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, 1999
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
$1,863,738 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 28, 1999
was approximately $1,955,716.
Class Outstanding at December 28, 1999
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", City of Inglewood and "Urban Transit
Solutions" 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
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readable liquid crystal display, phosphorescent keypad for
illuminated night use and a large 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 data transfer to a user's mainframe computer. There are currently
approximately 1500 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 state 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 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 also contract's its systems under a
privatization program whereby the Company provides a complete
facilities management program for the client. The operation includes
personnel to operate the system, issue tickets, and take care of
enforcement tasks, along with the collection of ticket revenues,
backlog ticket collections and other related duties. These programs
are offered under a revenue guarantee or revenue split contract.
The Company currently has systems installed in municipalities and
universities representing approximately 8,000,000 tickets issued per
year.
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
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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 has paid 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.
Fleet Control
During 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
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.
Phoenix Group Systems
In joint venture with Phoenix Group, of Torrance, California,
the Company has installed computerized parking citation issuance
systems at Phoenix Group client locations. The data is then sent to
Phoenix Group for ticket collection. These clients write
approximately 500,000 tickets per year.
(b)(3) Status of Publicly-Announced New Product or Services.
The Company has become a 60% equity owner in a partnership with
Urban Transit Solutions, San Juan, Puerto Rico. UTS offers parking
system privatization to cities in Puerto Rico. At September 30,
1999, UTS had contracts in Mayaguez, Puerto Rico; Caugas, Puerto
Rico; and Humacao, Puerto Rico. The Mayaguez project included the
installation of 600 parking meters. Meter revenue collection began
in August, 1998. For Cauguas, parking lots will be monitored and
meters will be installed. Revenue collection in Cauguas is expected
began December 1998.
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(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,
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, its excellent program for customer support
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 three organizations throughout the United States. The Company's
management attends trade shows and makes direct sales calls.
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(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
terminal. 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.
The Company has introduced a new line of printers which are
manufactured in "hot" colors of clear plastic in the colors berry,
watermelon, lime, mango, grape and clear. Another new item is the
short range RF printer which is a cordless model with RF interface to
handheld terminals. The Company is completing development of a
printer board which has all component operations on a single chip.
This technology will enable the printer CPU to be reduced to a very
small format board with printer operation tasks controlled by
software rather than hardware.
New software products introduced by the Company during 1999,
which complement the parking citation issuance programs, include:
digital photos of on-street violations included in the ticket
issuance databases, which document evidence of the violation for
notices, hearings and appeals; a virtual permit system which is a
fully operations permit issuance, payment and tracking system which
reduces paperwork, decal distribution and employee time to administer
a parking permit program; a daily permit one use parking permit
program for short duration parking validation; an employee badge ID
system which can be used by parking systems, rental car systems, and
other industries; a management alert system which is an automated
data analysis program which emails information and alerts directly
to management to reveal such information as permit violations, ticket
issuance productivity numbers, revenue numbers and other strategic
and timely information.
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(b)(6) Significant Customers. Presently, the Registrant has 104
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 City of Yonkers, the Phoenix Group; and the City of
Inglewood which together represented approximately 22% of the
Company's total revenues for the year ended September 30, 1999. 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, 2000. 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 1999
fiscal year, the revenues from the Oklahoma City system represented
approximately 4.4% 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
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 January 31, 2000. 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 1999 fiscal year, the revenues from the City of
Berkeley system represented approximately 5.2% of the Company's total
revenues.
Yonkers, NY. On July 1, 1995, the Company entered into a
contract with Yonkers, NY to provide a parking ticket issuance system
for its Parking Violations Bureau and its Yonkers Parking Authority.
The Company provides hardware, custom software, maintenance, support
and supplies. The Company receives a fee for each citation form
purchased. During the 1999 fiscal year, revenues from the City of
Yonkers system represented approximately 4.8% of the Company's total
revenues.
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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 addition, Clancy has packaged its ticket issuance system for the
City of Dallas, TX with a back office processing system for Dallas
operated by the City of Inglewood. Billing for the program is done
through the City of Inglewood. In the year ended September 30, 1999,
sales to the City of Inglewood (including the Dallas contract)
represented 5.7% of the Company's total revenues.
Phoenix Group, Torrance, CA. In a joint venture arrangement
with Phoenix Group, Clancy provides ticket issuance systems to
Phoenix Group clients based on transactional pricing schedules
related to ticket issuance volume. All billings go through Phoenix
Group, although Clancy services the clients directly. In the year
ended September 30, 1999, sales to Phoenix Group represented 6.7% of
the Company's total revenues.
