UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 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 Company as specified in its charter)
_____COLORADO_______ ______84-1027964______
State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
2250 S. Oneida #308, Denver, Colorado 80224
(Address of principal executive offices and Zip Code)
(303) 753-0197
(Company's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has
been subject to such filing requirements for the past 90 days.
(1) Yes __X__ No _____
(2) Yes __X__ No _____
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendments to this Form 10-KSB. [X]
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 Company's revenues for its most recent fiscal year were
$4,018,573.
The aggregate market value of the voting stock held by
non affiliates (based upon the average of the bid and asked price
of these shares on the over-the-counter market) as of December 30,
2008 was approximately $1,569,857.
The number of shares outstanding of the issuer's classes of common
stock, as of January 15, 2009 is 378,968,338 shares, $.0001 par
value.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format:
Yes___ No __X__
CLANCY SYSTEMS INTERNATIONAL, INC.
Form 10-KSB
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operations
Item 7. Financial Statements
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
Item 8A. Controls and Procedures
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits
Item 14. Principal Accountant Fees and Services
CLANCY SYSTEMS INTERNATIONAL, INC.
Form 10-KSB
PART I
Item 1. Description of Business
Business Development.
In April 1987 Oxford Financial, Inc. (Oxford) merged with
Clancy Systems International, Inc.(Old Clancy). Oxford,
as the surviving company in the merger, changed its name
to Clancy Systems International, Inc. (the "Company").
Oxford was organized under the laws of the State of Colorado
on March 3, 1986. Old Clancy was organized under the laws
of the State of Colorado on June 28, 1984.
In February 1998, the Company acquired 60% ownership in a
partnership with Urban Transit Solutions (UTS).
In December 2003, the Company advanced additional funds to UTS
which resulted in additional shares being issued to bring
its ownership to 72%.
In September 2005, both the board of directors and shareholders
of UTS and the board of directors of Clancy Systems International,
Inc. approved an agreement to acquire the remaining shares of
UTS stock from the other shareholders in exchange for Clancy
stock. As a result of this exchange, UTS is a wholly owned
subsidiary of the Company.
The Company designs, develops and manufactures automated
parking enforcement systems primarily for lease to municipalities,
universities and institutions, including a ticket writing system
and other enforcement systems.
The Company has installed numerous parking enforcement
systems for various clients, towns and universities.
To augment the enforcement element of the system, the Company
manufactures and markets the original Denver Boot and other
enforcement tools. By utilizing an integrated approach, the
Company offers a complete parking citation processing system
including tracking, enforcement, collection and automatic
identification of delinquent violators in an effective and
efficient manner.
The Company also acquired and developed several stand alone
computer programs for special niche operations including
IDBadge.com,VirtualPermit.com, Remit-online.com, Expo1000.com,
Permit-sales.com and Park-by-phone.com. The Company acquired
Expo1000.com and Remit-online.com during fiscal year 2001. The
Company developed IDBadge.com, VirtualPermit.com, Permit-sales.com
and Park-by-phone.com internally.
-1-
The Company's principal executive offices are located at 2250
S. Oneida Street, #308, Denver, Colorado 80224 and its
telephone number is (303) 753-0197. The Company's web site is
www.clancysystems.com.
Business of the Issuer.
Principal Products or Services and Markets and
Distribution Methods.
The Company's parking enforcement system is an automated system
which generates parking citations. The system consists of a
hand-held, light-weight, portable data entry terminal, a light-weight
printer to generate the parking citation and a data collection
computer system to store parking citation data at the end of each day.
During the fiscal year ended September 30, 2008, the Company introduced
a "real time" system utilizing cellular technology and a wireless
bluetooth printer. The data is stored on in-house servers at the
Company in a cloud-computing environment. The system now allows users
to print photos on the tickets as well as store the photos with the
ticket records. All clients that are interested in the real time
system will be upgraded within the next 24 months. Some clients will
prefer to remain on the batch system. There are currently
approximately 2100 ticket issuance units in service.
The Company's system also includes a complete back office
processing and filing system. The Company provides computers,
printers and software to enable the user to obtain State Department of
Motor Vehicle lookups, maintain citation information storage and
recall, generate delinquent notices and have immediate access to
files of all tickets previously written. In addition, the
Company's system maintains a current, readily accessible list of
vehicles with multiple outstanding citations, stolen vehicles, or
vehicles otherwise wanted by local law enforcement officials. The
system also generates reports of citations by number and officer,
revenues collected, names of scofflaws, officer productivity and
other reports as deemed necessary or valuable to the agency.
The Company offers Internet payment processing of tickets,
permit registrations, and clearing of funds for its clients and
industry affiliates. The program accepts credit cards and checks
at its Remit-online.com web site 24 hours a day. As the items are
accepted, email notification goes immediately to the client for
notification and posting of payment. Settlement of funds is weekly
or monthly per contract arrangement.
Under the permit fulfillment program, patrons can purchase permits
at on-line web addresses for specific agencies. Payment processing
is done for checks and credit cards and the permits are
mailed directly for the agencies.
-2-
The Company's contracts for its parking enforcement systems
generally provide that the Company will provide the ticket writers,
a back office processing system, custom software and training and
support in consideration of a fee per citation issued, a monthly
fee for computer equipment rental and/or a set monthly fee.
Occasionally, the Company will provide its system through an
outright sale rather than through its typical lease arrangement.
The Company generally warrants its equipment, provides updating
and improvements to its system hardware and software and provides
customary indemnification. The Company also contracts its systems
under a privatization program whereby the Company provides a
complete facilities management program for the client. The
operation includes personnel to operate the system, issue tickets,
and take care of enforcement tasks, along with the collection of
ticket revenues, backlog ticket collections and other related
duties. These programs are offered under a revenue guarantee or
revenue split contract.
The Company is providing full service programs to private parking
industry clients. The programs include permit fulfillment, payment
processing, generating notice letters and related full service
programs. The programs provided to private lot operators increase
control of honor box payments, enforcement and lot management.
The Company currently has systems installed in municipalities
and universities representing approximately 9,800,000 tickets
issued per year.
The Denver Boot
The Denver Boot is a metal clamp which is fastened around a
wheel which effectively prevents a vehicle from being moved.
The Denver Boot is removed by unlocking a padlock. The Company
acquired all rights to the product in a transaction with Grace
Berg in June of 1994. The Company paid Mrs. Berg royalties on
all sales for a period extending through June 1999. The Denver
Boot is used by a number of law enforcement agencies on vehicles
with multiple offenses. The Denver Boot can be integrated into the
Company's parking control and enforcement system or may be sold
separately. The Company recently introduced a Super Boot to fit
some of the larger pickup trucks and SUV models.
Remit-online.com
Remit-online.com is an Internet based payment processing
system which allows for credit card and check payments to be made
for parking citations and other payment processing activities.
The business was developed independent of Clancy and funded by
Stanley Wolfson, the President of Clancy. The Company acquired
Remit-online.com (with Expo1000.com) from Wolfson in February
2001, in exchange for 17,489,315 shares of Clancy Systems
International, Inc. restricted stock.
-3-
Remit-online.com has been expanding and is being offered to
all clients of the Company as well as to other parking industry
businesses. The Company is able to process credit card and check
payments through services provided by 3rd parties. The Company
receives a processing fee for each transaction. As each
transaction is processed, notification is sent to the paid agency
by email so that posting of the account can be made promptly as
parking citations are date critical regarding amount due and
potential late fees. Settlement of collected funds between the
Company and the agency is made based on contractual agreement
either weekly or monthly.
Expo1000.com
Expo1000.com is an Internet based industry guide that is
structured as a virtual trade show with links to the actual
exhibitors Web sites. Expo1000.com was developed and funded
independent of the Company, and acquired from Stanley J. Wolfson
with the Remit-online business on November 18, 1999. The final
agreement and issuance of shares took place February 2001.
The business has been developed for specific industries with
focus on parking. Expo1000.com contains an internal
search engine which searches key words industry specific. Client
company listings are available by company name, product, as well
as search engine within the industry. The listings are
subscription based and billed annually. To make the site viable,
the primary focus in addition to selling the listings is to increase
the visits and exposure to sites. The Expo1000.com site highlights
"what's new" for the industry (press releases, new product
announcements, new service announcements). The site contains a
message board and email services to its subscribers and its
visitors.
Expo1000.com is also a parking advocacy forum and sponsors one
day solution seminars in strategic locations for exhibition and
education purposes. Expo1000.com vendors demonstrate their product
to invitees from strategic municipal, university and commercial
parking agencies.
Permitsales.com
Permitsales.com is a comprehensive program for online permit
registration. Through this program registration and renewals
for decal permits can be done. The program also is used
to register, create, and print special event permits and
periodic transit permits. The Company provides permit
fulfillment services.
-4-
IDBadgemaker.com
This is a PC based badge and security ID program that is used
in conjunction with digital photos to allow users to easily and
inexpensively make two-sided ID badges (with critical information
and bar codes). The program is sold as a stand alone program and
has been marketed directly to our clients as well as through
several on-line software product/download sites such as
Download.com. The product sells for $199 per license. The
download version can be used for demonstration with the word DEMO
stamped across any badge produced. The Company has had a great
deal of interest in the program and sales are commencing on a
regular basis. The program receives "excellent" ratings at
download.com.
VirtualPermit.com
This program is a paperless (and hard copy) permit system
now being used by many of the Company's clients. It includes
monitoring lots and garages, inventory of spaces, and can validate
active or lapsed permits.
Park-by-phone.com
This program is a technology based parking reservation and
payment system that benefits customers by allowing them
to pay (by credit card) and park by making one telephone call to
the Park-by-phone data center. Through strategic alliances with
parking operators, cities, and venues, this system allows
customers to have paid parking in an instant, without the need of
cash or coins.
Time IMS
During the fiscal year ended September 30, 2008, the Company
developed an internet based time keeping program geared to agencies
that need to keep accurate employee tracking and time keeping records.
The internet software system offers outservice agencies the ability to
accurately track and document skilled and unskilled care visits. The
program can also be used for general timekeeping purposes (i.e. hourly
workers, part time staffing, and other personnel tracking).
Competition.
The Company is aware of other companies that currently offer
an automated ticket writing system: Rhino Technologies,
Inc.; Cardinal; Com-Plus; T-2, and others. The Company
believes that it is able to compete effectively in the field
because of its fee per citation and leased system marketing
approach which eliminates any significant capital expenditures
by the user, its excellent program for customer support and
because of the various enforcement products which it offers
to complement its system.
-5-
Initially, the Company provides potential parking control
clients with consulting services to analyze the client's ticketing
and enforcement needs. The Company then develops a proposal based
upon those needs, which indicates how the Company's system and
related products would aid the client in achieving the two primary
goals of ticket writing and enforcement: creation of an equitable
enforcement policy and an increase in revenues. The Company
believes that a system which is perceived by the public to provide
a greater certainty of enforcement will result in a greater
willingness upon the part of the public to promptly and
consistently pay fines, thus increasing the flow of revenues to
the client. Depending upon the size of the client, the Company's
services may range from the simple sale of hardware (i.e., the
Denver Boot) to providing a ticketing and enforcement system and
related equipment through a lease or sale arrangement, training
users and handling data processing of tickets and the collection
of fines. The Internet based services added to client programs as
well as the Remit-online.com payment processing program makes the
Company's system more comprehensive and advantageous than
competitor systems.
Although a few of the Company's systems provide for the
purchase of systems or fees based on set monthly amounts, the
Company has been marketing its system and other products to
municipalities, universities, colleges, institutions and parking
companies primarily under a professional services contract geared
to a transactional or per citation basis. The Company supplies
all hardware, software, training, supplies and maintenance for the
system, thus eliminating all significant capital expenditures by
the user.
