-----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, KbijVRmRGxTFs8HFCyBiuRZnJ2KzLOf+Y+sSSjnUHyh0tCHuxFkxmqbCDrCKV7HF k2BMin3sLJKk7yW8mpCEgw== 0000789318-99-000001.txt : 19990112 0000789318-99-000001.hdr.sgml : 19990112 ACCESSION NUMBER: 0000789318-99-000001 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990111 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: 99503780 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, 1998 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 $1,447,810. The aggregate market value of the voting stock held by nonaffiliates (based upon the average of the bid and asked price of these shares on the over-the-counter market) as of January 11, 1999 was approximately $827,370. Class Outstanding at January 11, 1999 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", _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 -1- 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 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 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 7,000,000 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 -2- 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. 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 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 of Urban Transit Solutions, San Juan, Puerto Rico. UTS offers parking system privatization to cities in Puerto Rico. At September 30, 1998, UTS had contracts in Mayaguez, Puerto Rico and Caugas, 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 begin December 1998. -3- (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, Duncan 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 three organizations throughout the United States. The Company's management attends trade shows and makes direct sales calls. -4- (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. 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 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 Phoenix Group; and the City of Inglewood, CA which together represented approximately 33% of the Company's total revenues for the year ended September 30, 1998. 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 -5- 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, 1999. 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 1998 fiscal year, the revenues from the Oklahoma City system represented approximately 6% 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 1998 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 less than 1% of the Company's total revenue for fiscal 1998. -6- 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, 1998, sales to the City of Inglewood represented 9% 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, 1998, sales to Phoenix Group represented 11% of the Company's total revenues. Maywood, IL. In a contract for privatization, the Company provides a full facilities management operation for the Village of Maywood. The Company provides personnel, vehicles, an office, ticket issuance and ticket payment processing. The contract provides for a 50/50 split of profit after all expenses between the Company and Village. Logan, UT. 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 of Urban Transit Solutions (UTS). The Company has committed to $500,000 in funding to UTS between January 20, 1998 and April 30, 1999. At September 30, 1998, the Company had paid $364,500 to UTS. UTS currently has contracts in Mayaguez and Cauguas Puerto Rico. In Mayaguez, UTS has installed 600 parking meters and will be responsible for issuing tickets and collection of parking meter revenues. In Cauguas, UTS will be responsible for installing meters, managing parking lots, and collection of meter revenues and issuing tickets. UTS anticipates additional contracts in Puerto Rican cities for meter installation and collections and ticket issuance. 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. (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. -7- (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 October 1999. 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. 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 $60,591 and $48,127 on research and development activities for the fiscal years ended September 30, 1997 and 1998, 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 11 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, -9- Colorado for its corporate offices for $1,717 per month pursuant to a lease agreement with an unaffiliated party which expires May 31, 2000. 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, 1999. 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, 1999. The Company believes that these facilities are suitable and adequate for its needs. Item 3. Legal Proceedings. 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. 