ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 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 of (I.R.S. Employer
Incorporation or organization) Identification No.)
15575 North 83rd Way, Suite 3, Scottsdale, AZ 85260 (Address of
principal executive offices) (Zip Code)
Registrant's Telephone Number: (480) 607-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB.
Yes X No
----- -----
The Registrant's revenues for the fiscal year ended June 30, 2002 were
$5,368,200.
State the aggregate market value, based upon the closing bid price of
the Common Stock as quoted on NASDAQ, of the voting stock held by non-affiliates
of the registrant: $10,685,100 as of July 29, 2002.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock: 17,516,600 shares of Class A Common Stock (net of
treasury shares) and no shares of Class B Common Stock as of July 29, 2002.
Documents incorporated by reference: Part III of this Report is incorporated by
reference from the Registrant's Proxy Statement to be filed on or before October
29, 2002.
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES Except for
historical information, the statements contained herein are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements, which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such
forward-looking statements are based on the expectations of management when made
and are subject to, and are qualified by, risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by
those statements. These risks and uncertainties include, but are not limited to,
the following factors, among others, that could affect the outcome of the
Company's forward-looking statements: general economic and market conditions;
reduced demand for information technology equipment; competitive pricing and
difficulty managing product costs; development of new technologies which make
the Company's products obsolete; rapid industry changes; failure by the
Company's suppliers to meet quality or delivery requirements; the inability to
attract, hire and retain key personnel; failure of an acquired business to
further the Company's strategies; the difficulty of integrating an acquired
business; undetected problems in the Company's products; the failure of the
Company's intellectual property to be adequately protected; unforeseen
litigation; the ability to maintain sufficient liquidity in order to support
operations; the ability to maintain satisfactory relationships with lenders and
to remain in compliance with financial loan covenants and other requirements
under current banking agreements; the ability to maintain satisfactory
relationships with suppliers; federal and/or state regulatory and legislative
actions; customer preferences and spending patterns; the ability to implement or
adjust to new technologies and the ability to secure and maintain key contracts
and relationships.
PART 1
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Alanco Technologies, Inc. was incorporated in 1969 under the laws
of the State of Arizona. Unless otherwise noted, the "Company" or "Alanco"
refers to Alanco Technologies, Inc. and its wholly owned subsidiaries.
Alanco (Nasdaq: ALAN) is a provider of advanced information technology
solutions with the Company's operations at the end of fiscal 2002 diversified
into two reporting business segments including: (i) design, production,
marketing and distribution of RFID (Radio Frequency Identification) tracking
technology, and (ii) manufacturing, marketing and distribution of data storage
products. The Company's operations during fiscal year 2001 consisted of a single
reporting business segment - data storage products.
In May 2002, the Company acquired RFID (Radio Frequency Identification)
tracking technology through the acquisition of the operations of Technology
Systems International, Inc., a Nevada corporation ("TSIN"). The Company
continues to participate in the data storage market through two wholly-owned
subsidiaries: Arraid, Inc., a manufacturer of proprietary storage products to
upgrade older "legacy" computer systems; and Excel/Meridian Data, Inc., a
manufacturer of Network Attached Storage ("NAS") systems for mid-range
organizations. During the year, the Company also substantially liquidated, due
to continued operating losses, SanOne, Inc., a wholly owned subsidiary that had
been created to enter the Storage Area Network ("SAN") market.
Prior to the closing of the acquisition of the RFID tracking
technology, the Company exchanged its investment in Gold & Minerals, Inc.
("G&M"), a private Arizona-based mining company, for approximately 8.9% of the
outstanding shares of TSIN. Since the purchase consideration for the RFID
tracking technology was Alanco stock (both a fixed number of shares to be paid
at closing and a significant contingent payout based on TSI operating results)
the Company recorded an asset impairment charge of $2.1 million to reduce the
investment valuation to approximately $375,000, the estimated value of 8.9% of
the shares to be issued to TSIN at closing, the only shares guaranteed to be
issued.
RECENT BUSINESS DEVELOPMENTS
In July 2002, the Company's wholly owned subsidiary, Technology Systems
International, Inc., an Arizona corporation created to record the acquisition,
("TSI"), announced that the TSI PRISM(TM) wireless prison safety and inmate
tracking system had successfully completed a comprehensive, 90-day testing
program conducted by the California Department of Corrections ("CDC"). The CDC
test report concluded: "During the 90-day test period, multiple tests of the
operational features of the TSI PRISM(TM) system's hardware and software were
conducted. The system and all the related components passed all protocols during
the entire test period."
DESCRIPTION OF BUSINESS
RFID TRACKING SEGMENT
During December 2001, the Company announced an agreement to acquire the
operations of Technology Systems International, Inc. (TSIN), developer of the
proprietary TSI PRISM(TM) wireless RFID tracking technology utilized primarily
in correctional facilities security management and personnel monitoring. The
acquisition was effected by the issuance of Alanco stock to purchase TSIN's
assets and assumption of specific TSIN liabilities. The all-stock transaction
was approved at a May 14, 2002 Special Shareholders Meeting, which authorized
the stock issuance. The transaction's effective closing date was June 1, 2002.
See footnote 14 to the Consolidated Financial Statements for further discussion
of the TSI acquisition.
TSIN had recently completed a seven-year development program, investing
over $17 million into research and development of the TSI PRISM(TM) technology,
including test installation sites. Commencing a national sales program in fiscal
year 2001, TSIN completed the installation of its first $1 million commercial
installation at a Midwest prison facility in May 2002. By June 30, 2002, the TSI
operations (both under TSIN and TSI) had received approximately $5 million in
contracts, of which approximately $1 million had been completed prior to the
June acquisition, and at fiscal year-end had a firm contract backlog of
approximately $3.8 million.
Marketing. TSI markets its TSI PRISM(TM) RFID tracking system primarily
in the United States, through independent sales representatives and Company
direct sales representatives. The primary focus of the marketing effort has been
on the domestic correctional facilities market.
Raw Materials. The RFID tracking segment utilizes numerous domestic
subcontractors for materials and parts used to manufacture its products. Due to
historical relationships and the advantage of volume manufacturing, one domestic
supplier represented approximately 28% of TSI's purchases for the twelve-month
period ending June 30, 2002. The Company anticipates concentration of vendor
purchases during the current fiscal year; however, additional suppliers are
readily available at competitive pricing levels. The Company does not foresee
any future significant shortages or substantial price increases that cannot be
recovered from its customers.
Competitive Conditions. The TSI PRISM(TM) is the only known wireless
RFID tracking technology currently available to the correctional facilities
market. There are other companies attempting to introduce area location and
monitoring technologies in the correctional facilities market, offering an area
or zone detection system, which are not capable of providing continuous
real-time tracking.
Employees. As of June 30, 2002, the Company's RFID tracking segment
employed fifteen full-time employees.
Seasonality of Business. Location and tracking products have minimal
seasonality. However, many of the products in this segment are marketed to
governmental customers that may be affected by annual budget schedules and
economic conditions.
Dependence Upon Key Customers. The RFID tracking segment is in an early
stage of commercial market development, commencing national sales efforts in
fiscal year 2001. During the twelve months ended June 30, 2002, substantially
all revenues recognized were generated in the final three months from one
customer, a Midwestern state government. The Company anticipates that as market
penetration of its TSI PRISM(TM) technology accelerates, the Company will have
numerous customers.
Backlog Orders. The Company operates using order contracts that it
considers to be firm and non-cancelable. Under this method, the Company has
unfulfilled contracts as of June 30, 2002 of approximately $3.8 million.
Research & Development. TSI estimated that the TSI operation spent
approximately $250,000 in research and development expenditures in the twelve
months ended June 30, 2002.
COMPUTER DATA STORAGE SEGMENT
The Company's Computer Data Storage Segment consists primarily of two
separate entities, Arraid, Inc. ("Arraid") and Excel/Meridian Data, Inc.
("Excel"). Phoenix, Arizona-based Arraid, manufacturer of legacy computer data
storage solutions, was acquired effective October, 1999. Excel, a Dallas,
Texas-based provider of data storage networking products and services, was
acquired effective June, 2000.
The Company expanded into the Storage Area Network (SAN) market during
fiscal year 2000 with the formation of SanOne, Inc. ("SanOne"). Due to
significant operating losses incurred by SanOne in both fiscal year 2001 and
2002, the SanOne business was closed and the subsidiary substantially liquidated
during the current fiscal year.
The Company acquired, in August 2001, the assets and technology of
Microtest, Inc.'s FileZerver Network Attached Storage (NAS) business. FileZerver
products are sold to manufacturers and integrators worldwide, including Excel,
who manufactures and markets a NAS product line that incorporates the FileZerver
technology. The FileZerver operation is located with Arraid, Inc. in Phoenix,
Arizona.
Arraid designs and manufactures proprietary data storage subsystems
called "emulators" that serve as translators between older "legacy" computers
and state-of-the-art storage devices and provide unique, cost-effective storage
system solutions. Arraid's unique products are targeted at users of special
application legacy computers, such as airplane flight simulators, nuclear power
control systems, missile tracking computer systems, etc. Its competitive
position was recently enhanced by the development of its new ESP-1 single board
computer, which will reduce product development time and costs, as well as allow
Arraid to enter significant new market niches.
Excel is a manufacturer and marketer of data storage networking
products and is recognized as a leading provider of optical storage devices,
such as CD/DVD-ROM servers. Excel also markets a Network Attached Storage
("NAS") product line incorporating the FileZerver product.
During fiscal year ended June 30, 2002, the Company reviewed goodwill
and other recorded intangible assets in compliance with the Company's policy to
determine appropriateness of valuation and presentation of those assets based
upon anticipated cash flow. As a result of that review, the company reduced the
carrying values of goodwill and other intangible assets related to the data
storage segment by recording an asset impairment charge of $1.39 million.
Marketing. Arraid markets legacy storage solutions nationally and
internationally through company sales representatives and independent
distributors. Excel markets optical storage and NAS products, primarily in the
United States, through national advertising, telemarketing and company sales
representatives.
Raw Materials. The computer data storage operations have numerous
domestic sources for materials and parts used to manufacture their products. For
fiscal year 2002, no supplier provided 10% or more of the Company's data storage
material and parts purchases. The Company believes that it has an adequate
supply of materials and parts and does not foresee any significant shortages or
substantial price increases that cannot be passed on to the customers. For
fiscal year 2001, one supplier represented approximately 10.6% of the Company's
material and parts purchases.
Competitive Conditions. There are numerous competitors in the computer
data storage market, with no company dominating the market. Arraid principally
provides a unique storage solution to a limited market with minimal direct
competitors. Excel competes with many established companies in the general
storage market and many of these companies may have substantially greater
financial, marketing and technological resources, larger distribution
capabilities, earlier access to customers and more opportunities to address
customers' various information storage requirements than the Company. The
Company also competes with many smaller, less established companies in specific
storage product segments. Some of these companies may have earlier access to new
technologies or products than the Company. The announcement or introduction of
new products and/or implementation of effective marketing strategies by its
competitors may materially adversely affect the Company's business.
Employees. As of June 30, 2002, the Company's computer data storage
business employed thirty-five full-time employees and one part-time employee.
Seasonality of Business. Computer data storage products have minimal
seasonality. However, many of the products in this segment are marketed to
business customers, which in some cases can be significantly affected by budget
restraints and economic conditions.
Dependence Upon Key Customers. During fiscal years ended June 30, 2002
and 2001, no customer accounted for more than 10% of revenues.
Backlog Orders. The Company operates using customer purchase orders
that in some cases may not be considered firm and non-cancelable. Methods of
defining a firm "Backlog Order" are being evaluated, and if the Company utilizes
that information in evaluating sales activity, the information will be reported.
Research & Development. The Company estimates it spent approximately
$150,000 and $250,000 in research and development expenditures in fiscal
years 2002 and 2001, respectively.
DISCONTINUED OPERATIONS
The Company's continuing operations for the fiscal year 2002 are
limited to the RFID Tracking segment and Computer Data Storage segment discussed
above. Pollution Control Products, Restaurant Equipment, and Mining segments are
reported as "discontinued operations" for both the current and prior fiscal
years.
During the prior fiscal year, the Company completed the sale of its
subsidiary, Alanco Environmental Technologies (Beijing) Co., Ltd., and the
patents related to Charged Dry Sorbent Injection (CDSI) technology to a private
New Jersey corporation. The sales proceeds consist of cash and notes receivable
through 2004. $252,000 of the projected gain was recognized during the fiscal
year ended June 30, 2001 with the balance of the gain deferred and netted
against the note receivable until payment is received. See note 3 to the
Consolidated Financial Statements for further discussion of notes receivable
related to the sale of the CDSI technology. The transaction completed the sale
of the Company's remaining Pollution Control Products assets.
At June 30, 2002 and 2001 all of the pollution control products and
mining assets had been sold. Assets classified at year-end on the Company's
balance sheet as "net assets held for sale" consist of the remaining Restaurant
Equipment segment assets, which are valued at the lower of cost or net
realizable value.
ITEM 2. PROPERTIES
The Company's corporate office and the TSI operation are located in an
approximate 9,300 square foot leased facility in Scottsdale, Arizona. The
current lease expires on December 31, 2007.
Arraid is currently located in a 7,500 square foot leased
office/manufacturing building located in Phoenix, Arizona. Arraid had been
located in the building prior to its acquisition by Alanco under a lease that
expired on October 31, 2001. The Company is currently on a month-to-month lease
and is in discussions to extend the lease. This facility is partially owned by
officers of Arraid.
During fiscal year 2001, Excel/Meridian Data, Inc. entered into an
office/manufacturing space lease for 11,328 square feet in Carrollton, Texas.
The five-year lease expires March 15, 2006.
Mining Claim Properties. The Company's only remaining mining interest
consists of a small milling site known as the Tombstone metallurgical facility
or mill site located in Cochise County, Arizona. At June 30, 2002, management is
in the process of permanently closing the site under a plan approved by the
Bureau of Land Management ("BLM") and believes any net costs associated with the
site will be minimal.
During the first quarter of fiscal year 2000, the Company exchanged its
principal mining property, the C.O.D. mine located near Kingman, Arizona, with
Gold & Minerals, Inc. ("G&M") for $4.5 million of G&M Series A, 10% Cumulative,
Convertible Preferred Stock, which is recorded as investments on the June 30,
2001 balance sheet. During the current fiscal year the investment in Gold &
Minerals was exchanged for approximately 8.9% of the outstanding stock of TSIN,
whose assets were acquired by the Company effective June 1, 2002, resulting in
an asset impairment charge of $2.1 million recorded in the third quarter of the
current fiscal year. See Footnote 2 to the accompanying financial statements.
Environmental Disclosure. There are numerous federal and state laws and
regulations relating to environmental protection that have direct application to
mining, milling and mineralized material processing operations. The more
significant of these laws deals with mined land reclamation and wastewater
discharge from such operations. Expenditures during fiscal years 2002 and 2001
related to environmental regulations amounted to less than $10,000.
The Tombstone Metallurgical Facility is located on federal lands that
are administered by the BLM and requires limited environmental and/or surface
reclamation. The mill site facility was constructed in the 1970's when no
permitting was required from the BLM. The Company believes it has complied with
all regulations, as they existed. There can be no assurance that environmental
problems will not be discovered in the future; however, the Company is not
currently aware of any material environmental claim or violation. At present,
the mill site has been dismantled and cleaned up in exchange for the building
material and equipment salvage value. A closure plan for the site has been
approved by BLM and is currently being implemented.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party in any litigation. However, the
Company has received written communications from a shareholder of Technology
Systems International, Inc., a Nevada corporation, from which the Company
acquired its RFID operations effective June 1, 2002, which indicates
dissatisfaction with the earn-out formula set forth in the acquisition agreement
and requests various modifications. If the shareholder were to pursue any legal
action against the Company in this matter, the Company is confident it will
prevail.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Shareholders' Meeting was held at the Company's offices in
Scottsdale, Arizona, on May 14, 2002, for the purpose of considering three
proposals related to the acquisition of the operations of Technology Systems
International, Inc. (TSIN) ("Acquisition"). The Company's Definitive Proxy
Statement, outlining details of the proposals, was filed with the SEC on April
22, 2002. The following proposals were voted upon by 5,809,558 shares, or 57% of
the shares eligible to voted, constituting a quorum.
(1) APPROVAL OF AN AMENDMENT TO ARTICLE IV OF ALANCO'S ARTICLES OF
INCORPORATION.
The proposal amended Article IV of Alanco's Articles of Incorporation
wherein the authorized capital stock of the Corporation shall consist of
Seventy-Five Million (75,000,000) shares of Class A Common Stock, each
entitled to one vote per share, Twenty-Five Million (25,000,000) shares of
Class B Common Stock, each entitled to one-one hundredth (1/100th) of one
vote per share, and Twenty-Five Million (25,000,000) shares of Preferred
Stock, the voting and other rights of which may be determined by Alanco's
Board of Directors.
