the information provided to them and on the representations
made by management and the independent accountants. Accordingly, the
Audit/Corporate Governance Committee's oversight does not provide an independent
basis to determine that management has maintained procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit/Corporate Governance Committee's considerations and
discussions referred to above do not assure that the audit of the Company's
financial statements has been carried out in accordance with auditing standards
generally accepted in the United States, that the financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America or that the Company's auditors are in fact
"independent."
Compliance with Section 16(a) of Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of the copies of such forms furnished to the Company, or
written representations that no Form 5's were required, the Company believes
that as of the date of filing of this Form 10-KSB, all Section 16(a) filing
requirements applicable to its officers, Directors and greater than 10%
beneficial owners were satisfied.
Code of Ethics
The Company has adopted a Corporate Code of Business Conduct and Ethics, which
was included as Exhibit 99.2 in the Company's Form 10-QSB filed with the SEC on
November 15, 2004. We believe our code of ethics is reasonably designed to deter
wrongdoing and promote honest and ethical conduct; provide full, fair, accurate,
timely and understandable disclosure in public reports; comply with applicable
laws; ensure prompt internal reporting of code violations; and provide
accountability for adherence to the code.
The Code of Business Conduct and Ethics is presented on the Company's web page
under the subheading "Corporate Governance." Shareholders may receive a copy of
the Company's adopted Code of Conduct, without charge, via e-mail request to
alanco@alanco.com, by calling the Company at 480 607-1010, Ext. 857, or by
writing to the Company to the attention of the Company's Corporate Secretary at
15575 N. 83rd Way, Suite 3, Scottsdale, Arizona 85260.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid or accrued by the Company
for the services rendered during the fiscal years ended June 30, 2007, 2006 and
2005 to the Company's Chief Executive Officer, Chief Financial Officer,
President of the Company's subsidiary, Alanco/TSI PRISM, Inc. (ATSI), President
of the Company's subsidiary, StarTrak Systems, LLC (STS), and Executive Vice
President of the Company's subsidiary, StarTrak Systems, LLC, whose salaries and
bonus exceeded $100,000 during the last fiscal year (collectively, the "Named
Executive Officers"). No stock appreciation rights ("SARs") have been granted by
the Company to any of the Named Executive Officers during the last three fiscal
years.
Annual Compensation Long-Term Compensation
--------------------------------- ------------------------
Name and Other (1) Securities (# shares)
Principal Annual Annual Underlying Options
Position Salary Bonus Compensation $ Granted during FY
----------------------------------- ---------- ----- ---------------- ------------------------
Robert R. Kauffman, C.E.O.
FY 2007 $250,000 None $17,400 60,000
FY 2006 225,000 None 17,400 376,000
FY 2005 183,750 None 17,400 40,000
John A. Carlson, C.F.O.
FY 2007 222,500 None 10,400 20,000
FY 2006 200,000 None 10,400 228,000
FY 2005 163,333 None 10,033 30,000
Greg M. Oester, President, ATSI
FY 2007 154,500 None None 0
FY 2006 154,500 None None 48,000
FY 2005 154,500 None None 14,000
Timothy P. Slifkin, President, STS
FY 2007 160,000 None 667 0
FY 2006 N/A N/A N/A 400,000
FY 2005 N/A N/A N/A N/A
Thomas A. Robinson, Exec V.P., STS
FY 2007 160,000 None 667 0
FY 2006 N/A N/A N/A 400,000
FY 2005 N/A N/A N/A N/A
(1) Represents supplemental executive benefit reimbursement for the year and Company matching for
Alanco's 401(K) Profit Sharing Plan.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 2007, to each of the Named Executive Officers and/or
Directors and to all other employees as a group. No stock appreciation rights
("SARs") have been granted by the Company.
INDIVIDUAL GRANTS
Number of
Securities
Underlying % of Total Exercise
Options Options Price Grant Expiration
Name Granted Granted ($/Sh) Date Date
Robert Kauffman 60,000 21.58% $1.37 8/15/2006 8/15/2011
John Carlson 20,000 7.19% $1.37 8/15/2006 8/15/2011
Harold Carpenter 40,000 14.39% $1.37 8/15/2006 8/15/2011
Donald Anderson 100,000 35.97% $1.37 8/15/2006 8/15/2011
Other Employees 58,000 20.86% $1.86 1/8/2007 1/8/2012
----------------------
Total 278,000 100.00%
======================
All options are granted at a price not less than "grant-date market." During the
fiscal year 155,200 previously granted stock options expired or were cancelled.