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 10/1/96 - 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 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 On January 11, 1999 the reported bid and asked prices for the Registrant's Common Stock were $.003 and $.01, respectively. (a)(2) Not applicable. (b) The approximate number of record holders of the Registrant's Common Stock on January 11, 1999 was 611. (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 developement costs increased from $54,303 to $60,591, or 8% from fiscal 1996 to fiscal 1997. General and administrative costs decreased by 1% from 1996 to fiscal 1997. The Company reported a profit of $16,792 for fiscal 1996 as compared to a profit of $35,068 for fiscal 1997. From fiscal 1997 to fiscal 1998 revenues declined approximately 18%. This is primarily due to start-up costs with privatization projects and start-up costs with projects for Urgan Transit Solutions. The Company's parking enforcement systems research and development costs decreased from $60,591 to $48,127, or 21%, from fiscal 1997 to fiscal 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 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, 1997 and 1998, the contract with Oklahoma City accounted for 4.5% and 6%, 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, 1997 and 1998, the contract with the City of Berkeley accounted for 7% of the Company's total professional services contract revenue. During the fiscal years ended September 30, 1997 and 1998, the Company had in place a total of approximately 97 and 104 systems, respectively, representing both systems installed directly by the Company and systems installed through joint venture relationships. -12- 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. At September 30, 1998, the Company had working capital of $440,204 as compared to $554,707 at September 30, 1997. The Company's current ratio decreased from 11.14 to 1 to 4.49 to 1 from September 30, 1997 to September 30, 1998. 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, 1999. The balance of the $500,000 committment to Urban Transit Solutions will be advanced between November 1998 and April 1999. The Company will provide these funds from cash flows and from additional loans from its bank and/or private lenders. UTS has been generating revenue since August 1998 and will see a substantial increase in its meter collections when its personnel begin issuing parking advice notices in January 1999. Collections from parking lot fees from Cauguas will commence in January of 1999, and when meters are installed in June of 1999, revenue collections from Cauguas will be greatly increased. 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 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 -13- 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. During fiscal year ended September 30, 1998, the Company upgraded 70% of its clients to its new year 2000 compliant software and hardware. The Company anticipates that by June 30, 1999, all client upgrades will have been completed. 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 represents approximately $65,000 in costs during fiscal 1998. The Company estimates a similar cost during fiscal 1999 for completion of upgrades to remaining clients. 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 year the client base could increase as potential clients find the need to outsource their ticket issuance and processing programs in order to be operational in the year 2000. 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. 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, 1997 and September 30, 1998 -14- Statement of Operations - Years ended September 30, 1997 and 1998 Statements of Stockholders' Equity - Years ended September 30, 1997 and 1998 Statements of Cash Flows - Years ended September 30, 1997 and 1998 Notes to Financial Statements Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. -15- 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. Dates Position of Name held with Registrant Age service Stanley J. Wolfson President, Chief Executive 55 1987 Officer and Director Robert M. Brodbeck Chairman of the Board of 65 1987 Directors Mark G. Lawrence Director 49 1986 Lizabeth M. Wolfson Secretary-Treasurer and 53 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 has been chairman of the board of directors and a director of Clancy from June 29, 1985 until April 1987. Mr. Brodbeck was a founder -16- of Clancy, served as an initial director of Clancy until Clancy's first organizational meeting and had been active as a principal shareholder Clancy since its inception. From December 1983 until November 1986 Mr. Brodbeck had been president and director of I/O Services,Inc., (now known as Sabre Industries, Inc.), a public company located in Denver, Colorado which is involved in the development of systems for small block data transmission. From July 1978 to May 1984, Mr. Brodbeck was co-owner of Computer Tel, Inc. (d/b/a Loadmaster), located in Denver, Colorado, which developed a computerized load posting system in use nationally by the trucking industry. From November 1973 to May 1984, Mr. Brodbeck was the owner of Kwik Kall, Inc., a direct dial courtesy phone system located in Denver, Colorado, serving the trucking industry in the southwestern United States as well as the eastern seaboard, Oklahoma and Texas. Mr. Brodbeck sold his interests in both Computer Tel, Inc. and Kwik Kall, Inc. in 1984. Prior to 1972 Mr. Brodbeck was an electronics and computer maintenance technician with Martin Marietta Corporation for 17 years. Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief Accounting Officer of the Company since February 1987. Mrs. Wolfson attended the University of Colorado at Boulder and the University of Colorado at Denver. Mrs. Wolfson had been secretary and treasurer of Clancy from 1974 and a director from December 1986 until April 1987. Since 1978, Mrs. Wolfson has served as secretary of Stan Wolfson and Associates, Inc. She is the wife of Stanley J. Wolfson, President, Chief Executive Officer and a director of the Company. Mark G. Lawrence, a director of the Company since April 1986. Mr. Lawrence served as Chairman of the Board of Directors and Secretary of the Company from April 1986 until February 1987 when the Exchange took place with Clancy. Since March 1988 Mr. Lawrence has served as executive vice president and a partner of Vintage Marketing Group, Inc., a company engaged in the sales and marketing of residential real estate. He graduated from the University of Denver in 1971 with a B.A. degree in social sciences and attended the University of the Americas in Mexico City in 1969. Mr. Lawrence is a member of the Home Builders Association, the Sales and Marketing Council of Metropolitan Denver and the National Sales and Marketing Council. (a)(5) Directorships Held in Reporting Companies. None. (b) Identification of Certain Significant Employees. None. (c) Family Relationships. Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief Accounting Officer of the Registrant, is the wife of Stanley J. Wolfson, President, Chief Executive Officer and a director of the Registrant. -17- (d) Involvement in Certain Legal Proceedings. None Compliance with Section 16(a) of the Exchange Act Not Applicable. Item 10. Executive Compensation. (a) General. For the fiscal year ended September 30, 1998 the Company paid a ten percent sales commission totaling $2,276 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. (b) Summary Compensation Table. -16- (a) (b) (c) (e) Name and Other annual principal position Year Salary compensation Stanley J. Wolfson 1998 $50,400 $2,276 President and Chief 1997 49,400 5,665 Executive Officer 1996 48,500 6,320 (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 January 11, 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. -18- 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. 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. 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) -19- 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) __________ (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- SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CLANCY SYSTEMS INTERNATIONAL, INC. By /s/ Stanley J. Wolfson Stanley J. Wolfson, President Date: January 11, 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: January 11, 1999 /s/ Stanley J. Wolfson Stanley J. Wolfson, President, Chief Executive Officer and a Director Date: January 11, 1999 /s/ Robert M. Brodbeck Robert M. Brodbeck, Chairman of the Board of Directors and Director Date: January 11, 1999 /s/ Lizabeth M. Wolfson Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief Accounting Officer Date: January 11, 1999 /s/ Mark G. Lawrence Mark G. Lawrence, Director -21- REPORT OF INDEPENDENT CERTIFED 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, 1997 and 1998, 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, 1997 and 1998, 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 11, 1998 CAUSEY DEMGEN & MOORE INC. F-1 CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 1997 and 1998 ASSETS 1997 1998 ---------- ---------- Current assets: Cash, including interest bearing accounts of $57,017 (1997) and $58,308 $ 199,195 $ 91,432 Accounts receivable 196,646 244,448 Inventories (Note 2) 210,608 190,960 Investment in contract, net (Note 9 - 23,334 Income taxes refundable 1,970 16,000 Deferred tax asset (Note 6) 1,000 - ---------- ---------- Total current assets 609,419 566,174 Furniture and equipment, at cost: Office furniture and equipment 228,680 235,180 Equipment under service contracts (Note 9) 1,182,632 1,442,295 ---------- ---------- 1,411,312 1,677,475 Less accumulated depreciation 994,732 1,204,775 ---------- ---------- Net furniture and equipment 416,580 472,700 Other assets: Investment in partnership (Note 4) - 329,915 Deposits and other 26,835 28,310 Deferred tax asset (Note 6) - 5,000 Software licenses 16,882 16,882 Software development costs 286,763 356,353 ---------- ---------- 330,480 736,460 Less accumulated amortization 167,415 225,040 ---------- ---------- Net other assets 163,065 511,420 ---------- ---------- $1,189,064 $1,550,294 ========== ========== See accompanying notes. F-2 CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 1997 and 1998 LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998 ---------- ---------- Current liabilities: Accounts payable $ - $ 37,999 Other accrued expenses 2,286 - Warranty reserve 400 - Deferred revenue 52,026 87,971 ---------- ---------- Total