15. COMMITMENTS AND CONTINGENCIES

12 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

15.      COMMITMENTS AND CONTINGENCIES

Leases – At June 30, 2012, the Company’s corporate office was located at 7950 E. Acoma Drive, Suite 111, Scottsdale, Arizona 85260, in an approximately 1,500 square foot facility.  The facility was leased under a thirteen month agreement requiring payment of $1,471 per month (including rental tax).  The lease expired on July 31, 2012 and Alanco is currently operating under a month to month agreement.  Alanco also leases office equipment with a monthly payment of approximately $200 under a lease that expires in July 2013.

In April 2012, the Company formed Alanco Energy Services, Inc. ("AES"), a new wholly owned subsidiary, and through AES executed an agreement with TC Operating, LLC ("TCO") of Grand Junction, CO to transfer a land lease for 20 acres near Grand Junction, CO (known as the Deer Creek site) with the intent for AES to construct facilities for the treatment and disposal of large quantities of produced water generated by oil and natural gas producers in Western Colorado. The site was chosen due to its unique ability to meet stringent government requirements for disposal of the high saline water produced as a by-product of oil and gas production, and termed "produced water".  The agreement included the transfer of all related tangible and intangible assets as well as Federal, State and County permits (issued or in process) required to construct the facilities.

The ten year land lease, effective May 1, 2012 has two additional ten year option periods that may be activated by AES.  The initial terms of the lease requires minimum monthly lease payments of $100 per acre (increasing to $150 and $200 per acre for the second and third ten year option periods, respectively) plus additional royalty payments based upon quantities of produced water received (approximately $.25 per barrel) at the site. The design and construction of the Deer Creek water disposal facility required certain changes to the Goodwin Solid Waste facility resulting in extra costs to the landlord (owner of Goodwin Solid Waste).  As incentive for the landlord to approve the facility design, AES agreed to limit landlord construction improvement costs related to the leased land to $200,000.  Included in the $200,000 limited amount was $100,000 of landlord improvement costs to be paid by AES and reimbursed through a 50% credit against the $.25 per barrel royalty payments due landlord discussed above.  Under certain circumstances, the acreage covered by the lease may be expanded by up to 50 acres to allow for additional expansion at the site.

In conjunction with acquiring the land lease, AES entered into a management services agreement, dated February 1, 2012, with TCO to assist in renegotiating terms of the land lease, assist in the design and construction of the Deer Creek water disposal facility and, when the construction is completed, provide general management services for the water disposal operations.  Compensation for the services provided was $10,000 per month until the actual start of permitted construction and $20,000 per month thereafter.  Subsequent to June 30, 2012, the management services agreement was amended; increasing the monthly payment to $23,000 to compensate TCO for providing increased administrative duties on behalf of AES.  The initial term of the agreement is through January 31, 2013, however the agreement may be terminated by either party upon 15 days prior written notice.  If the agreement is terminated by AES, TCO will receive severance equal to two months of the management fee.

Future minimum non-contingent payments as of June 30, 2012 are as follows:

FUTURE MINIMUM PAYMENTS
FOR THE YEAR ENDED JUNE 30,
	2013	$	27,500
	2014		24,000
	2015		24,000
	2016		24,000
	2017		24,000
	Subsequent		116,000
	TOTAL	$	239,500

Legal Proceedings - The Company’s subsidiary, StarTrak Systems, LLC was made a defendant concerning certain patent infringement claims.  Innovative Global Systems LLC v. StarTrak Systems, LLC, et al.  Case No.: 6:10-CV-00327, is a patent infringement action venued in the United States District Court for the Eastern District of Texas.  During the negotiation process to resolve the claims, the StarTrak operations were sold to ORBCOMM, Inc. (“ORBCOMM”) in a transaction structured as an asset purchase and documented in an Asset Purchase Agreement (“APA”) whereby ORBCOMM acquired substantially all of StarTrak’s assets and liabilities.   StarTrak and ORBCOMM have resolved the action by StarTrak agreeing to pay $100,000, with a like amount to be paid by ORBCOMM, thus avoiding substantially greater expenses than would likely be incurred in defending the action.  Payment of StarTrak’s portion of the costs to resolve the claims has been allowed for in the Patent Litigation Escrow established at the time of the ORBCOMM transaction.

StarTrak was served with a Third-Party Complaint by Great American Lines, Inc. and related parties in a lawsuit against them by certain freight shippers in the US District Court for the District of New Jersey, being Case No.  3:10-ev-02023-JAP-TJB.  The main case against Great American Lines involves allegations concerning a stolen trailer containing freight owned by the plaintiffs resulting in a cargo loss estimated by Great American Lines at $8.8 million.  Great American Lines brought its Third-Party Complaint against StarTrak alleging that StarTrak breached its contract with Great American Lines to allow Great American Lines to track its trailer and for indemnity.  StarTrak tendered its defense in the lawsuit to its insurance company, and  the action was dismissed against StarTrak.

The Company may also, from time to time, be involved in litigation arising from the normal course of business. As of June 30, 2012, there was no other such litigation pending deemed material by the Company.