SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ALANCO TECHNOLOGIES, INC.
(Exact name of registrant specified in 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, Arizona 85260
(480) 607-1010
(Address and telephone number of principal executive offices)
Robert R. Kauffman
Chief Executive Officer
Alanco Technologies, Inc.
15575 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
(480) 607-1010
(Name, address and telephone number of agent for service)
With a Copy to:
Steven P. Oman, Esq.
10446 N. 74th Street, Suite 130
Scottsdale, Arizona 85258
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVENESS OF THIS REGISTRATION
STATEMENT
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(b) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed
class of securities maximum aggregate Amount of
to be registered Amount to be Registered offering price (1) registration fee
---------------- ----------------------- ------------------ ----------------
Class A Common Stock 10,037,704 $0.44 $357.30
(1) Calculated for purposes of this offering under Rule 457(c) under the
Securities Act of 1933 using the average of the high and low sales prices for
the Company's Class A Common Stock on the NASDAQ SmallCap Market as of October
1, 2003.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
ALANCO TECHNOLOGIES, INC.
10,037,704 Shares of Class A Common Stock
(To be issued by the Company upon conversion of outstanding shares of
the Company's Series A Convertible Preferred Stock or upon exercise
of outstanding Warrants to purchase Common Stock.)
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" ON PAGE 5 FOR INFORMATION THAT YOU SHOULD
CONSIDER.
This prospectus is being used in connection with offerings from time to time by
some of our stockholders. We issued shares of Series A Convertible Preferred
Stock and Warrants to purchase Common Stock to the selling stockholders in
connection with a private placement completed in 2003. It is the shares of the
Company's Class A Common Stock that the Series A Convertible Preferred Stock and
Warrants may be converted in to which are offered by this prospectus. We expect
that sales of shares of Class A Common Stock under this prospectus will be made
o in broker's transactions;
o in transactions directly with market makers; or
o in privately negotiated sales or otherwise.
The selling stockholders will determine when they will sell their shares, and in
all cases they will sell their shares at the current market price or at
negotiated prices at the time of the sale. We will pay the expenses incurred to
register the shares for resale, but the selling stockholders will pay any
underwriting discounts, concessions, or brokerage commissions associated with
the sale of their shares of Class A Common Stock. The selling stockholders and
the brokers and dealers that they utilize may be deemed to be "underwriters"
within the meaning of the securities laws, and any commissions received and any
profits realized by them on the sale of shares may be considered to be
underwriting compensation. See "Plan of Distribution."
The selling stockholders beneficially own all 10,037,704 shares of Class A
Common Stock. We will not receive any part of the proceeds from the sale of the
shares. The registration of the shares on behalf of the selling stockholders,
however, does not necessarily mean that any of the selling stockholders will
offer or sell their shares under this registration statement, or at any time in
the near future.
Our Class A Common Stock is listed on the NASDAQ SmallCap Market, or NASDAQ,
under the symbol "ALAN." On October 1, 2003, the last sale price of our Class A
Common Stock on NASDAQ was $0.45 per share.
You should read this prospectus and any prospectus supplements carefully before
deciding to invest.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 11, 2003.
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TABLE OF CONTENTS
Page
Summary 5
Risk Factors 5
Safe Harbor Statements Under the Private Securities
Litigation Reform Act of 1995 9
Issuance of Securities to Selling Stockholders 9
Use of Proceeds 10
Plan of Distribution 10
Selling Stockholders 12
Description of Securities 16
Legal Matters 18
Experts 19
Where You Can Find More Information 19
Information Incorporated by Reference 19
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SUMMARY
The following summary does not contain all of the information that may
be important to purchasers of our Class A Common Stock. Prospective purchasers
of Class A Common Stock should carefully review the detailed information and
financial statements, including notes thereto, appearing elsewhere in or
incorporated by reference into this prospectus.
The Company
Our company, Alanco Technologies, Inc., together with our subsidiaries, is a
provider of advanced information technology solutions. Our operations at the end
of fiscal 2003 (June 30, 2003) were diversified into two reporting business
segments including: (i) design, production, marketing and distribution of RFID
tracking technology, and (ii) manufacturing, marketing and distribution of data
storage products.
Effective June, 2002, we acquired radio frequency identification tracking
technology, known as "RFID", through the acquisition of the operations of
Technology Systems International, Inc., a Nevada corporation. We continue 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 systems for mid-range organizations.
Our principal executive offices are located at 15575 North 83rd Way, Suite 3,
Scottsdale, AZ 85260, and our telephone number is (480) 607-1010.
The Offering
Securities offered by the Selling Shareholders.. 10,037,704 shares of Class A Common Stock
Class A Common Stock currently outstanding...... 15,249,400 shares (1)
Use of proceeds................................. We will not receive any of the proceeds of sales of Class A
Common Stock by the Selling Shareholders. We may, however,
receive proceeds from the exercise of certain rights held by
some of the Selling Shareholders under stock options or
warrants to purchase Class A Common Stock from us if that is
the origin of shares sold by those Selling Shareholders.
Risk Factors.................................... Prospective purchasers should carefully consider the factors
discussed under "Risk Factors."
NASDAQ symbol................................... ALAN
(1) Excludes (i) 6,821,250 shares of Class A Common Stock reserved for
issuance upon exercise of stock options outstanding as of September 30,
2003; (ii) 2,515,750 shares reserved for issuance upon the exercise of
stock options that may be granted in the future under our stock option
plans; (iii) 6,009,426 shares reserved for issuance upon exercise of
outstanding warrants; (iv) 7,528,278 shares reserved for issuance upon
conversion of the Series A Convertible Preferred Stock; and (v) 726,245
shares reserved for issuance upon conversion of the Series B
Convertible Preferred Stock.
RISK FACTORS
An investment in Alanco involves a high degree of risk. In addition to the other
information included in this prospectus, you should carefully consider the
following risk factors in determining whether or not to purchase the shares of
Class A Common Stock offered under this prospectus. These matters should be
considered in conjunction with the other information included or incorporated by
reference in this prospectus. This prospectus contains statements which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
5
places in this prospectus and include statements regarding the intent, belief or
current expectations of our management, directors or officers primarily with
respect to our future operating performance. Prospective purchasers of our
securities are cautioned that these forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors. The accompanying information contained in this
prospectus, including the information set out below, identifies important
factors that could cause such differences. See "Safe Harbor Statements Under the
Private Securities Litigation Reform Act of 1995."
TSI acquisition. We acquired the operations of Technology Systems International,
Inc. ("TSI") effective June 2002, creating the Company's RFID Technology
segment. The following risks are relevant with respect to the acquisition:
o We must successfully operate the storage businesses that we already have,
as well as integrate and successfully operate the TSI operations as
contemplated by the acquisition. The process of integrating management
operations, facilities, accounting, billing and collection systems, and
other information systems requires continued investment of time and
resources and can involve difficulties, which could have a material adverse
effect on our business, financial condition, cash flows and results of
operations.
o Our business model for the TSI business projects significant revenue growth
from sales of the TSI PRISM system in the corrections market. We do not
have experience in increasing market share in the corrections market, and
there is no certainty that we will be able to capture the required market
share for TSI to achieve its anticipated financial success. The TSI RFID
technology is currently being marketed to the corrections market to monitor
the continuous location of incarcerated prisoners. Although there are a
number of monitoring systems being marketed to the corrections industry,
the TSI PRISM system is currently the only system, to the best of our
knowledge, that is able to continuously (every two seconds) monitor the
location of prisoners, both inside and outside of buildings. There is no
certainty that the corrections industry will adopt this technology broadly
enough for us to reach our marketing projections.
o We purchase sub-components for the location and tracking system technology
from a limited number of subcontractors that have the required technology
to produce the sub-components in the quantities required. We cannot be
assured that required sub-components will be available in the quantities
and at the prices and terms anticipated.
o Our TSI products are reliant on key personnel who developed and understand
the technology. The loss of the services of those key technology personnel
could have an adverse effect on the business, operating results and
financial condition of our company.
o See Legal Matters for a discussion of a legal suit filed in connection with
our acquisition of the operations of TSI.
