SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
July 5, 2000
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: June 30, 2000
ALANCO TECHNOLOGIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
---------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(480) 607-1010
--------------
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective June 1, 2000 the Company acquired all of the issued and
outstanding capital stock of Excel Computer Corporation, a Texas corporation
("Excel"), from the former shareholders of Excel in exchange for 425,000
restricted shares of common stock of the Company, a $750,000 note and $250,000
in cash. The transaction closed on June 21, 2000.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) THE FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial
statements of Excel Computer will be filed within 60 days after the
date of this report.
(b) PRO FORMA FINANCIAL INFORMATION. See (a) above
(c) EXHIBITS.
1. Agreement and Plan of Reorganization, dated as of June 21,
2000, by and among the Company, Excel Computer Corporation,
and the holders of the capital stock of Excel. (Exhibits
and Schedules omitted).
DATE: July 5, 2000 ALANCO TECHNOLOGIES, INC
-------------------------
(Registrant)
/s/ John A. Carlson
----------------------
John A. Carlson
Chief Financial Officer
EXCEL COMPUTER, LTD.
(A Limited Partnership)
Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
To the Partners
Excel Computer, Ltd.
Carrollton, Texas
We have audited the accompanying balance sheet of Excel Computer, Ltd. (a
limited partnership) as of December 31, 1999 and 1998, and the related
statements of operations, changes in partners' capital, and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Excel Computer, Ltd. as of
December 31, 1999 and 1998, the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Payne Falkner Smith & Jones, P.C.
March 29, 2000
EXCEL COMPUTER, LTD.
(A Limited Partnership)
Balance Sheet
December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS
Current assets
Cash $ 2,357 $ 14,831
Accounts receivable 658,932 579,852
Inventory 292,073 339,876
Other 1,528 3,769
------------ ------------
Total current assets 954,890 938,328
------------ ------------
Property and equipment, net 30,216 39,480
Other 5,591 6,973
------------ ------------
$ 990,697 $ 984,781
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade payables $ 218,594 $ 140,519
Other accrued liabilities 84,776 61,142
Revolving debt 40,000 150,000
Current portion of long term debt 44,691 39,697
Accrued management fee 47,947 48,153
------------ ------------
Total current liabilities 436,008 439,511
Long term debt, less current portion 85,635 132,560
------------ ------------
Total liabilities 521,643 572,071
Commitments and contingencies - -
Partners' capital 469,054 412,710
------------ ------------
$ 990,697 $ 984,781
------------ ------------
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
EXCEL COMPUTER, LTD.
(A Limited Partnership)
Statement of Operations and Changes in Partners' Capital
For the years ended December 31, 1999 and 1998
<S> <C> <C>
1999 1998
------------- ------------
Sales $5,787,616 $5,540,624
Cost of sales 3,630,739 3,715,872
------------- ------------
Gross profit 2,156,877 1,824,752
------------- ------------
Selling, general and administrative expenses
Advertising 555,356 550,552
Bad debts 8,970 -
Commissions 109,822 60,803
Depreciation and amortization 12,092 12,551
Employee retirement contribution 24,096 23,691
Management fees - related party 388,288 388,288
Postage and shipping 19,580 16,385
Rent 53,189 49,612
Salaries and employee benefits 609,339 544,195
Telephone 37,491 28,322
Utilities 12,370 11,527
Other 118,509 116,988
------------- ------------
Total selling, general and administrative expenses 1,949,102 1,802,914
------------- ------------
Operating income 207,775 21,838
------------- ------------
Other income (expense)
Interest expense (33,520) (23,186)
Interest income 855 3,242
Other income - 5,649
------------- ------------
Total other expense (32,665) (14,295)
------------- ------------
Net income 175,110 7,543
Partners' capital at beginning of period 412,710 490,854
Partners' withdrawals (118,766) (85,687)
------------- ------------
Partners' capital at end of period $ 469,054 $ 412,710
------------- ------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
EXCEL COMPUTER, LTD.