For: 5,754,165 Against: 48,800 Abstain: 6,593 % For: 99%
(2) APPROVAL OF THE ISSUANCE OF SHARES OF ALANCO'S CLASS A AND CLASS B
COMMON STOCK IN CONNECTION WITH THE ACQUISITION OF THE OPERATIONS
OF TSIN
The proposal related to the acquisition of the TSI RFID monitoring business
by Alanco's purchase of substantially all of the assets and the assumption
of specified liabilities of TSIN through the issuance of shares of Alanco's
Class A and Class B common stock to TSIN.
For: 5,779,397 Against: 24,822 ain: 5,339 % For: 99%
(3) APPROVAL OF THE ISSUANCE OF UP TO 75,000 SHARES OF ALANCO'S SERIES B
CONVERTIBLE PREFERRED STOCK IN SUPPORT OF THE TSI ACQUISITION AND
SUBSEQUENT WORKING CAPITAL REQUIREMENTS OF THE COMPANY.
The proposal related to the issuance of up to 75,000 shares of Alanco's
Series B Convertible Preferred Stock in support of the Acquisition and
subsequent working capital requirements of the Company.
For: 5,781,492 Against: 22,723 Abstain: 5,343 % For: 99%
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Alanco's common stock is traded on the NASDAQ Small Cap Market under
the symbol "ALAN."
The following table sets forth high and low sale prices for each fiscal
quarter for the last two fiscal years. Such quotations represent inter-dealer
price without retail mark-ups, markdowns, or commissions and, accordingly, may
not represent actual transactions.
Fiscal 2002 Fiscal 2001
Quarter Ended High Low High Low
----------------------- ------------------------- -------------------------
September 30 $1.25 $0.64 $2.63 $1.59
December 31 $0.95 $0.63 $1.87 $0.50
March 31 $0.89 $0.45 $3.12 $1.00
June 30 $0.80 $0.40 $1.73 $1.06
As of June 30, 2002, Alanco had approximately 1,800 holders of record
of its Class A Common Stock. This does not include beneficial owners holding
shares in street name.
During the fiscal year ended June 30, 2002, the Company issued
8,839,200 shares of its unregistered, restricted Class A common stock to
accredited investors. Of those shares, 7,000,000 were issued in connection with
the acquisition of TSI operations in May 2002, (including 1,000,000 shares
issued to convert debt to equity. See Footnote 14 - Acquisition for additional
discussion); 1,480,000 were issued in connection with a private offering in
December 2001 and January 2002; and 250,000 were issued in connection with a
private offering by the Company in May 2002. The balance of 109,200 shares was
issued for services rendered. The shares issued for services were valued at fair
market value based on the average closing price for ten consecutive trading days
at which the stock was listed in the NASDAQ quotation system, ending on the day
prior to the date on which the service agreement was reached.
Alanco has paid no common stock cash dividends and has no current plans
to do so.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management discussion and analysis of financial condition
contains statements that may be considered "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements. Such forward-looking statements are inherently uncertain, and
the actual results may differ from management's expectations.
Results of Operations
In accordance with Generally Accepted Accounting Principles, the
Company has limited its reported consolidated revenues for fiscal years ended
June 30, 2002 and 2001 to its operations recorded as continuing operations.
Revenues from its Computer Data Storage segment and its RFID Tracking segment,
subsequent to the acquisition of TSI, are reported for the current fiscal year,
while only revenue for the Data Storage segment is reported for fiscal year
2001.
SELECTED SEGMENT OPERATING RESULTS
Data RFID
Storage Technology Corporate Total
------------- ------------- ------------- -------------
Fiscal Year 2002
Revenue from External Customers $ 5,297,900 $ 70,300 $ N/A $ 5,368,200
Cost of Goods Sold 3,044,700 52,900 N/A 3,097,600
------------- ------------- ------------- -------------
Gross Profit 2,253,200 17,400 N/A 2,270,600
------------- ------------- ------------- -------------
Segment Loss
Segment Operating Loss (2,753,100) (111,400) (2,867,800) (5,732,300)
Interest Income -- -- 95,400 95,400
Interest expense -- -- (82,600) (82,600)
Other 1,200 -- -- 1,200
------------- ------------- ------------- -------------
Loss from Continuing Operations $ (2,751,900) $ (111,400) $ (2,855,000) $ (5,718,300)
============= ============= ============= =============
Accounts Receivable $ 600,100 $ 181,400 $ -- $ 781,500
------------- ------------- ------------- ------------
Inventory $ 999,200 $ 257,200 $ -- $ 1,256,400
------------- ------------- ------------- -------------
Fiscal Year 2001
Revenue from External Customers $ 9,135,300 $ N/A $ N/A $ 9,135,300
Cost of Goods Sold 5,426,800 N/A N/A 5,426,800
------------- ------------- ------------- -------------
Gross Profit 3,708,500 N/A N/A 3,708,500
------------- ------------- ------------- -------------
Segment Loss
Segment Operating Loss (2,258,600) N/A (1,005,200) (3,263,800)
Interest Income -- N/A 86,100 86,100
Interest expense -- N/A (58,300) (58,300)
Other (800) N/A -- (800)
------------- ------------- ------------- -------------
Loss from Continuing Operations $ (2,259,400) $ N/A $ (977,400) $ 3,236,800)
============= ============= ============= =============
Accounts Receivable $ 1,163,700 $ N/A $ 45,700 $ 1,209,400
------------- ------------- ------------- -------------
Inventory $ 1,218,500 $ N/A $ -- $ 1,218,500
------------- ------------- ------------- -------------
Revenues for fiscal year 2002 were $5,368,200, a decrease of 41.2% when
compared to $9,135,300 for fiscal year 2001. Fiscal year 2002 revenues include
$70,300 from the RFID tracking operations acquired effective June 1, 2002. The
decrease in the Data Storage segment revenue was $3,837,400, a 42% decrease when
compared to the $9,135,300 reported for the prior fiscal year. The decrease in
Data Storage segment revenue was the result of continued weak demand for data
storage products as companies reduced and delayed technology expenditures in
reaction to economic conditions.
Gross Profit for fiscal year 2002 was $2.27 million, or 42.3% of sales,
compared to $3.71 million, or 40.6% of sales for the prior year. The decrease in
gross profit dollars of $1,437,900, or 38.8% when compared to the prior year,
was due to decreases in revenues as a result of weak demand for data storage
products. The Data Storage segment increase in gross margin from 40.6% in fiscal
year 2001 to 42.5% in the current fiscal year was due to the closure of the
SanOne operations, which achieved lower gross margins due to competitive
conditions, and other changes in the mix of data storage products sold. The
24.8% gross margin in the RFID Technology segment should improve significantly
in the current fiscal year as projected volume efficiencies are realized and new
technology improvements are adopted.
Selling, general and administrative expenses for the year ended June
30, 2002 decreased to $4.5 million, a decrease of $2.46 million, or 35.3%, when
compared to the previous year's selling, general and administrative expenses of
$6.97 million. The expense reduction resulted from cost cutting policies adopted
during the year in corporate and the Data Storage segment, including the closure
and substantial liquidation of the SanOne operations, a subsidiary operating in
the Storage Area Network (SAN) market.
The loss from continuing operations for the fiscal year ended June 30,
2002 was $5,718,300, or $.57 per share, compared to a loss of $3,236,800, or
$.48 per share, for the prior fiscal year. The current year's Data Storage loss
from continuing operations includes $1.389 million in non-cash asset impairment
charges to write down the value of goodwill and other intangible assets. The
write-downs relate to management's reduced estimation of the value of goodwill
and other intangible assets and is in compliance with the Company's policy of
annually reviewing intangible asset values to determine appropriateness of
valuation and presentation. Excluding the asset impairment charge, the Data
Storage segment loss from continuing operations would be $1,362,900, a decrease
of $896,500, or 39.7% when compared to the previous fiscal year loss.
The Corporate segment loss from continuing operations includes a $2.1
million asset impairment charge, recorded in the third fiscal quarter, related
to a write-down of the Company's Gold and Minerals, Inc. ("G&M") investment that
was exchanged for 8.9% of the outstanding shares of TSIN, a transaction that is
more fully discussed in the notes to the financial statements. Excluding the
asset impairment charge, Corporate segment expenses were $755,000, a reduction
of $222,400, or 22.8%, compared to the corporate segment expenses in the prior
fiscal year of $977,400.
Fiscal year 2002 interest income, net of interest expense, was $12,800
compared to net interest income of $27,800 for the previous year. The decrease
in net interest income resulted primarily from an increase in interest expense
related to the Company's borrowings under its line of credit agreements.
The Consolidated Statement of Operations for fiscal year 2002 reflects
a loss from discontinued operations of $292,900, or $.03 per share, compared to
income from discontinued operations in the prior year of $242,300, or $.04 per
share. Income from discontinued operations for fiscal year 2002 includes an
asset impairment charge related to restaurant equipment assets held for sale of
$300,000, management's estimate of the charge necessary to reduce the restaurant
equipment assets to net realizable value at year end, and operating income of
$7,100. The prior year income from discontinued operations included a gain on
sale of pollution control assets of $252,000 and operating losses of $9,700.
Preferred stock dividends for the year ended June 30, 2002 amounted to
$6,300, compared to preferred stock dividends of $142,100 for the prior year, a
decrease of $135,800. The fiscal year 2001 dividends related to preferred stock
that had been outstanding during most of fiscal year 2001 and converted into
common stock during the fourth quarter. The preferred stock dividends for the
current year related to preferred stock that was approved by shareholders at a
May 14, 2002 Special Shareholders' Meeting and issued prior to year-end. See
footnote 12 - Shareholders' Equity for additional discussion of preferred stock
transactions.
Consolidated net loss attributable to common stockholders for fiscal
year ended June 30, 2002 was $6,017,500, or $.60 per share, an increase in per
share net loss of 30.4% when compared to a net loss of $3,136,600, or $.46 per
share, for the prior year.
Net cash used in operating activities for the current fiscal year end
was $1,246,200, compared with net cash used in operating activities for the
prior fiscal year of $3,144,400. The decrease in cash used in operations
resulted primarily from the Company's reduced cash losses from continuing
operations. In addition, decreases in accounts receivable and inventory in the
Data Storage segment for the current year resulted in increased cash flow, while
an inventory increase in the prior year reduced cash flow. See "Liquidity and
Capital Resources" below for management's discussion of major items affecting
the Consolidated Statement of Cash Flow.
Any new Statements of the Financial Accounting Standards affecting the
Company are disclosed in the "Notes to Consolidated Financial Statements."
Liquidity and Capital Resources
At June 30, 2002, the Company's current assets exceeded current
liabilities by $417,300, resulting in a current ratio of 1.21 to 1. At June 30,
2001, the Company's current assets exceeded current liabilities by $1,085,900,
reflecting a current ratio of 1.51 to 1. The reduction in current ratio was due
primarily to increased borrowing under the Company's credit line to fund
operating losses incurred and assumed accounts payable relative to the TSI
acquisition that was effective on June 1, 2002.
Accounts receivable of $781,500 at June 30, 2002, reflects a decrease
of $427,900, or 35.4%, from the $1,209,400 reported as consolidated accounts
receivables at the end of fiscal year 2001. $181,400, or 23.2% of the current
fiscal year end balance, was from the RFID Technology segment, an operation
acquired effective June 1, 2002. Excluding the RFID Technology segment, accounts
receivable at fiscal year end for the Data Storage segment amounted to $600,100,
a 48.4% decrease compared to $1,163,700 at June 30, 2001. The Data Storage
segment accounts receivable balance at June 30, 2002 represented forty-one day's
sales in receivables compared to forty-six days at fiscal year end 2001.
Consolidated inventories at June 30, 2002 amounted to $1,256,400
compared to $1,218,500 at the end of the prior fiscal year. Included in the
current fiscal year end balance is $257,200 of inventory for the RFID Technology
segment, a newly acquired operation discussed above. Reflecting only the Data
Storage segment, inventories at year end amounted to $999,200, a decrease of
18.0% when compared to the $1,163,700 inventory balance of the Data Storage
segment at June 30, 2001. The June 30, 2002 Data Storage segment inventory
balance reflects an inventory turnover of 3.05 compared to 4.45 for the
inventory balance at June 30, 2001. The increase in Data Storage segment
inventory balances relative to revenues reflects the segment's inability to
proportionately reduce inventory balances during the year as revenues decreased
from prior year levels.
The Company's cash position at June 30, 2002 was $328,400, compared to
$81,000 at the end of the prior fiscal year. The increase in the Company's cash
position at June 30, 2002 resulted from additional borrowing prior to year-end
that was subsequently used for normal operating activities of the Company.
Cash flows from investing activities include collection of notes
receivable during the year of $430,700, compared to $2,940,000 for the previous
year. The decrease was due to significant payment received during the previous
year related to the sale of Pollution Control assets. Cash used to purchase
property, plant and equipment in fiscal year 2002 was $174,100, compared to
$146,800 in the prior year. The $174,100 does not include property, plant and
equipment acquired via the TSI acquisition that was effective June 1, 2002 in an
all-stock transaction. Cash used in investing activities also includes $559,100
of interim funding for the TSIN operation prior to the acquisition effective
closing date of June 1, 2002. See footnote 14 - Acquisition for additional
discussion of the TSI acquisition.
Net cash provided by financing activities, including advances from
borrowings, amounted to $2,620,500 during the year, compared to $885,700 in
advances from borrowing during the prior year. Repayments of borrowing and
capital leases during the year amounted to $2,747,300, compared to $1,118,100
during the prior fiscal year. In addition, proceeds from the sale of stock,
collection of subscription receivables, and exercise of stock options amounted
to $2,067,500, compared to $154,800 raised during the previous year.
The Company had a $1,000,000 line of credit balance at June 30, 2002
under a $1.3 million line of credit agreement with a private trust entered into
in June of 2002. The secured line of credit is based upon accounts receivable
and inventory values and has an interest rate of prime plus 4%. Under the line
of credit agreement, the Company must maintain a balance due under the line 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 June 30,
2002, $300,000 was available under the line of credit agreement.
During fiscal year ended June 30, 2001, the Company had a $1.5 million
formula-based revolving bank line of credit agreement with interest calculated
at prime plus 1.25%. The line of credit agreement formula was based upon current
asset values and was used to finance acquisitions and working capital. At June
30, 2001 the Company had drawn $885,600 under the line of credit, which expired
December 28, 2001. The amount drawn under the line of credit was paid prior to
the December 28th expiration of the agreement.
The Company believes that additional cash resources will be required
for working capital to achieve planned operating results for fiscal year 2003
and anticipates raising capital through additional borrowing or sale of stock.
The additional capital will supplement the projected cash flow from operations
and the line of credit agreement in place at June 30, 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 plans.
Product and Environmental Contingencies
The Company is not aware of any material liabilities, either product or
environmental related. Expenditures during the year related to environmental
regulations amounted to less than $10, 000. Also refer to the environmental
disclosure section of the mining properties segment under Item 2.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements.
Index to Financial Statements
Page
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . .10
Consolidated Balance Sheets For the Years Ended
June 30, 2002 and 2001. . . . . . . . . . . . . . . . . . . . . .11
Consolidated Statements of Operations For the Years Ended
June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . . 13
Consolidated Statement of Changes in Shareholders' Equity
For the Years Ended June 30,2002 and 2001. . . . . . . . . . . . 14
Consolidated Statements of Cash Flows For the Years Ended
June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . .15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .17
INDEPENDENT AUDITOR'S REPORT
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, 2002 and 2001, and the related
consolidated statements of operations, changes in shareholders' equity and
preferred stock, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standardsgenerally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of
AlancoTechnologies, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the
results of its operations, 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 & Cooper LLP
Certified Public Accountants
Phoenix, Arizona
September 27, 2002
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
ASSETS
2002 2001
------------- -------------
CURRENT ASSETS
Cash $ 328,400 $ 81,000
Accounts receivable, net 781,500 1,209,400
Subscriptions receivable -- 563,500
Notes receivable, net -- 87,800
Inventories 1,256,400 1,218,500
Prepaid expenses and other 79,000 70,500
------------- -------------
Total current assets 2,445,300 3,230,700
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 500,100 496,000
------------- -------------
OTHER ASSETS
Goodwill, net 5,318,400 1,420,400
Patents and manufacturing licenses, net 541,700 --
Software development, net 590,000 --
Long-term notes receivable, net 194,200 588,100
Investment at lower of cost or market -- 2,475,200
Net assets held for sale 272,600 603,300
------------- -------------
Total other assets 6,916,900 5,087,000
------------- -------------
TOTAL ASSETS $ 9,862,300 $ 8,813,700
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
(Continued)
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
2002 2001
------------- -------------
Accounts payable & accruals $ 1,356,400 $ 1,010,600
Credit line 500,000 885,600
Capital Lease Obligations, current portion 20,200 --
Notes payable, current 81,700 248,600
Deferred revenue, current 69,700 --
------------- -------------
Total Current Liabilities 2,028,000 2,144,800
LONG TERM LIABILITIES
Capital lease obligation, long term 30,500 --
Notes payable, long term 1,174,600 --
Deferred revenue, long term 85,600 --
------------- -------------
TOTAL LIABILITIES 3,318,700 2,144,800
------------- -------------
PREFERRED STOCK
Preferred stock; 25,000,000 shares
authorized, of which 50,600 and
none of Series B were issued and outstanding
at June 30, 2002 and 2001 respectively 493,600 --
------------- ------------- .
