UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-4882-D
CLANCY SYSTEMS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1027964
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2250 S. Oneida #308, Denver, Colorado 80224
(Address of principal executive offices and Zip Code)
(303) 753-0197
(Registrant's telephone number)
N/A (Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's classes of common
stock, as of August 20, 2007 is 381,386,938 shares, $.0001 par value.
Transitional Small Business Disclosure Format: Yes No X
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
-1-
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 2006
and June 30, 2007 (unaudited) 3 and 4
Consolidated Statements of Income - For the Three
Months Ended June 30, 2006 and 2007 (unaudited) 5
Consolidated Statements of Income - For the Nine
Months Ended June 30, 2006 and 2007 (unaudited) 6
Consolidated Statement of Stockholders' Equity - For
the Nine Months Ended June 30, 2007 (unaudited) 7
Consolidated Statements of Cash Flows - For the Nine
Months Ended June 30, 2006 and 2007 (unaudited) 8 and 9
Notes to Unaudited Consolidated Financial Statements 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Controls and Procedures 12
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 19
Item 6. Exhibits 20
-2-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2006 2007
(Unaudited)
Current assets: ------------ -----------
Cash and cash equivalents $ 387,663 $ 627,921
Accounts receivable, net of allowance
for doubtful accounts 642,056 717,615
Income tax refund receivable 23,264 -
Inventories 104,224 117,712
Prepaid expenses 89,124 44,613
---------- ----------
Total current assets 1,246,331 1,507,861
---------- ----------
Furniture and equipment, at cost:
Office furniture and equipment 226,011 214,171
Computers and equipment
under service contracts 2,638,800 2,766,727
Leasehold improvements 81,424 81,424
Vehicles, including vehicles
under capital leases 149,886 149,886
--------- ---------
3,096,121 3,212,208
Less accumulated depreciation (2,250,994) (2,445,751)
---------- ---------
Net furniture and equipment 845,127 766,457
---------- ----------
Other assets:
Deferred tax asset 65,100 135,500
Investment in marketable securities 588,212 638,749
Deposits and other 21,740 24,957
Goodwill 404,547 404,547
Software development costs, net of
accumulated amortization 221,878 223,890
--------- --------
Total other assets 1,301,477 1,427,643
--------- ---------
$ 3,392,935 $ 3,701,961
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2006 2007
(Unaudited)
------------ -----------
Current liabilities:
Accounts payable $ 27,826 $ 66,617
Accrued expenses 376,075 351,478
Income taxes payable - 63,105
Current portion of obligations under
capital leases 3,279 3,397
Deferred revenue 128,853 106,569
--------- --------
Total current liabilities 536,033 591,166
Obligations under capital leases,
net of current portion 9,941 7,225
--------- -------
Total liabilities 545,974 598,391
--------- -------
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value;
100,000,000 shares authorized,
none issued - -
Common stock, $.0001 par value;
800,000,000 shares authorized,
382,617,938 shares issued and
outstanding at 9/30/06 and
381,636,938 shares issued and
outstanding at 6/30/07 38,262 38,164
Additional paid-in capital 1,359,797 1,355,636
Retained earnings 1,448,902 1,709,770
--------- ---------
Total stockholders' equity 2,846,961 3,103,570
----------- -----------
$ 3,392,935 $ 3,701,961
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 2006 and 2007
June June
30, 2006 30, 2007
(unaudited) (unaudited)
Revenues: -------- --------
Sales $ 46,797 $ 26,098
Service contract income 774,176 768,906
Parking ticket collections 59,550 116,486
---------- ----------
Total revenues 880,523 911,490
---------- ----------
Costs and expenses:
Cost of sales 26,956 8,513
Cost of services 215,696 182,238
Cost of parking ticket
collections 20,038 28,793
General and administrative 536,647 660,393
Research and development 9,022 4,111
--------- ---------
Total costs and expenses 808,359 884,048
--------- ---------