Privatization Contracts. In a contract for privatization, the
Company provided a full facilities management operation for the
Village of Maywood through September, 1999. The Village has resumed
ticket issuance responsibilities and has engaged the Company to
provide noticing, payment processing and collection operations for
the Village for an indefinite period of time. The Village has made
an offer to purchase the backlog ticket receivables from the Company
for $150,000. In a contract for privatization, the Company provides a
full facilities management operation for the city of Logan, UT. The
Company provides personnel, vehicles, an office, ticket issuance and
ticket payment processing. The contract provides for a $35,000
annual revenue guarantee to the city. After all expenses, including
the $35,000 guarantee, the city and the Company split additional
profit on a 50/50 basis.
Urban Transit Solutions, Puerto Rico. The Company has acquired
60% ownership in the partnership with Urban Transit Solutions (UTS).
The Company committed to $500,000 in funding to UTS between January
20, 1998 and April 30, 1999. At September 30, 1999, the Company had
paid $500,000 to UTS. UTS currently has contracts in Mayaguez,
Humacao and Cauguas Puerto Rico. In Mayaguez, UTS has installed 600
parking meters and will be responsible for collection of parking
meter revenues. In Cauguas, UTS leases a parking facility from the
City and collects the parking revenues from the lot. In Humacao, UTS
will install meters and collect revenues from the meters. UTS
anticipates additional contracts in Puerto Rican cities for meter
installation and collections. UTS has not been profitable and the
Cauguas lot program has been operating at a loss. Their marketing
approach has been to bring Puerto Rican cities into the 21st century
by organizing parking operations and providing current technology to
modernize city operations.
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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 two and three
quarters pounds. New battery technology has also allowed the Company
to reduce the weight in the printers.
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 September 2000. 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 has continually been modifying its printer products.
During the 1999 fiscal year the Company made significant
modifications to its 3 inch model by introducing bright colors and a
short range RF model. The Company is currently completing
development of a single chip printer control board which will
alleviate most components, reduce weight, allow for a smaller format
model and have functions software controlled rather than component
controlled.
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. 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 $48,127 and $52,185 on research and
development activities for the fiscal years ended September 30, 1998
and 1999, 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. The Company has entered into an arrangement with RBRC for
the recycling of all batteries.
(b)(12) Employees. The Company currently has thirteen
employees in Company operations and 6 employees in privatization
projects, 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 $1,718 per month pursuant to a lease
agreement with an unaffiliated party which expires May 31, 2000.
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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 $600 per month
pursuant to a lease agreement that expires August 1, 2000.
The Company leases an office in Logan, Utah which is
approximately 700 square fee from an unaffiliated party. Rental
payments are $528 per month plus utilities pursuant to a lease
agreement which expires June 10, 2000.
The Company believes that these facilities are suitable and
adequate for its needs.
Item 3. Legal Proceedings.
On November 19, 1999 a complaint was filed in Denver District
Court (Colorado) by Lorraine E. Salazar, Francis Salazar, Philip B.
Davis and Barry Fey against the Company, Stanley J. Wolfson, Lizabeth
M. Wolfson and Mark G. Lawrence. The complaint alleges intentional
misrepresentations, concealment of facts, breach of implied duty of
good faith and breach of fiduciary duty by the defendents as officers
and directors of the Company. The plaintiffs seek relief in the form
of damages to be proven at trial, relinquishment of positions as
directors, and that the directors' stock be placed in trust. The
Company and the officers and directors believe the claims are without
merit and have responded to the complaint accordingly.
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. The quotations are obtained daily from Yahoo.com stock
quotations via the Internet. 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
10/1/97 - 12/31/97 .005 .005
1/1/98 - 3/31/98 .003 .003
4/1/98 - 6/30/98 .003 .002
7/1/98 - 9/30/98 .003 .003
10/1/98 - 12/31/98 .005 .005
1/1/99 - 3/31/99 .05 .015
4/1/99 - 6/30/99 .033 .015
7/1/99 - 9/30/99 .023 .015
On December 28, 1999 the reported bid and asked prices for the
Registrant's Common Stock were $.011 and $.015, respectively.
(a)(2) Not applicable.
(b) The approximate number of record holders of the
Registrant's Common Stock on December 28, 1999 was 602.
