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, 1997
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
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(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 $1,772,900.
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 December 23, 1997 was approximately $4,042,670.
Class Outstanding at December 23, 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 Company's 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 of each day. The data entry terminal
includes features such as large keys for use with gloved hands, easily
readable liquid crystal
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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 streamlined
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 1200 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: Allright Parking Systems, New York; Apcoa
Systems in Kansas City, MO, 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; Georgetown University,
Washington, DC; Galveston, TX; Greeley, CO; Harrisburg, PA; Henderson, KY;
Huntington, WV; Inglewood,CA; Lafayette, LA; Lubbock, TX; Los Altos, CA;
Montrose, CO; Naperville, IL; New Hope, PA; New Orleans, LA; North Carolina
State University, Raleigh, NC; North Carolina A & T, Greensboro, NC; MTRA,
University of Oklahoma, Oklahoma City, OK; Overtime Parking, Walnut Creek,
CA; Parking Control Service, S. San Francisco, CA; ParkWise, Albany, OR;
Reading, PA; Regional Parking, Walnut Creek, CA; Richmond, VA; Santa
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Barbara, CA; South Carolina State University, Orangeburg, SC;
Southwest Texas State University, San Marcos, TX; Southwestern Community
College, Chula Vista, CA; Steamboat Springs, CO; Takoma Park, MD; Tampa, FL;
Telluride, CO; University of Alberta, Edmonton, Alberta; University of
California, San Francisco; Vail, CO; Weber State University; and Yonkers, NY.
By January 31, 1998, the Company plans to install a comprehensive ticket
issuance and processing system for the city of Orlando, FL and a ticket
issuance system for the city of Oakland, CA. The Company was awarded a
contract by Maywood, IL for complete facilities management which includes
all ticket issuance and collections which will be fully operational by
December 31, 1997.
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.
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.
The system provides Hertz with information pertaining to each vehicle
from the moment it leaves a location and includes the name
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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 now deals with "non revenue" movement of vehicles.
The Company sells charger/communication cradles to the Hertz
Corporation for this project and maintains the equipment for Hertz under a
maintenance service contract agreement.
Hertz revenues to the Company represented approximately 2.5% of the
Company's total revenues during fiscal 1997.
The Fleet Control system is being provided to Hertz under a maintenance
contract agreement.
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; West Covina, California; Bell
Gardens, California; Riverside, California; Cerritos College, Norwalk, CA;
East L.A. College; L.A. Harbor College; L.A. Mission College; 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; Oakland, 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
that currently offer an automated ticket writing system: Enforcement
Technologies, Inc.; Cardinal; Com-Plus; DMS; Radix-T-2
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and others. 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 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 that incorporate the hand-held
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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 for 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 Company purchases its hand-held
terminals from several different vendors who sell computers that 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.
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 81
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; the City of Inglewood, CA; and Hertz Corporation which together
represented approximately 25% of the Company's total sales for the year
ended September 30, 1997. From March 20, 1996 through September 30, 1997,
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
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expires June 30, 1998. 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 1997 fiscal year, the
revenues from the Oklahoma City system represented approximately 4.5% 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 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 1998. 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 1997 fiscal year, the revenues from the City of Berkeley system
represented approximately 7% 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 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. 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 due to certain political issues
unrelated to the Company. In settlement of the breach of contract, the
Company was reimbursed $185,484 from the Town of Cicero. The Company
continues to collect tickets issued by the Company and the earlier backlog
which amounted to $508,234 for fiscal 1997, which included the amount of
$185,484 reimbursed by the Town of Cicero, and represented 29% of the
Company's total revenues.
Inglewood, CA. In a joint venture agreement with the City of Inglewood,
CA, Department of MIS, Clancy has agreed to sell hand-held ticket issuance
equipment, ticket forms and envelopes to the City of Inglewood and clients
that the City services for ticket processing. In the year ended September 30,
1997, sales to the City of Inglewood represented 11% of the Company's total
revenues.
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(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.
(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 1997, Clancy began production of a new printer that
utilizes a thermal line printer. This printer has been designed to print
special fonts including the new PDF 417 bar code symbology. The printer is
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 has been extended to March 1998. Other
features include graphic display, back-lit keypad, phosphorescent keypad and
expandable memory. The Company believes that a tremendous market exists 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 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.
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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 and the internet.
