-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qme0JeyZU/k1WE26DNAtc04feHe/c/NJztLgJWA29dxkNUea3dAL33HRex16mn50 aOq8D0wVjQtdgszxrcOeww== 0000789318-05-000013.txt : 20050602 0000789318-05-000013.hdr.sgml : 20050602 20050602145236 ACCESSION NUMBER: 0000789318-05-000013 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20050602 DATE AS OF CHANGE: 20050602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLANCY SYSTEMS INTERNATIONAL INC /CO/ CENTRAL INDEX KEY: 0000789318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841027964 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-04882-D FILM NUMBER: 05873545 BUSINESS ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 308 CITY: DENVER STATE: CO ZIP: 80224 BUSINESS PHONE: 3037530197 MAIL ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 3308 CITY: DENVER STATE: CO ZIP: 80224 FORMER COMPANY: FORMER CONFORMED NAME: OXFORD FINANCIAL INC DATE OF NAME CHANGE: 19600201 10KSB/A 1 a10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: September 30, 2004 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 $3,243,746. The aggregate market value of the voting stock held by non affiliates (based upon the average of the bid and asked price of these shares on the over-the-counter market) as of December 28, 2004 was approximately $4,147,803. Class Outstanding at January 10, 2005 and current date June 2, 2005 Common stock, $.0001 par value 365,117,938 shares Documents incorporated by reference: None Transitional Small Business Disclosure Format: Yes___ No X CLANCY SYSTEMS INTERNATIONAL, INC. Form 10-KSB/A TABLE OF CONTENTS PART I Item 1. Description of Business Item 2. Description of Property Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Common Equity and Related Stockholder Matters Item 6. Management's Discussion and Analysis or Plan of Operations Item 7. Financial Statements Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Item 8A. Controls and Procedures PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Item 10. Executive Compensation Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12. Certain Relationships and Related Transactions Item 13. Exhibits Item 14. Principal Accountant Fees and Services CLANCY SYSTEMS INTERNATIONAL, INC. Form 10-KSB/A PART I Item 1. Description of Business 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"). 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. In February 1998, the Company acquired 60% ownership in a partnership with Urban Transit Solutions (UTS). UTS is a consolidated subsidiary and is therefore included in the consolidated financial statements of Clancy as of September 30, 2002 and 2003. In December 2003, the company advanced additional funds to UTS which resulted in additional shares being issued to bring its ownership to 72%. 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. To augment the enforcement element of the system, the Company manufactures and 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, Expo1000.com, Permit-sales.com and Park-by-phone.com. The Company acquired Expo1000.com and Remit-online.com during fiscal year 2001. The Company developed IDBadge.com, WhatsImportantnow.com, VirtualPermit.com, Permit-sales.com and Park-by-phone.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 security system used by Hertz to track the transfer of cars between locations. -1- 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. The Company's web site is www.clancysystems.com. Business of the Issuer. 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 less than two 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 forms. The data collection computer is used for uploading and downloading data and contains the capacity for interfacing directly to a user's computer. There are currently approximately 2000 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 obtain 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, permit registrations, and clearing of funds for its clients and industry affiliates. The program accepts credit cards and checks at its Remit-online.com web 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 service first offered to clients during the 2001 year was a permit fulfillment program. Patrons can purchase permits at on-line web addresses for specific agencies. Payment processing is done for checks and credit cards and the permits are mailed directly for the agencies. -2- The Company's contracts for its parking enforcement systems generally provide that the Company will provide the ticket writers, 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 9,000,000 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 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. 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 conjunction with the 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 200,000 tickets per year. -3- 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 with the Remit-online business on November 18, 1999. The final agreement and issuance of shares took place in early 2001. The business has been developed for specific industries with focus at this time on Parking. 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 are 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. Expo1000.com is also a parking advocacy forum and sponsors one day solution seminars in strategic locations for exhibition and education purposes. Expo1000.com vendors demonstrate their product to invitees from strategic municipal, university and commercial parking agencies. During fiscal 2003-2004 Expo forums were held in Los Angeles, Clearwater, San Francisco, and San Juan Puerto Rico. -4- Permitsales.com Permitsales.com is a comprehensive program for online permit registration. Through this program registration and renewals for decal permits can be done. The program also is used to register, create, and print special event permits and periodic transit permits. The company provides permit fulfillment services. WhatsImportantNow.com This is a PC based messaging program which allows users 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 users 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 (and hard copy) 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. Park-by-phone.com Launched at the end of fiscal 2002-2003, this program is a technology based parking reservation and payment system that will benefit the customers by allowing them to pay and park by making one telephone call to the Park-by-phone data center. Through strategic alliances with parking operators, cities, and venues, this system will allow customers to have paid parking in an instant. -5- Competition. The Company is aware of 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. 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. -6- 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 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 purchases its hand-held terminals from several different vendors who sell computers that are all comparable in quality. One type of handheld the Company uses for its parking enforcement systems is a Palm PDA. 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. The Company's paper products are purchased from outside vendors. Should any of these vendors be unable to supply these specialized products, the Company believes that there are many other available sources of supply. The Company has manufactured a printer to interface to Palm Computing devices. In December 2001, the Company began production of a special keyboard/cradle for the Palm 500 series. The cradle is called a Palmtype. Other products sold by the Company 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 and timely information. Other software products include the on-line permit renewal system. -7- Significant Customers. Presently, the Company has 140 customers. 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. Privatization Contracts. In a contract for privatization, the Company provides a full facilities management operation for the city of Logan, UT and Los Angeles Metropolitan Transportation Authority. For the City of Logan, the Company provides personnel, vehicles, an office, ticket issuance and ticket payment processing. The Company pays the City a 50/50 split after all expenses are paid. For the LAMTA, the Company provides lot services including signage and striping, ticket issuance, permit fulfillment, special event parking, and other related services. Fees are based on the different service levels. 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, Carolina, San German, Manati, Aricebo and Cauguas Puerto Rico. In Mayaguez, UTS has installed 600 parking meters and is responsible for collection of parking meter revenues. In Cauguas, UTS leases a parking facilities from the City and collects the parking revenues from the lot. UTS has installed meters and provides ticket issuance parking enforcement. In Humacao, UTS installed meters and collects revenues from the meters as well as provides ticket issuance parking enforcement. UTS is completing installation of parking meters in San German and will also provide ticket issuance and enforcement. UTS anticipates additional contracts in Puerto Rican cities for meter installation, collections and ticket issuance enforcement. The marketing approach is to bring Puerto Rican cities into the 21st century by organizing parking operations and providing current technology to modernize city operations. 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. The Company applied for a patent for its palmtype and Palm specific software in July of 2002. The Company has abandoned its claim on the hardware application but is pursuing its patent on the software claims. -8- Need for Governmental Approval. Many of the Company's contracts are awarded after a Request for Proposal has been tendered by the agency. Other companies with similar technologies also bid on the Request for Proposal tenders. 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 less than two pounds. New battery technology has also allowed the Company to reduce the weight in the printers. During fiscal 2001/2002, Clancy began manufacturing of a new printer to interface to Palm handheld devices. It incorporates a state of the art print mechanism, light weight battery technology and flat forms. In 2003/20034 a new case design was completed and tooling will was finished mid 2004. The Company has developed 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 five full-time programmers and by Stanley J. Wolfson, the Company's President and a director, and is maintained and updated on a regular basis. 