Aggregated Options and Warrants - Exercised in Last Fiscal Year and Values at
Fiscal Year End
The following table sets forth the number of exercised and unexercised options
and warrants held by each of the Named Executive Officers and/or Directors at
June 30, 2007, and the value of the unexercised, in-the-money options at June
30, 2007.
Shares Unexercised Value of Unexercised
Acquired On Value Options & Warrants In-The-Money
Exercise During Realized at Fiscal Year End Options &Warrants
Name 2007 Fiscal Year ($) (1) (Shares) (2) at FYE ($) (3)
---- ---------------- ------- ------------ --------------
Robert Kauffman 200,000 $426,000 1,209,000 $742,760
John Carlson 0 0 586,000 306,560
Harold Carpenter 0 0 276,000 175,680
James Hecker 0 0 160,000 68,240
Thomas LaVoy 0 0 152,000 60,560
Donald Anderson 40,000 (4,000) 992,000 562,280
Timothy Slifkin 0 0 220,000 121,000
Greg Oester 0 0 488,000 103,160
Thomas Robinson 0 0 220,000 121,000
(1) Calculated as the difference between closing price on the date exercised
and the exercise price, multiplied by the number of options exercised.
(2) Represents the number of securities underlying unexercised options and
warrants that were exercisable at 2007 Fiscal Year End.
(3) Calculated as the difference between the closing price of the Company's
Common Stock on June 30, 2007, and the exercise price for those options
exercisable on June 30, 2007, with an exercise price less than the
closing price, multiplied by the number of applicable options.
Option Grants Subsequent to Fiscal Year End
Number of
Underlying
Securities
Options Date of Date Expiration Option
Name Granted Grant Exercisable Date Price
Officers & Directors 0 -- -- -- --
Other Employees 408,000 (1) 7/20/07 (2) 7/20/12 $2.50
(1) Issued pursuant to the 1998, 1999, 2002, 2004, 2005 & 2006 Stock Option
Plans.
(2) 10% vest on 7/20/2007, 15% vest on 7/20/2008, 25% vest on 7/20/2009, 25%
vest on 7/20/2010 and 25% vest on 7/20/2011.
Employment Agreements and Executive Compensation
The Executive Officers are at-will employees without employment agreements.
Compensation of Directors
During Fiscal Year 2007, non-employee Directors were compensated for their
services in cash ($750 per meeting per day up to a maximum of $1,500 per
meeting) and through the grant of options to acquire shares of Class A Common
Stock as provided by the 1996, 1998, 1999, 2000, 2002, 2004, 2005, and 2006
Directors and Officers Stock Option Plans (the "D&O Plans") which are described
below. All Directors are entitled to receive reimbursement for all out-of-pocket
expenses incurred for attendance at Board of Directors meetings.
The 1996 Directors and Officers Stock Option Plan was approved by the Board of
Directors on September 9, 1996. Shareholders approved the 1998, 1999, 2000,
2002, 2004, 2005, and 2006 Directors and Officers Stock Option Plans on November
6, 1998, November 5, 1999, November 10, 2000, November 22, 2002, November 19,
2004, January 20, 2006, and January 30, 2007, respectively. The purpose of the
1996, 1998, 1999, 2000, 2002, 2004, 2005, and 2006 D&O Plans is to advance the
business and development of the Company and its shareholders by affording to the
Directors and Officers of the Company the opportunity to acquire a propriety
interest in the Company by the grant of Options to acquire shares of the
Company's common stock. All Directors and Executive Officers of the Company are
eligible to participate in the 1996, 1998, 1999, 2000, 2002, 2004, 2005, and
2006 Plans. Newly appointed Directors receive options to purchase shares of
common stock at fair market value. Upon each subsequent anniversary of the
election to the Board of Directors, each non-employee Director may receive an
additional option to purchase shares of common stock at fair market value.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to each
shareholder known by Alanco to be the beneficial owner of more than 5% of the
outstanding Alanco common stock or common stock equivalent as of September 18,
2007. Information regarding the stock ownership of Robert R. Kauffman, Alanco
Chairman and Chief Executive Officer, Donald E. Anderson, Alanco Director,
Timothy P. Slifkin, Director and StarTrak Chief Executive Officer, and Thomas A.