We are subject to the budget constraints of the governmental agencies purchasing
TSI's monitoring systems, which could result in a significant decrease in our
anticipated revenues. We are subject to the budget constraints of the
governmental agencies to whom we plan to sell the TSI monitoring systems. We
cannot assure you that such governmental agencies will have the necessary
revenue to purchase the systems even though they may want to do so. The funds
available to governmental agencies are subject to various economic and political
influences. Even though the TSI monitoring system may be recommended for
purchase by corrections facility managers, the governmental agency responsible
for the facility may not have sufficient budget resources to purchase the
system. As of the date of this filing, TSI has no current sales backlog as
defined by unfulfilled signed contracts.
General economic conditions. Recent unfavorable economic conditions and reduced
information technology spending by our customers have adversely affected our
business in recent quarters. If the economic conditions worsen, or continue at
their present level indefinitely, we may experience a material adverse impact on
our business, operating results, and financial condition. Our data storage
product division sells systems designed to upgrade and enhance older Legacy
computer systems as well as network attached storage systems to mid-sized
network users. The recent economic conditions have resulted in reduced spending
by our customers for technology in general, including the data storage systems
sold by us. We have reduced overhead to assist in offsetting our reduced sales
volume; however, no assurance can be given that the current economic conditions
will not worsen further exacerbating the sales slowdown. The TSI RFID system
sales are less dependent upon current economic conditions as most of the system
purchasers are governmental agencies. However, the current economic conditions
do have an impact on governmental budgets, thereby potentially impacting our
sales. See the previous section discussing the budget constraints of our
governmental purchasers.
6
Acts of domestic terrorism and war have impacted general economic conditions and
may impact the industry and our ability to operate profitably. On September 11,
2001, acts of terrorism occurred in New York City and Washington, D.C. On
October 7, 2001, the United States launched military attacks on Afghanistan, and
in 2003 launched military attacks on Iraq with ongoing operations in both areas.
As a result of those terrorist acts and acts of war, there has been a disruption
in general economic activity. The demand for our data storage products and
services have declined as layoffs in industries affect the economy as a whole.
There may be other consequences resulting from those acts of terrorism, and any
others which may occur in the future, including civil disturbance, war, riot,
epidemics, public demonstration, explosion, freight embargoes, governmental
action, governmental delay, restraint or inaction, quarantine restrictions,
unavailability of capital, equipment, personnel, which we may not be able to
anticipate. These terrorist acts and acts of war may continue to cause a slowing
of the economy, and in turn, reduce the demand of our data storage products and
services, which would harm our ability to make a profit. Also, as federal
dollars are redirected to military efforts, they may not be available for the
purchase of new federal prison monitoring systems. We are unable to predict the
long-term impact, if any, of these incidents or of any acts of war or terrorism
in the United States or worldwide on the U.S. economy, on us or on the price of
our stock.
Future capital and liquidity needs; Uncertainty of proceeds and additional
financing. The Company incurred significant losses during fiscal year 2003 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, we believe that, based on our fiscal 2004
operating plan, cash flow will be adequate to meet our anticipated future
requirements for working capital expenditures, scheduled lease payments and
scheduled payments of interest on our indebtedness. We will need to materially
reduce expenses, or raise additional funds through public or private debt or
equity financing, or both, if the revenue and cash flow elements of our 2004
operating plan are not met. If additional funds are raised through the issuance
of equity securities, the percentage ownership of the then current shareholders
of the company will be reduced, and such equity securities may have rights,
preferences or privileges senior to those of the holders of Class A Common
Stock. If we need to seek additional financing to meet working capital
requirements, there can be no assurance that additional financing will be
available on terms acceptable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our business, operating
results, financial condition and ability to continue operations will be
materially adversely affected.
Recent losses; Fluctuations in operating results. We had a consolidated loss
from operations of $2,601,800 for the fiscal year ending June 30, 2003, and a
consolidated loss from operations of $6,011,200 for the fiscal year ending June
30, 2002. In addition, our quarterly operating results have fluctuated
significantly in the past and could fluctuate significantly in the future. We
anticipate our financial performance will be significantly impacted by our
acquisition of the TSI RFID technology effective June 1, 2002. As a result, our
past quarterly operating results should not be used to predict future
performance.
Intellectual property. Our business strategy is to continue the growth of our
data storage businesses and develop the TSI business opportunity. The long-term
success of this strategy depends in part upon the TSI intellectual property
acquired. Third parties may hold United States or foreign patents which may be
asserted in the future against the TSI technology, and there is no assurance
that any license that might be required under such patents could be obtained on
commercially reasonable terms, or otherwise. Our competitors may also
independently develop technologies that are substantially equivalent or superior
to our technology. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as the laws of the United
States.
Despite our efforts to safeguard and maintain our proprietary rights both in the
United States and abroad, there can be no assurance that we will be successful
in doing so or that the steps taken by us in this regard will be adequate to
deter infringement, misuse, misappropriation or independent third-party
development of our technology or intellectual property rights or to prevent an
unauthorized third party from copying or otherwise obtaining and using our
products or technology. Litigation may also become necessary to defend or
enforce our proprietary rights. Any of such events could have a material adverse
effect on our business, operating results and financial condition.
Dependence on key personnel. Our performance is substantially dependent on the
services and performance of our executive officers and key employees. The loss
of the services of any of our executive officers or key employees could have a
material adverse effect on our business, operating results and financial
condition. Our future success will depend on our ability to attract, integrate,
motivate and retain qualified technical, sales, operations and managerial
personnel. None of our executive officers are bound by an employment agreement
or covered by key-man insurance.
Competition. Although early in the market development cycle, the TSI
business/technology has no current, identified direct competitors. However, it
7
can be expected that if, and to the extent that, the demand for the TSI
technology increases, the number of competitors will likely increase. Increasing
competition could adversely affect the amount of new business we are able to
attract, the rates we are able to charge for our services and/or products, or
both.
Relative to our data storage businesses, we operate in a very competitive
environment, competing against numerous other companies, many of whom have
greater financial resources and market position than we do.
Possible exercise and issuance of options and warrants may dilute interest of
shareholders. As of the date of this prospectus, options to purchase 6,821,250
shares of our Class A Common Stock were outstanding, and the weighted average
exercise price of such options was $0.84. Additionally, warrants to purchase
6,009,426 shares of our Class A Common Stock were outstanding, and the weighted
average exercise price of such warrants was $0.76. To the extent that any stock
options currently outstanding or granted in the future are exercised, dilution
to the interests of our shareholders may occur.
