10KSB/A 1 b10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 2001 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 Company as specified in its charter) _____COLORADO_______ ______84-1027964______ (State or other jurisdiction of (IRS Employer Identification incorporation or organization Number) 2250 S. Oneida #308, Denver, Colorado 80224 (Address of principal executive offices and Zip Code) (303) 753-0197 (Company's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 Company (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 Company'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 $1,631,590. 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 4, 2002 was approximately $1,615,111 Class Outstanding at January 4, 2002 Common stock, $.0001 par value 361,617,938 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 Company"). Oxford was organized under the laws of the State of Colorado on March 3, 1986. Old Clancy was organized under the laws of the State of Colorado on June 28, 1984. The Company designs, develops and manufactures automated parking enforcement systems primarily for lease to municipalities, universities and institutions, including a ticket writing system and other enforcement systems. The Company has installed numerous parking enforcement systems for various clients, towns and universities. The Company also has installed numerous systems through joint venture relationships. See "Phoenix Group Systems" and "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 acquired and developed several stand alone computer programs for special niche operations including IDBadge.com, WhatsImportantNow.com, VirtualPermit.com, Remit- online.com and Expo1000.com. The Company acquired Expo1000.com and Remit-online.com during fiscal year 2001. The Company developed IDBadge.com, WhatsImportantnow.com and VirtualPermit.com internally. 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 -1- security system used by Hertz to track the transfer of cars between locations. The Company's principal executive offices are located at 2250 S. Oneida Street, #308, Denver, Colorado 80224 and its telephone number is (303) 753-0197. (b) Business of the Issuer. (b),(1),(2) Principal Products or Services and Markets and Distribution Methods. The Company's parking enforcement system is an automated system which generates parking citations. The system consists of a hand-held, light-weight, portable data entry terminal, a light-weight printer to generate the parking citation and a data collection computer system to store parking citation data at the end of each day. The data entry terminal includes features such as large keys for use with gloved hands, easily readable liquid crystal 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 1650 ticket-writing units in operation. The Company's system also includes a complete back office processing and filing system. The Company provides computers, printers and software to enable the user to do state Department of Motor Vehicle lookups, maintain citation information storage and recall, generate delinquent notices and have immediate access to files of all tickets previously written. In addition, the Company's system maintains a current, readily accessible list of vehicles with multiple outstanding citations, stolen vehicles, or vehicles otherwise wanted by local law enforcement officials. The system also generates reports of citations by number and officer, revenues collected, names of scofflaws, officer productivity and other reports as deemed necessary or valuable to the agency. The Company offers Internet payment processing of tickets and clearing of funds for its clients and industry affiliates. The program accepts credit cards and checks at its Remit-online Web -2- site 24 hours a day. As the items are accepted, email notification goes immediately to the client for notification and posting of payment. Settlement of funds is weekly or monthly per contract arrangement. A new service offered to clients during the 2001 year is a permit fulfillment program. Purchasers can purchase permits at on-line web addresses for specific agencies. Payment processing will be done for checks and credit cards and the permits will be mailed directly for the agencies. 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 contracts its systems under a privatization program whereby the Company provides a complete facilities management program for the client. The operation includes personnel to operate the system, issue tickets, and take care of enforcement tasks, along with the collection of ticket revenues, backlog ticket collections and other related duties. These programs are offered under a revenue guarantee or revenue split contract. The Company currently has systems installed in municipalities and universities representing approximately 8,000,000 tickets issued per year. The Denver Boot The Denver Boot is a metal clamp which is fastened around a wheel which effectively prevents a vehicle from being moved. The 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 paid Mrs. Berg a royalties on all sales for a period extending through 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. The Company recently introduced a Super Boot to fit some of the larger pickup trucks and SUV models. -3- Fleet Control The Company sells charger/communication cradles to the Hertz Corporation for its fleet control 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 400,000 tickets per year. (b)(3) Status of Publicly-Announced New Product or Services. Remit-online.com Remit-online.com is an Internet based payment processing system which allows for credit card and check payments to be made for parking citations and other payment processing activities. The business was developed independent of Clancy and funded by Stanley Wolfson, the President of Clancy. The Company acquired Remit-online.com (with Expo1000.com) from Wolfson in February 2001, in exchange for 17,489,315 shares of Clancy Systems International, Inc. restricted stock. Remit-online.com has been expanding and is being offered to all clients of the Company as well as to other parking industry businesses. The company is able to process credit card and check payments through services provided by 3rd parties. The company receives a processing fee for each transaction. As each transaction is processed, notification is sent to the paid agency by email so that posting of the account can be made promptly as parking citations are date critical regarding amount due and potential late fees. Settlement of collected funds between the Company and the agency is made based on contractual agreement either weekly or monthly. Expo1000.com Expo1000.com is an Internet based industry guide that is structured as a virtual trade show with links to the actual exhibitors Web sites. Expo1000.com was developed and funded independent