Robinson, StarTrak Executive Vice President, is also shown in the table in the
following section, Current Directors and Executive Officers.
Five Percent Owners
Class A Total Total
Common Common Total Stock,
Shares Stock Stock Options &
Owned Equivalent Exercisable Owned Warrants
Class A Percent Series A Total Owned Stock and Percent of
Common of Preferred Common Percent Options Options Common
Shares Class Shares Stock of and and Equivalent
Owned (6) Owned (7) Equivalent Class (6) Warrants Warrants Class (8)
---------------------------------------------------------------------------------------------
Technology Systems 1,807,670 7.96% -- 1,807,670 6.47% -- 1,807,670 6.47%
International, Inc. (1)
Donald E. Anderson (2) 1,204,107 5.30% 1,343,085 2,815,810 10.08% 1,007,000 3,822,810 13.21%
Robert R. Kauffman (3) 212,800 0.94% 863,146 1,248,576 4.47% 1,218,000 2,466,576 8.46%
Timothy P. Slifkin (4) 2,403,480 10.58% 0 2,403,480 8.61% 220,000 2,623,480 9.32%
Thomas A. Robinson (5) 1,542,320 6.79% 0 1,542,320 5.52% 220,000 1,762,320 6.26%
(1) Technology Systems International, Inc., a Nevada corporation, (TSIN) is an
independent, private company, which was issued 6,000,000 shares (equivalent
to 2,400,000 as adjusted for the October 16, 2006 2 for 5 reverse stock
split) of Alanco common stock in 2002 in connection with the acquisition of
the assets of TSIN effective in June 2002. TSIN filed a Schedule 13G on
December 31, 2006, indicating TSIN ownership of 1,807,670 Alanco common
shares. TSIN has previously indicated their intention to distribute the
shares of Alanco common stock in excess of certain corporate litigation and
liquidation expenses on a pro-rata basis to their shareholders; however,
the shares have not been distributed as of the date of filing, and there is
no assurance that the shares will be distributed. The address of TSIN is
c/o Jill H. Ford, Trustee, P.O. Box 5845, Carefree, AZ 85377.
(2) The number of shares, options and warrants owned includes The Anderson
Family Trust, owner of 902,867 shares of Alanco Class A Common Stock,
774,703 shares of Alanco Series A Convertible Preferred Stock and 670,000
exercisable warrants; Programmed Land, Inc., owner of 293,240 shares of
Alanco Class A Common Stock, 568,382 shares of Alanco Series A Convertible
Preferred Stock and 200,000 exercisable warrants, both of which Mr.
Anderson claims beneficial ownership; and 8,000 shares of Alanco Class A
Common Stock and 137,000 exercisable options owned by Mr. Anderson. Mr.
Anderson also has an additional 75,000 stock options with a vesting
schedule ranging from August 15, 2008 to August 15, 2010. The 1,343,085
shares of Series A Convertible Preferred Stock beneficially owned by Mr.
Anderson represent 33.71% of the total Series A Convertible Preferred
shares outstanding. Mr. Anderson's address is 11804 North Sundown Drive,
Scottsdale, Arizona 85260.
(3) In addition to the shares shown above, Robert R. Kauffman, Alanco Chairman
and Chief Executive Officer, also beneficially owns 455,000 shares of TSIN
stock, representing an ownership position of less than 2% of the
outstanding TSIN shares. If TSIN distributes the shares of Alanco common
stock owned by TSIN to TSIN shareholders on a proportionate basis, Mr.
Kauffman may acquire additional shares of Alanco common stock, thereby
slightly increasing his percentage of Alanco common shares owned; but due
to matters as discussed in Footnote 1 above, we are unable to accurately
calculate the changes to Mr. Kauffman's ownership. Mr. Kauffman also has an
additional 45,000 stock options with a vesting schedule ranging from August
15, 2008 to August 15, 2010. The 863,146 shares of Series A Convertible
Preferred Stock beneficially owned by Mr. Kauffman represent 21.66% of the
total Series A Convertible Preferred shares outstanding. The address for
Mr. Kauffman is: c/o Alanco Technologies, Inc., 15575 North 83rd Way, Suite
3, Scottsdale, Arizona 85260.