Possible de-listing of our stock on NASDAQ. Our Class A Common Stock currently
trades on the NASDAQ SmallCap Market under the symbol "ALAN." However, there can
be no assurance that an active trading market in our Class A Common Stock will
be available at any particular future time.
We had previously received notice from NASDAQ that our stock price did not meet
the NASDAQ listing eligibility requirement of a minimum closing bid price of
$1.00. However, on December 4, 2003, we received notification from NASDAQ that
our stock had demonstrated a closing bid price of at least $1.00 per share for
ten consecutive trading days and was therefore determined to be in compliance
with all of NASDAQ's listing requirements. The NASDAQ Listing Qualifications
Panel determined to continue the listing of the Company's securities on the
NASDAQ Small Cap Market and closed their hearing file.
While the Company realizes that any future delisting action relating to a
minimum bid price requirement may adversely affect the price and liquidity of
our Common Stock, we currently have a proposal pending that will be voted upon
by our shareholders at our Annual Meeting of Shareholders scheduled for December
22, 2003 authorizing a reverse split to be effected only if necessary to
maintain our NASDAQ listing. Should this proposal be accepted by our
Shareholders, this authorization will allow our Board of Directors to effect up
to a one for ten reverse split if it becomes necessary to maintain our NASDAQ
listing. This authorization would remain in effect until December 31, 2006.
Payment of dividends. We do not anticipate that we will pay cash dividends on
our Class A Common Stock in the foreseeable future. The payment of dividends by
us will depend on our earnings, financial condition, and such other factors, as
our Board of Directors may consider relevant. We currently plan to retain
earnings to provide for the development of our business.
Our articles of incorporation and Arizona law may have the effect of making it
more expensive or more difficult for a third party to acquire, or to acquire
control, of us. Our articles of incorporation make it possible for our Board of
Directors to issue preferred stock with voting or other rights that could impede
the success of any attempt to change control of us. Arizona law prohibits a
publicly held Arizona corporation from engaging in certain business combinations
with certain persons, who acquire our securities with the intent of engaging in
a business combination, unless the proposed transaction is approved in a
prescribed manner. This provision has the effect of discouraging transactions
not approved by our Board of Directors as required by the statute which may
discourage third parties from attempting to acquire us or to acquire control of
us even if the attempt would result in a premium over market price for the
shares of common stock held by our stockholders.
The market price of our Class A Common Stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
The market price of our Class A Common Stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
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o progress of our products through development and marketing;
o announcements of technological innovations or new products by us or our
competitors;
o government regulatory action affecting our products or competitors'
products in both the United States and foreign countries;
o developments or disputes concerning patent or proprietary rights;
o actual or anticipated fluctuations in our operating results;
o the loss of key management or technical personnel;
o the loss of major customers or suppliers;
o the outcome of any future litigation;
o changes in our financial estimates by securities analysts;
o general market conditions for emerging growth and technology companies;
o broad market fluctuations;
o recovery from natural disasters; and
o economic conditions in the United States or abroad.
Future sales of our Class A Common Stock in the public market could adversely
affect our stock price and our ability to raise funds in new equity offerings.
We cannot predict the effect, if any, that future sales of shares of our common
stock or the availability for future sale of shares of our common stock or
securities convertible into or exercisable for our common stock will have on the
market price of our common stock prevailing from time to time. For example, the
availability of the shares covered by this S-3 registration statement for sale,
or of common stock by our existing stockholders under Rule 144, or the
perception that such sales could occur, could adversely affect prevailing market
prices for our common stock and could materially impair our future ability to
raise capital through an offering of equity securities.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This prospectus includes "forward-looking statements" as that term is defined in
the Private Securities Litigation Reform Act of 1995. The safe harbor provisions
of the Securities Exchange Act of 1934 and the Securities Act of 1933 apply to
forward-looking statements made by us. These statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negatives or variations of these terms, and
other comparable terminology. In addition, any statements discussing strategy
that involve risks and uncertainties are forward-looking.
Forward-looking statements involve risks and uncertainties, including those
risks and uncertainties identified in the section of this prospectus beginning
on page 5 titled "Risk Factors" and those risks and uncertainties identified
elsewhere in, or incorporated by reference into, this prospectus. Due to these
risks and uncertainties, the actual results that we achieve may differ
materially from these forward-looking statements. These forward-looking
statements are based on current expectations. In preparing this prospectus, we
have made a number of assumptions and projections about the future of our
business. These assumptions and projections could be wrong for several reasons
including, but not limited to, those factors identified in the "Risk Factors"
section.
You are urged to carefully review and consider the various disclosures that we
make in this prospectus, any subsequent prospectus supplements and in our other
reports filed with the SEC. These disclosures attempt to advise interested
parties of the risk factors that may affect our business.
ISSUANCE OF SECURITIES TO SELLING SHAREHOLDERS
The Class A Common Stock subject to this prospectus may be issued by us to the
selling shareholders pursuant to a private offering of Convertible Preferred
Stock and Warrants to purchase Class A Common Stock completed in July 2003. We
agreed in this transaction to file a registration statement, of which this
prospectus is a part, to register the resale of the securities to be issued by
us upon conversion of the Series A Convertible Preferred Stock or exercise of
9
the Warrants in the transaction. All of the shares of Class A Common Stock
covered by this prospectus are "restricted securities" under the Securities Act
prior to this registration. The transaction under which the securities were
issued is described in the following paragraph.
The transaction involved the issuance by us of our Series A Convertible
Preferred Stock which is convertible, at the option of the holder, into three
shares of our Class A Common Stock, and Warrants to purchase additional shares
of Class A Common Stock, to accredited investors through a private offering in
June and July of 2003. The offering was comprised of units sold at a price of
$0.50 per unit plus two existing shares of outstanding Class A Common Stock,
with each unit consisting of one share of Series A Convertible Preferred Stock
and a 5-year warrant to purchase one share of Class A Common Stock at an
exercise price of $0.50 per share. A total of 2,509,426 units were issued,
resulting in the investors having the right to convert the 2,509,426 shares of
Preferred Stock purchased into a total of 7,528,278 shares of Class A Common
Stock and to exercise the Warrants received for an additional 2,509,426 shares
of Class A Common Stock. This prospectus includes all 10,037,704 shares of Class
A Common Stock issuable by us upon conversion of the Series A Preferred Stock or
exercise of the Warrants issued in the private offering.
The following paragraphs describe in more detail the Series A Preferred Stock
and Warrants that were sold by the Company:
Series A Preferred Stock
The Company is authorized to issue 25,000,000 shares of Preferred
Stock, 5,000,000 of which shares have been designated by the Company's Board of
Directors as the Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). Prior to the offering no shares of Preferred Stock were outstanding.
Liquidation Preference
Subject to the prior rights of the the Company's existing Series B
Preferred Stock, holders of Series A Preferred Stock will, upon liquidation,
dissolution, or winding up of the Company, receive $1.50 per share, plus accrued
and unpaid dividends prior to any liquidation distribution to holders of Common
Stock or, if assets are insufficient to make such payment in full, a ratable
distribution per share of the available assets of the Company. The assets of the
Company remaining after payment of the Series A Preferred Stock liquidation
preference, if any, will be distributed pro rata to the holders of Common Stock.
Redemption
Unless previously converted to Common Stock, the Series A Preferred
Stock will be redeemable, in whole or in part, at the option of the Company on
or after the average NASDAQ closing market price for the Company's Class A
Common Stock for ten (10) consecutive trading days equals $2.00 per share at a
price equal to $1.50 per share, plus accrued and unpaid dividends.
