UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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:
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
The number of shares outstanding of the issuer's classes of common
stock, as of February 17, 2009 is 378,897,011 shares, $.0001 par value.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non accelerated filer, or a smaller
reporting company.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company X
CLANCY SYSTEMS INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
Consolidated Balance Sheets - September 30, 2008
and December 31, 2008 (unaudited) 3 and 4
Consolidated Statements of Operations and Other
Comprehensive Income - For the Three
Months Ended December 31, 2007 and
December 31, 2008 (unaudited) 5
Consolidated Statement of Stockholders' Equity - For
the Three Months Ended December 31, 2008
(unaudited) 6
Consolidated Statements of Cash Flows - For the
Three Months ended December 31, 2007 and
December 31, 2008 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 4T: Controls and Procedures 17
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 19
Item 3. Defaults upon senior securities 20
Item 4. Submission of matters to a vote of security
holders 20
Item 5. Other Information 20
Item 6. Exhibits 21
Signatures 22
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2008
(Unaudited)
Current assets: ------------ -----------
Cash and cash equivalents $ 1,183,876 $ 1,293,808
Accounts receivable, net of allowance
for doubtful accounts 650,771 616,234
Receivable from related party 43,461 43,461
Inventories 183,074 210,342
Prepaid expenses 69,558 57,230
Deferred tax asset 11,200 7,400
---------- ----------
Total current assets 2,141,940 2,228,475
---------- ----------
Furniture and equipment, at cost:
Office furniture and equipment 190,696 190,696
Computers and equipment
under service contracts 2,596,066 2,608,516
Leasehold improvements 13,000 13,000
Vehicles, including vehicles
under capital leases 147,651 147,651
--------- ---------
2,947,413 2,959,863
Less accumulated depreciation (2,368,037) (2,425,457)
---------- ---------
Net furniture and equipment 579,376 534,406
---------- ----------
Other assets:
Investment in marketable securities 858,912 976,797
Deposits and other 18,138 17,744
Goodwill 404,547 404,547
Software development costs, net of
accumulated amortization 216,070 216,979
--------- --------
Total other assets 1,497,667 1,616,067
--------- ---------
$ 4,218,983 $ 4,378,948
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2008 2008
(Unaudited)
------------ -----------
Current liabilities:
Accounts payable $ 232,395 $ 326,639
Accrued expenses 329,737 465,358
Income taxes payable 19,652 40,447
Current portion of obligations under
capital leases 3,393 3,393
Deferred revenue 104,782 75,841
--------- --------
Total current liabilities 689,959 911,678
Deferred income taxes payable 58,400 56,900
Obligations under capital lease,
net of current portion 2,960 1,667
--------- -------
Total liabilities 751,319 970,245
--------- -------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.0001 par value;
100,000,000 shares authorized,
none issued - -
Common stock, $.0001 par value;
800,000,000 shares authorized,
379,882,938 and 378,931,099
shares issued and
outstanding at 9/30/08 and
12/31/08 respectively 37,988 37,893
Additional paid-in capital 1,350,078 1,346,696
Accumulated comprehensive income (loss):
Unrealized loss on marketable
securities (92,298) (72,877)
Retained earnings 2,171,896 2,096,991
--------- ---------
Total stockholders' equity 3,467,664 3,408,703
----------- -----------
$ 4,218,983 $ 4,378,948
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
INCOME (LOSS)
(Unaudited)
For Three Months Ended
December December
31, 2007 31, 2008
-------- --------
Revenues $ 1,156,307 $ 1,084,258
Costs of Sales 254,667 265,790
------------ -----------
Gross Profit 901,640 818,468
Costs and expenses ------------ -----------
General and administrative 613,633 786,932
Research and development 2,593 4,138
--------- ---------
Total costs and expenses 616,226 791,070
--------- ---------
Income from operations 285,414 27,398