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 developed internally, 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 $33,471 and $60,079 on research and development activities for the fiscal years ended September 30, 2003 and 2004, respectively. None of the cost of such activities was borne directly by the customers. -9- 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 (Rechargeable Battery Recycling Corporation) 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. Employees. The Company currently has eleven employees in Company operations and four employees in privatization projects, all of whom are employed on a full time basis. Urban Transit Solutions has 2 employees in upper management, 4 employees in field management and 22 employees in operations. Item 2. Description of Properties. The Company is leasing approximately 1,700 square feet of office space located at 2250 South Oneida Street, #308, Denver, Colorado for its corporate offices for $2283 per month pursuant to a lease agreement with an unaffiliated party which expires May 31, 2006. 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, 2005. The Company leases an office in Logan, Utah which is approximately 500 square feet from an unaffiliated party. Rental payments are $500 per month plus utilities pursuant to a lease agreement which expires June 30, 2005. The Company believes that these facilities are suitable and adequate for its needs. The Company has always entered into 1 and 2 year lease agreements and is confident that it can renew its leases under the same terms and conditions. -10- 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, 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. After a final appeal by Mr. Short, the Massachusetts State Supreme Court upheld the earlier judgement awarded in favor of the Company. The court awarded an additional $23,000 in damages to the Company. The Company's attorney in Syracuse New York has filed a motion to restore the case to the court's motion calendar for a decision on an earlier motion to schedule a sheriff's sale. On March 21, 2002, a complaint was filed in Denver District Court by Francis Salazar against the Company. Mr. Salazar was seeking compensation for alleged loss of profit on the sale of 6,000,000 shares of the Company's common stock that carried a restrictive legend under Rule 144 of the Securities Act of 1933, as amended. The complaint alleges that the restrictive legend prevented Salazar from selling the shares during an uptick in the Company's share price. The Company filed a motion to dismiss which was granted in December, 2002, but subsequently overtunred on appeal in October 2003. Clancy filed a motion with the District Court, City and County of Denver, Colorado, Case #02-CV-2391, for Summary Judgment to dismiss the case in June 2004. That motion was granted and the case was dismissed on August 13, 2004. Management is pleased with the results. The Company has been severely damaged by Mr. Salazar as it had to incur substantial legal fees on this matter which are not recoverable and have had a negative impact on the Company's profits and shareholder value. Mr. Salazar has brought other lawsuits against the Company over the years and the defense of these suits has been costly to the Company. All suits have been dismissed and have been resolved in favor of the Company. However, in November 2004, Mr. Salazar filed a notice of appeal in the Colorado Court of Appeals with respect to the suit dismissed by the District Court in August, 2004. -11- Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5(a). Market for Company's Common Stock and Related Security Holder Matters. The principal market on which the Company's Common Stock is traded is the over-the-counter market and the Company's Common Stock is quoted in the OTC Bulletin Board. The range of high and low bid quotations for the Company'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 10/01/02 - 12/30/02 .0045 .004 01/01/03 - 03/31/03 .013 .005 04/01/03 - 06/30/03 .017 .015 07/01/03 - 09/30/03 .015 .011 10/01/03 - 12/30/03 .039 .01 01/01/04 - 03/31/04 .034 .02 04/01/04 - 06/30/04 .0245 .019 07/01/04 - 09/30/04 .0235 .014 On January 5, 2005 the reported bid and asked prices for the Company's Common Stock were $.019 and $.021, respectively. The approximate number of record holders of the Company's Common Stock on January 5, 2005 was 571. The Company has paid no dividends with respect to its Common Stock. There are no contractual restrictions on the Company's present or future ability to pay dividends. -12- Item 6. Management's Discussion and Analysis or Plan of Operation Management's Statement Regarding 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 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. In the following discussion, reference to Clancy is to the parent company on a stand-alone basis and reference to Clancy consolidated is for Clancy and UTS combined. Management's Discussion and Analysis of Financial Condition and Results of Operations At September 30, 2004, the Company had working capital of $767,903 for Clancy and $ 14,523 for Clancy consolidated with UTS as compared to $1,007,082 for Clancy and $361,991 for Clancy consolidated with UTS at September 30, 2003. 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, 2005. Clancy's current ratio increased from 4.51 to 1 to 6.63 to 1 from September 30, 2003 to September 30, 2004. The Clancy consolidated current ratio decreased from 1.35 to 1 to 1.02 to 1 from September 30, 2003 to September 30, 2004. REVENUES. From fiscal 2003 to fiscal 2004 revenues increased by approximately $31,961 or 1.62% from $1,975,429 to $2,007,390 for Clancy and $9,314 or .9% from $1,096,872 to $1,106,186 for UTS. The increase in revenues is due to the addition of new customers and products during the year ended September 30, 2004. Consolidated revenue increased from $3,072,301 in 2003 to $3,113,576 in 2004. COST OF SERVICES. From fiscal 2003 to fiscal 2004, cost of services increased by $34,712 or 9.5% from $676,118 to $710,830 for Clancy. Cost of services as a percentage of service contract income was 39.6% for fiscal 2003 and 51.2% for 2004. -13- For UTS, cost of services increased by $7,031 or 3.7% from $190,215 in fiscal 2003 to $197,246 for fiscal 2004. Cost of services as a percentage of service contract income was 17.3% for fiscal 2003 and 16% for 2004. RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems research and development costs increased from $33,471 to $60,079, or 79.5%, from fiscal 2003 to 2004. Product development and improvement to current products is paramount to the Company and the company has some new products in development. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by $106,376 or 14.58% from $729,114 to $835,490 for Clancy and increased $198,494 or 21.6% from $918,977, to $1,117,471 for UTS from fiscal 2003 to 2004. The increase in general and administrative costs for the Company is primarily due to the substantial increase in legal fees, directors and officers insurance of $29,995, accounting and other professional services,increased salaries and related expenses of expanding operations, increased health insurance costs, and increases due to Sarbanes-Oxley requirements. NET INCOME. The Company reported consolidated net income of $243,063 for fiscal 2003 as compared to $24,316 for fiscal 2004. The Company reported net income of $96,789 for fiscal 2002 as compared to net income of $243,063 for fiscal 2003. The primary reason for the decrease in net income of $218,747 from 2003 to fiscal 2004 is the increase in legal fees, research and development costs, and other costs, the components of which are described above. In February 2005, the Company identified an error in the amount of revenue recognized by UTS, the Company's subsidiary in Puerto Rico, which was carried over into its consolidated September 30, 2004 financial statements. Revenue from parking tickets issued to individuals, under a contract with a municipality, were recorded when issued. The Company restated all revenues earned on this contract because they should have been recorded and recognized when collected instead of when tickets are issued. The adjustment reduced revenue and accounts receivable by $130,170, reduced income tax expense by $15,186, and increased the minority interest in the loss by $36,448. Net income for 2004 was reduced from $102,852 to $24,316. Additionally, the Company reclassified $63,211 from accounts payable, related party to accounts payable. The accompanying consolidated financial statements for 2004 have been restated to reflect these corrections. During the fiscal years ended September 30, 2003 and 2004, the Company had in place a total of approximately 132 and 140 ticket issuance systems respectively. 14 During the next twelve months, the Company will continue to expand its Internet parking services and operations. A concentrated effort will be put on "Park-by-phone" which will include an aggressive advertising campaign. The Company will also be manufacturing its printer in a new and smaller case. 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 redesigned the printer so that it weighs less than two pounds. New battery technology has also allowed the Company to reduce the size and weight of the printers. During 2001/2002, the Company began manufacturing a new printer board to interface to Palm handheld devices. It incorporates a state of the art print mechanism, light weight battery technology, and flat forms. The company has also developed a keyboard cradle for the Palm devices. The Palm type has a 45 key full alpha/numeric keypad with function keys and assignable function keys. Management keeps informed of new developments in components so that the printer and keypads are up-to-date, fast and suit user requirements. The Company communicates with vendors on a regular and ongoing basis so that management is aware of upgraded components, new technologies and processes that can be used to upgrade its hardware. The Company has a relationship with an engineer, who, although he works as an independent contractor, dedicates as much time as the company requires to develop and enhance its products. The engineer also does R&D for the company and makes prototype boards for testing and evaluation. The Company's software is developed in-house by five full- time programmers and by the Company's President, Stanley Wolfson, and is maintained and updated on a regular basis. Clancy has qualified to be a Microsoft Certified Partner. The office computer software allows daily ticket, rental and inventory information to be transferred from the portable data entry units to a central computer database. The information is compiled and then processed further according to user requirements. Through sophisticated communications software developed internally, the Company is able to update, modify, repair, enhance and change programs at the client's location via modem and the Internet. -15- The Company has developed numerous Internet based parking programs which include payment processing, permit registrations, and pre-paid parking and parking reservations, special event parking and permitting, and it's Expo1000 Parking Industry Guide. URBAN TRANSIT SOLUTIONS 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 loan to its primary bank and private lender have been paid back by the Company's cash flows. The settlement of ownership between the