current liabilities 54,712 125,970 Long-term note payable - bank (Note 5) - 320,000 Deferred tax liability (Note 6) 2,000 - 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 67,989 39,961 ---------- ---------- Total stockholders' equity 1,132,352 1,104,324 ---------- ---------- $1,189,064 $1,550,294 ========== ========== See accompanying notes. F-3 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF OPERATIONS For the Years Ended September 30, 1997 and 1998 1997 1998 ----------- ---------- Revenues: Sales $ 200,374 $ 238,020 Service contract income (Notes 9 and 10) 1,064,292 1,062,760 Parking ticket collections (Notes 9 and 10) 508,234 147,030 ---------- --------- Total revenues 1,772,900 1,447,810 Costs and expenses: Cost of sales 154,944 148,819 Cost of services (Note 3) 576,501 599,021 Cost of parking ticket collections (Note 9) 500,030 214,492 General and administrative 431,228 440,884 Research and development 60,591 48,127 ---------- ---------- Total costs and expenses 1,723,294 1,451,343 Income (loss) from operations 49,606 (3,533) Other income (expense): Interest income 2,275 5,411 Interest expense (14,063) (14,520) ---------- --------- Total other income (expense) (11,788) (9,109) ---------- ---------- Income (loss) before provision for income taxes and loss in equity-basis partnership 37,818 (12,642) Provision for income taxes (Note 6): Current expense 13,750 801 Deferred benefit (11,000) (6,000) ---------- ---------- Total income tax expense (benefit) 2,750 (5,199) Loss in equity-basis partnership (net of tax benefit of $14,000)(Note 4) - (20,585) ---------- ---------- Net income (loss) $ 35,068 $ (28,028) ========== ========== Basic net income (loss) per common share (Note 7) $ * $ * ========== ========== * Less than $.01 per share See accompanying notes. F-4 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended September 30, 1997 and 1998
Additional Common stock paid-in Retained Shares Amount capital earnings ------------ ------- ---------- -------- 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 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 =========== ======== =========== ========
See accompanying notes. F-5 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF CASH FLOWS For the Years Ended September 30, 1997 and 1998 1997 1998 ---------- ---------- Cash flows from operating activities: Net income (loss) $ 35,068 $ (28,028) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 675,636 279,334 Deferred income tax benefit (11,000) (6,000) Loss in equity basis partnership - 34,585 Decrease (increase) in accounts receivable 90,285 (47,802) Decrease (increase) in inventories (20,353) 19,648 Increase in income taxes refundable (1,250) (14,030) Increase (decrease) in accounts payable (15,046) 37,999 Decrease in accrued expenses (3,600) (2,686) Increase (decrease) in deferred revenue (24,095) 35,945 ---------- ---------- Total adjustments 690,577 336,993 ---------- ---------- Net cash provided by operating activities 725,645 308,965 Cash flows from investing activities: Acquisition of furniture and equipment - net (157,091) (266,163) Increase in software licenses and software development costs (84,844) (69,590) Investment in partnership - (364,500) Investment in contract - (35,000) Decrease (increase) in deposits and other assets 17,975 (1,475) ---------- ---------- Net cash used in investing activities (223,960) (736,728) Cash flows from financing activities: Proceeds from note payable - bank - 320,000 Payments on note payable - bank (393,000) - ---------- ---------- Net cash provided by (used in) financing activities (393,000) 320,000 ---------- ---------- Increase (decrease) in cash and cash equivalents 108,685 (107,763) Cash and cash equivalents at beginning of year 90,510 199,195 ---------- --------- Cash and cash equivalents at end of year $ 199,195 $ 91,432 ========== ========== (Continued on following page) See accompanying notes. F-6 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF CASH FLOWS For the Years Ended September 30, 1997 and 1998 (Continued from preceding page) Supplemental disclosure of cash flow information: 1997 1998 -------- -------- Cash paid during the year for interest $ 14,063 $ 14,520 ======== ======== Cash paid during the year for income taxes $ 15,000 $ - ======== ======== Depreciation and amortization expense is allocated as follows: Cost of services $ 299,608 $ 267,668 Cost of parking ticket collections 376,028 11,666 --------- --------- $ 675,636 $ 279,334 ========= ========= See accompanying notes. F-7 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 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, 1997 or 1998. 