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 _____
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Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendments to this Form 10-KSB.
[X]
The Company's revenues for its most recent fiscal year were
$1,447,810. 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
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CLANCY SYSTEMS INTERNATIONAL, INC.
FORM 10-KSB
PART I
Item 1. Description of Business
(a) Business Development. In April 1987 Oxford Financial,
Inc. (_Oxford_) merged with Clancy Systems International, Inc.
(Old Clancy). Oxford, as the surviving company in the merger,
changed its name to Clancy Systems International, Inc. (the
_Company or Registrant_). Oxford was organized under the laws of
the State of Colorado on March 3, 1986. Old Clancy was organized
under the laws of the State of Colorado on June 28, 1984.
The Company designs, develops and manufactures automated
parking enforcement systems primarily for lease to
municipalities, universities and institutions, including a ticket
writing system and other enforcement systems.
The Company has installed numerous parking enforcement
systems for various clients, towns and universities. The Company
also has installed numerous systems through joint venture
relationships. See _Phoenix Group Systems", _City of Inglewood_
and "Urban Transit Solutions" below. To augment the enforcement
element of the system, the Company markets the original Denver
Boot and other enforcement tools. By utilizing an integrated
approach, the Company offers a complete parking citation
processing system including tracking, enforcement, collection and
automatic identification of delinquent violators in an effective
and efficient manner.
The Company also provides hardware and software for special
projects for Hertz Corporation including a project called Fleet
Control. Fleet Control was developed in 1987 as an internal
security system used by Hertz to track the transfer of cars
between locations.
The Company's principal executive offices are located at
2250 S. Oneida Street, #308, Denver, Colorado 80224 and its
telephone number is (303) 753-0197.
(b) Business of the Issuer.
(b),(1),(2) Principal Products or Services and Markets and
Distribution Methods. The Company's parking enforcement system
is an automated system which generates parking citations. The
system consists of a hand-held, light-weight, portable data entry
terminal, a light-weight printer to generate the parking citation
and a data collection computer system to store parking citation
data at the end of each day. The data entry terminal includes
features such as large keys for use with gloved hands, easily
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readable liquid crystal display, phosphorescent keypad for
illuminated night use and a large memory. The printer contains a
"no-wait" buffer which acts to eliminate delay in entering
citation data. The printer has been streamlined and along with
the hand-held terminal weighs only three and one-half pounds and
is battery charged to last for at least eight hours with
overnight recharging capability. The citations are printed on a
continuous fan fold flat form. The data collection computer is
used for uploading and downloading data and contains the capacity
for interfacing directly, or data transfer to a user's mainframe
computer. There are currently approximately 1500 ticket-writing
units in operation.
The Company's system also includes a complete back office
processing and filing system. The Company provides computers,
printers and software to enable the user to do 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
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Denver Boot is removed by unlocking a padlock. The Company
acquired all rights to the product in a transaction with Grace
Berg in June of 1994. The Company 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.
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(b)(4) Competition. The Registrant is aware of several
other companies that currently offer an automated ticket writing
system: Enforcement Technologies, Inc.; Cardinal; Com-Plus; DMS;
Radix-T-2, 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.
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(b)(5) Raw Materials and Principal Suppliers. The Company
purchases its hand-held computers from outside vendors and the
Company builds the printer units that incorporate the hand-held
terminal. 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
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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.
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Inglewood, CA. In a joint venture agreement with the City of
Inglewood, CA, Department of MIS, Clancy has agreed to sell hand-
held ticket issuance equipment, ticket forms and envelopes to the
City of Inglewood and clients that the City services for ticket
processing. In 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.
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(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.
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The Company's software is developed in-house by four
full-time programmers and by Stanley J. Wolfson, the Company's
President and a director.
The Company's software is maintained and updated on a
regular basis. The software for the enforcement system
ticketwriter and rental car return systems were developed by
Stanley Wolfson. The software for the Fleet Control inventory
control system initially was developed by Mr. Wolfson in his
capacity as an officer and employee of Stan Wolfson and
Associates, Inc., and subsequently was transferred to the
Company. The software allows the ticketing, rental and inventory
information to be entered and stored and the tickets, rental
agreements and inventory information to be printed. The user of
the enforcement system also may use the computer to look up
information relating to possible stolen or multiple violation
vehicles.
