ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Alanco Technologies, Inc. (Stock Symbol: ALAN.OB) 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. As discussed below and in footnotes to the Company’s attached consolidated financial statements, at June 30, 2011 the Company was effectively a holding company without operating entities. The Company had stated in previous filings that its objective was to complete an appropriate merger (possibly a reverse merger) and remain an operating publicly traded company.
In previous SEC filings, Alanco reported three business segments: Data Storage, Wireless Asset Management and RFID Technology. During fiscal year ended June 30, 2009, the Company announced a plan to divest the operations of the Company’s Data Storage segment and reinvest the proceeds in to the remaining operating units. The divestiture plan was expanded during the quarter ended September 30, 2009 when the Company announced its plan to sell its RFID Technology segment. Finally, the plan was expanded further when, on February 23, 2011, the Company entered into a definitive agreement, subject to shareholder approval, to sell its Wireless Asset Management segment. In compliance with the divestiture plan, the Data Storage segment was sold in March 2010 and the RFID Technology segment was sold in August 2010. The sale of the Wireless Asset Management segment was approved by shareholders at the Company’s annual meeting on May 10, 2011, with the transaction closing approximately one week later. As a result, as of June 30, 2011 all segment operations had been sold and the segment’s operating results for the fiscal year ended June 30, 2011 were reported as Discontinued Operations. Prior period activity has been reclassified to report operating segments as discontinued operations and certain balances have been reclassified in the accompanying consolidated financial statements to conform with the current year’s presentation.
RECENT BUSINESS DEVELOPMENTS
Sale of StarTrak Systems, LLC
The operations of StarTrak Systems, LLC (“StarTrak”), a wholly owned subsidiary comprising the Company’s Wireless Asset Management segment, was sold to ORBCOMM Inc. (“ORBCOMM”) effective May 16, 2011. The transaction, valued at closing at approximately $17.7 million in cash, stock and assumption of debt, was structured as an asset purchase whereby ORBCOMM acquired substantially all of StarTrak’s assets and liabilities. The transaction was considered the sale of substantially all of the assets of Alanco and accordingly required shareholder approval. The proposal was approved by shareholders at the annual shareholders meeting held on May 10, 2011 and the transaction closing date was May 16, 2011. (See Footnote 5 to enclosed consolidated financial statements for additional discussion of the transaction.)
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NASDAQ Delisting Notice
The Company announced on May 20, 2011 that it had received notice from the Staff of The NASDAQ Stock Market LLC (the “Staff”) that following Alanco’s May 16, 2011 sale of its subsidiary, StarTrak Systems, LLC (“StarTrak”), to ORBCOMM Inc. (NASDAQ: ORBC), the Staff had concluded that the Company is no longer eligible for continued listing on The NASDAQ Stock Market. The Staff made its determination based on the discretionary authority afforded to NASDAQ under Listing Rule 5101. In reaching its conclusion, the Staff noted that the Company “no longer has any operating business” following the sale of StarTrak. Therefore, notwithstanding the fact that Alanco meets all quantitative requirements for continued listing, the Staff advised Alanco that it would be subject to delisting unless it requested a hearing before a NASDAQ Listing Qualifications Panel (the “Panel”). Accordingly, the Company requested a hearing, scheduled by Nasdaq for June 30, 2011, before the Panel. In accordance with Nasdaq rules, Alanco’s common stock will remain listed on NASDAQ pending the issuance of a decision by the Panel following the hearing. However, there was no assurance that the Panel would grant Alanco’s request for continued listing following the hearing.
NASDAQ Appeal Ruling
On July 25, 2011, the Company announced that it had received a ruling from The NASDAQ Stock Market that the Company’s appeal to the NASDAQ Listing Qualifications Panel (the “Panel”) had been denied and that trading in the Company’s stock would be suspended on The NASDAQ Stock Market at the open of business on Tuesday, July 26, 2011. The Company’s common stock is currently traded on the OTC Bulletin Board (OTCBB), and on the OTCQB™ Market, with quotes available on www.OTCBB.com and www.OTCMarkets.com, respectively.
The NASDAQ trading suspension is based upon NASDAQ Listing Rule 5101, which grants “broad discretionary authority to deny continued listing of the Company’s stock in order to maintain the public’s confidence in The NASDAQ Stock Market.” The NASDAQ staff determined that upon the Company’s sale of its StarTrak Systems subsidiary, on May 16, 2011, Alanco had become a non-operating entity under NASDAQ policy.
Definitive Merger Agreement with YuuZoo Corporation
Alanco announced on June 29, 2011 that it executed a definitive agreement to merge with YuuZoo Corporation (www.yuuzoo.com), a global provider of mobile targeted social networks, targeted advertising and mobile payment systems. The agreement was terminated on September 20, 2011 due to market conditions and our inability to complete due diligence.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in Alanco involves a high degree of risk. In addition to the other information included in this Form 10-K, you should carefully consider the following risk factors in determining whether or not to purchase shares of Alanco Class A Common Stock. These matters should be considered in conjunction with the other information included or incorporated by reference in this filing. This Form 10-K contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places and include statements regarding the intent, belief or current expectations of our management, directors or officers primarily with respect to our future operating performance. Prospective purchasers of our securities are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors. The information set out below, identifies important factors that could cause such differences. See “Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995.”
We may not be able to finalize a business combination. We are continuing our investigation of various possible business combinations. However, there is no assurance that we will be able to arrange or consummate a successful business combination which would allow us to continue as a going concern.
The loss of key personnel would have a negative impact on our business and business combination objectives. Our strategy is reliant on key personnel who understand the merger and acquisition process. We have certain incentives to retain key personnel, but have no assurance that such personnel will remain with the Company on a long-term basis. The loss of the services of those key personnel could have an adverse effect on the business, operating results and financial condition of our company.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Worsening general economic conditions may negatively affect our ability to complete an acceptable business combination and declining stock prices may negatively affect the value of our marketable securities. Previous deterioration in general economic conditions resulted in reduced valuations and a decline in merger and acquisition activities.
Acts of domestic terrorism and war have impacted general economic conditions and may impact our ability to complete a business combination or our ability to operate profitably. On September 11, 2001, acts of terrorism occurred in New York City and Washington, D.C. On October 7, 2001, the United States launched military actions on Afghanistan, and in 2003 launched military attacks on Iraq with ongoing operations in both areas. As a result of those terrorist acts and military actions, there has been a disruption in general economic activity. There may be other consequences resulting from those acts of terrorism, and any others which may occur in the future, including civil disturbance, war, riot, epidemics, public demonstration, explosion, freight embargoes, governmental action, governmental delay, restraint or inaction, quarantine restrictions, unavailability of capital, equipment, personnel, which we may not be able to anticipate. These terrorist acts and acts of war may continue to impact the economy, and in turn, impact our ability to consummate a business combination and may reduce the demand for the products and services produced by the resultant business, which would harm our ability to make a profit.
The Company may not have sufficient capital to meet the liquidity needs to consummate a business combination with an acceptable candidate or otherwise pursue its business plan; and there is no assurance that additional capital can be obtained through the sale of stock or additional financing. Although management cannot assure that future operations will be profitable or that additional debt and/or equity capital will be raised, we believe that, based on our fiscal 2011 operating plan, cash flow and additional funding sources will be adequate to meet our anticipated future requirements for working capital expenditures and scheduled lease payments. We will need to materially reduce expenses, or raise additional funds through public or private debt or equity financing, or both, if the revenue and cash flow elements of our 2011 operating plan are not met. If we need to seek additional financing to meet working capital requirements, there can be no assurance that additional financing will be available on terms acceptable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our business, operating results, financial condition and ability to continue operations will be materially adversely affected.
The majority of our assets are invested in ORBCOMM Inc. Common Stock (NASDAQ: ORBC) Common Stock. Because the consideration we received from ORBCOMM for substantially all of the assets of our subsidiary, StarTrak Systems, LLC, consists of ORBCOMM Common Stock, such stock remains our primary asset. Our agreement with ORBCOMM prevents us from liquidating the ORBCOMM stock at a rate in excess of 12.5% of such stock per month for the one-year period following the closing of sale of the StarTrak transaction. Also, we anticipate selling such stock over a period of time to maximize our return. As long as the ORBCOMM Common Stock constitutes a substantial portion of our assets, fluctuations in the market price of such stock may significantly affect our value.
If we raise additional funds through the sale of stock, our existing Alanco shareholders will experience dilution and may be subject to newly issued senior securities. If additional funds are raised through the issuance of equity securities, the percentage ownership of the then current shareholders of the Company will be reduced, and such equity securities may have rights, preferences or privileges senior to those of the holders of Class A Common Stock.
