SECURITIES AND EXCHANGE COMMISSION
.Washington, D.C.
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-4882-D
CLANCY SYSTEMS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1027964
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2250 South Oneida Street, #308
Denver, Colorado 80224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 753-0197
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
(2) Yes X_ No _____
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendments
to this Form 10-KSB. [X]
The Company's revenues for its most recent fiscal year were $1,823,226.
The aggregate market value of the voting stock held by nonaffiliates (based
upon the average of the bid and asked price of these shares on the over-the-
counter market) as of January 14, 1997 was approximately $1,591,013.
Class Outstanding at January 14, 1997
Common stock, $.0001 par value 336,889,149 shares
Documents incorporated by reference: None
Transitional Small Business Disclosure Format:
Yes___ No X
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CLANCY SYSTEMS INTERNATIONAL, INC.
FORM 10-KSB
PART I
Item 1. Description of Business
(a) Business Development. In April 1987 Oxford Financial, Inc.
(Oxford) merged with Clancy Systems International, Inc. (Old Clancy).
Oxford, as the surviving company in the merger, changed its name to Clancy
Systems International, Inc. (the Company or Registrant). Oxford was
organized under the laws of the State of Colorado on March 3, 1986. Old
Clancy was organized under the laws of the State of Colorado on June 28,
1984.
The Company designs, develops and manufactures automated parking
enforcement systems primarily for lease to municipalities, universities and
institutions, including a ticket writing system and other enforcement
systems.
The Company has installed numerous parking enforcement systems for
various clients, towns and universities. The Company also has installed
numerous systems through joint venture relationships. See Phoenix Group
Systems and City of Inglewood below. To augment the enforcement element
of the system, the Company markets the original Denver Boot and other
enforcement tools. By utilizing an integrated approach, the Company offers a
complete parking citation processing system including tracking, enforcement,
collection and automatic identification of delinquent violators in an
effective and efficient manner.
The Company also provides hardware and software for special projects for
Hertz Corporation including a project called Fleet Control. Fleet Control
was developed in 1987 as an internal security system used by Hertz to track
the transfer of cars between locations.
The Companys principal executive offices are located at 2250 S. Oneida
Street, #308, Denver, Colorado 80224 and its telephone number is (303) 753-
0197.
(b) Business of the Issuer.
(b)(1), (2) Principal Products or Services and Markets and Distribution
Methods. The Company's parking enforcement system is an automated system
which generates parking citations. The system consists of a hand-held,
light-weight, portable data entry terminal, a light-weight printer to
generate the parking citation and a data collection computer system to store
parking citation data at the end
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of each day. The data entry terminal includes features such as large keys
for use with gloved hands, easily readable liquid crystal display,
phosphorescent keypad for illuminated night use and a large expandable
memory. The printer contains a "no-wait" buffer which acts to eliminate
delay in entering citation data. The printer has been stream-lined and along
with the hand-held terminal weighs only three and one-half pounds and is
battery charged to last for at least eight hours with overnight recharging
capability. The citations are printed on a continuous fan fold flat form.
The data collection computer is used for uploading and downloading data and
contains the capacity for interfacing directly, or via tape transfer, with a
user's mainframe computer. There are currently approximately 800 ticket-
writing units in operation.
The Company's system also includes a complete back office processing and
filing system. The Company provides computers, printers and software to
enable the user to do department of motor vehicle lookups, maintain citation
information storage and recall, generate delinquent notices and have
immediate access to files of all tickets previously written. In addition,
the Company's system also maintains a current, readily accessible list of
vehicles with multiple outstanding citations, stolen vehicles, or vehicles
otherwise wanted by local law enforcement officials. The system also
generates reports of citations by number and officer, revenues collected,
names of scofflaws, officer productivity and other reports as deemed
necessary or valuable to the agency.
The Company's contracts for its parking enforcement systems generally
provide that the Company will provide the ticketwriters, a back office
processing system, custom software and training and support in consideration
of a fee per citation issued, a monthly fee for computer equipment rental
and/or a set monthly fee. Occasionally, the Company will provide its system
through an outright sale rather than through its typical lease arrangement.
The Company generally warrants its equipment, provides updating and
improvements to its system hardware and software and provides customary
indemnification.
The Company currently has systems installed for the following
municipalities and universities representing approximately 6,000,000 tickets
issued per year: Albany, CA: Apcoa Systems in Kansas City, MO, Columbus, OH
and Minneapolis, MN; Berkeley, CA; Breckenridge, CO; Buffalo, NY; Burnaby,
BC; Blackhawk, CO; Brigham Young University, Provo, UT; Buena Park, CA:
Butler University, Indianapolis, IN; CSU Fresno; Central Florida University,
Orlando, FL; Charleston, SC; Dallas, TX; Durango, CO; Eastchester, NY;
Evansville, IN; Fort Collins, CO; Gainesville, FL; Galveston, TX; Greeley,
CO; Harrisburg, PA; Henderson, KY; Huntington, WV; Lafayette, LA; Lubbock,
TX; Los Altos, CA; MTRA, University of Oklahoma, Oklahoma City, OK;
Naperville, IL; New Hope, PA; New Orleans, LA; North Carolina State
University, Raleigh, NC; North Carolina A & T, Greensboro, NC; ParkWise,
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Albany, OR; Richmond, VA; Santa Barbara, CA; South Carolina State University,
Orangeburg, SC; Snowmass, CO; Southwestern Community College, Chula Vista,
CA; Steamboat Springs, CO; Tampa, FL; Telluride, CO; University of Alberta,
Edmonton, Alberta; University of California, San Francisco; Vail, CO; and
Yonkers, NY. By December 31, 1996, the Company plans to install systems in:
Georgetown University, Washington DC; Takoma Park, MD, and Allright Parking,
Poughkeepsie, NY.
Clancy Systems International Limited Marketing Agreement
On September 10, 1988 the Company entered into a three-year marketing
agreement (the "Marketing Agreement") with Clancy Systems International
Limited ("Clancy UK"), an unaffiliated company incorporated in England.
Under the Marketing Agreement, Clancy UK has the exclusive rights to market
the computer and other electronic hardware and software systems produced by
the Company in the United Kingdom, and the nonexclusive rights to market the
computer and other electronic hardware and software systems produced by the
Company in Europe and Australia. Clancy UK has agreed to use its best
efforts to promote and market the Company's products and services and will
reimburse the Company for its equipment and systems at rates to be agreed
upon for each installation. All hardware returned to the Company is replaced
by the Company free of charge. By mutual agreement of the parties, the
Marketing Agreement has been extended indefinitely. Currently Clancy UK
services one client: Newcastle upon Tyne, England.
The Denver Boot
The Denver Boot is a metal clamp which is fastened around a wheel which
effectively prevents a vehicle from being moved. The Denver Boot is removed
by unlocking a padlock. The Company acquired all rights to the product in a
transaction with Grace Berg in June of 1994. The Company will pay Mrs. Berg
a royalty on all sales for a period extending to June 1999. The Denver Boot
is used by a number of law enforcement agencies on vehicles with multiple
offenses. The Denver Boot can be integrated into the Company's parking
control and enforcement system or may be sold separately. Sales of the
Denver Boot have increased significantly during the past fiscal year. The
Company continues to market boots with J.R. Bisho Co., an unaffiliated
company, for sales of the Denver Boot in the Middle East.
Fleet Control
During the quarter ended September 30, 1987 the Company developed a
vehicle inventory control system for The Hertz Corporation referred to as
Fleet Control. Fleet Control system tracks the transfer of rental cars
between locations and is designed to enhance the security and control of
inventory during such movements.