The Company markets its ticket writing and enforcement system
directly to municipalities, universities, colleges, institutions
and parking companies through commissioned sales representatives
and members of management. The Company currently has marketing
alliances with two organizations throughout the United States.
The Company's management attends trade shows and makes direct sales
calls.
Raw Materials and Principal Suppliers.
The Company purchases its hand-held computers from outside
vendors and the Company builds the printer units that incorporate
the hand-held terminal. The printer units for the various systems
are the same. The Company's latest generation printers feature
injection molded cases and an automatic top-of-form feature for
the paper feed. Other new technology for the electronics enable
interfacing with auxiliary hardware such as radio communications
devices, magnetic credit card readers and other peripheral devices.
The Company purchases its hand-held terminals from several different
vendors who sell computers that are all comparable in quality.
-6-
Component parts for the Company's products are purchased from
various sources. The Company has established relationships with
various vendors for such parts. The Company is not reliant on
sole source vendors for any item.
The Company's paper products are purchased from outside
vendors. Should any of these vendors be unable to supply these
specialized products, the Company believes that there are many
other available sources of supply.
The Company has manufactured a printer to interface to Palm
Computing devices. In December 2001, the Company began
production of a special keyboard/cradle for the Palm PDA
terminals. The cradle is called a Palmtype.
Other products sold by the Company which complement the
parking citation issuance programs, include: ID BADGEMAKER
(which is sold for $199 per license)and the Denver Boot. The Company
has enhanced features on its ticket processing system; digital photo
system; virtual permit system which is a fully operational permit
issuance, payment and tracking system which reduces paperwork,
decal distribution and employee time to administer a parking permit
program; a daily permit one use parking permit program for short
duration parking validation; an employee badge ID system which
can be used by parking systems, rental car systems, and other
industries; a management alert system which is an automated data
analysis program which emails information and alerts directly to
management to reveal such information as permit violations, ticket
issuance productivity numbers, revenue numbers and other
and timely information. Other software products include the
on-line permit renewal system.
Significant Customers.
Presently, the Company has 175 customers. The Company
continually updates the hardware and software products provided
to these and all of its customers in an effort to ensure quality
service and customer satisfaction.
Privatization Contracts. In a contract for privatization,
the Company provides a full facilities management operation for
the city of Logan, UT, Los Angeles Metropolitan Transportation
Authority (LAMTA) and Norwalk Transit Santa Fe Springs (NTSFS).
For the City of Logan, the Company provides personnel,
vehicles, an office, ticket issuance and ticket payment processing.
The Company pays the City a 50/50 split after all expenses are
paid. For LAMTA and NTSFS, the Company provides lot services
including signage and striping, ticket issuance, permit fulfillment,
special event parking, and other related services. Fees are based on
the different service levels. The programs for the cities in
Puerto Rico are privatization contracts whereby all manpower is
provided by UTS.
-7-
Urban Transit Solutions, Puerto Rico.
In February 1998, the Company acquired 60% ownership in a partnership
with Urban Transit Solutions (UTS). The Company committed to
$500,000 in funding to UTS between January 20, 1998 and April 30,
1999. At September 30, 2001, the Company had paid $500,000 to UTS.
UTS currently has contracts in Mayaguez, Carolina, San German,
Manati, Caguas, Isabela, Aquas Buenas, Ponce and San Juan, Puerto Rico.
UTS has installed meters and signs and provides personnel for ticket
issuance and enforcement for these cities. Other services include
meter collections, ticket collections, code enforcement and lot
enforcement. In September 2005, the Company acquired all outstanding
shares of UTS stock in exchange for shares of the Company's common
stock. It's ownership changed from 72% to 100%. Currently UTS
accounts for approximately 40% of total revenues.
Patents and Licenses.
The Company obtained a patent (No. 5,006,002) for its printer
used in its parking enforcement, rental car return and inventory
control systems in April 1991. This patent expires April 2008.
The Company also obtained a patent for a printer latch on
June 27, 2000. The patent expires in June 2019.
The Company applied for a patent for its palmtype and
Palm specific software in July 2002. The Company was
awarded patent No. 6,970,109 on November 29, 2005.
The Company has also filed for and was granted
Trademarks for PARK-BY-PHONE. On July 26, 2005, the Company
received trademark No. 2,979,359 for PARK-BY-PHONE.COM and
trademark No. 2,979,358 for PARK-BY-PHONE.
Need for Governmental Approval.
Many of the Company's contracts are awarded after a
Request for Proposal has been tendered by the agency.
Other companies with similar technologies also bid on
the Request for Proposal tenders.
Research and Development.
In order to keep its products and systems from becoming
obsolete, the Company regularly modifies and updates its
hardware and software. In order to streamline its ticket
writing and car rental equipment, the Company has redesigned
the printer so that it weighs less than two pounds. New
battery technology has also allowed the Company to reduce
the weight in the printers.
The Company currently produces a printer to interface to
its handheld devices that is light weight (at 1 1/2
pounds) and can produce a completed ticket in 20
seconds.
-8-
The Company has developed a keyboard and cradle for Palm
devices.
Management keeps informed of new developments in components
so that the printer is up-to-date, fast and suits user
requirements. The Company communicates with vendors on a regular
and ongoing basis so that management is aware of upgraded
components, new components and new processes to upgrade its
hardware. By adapting its equipment to user needs and keeping
current of the latest technology, the Company anticipates that its
enforcement ticket writing and rental car systems will not become
obsolete. The Company is currently developing new applications
with the new printer and Palm computing devices which will move
outside the parking and rental car industries. The Company's
software is developed in-house by four full-time programmers and
by Stanley J. Wolfson, the Company's President and a director,
and is maintained and updated on a regular basis.
The office computer software allows the daily ticket and
rental and inventory information to be transferred from the
portable units to a central computer. The information is compiled
and then processed further according to user requirements.
Through sophisticated communications software developed
internally, the Company is able to update, modify, repair, enhance
and change most software at the client's location via a modem and
the Internet.
The Company spent $8,777 and $19,853 on research and development
activities for the fiscal years ended September 30,
2007 and 2008, respectively. None of the cost of such activities
was borne directly by the customers.
Compliance with Environmental Laws.
Compliance with federal, state and local provisions regulating
the discharge of materials into the environment or otherwise
relating to the protection of the environment will have no material
effect on the capital expenditures, earnings and competitive position
of the Company. The Company has entered into an arrangement with
RBRC (Rechargeable Battery Recycling Corporation) for the recycling of
all batteries.
The Company donates its used computer equipment to various
churches. The program has been very successful as the computers
are capable of early computer training programs even though they
are no longer acceptable to operate the Company's systems.
Employees.
The Company currently has ten employees in Company operations
and four employees in privatization projects, all of whom are employed
on a full time basis. Urban Transit Solutions has 2 employees in
upper management, 5 employees in field management and 30 employees
in operations.
-9-
Item 2. Description of Properties.
The Company is leasing approximately 1,700 square feet of
office space located at 2250 South Oneida Street, #308, Denver,
Colorado for its corporate offices for $2,127 per month, plus
common area maintenance expenses of approximately $340 per month
pursuant to a lease agreement with an unaffiliated party which
expires May 31, 2010.
The Company also leases approximately 3,000 square feet of
manufacturing space located at 5789 S. Curtice, Littleton,
Colorado, from an unaffiliated party. Rental payments are $650 per
month pursuant to a month to month lease agreement.
The Company leases an office in Logan, Utah which is
approximately 500 square feet from an unaffiliated party. Rental
payments are $433 per month plus utilities pursuant to a
agreement which expires May 31, 2010.
UTS operates offices in the Puerto Rican cities of Arecibo,
Toa Baja, Caguas, Aguas Buenas, Humacao, Ponce, and San German.
The Company believes that these facilities are suitable and
adequate for its needs.
The Company has always entered into 1 and 2 year lease agreements
and is confident that it can renew its leases under the same
terms and conditions.
Item 3. Legal Proceedings.
On March 21, 2002, a complaint was filed in Denver District Court by
Francis Salazar against the Company. Mr. Salazar was seeking
compensation for alleged loss of profit on the sale of 6,000,000
shares of the Company's common stock that carried a restrictive
legend under Rule 144 of the Securities Act of 1933, as amended.
The complaint alleges that the restrictive legend prevented Salazar
from selling the shares during an uptick in the Company's share price.
The Company filed a motion to dismiss which was granted in December
2002, but subsequently overturned on appeal in October 2003.
Clancy filed a motion with the District Court, City and County of
Denver, Colorado, Case #02-CV-2391, for Summary Judgment to dismiss
the case in June 2004. That motion was granted and the case was
dismissed on August 13, 2004.
However, in November 2004, Mr. Salazar filed a notice of appeal
in the Colorado Court of Appeals with respect to the suit dismissed
by the District Court in August, 2004. In September 2006, the Court
of Appeals granted Mr. Salazar's appeal. Clancy has filed a petition
for certiorari seeking to have the matter heard by the Colorado
Supreme Court. The Writ was granted and the Supreme Court heard the
case on September 11, 2007.
-10-
On March 17, 2008, the Colorado Supreme Court issued a decision
affirming the District Court dismissal of Mr. Salazar's Suite. 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.
UTS 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, and was
included as part of other income in the accompanying statement of
operations.
However, 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. 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.
-11-
PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5(a). Market for Company's Common Stock and Related Security
Holder Matters.
The principal market on which the Company's Common Stock is
traded is the over-the-counter market and the Company's Common
Stock is quoted in the OTC Bulletin Board.
The range of high and low bid quotations for the Company's
Common Stock for the last two fiscal years are provided below.
The quotations are obtained daily from Yahoo.com stock quotations
via the Internet. These over-the-counter market quotations reflect
inter-dealer prices without retail markup, markdown or commissions
and may not necessarily represent actual transactions.
High bid Low bid
10/1/06 - 12/31/06 .026 .010
1/1/07 - 3/31/07 .022 .014
4/1/07 - 6/30/07 .022 .017
7/1/07 - 9/30/07 .021 .016
10/01/07 - 12/30/07 .018 .015
01/01/08 - 03/31/08 .018 .014
04/01/08 - 06/30/08 .015 .012
07/01/08 - 09/30/08 .012 .011
On January 12, 2009 the reported bid and asked prices for
the Company's Common Stock were $.0071 and $.009, respectively.
The approximate number of record holders of the Company's
Common Stock on January 12, 2009 was 571. The Company has paid
no dividends with respect to its Common Stock.
There are no contractual restrictions on the Company's
present or future ability to pay dividends.
-12-
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
------ ---------- ---------- ------------------ -----------------
Month #1
July 1, 850,000 .019 850,000 -
through
July 31,
2008
Month #2
August 1 - - - -
through
August 31,
2008
Month #3
September 1 - - - -
through
September 30,
2008
------- ---- --------- ----------
Total 850,000 .019 850,000 -
======== ===== ========= ==========
* 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. All purchases
were made as open market transactions.
-13-
Item 6. Management's Discussion and Analysis or Plan of
Operation
Management's Statement Regarding Forward Looking Information
Statements of the Company's or management's intentions,
beliefs, anticipations, expectations and similar expressions
concerning future events contained in this document constitute
"forward looking statements." As with any future event, there
can be no assurance that the events described in forward looking
statements made in this report will occur or that the results
of future events will not vary materially from those described
in the forward looking statements made in this document.
Important factors that could cause the Company's actual
performance and operating results to differ materially from the
forward looking statements include, but are not limited to, (i)
the ability of the Company to obtain new customers, (ii) the
ability of the Company to continue 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. In the following discussion, reference to
Clancy is to the parent company on a stand-alone basis and
reference to Clancy consolidated is for Clancy and UTS combined.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
At September 30, 2008, the Company had working capital of
$1,451,981 as compared to $843,639 at September 30, 2007.