SHAREHOLDERS' EQUITY
Class A Common Stock, 75,000,000 shares
authorized; 17,515,600 and 8,740,300
shares issued, and 17,015,600 and
8,720,300 outstanding at June 30,
2002 and 2001, respectively. 63,386,700 57,653,000
Class B Common Stock, 25,000,000 shares
authorized, none outstanding at June
30, 2002 and 2001, respectively -- --
Treasury Stock, at cost (375,100) (40,000)
Accumulated deficit (56,961,600) (50,944,100)
------------- -------------
Total shareholders' equity 6,050,000 6,668,900
------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 9,862,300 $ 8,813,700
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
2002 2001
------------- -------------
NET SALES $ 5,368,200 $ 9,135,300
Cost of goods sold 3,097,600 5,426,800
------------- -------------
GROSS PROFIT 2,270,600 3,708,500
Selling, general and administrative 4,513,900 6,972,300
Impairment of intangible assets 1,389,000 --
Impairment of investments 2,100,000 --
------------- -------------
OPERATING LOSS (5,732,300) (3,263,800)
OTHER INCOME & EXPENSES
Interest income 95,400 86,100
Interest expense (82,600) (58,300)
Other income, net 1,200 (800)
------------- -------------
LOSS FROM CONTINUING OPERATONS (5,718,300) (3,236,800)
------------- -------------
DISCONTINUED OPERATIONS
Operating income (loss)- discontinued
operations 7,100 (9,700)
Gain-sale of discontinued operations assets -- 252,000
Impairment of assets held for sale (300,000) --
------------- -------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (292,900) 242,300
------------- -------------
LOSS FROM OPERATIONS (6,011,200) (2,994,500)
Preferred stock dividend (6,300) (142,100)
------------- -------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (6,017,500) $ (3,136,600)
============= =============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
- Continuing operation $ (0.57) $ (0.48)
============= =============
- Discontinued operations $ (0.03) $ 0.04
============= =============
- Preferred stock dividend $ (0.00) $ (0.02)
============= =============
- Net loss attributable to common
shareholders $ (0.60) $ (0.46)
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,958,572 6,787,900
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY & PREFERRED STOCK
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
COMMON STOCK PREFERRED STOCK TREASURY STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
Balances, June 30, 2000 6,762,300 $ 55,738,300 260,000 $ 1,040,000 -- $ -- $(47,807,500) $ 8,970,800
Stock issued for services 14,800 14,300 -- -- -- -- -- 14,300
Exercise of options 61,800 44,500 -- -- -- -- -- 44,500
Purchase of treasury stock -- -- -- -- 20,000 (40,000) -- (40,000)
Preferred stock issued -- -- 10,000 40,000 -- -- -- 40,000
Preferred stock dividends -- -- 35,500 142,100 -- -- -- 142,100
Conversion of preferred stock 1,901,400 1,855,900 (305,500) (1,222,100) -- -- -- 633,800
Net loss -- -- -- -- -- -- (3,136,600) (3,136,600)
----------- ------------- --------- ------------ -------- ----------- ------------- -------------
Balances, June 30, 2001 8,740,300 $ 57,653,000 -- $ -- 20,000 $ (40,000) $(50,944,100) $ 6,668,900
Stock issued for services 92,700 55,700 -- -- -- -- -- 55,700
Purchase of treasury stock -- -- -- -- 523,900 (399,100) -- (399,100)
Cancellation of treasury
stock (43,900) (64,000) (43,900) 64,000 -- --
Preferred stock issued -- -- 50,000 487,300 -- -- -- 487,300
Preferred stock dividends -- -- 600 6,300 -- -- -- 6,300
Shares issued for acquisition 6,000,000 3,810,000 -- -- -- -- -- 3,810,000
Shares issued for debt 1,016,500 966,500 -- -- -- -- -- 966,500
Private offerings 1,730,000 1,050,800 -- -- -- -- -- 1,050,800
Other (20,000) (51,200) -- -- -- -- -- (85,300)
Net loss -- -- -- -- -- -- (6,017,500) (6,017,500)
Balances, June 30, 2002 17,515,600 63,386,700 50,600 493,600 500,000 (375,100) (56,961,700 6,543,500
----------- ------------- --------- ------------ -------- ----------- ------------- -------------
Less preferred stock presented
above equity line -- -- (50,600) (493,600) -- -- -- (493,600)
----------- ------------- --------- ------------ -------- ----------- ------------- -------------
Balances, June 30, 2002 7,515,600 $ 63,386,700 -- $ -- 500,000 $ (375,100) $ 56,961,600) $ 6,050,000
=========== ============= ========= ============ ======== =========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30,
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 6,011,300) $ (2,994,500)
(Income)loss from discontinued
operations 292,900 (242,300)
------------- -------------
Net loss attributable to continuing
operations 5,718,400) (3,236,800)
Adjustments to reconcile net income to net
Cash used in operating activities:
Depreciation and amortization 279,800 417,100
Impairment of Intangible Assets 1,389,000 --
Impairment of Investment 2,100,000 --
Stock issued for services 55,700 14,300
Write-off of fixed assets 32,600 --
Gain on sale - discontinued operations -- (252,000)
(Increase) decrease in:
Accounts receivable 765,800 (131,100)
Inventory 344,400 (105,800)
Prepaid expenses and other assets 4,800 (6,200)
(Increase) decrease in:
Accounts payable and accrued expenses (473,300) (86,200)
Deferred revenue (62,300) --
------------- -------------
Net cash used in continuing operations (1,281,900) (3,386,700)
Income from discontinued operations 7,100 242,300
------------- -------------
Net cash used in operating activities (1,274,800) (3,144,400)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 459,300 2,940,000
Goodwill, acquisition (150,000) --
Proceeds on sale of assets 11,200 260,000
Purchase of property, plant and equipment (174,100) (146,800)
Investments -- (9,500)
Proceeds on net assets held for sale 30,700 82,600
Cash funding of TSI prior to acquisition (559,100) --
------------- -------------
activities (382,000) 3,126,300
------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30,
(Continued)
2002 2001
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on borrowings 2,620,500 885,700
Repayment on borrowings (2,747,300) (1,118,100)
Collection of subscription receivables 563,500 --
Purchase of treasury stock (36,500) --
Proceeds from sale of preferred stock 487,300 40,000
Proceeds from sale of common stock, net 1,016,700 --
Net proceeds from conversion of preferred
stock -- 70,300
Proceeds from exercise of options -- 44,500
------------- -------------
Net cash provided by (used in) financing
activities 1,904,200 (77,600)
------------- -------------
NET DECREASE IN CASH 247,400 (95,700)
CASH AND CASH EQUIVALENTS, beginning of year 81,000 176,700
------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 328,400 $ 81,000
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 82,700 $ 58,300
============= =============
Non-cash activities:
Value of stock issued for services $ 55,700 $ 14,300
============= =============
Preferred stock dividend in kind $ 6,300 $ 142,100
============= =============
Note received in sale of subsidiary $ -- $ 1,450,000
============= =============
Impairment of net assets held for sale $ 300,000 $ --
============= =============
Impairment of intangible assets $ 1,389,000 $ --
============= =============
Impairment of investment property $ 2,100,000 $ --
============= =============
Transfers of equipment to inventory at
net book value $ 115,200 $ --
============= =============
Exchange of G&M investment for
treasury stock $ 375,200 $ --
============= =============
Cancellation of treasury shares $ 76,500 $ --
============= =============
Repayment of debt via termination of
options $ 51,000 $ --
============= =============
Stock issued for acquisition $ 3,810,000 $ --
============= =============
Conversion of debt to common stock $ 966,500 $ --
============= =============
Options issued in conjunction with
credit line $ 12,300 $ --
============= =============
Purchase of goodwill that is accrued at
year-end $ 104,200 $ --
============= =============
TSI Liabilities Assumed in excess of
assets acquired $ 1,124,600 $ --
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Alanco Technologies, Inc. was incorporated in
Arizona in 1969.
During fiscal year 2000, the Company implemented a strategic plan to
position itself as a provider of information technology. The plan was
initiated by acquiring Arraid, Inc., a computer data storage company,
initiating the roll-out of a multi-year Storage Area Network ("SAN")
expansion plan, and acquiring a second computer data storage company,
Excel/Meridian Data, Inc., effective June 1, 2000.
Concurrently with the implementation of the strategic plan, the Company
established a formal plan to sell the assets of all previously reported
business segments. At June 30, 2002 and 2001, the Company had either sold
the mining, pollution control product, and restaurant equipment assets or
reclassified them as "net assets held for sale."
During the fourth quarter of fiscal 2002 the Company continued its
strategic plan to position itself as a provider of information technology
with a newly acquired focus upon RFID (Radio Frequency Identification)
tracking technology through the May 2002 acquisition of the operations of
Technology Systems International, Inc. ("TSI") and its continued
involvement in the data storage market through two wholly-owned
subsidiaries: Arraid, Inc., a manufacturer of proprietary storage
products to upgrade older "legacy" computer systems; and Excel/Meridian
Data, Inc., a manufacturer of Network Attached Storage ("NAS") systems
for mid-range organizations. During the year, the Company substantially
liquidated, due to continued operating losses, SanOne, Inc., a wholly
owned subsidiary that had been created to enter the Storage Area Network
("SAN") market. Therefore, fiscal year 2002 has continuing operations in
both the Tracking Technology segment and in the Computer Data Storage
segment. Fiscal year 2001 has continuing operations in only the Data
Storage segment.
Principles of Consolidation - The consolidated financial statements
include the accounts of Alanco Technologies, Inc. and its subsidiaries,
Technology Systems International, Inc., Arraid, Inc., Excel/Meridian
Data, Inc., Fry Guy, Inc., SanOne, Inc., and NetZerver, Inc., for the
period ended June 30, 2002. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Accounts Receivable Trade - The Company provides for potentially
uncollectible accounts receivable by use of the allowance method. An
allowance is provided based upon a review of the individual accounts
outstanding and the Company's prior history of uncollectible accounts.
Provision for uncollectible accounts receivable amounted to approximately
$127,000 and $100,000 at June 30, 2002 and 2001, respectively.
Subscriptions Receivable - Subscriptions receivable at June 30, 2001
represent receivables arising at the time of the conversion of the
Company's preferred stock to common stock. All monies due were received
prior to issuance of the financial statements for fiscal year 2001.
Inventories - Inventories consist of purchased materials and parts,
work-in-process, and finished goods. Inventories are stated at the lower
of cost or market. Cost is calculated using the average-cost method for
the Data Storage segment and first-in, first-out ("FIFO") for the RFID
Tracking segment.
Property, Plant and Equipment - Property, plant and equipment are stated
at cost. Depreciation is computed over the estimated useful lives of the
assets using the straight-line method generally over a 3 to 10-year
period. Leasehold improvements are amortized on the straight-line method
over the lesser of the lease term or the useful life. Expenditures for
ordinary maintenance and repairs are charged to expense as incurred.
Betterments or renewals are capitalized as incurred. Upon retirement or
disposal of assets, the cost and accumulated depreciation are eliminated
from the account and any gain or loss is reflected in the statement of
operations.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The carrying amounts of accounts
receivable, notes receivable, accounts payable, accrued liabilities, and
notes payable approximate fair value. (See note below for fair value
discussion of intangible assets and investments.)
Intangible Assets - Intangible assets consist of goodwill, the excess of
purchase price over fair value of net assets acquired in connection with
the acquisitions of its wholly owned subsidiaries, and other intangible
assets, including cost of licenses, patents, developed software, etc.
Prior to fiscal year 2002, goodwill was being amortized off over 15
years. Commencing in the current fiscal year, the Company adopted SFAS
142 and ceased amortizing goodwill balances over a specific period
pursuant to SFAS 142. However, per Company policy, goodwill balances are
reviewed at least annually to determine appropriateness of valuation and
presentation based upon anticipated cash flows. See Impairment of
Intangibles and Other Long-lived assets below for additional discussion
of valuation for Intangible Assets. See acquisitions footnote 14 for
information related to intangible assets.
Investments - In fiscal year 2000, the Company exchanged its principal
mining property known as the "COD mine" for convertible preferred stock
in Gold and Minerals, Inc. ("G&M"), an Arizona-based mining company with
mining assets in the Southwest. During the current fiscal year the
investment was written down by $2.1 million and exchanged for
approximately 8.9% of the outstanding shares of Technology Systems
International, Inc. (TSIN) in a transaction related to the acquisition of
the TSI operation in May 2002. See footnote 14 to the Consolidated
Financial Statements for further discussion of the transaction.
At June 30, 2001, the G&M Series A Preferred Stock was valued at cost and
was convertible into a variable number of shares of G&M common stock
determined by dividing the $4.5 million face value of the Preferred Stock
(plus accrued "paid-in-kind" dividends) by the G&M share market price at
time of conversion. The conversion assumed that G&M stock was publicly
traded, a condition that has not been achieved by G&M.
Net Assets Held For Sale - During fiscal 2000, the Company implemented a
plan to divest all non-data storage assets and reinvest the proceeds into
the Information Technology market. At June 30, 2002 and 2001, the "net
assets held for sale" consisted of the remaining restaurant equipment
assets, which value had been reduced during the fourth quarter of fiscal
year 2002 by an asset impairment charge of $300,000. Discussions have
been held with potential buyers for all remaining units; however, a firm
acceptable offer has not as yet been received. The Company is continuing
to sell the equipment in small quantities and believes the carrying value
is supportable under the small unit sales. If it is determined the
Company will not be able to sell the equipment in significant quantities
to liquidate the assets in a reasonable period, the assets will be
reclassified from discontinued operations. The "net assets held for sale"
at June 30, 2002 and 2001 are valued at the lower of cost or market.
Discontinued Operations - Discontinued operations consist of the
remaining mining, restaurant equipment and pollution control operations.
Based upon a formal plan of disposal adopted by management in fiscal year
2000, management concluded that income or loss from operations and any
gain from the disposal of the segment assets should be reported
separately from the Company's results of continuing operations.
Therefore, the results of operations for the segments identified above,
as well as the fiscal year 2001 gain on the sale of a substantial portion
of the pollution control product assets, are presented as "Discontinued
Operations" for the years ended June 30, 2002 and 2001, 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 statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates - The preparation of the Company's financial statements
in conformity with accounting principles generally accepted in the United
States of America requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from those
estimates.
The Company makes significant assumptions concerning the realizability of
its intangible assets, deferred tax assets, investments and assets held
for sale. Due to the uncertainties inherent in the estimation process and
the significance of these items, it is at least reasonably possible that
its estimates in connection with these items could be further materially
revised within the next year.
Impairment of Intangible and Other Long-Lived Assets - The Company
performs an assessment for impairment whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset may
not be recoverable. If the net carrying value exceeds estimated future
net cash flows, then impairment is recognized to reduce the carrying
value to the estimated fair value. During fiscal 2002, the Company
recorded a $2.1 million asset impairment charge related to an investment
in Gold & Minerals, Inc., a $1.389 million impairment charge related to
goodwill and other intangible assets within the Computer Data Storage
segment and a $300,000 asset impairment charge related to the restaurant
equipment assets, classified as "assets held for sale" at June 30, 2002.
Revenue Recognition - The Company recognizes revenue from computer data
storage sales, net of anticipated returns, at the time products are
shipped to customers, or at the time service is provided. Revenues from
material long-term contracts (in excess of $250,000 and over a 90-day
period) in both the computer 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 costs 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.
Foreign Currency Translation - The Company sold its only foreign entity,
which had been classified as "net assets held for sale" at June 30, 2000,
during the fiscal year 2001. The entity's functional currency was the
U.S. dollar and all translations of monetary assets and liabilities
occurred at year-end exchange rates. Non-monetary items were translated
at historical rates. Income and expense amounts were translated at the
average rates in effect during the year, except for depreciation, which
is translated at historical rates. Gains or losses from changes in
exchange rates were recognized in consolidated income in the year of
occurrence. Foreign currency gains (losses) for the years ended June 30,
2002 and 2001 were not material.
Income (Loss) Per Share - The income (loss) per share is presented in
accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. Basic EPS is calculated by
dividing the income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. Basic and diluted EPS were the same for
fiscal 2002 and 2001, as the Company had losses from operations and
therefore the effect of all potential common stock equivalents was
antidilutive (reduces loss per share). Stock options representing
5,502,800 shares of Class A Common Stock were outstanding at year-end
with exercise prices ranging between $0.43 and $6.16. The weighted
average exercise price for all outstanding options was $1.02. Stock
warrants representing 1,510,700 Class A Common Shares were outstanding at
year-end with exercise prices ranging between $0.87 and $3.00. The
weighted average exercise price was $1.11.