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The system provides Hertz with information pertaining to each vehicle from
the moment it leaves a location and includes the name and employee number of
the hiker (driver), the Hertz vehicle number, the vehicle license number and
a bar code identification symbol. The information is readily transferable
between locations and is reproduced in a report format. This system has
evolved into other fleet inventory data acquisition programs including exit
gate and monthly locations programs.
The Fleet Control system was implemented February 1, 1988 and as of
December 20, 1996, 23 hand-held printer/terminal units for the system have
been installed in the Newark and New York Hertz locations. Presently the
equipment is being leased on a month-to-month basis for an amount per
terminal unit and various charges for related peripheral hardware.
Clancy has developed and sold custom charging racks for exit gate
functions to the Hertz Corporation. The phase I roll-out was completed in
October 1995 and phase II is expected began in January 1996 and will continue
over the next few years.
Hertz revenues to the Company represented approximately 3% of the
Companys total revenues during fiscal 1996.
The Fleet Control system is being provided to Hertz under an oral
agreement.
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Phoenix Group Systems
In joint venture with Phoenix Group, of Torrance, California, the
Company has installed computerized parking citation issuance systems at
Pasadena City College, Pasadena, California; California State University Long
Beach; West Covina, California; Bell Gardens, California; Riverside,
California; Cerritos College, Norwalk, CA; East L.A. College; L.A. Harbor
College; L.A. Mission College; L.A. Pierce College; Santa Rosa Jr. College;
Anaheim, California; Cuesta College, San Luis Obispo, CA; California State
University, Dominguez Hills; Golden West College, Huntington Beach, CA;
Grossmont-Cuyamaca Colleges in El Cajon, CA; California State University, Los
Angeles; County of Sonoma; Humboldt State College, Arcata, CA; and Los
Angeles Valley College, Van Nuys, CA. Phoenix Group has contracts with these
entities to provide noticing and Department of Motor Vehicle lookup. The
Company provides field units, charger/communication modules and system
computers. All of these entities write in the aggregate approximately
500,000 tickets per year.
MIS Department- City of Inglewood, CA
In a joint venture agreement with the City of Inglewood, CA, Department
of MIS, Clancy has agreed to provide hand-held ticket issuance equipment,
ticket forms and envelopes for the City of Inglewood and clients that the
City services for ticket processing. These cities include: Inglewood, CA;
Sacramento, CA; Lawndale, CA; Alhambra, CA; Compton, CA; Covina, CA; San
Marino, CA; San Gabriel, CA; Hawthorne, CA; and South Pasadena, CA.
(b)(3) Status of Publicly-Announced New Product or Services. Not
applicable.
(b)(4) Competition. The Registrant is aware of several other companies
which currently offer an automated ticket writing system: Enforcement
Technologies, Inc.; Cardinal; Com-Plus; DMS; and Radix. The Company believes
that it is able to compete effectively in the field because of its fee per
citation and leased system marketing approach which eliminates any
significant capital expenditures by the user and because of the various
enforcement products which it offers to complement its system.
The Registrant believes that its rental car return and inventory control
systems are competitive with other types of similar systems in that they are
"stand-alone" systems which do not require a compatible main frame computer
to operate. The Registrant is aware of no other companies which currently
offer a "stand-alone" rental car return system or a "stand-alone" inventory
control system.
Initially, the Company provides potential parking control clients with
consulting services to analyze the client's ticketing and enforcement needs.
The Company then develops a proposal based
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upon those needs, which indicates how the Company's system and
related products would aid the client in achieving the two primary goals of
ticket writing and enforcement: creation of an equitable enforcement policy
and an increase in revenues. The Company believes that a system which is
perceived by the public to provide a greater certainty of enforcement will
result in a greater willingness upon the part of the public to promptly and
consistently pay fines, thus increasing the flow of revenues to the client.
Depending upon the size of the client, the Company's services may range from
the simple sale of hardware (i.e., the Denver Boot) to providing a ticketing
and enforcement system and related equipment through a lease or sale
arrangement, training users and handling data processing of tickets and the
collection of fines.
Although a few of the Company's systems provide for the purchase of
systems or fees based on set monthly amounts, the Company has been marketing
its system and other products to municipalities, universities, colleges,
institutions and parking companies primarily under a professional services
contract geared to a transactional or per citation basis. The Company
supplies all hardware, software, training, supplies and maintenance for the
system, thus eliminating all significant capital expenditures by the user.
The Company markets its ticket writing and enforcement system directly
to municipalities, universities, colleges, institutions and parking companies
through commissioned sales representatives and members of management. The
Company currently has marketing alliances with six organizations throughout
the United States. The Company's management attends trade shows and makes
direct sales calls.
The Company has an informal marketing arrangement with Clancy UK under
which Clancy UK is marketing the Company's systems in the United Kingdom and
Europe. See "Clancy Systems International Limited Marketing Agreement."
(b)(5) Raw Materials and Principal Suppliers. The Company purchases
its hand-held computers from outside vendors and the Company builds the
printer units which incorporate the hand-held terminal. Robert M. Brodbeck,
the Company's Chairman of the Board and a director, supervises the
manufacturing of the Company's printer units and is responsible for product
engineering. The hand-held terminals for the parking enforcement system and
rental car return system are identical and the hand-held terminals for the
rental car inventory control system are different only in that they have an
expanded memory and a bar code wand for identifying vehicles for inventory
control purposes. The printer units for the various systems are the same.
The Company's latest generation printers feature injection molded cases and
an automatic top-of-form feature for the paper feed. Other new technology to
the electronics enable interfacing with auxiliary hardware such as radio
communications devices, magnetic credit card readers and other peripheral
devices. The Company obtained a patent on its printer in April 1991. The
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Company purchases its hand-held terminals from several different vendors who
sell computers which are all comparable in quality.
Component parts for the Company's products are purchased from various
sources. The Company has established certain vendors for such parts;
however, should any of them become unavailable to the Company, the Company
believes that there are many alternative sources of supply available to it.
Certain components of the printer such as cases and shafts are manufactured
according to Company specifications and can easily be supplied by many
different vendors.
The Company's paper products are purchased from outside vendors. Should
any of these vendors be unable to supply these specialized products, the
Company believes that there are many other available sources of supply.
(b)(6) Significant Customers. Presently, the Registrant has 58
customers. The Registrant in general is greatly dependent on these
customers, but the Registrant is particularly dependent on its contracts with
Oklahoma City, Oklahoma; the City of Berkeley, California; the Phoenix
Group; and Hertz Corporation which together represented approximately 22% of
the Company's total sales for the year ended September 30, 1996. From March
20, 1996 through September 30, 1996, the Company operated the parking ticket
issuance operations for the Town of Cicero, Il. Revenues from this operation
represented 33% of its total revenues for fiscal 1996; however, this contract
was discontinued effective as of December 5, 1996. See below. The Company
continually updates the hardware and software products provided to these and
all of its customers in an effort to ensure quality service and customer
satisfaction.
Oklahoma City, Oklahoma. The Company has provided a fully implemented
automated parking ticket writing, processing and enforcement system to
Oklahoma City, Oklahoma, its first parking enforcement system, since June
1986. Under the current contract the Company receives a monthly fee for
leasing equipment and providing supplies and support. The contract may be
terminated by either party upon 15 days written notice and may be extended
for two additional 12-month terms upon mutual agreement of the parties on
terms to be negotiated. The current contract with the City of Oklahoma
expires June 30, 1997. Under the contract, the Company has agreed to
indemnify the City of Oklahoma, its officers, agents and employees against
any claims resulting from acts or omissions of the Company or its officers,
employees, representatives or agents. During the 1996 fiscal year, the
revenues from the Oklahoma City system represented approximately 4% of the
Company's total revenues.