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.
Clancy's consolidated current ratio increased to 3.10 to 1 from
2.23 to 1 from September 30, 2007 to September 30, 2008.
REVENUES. From fiscal 2007 to fiscal 2008 revenues increased by
approximately $334,557 or 9.1% from $3,684,016 to $4,018,573. This
increase in revenues is due to the addition of new customers, products
and services during the year ended September 30, 2008. Clancy's
Remit-online services has processed 294,432 transactions
totaling $11,486,592 for the year ended September 30, 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.
-14-
COST OF SALES. From fiscal 2007 to fiscal 2008, cost of
sales decreased by $40,599 or 4.8% from $852,557 to $811,958.
Cost of sales as a percentage of revenue was 23.1% for fiscal 2007
and 20.2% for fiscal 2008. The decrease in cost of sales was a
small factor in the increased earnings. Cost of sales can vary
due to weather conditions, employment conditions, and other
conditions that affect the Company's clients' ticket issuance
programs.
RESEARCH AND DEVELOPMENT. The Company's parking enforcement systems
research and development costs increased from $8,777 to $19,853, or
126.2%, from fiscal 2007 to 2008. The increase reflects further
development on the Company's bluetooth printer and several other
projects.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses increased by $58,344 or 2.4 % from $2,420,724 to
$2,479,068 from fiscal 2007 to 2008. The increase in general and
administrative costs for the Company is primarily due to the
addition of new offices opened by UTS in Puerto Rico
during the year with resultant payroll and overhead expenses.
NET INCOME. The Company reported net income of $99,513 for fiscal
2007 as compared to $657,516 for fiscal 2008. The primary reason
for the increase in net income of $558,003 for fiscal 2008 is due
to additional customers and services as described in the increase
in net revenue above. UTS derived income from two contract
settlements from Arecibo and Humacao, which were bought out early.
During the fiscal years ended September 30, 2007 and 2008,
the Company had in place a total of approximately 170 and
175 ticket issuance systems respectively.
During the next twelve months, the Company will continue to expand
its Internet based programs to include Time IMS as well as
expanding Park-by-phone and remit-online.
During the year ended September 30, 2008, the Company finalized
board design for its bluetooth wireless printer and expects to have
most clients using the new printers within the next 24 months.
The Company manufactures a printer to interface to Palm,
Ipaq, and other handheld devices including cellular devices. It
incorporates a state of the art printer mechanism, light weight
battery technology, and prints flat ticket forms. The company
also manufactures a keyboard cradle for Palm devices. The Palm
keyboard features a full 45 key alpha/numeric keypad with assignable
function keys.
Management keeps informed of new developments in components
so that the printer and keypads are up-to-date, fast and
suit user requirements. The Company communicates with
vendors on a regular and ongoing basis so that management
is aware of upgraded components, new technologies and
processes that can be used to upgrade its hardware.
15
The Company has a relationship with an engineer, who, although
he works as an independent contractor, dedicates as much
time as the Company requires to develop and enhance its
products. The engineer also does R&D for the Company and
makes prototype boards for testing and evaluation.
The Company's software is developed in-house by four full-
time programmers and by the Company's President, Stanley
Wolfson, and is maintained and updated on a regular basis.
Clancy is qualified as a Microsoft Certified Partner.
The 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 its 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
The Company provided a total financial investment of $500,000 to
Urban Transit Solutions between March 1998 and April 1999. UTS
has been generating revenue since August 1998. Collections from
parking lot fees from Caguas commenced in January 1999. The
Company's loan to its primary bank and private lender have been
paid back by the Company's cash flows.
In September 2005, the Company acquired all outstanding shares
of UTS stock in exchange for shares of the Company's common stock.
It's ownership changed from 72% to 100%.
Damaris Carasquillo 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.
-16-
UTS continues to add new clients. In December 2007, UTS entered into
a contract for a full service program for the city of San Juan, PR,
which will include the installation of single space meters, multi-
space meters, signs, ticket issuance and collection and enforcement.
The program became operational in June 2008.
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's expenses increased as a direct result of the
Sarbanes-Oxley Act of 2002 as it pertains to additional accounting
and auditing procedures. The Company now utilizes four different
accounting firms for preparation of financial statements, reviews
and auditing functions. Both the US operations and the UTS operations
require the services of accounting firms for preparation of financial
statements and tax filings and independent auditors for review of
all financial statements.
Director and Officer insurance premiums have tripled for
the Company(this is consistent with the industry as a result
of the public company accounting irregularities of several
years ago). The Company is able to qualify for Directors
and Officers insurance when many companies are no longer
able to qualify.
Municipalities are in search of additional revenues and the
installation and implementation of means to efficiently and
effectively collect parking ticket revenues is a viable source
of such additional revenues for many locales. As on street parking
spaces are finite, and populations increase, a structured management
system of turnover, enforcement and accountability of parking
revenues will be imperative for all cities.
In addition, the Company supplies all hardware, software,
training, supplies and maintenance for the system, thus
eliminating all significant capital expenditures by the user.
The Company has experienced a large number of inquiries about
its system related to the total program and special features and
anticipates growth in this area in the next fiscal year.
Uncertainties that can impact revenues from the Company's
service contract agreements would be related to dramatic
weather changes and municipal disaster occurrences (i.e.
September 11, 2001).
-17-
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, 2009.
The Company has experienced significant interest in the Denver
Boot for vehicles as well as for security on other mobile
devices including construction trailers and communications
generators. There has also been a demand for the Denver Boot
for enforcement on private property. Exposure on the Internet
has been favorable for sales of this product.
The Company has experienced an interest in its IDBadgemaker
software. The program is utilized by news services,
janitorial companies, social service agencies, private clubs
and others for security and identification purposes. The
program receives "excellent" ratings at download.com.
Remit-on-line.com has grown as a ticket payment site. It is
offered to Clancy ticket system clients and other companies
in parking industry businesses. Remit processes an average
of $850,000 per month in transactions. The Company has
observed a continuing increase in activity monthly. The
Company realizes revenue on each transaction as each
remitter pays the Company a processing fee to use the
service. The net amount received by the company
per transaction varies based on the remitter's payment
amount.
-18-
In addition, outstanding ticket fines of approximately
$6,000,000 for UTS and $1,192,501 for Clancy's Logan, UT
operation have not been recognized as revenue at September
30, 2008 based on SEC accounting guidance.
CONTRACTUAL OBLIGATIONS
The following obligations are those of the consolidated
Company.
Payment Due by Period
Contractual Less than
Obligations Total 1 year 1-3 years 4-5 years Over
5 years
Long Term
debt $ --- $ --- $ --- $ --- $ ---
Capital
Lease
Obligations 6,780 4,068 2,712 --- ---
Operating
Leases
UTS 103,526 62,166 41,360 --- ---
Clancy 57,422 34,412 23,010 --- ---
Purchase
Obligations --- --- --- --- ---
Other Long-
term
obligations --- --- --- --- ---
--------- --------- ---------- ---------- ---------
Total
Contractual
Cash
Obligations $ 167,728 $100,646 $ 67,082 $ --- $ ---
========= ======== ========= ========== ==========
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.
-19-
The preparation of this Annual Report requires the Company to
make estimates and assumptions that affect the reported amount
of assets and liabilities of the Company, revenues and expenses
of the Company during the reporting period and contingent assets
and liabilities as of the date of the Company's financial statements.
There can be no assurance that the actual results will not differ
from those estimates.
REVENUE RECOGNITION: Revenue derived from professional service
contracts on equipment and support services is included in
income ratably over the contract term; related costs consist
mainly of depreciation, supplies and sales commissions. The
Company defers revenue for equipment and services under
service contracts that are billed to customers on a quarterly,
semi-annual, annual, or other basis. Revenue from the issuance
of parking citations for the Company's privatization projects is
recognized on a cash basis when received as collectibility is
cannot be reliably predicted at this time. Revenue derived from
professional service contracts on parking meter and lots fees
collections is recognized on a cash basis when received, net
of municipalities' fees, as services are provided. Related costs
consist mainly of depreciation and lot rents.
The Company recognized revenue in accordance with the Securities
and Exchange Commission Staff Accounting Bulletin 104 (SAB 104).
SAB 104 provides that the conditions for realization of revenue
are as follows:
(1) persuasive evidence of an arrangement exists; (2) delivery
has occurred or services have been rendered; (3) the seller's
price to the buyer is fixed or determinable, and (4)
collectibility is reasonably assured.
In addition, the Company presents revenue gross or net of direct
expenses in accordance with Emerging Issues Task Force Issue 99-19
(EITF 99-19), "Reporting Revenue Gross as a Principal Versus Net
as an Agent". Under EITF 99-19, revenue is presented gross,
determined on a contract by contract basis, where the Company acts
as principal, takes title to the products sold, has the risks and
rewards of ownership, such as the risk of loss for collection,
delivery or product returns. Revenue is presented net of direct
costs, determined on contract by contract basis, where the Company
primarily acts as agent by providing services for a commission or fee.
Before the Company recognizes revenue, a contract is entered into
with the client (which details the fees to be charged), all software
and equipment per the contract is delivered, and as most of the
Company's clients are municipalities or universities, in general,
collectibility is reasonably assured.
-20-
Contracts for the Company's ticket writing system are entered into
under one of four different pricing options. The Company (1) sells
the equipment, ticket stock and licenses the software separately,
(2) charges a monthly fee for the use of equipment and software,
(3) charges a fee per ticket at the time the ticket stock is
provided to the client, or (4) provides a full privatization
program. In a sale transaction, revenue is recognized on the sale
of the equipment, license and ticket stock (less an amount for
customer support). When the Company charges a monthly fee, that
fee is recognized in income in the period the services are provided.
When the Company charges a fee per ticket, the Company recognizes
revenue for the portion considered a sale of the ticket stock on
delivery of the tickets and the remainder is recognized over
the period of estimated usage of the tickets based on past
history with the client.
In a privatization program, client revenue guarantees may be entered
into for a period of time, generally one year at a time. A ratable
portion of the client revenue guarantee is recognized each month as
an expense. In revenue split arrangements, the portion of the cash
collected and owed each month is recognized as a liability and an
expense.
The Company does not offer a right of return on sales of equipment
or ticket stock. Equipment sold, other than the Company's
proprietary products, is covered under the manufacturer's warranty.
Warranty expense for the Company's products has been immaterial
in the past. Revenue recognition commences after the
equipment has been delivered and the software has been installed
and is operational.
COMPUTER SOFTWARE. Costs incurred prior to establishment of
the technological feasibility of computer software are research
and development costs, which are expensed as incurred. Software
development costs incurred subsequent to establishment of
technological feasibility are capitalized and subsequently
amortized based on the lesser of the straight line method
over the remaining estimated economic life of the product
(generally 5 years) or the estimate of current and future
revenues for the related product.
GOODWILL.
The excess of the purchase price over net assets acquired by the
Company from unrelated third parties is recorded as goodwill.
Goodwill resulted from the acquisition of UTS. On January 1, 2002,
the Company adopted Statement of Financial Accounting Standards
No. 142 (SFAS 142), "Goodwill and Intangible Assets", which
clarifies the accounting for goodwill and intangible assets.
Under SFAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized, but will be tested for impairment
at least annually and also in the event of an impairment indicator.
There is no impairment of goodwill considered necessary as of September
30, 2007 and 2008.
-21-
RECENT ACCOUNTING PRONOUNCEMENTS
On February 15, 2007, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities" (SFAS No. 159). SFAS No. 159 permits entities
to choose to measure many financial instruments and other items at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and
liabilities differently, without having to apply complex hedge
accounting procedures. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar
types of assets and liabilities. The Statement is expected to expand
the use of fair value measurements, which is consistent with the Board's
long-term measurement objectives for accounting for financial instruments.