Company and UTS set forth the opportunity for Clancy management to take a more significant role in the operations of UTS. In June, 2003, a new management team was installed at UTS. Kenneth Stewart is the President of UTS. Damaris Carasquillo is the operations manager. The UTS Board of Directors includes Kenneth Stewart, Stanley Wolfson, and Lizabeth Wolfson. The new management team has taken an aggressive approach to bringing the accounts payable current, reducing unnecessary expenses and reducing debt obligations. The Company expects to see a significant improvement to UTS profitability during the 2004-2005 fiscal year. UTS has funded its operations primarily by loans and cash flows. It has notes payable and capital lease obligations arising from borrowings for working capital and purchases of equipment. TRENDS AND CONDITIONS The Company anticipates no major impact as a result of trends of the past few years. A further discussion appears below. If current trends continue, the Company's liquidity will continue to improve on a short-term and a long-term basis. The Company anticipates that its expenses shall increase as a direct result of the Sarbanes-Oxley legislation as it pertains to additional accounting and auditing procedures. The Company now utilizes three different accounting firms for preparation of financial statements, reviews and auditing functions. Director and Officer insurance premiums have tripled for the Company (this is consistent with the industry as a result of the public company accounting scandals of several years ago). The Company is able to qualify for Directors and Officers insurance when many companies are no longer able to qualify. The Company's newest equipment has proven to be a capital intensive program. -16- The Company has designed its printer board to work and fit in both its current model case as well as its new case, which will prove to be a cost savings. While the Company has adequate cash flow to accomplish the upgrades without incurring debt, it is anticipated that the ongoing upgrades and tooling for newer product shall continue to require a large capitalcommitment. With the weakened economy as of recent years, municipalities are in search of additional revenues and the installation and implementation of means to efficiently and effectively collect parking ticket revenues is a viable source of such additional revenues for many locales. As on street parking spaces are finite, and populations increase, a structured management system of turnover, enforcement and accountability of parking revenues will be imperative for all cities. In addition, the Company supplies all hardware, software, training, supplies and maintenance for the system, thus eliminating all significant capital expenditures by the user. 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. Uncertainties that can impact revenues from the Company's service contract agreements would be related to dramatic weather changes and municipal disaster occurrences (i.e. September 11, 2001). As parking ticket issuance operations are primarily "out-of-doors" tasks, severe weather such as a major blizzard, hurricane, or rains could impact ticket production for a limited period in certain locales. While such reductions are temporary, they can impact revenues as the Company bills most clients on a fee-per-ticket basis. The meter collections for UTS could be temporarily reduced during a hurricane or tropical storm. Further, as the Company is contracting primarily with City government agencies, a deployment of personnel to other duties during a disaster could temporarily reduce ticket issuance activities. Internal and external sources of liquidity The Company anticipates using its working capital to fund ongoing operations, including general and administrative expenses, 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, 2005. UTS has funded its operations primarily by cash flows and bank debt. It has notes payable and capital lease obligations arising from borrowings for working capital and purchases and installation of meter equipment. -17- The Company has experienced significant interest in the Denver Boot for vehicles as well as for security on other mobile devices including construction trailers and communications generators. There has also been a demand for the Denver Boot for enforcement on private property. Exposure on the Internet has been favorable for sales of this product. The Company has experienced an interest in its IDBadgemaker software. The program is utilized by news services, janitorial companies, social service agencies, private clubs and others for security and identification purposes. The program receives "excellent" ratings at download.com. Remit-on-line.com has grown as a ticket payment site. It is offered to Clancy ticket system clients and other companies in parking industry businesses. Remit processes an average of $500,000 per month in transactions. The Company has observed a continuing increase in activity monthly. CONTRACTUAL OBLIGATIONS The following obligations are those of the consolidated Company. The long-term debt is that of UTS. Payment Due by Period Contractual Less than Obligations Total 1 year 1-3 years 4-5 years Over 5 years Long Term debt $ 239,449 $ 239,449 $ - $ - $ - Capital Lease Obligations 73,762 41,460 32,302 - - Operating Expenses UTS 10,800 3,600 7,200 - - Clancy 45,655 27,393 18,262 Purchase Obligations - - - - - Other Long- term obligations - - - - - --------- --------- ---------- ---------- --------- Total Contractual Cash Obligations $ 369,666 $ 311,902 $ 57,764 $ - $ - ========= ========== ========= ========== ========== -18- CRITICAL ACCOUNTING POLICIES The Company has identified the accounting policies described below as critical to its business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed throughout this section where such policies affect the Company's reported and expected financial results. The preparation of this Annual Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities of the Company, revenues and expenses of the Company during the reporting period and contingent assets and liabilities as of the date of the Company's financial statements. There can be no assurance that the actual results will not differ from those estimates. REVENUE RECOGNITION: Revenue derived from professional service contracts on equipment and support services is included in income ratably 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 and are included in income ratably over the expected term of the contract. Revenue from the issuance of parking citations for the Company's privatization projects is recognized on a cash basis when received as collectibility is not reasonably assured. Revenue derived from professional service contracts on parking meter and lots fees collections is recognized net of municipalities' fees as services are provided. Related costs consist mainly of depreciation and lot rents. Revenue derived from professional service contracts for permit fulfillment and remit-online services is recognized based on add-on fees earned for each transaction. COMPUTER SOFTWARE. Costs incurred prior to establishment of the technological feasibility of computer software are research and development costs, which are expensed as incurred. Software development costs incurred subsequent to establishment of technological feasibility are capitalized and subsequently amortized based on the lesser of the straight line method over the remaining estimated economic life of the product (generally 5 years) or the estimate of current and future revenues for the related product. -19- GOODWILL. The excess of the purchase price over net assets acquired by the Company from unrelated third parties is recorded as goodwill. Goodwill resulted from the acquisition of UTS. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible Assets, which clarifies the accounting for goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested for impairment at least annually and also in the event of an impairment indicator. There is no impairment of goodwill considered necessary as of September 30, 2003 or 2004. RECENT ACCOUNTING PRONOUNCEMENTS The Company recognizes revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin 104 ("SAB 104"). SAB 104 provides that the conditions for realization of revenue are as follows: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. In addition, the Company presents revenue gross or net of direct expenses in accordance with Emerging Issues Task Force Issue 99-16 (EITF 99-19), "Reporting Revenue Gross as a Principal Versus Net as an Agent". Under EITF 99-19, revenue is presented gross, determined on a contract by contract basis, where the Company acts as principal, takes title to the products sold, has the risks and rewards of ownership, such as the risk of loss for collection, delivery, or product returns. Revenue is presented net of direct costs, determined on contract by contract basis, where the Company primarily acts as agent by providing services for a commission or fee. The Company accounts for deferred income taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred income taxes are accounted for under an asset and liability approach that requires recognition of deferred tax assets and liabilities for the epected future tax consequences of transactions based on temporary differences.Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The Company's temporary differences consist primarily of tax operating loss carry forwards, depreciation differences and capitalized section 263A costs. 