of the Company, and acquired from Stanley J. Wolfson -4- with the Remit-online business on November 18, 1999. The final agreement and issuance of shares took place in early 2001. The business is being developed for specific industries with focus at this time on Parking and Mobile Computing. Other expos are being developed. Expo1000.com contains an internal search engine which searches key words industry specific. Client company listings are available by company name, product, as well as search engine within the industry. The listings will be subscription based and billed annually. To make the site viable, the primary focus in addition to selling the listings is to increase the visits and exposure to sites. The Expo1000.com site highlights "what's new" for the industry (press releases, new product announcements, new service announcements). The site contains a message board and an email services to its subscribers and its visitors. WhatsImportantNow.com This is a PC based messaging program which allows user to send critical data and messages to pagers and cell phones. This program is marketed as a stand alone product and is sold for $79 per license. While available for purchase to outside customers, this program is made available to the Company's clients and is used extensively in house. IDBadgemaker.com This is a PC based badge and security ID program that is used in conjunction with digital photos to allow user to easily and inexpensively make two-sided ID badges (with critical information and bar codes). The program is sold as a stand alone program and has been marketed directly to our clients as well as through several on-line software product/download sites such as Download.com. The product sells for $199 per license. The download version can be used for demonstration with the word DEMO stamped across any badge produced. The Company has had a great deal of interest in the program and sales are commencing on a regular basis. The program receives "excellent" ratings at download.com. VirtualPermit.com This program is a paperless permit system now being used by many of the Company's clients. It includes monitoring lots and garages, inventory of spaces, and can validate active or lapsed permits. -5- (b)(4) Competition. The Company is aware of several other companies that currently offer an automated ticket writing system: Enforcement Technologies, Inc.; Cardinal; Com-Plus; DMS; Radix-T- 2, and others. The Company believes that it is able to compete effectively in the field because of its fee per citation and leased system marketing approach which eliminates any significant capital expenditures by the user, its excellent program for customer support and because of the various enforcement products which it offers to complement its system. 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. The Internet based services added to client programs as well as the Remit-online.com payment processing program makes the Company's system more comprehensive and advantageous than competitor systems. 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. -6- 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 two organizations throughout the United States. The Company's management attends trade shows and makes direct sales calls. (b)(5) Raw Materials and Principal Suppliers. The Company purchases its hand-held computers from outside vendors and the Company builds the printer units that incorporate the hand-held terminal. The hand-held terminals for the parking enforcement system and rental car return system are identical and the hand- held terminals for the rental car inventory control system are different only in that they have an expanded memory and a bar code wand for identifying vehicles for inventory control purposes. The printer units for the various systems are the same. The Company's latest generation printers feature injection molded cases and an automatic top-of-form feature for the paper feed. Other new technology for the electronics enable interfacing with auxiliary hardware such as radio communications devices, magnetic credit card readers and other peripheral devices. The Company obtained a patent on its printer in April 1991. The Company purchases its hand-held terminals from several different vendors who sell computers that are all comparable in quality. Component parts for the Company's products are purchased from various sources. The Company has established relationships with various vendors for such parts. The Company is not reliant on sole source vendors for any item which provides alternative sources of supply to ensure availability. The Company's paper products are purchased from outside vendors. Should any of these vendors be unable to supply these specialized products, the Company believes that there are many other available sources of supply. The Company introduced a new line of printers which are manufactured in "hot" colors of clear plastic in the colors berry, watermelon, lime, mango, grape and clear. Another new item is the short range RF printer which is a cordless model with RF interface to handheld terminals. The Company has begun the engineering of a new printer to interface to Palm Computing devices. In December 2001, the Company will began production of a special keyboard/cradle for the Palm 500 series and in February 2002, the -7- Company will begin manufacturing a new printer to interface directly to the Palm 500 series models. New software products introduced by the Company during 2000, which complement the parking citation issuance programs, include: ID BADGEMAKER (which is sold for $199 per license) and PalmTicketer which is a program to issue special event tickets. The Company has enhanced features on its ticket processing system; digital photo system; virtual permit system which is a fully operational permit issuance, payment and tracking system which reduces paperwork, decal distribution and employee time to administer a parking permit program; a daily permit one use parking permit program for short duration parking validation; an employee badge ID system which can be used by parking systems, rental car systems, and other industries; a management alert system which is an automated data analysis program which emails information and alerts directly to management to reveal such information as permit violations, ticket issuance productivity numbers, revenue numbers and other strategic and timely information. New software products introduced during the year 2001 include the on-line permit renewal system. (b)(6) Significant Customers. Presently, the Company has 116 customers. No customer has generated more than 7% of total revenues. The City of Berkeley, California; the City of Yonkers, and Phoenix Group are customers each generating more than 5% of the Company's revenues for the year ended September 30, 2001. 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. 