The loss of key corporate executives would have a negative effect on our Company. Our performance is substantially dependent on the services and performance of our executive officers and key employees. The loss of the services of any of our executive officers or key employees could have a material adverse effect on our business, operating results and financial condition due to their extensive specific knowledge and comprehensive operating plans for the Company. Irrespective of any acquired business operations, our future success will depend on our ability to attract, integrate, motivate and retain qualified technical, sales, operations and managerial personnel. At June 30, 2011, none of our executive officers are bound by an employment agreement, and none are covered by key-man insurance.
We may not be able to regain our NASDAQ listing. Effective July 26, 2011, trading of our Class A Common Stock on the NASDAQ Stock Market was suspended because we do not currently have an operating business. While our business plan is to acquire an operating business, by merger or otherwise, there can be no assurance that we will be able to acquire another operating business, or that we will be able to re-list on NASDAQ or any other exchange, and our stock may continue to be traded on the over the counter bulletin board market.
The Company does not anticipate payment of dividends on Common Stock. We do not anticipate that we will pay cash dividends on our Class A Common Stock in the foreseeable future. The payment of dividends by us will depend on our earnings, financial condition, and such other factors, as our Board of Directors may consider relevant. We currently plan to retain earnings, if any, to provide for the development of our business.
Our articles of incorporation and Arizona law may have the effect of making it more expensive or more difficult for a third party to acquire, or to acquire control of, us. Our articles of incorporation make it possible for our Board of Directors to issue preferred stock with voting or other rights that could impede the success of any attempt to change control of us. Arizona law prohibits a publicly held Arizona corporation from engaging in certain business combinations with certain persons, who acquire our securities with the intent of engaging in a business combination, unless the proposed transaction is approved in a prescribed manner. This provision has the effect of discouraging transactions not approved by our Board of Directors as required by the statute which may discourage third parties from attempting to acquire us or to acquire control of us even if the attempt would result in a premium over market price for the shares of common stock held by our stockholders.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Certain provisions in our Alanco shareholder rights plan may discourage a takeover attempt. We have implemented a shareholder rights plan which could make an unsolicited takeover of our company more difficult. As a result, shareholders holding a controlling block of shares may be deprived of the opportunity to sell their shares to potential acquirers at a premium over prevailing market prices. This potential inability to obtain a premium could reduce the market price of our common stock.
The market price of Alanco Class A Common Stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include:
1. actual or anticipated fluctuations in our operating results;
2. the loss of key management or technical personnel;
3. the outcome of any current or future litigation;
4. changes in our financial estimates by securities analysts;
5. broad market fluctuations;
6. recovery from natural disasters;and
7. economic conditions in the United States or abroad.
Additional Risks if a Business Combination is Consummated
A business combination may be highly dilutive to our existing stockholders. As a result of a business combination transaction, we may issue a substantial number of shares of our common stock and we may experience a change in control, resulting in substantial dilution to our existing shareholders.
Some of the combined company's executive officers or shareholders may collectively beneficially own a majority of the outstanding common stock of the combined company following a business combination, and would then be able to control or exercise significant influence over the outcome of matters to be voted on by the combined company's stockholders. Immediately following a business combination a limited number of persons or entities may collectively beneficially own a significant block of the outstanding common stock of the combined company. Accordingly, such persons or entities may be able to control or exercise significant influence with respect to the election of directors, offers to acquire the combined company and other matters submitted to a vote of the combined company's stockholders.
The combined company may be unable to attract and retain, or have access to, qualified personnel in the markets the combined company would serve, which could adversely affect its results of operations by impairing its ability to grow and provide competitive services. The combined company’s ability to provide its customers with competitive services and grow partially depends on its ability to attract and retain highly motivated people with the skills to serve its customers in a cost effective way. If the combined company is unable to hire or otherwise obtain cost-effective access to skilled personnel in its markets, its operations may suffer. In addition, the combined company will be subject to the risk of management and employee disruption associated with the business combination transaction, including the risk that key technical, marketing and management personnel might not remain employed by the combined company through the consummation of the business combination transaction.
The market price for the combined company's common stock may be highly volatile after the business combination transaction, which could impair the value of the combined company's common stock and result in litigation against the combined company. The price of the combined company's common stock could further decline due to the impact of any of the following factors:
·
failure to meet its sales goals or operating budget;
·
decline in demand for its common stock;
·
revenues and operating results failing to meet expectations of securities analysts or investors in any quarter;
·
downward revisions in operating performance estimates or changes in general market conditions;
·
technological innovations by competitors or in competing technologies;
·
investor perception of its industry or prospects; or
·
general economic trends.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Market fluctuations are often unrelated to operating performance and therefore are beyond our control. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. The combined company may become the target of similar litigation, which could result in substantial costs and divert management's attention and resources.
Resales by the business combinations candidate’s stockholders of shares issued to them in any business combination transaction or by stockholders who purchase securities in new financings may depress the market price of the combined company's common stock. While the combined company may not be required to register for public resale the shares of common stock issued in a business combination transaction, such shares will become salable under Rule 144 under the Securities Act of 1933. Future resales of these shares of common stock, or the perception that such sales could occur, could adversely affect the market price of the combined company's common stock. We cannot assure you as to when, and how many of, those shares will be resold and the effect those sales may have on the market price of the combined company's common stock.
The costs and effects of litigation, investigations or similar matters could adversely affect the combined company's financial position and results of operations. The combined company may be involved from time to time in a variety of litigation, investigations or similar matters arising out of its business. The combined company's insurance may not cover all claims that may be asserted against it, and any claims asserted against them, regardless of merit or eventual outcome, may harm the combined company's reputation. If the ultimate judgments or settlements in any litigation or investigation significantly exceed insurance coverage, they could adversely affect the combined company's financial position and results of operations. In addition, the combined company may be unable to obtain appropriate types or levels of insurance in the future.
Additional Risks Because a Business Combination May Result in a Corporation Becoming Public Through a “Reverse Merger” Process.
Because a business combination candidate may become public by means of a "reverse merger," the combined company may not be able to attract the attention of major brokerage firms. Additional risks may exist since the business combination candidate may become public through a "reverse merger" with us. Securities analysts of major brokerage firms may not provide coverage of such a combined company. We cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of such a combined company in the future.
The business combination transaction may involve a reverse merger of a non-public company into us and the management of such non-public company may become the management of the combined company. As a result, there is no history of compliance with United States securities laws and accounting rules by the management of the combined company. The combined company management may have no experience in managing and operating a United States public company. Any failure to comply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect the combined company’s business, results of operations and financial condition.
Additional Risks if a Business Combination Transaction Is Not Consummated
We have limited cash resources available to continue our operations and our efforts to consummate a business combination transaction. Accordingly, if we are unable to timely consummate a business combination transaction or raise needed capital in the future, we may be unable to fund operating cash shortfalls. We have limited cash resources, and these resources may diminish in the future. Our future capital requirements will depend upon many factors, including our consummation of an appropriate business combination transaction, and the development of new business opportunities, future strategic mergers and/or acquisitions. As of June 30, 2011, we had approximately $783,000 of cash and cash equivalents and $6.6 million of investment assets. Our total cash "burn” rate is estimated to be approximately $70,000 per month.
We have incurred and expect to continue to incur significant costs in connection with the consummation of a business combination transaction. We do not have any debt instruments in place that we could use for future borrowings. Thus, if a business combination transaction is not timely consummated, we may be forced to seek additional capital in order to continue our operations. There is no assurance that such additional capital will be available. We could find it necessary to pursue a plan of complete liquidation and dissolution. In that event, we would incur additional costs related to the disposal of our remaining assets, which would reduce or eliminate the cash available for distribution.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Alanco moved its corporate offices on July 8, 2011 to 7950 E. Acoma Drive, Suite 111, Scottsdale, Arizona 85260, into an approximately 1,500 square foot facility. The new facility is under a thirteen month lease of $1,471 per month (including rental tax) that expires on July 31, 2012.
At June 30, 2011, the Company’s corporate office was located in an approximate 2,000 square foot facility in Scottsdale, Arizona. The space had been part of an approximately 9,800 square foot facility previously leased by Alanco/TSI PRISM, Inc. (“TSI”) under a multiyear lease that expired on July 31, 2011. The TSI lease had been effectively terminated by the sale of TSI assets to Black Creek Integrated Systems Corp. in August 2010. Subsequent to that sale, the landlord entered into a new lease with Black Creek and at June 30, 2011, Alanco was using approximately 2,000 square feet under a month to month lease.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings - The Company’s subsidiary, StarTrak Systems, has been made a defendant concerning certain patent infringement claims as follows:
Arrivalstar S.A., et all. v. StarTrak Systems, LLC, et al. Case No.: 4:10-CV-0033. This action was a patent infringement action venued in the United States District Court for the Northern District of Indiana. StarTrak believes that the plaintiff’s patents are invalid due to prior art, based, in part, upon the substantial commercial activity concerning the patent claims long before the patents were applied for or issued. However, StarTrak has resolved the action by agreeing to pay $70,000 for fourteen monthly payments of $5,000 each, thus avoiding substantially greater expenses that would be incurred in defending the action. This liability has been assumed by ORBCOMM.