Stock-Based Compensation - As permitted under the Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, the Company accounts for its stock-based compensation to
employees in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Certain pro forma net income and EPS disclosures for employee stock
option grants are also included in the notes to the financial statements
as if the fair value method as defined in SFAS No. 123 had been applied.
Transactions in equity instruments with non-employees for goods or
services are accounted for by the fair value method.
Concentrations of Credit Risks and Significant Customers - The Company
sells products and extends credit based on an evaluation of the
customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.
During the current and prior fiscal years, no customer accounted for more
than 10% of Company revenues. The largest customer represented 5.5% of
revenues in fiscal year 2002 and 8% of revenues in fiscal year 2001. The
largest accounts receivable balance at June 30, 2002 and 2001 represented
12.3% and 5.7% of consolidated accounts receivables, respectively.
Segment Information - Disclosure About Segments of an Enterprise and
Related Information, SFAS No. 131, defines operating segments as
components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
The Company has identified location and tracking technology and data
storage as the continuing operating segments of the Company. All assets
related to previously disclosed segments have either been sold during the
year or have been classified as "net assets held for sale" at June 30,
2002.
Pending Accounting Pronouncements - In October 2001, the FASB issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement supersedes SFAS No. 121 and the accounting and
reporting provisions of Accounting Principles Board ("APB"), Opinion No.
30 "Reporting the Results of Operations-Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a
business.
The Company adopted the provisions of SFAS No. 144 effective January 1,
2002. The implementation of SFAS No. 144 did not have a material effect
on the Company's financial position and results of operations.
In November 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's Products," ("EITF
No. 01-09"). EITF No. 01-09 requires recording certain consideration paid
to distributors of the Company's products as a reduction of revenue. The
Company adopted the provisions of EITF No. 01-09 effective January 1,
2002. The implementation of EITF No. 01-09 did not have a material effect
on the Company's financial position and results of operations.
FASB Statement #145, an amendment of FASB Statement No. 13, and Technical
Corrections, is effective for fiscal years beginning after May 15, 2002.
Under SFAS No.145, gains and losses from the extinguishment of debt
should be classified as extraordinary items only if they meet the
criteria of APB Opinion No. 30. SFAS No. 145 also addresses financial
accounting and reporting for capital leases that are modified in such a
way as to give rise to a new agreement classified as an operating lease.
The Company believes that the adoption of SFAS No. 145 will not have a
material impact on the consolidated financial position or results of the
operations of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 addresses significant issues regarding
the recognition, measurement, and reporting of costs that are associated
with exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)."
The scope of the SFAS No.146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits that
employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement that is not an ongoing benefit arrangement
or an individual deferred-compensation contract. SFAS No.146 will be
effective for exit or disposal activities that are initiated after
December 31, 2002, but early application is encouraged. The provisions of
EITF No. 94-3 shall continue to apply for an exit activity initiated
under an exit plan that met the criteria of EITF No. 94-3 prior to the
adoption of SFAS No.146. Adopting the provisions of SFAS No. 146 will
change, on a prospective basis, the timing of when restructuring charges
are recorded from a commitment date approach to when the liability is
incurred.
Reclassification - Certain reclassifications have been made to conform
fiscal 2001 financials to the presentation in fiscal 2002. The
reclassifications had no effect on net income.
Advertising Costs - Advertising costs are expensed as incurred.
Advertising expense totaled $288,500 and $808,700 for the years ended
June 30, 2002 and 2001, respectively.
2. LIQUIDITY
The Company incurred significant losses during the current fiscal year
and has experienced significant losses in prior years. Although
management cannot assure that future operations will be profitable or
that additional debt and/or equity capital will be raised, it believes
that its capital resources will be adequate to maintain and realize its
business strategy. Should, however, the Company incur future losses or if
additional working capital is not obtained through either long-term debt
or equity capital, it could adversely affect future operations.
At June 30, 2001, the end of the previous fiscal year, the Company
reported an investment of approximately $2.5 million in Gold & Minerals,
Inc. ("G&M"), a privately owned Arizona-based mining company. The
investment was recorded when the Company sold (in fiscal year 2000) its
principal mining asset to G&M in exchange for $4.5 million of G&M, 10%
Convertible Preferred Stock. The Company recorded the investment at cost
and stated, at that time, that there could be no assurance as to when the
Company would be able to liquidate the investment, or as to what value
the Company would receive upon liquidation. Furthermore, based on
preliminary financial information the Company had received, G&M required
additional financing to achieve planned production levels on its existing
mine and there could be no assurance G&M would receive the required
financing. If G&M was not able to develop the mining property or if ore
reserves proved inadequate, the Company's investment could ultimately
have minimal value.
During fiscal year 2002, the status of the G&M investment had not
materially changed and the Company is currently unaware of any
significant change to the status of G&M.
During the fourth quarter of fiscal 2002, the Company completed its
exchange of its investment in G&M for approximately 8.9% of the
outstanding shares of Technology Systems International, Inc., a Nevada
corporation, the entity that owned the TSI asset acquired by the Company.
Since the purchase consideration for the TSI operation (see Acquisition
footnote 14) was (i) Alanco stock to be paid at closing and (ii) a
contingent stock earn-out based upon future TSI operating results, the
8.9% investment in TSIN would result in a distribution to TSIN
shareholders of the shares paid for the TSI operations at closing, plus
the earn-out portion, if any. Since the only guaranteed Alanco shares
were those issued at closing, the Company elected to adjust the carrying
value of its G&M investment to an estimated value of 8.9% of only the
guaranteed shares to be issued at closing. Future contingent shares were
not considered. To adjust the investment carrying value, the Company
recorded an asset impairment charge in the third quarter (when the
exchange was agreed to) of $2.1 million against its investment, which
reduced the carrying value of the investment to approximately $375,000.
3. NOTES RECEIVABLE
Notes receivable at June 30, 2002 and 2001 consisted of the following:
2002 2001
------------- -------------
Notes receivable - sale of assets $ 1,150,000 $ 1,698,900
Less deferred gain (967,700) (967,700)
------------- -------------
182,300 731,200
Notes receivable - other 21,900 69,700
204,200 800,900
------------- -------------
Less - allowance for uncollectible (10,000) (125,000)
------------- -------------
Net notes receivable 194,200 675,900
Less - current portion -- (87,800)
------------- -------------
Notes receivable - long-term $ 194,200 $ 588,100
============= =============
At June 30, 2002, notes receivable - sale of assets consisted of notes
receivable in the amount of $1.15 million related to the fiscal year 2001
sale of the remaining assets in the Pollution Control Products segment.
The notes were issued by a privately owned New Jersey corporation and are
payable through 2004, bear interest from 5% to 7% and are secured by: (i)
the patents sold; and (ii) the personal guarantee of the principal
stockholder of the New Jersey company. The debtor has paid interest on
the notes totaling $53,200 during the current fiscal year, but has made
no principal payments and is currently in default on the notes. The
deferred gain presented above represents the unrecognized gain associated
with the remaining $1.15 million note balance. Due to the current default
status, the note balance is presented net of the unrecognized gain and
the total amount due is classified as long term. The gain recognized in
prior years was calculated based upon the payments received relative to
the total estimated receipt less the pro rata costs of the assets sold.
The Company believes the present value of the dollars to be received from
the collection of these notes, and/or the liquidation of the assets
securing the notes, exceed the net carryirng value of $182,300.
Notes receivable - sale of assets at June 30, 2001 consist of the $1.15
million aforementioned, reduced by the deferred gain discussed above, and
approximately $548,900 remaining balance associated with the sale of the
Company's Pollution Control segment assets in the year ended June 30,
1999. The $548,900 remaining balance, bearing interest at prime plus 4%,
was paid in full during the current fiscal year.
At June 30, 2002, notes receivable - other consist of 2 notes from the
former owners of Arraid that bear interest at a rate of 8% and are due
upon demand, and a note from the former owner of Excel/Meridian. There
is no assurance the Company will demand payment during the current
fiscal year, therefore, the notes are classified as long-term.
At June 30, 2001, notes receivable - other consist of a note receivable
from Robert R. Kauffman, Chief Executive Officer, in the amount of
$46,900 (see Note 10), and notes receivable from former Arraid and
Excel/Meridian owners in the amount of $22,800.
4. INVENTORIES
Inventories consist of the following at June 30:
2002 2001
------------- -------------
Raw materials and purchased parts $ 613,300 $ 297,800
Work-in-progress 111,400 109,500
Finished goods 705,200 824,200
------------- -------------
Total 1,429,900 1,231,500
Less - Reserve for obsolescence (173,500) (13,000)
------------- -------------
$ 1,256,400 $ 1,218,500
============= =============
During the current fiscal year, the Company closed the SanOne
demonstration laboratory and transferred $115,200 of computer equipment,
net of accumulated depreciation of $45,600, from Property and Equipment
to inventory for sale. The inventory is currently being sold and
management believes the valuation of the inventory is proper and will be
realized.
5 PROPERTY AND EQUIPMENT
Property, Plant and Equipment consist of the following at June 30:
2002 2001
------------- -------------
Machinery and equipment $ 179,100 $ 338,900
Furniture and office equipment 549,800 481,100
Marketing site equipment 250,000 --
Leasehold improvement 50,600 90,900
------------- -------------
1,029,500 910,900
Less accumulated depreciation (529,400) (414,900)
------------- -------------
Net book value $ 500,100 $ 496,000
============= =============
Related depreciation expense for the years ended June 30, 2002 and 2001,
was $261,600 and $273,300, respectively. Machinery and equipment at June
30, 2001 includes demo lab equipment of $115,200 at net book value, which
was transferred to inventory during the year ended June 30, 2002. See
footnote 4 above for additional discussion on assets transferred.
6. NET ASSETS HELD FOR SALE
During fiscal 2000, management of the Company formally adopted a plan to
actively pursue the sale of all business segment assets not related to
information technology. The assets to be sold included the pollution
control product assets and restaurant equipment assets. The mining assets
had been classified as "net assets held for sale" as of June 30, 1999.
During fiscal year 2000, the mining assets, a portion of the restaurant
equipment assets and a significant portion of the pollution control
products assets were sold. During fiscal year 2001, the remaining
pollution control products assets and additional restaurant equipment
assets were sold. At June 30, 2002 and 2001, "net assets held for sale"
consisted of the remaining restaurant equipment assets.
Based upon management's decision to pursue the sale of all assets not
related to information technology, only revenues for the RFID Technology
and Computer Data Storage segments were considered as continuing
operations at June 30, 2002. For fiscal year 2001 only the Data Storage
segment was considered as continuing operations. For the years ended June
30, 2002 and 2001, the segment operating results of Pollution Control
Products, Restaurant Equipment Distribution, and Mining were considered
discontinued operations.
7. BANK LINE OF CREDIT AND NOTES PAYABLE
Notes payable at June 30, 2002 and 2001 consist of the following:
2002 2001
------------- -------------
Notes payable - TSI Acquisition $ 394,600 $ --
Notes payable - EMS 350,000 --
Notes payable - Bank 511,700 248,600
------------- -------------
Net notes payable 1,256,300 248,600
Less current portion (81,700) (248,600)
------------- -------------
Notes payable - long ter $ 1,174,600 $ --
============= =============
The Company has an outstandng line of credit totaling $1,000,000 on June
30, 2002, of which $500,000 is presented as credit line balance due and
$500,000 is presented as long term notes payable - bank. The line of
credit balance was under a $1.3 million line of credit agreement with a
private trust entered into in June of 2002. The formula-based secured
line of credit is based upon accounts receivable and inventory values and
has an interest rate of prime plus 4% (8.75% at June 30, 2002). Under the
line of credit agreement, the Company must maintain a minimum balance due
under the line 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 June 30, 2002, $300,000 was available under the line
of credit agreement.
Notes payable - Bank of $511,700 includes the $500,000 portion of the
line of credit discussed above and a note payable to a bank with a
balance of $11,700 and $248,600 at June 30, 2002 and 2001. The note
payable to a bank, bears interest at prime plus 2% (6.75% at June 30,
2002) and is due in monthly installments. The $11,700 balance at June 30,
2002, plus interest, has been paid subsequent to year end.
The notes payable - TSI Acquisition are payables assumed as an obligation
under the TSI acquisition agreement. The notes are non-interest bearing
and include $70,000 due on December 31, 2002 and the balance of $324,600
is due upon the TSI operation achieving a net profit of $1 million in any
July 1 through June 30th twelve-month period.
The notes payable - EMS are notes incurred under a TSI
acquisition-related agreement between the Company and EMS Technologies,
Inc., a Georgia corporation ("EMS"), whereby EMS converted approximately
$1.3 million of TSIN debt, assumed by the Company in the TSI acquisition,
into one million shares of Alanco stock, a $250,000 note bearing interest
at 5% (due in May 2005), and a $100,000 note bearing interest at 5% (due
May 2007), which is convertible into Alanco Class A common stock at a
conversion price of $1 per share.
The June 30, 2001 line of credit balance of $885,600 was under a
formula-based line of credit agreement with a bank initially entered into
in September 1999. The formula-based bank agreement had been amended and
was to expire on June 30, 2002. The balance due under the agreement was
paid off in June of 2002 prior to the expiration date.
8. CONTRACTS IN PROGRESS
As of June 30, 2002 the Company had one fixed price contract in progress
within the RFID segment, for the installation of a TSI PRISM(TM) system.
Billings in excess of cost and estimated earnings on this contract
consist of the following:
Prior to Subsequent to
Acquisition Acquisition Contract Total
by Alanco(a) by Alanco(a) June 30, 2002
------------- ------------- -------------
Costs incurred on uncompleted contract $ 94,700 $ 53,000 $ 147,700
Gross profit earned to date 30,900 17,300 48,200
------------- ------------- -------------
Revenue earned to date 125,600 70,300 195,900
Less: billings to date (175,000) (75,000) (250,000)
------------- ------------- -------------
Billings in excess of cost and estimated
earnings on uncompleted contracts $ (49,400) $ (4,700) $ (54,100)
============= ============= =============
(a) See Footnote 14 Acquisition for additional discussion.
As of June 30, 2002 billings in excess of cost and estimated earnings on
this uncompleted contract are included in deferred revenue in the
accompanying financial statements. As of June 30, 2001 the Company had no
fixed price contracts in progress that qualified for
percentage-of-completion accounting.
9. INCOME TAXES
A reconciliation of anticipated statutory rates is as follows:
2002 2001
------------ -------------
Statutory rate 34.0% 34.0%
State income taxes, net of Federal income
tax benefit 3.3% 3.3%
Increase (reduction) in valuation allowance
related to net operating loss carry-
forwards and change in temporary
differences (37.3%) (37.3%)
----------- -------------
0.0% 0.0%
------------ -------------
The components of the net deferred tax asset (liability) recognized as of
June 30 are as follows:
2002 2001
------------- -------------
Deferred tax assets (liabilities):
Net operating loss and capital loss
carryforwards $ 10,224,000 $ 8,516,000
Goodwill 1,984,000 1,364,000
Mining properties -- 1,702,000
Equipment and other (40,000) (40,000)
Profit recognized on fixed price contract
in progress (18,000) --
Less: Valuation allowance (12,150,000) (11,542,000)
------------- -------------
Net deferred tax $ -- $ --
============= =============
A valuation allowance is recognized if it is more likely than not that
some or all of the deferred income assets will not be realized. A
valuation allowance is used to offset the related income tax assets due
to uncertainties of realizing the benefits of certain net operating loss
and tax credits. The valuation allowance was increased by $626,000 for
the year ended June 30, 2002 and $178,000 for the year ended June 30,
2001. At June 30, 2002, the Company had net operating loss and capital
loss carryforwards for Federal tax purposes of approximately $27,410,000.
The loss carryforwards, unless utilized, will expire from 2003 through
2023.
10. Related Party Transactions
Arraid, one of the company's wholly owned subsidiaries, leases its
operating facility from an entity that is majority owned by officers of
Arraid. Payments made to this entity were $96,400 and $99,700 for the years
ended June 30, 2002 and 2001, respectively.
On April 1, 2000 the Company loaned Robert R. Kauffman, Chief Executive
Officer, $47,900 secured by a Promissory Note that bears interest at 7% per
annum. During the fiscal year 2002 first quarter, Mr. Kauffman surrendered
options for the purchase of 150,000 shares in full payment of the note and
all accrued interest. The value of the options surrendered exceeded the
value of the note and accrued interest based on Black-Scholes valuations.
At the time of this transaction the total principal and accrued interest on
the note was $51,000. As of June 30, 2001, the principal and interest was
$50,200.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under non-cancelable
operating lease agreements that expire through fiscal year 2007. The
Company also leases certain equipment under non-cancelable capital lease
arrangements that expire through 2005. Future minimum payments under
non-cancelable capital and operating leases at June 30, 2002 are as
follows:.