(A Limited Partnership)
Statement of Cash Flows
For the years ended December 31, 1999 and 1998
<S> <C> <C>
1999 1998
------------ ------------
Cash flows from operating activities
Net income $ 175,110 $ 7,543
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Depreciation and amortization 12,092 12,549
(Increase) decrease in:
Accounts receivable (79,080) (126,105)
Inventory 47,803 (29,434)
Other assets 2,241 (3,769)
Increase (decrease) in:
Trade payables 78,075 10,410
Other accrued liabilities 23,634 17,254
Accrued management fee (206) 4,050
------------ ------------
Net cash provided (used) by operating activities 259,669 (107,502)
------------ ------------
Cash flows from investing activities:
Purchases of furniture and equipment (1,446) (13,455)
------------ ------------
Net cash used by investing activities (1,446) (13,455)
------------ ------------
Cash flows from financing activities
Net (payments) advances under line-of-credit agreement (110,000) 150,000
Principal payments of bank notes (41,931) (31,737)
Distributions to partners (118,766) (85,687)
------------ ------------
Net cash (used) provided by financing activities (270,697) 32,576
------------ ------------
Net decrease in cash (12,474) (88,381)
Cash - beginning of period 14,831 103,212
------------ ------------
Cash - end of period $ 2,357 $ 14,831
------------ ------------
Supplemental Information:
Interest paid $ 33,520 $ 23,186
------------ ------------
See accompanying notes to financial statements.
EXCEL COMPUTER, LTD.
(A Limited Partnership)
1. Organization and Summary of Significant Accounting Policies
Excel Computer, Ltd. (the "Partnership") was formed in December 1995 as a Texas
Limited Partnership. This partnership was formed by conversion of Excel
Computer, a Texas General Partnership formed effective January 1994. The
Partnership was formed to operate a business manufacturing and selling computer
hardware and supplies, specifically CD ROM networking products.
The accounting and reporting policies of the Partnership conform to generally
accepted accounting principles. The following is a description of the more
significant of those policies.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable consist primarily of trade accounts. There is no
allowance for doubtful accounts, which would represent a provision for possible
losses charged to earnings, included in the accompanying financial statements.
Management considers all reported accounts receivable to be collectible.
Inventory
Inventories are recorded at the lower of cost (first-in first-out) or market
and consist primarily of purchased components used to produce finished product.
Substantially all inventory is pledged as collateral for bank notes.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed on a straight-line basis. The
estimated useful lives for each major classification of property and equipment
are as follows:
Furniture and equipment 7 years
Computer equipment and software 5 to 7 years
Automobile 5 years
(F4)
EXCEL COMPUTER, LTD.
(A Limited Partnership)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $555,356
and $550,552 for the years ended December 31, 1999 and 1998, respectively.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and held in banks, and money market funds.
Income Taxes
Under the provisions of the Internal Revenue Code, the Partnership is not a
taxable entity and, as a result, its net income is included in the income tax
returns of the partners.
2. Property and Equipment
Property and equipment at December 31, 1999 and 1998 consisted of the
following:
1999 1998
--------- ---------
Furniture and equipment $ 29,167 $ 27,721
Computer equipment and software 25,843 25,843
Automobile 17,118 17,118
--------- ---------
72,128 70,682
Less accumulated depreciation 41,912 31,202
--------- ---------
$ 30,216 $ 39,480
--------- ---------
Depreciation expense charged to operations was $10,710 and $11,169 in 1999 and
1998, respectively.
3. Related Party Transactions
The Partnership is managed by a corporation that is owned by the two limited
partners of the Partnership. The management agreement entitles such
corporation to a management fee equal to 100% of the salary and certain
benefits paid to the partners. Actual fees incurred in 1999 and 1998 were
approximately $388,000 and are included in the accompanying financial
statements. The Partnership owed the corporation $47,947 and $48,153 as of
December 31, 1999 and 1998, respectively.
(F5)
EXCEL COMPUTER, LTD.
(A Limited Partnership)
4. Revolving Debt
The Partnership has a $300,000 revolving line of credit with an unaffiliated
bank that is secured by substantially all inventory and accounts receivable.
Interest is payable quarterly at prime plus 1% to maturity of May 2000. The
Partnership has an additional unsecured line of credit in the amount of
$50,000. Interest is payable monthly at 12.5% to maturity of May 2000.
Under these agreements, the outstanding balance fluctuates, and, at various
times, repayments are made which will bring the amount outstanding below the
amount outstanding at the end of the year.
Outstanding borrowings under these agreements amounted to $40,000 and
$150,000 at December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998 the Partnership had $310,000 and $200,000,
respectively, of unused lines of credit with banks to be drawn upon as
needed.