Innovative Global Systems LLC v. StarTrak Systems, LLC, et al. Case No.: 6:10-CV-00327. This action is another patent infringement action venued in the United States District Court for the Eastern District of Texas. Again, StarTrak believes that the plaintiff’s patents are invalid due to prior art, based, in part, upon the substantial commercial activity concerning the patent claims long before the patents were applied for or issued. Similarly, StarTrak has resolved the action by agreeing to pay $77,500, with a like amount to be paid by ORBCOMM, thus avoiding substantially greater expenses that would be incurred in defending the action. See Note 5 - Sale of Operating Segments in the consolidated financial statements for additional discussion on escrow accounts.
StarTrak has been served with a Third-Party Complaint by Great American Lines, Inc. and related parties in a lawsuit against them by certain freight shippers in the US District Court for the District of New Jersey, being Case No. 3:10-ev-02023-JAP-TJB. The main case against Great American Lines involves allegations concerning a stolen trailer containing freight owned by the plaintiffs resulting in a cargo loss estimated by Great American Lines at $8.8 million. Great American Lines has brought its Third-Party Complaint against StarTrak alleging that StarTrak breached its contract with Great American Lines to allow Great American Lines to track its trailer and for indemnity. StarTrak has tendered its defense in the lawsuit to its insurance company, which has accepted defense of the action under a reservation of rights declaration. The Company’s management believes that the suit is without merit and the Company will vigorously defend itself in the matter.
The Company may also, from time to time, be involved in litigation arising from the normal course of business. As of June 30, 2011 there was no other such litigation pending deemed material by the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 10, 2011 Alanco Technologies, Inc. held its Annual Meeting of Shareholders at the Company’s offices in Scottsdale, Arizona for the purpose of considering four proposals. The Company’s Definitive Proxy Statement, outlining details of the proposals was filed with the SEC on April 11, 2011. The following proposals were voted upon by 4,669,047 shares, or 67.6% of the 6,903,954 shares eligible to vote, constituting a quorum. The final voting results by proposal are listed below.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Proposal 1, Election of Directors, resulted in the election of three independent and two non-independent directors. Proposals 2 and 3 require a majority of shares voted for approval. The “% For” represents the affirmative votes for the proposal divided by the total number of shares voted.
(1) ELECTION OF DIRECTORS.
For:
4,120,988
Against:
510,559
Abstain:
37,500
% For:
88.3%
(2)
RATIFICATION OF RE-APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
For:
4,616,774
Against:
2,646
Abstain:
49,627
% For:
98.9%
(3) APPROVAL OF THE ALANCO 2011 STOCK INCENTIVE PLAN.
For:
3,660,817
Against:
1,002,029
Abstain:
6,201
% For:
78.4%
Proposal 4 below, requires a majority of the 6,903,954 shares eligible to vote. The “% For” for Proposal 4 represents the affirmative votes for the proposal divided by the total number of shares eligible to vote.
(4)
APPROVAL TO SELL SUBSTANIALLY ALL OF THE ASSETS OF THE COMPANY BY SELLING SUBSTANTIALLY ALL THE ASSETS OF STARTRAK SYSTEMS, LLC, A WHOLLY OWNED SUBSIDIARY OF THE COMPANY, TO ORBCOMM INC. PURSUANT TO TERMS AND CONDITIONS OF THE ASSET PURCHASE AGREEMENT AMONG THE COMPANY, STARTRAK, AND ORBCOMM (This proposal requires 50% approval by the 6,903,954 shares eligible to vote.)
For:
4,637,151
Against:
27,761
Abstain:
4,135
% For:
67.2%
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES
Alanco's common stock is traded on the OTC bulletin board market under the stock symbol “ALAN.OB”.
The following table sets forth high and low sale prices adjusted for the reverse stock split for each fiscal quarter for the last two fiscal years. Such quotations represent inter-dealer prices without retail mark-ups, markdowns, or commissions, as reported when the Company traded on the NASDAQ Stock Market and, accordingly, may not represent actual transactions.
As of June 30, 2011 and 2010 Alanco had approximately 400 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 1,421,300 shares of its Class A Common Stock during fiscal year ended June 30, 2011. Of those shares, 466,900 shares were issued in connection with the exercise of employee stock options and warrants, 110,800 were issued as payment of Stock dividends, 298,400 were issued in payment of previously expensed and deferred compensation to certain officers and directors, 144,700 were issued in conversion of preferred stock to common, 386,300 were issued in private offerings to accredited investors, 13,100 shares were issued for services and 1,100 shares were issued as principal and interest on notes.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Alanco has paid no Common Stock cash dividends and has no current plans to do so. Holders of Series B Convertible Preferred Stock received “paid-in-kind” dividends during fiscal year ended June 30, 2011 of 11,400 shares, valued at $114,800. Holders of Series D and Series E Convertible Preferred Stock received, in addition to the 110,800 shares of common stock discussed above, cash dividends of $51,700 for the fiscal year ended June 30, 2011.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company refers to Alanco Technologies, Inc. and its wholly owned subsidiaries. As discussed below and in footnotes to the Company’s attached consolidated financial statements, at June 30, 2011 the Company was effectively a holding company without operating entities. The Company had stated in previous filings that its objective was to complete an appropriate merger (possibly a reverse merger) and remain an operating publicly traded company.
In previous SEC filings, Alanco reported three business segments: Data Storage, Wireless Asset Management and RFID Technology. During fiscal year ended June 30, 2009, the Company announced a plan to divest the operations of the Company’s Data Storage segment and reinvest the proceeds in to the remaining operating units. The divestiture plan was expanded during the quarter ended September 30, 2009 when the Company announced its plan to sell its RFID Technology segment. Finally, the plan was expanded further when, on February 23, 2011, the Company entered into a definitive agreement, subject to shareholder approval, to sell its Wireless Asset Management segment. In compliance with the divestiture plan, the Data Storage segment was sold in March 2010 and the RFID Technology segment was sold in August 2010. The sale of the Wireless Asset Management segment was approved by shareholders at the Company’s annual meeting on May 10, 2011, with the transaction closing approximately one week later. As a result, as of June 30, 2011 all segment operations had been sold and the segment’s operating results for the fiscal year ended June 30, 2011 were reported as Discontinued Operations. Prior period activity has been reclassified to report operating segments as discontinued operations and certain balances have been reclassified in the accompanying consolidated financial statements to conform with the current year’s presentation.
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 assumptions concerning classification and valuation of investments, valuation of contingent and non-cash consideration received in the sale of the Wireless Asset Management segment, the estimated fair value of stock based compensation, expense recognition, realization of deferred tax assets and accruals and contingencies. 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 materially 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 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 reclassification and valuation of marketable securities and fair value of financial instruments.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Results of Operations
In compliance with the Company’s previously announced divestiture plan and in accordance with accounting principles generally accepted in the United States of America, the Company is not reporting operating revenues for fiscal years ended June 30, 2011 and 2010 because, as of June 30, 2011 all business segments had been sold. Fiscal years ended June 30, 2011 and 2010 operating results for the business segments are reported as Discontinued Operations.
Operating Expense
Operating expense for the twelve months ended June 30, 2011 was $1,179,800, an increase of $233,500, or 24.7%, compared to the $946,300 reported for the twelve months ended June 30, 2010. The increase was due to increases in salary compensation and increases in stock based compensation related to the repricing in fiscal year 2011 of certain stock options. The Company had reduced executive salary levels during fiscal year 2010 to conserve cash and had reinstated the original compensation levels on July 1, 2010 under the agreement that the salary increases would be deferred until Company shareholders had an opportunity to approve the 2011 Stock Incentive Plan. That plan would allow the deferred amounts to be paid in Class A Common Stock of the Company. The 2011 Stock Incentive Plan was approved by the shareholders at the Annual Meeting of Shareholders on May 10, 2011 with the stock payments completed by June 30, 2011. Amortization of stock-based compensation (Black Scholes value of granted and repriced stock options) increased $91,600, or 84.4%, to $200,100, compared to $108,500 reported for the previous year due to the re-pricing of certain stock options in September 2010. Depreciation expense was $1,000 in fiscal 2011 compared to $800 in fiscal 2010.