The office computer software allows the daily ticket and
rental and inventory information to be transferred from the
portable units to a central computer. The information is
compiled and then processed further according to user
requirements.
Through sophisticated communications software, the Company
is able to update, modify, repair, enhance and change most
software at the client's location via a modem and the internet.
The Company's Lot and Street Survey programs have been
provided to clients for use with their parking systems.
The Company spent $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,
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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.
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PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.
(a)(1) The principal market on which the Registrant's
Common Stock is traded is the over-the-counter market and the
Registrant's Common Stock is quoted in the OTC Bulletin Board.
(a)(1)(i) Not applicable.
(a)(1)(ii) The range of high and low bid quotations for the
Registrant's Common Stock for the last two fiscal years are
provided below. The quotations are obtained daily from Yahoo.com
stock quotations via the Internet. These over-the-counter market
quotations reflect inter-dealer prices without retail markup,
markdown or commissions and may not necessarily represent actual
transactions.
High bid Low bid
10/1/96 - 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.
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Item 6. Management's Discussion and Analysis or Plan of
Operation
From fiscal 1996 to fiscal 1997 revenues declined
approximately 2%. This is primarily due to a slight decline in
ticket issuance by existing customers for various reasons
including staff cutbacks and weather related problems. The
Company's parking enforcement systems research and 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.
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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
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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-
<PAGE>
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-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
(a)(1),(2),(3) Identification of Directors and Executive
Officers.
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-
<PAGE>
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-
<PAGE>
(d) Involvement in Certain Legal Proceedings. None
Compliance with Section 16(a) of the Exchange Act
Not Applicable.
Item 10. Executive Compensation.
(a) General. For the fiscal year ended September 30, 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-
<PAGE>
Name and address Number of
of beneficial owner shares Percentage
Stanley J. Wolfson 113,998, 464 (1) 33.8%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
Robert M. Brodbeck 92,509,608 27.5%
2250 S. Oneida Ste. 308
Denver, CO 80224
Mark G. Lawrence 3,100,000 .9%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
All officers and directors 209,608,072 (1) 62.2%
as a group (four persons)
__________
(1) Includes 4,075,642 shares of Common Stock owned of record by
Lizabeth M. Wolfson, the wife of Stanley Wolfson and an officer
of the Company and 400,000 shares of Common Stock owned of record
by the Wolfson children.
(c) Changes in Control.
The Registrant knows of no arrangement, the operation of
which may, at a subsequent date, result in change in control of
the Registrant.
Item 12. Certain Relationships and Related Transactions.
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-
<PAGE>
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-
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CLANCY SYSTEMS INTERNATIONAL, INC.
By /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
Date: January 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-
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
CLANCY SYSTEMS INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1998
<CAPTION>
Additional
Common stock paid-in Retained
Shares Amount capital earnings
------------ ------- ---------- --------
<S> <C> <C> <C> <C>
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
=========== ======== =========== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 91,432
<SECURITIES> 0
<RECEIVABLES> 244,448
<ALLOWANCES> 0
<INVENTORY> 190,960
<CURRENT-ASSETS> 566,174
<PP&E> 1,677,475
<DEPRECIATION> 1,204,775
<TOTAL-ASSETS> 1,550,294
<CURRENT-LIABILITIES> 125,970
<BONDS> 0
0
0
<COMMON> 33,689
<OTHER-SE> 1,070,635
<TOTAL-LIABILITY-AND-EQUITY> 1,104,324
<SALES> 238,020
<TOTAL-REVENUES> 1,447,810
<CGS> 148,819
<TOTAL-COSTS> 963,332
<OTHER-EXPENSES> 489,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,520
<INCOME-PRETAX> (12,642)
<INCOME-TAX> (5,199)
<INCOME-CONTINUING> (28,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,028)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