Calendar
Year Ended Operating Capital
June 30, Leases Leases
------------- ------------- ------------
2003 $ 288,700 $ 43,200
2004 303,000 38,900
2005 314,100 7,800
2006 295,200 --
2007 106,100 --
------------- ------------
$ 1,307,100 $ 89,900
=============
Less amount representing interest (24,200)
Less executory costs (taxes) (15,000)
------------
Principal balance 50,700
Less current portion (20,200)
------------
Long term portion $ 30,500
============
At June 30, leased capital assets included the following:
Furniture and Office Equipment $ 31,600
Engineering/testing equipment 21,900
------------
53,500
Less accumulated depreciation (1,100)
------------
Total $ 52,400
============
12. SHAREHOLDERS' EQUITY
Preferred Shares - Pursuant to the Special Shareholders Meeting of May
14, 2002, Alanco shareholders approved an Amendment to Article IV of the
Company's Articles of Incorporation whereby the Company is authorized to
issue a total of 25,000,000 shares of No Par Preferred Stock. These
shares may be issued in such series and preferences as determined by the
Board of Directors.
During fiscal year 2002, in a transaction with an accredited investor,
the Company issued 50,000 shares of preferred stock at $10.00 per share
and 500,000 warrants to purchase common stock at an exercise price of
$1.00 per share for a value received of $500,000 ($487,300 net of related
expenses). The preferred shares are each convertible into thirteen (13)
shares of Common Stock and are characterized as "restricted securities"
under federal securities laws as they were acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration
under the Securities Act of 1933, as amended, only in certain limited
circumstances.
Holders of shares of the Company's preferred stock shall be entitled to
receive, when declared by the Board of Directors, out of funds and assets
of the Company legally available therefore, an annual dividend of 10% per
annum based upon a per share value of $10 for purposes of such dividend
payment. Dividends shall accrue, be cumulative from the date of issue and
may be paid "in kind." Dividends on Preferred Shares paid "in-kind"
during the current fiscal year amounted to 632 preferred shares with a
value of approximately $6,300.
During fiscal years 2001 and 2000, the Company issued 270,000 shares of
series B cumulative preferred stock ("Series B") to accredited investors
at $4.00 per share for a value received of $1,080,000. The shares are
characterized as "restricted securities" under federal securities laws as
they were acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
shares may be resold without registration under the Securities Act of
1933, as amended, only in certain limited circumstances.
Holders of shares of Series B shall be entitled to receive, when declared
by the Board of Directors, out of funds and assets of the Company legally
available therefore, an annual dividend of 15% per annum based upon a per
share value of $5 for purposes of such dividend payment. Dividends shall
accrue, be cumulative from the date of issue and may be paid "in kind."
Dividends on Preferred Shares paid "in-kind" during the fiscal year
2001 amounted to 35,500 preferred shares with a value of $142,100.
During the fourth quarter of fiscal 2001, the holders of shares of the
Company's Series B Preferred Stock accepted an offer to convert their
preferred shares and $644,800 into 1,901,400 shares of the Company's
common stock. The conversion into Common shares is recorded effective at
year-end. Subscription receivables at June 30, 2001, related to the
conversion, were $563,500. All subscription receivables were paid during
July 2001. Expenses related to the offer to convert preferred shares
amounted to $11,000.
Common Shares - Pursuant to the Special Shareholders' Meeting of May 14,
2002, Alanco shareholders approved an Amendment to Article IV of the
Company's Articles of Incorporation whereby the authorized capital stock
of the Company consists of 75,000,000 shares of Class A No Par Common
Stock (reduced from the previously authorized 100,000,000 shares), each
entitled to one vote per share, and 25,000,000 shares of Class B No Par
Common Stock, each entitled to one-one hundredth (1/100th) of one vote
per share.
In a private offering in December 2001, the Company issued 1,480,000
shares of common stock and 800,000 warrants to purchase common stock with
an exercise price of $1.00 per share, for a purchase price of $925,000.
Thirty-seven units, each unit comprised of 40,000 shares of the Company's
common stock and either 10,000 or 25,000 warrants, depending on the total
number of units purchased, with an exercise price of $1.00 per share,
were purchased by fourteen accredited investors in the private offering
at a price of $25,000 per unit. Expenses associated with the private
offering amounted to $38,300.
In May 2002, in a second private offering, the Company issued 250,000
shares of the Company's common stock to an accredited investor for a
purchase price of $175,000. The transaction grants the purchaser, under
certain conditions and limitations, the right and option to have the
Company repurchase the shares at a repurchase price of $0.70 per share
any time during the 2003 calendar year. The value of the put option was
deemed to be de minimus and as such no liability has been recorded on
the Company's financial statements as of June 30, 2002.Expenses
associated with the second private offering amounted to $10,900.
In November 2000, the Company's shareholders authorized the Company's
Board of Directors to effect, if the Board believes necessary, up to a 1
for 3 reverse stock split at a future date through October 2002. As of
June 30, 2002, no split was affected.
Warrants - As of June 30, 2002, the Company had 1,510,700 warrants
outstanding with a weighted average exercise price of $1.11. The life of
the outstanding warrants extends from February 2003 through June 2007.
Details related to the warrants issued are presented below.
During fiscal 1998, the Company issued 60,700 warrants to a director for
consideration of a $300,000 line-of-credit. These warrants expire in five
years and are exercisable at $2.80 per share. During fiscal 2000, the
Company issued a total of 50,000 warrants to two consultants for services
rendered. 25,000 of the warrants are exercisable at $3.00 per share and
expire in February 2003. The remaining 25,000 warrants are exercisable at
$1.75 and expire in October 2004. During fiscal 2002, the Company issued
a total of 1,400,000 warrants. 800,000 warrants, which are exercisable at
$1.00 per share and expire in December 2004, were issued in connection
with the Company's private offering in December 2001 (described in the
Common Shares section above). 500,000 warrants, issued in connection with
the Company's sale of Preferred Stock (described in the Preferred Shares
section above), are exercisable at $1.00 per share and expire in May
2007. 100,000 warrants, which are exercisable at $0.87 per share and
expire in June 2007, were issued in consideration for a $1.3 million line
of credit agreement due to expire December 31, 2003 (described in note 7
above).
Stock Options - As of June 30, 2002, the Company had a total of 5,502,800
stock options outstanding with a weighted average exercise price of
$1.02. Of these options, 3,829,200 are exercisable at 2002 fiscal year
end. The tables below, as well as the narrative following, provide
further information regarding the Company's stock options.
The following is a table of activity of all options:
Weighted
Number of Average
Shares Exercise Price
------------- --------------
OPTIONS OUTSTANDING, June 30, 2000 2,721,800 $ 1.15
Granted 1,343,200 1.68
Exercised (63,700) 0.71
Canceled (642,100) 2.13
------------- --------------
OPTIONS OUTSTANDING, June 30, 2001 3,359,200 $ 1.19
Granted 3,202,500 1.00
Exercised -- --
Canceled (1,058,900) 1.51
------------- --------------
OPTIONS OUTSTANDING, June 30, 2002 5,502,800 $ 1.02
============= ==============
For all options granted during fiscal years 2002 and 2001, the option
price was not less than the market price, as defined in the stock option
plans, of the Company's common stock on the grant date. At June 30, 2002,
options for 3,829,200 shares were exercisable and options for the
remaining shares become exercisable within the next three years. If not
previously exercised, options outstanding at June 30, 2002 will expire as
follows:
Weighted
Year of Number of Average
Expiration Shares Exercise Price
------------- ------------- -------------
2002 34,300 $ 5.18
2003 20,000 1.00
2004 285,000 1.25
2005 100,000 1.95
2008 1,165,000 0.43
2009 838,500 1.15
2010 384,000 1.78
2011 548,500 1.03
2012 2,127,500 1.00
------------- -------------
5,502,800 $ 1.02
============= =============
Additional information about outstanding options to purchase the
Company's common stock as of June 30, 2002 is as follows:
Options Outstanding Options Exercisable
-------------------------------------------------- --------------------------------
Weighted Avg. Weighted Weighted
Number Remaining Average Number Average
Exercise of Contractual Exercise of Exercise
Price Shares Life (in years) Price Shares Price
--------------- ------------ ----------------- ---------------- ------------ -----------------
$0.43-$0.75 1,325,000 6.26 $ 0.47 1,325,000 $ 0.47
$1.00-$1.15 3,205,000 9.33 $ 1.01 1,539,400 $ 1.02
$1.25-$2.35 882,000 5.58 $ 1.57 874,000 $ 1.57
$2.75-$6.16 90,800 4.73 $ 3.73 90,800 $ 3.73
Company stock options are issued to employees at an exercise price not
less than the fair market value, as determined under the option plan, on
the date of grant. In accordance with accounting for such options
utilizing the intrinsic value method, there is no related compensation
expense recorded in the Company's financial statements for the current
fiscal year. The stock option plans described below allow for reissuance
of the authorized shares upon cancellation of a stock option grant, thus
resulting in total shares issued exceeding the plan's authorized amounts.
In 1995, the Company adopted an Incentive Stock Option Plan that
authorizes the issuance of up to 142,900 shares of common stock. Pursuant
to the Plan, the Company may grant "incentive stock options" (intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as
amended). Incentive and non-qualified stock options may not be granted at
an exercise price of less than the fair market value of the common stock
on the date of grant. Each option must be granted within five years from
the effective date of the Plan. The term of the options may not exceed
five years. As of June 30, 2002, the Company has granted 121,800 options
under the plan, of which all have vested, 112,500 have been exercised and
the remaining have been cancelled. No options are outstanding for this
plan at June 30, 2002.
In 1996, the Company adopted a Directors and Officers Stock Option Plan
(1996 D&O Plan). Only executive officers and directors of the Company
shall be eligible to be granted options under this Plan. An aggregate of
107,100 shares of common stock are reserved for issuance under this Plan.
The exercise price of the options will be 60% of the NASDAQ closing bid
price per share on the date of grant or such other price the Board of
Directors may determine. Each option must be granted within five years
from the effective date of the Plan and the term may not exceed five
years. No one officer or director shall have more than 21,400 options
granted under this Plan. As of June 30, 2002, the Company had granted
options under the 1996 D&O Plan to purchase 106,100 shares of which all
options are vested, 47,500 have been exercised, and 14,300 have been
cancelled. Exercise prices for the directors and officers options
outstanding at June 30, 2002 range from $1.00 to $6.30.
In 1998, the Company adopted a Directors and Officers Stock Option Plan
(1998 D&O Plan) that authorizes the issuance of up to 750,000 shares of
common stock. Only executive officers and directors of the Company shall
be eligible to be granted options under the Plan. Each option must be
granted at or above fair market value within 10 years from the effective
date of the Plan, with the term of the option not exceeding 10 years. As
of June 30, 2002, the Company has granted options under the Plan to
purchase 750,000 shares, of which all have vested and 370,000 have been
exercised. Options outstanding for this Plan at June 30, 2002 have
exercise prices that range from $.75 to $1.75.
In 1998, the Company also adopted an Incentive Stock Option Plan (1998
Stock Option Plan) that authorizes the issuance of up to 750,000 shares
of common stock. Pursuant to the Plan, incentive and non-qualified stock
options may be granted, with the incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan provides for a vesting schedule for incentive stock
options of 25% after six months from the date of grant, 25% after one
year, and 50% after two years. No one person shall be granted incentive
stock options with a fair market value of more than $100,000 during any
single calendar year and the maximum number of shares granted to any one
employee shall be 100,000. The Board of Directors shall determine the
exercise price, which may not be less than the fair market value of the
common stock at the date of grant. Each option must be granted within 10
years from the effective date of the Plan, with the term of the options
not exceeding 10 years. As of June 30, 2002, the Company has granted
options under the Plan to purchase 1,254,500 shares, of which 512,500
have been canceled, 47,500 have been exercised, and 576,500 have been
vested. Options outstanding for this Plan at June 30, 2002 have exercise
prices that range from $.50 to $3.36.
During fiscal 2000, the Company adopted a Directors and Officers Stock
Option Plan (1999 D&O Plan) that authorizes the issuance of up to 500,000
shares of common stock. Only executive officers and directors of the
Company shall be eligible to be granted options under the Plan. Each
option must be granted at or above fair market value within 10 years from
the effective date of the Plan, with the term of the option not exceeding
10 years. As of June 30, 2002, the Company has granted options under the
Plan to purchase 625,000 shares, of which all have vested, 150,000 have
been cancelled, and none have been exercised. Options outstanding for
this Plan at June 30, 2002 have exercise prices that range from $1.00 to
$2.00.
In fiscal 2000, the Company also adopted an Incentive Stock Option Plan
(1999 Stock Option Plan) that authorizes the issuance of up to 1,500,000
shares of common stock. Pursuant to the Plan, incentive and non-qualified
stock options may be granted, with the incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan provides for a vesting schedule for incentive stock
options of 25% after six months from the date of grant, 25% after one
year, and 50% after two years. No one person shall be granted incentive
stock options with a fair market value of more than $100,000 during any
single calendar year and the maximum number of shares granted to any one
employee shall be 100,000. The Board of Directors shall determine the
exercise price, which may not be less than the fair market value of the
common stock at the date of grant. Each option must be granted within 10
years from the effective date of the Plan, with the term of the options
not exceeding 10 years. As of June 30, 2002, the Company has granted
options under the Plan to purchase 2,546,300 shares, of which 1,769,800
have been canceled, none have been exercised, and 411,500 are vested.
Options outstanding for this Plan at June 30, 2002 have exercise prices
that range from $1.00 to $2.35.
During fiscal 2001, the Company adopted a Directors and Officers Stock
Option Plan (2000 D&O Plan) that authorizes the issuance of up to 500,000
shares of common stock. Only executive officers and directors of the
Company shall be eligible to be granted options under the Plan. Each
option must be granted at or above fair market value within 10 years from
the effective date of the Plan, with the term of the option not exceeding
10 years. As of June 30, 2002, the Company has granted options under the
Plan to purchase 250,000 shares, of which all are vested, and none have
been exercised. Options outstanding under this Plan at June 30, 2002 have
an exercise price of $1.00.
In fiscal 2001, the Company also adopted an Incentive Stock Option Plan
(2000 Stock Option Plan) that authorizes the issuance of up to 1,000,000
shares of common stock. Pursuant to the Plan, incentive and non-qualified
stock options may be granted, with the incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan provides for a vesting schedule for incentive stock
options of 25% after six months from the date of grant, 25% after one
year, and 50% after two years. No one person shall be granted incentive
stock options with a fair market value of more than $100,000 during any
single calendar year and the maximum number of shares granted to any one
employee shall be 100,000. The Board of Directors shall determine the
exercise price, which may not be less than the fair market value of the
common stock at the date of grant. Each option must be granted within 10
years from the effective date of the Plan, with the term of the options
not exceeding 10 years. As of June 30, 2002, the Company has granted
options under the Plan to purchase 782,500 shares, of which 644,500 have
been canceled, 500 have been exercised, and 34,400 are vested. Options
outstanding for this Plan at June 30, 2001 have an exercise price of
$1.00.
The Company also has granted options to officers and other employees
outside of any plan as an inducement at the time of their employment. As
of June 30, 2002, the Company has granted options under the plan to
purchase 3,670,000 shares, of which 925,000 have expired, none have been
exercised, and 1,657,500 are vested. Exercise prices for these options
outstanding at June 30, 2002 range from $.43 to $4.69. All of these
options have been or will be registered on Form S-8 filings.
13. PRO FORMA STOCK BASED COMPENSATION DISCLOSURE
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options granted to employees. Accordingly, no
compensation cost has been recognized for grants of options to employees
since the exercise prices were not less than the fair value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would have been reduced to the pro forma amounts
indicated below.
Year Ended June 30,
2002 2001
------------- -------------
Net loss applicable to common
shareholders
As reported $ (6,017,600) $ (3,136,600)
Pro forma $ (6,701,300) $ (4,244,400)
Net loss per common share - basic
As reported $ (0.60) $ (0.46)
Pro forma $ (0.64) $ (0.62)
Net loss per common share - diluted
As reported N/A N/A
Pro forma N/A N/A
The fair value of each employee option granted in 2002 and 2001 was
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
Year Ended June 30,
2002 2001
------------- ------------
Volatility 30% 79%
Risk free interest 3% 5.67%
Expected dividends none none
Expected term (in years) 10 3
14. ACQUISITION
In December of 2001, the Company announced an agreement to acquire the
operations of Technology Systems International, Inc ("TSIN"), a
Scottsdale, AZ based developer of the TSI PRISM(TM) RFID (Radio Frequency
Identification) tracking technology, a proprietary wireless system
primarily utilized in correctional facilities security management and
personnel monitoring. The transaction was effected by the issuance of
Alanco Class A Common shares at closing to purchase TSIN's assets and the
Company's assumption of specified liabilities. The Company created a
wholly owned subsidiary to record the assets purchased and the
liabilities assumed. The all-stock transaction was approved at a Special
May 14, 2002 Shareholders Meeting, which authorized the issuance of the
shares required by the TSI amended acquisition agreement (the
"Agreement"). Complete proxy information was filed with the Securities
and Exchange Commission on April 22, 2002 and sent to all shareholders
pursuant to the Special Shareholders Meeting requirements.