(4) In addition to the stock options shown above, Timothy P. Slifkin, Director
and President of StarTrak Systems, LLC, has 180,000 options with a vesting
schedule ranging from June 30, 2008 to June 30, 2010.
(5) In addition to the stock options shown above, Thomas A. Robinson, Executive
Vice President of StarTrak Systems, LLC, has 180,000 options with a vesting
schedule ranging from June 30, 2008 to June 30, 2010.
(6) The percentages for Class A Common Stock shown are calculated based upon
22,718,035 shares of Class A Common Stock outstanding on September 18,
2007. The percentages for Total Common Stock Equivalent are calculated
based upon 27,929,402 shares outstanding on September 18, 2007.
(7) Preferred Shares are Series A Convertible Preferred Stock, each share of
which is convertible into 1.2 shares of Class A Common Stock. As of
September 18, 2007, there are 3,984,118 shares of Series A Convertible
Preferred Stock outstanding. The 5% owners do not own any shares of the
Series B Convertible Preferred Stock.
(8) In calculating the percentage of ownership, option and warrant shares are
deemed to be outstanding for the purpose of computing the percentage of
shares of common stock equivalent owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of shares of
common stock equivalent owned by any other stockholders.
Security Ownership of Management
The following table sets forth the number of exercisable stock options and the
number of shares of the Company's Common Stock and Preferred Stock beneficially
owned as of September 18, 2007, by individual directors and executive officers
and by all directors and executive officers of the Company as a group.
The number of shares beneficially owned by each director or executive officer is
determined under rules of the Securities and Exchange Commission, and the
information is not necessarily indicative of the beneficial ownership for any
other purpose. Unless otherwise indicated, each person has sole investment and
voting power (or shares such power with his or her spouse) with respect to the
shares set forth in the following table.
Securities of the Registrant Beneficially Owned (1)
Total
Class A Shares Series A Shares Total Shares Total Stock,
Common Owned Preferred Owned Common Owned Exercisable Stock Options
Stock Percent Stock Percent Stock Percent Stock Owned + & Warrants
Name of Shares of Class Shares of Class Equivalent of Class Options & Options & Percent of
Beneficial Owner (2) Owned (7) Owned (7) Owned (7) Warrants (8) Warrants Class (9)
Robert R. Kauffman (3) 212,800 0.94% 863,146 21.66% 1,248,576 4.47% 1,218,000 2,466,576 8.46%
Director/COB/CEO
John A. Carlson 100,257 0.44% 154,665 3.88% 285,855 1.02% 589,000 874,855 3.07%
Director/EVP/CFO
Harold S. Carpenter 122,216 0.54% 344,195 (5) 8.64% 535,250 1.92% 282,000 817,250 2.90%
Director
James T. Hecker 28,156 0.12% 32,345 (6) 0.81% 66,971 0.24% 160,000 226,971 0.81%
Director
Thomas C. LaVoy 9,859 0.04% 55,804 1.40% 76,824 0.28% 152,000 228,824 0.81%
Director
Donald E. Anderson (4) 1,204,107 5.30% 1,343,085 33.71% 2,815,810 10.08% 1,007,000 3,822,810 13.21%
Director
Timothy P. Slifkin 2,403,480 10.58% 0 0.00% 2,403,480 8.61% 220,000 2,623,480 9.32%
Director/CEO - StarTrak
Greg M. Oester 23,155 0.10% 15,686 0.39% 41,979 0.15% 488,000 529,979 1.86%
President - TSIA
Thomas A. Robinson 1,542,320 6.79% 0 0.00% 1,542,320 5.52% 220,000 1,762,320 6.26%
EVP - StarTrak
----------- ----------- ----------- ------------ ------------
Officers and Directors as
a Group (9 individuals) 5,646,350 24.85% 2,808,926 70.50% 9,017,065 32.29% 4,336,000 13,353,065 41.39%
=========== =========== =========== ============ ============
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally indicates voting
or investment power with respect to securities. In accordance with SEC
rules, shares that may be acquired upon conversion or exercise of stock
options, warrants or convertible securities which are currently
exercisable or which become exercisable within 60 days are deemed
beneficially owned. Except as indicated by footnote, and subject to
community property laws where applicable, the persons or entities named
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned.