Conversion Rights
Each share of Series A Preferred Stock is convertible at any
time, at the option of the holder, unless previously redeemed, into three
shares of Common Stock, subject to adjustment in the event of a stock
split, stock dividend, share combination, or certain similar events which
have a dilutive effect on the Common Stock issuable upon conversion of the
Series A Preferred Stock.
Dividends
The holders of the Series A Preferred Stock will be entitled to receive
cumulative cash, or at the option of the holder, in kind dividends when and as
declared by the Company's Board of Directors, out of funds legally available
therefor, at a rate equal to 12% per annum accruing from the date of first
issuance, payable semi-annually in arrears on the 10th day of each January and
July, commencing January 10, 2004, and if such date is not a business day, on
the next succeeding business day. In the event the Company is unable to declare
a dividend payable fully in cash and the Holders of seventy-five (75%) percent
of all outstanding shares of Series A Convertible Preferred Stock agree in
writing, then some or all of the dividend, as set forth in the agreement, shall
be paid to all holders of the Series A Convertible Preferred Stock in kind.
10
Voting Rights
The holders of shares of Series A Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote upon matters submitted to
shareholders for a vote, in the same manner and with the same effect as the
holders of shares of Common Stock, voting together with the holders of Common
Stock as a single class to the extent permitted by law. Holders of Preferred
Stock shall have that number of votes equal to the number of shares of Common
Stock into which the Preferred Stock is convertible, as adjusted under certain
circumstances. The holders of the Preferred Stock will also have the right to
vote in connection with actions which adversely affect the rights or preferences
of the Series A Preferred Stock.
Warrants
Each Unit of the offering included one (1) Warrant to purchase one
share of the Company's Class A Common Stock.
Exercise
Each Warrant will be exercisable to purchase one share of Common Stock
at a per share price of $0.50 until June 30, 2008 (the "Warrant Expiration
Date"). The exercise price is subject to adjustment in the event of stock
splits, dividends or combinations. The Warrants will be exercisable according to
the terms set forth in the Warrant Agreement until 5:00 p.m. Phoenix, Arizona
time, on the Warrant Expiration Date. No fractional shares will be issued upon
the exercise of the Warrants.
A Warrant may be exercised upon surrender of the Warrant certificate on
or prior to its expiration date, subject to certain restrictions, at the offices
of the Company, with the "Purchase Form" attached to the applicable Warrant
complete and executed as indicated, accompanied by payment of the full exercise
price (by certified or bank check payable to the order of the Company) for the
number of shares with respect to which the Warrant is being exercised.
The Company has authorized and reserved for issuance the shares of
Common Stock issuable upon exercise of the Warrants. There are no provisions for
cashless exercise of the Warrants in the Warrant Agreements and the Company
has made no provisions for cashless exercise of the Warrants.
Redemption
The Warrants are subject to redemption at the option of the Company.
The Company may redeem any Warrant at a price of $0.01 per Warrant at any time
prior to the exercise of such Warrant, after the closing price of the Common
Stock has exceeded $1.50 for 10 consecutive trading days prior to the issuance
of the notice of redemption.
USE OF PROCEEDS
All of the shares of Class A Common Stock being offered under this prospectus
are offered by the selling shareholders, which term includes their transferees,
pledgees or donees or other successors in interest. The proceeds from the sale
of the Class A Common Stock are solely for the account of the selling
shareholders. Accordingly, we will not receive any proceeds from the sale of
Class A Common Stock by the selling shareholders. However, if shares to be sold
by the selling shareholders are first to be acquired by them through exercise of
warrants to purchase shares of Class A Common Stock as described in the previous
section (See "Issuance of Securities to Selling Shareholders"), then we would
have received the proceeds required for the exercise of the warrants previously,
or contemporaneously to the selling shareholders' sale of such stock.
11
PLAN OF DISTRIBUTION
The shares of Class A Common Stock covered by this prospectus and, if
applicable, any prospectus supplements may be offered and sold from time to time
in one or more transactions by the selling stockholders, which term includes
their transferees, pledgees or donees or other successors in interest. These
transactions may involve crosses or block transactions. The selling stockholders
will act independently of us in making decisions with respect to the timing,
manner and size of each sale. The shares of Class A Common Stock may be sold by
one or more of the following means of distribution:
o on any of the U.S. securities exchanges or quotation services where shares
of our common stock are listed or quoted at the time of sale, including
NASDAQ where our common stock is listed as of the date of this prospectus;
o in the over-the-counter market in accordance with the rules of NASDAQ;
o in transactions otherwise than on the exchanges or services or in the
over-the-counter market described above;
o in negotiated transactions or otherwise;
o through the writing of options, whether the options are listed on
an options exchange or otherwise;
o in connection with the writing of non-traded and exchange-traded call
options or put options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options;
o through the distribution of the shares by any
selling stockholder to its partners, members or stockholders;
o a block trade in which the broker-dealer so engaged will attempt to sell
shares of common stock as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account pursuant to this prospectus;
o short sales;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o a combination of any of the above transactions; or
o any other method permitted pursuant to applicable law.
The selling stockholders may also transfer the shares by gift. We do not know of
any arrangements by the selling stockholders for the sale of any of the shares.
To the extent required, this prospectus may be amended and/or supplemented from
time to time to describe a specific plan of distribution. In addition, any
shares of common stock that qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
prospectus.
In effecting sales, broker-dealers or agents engaged by the selling stockholders
may arrange for other broker-dealers or agents to participate. The selling
stockholders and any broker-dealers or agents who participate in the
distribution of these shares may be deemed to be "underwriters" under the
Securities Act and any discount, commission, concession or profits received by
these persons might be deemed to be an underwriting discount or commission under
the Securities Act. The selling stockholders who are "underwriters" within the
meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.
The selling stockholders may sell their shares at market prices prevailing at
the time of sale, at varying prices at the time of sale, at negotiated prices or
at fixed prices. Each of the selling stockholders reserves the right to accept
and, together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of the shares of common stock to be made directly or
through agents.
12
The selling stockholders may sell their shares directly to purchasers or may use
broker-dealers or agents to sell their shares. Broker-dealers or agents who sell
the shares may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders or they may receive compensation from
purchasers of the shares for whom they acted as agents or to whom they sold the
shares as principal, or both.
Broker-dealers may agree with the selling stockholders to sell a specified
number of shares at a stipulated price per share. To the extent that these
broker-dealers are unable to do so acting as agent for the selling stockholders,
they may purchase as principals any unsold shares at the price required to
fulfill the broker-dealers' commitment to the selling stockholders.
Broker-dealers who acquire shares as principals may thereafter resell these
shares from time to time in transactions on any of the U.S. securities exchanges
or quotation services where our common stock is listed or quoted, in the
over-the-counter market, in negotiated transactions or by a combination of these
methods of sale or otherwise. These transactions may involve crosses and block
transactions and may involve sales to and through other broker-dealers,
including transactions of the nature described above. Moreover, these
transactions may be at market prices prevailing at the time of sale or at
negotiated prices and, in connection with these resales, these broker-dealers
may pay to or receive from the purchasers of these shares commissions computed
as described above.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
it or them. The pledgees, secured parties or persons to whom the shares have
been hypothecated will, upon foreclosure in the event of default, be deemed to
be selling stockholders. The number of a selling stockholder's shares offered
under this prospectus will decrease as and when the selling stockholder takes
such actions. The plan of distribution for that selling stockholder's shares
will otherwise remain unchanged. In addition, a selling stockholder may, from
time to time, sell the shares short, and, in those instances, this prospectus
may be delivered in connection with the short sales and the shares offered under
this prospectus may be used to cover short sales.