Berkeley, California. On September 8, 1989 the Company entered into a
contract with the City of Berkeley, California to provide a parking
enforcement system to issue citations, assemble data and
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interface to the City's database. Under the contract the Company provides
hardware, custom software, maintenance, training and support. The Company
receives a fee per valid citation issued. The contract term has been extended
through September 1997. The Company has agreed to warrant all hardware and to
replace or repair any broken hardware free of charge. The Company has agreed
to indemnify the City, its officers, agents and employees against any claims
arising out of the Company's performance under the contract. The City has
the right to terminate the contract with 30 days written notice. The system
currently provides hardware for 30 parking control officers. During the 1996
fiscal year, the revenues from the City of Berkeley system represented
approximately 8% of the Company's total revenues.
Cicero, Illinois. The Company entered into a three-year agreement with
the Town of Cicero, IL in February, 1996, to provide a complete facilities
management service for its parking ticket issuance division. Under the
agreement, the Company agreed to pay the Town of Cicero an annual fee of
$575,000. The Company provided the complete system, personnel, hardware, and
supplies. The Company retained all ticket revenues collected as well as any
revenues collected on backlog tickets. The agreement may be terminated by
either party upon 30 days written notice. The Company began operations with
respect to the agreement the last week of March 1996. Revenues collected
from this project represented approximately 33% of the Companys total
revenues during fiscal 1996. In connection with the Agreement, the Company
entered into an agreement with J & J Consulting under which the Company
agreed to pay J & J an annual fee of $175,000 and monthly commissions equal
to a percentage of all revenues generated by the Company from its operations
in Cicero, and a bonus percentage once revenues to the Company exceed
$1,000,000. In November 1996, the Town terminated the agreement effective
December 5, 1996. The Company believes that the Town of Cicero has breached
the Agreement in various respects and is negotiating with the Town to settle
these issues. The company is seeking a pro rata return of the initial
contract acquisition costs to the date of the contract termination, as well
as resolution of other matters wherein the Company believes the Town has not
fulfilled its obligations. The Company is seeking to resolve this matter
through negotiations; however, if necessary, the Company will pursue legal
remedies. As a result of the termination of the Agreement with Cicero, the
consulting agreement with J & J has been terminated.
(b)(7) Patents and Licenses. The Company obtained a patent
(#5,006,002) for its printer used in its parking enforcement, rental car
return and inventory control systems in April 1991. This patent expires
April 2008.
On April 25, 1991 the Company acquired two patents from Termiflex
Corporation, Merrimack, New Hampshire. The patents #4,007,443 and 4,005,388
are for function keys on the sides of hand
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held terminals. The patents were acquired for a total of $4,000 and
expired February 8, 1994 and January 25, 1994, respectively. Under the Patent
Transfer Agreement the Company acquired the patents and has granted Termiflex
unlimited license rights to utilize the patents. In addition, the Company
pays Termiflex 50% of any licensing fees received from any third party.
Termiflex is a publicly held manufacturer of hand held devices.
In April 1992 Clancy licensed, on a non-exclusive basis, its patented
handheld terminal button technology to Nippondenso Co. Ltd. for $20,000.
This technology is part of the patented technology acquired by the Company
from Termiflex. See above. The patent license agreement expired in February
of 1994 when the patent protection period ended. Under its agreement with
Termiflex, $9,000 of this fee has been paid to Termiflex.
(b)(8) Need for Governmental Approval. None.
(b)(9) Effect of Governmental Regulations. None.
(b)(10) Research and Development. In order to keep its products and
systems from becoming obsolete, the Company regularly modifies and updates
its hardware and software. In order to streamline its ticket writing and car
rental equipment, the Company has redesigned the printer so that it weighs
only three and one-half pounds instead of five pounds.
The Company has continually been modifying its patented printer and is
beginning to market its printer as a stand-alone product to parking
enforcement entities, delivery services and vendors who have a need for
computer-generated receipts. During the 1996 fiscal year the Company made
significant modifications to the printer which include a memory module and
upgrade of components and board design.
During fiscal 1996, Clancy continued the development of a new printer
which utilizes a thermal line printer. This printer has been designed to
print special fonts including the new PDF 417 bar code symbology. The
printer will be utilized as a stand alone device, but has been designed to
accept a module which incorporates a handheld terminal, mag stripe reader,
PCMCIA card and can accept wands, bar codes and other peripheral devices.
Estimated completion time for the module is January 1997. Other features
include graphic display, back-lit keypad, phosphorescent keypad and
expandable memory. The Company believes there exists a tremendous market for
this product which may increase future revenues. The ability to print PDF
417 bar codes will be a significant marketing advantage; however, there can
be no assurance that the Company's marketing efforts will be successful.
The Company developed a printer with an infrared interface which it sells
to a Canadian company. It is anticipated that this product
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will be sold to others who can benefit from the infrared technology and
require a portable field printing device.
Robert M. Brodbeck, the Company's Chairman of the Board and a director,
oversees developement and manufacturing of hardware produced by the Company.
Management keeps informed of new developments in components so that the
printer is up-to-date, fast and suits user requirements. The Company
communicates with vendors on a regular and ongoing basis so that management
is aware of upgraded components, new components and new processes to upgrade
its hardware. By adapting its equipment to user needs and keeping current of
the latest technology, the Company anticipates that its enforcement ticket
writing and rental car systems will not become obsolete.
The Company's software is developed in-house by four full-time
programmers and by Stanley J. Wolfson, the Company's President and a
director.
The Company's software is maintained and updated on a regular basis.
The software for the enforcement system ticketwriter and rental car return
systems were developed by Stanley Wolfson over a period of two years. The
software for the Fleet Control inventory control system initially was
developed by Mr. Wolfson in his capacity as an officer and employee of Stan
Wolfson and Associates, Inc., and subsequently was transferred to the
Company. The software allows the ticketing, rental and inventory information
to be entered and stored and the tickets, rental agreements and inventory
information to be printed. The user of the enforcement system also may use
the computer to look up information relating to possible stolen or multiple
violation vehicles.
The office computer software allows the daily ticket and rental and
inventory information to be transferred from the portable units to a central
computer. The information is compiled and then processed further according
to user requirements.
Through sophisticated communications software, the Company is able to
update, modify, repair, enhance and change most software at the client's
location via a modem.
The Company's Lot and Street Survey programs have been provided to
clients for use with their parking systems.
The Company spent $51,222 and $54,303 on research and development
activities for the fiscal years ended September 30, 1995 and 1996,
respectively. None of the cost of such activities was borne directly by the
customers.
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(b)(11) Compliance with Environmental Laws. Compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment will
have no material effect on the capital expenditures, earnings and competitive
position of the Company.
(b)(12) Employees. The Company currently has twelve employees all of
whom are employed on a full time basis.
Item 2. Description of Properties.
The Company is leasing approximately 1,700 square feet of office space
located at 2250 South Oneida Street, #308, Denver, Colorado for its corporate
offices for $1,310 per month pursuant to a lease agreement with an
unaffiliated party which expires May 31, 1998.
The Company also leases approximately 3,000 square feet of manufacturing
space located at 5789 S. Curtice, Littleton, Colorado, from an unaffiliated
party. Rental payments are $475 per month pursuant to a lease agreement which
expires August 1, 1997.
The Company believes that these facilities are suitable and adequate for
its needs.
Item 3. Legal Proceedings.
On November 4, 1995, the Registrant filed an action in the United States
District Court for the District of Colorado naming Symbol Technologies, Inc.
as defendant, alleging patent infringement.
In 1993, Symbol Technologies, Inc. released a new product, a handheld
terminal model PDT3100, which incorporates the interactive button technology
documented in patents #4,007,443 and #4,005,388, which the Company acquired
from Termiflex Corporation on April 25, 1991.
