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ALAN > SEC Filings for ALAN > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for ALANCO TECHNOLOGIES INC

Form 10-Q for ALANCO TECHNOLOGIES INC


14-Nov-2013

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.

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 these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions concerning classification and valuation of investments, the estimated fair value of stock-based compensation, expense recognition, realization of deferred tax assets, accounts and note receivables, estimated useful lives of fixed assets, the recorded values of accruals and contingencies including the ORBCOMM fuel sensor escrow and working capital adjustment liabilities, the estimated fair values of the Company's asset retirement obligation and the contingent land and purchase price liabilities. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The result of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. For a discussion of our critical accounting policies and estimates, refer to the Company's Form 10-K for the fiscal year ended June 30, 2013. There have been no material changes to our critical accounting policies during 2014.


ALANCO TECHNOLOGIES, INC.

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, 2013 versus three months ended September 30, 2012

Net Revenues
Net revenues reported for the quarter ended September 30, 2013 were $14,800, a decrease of $86,400, or 85.4% as compared to $101,200 reported for the quarter ended September 30, 2012. Revenues continue to be at a low level as water disposal operations remain in a startup mode and the Company develops relationships with potential customers in the region. Water deliveries are also impacted by the prices of oil and gas which drives drilling activities in the region, the restriction on drilling during winter months which negatively impacts water deliveries, and alternative uses of produced water that some potential customers are utilizing. As additional customers are expected to recognize the savings of using a local water disposal company and as additional relationships develop, we expect revenues to increase.

Cost of Revenues
Cost of revenues for the three months ended September 30, 2013 and 2012 were $68,800 and $64,500, respectively, which represents a slight increase when comparing the periods. Cost of revenues consists of direct labor costs, equipment costs (including depreciation), land lease costs and other operating costs. Approximately 71% of the cost of revenues for the quarter ended September 30, 2013 consisted of fixed costs such as depreciation, amortization, accretion and lease costs versus 29% for the quarter ended September 30, 2012. Variable costs in the current quarter, including labor and lease costs tied to water deliveries, were down due to the reduced revenues in the period while the fixed costs reflect a full quarter of expense. The facility was open in mid-August of 2012, so the same period in the prior fiscal year did not include a full quarter of the fixed costs noted previously and the variable expenses were higher due to higher water deliveries.

Selling, General and Administrative Expenses Selling, general and administrative expenses for the quarter ended September 30, 2013 (consisting of corporate expenses, AES selling, general and administrative expense, and amortization of stock-based compensation) was $310,000, a decrease of $4,800, or 1.5%, compared to $314,800 reported for the quarter ended September 30, 2012. Corporate expenses for the current quarter was $77,100 and represented a decrease of $119,000, or 60.7%, compared to corporate expenses of $196,100 reported for the comparable quarter ended September 30, 2012. The decrease resulted from increased allocation of corporate service cost to AES from $16,000 for the three months ended September 30, 2012 to $150,000 for the three months ended September 30, 2013 and reflects the increased activity performed by corporate for the AES operation and billings for accounting services provided to ACC which totaled $9,000 for the three months ended September 30, 2012 and 2013. AES operating expenses were $232,900 for the quarter ended September 30, 2013, an increase of $148,400, or 175.6%, compared to $84,500 reported for the quarter ended September 30, 2012. The AES operating expenses relate to the Deer Creek Water Disposal facility that initiated operations during August 2012 and represents general overhead associated with the operation. The increase is primarily related to the increase in corporate service cost discussed previously. Amortization of stock-based compensation for the quarter ended September 30, 2013 was $0 as compared to $34,200 for the same period of the prior fiscal year. All stock-based compensation for grants in prior years was recorded as of the fiscal year ended June 30, 2013 and no new grants were issued in the current quarter.

Operating Loss
Operating Loss for the quarter ended September 30, 2013 was ($364,000), an increase of $85,900, or 30.9%, compared to an Operating Loss of ($278,100) reported for the same quarter of the prior year. The increased operating loss resulted primarily from decreased revenues during the current quarter as compared to the same quarter of the previous year.


