-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GKWKGIUGKXCtHjKU++byIKbOByJO6z5Ry5FT6Ewx+vVKY6vUPCf4EKHGpFFMC7QJ CnVR4MgojTanIKTxTUYziw== 0000789318-09-000009.txt : 20090220 0000789318-09-000009.hdr.sgml : 20090220 20090220164901 ACCESSION NUMBER: 0000789318-09-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090220 DATE AS OF CHANGE: 20090220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLANCY SYSTEMS INTERNATIONAL INC /CO/ CENTRAL INDEX KEY: 0000789318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841027964 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-04882-D FILM NUMBER: 09625665 BUSINESS ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 308 CITY: DENVER STATE: CO ZIP: 80224 BUSINESS PHONE: 3037530197 MAIL ADDRESS: STREET 1: 2250 S ONEIDA STREET 2: STE 3308 CITY: DENVER STATE: CO ZIP: 80224 FORMER COMPANY: FORMER CONFORMED NAME: OXFORD FINANCIAL INC DATE OF NAME CHANGE: 19600201 10-Q 1 a10q1208.txt 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. -18 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 -22- EX-31 2 a10qcert311.txt Exhibit 31.1 Section 302 Certification Annual Report on Form 10-Q I, Stanley J. Wolfson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Clancy Systems International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Acts 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: February 19, 2009 /s/Stanley J. Wolfson Chief Executive Officer [00000-0000/DOCUMENT.01] -2- 10/6/98 [00000-0000/DOCUMENT.01] 10/6/98 EX-31 3 a10qcert312.txt Exhibit 31.2 Section 302 Certification Annual Report on Form 10-Q I, Lizabeth Wolfson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Clancy Systems International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Acts 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: February 19, 2009 /s/Lizabeth Wolfson Chief Executive Officer [00000-0000/DOCUMENT.01] -2- 10/6/98 [00000-0000/DOCUMENT.01] 10/6/98 EX-32 4 a10qcert321.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Clancy Systems International, Inc. (the "Company") on Form 10-Q for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanley J. Wolfson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stanley J. Wolfson _______________________ Chief Executive Officer February 19, 2009 EX-32 5 a10qcert322.txt Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Clancy Systems International, Inc. (the "Company") on Form 10-Q for the period ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lizabeth M. Wolfson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Lizabeth M. Wolfson _______________________ Chief Financial Officer February 19, 2009 [00000-0000/DOCUMENT.01] -5- 10/6/98 [00000-0000/DOCUMENT.01] 10/6/98 -----END PRIVACY-ENHANCED MESSAGE-----