(2) COB is Chairman of the Board; CEO is Chief Executive Officer; EVP is
Executive Vice President; CFO is Chief Financial Officer.
(3) In addition to the shares shown above, Robert R. Kauffman, Alanco
Chairman and Chief Executive Officer, also beneficially owns 455,000
shares of TSIN stock, representing an ownership position of less than 2%
of the outstanding TSIN shares. If TSIN distributes the shares of Alanco
common stock owned by TSIN to TSIN shareholders on a proportionate basis,
Mr. Kauffman may acquire additional shares of Alanco common stock,
thereby slightly increasing his percentage of Alanco common shares owned;
but due to matters as discussed in Footnote 1 of the Five Percent Owners
table above, we are unable to accurately calculate the changes to Mr.
Kauffman's ownership.
(4) The number of shares, options and warrants owned includes The Anderson
Family Trust, owner of 902,867 shares of Alanco Class A Common Stock,
774,703 shares of Alanco Series A Convertible Preferred Stock and 670,000
exercisable warrants; Programmed Land, Inc., owner of 293,240 shares of
Alanco Class A Common Stock, 568,382 shares of Alanco Series A
Convertible Preferred Stock and 200,000 exercisable warrants, both of
which Mr. Anderson claims beneficial ownership; and 8,000 shares of
Alanco Class A Common Stock and 137,000 exercisable options owned by Mr.
Anderson.
(5) Excludes 176,000 shares of Class A Common Stock, 379,980 shares of Series
A Convertible Preferred Stock and 92,000 warrants to purchase Class A
Common Stock owned by Heartland Systems Co., a company for which Mr.
Carpenter serves as an officer. Mr. Carpenter disclaims beneficial
ownership of such shares.
(6) Excludes 220,000 shares of Class A Common Stock, 487,461 shares of Series
A Convertible Preferred Stock and 174,000 warrants to purchase Class A
Common Stock owned by Rhino Fund LLP. The fund is controlled by Rhino
Capital Incorporated, for which Mr. Hecker serves as Treasurer and
General Counsel. Mr. Hecker disclaims beneficial ownership of such
shares.
(7) The percentages for Class A Common Stock shown are calculated based upon
22,718,035 shares of Class A Common Stock outstanding on September 18,
2007. The percentages for Series A Convertible Preferred Stock are
calculated based upon 3,984,118 shares of Series A Convertible Preferred
Stock outstanding on September 18, 2007, each of which is convertible
into 1.2 shares of Class A Common Stock. The percentages for Common Stock
Equivalent shares are calculated based upon 27,929,402 Common Stock
Equivalent shares outstanding as of September 18, 2007.
(8) Represents unexercised stock options and warrants issued to named
executive officers and directors. All options and warrants listed that
were issued to the executive officers and directors were exercisable at
September 18, 2007. Robert Kauffman also holds the following options:
15,000 options exercisable in fiscal year 2009, 15,000 options
exercisable in fiscal year 2010, and 15,000 options exercisable in fiscal
year 2011. John Carlson also holds the following options: 5,000 options
exercisable in fiscal year 2009, 5,000 options exercisable in fiscal year
2010, and 5,000 options exercisable in fiscal year 2011. Donald Anderson
also holds the following options: 25,000 options exercisable in fiscal
year 2009, 25,000 options exercisable in fiscal year 2010, and 25,000
options exercisable in fiscal year 2011. Harold Carpenter also holds the
following options: 10,000 options exercisable in fiscal year 2009, 10,000
options exercisable in fiscal year 2010, and 10,000 options exercisable
in fiscal year 2011. Timothy Slifkin also holds the following options:
60,000 options exercisable in fiscal year 2008, 60,000 options
exercisable in fiscal year 2009, and 60,000 options exercisable in fiscal
year 2010. Thomas Robinson also holds the following options: 60,000
options exercisable in fiscal year 2008, 60,000 options exercisable in
fiscal year 2009, and 60,000 options exercisable in fiscal year 2010.
