SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities and Exchange Act of 1934
For the quarter ended . . . . . . . . . . . . . . . . . December 31, 2002
Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347
ALANCO TECHNOLOGIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15575 N. 83rd Way, Suite 3, Scottsdale, Arizona 85260
-----------------------------------------------------
Address of principal executive offices) (Zip Code)
(408) 607-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
---- ----
As of February 12, 2003 there were 20,059,100 shares of common stock
outstanding.
Forward-Looking Statements: Some of the statements in this Form 10-QSB Quarterly
Report, as well as statements by the Company in periodic press releases, oral
statements made by the Company's officials to analysts and shareholders in the
course of presentations about the Company, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Words or phrases denoting the anticipated results of future events such
as "anticipate," "believe," "estimate," "will likely," "are expected to," "will
continue," "project," "trends" and similar expressions that denote uncertainty
are intended to identify such forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) changes
in industries in which the Company does business; (iii) the loss of market share
and increased competition in certain markets; (iv) governmental regulation
including environmental laws; and (v) other factors over which the company has
little or no control.
ALANCO TECHNOLOGIES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 2002 (unaudited) and June 30, 2002 .........3
Consolidated Statements of Operations (Unaudited)
For the three months ended December 31,
2002 and 2001........................................ 4
Consolidated Statements of Operations (Unaudited)
For the six months ended December 31,
2002 and 2001........................................ 5
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended December 31,
2002 and 2001.........................................6
Notes to Consolidated Financial Statements ............... 7
Note A - Basis of Presentation
Note B - Inventories
Note C - Contracts in Process
Note D - Deferred Revenues
Note E - Loss per Share
Note F - Sale of Common Shares
Note G - Industry Segment Data
Note H - Litigation
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................8
PART II. OTHER INFORMATION
Item 6. Exhibits .................................................12
Signature ................................................12
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF
ASSETS
Dec 31, 2002 June 30, 2002
------------ -------------
CURRENT ASSETS (unaudited)
Cash $ 238,900 $ 328,400
Accounts receivable, net 823,700 781,500
Costs and estimated earnings in excess
of billings on uncompleted contracts 825,200 --
Inventories, net 1,324,200 1,256,400
Prepaid expenses and other 224,300 79,000
------------ ------------
Total current assets 3,436,300 2,445,300
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 431,300 500,100
------------ ------------
OTHER ASSETS
Goodwill, net 5,349,100 5,318,400
Patents, manufacturing and software
development, net 1,021,700 1,131,700
Long-term notes receivable, net 190,900 194,200
Net assets held for sale 253,900 272,600
------------ ------------
Total other assets 6,815,600 6,916,900
------------ ------------
TOTAL ASSETS $ 10,683,200 $ 9,862,300
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accruals $ 2,239,400 $ 1,356,400
Credit line 500,000 500,000
Notes payable and capital leases, current 10,800 101,900
Billings and estimated earnings in excess
of costs on uncompleted contracts -- 54,100
Deferred revenue, current 66,200 15,600
------------ ------------
Total Current Liabilities 2,816,400 2,028,000
LONG TERM LIABILITIES
Notes payable and capital leases, long term 705,100 1,205,100
Deferred revenue, long term 35,000 85,600
------------ ------------
Total Long Term Liabilities 740,100 1,290,700
------------ ------------
TOTAL LIABILITIES 3,556,500 3,318,700
Preferred Stock, 53,200 and 50,600 shares
issued and outstanding, respectively 518,200 493,600
SHAREHOLDERS' EQUITY
Common Stock, 20,559,100 and 17,515,600
shares issued and 20,059,100 and
17,015,600 shares outstanding,
respectively 64,808,900 63,386,700
Treasury Stock, 500,000 shares at cost (375,100) (375,100)
Accumulated deficit (57,825,300) (56,961,600)