The Company's Lot and Street Survey programs have been provided to
clients for use with their parking systems.
The Company spent $54,303 and $32,721 on research and development
activities for the fiscal years ended September 30, 1996 and 1997,
respectively. None of the cost of such activities was borne directly by the
customers.
(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
who 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 $575 per month pursuant to a lease agreement that
expires August 1, 1998.
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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 sought relief for
patent infringement and licensing of the patented technology.
On February 18, 1997, the United States District Court for the District
of Colorado granted Symbol Technologies, Inc. its Motion for Summary
Judgement in the case of Clancy Systems International, Inc. vs Symbol
Technologies, Inc. for alleged patent infringement. The motion was granted
on the evidence that Nippondenso, a company which licensed Clancy's patent
in 1992, did not properly mark their product with the patent number
therefore jeopardizing Clancy's claim. The Company was assessed costs of
$2,699.86.
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 OTC 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
10/1/95 - 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
10/1/96 - 12/31/96 .005 .005
1/1/97 - 3/31/97 .005 .005
4/1/97 - 6/30/97 .005 .004
7/1/97 - 9/30/97 .005 .005
On December 23, 1997 the reported bid and asked prices for the
Registrant's Common Stock were $.005 and $.0175, respectively.
(a)(2) Not applicable.
(b) The approximate number of record holders of the Registrant's Common
Stock on December 26, 1997 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 1996 to fiscal 1997 revenues declined approximately 2%.
This is primarily due to a slight decline in ticket issuance by existing
customers for various reasons including staff cutbacks and weather related
problems. The Company's parking enforcement systems research and development
costs increased from $54,303 to $60,591, or 8%, from fiscal 1996 to fiscal
1997. General and administrative costs decreased by 1% from fiscal 1996 to
fiscal 1997. The Company reported a profit of $16,792 for fiscal 1996 as
compared to profit of $35,068 for fiscal 1997.
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, 1996 and 1997, the
contract with Oklahoma City accounted for 4% and 4.5%, respectively, of the
Company's total professional services contract revenue. 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, 1996 and 1997,
the contract with the City of Berkeley accounted for 8% and 7%, respectively,
of the Company's total professional services contract revenue.
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,
1997 that represented 29% of its total revenues and included an amount of
$185,484 in contract reimbursement. This contract was terminated effective
December 5, 1996, however the Company continues to collect revenue on issued
tickets. See "Part I, Item 1(b)(6); Cicero, IL."
During the fiscal years ended September 30, 1996 and 1997, the Company
had in place a total of approximately 89 and 97 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
revenues for the Company. For the fiscal years ended September 30, 1996 and
1997, 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
3% and 2% of the Company's total revenue during fiscal 1996 and 1997,
respectively. See Part I, Item 1 (b)(1).
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The Company's professional services contract income generated for the
year ended September 30, 1996 was approximately 2% from the Hertz Corporation
projects and approximately 98% 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, 1997, the Company had working capital of $554,707 as
compared to $465,991 at September 30, 1996. The Company's current ratio
increased from 1.95 to 1 to 11.14 to 1 from September 30, 1996 to September
30, 1997.
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, 1998.
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 is 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.
Year 2000 Compliance
During the fiscal year ended September 30, 1997, the Company completed a
total revision of its ticket system (and other systems) software which
includes total operations in a Windows environment and complete capability
for the handling of the year 2000 date issue. All new clients installed
beginning January 1, 1997 are operating on the new system and existing
clients are presently being converted. Some cities already have the need for
year 2000 dating as license plates for mulitiple years are dated in year 2000
and later. In addition to the software, computer equipment is being upgraded
for existing clients as well. The equipment requirement for the Windows
system requires faster computing capability with more memory along with the
need for new bios that will handle year 2000 dating on the computer itself.
As the Clancy program to customers already includes upgrades to hardware
and software on a regular basis as newer technology becomes available,
conversion for year 2000 compliance does not pose any consequences to the
Company either in financial or human resource areas.
-13-
<PAGE>
The Company has already had an increase in the number of inquiries about
the system based on year 2000 software capabilities and the Company
anticipates that during the next two years the client base could increase
substantially as potential clients find the need to outsource their ticket
issuance and processing programs in order to be operational in the year 2000.