The Company is seeking relief for patent infringement and licensing of
the patented technology. The amount of relief has not been specified.
The Registrant knows of no litigation pending, threatened or
contemplated, or unsatisfied judgments against the Registrant, nor any other
proceedings to which the Registrant is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.
(a)(1) The principal market on which the Registrant's Common Stock is
traded is the over-the-counter market and the Registrant's Common Stock is
quoted in the National Quotation Bureau Inc.'s Electronic Bulletin Board.
(a)(1)(i) Not applicable.
(a)(1)(ii) The range of high and low bid quotations for the
Registrant's Common Stock for the last two fiscal years are provided below.
These over-the-counter market quotations reflect inter-dealer prices without
retail markup, markdown or commissions and may not necessarily represent
actual transactions.
High bid Low bid
10/1/94 - 12/31/94 .0025 .0025
1/1/95 - 3/31/95 .0025 .0025
4/1/95 - 6/30/95 .0025 .0025
7/1/95 - 9/30/95 .0025 .0025
10/1/95 - 12/31/96 .01 .005
1/1/96 - 3/31/96 .02 .01
4/1/96 - 6/30/96 .02 .015
7/1/96 - 9/30/96 .015 .075
On December 26, 1996 the reported bid and asked prices for the
Registrant's Common Stock were $.005 and $.02, respectively.
(a)(2) Not applicable.
(b) The approximate number of record holders of the Registrant's Common
Stock on December 26, 1996 was 629.
(c)(1) The Registrant has paid no dividends with respect to its Common
Stock.
(c)(2) There are no contractual restrictions on the Registrant's
present or future ability to pay dividends.
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Item 6. Management's Discussion and Analysis or Plan of
Operation
From fiscal 1995 to fiscal 1996 revenues increased 51% due to increased
revenues from new professional service contracts for the Company's parking
enforcement systems Research and development costs increased by $3081, or
6%, from fiscal 1995 to fiscal 1996. General and administrative costs
increased by 7% (exclusive of Cicero general and administrative costs) from
fiscal 1995 to fiscal 1996. This is directly attributable to adding
personnel, higher travel costs, higher insurance costs, and other increased
expenses directly related to an increased client base. The Company reported
a profit of $100,518 for fiscal 1995 as compared to profit of $16,792 for
fiscal 1996.
Since November 1986, the Company has had a professional services contract
with Oklahoma City to provide a ticket writing system for a set monthly fee.
For the fiscal years ended September 30, 1995 and 1996, the contract with
Oklahoma City accounted for 7% and 4%, respectively, of the Company's total
professional services contract income. See Part I, Item 1 (b)(6).
During the fiscal year ended September 30, 1989 the Company entered into
a contract with the City of Berkeley, California to provide its parking
enforcement system. For the fiscal years ended September 30, 1995 and 1996,
the contract with the City of Berkeley accounted for 11% and 8%,
respectively, of the Company's total professional services contract income.
By a contract entered into on February 15, 1996, the Company began a
facilities management project for the Town of Cicero Illinois in the last
week of March 1996. The Company paid the town of Cicero $575,000 as a
guarantee of ticket income for a one year period. The Company realized
revenues from this operation through its fiscal year end at September 30,
1996 which represented 33% of its total revenues. This contract was
terminated effective December 5, 1996. See Part I, Itme 1(b)(6); Cicero,
IL.
During the fiscal years ended September 30, 1995 and 1996, the Company
had in place a total of approximately 76 and 89 systems, respectively,
representing both systems installed directly by the Company and systems
installed through joint venture relationships.
The Company Fleet Control program for Hertz continues to generate
significant revenues for the Company. For the fiscal years ended September
30, 1995 and 1996, all revenues derived from Hertz were from contract
agreements to provide leased hand-held terminals, chargers, and other
peripherals and supplies related to various Fleet Control projects. This
revenue represented 11% and 3% of the
- - - - - - - - - - - -13-
<PAGE>
Company's total revenue during fiscal 1995 and 1996, respectively. See Part
I, Item 1 (b)(1).
The Company's professional services contract income generated for the
year ended September 30, 1996 was approximately 3% from the Hertz Corporation
projects and approximately 97% from the Company's parking enforcement systems
and product sales. The Company's future operations will be greatly dependent
upon its ability to obtain additional contracts for its parking control
systems and other rental systems.
At September 30, 1996, the Company had working capital of $465,991 as
compared to $537,018 at September 30, 1995. The Company's current ratio
decreased from 8.69 to 1 to 1.95 to 1 from September 30, 1995 to September
30, 1996. On March 22, 1996, the Company executed a three month promissory
note for $650,000 secured by personal guarantees of three officers of the
Company. The note bears interest at 9.75% and was originally due on June 25,
1996. The Company has extended the maturity date on the remaining balance to
December 25, 1996.
The Company anticipates using its working capital to fund ongoing
operations, including general and administrative expenses, equipment
purchases, equipment manufacturing, travel, marketing and research and
development. The Company anticipates having sufficient working capital to
fund operations for the fiscal year ending September 30, 1997; however, the
Company may need to seek additional financing prior to such time.
The Company has continually been modifying its patented printer and has
marketed its printer as a stand-alone product to delivery services and
vendors who have a need for computer-generated receipts. During the 1996
fiscal year, the Company developed a new printer utilizing thermal line print
technology. The Company also made significant upgrades to its standard
printer. The Company believes there exists a tremendous market for the new
printer as it will be able to print a new bar code symbology (PDF 417) which
is expected to become an industry standard in the next few years. This
product may increase future revenues; however, there can be no assurance
that the Company's marketing efforts will be successful.
Item 7. Financial Statements.
The following financial statements are filed as a part of this Form
10-KSB and are included immediately following the signature page.
Report of Independent Certified Public Accountants
Balance Sheet - September 30, 1995 and September 30, 1996
- - - - - - - - - - - -14-
<PAGE>
Income Statement - Years ended September 30, 1995
and 1996
Statements of Stockholders' Equity - Years ended September
30, 1995 and 1996
Statements of Cash Flows - Years ended September 30, 1995
and 1996
Notes to Financial Statements
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
- - - - - - - - - - - -15-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
(a)(1),(2),(3) Identification of Directors and Executive Officers.
Position Dates of
Name held with Registrant Age service
Stanley J. Wolfson President, Chief Executive 53 1987
Officer and Director
Robert M. Brodbeck Chairman of the Board of 63 1987
Directors
Mark G. Lawrence Director 47 1986
Lizabeth M. Wolfson Secretary-Treasurer and 51 1987
Chief Financial and Chief
Accounting Officer
(a)(4) The business experience of the Registrant's officers and
directors is as follows:
Stanley J. Wolfson, President, Chief Executive Officer and a director of
the Company since February 1987. Mr. Wolfson attended the University of
Colorado at Boulder and the University of Colorado at Denver. Mr. Wolfson had
been president and a director of Clancy from inception until its merger into
the Company in April 1987. Since 1967 Mr. Wolfson has been president and
director of Portion Controlled Foods, Inc. d/b/a Stan Wolfson and Associates,
Inc., a data processing systems consulting firm located in Denver, Colorado
which employs two persons on a part-time basis. His firm's clients include
The Hertz Corporation which utilizes Stan Wolfson and Associates, Inc.'s
hand-held data entry equipment as part of its on-site national inventory
control system. The Hertz Corporation has been a major customer of the
Company. See Part I, Item 1. Mr. Wolfson has served as remote data
acquisition consultant for AT&T as well as a consultant for a number of small
local companies. Mr. Wolfson is the husband of Lizabeth Wolfson, an officer
of the Company.