------------ ------------
Total shareholders' equity 6,608,500 6,050,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 10,683,200 $ 9,862,300
============ ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
FOR THE THREE MONTHS ENDED DECEMBER 31,
2002 2001
------------ -----------
NET REVENUES $ 2,915,600 $ 1,475,400
Cost of goods sold 1,889,800 938,800
------------ ------------
GROSS PROFIT 1,025,800 536,600
Selling, general and administrative expense 1,377,600 1,341,100
------------ ------------
OPERATING LOSS (351,800) (804,500)
OTHER INCOME & EXPENSES
Interest expense, net (26,700) (12,900)
Other income, net 300 --
------------ ------------
LOSS FROM CONTINUING OPERATIONS (378,200) (817,400)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1,600) 12,000
------------ ------------
LOSS FROM OPERATIONS (379,800) (805,400)
Preferred stock dividend (12,000) --
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (391,800) $ (805,400)
============ ============
LOSS PER SHARE - BASIC AND DILUTED
- Continuing operations attributable
to common shareholders $ (0.02) $ (0.09)
============ ============
- Discontinued operations $ (0.00) $ 0.00
============ ============
- Net loss $ (0.02) $ (0.09)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,605,500 8,738,700
============ ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31,
2002 2001
------------ ------------
NET REVENUES $ 5,307,200 $ 3,614,000
Cost of goods sold 3,387,300 2,186,200
------------ ------------
GROSS PROFIT 1,919,900 1,427,800
Selling, general and administrative expense 2,711,300 2,614,700
------------ ------------
OPERATING LOSS (791,400) (1,186,900)
OTHER INCOME & EXPENSES
Interest expense, net (53,700) (20,700)
Other income (expense), net (1,500) 10,400
------------ ------------
LOSS FROM CONTINUING OPERATIONS (846,600) (1,197,200)
INCOME FROM DISCONTINUED OPERATIONS 7,500 10,600
------------ ------------
LOSS FROM OPERATIONS (839,100) (1,186,600)
Preferred stock dividend (24,600) --
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (863,700) $ (1,186,600)
============ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
- Continuing operations attributable
to common shareholders $ (0.05) $ (0.14)
============ ============
- Discontinued operations $ 0.00 $ 0.00
============ ============
- Net loss $ (0.05) $ (0.14)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,319,200 8,738,733
============ ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (839,100) $(1,186,600)
Income from discontinued operations (7,500) (10,600)
----------- -----------
Net loss from continuing operations (846,600) (1,197,200)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 219,900 131,500
Stock and warrants issued for services 27,200 26,000
Other -- 2,900
Changes in:
Accounts receivable,net (42,200) 455,300
Costs and estimated earnings in excess of (825,200) --
billings on uncompleted contracts
Inventories, net (67,800) (28,800)
Prepaid expenses and other current assets (145,300) (34,300)
Accounts payable and accrued expenses 883,000 542,600
Billings and estimated earnings in excess (54,100) --
of costs on uncompleted contracts
----------- -----------
Net cash used in continuing operations (851,100) (102,000)
Net cash from discontinued operations 26,200 20,300
----------- -----------
Net cash used in operating activities (824,900) (81,700)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 3,300 358,900
Purchase of property, plant and equipment (41,100) (122,200)
Goodwill, acquisition (30,700) (162,700)
Purchase of treasury stock -- (24,000)
----------- -----------
Net cash provided by (used in) investing
activities (68,500) 50,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on borrowings 1,366,000 1,215,000
Repayment on borrowings (1,957,100) (1,075,300)
Proceeds from sale of common stock, net 1,395,000 559,000
----------- -----------
Net cash provided by (used in) financing
activities 803,900 698,700
----------- -----------
NET INCREASE (DECREASE) IN CASH (89,500) 667,000
CASH AND CASH EQUIVALENTS, beginning of period 328,400 81,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 238,900 $ 748,000
=========== ===========
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2002
Note A - Basis of Presentation
Alanco Technologies, Inc., an Arizona corporation ("Alanco" or
"Company"), operates in two business segments: Data Storage Segment and RFID
Tracking Segment.