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, 1996 and September 30, 1997
Income Statement - Years ended September 30, 1996
and 1997
Statements of Stockholders' Equity - Years ended September
30, 1996 and 1997
Statements of Cash Flows - Years ended September 30, 1996
and 1997
Notes to Financial Statements
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
-14-
<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 54 1987
Officer and Director
Robert M. Brodbeck Chairman of the Board of 64 1987
Directors
Mark G. Lawrence Director 48 1986
Lizabeth M. Wolfson Secretary-Treasurer and 52 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 that 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 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,
-15-
<PAGE>
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. LizabethM. 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.
(d) Involvement in Certain Legal Proceedings. None
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
-16-
<PAGE>
Item 10. Executive Compensation.
(a) General. For the fiscal year ended September 30, 1997 the Company
paid a ten percent sales commission totaling $5,665 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 $49,400 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 1997 $49,400 $5,665
President and Chief 1996 48,500 6,320
Executive Officer 1995 44,500 8,351
(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 23, 1997 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.
-17-
<PAGE>
Name and address Number of
of beneficial owner shares Percentage
- ------------------- --------- ----------
Stanley J. Wolfson 113,998, 464 (1) 33.8%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
Robert M. Brodbeck 92,509,608 27.5%
2250 S. Oneida Ste. 308
Denver, CO 80224
Mark G. Lawrence 3,100,000 .9%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
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)
10.1(b) Professional Services Contract between Clancy
Systems International, Inc. and the City of
Oklahoma dated June 14, 1989 (4)
- -18-
<PAGE>
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 (6)
- -------------
(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 Registrant's Annual Report on Form 10-K for
the year ended September 30, 1990.
(6) Incorporated by reference from the like numbered exhibits
filed with the Registrant's Annual Report on Form 10-KSB for
the year ended September 30, 1996.
(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.
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.
-19-
<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: December 23, 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: December 23, 1997 /s/ Stanley J. Wolfson
Stanley J. Wolfson, President,
Chief Executive Officer and a
Director
Date: December 23, 1997 /s/ Robert M. Brodbeck
Robert M. Brodbeck, Chairman of
the Board of Directors and
Director
Date: December 23, 1997 /s/ Lizabeth M. Wolfson
Lizabeth M. Wolfson, Secretary-
Treasurer and Chief Financial
and Chief Accounting Officer
Date: December 23, 1997 /s/ Mark G. Lawrence
Mark G. Lawrence, Director
-20-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Clancy Systems International, Inc.
We have audited the balance sheet of Clancy Systems International, Inc.
as of September 30, 1996 and 1997, and the related statements of income,
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 on 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, 1996 and 1997, and the results of its
operations and its cash flow for the years then ended, in conformity with
generally accepted accounting principles.
Denver, Colorado
November 6, 1997 CAUSEY DEMGEN & MOORE INC.
F-1
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1996 and 1997
1996 1997
Current assets: ---- ----
Cash, including interest bearing accounts
of $52,391 (1996) and $57,017 (1997) $ 90,510 $ 199,195
Accounts receivable 286,931 196,646
Inventories (Note 2) 190,255 210,608
Investment in contract, net (Note 8) 376,028 -
Income taxes refundable 720 1,970
Deferred tax asset (Note 5) 12,000 1,000
---------- --------
Total Current assets 956,444 609,419
Furniture and equipment, at cost:
Office furniture and equipment 185,245 228,680
Equipment under service contracts (Note 8) 1,276,677 1,182,632
---------- ---------
1,461,922 1,411,312
Less accumulated depreciation 955,371 994,732
---------- ----------
Net furniture and equipment 506,551 416,580
Other assets:
Deposits and other 44,810 26,835
Software licenses 16,882 16,882
Software development costs 201,919 286,763
--------- ----------
263,611 330,480
Less accumulated amortization 114,869 167,415
---------- ---------
Net other assets 148,742 163,065
----------- ---------
$ 1,611,737 $1,189,064
=========== ==========
See accompanying notes.
F-2
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1996 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1997
Current liabilities: ---- -----
Note payable - bank (Note 4) $ 393,000 $ -
Accounts payable 15,046 -
Other accrued expenses 2,286 2,286
Warranty reserve 4,000 400
Deferred revenue 76,121 52,026
--------- ---------
Total current liabilities 490,453 54,712
Deferred tax liability (Note 5) 24,000 2,000
Commitments (Notes 7 and 8)
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 32,921 67,989
-------- ---------
Total stockholders' equity 1,097,284 1,132,352
--------- ---------
$ 1,611,737 $1,189,064
=========== ==========
See accompanying notes.