Robert M. Brodbeck, Chairman of the Board of Directors and a director of
the Company since February 1987. Mr. Brodbeck had been chairman of the board
of directors and a director of Clancy from June
- - - - - - - - - - - -16-
<PAGE>
29, 1985 until April 1987. Mr. Brodbeck was a founder of Clancy, served as
an initial director of Clancy until Clancy's first organizational meeting and
had been active as a principal shareholder of Clancy since its inception.
From December 1983 until November 1986 Mr. Brodbeck had been president and
director of I/O Services, Inc., (now known as Sabre Industries, Inc.), a
public company located in Denver, Colorado which is involved in the
development of systems for small block data transmission. From July 1978 to
May 1984, Mr. Brodbeck was co-owner of Computer Tel, Inc. (d/b/a Loadmaster),
located in Denver, Colorado, which developed a computerized load posting
system in use nationally by the trucking industry. From November 1973 to May
1984, Mr. Brodbeck was the owner of Kwik Kall, Inc., a direct dial courtesy
phone system located in Denver, Colorado, serving the trucking industry in
the southwestern United States as well as the eastern seaboard, Oklahoma and
Texas. Mr. Brodbeck sold his interests in both Computer Tel, Inc. and Kwik
Kall, Inc. in 1984. Prior to 1972 Mr. Brodbeck was an electronics and
computer maintenance technician with Martin Marietta Corporation for 17
years.
Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief
Accounting Officer of the Company since February 1987. Mrs. Wolfson attended
the University of Colorado at Boulder and the University of Colorado at
Denver. Mrs. Wolfson had been secretary and treasurer of Clancy from 1974 and
a director from December 1986 until April 1987. Since 1978, Mrs. Wolfson has
served as secretary of Stan Wolfson and Associates, Inc. She is the wife of
Stanley J. Wolfson, President, Chief Executive Officer and a director of the
Company.
Mark G. Lawrence, a director of the Company since April 1986. Mr.
Lawrence served as Chairman of the Board of Directors and Secretary of the
Company from April 1986 until February 1987 when the Exchange took place with
Clancy. Since March 1988 Mr. Lawrence has served as executive vice president
and a partner of Vintage Marketing Group, Inc., a company engaged in the
sales and marketing of residential real estate. Since 1985 he has been
secretary and a director of Windscreens West, Inc., a Colorado corporation
engaged in the distribution and sales of fencing and other products. He
graduated from the University of Denver in 1971 with a B.A. degree in social
sciences and attended the University of the Americas in Mexico City in 1969.
Mr. Lawrence is a member of the Home Builders Association, the Sales and
Marketing Council of Metropolitan Denver and the National Sales and Marketing
Council.
(a)(5) Directorships Held in Reporting Companies. None.
(b) Identification of Certain Significant Employees. None.
(c) Family Relationships. Lizabeth M. Wolfson, Secretary-Treasurer and
Chief Financial and Chief Accounting Officer of the Registrant, is the wife
of Stanley J. Wolfson, President, Chief Executive Officer and a director of
the Registrant.
- - - - - - - - - - - -17-
<PAGE>
(d) Involvement in Certain Legal Proceedings. None
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
Item 10. Executive Compensation.
(a) General. For the fiscal year ended September 30, 1996 the Company
paid a ten percent sales commission totaling $6,320 to Stanley J. Wolfson,
the President, Chief Executive Officer and a director of the Company, based
upon gross sales (excluding supplies) to the Hertz Corporation. In addition,
Mr. Wolfson received a salary of $48,000 for the most recent fiscal year
ended.
(b) Summary Compensation Table.
(a) (b) (c) (e)
Name and Other annual
principal position Year Salary compensation
Stanley J. Wolfson 1996 $48,000 $6,320
President and Chief 1995 44,500 8,351
Executive Officer 1994 34,200 7,368
(c) Option/SAR Grants. None.
(d) Option/SAR Exercises and Fiscal Year End Option/SAR
Values. Not applicable.
(e) Long-Term Incentive Plan. None.
(f) Compensation of Directors. None.
(g) Employment Contracts and Arrangements. None.
(h) Report on Repricing of Options/SARs. Not applicable.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a), (b) Security Ownership of Beneficial Owners and Management. The
following table sets forth information as of December 11, 1996 with respect
to the ownership of the Company's Common Stock for all directors,
individually, all officers and directors as a group, and all beneficial
owners of more than five percent of the Common Stock.
- - - - - - - - - - - -18-
<PAGE>
Name and address Number of
of beneficial owner shares Percentage
Stanley J. Wolfson 113,998, 464 (1) 33.8%
1907 South Leyden
Denver, Colorado 80224
Robert M. Brodbeck 92,509,608 27.5%
9310 Watson Gulch
Littleton, Colorado 80127
Mark G. Lawrence 3,100,000 .9%
6172 South Lima Way
Englewood, Colorado 80111
All officers and directors 209,608,072 (1) 62.2%
as a group (four persons)
- - - - - - - - - - - --------
(1) Includes 4,075,642 shares of Common Stock owned of record by Lizabeth
M. Wolfson, the wife of Stanley Wolfson and an officer of the Company and
400,000 shares of Common Stock owned of record by the Wolfson children.
(c) Changes in Control.
The Registrant knows of no arrangement, the operation of which may, at a
subsequent date, result in change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions.
None/Not applicable.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following is a complete list of exhibits filed as a
part of this Report on Form 10-KSB and are those incorporated herein by
reference.
Exhibit Number Title of Exhibit
3.1 Articles of Incorporation filed with the Colorado
Secretary of State on March 3, 1986 (2)
3.1(a) Articles of Amendment to Articles of Incorporation
(2)
3.3 Bylaws (2)
- - - - - - - - - - - -19-
<PAGE>
10.1(b) Professional Services Contract between Clancy
Systems International, Inc. and the City of
Oklahoma dated June 14, 1989 (4)
10.2 Extension Agreement between Clancy Systems
International, Inc. and the City of Oklahoma dated
June 20, 1990 (5)
10.6 Indemnification Agreements between the Registrant
and Robert M. Brodbeck, Stanley J. Wolfson and
Lizabeth M. Wolfson dated February 26, 1987 (1)
10.12 Indemnity Agreements between Registrant and
Stanley J. Wolfson, Robert M. Brodbeck, Mark G.
Lawrence and Lizabeth M. Wolfson (3)
10.24 Service Agreement between Clancy Systems
International, Inc. and the City of Berkeley,
California dated September 1, 1989 (4)
10.25 Agreement between Clancy Systems International,
Inc. and the Town of Cicero dated February 13, 1996.
- - - - - - - - - - - ----------
(1) Incorporated by reference from exhibit 2.1 filed with the
Registrant's current report on Form 8-K dated February 26,
1987.
(2) Incorporated by reference from the like numbered exhibits
filed with the Registrant's Registration Statement on Form
S-18, SEC File No. 33-4882-D.
(3) Incorporated by reference from the like numbered exhibits
filed with the Registrant's Annual Report on Form 10-K for
the year ended September 30, 1987.
(4) Incorporated by reference from the like numbered exhibits
filed with the Registrant's Annual Report on Form 10-K for
the year ended September 30, 1989.
(5) Incorporated by reference from the like numbered exhibits
filed with the Registrants Annual Report on Form 10-K for
the year ended September 30, 1990.
(b) Reports on Form 8-K. During the last quarter of the
period covered by this report the Registrant filed no
reports on form 8-K.
- - - - - - - - - - - -20-
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
None.
- - - - - - - - - - - -21-
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CLANCY SYSTEMS INTERNATIONAL, INC.