-------- ---------
Other income:
Interest income 18,653 25,375
Interest expense (893) (1,575)
Loss on sale of marketable securities - (458)
Other income 200,707 15,243
--------- ---------
Total other income (expense) 218,467 38,585
--------- ---------
Income before provision for
income taxes 503,881 65,983
--------- ----------
Provision for income taxes:
Current expense 80,207 125,020
Deferred expense 20,000 2,300
---------- ---------
Total income tax expense 100,207 127,320
---------- ---------
Net income (loss) 403,674 (61,337)
Other comprehensive income (loss):
Unrealized gain on marketable
Securities - 19,421
---------- ---------
Comprehensive income (loss) $ 403,674 $ (41,916)
========== =========
Basic and diluted:
Net income (loss) per common
share $ * $ *
========== ===========
Weighted average number of
shares outstanding 381,102,938 379,389,068
============ ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
-5-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended December 31, 2008
(Unaudited)
Accumulated
Other
Additional Compre-
Common Stock paid-in hensive Retained
Shares Amount Capital Income Earnings
(Loss)
------ ------ --------- -------- ------
Balance,
September 30, 2008 379,882,938 $ 37,988 $ 1,350,078 $(92,298)$ 2,171,896
Common stock
repurchase (951,839) (95) (3,382) - (13,568)
Unrealized gain on
marketable securities - - - 19,421 -
Net loss for the
three months ended
December 31 2008 - - - - (61,337)
---------- --------- ---------- ------- ------
Balance, December
31, 2008 378,931,099 $ 37,893 $ 1,346,696 $ (72,877) $2,096,991
(unaudited)
=========== ========= ============= ======== ========
See accompanying notes to consolidated financial statements.
-6-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Three Months Ended
December December
31, 2007 31, 2008
------- -------
Cash flows from operating activities:
Net income (loss) $ 403,674 $ (61,337)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 89,602 79,615
Deferred income tax expense 20,000 2,300
Loss on sale of marketable securities - 458
Changes in assets and liabilities:
Accounts receivable (7,957) 34,537
Inventories 4,881 (27,268)
Income taxes refundable (26,677) -
Prepaid expenses 16,673 12,328
Accounts payable 57,792 94,244
Accrued expenses (25,326) 135,621
Income taxes payable 18,984 20,795
Deferred revenue (29,876) (28,941)
---------- ---------
Total adjustments 118,096 323,689
---------- ---------
Net cash provided by operating
activities 521,770 262,352
---------- ---------
Cash flows from investing activities:
Acquisition of furniture and equipment (82,951) (12,391)
Increase in software licenses and
software development costs (19,401) (22,519)
Increase in investments in
marketable securities - (113,922)
Proceeds from sale of marketable
securities - 15,000
Decrease (increase)in deposits and
assets 4,745 (250)
---------- ---------
Net cash used in investing
activities (97,607) (134,082)
---------- ---------
Cash flows from financing activities:
Purchase of treasury stock - (17,045)
Payments on long-term debt and capital
leases (851) (1,293)
---------- ----------
Net cash used in financing
activities (851) (18,338)
----------- ----------
See accompanying notes to consolidated financial statements.
-7-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For Three Months Ended
December December
31, 2007 31, 2008
------- -------
Increase in cash and
cash equivalents 423,312 109,932
Cash and cash equivalents at beginning
of period 619,642 1,183,876
---------- ---------
Cash and cash equivalents at end
of period $ 1,042,954 $ 1,293,808
========== ==========
See accompanying notes to consolidated financial statements.
-8-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
December 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-Q. 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. included in the Form 10-KSB for the fiscal year ended September 30,
2008.
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
months ended December 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.
Reclassification:
Certain reclassifications have been made to the prior year
statements to conform to the current year presentation.
