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 March 31, 2008
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 May 15, 2008 is 380,802,938 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
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 2007
and March 31, 2008 (unaudited) 3 and 4
Consolidated Statements of Income and Other
Comprehensive Income - For the Three
Months Ended March 31, 2007 and 2008 (unaudited) 5
Consolidated Statements of Income and Other
Comprehensive Income - For the Six
Months Ended March 31, 2007 and 2008 (unaudited) 6
Consolidated Statement of Stockholders' Equity - For
the Six Months Ended March 31, 2008 (unaudited) 7
Consolidated Statements of Cash Flows - For the Six
Months Ended March 31, 2007 and 2008 (unaudited) 8
Notes to Unaudited Consolidated Financial Statements 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 21
Item 6. Exhibits 22
-2-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
2007 2008
(Unaudited)
Current assets: ------------ -----------
Cash and cash equivalents $ 619,642 $ 1,116,754
Accounts receivable, net of allowance
for doubtful accounts 709,419 584,544
Income tax receivable - 5,827
Inventories 135,010 146,763
Prepaid expenses 64,075 38,513
---------- ----------
Total current assets 1,528,146 1,892,401
---------- ----------
Furniture and equipment, at cost:
Office furniture and equipment 218,337 218,337
Computers and equipment
under service contracts 2,771,942 2,860,442
Leasehold improvements 81,424 81,424
Vehicles, including vehicles
under capital leases 149,886 149,886
--------- ---------
3,221,589 3,310,089
Less accumulated depreciation (2,505,867) (2,634,705)
---------- ---------
Net furniture and equipment 715,722 675,384
---------- ----------
Other assets:
Investment in marketable securities 733,244 807,453
Deposits and other 24,312 24,477
Goodwill 404,547 404,547
Software development costs, net of
accumulated amortization 222,212 216,536
--------- --------
Total other assets 1,384,315 1,453,013
--------- ---------
$ 3,628,183 $ 4,020,798
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
2007 2008
(Unaudited)
------------ -----------
Current liabilities:
Accounts payable $ 150,319 $ 118,020
Accrued expenses 361,019 335,467
Income taxes payable 74,323 49,816
Current portion of obligations under
capital leases 3,393 3,393
Deferred revenue 95,453 128,917
--------- --------
Total current liabilities 684,507 635,613
Deferred income taxes payable 18,800 36,500
Obligations under capital lease,
net of current portion 6,648 4,924
--------- -------
Total liabilities 709,955 677,037
--------- -------
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,
381,102,938 and 380,890,438
shares issued and
outstanding at 9/30/07 and
3/31/08 respectively 38,110 38,089
Additional paid-in capital 1,354,414 1,353,659
Accumulated comprehensive income (loss):
Unrealized loss on marketable
securities - (26,796)
Retained earnings 1,525,704 1,978,809
--------- ---------
Total stockholders' equity 2,918,228 3,343,761
----------- -----------
$ 3,628,183 $ 4,020,798
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
CLANCY SYSTEMS INTERNATIONAL, INC
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2007 and 2008
(Unaudited)
March March
31, 2007 31, 2008
Revenues: -------- --------
Sales $ 23,984 $ 21,199
Service contract income 744,498 546,309
Parking ticket collections 111,919 251,040
---------- ----------
Total revenues 880,401 818,548
---------- ----------
Costs and expenses:
Cost of sales 17,845 1,565
Cost of services 263,753 153,644
Cost of parking ticket
collections 35,343 27,409
General and administrative 562,277 584,382
Research and development 1,515 4,527
--------- ---------
Total costs and expenses 880,733 771,527
--------- ---------
Income (loss) from operations (332) 47,021
-------- ---------
Other income (expense):
Interest income 23,490 17,067
Interest expense ( 9,465) 472
Other income 1,708 50,567
--------- ---------
Total other income (expense) 15,733 68,106
--------- ---------
Income before provision for
income taxes 15,401 115,127
--------- ----------
Provision for income taxes:
Current expense (benefit) 46,553 65,259
Deferred expense (benefit) (50,300) (2,300)
---------- ---------
Total income tax expense (benefit) ( 3,747) 62,959
---------- ---------
Net income 19,148 52,168
---------- ---------
Other comprehensive income (loss)
Unrealized loss on marketable
securities - (26,796)
---------- ---------
Comprehensive income $ 19,148 $ 25,372
========== =========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 382,142,271 381,030,411
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
For the Six Months Ended March 31, 2007 and 2008
(Unaudited)
March March
31, 2007 31, 2008
Revenues: -------- --------
Sales $ 62,946 $ 36,957
Service contract income 1,457,295 1,326,176
Parking ticket collections 416,699 611,723
---------- ----------
Total revenues 1,936,940 1,974,856
---------- ----------
Costs and expenses:
Cost of sales 27,221 29,010
Cost of services 416,531 355,772
Cost of parking ticket
collections 59,499 52,503
General and administrative 1,117,046 1,198,015
Research and development 1,515 7,120
--------- ---------
Total costs and expenses 1,621,812 1,642,420
--------- ---------
Income from operations 315,128 332,436
-------- ---------
Other income (expense):
Interest income 25,204 35,720
Interest expense (1,324) (421)
Other income 1,708 251,274
--------- ---------
Total other income (expense) 25,588 286,573
--------- ---------
Income before provision for
income taxes 340,716 619,009
--------- ----------