By /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
Date: January 13, 1997
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: January 13, 1997 /s/ Stanley J. Wolfson
Stanley J. Wolfson, President,
Chief Executive Officer and a
Director
Date: January 13, 1997 /s/ Robert M. Brodbeck
Robert M. Brodbeck, Chairman of
the Board of Directors and
Director
Date: January 13, 1997 /s/ Lizabeth M. Wolfson
Lizabeth M. Wolfson, Secretary-
Treasurer and Chief Financial
and Chief Accounting Officer
Date: January 13, 1997 /s/ Mark G. Lawrence
Mark G. Lawrence, Director
- - - - - - - - - - - -22-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Clancy Systems International, Inc.
We have audited the balance sheet of Clancy Systems International, Inc. as of
September 30, 1995 and 1996, and the related income statements, stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Clancy Systems
International, Inc. at September 30, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Denver, Colorado
November 11, 1996, CAUSEY DEMGEN & MOORE INC.
except for Note 11
as to which date is
December 5, 1996
F-1
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1995 and 1996
ASSETS
1995 1996
Current assets:
Cash, including interest bearing
accounts of $166,616 (1995)
and $52,391 (1996) $ 236,404 90,510
Accounts receivable 175,281 286,931
Inventories (Note 2) 178,154 190,255
Investment in contract, net
(Notes 8 and 11) 376,028
Income taxes refundable 12,000 720
Deferred tax asset (Note 5) 5,000 12,000
----------- -------
Total current assets 606,839 956,444
Furniture and equipment, at cost:
Office furniture and equipment 98,278 185,245
Equipment under service contracts
(Note 8) 1,207,529 1,276,677
--------- ---------
1,305,807 1,461,922
Less accumulated depreciation 848,617 955,371
--------- --------
Net furniture and equipment 457,190 506,551
Other assets:
Deposits and other 19,947 44,810
Software licenses 16,882 16,882
Software development costs 205,692 201,919
------- -------
242,521 263,611
Less accumulated amortization 147,237 114,869
------- -------
Net other assets 95,284 148,742
-------- --------
$1,159,313 $1,611,737
========== ==========
See accompanying notes.
F-2
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1995 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1996
Current liabilities:
Note payable - bank (Note 4) $ - $ 393,000
Accounts payable - 15,046
Other accrued expenses - 2,286
Warranty reserve 7,300 4,000
Deferred revenue 62,521 76,121
------ ------
Total current liabilities 69,821 490,453
Deferred tax liability (Note 5) 9,000 24,000
Commitments and contingencies
(Notes 7 and 11)
Stockholders' equity:
Preferred stock, $.0001 par value;
100,000,000 shares authorized,
none issued - -
Common stock, $.0001 par value;
800,000,000 shares authorized,
336,889,149 shares issued and
outstanding 33,689 33,689
Additional paid-in capital 1,030,674 1,030,674
Retained earnings (deficit) 16,129 32,921
--------- --------
Total stockholders' equity 1,080,492 1,097,284
--------- ---------
$1,159,313 $1,611,737
========== ==========
See accompanying notes.
F-3
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
INCOME STATEMENT
For the Years Ended September 30, 1995 and 1996
1995 1996
Revenues:
Sales $ 241,716 $172,532
Service contract income
(Notes 8 and 9) 966,564 1,046,692
Parking ticket collections (Note 8) - 604,002
------- ---------
Total revenues 1,208,280 1,823,226
========= =========
Costs and expenses:
Cost of sales 102,981 82,566
Cost of services (Note 3) 512,898 531,857
Cost of parking ticket collections
(Note 8) - 644,982
General and administrative 432,785 465,474
Research and development 51,222 54,303
Total costs and expenses 1,099,886 1,779,182
--------- ---------
Income from operations 108,394 44,044
Other income (expense):
Interest income 5,370 4,775
Interest expense (206) 29,027)
----------- -----------
Total other income (expense) 5,164 (24,252)
----------- -----------
Provision for income taxes (Note 5):
Current expense 9,040 (5,000)
Deferred expense 4,000 8,000
----------- ----------
Total income tax expense 13,040 3,000
----------- ----------
Net income $ 100,518 $ 16,792
----------- -----------
Net income per common share
(Note 6) $ * $ *
*less than $.01 per share
See accompanying notes.
F-4
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
Additional Retained
Common Stock paid-in Treasury earnings
Shares Amount capital stock (deficit)
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 344,118,693 $34,412 $1,030,674 $ (723) $(84,389)
Retirement of treasury stock
(Note 10) (7,229,544) (723) - 723 -
Net income for the year ended - - - - 100,518
September 30, 1995 ------------ -------- ----------- ------- --------
Balance, September 30, 1995 336,889,149 33,689 1,030,674 - 16,129
Net loss for the year ended
September 30, 1996 - - - - 16,792
----------- ------- --------- ----- ---------
Balance, September 30, 1996 336,889,149 33,689 1,030,674 - $ 32,921
=========== ====== ========= ===== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
For the Years Ended September 30, 1995 and 1996
1995 1996
Cash flows from operating activities:
Net income $100,518 $ 16,792
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 229,579 634,547
Deferred income tax expense 4,000 8,000
Decrease (increase) in accounts
receivable 137,729 (111,650)
Increase in inventories (24,938) (12,101)
Decrease (increase) in income
taxes refundable (12,000) 11,280
Increase (decrease) in accounts
payable (7,580) 15,046
Decrease in accrued expenses (1,700) (1,014)
Increase (decrease) in deferred
revenue 23,259) 13,600
Loss on disposal of assets 797 7,284
-------- --------
Total adjustments 302,628 564,992
-------- --------
Net cash provided by
operating activities 403,146 581,784
Cash flows from investing activities:
Acquisition of furniture and
equipment - net (160,828) (282,914)
Increase in software licenses and
software development costs (26,027) (69,101)
Investment in contract - (750,000)
Decrease (increase) in deposits and
other assets 18,055 (24,863)
Proceeds from sales of fixed assets 16,883 6,200
------- --------
Net cash used in investing
activities (151,917) (1,120,678)
Cash flows from financing activities:
Payments on notes payable - related party (22,530) -
Proceeds from notes payable - bank - 650,000
Payment on notes payable - bank (37,000) (257,000)
Net cash provided by (used in)
financing activities (59,530) 393,000
------- --------
(Continued on following page)
See accompanying notes.
F-6
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
INCOME STATEMENT
For the Years Ended September 30, 1995 and 1996
(Continued from preceding page)
1995 1996
Increase (decrease) in cash 191,699 (145,894)
Cash and cash equivalents at
beginning of year 44,705 236,404
------- --------
Cash and cash equivalents at
end of year $236,404 $ 90,510
-------- ----------
Supplemental disclosure of cash flow information:
1995 1996
Cash paid during the year
for interest $ 206 $ 29,027
-------- ---------
Cash paid (refunded) during the
year for income taxes $ 21,040 $ (16,599)
-------- ----------
Depreciation and amortization expense is allocated as follows:
Cost of services $224,980 256,684
General and administrative 4,599 3,891
Cost of parking ticket collections - 373,972
-------- -------
$229,579 $ 634,547
======== ==========
See accompanying notes.
F-7
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
1. Organization and summary of significant accounting policies
Organization:
The Company was organized in Colorado on June 28, 1984. The Company is in
the business of developing and marketing ticket writing systems and rental
car return systems. The Company's revenues are derived primarily from
cities, universities and car rental companies throughout the United States,
Canada and England.
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:
No provision for doubtful accounts was deemed necessary at September 30, 1995
or 1996.
Inventories:
Inventories are carried at the lower of cost (first-in, first-out) or market.
Inventory costs include materials, labor and manufacturing overhead.
Inventories consist primarily of computer and printer parts and supplies and
are subject to technical obsolescence.