SFAS No. 159 will be effective for the Company's 2009 fiscal year and
will be required to be adopted by the Company effective October 1,
2008. Management at this time has not evaluated the impact, if any,
of adopting SFAS No. 159 on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS 157). This standard defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157, as amended, is effective
for the Company beginning October 1, 2008. The Company believes
that the adoption of SFAS 157 will not have a material effect
on its financial position, results of operations or cash
flows.
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American
Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not, or are not believed by
management to, have a material impact on the Company's
present or future consolidated financial statements.
STOCK PURCHASE
The Company has implemented a reacquisition of equity securities which
commenced 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.
CHAT ROOM DISCLAIMER
This forum of exposure to publicly traded companies presents
a venue for the public to inquire about companies from other
individuals as well as post opinions.
The Company has no way to regulate postings nor monitor,
affirm or dispute information disclosed on these boards.
-22-
Management can only provide information to shareholders and
potential shareholders when contacted directly and such
information can only be provided when it is based on fact
and has been filed as required by law with the Securities and
Exchange Commission and other regulatory agencies.
HUMAN RESOURCES
Our greatest resources are our dedicated employees who
devote their talents and energies to bettering our systems
and improving our products. Their efforts have driven the
Company's success and they continue to be the most valuable
resource of the Company.
RISK FACTORS
An investment in our common stock involves a high degree of risk.
Prospective investors should consider carefully the following
factors and other information in this report before deciding to
invest in shares of our common stock. If any of the following
risks actually occur, our business, financial condition, results
of operations and prospects for growth would likely suffer. As a
result, the trading price of our common stock could decline and
you could lose all or part of your investment.
Risks Related to Our Business
Our success depends on our ability to continue to develop and
commercialize our products and services. Our ability to develop
any of the products or services is dependent on a number of
factors, including availability of working capital to complete
development efforts and to commercialize our products and
services, thereby maintaining and/or increasing revenues once
development efforts prove successful. There can be no assurance
that we will not encounter setbacks with the products and services,
or that working capital and our revenues will be sufficient.
A loss of several of our customers at once could adversely affect
our business.
We derive a large portion of our revenues from the parking
enforcement products and services we provide to our customers.
Although a loss of a few customers would have a minimal impact on
our business, a loss of several customers at once could materially
affect our revenue and projected growth.
As a result, our revenues from parking enforcement products
and services may decline significantly in any given period.
Our competitors may have greater resources or research and
development capabilities than we have, and we may not have
the resources necessary to successfully compete with them.
-23-
Our business strategy has been to create a niche in the parking
enforcement operations. We believe that we are able to compete
effectively in the field because of our fee per citation and
leased system marketing approach which eliminates any significant
capital expenditures by the user, our excellent program for customer
support and because of the various enforcement products which we
offer to complement our system.
The parking enforcement business is highly competitive, and
we may face increasing competition. We expect that some
of our competitors will have greater financial and human
resources, more experience in research and development,
and more established sales, marketing and distribution capabilities
than we have. In addition, new product introductions or other
technological advancements by our competitors could have an
adverse affect on some or all of our products and services.
Because the current financial and banking markets are
vulnerable to the shaky economic environment, the Company
as been very concerned about how to invest and protect
its assets and cash. In a recent move by the FDIC, the
Transaction Guarantee Program (TLG) as described in the
Interim Rule will insure all non-interest bearing accounts
for full coverage (effective from October 14, 2008 through
December 31, 2009) providing the bank does not opt-out of
the program. The Company has verified that its bank has
not opted out and has moved all funds into transaction
accounts to ensure adequate FDIC insurance coverage.
RISKS RELATED TO OUR SECURITIES
We do not expect to pay dividends in the foreseeable future.
We do not expect to pay cash dividends on our common stock at
any time in the foreseeable future. The future payment of
dividends directly depends upon our future earnings, capital
requirements, financial requirements and other factors that
our board of directors will consider.
Since we do not anticipate paying cash dividends on our common
stock, return on your investment, if any, will depend solely on
an increase, if any, in the market value of our common stock.
Our common stock is classified as a "penny stock" under SEC
rules and the market price of our common stock is highly unstable.
A limited trading market exists for our common stock on the OTC
Bulletin Board. Since inception of trading, our common stock has
not traded at $5 or more per share. Because our stock is not traded
on a stock exchange, the market price of the common stock is less than
$5 per share, the common stock is classified as a "penny stock." SEC
Rule 15g-9 under the Exchange Act imposes additional sales practice
requirements on broker-dealers that recommend the purchase or sale
of penny stocks to persons other than those who qualify as an
"established customer" or an "accredited investor."
-24-
This includes the requirement that a broker-dealer must make a
determination that investments in penny stocks are suitable for
the customer and must make special disclosures to the customers
concerning the risk of penny stocks. Many broker-dealers decline
to participate in penny stock transactions because of the extra
requirements imposed on penny stock transactions. Application
of the penny stock rules to our common stock reduces the market
liquidity of our shares, which in turn affects the ability of
holders of our common stock to resell the shares they purchase,
and they may not be able to resell at prices at or above the
prices they paid. Furthermore, at present there is relatively
limited trading in our stock which could cause our price
to fall if shares are sold into the market.
RISK RELATED TO INTERNAL CONTROLS
We identified material weaknesses in our disclosure controls and
procedures and our internal control over financial reporting.
Section 404 of the Sarbanes-Oxley Act of 2002 requires management
to assess our internal control over financial reporting ("ICFR") pursuant
to a defined framework. In making that assessment, management identified
a material weakness in our disclosure controls as a result of several
material weaknesses identified in our ICFR as described in Item 8A(T)
below. There are inherent limitations in the effectiveness of any system
of internal control, and accordingly, even effective ICFR can provide
only reasonable assurance with respect of financial statement preparation
and may not prevent or detect misstatements. Material weaknesses make
it more likely that a material misstatement of annual or interim
financial statements will not be prevented or detected. In addition,
effective ICFR at any point in time may become ineffective in future
periods because of changes in conditions or due to deterioration in
the degree of compliance with our established policies and procedures.
Item 7. Financial Statements.
The following financial statements are filed as a part of
this Form 10-KSB and are included immediately following the
signature page.
Reports of Independent Registered Public Accounting
Firms F-1
Consolidated Balance Sheets - September 30, 2007 and
September 30, 2008 F-3
Consolidated Statements of Income -
Years ended September 30, 2007 and 2008 F-5
Consolidated Statements of Stockholders' Equity -
Years ended September 30, 2007 and 2008 F-6
Consolidated Statements of Cash Flows -
Years ended September 30, 2007 and 2008 F-7
-25-
Notes to Consolidated Financial Statements F-9
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
NONE
Item 8A(t). Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered in this report, we carried out an
evaluation of the procedures. This evaluation was carried out under
the supervision and with the participation of our chief executive office
and our chief financial officer, who concluded, that because of the
material weakness in our internal control over financial reporting
described below that, our disclosure controls and procedures were not
effective as of September 30, 2008. A material weakness is a deficiency
or a combination of deficiencies in internal controls over financial
reporting such that there is not a reasonable possibility that a
material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
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 management, including our principal executive officer and our
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
(b) Internal Control Over Financial Reporting.
Management of the Company is also responsible for establishing
internal control over financial reporting as defined in Rules 13a-15(f)
and 15(d)-15(f) under the Securities Exchange Act of 1934.
The Company's internal control over financial reporting are intended
to be designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted
accounting principles. The Company's internal controls over
financial reporting are expected to include those policies and procedures
that management believes are necessary that:
(i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
-26-
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial
statements.
As of September 30, 2008, management assessed the effectiveness
of the Company's internal control over financial reporting (ICFR)
based on the criteria for effective ICFR established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and SEC guidance on
conducting such assessments by smaller reporting companies and
non-accelerated filers.
Based on that assessment, management concluded that, during
the period covered by this report, such internal controls and
procedures were not effective as of September 30, 2008 and that
material weaknesses in ICFR existed as more fully described below.
As defined by Auditing Standard No. 5, "An Audit of Internal
Control Over Financial Reporting that is Integrated with an Audit of
Financial Statements and Related Independence Rule and Conforming
Amendments," established by the Public Company Accounting Oversight
Board ("PCAOB"), a material weakness is a deficiency or combination
of deficiencies that results more than a remote likelihood that a
material misstatement of annual or interim financial statements will
not be prevented or detected. In connection with the assessment
described above, management identified the following control
deficiencies that represent material weaknesses as of September 30,
2008:
(1) Lack of an independent audit committee or audit committee
financial expert. Although our board of directors serves as the audit
committee it is not wholly comprised of independent directors. Further,
we have not identified an audit committee financial expert on our board
of directors. These factors are counter to corporate governance practices
as defined by the various stock exchanges and may lead to less supervision
over management.
(2) Inadequate staffing and supervision within our bookkeeping
operations. We have only a single employee involved in bookkeeping
functions, and we utilize independent consultants on a part-time basis
to supplement our accounting staff. The relatively small number of
people who are responsible for bookkeeping functions prevents us
from segregating duties within our internal control system.
-27-
The inadequate segregation of duties is a weakness because it
could lead to the untimely identification and resolution of
accounting and disclosure matters or could lead to a failure to
perform timely and effective reviews which may result in a
failure to detect errors in spreadsheets, calculations, or
assumptions used to compile the financial statements and
related disclosures as filed with the Securities and Exchange Commission.
(3) Outsourcing of significant portions of the accounting operations
of our Company. Because there are few employees in our administration,
we outsource a significant portion of the accounting functions of our
Company to an independent accounting firm. The employees of this accounting
firm are managed by supervisors within the accounting firm, and are
not answerable to the Company's management. This is a material weakness
because it could result in a disjunction between the accounting policies
adopted by our Board of Directors and the accounting practices applied
by the accounting firm.
Our management determined that these deficiencies constituted
material weaknesses.
Due to the small size of the Company and a lack of personnel
resources, we are not able to, and do not intend to, immediately
take any action to remediate these material weaknesses. However,
we will implement further controls as circumstances permit.
Notwithstanding the assessment that our ICFR was not effective and
that there were material weaknesses as identified in this report,
we believe that our consolidated financial statements contained in
our Annual Report on form 10-KSB for the fiscal year ended September
30, 2008, fairly present our financial position, results of operations
and cash flows for the years covered thereby in all material respects.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to
attestation by the Company's registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit
the Company to provide only management's report in this annual report.
There were no changes in our internal control over financial
reporting during the quarter ended September 30, 2008, that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
-28-
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
Identification of Directors and Executive Officers.
Dates
Position of
Name held with Company Age service
Stanley J. Wolfson President, Chief Executive 65 1987
Officer and Director
Lizabeth M. Wolfson Secretary-Treasurer and 63 1987
Chief Financial and Chief
Accounting Officer and Director
James R. Nyman Director 62 2003
The business experience of the Company's officers and
directors is as follows:
Stanley J. Wolfson, President, Chief Executive Officer and a
director of the Company since February 1987. Mr. Wolfson attended
the University of Colorado at Boulder and the University of
Colorado at Denver.
Since 1967 Mr. Wolfson has been president and director of Portion
Controlled Foods, Inc. d/b/a Stan Wolfson and Associates, Inc., a
data processing systems consulting firm located in Denver, Colorado
which employs two persons on a part-time basis. His firm's clients
include The Hertz Corporation that utilizes Stan Wolfson and Associates,
Inc.'s hand-held data entry equipment as part of its on-site national
inventory control system. The Hertz Corporation has been a major
customer of the Company. See Part I, Item 1. Mr. Wolfson has served
as remote data acquisition consultant for AT&T as well as a consultant
for a number of small local companies. Mr. Wolfson is the husband of
Lizabeth Wolfson, an officer and director of the Company.
Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial
and Chief Accounting Officer of the Company since February 1987.
Mrs. Wolfson attended the University of Colorado at Boulder and
the University of Colorado at Denver. Mrs. Wolfson had been
secretary and treasurer of Clancy from 1986 and a director since
June 1999. Since 1978, Mrs. Wolfson has served as secretary of
Stan Wolfson and Associates, Inc. She is the wife of Stanley J.
Wolfson, President, Chief Executive Officer and a director of the
Company.
-29-
James R. Nyman, Director since October 2003. Mr. Nyman is a graduate
of University of Minnesota with a degree in Aerospace Engineering and
received his Master's Degree in Business Administration at California
State University, Long Beach. Mr. Nyman has 23 years of experience in
local government services. He served as the director of Information
Services for the City of Inglewood, CA, from January, 1976 until
May 2002 and from May 2002 to present he is serving as
President of California Municipal Technologies, Inc. Mr. Nyman served
two terms as Mayor of Palos Verdes Estates, Palos Verdes, CA.
None of our directors or executive officers is currently, nor in the
past 5 years have been, involved in any legal proceeding.
Audit Committee
The Board of Directors as a whole functions as the audit committee.
The Company does not have an audit committee financial expert because
its limited resources have not permitted it to search for and locate
an appropriate financial expert.
Nominating Committee
The entire Board of Directors fulfills the duties of our Nominating
Committee ("Nominating Committee"), which include overseeing the
process by which individuals may be nominated to our board of directors.
While the Company hopes to establish a separate nominating committee
consisting of independent directors if the number of directors is
expanded, the current size of the Company's Board of Directors
does not facilitate the establishment of a separate committee. Our
Nominating Committee's charter was adopted by the board of directors
effective as of September 30, 2005.
The functions performed by the Nominating Committee include
identifying potential directors and making recommendations as to the
size, functions and composition of the Board and its committees. In
making nominations, our Nominating Committee is required to submit
candidates who have the highest personal and professional integrity,
who have demonstrated exceptional ability and judgment and who shall
be most effective, in conjunction with the other nominees to the
board, in collectively serving the long-term interests of the
shareholders.
The Nominating Committee considers nominees proposed by our
shareholders. To recommend a prospective nominee for the Nominating
Committee's consideration, you may submit the candidate's name
by delivering notice in writing to Clancy Systems International,
Inc., 2250 S. Oneida St., Suite 308, Denver, CO 80224, attention Liz
Wolfson, Nominating Committee chairperson.
The facsimile number is 303.759.4681. Email address is
clancy@clancysystems.com.
-30-
A shareholder nomination submitted to the nomination committee must
include at least the following information (and can include
such other information the person submitting the recommendation
desires to include), and must be submitted to the Company in writing:
(i). The name, address, telephone number, fax number and e-mail
address of the person submitting the recommendation;
(ii). The number of shares and description of the Company voting
securities held by the person submitting the nomination and
whether such person is holding the shares through a brokerage
account (and if so, the name of the broker-dealer) or directly;
(iii). The name, address, telephone number, fax number and e-mail
address of the person being recommended to the nominating
committee to stand for election at the next annual
meeting (the "proposed nominee") together with information
regarding such person's education (including degrees
obtained and dates), business experience during the past
ten years, professional affiliations during the past ten
years, and other relevant information.
(iv). Information regarding any family relationships of the
proposed nominee as required by Item 401(d) of SEC Regulation
S-K.
(v). Information whether the proposed nominee or the person
submitting the recommendation has (within the ten years prior
to the recommendation) been involved in legal proceedings
of the type described in Item 401(f) of SEC Regulation
S-K (and if so, provide the information regarding those legal
proceedings required by Item 401(f) of Regulation S-K).
(vi). Information regarding the share ownership of the
proposed nominee required by Item 403 of Regulation S-K.
(vii). Information regarding certain relationships and
related party transactions of the proposed nominee as required
by Item 404 of Regulation S-K.
(viii). The signed consent of the proposed nominee in which he
or she
a. consents to being nominated as a director of the Company
if selected by the nominating committee,
b. states his or her willingness to serve as a director
if elected for compensation not greater than that described
in the most recent proxy statement;
c. states whether the proposed nominee is "independent" as
defined by Nasdaq Marketplace Rule 4200(a)(15); and
d. attests to the accuracy of the information submitted
pursuant to paragraphs (i), (ii), (iii), (iv), (v), (vi),
and (vii), above.
Although the information may be submitted by fax, e-mail, mail, or
courier, the nominating committee must receive the proposed
nominee's signed consent, in original form, within ten days
of making the nomination.
-31-
When the information required above has been received, the
nominating committee will evaluate the proposed nominee based
on the criteria described below, with the principal criteria being
the needs of the Company and the qualifications of such proposed
nominee to fulfill those needs.
The process for evaluating a director nominee is the same whether
a nominee is recommended by a shareholder or by an existing
officer or director. The Nominating Committee will:
1. Establish criteria for selection of potential directors,
taking into consideration the following attributes which are
desirable for a member of our Board of Directors:
leadership; independence; interpersonal skills; financial acumen;
business experiences; industry knowledge; and diversity of
viewpoints. The Nominating Committee will periodically assess
the criteria to ensure it is consistent with best practices
and the goals of the Company.
2. Identify individuals who satisfy the criteria for
selection to the Board and, after consultation with the Chairman
of the Board, make recommendations to the Board on new
candidates for Board membership.
3. Receive and evaluate nominations for Board membership
which are recommended by existing directors, corporate
officers, or shareholders in accordance with policies
set by the Nominating Committee and applicable laws.
The Nominating Committee has held no formal meetings and taken
no action by unanimous written consent through December 21, 2007.
The Company has not engaged the services of or paid a fee to any
third party or parties to identify or evaluate or assist in
identifying or evaluating potential nominees. Neither the Company
nor the Company's Nominating Committee has received a recommended
nominee from any shareholder that beneficially owns more than
5% of the Company's common stock or group of shareholders that
beneficially own more than 5% of the Company's common stock.
Family Relationships
Lizabeth M. Wolfson, Secretary-Treasurer and Chief Financial and Chief
Accounting Officer of the Company, is the wife of Stanley J. Wolfson,
President, Chief Executive Officer and a director of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Officers, directors and beneficial owners of more than 10% of the
Company's common stock are not required to file reports under Section
16(a)and therefore no disclosure of delinquent reports is included
in this annual report.
-32-
Code of Ethics
In December, 2003, the Company adopted a Code of Ethics and has
posted the Code of Ethics on its websit at www.clancysystems.com.
Item 10. Executive Compensation.
General. For the fiscal year ended September 30, 2008
the Company paid a ten percent sales commission totaling $1,307
to Stanley J. Wolfson, the President, Chief Executive Officer
and a director of the Company, based upon gross sales
(excluding supplies) to the Hertz Corporation. In addition,
Mr. Wolfson received a salary of $98,940 for the most recent
fiscal year ended.
Summary Compensation Table.
Name and Other annual
principal position Year Salary compensation Total
Stanley J. Wolfson 2008 $98,940 $1,307 $100,247
President and Chief 2007 91,800 1,797 $ 93,597
Executive Officer 2006 86,500 2,611 $ 89,111
Compensation of Directors
Name Fees Stock Option Non-Equity Nonqualified Total
Earned Awards Awards Incentive Plan Deferred ($)
or ($) ($) Compensation Compensation
Paid in ($) Earnings
Cash ($)
($)
A. Jim
Nyman $4,250 - - - - $4,250
B. Liz
Wolfson $4,250 - - - - $4,250
C. Stanley
Wolfson $4,250 - - - - $4,250
------- ---- ----- ------ ------ ------
Total paid
to all
directors $12,750 - - - - $12,750
======= ====== === ======= ========= =======
Each member of the Board of Directors is paid an annual fee of
$5,000, distributed at $1,250 per quarter. For the year ended
September 30, 2008, Directors were paid $4250 each, with the
additional $750 to be paid in the following quarter.
-33-
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Security Ownership of Beneficial Owners and Management.
The following table sets forth information as of December 30,
2008 with respect to the ownership of the Company's Common Stock
for all directors, individually, all officers and directors as a
group, and all beneficial owners of more than five percent of
the Common Stock.
Name and address Number of
of beneficial owner shares Percentage
Stanley J. Wolfson and
Lizabeth M. Wolfson 130,887,779 (1) 34.44%
2250 S. Oneida Ste. 308
Denver, Colorado 80224
James R. Nyman 26,835,000 (2) 7.1%
2529 Via Olivera
Palos Verdes, CA 90274
All officers and directors 157,727,779 (1&2) 41.54%
as a group (3 persons)
(1)Includes 4,075,642 shares of Common Stock owned of record by
Lizabeth M. Wolfson and 126,812,137 owned by Stanley J. Wolfson.
(2) Includes 26,510,000 shares owned by CMTI (an entity controlled
by Mr. Nyman) and 325,000 shares owned by James R. and Alice Nyman.
Item 12. Certain Relationships and Related Transactions.
Stanley Wolfson, President and Chief Executive Officer,
receives a 10% commission on all sales to Hertz Corporation based
on an agreement made between the Company and Mr. Wolfson in 1986.
During the years ended September 30, 2007 and 2008, the commissions
totaled $1,797 and $1,307 respectively.
During the year ended September 30, 2008, the Company sold
equipment to a related party at net book value, amounting to
$43,461. The amount due from this related party at September
30, 2008 amounted to $43,461 and is included in accounts
receivable on the accompanying balance sheet. The equipment
was sold to PAP, a meter equipment refurbishing company
owned by Ken Stewart, who is the manager of UTS.
-34-
Director Independence
Our Board of Directors consists of Mr. Stanley J. Wolfson,
Ms. Lizabeth M. Wolfson, and Mr. James R. Nyman. The Company
defines "independent" as that term is defined by Section 803A of
the American Stock Exchange Company Guide. Further, the Board
considers all relevant facts and circumstances in its determination
of independence of all members of the Board (including any
relationships set forth in this Form 10-KSB under the heading
"Certain Related Person Transactions"). Only Mr. Nyman is
considered "independent" under these standards.
Item 13. Exhibits and Reports.
(a) Exhibits.
The following is a complete list of exhibits filed as a part
of this Report on Form 10-KSB and are those incorporated herein by
reference.
Exhibit Number Title of Exhibit
3.1 Articles of Incorporation filed with the
Colorado Secretary of State on March 3, 1986 (2)
3.1(a) Articles of Amendment to Articles of Incorporation
(2)
3.3 Bylaws (2)
10.12 Indemnity Agreements between Company and
Stanley J. Wolfson, and Lizabeth M. Wolfson (3)
14.1 Code of Ethics (5)
21.1 List of Subsidiaries, included herewith
31.1 Certification Pursuant to 18 USC Section 302
for Stanley Wolfson, included herewith
31.2 Certification Pursuant to 18 USC Section 302
for Lizabeth Wolfson, included herewith
32.1 Certification Pursuant to 18 USC Section 1350
as adopted pursuant to Section 906 of Sarbanes-
Oxley Act of 2002 for Stanley Wolfson, included
herewith
32.2 Certification Pursuant to 18 USC Section 1350
as adopted pursuant to Section 906 of Sarbanes-
Oxley Act of 2002 for Lizabeth Wolfson, included
herewith
________
-35-
(1) Incorporated by reference from exhibit 2.1 filed with the
Company's current report on Form 8-K dated February 26,
1987.
(2) Incorporated by reference from the like numbered exhibits
filed with the Company's Registration Statement on Form
S-18, SEC File No. 33-4882-D.