Other Income and Expense
Net interest expense decreased $412,200, or 47.8%, to $450,100 for the twelve months ended June 30, 2011 compared to net interest expense of $862,300 for the twelve months ended June 30, 2010. The decrease in interest expense resulted from reductions in average interest rates paid and average borrowing during the year.
Loss from Continuing Operations
Loss from continuing operations for the twelve months ended June 30, 2011 was ($1,839,500), a 4.3%, or $81,900 improvement when compared to the loss of ($1,921,400) for the twelve months ended June 30, 2010. The improvement was due to decreases in interest expense of $412,200 offset by increases in operating loss.
Discontinued Operations
Total Consolidated Income from Discontinued Operations for the twelve months ended June 30, 2011 was $1,781,700 compared to a loss of ($7,206,000) for the twelve months ended June 30, 2010, an improvement of $8,987,700. $6,320,900 of the improvement resulted from reduced losses in discontinued operations, reporting a consolidated loss of ($885,100) in the current fiscal year compared to a loss of ($7,206,000), including ($4,873,700) of goodwill impairment charges, reported for the prior fiscal year ended June 30, 2010; $1,294,000 of the improvement was due to a gain on sale of Assets Held for Sale reported for year ended June 30, 2011, compared to zero reported on Sale of Assets Held for Sale in the prior year; and finally, $1,372,800 of the improvement resulted from the income recognized on dissolution of Alanco/TSI PRISM, Inc. (“TSI”), previously classified as discontinued operations. The assets of TSI were sold in a transaction discussed in the attached audited financial statements with proceeds of the sale going to secured lenders; therefore, TSI does not have assets available to satisfy the $1,372,800 in recorded liabilities at time of dissolution of the subsidiary. The stock of the subsidiary was sold in June 2011 to an independent third party for an immaterial amount. Given these facts and circumstances and discussion with legal counsel, Alanco believes that it has no exposure to these liabilities. See Note 5 - Sale of Operating Segments for additional discussion of the sale of segment operations.
The following table is a summary of the results of discontinued operations and other financial information by major segment:
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Discontinued Operations Net Sales
Net sales reported by the Wireless Asset Management segment through May 16, 2011 of $13,740,800, represented most of the consolidated reported sales for fiscal year ended June 30, 2011 for discontinued operations. The $13,740,800 reported sales for the ten and one half months ended May 16, 2011 was a decrease of $891,600, or 6.1%, when compared to Wireless Asset Management segment sales reported for the entire twelve months ended June 30, 2010 of $14,632,400; however, comparing the average monthly net sales in fiscal 2011 to fiscal 2010, average monthly net sales actually increased by approximately $90,000, or 7.4%, over the average monthly sales for fiscal year ended June 30, 2010. The Data Storage segment was sold in March of fiscal 2010 and therefore had no reported revenues for fiscal 2011. The RFID Technology segment was sold in August 2010 and for fiscal year ended June 30, 2011 reported only $38,700 in sales compared to $829,400 reported in the comparable twelve months of the prior fiscal year.
Discontinued Operations Gross Profit
Consolidated gross profit from discontinued operations for the year ended June 30, 2011 amounted to $5,580,000, a decrease of $170,900, or 3.0%, compared to $5,750,900 in gross profit reported for fiscal year 2010. The Wireless Asset Management portion of the gross profit amounted to $5,566,500, representing an increase of $209,700, or 3.9%, compared to $5,356,800 reported for the year ended June 30, 2010. The increase in Wireless Asset Management portion of gross profit reflects improved gross margins realized during the ten and one half months reporting period in fiscal 2011 compared to gross margins realized for the twelve month reporting period in the prior fiscal year. The net decrease in gross profit was due to the sale of the RFID Technology segment in early fiscal year 2011 and the Data Storage segment in fiscal year 2010 as previously discussed.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Discontinued Operations Selling, General & Administrative Expense
Wireless Asset Management segment reported total selling, general, and administrative (“SG&A”) expenses, of $6,351,800, an increase of $357,600, or 6.0%, compared to $5,994,200 reported for the prior year. The increase was primarily due to higher selling and engineering costs compared to the prior year. SG&A comparisons for the RFID and Data Storage segments are not relevant due their previous discussed segment sales.
The Company recorded, during fiscal year ended June 30, 2010, an impairment charge of $4.5 million against the goodwill value of the RFID Technology segment in recognition of reduced value substantiated by the terms of the August 2010 sale of the RFID Technology segment. The Data Storage segment also recorded a $373,700 impairment charge against Data Storage segment goodwill in fiscal year 2010 in recognition of reduced segment values.
Net Loss
Net loss for the year ended June 30, 2011 was ($57,800) compared to a loss of ($9,127,400). The $9,069,600 improvement resulted from improvements in discontinued operations as discussed above.
Dividends
Preferred stock dividend expense for the twelve months ended June 30, 2011 was $268,700, a decrease of $116,600, or 30.3%, compared to the $385,300 in preferred stock dividends recorded in the twelve months ended June 30, 2010. The decrease was due to the conversion of convertible preferred shares into Class A Common Shares, the acquisition and retirement of 500,000 shares of Series E Convertible Preferred Shares from ORBCOMM who submitted the shares as additional consideration in the purchase of StarTrak and the retirement of preferred stock outstanding through an exchange offer whereby the Company exchanged the remaining Series D and Series E convertible Preferred Stock for ORBCOMM Series A preferred stock acquired in the sale of StarTrak to ORBCOMM. At June 30, 2011, no Series D and Series E preferred stock remained outstanding.
Net Loss Attributable to Common Shareholders
Net Loss Attributable to Common Shareholders for the twelve months ended June 30, 2011 amounted to ($326,500), or ($.06) per share, an improvement of $9,186,200 when compared to a loss of ($9,512,700), or ($2.22) per share, reported in the twelve months ended June 30, 2010. The improvement is reflective of the Company’s divestiture plan resulting in the sale of its RFID Technology and Wireless Asset Management segments during the current fiscal year.
Other Comprehensive Income
The Company reported market value gain on securities held during the twelve months ended June 30, 2011 of $466,500. The marketable securities consisted of ORBCOMM (NASDAQ: ORBC) Common Stock that the Company received in the sale of the assets of its StarTrak subsidiary to ORBCOMM. The amount represents the increase in market value between the closing of the May 16, 2011 sale transaction of $2.91 per share and the $3.13 per share market value at June 30, 2011.
Liquidity and Capital Resources
The Company’s current assets exceeded its current liabilities by $7,028,400 at June 30, 2011, representing a current ratio of 13.1 to 1. At June 30, 2010 the Company's current assets exceeded current liabilities by $9,983,300 and reflected a current ratio of 1.95 to 1. The improvement in current ratio at June 30, 2011 versus June 30, 2010 resulted from the assets received and debt paid in the Company’s sale of its StarTrak Systems, LLC subsidiary to ORBCOMM Inc.
Net cash used in continuing operations for the fiscal year ended June 30, 2011 was ($1,386,500) compared with net cash used in operating activities for the prior fiscal year of ($3,686,700). The decrease of $2,300,200 resulted from a significant reduction in loss from discontinued operations in fiscal year ended June 30, 2011 compared to the prior fiscal year. See below for management's discussion of major items affecting the Consolidated Statement of Cash Flows.
Consolidated accounts receivable at June 30, 2011 was $149,900 compared to no accounts receivable at June 30, 2010 and represents amounts due the Company related to the sale of its StarTrak Systems, LLC subsidiary.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Net cash provided from investing activities during the current year was $3,026,600, an increase of $3,002,300 compared to net cash provided in investing activities in fiscal 2010 of $24,300. The current year increase was due primarily to the sale of the Company’s Wireless Asset Management and RFID Technology segments.
Net cash used in financing activities during fiscal year ended June 30, 2011 amounted to ($1,257,400), a decrease of $4,906,800 compared to net cash provided by financing activities of $3,649,400 for the fiscal year ended June 30, 2010. During fiscal year 2010, the Company raised over $3.1 million through the sale of preferred stock. During the current fiscal year ended June 30, 2011, the Company repaid net borrowings by $2,427,900 compared to increase in net borrowing for the year ended June 30, 2010 of $264,400.
At June 30, 2011, the Company reported approximately $6.6 million in ORBCOMM Inc. (NASDAQ: ORBC) Common Stock which it received as part of the Company’s sale of its StarTrak Systems, LLC subsidiary in May 2011. See Note 6 - Marketable Securities - Restricted to the consolidated financial statements for additional discussion on the ORBCOMM investment.
Although management cannot assure that a future operation will be acquired, or that it 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 working capital will provide adequate capital resources to maintain operations as they currently exist for the next year. If additional working capital is required during fiscal 2012 due to an acquisition or merger 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. 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets As of June 30, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations For the Years Ended June 30, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended June 30, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Shareholders' Equity
For the Years Ended June 30, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows For the Years Ended June 30, 2011 and 2010. . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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, 2011 and 2010, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' equity, 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 financial statements based on our audits.