Computer software:
Costs incurred to establish the technological feasibility of computer
software are research and development costs, which are charged to expense as
incurred. Software development costs incurred subsequent to establishment of
technological feasibility are capitalized and subsequently amortized based on
the greater of the straight line method over the remaining estimated economic
life of the product (generally five years) or the estimate of current and
future revenues for the related software product. Amortization expense for
the years ended September 30, 1995 and 1996 amounted to $36,856 and $35,759,
respectively. Unamortized computer software development costs amounted to
$84,448 and $117,761 at September 30, 1995 and 1996, respectively.
F-8
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
1. Organization and summary of significant accounting policies (continued)
Furniture and equipment:
Furniture and equipment are stated at cost.
Depreciation is provided by the Company on an accelerated method
over the assets' estimated useful lives of five years. Property
and equipment consists primarily of computers and printers which are
subject to technical obsolescence.
Sales and retirements of depreciable property are recorded by removing
the related cost and accumulated depreciation from the accounts. Gains
and losses on sales and retirements of property are reflected in results
of operations.
Other assets:
Software license agreements are being amortized over a five-year period,
the period estimated by management to be benefitted.
Research and development costs:
Company funded research and development costs are charged to
expense as incurred.
Revenue recognition:
Revenue derived from professional service contracts on equipment and
support services is included in income as earned over the contract
term; related costs consist mainly of depreciation, supplies and sales
commissions.
The Company defers revenue for equipment and services under service contracts
that are billed to customers on a quarterly, semi-annual,
annual or other basis.
Revenue from the issuance of parking tickets is recognized on a
cash basis when received.
Income taxes:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("FASB No. 109"). Temporary differences
are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable
or deductible amounts in future years. The Company's temporary differences
consist primarily of tax operating loss carryforwards, depreciation
differences and capitalized section 263A costs (see Note 5).
F-9
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
1. Organization and summary of significant accounting policies
(continued)
Cash equivalents:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Fair value of financial instruments:
All financial instruments are held for purposes other than trading.
The following methods and assumptions were used to estimate the fair value of
each financial instrument for which it is practicable to estimate that value.
For cash, cash equivalents and note payable, the carrying amount is assumed
to approximate fair value due to the short-term maturities of these
instruments.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and trade receivables. The
Company places its cash with high quality financial institutions. At times
during the year, the balance at any one financial institution may exceed FDIC
limits.
The Company provides credit, in the normal course of business, to customers
throughout the United States, Canada and England. The Company performs
ongoing credit evaluations of its customers. A significant portion of the
Company's revenues are derived from contracts with universities, car rental
companies and municipalities.
2. Inventories
Inventories consist of the following at September 30:
1995 1996
Finished goods $ 8,800 $ -
Work in process 2,587 9,380
Purchased parts and supplies 166,767 180,875
------- -------
$178,154 $190,255
-------- --------
F-10
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
3. Related party transactions
The Company pays a 10% sales commission to an officer and director of the
Company for gross sales (excluding supplies) to The Hertz Corporation. For
the years ended September 30, 1995 and 1996, commissions of $8,351 and $6,320
have been paid under this agreement, respectively.
4. Note payable - bank
On March 22, 1996, the Company executed a three month promissory note for
$650,000 secured by personal guarantees of three officers of the Company.
The note bears interest at 9.75% and was originally due on June 25, 1996.
The Company has extended the maturity date on the remaining balance to
December 25, 1996.
5. Income taxes
Prior to September 30, 1993 and in 1996, the Company incurred net operating
losses which may be carried forward to offset future taxable income. The net
operating loss carryforward for Federal income tax purposes is approximately
$15,000 at September 30, 1996 which, if not used, expires in the year 2011.
The book to tax temporary differences resulting in deferred tax
assets and liabilities are primarily net operating loss
carryforwards, depreciation differences and capitalized section 263A costs
for tax purposes.
As of September 30, 1995 and 1996, total deferred tax assets, liabilities and
valuation allowance are as follows:
1995 1996
Deferred tax assets $ 3,000 $ 31,000
Deferred tax assets resulting
from loss carryforward 2,000 10,000
Deferred tax liabilities (9,000) (53,000)
Valuation allowance - -
------- --------
$ (4,000) $(12,000)
-------- --------
During the year ended September 30, 1995, the Company utilized net
operating loss carryforwards of approximately $121,000 to offset
current taxable income, resulting in current tax benefits of $31,000.
F-11
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
6. Net income per common share
Net income per common share is based on the weighted average number of shares
outstanding during the years, 336,889,149 shares.
7. Lease agreements - as lessee
The Company leases office space under a 24 month lease and manufacturing
space under a 12 month lease, which commenced on June 1, 1996 and August 1,
1996, respectively. The office and manufacturing rental rates are $1,310 and
$475 per month, respectively. Total rent expense for the years ended
September 30, 1995 and 1996 amounted to $20,910 and $21,414, respectively.
The future minimum lease payments under these obligations are as
follows:
Year ending September 30, Amount
1997 $15,714
1998 10,476
-------
$26,190
-------
8. Professional service contracts
The Company provides equipment and support services under 12 month
professional service contracts. At September 30, 1996, all of the
contracts contained cancellation provisions requiring notice of 30
days or less.
The cost of the equipment provided in the contracts and related accumulated
depreciation are as follows at September 30:
1995 1996
Equipment under service contracts $1,207,529 $1,276,677
Less accumulated depreciation (765,929) (839,213)
--------- ----------
$ 441,600 $ 437,464
---------- ---------
Agreement with the Town of Cicero, Illinois:
On February 15, 1996, the Company entered into a three year
agreement with the Town of Cicero, Illinois, whereby the Company
issued all parking tickets for the City and provided collection services for
those parking tickets issued and all outstanding parking tickets previously
issued by the City. As consideration, the Company received all cash receipts
from tickets issued and previously issued. The Company
F-12
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
8. Professional service contracts (continued)
has paid a total of $750,000 for commissions and amounts due to the Town.
Amounts paid pursuant to the contract are being amortized monthly on a
straight-line basis over the period of the agreement commencing April 1,
1996. Commencing April 1, 1996, the Company has maintained a list of
receivables of current and prior ticket issuances totaling approximately
$2,500,000. The receivables are not reflected on the Company's financial
statements until the amounts are collected. (see Note 11).
9. Major customers and export sales
The following table summarizes customers which accounted for over
10% of revenues for the years ended September 30:
Customer 1995 1996
A 11% *
B - a city 11% *
C 11% *
D - a city * 33%
* less than 10% of total revenues
The Company's export sales for the years ended September 30, by geographic
area, are as follows:
1995 1996
Canada $ 45,000 $ 86,000
England 72,000 61,000
-------- --------
$117,000 $147,000
-------- --------
10. Treasury stock
During 1994, the State of Colorado law relating to the acquisition
of treasury shares by any company was changed. The new law requires,
under certain conditions, that shares so acquired constitute authorized
but unissued shares and not treasury stock. Amounts previously shown as
treasury stock on the Company's financial statements have been treated
as retired and allocated to common stock.
11. Subsequent event
Effective December 5, 1996, the contract with the Town of Cicero
has been terminated.
F-13
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
11. Subsequent event (continued)
The Company is currently negotiating to settle certain issues relating to the
contract including a pro rata return of initial contract acquisition costs to
the date of the contract termination, as well as other matters wherein the
Company believes the City has not fulfilled its contractual obligations. The
Company is unable to predict the outcome of these negotiations.
F-14
<PAGE>
AGREEMENT
BETWEEN
Clancy Systems International, Inc.
2250 S. Oneida #308
Denver, Colorado 80224
and
City of Cicero, Illinois
This Agreement made and entered into this 13th day of February,
1996, by and between the City of Cicero, Illinois, hereinafter
referred to as the "City" and Clancy Systems International, Inc.,
hereinafter referred to as the "Company".