20 The Company accounts for marketable securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. In accordance with SFAS No. 115, the investment in securities has been classified as available-for-sale because then securities are being held for an indefinite period of time. Under available-for-sale classification, the securities are recorded as an asset at current market value on the balance sheet with any amount representing unrealized gains and losses recorded as comprehensive income in stockholder's equity. The current market value is derived from published newspaper quotations as of September 30 of each fiscal year. At the time of sale, a gain or loss is recognized in the statement of operations using the cost basis of securities sold as determined by specific identification. The Company evaluates the carrying value of assets, other than investments in marketable securities, for potential impairment on an ongoing basis under the tenets of SFAS No. 144. Under SFAS No. 144, the Company periodically evaluates the carrying value of long-lived assets and long-lived assets to be disposed of and certain identifiable intagibles related to those assets for potential impairment. The Company considers projected future operating results, cash flows, trends and other circumstances in making such estimates and evaluations and, if necessary, reduces the carrying value of impaired assets to fair value. The Company follows SFAS No. 128 in presenting earnings per share. SFAS No. 128 established the methodology of calculating basic earnings per share and diluted earnings per share. The calculations differ by adding any instruments convertible to common stock (such as stock options, warrants, and convertible preferred stock) to weighted average shares outstanding when computing diluted earnings per share. Company follows SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting of comprehensive income. The pronouncement requires that all items recognized under accounting standards as components of comprehensive income, as defined in the pronouncement, be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes changes in equity during a period, except those resulting from investments by owners and distribution to owners. Under comprehensive income, the Company reports unrealized gains and losses on investments in debt and equity securities as changes in equity. -21- In June 2003, the FASB approved SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31,2003, and otherwise is effective at the beginning of the first intermim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an effect on the Company's financial statements. In December 2003, the FASB issued a revised Interpretation No. 46, "Consolidation of Variable Interest Entities". The interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain types of variable interest entities. The Company does not expect the adoption of this interpretation to have any impact on its financial statements. 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. -22- 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. HUMAN RESOURCES Our greatest resources are our dedicated employees who devote their talents and energies to bettering our systems and improving our products. Their efforts have driven the Company's success and they continue to be the most valuable resource of the Company. 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. Reports of Independent Registered Public Accounting Firms F-1 Consolidated Balance Sheets - September 30, 2003 and September 30, 2004 F-4 Consolidated Statements of Income - Years ended September 30, 2003 and 2004 F-6 Consolidated Statements of Stockholders' Equity - Years ended September 30, 2003 and 2004 F-7 Consolidated Statements of Cash Flows - Years ended September 30, 2003 and 2004 F-8 Notes to Consolidated Financial Statements F-10 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. On October 1, 2004, the Board of Directors of the Company elected to engage Gordon Hughes & Banks, LLP to conduct the audit for the year ended September 30, 2004. Causey, Demgen & Moore, PC, will be retained to provide financial statements, financial services, tax preparation and other services as needed. -23- Item 8A. Controls and Procedures An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures within 90 days before the filing date of this annual report. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subject to their evaluation. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Identification of Directors and Executive Officers. Dates Position of Name held with Company Age service Stanley J. Wolfson President, Chief Executive 61 1987 Officer and Director Lizabeth M. Wolfson Secretary-Treasurer and 59 1987 Chief Financial and Chief Accounting Officer and Director James R. Nyman Director 58 2003 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 and director of the Company. -24- 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. James R. Nyman, Director since October 2003. Mr. Nyman is a graduate of University of Minnesota with a degree in Aerospace Engineering and received his Master's Degree in Business Administration at California State University, Long Beach. Mr. Nyman as 23 years of experience in local government services. He served as the director of Information Services for the City of Inglewood, CA, from January, 1976 until May, 2002 and from May 2002 to present he is serving as President of California Municipal Technologies, Inc. Mr. Nyman served two terms as Mayor of Palos Verdes Estates, Palos Verdes, CA. Audit Committee The Board of Directors is performing the functions of the audit committee. The Company does not have an audit committee financial expert because its limited resources have not permitted it to search for and locate an appropriate financial expert. Nominating Committee The entire Board of Directors fulfills the duties of our Nominating Committee ("Nominating Committee"), which include overseeing the process by which individuals may be nominated to our board of directors. While the Company hopes to establish a separate nominating committee consisting of independent directors if the number of directors is expanded, the current size of the Company's Board of Directors does not facilitate the establishment of a separate committee. Our Nominating Committee's charter was adopted by the board of directors effective as of September 30, 2004. The functions performed by the Nominating Committee include identifying potential directors and making recommendations as to the size, functions and composition of the Board and its committees. In making nominations, our Nominating Committee is required to submit candidates who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees to the board, in collectively serving the long-term interests of the shareholders. The Nominating Committee considers nominees proposed by our shareholders. To recommend a prospective nominee for the Nominating Committee's consideration, you may submit the candidate's name by delivering notice in writing to Clancy Systems International, Inc., 2250 S. Oneida St., Suite 308, Denver, CO 80224, attention Liz Wolfson, Nominating Committee chairperson. -25- The facsimile number is 303.759.4681. Email address is clancy@clancysystems.com. A shareholder nomination submitted to the nomination committee must include at least the following information (and can include such other information the person submitting the recommendation desires to include), and must be submitted to the Company in writing: (i). The name, address, telephone number, fax number and e-mail address of the person submitting the recommendation; (ii). The number of shares and description of the Company voting securities held by the person submitting the nomination and whether such person is holding the shares through a brokerage account (and if so, the name of the broker-dealer) or directly; (iii). The name, address, telephone number, fax number and e-mail address of the person being recommended to the nominating committee to stand for election at the next annual meeting (the "proposed nominee") together with information regarding such person's education (including degrees obtained and dates), business experience during the past ten years, professional affiliations during the past ten years, and other relevant information. (iv). Information regarding any family relationships of the proposed nominee as required by Item 401(d) of SEC Regulation S-K. (v) (v). Information whether the proposed nominee or the person submitting the recommendation has (within the ten years prior to the recommendation) been involved in legal proceedings of the type described in Item 401(f) of SEC Regulation S-K (and if so, provide the information regarding those legal proceedings required by Item 401(f) of Regulation S-K). (vi). Information regarding the share ownership of the proposed nominee required by Item 403 of Regulation S-K. (vii). Information regarding certain relationships and related party transactions of the proposed nominee as required by Item 404 of Regulation S-K. (viii). The signed consent of the proposed nominee in which he or she a. consents to being nominated as a director of the Company if selected by the nominating committee, b. states his or her willingness to serve as a director if elected for compensation not greater than that described in the most recent proxy statement; c. states whether the proposed nominee is "independent" as defined by Nasdaq Marketplace Rule 4200(a)(15); and d. attests to the accuracy of the information submitted pursuant to paragraphs (i), (ii), (iii), (iv), (v), (vi), and (vii), above. Although the information may be submitted by fax, e-mail, mail, or courier, the nominating committee must receive the proposed nominee's signed consent, in original form, within ten days of making the nomination. -26- When the information required above has been received, the nominating committee will evaluate the proposed nominee based on the criteria described below, with the principal criteria being the needs of the Company and the qualifications of such proposed nominee to fulfill those needs. The process for evaluating a director nominee is the same whether a nominee is recommended by a shareholder or by an existing officer or director. The Nominating Committee will: 1. Establish criteria for selection of potential directors, taking into consideration the following attributes which are desirable for a member of our Board of Directors: leadership; independence; interpersonal skills; financial acumen; business experiences; industry knowledge; and diversity of viewpoints. The Nominating Committee will periodically assess the criteria to ensure it is consistent with best practices and the goals of the Company. 2. Identify individuals who satisfy the criteria for selection to the Board and, after consultation with the Chairman of the Board, make recommendations to the Board on new candidates for Board membership. 3. Receive and evaluate nominations for Board membership which are recommended by existing directors, corporate officers, or shareholders in accordance with policies set by the Nominating Committee and applicable laws. The Nominating Committee has held no formal meetings and taken no action by unanimous written consent through the December 28, 2004. The Company has not engaged the services of or paid a fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees. Neither the Company nor the Company's Nominating Committee has received a recommended nominee from any shareholder that beneficially owns more than 5% of the Company's common stock or group of shareholders that beneficially own more than 5% of the Company's common stock. 