A selling stockholder may enter into options or other transactions with
broker-dealers or other financial institutions that involve the delivery of the
shares offered hereby to the broker-dealers or other financial institutions, who
may then resell or otherwise transfer those shares pursuant to this prospectus.
A selling stockholder may also loan or pledge the securities offered hereby to a
broker-dealer, and the broker-dealer may sell the loaned shares offered hereby
pursuant to this prospectus or upon a default may sell or otherwise transfer the
pledged shares offered hereby pursuant to this prospectus.
The selling stockholders are subject to the applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M.
This regulation may limit the timing of purchases and sales of any of the shares
by the selling stockholders. The anti-manipulation rules under the Exchange Act
may apply to sales of shares in the market and to the activities of the selling
stockholders and their affiliates. Furthermore, Regulation M may restrict the
ability of any person engaged in the distribution of the shares to engage in
market-making activities with respect to the particular securities being
distributed for a period of up to five business days before the distribution.
These restrictions may affect the marketability of the shares and the ability of
any person or entity to engage in market-making activities with respect to the
shares. In addition, under the securities laws of certain states, the shares of
common stock may be sold in these states only through registered or licensed
brokers or dealers.
We have agreed to indemnify the selling stockholders, each of their officers,
directors and partners and each person controlling such selling stockholders
(within the meaning of Section 15 of the Securities Act) against certain
liabilities, including liabilities under the Securities Act. The selling
stockholders have agreed to indemnify us, each of our officers and directors and
each person controlling us (within the meaning of Section 15 of the Securities
Act) against certain liabilities, including liabilities under the Securities
Act.
We have agreed to maintain the effectiveness of the registration statement until
the time that all of the shares of common stock covered by this registration
statement are sold in accordance with the intended plan of distribution set
forth in this prospectus.
We will pay all fees and expenses incurred in connection with preparing and
filing the registration statement, any amendments to the registration statement,
this prospectus and any prospectus supplements. The selling stockholders will
pay any legal fees of the selling stockholders, broker's fees or commissions and
similar selling expenses, if any, attributable in connection with the sale of
common stock, including stock transfer taxes due or payable in connection with
the sale of the shares.
13
We may suspend the effectiveness of the registration statement and, upon receipt
of written notice from us, the selling stockholders shall cease using this
prospectus if at any time we determine, in our reasonable judgment and in good
faith, that sales of shares of common stock pursuant to the registration
statement or this prospectus would require public disclosure by us of material
nonpublic information that is not included in the registration statement and
that immediate disclosure of such information would be detrimental to us.
If we suspend the effectiveness of the registration statement, we shall use our
reasonable best efforts to amend the registration statement and/or amend or
supplement the related prospectus if necessary and to take all other actions
necessary to allow any proposed sales by the selling stockholders to take place
as promptly as possible, subject, however, to our right to delay further sales
of shares of common stock until the conditions or circumstances referred to
above have ceased to exist or have been disclosed. We agreed with the selling
stockholders that our right to delay sales of shares of common stock held by the
selling stockholders will not be exercised by us more than twice in any twelve
month period and will not exceed 60 days as to any single delay in any twelve
month period.
We cannot assure you that the selling stockholders will sell all or any of the
common stock offered under the registration statement or any amendment of it.
SELLING STOCKHOLDERS
The following table sets forth certain information, received through September
30, 2003, with respect to the number of shares of our Class A Common Stock
beneficially owned by each selling stockholder. The information set forth below
is based on information provided by or on behalf of the selling stockholders
and, with regard to the beneficial holdings of the selling stockholders, is
accurate only to the extent beneficial holdings information was disclosed to us
by or on behalf of the selling stockholders. The selling stockholders and
holders listed in any supplement to this prospectus, and any transferors,
pledgees, donees or successors to these persons, may from time to time offer and
sell, pursuant to this prospectus and any subsequent prospectus supplement, any
and all of these shares.
Except as otherwise described below, no selling stockholder, to our knowledge,
held beneficially one percent or more of our outstanding Class A Common Stock as
of the date of this prospectus. Because the selling stockholders may offer all,
some or none of the shares of our Class A Common Stock listed below, no estimate
can be given as to the amount or percentage of our Class A Common Stock that
will be held by the selling stockholders upon termination of any of the sales.
Except as indicated below, none of the selling stockholders has held any
position or office or had any other material relationship with us or any of our
predecessors or affiliates within the past three years other than as a result of
the ownership of our securities or the securities of our predecessors. We may
amend or supplement this prospectus from time to time to update the disclosure
set forth in it.
The shares of Class A Common Stock offered by this prospectus may be offered
from time to time by the selling stockholders named below:
14
SHARES OF CLASS A COMMON STOCK
OFFERED BY THIS PROSPECTUS
SHARES OF CLASS
A COMMON STOCK Shares Shares
NAMES AND ADDRESSES OF THE SELLING BENEFICIALLY Available by Available
STOCKHOLDERS OWNED PRIOR TO Conversion of By Exercise Total
THE OFFERING(1) Preferred Stock of Warrants Shares
Anderson Family Trust (2)
FBO Donald E. and Rebecca E. Anderson 4,460,644 1,344,483 448,161 1,792,644
11804 N. Sundown Drive
Scottsdale, AZ 85260
Programmed Land, Inc. (3)
9414 E. San Salvador Dr., Suite 99 1,840,000 1,080,000 360,000 1,440,000
Scottsdale, AZ 85258
David J. & Julie R. Dickerson (4)
11804 N. Sundown Drive 230,000 135,000 45,000 180,000
Scottsdale, AZ 85260
Paul D. Anderson (5)
9715 N. 94th Place #112 230,000 135,000 45,000 180,000
Scottsdale, AZ 85258
David P. & Heidi J. Anderson (6)
4620 N. 68th Street #164 230,000 135,000 45,000 180,000
Scottsdale, AZ 85251
Heartland Systems Co. (7)
939 Office Park Road, Suite 120 1,180,000 720,000 240,000 960,000
West Des Moines, IA 50265
The Rhino Fund LLLP (8)
32065 Castle Court, Suite 700 1,305,000 795,000 265,000 1,060,000
Evergreen, CO 80439
Robert R. Kauffman (9)
15575 N. 83rd Way, Suite 3 3,452,000 1,050,000 350,000 1,400,000
Scottsdale, AZ 85260
Paine Webber (9)
c/f Robert R. Kauffman IRA 665,000 450,000 150,000 600,000
15575 N. 83rd Way, Suite 3
Scottsdale, AZ 85260
Harold S. Carpenter (10)
939 Office Park Road, Suite 120 946,541 525,000 175,000 700,000
West Des Moines, IA 50265
James T. Hecker (11)
32065 Castle Court, Suite 100 164,357 18,000 6,000 24,000
Evergreen, CO 80439
15
James T. Hecker IRA (11)
32065 Castle Court, Suite 100 61,536 45,000 15,000 60,000
Evergreen, CO 80439
John A. Carlson (12)
15575 N. 83rd Way, Suite 3 1,093,144 244,500 81,500 326,000
Scottsdale, AZ 85260
John A. Carlson IRA (12)
15575 N. 83rd Way, Suite 3 74,814 55,500 18,500 74,000
Scottsdale, AZ 85260
Thomas C. LaVoy (13)
29555 N. 69th Place 282,460 105,795 35,265 141,060
Scottsdale, AZ 85262
Steven P. Oman (14)
10446 N. 74th Street, Suite 130 205,000 30,000 10,000 40,000
Scottsdale, AZ 85258
Lincoln Trust Co. (15)
C/F Greg E. Oester 1,063,232 30,000 10,000 40,000
11878 N. 114th Way
Scottsdale, AZ 85259
Thomas E. Burns III, Inc. Employee Bene Tr
dtd 8-1-83 (16) 82,548 61,911 20,637 82,548
25097 Champlain Road
Laguna Hills, CA 92653
Thomas E. Burns, III (16)
Revocable Living Trust dtd 9-26-98 127,452 88,089 29,363 117,452
25097 Champlain Road
Laguna Hills, CA 92653
Gary L. McDaniel & Virginia L. McDaniel
1991 Living Trust (17) 840,000 480,000 160,000 640,000
500 N Rainbow Blvd., Suite 300 ---------- ---------- ----------
Las Vegas, NV 89107
TOTALS 7,528,278 2,509,426 10,037,704
========= ========== ==========
---------------------------------
(1) The number of shares beneficially owned is determined in accordance with
Rule 13d-3 of the Exchange Act and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the person has sole or
shared voting power or investment power and also any shares which the
person has the right to acquire within 60 days of the date set forth in the
applicable footnote through the conversion of a security or the exercise of
any stock option or other right. Percentage ownership indicated in the
footnotes below is based on 15,249,400 shares of our Class A Common Stock
outstanding as of September 29, 2003.