WITNESSETH
WHEREAS, the volume of parking violations now being issued
and handled by the City has reached a level that an automated
system for the issuance and processing of parking citations may
be cost effective; and
WHEREAS, the Company is in the business of providing a
computerized parking control and enforcement systems that may
prove to be effective and compliment the City's parking
operations; and
WHEREAS, the City desires to engage the Company for
management of it's on-street parking operations; and
WHEREAS, the Company has evidenced a willingness provide its
management services, personnel, hardware, software, vehicles and
other essential components to the City for a comprehensive on-
street parking system.
NOW, THEREFORE, in consideration of mutual covenants,
promises and agreements herein set forth, it is agreed as
follows:
<PAGE>
HARDWARE AND ESSENTIAL EQUIPMENT
The Company will provide all ticket issuance devices, computers,
LAN's, point of sale equipment, security devices, essential
vehicles and other necessary equipment to complement that
equipment already provided by the City to enable the on-street
parking program to perform at its optimum level.
SUPPLIES
The Company will provide expendable supplies including tickets,
envelopes, stationary and batteries.
EQUIPMENT MAINTENANCE
The Company unconditionally warrants all equipment that it
provides.
The City shall maintain all equipment that it provides.
PERSONNEL
Refer to the Proposal Document attached hereto and labeled
Addendum A for personnel provided by City and personnel provided
by Clancy and benefits to be provided under each.
SOFTWARE
The Company will produce all custom programming and procedures
for both the office computers and data entry terminals to reflect
the City's requirements. Company personnel will devote such
time as is necessary to familiarize themselves with the City's
protocol for citation generation and the general geography and
logistics of the City.
The Company will provide ticket management software including
ticket management reports, complaint generation, notices, permit
information management, as well as other reports as required.
The Company will provide software for cashiering, collection and
adjudication programs.
TRAINING
The Company will provide training of all personnel who will be
working with the system.
MANAGEMENT
The Company shall provide on-site management for the term of the
contract and any renewal period thereof.
<PAGE>
OFFICE SPACE
The City will provide office space to the extent that it has
currently allocated sufficient office space for its current on-
street parking program.
PAYMENT
Clancy agrees to pay the City five hundred fifty thousand dollars
($550,000) for each contract year. Payment shall be made at the
beginning of each fiscal year, with the exception of the first
year where fifty thousand dollars ($50,000) will be paid when
contract is signed, and the remaining five hundred thousand
dollars ($500,000) shall be paid at the time the system has been
installed and operations have commenced.
NON-DISCRIMINATION CLAUSE
The Company agrees not to discriminate against any employee or
applicant for employment because of age, race, creed, color, sex,
national origin or ancestry. The Company shall take affirmative
action to insure that employees are treated without regard to
their age, race, creed, color, national origin, sex or ancestry.
Such actions shall include, but not be limited to the following:
employment, upgrading, demotion or transfer, of pay or other
forms of compensation and selection for training, including
apprenticeship.
In the event of the Company's non-compliance with this non-
discrimination clause, the contract may be canceled or
terminated by the City. The Company may be declared by the City
ineligible for further contracts with the City until satisfactory
proof of intent to comply shall be made by the Company.
The Company agrees to include this non-discrimination clause in
any subcontracts connected with the performance of this
agreement.
NOTICE
Any written notice provided for hereto shall be deemed
properly mailed and delivered when the same is deposited in the
United States mail, postage prepaid and properly addressed to the
party to whom such notice is directed. Proper address of the two
parties shall be as follows:
The City: City of Cicero
Company: Clancy Systems International, Inc.
2250 S. Oneida #308
Denver, CO 80224
<PAGE>
PROPERTY TAX, SALES TAX, USE TAX, EXCISE TAX, OTHER SPECIAL
LICENSES
Any property tax due on the hardware placed on City premises for
use by the City shall be the responsibility of the City in such
event that the City does not have tax exempt status. Should the
City fall under tax exempt status provisions, such hardware shall
fall under such provisions.
Any applicable sales tax, use tax, excise tax or other special
taxes or licensing requirements shall be paid directly by the
City to the proper taxing agency. The Company shall not be
required to collect, file and transmit such taxes on behalf of
the City.
OWNERSHIP
Ownership of all hardware, software, vehicles and other material
items provided by the City shall be and remain the property of
the City. At the expiration of the contract term, all equipment
titled to the City shall remain with the City.
All hardware, software and source code shall and other equipment
provided by Clancy shall be and remain at all times the exclusive
property of Clancy Systems International, Inc. At the expiration
of the contract term, all equipment shall be returned to the
Company.
CITY PROVIDED RESPONSIBILITIES
Refer to Addendum A attached hereto.
CLANCY PROVIDED RESPONSIBILITIES
Refer to Addendum A attached hereto
TERM OF AGREEMENT
The term of this Agreement shall be for seven years commencing
the 15th day of February, 1996, and ending on the 14th day of
February, 2002. Thereafter, until a cancellation notice issued
in writing, this contract shall automatically renew from year to
year. Any exceptions to be made shall be duly acknowledged in
writing by the parties and incorporated as an exhibit to the
original contract.
It is hereby agreed, that this Contract shall take effect, and
remain in force and effect, from the date of the execution
hereof, and further this Contract may be terminated at any time,
by either party, upon the giving of thirty (30) days notice, in
writing to the other party. Charges will be prorated for any
portion of a month that equipment is in place should such
cancellation occur.
<PAGE>
ATTACHMENTS
Addendum A - Proposal Document
Addendum B - List of City personnel to be provided
Name, Title, job description
Addendum C - List of City Equipment
Value and Depreciation Schedules
Addendum D - List of City Vehicles
Value and Depreciation Schedules
Addendum E - List of Clancy Equipment
ENTIRE AGREEMENT
It is expressly understood and agreed by the parties hereto that
the provisions embodied in this Agreement contain all covenants,
agreements, obligations and stipulations agreed upon by the
parties and upon execution thereof. This Agreement may be
modified or amended at any time by mutual agreement in writing of
the parties.
This Agreement shall be executed in multiple counterparts each of
which shall be deemed an original.
This Agreement shall inure to the benefit of and shall be binding
upon the City, the Company and their respective successors and
assigns, if such assignment has been approved by both parties.
This agreement shall be governed by and construed in accordance
with the laws of the State of Colorado, including its conflict of
laws provisions.
In Witness Whereof, the parties have hereunto set their hands and
seals.
CLANCY SYSTEMS INTERNATIONAL, INC.
By /s/s Stanley J. Wolfson
President
SEAL
ATTEST:
/s/ Liz Wolfson
Secretary
CITY OF CICIERO, ILLINOIS
/s/ Betty Loren-Maltese
SEAL
ATTEST:
/s/Mark Moro
<PAGE>
/s/ Betty Loren-Maltese
SEAL
ATTEST:
/s/Mark Moro
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 90,510
<SECURITIES> 0
<RECEIVABLES> 286,931
<ALLOWANCES> 0
<INVENTORY> 190,255
<CURRENT-ASSETS> 956,444
<PP&E> 1,416,922
<DEPRECIATION> 955,371
<TOTAL-ASSETS> 1,1611,737
<CURRENT-LIABILITIES> 490,453
<BONDS> 0
0
0
<COMMON> 33,689
<OTHER-SE> 1,063,595
<TOTAL-LIABILITY-AND-EQUITY> 1,611,737
<SALES> 0
<TOTAL-REVENUES> 1,823,226
<CGS> 0
<TOTAL-COSTS> 1,259,405
<OTHER-EXPENSES> 519,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,027
<INCOME-PRETAX> 19,792
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 16,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,792
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