The unaudited condensed consolidated balance sheet as of December 31,
2002 and the related unaudited condensed consolidated statements of operations
for the three and six month periods ended December 31, 2002 and 2001, and
unaudited condensed cash flows for the six months ended December 31, 2002 and
2001 presented herein have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and in accordance with the instructions to Form 10-QSB. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In our opinion, the accompanying condensed
consolidated financial statements include all adjustments necessary for a fair
presentation of such condensed consolidated financial statements. Such necessary
adjustments consisted of normal recurring items and the elimination of all
significant intercompany balances, transactions and stock holdings.
These interim condensed consolidated financial statements should be
read in conjunction with the Company's June 30, 2002, Annual Report on Form
10-KSB. Interim results are not necessarily indicative of results for a full
year.
Certain reclassifications have been made to conform prior period
financials to the presentation in the current reporting period. The
reclassifications had no effect on net loss.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Note B - Inventories
Inventories have been recorded at the lower of cost or market. The
composition of inventories as of December 31, 2002, and June 30, 2002, are
summarized as follows:
Dec 31, 2002 June 30, 2002
------------ -------------
(unaudited)
Finished goods $ 665,300 $ 613,300
Work-in-process 321,400 111,400
Raw material 511,000 705,200
---------- ----------
Total 1,497,700 1,429,900
Less - reserve for obsolescence (173,500) (173,500)
---------- ----------
$ 1,324,200 $ 1,256,400
========== ==========
Note C - Contracts In Process
Costs incurred, estimated earnings and billings in the RFID segment,
related to contracts for the installation of TSI PRISM (TM) systems in process
at December 31, 2002 and June 30, 2002 consist of the following:
Dec 31, 2002 June 30, 2002
------------- -------------
(unaudited)
Costs incurred on uncompleted contracts $ 1,866,800 $ 147,700
Estimated gross profit earned to date 910,900 48,200
----------- -----------
Revenue earned to date 2,777,700 195,900
Less: Billings to date (1,952,500) (250,000)
----------- -----------
Costs and estimated earnings in excess of
billings (billings in excess of costs
and estimated earnings) $ 825,200 $ (54,100)
----------- -----------
Note D - Deferred Revenue
Deferred Revenues at December 31, 2002 and June 30, 2002 consist of
the following:
Dec 31, 2002 June 30, 2002
------------ -------------
(unaudited)
Extended warranty revenue $ 101,200 $ 101,200
Less - current portion (66,200) (15,600)
----------- -----------
Deferred revenue - long term $ 35,000 $ 85,600
----------- -----------
Note E - Loss Per Share
Basic loss per share of common stock was computed by dividing net loss
by the weighted average number of shares outstanding of common stock.
Diluted earnings per share are computed based on the weighted average
number of shares of common stock and dilutive securities outstanding during the
period. Dilutive securities are options and warrants that are freely exercisable
into common stock at less than the prevailing market price. Dilutive securities
are not included in the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share.
Note F - Sale of Common Shares
During the quarter ended December 31, 2002, the company raised a total
of $1,500,000 from accredited investors through the sale of units consisting of
two shares of Class A common stock and a warrant to purchase one Class A common
share. The units were sold at a price of $1.00 per unit. Expenses related to the
stock issuance amounted to $105,000 resulting in net proceeds received during
the quarter from the sale of common stock of $1,395,000. The Company issued,
with respect to the fund raising, three- year warrants to purchase 1,500,000
shares of the Company's common stock with a strike price of $1.00 per share.