Provision for income taxes:
Current expense (benefit) 140,412 145,466
Deferred expense (benefit) (33,600) 17,700
---------- ---------
Total income tax expense (benefit) 106,812 163,166
---------- ---------
Net income 233,904 455,843
---------- ---------
Other comprehensive income (loss)
Unrealized loss on marketable
securities - (26,796)
---------- -----------
Comprehensive income $ 233,904 $ 429,047
========== ==========
Basic and diluted
net income per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 382,142,271 381,066,872
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-6-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended March 31, 2008
(unaudited)
Other
Additional Compre-
Common Stock paid-in hensive Retained
Shares Amount Capital Income Earnings
------ ------ --------- -------- --------
Balance,
September 30, 2008 381,102,938 $ 38,110 $ 1,354,414 - 1,525,704
Common stock
repurchase (212,500) (21) (755) (2,738)
Unrealized loss on
marketable securities (26,796)
Net income for the
six months ended
March 31, 2008 - - - - 455,843
---------- --------- ---------- ------- ----------
Balance, March
31, 2008 380,890,438 $ 38,089 $ 1,353,659 $ (26,796) $ 1,978,809
=========== ========= ============= ======== ========
See accompanying notes to consolidated financial statements.
-7-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2007 and 2008
(Unaudited)
March March
31, 2007 31, 2008
------- -------
Cash flows from operating activities:
Net income $ 233,904 $ 455,843
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 188,796 174,604
Deferred income tax expense (33,600) 17,700
Changes in assets and liabilities:
Accounts receivable (34,223) 124,875
Inventories (4,985) (11,753)
Income taxes refundable 23,264 (5,827)
Prepaid expenses 45,393 25,562
Accounts payable 27,089 (32,299)
Accrued expenses (37,420) (25,552)
Income taxes payable 62,417 (24,507)
Deferred revenue (32,537) 33,464
---------- ---------
Total adjustments 204,194 276,267
---------- ---------
Net cash provided by operating
activities 438,098 732,110
---------- ---------
Cash flows from investing activities:
Acquisition of furniture and equipment (76,207) (88,499)
Increase in software licenses and
software development costs (47,704) (38,802)
Increase in investments in
marketable securities (50,537) (101,005)
Decrease in deposits and other
assets (5,000) (1,454)
---------- ---------
Net cash used in investing
activities (179,448) (229,760)
---------- ---------
Cash flows from financing activities:
Repurchase of common stock (8,785) (3,514)
Payments on long-term debt and capital
leases (1,710) (1,724)
---------- ----------
Net cash used in financing
activities (10,495) (5,238)
----------- ----------
See accompanying notes to consolidated financial statements.
-8-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the six months ended March 31, 2007 and 2008
(Unaudited)
March March
31, 2007 31, 2008
------- -------
Increase in cash and
cash equivalents 248,155 497,112
Cash and cash equivalents at beginning
of period 387,663 619,642
---------- ---------
Cash and cash equivalents at end
of period $ 635,818 $ 1,116,754
========== ==========
See accompanying notes to consolidated financial statements.
-9-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
(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, 2007.
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 three and
six months ended March 31, 2007 and 2008. 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
March 31, 2008
(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. The Company has no potentially dilutive
securities.
2. Inventories
Inventories consist of the following at:
September 30, March 31,
2007 2008
---- ----
Finished goods $ 44,316 $ 26,827
Work in process 2,861 53,305
Purchased parts and supplies 87,833 66,631
-------- ---------
$ 135,010 $ 146,763
========= =========
3. Income taxes
The provision for income taxes for the six months ended March 31,
2007 and 2008 is based on the actual or 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, March 31,
2007 2008
---- ----
Non-current deferred tax assets $ 233,700 $ 199,500
Valuation allowance (192,600) (158,400)
Non-current deferred tax liabilities (59,900) (77,600)
----------- ----------
Net non-current deferred taxes $ (18,800) $ (36,500)
=========== ==========
-11-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
4. Stockholders' Equity
In December 2006, under Rule 10b-18, 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 six month period ended March 31, 2008, the Company
reacquired 212,500 shares of its common stock for $3,514. 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 March 31, 2008, the Company repurchased 87,500
shares of its common stock for a total of $1,251.
-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.
At March 31, 2008, the Company had consolidated working capital of
$1,256,788 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,
2008. 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 MARCH 31,
2007 AND 2008
REVENUES. From the three month quarter ended March 31, 2007
to the three month quarter ended March 31, 2008 revenues decreased
by $61,853 or 7.0% from $880,401 to $818,548. The decrease in
revenues is due to a slow down in ticket issuance during bad weather
during the winter months for the quarter ended March
31, 2008. Clancy's Remit-online.com service has processed 72,402
transactions totaling $2,849,551 for the quarter ended
March 31, 2008. 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 income
statements.