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. Section 16(a) Beneficial Ownership Reporting Compliance Officers, directors and beneficial owners of more than 10% of the Company's common stock are not required to file reports under Section 16(a)and therefore no disclosure of delinquent reports is included in this annual report. -27- Code of Ethics In December, 2003, the Company adopted a Code of Ethics and has posted the Code of Ethics on its website. Item 10. Executive Compensation. General. For the fiscal year ended September 30, 2004 the Company paid a ten percent sales commission totaling $2,773 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 $77,700 for the most recent fiscal year ended. Summary Compensation Table. Name and Other annual principal position Year Salary compensation Stanley J. Wolfson 2004 $77,700 $2,773 President and Chief 2003 62,500 2,278 Executive Officer 2002 60,000 2,825 Compensation of Directors Each member of the Board of Directors is paid an annual fee of $5,000, distributed at $1250 per quarter. Item 11. Security Ownership of Certain Beneficial Owners and Management. Security Ownership of Beneficial Owners and Management. The following table sets forth information as of December 28, 2004 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) 35.9% 2250 S. Oneida Ste. 308 Denver, Colorado 80224 James R. Nyman 26,835,000 (2) 7.3% 2529 Via Olivera Palos Verdes, CA 90274 All officers and directors 157,727,779 (1&2) 43.2% as a group (3 persons) -28- Includes 4,075,642 shares of Common Stock owned of record by Lizabeth M. Wolfson and 126,812,137 owned by Stanley J. Wolfson. (2) Includes 26,510,000 shares owned by CMTI (an entity controlled by Mr. Nyman) and 325,000 shares owned by James R. and Alice Nyman. 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. During the years ended September 30, 2003 and 2004, the commissions totaled $2,278 and $2,779 respectively. Item 13. Exhibits and Reports. (a) Exhibits. The following is a complete list of exhibits filed as a part of this Report on Form 10-KSB and are those incorporated herein by reference. Exhibit Number Title of Exhibit 3.1 Articles of Incorporation filed with the Colorado Secretary of State on March 3, 1986 (2) 3.1(a) Articles of Amendment to Articles of Incorporation (2) 3.3 Bylaws (2) 10.1 Partnership agreement between the Company and Urban Transit Solutions (4) 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, and Lizabeth M. Wolfson (3) 14.1 Code of Ethics (5) 21.1 List of Subsidiaries, included herewith 31.1 Certification Pursuant to 18 USC Section 302 for Stanley Wolfson, included herewith 31.2 Certification Pursuant to 18 USC Section 302 for Lizabeth Wolfson, included herewith 32.1 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Stanley Wolfson, included herewith -29- 32.2 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Lizabeth Wolfson, included herewith ________ (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-KSB 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. (4) Incorporated by reference from like numbered exhibits filed with the Company's Annual Report on Form 10-KSB for the year ended September 30, 1998. (5) Incorporated by reference from like numbered exhibits filed with the Company's Annual Report on Form 10-KSM for the year ended September 30, 2003 -30- Item 14. Principal Accountant Fees and Services. .. AUDIT RELATED FEES. The aggregate fees billed in each of the last two fiscal years ended September 30, 2004 and 2003 by Causey, Demgen & Moore, Inc. for assurance and related services that were reasonably related to the performance of the audit or review of the financial statements were $24,725 and $20,975, respectively. The Company's newly chosen independent auditors, Gordon Hughes & Banks, LLP did not commence the audit prior to September 30, 2004, and no service related fees were billed to the Company prior to year end September 30, 2004. TAX FEES. The aggregate fees billed for tax services rendered by Causey, Demgen & Moore, Inc. for tax compliance and tax advice for the two fiscal years ended September 30, 2004 and 2003, were $2,900 and $2,415, respectively. ALL OTHER FEES. The aggregate fees billed for other services rendered by Causey, Demgen & Moore, Inc., for the two fiscal years ended September 30, 2004 and 2003 were $3,315 and $595, respectively. The Board of Directors is requested to and did approve the retention of Causey, Demgen & Moore, Inc. and the fees and other significant compensation paid to it for the fiscal year ended September 30, 2004 and 2003. The Board of Directors approved the selection of Gordon Hughes & Banks LLP to conduct its audit work on October 1, 2004. -31- 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: June 2, 2005 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: June 2, 2005 /s/ Stanley J. Wolfson Stanley J. Wolfson, resident, Chief Executive Officer and a Director Date: June 2, 2005 /s/ Lizabeth M. Wolfson Lizabeth M. Wolfson, Secretary- Treasurer and Chief Financial and Chief Accounting Officer Date: June 2, 2005 /s/James R.Nyman Director -32- SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS. None. Index of Exhibits Exhibit Number Title of Exhibit 3.1 Articles of Incorporation filed with the Colorado Secretary of State on March 3, 1986 (2) 3.1(a) Articles of Amendment to Articles of Incorporation (2) 3.3 Bylaws (2) 10.1 Partnership agreement between the Company and Urban Transit Solutions (4) 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, and Lizabeth M. Wolfson (3) 14.1 Code of Ethics (5) 21.1 List of Subsidiaries, included herewith 31.1 Certification Pursuant to 18 USC Section 906 for Stanley Wolfson, included herewith 31.2 Certification Pursuant to 18 USC Section 906 for Lizabeth Wolfson, included herewith 32.1 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Stanley Wolfson, included herewith 32.2 Certification Pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of Sarbanes- Oxley Act of 2002 for Lizabeth Wolfson, included herewith ________ (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. -33- (3) Incorporated by reference from the like numbered exhibits filed with the Company's Annual Report on Form 10-KSB 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. (4) Incorporated by reference from like numbered exhibits filed with the Company's Annual Report on Form 10-KSB for the year ended September 30, 1998. (5) Incorporated by reference from like numbered exhibits filed with the Company's Annual Report on Form 10-KSM for the year ended September 30, 2003 -34- CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Board of Directors Clancy Systems International, Inc. and Subsidiary We have audited the consolidated balance sheet of Clancy Systems International, Inc. and subsidiary as of September 30, 2003, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of Urban Transit Solutions, Inc. (UTS), a partially owned subsidiary, which statements reflect 37% of total consolidated assets as of September 30, 2003 and 36% of consolidated revenues for the year ended September 30, 2003. Those statements were audited by other auditors whose report is included herein and our opinion, insofar as it relates to the amounts included for UTS as of September 30, 2003 and for the year ended September 30, 2003 is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clancy Systems International, Inc. and subsidiary at September 30, 2003, and the consolidated results of their operations and their consolidated cash flow for the year then ended, in conformity with accounting principles generally accepted in the United States of America. CAUSEY DEMGEN & MOORE INC. Denver, Colorado December 23, 2003 F-1 Report of Independent Registered Public Accounting Firm To the Board of Directors Clancy Systems International, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of Clancy Systems International, Inc. as of September 30, 2004 and the related consolidated statements of income, stockholders' equity and cash flows for the year the ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of Urban Transit Solutions, Inc., a 72% owned subsidiary, which statements reflect 35% of total consolidated assets as of September 30, 2004 and 36% of consolidated revenues for the year ended September 30, 2004. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Urban Transit Solutions, Inc. as of September 30, 2004 and for the year ended September 30, 2004 is based solely on the report of the other auditor. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion. In our opinion, and based on that of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clancy Systems International, Inc. as of September 30, 2004, and the consolidated results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company restated its consolidated financial statements as of and for the year ended September 30, 2004. GORDON, HUGHES & BANKS, LLP Greenwood Village, Colorado December 9, 2004, except for Note 1 to which the date is February 18, 2005. F-2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Urban Transit Solutions, Inc. We have audited the accompanying balance sheets of Urban Transit Solutions, Inc. as of September 30, 2004 and 2003, 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 audit in accordance with the standards of the Public Accounting Oversight Board (United States). 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. The Company has determined that is it not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit 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 Urban Transit Solutions, Inc. as of September 30, 2004 and 2003, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to financial statements, the Company has restated the accompanying balance sheet of Urban Transit Solutions, Inc. as of September 30, 2004 and the related statements of operations, stockholders equity and cash flows for the year then ended. LANDA UMPIERRE PSC San Juan, Puerto Rico November 24, 2004, except for Note 1 to which date is February 18, 2005 Stamp number 1892524 of the Puerto Rico Society of CPA's was affixed to the record copy of this report. F-3 CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND 2004 (Restated) ASSETS 2003 2004 (restated) Current assets: ---- --------------- Cash, including interest bearing accounts of $231,945 (2003) $ 669,292 $ 306,691 Accounts receivable, net of allowance for doubtful accounts of $5,250 at (2003) and $10,000 (2004) 488,361 449,628 Accounts receivable, related party (Note 3) 30,019 30,019 Income tax refund receivable (Note 7) 9,450 18,724 Inventories (Note 2) 135,437 101,539 Prepaid expenses 77,389 74,566 --------- --------- Total current assets 1,409,948 981,167 Furniture and equipment, at cost: Office furniture and equipment 269,523 322,137 Equipment under service contracts (Note 10) 2,109,045 2,058,386 Leasehold improvements 96,604 98,935 Equipment and vehicles under capital leases (Note 6) 439,286 467,221 -------- -------- 2,914,458 2,946,679 Less accumulated depreciation (1,328,226) (1,604,762) ----------- ----------- Net furniture and equipment 1,586,232 1,341,917 Other assets: Deferred tax asset (Note 7) - 16,000 Marketable Securities Pledged (Note 4) --- 353,837 Deposits and other 76,025 60,125 Goodwill (Note 1) 225,214 225,214 Software development costs, net of accumulated amortization of $431,627 (2003) and $505,907 (2004) 180,163 213,870 --------- --------- Total other assets 481,405 869,046 --------- --------- $ 3,477,585 $ 3,192,130 ========== ========== See accompanying notes to consolidated financial statements. F-4 CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND 2004 (Restated) LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2004 (Restated) Current liabilities: ---- -------------- Accounts payable $ 