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, 1997 and 1998 amounted to $52,456 and $ 57,534, respectively. Unamortized computer software development costs amounted to $147,037 and $159,402 at September 30, 1997 and 1998, respectively. F-8 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 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 ss.263A costs. F-9 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 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: 1997 1998 ---------- ---------- Finished goods $ - $ 19,690 Work in process 13,570 - Purchased parts and supplies 197,038 171,270 --------- -------- $ 210,608 $ 190,960 ========= ========= 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, 1997 and 1998, commissions of $5,665 and $2,276 have been paid under this agreement, respectively. F-10 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 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 of September 30, 1998, the Partnership had contracted with the city of Mayaguez, Puerto Rico to install parking meters and provide meter collection services and was negotiating a contract with the city of Caguas, Puerto Rico to administer a parking facility and provide parking metering services. As of September 30, 1998, the Partnership had invested approximately $350,000 toward the purchase and installation of 600 parking meters in Mayaguez but has not yet received substantial revenues from the contract. As provided in the partnership agreement, the Company has agreed to contribute $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 will be 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 at September 30, 1998. The condensed results of the operations and financial position of the Company's equity-basis partnership investment is summarized below: Condensed statement of For the period from of operations information January 31, 1998 through September 30, 1998 ------------------ Total revenues $ 21,813 Total costs and expenses (79,455) --------- $ (57,642) ========= Condensed balance sheet information September 30, 1998 ------------- Current assets $ 672 Non-current assets 394,638 Current liabilitiies (40,519) Long-term liabilities (26,983) --------- Partnership capital $ 327,808 ========= F-11 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 4. Investment in partnership (continued) As of September 30, 1998 the Company and UTS were in the process of renegotiating the terms of the partnership agreement. 5. Notes payable - bank On May 5, 1998, the Company executed a fifteen-month promissory note for $220,000 secured by personal guarantees of two officers of the Company. The note bore interest at 9.5% and was originally due on August 15, 1999. On June 12, 1998, the Company executed a four-month promissory note for $100,000 secured by a certificate of deposit in the name of two officers of the Company. The note bore interest at 7.5% and was originally due on October 15, 1998. 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. The note is secured by a certificate of deposit in the name of two officers of the Company. 6. 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 ss.263A costs for tax purposes. As of September 30, 1997 and 1998, total deferred tax assets and liabilities are as follows: 1997 1998 ------- ------- Deferred tax assets $ 1,000 $10,000 Deferred tax liabilities (2,000) (5,000) ------- ------- $(1,000) $ 5,000 ======= ======= 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, 336,889,149 shares. F-12 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 8. Lease agreements - as lessee The Company leases office space in Denver under a 24 month lease and office space in Logan, Utah under a 12 month lease which commenced on June 1, 1998 and June 10, 1998, respectively. The rental rates for the offices are $1,717 and $528 per month, respectively. In addition, the Company maintains month-to-month leases for manufacturing space in Littleton, CO. The monthly rental rate this lease is $575. Total rent expense for the years ended September 30, 1997 and 1998 amounted to $21,959 and $26,867, respectively. The future minimum lease payments under these obligations are as follows: Year ending September 30, 1999 $ 22,724 2000 13,741 -------- $ 36,465 ======== 9. Professional service contracts The Company provides equipment and support services under 12 month professional service contracts. At September 30, 1998, 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: 1997 1998 ---------- ---------- Equipment under service contracts $1,182,632 $1,442,295 Less accumulated depreciation (852,345) (1,034,483) ----------- ---------- $ 330,287 $ 407,812 ========== ========= F-13 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1997 and 1998 9. Professional service contracts (continued) Agreement with the Town of Logan, Utah: On May 19, 1998, the Company entered into a one year contract with the Town of Logan, Utah (the Town), whereby the Company will issue all parking tickets for the Town and provide collection services for those parking tickets issued and all outstanding parking tickets previously issued by the Town. In conjunction with the contract the Company and the Town will each receive half of all revenues after payment of all associated costs related to the collections. The Company has paid a non-refundable guarantee of $35,000 to the Town which amount is being amortized monthly on a straight-line basis over the period of the agreement. 