We conducted our audits in accordance with the 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 included 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated 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, 2011 and 2010 and the results of its operations, comprehensive income (loss), changes in shareholders' equity, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Semple, Marchal & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
October 12, 2011
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO 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”) sold substantially all of the assets and certain liabilities of its remaining operations (Alanco/TSI PRISM, Inc. and StarTrak Systems, LLC) during fiscal year 2011 and at June 30, 2011 the Company was a holding company without operating entities. The Company has stated in previous filings that its objective is to complete a merger (possibly a reverse merger) and remain an operating publicly traded company. To that objective, on June 29, 2011 the Company announced that it had signed a definitive merger agreement with YuuZoo Corporation (a private company with corporate offices in Singapore), subject to the completion of due diligence and shareholder approval of both companies. The agreement was terminated on September 20, 2011 due to market conditions and Alanco’s inability to complete its due diligence. Alanco is continuing its search for merger and/or acquisition candidates.
Principles of Consolidation - These consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (GAAP). The consolidated financial statements for the years ended June 30, 2011 and 2010 include, where appropriate, the accounts of Alanco Technologies, Inc. and its wholly-owned subsidiaries, Alanco/TSI PRISM, Inc. (“ATSI”), Excel/Meridian Data, Inc. (“Excel”), Fry Guy Inc. (“Fry Guy”) and StarTrak Systems, LLC (“StarTrak”) (collectively, the “Company”). The operating results for ATSI, Excel and StarTrak for both fiscal years 2011 and 2010 are presented as discontinued operations. 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.
Reclassifications - Certain balances have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation.
Cash Equivalents - The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
Accounts Receivable - The Company historically provided for potentially uncollectible receivables by use of the allowance method. An allowance for doubtful accounts is provided based upon a review of the individual accounts outstanding and the Company's prior history of uncollectible accounts. At June 30, 2011, the $149,900 accounts receivable balance was due from StarTrak, and is an amount which has been specifically assumed by the buyer of StarTrak and no allowance for doubtful accounts has been recorded.
Marketable Securities - The Company determines the appropriate classification of its investments in marketable equity securities at the time of acquisition and reevaluates such determinations at each balance sheet date. Marketable securities are classified as held to maturity when the Company has the positive intent and ability to hold securities to maturity. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with the unrealized gains and losses recognized in earnings. Marketable securities not classified as held to maturity or as trading, are classified as available for sale, and are carried at fair market value, with the unrecognized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in shareholders’ equity. The Company has classified all of its marketable securities as available for sale.
The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market.
Fair Value of Financial Instruments - The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. The Accounting Standards Codification (“ASC”) prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1 - unadjusted quoted prices for identical assets or liabilities traded in active markets, Level 2 - observable inputs other than quoted prices included within Level 1 such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and Level 3 - unobservable inputs in which little or no market
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
activity exists that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions that market participants would use in pricing. The Company measures and discloses its investments in marketable securities, which are classified as available for sale, at fair value on a recurring basis, in accordance with the ASC. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and notes payable approximate fair value given their short-term nature and borrowing rates currently available to the Company for loans with similar terms and maturities.
Furniture and Office Equipment - Furniture and Office Equipment are stated at cost, net of accumulated depreciation, of $6,700 and $900 at June 30, 2011 and 2010, respectively. Depreciation is computed over the estimated useful lives of the assets using the straight-line method, generally over a 3 to 10-year period. Currently all furniture and office equipment is being amortized over 3 years. Expenditures for ordinary maintenance and repairs are charged to expense as incurred while betterments or renewals are capitalized. 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. Related depreciation expense for the years ended June 30, 2011 and 2010, was $1,000 and $800, respectively.
Goodwill and Other Intangible Assets - ASC requires the use of the purchase method of accounting for all business combinations. It also provides guidance on purchase accounting related to the recognition of intangible assets. The ASC requires that goodwill and identifiable acquired intangible assets with indefinite useful lives be tested for impairment annually and whenever events or circumstances occur indicating that goodwill might be impaired. The ASC 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 ASC.
The Company sold its remaining business segments during the fiscal year ended June 30, 2011, thereby eliminating all goodwill and intangible assets as of June 30, 2011. See Footnote 5 - Sale of Operating Segments for additional discussion of segment sales. During previous fiscal years, the Company had performed an annual goodwill impairment assessment which involved estimating the fair value of the reporting unit and comparing it with the carrying amount. The Company determined the carrying value of each reporting unit by assigning assets and liabilities, including the existing goodwill and intangible assets, to the reporting units. If the carrying amount of the reporting unit exceeded its fair value, additional steps were followed to recognize a potential impairment loss. Calculating the fair value of the reporting units required significant estimates and assumptions by management. The Company estimated the fair value of its reporting units based on independent third party appraisals or sales of the reporting units’ assets.
During fiscal year ended June 30, 2010, the Company recorded a $4,873,700 impairment adjustment to the carrying amount of its goodwill. $4.5 million was recorded against the carrying value of Alanco/TSI PRISM, Inc. with the balance recorded against the carrying value of Excel/Meridian Data, Inc. See Footnotes 3 - Assets Held for Sale and Liabilities Related to Assets Held for Sale and Footnote 4 - Discontinued Operations for additional discussion.
Intangible assets consist of goodwill, the excess of purchase price over fair value of net assets acquired and other intangible assets, including cost of licenses, patents, developed software, etc. See Impairment of Intangibles and Other Long-Lived Assets below for additional discussion of valuation for Intangible Assets.
Other intangible assets consist of the following:
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The amortization expenses for aggregate other intangible assets for the fiscal years ended June 30, 2011 and 2010 were $376,800 and $431,000, respectively.
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. To the extent that the Company does not consider it more likely than not, that a future tax assets will be recovered, it provides a valuation allowance against the excess.
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 estimates and assumptions concerning the classification and valuation of investments, valuation of contingent and non-cash consideration received in the sale of the Wireless Asset Management segment, the estimated fair value of stock based compensation, expense recognition, realization of deferred tax assets and accruals and contingencies. 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 Intangibles and Other Long-Lived Assets - The Company’s policy is to perform an assessment for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable or for goodwill, at least on an annual basis. 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. Impairment charges recorded during the fiscal year ended June 30, 2010 were $4,873,700. No impairment charge was recorded in fiscal year ended June 30, 2011.
Income (Loss) Per Share - The income (loss) per share (“EPS”) is presented in accordance with the provisions of the ASC. 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 2011 and 2010, as the Company had losses from operations during both years and therefore the effect of all potential common stock equivalents is antidilutive (reduces loss per share). Stock options representing 638,400 shares of Class A Common Stock were outstanding at June 30, 2011 with exercise prices ranging between $1.50 and $20.00. The weighted average exercise price for all outstanding options was $1.62. Stock warrants representing 201,100 Class A Common Shares were outstanding at June 30, 2011 with exercise prices ranging between $1.92 and $14.40. The weighted average exercise price was $5.77.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At June 30, 2011, Preferred Stock outstanding included 122,600 shares of Series B Convertible Preferred Stock with a stated value per share of $10.00, which are convertible into Class A Common shares at a ratio of .65 shares of common stock for each share of Series B Preferred. In addition, $28,000 of a note due to an officer is convertible at $2.24 per share, or 12,500 shares of Class A Common Stock.
Stock Options Plans - The Company has stock-based compensation plans and effective July 1, 2006 the Company adopted the fair value recognition provisions of ASC. Stock-based compensation expense for all stock-based compensation awards granted after June 30, 2006 is based on the grant date fair value estimated in accordance with the provisions of ASC. 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:
·
Expected term for current year grants was determined under the simplified method using an average of the contractual term and vesting period of the award as appropriate statistical data required to properly estimate the expected term was not available. Expected term for current year option modifications was determined based upon the remaining contractual term;
·
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, and contemplation of future activity;
·
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,
·
Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential forfeitures.
Concentrations of Credit Risks - The Company invests its excess cash in short term bank investments that in some cases exceeds the maximum FDIC insurance amount. At June 30, 2011, deposits in excess of FDIC insured limits amounted to $153,100. The Company currently has a substantial amount of its assets invested in ORBCOMM Common Stock, received as partial consideration in the sale of Wireless Asset Management segment. Although the Company performed due diligence during the negotiations with ORBCOMM and believes that ORBCOMM Common Stock is a good investment, no assurance can be made that the stock will maintain its value. See Footnote 6 - Marketable Securities - Restricted for additional discussion of the investment.
Segment Information - The ASC 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. See Note 4 - Discontinued Operations for further information related to the Company’s segments classified as discontinued operations.