(2) Donald E. and Rebecca E Anderson have beneficial ownership of 25.83% of
the Company. The shares shown include shares owned by Programmed Land,
Inc., which are also offered under this prospectus and are beneficially
owned by the Andersons. Mr. Anderson is a director of the Company.
16
(3) Donald E. and Rebecca E. Anderson have beneficial ownership of all of
the outstanding shares of Programmed Land, Inc., and therefore are the
beneficial owners of these shares. See footnote 2 above.
(4) David and Julie Dickerson are the beneficial owners of 1.50% of the
Company's Class A Common Stock.
(5) Paul Anderson is the beneficial owner of 1.50% of the Company's Class A
Common Stock.
(6) David and Heidi Anderson are the beneficial owners of 1.50% of the
Company's Class A Common Stock.
(7) Heartland Systems Co. is the beneficial owner of 7.51% of the Company's
Class A Common Stock. Leanna Hansch, Treasurer, holds voting and
dispositive powers over the shares of the Company's stock owned by
Heartland Systems Co.
(8) The Rhino Fund, LLLP beneficially owns 8.28% of the Company's Class A
Common Stock. MacDonald Hawley, president of Rhino Capital, Inc, the
fund manager, holds voting and dispositive powers over the shares of
the Company's stock owned by The Rhino Fund, LLLP.
(9) Robert R. Kauffman is the beneficial owner of these shares, as well as
the beneficial owner of shares held by his IRA, which are also offered
under this prospectus. Mr. Kauffman is the Chief Executive Officer and
a director of the Company. Mr. Kauffman has beneficial ownership of
23.19% of the Company. In addition to these shares, Mr. Kauffman also
beneficially owns shares of Technology Systems International, Inc. of
Nevada (TSIN), a corporation that currently holds 6,000,000 shares of
Alanco stock received when Alanco acquired the TSIN operations in June
2002. If TSIN distributes the 6,000,000 shares of Alanco common stock
to TSIN shareholders on a proportionate basis, Mr. Kauffman could
acquire up to approximately 118,700 shares of Alanco common stock,
thereby increasing his percentage of total stock and options owned to
approximately 23.86%.
(10) Harold S. Carpenter is a director of the Company and is the beneficial
owner of 6.04% of the Company's Class A Common Stock. Mr. Carpenter is
an officer of Heartland Systems Co., whose shares are also offered
under this prospectus; however, Mr. Carpenter disclaims beneficial
ownership of the Heartland Systems Co. shares.
(11) James T. Hecker is the beneficial owner of these shares, as well as the
beneficial owner of shares held by his IRA, which are also offered
under this prospectus. Mr. Hecker is a director of the Company, and has
beneficial ownership of 1.47% of the Company. Mr. Hecker is the
treasurer and general counsel for Rhino Capital Incorporated, which
controls The Rhino Fund, whose shares are also offered under this
prospectus; however, Mr. Hecker disclaims beneficial ownership of The
Rhino Fund shares.
(12) John A. Carlson is the beneficial owner of these shares, as well as the
beneficial owner of shares held by his IRA, which are also offered
under this prospectus. Mr. Carlson is the Chief Financial Officer and a
director of the Company. Mr. Carlson has beneficial ownership of 7.25%
of the Company.
(13) Thomas C. LaVoy is a director of the Company and has a beneficial ownershi
of 1.83% of the Company.
(14) Steven P. Oman is a director of the Company and has a beneficial ownership
of 1.33% of the Company.
(15) Greg M. Oester, who is an officer of the Company's wholly owned
subsidiary, Technology Systems International, Inc., has beneficial
ownership of 6.54% of the Company. In addition to these shares, Mr.
Oester also beneficially owns shares of Technology Systems
International, Inc. of Nevada (TSIN), a corporation that currently
holds 6,000,000 shares of Alanco stock received when Alanco acquired
the TSIN operations in June 2002. If TSIN distributes the 6,000,000
shares of Alanco common stock to TSIN shareholders on a proportionate
basis, Mr. Oester could acquire up to approximately 70,000 shares of
Alanco common stock, thereby increasing his percentage of total stock
and options owned to approximately 6.97%.
(16) Thomas E. Burns is the beneficial owner of these shares, as well as the
beneficial owner of shares held by his IRA, which are also offered
under this prospectus. Mr. Burns has beneficial ownership of 1.37% of
the Company.
(17) Gary and Virginia McDaniel are the beneficial owners of these shares.
The McDaniels have beneficial ownership of 5.38% of the Company.
17
DESCRIPTION OF SECURITIES
Our authorized capital consists of 75,000,000 shares of Class A Common Stock,
25,000,000 shares of Class B Common Stock, and 25,000,000 shares of preferred
stock. The preferred stock is issuable in series with such designation,
preferences, voting rights, privileges, and other restrictions and
qualifications as our Board of Directors may establish in accordance with
Arizona law. There were 15,249,400 shares of Class A Common Stock outstanding,
and no shares of Class B Common Stock issued and outstanding as of September 29,
2003. There were 2,509,425 shares of Series A Convertible Preferred Stock
outstanding and 55,865 shares of Series B Convertible Preferred Stock
outstanding as of September 29, 2003. There were no other shares of preferred
stock outstanding at September 29, 2003. Shares of the Series A Convertible
Preferred Stock are convertible into shares of Class A Common Stock at a rate of
three shares of Class A Common Stock for every one share of Series A Convertible
Preferred Stock. Shares of the Series B Convertible Preferred Stock are
convertible into shares of Class A Common Stock at a rate of thirteen shares of
Class A Common Stock for every one share of Series B Convertible Preferred
Stock. As of September 29, 2003, options to purchase 6,821,250 shares of Class A
Common Stock were outstanding, and the weighted average exercise price of such
options was $0.84. In addition, as of September 29, 2003, the Company had
6,009,426 warrants to purchase Class A Common Stock outstanding, and the
weighted average exercise price of such warrants was $0.76. Our Class A Common
Stock is traded on the NASDAQ SmallCap Market under the symbol "ALAN". No other
securities of the Company are currently traded on any market.