Note G - Industry Segment Data
Information concerning operations by industry segment follows (unaudited):
Six Months Ended Three Months Ended
December 31, December 31,
2002 2001 2002 2001
----------- ----------- ----------- ----------
Revenue
Data Storage $ 2,092,400 $ 3,614,000 $ 1,183,300 $ 1,475,400
RFID Technology 3,214,800 -- 1,732,300 --
----------- ----------- ----------- -----------
Total 5,307,200 3,614,000 2,915,600 1,475,400
----------- ----------- ----------- -----------
Gross Profit
Data Storage 894,500 1,427,800 494,600 536,600
RFID Tchnology 1,025,400 -- 531,200 --
----------- ----------- ----------- -----------
Total 1,919,900 1,427,800 1,025,800 536,600
----------- ----------- ----------- -----------
Operating Loss
Data Storage (221,100) (833,800) (52,000) (644,900)
RFID Technology (111,900) -- (68,500) --
----------- ----------- ----------- -----------
Total (333,000) (833,800) (120,500) (644,900)
Corporate Expense (458,400) (342,700) (231,400) (159,500)
Interest Expense, Net (53,800) (20,700) (26,700) (12,900)
Other 6,100 10,600 (1,200) 11,900
----------- ----------- ----------- -----------
Total Loss from Operations $ (839,100) $(1,186,600) $ (379,800) $ (805,400)
=========== =========== =========== ===========
Depreciation and Amortization
Data Storage 64,100 122,100 27,900 62,200
RFID Technology 151,000 -- 76,400 --
Corporate 4,800 8,400 2,100 4,200
----------- ----------- ----------- -----------
Total $ 219,900 $ 130,500 $ 106,400 $ 66,400
=========== =========== =========== ===========
Note H - Litigation
The only material litigation in which the Company is a party to is a
derivative suit, filed on January 30, 2003, by Richard C. Jones on behalf of
Technology Systems International, Inc., a Nevada corporation ("TSIN") versus
the Company, its wholly owned subsidiary, Technology Systems International,
Inc., an Arizona corporation ("TSIA"), and all of the directors of TSIN. The
venue for the action is the Arizona Superior Court in and for Maricopa County,
Arizona, as case number CV2003-001937. The complaint sets forth various
allegations and seeks equitable remedies and damages arising out of the
Company's acquisition of substantially all of the assets of TSIN. As stated in
previous periodic reports filed by the Company with the SEC concerning this
matter, the Company's management, in consultatation with legal counsel,
believes the plaintiff's claims are without merit and the Company will
aggressively defend the action.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, the
following factors: general economic and market conditions; reduced demand for
information technology equipment; competitive pricing and difficulty managing
product costs; development of new technologies which make the Company's products
obsolete; rapid industry changes; failure by the Company's suppliers to meet
quality or delivery requirements; the inability to attract, hire and retain key
personnel; failure of an acquired business to further the Company's strategies;
the difficulty of integrating an acquired business; undetected problems in the
Company's products; the failure of the Company's intellectual property to be
adequately protected; unforeseen litigation; the ability to maintain sufficient
liquidity in order to support operations; the ability to maintain satisfactory
relationships with lenders and to remain in compliance with financial loan
covenants and other requirements under current banking agreements; and the
ability to maintain satisfactory relationships with suppliers and customers.
General
Information on industry segments is incorporated by reference from Note
G to the Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results
of operations are based upon the condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of our financial statements
requires the use of estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. On an ongoing basis, estimates are revalued, including those
related to areas that require a significant level of judgment or are otherwise
subject to an inherent degree of uncertainty. These areas include allowances for
doubtful accounts, inventory valuations, estimated profit on uncompleted RFID
contracts in process, income and expense recognition, income taxes and
commitments and contingencies. Our estimates are based upon historical
experience, observance of trends in particular areas, information and/or
valuations available from outside sources and on various other assumptions that
we believe to be reasonable under the circumstances and which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual amounts may differ from these
estimates under different assumptions and conditions.
Accounting policies are considered critical when they are significant
and involve difficult, subjective or complex judgments or estimates. We
considered the following to be critical accounting policies:
Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Revenue recognition - The Company recognizes revenue from the Data
Storage Segment, net of anticipated returns, at the time products are shipped to
customers, or at the time services are provided. Revenue from material long-term
contracts (in excess of $250,000 and over a 90-day completion period) in both
the Data Storage Segment and the RFID Tracking Segment are recognized on the
percentage-of-completion method for individual contracts, commencing when
significant costs are incurred and adequate estimates are verified for
substantial portions of the contract to where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized in the
ratio that costs incurred bear to total estimated costs. Changes in job
performance, estimated profitability and final contract settlements would result
in revisions to cost and income, and are recognized in the period in which the
revisions were determined. Contract costs include all direct materials,
subcontracts, labor costs and those direct and indirect costs related to
contract performance. General and administrative costs are charged to expense as
incurred. At the time a loss on a contract becomes known, the entire amount of
the estimated ultimate loss is accrued.