Reverse Stock Split - The Company announced on August 26, 2010 that the Board of Directors had elected to effect a 1 for 8 reverse split that was effective on Friday, August 27, 2010. 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 eight (8) shares of the Company’s Class a Common Stock outstanding at the time of the reverse split was automatically reclassified and changed into one share of common stock, and the total number ofcommon shares outstanding was reduced from approximately 41.7 million shares to approximately 5.2 million shares, post-split. The reverse stock split resulted in the same adjustment to the Company’s outstanding stock options and securities reserved for issuance under its current incentive plans. 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 Consolidated Financial
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Statements, the Notes to the Consolidated Financial Statements and the calculation of the weighted average common shares outstanding and loss per share for all periods presented to reflect the reverse stock split.
Recent Accounting Pronouncements - With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the twelve months ended June 30, 2011, that are of significance, or potential significance, to us.
In April 2011, the FASB issued guidance which addresses agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The guidance is effective for the first interim or annual period on or after December 15, 2011. The Company is currently assessing the impact of this guidance on its financial position and results of operations.
In May 2011, the FASB issued guidance which applies to measurement and disclosure of fair value of assets, liabilities, or instruments in shareholder’s equity. The guidance is effective for the first interim or annual period beginning on or after December 15, 2011 and does not permit early application. The Company is currently assessing the impact of this guidance on its financial position and results of operations.
In June 2011, the FASB issued guidance on the reporting of comprehensive income. The guidance is effective for the first interim or annual period beginning on or after December 15, 2011 and early adoption is permitted. The Company has adopted the guidance which had no effect on its financial position and results of operations.
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.
Assumptions for awards of options granted during the years ended June 30, 2011 and 2010 were:
Assumption
Awards Granted in the Years Ended
June 30, 2011 June 30, 2010
Dividend yield 0% 0%
Expected volatility 62% 62%
Weighted-average volatility 62% 62%
Risk-free interest rate 2% - 4 % 4%
Expected life of options (in years) 2.0 - 3.75 3.75
Weighted average grant-date Black Scholes calculated fair value $0.61 $1.04
The following table summarizes the Company’s stock option activity during fiscal year 2011:
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company issued new shares upon the exercise of the 210,600 stock options exercised in the fiscal year ended June 30, 2011. As of June 30, 2011, all Black Scholes values related to above stock
options had been expensed.
3. ASSETS HELD FOR SALE AND LIABILITIES RELATED TO ASSETS HELD FOR SALE
In previous SEC filings, Alanco reported three business segments: Data Storage, Wireless Asset Management and RFID Technology. During fiscal year ended June 30, 2009, the Company announced a plan to divest the operations of the Company’s Data Storage segment and reinvest the proceeds in to the remaining operating units. The divestiture plan was expanded during the quarter ended September 30, 2009 when the Company announced its plan to sell its RFID Technology segment. Finally, the plan was expanded further when, on February 23, 2011, the Company entered into a definitive agreement, subject to shareholder approval, to sell its Wireless Asset Management segment. In compliance with the divestiture plan, the Data Storage segment was sold in March 2010 and the RFID Technology segment was sold in August 2010. The sale of the Wireless Asset Management segment was approved by shareholders at the Company’s annual meeting on May 10, 2011, with the transaction closing approximately one week later. As a result, as of June 30, 2011 all segment operations had been sold and the segment’s operating results for the fiscal year ended June 30, 2011 were reported as Discontinued Operations. Prior period activity has been reclassified to report operating segments as discontinued operations and certain balances have been reclassified in the accompanying consolidated financial statements to conform with the current year’s presentation.
In accordance with the divestiture plan, the Data Storage segment was sold in March 2010, the RFID Technology segment was sold in August 2010 and the sale of the Wireless Asset Management segment was approved by shareholders at the Company’s annual meeting on May 10, 2011, with the sale effective May 16, 2011. As a result, all segment operations were reported as Discontinued Operations for the years ended June 30, 2011 and 2010. Accordingly, at June 30, 2011 there were no “Assets Held for Sale” or “Liabilities Related to Assets Held for Sale”. Assets Held for Sale as of June 30, 2010 are presented in the following table and consist of the RFID Technology segment, remaining assets and liabilities of the Data Storage segment and the Wireless Asset Management segment. The reclassification of those segment's assets and liabilities to “Assets Held for Sale” and “Liabilities Related to Assets Held for Sale” does not affect the reported net loss for the periods presented.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets Held for Sale and Liabilities Related to Assets Held for Sale at June 30, 2010 consisted of the following:
4. DISCONTINUED OPERATIONS
The following table is a summary of the results of discontinued operations and other financial information by major segment:
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. SALE OF OPERATING SEGMENTS
Sale of StarTrak Systems, LLC Operations - Wireless Asset Management segment
The operations of StarTrak Systems, LLC (“StarTrak”), a wholly owned subsidiary comprising the Company’s Wireless Asset Management segment, was sold to ORBCOMM Inc. (“ORBCOMM”) effective May 16, 2011. The transaction was structured as an asset purchase whereby ORBCOMM acquired substantially all of StarTrak’s assets and liabilities. (The Asset Purchase Agreement was included in the definitive proxy statement filed on April 11, 2011.) The transaction was considered the sale of substantially all of the assets of Alanco and accordingly required shareholder approval. The proposal was approved by shareholders at the annual shareholders meeting held on May 10, 2011 and the transaction closing date was May 16, 2011.
Consideration Received - Total transaction consideration payable at close, including escrowed amounts as required by the agreement, for substantially all of the assets of StarTrak is equal to an aggregate face amount of approximately $17.7 million in cash, ORBCOMM Common and Series A Preferred Stock, Alanco Common and Series E Preferred Stock and the assumption of debt. Consideration consists of the following:
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1.
Cash consideration in an amount equal to two million dollars ($2,000,000) less any amount due under the secured loan referred to in 3 below;
2.
ORBCOMM’s acquisition and discharge of the Anderson Trust secured debt in the principal amount of $3,900,000;
3.
Cancellation and termination of all outstanding obligations of Alanco and StarTrak to ORBCOMM under the Secured Promissory Note (as defined below), including the then outstanding principal amount of $300,000 plus interest and fees, if any, due thereunder as of the closing date;
4.
Delivery to Alanco of 500,000 shares of Series E Convertible Preferred Stock of Alanco having a face amount of $2,250,000;
5.
Delivery to Alanco of 1,212,748 shares of Alanco Class A Common Stock with a closing value of $1.03 per share;
6.
Issuance and delivery to Mellon Investor Services LLC, as escrow agent, (“Mellon”) of 249,917 shares of ORBCOMM common stock (“ORBCOMM Stock”) registered in the name of Alanco and valued at closing at $2.91 per share, which escrowed shares will be available to pay for half of the out of pocket costs incurred as a result of certain litigation currently pending against StarTrak;
7.
The issuance and delivery to Mellon, as escrow agent of 166,611 shares of ORBCOMM Stock, valued at closing at $2.91 per share, registered in the name of Alanco, which escrowed shares will be available to pay for a portion of certain product warranty costs;
8.
The issuance and delivery to Alanco of 1,820,583 shares of ORBCOMM Stock, valued at closing at $2.91 per share;
9.
The issuance and delivery to Alanco of 183,550 shares of Series A Perpetual Convertible Preferred ORBCOMM stock (“ORBCOMM Series A”) with a face value of $10 per share, entitled to a 4% annual paid-in-kind dividend and each such share convertible into 1.666 shares of ORBCOMM Stock; and
10.
Assumption by ORBCOMM of certain specified liabilities, generally consisting of liabilities arising after the closing date and liabilities reflected in the closing Working Capital Adjustment (“WCA”).
Escrow accounts - The escrow account for 249,917 shares (number 6 above) of ORBCOMM Common Stock, established under the escrow agreement described above, provides for the availability of ORBCOMM shares to pay for half of the out of pocket costs that may be incurred as a result of certain litigation pending against StarTrak at the time of the closing. Subsequent to the closing, a settlement was reached among the litigants and ORBCOMM notified Alanco that its half of the settlement cost, including fees and expenses, amounted to approximately $100,000. Under the escrow agreement, shares returned to ORBCOMM in payment of the litigation costs would be valued at $3.001 per share; therefore 33,322 shares would be returned to ORBCOMM in settlement of the litigation costs. Upon distribution of the shares to ORBCOMM from the escrow account, the remaining shares would be distributed to Alanco. Final distribution of the escrow shares is pending a review by Alanco of legal fees and expenses included by ORBCOMM in the calculations. We expect all remaining shares under this escrow agreement to be distributed by October 31, 2011. To recognize at June 30, 2011 the potential return of ORBCOMM shares under this agreement, Alanco has reduced the balance of the Marketable Securities - Restricted by the value of 33,322 shares.