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, 2002. 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 fiscal year 2001, the revenues from the City of Berkeley -8- system represented approximately 6.2% of the Company's total revenues. Yonkers, NY. On July 1, 1995, the Company entered into a contract with Yonkers, NY to provide a parking ticket issuance system for its Parking Violations Bureau and its Yonkers Parking Authority. The Company provides hardware, custom software, maintenance, support and supplies. The Company receives a fee for each citation form purchased. During fiscal year 2001, revenues from the City of Yonkers system represented approximately 5% 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, 2001, sales to Phoenix Group represented 7% of the Company's total revenues. Privatization Contracts. . 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 provided for a $35,000 annual revenue guarantee to the city for the first year. For subsequent years, the Company pays the City a 50/50 split after all expenses are paid. Urban Transit Solutions, Puerto Rico. In February 1998, the Company acquired 60% ownership in a partnership with Urban Transit Solutions (UTS). The Company committed to $500,000 in funding to UTS between January 20, 1998 and April 30, 1999. At September 30, 2001, the Company had paid $500,000 to UTS. UTS currently has contracts in Mayaguez, Humacao and Cauguas Puerto Rico. In Mayaguez, UTS has installed 600 parking meters and will be responsible for collection of parking meter revenues. In Cauguas, UTS leases a parking facility from the City and collects the parking revenues from the lot. In Humacao, UTS installed meters and collects revenues from the meters. UTS anticipates additional contracts in Puerto Rican cities for meter installation and collections. 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. The Company reported a gain of $21,358 at September 30, 2001 on its ownership of the UTS partnership. See legal proceedings. -9- (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. The company also obtained a patent for a printer latch on June 27, 2000. The patent expires in June 2019. (b)(8) Need for Governmental Approval. None. (b)(9) Effect of Governmental Regulations. None. (b)(10) Research and Development. In order to keep its products and systems from becoming obsolete, the Company regularly modifies and updates its hardware and software. In order to streamline its ticket writing and car rental equipment, the Company has redesigned the printer so that it weighs only two and three quarters pounds. New battery technology has also allowed the Company to reduce the weight in the printers. During fiscal 2000/2001, Clancy completed development of a new printer to interface to Palm handheld devices. The printer is scheduled for production in late February 2002. It will incorporate a state of the art print mechanism, light weight battery technology and flat forms. The Company is developing a keyboard and cradle for Palm devices. 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. The company is currently developing new applications with the new printer and Palm computing devices which will move outside the parking and rental car industries. 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 -10 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 spent $59,170 and $42,296 on research and development activities for the fiscal years ended September 30, 2000 and 2001, 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. The Company donates its used computer equipment to various churches. The program has been very successful as the computers are capable of early computer training programs even though they are no longer acceptable to operate the Company's systems. (b)(12) Employees. The Company currently has thirteen employees in Company operations and 6 employees in privatization projects, all of whom 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, -11- Colorado for its corporate offices for $2283 per month pursuant to a lease agreement with an unaffiliated party which expires May 31, 2002. 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 $630 per month pursuant to a lease agreement that expires August 1, 2002. The Company leases an office in Logan, Utah which is approximately 700 square feet from an unaffiliated party. Rental payments are $578 per month plus utilities pursuant to a lease agreement which expires June 10, 2002. The Company believes that these facilities are suitable and adequate for its needs. Item 3. Legal Proceedings. In August 2000, the Company hired the law firm of Bingham Dana Ltd to commence actions on behalf of the Company against several John Does that bashed the company by posting false information about the Company and its officers and directors on the Raging Bull Internet chat room site and other chat rooms. On September 19, 2000, the Company filed an action in Suffolk Superior Court against John Short, Syracuse NY, who posted as Darth4, MrDarth4 and possible other aliases. Relief sought includes monetary damages for harm done to the Company and its officers in an amount not yet determined, retraction of false and damaging statements and for the subject to cease and desist posting or discussing the Company, its officers and any activities related thereto. The Company is currently pursuing identities of and subsequent action against several other John Does. In a judgement rendered by the Superior Court Department of the Trial Court of Suffolk County, MA, a default judgement against Mr. John Short was entered on October 31, 2001. The judgement orders Short to pay the Company attorney's fees and costs of $16,699.61 and an additional fine of $50,000 for his willful failure to comply with a Court order of June 28, 2001. Mr. Short filed an appeal on December 2, 2001, 3 days late of the 30 day appeal period. The Company is filing a motion to strike the notice of appeal as untimely. -12- In a civil action filed by the Company in the District Court of Puerto Rico on August 22, 2001, the Company has filed for remedies for non performance by Urban Transit Solutions. The company seeks a declaratory judgement, injunctive and mandatory relief, as well as damages and loss of profits from the defendants for their actions in systematically and intentionally denying and excluding Clancy from all of its rights in Urban Transit Solutions. A trial date has not been set. In an action filed against the Company by Philip Benjamin Davis in the Circuit Court for the City of Richmond, Davis seeks Judgement against the Company for payment of a finder's fee for the opportunity to invest in Urban Transit Solutions as well as other compensation for contracts in Richmond, VA, North Carolina State University, and Charleston SC. The Company had commission agreements with Davis for Richmond VA