Long-lived assets and intangible assets - We review carrying values at
least annually or whenever events or circumstances indicate the carrying values
may not be recoverable through projected discounted cash flows.
Results of Operations
(A) Three months ended 12/31/2002 versus 12/31/2001
Consolidated revenue for the quarter ended December 31, 2002 was
$2,915,600 compared to $1,475,400 for the comparable quarter of the previous
year, an increase of $1,440,200, or 97.6%. The increase in revenue is attributed
to the acquisition of the RFID tracking technology, effective June 1, 2002, a
new business segment for the Company that reported revenues during the quarter
of $1,732,300. Excluding the RFID Tracking Segment, revenue for the Data Storage
Segment decreased $292,100, or 19.8%, to $1,183,300, compared to $1,475,400 for
the comparable quarter of the prior year. The decrease in Data Storage Segment
revenues resulted from the closure of the Company's SanOne SAN (Storage Area
Network) operation and reduced demand for data storage products in the remaining
data storage operations.
Loss from Operations for the quarter was $379,800, compared to a loss
of $805,400 for the same quarter of the prior year. The decrease in Loss from
Operations was due to significant improvement in the Data Storage segment
operations, offset by losses in the RFID Tracking Segment, increases in interest
expense and increases in corporate expenses. During the quarter the Company
issued a preferred stock dividend of $12,000, resulting in the Net Loss
Attributable to Common Stockholders of $391,800, or $.02 per share, compared to
$805,400, or $.09 per share, in the comparable quarter. Although the Company has
initiated cost control measures that have significantly impacted the current
quarter, the operating results have continued to be affected by unfavorable
economic conditions and reduced capital spending that have adversely affected
Alanco's business in recent quarters. If the economic conditions in the United
States worsen or if a wider or global economic slowdown occurs, Alanco may
experience a material adverse impact on its operating results and business
conditions.
Operating results for the quarter reflected loss from discontinued
operations of $1,600, compared to income from discontinued operations of $
12,000 for the comparable quarter in 2001.
Selling, general and administrative expenses for the current quarter
increased to $1,377,600, compared to $1,341,100 incurred in the comparable
quarter of 2001. The increase was attributable to the additional selling,
general and administrative expenses of the new RFID Tracking Segment operations,
offset by reduction of sales commissions and the elimination of selling, general
and administrative costs associated with the SanOne SAN subsidiary that had
ceased operation during the prior year quarter.
(B) Six months ended 12/31/2002 versus 12/31/2001
Consolidated revenue for the six months ended December 31, 2002 was
$5,307,200, compared to $3,614,000 for the comparable six-month period of the
previous year, an increase of $1,693,200, or 46.9%. The increase in revenue is
attributed to the acquisition of the RFID tracking technology, effective June 1,
2002, a new business segment for the Company that reported revenues during the
period of $3,214,800. Excluding the RFID Tracking Segment, revenue for the Data
Storage Segment decreased to $2,092,400, compared to $3,614,000 for the
comparable six month period, a decrease of $1,521,600, or 42.1%. The decrease
in Data Storage Segment revenues resulted from the closure of the Company's
SanOne SAN (Storage Area Network) operation and reduced demand for data storage
products in the remaining data storage operations.
The Loss from Operations for the six-month period was $839,100,
compared to a loss of $1,186,600 for the same period of the prior year. The
decrease in loss from Operations was due to significant reductions in losses
related to the Data Storage segment, offset by losses in the RFID Tracking
Segment, increases in interest expense and increases in corporate expenses.