(3) Incorporated by reference from the like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1987.
(4) Incorporated by reference from like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1998.
(5) Incorporated by reference from like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB
for the year ended September 30, 2003
Item 14. Principal Accountant Fees and Services.
..
AUDIT FEES. The aggregate fees billed in each of the
last two fiscal years ended September 30, 2008 and 2007 by
Stark Winter Schenkein & Co, LLP. for assurance and related services
that were reasonably related to the performance of the audit or
review of the financial statements were $45,630 and $55,688,
respectively.
The Board of Directors approved the selection of Stark Winter
Schenkein & CO, LLP to conduct its audit work on October 1,
2008.
The Company has not paid any other fees to Stark Winter Schenkein
& Co., LLP for other audit related services, tax preparation
or other accounting services during either of our previous
fiscal years ended September 30, 2008 and 2007.
-36-
SIGNATURES
In accordance with the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CLANCY SYSTEMS INTERNATIONAL, INC.
By /s/ Stanley J. Wolfson
Stanley J. Wolfson, President
and Chief Executive Officer
Date: January 16, 2009
In accordance with the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company and in the capacities
and on the dates indicated.
Date: January 16, 2009 /s/ Stanley J. Wolfson
Stanley J. Wolfson, President,
Chief Executive Officer and a
Director
Date: January 16, 2009 /s/ Lizabeth M. Wolfson
Lizabeth M. Wolfson, Secretary-
Treasurer and Chief Financial
and Chief Accounting Officer
Date: January 16, 2009 /s/James R.Nyman
Director
-37-
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING
ISSUERS.
None.
Index of Exhibits
Exhibit Number Title of Exhibit
3.1 Articles of Incorporation filed with the
Colorado Secretary of State on March 3, 1986 (2)
3.1(a) Articles of Amendment to Articles of Incorporation
(2)
3.3 Bylaws (2)
10.12 Indemnity Agreements between Company and
Stanley J. Wolfson, and Lizabeth M. Wolfson (3)
14.1 Code of Ethics (5)
21.1 List of Subsidiaries, included herewith
31.1 Certification Pursuant to 18 USC Section 906
for Stanley Wolfson, included herewith
31.2 Certification Pursuant to 18 USC Section 906
for Lizabeth Wolfson, included herewith
32.1 Certification Pursuant to 18 USC Section 1350
as adopted pursuant to Section 906 of Sarbanes-
Oxley Act of 2002 for Stanley Wolfson, included
herewith
32.2 Certification Pursuant to 18 USC Section 1350
as adopted pursuant to Section 906 of Sarbanes-
Oxley Act of 2002 for Lizabeth Wolfson, included
herewith
________
(1) Incorporated by reference from exhibit 2.1 filed with the
Company's current report on Form 8-K dated February 26,
1987.
-37-
(2) Incorporated by reference from the like numbered exhibits
filed with the Company's Registration Statement on Form
S-18, SEC File No. 33-4882-D.
(3) Incorporated by reference from the like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1987.
(4) Incorporated by reference from like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1998.
(5) Incorporated by reference from like numbered exhibits
filed with the Company's Annual Report on Form 10-KSB
for the year ended September 30, 2003
-38-
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Clancy Systems International, Inc.
We have audited the accompanying consolidated balance sheets of Clancy
Systems International, Inc. as of September 30, 2007 and 2008, and
the related consolidated statements of income, stockholders' equity and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based
on our audits. We did not audit the financial statements of Urban Transit
Solutions, Inc., a 100% owned subsidiary, which statements reflect 23% and
20% of total consolidated assets as of September 30, 2007 and 2008,
respectively, and 36% and 40% of consolidated revenues for the years
ended September 30, 2007 and 2008, respectively. Those financial
statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included
for Urban Transit Solutions, Inc. as of September 30, 2007 and 2008, and
for the years then ended is based solely on the report of the
other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, and based on that of the other auditors, the consolidated
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Clancy Systems International,
Inc. as of September 30, 2007 and 2008, and the consolidated results
of its operations and cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of
America.
/s/ Stark Winter Schenkein & Co., LLP
Denver, Colorado
January 8, 2009
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Urban Transit Solutions, Inc.
We have audited the accompanying balance sheets of Urban Transit
Solutions, Inc. as of September 30, 2007 and 2008, and the related
statements of operations, changes in stockholders' equity and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the Standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. The Company has determined
that it is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Urban
Transit Solutions, Inc. as of September 30, 2007 and 2008, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted
in the United States of America.
/s/ Kevane Grant Thornton LLP
San Juan, Puerto Rico
December 24, 2008
F-2
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 AND 2008
ASSETS
2007 2008
Current assets: ---- ----
Cash and cash equivalents $ 619,642 $ 1,183,876
Accounts receivable, net of
allowance for doubtful accounts
of $25,000 709,419 650,771
Receivable from related party - 43,461
Inventories 135,010 183,074
Prepaid expenses 64,075 69,558
Deferred tax asset - 11,200
--------- ---------
Total current assets 1,528,146 2,141,940
--------- ---------
Furniture and equipment, at cost:
Office furniture and equipment 218,337 190,696
Equipment under service contracts 2,771,942 2,596,066
Leasehold improvements 81,424 13,000
Vehicles, including vehicles
under capital leases 149,886 147,651
-------- --------
3,221,589 2,947,413
Less accumulated depreciation (2,505,867) (2,368,037)
----------- -----------
Net furniture and equipment 715,722 579,376
---------- ---------
Other assets:
Marketable securities
($400,000 pledged) 733,244 858,912
Deposits and other 24,312 18,138
Goodwill 404,547 404,547
Software development costs, net
of accumulated amortization
of $427,445 and $515,714 222,212 216,070
--------- ---------
Total other assets 1,384,315 1,497,667
--------- ---------
$ 3,628,183 $4,218,983
========== ==========
See accompanying notes to consolidated financial statements.
F-3
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 AND 2008
LIABILITIES AND STOCKHOLDERS' EQUITY
(continued)
2007 2008
Current liabilities: ---- ----
Accounts payable $ 150,319 $ 232,395
Accrued expenses 361,019 329,737
Income taxes payable 74,323 19,652
Current portion of obligations
under capital leases 3,393 3,393
Deferred revenue 95,453 104,782
---------- ---------
Total current liabilities 684,507 689,959
Deferred tax liability 18,800 58,400
Obligations under capital leases,
net of current portion 6,648 2,960
--------- ---------
Total liabilities 709,955 751,319
--------- ---------
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 authorized,
381,102,938 and 379,882,938
shares issued and outstanding,
respectively 38,110 37,988
Additional paid-in capital 1,354,414 1,350,078
Unrealized loss on marketable
securities - (92,298)
Retained earnings 1,525,704 2,171,896
--------- ---------
Total stockholders' equity 2,918,228 3,467,664
--------- ---------
$ 3,628,183 $ 4,218,983
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2008
2007 2008
---- ----
Revenues $3,684,016 $ 4,018,573
Cost of Sales 852,557 811,958
---------- ---------
Gross Profit 2,831,459 3,206,615
---------- ---------
Costs and expenses:
General and administrative 2,420,724 2,479,068
Research and development 8,777 19,853
--------- ---------
Total costs and expenses 2,429,501 2,498,921
--------- ---------
Income from operations 401,958 707,694
--------- ---------
Other income (expense):
Loss on disposal of assets - (22,068)
Interest income 49,074 71,456
Interest expense (1,189) (2,600)
Other income 11,248 283,763
--------- --------
Total other income (expense) 59,133 330,551
--------- --------
Income before provision for income
taxes 461,091 1,038,245
--------- --------
Provision for income taxes:
Current expense 277,678 352,329
Deferred expense 83,900 28,400
--------- --------
Total income tax expense 361,578 380,729
--------- --------
Net income 99,513 657,516
-------- --------
Other comprehensive income (loss)
Unrealized loss on marketable securities - (92,298)
-------- ---------
Comprehensive income $ 99,513 $ 565,218
========= =========
Basic and diluted net income per
common share $ * $ *
========= =========
Weighted average number of shares
outstanding - basic and diluted 381,984,787 380,701,070
=========== ===========
*Less than $.01 per share
See accompanying notes to consolidated financial statements.
F-5
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2008
Additional Unrealized gain
Common Stock Paid-In (loss) on marketable Retained
Shares Amount Capital securities Earnings
------------------- ---------- ---------- --------
Balance, September 30,
2006 382,617,938 $ 38,262 $ 1,359,797 $ - $ 1,448,902
Common stock repurchased (1,515,000) (152) (5,383) - (22,711)
Net income for year
ended September 30,
2007 - - - - 99,513
---------- -------- ---------- ----------- ----------
Balance, September 30,
2007 381,102,938 38,110 1,354,414 - 1,525,704
Common stock repurchased (1,220,000) (122) (4,336) - (11,324)
Unrealized gain (loss)
on marketable securities - - - (92,298) -
Net income for year
ended September 30,
2008 - - - - 657,516
--------- ------- -------- -------- ---------
Balance, September
30, 2008 379,882,938 $ 37,988 $ 1,350,078 $ (92,298) $ 2,171,896
============ ========= ========== ========== ===========
See accompanying notes to consolidated financial statements.
F-6
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2008
2007 2008
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 99,513 $ 657,516
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 362,108 322,411
Deferred income tax expense 83,900 28,400
Loss on disposal of equipment - 22,068
Changes in assets and liabilities:
Accounts receivable (67,363) 15,187
Inventories (30,786) (48,064)
Income tax refund receivable 23,264 -
Prepaid expenses 25,049 (5,483)
Accounts payable 122,493 82,076
Accrued expenses (15,056) (31,282)
Income taxes payable 74,323 (54,671)
Deferred revenue (33,400) 9,329
------- --------
Total Adjustments 544,532 339,971
------- -------
Net cash provided by operating
activities 644,045 997,487
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture and equipment (140,357) (117,286)
Increase in software licenses and
software development costs (89,102) (82,127)
Acquisitions of marketable securities (240,982) (243,265)
Proceeds from sales of marketable
securities 95,950 25,299
Decrease in deposits and other assets (6,150) 3,596
------- --------
Net cash (used in) investing
activities (380,641) (413,783)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (28,246) (15,782)
Payments on capital leases (3,179) (3,688)
-------- --------
See accompanying notes to consolidated financial statements.
F-7
CLANCY SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2008
(continued)
2007 2008
---- ----
Net cash (used in) financing
activities (31,425) (19,470)
-------- --------
Increase (decrease) in cash and
cash equivalents 231,979 564,234
Cash and cash equivalents at
beginning of year 387,663 619,642
-------- --------
Cash and cash equivalents at end
of year $ 619,642 $ 1,183,876
========= =========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 1,189 $ 2,600
========== ========
Cash paid for income taxes $ 188,804 $ 396,000
========== =========
Unrealized gains (losses)on
available for sales securities $ - $ (92,298)
========== =========
See accompanying notes to consolidated financial statements.
F-8
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
1. Organization and Summary of Significant Accounting Policies
Organization:
Clancy Systems International, Inc. (the "Company") was organized
in Colorado on June 28, 1984. The Company is in the business of
developing and marketing parking ticket writing systems,
internet payment remittance systems, and internet industry guides.
The Company's revenues are derived primarily from cities, universities
and car rental companies throughout the United States and Canada. The
Company manufactures some of its equipment for field operations
including printers, chargers, Palmtype keypad, and other items used
in its applications.
The Company's subsidiary, Urban Transit Solutions, Inc.