The second escrow account in the amount of 166,611 shares of ORBCOMM common stock, established under item 7 above, provides for the availability of ORBCOMM shares to pay for half of certain product warranty costs incurred during the period March 1, 2011 to April 30, 2012, but only to the extent total warranty costs during the period exceed $600,000. Under the escrow agreement, shares returned to ORBCOMM in payment of those warranty costs would again be valued at $3.001 per share. Upon distribution of the shares to ORBCOMM from the escrow account, the remaining shares would be distributed to Alanco. To recognize at June 30, 2011 the potential return of ORBCOMM shares under this agreement, Alanco has reduced the balance of the Marketable Securities - Restricted by the value of 83,306 shares. The 83,306 shares reduction is based on management's best estimate of the warranty costs at June 30, 2011. The ultimate number of shares of ORBCOMM Common Stock to be returned to ORBCOMM in the final settlement is currently undeterminable. Final distribution under this escrow agreement is anticipated to be completed by April 30, 2012, after the warranty costs have been determined for the twelve month period ended April 30, 2012.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Working Capital Adjustment - The Agreement also provided compensation for changes in working capital between November 30, 2010 and May 31, 2011, the measurement date, determined in accordance with GAAP consistently applied. If working capital, defined as current assets minus current liabilities less long-term deferred revenue, increased over the period, ORBCOMM will pay the value of that increase in cash or additional ORBCOMM Common Stock under number 10 above. If the defined working capital decreased during the period, Alanco will return that amount from ORBCOMM Common Stock, valued at $3.001 per share, issued under number 10 above.
ORBCOMM delivered to Alanco on August 12, 2011, a written statement of the Current Assets, Current Liabilities and Net Working Capital Amount pursuant to the terms of the Agreement reflecting a working capital adjustment in favor of ORBCOMM of approximately $700,000. Under terms of the Agreement, Alanco submitted a “Notice of Disagreement” of the Net Working Capital Amount submitted by ORBCOMM. The Agreement stipulates third party arbitration to resolve disagreements over the working capital adjustment. In an attempt to avoid the expense of submitting the disagreement to arbitration prematurely, and in consideration of mutual desires to resolve the issue, the parties agreed to extend the resolution period to November 24, 2011 and are working to resolve the issue. The Company has recorded a reserve in excess of $100,000 for this contingent liability as of June 30, 2011. However, based upon the limited documentation received from ORBCOMM to date, we cannot reasonably estimate the likelihood of additional liability. Although we believe our reserve to be adequate, the ultimate liability may be materially revised as we continue to work to resolve the matter. As of the filing of this Form 10-K, the parties were reviewing the working capital calculations and no resolution had been reached.
Fair Value of Financial Instruments - The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. The Series E Convertible Preferred Stock (“Series E”) referred to in number 4 above was issued originally to ORBCOMM, at the time a supplier of StarTrak, by Alanco in April 2010 in a private placement offered to accredited investors. ORBCOMM invested $2.25 million in exchange for 500,000 shares ($4.50 per share stated value) of Series E Convertible Preferred Stock. Upon receipt of the Series E by Alanco, the shares were immediately retired with no gain or loss recognized. The fair value measurement of the Series E is based upon unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset and thus represents a Level 3 fair value measurement. As discussed in Footnote 12 - Shareholders’ Equity, the Company exchanged the ORBCOMM Series A Preferred Stock that it received from the sale of the StarTrak Operations with the Company’s Series E Convertible Preferred Stock held by primarily unrelated third parties of an equal stated value. The Company estimated the fair value of the Series E Convertible Preferred Stock that it received from the sale of StarTrak Operations based upon the value of the ORBCOMM Series A Preferred Stock, which valuation is discussed below.
The 1,212,748 shares of Alanco’s Class A Common Stock (“Class A”) received per number 5 above were valued at $1.03 per share, which approximates the trading price on May 16, 2011. Alanco Class A Common stock was traded at the time under the NASDAQ Capital Markets under the trading symbol “ALAN”. The fair value measurement is based on quoted prices for identical assets traded in active markets, and thus represents a Level 1 fair value measurement.
The total of 2,237,111 shares of ORBCOMM Common Stock (NASDAQ: ORBC) valued at $2.91 per share (closing price at May 16, 2011) discussed in items 6 through 8 above are registered under a currently effective ORBCOMM Form S-3 registration statement. Under the terms of the Agreement, the Company is limited to selling up to 279,638 shares (12 ½% of the total shares) per month. The sale restriction discussed above is why the fair value measurement of June 30, 2011 of ORBCOMM's Stock is based on quoted prices for similar assets in active markets, that are either directly or indirectly observable and thus represent a Level 2 measurement. However, management does not believe the restriction will interfere with any plans to market their stock holdings. As such, the trading price is used as fair value with no further adjustment. The remaining shares will be revalued at the end of each reporting period with per share market value fluctuations reported as Comprehensive Income (Loss) for the period.
ORBCOMM also issued 183,550 new shares of ORBCOMM Series A ($10.00 per share stated value) Convertible Preferred Stock, per item 9
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company carried out, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Based on their evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that, as of June 30, 2011, the Company’s disclosure controls and procedures were effective. Management has concluded that the consolidated financial statements in this Form 10-K fairly present, in all material respects, the Company’s financial position, results of operations, comprehensive income (loss) and cash flows for the periods and dates presented.
(b) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2011, based on the framework and criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2011 and determined that the Company’s controls and procedures were effective at the reasonable assurance level.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Due to the fiscal year 2011 sale of the Company’s remaining business segments, the only operating activity at June 30, 2011 was at the corporate offices in Scottsdale, AZ. Previous issues with internal controls weaknesses arose from these operating divisions, the disposal of which eliminated those weaknesses.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Officers and Directors
The officers and directors of the Company, elected at Alanco’s May 10, 2011 Annual Meeting of Shareholders are:
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. Mr. Carlson earned his Bachelor of Science degree in Business Administration at the University of South Dakota, and is a Certified Public Accountant.
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.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Non-Director Significant Employees
The following table provides information regarding key officers for the Company’s former subsidiaries. The Company sold substantially all of the assets of StarTrak Systems, LLC effective May 16, 2011, for which Messrs. Slifkin, Robinson and Dahill were employed.
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 independent 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 registered public accounting firm the scope of the audit for the year, the results of the audit when completed, and the independent registered public accounting firm’s fee for services performed. The Audit/Corporate Governance Committee also recommends the independent registered public accounting firm 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 registered public accounting firm is 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.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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-K, 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-Q 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, or by writing to the Company to the attention of the Company’s Corporate Secretary at 7950 E. Acoma Drive, Suite 111, Scottsdale, Arizona 85260.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 11.
ITEM 11. 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, 2011 and 2010 to the Company's Chief Executive Officer, Chief Financial Officer, Chief Technology Officer (“CTO”) of the Company’s former subsidiary, StarTrak Systems, LLC (STS), Executive Vice President of the Company’s former subsidiary, StarTrak Systems, LLC, and Chief Executive Officer (“CEO”) of the Company’s former 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 two fiscal years.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the fiscal year ended June 30, 2011, 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.
All options are granted at a price not less than “grant-date market.” During the fiscal year ended June 30, 2011, 309,300 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, 2011, and the value of the unexercised, in-the-money options at June 30, 2011.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Option Grants Subsequent to Fiscal Year End
No employee stock options were granted subsequent to 2011 fiscal year end.
Employment Agreements and Executive Compensation
As of June 30, 2011, the Executive Officers were at-will employees without employment agreements. See Note 15 - Subsequent Events for employment agreements executed subsequent to June 30, 2011.
Compensation of Directors
During fiscal year 2011, 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”) and the 2011 Stock Incentive Plan 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. In addition, Directors LaVoy, Carpenter, and Hecker received additional compensation for their services on May 16, 2011, in the amount of $15,000, $15,000, and $20,000, respectively. Company stock options held by Directors LaVoy, Carpenter, and Hecker were repriced during the quarter ended September 30, 2010 at an expense of $15,300, $16,400 and $15,200, respectively.
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, 2006 Directors and Officers Stock Option Plans and the 2011 Stock Incentive Plan on November 6, 1998, November 5, 1999, November 10, 2000, November 22, 2002, November 19, 2004, January 20, 2006, January 30, 2007, and May 10, 2011, respectively. The purpose of the 1996, 1998, 1999, 2000, 2002, 2004, 2005, and 2006 D&O Plans and the 2011 Stock Incentive Plan 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 proprietary 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, 2006, and 2011 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 additional options to purchase shares of common stock at fair market value.
ITEM 12.