(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 1998 to fiscal 1999 revenues increased by
approximately 29%. This is primarily due a larger customer base and
new contracts. The Company's parking enforcement systems research
and developement costs increased from $48,127 to $52,185, or 8% from
fiscal 1998 to fiscal 1999. General and Administrative costs
increased by 30% from 1998 to fiscal 1999. The increase in General
and Administrative costs is related to salary expenses with the
privatization projects, increased legal fees, expenses associated
with the year 2000 client upgrades and increased travel costs. The
Company reported a loss of $28,028 for fiscal 1998 as compared to a
profit of $163,836 for fiscal 1999.
From fiscal 1997 to fiscal 1998 revenues declined approximately
18%. This is due primarily to start-up costs with privatization
projects and start-up costs with projects for Urban Transit
Solutions. The Company's parking enforcement research and
development costs decreased from $60,591 to $48,127, or 21%, from
fiscal 1997 to 1998. General and administrative costs increased by
3% from fiscal 1997 to fiscal 1998. The Company reported a loss of
$28,028 for fiscal 1998 as compared to a profit of $35,068 for fiscal
1997. This loss reflects start-up costs, financing charges, and
additional general and administrative expenses for the two
privatization contracts and Urban Transit Solutions as well as
expenses for hardware replacement for clients for year 2000 system
upgrades.
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, 1998 and
1999, the contract with Oklahoma City accounted for 6% and 4.4%,
respectively, of the Company's total 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, 1998 and 1999, the contract with the City of Berkeley
accounted for 7% and 5.2% of the Company's total revenue.
During the fiscal years ended September 30, 1998 and 1999, the
Company had in place a total of approximately 104 and 108 systems,
respectively, representing both systems installed directly by the
Company and systems installed through joint venture relationships.
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At September 30, 1999, the Company had working capital of
$524,881 as compared to $440,204 at September 30, 1998. The
Company's current ratio decreased from 4.49 to 1 to 3.21 to 1 from
September 30, 1998 to September 30, 1999.
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,
2000.
The Company provided a total financial investment of $500,000 to
Urban Transit Solutions between March 1998 and April 1999. UTS has
been generating revenue since August 1998. Collections from parking
lot fees from Cauguas commenced in January of 1999. The Company's
loans to its primary bank and a private lender will be paid back by
Company revenue and UTS revenue payments to the Company.
The Company has continually been modifying its printer models
and has marketed its printers 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. Upgrades to this
model printer include new packaging in high tech colors and a short
range RF (radio frequency) model.
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 pre-existing clients were converted to the new
system. As of November, 1999, all clients are fully operational on
the year 2000 compliant system. In addition to the software,
computer equipment has been 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 handles year 2000 dating on the computer itself.
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During fiscal year ended September 30, 1999, the Company
upgraded the remainder of its clients to its new year 2000 compliant
software and hardware. Costs associated with the software portion of
the year 2000 upgrade have been insignificant because the Company is
continually upgrading and improving its software for its clients as a
normal course of business. The hardware replacement represented
approximately $70,000 in costs during fiscal 1999. The Company
anticipates very little expense related to year 2000 issues in the
next fiscal year.
The Company has experienced a large number of inquiries about
its system related to the total program, special features and year
2000 compliance and anticipates growth in this area in the next
fiscal year. In addition, the Company has had a significant growth
in interest in the Denver Boot for vehicles as well as for security
on other mobile devices including construction trailers and
communications generators. The Company experience a pattern of
growth with this product and antipates future sales to increase
significantly. Management believes exposure via the Internet has
been favorable for this product.
Forward Looking Information
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking
statements" as defined in the Private Securities Litigation Reform
Act of 1995. As with any future event, there can be no assurance
that the events described in forward looking statements made in this
report will occur or that the results of future events will not vary
materially from those described in the forward looking statements
made in this document. Important factors that could cause the
Company's actual performance and operating results to differ
materially from the forward looking statements include, but are not
limited to, (i) the ability of the Company to obtain new customers,
(ii) the ability of the Company to obtain sufficient financing for
business opportunities, (iii) the ability of the Company to reduce
costs and thereby maintain adequate profit margins.
Chat Room Disclaimer
This new forum of exposure to publicly traded companies presents
a venue for the public to inquire about companies from other
individuals as well as post opinions.
The Company has no way to regulate postings nor monitor
information disclosed on thse boards.