229,229 $ 189,409 Accrued expenses 276,176 316,947 Accounts payable, related party 11,000 38,656 Bank overdraft --- 14,645 Income taxes payable 21,852 --- Current portion of long term debt (Note 5) 250,197 239,449 Current portion of obligations under capital leases (Note 6) 125,102 41,460 Deferred revenue 134,401 126,078 ---------- --------- Total current liabilities 1,047,957 966,644 Long-term debt, net of current portions (Note 5) 124,866 --- Obligations under capital leases, net of current portion (Note 6) 75,948 27,430 Minority interest in subsidiary (Note 4) 123,084 72,610 Deferred tax liability (Note 7) 4,600 --- Commitments (Notes 6 and 9) Stockholders' equity (Note 9): Preferred stock, $.0001 par value; 100,000,000 shares authorized, none issued --- --- Common stock, $.0001 par value; 800,000,000 authorized, 365,117,938 shares issued and outstanding (2003 and 2004) 36,512 36,512 Additional paid-in capital 1,151,547 1,151,547 Retained earnings 913,071 937,387 --------- --------- Total stockholders' equity 2,101,130 2,125,446 --------- --------- $ 3,477,585 $ 3,192,130 =========== =========== See accompanying notes to consolidated financial statements. F-5 CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2004 (Restated) 2003 2004 (Restated) Revenues: ---- -------------- Sales $ 167,369 $ 231,003 Service contract income (Notes 9 & 10) 2,686,947 2,493,470 Parking ticket collections and other (Notes 9 & 10) 217,985 389,103 ---------- --------- Total revenues 3,072,301 3,113,576 Costs and expenses: Cost of sales 72,281 43,029 Cost of services (Note 3) 866,332 908,076 Cost of parking ticket collections (Note 10) 110,730 115,844 General and administrative 1,648,091 1,946,269 Research and development 33,471 60,079 --------- --------- Total costs and expenses 2,730,905 3,073,297 --------- --------- Income from operations 341,396 40,279 Other income (expense): Loss on disposal of assets --- (19,334) Interest income 1,466 885 Interest expense (47,079) (32,994) Other income 10,185 9,087 Minority interest in loss of subsidiary (Note 4) 19,686 70,473 --------- -------- Total other income (expense) (15,742) 28,117 --------- -------- Income before provision for income taxes 325,654 68,396 Provision for income taxes: (Note 7 ) Current expense (39,791) (64,680) Deferred expense (42,800) 20,600 --------- -------- Total income tax expense (82,591) (44,080) --------- -------- Net income $ 243,063 $ 24,316 ========= ========= Basic and diluted net income per common share $ * $ * ========= ========= Weighted average number of shares outstanding 365,118,000 365,118,000 =========== =========== *Less than $.01 per share See accompanying notes to consolidated financial statements. F-6 CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2004 (Restated)
Additional Common Stock Paid-In Retained Shares Amount Capital Earnings ------------------- ---------- -------- Balance, September 30, 2002 361,617,938 $ 36,162 $ 1,151,547 $ 670,008 Net income for the year ended September 30, 2003 --- --- --- 243,063 ---------- -------- ---------- ----------- Balance, September 30, 2003 365,117,938 36,512 1,151,547 913,071 Net income for the year ended September 30, 2004 (Restated) --- --- --- 24,316 --------- ------- -------- -------- Balance, September 30, 2004 (Restated) 365,117,938 $ 36,512 $ 1,151,547 $ 937,387 ============ ========= ========== ========== See accompanying notes to consolidated financial statements. F-7
CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2004 (RESTATED) 2003 2004 (Restated) ---- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 243,063 $ 24,316 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 497,298 567,159 Deferred income tax expense 42,800 (20,600) Minority interest (19,686) (70,473) Stock issued for by UTS for --- 20,000 expenses paid by shareholder Loss on disposal of equipment 17,068 19,334 Changes in assets and liabilities: Accounts receivable 175,898) (38,733) Accounts receivable, related party (2,883) --- Inventories 13,080 33,898 Income taxes refundable 25,613 (9,275) Prepaid expenses 60,752 2,823 Other assets --- 48,375 Accounts payable 88,137 (103,031) Accrued expenses 110,017 40,771 Accounts payable, related party 11,000 90,867 Income taxes payable 21,852 (21,852) Deferred revenue 23,679 (8,323) ------- -------- Total Adjustments 712,829 628,406 ------- ------- Net cash provided by operating activities 955,892 652,722 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of furniture and equipment (592,640) (274,642) Increase in software licenses and software development costs (93,586) (107,986) Proceeds from sales of equipment 91,438 16,583 Increase in investments in marketable securities --- (353,837) Increase in deposits and other assets (57,963) (36,712) ------- -------- Net cash (used in) investing activities (652,751) (756,594) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on long term debt 320,000 84,215 Payments on long term debt and capital leases (311,164) (357,589) Increase in bank overdraft --- 14,465 -------- -------- continued on following page See accompanying notes to consolidated financial statements. F-8 CLANCY SYSTEMS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued from preceding page) 2003 2004 (Restated) ---- ------------- Net cash provided by (used in) financing activities 8,836 (258,729) -------- -------- Increase (decrease) in cash and cash equivalents 311,977 (362,601) Cash and cash equivalents at beginning of period 357,315 669,292 -------- -------- Cash and cash equivalents at end of period $ 669,292 $ 306,691 ========= ========= 2003 2004 ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Borrowings on capital leases 87,640 5,600 ========= ========= Cash paid during the year for interest $ 47,079 $ 29,615 ========= ========= Cash paid (refunded) during the year for income taxes $ (7,674) 70,805 ========= ========= Supplemental disclosure of non-cash investing and financing activities: During the year ended September 30, 2003, UTS entered into capital leases for the purchase of equipment in the amount of $87,640. See accompanying notes to consolidated financial statements. F-9 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) 1. Organization and Summary of Significant Accounting Policies Organization: Clancy Systems International, Inc. (the "Company")_ was organized in Colorado on June 28, 1984. The Company is in the business of developing and marketing parking 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. The Company manufactures some of its equipment for field operations including printers, chargers, Palmtype keypad, and other items used in its applications. The Company's 72% owned subsidiary, Urban Transit Solutions, Inc. ("UTS") was incorporated on March 6, 1997 under the Laws of the Commonwealth of Puerto Rico and is engaged in providing a wide variety of services in the areas of consulting design and the management of digital parking meter systems in Puerto Rico and Latin America. The financial statements of UTS have been prepared on the basis of accounting principles generally accepted in the United States of America and are denominated in US dollars. Therefore, there are no amounts recorded for foreign currency translation or for transactions denominated in a foreign currency. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary, UTS. Significant inter company transactions and balances have been eliminated in consolidation. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. F-10 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) Accounts receivable: The allowance for doubtful accounts at September 30, 2003 and 2004 was $5,250 and $10,000 respectively. Bad debt expense amounted to $28,638 in 2003 and $9,422 in 2004. The company evaluates trade receivables that are past due to determine the appropriate allowance for doubtful accounts. The receivables are charged off in the period in which they are deemed uncollectable. The Company contracts primarily with government agencies and takes into account budget year issues in evaluating its past due receivables. Recoveries of trade receivables previously charged off are recorded when received. 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 classified as 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 lesser 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, 2003 and 2004 amounted to $63,616 and $74,279, respectively, and is included in cost of services. The cost of direct labor is periodically capitalized as computer software costs. Furniture and equipment: Furniture and equipment are stated at cost. Depreciation is provided by the Company on the straight line method over the assets' estimated useful lives of three to five years. Leasehold improvements are being amortized over the shorter of the useful life of the improvement or the remaining term of the lease. Vehicles under capital leases are amortized over the related lease term. Property and equipment consists partly of computers and printers which are subject to technical obsolescence. During the year ended September 30, 2003 and 2004, depreciation amounted to $433,682 and $488,980, respectively. F-11 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains and losses on sales and retirements of property are reflected in results of operations. Other assets: The excess of the purchase price over net assets acquired by the Company from unrelated third parties is recorded as goodwill. Goodwill resulted from the acquisition of UTS in 1998. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible Assets, which clarifies the accounting for goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer be amortized, but are tested for impairment at least annually and also in the event of an impairment indicator. There is no impairment of goodwill considered necessary as of September 30, 2003 or 2004. 