Income from operations 72,164 27,442
-------- ---------
Other income (expense):
Interest income 9,900 13,120
Interest expense (10,918) 574
Other income 2,082 23,400
--------- ---------
Total other income (expense) 1,064 37,094
--------- ---------
Income before provision for
income taxes 73,228 64,536
--------- ----------
Provision for income taxes:
Current expense 26,898 61,488
Deferred expense (benefit) (30,800) (36,800)
---------- ---------
Total income tax expense (benefit) (3,902) 24,688
---------- ---------
Net income $ 77,130 $ 39,848
=========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 382,618,000 381,942,509
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended June 30, 2006 and 2007
June June
30, 2006 30, 2007
(unaudited) (unaudited)
Revenues: -------- --------
Sales $ 102,015 $ 89,044
Service contract income 2,232,123 2,226,202
Parking ticket collections 350,530 533,185
---------- ----------
Total revenues 2,684,668 2,848,431
---------- ----------
Costs and expenses:
Cost of sales 79,557 35,734
Cost of services 544,258 598,769
Cost of parking ticket
collections 67,706 88,292
General and administrative 1,532,477 1,777,439
Research and development 35,358 5,626
--------- ---------
Total costs and expenses 2,259,356 2,505,860
--------- ---------
Income from operations 425,312 342,571
-------- ---------
Other income (expense):
Interest income 23,366 38,324
Interest expense (19,004) (750)
Other Income 4,375 25,108
--------- ---------
Total other income (expense) 8,737 62,682
--------- ---------
Income before provision for
income taxes 434,049 405,253
--------- ----------
Provision for income taxes:
Current expense 145,133 201,900
Deferred expense (benefit) 9,900 (70,400)
---------- ---------
Total income tax expense (benefit) 155,033 131,500
---------- ---------
Net income $ 279,016 $ 273,753
=========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 382,618,000 382,236,165
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-6-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended June 30, 2007
(unaudited)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ --------- --------
Balance,
September 30, 2006 382,617,938 $ 38,262 $ 1,359,797 $ 1,448,902
Common stock
repurchase (981,000) (98) (4,161) (12,885)
Net income for the
Nine months ended
June 30, 2007 - - - 273,753
---------- --------- ---------- ----------
Balance, June
30, 2007 381,636,938 $ 38,164 $ 1,355,636 $ 1,709,770
=========== ========= ============= ===========
See accompanying notes to consolidated financial statements.
-7-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2006 and 2007
June June
30, 2006 30, 2007
(unaudited) (unaudited)
------- -------
Cash flows from operating activities:
Net income $ 279,016 $ 273,753
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 321,920 278,970
Deferred income tax expense 9,900 (70,400)
Changes in assets and liabilities:
Accounts receivable (113,798) (75,559)
Inventories 22,201 (13,488)
Income taxes refundable - 23,264
Prepaid expenses 28,568 44,511
Accounts payable 36,874 38,791
Accounts payable, related party (1,530) -
Accrued expenses (36,261) (24,597)
Income taxes payable (102,431) 63,105
Deferred revenue (21,416) (22,284)
---------- ---------
Total adjustments 144,027 242,313
---------- ---------
Net cash provided by operating
activities 423,043 516,066
---------- ---------
Cash flows from investing activities:
Acquisition of furniture and equipment (96,226) (130,975)
Increase in software licenses and
software development costs (61,963) (68,403)
Increase in investments in
marketable securities (84,242) (50,537)
Decrease in deposits and other
assets 7,651 (6,151)
---------- ---------
Net cash (used in) investing
activities (234,780) (256,066)
---------- ---------
Cash flows from financing activities:
Proceeds from related party loan 175,000 -
Payment on notes (25,000) -
Repurchase of Common Stock _ (17,144)
Payments on long-term debt and capital
leases (290,325) (2,598)
---------- ----------
Net cash (used in) financing
activities (140,325) (19,742)
----------- ----------
See accompanying notes to consolidated financial statements.