5. Long-Term Debt
Following is a summary of long-term debt at December 31, 1999 and 1998:
1999 1998
-------- ----------
Note payable to bank in monthly principal and
interest installments of $4,635 through September,
2002 collateralized by inventory and accounts
receivable. The note bears interest of 11.5%. $130,326 $172,257
Less: Current maturities included in current
liabilities 44,691 39,697
-------- ----------
$ 85,635 $132,560
-------- ----------
Following are the maturities of long-term debt for the next three years:
2000 $ 44,691
2001 50,779
2002 34,856
------------
$130,326
(F6)
EXCEL COMPUTER, LTD.
(A Limited Partnership)
6. Employee Benefits
The Partnership maintains a retirement plan (Plan) which covers employees over
the age of 21 who have completed one year of credited services, as defined.
The plan provides for "before-tax" employee contribution, through salary
reduction contributions under Section 401(k) of the Internal Revenue Code. The
Partnership does not contribute to this Plan.
The Partnership sponsors a profit sharing plan covering substantially all full-
time employees. Contributions are discretionary and decided by Management each
year. Contributions accrued at December 31, 1999 and 1998 were $23,691.
7. Lease Obligation
Effective December of 1995, the Partnership entered into a lease for its office
facility located in Carrollton, Texas. In June of 1997, the Partnership
assumed an existing lease to expand its current facility. These leases expire
January 31, 2001. In April 2000, the Partnership entered into a six month
lease for warehouse space. Future minimum lease payments for the remaining
noncancelable term of these leases are as follows:
Years ending
December 31, Amount
------------- -------------
2000 $ 57,844
2001 3,962
-------------
$ 61,806
-------------
8. Subsequent Events
On March 22, 2000 the Partnership entered into an asset purchase agreement
whereby they purchased inventory from an unrelated entity. The Partnership
paid $250,000 in cash at closing and is required under the terms of the
agreement to pay an additional $50,000 within ninety days from the dated of
closing. In connection with this purchase, the Partnership assumed all
liabilities associated with the manufacturing and selling of these networking
products, including warranty claims for specifically identified products.
Additionally, the Partnership assumed certain obligations under Extended
Warranties for specifically identified products. As a result of these assumed
warranties, the Partnership will estimate and maintain an allowance for
warranty claims based on prior warranty claims as well as the Partnership's
experience of the amounts of claims actually made.
(F7)
</TABLE>
<TABLE>
<CAPTION>
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, 2000
Pro Forma Consolidated Unaudited Financial Information:
The following represents a pro forma condensed consolidated balance sheet as of March 31, 2000,
assuming the Company's acquisition of Excel Computer Corporation was consumated as of that
date.
<S> <C> <C> <C> <C>
Alanco Excel Pro Forma Pro Forma
Technologies, Computer Adjustments Consolidated
Inc. Corporation Amounts
--------------- ---------------- ----------------- -------------------
Assets
Current Assets:
Cash $419,829 $161,114 ($250,000) (1) $330,943
Accounts Receivable, Net 387,172 613,253 1,000,425
Notes receivable 139,316 0 139,316
Inventory 2,481,271 502,303 300,000 (1) 3,283,574
Other Current Assets 198,059 1,452 199,511
--------------- ---------------- ----------------- -------------------
Total Current Assets 3,625,647 1,278,122 50,000 4,953,769
Property and Equipment, Net 1,925,790 31,042 1,956,832
Investments at cost 2,465,674 0 2,465,674
Other Assets, Net 39,310 2,500 41,810
Intangible Assets, Net 710,399 3,091 991,429 (1) 1,704,919
--------------- ---------------- ----------------- -------------------
Total Assets $8,766,820 $1,314,755 $1,041,429 $11,123,004
--------------- ---------------- ----------------- -------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Long-term debt - current portion $0 $45,500 $45,500
Capital Lease obligation, current 134,350 0 134,350
Bank Line 300,000 250,000 550,000
Note Payable 0 750,000 (1) 750,000
Accounts Payable & Accrued Expenses 720,382 446,110 1,166,492
Billings in excess of Costs and Est. Earnings 78,154 0 78,154
--------------- ---------------- ----------------- ---------------------
Total Current Liabilities 1,232,886 741,610 750,000 2,724,496
Long-term leases & Notes Payable - Net 0 74,574 74,574
Shareholders' Equity 7,533,934 498,571 (498,571) (1) 8,323,934
790,000 (1)
--------------- ---------------- ----------------- ---------------------
Total Liabilities & Shareholders Equity $8,766,820 $1,314,755 $1,041,429 $11,123,004
--------------- ---------------- ----------------- ---------------------
<CAPTION>
(1) Pro forma adjustments to reflect the purchase of Excel Computer Corporation for $250,000, a
$750,000 note and the issuance of 450,000 shares of Alanco common stock valued at $790,000.