F-3
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
INCOME STATEMENT
For the Years Ended September 30, 1996 and 1997
1996 1997
Revenues: ---- ----
Sales $ 172,532 $ 200,374
Service contract income (Notes 8 and 9) 1,046,692 1,064,292
Parking ticket collections (Note 8) 604,002 508,234
--------- ---------
Total revenues 1,823,226 1,772,900
Costs and expenses:
Cost of sales 82,566 154,944
Cost of services (Note 3) 531,857 576,501
Cost of parking ticket collections (Note 8) 644,982 500,030
General and administrative 465,474 431,228
Research and development 54,303 60,591
--------- ---------
Total costs and expenses 1,779,182 1,723,294
-------- ---------
Income from operations 44,044 49,606
Other income (expense):
Interest income 4,775 2,275
Interest expense (29,027) (14,063)
--------- -------
Total other income (expense) (24,252) (11,788)
--------- --------
Income before provision for income taxes 19,792 37,818
Provision for income taxes (Note 5):
Current expense (benefit) (5,000) 13,750
Deferred expense (benefit) 8,000 (11,000)
--------- --------
Total income tax expense 3,000 2,750
--------- -------
Net income $ 16,792 $ 35,068
========= =========
Net income per common share (Note 6) $ * $ *
* Less than $.01 per share ========= =========
See accompanying notes.
F-4
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
For the Years Ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
Additional
Common stock paid-in Retained
Shares Amount capital earnings
-------------------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, September 30, 1995 336,889,149 $ 33,689 $ 1,030,674 $ 16,129
Net income for the year
ended September 30, 1996 - - - 16,792
----------- -------- ----------- ---------
Balance, September 30, 1996 336,889,149 33,689 1,030,674 32,921
Net income for the year
ended September 30, 1997 - - - 35,068
----------- --------- ----------- ---------
Balance, September 30, 1997 336,889,149 $ 33,689 $ 1,030,674 $ 67,989
=========== ======== =========== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
For the Years Ended September 30, 1996 and 1997
1996 1997
Cash flows from operating activities: ---- ----
Net income $ 16,792 $ 35,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 634,547 675,636
Deferred income tax expense (benefit) 8,000 (11,000)
Decrease (increase) in accounts receivable (111,650) 90,285
Increase in inventories (12,101) (20,353)
Decrease(increase)in income taxes refundable 11,280 (1,250)
Increase(decrease)in accounts payable 15,046 (15,046)
Decrease in accrued expenses (1,014) (3,600)
Increase(decrease)in deferred revenue 13,600 (24,095)
Loss on disposal of assets 7,284 -
-------- -------
Total Adjustments 564,992 690,577
Net cash provided by operating activities 581,784 725,645
Cash flows from investing activities:
Acquisition of furniture and equipment - net (282,914) (157,091)
Increase in software licenses and software
development costs (69,101) (84,844)
Investment in contract (750,000) -
Decrease (increase)in deposits and other
assets (24,863) 17,975
Proceeds from sales of fixed assets 6,200 -
-------- --------
Net cash used in investing activities (1,120,678) (223,960)
Cash flows from financing activities:
Proceeds from note payable - bank 650,000 -
Payments on note payable - bank (257,000) (393,000)
--------- --------
Net cash provided by (used in)
financing activities 393,000 (393,000)
--------- ---------
Increase(decrease)in cash
and cash equivalents (145,894) 108,685
Cash and cash equivalents at beginning of year 236,404 90,510
--------- --------
Cash and cash equivalents at end of year $ 90,510 $ 199,195
======== =========
(Continued on following page)
See accompanying notes.
F-6
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
For the Years Ended September 30, 1996 and 1997
(Continued from preceding page)
Supplemental disclosure of cash flow information:
1996 1997
---- ----
Cash paid during the year for interest $ 29,027 $ 14,063
========= ========
Cash paid (refunded) during the year for
income taxes $ (16,599) $ 15,000
Depreciation and amortization expense is ========== ========
allocated as follows:
Cost of services $ 256,684 $ 299,608
General and administrative 3,891 -
Cost of parking ticket collections 373,972 376,028
--------- --------
$ 634,547 $ 675,636
========= =========
See accompanying notes.