and North Carolina State University through August 1998. All commissions due Davis were paid in full. Davis was not the sole procuring agent for the sale of the system in Charleston SC and was paid a 10% finders fee which he agreed to and knowingly accepted as payment in full. No compensation agreement was ever reached between Clancy and Mr. Davis in relation to Urban Transit Solutions. In addition all the terms presented to Clancy by Mr. Davis as a reason for investment in UTS have not come to fruition or been honored. Venue has been changed to the Eastern District of the Virginia Federal Court. The Company is seeking damages against Mr. Davis. Item 4. Submission of Matters to a Vote of Security Holders. None. -13- Item 6. Management's Discussion and Analysis or Plan of Operation From fiscal 2000 to fiscal 2001 revenues increased by approximately 2%. The Company's parking enforcement systems research and development costs decreased from $59,170 to $42,296, or 28.5% from fiscal 2000 to fiscal 2001. General and Administrative costs increased by 11.3% from 2000 to fiscal 2001. The increase in General and Administrative costs is related to increase in expenses including legal fees. The Company reported an after tax profit of $201,400 for fiscal 2000 as compared to an after tax profit of $168,022 for fiscal 2001. The Company disposed of and charged off obsolete components and fixed assets during this business year. From fiscal 1999 to fiscal 2000 revenues decreased approximately 10.5%. The Company's parking enforcement research and development costs increased from $52,185 to $59,170 or 13.4%, from fiscal 1999 to 2000. General and administrative costs decreased by 4.1% from fiscal 1999 to fiscal 2000. The Company reported a profit of $163,836 for fiscal 1999 as compared to a profit of $201,400 for fiscal 2000. 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, 2000 and 2001, the contract with Oklahoma City accounted for 4.8% and 4.9%, respectively, of the Company's total revenue. See Part I, Item 1 (b)(6). During the fiscal year ended September 30, 1989 the Company entered into a contract with the City of Berkeley, California to provide its parking enforcement system. For the fiscal years ended September 30, 2000 and 2001, the contract with the City of Berkeley accounted for 6.7% and 6.2% of the Company's total revenue. During the fiscal years ended September 30, 2000 and 2001, the Company had in place a total of approximately 112 and 116 systems, respectively, representing both systems installed directly by the Company and systems installed through joint venture relationships. At September 30, 2001, the Company had working capital of $812,133 as compared to $681,445 at September 30, 2000. The Company's current ratio increased from 4.03 to 1 to 7.23 to 1 from September 30, 2000 to September 30, 2001. -15- 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, 2002. The Company provided a total financial investment of $500,000 to Urban Transit Solutions between March 1998 and April 1999. UTS has been generating revenue since August 1998. Collections from parking lot fees from Cauguas commenced in January of 1999. The Company's loans to its primary bank and a private lender have were paid back by Company revenue. The Company has continually been modifying its printer models and has marketed its printers as a stand-alone product to delivery services and vendors who have a need for computer-generated receipts. During the 1996 fiscal year, the Company developed a new printer utilizing thermal line print technology. The Company also made significant upgrades to its standard printer. The Company believes there continues to exists a market for the printer as it is able to print bar code symbology (PDF 417) which is expected to become an industry standard in the next few years. This product may increase future revenues; however, there can be no assurance that the Company's marketing efforts will be successful. Upgrades to this model printer include new packaging in high tech colors and a short range RF (radio frequency) model. In August 2000, the Company began design of a new printer to work with Palm devices. The product in full production in February, 2002. The Company has experienced a large number of inquiries about its system related to the total program and special features and anticipates growth in this area in the next fiscal year. In addition, the Company has had a significant growth in interest in the Denver Boot for vehicles as well as for security on other mobile devices including construction trailers and communications generators. The Company has experienced a pattern of growth with this product and anticipates future sales to increase significantly. Management believes exposure via the Internet has been favorable for this product. There has been a demand for the Denver boot for enforcement on private property. -16- The Company has experienced a significant interest in its ID Badgemaker software since September 11. The demand for the program has increased significantly and the company has provided its program to news services, janitorial services, and social services organizations. Forward Looking Information Statements of the Company's or management's intentions, beliefs, anticipations, expectations and similar expressions concerning future events contained in this document constitute "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. As with any future event, there can be no assurance that the events described in forward looking statements made in this report will occur or that the results of future events will not vary materially from those described in the forward looking statements made in this document. Important factors that could cause the Company's actual performance and operating results to differ materially from the forward looking statements include, but are not limited to, (i) the ability of the Company to obtain new customers, (ii) the ability of the Company to obtain sufficient financing for business opportunities, (iii) the ability of the Company to reduce costs and thereby maintain adequate profit margins. Chat Room Disclaimer This forum of exposure to publicly traded companies presents a venue for the public to inquire about companies from other individuals as well as post opinions. The Company has no way to regulate postings nor monitor, affirm or dispute information disclosed on these boards. Management can only provide information to shareholders and potential shareholders when contacted directly and such information can only be provided when it is based on fact and has been filed as required by law with the Securities and Exchange Commission and other regulatory agencies. -17- 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, 2000 and September 30, 2001 Statement of Operations - Years ended September 30, 2000 and 2001 Statements of