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ALAN > SEC Filings for ALAN > Form 10-Q on 14-Nov-2012All Recent SEC Filings

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Form 10-Q for ALANCO TECHNOLOGIES INC


14-Nov-2012

Quarterly Report


Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements: 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. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect" and similar expressions, as they relate to the Company are intended to identify forward-looking statements within the meaning of the "safe harbor" provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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; the inability to attract, hire and retain key personnel; failure of a future acquired business to further the Company's strategies; the difficulty of integrating an acquired business; unforeseen litigation; unfavorable result of potential litigation; the ability to maintain sufficient liquidity in order to support operations; the ability to maintain satisfactory relationships with lenders; the ability to maintain satisfactory relationships with current and future suppliers; federal and/or state regulatory and legislative action; the ability to implement or adjust to new technologies and the ability to secure and maintain key contracts and relationships. New risk factors emerge from time to time and it is not possible to accurately predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Quarterly Report on Form 10-Q.


ALANCO TECHNOLOGIES, INC.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the United States Securities and Exchange Commission. The preparation of our financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an ongoing basis, estimates are revalued, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include allowances for doubtful accounts, stock-based compensation, income taxes, ongoing litigation, commitments and contingencies, and marketable securities. Our estimates are based upon historical experience, observance of trends in particular areas, information and/or valuations available from outside sources and on various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may materially differ from these estimates under different assumptions and conditions.

The SEC suggests that all registrants list their most "critical accounting policies" in Management's Discussion and Analysis. A critical accounting policy is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has identified the critical accounting policies as those accounting policies that affect its more significant judgments and estimates in the preparation of its consolidated financial statements. The Company's Audit Committee has reviewed and approved the critical accounting policies identified. These policies include, but are not limited to, the classification and valuation of marketable securities, realization of accounts receivable trade, realization of notes receivable, revenue recognition, stock-based compensation, the recorded values of accruals and fair values of assets and liabilities including the Company's contingent liabilities.

Results of Operations

Presented below is management's discussion and analysis of financial condition and results of operations for the periods indicated:

(A) Three months ended September 30, 2012 versus three months ended September 30, 2011

Net Revenues
As previously discussed in this Form 10-Q, the Company's operating entity, Alanco Energy Services, Inc. ("AES") initiated, during the quarter ended September 30, 2012, the operations of the Deer Creek water disposal facility near Grand Junction, CO and reported initial quarter net revenues of $101,200. No revenues were reported for the comparable quarter of the prior fiscal year as the Company had no operating units and was effectively a holding company.

Cost of Goods sold
Cost of goods sold for the three months ended September 30, 2012 of $64,500 consist of direct labor costs, equipment costs (including depreciation), land lease costs and other operating costs. The gross margin for the quarter was approximately 36%.

Selling, General and Administrative Expenses Selling, general and administrative expenses for the quarter ended September 30, 2012 (consisting of corporate expenses, AES selling, general and administrative expense, amortization of stock-based compensation and depreciation expense) was $314,800, an increase of $9,300, or 3.0%, compared to $305,500 reported for the quarter ended September 30, 2011. Corporate expenses for the current quarter was $195,400 and represented a decrease of $101,600, or 34.2%, compared to corporate expenses of $297,000 reported for the comparable quarter ended September 30, 2011. The decrease resulted from reduced corporate operating expense and increased allocation of corporate service cost to AES and billings for services provided to ACC. AES operating expense of $84,500 for the quarter ended September 30, 2012 relates to the new Deer Creek Water Disposal facility that initiated operation during the current quarter and represented general overhead associated with the operation. Amortization of stock-based compensation increased to $34,200 for the quarter ended September 30, 2012, from $7,800 for the comparable quarter of the prior year. The increase relates to options vesting in the current quarter that were granted in fiscal year 2012.


ALANCO TECHNOLOGIES, INC.
Operating Loss
Operating Loss for the quarter ended September 30, 2012 was ($278,100), a decrease of $27,400, or 9.0%, compared to an Operating Loss of ($305,500) reported for the same quarter of the prior year. The decreased operating loss results from an increase in revenues and gross profit.