10. Major customer and export sales The following table summarizes customers which accounted for over 10% of revenues for the years ended September 30: Customer 1997 1998 -------- ---- ---- A * 11% B 11% * C 29% * * less than 10% of total revenues The Company's export sales for the years ended September 30, by geographic area, are as follows: 1997 1998 ------- -------- Canada $35,000 $ 94,000 England 35,000 53,000 ------- -------- $70,000 $147,000 ======= ======== F-14 EX-10 2 PARTNERSHIP AGREEMENT Partnership Agreement made this 31 st day of January, 1998 by and between Urban Transit Solutions, Inc. and Clancy Systems International, Inc., (individually the "Partner" and collectively the "Partners"). In consideration of the mutual terms, conditions and covenants hereinafter set forth, the Partners agree as follows: 1.0 GENERAL 1.1 The purpose of the Partnership shall be the "Puerto Rico Parking Meter Privatization Project". 1.2 The name of the Partnership shall be Urban Transit Solutions/Clancy Systems International, (the "Partnership"). 1.3 The initial address of the Partnership shall be CA-8 Via Playera, Camino del Mar, Toa Baja, P.R. 00950, which address may be changed from time to time by the Partners. 1.4 The Partnership shall begin on January 31 st, 1998 and continue until, and dissolve upon, the first happening of: (a) The dissolution of one Partner; or (b) The withdrawal, by written notice, of one Partner; or (c) The affirmative vote of a majority in interest of the Partners. 2.0 CAPITALIZATION 2.1 The Capital of the Partnership shall consist of $500,000 contributed in its entirety by Clancy Systems, Inc. The full amount shall be deposited to the bank account held by Urban Transit Solutions, Inc. at First Bank Puerto Rico, account number 25-500-2258. The initial deposit, mutually agreed upon by both parties consisting of a partial amount of $200,000 shall be available by method of a bank wire transfer transaction not later than February 5th, 1998. The balance of the amount shall be deposited 10 days after the awarding of the contract. 2.2 No Partner shall receive interest on his capital contribution. 2.3 If in the opinion of the majority in interest of the Partnership additional capital is needed for the proper conduct of the business of the Partnership, Clancy Systems, Inc. shall contribute in accordance to the mutual agreed amount of capital as it may be deemed required for the proper development and operation of each additional project. 2.4 Each Partner shall be indemnified by the other Partners as to excess over the Partner's interest in the Partnership in the event a Partner is compelled to pay and does pay any Creditor of the Partnership in satisfaction of an obligation of the Partnership. It is the intent and purpose of this provision that all of the Partners shall pay their pro rata share of the Partnership debts, regardless of whether a creditor of the Partnership recovers payment from some but not all of the Partners. 3.0 SHARES OF STOCK 3.1 The respective Partners shall own shares of stock in the Partnership according to the following schedule: Clancy Systems International, Inc. shares 60% Urban Transit Solutions, Inc. shares 40% 3.2 Any plan for an increase in the number of shares of either Partner shall require the unanimous consent of the Partnership who are the parties to this Agreement, or their successors. 3.3 All shares now or hereafter owned by the Partners or prospective Partners or transferors shall be subject to the provisions of this Agreement. 3.4 A separate "Partnership Account" shall be maintained for each Partner in this Agreement. (a) A capital investment could be increased by (i) the contribution to the capital of the Partnership, including the initial contribution (Paragraph 2. 1. above) and (ii) the distributive share of the Net Profits of the Partnership (Paragraph 3. 1); and decreased by (i) distributions, (ii) the distributive share of Net Losses of the Partnership and (iii) the distributive share of expenditures of the Partnership not deductible in computing Net Profits/Losses and not properly treated as capital expenditures. (b) Distributions in kind shall be valued at fair market value less any liability which the Partner assumes on the distribution or to which the asset distributed is subject. 4.0 MANAGEMENT 4.1 All matters to be determined by the Partners shall be determined by mutual consent of the Partners at a meeting when deemed appropriate. All matters determined by the Partners shall be recorded in a Minute Book reflecting the date, matter discussed and the action taken. 4.2 The Partners shall meet at least once each year. Additional meetings may be held at the request of 51 % of the Partnership. All meetings shall be by written notice thirty (30) days in advance so that each Partner may be present either in person or by written proxy authorization. 4.3 The fiscal year of the Partnership shall be determined at the start- up of the first parking meter project in Puerto Rico. 4.4 Each Partner shall have the right to inspect the books, records, reports and accounts of the Partnership during normal business hours, which books, records, reports and accounts shall be kept at the Partnership's place of business. 