-9-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
December 31, 2008
(Unaudited)
1. Basis of Presentation (continued)
Net income (loss) per common share:
The Company computes net income (loss) 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 diluted earnings (loss) per share. Basic earnings (loss)
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 (loss)
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, December 31,
2008 2008
---- ----
Finished goods $ 42,925 $ 74,868
Work in process 2,606 50,802
Purchased parts and supplies 137,543 84,672
-------- ---------
$ 183,074 $ 210,342
========= =========
3. 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 three month period ended December 31, 2008, the Company
reacquired 951,839 shares of its common stock for $17,045. 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 December 31, 2008, the Company repurchased 34,088
shares of its common stock for a total of $311.
-10-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
December 31, 2008
(Unaudited)
4. Contingencies
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 Supreme Court heard the
case on September 11, 2007.
On March 17, 2008, the Colorado Supreme Court issued a decision
affirming the District Court dismissal of Mr. Salazar's suit. It
also denied Mr. Salazar's request to amend his Complaint in the
District Court to add a new claim. The case was thereafter
remanded to the District Court. Mr. Salazar then filed a motion
in District Court to amend his Complaint to add a new claim. The
District Court denied Mr. Salazar's motion to amend based upon
the finality of the Supreme Court ruling and the Supreme Court's
denial of Mr. Salazar's request to amend his pleading in the
District Court. Mr. Salazar has filed notice of appeal in Colorado
Court of appeals with respect to the District Court's denial of his
motion to amend. The appeal has not yet been briefed or argued.
The Company is in dispute with the Puerto Rico Municipality Center
(CRIM), the governmental entity in charge of the assessment collection
of property taxes in Puerto Rico, for personal property taxed owed
from 1998. The Company filed a written protest as to these assessments
and vigorously contested the asserted deficiencies through the
administrative appeals process. During the year ended September 30,
2008, the process finalized. The accrual for $310,068 that was
recorded on the books was reduced to $102,740 which is the total
amount assessed by the CRIM for unpaid personal property tax since
1999. The effect of this reduction amounted to $219,814.
However, during the quarter ended December 31, 2008, the CRIM assessed
new debt for $430,232, including penalties, interest and surcharges
for $44,677, for parking meters considered as real property from 2002.
-11-
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
December 31, 2008
(Unaudited)
4. Contingencies (continued)
Management has started a claim to get more information about it
from CRIM and to request a reduction of the amount assessed. The
accompanying September 30, 2008 balance sheet includes an accrual of
$186,000 related to this debt. Management believes such accrual is
adequate for any possible unfavorable outcome of this new claim.
Subsequent to December 31, 2008, UTS has paid approximately
$106,000 to the CRIM. During the quarter ended December 31, 2008,
UTS has recorded an additional $153,247 in liability to the CRIM.
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 December 31, 2008, the Company had consolidated working capital of
$1,316,797 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,
2009. 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.
-12-
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31,
2007 AND 2008
REVENUES. From the three month quarter ended December 31, 2007
to the three month quarter ended December 31, 2008 revenues decreased
by $72,049 or 6.2% from $1,156,307 to $1,084,258. Clancy's
Remit-online.com service has processed 79,043 transactions totaling
$2,978,068 for the quarter ended December 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 statements of operations. As UTS is no longer issuing tickets
or collection meter revenues in the cities of Arecibo or Humacao,
revenues are down slightly. Also, with budget cuts in many cities,
ticket issuance has been reduced due to personnel reductions.
COST OF SERVICES. For the three month quarter ended December 31, 2007
to the three month quarter ended December 31, 2008, cost of services
increased by $11,123 or 4.4% from $254,667 to $265,790 for the
Company. Cost of services as a percentage of service contract income
was 22.0% for the 2007 quarter and 24.5% for the 2008 quarter. The
increase reflects costs related to contract expansion at Urban Transit
Solutions.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs increased from $2,593 to $4,138, or
59.6%, from the three month quarter ended December 31, 2007 to 2008.