-8-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the nine months ended June 30, 2006 and 2007
June June
30, 2006 30, 2007
(unaudited) (unaudited)
------- -------
Increase in cash and
cash equivalents 47,938 240,258
Cash and cash equivalents at beginning
of period 533,485 387,663
---------- ---------
Cash and cash equivalents at end
of period $ 581,423 $ 627,921
========== ==========
See accompanying notes to consolidated financial statements.
-9-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in
the United States of America for complete financial statements. The
accompanying unaudited consolidated financial statements reflect all
adjustments that, in the opinion of management, are considered necessary
for a fair presentation of the financial position, results of operations,
and cash flows for the periods presented. All such adjustments are of a
normal and recurring nature only. The results of operations for such
periods are not necessarily indicative of the results expected for the
full fiscal year or for any future period. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements of Clancy Systems International,
Inc. and Subsidiary included in the Form 10-KSB for the fiscal year ended
September 30, 2006.
The Company's subsidiary, Urban Transit Solutions, Inc. ("UTS") was
incorporated under the Laws of the Commonwealth of Puerto Rico. 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 U.S. dollars. Therefore, there are
no amounts recorded for foreign currency translation or for transactions
denominated in a foreign currency. The Company has consolidated the
financial results of UTS with those of the Company for the nine months
ended June 30, 2006 and 2007. All significant intercompany 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. These estimates 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.
Net income per common share:
The Company computes net income per common share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS 128 provides for the calculation of basic and
-10-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
1. Basis of Presentation (continued)
diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects
the potential dilution of securities that could share in the
earnings of the Company.
2. Inventories
Inventories consist of the following at:
September 30, June 30,
2006 2007
---- ----
Finished goods $ 15,574 $ 23,206
Work in process 2,962 38,914
Purchased parts and supplies 85,688 55,592
-------- ---------
$ 104,224 $ 117,712
========= =========
3. Income taxes
The provision for income taxes for the nine months ended June 30,
2006 and 2007 is based on the expected rate for the tax year.
Differences in amounts of income taxes reported in the financial
statements to taxes that would be obtained by applying regular tax
rates to income before taxes mainly consist of tax-exempt income
and changes in estimates of previously reported income tax expense.
The components of the Company's deferred tax assets and liabilities
are as follows:
September 30, June 30,
2006 2007
---- ----
Non-current deferred tax assets $ 132,700 $ 195,600
Non-current deferred tax liabilities (67,600) (60,100)
----------- ----------
Net non-current deferred taxe asset $ 65,100 $ 135,500
=========== ==========
-11-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
4. Stockholders' Equity
In December 2006, under Rule 10b-18 issued under the Securities
Act of 1934, the Company implemented a policy to regularly repurchase
shares of its common stock. Based on profitability at the end of each
month, the Company will determine the dollar amount to allocate to
the buyback program.
During the nine month period ended June 30, 2007, the Company
reacquired 981,000 shares of its common stock for $17,144. The
reacquisition has been accounted for by reducing common stock
for the par value of the shares reacquired and the excess paid
per share over the par value has been allocated to additional
paid in capital, based on the number of shares acquired, and the
balance charged to retained earnings.
Subsequent to June 30, 2007, the Company repurchased 250,000
shares of its common stock for a total of $4,750.
5. Recent Accounting Pronouncements
SFAS 157, "Fair Value Measurements", defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements.
This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the Board having previously
concluded in those pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require
any new fair value measurements. However, for some entities, the
application of this Statement will change current practice. Management
has not evaluated the impact of this statement. The effective date for
SFAS 157 is effective for years beginning after November 15, 2007.
FIN No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (Issued 6/06)." This
Interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. This
Interpretation prescribes a recognition and measurement of a tax position
taken or expected to be taken in a tax return. The enterprise determines
whether it is more likely than not that a tax position will be sustained
upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. A tax position
that meets the more likely than not recognition threshold is measured to
determine the amount of benefit to recognize in the financial statements.
This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning
after December 15, 2006. Management does not expect adoption of FIN No.
48 to have a material impact on our financial statements.