The Agreement required the Company to issue 6 million Class A Common
Shares to the seller at closing and issue up to an additional 17 million
shares of Class B Common Shares upon TSI operations achieving certain
financial targets. Five million of the Class B Common Shares would be
earned upon the TSI operations achieving a gross profit for the twelve
months ended December 31, 2002 of at least $3 million. Gross profit
generated during the period in excess of the $3 million would earn
additional Class B Common Shares at a rate of 4 shares for each $1 of
gross profit over the $3 million threshold, up to a maximum of 12 million
Class B Common Shares. A Final Payment Extension could be earned in the
event the maximum number of additional Class B Common Shares (17 million)
have not been earned by December 31, 2002 and both the following have
occurred: (i) at least $4.5 million of Gross Profit was achieved during
calendar year 2002 from the TSI operation, and (ii) a minimum of $15
million in gross sales of the business has been contracted for during
calendar year 2002, then Gross Profit produced during the first quarter
of calendar year 2003 in excess of $1,000,000 shall earn additional
shares of Class B Common Shares at the same rate of 4 Class B Common
Shares for each $1 of such additional excess gross profit; provided,
however, that not more than the maximum of 12 million shares of Class B
Common Stock shall be payable aggregately under the payout formulas.
In accordance with the provisions of SFAS 141, Business Combinations,
the transaction was recorded using the purchase method of accounting,
which requires the allocation of the purchase price to the fair value of
the assets acquired and the liabilities assumed. To calculate the
purchase price, only the 6 million Class A Common Shares that are
guaranteed to be issued under the Agreement were valued. Since the shares
were not registered when issued, the shares were valued at 90% of the
10-day average closing price of the Company's Class A Common Stock as
traded on the Nasdaq exchange. If unregistered Class B Common Shares are
issued pursuant to the acquisition agreement in the future, they will be
valued at a 15% discount due to their reduced voting rights when compared
to the Class A Common Stock.
The transaction closed with an effective date of June 1, 2002. The
purchase price, considering only the 6 million Class A Common Shares
issued and related costs of the acquisition, was valued at $3,914,200. In
accordance with SFAS 141, the Company has not recorded any amortization
expense against this goodwill. If additional Class B Common Shares are
issued pursuant to the Agreement in the future, additional goodwill will
be recorded.
A summary of the amounts of the assets and liabilities acquired in the
TSI acquisition are as follows:
Current Assets
Accounts receivable $ 237,300
Cost and estimated earnings in excess of billings 100,600
Inventory 267,000
Prepaid expenses 8,500
-------------
Total current assets 613,400
-------------
Property and Equipment
344,200
-------------
Other Assets
Intngible assets 1,150,000
Deposits 25,400
-------------
Total assets $ 2,133,000
=============
Current Liabilities
Due to bank $ 2,600
Accounts payable 277,700
Deferred revenue - short term 165,600
Leases payable - short term 21,800
Notes payable and accrued interest - short term 116,700
Other accrued expenses 399,500
-------------
Total current liabilities 983,900
Deferred revenue - long term 52,000
Leases payable - long term 30,600
Notes payable - long term 675,000
Due to Alanco corporate 1,516,100
-------------
Total Liabilities $ 3,257,600
-------------
Liabilities assumed in excess of assets acquired $ 1,124,600
=============
Total goodwill resulting from this transaction is $5,038,800 and includes
$3,810,000 of Class A common shares issued to the former shareholders of
TSIN, $104,200 in legal and consulting fees directly associated with the
acquisition and $1,124,600 of liabilities assumed in excess of assets
acquired.
Intangible assets acquired and corresponding amortization periods are
summarized as follows:
Patent license 3 years
Manufacturing license 6 years
Developed software 5 years
Amounts classified as "due to Alanco corporate" at the time of the
acquisition include $559,100 for operating advances made to TSIN prior to
the acquisition and $957,000 for pre-existing TSIN notes payable that
were assumed by Alanco and satisfied through the issuance of 1,000,000
shares of Alanco Class A common stock simultaneous to the closing of the
acquisition.
The Company also entered into an agreement, subject to the TSI
acquisition approval at the May 14, 2002 Special Shareholders Meeting,
with an approximate 15% owner and significant vendor of TSIN to convert
approximately $957,000 of TSIN debt into one million shares of the
Company's Class A Common Shares, to convert $350,000 of TSIN short-term
debt into long-term debt and to modify a supply agreement between the
parties to mutually acceptable terms. The transaction was completed
subsequent to the TSIN closing with Alanco issuing the one million shares
and the vendor renegotiating the debt and the supply agreement.
In a separate agreement negotiated with an individual TSIN shareholder
during the third quarter of fiscal year 2002, the Company agreed to
exchange its investment in G&M Preferred Stock for 2,070,800, or
approximately 8.9% of the outstanding shares of TSIN. The Company's
investment in G&M Preferred Stock had been recorded on the Company
balance sheet as of December 31, 2001, the most recent quarter end prior
to the negotiations, as "Investments at Cost" in the amount of
$2,475,200. Since the TSI acquisition valuation was determined
considering only the shares that were issued at closing, with no
consideration for the additional Class B Shares that may be issued, the
G&M investment was adjusted during the third quarter to reflect the
approximate value of 8.9% of the Class A common Shares to be issued to
TSIN at closing. See "Investments" under footnote 1 and footnote 2 for
additional discussion of the transaction.
15. SEGMENT REPORTING
The Company has operated in fiscal year 2002 and 2001 primarily in
the Computer Data Storage segment. The acquisition of Technology Systems
International, Inc., effective June 1, 2002, created a second reporting
segment called RFID Tracking segment, which the Company projects will
become a significant contributor of revenue in fiscal year 2003. The
following table is a summary of results by major segment:
Data RFID
Storage Technology Corporate Total
------------- ------------- ------------- -------------
Fiscal Year 2002
Revenue from External Customers $ 5,297,900 $ 70,300 $ N/A $ 5,368,200
Cost of Goods Sold 3,044,700 52,900 N/A 3,097,600
------------- ------------- ------------- -------------
Gross Profit 2,253,200 17,400 N/A 2,270,600
------------- ------------- ------------- -------------
Segment Operating Loss (2,753,100) 111,400) (2,867,800) (5,732,300)
Interest Income -- -- 95,400 95,400
Interest expense -- -- (82,700) (82,700)
Other 1,200 -- -- 1,200
------------- ------------- ------------- -------------
Loss from Continuing Operations $ (2,751,900) $ (111,400) $ (2,855,100) $ (5,718,400)
============= ============= ============= =============
Accounts receivable $ 600,100 $ 181,400 $ -- $ 781,500
------------- ------------- ------------- -------------
Inventories $ 999,200 $ 257,200 $ -- $ 1,256,400
------------- ------------- ------------- -------------
Total Assets $ 1,839,100 $ 7,270,900 $ 752,300 $ 9,862,300
------------- ------------- ------------- -------------
Capital Expenditures $ (179,500) $ 5,300* $ 100 $ (174,100)
------------- ------------- ------------- -------------
Depreciation & Amortization $ 237,400 $ 24,800 $ 17,600 $ 279,800
------------- ------------- ------------- -------------
Fiscal Year 2001
Revenue from External Customers $ 9,135,300 $ N/A $ N/A $ 9,135,300
Cost of Goods Sold 5,426,800 N/A N/A 5,426,800
------------- ------------- ------------- -------------
Gross Profit 3,708,500 N/A N/A 3,708,500
Segment Operating Income (2,258,600) N/A (1,005,200) (3,263,800)
Interest Income -- N/A 86,100 86,100
Interest Expense -- N/A (58,300) (58,300)
Other (800) N/A -- (800)
------------- ------------- ------------- -------------
Loss from Continuing Operations $ (2,259,400) $ N/A $ (977,400) $ (3,236,800)
============= ============= ============= =============
Accounts Receivable $ 1,163,700 $ N/A $ 45,700 $ 1,209,400
------------- ------------- ------------- -------------
Inventory $ 1,218,500 $ N/A $ -- $ 1,218,500
------------- ------------- ------------- -------------
Total Assets $ 4,336,800 $ N/A 4,476,900 $ 8,813,700
------------- ------------- ------------- -------------
Capital Expenditures $ 125,600 $ N/A $ 21,200 $ 146,800
------------- ------------- ------------- -------------
epreciation & Amortization $ 236,000 $ N/A $ 181,100 $ 417,100
------------- ------------- ------------- -------------
*Purchases made after acquisition
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE: NONE
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference from
the Registrant's Proxy Statement to be filed on or before October 29, 2002.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the Registrant's Proxy Statement to be filed on or before October 29, 2002.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the Registrant's Proxy Statement to be filed on or before October 29, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from
the Registrant's Proxy Statement to be filed on or before October 29, 2002.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. Exhibits
3.2 Restated By-Laws of Alanco Technologies, Inc. (1)
10.2 Contract for Sale of principal mining property to Gold &
Minerals, Inc. (2)
10.3 Asset Purchase Agreement related to sale of assets of Alanco
Environmental Resources, Inc. (3)
10.4 Agreement and Plan of Reorganization, dated as of June 21, 2000,
by and among the Company, Excel Computer Corporation, and the
holders of the capital stock of Excel (4)
10.5 1996 Directors and Officers Stock Option Plan and & Kauffman and
Carlson Stock Option Agreements (5)
10.6 1998 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (6)
10.7 1999 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (7)
10.8 2000 Incentive Stock Option Plan and Directors and Officers Stock
Option Plan (8)
21 Subsidiaries of the Registrant
Name State of Incorporation
---- ----------------------
Arraid, Inc. Arizona
Excel/Meridian Data, Inc. Arizona
Fry Guy Inc. Nevada
SanOne, Inc. Arizona
NetZerver, Inc. Arizona
Technology Systems International, Inc. Arizona
99.1 Certification of Robert R. Kauffman, Chairman & Chief Executive
Officer of Alanco Technologies, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of John A. Carlson, Executive Vice President and
Chief Financial Officer of Alanco Technologies, Inc.
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Footnotes:
(1) Attached as Exhibit 3.2
(2) Incorporated by reference to Annual Report on Form 10-KSB for the
Fiscal Year Ended June 30, 1999
(3) Incorporated by reference to Form 8-KSB filed August 15, 2000
(4) Incorporated by reference to Form 8-KSB filed August 15, 2000
(5) Incorporated by reference to Form S-8 filed October 22,1998
(6) Incorporated by reference to Form S-8 filed November 30,1998
(7) Incorporated by reference to Form S-8 filed November 29, 1999
(8) Incorporated by reference to Form S-8 filed December 14, 2000
B. Schedules NONE
C. Reports on Form 8-K
A Special Shareholders' Meeting was held on May 14, 2002 where
shareholders approved the issuance of shares relative to the acquisition of
the operations of Technology Systems International, Inc. A proxy statement
pertaining to the acquisition, which included the Acquisition Agreement and
required financial statements, was filed on April 22, 2002. The Company
filed a report, dated August 14, 2002, on Form 8-KSB, which is hereby
incorporated by reference, pertaining to additional information related to
that acquisition as required by Nasdaq.
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.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Report to be signed on it behalf by the
undersigned, thereunto duly authorized.
DATE: September 27, 2002 /s/Robert R. Kauffman
-------------------------------------
Robert R. Kauffman, CEO, Chairman of the Board
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert R. Kauffman and John A. Carlson,
and each of them, his true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution for him or in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-KSB Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Robert R. Kauffman Director & September 27, 2002
---------------------
Robert R. Kauffman Chief Executive Officer
/s/James T. Hecker Director September 27, 2002
------------------
James T. Hecker
/s/Harold S. Carpenter Director September 27, 2002
----------------------
Harold S. Carpenter
/s/Thomas C. LaVoy Director September 27, 2002
------------------
Thomas C. LaVoy
/s/Steven P. Oman Director September 27, 2002
-----------------
Steven P. Oman
/s/Donald E. Anderson Director September 27, 2002
------------------
Donald E. Anderson
/s/John A. Carlson Director & September 27, 2002
------------------
John A. Carlson Chief Financial Officer
I Robert R. Kauffman, President and Chief Executive Officer of Alanco
Technologies, Inc. (the "Company"), certify that:
(1) I have reviewed the Annual Report on Form 10-KSB for the
fiscal year ended June 30, 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.
Dated: September 27, 2002
By /s/Robert R. Kauffman
--------------------
President and Chief Executive 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 Annual Report of Alanco Technologies, Inc. on Form 10-KSB for the year
ended June 30, 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
-----------------------
Chairman and Chief Executive Officer
September 26, 2002
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 Annual Report of Alanco Technologies, Inc. on Form 10-KSB for the year
ended June 30, 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
-----------------------
Executive Vice President & Chief Financial
Officer
September 26, 2002
EXHIBIT 3.2
BYLAWS
OF
ALANCO TECHNOLOGIES, INC.
an Arizona corporation
1.01 Principal Office. The principal office for the transaction of the
business of the corporation in Arizona is hereby fixed and located at 15575
North 83rd Way, Suite 3, Scottsdale, AZ 85260. The Board of Directors is hereby
granted full power and authority to change said principal office from one
location to another in said County. Any such change shall be noted on the Bylaws
by the Secretary, opposite this section, or this section may be amended to state
the new location.
1.02 Other Offices. The Corporation may also have offices at such other
places both within or without the State of Arizona as the Board of Directors may
from time to time determine or the business of the Corporation may require.
II. STATUTES AND ARTICLES
2.01 References to Articles. Any reference herein made to the Corporation's
Articles will be deemed to refer to its Articles of Incorporation and all
amendments thereto as at any given time on file with the Arizona Corporation
Commission, together with any and all certificates theretofore filed by the
Corporation with the Arizona Corporation Commission.
2.02 Seniority Thereof. The Statutes of the State of Arizona will in all
respects be considered superior to the Articles of Incorporation with any
inconsistency resolved in favor of said Statutes. The Statutes and Articles will
in all respects be considered senior and superior to these Bylaws, with any
inconsistency to be resolved in favor of the Statutes and Articles, and with
these Bylaws to be deemed automatically amended from time to time to eliminate
any such inconsistency which may then exist.
III. SHAREHOLDERS' MEETINGS
3.01 Annual Meetings. Absent a resolution of the Board of Directors
providing otherwise, the annual meeting of the shareholders will be held during
the month of November of each year. The date, time of day and place of the
annual meeting of shareholder shall be as stated by the Secretary, at the
direction of the Board of Directors, or in the absence of action by the Board,
at the direction of the President, in the notice of such meeting given pursuant
to Section 3.04 hereof. If any such annual meeting is for any reason not held as
aforesaid, a special meeting may thereafter be called and held in lieu thereof,
and the same proceedings (including the election of directors) may be conducted
thereat as at an annual meeting. Any director elected at any annual meeting, or
special meeting in lieu of an annual meeting, will continue in office until the
election of his successor, subject to his earlier resignation pursuant to
Section 9.01 below. The Chairman may present any question for consideration and
action at an annual meeting of shareholders. Shareholders' proposals will be
included in proxy solicitation materials and considered and submitted to a vote
at an annual meeting only if the proponents of any such proposals comply with
the rules and regulations promulgated under Section 14(a) of the Securities
Exchange Act of 1934, if applicable, and the Chairman, upon advice of counsel,
determines that such shareholders' proposals should be considered.
3.02 Special Meeting. Special meetings of the shareholders may be held
whenever and wherever called for by the Board of Directors or by the written
demand of the holders of thirty-three and one-third percent (33 1/3%) of all
issued and outstanding shares of stock, regardless of class. The business which
may be conducted at any such special meeting will be confined to the purposes
stated in the notice thereof, and to such additional matters as the chairman of
such meeting may rule to be germane to such purpose.
3.03 Action of Shareholders Without a Meeting. Any action required to be
taken or that might be taken at a meeting of the shareholders may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the shares of outstanding stock
entitled to vote with respect to the subject matter of the action. Any such
consent shall be filed with the corporate records or made a part of the minutes
of the meeting.
3.04 Notices. Written notice stating the place, day and hour of any meeting
of shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than fifty (50) days before the date of the meeting, either personally or by
mail, by the Secretary of the Corporation at the direction of the person or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the first class United States Mail, addressed to the shareholder at
his address as it appears on the stock transfer books of the Corporation. When a
meeting is adjourned to another time or place, unless the Bylaws otherwise
require, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
sixty (60) days, or if after the adjournment, a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting. Whenever any notice is
required to be given to any shareholder, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice. Any such
waiver shall be filed with the corporate records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened.