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 F-12 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) recognized when collected since collectibility cannot be reliably predicted at that time. Revenue derived from professional service contracts on parking meter and lot fees collections is recognized when received. Related costs consist mainly of Municipalities' fees, depreciation and lot rents. The Company recognizes revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin 104 ("SAB 104"). SAB 104 provides that the conditions for realization of revenue are as follows: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured. In addition, the Company presents revenue gross or net of direct expenses in accordance with Emerging Issues Task Force Issue 99-16 (EITF 99-19), "Reporting Revenue Gross as a Principal Versus Net as an Agent". Under EITF 99-19, revenue is presented gross, determined on a contract by contract basis, where the Company acts as principal, has the risks and rewards of services rendered, such as the risk of loss for collection, delivery, or product returns. Revenue is presented net of direct costs, determined on contract by contract basis, where the Company primarily acts as agent by providing services for a commission or fee. Before the Company recognizes revenue, a contract is entered into with the client (which details the fees to be charged), all software and equipment per the contract is delivered, and as most of the Company's clients are municipalities or universities, in general, collectibility is reasonably assured. Contracts for the Company's ticket writing system are entered into under one of three different pricing options. The Company (1) sells the equipment, ticket stock and licenses the software separately, (2) charges a monthly fee for the use of equipment and software, (3) charges a fee per ticket at the time the ticket stock is provided to the client, or (4) provides a full privatization program. In a sale transaction, revenue is recognized on the sale of the equipment, license and ticket stock (less an amount for customer support). When the Company charges a monthly fee, that fee is recognized in income in the period the services are provided. When the Company charges a fee per ticket, the Company recognizes revenue for the portion considered a sale of the ticket stock on delivery of the tickets and the remainder is recognized over the period of estimated usage of the tickets based on past history with the client. F-13 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) In a privatization program, client revenue guarantees may be entered into for a period of time, generally one year at a time. A ratable portion of the client revenue guarantee is recognized each month as an expense. In revenue split arrangements, the portion of the cash collected and owed each month is recognized as a liability and an expense. The Company does not offer a right of return on sales of equipment or ticket stock. Equipment sold, other than the Company's proprietary products, is covered under the manufacturer's warranty. Warranty expense for the Company's products has been immaterial in the past. Revenue recognition does not start until the equipment has been delivered and the software has been installed and is operational. Advertising costs: The Company expenses the costs of advertising as incurred. Advertising expense was $27,798 and $28,657 for the years ended September 30, 2003 and 2004, respectively. Deferred Income taxes: The Company accounts for deferred income taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109") Accounting for Income Taxes. Under SFAS 109, deferred income taxes are accounted for using an asset and liability approach that requires recognition of deferred tax assets and liabilities for the expected future tax consequences of transactions based on temporary differences.Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The Company's temporary differences consist primarily of tax operating loss carry forwards, depreciation differences and capitalized section 263A costs. Cash equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. F-14 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) Concentrations of credit risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, trade receivables and marketable securities. The Company places its cash with high quality financial institutions. At September 30, 2003 and 2004 and at various times during the years, the balance at one of the financial institutions exceeded FDIC insured limits. The Company provides credit, in the normal course of business, to customers throughout the United States and Canada. The Company performs ongoing credit evaluations of its customers. Credit terms are typically 30 days from billing date. The Company's marketable securities consist of Colorado local government and municipal bonds that are triple A rated that are subject to market risk related to changes in interest rates. All bonds are insured. Significant portions of the Company's revenues are derived from contracts with universities, car rental companies and municipalities. Marketable Securities The Company accounts for marketable securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. In accordance with SFAS No. 115, the investment in securities has been classified as available-for-sale because the securities are being held for an indefinite period of time. Under available-for-sale classification, securities are recorded as an asset at current fair value on the balance sheet with any amount representing unrealized gains and losses recorded as comprehensive income in stockholder's equity. The current fair value is derived from published market quotations. At the time of sale, a gain or loss is recognized using the cost basis of securities sold as determined by specific identification. F-15 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 1. Organization and Summary of Significant Accounting Policies (continued) Fair value of financial instruments: All financial instruments are held for purposes other than trading. The following methods and assumptions were used to estimate the fair value of each financial instrument for which it is practicable to estimate that value. The carrying amount of financial instruments is equivalent to their fair value as follows: 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. Marketable securities - The carrying amounts approximate the fair value because the securities are valued at prices based on published market quotations. Impairment of Long-lived Assets The Company evaluates the carrying value of assets, other than investments in marketable securities, for potential impairment on an ongoing basis under the tenets of SFAS No. 144. Under SFAS No. 144, the Company periodically evaluate the carrying value of long-lived assets and long-lived assets to be disposed of and certain identifiable intagibles related to those assets for potential impairment. The Company considers projected future operating results, cash flows, trends and other circumstances in making such estimates and evaluations and, if necessary, reduces the carrying value of impaired assets to fair value. Earnings Per Share The Company follows SFAS No. 128 in presenting earnings per share. SFAS No. 128 established the methodology of calculating basic earnings per share and diluted earnings per share. The calculations differ by adding any financial instruments convertible to common stock (such as stock options, warrants, and convertible preferred stock and debt) to weighted average shares outstanding when computing diluted earnings per share. F-16 Comprehensive Income Company follows SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting of comprehensive income. Items recognized under accounting standards as components of comprehensive income, as defined in the pronouncement, must be displayed with the same prominence as other financial statements. Comprehensive income includes changes in equity during a period, except those resulting from investments by owners and distribution to owners. Under comprehensive income, the Company reports unrealized gains and losses on investments in debt and equity securities as changes in equity. Comparative Financial Statements Certain amounts for 2003 have been reclassified so as to comparative with certain amounts in 2004. Recent accounting pronouncements: In June 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first intermim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an effect on the Company's financial statements. In December 2003, the FASB issued a revised Interpretation No. 46, "Consolidation of Variable Interest Entities". The interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain types of variable interest entities. The Company does not expect the adoption of this interpretation to have any impact on its financial statements. F-17 Restatement of Financial Results: In February 2005, the Company identified an error in reported revenue recognized by UTS, the Company's Puerto Rican subsidiary, which carried over to its consolidated September 30, 2004 financial statements. Certain UTS revenue from parking tickets issued to individuals, under a contract with a municipality, were previously incorrectly reported when issued. The Company restated all revenues earned on this contract because they should have been reported when the tickets were collected instead of recorded and recognized when the tickets were issued. The adjustment reduced revenue and accounts receivable by $130,170, reduced income tax expense by $15,186, and increased the minority interest in the loss by $36,448. Consolidated net income was reduced by $78,536. Additionally, unrelated to the foregoing, the Company reclassified $63,211 from accounts payable, related party, to accounts payable. The accompanying financial statements for 2004 have been restated to reflect these corrections and reclassification. The effect of the restatement on the Company's previously issued fiscal 2004 financial statements are summarized as follows: Consolidated Balance Sheet - September 30, 2004: As Previously Increase As Restated reported (Decrease) ------------- -------- ----------- Current Assets $ 1,101,152 $ ( 119,985) $ 981,167 Other Assets 2,205,963 5,000 2,210,963 ------------ ----------- ---------- Total assets $ 3,307,115 $ ( 114,985) $3,192,130 ============ =========== ========= Current Liabilities $ 966,644 $ - $ 966,644 Long term debt and other liabilities 136,489 (36,449) 100,040 ------------ ----------- ---------- 1,103,133 (36,449) 1,066,684 Stockholders' Equity: Common stock 36,512 - 36,512 Add'l Paid in Capital 1,151,547 - 1,151,547 Retained Earnings 1,105,923 (78,536) 937,387 ------------ ----------- ---------- Total Liabilities and stockholders' equity $ 3,307,115 $ (114,985) $ 3,192,130 ============ =========== =========== Consolidated Statement of Income for year ended September 30, 2004: Revenues $ 3,243,746 $ (130,170) $ 3,113,576 Cost and Expenses 3,073,297 - 3,073,297 ------------ ---------- ----------- Income from operations 170,449 (130,170) 40,279 Other income (expense) (8,331) 36,448 28,117 ------------ ---------- ----------- Income before provision for income taxes 162,118 (93,722) 68,396 Income tax expense (59,266) 15,186 (44,080) ------------ ---------- ---------- Net income $ 102,852 $ (78,536) $ 24,316 ============ ========== ========== Basic and diluted net income per share $ * $ * $ * ============ ========== ========== *$ less than .01 per share F-18 Consolidated statement of Stockholders' Equity for year ended September 30, 2004: Balance at September 30, 2003 $ 913,071 $ - $ 913,071 Net income for the year ended September 30, 2004 102,852 (78,536) 24,316 ------------ ---------- --------- $ 1,015,923 $ (78,536) $ 937,387 ============ ========== ========= 2. Inventories Inventories consist of the following at September 30: 2003 2004 ---- ---- Finished goods $ 21,521 25,157 Work in process 4,563 15,863 Purchased parts and supplies 109,353 60,519 --------- --------- $ 135,437 $ 101,539 ========= ========= 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, 2003 and 2004, commissions of $2,278 and $2,773 have been paid