("UTS") was incorporated on March 6, 1997 under the Laws of the
Commonwealth of Puerto Rico and is engaged in providing a wide
variety of services in the areas of consulting design and the
management of digital parking meter systems in Puerto Rico and
Latin America. The financial statements of UTS have been prepared
on the basis of accounting principles generally accepted in the
United States of America and are denominated in US dollars. The
functional currency of Puerto Rico is the US dollar, and, therefore,
there are no amounts recorded for foreign currency translation or for
transactions denominated in a foreign currency.
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiary, UTS. All significant inter-company
transactions and balances have been eliminated in consolidation.
Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
F-9
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
Accounts receivable:
The allowance for doubtful accounts at September 30, 2007 and
2008 was $25,000. Bad debt expense amounted to $19,622 in 2007
and $7,662 in 2008. The Company evaluates trade receivables that
are past due to determine the appropriate allowance for doubtful
accounts. The receivables are charged off in the period in which
they are deemed uncollectible. The Company contracts primarily
with government agencies and takes into account budget year issues
in evaluating its past due receivables. Recoveries of trade
receivables previously charged off are recorded when received.
Inventories:
Inventories are carried at the lower of cost (first-in, first-out)
or market. Inventory costs include materials, labor and
manufacturing overhead. Inventories consist primarily of computer
and printer parts and supplies and are subject to technical
obsolescence.
Computer software:
Costs incurred to establish the technological feasibility of
computer software are classified as research and development costs,
which are charged to expense as incurred. Software development costs
incurred subsequent to establishment of technological feasibility are
capitalized and subsequently amortized based on the lesser of the
straight line method over the remaining estimated economic life of
the product (generally five years) or the estimate of current and future
revenues for the related software product. Amortization expense for the
years ended September 30, 2007 and 2008 amounted to $88,768 and $88,269,
respectively, and is included in cost of services. The cost of direct labor
is periodically capitalized as computer software costs.
Furniture and equipment:
Furniture and equipment are stated at cost. Depreciation is provided
by the Company on the straight line method over the assets' estimated
useful lives of three to five years. Leasehold improvements are
being amortized over the shorter of the useful life of the improvement
or the remaining term of the lease. Vehicles under capital leases
are amortized over the related lease term. Property and equipment
consists partly of computers and printers which are subject to
technical obsolescence. During the years ended September 30, 2007
and 2008, depreciation amounted to $273,340 and $234,142
respectively.
F-10
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
Sales and retirements of depreciable property are recorded
by removing the related cost and accumulated depreciation from
the accounts. Gains and losses on sales and retirements of
property are reflected in results of operations.
Other assets:
The excess of the purchase price over net assets acquired by the
Company from unrelated third parties is recorded as goodwill.
Goodwill resulted from the acquisition of UTS in 1998. On January 1,
2002, the Company adopted Statement of Financial Accounting
Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets",
which clarifies the accounting for goodwill and intangible assets.
Under SFAS 142, goodwill and intangible assets with indefinite
lives are no longer be amortized, but are tested for impairment
at least annually and also in the event of an impairment indicator.
There is no impairment of goodwill considered necessary as of September
30, 2007 and 2008.
Revenue recognition:
Revenue derived from professional service contracts
on equipment and support services is included in income as
earned over the contract term; related costs consist mainly
of depreciation, supplies and sales commissions. The Company
defers revenue for equipment and services under service contracts
that are billed to customers on a quarterly, semi-annual, annual
or other basis. Revenue from the issuance of parking tickets is
recognized on a cash basis when received since collectibility
cannot be reliably predicted at this time. Revenue derived
from professional service contracts on parking meter and lot
fees collections is recognized on a cash basis when received.
Related costs consist mainly of municipalities' fees, depreciation
and lot rents.
The Company recognizes revenue in accordance with the Securities and
Exchange Commission Staff Accounting Bulletin 104 (SAB 104).
SAB 104 provides that the conditions for realization of revenue are
as follows:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the seller's price to
the buyer is fixed or determinable, and (4) collectibility is
reasonably assured.
F-11
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
In addition, the Company presents revenue gross or net of direct
expenses in accordance with Emerging Issues Task Force Issue 99-19
(EITF 99-19), "Reporting Revenue Gross as a Principal Versus Net
as an Agent". Under EITF 99-19, revenue is presented gross,
determined on a contract by contract basis, where the Company acts
as principal, takes title to the products sold, has the risks and
rewards of ownership, such as the risk of loss for collection, delivery
or product returns. Revenue is presented net of direct costs, determined
on contract by contract basis, where the Company primarily acts as agent
by providing services for a commission or fee.
Before the Company recognizes revenue, a contract is entered into
with the client (which details the fees to be charged), all software
and equipment per the contract is delivered, and as most of the
Company's clients are municipalities or universities, in general,
collectibility is reasonably assured.
Contracts for the Company's ticket writing system are entered into
under one of four different pricing options. The Company (1) sells
the equipment, ticket stock and licenses the software separately,
(2) charges a monthly fee for the use of equipment and software,
(3) charges a fee per ticket at the time the ticket stock is
provided to the client, or (4) provides a full privatization program.
In a sale transaction, revenue is recognized on the sale of the
equipment, license and ticket stock (less an amount for customer
support). When the Company charges a monthly fee, that fee is
recognized in income in the period the services are provided. When
the Company charges a fee per ticket, the Company recognizes
revenue for the portion considered a sale of the ticket stock on
delivery of the tickets and the remainder is recognized over
the period of estimated usage of the tickets based on past history
with the client.
In a privatization program, client revenue guarantees may be entered
into for a period of time, generally one year at a time. A ratable
portion of the client revenue guarantee is recognized each month as an
expense. In revenue split arrangements, the portion of the cash
collected and owed each month is recognized as a liability and an
expense.
The Company does not offer a right of return on sales of equipment
or ticket stock. Equipment sold, other than the Company's proprietary
products, is covered under the manufacturer's warranty.
F-12
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
Warranty expense for the Company's products has been immaterial
in the past. Revenue recognition commences after the
equipment has been delivered and the software has been installed
and is operational.
Shipping and handling costs:
The Company pays all shipping costs for its contract services.
Customers are provided prepaid shipping labels for shipping
stem equipment to the Company for repair and shipping back to the
client is also paid for by the Company.
Advertising costs:
The Company expenses the costs of advertising as incurred.
Advertising expense was $11,845 and $27,280 for the years
ended September 30, 2007 and 2008, respectively.
Deferred Income taxes:
The Company accounts for deferred income taxes under Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes". Under SFAS 109, deferred income taxes are
accounted for under an asset and liability approach that requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of transactions based on temporary
differences. Temporary differences are differences between the
tax basis of assets and liabilities and their reported amounts in
the financial statements that will result
in taxable or deductible amounts in future years. The Company's
temporary differences consist primarily of tax operating loss carry
forwards, depreciation differences and capitalized section
263A costs.
Cash equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
F-13
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
Marketable Securities
The Company accounts for marketable securities in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with SFAS No. 115, the
investment in securities has been classified as available-for-sale
because the securities are being held for an indefinite period of time.
Under available-for sale classification, securities are recorded
as an asset at current fair value on the balance sheet with any
amount representing unrealized gains and losses recorded as
comprehensive income in stockholders' equity. The current fair
value is derived from published market quotations. At the time
of sale, a gain or loss is recognized using the cost basis of
securities sold as determined by specific identification.
Investments in marketable securities at September 30, 2007 and
2008, consist of Colorado local government and municipal bonds
that are triple A rated and insured that are subject to market
risk related to changes in interest rates and are available for
sale. At September 30, 2007, the securities had a cost basis of
$733,244, which approximated fair market value. At September 30,
2008, the securities had a cost basis of $951,210, and fair market
value of $858,912.
The adjustment to unrealized holding losses on available-for-sale
securities included in accumulated other comprehensive income as a
component of stockholders' equity increased by $92,298 during the year
ended September 30, 2008 and totaled $92,298 at September 30, 2008.
At September 30, 2007 and 2008, investments in marketable securities
have been pledged (up to the amount of $400,000) as a performance bond
on a sales contract agreement.
Fair value of financial instruments:
All financial instruments are held for purposes other than
trading. The following methods and assumptions were used to
estimate the fair value of each financial instrument for which
it is practicable to estimate value.
For cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and obligations under capital leases,
the carrying amount is assumed to approximate fair value due to
the short-term maturities of these instruments. For long-term debt
obligations under capital leases, the carrying value approximates fair
value due to the interest rates approximating prevailing market rates.
F-14
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
Marketable Securities - the carrying amounts approximate the fair
value because the securities are valued at prices based on
published market quotations.
Concentrations of credit risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash,
trade receivables and marketable securities. The Company
places its cash with high quality financial institutions.
At September 30, 2007 and 2008 and at various times during
the years, the balance at one of the financial institutions
exceeded FDIC insured limits on interest bearing accounts.
With the new TLG rules, all transaction accounts are insured to
full value through December 31, 2009. Subsequent to September 30,
2008, the Company has moved all funds into transaction accounts
(non-interest bearing accounts)to reflect full coverage.
The Company provides credit, in the normal course of business,
to customers throughout the United States, Puerto Rico and Canada.
All transactions are denominated in U.S. Dollars. The Company
performs ongoing credit evaluations of its customers.
Credit terms are typically 30 days from billing date.
Significant portions of the Company's revenues are derived
from contracts with universities, car rental companies and
municipalities.
Earnings per share:
The Company follows SFAS No. 128 "Earnings per Share",in presenting
earnings per share. SFAS No. 128 established the methodology of
calculating basic earnings per share and diluted earnings per share.
The calculations differ by adding any instruments convertible to
common stock (such as stock options, warrants, and convertible
preferred stock) to weighted average shares outstanding when
computing diluted earnings per share. At September 30, 2007 and 2008,
the Company had no potentially dilutive securities.
Impairment of Long-lived Assets
The Company evaluates the carrying value of assets, other than
investments in marketable securities, for potential impairment on
an ongoing basis under the tenets of SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". Under SFAS No.
144, the Company periodically evaluates the carrying value of
F-15
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
long-lived assets and long-lived assets to be disposed of
and certain identifiable intangibles related to those assets for
potential impairment. The Company considers projected future
operating results, cash flows, trends and other circumstances in
making such estimates and evaluations and, if necessary, reduces
the carrying value of impaired assets to fair value. At September
30, 2007 and 2008, the Company determined that no such impairments
existed.
Segment Information
The Company follows SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." Certain information is
disclosed, per SFAS 131, based on the way management organizes
financial information for making operating decisions and assessing
performance. The Company currently operates in a single segment and
will evaluate additional segment disclosure requirements as it
expands its operations.
Comprehensive Income
The Company reports comprehensive income in accordance with
SFAS 131, "Reporting Comprehensive Income" which requires the
reporting of all changes in equity during a period, except those
resulting from investment by owners and distribution to owners,
in a financial statement for the period in which they are
recognized. This encompasses unrealized gains and losses from
available-for-sale securities held.
Reclassifications
Certain reclassifications have been made to the 2007 financial
statements to conform to the 2008 financial statement
presentation.
Recent Account Pronouncements
On February 15, 2007, the Financial Accounting Standards Board
("FASB") issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities" (SFAS No. 159). SFAS No. 159
permits entities to choose to measure many financial instruments
and other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently, without having to
apply complex hedge accounting procedures.
F-16
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
1. Organization and Summary of Significant Accounting Policies
(continued)
SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of
assets and liabilities. The Statement is expected to expand the
use of fair value measurements, which is consistent with the Board's
long-term measurement objectives for accounting for financial instruments.
SFAS No. 159 will be effective for the Company's 2009 fiscal year
and will be required to be adopted by the Company effective October
1, 2008. Management at this time has not evaluated the impact, if
any, of adopting SFAS No. 159 on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS 157). This standard defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157, as amended, is effective
for the Company beginning October 1, 2008. The Company believes
that the adoption of SFAS 157 will not have a material effect
on its financial position, results of operations or cash
flows.