3.05 Record Date for Shareholders. In order to determine the shareholders
entitled to notice of or to vote at any meeting of shareholders, or entitled to
express consent to corporation action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights with regard to any lawful action, the
Board of Directors may fix in advance a date, not exceeding sixty (60) days nor
less than ten (10) days preceding the date of such meetings, as a record date
for the determination of the shareholders of record entitled to notice of, and
to vote at, such meeting. The shares of stock, and the shareholders "entitled to
vote" (as that or any similar term is hereinafter used) at any meeting of the
shareholders will be determined as of the applicable record date if one has been
fixed as aforesaid; otherwise, if no record date is fixed, the record date shall
be at four o'clock in the afternoon on the day before the day on which notice is
given, or, the record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting shall be the time of
the day on which the first written consent is provided.
3.06 Quorum. A majority of the shares entitled to vote, represented in
person or by proxy (including shares registered in the name of a broker-dealer
or similar institution for beneficial owners to whom the broker-dealer
distributed notice of the stockholder*s meeting and proxy information regardless
of whether such beneficial owners have returned proxies or otherwise instructed
the broker-dealer as to voting their shares), shall constitute a quorum at a
meeting of shareholders. All shares represented and entitled to vote on any
single subject matter which may be brought before the meeting shall be counted
for the purposes of a quorum. Only those shares entitled to vote on a particular
subject matter shall be counted for the purposes of voting on that subject
matter. Business may be conducted once a quorum is present and may continue
until adjournment of the meeting notwithstanding the withdrawal or temporary
absence of sufficient shares to reduce the number present to less than a quorum.
The affirmative vote of the majority of the shares then represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders; provided, however, that if the shares then represented are less
than required to constitute a majority if a quorum were present; provided
further, the affirmative vote of a majority of the shares then present is
sufficient in all cases to adjourn a meeting.
3.07 Voting Records; Election Inspectors. The Secretary of the Corporation
shall obtain from the transfer agent of the Corporation a complete record of the
shareholders entitled to vote at any meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
The Board of Directors, in advance of any shareholders' meeting, may
appoint an Election Inspector or Inspectors to act at such meeting (and any
adjournment thereof). If an Election Inspector or Inspectors are not so
appointed, the chairman of the meeting may, or upon the request of any person
entitled to vote at the meeting will, make such appointment. If any person
appointed as an Inspector fails to appear or to act, a substitute may be
appointed by the chairman of the meeting. If appointed, the Election Inspector
or Inspectors (acting through a majority of them if there be more than one) will
determine the number of proxies and the number of shares represented at the
meeting in person and by proxy; they will receive and count votes, ballots and
consents and announce the results thereof; they will hear and determine all
challenges and questions pertaining to proxies and voting; and, in general, they
will perform such acts as may be proper to conduct elections and voting with
complete fairness to all shareholders. No such Election Inspector need be a
shareholder of the Corporation.
3.08 Organization and Conduct of Meetings. Each shareholders' meeting will
be called to order and thereafter chaired by the Chairman of the Board if there
is one; or, if not, or if the Chairman of the Board is absent or so requests,
then by the President; or if both the Chairman of the Board and the President
are unavailable, then by such other officer of the corporation or such
shareholder as may be appointed by the Board of Directors. The Corporation's
Secretary will act as Secretary of each shareholders' meeting; in his absence
the chairman of the meeting may appoint any person (whether a shareholder or
not) to act as Secretary thereat. After calling a meeting to order, the chairman
thereof may require the registration of all shareholders intending to vote in
person, and the filing of all proxies, with the Election Inspector or
Inspectors, if one or more have been appointed (or, if not, with the Secretary
of the meeting). After the announced time for such filing of proxies has ended,
no further proxies or changes, substitutions or revocations of proxies will be
accepted. If directors are to be elected, a tabulation of proxies so filed will,
if any person entitled to vote in such election so requests, be announced at the
meeting (or adjournment thereof) prior to the closing of the election polls.
Absent a showing of bad faith on his part, the chairman of a meeting will, among
other things, have absolute authority to fix the period of time allowed for the
registration of shareholders and the filing of proxies, to determine the order
of business to be conducted at such meeting and to establish reasonable rules
for expediting the business of the meeting (including any informal, or question
and answer, portions thereof).
3.09 Voting. Except as otherwise may be required by the Corporation's
Articles of Incorporation or by Statute, each share of stock represented at any
meeting of the shareholders shall be entitled to one vote. Except as otherwise
herein provided, the record holder of each share of stock, as determined by the
name appearing on the Corporation's books, shall be the person empowered to cast
the vote to which such share shall be entitled. The affirmative vote of the
majority of the votes cast thereon and entitled to vote on the subject matter
shall be the act of the shareholders; provided however, that if the shares then
represented are less than required to constitute a quorum, the affirmative vote
must be such as would constitute a majority if a quorum were present; provided
further, the affirmative vote of a majority of the shares then present is
sufficient in all cases to adjourn a meeting. The voting will be by ballot on
any question as to which a ballot vote is demanded, prior to the time the voting
begins, by any person entitled to vote on such question; otherwise a voice vote
will suffice. No ballot or change of vote will be accepted after the polls have
been declared closed following the ending of the announced time for voting.
The following additional provisions shall apply to the voting of shares:
(a) Treasury Stock. Shares of its own stock belonging to this
Corporation or to another corporation, if a majority of the shares
entitled to vote in the elections of directors of such other
corporation is held by this Corporation, shall neither be entitled to
vote nor counted for quorum purposes. Nothing in this subparagraph
shall be construed as limiting the right of this Corporation to vote
its own stock held by it in a fiduciary capacity.
(b) Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. In the event any instrument granting a proxy shall
designate two or more persons to act as proxy, the majority of such
persons present at the meeting, or if only one should be present then
that one, shall have and may exercise all the powers conferred by such
instrument upon all the persons so designated, unless such instrument
shall otherwise provide. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the
proxy. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an
interest sufficient at law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is
coupled is an interest in the share itself or an interest in the
Corporation generally. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted or quorum is
determined, written notice of the death or incapacity is given to the
Corporation. A proxy may be revoked by an instrument expressly revoking
it, a duly executed proxy bearing a later date, or by the attendance of
the person executing the proxy at the meeting and his voting of his
shares personally. A telegram, facsimile or cablegram appearing to have
been transmitted by a stockholder or by his duly authorized
attorney-in-fact may be accepted as a sufficiently written and executed
proxy.
(c) Entity Shareholders. Shares standing in the name of another
corporation, limited liability company, partnership or other entity,
domestic or foreign, may be voted by such officer, manager, agent or
proxy as the governing documents of such other entity may prescribe,
or, in the absence of such provision, as the governing board or person
of such other entity may determine. The Secretary of the Corporation or
the Election Inspectors shall have the authority to require that such
documents be filed with the Secretary or Election Inspectors as they
shall reasonably require in order to verify the authority and power of
any such officer, manager, agent or proxy to vote the shares of the
Corporation held by any such other entity.
(d) Shares Held by Fiduciary. Shares held by an administrator,
executor, guardian, conservator or personal representative may be voted
by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee, other than a
trustee in bankruptcy, may be voted by him, either in person or by
proxy, but no such trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name. Shares standing in the
name of a receiver, trustee in bankruptcy, or assignee for the benefit
of creditors may be voted by such representative, either in person or
by proxy. Shares held by or under the control of such a receiver or
trustee may be voted by such receiver or trustee, either in person or
by proxy, without the transfer thereof into his name if authority so to
do be contained in an appropriate order of the court by which such
receiver or trustee was appointed. The Secretary of the Corporation or
the Election Inspectors shall have the authority to require that such
documents be filed with the Secretary of the Corporation as the
Secretary or Election Inspectors shall reasonably require in order to
verify the authority and power of such representative or other
fiduciary to vote the shares of the Corporation registered in the name
of such other person.
(e) Pledged Shares. Unless otherwise set forth in the pledge
document, a shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name
of the pledgee, and thereafter the pledgee shall be entitled to vote
the shares so transferred. The Secretary of the Corporation or the
Election Inspectors shall have the authority to require that such
documents be filed with the Secretary of the Corporation as the
Secretary or Election Inspectors shall reasonably require in order to
verify the voting rights of the pledgee or pledgor.
(f) Joint Owners. If the shares stand in names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or tenants by community
property or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the
Corporation is given written notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to
voting shall have the following effect:
(1) If only one votes, his acts binds.
(2) If more than one votes, the act of the majority so voting
binds all.
(3) If more than one votes, but the vote is evenly split on any
particular matter, each faction may vote the shares in question
proportionally.
(g) Shares Held in Street Name. Shares standing in the name of a
broker-dealer or similar institution for beneficial owners to whom the
broker-dealer distributed notice of the stockholder*s meeting and proxy
information shall be voted as instructed by the beneficial owners
thereof. The foregoing notwithstanding, such shares may be counted as
present for purposes of determining the presence of a quorum as stated
in section 3.06 above. In addition, the Corporation shall rely solely
upon the proxy information returned by such broker-dealers regardless
of all other proxies purported to be signed by said beneficial owner or
requests to vote such shares in person
3.10 Nominations of Directors. Nominations for election to the Board of
Directors of the Corporation at a meeting of shareholders may be made by the
Board of Directors or on behalf of the Board by a nominating committee appointed
by the Board, or by any shareholder of the Corporation entitled to vote for the
election of Directors at such meeting. Such nominations, other than those made
by or on behalf of the Board, shall be made by notice in writing delivered or
mailed by first class United States mail, postage prepaid, to the Secretary of
the Corporation, and received by him not less than thirty (30) days nor more
than (60) days prior to any meeting of shareholders called for the election of
Directors; provided, however, that if less than thirty-five (35) days notice of
the meeting is given to shareholders, such nomination shall have been mailed or
delivered to the Secretary of the Corporation not later than the close of
business on the seventh (7th) day following the day on which the notice of
meeting was mailed. Such notice shall set forth as to each proposed nominee who
is not an incumbent Director (i) the name, age, business address and telephone
number and, if known, residence address of each nominee proposed in such notice,
(ii) the principal occupation or employment of each such nominee, (iii) the
number of shares of stock of the Corporation which are beneficially owned by
each such nominee and by the nominating shareholder, and (iv) any other
information concerning the nominee that must be disclosed with respect to
nominees in proxy solicitations pursuant to the rules, regulations and forms
promulgated under Section 14(a) of the Securities Exchange Act of 1934, if
applicable.
The Chairman of the meeting may, if the facts warrant, determine that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
3.11 Election of Directors. At each election for directors, every
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are directors to be elected and for whose election he has a right to vote,
or to cumulate his votes by giving one candidate as many votes as the number of
his shares, multiplied by the number of directors to be elected and for whose
election he has a right to vote, shall equal, or by distribution such votes on
the same principle among any number of such candidates.
3.12 Shareholder Approval or Ratification. The Board of Directors may
submit any contract or act for approval or ratification at any duly constituted
meeting of the shareholders, the notice of which either includes mention of the
proposed submittal or is waived as provided in Section 3.04 above. If any
contract or act so submitted is approved or ratified by a majority of the votes
cast thereon at such meeting, the same will be valid and as binding upon the
Corporation and all of its shareholders as if would be if approved and ratified
by each and every shareholder of the Corporation.
3.13 Informalities and Irregularities. All informalities or irregularities
in any call or notice of a meeting, or in the areas of credentials, proxies,
quorums,, voting and similar matters, will be deemed waived if no objection is
made at the meeting.
IV. BOARD OF DIRECTORS
4.01 Powers. Subject to the limitations of the Articles of Incorporation,
the Bylaws, the Arizona General Corporation Law as to actions to be authorized
or approved by the shareholders, and subject to the duties of Directors as
prescribed by the Bylaws, all corporation powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
controlled by, the Board of Directors. In addition to any other powers granted
by the Arizona General Corporation Law, the Articles of Incorporation and the
Bylaws, it is hereby expressly declared that the Directors shall have the
following powers, to-wit:
(a) To select and remove all of the officers, agents and employees
of the Corporation, prescribe such powers and duties for them as may
not be inconsistent with law, with the Articles of Incorporation, or
the Bylaws and fix their compensation.
(b) To conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the Articles of Incorporation or the
Bylaws, as they may deem best.
(c) To designate any place within or without the State of Arizona
for the holding of any shareholders' meeting or meetings; and to adopt,
make and use a corporate seal, and to prescribe the forms of
certificate of stock, and to alter the form of such seal and such
certificates so that the same shall at all times comply with applicable
law.
(d) To authorize the issuance of shares of stock of the
Corporation from time to time, upon such terms as may be lawful, in
consideration of money paid, labor done or services actually rendered,
debts or securities canceled, or tangible or intangible property
actually received, or in the case of shares issued as a dividend
against amounts transferred from surplus to stated capital.
(e) To borrow money and incur indebtedness for the purpose of the
Corporation, and to cause to be executed and delivered therefore, in
the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations and other evidences of debt
and securities therefor.
(f) To authorize a person or persons to sign and endorse all
checks, drafts or other forms for payments of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the
Corporation.
4.02 Membership. The business and affairs of the Corporation shall be
managed by its Board of Directors, consisting of not less than three (3) nor
more than nine (9) members. The Board will have the power to increase or
decrease its size within such limits; provided, however, that no decrease shall
have the effect of shortening the term of any incumbent director. At each annual
meeting of shareholders, the shareholders shall elect Directors to hold office
until the next succeeding annual meeting. Directors may also be elected at a
Special Meeting of Shareholders called for such purpose. Each Director shall
hold office until his successor is elected and qualified, or until his earlier
resignation or removal. The Directors need not be shareholders or residents of
the state of incorporation.
4.03 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum, or by a sole remaining Director, and any Director so chosen
shall hold office until the next election of Directors when his successor is
elected and qualified. Any newly created directorship shall be deemed a vacancy.
When one or more Directors shall resign from the Board, effective at a future
time, a majority of the Directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office as herein provided in
the filling of other vacancies. If at any time, by reason of death or
resignation or other cause, the Corporation should have no Directors in office,
then any officer or any shareholder or an executor, administrator, trustee,
guardian or personal representative of a shareholder, or other fiduciary
entrusted with like responsibility for the person or estate of a shareholder,
may call a special meeting of shareholders.
4.04 Removal of Directors. At a meeting of the shareholders called
expressly for that purpose, Directors may be removed, with or without cause, by
a vote of the holders of a majority of the shares then entitled to vote at an
election of Directors; provided, however, that, if less than the entire Board is
to be removed, none of the Directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors.
4.05 Meetings. A regular annual meeting of the Directors shall be held
immediately after the adjournment of each annual shareholders' meeting at the
place at which such shareholders' meeting was held. Other meetings of the Board
of Directors, regular or special, may be held either within or without this
state, and may be held by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting so held shall
constitute presence in person at such meeting. Regular meetings other than
annual meetings may be held without notice at regular intervals at such places
and such times as the Board of Directors may from time to time provide. Special
meetings of the Board of Directors may be held whenever and wherever (within the
Untied States) called for by the Chairman of the Board, the President, or the
number of Directors required to constitute a quorum.
4.06 Notices. No notice need be given of regular meetings of the Board of
Directors. Written notice of the time and place (but not necessarily the purpose
or all of the purposes) of any special meeting will be given to each Director in
person or via mail or telegram addressed to him at his latest address appearing
on the Corporation's records. Notice to any Director of any such special meeting
will be deemed given sufficiently in advance when, if given by mail, the same is
deposited in the United States mail, with first-class postage thereon prepaid,
at least four (4) days before the meeting date, or if personally delivered or
given by telegram, the same is handed to the Director, or the telegram is
delivered to the telegraph office for fast transmittal, at least forty-eight
(48) hours prior to the convening of the meeting. Any Director may waive call or
notice of any meeting (and any adjournment thereof) at any time before, during
which or after it is held. Attendance of a Director at any meeting will
automatically evidence his waiver of call and notice of such meeting (and any
adjournment thereof) unless he is attending the meeting for the express purpose
of objecting to the transaction of business thereat because it has not been
properly called or noticed. No call or notice of a meeting of Directors will be
necessary if each of them waives the same in writing or by attendance as
aforesaid. Any meeting, once properly called and noticed (or as to which call
and notice have been waived as aforesaid) and at which a quorum is formed, may
be adjourned to another time and place by a majority of those in attendance.
Notice of the time and place of holding an adjourned meeting need not be given
to absent Directors if the time and place be fixed at the meeting adjourned.
4.07 Quorum. A majority of the number of Directors then serving shall
constitute a quorum for the transaction of business at any meeting or adjourned
meeting of the Board of Directors; provided, however, that in no event shall
fewer than two Directors constitute a quorum unless only one Director is then
serving.