under this agreement, respectively. As of September 30,2003 and 2004, the following are the related party account balances: 2003 2004 (Restated) ---- -------------- Accounts receivable, related party $ 30,019 $ 30,019 ========= ========= Accounts payable, related party $ 11,000 $ 38,656 ========= ========= F-19 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 3. Related Party Transactions (continued) Accounts receivable, related party is due from Pan American Parking Solutions, Inc. which is a company owned by the former president of UTS. Accounts payable, related party is due to Pan American Products, a company owned by the current president of UTS. 4. Investment in partnership On January 31, 1998, the Company entered into a partnership agreement (the Partnership) with its partially owned subsidiary, Urban Transit Solutions, Inc. of Puerto Rico (UTS). The Partnership was formed to contract with cities and towns in Puerto Rico for the privatization of their parking ticket management and collection services. As provided in the Partnership agreement, the Company contributed $500,000 in exchange for a 60% ownership in the Partnership and related share of net income or losses. During 2001, UTS issued additional stock diluting the ownership interest of the Company in UTS below 50%. However, pursuant to the partnership agreement, substantially all management authority rested in UTS, and consequently, the Company accounted for their investment in the Partnership using the equity method through September 30, 2001. During 2001, the Company filed suit against UTS and the officers of UTS claiming that UTS unlawfully issued dilutive shares of stock in UTS. During , 2002, the Company entered into a settlement agreement with UTS reaffirming the Company's 60% ownership interest. On December 31, 2004, the Company acquired 30,000 new shares of common stock in UTS for payment of $60,000 of legal services paid by the Company on UTS's behalf, which increased the Company's ownership to 72%. F-20 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 4. Investments (continued) Marketable Securities: Investments in marketable securities at September 30, 2004 consists of Colorado government bonds that are available-for-sale. Unrealized gains and losses have not been reflected in the financial statements as book value is not significantly different from fair value. At September 30, 2004 investments in marketable securities have been pledged (up to the amount of $400,000) as a performance bond on a sales contract agreement. 5. Long-term Debt Long term debt consisted of the following at September 30: 2003 2004 ---- ---- Note payable to bank, interest at 2% over prime rate (4.0% as of September 30, 2003 and 2004), secured by third mortgage real estate property owned by the former president of UTS, payable in monthly installments of $9,259 plus interest through June 2005 $ 173,565 $ 71,713 Note payable to bank, interest at 6.3%, secured by certain assets payable in monthly installments of $4,445, due in July 2005 84,098 58,074 Note payable to bank, interest at 6.75%, secured by certain assets of the Company, payable in monthly installments of $7,823, due in March 2005 117,400 81,243 Note payable - unsecured, interest at 9% payable in monthly installments of $2,000 due in February 2005 - 28,419 -------- -------- 375,063 239,449 Less current maturities (250,197) (239,449) -------- --------- $ 124,866 $ - =========== ========== F-21 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 5. Long term debt (continued) In May 2000, UTS entered into a loan agreement with the Banco de Desarrollo Economico para Puerto Rico for an aggregate amount of $500,000. During the first six months, interest only was due and payable monthly at 2% over the prime rate. Beginning on January 5, 2001, principal of $9,259, plus interest was due and payable in 54 monthly installments. The loan is evidenced by a promissory note, collateralized by real estated owned by the former president of UTS located at Toa Baja, Puerto Rico, and the personal guarantees of certain UTS stockholders. As part of the loan agreement, UTS has agreed to comply with certain covenants. These consist primarily, of reporting requirements, insurance coverage, restrictions on dividends or other distribution without the prior written consent of the Bank, and other administrative requirements. 6. Lease Commitments UTS is party to certain non-cancelable capital lease arrangements for equipment and vehicles with a lease finance company. Terms of such leases call for UTS to make monthly lease payments of $269 to $602 for leases that expire on various dates through the year 2007. The effective annual interest rates, vary from 8.50% to 14.95%. In addition, UTS leases office space in various cities in Puerto Rico totaling $3550 per month. The Company leases office space in Denver, Colorado under a 24 month lease through May 31, 2006 and is party to various other short term leases for office and warehouse space. Total rent expense under all operating leases for the years ended September 30, 2003 and 2004 amounted to $127,302 and $133,110, respectively. The following is a schedule by years of the future minimum lease payments under operating and capital leases together with the present value of the net minimum lease payments for capital leases as of September 30, 2004: F-22 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 6. Lease Commitments (continued) Capital Real Estate Leases Leases Total -------- ----------- ----- Year ended September 30, 2005 $ 41,460 $ 30,993 $ 72,453 2006 10,016 20,562 30,578 2007 10,359 2,400 12,759 2008 11,927 2,500 14,427 ------ ------ ------ Total minimum lease payments $ 73,762 $ 56,455 $ 130,217 ========= ========= Amount representing interest (4,872) ------- Present value of future minimum lease payments 68,890 Current portion of lease obligations (41,460) ------- Obligations under capital leases due after one year $ 27,430 ======== The Company's property under capital leases, which is included in property and equipment, is summarized as follows: 2003 2004 ---- ---- Equipment $ 256,799 $ 312,669 Vehicles 182,487 154,552 ---------- --------- 439,286 467,221 Accumulated amortization (118,183) (140,324) ---------- -------- Net capitalized leased property $ 321,103 $ 326,897 =========== ========== F-23 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 7. Income Taxes The components of the Company's deferred tax assets and liabilities at September 30 are as follows: 2003 2004 (RESTATED) ---- -------------- Non-current deferred tax assets $ 68,400 96,200 Non-current deferred tax liabilities (73,000) (80,200) --------- --------- Net non-current deferred taxes $ (4,600) 16,000 =========== =========== Deferred tax assets: Loss on equity investment $ 30,900 $ 80,700 Section 263A capitalization 28,500 15,500 Website acquired from shareholder 9,000 - ---------- -------- 68,400 96,200 Deferred tax liabilities: Depreciation and amortization (73,000) (80,200) ---------- -------- Net non-current deferred taxes $ (4,600) $ 16,000 ============ ============ The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income compared to the income taxes in the consolidated statements of income: For the years ended September 30, 2003 2004 (Restated) ---- -------------- Income tax expense at the statutory rate $ 110,722 $ 23,255 State and local income taxes, net of federal income tax benefit 9,951 9,481 Nondeductible expenses 1,306 1,921 Other (12,053) 9,423 --------- --------- $ 82,591 $ 44,080 ========= ========== F-24 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 8. Basic and Diluted Net Income Per Common Share Basic and diluted net income per common share is based on the weighted average number of shares outstanding during each of the years ended September 30, 2003 and 2004, of 365,117,938 shares and 365,117,938 shares respectively. 9. Professional Service Contracts The Company provides equipment and support services under 12 month professional service contracts. At September 30, 2003 and 2004, 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: 2003 2004 ---- ----- Equipment under service contracts $ 1,122,573 $ 1,109,892 Less accumulated depreciation (715,605) (792,942) ----------- ---------- $ 406,968 $ 316,950 =========== ========== 10. Parking Citation Collection Services: The Company has an agreement with Logan City, Utah to provide parking citation issuance, ticket processing, meter collections and maintenance, and ticket collection services. The Company receives half of all revenues after payment of all associated costs related to collections. The agreement can be extended or discontinued with 30 days written notice. UTS has service contracts with five Puerto Rican municipalities to provide equipment and management of digital parking meter systems. Under the terms of the contracts, UTS will pay to the municipalities 25% of the income before income taxes. F-25 CLANCY SYSTEMS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2004 (RESTATED) (continued) 11. Sales by Geographic Region The Company's revenues for the years ended September 30, by geographic region, are as follows: 2003 2004 (Restated) ---- -------------- United States $1,920,369 $ 1,937,476 Puerto Rico $1,096,872 $ 1,106,186 Canada $ 55,060 $ 69,914 ---------- ----------- Total $3,072,301 $3,113,576 ========== ========== F-26 EX-31 2 cert31.txt Exhibit 31.1 Section 302 Certification Quarterly Report on Form 10-KSB/A I, Stanley J. Wolfson, certify that: I have reviewed this annual report on Form 10-KSB/A of Clancy Systems International, Inc.; 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 2. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 3. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 4. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 2, 2005 /s/Stanley J. Wolfson Chief Executive Officer EX-31 3 cert32.txt Exhibit 31.2 Section 302 Certification Quarterly Report on Form 10-KSB/A I, Lizabeth M. Wolfson, certify that: I have reviewed this annual report on Form 10-KSB/A of Clancy Systems International, Inc.; 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 2. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 3. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 4. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 2, 2005 /s/Lizabeth M. Wolfson Chief Financial Officer EX-32 4 cert33.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Clancy Systems International, Inc. (the "Company") on Form 10-KSB/A for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley J. Wolfson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stanley J. Wolfson Chief Executive Officer June 2, 2005 EX-32 5 cert34.txt Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Clancy Systems International, Inc. (the "Company") on Form 10-KSB/A for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lizabeth M. Wolfson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Lizabeth M. Wolfson Chief Financial Officer June 2, 2005 -----END PRIVACY-ENHANCED MESSAGE-----