(9) The number and percentages shown include the shares of common stock
equivalent actually owned as of September 18, 2007 and the shares of
common stock that the identified person or group had a right to acquire
within 60 days after September 18, 2007. The percentages shown are
calculated based upon 27,929,402 Common Stock Equivalent shares
outstanding as of September 18, 2007. In calculating the percentage of
ownership, option and warrant shares are deemed to be outstanding for the
purpose of computing the percentage of shares of common stock equivalent
owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of shares of common stock equivalent
owned by any other stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management
Mr. Steve Oman, a former member of the Board of Directors, received compensation
in the amount of approximately $116,100 and $70,200 for legal services to the
Company for the fiscal year ended June 30, 2007 and 2006, respectively.
Mr. Donald Anderson, a member of the Board of Directors and trustee and
beneficial owner of the Anderson Family Trust, was paid interest in fiscal year
2007 and 2006 under the Line of Credit Agreement in the amount of approximately
$186,500 and $89,500, respectively.
See Note 7 and 10 to the consolidated financials for additional related party
transactions and discussion.
PART IV
ITEM 13. EXHIBITS
A. Exhibits
3(i) Articles of Incorporation of Alanco Technologies, Inc (1)
3(ii) Bylaws of Alanco Technologies, Inc (2)
4.1 Series A Preferred Convertible Stock Description (3)
4.2 Series B Preferred Convertible Stock Description (4)
10.1 1996 Directors and Officers Stock Option Plan and Kauffman and Carlson
Stock Option Agreements (5)
10.2 1998 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (6)
10.3 1999 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (7)
10.4 2000 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (8)
10.5 2002 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (9)
10.6 2004 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (10)
10.7 2005 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (11)
10.8 Nasdaq Delisting Notification (12)
10.9 Amendment 3 to Line of Credit Agreement (13)
10.10 Amendment 4 to Line of Credit Agreement (14)
10.11 Amendment 5 to Line of Credit Agreement (15)
10.12 Amendment 6 to Line of Credit Agreement (16)
14.1 Corporate Code of Business Conduct and Ethics (16)
21. Active Subsidiaries of the Registrant
Name State of Incorporation
Excel/Meridian Data, Inc. Arizona
Fry Guy Inc. Nevada
Alanco/TSI PRISM, Inc.
(formerly Technology Systems
International, Inc.) Arizona
StarTrak Systems, LLC Delaware
31.1 Certification of Robert R. Kauffman, Chairman and Chief Executive
Officer of Alanco Technologies, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of John A. Carlson, Executive Vice President and Chief
Financial Officer of Alanco Technologies, Inc., pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
of Alanco Technologies, Inc., pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1 Audit/Corporate Governance Committee Charter (18)
Footnotes:
(1) Incorporated by reference to Form 10KSB filed September 27, 2001
(2) Incorporated by reference to Form 8-K filed September 27, 2002
(3) Incorporated by reference to Form S-3/A filed November 21, 2004
(4) Incorporated by reference to Form DEFM14A filed April 22, 2002
(5) Incorporated by reference to Form S-8 filed October 22, 1998
(6) Incorporated by reference to Form S-8 filed November 30, 1998
(7) Incorporated by reference to Form S-8 filed November 29, 1999
(8) Incorporated by reference to Form S-8 filed December 14, 2000
(9) Incorporated by reference to Form S-8 filed January 22, 2003
(10) Incorporated by reference to Form S-8 filed February 17, 2005
(11) Incorporated by reference to Form S-8 filed February 2, 2006
(12) Incorporated by reference to Form 8-K filed August 4, 2006
(13) Incorporated by reference to Form 8-K filed March 28, 2005
(14) Incorporated by reference to Form 8-K filed July 6, 2005
(15) Incorporated by reference to Form 8-K filed July 14, 2006
(16) Incorporated by reference to Form 8-K filed July 28, 2007
(17) Incorporated by reference to Form 10QSB filed November 15, 2004
(18) Incorporated by reference to Form 14A filed October 18, 2004
B. Schedules NONE
Exhibits or schedules other than those mentioned above are omitted because
the conditions requiring their filing do not exist or because the required
information is given in the financial statements, including the notes
thereto.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Semple, Marchal & Cooper, LLP, the Company's
independent auditor, for professional services rendered for the audit of the
Company's annual financial statements for the fiscal years ended June 30, 2007
and 2006 and the review of the financial statements included in the Company's
Forms 10-QSB for such fiscal years were approximately $122,300 and $107,100,
respectively.