F-7
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
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,
1996 or 1997.
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, 1996
and 1997 amounted to $35,759 and $52,456, respectively. Unamortized
computer software development costs amounted to $117,761 and $147,037
at September 30, 1996 and 1997, respectively.
F-8
<PAGE>
CLANCY SYSTEMS INTERNAITONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
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 benefited.
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 263A costs.
F-9
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
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:
1996 1997
---- ----
Work in process $ 9,380 $ 13,570
Purchased parts and supplies 180,875 197,038
-------- --------
$ 190,255 $ 210,608
========= =========
F-10
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
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, 1996 and 1997, commissions of $6,320 and $5,665
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 bore interest at 9.75% and was originally due on June 25, 1996. The
maturity date was extended to December 25, 1996. During the year ended
September 30, 1997, the note was repaid in full.
5. Income taxes
The book to tax temporary differences resulting in deferred tax assets and
liabilities are primarily net operating loss carryforwards, depreciation
differences and capitalized 263A costs for tax purposes.
As of September 30, 1996 and 1997, total deferred
tax assets and liabilities are as follows:
1996 1997
Deferred tax assets $ 31,000 $ 1,000
Deferred tax assets resulting from
loss carry-forward 10,000 -
Deferred tax liabilities (53,000) (2,000)
------- -------
$ (12,000) $(1,000)
========== ========
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.
F-11
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
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 $575 per month, respectively. Total rent expense for the years ended
September 30, 1996 and 1997 amounted to $21,414 and $21,959, respectively.
The future minimum lease payments under these obligations are as follows:
Year ending September 30, 1998 $16,230
=======
8. Professional service contracts
The Company provides equipment and support services under 12 month
professional service contracts. At September 30, 1997, 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:
1996 1997
---- ----
Equipment under service contracts $ 1,276,677 $ 1,182,632
Less accumulated depreciation (839,213) (852,345)
----------- ----------
$ 437,464 $ 330,287
=========== ===========
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 paid a total of $750,000 for
commissions and amounts due to the Town. Amounts paid pursuant to the
contract were amortized monthly on a straightline basis over the period of
the agreement commencing April 1, 1996. The Company has maintained a list
of receivables of current and prior ticket issuances totaling
approximately $3,800,000 at September 30, 1997. The receivables are not
reflected on the Company's financial statements until the amounts are
collected.
F-12
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 and 1997
Effective December 5, 1996, the contract with the Town of Cicero has been
terminated.
9. Major customer and export sales
The following table summarizes customers which accounted for over 10% of
revenues for the years ended September 30:
Customer 1996 1997
-------- ---- ----
A - a city * 11%
B - a city 33% 29%
* less than 10% of total revenues
The Company's export sales for the years ended September 30, by geographic
area, are as follows:
1996 1997
---- ----
Canada $ 86,000 $ 35,000
England 61,000 35,000
-------- -------
$ 147,000 $ 70,000
========= ========
10. Subsequent event
In October 1997, the Company submitted a bid for the privatization of the
parking collections systems for a city in Virginia. As a requirement of
the bid, the Company obtained an irrevocable letter of credit in the
amount of $190,000 with the Virginia bank, using proceeds from a $190,000
bank loan.
F-13
<PAGE>
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from
form 10-KSB for period ended 9/30/97 and is qualified in its entirety
by reference to such form 10-KSB for period ended 9/30/97.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] SEP-30-1997
[CASH] 199,195
[SECURITIES] 0
[RECEIVABLES] 196,646
[ALLOWANCES] 0
[INVENTORY] 210,608
[CURRENT-ASSETS] 609,419
[PP&E] 1,411,312
[DEPRECIATION] 994,732
[TOTAL-ASSETS] 1,189,064
[CURRENT-LIABILITIES] 54,712
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 33,689
[OTHER-SE] 1,098,663
[TOTAL-LIABILITY-AND-EQUITY] 1,189,064
[SALES] 0
[TOTAL-REVENUES] 1,772,900
[CGS] 0
[TOTAL-COSTS] 1,231,475
[OTHER-EXPENSES] 491,819
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 14,063
[INCOME-PRETAX] 37,818
[INCOME-TAX] 2,750
[INCOME-CONTINUING] 35,068
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 35,068
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