-12-
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 maintain its competitive
position in the parking enforcement business by continuing to offer
competitive products and services, (iii) the ability of the Company to
reduce costs and thereby maintain adequate profit margins.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
At June 30, 2007, the Company had working capital of
$916,695 derived primarily from contract sales and contract service.
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,
2007. The Company settles funds for permit collections after the
end of each month. Occasionally this overlaps into the next quarter.
The timing of the payout is captured as an accounts payable amount
if it falls into a subsequent quarter by a few days.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30,
2006 AND 2007
REVENUES. From the three month quarter ended June 30, 2006
to the three month quarter ended June 30, 2007 revenues decreased
by $30,967 or 3.5% from $880,523 to $911,490. The increase in
revenues is due to increased ticket issuance during the spring
months for the quarter ended June 30, 2007. Clancy's Remit-online.com
service has processed 61,685 transactions totaling $2,488,283
for the quarter ended June 30, 2007. Revenues are generated based
on a per transaction fee less bank processing costs. The gross
amount of cash flowing through Remit-online.com cannot be presented
as revenue based on the SEC accounting guidance. The Company
only presents its net profit from each transaction as revenue
in the statements of operations.
-13-
COST OF SERVICES. For the three month quarter ended June 30, 2006
to the three month quarter ended June 30, 2007, cost of services
decreased by $33,458 or 15.5% from $215,696 to $182,238 for the
Company. Cost of services as a percentage of service contract income
was 27.9% for the 2006 quarter and 23.7% for the 2007 quarter.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs decreased from $9,022 to $4,111, or
54.4%, from the three month quarter ended June 30, 2006 to 2007.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $123,746 or 23.1 % from $536,647 to $660,393 for the
three month quarter ended June 30, 2006 and 2007, respectively.
Additional contracts for Urban Transit Solutions required
additional expense for implementation of programs and staffing.
NET INCOME. For the three month quarter ended June 30, 2007, the
Company reported net income of $39,848 compared to $77,130 for the
three month quarter ended June 30, 2006. The primary reason for the
decrease in net income is related to the addition of new contracts
in Puerto Rico which require additional offices, personnel and
setting up the infrastructure of the projects. These installations
have been financed through cash flows and costs have been expensed.
These costs are startup expenses, before revenue is recognized,
which typically occurs after several months of operation. Some
of these expenses are non-recurring contract support costs.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2006
AND 2007
REVENUES. From the nine months ended June 30, 2006 to the nine
months ended June 30, 2007 revenues increased by $163,763 or
6.1% from $2,684,668 to $2,848,431. The increase in revenues
is due to the addition of new customers and products during the
nine months ended June 30, 2007. Clancy's Remit-online.com service
has processed 177,308 transactions totaling $7,144,596 for the nine
months ended June 30, 2007. Revenues are generated based on a per
transaction fee less bank processing costs. The gross amount of cash
flowing through Remit-online.com cannot be presented as revenue based
on the SEC accounting guidance. The Company only presents its net
profit from each transaction as revenue in the statements of
operations.
COST OF SERVICES. For the nine months ended June, 2006 compared to
the nine months ended June 30, 2007, cost of services increased by
$54,511 or 10.0% from $544,258 to $598,769 for the Company. Cost
of services as a percentage of service contract income was 24.4% for
the 2006 quarter and 26.9% for the 2007 quarter.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs decreased from $35,358 to $5,626, or
84.1%, from the nine months ended June 30, 2006 to 2007. The company
did not do any significant product engineering during this period.
-14-
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $244,962 or 16.0% from $1,532,477 to $1,777,439 for
the nine months ended June 30, 2006 and 2007, respectively. The
increase relates primarily to increased rent, salaries, office
supplies, health insurance, repairs and maintenance, and UTS
opening offices in additional cities.
NET INCOME. For the nine months ended June 30, 2007, the Company
reported net income of $273,753 compared to $279,016 for the nine
months ended June 30, 2006. The primary reason for the modest
increase in net income is related to the addition of new contracts
in Puerto Rico which require additional offices, personnel and
setting up the infrastructure of the projects. These installations
have been financed through cash flows and costs have been expensed.