Financial Information Systems Design and Implementation
There were no fees billed for the professional services described in Paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X rendered by Semple, Marchal & Cooper,
LLP for the fiscal year ended June 30, 2007 and 2006.
All Other Fees
Semple, Marchal & Cooper, LLP billed the Company during fiscal year 2007 and
2006 a total of approximately $12,000 and $11,000, respectively, for tax
preparation and tax consulting services. The Audit Committee has considered
whether the provision of these services is compatible with maintaining the
principal accountant's independence.
Audit Committee Pre-Approval Policies and Procedures
The 2007 and 2006 audit services provided by Semple, Marchal & Cooper were
approved by our Audit/Corporate Governance Committee. The Audit/Corporate
Governance Committee implemented pre-approval policies and procedures related to
the provision of audit and non-audit services. Under these procedures, the
Audit/Corporate Governance Committee pre-approves both the type of services to
be provided by our independent accountants and the estimated fees related to
these services. During the approval process, the Audit/Corporate Governance
Committee considers the impact of the types of services and related fees on the
independence of the auditor. These services and fees must be deemed compatible
with the maintenance of the auditor's independence, in compliance with the SEC
rules and regulations. Throughout the year, the Audit/Corporate Governance
Committee and, if necessary, the Board of Directors, reviews revisions to the
estimates of audit and non-audit fees initially approved.
SIGNATURES
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 TECHNOLOGIES, INC.
(Registrant)
/s/ John A. Carlson
John A. Carlson
Chief Financial Officer
Date: September 27, 2007
EXHIBIT 31.1
Certification of
Chairman and Chief Executive Officer
of Alanco Technologies, Inc.
I, Robert R. Kauffman, certify that:
1. I have reviewed this annual report on Form 10-KSB of Alanco
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the period presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: September 27, 2007
/s/ Robert R. Kauffman
---------------------
Robert R. Kauffman
Chairman and Chief Executive Officer
EXHIBIT 31.2
Certification of
Vice President and Chief Financial Officer
of Alanco Technologies, Inc.
I, John A. Carlson, certify that:
1. I have reviewed this annual report on Form 10-KSB of Alanco
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the period presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: September 27, 2007
/s/ John A. Carlson
---------------------
John A. Carlson
Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification of
Chief Executive Officer and Chief Financial Officer
of Alanco Technologies, Inc.
This certification is provided pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and accompanies this annual report of Form 10-KSB
(the "Report") for the period ended June 30, 2007 of Alanco Technologies, Inc.
(the "Issuer").
Each of the undersigned, who are the Chief Executive Officer and Chief
Financial Officer, respectively, of Alanco Technologies, Inc., hereby certify
that, to the best of each such officer's knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Issuer.
Dated: September 27, 2007
/s/ Robert R. Kauffman
----------------------
Robert R. Kauffman
Chief Executive Officer
/s/ John A. Carlson
----------------------
John A. Carlson
Chief Financial Officer
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Small business issuer caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: September 27, 2007 /s/ Robert R. Kauffman
----------------------
Robert R. Kauffman, CEO,
Chairman of the Board
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert R. Kauffman and John A. Carlson,
and each of them, his true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution for him or in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-KSB Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Robert R. Kauffman Director & September 27, 2007
--------------------- Chief Executive Officer
Robert R. Kauffman
/s/James T. Hecker Director September 27, 2007
------------------
James T. Hecker
/s/Harold S. Carpenter Director September 27, 2007
----------------------
Harold S. Carpenter
/s/Thomas C. LaVoy Director September 27, 2007
------------------
Thomas C. LaVoy
/s/Donald E. Anderson Director September 27, 2007
---------------------
Donald E. Anderson
/s/John A. Carlson Director & September 27, 2007
------------------ Chief Financial Officer
John A. Carlson
/s/Timothy P.Slifkin Director September 27, 2007
--------------------
Timothy P. Slifkin
By /s/ Robert R. Kauffman
Chairman and Chief Executive Officer
Transfer Agent
Computershare Trust Company, Inc.
350 Indiana Street, Suite 800
Golden, CO 80401
303-262-0600
Fax: 303-262-0700