Management can only provide information to shareholders and
potential shareholders when contacted directly and such information
can only be provided when it is based on fact and has been filed as
required by law with the Securities and Exchange Commission and other
regulatory agencies.
-14-
<PAGE>
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, 1998 and September 30, 1999
Statement of Operations - Years ended September 30, 1998
and 1999
Statements of Stockholders' Equity - Years ended September
30, 1998 and 1999
Statements of Cash Flows - Years ended September 30, 1998
and 1999
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 56 1987
Officer and Director
Lizabeth M. Wolfson Secretary-Treasurer and 54 1987
Chief Financial and Chief
Accounting Officer and Director
Mark G. Lawrence Director 50 1986
(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.
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 1986 and a director since June 1999. 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.
-16-
<PAGE>
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. 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.
(d) Involvement in Certain Legal Proceedings.
On November 19, 1999 a complaint was filed in Denver District
Court (Colorado) by Lorraine E. Salazar, Francis Salazar, Philip B.
Davis and Barry Fey against the Company, Stanley J. Wolfson, Lizabeth
M. Wolfson and Mark G. Lawrence. The complaint alleges intentional
misrepresentations, concealment of facts, breach of implied duty of
good faith and breach of fiduciary duty by the defendents as officers
and directors of the Company. The plaintiffs seek relief in the form
of damages to be proven at trial, relinquishment of positions as
directors, and that the directors' stock be placed in trust. The
Company and the officers and directors believe the claims are without
merit and have responded to the complaint accordingly.
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
Item 10. Executive Compensation.
(a) General. For the fiscal year ended September 30, 1999 the
Company paid a ten percent sales commission totaling $3,034 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 $50,400 for the most recent fiscal year ended.
-17-
<PAGE>
(b) Summary Compensation Table.
(a) (b) (c) (e)
Name and Other annual
principal position Year Salary compensation
Stanley J. Wolfson 1999 $50,400 $3,034
President and Chief 1998 50,400 2,276
Executive Officer 1997 49,400 5,665
(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 28, 1999 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.
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
Mark G. Lawrence 3,100,000 .9%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
Robert M. Brodbeck 89,209,608 26.5%
All officers and directors 206,508,072 (1) 61.2%
as a group (three persons) and
beneficial owners
__________
-18-
<PAGE>
(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.
Stanley Wolfson, President and Chief Executive Officer, receives
a 10% commission on all sales to Hertz Corporation based on an
agreement made between the Company and Mr. Wolfson in 1986.
Stanley Wolfson and Lizabeth Wolfson have guaranteed the
Company's loan with Mountain States Bank personally, and have pledged
personal collateral in the form of certificate of deposit
to secure a portion of the loan. Lizabeth Wolfson has lent the
Company $120,000 pursuant to 5 notes payable. The notes bear
interest at 8% and 9% annually and mature through February 29, 2000
and may be extended.
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 Partnership agreement between the Company and
Urban Transit Solutions
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)
-19-
<PAGE>
___________
(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.
(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.
-20-
<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 28, 1999
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 28, 1999 /s/ Stanley J. Wolfson
Stanley J. Wolfson, President,
Chief Executive Officer and a
Director
Date: December 28, 1999 /s/ Lizabeth M. Wolfson
Lizabeth M. Wolfson, Secretary-
Treasurer and Chief Financial
and Chief Accounting Officer
Date: December 28, 1999 /s/ Mark G. Lawrence
Mark G. Lawrence, Director
- -21-
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<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, 1998 and 1999, and the related statements of
operations, 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, 1998 and 1999, and the
results of its operations and its cash flow for the years then ended, in
conformity with generally accepted accounting principles.
Denver, Colorado
December 9, 1999 CAUSEY DEMGEN & MOORE INC.
F-1
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1998 and 1999
ASSETS
1998 1999
---- ----
Current assets:
Cash, including interest bearing accounts
of $58,308 (1998) and $60,605 (1999) $ 91,432 $315,579
Accounts receivable 244,448 277,155
Inventories (Note 2) 190,960 160,582
Investment in contract, net (Note 9) 23,334 -
Prepaid expenses - 9,167
Income taxes refundable 16,000 -
---------- ---------
Total current assets 566,174 762,483
Furniture and equipment, at cost:
Office furniture and equipment 235,180 153,085
Equipment under service contracts (Note 9) 1,442,295 1,167,393
---------- ---------
1,677,475 1,320,478
Less accumulated depreciation 1,204,775 926,987
---------- ---------
Net furniture and equipment 472,700 393,491
Other assets:
Investment in partnership (Note 4) 329,915 435,535
Deposits and other 17,058 17,058
Deferred tax asset (Note 6) 5,000 -
Software development costs, net of accumulated
amortization of $196,951 (1998) and $185,615
(1999) 159,447 143,195
---------- ---------
Total other assets 511,420 595,788
---------- ---------
$1,550,294 $1,751,762
========== ==========
See accompanying notes.