425,000 shares of common stock were issued to shareholders of Excel Computer Corporation and
25,000 shares were issued to a consultant.
</TABLE>
(F-9)
<TABLE>
<CAPTION>
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Year Ended June 30, 1999
The following represents an unaudited pro forma condensed consolidated statement of operations for
the year ended June 30, 1999, assuming the Company's acquisition of Excel Computer Corporation
was consumated on July 1, 1998
<S> <C> <C> <C> <C>
Alanco Excel Pro Forma Pro Forma
Technologies, Computer Adjustments Consolidated
Inc. Corporation Amounts
--------------- ---------------- ----------------- -------------------
Sales $7,084,400 $5,380,953 $12,465,353
--------------- ----------------
Cost of Sales and Depr & Amort 4,223,700 3,404,136 7,627,836
Selling General and Adm. 2,741,600 1,856,025 4,597,625
--------------- ---------------- -------------------
Total Operating expense 6,965,300 5,260,161 12,225,461
--------------- ---------------- -------------------
Operating Income 119,100 120,792 239,892
Other Income (Expense)
Interest Expense (157,700) (32,385) (75,000) (1) (265,085)
Interest Income 57,800 1,767 59,567
Other (Expense) Income 102,100 5,649 107,749
--------------- ---------------- --------------- -------------------
Total Income (Expense) 2,200 (24,969) (75,000) (97,769)
--------------- ---------------- --------------- -------------------
Net Income (loss) $121,300 $95,823 (2) ($75,000) $142,123
--------------- ---------------- --------------- -------------------
NET INCOME PER SHARE - BASIC $0.02 $0.03
=============== ================ =============== ===================
NET INCOME PER SHARE - DILUTED $0.02 $0.02
=============== ================ =============== ===================
SHARES OUTSTANDING
WEIGHTED AVERAGE - BASIC 5,016,085 450,000 (1) 5,466,085
=============== ================ =============== ===================
WEIGHTED AVERAGE - DILUTED 5,575,895 450,000 (1) 6,025,895
=============== ================ =============== ===================
<CAPTION>
(1) Pro forma interest expense and shares outstanding adjustments to reflect the purchase of Excel
Computer Corporation by Alanco Technologies, Inc.
(2) No pro forma income tax adjustment is provided due to the assumption that income tax liability
can be offset by utilizing Alanco's tax loss carryforwards.
</TABLE>
(F-10)
<TABLE>
<CAPTION>
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Nine Months Ended March 31, 2000
The following represents an unaudited pro forma condensed consolidated statement of operations for
the nine months ended March 31, 2000, assuming the Company's acquisition of Excel Computer Corporation
was consumated on July 1, 1999.
<S> <C> <C> <C> <C>
Alanco Excel Pro Forma Pro Forma
Technologies, Computer Adjustments Consolidated
Inc. Corporation Amounts
--------------- ---------------- --------------- -------------------
Sales $5,278,687 $4,817,989 $10,096,676
--------------- ----------------
Cost of Sales and Depr & Amort 3,492,114 3,068,155 6,560,269
Selling General and Adm. 2,654,843 1,590,445 4,245,288
--------------- ---------------- -------------------
Total Operating expense 6,146,957 4,658,600 10,805,557
--------------- ---------------- -------------------
Operating Income (868,270) 159,389 (708,881)
Other Income (Expense) (11,276) (18,198) (56,250) (1) (85,724)
--------------- ---------------- --------------- -------------------
Net Income (loss) ($879,546) $141,191 (2) ($56,250) ($794,605)
=============== ================ =============== ===================
NET INCOME PER SHARE
BASIC AND DILUTED ($0.15) ($0.13)
=============== ===================
SHARES OUTSTANDING
WEIGHTED AVERAGE - BASIC 5,864,611 450,000 (1) 6,314,611
=============== ===================
WEIGHTED AVERAGE - DILUTED 5,864,611 450,000 (1) 6,314,611
=============== ===================
<CAPTION>
(1) Pro forma interest expense and shares outstanding adjustment to reflect the purchase of Excel
Computer Corporation by Alanco Technologies, Inc.
(2) No pro forma income tax adjustment is provided due to the assumption that income tax liability
can be eliminated by utilizing Alanco's tax loss carryforwards.
</TABLE>
F-11