Stockholders' Equity - Years ended September 30, 2000 and 2001 Statements of Cash Flows - Years ended September 30, 2000 and 2001 Notes to Financial Statements Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. -18- PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. (a)(1),(2),(3) Identification of Directors and Executive Officers. Position Dates of Name held with Company Age service Stanley J. Wolfson President, Chief Executive 58 1987 Officer and Director Lizabeth M. Wolfson Secretary-Treasurer and 56 1987 Chief Financial and Chief Accounting Officer and Director (a)(4) The business experience of the Company's officers and directors is as follows: Stanley J. Wolfson, President, Chief Executive Officer and a director of the Company since February 1987. Mr. Wolfson attended the University of Colorado at Boulder and the University of Colorado at Denver. Mr. Wolfson had been president and a director of Clancy from inception until its merger into the Company in April 1987. Since 1967 Mr. Wolfson has been president and director of Portion Controlled Foods, Inc. d/b/a Stan Wolfson and Associates, Inc., a data processing systems consulting firm located in Denver, Colorado which employs two persons on a part-time basis. His firm's clients include The Hertz Corporation that utilizes Stan Wolfson and Associates, Inc.'s hand-held data entry equipment as part of its on-site national inventory control system. The Hertz Corporation has been a major customer of the Company. See Part I, Item 1. Mr. Wolfson has served as remote data acquisition consultant for AT&T as well as a consultant for a number of small local companies. Mr. Wolfson is the husband of Lizabeth Wolfson, an officer of the Company. Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief Accounting Officer of the Company since February 1987. Mrs. Wolfson attended the University of Colorado at Boulder and the University of Colorado at Denver. Mrs. Wolfson had been secretary and treasurer of Clancy from 1986 and a director since June 1999. Since 1978, Mrs. Wolfson has served as secretary of Stan Wolfson and Associates, Inc. She is the wife of Stanley J. Wolfson, President, Chief Executive Officer and a director of the Company. -19- (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 Company, is the wife of Stanley J. Wolfson, President, Chief Executive Officer and a director of the Company. (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, 2001 the Company paid a ten percent sales commission totaling $3,106 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 $55,200 for the most recent fiscal year ended. (b) Summary Compensation Table. (a) (b) (c) (e) Name and Other annual principal position Year Salary compensation Stanley J. Wolfson 2001 $55,200 $3,106 President and Chief 2000 50,400 2,551 Executive Officer 1999 50,400 3,034 (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. -20- 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 4, 2002 with respect to the ownership of the Company's Common Stock for all directors, individually, all officers and directors as a group, and all beneficial owners of more than five percent of the Common Stock. Name and address Number of of beneficial owner shares Percentage Stanley J. Wolfson and Lizabeth M. Wolfson 130,887,779 (1) 36.2% 2250 S. Oneida Ste. 308 Denver, Colorado 80224 Robert M. Brodbeck 63,639,660 17.6% 9310 Watson Gulch Littleton, CO 80128 All officers and directors 130,887,779 (1) 36.2 as a group (2 persons) __________ (1) Includes 4,075,642 shares of Common Stock owned of record by Lizabeth M. Wolfson and 126,812,137 owned by Stanley J. Wolfson. -21- (c) Changes in Control. The Company knows of no arrangement, the operation of which may, at a subsequent date, result in change in control of the Company. 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. On November 18, 1999 the board of directors of the Company approved the acquisition of two Internet business opportunities funded and developed independent of the Company by Mr. Wolfson. The final acquisition was completed in February 2001. Under the terms of the final agreement, the Company issued 17,489,315 shares of its common stock in exchange for the Remit-online.com and Expo1000.com web sites. -22- 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 2.1 Assignment and Bill of Sale date February 23, 2001. Filed herewith. 3.1 Articles of Incorporation filed with the Colorado Secretary of State on March 3, 1986 (2) 3.1(a) Articles of Amendment to Articles of Incorporation (2) 3.3 Bylaws (2) 10.1 Partnership agreement between the Company and Urban Transit Solutions 10.6 Indemnification Agreements between the Company and Robert M. Brodbeck, Stanley J. Wolfson and Lizabeth M. Wolfson dated February 26, 1987 (1) 10.12 Indemnity Agreements between Company 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 Company's current report on Form 8-K dated February 26, 1987. (2) Incorporated by reference from the like numbered exhibits filed with the Company'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 Company'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 Company filed no reports on form 8-K. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY COMPANYS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. None. -23- SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company 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 4, 2002 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 Company and in the capacities and on the dates indicated. Date: January 4, 2002 /s/ Stanley J. Wolfson Stanley J. Wolfson, resident, Chief Executive Officer and a Director Date: January 4, 2002 /s/ Lizabeth M. Wolfson Lizabeth M. Wolfson, Secretary- Treasurer and Chief Financial and Chief Accounting Officer -24- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Clancy Systems International, Inc. We have audited the balance sheet of Clancy Systems International, Inc. as of September 30, 2000 and 2001, 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 auditing standards generally accepted in the United States of America. 