F-2
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
BALANCE SHEET
September 30, 1998 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1999
---- ----
Current liabilities:
Notes payable - shareholder (Note 5) $ - $ 120,000
Accounts payable 37,999 12,537
Income taxes payable - 7,300
Deferred revenue 87,971 97,765
--------- ----------
Total current liabilities 125,970 237,602
Long-term note payable - bank (Note 5) 320,000 240,000
Deferred tax liability (Note 6) - 6,000
Commitments (Notes 8 and 9)
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 39,961 203,797
---------- --------
Total stockholders' equity 1,104,324 1,268,160
---------- ---------
$1,550,294 $1,751,762
========== ==========
See accompanying notes.
F-3
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
For the Years Ended September 30, 1998 and 1999
1998 1999
---- ----
Revenues:
Sales $ 238,020 $ 267,391
Service contract income (Notes 9 and 10) 1,062,760 1,148,023
Parking ticket collections (Notes 9 and 10) 147,030 448,324
---------- ---------
Total revenues 1,447,810 1,863,738
Costs and expenses:
Cost of sales 148,819 121,126
Cost of services (Note 3) 599,021 547,387
Cost of parking ticket collections (Note 9) 214,492 244,476
General and administrative 440,884 572,363
Research and development 48,127 52,185
---------- ---------
Total costs and expenses 1,451,343 1,537,537
---------- ---------
Income (loss) from operations (3,533) 326,201
Other income (expense):
Loss on disposal of assets - (38,370)
Interest income 5,411 2,328
Interest expense (Note 5) (14,520) (34,143)
---------- ---------
Total other income (expense) (9,109) (70,185)
---------- ---------
Income (loss) before provision for income taxes
and loss in equity-basis partnership (12,642) 256,016
Provision for income taxes (Note 6):
Current expense 801 51,300
Deferred expense (benefit) (6,000) 20,840
---------- ---------
Total income tax expense (benefit) (5,199) 72,140
Loss in equity-basis partnership (net of tax
benefit of $14,000, 1998 and $9,840, 1999)
(Note 4) (20,585) (20,040)
---------- ---------
Net income (loss) $ (28,028) $ 163,836
========== ==========
Basic net income (loss) per common
share (Note 7) $ * $ *
========== ==========
* Less than $.01 per share
See accompanying notes.
F-4
<PAGE>
<TABLE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1998 and 1999
<CAPTION>
Additional
Common stock paid-in Retained
Shares Amount capital earnings
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 336,889,149 $33,689 $1,030,674 $ 67,989
Net loss for the year ended
September 30, 1998 - - - (28,028)
----------- ------- ---------- --------
Balance, September 30, 1998 336,889,149 33,689 1,030,674 39,961
Net income for the year ended
September 30, 1999 - - - 163,836
----------- ------ ---------- --------
Balance, September 30, 1999 336,889,149 $33,689 $1,030,674 $203,797
=========== ======= ========== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
For the Years Ended September 30, 1998 and 1999
1998 1999
---- ----
Cash flows from operating activities:
Net income (loss) $(28,028) $163,836
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Loss on disposal of assets - 38,370
Depreciation and amortization 279,334 230,192
Deferred income tax expense (benefit) (6,000) 11,000
Loss in equity basis partnership 34,585 29,880
Increase in accounts receivable (47,802) (9,373)
Decrease in inventories 19,648 30,378
Decrease (increase) in income taxes refundable (14,030) 16,000
Increase in prepaid expenses - (9,167)
Increase (decrease) in accounts payable 37,999 (25,462)
Decrease in accrued expenses (2,686) -
Increase in income taxes payable - 7,300
Increase in deferred revenue 35,945 9,794
-------- -------
Total adjustments 336,993 328,912
-------- -------
Net cash provided by operating activities 308,965 492,748
Cash flows from investing activities:
Acquisition of furniture and equipment - net (266,163) (130,823)
Increase in software licenses and software
development costs (69,590) (42,278)
Investment in partnership (364,500) (135,500)
Investment in contract (35,000) -
Increase in deposits and other assets (1,475) -
-------- -------
Net cash used in investing activities (736,728) (308,601)
Cash flows from financing activities:
Proceeds from notes payable - shareholder - 120,000
Proceeds from note payable - bank 320,000 -
Payments on note payable - bank - (80,000)
-------- -------
Net cash provided by financing activities 320,000 40,000
-------- -------
Increase (decrease) in cash and cash equivalents (107,763) 224,147
Cash and cash equivalents at beginning of year 199,195 91,432
-------- -------
Cash and cash equivalents at end of year $ 91,432 $315,579
======== ========
(Continued on following page)
See accompanying notes.