During the period the Company issued a preferred stock dividend of $24,600,
resulting in the Net Loss Attributable to Common Stockholders of $863,700, or
$.05 per share, compared to $1,186,600, or $.14 per share, in the comparable
period.
Operating results for the period reflected income from discontinued
operations of $7,500, compared to income from discontinued operations of $10,600
for the comparable period in 2001.
Selling, general and administrative expenses for the six month period
increased to $2,711,300, compared to $2,614,700 incurred in the comparable
quarter of 2001. The increase was attributable primarily to the additional
selling, general and administrative expenses of the new RFID Tracking Segment
operations, offset by reduction of sales commissions and the elimination of
selling, general and administrative costs associated with the SanOne SAN
subsidiary that had ceased operations during the prior year period.
Liquidity and Capital Resources
The Company's current assets at December 31, 2002 exceeded current
liabilities by $619,900, or a current ratio of 1.22 to 1, compared to a current
ratio of 1.21 to 1 at fiscal year end June 30, 2002. Accounts receivable of
$823,700 at December 31, 2002, reflects an increase of $42,200, or 5.4% from the
$781,500 reported as consolidated accounts receivables at the end of fiscal year
2002. The Data Storage Segment accounts receivable balance of $650,700 at
December 31, 2002 represented forty days' sales in receivables compared to
forty-one days' sales at June 30, 2002.
Costs and estimated earnings in excess of billings on uncompleted
contracts at December 31, 2002 increased to $825,200 from a $54,100 credit
balance classified at June 30, 2002 as billings in excess of costs and estimated
earnings. The increase resulted from billing deferrals on current contracts
attributable to contract change orders that delayed required trenching and cold
weather encountered at the installation site. The billing deferrals were also
the result of delays in delivery of required electronic components. The problems
have been resolved and the contracts are anticipated to be completed in the
current quarter ending March 31, 2003.
Consolidated inventories at December 31, 2002 amounted to $1,324,200,
compared to $1,256,400 at June 30, 2002. The increase resulted from increases in
inventories required for existing contracts for the RFID Tracking Segment that
reported $354,400 in inventory at December 31, 2002, compared to $257,200 at
fiscal year end. The decrease in Data Storage Segment inventory was not
proportionate with the decrease in Data Storage Segment sales and reflects the
segment's inability to proportionately reduce inventory balance during the year
as revenues decreased from prior levels.
The Company has a $1.3 million formula-based revolving bank line of
credit agreement with interest calculated at prime plus 4%. The line of credit
agreement formula is based upon current asset values and is used to finance
working capital. At December 31, 2002, the Company had drawn $500,000 under the
line of credit, which expires December 31, 2003. Under the line of credit
agreement, the Company must maintain a minimum balance due of at least $500,000
through December 31, 2003. Due to the $500,000 balance requirement and the
December 2003 expiration date, the $500,000 minimum balance is presented at June
30, 2002 as long-term notes payable - bank. At December 31, 2002, the minimum
balance was appropriately reclassified to current liabilities and $800,000 was
available under the line of credit agreement.
Cash used in operations for the quarter was $824,900, an increase of
$743,200 when compared to cash used in operations of $81,700 for the comparable
period ended December 31, 2001. The increase in cash used in operations was due
primarily to increases in costs & estimated earnings in excess of billings on
uncompleted contracts at December 31, 2002, an amount that will be reduced as
billings under current contracts are completed.
During the six month period ended December 31, 2002, the Company
purchased approximately $41,100 of additional equipment compared to $122,200
purchased in the comparable period of the prior year. Acquisition of goodwill
(additional costs incurred related to the acquisition of RFID tracking
technology) amounted to $30,700. Repayment on borrowings during the period
amounted to $1,956,900, while advances from borrowing amounted to $1,366,000.
The Company believes that additional cash resources may be required for
working capital to achieve planned operating results for fiscal year 2003 and,
if working capital requirements exceed current availability, the Company
anticipates raising capital through additional borrowing or sale of stock. The
additional capital would supplement the projected cash flows from operations and
the line of credit agreement in place at December 31, 2002. If the Company were
unable to raise the required additional capital, it may materially affect the
ability of the Company to achieve its financial plan.