ITEM 12. 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 voting rights as of October 4, 2011. Information regarding the stock ownership of Robert R. Kauffman, Alanco Chairman and Chief Executive Officer is also shown in the table in the following section, Current Directors and Executive Officers. Data provided in the table reflects adjustments in ownership due to the 1 for 8 reverse split affected on August 27, 2010. Exercisable stock options owned by the individuals listed below have an exercise price of $1.50 per share. This option price modification was the result of an action by the Board of Directors in September 2010 whereby the Board unanimously voted to modify the price of most outstanding stock options to $1.50 in order to reinstate the incentive such options are intended to give to the option holders.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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 October 4, 2011, 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. Data provided in the table reflects adjustments in ownership due to the 1 for 8 reverse split affected on August 28, 2010. Exercisable stock options owned by the individuals listed below have an exercise price of $1.50 per share. This option price modification was the result of an action by the Board of Directors in September 2010 whereby the Board unanimously voted to modify the price of most outstanding stock options to $1.50 in order to reinstate the incentive such options are intended to give to the option holders.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(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)
Excludes 240,277 shares of Class A Common Stock owned by Rhino Fund LLLP. 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.
(4)
The percentages for Class A Common Stock shown are calculated based upon 4,974,860 shares of Class A Common Stock outstanding on October 4, 2011. The percentages for Total Voting Rights Percent of Class are calculated based upon 5,054,572 voting rights as of October 4, 2011.
(5)
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 October 4, 2011.
(6)
The number and percentages shown include the voting rights shares actually owned as October 4, 2011 and the shares of common stock that the identified person or group had a right to acquire within 60 days after October 4, 2011. The percentages shown are calculated based upon 5,054,572 voting rights as of October 4, 2011. In calculating the percentage of ownership, option and warrant shares are deemed to be outstanding for the purpose of computing the percentage of shares owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of shares owned by any other stockholders.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Management
Mr. Donald Anderson, a former member of the Board of Directors and trustee and beneficial owner of the Anderson Family Trust, was paid interest in fiscal year 2011 in the amount of approximately $399,900 under the Line of Credit Agreement and the Note payable - vendor and $457,900 under the Line of Credit Agreement and Note payable - vendor in fiscal year 2010.
See Note 8 and 10 to the consolidated financial statements for additional related party transactions and discussion.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Semple, Marchal & Cooper, LLP for professional services rendered for the audit of the Company’s annual financial statements and review of the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, for the fiscal years ended June 30, 2011 and 2010 were approximately $98,900 and $153,700, respectively.
Audit Related Fees
In each of the last two fiscal years, there were no fees billed for assurance related services rendered by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the “Audit Fees” paragraph above.
Tax Fees
Semple, Marchal & Cooper, LLP prepared the Company’s tax returns for state and federal purposes. Tax return preparation fees for the fiscal years ended June 30, 2011 and 2010, were approximately $21,100 and $15,500, respectively.
All Other Fees
Other than the services described above under “Audit Fees”, during the fiscal year ended June 30, 2011, Semple, Marchal & Cooper, LLP provided services related to filing prospectus supplements to a Form S-3, the filing of a Form S-8 and related amendments and the filing of a Schedule 14A and related amendments with the Securities and Exchange Commission and billed related fees of approximately $22,400. During the fiscal year ended June 30, 2010, Semple, Marchal & Cooper, LLP also provided services related to filing a Form S-3 and related amendments with the Securities and Exchange Commission and billed related fees of approximately $1,600.
Audit Committee Pre-Approval Policies and Procedures
The 2011 and 2010 audit services provided by Semple, Marchal & Cooper, LLP 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.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Exhibits
3(i) Articles of Incorporation of Alanco Technologies, Inc. (1)
3(ii) Bylaws of Alanco Technologies, Inc. (2)
3(iii) Amendment to Articles of Incorporation or Bylaws of Alanco Technologies, Inc. (28)
4.1 Series A Preferred Convertible Stock Description (3)
4.2 Series B Preferred Convertible Stock Description (4)
4.3 Series D Preferred Stock Description (5)
4.4 Series D Preferred Stock Description Amendment (6)
4.5 Series E Preferred Stock Description Amendment (28)
10.1 1996 Directors and Officers Stock Option Plan and Kauffman and Carlson Stock Option Agreements (7)
10.2 1998 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (8)
10.3 1999 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (9)
10.4 2000 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (10)
10.5 2002 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (11)
10.6
2004 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (12)
10.7
2005 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (13)
10.8
2006 Incentive Stock Option Plan and Directors and Officers Stock Option Plan (14)
10.9 Nasdaq Delisting Notification (15)
10.10 Amendment 3 to Line of Credit Agreement (16)
10.11 Amendment 4 to Line of Credit Agreement (17)
10.12 Amendment 5 to Line of Credit Agreement (18)
10.13 Amendment 6 to Line of Credit Agreement (19)
10.14 Amended and Restated Loan and Security Agreement (20)
10.15 First Amendment to Restated Loan and Security Agreement (21)
10.16 Second Amendment to Restated Loan and Security Agreement (6)
10.17 TSIN Settlement Agreement and Mutual Release (22)
10.18 ComVest Loan Agreement (23)
10.19 Amendment No. 2 to ComVest Loan Agreement (24)
10.20 Amendment No. 3 to ComVest Loan Agreement (25)
10.21 Amendment No. 5 to ComVest Loan Agreement (6)
10.22 Alanco 2011 Stock Incentive Plan (29)
10.23 Nasdaq Delisting Notification (30)
10.24 Nasdaq Delisting Notification Subsequent to Appeal (31)
14.1 Corporate Code of Business Conduct and Ethics (26)
21. Active Subsidiaries of the Registrant
Name State of Incorporation
Fry Guy Inc. Nevada
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 (27)
99.2 Employment Compensation Agreement between the Company and Robert R. Kauffman
99.3 Employment Compensation Agreement between the Company and John A. Carlson
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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 8-K filed June 16, 1008
(6)Incorporated by reference to Form 8-K filed August 28, 2008
(7)Incorporated by reference to Form S-8 filed October 22, 1998
(8)Incorporated by reference to Form S-8 filed November 30, 1998
(9)Incorporated by reference to Form S-8 filed November 29, 1999
(10) Incorporated by reference to Form S-8 filed December 14, 2000
(11) Incorporated by reference to Form S-8 filed January 22, 2003
(12) Incorporated by reference to Form S-8 filed February 17, 2005
(13) Incorporated by reference to Form S-8 filed February 2, 2006
(14) Incorporated by reference to Form S-8 filed March 21, 2007
(15) Incorporated by reference to Form 8-K filed September 18, 2009
(16) Incorporated by reference to Form 8-K filed March 28, 2005
(17) Incorporated by reference to Form 8-K filed July 6, 2005
(18) Incorporated by reference to Form 8-K filed July 14, 2006
(19) Incorporated by reference to Form 8-K filed June 28, 2007
(20) Incorporated by reference to Form 8-K filed December 27, 2007
(21) Incorporated by reference to Form 8-K filed February 29, 2008
(22) Incorporated by reference to Form 8-K filed September 21, 2007
(23) Incorporated by reference to Form 8-K filed October 3, 2006
(24) Incorporated by reference to Form 8-K filed July 27, 2007
(25) Incorporated by reference to Form 8-K filed January 2, 2008
(26) Incorporated by reference to Form 10QSB filed November 15, 2004
(27) Incorporated by reference to Form 14A filed October 18, 2004
(28) Incorporated by reference to Form 8-K filed September 18, 2009
(29) Incorporated by reference to Form S-8 filed June 21, 2011
(30) Incorporated by reference to Form 8-K filed May 20, 2011
(31) Incorporated by reference to Form 8-K filed July 27, 2011
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.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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: October 12, 2011
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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-K 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: October 12, 2011
/s/ Robert R. Kauffman
_____________________
Robert R. Kauffman
Chairman and Chief Executive Officer
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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-K 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: October 12, 2011
/s/ John A. Carlson
_____________________
John A. Carlson
Vice President and Chief Financial Officer
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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 on Form 10-K (the “Report”) for the period ended June 30, 2008 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: October 12, 2011
/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.
Dated: October 12, 2011 /s/ Robert R. Kauffman
Robert R. Kauffman, CEO,
Chairman of the Board
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
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-K 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 & October 12, 2011
Robert R. Kauffman Chief Executive Officer
/s/James T. Hecker Director October 12, 2011
James T. Hecker
/s/Harold S. Carpenter Director October 12, 2011
Harold S. Carpenter
/s/Thomas C. LaVoy Director October 12, 2011
Thomas C. LaVoy
/s/John A. Carlson Director & October 12, 2011
John A. Carlson Chief Financial Officer
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