F-6
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
For the Years Ended September 30, 1998 and 1999
(Continued from preceding page)
Supplemental disclosure of cash flow information:
1998 1999
---- ----
Cash paid during the year for interest $ 14,520 $ 34,143
======== ========
Cash paid during the year for income taxes $ - $ 28,000
======== ========
Depreciation and amortization expense is
allocated as follows:
Cost of services $267,668 $206,858
Cost of parking ticket collections 11,666 23,334
-------- -------
$279,334 230,192
======== ========
See accompanying notes.
F-7
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
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,
1998 or 1999.
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, 1998 and
1999 amounted to $57,534 and $58,484, respectively.
Furniture and equipment:
Furniture and equipment are stated at cost.
Depreciation is provided by the Company on the straight line and
accelerated methods over the assets' estimated useful lives of five years.
Property and equipment consists primarily of computers and printers which
are subject to technical obsolescence.
F-8
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
1. Organization and summary of significant accounting policies (continued)
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.
Advertising costs:
The Company expenses the costs of advertising as incurred.
Advertising expense was $11,738 and $6,261 for the years ended September
30, 1998 and 1999, respectively.
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 carry forwards, depreciation
differences and capitalized Section 263A costs.
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.
F-9
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
1. Organization and summary of significant accounting policies (continued)
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 notes 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 September 30, 1999 and at various times during the
year, the balance at one of the financial institutions exceeded 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.
Reclassifications:
Certain reclassifications have been made to the 1998 financial
statements to conform to the 1999 financial statement presentation.
2. Inventories
Inventories consist of the following at September 30:
1998 1999
---- ----
Finished goods $ 19,690 $ 7,160
Work in process - 1,052
Purchased parts and supplies 171,270 152,370
-------- --------
$190,960 $160,582
======== ========
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, 1998 and 1999, commissions of
$2,276 and $3,034 have been paid under this agreement, respectively.
F-10
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
4. Investment in partnership
On January 31, 1998, the Company entered into a partnership agreement
(the Partnership) with Urban Transit Solutions of Puerto Rico
(UTS).The Partnership was formed to contract with cities and towns in
Puerto Rico for the privatization of their parking ticket management and
collection services. As provided in the partnership agreement, the
Company has contributed $500,000 in exchange for a 60% ownership in the
Partnership and will share in the net income and losses of the partnership
based on their percentage of ownership. Pursuant to the partnership
agreement, substantially all management authority is retained by UTS,
and consequently, the Company accounts for their investment in the
Partnership using the equity method.
The Company's investment in the net assets of the Partnership accounted
for under the equity method amounted to $329,915 and $435,535 at September
30, 1998 and 1999, respectively. The condensed results of the operations
and financial position of the Partnership are summarized below:
Condensed statement of operations For the period from
January 31, 1998
through For the year ended
September 30, 1998 September 30, 1999
------------------ ------------------
Total revenues $ 21,813 $ 261,756
Total costs and expenses (79,455) (310,572)
-------- --------
Net loss $(57,642) $ (48,816)
======== =========
Condensed balance sheet September 30, September 30,
1998 1999
------------- -----------
Current assets $ 672 $ 37,952
Non-current assets 394,638 442, 032
Current liabilitiies (40,519) (27,113)
Long-term liabilities (26,983) (44,529)
-------- --------
Partnership capital $327,808 408,342
======== =======
As of September 30, 1999 the Company and UTS were in the process
of renegotiating the terms of the partnership agreement.