4.08 Action by Directors. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
4.09 Presumption of Assent. A Director of the Corporation who is present at
a meeting of the Board of Directors, or of any committee, at which action is
taken on any corporate matter will be presumed to have assented to the action
taken unless his dissent is entered in the minutes of the meeting or unless he
files his written dissent to such action with the person acting as secretary of
the meeting before the adjournment thereof or forwards such dissent by
registered or certified mail to the Secretary of the Corporation immediately
after the adjournment of such meeting. A right to dissent will not be available
to a Director who voted in favor of the action.
4.10 Compensation. By resolution of the Board, the Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors,
or of any committee, and may be paid a fixed sum for attendance at each such
meeting or a stated salary as a Director or committee member. If a Director also
serves the Corporation in another capacity, on a full time basis, and is
compensated therefor, then that Director shall not be entitled to receive
compensation for attendance at meetings, but shall still be entitled to expenses
for such attendance.
4.11 Action by Directors Without a Meeting. Any action required to be taken
at a meeting of the Board of Directors, or any action that may be taken at a
meeting of the Directors or the Executive Committee or other committee thereof,
may be taken without a meeting if all Directors or committee members consent
thereto in writing. Such consent shall have the same effect as a unanimous vote.
4.12 Director Conflicts of Interest. No contract or other transaction
between the Corporation and one or more of its Directors or any other business
entity in which one or more of its Directors is a director or officer or is
financially interested shall be either void or voidable because of such
relationship or interest or because such Director or Directors are present at a
meeting of the Board of Directors or committee thereof which authorizes,
approves or ratifies such contract or transaction or vote for such
authorization, approval or ratification if:
(a) the fact of the relationship or interest is disclosed or known
to the Board of Directors or committee thereof and the number of
disinterested Directors or committee members authorizing, approving or
ratifying such contract or transaction is sufficient for such
authorization, approval or ratification to be granted; or
(b) the fact of the relationship or interest is disclosed to the
shareholders entitled to vote and they authorized, approve or ratify
such contract or transaction; or
(c) the contract or transaction is fair and reasonable to the
Corporation at the time the contract or transaction is authorized,
approved or ratified, in the light of circumstances known to those
entitled to vote thereon at that time.
V. EXECUTIVE AND OTHER COMMITTEES
5.01 Creation. The Board of Directors may, by resolution adopted by an
absolute majority of the full Board of Directors, designate two or more of its
members as an Executive Committee, and may designate from among its members one
or more other committees. The designation of the Executive Committee or any
other committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed by law.
5.02 Powers. The Executive Committee, when the Board of Directors is not
in session, shall have and may exercise all the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
subject to the limitations as may be included in the Board's resolution and the
limitations set forth below. Neither the Executive Committee nor any other
committee shall have the authority of the Board of Directors in reference to the
following matters:
(a) The submission to the shareholders of any action that requires
shareholders' authorization or approval.
(b) The filling of vacancies on the Board of Directors or on any
committee of the Board of Directors.
(c) the amendment or repeal of the Bylaws, or the adoption of new
Bylaws.
(d) The fixing of compensation of Directors for serving on the
Board or on any committee of the Board of Directors.
5.03 Tenure and Removal. The members of any committee shall hold office
until the next regular meeting of the Board of Directors and until their
successors are appointed by a new resolution of the Board of Directors. The
Board of Directors, with or without cause, may dissolve any committee or remove
any member thereof at any time.
5.04 Vacancies. Any vacancies occurring by reason of death, resignation,
removal, disqualification or otherwise may be filled by the full Board of
Directors.
5.05 Organization. The members of the Executive Committee or other
committee shall elect a chairman of the committee, who shall appoint a secretary
of the same, and the committee shall otherwise fix its own rules or procedure
which shall not be inconsistent with these Bylaws. The Executive Committee or
other committee shall meet where and as provided by its rules.
5.06 Quorum and Voting. A majority of the members of the Executive
Committee or other committee shall constitute a quorum for the transaction of
business at any meeting thereof; provided, however, that the affirmative vote of
a majority of the members of the Executive Committee or other committee in all
cases shall be necessary for the adoption of any resolution.
5.07 Minutes. The Executive Committee and other committees are to keep
regular minutes of their proceedings and the transactions of their meetings and
report the same to the Board of Directors at the next meeting thereof. Such
minutes shall be open to the inspection of any Director upon application at the
office of the Corporation during business hours.
VI. BOOKS AND RECORDS
6.01 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
shareholders and Board of Directors and committees thereof; and shall keep at
its statutory agent's office, or its principal place of business, or at the
office of its transfer agent or registrar, a record of its shareholders, giving
the names and addresses of all shareholders and the number and class of the
shares held by each. Any books, records and minutes may be in written form or in
any other form capable of being converted into written form within a reasonable
time.
6.02 Inspection. Any person who shall have been a holder of record of
shares of stock of the Corporation or of a voting trust beneficial interest
therefor at least six (6) months immediately preceding his demand or shall be
the holder of record of, or the holder of record of a voting trust beneficial
interest for, at least five percent (5%) of all the outstanding shares of the
Corporation, upon written demand delivered to the Secretary of the Corporation
or to the statutory agent for receipt of service of process, stating the purpose
thereof, shall have the right to examine, in person, or by agent or attorney, at
any reasonable time or times, for any proper purpose its relevant books and
records of accounts, minutes, and record of shareholders and to make copies of
or extracts therefrom.
6.03 Financial Statements Upon the written request of any shareholder or
holder of a voting trust beneficial interest for shares of the Corporation, the
Corporation shall mail to such shareholder or holder of a voting trust
beneficial interest its most recent financial statements showing in reasonable
detail its assets and liabilities and the results of its operations.
VII. OFFICERS
7.01 Election of Chief Executive Officer. The Board of Directors will elect the
Chief Executive Officer of the Corporation who shall also be the Chairman of the
Board of Directors or the President. Such election will regularly take place at
each annual meeting of the Board of Directors, but maybe held at any other
meeting of the Board of Directors. A person elected to the office of Chief
Executive Officer will continue to hold this office until the election of his
successor, subject to action earlier taken pursuant to Sections 7.04 or 8.01.
7.02 Appointment of Additional Officers. The Chief Executive Officer will select
and the Board of Directors shall appoint the Officers set forth in Sections 7.06
through 7.11 below. In addition to the Officers contemplated in said Sections,
the Chief Executive Officer may select and the Board of Directors shall appoint
other corporate Officers (as, for example, one or more Assistant Secretaries)
having such authority to perform such duties as may be prescribed from time to
time by the Chief Executive Officer, by the President or in the case of
Assistant Officers, by his/her or their superior Officers (which, in the
foregoing example, would be the Secretary). Each of such Assistant Officers will
be vested with all of the powers and charged with all of the duties (including
those herein specifically set forth) of his superior officer in the event of
such superior officers absence or disability.
7.03 Bonds and Other Requirements. The Board of Directors may require any
Officer to give bond to the Corporation (with sufficient surety, and conditioned
for the faithful performance of the duties of his/her office) and to comply with
such other conditions as may from time to time be required of him/her by the
Board.
7.04 Removal or Delegations. The Chief Executive Officer may at his sole
discretion remove any Officer of the Corporation at any time and with or without
cause. In addition, provided that two-thirds (2/3) of the whole membership
thereof concurs therein, the Board of Directors may at any time, with or without
cause and whenever in its judgment the best interests of the Corporation will be
served thereby, remove any Officer, including the Chief Executive Officer, or
Agent of the Corporation and declare his Office vacant or temporarily delegate
his/her powers and duties to any other Officer or to any Director. Such removal
or delegation shall be without prejudice to the contract rights, if any, of the
person so removed or whose powers and duties have been delegated. Election or
appointment of an Officer or Agent shall not of itself create contract rights.
7.05 Salaries. The Compensation of the Chief Executive Officer shall be
determined and set by the Compensation/Administration Committee. All other
Officer salaries shall from time to time be fixed by the Chief Executive
Officer. No Officer will be prevented from receiving a salary by reason of the
fact that he/she is also a Director of the Corporation.
7.06 Chairman of the Board. The Board of Directors may elect a Chairman to serve
as a Non-Executive Officer of the Corporation.. The Chairman will preside at all
meetings of the Board of Directors and be vested with such other powers and
duties as the Board may from time to time delegate to him.
7.07 Chief Officers. The Board of Directors shall elect a Chief Executive
Officer who shall also be a Director of the Corporation. The Corporation may
also have a Chief Financial Officer who shall also be the Treasurer of the
Corporation. The Corporation may also have a Chief Operating Officer who shall
also be either the Executive Vice President or President of the Corporation. The
Chief Executive Officer shall be the presiding officer over all business affairs
of the Corporation, subject only to the direction of the Board of Directors.
7.08 President. The President, in the absence of the Chief Executive Officer,
will supervise the business and affairs of the Corporation and the performance
by all of its other Officers of their respective duties, subject to the control
of the Board of Directors. Except as may otherwise be specifically provided in a
resolution of the Board of Directors, the President will be a proper Officer to
sign on behalf of the Corporation any deed, bill of sale, assignment, option,
mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to
service of process or otherwise), agreement, indenture or other instrument of
any significant importance to the Corporation. The President may represent the
Corporation at any meeting of the stockholders of any other Corporation in which
this Corporation then holds shares, and may vote this Corporation*s shares in
such other corporation in person or by proxy appointed by him, provided that the
Board of Directors may from time to time confer the foregoing authority upon any
other person or persons. The President may designate any Vice President to
perform any acts, on behalf of the Corporation, in his place.
7.09 Vice Presidents. One or more Vice Presidents may be selected by the Chief
Executive Officer each of whom will be vested with all of the powers and charged
with all of the duties (including those herein before specifically set forth) of
the President in the event of his absence or disability. Each Vice President
will perform such other duties as may from time to time be delegated or assigned
to him/her by the Board of Directors, Chief Executive Officer, the President or
the Executive Vice President, in that order.
7.10 Secretary. The Secretary will keep the minutes of meetings of the
stockholders, Board of Directors and any Committee, and all unanimous written
consents of the stockholders, Board of Directors and any Committee of the
Corporation, see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by applicable law, be custodian of
the Corporate Seal and Corporate Records, and, in general, perform all duties
incident to the office. Except as may otherwise be specifically provided in a
resolution of the Board of Directors, the Secretary and each Assistant Secretary
will be a proper officer to take charge of the Corporation*s stock transfer
books, and to compile the voting record pursuant to Section 3.07, and to impress
the Corporation*s Seal on any instrument signed by a duly authorized or
empowered Officer, and to attest to the same.
7.11 Treasurer. The Treasurer, absent the election of a Chief Financial Officer,
shall serve as the Chief Financial Officer~and will maintain the financial
records of the Corporation and supervise all Corporate reporting with any and
all government agencies. The Treasurer will keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and will cause
all money and other valuable effects to be deposited in the name and to the
credit of the Corporation in such depositories, subject to withdrawal in such
manner as may be designated by the Board of Directors and the Chief Executive
Officer. The Treasurer will render to the President and to the Directors (at the
regular meetings of the Board or whenever they may require), an account of all
his/her transactions, as Treasurer, and of the financial condition of the
Corporation.
VIII. RESIGNATIONS
8.01 Resignations. Any director, committee member or officer may resign
from his office at any time by written notice delivered or addressed to the
Corporation at its principal place of business. Any such resignation will be
effective upon its receipt by the Corporation unless some later time is therein
fixed, and then from that time. The acceptance of a resignation will not be
required to make it effective.
IX. SEAL
9.01 Form Thereof. The seal of the Corporation will have inscribed
thereon the name of the Corporation and the State and year of its
incorporation.
9.02 Use. Except to the extent otherwise required by law or these Bylaws,
the seal of the Corporation shall not be required to affixed to any document or
act of the Corporation in order for such document or act to be valid and binding
upon the Corporation.
9.03 Authorization. In the absence of the Secretary or Assistant Secretary,
any officer authorized by the Board of Directors to do so may affix the seal of
the Corporation to any instrument requiring a seal.
X. STOCK CERTIFICATES
10.01 Form. Each certificate representing stock of the Corporation will be
in such form as may from time to time be approved by the Board of Directors,
will be numbered and will exhibit the holder's name, the number of shares
represented thereby and any other information required by law.
10.02 Signatures and Seal Thereon. All certificates issued for shares of
the Corporation's capital stock (whether new, re-issued or transferred) will
bear the signatures of the President or a Vice President, and of the Secretary
or Assistant Secretary, and the impression of the Corporation's corporate seal.
The signatures of such officers of the Corporation, and the impression of its
corporate seal, may be in facsimile form on any certificates which are manually
countersigned by or on behalf of an independent transfer agent and/or registrar
duly appointed by the Corporation for the shares of stock evidenced thereby. If
a supply of unissued certificates bearing the facsimile signature of a person
remains when that person ceases to hold the Corporation office indicated on such
certificates, they may still be countersigned, registered, issued and delivered
by the Corporation's transfer agent and/or registrar thereafter, the same as
though such person had continued to hold the office indicated on such
certificate.
10.03 Ownership. The Corporation will be entitled to treat the registered
owner of any share as the absolute owner thereof and, accordingly, will not be
bound to recognize any beneficial, equitable or other claim to, or interest in,
such share on the part of any other person, whether or not it has notice
thereof, except as may expressly by provided applicable law.
10.04 Transfers. Transfers of stock will be made on the books of the
Corporation only at the direction of the person or persons named in the
certificate thereof, or at the direction of his or their duly authorized
attorney-in-fact or duly appointed personal representative, and upon the
surrender of such certificate, properly endorsed, to the Secretary or the duly
authorized transfer agent or agents of the Corporation.
10.05 Lost Certificates. In the event of the loss, theft or destruction of
any certificate representing capital stock of this Corporation or of any
predecessor corporation, the Corporation may issue (or, in the case of any such
stock as to which a transfer agent and/or registrar have been appointed, may
direct such transfer agent and/or registrar to countersign, register and issue)
a certificate in lieu of that alleged to be lost, stolen, or destroyed, upon
such terms and conditions, including reasonable indemnification of the
Corporation, as the Board shall reasonable require, and cause the same to be
delivered to the owner of the stock represented thereby, provided that the owner
shall have submitted such evidence showing the circumstances of the alleged
loss, theft or destruction, and his ownership of the certificate, as the
corporation considers satisfactory, together with any other facts which the
Corporation considers pertinent.
XI. REPEAL, ALTERATION OR AMENDMENT
11.01 Repeal, Alteration, or Amendment. These Bylaws may be repealed,
altered, or amended, or substitute bylaws may be adopted at any time, only by
resolution duly adopted by a majority of the entire Board of Directors, subject
to repeal or change by action of the shareholders.
XII. MISCELLANEOUS
12.01 Indemnification. To the full extent permitted by Arizona law, the
Corporation shall indemnify and pay the expenses of any person who is or was
made, or threatened to be made, a party to an action or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that he
is or was a director, officer, employee, trustee or agent of or for the
Corporation or is or was serving at the request or with the prior approval of
the Corporation as a director, officer employee, trustee or agent of another
corporation; trust or other enterprise. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee, trustee or agent of or for the prior approval of
the Corporation as a director, officer, employee, trustee or agent of another
corporation, trust or enterprise, against any liability asserted against him and
incurred by him in any capacity or arising out his status as such, whether or
not the Corporation would have the power to indemnify him against such liability
under the provisions of these Bylaws.
12.02 Dividends. Dividends upon the capital stock of the Corporation, if
any, subject to the provisions of the Articles of Incorporation, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Articles of Incorporation and the Arizona
General Corporation Law. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
12.03 Representation of Shares of Other Corporations. The President or any
Vice President of this Corporation is authorized to vote, represent and exercise
on behalf of this Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this Corporation. The
authority herein granted to said officers to vote or represent on behalf of this
Corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers, provided, that the Board of Directors may from time to time
confer the foregoing authority upon any other person or persons.
12.04 Construction and Definitions. Unless the context otherwise requires,
the general provisions, rules of construction and definitions contained in the
Arizona General Corporation Law shall govern the construction of theses Bylaws.
Without limiting the generality of the foregoing, the masculine gender includes
the feminine and neuter; and the singular number includes the plural and the
plural number includes the singular; and the term "person" includes a
corporation or other entity as well as a natural person.
12.05 Fiscal Year. The fiscal year end of the Corporation shall be
designated and determined by resolution of the Board of Directors from time to
time.
12.06 Conduct of Meetings. The Board of Directors shall promulgate rules
and regulations and shall establish the rules of procedure applicable at all
meetings of shareholders and the Board of Directors or any committee thereof,
and the provisions thereof are incorporated herein by reference. Absent a
specific rule or regulation, the Chairman shall determine the order of business
at any shareholders' or Board of Directors' meeting and shall have authority, in
his discretion, to regulate the conduct of such meetings.
CERTIFICATION
The undersigned, Secretary of Alanco Technologies, Inc., an Arizona
corporation, hereby certifies that the foregoing Bylaws of the Corporation were
duly adopted by the Board of Directors on August 23, 2002.
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Adele Macintosh, Secretary
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