These costs are startup expenses, before revenue is recognized,
which typically occurs after several months of operation. Some
of these expenses are non-recurring contract support costs.
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 the quarter ended December
31, 2005, the Company began production of a printer using wireless
Bluetooth technology.
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 performs
research and development for the Company and makes prototype boards for
testing and evaluation.
The Company's software is developed in-house by four 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. This
relationship allows the Company to receive pre-releases of software
products which gives the Company a leading edge on upgrading
programs and embedding new services into our systems.
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 its 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 1999. Collections from
parking lot fees from Cauguas commenced in January of 1999.
In September 2005, the Company acquired all outstanding shares of
UTS stock in exchange for shares of the Company's common stock.
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 financial statements 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 lot 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.
-16-
COMPUTER SOFTWARE. Costs incurred prior to establishment of the
technological feasibility of computer software are research and
development costs, which are charged to expense as incurred.
Software development costs incurred subsequent to establishment
of technological feasibility are capitalized and subsequently
amortized based on the greater of the straight line method over
the remaining estimated economic life of the product (generally
5 years) or the estimate of current and future revenues for the
related product.
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 Standard 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.
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 information posed on these boards.
Management can only provide accurate 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.
Item 3.
CONTROLS AND PROCEDURES
The Company's principal executive officer and principal financial
officer have evaluated the effectiveness of the Company's disclosure
controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, the Company's principal
executive officer and principal financial officer have concluded that,
as of the end of such period, the Company's disclosure control and
procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by
the Company in the reports that it files or submits under the Exchange
Act.
The Company's management has also concluded that the Company's disclosure
controls and procedures are effective to ensure that information required
to be disclosed in the Company's reports filed under the Exchange Act is
accumulated and communicated to management, including the principal
executive officer and principal financial officer, to allow timely
decisions regarding required disclosure.
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There was no change in the Company's internal control over financial
reporting that occurred during the fiscal quarter to which this report
relates that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 overturned 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.
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. In September 2006, the Court
of Appeals granted Mr. Salazar's appeal. Clancy has filed a petition
for certiorari seeking to have the matter heard by the Colorado
Supreme Court. The Writ was granted and the company expects the
Court to hear the case during 2007. The case will be heard in
September 2007.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Small business issuer purchases of equity securities
Period (a) Total (b) Average (c) Total (d) Maximum Number
Number Price Paid Number of of shares that
of Shares Per Share Shares Purchased May Yet Be Purchased
Purchased as Part of Under the Plans or
Publicly Announced Programs
Plans or Program
- -------- ---------- ---------- ------------------ ------------------
April 1 2,500 .019 2,500 -
through
April 30,
2007
Month #4
May 1 150,500 .0205 150,500 -
through
May 31,
2007
Month #5
June 1 318,000 .0203 318,000 -
through
June 30,
2007
------- ---- --------- ----------
Total 471,000 .02 471,000 - *
======== ===== ========= ==========
* The company announced in its 10-KSB filing for the year ended
September 30, 2006, that it implemented a reaquisition of equity
securities to commence in December 2006. Under Rule 10b-18, the Company
intends to regularly repurchase shares of its common stock. Based on
profitability at the end of each month, the Company will determine
the dollar amount to allocate to the buyback program. All purchases
were made as open market transactions.
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Item 6. Exhibits
(a) Exhibits
Exhibit 31.1 Section 302 Certification by Chief Executive Officer
Exhibit 31.2 Section 302 Certification by Chief Financial Officer
Exhibit 32.1 Section 906 Certification by Chief Executive Officer
Exhibit 32.2 Section 906 Certification by Chief Financial Officer
Filed herewith.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: August 20, 2007 Clancy Systems International, Inc.
(Registrant)
By:/s/ Stanley J. Wolfson
Stanley J. Wolfson,
President and Chief
Executive Officer
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