F-11
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
5. Notes payable
Notes payable - bank:
On October 15, 1998, the Company executed a one-year note payable
for $320,000 refinancing the two previously executed notes. The note
bears interest at 9% with interest payable monthly and outstanding principal
due on October 15, 1999. In October 1999, the bank extended the due date to
October 15, 2000. The note is secured by a certificate of deposit in the
name of two officers of the Company.
Notes payable - shareholder:
During the year ended September 30, 1999, the Company executed five
notes payable from a major shareholder of the Company for a total of
$120,000. The notes bear interest at 8 and 9% annually, and mature
through February 29, 2000. Interest in the amount of $6,953 was paid to the
shareholder during the year ended September 30, 1999.
6. Income taxes
The components of the Company's deferred tax assets and liabilities
at September 30 are as follows:
1998 1999
Deferred tax assets:
Loss on equity investment $ 14,000 $ 21,000
Section 263A Capitalization 37,000 34,000
Other - 5,000
-------- --------
51,000 60,000
Deferred tax liabilities:
Depreciation and amortization (46,000) (66,000)
-------- --------
Net non-current deferred taxes $ 5,000 $ (6,000)
======== ========
There was no valuation allowance recorded in 1998 because it was more
likely than not that all deferred taxes would be realized. During 1999 the
Company utilized all capital loss carryforwards available.
7. Basic net income (loss) per common share
Basic net income (loss) per common share is based on the weighted
average number of shares outstanding during the years of 336,889,149 shares.
F-12
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
8. Lease agreements - as lessee
The Company leases office space in Denver, Colorado under a 24 month
lease through May 31, 2000 and is party to various other short term
leases for office and warehouse space. Total rent expense for the years
ended September 30, 1998 and 1999 amounted to $26,867 and $34,687,
respectively.
The future minimum lease payments under these obligations are as follows:
Year ending September 30, 2000 $ 13,741
9. Professional service contracts
The Company provides equipment and support services under 12
month professional service contracts. At September 30, 1999, all of the
contracts contained cancellation provisions requiring notice of 30 days in
writing.
The cost of the equipment provided in the contracts and related
accumulated depreciation are as follows at September 30:
1998 1999
---- ----
Equipment under service contracts $1,442,295 $1,167,393
Less accumulated depreciation (1,034,483) (804,241)
---------- ----------
$ 407,812 $ 363,152
========== ==========
Parking citation collection services:
The Company has formed agreements with the towns of Logan, Utah for
the period of June 1998 through May 1999, and Maywood, Illinois for the
period of May 1997 through September 1999, for the purpose of
providing parking citation issuance, ticket processing, meter collections
and maintenance, and ticket collections. In conjunction with the
contracts, the Company and the Towns each receive half of all revenues
after payment of all associated costs related to the collections. In May
1998, the Company paid a non-refundable guarantee of $35,000 to Logan which
was amortized monthly on a straight-line basis over the period of the
agreement.
The terms of the agreements can be extended or discontinued with 30
days written notice. At September 30, 1999, both agreements were still in
effect.
F-13
<PAGE>
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1999
10. Major customer and export sales
During the year ended September 30, 1998 the Company had one customer
who accounted for 11% of revenues.
The Company's export sales for the years ended September 30, by
geographic area, are as follows:
1998 1999
---- ----
Canada $ 94,000 $115,000
England 53,000 15,000
-------- --------
$147,000 $130,000
======== ========
F-14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-KSB FOR PERIOD ENDED 9/30/99 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR PERIOD ENDED
9/30/99
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 315,579
<SECURITIES> 0
<RECEIVABLES> 277,155
<ALLOWANCES> 0
<INVENTORY> 160,582
<CURRENT-ASSETS> 762,483
<PP&E> 1,320,478
<DEPRECIATION> 926,987
<TOTAL-ASSETS> 1,751,762
<CURRENT-LIABILITIES> 273,602
<BONDS> 0
0
0
<COMMON> 33,689
<OTHER-SE> 1,234,471
<TOTAL-LIABILITY-AND-EQUITY> 1,751,762
<SALES> 267,391
<TOTAL-REVENUES> 1,863,738
<CGS> 121,126
<TOTAL-COSTS> 912,989
<OTHER-EXPENSES> 660,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,143
<INCOME-PRETAX> 256,016
<INCOME-TAX> 72,140
<INCOME-CONTINUING> 183,876
<DISCONTINUED> 0
<EXTRAORDINARY> 20,040
<CHANGES> 0
<NET-INCOME> 163,836
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