4.5 Urban Transit Solutions, Inc. shall conduct the business of the Partnership as the "Managing Partner". 4.6 Each Partner shall be bound by any action taken by the Managing Partner in good faith under this Agreement. In no event shall any Partner be called upon to pay any amount beyond the liability arising against him on account of his capital contribution. 4.7 The Managing Partner shall not be liable for any error in judgment or any mistake of law or fact or any act done in good faith in the exercise of the power and authority as Managing Partner but shall be liable for gross negligence or willful default. 5.0 PROHIBITIONS 5.1 No Partner shall sell, assign, mortgage, hypothecate or encumber his interest in the Partnership without the express written permission of all the remaining Partners, without regard to interest. 5.2 All Partners shall meet their personal obligations and debts as they become due and each agrees to save and hold the remaining Partners and the Partnership harmless from all costs, claims and demands with respect to such obligations and debts. 5.3 No Partner shall, except upon the approval of the Partnership by affirmative vote: (a) lend any Partnership funds; (b) incur any obligation in the name of or on the,credit of the Partnership; (c) lend any of the Partner's funds to the Partnership, with or without interest; (d) sell, assign, mortgage, hypothecate or encumber any asset of the Partnership; (e) make an assignment of the assets of the Partnership for the benefit of creditors of the Partnership; (f) execute any guarantee on behalf of the Partnership; (g) release, assign or transfer a Partnership claim or any asset of the Partnership; (h) borrow in the name of the Partnership; (i) submit any Partnership claim or liability to arbitration; (j) initiate, conduct or settle litigation in the name of or pertaining to the Partnership; or; (k) invest Partnership funds or other assets. 5.4 Any Partner who commits a prohibited act shall be individually liable to the remaining Partners, pro rata to their Partnership interest, for any loss caused by the prohibited act. 6.0 PROFITS/LOSSES AND DISTRIBUTIONS 6.1 Net Profits/Losses shall be determined in accordance with good accounting principles and shall be as finally determined for Commonwealth of Puerto Rico income tax purposes. 6.2 Net Profits/Losses shall be apportioned pro rata according to each Partner's interest. 6.3 Distribution shall be made upon the affirmative vote of the Partners as provided for in paragraph 4. 1. herein. 7.0 ADDITIONAL PARTNERS/DISSOLUTION 7.1 The Partnership may admit additional Partners upon the affirmative vote of the Partners, as provided for herein. Additional Partners shall then be admitted upon payment of a contribution to capital as determined by the Partnership and each Partner's interest in the Partnership as provided for in paragraph 3.1 shall be redetermined. 7.2 In the event of the dissolution of the Partnership for any reason, the affairs of the Partnership shall be wound up and the proceeds of the Partnership distributed in accordance with the terms of this Agreement and the laws of the Commonwealth of Puerto Rico. 8.0 RIGHT OF FIRST REFUSAL-VOLUNTARY TRANSFER 8.1 Terms of the Offer, Offer Notice. It is understood and agreed that a Partner shall be permitted to sell a portion not less than 10% of his shares or the entire amount of shares as specifically provided herein, at any given period after the execution of this agreement. If any Partner shall desire to sell a portion or all the shares of the Partnership's stock owned by him (such Partner being hereinafter referred to as the "Offeror" and such shares being hereinafter referred to as the "Offered Shares"), then the Offeror shall give prior notice (the "Offer Notice") to the Partner hereinafter referred to as the "Offerees". The Offer Notice shall: (a) State the name and address of the person (the "Proposed Purchaser") to whom the Offeror proposes to sell the Offered Shares and the price at and the terms upon which he proposes to sell the Offered Shares to the Proposed Purchaser (and shall have attached thereto a commitment letter setting forth the substantial terms of the sale to the Proposed Purchaser); and (b) Constitute an offer to sell to the Offerees all, but not less than 10% or all of the Offered Shares at the same price and upon the same ten-ns as the Offeror proposes to sell the Offered Shares to the Proposed Purchaser. 8.2 Acceptance of the Offer. The Offerees shall have a period of sixty (60) days after the date of the giving of the Offer Notice in which to accept the offer. Acceptance shall be made by giving concurrent notice thereof, within the sixty (60) day time limit, to the Offeror. In determining whether the Partner shall accept such Offer the Offeror shall abstain from voting as a shareholder. 8.3 Priority Among Offerees. If all or any of the Offerees shall accept the offer made by the Offer Notice, then: (a) If the Partner shall have accepted such offer, the Offeror shall sell and the Partner shall purchase all or such portion of the Offered Shares as it desires of the Offeror's shares, at the price, upon the terms and in the manner set forth in the Offer Notice. (b) If the Partner shall not have accepted such offer or it shall have accepted only as to a portion of the Offeror's Shares, the Offeror shall sell to the other Proposed Purchaser, and they shall purchase all of the balance of the Offered Shares. 