-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcxgNoyWwbPwl9+rbXwbtfdwYqgQ4MN4MGv0WDvhQZDDgvdDkuPh3xVp/hAVzAra SOAOuyEvLUe8woS6U6vMKw== 0000789318-97-000007.txt : 19971229 0000789318-97-000007.hdr.sgml : 19971229 ACCESSION NUMBER: 0000789318-97-000007 CONFORMED SUBMISSION TYPE: 10KSB CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971224 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLANCY SYSTEMS INTERNATIONAL INC /CO/ CENTRAL INDEX KEY: 0000789318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841027964 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-04882-D FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 308 CITY: DENVER STATE: CO ZIP: 80224 BUSINESS PHONE: 3037530197 MAIL ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 3308 CITY: DENVER STATE: CO ZIP: 80224 FORMER COMPANY: FORMER CONFORMED NAME: OXFORD FINANCIAL INC DATE OF NAME CHANGE: 19600201 10KSB 1 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 ------------------------------ ----- (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 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 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 -1- 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 -2- 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 -3- 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 -4- 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 -5- 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 -6- 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. -7- (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. -8- 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. -9- 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. -10- 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. -11- 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). -12- 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- 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- 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- 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- 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- 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- 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- 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- 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 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 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 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 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF STOCKHOLDER'S EQUITY For the Years Ended September 30, 1996 and 1997
Additional Common stock paid-in Retained Shares Amount capital earnings -------------------- ---------- --------- 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 =========== ======== =========== ========
See accompanying notes. F-5 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 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 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 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 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 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 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 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 EX-5 2 [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] [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
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