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, 2000 and 2001, and the results of its operations and its cash flow for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Denver, Colorado December 11, 2001 CAUSEY DEMGEN & MOORE INC. F-1 CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 2000 and 2001 ASSETS 2000 2001 - - - - - - - Current Assets: Cash, including interest bearing accounts of $263,230 (2000) and $263,945 (2001) $ 435,238 385,491 Accounts Receivable 294,521 342,323 Income tax refund (Note 6) - 55,346 Inventories (Note 2) 164,252 144,602 Prepaid expenses 12,100 14,645 ------------ ----------- Total current assets 906,111 942.407 Furniture and equipment, at cost Office furniture and equipment 154,285 97,501 Equipment under service contracts (Note 10) 1,270,655 982,290 ------------- ---------- 1,424,940 1,079,791 Less accumulated depreciation ( 1,096,481) ( 811,211) ------------- ------------ Net furniture and equipment 328,459 268,580 Other assets: Investment in partnership (Note 4) 432,801 454,159 Deferred tax asset - 46,400 Note receivable - employee 10,618 10,277 Deposits 3,769 3,194 Software development costs, net of accumulated amortization of $245,534 (2000) and $305,212 (2001) 128,693 146,035 ---------- --------- 575,881 660,065 --------- ---------- $ 1,810,451 $ 1,871,052 ========= ======== See accompanying notes F-2 CLANCY SYSTEMS INTERNATIONAL, INC. BALANCE SHEET September 30, 2000 and 2001 LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2001 - - - - - - - - Current Liabilities: Notes payable - shareholder (Note 5) $ 45,000 $ - Accounts payable 9,496 16,008 Income taxes payable 46,000 - Deferred revenue 124,170 114,266 ---------- ---------- Total current liabilities 224,666 130,274 Long-term note - bank (Note 5) 90,000 - Deferred tax liability (Note 6) 11,000 - Commitments (Note 9 and 10) - - Stockholders' equity (Notes 8 and 12): Preferred stock, $.0001 par value; 100,000,000 shares authorized, none issued - - Common stock, $.0001 par value; 800,000,000 34,413 36,162 shares authorized, 344,128,623 shares (2000), 361,617,938 shares (2001) issued and outstanding Additional paid-in capital 1,045,175 1,131,397 Retained earnings 405,197 573,219 ----------- ---------- Stockholders' Equity 1,484,785 1,740,778 ---------- ----------- $ 1,810,451 $ 1,871,052 ========= ========= See accompanying notes F-3 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF OPERATIONS September 30, 2000 and 2001 2000 2001 - - - - - - - - Revenues: Sales $ 176,151 $ 219,250 Service contract income (Notes 10 and 11) 1,161,545 1,293,299 Parking ticket collections (Notes 10 and 11) 327,697 119,041 --------- ----------- Total revenues 1,665,393 1,631,590 Costs and expenses: Cost of sales 82,924 139,158 Cost of services (Note 2) 509,968 492,822 Cost of parking ticket collections (Note 10) 140,057 116,176 General and administrative 548,804 610,830 Research and Development 59,170 42,296 --------- ----------- Total costs and expenses 1,340,923 1,401,282 ---------- --------- Income from operations 324,470 230,308 Other income (expense): Loss on disposal of assets - (1,044) Interest income 9,847 12,143 Interest Expense (22,018) (5,986) ---------- --------- Total other income (expense) (12,171) 5,113 ---------- --------- Income before provision for income tax and loss in equity-basis partnership 312,299 235,421 Provision for income taxes (Note 6): Current expense 104,230 52,694 Deferred expense 5,000 28,822 ------------ -------- Total income tax expense 109,230 81,516 Income (loss) in equity-basis partnership (net of tax benefit of $1,065, 2000 and tax expense of $7,241, 2001) (Note 4) (1,669) 14,117 ------------ -------- Net income $ 201,400 $ 168,022 ======== ======== Basic net income per common share (Note 7) $ * $ * ============ ============ *Less than $.01 per share See accompanying notes F-4 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT OF STOCKHOLDERS' EQUITY For Years Ended September 30, 2000 and 2001
Additional Common stock paid-in Retained shares amount capital earnings Balance, September 30, 1999 336,889,149 $ 33,689 $ 1,030,674 $ 203,797 Issuance of stock for services 4,350,000 435 14,790 - Exercise of stock options by exchange of mature shares previously held by director 2,889, 474 289 ( 289) - ------------- -------- ---------- -------------- Balance, September 30, 2000 344,128,623 34,413 1,045,175 405,197 Issuance of common stock in exchange for acquisition of web sites from an officer of the Company (Note 12) 17,489,315 1,749 86,222 - Net income for the year ended September 30, 2001 - - - 168,022 ------------ ---------- ---------- --------- Balance, September 30, 2001 361,617,938 $ 36,162 $ 1,131,397 $ 573,219 ========= ======= ========= ======== See accompanying notes F-5
CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT CASH FLOWS September 30, 2000 and 2001 2000 2001 - - - - - - - - Cash flows from operating activities: Net income $ 201,400 $ 168,022 Adjustments to reconcile net income to net cash provided by operating actvities: Loss on disposal of assets - 1,044 Depreciation and amortization 231,327 216,103 Deferred income tax expense 5,000 28,822 Common stock issued for services and for acquisition of web sites 15,225 1,749 Change in assets and liabilities: Investment in equity-basis partnership 2,734 ( 21,358) Accounts receivable (17,366) (47,802) Inventories (3,670) 19,650 Income taxes refundable - (55,346) Prepaid expenses (2,933) (2,545) Accounts payable (3,041) 6,512 Income taxes payable 38,700 (46,000) Deferred revenue 26,405 (9,904) --------- --------- Total adjustments 292,381 90,925 ------------- ---------- Net cash provided by operating activities 493,781 258,947 Cash flows from investing activities: Acquisition of furniture and equipment (104,122) ( 97,015) Increase in software licenses and software development costs (46,900) ( 77,020) Increase in note receivable-employee (10,618) 341 Increase in deposits and other assets 12,858 - ---------- ----------- Net cash used in financing activities (149,122) (173,694) Cash flows from financing activities: Payments on note payable-shareholder (75,000) (45,000) Payments on note payable-bank (150,000) (90,000) --------- ---------- Net cash used in financing activities (225,000) (135,000) --------- ------- (Continued on following page) See accompanying notes F-6 CLANCY SYSTEMS INTERNATIONAL, INC. STATEMENT CASH FLOWS September 30, 2000 and 2001 2000 2001 - - - - - - - - Increase (decrease) in cash and cash equivalents 119,659 (49,747) Cash and cash equivalents at beginning of year 315,579 435,238 ---------- ---------- Cash and cash equivalents at end of year $ 435,238 $ 385,491 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 21,685 $ 5,985 ======= ======= Cash paid during the year for income taxes $ 57,165 $ 163,475 ======= ======= See accompanying notes F-7 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 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, rental car return systems, internet payment remittance systems, and internet industry guides. The Company's revenues are derived primarily from cities, universities and car rental companies throughout the United States and Canada. 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, 2000 or 2001. 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 basedon 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, 2000 and 2001 amounted to $61,402 and $59,678, respectively and is included in cost of services. F-8 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 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 the straight line and accelerated methods over the assets' estimated useful lives of five years. Property and equipment consists primarily of computers and printers which are subject to technical obsolescence. Depreciation expense for the years ended September 30, 2000 and 2001 amounted to $169,925 and $156,425, respectively, and is included in cost of services. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains and losses on sales and retirements of property are reflected in results of operations. Other assets: Software license agreements are being amortized over a five-year period, the period estimated by management to be benefited. Research and development costs: Company funded research and development costs are charged to expense as incurred. Revenue recognition: Revenue derived from professional service contracts on equipment and support services is included in income as earned over the contract term; related costs consist mainly of depreciation, supplies and sales commissions. The Company defers revenue for equipment and services under service contracts that are billed to customers on a quarterly, semi-annual, annual or other basis. Revenue from the issuance of parking tickets is recognized on a cash basis when received. Advertising costs: The Company expenses the costs of advertising as incurred. Advertising expense was $12,238 and $15,963 for the years ended September 30, 2000 and 2001, respectively. F-9 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 1. Organization and summary of significant accounting policies (continued) Income taxes: The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 ("FASB No. 109"). Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The Company's temporary differences consist primarily of tax operating loss carry forwards, depreciation differences and capitalized 263A costs. Cash equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Fair value of financial instruments: All financial instruments are held for purposes other than trading. The following methods and assumptions were used to estimate the fair value of each financial instrument for which it is practicable to estimate that value. For cash, cash equivalents and notes payable, the carrying amount is assumed to approximate fair value due to the short-term maturities of these instruments. Concentrations of credit risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. The Company places its cash with high quality financial institutions. At September 30, 2000 and 2001 and at various times during the years, the balance at one of the financial institutions exceeded FDIC limits. The Company provides credit, in the normal course of business, to customers throughout the United States, Canada and England. The Company performs ongoing credit evaluations of its customers. A significant portion of the Company's revenues are derived from contracts with universities, car rental companies and municipalities. F-10 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 2. Inventories Inventories consist of the following at September 30: 2000 2001 ------ ------ Finished goods $ 7,800 $ 24,333 Work in proces - 1,885 Purchased parts and supplies 156,452 118,484 -------- -------- $ 164,252 $ 144,602 ======== ======== 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, 2000 and 2001, commissions of $2,746 and $3,094 have been paid under this agreement, respectively. 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 parking meter installations and their parking ticket management and collection services. As provided in the partnership agreement, the Company has contributed $500,000 in exchange for a 60% ownership in the Partnership and will share in the net income and losses of the partnership based on their percentage of ownership. Pursuant to the partnership agreement, substantially all management authority is retained by UTS, and consequently, the Company accounts for their investment in the Partnership using the equity method. The Company's investment in the net assets of the Partnership accounted for under the equity method amounted to $432,801 and $454,159 at September 30, 2000 and 2001, respectively. The condensed results of the operations and financial position of the Partnership are summarized below: F-11 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 4. Investment in partnership (continued) Condensed statement of operations For the year ended For the year ended September 30, 2000 September 30, 2001 ---------------- ----------------- Total revenues $ 685,740 $ 1,002,883 Total costs and expenses (690,296) (967,287) ----------------- --------------- Net income (loss) $ (4,556) $ 35,596 =============== =============== Condensed balance sheet September 30, 2000 September 30, 2001 ------------------ ---------------- Current assets $ 42,704 $ 155,251 Non-current assets 982,139 1,095,571 Current liabilities (129,764) (182,945) Long-term liabilities (464,267) (369,971) --------------- -------------- Partnership capital 430,812 $ 697,906 ============== =============== As of September 30, 2001 the Company and UTS were in the process of renegotiating the terms of the partnership agreement. (see Note 13) 5. Notes payable Notes payable - bank: In October 2000, the Company extended the due date of its note payable - bank to October 15, 2001. The note bears interest at 9%, with interest payable monthly and is secured by a certificate of deposit in the name of two officers of the Company. The note was paid in full during the year ended September 30, 2001. Notes payable - shareholder: During the year ended September 30, 1999, the Company executed five notes payable from a major shareholder of the Company for a total of $120,000. The notes bear interest at 8 and 9% annually, and mature through February 29, 2000. During the year ended September 30, 2000, the due dates of two of the notes for a total of $45,000 were extended to May 1 and June 30, 2001. The notes were paid in full during the year ended September 30, 2001. Interest in the amount of $5,850 and $5,652 was paid to the shareholder during the years ended September 30, 2000 and 2001, respectively. F-12 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 6. Income taxes The components of the Company's deferred tax assets and liabilities at September 30 are as follows: 2000 2001 ------ ------ Non current deferred tax assets $ 74,000 $ 118,100 Non current deferred tax liabilities (85,000) (71,700) ---------- ---------- $ (11,000) $ 46,400 ======= ======== 2000 2001 ------ ----- Deferred tax assets: Loss on equity investment $ 26,000 $ 16,000 Section 263A Capitalization 47,000 35,000 Website acquired from shareholder - 67,100 Other 1,000 - ------------ ------------- 74,000 118,100 Deferred liabilities: Depreciation and amortization $ (85,000) $ (71,700) ------------- ------------- Net non-current deferred taxes $ (11,000) $46,400 ============ ======== 7. Basicc net income per common share Basic net income per common share is based on the weighted average number of shares outstanding during the years ended September 30, 2000 and 2001 of 340,348,532 shares and 354,670,128 shares respectively. 