Common Stock
Holders of shares of our Class A Common Stock are entitled to one vote per share
on all matters to be voted on by our shareholders. Holders of shares of Class B
Common Stock are entitled to one-one hundredth of one vote per share of Class B
Common Stock on all matters to be voted on by our shareholders. Our Class A
Common Stock and our Class B Common Stock have cumulative voting rights with
respect to the election of directors. Our bylaws require that only a majority of
the issued and outstanding voting shares of common stock need be represented to
constitute a quorum and to transact business at a shareholders' meeting.
Subject to the dividend rights of the holders of preferred stock, if applicable,
holders of shares of common stock are entitled to share, on a ratable basis,
such dividends as may be declared by the Board of Directors out of funds legally
available.
Upon our liquidation, dissolution or winding up, after payment of creditors and
holders of any of our senior securities, including preferred stock, our assets
will be divided pro rata on a per share basis among the holders of the shares of
common stock. Our common stock has no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions. All
outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
Our Board of Directors is authorized to issue preferred stock in one or more
series and denominations and to fix the rights, preferences, privileges, and
restrictions, including dividend, conversion, voting, redemption, liquidation
rights or preferences, and the number of shares constituting any series and the
designation of such series, without any further vote or action by our
shareholders. The issuance of preferred stock may have the effect of delaying,
deferring, or preventing a change of control of our company without further
action by the shareholders. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock.
Our Board of Directors has previously authorized the issuance of a series of
preferred stock referred to as Series B Convertible Preferred Stock. Without the
affirmative vote of a majority of the holders of the Series B Preferred Stock,
we may not amend, alter or repeal any of the provisions of our articles of
incorporation or articles of designation for the Series B Convertible Preferred
Stock. We also need the affirmative vote of a majority of the holders of the
Series B Convertible Preferred Stock if we want to authorize any
reclassification of the Series B Convertible Preferred Stock that would
adversely affect the preferences, special rights or privileges or voting power
of the Series B Convertible Preferred Stock. We may not create or issue any
class of stock ranking prior to the Series B Convertible Preferred Stock as to
dividends or distribution of assets, or create or issue any shares of any series
of the authorized preferred stock ranking prior to the Series B Convertible
Preferred Stock's rights to dividends or distribution on liquidation. The Series
B Convertible Preferred Stock shall have voting rights as if converted into
Class A Common Stock.
18
Our Board of Directors has also authorized the issuance of a series of preferred
stock referred to as Series A Convertible Preferred Stock. Without the
affirmative vote of a majority of the holders of the Series A Preferred Stock,
we may not amend, alter or repeal any of the provisions of our articles of
incorporation or articles of designation for the Series A Convertible Preferred
Stock. We also need the affirmative vote of a majority of the holders of the
Series A Convertible Preferred Stock if we want to authorize any
reclassification of the Series A Convertible Preferred Stock that would
adversely affect the preferences, special rights or privileges or voting power
of the Series A Convertible Preferred Stock. We may not create or issue any
class of stock ranking prior to the Series A Convertible Preferred Stock (other
than the existing Series B Convertible Preferred Stock) as to dividends or
distribution of assets, or create or issue any shares of any series of the
authorized preferred stock ranking prior to the Series A Convertible Preferred
Stock's rights to dividends or distribution on liquidation. The Series A
Convertible Preferred Stock shall have voting rights as if converted into Class
A Common Stock.
Arizona Corporate Takeover Act and Certain Charter Provisions
We are subject to the provisions of the Arizona Corporate Takeover Act. The
Arizona Corporate Takeover Act and certain provisions of our articles of
incorporation and bylaws, as summarized in the following paragraphs, may have
the effect of discouraging, delaying, or preventing hostile takeovers (including
those that might result in a premium over the market price of our common stock),
or discouraging, delaying, or preventing changes in control or management of our
company.
Arizona Corporate Takeover Act
Article 1 of the Arizona Corporate Takeover Act is intended to restrict
"greenmail" attempts by prohibiting us from purchasing any shares of our capital
stock from any beneficial owner of more than 5% of the voting power of our
company at a per share price in excess of the average market price during the 30
trading days prior to the purchase, unless
o the 5% owner has beneficially owned the shares to be purchased for a
period of at least three years prior to the purchase;
o a majority of our shareholders (excluding the 5% owner, its affiliates
or associates, and any officer or director of our company) approves
the purchase; or
o we make the offer available to all holders of shares of our capital stock.
Article 2 of the Arizona Corporate Takeover Act is intended to discourage the
direct or indirect acquisition by any person of beneficial ownership of our
shares (other than an acquisition of shares from us) that would constitute a
control share acquisition. A "control share acquisition" is defined as an
acquisition of shares by any person, when added to other shares of our company
beneficially owned by such person, immediately after the acquisition entitles
such person to exercise or direct the exercise of
o at least 20% but less than 33 1/3%;
o at least 33 1/3% but less than or equal to 50%; or
o more than 50% of the voting power of our capital stock.
The Arizona Corporate Takeover Act (1) gives our shareholders other than any
person that makes or proposes to make a control share acquisition or our
company's directors and officers the right to limit the voting power of the
shares acquired by the acquiring person that exceed the threshold voting ranges
described above, other than in the election of directors, and (2) gives us the
right to redeem such shares from the acquiring person at a price equal to their
fair market value under certain circumstances.
Article 3 of the Arizona Corporate Takeover Act is intended to discourage us
from entering into certain mergers, consolidations, share exchanges, sales or
other dispositions of our assets, liquidation or dissolution of our company,
reclassification of securities, stock dividends, stock splits, or other
distribution of shares, and certain other transactions with any interested
shareholder (as defined in the takeover act) or any of the interested
19
shareholder's affiliates for a period of three years after the date that the
interested shareholder first acquired the shares of common stock that qualify
such person as an interested shareholder, unless either the business combination
or the interested shareholder's acquisition of shares is approved by a committee
of our Board of Directors (comprised of disinterested directors or other
persons) prior to the date on which the interested shareholder first acquired
the shares that qualify such person as an interested shareholder. In addition,
Article 3 prohibits us from engaging in any business combination with an
interested shareholder or any of the interested shareholder's affiliates after
such three-year period unless:
o the business combination or acquisition of shares by the
interested shareholder was approved by our Board of Directors
prior to the date on which the interested shareholder acquired
the shares that qualified such person as an interested
shareholder;
o the business combination is approved by our shareholders
(excluding the interested person or any of its affiliates) at
a meeting called after such three-year period; or
o the business combination satisfies each of certain statutory requirements.
Article 3 defines an "interested shareholder" as any person (other than us and
our subsidiaries) that either (a) beneficially owns 10% or more of the voting
power of our outstanding shares, or (b) is an affiliate or associate of our
company and who, at any time within the three-year period preceding the
transaction, was the beneficial owner of 10% or more of the voting power of our
outstanding shares.