CONTROL AND PROCEDURES
The Company maintains disclosure controls and procedures designed to
ensure that it is able to collect the information it is required to disclose in
the reports it files with the Securities and Exchange Commission (SEC), and to
process, summarize and disclose this information within the time periods
specified in the rules of the SEC. Based on various evaluations of the Company's
disclosure controls and procedures, some of which occurred during the 90 days
prior to the filing date of this report, the Chief Executive and Chief Financial
Officers believe that these controls and procedures are effective to ensure that
the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within the required
periods.
The Company also maintains a system of internal controls designed to
provide reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Since the date of the most recent evaluation of the Company's internal
controls by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
The only material litigation in which the Company is a party to is a
derivative suit, filed on January 30, 2003, by Richard C. Jones on behalf of
Technology Systems International, Inc., a Nevada corporation ("TSIN") versus
the Company, its wholly owned subsidiary, Technology Systems International,
Inc., an Arizona corporation ("TSIA"), and all of the directors of TSIN. The
venue for the action is the Arizona Superior Court in and for Maricopa County,
Arizona, as case number CV2003-001937. The complaint sets forth various
allegations and seeks equitable remedies and damages arising out of the
Company's acquisition of substantially all of the assets of TSIN. As stated in
previous periodic reports filed by the Company with the SEC concerning this
matter, the Company's management, in consultant with legal counsel, believes
the plaintiff's claims are without merit and the Company will aggressively
defend the action.
Item 2 - CHANGES IN SECURITIES
During the six months ended December 31, 2002, the Company issued 3
million shares of Common Stock related to the Sale of Common Shares more fully
discussed in Note F and 43,500 shares of Common Stock for services rendered.
Item 6. EXHIBITS 99.1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALANCO TECHNOLOGIES, INC.
(Registrant)
/s/ John A. Carlson
John A. Carlson
Chief Financial Officer
Date: February 14, 2003
CERTIFICATION
I, Robert R. Kauffman, President and Chief Executive Officer of Alanco
Technologies, Inc. (the "Company"), certify that:
(1) I have reviewed the Quarterly Report on Form 10-QSB for the
quarter-ended December 31, 2002 (the "Report");
(2) Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state material facts necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading; and
(3) Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition and results of operations of the Company as of,
and for, the periods represented in the Report.
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared.
b) Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of the Company's Board of Directors:
a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
(6) The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were any significant changes in
internal control or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 14, 2003
By /s/ Robert R. Kauffman
President and Chief Executive Officer
I, John A. Carlson, Chief Financial Officer of Alanco Technologies, Inc.
(the "Company"), certify that:
(1) I have reviewed the Quarterly Report on Form 10-QSB for the quarter
ended December 31, 2002 (the "Report");
(2) Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state material facts necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading; and
(3) Based on my knowledge, the financial statements, and other
financial information included in the report, fairly present in all material
respects the financial condition and results of operations of the Company as of,
and for, the periods represented in the Report.
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared.
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of the Company's Board of Directors:
a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
(6) The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were any significant changes in
internal control or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 14, 2003
By /s/ John A. Carlson
Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert R. Kauffman, Chairman and Chief Executive Officer of Alanco
Technologies, Inc., certify that:
1. The Quarterly Report of Alanco Technologies, Inc. on Form 10-QSB for the
quarter ended December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), which this statement
accompanies, fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Alanco
Technologies, Inc.
/s/ Robert R. Kauffman
Robert R. Kauffman
Chairman and Chief Executive Officer
February 14, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Carlson, Executive Vice President and Chief Financial Officer of
Alanco Technologies, Inc., certify that:
1. The Quarterly Report of Alanco Technologies, Inc. on Form 10-QSB for the
quarter ended December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), which this statement
accompanies, fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Alanco
Technologies, Inc.
/s/ John A. Carlson
John A. Carlson
Executive Vice President & Chief Financial Officer
February 14, 2003