8. Stockholders' equity During January 2000, the Company issued to a director, options to purchase 3,000,000 shares of the Company's common stock, exercisable at $.0035 per share. In May 2000, the director exercised these options by providing the Company with 110,256 shares of common stock previously held in payment of the purchase price of the stock. During the year ended September 30, 2000, the Company issued 3,100,000 shares of common stock to a director of the Company and 1,250,000 shares of common stock to three employees of the Company for services performed valued at $15,225 ($.0035 per share which was based on an average between public and private transactions). F-13 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 Stock options: The Company has adopted the disclosure - only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for the stock options issued. Had compensation costs for the stock option been determined based on the fair value at the grant date for the award during the year ended September 30, 2000, in accordance with the provisions of SFAS No. 123, the Company's net income and income per share would have been reduced to the pro forma amounts indicated below. 2000 ------ Net income - as reported $ 201,400 Net income - pro forma $ 182,014 Income per share - as report $ * Income per share - pro forma $ * *less that $.01 per share The fair value of the option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions; dividend yield of 0%; expected volatility of 53%; risk-free interest rate of 6.5%; and expected life of 5 years. 9. Lease agreements - as lessee The Company leases office space in Denver, Colorado under a 24 month lease through May 31, 2002 and is party to various other short term leases for office and warehouse space. Total rent expense for the years ended September 30, 2000 and 2001 amounted to $39,181 and $41,874, respectively. The future minimum lease payments under these obligations are as follows: Year ending September 30, 2002 $ 18,263 ------------- $ 18,263 =========== Professional service contracts The Company provides equipment and support services under 12 month professional service contracts. At September 30, 2001, all of the contracts contained cancellation provisions requiring notice of 30 days or less. F-14 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 10. Professional service contracts (continued) The cost of the equipment provided in the contracts and related accumulated depreciation are as follows at September 30: 2000 2001 ------ ------ Equipment under service contracts $ 1,270,655 $ 982,290 Less accumulated depreciation ( 955,889) (731,210) ------------- ------------ $ 314,766 $ 251,080 ========== ========= Parking citation collection services: The Company has formed agreements with the towns of Logan, Utah for the period of June 1998 through May 1999, and Maywood, Illinois for the period of May 1997 through September 1999, for the purpose of providing parking citation issuance, ticket processing, meter collections and maintenance, and ticket collections. In conjunction with the contracts, the Company and the Towns each receive half of all revenues after payment of all associated costs related to the collections. In May 1998, the Company paid a non-refundable guarantee of $35,000 to Logan which was amortized monthly on a straight-line basis over the period of the agreement. The terms of the agreements can be extended or discontinued with 30 days written notice. At September 30, 2001 the Logan, Utah agreement was still in effect. 11. Export sales The Company's export sales for the years ended September 30, by geographic area, are as follows: 2000 2001 ------ ------ Canada $ 99,000 $ 105,000 ======== ========= 12. Related party transaction In November 1999, the Company entered into a letter of intent to acquire two website related businesses owned and developed by the Company's president and major shareholder for shares of the Company's common stock valued at $255,344 (17,489,315 shares of common stock at $.0146 per share). The businesses were acquired in February 2001 and were recorded at the president's historical cost basis in the trademarks and proprietary technology related to the websites which approximates the par value of the shares issued of $1,749. The income tax benefit to be derived from the amortization of the tax basis of the web sites is recorded as an addition of $86,222 to additional paid-in-capital. F-15 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS September 30, 2000 and 2001 Litigation The Company has filed a lawsuit against Urban Transit Solutions, Inc. (UTS) before the Federal District Court of Puerto Rico. The Company claims that UTS unlawfully issued dilutive shares of stock in the Company. The Company is seeking damages of $500,000 for the loss of the capital invested by Clancy in UTS, loss of profit and reasonable expectation of return on investment, estimated at $320,000 and loss of future profit and reasonable expectation of return on investment estimated at not less that $8,900. The court has not less than $8,900. The court has not provided a ruling or called the parties to hearing on any of the matters before it. On November 15, 2001 the Company submitted a proposed settlement to UTS consisting of the redemption of Clancy's stock in exchange for a secured loan in the principal amount of $680,000 payable in five years. Settlement negotiations are ongoing. On September 14,2001, an action was filed against the Company seeking judgment against the Company for payment of a finder's fee and for commission/ compensation relating to Company contracts. The Company is vigorously defending the suit. While the outcome of this matter cannot be predicted with certainty at this time, management believes it will not have a materially adverse effect on the Company's financial position. F-16 Exhibit 2.1 ASSIGNMENT AND BILL OF SALE STANLEY J. WOLFSON, an individual (Seller) in consideration for 17,489,315 shares of $0.0001 par value common stock of CLANCY SYSTEMS INTERNATIONAL, INC., a Colorado corporation (Buyer), valued at $255,347 and other valuable consideration, the sufficiency and receipt of which is hereby acknowledged, does sell, assign, transfer and convey unto Buyer, its successors and assigns, the following described property: The websites known as Expo1000.com and Remit-online.com and all assets, trademarks and proprietary technology related thereto. To have and to hold the same unto the Buyer, its successors and assigns, forever. IN WITNESS WHEREOF, Seller has caused this instrument to be duly executed this 23rd day of February, 2001. SELLER /s/Stanley J. Wolfson Stanley J. Wolfson 3/2/01 -1-