ALANCO TECHNOLOGIES, INC.

Other Income and Expense
Net interest income for the quarter ended September 30, 2013 was $7,800, an increase of $1,600 when compared to interest income of $6,200 for the quarter ended September 30, 2012. The increase in interest income related primarily to an increase in the average outstanding balance of the ACC note receivable.

During the quarter ended September 30, 2013, the Company recorded net gains on the sale of marketable securities of $204,800, resulting from the sale of 101,118 shares of its ORBCOMM Common Stock at an average selling price of $4.94 per share, compared to net gains on sale of marketable securities in the comparable quarter of the prior year of $280,800, resulting from the sale of 402,888 shares of ORBCOMM Common Stock at an average selling price of $3.61. During the quarter ended September 30, 2012, the Company recorded a net gain on the sale of its Symbius investment of $86,800. See the Company's Form 10-K for additional discussion of the Symbius investment.

Net Income (Loss)
Net Income (Loss) for the quarter ended September 30, 2013 amounted to ($151,200), or ($0.03) per share, compared to net income of $95,900, or $0.02 per share, in the comparable quarter of the prior year for reasons previously discussed.

Comprehensive Income
Comprehensive Income for the current quarter of $25,400 represents the unrealized change in market value of the Company's Marketable Securities compared to the prior period. Comprehensive income for the quarter ended September 30, 2013 consisted of the net value of three items: 1) the quarter ending market value reclassification adjustment for gain included in Net Income
(Loss) of $204,800, an Unrealized Gain on Marketable Securities of $185,200 resulting from an increase in the market value of the shares held at September 30, 2013 compared to the value at June 30, 2013, and; 3) the net unrealized gain on marketable securities sold during the period of $45,000. At September 30, 2013 the Company valued 246,893 shares (net of escrow shares) of ORBCOMM, Inc. Common Stock at $5.24 per share for a total value of $1,293,700.

Liquidity and Capital Resources

The Company's current assets at September 30, 2013 exceeded current liabilities by $2,409,500, resulting in a current ratio of 9.5 to 1. At June 30, 2013, current assets exceeded current liabilities by $2,526,500 reflecting a current ratio of 10.3 to 1. The reduction in net current assets at September 30, 2013 versus June 30, 2013 was due primarily to the sale of marketable securities - restricted during the current quarter, a reduction in accounts and other receivables, offset by an increase in notes receivable.

Accounts receivable of $13,600 represents the outstanding billings at September 30, 2013 of the AES water disposal operation. Other receivables totaling $13,400 represents billings to ACC for accounting services of $6,000 and interest of $7,400.

Cash used in operations for the three months ended September 30, 2013 was ($269,400), a decrease of $271,700, or 50.2% compared to the ($541,100) reported for the same quarter of the prior year. The decrease in net cash used in operations for the three months ended September 30, 2013 was due primarily to reductions in payments on accounts payable and accruals offset by an operating loss rather than operating income as compared to the same period of the prior year end.

Cash provided by investing activities for the three months ended September 30, 2013 was $459,200, a decrease of $468,900 or 50.5% compared to the $928,100 provided for the same period of the prior year. The decrease was primarily due to decreases in cash proceeds in the quarter ended September 30, 2013 from the sale of marketable securities compared to the same period of the prior year, and the cash proceeds provided in the quarter ended September 30, 2012 from the repayment of the Symbius note and the sale of the Symbius investment, all offset by a reduction in purchases of land, property and equipment.


ALANCO TECHNOLOGIES, INC.

Cash used in financing activities for the three months ended September 30, 2013 was ($22,900) compared to $0 used in financing activities for the same period of the prior year. The $22,900 represents the purchase of treasury shares in the quarter ended September 30, 2013.

During fiscal 2014, the Company expects to meet its working capital and other cash requirements with its operations, 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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