Certain Charter Provisions
In addition to the provisions of the Arizona Corporate Takeover Act described
above, our articles of incorporation and bylaws contain a number of provisions
relating to corporate governance and the rights of shareholders. These
provisions include the following:
o the authority of our Board of Directors to fill vacancies on the Board of
Directors;
o the authority of our Board of Directors to issue preferred
stock in series with such voting rights and other powers as
our Board of Directors may determine;
o a provision that, unless otherwise prohibited by law, special
meetings of the shareholders may be called only by our Board
of Directors, or by holders of not fewer than 10% of all
shares entitled to vote at the meeting; and
o a provision for cumulative voting in the election of directors, pursuant
to Arizona law.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A Common Stock is Computershare
Trust Company, 350 Indiana Street, Suite 800, Golden, Colorado 80401.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the Class
A Common Stock offered hereby will be passed upon by The Law Office of Steven P.
Oman, P.C., Scottsdale, Arizona. Said firm, and Steven P. Oman, owned, as of the
date of this prospectus, an aggregate of 205,000 shares of our Class A Common
Stock on an as-converted basis. Additionally, Steven P. Oman, Esq. is a director
of our company and serves as our general counsel.
Lawyers and employees of The Law Office of Steven P. Oman, P.C. and entities
controlled by lawyers at The Law Office of Steven P. Oman, P.C. may engage in
transactions in the open market or otherwise to purchase or sell our securities
from time to time.
The Company is a party to litigation that relates to the acquisition in May 2002
of substantially all of the assets of Technology Systems International, Inc. and
to litigation arising from an expired property lease between the Company's
subsidiary, Arraid, Inc., and Arraid Property L.L.C. The actions are more fully
described below:
On January 30, 2003, a suit was filed by Technology Systems International, Inc.,
a Nevada corporation ("TSIN") versus the Company, its wholly owned subsidiary,
Technology Systems International, Inc., an Arizona corporation ("TSI"), and two
of the directors of TSIN, including Robert Kauffman who is also the Chief
Executive Officer of the Company. The venue for the action is the Arizona
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Superior Court in and for Maricopa County, Arizona, as case number
CV2003-001937. The complaint sets forth various allegations and seeks equitable
remedies and damages arising out of the Company's acquisition of substantially
all of the assets of TSIN. As stated in previous periodic reports filed by the
Company with the SEC concerning this matter, the Company's management, in
consultation with legal counsel, believes the plaintiff's claims are without
merit and the Company will aggressively defend the action.
On July 18, 2003, Arraid Property L.L.C., an Arizona Limited Liability Company
("Arraid LLC"), filed a complaint in Superior Court, Arizona (case number CV
2003-13999) against the Company and its wholly owned subsidiary, Arraid, Inc.,
an Arizona corporation ("Arraid"), alleging breach of lease and unjust
enrichment and seeking monetary damages. The suit relates to an expired lease
agreement for property previously leased by Arraid. The Company has filed a
counterclaim against Arraid LLC, and a third party complaint against John Dahl,
Frank Meijers and Keith Blaich (all owners of Arraid LLC and previous employees
of the Company) seeking monetary damages and alleging, among other things,
excess billing and unjust enrichment. The Company's management, in consultation
with legal counsel, believes the plaintiff's claims are without merit and the
Company will aggressively defend the action and pursue the counterclaims and
third party claims specified.
EXPERTS
The consolidated financial statements and related financial statement schedule
incorporated in this prospectus by reference from our Annual Report on Form
10-KSB for the fiscal year ended June 30, 2003 have been audited by Semple &
Cooper, LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 which was filed
with the Securities and Exchange Commission. This prospectus and any subsequent
prospectus supplements do not contain all of the information in the registration
statement. We have omitted from this prospectus some parts of the registration
statement as permitted by the rules and regulations of the SEC. In addition, we
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any documents that we have filed
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The SEC also maintains an Internet
site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this prospectus
and any subsequent prospectus supplements, which means that we can disclose
important information to you by referring you to another document filed
separately with the SEC. This prospectus incorporates by reference documents
which are not presented in this prospectus or delivered to you with it. The
information incorporated by reference is an important part of this prospectus
and any subsequent prospectus supplements. Information that we file subsequently
with the SEC, but prior to the termination of this offering, will automatically
update this prospectus and any outstanding prospectus supplements and supersede
this information. We incorporate by reference the documents listed below and
amendments to them. These documents and their amendments were previously filed
with the SEC.
The following documents filed by us with the SEC are incorporated by reference
in this prospectus:
1. Our annual report on Form 10-KSB for the fiscal year ended June 30, 2003,
including our audited consolidated financial statements for the fiscal year
ended June 30, 2003 attached thereto, filed with the SEC on September 29, 2003,
with an amended filing on September 30, 2003.
2. The description of our Class A Common Stock set forth in our registration
statement on Form 10/A filed with the SEC on March 27, 1981, and any subsequent
amendment or report filed for the purpose of updating this description.
3. Our Proxy Statement for our Annual Meeting of Shareholders to be held on
December 22, 2003, filed with the SEC on November 7, 2003.
4. Our Form S-3 Registration Statement filed with the SEC on November 27, 2002.
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5. Our Form S-8 Registration Statement filed with the SEC on January 22, 2003.
6. Our Form S-3 Registration Statement filed with the SEC on February 25, 2003.
7. Our Form 10-QSB for the quarter ended September 30, 2003 filed with the SEC
on November 14, 2003, with an amended filing on November 18, 2003.
We also are incorporating by reference in this prospectus and any subsequent
prospectus supplements all reports and other documents that we file pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of this offering of common stock. These
reports and documents will be incorporated by reference in and considered to be
a part of this prospectus and any subsequent prospectus supplements as of the
date of filing of such reports and documents.
Upon request, whether written or oral, we will provide without charge to each
person to whom a copy of this prospectus is delivered, including any beneficial
owner, a copy of any or all of the information that has been or may be
incorporated by reference in this prospectus or any prospectus supplements but
not delivered with the prospectus or any subsequent prospectus supplements. You
should direct any requests for this information to the office of the Secretary,
at our principal executive offices, located at 15575 North 83rd Way, Suite 3,
Scottsdale, AZ 85260. The telephone number at that address is (480) 607-1010.
Any statement contained in a document which is incorporated by reference in this
prospectus or in any subsequent prospectus supplements will be modified or
superseded for purposes of this prospectus or any subsequent prospectus
supplements to the extent that a statement contained in this prospectus or
incorporated by reference in this prospectus or in any prospectus supplements or
in any document that we file after the date of this prospectus that also is
incorporated by reference in this prospectus or in any subsequent prospectus
supplements modifies or supersedes the prior statement. Any modified or
superseded statement shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus or any subsequent prospectus
supplements. Subject to the foregoing, all information appearing in this
prospectus is qualified in its entirety by the information appearing in the
documents incorporated by reference in this prospectus.
You should rely only on the information contained or incorporated by reference
in this prospectus or any applicable prospectus supplement. We have not
authorized anyone to provide you with any other information. The securities
offered in this prospectus may only be offered in states where the offer is
permitted, and we and the selling stockholders are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any applicable prospectus supplement
is accurate as of any date other than the dates on the front of these documents.
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