-13-
COST OF SERVICES. For the three month quarter ended March 31, 2007
to the three month quarter ended March 31, 2008, cost of services
decreased by $110,109 or 41.7% from $263,753 to $153,644 for the
Company. Cost of services as a percentage of service contract income
was 35.4% for the 2007 quarter and 28.1% for the 2008 quarter.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs increased from $1,515 to $4,527, or
198.80%, from the three month quarter ended March 31, 2007 to 2008.
The company is working on an upgrade to its printer.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $22,105 or 3.9% from $562,277 to $584,382 for the
three month quarter ended March 31, 2007 and 2008, respectively.
The primary reason for the increase is due to expansion in Puerto Rico.
NET INCOME. For the three month quarter ended March 31, 2008, the
Company reported net income of $52,168 compared to $19,148 for the
three month quarter ended March 31, 2007. Net income has increased
with additional contracts and a one-time contract buyout with
the city of Arecibo.
COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2007
AND 2008
REVENUES. From the six months ended March 31, 2007 to the six
months ended March 31, 2008 revenues increased by $37,916 or
2.0% from $1,936,940 to $1,974,856. The increase in revenues
is due to the addition of new customers and products during the
six months ended March 31, 2008. Clancy's Remit-online.com service
has processed 144,338 transactions totaling $5,780,943 for the six
months ended March 31, 2008. 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 income statements.
COST OF SERVICES. For the six months ended March 31, 2007 compared to
the six month ended March 31, 2008, cost of services decreased by
$60,759 or 14.6% from $416,531 to $355,772 for the Company. Cost
of services as a percentage of service contract income was 28.58% for
the 2007 six month period and 24.41% for the 2008 six month period.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs increased from $1,515 to $7,120, or
370.0%, from the six months ended March 31, 2007 to 2008. This increase
reflects development of an upgrade for the Company's printer.
-14-
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $80,969 or 7.2% from $1,117,046 to $1,198,015 for
the six months ended March 31, 2007 and 2008, 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 six months ended March 31, 2008, the Company
reported net income of $455,843 compared to $233,904 for the six
months ended March 31, 2007. The primary reason for the increase in
net income is related to the addition of new contracts
in Puerto Rico and in the US and a contract buyout with the city
of Arecibo.
STATUS OF PRODUCTS AND SERVICES
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. The company is currently updating
its Bluetooth printer 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.
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.
-15-
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.
Damaris Carasquilo is the operations manager. The UTS Board of
Directors includes Kenneth Stewart, Stanley Wolfson, and Lizabeth
Wolfson. UTS has funded its operations primarily by loans
and cash flows. During fiscal 2005-2006 UTS consolidated all of
its loans into one note payable to the Company. The note is a five
year note payable in monthly installments.
UTS continues to add new clients. In December 2007, UTS was
awarded a contract for the city of San Juan. The company anticipates
installing approximately 2,000 meters. In order to manage the operations
in San Juan, UTS moved it's main office into the city. UTS has also
installed a code enforcement system for the city of Cauguas.
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 Act of 2002 as it pertains to: (i)
additional accounting and auditing procedures; and (ii) additional
legal costs due to compliance with new corporate governance mandates.
The Company now utilizes three different accounting firms for
preparation of financial statements, reviews and auditing functions.
Director and Officer insurance premiums were reduced by 28% for
the last year. 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. 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 products shall continue to require a large capital commitment.
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 as 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,
-16-
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,
2008.
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.
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. The Company continues to experience an increase in activity
monthly. The Company generates revenue from Remit-online.com based on
a per transaction fee.
-17-
In addition, outstanding ticket fines of approximately
$2,900,000, for UTS and $1,100,241 for Clancy, have not been recognized
as revenue at March 31, 2008 based on SEC accounting guidance.
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.
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.
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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.
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) a
nd 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.
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.
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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 filed a petition
for certiorari seeking to have the matter heard by the Colorado
Supreme Court. The Supreme Court of Colorado granted certorari.
The case was heard in September 2007. On February 19,
2008, the Colorado Supreme Court ruled in favor of the Company and
the case was remanded to the District Court with directions to reinstate
the District Court's order of summary judgment. Salazar has since
filed a motion in the District Court to amend its original complaint
and the Company has opposed that motion.
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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
- -------- ---------- ---------- ------------------ -------------------
January 1 - - - -
through
January 31,
2008
February 1 100,000 .0180 100,000 -
through
February 29,
2008
March 1 112,500 .0148 112,500 -
through
March 31,
2008
------- ---- --------- ----------
Total 212,500 $.0164 212,500 -
======== ===== ========= ==========
* The company announced in its 10-KSB filing for the year ended
September 30, 2006, that it implemented a reacquisition 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.
-21-
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: May 15, 2008 Clancy Systems International, Inc.
(Registrant)
By:/s/ Stanley J. Wolfson
Stanley J. Wolfson,
President and Chief
Executive Officer
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