Other Income and Expense
Net interest income for the quarter ended September 30, 2012 was $6,200, an improvement of $6,300 when compared to interest expense of ($100) for the quarter ended September 30, 2011. The increase in interest income related to the ACC notes outstanding and the Symbius investment.

During the quarter ended September 30, 2012, the Company recorded net gains on the sale of its Symbius investment of $86,800, and on sale of marketable securities of $280,800, resulting from the sale of approximately 402,888 shares of its ORBCOMM Common Stock at an average selling price of $3.61 per share. The Company did not sell marketable securities during the comparable quarter of the previous fiscal year.

Dividends
The Company had no dividend expense for the three months ended September 30, 2012, compared to $30,500 in preferred stock dividends recorded in the comparable quarter ended September 30, 2011. The dividend expense in fiscal year 2011 related to Series B Convertible Preferred Stock that was redeemed by the Company in December 2011.

Net Income (Loss) Attributable to Common Shareholders Net Income Attributable to Common Shareholders for the quarter ended September 30, 2012 amounted to $95,900, or $.02 per share, a $432,000 improvement when compared to a loss of ($336,100), or ($.07) per share, in the comparable quarter of the prior year for reasons discussed above.

Comprehensive Income
Comprehensive Income for the current quarter represents the unrealized change in market value of the Company's Marketable Securities held at September 30, 2012 compared to prior periods and for the quarter ended September 30, 2012 consisted of the net value of three items: 1) an Unrealized Gain on Marketable Securities, net of tax, of $332,600 resulting from an increase in the market value of the shares held at the end of the year compared to the cost basis of $2.91 per share, determined as market value on the May 16, 2011 acquisition date; 2) the quarter ending market value reclassification adjustment for gain included in Net Income of $280,800; 3) the net unrealized gain on marketable securities sold during the period of $139,800. At September 30, 2012 the Company valued 692,996 shares (net of escrow shares) of ORBCOMM, Inc. Common Stock at $3.74 per share for a total value of $2,591,800.

Liquidity and Capital Resources
The Company's current assets at September 30, 2012 exceeded current liabilities by $3,016,200, resulting in a current ratio of 5.25 to 1. At June 30, 2012, current assets exceeded current liabilities by $3,473,900 reflecting a current ratio of 4.8 to 1. The reduction in net current assets at September 30, 2012 versus June 30, 2012 was due primarily to the sale of marketable securities to fund purchases in Land, Property and Equipment of ($824,000), offset by net income of $95,900 for the three months ended September 30, 2012 and by an unrealized gain on marketable securities of $191,600, net of tax, reported separately in the equity section of the balance sheet due to market value increases of Marketable Securities - Restricted held at September 30, 2012 and June 30, 2012.


ALANCO TECHNOLOGIES, INC.
Accounts receivable of $56,100 represents the outstanding billings at September 30, 2012 of the AES water disposal operation that initiated operations during the current quarter. Other receivables represents $50,000 of construction costs reimbursable by the Deer Creek landlord and $30,200 of accrued interest on investment notes receivable and billings for accounting services to ACC, a related party.

Cash used in operations for the three month period ended September 30, 2012 was
($541,100), an increase of ($218,100), or 68% compared to the ($323,000)
reported for the same quarter of the prior year. The increase in net cash used in operations for the three months ended September 30, 2012 was due primarily to increases in receivables, and decreases in accounts payable and accruals.

Cash provided by investing activities for the three month period ended September 30, 2012 was $928,100 and was due to proceeds from the sale of marketable securities and the Symbius investment of approximately $1.8 million, offset by purchases of property, plant and equipment of $824,000 and issuance of an additional $50,000 note to ACC. There were no investing activities reported for the quarter ended September 30, 2011.

There were no financing activities reported for the quarter ended September 30, 2012. The $147,200 net cash provided by financing activities reported for the quarter ended September 30, 2011 related primarily to proceeds for exercise of stock options.

During fiscal 2013, the Company expects to meet its working capital and other cash requirements with its current cash reserves and sales of marketable securities as required. However, the Company may require additional working capital for future operations. While the Company believes that it will succeed in attracting additional required capital and will generate capital from future operations, there can be no assurance that the Company's efforts will be successful. The Company's continued existence is dependent upon its ability to achieve and maintain profitable operations, identify profitable acquisition/merger candidates and/or successfully invest its capital.

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