The Company is working on an upgrade to its blue tooth printer board
and some specific client products for vehicle detection.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $173,299 or 28.2% from $613,633 to $786,932 for the
three month quarter ended December 31, 2007 compared to the three month
quarter ended December 31, 2008. UTS added an additional $153,247 in
CRIM debt. The increase also reflects costs related to contract
expansion at Urban Transit Solutions.
NET INCOME (Loss). For the three month quarter ended December 31, 2008,
the Company reported net loss of ($61,337) compared to net income of
$403,674 for the three month quarter ended December 31, 2007. The
primary reason for the decrease in net income is related to the property
tax assessment discussed above. Additionally, in December 2007, the
Company received a $200,000 contract termination fee from the city
of Arecibo, Puerto Rico, which is not a recurring item. UTS shows a
net loss of $233,886, which includes expenses to the CRIM (related
to equipment property tax) of $153,247 and additional expenses of
$ 37,228.
-13-
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.
URBAN TRANSIT SOLUTIONS
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.
-14-
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,
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 next twelve months
UTS has funded its operations primarily by cash flows and bank debt.
-15-
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.
In addition, outstanding ticket fines of approximately
$2,900,000, for UTS and $1,146,000 for Clancy, have not been recognized
as revenue at December 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.
-16-
Revenue from the issuance of parking citations for the Company's
privatization projects is recognized on a cash basis when received
as collectability 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.
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.
-17-
Item 4T. Controls and Procedures
Our management, with the participation of our chief executive officer
and our chief financial officer, has evaluated the effectiveness of our
disclosure controls and procedures as required by Exchange Act Rule
13a-15(b) as of December 31, 2008 (the end of the period covered by
this report). Based on that evaluation, our chief executive officer
and our chief financial officer have concluded that because of the
material weakness identified in our internal control over financial
reporting described in Item 8A(T) of our annual report for the year
ended September 30, 2008 on Form 10-KSB, that, our disclosure controls
and procedures were not effective as of December 31, 2008. Due to the
small size of the Company and our lack of personnel resources, we are
unlikely to immediately take any action to remediate the material
weaknesses identified.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act is accumulated
and communicated to our management, including our principal executive
officer and our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting
during the quarter ended December 31, 2008, that have materially affected,
or are reasonably likely to materially affect, our 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.
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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 Supreme Court heard the
case on September 11, 2007.
On March 17, 2008, the Colorado Supreme Court issued a decision
affirming the District Court dismissal of Mr. Salazar's suit. It
also denied Mr. Salazar's request to amend his Complaint in the
District Court to add a new claim. The case was thereafter
remanded to the District Court. Mr. Salazar then filed a motion
in District Court to amend his Complaint to add a new claim. The
District Court denied Mr. Salazar's motion to amend based upon
the finality of the Supreme Court ruling and the Supreme Court's
denial of Mr. Salazar's request to amend his pleading in the
District Court. Mr. Salazar has filed notice of appeal in Colorado
Court of appeals with respect to the District Court's denial of his
motion to amend. The appeal has not yet been briefed or argued.
-19-
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
- -------- ---------- ---------- ------------------ ------------------
- -
October 1, 2008
through
October 31,
2008 396,734 .0108 396,734 -
November 1,2008
through
November 30,
2008 353,266 .0316 353,266 -
December 1, 2008
through
December 31,
208 201,839 .0080 201,839 -
------- ---- --------- ----------
Total 951,839 $.0179 951,389 -
======== ===== ========= ==========
* 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.
Item 3: Defaults upon senior securities
None
Item 4: Submission to a vote of security holders
None
-20-
Item 5: Other Information
None
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.
-21-
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: February 16, 2009 Clancy Systems International, Inc.
(Registrant)
By:/s/ Stanley J. Wolfson
Stanley J. Wolfson,
President and Chief
Executive Officer
By:/s/ Lizabeth Wolfson
Lizabeth Wolfson,
Secretary-Treasurer and
Chief Financial and
Chief Accounting Officer
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