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American
Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not, or are not believed by
management to, have a material impact on the Company's
present or future consolidated financial statements.
2. Inventories
Inventories consist of the following at September 30:
2007 2008
---- ----
Finished goods $ 44,316 $ 42,925
Work in process 2,861 2,606
Purchased parts and supplies 87,833 137,543
--------- ---------
$ 135,010 $ 183,074
========= =========
F-17
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
3. Related Party Transactions
The Company pays a 10% sales commission to an officer
and director of the Company for gross sales (excluding
supplies) to The Hertz Corporation. For the years ended
September 30, 2007 and 2008, commissions of $1,797 and
$1,307 have been paid under this agreement, respectively.
During the years ended September 30, 2007 and 2008, the
Company paid fees for professional services provided by
Pan American Products, a company owned by the current
President of UTS, in the amounts of $95,585 and none
respectively.
During the year ended September 30, 2008, the Company sold
equipment to a related party at net book value, amounting to
$43,461. The amount due from this related party at September
30, 2008 amounted to $43,461.
4. Investment in UTS
On January 31, 1998, the Company entered into a partnership
agreement (the Partnership) with Urban Transit Solutions, Inc.
of Puerto Rico (UTS). The Partnership was formed to
contract with cities and towns in Puerto Rico for the
privatization of their parking ticket management and collection
services. As provided in the Partnership agreement, the Company
contributed $500,000 in exchange for a 60% ownership in the
Partnership and related share of net income or losses.
During 2001, UTS issued additional stock diluting the ownership
interest of the Company in UTS below 50%. However, pursuant to
the partnership agreement, substantially all management authority
rested in UTS, and consequently, the Company accounted for their
investment in the Partnership using the equity method through
September 30, 2001.
During 2001, the Company filed suit against UTS and the officers
of UTS claiming that UTS unlawfully issued dilutive shares of
stock in UTS. During 2002, the Company entered
into a settlement agreement with UTS reaffirming the Company's
60% ownership interest. On December 31, 2004, the Company
acquired 30,000 new shares of common stock in UTS for payment
of $60,000 of legal services paid by the Company on behalf of
UTS, which increased the Company's ownership to 72%.
F-18
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
4. Investment In UTS (continued)
On September 26, 2005, UTS entered into a merger agreement
with Klancy Newco, Inc. (Newco), a Puerto Rico corporation and
100% subsidiary of the Company. As part of the merger transaction,
Newco merged with and into UTS (the surviving corporation) and
as a consequence of the merger transaction became a wholly
owned subsidiary of Clancy. Accordingly, the financial results
of UTS have been consolidated for the years ended
September 30, 2005 and 2006. All significant inter-company
transactions and balances have been eliminated in consolidation.
To effectuate the merger, Clancy issued 17,500,000 shares of its
common stock to the minority interest shareholders of UTS. Of the
total shares issued, 2,500,000 shares are being held in escrow
pending resolution of certain disputed items. These 2,500,000
shares have been recorded at par value. If and when the disputed
items are resolved, the shares will be released from escrow or, in
absence of a resolution, canceled. If they are released from
escrow, the fair value of the shares on the date of release will
be recorded as goodwill. The remaining 15,000,000 shares were
issued to one shareholder. The fair value of these shares on
the date of acquisition was $210,000 and the excess paid over
the $30,667 balance in minority interest liability account has
been reflected as goodwill in the accompanying financial
statements. Accordingly, the amount of goodwill recognized as
a result of the merger was a net increase of $179,333.
5. Lease Commitments
The Company is party to certain non-cancelable capital lease
arrangements for vehicles with a lease finance company. Terms
of such leases call for UTS to make monthly lease payments
for leases that expire on various dates through the year 2010.
The Company is leasing approximately 1,700 square feet of
office space for its corporate offices for $2,127 per month,
plus common area maintenance expenses of approximately $340
per month, pursuant to a lease agreement with an unaffiliated
party which expires on May 31, 2010.
The Company also leases approximately 3,000 square feet of
manufacturing space from an unaffiliated party. Rental payments
are $650 per month pursuant to a month to month lease agreement.
The Company leases an office in Logan, UT from an unaffiliated party.
Rental payments are $433 per month pursuant to a lease that expires
May 31, 2010. Total rent expense under all operating leases for the
years ended September 30, 2007 and 2008, amounted to $146,421
and $152,863, respectively.
F-19
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
5. Lease commitments (continued)
In addition, the Company and wholly owned subsidiary, UTS
leases office spaces in Mayaguez, Ponce, San German, Auguas Buenas,
Caguas, and San Juan, Puerto Rico that expire over the next three
years. These leases generally contain renewal options ranging from 3 to
5 years.
The following is a schedule by years of the future minimum
lease payments under operating and capital leases together
with the present value of the net minimum lease payments for
capital leases as of September 30, 2007:
Capital Real Estate
Leases Leases Total
-------- ----------- -----
Year ended September
30, 2009 $ 4,068 $ 96,578 $ 100,646
2010 2,712 53,285 55,997
2011 - 11,085 11,085
------ ------- ------
Total minimum lease
payments $ 6,780 $ 160,948 $ 167,728
========= =========
Amount representing
interest (427)
-------
Present value of future
minimum lease payments 6,353
Current portion of
lease obligations 3,393
-------
Obligations under capital
leases due after one year $ 2,960
========
The Company's property under capital leases,
which is included in property and equipment,
is summarized as follows:
2007 2008
---- ----
Vehicles $ 17,194 $ 17,194
Accumulated depreciation (8,023) (11,462)
---------- --------
Net capitalized leased
property $ 9,171 $ 5,732
========== ==========
F-20
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
6. Income Taxes
The components of the Company's current deferred tax assets
at September 30 are as follows:
2007 2008
---- ----
Current Deferred tax assets:
Section 263A capitalization $ - $ 3,200
Allowance for doubtful
accounts - 8,000
-------- --------
Current deferred tax assets $ - $ 11,200
========== ========
The components of the Company's deferred tax assets and
liabilities at September 30, 2008 as follows:
Deferred tax assets:
Loss on equity investment $ 192,600 $ 221,500
Section 263A capitalization 33,100 30,600
Allowance for doubtful
accounts 8,000 -
---------- --------
233,700 263,300
---------- -------
Valuation allowance (192,600) (221,500)
--------- --------
41,100 30,600
--------- --------
Deferred tax liabilities:
Depreciation and amortization (59,900) (89,000)
--------- --------
(59,900) (89,000)
--------- --------
Net deferred tax liabilities $ (18,800) $ (58,400)
========= =========
The following is a reconciliation of the statutory
federal income tax rate applied to pre-tax accounting net
income compared to the income taxes in the consolidated
statements of income:
For the years ended September 30,
2007 2008
---- ----
Income tax expense at
the statutory rate $ 156,771 $ 351,983
State and local income
taxes, net of federal
income tax 19,210 36,194
F-21
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
6. Income taxes (continued)
2007 2008
---- ----
Tax exempt income (7,257) (13,280)
Nondeductible expenses 254 463
Change in deferred tax asset
valuation allowance 192,600 28,900
Other - (23,531)
--------- ---------
$ 361,578 $ 380,729
========= ==========
UTS, the Company's wholly owned subsidiary, is a separate tax-paying
entity. The Company does not file consolidated federal or state
income tax returns. UTS is accounted for as an equity investment
by the parent company.
The taxable income (loss) of UTS is subject to the Puerto Rico
income tax at the 20% to 39% (41.5% in 2007) rates provided for
by the 1994 Puerto Rico Internal Revenue Code, as amended. UTS
deferred tax assets as of September 30, 2007 and 2008 totaled
$191,391 and $215,273, respectively. Deferred tax assets arise
from the future income tax benefit of using available operating
loss carry-forwards. A 100% valuation allowance was established
for both years because of the uncertainty of realizing such operating
loss carry-forwards. The current and deferred income tax provisions
were $0 for the years ended September 30, 2007 and 2008. As of
September 30, 2008, UTS has available net operating losses of $861,095,
which expire in varying amounts through 2015, under the Puerto Rico
income tax regulations.
7. Basic and diluted net income per common share
Basic and diluted net income per common share is based on the
weighted average number of shares outstanding of 381,984,787
and 380,701,070 during the years ended September 30, 2007 and
2008, respectively.
8. Professional Service Contracts
The Company provides equipment and support services under 12
month professional service contracts. At September 30, 2007
and 2008, all of the contracts contained cancellation provisions
requiring notice of 30 days or less.
F-22
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
8. Professional Service Contracts (continued)
The cost of the equipment provided in the contracts and related
accumulated depreciation are as follows at September 30:
2007 2008
---- ----
Equipment under service
contracts $ 2,771,942 $ 2,596,066
Less accumulated
depreciation (2,101,054) (2,037,619)
----------- ----------
$ 670,888 $ 558,447
=========== ==========
Clancy formed an agreement with Logan City, Utah for the
period June 1998 through May 1999, which has then been extended
for successive one year terms, for the purpose of providing parking
citation issuance, ticket processing, meter collections and
maintenance, and ticket collection services. In conjunction with
the contract, Clancy and the town each receive half of all the
revenues after payment of all associated costs related to the
collections. The terms of the agreement can be extended for
additional one year periods or discontinued with 30 days written
notice.
The Company has professional service contracts with the Municipal
Governments of Mayaguez, Manati, San German, Isabela, Ponce, Aguas
Buenas, Caguas and San Juan, Puerto Rico, to provide the equipment
and management of its digital parking meter system. Under the terms
of the contracts, the Company will pay to the municipalities between
25% and 50% of the income before income taxes.
9. Sales by Geographic Region
The Company's revenues for the years ended September 30, by
geographic region, are as follows:
2007 2008
---- ----
United States $ 2,286,952 $ 2,516,236
Puerto Rico 1,341,761 1,451,070
Canada 55,303 51,267
---------- -----------
Total $ 3,684,016 $ 4,018,573
=========== ============
F-23
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
10. Legal Proceedings
On March 21, 2002, a complaint was filed in Denver District Court by
Francis Salazar against the Company. Mr. Salazar was seeking
compensation for alleged loss of profit on the sale of 6,000,000
shares of the Company's common stock that carried a restrictive
legend under Rule 144 of the Securities Act of 1933, as amended.
The complaint alleges that the restrictive legend prevented Salazar
from selling the shares during an uptick in the Company's share price.
The Company filed a motion to dismiss which was granted in December
2002, but subsequently overturned on appeal in October 2003.
Clancy filed a motion with the District Court, City and County of
Denver, Colorado, Case #02-CV-2391, for Summary Judgment to dismiss
the case in June 2004. That motion was granted and the case was
dismissed on August 13, 2004.
However, in November 2004, Mr. Salazar filed a notice of appeal
in the Colorado Court of Appeals with respect to the suit dismissed
by the District Court in August, 2004. In September 2006, the Court
of Appeals granted Mr. Salazar's appeal. Clancy has filed a petition
for certiorari seeking to have the matter heard by the Colorado
Supreme Court. The Writ was granted and the 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 Suite. 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, and was
included as part of other income in the accompanying statement of
operations.
F-24
CLANCY SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2008
(continued)
10. Legal Proceedings (continued)
However, 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. 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.
11. Stockholder's Equity
The Company has implemented a reacquisition of equity securities which
commenced 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. During fiscal
2007,The Company bought 1,515,000 shares for $28,246. During fiscal
2008, the Company bought 1,220,000 shares for $15,782.
12. Subsequent Events
Subsequent to year end, the Company repurchased 914,600 shares of
its $.0001 common stock for cash of $16,755 through January 8,
2009.
F-25