8.4 Failure of Offerees to Accot. If none of the Offerees, within the required time, accepts the Offer made by the Offer Notice, the Offeror shall thereafter within ninety (90) days of giving of the Offer Notice have the right to sell all, but not less than 10%, of the Offered Shares, but only to the Proposed Purchaser at the price, upon the terms and in the manner set forth in the Offer Notice. If the Offeror shall not so sell the Offered Shares within such period, the Offer shall be deemed to have lapsed and the Offeror shall continue to hold the Offered Shares subject to the provisions of the Agreement. After such a lapse any offer or attempt to sell the shares shall be treated as an original offer under this article. 9.0 INVOLUNTARY TRANSFER 9.1 If, other than by reason of a Corporate dissolution or merger, shares are transferred by operation of law to any person other than the Joint Venture (such as, but not limited to, a Shareholder's trustee in bankruptcy, a purchaser at any creditor's or court), the Joint Venture within sixty (60) days, or the remaining Joint Venturers within seventy (70) days of the Joint Venture's receipt of actual notice of the transfer, may notify such transferee of its desire to purchase all, but not less than all, of the shares so transferred ("Notice of Intent to Purchase"). In such a case, the purchase price shall be determined in accordance with the book value of the Joint Venture's stock as reflected on the most recent balance sheet. 10. NON-COMPETE 10.1 During the life of this agreement and for five years after the conclusion of this Joint Venture agreement, "Joint Venturer " shall not engage in any other business activity, directly and/or indirectly, to any person, fin-n, corporation and other entity, regardless of whether it is for profit, gain or otherwise that is similar to the business activity of Urban Transit Solutions in Puerto Rico and the U.S. Virgin Islands. Urban Transit Solutions will be bound to such agreement in the territory of the United States or any other territory assigned to Clancy Systems International, Inc. 11.0 MISCELLANEOUS 11.1 Arbitration. If any controversy or claim arising out of this Agreement cannot be settled by the Partners, the controversy or claims shall be settled by arbitration in the City of San Juan, Puerto Rico. 11.2 Governing Law. This Agreement shall be enforced and construed under and shall be subject to the laws of the Commonwealth of Puerto Rico. If any provision of this Agreement shall be unlawful, void or unenforceable, that provision shall be deemed separate from and in no way shall affect the validity or enforceability of the remaining provisions of this Agreement. 11.3 Notices. All notices required to be given under this Agreement shall be either (i) personally delivered to the party to whom addressed or (ii) sent by U.S. Mail, postage prepaid, Certified Mail, Return Receipt Requested, addressed to the Partner at the last address for that Partner as maintained by the Partnership. 11.4 Entire Agreement. This Agreement contains the full and complete understanding of all of the Partners with reference to the Partnership and supersedes all prior agreements and understandings, whether written or oral. This agreement may not be amended except in writing and upon the consent of all of the Partners then existing of the Partnership. 11.5 Successors. This Agreement shall be binding on and inure to the benefit of the respective successors, permitted assigns, executors, administrators, personal representatives and beneficiaries of the Partners. 11.6 Subject Headings. The subject headings used in this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions of this Agreement. This Agreement constitutes the entire agreement between the Joint Venturers pertaining to the subject matter contained in it, and supersedes all prior and contemporaneous agreements, representations, warranties and understandings of the parties. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether similar or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless in writing signed by the party making the waiver. Executed by the Partners as of the date first above written. Karenen Garnik Stanley J. Wolfson Urban Transit Solutions, Inc. Clancy Systems International, Inc. Jose Luis Fernandez Phil Davis Urban Transit Solutions, Inc. Clancy Systems International, Inc. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB STATEMENTS FOR PERIOD ENDED 9/30/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR PERIOD ENDED 9/30/98 12-MOS SEP-30-1998 SEP-30-1998 91,432 0 244,448 0 190,960 566,174 1,677,475 1,204,775 1,550,294 125,970 0 0 0 33,689 1,070,635 1,104,324 238,020 1,447,810 148,819 963,332 489,011 0 14,520 (12,642) (5,199) (28,028) 0 0 0 (28,028) 0 0
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